EXLUSIVE: Copy of the First Petition on The Indian Arbitration Act.

India had enacted its Arbitration and Conciliation Act, 1996 after repealing and merging the earlier Acts which governed domestic arbitrations and enforcement of foreign awards separately  At the very introduction of the 1996 Act, few  problem areas were recognised by Indian Legal and Economic Forum which was led by eminent Indian Senior Counsel, Shishir Dholakia. A writ petition was filed in the Supreme Court of India with regard to that. We have secured a copy of the petition. The petition is academically very stimulating and gives a lot of food for thought to everyone involved in domestic as well as international arbitration community.  It is below:

Petition questioning validity of certain provisions of Part I of the India Arbitration and Conciliation...

Call for Papers: Indian Journal of Arbitration Law

Below is call for Papers for The Indian Journal of Arbitration Law:

The Indian Journal of Arbitration Law is the flagship journal of the  Centre for Advanced Research & Training in Arbitration Law  [CARTAL], published under the aegis of National Law University  Jodhpur. The inaugural edition of IJAL was launched in September and  it would appear bi-annually, providing timely insights useful to the international arbitration community. The online edition is available here.On 3rd November, Professor Martin Hunter, editorial advisor of IJAL  has released the theme for the second issue (Volume 2: Issue 1) to be  published in February 2013.

The editorial board is pleased to announce the call for submissions for  this upcoming issue on the following theme: “Investment Treaty Arbitration and Developing Countries: What Now &  What Next” 

Update: Manuscripts may be submitted via email to info@ijal.in and editor.cartal@gmail.com latest by January 20, 2013. For further details regarding Editorial policy and submission  guidelines  please visit: http://www.ijal.in/q=node/3 

Indian Supreme Court's Landmark Judgement on Arbitration: An Insight

Hence, there comes a decision to nullify the draconian effects of Bhatia International v. Bulk Trading S.A. Though many would have already understood what I am referring to, many foreign readers and new learners of the subject would be bewildered as to what is so special about the judgement delivered by the Constitutional Bench of the Supreme Court of India consisting of five judges including the Chief Justice in Bharat Aluminium Co. v Kaiser Aluminium Technical Service. 

This post shall put before the readers the context of the case and also address to some concerns which has left the lawyers, investors and academicians craving for a little more.

What led to this landmark case was the confusion on Applicability of Part I to Part II of the Arbitration and Conciliation Act.  While Part I deals with arbitration happening within India, Part II deals with enforcement of foreign awards.

In 2002, a three judge bench in Bhatia International set the precedent that Part I shall apply to Part II of the Act. As a result, all the later decisions in various cases followed the suit.  This created a lot of ruckus as almost all the foreign awards were tried and tested in the national courts as if they were domestic awards. In many situations, foreign awards were not only refused enforcement according to Part II of the Act but were also set aside, something which is only possible to the domestic awards under Part I.  This kind of treatment made the foreign awards susceptible to death by long drawn legal battles in Indian courts.

Seeing the situation getting worse with many matters reaching the Supreme Court, this Constitutional Bench was set up (Reported here). Better late than never, though it took a massive decade, the judgment is nevertheless a welcome decision. The Supreme Court has clearly decided that Part I and part II are mutually exclusive and no portion of Part I shall be applicable to Part II. Rejecting the argument of the appellant that the 1996 Act provides for delocalised arbitration, the court found that India has adopted the territorial principle, thereby limiting the applicability of Part I to arbitrations which take place in India.

“We are of the considered opinion that Part I of the Arbitration Act, 1996 would have no application to International Commercial Arbitration held outside India. Therefore, such awards would only be subject to the jurisdiction of the Indian courts when the same are sought to be enforced in India in accordance with the provisions contained in Part II of the Arbitration Act, 1996.”

This, of course means that foreign awards will not be subject to provisions of Part I. This eventually means that the court intervention would significantly reduce and foreign awards would no longer be at the mercy of Section 34 of Part I which carries enormous power of setting aside an award.  Further, the Supreme Court has also stated that a foreign award could only be set aside where the award was made and only in a rare circumstance where this is not possible, it could be set aside under the law of the country governing arbitration agreement which the award was made.

In arriving at this decision, the Supreme Court has done a commendable job by minutely going into the 1996 Act and clarifying the relevant provisions keeping in view the international standards and most importantly the objects and reasons of the Act itself.  While arriving at its decision, the court has discussed the founding concepts of international arbitration putting them in sync with the 1996 Act in a very skillful manner, as if there never was any sort of confusion in the Act.

Though, all may seem hunky-dory, the judgment comes with its own unique concerns. The Supreme Court while strictly demarcating the divide between Part I and Part II has afforded to leave the parties remediless in international arbitration taking outside India in terms of approaching the court for interim measures which falls under Part I under Section 9, allowing  the option only for domestic arbitration. According to the Supreme Court it is better to leave it to the legislature to do the needful; the court cannot enter in its shoes.  Similarly, the fate of awards from non-convention (non signatories to New York Convention) countries has been left in lurch as Act will not apply at all to such awards unlike the earlier position where Part I applied to such awards. The next cause of concern being that in the very last sentence of the judgment where the court specifies that law declared by it through this judgment shall only apply to prospective arbitration agreements.  Does that mean all the cases coming to courts till then would be decided as per the old precedent as laid down in Bhatia and Venture? Well, only time will tell how the courts across the nation treat the numerous cases where the arbitration agreements have been entered into and which may come before the court anytime in future.

As for now, the judgement has given many reasons to celebrate. How about declaring 6th September, the Indian Arbitration Day?

LATEST AND BLOOMING: Bhatia International Overruled!

According to latest news coming in, Supreme Court's earlier decision in Bhatia International v. Bulk Trading SA has been overruled in the eagerly awaited decision of  Bharat Aluminum v. Kaiser Aluminum. The decision comes after 8 months since the constitutional bench was set up by Chief Justice Kapadia. We had mentioned about it here in December.

The decision is seen as a major breakthrough in the Indian arbitration scene. The news is available on Legally India here. We shall soon be coming up with a detail analysis of the judgement. Keep a tab on the Blog!

Update: The judgement is available here. An insight into the judgement is available here.

A Mauritian's turn to go the BIT way in India

As another outcome of the Indian Supreme Court's decision to cancel 2G telecom licenses, the Malaysia-based Axiata group has, according to news reports, threatened to initiate international arbitration on the Indian government, under the India-Mauritius Bilateral Investment Treaty (BIT), often called a Bilateral Investment Promotion and Protection Agreement (BIPA). 

A Mauritian entity of the Axiata group holds a 20% stake in Idea Cellular Limited, India. Axiata stated in its communication to the Indian government, that it would claim damages arising out of losses as a result of the apex court's decision to cancel several 2G licenses. Axiata has sent a legal notice, seeking resolution of the matter within 6 months of its notice, after which it would resort to arbitration under the BIT.

Last year, the home ministry had security concerns regarding Axiata's proposal to invest in equity shares of Idea Cellular. This was because an Axiata subsidiary was incorporated in Pakistan and routed voice and data traffic through an inter-connect platform for South Asia.

We will give updates as soon as we receive them, on the Indian government's reply to this notice, as well as other recent notices of arbitration such as this.

A much-delayed BIT claim against India

Almost three years after the department of telecommunications (DoT) withdrew its approval to grant telecom licences to ByCell Telecommunications India Pvt. Ltd., on grounds of security concerns, the foreign majority stakeholders in the Indian company have served a notice on the Government of India, alleging violations of the Russia-India and Cyprus-India Bilateral Investment Treaties (BITs).
ByCell India has about 74% foreign investment by ByCell Holding AG, incorporated in Switzerland. The Swiss company is 97% owned by Cyprus-based Tenoch, which is owned by two Russian nationals. For this complex structure, violations of both the Cyprus and Russia BITs have been alleged. It is interesting to note that, although Switzerland is the nation to which ByCell India can claim the closest link, it has not chosen to seek compensation under the India-Switzerland BIT.

Sequence of Events
2006: ByCell India obtained clearance from the Foreign Investment Promotion Board (FIPB) for a Rs. 500 crore investment.
2007: An amendment approval was granted with clearance from the Ministry of Home Affairs (MHA).
2008: It further received clearance to invest $500 million and was first in the queue to obtain mobile permits under the erstwhile first-come-first-served policy. Issuing of actual license was delayed, however, on various grounds.
2009: MHA revoked its security clearance. FIPB therefore revoked the approval that was earlier granted to ByCell.
2010: A writ petition by the company before the Delhi High Court was rejected.
2011: An appeal preferred against the above rejection was further dismissed.
2012, June: Communication sent to the Prime Minister, Telecom Minister, Home Minister, Attorney General and other cabinet ministers, alleging grossly arbitrary and discriminatory treatment against ByCell during the licensing process, thereby frustrating legitimate expectations and denying fair and equitable treatment (FET) as required under Article 3(2) of the Russia-India and Cyprus-India BIT.
We have not seen a copy of this communication, and have relied on news reports here and here.

Security Concerns
On another note, to throw some light on the reason for revocation of license by the FIPB, this news report of 2008 may be helpful. It appears from this report, that the Swiss government could not trace the parent company of ByCell India in Switzerland. This may be relevant for the following point.

Legal Questions
There is, first, the obvious question as to whether the FIPB can revoke an approval it had already granted. It is well-established that there can be no estoppel against operation of law. Moreover, FIPB has revoked/withdrawn approvals on a few occasions in the past.

Then there is this: Why did the investors seek compensation under the Russia and Cyprus BITs? Why not turn to the Swiss BIT which also affords FET under Article 3(2)? Even more so, when the immediate holding company of ByCell India is incorporated in Switzerland, is it legally permissible for the shareholder of the shareholder to seek protection of investment under the Cyprus BIT? Taking this further, can the shareholder (Russian national) of the shareholder (Tenoch) of the shareholder (ByCell Holding) claim under the Russian BIT?

It will be interesting to note the progress of this dispute, specially with respect to the questions posed above. 

Guest Post: Problems in the implementation of Alternative Dispute Resolution in India

Below is a guest post from Sanskriti Rastogi, final year student at GNLU. The article looks at certain important angles of the arbitration scene in India , which, though known and were neglected.

Although Indian law favours dispute resolution by arbitration, Indian sentiment has always abhorred the finality attaching to arbitral awards. A substantial volume of Indian case law bears testimony to the long and arduous struggle to be freed from the binding arbitral decisions. Aided and abetted by the legal fraternity, the aim of every party to an arbitration is: “try to win if you can; if you cannot, do your best to see that the other side cannot enforce the award for as long as possible”

Over the years our judges have despaired. Under the 1940 law of arbitration an award was subject to the scrutiny of courts at three stages: in the court where the award was filed, in an appeal to a higher court against an order refusing to set aside the award; and the supreme court of India if that court decided to entertain another appeal ( by special leave) under its supervisory jurisdiction under article 136 of the constitution of India.

Nowadays things are quite different. In so many large international arbitrations the defendant will do everything to postpone the moment of the award; at and before the hearing the parties will deploy all conceivable, and some inconceivable procedural devices to gain advantage; the element of mutual respect is lacking and the loser, rather than paying up with fortitude, will try either to have the award upset, or at least to have its enforcement long postponed.

It is in this background that the new Indian Law (of arbitration and conciliation) was conceived and enacted- as from January 25, 1996 based on UNCITRAL Model Law and Rules.

Commercial arbitration in India and in many countries in Asia- has been for too long, filled with lawyers- in the Mexican sense. And for a while they nearly succeeded in making a mess of it. We can profit by their experience. We should use different tools. With them, we could do better.

In India after the enactment into the parliamentary law of the existing provisions of the arbitration and conciliation in ordinance 1996- we will need active encouragement from our courts and our lawyers in the different avenues of ADR- most of all in encouraging negotiation and conciliation as a first  filter before recourse is to be taken to arbitration. ADR offers a variety of interesting innovations- ADR to be successful must be implemented in an indigenous “home-grown” manner.

UNCERTAIN COURT INTERVENTION:

 “Ideally, the handling of arbitral disputes should resemble a relay race. In the initial stages, before the arbitrators are seized of the dispute, the baton is in the grasp of the court; for at that stage there is no other organization which could take steps to prevent the arbitration agreement from being ineffectual. When the arbitrators take charge they take over the baton and retain it until they have made an award. At this point, having no longer a function to fulfill, the arbitrators hand back the baton so that the court can in case of need lend its coercive powers to the enforcement of the award.”                                                                         -Lord Mustill

The problems have been exacerbated by judicial intervention. Unnecessary judicial legislation has created uncertainty about the position of the law. The single most remarkable aspect of the experience over the last decade has been the propensity for judicial intervention — while the Act bolted the front door and limited judicial intervention to a few strictly defined instances, courts have found means to break down the back door. Their readiness to become involved in contentious disputes is exemplified by the decisions of the Supreme Court in Saw Pipes[1] and SBP[2], which threaten key goals of arbitration — speed and efficiency.

 Court observed in M/S Guru Nanak Foundation v. M/S Rattan Singh and sons, (1981):[3]

“Interminable, time consuming, complex and expensive court procedures impelled jurists to search for an alternative forum , less formal, more effective and speedy for resolution of disputes avoiding procedural claptrap and this led them to the arbitration act, 1940. However, the way in which the proceedings under that act are conducted and without exception challenged in courts, has made lawyers laugh and legal philosophers weep. Experience shows and law reports bear ample testimony that the proceedings under the act have become highly technical, accompanied by unending prolixity , at every stage providing a legal trap to the unwary. Informal forum chosen by the parties for expeditious disposal of their disputes has by the decisions of the courts, been clothed with “legalese” of unforeseeable complexity. This case amply demonstrates the same.[4]

• Great expense, delays and uncertainty and almost extinguishes the advantages of arbitration over court litigation.
• Erodes the principle of respecting the disputing parties’ decision to resolve their disputes by arbitration rather than in a national court.
• It also inevitably leads to a loss of confidentiality which is another key attraction of arbitration.

GROUND REALITIES:

“If longevity of litigation is made an item in Olympics, no doubt the Gold will come to India”           -Nani Palkhivala

Besides the above mentioned court intervention, the process of Alternative Dispute Mechanism suffers from inherent infirmities. In India, the most common form of arbitration is ad hoc arbitration. There is already a dearth of institutionalized arbitration and the members of the arbitration panel are mostly retired judges who have already become used to of the tardy court proceedings.

From the above discussion the problems which prevail in the Indian system as to the implementation of the ADR mechanism are listed below coupled with their remedial solutions:

1. Tardy and expensive: The much envisaged twin objectives of the arbitration being a time and money saving mechanism have come to a naught. In case of ad hoc arbitration , the time taken for setting the terms of reference , time for hearing the reference and time up for making of the award, all put together , usually consume a lot of time. In certain cases arbitration is as expensive as the court litigation.

There is a need to provide with fast track arbitration which ensures speed and economy. To popularize the concept of fast track arbitration, a serious effort is required from all concerned for giving wide publicity to its efficacy in resolving disputes especially commercial disputes rapidly and economically.

2. Abuse of arbitration and inflated claim: Many a times parties resort to dilatory or other unfair tactics such as making inflated claims which robs of its preference over litigation.In order to curb this menace the heavy cost should be awarded to the other party but the party making such inflated claims could be deprived of the cost.
3. Contestants avoid finality: As has been already discussed that Indian sentiments avoid finality attaching to the arbitral awards. This again adds on the burden of already existing cases in the courts. A change is required in order to truly achieve the much discussed purpose of the Arbitration and Conciliation, Act 1996.
4. Lawyers responsible for loss:  This phrase connotes the problem of too many lawyers engaged in the arbitral proceedings and their habit of delaying the process by showcasing their pedantic attitude. A lawyer –orchestrated dispute resolution system is not frequently resorted to, nor is it recommended.

A lot of professional training is required for implementation of ADR systems. Arbitration is not always conciliation. And mediation is not always negotiation; nor it is always conciliation. Counseling is different skill altogether. As of today, practically none is professionally trained in these skills. Lawyers who are ready in the profession and are desirous of learning the ADR techniques should be provided with necessary training to acquire necessary skills in order to avoid lawyering. The development of arbitration along non- litigious, non- adversarial lines; in other words . Less lawyer- techniques less “court- craft”; lawyers are certainly useful but not in their confrontational capacity, but in their more meaningful role as negotiators and mediators.

5. Lack of institutional framework and infrastructural facilities: There is dearth of institutional framework which again militates against the purpose of the arbitration and conciliation act, 1996. As a result there are absolutely no support facilities such as assistance of suitable arbitral institutions in appointing qualified arbitrators, in providing supporting staff like court clerks, stenographers etc.

As a remedial action each arbitral institution should have a list of arbitrators consisting of retired judges, eminent lawyers, bureaucrats, qualified civil engineers, chartered accountants, social workers, academics, industrialists and other experts who would be willing to act as arbitrators. These arbitrators should exhibit qualities like –impartiality, integrity, rectitude, uprightness and courteous behavior and the preparedness and the patience to learn and listen. 

6. No prescribed court fees: An arbitrators’ fee may vary between a few thousands to a few lakhs. While ad hoc arbitration charge varying fee for their services, even the institutionalized ones have readymade list of fees which do not appear to be uniform.

There should be standardization of fees: The fees payable to arbitrators need to be standardized and a uniform rate needs to be fixed for arbitration of various types of disputes. In this regard, the present arbitration law may be suitably amended so as to have clear provisions for scales of fees payable to arbitrators according to the nature of and the amounts involved in the disputes. The amendment in the Court Fees Act with regard to getting back the court fee paid in a arbitration plaint is a welcome change however it has still not been enforced.

F.S. Nariman in one of his articles has strongly opined that the arbitration process has become more and more assimilated to a proceeding in a court. The legal jargons such as “jurisdiction” and “legal misconduct” are not properly defined and moreover the lawyers and judges haven’t been too reluctant to find them.

CHANGE ON ANVIL:

 Part of NLP (National Law Policy)

One more new facet which has given importance to the concept of Alternative Dispute Resolution is the coming up of the National Litigation Policy (NCP) as proposed by Verappa Moiley in order to curtail the litigation time from 15 years to 3 years. 

1. It has been realized that nowadays all the government and Public sector units are resorting to arbitration in matters of drilling contracts, hire of ships, construction of highways, etc.  Therefore the arbitrators should be trained well for the careful drafting of such contracts.  The Ministry of Law and Justice has re iterated the importance of the same.

2. The party which deliberately tries to drag on the arbitration award in order to get time for fabricating the same should not be encouraged. In this way the whole process becomes tardy. Such a practice should be put to an end and expedite disposal should be encouraged or else it will lose its true essence.

4.  The Head of Department (HOD) should call for the daily records of the arbitration proceedings. They should obtain a copy of roznama for the same and in case of repetitive adjournments should enquire about the reasons for the same. Inefficient and unethical practitioners should be debarred from becoming the part of arbitration proceedings anytime in future and must also be penalized.  It shall be the responsibility of the Head of Department to call for regular review meetings to assess the status of pending arbitration cases.

5. It is very important to note that lack of precision in drafting arbitration agreements is a major cause of delay in arbitration proceedings.  This leads to disputes about appointment of arbitrators and arbitrability which results in prolonged litigation even before the start of arbitration  It must correctly and clearly reflect the intention of the parties particularly if certain items are required to be left to the decision of named persons such as engineers are not meant to be referred to arbitration. Also, sole arbitrators may be preferred over a panel of 3 arbitrators. The panel must contain an expert as regards to the subject matter of arbitration.

7. The concept of preferred arbitrators in various departments should not be encouraged. The arbitrator must be chosen on grounds of his expertise, knowledge and experience in that particular field. Care should be taken in order to ensure if the arbitrators can devote sufficient time for the same.   

Arbitration as a method of dispute resolution had been practiced from time immemorial. But of late, it has been considered as no better than court-litigation.

Other legislative changes

The above suggested remedies would bolster support and give impetus to mitigate all the drawbacks in the implementation of the ADR mechanism in India. Besides the above the legislature should also make amendment in the arbitration and conciliation act, 1996 so as to segregate the arbitration and conciliation matters. Also, the government is thinking to amend the advocates act, 1961 [by Advocates (Amendment) Bill 2003] to the effect that the functions of the Bar Council of India shall be to promote legal education and law down standards of such education in accordance with the recommendations of the Bar Council Legal Education Committee arrived at in the manner specified in section 10AA, including in the matter promoting alternative dispute resolution as a subject of academic study in the law schools for students and promoting continuing education on alternative dispute resolution for legal practitioners .

 It’s important that the all key stakeholders such as bar, the bench, the arbitral tribunal and other people associated with it should strive for the successful implementation of the same. Since we in India appear to have lost the art of conciliation, and have not yet acquired the necessary modern expertise , we must learn from other countries , then evolve our own standards for strengthening the mechanism of conciliation.

Amendment in Court Fees Act, 1870: However the amendment hasn’t been enforced up till now in India.

S.16: where the court refers the parties to the suit to any one of the mode of settlement of dispute referred to in section 89 of the code of civil procedure, 1908 the plaintiff shall be entitled to a certificate from the court authorizing him to receive back from the collector, the full amount of fee paid in respect of such a plaint.”

Proposal of Nyaya Panchayat Bill, 2006

The objective of the proposed Nyaya Panchayat Bill is to provide a sound institutionalized forum at the grassroots level for alternative dispute resolution through mediation and conciliation with community involvement. Sources stated that it was felt that delegation of judicial powers to local elected representatives could promote “khap panchayat”-like establishments Also it would violate article 50 of our Indian constitution which provodes for separation of judiciary form the executive, thereby it was rejected by the cabinet[6].

CONCLUSION

The necessity of Alternative Dispute Resolution is owing to the burden of cases at all the three levels. The Alternative Dispute Mechanism broadly comprises of 4 ways of dispute settlement:

1. Arbitration 2. Mediation 3. Negotiation 4. Conciliation

The above process aims at speedy remedy in a cost effective manner. However the whole system is infirmed with many difficulties at the grass root level. At some places they have done excellent job e.g. mediation centers in Tamil Nadu. However, at most parts it has proved out to be a mirror of the court litigation. This defeats the whole purpose of the Arbitration and Conciliation Act, 1996. However, in order to work in collaboration with the government, an entire revamping of the whole system is required where institutionalized arbitrations should be encouraged; lawyers should be trained for effective drafting of the plaint, the above discussed amendment in the court fees act( where the plaintiff’s money is refunded) should be enforced. More over the unethical lawyers who are diluting the whole arbitration system should be debarred from becoming a part of the Alternative Dispute System and must be heavily penalized.

It’s important to bring about a change or it will always remain on its probation forever.

---

[1] (2003 5 SCC 705)

[2] (2005 8 SCC 618)

[3] AIR 1981 SC 2075, at 2076

[4] Trustees of the Port of Madras v. Engineering Constructions Corporations Ltd, 1995 (4) SCALE 742

[6] http://www.deccanchronicle.com/chennai/nyaya-panchayat-bill-rejected-054

Comparing Transparency in the WTO Dispute Settlement Mechanism Vis-A-Vis Other Dispute Settlement Mechanisms.

Below is abstract of the article: “Transparency And Public Participation In The WTO: A Report Card On WTO Transparency Mechanisms” written by Gabrielle Marceau, Mikella Hurley . It has been published in the latest issue of "Trade, Law and Development" and the full text is available here. The article presents and compares transparency and public participation practices in the WTO dispute settlement mechanism with other dispute settlement mechanisms, particularly arbitration mechanisms such as NAFTA and ICSID.

In contemporary society where transparency has become a widely shared and recognized value, international organizations are increasingly being called upon to open their internal decision-making processes to greater public participation and scrutiny. The World Trade Organization [WTO], and its predecessor, the GATT, like many other institutions in the field of international economic law, have commonly been perceived as lacking sufficient transparency. However, since its inception in 1994, the WTO has systematically worked to increase public access to information, both in the context of rulemaking and dispute settlement, and has set an early example for other institutions. This article reviews the WTO’s efforts in this area, including recent developments on issues such as open hearings and amicus curiae briefs. Comparisons are drawn with other fora, particularly regional trade agreements and investor-State dispute settlement mechanisms. This transparency “report card” finds that, on the whole, the WTO’s track record compares favourably with that of other similar institutions. Nonetheless, some suggest that further work is warranted, particularly in the context of dispute settlement. The article concludes recalling practical suggestions that could help make the WTO even more transparent, and further increase the public’s trust in its mission.

NLU Jodhpur launches a new arbitration journal, calls for papers.

Below is Call for Papers for the upcoming “Indian Journal of Arbitration Law” by NLU Jodhpur.

The Centre for Advanced Research and Training in Arbitration Law of National Law University, Jodhpur is launching The Indian Journal of Arbitration Law a biannual, student reviewed journal.

The Journal strives to inculcate the prevalent theories in the field of arbitration with their practical relevance. The editorial board seeks to achieve this feat by including contributions from individuals with varied expertise of practicing arbitration and by focusing on developing trends. In this regard, the board would give due emphasis to the rich thought processes of students of law, who bring to the forefront the innovative academic research currently underway in most law schools all over the world. Inclusion of changing regional trends will play a vital part in understanding the scope and extant of this discipline and would therefore find due importance in the Journal.

The Indian Journal on Arbitration is pleased to announce its inaugural edition, which is to be published in July this year.

The theme for the inaugural edition would be: “India's tryst with Arbitration: Are we heading in the right direction?”

The Board of Editors cordially invites original, unpublished submissions for publication in the following categories: 

• Articles
• Notes
• Comments 
• Book Reviews

For details regarding publishing policy and guidelines please visit http://nlujodhpur.ac.in/call_for_papers.php

Manuscripts may be submitted via email.

In case of any further queries, please contact the editors at: editor.cartal@gmail.com  

Last Date for Submissions: 15 July, 2012

The Role of Domestic Courts in International Investment Arbitration: Have Local Remedies Re-emerged? ?

Below is a guest post from Prateek Mishra, a final year candidate in the BA. LLB. (Hons.) programme at NLIU, Bhopal. Currently, he is serving as the Convenor of the Alternative Dispute Resolution Cell at the University. He was recently awarded as the Best Speaker at 5th NLSIU International Arbitration Moot

Among the many issues that remain unsettled in the relatively young field of international investment arbitration, the relevance of local remedies remains very important and controversial.

Under traditional international law, the rule that local remedies must be exhausted before international proceedings may be instituted has been considered to be customary and the term “local remedies” as used in this context refers to any redress available from the governmental apparatus in the host State, including relief that may be available from a court, administrative agency or other authority.

As a general matter the rule requires a complete exhaustion of local remedies, meaning that the investor must make any available appeals and obtain a final decision from the highest court in the host State, at least where the relevant local remedies are judicial ones. However, the advent of direct arbitration between the host state and the foreign investor over settlement of investment disputes, has generally led to the the assumption that where consent has been given to investor-state arbitration, there is no need to exhaust local remedies.

In such a condition, one would expect that an investor could proceed straightaway to arbitration, without any potential adverse consequence from the decision to forego local remedies. That is not necessarily the case, however, in light of what George K. Foster termed as the Local Remedies Cases.

Decisions in this line of authority include awards in some leading cases like Jan De Nul, SGS vs. Philippines, Saipem S.p.A. and the Loewen Group.

An illustration is the controversial decision in Generation Ukraine, where the Tribunal had asserted that the claimant would have been able to state a valid treaty claim only if it could show that local courts committed a denial of justice in handling the claims.

Interestingly, Professor Christoph Schreuer, one of the most eminent experts in contemporary investment arbitration, has also appeared to support the existence of local remedies as a substantive requirement in denial of justice claims.

This new development also finds support in the fact that there are sound policy reasons for encouraging or even requiring the pursuit of local remedies when investors seek to challenge judicial conduct. Such policy reasons become increasingly important when a Tribunal is urged to balance the rights of both the parties to the dispute.

Firstly, the inclusion of the need to use local remedies can help to strike a balance between the rights of the investor and the right of the host country to regulate the investment.

Secondly, provided the host country can offer reliable and effective dispute settlement systems it may be in the long-term interests of both parties to have recourse to local courts and tribunals first.

Moreover, by the time an issue reaches an appellate court, it is normally more crystallized and the chances of it being decided correctly are greater. This is because more people, judges and attorneys alike, will have had a chance to evaluate the issue, and make different and better arguments. As such, errors may be corrected, juries may be reined in, and justice may be done.

Another matter of relevance to an Investment Arbitration Tribunal is the principles of public international law. International investment law being an extension of public international law must conform to such principles.

Consequently, a Tribunal will have to deal with the contention that a mandatory condition for the espousal of any claim would require complete exhaustion of local remedies. The basis for such a contention is that exhaustion of local remedies is a fundamental principle of international law in light of the successive judgments by the International Court of Justice in this regard. These include the judgment in Switzerland vs. United States of America (Interhandel) and Elettronica Sicula S.p.A (United States vs. Italy), popularly known as the ELSI case.

Therefore, it will not be improper to consider local remedies as relevant to the substance of certain treaty claims, including those for fair and equitable treatment, effective means and expropriation; at least to the extent they concern appealable judicial or administrative decisions in domestic courts of the host state.

NLSIR Conference

The following is an announcement received from the Editors of NLSIR, the flagship journal of National Law School of India University, Bangalore:

The National Law School of India Review (NLSIR) - the flagship journal of the National Law School of India University, Bangalore is pleased to announce the V NLSIR Symposium on "Corporate Mergers and Acquisitions in India: Recent Regulatory Changes" scheduled to be held on May 5 and 6, 2012 at the National Law School campus, Bangalore. Confirmed speakers for the symposium include renowned legal luminaries such as Hon’ble Mr. Justice V. Ramasubramanian (Judge, Madras High Court), Mr. Dhanendra Kumar (Former Chairman, Competition Commission of India), Mr. Uday Holla (Senior Counsel, Karnataka High Court), Mr. Nishith Desai (Nishith Desai Associates), Mr. V. Umakanth (Assistant Professor, National University of Singapore), Mr. Sandip Bhagat, Mr. Rajat Sethi (Partners, SNR), Mr. Ajay Vohra (Managing Partner, Vaish Associates), and Mr. K. Swaminathan (Director - Direct Tax and Transfer Pricing Litigation, Delloitte Haskins and Sells), amongst others.

This year, the discussions will be divided into four panels:

Session I: The Competition Regime Governing Transaction of Business in Combinations

(Forenoon, May 5, 2012, Saturday)

Session II: Takeover Regulation in India: Liberalisation with Caution

(Afternoon, May 5, 2012, Saturday)

Session III: Cross-border Mergers and India’s Taxation Regime

(Forenoon, May 6, 2012, Sunday)

Session IV: Companies Bill, 2011: Indian Company Law at the Cross-roads

(Afternoon, May 6, 2012, Sunday)

Registration fee for the symposium is Rs. 500 for students and Rs. 1500 for others.

For more details including the concept note, program schedule and online registration, please visit this link.

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For further information, please contact Krishnaprasad K.V. (Chief Editor): +91-9916589670; Ashwita Ambast (Deputy Chief Editor): +91-9986478265 or email us at mail.nlsir@gmail.com.

Guest Post by Puneeth Ganapathy: Vodafone looks to arbitration, but should it?

The following post is by Puneeth Ganapathy, a 4th year student of the National University of Juridical Sciences (NUJS), Kolkata. Puneeth was a speaker in the NUJS Vis team this year which reached the Round of 32 at Vienna, winning an Honourable Mention for the Respondent Memorial.

Disturbed by the prospects of the government’s proposed retrospective tax amendments that may undo the recent judgment by the Supreme Court granting relief to Vodafone, the company has threatened to institute arbitration proceedings under the India-Netherlands BIT.

The Supreme Court had reversed the judgment of the Bombay High Court which had ordered Vodafone to pay tax amounting to almost $2 bn, relating to its acquisition of Hutchison’s share of the Hutchison-Essar run telecom unit.   The judgment came as a relief and was seen as a boost to foreign investment. However, the government has announced plans to introduce a retrospective tax amendment, effective right from 1964 which could include undoing the Vodafone judgment. In response to this possibility, Vodafone has threatened arbitration proceedings under the Indo-Netherlands BIT, against the making of such retrospective tax legislation.

While Vodafone’s concerns may be genuine, it remains a question as to whether arbitration could really help its case or if it is to be merely a pressurizing tactic. Arbitrations under BIT’s such as the India-Netherlands BIT, generally concern legitimate expectations of investors, fair and equitable treatment, etc. The lack of fair and equitable treatment is in fact, the explicit ground mentioned in the Vodafone press release.

However, there is a certain degree of leeway, given to a State party in such arbitration where questions of regulatory measures, especially those relating to fiscal policies come into play. Such fiscal policies, such as the imposition or amendment of taxes, are considered a legitimate exercise of state sovereignty, and unless they may be demonstrated to be discriminatory or amounting to expropriation, they cast a cloud of exception around a government’s actions. In fact, the tribunal in Feldman v. Mexico stated that excessive taxation could not be seen as expropriation, even when it makes an activity less profitable or uneconomic to continue. Given this standard of deference to a government’s taxation policies, it is not surprising, as mentioned in Prof. Abba Kolo’s article on the subject that out of 22 cases of expropriation filed under the NAFTA, only in one did the claimant succeed in establishing a state-measure to amount to expropriation. The article also generally clarifies the minimal scope of success against a state. Hence, the legitimate expectations of investors and their protections under a BIT seem to be prone to fall flat under the defense of fiscal sovereignty. While the nature and effect of the government’s proposal to retrospectively tax may be an entirely different issue, speaking to the merits of a case, if one ever really arises, precedence shows little chance of success of an investor against a state’s tax measures.

If Vodafone seriously intends to utilize the terms of the BIT it could look at Art. 25 of the Indo-Netherlands BIT. This allows an investor who claims being taxed in violation of the provision of non-discrimination to apply to the competent authority in the country where the company is incorporated. The competent authority would try to come to a mutual agreement with the state that is applying the measure. Then again, the utility of this measure is more doubtful than a possible arbitration itself. Further, Vodafone can undertake this measure only if the government makes a retrospective legislation and once again asks Vodafone to pay the $2bn.

On the other hand, Vodafone could simply sit tight, and rely on the precedence of National Agriculture Cooperative Federation v. Union of India, holding that the tax authorities cannot re-open an assessment after it has been time barred by limitation, irrespective of a retrospective law (but that is again, if the amendment does not amend the limitation period in the act itself).

It is anyone’s guess how things pan out for Vodafone, or how intent the government is at undoing the judgment and pushing away foreign investment. In such a situation, the threat of arbitration seems to be more of a tactical ploy aimed at developing and maintaining consistent corporate pressure against the government’s plans, than a realistically possible remedy to the government making a retrospective legislation.

A bit too much of BIT? Vodafone's turn to seek investment arbitration with India

Vodafone International Holdings, BV ("VIH"), the Dutch subsidiary of Vodafone, UK has served the Indian government with a notice of arbitration (called a Notice of Dispute) under the India - Netherlands Bilateral Investment Treaty ("BIT").


This is in response to proposals in the Indian Finance Bill 2012, which will apply certain taxation provisions with retrospective effect and overturn the Supreme Court's decision that was in favour of Vodafone.

Vodafone believes that the retrospective tax proposals amount to a denial of justice and a breach of the Indian government’s obligations under the BIT to accord fair and equitable treatment to investors.

India’s Finance Secretary RS Gujral has stated that there is no provision for tax arbitration under the Netherlands India BIT.  From reading the text of the BIT, this inference cannot be clearly drawn. A taxation exception is only clearly mentioned with respect to National Treatment and Most Favoured Nation clauses, in Article 4 of the BIT. 

Another argument of the Indian government is that the BIT is inapplicable since the contract was signed in the Cayman Islands. This is clearly not a ground for inapplicability of a Bilateral Investment Treaty. If the dispute is regarding investment by an investor belonging to one State in the other State, then the clauses of the BIT are applicable. 


A more fundamental question at this stage, however, is whether VIH can, at all, send the notice of arbitration to India, at a stage when no legislation has been passed violating its rights under the BIT. It is indeed questionable whether VIH can send a notice of arbitration in light of the Finance Bill, which is yet to be enacted into binding law.


More reports on this dispute can be found on ILcurry, here, here  and here.

Yet Another Investment Arbitration Against India?

According to the latest news report in The Times of India here, it seems India is surely going to tread rough weather in the coming days. The newspaper reports that a UK based fund, The Children Investment  is set to invoke India-UK and India-Cyprus BITs for the losses it has suffered  being a shareholder in Coal India.

Seems that White Industries has given good hopes to many investors who have been taking the cue from its success against India.We have covered other BIT claims brought against India here, here and here. 

The image has been taken from here.

NLSIU Conference on Investment Arbitration.

NLSIU Bangalore is organizing a conference on matters related to investment arbitration in conjunction with its International Arbitration Moot (NLSIAM). At a time when India has been beset with beleaguering problems on investment disputes front, the conference hopes to provide a good platform for discussion and debate. The conference is on 5th and 8th April. More information on attending the conference is available on the NLSIAM website here. 

India - Russia headed towards investment arbitration?

Following the cancellation of the 2G licenses of Sistema Shyam TeleServices, the Russian conglomerate Sistema JSFC, majority shareholder in Sistema Shyam, has invoked Article 9.1 of the India-Russia Bilateral Investment Treaty ("BIT") to protect its investment. 

The Russian investor has sent letters to the Ministry of External Affairs, the Finance Ministry and Ministry of Communications and IT, Government of India, apart from the Indian embassy in Moscow, informing them of its intention to commence arbitration proceedings if the problem was not resolved by 28 August 2012. 

Sistema is of the opinion, according to a statement issued by the company, that the cancellation of Sistema Shyam's licenses following Sistema's investment of billions of dollars into the Indian cellular sector is contrary to India's obligations under the BIT, including obligations to provide investments with full protection and security and obligations not to expropriate investments. 

The Indian company is also resorting to other kinds of legal recourse, more details on which may be found here.

More information on the status of this dispute will be put up as the story unfolds.

Update: Read about this upcoming dispute and investment arbitration involving India, here, here and here.

White Industries: Some interesting posts

An interesting paper written by Mr. Prabhash Ranjan on the White Industries disptue can be accessed here.

Here and here you can find comments on the award by Badri of Practical Academic Blog.

International Academy for Arbitration Law.

The second edition of International Academy for International for Arbitration Law takes place this year in July. The Academy provides advanced Summer Courses in Paris to students and young practitioners interested in international arbitration. The Curriculum is conceived by international arbitration academics and practitioners to cover all aspects of international arbitration, and the Courses are taught by the most renowned experts in the fields of international commercial arbitration and international investment arbitration. The Curriculum includes a 15-hour General Course, alternating between international commercial arbitration and international investment arbitration, 5-hour Special Courses on specific topics, as well as Workshops on institutional arbitration offered by different arbitral institutions. The Courses will be preceded by an Inaugural Lecture given by a prominent arbitration figure. The Berthold Goldman Lecture will be be an opportunity to revisit historic arbitration stories.The Academy is an initiative of the Comité français de l’arbitrage (CFA), and is chaired by Professor Emmanuel Gaillard.

More Information can be found here. The last for sending in applications is February 29, 2012!

BREAKING: Award rendered against India in the White Industries Arbitration

We have been covering the White Industries arbitration for a while. The much awaited award has been rendered. A panel of three arbitrators has found India in breach of her obligations towards White Industries, an Australian investor, under the India – Australia Bilateral Investment Treaty. The arbitrators found that the long delays experienced by White Industries, in the course of trying have its 2002 ICC arbitration award enforced, amount to a breach of India’s obligations to provide "effective" means for Australian investors to assert claims in the Indian courts.

Neither of the parties has made any official statements on the matter and the award has not been published. Following is a discussion with Mr. Luke Eric Peterson of Investment Arbitration Reporter, who has been following this case with interest. His news service revealed the existence of the BIT arbitration last year, and on February 7th it broke the news that a final award has been rendered in the case. Luke was kind enough to discuss the case with Lex Arbitri. He’s also agreed to make several articles discussed herein available for public-viewing on his news website – just click the links to access them.

Q: Luke, Thank you for sharing the information on the case with us. Could you please discuss briefly the line of reasoning adopted by the tribunal and the specific violations that the tribunal ascertained?

A: Hi Deepak. It’s a pleasure to talk with you again. As you mention, the award has not yet surfaced. Its very existence had not been reported prior to our news story on Tuesday. But, based on what we know at the present time, the tribunal found a single breach of the treaty. The tribunal held that the protracted delays in the Indian courts had led to a situation where the Australian investor was denied “effective means” of asserting claims and protecting its rights in India’s courts. This appears to mark the first instance where India has been held liable for breaching one of its 80+  bilateral investment treaties.

Q: The root cause of this dispute was the decision of Indian courts to subject the ICC Award, a foreign award, to an elaborate system of review. This stems from the controversial decision of the Indian Supreme Court in Bhatia International. Has the tribunal held this interventionist approach of Indian courts to be a denial of justice or a violation of any other treaty provision?

A: No, I don’t believe that there has been a denial of justice here. Instead, it appears that the arbitrators have found India liable for delays in rendering justice. It remains to be seen what they have said about the reasons for the delay (i.e. the fact that India’s courts have been so receptive to Coal India’s efforts to set aside a foreign arbitral award.) Many arbitration practitioners and commentators are annoyed that the Indian courts are so receptive to such applications. But, I don’t know that the tribunal has passed judgment as to whether India may be failing to live up to its obligations under the New York Convention on the enforcement and recognition of foreign arbitral awards. My understanding is that they have side-stepped this sensitive question – at least insofar as the treaty-breach has been grounded in delay, rather than a “breach of the NY Convention obligations. However, a fuller understanding of their reasoning can only come with the release of the arbitral award.

Q: Do you have any information on any damages awarded by the tribunal?

A: My understanding is that the arbitrators ordered that India should pay damages in the amount of the original arbitral award obtained by White in 2002 against Coal India, plus interest. I don’t have a precise figure, but the original 2002 arbitral award was for 4 Million Australian Dollars, plus interest.

Q: Is it common for investment arbitration tribunals to hold delays in domestic courts to be a violation of treaty obligations? If so, do you think this will have a positive impact on countries like India in terms of improving the efficiency of their domestic dispute resolution mechanisms?

A: Arbitrators are just starting to make such findings. Not all treaties contain an obligation to provide “effective means” of claims resolution. However, because India’s treaty with Kuwait has such an obligation, and White Industries was able to invoke that obligation through the use of the Most-Favored Nation clause in the India-Australia BIT, it appears that India was on the hook for not providing “effective means”. Given the notorious delays in India’s judicial system, you wonder if the government will find that it routinely falls afoul of this heretofore-ignored treaty obligation. In some sense, this is a remarkable watershed event: for the first time that I am aware of an international tribunal has held that extensive delays in the Indian courts breach international law.

In terms of background, as I wrote in our report  earlier this week, the ruling in the White Industries arbitration follows in the footsteps of a ruling in another international arbitration. In the Chevron v. Ecuador case, arbitrators also ruled that extensive delays in the Ecuadorian courts had led to a breach of the “effective means” standard.

It’s much easier to make out a breach of this type of obligation than it is to prove a “denial of justice” under international law. And, moreover, investor-claimants don’t need to exhaust domestic remedies – they just need to show that domestic cases are going on … and on … and on without resolution!

So, my guess is that investor-claimants will seize increasingly on this previously underutilized obligation when they face lengthy judicial delays in their host countries. However, some governments, especially Ecuador, are not amused that tribunals are not merely finding that delays are breaching a BIT, and that arbitrators are then stepping into the role of local courts and purporting to rule on disputes that may have been languishing in local courts. So, Ecuador is trying to undo the 2010 ruling in the Chevron case via several avenues, including a set-aside of the award, and a new arbitration with Chevron’s home-state: the United States.

Indeed, many countries may find that their slow judicial processes place them on the wrong side of this “effective means” obligation. So, will that lead to a backlash from governments – and perhaps calls for more acceptance by foreign investors of the delays that plague everyone else, including local citizens and businesses, who uses local courts? I don’t know.

Q: I understand that the award in this dispute has been rendered in an unusually short span of time. Are you aware of any special factors which may have contributed to this?

Well, arbitrators issued their award a mere two months after hearings in the case. So, my guess is that they did not want to be open to the criticism that their own arbitration process dragged on for years and years. Certainly, this is one of the swiftest deliveries of a BIT award that I am aware of. The only other case that comes to mind is the Pantechniki v. Albania case  at ICSID, where a sole arbitrator took only a couple months to issue a 27 page award. Otherwise, BIT tribunals can take up to a year – and sometimes more - to render an award once hearings are concluded. And the entire arbitration process can run for years and years. One claimant at ICSID recently got an award nearly 9 years after filing for arbitration against Argentina. Moreover, that ruling in the El Paso case may need to go thru a further 18 to 24 months of review by another ICSID panel before it is finalized. So, BIT arbitration is not always the swiftest form of justice either.

One can also speculate that the arbitrators might have wanted their award to be rendered before the Indian Supreme Court renders its own ruling in the cases which are re-examining the Bhatia International judgment. But, I have no way of knowing whether that was a consideration for arbitrators. I also don’t know if they were simply sympathetic with a claimant that has waited nearly a decade to collect on a 2002 arbitral award. Perhaps the arbitrators did not think that White should have to wait many years longer!

Q: To the best of my knowledge, this is the first investment arbitration that India has been a party to. From your experience, do you usually see a large number of claims being filed against a country immediately after one award is rendered against the country?

Well, there were a number of claims filed under various BITs by foreign investors and project-lenders in relation to the whole Dabhol Power Project controversy earlier last decade. However, those all got settled before they went terribly far.

Otherwise, there have not been reported cases against India until this one came along. Mind you, one never knows if a government is being forthcoming about claims that it is facing. As you know, the Government did not announce that it was facing a claim by White Industries. We at IAReporter caught wind of it and reported on it last July , and that led to a further flurry of press coverage inside and outside of India. You and your blog have been trying since then to get information out of India about the case, and they have not divulged anything. So, who knows if there are other cases pending without publicity.

I would suspect, though, that the result in this case could embolden others to test BIT claims against India. However, foreign investors may be reluctant to take such steps unless they find themselves in truly dire situations. Those who see their long-term future in India, may try to work out problems through other means before resorting to an investment treaty arbitration.

Q: As you note, the Government of India is yet to disclose any information about this arbitration to the public. The only public statement in this regard appears to have come from the Additional Solicitor General who was chosen to represent India. Is it standard practice among countries to keep such disputes under wraps?

A: The short answer is that it varies. However, one thing is constant: rumours of cases begin to circulate, or the investor reveals that it has filed some sort of claim, and then governments typically come under pressure to reveal more information about such cases, and this has sometimes had a salutary influence over the long term. For instance, in Canada and the United States, governments initially tried to hide such arbitrations from the public, but this only amplified media and public interest in such claims. After some resistance, both countries took policy positions in favor of openness, and it is now commonplace for them to post key documents related to such arbitrations on government websites like this one for Canada  and this one  for the United States.

Not all governments are as open, especially those that are closed-societies. But, even democracies can be very secretive, at least in the early days when the first cases are cropping up.

My own view is that governments should be open about these things, and I’m hopeful that India will come around to a position of openness. Certainly, there are powerful arguments for transparency rooted in concepts of human rights, good governance and economic efficiency.

Q: The department of Industrial Policy and Promotion of the Government of India recently recommended that India should discontinue the use of investor State dispute resolution clauses in its investment agreements. Do you think this is a direct reaction to the White Industries Award? Also, could you tell us if such a strategy would be effective or even desirable? If this is adopted, would it hurt Indian investors more than it will protect India from claims of foreign investors?

A: Well, from what I can tell, different Indian ministries take different views on these issues – and those views may be in flux as new developments and new information come to light. So, I don’t know if the White Industries result is coloring the DIPP’s views.

 Ultimately, you would hope that governments were influenced by new information and new developments, and that they recognize that BITs don’t just protect outward investment, but that they also condition what the government can do to inward investors.

As you know, Australia has made a major policy shift , and they’ve decided that the risks of these agreements outweigh the benefits associated with them. So, Australia is telling its own investors to take out insurance for their investments abroad, and the Australian government wants to stop negotiating treaties that protect Australian companies (but which expose Australia to suits from foreign investors.)

Of course, in spite of this new policy stance, Australia’s BIT with India remains in force, and it was the very legal instrument that White Industries availed itself of in its fight with India. So, even if governments come to take a more skeptical policy stance, they may be bound by their old agreements – sometimes for many years. No doubt, some would say that the White case offers proof that BITs “work”, but I’m not sure that that will sway the Australian government which is more concerned about the legal claims that it is starting to see from foreign investors – including a hefty one  brought by the Philip Morris tobacco company.

India will have to take its own assessment of the risks and benefits. But, the risks are starting to come into starker relief, and as BIT arbitration becomes more popular, governments are starting to grasp the downsides of treaties that may have been negotiated with much less care and craft than, say, a national constitution or other types of treaties – like those governing human rights. So, that’s why Canada – which learned certain lessons after agreeing investment protections with the United States – has developed a model investment treaty that runs to dozens of pages and is heavily caveated with all sorts of clarifications, exceptions and carve-outs.


Update: Financial Express also has a report on the outcome of this case.