Op EdsOP. ED.

   

Background

Arbitration is a “creature of consent”; parties consensually bind themselves to an arbitration agreement for the resolution of their disputes. It follows that generally, only the signatories to such an arbitration agreement should be bound by, and attached to, the arbitration that follows a dispute. However, the group of companies doctrine provides that, where a corporation has signed an arbitration agreement, it can be used to bind such a corporation's non-signatory affiliates if the “mutual intention” of the parties was to bind both the signatories and such non-signatories.

In Cox and Kings v. SAP India (P) Ltd. (Cox and Kings),1 after analysing the position of the group of companies doctrine in India, the Supreme Court made a reference to a larger Bench for the examination of this doctrine. The authors, by examining both majority and minority opinions, seek to showcase the insufficient reasoning in the majority opinion and argue in favour of the applicability of the group of companies doctrine in India.

Turning points — The Chloro Controls case, the 246th Law Commission Report and the 2015 Amendment

A pioneering attempt to bring the group of companies doctrine into the sphere of mainstream commercial arbitration was brought about by the ICC award in Dow Chemical v. ISOVER Saint Gobain (Dow Chemical).2 While relying on the general principles of international arbitration law, the Court in Dow Chemical case provided that “if the non-signatory company has effectively and individually participated in the conclusion, performance and termination of the respective contract, appeared as the actual party both to the contract and to the arbitration clause”, then it may be allowed to take advantage of the arbitration clause.3

The commercial jurisprudence that flowed from the Arbitral Tribunal was that notwithstanding the parties' distinct juridical identity, they would constitute a “group of companies”.

In India, the group of companies doctrine was first adopted and applied in Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc. (Chloro Controls).4 Chloro Control primarily did two things; first, it concretised the exceptional cases in which non-signatories may be subject to the arbitration agreement. The Supreme Court, in establishing these exceptional cases, provided that the parties must be held to the “touchstone of direct relationship to the party signatory to the arbitration agreement, direct commonality of the subject-matter and the agreement between the parties being a composite transaction.”5 This is the threefold test or the “mutual intentions” test. Second, it provided for the distinction in the language of Sections 456 and 87 of the Arbitration and Conciliation Act, 1996 (A&C Act). The Supreme Court, while distinguishing the language of Sections 45 and 8 of the Act, stated that “in Section 45, the expression ‘any person' clearly refers to the legislative intent of enlarging the scope of the words beyond ‘the parties' who are signatory to the arbitration agreement”.8 In doing so, the Court allowed non-signatory parties to be referred to arbitration provided they fulfil the “mutual intentions” test.

In 2014, shortly after the judgment laid down in Chloro Controls case9, the Law Commission of India, in its 246th Report sought to delve into the “definition of party” under the Act. The primary concern laid down by the Law Commission of India was that the existing definition was “restrictive” and implicates only signatory to an arbitration agreement.10 In accordance with the interpretation laid down in Chloro Controls case11 on the scope of Section 45 of the Act, the Law Commission recommended an amendment to Section 8 of the Act. The Law Commission noted that the language mentioned in Section 45 of the A&C Act i.e. “person claiming through or under [a party]”, is absent in Section 8 of the Act and the latter should accordingly be amended to cure this inconsistency between Parts I and II of the A&C Act.12 Moreover, the Law Commission of India recommended that an amendment be made “to the definition of ‘party' under Section 2(h)13 of the Act”.14 In 2015, the Indian legislature amended Section 8 of the Act in accordance with the Law Commission's recommendation.15 Post amendment, a reference to arbitration could be made “by a party to an arbitration agreement or any person claiming through or under him”.16

Subsequent refinements

The aforementioned developments were further revisited and refined by the Supreme Court in its subsequent decisions. In Ameet Lalchand Shah v. Rishabh Enterprises [Ameet Lalchand]17, the Supreme Court cited Chloro Controls case18 in conjunction with the 246th Law Commission Report and following the 2015 Amendment to Section 8 of the Act to hold that “various agreements could be resolved only by referring all the four agreements and the parties thereon to arbitration”.19

It is important to note that the application of the “mutual intentions” test did not remain confined to references to arbitration under Section 8 of the Act. Rather, in Cheran Properties Ltd. v. Kasturi and Sons Ltd. [Cheran Properties], the issue into consideration was whether a non-signatory could be bound by an arbitral award. Section 35 of the Act states that an arbitral award “shall be final and binding on the parties and persons claiming under them respectively”.20 By reaffirming the threefold test laid down in Chloro Controls case21, the Supreme Court stated that “[t]he group of companies doctrine is essentially intended to facilitate the fulfilment of a mutually held intent between the parties, where the circumstances indicate that the intent was to bind both signatories and non-signatories.”22 In this regard, the Supreme Court stated that the expression “persons claiming under them” indicates the legislative intention to bind non-signatories to the arbitral awards as well.

The group of companies doctrine was further refined and crystallised in MTNL v. Canara Bank [MTNL]. In this case, Indu Malhotra, J. made an attempt to harmonise the principle of separate legal personality with the group of companies doctrine.23 On one hand, she stated that “each company is a separate legal entity which has separate legal rights and liabilities” and that “the company entering into the agreement, would alone be bound by it”.24 On the other hand, with respect to the group of companies doctrine, she stated that,

10.3 [a] non-signatory can be bound by an arbitration agreement on the basis of the “group of companies” doctrine, where the conduct of the parties evidences a clear intention of the parties to bind both the signatory as well as the non-signatory parties. Courts and tribunals have invoked this doctrine to join a non-signatory member of the group, if they are satisfied that the non-signatory company was by reference to the common intention of the parties, a necessary party to the contract.

(emphasis supplied)

Indu Malhotra, J. seems to be explaining how the group of companies doctrine is not affecting the applicability of the separate legal identity principle i.e. the former does not entail assuming that separate entities are one and the same. Rather, the non-signatories are bound by the arbitration agreement because of the “mutual intentions” test, without having any impact on the separateness of the entities.

Recently, in ONGC Ltd. v. Discovery Enterprises (P) Ltd.25, D.Y. Chandrachud, J. examined the group of companies doctrine. Inter alia, he took into account Indowind Energy Ltd. v. Wescare (India) Ltd.26, Chloro Controls case27, Ameet Lalchand case28, Cheran Properties case29, and MTNL case30 and ruled that the following factors need to be considered in law for applying this doctrine:31

(i) the mutual intent of the parties;

(ii) the relationship of a non-signatory to a party which is a signatory to the agreement;

(iii) the commonality of the subject-matter;

(iv) the composite nature of the transaction; and

(v) the performance of the contract.

This view of the group of companies doctrine is erroneous because of the following reasons. The parties' “mutual intent” is not one of the factors, but the ultimate finding based on which the application of the group of companies doctrine is determined. Making it one of the factors unnecessarily and unreasonably convolutes the established “mutual intentions test”. Moreover, the underlying “mutual intentions” test is threefold. It comprises a direct relationship of the non-signatory with the signatory party, direct commonality of the subject-matter, and composite nature of the relevant transaction.

Furthermore, in Chloro Controls case32, the feasibility to perform the main agreement without the aid, execution, etc. of the ancillary agreements was considered as one of the sub-factors to the third element/factor i.e. the composite nature of the transactions involved. In this regard, making “performance of the contract” a separate factor leads to uncertainty in the application of the doctrine; this is especially because the application of this doctrine is heavily based on the intricate facts of each case.

Cox and Kings

Recently, the Supreme Court examined the application of the group of companies doctrine in India and made a reference to a larger Bench. In Cox and Kings case33, two views were put forth by the 3-Judge Bench of the Supreme Court.34

The majority view of N.V. Ramana, C.J. and A.S. Bopanna, J. which was authored by the former, was in disagreement of the applicability of the group of companies doctrine in India. On the other hand, Surya Kant, J. put forth a dissenting view. Surya Kant, J. albeit in support of the group of companies doctrine in India, also referred certain questions of law to a larger Bench for the purposes of clarity in the application of the same.

N.V. Ramana, C. J. criticised the group of companies doctrine by stating that a “joinder [of non-signatories] has the effect of obliterating the commercial reality, and the benefits of keeping subsidiary companies distinct” and that “[c]oncepts like single economic entity are economic concepts difficult to be enforced as principles of law.”35 However, the group of companies doctrine does not entail circumventing the principle of separate legal personalities. Nor does it entail applying the concept of a “single economic entity”. The Chief Justice, while arriving at this criticism, specifically focused on the obiter stated by Indu Malhotra, J. in MTNL case.36 Inter alia, she had cited previous International Chamber of Commerce (ICC) Arbitration cases to discuss the concept of “single economic entity;” however, as discussed in the preceding paragraphs, the ratio in this case was based on the concept of “mutual intent.” The Chief Justice's 's undue focus on the obiter, and not the ratio of MTNL case37 raises serious doubts about his conclusion opposing the application of the group of companies doctrine in India.

Moreover, the Chief Justice stated that:

50. [i]t is evident from the discussion above that the group of companies doctrine must be applied with caution and mere fact that a non­-signatory is a member of a group of affiliated companies will not be sufficient to claim extension of the arbitration agreement to the non­-signatory.38

(emphasis supplied)

Even this criticism is misguided as the relationship between the signatory with the non-signatory(ies) is just one of the factors that are taken into consideration while arriving at a finding of “mutual intent”.

The Chief Justice referred the following two questions of law to a larger Bench:

(a) Whether the phrase “claiming through or under” in Sections 8 and 1139 could be interpreted to include “group of companies” doctrine?

(b) Whether the “group of companies” doctrine as expounded by Chloro Controls case40 and subsequent judgments are valid in law?

In the opinions of the Chief Justice and A.S. Bopanna, J. the group of companies doctrine is not in lieu with international principles and takes away from the foundational principles of arbitration which were entrenched in consent.

The majority raised a rather critical concern that the doctrine's application was based more on economics and convenience rather than principles of law itself. This brings about an important question of whether convenience or consent and party autonomy is on a higher pedestal in the conception of legal doctrines such as the group of companies.

On the other hand, in his dissenting opinion, Surya Kant, J. took a more pro-doctrine stance. He correctly pointed out that:

92. … joining a third party to arbitration based on the convergence of a group of companies as a “single economic unit” is no longer the norm under the group of companies doctrine. Instead, the standard is premised primarily on implied consent drawn from the acts and conduct of an entity within the group of companies.41

He postulated that “a non-signatory may act duplicitously to represent itself as the driver of the contract while avoiding any liabilities arising from it by not signing the contract”. It may be understood that Surya Kant. J's understanding of the theory examines the intent of the non-signatory and whether or not that intent positions the non-signatory in the same position as a contracting entity.

In this light, he referred the following questions of law to a larger Bench:

(a) Whether the group of companies doctrine should be read into Section 8 of the Act or whether it can exist in Indian jurisprudence independent of any statutory provision?

(b) Whether the group of companies doctrine should continue to be invoked on the basis of the principle of “single economic reality”?

(c) Whether the group of companies doctrine should be construed as a means of interpreting the implied consent or intent to arbitrate between the parties?

(d) Whether the principles of alter ego and/or piercing the corporate veil can alone justify pressing the group of companies doctrine into operation even in the absence of implied consent?

Conclusion

The relevance of a doctrine such as the group of companies in Indian arbitration law is one that is undisputed. However, we are standing at international crossroads, where the requirement of consent and party autonomy seems to be directly conflicting and balancing the two within the landscape of arbitration has become more pertinent than ever.

One can only anticipate the direction that the larger Bench will take, however, greater clarity on the application of the doctrine will ensure that the judicial discretion in its application will be curbed.


† 3rd year law student at National Law University, Jodhpur. Author can be reached at <priyanshu.shrivastava@tradelawdevelopment.com>.

†† 3rd year law student at National Law University, Jodhpur. Author can be reached at <fatema.kinkhabwala@nlujodhpur.ac.in>.

1. 2022 SCC OnLine SC 570.

2. ICC Case No. 4131 of 1982 (interim award dated 23-9-1982).

3. Dow Chemical case, ICC Case No. 4131 of 1982 (interim award dated 23-9-1982).

4. (2013) 1 SCC 641.

5. (2013) 1 SCC 641.

6. Arbitration and Conciliation Act, 1996, S. 45.

7. Arbitration and Conciliation Act, 1996, S. 8.

8. Chloro Controls case, (2013) 1 SCC 641.

9. (2013) 1 SCC 641.

10. Law Commission of India, 246th Report on Amendments to the Arbitration and Conciliation Act, 1996 (August 2014).

11. (2013) 1 SCC 641.

12. 246th Law Commission of India Report (2014).

13. Arbitration and Conciliation Act, 1996, S. 2(h).

14. 246th Law Commission of India Report (2014).

15. Arbitration and Conciliation (Amendment) Act, 2015.

16. Arbitration and Conciliation (Amendment) Act, 2015, S. 8(1).

17. (2018) 15 SCC 678.

18. (2013) 1 SCC 641.

19. Ameet Lalchand case, (2018) 15 SCC 678, para 24.

20. (2018) 16 SCC 413.

21. (2013) 1 SCC 641.

22. Cheran Properties Ltd. v. Kasturi and Sons Ltd., (2018) 16 SCC 413, para 23.

23. (2020) 12 SCC 767.

24. (2020) 12 SCC 767, 778.

25. 2022 SCC OnLine SC 522.

26. (2010) 5 SCC 306.

27. (2013) 1 SCC 641.

28. (2018) 15 SCC 678.

29. (2018) 16 SCC 413.

30. (2020) 12 SCC 767.

31. ONGC Ltd. v. Discovery Enterprises (P) Ltd., 2022 SCC OnLine SC 522.

32. (2013) 1 SCC 641.

33. 2022 SCC OnLine SC 570.

34. 2022 SCC OnLine SC 570.

35. 2022 SCC OnLine SC 570, para 40.

36. (2020) 12 SCC 767.

37. (2020) 12 SCC 767.

38. Cox and Kings case, 2022 SCC OnLine SC 570.

39. Arbitration and Conciliation Act, 1996, S. 11.

40. (2013) 1 SCC 641.

41. Cox and Kings case, 2022 SCC OnLine SC 570.

Case BriefsHigh Courts

Delhi High Court: Stating that, cases under Section 376 of Penal Code, 1860 should not be quashed and should not be taken as a crime against the society at large, Swarana Kanta Sharma, J., expressed that, in peculiar circumstances, where the complainant states that her future depends on quashing of the FIR and adding that the rape was not committed upon her, it would be in the interest of justice to quash the FIR.

The instant petition was filed for quashing of an FIR registered for offences punishable under Sections 376/377/498-A of Penal Code, 1860 read with Section 34 IPC.

In the present matrimonial dispute, it was noted that a charge sheet had been filed under Section 376 of the Penal Code, 1860, however, in her statement under Section 164 CrPC, the complainant had stated that only an attempt to rape had been made by her father-in-law and the charges were not yet framed by the trial Court.

The complainant gave her statement which she had given under Section 164 CrPC and on a query made by this Court, the complainant who was present in person stated that she has entered into a compromise out of her own free will and without any pressure, coercion or threat. Further, she stated that she had no objection if the FIR was quashed.

High Court expressed that,

“…any case coming to an end is a welcome step at it decreases the pendency of the Courts, more so, in matrimonial offences quashing is welcome as it shows that parties have decided to put an end to the lis as well as to the misery they undergo due to a matrimonial case pending between them.”

Further, the Bench added that, the fact that now-as-days Sections 376 and 354 of the Penal Code, 1860 are being used along with Section 498-A IPC, which later are compromised and are brought to this Court for quashing, needs to be curbed.

The Court appreciated the stand taken by the complainant and her wish to move in life as her future depended on the settlement of the matrimonial dispute and quashing of the present FIR. In case the FIR is not quashed in this case, the entire settlement between the parties will come to an end.

Lastly, the High Court held that “Court wishes that the compromise would have taken place much earlier, however, through this order let a message be sent to the society at large that compromise is the best way possible to settle disputes and the sooner the better.”

Therefore, the FIR was quashed. [Arshad Ahmad v. State NCT of Delhi, 2022 SCC OnLine Del 1736, decided on 2-6-2022]


Advocates before the Court:

For the petitioners:

Mr Arun Bhardwaj, Senior Advocate with Mr Abhishek Sharma and Mr Rahul Sharma, Advocates.

For the respondents:

Mr Ranbir S. Kundu, ASC for State with Mr Mukul Dagar, Ms Pooja and Mr Agniwesh Singh, Advocates along with SI Jyoti Phogal, PS Mehrauli.

Mr Hilal Haider and Mr Butul Khan, Advocates for R-2 with complainant in person.

'Lex Mercatoria' by Hasit SethExperts Corner


A.    Introduction


Complex disputes are not easy to define as a class. But they do occur frequently in court litigation or arbitrations. Hallmarks of complex disputes are multiplicity of parties and issues, both legal and factual. Various jurisdictions have built mechanisms to deal with complex disputes through special rules and procedures. This article focuses on litigation and arbitration as methods for resolving complex disputes, though other methods like mediation are also useful. In particular, this article analyses the need for improving Indian legal system’s tools and capacities to resolve complex disputes by adapting global best practices.


B.    Nature of Complex Dispute Resolution


Black’s Law Dictionary, defines complex litigation[1] as, “litigation involving several parties who are separately represented, and usually involving multifarious factual and legal issues”. Right below the definition, the same dictionary quotes from Tidmarsh and Trangsrud’s 2002 book titled, Complex Litigation. The quote partly states, “complex civil litigation has an ‘I know it when I see it’ quality. Nearly everyone agrees that matters like the massive asbestos litigation, the AT&T anti-trust suit, or the remedial phase of a school desegregation case are complex”.

 

Complex litigation is now taught in several US law schools as a formal course[2]. Alternative methods of resolving complex disputes exist, for example, mediation, which may be very effective in a given factual matrix. Many mass tort or class action litigation of a complex nature end in a conciliation expressed as a settlement with payouts to the victims.

 


C.   Difficulties of Resolving Complex Disputes in India


Post-independence, India’s first brush with complex dispute was the Bhopal gas leak disaster (1984) related litigation. The leak of methyl isocyanate (MIC) poisonous gas killed thousands (est. 3,000-5,000) of people and with thousands more disabled. In 1985, Indian Government joined a claim against the American company, Union Carbide, in the United States District Court,  Southern District of New York[3] (US Bhopal Case). The core issue raised in a motion filed by Union Carbide was forum non conveniens. Union Carbide argued that Indian courts were a more appropriate forum rather than US courts for claims by gas leak victims. Indian Government’s position in the case was that US courts were appropriate forum to assert their claims.

 

The underlying strategy of parties in Bhopal gas disaster’s US litigation was simple. Union Carbide wanted Bhopal gas leak claims to be not litigated in US courts before juries as that would result in multi-billion dollar judgments or settlements. The track record of US juries for mass torts was pro victim having granted multi-billion dollar verdicts — one of those could have bankrupted Union Carbide. While, Indian Governments, at least initially, and victims wanted substantial damages for their injuries which could only be possible in US courts’ jury trials.

 

In the US Bhopal case, Prof. Marc Galanter filed an affidavit pointing out severe handicaps of Indian legal system in handling complex personal injury litigation involving mass torts[4]. One problem that his affidavit highlighted was at Para VII.C tilted, “Indian Civil Procedure Contains no Special Provisions or Devices for the Conduct or Management of Complex Cases.”

 

In response, the eminent Indian lawyer, Mr Nani Palkhivala, and others legal experts had filed affidavits asserting the competence of Indian legal system to handle mass tort claims. Mr Palkhivala’s affidavit detailed how Indian Bar and judiciary was capable of handling complex litigation including mass torts[5]. Which opinion turned out to be true after nearly 38 years can be seen from Government’s own data: of the 1,029,517 claims only 574,366 were awarded a mere Rs 3,840 crores in total while 455,151 claims were rejected[6]. And the litigation to demand more compensation still continues[7]. Clearly, India legal system needs tools to manage complex litigations that compensate claimants adequately and within a short time.

 

Ultimately, Union Carbide got away easily with a relatively small payment of US $470 million as settlement to Indian Government, though they have given explanations for the same on a specially created website[8]. The trial(s) where Indian courts could have granted multi-billion dollar equivalent award for the Bhopal mass torts and execution of that judgment or judgments in US never arrived due to the paltry settlement by Union Carbide accepted by the Indian Government.

 

In current times, a new category of complex arbitrations has arisen in India. As there are no specialised constructions courts across India (exceptions exist in a few States as tribunals), construction disputes now are invariably arbitrated rather than being litigated in courts. As India constructs infrastructure like roads, high speed rails, airports, etc. inevitably disputes arise between contractors and the public sector. Construction disputes has become a large category of complex disputes in India in last two decades. But the conduct of construction arbitrations in India can be made much more efficient. The delays in arbitration process involving thousands of documents of any construction project are common. Later in this article, recommendations are made to speed up complex arbitrations in India.

 


D.   Current Dispute Resolution Methods in India


The core statute that defines civil litigation in India is the venerable Civil Procedure Code, 1908 (CPC). All other judicial and quasi-judicial procedures in India are derivatives of the CPC. For a country as vast as India, to have a common country-wide Civil Procedure Code for Federal or State Courts in the CPC is a magnificent achievement. Contrast this with the United States, the only nearest comparable common law jurisdiction in its scope to the Indian legal landscape. The United States of America has a Federal Rules of Civil Procedure for Federal Court litigation and as many State Civil Procedure rules as there are States in the United States[9].

 

The CPC has a core set of 158 sections that are enacted by the Central Government and rules (organised in groups of 51 “orders”) that can be modified by the High Court of State with State wide applicability[10]. The CPC is flexible in its legislative design but due to a complex set of factors it is somehow always blamed for delays in courts. But when one generally compares the broad structure of England and Wales’ Civil Procedure Rules or US’s Federal Rules of Civil Procedure, they are pari materia to the CPC except that the CPC includes a detailed execution mechanism.

 

The CPC in its original design was to be the minimum common code for all courts, for disputes small or large, lacks tools for managing complex litigation.The Commercial Courts Act, 2015’s amendments to the CPC are a step in right direction for resolving complex commercial disputes. The CPC’s basic tool for multiparty representative litigation is the Order 1 Rule 8 (one person may sue or defend on behalf of all in same interest) that permits a “representative suit”. The requirements for applying Order 1 Rule 8 are: (i) parties are numerous; (ii) parties have same interest; and (iii) necessary permission is obtained, and a notice is given[11].

 

Arbitration is the preferred option for commercial dispute resolution in India, particularly for construction disputes. As a country building large scale infrastructure, construction disputes are increasing. But efficiency of arbitrating these disputes is questionable. Several reasons exist for inefficiencies in arbitrating construction disputes. Some causes of these inefficiencies are: inability of parties to narrow down disputes to a few key issues, lack of proper documentation and correspondence, inadequately experienced tribunals, archaic evidentiary methods, etc. This article offers some suggestions to remove inefficiencies in commercial and construction litigation through better practices.

 

While the Companies Act, 2013 includes a Section 245 for class action litigation and the Consumer Protection Act has a class action provision, these remain largely unused being untested by litigants[12]. Some class actions are asserted via public interest constitutional writ litigation. In a nutshell, class action or mass tort actions that grant substantial damages to victims are virtually absent in India.

 

There is no doubt that some judicial administrative policy work is happening in India too. But it is all ad hoc. Some examples of judicial policy innovation exist. For example, like the Restatement of Values of Judicial Life,  adopted by Full Court meeting of the Supreme Court of India in 1997[13]. But ad hoc nature of these efforts is illustrated by an observation in a recent case concerning electronic evidence: Arjun Panditrao Khotkar v. Kailash Kushanrao Gorantyal[14]. Here, the Supreme Court hoped that authorities will take notice of effort put in by a committee of Judges to create a set of rules for electronic evidence:

 

  1. 65. … A five-Judge committee was accordingly constituted on 28-7-2018. After extensive deliberations, and meetings with several police, investigative and other agencies, the Committee finalised its report in November 2018. The report suggested comprehensive guidelines, and recommended their adoption for use in courts, across several categories of proceedings. The report also contained draft rules for the reception, retrieval, authentication and preservation of electronic records. In the opinion of the court, these draft rules should be examined by the authorities concerned, with the object of giving them statutory force, to guide courts in regard to preservation and retrieval of electronic evidence.[15]

 


E.    Global Best Practices for Complex Dispute Resolution


The United States of America’s Federal Rules of Civil Procedure includes provisions for complex litigation. For example, Rule 16 concerns, “Pretrial Conferences; Scheduling; Management”. Specifically, Rule 16(c)(2)(L) permits the trial Judge to adopt special procedures for , “managing potentially difficult or protracted actions that may involve complex issues, multiple parties, difficult legal questions, or unusual proof problems”. This provides flexibility to a federal court’s trial Judge to customise procedures in complex litigation to manage  issues related to multiplicity of parties, legal challenges, or evidence.

 

The Federal Judicial Centre has published a “Manual for Complex Litigation”[16]. This manual has excellent guidance on managing judicial supervision, role of counsel, pretrial issues like discovery, trials, settlement, and class actions as a specific type of complex litigation. The Judicial Conference of the United States has published a “civil litigation manual”[17]. This manual has detailed guidance for Judges to execute a case management plan, pretrial discovery, electronic discovery, pretrial motions, alternative dispute resolution methods, trial planning and actual trial itself. Of specific interest is its Chapter 7, “special case matters”, that deals with complex litigation. The Chapter 7 includes general guidance on complex cases, mass torts cases, class action litigation and expert evidence. Further guidance is given on high profile cases. Interestingly, there is guidance on media management in high profile cases, an increasing need in India too.

 

There is academic guidance on complex litigation available too through dedicated research centres in American universities. For example, George Washington Law School’s James F. Humphreys Complex Litigation Centre has published “Guidelines and Best Practices in Class-Action Litigation” for public comments[18].

 

The Business and Property Courts of England and Wales’ publishes various litigation guides, for example, commercial court guide[19] (incorporating the admiralty court guide) and the technology and construction court guide[20] and the intellectual property enterprise court guide[21]. While these are non-binding and litigation guides for specific courts, they include elements of managing complex litigations.

 

Arbitral rules or guidance notes from arbitral institutions provide specific guidance to manage key aspects of complex disputes. There is guidance available for discovery best practices in construction arbitration specially[22]. Specialised arbitration centres and their rules for complex disputes like construction are also emerging fast[23]. There is ongoing research by arbitral institutions to streamline document production[24].

 


F.    Suggested Remedies for Efficient Dispute Resolution in India


A few suggestions for improving methods of complex dispute resolution in India are describe next:

 

(a) A dedicated body for judicial procedural innovation. India needs a permanent judicial body with a statutory basis that is focussed on process innovation in judiciary from District Court to Supreme Court level. An example of this is the Judicial Conference of the United States, a century old body, that includes Judges across Full Federal judiciary from District Court upwards that makes direct recommendations to the US Congress on federal judicial issues[25]. The Judicial Conference of the United States does useful work through its sub-committees. Integration of trial and tribunal judiciary is critical in any such body. Some innovations have happened in Indian judicial meetings held at times but there is no institutional basis to these nor any regular published outputs of such ad hoc efforts.

 

(b) A guide for best practices in implementing Commercial Courts Act, 2015 is much needed. While a few high courts have amended their original side rules for commercial courts, but much needs to be done to separate conventions and practices of the ordinary civil trials from commercial court trials. There needs to be a scale of sanctions that include fines for violating case management timelines. These can be implemented by amendments to the law or through rules to make the commercial courts effective.

 

(c) A great opportunity exists for arbitration centres with their dedicated set of rules to innovate on complex arbitrations. Indian arbitral institutes can create dedicated construction or complex arbitration rules to expedite construction arbitrations considering the industry practices in India. In particular, voluntary disclosure of documents is a much required feature in expediting construction arbitration in India. Guidance in form of how to claim and prove common heads of construction claims would be very useful. Further, guidance on how to effectively produce and manage massive documentary evidence by building a common correspondence index and a statement of jointly agreed facts can be done.

 


G.   Conclusion


Indian legal system needs to build its complex litigation capabilities by continuous research in rules, training for lawyers and Judges, and creating non-binding court guides. The Commercial Courts Act, 2015 provides a great opportunity to build a new system within the existing courts that can handle complex litigation. But it seems there is more emphasis on aligning commercial courts with existing court practices and conventions than a radical rethink in the method and speed of conducting commercial trials. A parallel opportunity exists for arbitration centres in India to innovate on complex disputes by providing industry specific rules, particularly for construction disputes.

 


† Hasit B. Seth practices as a counsel in the Bombay High Court, India and in arbitrations.

[1] Black’s Law Dictionary, (9th Edn.) p. 1017.

[2] For example, See Harvard Law School’s Prof. Richard Clary’s Spring 2022 course titled “Complex Litigation: Legal Doctrines, Real World Practice”. See HERE.

[3] See, Union Carbide Corpn. Gas Plant Disaster, In re, 634 F Supp 842 (SDNY 1986).

[4] See, Prof. Marc Galanter’s Affidavit, Law School Digital Repository, University of Wisconsin, HERE .

[5] See, Affidavit of N.A. Palkhivala In Support of Defendant’s Motion for Dismissal on Forum Non Conveniens Grounds.  See HERE (Part of Baxi, et al., Mass Disasters and Multinational Liability: The Bhopal Case, 1986, Indian Law Institute).

[6] Facts and Figures, Bhopal Gas Tragedy Relief and Rehabilitation, Government of Madhya Pradesh. See HERE.

[7] See, “Bhopal Gas Tragedy: New SC Bench to Hear Compensation Case”. See HERE .

[8] See, Union Carbide’s Bhopal Website. See HERE .

[9] See, Civil Procedure – State Laws, Legal Information Institute, Cornell. See HERE .

[10]Civil Procedure Code, 1908, S.122.

[11] Mulla, The Code of Civil Procedure: Abridged (12th Edn.) p. 421.

[12] Consumer Protection Act, 2019, S. 2(5)(v).

[13] See, Restatement of Values of Judicial Life. See HERE .

[14] (2020) 7 SCC 1, 57.

[15] The draft of these rules cannot be found online as there is not even a website collating such efforts, though good effort has gone into creating these electronic evidence rules can be seen from this note on Centre for Development of Advanced Informatics (C-DAC) website: HERE .

[16] Federal Judicial Center, Manual for Complex Litigation, Fourth, 2004. See HERE

[17] The Judicial Conference of the United States Committee on Court Administration and Case Management, Civil Litigation Management Manual (2nd Edn.) 2010. See HERE .

[18] See, James F. Humphreys Complex Litigation Center, Guidelines and Best Practices In Class-Action Litigation, See: HERE .

[19] See, The Commercial Court Guide, (11th Edn.) 2022. See HERE .

[20] See, The Technology and Construction Court Guide, (2nd Edn.) 2005. See  HERE .

[21] See, The Intellectual Property Enterprise Court Guide, 2019. See HERE

[22] See, American Arbitration Association, Construction Discovery Best Practices. See HERE .

[23] See, American Arbitration Association’s Construction Industry Arbitration Rules and Mediation Procedures (Including Procedures for Large, Complex Construction Disputes). See: HERE. JAMS Construction Arbitration Rules. See HERE . International Institute for Conflict Prevention & Resolution’s Rules for Expedited Arbitration of Construction Disputes. See HERE .

[24] See, ICC Arbitration Commission Report on Managing E-Document Production. HERE .

[25] Judicial Conference of the United States. See HERE . Note that this is very different from Indian judicial academies which are roughly comparable to the Federal Judicial Center (FJC) in United States that focuses on policy-making and training: HERE , though Indian judicial academies have no formal role in judicial policy-making. The FJC produces excellent research as seen Here

Advani LawExperts Corner

  1. Introduction

The internationalisation of sports has resulted in making it a huge industry and has also, owing to globalisation and commercialisation of sports in general, led to the integration of sports and law. The sports industry has witnessed huge growth in a short span of time, which has completely transformed the nature of the industry as a whole and has led it to become a more commercialised set-up rather than being considered only a leisure activity, especially owing to the exorbitant amounts of monies involved in a few of the major sports. As a result, it is no surprise that the industry produces a large number of legal disputes which require speedy adjudication and well-settled bodies to deal with the specificity of the subject-matter. Like any other sector depending largely on arbitrations as a means of resolving disputes, sports arbitrations entail a method of resolving sports-related disputes by submitting them before a person/tribunal for final and binding decisions. The only difference between sports arbitrations and any other arbitrations is merely the subject-matter of the former. Although procedurally all arbitrations are the same, sports arbitrations do have their unique set of challenges that make them different from other forms of arbitrations. While sports arbitrations offer the same advantages as arbitrations in commercial disputes like a neutral setting, flexible procedures and specialised arbitrators; however, sports arbitrations do not conform to the New York Convention since the governing bodies have their internal rules and regulations in place to deal with the disputes that arise in the industry. Hence, the enforcement of awards through sports arbitrations is different from those arising through commercial or investment arbitrations.

The following paragraphs would trace the history of the development of jurisprudence for sports arbitration and the creation of the Court of Arbitration for Sports (CAS) in Switzerland for adjudication of sports-related disputes. Additionally, the focus would also be given to the development of mechanisms of sports arbitrations in India and its ratification of foreign principles in its municipal jurisdiction.

Development of Court of Arbitration for Sports and significance of Switzerland in sports arbitration

Switzerland is home to a number of international sports organisations. International Olympic Committee (IOC), the International Council of Arbitration for Sport (ICAS) and the CAS are all headquartered in Lausanne, Switzerland. The presence of such important sports organisations/authorities has led to Switzerland becoming the hub for adjudication of sports arbitration globally. Once read in detail, Swiss law is extremely flexible, which ultimately allows potential litigants a significant level of control and flexibility in the entire process of dispute resolution.[1]

The CAS was a result of the efforts of the President of IOC in 1981, Juan Antonio Samaranch, who recognised the requirement of such an independent adjudicating body, which would be understood to take up the role of “the Supreme Court of world sport”. In 1982, at an IOC meeting, late Judge Kéba Mbaye, who was acting as a Judge in the International Court of Justice was asked to chair a working party with the aim to create statutes of a sports dispute resolution body which would be known as the “Court of Arbitration for Sports”. It was in 1983 that IOC officially ratified the statutes of the CAS which came into force on 30-6-1984 and CAS began its operation.[2]

The CAS witnessed several reforms and revisions in its functioning in 1994. Since the institution of the body, the IOC has held a great degree of control in the working of CAS. In order to allow the CAS to work distinctively from the IOC, the International Council of Arbitration for Sports (ICAS) was established solely to deal with the management and operation of CAS. One of the primary functions of the ICAS was to ensure that CAS functions as an independent body and overlooks its administration, financing and overall running of the organisation.[3]

Working of Court of Arbitration for Sports

Arbitration, as a dispute resolution process, has been developed to tackle the unnecessarily long and stretched court proceedings and provide for a quicker and more efficient mode of dispute resolution. Even though all forms of arbitrations are inherently supposed to be a quicker means of dispute resolution, in sports arbitrations, this requirement is proliferated. Given the nature of the industry involved, it becomes essential that the decision to the disputed point of question is provided at the earliest opportunity to ensure that the even runs as per schedule. In order to ensure that decisions are pronounced in a timely manner, ICAS established an ad hoc division in 1996 which was given the responsibility to resolve disputes arising from the Olympic Games in Atlanta within twenty-four hours. Since the ad hoc division proved to be a huge success, similar divisions were set up for all succeeding Olympic events thereafter.[4] Furthermore, to help aid and quicken the entire resolution process in sports arbitrations, arbitrators hold a more active function in the entire procedure as compared to commercial and investment arbitrations. However, there are certain rules and regulations that the parties cannot circumvent. This includes the strict liability rule under the anti-doping regulations wherein the sports persons are instantly disqualified and abstained from getting any medals or prizes through the event concerned. In Alain Baxter v. International Olympic Committee,[5] a British skier was disqualified from the Alpine Skiing Slalom even at the Salt Lake City Olympics for having tested positive for a prohibited substance under the Olympic Movement Anti-Doping Code. Appellant suffered from chronic nasal congestion for which he used a non-prescription Vicks vapour inhaler to manage his symptoms. However, the version of the drug present in the US contained certain prohibited substances which the appellant was unaware about. The panel found, in line with the previous CAS rulings, that the appellant is strictly responsible for the substances they place in their body, and for the purposes of disqualification neither intent nor negligence needs to be proven. Another rule that the parties cannot derogate from includes that all the arbitrations before CAS are seated in Lausanne, Switzerland, including the cases coming through ad hoc divisions. In a way, this adds to the swift nature of the entire process since it eliminates any scope of debate between the parties over the question of competent jurisdiction presiding in an arbitration.[6]

To guarantee expertise on the panels adjudicating upon the disputes, CAS maintains a closed list of a group of arbitrators from which the parties are required to appoint arbitrators for their disputes. CAS arbitrators are required to undergo appropriate legal training which involves proficiency with respect to sports law and/or international arbitrations and a good knowledge of sports in general. In 2003, this rule was challenged before the Swiss Federal Tribunal where it was contented that the parties’ freedom to choose their arbitrator is curtailed and they should not be bound by CAS’s closed list of arbitrators. However, the Tribunal rejected this challenge establishing that the rule was justified by the need for sports-specific legal expertise for timely resolution of disputes and to ensure consistency arising through the decisions given by CAS.[7]

 

Another important feature of arbitrations before the CAS includes the transparent nature of the proceedings. In comparison to other forms of arbitrations, CAS is comparatively more transparent when it comes to releasing their awards. Despite a certain level of transparency in their proceedings, CAS arbitrators are bound by a duty of confidentiality which refrains them from disclosing any facts to a third party. If the arbitrator fails to abide by this duty, it may lead to cancellation of their empanelment.[8] Other than the responsibility of the arbitrator, rules for publication of awards are different depending upon whether the proceedings are initiated in the ordinary or appeals division. While ordinary proceedings are confidential and none of the stakeholders are allowed to disclose any information to the non-concerned party without prior permission from CAS and an agreement between the parties to disclose the award publicly, the appeals division works very differently and has the opposite principles attached to it. As a rule, the awards passed from the appeals division are published for the general public, unless otherwise agreed by the parties.[9]

Authority of awards passed by the Court of Arbitration for Sports

CAS awards do not carry a binding authority with them, and the arbitrators are free to deviate from the rulings previously given while they adjudicate upon a dispute. However, CAS panels often refer to previous decisions for persuasive guidance or to make a different ruling by distinguishing cases upon facts. This has led to the harmonisation of the rulings given by CAS even though there is no binding authority that the awards carry. Nevertheless, given that the closed list of arbitrators that CAS consists of arbitrators that belong to different legal backgrounds, coupled with a lack of institutional scrutiny of the awards being passed, there is always a certain degree of uncertainty present before the award is rendered by the Tribunal.

Thus, while CAS has created an organised structure for sports industry, there are certain aspects that still need to be developed better in order to ensure that the rulings remain consistent, and the participants are provided with a fair platform for the resolution of disputes.

Sports Arbitration in India

The sporting industry and the horizon of sports entertainment have had a significant boom in the past decade with a surge in viewership and investment thanks to multiple sporting leagues. With this surge has come a rising demand for a conducive infrastructure for dispute resolution for resolving sports disputes. Sports competitions and tournaments have acted as a platform for national recognition on the horizon of global politics alongside acting as a source of income for the economy. The need for utilising the same was realised by India years after independence. This led to a mirage of developments towards developing an organised structure for the sports community. Parallel to the developments happening globally, India also witnessed their initial developments in the field of sports.

Matters relating to sports, development or otherwise, come under the purview of the State Government as per Entry 33 of the State List under the Constitution of India. However, with respect to issues of international sports, it is the Union Government that has the responsibility of enacting laws as per Entry 10 of List 1 of the Constitution. Despite the State and Central Government having the responsibility to control the developments happening in the country with respect the sports industry, there are many private bodies that take up this responsibility in practice. The concern arises when there exists ambiguity in accountability of functioning of bodies that work independently of the Governments i.e. when the bodies that hold the primary power to regulate and sway the events that may take place in the sports community are privately functioning bodies,  for e.g. the Board of Control for Cricket in India (BCCI), which is the self-governing body in nature and would not fall under the definition of the State, thus escaping the statutory accountability that comes with the same, for example, the enforcement of Article 12 of the Constitution. Thus, having an entity created by the State, specifically catering to the intricacies of the needs of an effective dispute resolution in the field of sports, is integral. This drawback is overcome by the establishment of the Sports Arbitration Centre of India (SACI), which has been further elaborated on in the following paragraphs.

Following the events of the Asian Games in 1982, a need for development in the field of sports and education was realised. The year 1984 has been marked as the year of the creation of the Sports Authority of India (SAI), which is an autonomous registered society. This was followed by the creation of a National Sports Policy in 1984, the first milestone in the development being aimed for in the country. It was an amalgamation of all aspirations and ideals in furthering the Indian Sports Community. It could be observed in the trends that there did not exist an active inclination and interest within the nation towards developing and pursuing sports activities as a skill. Thus, the policy largely focused on promoting sports infrastructure and situating physical education as a part of school curriculums.[10] However, the policy did not focus enough to create a more organised and equipped environment with a formal set of rules, along with institutional bodies to enforce the same.

Upon the lack of success of the National Sports Policy of 1984, a new National Sports Policy was envisaged and created in 2001. It was a joint effort initiated by the State and Central Government in consonance with the Olympic Association and National Sports Federation and their primary objective of the policy was to further excellence in sports events internationally along with the “broad-basing of sports”.[11] It still retained a focus on amalgamating physical education within the existing academic curriculum. The policy placed the responsibility of enforcement on the Central and State Governments to provide them with appropriate powers to institute legislation,  which constituted a hurdle for effective implementation of the rules.

In furtherance to these efforts, the Indian Court of Arbitration for Sports (ICAS) was set up in 2011 with Dr A.R. Lakshmanan at the helm as Chairman.[12] ICAS was one of India’s first concrete steps toward laying the groundwork for having a robust dispute resolution mechanism specifically catering to the nuances of issues involved in sport. The court was centred around the principle of effective and speedy resolution of sports disputes keeping in mind the limited time span that a sportsperson enjoys during their career in sport.

Another major step in the evolution of sports regulations guidelines concerning safeguarding the interests of sportspersons and provision of effective grievance redressal system in the Constitution of National Sports Federations were brought forth. In the aftermath of Sushil Kumar v. Union of India,[13] before the High Court of Delhi in 2016, the Youth Affairs and Sports Ministry issued a notification through which they laid down guidelines with respect to dispute resolution in the area of sports. The guidelines titled, “Safeguarding the Interests of Sportspersons and Provision of Effective Grievance Redressal System in the Constitution of National Sports Federations”, emphasised two major points that are:

  1. The establishment of a transparent, free and fair grievance redressal system aimed to protect the interests of the persons involved in sports.
  2. Directed all sports federations to include a clause for appealing to the Court of Arbitration of Sports in their contracts and their Constitutions to address those cases where the sportsperson is unhappy with the ruling made by the sports association/federation. Directing the Sports Federations to include within their Constitution and their contracts a clause to appeal to the Court of Arbitration of Sports in case they are aggrieved by any decision or ruling of the federation/association.[14]

 

At present most sporting disputes in India are attempted to be resolved through the constitution of an internal commission typically appointed by the Sports Authority/Federation incharge of the sport in India or the State in question.  Failing the commission route, disputes usually go through litigation in either the  Supreme Court or the respective High Court.[15] There is a salient need for a specialised dispute resolution mechanism for disputes in sports and the sporting industry. To tackle these issues head-on there have been a plethora of suggestions made by the Law Commission of India primarily centred around the prospective setting up of a practice-friendly and modern law to govern the settlement of disputes in the field and the set up of a specialised body for Sports Arbitration in India.

To address this lacuna, the Sports Arbitration Centre of India was founded in 2021. Sports Arbitration Centre of India (SACI) was inaugurated by Minister of Law and Justice, Kiren Rijiju in September 2021 in Ahmedabad, Gujarat to serve as an independent body to fast track disputes in the sports sector and serve as a mechanism to redress issues related to sports.[16] The SACI will be promoted by Ahmedabad based SE TransStadia Pvt. Ltd. and all legal backing will be provided by the Ministry of Law and Justice. The SACI will have a far-reaching impact on the sports sector of the country by creating a reputation and establishing credibility for itself through the provision to settle disputes and other issues and concerns of the sports sector in a fast, transparent and very accountable manner.

It answers to the need for an independent body specifically catering to the intricate needs of the up and coming era of sports within a country by providing a neutral platform that’s more efficient and caters only to dispute matters within the sports community. Since the centre has been set up by the Ministry of Law and Justice, and in a way it is an extension of the same, providing a level of accountability that remained ambiguous before this venture. While there have been multiple ventures in the past in India, aiming to aid and facilitate the development of the sports communities, they failed to accomplish these aspirations owing to a lack of vision. For the development of the sports community of India, focusing on expanding the infrastructure alone is not enough. There existed a need to provide appropriate amenities, regulations, rights and rules to sportsmen partaking in the world of sports activities. It is important to give access to all sportsmen these rights and follow through on this ideal vision by implementation by giving them a platform that can efficiently act as a redressal mechanism. Turning to the hierarchy of courts in India for dispute redressal, as they themselves remain afflicted by administrative hurdles that make the entire process extremely time-consuming and technical, not to mention the lack of expertise required to address matters of such nature, does not suffice. Having a Sports Arbitration Centre in India acts as an effective safeguard available to the sportsmen in India that’s time efficient and possesses the requisite knowledge to appropriately address the disputes that may arise.

The most important venture after the inauguration of SACI is to raise awareness about the regulations rights and that commands and are available to the community. Despite being significantly behind in the field of dispute resolution and arbitration, India has made efforts to develop the infrastructure for the sports community, essentially moving to the commercialisation of the field. What the need of the hour calls for are steps towards formalisation, to have more organised structures that provide aid and amenities to the sportsmen to develop and flourish.


Kanika Arora Partner, Advani Law LLP

†† Vidyotma Malik, Associate, Advani Law LLP

[1] Daniel Girsberger and Nathalie Voser, “Sports Arbitrations”, International Arbitration: Comparative and Swiss Perspectives (4th Edn.) .

[2] Ian Blackshaw, “Access to Justice in Sports Arbitration”, Access to Justice in Arbitration: Concept, Context and Practice.

[3] Ian Blackshaw, “Access to Justice in Sports Arbitration”, Access to Justice in Arbitration: Concept, Context and Practice.

[4] Philippe Cavalieros and Janet Kim, “Can the Arbitral Community Learn from Sports Arbitration?” 32 Journal of International Arbitration 237.

[5] CAS 2002/A/376.

[6]  Philippe Cavalieros and Janet Kim, “Can the Arbitral Community Learn from Sports Arbitration?” 32 Journal of International Arbitration 237.

[7] A, B v. Comité International Olympique et Fédérations Internationale de Ski (Swiss Federal Tribunal, 1st Civil Law Chamber, 4P267/2002).

[8] Court of Arbitration for Sports, ICAS statutes, S19.

[9] CAS Procedural Rules, General Provisions, R. 43.

[10] Dr Awadhesh Kumar Shirotriya, “Conceptual Framework for Redesigning the Sports Policy of India” (2019) 8(1) International Journal of Physical Education Health & Sports Sciences.

[11] Dr Awadhesh Kumar Shirotriya, “Conceptual Framework for Redesigning the Sports Policy of India” (2019) 8(1) International Journal of Physical Education Health & Sports Sciences.

[12] Mukesh Rawat, “Choice of Law in Court of Arbitration for Sport: An Overview” SSRN (23-1-2021).

[13] 2016 SCC OnLine Del 3660.

[14] Safeguarding the Interests of Sportspersons and Provision of Effective Grievance Redressal System in the Constitution of National Sports Federations.pdf

[15] Arka Majumdar and Kunal Dey, “Significant Judgments on Arbitration and Conciliation Act, 1996 – May 2020 to July 2020 – Litigation, Mediation & Arbitration – India” (25-8-2020).

[16] “Kiren Rijiju Inaugurates Country’s First Sports Arbitration Centre, Says it Will Have Far-Reaching Impact” (The Times of India, 26-9-2021).

Advani LawExperts Corner


  1. What are Asymmetrical Arbitration Clauses?


Arbitration clauses by its very nature envisage reference of all disputes governed under the auspices of an arbitration agreement to be resolved vide arbitration by reference of the parties to the contract. However, in certain instances, the parties enter into arbitration agreements that vest disparate powers pertaining to the reference of disputes. These clauses are also commonly known as “unilateral option clauses”, “hybrid clauses” and “asymmetrical arbitration clauses” in international legal parlance.

 

An “asymmetric arbitration clause” or “unilateral option arbitration clause” under which the parties bound by it limit themselves to bringing an action in a particular jurisdiction, while at the same time allowing one or more parties to choose whether to refer a dispute to arbitration.[1]

 

The asymmetric arbitration clause only gives one party the advantage of choosing whether the dispute should be resolved by means of arbitration, it follows that the party entitled to decide has a certain advantage over the other. For the beneficiary party, the clause can represent as an effective risk management mechanism as they will have the security and flexibility to initiate, however this shall only apply when the clause is deemed valid.

 

Any arbitration clause which gives unequal powers to refer disputes for adjudication to all parties but one, is usually referred to as “asymmetrical arbitration clause”. This ranges from:

(i) Instances where only a single party has the power to refer the disputes to arbitration (unilateral clauses).

(ii) Instances where both parties have an option to refer the disputes to arbitration, however only one party has the power to refer the dispute to litigation or alternative redressal forums.

 

These clauses may be further tweaked by the parties such that reference of disputes to either litigation/arbitration may be made at the option of only one party, which in legal parlance is referred to as “option clauses”.

 

The present article, in turn, seeks to examine the validity of asymmetrical arbitration clauses including option clauses in the Indian scenario and analyse the judicial pronouncements that examine the validity and enforceability of arbitration clauses and the extent to which such clauses affect the validity and existence of the arbitration agreement.


  1. Pronouncements by Indian Courts on Asymmetrical Clauses


The beneficiary of a unilateral arbitration clause is vested with the power to refer disputes to arbitration, usually at his option, however the same is distinguished from unilateral appointment of an arbitrator. In the former, only one party may refer disputes to arbitration however, the appointment becomes a different matter altogether; whereas in the latter, only a single party has the power to appoint an arbitrator. Such unilateral clauses often contain provisions for unilateral appointments as well, however the operation and purport of the two are vastly different. The Supreme Court of India took the view that in an arbitration agreement providing for adjudication by a sole arbitrator, the appointment of the sole arbitrator cannot be made unilaterally by one of the parties, even if the clause so vested such a power in the said party, and that to maintain absolute fairness and impartiality, the competent court alone could affect the said appointment in exercise of powers under Section 11 of the Arbitration and Conciliation Act, 1996[2]

 

In Emmsons International Ltd. v. Metal Distributors (UK)[3] the Delhi High Court decreed that where an arbitration clause arising under a bill of lading is conceptualised with a view to deprive the other party of approaching the local courts/tribunals or initiate arbitration, such clauses run afoul of Section 28 of the Contract Act, 1872 (Contract Act) that declares agreements restraining legal proceedings as illegal and cannot be enforced as it is an agreement in restrain of legal. It is pertinent to note however, that the arbitration clause in the instant case vested the seller with the option to initiate arbitration as well as decide the forum of adjudication and gave no rights to the buyer to initiate proceedings.

 

The present case also reaffirms the decree of the Delhi High Court[4] that holds invalid, any unilateral dispute resolution clauses that completely deprive the other party to seek recourse to legal proceedings as well as deciding the appropriate forum of adjudication without the consent and approval of the other party.

 

However, in a case before the Supreme Court[5], the validity of an arbitration clause which provided only one party to either initiate appropriate legal proceedings in UK or initiate arbitration was deemed to be valid and further stated that these unilateral options clauses are valid and that there is no dispute with the same. The judgment however is received with skepticism since the court has interpreted the clause in accordance with the applicable English law which cannot be used to interpret clauses governed by Indian law, however being a decision of the Supreme Court the powers under stare decisis operates, hence the applicability of the same is uncertain.

 

The Delhi High Court in Lucent Technologies Inc. v. ICICI Bank Ltd.[6], yet again held that unilateral option clauses are invalid. The Court relied on both Bhartia Cutler[7] and Emmsons International[8] cases and stated that the party’s right to recourse through legal proceedings had been infringed under Section 28 of the Contract Act, 1872.

 

Curiously, the Madras High Court took a contrarian view in Castrol India Ltd. v. Apex Tooling Solutions[9] by upholding unilateral clauses in line with the view adopted in international jurisprudence that an arbitration clause need not necessarily have mutuality.


  1. Issues concerning Optional Clauses


What differentiates an optional clause from a mandatory one is the positioning of any prefix to the option to arbitrate/litigate. The usage of prefixes such as “shall”, “will” or “must” presupposes that such clauses stipulate that all disputes arising must be resolved in the manner provided under the dispute resolution clause and the parties are bound by the same.

 

Whereas the usage of the prefix “may” or “at the option of party (x)” gives discretion to the party/parties with the option to initiate appropriate disputes at its time of choosing at such appropriate forums as may be enumerated in the dispute resolution clause. Where the option to refer disputes is to be exercised by the parties jointly, the disputes clause shall only come to life once the parties by consent agree to refer the disputes as per the mechanism enshrined. An example of such a clause is “all disputes arising thereof shall be referred for arbitration if the parties so determine”. This draws a distinction from optional clauses where either party has an option to arbitrate or refer the disputes which takes the form such as “all disputes arising thereof shall be referred for arbitration at the option of either party”.

 

The Bombay High Court[10] has clarified that where the prefix “may” is attached in optional arbitration clauses, the party opting to initiate either arbitration/litigation has to seek consent anew of the other party before commencing arbitration, whereas situations envisaging mandatory arbitration are those where consent is deemed to have been given with the usage of the word “shall” or “will”  and thus either party to the agreement may initiate appropriate arbitration/litigation proceedings.

 

The Bombay High Court also distinguishes the Supreme Court case of Zhejiang Bonly Elevator Guide Rail Manufacture Co. Ltd. v. Jade Elevator Components[11], where both parties were given a choice to select a forum of under arbitration or litigation. Here, since the petitioners initiated arbitration, the respondent was bound to comply with the arbitration process as well since the clause was not optional in nature but mandatory.

 


  1. Analysis and Concluding Remarks


One of the more visible concerns in asymmetrical clauses is the power of the party having recourse to more than one forum of adjudication to seek and enforce a stay on proceedings initiated by a party having only recourse to a single method of adjudication. For example, where the party having a sole option to refer the disputes to arbitration invokes the same, the opposite party having more than one option for adjudication of the disputes stemming from the contract, may invoke an alternative forum under the asymmetrical clause, thereby inconveniencing his counterpart through greater control of the dispute resolution process. This would also run counter to Section 28 of the Contract Act by creating hindrances and restraints in the commencement of legal proceedings by the aggrieved party.

 

Yet, courts in India (with the exception of the Delhi High Court) and abroad do not dispute the existence of arbitration agreements which are entered into willingly by the parties, since contractual covenants must be given effect to without deviation to the terms stipulated by the contractual intent of the parties. Therefore, as a logical consequence even if arbitration agreements are asymmetrical in nature the same would be valid keeping in line with the principles of party autonomy enumerated by the Supreme Court,[12] which are the cardinal pillars of the Arbitration and Conciliation Act, 1996.

 

On closer examination on contractual agreements containing such clauses it would be discovered that these are found in several employer-contractor agreements, usually with one side being a corporate entity with deep pockets and the tenacity to weather several disputes whereas the other side being small to medium sized companies who have little room to bargain.

 

When taking into account the nature of the parties entering into such agreements, the clauses arising thereof would seem to be founded on unequal terms that violate Article 18 of the UNCITRAL Model Law where the “parties must be treated with equality and each party shall be given an opportunity to present his case”. The sequitur being that even the ability of the parties to refer disputes must be treated at parity.

 

Contracts containing terms that do not keep parties at parity are deemed by the Supreme Court[13] to be those against public policy and therefore invalid, since the parties do not enjoy equal bargaining power and therefore are construed as unconscionable contracts under Section 23 of the Contract Act.

 

However, the prevailing judicial view is that there is no requirement for mutuality in arbitration agreements which stem from equal considerations given by the parties to a contract and hence there is no requirement for an arbitration agreement to confer a mutual right to initiate a reference to arbitration and any agreements providing for an option for one party alone to refer disputes to arbitration is deemed valid. The extent of consideration in the main contract that flows into the arbitration agreement must be examined in further detail considering that arbitration agreements by its very nature are a separate agreement and are severable from the main contract.

 

At the present juncture in time, asymmetrical and optional clauses are prima facie deemed to be valid by the Indian courts in line with the international cases conclusively opining on the same. However, there are disparate views prevailing across the Indian courts as to its validity unless there is a clear indication that the manner or terms of the contract itself are contrary to the public policy of India.[14]

 

Though the courts in the United Kingdom and Singapore – two of the most arbitration-friendly hubs – deem asymmetrical, optional clauses as valid,[15] it is imperative that the Indian courts analyse the validity of such clauses in the socio-economic backdrop of India rather than the prevailing global sentiment in order to give effect to a uniform standard as to the treatment of asymmetrical and optional clauses in order to ensure expeditious adjudication and disposal of arbitration proceedings.


† Founder & Chairman, Advani Law LLP.

†† Senior Partner, Advani Law LLP.

††† Associate, Advani Law LLP.

* Associate, Advani Law LLP.

[1] Maastricht Journal of European and Comparative Law 2018, Vol 25 (I) 77–86, Bas van Zelst, page 77.

[2]Perkins Eastman Architects DPC v. HSCC (India) Ltd., 2019 SCC OnLine SC 1517.

[3] 2005 SCC OnLine Del 17

[4]Bhartia Cutler Hammer Ltd. v.  AVN Tubes Ltd., 1991 SCC OnLine Del 322 : (1993) 1 BC 472.

[5] Fuerst Day Lawson Ltd. v. Jindal Exports Ltd., (2001) 6 SCC 356.

[6]2009 SCC OnLine Del 3213.

[7] 1991 SCC OnLine Del 322 : (1993) 1 BC 472.

[8] 2005 SCC OnLine Del 17

[9] 2015 SCC OnLine Mad 2095.

[10]Quick Heal Technologies Ltd. v. NCS Computech (P) Ltd., 2020 SCC OnLine Bom 693.

[11](2018) 9 SCC 774.

[12]PASL Wind Solutions (P) Ltd. v. GE Power Conversion (India) (P) Ltd., (2021) 7 SCC 1.

[13]Central Inland Water Transport Corpn. Ltd. v. Brojo Nath Ganguly, (1986) 3 SCC 156.

[14]ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705; Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., (2012) 9 SCC 552; Shri Lal Mahal Ltd. v. Progetto Grano Spa, (2014) 2 SCC 433.

[15]NB Three Shipping Ltd. v. Harebell Shipping Ltd., 2004 EWHC 2001; Dyna-Jet Pte. Ltd v. Wilson Taylor Asia Pacific Pte. Ltd., 2017 SGCA 32.

NGT
Case BriefsTribunals/Commissions/Regulatory Bodies

National Green Tribunal (NGT), Principal Bench, New Delhi: The Bench of Justice Adarsh Kumar Goel (Chairperson) and Justice Sheo Kumar Singh (Judicial Member) and Dr Nagin Nanda (Expert Member)declined any relief to the applicant seeking an injunction against the demolition of Dhobi Ghat.

The instant application sought an injunction against the demolition of Dhobi Ghat, Okhla Delhi.

Applicant on an earlier occasion had approached the Delhi High Court by way of WP (C) 8963 of 2020, Muslim Kassar Vikas Sangthan (Reg.) v. Delhi Development Authority, the said petition was disposed of on 12-11-2020, wherein the Court had asked the petitioners to approach the NGT. 

Tribunal found the grievance to be out of the ambit of Sections 14 and 15 of the National Green Tribunal Act, 2010.

Bench added that jurisdiction of NGT under Sections 14 and 15 can be invoked by a victim of pollution for the restoration of environment or for compensation to the victim, and the said issue is not shown in the instant matter.

Hence, in view of the above application was disposed of. [Muslim Kassar Vikas Sangthan (Regd.) v. Delhi Development Authority, 2020 SCC OnLine NGT 867, decided on 11-12-2020]


Also Read:

Section 14 of the NGT Act:

Tribunal to settle disputes.—(1) The Tribunal shall have the jurisdiction over all civil cases where a substantial question relating to environment (including enforcement of any legal right relating to environment), is involved and such question arises out of the implementation of the enactments specified in Schedule I.

(2) The Tribunal shall hear the disputes arising from the questions referred to in sub-section (1) and settle such disputes and pass order thereon.

(3) No application for adjudication of dispute under this section shall be entertained by the Tribunal unless it is made within a period of six months from the date on which the cause of action for such dispute first arose:

Provided that the Tribunal may, if it is satisfied that the applicant was prevented by sufficient cause from filing the application within the said period, allow it to be filed within a further period not exceeding sixty days.

Section 15 of the NGT Act:

Reliefcompensation and restitution.—(1) The Tribunal may, by an order, provide,—

(arelief and compensation to the victims of pollution and other environmental damage arising under the enactments specified in the Schedule I (including accident occurring while handling any hazardous substance);

(b) for restitution of property damaged;

(c) for restitution of the environment for such area or areas,

as the Tribunal may think fit.

(2) The relief and compensation and restitution of property and environment referred to in clauses (a), (band (c) of sub-section (1) shall be in addition to the relief paid or payable under the Public Liability Insurance Act, 1991 (6 of 1991).

(3) No application for grant of any compensation or relief or restitution of property or environment under this section shall be entertained by the Tribunal unless it is made within a period of five years from the date on which the cause for such compensation or relief first arose:

Provided that the Tribunal may, if it is satisfied that the applicant was prevented by sufficient cause from filing the application within the said period, allow it to be filed within a further period not exceeding sixty days.

(4) The Tribunal may, having regard to the damage to public health, property and environment, divide the compensation or relief payable under separate heads specified in Schedule II so as to provide compensation or relief to the claimants and for restitution of the damaged property or environment, as it may think fit.

(5) Every claimant of the compensation or relief under this Act shall intimate to the Tribunal about the application filed to, or, as the case may be, compensation or relief received from, any other court or authority.

Case BriefsHigh Courts

Delhi High Court: A Bench of Jyoti Singh and G.S. Sistani, JJ., dismissed an appeal filed against the order of the family court whereby it directed that interim custody of the 11 years old girl remained with the respondent-father for four days and with the appellant-mother for three days in a week.

The appellant appearing in person sought modification of the order on the ground that the respondent was a sexually abusive father and she sought to produce a video recording to that effect. Per contra, the respondent appearing in person with Yidhishter Sharma and Nishant Sharma, Advocates denied the allegations and instead stated that the appellant was suffering from mental illness.

The High Court endorsed the view of the family court that both the parties had equal rights over the child. It was noted that the video recording did not prima facie support the allegations made by the appellant. It was also noted that the child was counselled by three independent counsellors and the reports stated that the child was happy and wished to live with her father. It was observed, “The Apex Court, as well as this court, has repeatedly held that where the parties are not able to resolve their differences and stay together, then shared parenting is the best formula to bring up a child.” Everything considered, the Court was of the opinion that there was no occasion to interfere with the impugned order of custodial arrangement. [DSG v. AKG, 2019 SCC OnLine Del 7767, decided on 26-03-2019]

Central Information Commission
Case BriefsTribunals/Commissions/Regulatory Bodies

Central Information Commission (CIC): A Single-member Bench comprising of Bimal Julka, Information Commissioner, disposed of an appeal directing the appellant to approach the appropriate forum for her grievance redressal while holding that jurisdiction of the Commission was restricted to the function of ruling on the matters pertaining to right to information.

The appellant who was not present before the Commission, vide RTI application, sought information regarding the action taken by the respondent- Life Insurance Corporation, on the representation made by her claiming insurance under policy number as mentioned in the RTI application. The CPIO (LIC) forwarded appellant’s application to the Manager, Health Insurance, for necessary action. Dissatisfied, the appellant approached the first Appellate Authority (FAA). The FAA provided a point wise response to appellant’s query. Aggrieved by the action taken by the respondent Corporation, the appellant preferred the instant appeal.

The Commission perused the record and held that FAA had provided a proper response to the query raised by the appellant in her RTI application. As for the redressal of appellant’s grievance that the action taken by the Corporation was not satisfactory, the Commission observed that the framework of the Right to Information Act 2005, restricts the jurisdiction of the Commission to provide a ruling on the issues pertaining to access to/ right to information. The Act does not allow the Commission to venture into the merits of the grievance. The Commission referred to a plethora of precedents to hold that proceedings under the RTI Act cannot be converted into proceedings for adjudication of disputes as to the correctness of the information furnished. Further, the Commission does not decide the dispute between two parties concerning their legal rights other than their right to get information in possession of a public authority. Since the appellant was not present, the Commission went on to hold that in view of the facts of the case and submission made by the respondent, no further intervention of the Commission was required. For redressal of her grievance, the appellant was directed to approach the appropriate forum. The appeal was accordingly disposed of. [M. Meenatchi v. CPIO (LIC) ,2018 SCC OnLine CIC 750, dated 11-06-2018]