ARBITRABILITY OF FRAUD ALLEGATIONS

Ms. Khushboo Garg
(University Institute of Laws, Regional Centre, Ludhiana)

Arbitration is a dispute redressal mechanism for resolving disputes that arises between two private parties. The matter is referred to arbitration when it is according to the agreement between the said parties. In arbitration, an undisputed third party is appointed/ selected to judge the dispute. Generally, the disputes related to the ‘rights in personam‘ are adjudicated via arbitration. However, there can be instances where the matter of disputes related to the ‘right in rem’ that is subordinate to the ‘rights in personam’ are settled through arbitration, provided the parties to the agreement so agree.

The Indian Contract Act defines ‘fraud’ under Section 17 as an act done with an intent to deceive or induce the opposite party or its agent thereto to enter into the contract where;
the fact stated is not true or is not believed to be true,
there is active concealment of facts and the party committing fraud knows the same,
the intention to abide by the promise is absent,
the intention is to deceive the other party, or
any act declared fraudulent by the provisions of law.

CONCEPTS RELATED TO THE ARBITRABILITY OF FRAUD IN INDIA:

Before discussing the judicial precedents to determine the arbitrability of fraud in India, there are certain concepts that the Honorable Courts have considered for deciding the arbitrability of fraud in India.

The concepts are listed as follows:

The Doctrine of Public Policy: The concept of public policy is not defined in any statute but it is referred to as the policy that is equivalent to law, as the main purpose of the framers of the constitution was to ensure the welfare of the public. The fundamental policies mentioned in the Indian Laws ensure that;
there is a judicial approach to determine the rights of the natives of the country, and there is a parallel obligation that is attached with such rights as determined by the quasi-judicial authorities.

Arbitration when discussed through the doctrine of public policy elaborates on the contention that the court of law has the authority and the power to intervene in the recourse of an arbitral award that is passed based on any irregularity or any substantial injustice caused to the applicant/parties to the agreement. The public policy aims to strengthen and encourage the settlement of civil/commercial disputes by arbitration.
Principle of Severability: The principle of severability states that if there is an issue regarding the validity of the law, the Supreme Court has the power to resolve the matter. It is further stated that if any part of the law is termed unconstitutional, the court would determine whether the remaining part of the law can survive being constitutional or not.
In the arbitration agreements, the arbitrators may decide the nature of dispute arising and their validity at the initial as well as the subsequent stages of the arbitration proceedings.
In RS Jiwani v Ircon Inernational Ltd, it was held by the honorable court that if the constitutional/valid part of the arbitral award can be severed from the unconstitutional or illegal part, the constitutional part holds validity and hence, shall be duly enforced.
Matters Arbitrable as per the Act: The Arbitration and Conciliation Act, 1996 does not specifically exclude any matters that cannot be adjudicated via arbitration. However, Section 34(2)(b) and Section 48(2) of the Act relates to various ‘subject matters’ of the disputes that cannot be settled by arbitration.

The matters that are outside the purview of arbitration that is termed non-arbitrable are as follows:
issues arising from Intellectual Property Rights such as patents, copyrights, trademarks, etc.
issues related to Competition Laws;
issues related to insolvency and winding up;
issues of serious criminal liability
issues of bribery and corruption,
issues arising out of fraud
issues arising out of matrimonial causes, restitution of conjugal rights, testamentary matters, etc.

Correlation of Arbitration and Fraud

Fraud is said to possess a dualistic characteristic. The decision of fraud entails features of both rights in rem as well as right in personam. Right in personam means where one possesses a right against a specific individual (person) whereas, right in rem means where the right is available against the society at large.

There have been demystifying views regarding the adjudication of fraud via arbitration. The right in personam is considered to be amenable to arbitration. Right in rem is not included in the adjudication process through arbitration. If interpreted otherwise, the disputes relating to the subordinate right in personam that arise from right in rem can be considered for arbitration. In other words, if the matters allege for any serious allegation, adjudication through arbitration is not allowed. The fraud which is attributable to a civil aspect emerges due to the impeachment of the underlying contract, on the discretion can be adjudged via arbitration.

Competence of Courts u/s 16: Section 16 of the Act is based on the principle Kompetenz Kompetenz, where the arbitration tribunal before the adjudication of proceedings limits its jurisdiction that is then reviewed by the courts. Section 16 states that the arbitral tribunal suo moto can restrict its jurisdiction concerning either existence or validity of an arbitration agreement. In the case of Kvaerner Cementation India Ltd. v. Bajranglal Agarwal and Anr it was held that Section 34 would assess the amenability raised under Section 16(2), (4), and (6).

Provisions in other statutes:
Section 9 of the Civil Procedure Code, 1908 elaborates the jurisdiction of civil courts to try the suits unless the court is barred by any other statute. The said provision ensures the fundamental rights of the individual to file a suit and be heard in the civil courts if not arbitral tribunals.

JUDICIAL BACKING
Fraud is an intentional misrepresentation or concealment of facts that are essential to decide the validity of a contract. The major ingredient for an act to become fraud includes:
intention and knowledge,
use of unjust practices or commission of an unjust act,
deliberate intent to conceal or misrepresent a fact.

The courts have analyzed the arbitrability of fraud in India and assessed every possible contention that could arise from the same. The contentions are discussed in light of recent judgments.

Scope of Arbitrability of Fraud: Rashid Raza v Sadaf Akhtar
The court while justifying the scope of arbitrability of fraud stated that the ‘simple’ allegations of fraud that relate to the internal or private affairs of the parties to the agreement would have a bare minimum effect on the validity of the contract. The apex court conducted a twin test to streamline the views relating to the arbitrability of fraud. The two contentions were;
if the plea of fraud correlates to the entire contract, such a contract should be null and void.
If the allegations of fraud correlate to the internal affairs of the parties to the agreement, then there would be no implication towards the public domain.

A mere allegation of fraud:

The question that the courts need to address related to whether a mere allegation of fraud imposed by one party, would straight away exclude the adjudication of the dispute via arbitration.

However, it was held by the honorable Supreme Court that in the matters where the allegation of fraud is serious, such would be deemed as a reasonable ground for not referring the dispute for arbitration. It is further evaluated that where the nature of fraud is serious there is a possibility of some criminal offense attached to the allegation of fraud. In such circumstances, it is believed that the civil courts would perform better than the arbitral tribunal as the evaluation of criminal offenses requires an in-depth analysis of pieces of evidence, witness, etc. The mere allegation of fraud simpliciter cannot be held as a valid basis to nullify the agreement between the parties.

246th Law Commission Report:

The report in Para 50 and 51 analyze the arbitrability of fraud. The report considered various judgments laid down by the apex court to give its recommendations on the said matter.

In Bharat Rasiklal v. Gautam Rasiklal, it was submitted that where fraud is of a nature that harms the validity of the contract, the issue related to the arbitrability of fraud remains a parallel unanswered question. The division bench in the matter of N. Radhakrishnan v. Maestro Engineers also affirmed that disputes relating to fraud cannot be adjudged by arbitration. Contrary, to the above-mentioned judicial precedents, the Supreme Court in Meguin GMBH v. Nandan Petrochem Ltd and Swiss Timing Ltd. v. Organising Committee, appointed arbitrators under section 11 for adjudication of matters relating to fraud.

The Law Commission in its 246th Law Commission report recommended that:
In case of mere allegation of fraud: the matter can be referred to arbitration
In case of a serious allegation of fraud: the matter must be adjudicated by the civil courts.

Dispute of fraud capable of adjudication or settlement through arbitration:

The courts while considering the said condition emphasized the domain of the subject matter. Where the dispute of fraud is not within the domain of public fora, such a dispute should not be referred for arbitration. As a matter of public policy, certain matters need to be in the jurisdiction of the courts or tribunals (legislature). Further, the courts clarify that in cases where a certain matter indirectly relates to the public fora would not stand included in the private fora.

Reduction in the intervention of Civil Courts

In N. Radhakrishnan v. Maestro Engineers, the court gave weighted preference to the seriousness of fraud allegations and the detailed evaluation required for the subsequent evidence. Section 8 was further elucidated by relying on the case of Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak that clarifies to offer a wider scope of jurisdiction to the arbitrators.

Further, in the matter of A. Ayyasamy v. A. Paramasivam & Ors it was stated that one of the objectives of the Arbitration and Conciliation Act, 1996 is to reduce the burden on civil courts by resolving disputes through arbitration. Section 8 of the Act further gives power to the parties who are bound by the arbitration agreement.

SUM IT UP

Section 36 of the Arbitration and Conciliation (Amendment) Ordinance, 2020 proposed an amendment concerning ‘fraud.’ The amendment states, where the court is satisfied prima facie that the final making of the award or the basis of the award on the arbitration agreement was induced by fraud or any corruption, the award will be challenged for disposal under section 34 of the Act.
Thus, it is analyzed from the discussion above that fraud is classified into two categories, viz.fraud simpliciter, andserious fraud.

The disputes arising out of allegations of fraud can be duly resolved through arbitration if the allegation does not include serious allegations. The issues of fraud will be said to hold the validity of adjudication if the fraud does not impeach the arbitration agreement.

The judiciary while considering the arbitrability of fraud emphasized that a liberal construction of arbitration agreements so that its subsequent clauses will favor the ‘one-stop’ arbitration. One-stop arbitration would not only widen the horizon and the scope of arbitration, but would also ensure speedy justice.

APPEALS AGAINST ARBITRAL AWARDS

SSANGYONG ENGINEERING & CONSTRUCTION CO. LTD. VS NATIONAL HIGHWAYS AUTHORITY OF INDIA (NHAI)
Ms. Khushboo Garg
(University Institute of Laws, Regional Centre, Ludhiana)

CITATION: Civil Appeal No. 4779 of 2019, decided on May 8, 2019
BENCH (DB): Rohinton Fali Nariman and Vineet Saran

CASE DESCRIPTION:

The Honorable Supreme Court upheld that the appeal must be allowed to restore the minority decisions vide Article 142 of the Constitution of India, 1950 and suggested bringing suitable amendments to the Arbitration and Conciliation Act, 1996 to remove ambiguity and uncertainty.

INTRODUCTION:

An appeal was filed by Ssangyong Engineering Company challenging the majority decision laid under Section 34 of the Arbitration and Conciliation Act, 1996. The appellants allege that the ‘most basic notions of justice’ were breached due to the majority award decided by the Arbitral Tribunal whereas, the respondents contended that the arbitral award was within the terms of the contract.

FACTS OF THE CASE:

The National Highways Authority of India (hereafter referred to as NHAI) invited a bid for the construction of a four-lane bypass on NH-26 (Madhya Pradesh). The appellant, a company registered under the Republic of Korea was approved for the construction contract, total value being INR 2,19,01,16,805. The bid was accepted vide the letter of acceptance communicated on 30 December 2015. Clause 70.3 of the contract to provide for Price Adjustment for four components viz. cement, steel, plant, and machinery that were used for the construction of the highway. Accordingly, the appellant was entitled to receive compensation as per the terms of the contract for the inflation of the above four components. The agreed method/formula for calculation of the inflation was the Wholesale Price Index [hereafter referred to as WPI] that followed 1993-1994 as the base year. However, with effect from 14 September 2010, the NHAI issued a circular revising the calculation of WPI, which used 2004-2005 as the base year and the appellant issued the bills accordingly. NHAI further issued a policy circular on 15 February 2013 that indicated a new formula to determine indices through ‘linking factor’ and referred to 2009-2010 as the base year. The appellant raised the claim for INR 2,01,42,827 due to the non-payment of price adjustment for September 2010-May 2014 and the interest on non-payment thereof.

WRIT PETITION: BEFORE THE MADHYA PRADESH HIGH COURT

The appellant challenged the circular dated 15 February 2013 issued by NHAI through a writ petition before the Honorable High Court of Madhya Pradesh. The court opined that the contract between the appellant and NHAI provides for an alternate dispute redressal mechanism that is Arbitration, therefore, the writ was disposed of.

DISPUTE REFERRED TO ARBITRATION:

The appellant disputed the revision of WPI (the base year 2004-2005) as it inflated their costs, therefore to resolve the dispute the matter was referred to a three-member arbitral tribunal. The dispute in question was whether the price adjustment should be calculated as per the terms of the contract or whether the circular w.e.f. 15 February 2013 should be referred for applying the linking factor.

The Arbitral Tribunal on the award dated 2nd May 2016 were of the view that the circular dated 15 February 2013 were within the terms of the contract and hence must be referred. Moreover, the appellant’s contention that the circular de hors the contract were denied and the subsequent claims was rejected.

APPEAL: BEFORE THE DELHI HIGH COURT:

Unsatisfied from the majority decision of the arbitral tribunal, the appellant filed an appeal under Section 34 before the Single Judge of the High Court. The court rejected the appeal stating that the new series were duly published by the Ministry of Commerce and Industry and the base indices should be calculated as per the circular dated 15.02.2013.
The appellant filed a subsequent appeal before the High Court (Division Bench) under Section 37 of the Act, which was also rejected.

APPEAL: BEFORE THE SUPREME COURT OF INDIA

The appellant filed an appeal before the honorable Supreme Court. The appeal involved the following issues:
Whether amendments under section 34 will be applicable to set aside the arbitral awards?
Whether the provisions of Section 34(2)(a)(iv) is applicable?
Whether the arbitral award decided by the majority is in conflict with the public policy?
The above contentions were duly elaborated by the honorable Supreme Court to decide the matter.

The applicability of the Amendment Act 2015:

The 246th Law Commission Report provided for the application of the Amendment Act 2015 to the court proceedings that would commence on or after 23.10.2015. In Board of Control for Cricket in India v. Kochi Cricket (P.) Ltd. and Ors., it was observed that the amendments of Section 34 of the Act would apply to the appeals made for the arbitral proceedings that started before the date of any such amendments. Further, the court found that the appeal filed in the present case was after the enforcement of the amendment, therefore, the provisions under Section 34 should be applied.

The applicability of Section 34(2)(a)(iv) in the present case:

The respondents duly agreed to the fact that the guidelines were not discussed in the arbitral proceedings. The appellant, therefore, either would be directly affected by the same else would be unable to present the case as he would not be allowed to comment on the interpretation of the guidelines. Thus, the Supreme Court suffice the reasons to set aside the majority orders under Section 34(2)(a)(iv).

The arbitral award under Section 34(2)(b)(ii) and the public policy:

Section 34(2)(b)(ii) holds mention of the term ‘most basic notions of justice.’ It was challenged under the said provisions based on a substantive or a procedural breach of the fundamental principle of justice that shocks the conscience of the court. The Supreme Court further stated that the majority award that substituted a workable formula as per the NHAI Circular has created a new contract. Therefore, the appellants alleging the decision of the arbitral tribunal as de hors the agreement between the said parties was held justified. The court was of the view that the broad interpretation of fundamental policy given under ONGC Ltd. v. Western Geco International Ltd. and Associate Builders v. DDA was not applicable on Section 34.
The court elaborated the fundamental principle of justice by clarifying that any material addition or alteration of the contract, where one of the parties clearly states its unwillingness, cannot be made liable to perform a bargain under such contract.

It was further clarified by the honorable Supreme Court that under no circumstance, the court can interfere with the arbitral award on the ground that justice has not been done. It is only through the provisions of Section 34 of the Act that a court can interfere in the decision of the arbitral tribunal.

OTHER CONSIDERATIONS:

The additional ground of domestic awards was available under Section 34(A2) of the Amendment Act. The concept of ‘patent illegality was also enumerated by the Supreme Court. For the application of the provisions under Section 34(2A), patent illegality must be visible on the face of the award where the illegality is at the roots of the matter of dispute and not due to an erroneous application of the law. The grounds invoking the same could be: 
Where the award was granted without giving due reasons;
Where the arbitrator believes that it is impossible to interpret a contract;
Where the decision of the arbitrator is beyond the terms of the contract;
Where the decision overlooks a piece of evidence or the necessary documents are taken as evidence without the notice/knowledge to the parties to contract.

DECISION OF THE SUPREME COURT:

The Supreme Court allowed the appeal filed by the appellant. The court believed that referring the matter to a fresh Arbitral Tribunal would be contrary to the main objective of the Arbitration and Conciliation Act that is to provide speedy resolution when any dispute arises. Therefore, the court through Article 142 upholds the minority decision and grants relief of claim of INR 2,01,42,827 and interest of 10 percent to the appellants.

KEY TAKEAWAYS:

The above-discussed judgment highlights three main aspects in light of the Arbitration and Conciliation Act, 1996 viz.
The applicability of the Arbitration and Conciliation (Amendment) Act, 2015;
Setting aside an arbitral award on the grounds of ‘public policy,’ further elaborating the scope of public policy under Section 34 (after the Amendment Act, 2015);
Recognition towards the Minority Decisions in the Arbitral Awards.

Ambiguity Regarding the Mandatory Nature of Pre-Arbitral Steps

There persists an uncertainty about whether pre-arbitral steps/procedures are mandatory conditions to be complied with and followed prior to invocation of arbitration or are they to be construed in a directory manner. The Courts in India have delivered several conflicting and varying judgements over the years, adding to this uncertainty.

The recognition of the enforceability of pre-arbitral procedures in India dates back to the year 1999 where the Kerala High Court, in Nirman Sindia vs. Indal Electromelts Ltd, observed that when the parties have agreed to a specific mode of dispute resolution, they are bound to comply with the same without escalating to the next or final step without complying with the initial step. A similar view was adopted by the Rajasthan High Court in M/s Simpark Infrastructure Pvt. Ltd. vs. Jaipur Municipal Corporation and also by the Supreme Court in SBP & Co. vs. Patel Engineering Co.,/ reiterating the need to mandatorily follow the agreed procedure that is to be complied with as a precedent condition to invoking arbitration.

Supreme Court’s position

The majority view observed in Supreme Court judgements indicates the mandatory and jurisdictional nature of pre-arbitral procedures. One such instance is M.K. Shah Engineers and Contractors vs. State of Madhya Pradesh where the possibility of setting aside an award where certain “procedural pre-requisites” were not achieved was considered. The Supreme Court ruled by giving effect to the language of the clause that such pre-requisite conditions were essential and were thus to be complied with necessarily. A similar stance was taken in S.K. Jain vs. State of Haryana & Anr. where upon non-compliance with certain “mandatory requirements”, the tribunal refused to assume jurisdiction due to the language of the clause requiring prior satisfaction of certain conditions.

Further, in Oriental Insurance Company vs. M/s Narbheram Power and Steel, the arbitration clauses were viewed to be construed “strictly” thus requiring completion of pre-conditions to arbitration. A similar ruling was passed in United India Insurance Co. vs. Hyundai Engineering and Construction Co. where the agreement was found to be “hedged with conditionality” making non-fulfilment of the pre-conditions render the dispute “non-arbitrable”.
The Supreme Court judgements discussed so far have been heavily/majorly guided by the parties’ intention, i.e., the language of the arbitration/pre-arbitration clause. However, in some cases, the Court might also consider the likelihood of the success of pre-arbitral procedures instead of just the parties’ intentions. By doing so the Courts have also recognised that there might be a requirement to take a more nuanced stance w.r.t certain clauses, ruling that the requirement of pre-arbitration consultation can be dispensed with, in certain scenarios, due to their directory and non-mandatory nature.

One such instance can be observed in Demerara Distilleries (P) Ltd v. Demerara Distilleries Ltd. where the Supreme Court took a different approach. Here, the language of the clause called for parties to engage in mutual discussion, followed by mediation and only in the absence of a resolution, to refer the disputes to arbitration. The appointment of application filed was contended of being “pre-mature” but according to the Court that claim did not merit “any serious consideration” leading to the decision that various correspondence between the parties indicates that any mutual discussions or mediation would just be an “empty formality”.

Contrary Views of High Courts

There also exist some instances where the same Court has delivered judgements expressing divergent views relying on the facts of the concerned case. This suggests that there is, to some extent, some subjectivity at play when the Courts are faced with the contentious question about the mandatory nature of pre-arbitral steps. A full bench of the Bombay High Court, in S Kumar Construction Co and Anr. vs. Municipal Corporation of Greater Bombay and Ors,, placed reliance on Municipal Corporation of Greater Mumbai vs. Atlanta Infrastructure Ltd & Anr. and held that since the language of the Clause along with the facts of the case do not suggest that pre-arbitral steps were to be mandatorily followed, they were not obligatory preconditions for invoking arbitration. However, all pre-arbitral procedures were not pronounced to be optional as a general rule, rather it was held that these procedures being mandatory or optional could vary depending on the language of the arbitration clause. This led to a divergent view being expressed, a year later, in Tulip Hotels Pvt. Ltd. vs. Trade Wings Ltd., where the pre-arbitral procedure, here conciliation, was held to be a mandatory precondition since the Pre-Arbitration Clause strictly reflected the binding nature of pre-arbitral conciliation.

On the flip side, the Delhi High Court adopted a distinct position with its ruling in Ravindra Kumar Verma vs. M/S. BPTP Ltd. & Anr. by overruling the previous judgement in M/s Haldiram Manufacturing Company vs. M/s DLF Commercial Complexes Ltd. which stated that application invoking arbitration submitted to the Court, prior to complying with the pre-arbitral steps must be dismissed. The High Court in Ravindra Kumar, while relying on earlier decisions of the Delhi High Court in Sikand Construction Co. and Saraswati Construction Co. held that pre-arbitral steps stated in a pre-arbitration clause are directory in nature and not mandatory. The Court in Union of India vs. M/s Baga Brothers, while relying on the judgement of Ravindra Kumar, reiterated the directory nature of pre-Arbitral steps and held that the appointment of an Arbitrator can be proceeded with even prior to completion of such steps. A similar view has been taken by this Court in further cases like Siemens Ltd. vs. Jindal India Thermal Power Ltd. and Sarvesh Security Services Pvt Ltd vs Managing Director, DSIIDC, reaffirming the stance taken in the previously mentioned judgements and restating that pre-arbitral steps are merely optional.

The most recent case which dealt with this question was Quick Heal Technologies Limited vs. NCS Computech Private Limited & Ors. where the Bombay High Court examined the nature of pre-arbitration clauses. The Court, while acknowledging the mandatory nature of the pre-arbitration mediation clause, ruled in reliance to the judgement rendered by the Supreme Court in Visa International Limited vs. Continental Resorts (USA) Limited. It was held that if from the correspondence exchanged between the parties, “it is clear that there was no scope for amicable settlement” then the mandatory/binding nature of the pre-condition requiring amicable discussion for resolution would no longer hinder the furtherance of dispute resolution process. Thus, by relying on facts and circumstances of the case it was decided that in such cases invocation of arbitration without complying with pre-arbitration mediation clauses was not fatal.

Conclusion

Therefore, as can be gathered from the above discussion, the Supreme Court and High Courts have taken several divergent stances over the years when it comes to deciding the nature of pre-arbitral steps as either mandatory or merely directory. It can be concluded that due the reliance placed on factors like the parties’ intentions, i.e., the language of the clause in question and the likelihood of success of pre-arbitration procedures, there is no certain answer to that question yet. Here, the subjectivity at play makes it so that some level of judicial discretion can be observed. Although the majority view seems to be in favour of mandatory compliance with pre-arbitral procedures, the Courts on several occasions have recognised the need for a more nuanced position where such procedures may be treated as non-mandatory.

TRANSCEND OF INVESTOR- STATE MEDIATION

Foreign investment forms an intrinsic part of the global economy. Several disputes arise in the course of foreign investment involving violation of legal rights of the investors. To adjudicate those disputes, states have resorted to Investor- state dispute settlement mechanisms in Bilateral Investment Treaties (BITs) and Free- Trade Agreements (FTAs) that safeguards the sovereignty and upholds the supremacy of the State. Considered as an assurance of investor protection, it builds up credence in the mind of investors before they plan to invest in a foreign country.
Current patterns of stockpile and stashes of investor- state arbitration disputes coupled with extortionate proceedings has paved way for investor- state mediation as a viable option. In international context, resolution of disputes requires a pliable forum which encompasses proposition of all the parties. Hence, mediation seems the most feasible solution.

Approach to Investor- State Dispute Settlement: MEDIATION

The dispute settlement mechanism wherein a neutral third party negotiates constitutes mediation. It is a voluntary and an amenable process where control over the outcome is preserved by the parties through ‘self-determination’. The mediator expedites communications between the parties. An important choice that mediation makes in structuring the process is the extent to which they will be directive or facilitative with regard to the substance of dispute.1

The inception of resolution of disputes in congenial manner by negotiations can be traced to a time when it was referred to as “amicable settlement period” or “cooling-off period” in several multilateral investment treaties for instance; Article 10.152 of the Central American Free Trade Agreement states that “the claimant and the respondent should initially seek to resolve the [investment] dispute through consultation and negotiation, which may include the use of non-binding, third-party procedures such as conciliation and mediation”. Article 263 of the Investment Agreement for the COMESA Common Investment Area requires a six-month cooling off period, during which the parties “shall seek the assistance of a mediator of non-disputing parties.”

A ground-breaking study by James Claxton4 of 143 Asian treaties that entered into force after 2010 found that 24 percent of them had ISDS provisions specifically providing for mediation or conciliation through various means. In the international resolution of disputes framework, mediation continues to be the ‘missing third piece’.5 Being cost efficient and relationship friendly, mediation may evolve to become the most chosen dispute settlement mechanism in the international commercial transactions.

Investor- State mediation contains certain specific issues which must be envisioned before the onset of the process of mediation. These are listed hereunder:6
a) Selection and appointment of a mediator- The parties are generally free to appoint one or several mediators unless the investment treaty provides. Because of the complex nature of investment disputes, parties prefer appointing more than one mediator. The disputes arising out of investment may be referred to a mediation institution specialized in investor-state dispute settlement either because of a clause in the investment treaty or by mutual agreement between the parties about the same. These institutions hire qualified mediators who facilitate administrative support to the proceeding.
b) Authority to settle- As mediation invariably involves public bodies, the necessary approval process needs to be identified and considered throughout the mediation.

Singapore Convention on Mediation

The United Nations Convention on International Settlement Agreements Resulting from Mediation,7 which is to be known as the Singapore Convention on Mediation, is an instrument for the facilitation of international trade and the promotion of mediation as an alternative and effective method of resolving trade disputes. Being a binding international instrument, it is expected to bring certainty and stability to the international framework on mediation, thereby contributing to the Sustainable Development Goals (SDG), mainly the SDG 16.8 It is on terms with the UNCITRAL Model Law on International Commercial Mediation and International Settlement Agreements. In this convention, the States can espouse to either the convention or the Model Law as a standalone text or both the Convention and the Model Law as complementary instruments of a comprehensive legal framework on mediation.

Enforceability under the Convention & Model Law

Despite being the most viable option for dispute settlement, mediation continues to pose threat to the investor states where issues such as efficacy of conformity with settlement agreements are concerned since they are not directly enforceable in the courts. With the enactment of United Nation Convention on International Settlement Agreements Resulting from Mediation, also known as the Singapore Convention on Mediation, some relief has been granted. Article 3 of the Convention provides that signatories may, in accordance with their respective domestic procedures enforce an international settlement agreement9 or where a dispute arises in respect of a matter claimed to have been resolved by an international settlement agreement, invoke such agreement.10

States which are party to the Singapore Convention on Mediation and States that have enacted legislations based on the Model Law on Mediation follow the enforcement procedures defined therein. While drafting the settlement agreement, the parties may take note of the requirements under the Singapore Convention on Mediation and Model Law on Mediation as outlined in Article 411 and 512 of the Convention and Article 1813 and 1914 of the Model Law. By signing the settlement agreement, the parties should state their understanding that the settlement agreement can be used as evidence that it resulted from mediation and that it can be relied upon for seeking relief under the applicable framework.15

India: Status quo

In White industries case16 and Cairn’s case,17 India’s experience with investor- state arbitration did not leave good taste in the Indian legal regime. The Cairn’s arbitration award is highly likely to be challenged in various international courts;18 establishment of an investor- state mediation framework becomes vital. In India, adjudication of disputes by mediation does not in any way contravene or attempts to contravene the sovereignty of the State. Its incorporation into the Bilateral Investment Treaty and other Investor- State Dispute Settlement processes will not only identify and resolve legal issues but also build sustainable relationship between the parties.

In India, the High- Level Committee on Arbitration in 2017 recommended mediation to be included in India’s new generation of BITs which it has started to sign after the unilateral termination of a large number of its past bilateral investment treaties.19 The 47th Chief Justice of India, Justice S A Bobde, while comparing the viability of mediation with respect to arbitration, he has remarked that “An ounce of mediation is worth a pound of arbitration and a ton of litigation”.20 The substructure for the buildout of an effective Investor- State Mediation in India should focus on the following 3 pillars:
a) Constructional & Structural reforms- For setting up specialised institutions consisting of independent and impartial mediators who assist the process of mediation. Development of uniform framework of rules adressing issues related to enforcement of international settlement agreement, confidentiality of the parties, conduction of mediation etc.
b) Development of sound and credible body of mediators who facilitate smooth mediation process- The mediators should possess professional expertise on the subject- matter, language as well as requisite technical skills.
c) Investment in snapping up stakeholders, institutions, lawyers and government officials.

Conclusion

The existence of undying disputes pertaining to demarcating the edges of sovereignty of the state and subjective elucidation of BIT has mandated the need for mutual cooperation and coexistence among parties’ i.e. foreign investors and the host state. These conflicts can be effectively resolved by adopting investor- state mediation in practise. It is only this adjudicative technique which is highly beneficial to the parties where factors such as time, resources and energy are concerned. Here, the primary focus is on holistic development of sustainable relationship between the parties which encompasses the cultures and traditions of the host state and capitalistic object of the foreign investor.

Notes

1 Leonard L. Riskin, Understanding Mediators’ Orientations, Strategies, and Techniques: A Grid for the Perplexed, 1 HARV. NEGOT. L. REV. 7 (1996) (surveying different approaches that mediators take)
2 Leonard L. Riskin, Understanding Mediators’ Orientations, Strategies, and Techniques: A Grid for the Perplexed, 1 HARV. NEGOT. L. REV. 7 (1996) (surveying different approaches that mediators take)
3Investment Agreement for the COMESA Common Investment Area, Article 26
4Mediation : Putting Mediation and Conciliation Back into ISDS-The Asian Experience
5Prime Minister’s Office (Singapore), ‘Speech by PM Lee Hsien Loong at Singapore Convention on Mediation Signing Ceremony & Conference’ at Singapore and Fiji both ratified the Convention on 25 February 2020
6Markanda P.C., Markanda Naresh, Markanda Rajesh, Mediation: Step By Step, First edn, Thomson Reuters, 2021
7United Nations Convention on International Settlement Agreements Resulting from Mediation, available at PDF
8United Nations
9United Nations Commission on International Trade Law, ‘Status: United Nations Convention on International Settlement Agreements Resulting from Mediation’ Article 3(1)
10ibid, Article 3(2).
11ibid, Article 4
12ibid, Article 5
13United Nations Commission on International Trade Law Model Law on International Commercial Mediation, Article 18
14ibid, Article 19
15ibid
16White Industries Australia Ltd. v. Republic of India PDF.
17Cairn Energy PLC v. Union of India, PCA Case No. 2016-7.
18PTI, India to Appeal against Cairn Arbitration Award : Report, The Times of India
19Report of the High Level Committee to Review the Institutionalisation of Arbitration Mechanism in India, 30 July, 2017, p. 110, available at PDF.
20 Speech of Hon’ble Mr. Justice S.A. Bobde, Chief Justice of India on the occasion of 3rd edition of International Conference on Arbitration in the Era of Globalisation organised by Indian Council of Arbitration & Federation of Indian Chambers of Commerce and Industry 8th February, 2020, Bar & Bench, available at PDF

EMERGENCY ARBITRATION: THE FUTURE OF INTERIM RELIEFS

Introduction
Arbitration is a form of dispute resolution that emerged, inter alia, to provide for a legal mechanism that saves time and resources for the parties. To achieve this, an upcoming concept of Emergency Arbitration(EA)emerged. Emergency Arbitration, as the name suggests, provides emergency relief to those who wish to approach the arbitration institution before the arbitral tribunal is constituted to obtain interim relief. There are two legal principles that form the genesis of Emergency Arbitration. The first being Fumus boni iuris meaning the reasonable possibility that the claimant would succeed on merits. The second is periculum in mora which means that the claimant would suffer irreparable harm if the measure is not granted immediately.1
An Emergency Arbitrator is able to grant interim measures only for a definite period of time and after passing the interim award, becomes functus officio. This means that once the Emergency Arbitrator has rendered a decision, he lacks any power to re-examine that decision.

EMERGENCY ARBITRATION IN THE INTERNATIONAL PERSPECTIVE
The UNCITRAL Model Law does not contain any provisions for Emergency Arbitration. However, the amendment to the UNICTRAL Model Law in 2006 introduced Articles 17 which lays down the power of the arbitral tribunals to grant interim reliefs to parties.2 After this amendment, several arbitration institutions like the Singapore International Arbitration Centre (SIAC)3, The Stockholm Chamber of Commerce (SCC)4, The Mexico City National Chamber of Commerce (CANACO)5, The London Court of International Arbitration (LCIA)6, The Hong Kong International Arbitration Centre (HKIAC)7, and The International Chamber of Commerce (ICC)8 have also sought to amend their rules to provide for Emergency Arbitration.

SCOPE OF EMERGENCY ARBITRATION IN INDIA
In India, Section 9 of the Arbitration and Conciliation Act, 1996 entails that parties may apply for interim reliefs to the concerned court at any time before the enforcement of the arbitral award. Obtaining interim relief through Emergency Arbitration is not included within the ambit of Section 9.
In order to rectify this lacuna, in 2014, the Law Commission’s 246th Report recommended an amendment to the definition of an “arbitral tribunal” to provide for an Emergency Arbitrator. However, this recommendation did not transpire when the Arbitration and Conciliation (Amendment) Act, 2015 came into force. Regardless, the Delhi (Arbitration Proceedings) Rules 2018 in its Section 14, the Mumbai Centre for International Arbitration (Rules) 2016, under Section 3 and The Madras High Court Arbitration Centre Rules, 2014, under Section 20 are some institutions that provide for Emergency Arbitration in their rules.

INDIAN CASE LAWS
While Emergency Arbitration is not recognized by the Act of 1996, the Indian Courts have deliberated upon this issue. The first case that dealt with Emergency Arbitration was HSBC PI Holdings (Mauritius) Ltd. v. Avital Post Studioz Ltd &Ors.9 The case involved an arbitration agreement by which the parties reserved their right to seek interim reliefs before the national courts of India. The parties resorted to Emergency Arbitration in Singapore and sought to enforce the same in India. The Bombay High Court vide its order in 2014 upheld the award of the Emergency Arbitrator and while granting interim relief observed that the “Petitioner has not bypassed any mandatory conditions of enforcing ability since it was not trying to obtain direct enforcement of the interim award”. It is appropriate to point out that this judgment was passed before the Supreme Court passed its judgment in Bharat Aluminum Co. (BALCO) v. Kaiser Aluminum Technical Service Inc.10 In the BALCO case, it was stated that Part I of the Arbitration Act, 1996 would not apply to international commercial arbitration. Since the HSBC judgment dealt with a pre-BALCO agreement, the Bombay High Court gave effect to the award passed by the Emergency Arbitrator by granting similar reliefs to the petitioner under Section 9 of the Arbitration Act.

Another case came up before the Delhi High Court in Raffles Design International India Private Limited &Ors. v. Educomp Professional Education Limited &Ors.11 This case involved an arbitration agreement that was governed by the laws of Singapore. The parties resorted to an Emergency Arbitrator in Singapore, wherein an interim order was passed, which was later enforced in the High Court of Singapore. The party who obtained the favorable order later filed an application under the amended Section 9 seeking interim reliefs. The Delhi High Court, while allowing the maintainability of such petitions, highlighted the relevancy of the amended Section 2(2) of the Act and the widened powers vested in the Court to grant interim reliefs. The court mentioned that Section 9 now applies to international commercial arbitrations, even if the place of arbitration is outside India.

The legal status of Emergency Arbitration has recently been brought to the forefront by the Delhi High Court in the case of Future Retail Ltd. v. Amazon. Com NV Investment Holdings LLC and Ors.12

FACTS OF THE DISPUTE: In this case, Amazon adduced the arbitration clause in the Shareholders Agreement between Amazon and Future Coupons Pvt. Ltd. along with the promotors of Future Retail Ltd. (FRL) after learning about the acquisition of the assets of FRL by Reliance Retail Ventures Ltd. The arbitration clause was invoked which stated that-
(i) Any dispute would be referred to arbitration in accordance with the arbitration rules of the SIAC,
(ii) The seat and venue of the arbitration would be New Delhi, and
(iii) The choice of jurisdiction and venue shall not prevent either Party from seeking injunctive reliefs in any appropriate jurisdictions.

After the arbitration was invoked, Amazon made an application to SIAC for conducting Emergency Arbitration and it obtained an injunction against FRL from going forward with its acquisition. Relying on this order of the Emergency Arbitrator, Amazon made representations to various statutory and regulatory bodies in India and attempted to thwart the approval procedures in India that are necessary for the transaction of acquisition. FRL filed a suit and an interim application therein, to seek a permanent and temporary injunction against Amazon.
The primary contentions made by FRL were that –
(i) The Emergency Arbitration is outside the scope of the Arbitration Act, and therefore, the award passed by the Emergency Arbitrator is in nullity,
(ii) The SIAC Rules take away the right of the parties to approach the Courts in India, and
(iii) The Emergency Arbitrator is not an arbitral tribunal under Section 2(1)(d) of the Arbitration Act as the Parliament did not amend the definition of ‘arbitral tribunal’ despite the recommendation made by the Law Commission in that regard.

HELD: A single-judge bench of Justice J.R.Midharejected the contentions of FRL and held that –
i. Party autonomy is the backbone of arbitration. Therefore, as the parties to the agreement had chosen the curial law being the SIAC Rules, the arbitration arising out of that agreement would be governed by the procedure as prescribed under those rules, subject to the public policy of India and the mandatory provisions of the Arbitration Act. Further, the Arbitration Act, under Section 2(8), allows parties to choose a procedural law different from the proper law of contract, and therefore, there is nothing in the Arbitration Act that prohibits the contracting parties from obtaining emergency relief from an emergency arbitrator;
ii. The SIAC Rules, under Rule 30.3, make provisions for a party to approach a judicial authority for a grant of interim relief. Therefore, the said rules themselves recognize and uphold the right of a party to avail interim relief under Section 9 of the Arbitration Act. Thus, the SIAC Rules do not take away the substantive right of the parties to approach the Courts in India for interim relief;
iii. Emergency Arbitration is not outside the scope of Section 2(1)(d) of the Arbitration Act, because the Parliament did not accept the Law Commission’s recommendation to include an EA in the definition of an “arbitral tribunal”. The development of the law cannot be thwarted merely because a certain provision recommended by Law Commission is not enacted by the Parliament. Therefore, it cannot be held that an Emergency Arbitration is outside the scope of Section 2(1)(d).
iv. Due to the aforesaid reasons, the Emergency Arbitration is not a ‘Coram non-judice’, and the consequential Emergency Arbitration order is not invalid.
CONCLUSION

Emergency Arbitration is thus an upcoming provision receiving much traction. This is because the process promotes party autonomy as Emergency Arbitration is agreed to by the parties themselves. It is also consistent with the parties’ intention to avoid the hassles of litigation. The Arbitration and Conciliation (Amendment) Act, 2019, has promoted institutional arbitration by including separate provisions for arbitral institutions. The Judiciary has also endeavored to provide for relevant precedents to remain in consonance with international standards. This validation received by Emergency Arbitration makes it clear that this field is bound to grow in India.

1Yadav, Dr Vikrant, Emergency Arbitration under Institutional Arbitration Rules: A Comparative Study, International Journal of Law, Volume 3; Issue 3; May 2017 (Available at https://ssrn.com/abstract=3621191)
2UNCITRAL Model Law on International Commercial Arbitration, 2006 available at https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/19-09955_e_ebook.pdf
3SIAC Rules (2016), Schedule 1.
4SCC Rules (2010), Expedited Rules and Appendix II.
5CANACO Rules (2008), Articles 36 and 50.
6LCIA Rules (2014), Article 9.
7HKIAC Rules (2018), Article 38.
8ICC Rules (2017), Article 29(1) and Appendix II.
92014 SCC OnLine Bom 102.
10(2012) 9 SCC 552.
112016 (234) DLT 349.
122021 SCC OnLine Del 412.