Yesterday on 11th April
2017, Justice S. Muralidhar in Ratna Infrastructure Projects Pvt. Ltd. v. Meja
Urja Nigam Private Limited, Arb. Pet 537/2016 made observations on the
applicability of the 2015 amendments over the arbitration proceedings commenced
under the Arbitration and Conciliation Act, 1996 (“Act”) i.e. before 23 October
2015. The Court interpreted the words “unless the parties otherwise agree” as
used in the Section 26 of the Amendment Act in light of the standard agreement
terms and held that the amendment act shall be applicable to the arbitral
proceedings initiated before 23 October 2015, since the parties had agreed to
statutory modification in their agreement and hence the 2015 amendments shall
come within the ambit of the clause. Court held that it is not necessary for
the parties to expressly enter into a separate agreement to make the 2015
amendments applicable to the arbitration proceedings.
-
Prakhar
Deep[1]
1.
Introduction
Since
the enactment of the Arbitration & Conciliation Act (Amendment) Act, 2015,
Courts in India are having a tough time interpreting the provisions of the
amendments. Even the parties whose arbitration proceedings commenced prior to
the cut-off date i.e. 23 October 2015 are too having a tough time deciding
which of the amendments are in their favour and which are not. It is correct to
suggest that no two opposite parties in the arbitration have jointly benefited
from the amendments. This is evident from the nature of disputes which have
reached the court. For instance, in Ardee
Infrastrucure Pvt. Ltd v. Anuradha
Bhatia & Ors.[2](Ardee infra), if we only see the issue from the party to the
arbitration perspective, it was that it did not wish to pay the deposit as now
mandated under section 36(3) of the amended Act. Thereafter, the matter was
heard by the division bench of the Delhi High Court and the Court upon
investigating recognized certain vested rights of the parties which cannot be
taken away by the amendments and held the expression “to the arbitral
proceedings” cannot be strictly interpreted.
In
another case of Ratna Infrastructure
Projects Pvt. Ltd. v. Meja Urja Nigam Private Limited[3]
(“Ratna Infra”) where one can easily
observe that the main grievance of the party was not willing to appoint an
independent arbitrator and stick to the agreed terms of the contract mandating
employee to the arbitrator. Unlike in Adree
Infra wherein the Court recognised the right to challenge the award is
vested right and held that old act shall apply, the Delhi High Court in Ratna infra rejected the contention of
the Respondent stating that parties did not specifically agreed to
applicability of the 2015 amendments. Respondent’s attempt to keep the
appointment of its own employee as arbitrator was shot down by Justice S.
Muralidhar who picked up the fine lines of one side arbitration clause and held
that parties had agreed the applicability of the 2015 in the Contract
itself.
2.
Facts
and comments
Through
the case has no binding value since it’s the section 11(6) Petition but the
Court has effectuated the intent of the Act and has struck down the attempt of
a party to appoint employee as an arbitrator. Some of the interesting facts and
arguments placed before the Courts are hereunder along with come personal
observation to the facts and parties conduct:
i.
Rana Insfrastrure Project Pvt.
Ltd.(Petitioner) was awarded a contract by Meja Urja Nigam Private Limited in
2010. Disputes arose between the parties and contract was terminated. Both claims
and the counter-claims were referred to the same arbitrator. Claim was raised first which was quantified
at. Approx. Rs. 27 Crore. Subsequently upon termination the government company
referred a counter-claim of Approx. Rs. 207 Crore.
Comments-
Opposite parties usually file a huge counter-claim often referred as
counter-blast to pressurize the other side to settle. Facts are not given in
the present case on the heads of damages as it was not part of the Section 11
Petition, therefore it cannot be said if the same was counter-blast or not.
ii.
Clause 56 of the General Conditions of the
Contract stated that CEO of the Respondent shall be the appointing authority
and only the General Manager of the NTPC (The Respondent company was a JV of
NTPC) shall be the sole arbitrator to adjudicate the dispute.
Comments-
Standard terms of PSU’s and big corporations when they contract was parties
with less bargaining power. The 2015 amendment act under section 12(5) read with
the seventh schedule now bars employees, ex-exployees, advisors of agitating
party to be appointed as arbitrator.
iii.
Petitioner objected to the authority of
the arbitrator under section 12 and 13 of the Act on the ground that as the
arbitrator was not the project in-charge as mandated, he could not continue to
be the arbitrator. The objections were dismissed by the arbitrator and
therefore the Petitioner approached the High Court u/s 11.
iv.
During the proceedings before the High
Court of Delhi, the Respondent submitted that they have infact appointed a
General Manager as a substitute arbitrator. It was further submitted that the
provisions of the amendment act, 2015 putting bar to appoint employee as the
arbitrator do not apply to the present arbitral proceedings since the section
26 uses the words “unless the parties otherwise agree”. The Respondent
submitted that parties would have to agree, after coming into force of the
Amendment Act, 2015 that the said Amendment Act would apply to the pending
arbitration proceedings. It was submitted that a distinction is drawn between
the words used in Section 26 of the Amendment Act and Section 37(1)(a) of the
Act where the expression used is “unless the parties have otherwise agreed or
the parties have agreed.” It is stated that the legislature has made a
conscious departure and employed the expression “unless the parties otherwise
agree” which makes it clear that the Amendment Act would apply to pending
arbitral proceedings only after the parties enter into an agreement to this
effect. Consequently, it is urged that Section 12(5) of the Act as amended is
not applicable in the present case.
v.
Comments- After the bar of
section 12(5) and recent decision of Justice Manmohan Singh in Assignia-Vil v. Rail Vikas Nigam[4],
wherein the court criticised the appointment of the employee as arbitrator. In
light of the 2015 amendment and Assignia
case several arbitrators who were employees, ex-employees have rescued
themselves from continuing as the arbitrator. Such gesture was required to
ensure that other party in the opposite party does not lose the confidence in
the arbitration mechanism and justice delivery process in general. I fail to
understand why Respondent in the present case continued to resist the
appointment of an independent substitute arbitrator and sought to take the
shelter of the technicalities of the interpretation.
3.
Observation
of the High Court of Delhi
The
observation of the Delhi High Court to use the contract clauses which are often
one sided to rebut the defence taken by the Respondent is plausible. Justice
Muralidhar has infact very carefully and smartly interpreted the wordings of
the clause of 56 by observing that:
22 …… The words “any statutory modification
or re-enactment thereof and the rules made thereunder and for the time being in
force shall apply to the arbitration...” satisfies the requirement of Section
26 of there being an agreement between the parties that the Act as amended
with effect from 23rd October 2015 will apply. The Court is not prepared to
draw the fine distinction between „agree‟ and „agreed‟. Once the amendment to
the clause clearly stated that all statutory modifications and re-enactments
would apply, then there is no need for further agreement in that respect after
23rd October 2015.
23.
The net result is that Section 12(5) as amended with effect from 23rd October
2015 would apply. Section 12 (5) clearly prohibits the employee of one of the
parties from being an Arbitrator. This would straightway disqualify Mr. Kher
who happens to be a serving GM of the Respondent.
4.
Conclusion
To
conclude, the 2015 arbitration amendments have brought phenomenal changes to
the arbitration law in India. It shall be in the interest of the evolving
commercial jurisprudence, if the 2015 amendments are interpreted in a
harmonious manner taking forward the intent of the legislature towards
improving the deplorable condition of arbitration in India. Interpreting the
amendments just to make them fit to a particular set of facts would lead to
ambiguity and loss of confidence. Justice Muralidhar’s observation in Ratna Infra case is yet another example
of how judiciary is taking the daunting task for the betterment of arbitration
practice in India.