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Draft Mediation Bill, 2021- An Analysis

                          “It may be worthwhile to recall that the failure of mediation (in Mahabharata) led to disastrous consequences.”

                                                                                              -Chief Justice of India N V Ramana

While addressing the Curtain Raiser and Stakeholder Conclave of the International Arbitration and Mediation, CJI Ramana emphasized that courts should be engaged as the last resort for dispute resolution. The ADR mechanisms are not only instrumental from the standpoint of dispute resolution but essential to restore stressed relationships.

Recently, in an effort to strengthen the framework for mediation in the country as a viable ADR mechanism the Ministry of Law and Justice released the Draft Mediation Bill,2021 in the public domain. The dialogue emphasizing the need for a stand-alone law on mediation has always been strongly advocated for by the legal pundits owing to the lack of structure of mediation processes, unavailing inconsistencies between various existing legislations such as Code for Civil Procedure, 1908, Industrial Disputes Act, 1947 and the Commercial Courts Act 2015. Additionally, since India is a signatory to the Singapore Convention on Mediation a substantial legislation addressing it was necessary. Finally, the lack of a coherent enforcement mechanism for mediation settlements was a crucial factor that rendered mediation ineffectual.

This article aims to analyse the Draft Mediation Bill, 2021 by mapping its significant provisions, understanding the plausibility of the processes established and highlighting gaps in the framework that demand a more sincere deliberation.

Summary of the Draft Mediation Bill

 

Part I- Domestic Mediation

The first part discusses and highlights domestic mediation and its applicability, procedure, and reache in India. The segment also assigns online mediation with statutory recognition.

Chapter 1

Discusses the scope and definition of concepts and terms conferred in the Act.

The provisions of this chapter offer an overdue clarity with respect to definition and scope to many terms which assumed significance over the years in the field of mediation. Further, the extension of the Act to international mediations makes it possible to settle international disputes with finality.

Chapter 2

The chapter exclusively focuses on the mediation process. The act under this chapter empowers the court to refer the parties to mediation while segregating matters that shall not qualify for mediation. A party may, before the commencement of or during the continuation of mediation proceedings under this Part, can file an application before a Court or Tribunal of competent jurisdiction for seeking urgent interim measures.

Comments –Provisions of this chapter give the necessary importance, legality, and validity to the mediation agreements by way of mandatory prerequisites. No ambiguity is left qua almost all the aspects of a mediation process. However, providing for an interim relief procedure while the mediation is pending may thwart the spirit of mediation, and much caution is required while incorporating such a provision

Chapter 3

This chapter enlightens the procedures to be followed for the appointment of the mediator on party autonomy and the duties of the mediator. It is pertinent to note that it provides that the mediator can be appointed from any nationality. The preference under the act is given to the parties to the dispute.

Comments – Provisions of this chapter provide the much-awaited party autonomy to the stakeholders in the appointment of the mediator. This shall make the process swifter and less strenuous. Further, if the mediator is already known to both parties, there are better chances of settlement.

Chapters 4

The chapter discusses details of setting territorial jurisdiction, date of commencement, etc. for the benefit of the parties. Renders code of civil procedure and Indian Evidence Act inapplicable to mediation. The time limit for completion of mediation is 90 days, which can be further extended to 90 days with the consent of the parties. The mediation settlement agreement is also made applicable to online mediation settlements.

Comments – Setting a fixed timeline for concluding the process shall emerge as a major boon to its earnestness. Steps like online mediation shall render the mediation more viable for the stakeholders.

Chapter 5

This chapter addresses the status of the settlement agreement. The agreement can be challenged on grounds of fraud, corruption, gross impropriety, or impersonation within a period of 3 months. It also excludes the limitation period during the mediation.

Comments – Exclusion of period of mediation from the limitation period prescribed may emerge as a major boon for diverting the pendency from litigation to mediation.

Chapter 6

This chapter states that online mediation shall take place in accordance with the provisions of the information technology Act. However, both the mediators and the parties under the chapter are duty-bound to maintain autonomy as well as confidentiality.

Comments – Online mode of mediation is the need of the hour and this chapter successfully codifies the concept.  However, the infrastructural problems are yet to be addressed which can be done by way of appropriate rules.

Chapter 7

Provides for the establishment of the mediation council of India by the central government with head office in Delhi. Discusses the composition of the mediation council of India, the functions to be performed by them, and the process and grounds for impeachment.

Comments – The establishment of a council shall make the mediation process more disciplined and responsible. However, centralization of the council only to the Capital might be required to be reviewed to balance out regional coordination requirements.

Chapter 8

Discusses the recognition of the mediation service provider and mediation institutes and their function.

Comments – From a more or less and unorganized field, Mediation is now a complete organizational process with the involvement of the service providers and institutes. However, the functions of the institutes may need to be regulated at a micro-level with substantial infrastructural inputs.

 

Part II – Community mediation

It is interesting to note that the act provides for community mediation which is likely to affect the peace, harmony, and tranquillity amongst the residents or families of any area or locality. It also provides for the procedure to be adopted for community mediation.

 

Part III- International settlement agreements

This part is dedicated towards international commercial settlement and Enforcement of international commercial settlement agreements resulting from mediation.

By enabling the enforcement of international settlement agreements, a major boost is sought to establish the reliability and versatility of the Indian Justice dispensation system.

 

Gaps and Suggestions

 

Despite formulating cogent provisions that majorly tackle the immediate concerns surrounding the mediation process in the country, there are some factors that need in-depth deliberation.

Following suggestions can be incorporated in the bill to eliminate ambiguities and establish a well-rounded framework to guide mediation processes.

  1. Section 22 talks about confidentiality to be maintained by the parties to the dispute as well as the mediator.

However, the draft does not provide for any punishment/ liability or the consequences which shall be imposed on one who wilfully infringes the said section, thereby defeating the primary objective of the act of maintaining confidentiality.

  1. Under section 29, an application for challenging the mediated settlement agreement may not be made after three months have elapsed from the date on which the party making that application has received the copy of mediated settlement agreement under section 21(3) of this Act. Provided that if the Court is satisfied that the applicant was prevented by “sufficient cause” from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter.

The term “sufficient cause” for the delay in filing the challenge to the settlement agreement is ambiguous; therefore, it is suggestible that the draft should include specific and clear grounds under which the settlement agreement can be challenged even after three months.

  1. Under section 10, the bill provides that qualification, experience, and accreditation of the foreign, as well as domestic mediator, would be determined by the council.

The same should be decided in consultation with the judiciary or a body of specialized individuals.  The same shall instill more faith in the parties towards the appointed expert. Additionally, mediation shall become a viable career option for young professionals in the sector.

  1. The concept of composite reference arbitration has gained a lot of significance in the field of ADR since it facilitates clubbing more than one dispute arising under many sub-agreements under a common contract, eg; a construction contract. This method aids in avoiding multiple conflicting awards, saving time, money, and resources. However, the same does not have any legal backup in the Indian statutes and is dependant on legal precedents and the discretion of the courts.

It would be sensible to include the concept of “Composite reference mediation” in the mediation Rules, 2021 which will help in avoiding multiple conflicting awards, boost efficiency, and render the process cost-effective.

 

Conclusion

In a nutshell, it can be concluded that the Bill indeed is a step in the right direction and is equipped with fair shares of constructive provisions which will certainly contribute towards strengthening and promotion of mediation as a viable alternate dispute resolution mechanism in the country. This stand-alone legislation would not only inspire greater confidence and faith in the mediation process but also significantly address the concerns of an over-burdened and over-worked adversarial system of justice. However, to truly instill merit and prudence in the processes it is imperative to carefully address the abovementioned gaps in the Bill and facilitate the ADR mechanism of mediation.

Image Credits:  Image by mohamed Hassan from Pixabay 

The Bill indeed is a step in the right direction and is equipped with fair shares of constructive provisions which will certainly contribute towards strengthening and promotion of mediation as a viable alternate dispute resolution mechanism in the country. This stand-alone legislation would not only inspire a greater confidence and faith in the mediation process, but also significantly address the concerns of an over-burdened and over-worked adversarial system of justice.

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Blockchain Arbitration: The Future of Dispute Resolution

The current buzzword- Blockchain has advanced from being a theoretical concept to reaching the sphere of technology where it is shaping today’s society and the legal profession. The field of legal technology has not only streamlined knowledge management requirements and operational aspects of a legal office, but also transformed the way lawyers practice law!

Smart contracts and blockchains have the potential to alter the way documentation and dispute resolution are approached. Hence the concepts need integration, implementation and recognition with arbitration for a more efficient, cost-effective and automated structure.

Smart Contracts, Blockchain and Arbitration

 

These self-executing, new generation contracts are geared towards the realization of predetermined conditions. With the help of smart contracts, Blockchain Arbitration can facilitate storing and verification of rules and automated execution (upon a particular event constituting a breach of the agreement) by invoking the arbitration clause incorporated in the smart contract.

In case of a dispute, the smart contract will notify the Arbitrator via a blockchain-based dispute resolution interface. A party can digitize the terms of an agreement, lock the funds into a smart contract, and condition the intelligent contract so that the task at hand is fulfilled and the funds will pass through. Upon completion of the process, the self-executable nature of the smart contract will automatically enforce the award and transfer the prescribed fee to the Arbitrator.

However, it is yet to be seen how smart contracts shall interact with data protection and privacy laws, intricacies of dispute resolution, and obligations and rights of the parties involved.

Blockchain Technology: An aid to Arbitration?

 

Arbitration aims to be a time-bound and specialized decision-making process. In this backdrop, Blockchain Arbitration theoretically promises to be an ideal structure for the trial process in the following ways:

  • Briefs, Transcriptions & Document Management: The tool in the blockchain system can quickly and efficiently provide synopsis and briefs of the record which would be beneficial not only to the Tribunal but to the parties.
  • Elimination of intermediaries and cost-effectiveness: There shall be no mechanism requiring approval and control at every stage, and the intermediary institutions are not included in the process. For instance, Banks, involved as intermediary institutions in legal and financial transactions, incur costs at every stage of the transaction and are time-intensive in nature.
  • Automation: A blockchain-based dispute resolution platform would exclude oral hearings and the Arbitrator’s decision and automate other aspects of filing of pleadings, filing of documentary evidence, correspondence with the Arbitral Tribunal.
  • Ease in making the Arbitral Award:  Blockchain tools can assist the Tribunals in preparing awards. The tools ensure that all necessary ingredients to make the arbitral award reasoned and enforceable have been taken care of.  The blockchain will continue to prepare the award from the beginning as the arbitration progresses.
  • Confidentiality / Security of Data: Blockchain is the safest way of storing information. Each block will be authenticated by the Arbitral Tribunal and the party to the proceedings. There is no provision for changing, altering or deleting the data unilaterally. It can only be done when it is authenticated by the Arbitral Tribunal and the party to the proceedings. Since third parties are entirely absent from the proceedings, the possibility of breach of data and information is negligible. Disputes arising out of smart contracts can be made confidential which will limit the exposure of the nature of dispute between the parties. Blockchain has a decentralized structure and the security of the system is protected by cryptography.
  • Removal of human error: The reliability and validity of a transaction depend upon the accuracy of the algorithm underlying the transaction. Since, each transaction is based on algorithms, which are mathematical models, it is free from human influence and intervention and, consequently, human error. 

Security and privacy of data are primary concerns in the conventional Arbitral process. In fact, as a specific case representing the flaws of the present model of international arbitration, in July 2015, the website of the Permanent Court of Arbitration was hacked during an essential hearing of maritime border arbitration between China and the Philippines, in the international arbitration of the “Republic of Philippines v. People’s Republic of China.”[1]  

As far as the credibility of blockchain technology in resolving such issues is concerned, the World Economic Forum, in its 2015 survey recognized that by 2025-27, about 10% of the global GDP would be stored in blockchains, owing to its efficient attributes of data security management. By 2025, even taxes are strongly probable to be collected by employing blockchain technology. Moreover,  in its research published in 2018, World Trade Organisation described at length the opportunities that lie ahead in the future, owing to the efficacy associated with the safeguard mechanisms of blockchains. 

Legal Recognition of Blockchain Arbitration and procedure to be adopted

The UNCITRAL Electronic Model Law on Electronic Commerce (1996 Convention) and the ‘UNCITRAL Convention on Electronic Communications in International Contracts (2007 Convention)’ are the primary legal instruments facilitating blockchain contracts.[3]

Articles 6 and 18 of the 2007 Convention assert the validity of on-chain arbitration by allowing for electronic data records and electronic transactions in the arbitration process, thereby providing legal recognition to on-chain arbitrations.

  1. Appointment of an Arbitrator

 Once the notice of arbitration has been sent, the appointment of an arbitrator can be done through blockchain. Thus, the exchange of documents, e-mails, and messages, etc. are all recorded automatically and replicated at all stakeholder’s computers without the involvement of any third party. The case management conference can be done online using a video conferencing facility of blockchain which is recorded and filed in the computers of all stakeholders in original and thereby removing manipulation.

  1. Pleadings

The pleadings including a statement of claim, statement of defense, counterclaims, and reply to counterclaims and further submissions can be submitted online and are automatically served to the parties & the Tribunal along with automated acknowledgment. This ensures timely submissions and helps in maintaining uniformity in the pleadings thus circulated. Any delay will also be penalized in terms of the penalty prescribed by the Tribunal or as agreed by the parties. The fear of ex-parte communication will also be mitigated when the procedural orders and communication by the Tribunal will be auto-delivered to both parties. 

  1. Interim Measures

Interim measures that are sought from courts can be executed on the blockchain if the judicial system of a particular jurisdiction allows for a seamless digital interface with the parties’ computers. In the case of an automated interface with the judicial system, the execution of court orders can also happen immediately provided the jurisdiction’s administrative machinery is using blockchain. 

  1. Recording of Evidence & Preparation of Award

 The efficiency of blockchain can be seen in evidence-taking and award preparation. Witness conferencing, cross-examination, and taking of oral evidence can be easily done using video conferencing suites, or even if hearings are done physically, they can still be transferred on blockchain and stacked for procedural integrity. Statements of expert witnesses, oral submission by experts, and expert communications can be recorded on the blockchain. 

  1. Security of Data

Blockchain is a secure way of storing information because each block is replicated and authenticated by all stakeholders. The provision to alter or delete any data does not exist until authenticated by all stakeholders. In the absence of intervention of a third party, there is no network administrator or supervisor making the possibility of data breach negligible. 

Globally, blockchain technology is being readily resorted to as an effective means of data storage, management, distribution, and transfer. Blockchain technology has immense potential to enhance the efficacy of Arbitral proceedings, especially owing to its mechanism of encryption, which helps secure data.

Contemporary issues in Blockchain Arbitration

The functioning of blockchain arbitration highlights various concerns. Firstly, in an on-chain arbitration, there would be no requirement for oral hearings which are integral to the current justice system and stand at a juxtaposition with the principles of natural justice.

Secondly, an essential principle of arbitration is the underlying idea of confidentiality. Despite the strong protection afforded by blockchain, data privacy can pose a significant concern when an independent third party gets involved as an oracle in dispute resolution. The General Data Protection Regulation (GDPR) provisions are not currently empowered enough to regulate the intricacies in the decentralized functioning of blockchain, which makes it difficult to impose liability on data controllers. Furthermore, the traceable feature of blockchain is again in conflict with the GDPR’s requirement of the “right to be forgotten“.

Thirdly, The New York Convention on the Enforcement of Foreign Arbitral Awards of 1958 (hereinafter referred to as “the New York Convention”) is the most prominent code on enforcing international arbitral awards with 166 contracting states to the Convention. According to Article II of the New York Convention, an arbitration agreement must be in “writing” and requires the parties’ signature. However, in a virtually operative blockchain arbitration, there is no scope for written agreements or signatures.[4]

Challenges in the enforceability of the Blockchain arbitration award in India

 

Lack of enforceability of the agreement itself under the New York Convention

One problem identified with the enforceability of blockchain arbitration awards is the lack of enforceability of the agreement itself under the New York Convention which requires such agreements to be in writing or through an exchange of telegrams/telefaxes.

Section 7 of the Arbitration and Conciliation Act, 1996 requires that a valid arbitration agreement should be in “writing”. However, unlike Article II of the New York Convention, Section 7 of the Arbitration and Conciliation Act, 1996 clarifies that an agreement would be considered as having been made in writing if it has been communicated through “electronic means”. The allowance for “electronic means” was introduced through the Arbitration and Conciliation (Amendment) Act, 2015, yet remains undefined.

Theoretically, it can be asserted that an award generated in a blockchain arbitration may fall within the ambit of the definition of an ‘electronic record’ under the Information Technology Act, 2000.

Difficulty in determining Awarding Country in a Blockchain Arbitration

India although is a signatory to the New York Convention, only foreign awards made in only certain Contracting States of the Convention (gazetted by the Central Government) can be enforced in view of India’s reciprocity reservation. India has gazetted less than 1/3rdof all of the Contracting States to the New York Convention.[5] 

In the working of a blockchain arbitration, Arbitrators are appointed by a blockchain-based dispute resolution platform. The award is generated on a blockchain and circulated to the parties before the Arbitrator. The parties may be in different countries and the origin/awarding country may be difficult to trace out. In the absence of details of an awarding country, the enforceability of such an award in India becomes a daunting task.

 

Enforcement of Arbitral Award

As per the Arbitration and Conciliation Act, 1996, an application for enforcement of an arbitral award shall be accompanied by an original arbitral award. In a blockchain arbitration, the award is circulated as an electronic record in the blockchain to the parties directly. The concept of a hard copy/original award is alien in blockchain arbitration.

 

Conclusion and Suggestion

A conspectus of the aforesaid facets of the blockchain system shows that the same needs multi-fold reforms before being set to use by the legal fraternity. Even though the blockchain assures, to a great extent, protection of data, but it cannot be forgotten that the hackers also keep updating their own skills and no technology is flawless. The blockchain system has to be made dynamic enough so as to keep abreast with the challenges of new advents in unethical hacking.

Secondly, it is also required that a proper training module is formulated for lawyers of the participating countries which shall ensure unimpeded use of the technology.

Lastly, the author strongly recommends that the use of blockchain should be limited only to procedural aspects in such cases where the dispute involves issues of interpretation of the clauses and or statutes including common law. This may be achieved by adopting a hybrid model of dispute resolution with embedded human intervention modules.

References: 

[1]Gargi Sahasrabudhe, Blockchain technology and arbitration, VIA Mediation & Arbitration Centre, (Nov. 3, 2021, 5:00pm), https://viamediationcentre.org/readnews/ODE1/Blockchain-technology-and-Arbitration

[2]Athul aravind, Blockchain arbitration: the future?, Law and Dispute resolution blog, (Nov. 3, 2021, 5:00pm), https://www.mappingadr.in/post/blockchain-arbitration-the-future

[3] Dena Givari, How does arbitration intersect with the blockchain technology that underlies cryptocurrencies, Kluwer Arbitration Blog, Wolters Kluwer, (Nov. 6, 2021, 8:00pm), http://arbitrationblog.kluwerarbitration.com/2018/05/05/scheduled-blockchain-arbitration-april-17-2018/

[4] Idil Gncosmanoglu, Blockchain-smart contract and arbitration, Mondaq, (Nov. 5, 2021, 5:00pm), https://www.mondaq.com/turkey/fin-tech/967452/blockchain-smart-contracts-and-arbitration.

[5] Ritika Bansal, Enforceability of awards from blockchain arbitrations in India, Kluwer arbitration Blog, http://arbitrationblog.kluwerarbitration.com/2019/08/21/enforceability-of-awards-from-blockchain-arbitrations-in-india/, (2019)

 

 

Image Credits: 

Photo by Launchpresso on Unsplash

The use of blockchain should be limited only to procedural aspects in such cases where the dispute involves issues of interpretation of the clauses and or statutes including common law. This may be achieved by adopting a hybrid model of dispute resolution with embedded human intervention modules.

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Force Majeure: Evolution of Jurisprudence in India Post COVID-19

The extraordinary outbreak of the Covid19 pandemic has had staggering effects on the economy, health and commerce of about 110 nations across the globe. Even after almost a year, the situation is far from normal. In addition to the massive pressure on the health and medical segments, several other unprecedented factors played crucial part in the whole system, economy, commerce, or business. Given the present situation of disruption of supply chaindisruption of assured manpower, uncertainty of future planning, inadequacy of security as well as the forced restraints in free commercial activities, numerous commercial contracts have either been interrupted, delayed or cancelled. The present situation has thrown light on several important questions with respect to the jurisprudence of the force majeure clause in various commercial contracts or frustration of contracts 

 

Force Majeure Typically in Law

 

The term force majeure which seems to have been borrowed from the Code Napoleon had received interpretation in several decisions of the English Courts in earlier years. In Matsoukis v. Priestman and Co.[i] . Justice Bailhache opined that force majeure would include strikes and break-down of machinery but not bad weather, or football matches, or a funeral. In Lebeeaupin v. Crispin[ii] Justice McCardie had observed: “A force majeure clause should be construed in each case with a close attention to the words which precede or follow it, and with due regard to the nature and general terms of the contract. The effect of the clause may vary with each instrument.”

In the Indian context, the Supreme Court has considered, interpreted and decided the events of force majeure in various judicial precedents, inter-alia from Satyabrata Ghosh vs Mugneeram Bangur[iii] to Energy watchdog vs CERC[iv] The Court has maintained a strict yet flexible approach towards the concept of force majeure and frustration of contracts. In the case of Alopi Prashad and Sons vs. UOI[v] the Supreme court had observed that commercial hardship shall not be a just and reasonable ground to support frustration of contract and excuse performance.

As we find in the commercial world, contracting parties have generally been incorporating the force majeure clause in their contracts since ages, to absolve themselves of any liability arising out of events beyond their reasonable control. However, in this discussion we would focus the force majeure arising out of Covid-19 pandemic.

 

COVID 19 and Application of Force Majeure

 

There was a difference of opinions and questions were raised over the fact that some contracts though having a force majeure clause, do not stress on the word ‘pandemic’, ‘epidemic’, ‘disease’ etc. , while majority of the contracting parties rely on the general phrase ‘any other unforeseeable event, not under the control of either of the parties.’

 
Executive Interpretation:
 

Alike the private sector, the Government contracts and the Public Sector transactions also started suffering on account of the pandemic and declaration of lockdown throughout the country. To address the situation fairly, the Ministry of Home Affairs came out with Notification No. F. 18/4/2020 PPD dated 19-02-2020 with respect to Manual for Procurement of Goods, 2017 declaring that the interruptions in supply chain due to Covid 19 from China or any other country shall be covered under the ambit of force majeure, and that force majeure shall be invoked whenever considered appropriate following the due process of law.

While the power of the Ministry to bring certain events within the ambit of force majeure under clause 9.7.7 of the Manual for Procurement of Goods, 2017 by a simple notification, may be a different issue, but as it appears, by this notification the Corona Pandemic was brought within the meaning of force majeure as defined in the Manual for Procurement of Goods, 2017 and tacitly, this event certainly becomes applicable in respect of all government and/or public sector contracts irrespective of application of the Manual for Procurement of Goods, 2017.  It may be noted that this Memorandum of 19th February 2020 was issued prior to Covid-19 affecting operations in India, recognizing the difficulty faced by the contracting parties regarding import of materials from other countries which were impacted by the pandemic.

Similarly, on account of various representations and submissions made by various Renewable Energy (RE) Developers and RE Associations, and considering the prevailing situation, the Ministry of New and Renewable Energy vide Office Memorandum No. 283/18/2020-GRID SOLAR dated March 20, 2020 declared Covid-19 as a force majeure event. The Ministry vide the said order granted time extensions in scheduled commissioning date of RE projects, in light of disruption of supply chain due to the pandemic.

The Ministry of Roads Transport and Highways also in its Circular dated 18.05.2020 inter-alia classified the pandemic as a force majeure event. In addition, the Ministry of Home Affairs by its Order no. 40-3/2020(D) dated 24 March 2020 expressed that the country was threatened with the spread of Covid 19 virus and therefore has considered to take effective measures to prevent its spread across the country and therefore in exercise of powers under section 10(2)(I) of the Disasters Management Act 2005 issued various guidelines for immediate implementation. Subsequently, by Office Memorandum dated 13 May 2020 the Ministry of Finance, Department of Expenditure referred to its earlier memorandum dated 19 February 2020 and also referred to the Manual of Procurement and recognized inter-alia that in view of the prevailing restrictions, it may not be possible for the parties to the contract to fulfill contractual obligations. Therefore, after fulfilling due procedure and wherever applicable, parties to the contract could invoke force majeure clause for all construction / works contracts, goods and services contracts, and PPP contracts with Government Agencies up to a certain period and subject to certain conditions. Therefore, officially the Government of India recognized Covid-19 Pandemic as an event of force majeure applicable in relation to contracts with Government Agencies, in effect resulting inclusion of Public Sector Undertakings also.

While the specific acceptance of force majeure in relation to Government sector contracts may not have any binding effect on the contracts outside the scope of the explicit instances or in relation to purely private contracts between two private parties, they probably offered an explanatory value to bring Covid 19 and the forced restraints imposed on account of lockdowns, within the ambit of force majeure.  

 
Judicial Interpretation:
 

In the Indian judicial scenario the court would rely on the terms of force majeure clause in the contracts or on principles of frustration under section 56 of the Contract Act. This means, unless there is compelling evidence for non-performance of contract the courts do not favor parties resorting to frustration or termination of contract. On account of the enormous devastative effects the Pandemic created on the commercial and economic environment in the country, different Courts had to come forward and grant relief to different contracting parties who were severely affected by the Pandemic.

The Delhi High Court considered the matter in June 2020 in the case of MEP Infrastructure Developers Ltd vs. South Delhi Municipal Corporation and Ors[vi]. The court essentially relied on the Ministry of Roads Transport and Highways (MORTH) circular and observed that:

27(i) The respondent Corporation itself referred to Circular dated 19.02.2020 which notified that the COVID-19 pandemic was a force majeure occurrence. In effect, the force majeure clause under the agreement immediately becomes applicable and the notice for the same would not be necessary. That being the position, a strict timeline under the agreement would be put in abeyance as the ground realities had substantially altered and performance of the contract would not be feasible till restoration of the pre-force majeure conditions.” 

The court also expounded on the continuous nature of the force majeure event and held that the subsequent lockdown relaxations given by the central government and the state government shall not amount to abatement of the force majeure event, at least in respect to major contracts such as road construction projects. The court also identified the distinct effects of the lockdown, independent of the effects of the pandemic and its implications on various contracts which many be affected by the force majeure conditions.  

In the case of Standard Retail vs G.S Global Corp Pvt. Ltd[vii] steel importers had approached the Bombay High Court seeking restraint on encashment of letters of credit provided to Korean exporters in view of the COVID-19 pandemic and the lockdown declared by the Central/State Government citing that the contracts between the parties were unenforceable on account of frustration, impossibility, and impracticability. The Bombay High court by its order dated 8 April 2020 rejected the plea inter-alia on the grounds: 

  1. The Letters of Credit are an independent transaction with the Bank and the Bank is not concerned with underlying disputes between the buyers and the sellers.
  2. The Force Majeure clause in the present contracts is applicable only to one respondent and cannot come to the aid of the Petitioners.
  3. The contract terms are on Cost and Freight basis (CFR) and the respondent had complied with its obligations and performed its part of the contracts and the goods had already been shipped from South Korea. The fact that the Petitioners would not be able to perform its obligations so far as its own purchasers are concerned and/or it would suffer damages, is not a factor which can be considered and held against the Respondent.

The court also observed that:  

“The Notifications/Advisories relied upon by the respondent suggested that the distribution of steel has been declared as an essential service. There are no restrictions on its movement and all ports and port related activities including the movement of vehicles and manpower, operations of Container Freight Station and warehouses and offices of Custom Houses Agents have also been declared as essential services. The Notification of the Director General of Shipping, Mumbai, states that there would be no container detention charges on import and export shipments during the lockdown period.

In any event, the lockdown would be for a limited period and the lockdown cannot come to the rescue of the Petitioners so as to resile from its contractual obligations with the Respondent No. 1 of making payments”.

Therefore, even if the event is a force majeure, contracts may not be avoided if the event does not affect performance of the entire contract or affect every aspects of any contract. The event has to be specific to the failure.

In the Halliburton case[viii] , decided on May 29, 2020, the Delhi High court was of an unequivocal opinion that:

“62. The question as to whether COVID-19 would justify non-performance or breach of a contract has to be examined on the facts and circumstances of each case. Every breach or non-performance cannot be justified or excused merely on the invocation of COVID-19 as a Force Majeure condition. The Court would have to assess the conduct of the parties prior to the outbreak, the deadlines that were imposed in the contract, the steps that were to be taken, the various compliances that were required to be made and only then assess as to whether, genuinely, a party was prevented or is able to justify its non- performance due to the epidemic/pandemic”.

Further, while discussing the scope of the force majeure clause in contracts it was observed by the court that:

“Para 63. It is the settled position in law that a Force Majeure clause is to be interpreted narrowly and not broadly. Parties ought to be compelled to adhere to contractual terms and conditions and excusing non-performance would be only in exceptional situations. As observed in Energy Watchdog it is not in the domain of Courts to absolve parties from performing their part of the contract. It is also not the duty of Courts to provide a shelter for justifying non- performance. There has to be a ‘real reason’ and a ‘real justification’ which the Court would consider in order to invoke a Force Majeure clause”.

The Madras High Court in the case of Tuticorin Stevedores’ Association vs The Government of India[ix], dated 14 September 2020, observed that the question as to whether on account of the pandemic outbreak of Covid-19, the parties can invoke the principle of force majeure need not detain us. The calamitous impact and disruption caused by Covid-19 on the economic front has been recognized by the Government itself.

In Confederation for Concessionaire Welfare & Ors. vs Airports Authority of India & Anr[x] the Hon’ble Delhi High Court observed on 17 February 2021 inter-alia that the court has perused the clauses relating to Force Majeure. There can be no doubt that the pandemic is a force majeure event. Since the Petitioners wish to terminate/exit from their respective agreements, while directing completion of pleadings and while the issues are under examination by this Court, there is a need to reduce the risk to both parties as simply postponing the exit by the Petitioners would also make it impossible for the AAI to re-allot the spaces to willing concessionaires and the outstanding against the Petitioners would continue to mount. Accordingly, as an interim measure the Hon’ble Court directed certain processes to be followed.

In another case of Ramanand vs. Dr. Girish Soni RC.[xi], an application came under consideration of the Delhi High Court which raised various issues relating to suspension of payment of rent by tenants owing to the COVID-19 lockdown crisis and the legal questions surrounding the same. By order dated 21-5-2020 the Delhi High court while determining whether lease agreements are covered under the ambit of section 32 and section 56 of the Act and even though it was held that suspension of rent on the grounds of force majeure is not permissible under the circumstances, the court allowed relaxation in the schedule of payment of the outstanding rent owing to the lockdown.

The Hon’ble Supreme Court in the case of Parvasi Legal Cell and Ors. Vs Union of India and Ors., observed that the pandemic was an ‘unusual’ situation, that had impacted the economy globally. This case revolved around the liability of the airlines to compensate passengers who faced cancellation of flights due to government-imposed lockdowns and restrictions on inter-state and international travels. The court relied on the office memorandum issued by the Ministry of Civil Aviation dated 16th April 2020 to dispose of the petition.

In the case of Transcon Iconia Pvt. Ltd v ICICI Bank[xii], the Bombay High Court while determining whether moratorium period would be excluded for NPA classification observed inter alia as under:

‘38… the period of the moratorium during which there is a lockdown will not be reckoned by ICICI Bank for the purposes of computation of the 90-day NPA declaration period. As currently advised, therefore, the period of 1st March 2020 until 31st May 2020 during which there is a lockdown will stand excluded from the 90-day NPA declaration computation until — and this is the condition — the lockdown is lifted’.

Yet, in another judgment passed in R. Narayan v. State of Tamil Nadu & Ors.[xiii] the Madras High Court directed the Municipal Corporation to waive the license fee for running a shop at a bus stand, and observed that:

“…this Court would be justified in treating the “lock down” as a force majeure event which will relieve the licensee from performing his obligation to the corresponding extent.” The Court also observed that … “The respondents (The Government of Tamil Nadu & Ors.) themselves have chosen to treat the lock down restrictions as a force majeure event. But they have relieved the licensees from the obligation to pay the fees only for two months. The reason for granting waiver for the months of April and May would equally hold good for the entire “total lockdown” period.”

Therefore, as it appears, most of the High Courts relied on the government orders that classified pandemic as force majeure, although the relief granted in each case has been subjected to restraint based on the accompanying facts and circumstances. The common observation however remained that the Covid-19 pandemic is a force majeure event.

 

Key Takeaways

 

Hence, it can be summarized that, commercial hardship shall not be a just and reasonable ground to support frustration of contract and excuse performance. The Courts have no general inclination to absolve a party from the performance of its part of the contract merely because its performance has become onerous on account of an unforeseen turn of events. Parties are at an obligation to complete their part of the contract against all odds, within a reasonable and practical limit. However, where the contract itself either impliedly or expressly contains a term according to which performance would stand discharged under certain circumstances, the dissolution of the contract would take place under the terms of the contract itself and such cases would be dealt with under Section 32 of the Act. If, however, frustration is to take place de hors the contract, it will be governed by Section 56.

The following preliminary conditions are emerging to be sine quo non to invoke covid-19 as a valid defense for non-performance:

  1. The contract is rendered impossible to perform: To establish pandemic as a force majeure occurrence de hors the contract the parties must demonstrate how the pandemic has disturbed the fundamental basis on which the obligations and agreements of the parties rested [Naihati Jute Mills Ltd. Vs Khayaliram Jagannath[xiv]]. This principle was also adequately elaborated upon by the Bombay High Court in Standard Retail vs G.S Global Corp Pvt. Ltd. A mere invocation of the force majeure clause in light of the pandemic does not absolve the parties from discharging their contractual obligations. A prima facie case has to be built justifying the reason for inability and seeking such an exemption.
  1. Prior conduct of the parties: While pleading the defense of force majeure, it is highly pertinent for the concerned party to ensure that, prior to the outbreak of the pandemic, the party was discharging its functions in a bona fide manner within the stipulated conditions of the contract. Additionally, as enumerated in the Halliburton case by the Delhi High Court, the concerned party should have demonstrated a bona fide attempt at undertaking all reasonable measures to execute its obligations in light of the situation and was genuinely prevented to act upon the same due to the collateral effects of the pandemic.
  1. Collection of documents capable of corroborating the claim of force majeure: It is crucial for the party invoking the force majeure clause to corroborate their claims with valid documents applicable to the specific instance, given the unusual and unprecedented situation. In the present scenario, these documents can include the abovementioned government circulars and guidelines, local medical reports, news reports, announcements etc. It needs to be kept in mind that generic documents howsoever crucial they may be, might not be enough in any specific case. While citing such documents, the affected party also has a duty to carry out a due diligence to ensure such exemptions and relaxations are strictly applicable to their case as observed in Standard Retail vs G.S Global Corp Pvt. Ltd.

 

No Straitjacket Formula                     

 

As can be summarized, different Courts in India have upheld the defense of frustration of contract and the defense of force majeure sparingly in every case. Even though the Covid 19 pandemic and its consequent lockdown can be generally covered under the ambit of force majeure, but there can’t be any straitjacket formula and its invocation strictly and solely shall depend upon the facts of each case, previous conduct of the parties and the prevailing circumstances in the specific scenario. If there are alternate modes of performing contractual obligations, the liable party shall not have the luxury to hide behind the comfort of doctrine of frustration or the doctrine of force majeure and absolve themselves of their duties. Accordingly, it would need a very careful examination of the whole situation before any ground is taken for avoidance of obligations under a concluded contract.

References:

[i] (1915) 1 K.B. 681

[ii] (1920) 2 K.B. 714

[iii] [1954 SCR 310]

[iv] [(2017)14 SCC 18].

[v] [1960 (2) SCR 793]

[vi] W.P.(C) 2241/2020

[vii] Commercial Arbitration Petition (l) no. 404 of 2020

[viii] Halliburton Offshore Services Inc. v. Vedanta Ltd. O.M.P (I) (COMM.) No. 88/2020 & I.As. 3696-3697/2020

[ix] WP(MD)No.6818 of 2020 and WMP(MD)No.6217 of 2020

[x] W.P.(C) 2204/2021 & CM APPL.6421-22/202

[xi] REV447/2017

[xii] 2020 SCC OnLine Bom 626

[xiii] Case No.19596 of 2020 and W.M.P.(MD)Nos.16318 & 16320 of 2020

[xiv] AIR 1968 SC 552

Image Credits: Photo by Medienstürmer on Unsplash

The Courts have no general inclination to absolve a party from the performance of its part of the contract merely because its performance has become onerous on account of an unforeseen turn of events. Parties are at an obligation to complete their part of the contract against all odds, within a reasonable and practical limit.

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Income Tax Returns for AY 2020-21: Ready Referencer

With the extended time limit for filing of Income Tax Return (for AY 2020-21), u/s. 139(1), without late fees, for Non-Audit cases and for Non-Corporate assessees of 31st December 2020 fast approaching, given below is a quick guide for ready reference of some key changes that have been made in the respective Income tax return forms for this year.

Further, the conditions and features for eligibility of forms that are applicable for filing the correct income tax returns are also specified as follows:

Key Procedural Changes:

  • ITR 1 to ITR 4 can be filed using PAN or Aadhar by Individuals.
  • The submitted ITR forms display the ITR-V with a watermark ‘Not Verified’ until the same is verified either electronically by EVC or by sending the same via post after manual signing.
  • The unverified form ITR-V will not contain any income, deduction and tax details. The unverified form will only contain basic information, E-filing Acknowledgement Number and Verification part.
  • The unverified acknowledgement is titled as ‘INDIAN INCOME TAX RETURN VERIFICATION FORM’ & final ITR-V is titled as ‘INDIAN INCOME TAX RETURN ACKNOWLEDGEMENT’.
  • Return filed in response to notice u/s. 139(9), 142(1), 148, 153A, and 153C must have DIN.
  • There is a separate disclosure for Bank accounts in case of Non-Residents who are claiming income tax refund and not having a bank account in India.

COVID related Changes:

  • The Government had extended the time limit for claiming tax deduction u/CH VIA to 31st July 2020, and the details of the same need to be reported in Schedule DI (details of Investment).
  • The time limit for investing the proceeds or capital gains in other eligible assets, so as to claim exemptions u/s 54/ 54B/ 54F/ 54EC, had been extended to 30th September 2020.
  • Penal interest u/s. 234A @ 1% p.m., where the payments were due between 20-03-20 to 29-06-20 and such amounts were paid on or before 30-06-20, had been reduced to 75%, vide ordinance dated 31-03-20.
  • Period of forceful stay in India, beginning from quarantine date or 22-03-20 in any other case up to 31-03-20, is to be excluded, for the purpose of determining residential status in India.[1]

Consequences of Late filing of Return of Income:

  • Late Fees u/s. 234F of INR. 5,000 up to 31.12.20 and INR. 10,000 up to 31.03.21. In case of total income up to 5 Lacs, the penalty is INR. 1,000.
  • Penal Interest u/s. 234A @ 1% per month
  • Reduced to 75%. vide Ordinance dated 31.03.20, where the payments were due between 20.03.20 to 29.06.20, and such amounts were paid on or before 30.06.20.
  • Vide CBDT Notification dt 24.06.2020, no interest u/s 234A if Self-Assessment tax liability is less than 1 Lac and the same has been paid before the original due date.
  • In case of a belated return, loss under any head of Income (except unabsorbed depreciation) cannot be carried forwarded.
  • Deduction claims u/s. 10A, 10B, 80-IA, 80-IB, etc would not be allowed.

Consequences of Late filing of Return of Income:

  • Late Fees u/s. 234F of INR. 5,000 up to 31.12.20 and INR. 10,000 up to 31.03.21. In case of total income up to 5 Lacs, the penalty is INR. 1,000.
  • Penal Interest u/s. 234A @ 1% per month
  • Reduced to 75%. vide Ordinance dated 31.03.20, where the payments were due between 20.03.20 to 29.06.20, and such amounts were paid on or before 30.06.20.
  • Vide CBDT Notification dt 24.06.2020, no interest u/s 234A if Self-Assessment tax liability is less than 1 Lac and the same has been paid before the original due date.
  • In case of a belated return, loss under any head of Income (except unabsorbed depreciation) cannot be carried forwarded.
  • Deduction claims u/s. 10A, 10B, 80-IA, 80-IB, etc would not be allowed.

Vide CBDT Notification dt 24.06.2020, no interest u/s 234A if Self-Assessment tax liability is less than 1 Lac and the same has been paid before the original due date.

  1. Section 5A: Apportionment of income between spouses governed by the Portuguese Civil Code.
  2.  115BBDA: Tax on dividend from companies exceeding Rs. 10 Lakhs; 115BBE: Tax on unexplained credits, investment, money, etc. u/s. 68 or 69 or 69A or 69B or 69C or 69D.
  3. Inserted in sec 139(1) by Act No. 23 of 2019, w.e.f. 1-4-2020:

Provided also that a person referred to in clause (b), who is not required to furnish a return under this sub-section, and who during the previous year:

  • has deposited an amount or aggregate of the amounts exceeding one crore rupees in one or more current accounts maintained with a banking company or a co-operative bank; or
  • has incurred expenditure of an amount or aggregate of the amounts exceeding two lakh rupees for himself or any other person for travel to a foreign country; or
  • has incurred expenditure of an amount or aggregate of the amounts exceeding one lakh rupees towards consumption of electricity; or
  • fulfils such other conditions as may be prescribed,

Shall furnish a return of his income on or before the due date in such form and verified in such manner and setting forth such other particulars, as may be prescribed.

4. Section 57: Deduction against income chargeable under the head “Income from other sources”.

5. Schedule DI: Investment eligible for deduction against income (Ch VIA deductions) to be bifurcated between paid in F.Y.19-20 and during the period 01-04-20 to 31-07-20.

6.High-value Transaction: Annual Cash deposit exceeding Rs. 1 crore or Foreign travel expenditure exceeding Rs. 2 Lakhs, Annual electricity expenditure exceeding Rs. 1 Lakh.
7.Schedule 112A: From the sale of equity share in a company or unit of equity- oriented fund or unit of a business trust on which STT is paid under Section 112A.

8. 115AD(1)(iii) proviso: for Non-Residents – from the sale of equity share in a company or unit of equity-oriented fund or unit of a business trust on which STT is paid under Section 112A.
9. Section 40(ba): any payment of interest, salary, bonus, commission or remuneration paid to a member in case of Association of Person (AOP) or Body of Individual (BOI).

10. Section 90 & 90A: Foreign tax credit in cases where there is a bilateral agreement; Section 91: Foreign tax credit in cases of no agreement between the countries.

[1] Circular No 11 of 2020 dated 08th May 2020.

References

Image Credits: Photo by Markus Winkler from Pexels

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‘Technological Doping’: A Threat To Equity In Sports

Athletes thrive on success and are often willing to go the extra mile to achieve on-field success. The influx of technological advancements in our daily lives has naturally found its way onto the sports field; this has resulted in a race to look for the best sports equipment/gears and technology hence shifting the focus from physiological ability. This article focuses on issues related to the usage of performance enhancement technology in sports and the negative effect that it has had on the integrity of sports.

Background:

A sport remains competitive and fair as long as there exists a level playing field in all aspects of the sport. Track & Field has by far maintained equity among athletes. Further, in association with the World Anti-Doping Agency (WADA), the World Athletics has kept a strict vigilance on the conventional doping and performance enhancement techniques to a great extent.

Most of the sports, which have preset measurements for the equipment and athletic gears used in the games, leave comparatively less or no room for any kind of experiment, however, certain sports which have no preset rules for the equipment/gears are prone to such kind of manipulation thereby gaining an advantage over others.

A major controversy broke out in late 2019 when a Kenyan Athlete, Eliud Kipchoge, completed a marathon in less than two hours. The records by Eliud Kipchoge in Vienna and Brigid Kosgei in Chicago highlighted how the (shoe) technology had enhanced the performance of athletes. The common factor between these two record-breaking athletes, other than being from the same country and training together, was that both athletes were wearing a prototype of the new Nike Vaporfly 4%. These shoes had been proven by Nike to enhance the efficiency of the runners by adding more to what the runners expended, thus, giving runners an edge over others.

The Playbook:

The World Athletics, in its guidelines on shoes (before amendment in January 2020), provided that shoes used by athletes must not be those that create an “unfair advantage” and must be “reasonably available” to all. The rules were silent as to what would amount to an “unfair advantage”. On the application of these rules, the Nike Vaporfly 4% could be considered unfair as it had been proven to increase the efficiency of a runner, thereby creating an unfair advantage. There would be no issue of unfairness if these shoes were available to all runners. However, the high cost and non-availability of the shoes in the open market prevented the access of such shoes to all athletes. This thus, results in an unfair and non-level playing field and is regarded as an unconventional method of doping in running dubbed as “technological doping”.

Amended Technical Rules:

The revised Technical Rules of the World athletics (post-amendment) have impliedly given a green signal to performance enhancement shoes. World Athletics has disallowed any prototype shoe to be used in any competition but has permitted athletes to use shoes that are in sale in the market for a period of 4 months or more. Furthermore, the amendment has prohibited athletes from using shoes that have a sole thickness greater than 40mm.

This has surely indirectly legalized the Nike Vaporfly 4%, which has a sole thickness of 39.5mm and has resulted in an arms race of sorts amongst athletes to procure the most advanced and specialized shoes. Had the Tokyo Olympics held in 2020, the disparity in sporting performances might have been evident with the number of past records being broken with relative ease.

Technological Advancement Vs. Technological doping:

There is a thin line between technological advancements and technological doping in sports. ‘Advancement’ is a natural phenomenon, but its utilization to gain an unfair advantage is what converts it into ‘doping’. In the absence of any defined Rules, there exists an opportunity for some to find ways to gain that advantage over others by technological means. Further, the price and availability of such hi-tech equipment and gears would for sure deprive many able but financially weak athletes. Another point to ponder is– whether such technology dilutes human effort and has a decisive effect on the performance or whether it would create some sort of unrealistic targets and records.

Hence, fairness in sports can only be achieved if such technology is banned, or if allowed, made available to all at a reasonable price. Technological advancements in sports are inevitable and necessary, but to avoid such technology from being used to gain an unfair advantage in the sport, equity is to be maintained by ensuring equal and reasonable access for all athletes.

TECHNOLOGICAL DOPING ISSUES IN OTHER SPORTS:

Swimming in Beijing Olympics:

During the 2008 Beijing Olympics, most of the swimmers used the Speedo LZR swimsuit, which was specifically designed to improve the speed of the swimmer. The suit covered the whole body from shoulder to calf and was designed to optimize body compression and hydrodynamics. The suit allowed better oxygen flow to muscles, however, it also trapped air to add buoyancy.

According to Speedo, the suit reduced drag or water resistance by 38% compared to an ordinary LYCRA suit. This reduction in drag translated into approximately a 4% increase in speed for swimmers.

The advantage of using such a suit was so extreme that one did not even stand a chance if they competed without such a suit. Japanese swimmers even broke away from their sponsorship deals to use the Speedo swimsuits in the Olympics! The swimsuit aided in about 23 out of the 25 world records that were broken in the Beijing Olympics.

A moralistic issue arose as to how would one compare the athletes of the present to yesteryear, considering that they were not equipped with such suits? An athletes’ greatness is often measured by their performances in the Olympics; however, can one call such athletes great in light of the current technologies in sports? On the regulatory side of things, a defense was provided by Speedo that suggested the suit only improved the management of existing forces rather than generating new ones. FINA, however, banned such suits after the Beijing Olympics and disallowed swimmers from using suits that extended above the waist and below the knees. Only textile suits with relatively minimal coverage were allowed – which meant that the full-coverage low-drag (even buoyant) polyurethane swimsuits were out.

The move by FINA was crucial and widely celebrated because a simple sport such as swimming had become an expensive and inaccessible sport where all the benefits were going to the well-funded athletes. However, the world records were still upheld, and since the technology has been banned for future athletes, it is going to be a tough task for them to beat the stats.

Case of Oscar Pistorius:

Oscar Pistorius’s dramatic life story has moved the world. An 11 month old South African boy whose both feet were amputated due to a congenital defect, goes on to compete in both, Olympic Games and Paralympic Games before being charged with murder. He had wished to compete against able-bodied athletes using two prosthetic legs in both the Beijing Olympic and Paralympic events. His prosthesis used an ESR (Energy storage and return) mechanism which comprised of carbon fiber blades that compressed and extended under load, therefore, worked like a spring.

The IAAF had commissioned a report in 2007 on the ESR mechanism and claimed that it was an unfair technology as it provided Pistorius an unfair mechanical advantage over able-bodied athletes of more than 30%, had a 25% reduced energy output for maintaining the same speed and possessed inertial benefits due to the reduced mass of the prosthesis. On the basis of this report, the IAAF banned Pistorius from taking part in able-bodied Olympic events. However, in a separate report commissioned by Oscar Pistorius, he proved before the CAS that while he was mechanically different, he remained physiologically similar to other athletes.

The CAS had to determine whether the use of such prosthesis was in contravention to rule 144.2 (e) of the IAAF technical rules which is read as– “Use of any technical device that incorporates springs, wheels, or any other element that provides the user with an advantage over another athlete not using such a device.” Interestingly, the CAS analysed what constituted a spring and held that even the human leg was a spring. The CAS was not convinced that the ESR prosthesis provided Pistorius with an overall net advantage over the other athletes and hence over-turned the decision of the IAAF and subsequently allowed Pistorius to compete in able-bodied events.

Case of Markus Rehm:

It was a similar case to that of Pistorius. Markus is an amputee who wished to compete in the able-bodied sport in the long jump event in the 2016 Rio Olympics. The main issue, in this case, was that he was using his prosthetic leg to jump rather than his biological leg. The German Athletics Association considered his prosthetic limb an unfair advantage and did not allow him to participate. He did not appeal to the CAS and currently is a record holder in the Paralympic long jump event.

Case of Casey Martin:

Martin was a Pro-golfer but suffered from a circulatory disorder in his lower right leg, known as Klippel-Trenaunay-Webber syndrome. This made walking very hard for him and he was always at the risk of having his leg amputated if he happened to fall. Whilst attempting to qualify for the Professional Golf Association (PGA) tour, Martin played golf using a powered golf cart. He attempted to use this technology to support his transit between strokes but the PGA attempted to prevent this.

Golf carts were banned in professional golf at the time as it was felt that such technology would change the nature of the game by reducing the impact of the walk between each hole and provide players using them with an advantage over other golfers. Martin attempted to challenge the PGA decision using the American legal system by proposing that such technology was part of his professional occupation.

The Supreme Court ruled that the use of the cart would not be a fundamental alteration of the game and therefore would not disadvantage other players and organisers.

Regulations to Tackle Doping in Sports:

The WADA Anti-Doping code serves as the core regulatory framework to tackle conventional doping in sports. It harmonizes anti-doping policies, rules and regulations within sport organizations and among public authorities around the world. Almost every international sporting governing body is a signatory to the WADA anti-doping code, thus ensuring its universal application to tackling doping in sports.

The anti-doping code has defined what constitutes doping and maintains a list of prohibited substances and activities that would enable the WADA to take action against an athlete for doping.

Technological Doping & WADA:

WADA has recognised the threat posed by technological doping but has left it to the discretion of the independent sporting bodies to allow or ban a new technology in a sport. The general stance of the WADA on technological doping is that technology should be banned if they are “performance enhancing” or “against the spirit of the sport”.

Conclusion:

Technology has started playing a vital role in sports by not only improving it but also enhancing the sports viewing experience and altering the dynamics of sports gear, thereby paving the way for performance improvement. Ideally, technology has been traditionally utilized for the betterment of the game, safety and efficiency of the athletes, however, when it becomes the decisive factor in achieving on-field success, it raises concerns. The main issue with technological doping is that it dilutes human athleticism and the element of fairness in a game.

Technology has started playing a vital role in sports by not only improving it but also enhancing the sports viewing experience and altering the dynamics of sports gear thereby paving the way for performance improvement. Ideally, technology has been traditionally utilized for the betterment of the game, safety and efficiency of the athletes, however, when it becomes the decisive factor in achieving on-field success, it raises concerns. The main issue with technological doping is that it dilutes the role of human athleticism and also the element of fairness in a game.

References

Image Credits: Photo by Hunter Johnson on Unsplash

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CIRP Timelines Under The IBC, Extensions And Exclusions Thereon

The Insolvency & Bankruptcy Code, 2016 (IBC) was introduced when insolvency resolution in India took around 4 years on average. Therefore, completing the resolution process within a fixed timeline was at the heart of the new framework. But the instances of delays still kept cropping up and the code has been amended continually to impose stricter time frames and ensure compliance.

The aim of this article is to analyze the timelines provided for the corporate insolvency resolution process (CIRP) under the IBC and the latest amendments thereon.

 

With reference to the timeline for completion of CIRP under IBC, please note that generally the CIRP shall be completed within 330 days from the Commencement of Insolvency Proceedings. However, it is subject to certain exclusions. 



The Relevant Provisions:

 

Section 12(2) of the IBC states that the Resolution Professional (RP) may file an application with National Company Law Tribunal (NCLT) to extend this 180-day period by a further 90 days if instructed to do so through a resolution passed by a vote of 66% of the voting shares of the Committee of Creditors (CoC).  This extension can be given only once. 

 

Section 12(3) of the IBC was amended by way of the Insolvency and Bankruptcy (Amendment) Act, 2019, and two provisos were added: 

 

Proviso 1 states that a CIRP must mandatorily be completed within 330 days from the insolvency commencement date, including any extension of the period of the CIRP granted and the time taken in legal proceedings in relation to the resolution process.

 

Proviso 2 states that, when the CIRP of a Corporate Debtor (CD) has been pending for over 330 days, it must be completed within 90 days from the date of the amendment. 

 

Thus, the overall timeline for completing a CIRP now stands at 330 days from the date of insolvency commencement date. However, it shall be noted that while calculating the number of 330 days the following shall be excluded. 

 

 

Exclusions to the Timelines:

 

Lockdown Period:

 

Pursuant to the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, CIRP timelines have been relaxed by virtue of the COVID-19 outbreak. The lockdown period, shall be excluded from computation of the time-line for any task that could not be completed due to such lockdown. The said 68 days has to be excluded for reckoning the timelines under the CIRP pursuant to the following dates of nationwide lockdown: 

  • Phase 1: 25 March 2020 – 14 April 2020 (21 days) 
  • Phase 2: 15 April 2020 – 3 May 2020 (19 days) 
  • Phase 3: 4 May 2020 – 17 May 2020 (14 days) 
  • Phase 4: 18 May 2020 – 31 May 2020 (14 days) 

Period of Stay:

 

The Hon’ble NCLAT, in case of Quinn Logistics India Pvt Ltd, Vs. Mark Soft Tech Pvt. Ltd. has laid down the principle that the period of stay shall be excluded, if the CIRP is set aside by the Appellate Tribunal or order of the Appellate Tribunal is reversed by the Hon’ble Supreme Court, and corporate insolvency resolution process is restored. Therefore, the period of stay shall be excluded while reckoning the 330 days.




Extension of the Timelines:

 

In Committee of Creditors of Essar Steel India Limited Vs. Satish Kumar Gupta & Ors., it was held that on the facts of a given case, if it can be shown to the Appellate Authority (AA) and/or the NCLAT that only a short period is needed beyond the 330 days to complete the CIRP and that it would be in the interest of all stakeholders for the CD to be put back on its feet instead of being liquidated; and further that the time taken in legal proceedings was largely due to factors that could not be ascribed to the litigants before the AA and/or the NCLAT, the delay or a large part thereof being attributable to the tardy process of the AA and/or the NCLAT itself, the AA and/ or the NCLAT may extend the time beyond 330 days.

 

                                                             

Conclusion:

 

Even under the newly added provisos to section 12, if for all these factors the grace period of 90 days from the date of commencement of the amending act of 2019 is exceeded, discretion can be exercised by the AA and/or the NCLAT to further extend the time, keeping the aforesaid parameters in mind.

 

Overlapping timelines, multiple interpretation, and resultant litigation is still causing delays in the resolution process and might continue for some more time until ambiguities are conclusively resolved through judicial analysis.

 

Image Credits:  Photo by Melinda Gimpel on Unsplash

Even under the newly added provisos to section 12, if for all these factors the grace period of 90 days from the date of commencement of the amending act of 2019 is exceeded, discretion can be exercised by the AA and/or the NCLAT to further extend the time, keeping the aforesaid parameters in mind.

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Appointment of Sole Arbitrator: Two Sides of the Same Coin

Almost every commercial contract contains an arbitration clause in order to circumvent the traditional trajectory of dispute resolution through litigation. It is common to encounter myriad project financing documents between a lender and a borrower bearing arbitration as a means of settling any dispute or difference. The concerning question raised in such a scenario is whether the lender of facilities exercises an upper hand in designating an arbitrator devoid of any recourse to the borrower; thereby bringing us to the crucial question: Have the clauses similar to All disputes and differences of whatsoever nature arising out of this agreement, whether during its term or after expiry thereof or prior termination shall be referred to arbitration in terms of the Arbitration and Conciliation Act, 1996. The arbitration shall take place before a sole arbitrator, to be appointed by the Lender.been obliterated?

The law in case of appointment of the sole arbitrator by a party has been settled by the Hon’ble Supreme Court in the case of Perkins Eastman Architects DPC and Ors. v. HSCC (India) Ltd.[1] (Perkins case). HSCC (India) Ltd. (Respondent), the executing agency of the Ministry of Health and Family Welfare, issued a Letter of Award (LOA) to the consortium of Applicants for the appointment of Design Consultant for All India Institute of Medical Sciences (AIIMS) proposed at Guntur in Andhra Pradesh. The dispute resolution clause in the contract between the parties provided that if Applicants were dissatisfied with the decision of Director (Engg.), HSCC (India) Ltd. (HSCC) they were at the liberty to issue a notice to the Chief Managing Director (CMD), HSCC for the appointment of an arbitrator within 30 (thirty) days of receipt of the decision.

Furthermore, the contract also prohibited any other person except appointed by CMD, HSCC to act as a sole arbitrator thereby entirely vesting the power of appointment of an arbitrator on the Respondent. When disputes arose, the Applicants invoked the dispute resolution clause in the contract and the Chief General Manager, HSCC appointed the sole arbitrator. Thereafter, an application was filed by the Applicants under Section 11(6) read along with Section 11(12)(a) of Arbitration and Conciliation Act, 1996 (hereinafter referred to as the “Act”) which envisages appointment of an arbitrator by the court. The Hon’ble Supreme Court examined if it could exercise the power of appointment of an arbitrator in this case dehors the procedure set out in the arbitration agreement.

The Hon’ble Supreme Court referred to the judgement of TRF Limited v. Energo Engineering Projects Limited[2] (TRF case) in which the Apex Court examined the issue wherein the Managing Director of the Respondent was titled as the sole arbitrator and was also vested with the authority to nominate a replacement. The Apex Court by virtue of Section 12(5) of the Act that deals with the arbitrator’s relationship with the parties or counsel or subject matter of dispute, affirmed the ineligibility of a person falling under the purview of Seventh Schedule of the Act to perform the role of an arbitrator. Therefore, the Managing Director was ineligible to act as an arbitrator due to which his ability to nominate another person as an arbitrator was annihilated. The Apex Court in this case differentiated the dual power of the Managing Director, one to adjudicate as an arbitrator and second, the capacity of the Managing Director to appoint a nominee in his place.  

The principles emanating from the TRF case were reflected in the present case wherein the capacity of CMD, HSCC to appoint an arbitrator was analyzed. The Hon’ble Supreme Court held that in the TRF case the ineligibility of the Managing Director arose due to his interest in the outcome of the dispute. The same ground would be applicable in the scenario irrespective of the binary power of the arbitrator. In other words, if the appointed arbitrator has an interest in the dispute or in the outcome or decision thereof, he shall be incompetent to adjudicate the dispute as an arbitrator and/or disentitled to appoint any other person as an arbitrator.

The Hon’ble Court stated that the facet of exclusivity shall encompass the party that unilaterally appoints the sole arbitrator of its choice and discretion in spelling the course of the proceedings. Thus, the essence of the Act along with the TRF case was retained by upholding that it would be incongruous to confer the power of appointing an arbitrator in the hands of a person who has an interest in the outcome or decision of the dispute. The appointment made by the Respondent who was empowered in accordance to the dispute resolution clause was annulled and the Hon’ble Court exercised its power under Section 11(6) resulting in the appointment of a sole arbitrator to preside over the disputes between the parties.

The Hon’ble High Court of Delhi echoed this principle in the case of Bilva Knowledge Foundation and Ors. v. CL Educate Limited[3] where the court conceded with the view, followed by the case of Proddatur Cable TV DIGI Services v. SITI Cable Network Limited[4] wherein the distribution agreement vested a unilateral right to appoint the sole arbitrator on the Respondent Company which disagreed with the nomination of arbitrator proposed by the Petitioner. The High Court held that test of having an interest in the outcome of the dispute will be exhibited by the Respondent Company acting through its Board of Directors thereby vitiating the unilateral appointment. The High Court clarified that though party autonomy is a touchstone in arbitration, one cannot overlook the underlying principles of fairness, transparency and impartiality that are also fundamental in an arbitration. While the parties may agree to the procedure mentioned in the dispute resolution clause by free will, this agreement should not eclipse the facet of fairness and impartiality in an arbitration proceeding.

Concluding remarks

In cases where both parties can nominate their respective choice of arbitrators the power derived by one party is counter balanced by an equal power with the other party as seen in the Central Organisation for Railway Electrification v. ECI-SPIC-SMO-MCML (JV)[5].  Though it may seem that the law governing the right of the lender to appoint the sole arbitrator as upheld in the case of D.K. Gupta and Ors. v. Renu Munjal[6] is now settled through the Perkins case, one has to be prudent in drafting and interpreting the clauses for the appointment of sole arbitrator that may be reached by mutual consent or by court appointment or any other alternative thereby balancing party autonomy and the tenets of fairness, transparency and impartiality.

 

References:

[1] AIR2020SC59

[2] (2017)8SCC377

[3] Arb. P. 816/2019

[4] 267(2020)DLT51

[5] 2020(1)ALT70

[6] O.M.P. (T) (COMM.) 106/2017 & IA No. 14824/2017

 

 

Image Credits: Photo by Sora Shimazaki from Pexels

In cases where both parties can nominate their respective choice of arbitrators the power derived by one party is counter balanced by an equal power with the other party as seen in the Central Organisation for Railway Electrification v. ECI-SPIC-SMO-MCML (JV).

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The Admissibility of Electronic Evidence

With constant technological innovation and dynamic transformation of related laws happening worldwide, the jurisprudence regarding reliance on evidence in electronic form is also evolving. Judges these days have demonstrated considerable perceptiveness towards the intrinsic ‘electronic’ nature of evidence, which includes insight regarding the admissibility of such evidence, and the interpretation of the law in relation to the manner in which electronic evidence can be brought and filed before the court.

The term   record has been defined under Section 2(t) of the Information Technology (IT) Act as under:

data, record or data generated, image or sound stored, received or sent in an electronic form or micro-film or computer-generated micro fiche”

Further, Electronic records have also been given an overarching legal recognition through Section 4 of the IT Act which provides that:

“Any law provides that information or any other matter shall be in writing or in the typewritten or printed form, then, notwithstanding anything contained in such law, such requirement shall be deemed to have been satisfied if such information or matter is– (a) rendered or made available in an electronic form; and (b) accessible so as to be usable for a subsequent reference.”

Moreover, Section 79A while authorizing the Central Government to notify the Examiner of Electronic Evidence also explains what would be called “electronic form evidence” as under:

“Electronic form evidence means any information of probative value that is either stored or transmitted in electronic form and includes computer evidence, digital audio, digital video, cell phones, digital fax machines.”

In addition, Section 3 of the Indian Evidence Act, 1872 was also amended to include electronic records as documentary evidence and now it reads as follows:

“all document including electronic records produced for the inspection of the Court, such statements are called documentary evidence”

In the case of State (NCT of Delhi) vs. Navjot Sandhu[1], the Supreme Court had held that courts could admit electronic records such as printouts and compact discs as prima facie evidence without notification.

However, oral admission as to the contents of electronic records is not relevant unless the genuineness of the record produced is in question.[2]

In cases of cybercrime, a suggestive list has been provided by the National Cyber Crime Reporting Portal on the type of information that would be considered as evidence while filing any complaint related to cybercrime:

  • Credit card receipt
  • Bank statement
  • Envelope (if received a letter or item through mail or courier)
  • Brochure/Pamphlet
  • Online money transfer receipt
  • Copy of email
  • URL of webpage
  • Chat transcripts
  • Suspect mobile number screenshot
  • Videos
  • Images
  • Any other kind of document

Admissibility of “Electronic Evidence”

Sections 65A and 65B of the Evidence Act particularly deal with the information contained in electronic records. The marginal note to Section 65A indicates that “special provisions” as to evidence relating to electronic records are laid down in this provision. The marginal note to Section 65B then refers to “admissibility of electronic records”.

Section 65B (1)[3] states that if any information contained in an electronic record produced from a computer has been copied onto an optical or magnetic media, then such electronic record that has been copied ‘shall be deemed to be also a document’ subject to conditions set out in Section 65B (2)[4] being satisfied.

Section 65B (2) provides some conditions which are to be satisfied in order to accept electronic records as evidence, which are briefly provided below –

  • the computer was used by a person to store or process information for carrying on any activity regularly over a period of time and has lawful control over the use of such computer,
  • such information must have been regularly fed into the computer in the ordinary course of the said activities. Throughout the material part of the said period, the computer was operating properly, and even if not operating properly, it does not affect the electronic record or accuracy of its contents and
  • information in the electronic record reproduced / derived from information fed into the computer in the ordinary course of the said activities.

In Anvar P.V. vs. P.K. Basheer and ors[5] , the Court has interpreted sections 22A, 45A, 59, 65A & 65B of the Indian Evidence Act and held that secondary data contained in a CD, DVD or a Pen Drive are not admissible without a certificate under section 65 B(4) of the said Act. In the case, it was said that electronic evidence without a certificate under section 65B cannot be proved by oral evidence and also the opinion of the expert under section 45A of the said Act cannot be resorted to make such electronic evidence admissible. After this case, it was clarified that the only way to prove an electronic record/evidence is by producing the original media as primary evidence and the copy of the same as secondary evidence under section 65B of the Indian Evidence Act, 1872.

Thereafter, the Supreme Court in Shafhi Mohammad[6] case, held that the requirement of producing a certificate under Section 65B(4) is procedural and not always mandatory. A party who is not in possession of the device from which the document is produced cannot be required to produce a certificate under Section 65B (4). The Court was of the view that the procedural requirement under Section 65B(4) is to be applied only when electronic evidence is produced by a person who is in control of the said device, and therefore in a position to produce such a certificate. However, if the person is not in possession of the device, Sections 63 and 65 cannot be excluded.

Recently, the Supreme Court in the decision of Arjun Panditrao Khotkar vs. Kailash Kushanrao Gorantyal and Ors.[7]has settled the controversies created by previous judgments as to whether certificate under Section 65B of the Indian Evidence Act is a condition precedent for admissibility of any Secondary electronic record, and at what stage the same may be produced. This judgment arose from a reference by a Division Bench of the Supreme Court, which found that the Division Bench judgment in Shafhi Mohammad v. State of Himachal Pradesh (supra)  required reconsideration in view of the three-judge bench judgment in Anvar P.V. v. P.K. Basheer(supra).Some of the key takeaways from the decision are as follows –

  1. Section 65B differentiates between the original information contained in the “computer” itself and copies made therefrom – the former being primary evidence, and the latter being secondary evidence. Required certificate under Section 65B(4) is unnecessary if the original document itself is produced. This can be done by the owner of a laptop computer, computer tablet, or even a mobile phone, by stepping into the witness box and proving that the concerned device, on which the original information is first stored, is owned and/or operated by him. In cases where the “computer” happens to be a part of a “computer system” or “computer network” and it becomes impossible to physically bring such system or network to the Court, then the only means of providing the information contained in such electronic record can be in accordance with Section 65B(1), together with the requisite certificate Under Section 65B(4).
  2. If the certificate is not issued or refused, the Court may order production of the certificate by the concerned authority.
  3. Evidence aliunde given through a person who was in-charge of a computer device in the place of the requisite certificate is not allowed.
  4. The decision in Anvar P.V. cited above has been upheld and the judgment in Tomaso Bruno v. State of U.P.[8] has been overruled.

The person who gives this certificate can be anyone out of several persons who occupy a ‘responsible official position’ in relation to the operation of the relevant device, as also the person who may otherwise be in the ‘management of relevant activities’ spoken of in Sub-section (4) of Section 65B. Also, it is sufficient that such person gives the requisite certificate to the “best of his knowledge and belief.”

These directions issued by the Supreme Court are welcome as they will improve the efficacy of criminal and investigative proceedings.

When should the certificate be produced?

Although not expressly provided for under the Indian Evidence or the Information Technology Act, the Anvar P.V. case and the Arjun Panditrao case cited above have shed adequate light on the stage at which such certificate must be furnished to the court.

In terms of general procedure, the requisite certificate must accompany the electronic record pertaining to which a statement is sought to be given in evidence when the same is produced in evidence i.e. in a criminal trial, the prosecution is obligated to supply all documents upon which reliance may be placed to an accused before commencement of the trial. Therefore, the electronic evidence, i.e. the computer output, has to be furnished at the latest before the trial begins. The reason is not far to seek; this gives the Accused a fair chance to prepare and defend the charges levelled against him during the trial.

However, the Court may in appropriate cases allow the prosecution to produce such certificate at a later point in time. If it is the Accused who desires to produce the requisite certificate as part of his defense, this again will depend upon the justice of the case discretion to be exercised by the Court in accordance with the law.

Position across the globe

The Indian law relating to electronic evidence has adopted the language of Section 5 of the UK Civil Evidence Act, 1968 to a great extent, however this provision had already been repealed by the UK Civil Evidence Act, 1995 and even Section 69 of the Police and Criminal Evidence Act, 1984 which related to the admissibility of computer evidence in criminal cases was revamped to permit hearsay evidence. Therefore, in UK currently, no special provisions have been made in respect of the manner of proof of computerized records.

In USA, a person seeking to produce an electronic record has more than one option to do so under the Federal Rules of Evidence (FRE). A person can follow either the traditional route under Rule 901 or the route of self-authentication under Rule 902 whereunder a certificate of authenticity would elevate its status. This is a result of an amendment introduced in the year 2017, by which sub-rules (13) and (14) were incorporated in Rule 902.

In Canada, the position is similar to India although the Canadian law takes care of a contingency where the electronic document was recorded or stored by a party who is adverse in interest to the party seeking to produce it. Section 31 of the Canada Evidence Act, 1985 deals with electronic evidence and the application of the ‘best evidence rule’.

The future holds definite challenges as far as electronic evidence is concerned and constant legal overhaul and vigilance of judiciary are anticipated but the legislature also needs to take a proactive step in making laws consistent with the changing technology environment.

References

[1] State (NCT of Delhi) vs. Navjot Sandhu (2005) 11 SCC 600.

[2]Section 22A of Indian Evidence Act

[3] Indian Evidence Act, 1872.

[4] Ibid

[5] Anvar P.V. vs. P.K. Basheer and ors  AIR 2015 SC 180, [MANU/SC/0834/2014]

[6] (2018) 2 SCC 801

[7] 2020 SCC OnLine SC 571

[8] [(2015) 7 SCC 178]

 

Image Credits:  Photo by Maxim Ilyahov on Unsplash

Though the Amended Act endeavours to address issues related to the land acquisition process being faced by industrialists for causing industrial development in Karnataka, ambiguity remains as to what extent the Amended Act shall be able to achieve ease of land acquisition process for tangible industrial development in the state.

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Evolution of the Doctrine of Public Policy in Arbitration

The pendency of litigation and piling up of cases in courts was the necessity which led to the discovery of alternative dispute resolution mechanisms. These tools of dispute resolution are highly efficient, time-bound and cost-effective. Further, as the dispute resolution is amicable, the delicate and long-standing relationship of parties is preserved. It is for this reason separate tribunals are set up for arbitration, independent mediators can be appointed for mediation and a number of unaided negotiations take place between the parties for settlement of any disputes. 

Arbitration is also familiar as a form of private litigation as to some extent the formalized means of dispute resolution; witness examination, expert opinions, and binding nature of the arbitral award will substantiate the fact. However, with enhanced remedial and appellate participation from the judiciary, the idea of ‘alternative’ dispute resolution seems to replicate a façade. The primeval legislation, Arbitration Act of 1940 provided for a triangular remedial setup, namely rectification, remission, and setting aside of the arbitral award. This was narrowed down to remission and setting aside of the award in the subsequent Act, 1996.

A noteworthy argument here is, that the arbitration disputes are often referred to as, ‘matters’ and not ‘suits’, this is a practice to limit the authority of courts over these disputes. The term ‘judicial authority’ is not construed in a narrow sense, rather derives a wider import to itself by the virtue of numerous common law precedents. Inclusion of District Forums, State Commissions and National Commission[1] under COPRA Act[2], commissions under Monopolies and Restrictive Trade Practices Act, 1969[3]  and Company Law Tribunals have been brought under the ambit of ‘judicial authority’.

The interplay of litigation courts in the proceeding of arbitration can be analyzed in three stages vis-à-vis before proceedings, during proceedings, and after proceedings. When on one hand this intermingling helps establish effective checks and balances when it comes to matters of public policy, on the counter, it defeats one of the primary advantages of arbitration, i.e. the expediency of dispute resolution. 

Section 5 of the Arbitration & Conciliation Act, 1996 provides for the limited or minimal intervention of judicial authority in arbitration proceedings.[4] The said section is analogous to Article 5 of UNCITRAL Model Law on International Commercial Arbitration, 1985[5]. The scope of judicial intervention is however non-arbitrary and is limited to the purposes prescribed in the Act, extending only to the administrative and non-judicial roles, within the non-obstante provisions.[6] The stance of the Indian judiciary was firmly established while inclining with the legislative intent behind the section, that the courts’ intervention should be minimal to encourage the resolution of disputes expeditiously and less expensively.[7] Even if the matter requires judicial intervention, the judicial authority is required to decide the issue expeditiously within a prescribed period and not to treat the matter in parimateria regular civil suits.[8]

Section 9 and 17 of the Arbitration & Conciliation Act, 1996 provide for interim measures  by the courts and tribunals. An application under Section 9 is that of a mandatory nature and is not a substantive remedy available at the discretion of the parties. The section provides for the judicial recourse for enforcement of rights of a third party in case its rights are being affected as a result of the arbitral award. As the third party is not a party[9] to the arbitration and does not have a locus standi, the said enforcement can happen only on a separate cause of action engaged by the third party and is not covered under the ambit of an arbitration agreement.[10] The right conferred by Section 9 is therefore not a contractual right, as only a party to the arbitration agreement possess the same.[11] Only in the rarest of rare cases, the third party would be competent to claim relief under Section 9 and not otherwise.[12] As locus standi is a significant rationale before granting interim relief under Section 9, the courts must be extra vigilant to not benefit frivolous litigations.     

As the remedy of ‘rectification’ has been taken away in the 1996 Act, the Arbitral Tribunal under the 1996 Act cannot review an Award on its own, the aggrieved party who has suffered on account of the Arbitral Award is required to challenge it according to the Law prescribed, and if the aggrieved party fails to apply under Section 34 for setting aside the Award, then a de novo inquiry cannot arise on its own. Section 34 of the Act provides for setting aside the arbitral award, in two cases when either a party is willing to challenge the award on grounds of prejudice or the Court finds that the award was in conflict with the public policy of India. The aggrieved party can make an application under this section within 3 months and additional 30 days from the date of receipt of the award. Section 34(2)(a) of the Arbitration and Conciliation Act, 1996 provides for numerous grounds on account of which the Court can set aside the arbitral award, including incapacity of parties, invalid or illegal arbitration, no proper notice for appointment of an arbitrator, non-agreement of parties on composition of the tribunal. The court is vested with powers to set aside the award in case of a non-arbitrable dispute or if the award conflicts with the public policy of India.  

AMBIGUITY IN ‘PUBLIC POLICY’ 

The ground of public policy for setting aside the arbitral award under Section 34 of the Act is a ‘judge-made’ ground evolving from common law. A series of precedents shaped the doctrine of public policy as it stands today with regard to setting aside the arbitral award.

The foremost case of Renusagar Power Co. Ltd v. General Electric Company[13] (Renusagar), which questioned the validity of Section 7 (1)(b)(ii) of the Foreign Award (Recognition and Enforcement) Act, 1961 which provided for the non-enforceability of a foreign award in case it contravened the public policy. It was held by the Apex court that “public policy” was to be interpreted as to be the public policy of India, whilst the application of foreign law in a purely municipal legal issue. The court relied on Article I(e) of the Geneva Convention Act, 1927, which recognizes objections by the host country regarding the enforceability of the award if the same contravenes the public policy of the host country. Further, Section7(1) of the Protocol & Convention Act, 1937 which requires that the enforcement of the foreign award must not be contrary to the public policy or the law of India. Therefore, it was concluded that to invoke the bar of public policy the award must invoke something more than mere violation of any domestic law. A test was laid down for the satisfaction of the ‘public policy’ doctrine vis-à-vis, the award should not be contrary to i) fundamental policy of Indian law, ii) interests of India, iii) justice or morality.

The second landmark judgment in the evolution of public policy doctrine in the present context was, Oil & Natural Gas Corporation v. Saw Pipes Ltd[14] (Saw Pipes) the issue of the scope of judicial intervention under Section 34 was decided, as to whether a legally flawed arbitral award could be challenged on the pretext of contravention of provisions of the governing Act. The award was held to be ‘patently illegal’, therefore indirectly staining the public policy. The test to qualify repudiation of public policy in Renusagar was hence expanded to include acts contradicting i) fundamental policy of Indian law, (ii) the interests of India, (iii) justice or morality, (iv) if it is patently illegal. Hence, the thought of public policy was granted enormously wide abstract notions as if it was to ‘shock the conscience of the court’.

The final stone was laid by the Supreme Court in the case of Shri Lal Mahal Ltd. v. Progetto Grano Spa[15](Lal Mahal), where the vague and abstract nature of the expression, ‘public policy’ was challenged in relation to Section 48(2)(b)[16] of the Act with identical terminology. The SC analyzed that Section 34 was of a wider import than Section 48(2)(b) despite having identical terminology. Therefore, the decision limited the inference of ‘public policy’ in the impugned section to not include patent illegality of the award.

The ambiguity and blanket protection of the term ‘public policy’ was criticized in numerous judgments that followed. The defense of public policy cannot be used as a shield protecting judicial intervention in matters of arbitration. Various counter-claims included court must assume only a supervisory role by reviewing arbitral awards to ensure fairness.[17] The object of the 1996 Act itself is to radically curtail the judicial intervention in arbitration awards except in the circumstances as contemplated in the provisions of the Act, by vesting such enormous powers of judicial intervention in Section 34; the judiciary is violating the legislative intent.[18] It must be noted that the arbitrator is no less than a judicial authority and the view taken by the arbitrator in judicial capacity is no less than that taken by the judge, therefore his plausible view must not be interfered with in a judicial proceeding under Section 34 of the Act,[19] which was reiterated in the case of State of Jharkhand v. HSS Integrated SDN & Anr.[20]    

SIGNIFICANT AMENDMENTS

2015 Amendment

The 2015 Amendment in the Act brought about significant changes in the concept of ‘public policy’ under the Arbitration Act, drawing suggestions from the 246th Law Commission Report. An amendment was made to the Sections 2A[21] and 34(2),[22] by adding Explanation 2. The amendment restricts the scope of judicial intervention in arbitral proceedings by limiting the definition of public policy. The Amendment Act restricted the grounds of setting aside international arbitral awards solely on:

  • Induced or affected by fraud or corruption
  • Contravention in the fundamental policy of Indian Law
  • In conflict with notions of morality and public justice

Therefore, the court cannot act as an Appellate Court to examine the legality of the arbitral award, nor can it examine the factual merits of the claim.[23] As factual merits could not be questioned, the record of an arbitrator was to be held to be sufficient to furnish compliance with Section 34.[24] This was reiterated as cross-examination of persons swearing such affidavits/ records is not allowed unless absolutely necessary.[25] Further, the Amendment Act provided that proceedings for setting aside could be initiated only after due notice to the parties. Furthermore, Arbitration and Conciliation (Amendment) Act, 2015 was held to be prospective in nature and operation.[26]  Post amendment, the mere initiation of proceedings under Section 34 would not automatically operate as a stay of the arbitral award. The aggrieved party is required to file a separate application seeking stay of the award and the Court may grant a stay of the award by imposing conditions.

The position of the term ‘public policy’ has been further clarified in the recent judgment of Ssangyong v. NHAI[27] (Ssangyong) to not include the ‘fundamental policy’ under Section 34, relying on the 246th Law Commission Report. However, with such a firm stance, the overall efficacy of remedy under Section 34 may be objected. The judgment is noteworthy while analysing the applicability of Section 34 as it unmistakably stated that ‘under no circumstances can the Courts interfere with an arbitral award on the ground that justice was not served in the opinion of the Court as the same would clearly contradict the ethos of Section 34.’[28]

On one hand where the Ssangyong endeavours to restrict the scope of ‘public policy’, the 2020 judgment of NAFED v. Alimenta[29] (NAFED) seems to elaborate it. The judgment included export policy within the ambit public policy, stating the contravention of the former will inevitably contravene the latter. On the face of it, the judgment seems to be against the precedents, however, one argument of the judgment is found on the premise that it is highly fact-based. Even though the judgment has accredited a lot of criticism in the short span after delivery to not have considered the judgment of Vijay Karia[30]. However, it must not be overlooked that the NAFED judgment seeks to define the ‘public policy’ in Section 48 of the Act which has a very distinct pose than the use of term under Section 34.

2019 Amendment

The threshold under the erstwhile Section 34(2)(a)  for the setting aside of arbitral awards by the court was that the applicant has to furnish proof of the circumstances enumerated therein for the Court to set aside the award. The ‘furnishing of proof’ led to the prolongation of setting aside proceedings serving as an obstacle for the enforcement of domestic awards. The amendment in Section 34(2) removes the requirement of furnishing proofs to substantiate the ground(s) for setting aside the award. Instead, by virtue of this amendment, the applicant needs to establish the ground(s) for setting aside of the award based on the record of the arbitral tribunal which may ensure that proceedings under Section 34 are conducted expeditiously. It was held that proceedings under Section 34 of the Act are summary in nature.[31] Furthermore, the court held that under Section 34 (2A) of the Arbitration Act, a decision which is perverse while no longer being a ground for challenge under “public policy of India”, would certainly amount to patent illegality appearing on the face of the award.[32] The court while deciding the application for setting aside an arbitral award decided that the court will not ordinarily require anything beyond the records before the arbitrator. If otherwise pertinent to the issue, the records can be brought before the Court by the way of affidavits by both parties.[33]

CONCLUSION

Conclusively it can be said that the legislative intention behind alternative dispute resolution was never to encourage interference from the judiciary perhaps that was the reason arbitration awards were classified to be binding on the parties. However, it must not be forgotten that the judiciary is expected to be the safe-keeper of the fundamental rights of the citizens; therefore, if genuine and gross violations in the arbitral award render the parties without a remedy, the courts must not be restricted to intervene in the arbitration proceedings. Standing the evolution in time and necessary amendments, the Arbitration and Conciliation Act, 1996 has proven to be a living document. 

References

[1] Fair Air Engineers Pvt. Ltd. V. N.K. Modi AIR1997SC533

[2] Consumer Protection Act, 1986

[3] Shri Balaji Traders v. MMTC Ltd. [1999] 34 CLA 251

[4] Sundaram Brake Linings Ltd vs Kotak Mahindra Bank Ltd (2010) 4 Comp LJ 345 (Mad)

[5] Article 5:  This Law shall not affect any other law of this State by virtue of which certain disputes may not be submitted to arbitration or may be submitted to arbitration only according to provisions other than those of this Law.

[6] Secur Industries Ltd vs M/S Godrej & Boyce Mfg. Co. Ltd. (2004) 3 SCC 447

[7] P. Anand Gajapathi Raju v. P.V.G. Raju, (2000) 4 SCC 539

[8] Shin Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd., (2005) 7 SCC 234

[9] Sec. 2(h) of the Arbitration and Conciliation Act, 1996 defines ‘Party’

[10] Harita Finance Ltd. vs ATV projects India ltd., 2003(2)ArbLR376

[11] Firm Ashok Traders and Ors. vs. Gurumukh Das Saluja and Ors., AIR 2004 SC 1433

[12] L & T Finance Limited vs. C.T. Ramanathan Infrastructure Pvt. Ltd. A. No. 5314 of 2012

[13] Renusagar Power Co. Limited v. General Electric Company; 1994 Supp (1) SCC 644

[14] Oil & Natural Gas Corporation v. Saw Pipes Ltd, [2003 (5) SCC 705]

[15] Shri Lal Mahal Ltd. v. Progetto Grano Spa, 2013 (4) CTC 636

[16] Section 48 in The Arbitration and Conciliation Act 1996 Conditions for enforcement of foreign awards,

 (2) Enforcement of an arbitral award may also be refused if the Court finds that— (b) the enforcement of the award would be contrary to the public policy of India.

[17] McDermott International Inc. v. Burn Standard Co. Ltd 2006(5)ALT1(SC)

[18] Indian Oil Corporation Ltd. V. Langkawi Shipping Ltd, 2005 (2) Bom CR 458

[19] National Highway Authority of India v. Progressive MVR, (2018) 14 SCC 688

[20] (2019) 9 SCC 798

[21] Explanation to sec. 2A -An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court, if the Court finds that the award is vitiate by patent illegality appearing on the face of the award:

Provided that an award shall not be set aside merely on the ground of an erroneous application of law or by reappreciation of evidence. 

[22] Explanation to sec. 34(2)- For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian Law shall not entail a review on the merits of the dispute. 

[23] Venture Global Engineering LLC and Ors v Tech Mahindra Ltd. and Ors [2017] 13 SCALE 91 (SC)

[24] Sandeep Kumar v. Dr. Ashok Hans, (2004) 3 Arb LR 306

[25] Emkay Global Financial Service Limited v. Giridhar Sondhi, Civil Appeal No. 8367 of 2018

[26] BCCI v. Kochi Cricket Pvt. Ltd., (2018) 6 SCC 287

[27] Ssangyong Engineering & Construction Co. Ltd. v. National Highways Authority of India (NHAI), Civil Appeal No. 4779 of 2019, Supreme Court

[28] Ibid

[29] National Agricultural Co-operative Marketing Federation of India (NAFED) v. Alimenta S.A Civil Appeal No. 667 of 2012, delivered on April 22, 2020

[30] Vijay Karia & Ors. Vs. Prysmian Cavi E Sistemi SRL & Ors. Civil Appeal No. 1544 of 2020

[31] M/s.Canara Nidhi Limited v/s. M. Shashikala & Ors. 2019 SCC OnLine SC 1244

[32] Sangyong Engineering & Construction Co. Ltd. v/s. National Highways Authority of India, 2019 SCC OnLine SC 677

[33] M/s Emkay Global Financial Services Ltd. V. Girdhar Sondhi (2018) 9 SCC 49

 

 

Image Credits: Daniel b photos on Pixabay

The legislative intention behind alternative dispute resolution was never to encourage interference from the judiciary perhaps that was the reason arbitration awards were classified to be binding on the parties. 

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Undue delay in passing Arbitral Award in violation of Public Policy?

A clause for Alternate dispute resolution (ADR) is incorporated in a contract to ensure avoidance of lengthy and costly legal procedures. Undue delay in arbitration procedure tends to vitiate this essential objective that ADR seeks to achieve.  Further, the ADR process is designed to minimize the interference of courts, however, it is more of fiction as parties unhappy with the outcome of the process take the legal recourse as a dilatory tactic. Therefore, it is essential that arbitral awards are set aside only when there is a grave injustice or is unreasonable on the face of it[I].

 

Some light was shed on the issue recently by the Hon’ble Madras High Court in the case of Mr. K. Dhanasekar v Union of India and Ors[ii]. The court set aside an arbitral award on an application made to it under section 34 of the Arbitration and Conciliation Act, 2015 holding that undue and/or inordinate delays in passing an award are in fact violative of public policy.

 

Factual Matrix:

 

The Petitioner, an engineering contractor, entered into an agreement with the Respondent, Southern Railways, for the collection and supply of 50 mm size machine crushed hard granite ballast for railway track doubling purposes. Certain disputes arose between the parties, and in accordance with the provisions of the contract which provided for settlement of disputes by arbitration, an arbitral tribunal consisting of three arbitrators was constituted. The learned arbitral tribunal dismissed the claim of the claimant in its entirety and allowed the counterclaim of the respondent. Challenging the same, the Petitioner approached the Hon’ble Madras High Court.

The Petitioner, inter alia, contended that there was a severe delay in passing the award. The arbitral tribunal passed the impugned award after a period of 3 years and 7 months which was not a reasonable time period. The Respondent countered that the learned arbitral tribunal, upon hearing the parties at length and upon consideration of all facts and circumstances, had passed the impugned award. Further, the delay in passing the award had not caused any prejudice to anyone and therefore, the award must not be set aside.

 

Issue:

 

Whether inordinate delays in passing an arbitral award was sufficient cause to set aside the impugned award.

 

Judgment:

 

The Hon’ble Court observed that the fact that there were delays in passing the impugned award was not disputed. What was disputed was whether such delay warranted the interference of the Hon’ble Court in setting aside the award.

To answer the question, reliance was placed on the decision of the Hon’ble Delhi Court in the case of Harji Engineering Works Pvt. Ltd. v Bharat Heavy Electricals Limited[iii], wherein the Hon’ble Delhi High Court had held that an arbitrator was required to make and publish an award within a reasonable period of time, and in the event that there is a delay, the same had to be adequately explained. The lack of any satisfactory explanation to such delays would be prejudicial to the interests of the parties. The Hon’ble Delhi High Court also held that the parties to an arbitration agreement had the right to be satisfied that the arbitrator was conscious of and had taken into consideration all contentions and claims before adjudicating on the claim. An inordinate delay from the last date of hearing would not provide such satisfaction to the parties.

The Hon’ble Madras High Court, adopting the same rationale found that arbitrators are likely to forget the contentions and pleas raised by parties during the course of arguments. Further, unexplained delay in passing an arbitral award was violative of the public policy of India and therefore liable to be set aside.  

       

Conclusion:

 

The Hon’ble High Court has proceeded on the assumption that the arbitrators must have forgotten the arguments placed by the parties, despite the fact that written submissions were placed on record by each party. Additionally, Section 29A introduced by the Arbitration Amendment Act, 2015 (further amended in 2019) has prescribed a time limit of 12 months from the date of completion of pleadings, within which period, the Arbitrator must necessarily make the award.  Although the amendment is not applicable to the case at hand (Consequent to the decision of the Supreme Court in Board of Control for Cricket in India v. Kochi Cricket Pvt. Ltd. and Ors[iv] on the retrospective application of the Arbitration Amendment Act, 2015), however, a similar case today would reach the same fate because of these set timelines. The said decision, as well as the amending provision, have the tendency of acting as a tool for the losing party to have the arbitral award set aside on procedural ground rather than on merits. These also increase the interference of the court which might result in unnecessary delays which the amending provision or the decision basically condemns. Further, with the 12 month or 18 months limit (if extended by the parties), the delay might not happen in ADR proceedings but may happen in the legal proceedings which the parties seek to avoid by opting for the ADR mechanism in the first place. In addition, court interference or dependence would hamper the confidentiality that parties seek to achieve through the ADR process. This is violative of the sanctity of arbitral awards and goes against the very fabric of the Arbitration and Conciliation Act itself.

Finally, the Arbitration Council being set up through the 2019 amendment, to undertake necessary measures to promote and encourage the ADR mechanism and to frame policy and guidelines for uniform professional standards, must take cognizance of this. Although provisions for penalizing arbitrators have not been provided in the amendment, the Arbitration Council should consider making regulations on the same to ensure compliance. This might provide an impetus to the overall arbitration process and ensure timely resolution in a fair and equitable manner while avoiding the interference of the court.

References:

 

[i] Oil and Natural Gas Corporation Ltd., v. Saw Pipes Ltd., [2003 (5) SCC 705]

[ii] O.P. No. 4 of 2015 and O.A. No. 31 of 2015 at http://164.100.79.153/judis/chennai/index.php/casestatus/viewpdf/489701

[iii] [2009 (107) DRJ 213]

[iv] (SLP (C.) No. 19545-19546 of 2016)

 

 

Image Credits: Photo by Aron Visuals on Unsplash

The Hon’ble High Court has proceeded on the assumption that the arbitrators must have forgotten the arguments placed by the parties, despite the fact that written submissions were placed on record by each party. Additionally, Section 29A introduced by the Arbitration Amendment Act, 2015 (further amended in 2019) has prescribed a time limit of 12 months from the date of completion of pleadings, within which period, the Arbitrator must necessarily make the award.

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