ARBITRATION TO SURVIVE AFTER THE DEMISE OF THE NAMED ARBITRATOR

COURT :	THE SUPREME COURT OF INDIA
JUDGMENT :	ACC Limited (formerly known as the Associated Cement Co. Ltd.) Vs. Global Cements Ltd.
JUDGES::	Their Lordship Justice Mr.K.S. Radhakrishnan and Mr.Jagdish Singh Khehar.JJ

BRIEF FACTS :

The parities to the dispute entered into an agreement dated 16.12.1989 which contained the following arbitration clause "21. If any question or difference or dispute shall arise between the parties hereto or their representatives at any time in relation to or with respect to the meaning or effect of these presents or with respect to the rights and liabilities of the parties hereto then such question or dispute shall be referred either to Mr. N.A. Palkhivala or Mr. D.S. Seth, whose decision in the matter shall be final and binding on both the parties."

A dispute arose between the parties after the demise of both the named Arbitrators. The named arbitrators were Chairman and Directors respectively of the company. They were appointed considering their eminence, impartiality and familiarity of commercial transactions and commercial laws. They can not be replaced by any other person was the argument placed by the appellant in the application preferred under section 11 of the Arbitration and Conciliation Act 1996 by the respondent before the Hon’ble High Court at Bombay.

The Hon’ble Bombay High Court took the view that the arbitration clause constitutes was valid and that the court cannot, when there is no express prohibition, presume that a vacancy of the named arbitrator cannot supplied by the Court under section 11 of the Act.  

LAW LAID DOWN:

The Apex Court after going through the facts of the case, Sections 14 and 15 of the Act and various the judicial precedence came to the following conclusions:-

a)      The words “at any time” has to be interpreted contextually and reasonably taking note of the intention of the parties.

b)      In the present arbitration agreement the words “at any time” had nexus to the reference of dispute and not to the life time of the named arbitrators.

c)       Further clause 21 of the agreement did not prohibit or debar the parties in approaching the court for substituting an arbitrator on the vacancy of the name arbitrators.  

d)      The view of the Bombay High Court was upheld.

BY G.Ashokapathy 

Secretary General and Co Founder

CNICA 

Fostering Cultural Intelligence and the Art of ADR

A Synopsis

Cultural intelligence is inherent to an individual. There should be a reason to improve cultural intelligence on a general notion. The inherent skills, which are determined by one’s culture, equip the individual with unique and exclusive qualities. Cultural inheritance influences social change to a greater extent. Thriving hard in one’s own culture most often results in unknown practices while the others who slightly stay detached from the hardcore cultural practices, experience a better slot adapting to the social standards in general. The skills of ADR come as a technique fostered by the cultural intelligence on most occasions.

Although cultural intelligence comes as a natural instinct, there is a wider scope to understand and inherit the cultural intelligence by learning such trait from others by generally observing and focusing them on low-pressure situations. Being judgmental in most occasions might end up being inaccurate and stereotypic. The trait of inculcating a very high standard set of ADR skills will not only render a status of resolved disputes but on the other hand results in a day to day solution of harmony. It is important that one understands the new environment in true sense to focus on the situation more accurately. Hanging on to a wrong foot, miscommunication or misinterpretation ends up in an awkward move and perhaps, the ways and means to avoid this is to interact effectively with an utmost sense of clarity. Trust building is the most useful concept, which stands throughout the process of dispute settlement and helps parties by paving way to reach their goals.

This synopsis shall form the base for the study session to be held on 13/07/2012 and chaired by Ms. Harshitha Ram

No Service-Tax on Individual Advocates, GTA etc w.e.f. 1.7.2012

Vide Notification No.15/2012-Service Tax dated 17.03.2012, the Ministry of Finance had specified that in respect of services provided by an individual advocate, Goods Transport Agency, Insurance Agent, services provided or agreed to be provided by way of sponsorship to any business entity, in respect of services provided or agreed to be provided by an arbitral tribunal etc, the service-tax payable shall be Nil and that the person receiving the service shall pay 100% of the tax. This Notification is to come into force from the date on which section 66B of the Finance Act, 1994 comes into effect. S. 66B of the Finance Act, 1994 has been inserted by clause 143 (F) of the Finance Bill 2012. Vide Notification No. 19/2012 dated 5.6.2012, 1.7.2012 has been appointed as the date on which s. 143(F) of the Finance Act 2012 shall come into force. The result is that Notification No. No.15/2012-Service Tax dated 17.3.2012 shall come into effect on 1.7.2012.

Negative List of Services Applicable from 01.07.2012

Central Government has appointed July 1, 2012 (vide Notification No. 19/2012-ST dated 5.6.2012) as the effective date from which Negative List based service tax will come into operation. Now no need to classify the services under any particular category for taxing purpose. Any activity carried out by one person for another for a consideration, unless covered by the Negative List or by some exemption Notification, will be liable to service tax. Many transactions/activities which were hitherto out of the scope of service tax may now be liable to service tax. We expect corresponding changes in Cenvat Credit Rules, 2004, Place of Provision of Services Rules, 2012, Point of Taxation Rules, 2011 and Service Tax Rules, 1994 to align these with the Negative List based service tax regime in next few days. Now more activities will be covered by Service Tax Law, so it become Important to analyse existing and future transactions afresh to ascertain the applicability of service tax or otherwise.

Notified Date for Insertion of New Sections 65B, 66B, 66C, 66D, 66E, 66F & Amendment In Section 67/68

Following new sections have been inserted for governing the Service Tax Legislature:
1. Section 65B – Definitions
2. Section 66B – Charge of Service Tax
3. Section 66C – Determination of Place of Provision of Service
4. Section 66D - Negative list of Services
5. Section 66E – Declared services

6. Section 66F – Principles of interpretation of specified description of Services or bundled Services

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FINANCE ACT, 2012 – NOTIFIED DATE FOR INSERTION OF NEW SECTIONS 65B, 66B TO 66F AND AMENDMENT IN SECTION 67/68
NOTIFICATION NO. 19/2012-SERVICE TAX, DATED 5-6-2012
In exercise of the powers conferred by clauses (C), (F), (G) and (I) of section 143 of the Finance Act, 2012 (23 of 2012), the Central Government hereby appoints the 1st day of July, 2012 as the date from which the provisions of clauses (C), (F), (G) and (I) of the said section of the said Act shall come into force.

[F. No. 334 /1 /2012-TRU]

(Rajkumar Digvijay)

Under Secretary to the Government of India

This information was taken from the following website:

http://taxguru.in/service-tax/servicetax-individual-advocates-gta-wef-172012-notified-date-insertion-sections-65b-66b-66f-amendment-section-6768.html

INDIA’S BILATERAL INVESTMENT TREATIES: AN INVITATION TO INVESTMENT ARBITRATIONS

Bilateral Investment Treaties being paramount in the present economy it is necessary to have a carefully well-worded investment treaty to avoid potential disputes. India as of today has signed Bilateral Treaties with 82 countries out of which 72 have come into force.[1] Many countries including India being lured by the concept of economic growth have signed many Investment Treaties to attract Foreign Direct Investments so as to develop its economy. They are under a blind perception that signing investment treaties will increase investments. Hence they enter into bilateral treaties without taking cognizance of any legal implications that would follow.

BITs can have far-reaching and typically negative implications for host country governments and citizens, because of the sweeping protections afforded to investors at the cost of domestic socio-economic rights and environmental standards.[2] One of the major problems with BITs is it allows private companies to file cases against governments, and consequently subject the countries to the risk of litigation by corporations from another country which is a signatory to the same agreement. India should initiate a comprehensive review of its existing investment treaties since recent cases have shattered the myth that its investment treaties are adequate to protect the interests of investors, their rights and responsibilities.[3]

India has recently lost its first ever and the only international arbitration that it faced under a BIT till date where White Industries initiated Arbitration against in India by using the “Dispute Settlement Clause” provided under Article 12 of BIPA between India and Australia. The tribunal found India guilty of violating the India-Australia BIT because the delay by Indian courts violated India’s obligation to provide White Industries with an “effective means’ for enforcing their rights.”[4] White Industries invoked the ‘Most Favoured Nations’ Clause (MFN) from India-Australia BIT which obliged India to provide effective means for enforcing rights in relation to investment. MFN assures equally favourable treatment to the investments by the nationals and companies of a contracting country, as the Government of the investee country would accord to the investors of any other country under any other BIT.[5] White Industries imported 'effective means' provision from India-Kuwait BIT through MFN in India-Australia BIT to use it against India. An important repercussion of this ruling is that undue delays in Indian courts in disposing matters related to a foreign investor can, potentially, violate India’s BIT obligations not due to the violation of ‘denial of justice,’ but due to a violation of the ‘effective means’ standard, which requires a lower threshold than ‘denial of justice.’[6]

Similarly Vodafone has threatened to initiate Arbitration against India under the India-Netherlands BIT owing to the retrospective tax laws that was proposed by the Indian Government.  The press release posed by Vodafone on 17^th April 2012 says that “the retrospective tax proposals amount to a denial of justice and a breach of the Indian government’s obligations under the BIT to accord fair and equitable treatment to investors.” In addition our country has felt the impact of cancellation of 2G licences authorised by A. Raja in 2008. Companies like Telenor and Sistema which have suffered huge losses as a result of cancellation have served notices to our Government seeking a huge compensation for their losses. Failure to resolve the issues through negotiations or discussions would only lead to arbitrations under the respective BITs being signed with the countries.

            There are major problems with India’s old-style investment treaties and the similar investor-state dispute settlement system.[7] It is high time that India should depart from the traditional old-style investment treaty model which has lead to the many problems discussed above. Consequently India must draft foolproof Bilateral Investment Treaties which would favour the policy goals of our Government and prevent future arbitrations against India. Provisions such as “Most Favoured Nations” and “Dispute Settlement Clauses” must be carefully scrutinized before inclusion so as to prevent other Countries to invoke such provisions against our Government.

            Even if India adopts a strong investment treaty model, it will not solve its problems with existing bilateral treaties. Hence India must seek suitable amendments in the existing treaties through bilateral negotiations so as to improve the same. If such amendments prove to be time consuming, a notification could be sent by our Government of its interpretation of various standards contained in the treaties.

Certain modifications are necessary in our BITs to shield our Government from the adverse affects which could be created by our Bilateral Treaties with other nations. Our policymakers should not permit investor-state dispute settlement mechanisms in BITs through which a foreign investor can instigate an international arbitration against India. Furthermore India must altogether remove provisions such as MFN in future treaties or at least forbid the possibility of importing such clauses from earlier treaties signed by India. In addition ambiguous clauses which give wide scope for interpretation must be avoided as the same would give rise to unwarranted disputes which would ultimately strain the relationship between countries.

It is true that all countries including India that have signed an investment treaty is at risk of being sued. Dispute Settlement clauses are proving to be an invitation for other Countries to initiate arbitration against India. Therefore India will have to assess the various risks and benefits that arise out of its Bilateral Treaties. Recent cases have showed the risks involved are far higher than the merits such treaties have envisaged. Our Government must recognise the downside of these treaties and amend the same to avoid future complexities. Only through creations of effective Investment treaties can India avoid the catena of cases that might arise in the near future.

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[1] Ministry of Finance: Government of India [http://finmin.nic.in/bipa/bipa_index.asp]
[2] India's Bilateral Investment Treaties: Worst fears realised, Jayati Ghosh, Frontline, Volume 29 - Issue 5, March 10-23, 2012
[3] ECONOMIC ANALYSIS: India's "Bilateral Investment Treaties": A New Form of Colonialism?, Kavaljit Singh, Global Research, April 30, 2012
[4] White Industries Australia Ltd. (Claimant) v. The Republic of India (Respondent), Final Award, 30 November 2011
[5] India’s Battle Under Bilateral Investment Treaties, Alishan Naqvee, LexCounsel Law Offices, April 2nd, 2012
[6] The White Industries Arbitration: Implications for India’s Investment Treaty Program, Prabhash Ranjan, Investment Treaty News, April 13, 2012
[7] India’s Many Investment Treaties Make it Vulnerable, IISD Commentary, January 2012, pg.2

This article was writen by Mr. B. Deepak Narayanan and Ms. K. Priyadarshini, interns at CNICA.

Fly In Fly Out Policy for International Law Firms 

International law firms are having to fight tooth and nail for the right to practise in India

India has been high on foreign firms’ lists of target countries for decades, but has also been a source of frustration. While the global legal market has been steadily opening up to international players - South Korea is the ­latest to allow foreigners in - India has remained stubbornly closed. And if some of the country’s lawyers got their way, it would ­become even harder for international firms to do business there.

At present the international firms ­operate ’India desks’ from their home ­jurisdictions. When Indian advice is required, they turn to Indian firms; when foreign advice is needed for ­Indian clients, they pick it up. ­Naturally, there is a need for lawyers to see clients for both inward and outward deals on the ground, so foreign lawyers ’fly in and fly out’ of India to do so.

Protection racket

But this way of doing business has ­always been controversial in some quarters of the Indian legal profession. In late 2009 the Bombay High Court ruled against foreign firms in a case brought by a group of Indian ­advocates, the Lawyers Collective, finding that the foreign firms should not have been allowed to set up ­liaison offices in India. The ruling led Ashurst to close its Delhi branch and international firms were forced to look for alternative ways of working in India.

However, less than a year after the Bombay decision, a further challenge to foreign law firms was launched, this time in the Madras High Court in Chennai.

The petition, filed by lawyer AK Balaji, asked the Indian government, the Reserve Bank of India and the Bar Council of India (BCI) to “take appropriate action” against a large group of named foreign firms plus “any other foreign law firms or foreign lawyers who are illegally practising the profession of law in India and forbear them from having any legal practice, either on the litigation side or in the field of non-litigation and commercial transactions, in any manner within the territory of India”.

The case took far less time to reach court than the 14 years between the filing of the petition and judgment in Bombay. In February this year Chief Justice Eqbal and Mr Justice Sivagnanam handed down their ­decision, which clarifies that “fly-in, fly-out” does not contravene India’s Advocates Act 1961.

The petition argued that there was “absolutely no scope” for foreign lawyers to practise law in India under the act or to enrol as advocates with any state bar, thus escaping regulatory oversight in the country. It also suggested that by flying in and out, foreign firms were earning client money while on visitors’ visas and were violating income tax laws.

The petitioner said foreign law firms treated the practice of law as “nothing short of a trade or business, far different from the nobility attributed to it by Indian lawyers”, noting that Indian firms are prohibited from advertising and marketing their services, whereas international firms routinely do so. He argued that even though Indian lawyers are able to practise in the UK and US, doing so incurs a significant cost and time burden.

Firms’ rebuke

The foreign law firms named as respondents by the petitioner included all of the magic circle, Ashurst, Eversheds, Norton Rose, Slaughter and May and a large group of US firms, ­including Arnold & Porter, Covington & Burling, Shearman & Sterling and White & Case. Australia’s Clayton Utz and Freehills were also named.

The firms’ responses to the petition were fairly uniform. All the firms pointed out that they did not have ­offices in India and did not practise Indian law; nor did they have any ­intention of practising Indian law. They also noted that, contrary to the petitioner’s claims, it remains fairly straightforward for Indian lawyers to set up representative offices in the UK and US or to requalify as UK ­solicitors or US attorneys.

The respondents also made the ­argument that restricting the fly-in, fly-out practice could have a detrimental effect on the Indian economy. Speaking for eight US firms, counsel Abhishek Manu Singhvi said that ­advising on foreign law was not banned by the Advocates Act.

“According to the learned counsel, by the present writ petition,” said the judgment, “the petitioner wants a ban by way of judicial legislation on the entry of foreign law firms in India, especially when there is no statutory ban in this behalf. This, he states, would have serious consequences on foreign investment in the country in this ever-expanding era of global economy.”

Arbitration creation

The growing importance of arbitration to India was also discussed by the court. The Indian government has stated that it wants to make India a hub for arbitration, but counsel pointed out that if foreign lawyers were not allowed to come into the country to advise on international issues related to a dispute, the arbitrations would have to go elsewhere.

“We find force in the submission made by the learned counsel appearing for the foreign law firms that if foreign law firms are not allowed to take part in negotiations, for settling up documents and conducting arbitrations in India, it will have a counterproductive effect on the aim of the government to make India a hub of international arbitration,” agreed the judges, who also called this a “far-fetched and dangerous proposition”.

Similarly, the judges agreed that if foreigners were banned from coming into India to advise on their own laws, this would create a “manifestly absurd situation”, as Indian lawyers are trained only in domestic law and not in any foreign law.

Concluding, they dismissed the petition and said there was nothing in Indian legislation preventing international firms from flying in and out, nor anything stopping an outsourcing company such as Integreon, which was named in the petition, from providing non-legal services out of India.

The decision was welcomed by the foreign firms as well as a number of Indian lawyers. Dua Associates partner R Senthil Kumar, who acted for the group of US firms led by White & Case, thinks in principle most ­Indians accept the practice.

“The bulk of people in law firms who actually have a practice that ­involves foreign laws are okay with foreign lawyers flying in and out to practise foreign law,” Kumar says.

What’s the problem?

Foreign lawyers agree that to date there have been few issues on the ground in India.

“We’ve not encountered people having difficulties with us being in India on that basis,” reports Herbert Smith executive partner Chris Parsons, who heads the firm’s India group. “On the contrary, we’ve found Indian lawyers to be very welcoming and I hope pleased to see us and ­others.”

But at the end of April the BCI filed an appeal to the Supreme Court of India. Indian legal news websites ­reported that the BCI’s counsel, ­Ardhendumauli Kumar Prasad, said the issues should not have arisen in Madras as they had already been dealt with in Bombay - something that the Madras judges disagreed with. The BCI did not answer The Lawyer’s request for comment on the matter.

Quite how long the case will take to get to appeal is uncertain, with the Indian court system not renowned for being particularly speedy.

Brit grit

Another possible aspect of appeal could come from Clifford Chance, which was grouped in the case ­alongside Ashurst, Bird & Bird, Clyde & Co, Eversheds and Linklaters. ­Partner Sumesh Sawhney says the judgment was unclear on whether foreign lawyers are banned from practising non-Indian law in India.

“If that’s the case, we consider it to be unnecessarily and unreasonably restrictive and we believe it would be a misreading of the Advocates Act, which we don’t believe was ever intended to address the question of the practice of non-Indian law,” says Sawhney. “We’re currently considering whether an appeal to get clarity on these points is appropriate.

“What also remains to be addressed by the Indian authorities is the bigger issue of collaboration and partnership between Indian lawyers and international law firms, and of international firms advising on ­Indian as well as non-Indian law.”

Clasis Law partner Sakate Khaitan says he welcomes the judgment as a clarification of what many firms are already doing. Clasis formed an association with Clyde & Co in April 2011 and has its own London office in the UK firm’s City building. Khaitan himself is based at the UK office and is dual-qualified in India and the UK, but agrees with the Madras judges that Indian lawyers working in India are not in a position to provide foreign advice.

“I don’t know of any Indian lawyer residing in India and practising Indian law who has the ability to advise on UK or US law as proficiently as an international firm,” Khaitan states.

He adds that stopping the fly-in, fly-out practice would not benefit India on a global scale.

“It would be very difficult for a lot of the multinational clients operating in India if the Supreme Court were to stop fly-in, fly-out. Clients would need to travel, making it more expensive for Indian corporates,” Khaitan points out.

While in the short term he thinks it would benefit firms with UK offices, such as Clasis, ALMT Legal and Fox Mandal, ultimately Khaitan, like much of the market, hopes the Supreme Court upholds the Madras judgment.

Road to nowhere?

However, the longer-term goal of an opening-up of the Indian market and permission for international firms to launch offices there still seems a long way off.

“We continue to believe that the ­removal of restrictive barriers in the Indian legal market will bring direct benefits to the Indian economy and to Indian businesses and bring ­positive advantages to the profession domestically, and we look forward to a time when the Indian government is ready to take concrete steps in this direction,” says Clifford Chance’s Sawhney optimistically.

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In brief

Everybody wants to be in India, but a battle continues to be fought over the extent to which foreign lawyers can work there. A recent judgment in the Madras High Court was set to rubber-stamp the practice of flying in to offer foreign advice, but with an appeal pending, what does it mean for international business in this key market?

Indian Government declares China (including the Hong Kong SAR) as a territory to which the New York Convention applies

The Indian Government has declared that China (including the Hong Kong SAR) is a territory to which the New York Convention applies under the Indian Arbitration and Conciliation Act 1996 (“the Act“). We understand that the notification will be published in the official Gazette of India shortly, following an announcement by the Hong Kong Department of Justice last week.

Both India and China are signatories to the New York Convention, which they ratified in 1960 and 1987 respectively. However, Part II of the Act, which governs the enforcement of New York Convention awards in India, only applies to awards rendered in jurisdictions notified by the Indian Government in the official Gazette as jurisdictions in which the New York Convention applies. Whilst most of the major international arbitration centres lie within such jurisdictions, the most notable exception was Hong Kong which, until now, had not been notified. This was a significant omission and had encouraged parties in India-related contracts to choose a seat of arbitration other than Hong Kong. This should no longer be the case.

This notification will provide clients with long-awaited clarity regarding the enforcement of Hong Kong awards in India and, therefore, an additional choice of seat for India-related commercial contracts. Given the increasing volume of Sino-India trade, Hong Kong is likely to now prove a popular seat of arbitration for disputes arising out of those transactions, not least due to its pro-arbitration legal system and strong record on independence. Therefore, the decision by the Indian Government is a welcome one.

by Justin D’Agostino, Head of Greater China International Arbitration Practice, Herbert Smith