インド最新法令UPDATE Vol.5：Arbitration in India – Key Highlights of 2023
In last decade or so India has emerged as one of the prominent major economies of the world. However, despite being one of the most sought-after destinations for the foreign investment, India is still not perceived as an easy destination to do business with. One of the factors, which is often touted against India’s growth prospects is the state of contract enforcement in the country due to its stressed judicial system. The Indian Government is well aware of this situation and has made several legislative and administrative reforms in this respect which have started showing improvements. Specifically, in the field of alternate dispute resolutions (“ADR”), India has made a decent progress with several progressive amendments in its arbitration law. The initiatives taken by the Indian Government have been well perceived by Indian Judiciary as it continues to pass pro ADR judgments. The year 2023 was no different as Indian Courts have passed several judgments that amplifies the pro-arbitration environment in the country. During the past year, the Supreme Court of India (“SC”) has passed a few landmark judgements that we have discussed in this article.
1. Validity of an unstamped arbitration agreement
A seven-judge bench of the SC while hearing a reference in the case of NN Global Mercantile (P) Ltd. Vs. Indo Unique Flame Ltd. titled as Re: Interplay between the Arbitration and Conciliation Act 1996 and the Stamp Act 1899 [2023 INSC 1066] has settled the law with respect to the validity of an unstamped arbitration agreement.
The SC judges with their unanimous decision concluded that:
(i) The Stamp Act, 1899 is a fiscal law, which rules that the unstamped or inadequately stamped agreements are inadmissible in evidence. However, this is a curable defect.
(ii) The non-payment of stamp duty or insufficient stamp duty does not make an agreement void or unenforceable.
(iii) Under Section 16 of the Arbitration and Conciliation Act, 1996 (the “Act”), the arbitral tribunal has powers to ‘rule on its jurisdiction’, and such powers include inquiring about the sufficiency of the stamp duty and ask the relevant party to cure such defect.
With the aforesaid judgement, the larger bench of the SC has overruled its previous decisions in the case of NN Global and SMS Tea Estates, and settled the legal position that an unstamped or insufficiently stamped agreements are not void or unenforceable in law but are merely inadmissible in evidence until such defect is cured.
2. Contractually agreed pre-arbitration negotiations cannot stop the limitation clock
As per the law of limitation in India, once the limitation clock has begun to run, no subsequent disability or inability can stop it (Ref: Section 9 of the Limitation Act, 1963 (the “LA”)). As per Article 137 of the Schedule to the LA when read with Section 43 and 21 of the Act, any dispute related to an agreement should be referred to the arbitration within the limitation period of 3 years from the cause of action concerning that agreement (unless the agreement specifically provides for a separate time period). Also, the “cause of action” in relation to the arbitration is the date when the claimant first acquires the right to refer the matter to arbitration.
Recently, in the case of M/s B&T AG Vs. Ministry of Defence [2023 SCC OnLine SC 567] question before the SC was whether the pre-arbitration negotiations among the contracting parties would postpone the cause of action for the purpose of limitation.
In the aforesaid judgment, the SC unanimously held that the contractually agreed (good faith) pre-arbitration negotiations do not postpone the limitation period. Therefore, the contracting parties should initiate the legal remedy within the prescribed limitation period failing which the dispute will become time barred.
The SC in Para 64 of the aforesaid judgment observed that the “negotiations may continue even for ten years after the cause of action had arisen. Mere negotiations will not postpone the “cause of action” for the purpose of limitation. The legislature has prescribed a limit of 3 years for the enforcement of a claim and this statutory time period can not be defeated on the ground that the parties were negotiating”.
3. Group of Companies doctrine/ non-signatories being party to arbitration proceedings
Under the Group of Companies (“Doctrine”), the arbitration agreement signed between one or a few of the companies of the group extends to the non-signatory companies of the same group. Globally, lawmakers and practitioners have divergent views on the applicability of this Doctrine as sometimes it appears to be in contrast with the doctrine of free consent.
Recently, in a landmark judgment in the case of Cox and Kings Ltd. V.s SAP India Pvt. Ltd. & Anr. [2023 INSC 1051] a 5-judge bench of the SC has re-affirmed the validity and applicability of this Doctrine in the context of Indian arbitration.
The SC in aforesaid judgment revisited the law laid down by it in previous judgments such as Chloro Controls India (P) Ltd. Vs. Seven Trent Water Purification Inc., Cheran Properties Ltd. Vs. Kasturi & Sons Ltd., Oil and Natural Gas Corporation Ltd. Vs. Discovery Enterprises Pvt. Ltd. and concluded that the Doctrine can be applied in Indian context basis the facts and circumstances of the case.
The SC further held that while applying the Doctrine, a due consideration must be given to the following guiding factors:
(i) Mutual intent of parties;
(ii) Relationship of a non-signatory to a signatory;
(iii) Commonality of the subject matter;
(iv) Composite nature of the transaction; and
(v) Performance of the contract.
4. Applicability of time limit of 12 months to render an award
Section 29 A of the Act stipulates a time limit of 12 months from the completion of the pleadings to pass an arbitral award. The arbitral tribunal must adhere to such time limit.
The SC in the case of Tata Sons Pvt. Ltd. Vs. Siva Industries & Holdings Ltd. [while hearing the Miscellaneous Application No. 2860 of 2019 in Arbitration Case (Civil) No 38 of 2017] clarified that the aforesaid time limit is only applicable to the domestic arbitrations, and it does not extend to international commercial arbitration (where at least one of the parties is a foreign resident or had a place of incorporation outside India). The SC also clarified that the period of 12 months to pass an award though mandatory in case of domestic arbitration and is merely a recommendation in case of international commercial arbitration.
In the year 2019, Section 29A of the Act got amended whereby the phrase “in matters other than international commercial arbitration” was included. In the aforesaid case, the question before SC was whether this amendment is prospective or retrospective in nature. Further, the present case had commenced before the amendment and the nature of the case was international commercial arbitration.
5. Validity of the minority award when the award passed by majority is set aside
In the case of Hindustan Construction Co. Ltd. Vs. National Highways Authority of India (2023 INSC 768), the SC dealt with an interesting aspect related to the arbitration proceedings in India as it held that the minority award (dissenting opinion) cannot be treated as an award if the majority award is set aside.
In the aforesaid judgment, the SC also laid down a guiding principle that while hearing appeals against awards or in the challenge procedure, focus of the court should remain on identifying the errors or illegalities in the majority award. The SC reasoned that a minority award (dissenting opinion) though provides useful clues in the case, but it cannot be considered at par with an award. The minority award does not receive the same level and standard of scrutiny as the majority award. Therefore, it would be improper and inappropriate to consider minority award as the award when the majority award is set aside.
Conclusion
Disputes though not desirable but certainly cannot be ruled out in a diverse country like India. Considering overburdened courts of the country, arbitration is certainly the most efficient mode of resolving the commercial disputes in India. With the pro-arbitration judgments discussed above, foreign companies having operations in India can now expect to resolve their Indian law governed arbitration disputes in an efficient, predictable and time bound manner.
Author
Deepak Sinhmar, Counsel
Deepak Sinhmar is Counsel at Miura & Partners. He is an India qualified lawyer. He is registered with the Bar Council of India and the Supreme Court of India. Deepak is also registered with the Tokyo Bar Association as Gaikokuho-Jimu-Bengoshi. Before coming to Japan, Deepak has worked with different law firms in India and Singapore. Deepak has vast experience in advising clients on cross-border M&A transactions, general corporate and commercial matters, and crisis management matters. His clients value his practical approach in resolving complex business legal matters.