"I realise that some of my criticisms may be mistaken; but to refuse to criticize judgements for fear of being mistaken is to abandon criticism altogether... If any of my criticisms are found to be correct, the cause is served; and if any are found to be incorrect the very process of finding out my mistakes must lead to the discovery of the right reasons, or better reasons than I have been able to give, and the cause is served just as well."

-Mr. HM Seervai, Preface to the 1st ed., Constitutional Law of India.

Friday, February 16, 2018

Citizens United - Guns – Electoral Bonds in India

An aspect where both the majority and minority opinions in Citizens United v. FEC 558 U.S. 310 (2010) united was on the value of section 203 of Bipartisan Campaign Reform Act, 2002 to democracy. The majority sustained the disclosure norm in section 203 about political contribution, though restriction on political funding was taken down citing first amendment. 

In the wake of yesterday’s Florida School shooting, the President of United States addressed the nation, carefully avoiding the word gun being mentioned even once. The Guardian reports that seven weeks into 2018 there has been already eight shootings in US Schools. Too many too soon to ignore about the issue of guns but only to focus on the mental health of the alleged shooter, especially since shooter is a white American which leaves out other possible narratives. Incidentally one of the first Bills this President signed was to ease conditions for procuring guns by people with mental illness. 

This raises two questions, why should a President do something like enabling mentally ill persons to legally possess guns and what prevents the President from calling the spade what it is. To develop the question further, why does the congress consistently failing to legislate on guns within permissible limits, which any sensible legislature would do? Why are the State legislatures relatively silent on the issue?

Answer to all questions is writ large on the power gun lobby wields in US politics, through electoral funding. The dynamics of lobbying is such that the National Rifle Association and allied actors can sway representatives through contributions.

Citizens United facilitated flow of funds to political parties aiding purchase of policies and laws but did not obliterate the trail of money. Justice Stevens in his dissent had mentioned that ‘a democracy cannot function effectively when its constituent members believe laws are being bought and sold.’ in US at the least there still exist a posibility to link the actions of politicians to their donors as there is disclosure of fund flow. 

India has recently introduced a new form of election funding through ‘electoral bonds.’ These bonds of specified values are issued by designated Banks, which can be bought and presented to preferred political party/ies. The political party need to declare the receipt of encashment of bonds in its Income Tax returns. 

The electoral bonds will keep public completely out of loop and will not reveal who contributed to whom. 'We the people' will have no idea who has bought and sold the law and policies governing ‘us,’ the most dispensable commodity in Indian democray. Government through bank and IT returns will have clear idea who has contributed to whom helping them to profile contributors to rival political parties. Politcal parties will know their benefactors and therefore whose interst to cater. Paradox is that Mr. Arun Jaitly tout this as a step towards transparancy in political funding.

In US, when they are hit by a bullet at least they know who paid for it.

Wednesday, February 7, 2018

Proceedings under Section 34 of the 1996 Act in the District Courts

Many District Courts which hear applications under Section 34 of the Arbitration and Conciliation Act, 1996 in the State of Tamil Nadu adopt different procedures in hearing those applications. Some District Courts have even insisted on oral evidence in the matter. The problem is mainly owing to the lack of guidelines in the civil rules of practice or any other guidelines. This state of affairs is infinitely compounded by the decision of the Supreme Court in Fiza Developers & Inter-Trade P. Ltd. v. AMCI (I) Pvt. Ltd. where the Supreme Court observed:
"The applicant is permitted to file affidavits of his witnesses in proof. A corresponding opportunity is given to the defendant/respondent to place his evidence by affidavit. Where the case so warrants, the court permits cross-examination of the persons swearing to the affidavit. Thereafter, court hears arguments and/or receives written submissions and decides the matter. This is of course the routine procedure."
The court had also ruled that the court under Section 34 was not obligated to frame issues. As stated in Para 6 of the judgement, the question that arose for consideration before the Supreme Court was whether issues have to be framed. The above quoted observations, therefore, have to be taken as obiter. Even some prominent commentaries tend to critique the above quoted part of the judgement in Fiza Developers. [See, for instance, Indu Malhotra, OP Malhotra's The Law & Practice of Arbitration and Conciliation 1276, where the author says that the observations relating to permitting evidence in proceedings under Section 34 requires reconsideration- the author wrongly refers to the para number as para 31 of the judgement. The total number of paras in the judgement is only 15, at least in the copy uploaded in the website of the Supreme Court. The correct para reference should be para 14] 

In any case, the above quoted decision should be treated as obiter. Further, these observations may make sense only in the limited cases where the certain facts providing grounds for setting aside an award emerge after the award is passed. For instance, a party is able to obtain certain documents or information relating to the relationship between the arbitrator and the other party after the award is passed. In such cases, the party seeking to challenge the arbitral award on such a ground may be permitted to place his evidence by affidavit and the other party could be permitted to cross-examine. Such evidence should be limited only to the facts that emerged or which came to be known post the arbitrator reserving the award or after the award. 

The proper procedure that is to be followed by a District Court hearing an application under Section 34 of the Arbitration and Conciliation Act, 1996 is to call for records from the arbitrator or to ask if the parties were willing to produce copies of the arbitral record by consent and then proceed to hear the grounds.

The proceedings under Section 34 of the 1996 Act are in the nature of summary proceedings and are not appeal proceedings under the Code of Civil Procedure, 1908. The parties to the proceedings under Section 34 are to ordinarily confine to their pleadings and evidence presented before the arbitral tribunal. 

Insofar as the State of Tamil Nadu is concerned, the law on the issue has been aptly summarised in the case of Brick Steel Enterprises v. The Superintending Engineer, Public Works Department 2006 (5) CTC 519: MANU/TN/1463/2006, the High Court of Madras observed: 
The scope of Section 34 is very limited one and whatever documents filed earlier by the parties before the Arbitrator can be filed before the court to support the respective claim. Any new document or new plea would not be entertained while filing the application for setting aside the award under Section 34 and the letting in oral evidence also could not be entertained. If such letting in of oral evidence is allowed, it amounts to enlarging the scope of restricted provision, similar to an appeal proceeding. In the present case the lower Court permitted to take de novo trial by letting in evidence and accepting new documents for the first time which totally alien to arbitration proceedings.” 
The Hon’ble High Court further observed:
After considering the judgments cited supra, I am of the view that while filing the application for setting aside, parties are not entitled to letting in oral evidence and not allowed to file a fresh document or raise a new plea for the first time before the Court. They are only permitted to file documents which were already filed and considered by the Arbitrator alone, before the Court for the purpose of supporting their claim.” 
The District Courts in the State of Tamil Nadu will do well to follow this judgement of the High Court of Madras in Brick Steel Enterprises. An award-debtor will typically look for ways to have a second chance at leading evidence in Section 34 proceedings. Courts have to be wary of attempts to derail the arbitral award or delay the award-creditor from enjoying the award proceeds.

Thursday, February 1, 2018

(A Lot) More on Reciprocal Arrangement Countries under the Arbitration & Conciliation Act, 1996

Recently, we did a post in this blog titled "(Nothing?) More on Reciprocal Arrangement Countries under the Arbitration & Conciliation Act, 1996" where we discussed another post titled "Reciprocal Arrangement Countries under Section 44 of the 1996 Act" in this blog penned about four years back on the countries which the Government has notified as having made reciprocal provisions for the enforcement of the New York Convention.

To recap, Section 44 of the 1996 Act defines the term "foreign award" for the purposes of Chapter I, Part II of 1996 Act to mean, among other things, an award made in one of the territories to which the New York Convention, 1958 (Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958) applied and the Central Government had notified that such a territory made reciprocal provisions for enforcement of awards made in India [S. 44(b)]. 

The territories notified under Section 44(b) of the 1996 Act: Singapore, Malaysia, Canada, Australia, China, Hong Kong SAR and Macao SAR, and Mauritius. The notifications (provided in the previous post) are available here

We had noted in the previous post that by virtue of Section 82(2)(b) of the 1996 Act {which reads: "(2) Notwithstanding such repeal-...(b) all rules made and notifications published, under the said enactments [Arbitration (Protocol and Convention) Act, 1937, Arbitration Act, 1940, and Foreign Awards (Recognition and Enforcement) Act, 1961] shall, to the extent to which they are not repugnant to this Act, be deemed respectively to have been made or issued under this Act."} notifications issued under Section 2 of the Foreign Awards (Recognition and Enforcement Act, 1961 are deemed to have been issued under the 1996 Act. Section 2(b) contains provisions virtually identical to Section 44(b). Section 2(b) reads: "In this Act, unless the context otherwise requires," foreign award" means an award on differences between persons arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India, made on or after the 11th day of October, 1960 -... (b) in one of such territories as the Central Government, being satisfied that reciprocal provisions have been made, may, by notification in the Official Gazette, declare to be territories to which the said Convention applies."

We had further noted that this blogger had filed an RTI application with the Ministry of Law and Justice seeking notifications issued under the 1961 Act but the PIO had given the notifications under the 1996 Act (See the reply of the CPIO). Thereafter, this blogger had filed an RTI Appeal, to which the Appellate Authority issued the following order dt. 18.01.2018: 

"Please refer to your appeal dated 23.12.2017 received on 10.01.2018 regarding furnishing of information sought under RTI Act, 2005.
2. Your appeal has been examined and it is found that CPIO has provided you the information in respect of notifications issued under the Arbitration & Conciliation Act, 1996 in place of the Foreign Awards (Recognition & Enforcement), 1961. Therefore, CPIO is directed to provide information within two weeks in respect of notifications issued under section 2 of the Foreign Awards (Recognition & Enforcement), 1961.
3. The Appeal is disposed of accordingly."

Vide Reply dt. 24.01.2018, the CPIO gave information on about 11 notifications issued under Section 2 of the 1961 Act. The entire sequence of events pertaining to the RTI application is narrated above to point out the efficacy of the RTI Act and the spirit in which the officials of the Ministry of Law and Justice disposed of the RTI application. 

The notifications provided now by the Ministry covers several territories mentioned in the previous post. The list of territories and the notification details are provided here. 

Sl. No.
Territories Covered
Notification No.
Notifying Ministry
Notification Date
1
Poland
S.O. 1238
Commerce
29/02/68
2
Greece, Equador, Bulgaria, Rumania, and Norway
S.O. 428 (E)
Foreign trade
14/06/72
3
Japan, Phillippines, USA, Tanzania, The Netherlands, Thailand, Sweden, and Austria
S.O. 732 (E)
Foreign trade
24/11/72
4
Nigeria, Tunisia, Ghana and Morrocco
S.O. 282 (E)
Commerce
16/05/73
5
UK
S.O. 4302
Commerce
25/10/76
6
Botswana, Cuba, Malagasy Republic, Mexico, Trinidad & Tobago, German Democratic Republic, Denmark and Egypt
S.O. 42 (E)
Commerce
07/01/78
7
Syria
S.O. 2920
Commerce, Civil Supplies & Cooperation
25/09/78
8
Belgium
S.O. 290 (E)
Commerce and Civil Supplies
28/04/80
9
San Marino
S.O. 84 (E)
Commerce
03/02/83
10
Central African Republic
S.O. 85 (E)
Commerce
03/02/83
11
Kuwait
S.O. 86 (E)
Commerce
03/02/83

The PIO has not provided notifications of the following territories: Chile, Czechslovak Socialist Republic, Federal Republic of Germany, Ghana, Hungary, Italy, Republic of Korea, Spain, Switzerland, and USSR. The CPIO had clarified in his reply that he was able to provide notifications as were available with his Section.

Belgium was not in the original list of territories noted in popular commentaries on Indian arbitration law but it appears that Belgium is also a notified territory. Hence authors of commentaries may take note of this add to the list of reciprocal territories notified. 

The above listed notifications can be accessed from here.

Friday, January 26, 2018

The Arbitrability Paradox: Arbitrability in Eviction/ Tenancy Matters in India

It is well-known that since 2012, the world is seeing India as a pro-arbitration jurisdiction. Courts have been rendering several pro-arbitration decisions since then. Even the legislature has attempted to improve the overall arbitration experience in India by bringing about amendments in 2015. Despite these developments, it is paradoxical that the scope of disputes that are not arbitrable has increased, and that too, not for the right reasons. One such species of disputes is the arbitrability of tenancy matters, as exemplified by a recent judgement of the Supreme Court in Himangni Enterprises v. KS Ahluwalia (SCI. 2017). We had provided a descriptive comment of the judgement in this blog a few days back in the form of a presentation, where we had raised certain issues with the judgement. In this post, we critically evaluate the law on this subject using the points raised in the presentation.

Rent Control Laws in India

A slew of legislation were passed in independent India under the rubric Rent Control Act where the interests of the tenants were sought to be protected. These laws were enacted when there was scarcity of available accommodations [see, Santosh Mehta vs Om Prakash AIR 1980 SC 1664. These laws provided that no court or tribunal could, irrespective of any contract or otherwise, order eviction in a proceeding by a landlord against a tenant, subject to limited exceptions.

These rent control laws conferred exclusive jurisdiction on select courts, such as the Court of Small Causes to deal with eviction matters. Natraj Studios (P) Ltd. v. Navrang Studios, AIR 1981 SC 537 is a typical example. Two commercial entities, studios, fought for possession of two studios. Navrang Studios (Navrang), the owner entered into a leave and licence agreement. The concerned law was the Bombay Rent, Hotel and Lodging House Rates Control Act, 1947. Under the said law, the licensor and the licensee were deemed to be governed under the said law and  the Small Causes court had the exclusive jurisdiction to decide the disputes between the parties. Since the Rent Control law was a social welfare legislation, the court held that only the Small Causes court had the jurisdiction to decide the issues under the said law and that an arbitral tribunal could not. The court observed:
"The Bombay Rent Act is a welfare legislation aimed at the definite social objective of protection of tenants against harassment by landlords in various ways. It is a matter of public policy. The scheme of the Act shows that the conferment of exclusive jurisdiction on certain Courts is pursuant to the social objective at which the legislation aims. Public policy requires that contracts to the contrary which nullify the rights conferred on tenants by the Act cannot be permitted. Therefore, public policy requires that parties cannot also be permitted to contract out of the legislative mandate which requires certain kind of disputes to be settled by special courts constituted by the Act. It follows that arbitration agreements between parties whose rights are regulated by the Bombay Rent Act cannot be recognised by a Court of law."
Curiously both the parties were commercial entities and yet the court chose to view the case as relating to social welfare and public policy.


Critique of the Rent Control Laws


These rent control laws were criticised for being heavily in favour of the tenants even at the cost of landlords. The Supreme Court recognised this in various decisions. In Prabhakaran Nair & Ors. Vs. State of Tamil Nadu & Ors. [(1987) 4 SCC 238, the court held: "Tenants are in all cases not the weaker sections. There are those who are weak both among the landlords as well as the tenants." [Also see, Ganpat Ram v Gayatri Devi AIR 1987 SC 2016].

[For a discussion on the evolution of the the law, see, for instance, Aditya Alok & Pankti Vora, Rent Control in India- Obstacles for Urban Reform, 4 NUJS Law Review 81 (2011)].

The law in many states moved forward in enacting a legislation that balanced the interests of both the landlord and the tenant and repealed the old rent control laws. Karnataka is a typical example. The Karnataka repealed the old rent control law and enacted the Karnataka Rent Act, 1999. The Statement of Objects and Reasons to the Karnataka Rent Bill, (which eventually became Karnataka Rent Act, 1999) stated:

"Economic Administration Reforms Commission and the National Commission on Urbanisation have recommended reform of the Rent Legislation in a way that balances the interests of both landlord and the tenant and also stimulates future construction. The Government of India have formulated a model rent control law and recommended to the State Governments to undertake amendments to existing rent control laws or enact new laws on the basis of the model law. It is considered necessary and expedient to bring about a new legislation to provide for regulation of rent and eviction in the spirit of modern economy in a manner more suited to our State, by adopting some provisions of the model rent control law and some of the existing law of Rent Control in the state."

Why such Disputes should be Non-Arbitrable?

The question is given that the new set of laws are concerned with balancing the interests of the landlords and the tenants. There are two connected issues here: the law and the policy underlying it has considerably changed. Considering this, there seems to be no basis for holding that such disputes are not arbitrable. Secondly, despite the pro-arbitration developments in the past five years in India, there seems to be a deep mistrust in the ability of arbitration to deliver justice. This distrust may be justified in certain cases and this might have led the Supreme Court in Himangni Enterprises to decide in favour of non-arbitrability. Such a conclusion needs re-visiting for the following reasons:
  • As has been discussed above, the law has undergone changes owing to the change in economic policies of the country. Given this, is there a need to make such disputes non-arbitrable? Disputes under rent control laws were not arbitrable since the rent control laws were considered social welfare legislations. Given that the rent laws repealing the rent control regime balance the rights of the landlords and the tenants, the reasons for making disputes under such laws do not survive. Therefore, the bar should consequently not lie: cessante ratione legis cessat ipsa lex.
  • This is true especially in the context of putting a property to commercial use. When a property is put to commercial use, the parties generally enjoy equal bargaining power. The decision of the Supreme Court in 1981 in Natraj Studios pertained to two commercial entities fighting over possession of two studios. Where is the question of applying the social welfare test in such cases? 
  • Although in Booz Allen, tenancy disputes were recognised as well-known non-arbitrable disputes, the test of in rem-in personam distinction to decide arbitrability as laid down in Booz Allen allows arbitrability of tenancy disputes as tenancy creates rights in personam. This is all the more reason why such disputes should be arbitrable.

Does Himangni go Much Further?


When the counsel for the appellant argued that the Delhi Rent Act 1995 [Note: The Supreme Court in Himangni Enterprises wrongly refers to the Delhi Rent Act of 1955; it is 1995 and not 1955.] would not apply to certain premises as listed out in Section 3 thereof, the Supreme Court went much further and held that tenancy disputes under the Transfer of Property Act, 1882 were also not arbitrable:

"26. The Delhi Rent Act, which deals with the cases relating to rent and eviction of the premises, is a special Act. Though it contains a provision (Section 3) by virtue of it, the provisions of the Act do not apply to certain premises but that does not mean that the Arbitration Act, ipso facto, would be applicable to such premises conferring jurisdiction on the arbitrator to decide the eviction/rent disputes. In such a situation, the rights of the parties and the demised premises would be governed by the Transfer of Property Act and the civil suit would be triable by the Civil Court and not by the arbitrator. In other words, though by virtue of Section 3 of the Act, the provisions of the Act are not applicable to certain premises but no sooner the exemption is withdrawn or ceased to have its application to a particular premises, the Act becomes applicable to such premises. In this view of the matter, it cannot be contended that the provisions of the Arbitration Act would, therefore, apply to such premises."

It is submitted that the Supreme Court has got this part of the decision completely wrong and the same deserves reversal or statutory abrogation. This reasoning is even contrary to Booz Allen. Note that Booz Allen talks about "eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction and only the specified courts are conferred jurisdiction to grant eviction or decide the disputes" and does not talk about cases where eviction or tenancy matters are not governed by special statutes. In the instant case, the Supreme Court held that even if the Delhi Rent Act did not apply by virtue of Section 3 thereof and the general law, that is, the Transfer of Property Act, 1882 applied, the dispute under the latter law would remain non-arbitrable. The court supplied a convoluted reasoning that if the exemption is withdrawn or if it ceases to have application to such premises the Act would become applicable. Obviously, if a premises ceases to fall within the exemption in Section 3, the Delhi Rent Act would apply. But so long as it falls within the exemption, the law would not apply. Thus, the Supreme Court's reasoning as regards non-arbitrability of tenancy disputes even under the general law is neither supported by the Supreme Court in Booz Allen nor is it supported by convincing reasoning.

The Way Forward

The way forward is for the Supreme Court to constitute a larger Bench and decide on all the issues that are noted above. At the least, the court has to exempt tenancy under the general law (not governed by special statutes) and commercial leases/ licences from the bar on arbitrability. Letting Himangni Enterprises to hold the field will do immense damage to Indian arbitration, which is otherwise on the right path.