India: Res-Subjudice In Arbitration

Last Updated: 12 July 2013

Introduction

In commercial transactions, disputes are governed by agreements between the parties. Dispute resolution clause provides for resolution of disputes through courts or alternate mechanisms, preferably arbitration. Drafting of such a clause should be unambiguous, clear and to the extent possible, complete with procedural details. Parties need to be diligent so as to minimise risks of litigation. There are no specific laws which can provide such drafting tips and, hence, understanding through jurisprudence can provide insights into critical aspects to be considered.

The present bulletin examines an important recent judgment and makes certain recommendations to be borne in mind while drafting an arbitration clause to minimise disputes at the stage of invoking arbitration.

1. Facts of the case

In a recent case of Antrix Corporation Pvt. Ltd.("Petitioner") vs. Devas Multimedia Pvt. Ltd1 ("Respondent") the parties entered into an agreement in 2005 ("Agreement") regarding the allocation of S-band spectrum for construction of two satellites needed by the Respondent for providing wireless multimedia services. Article 19 of the Agreement provided the termination clause which empowered the Petitioner to terminate the Agreement in certain contingencies. Article 20 of the Agreement provided for a two-tier mechanism for resolution of disputes or differences. The first tier provided that the parties may resolve the dispute by the involvement of the senior management failing which, the second tier allow the parties to invoke arbitration. The arbitral tribunal was to consist of three arbitrators with its seat in New Delhi and the applicable rules could either be ICC or UNCITRAL.

A dispute arose when the Petitioner unilaterally terminated the Agreement and the Respondent refused to accept such termination. The Respondent invoked the arbitration clause under ICC Rules, appointed an arbitrator and requested the Petitioner to nominate their arbitrator. The Petitioner refused to nominate its nominee arbitrator on the ground that they were never consulted for choice of law for invoking the arbitration proceedings. Further, the Petitioner invoked independent arbitration proceedings under the UNCITRAL Rules, appointed their arbitrator and asked the Respondent to nominate their arbitrator. Thus, both the parties arrived at a deadlock situation by choosing two different rules for starting the arbitration. Although the action of both the parties was well within the parameters of the agreed arbitration clause but they had never thought about such an eventuality (i.e., both parties will invoke under different rules) while drafting the clause.

The arbitration clause gave liberty to both the parties with regard to rules for the arbitration proceedings. As a result, nominee arbitrators under respective proceedings could not be appointed. They had to finally seek intervention of the court to resolve the deadlock of non-appointment of the arbitrator by the other party. So, in effect, the proceedings were derailed, even before commencement, at a stage when the Respondent failed to nominate their arbitrator under the agreed procedure within the period of 30 days. Accordingly, the Petitioner moved an application under section 11(4) read with section 11(10) of the Arbitration and Conciliation Act, 1996 ("Act") for the intervention of the Chief Justice for the aforesaid appointment.

The question for deliberation before the Supreme Court ("SC") was whether the Petitioner was right in invoking the arbitration proceedings under one of the rules when the proceedings under another rule over the same subject-matter of dispute was already initiated and the counterparty was well aware of this.

The SC finally settled the dispute by striking a balance between contemporary requirements of the arbitration as a dispute resolution mechanism and in the spirit of the Act by refusing to interfere with the ongoing proceedings of a duly constituted arbitral tribunal. The SC held that the same arbitration agreement cannot be invoked twice for the same cause of action.

2. Parties contention

The Petitioner contended that they were not consulted while invoking the ICC Rules and, consequently, refused to be part of such proceedings. Therefore, the Petitioner invoked arbitration under the UNCITRAL Rules. The Petitioner relied upon the SC's judgement in case of National Thermal Power Corporation vs. Singer Co.2 In this case, the SC observed that the law governing the arbitration proceedings would be, firstly, the law chosen for the interpretation of contract by the parties and, secondly, in the absence of any agreement, the law of the country in which the arbitration is held. Based on this cardinal test, the Petitioner stated that since the law governing the contract was Indian law; therefore, the Act (based on UNCITRAL Rules) would apply.

The Respondent, on the other hand, raised the argument that the arbitration agreement provided for the formation of an ad hoc tribunal, which should follow one of the two prescribed procedures. Therefore, as they had already invoked arbitration agreement under the ICC Rules and so any objection pertaining to the constitution of the arbitral tribunal be raised before the tribunal itself.

3. Decision of the SC

Various questions of law came up before the SC, which were discussed at length and have been discussed herein below:

(a) Unilateral deviation from two prescribed rules permissible or not: The SC held that the language of Article 20 of the Agreement provided that the arbitration proceedings would be held in accordance with either ICC or UNCITRAL Rules. Therefore, the Respondent was entitled to invoke arbitration under the ICC Rules. Thus, the subsequent arbitral tribunal constituted under the UNCITRAL Rules would be without jurisdiction. Further, when the arbitrator was already appointed under the ICC Rules and such appointment was already communicated to the other party, a separate application to resolve the appointment of arbitrator is not maintainable under the UNCITRAL Rules. Once the power has been exercised under the Agreement, there is no power left to refer the same dispute again to arbitration unless the arbitral award is subsequently set aside.

(b) Scope of section 11(6) and court intervention: Section 11(6) of the Act empowers the Chief Justice or any institution designated by him to take necessary measures when there is failure of parties to act under the agreed procedure. The reason for failure of procedure can arise under different circumstances like where one party refuses to appoint the arbitrator or two appointed arbitrator fail to appoint a third arbitrator or designated institution or person under the agreement fails to discharge the function.

The SC said that once the ICC Rules was invoked then any challenge to the initiated proceedings does not lie on the ground that an alternative procedure is available. If a party is dissatisfied or aggrieved by the appointment of an arbitrator the remedy would not lie by invoking the power of the Chief Justice under section11(6). In other words, since the proceedings under ICC Rules were in progress, section 11(6) was not applicable. The condition precedent for invoking the proceedings under section 11(6) is the failure of parties to act under the agreed procedure, which is not the case in the present matter. The Chief Justice under section 11(6) does not have power to replace one arbitrator duly appointed under the Agreement. Any reason for departure from this position should be recorded with reasons.

In fact, invoking section 11(6) in such circumstances would lead to an anomalous state of affairs, if the arbitrator appointed under the Agreement could be questioned in a subsequent proceedings initiated by the other party for an appointment of the arbitrator. The SC held that the Petitioner was well within its right to challenge the appointment of the arbitrator, but not by way of an independent proceeding under section 11(6) of the Act as the Chief Justice is not empowered to replace the arbitrator duly appointed under the Agreement. The recourse available to the Petitioner was under section 13 of the Act which provides for the process for challenging the procedure.

To sum up, the judgment analysed a complex factual situation which involved deliberation upon two important issues regarding interpretation of the powers of the Chief Justice under section 11(6) and whether an arbitration agreement can be invoked twice for the same cause of action. The judgment settles the critical issue that no second arbitration proceedings can be invoked for the same cause of action. The judgment rules in favour of maintaining the sanctity of the arbitration.

Conclusion

The present judgment highlights that the parties should exercise a vigilant approach while drafting the arbitration clause. It is clear that providing two different rules and giving contracting parties a right to choose between them will not aid but, instead, confound the situation since two disputing parties will find it hard to agree on anything, as evidenced by this case. Simply put, the flexibility of procedure in alternative dispute resolution mechanism, while a good idea, should not leave room for further interpretation of the clause, as it will frustrate the purpose of opting for them by opening the gateways for litigation.

Footnotes

1. 2013(2)ARBLR226(SC)

2. (1992) 3 SCC 551

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Vaish Associates Advocates
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Vaish Associates Advocates
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions