Delhi High Court provides ‘Interim Measure’ (Arbitration) in Post-Award Stage

On Wednesday, the High Court of Delhi (“Delhi HC”), in the case of Organising Committee Commonwealth Games, 2010 v. M/s Nussli (Switzerland) Ltd., has allowed a petition under section 9 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) thereby granting injunction against the Respondent [“M/s Nussli (Switzerland) Ltd.)] in ‘post-award’ stage. In reaching its conclusion, Delhi HC had declined to consider a judgment of the High Court of Bombay (“Bombay HC”), on a similar point, as a precedent.

Facts:

In 2010, the Respondent was awarded a turnkey contract for providing overlays on rental basis for the Commonwealth Games, 2010 (“Games”). In order to secure the contract’s performance, the Respondent was required to furnish a ‘performance bank guarantee’ (“PBG”) equivalent to the 10 % of the contract value (which Respondent furnished). Following the conclusion of the Games, disputes arose between the parties and the matter was referred to arbitration (in 2012). From time to time, the Respondent was restrained to encash PBG; first as a result of petition (sec.9) filed by the Petitioner and then because of a direction issued by the Arbitral Tribunal.

Partly allowing the claim of the Respondent and further allowing Appellant’s claim to a small extent, Arbitral Tribunal made an award in Respondent's favour (after adjusting amount). At this juncture, the Petitioner made a counter-claim seeking refund of a certain amount on the ground that contract was vitiated by fraud; this claim was rejected.

Following this, as Petitioner intended to challenge the arbitral award, it filed the present petition under section 9 of the Arbitration Act for keeping PBG alive. Initially, Delhi HC passed an order thereby ordering the Respondent to keep PBG alive and listed the matter for next hearing. Against this order, the Respondent preferred an appeal before the division bench of the Delhi HC - this appeal was disposed off when the Respondent agreed to keep PBG alive for certain period and the hearing of the present petition was re-opened.

Contentions:

On behalf of the Petitioner, it was contended that since PGB would lapse before the Petitioner challenges award under section 34 of the Arbitration Act, PBG should be kept alive. It was further contended that since the Respondent is a ‘foreign entity’ with no assets in India, the Petitioner would be left remediless if its application under section 34 succeeds. Further, it was contented that in a different proceeding, PGB has been attached by the Income Department; hence, the Respondent was only interested in getting PBG released.

Waiver of 'Right to Object' Under Arbitration and Conciliation Act, 1996

Section 4 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) enumerates the conditions which, if satisfied, would subject a party (to arbitration agreement) to waive his right to object. The provision, which corresponds to Article 4 of UNCITRAL Model Law on International Commercial Arbitration (1985) (“Model Law”), can be read as follows:

“4. Waiver of right to object.- A party who knows that-

(a) any provision of this Part from which the parties may derogate, or

(b) any requirement under the arbitration agreement,

has not been complied with and yet proceeds with the arbitration without stating his objection to such non-compliance without undue delay or, if a time limit is provided for stating that objection, within that period of time, shall be deemed to have waived his right to so object”

A bare reading of the provision would indicate that a party, who ‘knowingly’ neglects the derogable provision(s) of Arbitration Act or the term(s) of arbitration agreement, cannot later plead their non-compliance. For example, objection(s), if there be any, to the High Court’s order of appointing an arbitrator should be made prior to the first arbitration hearing.[1] The participation in arbitration hearing, pursuant to appointment order, would lead the party to waive his right to object it. Before I discuss the provision further, I want to highlight the following questions:

1)    What does the provision signify when it refers to the knowledge of a party? What factors would determine such knowledge? Please note that there is a difference between ‘know’ and ‘ought to have known’. While the draft article 4 of Model Law contained the latter term, finally enacted provision did not have it.

2)    What does the phrase ‘without undue delay’ mean? 

Indian Case Laws on Section 4 and Waiver: An Analysis

Under section 4 of the Arbitration Act, there can be a waiver of both ‘derogatory’ provisions and of any ‘requirement’ under arbitration agreement. The concept of "waiver", so defined under the Arbitration Act, is applicable in a situation where there is any vagueness in the contract between the parties;[2] but, what does one mean by the term ‘waiver’? Relying on Halsbury’s  Laws of England, 4^th Edn., Vol. 16, para 1471, the Supreme Court of India (“Supreme Court”), in Ramdev Food Products (P) Ltd. v. Arvindbhai Rambhai Patel, (2006) 8 SCC 726, quoted the explanation of term ‘waiver’ as follows:

US Supreme Court to decide on Patent–Eligibility of ‘Computer-Implemented Inventions’

Section 101 of US Patent Act (“35 U.S.C. § 101”) provides that one may obtain patent for invention or discovery of any new and useful subject-matter (process, machine, manufacture etc.) or for any new and useful improvement thereof. In a pending case before it, United States Supreme Court (“Supreme Court) has to decide whether claims related to ‘computer-implemented inventions’ are patent-eligible subject matter within the meaning of 35 U.S.C. § 101.

Invoking the writ jurisdiction (writ of certiorari) of the Supreme Court under 28 U.S. Code § 1254(1), Alice Corporation Pty. Ltd. (“Petitioner”) has filed a petition against the decision given in an en banc hearing. The disputed invention in the present case relates to a ‘computerised system for creating and exchanging financial instruments such as derivates’ (“INVENTCO system”). One aspect of INVENTCO system can be described as follows:

“.....specific computer system and computerized process for the execution of a previously agreed-upon exchange, known as “settlement”

To understand it more clearly, prior to the execution of an agreement to exchange financial instruments or assets, there is a stage where parties merely agree to execute the exchange. There may be situations where one of the parties, at the time of actual execution or settlement of the agreement, performs its obligation(s) but other party does not. So as to address this situation of risk, the disputed invention provides for a specifically programmed computer. Following are the features of this computerised system:

Enercon Case: Pro-Arbitration Approach and Determination of Arbitration ‘Seat’

In what can termed as an important development in Arbitration Law, the Supreme Court of India (“Supreme Court”) has delivered a 129-page judgment wherein issues such as ‘factors determining seat of arbitration’, ‘concurrent jurisdiction of foreign court’ etc. have been discussed. In Enercon (India) Ltd. & Ors v. Enercon GMBH & Anr. , the Supreme Court had to decide appeal(s) against two judgments of Bombay High Court – one judgment which allowed the application of the respondent under section 45 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) and other  judgment vacating the anti-suit injunction issued against the respondent.

Before going to and discussing underlying issues, it would first be important to understand the factual background.

Factual Background: In 1994, Appellants no. 2 and 3 (“Members of Mehra Family”) entered into a Joint Venture Agreement (“JVA”) with Respondent no. 1 (“Enercon GMBH”) to incorporate Appellant no.1 [“Enercon (India) Ltd.”]. The objective behind incorporating Appellant no.1 was to manufacture and sell Wind Turbine Generators (“WTG”). In furtherance of JVA, both the parties executed certain agreements which included Share Holding Agreement and Technical Know How Agreement (“TKHA”) (these agreements were later amended). 

After the expiry of TKHA, there were further negotiations between the parties. These negotiations, which were recorded in a document titled ‘Heads of Agreement’, sought to explore the possibility of agreement to transfer future technology developed by the Respondents. Following these negotiations, parties entered into ‘Agreed Principles’, which were meant to be the basis of all the final agreements. On the same day when ‘Agreed Principles’ were executed, parties also executed and signed Intellectual Property License Agreement (“IPLA”). IPLA contained an arbitration clause (Clause 18) which can be read as follows:

17 GOVERNING LAW

17.1  This  Agreement  and  any  dispute  of  claims arising out of or in connection with its subject matter are  governed  by  and  construed  in  accordance  with the Law of India.

18. DISPUTES AND ARBITRATION

18.1 All disputes.....................any  Party  may refer  dispute(s), controversy(ies) or difference(s) for resolution  to  an  arbitral  tribunal  to  consist  of  three (3) arbitrators, of who one will be appointed by each of  the  Licensor  and  the  Licensee  and  the  arbitrator appointed by Licensor shall also act as the presiding arbitrator.

18.2 ....................

18.3  A  proceedings  in  such  arbitration  shall  be conducted  in  English.  The venue of the arbitration proceedings shall be in London. The arbitrators may (but  shall  not  be  obliged  to)  award  costs  and reasonable  expenses  (including  reasonable-fees  of counsel)  to  the  Party  (ies)  that  substantially  prevail on  merit.  The provisions of Indian Arbitration and Conciliation Act, 1996 shall apply........”

As disputes arose between the parties, Respondent(s) sought to initiate arbitration proceedings thereby nominating an arbitrator. Respondents further sought to file an ‘Arbitration Claim Form’ before the English High Court. This initiation of arbitration was resisted by the Appellants on the ground that there was no ‘concluded contract (IPLA)’ and hence there was no question of arbitration. While Appellants claimed that IPLA was not a concluded contract because of its non-conformity with ‘Agreed Principles’, Respondents claimed it to be a binding contract.

SC issues directions to the High Court(s) for Appointing Employees

Recognising the importance of a transparent procedure to be adopted by the High Courts in appointing employees, the Supreme Court of India (“Supreme Court”) has recently issued certain directions regarding the same (Renu & Ors. v. District & Sessions Judge, Tis Hazari & Anr.)

In the judgment delivered by Justice B.S. Chauhan (for three –judge bench which also included Justice J. Chelameswar and M.Y. Eqbal), it has been emphasised that the administrative power exercised by the Chief Justice of a High Court under Article 229 Constitution of India, 1950 (“Constitution”) should be in conformity with Articles 14 and 16. That is, Chief Justice cannot make appointments in contravention with Statutory Rules, and has to be in consonance with the Constitution.

Article 229 of the Constitution provides that ‘officers and servants’ of the High Court shall be made by the Chief Justice of that Court or such Judge or officer of the Court as he may direct. Article 235 of the Constitution confers power upon the concerned High Court to exercise administrative control over subordinate courts. Emphasising that employment (of all the classes) in the High Court or courts subordinate to it falls within the definition of ‘public employment’, it was held that the same should be carried through in a constitutional manner.

Following are the directions which were issued by the court in this judgment:

i)             All High Courts are requested to re-examine the statutory rules dealing with the appointment of staff in the High Court as well as in the subordinate courts and in case any of the rule is not in conformity and consonance with the provisions of Articles 14 and 16 of the Constitution, the same may be modified.

US to initiate WTO action against India’s ‘Domestic Content Requirement’ in Solar Mission

In a recent move, United States has sought to initiate World Trade Organisation (“WTO”) dispute settlement consultations with India concerning ‘domestic content requirement’ (“DCR”) in Phase-II of India’s national solar mission. This is the second time when US has initiated WTO action against India’s Jawaharlal Nehru National Solar Mission – the first action was brought in February 2013 against similar DCR in Phase-I of Jawaharlal Nehru National Solar Mission (“JNNSM”).

In a statement issued by the Office of United States Trade Representative (“USTR”), it has been contended that DCR under JNNSM is against the obligations contemplated under General Agreement on Trade and Tariffs, 1994 (“GATT”), Agreement on Trade Related Investment Measures (“TRIMs”) and Agreement on Subsidies and Countervailing Measures (“SCM”). Under WTO dispute settlement mechanism, consultation is the initial step which a member state can resorts to.

In this blog post, I have explained what DCR or domestic/local content requirements are, relevant description of JNNSM and relevant WTO provisions concerning the present case.

What is ‘Domestic’ or ‘Local’ Content Requirement?

‘Local Content Requirement’ can be understood as a regulation that requires a specified fraction of a final good, work or service to be sourced domestically. Article 7.2 of EU-Singapore Free Trade Agreement defines the phrase as a requirement for an enterprise to purchase or use goods of domestic origin. In other words, where a state imposes an obligation to have ‘local content’ in product or service, producers (both domestic and international) would mandatorily be required to source specified quantity of local content.

However, in a statement published by USTR, local content requirement or DCR has been described as the obligation to produce content locally. It has been described in the following terms:

“ ........require businesses to produce a certain level of content (materials, parts, etc.) within the country where the end product will be sold.”

The above description, as provided by USTR, has been doubted in a blog post. For the purpose of present dispute, DCR should be understood as a condition which requires developers to use specified quantity of domestically manufactured content.

Though the objective of DCR may vary, it is generally accepted that DCR measures seek to encourage domestic industry and further seek to increase employment. In fields such as solar energy, initial governmental support is required for the existence of firms and development of proper infrastructure. Usually, the government support is also required for the innovation at domestic level. Equally forceful arguments are available against the usage of measures such as DCR – one of them being that DCR increases the cost of solar energy.  

The usage of DCR measures vary from country to country depending on factors such as but not limited to technology, infrastructure, financial stability etc.