| Putting arbitration on fast track |
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Indian Arbitration and Conciliation Act, 1996 is often criticised as unhelpful to international parties. The Arbitration and Conciliation ( Amendment) Ordinance, 2015 is likely to address delays to arbitration- related proceedings in Indian courts. It includes a vast range of new statutory provisions, including the option for tribunals to award compound interest, the imposition of time limits on awards, and the opening up of arbitration to foreign law firms. However, one has to realistically accept that the standing of India as a reputable seat for international arbitration and litigation is not very high for other reasons, too, prompting parties to turn to neighbouring centres such as Hong Kong and Singapore. The real issue the government needs to tackle is the perception of the quality of international arbitration in India. One needs to take into account this negative perception among the international business community and take steps to change it. One way to do it is to ensure through practice and regulations that arbitrators with even the shadow of doubt on their integrity are ousted from the system. Having worked in arbitration cases, both internationally and in India, for over 30 years, I believe that the ordinance is a positive step forward and would be welcome to foreign investors. Enforcement of commercial contracts in India by arbitration should be easier, for both here and elsewhere. Tackle negative perception on quality The ordinance will positively impact the existing framework of arbitration law in India as it addresses the various concerns regarding delay and excessive intervention by the courts, explains public policy, permits interim relief in foreign seated arbitration, and emphasises neutrality of arbitrators. The courts that will deal with international commercial arbitrations are the high courts. This should be a comfort for the foreign parties choosing India as a seat of arbitration or for enforcement of foreign awards in India. Availability of interim relief in arbitrations seated outside India will protect the foreign parties by securing assets in India. Tribunal is given same powers as the court to grant interim relief and enforceable in same manner as an order of court, which will reduce the burden of courts. A party getting interim relief from court is under obligation to initiate arbitration within 90 days. The ordinance incorporates provisions of IBA Guidelines on Conflicts of Interests in International Arbitration, which shall determine neutrality of arbitrators and ensure independence and impartiality of arbitrators introducing transparency in entire process. As deterrent to mechanical challenges to awards, no automatic stay of proceedings once an award is challenged was much awaited and it would avoid delay in enforcement. Mandating timeline for appointment of arbitrator and challenge would expedite the process. However, overall restriction for concluding entire arbitration may be counterproductive in some cases. The ordinance explains meaning of public policy of India in narrower way and would be helpful to courts while determining the challenge to domestic award and enforcement of foreign awards. Ordinance omits to introduce concept of emergency arbitrator and applicability to pending proceedings as suggested by Law Commission, however it should apply to all new legal proceedings brought after its promulgation, even if these are for enforcing rights accrued earlier, except for the explanation of public policy that should apply to existing proceedings. The reforms will not only restore investor confidence in the Indian judicial system – but it also has the potential to transform India into a preferred arbitration hub, globally. However, to achieve that potential, the government needs to urgently address two areas— first, quickly fix a legislative lacuna that seems to have crept in the ordinance; second, initiate administrative reforms providing for credible arbitral institutions. The Law Commission Report had proposed atransitory provision ( a new provision Section 85A) specifying that the amendments will operate prospectively; and shall apply only to fresh arbitrations. However, this important provision has not been included in the Ordinance - which will lead to utter chaos and uncertainty over the fate of numerous ongoing arbitration cases. Do parties need the court's directions to set fresh timelines or arbitrator's fees in pending arbitrations or seek transfer of matters, involving international arbitrations, from lower courts to High Courts? Courts will get clogged with applications which could well turn out to be a judicial nightmare. Moreover, after Supreme Court's ruling in Balco — holding that Indian courts will not have jurisdiction over foreign arbitrations —parties did not require excluding Indian court's jurisdiction in foreign arbitration clauses. However, with the new amendment, the Indian courts, unless specifically excluded, will have jurisdiction to grant of interim reliefs in foreign arbitration. Shouldn't there be a saving clause, excluding Indian court's jurisdiction, for agreements executed after the Balco judgment? Therefore, the scope of operation of the amendments with respect to arbitration agreements and pending arbitration cases should be clarified soonest. The government should also introduce administrative reforms to set up credible arbitral institutions nation- wide – quite in the model of the Delhi High Court International Arbitration Centre – which will certainly facilitate the ease of doing business in India by resolving disputes in a speedy, efficacious and economic manner. ongoing arbitration cases KRISHNAYAN SEN Partner, VERUS Advocates Gone are the days when Indian corporates would eschew the arbitration clause from their contracts because of the inefficient practices and clumsy procedures. Now, thanks to the recent arbitration and the judiciary's initiatives, India seems to be becoming an arbitration- friendly jurisdiction. In due course, the country could become an important arbitration destination, but there are significant challenges ahead. First, and most important, is getting the support of the judiciary. As most arbitration in India is ad hoc, much of the judiciary views it with suspicion. The courts tend to lean towards intervention rather than autonomous arbitration. The challenge is to create credible arbitration processes on which all parties have confidence. A " handoff" policy by the courts could make India asuccessful arbitration destination. Second, It is essential for every jurisdiction that aspires to be an arbitration hub to have a pool of locally based qualified and experienced arbitrators. Unfortunately, the current pool of arbitrators in India is extremely small. It is essential to expand this. Third, lawyers need to be sensitised about the need to shed the baggage of litigation. Both lawyers and arbitrators need to adopt global best practices of arbitration. Finally, India needs dedicated arbitration centres and support services. Worldclass dedicated arbitration hearing centres and support services such as transcription are conspicuous by their absence in India. The popular practice is to hold hearings in hotels, clubs, conference rooms of lawyers or even basement offices of arbitrators. Popular arbitration hubs such as London and Singapore have dedicated arbitration centres and state- of- the- art hearing facility. In London, we have IDRC; Maxwell Chambers in Singapore is also very popular. Resources for establishing such facilities are not lacking in India. What is lacking is the initiative, and the will to do so. Expand the pool of qualified, experienced local arbitrators AJAY THOMAS Director, LCIA India independence, impartiality of arbitrators After two aborted attempts – in 2001 and 2010 – the Arbitration & Conciliation Act, 1996, is finally being amended. The Arbitration and Conciliation (Amendment ) Ordinance 2015, recently promulgated by the President, draws heavily from the proposals of the 246th Law Commission Report, released last year. Most legal experts see the amendments as a positive step that will help bridge the gap between Indian and foreign arbitration standards. The jury is still out on whether these are enough to make India a hub for international arbitration. Legal experts share their insights with Business Standard on how this landmark ordinance will change Indias alternative dispute resolution mechanism (Source: Nishith Desai Associates) |
| Resolve the issue of service tax on clubs internally |
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The issue is pending in the Supreme Court. Let's consider the merit of the case. All cases on the issue have been lost by the department in high courts. The parent judgment is of the Supreme Court in the case of the Joint Commercial Tax Officer vs The Young Men's Indian Association ( 1970( 1) SCC462). It has been laid down that a club is established on the principle of mutuality and, therefore, there is no sale or supply by the club to its members. The club and the members are one, in case it is not a proprietary club. This has been followed up by other high courts such the Gujarat High Court in its judgment on March 25, 2013, in the cases of Sports Club of Gujarat, Rajpath Club, as well as in the case of Kamavathi Club vs UOI (2010( 20) STR169( Guj)). This Supreme Court judgment has also been relied upon by the Calcutta high court in the case of Saturday Club vs CST (2006( 3) STR305( Cal)) and Dalhousie Club vs CST (2006( 3) STR311( Cal)) and by the Jharkhand high court in the case of Ranchi Club vs CST (2012( 26) STR401( Jhar)). There are a number of other judgments on the same issue. Some are on the levy on the club as a mandap keeper. The principle of mutuality is common, whether as a mandap keeper under section 65( 19) or the general description of a club under section 65( 25a). So, all judgments by the high courts, as well as the Supreme Court's judgment in the case of Young Men's Indian Association have held service tax is not leviable on a club as amandap keeper, under 65( 19), or as a club under 65( 25a). All judgments were before the comprehensive service tax was announced in Budget 2012. But if it is not a service, the same principle will apply now, too. The practice is show- cause memos have been issued to clubs, as they are contesting paying service tax. The clubs are charging service tax and keeping this under the contingency head. Prolonged litigation is undesirable, as it affects confidence in the government. Conclusion: If we wait for the Supreme Court, which admitted the case in 2012, to decide the issue, it will take long. In the meantime, all clubs will have to charge service tax and put this under the contingency account, which will continue to keep things unsettled. I suggest the Central Board of Excise and Customs (CBEC) should finalise the issue internally. It could take a legal opinion at the level of the law secretary and if it is agreed that service tax isn't leviable on clubs, it could either withdraw the case from the Supreme Court or issue a circular in this regard. As it is in favour of the taxpayer, there will be no problem. Even when it is in favour of the department, the CBEC could issue a circular, though the matter is sub judice. Practising lawyers say the Attorney General isn't in favour of too many appeals. And, even the finance ministry is so inclined. It is a welcome trend compared to the previous practice of filing appeals routinely to a high court and the Supreme Court. There is tremendous pressure in favour of solving the problem of mounting litigation. So, this is the time when the CBEC could improve the situation by reviewing the cases pending in the Supreme Court or a high court. The CBEC should take the initiative now, when the time is ripe. (smukher2000@ yahoo. com) SUKUMAR MUKHOPADHYAY Prolonged litigation is undesirable as it affects confidence in the governm |
| BRIEF CASE |
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If an arbitrator nominated by the contesting parties withdraws from the proceedings, the court can select a substitute arbitrator of its own choice. "It is the courts duty to give effect to the policy of law, that is to promote efficacy of arbitration," the Supreme Court has stated in its judgment, Shailesh vs Mohan. In this case, the parties selected a retired judge of the Supreme Court from a panel of names but she resigned midway. The parties could not agree on a new name and the matter went back to the Bombay high court. It substituted one of its retired judges in her place. This was opposed by one of the parties, which argued that once the arbitrator withdraws, the agreement ended and the court could not name another. Rejecting this argument, the Supreme Court stated that under Section 15( 2) of the Arbitration and Conciliation Act, when the mandate of an arbitrator terminates, a substitute arbitrator " shall" be appointed. Arbitration must go on. For example, in a family dispute, the warring members might name the grand uncle as the only arbitrator as they repose faith in him. If he is not available, quits or dies, arbitration does not end; the court can nominate another person of its choice. If the parties specifically prohibit asubstitute arbitrator, a new person cannot enter. Otherwise, the court has the power to name a new arbitrator, the judgment emphasised. Insurer, lessor, lessee liable for damages When a state road transport corporation grants lease to an owner of a private vehicle which meets with an accident on the road, the registered owner, the insurance company as well as the corporation would be liable to make the payment of compensation " jointly and severally" to the claimants. The corporation, according to the lease agreement with the owner of the vehicle, would be entitled to recover the amount paid to the claimants from the owner or from the insurance company. In this judgment of the Supreme Court last week, Karnataka SRTC vs New India Assurance, a private bus under lease from the corporation run over a person and the tribunal awarded ₹ 4 lakh as compensation. The tribunal fastened the liability upon the owner and the insurer of the vehicle jointly and severally to make the payment of compensation, not on KSRTC. Aggrieved by the order, New India preferred an appeal before the high court. It held that the corporation alone would be liable to pay the damages. Therefore it appealed to the Supreme Court arguing that the insurer was liable to indemnify the owner. The insurer contended that since the vehicle was plying under the control of the corporation it could not escape liability. Interpreting the law, the Supreme Court held all the three liable. Tisco vehicles exempted from extra tax The Supreme Court has set aside the judgment of the Jharkhand high court and ruled that no additional tax would be charged on the vehicles of Tisco which run "captively, not for hire or reward". The Bihar and Orissa Motor Vehicles Taxation Act imposed additional tax on vehicles that carry passengers, tipping trucks in coal mines and those carrying explosives. Tisco's vehicles were charged the additional tax, which was challenged in the high court unsuccessfully. The Supreme Court, however, stated that they were not used for hire or reward to third parties but only for its own business. Tools sold to govt at higher price The Supreme Court last week dismissed the appeals of several suppliers of equipment for an Andhra Pradesh government scheme for rural artisans, stating that the rates they charged from the government were higher than the price at which the tools were available in the market. The suppliers in this case, Chebrolu Enterprises & others vs AP Coop Finance Corporation, had given an undertaking that its price, namely ₹ 189 per kg, was the lowest possible for the tools and if it was not so, they would refund the difference. However, it was found later that similar tools were available for lower price. The dispute was referred to arbitration. The tribunal concluded that the price quoted by the suppliers was excessive and the reasonable rate was ₹ 115 per kg. The suppliers challenged the award in the high court, but were not successful. On appeal, the Supreme Court upheld the high court judgment. Essar Power to compensate farmers The Gujarat high court last week granted relief to hundreds of farmers in whose lands power transmission lines were drawn against their protests and allegedly violating telegraph and electricity laws. In this case, Jaisinh Patel vs Essar Power Transmission Ltd, the farmers demanded compensation from the company. The court asked them to approach the district judges in their area who will determine the compensation after hearing all parties in six months. The amount decided shall be paid within a month. The company was also directed to pay ₹ 3,000 to each farmer who moved the court as cost of litigation. The court noted that the transmission lines have already been energised and distributing power to a large number of consumers including industrial undertakings. Though rules have been violated, removal or alteration of the lines will disrupt supply and compensation is the only remedy possible. Medical test abroad not tax exempt The Bombay High Court last week ruled that expenses incurred by a professional going abroad for treatment of eye is not eligible for income tax deduction. The assessee in this case, Dhimant Thakar vs CIT, was a lawyer and he argued that good vision was important for pursuing his profession. His claim for the assessment year 1986- 87 was rejected by the revenue authorities. His appeal was also rejected by the Commissioner of Income Tax ( Appeals) who observed that if the logic of the lawyer was stretched, it would mean that even expenditure incurred on food to preserve oneself should be treated as allowable under Section 37( 1) of the Income Tax Act as being incurred for business or profession. On appeal, the high court upheld the view of the authorities observing that " eyes are essential not only for the purpose of business or profession but for purposes other than these which are so many. It is therefore clear that the said expenditure as claimed by the professional is not in the nature of expenditure wholly and exclusively incurred for the purposes of the profession… Effective eye sight is a necessity for living a life of a complete human. Therefore, in this case the expenditure is personal and incidental benefit if any is to the profession carried out by him." |
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