EDITORIAL Road Ahead for Indian Arbitration As corporates get increasingly globalised day by day, they need to keep disputes at bay and ensure that they dedicate more time to chart out strategies on expansion, increased revenues and overall development of their respective firms. In such a timeline where the sequence of operations makes a company a winner or loser at the stock market, the resolution of disparities is something that market observers, PE firms, investors et al look at closely before investing their hard-earned money in the firm. Though a number of popular arbitration centres have also come into existence, which include Switzerland and cities like Singapore, Kuala Lumpur, London, Stockholm and Vienna, it is high time the government bodies and other concerned authorities here in India ensure that Arbitration Laws get constantly revised to keep pace with the corporate regime, which itself is in a slate of flux. The need for international commercial arbitration and its services at global level is increasing day by day. The information and communication technology (ICT) has given a new meaning to international commercial transactions and business. E-commerce has now become an indispensable part of our daily commercial activities. This has also given rise to both traditional as well as contemporary international commercial disputes all over the world. Therefore, keeping in view of all the developments, it is necessary to formulate the procedural rules for the arbitration accordingly. There are still challenges and opportunities in this specialized subject which Asian and African countries need to explore and address. Particularly, there is a dire need for the present arbitral setup to recognize and accommodate different cultural and legal traditions. Further, the traditional advantages of arbitration such as cost effectiveness and simplicity of procedure seem to have become redundant. These problems and lack of harmonization in arbitral law and practice have resulted in constant tension with national courts in the recognition and enforcement of foreign arbitral awards. At the same time, there is pressure on the developing countries to make their arbitral and other laws appropriate to attract investments. In India, arbitration has helped the citizens of the nation in the days past, through the methods practiced in the rural areas as panchayats and gramasabhas. Until recently, India has been subjected to much flak for being an “arbitration unfriendly� jurisdiction. In the last two years, international arbitration community has witnessed significant judicial maturity on the part of Indian Courts. However, today with the favorable factors like a vibrant democratic set up, independent judiciary, competent lawyers, competent arbitrators and infrastructure, the chamber is confident that India is likely to emerge as the hub of arbitration. 2
C H A M B E R AT W O R K Interactive Meeting on the Business Opportunities in the South African Auto Industry SICCI organized an Interactive Meeting on the Business Opportunities in the South African Auto Industry with Mr. Sake Van der Wal, Department of Trade & Industry, South Africa on 1st July, 2014 at the Dr R M Alagappa Hall of SICCI. Mr. Van der Wal said that South Africa had emerged as the economic powerhouse of Africa, leading the continent in industrial output and mineral production besides generating a large proportion of Africa’s electricity. The establishment of the India-South Africa Joint Ministerial Commission and the India-South Africa CEOs forum were some of the measures to ensure that the bilateral economic relations were enhanced, and the trade between the two were boosted further. The India-South African Customs Union Preferential Trade Agreement was one such measure that would enhance economic ties by reducing tariffs on several key products. He further said that the India South Africa trade now has the potential to surge from the current level of US $14 billion to touch US$ 25 billion in the next three years.
Mr. Sake Van der Wal interacting with the participants.
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Mr. Sake Van der Wal making a presentation.
Live Presentation of the Union Budget SICCI made arrangements to witness the presentation of the Union Budget 2014 on 10th July 2014 at Hotel My Fortune. Popular electronic media channels such as Doordarshan, Thanthi TV, Pudhiya Thalaimurai TV
Mr. Jawahar Vadivelu, President, SICCI, Mr. B. Sriram, Chairman Taxation Committee and participants witnessing the live presentation.
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Mr. Jawahar Vadivelu sharing his views about the budget interviewed by DD News Channel.
etc. covered the programme live apart from extensive coverage by the print media. Mr. Jawahar Vadivelu, President, SICCI welcomed the Union Budget proposals but felt that the Finance Minister could have used this opportunity to present a bolder reform oriented budget. The SICCI expert panel also included Mr. B. Sriram, Chairman, SICCI Taxation Committee and Mr. Satishkumar, Executive Committee Member who shared their views on the budget proposals. Interactive Meeting on Analysis of the Union Budget Proposals 2014-15 SICCI jointly with Madras School of Economics organized an ‘Interactive Meeting on Analysis of the Union Budget Proposals 2014-15' on 14th July, 2014 at Hotel Savera, Chennai. Mr. Jawahar Vadivelu, President, SICCI delivered the welcome address and said that the budget has missed the opportunity to provide incentives for job creation, given India’s dismal track record in creating meaningful opportunities to its burgeoning young population. Dr. C Rangarajan, former Chairman of the Prime Minister’s Economic Advisory Council and Chairman, Madras School of Economics inaugurated the meeting and said that many of the tax proposals were welcome as they would improve transparency. Uniform tax rate with respect to withholding tax on all bonds issued by Indian corporates abroad was also a good recommendation. He also further said that there were some 5
Mr. Jawahar Vadivelu, President, SICCI, welcoming Dr. C Rangarajan, former Chairman of the Prime Minister’s Economic Advisory Council and Chairman, Madras School of Economics with a flower bouquet.
Mr. Jawahar Vadivelu, President, SICCI, delivering the welcome address.
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Dr. C Rangarajan, former Chairman of the Prime Minister’s Economic Advisory Council and Chairman, Madras School of Economics, delivering the Inaugural address.
A view of the participants.
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important policy decisions, such as on land acquisition, environment and coal production, that need to be taken by the Government achieve sustainable growth. He further said that what was missing was the government not spelling out how it was going to contain the fiscal deficit to 4.1% of the GDP. There were milestones but no roadmap. Presentations were made by Mr. B. Sriram, Chairman, SICCI Taxation Committee and Partner, E&Y LLP, Mr. K. Sivarajan, Partner, BMR & Associates LLP, Mr. N. Muralidharan, Partner, E&Y LLP, Mr. M R Venkatesh, Parter, GV Associates. One day Session on International Arbitration The chamber jointly with the Singapore Arbitration Centre organized a one day session on International Arbitration on Saturday the 9th August 2014 at Binny Room Hotel Taj Connemera, Mount Road, Chennai. Mr. Jawahar Vadivelu, President, SICCI delivered the welcome address. Hon’ble Justice R. Sudhakar, Madras High Court inaugurated the event and said that India had not been a favoured destination for international arbitration and there was resentment across the globe against arbitration to resolve disputes arising from international commercial agreements and other international relationships in the country. Parties outside the country avoided Indian shores and the Indian legal system.
Mr. Jawahar Vadivelu, President, SICCI, welcoming Hon’ble Justice R. Sudhakar, Madras High Court with a flower bouquet.
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Mr. Jawahar Vadivelu, President, SICCI, delivering the welcome address.
Hon’ble Justice R. Sudhakar, Madras High Court addressing the gathering.
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P.H. Arvindh Pandian, Executive Committee Member, SICCI addressing the gathering.
A view of the participants.
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As a result, Indian counterparts suffered a great deal. Many parties/firms of Indian origin suffered arbitral awards outside the country without proper defence. To provide an effective mechanism for resolution of disputes through arbitration, the Arbitration Act, 1940 was introduced in the country. Subsequently, it was amended by the Arbitration and Conciliation Act 1996. Recently, the law commission sent a report to the Centre suggesting amendments to the Act. If these amendments come into force, it will go a long way in providing an effective platform for resolution through arbitration, reduce the burden of courts and show that India can be a favoured destination for resolution of disputes through arbitration. Mr. P.H. Arvindh Pandian, Additional Advocate General, Madras Highcourt and member SICCI executive committee said that the recent verdicts by the Supreme Court and High courts on the law of arbitration were in tune with international arbitration laws for disputes involving cross-border transactions. Workshop on Best Practices in People Management and Employee Engagement The SICCI jointly with the Tamil Nadu Chamber of Commerce and Industry organized a one day workshop on Best Practices in People Management and Employee Engagement on 9th August at the Conference Hall of the Tamil Nadu Chamber of Commerce & Industry in Madurai.
Mr. N Jagadeesan, President, Tamil Nadu Chamber of Commerce & Industry, Madurai & SICCI Executive Committee Member addressing the gathering.
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Mr. Shantaram, Vice-Chairman, SICCI HR Committee making presentation.
A view of the participants.
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Mr. N. Jegatheesan, President, Tamil Nadu Chamber of Commerce and Industry delivered the welcome address and said that though India had the advantage of the demographic dividend, the poor employability of the work force hampered the prospects of economic growth. He further added that employees need to be motivated and effectively managed to bring in productivity and thereby social development. Mr. R. Shantaram, Vice-Chairman, SICCI HR Committee and Mr. R. Karthik, SCOPE Ltd facilitated the workshop and interacted with the participants. Press Release of SICCI on the Union Budget 2014-2015 SICCI welcomes the Union Budget presented by Hon’ble Finance Minister Shri. Arun Jaitley but is of the view that the Finance Minister could have used this opportunity to present a bolder reform oriented budget. Given over whelming mandate the NDA government received, the Finance Minister could have used the political space he enjoyed to enunciate a clearer road map towards tax reforms namely rationalizing the tax rates and simplifying the tax regime. In the absence of tax reforms, it remains to be seen how effective this budget is likely to be in garnering the tax revenues that are necessary in improving India’s tax to GDP ratio. The Chamber welcomes the commitment of the Finance Minister toward fiscal consolidation and his intention to lower the fiscal deficit to 3.6% in 2015-16 and to 3% in 2016-17. However the absence of policy directions in the area of subsidies queers the pitch with respect to his fiscal deficit targets. The Chamber welcomes Finance Minister’s initiatives on infrastructure development most notably in the creation of 100 new smart cities, the development of 3 industrial corridors, the assurances of coal linkages for stalled power projects, the ultra mega solar power project in Tamil Nadu and increased allocation towards low cost housing. The Chamber also welcomes the proposals that seek to redress the inverted duty structures in the textile computer, soap and battery manufacturing. While the measures to infuse additional capital into the banking sector by way of sale to residential retail investors and the recognition of the need of the banking sectors to raise long term finance that are outside the purview of CRR and SLR requirements are welcome measures that would help the functioning of the banking sector, the absence of any policy direction with regard to the creation of development financing institutions are wholly focused on industrial and infrastructural development is an area that the finance minister could have acted upon. The SICCI is of the view that the budget has missed the opportunity to provide incentives for job creation, given India’s dismal tract record in creating meaningful opportunities to its burgeoning young population. In conclusion, the SICCI is of the view that while the Government is committed to tax reforms and is set to rationalize and simplify its tax regime, a clearer road map as to when these are to be implemented could have been spelt. The Chamber also welcomes the long term orientation in fiscal policy that the Government is keen on providing and would urge the Government to implement the GST & the DTC at the earliest. JAWAHAR VADIVELU, President 13
BUDGET AT A GLANCE (In Crore of Rupees)
1.
Revenue Receipts 2. Tax Revenue (net to centre) 3. Non-Tax Revenue 4. Capital Receipts (5+6+7)$ 5. Recoveries of Loans 6. Other Receipts 7. Borrowings and other liabilities* 8. Total Receipts (1+4)$ 9. Non-Plan Expenditure 10. On Revenue Account of which, 11. Interest Payments 12. On Capital Account 13. Plan Expenditure 14. On Revenue Account 15. On Capital Account 16. Total Expenditure (9+13) 17. Revenue Expenditure (10+14) 18. Of Which, Grants for creation of Capital Assets 19. Capital Expenditure (12+15) 20. Revenue Deficit (17-1) 21. Effective Revenue Deficit (20-18) 22. Fiscal Deficit {16-(1+5+6)} 23. Primary Deficit (22-11)
2012-2013 Actuals
2013-2014 Budget Estimates
2013-2014 Revised Estimates
2014-2015 Budget Estimates
879232
1056331
1029252
1189763
741877 137355 531140 15060 25890 490190 1410372 996747 914306
884078 172252 608967 10654 55814 542499 1665297 1109975 992908
836026 193226 561182 10802 25841 524539 1590434 1114902 1027689
977258 212505 605129 10527 63425 531177 1794892 1219892 1114609
313170 82441 413625 329208 84417 1410372 1243514
370684 117067 555322 443260 112062 1665297 1436169
380066 87214 475532 371851 103681 1590434 1399540
427011 105283 575000 453503 121497 1794892 1568111
115710 166858 364282 (3.6) 248572 (2.5) 490190 (4.8) 177020 (1.8)
174633 229129 379838 (3.3) 205205 (1.8) 542499 (4.8) 171814 (1.5)
138228 190894 370288 (3.3) 232060 (2.0) 524539 (4.6) 144473 (1.3)
168104 226781 378348 (2.9) 210244 (1.6) 531177 (4.1) 104166 (0.8)
Actuals for 2012-13 in this document are provisional. $ Excluding receipts under Market Stabilisation Scheme. * Includes draw-down of Cash Balance. Notes: 1. GDP for BE 2014-2015 has been projected at `12876653 crore assuming 13.4% growth over the Advance Estimates of 2013-2014 (` 11355073 crore) released by CSO. 2. Individual items in this document may not sum up to the totals due to rounding off.
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ARTICLE Arbitration Regime – Well accepted by Indian Judiciary By V. Inbavijayan, International Arbitrator & Managing Partner, KoVe Global LLP & Kirthi Jayakumar, Advocate & Partner, KoVe Global LLP
Asia Division of HSBC, sought interim injunctive relief and related orders before the Bombay High Court in support of Singapore arbitration proceedings to compel Avitel and related respondents (“Avitel”) to deposit monies and/or security to the extent of HSBC’s original investment of US$60 million in a failed project. HSBC had invested US$60 million in Avitel on the basis, inter alia, of representations and undertakings by Avitel that the monies would be used to purchase specialized film equipment, enabling Avitel’s subsidiary to service a contract with the BBC, said to be worth between US$1 billion to US$1.3 billion. A Share Subscription Agreement (SSA) was duly signed between the parties. The SSA provided, inter alia, that the agreement would be construed in accordance with the laws of India and that any arbitration would be conducted under the Singapore International Arbitration Centre (“SIAC”) Rules in Singapore. It subsequently emerged that there were serious doubts over the legitimacy of Avitel’s business and its customers. An earlier meeting between the parties with a person said to have been a “BBC representative”, in order to provide supposed endorsement by the BBC of its contract with Avitel’s subsidiary, was discovered by HSBC to have been fraudulent. HSBC commenced SIAC arbitration proceedings against Avitel.
Recently, two decisions of a pro-arbitration kind came in from the Indian judiciary, continuing the judicial trend towards recognition of arbitral independence. The first of these decisions is the one from the Bombay High Court in HSBC PI Holdings (Mauritius) Ltd v Avitel Post Studioz Ltd and others1 and the other is from the Supreme Court of India in World Sport Group (Mauritius) Ltd v MSM Satellite (Singapore) Ltd.2 In both these decisions, it was held that such matters as the issues of fraud should properly be dealt with by the arbitral tribunal in accordance with the arbitration agreements entered into between the parties, and not by the courts, departing from an earlier controversial line of authority from India which had held otherwise.3 These decisions follow the precedential rulings of the Supreme Court of India in cases such as Bharat Aluminum Co Ltd v Kaiser Aluminum4 and Shri Lal Mahal v Progetto Grano Spa.5 In the two recent rulings, it is evident that there is a strong sense of a burgeoning degree of judicial maturity on part of Indian courts not to interfere with the international arbitral process and to be willing to uphold valid international arbitration agreements between parties. In HSBC PI Holdings (Mauritius) Ltd. v Avitel Post Studioz Ltd and others 6 HSBC PI Holdings (“HSBC”), an investment holding company for the 1 2 3 4 5 6
Arbitration Petition No. 1062/2012, High Court of Bombay, India, 22.01.14 Civil Appeal No. 895/2014, Petition for Special Leave to Appeal (Civil) No(s).34978/2010, Supreme Court of India (unreported), 24.01.14, Supreme Court of India. See N. Radhadkrishnan v Maestro Engineers & Ors (2010) 1 SCC 72; India Household Healthcare v LG Household Healthcare (2007) 5 SCC 510; Hindustan Petroleum v Pink City Midway Petroleums (2003) 6 SCC 503. Bharat Aluminium Co Ltd v Kaiser Aluminium Technical Service Inc (2012) 9 SCC 649, overruling Bhatia International v Bulk Trading SA (2002) 4 SCC 105. http://www.cliffordchance.com/publicationviews/publications/2012/09/indian_supreme_courtscalesbackinterventioni.html (2013) (8) SCALE 480, Civil Appeal No. 5085/2013, 3.07.13. See http://www.cliffordchance.com/publicationviews/publications/2013/07/ indian_supreme_courtnarrowsthescopeofpubli.html Arbitration Petition No. 1062/2012, High Court of Bombay, India, 22.01.14
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courts. The Bombay High Court’s view was that HSBC’s allegations of false representations by Avitel on various issues were of “substance”. Accordingly, the interim measures and relief sought by HSBC of US$60 million against Avitel were granted. The Bombay High Court also ordered that in the event that Avitel’s bank accounts were found to hold less than US$60 million, any shortfall was to be deposited by Avitel within one month following judgment.7
HSBC brought a petition in the Bombay High Court seeking orders against Avitel requiring the deposit of HSBC’s original investment of US$60 million and/or alternatively security for the investment that had seemingly vanished. Avitel claimed that the agreement was governed by Indian law and that since an issue of fraud was not capable of settlement through arbitration under Indian law, HSBC’s petition was therefore without any foundation. The Bombay High Court, finding in favour of HSBC, and ruled that the parties had expressly chosen Singapore as the seat of arbitration, therefore Singapore law governed the arbitration agreement. Secondly, under Singapore law, the arbitral tribunal can decide claims involving allegations of fraud and fabrication if any, and there was no bar to these issues being decided by an arbitrator. Thirdly, the agreement to arbitrate in Singapore had “a real and closer connection with the place where the parties had chosen to arbitrate”; thus the arbitration agreement was governed by Singapore law and not Indian law. Fourthly, the Singapore arbitral tribunal had jurisdiction to deal with allegations of fraud and fabrication. Fifthly, the argument raised by Avitel that, under Indian law, the arbitral awards by the Singapore arbitral tribunal, would conflict with the “public policy of India” was not correct. Finally, it concluded that HSBC was entitled to seek orders for interim measures and other relief against Avitel.
In World Sports Group (Mauritius) Ltd v MSM Satellite (Singapore) Ltd,8 the second recent proarbitration case from India, the Supreme Court of India reversed an anti-arbitration injunction that had previously been granted by the Bombay High Court in favour of MSM Satellite, (“MSM”) against WSG (Mauritius), and held that MSM’s dispute with WSG (Mauritius) should properly be referred to ICC arbitration in Singapore. In 2008, WSG won the global media rights tendered by the Board of Control for Cricket India (BCCI) for the Indian Premier League for a ten-year period. MSM claimed that under a prebid arrangement it was meant to get media rights for the Indian sub-continent for first two years of the tenyear period. However, after the first season, BCCI terminated its agreement with MSM and commenced negotiations with WSG (India). MSM initiated injunction proceedings against BCCI. In 2009, WSG (Mauritius) entered into a INR 4.7 billion (US$90 million) facilitation agreement with MSM under which WSG (Mauritius) relinquished its Indian subcontinent media rights and enabled MSM to obtain those rights directly from the BCCI. The facilitation agreement provided that all disputes should go to ICC arbitration in Singapore. MSM made three payments
The issues in dispute were questions on the trend of “pro-arbitration” shown by Indian higher courts in two recent cases, that Indian courts uphold underlying arbitration agreements and that there were allegations of fraud can be dealt with by arbitrators not only by
7
Para. 101 of the judgment, supra.
8
Civil Appeal No. 895/2014, Petition for Special Leave to Appeal (Civil) No(s).34978/2010, Supreme Court of India (unreported), 24.01.14, Supreme Court of India
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to WSG (Mauritius) under the agreement but failed to pay the balance. Accusing WSG (Mauritius) of misrepresentation and fraud, MSM rescinded the agreement and applied to the Bombay High Court for a declaration that the facilitation agreement was void. WSG (Mauritius) requested arbitration before the ICC in Singapore, but, in the meantime, MSM sought a temporary injunction from the Bombay High Court, claiming that as WSG (Mauritius) had rescinded the agreement, it was not entitled to rely upon the arbitration clause in the agreement.
fraud and serious malpractice; such issues can also properly be dealt with by arbitrators. The rule of Kompetenz-Kompetenz, or that of Competence De La Competence, warrants the fact that the arbitral tribunal is vested with the authority to determine its own jurisdictional competence. This, as a rule, is incorporated under s.16 of the Arbitration Act, 1996. This rule addresses the issue of allocation of authority between arbitral tribunals and domestic courts to decide disputes over the existence and enforceability of arbitration agreements. Nothing prevents the arbitral tribunal from trying the issue fully and rendering a final decision thereupon.9 The Arbitral Tribunal may very well rule on its own jurisdictional competence, including ruling on any objection with regard to the existence or validity of the arbitration agreement.10 This power is inherent in an arbitral tribunal, and is given statutory recognition.11 Section 16 provides that the Arbitral Tribunal may rule on its own jurisdiction. That the Arbitral Tribunal may rule ‘on any objections with respect to the existence or validity of the arbitration agreement’ shows that the Arbitral Tribunal’s authority under Section 16 is not confined to the width of its jurisdiction, but goes to the very root of its jurisdiction.12 The civil court has no jurisdictional competence, whatsoever, to delve into the question of validity of the arbitral agreement.13 Arbitration as an alternative mechanism of dispute resolution has its independent holding not only by its statute, but it has been justified by courts through their rulings.
The Bombay High Court granted MSM’s application for an anti-arbitration injunction to restrain the arbitration proceedings. WSG (Mauritius) appealed to the Supreme Court of India. The Supreme Court of India found that the courts are obliged to refer the parties to arbitration unless they find that the arbitration agreement between the parties is “null and void, inoperative or incapable of being performed”; that pursuant to the New York Convention, provisions of which are also in the Indian Arbitration and Conciliation Act, an arbitration agreement does not become “inoperative or incapable of being performed” simply because the dispute may involve allegations of fraud; that the courts cannot refuse to refer the parties to arbitration on the ground that allegations of fraud have been made by one party; that the arbitration clause in the specific facilitation agreement between the parties was wide enough to bring the dispute within the scope of arbitration; and that it is not only the courts which can decide issues of allegations of
9
Born, International Commercial Arbitration (2001) @ p.74
10
Wellington Associates Ltd. v. Mr. Kirit Mehta 2000 Arb WLJ 188 (SC)
11
Anil Constructions v. Vidarbha Irrigation Development Corpn. 2000 (2) All MR 119
12
Konkan Rly. Corpn. Ltd. v. Rani Construction(P) Ltd. (2002) 2 SCC 388
13
Datar Switchgears Ltd. vs- Tata Finance Ltd., (2000) 8 SCC 151
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OCTOBER EVENTS
EXECUTIVE BREAKFAST MEETING ON
VAT Organised by:
THE SOUTHERN INDIA CHAMBER OF COMMERCE & INDUSTRY