Contemporary Issues on Arbitration Law: Analysis of the Stamp Act

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Introduction

Arbitration is a practice where parties entrust their respective advocates to settle disputes outside the regime of courts believing that their chance of success increases by proportions due to the skill and experience of their advocates. The notion of arbitration is well settled in the judicial system of India but the scope of the same has increased exponentially in the past decade mostly with the effect of BALCO’s[footnoteRef:1] case. The effects of encouragement for the practice of arbitration in India has given us the opportunity to research in depth the observations of the India courts pertaining to the law of arbitration with an international viewpoint and to conclude the same while focusing on ‘question of law’ in the still-emerging field of arbitration. [1: BHARAT ALUMINUM CO. V. KAISER ALUMINUM TECHNICAL SERVICES INC (2012) 9 S.C.C. 552. ]

Our research pertains to three main topics which include domestic and international stand point of it.

A. Choice of law

It is a set of rules used to select which jurisdiction’s laws to apply in a lawsuit. Choice of law questions apply most frequently arise in lawsuits in the federal courts that are based on diverse jurisdictions where the plaintiff and defendant are from different states. In these lawsuits, the courts are often confronted with the question of which jurisdiction’s laws should apply. The choice of law rules establishes a method by which the courts can select the appropriate law.

Conflict of law is sometimes used interchangeably with “choice of law”, a conflict of laws arises when a lawsuit introduces conflicting laws of two or more jurisdictions.

There are four different choice-of-law issues in international arbitration that arise:

1. Determination of the substantive law applicable to the merits of the case.

Arbitrators will determine it according to the parties’ agreements, unless a mandatory national law, or public policy, trumps such an agreement. In the alternative, where parties have failed to agree, the arbitral tribunal will choose the law applicable depending on the facts of the case at hand, using criteria such as selecting the law with the closest connection to the dispute.

Belohlavek, Alexander J., Substantive Law Applicable to the Merits in Arbitration (March 14, 2014).

Romanian Review of Arbitration – Revista Românâ de Arbitraj[footnoteRef:2]. [2: 8 REVISTA ROMâNâ DE ARBITRAJ 1-16 (2(30) ISSUE 2014).]

2. Determination of the substantive law applicable to the arbitration agreement

The law applicable to the arbitration agreement itself, parties may also agree on such law, which can be different from the others on the basis of the presumption of severability. If the parties have not agreed on an applicable law, then the law applicable to the arbitration agreement is often found to be the law of the arbitral seat, but may also be found to be the law governing the parties’ contract or international principles.

Belohlavek, Alexander J., The Law Applicable to the Arbitration Agreement and the Arbitration of a Dispute (May 7, 2013).

Yearbook of International Arbitration, M. Roth and M. Giestlinger (eds.), Intersentia / DIKE / NWV, Antwerpen-Zurich-Vienna-Graz[footnoteRef:3]. [3: DICEY, MORRIS & COLLINS, THE CONFLICT OF LAWS 27-57 (2013).]

3. Determination of the procedural law applicable to the arbitral proceedings

This law will govern all issues relating to the arbitration proceeding, such as the appointment of arbitrators, the issue of provisional relief, the procedural timetable and provisions related to the award. In most jurisdictions, this law provides significant freedom to arbitrators in relation to the conduct of the proceedings, as long as due process is respected.

Dicey, Morris & Collins on the conflict of laws[footnoteRef:4] (Lord Collins of mapesbury et al eds). [4: SWEET & MAXWELL 16-031 (15th ed.2012).]

4. The conflict of law rules applicable to determine each of the above-mentioned laws.

B. Partial arbitral award

Whether the high court has to execute the arbitral award fully or it can execute it partially with application of doctrine of severability?

Case 1.Supreme Court in McDermott International Inc. vs. Burn standard company LTD. And ors.[footnoteRef:5] [5: (2016) 11 S.C.C. 181.]

Held: arbitration and conciliation act makes provision for supervisory role of the court for review of the award only to ensure fairness and interference in cases of fraud, bias, violation of principles of natural justice etc. But the court cannot correct errors of arbitration. It can only quash the award leaving the parties to free to begin the arbitration again if they so desire.

Once an award has been set aside consequential relief cannot be granted and the parties have been left to begin with the arbitration if they so desire.

Case 2. Hindustan zinc LTD. vs Friends coal carbonisation[footnoteRef:6]. [6: (2016) 4 S.C.C. 445.]

Held: it was impermissible for the appellate bench of the High Court to do re calculation after it had failed to interfere with the portion of the award on the ground that it was opposite to the specific terms of the contract.

Case 3. J.C Budhraja vs. Chairman, Orissa mining corporation LTD[footnoteRef:7]. [7: (2008) 2 S.C.C. 444.]

Held: the entire award need not be set aside and part of the award which is valid and separable can be upheld.

Reference 4. Halsbury law of England.[footnoteRef:8] [8: 9 HALSBURY LAW OF ENGLAND 297-430 (4th ed.).]

General principles pertaining to severance in case of contract. The second principle states that severance can be allowed where it is possible to strike out the offending parts, without rewriting or rearranging the contract. Thirdly, the court would not alter entirely the scope and intention of the agreement and, fourthly, the contract must retain characteristics of a valid contract, otherwise the other parts of the contract would also become unenforceable.

Case 5. R.S Jawani vs. Ircon International LTD.[footnoteRef:9] [9: (2010) 1 Bom. C.R. 529.]

Held: Court has the power to set aside the award partly or wholly depending upon the facts of each case and principle of severability can be applied where the matters can be clearly separated from the matters not referred to arbitration.

Applying the dog chains of severability and partial validity had clarified that it the said principles can be applied only e when potions of claims/counterclaims are capable of being severed and separated from the rest and not when the decisions on issue are inter-connected and bifurcation would alter the scope of the award.

Case 6. Kinnari mullick and anr. vs. Ghanshyam Das Damani.[footnoteRef:10] [10: (2018) 11 S.C.C. 328.]

Held: the said power can only be exercised when there is a return request made by the parties to the arbitration proceedings; where an arbitration award add has not already been set aside; and challenge to the arbitration award has been set up under section 34 about the deficiencies in the arbitral award which may be curable by allowing arbitral tribunal to take such measures which can eliminate the grounds for setting aside the arbitral award.

Case 7. DMRC vs DAMEPL 307/2017

The Arbitral award can be partially awarded where doctrine of severability is applicable.

Case 8. M/s. Indian Farmers Fertilizer Co-operative Ltd. vs. M/s. Bhadra Products (Unreported decision of the Supreme Court dated January 23, 2018).

In the Judgement the Supreme Court concluded that an interim award or partial award is a final award on matters covered therein made at an intermediate stage of the arbitral proceedings.

With the correct view and application of doctrine of severability, the Supreme Court took the correct view in settling the issue of awarding a partial arbitral award. The essence of the above stated doctrine is to remove the illegal or mala fide from the legal and bona fide, so as to make the legal part applicable. Therefore the High Courts and the Supreme Court has to take the purview of this doctrine wherever there is an issue relating to the partial arbitral award. Moreover the arbitrator can pass an interim award and a partial award at the intermediate stage of the arbitral proceedings.

C. Non-signatory or third party to arbitration

[bookmark: _gjdgxs]There is no deciding formula which guides the arbitrators regarding which legal principles apply in determining when to join the non-signatories parties. Allegations of implied consent tells a different legal framework from arguments asserting lack of corporate personality. There needs to be either a direct relationship to the signatory party of the Arbitration Agreement or composite transaction between the parties. The court may refer the parties to arbitration at the request of either party or any person claiming through or under them.

Case 1. Chloro Controls (I) P. Ltd. v. Severn Trent Water Purification Inc.[footnoteRef:11] [11: JT 2012 (10) S.C. 187.]

The expression “any person” used in section 45 of the act clearly refers to the legislative intent of enlarging the scope of the words beyond “the parties” who signatory to the arbitration agreement. The expression “persona claiming through or under” would mean and take within its ambit multiple and multi-party agreement, through though in exceptional case. Such application should claim through or under the signatory party and once this link is established, then the court shall refer them to arbitration. arbitration , thus, could be possible between a signatory to an arbitration agreement and a third party, heavy onus lies on the party to show that, in fact and in law, it is claiming ‘through’ or ‘under’ the signatory party as contemplated under section 45 of the act.

Case 2. R.V. Solutions Pvt. Ltd. v. Ajay Kumar Dixit & ors. [footnoteRef:12] [12: (2019) S.C.C. Online Del 6531 CS Comm. 745/2017.]

The Delhi High Court held that a non-signatory or third party could be subjected to Arbitration without its consent, only in exceptional cases. There needs to be either a direct relationship to the signatory party of the Arbitration Agreement, or commonality of the subject matter, or composite transactions in the agreement between the parties.

The courts have established that when a party is not a signatory to the arbitration agreement and he still wants to be a party in the same, then the party must take prior permission from the corresponding court. Prior permission is necessary because the courts must apply it’s judicial mind to check the relevancy of the non-signatory party to the subsequent arbitration. In case 2(stated above), it was observed by the court that there only exceptional cases where prior permission is not required and still a non-signatory party can be a part of the arbitration.

D. Non-stamping of a foreign arbitral award

The Indian Stamp act, 1899 was amended by the British Government with the sole purpose of acting as a revenue-generating mechanism for the government. The imposed an obligation to pay stamp duty on certain and specific documents. It acted as a fiscal legislation.

The Objective of the said stature[footnoteRef:13] [13: The India Stamp Act, 1899]

The main purpose of this Act is to generate revenue for the Indian government.
A document which is stamped acts as valid evidence in a court of law.
The Stamp Act also makes payment of stamp duty on some documents compulsory which in return makes those documents legally valid and authentic.

Therefore, every document[footnoteRef:14] agreed upon between parties must stamped under this stature so that the court can consider the same as evidence and enforce it or decree a relief upon it. [14: Section 2(14), The Indian Stamp Act,1899]

Applying the above inference, an arbitral award in India has to be stamped with respect to this act only then it can become enforceable[footnoteRef:15] by the corresponding High Court. It is done so because, the award given by the arbitration tribunal formulated has to be present before the corresponding High Court for enforcement, thus acting as an evidence but, the pre-requisite for the same is that it first has to adhere to the Indian Stamp Act, 1899. [15: Section 36, Arbitration and conciliation act, 1996]

The contemporary issue arose, after the judgment of the the Bhatia’s[footnoteRef:16] case which gave observation pertaining to the enforcement of an award given under an International Commercial Arbitration. [16: Bhatia International V. Bulk Trading AIR 2002 SC 1432]

The question arose was whether can Foreign Arbitral Award with no stamp under the Indian Stamp Act be enforced?

An award passed by an arbitral tribunal is basically a document which has to be presented before the corresponding court for enforcement. For the said document to have value enforceable value has to be stamped and registered and without paying the stamp duty no document can be registered.

But, under the Indian Stamp Act[footnoteRef:17] courts and arbitrators may admit documents which are unstamped or deficiently stamped on payment of proper duty and penalty. Moreover, section 48 of The Arbitration and Conciliation Act, 1996 provides the conditions for the enforcement of a foreign arbitral award and nowhere in these conditions it is requires it to be stamped under the referred act. With the application of Section 35 of the Indian Stamp Act, 1899 and sections 48 and 49 of the Arbitration and Conciliation Act 1996 a foreign award has to be enforced without a stamp if presented. The statutory provisions of the acts clearly provide that a foreign award should be enforced with a stamp. [17: Section 35, Indian Stamp Act, 1899]

The Judicial System of India has interpreted the same in such a way which has led to the integration of the arbitral proceedings in India with that of the world, as it was intended to.

Case 1. Naval Gent Maritime Ltd vs. Shivnath Rai Harnarain (I) Ltd[footnoteRef:18] [18: (2009) 174 DLT 391]

It was observed that a foreign award would not require registration and can be enforced as a decree, and the issue of stamp duty cannot stand in the way of deciding whether the award is enforceable or not

Case 2. Narayan Trading Co. v. Abcom Trading Pvt. Ltd[footnoteRef:19] [19: (2012) S.C.C. Online MP 8645]

The arbitration and Conciliation act, 1996 was enforced, no amendment was made in the definition of award given in the Indian Stamp Act. Also, the schedule which lays down the stamp duty payable on award was not amended by including the foreign award. Thus, it shows that the law makers were of the view that a foreign award shall be enforceable as if it were a decree of the court, no amendment was brought either in the definition of award or in the schedule relating to payment of stamp duty on award. Since the definition of award given at Entry No. 11 of the schedule of the Indian Stamp Act, it doesn’t cover the foreign award.

Case 3. Vitol S.A vs. Bhatia International Limited[footnoteRef:20] [20: (2014) S.C.C. Online Bom 1058]

In this case the court accepted the precedent established in the Naval Gent Maritime Ltd vs. Shivnath Rai Harnarain (I) Ltd and subsequently observed that the award passed in England becomes executable in India.

Case 4. M/S. Shriram EPC Limited vs. Rioglass Solar SA[footnoteRef:21] [21: (2018) S.C.C. Online SC 1471]

The supreme court held that a foreign award, is not contained within the expression of ‘award’ under Schedule I, it is not taxable under the Indian Stamp Act, 1899 and thus, non-stamping of foreign award would not render it not enforceable under section 49 of the arbitration and conciliation act, 1996.

Conclusion

India was one of the original signatories to the New York Convention and it has taken an a lot of time to come at par with the international practices of arbitration and still there are many short comings. In the past decade it can be witnessed that the future of arbitration is bright in India as many Indian jurist, Judges and Advocates are in consensus to promote arbitration in the purview of Indian law and many judgments are in evidence to show the same.

The courts are emitting their pro-belief of arbitral proceeding as citied above in the research. The ‘question of law’ relating to arbitration law is developing in the country on a right path as it is unifying the Indian practices with that of other nations in the world.

Exciting times are ahead for the Indian Arbitration Jurisprudence and our courts and advocates are ready to take on several challenges pertaining to it.

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