1. Preparing and Managing Arbitration : Difficulties faced by PSUs / Corporates Ganesh Chandru Executive Partner Lakshmikumaran & Sridharan 9 March 2019 ASSOCHAM Arbitration Conference, New Delhi Copyright 2019 | Lakshmikumaran & Sridharan

2. Topics for Discussion Selection of Arbitrators Fees of Arbitrators
Ad-hoc Arbitration
Enforcement of Foreign Awards

3. Selection of Arbitrators
The 2015 Amendments to the Arbitration Act introduced the Fifth and Seventh Schedules to the Act, which have been drawn from the Orange and Red lists of the IBA Guidelines on Conflicts of Interest in International Arbitration.
The grounds stated in the Fifth Schedule act as a guide in determining whether any circumstances exist that give rise to justifiable doubts as to the arbitrator’s independence or impartiality.
If any of the grounds mentioned in the Seventh Schedule are attracted, then a person shall be ineligible to be appointed as an arbitrator unless the parties expressly agree in writing to waive the applicability of the provision (Section 12(5) of the Arbitration Act).

4. Selection of Arbitrators (Cont’d)
Many PSUs have standardised contracts that used to provide for the appointment of their own employees as arbitrators.
Alternatively, some PSUs maintain a panel of arbitrators and an appointment has to be made out of the list of names provided to the opposite party after the arbitration has commenced.
These may give rise to justifiable doubts as to the independence or impartiality of the arbitrators and may be a ground for challenge under section 12(3)(a) r/w Explanation to section 12(1)(b) of the Arbitration Act (if the circumstances exist which fall under any of the grounds stated in the Fifth schedule).
Or may lead to de jure termination of the mandate of the arbitrator under section 12(5) of the Arbitration Act if any of the grounds mentioned in the Seventh Schedule are attracted.

5. Selection of Arbitrators (Cont’d)
The issue of appointment of arbitrators from a panel maintained by a PSU has been addressed by the Supreme Court of India in Voestalpine Schienen GMBH v. Delhi Metro Rail Corporation ((2017) 4 SCC 665).
The arbitration agreement between Voestalpine and DMRC provided that the appointment had to be made from a list of five names (to be forwarded by DMRC) from a panel maintained by DMRC. Each party had to nominate one arbitrator who in turn would nominate the presiding arbitrator from the list of the same five persons.
However, DMRC provided the entire panel of its arbitrators for Voestalpine’s consideration.
Voestalpine stated that the appointment from the list which consists of serving or retired engineers from government departments or PSUs would lead to appointment of ‘ineligible’ arbitrators as per the Seventh Schedule of the Arbitration Act.

6. Selection of Arbitrators (Cont’d)
Voestalpine nominated a retired Supreme Court Judge as sole arbitrator. DMRC rejected the nomination and nominated its arbitrator from the list of five people.
This nominee was a retired officer of the Indian Railway Service of Engineers.
Voestalpine objected to the nomination stating that even those persons who are not employees of DMRC but in employment of Central Government or other government or public sector undertaking defied the neutrality aspect.
The Supreme Court rejected Voestalpine’s objection and held that just by being a government or an ex-government employee does not make a person ineligible. The people on the panel cannot be treated as employee or consultant or advisor of DMRC. The Court opined that a panel of 31 arbitrators provides a wide choice to the parties to appoint their arbitrators.
However, the court ordered DMRC to do away with the five person list as it was too restrictive for the other party and to prepare a broadbased panel.

7. Selection of Arbitrators (Cont’d)
The issue of appointment of arbitrators from a panel has arisen before the Delhi High Court in some cases recently:
In Bernard Ingenieur ZT- GMBH v. Ircon International Ltd. (2018 SCC Online Del 7941), the arbitration agreement provided that ‘MD/IRCON shall appoint arbitrators from the panel approved by Northern Railway.’ The court observed that the list of 20 arbitrators empanelled by Ircon show that the panel includes mainly retired employees from the railways, though there were some additional names of retired employees from CPWD, NHPC, HUDCO, etc.
The Single Judge of the Delhi Court referred to the Apex Court’s judgment in Voespaltine and stated that even after a year from the Voespaltine judgment, the Respondent’s panel still did not contain names of engineers of prominence and high repute from private sector, persons with legal background like judges and lawyers of repute. The Court further opined that panel framed by the Ircon not in conformity with the Supreme Court’s judgment and therefore Ircon has failed to act in accordance with the procedure prescribed under the arbitration agreement between the parties.

8. Selection of Arbitrators (Cont’d)
In Afcons Infrastructure v. Ircon International Limited (2017 SCC Online Del 10049), the Delhi High Court dealt with reference to a similar clause as in Voespaltine wherein the Court had directed that the panel had to be broadbased. The Court relied on the Supreme Court’s judgment and opined that the panel cannot be restricted to retired engineers or officers. Further, a braodbased panel would ensure that there would be no misapprehension that impartiality or independence would be discarded at any stage of the proceedings.
Therefore, the Court directed the Respondent to broadbase their panel on the same lines as directed by the Supreme Court in Voespaltine.

9. Selection of Arbitrators (Cont’d)
There is a need for more experienced, impartial and independent arbitrators in India in order to avoid challenge petitions under section 12 of the Arbitration Act. Parties agree to refer their disputes to arbitration with an intention to avoid court proceedings. However, approaching the court for such procedural matters leads to added costs and time which further delays the arbitration.
The above line of cases suggest that we are headed towards a good start and the challenge of appointing an arbitrator from a fixed panel is being resolved.

10. Fees of Arbitrators
Section 11 (14) of the Arbitration Act provides that the High Court may frame rules for the purpose of determination of the fees of the arbitral tribunal after taking the rates specified in the Fourth Schedule into consideration.
The above provision and the Fourth Schedule (schedule of fees for arbitrators) were added to the Arbitration Act by the 2015 Amendments.
Explanation to section 11(14) provides that the schedule does not apply to international commercial arbitration and in arbitrations where parties have agreed for determination of fees as per the rules of an arbitral institution.
In cases where the parties agree that the arbitration be governed by the rules of an arbitral institution, the arbitrators cannot insist on the application of Fourth Schedule unless the parties expressly agree. Therefore, Fourth Schedule is not mandatory even for domestic arbitrations.

11. Fees of Arbitrators (Cont’d)
Recently there has been a trend to fix fee schedule in accordance with the Fourth Schedule of the Arbitration Act even where parties have not agreed to it.
In NHAI v. Gayatri Jhansi Roadways Limited (2017 SCC Online Del 10285), the Delhi High Court held that as the amended section 31(8) read with section 31A of the Arbitration Act does not stipulate that the agreement of the parties shall have an overriding effect, the legislative intent that the power of the parties to enter into an agreement with regard to fixing of the fees has been specifically taken away by Amendments
Therefore, the court upheld the Tribunal’s order to fix the fee schedule in accordance with the Fourth Schedule holding that the exception carved out under section 11(14) applies only to international commercial arbitration and arbitrations where parties have agreed for determination of fees as per the rules of an arbitration institution.
The appeal, by way of a Special Leave Petition, against the decision of the Delhi High Court is pending before the Supreme Court.

12. Fees of Arbitrators (Cont’d)
In NHAI v. Gammon Engineers and Contractor Pvt. Ltd. (2018 SCC Online Del 10183), the parties had agreed to the fee to be paid to the arbitral tribunal. After the arbitration agreement, NHAI issued a circular which contained a fee structure that was applicable to the arbitrators. However, the arbitral tribunal decided that fees shall be paid as per the Fourth Schedule of the Arbitration Act.
The Court held that it is for the arbitrators to accept or reject the conditions of appointment, however, they cannot impose unilateral conditions on parties while accepting such appointment.
The Court further stated that the arbitral tribunal cannot accept the appointment in part and rewrite the arbitration agreement between the parties and therefore the mandate of the arbitral tribunal was terminated.
The Court also discussed that the decision of Delhi High Court in Gayatri Jhansi Roadways did not take note of earlier decisions (by Delhi and Madras High Courts) or the 246th Law Commission Report. The Gayatri Jhansi Roadways decision is, therefore, per incuriam.

13. Ad-hoc Arbitration
Majority of arbitrations in India are conducted on ad-hoc basis.
Arbitral institutions such as Mumbai Centre for International Arbitration (MCIA), Nani Palkhivala Arbitration Centre (NPAC), Indian Council of Arbitration (ICA), Delhi International Arbitration Centre (DAC) are becoming increasingly popular with Indian parties but a major shift in volume of cases from ad-hoc to institutional arbitration may still take some time.

14. Ad-hoc Arbitration (Cont’d)
Ad-hoc arbitration has its own challenges:
The Arbitration Act applies to all arbitrations seated in India.
Even though section 19 of the Arbitration Act provides that the Civil Procedure Code, 1908 and Indian Evidence Act, 1872 are not binding on the arbitral tribunal, the Supreme Court of India in the case of Srei Infrastructure Finance Limited v. Tuff Drilling Private Limited ((2018)11 SCC 470), held that the arbitral tribunal may draw guidance from the fundamental principles underlying the Code of Civil Procedure and Indian Evidence Act.
This can prove to be a major challenge for PSUs and corporates as conduct of arbitral proceedings in India is akin to civil court proceedings which leads to lengthy and voluminous filings just like civil litigation.

15. Recourse against Awards
Indian parties (especially PSUs) against whom an arbitration award is made, tend to seek recourse against the award by filing an application to set aside the award under section 34 of the Arbitration Act.
Prior to the 2015 Amendments, a petition to set aside an award led to an automatic stay of the enforcement proceedings until the petition under section 34 was finally disposed of.
Section 36 of the Arbitration Act was amended in 2015, which now provides than an application filed under section 34 to set aside the award does not lead to an automatic stay of the enforcement proceedings. The parties now have to file a separate application for stay of the enforcement proceedings. For a stay of the enforcement proceedings the award debtors may also be required to furnish security.
In Board of Control for Cricket in India v. Kochi Cricket Private Limited and Others ((2018) 6 SCC 287), the Supreme Court held that amendments to the Act would apply to court proceedings which have commenced, “in relation to arbitration proceedings”, on or after the commencement of the Amendment Act. Therefore, even if the arbitration was commenced prior to the amendments, any court application after the amendments came into force in relation to such arbitrations would be dealt with by applying the amended Act.
Therefore, for applications that are filed for setting aside an award (after 23 October 2015), the amended section 36 will apply irrespective of when the arbitration was commenced.

16. Thank You Ganesh Chandru Executive Partner
Head of International Arbitration Practice
Lakshmikumaran & Sridharan M: E: