Constitution of Commercial Courts and Appellate Courts in Kerala,
Whether Requires A Relook -- An Overview

(By K.L.Varghese*, Senior Advocate, High Court of Kerala)

 

I.INTRODUCTION:THE GENESIS OF THE COMMERCIAL COURTS ACT, 2015 AND 2018

 

The Commercial Courts Act, 2015 was preceded by two Law Commission Reports, the 188th Report and the 253rd Report. The 188th Report of the Law Commission of 2003 was on the‘Proposals for constitution of Hi-tech Fast Track Commercial Divisions in High Courts’, proposing that commercial suits of high pecuniary value, shall go directly before the ‘Commercial Division’ of the High Court adopting a ‘fast track’ procedure with high tech facilities of video conferencing and so on. The proposals were with the intent to send a clear message of faster disposal of commercial disputes in India. A wide definition was given to the term ‘commercial disputes’.¹As per the Commercial Division of High Courts Bill, 2009 the pecuniary value for commercial disputes was fixed at ` 5 crores. On 18th December 2009, the 2009 Bill was approved by the Lok Sabha. The Bill was referred to a Select Committee of the Rajya Sabha on 22nd December, 2009 which presented the report on July 29, 2010. Owing to reservations of various members of Parliament, the Bill was referred to the Twentieth Law Commission of India.One of the concerns was that by setting up of Commercial Divisions and Commercial Appellate Division in the High Court with the ‘Commercial Division’ acting as the Court of first instance, the Bill would be vesting original civil jurisdiction in the High Courts that did not have it and that the Bill was contrary to the recommendations of the Malimath Committee and the Satish Chandra Committee, which had recommended the abolition of the original jurisdiction of the High Courts. Another reason was that there was no statistical analysis or study for fixing the threshold of commercial disputes at ` 5 crores and no reason to exclude other civil disputes of similar value as the object is speedy disposal of such civil disputes.²

II. THE PASSING OF THE COMMERCIAL COURTS, COMMERCIAL DIVISION AND
      COMMERCIAL APPELLATE DIVISION OF HIGH COURTS ACT, 2015

After further scrutiny of various provisions of the Bill through discussion papers by an Expert Committee of judges and specialised legal professionals, the Commission came out with the 253rd Report titled ‘Commercial Division and Commercial Appellate Division of High Courts and Commercial Courts Bill, 2015’. This bill recommended setting up of Commercial Courts at the District level, except in territories where High Courts had ordinary original civil jurisdiction³, as also Commercial Division and Commercial Appellate Divisions in the High Courts.To that end, procedural changes in the form of amendments to the Civil Procedure Code, 1908 were also suggested.

 

 

The Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 (Act No. 4 of 2016dated 31.12.2016) was enacted by notification in Official Gazette of India dated 01.01.2016, and the ‘Statement of Objects and Reasons’readas under:

 

“The proposal to provide for speedy disposal of high value commercial disputeshas been under consideration of the Government for quite some time. The high value commercial disputes involve complex facts and question of law. Therefore, there is a need to provide for an independent mechanism for their early resolution. Early resolution of commercial disputes shall create a positive image to the investor world about the independent and responsive Indian legal system.”             (emphasis supplied)

 

“4.2 The Commercial Courts, the Commercial Divisions and the Commercial Appellate Divisions of High Courts that have been recommended are intended to serve as a pilot project in the larger goal of reforming the civil justice system in India. The goal is to ensure that cases are disposed of expeditiously,fairly and at reasonable cost to the litigant. Not only does this benefit the litigant,other potential litigants(especially those engaged in trade and commerce) are also advantaged by the reduction in backlog caused by the quick resolution of Commercial disputes. In turn, this will further economic growth, increase foreign investment, and make India an attractive place to do business.

 

Further, it also benefits the economy as a whole given that a robust dispute resolution mechanism is a sine qua non for the all-round development of aneconomy”.    (emphasis supplied)

 

In Para 7, It is stated that the proposed Bill shall accelerate economic growth, improve the international image of the Indian justice delivery system, and the faith of the investor world in the legal culture of the nation.”

 

Under the Act of 2015, Section 3(1)provided for constitution of Commercial Courts at District level with a proviso that no Commercial Courtshall be constituted for the territory over which the High Court has ordinary original civil jurisdiction.

 

Section 4 provided that in all High Courts having ordinary civil jurisdiction, the Chief Justice may constitute a ‘Commercial Division’of one or more benches of Single judges and nominate such Judges of the High Court having experience in dealing with commercial disputes to preside over the Commercial Division of the High Court.

 

Section 5 provides that after issuing notification under sub-section (1) of Section 3 or under sub-section (1) of Section 4, the Chief Justice of the concerned High Court shall, by order constitute Commercial Appellate Division having one or more division benches and under Section 5 (2), the Chief Justice shall nominate such judges of the High Court having experience in dealing with commercial disputes to be judges of the Commercial Appellate Division.

 

III. THE COMMERCIAL COURTS, COMMERCIAL DIVISION AND COMMERCIAL APPELLATE
      DIVISION OF HIGH COURTS (AMENDMENT) ACT, 2018 (HEREINAFTER  REFERRED TO  AS “ACT OF 2018”) EFFECTIVE FROM 20.08.2018 – SALIENT FEATURES

 

1.A close look at the Commercial Courts Act, 2015 in view of the amendments of 2018 reveals:

(i)    the pecuniary jurisdiction of the Commercial Courts has been reduced from
one crore to specified pecuniary value now being not being less than three lakhs rupees.

(ii)   the power conferred on the State Government by Section 3 is limited to‘constitute’ Commercial Courts

(a)   below the level of a District Judgei.e.,Subordinate Judge level(S.3(1)) ⁴;

(b)  at District Judge levelin territories having High Courts with ordinary original civil jurisdiction after consultation with such High Courts (S.3(1) proviso)(applicable to Bombay, Calcutta, Madras, Delhi and Himachal Pradesh)

(c)   and to designatesuch number of Commercial Appellate Courts at District Judge level after consultation with the High Court (S.3A) in territories over which High Courts have no ordinary original civil jurisdiction.

(d)  The power for constitution of‘Commercial Division’under Section 4(1) by the Chief Justice has been limited to High Courtsexercising ordinary original civil jurisdictionhowever without any change to Section 5(1)for Constitution of Commercial Appellate Division in the High Court by the Chief Justice.

 

IV.  CONSTITUTION OF COMMERCIAL COURTS IN KERALA

It was after the amendment Act of 2018,Commercial Courtsand Commercial Appellate Courtswere constituted for the first time in Kerala vide Government Notification dt. 24.02.2020 ⁵  designating the Principal Subordinate Judge’sCourt in 14 Districts as Commercial Courts vide S.R.O.No.176/2020 ⁶, and the pecuniary value was specified as not less than ` 3 lakhs (without upper limit) for the whole State and vide S.R.O.No. 177/2020, as per Section 3A,designating the ‘Principal District Court’in each district as the ‘Commercial Appellate Court’.

 

V. RELEVANCE OF SECTIONS 19 AND 20 OF THE COMMERCIAL COURTS ACT

The intention of the legislature for ‘constitution’ (or formation) of new courts for the Commercial Courts at District level (Subordinate Judge) and Commercial Appellate Court at District Judge level(where High Courts have no ordinary original civil jurisdiction) is supported by Section 19fastening liability on the State Government to provide necessary infrastructure to facilitate the working of a ‘Commercial Court’or a ‘Commercial Division’ of a High Court. Similarly, under Section 20, a further liability is cast on the State Government to establish necessary facilities, providing for training of Judges who may be appointed in the Commercial Courts and Commercial Appellate Courts upto District Judge level as also Commercial Division or Commercial Appellate Divisionin a High Court. This may indicate that the Commercial Courts and Commercial Appellate Courts have a unique distinction with other courts and require special skill in handling cases of Commercial Disputes and it should be treated as a novel mechanism or a forum.

 

In the aforesaid factual matrix, the question whether the very purpose of constitution of ‘Commercial Courts’ and ‘Commercial Appellate Courts’as above in Keralawould achieve the purpose for which such courts are constituted becomes relevant.By introduction of the Act of 2015, to a certain extent, ‘the formation of Commercial Courts and Commercial Appellate Division’ were useful in reducing the pending commercial cases before the High Courts in State/territories like Delhi, Bombay, Calcutta as the cases were transferred to the Commercial Courts constituted at the District Judge level. However, with the amendment in 2018 with drastic changes made, whether that would achieve the objectives envisaged, at least in States like Kerala, is doubtful and that is the issue which forms the basis of this paper with reference to notification in Kerala dt. 24.02.2020.

 

VI. MERITS AND DEMERITS OF AMENDMENT OF PROVISIONS IN THE 2015 ACT BY 2018 ACT

 

(i.)‘Commercial Disputes’ by the very definition under S.2(1)(c) contains 22 items with sub items (a) to (i) including transactions relating to commerce, trade and financeand so on including for export or import,admiralty and maritime law, carriage of goods, construction and infrastructure contracts, franchising agreements, contracts of various types etc.S.10 relates to proceeding in arbitration matters inter alia international commercial arbitration and domestic arbitration.Thus, a wide variety of disputes in anyway related to contracts or agreements fall within the definition. Any sort of adjudication device either by suit or ADR resolution including arbitrations also come within the purview of this Act.

 

(ii.) Reducing the pecuniary jurisdiction of Commercial Courts from ‘one crore rupees’ in 2015 Act to a meagre‘three lakhs rupees’in 2018 Act, in and by S.3(1), proviso 2 to S. 3,
and S. 3(1A) bring out the following anomalies:

 

(a) In States like Kerala (where High Court has no ordinary original civil jurisdiction), Commercial Courtsshould be deemed to have pecuniary jurisdiction from three lakhs rupees to any higher amount without limit, unless specifically limited to any amount. Of course, as per the prevalent law and practice, Subordinate Judgehad jurisdiction to deal with civil casesinvolving any amount above `10 lakhs. (Suits with pecuniary value of 10 lakhs rupees and less falls within the jurisdiction of the Munsiff Court.) That means, with the designation of ‘Commercial Court’as ‘Principal Sub Court’ in each District, as per notification dated 24.02.2020 as per Section 3(1) of the Act,the Subordinate Judge’s Court now has unlimited pecuniary jurisdiction as regards commercial disputes above 3 lakhs rupeesand all such commercial matters, including arbitration matters from the entire District have been transferred to the Principal Sub Judge’s Court.

 

(b) Regarding the appellate jurisdiction, both under Section 3A and Section 13 of the Act, the appeals from the judgments or orders of the Commercial Court below the level of a District Judge(i.e., Subordinate Judge level) shall be filed before theCommercial Appellate Courtat District Judge level.The judgment or order of the District Judge in the appellate jurisdiction shall be final and binding on the parties, since further appeal is prohibited[S.13(2)]of course with right to move theSupreme Court.

 

(c) High Court has no judicial role in Kerala as per 2018 Act with respect to Commercial Disputes if we go by the plain reading of the provisions.By the Scheme of the Act of 2018 as stated above, it seems, from a judgment or order of the Commercial Courtat Subordinate Judge level,appeal shall be filed before the Commercial Appellate Court at District Judge levelonly and judgment or order of the Commercial Appellate Court attains finality as per S. 3A read withS.12(3) and S.13(2), in which case the High Court has no judicial role to play (except for consultation by the State for appointment of Subordinate Judges and District Judges under S.3(3) and 3A of the Act of 2018).Interestingly, the cause list shows that the High Court has constituted Commercial Appellate Division.Of course, S. 5(1) provides that after issuing notice under sub-section (1) of Section 3,or order under sub-section (1) Section 4,the Chief Justice of the concerned High Court shall constitute Commercial Appellate Division. If so, what is the role of District Judge with appellate jurisdiction for unlimited amount beyond 3 lakhs rupees remains obscure.

 

Incidentally, inPranathmaka Ayurvedics Pvt. Ltd. v. Cocosath Health Products⁷, the Hon’ble High Court of Kerala while exercising jurisdiction under Art.227 considered the question whether an order under Section 9 of the Arbitration and Conciliation Act, 1996 passed by a Commercial Court (Principal Sub Court) is appealable under Section 13(1) of the Commercial Courts Act, 2015 i.e., before the Commercial Appellate Division (notified as the Principal District Court). Adverting to Section 13 (1) and (2) of the Commercial Courts Act the Hon’ble Court found that the Commercial Courts Act had restricted the scope for filing appeals from any order or decree of a Commercial Division or Commercial Court in accordance with provisions of the Act. It also found that an order passed under Section 9 was appealable under Section 37(1)(b) of the Arbitration Act which states that an appeal shall lie from an order granting or refusing to grant any interim measure. While holding that the right to appeal was a substantive right, the Court found that nothing contained in
Section 13(1) or Section 13(2) of the Commercial Courts Act curtails right of appeal. Hence the Hon’ble Court concluded that the Petitioners had not shown any reason for availing remedy of appeal against the impugned order in the original petition and while declining to invoke power under Article 227 of the Constitution, leave was granted to move the appellate court (District Court). It did not go into the question whether the Section 9 petition was heard by the competent ‘Court’ as defined under the Arbitration Act under Section 2 (1) (e).

Hence as the law now stands in Kerala, consequent to the notification, the ‘Commercial Court’ having been notified as the ‘Principal Sub Court’ and the Commercial Appellate Court as the ‘Principal District Court’ in the concerned District as regards arbitration matters also the Hon’ble High Court will not have any role except for appointment of arbitrators and extension of mandate of the Arbitrator under Section 29 A of the A & C Act. Interestingly, in States like Gujarat, though a similar notification as in Kerala was passed on 15.04.2019 designating Senior Civil Judges/Judges of Small Causes Court as Commercial Courts, as regards arbitration matters, a Division Bench in Kirtikumar Futarmal Jain v. Valencia Corporation⁸ held that notification designating Courts at District level, below or inferior to the ‘Court’ as defined in Section 2(1)(e) of the A and C Act would not be applicable being contrary to the Arbitration Act and effect has to be given to the Special statute. This was again reiterated and followed in a Division Bench ruling in Fun N. Fudu v. GLK Associates ⁹.

 

(d) Provisions relating to arbitration-whether counter-productive?The provision applicable to arbitration matters under Section 10 of the Act 2018 raises many questions.

(i) Section 10provides a remedy in respect of both international commercial arbitra-tions as also domestic arbitrations.As per Section 10(1),if an arbitration is an international commercial arbitration, all applications or appeals arising out of such arbitration under the provisions of the Arbitration and Conciliation Act, 1996which have been filed in a High Court,shall be heard and disposed of by the Commercial Division where such Commercial Division has been constituted by such High Court.

 

(ii) Under S.10(2)applications and appeals arising out of arbitration other than international commercial arbitration filed in States where the High Court has original civil jurisdiction(which is not applicable in Kerala), such applications shall be entertained by such ‘Commercial Division’if constituted in the High Court.In States like Keralawhere there is no immediate need in the event that international commercial arbitrations take place,which is the forum for applications or appeals arising out of the international commercial arbitration,as per the Commercial Courts Act remains obscure.

 

(iii) Section 10(3)indicates that in respect of applications relating to domestic arbitration (other than international commercial arbitration) “applications or appeals relating to such arbitration under the Arbitration and Conciliation Act, 1996, that would ordinarily lie before any Principal Civil Court of original jurisdiction, shall be filed and heard and disposed of by the ‘Commercial Court’ (Subordinate Judge’s Court) exercising the jurisdiction where such arbitration occurs and Commercial Court has been constituted”.

 

(iv)  2018 Act is silent as to the fate of arbitration matters having pecuniary value upto three lakhs rupees. There is yet another anomaly also, because as per the ‘specified value’,in the Commercial Court or Commercial Division, the pecuniary jurisdiction starts only from three lakhs rupees. If so, in case of an arbitral award for less than three lakhs rupees passed under the Arbitration Conciliation Act, what is the remedy, again remains obscure. Since there is no provision in the Commercial Courts Act, 2018, necessarily the said awards will have to be filed in District Courtas per the A & C Act, 1996which still prevails with amendments. This creates an embarrassing situation because the Commercial Court at Sub Judgelevel can entertain arbitral awards with pecuniary value beyond three lakhs rupees (upto any limit) whereas the District Courtwill have to entertain applications under the Arbitration Act relating to which pecuniary value is less than three lakhs.

 

VII. APPEALS UNDER S.13 OF THE COMMERCIAL COURTS ACT AND SECTION 37 OF
       THE ARBITRATION AND CONCILIATION ACT

a.As per S.13,appeals from the judgment or order of a Commercial Courtbelow the level of a District Judgei.e., Subordinate Judge, shall be filed in theCommercial Appellate Court which is the District Judge (S.13(1)).

 

b. From the judgment or order of a ‘Commercial Court’at the level of a District Judgeexercising original civil jurisdiction or ‘Commercial Division’ of a High Court, appeal has to be filed before the Commercial Appellate Division (S.13(1A).

 

c. Section 13(2) prohibits appeal from any order or a decree from a Commercial Division or a Commercial Court otherwise than in accordance with the provisions of the Act i.e., as per S.13 above.

 

d. It is significant to point out here that S.8 of the Act of 2015 bars Civil Revision application/petition against any interim order of a Commercial Division or Commercial Court including on the question of jurisdiction and such a challenge shall be only subject to S.13 appeal provision which however prohibits further appeal under S.13(2).

In this context, it may be apposite to refer to a judgment of the Supreme Court in Kandla Export Corporation and othersv. OCI Corporation & Ors.(2018) 14 SCC 715, referring to Section 13(2) of the Commercial Courts Act as amended in 2018, commencing with a non-obstanteclause reading, “notwithstanding anything contained in any other law for the time being in force or Letters Patent of a  High Court no appeal shall lie from any order or a decree of a Commercial Division or Commercial Court otherwise than in accordance with

 for constitution of a Commercial Divisionas stated above, but the provisions of this Act”(Commercial Courts Act) and Section 50 of the Arbitration and Conciliation Act, held that the Arbitration and Conciliation Act itself is a self-contained Code providing for various situations which cannot be ignored.

VIII. CONFLICTING PROVISIONS OF LIMITATION IN THE CASE OF APPEALS AS PER

THE ARBITRATION AND CONCILIATION ACT AND THE COMMERCIAL COURTS ACT,  2015  

             

Under Section 37(1) of the Arbitration and Conciliation Actas amended, appeal shall lie to the Court in respect of orders under Sections 8, 9 and 34. Under Article 116 of the Limitation Act, 90 days time has been provided; of course, subject to application to condone the delay under Section 5 of the Limitation Act, in case of delay.  Same time limit may be applicable under Section 37(2) from an order of the arbitral tribunal in respect of orders under sub-section (2) and sub-section (3) of Section 16 as also order of interim measures granted under Section 17 to the District Court (now the concerned Commercial Court). However, the provision for appeals under Chapter IV of the Commercial Courts Act, Section 13 restricts the period of limitation as 60 days from the judgment or order of the Commercial Court, both below the level of a District Judge as also Commercial Division of a High Court. Section 14 of the Act of 2018, again provides for expeditious disposal of appeals filed before the Commercial Appellate Court and the Commercial Appellate Division, within a period of 6 months from the date of filing the appeal.

 

Restricting the time limit for filing appeals and disposal of appeals are in the larger interest of expeditious disposal. However, since there is conflict between the Arbitration and Conciliation Act and the Commercial Courts Act, relating to limitation, a doubt may arise which is the provision applicable? Of course, Section 21 of the Commercial Courts Act provides as follows:

 

“21. Act to have overriding effect.– Save as otherwise provided, the provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law for the time being in force other than this Act”.                                        (emphasis supplied)

 

It is a settled position of law that when a special statute restricts the time limit, general provisions of the Limitation Act may not be applicable. However, as found by the Apex Court in Kandla Export Corporation & Ors.v.O.C.I. Corporation & Ors.(supra), after referring to Section 13(2) of the Commercial Courts Act as amended in 2018, commencing with a non-obstanteclause and Section 50 of the Arbitration and Conciliation Act, held that theArbitration and Conciliation Act itself is a self-contained Code providing for various situations which cannot be ignored giving binding force to the provisions in the Arbitration and Conciliation Act. There is no reason why same analogy cannot be adopted in the case of provision for limitation as regards appeals in arbitration cases to set at rest the conflict.

 

IX. WHETHER TIME LIMIT FOR DISPOSAL OF SUITS/APPLICATIONS OR APPEALS
               UNDER THE ACT OF 2018 IS PRACTICAL UNLESS COMMERCIAL COURTS ARE

CONSTITUTED TO DEAL WITH COMMERCIAL DISPUTES EXCLUSIVELY?

 

Section 14 of the Act of 2018,provides for expeditious disposal of appeals within a period of six months from the date of filing. Section 13(2) of the Act of 2018 read with Code of Civil Procedure incorporated as per amendments in 2018, effective from 03.05.2018, by Order XV-A of the Code of Civil Procedure under the head ‘CASE MANAGEMENT HEARING’ makes it obligatory on the Commercial Court and Commercial Division to fix the ‘First Case Management Hearing’within four weeks from the date of filing of affidavit of admission or denial of documents by all the parties to the suit (O.XV-A) and fix time limits for the purpose of Rule 2 viz.‘Case Management Hearing’ after hearing the parties and setting out issues of facts and law, the Commercial Court/Commercial Division shall ensure that the arguments are closednot later than six months from the date of the first case management hearing (Rule 3). But how far it will be practicable considering the different steps in the procedure to be followed, unless the Commercial Courts are constituted to deal with ‘commercial disputes’ exclusively,turns to be tested because usually in Sub Courts, at least in cities, there would be large number of criminal/sessions cases to be disposed, giving priority over other cases.

 

Section 18 empowers the High Court to issue notifications regarding the practice-directions to supplement the provisions of Chapter II of the Commercial Courts Act and/or the Code of Civil Procedure in so far as such provisions apply to the hearing of commercial disputes. At the same time, under Section 21, provisions of the Commercial Courts Act shall have overriding effect over the provisions of any other law for the time being in force. Since the Apex Court has already held that the Arbitration and Conciliation Act is a self-contained code and in case of conflict between two provisions as in case of Kandla Export Corporation(supra), how far this provision will be forceful remains to be tested in the case of similar situations, as we have seen in the case of limitation of time for filing appeals.

 

Section 21Awhich is added by the 2018 Act, power is conferred on the Central Government to make rules for carrying out the provisions of the Act of 2018.  Even though the Act is falling under the concurrent list of the Constitution of India, empowering both the Centre and the State to enact or supplement the provisions, the State Government is not conferred with any power even if difficulties arise (as in theState of Kerala) as stated above.

 

X. PENDENCY OF CASES RELATING TO DISPUTES UNDER ARBITRATION IN KERALA

In Kerala, in the number of ‘commercial disputes’ pending in Courts, there will be vast variation from place to place.  In the district of Wayanad, pendency of arbitration cases alone is to the extent of 37 whereas pending arbitration cases in the district of Ernakulam alone is around 1591 as on 18.01.2021¹⁰. This will indicate that the strength of Commercial Courts required in Wayanad may not be the same as in Ernakulam, and the yardstick to be used for the constitution of Commercial Courts will inevitably be different.  

 

XI. IMPLEMENTATION OF THE COMMERCIAL COURTS ACT, 2015 BY STATES WITH             

      HIGH COURTS NOT EXERCISING ORIGINAL JURISDICTION

In various High Courts which do not exercise original jurisdiction, Courts at District Level as well as at District Judge Level have been designated as Commercial Courts under Section 3 of the Commercial Courts Act. Further, in many such High Courts, a Commercial Division and Commercial Appellate Division have been set up in the High Court, (in some cases immediately after coming into effect of the Commercial Courts Act of 2015) which was limited to High Courts exercising original jurisdiction by the amendment of 2018. In States like Gujarat, the Commercial Appellate Division was set up as late as on 27.10.2020 and hence the implementation of the Commercial Courts Act, as amended in 2018 by constituting Courts at various levels has been different from State to State.

 

In the case of Andhra Pradesh and Telangana, the Commercial Division and Commercial Appellate Division in the High Courts were set up on 10th June, 2016 by gazetted Judicial notifications¹¹  and all the Principal District and Sessions Judges in the State of Andhra were notified as Commercial Courts on the same date by a Government Notification¹² . Subsequently, vide another notification of 3rd April, 2018¹³  partially modifying the earlier Government notification ‘Special Courts’ were set up as ‘Commercial Courts’ at ‘Vijayawada’ and ‘Visakhapatnam’ exercising jurisdiction over the limits of Municipal Corporation areas of Visakhapatnam, and Vijayawada respectively and the above Court set up has been functioning in the State.

 

In the State of Karnataka, initially vide notification no. RJ 65 of 2017 dated 30.10.2017, the Hon’ble High Court constituted a commercial appellate division in the principal bench at Bengaluru, Dharwad and Kalaburagi to deal with appeals arising from orders, judgments and decrees passed by commercial Courts. Thereafter, vide a subsequent notification on 12th February, 2018, in suppression of earlier circular dated 30.10.2017, exercising powers under Section 5(2) of the Commercial Courts Act, the Commercial Appellate Division headed by the The Chief Justice Bench was notified as the Court to deal with Commercial Appeals at Principal Bench, Bengaluru. Though various Commercial Courts were initially set up at the District level (Subordinate Judiciary) i.e. before the City Civil Courts as per notification dated 31.07.2018, vide a subsequent notification dated 09.10.2019, the Principal District Courts have been designated as Commercial Courts in the respective Districts except for Commercial Courts notified in Bengaluru City, Bengaluru Rural and Bellary as notified in 24.10.2019 and 20.06.2020.

 

In the case of Gujarat, the State Government vide notification dated 15th April, 2019, notified some Courts at District level, (Subordinate Judges Court) as Commercial Courts¹⁴
and Courts at the Principal District Judge Level as the Commercial Appellate Court.

 

However, as per the latest notification dated 27.10.2020 Commercial Appellate Division has been constituted in the High Court of Gujarat, Ahmedabad, to deal with appeal against the judgment or order passed by the Commercial Courts constituted under sub-section (1) of Section 3 of the Commercial Courts Act, 2015 namely, (i) Judge of City Civil Court, Ahmedabad; (ii) Additional District Judge; (iii) Senior Civil Judge (where the amount or value of the subject matter of the original suit or proceedings is more than Fifty Lakh Rupees) and Commercial Division of High Court which shows that Courts have been constituted/designated as ‘Commercial Courts’ both at the District level and at the District Judge level.

 

In the State of Bihar, Commercial Division and Commercial Appellate Division have been constituted in the High Court of Patna. Subsequently, in 2019, in various Districts, Commercial Courts have been set up both at the District level and District Judge level. For instance, in the District of Bettiah, the Court of the Sub-Judge I Bettiah is designated as the ‘Commercial Court’, with regard to commercial disputes where the value of suit or dispute is up to `1 crore and with regard to commercial disputes with value exceeding`1 crore, it is the District Judge, West Champaran, Bettiah which is the designated Commercial Court. The ‘Commercial Appellate Court’ is the District Judge, West Champaran, Bettiah with regard to appeals arising from judgment or orders passed by the ‘Commercial Court’ below the level of the District Judge. Court set up at the Sub Judge level.

 

XII.PROPOSAL OR SUGGESTIONS IN ORDER TO MAKE THE ACT MORE EFFECTIVE AND RESULT ORIENTED IN STATES LIKE KERALA

Explore the possibility of constituting Commercial Courts at District level (i.e. Subordinate Judge) as also District Judge level so that suits or applications or petitions with specified valueupto 40 lakhs rupees or so, (as decided by the High Court) can be  filed in Commercial Courts at Subordinate Judge’s level and similar suits, applications or petitions with specified value beyond 40 lakhs rupees (as deemed fit), shall be filed before the Commercial Court at District Judge’s level both functioning as Commercial Courts as per S.3(3) and S.3(1A). If the source of power under S. 3(1A) and Section 3(3) is felt doubtful, the necessity of such a power can be brought to the notice of the Central/State Governments so as to make necessary modifications by way of ‘proviso’ or ‘explanation’ effected by the concerned Governments, since many of the subjects as per definition of ‘Commercial Dispute’ under S.21(c) fall under the Concurrent List of the Constitution of India, however, keeping in mind the implications, S. 22(1) empowers the Central Govt. to make such provisions and that too within 2 years’ time limit as per the mandate of the statute.

 

Regarding the appeals,in such cases as above, a single bench of the High Court(Commercial Division) can be designated as the‘Commercial Appellate Court’ or deciding appeals from the judgments or orders of the Commercial Court at the Sub Judge leveland Commercial Appellate Division with two judges for deciding the judgments and orders arising from the Commercial Court at District Judge level.(S.5 of the Commercial Court Act read with Section 37 of the Arbitration and Conciliation Act as per the ratio of the decision in Kandla Export Corporation & Ors. (supra),ruling that the Arbitration and Conciliation Act itself is a self-contained code providing for various situations which can be relied on as source of power for appeal under S.37 of the Arbitration and Conciliation Act, 1996. In such cases, the application relating to international commercial arbitrations also can be decided by the High Court.

 

The Commercial Courts at the District level (Principal Subordinate Judge’s Court) shall be exclusively for dealing with the commercial disputes with pecuniary value beyond three lakhs up to specified value (`40 lakhs or any other amount) mentioned in case of the Commercial Court at District Judge level as proposed above for the time being, at least till amendments, if any, are brought in by the concerned governments. Considering the number of cases involved, there can be more than one Commercial Court at the Subordinate Judge’s level and District Judges level, as in the case of all District Courts which were dealing with arbitration cases, on the principle of coordinate power, notwithstanding the hierarchy.

(Alternatively)

 

The jurisdiction of Commercial Courts to entertain other type of cases over and above those concerning the ‘commercial disputes’ shall be subject to preference being given to deal with the commercial disputesensuring disposal of the cases strictly as per the timeline under O. XV-A of CPC – case management hearing.

 

Advantages

 

 

(a). It will ease the burden of Principal Subordinate Judge as also Principal District Judge functioning as the notified Commercial Court and Commercial Appellate Court respectively in the concerned Districts in the State and also enable the Commercial Courts to follow the case management hearing under Order XV-A of the Code of Civil Procedure.

 

(b). The alternative suggestion i.e.,constitution of Commercial Courts at the District level (Subordinate Judge’s Court) exclusively for dealing with individual items of disputes (for eg.Arbitration, partnership etc., in one Court and other subjects in other Courts) falling under the definition clause Section 2(1)(c), will help in streamlining the adjudication process. If sufficient number of Courts are constituted for the said purpose, pendency of routine works in the Commercial Courts dealing with same type of cases can be reduced and adjudication can be faster, avoiding multiplicity of proceedings and keeping uniformity in decisions.

 

(c). In subjects like arbitration (which will be more in number and volume of work), latest decisions can be discussed and relied on in identical cases which would save a lot of time for disposal. 

 

(d). High Court will have occasion/power to render binding decisions applicable throughout the State, sitting in appeal (Single Bench and Division Bench as per the pecuniary valuation now being followed i.e., upto `40 lakhs before the Single Bench and beyond `40 lakhs before the Division Bench) from the decrees/judgments/orders of Commercial Courts both at Subordinate Judge level and District Judge level.

 

(e) It would remove the anomaly created by the amendment brought inby Act 2018 in the Commercial Courts Act 2015, that the High Court has no judicial role except by virtue of S.5(1) to constitute Commercial Appellate Division in view of the possible argument that S.5(1) focuses only on the occasion to constitute the appellate forum based on the expression “after issuing notification under S.3(1) and S. 4(1)”rather than to look for source of power to constitute Commercial Appellate Division. The parties who are aggrieved by the decisions in appeal by the District Judge (attaining finality otherwise) can avail their chance in High Court before approaching the Apex Court.

 

In this context, the anxiety and anguish expressed by Justice M.Jagannadha Rao whose wisdom and in-depth knowledge could not be doubted as the former Chief Justice of our High Court, and subsequently, elevated as the Judge of the Supreme Court of India, later appointed as the Chairman of the Law Commission in the 188th Law Commission Report is evident from his observation;

 

“There is a recent spate of judgments of the US and UK Commercial Courts declaring that the Indian Court system has “collapsed” because there are delays upto twenty years or more, and that, therefore Indian defendants can be sued in US and UK Commercial Courts, even if there is no cause of action in those countries, provided the Indian defendant has a branch or local representative in that country or is trading in the stock exchange of that country. This trend has to be immediately reversed by bringing in ‘fast-track, high-tech Commercial Divisions’ in all the High Courts. The Commission is of the view that the overall benefits that may accrue by way of increased investment in India, both from domestic and foreign investors, will be in hundreds of millions of dollars and the expense in constituting these fast-track, high-tech Divisions in High Courts will only be a very small fraction thereof.” which is eloquent and self-speaking.

 

The raison d’être for the enactment of the Commercial Courts Act is that Commercial Disputes involving high amounts of money should be speedily decided as stated by the Hon’ble Apex Court in Kandla Exports Case (Supra). But thus far, if one looks back from the 188th Law Commission Report, a minor reform by introduction of a new High Court Division has transformed into a structural reform of the subordinate court structure on the civil side. Therefore, it is most imperative that given the legal framework, the implementation of the Act in Kerala has to be made more objective and purposeful because in the long run, this Act would have far reaching ramifications in the disposal of commercial cases in Kerala including prospects for the lawyering community.

 

CONCLUSION

While the Commercial Court Act of 2015 was enacted with the intention for speedy and quick resolution of high value commercial disputes, in view of the amendments brought about to the Act in 2018 and consequent designating of Principal Sub Court as Commercial Court with appeal to the Principal District Court as Commercial Appellate Court, the objectives for setting up such Commercial Courts seems to have been negated in practice.

 

 

 

 

 

 

* Assisted by Ranjith Varghese & Rohan Babu Joseph, Advocates.

1.   Law Commission of India, Report on Proposals for Constitution of Hi-Tech Fast-Track

  Commercial Divisions in High Courts, Report No.188, (December 2003), available at:

  <http:/lawcommissionofindia.nic.in/reports/188th%20report.pdf>[Accessed 18 January 2021].

2.   PROF.P.J.KURIEN COMMITTEE, Report of the Select Committee on the Commercial Division

  of High Courts Bill, 2009 as passed by Lok Sabha, (July 29, 2010), available at:

  <http:/wwwprsindia.org/uploads/media/Division%20High%20Courts/Select%2Committee%20 Report pdf>[Accessed 18 January 2021.

3.   High Courts having ordinary original civil jurisdiction viz. High Courts of Bombay, Delhi, Calcutta, Madras and Himachal Pradesh.

 

4.  Section 3. Constitution of Commercial Courts– (1) The State Government, may after consultation with the concerned High Court, by notification, constitute such number of Commercial Courts at District level, as it may deem necessary for the purpose of exercising the jurisdiction and powers conferred on those Courts under this Act:

      [Provided that with respect to the High Courts having ordinary original civil jurisdiction, the State Government may, after consultation with the concerned High Court, by notification, constitute Commercial Courts at the District Judge level:

      Provided further that with respect to a territory over which the High Courts have ordinary original civil jurisdiction, the State Government may, by notification, specify such pecuniary value which shall not be less than three lakh rupees and not more than the pecuniary jurisdiction exercisable by the District Courts, as it may consider necessary.]

      3A.Designation of Commercial Appellate Courts.– Except the territories over which the High Courts have ordinary original civil jurisdiction, the State Government may, after consultation with the concerned High Court, by notification, designate such number of Commercial Appellate Courts at District Judge level, as it may deem necessary, for the purposes of exercising the jurisdiction and powers conferred on those Courts under this Act.

      4. Constitution of Commercial Division of High Court.– (1) In all High Courts, having [ordinary original civil jurisdiction], the Chief Justice of the High Court may, by order, constitute Commercial Division having one or more Benches consisting of a single Judge for the purpose of exercising the jurisdiction and powers conferred on it under this Act.

      (2)The Chief Justice of the High Court shall nominate such Judges of the High Court who have experience in dealing with commercial disputes to be Judges of the Commercial Division.

5. Constitution of Commercial Appellate Division.– (1) After issuing notification under sub-section (1) of Section 3 or order under sub-section (1) of Section 4, the Chief Justice of the concerned High Court shall, by order, constitute Commercial Appellate Division having one or more Division Benches for the purpose of exercising the jurisdiction and powers conferred on it by the Act.

      (2)The Chief Justice of the High Court shall nominate such Judges of the High Court who have experience in dealing with commercial disputes to be Judges of the Commercial Appellate Division 5.        Kerala Government Notification vide G.O.(Ms) No. 51/2020/Home dt.24.02.2020 (Published as S.R.O.No.175/2020, in Kerala Gazette Extraordinary Vol. IX, No. 783 dt. 05.03.2020)

6.   In exercise of the powers conferred by sub-section (1A) of Section 3 of the Commercial Courts Act, 2015 (Central Act of 2016) the Government of Kerala in consultation with the High Court of Kerala, hereby specify the pecuniary value to be not less than three lakh rupees for the whole State for the purposes of the Act.

7.   2020 (6) KLT 620

8.   2019 SCC OnLine Guj. 3972.

9.   2019 SCC OnLine Guj. 4236.

10. National Judicial Data Grid. 2021. District And Taluka Courts Of India. [online] Available at: <https://njdg.ecourts.gov.in/njdgnew/?p=main/pend_dashboard&state_code=32~4&dist_code=2&est_code=undefined> [Accessed 18 January 2021].

11.   Commercial Division in the High Court was set up by exercising powers vested in the Hon’ble Chief Justice under Section 4 (1) of the Commercial Courts, Commercial Appellate Division of High Courts, Act 2015 (Act. No.4 of 2016) vide Notification No.18/SO/2016 dated 10.06.2016 Judicial Notifications, Notifications by Heads of Departments and Commercial Appellate Division was set up similarly vide Notification No. 19/SO/2016 dated 10.06.2016

12.   Vide G.O.Ms. No.74/Home (Courts. A), 10th June, 2016, all Principal District and Sessions Judges were notified as Commercial Courts by exercise of powers under Section 3 (1) of the Commercial Courts, Commercial Appellate Division of High Courts, Act 2015 by the Government of Andhra Pradesh in consultation with the High Court at Hyderabad.

13.   Vide G.O.Rt.No.251, Law (L, LA & J Home-Courts-A), 3rd April, 2018, Government Notification

14.  Notification No. GK/09/2019/SPC/102017/GOI-44/D dated 15th April, 2019.

15. Krishnaswamy, P. and Aithala, V., 2020. Commercial courts in India: Three puzzles for legal system reform. Journal of Indian Law and Society, [online] 11(1), pp.20-47. Available at:<https://jils.co.in/wp-content/uploads/2020/08/Commercial-Courts-in-India-Three-Puzzles-for-Legal-System-Reform.pdf> [Accessed 18 January 2021.

Constitutional Status and Jurisdictional Authority of the Governor of State

 (By O.V.Radhakrishnan, Senior Advocate, High Court of Kerala)

 

In our democratic system, exposition of the power of the Governor to control the Executive and the Legislature has overwhelming importance in the contemporary political scenario. In the Indian Constitution, Article 153 lays down that there shall be a Governor for each State. Article 154 provides that the executive power of the State shall be vested in the Governor and shall be exercised by him either directly or through officers subordinate to him in accordance with the Constitution. Sub-article (2) of 154 contains a restraint clause in specific terms that nothing in the Article shall be deemed to transfer to the Governor any functions conferred by any existing law on any other authority; or prevent Parliament or the Legislature of the State from conferring by law functions on any authority subordinate to the Governor.

 

A Governor under the Constitution is not an elected representative. A Governor is appointed by the President under Article 155 and under Article 156 the Governor shall hold office during the pleasure of the President. A Governor is an executive nominee and his appointment flows from the aid and advise tendered by the Council of Ministers with the Prime Minister as the Head, to the President. The President appoints the Governor on reciept of the advice from the Council of Ministers. The Governor being a nominee cannot have an overriding authority over the representatives of the people who constitute the House or Houses of the State Legislature. It follows that the Governor cannot be permitted to overrule the resolve and determination of the State Legislature or the State Executive which would negate the concept of responsible Government and would amount to interfering with the responsibility entrusted to the popular Government.

 

Under Article 163(1) of the Constitution, the mandatory requirement is that there shall be a Council of Ministers with the Chief Minister as the head to aid and advise the Governor in the exercise of his functions, except in so far as he is by or under the Constitution required to exercise his functions or any of them in his discretion. It is noticeable that in Article 74 there is no provision comparable to Article 163(1) and (3) that tendering of aid and advice by the Council of Ministers is not a precedent condition for the President to act with respect to matters he is authorised to exercise his functions or any of them under the Constitution. The President is to act in accordance with such advice tendered by the Council of Ministers. Necessarily, the Constitutional requirement to act according to the advice of the Council of Ministers fastens to the entire realm of President’s functions. There are certain express provisions providing for contingencies/cases where the Governor is to act in his discretion in respect of matters inter aliacovered by Article 239(2), 371-A(1)(b); 371-A(2)(b), 371-A(2)(f)
and paras 9(2) and 18(3) of the Sixth Schedule. The expression ‘acts in his discretion’ is used in relation to the powers and functions of the Governor in relation to the special responsibilities of the Governor. The discretionary powers are not left to the sweet will of the Governor but are remote-controlled by the Union Ministry which is answerable to Parliament for those actions. The Governor can exercise powers and functions without the aid and advice of his Councils of Ministers when he is required by or under the Constitution to act in his discretion, where he is required to exercise constitutional functions conferred on him eo nomineas the Governor. Under the Cabinet system of Government as embodied in our Constitution of India, the Governor is the constitutional or formal Head of the State and he exercises his powers and functions conferred on him by or under the Constitution on the aid and advice of his Council of Ministers save in spheres where the Governor is required by or under the Constitution to exercise his functions in his discretion¹. Article 200 enables the Governor to reserve for consideration any Bill which in his opinion if it became law, would so derogate from the powers of the High Court as to endanger the position which the High Court if designed to fill by the Constitution. Article 163(2) specifically provides that if any question arises whether any matter is or not a matter as respects which the Governor is by or under the Constitution required to act in his discretion, the decision of the Governor in his discretion shall be final and the validity of anything done by him shall not be called in question. Article 356 provides that the Governor can send a report to the President that a situation has arisen in which the Government of the State cannot be carried on in accordance with the provisions of the Constitution. If there has been a breakdown of the constitutional machineries the Governor cannot possibly act according to the advice of his Council of Ministers as a result of such report, the State Government itself would be suspended so that the Council of Ministers cannot be expected to aid and advice in the matter or to sign their own death warrant.

 

Signally, the Constitution does not contemplate a parallel administration within the State by permitting the Governor to go against the advice of the Council of Ministers in respect of matters the Governor is required to exercise his functions or any of them in the purported exercise of his discretion.

 

Under our Constitution it has been emphatically expressed that the Governor acts on the aid and advice of the Council of Ministers. The Constitution recognizes situations where by reason of peril to democracy or democratic principles, an action may be compelled which from its nature is not amenable to Ministerial advice. In the matter of grant of sanction to prosecute a Chief Minister or a Minister though normally the Governor is required to act on the aid and advice of the Council of Ministers, as a matter of propriety, the Governor may have to act in his own discretion and not on the advice of the Council of Ministers. There may be situations where by reason of peril to democracy or democratic principles, an action may be compelled which from its nature is not controlled by Ministerial advice. Such a situation may be where bias is inherent and/or manifest in the advice of the Council of Ministers. If the advice tendered by the Council of Ministers is vitiated by bias or by non-consideration of or non-application of mind to relevant factors, and if the Governor is not set free to act in his own discretion, there would be a complete breakdown of the rule of law inasmuch as it would then be open for Governments to refuse sanction in spite of overwhelming material showing that a prima faciecase is made out. In that event, the Governor would be right to act in his own discretion and grant sanction². One of the exceptions carved out to the requirements to act in accordance with the aid and advice of the Council of Ministers is where the decision of the Council of Ministers is wholly irrational or where the Council of Ministers, because of some incapacity or other situation, is disentitled from giving such advice or where it refrains from doing so as a matter of propriety or in the case of complete breakdown of democracy³.

 

Article 158(1) of the Constitution provides that the Governor shall not be a member of either House of Parliament or of a House of the Legislature of any State specified in the First Schedule. Article 160 enables the President to make such provision as he thinks fit for the discharge of the functions of the Governor of a State in any contingency not provided for in Chapter II of the Constitution. The power of the Governor to grant pardons, reprieves, respites or remissions of punishment or to suspend, remit or commute the sentence of any person convicted or any offence against any law relating to a matter to which the executive power of the State extends conferred under Article 161 of the Constitution is unfettered by any statutory provisions and that power cannot be altered, modified or interfered with in any manner whatsoever by any statutory provisions or Prison Rules. However, this constitutional power must be exercised by the Governor on the advice of the Council of Ministers.

 

 Article 168(1) makes it mandatory that for every State there shall be a Legislature which shall consist of the Governor. Though the Governor cannot be a “member” of either House of Parliament or the State Legislature, he is made a part of the State Legislature under Article 168(1) of the Constitution. Under Article 168(1), the Governor is made a component part of the Legislature and Bill passed by the Legislature must receive his assent in order to be an Act. The Governor being not a member of the Legislature, he cannot participate in the deliberations of either House of the State Legislature nor can he sit in the House or vote upon any issue during such deliberations⁴. The Governor is part of the State Legislature and his status for lack of a better word, is that of a constituent of the Legislature⁵. The Governor does not act as a statutory authority but the Governor is a formal or constitutional Head of the State Executive. The real executive powers are vested in the Ministers of the Cabinet. Where the constitution requires the satisfaction of the Governor, for the purpose of exercise of power by the Governor, such satisfaction is not the personal satisfaction of the Governor in his personal capacity but the satisfaction of the Governor in the constitutional sense as contemplated in a Cabinet system of Government. The President of India or the Governor is not a glorified cipher or a rubber-stamp. Discretionary powers are exercisable by the Governor only where they are expressly particularized in the Constitution. The Governor shall act with the aid and advice of the Council of Ministers save in a few well-known exceptional situations. Without being dogmatic or exhaustive, that situation relates to the choice of the Chief Minister by the paramount consideration that he should command a majority in the House, dismissal of the Government and dissolution of the House.

 

Article 174 of the Constitution is writ in strong diction and command that the Governor shall summon the House or each House of the Legislature of the State to meet at such time and place as he thinks fit, but six months shall not intervene between its last sitting in one session and the date appointed for its first sitting in the next session. Summoning the Legislative Assembly is the function of the Governor. It is an executive function of the Governor who acts as the Head of the State as well as a constituent of the Legislature. The Governor is, therefore, bound to act on the aid and advice of the Council of Ministers in the matter of summoning the House(s) of the Legislature. The Legislative Assembly of Kerala has framed the Rules of Procedure and Conduct of Business in the Kerala Legislative Assembly under Article 208 of the Constitution. The above Rules do not contain any provision in the matter of summoning the Legislative Assembly. Article 174(1) of the Constitution provides for summoning the Assembly and Chief Minister shall, in consultation with the Speaker, fix the date of commencement and duration of the session of the Assembly and advise the Governor accordingly. The words ‘the Governor shall from time to time summon the House or each of the House of the Legislature of the State’ have a mandatory tone and summoning the Legislative Assembly is not at the discretion of the Governor.

 

It is relevant to note that draft Article 153 came to be renumbered as Article 174 of the Constitution. A perusal of draft Article 153 (2) would reveal that a discretion was vested with the Governor to chose the time and place at which the House(s) were to be summoned by employing the words ‘as he thinks fit’. The draft Article 153(3) had given discretion to the Governor to summon or dissolve the House or House(s) of the State Legislature. However, draft Article 153 came to be renumbered as Article 174 and clause (3) contained in draft Article 153 was omitted in Article 174. The only legitimate and rightful inference that can be drawn in the final analysis is that the Framers of the Constitution altered their original contemplation and consciously decided not to vest discretion with the Governor in the matter of summoning and dissolving the House or Houses of the State Legislature by omitting clause (3) of draft Article 153(3) in Article 174, which authorised the Governor to summon or dissolve the House or Houses of Legislature at his own. Inevitably, the Governor can summon, prorogue and dissolve the House only on the aid and advice of the Council of Ministers with the Chief Minister as the head. The Governor, therefore, cannot decline to be guided by the advice of his Council of Ministers in the matter of summoning the Legislature on the proposal made by the Chief Minister except on discussion with respect to the conduct of any Judge of the Supreme Court or of a High Court in the discharge of his duties for which there is restriction imposed by Article 211 of the Constitution. No discretion is given to the Governor in the Rules of Procedure and Conduct of Business in the Kerala Legislative Assembly with respect to summoning or dissolving the House of the Legislature. In the matter of summoning the Legislative Assembly, the Governor is not to exercise his individual Judgement and it is not dependent on the subjective satisfaction of the Governor either.

 

Article 175 gives the Governor the right to address and to send messages to the House or Houses whether with respect to a Bill then pending in the Legislature or otherwise, and a House to which a message is so sent with all convenient despatch consider any matter required by message to be taken into consideration and may for that purpose require the attendance of members. Article 176 confers power on the Governor to address the Legislative Assembly and to inform the Legislature of the causes of its summons.

 

Another facet of Governor’s power to summon the House or each House of the Legislature of the State to meet at such time and place as he thinks fit from time to time to prorogue the House or either House and to dissolve the Legislative Assembly is unfettered by any limitations and may be exercised while the House stands adjourned under orders of the Speaker.⁶

Article 211 of the Constitution makes it clear that there is no restriction on discussion in the Legislature in respect of matters other than with respect to the conduct of any Judge of the Supreme Court or of a High Court in the discharge of his duties. Resultantly, any discussion on the legality or propriety of an Act of the Parliament is apparently not prohibited. The State Legislature if enacts a law which is not covered by its exclusive List II of Schedule VII but relates to a subject included in List I, it is ultra vires. Likewise, if both the Parliament and State Legislature make laws relating to the same concurrent subject, a question of conflict arises between the two enactments. As such again, the State law shall be void to the extent it is repugnant to or inconsistent with the Union Act as ordained in Article 254(1) of the Constitution. Therefore, any discussion on the legality or propriety of an Act of the Parliament would be an inane and futile operation in the constitutional context and looking at the constitutional consequence by the application of the principle which in reality is an aspect or amplification of the general rule laid down in Article 254 of the Constitution.

 

The legislative power is vested with the Governor under Chapter IV of the Constitution. Article 213(1) confers power on the Governor to promulgate Ordinances during recess of Legislature under the conditions for the exercise thereof provided in the Article. A law under Article 209 may be made by an Ordinance⁶. Article 213(2) provides that an Ordinance promulgated shall have the same force and effect as an Act of Legislature of the State assented to by the Governor and every such Ordinance shall cease to operate at the expiration of six weeks from the reassembly of the Legislature or if before the expiration of that period a resolution disapproving it is passed by the Legislative Assembly and agreed to by the Legislative Council, if any, upon the passing of the resolution or, as the case may be, on the resolution being agreed to by the Council; and may be withdrawn at any time by the Governor. It is well settled that the necessity of immediate action and of promulgating an Ordinance is a matter purely of the subjective satisfaction of the Governor. His satisfaction is not a justiciable matter.

 

Article 361 gives personal immunity from legal action to the President and to the Governor for their official acts including proceedings for Contempt of Court. Article 361(1) operates as an injunction against issuing the writs or directions by the Court against the President and Governors. Sub-article (2) of Article 361 directs that no criminal proceedings whatsoever shall be instituted or continued against the President or Governor of the State in any Court during his term of office. Sub-article (3) thereof is a constitutional injunction to Courts and other authorities that no process for the arrest or imprisonment of the President or the Governor of a State shall issue from any Court during his term of office. Article 361(4) deals with acts done by them in their personal capacity. In respect of personal acts done or purported to be done in respect of personal acts only a partial bar in the shape of notice for a period of two months prior to the institution of civil proceedings is imposed similar in nature to that to be found in Section 80 of the Code of Civil Procedure⁷. The Governor exercising statutory functions or powers ex-officio as in the case of Chancellor of University, such powers are not exercised by the Governor ‘by virtue of his office’ as Governor and the Chancellor of a University cannot claim the immunity conferred upon the Governor by Article 361(1) of the Constitution⁸. The Governor is not answerable to either House of the State or to Parliament or even to the Council of Ministers and his acts cannot be made subject to judicial review. In such a situation, unless he acts upon the aid and advice of the Council of Ministers he will become all powerful and this is an antithesis to the concept of democracy. In R.A.Mehta’s case, the stand of the Governor that she was not bound by the aid and advice of the Council of Ministers and that she had the exclusive right to appoint the Lokayukta was found to be not in accordance with the spirit of the Constitution and the view of the Governor was declared as unwarranted and logically insupportable³.

I end this essay by quoting the caveat from the Constitution Bench judgment of the Supreme Court in Nabam Rebia and Bamang Felix v. Deputy Speaker, Arunachal Pradesh Legislative Assembly⁵.

“Under Article 163(1) of the Constitution, the Governor is bound by the advice of his Council of Ministers. There are only three exceptions to this:

(i)  The Governor may, in the exercise of his functions, act in his discretion as conferred by the Constitution;

(ii)  The Governor may, in the exercise of his functions, act in his discretion as conferred under the Constitution; and

(iii)       The Governor may, in the exercise of his functions, act in his individual judgment in instances specified by the Constitution”.

 

Foot Notes

1.Samsher Singh v. State of Punjab (1974 KLT OnLine 936 (SC) = AIR 1974 SC 2192 para 10 - seven Judge Bench).

2. M.P. Special Police Establishment v. State of M.P. (2004 (3) KLT 856 (SC) = (2004) 8 SCC 788) (paras.12 and 19.).

3. State of Gujarat v. Justice R.A.Mehta (2013 (1) KLT SN 46 (C.No. 44) SC = (2013) 3 SCC 1).

4.  Union of India v. V.Basavaiah (1979 KLT OnLine 1083 (SC) = AIR 1979 SC 1415 paras.14,19, 24-25).

5.  Nabam Rebia and Bamang Felix v. Deputy Speaker, Arunachal Pradesh Legislative Assembly (2016 (3) KLT SN 77 (C.No. 66) SC = (2016) 8 SCC-1 para.388 at 249).

6.  State of Punjab v. Satya Pal Dang (1969 KLT OnLine 1063 (SC) =AIR 1969 SC 903 at 912).

7.  Prabhakar V. Sinari v. Shankar Anant Veriecker(1969 KLT SN 2 (C.No. 6) SC = AIR 1969 SC 686).

 

 8.Bhool Chand v. Chancellor, Kurushethra University (1968 KLT OnLine 1156 (SC) = AIR 1968 SC 292). 

 

2020 (3) KLT 17 – Is it A Good Precedent

(By P.B.Menon, Advocate, Palakkad)

 

The above second appeal relates to a Will. Relevant provisions in the Will are 1) the entire assets are bequeathed to the wife of the testator absolutely, 2) the other provision in the Will is that if any property is left behind by the legatee the same should go to their foster daughter.

 

Evidently, in interpreting this Will two views are possible, one is, as the entire assets are given to the legatee wife absolutely, the second clause cannot prevail as it may be construed as repugnant to the first clause. The other view is that the second clause is not at all repugnant to the first clause. The same does not offend the first clause, as such subsequent provision does not in any way affect the absolute rights of the legatee to deal with the property in any way, by sale, gift or any other transaction including even a Will choosing someone else other than their foster daughter. The second provision which is an independent clause not affecting the first clause will come into effect only when the legatee has left behind some property; if so how does the same becomes repugnant to the first clause of absolute right of the legatee. In other words the absolute rights conferred on her lasts upto the time of her death only. After that what should happen is what is provided for in the Will, in case any property is left behind. It is that which makes a difference in interpreting such Wills.

 

After  citing  several  decisions  the  court  finally  relies  on  2010 (4) KLT SN 52 (C.No.59) SC = AIR 2011 SC 294, a relevant portion of the judgment is extracted in this judgment.

 

The first part of that paragraph reads this “Where the intention of the testatrix to make an absolute bequest in favour of her daughters in earlier part of Will was unequivocal, use of expression “after demise of my daughters the retained and remaining properties shall devolve on their female children only”, in subsequent part of Will would not strict sensu amount to a bequest contrary to the one made earlier in favour of the daughters of the testatrix. The expression does not detract from the absolute nature of the bequest in favour of the daughters.  All that the testatrix intended to achieve by the latter part was the devolution upon their female off-springs all such property as remained available in the hands of the legatees at the time of their demise. There would obviously be no devolution of any such property upon the female offspring in terms of the said clause if the legatees decided to sell or gift the property bequeathed to them as indeed they had every right to do under the terms of the bequest. Seen thus, there was no real conflict between the absolute bequest which the first part of the Will made and the second part which dealt with the devolution of what and if at all anything that remains in the hands of the legatees. The two parts operate in different spheres, namely, one vesting absolute title upon the legatees with rights to sell, gift, mortgage etc., and the other regulating, devolution of what may escape such sale, gift or transfer by them”.

 

The second part in continuation of this paragraph reads thus: “The latter part was redundant by reason of the fact that the same was repugnant to the clear intention of the testatrix in making an absolute bequest in favour of her daughters. It could be redundant also because the legatees exercised their rights of absolute ownership and sale thereby leaving nothing that could fall to the lot of the next generation females or otherwise. The stipulation made in the latter part did not in the least affect the legatees being the absolute owners of the property bequeathed to them. Corollary would be that upon their demise estate owned by them would devolve by the ordinary law of succession on their heirs and not in terms of the Will executed by the testatrix”.

 

Which part of this paragraph is good in law, certainly not the second half. It is a cardinal principle of interpretation/so called golden rule of interpretation that the intention of the testator is always important and if effect could be give to all the clauses in the Will without affecting the intention of the testator which is paramount it is that interpretation/construction that should prevail.

 

By giving effect to the second part of that paragraph in the judgment of the Hon’ble Supreme Court, the High Court has gone wrong in considering the claim of the foster daughter and preferring the legal heirs of the legatee. The net result is the intention of the testator is totally eschewed from consideration. Why was the so called arm chair theory/the harmonious construction theory developed by courts of law not given effect to, in this case.

 

Was justice rendered to the foster daughter in this case and really who are benefitted, ones, not thought of by the testator or legatee.

Arbitrators Duty of Disclosure

(By V.B. Hari Narayan, Advocate, High Court of Kerala & Toshika Soni, Legal Intern)

The recent decision of the U.K.Supreme Court in Halliburton Co. v Chubb Bermuda Insurance Ltd.[2020] UKSC 48 has laid down the principles governing the duty of disclosure on the part of arbitrators.

The dispute arises out of three references of arbitral proceedings surrounding the Deepwater Horizon drilling rig in the Gulf of Mexico in 2010 where the well was being plugged in the context of complete abandonment. The rig was owned by Transocean Holding LLC (hereinafter “Transocean”); leased to BP Exploration & Production Inc.; and cementing & well-monitoring was being conducted by Halliburton. Both Halliburton and Transocean were insured with Chubb Bermuda Insurance Co. (hereinafter “Chubb”) under the Bermuda Form Policy (hereinafter “BFP”) which was a high excess general commercial liability insurance with similar material policy term and standard ad-hoc arbitration clause calling for 3-arbitrator tribunal in cases of dispute. After an explosion in the well causing significant loss to life and property, Transocean and Halliburton paid their respective settlements and fines to individual claimants, US government and Plaintiff Steering Committee which Chubb refused to indemnify against citing ‘unreasonable settlements’. This was disputed by Halliburton and Transocean in separate arbitration proceedings initiated against Chubb. In the arbitration between Halliburton and Chubb, Prof.Park and Mr.Cole were appointed as party-appointed arbitrators respectively and after failure to reach consensus, the High Court appointed Mr.Rokison as Chairman of the tribunal.
Mr. Rokison disclosed to Halliburton, his appointment by Chubb to various previous arbitral references, which was not considered impediment to his appointment by the High Court.

Subsequently, he was appointed as the party-appointed arbitrator by Chubb in the arbitral proceedings with Transocean wherein Mr. Rokison disclosed his previous reference to Transocean but failed to disclose the subsequent reference to Halliburton. In a third reference with Chubb, he was appointed as substitute arbitrator and failed to disclose the same to Halliburton whose attorneys, upon finding the same, addressed a letter to Mr.Rokison highlighting his continuing duty of disclosure of conflicts of interest under the Orange List of the IBA guidelines.

Mr.Rokison replied with an apology stating that he played a different role in the Transocean and Halliburton arbitrations, he received no new information other than that on public record and his willingness to resign to ensure fairness. He also specified that references 2 and 3 were considering circumstances of policy construction between the parties and may be dismissed at a preliminary stage, whereby eliminating the degree of overlap with the first reference with Halliburton that examines reasonableness of settlement. The Court of first instance found that there was no appearance of bias in Mr.Rokison’s conduct but there is a duty to disclose multiple appointments that lead to reasonable appearance of bias. The Court of Appeal also confirmed the finding which was before Supreme Court to test the existence of Mr.Rokison’s unconscious bias. The following issues were considered by the Court;

I. Whether and to what extent an arbitrator may accept appointments in multiple references concerning the same or overlapping subject matter with only one common party without thereby giving rise to an appearance of bias; and

II.  Whether and to what extent an arbitrator may accept the multiple references described in the first issue without making disclosure to the party who is not the common party.

The challenge relating to Mr.Rokison’s unconscious bias was on the grounds that acceptance of benefit of a paid appointment on Chubb’s nomination during seat in
Reference 1 tribunal; unfair advantage of Chubb as common party to two related arbitrations with a joint arbitrator while Halliburton was ignorant of the proceedings; Chubb’s extended ability to communicate with Mr.Rokison in Reference 2; and lack of proper regard to Halliburton’s interest in the fairness of the procedure. Further, intervenors like London Court of International Arbitration (LCIA) and International Chamber of Commerce (ICC) reflected on international practice stating that overlapping appointments may cause justifiable doubts as to impartiality of arbitrator. While Chubb maintained that the Court was wrong in inferring a legal duty to disclose the subsequent appointments to Halliburton as there was no apparent bias which may violate a good practice but not an obligatory norm. Further, intervenors like London Maritime Arbitrators Association (LMAA) and Grain and Feed Trade Association (GAFTA) reflected on international practice stating that multiple appointments in related subject matters were common in sports, maritime and commodities arbitrations and did not attract a duty to disclose.

Lord Hodge delivered the majority judgement where he highlighted that it is axiomatic for the arbitrators to be impartial. The Court examined whether ensuring no apparent bias involved an obligation to make disclosures about multiple appointments. Lord Hodge discussed the findings in four major parts. Firstly, discussing the duty of impartiality of arbitrators, he found the basis for the same in S.1 and S.33 of the English Arbitration Act 1996. He emphasised on the objective test laid by Lord Hope of Craighead from perspective of a fair-minded and informed observer finding a real possibility of a bias. He held that the lens for the same is objective and needs to be tested in relevant context in the factual matrix of every case. He drew a distinction between significance of impartiality in litigation and arbitration, as well as, of a party-appointed and a neutral arbitrator. Secondly, with regards to the duty of disclosure, he established that in English law and international practice generally, such a duty exists when multiple appointments in similar subject matter arbitrations might raise justifiable doubts to impartiality of arbitrator, as under S.33 of the 1996 Act. Thirdly, he acknowledged the private nature of arbitration and the duty of arbitrators to ensure confidentiality and privacy of parties and dispute under the English seat and in English boundaries. Balancing this with the need to disclosure, the Court held that this duty was not absolute, it could be parted with as has been a part of international practice in such cases where reasonable threat of bias can arise. The Court outlined varying practices cited by LCIA, ICC as against LMAA and GAFTA; suggesting that under Bermuda Form arbitrations, confidentiality to the extent of name of common party and subject matter was often parted to ensure fairness and impartiality. This could also be done with express consent of parties in subsequent reference or till extent of anything expressly disagreed to be disclosed. This information shall then be equitably used only for the purpose of testing suitability of arbitrator and his independence. Fourthly, discussing the failure to disclose being detrimental to impartiality of proceedings, the Court held that this could show a lack of regard for one party’s interest in fairness which could be in some cases, concluded to be apparent bias. With regards to the question of unconscious omissions or unconscious bias, the Court held that the arbitrator is even beyond his knowledge, under an obligation to make reasonable enquiries to eliminate any bias to ensure impartiality. In the present case, they noted that this failure to disclose failed to give Halliburton an opportunity to address their concerns of fairness or frame objections to Mr.Rokison. It also acts as an impediment to the remedy given to the party under S.24 (1) (a) of the 1996 Act where Court may intervene when conduct is less than proper.

With regards to Issue 1, the Court held that answers may be sought from the statute which does not provide for explicit decline of multiple appointments but seeks impartiality and fairness. Where an arbitrator accepts appointments in multiple references concerning the same or overlapping subject matter with only one common party, this may, depending on the relevant custom and practice, give rise to an appearance of bias. With regards to Issue 2, the Court held that Mr.Rokison was under a legal duty to disclose his appointment in reference 2 to Halliburton because at the time of that appointment the existence of potentially overlapping arbitrations with only one common party was a circumstance which might reasonably give rise to the real possibility of bias. Mr.Rokison’s failure to disclose his appointment in reference 2, which was a potentially overlapping arbitration with only one common party, was a breach of his legal duty of disclosure. Being a fair-minded and informed observer, however, the Court said it would not infer from the oversight that there was a real possibility of unconscious bias on Mr.Rokison’s part due to lack of clarity on disclosure law in England, time sequence of the three references justifying disclosure to Transocean; and the balanced mail response with a willingness to resign to ensure impartiality.

Halliburton and Chubb present a landmark case that draws unparalleled clarity towards the English legal position on disclosure by arbitrators. It sets an important precedent that there exists a legal duty on arbitrators to disclose multiple appointments on the same subject matter. Impartiality and confidentiality are both intrinsic tenets of the framework of arbitration and the judgement brings balance to reconcile these two seemingly conflicting virtues in the given dispute. An important observation of the Court is that the disclosure extends not only to cases where failure to disclose would lead to apparent bias but also to where it might lead to reasonable possibility of bias because such a failure to disclose might become a factor to justifiable doubts to impartiality in itself. It encapsulates the international practice on disclosures as largely pointing towards a legal duty to disclose in multiple appointments, except where specialised regimes like maritime, sports or commodities exist, as pointed by intervenors from LMAA and GAFTA. Thus the Court has declared that under English Law, arbitrators are bound to be impartial and have a legal duty to disclose their engagement in multiple appointments in the same subject matter with one common party.

Beating the Embargo on Damages

(By Meera Shankar, Advocate, Kochi and Former Executive Director, NBCC (I) Ltd.)

That the arbitrator cannot rewrite a contract or alter its terms, is too well settled to merit any quarrel. In case after case, the Courts have held the arbitrator to be absolutely bound by the terms of the contract. In The New India Civil Erector v. ONGC (J.T.1997 (2) SC 633) the Supreme Court had ruled:“It is axiomatic that the arbitrator being a creature of the agreement, must operate within the four corners of the agreement and cannot travel beyond it. More particularly, he cannot award any amount which is ruled out or prohibited by the terms of the agreement.”

This proposition however, presupposes a level playing field, where the terms of the contract are negotiated and agreed to, between parties, equal in bargaining power. Unfortunately recent trends show that, that is not always the case. The increasing use of standard form contracts by large Corporate and Government bodies, make it difficult for the contractors to be able to strike a good bargain. As if these standard contracts are not enough, the introduction by the owner of onerous and self-serving clauses into the contract, compound the contractor’s problem. But the hapless contractor has no choice but to agree.

The ‘no damages’ for delay, is one such clause that is increasingly being incorporated by powerful owners into their contracts to insulate themselves from liability that would otherwise have been cast upon them by law. By agreeing to this clause the contractor consents to waive his right to damages for the delays caused by the Owner; a right that is provided for under S.55 and S.73 of the Contract Act. In recent times, Courts, recognizing the oppressive and unreasonable nature of such clauses, have not hesitated to step in to provide relief to the hapless contractor. In doing so they have recognized the right of the Arbitrator in extreme cases, to circumvent such oppressive clauses.

‘No Damages’ clause held void 

In Simplex Concrete Piles (India) v. UOI((2010) ILR 2 Del.699) a Single Bench of the Delhi High Court went to the extent of holding a ‘no compensation’ clause void. The issue before the Court was whether the Arbitrator was barred from awarding damages to an aggrieved contractor because of a clause in the Contract prohibiting the award of such damages. There were two clauses in the Contract that enabled the owner to extend the time of completion of individual items. Condition 11(A) had seven reasons with reasons (i) to (vi) referring to force-majeure, abnormally bad weather, fire, civil commotion, strike or lockout, delays by nominated suppliers or sub-contractors. Reason (vii) was a residuary clause which said “by reason of any other cause, which in the absolute discretion of the Accepting Officer is beyond the control of Contractor”. Clause 11(B) provided for extension for reasons arising out of non-availability of stores and tools. Clause (C) further provided that when the time was extended under either of the aforesaid clauses, the contractor would not be entitled to make any claim for damages. 

There were delays caused by the Owner, for which the contractor claimed damages. The UOI argued that these claims were not maintainable in view of Clause 11(C) . Their argument was that the residuary clause (vii) was wide enough to include within its ambit delays caused by the Owner. Rejecting this contention the Arbitrator held that the residuary clause had to be read ejusdem generiswith the preceding clauses and the scope of the clause could not be widened to include delays over which the Owner had control. The question before the High Court was whether the Award could be faulted for being in derogation of the express terms of the Contract.

The Court after a detailed examination held provisions 11(A) to (C) to be void under S.23 of the Contract Act inasmuch as they took away the rights conferred by Ss.55 and 73 of the said Act. These two sections, according to the Court, were the heart and foundation of the Contract Act and any Agreement that took away this right destroyed the edifice of the Act. The Court went on to hold that “Contracts could not be allowed to be broken at will, without the threat of consequences and any clause that permitted such a situation would be against public policy and hence void.”

General Manager, Northern Railways v. Sarvesh Chopra

The trend of circumventing such unreasonable and oppressive clauses had begun some eight years earlier in General Manager, Northern Railways v.Sarvesh Chopra (2002 (1) KLT OnLine 1044 (SC) = (2002) 4 SCC 45). Without downplaying the need for the Arbitrator to decide according to the terms of the contract, the Supreme Court had held that it was possible for a contractor in a given set of circumstances, to avoid the rigours of such clauses. Referring to S.55 of the Indian Contract Act, the Apex Court observed:
”it appears that under the Indian law, in spite of there being a contract between the parties whereunder the contractor has undertaken not to make any claim for delay in performance of the contract occasioned by an act of the employer, still a claim would be entertainable in one of the following situations: (i) if the contractor repudiates the contract exercising his right to do so under Section 55 of the Contract Act, (ii) the employer gives an extension of time either by entering into supplemental agreement or by making it clear that escalation of rates or compensation for delay would be permissible, (iii) if the contractor makes it clear that escalation of rates or compensation for delay shall have to be made by the employer and the employer accepts performance by the contractor in spite of delay and such notice by the contractor putting the employer on terms.”

The Court ruled that if the Arbitrator, from the material placed before him, was satisfied that any of the above circumstances existed, it would be open to him to award damages to the contractor by giving a go-by to the ‘no damages’ or any such prohibitory clause in the Contract. 

Section 55. Indian Contract Act 

In order to understand the full import of the Sarvesh ChopraJudgement, it is necessary to have a closer look at S.55. This section deals with the effect of the failure of a party to a contract, to perform within the time agreed, in cases(a) where time is of the essence and (b) where time is not of the essence. Where time is “of the essence” of an obligation, “a failure to perform by the stipulated time will entitle the innocent party to (a) terminate performance of the contract and thereby put an end to all the primary obligations of both parties remaining unperformed; and (b) claim damages from the contract -- breaker on the basis that he has committed a fundamental breach of the contract, depriving the innocent party of the benefit of the contract (“damages for loss of the whole transaction”).” If, instead of avoiding the contract, the contractor accepts the belated performance of reciprocal obligation on the part of the employer, the innocent party, i.e., the contractor, cannot claim compensation for any loss occasioned by the non--performance of the reciprocal promise by the employer at the time agreed, “unless, at the time of such acceptance, he gives notice to the promisor of his intention to do so”. (Chitty on Contracts - Twenty-Eighth Edition, 1999, p.1106.) . On the other hand, if time is not of the essence of the contract, such failure would not entitle the aggrieved party to put an end to the contract. He would only have the right to sue for damages, which he can do, unlike in the earlier case, regardless of whether he has or has not given notice. 

Notice is the key:

In order to fall within the exception carved out in the Sarvesh ChopraJudgement, it is essential for the aggrieved contractor to have put the employer on notice. The notice will have to call upon the delaying employer, in no uncertain terms to perform within the period stipulated in the notice, and also state that if he fails to so act, the contractor would be entitled to claim damages for the delay, notwithstanding the provisions of the contract. Of course having agreed to the ‘ no damages’ clause, it would not be open for the contractor to do so at the first instance of delay. Only in the face of continued and persistent failure of the Employer to perform his part of the obligation will the contractor be justified in taking recourse to such a course of action. And it is only if the Arbitrator is satisfied from the records before him that there has been persistent delay on the part of the employer which has not been removed even after being put to notice, that he would be entitled to award damages to the contractor, ignoring the express prohibition in the contract. 

Other cases:

Subsequent to the Sarvesh ChopraJudgement there have been other cases where the Courts have leaned against too rigid an interpretation of the contract clauses. In K.N. Satyapalan v. State of Kerala((2007) 13 SCC 43) the specific issue for consideration before the Supreme Court was whether the Arbitrator had exceeded his jurisdiction in awarding a claim for escalation when the original contract did not contain an escalation clause and the Supplementary Agreement executed at the time of grant of extension of time specifically barred the payment of escalation. Noting from the evidence on record that the contractor had agreed to the conditions of the Supplementary Agreement under duress, the Supreme Court held that the Arbitrator was within his right in allowing the contractor’s claim for escalation. It was further held that the contrary view taken by the High Court “was on a rigid interpretation of the terms of contract and the Supplementary Agreement executed between the parties, which was not warranted by the turn of events.”

In M/s. Asian Techs Ltd v. UOI ((2009) 10 SCC 354) the completion time stipulated in the Contract was 24 months. There was a ‘no compensation for delay ‘ clause in the Agreement. The work remained suspended from time to time due to non-finalization, of the designs and also due to suspensions ordered by the employer and the end user. To cover the delays caused by these hold--ups, the employer gave an unconditional extension of time to the contractor. But frustrated by these delays, the contractor requested the employer in writing, to make payment in terms of the agreement and to close the agreement. They asserted that they were aggrieved by the continued suspension of works and the consequent increase in the cost of construction. They were however persuaded by the Employer to continue with the work on the assurance that fresh rates would be worked out to compensate the contractor. Following the failure of the employer to do so, the contractor invoked arbitration. The Arbitrator allowed the contractor’s claim for compensation. The High Court set aside the award in respect of all the claims, barring one, on the ground that they were in “conscious disregard of the terms of the Contract.” This decision was reversed by the Supreme Court, holding that in the facts and circumstances of the case, the’ no compensation clause’ would not apply. It would be relevant here to reproduce an extract from the Judgement:

“13. The letter dated 24.11.1988 makes it clear that the appellant was not ready to carry out the work beyond the contracted period otherwise than on separate work orders, and the subsequent correspondence like the letter dated 11.10.1989 makes it clear that it was on the specific assurance given by the respondent to the appellant to continue the work and that the rates would be decided across the table that the appellant went ahead with the work. Hence, in our opinion it is now not open to the respondent to contend that no claim for further amount can be made due to clause 11(C) and that the arbitrator would have no jurisdiction to award the same.”

The Supreme Court also went on to hold that clause like 11(C) only prohibits the Department from entertaining a claim for compensation, but it did not prohibit the Arbitrator from entertaining it.

The issue before the Supreme Court in Food Corporation of India v. M/s A.M.Ahmed & Co.(AIR 2007 SC 829) was whether the Arbitrator had exceeded his jurisdiction in awarding enhanced rates to the contractor when there was no escalation clause in the Agreement. The respondent claimant was awarded the contract for carrying out the work of clearing, forwarding, stevedoring etc., from the Port at Tuticorin for the period and from 08.04.1981 to 07.04.1983. During the currency of the contract there was a statutory increase in the wages of the workmen employed in cargo handling. The contractor immediately wrote to FCI requesting that they be compensated for the unexpected increase in expenditure failing which they said that they would discontinue the work. However they were persuaded by FCI to continue with the work, which they did, relying on FCI’s assurance that their request was under positive consideration. It was only after the work was completed by the contractor, that they were informed that their request for increased rates had not been agreed to by the Competent Authority.

On the aforesaid facts and circumstances, the Supreme Court held that despite the absence of the escalation clause the Arbitrator was within his right in awarding enhanced rates to the contractor.

Legislative backing

This slow but sure attempt by the judiciary to help create a level playing field for the contractor and the employer alike has received a shot in the arm with the amendment to S.28(3) of the Arbitration and Conciliation Act, 1996 by the Amendment Act of 2015.
This amendment has far-reaching consequences, though strangely its’ significance has largely gone unnoticed. The substitution of the words “in accordance with” by the words “take into account” has given the Arbitrator greater flexibility while dealing with unreasonable clauses in an Agreement. As has been stated in the 246th Report of the Law Commission the purpose of the said amendment was to overrule the effect of ONGC Ltd. v. Saw Pipes Ltd.(2003 (1) KLT OnLine 1103 (SC))where the Supreme Court had held that any contravention of the terms of the contract would result in the award falling foul of Section 28 and consequently being against public policy.

So while the Arbitrator continues to be bound by the contract and cannot as a rule, act in total disregard of the same, he now has the liberty to carve exceptions into burdensome clauses taking into account the circumstances and the conduct of the parties. This indeed is a welcome trend.