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.

Artificial Intelligence and Law

(By V. Gokul Pillai, 4th Year EEE Student, Amrita University, Amruthapuri, Kollam)

The approach of this study was to highlight the importance of Convolutional Neural Network (CNN) and Natural Language Processing (NLP) in the legal domain. The proposed technique was of Bag of Words technique i.e., one of the NLP tool to analyze the text of the court proceedings to extract the keywords from the text and CNN to classify each case into its charges (as per judicial law of India), to predict whether it is a bailable or a non-bailable offence and to give an approximate judicial decision. The results showed that this method has an average accuracy of 85% in prediction based on the IPC (Indian Penal Code) which is extracted from the case files, judicial pronouncements and the constitution of India.

Gokul Pillai explains that from the perspective of a developer, Legal data is heavy and generally the requisite information is bundled with irrelevant information. Under such circumstances, the use of a natural language processing toolbox to obtain required data (keywords) is indispensable. The bag of words models used in the experiment will learn vocabulary from all the documents and then models each document by counting the number of times each word appears. By using this Bag of Words algorithm, the required keywords can be obtained from the document at ease, opines Gokul Pillai. In this model, a text is represented as the bag of its words, ignoring grammar and arrangement of the words but keeping multiplicity. The Bag of Words methods are used when the frequency of each word in the context is to be ascertained, and by such the keywords in a case can be identified. It is those keywords so ascertained that will be the features of that case. The next technique in this artificial intelligence model propounded by the authors in this work is called Convolutional Neural Network (CNN) used for the classification purpose. Since the convolutional neural network were originally designed to perform deep learning task, it uses the concept of a “convolution”, a sliding window or “filter” that passes over the array of input, identifying important features and analyzing them one at a time thereby reducing them down to their essential characteristics and repeating the process until the final product is made out.

In this paper the last layer of CNN represents 26 varieties of charges which are taken from the constitution of India. After identifying the charges, the proposed model will be able to separate it as bailable or non-bailable cases. And for each charge, there is a separate verdict that can be mapped to it. Verdict for violation of more than one charge is given by mixing the verdicts of those two charges. Gokul Pillai suggests that this model can be exported and used for making websites so that even a common man with limited legal knowledge can get a brief idea of the judgement before approaching the court. As of now artificial intelligence is not capable of making fool proof decisions, but the authors suggest that the future beholds a scenario where AI will be capable of making unbiased and well-analyzed decisions.