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What is the structure of the civil court system?
The highest court is the Supreme Court of India, which exercises supervisory jurisdiction over all courts in India. The Supreme Court also exercises original jurisdiction in respect of fundamental rights constitutionally guaranteed and in respect of disputes between states of the Indian Union. Under article 142 of the Constitution, the Supreme Court has plenary powers to issue orders as necessary for doing complete justice in any cause or matter pending before it.
The Supreme Court usually sits in benches of two or three judges. If a particular question of law requires re-examination or involves a constitutional question, the Supreme Court would sit in larger benches and exceptionally as full court.
High Courts are constituted under the constitution for each state. Each High Court exercises supervisory jurisdiction over subordinate courts and tribunals within that state. The High Courts at Mumbai, Chennai and Kolkata are chartered High Courts and also exercise original jurisdiction. The Delhi High Court and the Himachal Pradesh High Court also exercise original jurisdiction. Further, under article 226 of the Constitution, High Courts exercise jurisdiction to issue orders to any person or authority, including the government, within its jurisdiction in respect of constitutionally guaranteed rights. High Courts also exercise admiralty jurisdiction.
An appeal from a single judge of the High Court is ordinarily heard by an appellate bench of that High Court. In relation to substantial questions of law of public importance, the High Court may issue a certificate of fitness to the appeal to the Supreme Court.
District courts are established for districts within each state. District courts are under the administrative control of the High Court of the relevant state. District courts exercise original jurisdiction and the first appeal from a lower court within a district lies to the district court.
Each High Court and the Supreme Court is a court of record and has power to try and punish for contempt of court.
A number of special courts and tribunals have been established by statutes to decide disputes of a special nature, such as Family Courts to decide family disputes, Small Causes Courts to decide disputes between landlords and tenants, the National Company Law Tribunal for matters under the Companies Act, 2013 and under the Insolvency and Bankruptcy Code, etc.
The Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 (Commercial Courts Act) came into force on 23 October 2015. This was further amended by way of the Commercial Courts, Commercial Division and Commercial Courts (Amendment) Ordinance, 2018 (Ordinance). Under the Commercial Courts Act and Ordinance, Commercial Courts have been established at the District and High Court levels to deal with disputes falling within the meaning of a ‘commercial dispute’ of a ‘specified value’. The specified value was originally 10 million rupees but has been reduced to three million rupees. Commercial Divisions have been established in High Courts that exercise original jurisdiction, and all High Courts must also establish a Commercial Appellate Division. By the Ordinance in respect of High Courts that exercise ordinary jurisdiction, the state government may, in consultation with the High Court, establish Commercial Courts at the district level. The state governments may also specify the pecuniary value, not being less than three million rupees and not more than the pecuniary jurisdiction exercised by the district court. The Ordinance also provides that in places where the High Court does not exercise original jurisdiction, the state government may, in consultation with the High Court, establish Commercial Appellate Divisions at the district level. The Commercial Courts Act has also made amendments to the CPC so as to expedite disposal of cases.
A peculiar feature in the Indian court system is the establishment of Gram Nyayalayas (village courts) under the Gram Nyayalayas Act, 2008 and Lok Adalats (people’s court) under the Legal Services Authority Act, 1987. Gram Nyayalayas operate at the grass-roots level. Lok Adalats aim to settle disputes between parties through an amicable compromise. Courts may also refer matters for settlement to the Lok Adalat.
Judges and juries
What is the role of the judge and the jury in civil proceedings?
The jury system was abolished in 1960. However, a form of the jury system still exists under the Parsi Marriage and Divorce Act, 1936, where a judge is assisted by delegates of the Parsi community in hearing Parsi matrimonial matters.
Court proceedings are adversarial, where parties plead their case before the judge, who is expected to be, and must be, an impartial and independent referee. The judge adjudicates the dispute both on fact and law. In order to rule effectively on any issue, the judge may put questions to a witness or direct parties to lead evidence on certain aspects. The court may determine issues such as limitation as preliminary issues. The civil court has inherent powers to make such orders as may be necessary for meeting the ends of justice.
Judges of the Supreme Court and High Courts are appointed by the President of India under articles 124(2) and 217 of the Constitution. The President is required to hold consultations with such of the judges of the Supreme Court and of the High Courts as he may deem necessary for this purpose.
Senior arguing counsel of High Courts and the Supreme Court may also be recommended for elevation to the post of a judge.
In S P Gupta v Union of India, AIR 1982 SC 149, the Supreme Court held that the concept of primacy of the Chief Justice of India was not to be found in the Constitution. This resulted in tilting the balance of power in favour of the executive. In Supreme Court Advocates-on-Record Association v Union of India, 1993 (4) SCC 441, a nine-judge Constitution Bench overruled the decision in S P Gupta and devised a specific procedure called the Collegium System for the appointment and transfer of judges to the higher judiciary. In 2014, the National Judicial Appointments Commission Act was enacted to replace the Collegium System with the National Judicial Appointments Commission (NJAC). In Supreme Court Advocates-on-Record-Association v Union of India, 2016 (5) SCC 1, the NJAC was declared unconstitutional. Currently, a Memorandum of Procedure for appointment of judges is being discussed between the Collegium and the government. The recommendations of the Collegium are available online on www.supremecourtofindia.nic.in.
Although there is no formal rule to this effect, the endeavour is that the Supreme Court should have judges from all of the states.
The appointment to subordinate judiciary is governed by articles 233 to 237 of the Constitution and the rules made under the proviso to article 309. District judges are appointed both by direct recruitment and by promotion from within the judicial service. Direct appointment is based on candidates recommended by the High Court.
What are the time limits for bringing civil claims?
The period of limitation is prescribed by the Limitation Act, 1963 (Limitation Act). Typically, the period of limitation for instituting civil suits is three years from the date on which the cause of action arose. There are exceptions: the limitation for a suit to recover possession of immovable property is 12 years, and the limitation for a claim founded on tort is ordinarily one year. Suits relating to contracts must be instituted within three years from accrual of the cause of action. In suits of a description not covered by the Schedule to the Limitation Act the period of limitation is three years.
The period of limitation for an appeal to the High Court from any order is 60 days, unless the appeal is from an Order of the High Court to an appellate bench of the High Court, when the limitation is 30 days. The period of limitation for special leave to appeal to the Supreme Court is 90 days. However, if a High Court issues a certificate of fitness to appeal to the Supreme Court, the limitation is 60 days. For all other appeals, the limitation is 30 days.
The period of limitation for filing a suit may be extended in limited circumstances. These include part-payment, acknowledgement of liability in writing or where the person suffers from a legal disability (ie, minority or insanity). In calculating the period of limitation, certain periods may be excluded, such as where the plaintiff has been prosecuting a case bona fide and with due diligence in a court without jurisdiction.
Any suit instituted, appeal preferred or application made after the period of limitation is not entertained, although if sufficient cause is shown to explain the delay in filing an appeal or an application (but not a suit) the court may condone the delay.
The question of limitation may be tried as a preliminary issue.
Are there any pre-action considerations the parties should take into account?
The pre-action considerations that parties must take into account are, inter alia:
- a bona fide cause of action;
- the suit is not barred by any law;
- whether the court has jurisdiction to entertain the dispute. In some cases if the defendant is amenable to another court’s jurisdiction or if part of the cause of action arises outside the court’s territorial jurisdiction, leave of the court has to be obtained prior to the institution of the suit;
- the suit has been framed and drafted as per the rules set out in the CPC as well as rules of the court in which the suit is to be instituted;
- whether the suit falls within the meaning of a ‘commercial dispute’ and is of the ‘specified value’ as defined under the Commercial Courts Act;
- section 80 of the CPC requires that no suit against the government or public officer in respect of an act done by such officer in his or her official capacity may be instituted except after two months’ advance notice. The notice must set out the cause of action. Special statutes may also require an advance notice before any suit is instituted;
- the suit must include the entire claim that the plaintiff is entitled to make in respect of the cause of action. If any relief in respect of the cause of action is to be omitted for sufficient cause, then the leave of the court must be obtained before filing the suit; and
- under the Ordinance amending the Commercial Courts Act, pre-institution mediation is mandatory unless urgent interim relief is sought from the court. If is the mediation is successful, the resultant settlement would have the same force as an award on agreed terms under section 30 of the Arbitration and Conciliation Act, 1996 (Act).
How are civil proceedings commenced? How and when are the parties to the proceedings notified of their commencement? Do the courts have the capacity to handle their caseload?
Civil proceedings are instituted by presentation of a plaint to a competent court of the lowest jurisdiction.
Suits in relation to immovable property must be instituted in the court within whose territorial jurisdiction the property is situated. Suits for compensation for wrong done to a person or to movable property must be instituted, at the plaintiff’s option, in the court within whose territorial jurisdiction the wrong was done or where the defendant resides, carries on business or personally works for gain. Other suits are to be instituted in a court within the local limits of the jurisdiction where the defendant resides or where the cause of action, wholly or in part, has arisen.
When a part of the cause of action has arisen outside the court’s territorial jurisdiction or a part of the immovable property is situated outside the territorial jurisdiction of the court, leave of the court must be obtained prior to institution of the suit.
The plaint must be framed as per the rules of the CPC (as far as practicable) and supported by an affidavit of the plaintiff verifying the correctness of the facts.
Courts have a huge backlog of over 30 million pending cases, with over 30 per cent of these cases being over five years. A primary reason for such a heavy caseload is the shortage of judges; the Allahabad High Court has an approved bench strength of 160 judges but has vacancies for 60 judges. Similarly, the Kolkata High Court has a sanctioned strength of 72 judges, but has 39 vacancies. While the cumulative approved strength of the 24 High Courts is 1,079 judges, 38 per cent of the posts remain vacant. Even the Supreme Court has a vacancy of six judges which may go up to 12 in 2018 as six judges are due to retire. Another reason for the backlog is inadequate infrastructure. Courts lack facilities for e-filings and live transcription, and case management is poor. The government is the biggest litigant and the most significant contributor to the backlog of cases.
The government of India has allotted 12.28 billion rupees to improving the infrastructure and administration of justice. The legislature’s avowed intent is to give primacy to arbitration. Moreover, special tribunals with exclusive jurisdiction have been set up to reduce the burden on courts. Sectoral regulators and appellate tribunals such as the Real Estate Regulatory Authority and Appellate Tribunals and Electricity Regulatory Commissions and Appellate Tribunals have been established.
What is the typical procedure and timetable for a civil claim?
Once a plaint has been presented, the summons is issued to the defendant to appear and answer the claim and file his or her statement of defence within 30 days from the date of service of summons. A summons is usually delivered through an officer of the court, but the court may permit service by registered post with acknowledgment due, approved courier services, fax or email. Every summons must be accompanied by a copy of the plaint and must be signed by the judge or other officer appointed by the judge and sealed with the seal of the court.
The defendant upon receipt of the summons must appear before the court either in person or through an advocate on the date stipulated in the summons. In the event the statement of defence is not filed within 30 days of receipt of the summons, the defendant may be granted an extension, but not later than 90 days from the service of summons. These timelines have been held not to be mandatory by the Supreme Court and, if sufficient cause can be shown, courts may extend the timelines.
In the event the defendant refuses to accept service of summons or cannot be found, service may be affected by affixing a copy of the summons on the outer door or other conspicuous part of the house where the defendant ordinarily resides, carries on business or personally works for gain.
If a defendant does not appear before the court on the returnable date indicated in the summons, the court may proceed to hear the plaintiff and proceed to pronounce a judgment in the absence of the defendant.
The procedure in a civil claim is as follows:
- Pleadings: pleadings must concisely state material facts. A plea of misrepresentation, fraud, breach of trust, wilful default or undue influence must be particularised. All pleadings must be verified on oath setting out facts within the deponent’s knowledge and matters stated on information and the source of the information.
- Discovery and inspection: in a commercial dispute of specified value under the Commercial Courts Act, parties must file a list of documents in their power, possession, control or custody pertaining to the suit, along with the plaint or statement of defence, as the case may be. Inspection of documents must be complete within 30 days of filing the statement of defence. Parties may also deliver interrogatories with the leave of the court.
- Admission and denial of documents: the parties or their representatives then carry out admission or denial of documents filed by the opposite party. Documents that are admitted need not be proved, but all others require strict proof.
- Framing of issues: at the first hearing of the suit, issues are framed by the court as regards material propositions of fact and law which fall for consideration.
- Witnesses: not later than 15 days from the framing of issues, parties must present a list of witnesses.
- Evidence: in every case, the examination-in-chief of a witness shall be on affidavit and the cross-examination and re-examination of the witness, whose evidence (examination-in-chief) by affidavit has been furnished to the court is required to be taken either by the court or by a commissioner appointed by the court.
- Hearing or arguments: after evidence has been closed, final arguments are addressed. The plaintiff has the right to begin unless the defendant admits the facts alleged by the plaintiff and contends that either on a point of law or on some additional facts alleged by the defendant, the plaintiff is not entitled to any part of the relief claimed, in which event the defendant has the right to begin. Apart from oral arguments, parties may, with the leave of the court, tender written arguments.
- Judgment: after arguments, the court proceeds to pronounce judgment. The judgment must be pronounced in open court and if not pronounced at once, then every endeavour shall be made to pronounce judgment within 30 days from the date on which the hearing was concluded but, where it is not practicable to do so on the grounds of exceptional and extraordinary circumstances of the case, the court shall fix a future day for pronouncement of judgment that shall not ordinarily be a day beyond 60 days from the date of the case being concluded. However, in the case of a commercial dispute of a specified value as defined under the Commercial Courts Act, the court is required to pronounce judgment within 90 days of the conclusion of arguments.
- Decree: a decree must be drawn up in accordance with the judgment. The CPC prescribes that every endeavour ought to be made to ensure that the decree is drawn up as expeditiously as possible and in any case within 15 days from the date on which the judgment is pronounced.
- Execution: failing compliance, the decree will be executed through the court offices. If the judgment debtor or the property forming the subject matter of the decree is outside the jurisdiction of the court, then the decree must be transferred to the court that has territorial jurisdiction.
Can the parties control the procedure and the timetable?
The Commercial Court must hold a management hearing not later than four weeks from the date of filing the affidavit of admission and denial of documents by the parties. While setting the timelines, the Commercial Court is required to ensure that arguments are closed not later than six months from the date of the first case management hearing.
The CPC has also limited the number of adjournments a party can seek. However, the Supreme Court in Salem Bar Association v Union of India (2005) 6 SCC 344 has held that this does not preclude a court from granting adjournments beyond the statutory limit where the party concerned has no control over circumstances necessitating the adjournment request.
The CPC governs the procedure and the courts can, to the extent permitted by the CPC, extend the timelines. Parties cannot control the procedure or timetable. However, the Commercial Courts Act, by way of an amendment to the CPC, introduced Order 13A, which permits parties to apply for a summary judgment at any stage before the framing of issues.
Evidence – documents
Is there a duty to preserve documents and other evidence pending trial? Must parties share relevant documents (including those unhelpful to their case)?
Each party is under a duty to produce all relevant documents that are in its possession or power. A document is relevant if it advances its case or it advances the case of the other party. The only exception is privileged communications, eg, legal advice or communications between client and legal counsel. Where privilege is claimed the court may examine the document(s) for the limited purpose of deciding the claim to privilege.
All documentary evidence relied upon by parties in support of their pleadings and examination-in-chief must be produced in original and filed in court. The court may also direct any document to be impounded and kept in safe custody for a period and on conditions the court deems fit. These rules also apply to material objects that may be produced as evidence.
Parties may apply to the court for an order directing the other party to make a discovery on oath of documents that are in the other party’s possession or power, in relation to any matter in question in the suit, or issue a notice to produce any document referred to in the pleading or affidavit. The court may also at its discretion at any time during the pendency of the suit order the production by any party of documents in its possession or power.
Inspection of documents disclosed or produced must be offered to the other party.
Evidence – privilege
Are any documents privileged? Would advice from an in-house lawyer (whether local or foreign) also be privileged?
Sections 126 to 129 of the Indian Evidence Act 1872 (Evidence Act) deal with legal privilege. Section 126 stipulates that no barrister, attorney, pleader or vakil (an Indian attorney) shall at any time be permitted, unless with his or her client’s express consent, to disclose any communication made to him or her in the course and for the purpose of his or her employment as such barrister, pleader, attorney or vakil, by or on behalf of his or her client; to state the contents or condition of any document with which he or she has become acquainted in the course and for the purpose of his or her professional employment; or to disclose any advice given by him or her to his or her client in the course of and for the purpose of such employment. This obligation continues even after the employment has ceased, and also extends to interpreters, clerks and servants. Part VI, Chapter II, section II, Rule 17 of the Bar Council of India Rules prohibits an advocate from breaching the obligations imposed by section 126 of the Evidence Act either directly or indirectly, and thereby makes the breach of attorney-client privilege a violation of the Bar Council Rules.
This privilege is, however, not available to any communication made in furtherance of an illegal purpose or with respect to any fact observed after the commencement of employment, as such showing that any crime or fraud has been committed since the commencement of his or her employment.
Section 129 of the Evidence Act protects a client from being compelled to disclose to the court any confidential communication that has taken place between him or her and his or her legal adviser, unless he or she offers him or herself as a witness.
Professional communications with in-house lawyers are not privileged. Chapter II, section VII, Rule 49 of the Bar Council of India Rules provide that a person who is a full-time salaried employee of an organisation cannot practise as an advocate. Thus, if the in-house lawyer is on the employment rolls, legal privilege does not extend to him.
Evidence – pretrial
Do parties exchange written evidence from witnesses and experts prior to trial?
Affidavits in lieu of examination-in-chief are filed as written evidence of witness of fact (and of expert witness). Under the CPC, there is no provision for the simultaneous exchange of affidavits in lieu of examination-in-chief. Instead, the plaintiff files its affidavits in evidence first, after which the case is set down for recording evidence of the plaintiff’s witnesses. Once the plaintiff’s evidence is recorded, the defendant is directed to file its affidavits in lieu of examination-in-chief and the defendant’s witnesses’ evidence is recorded.
However, parties must simultaneously exchange their list of documents and list of witnesses prior to recording evidence.
Evidence – trial
How is evidence presented at trial? Do witnesses and experts give oral evidence?
The Evidence Act governs the rules of evidence. Evidence-in-chief is by way of affidavit. However, the court may permit evidence-in-chief to be led by examination in open court. This is followed by cross-examination and then re-examination, which is permitted in limited circumstances. Evidence may also be documentary and the Evidence Act recognises digital records. While relying on evidence in electronic form, the provisions of section 65B of the Evidence Act, which lays down the circumstances under which electronic evidence is admissible, must be complied with and a certificate testifying that the electronic document is genuine and the machine from which it was generated is working properly is to be produced. In a recent decision, the Supreme Court in Shafhi Mohammed v State of Himachal Pradesh Special Leave Petition (CRL) No. 2302 of 2017 has held that a party who is not in possession of the device from which an electronic document is generated need not file a section 65B certificate.
What interim remedies are available?
Courts have vast powers to grant interim relief. These include the power to grant injunctions:
- when the subject matter of the suit is in danger of being wasted, damaged or alienated by a party;
- if the defendant threatens or intends to dispose of or remove the property with an intent to defraud his or her creditors;
- to otherwise preserve the subject matter of the suit; and
- to restrain a repetition or continuation of a breach of contract.
Courts may pass orders for detention, preservation or inspection of any property that is the subject matter of the suit or authorise any person to enter upon such property or direct samples to be taken or any other observation or experiment be tried that seems necessary or expedient for the purpose of obtaining full information or evidence.
When it appears to be just and convenient, a receiver may be appointed by the court to preserve the property or remove any person from the possession or custody of the property.
When a party seeks interim relief, he or she must satisfy the court on three well-defined parameters:
- a prima facie case;
- balance of convenience; and
- irreparable loss.
The court also has powers to direct the defendant to furnish security for his or her appearance if the court is satisfied that the defendant, with the intent to delay the plaintiff or avoid process of the court, has absconded or left or is about to abscond or leave the local limits of the jurisdiction of the court, or disposed of or removed or about to dispose of or remove the property from the local limits of the jurisdiction of the court, or the defendant is about to leave India under circumstances affording reasonable probability that the plaintiff will be obstructed or delayed in executing any decree passed against the defendant. The court may also issue a warrant to arrest the defendant to show cause why such security must not be furnished.
Similarly, where the court is of the view that the defendant, with intent to delay or obstruct the execution of any decree that may be passed against him, is about to dispose of or remove from the local limits of the jurisdiction of the court, the whole or part of the property, the court may direct that the defendant furnish security or attach the property; Indian courts have also issued Mareva injunctions, Anton Pillar orders and freezing orders.
What substantive remedies are available?
Courts have the power to award a wide variety of remedies. These include the power to grant specific performance, declarations of title or status, rectification, rescission, permanent injunctions, damages, accounts, and restitutionary and equitable remedies. Depending upon the circumstances, courts may grant punitive damages; however, in practice this is rare.
The court’s power to award interest is governed by the Interest Act, 1978. When an agreement stipulates the interest payable, interest is awarded in accordance with the agreement. When an agreement bars payment of interest, no interest is awarded. Where there is no contractual bar but there is no agreement for payment of interest, the principles of section 3 of the Interest Act will apply, and consequently interest will be payable:
- where the proceedings relate to a debt (ascertained sum) payable by virtue of a written instrument at a certain time, then from the date when the debt is payable to the date of institution of the proceedings; or
- where the proceedings are for recovery of damages or for recovery of a debt that is not payable at a certain time, then from the date mentioned in a written notice given by the person making a claim to the person liable for the claim that interest will be claimed to the date of institution of proceedings.
The court may, at its discretion, also award interest at a rate it deems reasonable to be paid from the date of the suit to the date of the decree.
What means of enforcement are available?
A decree is enforced by execution proceedings. Money decrees, decrees for specific performance and injunctions are enforced by attachment and sale of the judgment debtor’s properties, both movable and immovable. Certain properties are exempt from execution under section 60 of the CPC. A money decree may also be enforced by arrest and detention in civil prison, but this is uncommon.
A decree for immovable property is enforced by delivering the property to the person entitled to it. If a person refuses to vacate such property, he may be removed. When free access has not been provided to court officers the officers may, after giving reasonable warning, remove or open any lock, bolt or break open any door to gain access and put the decree holder in possession.
A decree for specific movable property may be enforced by delivering such property to the decree holder or by attachment or detention in civil prison, or both.
When the decree is for execution of a document, the decree holder may submit the draft in court. The court officer then proceeds to serve the draft upon the judgment debtor with a notice seeking his or her objections within a stipulated time. If the judgment debtor objects to the draft, the court may, at its discretion, alter the draft as it deems fit and then proceed to execute the document.
The court may require the judgment debtor to be examined on oath to ascertain the assets available for execution and may, if required, appoint a receiver.
Are court hearings held in public? Are court documents available to the public?
Court hearings are held in public. In exceptional circumstances the court may permit an in-camera trial. Court documents form part of the public record and are accessible to parties upon payment of fees. A third party who is not a party to the proceeding may also file an application to search, inspect and obtain copies. Such applications are usually heard by the registry, which may allow the application for sufficient cause.
Does the court have power to order costs?
Costs usually follow the event and the successful party is granted costs unless the court passes a contrary order, with reasons recorded in writing. Compensatory costs may also be awarded if a false, frivolous or vexatious claim or defence is raised.
In practice, nominal costs are usually awarded, although the trend is now changing.
Under the Commercial Courts Act, costs are to be determined taking into consideration the conduct of the parties, whether a frivolous counterclaim has been raised to delay proceedings and, interestingly, whether a reasonable offer to settle disputes has been unreasonably refused.
Are ‘no win, no fee’ agreements, or other types of contingency or conditional fee arrangements between lawyers and their clients, available to parties? May parties bring proceedings using third-party funding? If so, may the third party take a share of any proceeds of the claim? May a party to litigation share its risk with a third party?
Part VI, Chapter II, section II, Rule 20 of the Bar Council of India Rules prohibits fees payable on a contingency or success basis. Third-party funding is illegal under the Indian Contract Act, 1872.
Is insurance available to cover all or part of a party’s legal costs?
Subject to the terms of the policy litigation, costs may be covered.
May litigants with similar claims bring a form of collective redress? In what circumstances is this permitted?
The CPC provides that all persons may be joined in one suit as plaintiffs where any right to relief in respect of, or arising out of, the same act or transaction or series of acts or transactions is alleged to exist in such persons, whether jointly, severally or in the alternative; and if such persons brought separate suits, any common question of law or fact would arise. The CPC also provides for representative suits, ie, where there are numerous persons having the same interest in one suit. In such a case, one or more of such persons may, with the permission of the court, sue on behalf of or for the benefit of all persons so interested. Where permission is granted by the court, notice of the institution of the suit to all interested persons by personal service or by public advertisement must be given. Similarly, no part of the suit can be abandoned, withdrawn or settled unless such notice has been issued by the court.
However, a more common form of class action is by way of ‘public interest litigation’, where the High Court’s constitutional jurisdiction is invoked against the state’s irregular acts or the state’s inaction where it is under a duty to act.
Class actions have been recognised under section 245 of the Companies Act, 2013, where shareholders can file proceedings before the National Company Law Tribunal alleging that the management or conduct of the affairs of the company are prejudicial to the interests of the company.
On what grounds and in what circumstances can the parties appeal? Is there a right of further appeal?
Unless prohibited by a statute, every decree is appealable. Appeals may also lie from certain orders under the CPC such as an order returning or rejecting a plaint.
The chartered High Courts of Mumbai, Chennai and Kolkata permit appeals from a single judge of such court to an appeal bench under Clause 15 of Letters Patent, except when the judgment has been passed in exercise of:
- appellate jurisdiction in respect of a decree or order made in exercise of appellate jurisdiction by a court subject to the superintendence of such High Court;
- revisional jurisdiction;
- criminal jurisdiction; or
- the power of superintendence under the provisions of section 107 of the Government of India Act.
When any appeal from an original or appellate decree is heard and decided by the High Court, no further appeal lies. However, if the High Court grants a certificate of fitness to appeal on the grounds that the matter involves a substantial question of law of general importance, an appeal lies to the Supreme Court.
Under article 136 of the Constitution, notwithstanding any law to the contrary, an application may be made for special leave to appeal to the Supreme Court against any order, judgment, decree, determination or sentence in any cause or matter passed or made by any court or tribunal in India (except by any court or tribunal constituted by the armed forces). Special leave is discretionary and generally available only in respect of a substantial question of law.
What procedures exist for recognition and enforcement of foreign judgments?
Sections 13 and 44A of the CPC deal with the recognition and enforcement of foreign judgments.
Section 13 of the CPC provides that a foreign judgment shall be conclusive as to any matter directly adjudicated upon between the same parties or between parties under whom they or any of them claim, except where:
- it has not been pronounced by a court of competent jurisdiction;
- it has not been pronounced on the merits of the case;
- it appears on the face of the proceedings to be founded on an incorrect view of international law or refusal to recognise the law of India in cases in which such law is applicable;
- the proceedings in which the judgment was obtained are opposed to natural justice;
- it has been obtained by fraud; or
- it sustains a claim founded on a breach of any law in force in India.
Section 44A of the CPC provides that foreign decrees passed in reciprocating countries may be executed in India in the same manner as if they were decrees passed by a civil court in India. Accordingly, such decrees can be filed before the executing court (which would be the district court in which the subject matter is situated), along with a certified copy of the decree. Execution of such decrees is refused if the decree fulfils any of the exceptions set out in section 13.
In cases of foreign decrees by non-reciprocating countries there is no provision for enforcement, and such foreign decrees can be executed only by a suit upon the judgment.
Are there any procedures for obtaining oral or documentary evidence for use in civil proceedings in other jurisdictions?
The CPC makes provision for a foreign court to obtain evidence through courts in India. The High Court of any state, on being satisfied that a foreign court wishes to obtain the evidence of a witness in any civil proceeding before it and that the witness is residing within the limits of the High Court’s appellate jurisdiction may, upon an application, issue a commission for the examination of such witness. Such evidence may be recorded on receiving a certificate signed by the consular officer of the foreign country of the highest rank in India and transmitted to the High Court through the central government; or by a letter of request issued by the foreign court and transmitted to the High Court through the central government; or by a letter of request issued by the foreign court and produced before the High Court by a party to the proceeding.
A commission may be issued to any court within the local limits of the jurisdiction where the witness resides or, if the witness resides within the local limits of the ordinary original civil jurisdiction of the High Court, to any person whom the court thinks fit to execute the commission.
UNCITRAL Model Law
Is the arbitration law based on the UNCITRAL Model Law?
Prior to 1996, arbitration in India was governed by the Arbitration Act, 1940, which came to be widely criticised as being sluggish, expensive and inefficient. This was remedied with the enactment of the Act which is largely (but not entirely) based on the UNCITRAL Model Law on International Commercial Arbitration 1985 and the UNCITRAL Arbitration Rules 1976 (Model Law). Some of the noteworthy deviations from the Model Law embodied in the Act are that a party aggrieved by an order rejecting its challenge to the jurisdiction of the tribunal can only approach courts in an action to set aside the award and not before. Similarly, a challenge to the decision of the tribunal rejecting a challenge to its independence, impartiality or qualifications can only be made in an application to set aside the award. Further, unlike the Model Law, the criterion to determine whether an arbitration is an international commercial arbitration is solely based on the nationality of the parties and not the nature of the dispute or the place of arbitration.
Part I of the Act, which deals with arbitrations seated in India, is based on the Model Law, with minor modifications.
Despite the restrictive provisions of the Act, arbitrations came to be afflicted with high costs and delays and a serious threat of arbitration-related litigation piling up in the courts, leading to further delays. With a view to remedy the situation, the Act was amended on 31 December 2015. The amendments to the Act are aimed at making arbitration more time- and cost-effective.
The Law Commission of India in its 246th Report (August 2014) recommended that the Act be amended to bring it in line with the 2006 amendments to the Model Law. Illustratively, the 2006 amendments to the Model Law provide for the enforceability of interim orders of an arbitration tribunal and with no corresponding provision in the Indian Arbitration Act. To this intent, section 17(2) of the Act was amended in 2015 so as to make interim orders passed by the tribunal enforceable in the same manner as orders of the court. The Supreme Court has also held that non-compliance with interim orders issued by the tribunal would amount to contempt of court and the same consequences would follow as for disobedience with orders of the court (Alka Chandewar v Shamshul Ishrar Khan (2017) 16 SCC 119).
What are the formal requirements for an enforceable arbitration agreement?
Under section 7 of the Act the only formal requirement is that the arbitration agreements must be in writing. There is, however, no legal requirement as to the form and content of an arbitration agreement. Section 7 also provides that the ‘writing’ requirement is satisfied if:
- an agreement contains an arbitration clause;
- an arbitration agreement is in a document signed by the parties;
- an agreement to submit disputes to arbitration is recorded in an exchange of letters, telexes, telegrams or other means of telecommunication, including communication through electronic means;
- such agreement to arbitrate is evidenced by an exchange of statements of claim and defence in which one party alleges the existence of the agreement and the allegation is not denied by the other party; or
- there is a reference in a contract to a document that contains an arbitration clause such as to make the clause a part of the contract, provided that the contract is in writing.
Courts have also adopted a pragmatic approach while determining whether there exists an arbitration agreement between the parties. The only test is whether parties were ad idem in their intention to arbitrate (Jagdish Chander v Ramesh Chander (2007) 5 SCC 719).
Courts have also upheld the validity of arbitration agreements incorporated by reference so long as the intention of the parties to have disputes resolved by arbitration is clear (MR Engineers v Som Datt Builders 2009 (9) SCALE 298). A general reference to an arbitration clause is insufficient except where the reference is to the standard terms and conditions of a ‘trade association or regulatory institution’. Further, if the clause refers to a specific aspect of the contract (such as conditions of supply) then only that part will be incorporated, but if the clause refers to incorporation in its entirety then the arbitration clause will also be incorporated (Alimenta SA v National Agriculture Co-operative Marketing Federation of India Ltd & Anr (1987) 1 SCC 615). Finally, for an arbitration clause to be incorporated it must be consistent with and make commercial and practical sense in the agreement into which it is to be incorporated.
In the case of Chloro Controls (I) (P) Ltd v Severn Trent Water Purification Inc & Ors (2013) 1 SCC 641, the Supreme Court has held that in certain circumstances (such as implied consent, third-party beneficiaries, guarantors, assignees, theories of agencies and piercing of the corporate veil) even a non-signatory to an arbitration agreement can be bound by the arbitration agreement (it is pertinent to note that this judgment was passed with respect to an international commercial arbitration).
Further, courts have held that an arbitration clause is severable from the rest of the agreement of which it forms part and, therefore, a valid arbitration clause survives the invalidity of the rest of the agreement (Firm Ashok Traders v Gurumukh Das Saluja & Ors (2004) 3 SCC 155, Shin Satellite Public Co Ltd v Jain Studios Ltd (2006) (1) Arb LR 286 (SC)).
Choice of arbitrator
If the arbitration agreement and any relevant rules are silent on the matter, how many arbitrators will be appointed and how will they be appointed? Are there restrictions on the right to challenge the appointment of an arbitrator?
Number of arbitrators
Parties are free to determine the number of arbitrators, provided that such number is not an even number (section 10 of the Act). Failing such determination, the arbitral tribunal shall consist of a sole arbitrator. Courts have held that even if parties appoint only two arbitrators, the agreement will not be invalid and the two arbitrators can together appoint a third or appoint a third at a later stage if they differ (Narayan Prasad Lohia v Nikunj Kumar Lohia & Ors (2002) 3 SCC 572).
Constitution of the tribunal
If the parties have agreed the appointment of three arbitrators but have failed to agree the procedure for appointment, section 11 of the Act prescribes that each party shall appoint one arbitrator and the appointed arbitrators will appoint the third arbitrator. If either party or the two appointed arbitrators fail to appoint the third arbitrator, the High Court (in the case of domestic arbitrations) and the Supreme Court (in the case of international commercial arbitrations) would appoint the third arbitrator. The existence of an arbitration agreement is the only criterion to be considered by courts before proceeding with the appointment of arbitrators. The court may, however, require a disclosure in writing from the prospective arbitrator to ensure that the qualifications (if any) stipulated by the parties are met and the arbitrator to be appointed by the court is independent and impartial. The appointment of arbitrators by the court is final.
Challenge to the appointment of arbitrators
The appointment of an arbitrator may be challenged by a party that has justifiable doubts as to the arbitrator’s independence or impartiality, or if the arbitrator does not possess the qualifications agreed to by the parties (section 12 of the Act). As held by the Supreme Court in Bihar State Mineral Development Corporation & Anr v Encon Builders (I)(P) Limited (2003) 7 SCC 418, actual bias would lead to an automatic disqualification of the arbitrator. If a party has appointed or participated in the appointment of an arbitrator, he or she may challenge the arbitrator only for reasons that he or she becomes aware of after the appointment has been made. Section 12 of the Act has been amended by the 2015 Amendment to include, inter alia, the following:
- a prospective arbitrator has to disclose in writing in the form specified in the Sixth Schedule to the Act:
- the existence of any past or present relationship with either of the parties or the subject matter of the dispute that is likely to give rise to justifiable doubts as to his or her independence and impartiality (the Fifth Schedule to the Act shall act as a guide in determining whether these circumstances exist); and
- any circumstances likely to affect his or her ability to complete the entire arbitration within 12 months; and
- any person whose relationship with the parties, the counsel, or the subject matter of the dispute falls within the categories specified in the Seventh Schedule to the Act will not be eligible for appointment as an arbitrator. However, parties may waive the applicability of this provision by an agreement in writing subsequent to the disputes arising.
Section 13 of the Act permits parties to agree on the procedure for challenging the appointment of an arbitrator. In the absence of an agreed procedure for challenge, a party must submit a written challenge to the tribunal within 15 days of becoming aware of the circumstances provided under section 12 of the Act. The arbitral tribunal will then decide on the challenge. If the challenge is rejected, the tribunal will proceed with the arbitration. The tribunal’s rejection of a challenge can only be questioned by the aggrieved party by a challenge to the award under section 34 of the Act.
What are the options when choosing an arbitrator or arbitrators?
The pool of arbitrators available for selection would depend on whether the arbitration is proceeding via an institution or whether it is ad hoc. In institutional arbitration, the parties must choose arbitrators as provided by the rules of the institution. For instance, the Mumbai Centre for International Arbitration offers a wide panel of arbitrators from which a party may choose. In ad hoc arbitrations, parties are free to appoint any arbitrators of any nationality subject only to the limitations of independence, impartiality and the ability to complete the arbitration within 12 months. Technical or other qualifications are not essential unless the arbitration agreement so stipulates. Usually, but not invariably, retired judges are appointed arbitrators. It is also becoming increasingly common to appoint practising lawyers as arbitrators. For instance, the Bombay High Court often appoints practising lawyers as arbitrators.
Prior to the 2015 Amendment, it was not uncommon for public sector undertakings and government departments to appoint ex-employees as arbitrators. However, after the 2015 amendment such appointment is not permissible (section 12(1)(a) of the Act). The 2015 Amendment, however, is only applicable to arbitrations commenced after the coming into force of the 2015 Amendment (Aravali Power Company Private Limited v Era Infra Engineering Limited (2017) 15 SCC 32).
Does the domestic law contain substantive requirements for the procedure to be followed?
In keeping with the principle of party autonomy, section 19 of the Act empowers parties to agree on the procedure to be followed in the arbitral proceedings. Failing such agreement, the arbitral tribunal determines the procedure, including as regards admissibility, relevance, materiality and weight of any evidence. Subject to an agreement between the parties, the tribunal may also decide whether to hold oral hearings for the presentation of evidence or for oral arguments, or whether the proceedings shall be conducted only on the basis of documents.
The only requirement imposed is that the procedure adopted by the tribunal must ensure that parties are treated equally and that a full opportunity is given to each party to present its case (section 18 of the Act).
In National Thermal Power Corporation v Wig Brothers (Builders & Engineers) Ltd 2009 (2) Arb LR 238 (Delhi), it was held that as the tribunal was free to determine the procedure absent any agreement of the parties, the award cannot be challenged so long as the procedure followed by the tribunal was fair.
On what grounds can the court intervene during an arbitration?
Under the Act, the emphasis is on reducing intervention by courts. The Act, in its Statement of Object and Reasons, enlists the minimisation of the supervisory role of courts as one of the main objectives of the Act. Accordingly, section 5 of the Act restricts the intervention of courts only to the extent provided under Part I of the Act.
A court can intervene during an arbitration only in the following cases:
- where an application is made by a party under section 9 of the Act (either before or during the arbitral proceedings or at any time after the making of the arbitral award but before it is enforced) for, inter alia, appointment of a guardian of a minor or person of unsound mind for the purposes of the arbitral proceedings; or for an interim measure of protection in respect of the subject matter of the arbitration. Pursuant to the 2015 Amendment, the power of the court has been curtailed in that it cannot entertain an application for interim measures once the arbitral tribunal has been constituted, unless the court determines that the tribunal cannot grant an efficacious remedy. The 2015 Amendment also mandates that if interim measures have been granted before the commencement of arbitration proceedings, then the arbitration must be commenced within 90 days of the court’s order of interim protection;
- under section 11 of the Act for the appointment an arbitrator where the parties fail to make the appointment or where the two appointed arbitrators fail to appoint the third arbitrator;
- under section 27 of the Act the arbitral tribunal or the parties, with the approval of the arbitral tribunal, may apply to the court for assistance in taking evidence. The Supreme Court in Delta Distilleries Ltd v United Spirits Ltd & Anr ((2014) 1 SCC 113) held that an arbitral tribunal is entitled to seek assistance from the court due to non-cooperation of a person or where evidence is required from any person, be it a party to the proceedings or others, in order to make an award on the merits; and
- under section 37, which empowers the courts to entertain appeals from orders of the arbitral tribunal declining jurisdiction or granting or refusing to grant interim relief.
While these provisions are under Part I of the Act, they may be made applicable to international commercial arbitrations and foreign-seated arbitrations unless expressly excluded by the agreement of parties (section 2(2) of the Act).
Do arbitrators have powers to grant interim relief?
The tribunal has power to grant interim relief, unless otherwise agreed by the parties. These powers are analogous to those available to courts and are also enforceable in the same manner as those of the court after the 2015 Amendment.
Parties cannot exclude section 17 by contract.
When and in what form must the award be delivered?
An award must be made within a period of 12 months from the date on which the arbitral tribunal enters upon the reference (section 29-A of the Act). If the award is made within a period of six months from the date the arbitral tribunal enters upon reference, it shall be entitled an additional fee as may be agreed by the parties.
This period of 12 months may be extended for a further period of six months by the consent of the parties. If the award is still not rendered, then the mandate of the tribunal will terminate, unless it is extended by the court on an application of the parties.
It is also open to the parties to agree to have their disputes resolved by a fast-track procedure by which the award will have to be rendered within a period of six months from the date on which the tribunal enters upon reference (section 29-B of the Act). Fast-track proceedings are ordinarily decided on the basis of the written pleadings and submissions of the parties, unless parties specifically request an oral hearing. Once the award is made, signed copies are required to be given to each of the parties.
Form and content
Under section 31 of the Act, all awards must be made in writing and signed by all members of the tribunal or by a majority of them with reasons for the omitted signatures being cited. The award must also bear a stamp specifying the date on which it was made and the seat of arbitration.
Unless the parties have agreed to the contrary, every award must cite the reasons on which it is based. It is not necessary for the reasons to be long or detailed so long as the reasons are intelligible and indicate the mind of the tribunal (Gujarat Water Supply and Sewerage Board v Unique Erectors (Gujarat) Pvt Ltd & Anr (1989) 1 SCC 532).
It is open to the tribunal to make an interim award dealing with any matter with respect to which it may make a final award. Similarly, the tribunal may also pass an award on agreed terms in the event of a settlement between the parties (section 30 of the Act).
On what grounds can an award be appealed to the court?
An appeal from an arbitral award is only available on limited grounds, as provided in section 34 of the Act. The grounds on which an award may be set aside are:
- a party was under some incapacity;
- the arbitration agreement was invalid according to the governing law or the law in force;
- the applicant party was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings, or was otherwise unable to present his or her case;
- the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration. If, however, the decision on matters submitted to arbitration can be separated from those not so submitted, only that part of the award containing decisions on matters not submitted to arbitration may be set aside;
- the composition of the tribunal or the procedure followed was different from that agreed by the parties or, in the absence of agreement, as per Part I of the Act;
- the subject matter of the dispute was incapable of resolution or settlement by arbitration under Indian law; or
- the award is in conflict with the public policy of India.
There has been much debate over the meaning of ‘an award in conflict with the public policy of India’. In the case of Renusagar Power Plant Ltd v General Electric Co AIR 1994 SC 860, the Supreme Court held that an award would be in conflict with the public policy of India if it was in conflict with the fundamental policy of India, the interests of India, or justice or morality. Thereafter, in the case of ONGC v Saw Pipes Ltd (2003) 5 SCC 705, the Supreme Court expanded the meaning further by including awards that were patently illegal and such illegality went to the root of the matter or was so unfair and unreasonable that it shocked the conscience of the court. This decision was severely criticised as it tended to convert the challenge into an appeal even on merits. Later, in McDermott International Inc v Burn Standard Co Ltd 2006 (11) SCC 181, the Supreme Court clarified that courts have only a supervisory role under section 34 of the Act and the intervention of courts ought to be minimal. This judgment also ruled that an award shall be in conflict with the public policy of India if the award is perverse.
In relation to foreign awards, the Supreme Court in Shri Lal Mahal v Progetto Grano Spa (2013) 3 ArbLR 1 (SC) has held that the Act does not permit a review on merits. In enforcement proceedings, the court cannot have a ‘second look’. Further, in relation to foreign awards, the public policy objection must be confined to the narrow meaning as laid down in Renusagar.
The Supreme Court in ONGC v Western Geco (2014) 9 SCC 263 and Associate Builders v Delhi Development Authority (2014) (4) ARBLR 307 (SC) has held that the expression ‘public policy’ is different for domestic awards and foreign awards. The courts may resist enforcement of a foreign award if enforcement would be contrary to:
- the fundamental policy of Indian law, which would include judicial approach, principles of justice and Wednesbury’s principles of reasonableness;
- the interests of India; or
- justice or morality, or the award was vitiated by patent illegality.
The 2015 Amendment clarifies that an award would be in conflict with the public policy of India if the award is:
- contrary the fundamental policy of Indian law;
- in conflict with the most basic notions of morality or justice (but this shall not entail a review on the merits of the dispute); and
- the award is patently illegal on the face of the award (not applicable to international commercial arbitrations).
In the case of domestic arbitrations, an award may also be set aside if there is patent illegality on the face of the award.
An application to set aside an award must be filed within three months of receipt of the award. However, if the aggrieved party shows sufficient cause for the delay, the court may extend this period for a further 30 days.
Prior to filing an application to set aside an award, the counterparty must be given notice and the aggrieved party must file an affidavit that such notice has been given.
Even after filing of an appeal it is open to the parties to request the court to remit the matter back to the tribunal so as to eliminate the grounds for challenge.
A party aggrieved by an order under section 34 of the Act may appeal against the same under section 37 of the Act.
What procedures exist for enforcement of foreign and domestic awards?
Under Indian law, a domestic award is enforced under section 36 of the Act as if it were a decree of a court. The enforcement and execution proceedings may proceed notwithstanding any pending challenge to the award unless a party has applied for and obtained stay of enforcement from the court. In relation to money awards the court may require money to be deposited in court as a condition to the grant of stay.
Part II of the Act deals with the enforcement of foreign awards and is based on the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention, section 44 of the Act) and the Protocol on Arbitration Clauses and the Convention on the Execution of Foreign Arbitral Awards (Geneva Convention, section 53 of the Act).
Section 48 of the Act provides that a foreign award to which the New York Convention applies can be enforced in India if evidence is produced in court (ie, the original award or copy thereof, duly authenticated; the original agreement for arbitration or duly certified copy thereof; and such evidence as may be necessary to prove that the award is a foreign award). Enforcement of a foreign award may be resisted only on the grounds as set out in Article V of the Convention, ie:
- a party was under some incapacity;
- the arbitration agreement was invalid according to the governing law or the law in force;
- the appellant party was not given proper notice of the appointment of an arbitrator or the arbitral proceedings, or was otherwise unable to present his or her case;
- the award deals with matters beyond the terms of the submission to arbitration. Where decisions on matters submitted to arbitration can be separated from those not submitted, only the part of the award dealing with matters not submitted may be set aside;
- the composition of the tribunal or the procedure followed was different from that agreed by the parties or the law of the country in which it was made;
- the award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which or under the law of which the award was made;
- the subject matter of the dispute was incapable of resolution or settlement under Indian law; or
- the award is in conflict with the public policy of India.
Section 57 of the Act provides that a foreign award to which the Geneva Convention applies can be enforced in India if evidence as provided under section 56 of the Act is furnished to the court (ie, the original award or copy thereof, duly authenticated; evidence proving that the award has become final) and the following conditions are complied with:
- the award has been made in pursuance of a submission to arbitration that is valid under the law applicable thereto;
- the subject matter of the award is capable of settlement by arbitration under the law of India;
- the award has been made by the arbitral tribunal provided for in the submission to arbitration or constituted in the manner agreed upon by the parties and in conformity with the law governing the arbitration procedure;
- the award has become final in the country in which it was made. The award will not be considered to be final if it is open to opposition or appeal or if it is proved that any proceedings for the purpose of contesting the validity of the award are pending; and
- the enforcement of the award is not contrary to the public policy or the law of India.
Section 57 further provides that the court may refuse to enforce the award or adjourn the enforcement proceedings if the party against whom the award is made proves that the award has been annulled in the country in which it was made or gives such party reasonable time to have the award annulled.
Where a foreign award is enforced in India, it shall be deemed to be a decree of a court.
In Sakuma Exports Ltd v Louis Dreyfus Commodities Suisse SA (2014 STPL Web 219 SC), the Supreme Court upheld the decision of the Bombay High Court and settled the position that a foreign award cannot be challenged in the Indian courts where Part I of the Act has been excluded by the arbitration agreement.
Further, courts have taken the view that where a party has failed to challenge a foreign award at the seat, it cannot object to the enforcement of the award on the grounds available for challenge (POL India Project Limited v Aurelia Reedrei Eugen Friederich Gmbh & Anr, Arbitration Petition No. 76 of 2012). Courts have consistently held that the enforcement court does not sit in appeal over the award and it is impermissible for the enforcement court to re-open the merits or re-appreciate evidence in order to decide on whether the award is enforceable or opposed to public policy (Renusagar Power Co Ltd v General Electric Co, 1994 Supp (1) SCC 644, Shri Lal Mahal v Progetto Granno SPA, (2014) 2 SCC 433).
Can a successful party recover its costs?
Section 31A of the Act (introduced by the 2015 Amendment) provides for a regime for costs:
- the court or arbitral tribunal, as the case may be, shall have discretion to determine:
- whether costs are payable by one party to another;
- the amount of such costs; and
- when such costs are to be paid;
- costs means
- fees and expenses of the arbitrator, courts and witnesses;
- legal fees and expenses; and
- any other expenses incurred in connection with the arbitration or court proceedings and the arbitral award;
- although costs should follow the event, the court or arbitral tribunal can make a different order for reasons to be recorded in writing;
- in determining costs, the court or arbitral tribunal shall have regard to all the circumstances such as conduct of all the parties, whether a party has succeeded partly in the case, etc; and
- an agreement that has the effect that a party is to pay the whole or part of the costs of the arbitration in any event shall be valid only if such agreement is made after the dispute in question has arisen.
While there is no judicial precedent, third-party funding may not be valid in law. Consequently, recovery of third-party funding costs is moot.
Alternative dispute resolution
Types of ADR
What types of ADR process are commonly used? Is a particular ADR process popular?
Besides arbitration, mediation and conciliation are the other forms of ADR commonly used in India.
Conciliation is covered by Part III of the Act.
Of late, more private foreign companies are resorting to invoking the dispute resolution mechanisms in bilateral investment treaties (BITs) between the Indian government and the relevant foreign country. India has entered into several such BITs with countries across the globe. These treaties subject host countries to litigation with investor corporations from the other country that is a signatory to the BIT. There was a rise in potential disputes under BITs in 2015, with several international companies threatening to invoke disputes under their respective BITs against the Indian government for reneging on international obligations.
Requirements for ADR
Is there a requirement for the parties to litigation or arbitration to consider ADR before or during proceedings? Can the court or tribunal compel the parties to participate in an ADR process?
Indian courts are empowered to direct litigants to consider engaging in ADR. However, courts do not have the power to compel the use of ADR.
Further, under section 89 of the CPC, where it appears to the court that there exist elements of settlement that may be acceptable to parties of a dispute, the court may formulate the terms of the settlement and (after receiving the observation of the parties) may refer the same for arbitration, conciliation, judicial settlement including settlement through lok adalats (see question 36), or mediation.
Parties that have agreed to submit disputes to arbitration cannot be compelled to consider or undergo ADR. Where parties have agreed to explore other modes of ADR prior to invoking arbitration, courts have generally held that such precondition must be fulfilled, but the object of the Act should not be defeated (Tulip Hotels Pvt Ltd & Anr v Trade Wings Ltd & Ors 2009 SCC OnLine Bom 1222).
Are there any particularly interesting features of the dispute resolution system not addressed in any of the previous questions?
Lok adalats (people’s courts) have also been set up under the Legal Services Authority Act, 1987. The intention is to provide free and competent legal services to weaker sections of society to ensure that opportunities for securing justice are not denied to any citizen by reason of economic or other disabilities.
Lok adalats are held by the state authority, district authority, Supreme Court Legal Services Committee, High Court Legal Services Committee, Legal Services Committee or Taluk (that is, sub-district) Legal Services Committee. The lok adalat is presided over by a sitting or retired judicial officer as the chair, with two other members, usually a lawyer and social worker. There is no court fee and no rigid procedural requirements, which makes the lok adalats expeditious.
A lok adalat has the jurisdiction to settle, by way of effecting a compromise between the parties, any matter that may be pending before any court, as well as matters at a pre-litigation stage (that is, disputes that have not been formally instituted in any court of law). Money claims, motor accident compensation claims, matrimonial disputes and other civil claims can be settled by lok adalats. However, matters relating to an offence not compoundable under any law cannot be decided by the lok adalats even if the parties involved agree to the same.
The award passed by a lok adalat shall be final and will have force as a decree of a civil court.
Update and trends
Update and trends
Are there any proposals for dispute resolution reform? When will any reforms take effect? (Please also mention any ground-breaking recent cases, etc.)
Consistent with its push towards ease of doing business in India, the government has proposed further amendments by way of the Arbitration and Conciliation (Amendment) Bill, 2018 (Arbitration Bill) and introduced the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Ordinance, 2018 (Ordinance).
The Arbitration Bill proposes the creation of an Arbitration Council of India, an independent body whose functions will include grading arbitral institutions; accrediting arbitrators by laying down norms; and taking all such steps as may be necessary to promote and encourage arbitration, conciliation, mediation and other ADR mechanisms. An electronic depository of all awards is also proposed to be maintained by the council. The Arbitration Bill also proposes to insert a stipulation that arbitral proceedings are confidential except for the award. Further, the Arbitration Bill proposes to protect an arbitrator from suit or other legal proceedings for any action or omission done in good faith in the course of the arbitration proceedings. The timeline of 12 months to make an award shall not apply to international arbitrations and is proposed to be amended so as to commence from the date of completion of pleadings. In order to resolve the conflict of when the amendments in 2015 took effect, a transition provision is also being proposed. The Arbitration Bill was approved by the cabinet on 7 March 2018 but is yet to be introduced in parliament.
On a regional level, the New Delhi International Arbitration Centre Bill, 2018 was introduced in the Lok Sabha in January 2018 to establish an autonomous and independent institution to conduct and regulate arbitration, mediation and conciliation proceedings in India. The bill seeks to establish the New Delhi International Arbitration Centre, which will provide training and promote research in arbitration, provide facilities for the conduct of ADR proceedings and maintain a panel of accredited professionals to conduct ADR proceedings. The Bill also proposes to establish a Chamber of Arbitration, which will maintain a permanent panel of arbitrators, and an Arbitration Institute, which will provide training to arbitrators and conduct research in the area of ADR.
By the Ordinance the specified value has been reduced to three million rupees and state governments, in consultation with High Courts, may establish Commercial Courts at district levels in Mumbai, Kolkata, Chennai, Delhi and Himachal Pradesh (ie, High Courts exercising ordinary original jurisdiction). Where High Courts do not exercise ordinary original civil jurisdiction, the state government, in consultation with the High Court, may set up Commercial Appellate Courts at the district level.
A person aggrieved by the decision of a Commercial Court at the district level may appeal the decision to such Commercial Appellate Court within 60 days from the date of the judgment or order.
The Ordinance also provides for pre-institution mediation and settlement in commercial suits of the specified value that do not contemplate any urgent interim relief. In such cases, a suit cannot be instituted unless the remedy of pre-institution mediation has been exhausted.
The Ordinance also empowers the central government to authorise the authorities under the Legal Services Authorisation Act, 1987 for the purposes of such mediation and prescribe the manner and procedure of such mediation. This process of pre-institutional mediation must be completed within three months from the date of the application made by the plaintiff. This time-frame may be extended by a period of two months with the consent of parties. This period of mediation will not be calculated for the purposes of calculating the period of limitation.
Any settlement arrived at must be in writing and signed by the parties and the mediator, and shall have the same status as a consent award under section 30 of the Act.
The central government is yet to notify rules as to the manner and procedure of such pre-institutional mediation.
The government is also considering amendments to the Specific Relief Act, 1963. Presently, granting specific performance is discretionary, but the amendment proposes to make it compulsory. The amendments also seek to introduce the concept of ‘substituted performance’, whereby the affected party may opt to get the contract performed by a third party or its own agent at the cost of the defaulting party. The Bill proposes a special category for infrastructure projects in the field of energy, water, transport, communications and social or commercial infrastructure. In cases concerning such infrastructure projects, no injunctions may be granted if such an injunction would delay or hamper such project. Further, special courts are proposed to be set up to hear disputes pertaining to infrastructure projects. These amendments were approved by the lower house on 15 March 2018 and await approval of the upper house.
While such amendments are welcome, courts are already over-burdened and absent a systemic overhaul and reform, these amendments, like their predecessors, may end up being just palliatives.
Indian courts have adopted a pro-arbitration approach in recent times. Since the coming into force of the 2015 Amendment, there had been a great deal of uncertainty in relation to the applicability of the amended provisions insofar as proceedings arising out of ongoing arbitrations were concerned. This controversy has been settled by the Supreme Court in Board of Control for Cricket in India v Kochi Cricket Pvt Ltd & Ors Civil Appeal Nos. 2879-2880 OF 2018. It has been held that an award shall be enforceable notwithstanding any pending challenge in the appropriate forum until and unless a stay has been sought for and granted. Therefore section 36 of the Act, as amended, will apply to pending challenges under section 34 as well. Similarly, the Supreme Court in Sundaram Finance Ltd v Abdul Samad & Anr Civil Appeal No. 1650 of 2018 lent legitimacy to arbitral awards by holding that an application for execution of an award may be filed in the court within whose jurisdiction the assets are located without having to obtain a transfer decree from the court that would otherwise have supervisory jurisdiction over arbitral proceedings.
The Supreme Court of India also delivered a landmark judgment in KS Puttaswamy & Anr v Union of India (2015) 8 SCC 735, by which it held that the right to privacy is a fundamental right emanating from article 21 of the Constitution of India but is subject to certain reasonable restrictions. This is a welcome step towards achieving data protection in a world increasingly dominated by intellectual property.