Book Review: Arvind Datar on the 3rd Edition of O.P. Malhotra’s Law and Practice of Arbitration and Conciliation

Six years after the Arbitration and Conciliation Act, 1996 (“the Act”) came into force, O.P. Malhotra published the first edition of “The Law and Practice of Arbitration and Conciliation”. This commentary was well received because of its exhaustive and incisive analysis of the Act..This was of course no surprise as O.P. Malhotra had earlier published phenomenal books on industrial law and his treatise on the Act bore the same stamp of erudition and scholarship. The book soon became a standard work of reference for the courts, arbitrators and legal practitioners..The second edition was published in 2006. The Commentary was greatly benefited from the addition of O.P. Malhotra’s distinguished lawyer daughter, Indu Malhotra, as his co-author. The third edition has now been published in 2014. However, the sad and unfortunate demise of O.P. Malhotra meant that Indu Malhotra had to single-handedly assume the herculean task of revising the book..Indu Malhotra leaves no stone unturned to upkeep the impeccable standards of research and argument which was a staple feature of the both the previous editions of the book..The 3rd Edition of this book comes at a crucial time when there is an overwhelming preference for Arbitration as the dispute resolution mechanism of choice for commercial transactions and contracts. Also, in the light of the suggested Amendments to the Arbitration and Conciliation Act, 1996 vide the 246th report of the Law Commission of India (August, 2014), the book should serve as a ready-reckoner for the professionals and academicians alike..Judicial Overreach & International Commercial Arbitration–.Between 2006 (when the 2nd edition was published) and 2014, the law of arbitration in India has witnessed numerous landmark decisions, several of which have unfortunately retarded, rather than accelerated, the growth of arbitration..India had been stamped as the black sheep of the International Arbitration Community after the decisions in Bhatia international v Bulk Trading SA; (2002) 4 SCC 105 (“Bhatia International”) and Venture Global Engg v Satyam Computer Services Ltd.; (2008) 4 SCC 190 (“Venture Global”). The judgments essentially implied that the awards in an International Arbitration even where the seat of Arbitration was a foreign country (city) could be challenged in Courts in India. The decision of the Supreme Court in Venture Global which extended the doctrine laid down in Bhatia International was internationally criticized as being contrary to well-accepted principles of international commercial arbitration. Bhatia International permitted Indian courts to interfere even if the seat of the arbitration was outside India, unless parties expressly or impliedly excluded the operation of Part I of the Act. Venture Global however further expanded Bhatia and held that foreign awards could also be challenged under S. 34 unless the provisions of Part-I of the Act were excluded by express or implied agreement. This decision served to illustrate the negative effect of Bhatia International whereby a rationale applicable to interim relief was extended to other provisions of Part I also, severely undermining party autonomy..These views were heretical and the Supreme Court constituted a five-judge bench in Bharat Aluminium Co. Ltd. v Kaiser Aluminium Technical Service Inc; (2012) 9 SCC 649(“BALCO”) to consider the correctness of these two decisions. The Constitution Bench while adopting a literal interpretation overruled the decisions in Bhatia International and Venture Global, holding that Part I of the Act applies only to arbitrations seated in India. While these cases were rightly overruled in view of the uncertainty they created in India’s arbitration law regime, Indu Malhotra rightly criticizes the bench for overruling the earlier decisions only prospectively. By applying the principle of prospective overruling, all agreements executed prior to September 2012 would continue to be governed by the earlier decisions that were plainly erroneous..Indu Malhotra has rightfully pointed out that the issue pertaining to enforcement of Non-Convention Awards still needs to be settled despite the BALCO judgment. Bhatia had promulgated that the Non-Convention Awards would be deemed to be domestic awards and thus implying that Part I of the Act would be applicable to such Non-Convention Awards. BALCO however, has held that the legislature never intended not to include Non-Convention Awards within the Act. The book discusses this catch-22 situation adequately, which has practically lead to a situation where there is no law in India which governs arbitrations held in Non-Convention countries..Procedural Fairness.The book goes an extra mile in critically analyzing the procedural aspects of arbitration. Indu Malhotra has comprehensively dealt with the contentious provisions of the Act, viz. sections 8, 9, & 11..For example, this commentary has considered the powers of the court to grant interim relief under section 9 clause-by-clause. While not as widely publicized or discussed, the orders on Section 9 involve an important balancing act of securing party interests..Equally helpful is the elaborate discussion on “anti-arbitration injunctions”. This power is derived from S. 9, which allows the court to grant injunctions even during the pendency of arbitration proceedings, and this may take the form of an injunction stopping the arbitration proceedings. Despite the discretion granted to the court, it is important to note the countervailing principle of kompetenz-kompetenz enshrined in S. 16 of the Act, and an anti-arbitration injunction does not override the right of the tribunal in this regard. Therefore, the book has rightly noted that it is a power that should be exercised very cautiously..Section 34, The Grey Area.However, where the book really proves its worth is in highlighting the fatal flaw in the Act, wherein it has blindly adopted the UNCITRAL Model Law and applied it to domestic arbitrations in Part-I..The vagueness of certain aspects of Section 34 such as the use of the phrase “public policy” has lead to various judicial pronouncements with diametrically opposite approaches adopted by the Court in order to interpret Section 34. The term was first notably interpreted in the context of S. 7(1)(b)(ii) of the Foreign Awards (Recognition and Enforcement) Act, 1961, in Renusagar Power Ltd. v General Electric; 1994 SCC Supl (1) 644 where the court observed that an award would be against public policy if it was contrary to: (i) fundamental policy of Indian law; or (ii) the interests of India; or (iii) justice or morality. To this three-fold test, the court in ONGC v Saw Pipes; (2003) 2 Arb. LR. 1(“Saw Pipes”) added a fourth ground that could invalidate an award on the ground of public policy, namely, patent illegality. The Court through this interpretation has adopted the power to re-examine and re-evaluate the evidence on the basis of which an award has been passed. This approach effectively lays redundant the entire arbitral proceedings and has led to bulky awards being set aside or affirmed with equally bulky judgments..The saving grace is the decision in Shri Lal Mahal v Progetto Grano Spa; (2014) 2 SCC 433 where it has been clarified that the Saw Pipes standard is confined to applications for setting aside under S. 34 and does not extend to the enforcement of foreign awards under S. 48. Indu Malhotra has analyzed all these conflicting pronouncements and has provided an incisive analysis to create atleast some clarity in this respect..Investment Treaty Arbitrations.Another feature of this book is an enriching discussion on “Investment Treaty Arbitration”, an area that is of utmost significance for India especially considering the recent Vodafone Tax Dispute..This analysis is not limited to theory but also to important case laws such as the White Industries v. Republic of India; UNCITRAL (India-Australia BIT), Award, Nov. 30, 2011 case and the various issues that arose therein. This decision is instructive for India for the ways in which it may become liable to foreign investors if it cannot ensure the smooth functioning of its judicial system. Indu Malhotra discusses the judgment and its myriad implications in-depth; and her incisive analysis will be instructive to not just Indian practitioners but to the wider international community..Conclusion.In conclusion, the third edition is indispensable to all those connected with the law of arbitration. Many authors face the sorrow of their books not being revised into second, third and further editions. Rarer still is for an author to see his work being carried on equally well by his son or daughter. O.P.Malhotra was fortunate to see his daughter not only becoming a successful senior advocate but his co-author as well. The third edition of the book, is one that OP Malhotra would have been proud to call his own..(Arvind Datar is a Senior Advocate in the Supreme Court of India)