India. Neerav Merchant. Majmudar & Partners Mumbai. Law firm bio

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1 India Neerav Merchant Majmudar & Partners Mumbai Law firm bio 1. What are the current challenges to enforcement of multi-tiered dispute resolution clauses? At the outset, in India, the concept of following an alternate dispute resolution (ADR) is not very mature as seen in westernized nations. Consequentially, Indian lawyers seldom come across multi-tiered dispute resolution clauses. However, this scenario is changing rapidly, as Indian parties are increasingly entering into more cross border contracts. Arbitration, in India, is governed by the Arbitration and Conciliation Act, 1996 (the Act ). Section 8 of the Act makes it obligatory upon the courts to refer parties to arbitration if certain conditions as mentioned therein are fulfilled. Usually, Indian parties would not care to comply with multi-tiered dispute resolution clauses and often they would fail to appoint arbitrators with mutual consent. This situation compels one of the parties to invoke Section 11 of the Act, which sets out the procedure of appointment of arbitrator(s) by the Court. Sub-section (2) of Section 11 of the Act allows the parties to agree on a procedure for appointing the arbitrator(s). As such, it is under these provisions that the parties to the contracts agree to have a multi-tiered dispute resolution clause, the last tier being arbitration. Typically, the courts intervene in appointing the arbitrator(s) under Section 11(6) of the Act when the procedure of appointment fails among the parties. However, Indian courts follow the mandate specified in Section 11(6), read with Section 11(2) of the Act and honor the procedure (including that of following multi-tiered dispute resolution clause) for appointment of the arbitrator as agreed upon between the parties, save and except where the conduct of the parties illustrate that: the procedure as agreed upon is waived; it is impossible to follow the procedure the procedure, prima facie, in unlikely to resolve the dispute and the same is eventually going to land before the arbitrator for adjudication. Hence, under the Act, as a thumb rule, conditions precedent to invocation of arbitration are recognized as enforceable. However, there are exceptions (as aforesaid) and the Indian courts 92

2 would, depending on the facts and circumstances of a particular case, take a practical view of the matter rather than being technical or hyper-technical. To support our views expressed above, we have relied on the following judgements: (iv) (v) (vi) AIR 2007 SC Municipal Corporation, Jabalpur & Ors. Vs. Rajesh Construction Co. Bombay High Court Arbitration Application No.4 of 2007 Tulip Hotels Pvt. Ltd. Vs. Trade Wings Ltd. (2009) 4 SCC S.K. Jain Vs. State of Haryana AIR 2012 SC AL Jazeera Steel Products Company SAOG Vs. MID India Power and Steel Ltd. AIR 2014 SC Swiss Timing Ltd. Vs. Organising Committee, Common Wealth Games, 2010 Delhi High Court I.A. No of 2014 in C.S. (O.S.) 1678 of 2014 [Delhi Airport Metro Express Pvt. Ltd. Vs. CAF India Pvt. Ltd.] 2. What drafting might increase the chances of enforcement in your jurisdiction? The drafting of a multi-tiered dispute resolution clause is definitely a critical factor in determining the enforceability of such clauses. However, to increase the chances of enforcement please include the following points in the multi-tiered dispute resolution clause: To use assertive and mandatory terms / words like shall and condition precedent ; To use clear and unambiguous language, leaving no scope for creative interpretation and/or debate; and To clarify and mention the method, stages and procedure for the multi-tiered dispute resolution clause in detail, including, if possible, the names of the mediators / conciliators as well as the applicable rules for the same. In a number of jurisdictions, the decision to enforce or not has come down to considerations such as the foregoing. Is this true in your jurisdiction? On the basis of the above guidelines, we proceed to answer the queries as below: A. Does the clause expressly provide that prior stages are conditions precedent to litigation or arbitration? Yes, use of the words condition precedent would surely help. 93

3 B. Does the clause use mandatory language (e.g., shall or must negotiate or mediate) as opposed to discretionary language ( may or should )? Yes, use of the words shall or must negotiate or mediate is recommended. C. Does the clause specify deadlines and time limits for each of the prior stages? Considering that India is a tardy jurisdiction, specifying deadlines and time limits for each of the prior stages may, or may not, work in all cases, but providing deadlines is advisable. D. Does the clause specify the number of negotiation sessions? The number of negotiation sessions required for settling a dispute would vary, depending on the nature and complexity of the dispute, as also a lot would depend on the mindset of the parties as to whether they really intend and wish to resolve issues or merely wish to drag the matter. Hence, it may not be practical, especially, from an Indian standpoint, to specify the number of negotiation sessions. E. Does the clause specify the identity of negotiation participants? E.G., project engineers, company officers, etc. It would be ideal to clearly identify the negotiating participants. This will save time, as parties would refrain from causing delays on the pretext of identifying their respective participants for conducting negotiations. F. Does the clause specify mediation pursuant to specific rules or using a particular dispute resolution institution? In India, there is no separate statute for governing mediation. However, there are institutions that act as mediators through their panel members and have their own rules, regulations and procedures. If the parties are inclined to use mediation as a mode of dispute resolution, then it would be ideal if the clause specified the dispute resolution institution. In our experience, mediation is encouraged by the courts mostly in family disputes and matrimonial matters. Having said so, as we all know, the end result of mediation may not necessary conclude the dispute. G. Does the clause specify consequences for failure to undertake the prior stages? Consequences for not following the process can be specified. However, the question of whether a party is liable for such consequences or not needs to be decided through the process of arbitration or court. Hence, specifying consequences with a view to induce parties into following the prior stages may not prove to be as effective. 94

4 3. If your courts have enforced such clauses, how have they done so? For example, the courts of some jurisdictions have enforced such clauses by doing the following. A. Dismissing litigation where the parties have failed to undertake the prior stages. Yes, the courts have dismissed applications for appointment of arbitrator(s) when the respondent has raised a contention that the procedure (prior stages) agreed under the contract for dispute resolution has not been followed. B. Staying litigation or arbitration until the parties have completed the prior stages. In India, once a party has participated in the appointment of the arbitrator the party is deemed to have waived its right to contend that prior stages were not complied with. Therefore, such contention can be raised only at the stage when the other party files an application for the appointment of arbitrator(s). Hence, the question of a stay on litigation or arbitration does not arise. C. Awarding attorney fees and costs to a party that commenced litigation or arbitration without first undertaking the prior stages. This is very rare in India. To say the least, we have not come across any case wherein the courts in India have awarded/ granted attorney fees and costs against a party that commenced litigation or arbitration without first undertaking the prior stages. Generally, attorney fees are not awarded; however, the possibility of imposition of costs in some matters cannot be ruled out, which too is not given in all cases. D. Vacating arbitration awards or reversing court judgments where the parties failed to undertake prior stages. As discussed above, in India, once the parties in dispute participate in the appointment of the arbitrator and/or undergo arbitration process, such parties are deemed to have waived their respective rights to contend that prior stages were not undertaken and therefore the entire arbitration process is bad. Hence, the question of vacating arbitration awards or reversing court judgments where the parties fail to undertake prior stages would not arise. 4. Please give an example of a clause that has been found to be, and remains, enforceable in your jurisdiction. In the case of Tulip Hotels Pvt. Ltd. Vs. Trade Wings Ltd. (referred above) the clause which was enforced by the Bombay High Court is reproduced below: All dispute and differences between the parties hereto in respect of any matters and except those relating to the fundamental matters in respect of which the parties have been given affirmative vote, stated in this Agreement shall first be tried to be resolved through the intervention of a conciliator appointed by the parties to the dispute, who shall initiate through conciliation to resolve the 95

5 dispute. If, however, the dispute is not resolved within one month after the matter of dispute is referred to the conciliator for conciliation, the same shall be referred for arbitration to panel of arbitrators comprising of arbitrator appointed by each party to the dispute and the arbitrator so appointed may appoint one more arbitrator as a Umpire, however, the total number of arbitrators shall be 3 numbers. The conciliation and arbitration proceeding shall be governed by the Arbitration and Conciliation Act 1996(26 of 1996). The venue of conciliation and arbitration proceeding shall be in the city of Mumbai. The award given by the Umpire shall be final and binding on all the parties to the arbitration. 96

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