by Zen Webnet | Mar 27, 2024 | Blog
Article by Vijay K Singh & Himanshu Dubey
“Sometimes, in quest of justice we end up doing injustice” – Hon’ble Mr. Justice Pankaj Mithal
A. BACKGROUND
Three judge Bench of the Hon’ble Supreme Court in Asian Resurfacing of Road Agency (P) Ltd v CBI[1] vide order dated 28.03.2018, inter alia issued the directions in para 35 & 36 of the judgment that in all matters, civil or criminal, orders of stay which have once been granted should not continue beyond a period of six months unless specifically extended and the stay shall stand vacated automatically. Pertinently, the said direction was issued with the view to remedy the proceedings remaining pending for long time on account of stay causing unnecessary delay in completion of trial.
In Miscellaneous Application No. 890 of 2021[2], another three-judge Bench of the Hon’ble Supreme Court vide order dated 02.07.2021 again directed to follow the direction issued Asian Resurfacing case (supra)..
Interestingly, the matter concerning the adverse effects experienced by the litigants upon the automatic vacation of the stay order was brought before the Hon’ble Allahabad High Court in the matter of Chandrapal Singh vs. State of U.P. and Another,[3] wherein the Hon’ble Allahabad High Court vide judgment dated 03.11.2023, framed substantial question of law for consideration by the Hon’ble Supreme Court under Article 132 of the Constitution of India and granted a Certificate for Appeal to the Supreme Court to the applicants therein.
Hon’ble Supreme Court in Criminal Appeal No(s).3589/2023 titled as High Court Bar Association Allahabad Vs The State Of Uttar Pradesh & Ors., vide its order dated 01.12.2023, referred the matter to the Constitution Bench of five Judges to examine the correctness of the directions issued in para 36 and 37 of by the Coordinate Bench in Asian Resurfacing case (supra). The Hon’ble Supreme Court while referring the matter to the Constitution Bench duly noted that the delay may also be occasioned due to the inability of the Courts to take up proceedings expeditiously and automatic vacation of stay without application of judicial mind will result into serious miscarriage of justice.
Eventually, the Constitution Bench of the Hon’ble Supreme Court of India vide its judgment dated 29.02.2024 overruled the directions issued in the case of “Asian Resurfacing case (supra) i which provides for automatic vacation of stay orders granted by High Courts unless extended by a speaking order and day-to-day hearing of cases in which stay has been granted.
B. CRITICAL ISSUES:
- Limitation to exercise power under Article 142 – Article 142 of the Constitution of India which confers jurisdiction on the Apex Court to pass such a decree or order necessary for doing complete justice in any case or matter pending before it however there are some limitations to the same:
i. It cannot be exercised to nullify the benefits derived by a large number of litigants based on judicial orders validly passed in their favour who are not parties to the proceedings before this Court.
ii. It does not empower the Court to ignore the substantive rights of the litigants.
iii. It cannot affect the substantive rights of those litigants who are not parties to the case before it. The right to be heard before an adverse order is passed is not a matter of procedure but a substantive right.
iv. The power under Article 142 cannot be exercised to defeat the principles of natural justice, which are an integral part of our jurisprudence.
v. Only the legislative body holds the authority to designate certain categories of cases to be adjudicated within specified timeframes.
- Object of Passing the Interim orders:i.Object of passing interim orders is to allow courts to aid the final relief sought in a case only where three factors i.e. prima facie case, irreparable loss, and balance of convenience are made out.
ii. Remedy before the High Court would become ineffective if the pending trial is not stayed and the Trial Court decides the pending case.
iii. Courts, while passing orders of stay in serious cases like the offences under the PC Act or serious offences against women and children, must be more cautious and circumspect.
iv. Our legal system, which is facing a docket explosion of pending cases, the grant of stay of proceedings is called for in many cases.
- The Hon’ble Apex Court observed that the Hon’ble High Courts can vacate interim orders on various valid grounds such as deliberate prolongation of litigation by a litigant, interim order has been granted on suppression or misrepresentation of material facts, etc.
- It is essential that significant legal matters are not adjudicated upon without a genuine dispute between the parties as such Courts should refrain from passing the judgments on the issues without the lis before it.
- Interim order of stay can come to an end by way of disposal of the main case or judicial order vacating interim relief, passed after hearing the contesting parties on the available grounds.
- A High Court, as per the constitution, maintains independence from the Hon’ble Supreme Court of India and does not operate under its authority. The authority vested in the High Court under Article 227 of the Constitution includes power to stay the proceedings before its subordinate courts.
CONCLUSION –
The Hon’ble Supreme Court overturned the directives issued in the Asian Resurfacing Case (supra) inter alia directing that there should not be an automatic vacation of stay granted by the High Court. Additionally, the Supreme Court expressed disapproval of the mandate to adjudicate cases on a daily basis when interim stay had been granted by the High Court. Such broad directives cannot be issued under the jurisdiction granted by Article 142 of the Constitution of India. Justice hurried is Justice buried. Judgment dated 28.03.2018 Asian Resurfacing is a clear example of the same.
Pertinently, earlier also. the Hon’ble Supreme Court in Deputy Commissioner of Income Tax & Anr. v. Pepsi Foods Limited[4] struck down the provision of automatic vacation of stay on the ground that such provision is manifestly arbitrary.
The directions issued in Asian Resurfacing (Supra) undermined a litigant’s entitlement to remedies under Articles 226 and 227 of the Constitution of India, essentially nullifying a litigant’s right to pursue and utilize statutory remedies under Code of Criminal Procedure, 1973 and the Code of Civil Procedure, 1908 respectively. It is highly unreasonable and prejudicial to invalidate all interim stay orders issued by High Courts solely due to the passage of time. Not all litigants have the financial means to initiate proceedings in the Constitutional Courts. Those who can afford to approach these Courts should not be permitted to gain unfair advantage by obtaining orders for expedited disposal of their cases, while other litigants wait patiently in line for their turn to be heard. The reality of the backlog of cases in our courts is daunting; simultaneously, it is impractical to expect that the High Courts would prioritize or expedite exclusively those cases where proceedings have been stayed, while overlooking numerous other categories of cases that may warrant greater urgency.
The issue of delays in the Indian judiciary refers to the prolonged duration it often takes for cases to be resolved or for legal processes to be completed within the judicial system of India. As such the Hon’ble Supreme Court while noting “Ideally, the cases in which the stay of proceedings of the civil/criminal trials is granted should be disposed of expeditiously by the High Courts. However, we do not live in an ideal world” has also issued guidelines to prevent prejudice to the opposing parties when granting ex-parte ad-interim relief without hearing the affected parties that ad interim relief shall be passed for a restricted duration. Subsequently, upon hearing the contesting parties, the Court may decide whether to confirm the initial ad-interim order or not. The vacating or affirming of ad-interim relief, once granted, should only occur after careful consideration by the Court. Applications for vacating interim reliefs shall not be kept pending for long time and recourse to the easy option of directing that the same should be heard along with the main case should be avoided.
[1] (2018) 16 SCC 299.
[2] Asian Resurfacing of Road Agency Pvt. Ltd. & Anr. v. Central Bureau of Investigation, Miscellaneous Application No. 890 OF 2021
[3] Application No. – 28574 of 2019.
[4] (2021) 7 SCC 413.
by Zen Webnet | Mar 26, 2024 | Blog
Article by Sarthak Tripathi
Introduction
In an unusual turn of events, a Spanish criminal court found a Spanish arbitrator guilty of contempt of court in an international contract dispute and sentenced him to six months in jail[1]. The ruling was tied to the arbitrator’s role in an ongoing case alleging breach of contract against Malaysia filed by the descendants of a sultan who ruled part of the region in the late 1800s. The descendants of the sultan filed a claim for breach of agreement in Spain after the UK Foreign and Commonwealth Office rejected the request. The arbitrator awarded claimants $ 14.9 billion and filed enforcement actions for payment in various jurisdictions across Europe. The court banned him from practicing as an arbitrator for one year for knowingly disobeying rulings and orders from the Madrid High Court of Justice. This ruling raised a conversation around the immunity exercised by arbitrators across jurisdictions which is necessary for them to perform their duties without being intimidated or interfered with by any party[2].
The source of arbitral immunity can be traced back to the English common law doctrine of immunity under Floyd & Barker[3] which held that Judges of English common law courts cannot be sued for their actions performed in their judicial capacity in competing courts.
Indian Law on Arbitral Immunity
The Indian legislature incorporated a provision for arbitrator’s immunity from Civil Liabilities by incorporating Section 42B to the Arbitration and Conciliation Act of 1996 [hereafter the Act]. This was a positive step towards structuring the Indian arbitration principles in consistency with international practices. The Chartered Institute of Arbitrators in 2015 had laid down a framework for evaluating the best arbitral seats[4] which included “immunity for arbitrators from civil liability for anything done or omitted to be done in good faith as an arbitrator.”
The high-level committee to review the institutionalization of Arbitration mechanism in India accordingly recommended the incorporation of a provision for arbitral immunity in the Act, which resulted in the incorporation of Section 42B in 2019 which read that:
“No suit or other legal proceedings shall lie against the arbitrator for anything which is in good faith done or intended to be done under this Act or the rules or regulations made thereunder.”
However, the wordings of the provision provide that such suits or other legal proceeding would not be initiated for anything “which is in good faith done or intended to be done under this Act”, which leaves a grey area for such acts of the Arbitrator which can be construed against his or her duties or portray plain lousy faith on their behalf.
Recommendations of the Srikrishna Committee
The B.N. Srikrishna Committee was formed to review the instutionalization of arbitration mechanism in India[5]. They were tasked with identifying the roadblocks to the development of institutional arbitration, examining specific issues affecting the Indian landscape, and preparing a roadmap for making India “a robust centre for international and domestic arbitration.”
Based on the recommendation of the Committee[6], Section 42B was inserted in the A&C Act, however the exception of cases of bad faith has not been expressly incorporated in the provision.
The Committee had explained that the immunity was granted based on the well-accepted principle that any individual who is performing a judicial or quasi-judicial act should be granted immunity for the same.
The committee had opined that in the absence of any provision for immunity, the arbitrators rely on the institutional arbitral rules for seeking immunity. The Rules of Domestic Commercial Arbitration of the Indian Council of Arbitration[7], the Rules of International Commercial Arbitration of the Indian Council of Arbitration[8], Delhi International Arbitration Centre (Arbitration Proceeding) Rules[9] and the Mumbai Centre for International Arbitration[10] all contain provision for immunity.
However, in cases of ad hoc arbitration, the arbitrators do not enjoy immunity, unless decided upon by the parties.
Before incorporation of Section 42B of the Act
The Hon’ble Delhi High Court in Rajesh Batra vs Ranbir Singh Ahlawat[11] while adjudicating on a petition under Section 34 of the Act, was posed with a scenario where the Respondents had unilaterally appointed the arbitrator without the consent of the Petitioner and the Arbitrator assumed jurisdiction on such unilateral nomination. The Hon’ble DHC not only held the impugned award to be patently illegal but also imposed costs on the arbitrator for brazenly conducting the proceedings and passing the impugned award.
After the incorporation of Section 42B of the Act
The Madras High Court in Kothari Industrial Corporation Ltd. v. M/S Southern Petrochemicals Industries and Anr.[12] while adjudicating on a petition under Section 34 of A&C Act 1996 wherein the arbitrator was impleaded in the appeal, held that arbitrators should not be unnecessarily impleaded unless any personal or specific allegations have been made against the arbitrator. The court noted that:
“It is a pernicious practice in this court to implead arbitrators or arbitral tribunals when there is no need to do so. Often, arbitrators are embarrassed upon receipt of notice. It is only in a rare case when a personal allegation is made against an arbitrator may such arbitrator be impleaded”.
Recourse to arbitral immunity
It is pertinent to note that the Section 42B does not provide any exception to the underlying arbitral immunity. However, in cases where there is such act or omission on behalf of the arbitrator, the Act provides for the following recourses:
- Failure or impossibility to act under Section 14 of the Act: The Section 14 of the Act provides for the de jure or de facto inability of the arbitrator to perform his duties. In such a scenario the arbitrator shall be removed or substituted. Section 14 r/w Section 12(5) would result in the removal of the arbitrator on the counts of bias.
- Inability to pass the arbitral award within stipulated time limit under Section 29A of the Act: If the court finds that the proceedings have been delayed for the reasons attributable to the arbitral tribunal, it may order reduction of fees of arbitrators by not exceeding 5% for each month of the delay.
- Setting aside of the award under Section 34 r/w Section 36 of the Act: An arbitral award can be inter alia set aside on the ground of fraud and corruption in the making of the award.
Conclusion
The provision of immunity is imperative for the arbitrators to carry out their duties, however, it is pertinent that such immunity is accompanied by certain safeguards to prevent its abuse. The interpretation of the term “good faith” is crucial for achieving the desired result from the inclusion of the section. Incidentally, there exists a grey area resulting from the interpretation of “good faith”. The safeguard or misuse of the immunity under the act will depend on how the courts will interpret “good faith”.
[1] Emily R. Siegel, Arbitrator’s Guilty Verdict Puts UK Funder’s Investment at Risk, Bloomberg Law, https://news.bloomberglaw.com/business-and-practice/arbitrators-guilty-verdict-puts-uk-funders-investment-at-risk, Jan 9, 2024
[2] Bianca Castro, Arbitrator jail sentence and ban raises questions in ‘highly unusual’ case, The Law Scoiety Gazette, https://www.lawgazette.co.uk/news/arbitrator-in-149bn-case-jailed-following-intervention-by malaysia/5118364.article#:~:text=Arbitrator%20jail%20sentence%20and%20ban%20raises%20questions%20in%20’highly%20unusual’%20case&text=The%20jailing%20of%20an%20arbitrator,of%20process%2C%20experts%20have%20warned, Jan 19, 2024
[3] Barker v. Town of Floyd, 61 A.D. 92 (N.Y. App. Div. 1901)
[4] A framework for evaluating the best arbitral seats, Chartered Institute of Arbitrators (Nov 20, 2018) https://ciarb.org/resources/features/a-framework-for-evaluating-the-best-arbitral-seats/
[5] Press Information Bureau, Constitution of high-level committee to review Institutionalization of Arbitration Mechanism in India, (Issued on December 29, 2016)
[6] Report of the High Level Committee to Review the Institutionalisation of Arbitration Mechanism in India, July 30, 2017, chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://legalaffairs.gov.in/sites/default/files/Report-HLC.pdf
[7] Rule 79, Indemnity of Secretariat and Arbitrator, Rules of Domestic Commercial Arbitration of the Indian Council of Arbitration,
[8] Rule 28. Indemnity of the Council, the Committee, the Governing Body, the Chairman, the President, the Registrar and the Arbitrators; Rules of International Commercial arbitration of the ICA
[9] Rule 34. Exclusion and Waiver of Liability; Delhi International Arbitration Centre (Arbitration Proceeding) Rules 2023
[10] Rule 34. Rule 34. Exclusion and Waiver of Liability; Mumbai Centre for International Arbitration Rules 2016
[11] Rajesh Batra v. Ranbir Singh Ahlawat; 2011 SCC OnLine Del 3308
[12] Kothari Industrial Corporation Limited v. Southern Petrochemicals Industries Corporation Limited; 2021 SCC OnLine Mad 5325
by Zen Webnet | Mar 26, 2024 | Blog
Article by Khushboo Tomar Mangal
Trademark anti-counterfeiting strategies in India adopt a comprehensive approach that integrates legal, technological, and collaborative efforts to protect registered trademarks from infringement and counterfeiting, which are essential for preserving consumer confidence and brand integrity within the market. To begin with, trademark registration with authorities such as the Controller General of Patents, Designs and Trademarks offers legal protection, empowering owners to assert their rights through civil litigation, criminal prosecution, and administrative actions against infringers.
Moreover, implementing robust monitoring systems across various channels is vital for upholding the integrity of trademarks and preventing unauthorized use. This necessitates the utilization of advanced technologies and the deployment of dedicated teams to conduct regular searches and inspections. These monitoring efforts encompass a range of methods, including online platforms, physical marketplaces, and supply chains, aiming to identify and address instances of trademark infringement and counterfeiting promptly. Here’s a comprehensive description of each aspect mentioned in the statement:
- Technological Solutions: Utilizing advanced technologies such as holograms, QR codes, and RFID tags plays a pivotal role in authenticating genuine products and identifying counterfeit ones within the supply chain. These solutions provide unique identifiers that can be easily verified, helping to distinguish legitimate goods from fake ones.
- Customs Recordation: Establishing recordation procedures with customs authorities enables the interception of counterfeit goods at ports of entry. By providing customs officials with information about registered trademarks, companies can prevent the entry of counterfeit products into the market, thereby protecting consumers and preserving the reputation of their brands.
- Legal Remedies: Pursuing legal action through civil and criminal proceedings is essential for deterring counterfeiters and holding them accountable for their actions. This involves taking legal measures against individuals or organizations involved in the production, distribution, or sale of counterfeit goods, thereby discouraging such activities and protecting the interests of trademark owners.
- Public Awareness Campaigns: Educating consumers and stakeholders about trademarks and the risks associated with counterfeit products is critical for fostering awareness and preventing the proliferation of counterfeit goods. Public awareness campaigns raise consciousness about the importance of trademarks in identifying genuine products and highlight the potential dangers of purchasing counterfeit items.
- Collaboration with Law Enforcement: Partnering with law enforcement agencies strengthens investigation and prosecution efforts against counterfeiters. By working closely with law enforcement authorities, companies can gather intelligence, conduct raids, and dismantle counterfeit operations, thereby disrupting illicit supply chains and protecting the integrity of their brands.
- Industry Cooperation: Collaborating with other companies and industry associations fosters information-sharing and collective action against counterfeiters. By sharing intelligence, best practices, and resources, companies can enhance their collective ability to combat counterfeiting and safeguard their brands.
In practice, trademark owners leverage a combination of tools and techniques to monitor and enforce their rights effectively. Advanced technologies such as digital monitoring software, machine learning algorithms, and data analytics enable automated detection of potential infringements across diverse online platforms and digital channels. Meanwhile, dedicated teams of investigators and enforcement agents conduct physical inspections and market surveys to identify counterfeit products and unauthorized use of trademarks in offline settings.
By employing a multi-faceted approach to monitoring, trademark owners can enhance their ability to detect, deter, and address instances of infringement and counterfeiting comprehensively. This proactive stance not only helps safeguard the interests of trademark owners but also contributes to maintaining the credibility and trustworthiness of brands in the eyes of consumers.
Furthermore, collaborative efforts play a crucial role in combating counterfeiting in India. Trademark owners often collaborate with law enforcement agencies, government authorities, industry associations, and other stakeholders to share information, coordinate enforcement actions, and advocate for policy reforms aimed at strengthening intellectual property protection.
Overall, trademark anti-counterfeiting strategies in India prioritize a holistic approach that combines legal, technological, and collaborative measures to combat infringement and counterfeiting effectively. By doing so, these strategies contribute to fostering a fair and competitive marketplace, protecting consumer interests, and upholding the integrity of brands within the Indian market landscape.
Implementing comprehensive strategies to combat infringement and counterfeiting threats offers trademark owners a multi-faceted approach to fortify their brands, maintain marketplace integrity, and safeguard consumer trust. This holistic strategy encompasses various elements aimed at different stages of the counterfeiting process, ensuring a robust defense against illicit activities. Through robust monitoring systems and technological solutions, trademark owners can strengthen their brands by ensuring that only genuine products bearing their trademarks enter the market. Tools like holograms, QR codes, and RFID tags authenticate products, enhancing brand credibility and trustworthiness. By actively monitoring various channels for unauthorized trademark use and employing dedicated teams to conduct regular searches, trademark owners uphold the integrity of the marketplace, preventing the proliferation of counterfeit goods and ensuring fair competition. Detecting and preventing the sale of counterfeit products is essential for protecting consumer trust. Implementing effective monitoring systems reassures consumers, safeguarding their trust and loyalty to the brand. The multi-faceted approach to combating counterfeiting addresses different aspects of the problem, including detection, prevention, legal enforcement, and public education, creating a comprehensive defense against counterfeit goods. Using advanced technologies and regular monitoring, trademark owners can detect and prevent the production, distribution, and sale of counterfeit goods, mitigating associated risks. Pursuing legal remedies through civil and criminal proceedings deters counterfeiters, sending a clear message that such activities will not be tolerated. Educating consumers and stakeholders about trademarks and counterfeit risks raises awareness and empowers informed purchasing decisions.
In conclusion, comprehensive strategies fortify brands, maintain marketplace integrity, and protect consumer trust, combining proactive monitoring, technological solutions, legal enforcement, and public education to ensure continued success and reputation.
by Zen Webnet | Mar 26, 2024 | Blog
Article by Jyoti Lakhoria
Introduction
Companies place a great deal of importance on their goodwill and reputation in the marketplace because these factors show how prospective consumers view their brand. Trans-border Reputation is the term for a brand’s reputation that extends outside its home country through imports or ads to other nations where it may not be used.
Even in situations when the goods are not physically present in the foreign nation and the mark is not registered, the owner of the mark must nevertheless have the right to prevent passing off if the mark has developed goodwill and reputation there.
Origin of Trans-Border Protection
Alongside the policies of globalization, liberalization, and privatization, the concept of trans-border reputation was first initiated in the 1990s. Through these policies, the concept of physical boundaries was essentially eliminated, and foreign businesses were allowed access to the Indian economy. Consequently, it also rendered the Indian economy susceptible to competition in the international market.
The idea of territoriality in trademark protection met numerous difficulties as trade grew across international borders. These laws, along with the explosive expansion of e-commerce, eliminated the country’s geographical borders, allowing trademarks to become globally recognized brands.
Judicial Approaches in India
The concept of trans-border reputation originated in India when it was discussed in Supreme Court of India during the N.R. Dongre vs. Whirlpool Corporation[1] case.
In N.R. Dongre vs. Whirlpool Corporation case, the Defendant of the international corporation Whirlpool Corporation was based in the US and engaged in production, marketing, and distribution of washing machines throughout multiple nations. The Defendant registered their trademark, WHIRLPOOL, in India in 1956, but they neglected to renew it, therefore it expired in 1977. However, the Indian business that filed the appeal registered the trademark “WHIRLPOOL” for their own washing machines.
Since the Respondent had neglected to renew its trademark registration after 1977, the Supreme Court essentially had to decide whether the Appellant’s action could be justified. The Respondent had a trans-border reputation in the Indian market, according to the Supreme Court, because it had been widely promoted, sold, and used of the mark for a considerable amount of time worldwide. Because of this, the Supreme Court ruled in favor of the Respondent, holding that the Appellant lacked a valid purpose for registering a mark that was identical to one for goods that were similar.
“The reputation of a trademark with respect to a trader’s goods is not necessarily bound by the borders of the country of its origin, but it often makes its presence felt in different countries around the globe where they haven’t been sold or marketed as well,” the Supreme Court said in upholding the Respondent’s rights in their ruling. When a product is introduced in one nation, it is also noticed by people in other nations through ads, films, publications, etc. This holds true even for nations where the particular product is not offered for sale.
In 1988, in Kamal Trading Co. v. Gillette UK Limited[2] case, the Bombay High Court actually prohibited the use of the 7 O’Clock mark for “toothbrushes” because of the mark’s repute and trustworthiness in relation to the Respondent’s products, which included shaving creams and razors. Considering that international trade and shipping of goods are not as significant as they once were, a brand’s goodwill remains untarnished even in cases when the product is unavailable in the relevant nation.
Challenges
Trademarks’ reputation across borders poses several difficulties and issues for the legal system. The possibility of trademark infringement and unlawful use across jurisdictions is one of the main problems. A trademark’s reputation grows outside of its nation of origin, making it more susceptible to abuse by uninvited parties looking to profit from its popularity and goodwill. In the end, this could hurt the legitimate owner of the trademark by confusing consumers and diluting its distinctiveness.
The difficulty of establishing a transnational repute in court is another obstacle. A significant amount of proof, such as widespread advertising campaigns, media attention, and consumer recognition in other countries, is frequently needed to establish a trans-border reputation.
All things considered, the international reputation of trademarks presents issues about illicit usage, obtaining proof, enforcing the law, and the influence of online trade. In an increasingly interconnected global marketplace, addressing these issues calls for international cooperation, harmonization of legal standards, and strong trademark protection procedures.
Conclusion
The importance of a trademark’s transborder reputation being appropriately recognized and protected in many nations is underscored by the expansion and development of the global market. The transborder repute of a trademark has been accorded appropriate importance and protection by Indian courts. It is always advised that overseas businessmen register their trademarks in as many nations as they can to prevent any form of dispute. In India now, foreign trademarks that are not registered are still recognized and protected due to their reputation across international borders.
[1] (1996) 5 SCC 714
[2] 1988 (8) PTC 1 (BOM)
by Zen Webnet | Mar 26, 2024 | Blog
Article by Kabir Chaturvedi & Kopal Chaturvedi
Confidentiality in arbitration serves as both a shield to protect sensitive information and a sword to promote candour among disputing parties. Further, as the Federal Court of Australia recently noted, “confidential arbitration can be attractive to parties wishing not to have their dirty laundry aired in public, or wishing to maintain an ongoing commercial relationship with each other by excluding interference or pressure that might come from their dispute being aired publicly”. Thus, for India to become ‘the next hub for international arbitrations’, it is imperative to have a robust mechanism to protect and enforce confidentiality. However, despite the recent amendment in the Arbitration and Conciliation Act of 1996 (‘Arbitration Act’) to protect the confidentiality obligation, the gaping holes in the new provisions do little to address the issues around ensuring enforcement of confidentiality in the country. This article identifies the shortcomings of the existing statutory regime regarding confidentiality and provides possible remedies to address them.
The Pitfalls in the Existing Regime
After the recommendation of the B.N. Srikrishna Committee to include a new provision in Part I of the Arbitration Act designed to safeguard the sanctity of confidentiality in arbitral proceedings, Section 42-A of the Arbitration Act was introduced through the 2019 Amendment. This section stipulates that arbitrators, arbitral institutions, and parties to the arbitration agreement must maintain confidentiality throughout arbitral proceedings, except for the disclosure of the award when necessary for its implementation and enforcement. However, this provision falls short of fully implementing a mechanism to protect confidentiality for the reasons elucidated below:
Firstly, Section 42-A only imposes the obligation to maintain confidentiality in arbitral proceedings upon “the arbitrator, the arbitral institution and the parties to the arbitration agreement”. However, parties often refer disputes to arbitration due to their complex nature. This requires involvement of non-signatories like expert witnesses for comprehensive adjudication of disputes. While such parties may not be actively involved in arbitrations, they are nonetheless part of the proceedings. Further, as per the Supreme Court’s recent landmark decision in Cox and Kings, parent companies which are non-signatories to arbitration agreement can also be made parties to arbitration proceedings by applying the Group of Companies (‘GOC’) doctrine if their consent to be bound by the agreement is implicit through their conduct. Therefore, while the involvement of non-signatories is now practically a certainty in arbitration proceedings, Section 42-A does not extend the obligation of confidentiality to such parties to the proceeding.
Secondly, Section 42-A only exempts the parties from the obligation of confidentiality in cases where “disclosure is necessary for the purpose of implementation and enforcement of award”. However, parties often seek judicial intervention for interim relief under Section 9 of the Arbitration Act when the relief which could be granted by the arbitral tribunal under Section 17 of the Arbitration Act is deemed to be inefficacious. The provision does not address such situations or provide exception for the same.
Further, while confidentiality is essential for fostering candid discussions and protecting sensitive commercial information, there are instances where the public interest demands transparency. Therefore, confidentiality in arbitral proceedings cannot be absolute, and exceptions need to be codified to discard the obligation in cases where there arises a conflict between transparency and confidentiality. The exception of transparency to maintaining confidentiality has also been duly recognized by Foreign Courts in a catena of decisions[1].
Thirdly, the absence of a mechanism to enforce confidentiality obligations and the recourse available to the arbitral tribunal in cases of non-conformity with this provision is perhaps what renders this provision toothless. In theory, it could be argued that an award passed in a proceeding where the obligation to maintain confidentiality has been breached would be against the public policy of India due to a violation of Section 42-A, and hence the award would be liable to set aside. However, this would not only undermine the efficiency of arbitral proceedings but also give the party breaching the obligation of confidentiality to escape unscathed.
Lastly, while the Arbitration Act 1996 recognizes the importance of confidentiality in arbitration, it lacks detailed provisions on privacy. The absence of explicit statutory guidelines leaves room for interpretation, leading to uncertainty and potential disputes over the scope of confidential information.
Suggested Remedies
Binding Non-Signatories
With regards to the extension of the confidentiality obligations to non-signatories, the authors believe that the Supreme Court’s decision in Cox and Kings has provided a firm foundation for the legislature to amend Section 42-A and extend the confidentiality obligation to non-signatories. The Court in Sunkist, Thixomat v. Takata Physics International Co.[2] was faced with a similar problem, where the non-signatory subsidiary alleged that the confidentiality provision of the contract had been breached and requested for arbitration of disputes. The court ruled that because of the close relationship between the subsidiary and the parent company, the fact that both entities sought an identical remedy and because the claims arose “from one common nucleus of operative facts,” they were “intimately founded in and intertwined with the underlying contract obligations” and had to be referred to arbitration. Therefore, courts can use the GOC doctrine to enforce confidentiality obligations upon a non-signatory which is part of the same corporate group as a signatory and/or is closely connected to the dispute.
Necessary Exceptions
From the issues outlined above, it is evident that Section 42-A of the Arbitration Act does not account for the many situations where confidentiality obligations may need to be discarded. Hence, the authors propose the following exceptions:
Firstly, to address situations where parties seek judicial relief at an interim stage, the authors believe that the exceptions of disclosure necessary for protecting or pursuing a legal right or interest of the party can be borrowed from Section 18 of the Arbitration Act of Hong Kong to avoid any unnecessary litigation arising out of a conflict between Section 9 applications under the Arbitration Act and confidentiality obligations.
Secondly, where parties still want to maintain confidentiality while seeking interim relief, Section 22 and Section 23 of the Singapore International Arbitration Act (“SIAA”) provides an appropriate solution. Section 22 of SIAA provides that the proceedings under the act before the courts shall be heard otherwise than in open courts, on the application of any party to the proceedings. Further, Section 23 of SIAA gives the courts power to issue necessary directions regarding what information relating to the proceedings may be published, provided the parties mandatorily consent to such publication.
Thirdly, to further make the provision more robust with regard to exceptions to the confidentiality obligations, the authors also suggest that the exception of the ‘disclosure being made with the consent of the parties, to the parties’ advisor, for the protection of the legitimate interest of the third party, and by order of the court’ be borrowed from Section 14B of the New Zealand Arbitration Act of 1996 to ensure party autonomy is protected and there is no conflict between the two cornerstones of arbitration.
Lastly, the exception of necessary disclosure in the interest of public or justice is necessary to align the statute and the jurisprudence on the issue.
Consequences of Breach
For the provision of confidentiality to be effective, it is necessary that it provides for consequences in case a party is found to be in breach of obligation. The consequences must depend on the degree of the breach and may range from grant of damages to invalidating the respective order/proceedings during which such breach takes place.
Conclusion
In conclusion, addressing the shortcomings in India’s confidentiality provisions demands immediate attention. Drawing insights from foreign jurisdictions, urgent amendments are imperative. It is crucial to emphasize that the proposed remedies do not advocate a sweeping extension of confidentiality across all arbitral documents. Instead, they advocate a tailored approach—confidentiality granted solely to documents mutually agreed upon by the involved parties. Striking a balance between transparency and protection, this nuanced adjustment is pivotal for fostering a robust legal framework that aligns with global standards, ensuring the efficacy and fairness of arbitral proceedings in the Indian context.
[1] AAY v. AZV [2012] SGHC 116; The Chartered Institute of Arbitrators v. B [2019] EWHC 460 (Comm); Esso Australia Resources Ltd. v. Plowman (1995) 183 CLR 10.
[2] No. 01 Civ. 5449(RO), 2001 WL 863566 (S.D.N.Y. July 30, 2001).
