An award passed by an arbitral tribunal in Singapore has criticised the Supreme Court of India for its delay in handling cases and directed the Government of India to compensate an investor from Australia for such a hold-up. This hits at the root of the country’s judicial sovereignty. Bureaucrats who draft bilateral investment treaties that enable such claims have a lot to answer for.
P K Suresh Kumar (firstname.lastname@example.org) is a senior advocate at the High Court of Kerala, Kochi.
There is a growing view that the power of the nation state is being eroded by globalisation. But one never thought that it would go to the extent of an award being passed by an arbitral tribunal in Singapore criticising the Supreme Court of India for its delay in handling cases and directing the Government of India to compensate an investor from Australia for such a delay (White Industries Australia Limited and the Republic of India 2011). This award should alarm any right-thinking person and compel him or her to wonder at the way in which the babus sitting in New Delhi draft international treaties and also the manner in which the Government of India conducts international arbitrations.
The case arose in the following circumstances. In September 1989, an Australian company called White Industries entered into a contract with Coal India for the “supply of equipment to and development of a coal mine at Piparwar” in Uttar Pradesh. Over a period of time, certain disputes arose between the parties. As provided by their contract, the disputes were referred to arbitration. In May 2002, an arbitral tribunal in London, by its majority opinion, passed an award in favour of White Industries for a sum of Australian (A)$4.08 million. Coal India challenged the award in the Calcutta High Court and White Industries made an application to the Delhi High Court for the enforcement of the award. The proceedings in both the courts went on for some time. Meanwhile, the Supreme Court rejected White Industries’ application asking that the Calcutta High Court case be transferred to Delhi.
White Industries had also filed an application in the Calcutta High Court requesting that the application filed by Coal India be rejected on the grounds it was not maintainable. This application was rejected. Finally, the matter was taken to the Supreme Court. The Supreme Court, after hearing the case at length, found that it gave rise to the important question 0f whether a proceeding against an international award passed outside India could be entertained here. The case was then referred to a larger bench, along with a few other cases, as the bench doubted the correctness of its earlier decision in Venture Global vs Satyam Computers (2008), where it was held that an award passed outside India was amenable to the jurisdiction of Indian courts. It is only in the first week of September 2012 that the Supreme Court delivered a judgment in the above cases by prospectively overruling the decision in Venture Global vs Satyam Computers.
In the meantime, White Industries invoked the provisions in a bilateral treaty executed by and between the Governments of India and Australia in 1999 and launched a claim for compensation from the Government of India (India-Australia Bilateral Investment Treaty 1999). It was alleged that the claimant could not enforce the award it obtained against Coal India because of delays on the part of the Indian judiciary and therefore the Government of India was liable to compensate the company. In an arbitral proceeding held at Singapore, the arbitral tribunal passed an award on 30 November 2011 accepting the claim of White Industries and directed the Government of India to pay around Rs 50 crore to it.
Concern about Award
It is not the monetary part of the award that is important but the basis of the award. It is the incompetence of the Indian judiciary that is taken as the basis for awarding compensation. The following words of the arbitral tribunal (and more like it) would send shudders down the spine of any Indian who believes that his or her nation is still a sovereign state.
The most recent delay in this case stems from the apparent inability of the Supreme Court to impanel a three judge bench in a timely manner and from the stay ordered of the enforcement proceedings by the Delhi High Court (White Industries Australia Limited and the Republic of India 2011: 104).
The Tribunal has no difficulty in concluding the Indian judicial system’s inability to deal with White’s jurisdictional claim in over nine years, and the Supreme Court’s inability to hear White’s jurisdictional appeal for over five years amounts to undue delay and constitutes a breach of India’s voluntarily assumed obligation of providing White with “effective means” of asserting claims and enforcing rights (ibid: 118-19).
To arrive at the finale,
Having reached the conclusion that an Indian court, acting reasonably and complying with India’s international obligations, would conclude that Coal India had not established that the Award ought to be set aside or not enforced, the Tribunal determines that White is entitled to full compensation for the loss it has suffered as a consequence of India’s breach of the BIT. This compensation includes: (a) the amount of A$4,085,180 payable under the award; (b) interest on this amount at the rate of 8% from 24 March 1998 until the date of payment; (c) the amount of US$84,000 payable under the Award (for the fees and expenses of the Arbitrators); and (d) the amount of A$500,000 payable under the Award (for White’s costs in the ICC arbitration) (ibid: 136-37).
Thus, an arbitral tribunal criticises the Supreme Court and the Indian judiciary in general and makes the Government of India liable to compensate a company for the lapses of the judiciary. This is nothing short of an attack on the judicial sovereignty of the nation. The judicial function is one of the major sovereign functions of the Indian state. No person or authority can be allowed to sit in appeal against the functions of the judiciary except in accordance with the provisions of the Constitution of India. No outside agency can be allowed to evaluate the orders of Indian courts and pronounce judgment on them. No international treaty should contain any provision or clause that enables any agency to do so.
The Indian judiciary functions independently of the executive government of the state. Such independence is a basic feature of the Constitution of India. The independence of the judiciary, according to the Supreme Court, is a noble concept which inspires the constitutional scheme and it is the foundation on which the edifice of the Indian democratic polity rests. The executive government cannot, therefore, enter into any treaty, whether domestic or international, which will affect such independence of the judiciary. It is a shame on whoever paved the way for a bilateral treaty that allows awarding a compensation on the basis of a sovereign function. The babus in New Delhi who draw up bilateral treaties and agreements ought to go through their various clauses with a fine toothcomb before affixing their signatures and, more important, before making it possible to foist the burden of various liabilities on the nation.
Now, another aspect to be examined is whether the 1999 agreement between Australia and India would in any way entitle an investor to make a claim of the present nature. On reading the whole agreement, one feels that the counsel who appeared for India could have very well argued that what was protected by the agreement was only the investor’s right to be treated fairly and justly as per the laws and the system prevailing in the country and therefore the delay on the part of the judiciary would not give rise to a cause of action in favour of the claimant. But, no such argument was advanced. Anyway, it is not the merit of the award that is the subject matter of this essay.
Surrender of Sovereignty
The question is whether the executive government could have entered into an agreement that would empower an investor from a foreign nation to sue for compensation on account of a delay in our judicial system. If the agreement has such an effect, does it not amount to surrendering our sovereignty? The matter deserves a nationwide debate and those responsible for thoughtlessly signing such agreements have to be made answerable.
If those who entered into the treaty had applied their minds, they could very well have avoided the arbitration clause that enables an “investor” to also raise a dispute. The dispute resolution clause in the agreement between two governments should have conferred rights in that regard only on the contracting governments and not anyone else. Similarly, the agreement should have specifically clarified that the protection given to an investor is in accordance with the legal system prevailing in the country. Only a total lack of application of mind on the part of the bureaucracy leads to situations like the one discussed here.
India-Australia Bilateral Investment Treaty (1999): Agreement between the Government of Australia and the Government of the Republic of India on the Promotion and Protection of Investments; unctad.org/sections/dite/iia/docs/bits/australia_india.pdf
Venture Global vs Satyam Computers (2008): 4 SCC 190 http://barandbench.com/brief/2/2759/bhatia-international-stands-overruled
White Industries Australia Limited and the Republic of India (2011): In the Matter of an Uncitral Arbitration in Singapore under the Agreement between the Government of Australia and the Government of the Republic of India on the Promotion and Protection of Investments; italaw.com/sites/default/files/case-documents/ita0906.pdf