Allowed

James Varghese v. State of Kerala

Kerala HC9 Jul 2013OP/4206/1998

Case brief

AI extract

What is this about?

The High Court declared the Kerala Revocation of Arbitration Clauses and Reopening of Awards Act, 1998 unconstitutional and void. It held that the Act repugned Parliament's exclusive legislative competence under Article 253 regarding international treaties and the Arbitration and Conciliation Act, 1996, and infringed the judicial function.

What did the court decide?

The impugned Act was declared unconstitutional, void, and inoperative.

James Varghese Vs State of Kerala — Arbitration | Kerala HC (2013)

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IN THE HIGH COURT OF KERALA AT ERNAKULAM

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PRESENT:

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THE HONOURABLE MR.JUSTICE THOTTATHIL B.RADHAKRISHNAN &

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THE HONOURABLE MR.JUSTICE C.T.RAVIKUMAR

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TUESDAY, THE 9TH DAY OF JULY 2013/18TH ASHADHA, 1935

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OP.No. 4206 of 1998 (A)

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PETITIONER(S):

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1. JAMES VARGHESE, GOVERNMENT CONTRACTOR, KAKKANATTUPARAMBIL HOUSE, ENANELLOOR.P.O.,

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MUVATTUPUZHA, ERNAKULAM DISTRICT.

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2. ALL KERALA IRRIGATION PROJECTS CONTRACTORS ASSOCIATION, REGD.NO.28/IV/98, HOTEL JOYES INTERNATIONAL, THIRUVANKULAM, ERNAKULAM, REP. BY ITS PRESIDENT, P.P. THOMAS.

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BY ADVS.SRI.K.BABU THOMAS

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RESPONDENT(S):

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1. STATE OF KERALA, REPRESENTED BY THE CHIEF SECRETARY TO THE GOVERNMENT OF KERALA, SECRETARIAT, THIRUVANANTHAPURAM.

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2. THE SECRETARY TO GOVERNMENT OF KERALA, LAW DEPARTMENT, SECRETARIAT, THIRUVANANTHAPURAM.

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3. THE SECRETARY TO GOVERNMENT OF KERALA, IRRIGATION DEPARTMENT, SECRETARIAT, THIRUVANANTHAPURAM.

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4. THE CHIEF ENGINEER, KALLADA IRRIGATION PROJECT, PULAMON.P.O., KOTTARAKKARA.

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5. THE SUPERINTENDING ENGINEER, KALLADA IRRIGATION PROJECT CIRCLE, KOLLAM.

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6. SUPERINTENDING ENGINEER, KALLADA IRRIGATION PROJECT, R.B.CIRCILE, PULAMON.P.O., KOTTARAKKARA.

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7. UNION OF INDIA, REP. BY THE SECRETARY TO GOVERNMENT OF INDIA, MINISTRY OF FOREIGN AFFAIRS & LAW, CENTRAL GOVERNMENT SECRETARIAT, NEW DELHI.

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2/-

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OP.NO.4206/1998

*ADDL.R8 IMPLEADED

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*R8: N.JAYAPRASAD,S/O.NARAYANAN, CONTRACTOR, AISWARYA, BHARANIKKAVU, PUNALUR.

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*** IS IMPLEADED AS ADDL.8TH RESPONDENT AS PER ORDER IN CMP.NO.38217/2001 DATED 5/10/2001**

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R1 TO R6 BY SR GOVERNMENT PLEADER SRI.C.S.MANILAL R7 BY ADV. SRI.P.PARAMESWARAN NAIR,ASG OF INDIA R8 BY SRI.K.RADHAKRISHNAN,SENIOR ADVOCATE ADV. SRI.P.B.SAHASRANAMAN SRI.K.JAGADEESH SRI.T.S.HARIKUMAR BY ADV. SRI.SHOBY K.FRANCIS

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THIS ORIGINAL PETITION HAVING BEEN FINALLY HEARD ON 20-12-2012 , ALONG WITH OP.NO. 12748 OF 1999 AND CONNECTED CASES, THE COURT ON 09-07-2013 DELIVERED THE FOLLOWING:

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OP.NO.4206/1998

APPENDIX

PETITIONER'S EXHIBITS:

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P1 COPY OF THE ORDINANCE NO.6/98 PUBLISHED IN THE GAZETTE DATED 19/1/1998

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P1(A) COPY OF THE KERALA REVOCATION OF ARBITRATION CLAUSES AND REOPENING OF AWARDS ACT, 1998, (ACT 12 OF 1998) PUBLISHED IN THE GAZETTE.

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P2 COPY OF THE LOCAL COMPETITIVE BIDDING SPECIFICATIONS (LCB CONDITIONS)

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RESPONDENT'S EXHIBITS AND ANNEXURES:

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R8(A) COPY OF THE ORDER DATED 13TH OCTOBER, 2000 PASSED BY THE PRINCIPAL SUB COURT, THIRUVANANTHAPURAM

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ANNEX R1(A) COPY OF THE LETTER NO.18654/IRI/05/WRD DATED 1/9/05

/TRUE COPY/

P.S.TO.JUDGE

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“CR”

Thottathil B.Radhakrishnan

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C.T.Ravikumar, JJ.

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= = = = = = = = = = = = = = = = = = = = = = = =

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O.P.Nos.4206 of 1998,

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12748, 12749, 12750, 12772, 12774, 12880, 12990 & 13032 of 1999, WP(C).No.16193 of 2006

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and

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= = = = = = = = = = = = = = = = = = = = = = = =

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Dated this the 9^th day of July, 2013.

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Judgment

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Thottathil B.Radhakrishnan, J.

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1.These petitions are filed challenging the constitutional validity of the Kerala Revocation of Arbitration Clauses and Reopening of Awards Act, 1998, for short, “impugned Act”, which is deemed to have come into force on 14.11.1997 as per Section 1(3) thereof and which, as per Section 1(4), applies to all agreements executed in terms of Local Competitive Bidding Specification, hereinafter referred to as “LCBS”.

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2.Section 3(1) of the impugned Act provides that

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notwithstanding anything contained in the Indian Contract Act, 1872 or in the Arbitration Act, 1940, for short, “1940 Act”, or in the Arbitration and Conciliation Act, 1996, for short, “A & C Act” or in any other law for the time being in force or in any judgment, decree or order of any court or other authority or in any agreement or other instrument, the arbitration clauses in every agreement executed in terms of the LCBS for various works of the Government of Kerala shall stand cancelled. LCBS - “Local Competitive Bidding Specification” - means such specification adopted by the Government in G.O. (Ms).No.3/81/I & R dated 20.1.1981. Authority of an arbitrator appointed under any such agreement is revoked and the arbitration clause in such agreement shall cease to have effect in so far as it relates to the matters in dispute or difference referred, with effect on and from the date of commencement of the impugned Act.

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3.Sub-section 2 of Section 3 of the impugned Act

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provides that nothing in sub-section 1, which provided for the cancellation of the arbitration clauses and revocation of authority of arbitrators, shall be a bar for any party to an agreement to file a suit in the court having jurisdiction in the matter to which the agreement relates and all matters in dispute and difference between the parties to the agreement shall be decided by the court, as if arbitration clauses had never been included in the agreement. Subsection 4 provided a period of limitation for such suits, notwithstanding anything contained in the 1940 Act, the A & C Act and the Limitation Act, 1963. Section 4 of the impugned Act excludes anything contained in the 1940 Act, A & C Act, Limitation Act and prescribes a period of six months for suits provided for in Section 3(2).

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4.Section 5 of the impugned Act provides a right of appeal for the Government notwithstanding anything contained in the 1940 Act, A & C Act, Limitation Act or in any other law for the time

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being in force or in any judgment, decree or order of any court or other authority or in any agreement or other instrument, where it appears to the Govoernment that any award passed is not in accordance with the terms of the agreement or there was failure to produce relevant data or other particulars before the Arbitrator before passing the award or the award passed is of unconscionable amounts.

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5.Section 7 of the impugned Act provides that the provisions of that Act shall apply to any proceedings instituted under that Act notwithstanding anything inconsistent therein with the provisions of the 1940 Act or the A & C Act or any other law for the time being in force.

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6.The impugned Act is captioned stating that it is an Act to provide for the cancellation of arbitration clauses in agreements executed in terms of the local competitive bidding specification, for the revocation of authority of

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the arbitrators appointed under such agreements, for filing of appeals by the Government against certain awards and decrees in arbitration cases and for extending the period of limitation for filing such appeals. The Preamble to the impugned Act is to the effect that inclusion of arbitration clauses in the agreements executed in terms of the LCBS for the Kallada Irrigation Project was with a view to enable speedy settlement of matters in dispute or difference in a just and equitable manner, however that, the arbitration references did not have the desired effect as several arbitrators have wrongly and arbitrarily awarded unconscionable amounts against the provisions of the agreements and without materials on record, in collusion with the claimant contractors and officials of the department, causing heavy loss to the State. It is stated that the provision for settlement of matters through arbitration was a special condition in terms of the LCBS envisaged by the World Bank authorities as desired by the World

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Bank as the Kallada Irrigation Project was in receipt of financial assistance from the World Bank from June, 1982 to March, 1989. The Preamble proceeds to state that the Government considered it necessary, in public interest, to cancel the arbitration clauses in the agreements executed in terms of the LCBS, to revoke the authority of the arbitrators appointed thereunder and to enable the filing of appeals against the awards or decrees already passed in certain arbitration references, in respect of which the period of limitation has expired.

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7.The impugned Act was preceded by an Ordinance of like nature with similar provisions. That is also produced and challenged along with some of the original petitions.

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8.We have heard Adv.Babu Thomas K., Adv.Rajiv A. George and Snr.Adv.K.L.Varghese on behalf of the petitioners and Adv.C.S.Manilal, Senior Government Pleader on behalf of the State. It is

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argued on behalf of the petitioners that the Ordinance and Act are vitiated for lack of legislative competence and are ultra vires the Constitution, being related to the matters falling exclusively within the subjects in List I of the Seventh Schedule. It is further argued that the impugned Act sets at naught the statutory concept and sanctity of contracts and the effect of Article 299 of the Constitution of India and it amounts to abridgment of the A & C Act which is in force since 25.1.1996. Reference is made to Articles 73, 246 and 253 of the Constitution to argue that the grant of Presidential assent does not improve the situation since the impugned Act, in pith and substance, relates to matters exclusively within the legislative power of the Union in List I of the Seventh Schedule. LCBS is a matter that would fall pithily in Entry 37 and also in Entries 10 and 14 of the Union List and the impugned legislation is, therefore, one made without legislative competence, it is argued. The

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impugned Act is further impeached as an interference with the judicial power of the courts, and unilateral revocation of contracts being not permissible, the impugned Act is nothing but a colourable exercise of legislative power to revoke an arbitration clause which could not have been done by the State. It is, therefore, argued that such exercise is wholly without legislative competence and hence, amounts to fraud on powers. All awards and matters connected therewith, including appointment and authority of arbitrators, stood regulated by the provisions of the 1940 Act and the A & C Act, and hence the impugned Act providing also for the exclusion of the provisions of those enactments as well as the effect of the Limitation Act and other laws, including the Contract Act, by putting in a non-obstante clause, is, therefore, unconstitutional and hence, void and inoperative, it is argued. It is also argued that the impugned Act is only prospective in operation even on its express terms and therefore, the law

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that would apply is the one that governed at the time of the formation of the contract which included the arbitration agreements and also those laws in force at the point of time of the passing of the award. It is pointed out that the A & C Act having been in force as on 25.1.1996, there was nothing left to be dealt with by the impugned Act which is not retrospective, but came into force only with effect from 14.11.1997.

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9.Per contra, learned Senior Government Pleader argued that in pith and substance, the impugned Act relates to matters falling in Entries 7 and 13 in the Concurrent List and therefore, with the Presidential assent under Article 254, the impugned Act stands. It is argued that Article 246(1) does not apply, and that the situation would be governed by Article 246(2) of the Constitution. It is further argued that Article 254(2) would also cure matters which would fall under Article 253. Relying on counter affidavits placed on behalf of

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the State, it is argued that the applicability of the provisions of A & C Act is dispensed with only in the case of agreements and awards wherein it is already found out that the awards are fraught with the sole intention of plundering public money for the unexecuted items of works. Reference is made to certain reports obtained through a former Chief Secretary and a former Judge of this Court, stated to be disclosing extortion of huge amounts of Government money. The provisions of the impugned Act are also sought to be supported by pointing out in the counter affidavit, different instances where it has been shown that the matters relating to water supplies, irrigation and canals, drainage and embankments, water storage and water power, would fall within the legislative competence of the State and hence, the impugned Act cannot be impeached. The learned Senior Government Pleader also pointed out that international arbitrations and domestic arbitrations occupy two different sectors of the A & C Act and the impugned Act

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dealing only with domestic arbitrations cannot be impeached with reference to any entry in List I of the Seventh Schedule. He further argued that in G.C.Kanungo v. State of Orissa [(1995) 5 SCC 96], a similar situation was considered, and having regard to the precedent laid by the Hon’ble Supreme Court in that case, the impugned legislation would definitely stand. He specifically referred to the discussions under Point No.4 in Kanungo's case. It was also argued that there is no transgression on the judicial function and the basic structure doctrine is irrelevant for judicial review of actions other than constitutional amendments.

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10.In reply to the arguments of the State, learned counsel for the petitioners, apart from reiterating the different contentions, argued that the transgression on the judicial function by exercise of legislative power on given fact situations cannot be answered by the State pleading that the basic structure doctrine cannot

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be applied. Applicability of Kanungo's case is seriously disputed and it is argued that the said decision is not a precedent to be applied to the issue in hand. Arguing that Kanungo was decided on the peculiar fact situation that led to that precedent, it is pointed out that while the provisions of the impugned Act nullify the very provision for arbitration in terms of the agreement, in Kanungo's case, all that was done was to change the forum and format or the arbitral Tribunal, after retaining the provision for arbitration. It is further pointed out that in terms of the clear provisions of the A & C Act, the award is deemed to be a decree and there is no question of it awaiting the seal of approval of the civil courts as would have been necessary in the cases of awards under the 1940 Act. Thus, it is pointed out that Kanungo's case lays down no principle of law that could be applied as a precedent to the cases in hand.

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11.The impugned Act is one resulting in the

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cancellation of arbitration clauses and revocation of authority of arbitrators in relation to agreements executed in terms of LCBS. The existence of arbitration clauses in those agreements cannot be disputed. Those arbitration agreements stood governed by the A & C Act from 25.1.1996, the date of its coming into force. Therefore, in its effect, the impugned Act abridges the application of A & C Act to those arbitration agreements, notwithstanding the definition of “arbitration agreement” in Section 2(1)(b) read with Section 7 of the A & C Act. Such abridgment results in creating an exclusion or exemption of those agreements from the purview of the A & C Act, though such agreements, going by the provisions of the A & C Act, fall within its domain. This essentially amounts to legislating on the subject dealt with and occupied by the provisions of the A & C Act.

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12.Then, the question would be whether the assent of the President in terms of Article 254(2) of

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the Constitution would suffice. Arbitration is at Entry 13 in List III of the Seventh Schedule. Since the impugned Act made by the State Legislature with respect to that matter enumerated in the Concurrent List contains provisions repugnant of the provisions of the A & C Act, which is an earlier law made by the Parliament, the impugned Act, having been reserved for the consideration of the President and has received his assent, can prevail in the State of Kerala by the operation of Article 254 (2).

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13.But, the question would be whether the legislative power exercised by the Parliament in enacting A & C Act was one that stood governed only by the provisions of Article 246. Here, what assumes importance is Article 253 of the Constitution which provides that notwithstanding anything in the foregoing provisions of Chapter I of Part XI, that is to say, Articles 245 and 252, Parliament has power to make any law for the

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whole or any part of the territory of India for implementing any treaty, agreement or convention with any other country or countries or any decision made at any international conference, association or other body.

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14.Having noticed the aforesaid, we proceed to consider the constitutional setting and situs of the A & C Act. The law relating to arbitration in India, until the commencement of the A & C Act, was substantially contained in three enactments, namely, the 1940 Act, the Arbitration (Protocol and Convention) Act, 1937 and the Foreign Awards (Recognition and Enforcement) Act, 1961. It was widely felt that the 1940 Act, which contains the general law of arbitration, had become outdated. The Law Commission of India, several representative bodies of trade and industry and experts in the field of arbitration proposed amendments to that Act to make it more responsive to contemporary requirements. It was also noticed that economic reforms of India may not become

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fully effective if the law dealing with settlement of both domestic and international commercial disputes remains out of tune with such reforms. This backdrop and legal history has been pointedly noted in the Statement of Objects and Reasons to the A & C Act. That SOR further proceeds to make reference to the UNCITRAL Model Law and Rules. The United Nations on International Trade Law (UNCITRAL) adopted in 1985, the Model Law on International Commercial Arbitration. The General Assembly of the United Nations had recommended that all countries give due consideration to the said Model Law, in view of the desirability of uniformity of the law of arbitral procedures and the specific needs of international commercial arbitration practice. As noticed in the Statement of Objects and Reasons to the A & C Act, an important feature of UNCITRAL Model Law and Rules is that they have harmonised concepts on arbitration and conciliation of different legal systems of the world and thus contain provisions which are

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designed for universal application. One of the salient purposes of introducing the Arbitration and Conciliation Bill in the manner it was done was that though the UNCITRAL Model Law and Rules are intended to deal with international commercial arbitration and conciliation, they could, with appropriate modifications, serve as a model for legislation on domestic arbitration and conciliation. The Arbitration and Conciliation Bill was, therefore, introduced aiming to consolidate and amend the law relating to domestic arbitration, international commercial arbitration, enforcement of foreign arbitral awards and to define the law relating to conciliation, taking into account the UNCITRAL Model Law and Rules. The main objects of the Bill as enunciated in the Statement of Objects and Reasons, are as follows:

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i.to comprehensively cover international commercial arbitration and conciliation as also domestic arbitration and conciliation;

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ii.to make provision for an arbitral procedure which is fair, efficient and capable of meeting the needs of the specific arbitration;

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iii.to provide that the arbitral tribunal gives reasons for its arbitral award;

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iv.to ensure that the arbitral tribunal remains within the limits of its jurisdiction;

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v.to minimise the supervisory role of courts in the arbitral process;

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vi.to permit an arbitral tribunal to use mediation, conciliation or other procedures during the arbitral proceedings to encourage settlement of disputes;

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vii.to provide that every final arbitral award is enforced in the same manner, as if it were a decree of the court;

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viii.to provide that a settlement agreement reached by the parties as a result of conciliation proceedings will have the same status and effect as an arbitral award on agreed terms on the substance of

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the dispute rendered by an arbitral tribunal; and

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ix.to provide that, for purposes of enforcement of foreign awards, every arbitral award made in a country to which one of the two International Conventions relating to foreign arbitral awards to which India is a party applies, will be treated as a foreign award.

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15.The Preamble to the A & C Act also expressly recalls the UNCITRAL Model Law and the recommendation of the General Assembly of the United Nations that all countries give due consideration to the said Model Law, in view of the desirability of uniformity of the law of arbitral procedures and the specific needs of international commercial arbitration practice. The Preamble further proceeds to say that it is expedient to make law respecting arbitration and conciliation, taking into account the UNCITRAL Model Law and Rules.

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16.Now, we examine the submission of the learned

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Senior Government Pleader that the provisions of the A & C Act are severable and that only those provisions relating to international commercial arbitrations could be treated to fall within the purview of Article 253, if at all that constitutional provision applies to that Act.

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17.A & C Act is classified into four Parts, of which Part I deals with arbitration. It contains 10 Chapters spreading over 43 sections. “International commercial arbitration”, for the purpose of that Part, is defined in Section 2(1) (f) to mean an arbitration relating to disputes arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India and where at least one of the parties is an individual who is a national of, or habitually resident in, any country other than India; or a body corporate which is incorporated in any country other than India; or a company or an association or a body of individuals whose central management and

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control is exercised in any country other than India; or the Government of a foreign country. Section 2(1)(b) read with Section 7(1), provides that for the purpose of Part I, “arbitration agreement” means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. Sub-sections 2 to 5 are prescriptive to the provision in Section 7 (1). Therefore, the concept of “arbitration agreement” makes no difference and it is the identity of at least one of the parties to it that makes an arbitration an “international commercial arbitration” as defined in Section 2 (1)(f). “Arbitration” means any arbitration whether or not administered by permanent arbitral institution, going by Section 2(1)(a) of the A & C Act. In contradistinction to the aforenoted, are the provisions in the two chapters in Part II; Chapter I dealing with agreements to which the Convention on the Recognition and Enforcement

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of Foreign Arbitral Awards as contained in the First Schedule applies and Chapter II dealing with the agreements for arbitration to which the Protocol on Arbitration Clauses (Geneva Convention Awards) applies. The provisions in Part I of the A & C Act, which deals with arbitration, are so cohesive and comprehensive that without wounding the legislative intention; they cannot, in any manner, be segregated to classify the arbitration agreements, arbitrations and procedures which are exclusively available to be treated as not falling within the canopy of the legislative power and competence referable to Article 253 of the Constitution. We pointedly say so because, the fundamental rationale which motivated the making of the A & C Act is founded on the legislative decision to consolidate and amend the law relating to domestic arbitration, international commercial arbitration, enforcement of foreign arbitral awards and also to define the law relating to conciliation, and for matters connected therewith and incidental thereto. This

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was done with the clear legislative recognition that an important feature of UNCITRAL Model Law and Rules is that they have harmonised concepts on arbitration and conciliation of different legal systems of the world and thus contain provisions which are designed for universal application. The A & C Act was made to consolidate and amend the law relating to domestic arbitration as well, also taking into account UNCITRAL Model Law and Rules. That

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legislative exercise was also in conformity with the recommendations of the General Assembly of the United Nations that all countries give due consideration to the said UNCITRAL Model Law, in view of the desirability of uniformity of the law of arbitral procedures and the specific needs of international commercial arbitration practice. Therefore, the matters dealt with by A & C Act are not merely matters falling under Entry 13 of List III of the Seventh Schedule but also falling within Entries 10 to 14 of List I which deal with foreign affairs, relationship with foreign

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countries, United Nations Organisation, participation in international conferences, associations and other bodies and implementing of decisions made there at, entering into treaties and agreements and implementing of treaties, agreements and conventions etc. Over and above that, is the applicability of Article 253 which provides the overriding legislative power to the Union Parliament to make any law for the whole or any part of the territory of India for implementing any treaty, agreement or convention with any other country or countries or any decision made at any international conference, association or other body. Once a legislation of such nature comes into being, it will be wholly destructive to say that because arbitration is a subject falling in the Concurrent List, the A & C Act could be treated as one dealing with that subject and therefore, the impugned Act would stand in view of the Presidential assent in terms of Article 254(2). It is also not out of place to immediately note that executive power being

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coextensive with the legislative power under Article 73(1)(b) recognises the executive power of the Union to exercise such rights, authority and jurisdiction as are exercisable by the Government of India by virtue of any treaty or agreement. If one were to say that in matters falling under Article 253, a State Legislature could also intervene and legislate repugnant provisions and such repugnant provisions would stand if Presidential assent is given under Article 254(2), that would breach the conferment of co-extensive legislative power to the Union as regards matters on which it would legislate under the authority of Article 253. If such authority on the State Legislatures is conceded, the very purpose of Article 253 would be destroyed. This is because; when the Union legislates and such a legislation falls under Article 253, no distinction based on the three Lists in the Seventh Schedule would be relevant. Therefore, the impugned Act is one repugnant to the provisions of the A & C Act which is a piece of

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law falling under the exclusive legislative domain of the Union under Article 253. The impugned Act is, therefore, unconstitutional, void and inoperative.

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18.Contextually, it is profitable to note the decision of the Hon’ble Supreme Court of India in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. (five Judges) [(2012) 9 SCC 552] in which it was concluded, among other things, that Section 2(2) of A & C Act makes a declaration that Part I of that Act shall apply to all arbitrations which take place within India. The law declared therein by the Supreme Court is, inter alia, that Part I of the A & C Act would have no application to international commercial arbitration held outside India. It was also laid down that the provisions contained in the A & C Act make it crystal clear that there can be no over-lapping or intermingling of the provisions contained in Part I with the provisions contained in Part II of that Act,

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which relates to Enforcement of Certain Foreign Awards, and that the A & C Act has accepted the territoriality principle which has been adopted in the UNCITRAL Model Law. Applying that precedent, we cannot but hold that Section 2(2) of the A & C Act makes Part I of that Act applicable to all arbitrations which take place within India without any distinction as to whether it is an “international commercial arbitration” or a “domestic arbitration”. Hence, we are fortified in taking the view that there is no way to make mincemeat of the provisions of the A & C Act, as projected by the learned Senior Government Pleader.

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19.Now, we come to the next issue on which arguments were advanced. The petitioners would point out that the sustenance of LCBS can be traced only to entries in the Union List; in particular, to Entry 37, as also, Entries 10, 14 and 37 of that List. As already noticed, Entry 10 deals with foreign affairs; all matters which

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bring the Union into relation with any foreign country and Entry 14 deals with, among other things, implementation of agreements, conventions, treaties etc. Entry 37 in List I deals with foreign loans. Arguments advanced in this regard by Adv.Babu Thomas merit acceptance. Now, Article 73(1)(b) confers the executive power on the Union, to be co-extensive with the legislative power. The World Bank is an institution falling within matters relating to international relationship and funding. It does not deal with Indian funds loan. Having regard to the definitions of “foreign State” in Article 367 (3) and “Indian State” in Article 366(15), it has to be taken that dealings with World Bank for assistance fall primarily within the executive power of the Union referable to Article 73(1)(b) as noted above. Whatever the State Government would have done by the issuance of G.O.(Ms). No.3/81/I & R dated 20.1.1981 referred to in the definition of “local competitive bidding specification” in Section 2(b) of the impugned

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Act and also by issuing G.O.Ms.No.31/80/W & T dated 4.7.1980, can be treated only as exercises under the authority of the Government of India. This is all the more so because, the executive power of the State, including its power to borrow and lend, does not extend to dealing with any institution or State beyond the purview of Article 293 which deals with borrowing by States. This conclusion is irresistible also in the light of Article 292 which deals with borrowing by the Government of India. In this view of the matter, we find considerable substance in the arguments of Adv.Babu Thomas that a term included as part of the LCBS at the instance of the World Bank for assistance cannot be interpolated by the State either through an executive function or by a legislative act. The impugned legislation is bound to fall on this count as well.

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20.While the contracts which fall under the definition clause in the impugned Act were entered into, all parties to such contracts stood

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governed by the provisions of the 1940 Act. Copious reference was made by the learned counsel for the parties to the different provisions of that Act spreading out from Sections 5 to 47 to pointedly say that the whole matrix of adjudication in connection with the arbitration agreement, the powers of arbitrator, revocation of authority, questions as to existence or otherwise of the arbitration agreement and the sustainability of the awards, were matters left with the Judiciary under the 1940 Act. The learned Senior Government Pleader has heavily relied on Kanungo (supra). As pointed out by Snr.Adv.K.L.Varghese, the said decision dealt with a situation where the arbitration agreement was retained and kept intact and what the Apex Court recognised was the change of the forum or arbitral tribunal, while the impugned Act nullifies the very arbitration agreement. In that context, Mr.Varghese appears to be justified in saying that the reference made by Their Lordships to the concept of giving the seal of approval of

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the court to an arbitration award was made only in the context of the fact that awards under the 1940 Act had come to court to be transformed into a decree for the purpose of that Act. He is also justified in saying that in the nature of the facts of Kanungo and the question raised and placed for consideration in that case, advertence does not appear to have been made to the different other provisions of the 1940 Act, including the power to modify or remit or even set aside the award under Sections 15, 16 and 33. We find that in Kanungo, the Apex Court dealt with a different legislative situation and that decision cannot be applied as a precedent to the cases in hand.

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21.By the time the impugned Act was brought into force with effect from 14.11.1997, the A & C Act had come into on 25.1.1996 with repealing and saving clauses as regards the 1940 Act and two other legislations. Therefore, on the basis of the repealing and saving clauses contained in the

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A & C Act, the proceedings against the awards or, even otherwise, in relation to the agreements which are now made subject matter of the impugned Act, could have been dealt with only within the judicial power of the State through the courts in terms of the provisions of the 1940 Act and A & C Act. We, therefore, find abundant substance in the submission on behalf of the petitioners that the impugned legislation is an encroachment into the judicial power of the State which is exercised through the courts in terms of the laws already made and in force. The impugned Act is not retrospective and therefore, it cannot be treated as made applicable to contracts to which the 1940 Act and A & C Act stood applied. Therefore, the legislative device which has come into, in the form of the impugned Act, is nothing but creation of provisions repugnant to the A & C Act thereby taking out from its purview such contracts as are sought to be defined in Section 2 of the impugned Act. This is irrational classification without any intelligible

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differentia and is plainly arbitrary. It infracts the quality doctrine and the avowed constitutional principles insulating the judicial function which is cardinal to deliverance of justice as part of the seminal constitutional values, including separation of powers. The impugned Act, therefore, would fall on that count also. As regards the argument of the learned Senior Government Pleader that the basic structure doctrine cannot be imported to judicial review of legislative actions in re the statutes, but only in relation to constitutional amendments; we understand the relevant submissions on behalf of the petitioners to mean only that the Constitution does not envisage the crippling of the existing judicial power as has been done through the impugned Act.

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22.This leaves yet another argument pointedly addressed by Adv.Rajiv George. He says that there is no intelligible differentia to classify 55 or odd cases out of a large number of cases which

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stood governed by the LCBS. He impeached the statute as not supported with any data, if at all available, disclosing that it had become necessary to bring a legislation in larger public interest and to save the exchequer, as propounded in defence. True, the Government says that there are two reports; one by a former Chief Secretary and another by a former Judge of this Court. But, the counter affidavit refers to the basic facts of a few cases and the possibility of the arbitrators having misconducted themselves or of having passed awards granting unconscionable amounts. Those are matters clearly available to be raised and agitated under the provisions of the 1940 Act and the A & C Act. The mere fact that the Government could not reach at officials who would have contributed to the delay in not initiating appropriate proceedings is no ground to bring a legislation of the nature in hand. We say this because the counter affidavit does not show that there were materials, fair and sufficient, leading to the necessity for the Bill

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that has led to the Act. There is also nothing on record to show that any relevant material had gained the attention of the Legislature. This, we cannot but infer, because apart from the omnibus and superfluous statements in the Preamble to the impugned Act, there is nothing on record to show that any such material was relied on and acted upon.

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