Monday, July 11, 2011

Fuerst Day Lawson: S. 50 Arbitration Act, and "consolidating legislation"

On Friday, a two-judge Bench of the Supreme Court (Alam and Lodha JJ.) gave judgment in Fuerst Day Lawson v Jindal Exports [hereinafter “FDL”]. The judgment contains a careful and comprehensive examination of a long line of authorities, and an authoritative analysis of two very important issues in arbitration law and civil procedure—whether a Letters Patent Appeal [“LPA”] is maintainable in circumstances in which an appeal does not lie under either s. 37 or s. 50 of the Arbitration and Conciliation Act, 1996 [“the 1996 Act”], and more generally, what it means to say (correctly) that the 1996 Act is a consolidating legislation. This post provides a detailed account of the reasons the Court gave (omitting a preliminary objection), with paragraph numbers to facilitate easy reference; a second post will discuss some of those reasons in more detail.

The case arose out of a batch of appeals from the Delhi and Calcutta High Courts in which an order of a single judge on an application to enforce a foreign award had been challenged before a Division Bench, under Letters Patent Rules. The Delhi High Court had held that such appeals are not maintainable; the Calcutta High Court had taken the contrary view. The Supreme Court’s conclusion that an LPA is not maintainable in these circumstances was based on its analysis of three broad sets of issues, of which the second and the third are the most important.

First, the Court examined cases in which it had been argued that an order passed by a single judge under various special legislation is immune from challenge under the Letters Patent Rules. These cases did not fall into any pattern. For example, the Supreme Court had held that an LPA is maintainable against a judgment given by a single judge under: (a) s. 76(1) of the Trademarks Act, 1940 (National Sewing Thread Co v James Chadwick—a three-judge Bench); (b) s. 6 of the Specific Relief Act, 1963 (Vinita Khanolkar v Pai—a two-judge Bench); (c) s. 54 of the Land Acquisition Act, 1894 (Sharda Devi v State of Bihar—a three-judge Bench); (d) s. 299 of the Indian Succession Act, 1925 (Subal Paul v Malina Paul—a three-judge Bench) and (e) order 21 of the Civil Procedure Code [“CPC”], for example in an application to set aside a sale (PS Sathappan v Andhra Banka Constitution Bench). Several reasons were given in these cases—that exclusion of jurisdiction cannot be readily inferred (Subal Paul); the general principle that an appeal, once it is before a court, must be regulated in accordance with the rules of practice of that court, including Letters Patent (James Chadwick) and that Letters Patent jurisdiction must be excluded expressly, because it was preserved by the Government of India Act and the Constitution of India (Sharda Devi; Vinita Khanolkar). On the other hand, the Court had held, for example, that an LPA is not maintainable against a judgment given by a single judge under s. 39(1) of the Arbitration Act, 1940 (Union of India v Mohindra Supply and other cases), principally because the provision indicated that the legislature intended to create a self-contained code of adjudication. In FDL, the Supreme Court demonstrated (¶29) that these cases do not really conflict, and noted that Subal and PS Sathappan expressly recognised that a self-contained code can have the effect of excluding any general rule of civil procedure, including LPA. In other words, the question had to be resolved by simply asking on which side of the line the legislature intended s. 50 of the Arbitration Act to fall, and not by resort to any general principle that LPA can, or cannot, be easily excluded.

Secondly, this led the Court to examine the relationship between three arbitration legislations—s. 39 of the Arbitration Act, 1940 [“the 1940 Act”], s. 6 of the Foreign Awards (Recognition and Enforcement) Act, 1961 [“the 1961 Act”] and ss. 37, 49 and 50 of the 1996 Act. S. 39 of the 1940 Act corresponds to s. 37 of the 1996 Act, which provides, in Part I of the Act, that an appeal “shall lie from the following orders (and from no others)”, and proceeds to list those orders. S. 50 of the 1996 Act provides, in Part II of the Act, that “an appeal shall lie from the order refusing to refer the parties to arbitration under s. 45 or enforce a foreign award under s. 48. It does not contain the expression “and from no others”. Senior counsel for FDL therefore conceded that Mohindra Supply would apply pro tanto to an appeal against a judgment under s. 37, but argued that s. 50 is different because of the omission of the crucial expression “and from no others”. The Supreme Court held that even if ss. 37 and 50 are to be treated differently (¶51), it is not because of the expression “and from no others”. For one, it is possible that it was merely clarificatory, since it was used in “brackets” by the legislature (¶¶ 36, 37), and more importantly, a close analysis of the 1961 Act, the predecessor to s. 50, demonstrated that there was a powerful reason to construe s. 50 narrowly. Under s. 6(1) of the 1961 Act, a foreign award was enforced in India by a court pronouncing judgment “according to the award”. In other words, it was the decree of an Indian court embodying a foreign award that was enforced, and s. 6(2) provided that no appeal would lie from that decree except where the decree is “in excess of or not in accordance with the award”. The 1996 Act makes a fundamental change to this scheme, because s. 49 provides that a foreign award that a court is satisfied is enforceable “shall be deemed to be a decree of that Court.” The result, as the Supreme Court observes in FDL (¶58), is not only to eliminate the intervening procedural step of giving judgment embodying the foreign award, but also to “completely remove” the possibility of an appeal even on the limited ground that s. 6(2) previously provided. The inference from this is best expressed in the words of the Supreme Court (¶59): “[i]t would be futile, therefore, to contend that though the present Act even removes the limited basis on which the appeal was earlier maintainable, yet a Letters Patent Appeal would lie notwithstanding the limitations imposed by Section 50 of the Act.” An important question, of course, is whether an LPA was excluded under s. 6(1) of the 1961 Act, notwithstanding s. 6(2), and will be discussed in more detail subsequently.

The third reason the Supreme Court gave for its conclusion is of even wider significance—it held that an LPA must be taken to have been excluded by the legislature because the 1996 Act is a consolidating legislation. In support of this proposition, the Court referred to the Statement of Objects and Reasons and the Bill that preceded the Act, and in particular to the limited “supervisory” jurisdiction envisaged for the courts, in line with the goals of the UNCITRAL Model Law. In addition, the Court noticed that the 1940 Act, which was itself the successor legislation to the Arbitration Act, 1899, had raised similar questions, and that the courts had almost uniformly taken the view that there was no room to bring an ordinary civil suit to enforce an arbitration agreement “outside” the definition of that term in the 1940 Act (Meredith J., Gauri Singh v Ramlochan Singh and Chagla C.J., Natverlal Bhalakia)—this was a close analogy to the question whether an appeal under “ordinary civil law” is maintainable notwithstanding a specific appeal mechanism under the 1996 Act (¶60). Furthermore, the very question before the Supreme Court—whether an LPA is maintainable—had been answered in the negative in Mohindra Supply in the context of the 1940 Act. The conclusion the Supreme Court drew from this (¶72) was as follows:

72. It is, thus, to be seen that Arbitration Act 1940, from its inception and right through 2004 (in P.S. Sathappan) was held to be a self-contained code. Now, if Arbitration Act, 1940 was held to be a self-contained code, on matters pertaining to arbitration the Arbitration and Conciliation Act, 1996, which consolidates, amends and designs the law relating to arbitration to bring it, as much as possible, in harmony with the UNCITRAL Model must be held only to be more so. Once it is held that the Arbitration Act is a self-contained code and exhaustive, then it must also be held, using the lucid expression of Tulzapurkar, J., that it carries with it "a negative import that only such acts as are mentioned in the Act are permissible to be done and acts or things not mentioned therein are not permissible to be done" (emphasis mine).

In summary, this important judgment of the Supreme Court clarifies that (a) s. 50 of the 1996 Act is even narrower than its predecessor, s. 6 of the 1961 Act; (b) more generally, that implied exclusion of ordinary civil jurisdiction depends on a close analysis of the structure of the special legislation as evidence of the likely intention of the legislature; and (b) that a consolidating legislation is more likely to have so intended than other special legislation. A subsequent post will discuss these reasons in more detail, and the implications for other areas of the Arbitration Act of the use the Court made of the fact that it is a consolidating legislation.

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