The Supreme Court on Monday appointed a third umpire arbitrator in the dispute between Reliance Industries and government over KG-D6 cost recovery, but history says arbitration in India has barely been productive. Not only the companies have to knock at the doors of the Supreme Court to appoint an arbitrator in case of any disagreement between the parties, the implementation of an arbitration award takes a decade and longer.
Inexperienced arbitrators and judicial interventions also slow the award and implementation when it comes to domestic arbitration, reason why foreign arbitration has emerged as the most effective and favoured method of settling high-stake commercial disputes.
One such glaring example is that of Puri Construction Ltd vs Larsen and Toubro. While the arbitrator had ruled in favour of Puri in December 2002, the case has since been before the Delhi High Court. In this case, PCL and few other sister companies and persons were in possession of certain lands in Gurgaon, Haryana for which they had obtained licenses for developing the same into a residential group housing scheme. PCL along with its associates companies had entered into various agreements between 1998 and 2000 with L&T and Lord Krishna Bank (LKB) for development of the entire area in a phased manner. However, the project did not take off. After the two parties got estranged, the dispute was taken up to the court and on the basis of arbitration clause, matter was referred to the sole arbitrator by Delhi High Court.
Besides seeking a compensation to the tune of R 400 crore, PCL wanted various directions to L&T to satisfy the loan availed from LKB, return title deeds of the land, return sanctioned development plans and other documents and restrain L&T from interfering with any of the PCL?s rights to develop the property. L&T also made counter claim seeking declaration that PCL had no right to rescind the contract and it was entitled to reimbursement of R8.31crore, the amount spent on the venture.
The Arbitral Tribunal held L&T responsible for breach of contract and directed it to pay damages to the tune of R35 crore to PCL and also settle the claims of LKB within four weeks of the award by repayment of loan of R6 crore with such interest that may be due and payable to LKB. While restraining L&T from interfering in any manner with the rights of the PCL to develop the property, the sole arbitrator also directed L&T to secure the release of title deeds of 15 acres of land from the bank and pay R75 crore for loss of saleable area in respect of 15 acres of land placed in mortgage with the LKB and pay the cost of the arbitral proceedings to the tune of R30 lakh.
While L&T challenged the award before the single judge of the HC, Justice SN Dhingra, which set aside the arbitral award on November 26, 2008. The appeal against the order is pending before the division bench of the HC for last six years.
In another case, in a stinging indictment of the slow speed with which the judiciary in India decides cases and lackadaisical manner in which the government deals with disputes involving foreign companies doing business in India, a three-member international arbitration panel questioned the failure of the Indian government to provide the foreign firm ?White Industries of Australia ? with ?effective means of asserting claims and enforcing rights? vis-a-vis the Indian PSU ? Coal India. The tribunal held that India?s inordinate delay in enforcing an arbitral award violated the ?effective means? standard incorporated by the most-favored-nation provision of the 1999 India-Australia bilateral investment treaty (India-Australia BIT), and awarded White Industries Australia Limited $4.08 million, the amount due under the original award, plus interest.
