In the last month, the Supreme Court has passed two significant rulings, which though constitutional and/or pristinely legal in character, effecting some damage control, in addressing some concerns on the rule of law, and not just among foreign investors.
Of these, the one which has made headlines is of course the Presidential Reference on which an entire dissertation can be written. As para 2 of the Response observes “a bare reading shows that it is occasioned by the decision of the Court” in Centre for Public Interest Litigation & Others vs UOI (2G case). The Reference was opposed strenuously, being viewed as an indirect and impermissible mode to assail the correctness of the Supreme Court judgment in the 2G case. The Court initially was sceptical about the maintainability and only on the Learned Attorney General’s submission that there is no constitutional embargo in seeking clarifications, re-statements or even an opinion on a principle of law, provided the inter parte decision is unaffected, was the Reference was entertained.
Expectedly, a catena of case law has been relied upon by the Court to assume jurisdiction. There are lengthy discussions, on judicial auto limitations, ethics, and precedents. The Court’s observation that the “2G case does not even consider the plethora of laws and judgments that prescribe methods for dispensation of natural resource”, implies that if the intention was that auction would apply to all natural resources, the Court could not have passed such an order without considering the case law at hand. The Bench hearing the Reference has confined itself in determining whether “auction as a method of disposal of natural resources be declared a constitutional mandate under Article 14 of the Constitution” without touching upon the spectrum allocations.
Of the various cases the Court has relied upon, the following clarification from Kasturi Lal vs. State of J&K (1980) are as relevant as when they were pronounced “if the State were giving tapping contract simplicitor there can be no doubt that the Court would have to auction or invite tenders for securing the highest price ... but in a case where the State is allocating resources such as water, power, raw materials for the purpose of encouraging setting up of industries within the State, the State is not obliged to tell a party which approaches it for the purpose – please wait, I will first advertise whether any other offers are forthcoming”.
The relief that the Ruling has brought is at para 78, wherein the Court observes that the contents of paras 94 to 96, i.e. the indictment in the 2G case “suggest that the Court was not considering the case of auction, but specifically evaluating the methodology in distribution of spectrum, and that it makes no mention about auction being the only permissible and intra virus method for disposal”. Therefore, auction is not and cannot be the constitutional mandate for natural resources as a precedent for policies in going forward, the Court clarified that auctions may be the best way of maximising revenue, but revenue maximisation may not always be the best way to subserve public good. Any such finding would vitiate Article 14 of the Constitution, as the State cannot take any action that is capricious, arbitrary or unreasonable. Clearly therefore, in any similar context in future, the Reference Ruling and not the 2G decision will prevail. But what was the reason for the observation that section 11A of the Mines & Minerals Development Act requires relook, as it rules out auction altogether when the coal scam PIL is being heard before another Bench.
Contrary to public perception, the Bharat Aluminium judgment is not just a legal issue, but goes to the heart of any business relationship – dispute resolution. The ruling sets aside the interpretations by the Apex Court in Bhatia International (1992) followed in Venture Global (2008) in applying the law pertaining to Part I of the Arbitration & Conciliation Act, (Act) i.e. governing domestic and international commercial arbitrations where the seat of arbitration is located within India, to foreign arbitrations, which are governed by Part 2 of the Act and involve the enforcement and execution of foreign awards. Bhatia International was limited to granting of temporary reliefs, but Venture Global aimed at the jugular, arming Indian Courts to set aside foreign awards.
Before the Supreme Court, considerable arguments were submitted on whether Part II is not a complete code and therefore Part I should apply to the situations which are not provided for in Part I, at least those which are facilitative. However, the Court categorically ruled that no provision under Part I would be available in foreign arbitrations, refusing to treat injunctions as an exception, and further holding neither inter party suits or any other action for interim relief would not be available in Indian courts when the arbitration proceedings are pending in a different jurisdiction. Even the relief to safeguard property would depend on the outcome of the arbitration. On Mareva Injunctions, the Court expressed a similar opinion, indicating if indeed there was severe hardship caused by the Court’s interpretation that would have to be addressed by the Legislature.
There is disappointment that the ruling is prospectively applicable. In my view the Court has taken a correct stand. Implementing the reversal retrospectively w.e.f. 1991 would involve considerable unravelling and dislodging of status quo situations. Also, I believe, having drafted arbitration agreements over the years since Bhatia, that smart lawyers have tailored and negotiated the provisions in order to exclude whatever was unwarranted, possibly only retaining the right to approach Indian Courts for interim orders. The Court cannot set back the clock on existing understandings or reliefs which have gained finality. But an exception could have been made for enforcement of foreign awards.
Kumkum Sen is a partner at Bharucha & Partners, Delhi Office. Email: kumkum.sen@bharucha.in