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Outdated legal framework not equipped to deal with arbitration

india Updated: Nov 28, 2013 01:49 IST
Nagendar Sharma
AK Antony

Defence minister AK Antony’s blunt refusal on entering into arbitration proceedings with the Anglo-Italian helicopter company AgustaWestland, which is facing the threat of the government cancelling a Rs 3,727 crore chopper deal following kickback allegations, has brought into focus the country’s disputes with foreign companies.

AgustaWestland had nominated former Supreme Court judge justice BN Srikrishna as an arbitrator from its side. Antony’s clear statement, however, poured cold water on the company’s plans.“Our stand is clear that there is no issue of arbitration. We have given them a show cause notice and they have not replied so far. Let them reply. We will take a decision after that,” the defence minister said on Monday.

It now appears certain that in the eventuality of the deal being scrapped, the company will approach an international tribunal for arbitration and seek damages. This will be in line with what other foreign companies have done in cases of dispute with the government.

The government’s stand that it has the right to terminate a deal where any wrongdoing has been noticed has been put to a severe test in the Antrix-Devas deal, which was scrapped in 2011.


Mauritius-based Devas Multimedia Pvt Ltd had entered into a contract with Antrix, the commercial arm of the Indian Space Research Organisation (ISRO), in 2005. According to the deal, Antrix was to provide S-band spectrum to Devas, which was to provide wireless multimedia services.

However, the deal was scrapped by the cabinet committee on security in 2011 after opposition parties brought allegations of impropriety following a report by the comptroller and auditor general on the deal.

Devas refused to accept the government’s decision and initiated arbitration proceedings against Antrix at the International Court of Arbitration, Paris, and it got a shot in the arm when the Supreme Court earlier this year refused to interfere in the matter, saying since arbitration had started, it would not like to intervene.

Experts do not agree with the government’s stand that disputes arising out of corruption and bribery allegations cannot be covered under arbitration.

“Arbitration tribunals historically displayed considerable reluctance to resolve matters involving claims of corruption and bribery. However, this trend is reversing with the decision of the English Court of Appeal ruling which held that arbitral tribunals may consider and resolve claims of corruption, bribery and related illegality,” said former law secretary and former Lok Sabha secretary general TK Vishwanathan.

The government has also been slow in updating its 15-year-old law on arbitration, titled the Arbitration and Conciliation Act, 1996. Though a bill to amend the law was introduced in Parliament in 2010, the law ministry has referred it to the Law Commission for seeking its views.

The government and the judiciary are facing flak at the international level for their failure to accept global norms and create an investor-friendly climate.

The International Arbitration Tribunal, London, had last year criticised the Supreme Court and the government for a five-year delay in deciding a dispute between an Australian company and the government-owned Coal India Ltd.

“The Indian system’s inability to deal with the issue in over nine years and Supreme Court’s inability to hear the appeal for over five years amounts to undue delay and constitutes a breach of India’s obligation,” the tribunal stated in its order.