Jurisprudential Deadlock on Asymmetrical Arbitration Clause Between Delhi and Calcutta High Court in India

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1. Background

There are many types of dispute resolution process; Litigation being the conventional one. However, Litigation has its own adversaries. Therefore, there has been increasing inclination toward Alternative Dispute Resolution process (hereinafter referred as ADR).

The ADR is cost as well as time effective. There are several ADR methods, however, Arbitration is considered the most popular one. Unlike other methods, in Arbitration, the matter in majority cases gets disposed efficiently.

Parties enter into Arbitration by the mean of an Agreement. The “Asymmetrical Arbitration” arises when one party has the rights to invoke Arbitration while the other party is left with the limited scope of litigation.

The paper seeks to understand the existing internationally settled principles w.r.t the Asymmetrical Arbitration Clause and then to explore the Jurisprudence of the same in India. In India, there has been no precedence in the part of the Supreme Court. However, the two High Courts in India has totally opposite Jurisprudence.

Rationale behind invoking Asymmetrical Arbitration – Legal Rationale behind invoking an Asymmetrical Arbitration Clause

One of the most prominent concept under an Arbitration Agreement is the Principle of Party Autonomy. According to this principle, the parties use their free concise to come to an agreement; putting obligations upon each other to accomplish a goal.

Courts from time to time have uphold the Principle of Party Autonomy. If parties exercise their autonomy to conclude a Contract without infringing any existing laws of the land, then Court upheld such autonomous decision.

The issue arises when there is overarching exercise of Party Autonomy. Elongating the scope of Party Autonomy might infringe the laws of the land, ethics and morality.

An unclear law prescribing the scope of party autonomy coupled with subjective point of view of Courts, leads to divisive Jurisprudence.

Indian and International Legal Jurisprudence on the extent of Party Autonomy

1. What is Party Autonomy

There are two prominent reasons to choose Arbitration.

1. Efficient Resolution Process

2. Flexibility in the process of Arbitration.

The later one, i.e., bringing Flexibility in the Arbitration proceeding could only be brought up by the mean of Party Autonomy.

Party Autonomy could be said as an exercise of Parties will to create obligations and responsibilities upon each other to conclude a transaction.

2. Indian Jurisprudence on the extent of Party Autonomy

In the case of SVG Molasses Co BV v. Mysore Mercantile Co Ltd. The Supreme Court of India recognized that the Indian Arbitration Act, 1996 provides for the principle of Party Autonomy.

Indian High Courts used to have contradictory Point of view on the exercise of Party Autonomy. There are many instances, where Courts have upheld the principle of Party Autonomy, while in many cases, Courts disregarded this concept.

For example, the Bombay High Court in one particular case did not upheld the principle of Party Autonomy. In this case, the two Indian parties entered into an agreement, agreeing that, there will be foreign seat of Arbitration. Hon’ble Court disregarded the same and held that two Indian Parties agreement cannot choose a foreign seat of arbitration and foreign laws thereto.

Interestingly, with similar instance, where parties wanting to choose foreign seat of arbitration was approved in a case by the Delhi High Court in the case of GMR Energy Limited v. Doosan Power Systems India Pt. Ltd. Now this tussle came to a conclusion, when Supreme Court intervened. Supreme Court on 20th April 2021, in one case settled one for all that the Indian parties could choose a foreign seat of arbitration.

Conclusively, with passage of time, Indian Courts are moving toward to recognize Party Autonomy in parallel with the international practices.

3. International Jurisprudence on the extent of Party Autonomy

In many legal systems across the globe, the Doctrine of Party Autonomy has been upheld and been given the due importance. Apart from India, which gives importance to Party autonomy, countries like UK, South Africa and Canada explicitly puts the Party Autonomy in the cornerstone.

Apart from the Common Law Jurisdictions, several other legal systems i.e., in the European Union, China, Russia, Japan and Turkey have started to incorporate the importance of the Party Autonomy and consequently, upholding the same.

In Australia, the Federal Court in the Valve Corporation case upheld the party autonomy, where thousands of Australian consumers came into contract with a Multi-Billion Online US Company. Conclusively, the global legal system is moving ahead to give legitimate importance to the notion of Party Autonomy.

Exceptions to the implementation of Party Autonomy

If we see the basic notion behind the ADR, we come to conclusion that, it has three-fold cause and effect relationship:

1. Arbitration is a private matter between the parties;

2. Arbitration Tribunal follows the agreed instructions amongst the parties;

3. State does not interfere with the private agreement of the parties.

However, the same would have restricted application if it violates any Law of the land or unethical. One of the most important provision in any Contract Law, is its provision on “Elements of Valid Contract”. It is broad and yet succinct.

The Prima-facie limitations to Party Autonomy arises out of party’s inability to adhere with the provisions of a Valid Contract.

4. International Jurisprudence over Asymmetrical Arbitration Clause

We have seen that, Globally, various Jurisdictions are valuing the Principle of Party Autonomy. Party Autonomy gives a very broad power to the parties to decide on the extent, mode and process of adjudicating any disputes, arising between them.

Consequently, this should suffice the legitimacy of an asymmetrical arbitration agreement allowing parties to tailor their own rules. In most of the cases, Court relies on English Court of Appeal decision of Pittalis v. Sherefettin. Here the Court shunned previous rationales and held that, if there is a valid Contract and that contract is an asymmetrical arbitration agreement; then such contract is the result of consent amongst the parties and their party autonomy. Hence the same agreement was validated.

5. Indian Jurisprudence over Asymmetrical Arbitration Clause

Under Indian Jurisprudence, the Supreme Court did not clarify the final stance of validity of Asymmetric Arbitration Agreement. It is unclear and inconsistent when it comes to various High Courts. Two major conflicting views comes out of Delhi and Calcutta High Courts.

The Delhi High Court has made it clear that asymmetric arbitration clause is not valid. It requires parties to have mutuality. If it lacks the mutuality, such provisions would not be valid.

However, the Calcutta High Court upheld the asymmetric arbitration agreements. Calcutta High Court has maintained its status quo on this regard for a very long time. For the very first time in the case of Kedarnath Atmaram v. Kesoram Cotton Mill

Calcutta High Court rejected the rationale of Delhi High Court, stating that such agreements are valid contract and is enforceable in the Court of Law.

Though the Supreme Court in one case validated an Asymmetrical Arbitration Agreement. Still, the situation seems vague. As post such orders, Delhi High Court continued to have similar stance.

Delhi High Court has its precedent for a long time. In the case of Cutler Hammer Ltd v. AVN Tubes, (1995) invalidated an Asymmetrical Arbitration Agreement. It stated that it reflects inequality amongst the parties and hence was rendered void.

While the Calcutta High Court believes that such contract is an outcome of Party Autonomy, the Delhi High Court opposing the view in Pittalis case, held that an Arbitration requires Mutuality. Because, such contract does not have mutuality amongst the parties. Such Contracts would be void. These two rationales have been the main reason for such contradictory outcome.

6. Author’s opinion over the Jurisprudential deadlock

The author believes that the Delhi High Court’s rationale of absence of Mutuality and Equality could be a misunderstanding. Whenever, the parties enter into an agreement, one party always in most of the case, has upper hand when compared to the other party. Therefore, the reference to equality to render such agreement invalid could be wrongful.

The second ground for such contradictory point of view is the understanding that, there is an absence of Mutuality amongst the party. The author believes that, even if the rights of the parties seem inequal, it derives its inequality from the mutual understanding of the parties. Parties agrees to have inequal distribution of rights and obligations. Hence, I believe that the rationale of Delhi High Court needs a revisit.

While ideally, the party should have all the rights to put asymmetrical arbitration clauses in their agreement, it could have adverse effect in certain Jurisdictions, like New Delhi. Parties could agree to have separate Jurisdiction; if the entity is adamant to put such clause.

7. Conclusion

In many instances, only single party opt for arbitration proceeding. This is called Asymmetric Arbitration. In many Jurisdictions across the globe, it has been understood as an exercise of Principle of Party Autonomy.

When it comes to India, there is no uniform precedent. Delhi and Calcutta High Courts have opposing opinion on it. Calcutta High Court while allows the asymmetrical arbitration, the same is invalidated by the Delhi High Court.

Though the Supreme Court once validated such contract, it did not clarify the strict interpretation. Therefore, it comes to conclusion that, either Legislature or Supreme Court should set forth the precedent in this regard.