DR.

RAM MANOHAR LOHIA NATIONAL LAW

UNIVERSITY

LUCKNOW

2018

ALTERNATIVE DISPUTE RESOLUTION

FINAL DRAFT

Case Comments on White Industries v. Republic Of India

UNDER THE SUPERVISION OF: SUBMITTED BY:

Dr. Shakuntla Sangam SUMEET KAUSHIK

ASSISTANT PROFESSOR (LAW) ENROLL NO. – 150101145

SEMESTER- 7 SECTION - B
 ACKNOWLEDGEMENT

It feels great pleasure in thanking Dr. Shakuntla Sangam - Assistant Professor (Law) for
giving me this opportunity to work and gain knowledge. I would also like to thank my family
and friends for their support and guidance. Lastly, I wish to thank the library staff for providing
help in finding appropriate books and content related to the project topic.

Sumeet Kaushik

7th Semester

Enrolment -150101145

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 TABLE OF CONTENTS

 INTRODUCTION...............................................................................................3
 FACTS OF THE CASE.......................................................................................4
 CONTENTIONS OF THE PARTIES.................................................................5
 QUESTIONS BEFORE THE COURT...............................................................5
 CRUX OF THE JUDGMENT............................................................................6
 ANALYSIS.........................................................................................................7
 CONCLUSION...................................................................................................9

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 INTRODUCTION

The objective behind this study is to understand how judgments pertaining to investment
arbitration are to be implemented in the real life litigation and court practice. It is now
established that the White Industries case has far reaching consequences which would
completely alter the scene of international arbitration in India. Therefore, an award in White
industries1 also serves as a reminder of the need for smoothening out the creases in Indian
arbitration law. The judgment has to be analysed academically as well as from the practitioner’s
point of view. It is amusing to note that these points of view are far apart. The merits which an
academician sees in the case are demerits for a legal practitioner. These anomalies have to be
resolved.

The judgment has to be analysed academically as well as from the practitioner’s point of view.
It is amusing to note that these points of view are far apart. The merits which an academician
sees in the case are demerits for a legal practitioner. These anomalies have to be resolved.

Even though the judgment is not immune from criticism however it’s a huge positive step taken
in improving the laws relating to Bilateral Treaties in international arbitration in India as the
unanticipated result has cautioned India to think twice before entering into any such treaty with
vague clauses again. The judgment covers various aspects of an international arbitration like
the treaty signed, the clauses to be complied with (MFN2 Clause in this case), the enforcement
of award in the other country, and issues like definition of investment and expropriation have
been discussed at length. Overall the positives of the judgment outweigh its negatives and
therefore one may very well conclude that the Supreme Court is accelerating in the right
direction and interpreting the law in its true form as well as the spirit.

1 White Industries v. Republic of India, Final Award, November 30th, 2011.

2 Most Favoured Nation

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 FACTS OF THE CASE

In 1989, White Industries, an Australian mining company, entered into a long-term contract
with Coal India Limited (Coal India), a State-owned Indian company, for the supply of
equipment to and the development of a coal mine near Piparwar in India’s north-eastern state
of Bihar (the Mining Contract). Disputes relating to bonus and penalty payments as well as to
the quality of the extracted coal arose between Coal India and White Industries, prompting the
latter to commence arbitral proceedings under the ICC Arbitration Rules in 1999. In a majority
decision, the ICC tribunal awarded a USD 4.08 million (US Dollar Four Decimal Zero Eight
Million) to White Industries in May 2002 (the “ICC Award”).

In September 2002, Coal India applied to the Calcutta High Court to set aside the ICC Award
under the Indian Arbitration and Conciliation Act, (US Dollar Four Decimal Zero Eight
Million) (the set-aside proceedings). Nearly simultaneously, White Industries applied to the
High Court of New Delhi to enforce the ICC Award in India (the enforcement proceedings).
Both proceedings experienced significant delays. The enforcement proceedings were
eventually stayed pending a decision in the set-aside proceedings. White Industries appealed
to the Supreme Court; in the meantime, (in 2006) the High Court of New Delhi stayed the
enforcement proceedings. For about ten years White Industries could not get any relief.

After years of fruitless attempts to enforce the ICC Award in the Indian courts, White Industries
commenced arbitration proceedings against India in 2010 under the India-Australia BIT dated
February 29, 1999 (the “BIT Arbitration”), claiming that the inordinate delay resulted in a
breach of the provisions on fair and equitable treatment (“FET”), expropriation, the “effective
means” standard incorporated by the MFN clause and free transfer of funds under the treaty.
That gives rights to Australian or Indian investors in each other’s country, and where those
rights are infringed, the investor can begin arbitration proceedings against the Government of
the other contracting State directly. Article 12 of the said Treaty, inter alia, provides for
reference of a dispute to an ad hoc tribunal in accordance with the UNCITRAL Arbitration
Rules, 1976, with certain modifications. White Industries has reported claimed that the action
of the Indian courts and of Coal India.

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 CONTENTIONS OF PARTIES

Contentions of White Industries

That the inordinate delay of the enforcement of the foreign award has caused a violation of fair
and equitable treatment (FET), expropriation, MFN, fair and equitable treatment (FET),
expropriation, MFN and free transfer of funds of the India-Australia BIT and transfer of funds
of the India-Australia BIT3.

Contentions of the Republic of India

That the present mining contract was nothing but a commercial contract wherein the main BIT
obligation was the supply of goods and services. Hence it did not come within the four walls
of investment and thus there has been no violation as alleged by the appellants.

QUESTIONS BEFORE THE COURT

 Whether the commercial contract between India and Australia was an investment under
Article 1 of the Indian-Australian BIT?
 Whether Indian Government committed a violation of expropriation, MFN, FET and
free transfer of funds of India-Australia BIT?

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Bilateral Investment Treaty

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 CRUX OF THE JUDGMENT

The tribunal held the Indian Government liable for violating the effective means standard
according to which effective means of asserting claims and enforcing rights to the investing
country have to be provided by the host country. The tribunal noted that the effective means
standard means that the system of law in which the redressal is sought is working objectively
and matching the international standards and that the system works properly and effectively at
the time when the dispute arises or any redressal is sought. The system should function without
any loop holes. Thus the contention of the respondent in the present case that since the Indian
legal system is well known for its delayed justice provision hence there was no ineffective
mechanism when White Industries sought enforcement of award.

Thus the tribunal had no second doubts about holding that the effective means provision has
not been properly considered by the court but the tribunal dismissed other contentions of the
respondents like FET violation wherein the contentions of the appellants were that the principle
of legitimate expectation had been violated by the Indian courts as they expected the ICC award
to be immediately enforced and the application of the Coal India to set aside the award would
be dismissed immediately but for over nine years they were just hanging and waiting for justice
which was least expected under such a bilateral treaty .However, the tribunal held that such
legitimate expectations would only have arisen out of a specific, “unambiguous affirmation to
the effect by India,”4 which was not the case.

The other issue raised by the appellants were that their investments were being expropriated
by the Indian Government if the same is not set aside but the tribunal ruled otherwise stating
that that the primary constituents to an expropriation would be the devaluation or loss to the
value of the property to deteriorate or the rights be substantially effected since none of the pre
requisites are met with and the investment in no way is affected hence since the award has not
actually been disposed off hence no expropriation happened till date.

Thus the only violation ruled against the White industries was of that of the effective means
standard due to delay in enforcing the award.

4 White Industries v. Republic of India, Final Award, November 30th, 2011.

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 ANALYSIS OF THE JUDGMENT

1. Since an exorbitant amount of money has to be given by the Government of India to

the White Industries this will affect the public exchequer as the money is going from
the government and ultimately it’s the people’s loss as all the money was paid by the
common man via tax. Hence it’s the people who are paying for the negligence of the
government.
2. Just like in the present case if there are more such issues where the Indian judiciary is
taking a long time in delivering judgments relating to the international investment
agreements this can have an impact on India’s treaty obligations and terms with the
other nations ultimately the commerce of the nation is put at stake.
3. Another important issue which this judgment highlights is that the tribunal dismissed
the grounds of expropriation as the matter i.e. Coal India’s application wasn’t decided
upon yet and the ICC award was not set aside even after 9 years and thus held that since
the contractual rights and the value of the contract money has not been affected yet
hence there is no expropriation clearly hinting that such an award would amount to be
an investment and thus the judiciary should be careful while dealing with investment
awards in future as they can have major consequences.
4. The ruling has another important message for the higher judiciary that has expansively
interpreted the Arbitration and Conciliation Act of 1996 to set aside or not enforce ICA
awards in India. While dismissing White Industries’ expropriation claim, the tribunal
said that this claim is unfounded because Indian courts are yet to dispose of Coal India’s
application to set aside the foreign arbitral award and that the award has not been ‘taken’
or set aside. Thus, the tribunal clearly indicated that a foreign arbitral award is an
‘investment’ under the BIT and that the setting aside of such valid foreign awards could
constitute expropriation under the BIT. This observation is vital in light of the debate
in India over the role of the judiciary in the enforcement of ICA awards.
5. Another observation which we need to keep in mind while entering into future
agreements and acting upon it is that the court held that unlike what is the belief, not
just tangible but also tangible properties can amount to expropriation and since in the
present case the machinery and other such technical support was provided hence if the
award was set aside India would have been made liable for expropriation.
6. Most importantly, the problem with this ruling is that it has broken the trust of people
in the BITs which bragged about creating a balance between the investment protection,

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 economic development and India’s sovereign power. The problem with such BITs is
that provisions like Most Favoured Nations which have never been properly included
and vague provisions like effective means are given which are so open to interpretation
that the parties go treaty shopping and find the most convenient and befitting treaty
which helps them get maximum compensation this is affecting the Indian economy.
7. The award has given a renewed confidence to the investors regarding the protection of
their investment. A bypass has been created which subverts the delayed judicial
process. it opens up another route for investors outside of the Indian courts. If investors
face many years’ delay in enforcing arbitral awards, they may pursue the Government
of India directly. Of course, in order to do this the investors would need to have access
to a similar BIT as the Australia-India BIT, or the Kuwait-India BIT. India is a party to
over 80 BITs with other countries, including Australia, Belgium, France, Germany,
Italy, Singapore, Sweden and United Kingdom.

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 CONCLUSION

The Bhatia international5 and Satyam computer6 were two of the most bitterly criticized
judgments pertaining to Indian Arbitration law. They were solely responsible for the delay and
inability of White Industries to enforce the ICC award. The Calcutta High court had set aside
the foreign award following the ratio laid down in the Satyam Computer case mainly. The
critics of these judgments have been fairly vindicated by the tribunal’s award. The award is
more like a slap on the face of the judiciary for overstepping its line while interpreting statutes
more liberally than what is permitted. It will be interesting to see how courts now interpret the
statutes in future knowing that any verdict hindering the enforcement of foreign award will
attract grave consequence under BIT‟s with harsher penalties.

The tribunal in the case concluded that the ICC Award was enforceable under the laws of India,
but it was silent on the breach. This means it was expected from the judiciary that they would
give an opinion on whether not upholding the award resulted in breach of New York
Convention. It would have been interesting had the tribunal given its opinion on this matter as
well. In fact as an alternative White Industries could have enforced the awards in any of the
other New York convention countries where Indian government has its assets. To further what
the tribunal is silent on, the non enforcement of foreign award is indeed in default of the New
York convention as Article V of the New York convention contains an exhaustive list of
grounds on which a foreign award can be set aside by the courts of the country where
enforcement is sought.

5
Bhatia International v. Respondent: Bulk Trading S.A. and Anr., (2002) 2 SCR 411.
6
Satyam computer Case, Civil appeal number 3678 of 2007.