Indian Express, India

India loses arbitration case against Oz firm

By Maneesh Chhibber, New Delhi

9 February 2012

In a stinging indictment of the slow speed with which the higher judiciary 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 has decided a case against the Government of India and a PSU.

What makes the defeat of the government of India worrisome, in the case that would otherwise have been regarded as routine, is the fact that for the first time since the slew of arbitration cases following the ill-fated Dabhol power project, a foreign company invoked the Bilateral Investment Treaty (BIT) between India and a foreign government to seek redressal of grievance.

The 141-page order, a copy of which is with The Indian Express, has the three arbitrators questioning 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 Ltd — as well as the failure of the Indian courts to have determined “by now” if an earlier award in favour of White Industries was enforceable in India.

Worried about the ramifications of the award, which, experts feel, could open floodgates for similar claims by other foreign firms by invoking BIT, the government is unable to decide if it should challenge the latest award in an Indian court and, thereby, open itself to the charge of ignoring BIT.

India has signed BIT with 137 countries and the government, sources said, is now worried that corporations of all these countries would start invoking the treaty to drag the government in matters that are purely financial in nature, something that could begin if foreign firms who had got 2G licences with their Indian partners, which were cancelled by the apex court last week, start arbitration proceedings.

As first reported by this newspaper, White Industries went into arbitration — the second time it did so in the same case — against Coal India, with which it had a contract for supply of equipment and development of a coal mine at Piparwar, Jharkhand. The issue of confrontation was whether White Industries was entitled to bonuses.

In May 2002, an arbitration tribunal ruled in favour of the Australian firm, ordering Coal India to pay an amount of Australian $4.85 million plus interest and expenses to it. Since 2003, White Industries’ attempt to enforce the award has been pending in the Supreme Court. Finally, in May last year, the company commenced arbitration proceedings under the India-Australia Bilateral Treaty.

Among other things, White Industries argued before the arbitration panel that the Indian judiciary works under the influence of the Government of India and that the latter had stalled hearing of its appeal against Coal India.

Former Supreme Court Judge B N Srikrishna had travelled to London last September as an expert to defend the government.

However, the arbitrators have asked India to pay White Industries the money owed to it along with 8 per cent interest from March 24, 1998. India would also have to pay US$84000 with 8 per cent interest from March 24, 1998 as fees and expenses of the arbitrators as well as Australian $5 lakh with 8 per cent interest from March 24, 1998 to White Industries. Another sum of Australian $86,249 would have to be paid along with interest as witness fees.