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7/1/1999 SOME EXAMPLES OF JUDGEMENTS BY INDIAN COURTS INVOLVING FOREIGN ENTITIES
The record of the Indian courts in dealing with disputes between foreign and India businessmen has been most satisfactory. Three examples will suffice to illustrate this point.
In 1983, the Supreme Court of India held that it is lawful for arbitrators to make an award for a sum of money expressed in foreign currency, Forasol v Oil and Natural Gas Commission (1986) 60 Company Cases 286.
In 1993, the Supreme Court of India held in Renusagar Power Co. Ltd. v General Electric Co. (1994) 81 Company Cases 171 that it was not against the public policy of India for a foreign arbitral tribunal to award to a foreign company compound interest on the amount of the damages to which it was entitled for the breach of a contract between it and an Indian company.
The Dabhol Power Company is an Indian joint venture promoted by three multinational companies - ENRON, General Electric and Bechtel. In 1994, the State of Maharashtra, whose legislature and government were then controlled by the Congress Party, awarded a contract to Dabhol to construct one of India's largest electric power generating stations, involving a capacity of 1920 megawatts. The company takes its name from the town of Dabhol on the west coast of Maharashtra. The project was soon embroiled in controversy. Many public interest groups filed petitions in the Bombay High Court and Delhi High Court challenging the validity of the award of the contract without inviting public tenders and the environmental and other regulatory clearances that had been given to it. The courts dismissed all these petitions. In 1995, general elections were held in the State of Maharashtra. Soon after the polling had been closed but before the results were announced, the Government of Maharashtra (which was still controlled by the Congress party), the Maharashtra State Electricity Board and Dabhol signed the final contractual documents. But, the Congress Party lost the elections. A coalition government comprising two political parties the Shiv Sena and the Bharatiya Janata Party ("BJP") assumed power in the State. These parties had been violently opposing the Dabhol power project before and during the election campaign. As soon as the new coalition government took over power, it lost no time in ordering the stoppage of all work on the project and announced that it would review the contract. It then filed a law suit in the Bombay High Court and commenced arbitration proceedings before an arbitration panel appointed by the International Chamber of Commerce against Dabhol. The main charge against Dabhol was that the contract had been fraudulently obtained and that it was void because it was against public policy. In 1996, as a result of protracted negotiations between Dabhol and the Government, the contract was re-negotiated, amended and signed. The structure of the project and the power tariff to the consumers were modified. The law suit and the arbitration proceedings were withdrawn. But, before the long delayed work on the project could re-commence, a public interest group called the Center of Indian Trade Unions ("CITU") filed a petition in the Bombay High Court against the Union of India and many other respondents, including Dabhol, challenging the re-negotiated and modified contract. The Bombay High Court, in a remarkably candid judgment reported in Center of Indian Trade Unions v Union of India (1997) 1 All Maharashtra Reporter, 39, dismissed the petition mainly on the ground that the matters in issue before the court had been heard and finally decided in the previous decisions of the Mumbai and Delhi High Courts. But in doing so, the court made scathing strictures against the Government. This case is a significant example of how the Indian judiciary continues to play an independent role in protecting the interests of both citizen and foreigner. The timing of this judgement is also relevant. India has long ceased to be a nation ruled by a government elected by the same political party. The present Government of India is a coalition government comprising about thirteen parties of different political colors. Many of the states are ruled by regional political parties whose ideology varies from state to state and from party to party. In such a situation, a foreigner who signs a solemn contract with a government which is controlled by a particular political party needs to be reassured that this contract will continue to be honored if the control of the government passes to another political party. The C.I.T.U. judgment gives this assurance in these clear and unambiguous words:
We express our grave concern over such conduct of the government. We are of the clear opinion that it is not only unbecoming on the part of the Government to do so but a reprehensible conduct. The State is a legal entity having a personality of its own quite different and distinct from the political party in power or the persons in office. The contractual liability of the State under the Constitution of India is the same as that of an individual under the ordinary law of contract. The government of a State may sue or be sued by the name of the State. The contractual obligations of the State are governed by the law of contract and not by the personal whims and fancies of the people in power or the philosophy of the political party to which they belong. The State cannot get out of its contractual obligations unilaterally except in accordance with the laws governing the contracts. In India, under the Indian Contract Act, a party to the contract cannot repudiate the contract merely because it feels that the terms of the contract are onerous or that the deal is tilted in favor of the other contracting party, unless the contract is void or voidable. The circumstances which render a contract void or voidable are clearly set out in that Act.
The judicial system in India is presently undergoing severe stresses because of the mounting arrears of litigation. The availability of the so called "writ jurisdiction" of the High Courts has encouraged litigants to file an extraordinary large number of writ petitions against the Central Government, the State Governments, their functionaries and against corporations owned or controlled by them. These writ petitions and other factors have substantially contributed to the delays and pressures which the High Courts are experiencing in the timely disposal of pending cases. As of 1993, the total number of pending cases in the four High Courts of Bombay, Calcutta, Delhi and Madras was a staggering 871,548. The recent measures initiated by the Government to set up special tribunals to deal with certain matters - conditions of service of civil servants and the proposed rent control tribunal - will help to reduce the pressure on the judicial system, which should continue to maintain the high principles of judiciary integrity and independence of which this country has been justly proud.
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