Friday, October 14, 2016

Denial of Counsel in Arbitral Proceedings: Public Policy Implications Under S.34 of the Arbitration Act 1996

Guest Post by Badri Natarajan


This post discusses whether the denial of counsel in arbitral proceedings, can be against public policy for the purpose of S.34 of the Arbitration Act 1996 (the “Act”) and the principle of “equality of arms” that is a core part of natural justice.

I will argue that an arbitral clause denying (both) parties the right to counsel is likely to be valid, unless it breaches the natural justice principle that there must be equality of arms and a level playing field between the parties, in which case it will be against public policy and liable to be set aside under S.34 of the Act. An arbitral clause that denies counsel to one party only is likely to be invalid on that ground alone. 

This post is based on a S.34 petition in the Madras High Court, in which I represented the Petitioner challenging an arbitral award (TC Mohan v Emkay Commotrade Ltd, OP 818 of 2013). The petition was dismissed, but the judgment has not yet been pronounced, and therefore the High Court’s reasoning is unknown, since the case involved a number of other substantive issues.


The detailed facts of the petition are not relevant. The 90 year old retired Petitioner (an investor) entered into arbitration proceedings against the Respondent (his broker, which is a member of the Multi Commodity Exchange of India, the “MCX”). The proceedings were governed by the MCX Bye-Laws and pursuant to Rule 15.22 of the Bye-Laws, neither party was entitled to legal counsel. Accordingly, the Petitioner represented himself and the Respondent was represented by a Legal Officer whose qualifications are unknown but is believed to have had legal training and experience in handling disputes of this nature. They resulted in an Award against the Petitioner, which was subsequently challenged in the present case.

Depending on his interpretation of Rule 15.22, the Arbitrator may have allowed the Petitioner to be represented by another person with legal training (as long as they were not a qualified advocate). However, the question never arose as the Petitioner assumed he could not be represented by anyone when he was told that he could not be represented by an advocate. He was not expressly informed that he could be represented by someone other than a qualified lawyer. In any event, it is not clear that Rule 15.22 would allow this, but that discussion is beyond the scope of this piece. The Respondent was not affected by this issue because they were not represented by a third party (qualified lawyer or otherwise) - they were represented by an employee who was a Legal Officer with experience conducting legal proceedings. 

In August 2013, a writ challenging the constitutionality of the same MCX Bye Law Rule 15.22 was filed in the Madras High Court (Mary Roseline and Stephen v Geojit Comtrade). Only press reports of this writ are available but it appears that the Petitioners in that case obtained an interim stay order before the commencement of arbitral proceedings and did not proceed under the Act. However, the final disposition of this writ is not known. 

Denial of Counsel in Arbitral Proceedings May Be Against Public Policy

Our argument was that applying Rule 15.22 to arbitral proceedings is against public policy under S.34(2)(b)(ii) of the Act. This is because a restriction of this kind is against the principles of natural justice and in particular, the right to a fair hearing.

The law relating to public policy in the context of S.34 is complex (and there is no direct binding precedent on this point), but most of it is not relevant. It is clear that an award made pursuant to a serious disability against the principles of natural justice will be against the “fundamental policy of India” and “justice or morality” as set out in ONGC v Saw Pipes (2003 (5) SCC 705) and therefore against public policy for the purposes of S.34. 

There is no general rule that natural justice requires the right to legal representation in all circumstances. The Supreme Court has held in a number of cases that denial of legal representation – even if it was in accordance with disciplinary rules by which the parties were bound – is a breach of natural justice on the facts of the case. In particular, it has done so in circumstances where the other side was represented by a legal practitioner (very broadly defined and not necessarily an Advocate).

Restrictions on the right to legal representation have also been upheld in a range of cases, provided that there is equality of arms – that there isn’t a situation where one side is represented by a legal practitioner, but the other side does not have the right to be represented by one. In other words, the Supreme Court has repeatedly struck down restrictions on the right to legal representation where one party (usually the employer or government) is represented by a person with legal training and experience in conducting legal proceedings (even if they are not legally qualified) and the other party has no such experience and is representing themselves, which is exactly what happened in the present case, rendering the resultant Award liable to be set aside under S.34 of the Act. 

A single Judge of the Bombay High Court held (Faze Three Exports (2004 (2) Arb LR 163 (Bom)) – Para 8-10) that S.24 of the Act affords parties the right to be heard by the tribunal and natural justice requires it since arbitration is a judicial proceeding. Every Court/Tribunal with a duty to act judicially must allow a party to be represented by a legal practitioner as that is a part of the duty to act fairly.

However, the learned Single Judge went on to observe that:

“I am of the considered opinion that even in arbitration proceedings, parties are entitled to be represented by a legal practitioner if they so desire unless they have agreed in writing that none of the parties shall be represented by a lawyer.”

There is no further analysis of this point and it may be obiter in any event. In particular the learned Judge does not appear to have heard submissions about, or considered the line of cases dealing with the need for equality of arms in the context of legal representation. Nevertheless this broad statement must be read down in line with the principles laid down by the Supreme Court and larger benches of the Bombay High Court on those grounds.

The Supreme Court has held (in JK Aggarwal (1991 (2) SCC 283), Para 4 onwards):

“It would appear that in the inquiry, the Respondent-Corporation was represented by its Personnel and Administration Manager who is stated to be a man of law. The rule itself recognises that where the charges are so serious as to entail a dismissal from service the inquiry-authority may permit the services of a lawyer. This rule vests a discretion. In the matter of exercise of this discretion one of the relevant factors is whether there is likelihood of the combat being unequal entailing a miscarriage or failure of justice and a denial of a real and reasonable opportunity for defence by reason of the appellant being pitted against a presenting- officer who is trained in law. Legal Adviser and a lawyer are for this purpose somewhat liberally construed and must include "whoever assists or advises on facts and in law must be deemed to be in the position of a legal adviser". In the last analysis, a decision has to be reached on a case to case basis on the situational particularities and the special requirements of justice of the case. It is unnecessary, therefore, to go into the larger question "whether as a sequel to an adverse verdict in a domestic enquiry serious civil and pecuniary consequences are likely to ensue, in order to enable the person so likely to suffer such consequences with a view to giving him a reasonable opportunity to defend himself, on his request, should be permitted to appear through a legal practitioner" which was kept open in Board of Trustees of the Port of Bombay v. Dilipkumar MANU/SC/0184/1982 : (1983)ILLJ1SC . However, it was held in that case: “In our view we have reached a stage in our onward march to fair play in action that where in an enquiry before a domestic tribunal the delinquent officer is pitted against a legally trained mind, if he seeks permission to appear through a legal practitioner the refusal to grant this request would amount to denial of a reasonable request to defend himself and the essential principles of natural justice would be violated....(p. 837) 5. On a consideration of the matter, we are persuaded to the view that the refusal to sanction the service of a lawyer in the inquiry was not a proper exercise of the discretion under the rule resulting in a failure of natural justice; particularly, in view of the fact that the Presenting-Officer was a person with legal attainments and experience. It was said that the appellant was no less adept having been in the position of a Senior-Executive and could have defended, and did defend, himself competently; but as was observed by the learned Master of Rolls in Pett's case that in defending himself one may tend to become "nervous" or "tongue tied", Moreover, appellant, it is claimed, has had no legal background. The refusal of the service of a lawyer, in the facts of this case, results in denial of natural justice.”

A Division Bench of the Bombay High Court has (in Venkatraman v Union of India (1986 IILLJ 62 Bom), Para 11-16) reiterated the points made by the Supreme Court in Port of Bombay cited above, and further explained why the definition of legal practitioner should be read broadly to include legally experienced individuals, in order to ensure a fair fight between the parties.

Conclusion: Principles

I submit that the correct interpretation of the law in this area is that there is a right to be represented by counsel in judicial proceedings (including arbitral proceedings) as a matter of natural justice, but it is not absolute and can be restricted or contracted out of. 

However, such restrictions cannot have the effect of removing “equality of arms” or disturbing the level playing field between the parties, and restrictions which have such an effect will be against the principles of natural justice and therefore invalid. 

In particular, this means that (a) a party cannot contract out of the right to legal representation unilaterally, where the other party is entitled to representation and (b) even if both parties are not entitled to representation by counsel, a party cannot be denied counsel if the other party is represented by a “legal practitioner” (even if such a person is not legally qualified but is merely more experienced and knowledgeable in the legal field). 

If a party is denied counsel in arbitral proceedings in breach of the above principles, an award arising out of such flawed proceedings will have been reached in proceedings that did not satisfy the requirements of natural justice and the right to a fair hearing and thus be against the public policy of India and liable to be set aside under S. 34 of the Act. 

This conclusion is in line with the broader societal interest in maintaining equality of arms between litigating parties. While there can never be perfect equality in the real world (and one party is likely to have a better case on the merits), there is a societal and judicial interest in promoting equality of arms to the extent possible, as laid down by the Supreme Court. While denying the benefit of counsel to one party, but not the other is plainly against this principle, the courts must also be wary of restrictions that appear neutral on their face but have the effect of breaching this principle in particular situations. For example, the restriction in the present case would have been much less objectionable if it was limited to disputes between MCX members (who are all relatively sophisticated entities with the resources to obtain legal advice and conduct litigation themselves if required), but extending it to disputes between MCX members and retail clients, who are frequently unsophisticated small investors with no experience of the legal system is more questionable. 

In this context, while beyond the scope of this post (and possibly be the subject of a future post), it is interesting to note the backlash against arbitration as a dispute resolution mechanism in the United States in the last year or so and consider the impact of similar tactics in India. The US backlash relates to the use of compulsory arbitration clauses in standard-form contracts with retail consumers (particularly in the financial services industry), with (allegedly) a view to deprive consumers of an effective remedy against the large corporate counterparty. 

(Badri Natarajan is an Advocate and English solicitor with a dispute resolution practice in the Madras High Court and London)
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