Permanent Machinery for Arbitration: A Saga of Unending Maladies

Sometimes a remedy to cure a disease may develop a new unforeseen complication worse than the disease that it intended to cure. Here the nobility of intention to provide a cure will not be of much help. Indian judicial system is fraught with such instances. The attempt to provide an alternative dispute resolution mechanism for the public sector enterprises (PSE) is a veritable example of something that backfired horribly.

The Permanent Machinery for Arbitration

The initial attempts to explore a mechanism, which is efficient and cost-effective at the same time, to resolve the disputes amongst public sector entities (excluding disputes on income-tax, customs and excise) was explored by the government as early as 1987. In pursuance to this, a decision was taken by the Committee of Secretaries to set up a permanent machinery of arbitrators to settle the disputes. It was further decided that all the agreements entered into between the public sector utilities shall contain a binding arbitration clause that would refer any disputes arising between the parties to the body arbitrators so formed, called as Permanent Machinery for Arbitration (PMA). The most important aspect of this setup is that the whole mechanism is outside the scope of laws of arbitration making the award made under this mechanism is not challengeable in any court of law and is binding on both the parties.
In order to implement the mechanism, it was made compulsory for all the PSEs to contain a clause to this effect in all the commercial contracts that is entered inter se between them. A seemingly fool proof mechanism that it was, ran into problems when the PSEs did not abide by the clause and challenged the award in court of law through various means.
The genesis of the present situation can be traced back to the case of Oil and Natural Gas Commission and Anr. Vs. Collector of Central Excise[1] (ONGC-I)[2]. The Supreme Court, after noticing the high frequency of such litigation between government entities, where the award made under PMA was challenged in court in spite express bar, resulting in loss to the exchequer, asked the government to set up a Committee consisting representatives from the Ministry of Industry, the Bureau of Public Enterprises and the Ministry of Law, to monitor disputes between Ministry and Ministry of Government of India, Ministry and Public Sector Undertaking of the Government of India and Public Sector Undertakings in between themselves. Relevant part of the judgement is extracted here:

We direct that the Government of India shall set up a Committee consisting representatives from the Ministry of Industry, the Bureau of Public Enterprises and the Ministry of Law, to monitor disputes between Ministry and Ministry of Government of India, Ministry and Public Sector Undertaking of the Government of India and Public Sector Undertakings in between themselves, to ensure that no litigation comes to Court or to a Tribunal without the matter having been first examined by the Committee and its clearance for litigation. Government may include a representative of the Ministry concerned in a specific case and one from the Ministry of Finance in the Committee. Senior Officers only should be nominated so that the Committee would function with status, control and discipline.

This was to ensure that no such litigation comes to Court or to a Tribunal without the matter having been first examined by the Committee (later called as Committee on Disputes or CoD) and its clearance for litigation.[3] In order to give more force to this alternative mechanism the Supreme Court directed that all courts and tribunals, before which disputes between two government entities are raised, must demand a clearance from the Committee in case it has not been so pleaded and in the absence of the clearance, the proceedings would not be proceeded with.[4]
With the passage of time, several issues cropped up with the implementation of the process. In many cases, the permission from the High-powered Committee required to initiate the proceedings came with considerable delay adversely affecting the limitation period to file them. Also the direction of the Supreme Court in ONGC-I that the ‘recourse to litigation should be eliminated’ created some confusion as to its true scope and import. These issues came to be considered by a three-judge bench of the court in Oil and Natural Gas Commission and Anr. Vs. Collector of Central Excise[5] (ONGC-III). The bench clarified that the directions provided in ONGC-I & II cannot be interpreted to mean that the statutory remedies of Union of India and its statutory corporations are effaced. The constitution of such a committee was not to take away those remedies. The machinery was contemplated only to ensure that no litigation came to court without the parties having had an opportunity of conciliation before the committee. Also, the bench made clear that there should be no bar to the lodgement of an appeal or petition either by the Union of India or the public sector undertakings before any court or tribunal to save limitation period, with a caveat that before such filing every endeavour should be made to have the clearance of the high-powered committee.[6] In those cases, which are filed without the clearance of the high-powered committee, reference is to be made to the committee within a period of one month from the date of filing of the case.[7] Such additions providing leeway to litigation in effect defeated the whole purpose of the formation of such a body. The dilution of such intentional restrictions in the form of limitations, some times for good and cogent reasons, ended up counterproductive.
In a subsequent case, the scope of such a dispute resolution mechanism was increased to include State Government entities as well. To make good the directions, the court directed that a committee be formed to sort out the differences between Central Government and State Government entities.[8]
In spite of such strenuous efforts to ensure that the resources of the state are not frittered away in unnecessary litigation, further complications arose. The reasons ranged from inability of the high-powered committee to deal with such complex questions of law to unreasonable delay caused in giving the approval. Conscious of these complications, the Supreme Court while considering it in the case of Electronics Corp. of India Vs. Union of India[9] made observations recalling the orders which resulted in the formation of the Committee on Disputes that:

“The mechanism was set up with a laudatory object. However, the mechanism has led to delay in filing of civil appeals causing loss of revenue. For example, in many cases of exemptions, the Industry Department gives exemption, while the same is denied by the Revenue Department. Similarly, with the enactment of regulatory laws in several cases there could be overlapping of jurisdictions between, let us say, SEBI and insurance regulators. Civil appeals lie to this Court. Stakes in such cases are huge. One cannot possibly expect timely clearance by CoD[10]. In such cases, grant of clearance to one and not to the other may result in generation of more and more litigation. The mechanism has outlived its utility. In the changed scenario indicated above, we are of the view that time has come under the above circumstances to recall the directions of this Court in its various Orders reported as

1. 1995 Supp. (4) SCC 541 dated 11.10.1991,
2. (2004) 6 SCC 437 dated 7.1.1994 and
3. (2007) 7 SCC 39 dated 20.7.2007.”[11]

Though the Electronics Corporation case put to rest the unending confusion that was created, it only resolved a part of the problem that prevailed. The decision was limited only to recall order passed in those cases over the formation and functioning of Committee of Disputes (CoD). This only resolved a part of the issue that faced. The dominant problems that stymied the smooth functioning of PMA were not addressed and were left for consideration in the future. The contraption of PMA, with its unresolved legal complications, still prevailed with its entailing confusion.
Amid all these confusions the very constitutionality/validity of such clauses were challenged before the court in various writ and suit proceedings before the High Courts. In most of these cases the challenges were dismissed in view of the fact that none of the decisions of the Supreme Court doubted the validity PMA itself. However, there arose inherent conflict regarding the maintainability of such legal remedies before the court either be it suit or a writ petition. The flurry of such decisions did not help the confusion that was resulted.

Northern Coalfields: An Unrealised Chance

The issue came up for consideration by the Supreme Court in the case of M/s. Northern Coalfields Ltd. Versus Heavy Engineering Corporation Ltd. & Anr. The judgement delivered in this case effectively lays down the law and seemingly resolves all the conflicts that arise in the judgements delivered by the High Courts. The judgement takes into consideration genesis of the PMA and COD mechanism under challenge in the present case tracing its history from its inception until the Electronics Corporation case wherein the COD mechanism was abolished. Here too the requirement of clearance from COD, including pre-Electronics Corporation cases, stands answered in negative.
Though the judgement of the Supreme Court attempted to resolve it the overall outcome falls far short of providing an optimal solution due to the myopic view of its reasoning. The bone of contention over the validity of PMA and the remedies available to an aggrieved party under PMA is not made clear in the judgement. The judgement, while upholding the validity of the PMA itself yet leaves it open for a challenge before a court of law, that too without specifying under what remedy that is made available by law to the aggrieved party. In its own words:

“Remedies which are available to the Government on the administrative side cannot substitute remedies that are available to a losing party according to the law of the land. The appellant has lost before the arbitrators in terms of the Permanent Machinery of Arbitration and is stoutly disputing its liability on several grounds. The dispute regarding liability of the appellant under the contract, therefore, continues to loom large so long as it is not resolved finally and effectually in accordance with law. No such effective adjudication recognized by law has so far taken place. That being so, the right of the appellant to demand such an adjudication cannot be denied simply because it happens to be a Government owned company for even when the appellant is a government company, it has its legal character as an entity separate from the Government. Just because it had resorted to the permanent procedure or taken part in the proceedings there can be no estoppel against its seeking redress in accordance with law. That is precisely what it did when it filed a suit for declaration that the award was bad for a variety of reasons and also that the contract stood annulled on account of the breach committed by the respondents.”

Here the whole mechanism of PMA is merely dismissed as an administrative action, which cannot become a substitute for courtroom adjudication, completely defeating the very purpose of the constitution of PMA as an alternative for time-consuming legal proceedings, rendering the previous judgements of the court redundant. The Supreme Court has missed a golden opportunity to set right the cart that went astray.


[1] 1992 Supp (2) SCC 432
[2] A similar judgement was passed by the Supreme Court in another case (Oil and Natural Gas Commission and Anr. Vs. Collector of Central Excise 1995 Supp. (4) SCC 541) delivered immediately after ONGC-I, with same directions. This case is referred to as ONGC-II in subsequent judgements in the subject matter.
[3] Supra at Para 2
[4] Supra at Para 3
[5] (2004) 6 SCC 437
[6] Supra at Para 6
[7] Supra at Para 8
[8] Oil and Natural Gas Corporation Ltd. Vs. City and Indust. Dev. Corpn., Maharashtra and Ors. (2007) 7 SCC 39 (ONGC-IV)
[9] (2011) 3 SCC 404.
[10] Committee on Disputes (The High-Powered Committee subsequently came to be termed under this name)
[11] Supra at Para 17

Arbitrability of Disputes and Alternative Standard of Tests

While the importance of Arbitration as an important avenue for resolution of a dispute has consistently been emphasised by the Indian judiciary through various judicial pronouncements there still exists considerable lacunae in the interpretation offered towards the advancement of this thought process. In more than a few instances, the intervention of judiciary has proved to be an unwanted thorn in ensuring the much-needed consistency within the discourse. The necessity for coherent and logical pronouncements, commensurate to the changing needs of the time, cannot be emphasised anymore. Yet, there exist several glaring voids within this discourse that require some attention. One such important issue is the ‘arbitrability’ of disputes, which goes to the very root of the arbitral process. While it is axiomatic to state that not all disputes can be arbitrated, the question over species of subjects that falls under the genus of non-arbitrability has given rise to unforeseen quandaries restricting the scope of arbitration at times.
Typically, the question over arbitration can arise at three stages in arbitration[1]

1. On an application to stay arbitration.
2. When the opposing party questions the authority of the tribunal to entertain the subject matter of arbitration.
3. On an application challenging the award.

In the Indian context, the above-mentioned situation arises under Section 9, Section 16 and Section 34 respectively.
The piquant question though came up for consideration several times before the judiciary, it was in the landmark decision of Booz Allen and Hamilton Vs. SBI Home Finance Limited and others (2011) 5 SCC 532 that an attempt was made to rationalise the issue while analysing the true scope of the problem involved. The primary question that was considered by the bench in the case was to adjudicate the true scope and import of the term arbitrability of a subject matter. In other words, what are the subject matters that cannot be adjudicated through a private arbitration due to its inherent nature and what is the framework upon which the arbitrability of a subject matter can be tested?
Commenting on the ability of an arbitral tribunal to adjudicate certain disputes it states that ‘every civil or commercial dispute, either contractual or non-contractual and which can be decided by a court, is in principle capable of being adjudicated and resolved by arbitration unless it is excluded either expressly or by necessary implication.’ The express or implied exclusion stated in the decision is based on the limitation imposed due to overarching public policy considerations. Furthermore, the decision enunciates several examples of non-arbitrable disputes, which are

1. disputes relating to rights and liabilities which give rise to or arise out of criminal offences;
2. matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody;
3. guardianship matters;
4. insolvency and winding up matters;
5. testamentary matters (grant of probate, letters of administration and succession certificate); and
6. eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction and only the specified courts are conferred jurisdiction to grant eviction or decide the disputes.

The framework upon which the list is enunciated is the nature of rights that is sought to be enforced. The primary test prescribed is whether the subject matter of reference relates to action in rem, in the case of which it would fall outside the scope of powers provided to an arbitral tribunal under the Arbitration Act. The test restricts those rights, adjudication of which shall affect the rights of third parties who are not privy to the arbitration agreement. The underlying principle for such a restriction is that such rights in rem come within the protection offered by a state as its duty towards its citizenry. The sovereign duty to enforce such rights cannot be delegated to a private adjudicatory forum, the delegation of which would go against the public policy. Hence, applying this test, only in personam rights can be referred to arbitration.
While this may sound straightforward enough as a solution to determine the arbitrability of a subject matter, the subjective nature of the test makes it a tool which can be applied rather too liberally leaving much scope for restricting the subject matters which can be arbitrated. This can prove counter-productive for the whole arbitration eco-system. An example can be had when one looks at the widely fluctuating decisions rendered by the Supreme Court over the arbitrability of issues involving fraud in an arbitration agreement, especially in international commercial arbitration. In the case of World Sport Group (Mauritius) Ltd. Vs. MSM Satellite (Singapore) Pte. Ltd. AIR 2014 SC 968 for the first time it was ruled that disputes involving fraud are not inconsistent with jurisdiction conferred on an arbitral tribunal in an international commercial arbitration. For the domestic arbitration involving claims of fraud similar inconsistency still prevails, however, with the passage of time a high standard has been developed that must be satisfied to refuse a matter to arbitration. For an arbitration agreement to be held as inapplicable the court must find that there are very serious allegations of fraud which make a virtual case of a criminal offence or where allegations of fraud are so complicated that it becomes absolutely essential that such complex issues can be decided only by a civil court.[2] This absolute standard has come to be recognised consistently in various judicial pronouncements.
As mentioned earlier, the ambiguity of this test is primarily due to its subjective nature, which provides much leeway to take away many subjects from the scope of arbitration. Going merely by this test, if, for an example, when a dispute involves enforcement of intellectual property rights at the first blush it can easily be rejected as a right in rem and hence incapable of being arbitrated. However, when one takes into consideration the nature of reliefs sought for, in most cases, it can easily be distinguished from the enforcement in rem IP rights. The observation made by Raveendran J. in the Booz Allen (Supra) case acquires significance here.
“Generally and traditionally all disputes relating to rights in personam are considered to be amenable to arbitration; and all disputes relating to rights in rem are required to be adjudicated by courts and public tribunals, being unsuited for private arbitration. This is not however a rigid or inflexible rule. Disputes relating to subordinate rights in personam arising from rights in rem have always been considered to be arbitrable.”
The problem arises when the distinguishing features of such subordinate rights which are sought to be enforced is not taken note of and a blanket assessment of test prescribed in Booz Allen is preferred, restricting the scope of arbitration clauses. It would be too broad a proposition to state that any dispute involving rights in rem due to its inherent nature are incapable of arbitration. Whenever such disputes arise it will be prudent to give a widest possible interpretation to the arbitration clause to see whether the dispute falls within its scope or not, to further the cause. A recent decision of Eros International Media Limited Vs. Telemax Links India Pvt. Ltd. and Ors. (Suit No. 331 of 2013) by Bombay High Court articulates this in the best possible manner. Drawing analogy striking between the IP rights like Trademark et al and other property rights the judgement concludes that albeit all those rights are in a sense a protection conferred to an individuals’ right over a property against the whole world, the enforcement of such rights are still done against individuals, making it an in personam right subordinate to the in rem rights conferred upon them.
The contrary parochial interpretation with a blanket assessment has been offered by a recent pronouncement of Supreme Court in the case of Shri Vimal Kishor Shah & Ors. Vs. Mr. Jayesh Dinesh Shah & Ors. (Civil Appeal No.8164 of 2016). In this case, the issue that arose for consideration was the arbitrability of an issue arising out of trust deed. While the decision follows the right path in its reasoning to exclude disputes that are exclusively to be dealt with under the mechanism provided under the Trusts Act, an opportunity to distinguish between those set of rights that can be arbitrated for being subordinate to the rights and responsibilities conferred under the Act.
In order to resolve such inconsistencies, as noted above, it is imperative that the standard of test prescribed in Booz Allen (Supra) should be modified to test the dispute involved upon the nature of reliefs sought rather than mechanically testing the subject as a whole in its widest ambit. Such moves end up restricting the scope of arbitration act as a whole. The decision of Bombay High Court discussed above is a welcome move towards ensuring the achievement of real intent behind the Arbitration and Conciliation Act.


[1] Russel on Arbitration, 23rd Edition at Page 15.
[2] A. Ayyasamy Vs. A. Paramasivam and Ors. Civil Appeal Nos. 8245-8246 of 2016

CAUVERY: A SERIATIM OF NEVER ENDING CONFLICTS

As the acrid tussle that is going on between Tamil Nadu and Karnataka, over sharing of interstate river water, is stooping down to physical violence by a few, it has raised all sorts of debates justifying either of sides. However, in most cases they are far from being well informed or based on logic. All sorts of information are being shared in social media that possess none of the signs of reliable information. More than often, they aim at stoking the emotional chord of the people to create acrimony amongst the people from both the states. Though on more than a few occasions I wanted to give a reply to them about this I was not sure about my knowledge about the whole problem myself. A basic search into the orders that came to be passed by the Water Disputes Tribunal and the Supreme Court of India where the Tribunal’s order has been challenged enlightened me a great deal. I began with the Supreme Court’s orders dated 05.09.2016 & 12.09.2016, which opened up the doors for present issue and traced myself back to the Tribunal’s order dated 05.02.2007. The sheer size of these orders and documents is mind-boggling. For giving an idea, the order of the tribunal itself is close to 1000 pages, while the depositions and other supporting documents filed by the states party to the dispute easily cross the mark of 50,000. I must confess that I haven’t even scratched the surface when I claim that I read these orders before writing the present post. I picked only those portions of the final order passed by the Tribunal that matters the most, which in itself ran into several hundred pages. I have attempted to give a summary of the dispute from its historical origin to the present day proceedings here for an easy read. I have excluded many happenings with the sole intention of making this succinct.

History

Agreements of 1892 & 1924

The entire gamut of arguments over the rights of these states over the Cauvery water hinges upon two agreements entered into between the states of Karnataka and Tamil Nadu or Mysore and the State of Madras, as they were known at that point in time. The first agreement was signed in the year 1892 (available here at Page 277) to regulate many major rivers and minor streams that are common to both the states. One of the important aspects of this agreement is that Government of Mysore must obtain the previous consent of Madras Government before constructing any “New Irrigation Reservoirs” or any “New Anicut” across the rivers and major and minor streams listed in the agreement itself. If Mysore Government wanted to build any such structures, consent for which must be taken before the construction actually begins, they must provide full information regarding the proposed work to Madras Government. This might seem to be an imbalanced bargain in favour of Madras Government. However, the catch is where the subsequent clause dictates that Madras Government shall not refuse such consent except for the protection of prescriptive rights that already stands acquired and actually exists. I found this to be a very vague way of defining the rights of the Madras Government under the agreement. Since there was no prior agreement or within 1892 agreement itself that defined any of those rights. It all came down to one’s own common sense and principles of fairness to regulate it. In pursuance to this agreement, Mysore sought the permission of Madras to construct Krishnarajasagar dam across Cauvery, over which disputes arose as to the terms under which the dam was to be constructed. An arbitrator was appointed to resolve the disputes whose decision again was appealed to the Secretary of State by Madras. After prolonged negotiations, a common ground was arrived at, which resulted in the 1924 agreement (Available here at Page 347). The major result of the agreement is that it contained the terms under which Mysore Government were to construct the Krishnarajasagar dam across the River Cauvery and to provide for the extension of irrigation in both the States utilising the flows in the River Cauvery. The agreement also contained a clause stating that at the 50 years from the date of execution of the agreement certain clauses can be reconsidered based on the experience gained and of an examination of the possibilities of further extension of irrigation within the territories of respective governments.

The real disputes arose when Karnataka unilaterally decided to build irrigation projects across the tributaries of Cauvery without the prior consent of Madras as envisaged under the agreements, which are:

1. Kabini,
2. Hemavathy,
3. Harangi, and
4. Suvamavathy

Karnataka continued with the projects though the Government of India and the Central Water Commission did not clear these projects and the Planning Commission has also not approved these projects for plan assistance, the Government of Karnataka proceeded with these projects in stages from their own funds under Non-Plan expenditure.

No agreeable formula was found even after prolonged negotiations, with the Central Government playing the arbiter. With no solution on the horizon, in 1970 Tamil Nadu sought the Central Government to refer the matter to a tribunal for final resolution, under Section 3 of the Inter-State Water Disputes Act of 1956.[1] It is to be noted that while all these happened in the foreground, Karnataka proceeded with the projects simultaneously. Even after a passage of a considerable amount of time, the Central Government failed to form a tribunal for the adjudication of the dispute. It was not until 04.05.1990[2] some positive movement was shown by Central Government, when Supreme Court in a Writ Petition filed by Tamil Nadu Cauvery Neerppasana Vilaiporulgal Vivasayigal Nala Urimai Padhugappu Sangam[3] rapped the Union for not constituting a tribunal to resolve disputes. The Court directed the Central Government to fulfill its statutory obligation and notify in the official gazette the constitution of an appropriate tribunal for the adjudication of the water dispute, further directing that the same should be done within a period of one month. The Union Government, to comply with the order, constituted the Cauvery Water Disputes Tribunal through a notification dated 2^nd June 1990.

Cauvery Water Disputes Tribunal

While the notification for the formation of a tribunal was only the beginning of a process that was more than a decade long. In the course of its existence, the tribunal was reconstituted a couple of times, once due to the resignation of a member and the other time due to the demise of a member. The process was so complicated and the documents involved were so voluminous that tribunal in its final decision itself notes that The total pages of depositions on behalf of different States and Union Territory of Pondicherry come to about 10,000 pages. So far, the documents and publication brought on record by the different party States in support of their respective claims ran into more than 50,000 pages. The sheer volume of paper work itself delayed the process considerably apart from the other extraneous factors like for one instance when the arguments in respect of several issues by different riparian States had virtually been concluded before the sad demise of Mr. Justice S.D. Agarwala. Because of the reconstitution of the Tribunal, the arguments in respect of those issues were again heard with Hon’ble Mr. Justice Sudhir Narain, as a new Member. After a decade and a half long process of depositions and other things, the arguments and replies on behalf of the States concluded on 21.04.2006. Thereafter, on 27.7.2006, the order was reserved. It is to be noted that the Tribunal passed certain interim orders for the sharing of water until the time the process of adjudication was concluded. Disputes arose over those orders as well between Tamil Nadu and Karnataka.

Interim Order

As an interim measure after the formation of the tribunal, Karnataka was directed to release 205 TMC of water into Mettur reservoir of Tamil Nadu in a water year (1^st June to 31st May) with monthly and weekly stipulations. Karnataka government in defiance of the orders promulgated an ordinance and refused to release the water as directed. Since negotiations to implement the order fell through in spite efforts by Central Government, President using his powers under Article 143 of Constitution of India referred the matter to Supreme Court of India with the following questions

1)      Whether the Ordinance and the provisions thereof are in accordance with the provisions of the Constitution;

2)  (i) Whether the Order of the Tribunal constitutes a report and a decision within the meaning of Section 5(2) of the Act; and

(ii) Whether the Order of the Tribunal is required to be published by the Central Government in order to make it effective;

3)      Whether the Water Disputes Tribunal constituted under the Act is competent to grant any interim relief to the parties to the dispute.

The Supreme Court gave its answer in the following terms[4]

•   Question No.1 The Karnataka Cauvery Basin Irrigation Protection Ordinance, 1991 passed by the Governor of Karnataka on 25th July 1991 (now the Act) is beyond the legislative competence of the State and is, therefore, ultra vires the Constitution.
•    Question No.2

(i)     The order of the Tribunal dated June 25, 1991, constitutes report and decision within the meaning of Section 5 (2) of the Inter-State Water Disputes Act, 1956.

(ii)       The said order is, therefore, required to be published by the Central Government in the Official Gazette under Section 6 of the Act in order to make it effective.

•    Question No.3 A water disputes tribunal constituted under the Act is competent to grant any interim relief to the parties to the dispute when a reference for such relief is made by Central Government.

Final Order

Answering close to 50 questions to the disputes, the final decision was given by the tribunal and notified by the Central Government in the year 2007. The decision analysed the whole problem by going through its almost 150-year-old history and technical aspects threadbare to arrive at the final solution. The decision analyses separately the claim of each state including the claims of Kerala and Pondicherry, as riparian states. Shorn of other conclusions arrived at but are irrelevant to the present post, the decision of the tribunal in its effect finally precipitates to the following points

1. Against the contention of Karnataka, the agreements of 1892 and 1924 were held to be valid. However, the agreement of 1924 provides for review of some of the clauses after the passage of 50 years i.e. 1974. Accordingly, the tribunal reviewed and re-examined various provisions of the agreement.
2. The decision of the tribunal was to supersede both the agreements of 1892 and 1924.
3. The total utilizable quantity of water of Cauvery was quantified at 740 TMC (Thousand Million Cubic feet).
4. In case the yield of Cauvery basin is less in a distress year, the allocated shares shall be proportionately reduced among the States of Kerala, Karnataka, Tamil Nadu and Union Territory of Pondicherry.
5. The release of water of Tamil Nadu by Karnataka was broken down to monthly intervals during a normal year and quantity of water to be released in each the specified months were provided in the decision.

The Arithmetics of Allocation

After taking into account all relevant factors like the area of land under irrigation, soil percolation rate and various other scientific factors the tribunal allocated the available water of 740 TMC in the following manner.

			States		Total
	Kerala	Karnataka	Tamil Nadu	UT of Pondicherry
1.       Area	1.93	18.85	24.71	0.43	45.92
2.       Irrigation requirement	27.90	250.62	390.85	6.35	675.72
3.       Domestic and Industrial water requirement projected for 2011	0.35	1.85	2.73	0.27	5.20
4.       Water requirement for environmental protection	-	-	-	-	10.00
5.       Inevitable escapages into sea	-	-	-	-	4.00
6.       Share in balance water	1.51	17.64	25.71	0.22	45.08
Total	29.76	270.11	419.29	6.84	740.00
Say	30.00	270.00	419.00	7.00	726+14 =740

It is significant here to note that the specific provisions were made available to other aspects such as requirements of the industries, requirement for environmental protection apart from the irrigation requirement. The calculations provided may seem to be inequitable in pure terms. In the allocation, Tamil Nadu (419 TMC) seems to have more share than Karnataka (270 TMC). Out of the 419 TMC allocated as Tamil Nadu’s share of Cauvery water, 237 TMC is generated within Tamil Nadu in its basins. Hence, Karnataka is supposed to ensure the balance 182 TMC of water flow to Tamil Nadu from its dams.

Compliance with the Order

Even after the notification of the order the dust did not settle down. The acrimony between Karnataka and Tamil Nadu continues to hang in the air. Problem arose when Karnataka refused to release water as per the tribunal’s decision whenever there was a deficiency in the rainfall due to local political compulsions. The most important part of the tribunal’s decision is where the states are directed to share the deficiency due to reduced yield in a particular year (which it calls as ‘distress year’) in proportion to their allocated share. In other words, in case the rainfall is short of projections in a distress year, the allocated shares shall be proportionately reduced amongst the States of Kerala, Karnataka, Tamil Nadu and Union Territory of Pondicherry. Karnataka refused to comply with this principle on multiple occasions, which embittered the relationship between the states further. In fact, this is despite the fact that the tribunal specifically directed for the constitution of an inter-State forum to be called “Cauvery Management Board” shall be established for the purpose of securing compliance and implementation of the final decision and directions of the Cauvery Water Disputes Tribunal. The Board was envisaged be under the control of the Government of India, Ministry of Water Resources. It is in spite of these directions that Karnataka refused to implement the orders.

Another important aspect of the decision is that, though in terms of pure numbers the directions of the tribunal are eminently implementable; it contains various caveats that in long term must be complied with by the states to work out a permanent solution. Rather than a mere solution involving numbers to share the water, the Tribunal in its decision has tried to work out a long-term sustainable framework for the states. The solutions suggested ranges form change in the cropping pattern to encouraging the farmers to use better water management practices to deal with the deficiencies that could arise in the future. Tamil Nadu, if one looks at the history and its stand all throughout these proceedings has maintained its strong stand, while however, has not taken any tangible steps in the gamut of sustainable solutions suggested by the tribunal.

Before the Supreme Court

Unsurprisingly Tamil Nadu took the matter to the Supreme Court for Karnataka’s non-compliance with the decision of the tribunal, where it is pending as of now. Time to time the matter was taken up by the court but no order of any tangible consequence was passed until 05.09.2016 when Karnataka was directed to release 15,000 Cu. Secs. of water for ten days as an interim measure, which resulted in the carnage that we witnessed in Bangalore. It is rather weird if one notices the manner in which the quantity of 15,000 Cu. Secs. was directed to be released. Karnataka as a goodwill gesture assured flows at the Inter-State Border, at the rate of not less than 10000 cusecs per day (about 0.86 TMC), as measured by the gauge station of the Central Water Commission as from 7th September, 2016 to 12th September, 2016. Tamil Nadu on the contrary demanded a total of 20,000 Cu. Secs. of water per day for the sustenance of crops and to protect interest of the farmers. Without any reasoning to back Supreme Court, adopting a middle ground, directed to release 15,000 Cu. Secs.

The violence unleashed by the mobs, when the Karnataka Government decided to comply with the order and release water, is well known. Citing this as a reason Karnataka moved an application seeking a modification of the previous order. The court rapped them for citing such an absurd reason, however, reduced the quantity from 15,000 to 12,000 Cu. Secs. and extending the period till 20.09.2016.[5]

An Amicable Solution

If one looks at the entirety of facts it is plainly visible that the solution provided by the disputes tribunal is well grounded and is based on scientific evidence. The decision is a result of decades worth deliberation and provides for a pragmatic solution for the problems. Unless the party states comes together overcoming parochial political considerations no solution whatsoever can be found. The Supreme Court too must not interfere much in the decision of the tribunal, for it is not competent to adjudicate the highly technical aspects involved. Moreover, any interference on its part is only going to muddle the waters further. A cautious approach must be taken by the court before arriving at any decision in this regard.

Furthermore, legally speaking there arises questions as to the very maintainability of the case filed by the parties. This aspect has been discussed in this article published in The Wire. Even otherwise, Union of India has filed an application and affidavit for impleadment in the case citing that Section 11 of the Inter State River Water Disputes Act, 1956 reads

“Neither Supreme Court nor any other Court shall have or exercise the jurisdiction in respect of any water dispute which may be referred to the Tribunal under the Act.”

The matter is under consideration of the Court; however, no order has been passed in this regard. It would be pragmatic for the court to maintain a hands-off approach in the dispute for the best interests of both the parties.

[1] I am deliberately leaving out many happenings that went on simultaneously to keep this short. Most them related to some proceedings before the Supreme Court over the dispute or about the background negotiations that happened in between the states.

[2] AIR 1990 SC 1316

[3] Writ Petition No.13347 of 1983 

[4]  In the matter of : CAUVERY WATER DISPUTES TRIBUNAL, Special Reference No. 1 of 1991 Decided On: 22.11.1991, reported in AIR 1992 SC 522

[5] Order dated 12.09.2016

Book Review: Idea of Justice by Amartya Sen

Though, like any other person, my mental image of Amartya Sen has always had the element of awe associated with it, not in the least because of the Nobel that he was awarded. In all my attempts at reading his works there arose a consistent feeling of warmth, in part due to the genteel manner with which he address even the scathing criticisms levelled against him and in part due to the overwhelming presence of a uniform train of thought that concerns itself for the betterment of humanity. Both these characteristics of his writings, combined, made his writings a pleasure reading for me. His writings as a philosopher has always had the strand of reasoning that appealed to the rationality within myself, making this book a must read for me. Clearly, as he himself has acknowledged in his several other writings, his education and exposure to the worldly ideas at Shantiniketan, ran by Rabindranath Tagore, has had a great impact in moulding his views. His outlook is global and inclusive at the same time. In a way this book can be seen as a culmination of the broad outlook of ideals that defined his works throughout. For me to peer into one of the greatest mind of contemporary times through his writings is invaluable in its own self. Hence it is with great enthusiasm, which I generally do not associate myself with, that I started reading this book.

Though not a fortuitous happening, Sen, being a contemporary of philosophers like Rawls et al, seems to have enthused by their writings and his encounters with them during his years at Harvard and Oxford clearly has nudged him to explore his own philosophy of what the nature of perfectly just society and its constituent just institutions. Driven by his own conceptions about aspects of a just society he proceeds to expound a possible alternative possibility of a perfectly just society to which a society can work its way to.

Evidently, the Rawlsianism cannot be unlodged as the primary interpretation of justice in the political philosophy in any time soon. Rawlsian theory of justice in effect defined the landscape of debates in 20th Century political philosophy. And it continues to serve as the template upon which any further different forms of understanding of the concepts of Justice is attempted. In this book, invariably, Sen’s exploration of his idea of justice begins with identifying his ideas within the overall construct of Rawls. In fact the first few of the chapters proceeds merely as a criticism of Rawlsian theory of justice. In a condensed form I have tried to produce here only the vital points of criticisms that he mounts up against Rawls

• The Transcendency of Form: While doubting the very fact that multiple and competing principles of justice while surviving the critical scrutiny can simultaneously claim the impartiality after their emergence from the primordial form of ignorance, as is claimed by Rawls, Sen’s argument takes a unique turn when it questions its practical redundancy. His reasoning is that the identification of a perfectly just social arrangement and institutions cannot be done by the emergence of a solitary reasoning rather than a comparative assessment of possibilities. According to Sen, identification of a transcendentally perfect arrangement in no manner addresses the problem one faces while making choices. The vital aspect of this line of reasoning is that he posits an approach with the help of relative assessment and ranking of available social choices in a decision making process. With this he sows the arguments in support of the setup that expounds in the subsequent chapters.
• Accounting Differences & Behaviour: Under the Rawlsian perfectly just society, people are expected to behave justly without an exception and are expected to make such choices that are in line with the choice that stands made by them under the veil of ignorance (a primordial state of unknowingness), a Rawlsian innovation. This according to Sen restricts the possibility of choices without accounting for actual behaviour of members of the contract (for Rawlsian just society is established primarily through a social contract). In all fairness one must accept that there can exists multiple social choices that are impartial and can compete with the reasoning of just institution that already stands identified in the contract. The inherent flaw that is present with Rawl's identification of justice is that the members of a social contract may make a choice, even after agreeing upon a just social mechanism, that could withstand critical scrutiny of rationality while at the same time not necessarily in agreement with the choice made already. This possibility comes across as an inherent contradiction when one takes into account the elementary importance that Rawls accords to liberty. This assumption of a spontaneous emergence of a universal reasonable behaviour on the part of all members of a society comes directly in contradiction to still a large question about how the chosen institutions would work in a world in which everyone’s actual behaviour may or may not come fully into line with the identified reasonable behaviour under the Rawlsian contract. This is one offshoot of the problem of transcendency in Rawlsian approach.
• Parochial Interpretation of Society: While the followers of Rawls has attempted to expand the horizon of his approach to make it more cosmopolitan, it still reeks of the parochial interpretation of society in terms of traditional nation-state theories. This according to Sen restricts the reach of justice in this form for it cannot take into account the effects of a social choice made by a particular set of people over others, i.e. the trans-boundary and external effects of a social choice. Moreover, this also denies the choice makers the information that can make the choice so made sophisticated than what it is.

With these, one might even be tempted to brand this work of Sen as another attempt to overcome the alleged deficiencies in Rawlsian construct and a further extension of it. However, Sen distinguishes himself from those rhetorics with his suggestion of a just social arrangement that is eminently practical, rather than the ‘detached from realities’ arrangements as suggested by Rawls and his followers.

After establishing firmly the deficiencies and inadequate reach of reasoning of Rawls, Sen builds up the case for his conception of justice. There is palpable departure by Sen in his approach to the setup of a just society and the process of decision-making towards such a setup itself. His exposition stands more grounded and practical in its implementation than the transcendental –teeming with multiple infeasible– approach of Rawls. He posits a process wherein all the social choices available are graded according to their relative merits and demerits, rather than identification of a singularly just principle that is expected to govern universally all the choices that are made, without any scope for flexibility. Sen, Rather than confining himself to a mere identification of a just principle, he evinces considerable reasoning for the comparative questions about justice and their social realisations.

Then what according to Sen can be a just social setup? To this end, he draws heavily upon the social choice tradition to construct his version of just society. Though he acknowledges the inherent deficiencies as demonstrated in Condorcet paradox and Arrow’s impossibility theorem, he relies on the broadened informational basis upon which a social choice is made in the social choice theory. Moreover, this conforms to his belief in non-confinement of reasonable and impartial choices that are potentially available for a decision maker while also not restricting the possibility of deviation in behavioural patterns of the people. As far as the process of deciding the rationality of the choices available itself goes, Sen invokes the metaphor of impartial spectator to invoke the concepts of impartiality and reasonableness of any choice. He finds the principles enunciated by Adam Smith in his Theory of Moral Sentiments in this regard to be grossly underrated, which he has vented in an article published earlier as well.[1]

In summation, the form of justice as is conceived by Sen in this work can be simplified in the following terms

• Plurality of Choices: The central requirement for any approach to justice, according to Sen, lies in its recognition of multiple rational and impartial choices in existence. It is not necessarily axiomatic, as is claimed by Rawls, that only one ideal form of justice and social choice that can lead up to it can exist.[2] He reasons that as long as a choice, that is reasonable, survives the critical scrutiny of rationality is based on a possibly wide informational basis can co-exist with others. While the Rawlsian decision-making process, to the contrary, involves the decision to be made under a ‘veil of ignorance’, wherein decision makers are anonymous and do not know anything about their interests or its effects upon their own. This is an informationally starved decision in comparison to Sen’s process, since here no one can possibly put forward any individualistic nuances that can possibly arise post the decision. Here Sen scores over Rawls without resorting to his elaborate setup of devised uncertainty. Rather than looking for a homogeneous virtue in terms of which all values that we can plausibly defend could be explained,[3] the plurality of reasons can be best judged when the competing principles of justice takes[4] on board the task of accommodating different kinds of reasons and evaluative concerns. The recognition that it is possible to order competition principles of justice, while accommodating their diverse qualitative considerations, and still be able to choose the best alternative as the situation demands is innate for any conception of Justice.
• Partial Resolution: This is the crucial contribution made by the author overall to the contemporary debates on justice. While stating that it is possible for partial qualitative ranking of available social choices, it is still more possible for a conflict to remain partially resolved with this partial ranking of choices. In his own words

"One implication of this line of reasoning is the recognition that a broad theory of justice that makes room for non-congruent considerations within the body of that broad theory need not thereby make itself incoherent, or unmanageable, or useless. Definite conclusions can emerge despite the plurality. When the competing concerns reflected in that plurality have far-reaching merits, on the relative strength of which we remain partially undecided, then it would make good sense to try to see how far we can go even without resolving completely the problems of relative weights. And sometimes we can go far enough for the theory to be of very considerable use in application, without sacrificing any of the rigorous demands of each competing line of argument."

This, rather than positing a strictly just society, envisages a situation where such steps lead to incremental enhancement of justice in the world. The relative advantage of this line of reasoning is the fact that even a case of non-resolution of conflicting situation does not necessarily make it unworkable. There is always an ever existing flexibility for a change in the choice so made as and when informationally significant aspects comes to the surface.

All being said and done I still feel that there is yet an aspect that Sen has questionably left open. Ironically, this arises from the strongest of arguments put forward by him. While it is plausible for the recognition of partial rankings and any unresolved conflicts in a social choice, it still leaves the question of how to resolve such noughts that arise directly because of this. He does not deal with this sufficiently, while this has the potential to question his theory overall. One possible solution that I can reasonably locate within his line of thinking is that as and when such seemingly irreconcilable situations arise we can broaden our informational perspective to further enhance the quality of available choices. This could reasonably serve as a solution for the limitations of Sen’s position.

Another limitation that I encountered in this book, though this does not necessarily involve his idea of justice, is his treatment of ethics. This I speak with specific reference to the chapter in which he discusses human rights. While treating human rights as certain ethical claims that stand recognized in the form of legislation, he treats the ethical assertions as fountain through which the human rights legislations arises, all this while he does not in any manner exposit the true nature of ethics in itself, leaving it to our own subjective perception. This acquires certain significance when he bases his argument completely over the overarching importance of ethical proclamations in human rights discourse. Although this is inane as a shortcoming, in terms of its impact upon overall argument put forward by the author, it does come across as a pebble in the shoe.

The limitations apart I would treat this as one of the most important contributions to the contemporary debate in the political philosophy post the Rawlsian era. With his innate and characteristic ability to infuse humanitarian reasoning this work stands out amongst the mechanical, elated and unnecessarily esoteric interpretation of justice that is prevalent in the debates. He stands as a maverick in this landscape for his reasoning in this field and this work is his true trophy.

________________________________________

[1] Adam Smith and the Contemporary World, Amartya Sen, Erasmus Journal for Philosophy and Economics, Volume 3, Issue 1, Spring 2010, pp. 50-67.

[2] See in particular Chapter 9- Plurality of Impartial Reasons

[3] Theory of Justice, Amartya Sen, Pg:394

[4] Ibid Pg:395

Scope and Interpretation of Chapter XII-G of Income Tax

Income tax cases sometimes give rise to peculiar instances in which any decision on seemingly simple-minded issues results in intricate and wide ranging repercussions upon an industry as a whole. This case is one such instance wherein the scope of special concessions granted for shipping industry by introduction of Chapter XII-G in the Income Tax Act was called into question. The question of law that was up for consideration of the Supreme Court was whether the High Court is right in holding that the assesse is eligible for tonnage tax on income received under slot charter arrangement from a ship which does not satisfy the conditions specified under Section 115 VD of the IT Act. It is important to note here that many shipping companies, apart from owning ships for carrying out shipping operations, hires slots for carrying out the operations, which sometimes contributes to the majority of their income. Any narrow interpretation of the chapter shall have adverse repercussions for these companies. The High Court in this case interpreted the case in favour of the assesse. However, the decision raises lot many question as far as interpretation is concerned. It has ignored certain vital aspects of Chapter XII-G while deciding the case. Here I shall try to expound few of those glaring errors in its reasoning. The revenue has challenged the judgement before the Supreme Court wherein arguments have already been heard and the judgement is awaited.

The brief facts of the case that led to this case before Supreme Court is given here for better understanding of the case. The petitioner is a ‘qualifying company’, as per Section 115 VC of the IT Act, whose income is assessable under XII-G of the Act, containing special provision relating to income of shipping companies in sections 115V to 115 VZC.  The assesse is also a ‘tonnage tax company’, whose income is calculated under the tonnage tax scheme under Chapter XII-G of the Act. Apart from owning and operating ships they also chartered ships under the ‘slot charter’ arrangements, wherein only a portion of the ship is chartered for the purposes. While filing his returns, for the income that were received vide the slot charter arrangement, did not submit the valid certificate, referred to in Section 115VX of the Act, to show that the chartered ships are ‘qualifying ships’. The assesse submitted the valid certificate only for those ships that it owned. Further the assesse contended that there is no requirement to submit the certificate for those ships which are chartered under the slot charter arrangement, since the income for the same is computed based on the ‘deemed tonnage’ as defined under Rule 11 Q of IT Rules, unlike the income from a fully chartered ship, which is calculated on ‘net tonnage’ basis. Also it was contended by the assesse that ship is not owned by it and hence the certificate required cannot be procured by them. The Assessing Officer (AO) for want of the ‘valid certificate’ denied the contention of the assesse, consequently denying the benefit, that is accorded under Chapter XII-G for a slot charter, and proceeded to estimate the income from slot charter for the relevant assessment years based on the net tonnage basis derived vide the profit and loss account submitted by the assesse.

Both the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal dismissed the consequent appeals filed by the assesse. Aggrieved the assesse filed an appeal before the High Court of Kerala. The Hon’ble High Court in its judgement/order allowed the appeal. The Court determined that the basis for determination of income for the purposes of tonnage tax scheme under Chapter XII-G of the Act, meant for the slot charter arrangement, shall be on the deemed tonnage basis. The reasoning for the same is provided as follows

             i.      Section 115 VG of the Act make available the computation of tonnage income, wherein subsection 4 states that tonnage means that the tonnage of a ship indicated in certificate referred to u/s 115VX of the Act and includes the deemed tonnage computed in prescribed manner. The explanation offered in the same section states that for the purposes of the sub-section deemed tonnage shall be the tonnage in respect of an arrangement of purchase of slots, slot charter, whose computation shall be on the basis of Rule 11Q of the IT Rules. Sub-rule 1 of the same make specific reference to Form No.66 of the Rules and the illustrative formula given in the relevant note appearing under that form as regards the sub-rule. For the purposes of Rule 11T the report of audit of accounts has to be mentioned in Form.66, wherein at Sl. No.10 the format of providing computation of tonnage, as per Sec.115VG, income is provided. Column No.1 of the same is the ‘Name of the Ship’, which stands with an asterisk, whose explanation is as under

“There is no need to mention the name of the ship, income from which is computed on deemed tonnage basis”

Therefore it clear that there is no need for providing the valid certificate in case the charter is a slot charter. Consequently, the income shall be calculated on deemed tonnage basis.

        ii.     The reading of Sections 115VB, 115VC, 115VD, makes it clear that, while it is necessary to own at least one ship to become a qualifying company, operating ships may either be owned or chartered by the company. It is also clearly seen that the income derived from slot charter operations by a company shall be included to determine the income of a company, even if such operations are carried on in ships which are not qualifying ships in terms of the provisions of the Act.

              iii.            There is nothing in the act or the rules to indicate that the income which falls within the definition of ‘deemed tonnage’ will be operative only if it is carried out through ‘qualifying ships’.

       iv.      Form No.66, under Rule 11T, provides for the conversion of TEUs into NT for the Slot Charter under Note 3. The same says that the formula for the conversion is provided for converting slots hired into net tonnage, since the slots can be hired all-round the year for short or long terms in varying numbers, therefore it is not possible to convert them to net tonnage just by identifying the particular vessel on which the slot is hired.

The High Court has faltered in not considering the following grounds in its judgement:

The basic requirement for a qualifying company to come within the ambit of tonnage tax scheme is that apart from satisfying other requirements of Chapter-XII G of the Act, is to provide for the proof that the business is carried out in a ‘qualifying ship’. The statute does not in any manner envisage a situation wherein an exemption can be carved out, for the hiring of slot for a charter, from satisfying the requirement of a qualifying ship. Moreover, the primary reliance placed by the High Court upon the provision in a form to interpret the chapter, especially when there are express provisions within the chapter, is a logical fallacy in its least.

The inference can be drawn from Section 115 VI wherein relevant shipping income is defined. Sub-section 6 of the same provides that when a qualifying company operates a ship which is not a ‘qualifying ship’ the income attributable to such operation shall be computed in accordance with the other provisions of this Act. As per this provision, though it merely provides for the income derived from ‘operation’ of a qualifying ship, it cannot be said by any stretch of logic that it only includes such an activity, for such an interpretation will fall foul of the sub-section 2 of Sec 115 V-I, which defines the core activities of a tonnage tax company for the purposes of calculation of relevant shipping income. Apart from this a combined reading of the provisions of the chapter shall make it clear that, though the specific requirement of a ‘qualifying ship’ is not provided anywhere, by necessary implication it shall be applicable for the slot charter arrangement as well. 

As per Section 115VD of the Act, that defines the qualifying ship which can be operated by a qualifying company, for which a valid certificate is necessary. Under Section 115VG it is clear that only a qualifying ship can be operated for the purposes of a slot charter. A combined reading of Section 115VB, 115VD, 115VG will clearly demonstrate that the ship chartered in under slot charter shall be a qualifying ship and the certificate of tonnage is necessary for ships. Therefore, the basic condition necessity that ship should be a qualifying ship cannot be parted with.

Interpretational fallacies of the High Court's judgement apart any parochial interpretation of this Chapter by the court shall result in a situation which will defeat the very purpose introducing this chapter altogether. Any interpretation by the Supreme Court under this chapter which should provide enough leeway for the assessee to accrue the benefits of this chapter even while going for slot charter arrangement. This could be an one off case to rule in favour of the revenue. However, while doing so the court has to be conscious of the fact the repercussions of any blanket restrictions by way of interpretation for slot charter.