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JAMIA MILLIA ISLAMIA

ALTERNATE DISPUTE RESOLUTION


DISSERTATION

SUBMITTED BY SUBMITTED TO

FARHEEN HAIDER DR. MADHU SAINI


SEM.VII SEC.B FOL.JMI.NEW DELHI
ROLL NO.12
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CERTIFICATE

This is to certify that the present dissertation entitled Alternative Dispute Resolution
submitted to the Faculty of Law, Jamia Millia Islamia, in partial fulfilment for the award of
the degree of Bachelor of Laws, is a record of bona fide work carried out by FARHEEN
HAIDER, B.A. LLB (H.) (VIIth Sem. Sec.B ,12) having Roll No. 15BLW0058, under my
supervision and guidance.

All help received by her from various sources have been duly acknowledged.
No part of this dissertation has been submitted elsewhere for award of any other degree.

Dr. Nuzhat Parveen Khan Ms. Madhu Saini


Dean Lecturer
Faculty of Law, Faculty of Law,
Jamia Millia Islamia. Jamia Millia Islamia
New Delhi-25. New Delhi-25

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ACKNOWLEDGMENT

I ,Farheen Haider have taken efforts in this project. However, it would not have been
possible without the kind support and help of many individuals and organisation. I would like
to extend my sincere thanks to all of them.

I am highly indebted to Mam madhu saini for their guidance and constant supervision as
well as for providing necessary information regarding the project and also their support in
completing the project.

I would like to express my gratitude towards my parents and members of jamia millia islamia
for their kind cooperation and encouragement which help in the completion of the project.

My thanks and appreciations also go to my colleague in developing the project and people
who have willingly helped me out their abilities.

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TABLE OF CONTENTS

Acknowledgment

Index of Authorities.

CHAPTER…1
1. Introduction……………………………………………………………9…14
1.1 Traditional ADR methods.
1.2 Arbitration.
1.3 Arbitration and Conciliation Act, 1996: A new era.
1.4 The Arbitration and Conciliation Act, 1996: Major policy issues involved.

CHAPTER….2……………………………………………………………….15...23
2 Arbitrators and its Role
2.1 Appointments and qualification of arbitrators.
2.2. Judicial interpretation.
2.3. Summary of the judgment in S.B.P. & Co. v. Patel Engineering Ltd.
2.4.Implications of the decision in S.B.P. & Co. v. Patel Engineering Ltd.
2.5 Accountability of arbitrators
2.6. Issues identified and recommendations with respect to appointments and
qualification of Arbitrators.

CHAPTER….3
3.Arbitral Awards…………………………………………………………….24…41
3.1 Procedural justice to parties and legality of arbitral awards.
• Venue and language of arbitration.
3.2 Validity of an arbitral award.
• Choice of law in Arbitration.
• Issues identified and recommendations with respect to legality of arbitral awards.
3.3. Finality and the Enforcement of Arbitral award.
• Conditions for enforcement of arbitral awards.
3.4 Grounds for non-enforcement of arbitral awards.
• Incapacity of parties and invalidity of arbitration agreement.
• Improper composition of arbitral tribunal or violation of the principles of natural
justice by the arbitrator.
3.5 Award not becoming final.
• Award in conflict with public policy
• Issues identified and recommendations with respect to finality and enforcement
of arbitral Award.

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CHAPTER….4
4 Dispute settlement through methods of ADR………………………………42..54
4.1 The incentive structure for various stakeholders in arbitration
4.2 Scope and nature of dispute settlement through different methods of ADR.
• Conciliation.
• Matrimonial disputes.
• Intellectual property rights disputes.
4.3 Section 89 of Civil Procedure Code, 1908.
• Mediation.
• . Incentive structure for various stakeholders in mediation
4.5 Lok Adalat
• . Incentive structure for various stakeholders in Lok Adalat.
4.6 Tribunal system in India
• Consumer Disputes Redressal Agencies
• Ombudsman
• Fast track arbitration

CHAPTER…..5
5.CONCILIATION………………………………………………………56…81
5.1 Salient Features of Part iii of The Arbitration and conciliation Act 1996.
5.2. Differences between the process of Conciliation and Mediation.
5.3. Conciliation under amended the civil procedure code 1999.
5.4. Conciliator.
• Role of Conciliator
5.5. Conduct of Conciliation Proceedings.
• Termination of Conciliation Proceedings.
• Conciliation under the Industrial Dispute Act.
5.6.Ambiguties found under the Arbitration and Conciliation Act 1996.
5.7. Arbitration and Conciliation (amendment) Bill 2003.

CHAPTER…..6
6. Mediation………………………………………………….82...97
6.1 Salem Bar Association case and Mediation Rule 2003.
6.2. Definition and scope of Mediation.
• Differences between Mediation and other form of Alternate Dispute Resolution.
• Role of Mediator
• Mediation Process.
• Disputes types suitable for the mediation.

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CHAPTER……..7
7.1 Negotiation…………………………………………….97..114
• Meaning.
• Procedure.
• Advantages.
• Disadvantages.
7.2.Internationnal Commercial Arbitration.
7.3. Relationship between National court and International Commercial Arbitration.

CHAPTER……….8
Seminar and Arbitral Proceeding Report………………………………….115..125
8.1 The Delhi International Arbitration Centre: A Seminar On Ethics In Arbitration.
8.2 Arbitration Proceedings Before SH. S.M. AGGARWAL, Hon”ble Sole Arbitrator.

CONCLUSION

BIBLIOGRAPHY

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INDEX OF AUTHORITIES

1. Agarwal Engineering Co vs. Technoimpex Hungarian 1977 (4)SCC 367.


Machine Industries Foreign Trade Co.
2. Ali Shipping Corp vs. Shipyard Trogir 1998(2) AII ER 136
147.

3. Ali Shipping Corp vs. Shipyard Trogir 1998 (2) AII ER 136.

4. Atlantic Shipping and Trading Company vs. Dreyfus and (1992) 2 AC 250.
Company
5. Bhatia International v. Bulk Trading S. A. (2002) 4 SCC 105.

6. Bonytbon v. Common wealth [1951] AC 210 at 219.

7. Coppee Levalin NV v Ken-Ren Fertilisers and [1994] 2 Lloyd’s Rep


109 at 116 (HL).
Chemicals
8. Food Corporation of India v. Indian Council of (2003) 6 SCC 56
Arbitration
9. Gurunanak Foundation v. Rattan Singh and Son (1981) 4 SCC 634.

10. Haresh Dayaram Thakur vs State of Maharashtra 2000(6) SCC 179.

11. Hassneh Insurance Co of Israel vs. Steuart J Mew Revue 1986


de l’ Arbitrage
12. Hoshhangabad Vs. RS Sharma 353 1986 (Lab) .IC 667
(670) SC.

13. In Grid Corporation of Orissa Ltd. v. AES Corp (2002) 7 SCC 736.

14. International Tank & Pipe S.A.K. v. Kuwait Aviation [1955] Q.B.224.
Fueling Co.K.S.G.
15. K.K. Modi v. K.N. Modi (1998) 3 SCC 573.

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16. Konkan Railway Corporation v. Rani Construction Pvt.
(2002)2 SCC 388.
Ltd.
17. Konkan Railway Corporation Ltd. v. Mehul (2000) 7 SCC 201.
Construction Ltd.

18. Konkan Railway Corporation Ltd. v. Rani Construction [2000] 8 SCC 159
P.Ltd
19. Lesotho Highlands Development Authority v Impregilo [2005] UKHL
Spa and others
20. London and Leeds Estates Ltd Vs. Paribas Ltd 1995 (1) EG 134.

21. MacDermott International INC v. Burn Standard CO


(2006) 11 SCC 181.
Ltd.
22. Maula Bux v. State of West Bengal AIR 1990 Cal. 318.

23. Mysore Cements Ltd vs. Svedal Barmac Ltd 2003 (10) SCC 375.

24. National Thermal Power Corpn. v. Singer Co (1992) 3 SCC 551.

25. National Thermal Power Corporation v. Singer Co AIR 1993 SC 998.

26. ONGC v. Saw Pipes Ltd. (2003) 5 SCC 705.

27. Oxford Shipping Co Ltd Vs. Nippon Yusen Kaishs 1984 (3) ALL ER 835-
842

28. Philipps v. Philipps (1978) 4 QB 127.

29. R v. Agricultural Land Tribunal Ex. P. Bracy (1960) I All ER 518.

30. Renu Sagar Power Co. Ltd. v. General Electric Co. Ltd. AIR 1985 SC 1156.

31. S B P & Co.v.Patel Engineering & Anr (2005) 8 SCC 618.

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32. Salem Bar Association v. Union of India (2005) 6 SCC 344.

33. Shell Egypt West Manzala GmbH & Anor v Dana Gas [2009] EWHC 2097.
Egypt Ltd
34. Sudarshan Trading Co. v. Government of Kerala (1989) 2 SCC 38

35. Sudarshan Trading Co. v. State of Kerala AIR 1989 SC 890.

36. Svenka Handles Banker v. Indian Charge Chrome Ltd (1994)2 S.C.C. 155.

37. Tans Ocean Shipping Co. Ltd. v. Black Sea Shipping (1999) 96 Com. Cas.
367 (SC).
Co. Ltd.
38. Thawandas Pherumal v. Union of India A.I.R. 1955 S.C. 468

39. Thermal Power Corporation v. Siemens (2007) 4 SCC 451


Aktiengesellschaft
40. Venture global Engineering v. Satyam computers 2008(1) SCALE 214.
Services
41. Wellington Associates v. Kirti Mehta AIR 2000 SC 1379.

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CHAPTER 1: INTRODUCTION

Alternative methods of dispute resolution, popularly known as ADR are necessary. As an


alternative to existing methods of dispute resolution such as litigation, conflict, violence and
physical fights or rough handling of situations. It is a movement with a drive from evolving
positive approach and attitude towards resolving a dispute. Since disputes are inevitable,
there is an urgent need to find a quick and easy method of resolution.

Dispute blocks development, disturbs the peaceful conduct of human life and hence dispute
sustained without resolution develops into a conflict beyond control under normal
circumstances. All government, indeed every human benefit and enjoyment, every virtue and
every prudent act, is founded on compromise and barter, said Edmond Burke in a speech in
the House of Commons, on conciliation with the American Colonies as far back as1775.

Dr Dasarathi Rangacharya, a famous poet who translated Divine Vedas into colloquial telugu
language says, life is nothing but adjustment or ‘Adjustment itself is life .ADR is not an
answer only for the international commercial transactions, state, private or foreign
corporation business firms, inter-corporation conflict or inter-country dispute, but also for
solving problems of middle class society and conflicts among the poor or conflicts of rich
with the poor. ADR should be the solution for social peace.

The role of arbitration as one of the ADR methods is now more complex with complicated
laws, court interpretations, former judge impositions and interventions of the judiciary at
every possible stage of the process despite the reforms in arbitration law. The arbitration part
of Arbitration and Conciliation Act 1996 was in use more; conciliation part of it is yet to take
off. However most of these times, ADR means only arbitration, which is akin to litigation,
almost fraught with similar problems and adversities, on the line of continuum of ADR;
arbitration is nearer to traditional and adversarial litigation process than a friendly resolution
process. Negotiation /by the parties themselves is the primary method a dispute has to be
addressed with, and if any alternative to it is required it must be ‘conciliation’ or ‘mediation’.
Patties who are unable to solve their problems may seek assistance of an expert or subject
specialist or an elderly personality, who with honest, neutral, and impartial facilitating service
help achieve the resolution. Negotiation and conciliation are the best, inexpensive, informal
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and autonomous methods of resolution. One may find some variables of these mechanisms
but they are basically built on these two foundations. Even during arbitration, the parties can
move on to choose conciliation, if they settle it there is no need to come back to arbitration
except for a few formalities. These two reflect self-determination of the parties in tackling
their own problems instead of handing over the power to impose a decision on either a
private or state authority. Finding fault and guilt may be unnecessary in 90 per cent of
disputes, which tend to complicate the issue and block sources of solution. Thus, disputants
may opt for resolution by their own consensual processes. Only methods, where the consent
of parties has a significant role, are negotiation and conciliation.
Chief Justice of India (CJI), Mehta J, referred to arbitration and its difficulties and preferred
the other systems such as negotiation and conciliation, either annexed to court or by
individual, options. The CJI justified the need to practice alternatives to litigation. He made
out an example of a water container with an entry provision where water is received and there
is an outlet for the same. Entry point is filing of cases and the exit Point is disposal of cases.
The CJI compared the present situation with building pressure inside the water container
because of pendency of litigation; He further examined the following questions, with detailed
analysis.

1.1 Traditional ADR methods

As a matter of fact, ADR has a long tradition in many countries and India too has an age-old
tradition of settlement of disputes through mediation and conciliation1 . In ancient India,
Panchayats continued as forum of settlement of disputes in rural India. In villages, disputes
were not to be taken to law courts; instead they were referred to ‘Panchayats’ consisting of
village elders who commanded very high respect. The Village Panchayats were so called
because it consisted of five elders who used to decide civil, criminal and also family disputes
and they were called ‘Panch Parameswar’. This system worked successfully in the villages,
and was independent of the state authority and control. The concept of parties settling their
disputes in a binding manner by reference to a person or persons of their choice or private

1
In ancient India there were three categories of arbitration viz., (i) Puga: Board of different sects of tribes (ii) Sreni:
Assembly of traders and artisans of different classes (iii) Kula: Meeting point of family ties. This was followed by the
Panchayat system.

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tribunals was well known to ancient and medieval India. Appeals were also often provided
against the decisions of such persons or tribunals to the court of judges appointed by the king
and ultimately to the king himself. However, the law of arbitration, as it is known to modern
India owes its elaboration to the British rule in India. With the advent of East India Company
rule in India, the British legal system was introduced in our country. They institutionalized
the justice delivery system through the establishment of courts and tribunals.
Subsequently inadequacy and inefficiency of the formal court system led to the development
of ADR mechanisms getting recognition in India also. The present study does the analysis of
the various available modes of dispute resolution mechanisms coming under the purview of
ADR.

Adjudication of disputes through courts, while unavoidable, does not in every case provide a
satisfactory or amicable solution2 . Arbitration, mediation and conciliation are a few among
the other accepted modes of alternative dispute resolution mechanisms. Even so, a common
person, particularly in the rural area, may hardly be benefited by these mechanisms, unless
persons who understand his mind-set interact with him in a suitable and congenial
environment, to solve disputes with the minimum of costs. Certain kinds of disputes such as
matrimonial disputes, family disputes, disputes with neighbors, particularly in rural areas, and
several other categories of petty civil and criminal cases, which form a substantial percentage
of pending litigation, can be better and more satisfactorily resolved by the processes of
mediation or conciliation through intervention of public spirited, respected and senior
citizens.

1.2Arbitration

Arbitration is adjudication over disputes between parties by a neutral person who has been
agreed upon by the parties to be the arbiter and decide upon the matter. The parties are
permitted to agree upon the procedure to be followed for such arbitration. In India, the law

2
As has been stated in the previous chapter, despite the working of ADR techniques supplementing the
functions of ordinary courts, the data collected indicate huge number of pending cases resulting in

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governing arbitration is the Arbitration and Conciliation Act, 1996 based upon the
UNCITRAL Model Law on Arbitration of the year 1985.

In the past, statutory provisions on arbitration were contained in three different enactments,
viz., the Arbitration Act, 1940, the Arbitration (Protocol and Convention)Act, 1937 and the
Foreign Awards (Recognition and Enforcement) Act, 1961. The Arbitration Act, 1940 laid
down the framework within which domestic arbitration was conducted in India, while the
other two Acts dealt with foreign awards. The Arbitration and Conciliation Act 1996 has
repealed the Arbitration Act, 1940 and also the Acts of 1937 and 1961, consolidated and
amended the law relating to domestic arbitration, international commercial arbitration and
enforcement of foreign arbitral awards and also defined the law relating to conciliation. The
Arbitration Act of 1996 contains mainly three parts.

Part I deals with domestic arbitrations, Part II deals with international commercial
arbitrations and Part III deals with provisions as to conciliation. The Act does not define
arbitration as such. It merely says that arbitration means any arbitration whether or not
administered by a permanent arbitral institution3 . This means that arbitration may be ad hoc 4
or institutional.

Institutional arbitration is arbitration conducted under the rules laid down by an established
arbitration organization5. Such rules are meant to supplement provisions of Arbitration Act
in matters of procedure and other details the Act permit. They may provide for domestic
arbitration or international arbitration or for both, and the disputes dealt with may be general
or specific in character. In order to facilitate the conduct of the arbitral proceedings, it is
provided that the parties or the arbitral tribunal, with the consent of the parties may arrange
for administrative assistance by a suitable institution and expressly facilitates the adoption of

3
Section 2(a) of the Arbitration and Conciliation Act, 1996.
4
An ad hoc arbitration is arbitration agreed to and arranged by the parties themselves without recourse to any
institution. The proceedings are conducted and the procedures are adopted by the arbitrators as per the
agreement or, with the concurrence of the parties. It can be a domestic, international or foreign arbitration. In
case of disagreement on the appointment of an arbitrator under ad hoc arbitration cases, Section 11 0f the
Arbitration and Conciliation Act’1996 empowers the Chief Justice of High Court or Chief Justice of India, as
the case may be, to appoint the arbitrators. The Chief Justice is also empowered to designate any person or
institution to take the necessary steps for the appointment of arbitrators. A scheme made by the Chief justice
may designate a person by name or ex-officio or an institution, which is specializing in the field of arbitration.
The new provision has really given recognition to the role of arbitral institutions in India
5
International Centre for Alternate Dispute Resolution (ICADR), New Delhi.
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institutional rules. Other kinds of arbitration are specialized arbitration statutory arbitration,
Compulsory arbitration by Government and permanent Machinery of arbitrators.

1.3 Arbitration and Conciliation Act, 1996: A new era

The highly technical and formal procedures of courts have in fact stimulated the need for the
less formal and speedy dispute resolution mechanisms. The Arbitration Act, 1940, that had
been enacted for the effective and speedy resolution of disputes had become outdated. Its
ineffectiveness was emphasized by the Supreme Court of India in Gurunanak Foundation v.
Rattan Singh and Sons 6 . In the context of liberalization of the economy and globalisation of
world markets, the Government of India realized that for the effective implementation of
economic reforms in India, it was necessary to 2introduce reforms in the business laws. As
part of such an effort, changes were also made in the arbitration law in India. The Arbitration
and Conciliation Act, 1996, has been enacted in close similarity with the UNCITRAL Model
Law on Arbitration with the objective that, disputes arising in international commercial
relations shall be settled in a fair, efficient and expeditious manner 7 . This could be regarded
as one reason why the settlement of international disputes through arbitration has got a
tremendous impact in these recent years.
There is also an opposite view stating that the unification in the arbitration laws has brought
about certain practical difficulties in arbitration due to the changing dimensions of global
trade 8 . Here is an attempt made to analyze these issues with the help of doctrinal study. As
has been stated earlier, the 1996 Act tried to reduce the judicial intervention in the arbitration
process. Speedy settlement of disputes itself means the absence of long and delaying
technicalities of ordinary courts. In the present constitutional set up judiciary plays a vital
role in the enforcement of individual rights. The right to go for judicial review is an accepted
fundamental right and each party to the dispute has got the freedom to exercise it. The scope
and extent of that freedom is an important issue in the context of alternate dispute

6
(1981) 4 SCC 634
7
Konkan Railway Corporation Ltd. v. Mehul Construction Ltd., (2000) 7 SCC 201.
8
Janak Dwarkadas, “A Call for institutionalised arbitration in India: A step towards certainty, efficiency and
accountability”, (2006) 3 SCC (jour) 1.
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resolution mechanisms. Although there is a role for the judiciary in arbitration proceedings 9 ,
it is an accepted fact that over-interference on the part of the judiciary would definitely result
in the delay of arbitration process, causing much worry to the disputants. Our experience with
arbitration in the context of judicial process had once made the Law Commission of India to
propose certain amendments to the arbitration law in India.

1.4 The Arbitration and Conciliation Act, 1996: Major policy issues involved

The Indian Arbitration and Conciliation Act, 1996 has consolidated the provisions relating to
domestic as well as international arbitration in to one single document 10 . The Act
contemplates both ad hoc and institutional arbitration that may be accomplished by an
agreement between the parties or in accordance with the provisions of the Act. But in
practice, it has been proved that since the applicable fields have not been properly
demarcated under the provisions of the Act, there are a few grey areas in the Act, which
would have definitely invited the attention of the policy makers. While examining the various
factors affecting smooth functioning of the Act 11 , it can be seen that the jurisdiction of the
arbitral tribunal is an important element determining the validity of an arbitral award passed
there under 12 . Generally speaking, the irregular mode of appointment of arbitrators, their lack
of jurisdiction and the element of bias or misconduct on their part can become solid grounds
for challenging awards 13 . Likewise, the principles of natural justice are the cardinal principles
on which the entire arbitration process rests. For this reason, procedural irregularities in the
conduct of arbitration and their effect on the validity of final award are also equally
important. An arbitral award should be made fulfilling the requirement of fairness. Similarly
issues of legality and fairness are also important elements in testing the validity of an award
may it be domestic or international. 14

9
See ss. 9 and 11 of the Arbitration and Conciliation Act, 1996 dealing with interim orders by the court and
appointment of arbitrators respectively.
10
Part I of the Act deals with domestic arbitrations whereas Part II deals with international arbitrations.
11
The Arbitration and Conciliation Act, 1996. Herein after referred to as the Act.
12
Section 16 of the Act deals with the jurisdiction of the Act to rule on its own jurisdiction.
13
Sections 10, 11 and 12 of the Arbitration and Conciliation Act, 1996.
14
Dhyan Chinnappa, “Enforcement of Arbitral Awards”, (2002) 8 SCC (Jour) 39.
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Arbitral awards not falling within the parameters set forth by the Act are easily vulnerable to
challenge under the provisions of the Arbitration and Conciliation Act, 1996 15 . In order to
have a holistic approach towards these main issues, a detailed analysis of each one of them is
imperative.

15
Id., ss. 34 and 45
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CHAPTER 2: ARBITRATORS AND ITS ROLE

2.1. Appointments and qualification of arbitrators

The appointment of arbitrators is a major step in the arbitration proceedings. So great


caution is required to be exercised by the parties during the selection of arbitrators. The
parties are given the freedom to select the arbitrators of their own choice 16 . If the parties fail
to do so, the judiciary is given the freedom to choose arbitrators. The Chief Justice or any
person or institution designated by him shall make the appointment upon request of a
part 17 Again if the parties fail to comply with the agreement under s. 11(2) as to the
appointment of a sole arbitrator, within 30 days from the request by the other party, the Chief
Justice or a person or institution designated by him can appoint a sole arbitrator upon the
request by that party18 . In the case of appointment of sole or third arbitrator in an
international commercial arbitration, the Chief Justice of India or the person or institution
designated by him may appoint an arbitrator of a nationality other than that of the parties 19 .
There was a legislative move to replace the words, ‘Chief Justice of India’ and the words,
‘Chief Justice’ by the words, ‘Supreme Court’ and ‘High Court’ respectively. This would
have had the effect of converting the process of appointment of arbitrators from being an
administrative act to a judicial one. There is also an argument that it would have further made
the arbitration law in India in absolute conformity with the UNCITRAL Model Law as the
latter empowers the court to make appointment of arbitrators 20 . Critics’ felt that such
duplication is unwarranted and variations from the international rules should be maintained
wherever required 21 .

16
Id., s. 11(1)
17
Id., s. 11(4)
18
Id., s. 11(5)
19
Supra n. 34
20
Art. 7(2)(b) &11 of UNCITRAL Model Law on Arbitration (1985)
21
Jaya V S. “Competency and Jurisdiction of Arbitral Tribunals: Some Issues”, XXVI DLR (2004).
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2.2 Judicial interpretation

The law provides that the parties are free to determine the number of arbitrators, provided
that such number shall not be even number 22 . If there are two arbitrators appointed by each of
the parties, then the appointed arbitrators are free to appoint a third arbitrator, who shall act
as the presiding arbitrator 23 . The parties can agree as to the nationality of an arbitrator in their
agreement, a person of any nationality can be appointed as an arbitrator.

In Grid Corporation of Orissa Ltd. v. AES Corp 24 the issue was regarding the nationality of
the presiding arbitrator. Here, the Supreme Court held that, in international commercial
arbitration, the presiding arbitrator might be of a nationality other than of the parties. Again
the court explained the principal factors behind the appointment of the presiding arbitrator. It
was held that the requirement of law is satisfied, (1) if it is actually made, (2) if it is made in
consultation between the two original arbitrators and (3) if the Information as to appointment
is communicated by both or either of the parties.

When an application is made for the appointment of an arbitrator, the court may decide
whether the particular clause is an arbitration agreement or not. The Supreme Court in
Wellington Associates v. Kirti Mehta 25 , said that, See. 16 of the Act did not exclude the
jurisdiction of the nominee of the Chief Justice of India to decide the question as to the
existence of a valid arbitration agreement 26 . Thus, under Sec. 11 of the Act, it is permissible
to decide a question as to the existence or otherwise of the arbitration agreement. This trend
was not uniformly found in the subsequent cases as there were cases holding a contrary view
also. In Konkan Railway Corporation v. Rani Construction Pvt. Ltd. 27 , the Apex Court
categorically stated that the power exercised by the Chief Justice in the appointment of
arbitrators is an administrative power and not a judicial power.

22
Section 10(1) of the Arbitration and Conciliation Act, 1996.
23
Id., at s. 11(3).
24
(2002) 7 SCC 736.
25
AIR 2000 SC 1379.
26
The Arbitration and Conciliation act, 1996, s. 16 reads,” the arbitral tribunal may rule on its own jurisdiction,
including ruling on any objection with respect to the existence or validity of an arbitration agreement.
27
(2002)2 SCC 388
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The Court further clarified that the major role of the court at the stage of appointment must be
to facilitate the arbitration by helping the parties to select arbitrators and not to decide on the
merits of the case or the validity of the arbitration agreement. This view was reiterated in
Food Corporation of India v. Indian Council of Arbitration, 28 wherein the court held
that legislative intent underlying the Act is to minimize the supervisory role of the courts in
the arbitral process and quick nomination or appointment of arbitrator, leaving all contentious
issues to be decided by him.

Coming to the present position, the Supreme Court apparently acceded to its earlier view
taken in the case of Wellington Associates 29 by the recent decision in S.B.P. & Co. v. Patel
Engineering Ltd., 30 by holding that the nature of power exercised by the Chief Justice in the
appointment of arbitrators is of judicial in character and not of administrative nature while
overruling the earlier decision in the Konkan Railway case. The present decision has invoked
many far-reaching consequences as it has increased the scope of judicial interference with the
arbitral proceedings. The current position is unfortunately going against the very objective of
minimum judicial interference in the arbitration law as it has opened up a new route for the
disputants to the courts by way of an appeal31 . The law laid down in the Konkan Railway
case is perhaps preferable to the latest decision in S.B.P. &Co 32 .

28
(2003) 6 SCC 564
29
Supra n 30.
30
(2005) 8 SCC 618.
31
Once the process of appointment of arbitrators by the Chief justice is said to be of judicial nature and not of
administrative character, it is amenable to judicial review under Article 136 of the Constitution of India.
32
Indeed the Supreme Court went a step further holding that the Chief Justice would have jurisdiction to determine
whether there is in existence a valid arbitration agreement. The court held: “It is necessary to define what exactly the
Chief Justice, approached with an application under Section 11 of the Act, is to decide at that stage…He has to decide
whether there is an arbitration agreement, as defined in the Act and whether the person who has made the request
before him, is a party to such an agreement. It is necessary to indicate that he can also decide the question whether the
claim was a dead one; or a long barred claim that was sought to be resurrected and whether the parties have concluded
the transaction by recording satisfaction of their mutual rights and obligations or by receiving the final payment
without objection. It may not be possible at that stage, to decide whether a live claim made, is one which comes
within the purview of the arbitration clause. It will be appropriate to leave that question to be decided by the arbitral
tribunal on taking evidence, along with the merits of the claims involved in the arbitration.” The decision makes a
significant inroad into Section 16 of the Act which provides that all contentious issues, relating to the jurisdiction of
the tribunal, including with respect to the existence or validity of the arbitration agreement shall be decided by the
arbitral tribunal (corresponding to Article 16 of the Model Law)
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2.3 Summary of the judgment in S.B.P. & Co. v. Patel Engineering Ltd.

In this case, a constitutional bench of the Supreme Court consisting of seven judges
considered the legal issue as to the nature of power exercised by the Chief Justice of India or
Chief Justices of the high courts under sections 11(9) and 11 (6) respectively. The findings of
the Court were as follows:

i. The power exercised by the Chief Justice of the High Court or the Chief Justice of India
under section 11(6) of the Act is not an administrative power. It is a judicial power.

ii. The power under section 11(6) of the Act, in its entirety, could be delegated, by the Chief
justice of the High Court only to another judge of that court and by the Chief Justice of India
to another judge of the Supreme Court.

iii. In case of designation of a judge of the High Court or of the Supreme Court, the power
that is exercised by the designated judge would be that of the Chief Justice as conferred by
the statute.

iv. The Chief Justice or the designated judge will have the right to decide the preliminary
aspects as indicated in the earlier part of this judgment. These will be, his own jurisdiction, to
entertain the request, the existence of a valid arbitration agreement, the existence or otherwise
of a live claim, the existence of the condition for the exercise of his power and on the
qualifications of the arbitrator or arbitrators. The Chief Justice of the judge designated would
be entitled to seek the opinion of an institution in the matter of nominating an arbitrator
qualified in terms of section 11(8) of the Act if the need arises but the order appointing the
arbitrator could only be that of the Chief Justice or the Judge Designate.

v. Designation of a district judge as the authority under section 11(6) of the Act by the Chief
Justice of the High Court is not warranted on the scheme of the Act.

20 | P a g e
vi. Once the matter reaches the arbitral tribunal or the sole arbitrator, the High Court would
not interfere with orders passed by the arbitrator or the arbitral tribunal during the course of
the arbitration proceedings and the parties could approach the court only in terms of section
37 of the Act or in terms of section 34 of the Act.

vii. Since an order passed by the Chief Justice of the High Court or by the Designated Judge
of that court is a judicial order, an appeal will lie against that order only under Article 136 of
the Constitution of India to the Supreme Court.

viii. There can be no appeal against an order of the Chief Justice of India or a Judge of the
Supreme Court designated by him while entertaining an application under section 11(6) of
the Act.
ix. In a case where the parties have constituted an arbitral tribunal without having recourse to
section 11(6) of the Act, the arbitral tribunal will have the jurisdiction to decide all matters as
contemplated by section 16 of the Act.

x. Since all were guided by the decision of this court in Konkan Railway corporation Ltd. v.
Rani Construction P. Ltd. [2000] 8 SCC 159 and orders under section 11(6) of the Act have
been made based on the position adopted in that decision, it was clarified that appointments
of arbitrators or arbitral tribunals thus far made, are to be treated as valid, all objections being
left to be decided under section 16 of the Act. As and from this date, the position as adopted
in this judgment will govern even pending applications under section 11(6) of the Act.

xi. Where District Judges had been designated by the Chief Justice of the High Court under
section 11(6) of the Act, the appointment orders thus so far made by them will be treated as
valid; but applications, if any, pending before them as on the date of judgment will stand
transferred, to be dealt with by the Chief of the concerned High Court or a judge of that court
designated by the Chief Justice.

21 | P a g e
xii. The decision in Konkan Railway Corporation Ltd. v. Rani Construction P.Ltd. 33 is
overruled.

2.4 Implications of the decision in S.B.P. & Co. v. Patel Engineering Ltd.

The decision entails the following consequences like,

i. If the order of appointment of arbitrators is made judicial order, it is possible to challenge


that order by way of an appeal under Article 136. This will definitely prolong the proceedings
at the initial stage of appointment itself.

ii Going in appeal against the order of the Chief Justice of the High Court may not sound
realistic. The lawyers and parties might fear that the judge may be prejudiced against them in
subsequent cases on account of such a challenge.

iii. The decision has enhanced the scope of judicial intervention in the arbitral process by
holding that the court while entertaining an application under section 8 or 11 of the
Act can go into the contentious issues apart from deciding the preliminary issues 34 .

iv. Consequently, the power of an arbitral tribunal to rule on its own jurisdiction under
section 16 of the Act by deciding issues such as, validity of the arbitration agreement,
arbitrability of the disputes, competency of the parties etc. has been considerably reduced. As
a result of the decision, the referring court has also got the power to decide such issues.

v. The judgment categorically states that the order of appointment under section 11 could
only be that of the Chief Justice or any other judge nominated by him, but they may seek
opinion of an institution regarding matters of appointment. Here exists confusion regarding
the role of an institution or person as mentioned in the Act. As per section 11(7) of the
Arbitration and Conciliation Act, 1996, a decision on matter entrusted by sub-sections (4), (5)

33
[2000] 8 SCC 159

34
Section 8 of the Act talks about the power of the court to refer the parties to arbitration on an application made by
the parties in the light of an existing arbitration agreement between them.

22 | P a g e
and (6) to the Chief Justice or the person or institution designated by him is final. In the light
of the impugned judgment, it is not very clear that whether the order passed by such a person
or an institution would also assume the character of a judicial order whereas the person or an
institution need not necessarily be a judicial authority.

vi. As a whole, the decision has the effect of undermining the best objectives of the Act such
as speedy and efficacious resolution of disputes, minimal judicial intervention, ensuring party
autonomy etc.

vii. Designation of a district judge as the authority under section 11(6) of the Act by the Chief
Justice of the High Court is not warranted on the scheme of the Act. This may cause
difficulties for those parties who live in remote areas or far away from the place where the
High Court is situated since they may not have easy an access to the High Court always.

2.5 Accountability of arbitrators

The validity of an arbitration agreement determines the jurisdiction of an arbitral tribunal.


What the law requires is that there should be an arbitration agreement between the parties to
refer the differences or disputes to arbitration35 . When there exists an agreement between the
parties to refer the disputes to arbitration and afterwards a dispute arises, the very next step is
the appointment of arbitrators as discussed earlier. Now the issue is whether the appointed
arbitrators suffer from any kind of disqualification such as bias or lack of qualifications. A
person to be appointed as an arbitrator or who has been so appointed is obliged to disclose in
writing any circumstances that are likely to give rise to justifiable doubts as to his
independence and impartiality36 . An arbitrator may be challenged only if circumstances exist
that give rise to justifiable doubts as to his independence or if he does not possess
qualifications agreed to by the parties. This means that a party may challenge an arbitrator
appointed by him, or in whose appointment he has participated, only by reason of which he

35
Section 7 of the Arbitration and Conciliation Act, 1996 reads thus, “An arbitration agreement is an agreement by
the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in
respect of a defined legal relationship whether contractual or not.”
36
Section 12 of the Arbitration and Conciliation Act, 1996.
23 | P a g e
becomes aware after the appointment has been made. Thus it becomes clear that an arbitrator
must possess integrity and the requisite qualification. He should not act with a mind leading
to predisposition towards an issue. He is likely to suffer from bias when his competence,
qualification, impartiality or independence is challenged.

2.6 Issues identified and recommendations with respect to appointments and


qualification of arbitrators

Appointment of arbitrators has become a vital issue in the arbitration process. To ensure
minimum judicial intervention at the initial stage of appointment of arbitrators, changes in
law and policy are required. To avoid inconsistencies in the appointment procedure of
arbitrators, it is suggested that suitable arbitral institutions may be empowered to take the
lead in this respect 37 . The Court may direct only these accredited institutions to help the
parties with the selection of arbitrators of their choice from the panel. This would in a way
regulate the unsupervised and unaccountable arbitrations taking place in the country. This
calls for an amendment in the existing position of law.

When there is a clear proof of bias or misconduct on the part of the arbitrators the courts are
given the power to set aside an arbitral award 38 . In such a case, the parties have to wait till the
entire arbitration proceedings are over. This would generally result in waste of both money
and time 39 . This difficulty can be avoided by appointing persons who are known for their
integrity and impartiality as arbitrators. Keeping in mind the interest of the business
community and the public policy, it is desirable that a proper institutionalized mechanism is
set up to ensure accountability of arbitrators and transparency in the arbitration process. In
the case of institutional arbitration, after the appointment is made, the institution would keep
monitoring the proceedings to ascertain the performance of arbitrators. Generally Rules of
these institutions provide for a fee structure that is not based on the number of sittings these
arbitrators hold, but fixed for each arbitration. This would definitely resolve the existing

37
These institutions may get themselves registered with the Government.
38
Infra n. 65.
39
To have a detailed explanation the meaning of the term, jurisdiction under the Act, the decision in National
Thermal Power Corporation v. Siemens Aktiengesellschaft, (2007) 4 SCC 451 may be referred to.

24 | P a g e
problem of arbitrators unnecessarily holding additional sittings and claming their fee on the
basis of such number of sittings they hold.

Any kind of misconduct or malafide acts from the arbitrators will definitely vitiate the
arbitral award. It is therefore, necessary that there should be an internationally accepted code
of conduct for the arbitrators to be observed in resolving the disputes. It is often mentioned
that there is overburdening of retired, eminent persons with several arbitration cases at a time.
Here, the remedy is that no person should be appointed as an arbitrator, until he has finished
the case in his hand. There should also be a reasonable time limit for the completion of
arbitration cases. One way of addressing this issue would be to have full-time arbitrators. One
may even go as far as to recommend that those arbitrators cannot practise or engage in any
other profession simultaneously. This will provide a check on prolonged arbitral process.

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CHAPTER 3: ARBITRAL AWARDS

3. ARBITRAL AWARDS

The decision of the Arbitral Tribunal is termed as 'Arbitral Award'. Arbitrator can decide the
dispute ex aequo et bono (in justice and in good faith) if both the parties expressly authorize
him to do so. Section 28 of the Arbitration and Conciliation Act,1996 grants autonomy to the
parties to choose the substantive law to be applied to ‘Arbitration other than an international
commercial arbitration’ as well as to an ‘international commercial arbitration’, where the
place of arbitration is in India.

The Supreme Court of India in Sumitomo Heavy Industries v. Oil and Natural Gas Co Ltd
held that, where the parties had made an express choice of Indian law as proper law of the
contract, then it would follow that the proper law of the arbitration agreement is also Indian
Law. It was held as the arbitration agreement is part of the substance of the underlying
contract and terms of arbitration clause are held to be clear in that respect. The provisions has
made a vital improvement in making international commercial arbitration considerably more
user-friendly and flexible. In the arbitral proceedings with more than one arbitrator, the
decision of Arbitral Tribunal will be by majority.

In Shin-Etsu Chemical Co Ltd.v. Aksh Optifibre Ltd and another , it was held that, in an
application for reference rejected on the ground of invalidity of agreement under Section 45
of the Act, the judicial authority is required to pass reasoned order after hearing parties.
Impugned order is liable to appeal under Section 50(1) (a) of the Act.

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3.1 Procedural justice to parties and legality of arbitral awards

Aspect of procedural justice is often used as justification for judicial interference 40 .


According to the Supreme Court, like judges in an ordinary court, the arbitrators are also
bound by these rules 41 . An arbitral award can be challenged successfully, if it is proved that,
there is violation of the principles of natural justice by not giving a notice, or not allowing the
other party to present his version of the dispute 42 . The term ‘natural justice’ is a vague term.
Its meaning differs from case to case. The different contours of the concept are determined by
the judiciary itself43 .

Rules of procedure
The Arbitration and Conciliation Act, 1996 provides for the determination of rules of
procedure for conduct of arbitral proceedings 44 . The Code of Civil Procedure, 1908 or the
Indian Evidence Act, 1872, does not bind the arbitral tribunal. 45 The parties are given the
freedom to agree on the procedure to be followed by the arbitral tribunal. 46 Failing agreement
by the parties, the arbitral tribunal may conduct the arbitration in such a manner, as it
considers appropriate. 47 The power thus conferred at by the tribunal, should be disclosed to
the parties interested.Later these elements were incorporated in the Arbitration and
Conciliation Act, 1996 by way of Ss.18, 12 and 24 Arbitration and Conciliation Act, 1996.
The tribunal includes the power to determine the admissibility, relevance, materiality and
weight of any evidence. 48 This power may subsequently give rise to judicial review also.
Across different countries, the courts have different approaches to procedural justice to

40
In Food Corporation of India v. Indian Council of Arbitration, (2003) 6 SCC 564, the court held that
legislative intent underlying the Act is to minimize the supervisory role of the courts in the arbitral process and
quick nomination or appointment of arbitrator, leaving all contentious issues to be decided by him. The
institution opted by the parties shall nominate the arbitrator as sought for by them giving due importance to the
procedural rights of the parties.
41
Ibid.
42
Jaya V S, “Procedural Justice for Parties to Arbitration: Reflections and Perspectives on Indian Arbitration
Law”, XXIX DLR (2007)
43
Maula Bux v. State of West Bengal, AIR 1990 Cal. 318, at p. 334
44
Section 19 of the Arbitration and Conciliation Act, 1996
45
Id.at s.19 (1).
46
Id. s.19 (2).
47
Id. s. 19 (3).
48
Id. s. 19 (4).
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parties to arbitration49 . This may cause difficulties for the foreign parties coming to India to
settle their disputes.

In Sudarshan Trading Co. v. State of Kerala, 50 the Supreme Court has opined that arbitral
tribunal will have the power to adopt its own rules for evaluating evidence. It is the sole
judge of quality and quantity of evidence. The court has no jurisdiction to substitute its own
evaluation of the conclusion of law or fact. Courts in other countries have taken another view
in this regard. To give reasons that are inadequate, to act on no evidence or on evidence that
ought to have been rejected, and not taking into consideration evidence which ought to have
been considered, are viewed as an error of law.

Party autonomy

The autonomy of parties to determine the rule of procedure is given special importance by
the law. It allows the parties to select the rules, according to their specific wishes and needs.
It provides flexibility for solving any procedural question, not regulated by the agreement or
the Act. It enables resolution of any procedural difficulty, if any experienced during the
course of the proceedings. In National Thermal Power Corpn. v. Singer Co., 51 the court
upheld the principle of party autonomy in international business as the guiding principle of
the self-regulating mechanism envisaged by arbitration rules of major institutions like ICC.

Venue and language of arbitration

The parties may agree or the arbitral tribunal will decide the place of arbitration and the
period of time within which the claims and defences to be filed by the parties. 52 This has
brought about inconsistent practices among arbitrators and parties performing under the same
set of Rules of arbitration. The arbitral proceedings including hearing and meetings are
expected to be held at the place determined by the parties. 53 Failing agreement, the arbitral

49
R v. Agricultural Land Tribunal Ex. P. Bracy, (1960) I All ER 518.
50
AIR 1989 SC 890.
51
(1992) 3 SCC 551.
52
Id. ss. 20 (1) and 22 (1).
53
Id. S. 23 (1).
28 | P a g e
tribunal is empowered to decide the matter. For consultation amongst its members, for
hearing witnesses, experts or parties, or for inspection of documents, goods or other property,
the arbitral tribunal may meet at any place it considers appropriate, unless otherwise agreed
by the parties. 54 In determining the place, the tribunal should take into consideration the
circumstances of the case including the convenience of the parties. 55 However, the arbitral
tribunal has the discretion to meet at any place it consider appropriate to enable arbitral
proceedings being carried out in a manner most efficient and economical. The legal relevance
of the place of arbitration is that it determines the international character of arbitration. 56 It is
also a connecting factor for the ‘territorial’ applicability of the law and becomes the place of
origin of the award. Apart from this, the place of arbitration has got some factual relevance
too. The place should be convenient for the parties and the arbitrators. It should be selected
taking into account the availability and the cost of support services needed and the location of
the subject matter in dispute. If the arbitrator decides the place of arbitration, without looking
into the relevant factors, the parties can approach the court for setting aside the award on the
ground of substantial procedural irregularity. As against the usual court procedure, the
arbitration does not contain the limitation as to selection of forum. 57

With regard to the language of the arbitral proceedings also the Act gives freedom to the
parties to agree upon the language to be used 58 . If they fail, the arbitral tribunal determines
the language. Translation of documentary evidence in that language may be ordered to
accompany the evidence. Bearing in mind the needs of the proceedings and economy, the
arbitral tribunal may consider which of them should be accompanied by a translation into the
language of the proceedings and may order accordingly. The arbitral tribunal can also
determine the possible need for the interpretation of the oral presentations.

54
Id. S. 20 (3).
55
Id. S. 20 (2).
56
Bhatia International v. Bulk Trading S. A., (2002) 4 SCC 105
57
Krishna Sarma. “Trans-national Commercial Arbitration in India,” (2000) 4 COMP LJ 11 (Jour.).
58
S. 22 of the Arbitration and Conciliation Act, 1996.
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The arbitral tribunal must allow the parties to submit their claim and counter claim at the
earliest opportunity. 59 If there exists circumstances, which requires the parties to give an oral
hearing, then the arbitral tribunal must provide it. Non-compliance with such procedures will
vitiate the award.

Issues identified and recommendations with respect to procedural justice to parties

The Arbitration and Conciliation Act, 1996, as it is modeled on the UNCITRAL Model Law
has become a statute of international business standards in dealing with arbitration cases. In
the era of fast growing industrialization and international commercial trade, there is an
imminent need for settlement of disputes at an early date. Over- judicialisation of such
disputes in traditional court divides the parties into two enemy camps. Redressal of disputes
does not require confrontation, but it requires collaboration, co-operation and mutual trust
that are available in arbitration proceeding than in the ordinary courts. The arbitrator, while
acting as an impartial judge, has to adhere to certain basic principles such as Audi alteram
partem and independence and impartiality. Any deviance from the normally expected
standards may vitiate the entire arbitration process.

The setting aside of an arbitral award on the ground of minor procedural irregularities may
destroy the objective behind ADR mechanisms. Hence, to satisfy the minimum requirement
of procedural fairness it is imperative that the Indian arbitration law is amended to include
specific provisions as to maximum time limit for hearing the parties, examination of the
documents and passing the final award, with total period not exceeding six months. These
suggestions, if implemented would certainly make India an important venue for international
arbitration, as it would really help preventing arbitrators from unnecessarily delaying the
process.

59
Philipps v. Philipps, (1978) 4 QB 127.

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3.2 Validity of an arbitral award

The validity of an arbitral award depends on many factors. The interpretation of law
governing arbitration, especially international arbitration assumes great importance in
determining the validity of an arbitral award. Often the arbitrators find it very difficult to
come up with an interpretation of law in accordance with the intention of the parties. A
common standard cannot be adopted in all cases because that may go against the interest of
parties. So the element of fairness depends on the facts and circumstances of each and
every case 60 The Act provides for limited grounds on which an application for setting
aside an arbitral award can be made 61 . Legal validity of an arbitral award mainly depends on
the propriety of the substantive law applied to the arbitration, venue chosen for conducting
arbitration proceedings, interpretation of contract between parties etc. 62 .

Choice of law in arbitration

The Indian Arbitration and Conciliation Act, 1996, lays down the rules applicable to the
substance of a dispute. 63 The enforceability of the award in the national courts also depends
on the proper application of the substantive law. As far as India is concerned, in domestic
arbitrations, the substantive law shall be law in force in India. 64 In international arbitrations,
the parties themselves can choose the applicable law to the substance of the dispute. 65

Usually the law here means the substantive law of the country specified by the parties. 66 If
the parties fail to designate the applicable law the arbitral tribunal can choose the same. 67 The
Act also ensures justice and fairness in making the choice of law. The terms of the contract
and usages of the trade applicable to the transaction are also given priority in all these cases
to ensure that the applicable law is free from any infirmities. 68

60
In K.K. Modi v. K.N. Modi, (1998) 3 SCC 573
61
Section 34
62
Thawandas Pherumal v. Union of India, A.I.R. 1955 S.C. 468.
63
Section 28 of the Arbitration and Conciliation Act, 1996,.
64
Id., at s.28 (1) (a)
65
Id., at 28(1)(b)(ii)
66
Id., at s.28(1)(b)(iii).
67
Id.,at s.28(2).
68
Id., at s. 29(3).
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A study of these provision shows that, the party’s freedom to choose a particular law for
deciding the dispute is restricted in domestic arbitrations. But in international arbitrations,
they have been given the freedom to choose the substantive reasons stated in the award, it is
not possible to find out whether an award has been passed in accordance with law. The
reasons stated should be paper and adequate. To give reasons which are inadequate is an error
of law.( R. v. Agricultural Land tribunal exp. Bracy, [1960] 1 All ER 518). At the same time
it is to be noted that the arbitral tribunal is not required to give a detailed judgment. (Indian
Oil Corporation v. Indian Carbon Ltd., A.I.R. 1988 S.C.1340) law of any country for
deciding their dispute. Thus, the scope for challenge against the validity of an award is more
with respect to international arbitration as compared to domestic arbitration.

Parties’ autonomy in choosing applicable law

International Arbitration in the Indian context involves numerous difficulties, one of the most
troublesome of which is the substantive law to be applied in a given dispute. The parties may
specify the substantive law of the arbitration in their original agreement. “In general, parties
to an agreement containing an arbitration clause have virtually autonomy in selecting the
substantive governing law. Almost any choice of substantive law by the parties is
enforceable, so long as the arbitral award itself is enforceable. 69 Once the parties agree as to
the law that is to be applied in deciding the dispute, the arbitral tribunal is bound to adhere to
it and to give a proper interpretation of that law. Here the issue is that the Indian Arbitrators
may not necessarily be conversant with foreign law and practice. This will pose great
difficulty in the smooth conducting of the arbitration. In arbitrations other than the
international commercial arbitration, neither the arbitral tribunal nor the parties have a choice
to decide the substantive law applicable for resolving the dispute. 70 In all such cases, the
dispute has to be resolved in accordance with the Indian law for the time being in force, as
applicable to the subject matter of the dispute. In international commercial arbitration where
the arbitration proceedings are conducted at any place situated in India, the arbitral tribunal
shall first ascertain as to whether the parties have by agreement designated the rules of
law of any particular country for being applied to the substance of the dispute. Where the
parties have chosen to designate the law or legal system of a particular country to be applied

69
General Principles of Law in International Commercial Arbitration”. 101. Harv.L.Rev.1817(1988).
70
Section 28 of the Arbitration and Conciliation Act, 1996.
32 | P a g e
by the arbitral tribunal, that law binds it. Generally it is seen that the parties do agree with a
substantive law of a particular country as the law to be followed in resolving the dispute.
Often a question may arise whether the express mentioning of a particular law made by the
parties is in accordance with the general principles of trade. The question of choice of law has
become a serious problem affecting the relevancy of international commercial arbitration71
and thereby reducing its importance in the field of international trade. Here it is important
that the arbitrators have to be well equipped with the necessary mindset and skills to deal
with such issues in an efficacious manner.

Parties specifying or not specifying a national law

Parties specifying or not specifying a national law may lead to disputes of different types.
When the parties clearly designate the substantive law of a particular jurisdiction, there is
little room for the application of the general principles of law. In such a situation, the arbitral
tribunal also cannot move away from what is intended by the parties. In many of the standard
form contracts, the parties expressly provide the law, which is to govern contractual rights
and obligations. For example, in a case where an Indian public sector undertaking had
entered into a contract with a foreign company and the parties to the contract had expressly
stated that the laws applicable to the contract would be the laws in force in India and that the
courts of Delhi would have exclusive jurisdiction in all matters arising under the contract;
definitely the contract would in all respects be construed and governed according to Indian
law.The Supreme Court also has taken the same view in National Thermal Power
Corporation v. Singer Co. 72 The parties may supplement their choice of a national law with
reference to some other rules such as general principles of law or law merchant or the law of
international trade. Here also the arbitrators have to exercise their discretion to find out the
applicable law, which would match with the intention of the parties. Sometimes the
agreement may be silent as to the substantive law to be applied in the particular case. In many
cases the parties simply are unable to agree on a particular national or non-national law.
Arbitrators in such situations have more discretion than in any other case, as they may apply
any substantive law that their arbitral rules and other procedural provisions allow.

71
Dr.K.I.Vibhute, “International Commercial Arbitration: Some Reflections on its Problems and
Perspectives”, (1995) 1 S.C.C 7(Jour.).
72
AIR 1993 SC 998
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The parties usually agree on the terms of reference to arbitration and even the procedure to
be followed by the arbitral tribunals in an international arbitration. But they may keep silence
as to the law to be applied in settling the disputes. In the absence of choice of any substantive
law by the parties, the arbitrator in some cases may apply the conflict of laws rules they view
most appropriate to the particular case. The choice of law can become an important point of
issue under four circumstances namely, (1) in the case of the interpretation of an arbitration
agreement, (2) in an individual reference to arbitration and the mode of its application, (3) in
the arbitral procedure and the law governing it and (4) selecting the law applicable for
deciding the dispute.

Sometimes, the validity of interpretation of an arbitration agreement itself may be an issue.


The submission may take the form of a separate agreement entered into by parties after a
dispute has arisen. It is now established that an arbitration agreement is a separate contract
distinct from the substantive agreement in which it is usually imbedded. 73 If there is an
express designation of the governing law in the arbitration agreement generally that will be
determinative. In the absence of an express choice, the proper law will be inferred from the
terms and nature of the agreement and the circumstances of the case. Generally the law
applicable to the substantive contract will govern the arbitration agreement also. The
Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 74 provides
that the validity of an arbitration agreement is to be referred to, “the law to which the parties
have subjected it or, failing any indication there on the law of the country where the award is
made.”75

73
Section 16 (a)
74
The New York Convention, 1958.
75
Article VI (a).
34 | P a g e
Issues identified and recommendations with respect to legality of arbitral awards

In an international arbitration, many legal issues on the validity of its award may arise, as it
contains laws of different countries. In an international arbitration where the place of
arbitration is situated in India, the problems arising out of arbitration may call for the
application of any one or more of the following laws. 76

(1) Proper law of contract, (2) proper law of arbitral agreement and (3) law
governing the conduct of arbitration.

The arbitrator may also apply a fully non-national standard such as law merchant, standard
usages or general principles of law. 77 Here also the problem may come, as there are no
clearly defined general principles of law or custom or usage in international trade. Here lies
the need for developing a coherent set of principles based on published arbitral awards. For
that it is necessary to examine the interference made by the courts in ascertaining the legality
of such arbitral awards. A comprehensive code of principles enunciated by the courts
regarding the principles determining the validity and fairness of an arbitral award may be
useful in this regard.

Once a dispute has arisen and a party gives notice of arbitration, thereby putting into effect
the arbitration agreement, a new set of contractual relationship comes into being, requiring
the parties to arbitrate that particular dispute. Under this situation, the arbitration agreement
and the individual reference stand on different footing and the illegality of one will not affect
the other. Hence the proper law of contract or the system of law with which the contract has a
close connection may be taken into account in deciding the legality of the arbitration
agreement or individual reference. The law governing the arbitral procedure will usually be
the law of the place where the arbitration is held. Sometimes, it may be necessary to
determine the arbitral procedure law prior to the commencement of the arbitration
proceedings themselves. If the agreement does not specify the site of the arbitration, the
problem can arise. In such cases, the court may come up with the proposition that the proper

76
J.H.C. Morris et.al., Dicey’s Conflict of Laws, Stevens and Sons Ltd., London (7th edn.-1958). Pp.797-802.
77
Ibid.
35 | P a g e
law of the agreement would apply. 78 In the absence of an express choice, the proper law is
the legal system to which the contract is most closely connected. 79 Under the UNCITRAL
Model Law, there are express provisions in this regard. 80 Another important issue is regarding
the interpretation given by the courts regarding the applicability of provisions under Part I of
the Act to international arbitrations 81 . The Supreme Court has interpreted the 1996 Act to the
effect that even international arbitrations taking place in India, the same would be treated as a
domestic arbitration and in such cases Part I of the Act would apply82 . This would invariably
curtail certain benefits attached with a foreign award under the New York convention like
awarding cost for successful party in case of any frivolous challenge against enforcement of
the award. In the light of the recent judicial interpretations on the applicability of Part I to
foreign awards 83 , it is recommended that a legislative amendment providing for cost to the
affected party may be introduced in the Arbitration and Conciliation Act, 1996.

3.3 Finality and enforcement of arbitral awards

Under the present law, there is a presumption of finality of an award. In domestic


arbitration, the awards are enforceable as decrees of the court due to this presumption of
finality. But this is not the case with international or foreign awards. In an international
arbitration issues relating to different national laws will come into play. As a result, during
the enforcement process, it has to get through a number of hurdles 84 . The law specifically
says about certain conditions under which, the court can intervene in the enforcement process
of an arbitral award. Although there is uniformity in the conditions for enforcement at the
international level, the interest of individual nations outweighs such uniformity.

78
International Tank & Pipe S.A.K. v. Kuwait Aviation Fueling Co.K.S.G., [1955] Q.B.224.
79
Bonytbon v. Common wealth, [1951] AC 210 at 219.
80
UNCITRAL Model Law, Art 28(1).
81
Bhatia International v. Bulk Trading S. A., (2002) 4 SCC 105.
82
Ibid.
83
Venture global Engineering v. Satyam computers Services, 2008(1) SCALE 214.
84
Garry B Born, “International Commercial Arbitration”, Transnational Publishers and Kluwer Law
International (New York)(2nd Edition – 2001)
36 | P a g e
Conditions for enforcement of arbitral awards

The UNCITRAL Model Law, which is adopted in India, makes the enforcement of foreign
awards easier. It states, “an arbitral award irrespective of the country in which it was made
shall be recognized as binding upon an application in writing to the competent court and shall
be enforced subject to the provisions of this articles and of article 36”. 85 Likewise the case of
other arbitral Institutions also. The aim of the 1996 Act is to minimize the scope and extent of
judicial intervention in arbitration matters 86 . The court has adhered to this principle in
interpreting the contract and the arbitration clause in it as seen in a number of cases. Yet in a
number of other cases the court has taken a contrary view. For example, in Bhatia 87
International v. Bulk Trading S. A125, the court refused to accept the contention that an
award made in a non-convention country88 could not be enforced in India and observed that a
party could not be left completely remediless in such situations.

It was further held that the provisions of Part I of the Arbitration and Conciliation Act, 1996
would apply to all arbitrations and to all proceedings relating thereto. Where such arbitration
is held in India the provisions of Part I would compulsorily apply and parties are free to
deviate only to the extent permitted by the derogable provisions of Part I of the Act. Though
the decision seems to be practically good, still there is no consistency among the various high
courts as evident in a number of conflicting judgments. In a recent decision, a two-judge
bench of the Supreme Court reiterating the decision in Bhatia International held that an
award made in England through an arbitral process conducted by the London Court of
International Arbitration, though a foreign award, Part I would be applicable to such an
award. Hence the courts in India would have jurisdiction both under section 9 and section 34
of the Act and entertain a challenge to its validity89 .

85
The UNCITRAL Model Law, Arts. 35 and 36
86
Section 5 of the Arbitration and Conciliation Act 1996
87
Sudarshan Trading Co. v. Government of Kerala, (1989) 2 SCC 38
88
New York Convention of 1958.
89
Venture Global Engineering v. Satyam Computers Services, 2008 (1) SCALE 214.
37 | P a g e
3.4 Grounds for non-enforcement of arbitral awards

It is generally presumed that arbitral awards are binding and become final on the persons
between whom it is made. 90 However, there are a few specific grounds on which the
enforcement of the arbitral awards may be refused. They are the following.

Incapacity of parties and invalidity of arbitration agreement

Incapacity of the parties is a valid ground for refusal of enforcement of arbitral awards.
Generally the incapacity of the parties is to be determined in accordance with the law
applicable to the parties or in the absence of any indication thereof, according to the law of
the place of arbitration. Same is the case with the law to be applied for determination of the
validity of the arbitration agreement.

The Supreme Court in Svenka Handles Banker v. Indian Charge Chrome Ltd. 91 held that the
right to foreign arbitration is an indefeasible right of the parties in which the court does not
have any discretion. For getting a reference for arbitration, the parties have to put their
material before the court and the court has to record its finding as to the capacity of the
parties thereon. 92 If the agreement is such that it is not capable of being performed, the court
may not refer the parties to arbitration. Incapacity does not mean impossibility. It implies that
performance is impracticable from a reasonable man’s point of view.

Incapacity of the parties to perform an agreement may happen when the contract is frustrated.
Frustration occurs whenever law recognizes that without default of either party a contractual
obligation has become incapable of being performed, because the circumstances in which the
performance is called for would render it a thing radically different from which was

90
S. 46 of the Arbitration and Conciliation Act 1996.
91
(1994)2 S.C.C. 155.
92
Renu Sagar Power Co. Ltd. v. General Electric Co. Ltd., AIR 1985 SC 1156.
38 | P a g e
undertaken by the contract. This doctrine does not apply to self-induced frustration. It is
applicable when the impossibility is caused by external circumstances beyond the
contemplation of the parties 93 .

Improper composition of arbitral tribunal or violation of the principles of natural


justice by the arbitrator

Enforcement of an arbitral tribunal can be opposed on the ground that the composition of the
arbitral tribunal was not in accordance with the agreement or with the law of the county
where the arbitration took place. Generally the law which would apply to the filling of award,
its enforcement and its setting aside would be the law governing the agreement to arbitrate
and the performance of the agreement.

Similarly, an arbitrator is guilty of misconduct if he acts in apparent violation of the rules of


natural justice to the detriment of either party. Lack of opportunity or notice may be a ground
for refusal of enforcement. The person alleging must establish that he did not have ‘proper
notice’ which was adequate or of sufficient for preparing.

3.5 Award not becoming final

Enforcement of a foreign award may be refused, on the request of the party if he proves that
the award has not yet become binding on the parties or has been set aside or suspended by a
competent authority of the country in which or under the law of which country, that award
was made. The parties anticipate maximum expertise and expediency on the part of the
arbitrators while deciding a dispute. If it is not reflected in the award, then the court can
exercise its power of judicial scrutiny during the process of enforcement. If a party has made
an appeal regarding the competence of the arbitrator or any defect in the arbitration
procedure, before the prescribed authority of the country where the award is made, or the
time for making such an objection or appeal has not expired, the award cannot be enforced.

93
S.A. Tiewul, “The Enforcement of Arbitration Agreements and Awards”, Vol.2, The University of
Ghana law Journal, 162 (1974).

39 | P a g e
It would be binding if such objection has been rejected or such time has expired. 94 This
matter was further discussed in Harendra H. Metha v. Mukesh H. Mehta. The Court
identified the following ingredients,
1. The award should be made on an arbitration agreement governed by the New York
Convention or the Geneva Convention and not by the Indian Law.

2. The agreement involved must be an agreement considered as commercial under the


law in force in India.

3. The award must be made outside India.

However in another case, the Supreme Court has observed that, an award on the
arbitration agreement governed by law of India, although the dispute was with a foreigner
and the arbitration was held and made in a foreign country was not a foreign award. 95

Award in conflict with public policy

One of the major grounds for setting aside an award is issue relating to public policy which
may not be the same in India and in other countries.” The Act does not define “public policy”
and therefore it has been ruled by the courts that what would constitute public policy is a
matter dependent upon the nature of the transaction and the statute 96 . The interpretation given
by the courts to the term public policy has been generally criticized as leading to excessive
judicial interference with arbitration process and awards 97 . It is true to certain extent that the
Court’s intervention has also not been able to do much in resolving the issue effectively. 98
There are instances wherein the court has appreciated the fact that the 1996 Act makes
provision for the supervisory role of the courts and for the review of the arbitral awards only
to ensure fairness. This has been further explained by the Supreme Court in MacDermott
International INC v. Burn Standard CO LTD99 that the supervisory role is to be kept at a

94
Tans Ocean Shipping Co. Ltd. v. Black Sea Shipping Co. Ltd. (1999) 96 Com. Cas. 367 (SC).
95
National Thermal Power Corporation v. Singer Co., AIR 1993 SC 998.
96
Ibid.
97
ONGC v. Saw Pipes Ltd., (2003) 5 SCC 705.
98
Renusagar Power Co. Ltd v. General Electric Co., (1994) Supp. 1 SCC 644.
99
(2006) 11 SCC 181.

40 | P a g e
minimum level and interference is envisaged only in case of fraud, bias, violation of natural
justice etc. Interference on ground of patent illegality is permissible only if the same goes to
the root of the matter, and a public policy violation should be so unfair and unreasonable as
to shock the conscience of the court. The issue as to public policy is still being treated as a
controversial one. To resolve the problem, it is suggested that a better understanding of the
law and practice relating to transnational public policy issues may be desirable for both the
arbitrators and judges.
Whereas in ONGC case, one more ground was introduced along with the above three, i.e., if
the award is patently illegal it can be set aside on the ground of violation of public policy
within the meaning of section 34(2)(b)(ii) of the Arbitration and Conciliation act, 1996.
Critics view it as a bad decision on the ground that the same law would be applied in an
international arbitration also. In the light of the fact that in ONGC case, both the parties were
Indians and arbitrated the matter in India, it is felt that the fear is misplaced. See also,
Hindustan Zinc Ltd. v. Friends Coal Carbonisation, (2006) 4 SCC 445.As per this decision,
the award must be in accordance with the agreement of the parties and the agreement of the
parties must lie within the parameters prescribed by the non-derogable provisions of Part I of
the Act. This seems to be contrary to the earlier decision in Narayan Pasad Lohia v. Nikunju
Kumar Lohia, (2002) 3 SCC 572, wherein it was held that if the award passed in accordance
with the agreement of the parties, it may not be set aside by the court.

Issues identified and recommendations with respect to finality and enforcement


arbitral awards

Parties choose arbitration, though not very cost effective always, to avoid contentious
litigation in courts 100 . The scheme of the Act of 1996 clearly demonstrates that the Act is
intended to provide for greater autonomy in the arbitral process and limits judicial
intervention to a narrow circumference than the position obtained under the previous legal
regime 101 . India’s experience with arbitration for last so many years has proved the fact that
what the present system requires is a supportive role of the court rather than a supervisory

100
Sanjay P Gogia, “Need for a new International Court for Enforcement of International Commercial Arbitral
Awards” Indian Journal of International Law, p. 78
101
D.K.Bebber, “The Arbitration Law in India”, Chartered Secretary, December (1996).
41 | P a g e
role. 102 Whether the courts have reminded themselves of this note of caution while dealing
with the arbitral process and particularly, the arbitral awards is a question that probably
cannot be satisfactorily answered in the affirmative 103 . The recent decisions of the Supreme
Court also add to this point 104 . The provisions dealing with domestic arbitration and
international arbitration though intended to be operative in different fields, there exist certain
practical difficulties due to the overlapping nature of certain provisions in the two parts. For
example, section 9 of the Act dealing with the power of the court to pass interim orders
during the pendency of the arbitration matter has invited the attention of jurists and lawyers
after the controversial decisions in Bhatia international 105 and Global Engineering 106 cases.
The view taken by the court in these cases is that even for international arbitrations held in
India, Part I of the Act dealing with domestic arbitration would apply107 . This has in fact
opened a floodgate for judicial intervention in the arbitral process. Hence, it is suggested that
there may be a change in the present Act so that inconsistencies and overlapping provisions
can be rectified. Ambiguities in legislation would invariably slow down the processes
envisaged under it. Same is the case with the vague provisions under the Arbitration and
Conciliation Act, 1996 also. If these defects go uncorrected, the common fear of arbitrators
ruining the finances and commerce of the parties may also become a reality. 108 Therefore it is
suggested that there is an urgent need to introduce a few changes in the Act as mentioned
hereunder. The presence of an institution to keep vigilance over arbitration process assumes
importance here, as that would ensure a minimum level of accountability and fairness in
arbitration in accordance with the legislative mandate. Thus, it is clear that when arbitration
is conducted in accordance with the established principles of justice and in compliance with
the well-drafted rules of an institution there are fewer chances of parties complaining about
lack of fairness in the arbitral process. This can definitely help the parties in avoiding the
delay by getting the problems connected with enforcement to be remedied at the earliest.

102
Ardy International (P) Ltd. v. Inspiration Clothes and U, (2006) 1 SCC 417.
103
A. K. Ganguli, “Emerging trends in the enforcement of arbitration awards”, 50 JILI (2008), p. 57
104
S B P & Co.v.Patel Engineering & Anr, (2005) 8 SCC 618.
105
Supra n. 114.
106
Supra n. 116.
107
section 34
108
Jaya V.S, “ Finality and Enforcement of Foreign Arbitral Awards: Reflections on Indian Law”, Asia Law
Review Vol. 2, (2007).

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Under the present law, the parties even after getting the arbitral award passed without any
delay have to wait for a long time, if the opposite parties raise a claim as to its non-
enforcement. It is often seen that the unsuccessful party challenging the awards resulting in
undue hardship for the winning party.

To remedy this defect, it is possible that a provision may be made to the effect that the
challenging party has to deposit certain amount of sum as a security against the stay
proceedings. The court may also be empowered to pass appropriate orders against parties
filing frivolous and vexatious complaints. A summary way of proceedings may be introduced
in the Arbitration Act to enable the court to deal with such applications as in the case of
special statutory tribunals. 109

109
CESTAT constituted under the Central Excise Act, 1944 and Customs Act, 1962.
43 | P a g e
CHAPTER 4: DISPUTE RESOLUTION
THROUGH ADR

4.1 The incentive structure for various stakeholders in arbitration

“Arbitrate and don’t litigate” shall be the principle in mind while going for an alternate
dispute resolution mechanism to resolve disputes. On the one hand there are horror stories of
arbitrations being delayed for years by the parties fighting through the courts in an attempt to
delay an inevitable result. On the other hand it is quite natural that the parties may want
minimum judicial interference on certain occasions to allow a smooth process. Lawyers and
businessmen are frequently criticized for utilizing judicial interference in arbitration process.

From the point of view of parties to arbitration it can be seen that most of the areas, where
there is an unnecessary delay in the arbitration process, have a close connection with the
conduct of arbitrators. Any kind of misconduct or malafide acts from the arbitrators will
definitely vitiate the arbitral award. It is therefore, necessary that there should be an
internationally accepted code of conduct for the arbitrators to be observed in resolving the
disputes. On the basis of that, the court can decide the fairness in the award made. The
arbitrators should adhere to those standards, which are expected out of them.

The arbitrators should act as officers discharging the public function of dispensation of
justice 110 . It is the case with lawyers too. A feeling of responsibility should be there in the
minds of lawyers. Unnecessary adjournments and enormous sittings of arbitration should be
curtailed. Both the arbitrators and the lawyers are paid normally on the basis of number of
sittings they hold and appearances they make. A provision may be made in the Act providing
for a fixed fee for arbitrators. They should not be paid on the basis of number of sittings as it
may provide an incentive for them to have additional sittings, which will further delay the
process. So a fixed fee for arbitrators will certainly help improvement in the system.

110
Jaya V S., “Legality and Fairness of Arbitral Awards”, AALCO Quarterly Bulletin, No. 3, p. 278(2006)
44 | P a g e
From the arbitrators’ point of view it is felt that lack of proper infrastructure and training
offered to arbitrators are frequently cited as the reasons for weakening of the system. Lack of
accountability on the part of ad hoc arbitrators also contributes to this cause. A separate Bar
for full- time arbitrators who have been trained by the accredited national arbitral institution
may be useful in this regard. Taking into consideration the socio-economic conditions
peculiar to India, it is strongly felt that progress could be perhaps achieved in making the
institutional arbitration more popular, effective and cheaper by setting up high quality
arbitral institutions of international standard in India 111 . These arbitral institutions shall be
given the power to appoint arbitrators, as they are well versed in the matter of arbitration
both domestic and international. This will definitely help the trading industries also. These
institutions should improve upon their rules to make it in conformity with the international
standards.

These institutions may work out the modalities for developing a proper enforcement
mechanism, which is more in the nature of self-regulatory. This may also enhance the
uniformity in arbitration laws at the international level. This would definitely help the
business community in achieving the objectives of Indian arbitration law and the promotion
of international trade.

4.2 Scope and nature of dispute settlement through different methods of ADR

Under this head the various types of cases, which can be effectively handled through
Conciliation, mediation and other forms of ADR are studied. The study aims at enhancing the
scope and nature of known methods of ADR and also to explore the possibility of tailoring
new ADR techniques to novel types of disputes.

Conciliation
The proceedings relating to conciliation are dealt under sections 61 to 81 of Arbitration and
Conciliation Act, 1996. This Act is aimed at permitting mediation conciliation or other
procedures during the arbitral proceedings to encourage settlement of disputes. This Act
also provides that a settlement reached by the parties as a result of conciliation proceedings

111
Ibid.

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will have the same status and effect as an arbitral award on agreed terms on the substance of
the dispute rendered by an arbitral tribunal. Conciliation shall apply to disputes arising out of
legal relationship, whether contractual or not and to all proceedings relating thereto 112 .

Unlike an arbitrator, a conciliator does not give a decision but his main function is to induce
the parties themselves to come to settlement. An arbitrator is expected to give a hearing to the
parties, but a conciliator does not engage in any formal hearing, though he may informally
consult the parties separately or together. The arbitrator is vested with the power of final
decision and in that sense it is his contribution that becomes binding. In contrast, a conciliator
has to induce the parties to come to a settlement by agreement. A party initiating conciliation
can send to the other party a written invitation to conciliation113 . Conciliation commences
when the other party accepts in writing this invitation. If it does not accept it, then there will
be no conciliation114 . If the settlement is product of conciliation, with all the formalities of
reducing it into writing and authenticated by the conciliator, on a stamped paper, it will be an
award and thus a decree, which could be executed immediately115 . Non- compliance would
lead the party affected to file execution petition straight.

Matrimonial disputes
In any matrimonial suit, before proceeding to grant any relief, it shall be the duty of the court
in the first instance, if it is possible to do so consistently with the nature and circumstances of
the case, to make every endeavour to bring about reconciliation between the parties 116 .
However, the reconciliation cannot be applied in any proceedings wherein relief if sought on
any of the grounds specified in Clause II to VII of sub-section (1) of Section 13 of the Hindu
Marriage Act, 1955. For the purpose of aiding the court in bringing about such reconciliation
the court may, if the parties so desire or if the court thinks it just and proper so to do, adjourn
the proceedings for a reasonable period of not exceeding 15 days and refer the matter to any
person named by the parties in this behalf or to any person nominated by the court if the
parties fail to name any person, with directions, to report to the court as to whether
reconciliation can be and has been effected and the court shall in disposing of the proceedings

112
Section 61 of the Arbitration and Conciliation Act, 1996.
113
Id., at s. 62.
114
Ibid.
115
Id., at s. 73 and 74.
116
Section.23 (2) of the Hindu Marriage Act, 1955
46 | P a g e
have due regard to the report. The Preamble of the Family Courts Act, 1984 itself contains
the obligations on the Family Court to endeavour to effect a reconciliation or settlement
between the parties to the family disputes 117 .

Intellectual property rights disputes

Disputes on intellectual property rights generally assume international character because of


the involvement of different legal systems. As far as India is concerned, the arbitrability of
domestic intellectual property claims is not very well settled. The specific legislation dealing
with intellectual property rights do not contain any provision for arbitration118 . These
legislation are also silent as to the enforceability of arbitral awards involving the
findings of validity of a claim over an intellectual property or the right against its
infringement.

There are no reported decisions of Indian courts regarding the arbitrability of intellectual
property disputes. At the international level, many countries have already explored the
possibility of introducing an alternate dispute resolution mechanism like arbitration in settling
the IPR issues. The disputes relating to infringement, licensing as well as validity of an IPR
claim can be arbitrated in US. 119 Similarly it is possible in Germany and U.K.

Looking at the complexity and technicality of the IPR disputes it is suggested that the arbitral
institutions with their own panel of experts in IPR Laws would be a better option to take the
lead. Such institutions should provide congenial environment, infrastructure, special
assistance etc. for the smooth conduct of the arbitral proceedings. Generally, the know-how
contracts dealing with the transfer of the right to exploit the intellectual or industrial secrets
of inventions play a decisive role and sometimes even more important than the underlying
patent. It is therefore natural that in disputes where there is a necessity of preserving secrecy,
parties will always want to have a dispute resolved by arbitration and not by the court. The

117
The proceedings of the court at the initial stage will be informal. Section 9 of the Act envisages the method
to be adopted for a settlement. The role of family court's judge is very important here. He is expected to give an
impression to the parties that he is their well wisher and his endeavour is to settle the dispute amicably. The
Judge of a family court shall assist and persuade the parties to come to a settlement rather than sit at their
loggerheads. In this connection he may take the help of experts and counsellors.
118
Patent Act, 1970 or the Copyright Act, 1957
119
Rhone-Poulenc Specialties Chimiques v. SCM Corp., 769 F 2d. 1569 (Fed. Cir. 1985).
47 | P a g e
reason being that in the courts where a larger group of persons dealing with the secret, the
risk of disclosing the secrets increases considerably and more importantly court proceedings
are open to the public. Thus they are accessible to everybody, including the competitors. This
can be avoided in arbitration or like ADR proceedings for the reason that they are
private forums chosen by parties and maintain utmost confidentiality throughout the
proceedings 120 . It would be more appropriate if separate provisions suggesting the use of
ADR mechanisms in resolving the disputes were made within the legislation dealing with
IPR. Furthermore, the courts must suggest the parties to opt for the various ADR mechanisms
available for bringing their IP disputes for resolution. 121

4.3 Section 89 of Civil Procedure Code, 1908

The Civil Procedure Code 1908 was also amended in the year 2002 by reintroducing section
89. A recent judgment of the Supreme Court has added more meaning to it. 122 This Section
provides for judicial settlement of disputes through arbitration, conciliation or court-
123
annexed mediation . Though the legal community at large welcomed the reintroduction of
section 89 in to the code of civil procedure, it is also not free from criticisms. At a national
consultation meet of district and sessions judges from all across the country arranged in New
Delhi to solicit their views regarding the merits and demerits of the section 89 of CPC,
following factors were identified as the reasons for its failure. The consultation really helped
in coming up with meaningful suggestions for improving the system.

120
H Stumpf,”Arbitration and Contracts Concerned with Scientific. Technical and Research work including
agreements on the use of inventions, know-how, etc.” A Report presented to the Fourth International Arbitration
Congress at Moscow in October 1972.
121
Courts have the power to refer the disputes to ADR techniques under the provisions of S. 89 of Civil
Procedure Code 1908.
122
Salem Bar Association v. Union of India, (2005) 6 SCC 344.
123
Section 89 of CPC reads thus: “ Where it appears to the court that there exists elements of a settlement
which may be acceptable to the parties, the court shall formulate the terms of settlement and give them to the
parties for their observations and after receiving the observations of the parties, the court may reformulate the
terms of a possible settlement and refer the same for-Arbitration, Conciliation, Judicial settlement including
settlement through Lok Adalats Mediation.

48 | P a g e
Issues identified and recommendations with respect to section 89 of CPC

Lack of proper and effective training to be offered to judicial officers in ADR techniques and
lack of necessary infrastructure for mediators and mediation centres are the major hurdles in
the path of implementation of section 89 CPC. Training of judges has to be properly
institutionalized in order to achieve desired results. At the same time, lack of interest and
cooperation among lawyers towards settlement of disputes through ADR mechanisms is
another difficulty in the enforcement of section 89 CPC. Over burdening of Judicial Officers
with routine court work gives very little time for them to give proper attention to resolution
of disputes using ADR techniques. Lack of awareness among public and lawyers towards
various modes of ADR also leads to prolonging of proceedings by the parties. Non–
Cooperation from insurance companies and other similar departments, both governmental as
well as of public sector undertakings is also cited as one of the reasons for non-
implementation. Reluctance on the part of judges to refer the matter to ADR modes and non-
appearance of one or both the parties also cause undue delay. On account of their personal
reasons like fee/commission and other vested interests, quite often the lawyers tend to delay
the proceedings.

It is very difficult for the judge to convince a litigant without the support of lawyers. At
present ADR techniques are useful in matrimonial and motor accident cases. Section 89 of
the Code of Civil Procedure, 1908 may be made applicable before the institution of suit
through a panel of lawyers. The provision may be made compulsory for all civil cases and
in such cases party should be directed to take recourse to Section 89 CPC. Family
disputes and small-scale commercial disputes are generally settled by ADR in a short period.
More incentives for cases settled under Section 89 and disposal shall be credited to judges’
norms. Mediation may be made compulsory and specific rules for Section 89 CPC should be
framed.

Mediation centres shall be set up at district and High Court levels under the supervision and
support of respective high courts. Mediation Rules shall be framed by the high courts
ensuring full compliance with directions of the Supreme Court in Salem Bar

49 | P a g e
Association case 124 . Trial court may be given more authority to compel the parties for a
possible settlement, as at present it is not a condition precedent to follow section 89 CPC.
Parties should be made to give reasons in writing on affidavit if they do not agree with a
proposed resolution formulated by the court.

There is no time frame for completion of ADR proceedings. It is desirable that the law may
be changed to introduce a limited timeframe for the completion of the proceedings. The stage
at which a matter can be referred to ADR techniques shall be specifically included under the
section. The parties to the disputes shall be allowed to exercise their wisdom and discretion in
choosing the appropriate mode of settlement.

The changes may include the provision as to conducting arbitration, mediation or conciliation
through recognized institutions accredited with the government 125 . The court may refer the
case to these well-established institutions for an easy judicial settlement with help of trained
mediators or conciliators in their panel. This would definitely result in enhancing the scope of
ADR proceedings under section 89 of CPC.

4.4 Mediation

In general terms, mediation is the negotiation facilitated by a third party. It is a private,


voluntary, informal non-binding and cost effective process, which provides an environment
for constructive communication. The core value in mediation is that the process provides the
parties with an opportunity to negotiate, converse and explore options aided by a neutral third
party, the mediator, to exhaustively determine if a settlement is possible. As a whole in
mediation, the disputes are getting dissolved rather than getting resolved.

It was also opined in the consultation meet that ADR through mediation is moving very
satisfactorily and successful. It not only resolves the particular dispute referred to mediation
but also the present as well as future disputes. It focuses on past and future relations between

124
Salem Bar Association v. Union of India, (2005) 6 SCC 344.
125
These accredited institutions that are registered with the government may only be directed by the court to
take up matters coming under section 89. The parties may choose the procedure to be followed according to
their convenience. Under the strict rules of the institution, the parties may resole their disputes in a more
efficacious and speedy manner.
50 | P a g e
the parties 126 . Parties feel free to reveal facts to neutral mediators as the entire process
maintains confidentiality. There is no rigid framework of rules for mediation. It is a very
flexible process. A person who is acceptable to both the parties would serve as mediator. It is
important to decide on the cost of the mediation at the beginning itself. The Mediator should
indicate the possible cost and obtain the consent of parties to share the cost equally. If not, the
cost of mediation would become an issue of conflict to be mediated between the mediator and
the party.Though not much accredited, negotiation can also be termed as a kind of mediation
for certain reasons 127 .

Incentive structure for various stakeholders in mediation

Mediation has now become a frequently used method of ADR for the reason that it gives
number of incentives to both the parties and mediators. From the point of view of parties to
court-annexed mediation under section 89 CPC, it is always cost effective as compared to
court litigation. It is generally offered free of cost to promote out of court settlements. In non-
court annexed mediation, although the parties have to pay certain sum as mediator’s fee, it
may be nominal as compared to their business and other personal interests salvaged through
the process of mediation. Moreover, the common fact that in mediation, the disputes are
getting dissolved and not resolved provides an incentive to parties to settle their disputes in a
harmonious way as compared to contentious litigation in the courts. In mediation, since the
mediator persuades the parties to settle their differences in an amicable and acceptable
manner, there is no question of one party winning the case or the other party losing it. This
would further help in maintaining a cordial relationship between the parties even after the
dispute is settled.

From the point of view of mediators, there are certain factors that encourage them to take up
the task of mediation. An empirical analysis of the status of court- annexed mediation in
Delhi and Bangalore has revealed the fact that generally, sitting or retired judicial officers

126
For more details, please refer to Chapter 3 based on an empirical study on mediation practice in the three
cities of Delhi, Bombay and Bangalore.
127
Negotiation is a communication process. It is voluntary and non-binding. It has control over procedure
and outcome since there is wide range of possible solutions. Aims at maximu m joint gains, which is quick,
inexpensive, private and less complicated. Negotiation is possible where parties must cooperate to meet these
goals. Parties can influence each other to act in ways that provide mutual benefit or avoidance of harm.

51 | P a g e
and lawyers act as mediators. The success story of mediation establishes the fact that the
mediators are skilled and competent in effecting a fruitful settlement of the disputes. This
would definitely help building up their reputation as persons possessing high integrity and
impartiality. Also, in court- annexed mediation, the mediators are paid a certain sum as fee
apart from the regular income they have. In non-court annexed mediation or general
mediation, the parties agree upon the fee to be paid to the mediators or if it is an institutional
mediation, the monitoring institution will pay the mediators as per the fee fixed by the Rules
of that particular institution. The institution must take active steps in promoting mediation
and offering training to the mediators. These systematized efforts give the mediators an
incentive to finish cases at the earliest without any delay.

4.5 Lok Adalats

Lok Adalat (people’s courts), established by the government settles dispute through
conciliation and compromise. Matters pending or at pre-trial stage, provided a reference is
made to it by a court or by the authority concerned or committee, when the dispute is at a pre-
trial stage and not before a Court of Law it can be referred to Lok Adalat 128 .

Parliament enacted the Legal Services Authorities Act 1987, and one of the aims for the
enactment of this Act was to organize Lok Adalat to secure that the operation of legal system
promotes justice on the basis of an equal opportunity. The Act gives statutory recognition to
the resolution of disputes by compromise and settlement by the Lok Adalats 129 . The concept
has been gathered from system of Panchayat, which has roots in the history and culture of
this Country.

The provisions of the Act based on the notion of decentralization of justice are meant to
supplement the Court system. They will go a long way in resolving the disputes at almost no
cost to the litigants and with minimum delay. At the same time, the Act is not meant to
replace and supplants the Court system. The Legal Services Authorities Act, 1987 (as

128
Here comes the significance of Lok Adalat, which has showed its significance by settling huge number of
Third Party claims referred by Motor Accident Claim Tribunal (MACT). Except matters relating to offences,
which are not compoundable, a Lok Adalat has jurisdiction to deal with all matters.
129
For more details on the types of cases settled in Lok Adalats, please refer to Chapter 5 dealing with an
empirical study of the working of Lok Adalats in the three cities of Delhi, Mumbai and Bangalore.
52 | P a g e
amended vide Act No. 37 of 2002) provides for setting up of a “Permanent Lok Adalat”
which can be approached by any party to a dispute involving “public utility services” which
have been defined in the Act 130 (as amended) to include transport services for the carriage of
passengers or goods by air, road or water; postal, telegraph or telephone services; insurance
service, as also services in hospital or dispensary, supply of power, light or water to the
public, besides systems of public conservancy or sanitation131 .

Incentive structure for various stakeholders in Lok Adalats

The empirical data collected show that the success rate of Lok Adalats in the country is
remarkably high. 132 While examining the incentive structures for various stakeholders in Lok
Adalats, it can be seen that the litigants are more aware about the advantages of such an ADR
mechanism than any other form. Since the entire process is totally free of cost, it gives an
incentive to the poor to settle their disputes in Lok Adalats.

The rural inhabitants also get the benefit in view of the fact that these Adalats are regularly
conducted in different parts of the states including rural areas under the supervision of
Taluka, District and State Legal Service Authorities. In some states, the poor litigants coming
to Lok Adalats are even provided with refreshments and other amenities. From the point of
view of presiding officers of Lok Adalats, for the effective functioning of the system,
goodwill and co-operation among the lawyers, parties and the judges are very important. The
co-ordination among the various stakeholders has been the main driving force behind the
success of Lok Adalats. The prompt result gives the officers an incentive to conduct more and
more Adalats of like nature. These officers are also paid certain sum as fee. In the light of the
present day developments in the digital technology, it is recommended that a well equipped
judiciary with necessary infrastructure facilities and adequate training offered to these
officers are highly desirable.
130
Section 22A of the Legal Services Authorities Act, 1987.
131
Any civil dispute with a public utility service and where the value of the property in dispute does not
exceed Rupees ten lakhs; or any criminal dispute which does not involve an offence not compoundable
under any law, can be taken up in the “Permanent Lok Adalat”. An important feature of this amendment is that
after an application is made to the Permanent Lok Adalat, no party to that application can invoke jurisdiction of
any court in the same dispute. Such disputes involving public utility services shall be attempted to be settled by
the Permanent Lok Adalat by way of conciliation and failing that, on merit, and in doing so the Permanent Lok
Adalat shall be guided by the principles of natural justice, objectivity, fair play, equity and other principles of
justice without being bound by the Code of Civil Procedure and the Indian Evidence Act.
132
Infra chapter 5.
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Plea bargaining
A new chapter 133 on plea-bargaining has been introduced by the Criminal
Law(Amendment)Act, 2005 that makes it applicable to offences for which punishment is up
to a period of seven years. Plea-bargaining can be defined as pre-trial negotiations between
the accused and the prosecution during which the accused agrees to plead guilty in exchange
for certain concessions by the prosecution. The object of plea- bargaining is to reduce the risk
of undesirable orders for either side. One major reason for introducing plea-bargaining to our
system is that most of the criminal courts are overburdened and unable to dispose off the
cases on merits 134 . Apart from regular courts, presently this technique is being practised in
Lok Adalats also.

4.6 Tribunal system in India

Two decades after the commencement of the Constitution of India, it was realized that the
existing court system was insufficient to cater to the needs of the people and to deal with all
types of disputes. The constitution was accordingly amended and Article 323-B was added
to authorize the legislature to establish tribunal, commissions, district boards etc for the
adjudication or trial of any disputes, complaints or offences with respect to any matters 135 .
The survey of the existing legal framework of alternate dispute resolution mechanisms would
not be complete without mentioning the offices of Conciliation officer, Board of
Conciliation,Voluntary arbitrator, Labour Court, Industrial Tribunal and National Tribunal
for resolving labour disputes 136 .

133
Chapter XXIA of the code of Criminal Procedure, 1973.
134
To reduce the delay in disposing criminal cases, the 154th Report of the Law Commission first
recommended the introduction of plea- bargaining as an alternative method to deal with huge arrears of criminal
cases.
135
42nd Amendment to the Constitution of India (1976)
136
the provisions under the Industrial Disputes Act, 1947.
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Consumer Disputes Redressal Agencies
The Consumer Protection Act, 1986 provides for establishment of Central Consumer
protection Councils and the State Consumer Protection Councils for the purpose of spreading
consumer awareness. Central Council is headed by the Minister in Charge of the Consumer
affairs in the central Government and in the State; it is the Minister in charge of the
Consumer affairs in the state who heads the state council. There are consumer councils at the
district level also. The main object of these Councils is to protect and promote the rights of
consumers such as the right to safety, the right to information, to right to choose, the right to
be heard, the right to seek refusal and the right to consumer education137 . In order to ensure
the better protection of the interests of consumers and the speedy settlement of grievances the
Act provides for the establishment of Consumer Disputes Redressal Commissions at the
central as well as state levels and Consumer Disputes Redressal Forums at the district level
also. 138

Ombudsman

The institution of ombudsman is slowly gaining momentum in India. Keeping in view the
time constraints, the economy and the resources involved in regular courts some of the
institutions have preferred to have an ombudsman for settlement of disputes arising against
their institution. Grievance Redressal Committee and Lok Ayukta have been constituted
accordingly139 . With an objective of protecting the taxpayer's rights and reducing his
burden, the government has announced the setting up of a Tax Ombudsman and notified the
2006 Scheme 140 . Similar schemes are present for redressal of customers'
grievances under banking, insurance,securities 141 and electricity laws. 142 The success
story of ombudsmen in banking and insurance services has been the driving force for this

137
Section 6 and 8 of the Consumer Protection Act, 1996.
138
Id., at Sections 4, 7 and 8A.
139
Lok Ayukta have been constituted in various states under state legislation passed by the respective State
Governments.
140
The current tax system provides for appeals right up to the Supreme Court, while the offices of the
Authority for Advance Ruling and the Settlement Commission are there to minimise litigation.
141
BIFR, DRT (Debts Recovery Tribunal), OTS (one-time settlement) and CDR (corporate debt restructuring)
Schemes
142
Superintending Engineer Dharmapuri Electricity Distribution Circle v. Meenakshi Udyog India Pvt. Ltd and
TamilNadu Electricity Ombudsman.
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development 143 . The Reserve Bank of India announced the revised Banking Ombudsman
Scheme with enlarged scope to include customer complaints on certain new areas, such as,
credit card complaints, deficiencies in providing the promised services even by banks' sales
agents, levying service charges without prior notice to the customer and non adherence to the
fair practices code as adopted by individual banks.

Fast track arbitration

A novel experiment aimed at clearing the massive backlog in court cases has begun in the
country with the setting up of fast track courts in various states. These courts are expected to
serve as model courts for speedy disposal of cases pending for a long time. This includes both
civil and criminal cases. The scheme envisages the appointment of ad-hoc judges from
amongst the retired judges, additional sessions judges or judges promoted on ad-hoc basis
and posted in these courts or from among members of the bar. The states that are lagging
behind their targets are being persuaded by the Centre to speed up the work.

Similarly with India’s economic growth on the fast track, the need for a fast track arbitration
process has never been felt more 144 . Under fast track arbitration, the arbitrators have to decide
the matter within the time frame on written submission without oral hearings. This will
inspire confidence in the foreign investors who want to dispose of the matter in a minimum
timeframe to reduce the number of hearings and ultimate reduction of substantial cost, which
is the very objective of arbitration.

143
Banking Regulation Act, 1949 and Insurance Act, 1938
144
S. Venugopalan, “Fast Track Arbitration”(2004) 10 CLA-BL supp (Mag.) 37
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CHAPTER 5: CONCILIATION

5.1 SALIENT FEATURES OF PART III OF THE ARBITRATION AND


CONCILIATION ACT, 1996

The Arbitration and Conciliation Act, 1996 Part III comprises of 21 sections dealing with
various aspects of the process of Conciliation. No such provision existed in the Arbitration
Act 1940. The Statement of Objects and Reasons of Arbitration and Conciliation Bill, 1995
was, “Like arbitration, conciliation is also getting increasing worldwide recognition as an
instrument for settlement of disputes. There is, however, no general law on the subject in
India…Though the said UNCITRAL Model Law and Rules are intended to deal with
international commercial arbitration and conciliation, they could, with appropriate
modifications, serve as a mode for legislation on domestic arbitration and conciliation”.

The Part III of the Arbitration and Conciliation Act, 1996 adopts, with minor contextual
variation, the UNCITRAL Conciliation Rules 1980. One of the important innovations is the
intent to avoid formal proceedings and provides that the Code of Civil Procedure 1908 or the
Indian Evidence Act 1872 do not bind the conciliator 145 . The provisions under Part III of
Arbitration and Conciliation Act, 1996 confer same status and effect on the ‘settlement
agreement as if it is as award on agreed terms on the substance of the disputes rendered by an
arbitral tribunal under Section 30 146 . There are three main exceptions to the application of
this part 147 . Firstly, in the cases where any law for the time being in force provides otherwise.
Secondly in the cases where the parties agree not to be governed by the provisions of Part III
and agree to the effect that not to settle their disputes by conciliation .Thirdly, where any law
for the time being in force in India prohibits certain disputes to be submitted to conciliation.
Subject to these three statutory exceptions, disputes arising out of contractual or tortious
relationship may be resolved by conciliation in accordance with the procedure prescribed
under Part III of the Arbitration and Conciliation Act, 1996.

145
The arbitration and conciliation act 1996 sec 66
146
The Arbitration and Conciliation Act,1996. Section 74.
147
The Arbitration and Conciliation Act,1996. Section 61(1)&(2)
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DIFFERENCES BETWEEN THE PROCESS OF CONCILIATION AND
MEDIATION

Is there any difference between Conciliation and Mediation is a question that can trigger the
mind of a common man when the meaning of the term Conciliation is read. Conciliation
means the adjustment and settlement of a dispute in a friendly, un-antagonistic manner304.
This meaning of the term Conciliation does not make it clear as to whether the two concepts
of conciliation and mediation would have different connotation or they would refer to the
same mode. In order to understand this concept the researcher has studies it in relation to the
legislations Arbitration and Conciliation Act, 1996 and The Civil Procedure Code
(Amendment) Act, 1999 where it is used.

The Arbitration and Conciliation Act, 1996 under Part I, Section 30, of the Act, provides that
an arbitral tribunal may try to have the dispute settled by use of ‘mediation’ or ‘conciliation’.
Sub-Section (1) of Section30 permits the arbitral tribunal to “use mediation, conciliation or
other procedures”, for the purpose of reaching settlement.

5.2 CONCILIATION UNDER AMENDED CIVIL PROCEDURE CODE 1999

The Civil Procedure Code (Amendment) Act, 1999 that introduced Section 89, speaks of
‘Conciliation’ and ‘Mediation’ as different concepts. Order 10 Rules 1A, 1B, 1C of the Code
also go along with Section 89. Thus, the Parliament of India has made a clear distinction
between Conciliation and Mediation. In Part, III of the Arbitration and Conciliation Act,
1996 in Sections 61 to 81 deals with ‘Conciliation’ but there is no definition of the term
‘Conciliation’. Nor is there any definition of ‘Conciliation’ or ‘Mediation’ in Section 89 of
the Code of Civil Procedure, 1908 and as amended in 1999. As the two have been used in the
Acts as two different forms of dispute resolving techniques, it can thus be held that the
process of Conciliation is different from that of Mediation.

The concept of Conciliation has now been given a statutory recognition under the Arbitration
and Conciliation Act, 1996. However, the expression conciliation is not defined in this Act. It
only states that conciliation could take place not only in contractual and commercial disputes
but also in all disputes arising out of legal relationship. The expression `conciliation’ is
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defined by the International Labour Organisation (ILO) in the year 1983, and the said
definition is also adopted by the Advisory, Conciliation and Arbitration Service. The process
of conciliation has been defined as, “The practice by which the services of a neutral third
party are used in a dispute as a means of helping the disputing parties to reduce the extent of
their difference and to arrive at an amicable settlement or agreed solution. It is a process of
orderly or rational discussion under the guidance of the conciliator.”148

Article 1(3) of UNCITRAL Model Law on International Commercial Conciliation 2002


defines conciliation to mean “a process, whether referred to by the expression conciliation,
mediation or an expression of similar import, whereby parties request a third person or
persons called the conciliator to assist them in their attempt to reach an amicable settlement
of their dispute arising out of or relating to a contractual or other legal relationship. The
conciliator does not have the authority to impose upon the parties a solution to the
dispute”.Conciliation is also said, to be a procedure like mediation but the third party, the
conciliator, takes a more interventionist role in bringing the two parties together and in
suggesting possible solutions to help achieve a settlement. However, the term ‘conciliation’ is
gradually falling into disuse and a process, which is pro-active, is also being regarded as a
form of mediation149 .

The Advisory, conciliation and arbitration service makes a distinction between conciliation
and mediation in the following words, “Mediation may be regarded as a halfway house
between conciliation and arbitration. The role of the conciliator is to assist the parties to reach
their own negotiated settlement and he may make suggestions as appropriate. The mediator
proceeds by way of conciliation but in addition is prepared and expected to make his own
formal proposals or recommendations which may be accepted.”150

148
Brown and Marriott, Alternative Dispute Redressal methods Principles and Practice, 2nd
edn,1999,p272,para 11-017.
149
lord Chancellor’s Department on Alternative Dispute Resolution (http://www.lcd.gov.uk/Consult/cir-
just/adi/annexald/htm)
150
The Role of ACAS in Arbitration, Conciliation And Mediation,1989,cited in Brown and Marriott,
Alternative Dispute Redressal methods Principles and Practice, Second edn,1999,p272,para 11-018.
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Under Part III of the Arbitration and Conciliation Act,1996 the Conciliator’s powers are
larger than those of a ‘mediator’ as he can suggest proposals for settlement. Hence, the above
meaning of the role of ‘mediator’ in India is quite clear and can be accepted, in relation to
Section 89 of the Code of Civil Procedure also. The difference lies in the fact that the
‘conciliator’ can make proposals for settlement, ‘formulate’ or ‘reformulate’ the terms of a
possible settlement while a ‘mediator’ would not do so but would merely facilitate a
settlement between the parties.

5.3 CONCILIATOR

A Conciliator is basically different from that of a Judge or an Arbitrator. The role of the
Conciliator is to assist the parties to reach their own negotiated settlement and he may make
suggestions as appropriate. Conciliator does not impose a decision on the parties but, on the
contrary, his role is to assist the parties to resolve the dispute themselves. He may give
opinion on issues in dispute but his primary function is to assist in achieving a negotiated
solution151 .

A conciliator can suggest terms upon which a settlement can be arrived at, but cannot impose
a settlement conceived by him on the parties. His role is merely advisory and not creative or
decisive, like the role of an arbitrator or an adjudicator. In practice, conciliation covers
different fields of activity, each with its own traditions, ethos and culture. The skill and
technique adopted by the conciliator in enabling the parties to come to a voluntary settlement
of dispute between them and thereby avoiding adjudication and in due course bringing about
a negotiated settlement vary. A conciliator, dealing with a commercial dispute, may have to
adopt altogether different procedure, technique and approaches, from that of a conciliator
dealing with family disputes or labour disputes. Nevertheless, all the fundamental principles
and procedure prescribed under the Arbitration and Conciliation Act, 1996 is the same.
A conciliator is as an independent and impartial person and he must enjoy confidence of both
the parties. The parties should be able to repose trust and confidence on him so as to enable
them to share their secrets and their thinking process with the conciliator with the belief that
the same should not be divulged to other party without specific instructions in that regard.
151
Carrol and Dixon, ‘ Alternative Dispute Resolution Developments in London’ ,The International
Construction Law Review,Pt 4,1990,pp 436-37, cited by Redfern and Hunter in Law and Practice
of International Commercial Arbitration, 4th edn,2004,p36,para 1-71.
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Therefore, a conciliator is bound by rules of confidentiality and not by the strict rules of the
Code of Civil Procedure, 1908 and the Indian Evidence Act, 1872 152 .

Though Section 66 is not governed by the provisions of Section 18, the provisions of Section
67, requires the conciliation to be aided by the principles of objectivity, fairness and justice
are applicable to it. This ensures that the conciliator will conduct the proceedings in a fair and
judicious manner, in order to do justice to each one of the parties. The number of conciliator
generally appointed for a conciliation proceeding is one unless the parties agree and give
mutual consent to have more conciliators than one 153 .

ROLE OF CONCILIATOR

The role of the ‘Conciliator’ is pro-active and interventionist. The conciliator records the
evidence of the parties and hears their arguments on the question of fact and law, the
conciliator forms his opinion and stops just short of making a decision because that does not
fall in his territory .Conciliator then proceeds to persuade the parties to come to a settlement
in the light of his opinion. Conciliator can suggest certain terms for the acceptance of the
parties on which the dispute can be resolved. Conciliator has to use his best endeavor to
conclude the conciliation. Section 67, of the Arbitration and Conciliation Act, 1996 requires
the conciliator to play the following part in the process of conciliation: First, the conciliator
shall assist the parties in an independent and impartial manner in their attempt to reach an
amicable settlement of their dispute 154 . Secondly, the conciliator shall be guided by principles
of objectivity, fairness and justice, giving consideration to, among other things, the rights and
obligations of the parties, the usages of the trade concerned and the circumstances
surrounding the dispute, including any previous business practices between the parties 155 .
Thirdly, Section67(3), provides that, the conciliator may conduct the conciliation proceedings
in such a manner as he considers appropriate, taking into account the circumstances of the
case, the wishes the parties may express, including any request by a party that the conciliator
hear oral statements, and the need for a speedy settlement of the dispute. The conciliator may,
at any stage of the conciliation proceedings can make proposals for a settlement of the

152
The Arbitration and Conciliation Act,1996. Section66.
153
The Arbitration and Conciliation Act, 1996. Section 63
154
The Arbitration and Conciliation Act,1996. Section 67(1)
155
The Arbitration and Conciliation Act,1996. Section 67(2)
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dispute. Such proposals need not be in writing and need not be accompanied by a statement
of the reasons therefore 156 .Thus, the primary role of a conciliator is to act as a facilitator
though he should not coerce the parties to accept his opinion. The above provisions in the
1996 Act make it clear that the ‘Conciliator’ under the said Act, apart from assisting the
parties to reach a settlement, is also permitted to make “proposals for a settlement” and
“formulate the terms of a possible settlement” or “reformulate the terms”.

5.4 CONDUCT OF CONCILIATION PROCEEDING

A conciliation proceeding could be initiated in India when, one of the parties to the dispute
arising out of legal relationship invites the other parties to get the dispute resolved through
conciliation. The conciliation can start only if other party accepts in writing the invitation to
conciliate. If, however, the other party rejects the invitation for settlement through
conciliation, no such proceeding would be initiated. Even if no response were sent within
thirty days to the invitation, it would be deemed that the said request is rejected.

A statement of their respective cases is to be submitted by the parties to the conciliator in


order to enable the conciliator to understand the case of the parties and to form an opinion.
He can call for additional statement of facts and information in order to enable him to give
his suggestion to the parties.

The Conciliation proceeding could be classified into two types namely, facilitative
conciliation and evaluative conciliation. In facilitative conciliation, the conciliator avoids
opinion and judgments and he merely assists the parties to clarify their communications,
interest and priorities. On the other hand, in evaluative conciliation, the conciliator expresses
his opinion on the merit of the issues so as to enable the parties to approach settlement. His
opinion is a third party view on the merit but such opinion would not be conclusive and
binding157 .

156
The Arbitration and Conciliation Act,1996. Section67(4)
157
Mackie, Miles, Marsh and Allen, The Alternative Dispute Redressal methods Practice Guide;
Commercial Dispute Resolution, 2nd edn, 2000,p 12,para1.3.3.
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The section 69 of Arbitration and Conciliation Act, 1996 contains the provision regarding
communication between conciliator and parties whether orally or in writing and about place
of meeting. The conciliator may meet or communicate with the parties together or with each
of them separately. Unless the parties have agreed upon the place where meetings with the
conciliator are to be held, such place shall be determined by the conciliator, after consultation
with the parties, having regard to the circumstances of the conciliation proceedings. When the
conciliator receives factual information concerning the dispute from a party, he shall disclose
the substance of that information to the other party in order that the other party may have the
opportunity to present any explanation, which he considers appropriate. In the proviso to the
section 70, it is stated that when a party gives any information to the conciliator subject to a
specific condition that it be kept confidential, the conciliator shall not disclose that
information to the other party. The Supreme Court of India in Haresh Dayaram Thakur vs
158
State of Maharashtra case reinstated that under the provisions of section 72 each party
may, on his own initiative or at the invitation of the conciliator, submit to the conciliator
suggestions for the settlement of the dispute.

The success of a conciliation proceeding depends upon the genuine and honest desire of the
parties to settle the dispute amongst themselves with the assistance of the conciliator. The
parties shall in good faith cooperate with the conciliator and, in particular, shall endeavor to
comply with requests by the conciliator to submit written materials, provide evidence and
attend meetings 159 . Thus, good faith of the parties in co-operation with the conciliator in the
conciliation proceeding, is a sine qua non for arriving at an amicable settlement of the dispute
and in the absence of good faith and bona fide co-operation by the parties, no conciliator can
succeed in bringing about an amicable settlement.

The parties are entitled to suggest terms of settlement, which would be discussed by the
parties wherein suggestions could be given by the conciliator on such terms for their
observations but the conciliator, cannot impose a settlement as conceived by him on the
parties 160 . Under Section 73 of Arbitration and Conciliation Act, 1996 it is provided that,
after considering the reformulated terms of possible settlement, if the parties reach a
settlement of the dispute, they may draw up and sine a written agreement. Otherwise, the
158
2000(6) SCC 179
159
The Arbitration and Conciliation Act,1996. Section 71
160
The Arbitration and Conciliation Act,1996.
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parties may request the conciliator to draw up or to assist them in drawing up the settlement
agreed upon by them. The parties shall sign the settlement agreed upon by them. Such
settlement shall be final and binding on the parties and persons claiming under them
respectively. The conciliator is then required to authenticate the settlement agreement and
furnish a copy of it to each one of the parties.

The Supreme Court of India in Haresh Dayaram Thakur VS.State of Maharashtra 161 case held
that, a successful proceeding comes to an end only when the settlement agreement signed by
the parties comes into existence. It is such an agreement, which has the status and effect of
legal sanctity of an arbitral award under Section 74 of Arbitration and Conciliation Act,
1996. In Mysore Cements Ltd vs. Svedal Barmac Ltd 162 the Supreme Court noted that from
the Memorandum of Conciliation Proceedings and Letter of Comfort, it did appear that
parties had agreed to certain terms, but they could not straightaway be enforced by taking up
the execution proceedings. It falls short the essential legal pre-requisites to be satisfied for
being assigned the status of a legally enforceable agreement of settlement between the
parties. In case the parties arrive at a settlement during the discussion and the proceeding, a
settlement agreement is drawn up which would have the same effect and status as an arbitral
award on agreed terms as envisaged under section 30 of the Act 163 . The same thereafter could
be enforced as a decree of the Court under the Code of Civil Procedure 1908.A party desiring
to avail the remedy could take resort to the said procedure during pre-litigation and even
during the pendency of litigation. If the effort does not succeed, the parties can always come
back to litigation. 164 However, during the pendency of conciliation preceding a party is not
entitled to pursue any arbitral or judicial proceedings in respect of a dispute that is the subject
matter of the conciliation proceedings. This is subject to one exception that, a party may
initiate arbitral or judicial proceedings where, in his opinion, such proceedings are necessary
for the preserving his rights 165 .

161
AIR 2000 SC 2281.
162
2003 (10) SCC 375.
163
The Arbitration and Conciliation Act,1996. Section 74.
164
Conciliation and Mediation By Justice Dr.M.K.Sharma. Judge, High Court of Delhi,p1-4
165
The Arbitration and Conciliation Act, 1996. Section 77.
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CONFIDENTIALITY

The conciliator as well as the parties shall keep confidential all matters relating to the
conciliation proceeding. Section 75 of Arbitration and Conciliation Act, 1996 has extended
the confidentiality to the settlement agreement except where ‘its disclosure is necessary for
the purpose of its implementation and enforcement’ despite anything contained in any other
law for the time being in force in India. This provision is expressly subjected to party
autonomy to meet concerns expressed that it might be inappropriate to impose upon the
parities a rule that would not be subject to party autonomy, and could be difficult to enforce.
Evidently, this provision is inconsistent with the provisions of Section70 of Arbitration and
Conciliation Act, 1996 that is not subject to party autonomy. Under Section 70 when a
conciliator receives factual information concerning the dispute from one party, he shall
disclose the substance of that information to the other party in order that the other party has
the opportunity to present any explanation which he considers appropriate.

Section 75 and 81 of Arbitration and Conciliation Act, 1996 are closely related. Section 80
prohibits the parties from relying on or introducing, the matters catalogued in it as evidence
in any arbitral proceedings irrespective of the fact that such proceedings relate to the dispute
that is the subject matter of the conciliation proceedings. In other words, the reliance on or
introduction of these items will be inadmissible as evidence in any arbitral or judicial
proceedings. Together they ensure that all information relating to and emanating from the
conciliation remains confidential, and is not relied on or introduced as evidence in subsequent
dispute resolution proceedings 166 .The violation of these requirements will vitiate the award as
being in conflict with the public policy of India, and render it liable to be set aside.

In Hassneh Insurance Co of Israel vs. Steuart J Mew167 , it was held that the duty of
confidence is qualified in relation to the award when disclosure is reasonably necessary to
establish or protect a party’s legal rights as against a third part. For instance, if the disclosure
is necessary for a party to pursue a subsequent claim against his insurers in respect of the

166
Peter Binder, International Commercial Arbitration And Conciliation in UNCITRAL Model Law
Jurisdictions, 2nd edn 2005,p 328.
167
1986 Revue de l’ Arbitrage 583.
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same loss, by founding a cause of action or a defence to a claim . In such situations disclosure
of the award, including the reason stated therein will not constitute a breach of the duty of
confidentiality. In Ali Shipping Corp Vs. Shipyard Trogir 168 case it is held that, it also covers
pleadings, written submissions, proof of witnesses, transcripts and notes of the evidence,
provided of course disclosure is reasonably necessary to establish or protect a party’s legal
rights as against a third party.

It is subject to an exception that in case where a party gives any information to the
conciliator subject to a specific condition that it be kept confidential, the conciliator shall not
disclose that information to the other party, or anyone else. The violation of the requirement
of confidentiality will render the award liable to be set aside being ‘in conflict with the public
policy of India 169 , except where its disclosure is necessary for purpose of its implementation
and enforcement.’ In London and Leeds Estates Ltd Vs. Paribas Ltd (No 2) 170 held that, in
the interest of justice if any disclosure is required it is just and valid disclosure. In ensuring
that it was held that the judicial decision in the particular case is to be based on accurate
evidence rather than any public interest in the broader sense 171 .

In the agreement to arbitrate the parties may bring witnesses to the hearing to give evidence
and legal or other representatives to present their case. Thus, a definition of the word
‘stranger’ is, therefore, required. The term ‘stranger’ has been defined as meaning ‘person
whose presence is not necessary or expedient for the proper conduct of the proceeding’ 172 .
Thus, each of those individuals is considered to be subject to the duty of confidentiality on
behalf of the party they are representing173 . In Oxford Shipping Co Ltd vs. Nippon Yusen
Kaishs, (The Eastern Saga) 174 case it was held that, the concept of privacy in arbitration
‘derives from the fact that the parties have agreed to submit to arbitration particular dispute
arising between them and only between them.

168
1998(2) AII ER 136,147.
169
Section 34(2)(b)(ii) of Arbitration and Conciliation Act,1996
170
1995 (1) EG 134.
171
Ali Shipping Corp Vs Shipyard Trogir, 1998 (2) AII ER 136,148.Russell on Arbitration, 22nd edn,2003.
172
Esso Australia Resource Ltd Vs Plowman, Yearbook Commercial Arbitration, Vol XXI-1996,137.
173
Collins , ‘Privacy and confidentiality in Arbitration Proceedings’ , Arb Int 321,1995; Neill , Confidentiality
in Arbitration’ . Arb Int 287, 1996. Lew, Mistelis and Kroll, ComparativeInternational commercial
Arbitration,2003,p 8.
174
1984 (3) ALL ER 835,842.
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TERMINATION OF CONCILIATION PROCEEDING

The provision of the Arbitration and Conciliation Act, 1996 set forth the situation and the
point of time at which the conciliation proceedings terminate. Accordingly, the conciliation
proceedings shall be terminated primarily by settlement. The conciliation proceeding are
terminated on the date the parties sign the ‘settlement agreement’. The proceeding shall be
terminated by a written declaration of the conciliator, after consultation with the parties, to
the effect that further efforts at conciliation are no longer justified, on the date of the
declaration. The conciliation proceeding can be terminated by the parties on the date when
they make a declaration in writing addressed to the conciliator to the effect that the
conciliation proceeding are terminated. The conciliation proceeding can be terminated by a
party on the date when it makes a declaration in writing to the other party and to the
conciliator, if appointed to the effect that the conciliation proceedings are terminated.

On the termination of the conciliation proceeding in any of the situation enlisted above under
Section76; the conciliator shall fix the costs of the conciliation and give written notice thereof
to the parties. Costs means reasonable costs incurred during the conciliation proceeding. The
costs shall include the fee and expenses of the conciliator and witnesses requested by the
conciliator with the consent of the parties, the expenses in relation to any expert advice
requested by the conciliator with the consent of the parties, expenses incurred for the
assistance of an institution or a person in connection with the appointment of a conciliator 175
176
and the administrative assistance to facilitate the conduct of the conciliation proceedings .
In addition to this, it also includes any other incidental expenses incurred in connection with
the conciliation proceedings and the settlement agreement 177 . The settlement agreement may
provide the mode and the manner of apportionment of the costs to be fixed by the conciliator
after the termination of the conciliation proceeding. In the absence of such provisions in the
settlement agreement, the cost shall be borne equally by the parties. All the expenses incurred
by a party shall be borne by that party.

175
Section 64(2),The Arbitration and Conciliation Act,1996.
176
Section 68,The Arbitration and Conciliation Act,1996
177
Section 78(2),The Arbitration and Conciliation Act,1996
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Section 38 if the Arbitration and Conciliation Act, 1996 empowers an arbitral tribunal to call
for deposits in an arbitral proceeding. The conciliator may direct each party to deposit an
apportioned amount as an advance for the costs referred to under section 78(2) which he
expects will be incurred during the conciliation proceeding178 . By Section 79 (2), the
conciliator during the course of the conciliation proceedings, if he considers it expedient to
call for further deposits, he may ‘direct supplementary deposits in equal amount from each
party’. If both the parties default in paying the amount called for by the conciliator within 30
days from the date of direction to deposit, the conciliator may suspend the proceedings.

Alternatively, he may make a declaration to the parties in writing that the conciliation
proceedings stands terminated 179 .Under Section79 (4) it is provided that, after termination of
the conciliation proceedings, the conciliator is required to render an accounting to the parties
of the deposits received by him and the conciliator shall refund any unexpended balance to
the parties. The Arbitration and Conciliation Act, 1996 under Section 80, prohibits the
conciliator from acting as an arbitrator or as a representative or council of any party, in any
arbitral or judicial proceedings in, respect of a dispute that is the subject matter of the
conciliation proceedings. The provision further prohibits the parties from presenting a
conciliator as a witness in any arbitral or judicial proceeding. 180

There is no conflict between litigation and a conciliation or mediation proceeding. Thus, they
can be said to be complimentary to each other, like a bye pass. Choice is of the parties to
choose one but one has a choice to come back to the main thoroughfare the litigation also,
when so intended. Moreover, when a reference is made by the Court under section 89 Code
of Civil Procedure, 1908 to a conciliator or a mediator, not only the Court retains the
supervisory jurisdiction over the matter but the lawyers and the litigants continue to be
participants therein.

178
Section 78 (3),The Arbitration and Conciliation Act,1996
179
Section 79 (3),The Arbitration and Conciliation Act,1996
180
The Arbitration and Conciliation Act,1996. Section 80(a) and (b).
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It is with the active support of all the three participants along with an additional player,
namely, the mediator or conciliator that a negotiated mutual settlement is arrived at.
Therefore, the system of alternative dispute resolution through mediation and conciliation
may not and should not be seen as competitive to litigation in Court 181 .
The mechanism of conciliation has also been introduced for settling industrial disputes under
Industrial Disputes Act, 1947 and by the Arbitration and Conciliation Act, 1996. The City
Disputes Panel, UK which offers a range of dispute resolution processes, facilitative,
evaluative and adjudicative stated that conciliation “is a process in which the Conciliator
plays a proactive role to bring about a settlement” and mediator is “a more passive
process”182 .

5.5 COMPARATIVE ASSESSMENT OF THE PROCESS UNDER THE


ARBITRATION AND CONCILIATION ACT, 1996

The process of arbitration is more privatised than judicial settlement and conciliation is more
privatised than arbitration. As judicial settlement and arbitration are species of adjudication,
the judge and the arbitrator render their verdicts and impose them, with or without the
consent or in spite of dissent, on the part of the parties. While the parties to arbitration are
given considerable freedom to regulate the modalities, barring some non-derogable
provisions, at various stages of the arbitral proceedings, they have no control over the
decision making process except in the case of award on agreed terms.

The Section 7(2) of the Arbitration and Conciliation Act, 1996 requires that “an arbitration
agreement shall be in writing”, there is no such express provision in Part III regarding
conciliation. However, that does not make any practical difference as the process of
conciliation starts with the written offer and written acceptance to conciliate on the part of the
parties. Conversely, in arbitration, even in the absence of a prior written agreement, if the
parties appoint the arbitrator and proceed with the submission of written claim and defence
and continue with the proceedings till they culminate in the award, the requirement of Section
7(2) under 4 ( c ) should be taken as complied with.
181
Peter Binder, International Commercial Arbitration And Conciliation in UNCITRAL Model Law
Jurisdictions, 2nd edn 2005,p 328.
182
Brown ,Handbook of the City Disputes Panel, UK.1997 ( p 127)
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It is possible to the parties to enter into an arbitration agreement, even before the dispute has
arisen under Section 7 (1) (“all or certain disputes which have arisen or which may arise”), it
would appear from the language of Section 62 that, it would not be possible for the parties to
enter into conciliation agreement even before the dispute has arisen. Section 62 provides that,
the party initiating conciliation shall send to the other party a written invitation to conciliate
under this part, briefly identifying the subject of the dispute. The Conciliation proceedings
shall commence when the other party accepts in writing the invitation to conciliate.

The above provision clearly requires that the conciliation agreement should be an ad hoc
agreement entered into after the dispute has arisen and not before. A conciliation agreement
entered into before the dispute has arisen may have the effect of ousting the jurisdiction of
the Courts in relation to the subject matter of the dispute and such an agreement can be saved
only by making an amendment to Section 28 of the Indian Contract Act as it was done in
1972 to save the arbitration agreement. After the enactment of the 1996 Act covering both
arbitration and conciliation, there can be no objection, either theoretical or practical, for not
permitting the parties to enter into a conciliation agreement regarding the settlement of
even future disputes ousting the jurisdiction of the Courts. This is particularly so in the light
of the fact that the Act treats the conciliation settlement agreement authenticated by the
conciliator on par with award on agreed terms, which in turn is treated on par with any
arbitral award. Evident from Section 74 and 30 of Arbitration and Conciliation Act, 1996.

While, Section 30 of the Arbitration and Conciliation Act, 1996 permits the parties to engage
in conciliation process even while the arbitral proceedings are on. They may do so on their
own and settle the dispute through conciliation or authorize the arbitrator himself to use
mediation or conciliation and settle the dispute. The arbitrator would record the settlement in
the form of an arbitral award. However, Section 77 of the Act bars the “initiation” of any
arbitral or judicial proceedings in respect of a dispute that is the subject matter of conciliation
proceedings, except for the purpose of “preserving” their rights. The term “initiation” in
Section 77 clearly supports the provision in Section 30. That is, when the arbitral or judicial
proceedings are on, the parties are even encouraged to initiate conciliation proceedings but
when the conciliation proceedings are on they are barred from initiating arbitral or judicial
proceedings. The raisons de etre of the provision (16 of the Draft) were given in the
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“Commentary on the Revised Draft UNCITRAL Conciliation Rules: Report of the Secretary
General” as follows, the Article 16 deals with the delicate question whether a party may
resort to Court litigation or arbitration whilst the conciliation proceedings are under way….
Article 16 emphasizes the value of serious conciliation effort by expressing the idea that,
under normal circumstances, Court or arbitration proceedings should not be initiated as might
adversely affect the prospects of an amicable settlement. However, the Article also takes into
account that resort to Courts or to arbitration does not necessarily indicate unwillingness on
the part of the initiating party to conciliate. In view of the fact that, under article 15(d), an
unwilling party may terminate the conciliation proceedings at any time, it may well be that, if
a party initiates Court or arbitral proceeding, he does so for different reasons. For example, a
party may want to prevent the expiration of a prescription period or must meet the
requirement, contained in some arbitration rules, of prompt submission of a dispute to
arbitration. Instead of attempting to set out a list of possible grounds, Article 16 adopts a
general and subjective formula: “…except that a party may initiate arbitral or judicial
proceedings where, in his opinion, such proceedings are necessary for preserving his rights.”

From the above study, it is evident that the real purpose of provisions in Sections 30 and 77
of the 1996 Act is, to encourage resort to non-formal conciliation in preference to the formal
Court and arbitral proceedings. Secondly, resort to arbitral or judicial proceedings was
permitted as an exception to meet the cases of requirements of the general law of limitation
or of “time-bar clauses” like the Atlantic Shipping Clause Atlantic Shipping and Trading
Company vs. Dreyfus and Company183 or interim measures of protection.

5.6 CONCILIATION UNDER THE CIVIL PROCEDURE CODE AMENDMENT


ACT 1999

The amendments made in 1999 to the Civil Procedure Code have introduced provisions to
enable the Courts to refer pending cases to arbitration, conciliation and mediation to facilitate
early and amicable resolution of disputes. The Arbitration and Conciliation Act, 1996 do not
contain any provision for reference by Courts to arbitration or conciliation in the absence of
the agreement between the parties to that effect.

183
(1992) 2 AC 250
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Under that 1996, Act, the process of arbitration and conciliation are purely consensual and
not compulsory. But under the newly added Section 89 of CPC, the Court can refer the case
to arbitration, conciliation, mediation.., etc “where it appears to the Court that there exist
elements of settlement which may be acceptable to the parties.” The Court can formulate the
terms of settlement and give them to the parties for their observation and after receiving the
observations; the Court may reformulate the terms of a possible settlement and refer the same
for arbitration, conciliation, mediation etc. At this juncture, the Court is not ascertaining the
agreement of the parties but only their observations, because if there is agreement between
the parties at the stage of formulation of possible terms of settlement, the Court can as well
make it the basis of its judgment and there would be no need for further negotiations under
the aegis of arbitration or conciliation. However, once the Court refers the case to arbitration
or conciliation, that reference creates a legal fiction that it is deemed to be a reference under
the provisions of the Arbitration and Conciliation Act, 1996 and the provisions of that Act
would take over from the provisions of the CPC under which the reference was made. Thus,
if the parties choose to do so, the parties or the conciliator under Section 76 of the 1996 Act
can terminate the conciliation proceedings so commenced by Court’s reference under Section
89 of CPC.

CONCILIATION UNDER THE INDUSTRIAL DISPUTES ACT, 1947.

In the year 1920, the first Trade Disputes Act was enacted constituting Courts of Inquiry and
Conciliation Boards. The law did not make any provision for creating or establishing any
machinery for the settlement of “industrial disputes”; its focus was the regulation of strikes
that could potentially cripple the economy184 . This law was repealed and replaced by the
Trade Disputes Act, 1929, which was the precursor to the present Industrial Disputes Act,
1947. Trade Dispute Act, 1929, facilitated State intervention in the settlement of industrial
disputes by arming the government with powers that could be used whenever it considered fit
to intervene in any industrial dispute. While it also addressed strikes in public utility services
and general strikes affecting the community as a whole, its main purpose was to create a
conciliation machinery to facilitate the peaceful resolution of industrial disputes. Initially, the

184
GB, Pai, Labour Law in India (Vol 1), Butterworths, New Delhi, p. 496, 2001
72 | P a g e
law made provision for only ad hoc Conciliation Boards and Courts of Inquiry. However, in
the year 1938, an amendment authorized the Central and Provincial Governments to appoint
Conciliation Officers for mediating in or promoting the settlement of industrial disputes. The
National Commission on Labour, 1969 noted, 185 “This Act, however, was not used
extensively, as the government policy at that time continued to be one of laissez faire and
selective intervention at the most. Where Government intervened, the procedure consisted of
appointing an authority which would investigate into the dispute and make suggestions to the
parties for settlement or allow the public to react on its merits on the basis of an independent
assessment.”
Thus the main defect is that while restraints have been imposed on the right of Strike and
Lock-out in public utility services no provision has been made to render the proceedings
institutable under the Act for the settlement of an industrial dispute, either by reference to a
Board of Conciliation or to a Court of Inquiry, conclusive and binding on the parties to the
dispute. This defect was overcome during the war by empowering under Rule 81 A of the
Defence of India .The Second World War led to the promulgation of the Defence of India
Rules. Rule 81 (A) empowered the Central Governments to intervene in industrial disputes,
adjudication and to enforce their award. In other words, this Rule was intended to provide
speedy remedies for industrial disputes by referring disputes compulsorily to conciliation or
adjudication. There by, making the awards legally binding on the parties, prohibiting
strikes/lock-outs during conciliation or adjudication proceedings and placing a blanket ban on
strikes not arising out of genuine trade disputes. Rule 81 A, which was to lapse on 1st October
1946, is being kept in force by Emergency Powers (Continuance) Ordinance,1946, for a
further period of six months. As in checking the Industrial unrest Rule 81 A, proved useful
and gained momentum due to the stress of post industrial re-adjustment, thus, the need of
permanent legislation in replacement of this rule was evident. The Government of India
passed The Industrial Disputes Bill .This Bill embodied the essential principles of Rule 81 A,
which have proved generally acceptable to employer and the workmen, relating intact, for the
most part, the provisions of the Trade Disputes Act 1929. The Industrial Disputes Bill was
introduced in the Central Legislative Assembly on 8 October 1946. The Bill passed by the
Legislature received its assent on 11 March 1947 and it came into force from 1 April 1947 as
The Industrial Disputes Act 1947. The two institutions for the prevention and settlement of

185
OP,Malhotra, The Law of Industrial Disputes (Vol 1, 5th Edn), Universal Law Publishing Co. Pvt Ltd, New
Delhi, p 2.
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industrial disputes provided under this are the Works Committees consisting of
representatives of employers and workmen, Industrial Tribunal consisting of one or more
member possessing qualifications ordinarily required for appointment as Judge of a High
Court. Power has been given to the appropriate Government to require Works Committees to
be constituted in every industrial establishment employing 100 workmen, or more and their
duties will be to remove causes of friction between the employer and the workmen in the
day-to-day working of the establishment and to promote measure for securing amity and
good relation between them186 . Industrial peace will be most enduring where it is found on
voluntary settlement and the Works Committees rendered recourse to the remaining
machinery provided under the Act, 1947 for the settlements of disputes infrequent.
A reference to an Industrial tribunal can lie where both the parties to an Industrial Dispute
apply for such reference and where the appropriate Government considers it expedient to do
so 187 . Conciliation will be compulsory in all disputes in public utility service and optional in
the case of the other industrial establishment. With a view to expedite conciliation
proceedings time limits have been prescribed for conclusion thereof 14 days in case of
conciliation officer and two months in the case of Board of Conciliation from the date of
notice of strike. A settlement arrived at in the course of conciliation proceeding will be
binding for such period as may be agreed upon by the parties and where no period has been
agreed upon, for a period of one year, and will continue to be binding until revoked by a 3
months’ notice by either party to the dispute 188 . The Act provided, for the first time, a
compulsory adjudication of industrial disputes. The principal techniques of dispute statement
provided in the Industrial Disputes Act are Collective Bargaining, Mediation and
Conciliation, Investigation, Arbitration, Adjudication.

Section 11 of the Industrial Disputes Act provides that, industrial adjudicators and
authorities constituted under the Industrial Disputes Act such as Conciliation Officers,
Boards, Courts and Tribunal could follow such procedure as they thought fit. With reasonable
notice, they can enter into any premises. They can exercise powers of a Civil Court in respect
of enforcing attendance of witnesses, production of documents, etc. and they can appoint one
or more persons having special knowledge of the matter under consideration as an assessor or
assessors to advise them. Section 12 of the Industrial Disputes Act, addressing the duties of
186
Section3, Industrial Disputes Act 1947
187
Section 10,Industrial Disputes Act 1947.
188
Section10(2A) Industrial Disputes Act 1947.
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Conciliation Officers, clearly stated that a conciliation officer could do all such things as he
thought fit for the purpose of inducing the parties to come to a fair and amicable settlement of
the dispute.

In General Manager, Security Paper Mill, Hoshhangabad vs. RS Sharma 189 case, Supreme
Court summed up the role of a Conciliation Officer as, “Even though a conciliation officer is
incompetent to adjudicate upon the dispute between the management and its workmen, he is
expected to assist them to arrive at a fair and just settlement. He is to play the role of an
adviser and friend of both parties and should see that neither party takes undue advantage of
the situation.” This indicates the wide sweep of powers conferred upon the conciliation
authorities constitute under the Industrial Disputes Act 1947, who had full liberty and
discretion to secure a peaceful settlement of industrial disputes.The process of conciliation as
an alternative disputes redressed mechanism is advantageous to the parties in the sense that it
is less costly and less time consuming. It is relatively simple and flexible, it obviates
cumbersome litigation procedure and it eliminates the scope for corruption and
malpractices and leave parties free to withdraw from Conciliation at any stage of the
proceeding.

5.7 AMBIGUITIES FOUND IN THE ARBITRATION AND CONCILIATION ACT,


1996

There are few ambiguities in the Arbitration and Conciliation Act, 1996. This Act provides
for procedural law on arbitration and conciliation mechanism for resolution of disputes in
India. The Law Commission of India has recommended various amendments to the
Arbitration and Conciliation Act, 1996 by its 176th Report. The proposed amendment seeks
to make arbitration more effective and speedy.

Ever since the commencement of the Arbitration and Conciliation Act, 1996, requests have
been voiced for its amendment. The main problem with this Act is that the UNCITRAL
Model, which was meant as a Model for international arbitration, was adopted also for
domestic arbitration between parties in India. In several countries, the laws of arbitration for
international and domestic arbitration are governed by different statutes. In addition, in many

189
353 1986 (Lab) .IC 667 (670) SC.
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cases, the legislative provisions have lost the letter and the spirit, and in some cases, it has
kept the letter, but lost the spirit of the UNCITRAL Model Law in the Arbitration and
Conciliation Act, 1996.

The areas where the Arbitration and Conciliation Act, 1996 is to be made more clear is
highlighted herein. The Act, does not provide for any prescribed period within which a
conciliation proceeding is to be concluded. For without a reasonable ultimatum in relation to
the time limit, an inordinate delay in arriving at a settlement might result in the termination of
the conciliation proceeding by an aggrieved party owing to frustration or in a settlement that
is not in the best interest of a party owing to desperation.

It is pertinent to note that, Section 13 of the Arbitration and Conciliation Act, 1996 which
states that, the challenge procedure to remove an arbitrator from the tribunal, the arbitrator
who is being challenged, remains in the arbitral tribunal and hence decides about his own
competence as an arbitrator. Equity is regarded as a synonym for Natural Justice and fairness
is an integral part of it. The principle of “Nemo Judex in Causa Sua” that is no man shall be
the judge of his own cause remains as one of the bedrocks of natural Justice. Thus, it can be
said that this section is completely against the principle of natural justice. Under Section
13(3) of the Act, the Arbitrator himself would adjudicate his own competence by being part
of the tribunal, thereby creating doubts of biasness and unfair justice. The test of likelihood of
bias is whether a reasonable person, in possession of relevant information would have
thought that bias was likely and whether the person concerned was likely to be disposed to
decide the matter only in a particular way. Therefore, it is to be carefully perceived that the
challenge to the arbitrator adjudicating his own competence is in no manner a doubt or
imputation to the character of the arbitrator; instead, it is the apprehension of biasness that
forms the ground of appeal that has arisen from a situation. Hence, it has to be acknowledged
that Section 13(2) is speculative and needs more clarity.

Section 30 of the Arbitration and Conciliation Act, 1996 provides for encouragement of
settlement of dispute before the arbitral tribunal and sub-section (4) thereof provides that an
arbitral award on agreed terms shall have the same status and effect as any other arbitral
award on the substance of the dispute. Section 35 of the 1996 Act gives finality to an arbitral
award and states that it shall be final and binding on the parties and persons claiming under
76 | P a g e
them respectively. Section 36 of the 1996 Act provides that, the arbitral award shall be
enforced under the Code of Civil Procedure, 1908 (V of 1908) in the same manner as if it
were a decree of the Court after the time for making an application to set aside the award
under Section 34 has expired, or such application having been made, it has been refused.

It thus appears that Section 36 is applicable to all arbitral awards, particularly those that are
rendered by the arbitration tribunal on merits. In pursuant to the suggested amendments to
Section 89 of the Code of Civil Procedure, 1908 it appears that arbitral awards on agreed
terms between the parties to the dispute need not be exposed to any possibility of an
application to set aside the arbitration award under Section 34. Hence, there needs a clarity in
the provision providing for application for setting aside of the awards.

There is no provision in the Arbitration and Conciliation Act, 1996 for expediting awards or
the subsequent proceedings in Courts where applications are filed for setting aside awards.
An aggrieved party has to start again from the District Court for challenging the award. No
provision is available so as to enable the Indian parties to obtain interim measures from
Indian Courts before a foreign arbitration could commence outside India. Multinational
companies can stipulate that foreign laws could apply even if the entire contract had to be
implemented in India. This provision is inconsistent with the sovereignty of Indian Laws.

5.8 THE ARBITRATION AND CONCILIATION (AMENDMENT) BILL, 2003

The Arbitration and Conciliation (Amendment) Bill, 2003, which was introduced in the
Rajya Sabha on the 22nd December, 2003 is greatly influenced by the Law Commission of
India recommendation on various amendments to the Arbitration and Conciliation Act, 1996
by its 176th Report. The Bill seeks to amend various provisions of the Arbitration and
Conciliation Act, 1996, to remove certain shortcomings in the existing Act and to speed up
arbitrations under the Act.

The Arbitration and Conciliation (Amendment) Bill, 2003 provided that, where the place of
arbitration is in India, Indian Law would apply whether the arbitration is between the Indian
Parties or an International arbitration in India. There is also proposal for Fast Track
Arbitrations. It has also stressed that there is a need for empowerment to the arbitral tribunal
77 | P a g e
to pass pre-emptory orders for implementation of interlocutory orders of the arbitral tribunal
and if they are not implemented to empower Courts to, order costs or pass other orders in
default.

There is no provision under the Arbitration and Conciliation Act, 1996 that provides for the
provision for the Arbitration Division in the High Courts and also for its jurisdiction and
special procedure for enforcement of awards made under the Arbitration Act, 1940 including
awards made outside India. The bill stressed the need for the provision for speeding up and
completing all arbitrations under the existing 1996 Act, including those arbitrations under the
repealed Arbitration Act, 1940 within a stipulated time.

The Bill has also proposes for a single member fast track arbitral tribunal wherein filing of
pleadings and evidence will be on fast track basis to pronounce award within six months and
specification of procedures to be followed by such fast track arbitral tribunal. The Bill
proposes to introduce a new Section 8A in 1996 Act to enable reference to arbitration at any
stage of a civil suit pending in the City Civil Court or in the High Court or in the Supreme
Court if all the parties to the dispute enter into an arbitration agreement to resolve their
dispute and pray to that effect. The new provision provides for absolute liberty to the litigants
to refer to arbitration the civil disputes pending at various stages such as, at the institution,
appeal, revision, including those instituted under Articles 226 and 227 of the Constitution and
appeals there from to the Supreme Court.
The Bill proposes very high degree of disclosures to be made by the arbitrator under Section
12 informing the party about his past, present, direct or indirect relationship with the parties
to the arbitration in any of their financial, business, professional or social dealings apart from
the subject matter of the dispute. Section 9 of the Arbitration and Conciliation Act, 1996
corresponds to Section 41 of the Second Schedule of the Arbitration Act, 1940 and Article 9
of the UNCITRAL Model Law. Section 9 of the 1996 Act provides for interim measures by
Court whereby a party may, before or during arbitral proceedings or at any time after the
making of the arbitral award but before it is enforced in accordance with section 36, apply to
a Court. According to Section 9 of the 1996 Act, A party or person is entitled to interim
protection if action of the other party is either in breach of the terms of the agreement or
militates against equity, fair play or natural justice, otherwise not . This is in contrast to the
power given to the arbitrators who can exercise the power under Section 17 only during the
78 | P a g e
tenure of the tribunal. Once the mandate of the arbitral tribunal terminates, Section 17 cannot
be pressed into service. The party may misuse provisions in Section 9 of the Act, for a party
may not take an initiative to have the arbitral tribunal constituted, after obtaining an interim
measure and may unnecessarily delay the process. Thus, if the Amendment Bill is passed, it
will be then mandatory on the part of the party who has obtained interim relief from a Court
to constitute the arbitral tribunal expeditiously. If not, a party may run the risk of automatic
vacation of the interim measure. The system of dual agency needs to be abolished or
otherwise some enforcement mechanism must be provided for enforcement of the interim
measures of protection ordered by the Arbitral Tribunal.

The Amendment Bill 2003 was introduced as a measure to fill up the lacunae in the
provisions of the Arbitration and Conciliation Act, 1996. Nevertheless, in conclusion the
process of amending the Act must be in the direction of minimizing the intervention of the
Courts to uphold the very spirit of the Arbitration and Conciliation Act, 1996.

CRITICISMS

The study shows that some of the provisions of the Arbitration and Conciliation
(Amendment) Bill, 2003 are inconsistent with the spirit of the Law. Clause 8 of the Bill
provides that any written communication by one party to another and accepted expressly or
by implication by the other party will also be treated as an arbitration agreement. The clause
deprives the parties of their basic right to go to the Court. Such an agreement should be only
in some written form and it shall not be inferred by implication.

A proposed amendment to section 8 by Clause 9 of the bill enables the judicial authority to
decide on preliminary issues like the non- existence of any dispute, arbitration agreement.
The clause is null and void as any arbitration agreement being incapable of performance will
give rise to prolonged litigation in the Courts. In addition to it, this clause will also
effectively introduce Court intervention at pre-arbitration stage and retard the arbitration
process. This would defeat the main purpose of the 1996 Act, which is minimization of Court
intervention.

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With respect to Clause 12 of the Bill, that confers the power of appointment of arbitrator, in
default of the parties or the agreed procedure, on the Court, for determination of the issues
arising in that connection on the judicial side is not an apt step. In the present scenario of
huge pendency of cases in the Courts, it may take years to get the arbitrator appointed. If the
parties are unable to appoint an arbitrator within the stipulated time, the power of
appointment should not automatically devolve on the Courts. Nevertheless, if the parties
apply for the appointment of an arbitrator, then the Court can do so. In addition to it, the
thirty days time stipulated in the Arbitration, Conciliation Act, 1996 is more than sufficient
for appointment of an arbitrator by the parties, and there is no need to extend the same.

Clause 13 of the Bill, under which there has been an attempt to elucidate the 'circumstances'
which is likely to provoke unnecessary time consuming challenge to the impartiality of the
arbitrator on the ground that he had some relation of the type set out in the illustration with
the parties or their lawyers. There is a high chance of abuse of such a provision by a party
who wants to delay or derail the arbitration proceeding.

Clause 17 of the Bill provides that if the parties to arbitration are Indian nationals or
companies, then the arbitration venue have to be in India. This proposed amendment is
directly against the common law principle that parties are free to contract as they deem fit
provided no provision is against public policy or in violation of any applicable law or
procures a breach of any applicable law. In addition, the clause that arbitration between
domestic parties should be conducted only in India is entirely opposite to the rationale for
adopting the New York Convention. If arbitration outside India was acceptable at the time of
adoption of the New York Convention, then it should be all the more acceptable now, given
that India has come so far in the international arena and has adopted the policy of
Globalisation.

Clause 18(1A) states that the arbitral tribunal shall endeavor to expedite the arbitral process
subject to such rules as may be made by the High Court in this behalf, is against the principle
of party autonomy which is the pillar on which consensual arbitration rests. Thus, this clause
enables the Court intervention that has to be minimized as far as possible.

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Clause 29 A (1) provides for fixation of statutory time limit for completion of arbitral
proceedings. This provision cannot work automatically and give quick disposal of the
arbitration proceedings. This provision will yield results only if consequences of non-
compliance of such a time limit are provided along with it. It must be accompanied with the
principle of reasonableness or else it will prove harmful to the independence and fair arbitral
proceedings.

The review committee on the bill constituted by the Parliament of India reports that, The
Arbitration and Conciliation (Amendment) Bill, 2003 would lead not only to greater
interference by Courts in the process of arbitration but also end up having arbitration being
conducted under the supervision of the Courts. The Bill would have the Courts sitting in
judgment over the arbitrators before arbitration, during arbitration and after arbitration. There
was a broad consensus that the provisions, if accepted, will make the arbitral tribunal an
organ of the Court rather than a party-structured dispute resolution mechanism.

In addition, many amending provisions are likely to create confusion and unnecessary
litigation. Bringing back Court control and supervision in arbitration and the choice of the
arbitrator subject to High Court rules and supervision and control of the Court, is neither in
the interest of growth of arbitration in India nor in tune with the best international practices. It
was felt that they are contrary to the best international practices in the field of arbitration.

Hence, the adoption of this Bill may hamper further development of international trade
relations and diminish the confidence of the international community in the Indian system of
arbitration.As far as domestic arbitration in India is concerned, there are a large variety of
tribunals created by the State under different statutes as alternative to the traditional Court
litigation, for settling various types of disputes such as labour disputes, service matters,
antitrust matters, consumer protection, taxation, excise etc. In addition, there are Lok Adalats
acting under the Legal Services Authorities Act, 1987, to deal with subjects like disputes
arising out of the use of electricity, telecommunications, insurance etc. Therefore, the need of
the hour is a system to deal with international arbitration and the institutionalised arbitration
in India can ensure that parties to international arbitration opt for India as the venue for
arbitration.

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The growing tendency to take undue advantage of Court procedure to gain time and delay
arbitration or implementation of award is certainly undesirable. If the Court procedure is used
in such a manner for the promotion of unfair objective, the remedy seems to be worse than
the evil. The parties who entered into an arbitration agreement with a view to avoid the
lengthy and expensive Court procedure find themselves fighting a battle on both the fronts-in
arbitration proceedings and in the Court of law. This is indeed the fate of several arbitration
proceedings in India today.
Non-resident Indians and Foreign Institutional Investors are entering the Indian market in a
big way. The Indian law relating to international commercial arbitration has to be made
responsive to these changes in the Indian economic scene. There is a need to harmonize the
Indian law with the concepts on arbitration and conciliation of the legal systems of the world.
An arbitral institution with conscious office bearers can ensure that the proceedings are
conducted in the interest of the parties. India has a number of small arbitration institutions all
over the country, but there is an urgent need for an institution in India which would match
international standards. The present Arbitration and Conciliation (Amendment) Bill, 2003
tends to allow greater intervention by the Courts than the Arbitration and Conciliation Act,
1996 and it may not be suffice in achieving the desired objectives.

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CHAPTER 6: MEDIATION

6.1 SALEM BAR ASSOCIATION CASE AND THE DRAFT ADR AND MEDIATION
RULES, 2003

The Hon'ble Supreme Court of India has in the landmark decision of Salem Advocate Bar
Association, Tamil Nadu vs. Union of India 190 case, directed that all Courts shall direct
parties to alternative dispute resolution methods like arbitration, conciliation, judicial
settlement or mediation. The draft "Civil Procedure Alternative Dispute Resolution and
Mediation Rules 2003" was also considered by the Supreme Court, for enactment by
respective High Courts. Direction was issued to all High Courts, Central Government and
State Governments for expeditious follow-up action. The Courts can refer the case to
mediation under Section 89, 1(d) and 2(d). When the Court decides to refer the case to
mediation, “the Court shall effect a compromise between the parties and shall follow such
procedure as may be prescribed”. This provision is amenable to the interpretation that it is for
the Court itself to “effect a compromise” and follow the procedure prescribed for the purpose.
If the Court for one reason or the other cannot itself effect a compromise, the only option it
would have is to refer the parties to conciliation etc.
In a historic judgment in Salem Bar Association case, the Supreme Court directed the
constitution of a committee to frame draft rules for mediation under Section. 89(2) (d) of the
CPC. Consequently, the Committee presided over by Justice M. Jagannadha Rao, Chairman
of the Law Commission of India prepared a comprehensive code for the regulation of ADR
process initiated under Section 89 of CPC. It consists of two parts, Part I: ADR Rules 2003
consisting of “the procedure to be followed by the parties and the Court in the matter of
choosing the particular method of ADR” and Part II: Mediation Rules, 2003 consisting of
“draft rules of mediation under section 89(2) (d) of the Code of Civil Procedure”191 .

190
2003 (1)SCC 49.
191
Civil Procedure Alternative Dispute Resolution And Mediation Rules, 2003 is affixed as
ANNEXTURE-A
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It is to be noted that Rule 2(b), proviso clearly states that the Court in the exercise of its
powers under Section.89(1)(a) to (d) read with Rule 1A of Order X “shall not refer any
dispute to arbitration etc without the written consent of all the parties to the suit" and Rule 4
calls this the exercise of the option by the parties. But, under Rule 5 (f) and (g), the Court is
given the power to refer the parties under certain circumstances to alternative dispute
redressal methods even if all the parties do not agree. This is in consonance with the letter
and spirit of Section 89 of CPC. Rule 4 also requires the Court to do a sort of counselling in
enabling the parties to choose the correct form of alternative dispute redressal method
depending on the nature of the case and the relationship between the parties that needs to be
preserved. Rule 4(iv) may be reformulated to say, “Where parties are interested in reaching a
compromise which might lead to the final settlement”. Unlike the Arbitration and
Conciliation Act, 1996, Rule 4 gives a workable definition of the terms arbitration,
conciliation, mediation and judicial settlement. Under Rule 6(2), if the alternative dispute
redressal method does not succeed and the case is referred back to the Court, the Court shall
proceed with the case in accordance with law.

A welcome feature of these Rules is that they provide for a detailed scheme for the conduct
of training courses in alternative dispute redressal methods for lawyers and judicial officers
under the auspices of the High Courts and the District Courts, and the preparation of a
detailed manual of procedure for alternative dispute redressal methods. The manual will
describe various methods of alternative dispute redressal mechanisms, the choice of a
particular method, the suitability of a method for any particular type of dispute etc. The
Manual shall particularly deal with the role of conciliators and mediators in disputes which
are commercial or domestic in nature or which relate to matrimonial, maintenance and child
custody cases.

With a view to enhancing awareness of alternative dispute redressal procedures and for
imparting training in them, the Rules provide for the conduct of seminars and workshops
periodically (Rule 7). Thus, these provisions prepared a blueprint for the building up of a
body of trained professionals who are sensitised to efficiently handle cases in future, as that
task requires specialized training and expertise of a high order.

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Part II of the Rules contain a carefully prepared scheme for the appointment of mediators,
empanelling of mediators, their qualifications and disqualifications and the proper selection
of the mediator to suit a particular case etc. They also contain provisions regarding the actual
conduct of mediation that, mutatis mutandi, apply some of the provisions of the 1996 Act
relating to conciliation. A notable feature of these provisions is that Rule 19 imposes an
obligation on the part of the parties to make an effort in good faith to arrive at a settlement,
and this is intended to prevent the whole process from being reduced to a sham. The Rules
also deal with cases where the parties succeed in arriving at a solution through the alternative
dispute redressal processes only regarding some of the issues and not all. In such cases, the
Court may incorporate the partial settlement in its judgment and decide the other issues
according to law. Very importantly, the Rules also lay down a code of ethics to be followed
by the mediator in the proper conduct of the proceedings so as to arrive at a fair and just
settlement in an impartial and dignified manner so as to instill confidence in the parties in
himself and the credibility of the process in general.

OTHER MAJOR FORMS ALTERNATIVE DISPUTE REDRESSAL METHODS

The study of the evolutionary history of the alternative dispute redressal methods in the
earlier chapters proves the fact that, in many cultures including Indian, mediation has been a
standard mode of dispute redressal methods for generations, typically presided over by a
town elder or a respected figure in the community, or through something akin to a Panchayat.
On studying the different dispute redressal methods adopted by different countries it is seen
that mediation is practiced worldwide and has emerging globally as one of the dispute
redressal methods in addition to the existing formal litigation system192 . The Parliament of
India has recommended recourse to alternative dispute redressal methods by the enactment of
the Legal Services Authorities Act, 1987, The Arbitration and Conciliation Act, 1996, the
Legal Services (Amendment) Act, 2002 and Section 89 of the Code of Civil Procedure and
such other legislations. Existing systems of Arbitration, Conciliation and Lok Adalats are
statutorily regulated but there is no independent mechanism for regulating mediation. The
awareness of mediation as a dispute resolution mechanism among the stake holders is the
need of the time to, assist in quick resolution of pending cases and in resolution of disputes at
pre- litigation stages.

192
Dennis J.D.Sandole ,theory and conflict resolution practice.
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MEDIATION

In order to emphasize the need of mediation in the process of resolving the disputes, it is
significant to know the characteristic features of this method. At the simplest mediation is an
informal, voluntary process in which an impartial person, trained in facilitation and
negotiation techniques, helps the parties to reach at a mutually acceptable resolution193 . It can
also be defined as a process of resolving dispute by which the ‘mediator’ a neutral person,
works with the parties to a dispute to bring them to an agreement that they can all accept 194 .
It is thus, impracticable to provide a final definition of the process of mediation.

The former President of India Dr. A.P.J. Abdul Kalam has been supportive of amicable
settlement of disputes and has advocated the need to encourage mediation as an alternative
dispute resolution mechanism in the following words 195 , “Mediation and Conciliation is
definitely a faster method of dispute resolution compared to the conventional Court
processes. Only thing is that we have to have trained mediators and conciliators, who can see
the problem objectively without bias and facilitate affected parties to come to an agreed
solution. In my opinion, this system of dispute resolution is definitely a cost effective system
for the needy... Mediators must possess the qualities of being a role model in the society,
impeccable integrity and ability to persuade and create conviction among the parties.”
In some situations, mediation is a form of negotiation carried out with the assistance of a
third party. The mediator, in contrast to the arbitrator or judge, has no power to impose an
outcome on disputing parties. Despite the lack of ‘teeth’ in the mediation process, the
involvement of a mediator alters the dynamics of negotiations 196 .

Thus, the role of the ‘mediator’ is restricted to that of a ‘facilitator’ and the process of
‘mediation’ is a way of settling disputes by a third party who helps both sides to come to an
agreement, which each considers acceptable. Prof. Robert Baruch Bush and Prof. Joseph
Folgen say that, “In a transformative approach to mediation, mediating persons consciously
try to avoid shaping issues, proposals or terms of settlement, or even pushing for the

193
Brown and Marriott, Alternative Dispute Redressal methods Principles and Practice, 2nd edn , 1999.
194
R. Charlton, Dispute Resolution Guide book,Law Book Company,Sydney,2000.
195
Sunanda Bhandare, judiciary and its multi-dimensions, 2006.
196
Stephen B. Goldberg, Negotiation, Mediation and other processes,1999.
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achievement of settlement at all. Instead, they encourage parties to define problems and find
solutions for themselves and they endorse and support the parties’ own efforts to do so.”

On studying, the above definitions with respect to the characteristic features of mediation it
can be evaluated that mediation, as one of the alternative dispute redressal methods is flexible
and creative. The process varies from case to case depending largely on the parties' needs and
the mediator's style. Usually, the parties meet to discuss the issues face-to- face. The
mediator helps the discussions remain focused and productive. The mediator may hold
private caucuses with each party separately, and carry the messages, clarifications, questions,
proposals, offers, and counter offers back and forth between them. The mediator can use
private group or the discussion groups and other techniques to facilitate the process of
negotiation among the disputed parties.

A mediator does not impose a solution but creates a conducive atmosphere in which the
parties to the dispute can find a resolution to their problems. Mediation in India is still at its
formative years, though it has existed and still exists in India from Vedic periods in some
form or the other and with different names, which is evident from the study of the
evolutionary history of dispute redressal methods in India 197 . However, the fact is that, still
there is no code or enactment existing in India, which specifically pertains to the process of
mediation. Mediation in a dispute has to be adopted, as a basic method of resolving the
conflict, mainly the government, and the public authorities who are the main litigants before
the Courts of law should include these processes in the establishment of the legal order and
encourage the quick settlement of disputes.

197
Robert D. Benjamin, Mediation as a Subversive Activity: Remembrances of Times Past - A Brief History and
the Origins of Mediation.
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6.2 DEFINITION AND SCOPE OF MEDIATION

Mediation is a fundamental procedure for resolving controversies. It is a process in which a


neutral intervener called the mediator assists two or more negotiating parties, to identify
matters of concern, develop a better understanding of their situation, and, based upon that
improved understanding, develop mutually acceptable proposals to resolve those concerns 198 .
Thus, Mediation can be said to embraces the philosophy of democratic decision-making.
The process of mediation can be ‘evaluative’ as well as ‘facilitative’. Henry J. Brown and
Arthur L.Mariot say that ‘mediation’ is a facilitative process in which “disputing parties
engage the assistance of an impartial third party, the mediator, who helps them to try to arrive
at an agreed resolution of their dispute. The mediator has no authority to make any decisions
that are binding on them, but uses certain procedures, techniques and skills to help them to
negotiate an agreed resolution of their dispute without adjudication. 199 In the Bhagavad Gita
the holy book of Hindu’s it is said, “When meditation is mastered, the mind is unwavering
like the flame of a lamp.

Mediation is defined in various ways; for example: Mediation is a process in which


an impartial third party acts as a catalyst to help others constructively address and perhaps
resolve a dispute, plan a transaction, or defined the contours of a relationship. A mediator
facilitates negotiation between the parties to enable better communication, encourage
problem-solving, and develop an agreement or resolution by consensus among the parties.

Lord Buddha who spread the message of peace and unity has also stated that “Meditation
brings wisdom; lack of Mediation leaves ignorance. Know well what leads you forward and
what holds you back, and choose the path that leads to wisdom”. Pantanjali one of the
renowned yogis who taught the method of uniting the body, mind and sole with the practice
of yogic living has also pointed out, that the progress in mediation comes swiftly for those
who try their hardest.

198
Sternlight,Mediaion theory and practice,Lexis Nexis,2006.
199
Henry,J.Brown ,ADR Principles and Practice,2nd Edition,1997.
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The process of mediation incurs minimal procedural and evidentiary requirements while
providing unlimited opportunity for the parties to exercise flexibility in communicating their
underlying concerns and priorities regarding the dispute. 200 Thus, mediation can be practiced
in various ways. For example, in the United States of America, the purest of its form is still
considered to be facilitative. Undoubtedly, many practitioners and scholars differ on the
“role” of mediator in mediation. One view is that the process of resolving disputes shall be
called mediation only if the mediator limits his or her role to that of a facilitator. Whereas in
the evaluative method, the mediator assumes more control of the process and the parties may
be ordered to participate in a particular way that may influence the outcome of the process.

Moreover, from the standpoint of the Court's responsibilities, the use of mediation reduces
the heavy caseload so common with litigation. 201 The disputes referred to mediation can be
settled in accordance with reason, equity, and the actual circumstances of the case. Both
equity and mediation offer a form of "individualised justice" unavailable in the official legal
system. However, through the mediation process a resolution or result to the dispute can be
achieved without a right-wrong determination and without a factual finding. 202 Thus,
mediation when adopted as alternative dispute redressal method helps in dissolving bitterness
and rivalry and creates the circumstance, which helps in the amicable development of the
concept peace and unity through the win- win situation among the disputants.

DIFFERENCE BETWEEN THE MEDIATION AND OTHER DISPUTE REDRESSAL


PROCESS

The alternative dispute resolution procedures can be broadly classified into two groups, first
those that are adjudicative and adversarial, and second those, which are consensual and non-
adversarial. The latter group includes mediation. Sir Robert A. Baruch Bush and Joseph P.
Folger, in, “The promise of mediation” say that, in any conflict, the principal objective ought
to be to find a way of being neither victims nor victimisers, but partners in an on-going
human interaction that is always going to involve instability and conflict. 203

200
John W. Cooley, Mediation Advocacy (National Institute for Trade Advocacy) ,1996.
201
Kwang-Taeck Woo, A Comparison of Court-Connected Mediation in Florida and Korea, 22 Brook.
202
Kimberlee Kovach, Teaching a New Paradigm: Must Knights Shed their Swords and Armor to Enter
Certain ADR Arenas. 3 (2000)
203
Robert A. Baruch Bush , The promise of mediation (1994)
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There are several types of different dispute redressal methods that have evolved owing to the
different needs and circumstances of the society. The study of the differences between them
will help the disputant in choosing the best and the apt method of resolving their disputes
according to their needs. The dominant form of dispute redressal method that is broadly
adopted for the resolution of a dispute is, by filing of case before the Court of law. With the
bird eye view, it can be said that, in the process of adjudication through Court of law,
someone has to lose among the disputing party. The litigation route has now become slow,
expensive, and uncertain in its outcome. The Courts and Tribunals do not 'resolve' a dispute,
but they only “decide” a dispute or “adjudicate” on them. Whereas, in the case of mediation,
the parties can try to agree with one another, were a mediator acts as a facilitator. Mediation
has the advantage as it can lead to finality because, it allows for an informed and un-coerced
decisions to be taken by everyone involved. Disputes are resolved in the process of mediation
through consensual interaction between the disputants 204 . The mediator in promoting or in
other words, facilitating resolution of the dispute by the parties themselves does not purport
to decide the issue between them. Mediation is more flexible, quick and less expensive than
the process of adjudication through Court of Law. Thus, the study reveals that, litigation
produces provides for fair and just results, but it is procedurally disadvantages as compared to
mediation. Mediation affords a far greater degree of flexibility, relative informality,
confidentiality and control over its resolution.

Comparative study of the process of ‘mediation’ and ‘arbitration’ shows that, mediation is a
form of expedited negotiation. The parties control the outcome. Mediator has no power to
decide. Settlement in the dispute is done only with party approval. Exchange of information
is voluntary and is often limited. Parties exchange information that will assist in reaching a
resolution. Mediator helps the parties define and understand the issues and each side's
interests. Parties vent feelings, tell story, and engage in creative problem solving. Mediation
process is informal and the parties are the active participants. Joint and private meetings
between individual parties and their counsel are held in this process. Outcome based on needs
of parties. Result is mutually satisfactory and finally a relationship may be maintained or
created. Mediation when compared with arbitration is of low cost.

204
Tania Sourdin, Alternative Dispute Resolution,2002
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It is private and confidential. Facilitated negotiation is an art. Mediator is not the decision-
maker. Mediator is a catalyst. He avoids or breaks an impasse, diffuse controversy,
encourages to generate viable options. He has more control over the process. The process of
mediation gives the parties many settlement options. Relationship of parties is not strained in
the process of mediation. There is a high degree of commitment to settlement. Parties’
participation is there in the decision making process. Thus, there is no winner and no loser in
this process, only the problems are resolved. In this process the disputed parties maintains the
confidentiality of proceedings 205 .

The Arbitration and Conciliation Act, 1996 has provided for the legislative framework of the
processes of arbitration and conciliation in India. The process of ‘arbitration’ is adjudicative
in nature as the arbitrators control the outcome. Arbitrator is given power to decide.

Arbitration award is final and is a binding decision. Often extensive discovery is required in
this process. Arbitrator listens to facts and evidence and renders an award. The parties present
the case, and testify under oath. The process of arbitration is formal. The attorneys can
control the party participation. Evidentiary hearing is given in this process. No private
communication with the arbitrator is possible. Decision is in the form of award based on the
facts, evidence, and law. The process of arbitration is more expensive than mediation, but
less expensive than traditional litigation. It is a private process between the arbitrator and the
disputed parties but in some cases, decisions are publicly available. Thus, it is an informal
procedure, which involves decision-maker impasse when it is submitted to an Arbitrator. The
parties have less control in the proceedings and the final award, as the decision making
process is with the arbitrator.

The ‘Conciliator’ under the Arbitration and Conciliation Act, 1996, apart from assisting the
parties to reach a settlement, is also permitted to make “proposals for a settlement” and
“formulate the terms of a possible settlement” or “reformulate the terms”. ‘Conciliation’, is a
procedure like mediation but the third party called the conciliator, takes a more
interventionist role in bringing the two parties together and in suggesting possible solutions to
help the disputed parties to reach a settlement. The difference between the process of
mediation and conciliation lies in the fact that, the ‘conciliator’ can make proposals for

205
L,Boulle, Mediation: Principles, process,practice (Butterworths, Sydney,1996)
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settlement, ‘formulate’ or ‘reformulate’ the terms of a possible settlement, while a ‘mediator’
would not do so but would merely facilitate a settlement between the parties. Under Section
30 and Section 64(1) and Section 73(1) of the Arbitration and Conciliation Act, 1996, the
conciliator has a greater or a pro-active role in making proposals for a settlement or
formulating and reformulating the terms of a settlement 206 . A mediator is a mere facilitator.
The meaning of these words in India is the same in the UNCITRAL and Conciliation Rules
and in UK and Japan. Conciliation and Mediation process is distinguishable from Arbitration
as the parties’ willingness to submit to mediation or conciliation does not bind them to accept
the recommendation of the conciliation or mediator but an arbitrator’s award, by contrast, is
binding on the parties 207

MEDIATOR

“Mediator” is a neutral third party who facilitates the disputing parties in arriving at a win-
win settlement for both of them. The mediator assists and guides the parties toward their own
solution by helping them to define the important issues and understand each other's interests.
The mediator focuses each side on the crucial factors necessary for settlement and on the
consequences of not settling. The mediator does not decide the outcome of the case and
cannot compel the parties to settle. 208
The mediator can defuse hostile attitudes and remedy miscommunications. The mediator is a
mirror of reality, which can help soften or eliminate extreme negotiating positions. Through
the mediator, parties assess the weaknesses in their own case and recognise potential
strengths of the other side. The parties can more clearly view matters previously distorted by
anger and emotion.

Mediator in general is a knowledgeable person with respect to the subject matter of the
controversies. Within the privacy of the caucus, mediators can help each party analyses the
strengths and weaknesses of their complete case. Most significantly, the mediator can explore
creative and innovative solutions that the parties who are caught up in adversarial
negotiations might never contemplate.

206
Sarvesh Chandra,ADR : Is conciliation the best choice (1997).
207
Robert Merkin , Arbitration Law,2004.
208
Tom Arnold, Mediation outline A practical guide for the Mediator and attorneys,(1988).
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The mediator does not impose a solution but rather works with the parties to create their own
solution, this characteristic of mediation differentiates it from other forms of dispute
resolution processes and principally, with that of the process of arbitration and litigation.

THE TASKS OF THE MEDIATOR

The mediator has to play a very significant role in the process of Mediation. Mediator is not
responsible for the content of any resolution or agreement, but only for the way it is arrived
at. Mediator helps the parties to think through and state their own views of the problem and
their own preferred solutions. Mediator ensures that all the parties have an equal chance to
think through and state their own views of the problem. Mediator may challenge these initial
explorations as appropriate. Mediator explores and tests possible agreement with the parties
separately and together. Mediator can help if asked with the preliminary drafting of any
agreement. Mediator helps if asked with the drafting of any feedback to the institution
designed to assist it to avoid similar disputes in future. Mediations protect the 'safe place' by
means of a pre-mediation agreement. One of its features is an agreement that whatever takes
place or is said in the mediation will have to be confidential. It is subject to the recognition by
everyone involved in the process that, if it emerges that there has been criminal activity
confidentiality cannot be maintained. The pre-mediation agreement is separate from any
agreement arrived at as a result of the mediation, and it is for the parties to decide whether all
or part of what is agreed is to remain confidential209 .

MEDIATION PROCESS

There is no definite procedure to be adopted by the mediator for conducting mediation.


Stephen B. Goldberg, Frank E.A. Sander and Nancy H. Rogers had highlighted this fact
by saying that, depending on the terms of agreement, the mediator may attempt to encourage
exchange of information, provide new information, and help the parties to
understand each other’s views. Mediator can let the parties know that their concerns are
understood and thereby promote a productive level of emotional expression. He has to deal
with the differences in perceptions and interest between negotiations and constituents

209
Tweeddal & Tweeddale , Arbitration Of Commercial Disputes , International and English Law and Practice,
1st edn,2005.
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(including lawyer and client). This will help the negotiators realistically assess the
alternatives to settlement and learn about those interests, which the parties are reluctant
to disclose to each other. This is often possible in separate sessions with each party to the
dispute. Thereby the mediator invents solutions that meet the fundamental interests of all
parties to the dispute 210 .

The parties may agree on the procedure to be followed by the mediator in the conducting the
meditation proceeding. If the parties do not agree on any particular procedure to be followed,
the mediator follows the procedure, which shall be guided by the principles of fairness and
justice, having regard to the rights and obligations of the parties, usages of trade, if any, and
the circumstances of the dispute.

The process of mediation generally starts with one of the disputing party suggesting for
mediation or if there is a mediation clause in the agreement then the disputed parties go for
mediation by selecting one mediator by consent or each party selecting a mediator and the
two select a third mediator. The parties can also chose an institute for mediation, which will
have a panel of mediators, and the parties can make the appointment or the institute itself
from among the names on the panel selects a mediator. Where a Court directs the mediation,
the Court will on its own, or the body handling Court referrals for mediation will appoint the
mediator.

The participation in the process of mediation is a voluntary process and requires the consent
of the parties to come to the mediation table and in participate in the process mediation. If, at
any time, a party feels that its interest are not served by the process or the party is in any way
uncomfortable with the mediator, the party may terminate its participation at the mediation
without any adverse consequences. The mediator and the parties select a mutually convenient
date and location for the mediation. Subject to the availability of the participants, meetings
can be conducted in person, by telephone, video conference, or any other method agreeable to
the parties and the mediator. The parties will be responsible for charges incurred in dispute
resolution process.

210
Stephen B.Goldberg , Dispute Resolution (Negotiation, Mediation and other processes) ,1993.

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The process of mediation can follow a general procedure that is, at first, the mediator receives
from each party a brief summary of the case. At the first session, each party can make an
opening statement giving its version. It can help in venting of their felling and enable each
party to understand the point of the other. The process can starts with establishing the basic
facts of the dispute, identifying the issues for resolution, getting parties to be realistic about
their case. The issues needing resolution can thereby be clarified.

Thereafter the mediator can start communicating with the parties. This could be in joint
sessions with all the parties or in separate sessions with each party at a time. In these sessions
mediator can focus parties on their long-term interests, as distinct from the position they have
taken in the dispute. Long-term interests usually dictate that parties should adopt harmonious
method of resolving dispute. These steps can make the parties to get more realistic about the
strengths and the weaknesses of their case. This shows up the facts that are not in a party’s
favour, difficulties of proving matters asserted as facts, and those statutes and case law,
which may not support their stand. At this stage, disputants can become more amenable to
settlement after seeing the problem with their case 211 .Thereby making the parties examine
their alternatives in reaching at a mediated settlement. The mediator can then encourage the
parties to come up with options for settlement, assuring them that they have full freedom to
put out whatever suggestions they like, that this is like a brainstorming session. Putting an
idea on the table will not mean a commitment has been given or the disputing parties make a
binding statement.
This liberty enables many different ideas for solution to emerge. The mediator then makes the
parties focus on these lines of solutions, which have opened up by then. The energies are
focused on these ideas for possible settlement. Now and again, it will be necessary for the
mediator to remind the disputing parties of the reasons why it is beneficial for them to reach
agreement at the mediation table. Giving the parties the freedom to create options for
settlement, and refining their suggestion. Once consensus is reached, the mediator can then
ensures that it is properly reflected in the written agreement, which loose ends are tied up,
that a proper review mechanism is put in place, if necessary. On reaching for an agreement of
settlement between the disputed parties and the mediator and the parties can sign it and the

211
Brown and Marriott,ADR Principles and Practice, Second edn,1999,p127.
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mediator can thereby declares the mediation closed. Once the settlement agreement is signed,
it is final and binding on the parties 212 .
The process of mediation can also end if a party withdraws from the mediation or in case
where all the parties agree that, the mediation is unsuccessful and in cases where the mediator
terminates the mediation as unsuccessful.

THE TYPES OF DISPUTES NOT SUITABLE FOR MEDIATION

The attempt to arrive at an interests-based resolution through mediation may not be the best
approach in each and every kind of dispute arising between the parties. The process of
mediation is not a way for resolving a dispute if there is a matter of policy at stake, if there is
an issue on which it is desirable to establish a precedent, if there are legal restrictions as
statutes impose restrictions on its actions and on a point which is 'non-negotiable' for the
complainant. Where order of the Court is necessary to enforce a right and where an
interpretation of a law is called for, in cases of serious criminal offences, mediation is not a
possible dispute resolution method. Where there is a statutory violation and in the cases
where not all the parties are willing to make the 'voluntary' attempt towards resolving the
issues mediation will be unsuccessful.

If a party is acting in bad faith, for example, trying to give the appearance of 'having tried' to
avoid the displeasure of a Court or to comply with a mandatory or contractual requirement to
attempt mediation, in such cases also the purpose will not be solved. If there are, going to be
consequences that are detrimental to those not involve or in other words, will be unfair to
them by comparison with that of other dispute redressal methods, in such cases the process of
mediation will not serve the purpose and thus cannot emerge as a successful alternative to
that of litigation in resolving disputes. Criminal matters (other than those under Section 498A
Indian Penal Code, Section 125 Code of Criminal Procedure and Section 138 Negotiable
Instruments Act) cannot be referred for mediation under any circumstances.

212
Redfern and Hunter,Law and Practice of International Commercial Arbitration, 4th edn, 2004.
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THE TYPES OF DISPUTES SUITABLE FOR MEDIATION

It is evident that, mediation belongs to the disputing parties called disputants. The disputing
parties control the process, scheduling, costs, and outcome of the dispute. Mediation is less
adversarial. The process of mediation is informal. It is less confrontational than arbitration or
litigation. The process of mediation preserves options in a way where parties can enter into
mediation without jeopardising their option to arbitrate or litigate. Mediation makes way for
swift settlement. Most of the mediations are successfully concluded in a single day213 . Since
mediation can be scheduled soon after a dispute arises, parties reach settlement much earlier
than in arbitration or litigation. In many cases, mediations conclude before a formal
arbitration claim is filed. It is of lower cost when compared to the other dispute redressal
methods. Mediation usually entails lower legal and preparatory costs, there is minimal
interruption of business or personal life, lost productivity is kept to a minimum, and the
fees and expenses of mediation are modest. Mediation paves way for preservation of
business relationships.

As a result of reaching an early resolution with minimal financial or other strain on either
party, the chances for preserving business relationships are greatly enhanced. Sometimes
parts of a dispute are resolved in mediation, leaving fewer or less extreme differences to be
resolved in arbitration or litigation. Gaining agreement on collateral issues can translate into
significant savings of time and money for everyone involved. This method protects privacy
of the facts revealed during the mediation proceeding by the disputed parties. Mediation
offers greater confidentiality than arbitration. This means that any party may not use what is
revealed in the discussion in any future proceedings without the consent of those affected,
and that the discussion is confidential. The confidentiality of any resulting agreement is for
the parties to decide together. The view, suggestions, admissions, proposals made during the
mediation or conciliation proceedings cannot be used in any legal proceedings. It is to be
noted that a document that is otherwise admissible and can be summoned does not cease to
be so because it is introduced in mediation proceedings 214 .

213
www.spidr.org/ethic,htm- Society of professionals in dispute resolution.1986 (14th may 2001).
214
S.Duncombe, Leadre”s model “agreement to mediate,1995.
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Thus, the above study shows that, mediators help the parties craft creative solutions.
Settlement potential is high in this process. The case proceeds promptly. The cost is modest
and there are benefits even if a settlement is not reached. The disposal of cases through
mediation has a direct advantage of not only reducing the number of pending cases in the
Courts but also a collateral advantage of reducing the number of appeals and revisions made
to the superior Courts.

In other words, the advantage of a settlement through judicial mediation benefits not only the
Trial Court but also the Appellate Court, which has then to deal with a lesser number of
cases. The expected outcomes will not only directly benefit the Trial Courts but also
collaterally benefit the Appellate Courts. Another collateral advantage is that one case being
settled settles a large number of connected cases. Once parties reach an agreement and sign it,
it becomes enforceable under the provisions of the Arbitration and Conciliation Act, 1996
and the Code of Civil Procedure. The Court will enforce the agreement by legal process of
execution.

Advantages that are unique to the process of mediation is that ,in this process, creative
solutions are possible, including options that are not available to Courts or tribunals.
Mediation can especially be helpful in the, resolution of family disputes, which includes the
matrimonial disputes, maintenance disputes, partition cases, and such other matters that are
possible to be resolve among the parties themselves without publicity. The process of
mediation can also be advantageous where financial compensation may not be all that is
sought. It is possible to rebuild trust and improve damaged working relationships.
Misunderstandings can be cleared up during the process of mediation. 'Unfinished business'
can be 'finished'. There is flexibility in the way the problem solving is approached, without a
requirement to go through fixed stages as in the case of litigations in Court.

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CHAPTER7: NEGOTIATION &
INTERNATIONAL ARBITRATION

It is true that, nothing is more satisfying and more soothing than a cordially negotiated
amicable settlement because, it protects and preserves personal and business secrets,
relationships and reputations that might otherwise be impaired by the adversarial process.
The process of negotiation does not fall either in the concept of ‘arbitration’ or ‘conciliation’.
Strictly, negotiation by itself, is not an alternative dispute resolution procedure because it is a
bipartite process and does not require a third party to facilitate and promote the settlement,
whereas alternative dispute resolution methods essentially involves a third person for
facilitating the resolution of the dispute by settlement.

However, it is the most fundamental way of dispute resolution and is generally treated as one
of the main components of alternative dispute resolution processes. It is only when the
process of negotiation does not succeed, that it transforms into alternative dispute resolution
method by intercession of a neutral and more structured process framework 215 .

Justice Krishna Iyer J accentuated the need for settling disputes between parties particularly
in commercial matters, by mutual negotiation in preference to Court litigation in the
following languages, ‘Commercial causes…, should, as far as possible be adjusted by non-
litagitative mechanisms of dispute resolution since forensic process, dilatory and contentious
, hamper the flow of trade and harm both sides, whoever wins or loses the lis. A legal
adjudication may be flawless but heartless but a negotiated settlement will be satisfying, even
if it departs from strict law216 . The parties should be encouraged, so far as possible, to settle
their disputes without reference to litigation. The Arbitration and Conciliation Act,1996 gives
legislative recognition to this concept under Section 30. Section 30 provides that, ‘ It is not
incompatible with an arbitration agreement for an arbitral tribunal to encourage settlement of
the dispute and, with the agreement of the parties; the arbitral tribunal may use mediation,
conciliation or other procedures at any time during the arbitral proceedings to encourage

215
Brown and Marriott, ADR Principles and Practice , 2nd edn,1999.
216
Agarwal Engineering Co Vs Technoimpex Hungarian Machine Industries, Foreign Trade Co.1977 (4)SCC
367.
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settlement’. In India, the process of negotiation as a preferred dispute resolution method is
yet to make an impact. Nevertheless, in many countries it has made a remarkable impact. In
Sweden the disputed parties meet in a spirit of determination to agree, and they are said to
consider the non arrival at an amicable settlement almost a disgrace to themselves 217

MEANING
Negotiation is the simplest and most purposeful method of settling commercial disputes
between the parties. The disputants themselves are in the best position to know the strengths
and weaknesses of their respective cases. If there is any need of advice felt by them on such
points of difficulty or controversy, the disputed parties can seek the needed advice from the
competent persons or from the experts of such field. The process of Negotiation thus enables
the parties to iron out their differences and dispute by direct face-to-face interaction. It avoids
unnecessary acrimony, anguish and expense. The process of negotiation can help in healing
the wounds and thus remedies pains caused by inter – party frictions. Thus, Negotiation can
take place in business, non-profit organisations, Government branches, legal proceedings,
among nations and in personal situations such as marriage, divorce and parenting.

PROCEDURE

Negotiation is a non-binding procedure in which discussions between the parties are initiated
without the intervention of any third party with the object of arriving at a negotiated
settlement of the dispute. It is not confined to the core points of the dispute alone. In order to
facilitating overall settlement of the dispute, parties can introduce other issues as trade-offs.
Negotiation is an interaction of influences. Such interactions, for example, include the
process of resolving disputes, agreeing upon courses of action, bargaining for individual or
collective advantage and of crafting outcomes to satisfy various interests.

The process of negotiation gives the parties an option to go over a wide range of issues. In
business disputes, the disputed parties try to reach a settlement by adopting a give and take
process, understanding each other’s point of view, as they best know the strength and
weakness of their respective cases and the parties have their market reputation at stake. This
gives a greater chance of reaching an amicable settlement by negotiations.

217
OP.Malhotra, The Law of Industrial Disputes Vol I, 6th edn,2004.
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Negotiation involves three basic elements: process, behavior and substance. The ‘process’
refers to how the parties negotiate, the context of the negotiations, the parties to the
negotiations, the tactics used by the parties, and the sequence and stages in which all of these
play out. ‘Behaviour’ to the relationships among these parties, the communication between
them and the styles they adopt. The ‘substance’ refers to what the parties negotiate over the
agenda the issues in their respective positions and more helpfully in interests of the parties,
the options, and the agreements reached at the end by them218 .

Skilled negotiators may use a variety of tactics ranging from a straightforward presentation of
demands or setting of preconditions to more deceptive approaches such as intimidation and
salami tactics may also play a part in arriving at the outcome of negotiations. The key to
Negotiation is information. Emotions have the potential to play either a positive or a negative
role in negotiation. During negotiations, the decision as to whether or not settle rests in part
on emotional factors. Negative emotions can cause intense and even irrational behavior, and
can cause conflicts to escalate and negotiations to break down, while positive emotions
facilitate reaching an agreement and help to maximize joint gains.

Negative affect has detrimental effects on various stages in the negotiation process. Although
various negative emotions affect negotiation outcomes. Angry negotiators plan to use more
competitive strategies and to cooperate less, even before the negotiation starts. These
competitive strategies are related to reduced joint outcomes. During negotiations, anger
disrupts the process by reducing the level of trust, clouding parties' judgment, narrowing
parties' focus of attention and changing their central goal from reaching agreement to
retaliating against the other side. Angry negotiators can pay less attention to opponent’s
interests and can be less accurate in judging their interests, thus achieve lower joint gains.
Moreover, because anger makes negotiators more self- centered in their preferences, it
increases the likelihood that they will reject profitable offers. Anger does not help in
achieving negotiation. goals either: it reduces joint gains and does not help to boost personal
gains, as angry negotiators do not succeed in claiming more for themselves. Moreover,
negative emotions leads to acceptance of settlements that are not in the positive utility
function but rather have a negative utility. However, expression of negative emotions during

218
http//en.wikipedia.org/Negotiation.
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negotiation can sometimes be beneficial: legitimately expressed anger can be an effective
way to show one's commitment, sincerity, and needs.

ADVANTAGES

A negotiated settlement is conducive in preserving relations between the parties as also their
market reputation, which justifies the preference of the process of negotiation over other
alternative dispute resolution methods. The process of negotiation and the negotiated
settlement is possible at any time, even after the other methods of dispute resolution have
been initiated .

The negotiated settlement is based on bipartite agreements, and as such, is superior to any
procedure involving third party intervention in matters that essentially concern the parties.
As against ‘arbitration’ and ‘conciliation’, the process of negotiation is most flexible and
informal, and provides ample scope for the parties to direct the proceedings suited to the facts
and circumstances of the case. For instance, parties are free to choose the location, timing,
agenda, subject matter and the participants. It is quick, inexpensive, private and less
cumbersome in comparison to other dispute resolution methods. It is a voluntary and non-
binding process, wherein the parties control the result and the procedure for coming to an
amicable agreement. The main advantage of negotiation can be said to be that, a settlement
by way of negotiation is always possible, even after other method of resolving the dispute
have been set in motion or having been set in motion, have not resulted in an amicable
settlement.

DISADVANTAGES

It is a common practice for the parties to an international contract to stipulate that before
embarking upon arbitration, the parties will endeavour to settle any dispute by negotiation or
some other form of alternative dispute resolution method. The essence of negotiation that it is
basically a business deal involving reluctant exchange of commitments where both parties
want to yield less and get more. It is akin to the practice of diplomacy.

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The evolution and adoption of the modern systems of Information, communication
technologies and the concept of Cyber era has made the business and trade negotiations a
highly sophisticated science, involving a complex interchange of ideas combining arguments,
horse-trading and bluff. The businesspersons and traders use negotiation as a device for
trying to persuade the other to give him what he needs or wants and gives up something in
return.

The process of negotiation can sometimes become highly complicated, particularly because
the process of negotiation have emphasized a greater and extensive possibilities for joint
gains and interest base outcome. The final outcome of negotiation would depend upon the art,
skill and dexterity of displaying strength by one party to the other. Where the other de the
process of negotiation can start with easy bargaining slowly adopting a pleading manner or in
some cases the parties may hector, cajole or threaten the other party. The powerful party to
the dispute has an option to use the tactic of avoiding the process of negotiation or
withdrawing from the situation, which involve confronting others in resolving differences.
There by the party may use the threat of withdrawal as a strategy in his favor and
disadvantageous to that of the opposite party. Negotiations can culminate into an amicable
settlement only if the parties have a genuine eagerness and will, followed by earnest honest
efforts and cooperation, to settle the dispute. However, it is unlikely to succeed unless those
involved are capable of a certain degree of detachment and objectivity.

In long term agreements it is common to find a formula that the, in the event of a dispute
arising, the parties will first endeavour to settle their differences by negotiations ‘in good
faith’. Lord Ackner in Walford vs. Miles has said that ‘an agreement to negotiate, like an
agreement to agree, is unenforceable because it lacks the necessary certainty. A duty to
negotiate in good faith is as unworkable in practice as it is inherently inconsistent with the
position of the negotiating parties.

Negotiation goals either: it reduces joint gains and does not help to boost personal gains, as
angry negotiators do not succeed in claiming more for themselves. Moreover, negative
emotions leads to acceptance of settlements that are not in the positive utility function but
rather have a negative utility. However, expression of negative emotions during negotiation

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can sometimes be beneficial: legitimately expressed anger can be an effective way to show
one's commitment, sincerity, and needs.

7.2 INTERNATIONAL COMMERCIAL ARBITRATION

If we are to understand fully the present role of international commercial arbitration, and
what shape it is likely to take in future, it is important to look at past developments that are
the basis for our current system of arbitration. In short, to understand the future you need to
understand the past. Arbitration is a system of justice, born of merchants. In one form or
another, it has been in existence for thousands of years 219 . The origins of arbitration go back
to dispute settlement usages in ancient times, in Europe, in Greece and Rome, including
Roman law, and in Asia.

The earliest law dedicated to arbitration in England was in 1697. In France, the French
Revolution considered arbitration as a droid naturel and the Constitution of 1791 proclaimed
the constitutional right of citizens to resort to arbitration. It was also included in the Code of
Civil Procedure in 1806. The origins of the concept of arbitration in France go back to the
ancient courts of Pie Poudre (from the French pied poudreux, meaning vagabond), set up by
boroughs to settle disputes between merchants on market days.Up until the 20th century, the
national courts lagged behind in recognising the decisions of arbitrators. This may be because
the courts saw arbitration as a rival, as well as being suspicious about the standards being
applied in arbitrations at the time. Even in England, for long a centre for international
commercial arbitration due to its pivotal position as the centre for shipping, insurance,
commodity and financing businesses, arbitration was initially closely controlled by the
English courts.

In 1883 the Court of Common Council of the City of London set up a committee to consider
the establishment of a tribunal for the arbitration of trans-national commercial disputes
arising within the ambit of the City. The initiative came from the London business
community, which was becoming increasingly dissatisfied with the slow and expensive

219
“Sources for the History of Arbitration” by Derek Roebuck (1998) 14 Arb Intl.; “Cleopatra Compromised:
Arbitration in Egypt in the First Century BC” (2008) 74 Arbitration 3 at 263.
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process of litigating in the English courts. As The Law Quarterly Review was to report at the
inauguration of the tribunal a few years later:

“This Chamber is to have all the virtues which the law lacks. It is to be expeditious where the
law is slow, cheap where the law is costly, simple where the law is technical, a peacemaker
instead of a stirrer-up of strife”. In 1919 the world’s business community established the
International Chamber of Commerce (“the ICC”). The ICC has been the voice of the
international business community and has been a major driving force in the promotion of
both arbitration as a mechanism for the resolution of international commercial disputes and
the need for international regulations to uphold and support the arbitration process.

As world trade expanded, the need to create a mechanism for international recognition and
enforcement of both arbitration agreements and awards in relation to international
commercial agreements was regarded as essential. In 1958 the New York Convention on the
Recognition and Enforcement of Foreign Arbitral Awards (“the NYC”) was adopted. The
NYC provides for international recognition and enforcement of arbitration agreements and
awards by national courts. Since it was adopted, the NYC has been the cornerstone of
international commercial arbitration and has represented a quantum leap forward for
international arbitration. Lord Mustill described the NYC as a convention which: “perhaps
could lay claim to be the most effective instance of international legislation in the entire
history of commercial law”220 . The success of the NYC is illustrated by 3 factors:

• 144 countries are signatories to the NYC4.

• A body of international case law has developed in applying the NYC which has had a
direct influence on international arbitration practice and law.

• It is accepted that agreements to arbitrate and arbitration awards will be enforced by


the courts of the countries that are party to the NYC.

220
Mustill, “Arbitration: History and Background” (1989) 6 J Intl Arb 43; see also Schwebel, “A celebration of
the United Nations’ New York Convention” (1996) 12 Arb Intl 823.

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As international arbitration increased and the influence and benefits of the NYC became
apparent new arbitration institutions began to be created as a supplement to ad hoc
arbitrations. Each institution has its own arbitration rules and procedures and offers
arbitration services that were initially influenced considerably by its own
national environment. Whilst there are a large number of arbitral institutions, the major
institutions are:

• London Court of International Arbitration (“LCIA”), based in London (established in


1892)
• Stockholm Chamber of Commerce (“SCC”), based in Stockholm (established in
1917)
• International Chamber of Commerce (“ICC”), based in Paris (established in 1919)
• American Arbitration Association (“AAA”), based in New York (established in
1926)
• China International Economic and Trade Arbitration Commission (“CIETAC”),
based in Beijing (established in 1956)
• Hong Kong International Arbitration Centre (“HKIAC”), based in Hong Kong
(established in 1985).
• Singapore International Arbitration Centre (“SIAC”), based in Singapore (established
in 1991).

In the early 1970s there was an increasing need for a neutral set of arbitration rules suitable
for use in ad hoc arbitrations. Under the auspices of the United Nations, arbitration rules were
prepared by the United Nations Commission on International Trade Law (“UNICTRAL”).
The UNCITRAL Rules cover all aspects of the arbitral process, providing a model arbitration
clause, setting out procedural rules regarding the appointment of arbitrators and establishing
rules in relation to the form, effect and interpretation of the award. The UNICTRAL Rules
were intended to be acceptable in both capitalist and socialist countries, in developed and
developing countries, and in common law as well as civil law jurisdictions. The UNICTRAL
Rules have achieved international recognition and are now widely used. Since 2006,
UNCITRAL has engaged its Working Group II in the revision of the Rules which is now in a
late stage of completion. The revised Rules are expected to be adopted by UNCITRAL in the
summer of 2010.A further historical landmark came in 1985 with the UNCITRAL Model
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Law on Arbitration, which is accepted by an increasing number of countries throughout the
world; and many other countries (where they have not adopted it outright) have based their
arbitration laws upon it. As the authors of Redfern and Hunter on International Arbitration
(5th Edition) state at p. 76:“If the New York Convention propelled international arbitration
onto the world stage, the Model Law made it a star, with appearances in States across the
world.”

Whilst accepting the significant advance brought by the Model Law, it soon fell behind the
pace of the fast-moving world of international arbitration in at least two respects. Firstly, the
requirement for an arbitration agreement to be in writing, if it is to be enforceable; and
secondly, the provisions of Article 17 governing the power of an arbitral tribunal to order
interim measures of relief. This resulted in the Revised Model Law, which was approved by
the United Nations in December 2006. The Revised Model Law allows for the “writing
requirement” to be defined in very wide terms, and recommends that an arbitral tribunal
should have the power to issue interim measures

In the last 25 or so years there has been an increase in the number of institutions providing
arbitration services. In particular, in 1985 the Hong Kong International Arbitration Centre
(“HKIAC”) was established; and in 1991 the Singapore International Arbitration Centre
(“SIAC”) was established. More recently, in 2008 the ICC set up a branch of its Secretariat in
Hong Kong and in Singapore. Also, in 2008, the LCIA established (together with the Dubai
International Financial Centre) a centre in Dubai, known as DIFC-LCIA. And, in April 2009,
the LCIA set up a satellite branch in India, known as LCIA India.

This brief summary of the history of international commercial arbitration shows that,
throughout history, international trade has led to the creation of arbitration machineries and
legal frameworks. In looking to the future of arbitration, one similarly has to look at the
current and future needs of international business practice to consider what future
developments will occur in the field of international commercial arbitration.

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Increasing diversity in the subject matter of international arbitration

In terms of the subject matter of arbitration, as the past has shown us, changes in technology
and in international contract practice will dictate what the future subject matter of
international arbitration will be. For instance, new types of contracts in fields such as
telecommunication, the transfer of technology, genetic engineering, electronic commerce,
entertainment and sports will in the future probably take a greater share of arbitration cases.
The growing significance of intellectual property will also mean that the World Intellectual
Property Organisation (“WIPO”) will need to expand.

Increasing use of mediation and other forms of ADR


There is presently a great variety throughout the world as to what role arbitrators may play in
the promotion of amicable settlements between the parties. In countries such as China,
Germany, and Japan, at least in domestic arbitrations, there is an expectation by the parties
and their lawyers that the arbitrators, at some stage in the procedure, and in consultation with
the parties, will try to promote an amicable settlement and suggest solutions for such
settlement. In these countries, this is permitted by law and leads to a majority of domestic
arbitration cases ending in such amicable settlement. In many other countries, such a role of
the arbitrators is either not permitted by law or at least not performed in practice.

Research has shown that companies would often like to have an option for mediation
available, because an amicable settlement provides a better basis for future business relations
between the parties. The traditions in countries such as China may have an impact on
arbitration in other parts of the world in promoting arbitral procedures in which an amicable
settlement is proactively sought with the consent of the parties.

Recently, in December 2009, the Centre for Effective Dispute Resolution (“CEDR”)
published its own Rules for the Facilitation of Settlement in International Arbitration. If these
Rules are adopted by parties, either on an ad hoc basis or as part of the underlying contract
between them, the arbitral tribunal would then be able to invite the parties to participate in a
first procedural meeting, at which it will “ensure that [they] are aware of the different
resolution processes such as mediation which, in the opinion of the tribunal, might assist the
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parties”; will allow the tribunal to give a preliminary view on the merits and issues in the
case; and the parties will agree to the inclusion of a mediation window in the arbitration
proceedings to make it easier for them to come to an amicable settlement, with arbitration
proceedings being adjourned so that the mediation can proceed. The CEDR Rules are akin to
the pre-action protocols in English Court proceedings; and it is, perhaps not surprising, that it
was Lord Woolf who introduced the new Rules in December 2009.

7.3 THE RELATIONSHIP BETWEEN NATIONAL COURTS AND


INTERNATIONAL COMMERCIAL ARBITRATION

It is important to reflect on the current relationship between national courts and international
commercial arbitration as both must co-exist together. Because arbitration is essentially a
consensual process, where there is a reluctant party it is sometimes necessary to use the
court’s coercive powers.
The nature of this relationship has been compared to a relay race. As Lord Mustill put it 221
“Ideally, the handling of arbitral disputes should resemble a relay race. In the initial stages,
before the arbitrators are seized of the dispute, the baton is in the grasp of the court; for at
that stage there is no other organisation which could take steps to prevent the arbitration
agreement from being ineffectual. When the arbitrators take charge they take over the baton
and retain it until they have made an award. At this point, having no longer a function to
fulfil, the arbitrators hand back the baton so that the court can, in case of need, lend its
coercive powers to the enforcement of the award.”

There is a tension that lies at the heart of the relationship of the courts and arbitration. On the
one hand, the concept of arbitration as a consensual process, reinforced by the ideas of
transnationalism, leans against the involvement of the mechanisms of state through the
medium of a municipal court. On the other side, there is the plain fact, palatable or not, that it
is only a court that possesses coercive powers which can rescue the arbitration if it is in
danger of foundering222 .

221
Lord Mustill, “Comments and Conclusions in Conservatory Provisional Measures in International
Arbitration”, 9th Joint Colloquium (ICC Publication, 1993)
222
Coppee Levalin NV v Ken-Ren Fertilisers and Chemicals [1994] 2 Lloyd’s Rep 109 at 116 (HL).
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In the recent case of West Tankers the tension that lies between international commercial
arbitration and the intervention of the courts in the arbitral process has come to the force.

THE EUROPEAN COMMISSION’S GREEN PAPER ON THE JUDGMENTS


REGULATION

223
On 21 April 2009 the European Commission published its report on the
Judgments Regulation together with a Green Paper 224 introducing a consultation on the
relationship between the Judgments Regulation and arbitration. The Green Paper raises the
question as to whether arbitration should be brought within the scope of the Judgments
Regulation and suggests a deletion of the exclusion of arbitration from its scope.

Section 7 of the Green Paper addresses the issue of the integration of international arbitration
in the scope of the Brussels 1 Regulation. The European Commission considers that its
proposal would allow for more standard recognition and enforcement of arbitral awards as
well as extending the reach of the provisional and conservatory measures that may be
awarded by a court assisting the arbitral process.

This Green Paper has been criticised by many practitioners as being incompatible with the
NYC, and it now appears that the European Commission will not engage in a risky overhaul
of a system of enforcement under the NYC that is already working well within Europe.

223
Report on the application of Regulation 44/2001 COM (2009) 174.
224
Green Paper on the review of Regulation 44/2001.
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RECOGNITION AND ENFORCEMENT OF INTERNATIONAL COMMERCIAL
ARBITRATION AWARDS

In the recognition and enforcement of arbitral awards, the arbitral process is reliant upon
national systems of law. This is the classic example of what Lord Mustill meant when he
referred to the relationship between the national courts and arbitration being like a relay race.
The arbitral tribunal, whilst having sufficient powers to make the award, has no coercive
powers to force a reluctant party to comply with the award. This is where the national court
system takes up the baton.

In this regard, the NYC has been very successful as a system in obtaining the recognition and
enforcement of international awards; and it continues to be the cornerstone of international
commercial arbitration. Indeed, the NYC has been eulogised as “the single most important
pillar on which the edifice of international arbitration rests”225 . The NYC has provided a
considerable degree of uniformity in the recognition and enforcement of awards. It enshrines
a strong pro-enforcement policy and there are, purposefully, very few grounds for objecting
to recognition and enforcement under the NYC.

Internationally, it is easier to obtain recognition and enforcement of an international arbitral


award than it is of a foreign court judgment (which is dependent on a bilateral treaty of
recognition, or within EU Member States under the Judgments Regulation). It is one of the
main advantages of arbitration as opposed to litigation in resolving international commercial
disputes. This is due to the fact that the provisions for the enforcement of foreign court
judgments are less well developed with no recognition treaties that come anywhere near to
the widespread adoption of the NYC, which has been adopted by 144 countries.

The available statistics suggest that most arbitral awards are in fact carried out voluntarily. In
a study carried out by Price Waterhouse Coopers LLP in 200821, it found that only in 11% of
cases did participants need to proceed to enforce an award and, in those cases, in fewer than
20% did the enforcing parties encounter difficulties in enforcement. There are also often
commercial pressures on a party to comply with an award.

225
Wetter, “The Present Status of the International Court of Arbitration of the ICC; An Appraisal” (1990).
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Before considering recognition and enforcement in detail, it is worth just mentioning the
limited scope of the ability to challenge an award by way of appeal in the seat of arbitration.
In considering whether or not it is possible to challenge an arbitral award, it is necessary to
look at the applicable Rules of Arbitration226 , as well as the law of the seat of arbitration.
Each state has its own concept of the level of control it wishes to exercise over the arbitral
process, and this can vary (as well as distinguish between domestic and international
arbitration). If the seat of the arbitration is London, the appeal is to the Commercial Court of
the Queen’s Bench Division of the High Court of Justice; if it is in France, it is to the Cour
D’Appel, Paris; and if in Switzerland, it is to the Swiss Federal Tribunal.
Challenges to awards by way of an appeal are difficult to make; and, purposefully so, as the
decisions of arbitrators are meant to be final and binding227 . Having said that, in the case of
Shell Egypt West Manzala GmbH & Anor v Dana Gas Egypt Ltd 228 the English High Court
held that the UNICTRAL Rules that provide for “final, conclusive and binding” does not
exclude the possibility of appeal on a point of law. It is, therefore, important that parties
agreeing to arbitrate in London under the UNICTRAL Rules include clear and unambiguous
wording in their arbitration clause if they want to prevent the possibility of an appeal on a
question of law.

This is because the legal system recognises that the parties have decided that they are to be
bound by the decision of the arbitrators as an alternative to the national court. The law,
therefore, gives effect to the intention of the parties and enforces the award just as it would a
national court judgment. The House of Lords decision in Lesotho Highlands Development
Authority v Impregilo Spa and others 229 clarifies the basis on which arbitral awards may be
challenged in the English courts and affirms the underlying policy of the English Arbitration
Act 1996, which is to reduce court intervention in the arbitration process to a minimum.

226
The Rules of art 32 of UNCITRAL, the LCIA, and the ICC each state that an arbitral award is final and
binding
227
The words “final, conclusive and binding” does not exclude the possibility of an appeal on a point of law.
Article 26.9 of the LCIA Arbitration Rules and Article 28(6) of the ICC Rules include wording which is
effective to exclude the right of appeal (under section 69 of the Arbitration Act 1996) to the English Court. The
UNICTRAL Rules do not contain such wording.
228
[2009] EWHC 2097.
229
[2005] UKHL 43.
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In terms of the recognition and enforcement of arbitral awards, it should be noted that -
unlike a challenge to the award by way of an appeal - this will probably not take place in the
seat of arbitration; as the seat of arbitration may specifically have been chosen for its
neutrality to the parties. Thus, it will be entirely fortuitous if the party to whom enforcement
is required happens to have assets located within the neutral country chosen as the seat of the
arbitration.

The key consideration on enforcement is obviously the location of assets to enforce against;
and the application for recognition and enforcement will be driven by that factor. In such an
application, the powers of the state in which those assets are located are exercised through its
national courts.

The method of recognition and enforcement to be adopted depends on the place where the
award was made – i.e. whether it qualifies as a NYC award. As there are 144 countries that
are signatories, this is often not a point of significant practical importance. It also depends on
the relevant provisions of the law at the place of intended enforcement. The procedure to be
followed in any given case will vary from country to country, and it is important to obtain
advice from experienced lawyers who practise in the particular jurisdiction where
enforcement of an arbitral award is sought.

In terms of procedure, by way of example, there may be differences in the time limits for
making the application. In England, it is 6 years; but in the US it is 3 years. Also, it is often
necessary to have the original or certified copies of the arbitration agreement and award. It
may also be necessary to serve a translation of the award, which can sometimes require the
formality of obtaining consular attestation in the country of origin.

There are several different ways in which a national legal system can provide for the
enforcement of arbitral awards:

• Where the laws of the country of enforcement provide that, with the leave of the
court, the award of an arbitral tribunal can be enforced directly without the need for
deposit or registration (as in England).
• Where the award is deposited, or registered, with a court following which it may be
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enforced as if it is a judgement of that court (as in Switzerland).
• Where it is necessary to apply to the court for some form of recognition as a
preliminary step to enforcement (as in France).

The formalities required under the NYC are straightforward. The party seeking such
recognition and enforcement is required to produce to the relevant court the duly
authenticated original award, or a duly certified copy of it; and the original agreement to
arbitrate, or a duly certified copy of it. If the award and the arbitration agreement are not in
the official language of the country in which recognition and enforcement is sought, certified
translations are needed.

Once the necessary documents have been supplied, the court will grant recognition and
enforcement unless one or more of the 5 grounds for refusal, listed in the NYC, are present.
The burden of proof for establishing any ground is upon the party seeking to object to the
enforcement; and, even then, there is a residual discretion to enforce the award, The grounds
are as follows:

• The parties to the arbitration agreement were, under the law applicable to them, under
some incapacity, or the said agreement is not valid under the law to which the parties
have subjected it or, failing any indication thereon, under the law of the country
where the award was made.

• The party against whom the award is invoked was not given proper notice of the
appointment of the arbitrator or of the arbitration proceedings or was otherwise
unable to present his case.

• The award deals with a dispute not contemplated by or not falling within the terms of
the submission to arbitration, or it contains decisions on matters beyond the scope of
the submission to arbitration, provided that, if the decisions on matters submitted to
arbitration can be separated from those not so submitted, that part of the award which
contains decisions on matters submitted to arbitration may be recognised and
enforced.

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• The composition of the arbitral authority or the arbitral procedure was not in
accordance with the agreement of the parties, or, failing such agreement, was not in
accordance with the law of the country where the arbitration took place.

The award has not yet become binding on the parties, or has been set aside or suspended by a
competent authority of the country in which, or under the law of which, the award was made.
For a recent Court of Appeal judgment on the first ground - where the arbitration agreement
underlying the award is “not valid under the law to which the parties have subjected it or,
failing any indication thereon, under the law of the country where the award was mad.” - the
English Court of Appeal has recently refused enforcement of a NYC award.

In Dallah Estate and Tourism Holding Company v Ministry of Religious Affairs of the
Government of Pakistan230 Dallah sought unsuccessfully to enforce in England a US$20m
award it had obtained against the Ministry in an ICC arbitration in Paris.

Dallah was a Saudi Arabian company that provided accommodation, transport and other
services to Muslims undertaking the Haj. The Ministry was responsible for the safety and
welfare of Muslims from Pakistan. The Ministry was not named as a party to the contract
containing the arbitration agreement, and did not sign it. During the arbitration, the arbitral
tribunal (which included Lord Mustill) decided that the Ministry was a party to the arbitration
agreement. In the absence of any governing law clause (or any other indication in the contract
as to which law should be applied to determine whether the Ministry was a party) the arbitral
tribunal had applied “transnational general principles and usages reflecting the fundamental
requirements of justice in international trade and the concept of good faith in business.”In the
English enforcement proceedings, pursuant to the NYC (and s. 103 of Arbitration Act 1996)
the question whether the Ministry was a party to the arbitration agreement had to be
determined applying French law, as the “law of the country where the award was made”.

Dallah appealed to the Court of Appeal, which held:Where enforcement of a NYC award in
England is opposed on the basis that the arbitration agreement is “not valid”, the court is
required to consider all relevant factual evidence relied on by the party seeking to establish
that the arbitration agreement is “not valid”. Where the same factual evidence was also

230
27 [2009] EWCA Civ 755
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considered by the arbitral tribunal, the court is required to carry out a rehearing rather than
merely a review.

It is not necessary for the party opposing enforcement also to seek to have the award set aside
by the courts at the seat of arbitration. Thus, the fact that the Ministry had not sought to
challenge the award in the supervisory court (i.e. France) did not render the award final and
conclusive between the parties.Whilst the Court of Appeal retained some discretion to permit
enforcement even when one of the grounds for refusal had been established, the discretion
should not be exercised when the Ministry had never been a party to the arbitration
agreement.Leave to appeal to the Supreme Court in Dallah was given in January 2010.

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CHAPTER8. SEMINAR AND ARBITRAL
PROCEEDINDS REPORT

8.1 THE DELHI INTERNATIONAL ARBITRATION CENTRE: A SEMINAR ON


ETHICS IN ARBITRATION

The author has attended the seminar on the topic of “Ethics in Arbitration” held by The Delhi
International Arbitration Centre on Saturday, 1st September 2018 at India International
Centre, New Delhi. The author along with 5 other students from Faculty of Law, Jamia Millia
Islamia were lucky enough to attend the seminar as delegates and attained words of wisdom
from reputed personalities in the field of arbitration.

SESSION 1: Conflict of Interests in Appointment of Arbitrators

In the first session, the chair Justice A.P. Shah, Mr. Gopal Subramanium and Mr. Hiroo
Advani put light upon the topic of Conflict of Interests in Appointment of Arbitrators. The
panellists discussed the pros and cons surrounding unilateral appointments, however, the
negative factors associated with this practice appear to be going on a rise.

• The default rule should be that all arbitrators are appointed jointly by the parties or by a
neutral appointing authority especially in an arbitration consisting of a sole arbitrator.

• The amended Section 12 of the Act requires that a person who has been approached for a
possible appointment as an arbitrator to disclose in writing the circumstances which are likely
to raise justifiable doubts as to his or her independence or impartiality to act as an arbitrator.

• However, there has been less emphasis by the courts on continuous duty of arbitrators to
disclose potential conflicts of interest. It is necessary that a proper disclosure also includes
the information that the arbitrators could have known through investigation.

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• Section 12 of the Act does not address the question that what if there was a duty to disclose
which has been breached by the arbitrator. Does that breach automatically debar the
arbitrator? There is no provision for any interlocutory challenge before a court to a bias
situation and the party has to wait until the award is pronounced.

• The idea of doing away with practice of unilateral appointments is in line with possibility to
get rid of conflicts of interest to protect institution of Arbitration, since this issue affects trust
and confidence that Arbitration provides to parties.

• Some of the obvious problems that these suggestions could bring are that it is possible that
the parties will not be able to agree on the name of the arbitrator, or will not be entirely be
satisfied by the appointment made by the Institution.

• Also, confidentiality is one of the features which make arbitration attractive to parties as a
means of dispute resolution thereby, making it difficult to implement the idea of publication
of awards.

• There is also a dire need for a mechanism to enable the parties’ to access all relevant
information regarding the proposed arbitrator that can help in identifying issues of conflict of
interest and to verify if the disclosure provided by the arbitrator is correct.Lastly, it is for the
arbitrators to set for themselves a higher moral standing.

SESSION 2: Challenges to Arbitrators

In the second session, the chair Justice S.J. Vazifdar, Mr. Gourab Banerji and Ms. Zia Mody
put light on the challenges to arbitrators in an arbitration proceeding and can be summarised
under the below bullet points.

• Article 15(1) of the SCC Rules provides that a party may challenge an arbitrator “if
circumstances exist which give rise to justifiable doubts as to the arbitrator’s impartiality or
independence or if he/she does not possess the qualifications agreed by the parties.” The rules
do not define “justifiable doubts”, or explain which circumstances may legitimately give rise
to such doubts. Therefore, when determining whether a challenge filed under this provision
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should be sustained, the SCC Board looks to applicable law and best practices in international
arbitration for guidance.

• A party who wants to challenge an arbitrator must submit a written statement to the
Secretariat setting forth the reasons for the challenge. The challenge must be filed within 15
days from when the circumstances giving rise to the challenge became known to the party.
Failure by a party to challenge an arbitrator within the stipulated time period constitutes a
waiver of the right to make the challenge.

• When a challenge is filed by a party, the Secretariat gives the other party and the arbitrators
an opportunity to submit comments on the challenge. If the other party agrees to the
challenge, the arbitrator must resign. In all other cases, including in those where the arbitrator
offers to voluntarily step down but one party objects, the Board makes the final decision on
the challenge. The SCC Secretariat compiles a memorandum for the Board, which includes
the grounds for challenge, the comments submitted by the arbitrator and the other party, and
an analysis of the circumstances based on SCC precedent, legal authorities, the IBA
Guidelines.

• The Board discusses the challenge at one of its monthly meetings, or electronically in
situations where an urgent decision is needed. Once the SCC Board has made a decision, the
parties and the arbitrators are notified whether the challenge was sustained or dismissed. The
SCC currently does not provide reasons for its decisions, but may begin doing so in the
future. The SCC aims to handle all challenges to arbitrators efficiently, and so as to avoid
delaying the arbitral proceedings. Arbitrators and opposing parties are typically given one
week to comment on the challenge, and the SCC Board usually renders its decision within 4
weeks of the challenge being filed.

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SESSION 3: Fees of Arbitrators

In the third session, the Chair Justice Mukul Madgal, Ms. Meenakshi Arora and Mr. K.V
Vishwanathan put light on the topic of fees charged by the Arbitrators for an arbitration
proceeding. It can be summarised under the following bullet points:

• In the event, the arbitral tribunal is a sole arbitrator, he shall be entitled to an additional
amount of twenty-five per cent on the fee payable as per the table set out above.

• The above is a “Model” fee structure and the High Court may modify it to the extent
required as indicated in the section as under:
(14) For the purpose of determination of the fees of the arbitral tribunal and the manner of its
payment to the arbitral tribunal, the High Court may frame such rules as may be necessary,
after taking into consideration the rates specified in the Fourth Schedule.
Explanation.—For the removal of doubts, it is hereby clarified that this sub-section shall not
apply to international commercial arbitration and in arbitrations (other than international
commercial arbitration) in case where parties have agreed for determination of fees as per the
rules of an arbitral institution.’’

• However, it can be implied that without a specific enhancement granted by the Court, the
schedule fee may be considered as the “Upper Limit” of what the law considers as
“Reasonable”.

• We may also note that the schedule mentions that if the Arbitral Tribunal is a sole arbitrator,
he shall be entitled to an additional 25% of fees. This confirms that what the schedule
represents is the total fees that has to be shared by all the members of the Arbitration Panel.

• Some of the major Arbitral Institutions in India used to specify a schedule of fees in their
rules and indicate that the scheduled fees would be applicable to each of the members of the
Arbitration Panel. This used to discourage the parties in going for multi member Arbitration
Panel which is good to enhance the credibility of the Panel. Now that the schedule mentions

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that the fees mentioned in the schedule is for the total panel, it actually encourages setting up
of a multi member panel for all arbitrations.

• However, if any Arbitrator or an Arbitration panel decides to charge a fee lower than what
is specified, there is no reason for any Court to object.

8.2 ARBITRATION PROCEEDINGS BEFORE SH. S.M. AGGARWAL, HON’BLE


SOLE ARBITRATOR
CASE NO. 32/2017
ARBITRATION PROCEEDINGS BETWEEN:
M/S SIMPLEX PROJECTS LTD. …………………………………………… CLAIMANT
AND
NEW DELHI MUNICIPAL COUNCIL ………………...……………………RESPONDENT

Due to Mrs. Madhu Saini’s efforts and contacts with the New Delhi Municipal Council,
students of 4th and 5th Year of Faculty of Law, Jamia Millia Islamia went on to attend live
arbitration proceedings between the parties of the arbitration in the case of M/S SIMPLEX
PROJECTS LTD. v. NEW DELHI MUNICIPAL COUNCIL.

The facts of the case were that there was an agreement made on 25th April 2008 between the
M/S Simplex Projects Ltd. having a registered office at 12/1, Nellie Sengupta Sarani,
Kolkata- 700087, through its Director J.K. Bagri S/o SH. Balkishan Bagri, of the ONE PART
and New Delhi Municipal Corporation, Palika Kendra, New Delhi through its Chief Engineer
(C-11) Of the OTHER PART. The party shall include their respective successors in office.
WHEREAS M/S Simplex Projects Ltd., Have agreed to undertake the work of
“Improvement/ Upgradation of Talkatora Indoor Stadium to existing of Talkatora Indoor
Stadium at the tendered amount of Rs. 19,18,82,l72/- which is 81% above the Estimated cost
of Rs. 10,60,13,469/- as per the terms & conditions of work award letter dated 17.4.2008 and
general terms & conditions annexed thereto.

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Now, therefore, this AGREEEMENT WITNESS as under:-The stipulated period of
completion of work is Twelve Months and time is the essence of the contract.
In WITNESS whereof, the parties have hereinto set and subscribed their hand and seals on
the day and the year first above written.The dispute arose between the parties when certain
dues amounting to more than 20 Crores was left to be paid by the New Delhi Municipal
Corporation in regard to the services provided by the claimant company, i.e. M/s Simplex
Projects Ltd. Hence, the present Arbitration proceedings were filed below very abled and
experienced Retired District Court Judge of Delhi, Sh. S.M. Aggarwal as the sole arbitrator in
the instant case.

The instant arbitration proceedings have surpassed the admission/denial stage and were in
final stage of arguments and a claim note containing details of outstanding dues to the extent
of approx. Rs. 23.49 Crores was filed by the claimant. By attending the proceedings, it gave
practical knowledge to the students and answers the following questions were been answered
by the experience.

How to Register for Arbitration through Indian Council of Arbitration?

A written application to the registrar, asking for an arbitration, has to be initiated by the
parties. Registrar, as deem fit, may reject the request on reasonable grounds. What are the
Issues which Can be Taken Up for Arbitration and Who Can Be A Party to Arbitration?

Disputes relating to commercial matter including shipping, sale, purchase, banking,


insurance, building construction, engineering, technical assistance, know-how, patents,
trademarks, management consultancy, commercial agency or labor are taken up by the Indian
Council of Arbitration.

As per Rule 4, ICA Rules: Parties to arbitration can be a resident of India or foreigner. Even
two or more foreign parties might enter into arbitration under the rules of Indian Council of
Arbitration. What is required is their mutual consent.

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In the case where a party to a dispute referred for arbitration is a foreign national, it will be
assumed that he has submitted to the jurisdiction of India and all the substantive and
procedural law to be applied will be Indian according to Rule 6, ICA Rules.

Is the Decision of Indian Council of Arbitration Binding?

Yes. Under Rule 8 of Indian Council of Arbitration Rules, the decision of the arbitrators over
any dispute will be final and the parties to the arbitration are bound to follow it.

Who are Appointed as Arbitrators Under the Rule?

• A register is maintained by the registrar of ICA which includes the name and other such
important details of the arbitrators of Indian Council of Arbitration.

• The panel of arbitrators includes both Indian and foreign arbitrators. Arbitrators from time
to time are recommended by the members of the Council or any other person or organization.

• Where a party to dispute ask for an arbitrator living in the foreign land, it will be the duty
of the party to dispute to accommodate the arbitrator he demanded. Subject to certain
exceptions, all the expenses will be incurred by the party demanding such foreigner
arbitrator.

• Age limit or retirement tenure of an arbitrator is 80. After the age of 80, any person
automatically ceases to be an arbitrator as per the rules of Indian Council of Arbitration.
What are the Steps towards Filing for an Arbitration?

• Step 1: Party to a dispute can directly approach the registrar through an application as
mentioned in the first paragraph. After the application is duly accepted, a notice is sent to the
other party or parties, as the case may be.

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• Step 2: On receiving the receipt of the application, the registrar will send a notice to the
other party to the dispute. The letter will include a copy of the claim statement and the
attached documents and a time period of 30 days or as the time period set up by the registrar
will be given to the other party to the dispute to show cause of their side of the case.

• Step 3: A counterclaim can be made by the respondent, provided the counterclaim arises
from the same transaction as the original claim. Counterclaim have to be supported with all
the relevant documents and to the counterclaim, the claimant may within twenty-one days of
the notification of the counterclaim or within such extended time, submit a statement in reply
to the counterclaim.

• Step 4: Three copies of all statements, replies and other documents and papers, as well as
appended documents, must be supplied to the registrar.

Step 5: Number of Arbitrators to Settle the Dispute

• Where the amount involved in the dispute is less than or equal to INR 1 crore, the
arbitration will be arbitrated by a single arbitrator. Provided, where the parties specifically
ask for arbitrators, it will be the duty of ICA to provide the parties in a dispute with such
three arbitrators.

• Where the amount involved in the dispute is more than INR 1 crore and less than or equal to
INR 15 Crore, the ICA will be duty bound to provide the parties with three arbitrators. If the
party insists the arbitration is to be instituted by a sole arbitrator in such case, ICA will be
duty bound to comply with the demands of the parties to a dispute.

• In the cases where parties cannot come to a unanimous selection of arbitrator– If the parties
fail to agree on the person to be appointed as sole arbitrator within the time granted by the
Registrar, the Registrar in consultation with the Chairman of the Committee and in his
absence in consultation with the member of the Governing Body designated by the Chairman,
shall appoint the sole arbitrator from among the Panel of Arbitrators.

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• In the cases where one party to a dispute is a foreign national- In such cases, the registrar
will appoint an arbitrator who does not belong to any country as the proposing parties do.

• Where parties are not satisfied with the selection of arbitrator by the registrar-The
Challenge of an arbitrator shall be made within 30 days after his appointment has been
communicated to the challenging party or within 30 days of his becoming aware of the
reasons for which the challenge is made. The judge will be members of ICA committee.

What is the Amount of Money to be Deposited before Initiation of Arbitration?


Registrar orders the party to pay a particular amount before the initiation of arbitration to
incur the expenses in arbitration. This includes the procedural cost as well as expenditure to
support the arbitrators. Equal share is drawn from both the claimant and the respondent.
What if any Party to a Dispute Defaults in Paying the Advance Amount Before Arbitration?
When one of the parties neglects or refuses to make the deposit, the Registrar or the arbitral
tribunal as the case may be may require such deposit whether in relation to a claim or a
counterclaim to be made by the other Party to the dispute (Claimant or Respondent as the
case may be). In addition to all these, INR 500 is a concession charge of ICA for providing of
basic infrastructures for facilitating the arbitration. Where any Party to a Dispute Fails to
Cooperate with Indian Council of Arbitration. Where a claimant does not file all the requisite
documents, papers, etc. or does not deposit the appropriate fees, the arbitration procedure will
come to a halt. In such a case, the arbitration proceedings will proceed as it is assuming the
presence and awareness of the respondent.

What shall be the place of Arbitration?


The place or venue of arbitration shall be India. The Arbitration proceedings shall be held at
such place or places in India as the arbitral tribunal may determine to have regard to the
convenience of the arbitrators and the parties. In a case in which one or both the parties are
from overseas, the arbitration proceedings may also be held at any place outside India at the
discretion of the arbitral tribunal.

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Is there any provision of Fast Track Arbitration?

The party to a dispute can opt for fast track arbitration. The arbitration will be done within 3-
6 months. What to Do if One is Not Satisfied with Arbitration Process In such a case, parties
are free to approach the court but only in special circumstances. First, an application has to be
forwarded to the registrar who in turn will forward it to arbitration tribunal and if the
arbitration tribunal is satisfied, an appeal may lie in the court.

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CONCLUSION

The Law of arbitration in India has gone through deep changes in recent decades. Regulations
on enforcement of foreign awards have significantly improved in recent years. This has been
achieved through adoption of new legislations as well as accession to international and
regional conventions. India became a party to the New York Convention of 1958, as the
single most important convention on the recognition and enforcement of foreign awards with
effect from October 11,1960. It has been a breakthrough that erased the uncertainties and
suspicions that marred an interest to resort to arbitration with Indian parties. At the regional
level, India did not join any convention. India should, however, accelerate the process of
considering accession to, and ratification of, international and regional conventions on
enforcement of international arbitration awards in order of their priority for its commercial
relationships with the outside world. At the international level, it has been said the
convergence of legal systems or harmonization of commercial law will, in the long run,
stabilize and strengthen national economies and will create a healthy competitive
environment. As to arbitration legislation, alongside the modernization of the Indian legal
system, its law of arbitration has also been significantly improved since 1940. While
arbitration practice used to be regulated according to the New York Convention of 1958,
since then there has been a trend towards codification and institutionalization of the practice.
It can be said that the legal structure required for modern arbitration is now in place in the
country. The diversity of religious and custom, have not been major impediments on the way
towards modernization of arbitration, save for foreign arbitration. Nevertheless, the existing
Indian law of arbitration law has departed, to a large extent, form traditional law. It can be
said that the Indian law of arbitration is primarily influenced by modern internationally
accepted patterns of arbitration, such as the Model Law. Such influence is mainly conveyed
through western legal systems, particularly that of the United Kingdom. This is an advantage
Of the type of legal transplant experienced with regard to the Indian law of arbitration that it
has been made possible through the English legal system, whose rich background in
arbitration is very much similar to that of India. The United Kingdom has been the pioneers
of western countries to adopt modern laws.

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The long history of its legal system, the magnitude of the cases brought before its courts, and
the insightfulness of many of its legal writers have made it into a relatively reliable authority
for the adoption new laws. As touched upon before, many other pieces of legislation in India
have been inspired by the English model.

Hence, the adoption of an arbitration law identical to the English Arbitration Law guarantees
some degrees of compatibility with the rest of the legal body in India. The modernization of
the Indian arbitration law can be better understood within the wider context of the Asian
region, where most of countries, in recent decades, have adopted present arbitration laws
conforming to international standards, and established modern arbitration centers. They have
intended to enhance their domestic arbitration practice, as demanded by their business
communities, and to attract international arbitration.

Present Indian law of arbitration is an achievement realized in a relatively short period of


time. Nevertheless, there are some difficulties and lacunae that need to be dealt with. The
Indian legal system provides for a comprehensive set of rules governing commercial
arbitration. Most of these rules are provided for in a statute, separate from other sets of laws,
that is, Law of Arbitration 1940, while the rest are integrated in other statutes such as the
Arbitration Act, 1996 for civil and commercial disputes. The Indian legislature has intended
to encourage and facilitate arbitration. Under the law, arbitration is a regulated and reliable
method of dispute resolution, with binding and enforceable outcomes. Present Indian law of
arbitration allows both institutional and Ad hoc types of arbitration. There are several bodies
engaged in international arbitration in India, such as such as Indian Council of Arbitration,
Federation of Indian Chamber of Commerce and Industry, etc. The law is, however,
particularly in favor of Ad hoc arbitration, where the parties can freely choose arbiters as well
as procedural and substantive rules of arbitration.

The process of the development of the Indian law of arbitration indicates a move towards
strengthening the contractual features of arbitration, at the expense of its judicial features.
Such a move can bolster the confidence of foreign businesses. The extent of court
intervention in the arbitration process is now limited. Nevertheless, safeguarding
arrangements are stipulated to guarantee a healthy arbitration process and, more importantly,
compliance with its outcome. For instance, an arbitration tribunal decides on its own
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jurisdiction; and only after the issuance of the award, the competence of the tribunal can be
challenged at a court. On the other hand, dilatory tactics such as a challenge to the
appointment of an arbitrator cannot obstruct the proceedings, unless either the tribunal or the
court grants such a challenge. The move towards emphasize on the contractual feature of
arbitration has, however, been undermined by giving too much power to the court, in case of
disagreement between the parties.

Under Article 34 the Arbitration Act,1996, the competent court has the power to set aside an
award made under the Act, if the applicable law has not been applied. This may be
interpreted as allowing the substantive review of awards, which is contrary to what is
accepted in many advanced legal systems. Moreover, specifying too many formal
requirements for an arbitral agreement or award, in order to be valid, might frighten foreign
parties from resort to arbitration in India. An important issue, in this regard, is the power of
the court to set aside an award, which is to secure a just and rightful solution for the dispute.

Internationally, however, the tendency is towards restricting the power, in order to prevent its
abuse by a reluctant party. Indian law, too, should move in this direction, without
compromising the rights of the parties to have an effective judicial control. This can be
achieved by limiting the grounds for setting aside an award. Particularly, the ground of
failure to apply the applicable law to the dispute should be removed, as it unnecessarily opens
the way for the substantive review of awards. Similarly, the provision allowing the court to
set aside an award, if there is a defect or indicates of them in the arbitration award or in the
proceedings to the extent that it affects the terms of the award, should be removed, as it does
not provide a clear definition of such defects. Moreover, Indian law should allow the parties
to agree on a waiver of their right to bring before the court a request for vacating the award,
what is not permitted under the current law.

Unlike the Arbitration Act, 1940, the Arbitration Act, 1996 recognizes International
Commercial Arbitration, but somehow treats it similarly from domestic arbitration, as same
Courts have jurisdiction to deal with the issues relating to the two types of arbitration.
Nevertheless, the distinction between domestic and international arbitration is not sufficiently
taken into consideration, as international arbitration should be subject to less restrictions and
scrutiny, and be provided with a more favourable treatment. The grounds for vacating a
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domestic award can be more than those leading to setting aside a foreign award. For instance,
a crystal distinction should be made between domestic public policy, which is applied to
domestic awards, and international public policy, which in certain circumstances is applied to
international awards issued under Indian law. More importantly, the Arbitration Act,1996
recognizes recourse to foreign arbitration. It also contains a definition of foreign arbitral
awards, and makes a distinction between domestic and foreign awards.

Under the Arbitration Act 1940, it was assumed that foreign awards must be treated as if they
were domestic ones, that is, they were subject to the legal procedure and scrutiny applicable
to domestic awards and, more importantly, subject to judicial review. This is no longer the
case. However, again, lack of a definition of international public policy applicable to foreign
awards is a deficiency of Indian law that needs to be addressed.

The Arbitration Act, 1940 addressed the issue of enforcement very briefly; and the Indian
court was assumed to have the power to examine meticulously an award, when considering
its enforcement. Since there was no rule on the enforcement of foreign awards, they, too,
were assumed to be subject to retrial and to the similar extent of legal scrutiny.

By enacting the Arbitration Act, 1996, the Indian arbitration law has shifted towards a pro-
enforcement position, to the extent that it can also be said that the law is generally more than
the Model Law facilitative of enforcement of arbitral awards. It is relatively straightforward
to apply for the enforcement of awards made under the Act, 1996, whether in or outside of
India. Since it has already been possible to challenge such awards at the Indian court by
drawing upon the relatively extensive grounds for vacating them, the grounds for refusing
enforcement of an award are restricted. Awards can be refused enforcement, only if they are:
(a) against a decision already made by Arbitral Tribunal and Courts, (b) contrary to the public
policy of India, or (c) if the requirements of due process have not been observed in making
them. A feature of the Act, 1996 is that while a request for enforcing an award can only be
made after the expiry of the ninety day period for challenging the award, the suspension of
enforcing the award is also permitted, if the award is being challenged in the court.

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Making a distinction between domestic and foreign awards, the Act, 1996 even more
facilitates the enforcement of foreign and international awards. Also, the Supreme Court
decision allows enforcement of foreign arbitral awards, without requiring a review of their
merit. While Indian law of arbitration recognizes the effect of multilateral conventions or
bilateral treaties, if they are applicable to a foreign award, under the New York Convention
(1958) or Geneva Convention (1927), the most favourable law or conventions can be applied,
when enforcing a foreign award. Hence, it is possible to go for the “most favourable regime”
of enforcement available within the Indian legal system and treaties joined by India. As a
matter of fact, in many aspects, the current Indian law is more than the New York
Convention facilitative of enforcement of foreign and international awards.

In certain aspects, however, the Indian law lags behinds the Convention and universally
accepted standards. For instance, while the grounds expressed in Article V of the Convention
may result in the non-enforcement of an award, Indian law obliges the court to refuse
enforcement of an award, if such grounds exist. The latter also mentions non-compliance
with the rules of morality as a ground for the refusal of enforcement of an award, whereas no
such a ground is recognized under the Convention. Such a requirement may lead to broad or
conflicting interpretations, undermining the required Uniformity.

Finality, It is an ideal time for a reform of Indian’s arbitration legislation. By acknowledging


globally accepted practices and rules, the Indian law of arbitration should be amended with a
view to removing the serious lacuna and difficulties mentioned above and to improve its
arbitration landscape on a domestic as well as international level. Adoption of various
legislations regulating arbitration, including international arbitration, setting up several
bodies engaged in arbitration, whether domestic or international, and accession to
international and regional conventions and treaties should be accomplished while an attempt
is made at co-ordination between them. Lack of such co-ordination leads to confusion, and
undermines the very rationale of resort to arbitration, which is simplicity and saving of time.
Careful regional or international convergence and legal transplants in the area of International
Commercial Arbitration may be useful, if they are compatible with the rest of legal body in
India.

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BIBLIOGRAPHY

Books Referred:

1. Madabhushi Sridhar, Alternate Dispute Resolution, Lexis Nexis, 1st edition 2006,Nagpur.
2. S.P.Gupta, The Arbitration and Conciliation Act, 2nd edition 2008, Allahabad law agency.
3. O. P. Malhotra, The Law and Practice of Arbitration and Conciliation, New Delhi Lexis
Nexis Butterworths, 1st ed., 2002.
4. P. C. Markanda, Law relating to Arbitration and Conciliation,Nagpur, Wadhwa andCo, 6th
ed., 2006.

Websites Referred:

1. https://www.arbitrationindia.com.
2. https://en.wikipedia.org/wiki/ArbitrationandConciliationAct1996.
3. www.legalservicesindia.com/../Interim-Measures-under-Arbitration,-Conciliation-Act.
4 https://legaldesire.com.

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