ARBITRATION AND CONCILIATION ACT, 1996

AND ITS RELEVANCE TO SUBORDINATE COURTS

By
Dr. Pundla Bhaskara Mohan
M.Com., F.C.S., LL.M., Ph.D., in Law
Advocate
High Court of Judicature at Hyderabad
&
Visiting Faculty – P.G. College of Law, O.U.
th
10 August, 2018

I. ROLE OF ADR AND COURTS IN DELAY AND ARREAR

REDUCTION (DAR) AND QUALITY AND RESPONSIVENESS OF
JUDICIARY (QRJ)

Alternative Dispute Resolution or Supplemental Dispute Resolution?

Alternative Dispute Resolution (ADR) is known as an alternative to the

regular dispute resolution by the Courts of Law. In any country, traditionally

the disputes are resolved by courts. Alternatively the disputes can also be

resolved with third party help. In India the disputes are resolved in the

following ways :

1. Moving Courts of Law

2. Mediation of elders to reach settlement in joint families and certain

sects/tribes etc.

3. Elders deciding (adjudicating) the issues in joint families and certain

sects/tribes etc.

4. Panchayat System.

5. Lok Adalat under the Legal Services Authorities Act, 1987, headed

by judicial officers. The Lok Adalat can be approached for

recording pre - litigation settlements without approaching the courts

Copy Rights of this article reserved.

Contact details: Cell-09246347769. Landline: 040-27407077.
E-mail: drbhaskaramohan@gmail.com

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 6. Also reference can be made to Lok Adalat by a court regarding

pending matters before it.

7. Third party help.

The Third party help means an independent third person as chosen by

the disputants, acting impartially and within the scope and parameters of law,

works out settlement or adjudicates the matter as per the agreement of the

disputants. The third party help can be taken in the form of mediation,

conciliation and arbitration. The third party help is permitted under Indian Law

as follows:

1. Mediation Facilitating settlement by a Section 89 read with

third party called as a Mediator Order X-1A, 1B and 1C
of Code of Civil
Procedure, 1908.
2. Conciliation Settlement reached between Sections 61 to 81 of the
the disputants with the help of Arbitration and
a third party called as a Conciliation Act, 1996.
Conciliator and authenticated
by the conciliator which has
the status of a ‘Decree of a
Court of Law’.
3. Arbitration A third party adjudicating the Sections 1 to 60 of the
dispute, who is called as an Arbitration and
Arbitrator and the decision is Conciliation Act, 1996.
called an ‘Award’ which has
the status of a ‘Decree of a
Court of Law’. Adjudication
means deciding on the rights
and liabilities of the parties.

Thus, the third party dispute resolution fora and also the Lok Adalats

are viewed as different methods of ADR. However, ADR is not a substitute

to the Courts. This is because, once a decision is given or an agreement is

reached under any ADR methods, for execution / appeals, again regular

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courts must be approached. Thus ADR is a bye-pass system of regular

judicial mechanism.

II. THE ROLE OF ADR

ADR’s role in reducing the burden on courts was well recognised in

India as back as 1781 where the British Crown issued Regulations through

East India Company recognising arbitration and giving it a legal sanctity.

Later on, Regulations 1787 were issued permitting the resolution of disputes

by arbitration if the subject matter was within Rs. 200/-. Lateron, by

legislative changes, arbitration was introduced in the Civil Procedure Act,

1857 and in 1940 a separate enactment called Arbitration Act, 1940 was

passed. Presently the ADR is recognised as arbitration and conciliation

under the Arbitration and Conciliation Act, 1996, under Section 89 of Code of

Civil Procedure Code, under the Legal Services Authorities Act, 1987 and

under various other legislations like the Companies Act, 1956, Multi State

Cooperative Societies Act, Securitisation and Reconstruction of Financial

Assets and Enforcement of Security Interest Act, 2002 etc.

A Special feature of the Arbitration and Conciliation Act, 1996 is

“Settlement Agreement” in conciliation proceedings. If the settlement

agreement is signed by the parties and authenticated by the conciliator, it will

attain the status of a decree of a court of law under section 74 of the

Arbitration and Conciliation Act, 1996. The District Legal Services Authorities

in the Districts in India can play a very crucial role in this respect and several

disputes can be resolved by conciliation – “settlement agreements”, so that

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the disputants need not move a court for resolution of their disputes. They

have to move courts only for execution proceedings if necessary.

III. ROLE OF COURTS

The courts can play a very effective role in reducing the arrears in

courts by using ADR methods.

A new development towards promotion and effective use of ADR is the

introduction of Section 89 and Order X 1A to 1C in the Code of Civil

Procedure, 1908 by the Code of Civil Procedure (Amendment) Act, 1999

(w.e.f.01-07-2002). Under this section the courts are empowered to refer a

pending dispute/case to arbitration, conciliation, judicial settlement including

settlement through Lok Adalat or mediation subject to the acceptance of the

parties. The courts under this section can play a very pivotal role in

settlement of disputes by invoking different alternative dispute resolution

methods. This provision aims at reducing the arrears and delays in

courts and ensures speedy justice. Further in the States of Andhra

Pradesh, Telangana and in many other states if any matter is settled

under Section 89, CPC, the court fee is refundable and to this effect

suitable amendments were also brought in by the State Governments.

In this connection, the Hon’ble Supreme Court has rendered a land

mark judgment in Salem Advocate Bar Association, T.N. Vs. Union of

India (2005 – 6 SCC 344). In this judgement the provisions under section 89

C.P.C., were interpreted and further the Supreme Court envisaged the need

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to create a panel of well trained conciliators/mediators to whom the courts

may make a reference.

IV. THE PROGRAMME OF ERSTWHILE HIGH COURT OF ANDHRA

PRADESH, NOW CALLED THE HIGH COURT OF JUDICATURE AT

HYDERABAD FOR THE STATE OF TELANGANA AND THE STATE OF

ANDHRA PRADESH ON ADR

Pursuant to the decision of the Supreme Court in Salem Advocates

Bar Association, T.N. Vs. Union of India, the erstwhile High Court of

Andhra Pradesh, presently the High Court of Judicature at Hyderabad for the

State of Telangana and the State of Andhra Pradesh and also the then

Government of Andhra Pradesh had made the first forward move by

appointing 23 Senior Civil Judges as full time Secretaries of District Legal

Services Authority for the then 23 Districts in the State of Andhra Pradesh

during August, 2006. These Secretaries are performing a highly laudable

task in resolution of disputes through mediation and conciliation. The results

are highly encouraging. The High Court has also programmed workshops

on arbitration and conciliation for all the Judicial Officers / Advocates and

other intelligentia like Doctors, Government Agencies for development and

social welfare, Social Workers, Physhiatrists, etc., in the then 23 Districts.

The workshops were conducted by the Secretaries of the District Legal

Services Authority of the respective Districts. After the division of the State

of A.P. also these programmes were continued. It is advisable that similar

programmes may be designed by all the High Courts in the country so that

the usage of ADR can be well modulated and streamlined. Presently, at

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Supreme Court, High Courts and District Courts Mediation Centers are

established by the Legal Services Authority in coordination with the

respective Courts.

V. ARBITRATION AND CONCILIATION ACT, 1996 - ITS RELEVANCE TO

SUBORDINATE COURTS – KEY LEGAL ISSUES

1. Arbitration

Arbitration is adjudication of a dispute by an independent third person

as chosen by the disputants. Arbitration can be used as one of the methods

of ADR in dispute resolution only when there is a dispute. Issues involving

admitted liability and default cannot be resolved through arbitration. However,

in the co-operative societies legislations of State Governments in India, even

issues involving defaults must be compulsory referred to arbitration only and

the departmental officers designated as arbitrators adjudicate the matters. As

stated afore arbitration was given legal sanctity in India in the year 1781 by

the British Crown which issued Regulations, 1781 through East India

Company. Subsequently Regulations 1787 were issued. Later on, the Civil

Procedure Act, 1857 was promulgated. In the year 1940, Arbitration Act,

1940 was brought into effect. In the year 1996, due to the globalisation of

Indian economy and to harmonise with different and several legal systems of

the Globe on Arbitration Law, based on UNCITRAL (United Nations

Commission on International Trade Law) Model Law on international

commercial arbitration, the Parliament legislated the Arbitration and

Conciliation Act, 1996 repealing the Arbitration Act, 1940, the Arbitration

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(Protocol and Convention) Act, 1937 and the Foreign Awards (Recognition

and Enforcement) Act, 1961. The subjects of these repealed legislations are

covered in the Arbitration and Conciliation Act, 1996.

2. Key Legal Issues and the Subordinate Judiciary

A) Objects and features:

a) The Arbitration and Conciliation Act is incorporated with an object to

consolidate and amend the law relating to :

(i) Domestic arbitration;

(ii) International commercial arbitration and

(iii) Enforcement of foreign arbitral award. (In the District Courts).

b) The Act also defines the law relating to conciliation.

c) The arbitral award need not be made into a “Rule of Court” unlike the

arbitral award under the Arbitration Act, 1940.

d) Interference by courts is minimised.

e) Arbitrator can not be removed as per the whims and fancies of the parties.

B) Scheme of the Act

The Act is divided into four parts.

Part – I :Pertains to domestic arbitration and also international

commercial arbitration taking place in India.

Part – II :Pertains to enforcement of foreign awards.(International

commercial arbitration which take place outside India).

Part – III :Consists of the provisions on conciliation.

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 Part – IV : Contains the supplementary provisions.

The Act underwent drastic changes by the Arbitration and

Conciliation (Amendment) Act, 2015 which was brought in to

effect from 23/10/2015.

C) Definition of Court

Under Section 2(1)(e) of the Act, Court means the District Court or the

High Court in the cities of Bombay, Madras, Delhi and Calcutta in exercise of

original jurisdiction. Thus, the District Courts are directly empowered to

adjudicate on several issues.

D) Applicability of the Act

On domestic front this Act applies to both commercial and non

commercial issues. In international commercial arbitration only commercial

issues can be resolved. Originally Part – I of the Act was applied to domestic

arbitration and international commercial arbitration taking place in India. If

international commercial arbitration takes place outside India, Part – II was to

be applied for enforcement of foreign arbitral awards. Part – II stipulates a

detailed procedure to be adopted by the District Court in prosecuting

execution proceedings. However in Bhatia International vs. Bulk Trading

S.A. and another { [2002] 4 SCC 105}, The Hon’ble Supreme Court of India

held that Part – I applies to even International Commercial Arbitration, taking

place outside India. This decision was again followed by the Hon’ble

Supreme Court of India in Venture Global Engineering vs. Satyam Computer

Services Ltd. and another { [2008] 4 SCC 190}. However, these decisions

8
were overruled in Bharat Aluminium Co. Vs. Kaiser Aluminium Technical

Services Inc. {(2012) 9 SCC 552}.

E) Attributes of Arbitration

The Courts must carefully find out whether adjudication of dispute by a

third party amounts to arbitration at all.

The attributes of arbitration were laid down by the Supreme Court in

K.K. Modi vs. K.N. Modi (1998, 3 SCC 573) as follows:

 Binding Nature : The arbitration agreement must contemplate that the

decision of the arbitral tribunal is binding on the parties to the agreement.

 Jurisdiction : The jurisdiction of the arbitral tribunal must be derived

either from the consent of the parties or from the order of court or from

statute, the terms of which make it clear that the process is to be an

arbitration.

 Adjudication : The agreement must contemplate that substantive rights

of the parties will be determined by the agreed arbitral tribunal.

 Enforceability : The decision of the arbitral tribunal must be intended to

be enforceable in law.

F) Arbitral Agreement

The most crucial part of arbitration is the arbitration agreement as the

arbitrator is a creature of the agreement. Section 2(1) (b) read with section 7

of the Act contain the relevant provisions.

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 The definition under Section 7 Covers a wide area. It covers the

disputes which have arisen or which may arise between parties in respect of a

defined legal relationship, whether contractual or not.

Arbitration Agreement

Compliance with provisions Section 7 of the Arbitration

of Indian Contract Act, 1872 and Conciliation Act, 1996.
Defined legal relationship

Essentials Compe- Mutual Lawfulness Certainity Legal relationship is defined

of a valid tency consent. of subjects. of agreement. in a legal document / or in Law.
contract. of parties. Secs.13 Secs.23 to Sec.29
Sec.10 Secs.11 to 22 27 & 30
&12

G) Arbitrable and non arbitrable issues

For making a reference to arbitration there should be a dispute. Cases

of default cannot be referred to arbitration. The basic feature of arbitration is

adjudication of a dispute. Thus, there should be a dispute i.e., a wrangle to

arbitrate. Further, under section 2 (3), all disputes are not arbitrable. Where

separate statutes govern certain disputes like divorce, insolvency, winding up

of companies etc., arbitration is not possible as those issues cannot be left

into the hands of third parties. Further, there are separate fora like Family

Courts, Company Courts etc., to decide these matters.

 Arbitrable Issues – Some Examples

(a) Partition of joint family property

(b) Breach of contract

(c) Engineering contracts

(d) Insurance matters

(e) Medical negligence

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 (f) Partnership matters

(g) Sale of goods and other commercial disputes.

Non Arbitrable issues – some examples

(a) Insolvency matters

(b) Matrimonial issues

(c) Testamentary matters

(d) Issues of Public Charities (Sec.92 CPC)

(e) Guardianship

(f) Industrial Disputes

(g) Criminal Proceedings

(h) Trusts

(i) Winding up of a company

(j) Taxation, Public Rates

(k) Non payment of admitted liability

(l) Excepted matters in a contract

(m)Tortious liability

(n) Admiralty suits etc.

H) International Commercial Arbitration

Under Section 2 (1) (f) of the Act, only commercial disputes are

arbitrable in case of international commercial arbitration. Requirements of

international commercial arbitration: Atleast one of the parties to the

dispute is :

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(a) an individual, who is a national of, or habitually resident in, any country

other than India ; or

(b) a body corporate which is incorporated in any country other than India ; or

(c) a company or an association or a body of individuals whose central

management and control is exercised in any country other than India ; or

(d) the Government of a foreign country.

I) ORIGINAL JURISDICTION OF DISTRICT COURTS

(i) Section 8 : Reference to arbitration by any Judicial Authority

a) Under Section 8, if a party initiates legal proceedings before a judicial

authority where the matter is the subject of an arbitration agreement, the

matter shall be referred to arbitration if the party so applies, not later than

when submitting his first statement on the substance of the dispute.

b) Under Section 89 of Code of Civil Procedure, courts can suo motu

explore the possibilities of settlement of disputes by arbitration and if

the parties agree, the pending suit / dispute / issue can be referred to

arbitration. There is no need for the parties to make an application to

the court in this regard.

c) In Sukanya Holdings Pvt. Ltd., vs. Jayes H. Pandy (AIR 2003 SC

2252), the Supreme Court held that Section 89 C.P.C. cannot be

resorted to for interpreting Section 8 of the Arbitration and Conciliation

Act as it stands on a different footing and it would be applicable even in

cases where there is no arbitration agreement. The Court has to apply

its mind to the condition contemplated under Section 89, C.P.C. and

even if an application under Section 8 of the Arbitration and

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 Conciliation Act is rejected, the court is required to follow the procedure

prescribed under the said section.

(ii) Interim measures

The Districts Court can grant interim measures before or during arbitral

proceedings or at any time after the making of the arbitral award but before its

execution. If the Court grants any interim order before commencement of the

arbitral proceedings, the arbitral proceedings must be commenced within a

period of 90 days from the date of such an order or within such further time as

the Court may determine.

Subjects:

 Appointment of guardian

 Preservation, interim custody, sale of goods

 Securing the amount in disputes

 Detention, preservation or inspection of any property / sample tests etc.

 Appointment of a receiver

 Interim injunction

 Any other interim measure as required in the interest of justice.

The Supreme Court in M/s. Sundaram Finance Ltd., v. M/s. NEPC

India Ltd. (1999(2) SCC 479) imposed the following conditions to be satisfied

for granting interim measures:

 Existence of a valid arbitration agreement.

 The applicant must show his intention to take the dispute to arbitration.

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 Issuance of notice under Section 21 of theArbitration and Conciliation Act

by the applicant is immaterial.

In Bhatia International v. Bulk Trading S.A. and another (AIR 2002 SC

1432), the Supreme Court held that Indian Courts can grant interim measures

in arbitration proceedings taking place in a foreign country. This judgment

was reversed in Bharat Aluminium Co. Vs. Kaiser Aluminium Technical

Services Inc. {(2012) 9 SCC 552}.

Under Section 17, interim measures by Arbitral Tribunal, at the request

of a party, can be granted during the arbitral proceedings or at any time after

the making of the arbitral award but before it is enforced and the interim order

is enforceable as if it is a decree of the Court as per the Arbitration

(Amendment) Act, 2015.

(iii) Appointment of Arbitrators – Section 11

An arbitrator in domestic arbitration can be appointed by mutual

agreement of parties or by the Chief Justice of High Court or his designated

Judge in the High Court and in case of international commercial arbitration,

the arbitrator can be appointed by the Chief Justice of India as provided under

Section 11 of the Act. Earlier, the Judges of District Courts and also the

other subordinate courts were authorised by the Chief Justices of High Courts

to appoint arbitrators. But the Supreme Court in M/s. SBP & Co. Vs. M/s.

Patel Engineering Ltd., and another (2005 AIR SCW 5932) overruled the

decision in Konkan Railway Corporation Ltd., and another Vs. Rani

Construction Pvt. Ltd., (2001, 8 SCC 159) and held that the order of

appointment of an arbitrator by the Chief Justice is a judicial order and further

14
held that the 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. The Supreme Court further directed that the applications

for appointment of arbitrators if any, pending before the District Courts as on

the date of judgment will stand transferred to be dealt with by the Chief

Justice of the concerned High Court or a Judge of that Court designated by

the Chief Justice.

Thus, all the District Courts must transfer the pending applications in

this regard to the High Court.

However, as per the Amendment Act No. 3 of 2016, (w.e.f

23/10/2015), the Supreme Court, the High Court or any person or institution

designated by such Court, as the case may be, can appoint an Arbitrator.

(iv) Grounds for challenging the Arbitral Tribunal

Under Section 12, the arbitrator is duty bound to disclose any

circumstances which may give rise to justifiable doubts as to his

independence or impartiality and the grounds which may affect his ability to

complete the arbitration within a period of 12 months. Further the grounds

stated in the Fifth Schedule must also be followed along with the procedure

laid in Sixth Schedule of the Act. If the arbitral award is not delivered within

12 months the parties can extend the tenure by another six months and if

even by that time the award is not delivered, the parties must obtain extension

from the Court. Section 13 contains the procedure for challenge and Section

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16 provides the grounds and procedure for challenging the jurisdiction of the

arbitral tribunal.

(v) Termination of the mandate of an Arbitrator – Section 14.

The mandate of the arbitrator terminates if :

(i) de jure or de facto the arbitrator is unable to perform his duties;

(ii) fails to act without undue delay;

(iii) withdraws from office;

(iv) parties agree for termination.

If a controversy prevails on the issue, the District Court will have to

resolve the same. This is a crucial subject which should be handled by the

District Judiciary. However, the District Courts can only give a declaration but

cannot remove an Arbitrator unlike the power vested under the old Arbitration

Act, 1940.

In case the mandate of an arbitrator terminates, under Section 15, he

can be substituted.

(vi) Conduct of Arbitral Proceedings

Sections 18 to 26 contain detailed provisions on the conduct of arbitral

proceedings.

(vii) Court assistance in taking evidence in arbitral proceedings –

Section 27

The arbitral tribunal or a party with the approval of the arbitral tribunal,

may apply to the court for assistance in taking evidence.

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 Then, the court may, within its competence and according to its rules

on taking evidence, execute the request by ordering that the evidence be

provided directly to the arbitral tribunal. The court may, while making an order

in this regard issue the same processes to witnesses as it may issue in suits

tried before it. Persons failing to obey the orders of the court in this regard will

carry the same liability as they would incur for the like offences in suits tried

before the court.

(viii) Award – Sections 28 to 33

The decision of the arbitral tribunal is called an Award. The awards are

of different kinds like domestic award, foreign award, consent award,

additional award and interim award.

(ix) Power of Court to set aside an award - Section 34.

Under section 34 of the Act, an arbitral award can be set aside only on

limited grounds. It can not be challenged on merits. The grounds on which

an award can be set aside are:

(i) Incapacity.

(ii) Invalid agreement.

(iii) Lack of notice.

(iv) Award exceeding the scope of submission to arbitration.

(v) Composition of the arbitral tribunal.

(vi) Finding of the court that the issues are not arbitrable and (or)

that the award is in conflict with Public Policy of India.

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 Public Policy implies the violation of confidentiality under section 75 of

the Act and also violation of admissibility of evidence under section 81 of the

Act. The Supreme Court in ONGC vs. SAW Pipes Ltd., (2003 AIR SCW

3041) interpreted the term Public Policy and held that Public Policy is

i) Fundamental Policy of Indian Law;

ii) The interest of India;

iii) Justice or morality;

iv) That the award is patently illegal;

The arbitral awards can be further challenged under Section 13(5) –

Challenge to arbitrator and also under Section 16 (6) – Jurisdiction.

The District Courts are also vested with the power under sub section 4

to section 34 to give the arbitral tribunal an opportunity to resume the arbitral

proceedings are to take such other action as in the opinion of the arbitral

tribunal will eliminate the grounds for setting aside the arbitral award.

While considering the issue of setting aside of arbitral awards, the

District Courts may relay upon the following judgments of High Courts and the

Hon’ble Supreme Court, defending upon the facts and circumstances of the

cases :

a) On the issue of jurisdiction – Saruplal Singla vs. National

Fertilizers Ltd. { [1998) 1 RAJ 296 Delhi}.

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b) Mandatory provisions of the Agreement – Suresh Chander

vs. Delhi Development Authority { [1997} (1) Arb. LR 536}

c) Terms of the Contract – R.S. Rana vs. Delhi Development

Authority { [1993] (2) Arb. LR 165)

d) Limitation – Wazir Chand vs. Union of India { AIR 1967 (SC)

990}.

e) Limitation and Section 28 of Indian Contract Act – Vulcan

Insurance Co. vs. Maharaj Singh & other { AIR 1976 (SC)

287}.

f) The power of arbitrator to decide claims - M/s. Marshall

Corporation Ltd., Visakhapatnam vs. Union of India {1998 (1)

RAJ 69 AP}

g) Sec.28 of Indian Contract Act – Atlas Export Industries vs.

Kotak and Company {1999-AIR (SC)-0-3286}.

h) Limitation - United Engineers & ANR vs. Ms/. Ahinsa Co-op.

{1998(2) RAJ 116 (Delhi). }

i) Power of Arbitrator to decide on limitation - National

Aluminum Company vs. Ganesh Chandra {1998 (3) RAJ 348

(Ori) }

j) Conciliation is necessary before arbitration if the agreement

says so – M/s. M.K. Shah Engineers and Contractors vs.

State of M.P. {AIR 1999 (SC) – 950}

k) Conciliation is necessary before arbitration if the agreement

says so - Nirman Sindia vs. M/s. Indal Electromelts Ltd. {AIR

1999 (Kerala) 440}

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l) Arbitrator cannot allow clients not covered by the agreement

- Associated Engineering Co. vs. Govt. of AP. { AIR

1992(SC) – 232 }

m) On rescision of the contract - State of Maharashtra & Other

vs. Digambar Balwant {AIR 1979 (SC) – 1339 }

n) Forfeiture of security deposit - State of Gujrat vs. Dyabhai

Zavarbhai {1997 (1) Arb. LR 626) SC }

o) Forfeiture of security deposit - Indian Oil Corporation Ltd. vs.

Calcutta Metallising Co. { 1993(2) Arb LR. 123 (Delhi) }

p) Rescision and forfeiture of security deposit - Hansraj vs.

Delhi Development {1996(2) Arb. LR 144 (Delhi) }

q) Extention of contract - Anand & Association vs. Delhi

Development Authority {1997(2) Arb. LR 135 (Delhi) }

r) Excepted matter - Vishwanath Sood vs. Union of India {AIR

1989 (SC) 952 }.

s) Excepted matter - M/s. Prabartak Commercial Corp. Ltd. vs.

The Chief Administrator Dandakaranya Project {AIR 1991

(SC) 957 }.

t) On liquidated damages - Sudhir Brothers vs. Delhi

Development Authority {1995(2) Arb. LR 437 (Delhi) }.

u) On liquidated damages - Hans Constn. Co. vs. Delhi

Development Authority & others {1996 (Suppl) Arb. LR 420

(Delhi) }.

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v) Deviations / extra items of work essentially need written

order by the employer - State of J & K & ANR vs. Dev Dutt

Pandit {1999(3) RAJ 250 (SC) – 1997(7) SCC 339) }

w) Deviations / extra items of work essentially need written

order by the employer - Bhagat Ram Sahni & Sons vs. Delhi

State Industrial Development {1998(2) RAJ 188 (Del) }

x) Deviations / extra items of work essentially need written

order by the employer - Shri K.R. Anand vs. Delhi

Development Authority { 1997 (2) Arb. LR 109 (Delhi) }

y) Arbitrator cannot adjudicate the claim of contractor for

prolongation of the contract when the decision of the

concerned officer of the employer is final under the

agreement - Tilak Raj Katyal vs. Union of India & others {

1999(1) RAJ 227 (Del).

z) Remote or indirect loss or damages by reason of breach

cannot be considered by the arbitrator to grant any

compensation to the contractor - M/s. R.B. Chy. Ruchi Ram

Khattar & Sons vs. Delhi Development Authortiy { 1997(1)

Arb. LR 372 (Delhi) }.

aa) Arbitrator has jurisdiction on counter claim - Joseph

Vilangadan vs. F.A.C.T. { 1998(2) RAJ 28 (Kerala) }.

bb) The scope of Sec. 34 was expanded and the meaning of

public policy was elaborately defined - ONGC vs. SAW

Pipes Ltd. {AIR 2003 SC 2629 }

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 cc) Part – I of the Arbitration and Conciliation Act, equally

applies international commercial arbitration held outside

India - Venture Global Engg. Vs. Satyam Computer Services

Ltd. & another {2008-4 SCC 190 }.

dd) Issue of excepted matter was further clarified - BSNL vs.

Motorola India Pvt. Ltd. {2008(12) SCALE }.

ee) Issue of fraud committed while entering in to the agreement

and the validity of the award – Venture Global Engineering,

LLC v. Satyam Compter Services Ltd. and ANR. (2010(3)

Arb. LR 235 (SC).

ff) Part - I of the Arbitration and Conciliation Act does not apply

to International Commercial Arbitration taking place outside

India. Further, seat and venue of Arbitration were clarified.

Also, for non conventional countries the Act has no

application - Bharat Aluminium Co. Vs. Kaiser Aluminium

Technical Services Inc. {(2012) 9 SCC 552}.

(x) Enforcement of arbitral awards – Sections 35 and 36.

The Court can enforce the arbitral award as provided under Sections

35 and 36 of the Act. For execution, as usual the provisions of Code of Civil

Procedure, 1908 shall apply. The important aspect is that the filing of an

application under section 34 automatically acts as stay of the execution of the

arbitral award and only when the application under section 34 was decided or

when the time for filing such an application expired and no such application

was filed, the District Court can proceed further on the execution of the award.

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J) Appellate jurisdiction of District Courts - Section 37.

Apart from exercising the jurisdiction under Section 34 of the Act

(Setting aside of the award), the District Court can entertain appeals against

the decision of arbitral tribunal made under Section 16(2) or (3) on jurisdiction

and under Section 17 on granting of interim measures. Against these orders

of the court, no second appeal lies.

K) Lien on arbitral award and deposit as to costs – Section 39.

The arbitral tribunal can exercise a lien on the award for any unpaid

costs of the arbitration. In case of such a dispute, the District Court can

interfere on an application and ensure the payment of costs by the parties and

also the delivery of the award by the arbitrator.

L) Limitation – Section 43

The Limitation Act, 1963 shall apply to arbitrations as it applies to

proceedings in court. Further the with regard to the limitation, under section

21 of the Act, unless otherwise agreed by the parties, the arbitral proceedings

in respect of a particular dispute commence on the date on which a request

for that dispute to be referred to arbitration is received by the respondent.

Thus in case of calculating the limitation the receipt of the request for

23
appointment of an arbitrator is deemed to be the date of filing of the claim –

i.e. similar to the date of filing of a suit within the limitation period.

M) Enforcement of Foreign Awards - Sections 44 to 60

The Act prescribed a detailed procedure for enforcement of foreign

awards under sections 44 to 60, covered under Part – II of the Act.

N) The jurisdiction of High Court.

1. Under section 11 of the Act, the Chief Justice of the High Court is

empowered to appoint arbitrators.

2. Under section 37 of the Act, the High Court can entertain an appeal

against the order of the District Court under section 9 or 34. No

second appeal shall lie from an order passed in appeal under this

section.

O) The jurisdiction of Supreme Court

Under section 11 of the Act, in case of international commercial

arbitration, the Chief Justice of India is empowered to appoint arbitrators and

no appeal lies on the said order. Even though against the judgment / orders

of the High Court no direct appeal to Supreme Court is available, a Special

Leave Petition under Article 136 of the Constitution of India can always be

filed. But it is the discretionary jurisdiction of the Supreme Court. The

Supreme Court in M/s. SBP & Co. Vs. M/s. Patel Engineering Ltd., and

another (2005 AIR SCW 5932), held that the order of the Chief Justice of

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High Court under section 11 of the Act is a judicial order and an appeal will lie

against the order only under Article 136 of the Constitution of India.

3. Conciliation – Relevancy to subordinate judiciary

Under sections 61 to 81 of the Act (Part – III), Conciliation is provided.

The significance of the provisions is that under section 67 the Act meticulously

speaks about the role of conciliator and his duties. The relevancy of the

provisions to subordinate judiciary is that under section 73 and 74 the

conciliation settlement agreement has the status of a decree of a Court of Law

and it will be executed as if it is a decree of a Court. Thus the District Courts

will have to apply all the provisions of C.P.C. pertaining to execution

proceedings on the execution of settlement agreements. In case of any

challenge of the settlement agreement, the provisions of C.P.C. will apply and

the District Court can make an enquiry on the challenge of the said agreement

under section 47 of C.P.C.

4. NEED OF THE HOUR

The population in India has crossed over 125 crores. With growing

population the litigation also grows. It is very difficult to match the growing

litigation and the number of dispute resolution fora like Courts/Tribunals, etc.,

as the funds for establishing more courts should come from the Government.

ADR can supplement effectively the judiciary if trained persons act as

arbitrators and conciliators. Apart from that by conducting workshops

/training programmes, if capable candidates are empanelled as arbitrators /

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conciliators / mediators with the District Legal Services Authority and

accountability is also fixed on the empanelled professionals like Advocates,

Doctors, Engineers etc., the system of ADR can be proved to be very useful.

In fact, the Supreme Court insisted on creating panels of conciliators /

mediators and also fix remuneration for them in Salem Advocate Bar

Association, T.N. Vs. Union of India (2005 – 6 SCC 344).

With the dimension of Indian population, whatever is proposed or done

in resolution of disputes and reducing arrears in courts is not sufficient as

litigation is an ever growing Giant. A Country like U.S.A. with more resources

and limited population is actively promoting mediation/conciliation and

arbitration. Thus ADR plays its own effective role in reduction of arrears and

quickly resolving the disputes and also reducing the costs of litigation. Thus,

it is highly desirable that professional bodies like ICSI, ICA, ASCI, ESCI,

CIRE and similar institutions may maintain ADR Centers, maintain

panels of ADR Experts and also conduct training programmes.

5. A WORD OF CAUTION

ADR cannot be used as a ‘Mantra’. For every dispute ADR is not the

answer. Several issues like admitted liability, divorce, granting of probates,

maintenance, excepted matters in a contract etc., cannot be referred to

arbitration. ADR can be adopted only when there is no statutory bar and

further if the parties agree so. The Court invoking Section 89 of CPC must

be cautious of this fact.

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 Further, there is a criticism that arbitration some times proves to be

more costlier than court litigation. Hence, care should be taken that in letter

and spirit the arbitration and conciliation must prove to be cost effective and

highly qualitative in results. This systems of ADR proves to be safer and

effective only when the quality is maintained by the persons handling it. As

a safety measure the Arbitration and Conciliation Act, 1996 provides for

court’s intervention at the appropriate situations so that the system of ADR

will not be misused which results in miscarriage of justice at this juncture the

District Courts play a very pivotal and crucial role under sections 9, 14, 34, 37

and 39 of the Arbitration and Conciliation Act, 1996 and also under section

47 of the C.P.C.

6. Basic qualities of an ADR Expert

Basically competent professionals with due training can do a very

good job as mediators / conciliators / arbitrators and help the Courts in

reducing their burden. Basically ADR Experts must be matured persons in life

and also in their respective professions. First of all they must be freed from

their ‘ego‘ and must start their jobs with an open mind and free heart which is

the need of the hour for the judiciary and also legal profession in India.

7. Conclusion

In spite of all these provisions, the Act suffers from certain bottle necks

as the appellate jurisdiction must be further streamlined. It is desirable that

for setting aside the arbitral awards, provision may be made as an appeal to

High Court directly against all arbitral awards and in case of international

commercial arbitration an appeal may lie directly to only Supreme Court so

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that the arbitration definitely proves to be more effective. If it is done,

considerable time is saved and it reduces the pressure on District Judiciary

also. In spite of the bottlenecks, the 1996 Act definitely stands as an

improvement in many respects over the Arbitration Act, 1940 and it provides

effective ADR methods to reduced burden on the courts. The methods of ADR

provides a bye-pass system to the judiciary and plays a very effective

supplemental role to the judiciary.

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