JUDICIAL PRECEDENTS RELATED TO MEDIATION

SALEM BAR ASSOCIATION V. UNION OF INDIA (2003) 1 SCC 49

In this matter, Writ Petitions were filed challenging the Amendments made to the Code of
Civil Procedure by way of Amendment 46 of 1999 and Amendment 22 of 2002. Amongst
other amendments, the attention of the Hon'ble Supreme Court was drawn to Section 89 of
the Code of Civil Procedure. The Hon'ble Supreme Court observed that the provision of
Section 89 of the Code of Civil Procedure has been inserted to ensure that all the cases which
are filed in the courts need not necessarily be decided by the courts. The Hon'ble Supreme
Court opined the need to promote Alternate Dispute Resolution. It therefore, considered
Section 89 to be a welcome step. It was therefore suggested by the Hon'ble Supreme Court,
that a Committee be constituted so as to ensure that the amendments made to the Code of
Civil Procedure become effective and result in quicker dispensation of justice.
The relevant portions of this judgement reads as follows:
"8. Our attention was then drawn to a new Section 89 which has been introduced in the Code
of Civil Procedure. This provides for settlement of disputes, etc., and reads as under:
"89. Settlement of disputes outside the Court.--(1) Where it appears to the Court that there
exist elements 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--
(a)arbitration;
(b)conciliation;
(c) judicial settlement including settlement through Lok Adalat; or (d) mediation.
(2) Where a dispute has been referred--
(a) for arbitration or conciliation, the provisions of the Arbitration and Conciliation Act, 1996
(26 of 1996) shall apply as if the proceedings for arbitration or conciliation were referred for
settlement under the provisions of that Act;
(b) to Lok Adalat, the Court shall refer the same to the Lok Adalat in accordance with the
provisions of Sub-section (1) of Section 20 of the Legal Services Authority Act, 1987 (39 of
1987) and all other provisions of that Act shall apply in respect of the dispute so referred to
the Lok Adalat.
(c) for judicial settlement, the Court shall refer the same to a suitable institution or person and
such institution or persona shall be deemed to be a Lok Adalat and all the provisions of the
Legal Services Authority Act, 1987 (39 of 1987) shall apply as if the dispute were referred to
a Lok Adalat under the provisions of that Act;
(d) for mediation, the Court shall effect a compromise between the parties and shall follow
such procedure as may be prescribed."
"9. It is quite obvious that the reason why Section 89 has been inserted to try and see that all
the cases which are filed in court need not necessarily be decided by the court itself. Keeping
in mind the law's delay and the limited number of Judges which are available, it has now
become imperative that resort should be had to Alternative Dispute Resolution Mechanism
with a view to bring to an end litigation between the parties at an early date. The Alternative
Dispute Resolution (ADR) mechanism as contemplated by Section 89 is arbitration or
conciliation or judicial settlement including settlement through Lok Adalat or mediation.
Sub-section (2) of Section 89 refer to different acts in relation to arbitration, conciliation or
settlement through Lok Adalat, but with regard to mediation Section 89(2)(d) provides that
the parties shall follow the procedure as may be prescribed. Section 89(2)(d), therefore,
contemplates appropriate rules being framed with regard to mediation."

"10. In certain countries of the world where ADR has been successful to the extent that over
90 per cent of the cases are settled out of court, there is a requirement that the parties to the
suit must indicate the form of ADR which they would like to resort to during the pendency of
the trial of the suit. If the parties agree to arbitration, then the provisions of the Arbitration
and Conciliation Act, 1996 will apply and that case will go outside the stream of the court but
resorting to conciliation or judicial settlement or mediation with a view to settle the dispute
would not ipso facto take the case outside the judicial system. All that this means is that effort
has to be made to bring about an amicable settlement between the parties but if conciliation
or mediation or judicial settlement is not possible, despite efforts being made, the case will
ultimately go to trial."
"11. Section 89 is a new provision and even though arbitration or conciliation has been in
place as a mode for setting the disputes, this has not really reduced the burden on the courts.
It does appear to us that modalities have to be formulated for the manner in which Section 89
and, for that matter, the other provisions which have been introduced by way of amendments,
may have to be in operation. All counsel are agreed that for this purpose, it will be
appropriate if a Committee is constituted so as to ensure that the amendments made become
effective and result in quicker dispensation of justice."
"12. In our opinion, the suggestion so made merits a favourable consideration. With the
constitution of such a Committee, any creases which require to be ironed out can be identified
and apprehensions which may exist in the minds of the litigating public or the lawyer's
clarified.."
"12.....This Committee will be at liberty to co-opt any other member and to take assistance of
any member of the Bar or Association. This Committee may consider devising a model case
management formula as well as rules and regulations which should be followed while taking
recourse to the ADR referred to in Section 89. The model rules, with or without modification,
which are formulated may be adopted by the High Courts concerned for giving effect to
Section 89(2)(d)."
"24. ...The Committee would consider the said difficulties and make necessary suggestions in
its report. It is hoped that the amendments now made in the Code of Civil Procedure would
help in expeditious disposal of cases in the trial courts and the appellate courts."
AYYASAMY V. A. PARAMASIVAM AND ORS. CASE STUDY
FACTS OF THE CASE
Partnership deed for carrying hotel business and this partnership has been running a hotel
with the name of Hotel Arunagiri located at Tirunelveli, Tamil Nadu.
An arbitration clause was there in the deed which bound the parties to solve the dispute by
arbitration.
The Appellant was entrusted with administration, the Respondents alleged that the Appellant
had failed to make unvarying deposits of money into the joint operating bank account and
had unfairly tapped off an amount of INR 10,00,050. In a separate raid conducted by the CBI
on premises of the Appellant’s relative, an amount of INR 45, 00,000 was snatched and
suspected to have been given by the Appellant for business of the hotel.
A civil suit was filed by the defendant looking for a statement that as partners they are
entitled to participate in the administration of the hotel and also a relief of permanent
injunction restraining the defendant form interfering with their right to participate in the
administration of the hotel.
The appellant, on receiving the summon raised an objection and made an application under
A&C, Act of 196 raising the objection that the suit is not maintainable as there was an
agreement which contains an arbitration clause and according to which the dispute has to be
solved by the arbitration and it is mandatory for the court to refer the matter to the arbitration.
To this the respondent replied that there was fraud on the part of the appellate which cannot
be adjudicated by the arbitration and referred the judgement in the case of N. Radhakrishnan
v. Maestro Engineers and Ors.
To this the appellate argued that the judgement laid down in the case of N. Radhakrishnan v.
Maestro Engineers and Ors. was found to be per incuriam by the court in the case of Swiss
Timing Ltd. v. Commonwealth Games 2010 Organising Committee in which it was held that
the under section 11 of the A&C Act, fraud can be adequately taken care of even by the
arbitrator.
The trial court dismissed the application of the Appellant relying upon the judgement in N.
Radhakrishnan v. Maestro Engineers and Ors.
Thereafter, the appellant filed a revision petition before the HC repeating his contention that
judgement in N. Radhakrishnan v. Maestro Engineers and Ors. was held to be per incuriam in
the judgement in Swiss Timing Ltd.
The HC has also chosen to go by the dicta laid down in N. Radhakrishnan with the
observation that the judgement in N. Radhakrishnan is rendered by a Division Bench of two
Hon. Judges of this court and in Swiss Timing Ltd. The order was passed by a single Judge
of this court.
Now in the appeal before the SC the question which needs to be determined is – whether the
view of the HC in following the dicta laid down in the case of N. Radhakrishnan, in the facts
of this case, is correct or not.
The A&C Act, does not make any specific provision which excludes any category of disputes
terming them to be non-arbitrable and it has been laid down in numerous of cases that the
scope of judicial intervention, in the cases where there is arbitration clause which is clear and
unambiguous, would be very limited and minimal. As, section 8 contains a mandate that were
an action is brought before a judicial authority, where the subject is of an arbitration
agreement, the parties shall be referred to the arbitration. The only exemption to this is when
the authority finds prima facie that there is no valid arbitration agreement.
Section 16 empowers the arbitral tribunal to rule upon its own jurisdiction, including ruling
on any objection with respect to the existence or validity of an arbitration agreement. As per
Section 16(1), the decision of arbitral tribunal that a contract is null and void shall not mean
that the arbitration agreement is also null and void. The arbitration agreement or clause is
treated as a separate agreement than the contract.
Section 34(2)(b) and Section 48(2) provide as one of the grounds for challenge in respect of
the enforceability of an award on the ground that the dispute is not capable of settlement by
arbitration under the law for the time being in force.
From the combined readings of section 5, 16 and 34 of the A&C Act, it can be inferred that it
has to be shown that there is a law which makes subject matter of a dispute incapable of
settlement by arbitration and according to section 5 of the act, it is clear that there should not
be any judicial intervention if there is a valid arbitration agreement between the parties. Also
the validity of the arbitration agreement/clause has to be decided by the Arbitral Tribunal
only (As per Section 16 of the Act). This has been also laid down in the judgement of
Kvaerner Cementation India Ltd. V. Bajranglal Agarwal and Anr.
Further in the case of Abdul Kadir Shamsuddin Bubere V. Madhav Prabhakar Oak it was
held by the court that the serious allegations of fraud are sufficient ground for not making a
reference to arbitration. The court in this case referred the judgement laid down in the case of
Russell v. Russell in which it was laid down that in case where fraud is charged, the court
will in general refuse the dispute to arbitration but in case the objection to arbitration is there
by a party charging the fraud, the court will not accede it until and unless a prima facie case
of fraud is proved.
It was also observed by the court that, where there are serious allegations of the fraud, the
dicta contained in the above-mentioned judgement are understandable but mere allegations of
fraud in pleadings cannot be a ground to declare the matter as incapable of settlement by an
arbitrator.
Further in the case of Booz Allen and Hamilton Inc. v. SBI Home Finance Limited and Ors. it
was held by the court that the cases where the subject matter falls exclusively within the
domain of public for a(right in rem), such disputes cannot be decided by the Arbitral Tribunal
but by the courts only and the disputes where the subject falls under the private for a (right to
personam) are arbitrable. This is not, however, a rigid or inflexible rule.
CENTROTRADE MINERALS AND METAL INC. V. HINDUSTAN COPPER LTD
The Supreme Court judgment dated 2nd June, 2020 brought an end to a long-standing dispute
(1999) between M/s Centrotrade Minerals and metals Inc. (“Centrotrade”/ “the Appellant”), a
U.S. based Corporation, and Hindustan Copper Ltd. (“HCL”/ “the Respondent’). The
judgment by the Supreme Court further reinforced the pro-enforcement bias which forms the
basis of the New York Convention on the Recognition and Enforcement of Foreign Arbitral
Awards as it protected the sanctity of the arbitration mechanism by relying on a narrow
interpretation of Section 48(1)b) of the Arbitration and Conciliation Act, thereby reversing
the judgment passed by a division of the apex court in 2006. The judgment tackled three
major issues:

Whether the Respondent was given a fair opportunity to present its case in the Arbitration
proceeding.
The interpretation of Section 48(1)(b) of the Arbitration and Conciliation.
The authority of an arbitrator in the arbitration proceeding.
Summary of Relevant Facts
The question before the court in the present case was whether the Respondent was given a
fair opportunity to present its case in the foreign arbitration. The court considered the facts of
the London arbitration as well as the previous judgment s passed by this court on this issue.
The court took cognisance of the fact that the arbitrator gave HCL as many as six
opportunities to present its case. Only when the arbitrator gave a final opportunity after which
he intended to proceed with the award, did HCL respond and asked for extension twice
before it submitted the documents in support of their case. Even though the arbitrator wasn’t
bound to consider HCL’s submission due to their belated nature, he took them into account
before giving the final award. In the 2006 judgment, Justice Chatterjee held that HCL wasn’t
given a fair opportunity to present its case because the arbitrator did not consider the
additional material provided by the Respondent before passing the award even though the
court did not receive any evidence of the same.
Legal Issue: Whether HCL was Given A Fair Opportunity to Present its Case
The present judgment highlighted a mistake of fact in Justice Chatterjee’s judgment (2006) as
he conjectured that the arbitrator further received more material from HCL between the last
deadline i.e. 13th September and the award passed on 29th September which he did not
consider before delivering the award. There was no supporting material available with Justice
Chatterjee as any documents supporting this claim were presented by the Respondent for the
first time before the bench in the present case. Thus, there is a grave mistake of fact which
formed the basis of the 2006 judgment stating that HCL wasn’t given a fair opportunity to
present its case.
Moreover, even if we assume that any new material was indeed submitted after the final
deadline, the award cannot be challenged because an arbitrator exercises control over the
procedural orders and the deadlines and hence it is the arbitrator’s prerogative to consider any
late submissions. The approach adopted by the 2006 judgment goes against the pro-
arbitration sentiment developed by the Supreme Court in a plethora of its previous judgments.
The court’s approach relied on the principle of natural justice to prove that HCL got a fair
opportunity to present its case. The provision in Section 48(1)(b) of the Arbitration and
Conciliation Act will apply only when the enforcee fails to present his case due to
circumstances “not under his control”. On the other hand, when the enforcee does not take
advantage of the opportunity given to him because of any circumstance which was under his
own control, he won’t be able to take advantage of the exception provided in Article 48(1)(b).
[Minmetals Germany GmbH v. Ferco Steel Ltd. (1999) C.L.C. 647 (Section 103(2)(c) is pari
materia to Section 48(1)(b) of the 1996 Act)]

A reasonable test to determine whether a fair hearing was given or not is to check whether the
argument in question forms the root of the case and which if goes unconsidered will result in
denial of justice to the prejudice of the party. A caveat to this test is that the award should
always be read with an inclination to uphold it. [Ssangyong Engineering and Construction
Co. Ltd. vs. National Highways Authority of India (NHAI).] Thus, a party cannot
intentionally ignore the procedural orders of an arbitral tribunal and then successfully claim
that the procedures were fundamentally unfair. [Jorf Lasfar Energy Co. v. AMCI Export
Corp.] Moreover, if the respondent claims that the result of the arbitration would have been
different had he been given a fair opportunity of being heard without identifying the basis for
the same, the enforcing court won’t play role in considering whether the award was correct
either in law or on facts. [Cuckurva Holding A.S. v. Sonera Holding B.V.] Lastly, the burden
of proof for showing that the arbitral process violated the “basic notions of fundamental
fairness and justice” lies with the party challenging the enforcement of award. [Jorf Lasfar
Energy Co.]
Analysis
1. Effective Enforcement of Foreign Awards

Through this judgment, the Supreme court has reinforced its stance towards the pro-
enforcement bias set by the New York Convention by providing for a narrow interpretation of
the grounds for refusal of Enforcement of Arbitral Awards. In numerous judgments like Vijay
Karia v. Prsymian Cavi E Sistemi SRL, Ssangyong Engineering and Construction Co. Ltd.
vs. National Highways Authority of India (NHAI) as well as the present judgment, Justice
Nariman has heavily relied on foreign judgments in order to elucidate the importance of
foreign awards with minimal interference by national courts. In order to resolve the present
dispute, Justice Nariman relied on various foreign judgments like Minmetals Germany GmbH
v. Ferco Steel Ltd., Dongwoo Mann+Hummel Co. Ltd. v. Mann+Hummel GmbH, Cuckurva
Holding A.S. v. Sonera Holding B.V.amongst others, which highlights Supreme Court’s
effort towards effective enforcement of awards in India. This approach is highly essential as
the parties while enjoying the benefits of the arbitration mechanism, lose the “the right to
seek redress from the court for all but the most exceptional errors at arbitration.” [Dean v.
Sullivan]

2. The Interpretation of Section 48(1)(b) of the Arbitration and Conciliation Act,1996

Section 48(1) of the 1996 Act provides for the grounds on which the enforcement of a foreign
award can be refused. Sub-clause (b) can be invoked when:
“the party against whom the award is invoked was not given proper notice of the appointment
of the arbitrator or of the arbitral proceedings or was otherwise unable to present his case;”

The counsel for the respondent argued for a wider interpretation of the term “otherwise” as he
proposed that the expression “otherwise” cannot be read ejusdem generis (i.e. of or as the
same kind) with words that precede it and cited Kavalappara Kottarathil Kochuni v. States of
Madras and Kerala in order to substantiate the same. The court did not concede to this
reasoning because “otherwise” is defined as “in some other like capacity” and is commonly
interpreted in a restricted sense as referring to some other matter which is similar to the
classes mentioned before. [Monck v. Hilton]. After referring the context of the New York
Convention, 1958 and the Vijay Karia Case, the court concluded that when “otherwise” is
susceptible of two meanings then the narrower meaning is preferred which is in consonance
with the pro-enforcement bias. (Principle of Maximum efficiency) [Parsons & Whittemore
Overseas Co Inc v Société Générale]

3. The Authority of the Arbitrator in the Arbitration Proceedings.

In the 2006 judgment passed by the Division Bench of the Supreme Court, Justice Chatterjee
held that refusal by the arbitrator to consider any other submissions by HCL after giving them
extensions on various occasions “seems to be based on frivolous technicality.” This poses a
question as to the authority of the arbitrator to set deadlines and his power to not entertain
any delays. A party does not have an absolute right to be consulted for his convenience in
every matter and the discretion with regards to consideration of any delay lies with the
arbitrator and the court can intervene only in the light of positive abuse. [Montrose Canned
Foods Ltd. v. Eric Wells (Merchants)]. And if any party chooses not to appear in the
proceedings even after being given a proper notice then the proceedings may continue in his
absence. [British Oil and Cake Mills Ltd. v. Horace Battin & Co. Ltd.] Arbitrator’s decision
to not consider any more submissions should not be seen as perverse keeping in mind that the
object of arbitration proceedings is speedy resolution of a dispute. [Hari Om Maheshwari v.
Vinitkumar Parikh]

The Supreme Court’s approach recognises the wilful delays by the parties (almost invariably
the respondent) with the intention to resist the enforcement of the arbitral award. The arbitral
tribunal does not have to entertain ignorance towards the procedural directives and hence can
draw possible sanction of adverse inference against the defaulting party. [Dongwoo
Mann+Hummel Co. Ltd. v. Mann+Hummel GmbH] Thus, it is reasonable for an arbitrator to
even proceed ex parte if one of the parties fails or refuses to appear. Although it is desirable
that the arbitrator balances the various factors involved and give an award that itself shows,
on its face, the circumstances in which the party did not participate.