NATIONAL LAW INSTITUTE UNIVERSITY, BHOPAL

International Trade Law

Project

On

Competence-Competence Principle of the Arbitration Agreement

Submitted by: Submitted to:

Deepti Uikey Professor Monika Raje

2019BALLB122
 CERTIFICATE

This is to certify that the project titled “Competence-Competence Principle of the Arbitration
Agreement” has been prepared and submitted by Deepti Uikey who is currently pursuing her
BA. L.LB. (Hons.) at National Law Institute University, Bhopal. This project has been
prepared for the fulfilment of the International Trade Law course. This is also to certify that
this is an original project work and that it has not been submitted to any other university.

Date:

Signature of student:

Signature of project supervisor:

 Acknowledgement

I would like to thank my International Trade Law professor Monika Raje for giving me the
opportunity of working on this project titled “ Competence-Competence Principle of the
Arbitration Agreement”. It helped me in enhancing my knowledge regarding the basic
concept of this principle and also in learning about its approach in the jurisdiction of India
and United States of America. I would also like to thank my family and friends for their
constant support and guidance. Lastly, I would like to thank the almighty God for showering
his blessings upon me.
Literature Review:The books referred for this project include:
 “The Pocket Books of The Hague Academy of International Law, Volume: 20” by
“Richard H. Kreindler” was referred for this project. This book attempts to solve the
problem related to corruption as well as competence in the international resolution of
disputes. These issues lately have become prominent and hence are discussed in detail
in this volume.
 “The Law and Practice of Arbitration- 4th Editionby Thomas E. Carbonneau”was
referred for this project. This book talks about the concepts, doctrines and basic
principles which are related to arbitration.
 “The Arbitration and Conciliation Act, 1996”was referred for this project. It
comprises of the various provisions for dealing with international and domestic
arbitration. It also explains how the proceedings for conciliation must be conducted.

Statement of Problem:It is widely accepted that the logic behind the doctrine of
competence restricts the intervention of courts and hence gives too much autonomy to the
jurisdiction of the arbitrator.

Objectives of Study:

 To examine the various aspects of the competence principle of the arbitration

agreement.
 To study the approach towards this principle in the light of the approach of India and
United States of America.
 To analyze the similarities and differences in the approach of these jurisdictions.
 To study the case laws relating to this principle and draw conclusions through them.

Hypothesis: The competence principle of arbitration agreement gives too much autonomy
to arbitrators in matters of jurisdiction and therefore is likely to hamper the unbiased conduct
of arbitration.

Research Questions:
 What are the various aspects of the competence principle of the arbitration
agreement?
 What is the approach towards this principle in the jurisdiction of India and United
States of America?
 What are the similarities and differences in the approach of these two jurisdictions?
 What are the conclusions that can be drawn by studying the case laws related to this
principle?
 Table of Contents

 Introduction
 Approach in India
 Approach in the United States of America
 Comparison between the Approach in India and the United States of America
 Conclusion and Suggestions
 Bibliography
 Introduction

The doctrine of competence is among the main principles that founded international
commercial arbitration. The doctrine gives the power to rule over their own jurisdiction first
to the arbitrators. The same power goes to the court in the specific nation after the arbitrators.
This can be explained in a few stages.

In the first stage,either the arbitrator or the courts have the power to decide whether the
court should resolve a dispute or it should be sent for arbitration. The second stage gives the
power to the arbitrator of choosing to resolve the dispute or not. At the third stage, the
intervention by the court into the dispute takes place if the arbitrators had not chosen in the
second stage to take up the dispute. Though, whom the deciding power rests upon depends on
the region where the parties are located and also on the laws applicable there. Still usually, no
problem occurs if the court intervenes in the third stage.1

The fact that the arbitrators get to choose first is the positive impact of this doctrine.
Though, the negative impact is that it limits the authority and power of the courts to intervene
by leaving the decision of exercising jurisdiction on the arbitrators. Therefore, a fine balance
is needed to be maintained between both the positive and negative impacts of this doctrine so
that the arbitrators do not get to unjustly suppress the jurisdiction of the courts.

1
The Law and Practice of Arbitration- 4th Edition” by Thomas E. Carbonneau”
 Approach in India

The Arbitration and Conciliation Act, 1996 in India includes provisions which talk about this
doctrine. Section162 of the act talks about the positive impact of the doctrine and discusses
about the power of the arbitration tribunal to exercise rule over a jurisdiction that is its
own.On the other hand, Section 453 of the act attempts to tackle the negative impact of the
doctrine which gives too much autonomy to the arbitrator. This section vests the power of
referring the parties to go for arbitration to the judicial authority subject to certain terms and
conditions. The terms and conditions include the agreement on the face of it being incapable
of performance, inoperative; or null and void.

Three judgments have been delivered by the Supreme Court of India regarding the
negative impact of this doctrine. Firstly, in the case ofShin-Etsu Chemical Co Ltd v Aksh
Optifibre Ltd4, the Supreme Court held that courts have to review prima facie the agreement
of arbitration for determining the fact that it is not incapable of performance, inoperative; or
null and void. Later,in the case ofSBP & Co v Patel Engineering5, the court allowed full-
fledged judicial review that was to be based upon the merits of the agreement of arbitration.
This led to a halt in the power of ruling over its jurisdiction that was vested upon the arbitral
tribunal. Finally, in the case of Agri Gold Exims Ltd v Sri Lakshmi Knits and Wovens6, the
Supreme Court held that courts obiter dictum were permitted to only conduct reviews that
were prima facie; even if the existence of an agreement of arbitration remained undisputed.

2
“The Arbitration and Conciliation Act, 1996”
3
ibid
4
Shin-Etsu Chemical Co Ltd v Aksh Optifibre Ltd, [2005] 7 SCC 234, XXXI YCA 747 (2006)
5
SBP & Co v Patel Engineering [2005] 8 SCC 618.
6
Agri Gold Exims Ltd v Sri Lakshmi Knits and Wovens, Civil Appeal No 336 of 2007, decided on 23 January 2007.
 Approach in the United States of America

The approach of the United States cancels out the negative impact of the doctrine which gives
too much autonomy to the arbitrators. This happens as the agreement of arbitration in the first
stage itself is to be reviewed completely by the courts. There are several leading judgments in
the United States that have framed the approach towards this doctrine.

In the case ofPrima Paint Corp v Flood & Conklin Mfg Co7, the Supreme Court held that
the arbitrator can exercise jurisdiction if the claimwhich asked for nullity had fraud which
entirely induced the contract. Though, the jurisdiction was to be vested with the court if it
was only the agreement of arbitration that was involved in the claim. In the case ofFirst
Options of Chicago v Kaplan8, it was held that the courts have the authority to decide
regarding the validity and existence of the agreement of arbitration. But if questions
regarding the scope of that agreement arise; then they are supposed to be addressed by the
arbitrator. Further, in the case ofHowsam v Dean Witter Reynolds9, it was clarified that in the
first stage of this doctrine the arbitrators hold the authority over the issues falling under the
scope of agreement of arbitration.

Comparison between the Approach of India and the United States of

America

The approach towards the doctrine of competence adopted by the United States tackles the
negative impact in a better manner. This happens as the agreement of arbitration in the first
stage itself is to be reviewed completely by the courts there which does not lead to dominance
by the arbitrators.

On the other hand in India, though Section 45 of The Arbitration and Conciliation Act,
1996 attempts to tackle the negative impact of the doctrine; Section 16 of the same act
discusses about the power of the arbitration tribunal to exercise rule over a jurisdiction that is
its own. Hence, by the virtue of Section 16, the arbitrators somewhat get an advantage over
the jurisdiction of the courts.

7
Prima Paint Corp v Flood & Conklin Mfg Co, 388 US 395 (1967).
8
First Options of Chicago v Kaplan 514 US 938 (1995).
9
Howsam v Dean Witter Reynolds Inc 537 US 79 (2002).
 Conclusion and Suggestions

It can fairly be concluded that the doctrine of competence does help in deciding the
jurisdiction of an arbitral dispute but it does not help in understanding or examining the
nature of the decision that is finally made with regard to a dispute.10

The main purpose of this doctrine is to give more powers to the arbitrators so that the
courts of any particular jurisdiction do not unjustly use their powers and restrict the scope of
the powers of the arbitrators. Also, this doctrine is economical as it saves the costs of holding
judicial proceedings. In addition, it saves the time and energy of the courts which have other
cases under their jurisdiction to look after. Overall, this doctrine is efficient and saves time,
money and energy.

It is suggested that in order to maintain uniformity, the same set of rules with regard to
this doctrine should be applied in all nations worldwide. This will reduce ambiguity and
doubt regarding its application in various jurisdictions which will lead to speedy disposition
of disputes.

10
“The Pocket Books of The Hague Academy of International Law, Volume: 20” by “Richard H. Kreindler”
 Bibliography

The sources referred for this project include:

 “The Pocket Books of The Hague Academy of International Law, Volume: 20”
 “The Law and Practice of Arbitration- 4th Edition by Thomas E. Carbonneau”
 “The Arbitration and Conciliation Act, 1996”
 www.jstor.com
 www.quora.com