STRUCTURE:

1. Nature of Arbitration Agreement

2. What does the arbitration agreement do?

3. How does arbitration agreement be implemented and carried out?

In mediation, the predictability goes down as the court will not have access to all the

resources and materials that went into the process. But when an arbitral award is challenged

in the court, the court will have access to more materials.

In mediation or arbitration, the parties are ones who are in the position of expressing their

views. But in court proceedings, the party autonomy is lower.

Arbitration is adjudicatory and it is a means of finding facts.

ADR is to go out of the court and settle not ‘resolve’ the dispute.

Difference between Settlement and Resolving Dispute:

Settlement happens in court as well. For example, Family Courts.

Property Disputes such as Partition as well are first left to Mediation and only when the

dispute reaches the irreconcilable state, it will be brought before the court. This is backed by

legislation itself.

There are court backed out-of-court settlements, legislation backed out-of-court settlements

and meta-arb clauses. – Ways in which Mediation exists in India.

Section 89 of CPC:
89(1):

Where it appears to the court – This is in the discretion of the court and the court’s

perception. If it does not appear to the court that there are no settlement elements, then this

whole process will not even happen.

There exist elements of a settlement which ‘may be acceptable to the parties’ – ‘May be’

means that the consent of the parties is not a necessity but rather consent may be or may not

be present.

The Court ‘shall’ formulate the terms of settlement and give them to the parties for their

observations – The Court is obligated to formulate the terms of settlement in this case and

give it for party observations.

After receiving the observations of parties, the Court ‘may’ reformulate the terms of a

possible settlement and refer the same for – The Court is not obligated to reformulate the

settlement terms according to the party observations so the court has the option to take it into

consideration or not.

Problems with 89(1)(c): Judicial Settlement – The court can refer the settlement to its own

organ again which ultimately defeats the consent or autonomy of the parties.

Problems with 89(1) - (a), (b) and (d) – Arbitration, Mediation and Conciliation are mainly

based on party autonomy. But in this section, the court is referring the parties to arbitration or

mediation, etc. which totally defeats the purpose because arbitration will happen only when

there is an arbitration agreement.

ARBITRATION CAN START ONLY WHEN THERE IS AN ARBITRATION

AGREEMENT AS THE PARTIES GIVE THEIR CONSENT TO PARTICIPATE IN

ARBITRATION THROUGH THE ARBITRATION AGREEMENT. SO, IF THERE IS NO

ARBITRATION AGREEMENT, THEN THERE IS NO CONSENT OF THE PARTIES TO

GO INTO ARBITRATION AND ARBITRATION CANNOT HAPPEN IN THAT

INSTANCE.

Discretion cannot be told to be exercised in a certain way. Only the process of exercising the

discretion can be given by Hard Law and Soft Law and the outcome is independent.

Problems with 89(2):

2(a) – the provisions of Act ‘shall’ apply as if the proceedings for arbitration or conciliation

were referred for settlement under the provisions of that Act – The party’s consent is not

required in this case, or no arbitration agreement is required to be entered into before the

court refers the parties for the same. But this provision says that the provisions shall apply as

if proceedings for arbitration or conciliation were referred for settlement under the provisions

of that Act.

89(a) – The intent behind not including the phrase ‘The Court shall refer’ which is mentioned

S.89(2)(b), (c) and (d) in this subsection is to give the parties some more autonomy to decide

their seat, venue and arbitrators and so on. But the phrasing of the subsection is not correct as

it basically means that the arbitration can be taken place even when there is no arbitration

agreement which is one of the required procedure under the AC Act.

89(b) and (c) – the court ‘shall’ refer the parties to Lok Adalat or judicial settlement

according to the mentioned provisions even if the parties are not inclined to it.

89(d):
The court ‘shall’ effect a compromise between the parties – The Court will effect a

compromise even if the parties will want it or not want it because the legislation obligates it.

‘shall’ follow such procedure as ‘may be prescribed’ – The court will follow the procedure as

may be prescribed. But it is not mentioned who will prescribe the procedure as the procedure

is not in place at that time. So, the court will follow the procedure to effect the compromise

that the parties might not even want, in the procedure that the court prescribes.

Arbitration Agreement usually deals with prospective disputes which might arise in the future

and it is included in the contract. But there are instances when the parties enter into a

arbitration agreement when they do not want to approach the court, even after the dispute has

arisen.

Even if consent is not expressly written, the basis of ADR is consent.

Difference between Conciliation and Mediation:

Mediator is a facilitator who just facilitates and not adjudicates.

Conciliator plays a more active role and exercises more control than the mediator.

Sample Arbitration Agreement:

Any dispute, arising out of, or, in connection with, the performance, or interpretation, of

THIS agreement shall be resolved through arbitration. Each party shall nominate its own

arbitrator, and the two arbitrators so nominated shall nominate the chairman. The seat of the

Arbitration shall be in ‘Luxemberg’. ICC Rules will be applicable to govern the procedure.
THIS agreement shall be governed by the Arbitration and Conciliation Act, 1996 (as

amended upto date). [Basically seat, procedural rules, governing law should be mentioned]

When the legislation prescribes a procedure, then the judges or judgement cannot go against

it or prescribe another procedure. They can only clarify and interpret the procedure already

prescribed by the legislation.

Arbitration agreement is a manifestation of the consent and choice of the parties. When

parties come together with consent to arbitrate and in pursuance of that consent, the

agreement is made.

Is Consent and Autonomy the same? Is choice and autonomy the same?

Arbitration is used to achieve predictability.

Arbitration agreement is a tailormade solution to end the dispute through arbitration.

It should contain consent, autonomy and choices.

Chronology:

Arbitration – Consent – Autonomy – Choices.

Since Arbitration Mechanism exists where the party can obtain predictable outcomes and

exercise his autonomy, the parties give their consent to arbitrate which in-turn provides them

the autonomy to make their own choices through the arbitration agreement.
Consent:

Any dispute arising out of or in connection with the performance of THIS agreement shall be

resolved through arbitration.

Consent to arbitrate should be unqualified, unambiguous and unequivocal. There should not

be ambiguity about when to go into arbitration. - Afcons Infrastructure v. Cherian Verkey

Pvt. Co. Ltd., (2010) 8 SCC 24.

The terms ‘shall be resolved’ indicates the consent of the parties to arbitrate in the

abovementioned arbitration agreement.

For example, when the agreement states that “may arbitrate” or “will try to amicably resolve

the dispute failing which they may arbitrate” leads to ambiguity and therefore, there is no

consent to arbitrate. But in case if “will try to amicably resolve the dispute failing which they

shall arbitrate” will be an arbitration agreement as there is no ambiguity and there is still

consented to arbitrate. This can be an example of a metarb clause.

Even when there is an availability of a precondition is there, if the consent to enter into

arbitration is unambiguous and unequivocal, then it is an arbitration agreement.

Jagdish Chander v. Ramesh Chander:

“(i) The intention of the parties to enter into an arbitration agreement shall have to be

gathered from the terms of the agreement. If the terms of the agreement clearly indicate an

intention on the part of the parties to the agreement to refer their disputes to a private tribunal

for adjudication and an willingness to be bound by the decision of such tribunal on such

disputes, it is arbitration agreement. While there is no specific form of an arbitration

agreement, the words used should disclose a determination and obligation to go to arbitration
and not merely contemplate the possibility of going for arbitration. Where there is merely a

possibility of the parties agreeing to arbitration in future, as contrasted from an obligation to

refer disputes to arbitration, there is no valid and binding arbitration agreement.

(ii) Even if the words 'arbitration' and 'arbitral tribunal (or arbitrator)' are not used with

reference to the process of settlement or with reference to the private tribunal which has to

adjudicate upon the disputes, in a clause relating to settlement of disputes, it does not detract

from the clause being an arbitration agreement if it has the attributes or elements of an

arbitration agreement. They are : (a) The agreement should be in writing. (b) The parties

should have agreed to refer any disputes (present or future) between them to the decision of a

private tribunal. (c) The private tribunal should be empowered to adjudicate upon the disputes

in an impartial manner, giving due opportunity to the parties to put forth their case before it.

(d) The parties should have agreed that the decision of the Private Tribunal in respect of the

disputes will be binding on them.

(iii) Where the clause provides that in the event of disputes arising between the parties, the

disputes shall be referred to Arbitration, it is an arbitration agreement. Where there is a

specific and direct expression of intent to have the disputes settled by arbitration, it is not

necessary to set out the attributes of an arbitration agreement to make it an arbitration

agreement. But where the clause relating to settlement of disputes, contains words which

specifically excludes any of the attributes of an arbitration agreement or contains anything

that detracts from an arbitration agreement, it will not be an arbitration agreement. For

example, where an agreement requires or permits an authority to decide a claim or dispute

without hearing, or requires the authority to act in the interests of only one of the parties, or

provides that the decision of the Authority will not be final and binding on the parties, or that

if either party is not satisfied with the decision of the Authority, he may file a civil suit

seeking relief, it cannot be termed as an arbitration agreement.

(iv) But mere use of the word 'arbitration' or 'arbitrator' in a clause will not make it an

arbitration agreement, if it requires or contemplates a further or fresh consent of the parties

for reference to arbitration. For example, use of words such as "parties can, if they so desire,

refer their disputes to arbitration" or "in the event of any dispute, the parties may also agree to

refer the same to arbitration" or "if any disputes arise between the parties, they should

consider settlement by arbitration" in a clause relating to settlement of disputes, indicate that

the clause is not intended to be an arbitration agreement. Similarly, a clause which states that

"if the parties so decide, the disputes shall be referred to arbitration" or "any disputes between

parties, if they so agree, shall be referred to arbitration" is not an arbitration agreement. Such

clauses merely indicate a desire or hope to have the disputes settled by arbitration, or a

tentative arrangement to explore arbitration as a mode of settlement if and when a dispute

arises. Such clauses require the parties to arrive at a further agreement to go to arbitration, as

and when the disputes arise. Any agreement or clause in an agreement requiring or

contemplating a further consent or consensus before a reference to arbitration, is not an

arbitration agreement, but an agreement to enter into an arbitration agreement in future.

If the clause had merely said that in the event of disputes arising between the parties, they

"shall be referred to arbitration", it would have been an arbitration agreement. But the use of

the words "shall be referred for arbitration if the parties so determine" completely changes the

complexion of the provision. The expression "determine" indicates that the parties are

required to reach a decision by application of mind. Therefore, when clause 16 uses the

words "the dispute shall be referred for arbitration if the parties so determine", it means that it

is not an arbitration agreement but a provision which enables arbitration only if the parties

mutually decide after due consideration as to whether the disputes should be referred to

arbitration or not. In effect, the clause requires the consent of parties before the disputes can

be referred to arbitration. The main attribute of an arbitration agreement, namely, consensus

ad idem to refer the disputes to arbitration is missing in clause 16 relating to settlement of

disputes. Therefore it is not an arbitration agreement, as defined under section 7 of the Act.”

But when there is a precondition clause to enter into arbitration, there is again a question of

which option did the parties consent to?

Example: “will try to amicably resolve the dispute failing which they shall arbitrate”

Here, if they fail to amicably resolve the dispute, then they will go into arbitration. But what

will constitute as amicable resolution?

There are three scenarios which can happen in the first tier:

1. Process fails

2. Process Successful

3. Process Successful (Outcome violates)

So, whether the arbitration mechanism takes place in these three scenarios is as follows:

 Process fails – Since process fails, the parties will go into arbitration

mechanism according to the agreement.

 Process Successful – Since first tier is successful, then the parties will not go

into arbitration.

 Process Successful (Outcome violates) – What happens here?

Process Successful (Outcome violates):

Arbitration is a mechanism/procedure. Similarly, mediation, court proceedings, etc. are also

mechanisms to resolve the dispute. By default, when a dispute arises, the parties will resolve
the dispute by approaching the court. But when the parties do not want to settle the dispute in

the court, then they can choose to resolve the dispute through a different

mechanism/procedure such as arbitration, etc.

There are two arguments in this situation:

One Side: The arbitration agreement states that parties will go into arbitration only when the

dispute is not amicably resolved. So, when the process is successful, but the outcome

breaches the settlement agreement or violates the agreement, then the was still amicable

resolution of the dispute though the outcome was not desired. So, the parties will not go into

arbitration.

Other Side: Even if there was amicable resolution, the outcome violates the agreement. So,

there is no amicable resolution and parties will go into arbitration. If this is not the case and if

arbitration is not the forum of dispute resolution, where will the parties go to resolve the

dispute? How will the jurisdiction of the courts be decided?

THIS GIVES RISE TO THE QUESTION OF AUTONOMY.

The arbitration agreement is a manifestation of the consent to enter into arbitration

mechanism which gives the autonomy to decide the choices that leads to predictable

outcomes.

Pathological Clauses:

But in a situation where the arbitration agreement specifies that the seat of arbitration is

London, the laws governing is Uzbek Arbitration Law, Rules is Bangladesh Rules – this sort

of arbitration is not possible to provide predictable outcomes.

Another example of this ambiguous autonomy is when the seat is in London and the laws

governing are AC Act, Indian Law. This is problematic because English Law has certain

restrictions which conflicts with Indian Law.

So, even though the parties have the autonomy to choose their seat, venue and laws

governing them, it should be in such a way which gives rise to predictable outcomes. So,

though this agreement will qualify as an arbitration agreement, this is a Pathological

agreement. Autonomy is the manifestation of consent.

Arbitration Agreements are often called ‘Midnight clause’ because they are not given the

importance they require. Even if the parties’ consent to the agreement and have used their

autonomy to make their choices relating to the arbitration agreement, when the choices made

are not feasible and unworkable, then the arbitration agreement becomes pathological. This

results to the parties again reaching the courts to contest about the arbitration agreement and

so on.

Pathological clauses are not recognized by the Law as the agreement will still be a valid

arbitration agreement.

For example, in the arbitration agreement, it is mentioned that ‘The claimant shall appoint the

sole arbitrator’. This is a pathological clause as the problem might arise on who is the

claimant in the particular scenario.

Another Example:

The arbitration agreement states that ‘whenever the dispute arises, a neutral party will resolve

the dispute’. This is a pathological clause as it is not expressly specified whether this is a
arbitration agreement or whether this neutral party is an arbitrator. There are conflicting

judgements in the SC on whether this is the arbitration agreement or not.

How can this be resolved in case of dispute?

Jurisdiction Clause v. Arbitration Clause:

What happens when the exclusive jurisdiction clause and arbitration clause are put together in

the same agreement.

Then which forum should the parties’ approach in case of dispute?

Choices:

Choices are the manifestation of the autonomy exercised by the parties.

Nature of Arbitration Agreement:

Is it 1) Procedural or 2) Substantive or 3) Hybrid?

Three Schools of Thought -

Procedural because the arbitration agreement gives the process, we have to follow to resolve

the dispute i.e. which forum will the parties approach and which certain laws will be

applicable to it and so on?

Substantive because the arbitration agreement itself is a right which is conferred to the parties

under the contract? Because when a dispute arises, it is a right of the parties to resolve the

dispute in a certain way since the parties consented to it.

Hybrid because the arbitration agreement is a mix of both the procedural and substantive in

nature. This school of thought basically claims that arbitration agreement is substantive

because a right to arbitrate or enter into arbitration is created due to the parties consent to

arbitrate under the contract. Subsequently, this ‘substantive nature of the arbitration

agreement due to party consent’ is also procedural because it gives the procedure which has

to be followed to resolve the dispute.

Arbitration is jurisprudence in itself. Separability, pathology, and inability to perform

arbitration agreement by discharge are factors which differ from the normal contract law. The

arbitration will always happen under Section 9 of CPC.

Arbitration is a parallel of CPC.

Differences between contract and arbitration agreement:

Contract should be read in its entirety and the doctrine of severability is not applicable to it.

This is different in arbitration agreement.

In civil side, amended procedure is the one always applicable. This is not applicable in

criminal cases.
When there is an inconsiderate defendant, the pathological arbitration clause will cause a lot

of problems.

Validity of Arbitration Agreement:

There are two types of validity of arbitration agreement: Formal and Substantive

Formal Validity of Arbitration Agreement – Agreement must be in consonance or in

compliance with the law and statute. It deals with form of the agreement and the structure of

the agreement. Basically, the formalities that must be complied with for it to be a valid

agreement by law such as requirement of signature, agreement being in written form, etc. For

example, the arbitration act says that there cannot be even number of arbitrators. But if

‘There should be 8 arbitrators’ is mentioned in arbitration agreement, then the agreement is

valid and legal even though it is problematic. These defects can be cured.

Substantive Validity – It has to comply with the legal standards required for the arbitration

agreement. This is regarding the substantive legality of the agreement.

Form and substantive cannot be divided strictly. S.89 of CPC is a problem of form.

Caramel Shipping Case – If the agreement is not signed, then is it a valid agreement? It is

not mandatory to sign on every page.

If the consent to arbitrate is present, then the agreement is a valid arbitration agreement. The

nitty gritties and the particulars mentioned in the agreement might change. But it will not

render the agreement invalid. So, even if the formalities are a bit up and down, it does not

affect the legality of the arbitration agreement.

Form v. Substance:

For example, the arbitration act states that there cannot be even number of arbitrators. But the

arbitration agreement does not mention the number of arbitrators, and this means that the

parties can end up choosing even number of arbitrators as well. This can be against the

arbitration act, but it is not a pathology that cannot be cured or remedied.

So, if the problem/pathology can be remedied or cured and it is not something that affects the

legality of the agreement itself, then it is a problem of form and is formal invalidity. Any

divergence between what was chosen by the parties and what is mentioned in the law, which

can be remedied does not make the arbitration agreement illegal. This is formal invalidity.

On the other hand, when the defects cannot be cured, then it is substantive inequality.

The Main Contract containing the arbitration agreement should be read in its entirety. So, the

arbitration agreement should be valid and should be able to cater to any dispute which arises

in relation to the main contract.

Substantive validity: When the agreement is subjected to a law, then the agreement should be

in consonance with the law.

For example, an arbitration agreement is subjected/governed by English Arbitration Act, then

the substantive law is the EAA. So, the arbitration agreement should be in compliance with

EAA and anything which is contrary to EAA is invalid. [Consider it in lines of ultra vires the

Constitution and Kelson’s Grundnorm]

Operability of the arbitration agreement deals with substantive validity.

When the substantive and formal validity is put together, then assuming that both are valid,

only then we get a workable arbitration clause which enshrines my consent to arbitrate and

then the parties can arbitrate in a manner and in consonance with the choice of law made.

So, a valid arbitration agreement must be formally and substantially valid which will arise

from the consent of the parties.

Arbitration agreement: Any dispute arising out of or in connection with the performance of

this agreement shall be resolved through arbitration. Each party shall nominate its own

arbitrators.

Here,

‘Any’ – Indicates all the disputes will be resolved by arbitration

‘dispute’ – Does not mean all sorts of disputes as there are disputes which cannot be

arbitrated. For example, criminal matters or matrimonial matters.

The phrases ‘any’, ‘arising out of’, ‘this agreement’ indicates the scope of the arbitration

agreement. It represents the inherent limitations of the arbitration clause.

A dispute arising in the contract should be a cause of action that should be communicated to

the other parties and it should not be a grievance.

Main Contract
 Arbitration
Agreement

NY Convention on Foreign Arbitral Awards:

It is an international convention, so it is binding on the parties based on the personal

obligation taken by the parties.

But what happens when the arbitration is between a signatory and non-signatory or when the

award has to be enforced in non-signatory state? Art 7 deals with it.

Art 1:

The NYC is the only convention on the recognition of arbitral awards.

Art 2:

Subsection 1:

1. Each contracting state – obligation on every signatory state

2. Recognize the Agreement should be in writing – To recognize the format and consent

to arbitrate.
 3. All or any differences – Scope of the application

4. Arisen or which may arise – past and future disputes

5. Defined legal relationship, whether contractual or not

6. Concerning a Subject Matter capable of settlement by arbitration – Substantive

Validity as the dispute should be capable being arbitrated in the first place.

Subsection 2:

1. Signed by parties – Formal validity of arbitration agreement and a form requirement.

The requirement of signature of arbitration agreement stems from this provision. This

also indicates the consent of the parties.

2. Shall – it is mandatory and binding.

3. It cannot be read in isolation and should always be read with Art 2(1).

Subsection 3:

This is the basis of all the court interference in arbitration or arbitral proceedings.

1. Court of Contracting State – The relevant court having jurisdiction.

2. Parties have made an agreement within the meaning of this article – Read with

Article 2(1) and 2(2). According to Art 2(2), it is an arbitration clause in contract or

arbitration agreement which is duly signed or in the right form.

3. Shall – obligation upon the court to refer the parties to arbitration. To give effect to

the parties’ autonomy to arbitration and the consent of the parties.

4. At the request of one of the parties – Indicates the consent the party to arbitrate.

5. Unless it finds – The normal rule is to refer the parties to arbitration which is

indicated by the presence of ‘shall’. So, only when the court finds that the agreement
 is null and void, inoperative or incapable of being performed, it will not refer the

parties to arbitration. The discretion is with the court to make the decision here. The

level of investigation by the court is low as it is the intention of the parties to arbitrate.

6. Null and Void, Inoperative or Incapable – Mix of Substantive Validity and Formal

Validity.

7. Inoperative ‘or’ Incapable – Not defined. There are no precedents or jurisprudence

which defines what ‘inoperative or incapable’ means. The ‘or’ indicates that

inoperative and incapable are two separative entities and cannot be used

interchangeably.

8. Inoperative – This has a higher threshold than ‘incapable’. In these cases, it is

difficult to understand the intent of the parties to arbitrate. So, it is difficult to cure the

pathology in these cases.

9. Incapable of being performed – Eg: The venue is Sonipat Arbitration Centre. This

pathology can still be cured by referring the parties to the nearby Delhi Arbitration

Centre. So, it can be cured. Has a lower threshold.

Null and Void – Based on the basic contract law definition of ‘null and void’. Under

Contract Law, a contract will be null and void if it is entered into based on misrepresentation,

fraud, duress and coercion. This is the standard definition according to internationally

accepted framework and that is what is considered here also. [Refer to the NYC Guide]

Inoperative v. Incapable of being Performed:

It has been used interchangeably.

What is the point of using ‘and’ between null and void while using ‘or’ between inoperative

and incapable in Art 2 of NYC?

When there are pathological clauses, you approach the court under S.8 of AC Act and the

court interprets it and tweaks it to make it workable.

Incapable of being performed means that the arbitration agreement cannot be performed in its

existing form. So, the parties approach the court to ask how it could be made to work.

Because in this scenario, the parties have clearly intended to arbitrate but the clause has been

drafted in a way that intention cannot be satisfied. So, the court interprets it and changes it to

make it workable. Eg: Sonipat Arbitration Center example where the center can be changed

to make it workable by the court. This is a clerical mistake. The pathology is curable in this

case.

Inoperative is the situation where the clause does not even imply that the parties wanted to

arbitrate. Basically, the clause in the way it is, cannot be an arbitration clause. To make it

work, the court would have to insert the ‘arbitration’, ‘parties consent’ and so on which

indicates that the clause would become something that the parties never aimed to create in the

first place. This is not a mere clerical mistake. The pathology is incurable in this case.

Vidya Drolia case – Initially came up as the question of arbitrability of rent dispute.

Lucky Goldstar v. Naruki Constructions case

If the court looks at extrinsic evidence to determine the consent of the parties to

arbitrate, is there not a latent ambiguity and the arbitration agreement would be in-

workable?
The court does not have to derive any inference from anything beyond the arbitration

agreement. The courts cannot assess and establish the validity of the agreement with extrinsic

evidence. The primary requirement is that if Art 2(1) and 2(2) of NYC is satisfied, then the

court will just look into the arbitration agreement to see if there is a prima facie consent of

parties to arbitrate and then will refer the case to arbitration.

AN ARBITRATION AGREEMENT SHOULD ALWAYS BE POSITIVELY

INTERPRETED.

There is always a pro-arbitration interpretation. So, in case where there is a clause for

exclusive jurisdiction to courts and an arbitration clause, then arbitration clause will be given

primacy.

As per Art 2(3) of NYC, the court has the competent jurisdiction to look into the matter. Then

if the court did a full-fledged investigation of the matter before referring the matter to the

competent arbitration tribunal, then it will become a matter of Res Judicata. This is because

the matter has already been decided by a competent forum and the same matter is for

consideration before another competent forum.

Art 5 of NYC:

Art 5(1)(a) talks about the validity of the arbitration agreement at the stage of challenging the

enforcement of the arbitral award. This shows how the validity of the arbitration agreement is

being scrutinised at three stages in this case – 1) At the stage of referral by court, 2) By the

Arbitral Tribunal and 3) By Court during challenging the award.

Section 7 of Arbitration and Conciliation Act (AC Act):

Incorporation of Art 2 of the NYC.

Deals primarily with formal validity

Does not contain the terms ‘null and void, inoperative or incapable of being performed’

which is present in Art 2(3) of NYC.

Based on UNCITRAL Model Law for Arbitration.

‘Legally defined relationship’.

Section 8 of AC Act:

PATHETIC Manifestation of Art 2(3) of NYC – By Prakhar

What does the ‘no valid agreement exists’ in Section 8(1) mean? Does it mean formal

validity or substantive validity or what validity?

Under Section 8(1) of AC Act, the Court shall refer the parties to arbitration unless there is

prima facie no valid arbitration agreement.

This is different from ‘null, void, inoperable or incapable of being performed’ that is

mentioned in Art 2 of NYC. As per S.8(1), then the court has the power to investigate

whether the arbitration agreement is a prima facie valid agreement which will require

the court to look into the validity of the agreement in depth. But when the court looks

into null, void, inoperative or incapable of performed as required by Art 2(3) of NYC,

the court will basically merely consider whether the arbitration can be taken forward or

not and will not investigate into the validity of the arbitration agreement. Because the

validity of the arbitration agreement or arbitrability of the dispute can be decided only

by the arbitration tribunal because of the consent of the parties to arbitrate which gives
rise to the separability of the arbitration agreement. So, based on the competence-

competence principle, the tribunal is the only competent forum which can decide its

own competence and arbitrability of the dispute and the courts should not look into

whether the arbitration agreement is prima facie valid or not. Art 2(3) of NYC has a

lower threshold than S.8 of AC Act.

Section 8(3) of AC Act states that even if an application is made under S.8(1) and that issue

is pending before the court, the arbitration may be commenced, and arbitral award can be

made. This is a non-obstance clause.

This is problematic because there might be conflict of judgements in cases where the court

decides that the arbitration agreement is invalid and, in the meanwhile, the arbitral tribunal

affirms the validity of the arbitration agreement under S.8(3).

Then what will be the validity of the arbitral award issued by the tribunal?

UNCITRAL Model Rules

Article 7:

Article 8:

Subsection 1:

Shall – Positive obligation on the court to refer the parties to arbitration subject to the other

conditions.

First-Statement on the substance of the dispute – Statement made at the time of making the

claim.
There are suits which are filed under temporary interim applications. Does filing a

statement in interim applications or response to interim applications be considered as

‘statement on substance of the dispute’? What exactly is the substance of the dispute?

Anything which requires the application of the mind of the court and verification on the facts

and the issue by the court is the ‘substance of the dispute’.

Eg: In case of a dispute regarding property, the court can appoint a receiver under Order

40 of CPC. Now any dispute with the appointment of the arbitrator in itself is not the

substantive part of the dispute but rather a portion of it. So, this is not the substance of the

dispute.

WHICH CASE?

Difference and Similarities between AC Act and UNCITRAL Rules:

The terms ‘null and void, inoperative and incapable of being performed’ are not present in

S.8 of AC Act.

The term ‘prima facie’ which is present in S.8 of AC Act is not present in the UNCITRAL

Rules.

Subsection 2:

Similar to S.8(3) of AC Act.

But instead of ‘Notwithstanding’ in S.8 of AC Act, Article 8(3) has the term ‘nevertheless.’
CHARACTERISTICS OF THE ARBITRATION AGREEMENT:

Any dispute arising out of or in connection with the performance of this agreement shall be

resolved through arbitration, seated in New Delhi. It shall be governed by A and C Act

(amended), under the MCIA Rules, with a sole arbitrator nominated by the parties mutually.

Scope –

‘Any Dispute’, ‘this agreement’. The agreement does not cover anything and every dispute

which is also the rationale behind the phrase ‘capable of being settled by arbitration’ in Art 2

of NYC.

But what happens when the validity of the main contract itself is questioned? Will that be

covered under ‘any dispute’?

Not going through the arbitration under arbitration agreement because the validity of the

main contract is in question will be a breach of the arbitration agreement itself in a way. Any

question on the validity of the main contract is also a dispute on the main contract and so,

will be covered by the arbitration agreement. This question on main contract validity is an

allegation on the validity by one of the parties to the contract so it will still be a dispute that

can be arbitrated under the arbitration agreement. This is also the rationale behind the

‘Principle of separability of arbitration agreement from the main contract’.

The idea of the scope of the agreement is to bring the dispute as close to the main contract.

The closer we can navigate to the main contract, the easier it is to perform the arbitration

agreement.
The scope of the arbitration agreement is to trace that the dispute can go back to the main

contract. If it is far removed from the main contract, then it is out of the scope of the

arbitration agreement.

‘Arising out of’ – Disputes regarding the Direct obligations undertaken by the parties in the

agreement.

‘Or’ – Presence of ‘or’ means that it is either ‘arising out of the performance of the

agreement’ or ‘in connection with the performance of the agreement’.

‘In connection with’ – Not dealing with the direct obligations undertaken by the parties in

the contract but rather the allied disputes which arises during the performance of the

agreement.

Separability of Arbitration Agreement:

Substituting a new contract in place of an old contract.

A contract can be subjected to novation. But an arbitration agreement cannot be subjected to

novation.

Even if the main contract goes away or is subjected to novation, any dispute concerning that

dispute will go through arbitration under the arbitration agreement because of the concept of

‘severability’.

The validity of arbitration agreement comes into question only when it is null and void,

inoperative and incapable of being performed.

Why can the jurisdiction and competence of the arbitration tribunal to decide a case,

can be decided by the tribunal itself?

Because of the consent of the parties. Since the parties has chosen the arbitrators to have the

supreme authority to decide any dispute coming out of the contract, the legitimacy of the

arbitration tribunal is derived from that consent.

Since ‘any dispute’ is mentioned in the arbitration agreement, any and all disputes including

validity of the main contract will be resolved through arbitration.

The idea of the existence of the separability of the arbitration agreement is because of the

inherent powers vested in the arbitrators to decide all the disputes arising out of the contract

because of the consent of the parties.

Arbitration clauses are different from submission clauses. Arbitration agreement are made in

advance to cover all the future disputes.

MTNL judgement, etc. – The question of non-payment of stamp duty of the main contract

which can render the whole contract as non-existing in the eyes of the law is not an incurable

defect. This defect can be cured and therefore, the dispute can be arbitrated. Because of the

separability of the arbitration agreement, the agreement still survives and therefore, the

arbitration tribunal can still decide on the dispute.

Separability ensures that the arbitration agreement exists irrespective of whatever happens,

and this is because the parties have consented to resolve ‘any dispute’ through arbitration. If

any party contends that the main contract is invalid and therefore, the parties cannot go into

arbitration, then they are committing a breach of the arbitration agreement.

Competence-Competence Principle: Ascertainment of Jurisdiction

This principle of separability culminates into the competence-competence principle that deals

with jurisdiction of the arbitration tribunal. This is because of the consent given by the parties

to arbitrate.

When the parties go into arbitration, the first question which the opposing party might contest

on is whether the tribunal has the jurisdiction or the competence to decide the case. Here,

there are 2 questions of competence which arises.

This is not the actual test but rather a method to remember the questions.

1st competence – Whether the tribunal has the competence to decide the dispute?

2nd competence – Whether the subject matter of the dispute is capable of being resolved by

arbitration?

Therefore, jurisdiction is not limited to only the capacity of the forum to decide the dispute

but also on the capacity of the subject matter to be decided by arbitration. This is because of

the parties’ consent and choice to resolve the dispute through an alternate forum outside of

courts.

One of the biggest facets of the arbitration tribunal ascertaining its jurisdiction is to decide

the proximity or closeness of the dispute with the contract. It should be determined how far

removed the dispute is to the contract.

Vidhya Drolia Case

Separability is not a principle in law but a deeming fiction. But competence-competence

principle is a principle in law.

Competence-Competence is the arbitrator’s capability to decide on his capability to decide.

The arbitrator is also capable of deciding whether the subject matter is capable of being

decided by the arbitrator.

Separability

Competence (Whether the arbitration tribunal has the capacity to decide the dispute) |

Competence (Whether the subject matter can be arbitrated)

Arbitrability
Arbitration Agreement

ARBITRABILITY:

As per Indian understanding, the emphasis is on the subject matter.

Iyya Swami v. Iyya Swami – Opinion of J. Chandrachud and J. Indira Bannerjee.

For example, in a defence deal alleged to involve corruption and fraud, if a party approaches

the court alleging a claim of corruption and fraud, the court will ideally direct the dispute to

the arbitration tribunal who has to decide whether the tribunal has the capacity to decide the

dispute and whether the subject matter is capable of being resolved through arbitration.

The tribunal will determine that even if fraud is alleged, such fraud is alleged in relation to

the contract in question which contains the arbitration agreement. Therefore, since the dispute

is arising out of the contract, the tribunal has the capacity to decide the dispute.

Secondly, the subject matter is regarding contract law as it deals with fraud in the contract, so

it is capable of being resolved through arbitration.

These two factors put together is the arbitrability of the dispute.

For example, in a situation where there is a conflict in the jurisdiction of the tribunal to

decide the dispute such as a dispute regarding company law where the party claims that

NCLT should resolve the dispute. This question is regarding the ability of the tribunal to

decide the dispute which is one of the factors under arbitrability of the dispute.
So, arbitrability of the dispute deals with both the capacity of the arbitrator to decide the

dispute and whether the subject matter of the dispute is capable of being resolved through

arbitration.

Rakesh Malhotra v. Rajinder Kumar Malhotra - Appropriateness of forum

In my view, Mr. Chinoy's submissions demand acceptance. The first question for

determination must be answered in his favour. The disputes in a petition properly brought

under Sections 397 and 398 read with Section 402 are not capable of being referred to

arbitration, having regard to the nature and source of the power invoked.

Arbitrability is of many types. They are:

1. Pre-award Arbitrability – Assessment of arbitrability by the Arbitration Tribunal

based on the Competence-Competence Principle.

First Limb - First Competence where the tribunal must decide whether they have the

capability to resolve the dispute. In this stage, there may be challenges in the

jurisdiction of the tribunal, etc.

Bifurcation of subject matter for arbitration cannot take place. Even if such

bifurcation of dispute happens, the dispute must be closest to the contract as it should

be in connection with or arising out of the contract according to the arbitration

agreement – Sukanya Holdings case.

 Second Limb – Basically when the tribunal decides that it has the capacity to decide

the dispute, but the subject matter of the dispute is incapable of being resolved

through arbitration.

2. Post Award Arbitrability – Assessment by Court when the award has already been

given by the tribunal.

For example, the principle of ‘Functus Officio’. Once the award is given by the

tribunal, the function of the tribunal is over and therefore, the arbitrability is now

checked by the court.

Stages of Checking Arbitrability:

Pre-award Arbitrability – Assessment by tribunal

Form Substance

Post-award Arbitrability – Assessment by Court

Form Substance

So, the difference between pre and post award arbitrability is that pre-award is assessed by

arbitration tribunal and post-award is assessed by court. Furthermore, the court will not

interfere with the tribunal during the pre-award arbitrability stage. This concept of pre-award

arbitrability has been infringed by the provision of Section-8(3) of AC Act.

Vidhya Drolia case – The court held that the courts should not deal with assessment of the

merits of arbitration during the pre-award arbitrability stage and only explains about the
threshold of the standard. But still holds that the courts can assess the arbitrability if need be.

“The court considered two issues in this case:

(i) meaning of non-arbitrability and when the subject matter of the dispute is not capable of

being resolved through arbitration; and

(ii) the conundrum – “who decides” – whether the court at the reference stage or the arbitral

tribunal in the arbitration proceedings would decide the question of non-arbitrability. The

second aspect also relates to the scope and ambit of jurisdiction of the court at the referral

stage when an objection of non-arbitrability is raised to an application under Section 8 or 11

of the AC Act.

Reliance Industries Judgement – This dispute is ongoing. Arbitration was initiated against

the government by the company claiming that the tax/cess imposed on them was incorrect.

The Gov. responded that taxation is a sovereign function, and it is not arbitrable (Subject-

Matter question). The Company argued that taxation function cannot be challenged. The

tribunal held that 1) the dispute is not about imposition of taxes, it is about the rate at which

the tax is calculated. The rate is based on the CRL (Cost Recovery Level). This CRL is based

on the activity which is included in the main contract and the rate at which the CRL and tax

has to be paid is mentioned in the contract. Such contract contains an arbitration agreement

which was consented by the parties. So, the dispute on the rate of tax imposed based on a

particular figure that has been decided can be arbitrated.

So, this dispute arises from the main contract and therefore, arbitrable. In this case, there is a

bifurcation of the matter where only the rate of tax was arbitrated. Even if bifurcation is not

generally allowed, bifurcation can happen and arbitration of the matter can take place if the
dispute is closest to the contract (Sukanya Holdings Case). Here, since the dispute was arising

from the main contract and was closest to the contract, it can be arbitrated.

Any court assuming the jurisdiction of itself will be considered as a preliminary decree under

CPC.

Tax – It is a sovereign function and cannot be arbitrated. But the rate at which the tax is

imposed which is agreed by the parties in the contract can be arbitrated according to the

Reliance Industries case.

During the Pre-award Arbitrability, there are certain factors which are considered to decide

the arbitrability of the dispute. They are:

1. Proximity with the main contract (scope)

2. The relevance of the law of the seat

3. The arbitrator’s dilemma – One of the least spoken about factor. For example, in a

transnational dispute between America and England where the seat of arbitration is

France. The arbitrator is Italian. Since France is lenient with arbitrability, the dispute

is being arbitrated and then the award is in favour of America. Now England contests

that the award cannot be enforced in England because it is against the England public

policy. Now what exactly should the tribunal do? Furthermore, if the companies from

both countries have multiple branches in multiple countries, then whose laws or

public policy should the tribunal take into account. So, in such cases, the arbitration

which is the dispute settlement mechanism is correct and is valid. But the acceptance

of the awards and its enforcement is into question. This factor is not considered in

Indian judgements.
Aftab Singh Judgement – One of the parties claim that the dispute is the breach of contract

and so, they should go into arbitration. Other party claimed that it is deficiency of services

claim and should go to consumer court. So, the question is not exactly of arbitrability but on

the selection of forum. Even if the Consumer Protection Act (COPRA) is a beneficial

legislation, the dispute in this case is still originating from the breach of contract and

therefore, it is a contractual dispute. This is a situation of pre-award arbitrability and the

arbitrator has the ability to decide whether he can arbitrate the dispute based on competence-

competence principle.

Eros International Case – Patents and licensing case. Which innovation can be patented or

not is a subject matter dispute and this subject matter is not arbitrable in India. This matter

can be arbitrated in UK. But if there is a dispute regarding the licensing of the patent, then it

is a contractual dispute, and this can be arbitrated. – Relevance of the seat. This factor is

important because for the particular dispute, the parties will choose a forum which is capable

of resolving the dispute. This will affect the arbitrability of the dispute as well.

While deciding arbitrability, only the subject matter of the dispute should not be considered.

But along with the subject matter issue, the other factors such as proximity of the dispute

with the main contract, relevance of the law of the seat and the arbitrator’s dilemma should

also be considered to decide arbitrability. Even if the subject matter is not arbitrable, the

arbitration tribunal is the one which has the competence to decide its competence and

arbitrability of the dispute.

Post-award Arbitrability is essentially the court’s assessment of whether the execution of

arbitral award is against the public policy of the country or whether the execution of award

will give rise to any public policy problems in the country.

3. Subject Matter Arbitrability – If the subject matter of the dispute is not arbitrable, then

there is no arbitrability of the dispute.

4. Procedural Arbitrability – This is widely prevalent in America. Procedural Arbitrability

is the fine line which the arbitrators have to follow while effectuating the arbitration

agreement and the mandate of the arbitration agreement. It is technical because it involves a

lot of aspects on procedural parts of arbitration. When the exercise of discretion by the

tribunal goes against the expectations of the parties based on their own notions of procedural

law which the parties have subjected themselves to, it is procedural arbitrability. [This is a

rarely used argument in Indian scenario but can be very successful if used properly. Area

where many arbitrations are lost].

5. In-arbitrability:

Booz Allen & Hamilton v. SBI Home Finance (2011) 5 SCC 532

Objective Arbitrability v. Subjective Arbitrability:

The capacity of the parties to arbitrate is also a facet of arbitrability and is the subjective

arbitrability. The capacity of the parties to arbitrate is subjective arbitrability and subject

matter scrutiny is objective arbitrability.

So, if the parties do not have the capacity to arbitrate, then the dispute is in-arbitrable.
Galakin Case – French case.

An insolvent party cannot arbitrate. A government party cannot arbitrate. A blacklisted party

cannot arbitrate. (Check once again).

There are various organisations right now to prevent the Americanisation of arbitration. This

is because the arbitrability in America is the most expansive. Labour Laws are arbitrable in

America unlike other countries. Even meta-arb clauses were also first developed in America.

Class Arbitrations are also well developed in American arbitration. Germany and France also

have good arbitrability situations.

When the insolvency proceedings is going on in Russia but the seat of Arbitration is chosen

as England, it leads to pathology.

Jurisdiction of Arbitral Tribunal under AC Act (India):

Section 16. Competence of arbitral tribunal to rule on its jurisdiction. —

(1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any

objections with respect to the existence or validity of the arbitration agreement, and for

that purpose, —

(a) an arbitration clause which forms part of a contract shall be treated as an

agreement independent of the other terms of the contract; and

(b) a decision by the arbitral tribunal that the contract is null, and void shall not

entail ipso jure the invalidity of the arbitration clause.

Notes:

May – it does not conclusively give the jurisdiction to the arbitral tribunal. Problems in

Vidhya Drolia case and S.8(1). The ‘may’ should be read as ‘shall’ here.

S.16(1)(a) – Principle of Separability

S.16(1)(b) – Extending limb of Separability. Basically, even if the tribunal decides that the

contract is null and void, such nullity of the contract will not render the arbitration clause

invalid. This can be put the other way as well, since the arbitration agreement is valid, the

arbitral tribunal has the ability to decide on the dispute and rule that the contract is null and

void.

This is how the separability and competence-competence principle intersect which put

together gives the arbitration mechanism. Thus, S.16(1) gives the arbitrability of the dispute.

(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later

than the submission of the statement of defence; however, a party shall not be precluded

from raising such a plea merely because that he has appointed, or participated in the

appointment of, an arbitrator.

Notes:

This is regarding the questioning of jurisdiction of the arbitral tribunal.

Even if one of the parties contest the jurisdiction of the arbitral tribunal, the tribunal has the

jurisdiction to decide on the dispute of its own jurisdiction under S.16(1). This is because of
the consent of the parties to arbitrate. So, once the parties go into arbitration, then the party

can raise the jurisdiction issue before the arbitrator which the arbitrator can decide.

(3) A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised

as soon as the matter alleged to be beyond the scope of its authority is raised during the

arbitral proceedings.

Notes:

This is parallel to the principle of waiver where you have to challenge a problem as and when

it arises and if you don’t challenge, it is assumed that you have consented to it.

Waiver is matter of procedure.

Both (2) and (3) are related.

(2) is based on the principle of consent of the parties to arbitrate as the parties appointing

arbitrators is an implication of consent. So, once the arbitrator is appointed, the parties go to

him to decide the jurisdiction. Here, the parties are appointing and approaching the arbitrator

because of the consent of the parties to arbitrate. So, once the parties approach the arbitrator,

they can contest the jurisdiction of the tribunal. This is still according to the procedure which

stems from the competence-competence principle and will not be considered as waiver. But if

they do not raise the jurisdiction issue till the submission of statement of defence, then it will

become a matter of waiver. So, the exemption given for appointment of arbitrator by the

parties is still within procedure.

(3) is also a matter of the waiver where not raising the issue of the tribunal exceeding the

scope of its authority immediately after the issue is raised implies that the parties consented

to the authority of the tribunal.

(4) The arbitral tribunal may, in either of the cases referred to in sub-section (2) or sub-

section (3), admit a later plea if it considers the delay justified.

Notes:

Again, related to waiver.

So, (2), (3) and (4) are all interrelated and connected with the principle of waiver.

(5) The arbitral tribunal shall decide on a plea referred to in sub-section (2) or sub-

section (3) and, where the arbitral tribunal takes a decision rejecting the plea, continue

with the arbitral proceedings and make an arbitral award.

Notes:

The tribunal has decided that it has the jurisdiction which is also within its ability under the

competence-competence principle.
(6) A party aggrieved by such an arbitral award may make an application for setting

aside such an arbitral award in accordance with section 34.

Notes:

If the court decided on its jurisdiction, it will be a preliminary decree. But when the arbitral

tribunal decides on the jurisdiction, it will be termed as an award.

The term ‘award’ has not been defined in any statute or law. Even NYC which is the only

convention of foreign awards also does not define ‘award’.

Relation between S.16(1) and S.16(6): Because the arbitrator has the capacity to look at the

dispute, it speaks about the future of the dispute and adds to the weight of the award.

S.37(2)(a) and S.34 – Get it confirmed again.

In-arbitrability:

It does not mean that the dispute cannot be arbitrated at all.

Arbitration can be done. But it is a situation in which the arbitration as a mechanism cannot

provide the parties the relief sought to be achieved.

Basically, in in-arbitrability, the dispute (subject-matter of dispute) is capable of arbitration.

But under arbitration, the relief sought by the parties cannot be provided because of some

legislative mandate/interference.

Example: NCLT example where Oppression and Mismanagement claim is raised. So, the

bankruptcy proceedings cannot be initiated by the arbitral tribunal in this case. So, the dispute
can still be arbitrated but the relief sought cannot be achieved. Here, if some of the creditors

go to arbitration and other creditors go to NCLT, the arbitration can take place, but the relief

given by both forums will be conflicting and counterproductive.

Another example is insolvency proceedings. Here, some of the creditors take the issue to

arbitration. In this case, arbitration can still be done, and they can still get compensation. But

the problem is that when the remaining creditors go into insolvency proceedings, then the

relief which they will receive will be differing from the creditors who go into arbitration. So,

the relief received through the different mechanism is counter-productive to each other.

This can still work out in some way if all the creditors go into arbitration together. Here, the

dispute can still be arbitrated as the subject-matter is arbitrable and so, arbitration mechanism

is still working. But the relief which is sought under the arbitration mechanism is

counterproductive.

There is a difference between Common Law and Civil Law Systems in this issue.

Civil Law systems like Swiss, Germans, etc. will consider that the dispute is a contractual

dispute and therefore, it should be arbitrated.

Common Law Systems will still consider if the arbitration should be carried out or not.

Therefore, this problem of in-arbitrability also contributes to arbitrator’s dilemma.

MERELY, IF A CLAIM ARISES, WHERE THE RELIEF WHICH IS SOUGHT

CANNOT BE GRANTED UNDER ARBITRATION, IT DOES NOT RENDER THE

ARBITRATION AGREEMENT AS VOID, NULL, INOPERATIVE OR INCAPABLE

OF BEING PERFORMED.

For example, if insolvency proceedings are being initiated, the arbitration as a mechanism is

not fit for the current dispute which is in-arbitrability because the relief which is sought

cannot be given under arbitration. But this does not render the arbitration agreement as

invalid/void.

At times, the help of courts is required for the happening of arbitration in the fullest manner.

Example is the Vidhya Drolia case.

But the question is what is the extent of the interference of the courts in this regard?

So, we have to look at the assistance and existence of courts.

Interim Measures and Emergency Arbitration:

S.9 pertains to the powers of the court to provide interim measure.

S.17 pertains to the powers of the arbitration tribunal to give interim measures.

In the stage of interim measures, the courts have already been decided and so the interim

measures can be provided.

But in case of arbitration tribunal, during interim measures stage, the tribunal has not been

formed yet.

In these cases, how to determine the jurisdiction of the court to provide interim measures?

In domestic cases, there is no confusion or court hunting as the jurisdiction of the courts is

decided under S.9.

But in International Cases between different nations such as France, Germany and China,

which court will the party approach for Interim measures? Each party might contend that the

court having jurisdiction is the court in their own country as things will be favourable for

them in such cases.

So, in these cases in institutional arbitration, the institutions themselves appoint the

emergency arbitrators to provide interim measures.

Emergency Arbitrator are arbitrators who can be appointed by the Institutions before the

main tribunal is constituted.

Interim Measures:

Court Arbitration Tribunal

Perpetually there and present Cannot exercise powers before constitution

Choosing courts for interim measures might Therefore, to prevent the problems

result in forum shopping as explained above associated with forum shopping and

and depreciation of the asset. depreciation of the asset, the Emergency

arbitrator can be appointed for

interim/urgent measures.

Effective before constitution of the tribunal Question – Application for EA but what

as it is of perpetual nature, so the courts may happens when the other party claims that the

be resorted to during the proceedings. arbitration agreement is invalid.

Eg: The arbitration agreement procedure is governed by ICC Rules. Under the ICC Rules, EA

can be appointed for dealing with interim measures. This is a system which is pro-arbitration.
There are only certain types of disputes such as disputes with limited scope or interim/urgent

disputes which can be adjudicated by the EA.

EA v. Main Tribunal (MT):

For example, there is an interim measure provided by EA. But then a claim regarding the

validity of the arbitration agreement itself before the Main tribunal.

Now till the claim is adjudicated regarding the validity, one the parties who received the

interim measure in his favour will be enjoying it while the other party might be prejudiced

until the main arbitration tribunal decides the issue.

This indicates that the injunction granted in the pre-arbitration stage cannot be prejudicial to

the opposite party. There is no appeal in arbitration. This is not procedural fairness.

Injunction is just an order at best and not a decree to keep the parties in check.

Art 28 of ICC Rules – deals with EA.

Problem arises when the EA exceeds his scope and adjudicates on deeper issues in the case.

What is the remedy available in this case?

Till the MT is constituted, the orders of the EA cannot be questioned and there is no

procedure to appeal the EA as well. In this case, the parties might end up challenging the

orders of the EA in the courts and this goes against the whole autonomy of the parties to

adjudicate the dispute through arbitration. This is because the parties are going to the courts

before the dispute goes before the arbitration tribunal itself.

Does EA go against the consent and autonomy of the parties to go into arbitration to a

specific tribunal?

This question arises because the parties consented to go into arbitration according to certain

conditions given in the arbitration agreement but this process of EA is given by the

institutional arbitration rules. But for example, since the parties consented to go into

arbitration under the agreement according to the procedure governed by the ICC Rules and

the ICC Rules provides for EA, the constitution of EA does not go against the consent of the

parties under the arbitration agreement.

Another problem is the policing power of the arbitration tribunal. What if the parties do not

agree or listen to EA orders? There is no power of contempt of courts or any other

enforcement mechanism per se. There is no binding power on the EA orders. At best you can

draw adverse inference or impose costs.

Read Patricia Louise Shaughnessy, 'Chapter 32: The Emergency Arbitrator', in Patricia

Louise Shaughnessy and Sherlin Tung (eds), The Powers and Duties of an Arbitrator:

Liber Amicorum Pierre A. Karrer, (Kluwer Law International 2017) pp. 339 – 348 for

emergency arbitration and its problems.

How to determine whether it is an order or an award?

One party can claim that it is an order given by the EA and it is not enforceable in India.

Because only an award by arbitration tribunal is recognized under the Indian legislation but

an EA order is not recognized in Indian legislation.

This was the question raised in Amazon v. Future Ventures. The outcome of the case was

pro-arbitration.
You cannot categorise the EA to only pass a certain type of awards.

UK does not recognize EA in its legislation.

There are three types of jurisdictions:

1. Both Institutions (ICC, etc.) and legislation recognize.

2. Institutions recognize but the legislation does not recognise.

3. Institutions and Legislation does not recognize.

Can an EA give a relief (award) allegedly which only the main arbitration tribunal can

provide?

This issue has to be resolved by the legislation and policymakers and cannot be done by the

arbitration tribunal.

In the Amazon case, the party contended that the mutually agreed institution provided for EA

and that is the reason why the parties went into EA. But can it be enforced in India when the

legislation does not recognize it?

The norm is that an award/order by the EA is a procedural order and not an award.

This categorisation is different in different jurisdiction. Some jurisdictions claim that EA

order as an EA award. But does it become a award?

The nature of the proceedings and the award has to be looked at to decide the nature of the

order given by the EA.

First Limb is that what are the disputes which can be decided by the EA?
Second Limb is that what is the nature of the order given by the emergency arbitrator?

Whether it is an award or an order?

The third limb of the problem is of two-fold.

1. What is the fate of the order passed by the EA?

The first result can be when the MT becomes constituted and then affirmed the EA order.

The second result is when the MT becomes constituted and then rejects the EA order. But

here what is the capacity of the MT when it is dealing with the order/award of the EA?

Is there a hierarchy between MT and EA? No

Is the EA not a proper arbitrator? No

Then what can be done?

There is a strong likelihood that the MT will not assess the whole adjudication again but will

only assess the changes in the conditions. If there are no change in the conditions, then they

will allow the continuation of the EA order till the MT award is passed.

But if what the EA had done is serious or goes on to qualify as an award, then what will

happen to that? Refer to Robert Merkin’s contentions.

A lot of literature had supported the claim that the EA was limited to only passing the interim

measures. But argument can be made that what happens if the party brings up the right to be

enforced?

Technically, EA order should not be termed as award. But it cannot be claimed that a party

cannot do so.
The difference between the interim orders in the courts and arbitration is that:

In courts, the court can set aside the interim measures.

But in arbitration, both the MT and EA are appointed by the same institution and this cannot

be done.

2. What happens if one of the parties appoints an arbitrator in the MT who was the EA

in the case previously?

There is no restriction on that as the parties are free to choose whoever they want. This

becomes more precarious whether there is a sole arbitrator, and the parties decide to appoint

him as the arbitrator.

Is there an inherent cognitive bias in this case as the arbitrator has the made the prior EA

order as well?

But anything against this is against the consent of the parties.

This happens in cases of the metarb clauses as well where the mediator becomes the

arbitrator later on. This is even more problematic in inquisitorial system where the judge has

the ability to ask for certain document and the arbitrator/mediator will already be privy to

such documents because of his prior position of mediator.

Ideally the parties will not appoint such a person as an arbitrator.

But in case the parties appoint such person, there is a problem of bias.

In these cases, because of the issues of efficiency, bias, etc., parties prefer to go to courts

instead of arbitration. This is a hinderance to EA which is prevalent in India even today, even

after the Amazon case has recognized EA.

This is fundamentally related to the issue of ‘URGENCY’ of the parties. Is the measure

required by the parties to be given by the EA, interim or urgent?

EA can grant interim measures, but they are not a great mechanism to grant interim measures

EA happens before the MT is constituted. Powers of the EA is restricted which gives rise to

certain issues as well.

Interim Measures are also appealable under Section 37 of AC Act.

But the question of Urgency arises as the EA award is given but there is confusion regarding

the enforcement of the EA award or order.

This also causes the parties to prefer the courts instead of the EA as stated above.

Other Interim Measures:

Anti-suit Injunction and Security for Costs.

Anti-Suit Injunction:

To avoid situations like forum shopping, anti-suit injunctions are used. It is an English

concept under which the courts have the power to stop the suits in case where the arbitration

agreements are present, or arbitration procedure has started.

It is a great measure to prevent the frustration of the arbitration agreement. But in reality, it

stops the party to arbitration from proceeding anywhere else and come back to submit to the

jurisdiction of the tribunal. This also stops the parties from getting the favourable reliefs from

courts or other forums as well.

Yucourse disputes – Russian Arbitration disputes.

Bank in Russia was bankcrupt and insolvency proceedings were initiated against it by the

Russian creditors. But the creditor went to the English Courts to issue an anti-suit injunction

stating that there is an arbitration agreement and therefore, injunction should be given against

the proceedings. This is problematic because insolvency is an issue of a public policy. So,

allowing an outside court to issue injunction against proceedings will basically force an

outside court to analyse the dispute of public policy of the country which should ideally be

decided by the courts of that country.

This also causes the parties to come to England to arbitrate the dispute and the relief that be

given to the creditors. This can also cause the investors to not invest in the country as this

indicates that the country cannot even protect the rights of the creditors and so, it does not

have an ease of business. This is also one of the reasons why Indian tribunals or courts do not

generally provide anti-suit injunction.

Angeli Grace judgement by House of Lords which supported the issuance of anti-suit

injunctions. Basically, stated that if there is a seat of arbitration in England and there is a

arbitration agreement, then the courts can give an anti-suit injunction.

Anti-suit Injunctions brings up severe public policy issues.

In the Russian Bank example stated above, what would be the effect and enforcement of the

order issued by the English Court and the award of the English Arbitration Tribunal when all

the parties, etc. are present in Russia?

This problem is the reason why Anti-suit injunctions are fatal.

This might be pro-arbitration, but it is problematic against the insolvency proceedings and

public policy.
Deva v. Antrix.

Kane Energy dispute case.

These are the negative aspects of anti-suit injunction.

BBC judgement:

The court held that the parties should proceed with arbitration.

The positive effects are that the courts can prevent forum shopping and favour pro-

arbitration. This is good in normal issues, but issues of public policy and insolvency raises

questions against the anti-suit injunction.

In assessing jurisdiction, civil law countries use lis pendens principle but the common law

countries exceed their scope by analysing everything in the case such as the merits, etc. under

the ambit of ‘forum non convenience test’.

Anti-suit injunction as an interim measure in favour of arbitration is about getting the dispute

adjudicated by the forum of the parties’ selection and to give effect to consent of the parties.

But while issuing anti-suit injunction, the courts also need to be aware to not enter into areas

of public policy issues to prevent any grey areas and problems associated with it.

But what happens when an outside court in the place of the seat of arbitration issued an anti-

suit injunction and the parties do not follow it or arbitrate the dispute?
Generally, the jurisdictions accept anti-suit injunctions and allow the parties to arbitrate

unless it involves serious public policy issues.

This also creates a conflict as there are situations where the courts issue an anti-suit

injunction and courts prevent from issuing the anti-suit injunctions.

What is the metric of deciding whether the injunction should be given or not?

The discretion is on the courts to determine whether the issue involves a public policy

question such as insolvency, etc. and should not issue the anti-suit injunction is such cases.

But when the question is about normal issues, they can proceed with issuing anti-suit

injunction.

Security for Costs:

This is a problem for the arbitrators.

To prevent the default of the parties from arbitrating, some security in the form of bank

guarantee, etc. is attached.

The fees included in appointing the arbitrators, booking venues, lawyers fees, etc. constitute

the costs of arbitration. Consider when one party pays his part of the costs, but the other party

does not have enough money to pay their part. In this situation, to secure the arbitration

process and to make sure that the parties proceed with arbitration, the paying party can file a

claim for security of costs.

SFC can be issued on generally three factors:

  Antecedence as respondent – the past conduct such as prior defaults, continuous

filing of cases against enforcement, etc. by the parties.

 Financial conditions – Insolvency/Impecunious situation of parties

 Other factors – Third-party funding, etc.

Antecedence as Respondent: For instance, when the parties go to arbitration and when

award is granted, one of the parties keep challenging the award in domestic courts to prevent

the enforcement of the award. In this case, the arbitration tribunal can require the security of

costs because his antecedence as a respondent and the conduct as a respondent mandates the

requirement of security of costs.

Financial Conditions: one of parties is insolvent but the dispute arises before the insolvency

came into picture. So, the dispute can be taken to arbitration and one of the parties can claim

for security of costs as the other party is insolvent and might not pay up his part of costs.

This process is also to ensure that both are the parties are treated equally.

Other factors such as Third-Party Funding: For instance, one of the parties is impecunious

and so, is funded by the third party. There are issues with the third-party funding such as the

situation where the funder only agrees to fund some lesser amount than what is required in

the arbitration proceedings, problems between the party and the funder, etc. The capacity of

the party to represent itself is highly improbable. Furthermore, the third-party is also privy to

details of the dispute and he has access to the privileged information as he knows the details

of the dispute and also the insolvent/impecunious party’s details. Not all parties who seek

third-party funding are impecunious and Third-party funding alone cannot be the sole reason

for SFC. This is a cost management technique, for example by PSUs like NHAI. These PSUs

are not financially impecunious but since they have a higher decree of being sued on a regular
basis, they acquire third-party funding to offset the costs as they do not want to spend money

as security.

SFC is about securing the arbitration proceedings as a whole so it will cover the costs of the

proceedings and will also take into consideration of the value of the award.

SFC is a difficult gamble as the arbitration tribunal has to ascertain the likelihood of which

party will succeed i.e., basically which party has a stronger case to estimate the costs of the

proceedings without even going into the merits of the disputes.

New concept of Security for Claim has been also evolved.

What is the guarantee that the situation like Kane Energy case do not happen?

This is especially followed by smaller countries like Venezuela, etc. Basically, this is to

ensure that the parties pay the amount of the award when it is issued. This allows the parties

to claim security for the claims they have made. For example, if 100 crores are the claim and

then they might ask 50% of the claim as security. This is very problematic as the tribunal has

to see which party has a stronger case and also what defence will the bring against it and

consider all these factors when the merits of the dispute have not been analysed at all yet.

The metric for determining SFC is based on the three factors such as antecedence of

respondent, impecunious of parties and other factors. But these will not be the same factors

while assessing the Security for claims as the entire claim is being analysed here unlike only

the cost of the proceedings such as in the case of SFC.

So, will Security for Claims will be considered as an order or an award?

Anti-suit injunction will only be an order. But what about Security for claims?

Here, the parties should pay the amount to even be represented in the arbitration proceedings.

So, to participate in the proceedings, the ability of the parties to be represented or his

representation is being affected.

The purpose of SFC and Security for claims was to secure the ability of the parties to proceed

with arbitration and to ensure that the arbitral award is given effect. But since the SFC and

Security for claims requires the parties to pay such quantum of amount, it can end up

preventing the parties for engaging in arbitration itself as the parties do not want to pay the

SFC or Security for claims.

Attachment of Property by Arbitration Tribunal and Enforcement of Awards:

Article 14(52) or Article 13(52) of German Civil Procedure gives the Arbitration Tribunal to

attach property as security. But in India, the parties should approach the courts for

enforcement.

In Civil Law Systems, there are no separate legislation for arbitration, and it is included in the

civil law procedure itself. But it is different in common law systems.

(Starting Part of lecture missed – COPY NOTES)

Indian Judgements before BALCO might have been ambiguous regarding the arbitration

fundamentals but those cases after BALCO have dealt with basic arbitration principles.

The arbitration tribunal is slightly more empowered to make interim measures under S.17.
It may not only entail the customary mechanisms like ASI, but they may also go and secure

the proceedings. The idea is to keep the arbitration proceedings intact. The courts come at a

stage before arbitration and after arbitration.

IF THERE IS ANYTHING THE TRIBUNAL DOING TOWARDS HOUSEKEEPING

AND TOWARDS KEEP THE PROCEEDINGS INTACT WITHIN THE AMBIT OF

THE ARBITRATION AGREEMENT, THEN THE COURT WILL NEVER

INTERFERE WITH SUCH ORDERS.

Section 9 – Interim Measures: This is only for the Courts

Interim measures, etc., by Court. —

(1) 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—

(i) for the appointment of a guardian for a minor or person of unsound mind for the purposes

of arbitral proceedings; or

(ii) for an interim measure of protection in respect of any of the following matters, namely:

(a) the preservation, interim custody or sale of any goods which are the subject-matter

of the arbitration agreement;

(b) securing the amount in dispute in the arbitration;

(c) the detention, preservation or inspection of any property or thing which is the

subject-matter of the dispute in arbitration, or as to which any question may arise

therein and authorising for any of the aforesaid purposes any person to enter upon any
 land or building in the possession of any party, or authorising any samples to be taken

or any observation to be made, or experiment to be tried, which may be necessary or

expedient for the purpose of obtaining full information or evidence;

(d) interim injunction or the appointment of a receiver;

(e) such other interim measure of protection as may appear to the Court to be just and

convenient, and the Court shall have the same power for making orders as it has for

the purpose of, and in relation to, any proceedings before it.

(2) Where, before the commencement of the arbitral proceedings, a Court passes an order for

any interim measure of protection under sub-section (1), the arbitral proceedings shall be

commenced within a period of ninety days from the date of such order or within such further

time as the Court may determine.

(3) Once the arbitral tribunal has been constituted, the Court shall not entertain an application

under sub-section (1), unless the Court finds that circumstances exist which may not render

the remedy provided under section 17 efficacious.

No legislation has explicitly recognised SFC as an interim measure except ICSID and UK in

some sense.

17. Interim measures ordered by arbitral tribunal. — This is only for the Arbitration

Tribunal.

(1) A party may, during the arbitral proceedings, apply to the arbitral tribunal—
 (i) for the appointment of a guardian for a minor or person of unsound mind for the

purposes of arbitral proceedings; or

(ii) for an interim measure of protection in respect of any of the following matters,

namely: —

(a) the preservation, interim custody or sale of any goods which are the

subject-matter of the arbitration agreement;

(b) securing the amount in dispute in the arbitration;

(c) the detention, preservation or inspection of any property or thing which is

the subject-matter of the dispute in arbitration, or as to which any question may arise

therein and authorising for any of the aforesaid purposes any person to enter upon any

land or building in the possession of any party, or authorising any samples to be

taken, or any observation to be made, or experiment to be tried, which may be

necessary or expedient for the purpose of obtaining full information or evidence;

(d) interim injunction or the appointment of a receiver;

(e) such other interim measure of protection as may appear to the arbitral

tribunal to be just and convenient, and the arbitral tribunal shall have the same power

for making orders, as the court has for the purpose of, and in relation to, any

proceedings before it.

(2) Subject to any orders passed in an appeal under section 37, any order issued by the

arbitral tribunal under this section shall be deemed to be an order of the Court for all purposes

and shall be enforceable under the Code of Civil Procedure,1908 (5 of 1908), in the same

manner as if it were an order of the Court.

Appointment of Arbitrators:

Vidya Drolia has allegedly overruled SBP case.

This is dealing with the procedural part of the arbitration agreement.

There are 2 questions pertaining to appointment of arbitrators.

1. What is the mode of selection of arbitrators? (International problem)

2. What is the nature of the power of the courts when it appoints the arbitrator? (Indian

issue)

What is the nature of the power of the courts when it appoints the arbitrator under Section

11? Is it judicial or administrative side? What is the scope of interference of courts under

Section 11?

This is dealt with the well-written judgement in SPB v. Patel, read with Vidya Drolia case.

Gary Bone – well-known International Arbitrator.

Example:

In an Oil Dispute regarding the pricing, the two parties appoints their own arbitrator

individually. But when the arbitrators are appointed from each side and then when put

together, the availability of all the arbitrators together was not working out. The dispute is

regarding oil prices so the more delay in time will lead to more prices/amount to be paid.

Therefore, merits of arbitrator along with their availability should be considered. Then fees

and technical know-how of the arbitrators should also be considered.

So, the things to be considered when appointing arbitrators:

1. Merits

2. Availability

3. Technical know-how

Arbitration as a process has been criticized in the past as there is a possibility that the

arbitrator can be a party-appointed judge.

Racial equality and gender equality in the appointment of arbitrators.

If you go for arbitration, you must see how well you are represented. That also plays a role in

the neutrality of the arbitration process in the later stage.

Nature of the Power used by the Court:

1. Judicial Power

2. Administrative Power

In appointing arbitrators, the court exercises judicial power in a way where the court has to

apply its judicial mind. It is an external power and has been conferred on the court.

What is the nature of the court order in appointing arbitrators? What is the relief or

remedy against this order?

The power to appoint arbitrators is a good mix of administrative and judicial power of the

court.

Under Section-11 on appointment of arbitrators, REST?

When the application regarding arbitrability before the court, the court first inquires into the

prima facie validity of the arbitration agreement under Section 7 and 8.

The whole process of ascertaining the validity of the arbitration agreement under Section 7 is

according to the Vidya Drolia judgement where the level of investigation is low.

There are three factors while the court decides before appointing the arbitrators:

 Valid arbitration agreement which has to be assessed only on prima facie basis

 Arbitrability and other related factors.

 the possibility or viability of the arbitration not taking place

But on considering the first factor of valid arbitration agreement, Section 7 only talks about

formal validity and form requirements of the arbitration agreement.

When there is a Seat v. Venue situation, the law of the seat is supreme and that should

be followed by the parties.

Regarding the nature of court’s power, there is a standoff between Vidya Drolia and

SDB:
Vidya Drolia case states that if the court is involved, then their interference should be

minimal. In this case, the court only deals with the threshold of the court’s interference and

assessing arbitrability under Section 8.

SBP case deals with the nature of the power that can be exercised by the court. It explains

what sort of power should be used by the court. It stated that the power of the court is not

merely administrative or merely judicial. SBP case overruled a judgement which stated that

the court exercises only judicial power.

So, SBP case is about what sort of power should be exercised by the court and Vidya Drolia

case is about the extent of the interference of the court using that power.

Germany is one of the best jurisdictions to arbitrate. But in Germany, the courts do not assess

the validity of the arbitration agreement on prima facie basis. This is not the case in India

prior to SBP case and even in SBP case to a certain case. But this is not the situation in India

currently.

A lot of legislations which will use the word ‘appointment’ and others will use the word

‘nomination’ of the arbitrator. When dealing with ‘nomination’, the parties exercise the

power vested in them to nominate their arbitrator which is conferred under the aegis of the

arbitration agreement. Nomination is the process which leads to the appointment. So, the

Grundnorm is that nomination is the process before the appointment. For example, in

arbitration, the parties figure out who they want to be the arbitrators. But the moment after

the arbitration tribunal is constituted, the arbitrator is appointed.

How will we achieve a situation where anyone can become the arbitrator and to make a pool

of arbitrators which is not only limited to retired judges, etc.?

The Indian Gov created an Arbitration Council of India.

Provision 43(a) states who can be appointed as an arbitrator. This list contains a category

called ‘eminent person’. But who can be qualified as an ‘eminent person’ and what is the

criteria of determining whether a person is a ‘eminent person’? Similarly, there is no proper

standard laid down for choosing ‘other persons’.

Arbitration Council of India aimed to achieve that a pool of arbitrators will be available for

the appointment of arbitrators as there is a lack of arbitrators available for appointment in

India.

There are two problems with this:

1. sdf

2. They approach the procedures adopted by the parties with their own prejudice.

(COPY NOTES)

System of arbitrators is not present at the moment but there is hope that it comes into

existence so that the pool of arbitrators is available for appointment.

So, the best way is to nominate the arbitrators by the parties under the arbitration agreement

itself. As there is no problem with the appointment of the arbitrators at a later stage. This is

because the appointment of arbitrators by the court at a later stage involves its own set of

problems.

Challenges with Appointment of Arbitrators:

The first challenge is before the tribunal itself. The parties can file a claim that they do not

want the appointed arbitrators anymore because of so and so reasons. So, the tribunal takes it

into consideration and the arbitrator accepts the challenge and withdrew his appointment.

In this case, arbitrator withdraws his appointment, and it is not that his appointment is

removed. This is because removal can only be done by the institutions or courts.

Removal of Arbitrators – If the arbitrator does not withdraw his appointment as he does not

accept the parties’ challenge/claim. Now the parties can challenge the appointment before the

governing institution such as ICC, London Centre of International Arbitration, etc. The

bottomline is that there is an authority or an institution which takes care of the procedure of

the arbitration including the appointment of arbitrators.

There are situations where the court itself is the appointing authority. In this case, the parties

can approach the court to challenge the appointment of arbitrators.

There are two grounds of challenging the appointment of arbitrators:

1. Bias – For example, the arbitrator is a friend and neighbour of one of the parties. This

is a situation of bias and within the bias, it will be an aspect of partiality/impartiality

which will colour the entire arbitration proceedings and dispute resolution process.

Here, the onus is on the other party to bring up the bias claim before the tribunal as

and when the party becomes aware of the bias. Here, even if the party does not

disclose the relationship and bias, it will still constitute a situation of bias as there is a

‘likelihood of bias’ where the requirement is that justice should not only be done but

should be seen to be done.

2. Incompetence – The situation where the parties claim that the tribunal is not

competent to adjudicate the issue in the manner it should be done and give the
 required outcome. Management of the arbitration proceedings in the manner it is

prescribed is also an important factor to be considered while appointment and

challenging the arbitrators. For example, in a construction dispute, if the arbitrator

does not have the prior knowledge in the construction matters, then the arbitrator

might be incompetent to deal with the dispute.

Another example of bias is when the arbitrator becomes a party appointed judge. Basically,

the arbitrator is nominated, paid and brought by the party. So, there is always a question of

whether the arbitrator will be biased in favour of the party engaging him.

Categories of Bias:

 Lack of Independence which is quantifiable – For example, when a judge holds shares

in a company which is one of the parties to the case. Also, in a situation where the

daughter of the judge is working in the law firm whose other branch is

representing/advising the party to the case. In these cases, there is a remote

 Lack of impartiality or Being Partial – For example, a father and son go on to become

the party and the arbitrator. In these cases, the first presumption is that the arbitrator

will be biased. But in cases of people who are friends or acquaintances in a

professional relationship/field, then the arbitration proceedings will not be biased

which will colour the entire proceedings. Also includes the contention of arbitrator

being the party appointed judge as discussed above.

 Non-Neutrality – Neutrality cannot be quantified.

Both Non-Neutrality and Impartiality are closely related and overlaps. The line of distinction

between these two sub-categories is very blurred.

Eg.: Owners of Ship Catalena v. Owners of Ship Norma – The judge stated that the owner of

the ship is a criminal or something. This indicates that the judge is not neutral. On the other

hand, another example is when during cross-examination of the witness, the arbitrator

interjects in every instance and leads the witness. This is a situation of impartiality.

Now in these cases of different types of bias, when should the parties challenge the

appointment of arbitrators in the court?

This is done is based on the Schedule 5 and 7 of the AC Act. There is also a soft law IBA

Guidelines on Conflict on Interests.

[Take the Notes missed coz of coming late]

The English Courts held that “merely because the person is a neighbour, there cannot be a

presumption of bias. There must be some act or suspicion of bias to give rise to the

presumption. The test is the ‘Real Danger Test’”.

Another question was that ‘under whose eyes should there be a real danger?’. The courts

stated that it should be in the eyes of the arbitrator/judges.

This is similar to ‘apprehension of bias’ test.

But when this test is applied in the appointment of arbitrators, this will not work as the person

assessing the bias is the alleged biased person / arbitrators itself. So, the court answered this

question in the Porter v. Mghill case.

Porter v. Mghill:

The court stated that we agree with the Real Danger Test.

But the courts stated that the real danger should not be in the eyes of the judges, but it should

be in the eyes of the reasonable third parties.

They did not incorporate the ‘Real Danger Test’ but rather retained the lower threshold test of

‘Apprehension of Bias’.

Seriousness of the Grounds of Challenge of Arbitrators under IBA Guidelines:

 Non-waivable Red List – Automatic Disqualification of Arbitrators. If at the stage of

appointment any of the grounds of challenging the arbitrator falls within this list, then

the person cannot be an arbitrator at all and is disqualified. Schedule 6 gives the

disclosure form. So, to assess this, the person being appointed should disclose

information his prior arbitrations and relationships.

o Personal Family Relationships is disqualified – Father cannot arbitrate in

son’s matter.

o Substantial Economic Interest – Tricky as there is no clear definition of this

ground. This complements the ground of lack of independence as it can be

proved under this term ‘substantial economic interest’ easily.

 Waivable Red List – It is slightly less intense than non-waivable red list. It can be

contested. This list is based on ‘apprehension of bias’.

o ATNT v. Saudi Cables: The person was a very celebrated director of ATNT

and later retired. But he was wrongly appointed due to Secretariat’s mistake in

this dispute. Saudi Cables claimed apprehension of bias. The court considered

the question of whether an appointment of an arbitrator who was removed by

time from the prior business relationship can still be considered under the

ground of apprehension of bias. Under what category will the bias be

considered and what is the threshold? This was not considered under Non-

waivable Red List was because the relationship between the arbitrator and

ATNT was stopped for a long time, it was due to institutional mistake, and he

was not an employee of ATNT but in the position of independent director.

o Owners of Ship Catalena v. Owners of Ship Norma – The arbitrator was

leading the witness but what is the ground of proving this bias. UNCITRAL

Rules were applicable, but the court considered IBA Rules to set the

benchmark. This was contested and the party used the arbitration proceedings

video recordings to prove his claim of bias.

 Orange List – This a lesser threshold and gravity of ground for challenging the

appointment of arbitrators. The ATNT dispute can also be argued from the

perspective of orange list.

 Green List – It is the opposite of Non-waivable Red List. During discloser, there is

no instance of problems of bias, then it is a green list.

This categorization under IBA Guidelines is good. But the problem with IBA Guidelines is

that it is a soft law instrument and therefore, there is issues with its enforcement and

implementation as it is not binding.

In India, S.12, 13 and 14 of AC Act and Schedule 5, 6, 7 of AC Act deals with bias.

Raja Transports Case – The court ruled on the basis of Apprehension of Bias.

Prior to 2015, Unilateral appointments case will be assessed based on the merits of the case.

But post 2015, there is enough jurisprudence to determine that there are enough grounds to

rule that there is apprehension of bias.

India does not recognize Automatic Disqualification prior to 2015. Nos Talvi case judgement

– Nariman’s judgement.

India does not apply the ‘Real Danger Test’ because if it applied, then the situation of the

Rule of Bias in Arbitrator Appointments will be similar to the IBA Guidelines.

When the advocates or arbitrators appear for one party in a couple of matters, then is his

appointment as an arbitrator biased? If yes, under what category can be bias be challenged

under AC Act and Indian Jurisprudence?

Ethics in Arbitration is important as the nature of the whole process is contractual. So, it is

necessary that the chosen arbitrator of the party should not appear to be biased. As justice

should not only be done but to be seen to be done.

Arbitration is unfortunately plagued with this issue. This is not the situation in Courts as there

is an option of curative petition which can be filed only on the grounds of 1) one of the

parties not being given an opportunity to be heard or 2) if the judge was biased.

This is why the threshold of bias or threshold of the tests for bias in arbitration (4 lists in the

IBA Guidelines for instance) is higher than the threshold of rule of bias in judicial

proceedings.

How to argue ATNT dispute which was in the Waivable Red List category as an Orange

List category?

Daniel D v. UOI: Delhi HC Case – There are three sets of arbitrations going on.

The parties give the mandate to the arbitrator to arbitrate.

Termination can only be done by the courts following the procedure prescribed. The parties

cannot terminate the arbitrators.

Section 10 of AC Act: Number of arbitrators. —

(1) The parties are free to determine the number of arbitrators, provided that such number

shall not be an even number.

(2) Failing the determination referred to in sub-section (1), the arbitral tribunal shall consist

of a sole arbitrator.

Centrotrade Minerals & Metals Inc. vs. Hindustan Copper case.

Section 11 of AC Act: Appointment of arbitrators. —

(1) A person of any nationality may be an arbitrator, unless otherwise agreed by the parties.

Cases are usually filed under S.11(6) of AC Act.

Singapore has two legislations where one is for domestic arbitrations, and another is for

international arbitrations. This is similar to Indian situation where AC Act has two sections

with each applying to domestic arbitrations and international arbitrations respectively.

(6A) The Supreme Court or, as the case may be, the High Court, while considering any

application under sub-section (4) or sub-section (5) or sub-section (6), shall, notwithstanding

any judgment, decree or order of any Court, confine to the examination of the existence of an

arbitration agreement.

Check the AC Act PDF for the comments on other sub-clauses of Section 11.

[PLS TAKE NOTES ON SECTION 11 AS I HAVE ZONED AND LEFT OUT HALF

OF IT]

Section 12: Grounds for Challenge

S.12(1)(a):
The ground which is mentioned in S.12(1)(a) is related to the ground of ‘lack of

independence’.

How to bring impartiality in this?

When the arbitrator’s interview and selection of the arbitrator is done by the parties, the

‘approach’ in S.12(1) is already done.

‘Subject matter’ is not as highlighted or spoken of in arbitration as it is done in judiciary.

‘Justifiable doubts’ indicates the threshold. If it is a justifiable doubt, then the arbitrator can

be challenged. There are legislations which have capped the number of challenges but the

max number is not mentioned.

S.12(1)(b):

‘Ability to devote sufficient time to arbitration’ is something the parties should take care of.

If the parties appoint someone who does not have sufficient time, then the mistake is on the

parties and not on the arbitrator.

‘Complete the entire arbitration within a period of 12 months’ – Applicable only to domestic

arbitrations.

There are lot of problems in arbitration in India. The question of ethics is important in

arbitration but there are various instances where it has not been followed. For instance, there

are instances when parties are overcharged for the arbitration.

The parties are the ones who have engaged the arbitrator and they should have known about

the availability of the arbitrator before engaging him and so, the parties have consented to the

arbitrator.
How can this constitute a ground for lack of independence or impartiality of arbitrator? How

is this a case of bias?

S.12(1)(b) should not have been included in the first place.

S.12(3)(b): he does not possess the qualifications agreed to by the parties

This should again be known by the parties before engaging the arbitrator.

Provided that parties may, subsequent to disputes having arisen between them, waive

the applicability of this sub-section by an express agreement in writing.

The Problem is two-fold:

S.12 puts the onus on the parties to approach the parties. So, the parties should be aware of

the availability of the arbitrator before approaching the arbitrator.

Now, when after nominating the arbitrator by the parties, S.12(1)(b) states that the arbitrator

can be challenged if he cannot finish the arbitration in time. This puts the onus on the

arbitrator.

Furthermore, the proviso to S.12(5) states that the requirements can be waived off with an

agreement between the parties.

Section 13 - Challenge procedure:

S.13(3) – Unless the challenged arbitrator withdraws or other party agrees to the challenge,

the tribunal shall decide on the challenge.

This is a situation of ‘no one can be the judge of his own cause’ and raises the question of

natural justice.

Example: If the arbitrator is the retired Chief Justice and there is a challenge against the

arbitrator and the tribunal decided that the challenge is dismissed. Then how can we expect

the judge of the HC to go against the decision of a retired Chief Justice when the decision is

challenged in court. This is a situation of impartiality, and the arbitrator is not neutral in this

case.

S.14 - Failure or impossibility to act

This raises two questions:

What happens when the award is set aside because the arbitrator is biased?

(or)

What happens when the challenge of the arbitrator is being repeatedly dismissed?

S.15 – Termination of mandate and substitution of arbitrator:

Whenever it is mentioned that ‘agreed by the parties’ or ‘pursuant to agreement of the

parties’, it means whatever has been agreed in the arbitration agreement.

There is not much problem with S.15. Problem with S.14 and S.13. Termination under S.15

will happen.
But most terminations under S.15 will happen only for technical challenges where it is

claimed that the arbitrator does not have the technical knowledge required.

S.15(2) states that the substitute arbitrator shall be appointed according to the rules applicable

for appointment of arbitrator being replaced. This refers to the rules agreed in the arbitration

agreement.

SAMPLE-ARBITRATION-AGREEMENT:

Any dispute arising out of or in connection with the performance of this agreement shall be

finally resolved through arbitration. There shall be 3 arbitrators, one each nominated by the

parties, the Chairman shall be appointed by the 2 arbitrators. The seat shall be New Delhi.

The arbitration shall be governed by the MCIA Rules, the arbitration agreement is governed

by the AC Act.

There is a clear bifurcation between the law governing the arbitration and the law governing

the arbitration procedure. This is lex arbitri.

Lex Arbitri is divided into 2:

 Internal Lex Arbitri – MCIA Rules (Law of arbitration procedure)

 External Lex Arbitri – AC Act (Law of arbitration)

External helps you to bridge the gap between the tribunal in its internal functioning (Internal

Functioning of Tribunal) with the seat courts.

The provisions of AC Act mention that ‘the courts shall assist’ which confers the powers to

the court to deal with the matters of the arbitration. This shows the External Lex Arbitri
assists to determine the validity of the arbitration agreement and allows the courts to assist

the arbitration process.

The courts have nothing to do with Internal LA or the internal mechanisms of the arbitration

tribunal, unless it is extremely arbitrary. This independence of the arbitration tribunal to

regulate its own housekeeping rules is conferred by the MCIA Rules.

So, internal aspects will be dealt by arbitration tribunal under MCIA Rules and only when

there is a public policy issue, the courts under AC Act will deal with it.

Any housekeeping mechanism which is internal procedure of the arbitration goes against the

governing law ‘AC Act’, then problem arises and the courts can step in to bridge the gap

according to AC Act. For instance, S.13 of AC Act states tha the arbitration should be

finished within 12 months but the timeline of the arbitration goes beyond it. So, even if it is

related to housekeeping

If there is something that the MCIA Rules is silnet upon, then whatever that the AC Act says

on that regard will be followed.

If something regarding a matter is not mentioned in the MCIA Rules and even AC Act is

silent about it, then the arbitrator can use his

For example, Security for costs is not recognized in MCIA Rules and AC Act, then the

Arbitration tribunal can exercise discretion to pass an order based on public policy and

funcdamental pricniples of adjuciation process. It is done in order to secure the usage of the
arbitration proceedings to achieve a resolution. The dispute resolution mechanism should be

based on funcatiomental principles of adjucations.

When an arbitrator is appointed,

S.8 states that even number of arbitrators will not be appointed. But if the MCIA Rules states

that 8 arbitrators should be appointed. Then MCIA Rules is against the AC Act and therefore,

AC Act will be followed.

The Laws of Arbitration Procedure governs the internal mechanism of the arbitration

proceedings which is governed by MCIA Rules i.e., Internal LA. But this Internal LA cannot

be against the External LA which can affect the whole validity of the arbitriaton agreement.

So, hierarchy of LA:

Generally, the arbitration procedure will be followed according to Internal LA.

But in case where the Internal LA is silent on certain things, then External LA will be

applicable. (or)

In case where there is a conflict or where the Internal LA is contrary to External LA in certain

matter, then External LA will be followed.

But when both Internal and External LA is silent on a matter, then the arbitrator has the

extreme discretion to pass an order based on fundamental principles of adjudication.

International Disputes:

What happens when:

The seat shall be Paris. The arbitration shall be governed by LCIA Rules. The arbitration

agreement is governed by EAA. Evidence by IBA Guidelines.

The Contract is governed by Indian Contract Law

This is a situation of extreme problems. Because the seat of arbitration is in France which is a

civil law country. But the EAA in England is common law.

These things are outside the hands of parties, and it is completely in the hands of the

arbitrator.

Let’s take the example of ‘Privileged information’. It is considered as … in Civil Law while

it is considered as … in common law.

1) Evidence by IBA Guidelines – Relevance, materiality, specificity, and admissibility. In

case of privileged document, it is not admissible or would not be considered under IBA

Guidelines.

2) Procedure – LCIA Rules

3) EAA – The bigger aspect of validity is governed by EAA.

4) Paris – seat of arbitration.

Under this arbitration agreement, when a dispute arises, the procedure will be first governed

by whatever has been consented by the parties under the arbitration agreement. The

descriptive part of the agreement determines the validity of the arbitration agreement and the

prescriptive part gives the procedural aspect of the arbitration agreement.

So, when a dispute arises between India and France and the parties have appointed the

arbitrators according to the arbitration agreement, then the law governing the appointment

will be the arbitration agreement. But in case where the number of arbitrators have not been

mentioned, then since it is related to the internal mechanism of the arbitration procedure, it is

will be governed by Internal LA. Similarly, when the seat is not mentioned, again the Internal

LA will fill the gap by prescribing the default seat of arbitration.

So, whenever a gap arises regarding the internal mechanisms, then the Internal LA will fill

the gap.

But when the gap is something which goes beyond the realm of the arbitration tribunal, then

the gap filling will be done by the External LA.

Now, let’s take the same example of privileged documents.

LISTEN TO THE RECORDING AND NOTE DOWN THE EXAMPLE AND

EXPLANATION.

TAKE NOTES FOR THE 20 MINS MISSED.

Types of Laws governing the Arbitration Agreement:

 1. Law governing the Main Contract

2. Law governing the arbitration agreement

3. Law governing the Procedure

4. Law of the Seat

5. Set of laws which are applicable to particular instances.

When we are drafting the arbitration agreement, the laws we choose to govern the arbitration

agreement should be consistent.

When we choose the laws at the time of drafting, nothing will happen. Till the time when the

evidence you have gathered does not conflict with the laws you have chosen, there is no

problem. But the moment when there is a conflict between the evidence and the laws chosen,

then there is a problem.

All the laws will work unless there is a conflict.

First law which comes into picture is laws governing the procedure. For example, LCIA

Rules. For instance, when the parties go into arbitration, there is a question on the number of

arbitrators, then the gap filling is done by the LCIA Rules.

Consider the situation where there is a question on disclosure of the documents.

The laws governing disclosures in the arbitration agreement is Redfern Schedule. So, any

dispute regarding disclosure will be governed by the Redfern Schedule. But if the

The laws work like an inverted funnel. The Law of the Seat is the ultimate governing law.
If the parties have specifically agreed in the arbitration agreed that the evidence will be

governed by IBA Guidelines, then when questions of the evidence arise - IBA applies.

The Hierarchy is as follows:

Law of Seat > Law governing the arbitration agreement > Procedure Law > Specific Laws

The Specific laws such as IBA guidelines will only apply when the situation regarding such

laws arise. Otherwise, the general procedure will be governed by the law of procedure will

apply such as LCIA Rules. If there is a gap which is not addressed by the LCIA Rules, then

the law governing the arbitration agreement will be considered for gap filling such as EAA. If

the EAA is also unable to address a particular issue, then the Law of the Seat kicks in for gap

filling.

But if there is a matter in which there is a conflict between the specific laws and the laws of

procedure, then the procedure laws will be applicable and take priority.

Essentially, hierarchy of Law:

So, if there is a conflict between the laws, the higher law will take precedence. But for

applicability, the lower or more specific law will take precedence.

When it comes to maintaining the procedure and managing the internal mechanism of the

arbitration proceedings, the laws applicable will proceed from inside to out in the concentric

circle diagram. But when it comes to conflict resolution or gap filling, the laws move from

outside to inside in the concentric circle diagram.

But when it comes to the arbitrator applying the laws, it works differently: The intersecting

part of all the laws is the application of laws by the arbitrator. So, the arbitrator has to apply

keeping in mind all the laws.

Sulamerica case – The British say that if the law governing the arbitration agreement is

EAA, then the law governing the seat will be English Law when the seat has not been

prescribed in the arbitration agreement or when the seat is in England even if the parties

agreed for a different law.

UOI v. McDonalds: One of the arguments made was that since the parties have not chosen

the law governing the procedure, everything related to the Internal LA will be governed by
the Law of the seat even if the parties have chosen the law governing the validity of the act as

AC Act. So, only the validity of the arbitration agreement will be governed by AC Act and all

the procedure will be governed by law of the seat (England laws).

If this argument is accepted, then what is the point of the law governing the arbitration

agreement?

Problems with England Laws:

So, in the previous example of privilege documents, the parties will argue back and forth

from the specific laws to the law of the seat. Say, one of the parties can claim that the

privilege is recognized under IBA guidelines (specific law), so it should be allowed. But the

other party will claim that privilege is not recognised under LCIA Rules (procedural laws), so

conflict. So, it keeps going to the bigger laws like this.

But the question is how the arbitration tribunal will apply the laws. The tribunal will apply all

the laws in consonance and apply the laws.

So, how does the tribunal move forward?

Whatever is mentioned in the arbitration agreement will be the basis in which the tribunal

will move forward.

In arbitration, the tribunal will consider the ‘Procedural Timetable’ to decide the procedure.

Procedural Timetable is all about expecting what to file and when to file.

For example, if a person is the respondent and a claim is brought against him. He wants to

challenge the jurisdiction of the tribunal. So, for challenging the jurisdiction, it has to be
slotted in the timetable. Then the tribunal in the same order will allow for 15 days or so on for

the response to the jurisdiction challenge. This is because once the statement of defence is

filed, then the parties have agreed to the jurisdiction as per waiver under S.8 of AC Act.

After this stage, the filing of documents stage comes where both the parties have around 150

to 200 documents to file each. But there are some common documents between the parties

such as the contract, minutes of a meeting between the parties, etc. There are certain internal

documents which are also relevant to the trial. So, to proceed with the trial, there is a need for

the submission of the relevant internal documents, and this will be done by the application of

discovery.

In discovery, the common law in America is such that they will require all the documents

between some date and some later date with no specificity. This takes a lot of time, money,

and manpower to categorize and submit all those documents. But in civil law countries, the

law is very specific and ask for particular documents.

So, to file all the documents for discovery, the parties will use the Redfern Schedule to

organize the documents. Based on the schedule submitted by the parties, the tribunal will then

allow or reject the documents and give justification for the same in 1-2 lines. This itself will

take 1 month.

After this, the parties will again submit the new list of documents and then the tribunal goes

to the evidence stage.

So, in this entire arbitration procedure, the tribunal physically meets only 3-4 times. The rest

of the process is done through mail.

When expert is brought to examine the witness by the parties, it takes up a lot of time as they

keep fighting back and forth and the expert opinion is not binding as well.
All this process ends up taking a lot of time and it becomes very difficult to finish the

arbitration soon. For example, it is very difficult to finish the proceedings within 12 months

as required under S. 12 or 13 of the AC Act.

So, the Procedural Timetable is in place to slot-down the timeline of the arbitration.

Chapter V of AC Act: Conduct of Arbitral Proceedings

S.18 of AC Act talks about equal treatment of parties. But what happens when one party is

from common law country like India and the other party is from civil law country like

France. Here, symmetrical equality between parties will not render justice as the standards of

laws for each party is different from each other. So, the arbitration tribunal should take into

account the laws of the different countries and apply subjective equality to arrive at just

proceedings.

S.19:

Biggest Pain in the Ass - Prakhar

(1) The arbitral tribunal shall not be bound by the Code of Civil Procedure, 1908 (5 of 1908)

or the Indian Evidence Act, 1872 (1 of 1872).

(2) Subject to this Part, the parties are free to agree on the procedure to be followed by the

arbitral tribunal in conducting its proceedings.

(3) Failing any agreement referred to in sub-section (2), the arbitral tribunal may, subject to

this Part, conduct the proceedings in the manner it considers appropriate.

(4) The power of the arbitral tribunal under sub-section (3) includes the power to determine

the admissibility, relevance, materiality and weight of any evidence.

Is S.19(1) and S.19(2) a principle or a procedure?

In the middle of this chaos, where does equal treatment of parties under S.18 go?

Civil Law v. Common Law:

In civil law countries, the arbitrators are contractually bound to render enforceable awards.

On the other hand, in common law countries, the arbitrators are not bound to provide

enforceable awards as once they pass the award, the tribunal becomes functus officio. So,

now the onus is on the parties to take the award and enforce it or do whatever they need in

whichever country.

What happens when one arbitrator is from civil law country, and another is from

common law country?

The most logical thing is to apply the law of the seat to the arbitration.

But even this might be problematic as in cases of France, there is a principle of delocalisation

which means that the parties bring a set of laws when they come to arbitration. So, the seat

and venue of arbitration is only for the purpose of convenience and not for the governing

laws.

Here, the legitimate expectation of the party would be that the laws of their country France

will be applied.
So, in this case, there are multiple issues – legitimate expectation of the parties, conflict of

laws, common law and civil law procedure, arbitrator cannot go beyond the mandate agreed

by the parties, etc.

So, what should the arbitrator do? The simpler thing to do is to apply the Sulamerica case

principle i.e., apply the law of the seat and finish the arbitration.

This is because the parties decided the particular procedure and the arbitration tribunal cannot

go outside the mandate that the parties have chosen. If the arbitrator goes outside the

mandate, then it will allow the parties to bring the issue of the arbitrator exceeding their

jurisdiction.

In this case, even the courts cannot intervene as the courts only come in during the External

Lex Arbitri and not regarding the internal mechanisms of the arbitration tribunal which is

dealt by the Internal LA.

Most-favoured nation principle is not applicable in Commercial Arbitration like seen in the

case of Kane Energy.

Till now is the procedural side of the arbitration procedure.

PROCEDURAL SIDE OF SUBSTANCE:

The arbitration agreement is contained in the main agreement, but the parties have not given a

governing law for the main agreement.

Now how will the laws be decided? The arbitration tribunal will decide the main agreement

disputes because of the presence of the arbitration agreement.

But there may be certain disputes regarding the substance of the main agreement and

how will these disputes be handled?

The arbitrators may/shall act as amiable composeteurs or ex aqueou et bono.

This is very important as it is the only mechanism through which the aspects of substantive

mechanism can be resolved. This is only for substance and not for procedure.

This rule given above means that the tribunal shall have the power to decide the cases on the

basis of equity. Equity is not present in procedure.

But when does equity come into picture?

Until the tribunal is empowered to apply equity, it cannot do so. This is because arbitration as

a mechanism is a procedure to resolve the disputes.

For example, London is the seat of arbitration. So, when the arbitrator applies the local

conflict of rules, it localises the dispute.

There are 3 ways to decide the applicable law to the main contract:

1. Closest Connection Test – Laws which is most proximate to the origin of the contract.

For example, there is a dispute between an Italian party and a Pakistani party where

the Pakistani party has to build a road for consideration from Italian party. Dispute

arises from building the road in Bangladesh. When the dispute arises due to the non-

payment of the consideration, the arbitration tribunal has to decide which laws to
 apply when the parties have not chosen the laws. Here, though the road was being

built in Bangladesh, the dispute is between two foreign parties. So, the law which is

most proximate to the dispute out of the contract is the Pakistani Laws. In this test,

you look at the performance and non-performance of the contract.

2. Most-Favoured Nation Test – One of the parties or both parties are from different

nations. There are two parties from two nations who enter into a contract. There were

certain terms missing in this contract. Now the tribunal will look at the treaties of the

country with a third country to import the missing terms in the contract and apply it.

So, applying this to the previous example, the tribunal will look at the previous

treaties of Bangladesh and Pakistan to decide whether they have accepted the terms to

resolve the dispute in the previous treaties. On the contrary, least-favoured nation test

is not widely applied.

3. Lex Mercatoria – In ancient times, the guilds will apply their best trade practices to

trade with different countries. In the present times, there is an international sale of

goods between the Sri Lanka and Netherlands. There is a convention of international

sale of goods (CISG), but Sri Lanka is not a party to the convention. The parties have

not agreed to any law to govern the main contract. Here, the closest connection test

cannot be applied as both Sri Lanka and Netherlands have close connection to the

contract. So, it was decided that the CISG was adopted in principle to resolve the

dispute. The claims were decided into broader disputes and local disputes and then the

CISG is applied in principle as it is the best trade practice. This problem arises

because the parties have not agreed to any law for the main contract (procedural

substance). So, in this case, the disputes and the claims are not governed by the best

trade practices but are guided by the best trade practices. Another example is when

the contract is with a country governed by Sharia Law.

There are no hierarchy between these rules, but the most used rule is closest connection test

or lex mercatoria.

How will the dispute be decided in cases of gap of particular issues, no law agreed between

the parties, etc.?

Equity and good faith are regarding the substance of the main contract. But there is no law

which is agreed to govern the substance of the main contract. So, the tribunal is empowered

to decide the law based on equity which is the principle of ‘The arbitrators may/shall act as

amiable composeteurs or ex aqueou et bono’. The tribunal gets the power to decide the law

based on equity as it is derived from the principle of boros morus. (Check again)

Fair and equitable treatment is a concept of procedure and equity is a concept of substance. In

the middle of these things, dispute resolution lies. There can be overlaps or intersection

between these principles. In this intersection, there is a concept of how the procedure impacts

the substance.

This is the conceptual side. This is the bed rock and bottom line.

Dallah v. Islamic Republic of Pakistan

I can only gauge what activities are taking place in Bangladesh. The closest connection test

works in the manner of elimination. First the Italian law is not that close to the contract so, it

is eliminated.
Lex Mercatoria is not codified, and it is only a collection of International best practices that

are applicable to a particular subject matter. Eg: Maritime Law.

Example is ICN – International Competition Law Network.

Arbitral Awards:

In order to ease the business in India, the focus is on increasing the enforceability of both

domestic and foreign awards in India. But the problem in this issue is that of ‘public policy’.

But with the amendment, the public policy has been narrowed.

Section-34 of AC Act has been taken from Article 5 of the NYC.

When the courts interfere with the enforceability of awards, it intervenes with the party

autonomy.

In the Ease of Doing Business Index, there are multiple heads under which one of it is

‘enforcement of contracts’.

So, the problem lies with S.34(2)(b)(ii) which deals with public policy.

ONGC and Sayangong cases.

Until Associate Builders case and Shanyong case, there was a confusion whether the ‘public

policy’ will be wider or narrow. There was no consistent judicial precedent.

Note: Provisions are more important than judgements.

Section-34 of AC Act:

Explanation 1 - For the avoidance of any doubt, it is clarified that an award is in conflict with

the public policy of India, only if, —

(i) the making of the award was induced or affected by fraud or corruption or was in violation

of section 75 or section 81; (Iyyaswamy v. Iyyaswamy case) or

(ii) it is in contravention with the fundamental policy of Indian law; or

(iii) it is in conflict with the most basic notions of morality or justice.

Explanation 2. —For the avoidance of doubt, the test as to whether there is a contravention

with the fundamental policy of Indian law shall not entail a review on the merits of the

dispute.

(2A) An arbitral award arising out of arbitrations other than international commercial

arbitrations, may also be set aside by the Court, if the Court finds that the award is vitiated by

patent illegality appearing on the face of the award

Bonos Moris Principle – Taking the best practices from across the world and implementing

such best practice.

Appreciation of Evidence is not a case of morality but a case of adjudication. This evidence

appreciation can be based on the party pleadings.

Based on S.34(2A) of AC Act:

The setting aside of arbitral award can be done only in the seat of the arbitration. When the

case happens against the award in any other place will be dealing with the execution of the

award and not set aside the award itself.

So, the Indian court can set aside the award where the seat of arbitration is India. Even in case

of International Commercial Arbitrations with seat in India, the Indian court can set aside the

award. Apart from that, when the seat of arbitration is outside India, then the Indian court can

only prevent the execution or enforcement of the award and not set aside the award.

An award being enforced in India is usually challenged under the public policy section.

Section 28 of the Contract Act does not stop two Indian parties from going outside India and

arbitrating under the foreign laws. This will not be a domestic arbitration. It will be a foreign

seated arbitration. So, nationality of the parties alone does not play a decisive role in

determining the seat of arbitration.

Just because foreign parties are arbitrating in India does not mean that they will not be subject

to the AC Act. If such an arbitration is seated in India, then the Indian court can set aside the

award under S.34 of AC Act.

When an award is passed, it is recognised as a valid award until it is set aside.

Futrst De Lawson v. Jindal Steel Exports.

There is a difference between recognition and enforcement of the arbitral award. When an

award is passed, it is recognised that it is as per the norms and procedure of the territory
where the award is passed. So, recognition is basically that when the award is passed and not

set aside in the seat of arbitration, then it is recognised according to the law of the seat of

arbitration. But when the award is later taken to the countries where it is relied upon, there

the award is taken for enforcement.

Art 3 of NYC:

Each Contracting State shall recognize arbitral awards as binding and enforce them in

accordance with the rules of procedure of the territory where the award is relied upon, under

the conditions laid down in the following articles. There shall not be imposed substantially

more onerous conditions or higher fees or charges on the recognition or enforcement of

arbitral awards to which this Convention applies than are imposed on the recognition or

enforcement of domestic arbitral awards.

Art 4 of NYC:

1. To obtain the recognition and enforcement mentioned in the preceding article, the party

applying for recognition and enforcement shall, at the time of the application, supply:

(a) The duly authenticated original award or a duly certified copy thereof;

(b) The original agreement referred to in article II or a duly certified copy thereof.

2. If the said award or agreement is not made in an official language of the country in which

the award is relied upon, the party applying for recognition and enforcement of the award

shall produce a translation of these documents into such language. The translation shall be

certified by an official or sworn translator or by a diplomatic or consular agent.

Under S.34 of AC Act, the most important document is the award. Therefore, Section-34(2)

for setting aside the arbitral award is applicable only for arbitrations seated in India. The

phrase ‘Other than International Commercial Arbitration’ under S.34(2A) of AC Act means

the foreign seated arbitrations and does not include the international arbitrations seated in

India.

OTT v. Hill Martin

Cromboloy v. Eygpt.

In these cases, the award was set aside in the place in which it was passed. But the parties

took and enforced the award in the relied upon country. Though this was done in the present

cases, such enforcement of awards should not be done as the award was already nullified and

set aside in the seat of arbitration.

Seat v. Venue: Enercon v.

Section-35. Finality of Arbitral Awards: Subject to this Part an arbitral award shall be final

and binding on the parties and persons claiming under them respectively.

C. Ramasundaram Arguments

Madras Sugarcane Judgement

Executing Court is the original side of the court looking into the arbitration award.
Arbitral award is a self-executing document.

For the stay of an arbitral award, there should a challenge under S.34. S.34 comes in only

when there is a challenge to the award. When there is no challenge under S.34 within the

specified time, automatic execution of the award can be commenced under S.36(1) of AC act

after the time expiry.

The arbitral award is technically a money decree and therefore, it will be executed according

to Section 2(3) of Order 37 of CPC.

This is an example of Deemed Admission under S.17 of Evidence Act.

Under S.36, Sub-section (2) onwards is subservient to Sub-section (1).

S.36 for enforcement only kicks in if the application for challenge of the award under S.34 is

not filed within the given time or an order for the stay of the award under S.34(3) is not filed.

If application for challenge under S.34 is not filed, then the award will automatically be

executed as a money decree under S.36(1).

But if an application for challenge is filed under S.34, then enforcement will be according to

S.34(2).

Once an award is enforced and then the award is nullified and set aside, then the parties will

have to be restored to their previous position before the enforcement of the award.

Here the execution of the award goes down the drain.

S.37: File an appeal for the order under S.34.

Better to first file the challenge to an award under S.34 and then appeal the order under S.37.

S.43: Limitation Act is applicable to Arbitration.

Part II of AC Act:

This part deals with Foreign seated arbitrations.

There are two important things in Part II:

1. Referring the parties to International commercial arbitration – This is similar to the

standard in NYC which is different from S.8 of AC Act in Part I.

2. Challenging the enforcement of awards – biggest ground is public policy. This is not

for setting aside the award but rather for non-enforcement of the award.

Renusagar case, saw pipes case are under S.34.

Reliance and Balco are under S. 48.

Bhatia, Venture Global, Sathyam case stated that Part I will be applicable even in foreign

seated arbitrations.

The Indian companies challenging the award argued that in case they do not want to apply

Part I, it should have been implied or explicitly agreed. If not agreed, then Part I will be

applicable.

Arguments - One of the parties is Indian, the arbitration agreement is governed by Indian law,

the performance of main contract is in India, therefore the courts in India have jurisdiction.
Even in Reliance case – It was argued that since one of the parties is Indian, there is closest

connection to India. Because the seat is not in India and we are not arguing a civil case, so the

procedure of arbitration should be followed. So, the court having jurisdiction to look into the

award is the seat court. Setting aside of the award, procedural problems, etc. should be

challenged in the seat court which is the English court. The only thing which has to be done

in the Indian courts is the question of enforcement of the award.

BALCO – para 96 to 110 of SCC version

First Issue: Since the parties did not contract out of Part I, Part I of AC Act is applicable and

so, the Indian courts will have the jurisdiction.

One side argued that when the arbitration agreement is governed by the AC Act, then the

entire legislation is applicable, and the parties do not have the ability to leave out certain parts

of the legislation like shopping.

The opposite party argued that Part I is applicable for Indian seated arbitration and Part II is

applicable for Foreign seated arbitrations. If Part II should also be applicable for foreign

seated arbitrations, then what is the purpose of the division between the two parts. If the

courts interfere in Part II as well, then there is no bifurcation between parts, and it kills party

autonomy. This is judicial overreach and goes against the purpose of foreign seated

arbitration.

Only other country which has this part I and II division is Singapore.

The court held that from 6th Sep 2012, any arbitrations from this date will not come to Indian

courts as per the Bhatia, etc. rationale.

Reliance case:

Delhi HC – Manmohan Singh’s judgement: Singhvi and kaur’s arguments. They quoted A v.

B, C v. D and Mcdonalds Doughlas judgement.

The seat has to provide you a structure for the purpose of neutrality and securing an award.

When the seat is chosen in a foreign country, it is for the purpose of providing neutrality and

the courts of the seat will take care of the problems. If there is a problem with the arbitration

agreement, then the legislation of the seat will apply.

In the absence of Internal Lex Arbitri, the External Lex Arbitri (AC Act) will be applicable.

Only when there is a gap filling to be done or conflict between the seat law and external LA,

only then the seat law (English law) is applicable. In these cases, the Indian law is still

applicable and in case of dispute, the courts having jurisdictions is the English court which is

the seat court because Indian courts will come in only for enforcement. So, English court

should apply Indian AC Act and only in case of conflict/gap filling, English law is applicable.

But when the dispute arises and the parties bring the dispute to the Indian courts, then the

jurisdiction of the English courts have been taken away from them to be given to the Indian

courts citing closest connection which only applies in case of conflicts. But there is no

conflict itself in this case so only English courts have jurisdiction.

When the parties state that only a selective part of the legislation is applicable, it invites a

challenge under S.28 of Indian Contracts Act.

But the Indian courts said that Indian Law should be applicable in Bhatia, Venture and

Sathyam. BALCO corrected the position of law. But again, Reliance case challenged this.

Reliance case (2015) – if the seat is chosen to be London, then the parties should not

challenge the award in India. It should be done in London. The subject matter which the party

is claiming in the case that it is against the public policy has already been decided by the

arbitration tribunal on the question of arbitrability. The tribunal has decided that this is not

the matter of imposing taxes but about the rate of the taxes which is imposed and can be

arbitrable, then there is no question of public policy which can be raised. Even if this issue

was to be challenged, it should be done before the English courts and not before the Indian

courts.

When the parties have chosen foreign seat, in such foreign seated arbitrations, then such seat

courts will have jurisdiction regarding all the issues and the Indian court will only have

jurisdiction regarding the enforcement of the award.

Vijay Karia case: dealt with the matter of pathology. Assessing foreign arbitration

Shin Etsu v. Aksh Optifibre: the assessment should be on prima facie. Indian laws are in pari

materia with the NYC. The opposing opinion is that “Interference of courts should be less

under S.8”.

All the other judgements in the Foreign Awards Module are the same and requires only

cursory glance.
In BALCO I case, the court overruled Bhatia, Venture Global and Sathyam cases and laid

down the correct position of law. In this SLP, the court granted leave to appeal the

judgement. The decision on the merits of the case was given in the BALCO II case later.

Sansang Power case.

S.47(1)(a) of AC Act is also about recognition.

S.34, S.48 of AC Act, S.34 of UNCITRAL is arising from Art 5 of NYC.

For End Sem:

S.7 and 8

S.9

Appointment of arbitrator 11 12 13 15 16

9 and 17

Procedure – 19

20 to 28

30
Structure:

Hypos – 1 out of 2

Short Answers

Read judgements only related to the particular topic and use it only to the extent of

substantiating the topic. Stick to the concepts and it need not be case law intensive. You can

read up to 2-3 judgements in each topic but read it fully.