Hrideja Shah

BA LLB 2012

ADR NOTES

ADR stands for Alternate Dispute Resolution. ADR refers to processes/ methods / machinery capable of
providing an alternative to the conventional methods or resolving disputes. It includes arbitration,
Mediation, Conciliation, Negotiation, Expert determination, dispute resolution board and Lok Adalat etc.
It is a technique of dispute resolution through the intervention of a third party whose decision may or may
not be legally binding on the parties.

Add: Characteristics, goal and importance of ADR

Section 2 of the Arbitration and Conciliation Act contains the definitions concerning the Arbitration and
Conciliation Act, 1996.

According to Section 2(1)(a), Arbitration means “any arbitration whether or not administered by a
permanent arbitral institution”

Meaning of Arbitration

When the parties agree to have their disputes decided with the mediation of a third person, but with all the
formality of a judicial adjudication, that may be, speaking broadly, called an arbitration. Arbitration means
resolving the dispute or difference between two or more parties after hearing both sides in judicial manner
by a person or persons other than a court of competent jurisdiction.

Nature of Arbitration

The law of arbitration between the parties which remains a private adjudication by forum consensually
chosen by the parties and made on consensual reference. Law of arbitration does not make the arbitration on
adjudication by a statutory body.

Normally all disputes which can be decided by a civil court, involving private rights are referable to
arbitration. Accordingly, disputes about property or money or amount of damages for breach of contract can
be referred to arbitration. However, in general practice, certain matters are not referred to arbitration.
Example: matrimonial matters like divorce or restitution of conjugal rights, matters relating to guardianship
of minor etc. This is because matters relating to morality, status and public policy cannot be referred to
arbitration.

The word dispute means the matter in dispute, and not the contention or disputation over it. The expression
shall include disputes of law as well as of fact. The dispute may relate to an act of commission or omission,
for example, withholding a certificate to which a person is entitled or refusal to register a transfer of shares.
The scope of arbitration has to be confined to the disputes which were the subject matter of arbitration
before the first arbitrator.
The decision of the arbitrator is legally binding on parties.

What matters can be referred for Arbitration?

Supreme Court in the case of Booz Allen and Hamilton Inc. v. SBI home Finance Ltd., gave examples of
matter that are non-arbitrable.
- Disputes relating to rights and liabilities which give rise to or arise out of criminal offences;

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- Matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child
custody;
- Guardianship matters;
- Insolvency matters;
- Winding up matters;
- Testamentary matters;
- Eviction or tenancy matters governed by special statutes.
The above disputes mentioned cannot be taken forward for arbitration. All the above examples are right in
rem exercisable against the world at large as opposed to right in personam interests protected against
specific individuals. A judgment in rem refers to a judgment that determines the status of property which
operates directly on the property itself. Disputes relating to rights in rem are thus generally considered to be
unsuitable for private arbitration, though this is not a rigid rule.
The only indication regarding arbitrability in the Arbitration and Conciliation Act, 1996 are sections 34(2)
(b) and 48(2) of the Act which provide that an arbitrable award would be set aside if the court found that the
subject matter is incapable of settlement by arbitration.
To add to the list of non-arbitrable matters, the Court Afcons case, gave out the following disputes as non
arbitrable.
- Representative suits under Order 1 rule 8 CPC which involve public interest or interest of numerous
persons who are not parties before the court.
- Disputes relating to election to public offices
- Cases involving grant of authority by the court after enquiry, as for example, suits for grant of
probate or letters of administration.
- Cases involving serious and specific allegations of fraud, fabrication of documents, forgery,
impersonation, coercion etc.
- Cases requiring protection of courts, as for example, claims against minors, deities and mentally
challenged and suits for declaration of title against government.
- Cases involving prosecution for criminal offences
Further, the court then enlists following matters as arbitrable:
a. All cases relating to trade, commerce and contracts, including
- Dispute arising out of contracts (including all money claims)
- Disputes relating to specific performance;
- Disputes between suppliers and customers;
- Disputes between bankers and customers;
- Disputes between developers/builders and customers;
- Disputes between landlords and tenants/licensor and licensees;
- Disputes between insurer and insured;

b. All cases arising from strained or soured relationships, including

- Disputes relating to matrimonial causes, maintenance, custody of children;
- Disputes relating to partition/division among family members/coparceners/co-owners;
- Disputes relating to partnership among partners

c. All cases where there is a need for continuation of the pre existing relationship in spite of the
disputes, including
- Disputes between neighbors (relating to easementary rights, encroachment, nuisance etc.);
- Disputes between employers and employees;
- Disputes among members of societies/ associations/ Apartment owners Associations;

d. All cases relating to tortious liability including claims for compensation in motor accidents/other
accidents; and

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e. All consumer disputes including disputes where a trader/supplier/manufacture/service provider is

keen to maintain his business/professional reputation and credibility or product popularity.

Disputes referred to arbitration

A party is not debarred to refer dispute to arbitration when in normal course, it has become protracted. There
is no public injury by referring the dispute to arbitration. Thus, in such a situation, the third party cannot by
invoking writ take away the right of reference to arbitration arising out of the same subject matter.

Arbitration Agreement

According to section 2(1)(b), an arbitration agreement means an agreement referred to in Section 7.

The agreement which postulates present or future dispute to be referred to arbitration and where there is
consensus ad idem between the parties then such agreement can be called as an arbitration agreement.
Hence, to constitute an arbitration agreement, there must be an agreement and to be enforceable, the
agreement must be made by the free consent of the parties.
The arbitration agreement is itself void if a party is either a minor or of unsound mind or is otherwise not
entitled to enter into a contract by any law.
An agreement is also void if the contracting parties have made a mistake as to the matter of facts relating to
the agreement.
Further, an agreement, the object and consideration is one which is unlawful is void.

Essentials of an arbitration agreement

The essential elements are:

a. There must be a present or future difference in connection with some contemplated affair.
b. There must be the intention of the parties to settle such difference by a private tribunal.
c. The parties must agree in writing to be bound by the decision of such tribunal.
d. The parties must be ad idem.
For the purpose of construing an arbitration agreement, the term arbitration is not required to be specifically
mentioned therein.

Arbitral award

According to Section 2(1)( c), an arbitral award includes an interim award.

Sub section 6 of section 31 of the Act contemplates an interim award. An interim award in terms of the said
provision is not one in respect of which a final award can be made, but it may be a final award on the
matters covered thereby, but made at an interim stage.
The 1996 act does not use the expression partial award. It uses interim award or final award. However,
certain arbitrators use ‘partial award’ instead of using the expression ‘interim award’. The nature and
character of an award is not changed.
Both the partial award and final award are subject- matter of challenge under Section 34 of the Act.

Additional award: The additional award is not vitiated in law. Section 33 of the Act of 1996 empowers the
arbitral tribunal to make correction of errors in arbitral award, to give interpretation of a specific point or a
part of the arbitral award, and to make additional award as to claims.

Any award has 5 indispensable constituent components:

a. Matter in difference
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b. Submission
c. Parties to submission
d. Arbitration
e. Delivery of award

An award is valid of its own force and is binding even in the absence of signatures of the parties.

Arbitral Tribunal

According to Section 2(1)(d), arbitral tribunal means a sole arbitrator or a panel of arbitrators. An arbitral
tribunal is not a court of law. Its orders are not judicial orders and its functions are not judicial functions.

Court

According to Section 2(1)(e), Court means the principal Civil Court of original jurisdiction in a district, and
includes the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide
the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit,
but does not include any civil court of a grade inferior to such principal Civil Court, or any Court of Small
Causes.

A conjoint reading of section 2(1)(e) and Section 42 of the Arbitration Act makes it clear that the application
is to be heard by the principal civil court and the court which has entertained the first application shall
decide the subsequent applications.

International commercial arbitration

According to Section 2(1)(f), "international commercial arbitration" means an arbitration relating to disputes
arising out of legal relationships, whether contractual or not, considered as commercial under the law in
force in India and where at least one of the parties is-
(i) an individual who is a national of, or habitually resident in, any country other than India; or
(ii) a body corporate which is incorporated in any country other than India; or
(iii) a company or an association or a body of individuals whose central management and control is
exercised in any country other than India; or
(iv) the Government of a foreign country

International commercial arbitration can take place either in India or outside India, where there are
ingredients of foreign origin in relation to the parties or the subject matter of the dispute. The law applicable
to the conduct of arbitration and the merits of the dispute may be Indian law or the foreign law, depending
on the contract in this regard and the rules of conflict of laws.

International Commercial Arbitrations which take place in India will be governed by Part I of the Act and
the award resulting from it will be a domestic award. An international commercial arbitration if it takes
place outside India, then the award resulting from it will be a foreign award
under Section 44 or Section 53.

Different laws probably govern different aspects of n international commercial arbitration. For example, the
following different systems of law may apply:
a. The substantive dispute that has been referred to arbitration – (proper law of contract/applicable law/
governing law/ law of the contract)
b. The arbitration itself including the procedure of the arbitration and the role of national courts in
supervising or supporting it – (procedural laws of arbitration/ curial law / lex arbitri)
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c. The arbitration agreement including issues as to its scope, effect, construction or validity
( substantive law of arbitration)

Section 2(2): Place of Arbitration

Part I would apply to all arbitrations, whether between Indian nationals or international arbitrations, where
the place/seat is in India.
Parties have the freedom to determine the place of arbitration and to choose the law governing an
international commercial agreement.
The choice of seat imports legal significance since it constitutes the juridical seat of arbitration i.e. it imports
the acceptance of the law of the country of the seat of arbitration, relating to the conduct and supervision of
the proceedings.

If the parties have specifically chosen the law governing the conduct and procedure of arbitration, the
arbitration proceedings will be conducted in accordance with that law so long as it is not contrary to public
policy or the mandatory requirements of the law of the country in which arbitration is held.

If no such choice has been made by the parties, expressly or by necessary implication, the procedural aspect
of arbitration will be determined by law of the place/ seat of arbitration. If the parties have specifically
(expressly or impliedly) chosen the law governing the arbitration agreement, it shall be governed by such
law. The courts of the country whose substantive laws govern the arbitration agreement are the competent
courts in respect of all matters arising under the arbitration agreement.

If no such choice has been made by the parties, expressly or by necessary implication, the arbitration
agreement will be determined by the law of the place/ seat of arbitration.
Where the parties have stipulated that the arbitration between them will be conducted in accordance with
institutional rules, those rules will govern the conflict.

BHATIA INTERNATIONAL V. BULK TRADING S.A (2002)

Bhatia entered into a contract with Bulk Trading on May 9, 1997. The contract contained an arbitration
clause which provided that arbitration was to be as per the rules of the international chamber of commerce.
On October 23, 1997 Bulk trading filed a request for arbitration with ICC. Parties agreed that the arbitration
be held in Paris, France.
Bulk trading filed an application under sec. 9 of A&C Act in District Court, Indore against Bhatia seeking
injunction restraining Bhatia from alienating, transferring and/or selling their business assets and properties.
Bhatia raised a plea fro maintainability contending that Part 1 of the Act would not apply to arbitrations
where the place of arbitration is not India but the application was dismissed.
The three judge bench held that-
- Part 1of the Act necessarily applies to arbitration which are held in India, between Indian nationals,
and to international commercial arbitrations whether held in India , or out of India.
- Where such arbitration is held in India, the provisions of Part 1 would compulsorily apply and the
parties are free to deviate only to extent permitted by the derogable provisions of Part 1.
- In cases of international commercial arbitrations held out of india provisions of Part 1 would apply
unless the parties by agreement, express or implied, exclude all or any of its provisions. In that case
the laws or rules chosen by the parties would prevail.
- Replying on section 297), since the Act only classifies awards as domestic awards or foreign awards
made in a convention country, an award passed in arbitration which takes place in a non convention
country, even though strictly speaking would not be a domestic award.
Consequences of the Bhatia Judgment
- Part 1 of the Act applies mandatorily to all arbitrations, domestic or foreign;
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- Parties in ICA held outside India can, However, exclude the application of Part 1 by express or
implied consent
- The court did not deal with what would constitute implied exclusion.

Badat & Co, Bombay v. East India Trading – An award given in a non convention country is enforceable in
India on the same grounds and in the same circumstances, in which it is enforceable in England under the
common law in grounds of justice, equity and good conscience.

Bharat aluminium Company v. Kaiser Aluminium Technical

An agreement dated 22-4-1993 was executed between BALCO and Kaiser, under which Kaiser was to
supply and install a computer based system for shelter modernization at BALCO’s Korba shelter. The
agreement contained an arbitration clause for resolution of disputes arising out of the contract.
Awards were given by the arbitral tribunal held in England. BALCO then filed application under section 34
of the A&C act for setting aside of the awards. District Court dismissed the application; HC dismissed the
appeal which was challenged in the SC.
Number of other appeals and ALP’s and transferred cases were listed along with this appeal.

Question: Whether Part 1 of the Act would apply to foreign seated international commercial arbitrations?
Held: Constitution bench overruled Bhatia international where in it was held that the omission of the word
‘only’ from Section 2(2) indicates the applicability of Part 1 of the Act not only to domestic arbitration but
would also extent to arbitrations held outside India.

Section 1(2) does not extend the application of Part 1 to ICA held outside India. Proviso to section 1(2) was
added to incorporate the provisions of ICA which were absent in the previous legislations.
Section 2(2) makes it clear that Part 1 is limited in its application to arbitrations which take place in India.
Legislature has done so to give recognition to the territorial principle. There is no conflict between section
2(2) on one hand and section 2(4) &(5) on the other.

Section 2(4) makes part 1 applicable to every arbitration under any other enactment for the time being in
force. Hence, there must be an enactment under which arbitration takes place. Here enactment is the one
made by the Indian Parliament. It is impossible to accept that every arbitration would include arbitrations
which take place outside India.
Section 2(5) has to be read with Section 2(2)
Section 2(7) does not alter the proposition that Part 1 applies only where the seat or place of the arbitration is
in India. The sub section is enacted to reinforce the territorial criterion by providing that, when two
foreigners arbitrate in India, under a foreign arbitration act, the provisions of Part 1 will apply. Only if the
agreement of the parties is construed to provide for the seat/place of arbitration being in India – would Part 1
be applicable. If the agreement is held to provide for a seat/place outside India, Part 1 would be inapplicable
to the extent inconsistent with the arbitration law of the seat, even of the agreement purports to provide that
the A&C Act 1996 shall govern the arbitration proceedings.

Prospective Ruling: Bhatia International continues to hold the field, and is applicable to proceedings arising
out of any arbitration agreement executed prior to September 6,2012.
Doctrine of prospective overruling allows the court to overrule an earlier judgment and yet hold that its
decision would apply only prospectively.

Section 4: Waiver of Right to Object

The right of waiver can be exercised when a party knows that there has been non compliance of:
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- Any derogable provision of Part 1 of the Act;

- Any requirement under the arbitration agreement
But does not raise any objection of such non compliance without undue delay, or within the time limit
provided for stating that objection, he shall be deemed to have waived his right to so object. Waiver arises
out of consent or acquiescence which must be an intentional act with knowledge.
Under section 16, a party can challenge the composition of the arbitral tribunal before the tribunal itself but
such a challenge must be taken under Section 16(2), not later than the submission of the statement of
defence.

Narayan Prasad Lohiya v. Nikunj Kumar Lohiya (2002)

Held that a conjoint reading of Section 10 and 16 shows that an objection to the composition of the arbitral
tribunal is a matter which is derogable. It is derogable because a party is free to object within the time
prescribed in section 16(2). If a party chooses not to so object, there will be deemed waiver under section 4.

Section 5: Extent of Judicial intervention

Section 5 contains non-obstante clause, the effect of which is that the provisions of Part 1 of the Act will
prevail over nay other law for the time being in force in India and no judicial authority shall intervene in
matters governed by this Part, except as expressly provided therein.

UOI v. Tantia Construction Pvt. Ltd. (2011)

Tantia filed a writ of certiorari against the order of railway authorities which required tantia to execute the
extended quantity of the contract work at an arbitrarily low price, particularly when the additional work was
not part of the original tender.
In this case the writ was allowed by the single judge who asked the railway authorities to expeditiously clear
the payments of tantia for work already completed.
Here the rule of exclusion of writ jurisdiction by availability of an alternative remedy was rule of discretion
and not one of compulsion and there could be contingencies in which the HC exercised its jurisdiction in
spite of availability of an alternative remedy.

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OUTLINE

Section 7: Arbitration agreement

Section 8: Power of the JA to refer parties for arbitration
Section 9: Interim measures

ARBITRATION AGREEMENT

 S.2(1) (b): “arbitration agreement” means an agreement referred to inS.7.

 An arbitration agreement is a pre-condition for commencement of arbitral proceedings.
 An arbitration agreement:
- may be a clause in a contract or a separate agreement - to arbitrate all or certain disputes
- which have arisen or may arise
- in respect of a defined legal relationship,
- whether contractual or not

VALID ARBITRATION AGREEMENT

 An arbitration agreement must be in writing.

 It will be considered to be in writing, if contained in:
a) Document signed by parties;
b) Exchange of letter, telex, telegrams or other means of telecommunication recording the arbitration
agreement
c)Non-denial of the existence of the arbitration agreement in the statement of defence

Arbitration agreement can exist in any of following forms: -

- Separate arbitration agreement
- Arbitration clause in a contract
- Incorporation by reference in a contract to another document which
contains the arbitration clause if the contract is in writing.
 No particular form is required.
 If the intention of the parties to refer the dispute to arbitration can be clearly ascertained from the terms of
the agreement, it is immaterial whether or not the expression “arbitration” “arbitrator” or “arbitrators” has
been used in the agreement.
 The intent cannot be in the nature of a mere possibility of agreeing to arbitrate in the future. It must be
determined and obligatory to refer future disputes to arbitration.

K. K. MODI VS. K.N. MODI (1998)

 Facts: MoU records the settlement of various disputes between Group A and Group B. It records a
settlement arrived at regarding disputes and differences between the two groups which belong to the same
family. In terms of the settlement, the shares and assets of various companies are required to be valued in the
manner specified in the agreement. The valuation is to be done by M/s S.B. Billimoria & Co. Three
companies which have to be divided between the two groups are to be divided in accordance with a scheme
to be prepared by Bansi S. Mehta & Co. In the implementation of the MoU which is to be done in
consultation with the financial institutions, any disputes or clarifications relating to implementation are to be
referred to the Chairman, IFCI or his nominees whose decision will be final and binding. Clause 9 provided
that to prevent any further disputes between Groups A and B. Because the agreement requires division of
assets in agreed proportions after their valuation by a named body and under a scheme of division by another

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named body. Clause 9 is intended to clear any other difficulties which may arise in the implementation of
the agreement by leaving it to the decision of the Chairman, IFCI.

Held:

 Clause doesnot contemplate any judicial determination by the Chairman of the IFCI;
 Difficulties and disputes in implementation may not be between the parties to the MoU. It is possible that
the values or the firm entrusted with the responsibility to split companies may require some clarifications or
may find difficulties in doing the work. They can also resort to Clause 9.
 Therefore, clause 9 is not meant to be arbitration agreement but expert determination.
 The Chairman, IFCI has designated his decision as a decision. He has consulted experts in connection
with the valuation and division of assets. He did not file his decision in court nor did any of the parties
request him to do so.
 The use of the word ‘arbitration’ by parties in course of their correspondence will not make the
proceedings to be arbitration. The intention of the parties was not to have any judicial determination on the
basis of evidence led before the Chairman, IFCI nor was he required to base his decisions only the material
placed before him but to apply his own mind and use his own expertise. He was free to take help of other
experts.
 Therefore, the proceedings before the Chairman, IFCI were not arbitration proceedings.

The attributes which must be present for an agreement to be considered as an arbitration agreement are:
a) The arbitration agreement must contemplate that the decision of the tribunal will be binding on the parties
to the agreement;
b) That the jurisdiction of the tribunal to decide the rights of parties must derive either from the consent of
the parties or from an order of the court or from a statute, the terms of which make it clear that the process is
to be an arbitration;
c) The agreement must contemplate that substantive rights of parties will be determined by agreed tribunal;
d) That the tribunal will determine the rights of the parties in an impartial and judicial manner with the
tribunal owing an equal obligation of fairness towards both sides;
e) That the agreement of the parties to refer their disputes to the decision of the tribunal must be intended to
be enforceable in law;
f) The agreement must contemplate that the tribunal will make a decision upon a dispute which is already
formulated at the time when a reference is made to the tribunal.

BIHAR STATE MINERAL DEVELOPMENT CORP V. ENCON

BUILDERS (2003)
 Facts: BSMDC invited tender for removal of soil, sandstone, shale, conglomerates/ coal etc. and stacking
it up to a distance of 1 km. Encon builders submitted the tender which was accepted. They entered into an
agreement on 17-3-1992 whereby following clause 60 was provided: “In case of any dispute arising out of
the agreement, the matter shall be referred to the MD, BSMC, Ranchi, whose decision shall be final and
binding.” Encon builders made certain omissions in completion of the assignment that resulted in huge loss
for BSMC. To resolve the disputes Encon invoked Clause 60 and questioned its validity.
 District Court and High Court decided in favor of Encon ordering that MD of BSMC is restrained from
acting as an arbitrator on grounds of bias.
 S.C. in this case considered the whether the lower courts committed an illegality in refusing to refer the
matter to arbitration?

Held:
 The essential elements of an arbitration agreement are:
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a)There must be a present or a future difference in connection with some contemplated

affair;
b)There must be the intention of the parties to settle such difference by a private tribunal; c)The parties must
agree in writing to be bound by the decisions of such tribunal;
d)The parties must be ad idem.
 The arbitral tribunal must be impartial. It is a well-settled principle of law that a person cannot be a judge
of his own cause. Also, justice should not only be done but manifestly seen to be done.
 Bias in any form – actual or apparent; pecuniary or impartiality - would lead to an automatic
disqualification.
 The fact that Encon entered into the agreement with his eyes wide open or not takes a back seat. An order
which lacks inherent jurisdiction would be a nullity and, thus, the procedural law of waiver or estoppel
would have no application in such a situation.
 Therefore, clause 60 does not constitute an arbitration agreement.

DRESSER RAND V. BINDAL AGRO CHEM & K. G. KHOSLA

COMPRESSORS (2006)
 Facts: Bindal wanted to invite global tenders for supply of various equipment and materials for its project
and for that prepared its standard “Invitation to Bid” comprising “Conditions of Purchase for Supply of
Equipment and Material under ICB Procedure”. The General Conditions of Purchase, in Clause 27.4
provided for arbitration: for indigenous purchase orders arbitration according to Arb Act, 1940 and for
foreign supplier under rules of ICC, Paris.
 Bindal sent a telex to DR informing about the project and possibilities of securing equipment from DR.
(12-1-1990)
 DR replied with offer to supply.(18-5-1990)
 5-4-1991,Bindal invited quotation from DR for a formal bid.
 16-5-1991,DR replies by quoting price.
 10-6-1991, DR gave its comments/ modification to the terms and conditions of Bindal, termed as
“Revision 4” whereby it deleted the provision for arbitration on indigenous purchases.

12-6-1991, upon negotiations on Revision 4, Bindal delivered two letters – “Letters of Intent” – on the
letterhead of KGK stating the intention to place an order for certain equipment.
 Bindal neither placed any purchase order nor issued any confirmation that the LOI were placed by KGK
on its behalf.
 5-2-1993 DR conveyed its intention to refer the matter of repudiation of the contract for Arbitration
according to Clause 27.4 at ICC, Paris.
 10-3-1993, ICC issued notice to Bindal and KGK about arbitration proceedings.
 11-4-1993, lawyer on behalf of Bindal and KGK sent a telex stating that his
clients were jointly in the process of nominating an arbitrator.
 27-4-1993, and 28-4-1993, two communications by lawyers of Bindal and KGK respectively, denying
existence of arbitration agreement.

Held:
 The tender document or the invitation to bid of Bindal by itself is neither an agreement nor a contract.
 The intending purchaser and the intending supplier are at liberty to negotiate and agree upon the terms to
which offers will be made and accepted.
 But reaching an agreement as to the terms subject to which a purchase will be made, is not entering into
an agreement to purchase.
 The General Conditions of Purchase and Revision 4 dated 10-6-1991 containing the modifications
thereto, merely set out the terms on which the parties were ready to do business with each other if and when
purchase order was placed by Bindal.

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 LOI is only a prelude to the purchase order and not itself the purchase order. It merely provides that if and
when the purchase order is placed, the placed order will be subject to General Conditions of Purchase, as
modified by Revision 4. Therefore, the point of time at which the General Conditions of Purchase will
become applicable, is the point when the purchase order is placed and not earlier.

OWNERS AND PARTIES INTERESTED IN THE VESSEL M.V. BALTIC

CONFIDENCE vs. STATE TRADING CORP. (2001)

Facts

 8/5/1997: Owners of MV Baltic Confidence entered into ‘Time Charter Agreement’ with State Trading
Corp. Clause 62 in this agreement provided the following clause:
 “This Charter Party shall be governed by and construed in accordance with English Law and any dispute
arising out of this Charter Party shall be referred to arbitration in London in accordance with the Arbitration
Acts of 1950 and 1979 or any statutory modification or re-enactment thereof for the time being in force.
Unless the parties agree upon a sole arbitrator, one arbitrator shall be appointed by each party and the
arbitrators so appointed shall appoint a third arbitrator, the decision of the three- man tribunal thus
constituted or any two of them, shall be final. On the receipt by one party of the nomination in writing of the
other party’s arbitrator, that party shall appoint their arbitrator within 14 days, failing which the decision of
the single arbitrator appointed shall be final. For disputes where the total amount claimed by either party
does not exceed USD 50,000 the arbitration shall be conduced in accordance with the small claims
procedure of the London Maritime Arbitrators'’ Association.”

Five bills of lading were issued by Owners to STC, whereby STC agreed to carry on board yellow peas for
another from Canada to Calcutta in good order and condition. Clause 62 of the agreement was specifically
incorporated as a condition of the Bills of Lading by providing following clause 1:
 “All terms and conditions, liberties and exceptions of the Charter Party, dated as overleaf, including the
law and arbitration clause, are herewith incorporated.”
 Later, it was contended by the other party in Calcutta HC that Owners and STC have been negligent and
in breach of contract as the goods were not delivered in good order and condition.
 Owners and STC filed an application u/S. 45 praying for stay of proceedings and referring the matter to
arbitration according to Clause 62.

ISSUE:

 Whether the parties agreed that Clause 62, the arbitration clause in the Charter Party Agreement shall be
applicable to disputes arising under the Bills of Lading?
 In considering whether the arbitration clause in a Charter Party Agreement was incorporated by reference
in the Bill of Lading, the principal question is, what was the intention of the parties to the Bill?

To infer the intention of the parties, the primary document to be considered is the Bill of Lading into which
the arbitration clause in the Charter Party Agreement is to be read in the manner provided in the
incorporation clause of the Bill of Lading.

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 While ascertaining the intention of the parties, attempt should be made to give meaning to the
incorporation clause and to give effect to the same and not invalidate or frustrate it giving a literal, pedantic
and technical reading of the clause.
 If on a construction of the arbitration clause of the Charter Party Agreement as incorporated in the Bill of
Lading it does not lead to inconsistency or insensibility then effect should be given to the intention of the
parties and the arbitration clause as agreed should be made binding on the parties to the Bill of Lading.
 If the parties the Bill of Lading being aware of the arbitration clause in the Charter Party agreement have
specifically incorporated the same in the conditions of the Bill of Lading then the intention of the parties to
abide by the arbitration clause is clear.

WHAT IS MEANT BY ‘AGREEMENT IN WRITING’?

SMITA CONDUCTORS LTD. VS. EURO ALLOYS (2001)

Facts:
 Smita Conductors (SC) and Euro Alloys (EA)entered into two contracts:
 S. 336: On 31/8/90 a contract, containing an arbitration clause, was proposed by EA and it was stated in
the accompanying letter that SC should sign and return the copy to SC for records. But SC did not return it
despite various reminders.
 S. 142: On 25/2/91 another contract, not containing any arbitration clause, was proposed by EA to SC and
later the same contract containing the arbitration clause and certain amendments was sent to SC for sign and
return. But this was also not signed and sent by SC.
 SC made shipments in January, February and March on basis of the letters of credits.
 In 1991, due to financial crisis in India, RBI issued circulars modifying limits for opening letters of credit.
 SC informed about this action of RBI to EA and went to invoke force majeure clause cancelling April
shipment for both the contracts.

EA invoked arbitration clause, but SC did not respond.

 SC approached Bombay HC seeking declaration against EA that there is no valid agreement between
them and therefore no arbitration proceedings can be held. Petition was treated u./S. 33 of 1940 Act and it
was dismissed on the ground that the arbitration clause bound the parties.
 Meanwhile, arbitrator gave an award against SC imposing damages worth $6,76,000.
 SC filed petition to the Appeal Board of the London Metal Exchange seeking to set aside award but it
rejected the request.
 EA filed petition in Bombay HC for enforcement of the award. HC allowed the petition and granted
certificate under Article 134-A of the Constitution and disposed the petition.
 SC challenged the order in Supreme Court now

Issue:
 Whether there was an agreement in writing between EA and SC?

Held:
 NY Convention will control the current arbitration proceedings. Under S. 2(a) of the Act it is clearly
stated that the Act is applicable in respect of a foreign award made in pursuant of an agreement in writing
for arbitration to which the Convention set forth in the Schedule applies and the terms of the Convention are
available in the Schedule to the Act.
 Article II, Para (1) and (2) clearly state that the agreement to submit to arbitration must be in writing. The
agreement need not be signed by the parties at all.
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 There is an agreement in writing though not signed by both the parties but by the course of conduct
between the parties it can be spelt out that such an agreement is writing is enough and para (2) of Article II
only explains the meaning of the expression “agreement in writing” which includes contracts or agreements
signed by parties or contained in exchange of letters or telegrams.

MALLIKARJUN VS. GULBARGA UNIVERSITY (2004)

Facts:
 GU invited tenders for construction of the indoor stadium.
 M applied for the tender and it was accepted by GU.
 An agreement, containing the arbitration clause, was executed between M and GU on 21/5/1993.
 Clause 30: “The decision of the Superintending Engineer of Gulbarga Circle for the time being shall be
final, conclusive and binding on all parties to the contract upon all questions relating to the meaning of the
specifications, designs, drawings and instructions hereinbefore mentioned and as to the quality of
workmanship or material used on the work, or as to any other question, claim, right, matter, or thing
whatsoever, in any way arising out of, or relating to the contract designs, drawings, specifications, estimates,
instructions, orders or those conditions, or otherwise concerning the works or the execution of failure to
execute the same, whether arising during the progress of the work, or after the completion or abandonment
thereof in case of dispute arising between the contractor and GU.”
 Clause 31 and 32: Conferred power upon the Engineer-in-charge to take a decision thereupon in relation
to the matters envisaged under Clause 31 and 32.

Thereafter, when certain disputes arose in relation to the contract, M referred the matter for arbitration.
 Arbitrator decided the matter and gave an award in favor of M. Though there was delay in delivering the
signed copy of the award to M but it was done subsequently.
 M filed an application for execution of the award which was objected by GU but rejected by the court.
 GU filed revision petition in the HC challenging the agreement on the basis whereof the dispute was
referred to SE, was not an arbitration agreement and consequently the award made by him is not one under
the 1940 Act.
 HC set aside the execution proceedings, M approached the SC against the said judgment.

Held:
 The Court reiterated the principles laid in BSMC v. Encon Builders, and applying these principles stated:
 SE, Gulbarga Circle, Gulbarga is required under Clause 30 to give decision on any dispute that may arise
between the parties out of contract. Decision subsumes adjudication of the dispute.
 Agreement postulates present or future difference in connection with some contemplated affairs inasmuch
as there also was an agreement between the parties to settle such difference by a private tribunal, namely, the
SE.
 It was also agreed between the parties that they would be bound by the decision of the Tribunal.
The parties were also ad idem

For a valid arbitration agreement, it is not necessary that the conditions as regards adduction of evidence by
the parties or giving an opportunity of hearing to them must specifically be mentioned therein. Such
conditions, are implicit in the decision making process in the arbitration proceedings. The principles of
natural justice have to be complied in the arbitration proceedings else the award shall be rendered invalid.
 Therefore, the agreement did contain an arbitration clause. The order of the HC was set aside and
execution was directed.

WHETHER NON-SIGNATORY CAN BE MADE BOUND TO ARB AGREEMENT?

THOMSON CSF VS. AMERICAN ARB ASSO. , EVANS & SUTHERLAND COMPUTER CORP (1995)
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The Working Agreement: The working agreement provides for the arbitration of all disputes between the
“parties” to the Agreement. While the Agreement provides no explicit definition of “parties”, it does define
“E&S” and “Rediffusion”:
 1.14 the term “E&S”, wherever used in this Working Agreement, shall include the affiliates of E & S.
 The term “Rediffusion” wherever used in this Working Agreement, shall ... mean Rediffusion and each of
its affiliates.
 1.6 An “affiliate” of a party hereto shall mean any person, firm or corporation that ,directly or indirectly,
through one or more intermediaries, controls, or is controlled by, or is under common control with, such
party.”

Held:
 Arbitration is contractual by nature – “party cannot be required to submit to arbitration any dispute which
he has not agreed so to submit.” A non-signatory party may be bound to an arbitration agreement if so
dictated by the “ordinary principles of contract and agency.”

 Five theories of contract and agency law that may bind a non-signatory to arbitration agreements are:

1. Incorporation by reference: An non-signatory may compel arbitration against a party to an arbitration

agreement when that party has entered into a separate contractual relationship with the non-signatory
which incorporates the existing arbitration clause.

2. Assumption: In the absence of a signature, a party may be bound by an arbitration clause if its
subsequent conduct indicates that it is assuming the obligation to arbitrate.

3. Agency: Tradition principles of agency law may bind a non-signatory to an arbitration agreement.

4. 4. Veil Piercing/ Alter Ego: In some instances the corporate relationship between a parent and its
subsidiary are sufficiently close as to justify piercing the corporate veil and holding one corporation
legally accountable for the actions of the other. A parent corporation and its subsidiary lose their
distinct corporate identities when their conduct demonstrate a virtual abandonment of separateness.

5. 5. Estoppel: A signatory can be estopped from avoiding arbitration with a non- signatory when the
issues the non-signatory is seeking to resolve in arbitration are intertwined with the agreement that
the estopped party has signed. The situation here is inverse, E&S as signatory, seeks to compel
Thomson, a non-signatory.
Therefore, under the ordinary principles of contract and agency law, Thomson cannot be said to have
voluntarily submitted to arbitrate its disputes with E&S.

WHETHER A COMPANY COULD BE SAID TO BE A PARTY TO A CONTRACT CONTAINING AN

ARBITRATION CLAUSE, WITH REFERENCE TO ITS SUBSEQUENT CONDUCT?

INDOWIND ENERGY LTD. VS. WESCARE (INDIA) LTD. (2010)

 Wescare (W) is in the business of setting up and operating/ managing windfarms and generation of power
from wind electric generators.
 Indowind Energy (IE) is an independent company incorporated under the Companies Act, with its
separate and distinct legal entity.
 Subuthi Finance Ltd.(SF)is the promoter of Indowind Energy.
 SF and IE have common shareholders and Board of Directors.

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 On 24-2-2006, an agreement of sale was entered into between W and S where W was the seller and SF
was the buyer and promoter of IE.
 Clause 10 in the agreement provided for arbitration.

Clause 11 provided approval whereby it was stated that the agreement has to be expressly approved by the
seller, the buyer and IE on or before 30-6-2006 else the agreement shall be null and void and of no effect
whatsoever and all transactions done under the agreement shall be reversed with all costs and damages to the
defaulting party.

W and SF approved the signed agreement but IE did not.

Dispute arose between W on one hand and SF and IE on the other.
W filed an application u/S. 9 for interim measures which was dismissed by the HC stating that IE has not
signed the agreement so maintainability of application u/S.9 was doubtful but it should not be considered as
finding on the merits and the arbitrator should determine the issues raised before him.
W filed an application u/S. 11(6) against SF and IE for appointment of arbitrator by the CJ which was
allowed stating that IE was prima facie a party to the arbitration agreement and bound by it, even though not
a signatory for following findings:
Arbitration agreement is not in dispute;
S was promoter of IE; they had common office and directors; common director
signed the agreement for SF.
Agreement described IE as the nominee of S whereby SF entered into purchased
agreement for business assets of W for IE.
Agreement contemplated IE purchasing the assets of W including WEGs and making payments which was
executed.
The red-herring prospectus issued by IE for public issue of equity shares gives a clear indication that it is
bound by the agreement between W and SF.
Signature is not a formal requirement under S. 7 of the Act.

Issues:
a) Whether an arbitration clause found in a document (agreement) between two parties, could be considered
as binding arbitration agreement on a person who is not signatory to the agreement?
b) Whether a company could be said to be a party to a contract containing an arbitration clause, with
reference to its subsequent conduct?

Held:
 It is fundamental that a provision for arbitration to constitute an arbitration agreement for the purpose of
S. 7 should satisfy two conditions: (1) it should be between the parties to the dispute; and (2) it should relate
to or be applicable to the dispute.
 In the absence of any document signed by the parties as contemplated under clause (a) of sub-section (4)
of S. 7, and in absence of existence of an arbitration agreement as contemplated in clauses (b) or (c) of
S.7(4) and in the absence of a contract which incorporates the arbitration agreement by reference u/ S.7(5),
IE is not a party to the arbitration agreement.

The very fact that the parties carefully avoided making IE a party and the fact that the Director of SF though
a Director of IE, was careful not to sign the agreement as on behalf of IE, shows that the parties did not
intend that IE should be a party to the agreement. Therefore the mere fact that SF described IE as its
nominee or as a company promoted by it or that the agreement was purportedly entered by SF on behalf of
IE, will not make IE a party in the absence of a ratification, approval, adoption, or confirmation of the
agreement by IE.

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 The red-herring prospectus merely referring to IE agreeing to take over the windmills along with land,
infrastructure and spares from W. It does not refer to the agreement nor does it state that the takeover of the
windmills, etc. was in pursuance of the agreement which had the arbitration clause.
 Therefore, HC’s order appointment arbitrator against IE and SF is set aside; application u/S.11(6)
dismissed insofar as IE is concerned. Appointment of arbitrator for SF is not disturbed.

ENERCON (INDIA) LTD. VS. ENERCON GMBH (2014)

Facts:
 In 1994, members of the Mehra family (A2 and A3) and Enercon GmBH (R1) entered into an agreement
to start a JV business by setting up Enercon (India) Ltd. (A1) (EIL) with registered office in Daman, India.
 On January 12, 1994, A1 and R1 entered into a Technical Know-How Agreement for transfer of
technology from R1 to A1.
 In April 2004 the THKA expired but R1 continued its supply to A1. The parties thereafter negotiated
possibility of further agreements. These negotiations were recorded in document titled “Heads of
Agreement”.
 On September 29, 2006 the parties entered into a document titled “Agreed Principles” which recorded the
principles based on the new agreements were to be entered into. On the same date the IPLA containing an
arbitration clause at Clause 18, was allegedly executed between the Parties

Under the Arbitration Agreement:

a) The arbitral tribunal was to consist of three arbitrator, of who one would be appointed by each of the two
parties to IPLA. The arbitrator appointed by R1 was to act as the presiding arbitrator.
b) The venue of the arbitration proceedings was London.
c) The provisions of the Indian Arbitration and Conciliation Act, 1996 were to apply and
d) Indian laws were to govern the arbitration agreement and the IPLA.
 Dispute arose between the parties when the R1 stopped all shipments to supply to India.

A2 and A3 filed a derivative action before the Bombay HC seeking resumption of supply.

  R1 filed an application u/S.45 seeking reference of the disputes between the parties to arbitration.
The Bombay suit and application remained pending for disposal.

  On March 13, 2008, R1 invoked arbitration and sought certain declaratory reliefs from the
English High Court including constitution of an arbitral tribunal under the IPLA.

  On April 8, 2008 A2 and A3 filed a suit in Daman Court seeking a declaration that the IPLA was
not a concluded contract and therefore no arbitration agreement exist. R1 in response filed
application u/S. 45

  A2andA3soughtananti-suitinjunctionovertheEnglishHCproceedings.

  Daman Court adjudicated on Sec. 45 and anti suit application in favor of A2 and A3 which was
subsequently overturned by the Daman Appellate Court in favor of R1.

  Thereafter A2 and A3 filed writ petitions in HC which were dismissed and appealed intheSC.

Held:

Validity of the Arbitration Agreement

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  A2 and A3 contended: IPLA was not a concluded contract and hence, the Arbitration Agreement
contained therein could not be considered to constitute a valid arbitration agreement;

  R1 contended: an intention to arbitrate was the only requirement for determining the existence of
an arbitration agreement and it did not depend on the presence or absence of a concluded substantive
contract between the parties;

  SC ruled in favor of R upholding the concept of separability.

  Section 16 recognized that the substantive agreement and the arbitration agreement formed two
separate contracts and the legitimacy and validity of the latter could not be affected even if one
claims that the former is void or voidable or unconcluded.

  For application of infirmities u/S. 45, they must be specifically contended and proved.

  The Heads of Agreement where the parties had agreed to be irrevocably bound by the Arbitration
Agreement contained in the IPLA clearly convey the intention of the parties to resolve disputes via
arbitration.

Unworkability of the Arbitration Agreement

  A2 and A3 contended: Arbitration Agreement was unworkable as it prescribed for a three
member arbitral tribunal but provided for the procedure of appointment for only two of these
arbitrators.

  R1 contended: an arbitration agreement was workable if a manifest intention to arbitrate existed
between the parties. Sections 10 and 11 of the Act argued that the underlying object was to avoid
failure of appointment of arbitrators.

  SC held in favor of R1 stating that courts must adopt a pragmatic, reasonable business person’s
approach (and not a technical approach) while interpreting or construing an arbitration agreement
and must strive to make a seemingly unworkable arbitration agreement workable. The legislative
mandate to support this was contained in Section 5 of the Act.

  The courts must strictly follow the “least intervention” policy in arbitration process and that they
must only play a supportive role in encouraging the arbitration proceedings rather than letting it
come to a grinding halt.

  Ss. 8, 10, 11 and 45 of the Act are machinery provisions to ensure that parties can proceed to
arbitration provided they have expressed the intention to arbitrate in terms of S.7 or S.44 of the Act
and thus, while constructing an arbitration agreement the approach of courts should be to make it
workable.

Distinction Between Venue and Seat of Arbitration

 By choosing to apply the Act, the parties had made a choice that the seat of arbitration is India. The
Supreme Court held that having chosen all the three applicable laws to be Indian laws, the parties
would not have intended to have created an exceptionally difficult situation, of extreme complexities,
by fixing the seat of arbitration in London and thus, concluded that in the facts of the case, it would
not be appropriate to read the word “venue” as “seat”, as contended by the Respondents.

Concurrent Jurisdictions of Venue and Seat Courts

  Once the seat of arbitration was established, it was clear under both, Indian and English law, that
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the courts of the seat of arbitration would have exclusive jurisdiction to exercise supervisory powers
over the arbitration. It was further held that allowing different courts from different jurisdictions
concurrent jurisdiction over an arbitration would lead to unnecessary complications and
inconvenience which would, in effect, frustrate the purpose of arbitration i.e. a speedy, economic and
final resolution of disputes.

  Based on this finding, the Supreme Court granted the anti-suit injunction against the Respondents,
restraining them from pursuing any reliefs before the English High Courts.

SEPARABILITY

 A valid arbitration agreement is separable from the main contract, and the invalidity or rescission of the
main contract does not necessarily entail the invalidity or recession of the arbitration agreement.

 Arbitration agreement should be treated as ‘distinct agreement’ and can be void or voidable only on the
grounds which relate directly to the arbitration agreement.

  The party making allegations of the invalidity and unenforceability of the main contract should
specifically establish that the deficiency applies to the arbitral clause as well.

  A decision on whether the alleged nullity affects the arbitral clause and renders the clause
inoperative, will first be made by the arbitrator under his authority to rule on his own jurisdiction,
u/S. 16 of the Act. Courts can supervise that decision once it is made, either at the time of its
rendition, or at the conclusion of the arbitral process.

SECTION 8

POWER TO REFER PARTIES TO ARB WHERE THERE IS AN ARB AGR.

  S.5 and S.8:Provides for judicial intervention for the specific purpose of reference to arbitration.
  This provision is mandatory and not subject to party autonomy.
  For applicability of S.8,following conditions must be satisfied:
a)  That there exists an arbitration agreement;
b)  That action has been brought to the court by one party to the arbitration agreement against the other
party;
c)  That the subject matter of the suit is the same as the subject matter of the arbitration agreement;
d)  That the other party must move to the court before he submits his first statement on the substance of
the dispute, for reference to arbitration; and
e)  The applicant moving an application, is required to produce the original arbitration agreement, or duly
certified copy thereof.

SBP & CO. VS. PATEL ENGINEERING LTD. (2005)

  Where there is an arbitration agreement between the parties and one of the parties, ignoring it,
files an action before a JA and the other party raises the objection that there is an arbitration clause,
the judicial authority has to consider that objection and if the objection is found sustainable to refer
the parties to arbitration.

  JA has to be satisfied of the following before referring the matter for arbitration:

. a)  A valid arbitration clause exists; and

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. b)  The subject-matter of the action is covered by the clause.

It is difficult to contemplate that the JA has also to act mechanically or has merely to see the original
arbitration agreement produced before it, and mechanically refer the parties to an arbitration.

BOOZ ALLEN & HAMILTON INC. VS. SBI HOME FINANCE LTD. (2011)

Issues:
a) Whether the subject-matter of the suit fell within the scope of the arbitration agreement contained in
Clause 16 of the deposit agreement?
b) Whether B had submitted his first statement on the substance of the dispute before filing the application
under S. 8 of the Act?
c) Whether the application u./ S 8 was liable to be rejected as it was filed nearly 20 months after entering
appearance in the suit?
d) Whether the subject-matter of the suit is arbitrable, that is, capable of being adjudicated by a private
forum and whether the HC ought to have referred the parties to the suit to arbitration u/ S. 8 of the Act?

Held:
 When one party files a suit against the other parties to the arbitration agreement and if the defendant files
an application u/S. 8 stating that the parties should be referred to arbitration, JA will have to decide:
i. Whether there is an arbitration agreement among the parties?
ii. Whether all the parties to the suit are parties to the arbitration agreement?
iii. Whether the disputes which are the subject-matter of the suit fall within
the scope of arbitration agreement?
iv. Whether the defendant had applied under S.8 of the Act before submitting his first statement on the
substance of the dispute?
v. Whether the reliefs sought in the suit are those that can be adjudicated and granted in an arbitration?

Issue (a): Yes

 Issue (b): No. The expression “first statement in the substance of the dispute” is different from the
expression “written statement.” Not only filing of the written statement in a suit, but filing of any statement,
application , affidavit by a defendant prior to the filing of the written statement will be construed as
“submission of the statement on the substance of the dispute”, if by filing such statement/ application/
affidavit, the defendant shows his intention to submit himself to the jurisdiction of the court and waives his
right to seek reference to arbitration. But filing of a reply by a defendant, to an application for temporary
injunction/ attachment before judgment/ appointment of Receiver, cannot be considered as submission of a
statement on the substance of the dispute, as that is done to avoid an interim order being made against him.
Supplemental and incidental proceedings are not part of the main proceeding.
 Issue (c): No. As B had filed application u/S. 8 before filing any other statement on the substance of the
dispute.

Issue (d): No.

- Where the issue of “arbitrability” arises in the context of an application u/S. 8 in a pending suit, all aspects
of arbitrability will have to decided by the court seized of the suit, and cannot be left to the decision of the
arbitrator. Even if there is an arbitration agreement between the parties, and even if the dispute is covered by
the arbitration agreement, the court where the civil suit is pending, will refuse an application u/S. 8, to refer
the parties to arbitration, if the subject matter of the suit is capable of adjudication only by a public forum or
the relief claimed can only be granted by a special court or Tribunal.
- Arbitrability can have three meanings:
i. Whether the disputes are capable of adjudication and settlement by
arbitration?

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ii. Whether the disputes are covered by the arbitration agreement?

iii. Whether the parties have referred the disputes to arbitration?

The court gave following examples of non-arbitrable disputes:

a. Disputes relating to rights and liabilities which give rise to or arise out of criminal offences;
b. Matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody;
c. Guardianship matters;
d. Insolvency matters;
e. Winding up matters;
f. Testamentary matters;
g. Eviction or tenancy matters governed by special statutes
A right in rem is a right exercisable against the world at large, as contrasted to Right in personam which is
an interest protected solely against specific individuals. Generally, all disputes relating to rights in personam
are considered to be amenable to arbitration; and all disputes relating to rights in rem are required to be
adjudicated by courts and public tribunals.
Accordingly, mortgage agreement will involve rights in rem and therefore not suitable for arbitration.

SUKANYA HOLDINGS PVT. LTD. VS. JAYESH H PANDYA (2003)

 S and J entered into a partnership agreement on 30-4-1992 to develop land belonging to Ms. Jaykirti
Mehta who brought the said land as her capital contribution.
 Award on 11-3-1993: Ms. Jaykirti Mehta was directed to retire; S provided a fund of Rs. 60, 88, 000 to
Ms Gupta long with Rs. 5, 24, 000 according to the award.
 Another sum of Rs 47, 50, 000 was paid to Mr. Kirti Desai to settle suit filed by him.
 Partnership firm entered into an agreement with M/s Laxman Commercial and Finance Ltd. for
construction.
 J took some amount from the partnership without contribution to capital construction between 1996 to
1998.
 7-4-1998: Five flats sold to creditors as repayment of loan and excess was paid to the firm.
In 1999, M/S Laxman sold some more flats to different purchasers.
 23-6-1999: Partnership firm executed a Deed of Conveyance subject to rights of other parties in favour of
M/s West End Ghymkahan in respect of disposed off flats.
 J filed a suit in Bombay HC for dissolution of partnership form and challenged the conveyance deed in
favor of M/s Gymkhana.
 J filed fresh suit for dissolution, accounts and other reliefs including relief to set aside the transfer of suit
flats in favor of various defendants but withdrew the suit on 9-5-2000.
 On the same day, S filed an application u/S. 8 of the A&C Act which was opposed by J contending that
the subject matter of the suit is not between the contracting parties and the reliefs claimed not only against J
but remaining 23 parties who are purchasers of the disputed flats.
 HC upheld the objection and rejected application u/S. 8.

The Act does not oust the jurisdiction of the court to decide the dispute in a case where parties to the
arbitration agreement do not take appropriate steps as contemplated by S.8(1) and (2).
 There is no provision in the Act for bifurcation of the cause or parties and referring the subject matter of
the suit to the arbitrators.
 There is no provision as to what is required to be done in a case where some parties to the suit are not
parties to the arbitration agreement.
 It would be difficult to give an interpretation to S. 8 under which bifurcation of the cause of action that is
to say the subject matter of the suit or in some case bifurcation of the suit between the parties who are
parties to the arbitration agreement and others is possible. This would mean laying down a totally new
procedure not contemplated under the Act.
 Also, such bifurcation would inevitably delay the proceedings.
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TIME LIMIT FOR FILING APPLICATION U/S. 8

Rashtriya Ipsat Nigam Ltd. vs. Verma Transport Company (2006)

Facts:
 RINL is a Public Sector Undertaking engaged, inter alia, in the business of manufacturing and marketing
of iron and steel products.
 VTC is a partnership firm engaged in the business of consignment agents.
 A contract was entered into by and between the parties hereto in regard to the handling and storage of iron
and steel materials of the Appellant at Ludhiana. But one of the partners at VTC misappropriated certain
funds and when this came to the knowledge of the parties , VTC informed RINL that the said partner has
resigned. But RINL terminated the contract on 23.05.2002 and issued a notice to VTC asking why its firm
should not be blacklisted.
 VTC filed a suit for grant of permanent injunction restraining RINL from in any manner blacklisting the
VTC or terminating the consignment agency contract.

RINL sought for time to file written statement and filed a rejoinder to the counter affidavit to the application
for injunction wherein it took a specific plea that the subject-matter of the suit being covered by the
arbitration agreement entered into by and between the parties, it was not maintainable.
 On 07.06.2002, RINL filed an application under Section 8 of the 1996 Act, which was rejected by the
Civil Judge on grounds of non-satisfaction of the conditions of S. 8.

Held:

 S.8 confers a power on the judicial authority to refer the dispute, which is the subject-matter of an
arbitration agreement if an action is pending before him, subject to the fulfilment of the conditions
precedent. The said power, however, shall be exercised if a party so applies not later than when submitting
his first statement on the substance of the dispute.

Filing of a reply to the injunction application could not have been a ground to refuse to entertain the plea
taken by the RINL that the suit should be referred to arbitral tribunal particularly when in its reply to
injunction application, the RINL categorically stated that the application should be dismissed u/ Order 39
Rules 1 and 2 read with S. 151 on existence of arbitration agreement. Thus, they did not submit themselves
to the jurisdiction of the court. They did not waive their right. They in effect and substance questioned the
jurisdiction of the court in proceeding with the matter.

 The expression 'first statement on the substance of the dispute' contained in Section 8(1) of the 1996 Act
must be contra-distinguished with the expression 'written statement'. It employs submission of the party to
the jurisdiction of the judicial authority. What is, therefore, is needed is a finding on the part of the judicial
authority that the party has waived his right to invoke the arbitration clause. If an application is filed before
actually filing the first statement on the substance of the dispute, in our opinion, the party cannot be said to
have waived his right or acquiesced himself to the jurisdiction of the court. What is, therefore, material is as
to whether the petitioner has filed his first statement on the substance of the dispute or not, if not, his
application under Section 8 of the 1996 Act, may not be held wholly unmaintainable.

PRODUCTION OF ARB AGR WITH APPLICATION, S.8(2)

S. 8 (2) mandates that the application under S.8(1) shall not be entertained, unless it is accompanied by the
original arbitration agreement or a duly certified copy thereof.

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 The precise connotation of ‘accompany’ was dealt with in Southern Railway case, giving a purposive
construction to this, the Court held that what the Court needs is an arbitration agreement to be in place, i.e, if
the agreement is already before the Court or if it is a claims of defence and other party does not dispute it,
then it can be said to accompany it.
 S.8(2) in effect and substance mandates that the arbitration agreement should be on record and that there
should be no dispute as regard to the existence of the arbitration agreement.

CONTINUING OR COMMENCING ARB, S. 8(3)

 S.8(3) provides that notwithstanding pendency of an application U/S.8 before the judicial authority, the
arbitration already commenced may continue, or an arbitration may be commenced and the arbitral tribunal
may make an arbitral award.
 This provision permits two proceedings at the same time, one before the judicial authority covering
jurisdictional issues and the other before the arbitral tribunal on merits of the case.

WHETHER NON SIGNATORIES TO ARB AGREEMENT CAN BE REFERRED TO ARBITRATION?

CHLORO CONTROLS INDIA PVT. LTD VS. SEVERN TRENT WATER PURIFICATION INC. (2013)

PARTIES INVOLVED
 Prior to the formation of the JV company (around which the dispute has to revolve), the CHLORO
CONTROLS GROUP carried on the business of manufacture and sale of gas chlorination equipment and
from 1980 it developed and commenced the manufacturing of electro-chlorination equipment also. The
business was done in the name of “CHLORO CONTROLS EQUIPMENTS CO.”, a sole proprietary concern
of Mr. Kocha (R9) and it was the distributor in India for the products of the Capital Controls Group for more
than a decade prior to the formation of the JV.
 On 1-12-1988: LOI and LOU were executed between CAPITAL CONTROLS CO. INC. , COLMAS, PA,
USA (Which subsequently changed its name in 2002 to SEVERN TRENT WATER PURIFICATION INC.)
and R9 to form a new jointly-owned company in India, to be called CAPITAL CONTROLS (INDIA) (P)
LTD. (R5) to manufacture, sale and export chlorination equipment on the terms and conditions agreed
between the parties.

This formation of JV got delayed as CAPITAL CONTROLSCO.INC.(R1)Was acquired by

SEVERNTRENT,UK and CAPITAL CONTROLS CO. INC., COLMAR, PA, USA and the name of the
company changed to SEVERN TRENT WATER PURIFICATION INC. (w.e.f 1-4-2002).
 ON 14-11-95: JV Company, CAPITAL CONTROLS (INDIA) (P) LTD. (R5) Was incorporated and
registered under the Companies Act., 1956. The JV agreement was executed between CHLORO
CONTROLS INDIA (P) LTD. and Mr. Kocha on one hand and CAPTIAL CONTROLS (DELWATE) CO.
INC and SEVERN TRENT WATER PURIFICATION INC. on the other hand.
 R3, TITANOR is the company incorporated under the Companies Act and engaged in the business of
manufacture and marketing of electro-chlorination equipment. In or about the year 1989-1990, this company
was floated as a JV in technical and financial collaboration with the DE NORA GROUP OF ITALY which
held its 51% equity share capital.
 R4, HI POINT SERVICES is a private limited company incorporated under the Companies Act and
carried on business in electro-chlorination equipment. It had a tie-up with an American Company called
EXCEL TECHNOLOGIES INTERNATIONAL INC. which was engaged in the business of electrolytic
disinfection equipment.
 R6 and R8 are Directors of R5 appointed by CAPTIAL CONTROLS GROUP.
 R7 is the Chairman, appointed by CAPITAL CONTROLSGROUP
 R9to11areDIRECTORSofR5, nominated by CHLORO CONTROLS GROUP.
 R9 is the Managing Director of the JV.

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DISPUTE
 R1 and R2 were to undertake distribution activities in India solely through Capital Controls (India) (P)
Ltd., the entity formed due to the joint venture between the Chloro Controls India Pvt. Ltd (appellant) and
R1 and R2. and not through any of their group entities.
 But the ultimate parent company of R1 and R2, Severn Trent (Delaware) Inc. was distributing the
products in India also through Hi Point Services (R4) which through a set of subsidiaries and joint ventures
was also alleged to be a group entity of R 1 and R2.
 Appellant filed a suit in Bombay HC praying for declaration that the Transaction Documents entered into
are valid, subsisting and binding and sought injunction against the Respondents from committing breach of
contract by directly or indirectly dealing with any person other than the Respondent No.5 in relation to the
products.
 Certain Respondents filed an application under section 45 of the Act requesting for the matter to be
referred to arbitration in light of the arbitration clause under the SHA.
 The application was firstly dismissed by the Single Judge and thereafter on appeal, the Division Bench of
the High Court allowed the application ("Impugned Order").
 Thus, the Appellant filled an appeal challenging the impugned order.

CONTENTION OF THE APPELLANT:

 R3 and R4 were necessary and proper parties as substantive reliefs had been claimed against them and as
they were not a party to any of the agreements, the dispute is not covered by the arbitration clause.
 Expression parties under S. 45 means all the parties and not some or any of them and refers to the parties
to the agreement.
 Bifurcation not allowed under the Act: It was not possible to refer some parties or some matters to
arbitration while leaving the balance to be decided by another forum and that bifurcation of cause of action
is not permissible.
 IDA, MDA, TMA and Collaboration Agreement did not contain any arbitration clause and further IDA
provided for courts at PA to have exclusive jurisdiction and this due to the uncertainty and indefiniteness the
arbitration clause is not enforceable.

CONTENTIONS OF THE RESPONDENT

 The entire dispute resolved around the SHA and the R 3 and 4 had been added merely to defeat the
arbitration clause.
 The Transaction Documents executed were in furtherance to the SHA and together formed a composite
transaction and that their performance was dependent on the performance of the SHA.
 The Act did not provide for any limitation on reference to arbitration and this the court has the power to
refer parties to the arbitration with the aid of the inherent powers of the court u/ S. 15 1 of CPC.
 U/ S. 45 of the Act, the applicant seeking reference can either be a party to the arbitration agreement or a
person claiming through or under such party.

SECTION45
Power of judicial authority to refer parties to arbitration- Notwithstanding anything contained in Part I or in
the Code of Civil Procedure, 1908 (5 of 1908), a judicial authority, when seized of an action in a matter in
respect of which the parties have made an agreement referred to in section 44, shall, at the request of one of
the parties or any person claiming through or under him, refer the parties to arbitration, unless it finds that
the said agreement is null and void, inoperative or incapable of being performed.

ARTICLE II NEW YORK CONVENTION

1.Each Contracting State shall recognize an agreement in writing under which the parties undertaking to
submit to arbitration all or any differences which have arisen or which may arise between them in respect of
defined legal relationship, whether contractual or not, concerning a subject-matter capable of settlement by
arbitration.
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3.The court of a Contracting State, when seized of an action in a matter in respect of which the parties have
made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the
parties to arbitration, unless in finds that the said agreement is null and void, inoperative of incapable of
being performed.

SECTION 8. Power to refer parties to arbitration where there is an arbitration agreement.-

(1) A judicial authority before which an action is brought in a matter which is the subject of an arbitration
agreement shall, if a party so applies not later than when submitting his first statement on the substance of
the dispute, refer the parties to arbitration.
(2) The application referred to in sub-section (1) shall not be entertained unless it is accompanied by the
original arbitration agreement or a duly certified copy thereof.
(3) Notwithstanding that an application has been made under sub-section (1) and that the issue is pending
before the judicial authority, an arbitration may be commenced or continued and an arbitral award made.

JUDGMENT

 Language of S. 45 is worded in favor of making a reference to arbitration provided the court is satisfied
that a valid, enforceable and operative arbitration agreement exists.
 The expression ‘person claiming through or under’ provided u/S. 45 indicates that the section does not
refer to parties to the agreement but persons in general and if it is established that a person is claiming
through or under the signatory to the arbitration agreement then the matter could be referred to arbitration.
 But such a reference could be done only in exceptional cases where the facts principally justify a
reference.
 Following were certain important factors which the court provided would have to be considered while
dealing with such an issue:
a) Direct relationship to the party signatory to the arbitration agreement;
b) Direct commonality of the subject matter;
c) Agreement between parties being a composite transaction;
d) Transaction should be of composite nature where performance of principle agreement may not be
feasible without the aid, execution and performance of the supplementary or ancillary agreements, for
achieving the common object and collectively having bearing on the dispute; and
e) Whether a composite reference of such parties would serve the ends of justice.

Therefore, considering the various agreement executed by the parties it was held that they all form part of a
composite transaction where the SHA was akin to a mother agreement and the other agreements executed
were ancillary and for effective implementation of the SHA.
 Thus, the court held in favor of making reference to arbitration even though certain parties were not
signatories to the SHA.
 This judgment clearly distinguishes between the Sukanya case, which applies to domestic arbitration and
where an application under S. 8 is made.
 In international commercial arbitration, parties claiming through or under a signatory to an arbitration
agreement can also be referred or apply for the dispute to be referred to arbitration whereas in a purely
domestic scenario that may not be the case.

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WHETHER THE JURISDICTION OF THE ARBITRAL TRIBUNAL BE DECLINED IF CONTRACT

CONTAINING THE ARBITRATION CLAUSE IS ALLEGED TO BE FRAUDULENT?

WORLD SPORT GROUP (MAURITIUS) LTD. VS. MSM SATELLITE (SINGAPORE) PTE. LTD.
(2014)

Facts:
 30/11/2007: BCCI invited tenders for worldwide Media rights for IPL matches for 10 years (2008 to
2017);
 World Sport Group (WSG) applied and its tender was accepted;
 21/01/2008: For the Media rights in the subcontinent, through a pre-bid arrangement MSM got rights by
entering an agreement with BCCI from 2008 to 2012. But this agreement was terminated after the first IPL
and BCCI commenced negotiations with WSG India.

MSM filed a petition against BCCI seeking injunction for restraining it from terminating the agreement and
granting rights to any third party.
 BCCI and WSG India entered into contract for licensing rights for the sub-continent from 2009 to 2017
for Rs 4791.08 crores but on the condition that it had to find a sub-licencee within a stipulated time period
which it could not and then the agreement lapsed.
 25/3/2009: BCCI and MSM entered into the agreement for licencing media rights for Rs 4,791.08 Cr.
 This agreement was claimed to have been facilitated by WSG India who entered into Facilitation Deed
with MSM where MSM had to pay a sum of Rs 425 crores to WSG as facilitation fees. Clause 9 of this
agreement provided for the following:
- Governing law for contract: England and Wales; - Arbitration submission: ICC
- Seat of arbitration: Singapore
- Waive right to jury trial
 25/06/2010: MSM rescinded the Facilitation Deed on the ground that it was voidable on account of
misrepresentation and fraud.

25/06/2010: MSM filed a suit in the Bombay HC seeking declaration that the deed was void and for
recovery of the money (Rs 125 Crores) already paid.
 28/06/2010: WSG, acting under the arbitration clause, sent a request to ICC to initiate arbitration.
 30/06/2010: MSM filed second suit in the Bombay HC seeking declaration that since the deed is
rescinded, WSG was not entitled to invoke arbitration clause in the deed and sought temporary injunction
against WSG from continuing arbitration proceedings.
 09/08/2010: Single judge dismissed application for temporary injunction saying that it would be for the
arbitrator to consider if the deed was void on account of fraud and misrepresentation.
 Division Bench allowed the appeal setting aside the order of the Single Judge and passed an order of
temporary injunction restraining the arbitration by ICC.
 Now the SC has to decide the following issue:
Whether the Division Bench of the Bombay HC could have passed the order of injunction restraining the
arbitration at Singapore?

Held:

 Under S. 9 of CPC, the courts in India have the jurisdiction to try all suits of a civil nature exception suits
of which cognizance is either expressly or impliedly barred. It cannot be said that the Courts cannot entertain
the proceedings due to the principle of comity of courts as comity means that the courts of one state or
jurisdiction will give effect to the laws or judicial decisions of another state or jurisdiction, not as a matter of
obligation but out of deference and mutual respect. Here no decision of a court of foreign country or foreign
law has been cited.
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 But the courts have to follow the mandate of S. 44 and 45 of the Act whereby if the request is made by
one of the parties to or any person claiming through or under him to refer the parties to arbitration, the Court
is obliged to do so unless it found that the agreement referred to in S. 44 was null and void, inoperative or
incapable of being performed.

Where a contract contains an arbitration agreement, it is a collateral term relating to resolution of disputes,
unrelated to the performance of the contract. It is as if two contract – one in regard to the substantive terms
of the main contract and the other relating to resolution of disputes – had been rolled into one. An arbitration
agreement is therefore an independent agreement. Even if the contract or its performance is terminated,
repudiated, frustrated or breached, the arbitration agreement would survive for the purpose of resolution of
disputes arising under the contract.

 The court will have to see in each case whether the arbitration agreement is also void, unenforceable or
inoperative along with the main agreement or whether the arbitration agreement stands apart from the main
agreement and is not null and void.

 Inoperative means where the arbitration agreement ceases to have effect due to may be non compliance
with time limit or its is revoked by the parties.
 Incapable of performance means existence of reasons which make it impossible to establish arbitral
tribunal.

Null and void means where the arbitration agreement is affected by some invalidity right from the
beginning, such as lack of consent due to misrepresentation, fraud, undue influence, or duress.
 S. 45 does not provide that the court will not refer the parties to arbitration if the allegations of fraud have
to inquired into.
 S. 45 provides that only if the court finds that the arbitration agreement is null and void, inoperative or
incapable of being performed, it will decline to refer the parties to arbitration.
 Where allegations of fraud in the procurement or performance of a contract are alleged, there appears to
be no reason for the arbitral tribunal to decline jurisdiction.

SECTION 9
INTERIM MEASURES, ETC BY COURT

 Invoked by the court to protect the right (subject matter) under adjudication before the arbitral tribunal
from being frustrated.

 S. 9 is a mandatory provision (non-derogable) and is not subject to party autonomy.

 It is not within the scope of S. 9 for court to inquire into the claim and the counter-claim made by both the
parties in regard to the custody of the articles beyond what has been admitted by the party.
 The interim measure can only be issued at the instance of a party to an arbitration agreement with regard
to the subject matter of the arbitration agreement.

 The court will exercise the powers u/S. 9 according to the procedural laws such as CPC and IEA.

This provision has two fold purpose:

- To ensure that the property which is the subject-matter of arbitration,
is not dissipated, frittered away or destroyed, and
- To ensure that the parties are able to fully exploit the evidentiary
value of the property in dispute.

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When can S.9 be invoked:

- Before the arbitral proceedings
- During the arbitral proceedings
- After the award is made but prior to execution u/S.36

S. 9 confers wide ranging powers on the court to order interim measures of protection in respect of:

i. Preservation, custody or sale of goods which are the subject matter of the arbitration agreement.
ii. Securing the amount in dispute in the arbitration.
iii. Detention, preservation or inspection of any moveable or immoveable property which is the subject-
matter of the dispute in arbitration or as to which question may arise in that arbitration.
iv. Obtaining full information or evidence.
v. Interim injunctions or appointment of a receiver; and
vi. Any such interim measure of protection as appears just and convenient to the court.

 Will S. 9 apply to foreign seated arbitrations?

- Bhatia: Yes, S.9 would be applicable to foreign seated arbitrations unless parties specifically exclude the
application of Part I, either expressly or impliedly.
- BALCO: No, S.9 is placed in Part I of the Act, which governs arbitrations where the place of arbitration is
in India as per S.2(2).

Whether the Court has jurisdiction to pass interim orders ‘even before arbitral proceedings commence and
before appointment of the arbitrator?

SUNDARAM FINANCE LTD. vs. NEPC INDIA LTD. (1999)

 Facts: NEPC entered into a hire-purchase agreement with Sundaram Finance in respect of supply of two
wind turbine generators along with all accessories. The agreement had an arbitration clause. The payment
had to be made in 36 instalments. NEPC paid first 15 instalments but defaulted thereafter despite several
demands.
 SF came to know that another suit is pending against NEPC so it filed an application u/ S.9 praying for
the appointment of an Advocate Commissioner to take custody of hire- purchase machinery and restore the
same to the interim custody of the SF. Trial court passed this interim order which was challenged in the HC,
through a writ. HC upheld the petition on the ground that interim relief under S. 9 can only be exercised
when the arbitration proceedings have been initiated.

S. 21 provides that the arbitral proceedings commence on the date on which a request for a dispute to be
referred to arbitration is received by the respondent.
 Under S. 9 the material words are “before or during the arbitral proceedings”. It should be construed
literally and therefore the court can pass interim orders before the commencement of arbitral proceedings.

 When a party applies under S. 9 it is implicit that it accepts that there is a final and binding arbitration
agreement in existence. It is also implicit that a dispute must have arisen which is referable to the Arbitral
Tribunal. When an application is filed under S. 9 before the commencement of the arbitral proceedings,
there has to be manifest intention on the part of the applicant to take recourse to the arbitral proceedings of,
at the time when the application is filed, the proceedings have not commenced under S. 21. it is not
necessary for S. 9 that notice invoking arbitration clause must be issued to the opposite party but then the
court will have to be satisfied that a valid arbitration agreement exists and the applicant intends to take the
dispute to arbitration. The court in such situations can pass a conditional order to put the applicant to such
terms as it may deem fit with a view to see that effective steps are taken by the applicant for commencing
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the arbitral proceedings. Court is not barred from dealing with application under S. 9 merely because no
notice has been issued under S. 21.

How long before the arbitral proceedings are commenced, can an application under S. 9 be filed?

FIRM ASHOK TRADERS vs. GURUMUKH DAS SALUJA (2004)

 The word ‘before’ must have proximity of relationship by occurrence; the later event proximately
following the preceding event as a foreseeable or within sight certainty.
 What is reasonable time will depend upon the facts and circumstances of the case and the nature of the
interim relief sought for.
 The party having succeeded in securing an interim measure of protection before arbitral proceedings
cannot afford to sit and sleep over the relief, conveniently forgetting the ‘proximately contemplated’ or
‘manifestly intended’ arbitral proceedings itself.
 If arbitral proceedings are not commenced within a reasonable time of an order u/S.9 and the arbitral
proceedings would stand snapped and the relief allowed to the party shall cease to be order made ‘before’,
i.e. in contemplation of arbitral proceedings.
 Amendment Bill 2003 has proposed to introduced sub-sections (4) to (6) to deal with this situation.

Whether the Court u/S.9 can exercise the power of granting interim measures against the third party?

 Divided opinions of various HC’s

 Kerala HC and Delhi HC in its decisions before 2009 had held that S. 9 cannot be invoked to affect the
rights of a third party. It is possible to pass orders u/S. 9 against a third party if such person is claiming
under the party to the arbitration agreement.
 Later, Delhi and Bombay HC held that S. 9 vests remedy in a party to the arbitration agreement
proceedings, to seek measures of protection against a person who need not be either a party to the arbitration
agreement, or to the arbitration proceedings on issues arising under the subject-matter of arbitration.

SECTION 9(i): APPOINTMENT OF GUARDIAN

Where a party to the arbitration agreement is a minor or a person of unsound mind, any party has the right to
apply to the court to appoint a guardian for such person for the purposes of arbitral proceedings. The
guardian so appointed by the court will make up for the lack of capacity in the minor or the person of
unsound mind.

SECTION 9 (ii) (a) PRESERVATION, CUSTODY & SALE OF GOODS

 Exercise powers u/S. 9 for preservation, interim custody or sale of any goods which are the subject-matter
of the arbitration agreement.
 Objective is to protect subject-matter from damage, deterioration or destruction and misappropriation.
 Goods, u/S.2(7) of the Sale of Goods Act, 1930: “Every kind of moveable property other than actionable
claims and money and includes stock and shares, growing crops, grass and things attached to or forming part
of the land which are agreed to be severed before sale or under the contract of sale.”
 Where the goods are of perishable nature, it may be necessary that they be sold whilst still in a
merchantable state, so that the arbitration becomes concerned with the proceeds of sale, because this
provision is designed to protect and preserve the goods in such situations.

SECTION 9 (ii) (b) – SECURING THE AMOUNT IN DISPUTE

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 Necessary for the petitioner to show that the amount is a part of the claim.
 Saudi Arabia vs. Sentrans Industries Ltd. (2004): S.9 (ii)(b) is a special provision, and the exercise of
power under this provisions, cannot be restricted by importing the provisions of Order 38, Rule 5 of CPC.
The court held that when the court exercises its substantive power under the Act, CPC shall be applicable,
but the guiding factor for exercise of power by the court under S. 9(ii)(b) has to be whether such order
deserves to be passed to do justice to the clause.
 Each case under S.9 (ii) (b) has to be considered in its own facts and circumstances and on the principles
of equity, fair play and good conscience.
 For the grant of such security, the applicant is required to establish that there is a strong probability that
the award, if decided in its favor, would not be enforced.
 Forms of security: furnishing of bank guarantee (S. 126 of ICA) , or the payment of the fund into a bank
account in the joint names of the parties or their advisers or fund be paid into the court or that it be otherwise
secured.
 O.39, Rule 10 empowers the court to order a party to deposit money in the court.

SECTION 9 (ii) (c) – DETENTION , PRESERVATION & INSPECTION OF PROPERTY

 It is invoked for a ‘property or thing which is the subject-matter of the dispute in arbitration or as to which
any question may arise’ in that arbitration from detention, preservation or inspection.
 Objective is to prevent the property or thing from being altered, destroyed or disposed of, before the
evidence of existing state can be secured for the purpose of the arbitration.
 Court has further power to authorize any person to enter upon any land or building in the possession of
any party or take samples for observation or experiment to be tried.

SECTION 9 (ii) (d) – INTERIM INJUNCTION OR THE APPOINTMENT OF A RECEIVER

 An injunction is an order of the court directing a party to proceedings, to do or refrain from doing a
specified act. It is granted as a matter of the court’s discretion in cases where monetary compensation would
afford an inadequate remedy to an injured party and there is an imminent danger of infringement of his legal
or equitable rights.
 Power u/ Order 39, Rule 2 of CPC and S. 151.
 Underlying principles for grant of injunction shall be applicable:
- Prima facie case in favor of the plaintiff: This is sine qua non.
- Irreparable injury or damage to the plaintiff: Does not mean that there must be no physical possibility of
repairing the injury, but means only that the injury must be a material one i.e. one that cannot be adequately
compensated by way of damages.
- Balance of convenience is in favor of the plaintiff: To consider whether it could cause greater
inconvenience to him if the injunction is not granted than the inconvenience which the other side would be
put to if the injunction is granted.

Under CPC, an order granting temporary injunction can only be granted, if the plaintiff by affidavit or
otherwise proves that –
i. Any property in dispute in a suit is in danger if being wasted, damaged or alienated by any party to the suit
or wrongfully sold in execution of a decree.
ii. The defendant threatens, or intends, to remove or dispose of his property with a view to defraud his
creditors.
iii. The defendant threatens to dispossess the plaintiff or otherwise cause injury to the plaintiff in relation to
any property in dispute in the suit.

PERCEPT D’ MARK (INDIA) PVT. LTD. vs. ZAHEER KHAN (2006)

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The issue that arose for consideration under an application filed by Percept under S. 9 of the Act for an
injunction restraining Zaheer Khan from entering into any agreement for managing his media affairs.
SC held that grant of injunction at the interim stage would result in compelling specific performance of a
contract of personal service which is barred by Clauses (b) and (d) of S.14(1) of SRA. It would also amount
to granting the final relief at the interim stage. The principles of balance of convenience and irreparable
injury would weigh in favor of ZK as he could never be compensated for being compelled to enter into a
contract with a party he did not desire to deal with. Whereas Percept can be adequately compensated in
terms of money if injunction was refused.

Appointment of Receiver:
 A receiver appointed by the court is the officer of the court,.
 His duty is to take possession of and deal impartially with the property or fruits of the property, pending
the outcome of proceedings, in circumstances, where the court considers that the property should not come
into the possession of either party until the dispute has been resolved.
 Procedure for appointment is provided in Order 40 of CPC.
 The court must appoint a receiver where it is just and convenient to do so and it is a serious
matter to appoint a receiver on a running business and a strong prima facie case is there.
 The appointment of receiver is discretionary and ought to be appointed in case no other adequate remedy
or means of accomplishing the desired object of the judicial proceedings is available.
 The court should not appoint receiver except upon proof by the plaintiff that prima facie he has an
excellent case succeeding in the suit.
 The court will act only if the danger is great and imminent demanding immediate relief.
 The court will appoint receiver if the property is exposed to danger and loss.
 The court will look into the conduct of the parties and appoint receiver if the party came with clean hands.

SECTION 9 (ii) (e) – JUST AND CONVENIENT

 S.9(ii)(e) has conferred a wide discretion on the court to mould the interim relief for safeguarding the
rights of the parties.
 This power has to be exercised in consonance with the discipline of limited judicial intervention.
 This provision seems to be inspired from S. 94(e) of the CPC called ‘attachment before judgment’ – “In
order to prevent the ends of justice from being defeated the Court may, if it is so prescribed ... make such
other interlocutory orders as may appear to the Court to be just and convenient.” The procedure is given u/
Order 38, Rules 5 to 13 and require the existence of following circumstances for seeking such a relief:
i. The defendant is about to dispose of the whole or any part of his property;
ii. The defendant is about to remove the whole or any part of his property from the local limits
of the jurisdiction of the court;
iii. The defendant is intending to do so to cause obstruction or delay in the execution of any decree that may
be passed against him.
iv. It is incumbent for plaintiff to state the grounds on which he entertains the belief or apprehension that the
defendant would dispose of or remove the property or give source of his information.

WHETHER THE ORDER MADE UNDER SECTION 9 IS FINAL?

 Order passed under S.9 by the court, granting or refusing to grant an interim measure of protection is not
final.
 It can be appealed under S. 37(1)(a) to an appellate court from the court which has passed the order.
 S. 37(3) bars a second appeal.
 Right to appeal to the SC under Article 136 has been preserved by S. 37(3).

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CHAPTER III: COMPOSITION OF ARBITRAL TRIBUNAL

1. Number of arbitrators (Section 10)

2. Appointment of arbitrators (Section 11)
3. Grounds for challenging an arbitrator (Section 12)
4. Challenge procedure (Section 13)
5. Termination of the mandate of an arbitrator on Failure or Impossibility to Act (Section 14)
6. Appointment of a Substitute Arbitrator (Section 15)

Section 2(1)(d) “arbitral tribunal” means a sole arbitrator or a panel of arbitrators.

Section 10: 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.

NARAYAN PRASAD LOHIA VS. NIKUNJ KUMAR LOHIA (2002)

Facts: NP Lohia and NK Lohia are family members who had disputes and differences in respect of the
family business and properties. They agreed to resolve their disputes through Mr Pramod Kumar Khaitan
and Mr. Sardul Singh Jain who have an award in a month’s time.
After an year, NK Lohia filed an application the Calcutta HC for setting aside the award on the ground that
arbitration was by two arbitrators whereas under the Act there cannot be an even number of arbitrators.
Single Judge held in their favor and set aside the award.
DB also dismissed the appeal and hence the appeal in SC.
Issue: Whether a mandatory provision of the Act (to have odd number of arbitrators) can be waived by the
parties?

Held:
- The court took into consideration S. 4, 5, 10, 11, 16 and 34;
- One of the objects of the Act is to minimize the role of courts in the arbitration process.
- S. 16, the arbitral tribunal has the jurisdiction to adjudicate on its own jurisdiction but such a challenge
must be taken not later than the submission of the statement of defence.
- Thus from conjoint reading of S. 10 and 16 it appears that an objection to the composition of the Arbitral
Tribunal is a matter which is derogable as the party is free not to object within the prescribed time. If a party
chooses not the so object there will be a deemed waiver u/ S.4. therefore, S. 10 is a derogable provision.
- U./S. 34(2)(a)(v) the parties can challenge the award when the composition of the arbitral tribunal is not in
accordance with the agreement of the parties.

Where the parties fail to determine the number consensually, the default number as provided by S.10(2), is a
sole arbitrator.
If parties fail to reach an agreement on appointment of arbitrator then provisions under S. 11 provides for
default procedure.
The arbitrator must be independent, impartial and neutral.
Arbitral Tribunal’s jurisdiction emanates from:
1) The arbitration agreement between the parties;
2) The contract (if any) between the parties and the arbitrators; and
3) The law applicable to the conduct of the arbitration.

In the absence of the agreement between the parties, arbitral tribunal has the power to determine:
- Place of arbitration;
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- Language of arbitration;
- The period within which the claim statement is to be filed by the claimant and the defense is to be filed by
the respondent;
- Procedure to be adopted for conduct of the proceedings.

Duties and Liabilities of the Arbitral Tribunal:

- To give full opportunity to each party to present his case in conducting arbitral proceedings, in its decisions
on matters of procedure and evidence and in the exercise of all other powers conferred on it. (S.18)
- To act impartially and judicially. (S.18; S.12(3)(a))
- A duty to disclose in writing, any circumstances likely to give rise to
justifiable doubts as to his independence and impartiality. (S. 12)
- Make the award in accordance with the provisions of the Act. (S.14 and S. 31)

Circumstances Leading to the Termination of the Mandate of the Arbitral Tribunal

a) If the claimant fails to communicate the statement of claim within the period of time agreed by the parties
or determined by the arbitral tribunal. (S.25(a))
b) If a challenge is made to the arbitrator under S.12(3), the arbitrator can withdraw from his office under S.
13(3) which will terminate his mandate.
c) If the arbitrator becomes de jure or de facto unable to perform his function, or fails to act without undue
delay, or withdraws from his office, or the parties agree to the termination of his mandate. (S.14)
d) Upon passing of the final arbitral award or by an order of the tribunal u/S.32(1).
e) If the claimant withdraws his claim. (S.32(2)(a))
f) If the parties agree to terminate the proceedings. (S.32(2)(b))
g) If the tribunal finds the continuation of the proceedings for any reason to be unnecessary or impossible.
(S.32(2)(c))
h) One of the parties has not made a deposit in respect of the claim or the counter-claim. (S.38(2))

Section 11: Appointment of Arbitrators

Section 11(1): Nationality of the arbitrator - A person of any nationality may be appointed as an arbitrator
Grant absolute autonomy to the parties to choose arbitrators from different nationalities.

Article 11(1), UNCITRAL Model Law:

“No person shall be precluded by reason of his nationality from acting as an arbitrator, unless otherwise
agreed by the parties.”

Section 11(2): Party Autonomy in Procedure of Appointment - The Parties are free to agree on a procedure
for appointing the arbitrator (s).
Relevant provision in case of institutional arbitrations where the institutions generally provide their own
procedures.
The most common forms of the contract of appointment mechanisms are:
a) Arbitration by a sole arbitrator named in the arbitration agreement;
b) Arbitration before a sole arbitrator to be agreed upon by the parties after the dispute has arisen;
c) Arbitration before a sole arbitrator nominated by a trade or professional institution;
d) Arbitration by a tribunal of three arbitrators, one nominated by each of the parties, and the third to be
appointed either by the nominated arbitrators, or in default, by the CJ or any person or institution designated
by him.

Requirement of a valid appointment of an arbitrator:

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a) Informing the other party: U/S,34(2)(ii) the party appointing an arbitrator must give proper notice of
appointment of an arbitrator to the other party or parties. Otherwise the appointment of the arbitral tribunal
will be invalid and resultant award, would be enforceable.
b) Obtaining consent of the arbitrator to act: It is necessary to obtain the consent of the person who has been
nominated as arbitrator so that he can consider whether there is any conflict of interest.
Appointment of the arbitrator can be challenged on the grounds given u/ S. 12 and 13.
If the challenge remain unsuccessful, it can be challenged u/ S. 34 after the award has been made.

Section 11 (3) to Section 11 (5): DEFAULT PROCEDURE

S. 11(3): If the parties fail to agree on a procedure in an arbitration with three arbitrators, each party shall
appoint one arbitrator, and the two appointed arbitrators shall appoint the third arbitrator, who shall act as
the presiding arbitrator.

S. 11(4): If the parties fail to make the appointment in accordance with this procedure within 30 days from
the receipt of the request, S. 11(4) provides that the appointment of the arbitrator shall, upon request of a
party, be made by the Chief Justice or any person or institution designated by him.

S. 11(5): In the absence of an agreement on procedure u./S. 11(2), if the parties fail to agree on the
appointment of a sole arbitrator within 30 days from receipt of a request, then upon the request of a party,
the appointment shall be made by the Chief Justice or any person or institution designated by him.

Section 11(6): Appointment by Chief Justice

The freedom of the parties to agree upon the appointment procedure is restricted and subject to S. 11(6),
which provides that unless the agreement on the appointment procedure provides other means for securing
the appointment, a party may request the Chief Justice or any person or institution designated by him to take
all necessary measures to secure the appointment of an arbitrator. Such request can be made in the following
three situations:
a) A party fails to act as required under that procedure; or
b) The parties or the two appointed arbitrators fail to reach
an agreement expected of them under the procedure; or
c) A person including an institution, fails to perform any function entrusted under that procedure.

Is the power of Chief Justice “Judicial” or “Administrative”?

SBP & Co. vs. Patel Engineering Ltd. (2005)

What is the nature of the function of the Chief Justice or his designate under S. 11 of the Arbitration and
Conciliation Act, 1996?
Ω What is the scope of the right conferred on Arbitral Tribunal to rule upon its own jurisdiction and the
existence of arbitration clause, envisaged by S. 16(1), once the CJ or person designated by him had
appointed an arbitrator after satisfying himself present in the case?
Ω On whom can the CJ delegate the power u./ S. 11(6)?
Ω Whether the CJ u/S. 11(6) can look into the validity of the arbitration
agreement?
Ω Can there be an appeal against the order of the CJ u/S.11(6)?
Ω Whether the decision of the constitutional bench in Konkan Rly Corpn. Vs. Rani Construction (P) Ltd.
and of the three-judge bench in Konkan Rly. Corpn. Ltd. vs. Mehul Construction Co. is correct?
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Held:
a) The power exercised by the CJ of the HC or the CJI u/ S. 11(6) is not an administrative power. It is a
judicial power.
 Once a stature creates an authority, confers on it power to adjudicate and makes its decision final on
matters to be decided by it, normally, that decision cannot be said to be a purely administrative decisions. It
is really a decision on its own jurisdiction for the exercise of the power conferred by the statute or to
perform the duties imposed by the statute. Unless the authority satisfies itself that the conditions for exercise
of its power exist, it could not accede to a request made to it for the exercise of the conferred power.
 The decision of the CJ on the issue of jurisdiction and the existence of a valid arbitration agreement
would be binding on the parties when the matter goes to the Arbitral Tribunal and at subsequent stages of
the proceeding except in an appeal in the SC in the case of the decision being by the CJ of HC or by a Judge
of the HC designated by him.

In adopting S. 11 from Article 11 of the UNCITRAL Model Law, framers of the statute must have been
conscious of using the word ‘Chief Justice’ instead of the word ‘Court’ as they did not want the power to be
conferred on PCC or HC exercising original jurisdiction so that the highest judicial authority (CJ) decides
the matter and this brings greatest credibility the process.

If the judicial authority u/S. 8 can decide the jurisdictional issue raised before it before making or declining
to make a reference then obviously the highest judicial authority has to decide that question and his
competence to decide cannot be questioned.

Where the jurisdictional issues are decided u/ S. 8 or 11 before a reference is made to the tribunal u/S. 16
then S. 16 cannot be held to empower the Arbitral Tribunal to ignore the decision given by the Judicial
authority or the CJ before the reference to it was made.

The power u/S. 11(6), in its entirety, could be delegated, by the CJ of the HC only to another Judge of that
Court and by the CJI to another judge of the SC.
c) In case of designation a judge of the HC or of the SC, the power that is exercised by the designated Judge
would be that of the CJ as conferred by the statute.
d) The CJ or the designated Judge will have the right to decide the preliminary aspects. These will be:
i. Ascertain his own jurisdiction to entertain the request;
ii. The existence of a valid arbitration agreement;
iii. The existence or otherwise of a live claim;
iv. The existence of the condition for the exercise of his power and on the qualifications of the arbitrator(s).

The CJ or the designated Judge would be entitled to seek the opinion of an institution in the matter of
nominating an arbitrator qualified in terms of S. 11(8) if the need arises but the order appointing the
arbitrator could only be that of the CJ or the designated Judge.
e) Designation of a District Judge as the authority u/S. 11(6) by the Chief Justice of the HC is not warranted
on the scheme of the Act.
f) Once the matter reaches the Arbitral Tribunal, the HC would not interfere with the order passed by the
arbitrator during the course of the arbitration proceedings and the parties could approach the Court only in
terms of S. 37 or S. 34.
g) Since an order passed by the CJ of HC or the designated Judge of that Court is a judicial order, an appeal
will lie against that order only under Article 136 of the Constitution to the Supreme Court.
h) There can be no appeal against an order of the CJI or a Judge of the SC designated by him while
entertaining an application u/ S. 11(6).

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In a case where an Arbitral Tribunal has been constituted by the parties without having recourse to S. 11(6)
of the Act, the Arbitral Tribunal will have the jurisdiction to decide all matters as contemplated by S. 16.

j) Appointments of arbitrations made thus far, as guided by Konkan Rly. Corpn. Ltd. vs. Rani Construction
(P) Ltd. are to be treated as valid, all objections being left to be decided u/S. 16.

k) From October 26, 2005 the position as adopted in SBP will govern even pending applications u./S. 11(6).

l) Where District Judge had been designated by the CJ of HC u/S.11(6), the appointment orders this far
made by them will be treated as valid; but applications if any pending before them as on October 26, 2005
will stand transferred, to be dealt with by the CJ of the HC concerned or a Judge of that Court designated by
the Chief Justice.
m) The decision in Konkan Rly. Corpn. Ltd. vs. Rani Construction (P) Ltd. is overruled.

What is the time limit to make the request under S. 11(6)?

Datar Switchgears Ltd. vs. Tata Finance Ltd. (2000)

Facts: Datar entered into a lease agreement with Tata Finance. This deed had an arbitration clause which
provided that if a dispute arises then the lessor will appoint the arbitrator whose decision shall be final and
binding. On 5/8/1999, Tata sent a notice to Datar for payment of certain amount within 14 days and stated
that in case of failure to pay, the notice to be treated as one under the arbitration clause. Datar did not make
the payment and no arbitrator was appointed by Tata. On 26/10/1999 Tata filed an application u/S.9. on
25/11/1999, Tata appointed X as the sole arbitrator and issued a notice to Datar asking them to make
appearance before him on 13/2/2000. Datar filed an application u/S. 11 before CJ of Bombay HC praying
appointment of another arbitrator. Tata opposed this application and the court held in its favor. Now that
order is challenged before the SC.

Issue:
a) Whether there is any failure of mechanism provided under the lease
agreement?
b) Whether for S. 11(6), the party to whom a demand for appointment is made, forfeits his right to do so if
he does not appoint an arbitrator within 30 days?

Held:
a) There is no failure in appointment as the arbitration agreement envisaged appointment of a sole arbitrator
by the lessor which was in fact done in this case.
b) U/S.11(6) no time limit has been prescribed. Therefore, if the party does not make an appointment of the
arbitrator within 30 days the right to appointment does not get automatically forfeited after expiry of 30
days. If the opposite party makes an appointment even after 30 days of the demand, but before the first party
has moved to the court u/S.11 that would be sufficient.
c) The court did not decided if 30 days period is mandatory for sub- sections (4) and (5).

Section 11(7): Finality of Appointment

The decision of the CJ or the person or the institution authorized by him, on a matter entrusted to him under
S.11(4), (5) and(6) is final.
The finality here would include the decision on the competence, and the locus standi of the party who seeks
to invoke the jurisdiction to appoint an arbitrator.
Such order of the CJ of HC or by the designated judged of that court, being a judicial order is amenable to a
challenge under Article 136.
Decision of the CJI u/S.11(6) would be final u/S.11(7) and there is no right to appeal against the decision.
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Section 11(8): Requisites of Appointment

The Chief Justice or the person or the institution designated by him while appointing an arbitrator shall have
due regard to:
Any qualifications required of the arbitrator by the agreement of the parties; and
Other considerations which are likely to secure the appointment of an independent and impartial arbitrator.
Section 11(10): Frame Scheme for appointment
CJI and CJ of HC are empowered to make such schemes as they may deem appropriate for dealing with
matters of appointing or securing appointment of arbitrators as entrusted to them by sub-sections (4), (5) and
(6).
Section 11(11): More than One Request to Chief Justice
Where more than one request has been made u/S.11 (4), (5) or (6) to CJ of different HC or their designates,
the CJ or his designate to whom the request is made first, shall alone be competent to decide on the request.

National Insurance Company Ltd. vs. Boghara Polyfab Pvt. Ltd. (2009)
Facts: Boghara obtained an insurance policy from Nat’l Insurance for its goods for a period of one year.
During this one year, Boghara asked Nat’l to revise the sum insured thrice. One day, Boghara reported loss
to their stock due to heavy rains and flooding and asked Nat’l for the insured amount. The dispute between
the parties over the amount of insurance as to whether the final revised amount asked by Boghara shall be
considered or the second revision will be considered. While the claim and dispute was pending, Nat’l
allegedly forced Boghara to accept a lower claim otherwise no amount would be released towards the claim.
Being in a dire financial condition and having no other alternative, Boghara yielded to the coercion and
pressure and signed the voucher.

Later, Boghara sent Nat’l a legal notice seeking the balance amount within 15 days, otherwise the notice be
considered as notice invoking arbitration. Nat’l in its reply rejected the claim and stated the claim has been
fully and finally accepted by Boghara and no question of invoking arbitration arise.

Boghara then filed an application u/S.11 for appointment of sole arbitrator which was accepted by the
Bombay HC which appointed the arbitrator and let the question of coercion/ undue influence open for
decision by the arbitrator. This decision is now challenged in the SC.

Issue: Whether the CJ u/S.11 can refuse to refer the dispute to arbitration when the other party resists
reference to arbitration on the ground that the applicant has issued a full and final settlement discharge
voucher and the applicant contends that he was constrained to issue it due to coercion, undue influence and
economic compulsion?
Held:
In SBP, SC identified and segregated preliminary issues that may arise for consideration in an application
u/S. 11:
a)

First category: Which the CJ/ his delegate will have to decide are:
Whether the party making the application has approached the appropriate HC?
Whether there is an arbitration agreement and whether the party who has applied u/S. 11 is a party to such
an agreement?

Second Category: Which the CJ/ his designate may

choose to decide or leave them to the decision of the Arbitral Tribunal are:

i. Whether the claim is a dead (long-barred) claim or a live claim;

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ii. Whether the parties have concluded the contract/ transaction by recording satisfaction of their mutual
rights and obligation or by receiving the final payment without objection.
c) Third Category: Which the CJ/ his designate should leave exclusively to the Arbitral Tribunal are:
i. Whether a claim made falls within the arbitration clause (as for example, a matter which is reserved for
final decision of a departmental authority and excepted or excluded from arbitration).
ii. Merits or any claim involved in the arbitration.

Arbitration Agreement cannot be invoked to seek reference of any dispute to arbitration, in the following
circumstance, when the contract is discharged on account of performance, or accord and satisfaction, or
mutual agreement, and the same is reduced to writing and signed by both the parties or by the party seeking
arbitration:
i. Where the obligations under a contract are fully performed and discharge of the contract by performance is
acknowledged by a full and final discharge voucher/ receipt, nothing survives in regard to such discharged
contract;
ii. Where the parties to the contract, by mutual agreement, accept performance of altered, modified and
substituted obligations and confirm in writing the discharge of contract by performance of the altered,
modified or substituted obligations;
iii. Where the parties to a contract, by mutual agreement, absolve each other from performance of their
respective obligations, either on account of frustration or otherwise, and consequently cancel the agreement
and confirm that there are no outstanding claims or disputes.

In this case, HC examined the issue and found that prima facie there was no accord and satisfaction or
discharge of the contract. Therefore, Boghara is still entitled to raise the issue before the arbitrator and the
arbitrator has to decide whether the discharge was valid and binding on the parties by way of accord and
satisfaction.

Indian Oil Corpn.Vs. Raja Transport Pvt. Ltd. (2009)

Facts: On 28/2/2005 IOC appointed Raja Transport as its dealer for retail sale of petroleum products but
terminated the dealership on the recommendation of the Vigilance dept. on 6/8/2005.
The agreement between the parties had an arbitration clause whereby the parties had decided that Director,
Marketing of the Corp. or some office of the Corp. nominated by the Director shall be the sole arbitrator.
When the contract was terminated, RT approached District Court for injunction against IOC from stopping
supply of products and IOC replied by praying that matter be referred to arbitration which was allowed by
the Court stating that arbitration to be held in two months within which IOC should continue to supply.
Both parties challenged the order which was dismissed by District Court. While the appeals were pending,
RT issued notice to IOC referring that appointment of Director cannot lead to fair treatment or justice and
therefore such an appointment was prejudicial to its interest. IOC protested that RT’s request is contrary to
the arbitration agreement and there cannot be an outside arbitrator.
RT filed application u/S.11(6) which was allowed by the Court. This order is now challenged.

Issues:
i. Whether the CJ was justified in assuming that when an employee of one of the parties to the dispute is
appointed as an arbitrator, he will not act independently or impartially?
ii. In what circumstance, the CJ or his designate can ignore the appointment procedure or the named
arbitrator in the arbitration agreement, to appoint an arbitrator of his choice?
iii. Whether RT had taken necessary steps for the appointment of an arbitrator in terms of the agreement, and
IOC had failed to act in terms of the agreed procedure, by not referring the dispute to its Director
(Marketing) for arbitration?

Held:
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i. Arbitration agreements in government contracts providing that an employee of the Department will be the
arbitrator are neither void nor unenforceable. There is no such bar provided for in the Act. S. 11(2) gives
liberty to the parties to agree upon a procedure for appointment of arbitrators. S. 12 requires arbitrator to be
independent and impartial and S. 18 requires the arbitrator to treat the parties with equality.
ii. If the arbitration agreement provides for arbitration by a named arbitrator, the courts should normally give
effect to the provisions of the arbitration agreement. But where there is a reasonable apprehension that the
person mentioned in the arbitration agreement is not likely to act independently or impartially or if he is
unavailable, then CJ/ his designate may, after recording reasons for not following the agreed procedure of
referring the dispute to the named arbitrator, appoint an independent arbitration according to S. 11(8).
iii. RT had failed to act in terms of the agreed procedure in seeking reference to arbitration.

IOC succeeds, and Director (Marketing) is appointed as the sole arbitrator to decide the disputes between the
parties.

Section 12: Grounds for Challenge

Provisions of S. 12 are not subject to party autonomy, therefore, the parties by agreement cannot derogate
from the mandate of these provisions.
The appointment of the arbitrator can be challenged only on two grounds:
i. The existence of such circumstances which may give rise to justifiable doubts as to the independence or
impartiality of the arbitrators; and
ii. Lack of qualifications as agreed to by the parties.

Test of Bias: If a reasonable and informed party would reach the conclusion, that the arbitrator would be
influenced by extraneous factors, other than the merits of the case, which are likely to affect his decision.
Test of Independence: There should be no such actual or past dependent relationship between the parties and
the arbitrators, which may affect, or at least appear to affect the arbitrator’s freedom of judgement.

What may be disclosed:

i. Any past or present business relationship;
ii. Nature and duration of any substantial social relationship;
iii. Nature of any previous relationship with any fellow arbitrator;
iv. Extent of any prior personal knowledge of the disputes;
v. Extent of any commitments which may affect his availability to perform his duties as arbitrators as may
be reasonably anticipated.

Disclosure by Arbitrator:
i. Pre-appointment stage: S. 12 imposes an imperative duty on the prospective arbitrator to disclose any
circumstances that may likely lead to doubts to his independence or impartiality.
ii. During the course of arbitral proceedings: If any circumstance is likely to give rise to justifiable doubts as
to his independence or impartiality comes into existence, the arbitrator should, without delay, disclose the
circumstances in writing to the parties unless they have already been informed of them by him.

Consequences of Non-disclosure:
i. At the first stage: Will vitiate the appointment, and invalidate the entire proceedings and the resulting
award.
ii. At the second stage: Will vitiate the proceedings subsequent to the coming into existence of the
circumstances likely to give rise to justifiable doubts as to the independence or impartiality of the arbitrator.
the award will be invalid and liable to be set aside.

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Prior Knowledge: A party who appointed an arbitrator, or participated in the appointment, whose lack of
qualifications or impartiality the party was aware of, prior to the appointment, is later precluded from
challenging the appointment of the arbitrator on these grounds.

Waiver: Where the arbitrator has made the disclosure as required of him, and a party does not take objection
as to the independence or impartiality of the arbitrator after such disclosure, he would be deemed to have
waived his right to raise such an objection.

Section 13: Challenge Procedure

Party Autonomy: Parties are free to agree on a procedure to be adopted for challenging an arbitrator;
Default Procedure: If parties have not decided the challenge process, then the party which intends to
challenge an arbitrator, shall within 15 days after he becomes aware of the constitution of the arbitral
tribunal or after becoming aware of the existence of circumstances that give rise to justifiable doubts as to
the independence, impartiality or lack of the qualification agreed to by the parties, send a written statement
of the reasons for challenge. Unless, the challenged arbitrator withdraws from office or the other party
agrees to the challenge, the arbitral tribunal shall decide on the challenge.

Restrictions on Party Autonomy:

i. If the challenge according the procedure agreed by the parties or the default procedure is not successful,
the arbitral tribunal shall continue the arbitral proceedings, and make an award.
ii. Where the award is made as the challenge procedure was unsuccessful, the party can still challenge the
arbitrator by making an application u/S. 34 to set aside the award.

Non-appealable: Order of the arbitral tribunal under S. 13(4) is not appealable. There is no provision to
challenge the arbitral tribunal in appeal before the court at the pre-award stage.

Court Intervention: Where the challenge becomes unsuccessful and award is made by such arbitral tribunal,
it can be challenged by making an application u/S. 34(2).
Fee: If the challenge is successful, and the arbitrator is removed from his office, or the award of the arbitral
tribunal rejecting the challenge is set aside by the court under S. 34, then the court under S. 13(6) has the
discretion to decide as to whether the such arbitrator is entitled to any fees on the principle of quantum
meruit or otherwise.

Section 14: Failure or Impossibility to Act

Section 15:Termination of Mandate and Substitution of Arbitrator

Following are the grounds for the Termination of the Mandate of the Arbitrator:

a. Automatic termination of the mandate of the arbitrator:

Death of arbitrator: There is no express provision in the Act but since the mandate of the arbitrator is
personal, it automatically terminates on his death.

Inability to perform his functions: Three situation are stated in S. 14(1)(a) in which the mandate of an
arbitrator, shall terminate.

De jure inability: It refers to arbitrator’s legal inability to perform his functions. It can cover a variety of
situations: incapacity, bankruptcy, conviction for a criminal offence, not making an award within prescribed
time etc.
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- De facto inability: It refers to arbitrator’s inability to perform his functions due to factual situations in
which the arbitrator is physically unable to perform his functions, like: illness, some physical disability etc.
- Fails to act without undue delay for other reasons: It would include the inability to function efficiently and
expeditiously, or any special competence of technical qualifications required of the arbitrator by the
agreement of the parties.

b) Termination by the arbitrator:

Resignation/ Withdrawal from office: U/S. 13(3), an arbitrator may resign from his office when challenged
under S. 13.
Also, u/S. 14(1)(a)&(b) if an arbitrator, de jure or de facto, is unable to perform his functions or for other
reasons fails to act without undue delay, he may withdraw from his office.
It is open to the arbitrator to withdraw by resigning from his office for any reason. (S.15(1)(a))
Failure of parties to deposit advance for cost of arbitration: U/S. 38(2) second proviso, the tribunal may
terminate the arbitral proceedings if the parties fail to deposit the amount fixed by the arbitrator towards the
costs of the arbitration in respect of the claim or counter-claim.
Unnecessary or Impossible: Where the Tribunal finds the continuation of proceedings for any reason has
become unnecessary or impossible.(S.32(2)(c))

c) Termination by the parties:

Unopposed challenge by a party/ Agreement of the parties: If an arbitrator is challenged by a party, and the
other party agrees to the challenge, the mandate of the arbitrator is terminated as provided u/S. 13(3), 14(3)
and 15(1)(b).
Withdrawal of the claim: The arbitral proceedings stand terminated when the claimant withdraws his claim,
unless the respondent objects to such order. (S.32(2)(a))
d. Termination by the order of the tribunal: Where the appointment of the arbitrator is challenged
before the arbitral tribunal and the challenge is successful, then it will terminate the mandate of the
arbitrator u/S. 13(3).

e. Removal of the arbitrator by order of the court: U/S. 14(2), if on the grounds given under S. 14(1)
(a), the arbitrator does not withdraw despite the challenge and the parties do not come to an
agreement to terminate his mandate, the controversy remains then either the parties can agree on a
procedure to resolve such a situation or apply to the Court to decide on the termination of the
mandate.

Mandate Does Not Terminate on:

a) Death of a party
b) Insolvency of the arbitrator
Withdrawal does not imply admission of guilt: S. 14(3) provides that of an arbitrator withdraws from his
office or party agrees to the termination of the mandate of the arbitrator either u/S. 13(3) or S.14(1)(b), it
shall not imply that he accepts the validity of such grounds:
a) Where the arbitrator is challenged for existence of circumstances giving rise to justifiable doubts as to his
independence or impartiality or lack of qualifications agreed to by the parties and the other party agrees to
the challenge u/S. 13(3);
b) De jure or de facto inability to perform his functions, or for other reasons failure to act without undue
delay as u/S. 14(1)(a);
c) Withdraws from arbitration for any reason other than the aforesaid reasons u/S.15(1)(a)

S. 12: States grounds for an arbitrator’s challenge relating to circumstances that could give rise to justifiable
doubts as to his impartiality and independence;
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S. 14: States the reasons for challenging an arbitrator due to his legal or physical inability to perform his
function. It contemplates grounds for the automatic termination of the mandate of the arbitrator or statutory
termination of mandate of the arbitrator.
The grounds for challenging u/S. 14(1)(a) can be raised before the arbitrator under S. 16. If the controversy
remains unresolved then a party may approach the Court decide. But such proceedings before the Court are
summary in nature.

Substitute Arbitrator: According to S. 15(2), where the mandate of an arbitrator terminates, a substitute
arbitrator shall be appointed according to the rules applicable for the appointment of the original arbitrator.
Consequently, the freedom of the parties to choose a procedure under S. 11(2), would apply to the
appointment of a substitute arbitrator under S. 15(2) as well; of course, this has to be read along with the
default procedure contained in S. 11(4), (5) and (6).
Previous Hearings: S.15(3) confers autonomy on the parties to agree on the question as to whether after
replacement, the newly appointed tribunal should continue with the proceedings from the stage where the
mandate of the original arbitrator terminated, or commence the proceedings de novo.
In absence of such agreement, S.15(3) leaves the discretion to the substitute arbitrator/ tribunal to order any
hearings to be repeated, as may be warranted by the circumstances of the case.

Order made Prior to the Replacement: S. 15(4) provides that the parties may by agreement, decide as to
whether they would like to be bound by any orders or rulings of the arbitral tribunal made prior to the
replacement of the arbitrator.
In absence of such agreement, an order or ruling of the arbitrator shall not be invalid solely because there
has been a change in the composition of the arbitral tribunal.

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JURISDICTION OF ARBITRAL TRIBUNALS

Section 16: Competence of Arbitral Tribunal To Rule on its Jurisdiction

 Non-derogable provision
 S. 16 is divided into following six parts:
Ω Sub-section (1): Doctrine of ‘Kompetenz-Kompetenz’ and ‘Separability’;
Ω Sub-section (2): Time limit for submission of a plea of lack of jurisdiction of the tribunal;
Ω Sub-section (3): Plea that the arbitral tribunal is exceeding the scope of its authority, must be raised
forthwith during the arbitral proceedings;
Ω Sub-section (4): To admit delayed plea, if delay is justified, is discretion of the arbitral tribunal;
ΩSub-section (5): If tribunal rejects the plea, it will continue with the proceedings and make the award;
ΩSub-section (6): The party aggrieved by such an arbitral award, may challenge it under S. 34

DOCTRINE OF KOMPETENZ – KOMPETENZ S. 16(1)

 Also referred to as “Compétence – Compétence” or “Compétence de la recognized”;

 It is doctrine that empowers the arbitral tribunal to rule on its own jurisdiction in the first instance.
 S. 8 and S. 16: If a JA is moved under S. 8 before the constitution of the tribunal, the JA would confine
itself to render a finding whether a valid arbitration agreement exists, and therefore refer the parties to
arbitration.
 S. 11(6) and S. 16: If the arbitral tribunal has been constituted by the CJ under S. 11(6) then CJ will look
into the existence or validity of the arbitration agreement and refer parties to arbitration
 Where the jurisdictional issues are decided u/ S. 8 or 11 before a reference is made to the tribunal u/S. 16
then S. 16 cannot be held to empower the Arbitral Tribunal to ignore the decision given by the JA or the CJ
before the reference to it was made. (SBP vs. Patel Engineering)

Scope and Jurisdiction of the Arbitral Tribunal

 The expression jurisdiction of the arbitral tribunal to rule on its own jurisdiction means to see as to:
a) Whether there is a valid arbitration agreement;
b) Whether the tribunal is properly constituted; and
c) What matters have been submitted to arbitration in accordance with the arbitration agreement.
Therefore, the questions as to the existence, legality, validity and arbitrability of the substantive contract, in
the first instance, have all to be decided by the arbitral tribunal.

DOCTRINE OF SEPARABILITY OF THE ARBITRATION CLAUSE

S. 16(1)
 The doctrine of Separability and Kompetenz-Kompetenz are related, but distinct;
 Doctrine of Separability implies that the agreement to arbitrate is separate from, and independent of the
main contract;
 Allegations of contractual invalidity made against the main contract, do not necessarily affect the validity
of the arbitral clause;
 Party alleging invalidity of the arbitration clause must establish it directly;
 By surviving the demise of the main contract, the arbitration clause constitutes the necessary agreement of
the parties that any disputes between them should be referred to arbitration.

If the tribunal finds that the main contract is null and void, the arbitration agreement still survives and
retains the tribunal’s jurisdiction. This is a legal fiction essential for efficient working of the arbitral process.
 If the arbitral tribunal decides that the arbitration clause is not a valid agreement to arbitrate, then the
basis for its authority would not subsist.
 What would happen in a situation when the entire contract containing the arbitration agreement stands
vitiated by fraud?
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N RADHAKRISHNAN VS. MAESTRO ENGINEERS (2009)

 Facts: 7/4/2003 – NR and ME entered into a partnership deed to carry out the business of Engineering
works. The firm was, initially, established on the land that belonged to NR’s father and NR was active in
setting up the firm and instrumental in its construction;
 3/11/2005 – Differences crept and NR sent a notice to ME where he asserted that the firm is set up by
partnership deed; he has invested Rs 2,70,000 for capital investment of the firm but partnership deed only
mentioned Rs 1,00,000; Alleged malpractices supported by ME; Alleged collusion amongst respondents to
drive out NR’s clients; Alleged forging of accounts; offered retirement from the firm and asked for his share
of salary and profits.
 11/11/2005 – ME accepted factum of partnership but denied claim of investment by NR.
 1/12/2005 – NR sent a notice reiterating his stand.

24/2/2006 – NR sent notice alleging ME responsible for problems and asking them to take responsibility;
Called upon to settle arrears within 15 days and make arrangements for his retirement failing which the
matter will be referred for arbitration.
 ME filed suit in District Court seeking declaration that NR is not a partner in the firm after 18/11/2005
and should not disturb peaceful conduct of business now.
 NR filed application under S. 8 of A&C Act but it was rejected by the Court;
 NR filed revision petition on the HC, which was dismissed.
 Now the matter is before the SC

Whether the dispute fell within the ambit of the arbitration agreement?

- Yes, as it concerns the dispute regarding the reconstitution of the partnership firm and the subsequent deed
framed to that effect.
 Whether the Arbitrator was competent to deal with the dispute raised by the parties?
- Since the case relates to allegations of fraud and serious malpractice on part of the respondents, such a
situation can only be settled in court through furtherance of detailed evidence by either parties and such a
situation cannot be properly gone into by the Arbitrator.
- Relied on the previous decision of the Court in Abdul Kadir Shamsuddin Bubere vs. Madhav Prabhakar
Oak (1962).

SWISS TIMING LTD. VS. ORGANIZING COMMITTEE, COMMONWEALTH GAMES 2010, DELHI
(2014)

 Facts: 11/3/2010 - A Swiss company entered into an agreement with the Respondent for providing timing,
score, result systems and supporting services required to conduct the Commonwealth Games in India.
Swiss Timing alleged that the Organizing Committee had defaulted in making the payments due under the
Contract and therefore Swiss Timing invoked arbitration under clause 38 of the Contract and nominated
their arbitrator.
 Organizing Committee failed to nominate its arbitrator, and now Swiss Timing has approached the SC
under Section 11 of the Act for constitution of the arbitral tribunal.

Objections raised by the Organizing Committee:

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a) Under the Contract the parties had warranted that they would not indulge in corrupt practices to induce
the execution of the Contract but Swiss Timing had procured the Contract by indulging in corruption and
hence, the Contract was void ab -initio and there was no basis for invoking the arbitration.
b) To establish corruption during execution of the Contract, Organizing Committee sought to rely on the
pending criminal proceedings initiated against Mr. Suresh Kalmadi (the then Chairman of the Organizing
Committee) and other officials on the allegations of corruption, cheating and commission of other fraudulent
acts.
c) Organizing Committee placed reliance on the N. Radhakrishnan case wherein it was held that allegations
of fraud and serious malpractices cannot be dealt with properly in arbitration.
d) Since the criminal proceedings were pending in the trial court, simultaneous continuance of the arbitration
could result in conflicting decisions between the two forums causing unnecessary confusion.

Held:
a) The judgment in the N. Radhakrishnan case did not lay down the correct law, it is per incuriam as it failed
to duly consider the earlier judgments of the Court in Hindustan Petroleum Corp case and Anand Gajapathi
Raju case, wherein it has been held that a civil court is obligated to direct parties before it to arbitration
where there exists an arbitration agreement between such parties. Also in N. Radhakrishnan, the Court did
not consider S. 16 whereby arbitration clause is treated as independent from the underlying contract.
b) The courts should adopt a least interference policy in keeping with the general principle under S. 5 of the
Act. On co-joint reading of Ss. 5 and 16 it was held that all matters including the issue as to whether the
main contract was void / voidable can be referred to arbitration.
c) Where a court may conclude that a contract is void without receiving any evidence, the court would be
justified in declining a reference to arbitration, though such cases would not be common.

In cases where the defense taken is that a contract is voidable, it would not be possible to decline reference
to arbitration. Such cases would include unsoundness of mind, coercion, fraud, undue influence and
misrepresentation.
e) Allegations that the Contract has been executed by corrupt means would have to be established in a
proper forum on the basis of the oral and documentary evidence, produced by the parties, in support of their
respective claims. A mere claim of the Contract being void would not suffice.
f) Defense of the contract being void is routinely taken to delay reference to arbitration and that such
grounds should be summarily rejected unless there is clear indication of reasonable chance of success.

The possibility of conflicting decisions is not a bar against simultaneously proceeding with arbitration and
criminal proceedings.
h) If the criminal proceedings result in an acquittal, it would leave little ground for challenging the validity
of the underlying contract. Thereby any denial of reference at this stage would unnecessarily delay the
arbitration.
i) However, if the award in arbitration was made in favour of the Petitioner, the Respondent would be at
liberty to resist enforcement on the ground of subsequent conviction of the officials in criminal proceedings.

TIME LIMITS FOR RAISING OBJECTION ON JURISDICTION

S.16(2) – 16(4)
 A plea before that arbitral tribunal that it does not have jurisdiction shall be raised no later than the
submission of the statement of defence.
 Such a challenge can be taken even though the party may have participated in the appointment of the
arbitrator;
 The plea that the arbitral tribunal is exceeding the scope of its authority, has to be raised as soon as the
matter alleged to be beyond the scope of its authority during the arbitral proceedings.

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 If the objection is not raised within the time prescribed, it would be deemed to have been waived in terms
of S. 4;
 EXCEPTION: Tribunal may entertain the plea even at a later date, if it considers the same to be justified.

MCDERMOTT INT’L INC. VS. BURN STANDARD CO. LTD. (2006)

Can a party challenge the award to be set aside under S. 34 on the ground that the arbitrator had no
jurisdiction to make an award, when no objection was raised under S. 16?
 Under S. 16 the party questioning the jurisdiction of the arbitrator has an obligation to raise the said
question before the arbitrator. Such a question of jurisdiction could be raised if it is beyond the scope of his
authority. It is required to be raised during the arbitration proceedings or soon after initiation thereof. The
jurisdictional question is required to be determined as a preliminary ground. A decision thereupon by the
arbitrator would be the subject- matter of challenge under S. 34. If the arbitrator opined that he had no
jurisdiction an appeal there against can be made under S.37.

The Act makes provision for the supervisory role of courts, for the review of the arbitral award only to
ensure fairness. Intervention of the court is envisaged in few circumstances only. The court cannot correct
the errors of the arbitrators. It can only quash the award leaving the parties free to begin the arbitration again
if it is desired.
The scheme of the Act is, therefore aimed at keeping the supervisory role of the court at minimum level
and this can be justified as parties t the agreement make a conscious decision to exclude the court’s
jurisdiction by opting for arbitration as they prefer the expediency and finality offered by it.
 Thus, If the plea of the lack of jurisdiction is not taken before the tribunal under S. 16 then it cannot be
permitted to be raised in proceedings under S. 34 for setting aside the award, unless good reasons are shown.

SECTION 16(5) AND SECTION 16(6)

 U/S. 16(5): Arbitral Tribunal is empowered to decide the objections that the tribunal does not have the
jurisdiction, or is exceeding the scope of its authority u/S. 16(2) and (3);
 Where the Tribunal rejects the plea, it will continue with the arbitration proceedings, and make the
arbitral award as provided u/S. 16(5). The party aggrieved by the arbitral award can challenge the same
under S. 34, as per S. 16(6);
 Where the Tribunal accepts the plea, it will not proceed with the arbitration proceedings and a direct
appeal is maintainable under S. 37(2)(a).

 Article 16(3), UNCITRAL MODEL LAW: The arbitral tribunal may rule on a plea referred to in
paragraph (2) of this article either as a preliminary question or in an award on the merits. If the arbitral
tribunal rules as a preliminary question that it has jurisdiction, any party may request, within thirty days after
having received notice of that ruling, the court specified in article 6 to decide the matter, which decision
shall be subject to no appeal; while such a request is pending, the arbitral tribunal may continue the arbitral
proceedings and make an award.

SECTION 17: INTERIM MEASURES BY ARBITRAL TRIBUNAL

 Derogable provision: S. 17 is based on the autonomy of the parties. The parties may agree contrary to the
provisions of S. 17;
 In absence of an agreement between the parties, the tribunal may order such interim measure of protection
in respect of the subject-matter of the dispute;
 Scope of powers:
- Measures to protect/ preserve the subject-matter of the dispute;
- It is subject to the contract to the contrary by the parties;
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- It is not ex officio i.e. it can be exercised only at the request of a party;

- Can order any interim measure;
- Can require the party to furnish appropriate security as an interim measure;
- Such interim order shall be directed only to parties and not to a third party.

Examples of Interim measures given under Article 17 of UNCITRAL Model Law:

preservation, custody or sale of (perishable) goods, measures to provisionally determine and stabilize the
relationship of parties, securing evidence, protection of trade secrets and proprietary information, money
guarantee.
Order of the Tribunal, granting or refusing to grant an interim measure is not final. It can be appealed
under S. 37(2)(b) but such appeal can only be made during the subsistence of the arbitration proceedings.
 Limitation for filing an appeal under S. 37: It is governed by Article 116 of the Schedule to the Limitation
Act, 1963 and provides a period of 90 days for appeals to the High Court and a period of 30 days for appeal
to any other court.
CONDUCT OF ARBITRAL PROCEEDINGS

OUTLINE

 S. 18: Equal Treatment of Parties

 S. 19: Determination of rules of procedure
 S. 20: Place of Arbitration
 S. 21: Commencement of Arbitral Proceedings  S. 22: Language
 S. 23: Statement of Claim and Defence
 S. 24:Hearings and Written Proceedings
 S. 25: Default of a Party
 S. 26: Expert Appointment by Arbitral Tribunal  S. 27: Court Assistance in Taking Evidence

S.18 EQUAL TREATMENT OF PARTIES

S. 18: Equal treatment of parties – The parties shall be treated with equality and each party shall be given a
full opportunity to present his case.
 There was no such provision in the 1940 Act;  It is a non-derogable provision;
 S. 18 enacts two ‘fundamental principles’ i.e. i. Equal treatment if parties; and
ii. To give each party a full opportunity to present his case.
 To be read with S. 12(3)(a) which provides grounds for challenging the appointment of an arbitrator if
justifiable doubts exist as to his ‘independence or impartiality’.

TEST OF BIAS

 Reasonable Suspicion - Whether a reasonably intelligent man, fully apprised of all the circumstances,
would have a serious apprehension of bias.
 Actual Bias – Where the arbitrator allows a decision to be influenced by partiality or prejudice and
thereby deprives the litigant of the fundamental right to a fair trial by an impartial tribunal. It is of
fundamental importance that justice should not only be done but should manifestly and undoubtedly be seen
to be done. Actual Bias will lead to automatic disqualification but it can be rarely established.
Probability of Bias – Circumstances or facts actually known from which a reasonable man would think it
likely or probable that the arbitrator, would or did, favor one side unfairly at the expense of the other.

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KINDS OF BIAS

Relationship Between the Arbitrator and One of the Parties:

 Personal bias
 Official bias
 Relationship Between the Arbitrator Subject-Matter of the Dispute
 Pecuniary bias

Full opportunity to present his case

Audi Alteram Partem i.e.‘hear the other side’

 The minimal requirements of a proper hearing are:
a) Each party must have notice that the hearing is to take place;
b) Each party must have a reasonable opportunity to attend the hearing together with his advisors and
witnesses;
c) Each party must have the opportunity to be present throughout the hearings;
d) Each party must have a reasonable opportunity to present evidence;
e) Each party must have a reasonable opportunity to controvert the evidence of his opponent by cross-
examination of his witnesses and presenting his own evidence on record.

Consequences of violating S. 18
S. 34(2)(a)(iii): Where a party was not given proper notice of the arbitral proceedings or was otherwise
unable to present his case in the arbitral proceedings, the resulting award is apt to be annulled.

Section 19: Determination of Rules of Procedure

Derogable provision;
 No such provision in the 1940 Act;
 The 1940 Act under S. 41 provided that the provisions of the CPC, 1908 would be applicable to all
proceedings before the court, and to all appeals under the Act;
 S. 1 of IEA provides that it will not apply to ‘proceedings before an arbitrator.’
 S. 19 provides that the ‘arbitral tribunal shall not be bound by the CPC 1908 or the IEA, 1872.
 Objective: Provide liberal framework to suit the great variety of needs and circumstances of international
cases unimpeded by local peculiarities and traditional standards, which may be found in the existing national
law of a place.

S. 19(2) confers autonomy on the parties to determine the procedural rules, subject to mandatory/ non-
derogable provisions of Part I of the Act;
 Mandatory provisions in arbitral proceedings are:
a) S. 23(1): Statement of Claim and Defence
b) S. 24(2) & (3): Hearings and written proceedings
c) S. 27: Court assistance in taking evidence
d) S. 30(2): Settlement
e) S. 31: Form and contents of arbitral award
f) S. 32:Termination of Proceedings
g) S. 33: Correction and Interpretation of award
 S. 19(3): In the absence of any agreement between the parties, the arbitral tribunal may conduct the
proceedings in the manner it consider appropriate.
 But while determining the procedure, the tribunal is bound by the terms and conditions of the contract
with respect to both the substantive and procedural law as may have been agreed upon by the parties.

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S. 34(2)(b)(ii): The procedure agreed upon by the parties or adopted by the tribunal should be consistent
with the procedural due process or the public policy of India else it can be set aside by the court.
 S. 34(2)(a)(iii) & (iv): If the procedure followed by the Tribunal is violative of procedural due process,
the aggrieved party is entitled to challenge the award.

Section 20: Place of Arbitration

No such provision in the 1940 Act;

 S. 20 provides the mode and manner of fixing the place of arbitration:
a) Sub-section (1): Incorporates the principle of party autonomy, which provides that parties have the
autonomy to agree on the place of arbitration;
b) Sub-section (2): In case the parties fail to determine the place of arbitration then the tribunal has the
default power to determine it;
c) Sub-section (3): Arbitral Tribunal may meet at any place it considers appropriate for consideration
amongst the members, for hearing witnesses, experts or the parties, or for inspection of documents, goods or
other property.

Sumitomo Heavy Industries v. ONGC Ltd.

Facts: SHIL and ONGC entered into a contract on 7-9-1983 whereby SHIL had agreed to install and
commission on turn-key basis an oil platform at Bombay High.The contract has stipulated the following:
- Applicable Laws: All questions, disputes or differences arising under, out of or in connection with this
contract shall be subject to the laws of India;
- Arbitration proceedings shall be held at London, U.K.;
- Arbitration proceedings shall be held in accordance with the provision
of International Chamber of Commerce and rules made thereunder.
 Dispute arose and SHIL served a notice of arbitration; Award was made on 27-6-1995 and served on
ONGC on 10-7-1995.
 On 26-7-1995, ONGC filed a petition in the Bombay HC praying that the Umpire (third/presiding
arbitrator) should be directed to filed the award in that court. The award was invalid, unenforceable and
liable to be set aside under the 1940 Act. This petition was allowed by the Court.

It is contested by SHIL that the petition filed by ONGC in the Bombay HC fell outside the jurisdiction of the
Court for a direction to the umpire to file his award in court could be given only by the courts administering
the curial law, that is the courts in England.
 It is responded by ONGC that the award having been made, the procedural or curial law had ceased to
have effect and, accordingly, the courts administering the curial law had no jurisdiction to issue to the
umpire a direction to file his award therein.

Issue: What is the area of operation of the curial law?

Held:
- The various laws that are potentially applicable to various aspects of the
arbitral relationship are:
a) The proper law of the contract: The law governing the contract which creates the substantive rights of the
parties, in respect of which the dispute has arisen.
b) The proper law of the arbitration agreement: The law governing the obligation of the parties to submit the
disputes to arbitration, the validity of the arbitration agreement, the question whether a dispute lies within
the scope of the arbitration agreement, the validity of the notice of arbitration, constitution of the tribunal,
whether award lies within the jurisdiction of the arbitrator, validity of the award and the question whether
the parties have been discharged from any obligation to arbitrate future disputes.
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c) The curial law: The law that governs the manner in which the reference is to be conducted; the procedural
powers and duties of the arbitrator; questions of evidence and the determination of the proper law of the
contract.

In this case, the parties have made the following express choices:
a) Proper law of contract: Indian law
b) Proper law of arbitration: Likely Indian law since the arbitration agreement is part of the substance of the
underlying contract.
c) Curial law: Likely to be the law of England as there is no express choice provided but there is a clear
requirement of proceedings be held in London. In absence of express agreement there is a strong prima facie
presumption that the parties intend the curial law to be the law of the ‘seat’ of arbitration as it is most closely
connected with the proceedings.
 The curial law operates during the continuance of the proceedings before the arbitrator to govern the
procedure and conduct thereof. The courts administering the curial law have the authority to entertain
applications by parties to arbitrations being conducted within their jurisdictions for the purpose of ensuring
that the procedure that is adopted in the proceedings before the arbitrator conforms to the requirements of
the curial law and for reliefs incidental thereto. Such authority of the courts administering the curial law
ceases when the proceedings before the arbitrator are concluded.

With the making of a valid award the arbitrator’s authority, powers and duties in the reference come to an
end and he is ‘functus officio’.
 The arbitrator is not obliged by law to file his award in the court but he may be asked by the party seeking
to enforce the award to do so. The need to file an award in court arises only if it is required to be enforced.
The enforcement process is subsequent to and independent of the proceedings before the arbitrator. It is not
governed by curial or procedural law.
 Where the law governing the conduct of the reference is different from the law governing the underlying
arbitration agreement, the court looks to the arbitration agreement to see if the dispute is arbitrable, then to
the curial law to see how the reference should be conducted and then returns to the first law in order to give
effect to the resulting award.
 Therefore, the law governing the contract and the law governing the rights and obligations of the parties
arising from the agreement to arbitrate are governed by the law of India and the courts in India are entitled to
receive the award.

Section 21: Commencement of Arbitral Proceedings

Derogable provision; Based on party autonomy;

 Modelled on Article 3 of UNCITRAL Arbitration Rules;
 Under 1940 Act, S.37(3) provided that arbitral proceedings commenced from the date when one party to
the arbitration agreement served a notice on the other parties, requiring the appointment of an arbitrator.
Under 1996 Act, S. 21 provides that the arbitration proceedings in respect of a particular dispute
commence on the date on which a request to refer that dispute to arbitration is received by the respondent,
unless otherwise agreed by the parties.

Relevance:
a) Crucial to compute the period of limitation in making the claims (S. 43) – S. 43 states that the Limitation
Act, 1963 shall apply to arbitrations as it applies to proceedings in the Court. S. 43(2) provides that for the
purpose of the said section and the Limitation Act, an arbitration shall be deemed to have commenced on the
date referred to in S. 21.
b) Application of Savings clause u/S. 85(2)(a)- To ascertain whether the arbitral proceedings shall be taken
to be under the 1940 Act or the 1996 Act, the Court has to consider whether the request for the dispute to be
referred to arbitration is received by the respondent prior to the 1996 Act coming into force [August 22,
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1996] or not. If the invocation of arbitration clause has taken place prior to the commencement of the new
Act, the proceedings will be governed by the 1940 Act.

Section 22: Language

Derogable; Based on party autonomy; Modelled on Article 22 of the Model Law; No corresponding
provision in the 1940 Act.
 Parties are free to agree upon the language(s) to be used in arbitral proceedings.
 In default of such agreement, the arbitral tribunal is authorized to determine the language(s) to be used in
arbitral proceedings.
 The agreement of the parties or determination by the tribunal, unless otherwise specified, shall apply to
any written statement by a party, any hearing, any arbitral award, decision or other communication by the
arbitral tribunal.
Tribunal may order that any documentary evidence shall be accompanied by a translation in the
language(s) agreed upon.
 Autonomy u/S. 22 is limited by requirement of S. 18 – impartiality and fair trial.

Section 23: Statements of Claim and Defence

 S. 2(9): Part I shall also apply to a counter-claim, and where it refers to defence it shall also apply to a
defence to that counter-claim.
S.23 (1) has both the mandatory and non-mandatory provisions:
 Mandatory: The claimant shall state the facts supporting his claim and the respondent shall state his
defence [basic principle of arbitral procedure]
 Non-mandatory: The parties are at freedom to agree to the nature of the procedural rules with respect to
time period to submit claim and defence and required elements of those statements.

Time for filing Pleadings: The parties may agree upon the time for filing the pleadings. In absence of such
agreement, the arbitral tribunal may determine the time for this purpose.
 Claimant shall state:
a) The facts supporting the claim;
b) The points between the parties to be decided by the arbitral tribunal (issues);
c) The relief or remedy sought by him
 Respondent shall state:
a) His defence in respect of the claim; issues and remedies sought.
UNLESS, the parties have agreed otherwise.
 The parties may choose to follow Order VI, VII and VIII of CPC which deals with Pleadings in general.
 The parties may submit alongwith their statements all documents they consider to be relevant or may add
a reference to the documents or other evidence that they will submit.

Amend or Supplement Pleadings:

- Claimant can subsequently amend or supplement the
claims in the claim statement;
- Respondent can subsequently amend or supplement the defense in the defense statement, add or amend the
counter-claim.
UNLESS
- otherwise agreed by the parties
- the arbitral tribunal considers it inappropriate to allow the amendment or supplement having regard to the
delay in making it.

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Under S. 25 (a): Where statement of claims is not filed within the agreed time without showing sufficient
cause for any such default, the arbitral tribunal has the power u/S. 25 to terminate the proceedings, unless
otherwise agreed by the parties.
 Under S. 25 (b): Where the defendant has defaulted in communicating his statement of defence without
showing sufficient cause for any such default, the arbitral tribunal has the power to continue with the
proceedings, without treating his failure as an admission of the allegations of the claimant, unless otherwise
agreed by the parties.

Section 24: Hearings and Written Proceedings

 Party autonomy: S. 24(1) grants liberty to the parties to determine whether to hold oral hearings for
presentation of their evidence, or for oral arguments, or whether the proceedings shall be conducted on the
basis of documents and other materials.
 In absence of any agreement by the parties, the arbitral tribunal shall decide the procedure to be followed.
 The arbitrator has to give sufficient advance notice of any hearing, and any meeting of the tribunal for the
purpose of inspection of the documents, goods or other property.
 S. 34(2)(a)(iii) states that if a party has not been given proper notice of the arbitral proceedings the
resulting award is liable to be annulled.
 All statements, documents and other information which one party submits to the tribunal, must be
communicated to the other.
 Any expert report or evidentiary document relied upon by the tribunal has to be communicated to all the
parties.

Under S. 25 (c): If any of the party defaults in appearing at the hearing or producing documentary evidence
before the tribunal, without showing sufficient cause, the tribunal may continue the proceedings and make
the arbitral award on the evidence before it, unless otherwise agreed by the parties.
 It is a discretionary power of the arbitral tribunal.
 Since the failure to provide a full opportunity to a party to present his case is a legitimate ground for
setting aside of the award, it is important for the tribunal to state the factual background in the award that the
party failed to appear despite repetitive notices.
 The power to set aside an ex parte award is available with the Court under S. 34(2)(a)(i)

Section 25: Default of a party

 Default does not constitute admission of liability, hence does not automatically validate the arguments of
a party. The arbitral tribunal must examine the merits of a party’s legal and factual arguments.
 Default by a party must not paralyse or even slow down the progress of the arbitral proceedings.
 Default award is generally not open to recourse under S. 34 or S. 37.

Section 26: Expert Appointment by Arbitral Tribunal

The party may request the tribunal or even the Arbitral Tribunal has the power to appoint an expert, unless
the parties have entered into an agreement to the contrary.
 An expert appointed by the tribunal is neutral to the dispute, and is asked to give a non-binding decision
or recommendation to the tribunal.
 Arbitrator acts in judicial capacity and is expected to hold the balance between competing parties; an
expert is entitled to reply on his particular expertise without necessarily taking into account views of the
parties.
 A party has to give the expert any relevant information or produce, or to provide access to, any relevant
documents, goods or other property for his inspection.

Role of an expert:
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- Report on the specific issues – written or oral;

- If required by the tribunal or the parties - Participate in an oral hearing where parties can out questions to
him and produce expert witnesses to testify on the points at issue;
- If required by the tribunal or the party – Make available to that party all documents, goods or other
property in his possession which he was provided in order to prepare his report for examination.

Section 27: Court Assistance in Taking evidence

Court – S. 2(1)(e)
 Who can seek assistance?
- Arbitral Tribunal ;or
- A party with the approval of the arbitral tribunal
 What are the essentials of an application?
- Name and address of the parties and arbitrators;
- General nature of the claim and relief sought;
- Evidence to be obtained–
- Witness/Expert Witness: Name, address and statement of the subject-matter for which testimony is
required.
- Document/Property: Description of the document/property.

Upon receiving the application, the court may according to its rules of taking evidence, examine such an
application, must be satisfied that it has appropriate jurisdiction and issue processes.
 Processes includes summons and commissions for examination of witnesses and to produce evidence.
 The court will exercise the powers under CPC – Order 16 and 26.
 If after the issuance of processes, the concerned persons fail to attend the arbitral proceedings they shall
be guilty of the contempt of arbitral proceedings and would be subject to disadvantages, penalties and
punishments that the court may impose.
 Under S. 32 of CPC, the Court may compel attendance of any person in any of the following manner:
- Issue a warrant for his arrest;
- Attach and sell his property;
- Impose a fine upon him not exceeding Rs500;
- Order him to furnish security for his appearance and in default commit him to civil prison.

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MAKING OF ARBITRAL AWARD & TERMINATION OF PROCEEDINGS

OUTLINE
 S.28: Rules applicable to substance of dispute
 S.29: Decision making by panel of arbitrators
 S.30: Settlement
 S.31: Form and contents of arbitral award
 S.32:Termination of Proceedings
 S.33: Correction and Interpretation of award; additional award

S. 28: Rules Applicable to Substance of Dispute

 Non-derogable provision;
 Domestic Arbitrations and Rules:
- S. 28(1)(a) applies to domestic arbitrations;
- The Arbitral tribunal has to decide the dispute submitted in accordance with the substantive law for the
time being in force in India. The intention of the legislature appears to be clear that Indian nationals should
not be permitted to derogate from Indian law, being part of the public policy of the country.
- The arbitral tribunal shall conduct the arbitral proceedings in accordance with the provisions of Part I of
the Act i.e. the law governing the contract and the proceedings of the arbitral tribunal – the curial law of
arbitration.
- If expressly authorized by the parties, the arbitrator can exercise such discretion, which is sound and
reasonable, and guided by judicial principles.
- If the award is contrary to substantive provisions of law or the Act or against the terms of the contract, it
would be patently illegal and could be set aside under S.34 as being contrary to the public policy of India.

Int’l Commercial Arbitration and Rules:

- S. 28(1)(b) applies to international commercial arbitrations, where the place of arbitration is in India;
- Parties have the autonomy to determine the substantive law according to which the dispute would be
decided by the arbitral tribunal;
- In default of designation by the parties, the arbitral tribunal shall apply the rules of law it considers
appropriate, given all the circumstances surrounding the dispute;
- Many scholars support the approach that the law chosen by the parties to apply to the main contract
determines the law applicable to the arbitration agreement;

Equity Clauses:
- S.28(2) gives parties the freedom to authorize the arbitral tribunal to act as amiable compositeur and decide
ex aequo et bono.
- Generally, arbitrator has to decide a dispute referred to arbitration in accordance with the legal rights of the
parties in terms of the contract, rather than his own notions of what is fair and reasonable;
- Where the arbitrator is specifically instructed to decide the dispute on some basis other than the law, these
arbitration agreements are known as ‘equity clauses’.
- Amiable Compositeur requires the arbitrators must identify a situation that warrants the exercise of their
equitable powers. It places reliance on the knowledge, ability, and experience of the arbitrator to articulate a
commercially sensible solution to the dispute.
- Ex aequo et bono means as in justice and fairness or according to equity and good conscience.
- Restrictions: S. 28(3); S. 18; and S. 34(2)(b)(ii).

S. 28(3): Terms of Contract and Usages of Trade

- In all cases the arbitral tribunal shall decide in accordance with the terms of the contract;
- Any award made in violation of the terms of the contract can be set aside under S.34(2)(b);
- In all cases the arbitral tribunal shall take into account the usages of the trade applicable to the transaction;
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S. 29: Decision Making by Panel of Arbitrators

Concerns the situation where there are multi-member tribunals;
 Determines the arbitral tribunal’s decision-making process and the measure of relief available for making
procedural decisions;
 Parties may by exercising their autonomy agree on the issue of arbitral decision making in the arbitration
agreement;
 If there is no agreement by the parties on the issues of arbitral decision-making, the decision will be made
by a majority of the members of arbitral tribunal;
Decision here can mean – substantive and procedural decision;
 It only provides for a majority vote, but where the majority cannot be reached is left unresolved;
 Parties or all members of the arbitral tribunal can empower the presiding power to decide the questions of
procedure.

S. 30: Settlement
Jurisdiction of the arbitral tribunal to record a settlement award is not ex officio but can be exercised only
if requested by the parties;
 It is permissible for the arbitral tribunal to promote settlement of the dispute, with the agreement of the
parties;
The arbitral tribunal has the discretion to use mediation, conciliation or any other ADR procedure;
 Two types of settlements between the parties are:
a) A settlement which results in termination of the arbitral proceedings, and consequent termination of the
mandate of the arbitrator;
b) A settlement which the parties to the settlement want to convert into an arbitral award.

The arbitral tribunal is empowered to record a settlement between the parties settling their disputes, and to
pass the arbitral award on agreed terms;
 Such an arbitral award on agreed terms, shall have the same status and effect as any other arbitral award
on the substance of the disputes;
 Such arbitral award has to be in accordance with S. 31 and expressly state that it is an arbitral award;
 Upon such settlement, the tribunal shall terminate the proceedings.

Interim Award:
- Discretionary power of the tribunal;
- Satisfy the requirements of an award u/S. 31;
- Anytime during the arbitral proceedings, the arbitral tribunal can make an interim arbitral award on any
matter with respect to which it may make a final award;
- Such an award deals with some of the matters referred to arbitration, while remaining matters will be dealt
with later;
- It can be enforced even if it decides only some of the issues, while other remain pending for adjudication
before the arbitral tribunal;
- Such interim award is final with respect to the issues which it has decided;
- After such interim award, the tribunal becomes functus officio in relation to that part of its mandate;
- It can be challenged under S. 34;
- McDermott Int’l Inc. vs. Burn Standard Co. Ltd., the SC stated, “...some arbitrator instead and in place of
using the expression ‘interim award’ use the expression ‘partial award’. By reason thereof the nature and
character of an award is not changed.”

Additional Award: It is a derogable provision whereby the parties may not to have any additional award.
Additional award is requested by a party where some claims presented in the arbitral proceedings have been

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omitted from the arbitral award. Such a request has to be made within 30 days from the receipt of the arbitral
award.
 Agreed Award
 Final Award

Substantive Requirements of A Valid Award

a) Award must contain reasons: A valid award must contain the decision of the arbitral tribunal on all issues
of fact and law arising out of dispute, which have been referred to it for arbitration. The Award must state
reasons upon which it is based unless there is agreement to the contrary between the parties or the award is
under S. 30.
b) Award must be certain and capable of performance: The award must be clear, unambiguous and should
give precise directions otherwise it can be challenged under S. 34(2)(iv) for vagueness/ uncertainty.
c) Completeness of Award: The award should be complete and final on all the issues referred for arbitration.
Failure of the tribunal to decide all the issues, leaving some issues to be decided in future, or by some other
person, is subject to a challenge under S. 34(2)(a)(iv).
d) Award must be enforceable
e) Award must not be contrary to the public policy of India

Formal Requirement of An Award

a) Should refer to the parties;
b) Recitals;
c) Writing;
d) Signature of the arbitrators;*
Q: Whether the arbitrators should sign the award on the same date and at the same place?
e) Reasons;*
f) Date and Place;
g) Published to the parties by delivering a signed copy to each party

Interest
 Derogable provision: “Unless otherwise agreed”
 Award is for the payment of money
 Interest is compensation paid by a party retaining or detaining money belonging to another for use and
forbearance, and commonly expressed as an annual percentage of the outstanding principal.
 S. 31(7) provides for two situations in which interest may be paid:
i. pre-award interest – the date on which the cause of action arose till the date on which the award is made;
rate of interest can be determined by the arbitral tribunal in absence of any agreement between the parties.
ii. post-award interest – the date of the award to the date of payment; the rate of interest can only be
determined by the arbitrator and not by the parties. If the discretion is not exercised then the statutory rate of
interest is 18% p.a. will apply.

Bhagawati Oxygen Ltd. vs. Hindustan Copper Ltd. (2005)

 HCL and BOL entered into an agreement whereby BOL had to install, operate and maintain an oxygen
plant at its own cost for supply of pure oxygen (max 99% and min 85%) to HCL. If BOL fail to supply
oxygen as per the contract terms, it will be BOL’s responsibility to arrange for liquid oxygen from other
sources and keep uninterrupted supply to HCL. If BOL fails to supply, then HCL can procure the gas from
elsewhere and difference of the procurement cost will be recovered from BOL. If quantity or quality of the
gas goes down, no payment will be made for that period/ quantity unless prior acceptance is obtained.
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 They entered into an arbitration clause whereby ‘any dispute or difference arising out of or in connection
with the work” or the agreement will be referred to sole arbitrator.
 Dispute arose when BOL was not made any payment by HCL on the ground that supplied oxygen was not
pure and sufficient.
 Arbitrator gave an award in favor of BOL holding that HCL was unable to prove its case and
counterclaim and awarded BOL an interest at 18% p.a. for pre-reference period, pendente lite, and from the
date of award till the date of payment.
 HCL challenged the award for misconduct by the Arbitrator in exceeding his jurisdiction on the questions
raised and interest awarded. Single Judge and later the Division Bench upheld the decision of arbitrator on
the claims but set aside the order dismissing HCL’s counterclaim and remitted the matter to arbitrator and
reduced the rate of interest to 6% p.a. Both BOL and HCL filed appeal in the SC.

Issue: Whether the arbitrator had power to award interest at the rate of 18% p.a. for pre-reference period,
pendente lite and post- reference and whether the Single Judge and DB were justified in reducing the rate of
interest from 18% to 6%?

 Held:
- In the 1940 Act, there was no provision dealing with the power of the arbitral tribunal to award interest but
S. 29 conferred power on the court to award post-decree interest where award was for payment of money.
- No interest to be awarded if its is expressly barred by the contract between the parties or only to be
awarded in accordance with the provisions of the agreement.
- In absence of express prohibition, the arbitrator has the power to grant interest at all three stages i.e. pre-
reference, pendente lite and post-award, provided the rate of interest is reasonable.
Under 1996 Act, according to Sayeed Ahmed Case (2009), the arbitrator can award interest for all three
stages unless there is express contract to the contrary. For future interest, if rate of interest is not contrary to
S. 31(7)(b) the court should not interfere with the grant of interest unless award of interest is unwarranted.

Awarding of Costs
 Derogable provision; based on party autonomy;
Cost of an arbitration means: Reasonable costs relating to –
a) Fees and expenses of the arbitrators;
b) Fees and expenses of the witnesses;
c) Legal fees and expenses;
d) Administration fees of the institution supervising the arbitration;
e) Any other expenses incurred in connection with the arbitral proceedings and arbitral award.

Default procedure: Cost of an arbitration shall be fixed by the arbitral tribunal where it will state the
following:
a) The party entitled to costs;
b) The party who shall pay the costs;
c) The amount of costs or method of determining that amount, and
d) The manner in which the costs shall be paid.

Publicis Communication vs.True North Communications (2000)

Facts:
 A Chicago based True North Communications had a joint venture with a Paris based Publicis
Communication that began in 1989 but now was coming apart.
 True North and Publicis decided to arbitrate any disputes arising from their corporate divorce before the
London Court of International Arbitration under UNCITRAL Arbitration rules.

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 Disagreement arose over whether Publicis had to turn over tax records that True North said it needed to
file with the Internal Revenue Service and the Securities and Exchange Commission.
 On October 30, 1998, the Chairman of the Tribunal signed an “order” “for and on behalf of the
Arbitrators” whereby it asked Publicis to provide True North with the tax information for 1994 to 1996 by
November 23, 1998.
 Publicis failed to comply, True North approached the District Court of Illinois to confirm (a step towards
enforcement) the arbitration decision. District Judge confirmed the same and Publicis now approached the
Circuit Court.

Issue: Whether the particular “order” by the Arbitral Tribunal regarding tax records was final?
 Contentions by Publicis:
- There is a great difference between an award and an order.The Tribunal called
its October 30 decision an “order”;
- October 30 decision cannot be final as it was signed only by the Chairman;
- Arbitration award was ambiguous and should have been remanded to the tribunal by the Court;

Held:
- International Conventions and National legislations use the word “award” for a decision of the Tribunal
that is final and enforceable. However, what is important to determine finality is the content of a decision
not its nomenclature. Here finality can be demonstrated by the deadline in tribunal’s ruling. Therefore,
despite its designation as an “order” instead of an “award” the arbitration tribunal’s decision on tax matters
was final.
- UNCITRAL Arbitration rules allow the presiding arbitrator to sign procedural matters on his own on
consultation with other arbitrators. This matter concerns superficial technicalities whereas finality should be
judged by substance and effect.
- The Court has to see whether a decision is ambiguous or unambiguous.Here, the District Judge found the
arbitrator’s decision unambiguous.

S. 32:Termination of Proceedings

The termination of the arbitral proceedings is co-extensive with termination of the mandate of the arbitrator,
except in the following two situations:
a) Under S. 33: Correction of errors and interpretation of award;
b) Under S. 34(4): When the Court, during the pendency of proceedings for setting aside the award, remits it
to the arbitral tribunal to resume proceedings to take such action, as would in the opinion of the tribunal,
eliminate the ground for setting aside the award.

S. 33: Correction and Interpretation of Award;Additional Award

 Correction: Correct any computation errors, any clerical or typographical errors or any other errors of
similar nature in the award.
a)Request of the party: A party can request within 30 days of receipt of the award, unless otherwise
agreed, the tribunal to make correction to the award. Upon receiving the request, if it is justified then
tribunal has to make correction within 30 days of receipt of the request.
b) Suo moto by the arbitral tribunal: Upon making the award, within 30 days the tribunal can make
corrections to the award.

Interpretation:
a) Request of the party: A party can request within 30 days of receipt of the award, unless otherwise agreed,
the tribunal to give an interpretation of a specific point or part of the award. Upon receiving the request, if it
is justified then tribunal has to make correction within 30 days of receipt of the request.
 Additional Award:
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- Derogatory provision;
- A party may request the tribunal to make an additional award with respect to the claims presented in the
proceedings but omitted from the arbitral award;
- Request within 30 days of receipt of the award;
- If request is justified, Tribunal shall make an additional award
within 60 days from the receipt of the request.
Period within which the Tribunal has to make a correction, give an interpretation or make an additional
award can be extended by the tribunal.
Provisions of S. 31 shall apply to correction, interpretation or additional award.

S. 35: Finality of Arbitral Awards

 Award given under Part I of the Act, is final and binding on the parties and persons claiming under them.
S.35 is subject to the provisions of S. 34 which contemplates an application for setting aside the award.
 Non-derogable provision.
Award becomes enforceable as it is the decree of the Court under S. 36, once the objections filed against
the award under S. 34 are rejected.
Doctrine of Res Judicata: An earlier and final adjudication by a competent tribunal/ court is conclusive and
binding on the parties in subsequent proceedings, involving the “same subject-matter” or relief, the “same
legal grounds” and the “same party”, commonly known as triple-identity criteria.
- Interest reipublicae ut sit finis litium: The public interest requires that litigation or dispute resolution must
be final, and not be allowed to continue. This describes the positive, conclusive and formal effect of the
award.
- Nemo debet bis vexari pro una et eadem cause: The interest of private justice to the effect that the party
should not be vexed twice in the same manner. This describes negative, preclusive and material effect.

Effect of A Valid Award:

 Effect on parties
 Effect on the third parties
 Effect on the tribunal
 A party raising the objection of res judicata must establish:
 The decision was judicial;
 It was in fact pronounced;
 The tribunal had jurisdiction over the parties and the subject-matter;
 The decision was:
 Final;
 It was on merits;
 It determined the same question as that raised in the
later litigation; and
 The parties to the later litigation were either parties to the earlier litigation or their privies, or the other
earlier decision in rem.

S. 36: Enforcement
 Award shall be enforced in the same manner under CPC as if it were a decree of the Court;
 S.2(2) CPC, defines ‘decree’ as the formal expression of an adjudication which, so far as regards the
Court expressing it, conclusively determines the rights of the parties with regard to all or any of the matters
in controversy in the suit, and may be either preliminary or final.
 Award itself is the decree and there is no need to file the award for pronouncement of the judgment;
 Enforcement can be done:
- Time to make an application under S. 34 to set aside the award (three
months + 30 days if delay is justified) has lapsed;
- ApplicationmadeunderS.34hasbeenrefusedbytheCourt.
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 What is meant by ‘Court’ under S. 36?

 Generally, the execution court cannot go behind the decree, nor can it question its legality or correctness.
However, an exception exists where the award is a nullity for the lack of inherent jurisdiction, its validity
can be questioned in execution proceedings.

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SECTION 34: SETTING ASIDE ARBITRAL

ARBITRATION ACT, 1940

Grounds for setting aside award: (S. 30)

a. Arbitrator/ Umpire’s misconduct;
b. Misconduct of proceedings by arbitrator;
c. Award supersedes the order of the court;
d. Arbitration proceedings are invalid;
e. Award has been improperly procured;
f. Award is otherwise invalid.

Grounds for Remission of Awards (S. 16):

a. Matters left undetermined in the award;

b. Award determined matters not referred for arbitration;
c. Award is indefinite and thus incapable of execution;
d. Apparent illegality of the award.

RAVINDRA KUMAR GUPTA VS. UOI (2009)

Facts: Ravindra Kumar Gupta (a contractor) had to perform certain civil works for UOI. Disputes arose
between the parties after completion of the work regarding the work and payment for the same. Contractor
invoked the arbitration clause and after proper arbitration proceedings, the sole arbitrator made an award.
Contractor filed an application in the court to make the award rule of the court and UOI filed an application
to set aside the award on the grounds that the award is infirm being against the law and available evidence.
The arbitrator has acted beyond its jurisdiction. However, the Civil Court dismissed the application stating
that the arbitrator has passed the award on the points in issues raised and gave detailed reasons.
 High Court partly allowed UOI’s application by re-appreciating the evidence led by the parties before the
arbitrator.
 Issue: Whether the Court is entitled to re-appreciate evidence and interfere with award?

Held:
 HC committed a serious error by re-appreciating the evidence led by the parties before the arbitrator when
the arbitrator had duly scrutinized and evaluated the evidence. Judgment of the HC does not fall within the
limited jurisdiction available to the court for interference in the award.
 Quoting from catena of cases, the court reiterated the following:
The scope of interference by courts in regard to arbitral awards is
limited.
If on a view taken of a contract, the decision of the arbitrator on certain amounts awarded is a possible
view though perhaps not the only correct view, the award cannot be examined by the court;
Where the reasons have been given the arbitrator in making the award the court cannot examine the
reasonableness of the reasons;
The interference should not be made unless there exist a total perversity in the award or the judgment is
based on a wrong proposition of law.
If the parties have selected their own forum, the deciding forum must be conceded the power of
appraisement of evidence. Arbitrator is the sole judge of the quality as well as the quantity of the evidence
and it is not for the court to take upon itself the task of being a judge on the evidence before the arbitrator.

SECTION 34, 1996 ACT

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Application under S. 34 can be made to set aside interim/ final award;

 Proceedings are summary proceedings, wherein the objections are to be decided on the basis of affidavits
filed by both parties;
 Not an ex-officio power, can be invoked only if application made by a party;
 S. 34 is applicable only to arbitrations which take place in India as per S. 2(2) of the Act;
Bhatia Int’l vs. Bulk Trading SA (2002): Part I of the Act will provide to all arbitrations, whether taking
place inside India or outside India. Where the arbitration is held in India, the provisions of Part I would
compulsorily apply, and in case of international commercial arbitrations held out of India, provisions of Part
I will apply unless the parties by agreement, express or implied exclude all or any of its provisions. In that
case, the laws or rules chosen by the parties would prevail. Any provision in Part I, which is contrary to or
excluded by that law, or rules will not apply. As a consequence, S. 34 would also be applicable to foreign
international awards.
Bharat Aluminum Co. vs. Kaiser Aluminum Technical Services (2012): Applicability of S. 34 is limited to
awards made in India. However, this judgment is applicable prospectively.

EFFECT

The party challenging the award has to discharge the burden of proof by adducing sufficient credible
evidence to show the existence of any one of such grounds.
 U/S. 34(2)(b) if the court ‘ex officio’ finds that the subject-matter of dispute is not arbitrable, or the award
is in conflict with the public policy of India, then it may set aside the award.
 If an award is set aside, it is a nullity a priori, unenforceable under S. 36;
 Under both the NY Convention and the Model Law, the competent court may refuse to grant recognition
and enforcement of an award that has been ‘set aside’ by a court of the seat of arbitration;
 An Indian court may refuse to enforce a foreign award that has been set aside by a ‘competent authority of
the country in which, or under the law of which, the award was made’.

GROUNDS FOR SETTING ASIDE AN AWARD

An award may be set aside:

a) Challenge to arbitrator’s qualifications, independence or impartiality failed u./S. 13, then award by such
arbitrator can be set aside;
b) Challenge to arbitrator’s competence u./ S. 16 failed then application can be made to set aside the award
u/S. 34;
c) Incapacity of the party;
d) Arbitration agreement is invalid;
e) Party not given proper notice of appointment of the arbitrator or arbitral procedure or was unable to
present his case;
f) Award on matters not contemplated or not falling within terms of submission or decision beyond scope of
admission to arbitration;
g) Composition of tribunal or arbitral procedure not in accordance with the agreement of the parties;
h) Non-arbitrable subject-matter;
i) Arbitral award in conflict with public policy of India

Grounds u/S.34(2)(a) are based on Article V(1) of the NY Convention – uniform across all the countries that
are signatory;
 U/S.34(2)(a): Award may be set aside by the court only if the party making the application “furnishes
proof” that any of the grounds enumerated are made out.
Grounds u/S. 34(2)(b) are based on Article V(2) of the NY Convention – country specific.
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 U/S. 34(2)(b): Award may be set aside by the court, only if the “the court finds that” the grounds specified
are made out. The burden to plead and prove is lesser when application is u/S. 34(2)(b).
Appropriate grounds and material facts for such grounds need to be stated in the petition by the applicant as
the power u/S. 34 is not suo moto.

CENTROTRADE MINERALS & METALS INC. V. HINDUSTAN COPPER LTD (2006)

CMM and HC entered into a contract for sale of copper concentrate. Dispute arose as regards the dry weight
of copper concentrate.
 CMM invoked the following arbitration clause:
 Clause 14:
“All disputes or differences whatsoever arising between the parties out of, or relating to, the construction,
meaning and operation or effect of the contract or the breach thereof shall be settled by arbitration in India
through the arbitration panel of the Indian Council of Arbitration in accordance with the Rules of Arbitration
of Indian Council of Arbitration. If either party is in disagreement with the arbitration result in India, either
party will have the right to appeal to a second arbitration in London, UK in accordance with the Rules of
Conciliation and Arbitration on the International Chamber of Commerce in effect on the date hereof and the
results of this second arbitration will be binding on both the parties. Judgment upon the award may be
entered in any court in jurisdiction.
 Clause 16:
“The contract is to be constructed and to take effect as a contract made in
accordance with the laws of India.”
 Arbitrator appointed by ICA made a NIL award. Subsequently CMM invoked the second part of the said
agreement and an award was made on that.
 Issue: Whether the provision for appeal to a second arbitration in the above clause is permissible and
valid?

Justice S. B. Sinha:
 The 1996 Act envisages only one award under one set of rules i.e. under Part I and Part II of the Act. It
does not contemplate multilayer awards governed by different sets of rules;
 The Act does not contemplate an arbitral award that can be an admixture of domestic and foreign award;
 Here, for the first part of arbitration the Indian law is applicable (ICA Rules) whereas the second part
would be governed by ICC Rules. Therefore, both parts cannot be carried out under the same institution.
Two different natures of the awards are not contemplated only because there is a provision for appeal. If by
fiction of law an award becomes a decree without the intervention of the Court, the nature of an award
which can be passed by the appellate arbitrator, would lose the character of an award.
 Doctrine of merger will not apply here as it envisages an Appellate authority who can pass the same type
of order which could be passed by the original authority;

As soon as the award becomes enforceable, it becomes final and binding. If the first award in the present
case was to be enforced, it had to be done according to Part I and the time limit to make it final under Part I
would not cease to run if second part of the arbitration agreement is invoked. Therefore, Act does not
contemplate that the arbitrator would be entitled to sit in appeal over an executable decree. If during the
proceedings for second arbitration, the award from first arbitration becomes a decree, the appellate arbitrator
cannot set aside the decree.
Since the parties agreed that the Indian law shall apply, the validity of the contract may be judged as per S.
23 of Contract Act, 1872. This will make the two-tier arbitration invalid in law in the context of the 1996
Act when read with S. 23 of the Contract Act as statutory jurisdiction cannot be waived by contract.
 Thus, the order passed by a tribunal lacking inherent jurisdiction would be a nullity.

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Justice Tarun Chatterjee

 A two-tier arbitration entered into before or after the 1996 Act is valid and
permissible in India as there is no prohibition given under the Act;
 The Act does not prohibit the parties from entering into an agreement whereby the first arbitration
proceedings is conducted under Part I and appeal therefrom is conducted under Part II;
 Clause 14 clearly states that second arbitration is an appeal to be exercised by the party aggrieved by the
award of first arbitration and the award from second arbitration shall be final and binding on the parties.
Therefore the second arbitration was not an independent proceeding. By applying the doctrine of merger, the
original award merges with the appellate award making this award valid and capable of enforcement. Here,
S. 35 cannot serve as a bar to appellate arbitration as this section only comes into operation once the
arbitration proceedings as a whole, which must include appellate arbitrations, if any, have ended;
 Here the second award is a foreign award as it satisfies the conditions laid down in S. 44;
 Since HCL was not given proper opportunity to present the case before the ICC arbitrator, enforcement of
the ICC award should be refused u/S. 48(1)(b).
As both the judges had difference of opinion, the matter was referred to the larger bench for consideration.

INCAPACITY OF PARTIES

S. 34(2)(a)(i)
 If a party making the application under S. 34 furnishes the proof that a party to the award was ‘under
some incapacity’ to enter into the ‘arbitration agreement’ or ‘arbitral proceedings’ on which the award is
based;
 General rule is that any natural or legal person who has the capacity to enter into a valid contract, has the
capacity to enter into an arbitration agreement:
Indian Contract Act, 1872 covers not only natural persons but also other legal persons who can enter into
contracts, as well;
A statutory person can enter into a contract if it exercises its powers subject to the formalities imposed by
statute.

ARBITRATION AGREEMENT IS INVALID

S. 34(2)(a)(ii)
 If the arbitration agreement is found not to be valid under the governing law of the contract, or the law in
force, then the award passed by the tribunal will be void, and liable to be set aside;
 It would be a case of patent lack of jurisdiction;  E.g.:
Party lacks legal capacity/ competence to sign the agreement; Consent induced by fraud or
misrepresentation;
 Contract illegal according to applicable law;
Contract terminated due to performance, repudiation or frustration;
Claim is time barred;
Agreement is not in writing
Therefore, this ground is wide enough to cover all forms of invalidity.

NON COMPLIANCE WITH PROCEDURAL DUE PROCESS

S. 34(2)(a)(iii)
This ground requires the party to establish that it received an unfair treatment, which can exist when:
a) Party not given proper notice of the appointment of the arbitrator or arbitral proceedings;
b) Party was otherwise unable to present his case.

LACK OF JURISDICTION
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S. 34(2)(a)(iv)
 An arbitral award may be set aside if:
a) The award deals with a dispute not contemplated by, or not falling within the terms of the submission to
arbitration (extra petitia), or
b) The award contains decisions on matters beyond the scope of the submission to arbitration (ultra petitia),
c) Provided: if the decisions on matters submitted to arbitration can be separated from those not so
submitted, only that party of the arbitral award which contains decision on matters not submitted to
arbitration may be set aside.

COMPOSITION/PROCEDURE

S. 34(2)(a)(v)
 Two grounds are provided for:
a) Composition of the arbitral tribunal was not in accordance with the arbitration agreement;
b) Arbitral tribunal did not follow the procedure provided in the agreement, unless such agreement was in
conflict with the provisions of Part I of the Act.
Non-derogable provisions of the Act are: Ss. 4, 8. 9, 10, 11(4) & (6), 12, 13(4)(a), 16(2) & (3), 16(5),
22(4), 27, 31, 32, 33, 34, 35, 36, 37, 38(1) and 43(3).
Derogable provisions: Ss. 11(2), 19(1) & (2), 20 (1) & (2), 22(1), 24, 25, 26 and 31(3).

Ex- Officio Grounds

Two grounds provided for in S. 34(2)(b) for setting aside an arbitral award are:
i. The subject-matter of the dispute is not capable of settlement by arbitration under the law for the time
being in force; or
ii. The arbitral award is in conflict with the public policy of India.
Award is in conflict with the public policy of India if making of the award was induced or affected by fraud
or corruption or was in violation of S. 75 or S. 81.
To invoke these grounds, it is not necessary for the party challenging the award to plead or prove the
existence of these grounds. These grounds can be exercised by the arbitral tribunal ex officio, even if they
have not been pleaded or proved by the party contesting the award.

SUBJECT MATTER OF DISPUTE IS NOT CAPABLE OF SETTLEMENT BY ARBITRATION

S. 34(2)(b)(i): “The subject-matter of the dispute is not capable of settlement by arbitration under the law for
the time being in force”
 This is different from the ground that a dispute does not fall squarely within the terms of a particular
arbitration agreement;
 Question of arbitrability of disputes is in essence a matter of public policy for a State to determine;
 Certain disputes cannot be submitted for arbitration as they fall in the realm of a right in rem (a public
right);
The legislators and courts in each country must balance the domestic importance of reserving matter of
public interest to the courts, against the more general public interest in promoting trade and commerce and
the settlement of disputes;
 Similarly, in the international sphere, the interests of promoting international trade as well as international
comity have proved important factors in persuading the courts to treat certain types of dispute as arbitrable.

CONFLICTS WITH THE PUBLIC POLICY OF INDIA

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Public policy as a defence is recognized in the UNCITRAL Model law and NY Convention, as a legitimate
area of state control over arbitral awards, whereby provision is made for a State to refuse to recognize or
enforce foreign arbitral awards, if such awards are found to be contrary to public policy.
 Under the 1996, the defence of public policy has been used in following three situations:
a) S. 34(2)(b)(ii)
b) S. 48(2)(b)
c) S. 57(1)(e)
 Explanation to S. 34(2)(b)(ii) says that “without prejudice to the generality of sub-clause (ii), it is hereby
declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the
making of the award was induced or affected by fraud or corruption or was in violating of S. 75 or S. 81.”
 Explanation to S. 48(2)(b) is similar to 34(2)(b)(ii) but explanation to S. 57(1)(e) makes a distinction by
stating that enforcement may be refused if the award is contrary to the public policy or the law of India.
The doctrine of Public Policy is a branch of common law, and therefore governed by precedents;
 Public Policy is dynamic concept that evolves continually to meet the changing needs including political,
social, cultural, moral and economic dimension;
Public Policy is a principle of law, under which freedom for contract or private dealings is restricted by the
law for the good of the community;
 S. 23 of the ICA, 1872 summarizes the concept of public policy as being the consideration or object of an
agreement that is lawful unless it is forbidden by law or is of such a nature that it would defeat the
provisions of any law, or is fraudulent, or involves or implies injury to the person or property of another, or
the court regards it as immoral or opposed to public policy.

RENUSAGAR POWER CO. V. GENERAL ELECTRIC CO.

Meaning of ‘public policy’ under S. 7(1)(b)(ii) of the Foreign Awards (Recognition and Enforcement) Act,
1961;
 Two conflicting positions: ‘narrow view’ and ‘broad view’;
 Following the narrow sense, the three judge bench held that in order to attract the bar of public policy, the
enforcement of the award must invoke something more than the violation of the law of India (the court noted
that words ‘law of India’ have been omitted in S. 7(1)(b)(ii));
The Foreign Awards Act is concerned with recognition and enforcement of foreign awards which are
governed by the principles of private international law, the expression ‘public policy’ must necessarily be
construed in the context of private international law;
 Therefore, the enforcement of a foreign award would be refused on the ground that it is contrary to:
a) Fundamental policy of India law;
b) The interests of India;
c) Justice or morality.

Thus, in order to attract the bar of public policy the enforcement of the foreign award must invoke
something much more than the violation of the law of India.
 Following principles were laid down in relation to S.7(1)(b)(ii) –
a) The expression ‘public policy’ in S. 7 must necessarily be construed in the sense of the doctrine of public
policy as applied in the field of private international law;
b) To attract bar of public policy, enforcement of the award must involve something more than mere
violation of the law of India;
c) Enforcement of a foreign award would be contrary to public policy, if it would be contrary to the
fundamental policy of Indian law, the interest of India and justice and morality.
This judgment follows the narrow view but the subsequent decisions of the SC adopt a broader view.

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ONGC V. SAW PIPES

ONGC has appealed to the SC against the decision of the DB HC who dismissed the appeal referred from
Single Judge of HC;

 ONGC and Saw Pipes entered into an agreement for supply of casing pipes. It was agreed that Saw Pipes
would procure raw material from the reputed and proven manufacturers. Saw Pipes placed an order for raw
material with an Italian company and asked for timely delivery as time was of the essence. However, due to
general strike of steel mills over Europe there was delay in supply of the raw material. Saw Pipes informed
about the delay to ONGC and sought extension. ONGC approved the delay saying that amount equivalent to
liquidated damages for delay in supply would be recovered. Subsequently, when ONGC made payments for
the goods supplied, it deducted amount for delay as liquidated damages.

 When Saw Pipes disputed over the deducted amount, the matter was referred for arbitration. Arbitrator
held in favor of Saw Pipes and asked ONGC to return the amount at 12% interest.

ONGC challenged the award on following grounds:

a) It was entitled to recover for delay according to the terms of the agreement whereby the parties agreed
that liquidated damages of an equivalent to 1% of the contract price for whole unit per week of such delay or
part whereof. Thus Arbitral Tribunal acted contrary to S. 28(3);
b) Arbitral Tribunal misinterpreted the law as it required ONGC to prove loss suffered due to delay. This is
on the face of it illegal and erroneous;
c) Award for interest on liquidated damages is unjustified, unreasonable and against the specific terms of the
contract which provides that on ‘disputed claim’ no interest would be payable.

Issue:

What is the ambit and scope of Court’s jurisdiction under S. 34? Whether the Court can set aside the award
which is patently illegal or in contravention to the provisions of the Act or any other substantive law
governing the parties or is against the terms of the contract?

 Held:

ONGC had rightfully deducted the amount of liquidated damages from the amount claimed by the Saw
Pipes, and it was not necessary for ONGC to prove the loss suffered by it in view of the provisions in the
contract for payment of liquidated damages and S. 73 and 74 of ICA, 1857, and the impugned award thus
suffered from patent illegality and was, therefore liable to be set aside on the ground that the patent error of
law was included in the ground of public policy.

Reasons:
 Renusagar case was to be understood in the context of foreign award; S. 48(2)(b) is to be construed
differently having regard to the concept of double exequatur recognized in the context of challenge to
foreign awards;
Under S. 34(2)(a)(v) the emphasis is on the agreement and provisions of Part I of the Act from which
parties cannot derogate. It means that the composition of the Arbitral Tribunal should be in accordance with
the agreement;
The jurisdiction or power of the Arbitral Tribunal is prescribed under the Act and if the award is dehors
the said provisions, it would be, on the face of it, illegal. The decision of the Tribunal must be within the
bounds of its jurisdiction conferred under the Act or the contract. In exercising jurisdiction, the Arbitral
Tribunal cannot act in breach of some provisions of substantive law or the provisions of the Act;

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S. 34 when co-jointly read with other provisions of the Act, it appears that the legislative intent could not be
that if the award is in contravention of the provisions of the Act (here S. 24, 28, 31(3)), still however, it
couldn’t be set aside by the court. If it is held that such award could not be interfered, it would be contrary to
the basic concept of justice;
If the arbitral tribunal has not followed the mandatory procedure prescribed under the Act, it would mean
that it has acted beyond its jurisdiction and thereby the award would be patently illegal which would be set
aside under S. 34.
 Public Policy meaning:
 Referring to Central Inland Water Transport Corpn Ltd. vs. Brojo Nath Ganguly (1986) – This concept is
incapable of precise definition. It refers to some matter which concerns the public good and the public
interest. But what is public good or in public interest or what is injurious or harmful to public good or public
interest has varied from time to time. The Courts have not shirked away from extending it to new
transactions and changed circumstances and have at time not even flinched from inventing a new head of
public policy.

Giving limited jurisdiction to the court for having finality to the award and resolving the dispute by speedier
method would be much more frustrated by permitting patently illegal award to operate.
 Thus, u/S. 34 ‘public policy’ should be given wider meaning. The award could be set aside if it is contrary
to:
a) Fundamental policy of Indian law; or
b) The interest of India; or
c) Justice or morality, or
d) In addition, if it is patently illegal.
 Illegality must go to the root of the matter and if the illegality is of trivial nature it cannot be held that
award is against the public policy. Award could also be set aside if it is so unfair and unreasonable that it
shocks the conscience of the court. Such award is opposed to public policy and is required to be adjudged
void.

Centrotrade Minerals & Metals inc. vs. Hindustan Copper Ltd. (2006)

- Whether two-tier agreements are opposed to public policy?

- Justice Sinha: Two-tier agreements are opposed to public policy if they oust/ create the jurisdiction of the
court (Clause 14 of the agreement). This is in violation of S. 23 of ICA, 1857 and therefore against the
public policy of India.
- Justice Chatterjee: The award is valid and binding and not opposed to public policy as there is not express
prohibition against two-tier agreements under the 1996 Act.
McDermott International Inc. Vs. Burn Standard Co. Ltd. (2006)

PHULCHAND EXPORTS LTD. V. PATRIOT

Phulchand Exports challenged an award in favour of the Russian company, OOO Patriot, rendered by the
Int’l Court of Commercial Arbitration at the Chamber of Commerce and Industry of the Russian Federation,
Moscow. This was after OOO applied for enforcement proceedings under S. 47 and 48 of the 1996 Act.
 Phulchand claimed that the award should be set aside as it was "patently illegal" and therefore violative of
public policy of India.
 Issue: Whether under S.48(2) of the 1996 Act, the term "public policy" would include a wider meaning as
it did in the Saw Pipes case?
The court held that there was no distinction between the interpretation of the term "public policy" in
setting aside under Section 34 of the 1996 Act and enforcement of a foreign award under Section 48 of the
1996 Act. A foreign award can be set aside under Section 48(2)(b) of the Act "if it is patently illegal". The

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court then conducted an extensive review of the merits of the case and then found that the award did not
violate the public policy in India.

SHRI LAL MAHAL V. PROGETTO GRANO SPA

Facts:
A dispute arose between an Indian supplier and an Italian buyer in a contract for the supply of Indian origin
durum wheat. The seller relied on a certificate of quality provided by a certifying agency S.G.S. India at the
port of loading in India. The buyer then sent the certificate to S.G.S. Geneva for issuing another certificate
for a further sale to a third party. S.G.S. Geneva certificate showed that the wheat was a soft common wheat
and not durum wheat as was required by the contract. The buyer considered that the suppliers were in breach
of the contract for shipping non-contractual goods and asked for damages.
The dispute was heard by an arbitral tribunal constituted under the Grain and Feed Trade Association
(“GAFTA“) contract, seated in London. Award was found in favour of the buyer and he was awarded
damages against the supplier. Appeal against the award to the Board of Appeal where they were dismissed
and an appeal before the High Court of Justice in London to set aside the award was also rejected.
The buyer instituted a suit for enforcement of both the awards in the Delhi High Court. The Delhi High
Court found in favour of the buyer and rejected the challenges of the seller. The seller subsequently filed this
SLP to challenge the enforcement of the award on the ground that the award are contrary to the public policy
of India.

Held:
 Affirmed ONGC vs. Saw Pipes but refused to apply the wider meaning as given in that case under S. 34
to this case under S. 48;
Applied Renusagar Power vs. General Electric Co. holding that narrow meaning should be given to the
term ‘public policy of India’ for foreign awards;
 Over-ruled Phulchand Exports vs. Progetto Grand Spa on the ground that it does not lay down the correct
law and applied the decision of Renusagar to apply a narrow approach to the term "public policy" for
enforcement of foreign awards. Section 48(2)(b) of the 1996 Act would not include additional ground of
patent illegality

EXPLANATION TO S. 34(2)(B)(II)

Fraud: Knowing misrepresentation of the truth or concealment of a material fact to induce another to act to
his detriment. Defined under S. 17 of the ICA, 1872.
 Corruption
S.75: Maintain confidentiality of arbitration proceedings and award, except where disclosure is required
for implementation and enforcement.
 S.81: Prohibition on producing or relying on evidence whereby – a) views expressed or suggestions made
by the other party in respect of a possible settlement of the dispute; b) admissions made by the other party in
the course of the settlement proceedings; c) proposals made by the conciliator; d) the fact that the other party
had indicated his willingness to accept a proposal for settlement made by the conciliator.

TIME LIMIT TO MAKE AN APPLICATION

Application under S. 34 for setting aside the award can be made within three months from the date on which
the applicant had received the arbitral award.
 Similarly, where a request had been made to the arbitral tribunal for correcting or interpreting the award
or making an additional award, under S. 33, the application shall not be entertained by the Court if it is made
after three months have lapsed from the date on which the request had been disposed of by the Arbitral
Tribunal.
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If the Court is satisfied that the applicant was prevented by sufficient cause from making the application
within the prescribed time, it may entertain the application within a further period of 30 days but not
thereafter.

REMISSION S. 34(4)

On receipt of an application by a party under S.34(1) to set aside the award on one or more of the grounds
set forth under S. 34(2), the court may, ‘where it is appropriate and it is so requested by a party, adjourn the
proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to
resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will
eliminate the grounds for setting aside the arbitral award’.
 It enables the arbitrators to repair the default and avoid the ultimum remedium of setting aside.
 On remission, if the tribunal returns the award within the period of time granted by the court, stating
reasons in support of its decision and the court is satisfied with reasons, it will refuse to set aside the award.
 If the court finds that the reasons are irrelevant, extraneous and not germane to the decision, it will set
aside the award.
 This is an enabling provision and not mandatory.

Section 37: Appealable orders

Extent of appellate or revisional jurisdiction has to be considered with reference to the language employed
by a statute;
 Appeal on any matter not listed under S. 37 is not maintainable as the used of the phrase “and from no
others”, within brackets in S.37(1) conveys the legislative intent;
 S.37 limits the extend of judicial intervention;
The forum of the appellate court has to be construed with
reference the definition of court under S.2(1)(e);
 In an appeal, the Court would not dissect the evidence as it would virtually amount to re-hearing of the
evidence;
 S.37(3) provides that there shall be no second appeal from the order passed by the appellate court.
However, this shall not affect or take away the right to appeal before the SC (under its extraordinary
discretionary power conferred by Article 136)
 Revisional jurisdiction of HC – ITI vs. Seimens case

Shreejee Traco v. Paper Line International Inc

Shreejee Traco, an Indian company found a US Company, Paperline Int’l in breach of contract and claimed
damages and compensation along with refund of certain amount with interest. ST appointed an arbitrator and
requested PI to appoint an arbitrator within 30 days, so that the two nominated arbitrators can appoint the
third presiding arbitrator. When PI failed to act, ST approached the S.C. with an application under S.11(4)
seeking appointment of an arbitrator.
 Governing law of arbitration proceedings is either the law chosen by the parties or, in the absence of
agreement, the law of the country in which the arbitration is seated.
 In absence of express choice of the law governing the contract as a whole or the arbitration agreement, a
presumption may arise that the law of country where the arbitration is seated is the proper law of arbitration
agreement.
 These presumptions are rebuttable.
 Here, there is nothing in the agreement or correspondence between the parties to rebut the ordinary
presumption that seat of arbitration which is NY here will decide these matters and nothing spells out an
intention of the parties that they intended proper law of Indian to govern the arbitration.

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Mitsubishi Motors Corporation v. Soler Chrysler Plymouth

A Puerto Rico corporation entered into distribution and sales agreements with a Swiss corporation and a
Japanese corporation which manufactures automobiles in Japan. This automobile manufacturer was the
product of a joint venture between the Swiss corporation and another Japanese corporation. The sales
agreement contained a clause providing for arbitration by the Japan Commercial Arbitration Association of
all disputes arising out of certain articles of the agreement or for the breach thereof. Subsequently, disputes
arose from a slackening of the sale of the automobiles. After attempts to work out these disputes failed, the
Japanese manufacturer brought an action against the Puerto Rico corporation in the United States District
Court for the District of Puerto Rico under the federal Arbitration Act and the Convention on the
Recognition and Enforcement of Foreign Arbitral Awards, seeking an order to compel arbitration of the
disputes in accordance with the arbitration clause.
 The District Court ordered arbitration of all the issues raised in the complaint and most of the issues
raised in the counterclaims, including the federal antitrust issues, holding that the international character of
the undertaking in question required enforcement of the arbitration clause even as to the antitrust claims.
 The United States Court of Appeals for the First Circuit reversed insofar as the District Court ordered
submission of the antitrust claims to arbitration
 Before the United States Supreme Court a question was raised with respect to arbitrability of antitrust
claims u/ Sherman Act.

Supreme Court held that claims arising under the Sherman Act and encompassed within a valid arbitration
clause in an agreement embodying an international commercial transaction are arbitrable pursuant to the
federal Arbitration Act.
 It conducted a two-step inquiry,
a) first determining whether the parties' agreement to arbitrate reached the
statutory issues, and then,
b) upon finding it did, considering whether legal constraints external to the parties' agreement foreclosed the
arbitration of those claims.
 The international arbitral tribunal owes no prior allegiance to the legal norms of particular states; hence, it
has no direct obligation to vindicate their statutory dictates. The tribunal, however, is bound to effectuate the
intentions of the parties. Where the parties have agreed that the arbitral body is to decide a defined set of
claims which includes, as in these cases, those arising from the application of American antitrust law, the
tribunal therefore should be bound to decide that dispute in accord with the national law giving rise to the
claim.

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CONCILIATION

Meaning
 Distinction
 Appointment of conciliators
 Principles of procedure
 Procedure of conciliation
 Settlement
 Role of the Conciliator
 Termination of Conciliation Proceedings
 Resort to judicial proceedings
 Rule-making power

Meaning

Part III of the Arbitration and Conciliation Act, 1996 deals with conciliation;
 Conciliation is the non-adjudicatory process of settling of disputes without litigation. It is a voluntary
‘consensual’ process to resolve the dispute through the assistance of a neutral third party who assists to
arrive at a mutually agreeable settlement. In simplest form, conciliation is negotiation facilitated by an
independent and impartial third party.
 Multi-tier clause for Dispute Resolution: If in the midst of implementation of dispute settlement
mechanism, one procedure is not conducive to resolution, the parties can revert to another, seemingly a more
promising resolution. The purpose of such multi-tier clause is to make dispute resolution more effective.
Depending on the form of language used, such a clause may or may not give rise to a binding obligation to
submit the different forms of dispute resolution before initiating arbitral proceedings. The clause may enjoin
on parties to first exhaust non-binding dispute resolution procedures, before resorting to arbitration.
 Provisions in Part III are based on UNCITRAL Conciliation Rules.

S. 61 provides that disputes can be settled by conciliation, if the disputes arise out of legal relationships,
whether contractual or not and to all proceedings relating to them, subject however to:
a. Any law for the time being in force in India;
b. An agreement by the parties to the contrary; and
c. Any law, for the time being in force in India, prohibiting conciliation of such disputes.

ARBITRATION V. CONCILIATION

Both are consensual, based on the agreement of the parties and involve an independent third party; 
 Arbitration agreement may provide to first resolve the disputes by conciliation and if it fails then
parties can resort to arbitration;

 Arbitration is adjudicatory whereas conciliation is non-adjudicatory;

 U/S. 89 Court can refer parties to various ADR processes (includes conciliation) but cannot refer to
arbitration without the consent of the parties;
 Arbitration guarantees a binding award enforceable as the decree of the court, whereas conciliation does
not guarantee a binding result;
 Distinction in the role of arbitrator and conciliator;
 Arbitrator is bound to conduct the proceedings in accordance with rules of natural justice. However, this
does not strictly apply to conciliator.
Conciliation can be terminated by withdrawal of one party, whereas arbitral proceedings cannot be put an
end to by one party unilaterally.
 Distinction in manner of communication with the parties by the arbitrator and conciliator.
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Conciliation vs. Mediation

 Both are non-adjudicatory dispute resolution processes, whereby a neutral third party renders assistance to
the parties, to arrive at a mutually agreeable solution to their disputes;
 Conciliation is governed by the 1996 Act; there is no statutory regulation of mediation;
 Settlement agreement in conciliation will have same status and effect as if it is an arbitral award u/S. 30
and is an executable decree u/S.74.

Conciliation : Sec. 63 & 64

Principles of Procedure

Rules of Procedure, S.66: Conciliator is not bound by CPC or IEA;

 Independence and impartiality, S.67(1): Conciliator shall conduct himself in an independent and impartial
manner to help parties reach an amicable settlement of their dispute;
 Objectivity, fairness and justice, S. 67(2): In his conduct, the conciliator shall be guided by principles of
objectivity, fairness, and justice and shall give consideration to the rights and obligations of the parties,
usages of the trade and surrounding circumstances;
 Settlement proposal, S.67(4): At any stage of the conciliation, the conciliator can propose a settlement in
writing or orally, with or without reasons;
 Administrative assistance, S. 68: Parties or conciliator with consent of the parties can arrange
administrative assistance by a suitable institution or person;
 Communication, S.69: The conciliator may meet the parties together or separately and communicate with
them in writing or orally. Place of the meeting can be mutually decided unless agreed by the parties;

Disclosure of Information, S. 70: Conciliator shall disclose the factual information received from one party
to another to provide it an opportunity to give appropriate explanation but where the disclosed information is
confidential, it shall not be disclosed to the other party;
 Co-operation, S. 71: Parties shall cooperate with the conciliator and comply with requests to submit
written material, provide evidence and attend meetings;
 Suggestions, S. 72: Parties can, on their own or when invited by the conciliator, can submit suggestions
for settlement;
 Confidentiality, S. 76: Conciliator and the parties shall maintain confidentiality for all matters relating to
conciliation proceedings and settlement agreement. Except: Disclosure required under any other law;
disclosure necessary for implementation and enforcement of settlement agreement;

Resort to arbitral or judicial proceedings, S. 77: No party shall initiate arbitral or judicial proceedings in
respect of the subject-matter of conciliation during the conciliation proceedings except where it is necessary
to preserve his rights.
 Admissibility of evidence, S. 81: Following cannot be introduced or relied as evidence in arbitral or
judicial proceedings by a party:
 Views expressed or suggested by other party for possible settlement of dispute;
 Admissions in the course of conciliation proceedings;
 Proposals by the conciliator;
 Willingness of the other party to accept a proposal or settlement made by the conciliator.

PROCEDURE OF CONCILIATION
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Commencement
 Submission of Statement
 Conduct of the Conciliation Proceedings
 Deposits
 Settlement
 Termination of Conciliation Proceedings  Costs

Commencement: Section 62

Submission of Statement: Section 65

The Conciliator may request the parties to submit following statement as the below mentioned stages:
 At the beginning: Submit a brief written statement describing the nature of dispute and points at issue;
 During: Submit further written statement of a party’s positon and the facts and grounds in support,
supplementing it with any document or evidence;
 Any stage: Submit any additional information that conciliator asked for.
At all these stages, each party shall submit the required documents

Conduct of the Conciliation Proceedings

Conciliator may conduct the proceedings as he deems appropriate according to the circumstances of the
case;
He may consider request of the parties to conduct proceedings in a certain manner like hear oral statement
or speedy settlement of disputes;
 He should be independent and impartial;
 He should follow the principles of objectivity, fairness and
justice;
 He should give due consideration to the rights and obligations of the parties, usages of trade, and
circumstances surrounding the dispute;
 He should communicate with the parties at appropriate place;
 He should disclose the factual information of one party to another unless the information has to be kept
confidential.

Deposits: Section 79

Conciliator may ask the parties to make following deposits:

 Advance amount for the costs that may be incurred in the proceedings;
 Supplementary deposits;
 If parties do not make the deposits in full within 30 days, the conciliator may suspend the proceedings or
make a written declaration of termination which will become effective on such date itself.
 When proceedings are terminated, conciliator shall render an account of expenses to the parties and return
any unexpended balance to the parties.

Settlement

Aconciliatormayproposethesettlement,notnecessarilyinwriting,atanystageofthedispute unaccompanied by a
statement of reasons (S.67(4));
 Atanystage,eachpartymayonitsownorwheninvitedbytheconciliator,submitsuggestions for settlement
(S.72);

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 When the conciliator thinks there exist elements of a settlement which the parties may accept, he shall
formulate a possible settlement and submit to parties for their observation. On the basis of observation of
parties, the conciliator may reformulate the terms of possible settlement (S. 73(1));
 When a settlement is reached:
 Parties may draw up and sign a written settlement agreement;
 Request the conciliator to draw up or assist parties in drawing up the settlement agreement (S.73(2))
 Settlement agreement becomes final and binding on the parties and persons claiming under them when it
is signed by the parties (S.73(3));
 Conciliator shall authenticate the settlement agreement and give a copy of it to each party(S.73(4));
 Settlement agreement shall have same status and effect as if it is an arbitral award on agreed terms on the
substance of the dispute rendered by an arbitral tribunal under S.30 (S.74).
Termination of Conciliation: Section 76

Conciliation proceedings shall be terminated by:

a) Settlement: Signing of the settlement agreement by
the parties on the date of the agreement; or
b) Failure: A written declaration by the conciliator, upon consulting the parties, that further efforts at
conciliation are no longer justified; or
c) Parties: A written declaration of the parties to the conciliator stating the termination of the proceedings;
d) One party: A written declaration of a party to the other party and the conciliator.
e) Conciliator: Declaration of the conciliator when no deposits as asked by the conciliator are made
(S.79(3)).

Costs

Upon termination of the conciliation proceedings, the conciliator will fix the following costs to be borne
equally by the parties, unless otherwise given in the settlement agreement, by written notice:
 Fee and expenses of the conciliator;
 Fee and expenses of the witnesses
 Expert advice requested by the conciliator with the request of the parties;
 Expenses for institutional/ individual assistance sought for appointment of the conciliator or
administrative work;
 Any other expenses in relation to conciliation proceedings and settlement agreement.

Role of Conciliator

During the Proceedings: ( Submission part)

 After the Proceedings (S. 80): Unless otherwise agreed by
the parties a conciliator shall not –
a) Act as an arbitrator of a party in arbitral proceedings in respect of a dispute that is the subject matter of
the conciliation proceedings;
b) Act as a representative in arbitral or judicial proceedings in respect of a dispute that is the subject matter
of the conciliation proceedings’
c) Act as a counsel of a party in arbitral or judicial proceedings in respect of a dispute that is the subject
matter of the conciliation proceedings;
d) Act as witness for a party in any arbitral or judicial proceedings.

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ENFORCEMENTS OF FOREIGN AWARDS

 Foreign Award
 NY Convention & Geneva Convention  Provisions under the A & C Act
 International Institutional Arbitration › UN
› WTO
› International Chamber of Commerce
› London Court of International Arbitration
› American Arbitration Association
› Singapore International Arbitration Centre › Hong Kong International Arbitration Centre

INTERNATIONAL CONVENTIONS

 The Geneva Protocol, 1923:

› First international convention recognizing the arbitral system by a multilateral treaty;
› Addressed the issue of enforcement of foreign arbitral awards by recognition of arbitration clauses and
submission agreements between parties, subject to jurisdiction of the contracting states;
› It failed as it went no further than granting full power in this field to contracting states;

 The Geneva Convention on Execution of Foreign Arbitral Awards, 1927:

› First multilateral convention covering the enforcement of foreign arbitral awards;
› India acceded to it by enforcing the Arbitration (Protocol and Convention) Act, 1937;
› Failed for not ensuring speedy enforcement of foreign arbitral awards (mandated double exequatur) and
requirement of international trade;

The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958:
› As of today, it is the single most important treaty in the field of int’l commercial arbitration;
› Field of application is wider than Geneva treaties;
› Abolishes ‘double exequatur’ by providing that award is
binding on the parties;
› BoP has shifted from the party seeking enforcement to the party against whom the award is made;
› Scope of review on the merits of the award is substantially curtailed;
› India ratified and enforced the Foreign Awards (Recognition and Enforcement) Act, 1961.
 UNCITRAL Mode Law: Chapter 8 deals with recognition and enforcement of valid arbitral award by a
court and resembles NY Convention.

The Arbitration (Protocol and Convention) Act, 1937

› S.2 defined “foreign award" as “an award on differences relating to matters considered as commercial
under the law in force in India ] made after the 28th day of July, 1924, -
a) in pursuance of an agreement for arbitration to which the Protocol set forth in the First Schedule applies,
and
b) between persons of whom one is subject to the jurisdiction of some one of such Powers as the Central
Government, being satisfied that reciprocal provisions have been made may, by notification in the Official
Gazette, declare to be parties to the Convention set forth in the Second Schedule, and of whom the other is
subject to the jurisdiction of some other of the Powers aforesaid, and
c) in one of such territories as the Central Government, being satisfied that reciprocal provisions have been
made, may by like notification, declare to be territories to which the said Convention applies, and for the
purposes of this Act an award shall not be deemed to be final if any proceedings for the purpose of
contesting the validity of the award are pending in the country in which it was made.
 The Foreign Awards (Recognition and Enforcement) Act, 1961
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› S. 2 defined “foreign award” as an award on differences between persons arising out of legal relationships,
whether contractual or not, considered as commercial under the law in force in India, made on or after the
11th day of October. 1960 -
a) In pursuance of an agreement in writing for arbitration to which the Convention set forth in the Schedule
applies, and
b) In one of such territories as the Central Government being satisfied that reciprocal provisions have
been made, may, by notification in the Official Gazette, declare to be territories to which the said
Convention applies.

The Arbitration and Conciliation Act, 1996

› S. 85 repealed the Arbitration (Protocol and Convention) Act, 1937, the Arbitration Act, 1940 and the
Foreign Awards (Recognition and Enforcement) Act, 1961. However, they will be applicable to arbitral
proceedings that commenced before August 22, 1996, unless otherwise agreed by the parties;
› Provisions of the NY Convention and the Geneva Convention have been consolidated and enacted in Part
II of the Act
› Chapter I (Sections 44-52) implements the NY Convention;
› Chapter II (Sections 53-60) implements the provisions of the Geneva Protocol and the Geneva Convention

CONVENTION ON THE RECOGNITION AND ENFORCEMENT OF FOREIGN ARBITRAL

AWARDS, 1958

Article I: Applicability of the Convention

 Article II: Arbitration Agreement (S.45)
 Article III: Recognition and enforcement of an Award (S.46)
 Article IV: Submission of documents for enforcement of foreign awards (S.47)
 Article V: Conditions to refuse recognition and enforcement of foreign awards (S.48 (1) & (2))
 Article VI: Adjournment of proceedings and order for suitable security (S.48(3))
 Article VII: Validity of the multi/ bilateral agreements and non-applicability of
Geneva Protocol and Convention
 Article VIII: Signature and ratification
 Article IX: Accession
 Article X: Enforcement of the Treaty by the State party
 Article XI: Federal/ Non-unitary State
 Article XII: Date of enforcement of the treaty
 Article XIII: Denunciation of the Convention
 Article XIV: Reciprocity of the provision of the Conventions
 Article XV: Notifications by the Secretary - General
 Article XVI: Archived in the United Nations

FOREIGN AWARDS (RECOGNITION AND ENFORCEMENT) ACT, 1961

Provides 11 Sections;
 S.5: Filing of Award - Any person interested in a foreign award may apply in writing to any Court having
jurisdiction over the subject matter of the award that the award be filed in court. It will be registered as a suit
between the applicant as plaintiff and the other parties as defendants. Subsequently, the court will issue
notice to the parties to the arbitration other than the applicant, requiring them to show cause, within a time
specified why the award should not be filed.
 S.6: Enforcement of foreign award - When the Court is satisfied that the foreign award is enforceable it
shall order the award to be filed and shall proceed to pronounce judgment according to the award and give a

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decree Subsequently, no appeal shall lie from such decree except in so far as the decree is in excess of or not
in accordance with the award.
 S. 9(b) Saving: Nothing in this Act shall apply to any award made on an arbitration agreement governed
by the law of India.

SCHEME OF PROVISIONS U/CHAPTER I OF PART II

 S. 44: Definition of foreign awards;

 S. 45: Power of Judicial authority to refer parties to arbitration unless the agreement is null and void,
inoperative or incapable of being performed;
 S. 46: When foreign award is binding;
 S. 47: Evidence to be produced when a party makes an application for enforcement of a foreign award;
 S. 48: Conditions on which enforcement may be refused;
 S. 49: Enforcement of foreign awards;
 S. 50: Orders made u/S. 45 and 48 are appealable but no second appeal allowed.

FOREIGN AWARDS: SECTION 44

 Unless the context otherwise requires, a Foreign Award under Chapter I of Part II means:
› An arbitral award on differences between persons arising out of legal relationships, whether contractual or
not
› Considered as commercial under the law in force in India
› Made on or after October 11, 1960
› Through a written arbitration agreement to which
the NY Convention applies
› In such territory to which the NY Convention applies on a reciprocity basis and is notified by the CG

Position Prior to 1996 Act

Under the 1961 Act, an award was categorized as ‘domestic’ or ‘foreign’ by looking at the applicable law
according to the agreement. Therefore, an award under an agreement governed by the law of India (proper
law of contract), was not a foreign award, even if it was made in a foreign territory.

Position under the 1996 Act – After BHATIA case

› Part I would apply to arbitrations held outside India,
unless it is expressly or impliedly excluded.

 Position under the 1996 Act – After BALCO case

› The place where the award is rendered would determine whether the award is a foreign award u/S.44 or a
domestic award subject to provisions of Part I. However, this interpretation applies prospectively from 06-
09-2012 to arbitration agreement entered into on or after this date.

International Institutional Arbitration

Institutional arbitration is one that is administered by a specialist arbitral institution, under its own rules of
arbitration.
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 Some famous institutions are: the ICC, the International Centre for Dispute Resolution (the international
division of the American Arbitration Association), the International Centre for Settlement of Investment
Disputes and the London Court of International Arbitration.
 The rules of these arbitral institutions tend to follow a broadly similar pattern;
 They are formulated for arbitrations that are to be administered by the institution concerned; and they are
usually incorporated into the main contract between the parties by means of an arbitration clause.
 Nominating such institutions is a convenient, short form method of incorporating into the contract
between the parties a detailed book of rules, which will govern any arbitration that may take place in the
future.

Advantages

Rule book: Parties who agree to submit any dispute to arbitration in accordance with the rules of a named
institution effectively incorporate that institution’s book of rules into their arbitration agreement. This rule
book is generally comprehensive and undergoes periodic revisions.
› Trained staff to administer the arbitration: They will ensure that the arbitral tribunal is appointed, advance
payments are made in respect of the fees and expenses of the arbitrators, that time limits are kept in mind
and generally, that the arbitration runs smoothly.
› Review of Award: Institution reviews the tribunal’s award in draft form, before it is sent to the parties to
serve as a measure of ‘quality control.’ this review does not comment on the substance of the award or
interfere with the decision of the tribunal but ensures that all issues raised have been addressed and award
covers matters such as interests and costs.
› Assistance for conduct of the arbitral proceedings.

Disadvantage

Expensive: Under institutional arbitration the parties pay a fixed fee in advance for the cost of arbitration. It
may be less expensive to conduct the arbitration ad hoc.
› Time limits and procedural glitches: the need to process certain steps in the arbitral proceedings through
the machinery of an arbitral institution inevitably leads to delay in the proceedings. Time limits can often be
unrealistically short.

How to choose an arbitral institution?

Fee for Services and what all is covered;

› Permanency;
› Modern rules of arbitration;
› Qualified staff;
› Reasonable charges

WTO: Arbitrations under Article 21.3(c ) of the DSU

A Member found to be in violation of its WTO obligations must comply with the rulings and
recommendations of the Dispute Settlement Body immediately.
 When immediate compliance is impracticable, however, the Member shall have a “reasonable period of
time” to implement the DSB's rulings and recommendations.
 The “reasonable period of time” may be “the period of time proposed by the Member concerned, provided
that such period is approved by the DSB” or “a period of time mutually agreed by the parties to the dispute”.
 If neither of these two options is possible, Article 21.3(c) provides that the “reasonable period of time”
shall be “a period of time determined through binding arbitration”.

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 Arbitrators are selected by the parties to the arbitration or, if they cannot agree on an arbitrator, the
Director-General appoints the arbitrator.
 Until now, every arbitration under Article 21.3(c) has been conducted by an Appellate Body Member
acting in his individual capacity.

International Chamber of commerce

International Court of Arbitration established in Paris in 1923 as an autonomous division of the worldwide
International Chamber of Commerce;
 It is not a court in the sense of a court of law but an administrative body for ICC arbitrations, with
representatives from all over the world;
 Follows current version of the ICC Rules which came into effect on January 1, 1998
 Distinctive features:
› Terms of reference: Set out the names and addresses of the parties and their representatives, a summary of
their claims, the place of arbitration, and, unless the tribunal considers inappropriate, a list of issues to be
determined;
› Scrutiny of awards: Scrutinize the draft form of the award before its delivery to ensure it covers everything
and there are no obvious misprints or arithmetical errors.

London Court of International Arbitration

Owes its origin to the London Chamber of Arbitration, which was founded on November 23, 1892;
 It has arbitration practitioners drawn from the major trading nations, including China and Japan, and is
concerned with issues of policy, rather than with the administration of individual arbitrations;
 Has an office in Delhi, which acts as a subsidiary of the LCIA;
 Rule book revised in 2014.

American Arbitration Association

AAA was established in 1926

 To deal with the dramatic expansion in the number of disputes being referred to international arbitration,
the AAA established a separate international division in 1996 – International Centre for Dispute Resolution;
 Has area specific expertise available to conduct effective arbitral proceedings.

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