Arbitration And Conciliation In India

INTRODUCTION

The law relating to arbitration is contained in the Arbitration and Conciliation Act, 1996. It came into existence from 25th January 1996. It extends to the whole of India except the State of Jammu and Kashmir. The Act is of consolidating and amending nature and is not exhaustive. But it goes much beyond the scope of its predecessor, the 1940 Act. Hence there is a need to analyse the old Act. The Act was said to be the Arbitration Act, 1940. The Act contained 29 Sections, which were divided into 7 Chapters and 3 Schedules. The Act did not include any provisions relating to Foreign Awards and Conventions and Protocols. There was two different Acts for Foreign Awards and Convention and Protocol on arbitration. Hence there was a need to amend the Act and the new Act came into force along with Conventions and Protocols and Foreign Awards in the same Act.

It is necessary to speak about what was accurately present in the old Act, 1940.  The Arbitration was enacted to know the law relating to Arbitration. Hence the following chapters were mentioned.

1. Arbitration without intervention of a Court.
2. Arbitration with intervention of a Court.
3. Arbitration in suits
4. General
5. Appeals
6. Miscellaneous

The law on arbitration in India was at the time of the adoption of the new Act substantially contained in 3 enactments namely the Arbitration Act, the Arbitration (Protocol and Convention) Act, 1937 and the Foreign Awards (Recognition and Enforcement) Act, 1961. It was widely felt that the 1940 Act, which contained the general law of Arbitration, had become outdated. Therefore, the Law Commission of India, several representative bodies of trade and industry and experts in the field of arbitration had proposed amendments to this Act to make it more responsive to contemporary requirements.

Objectives:

The main objectives of the Act are as follows:

(i)                 To comprehensive cover international commercial arbitration and conciliation as also domestic arbitration and conciliation.

(ii)               To make provision for an arbitration procedure which is fair, efficient and capable of meeting the needs of the specific arbitration.

(iii)             To provide that the Arbitral Tribunal gives reasons for its arbitration award.

(iv)             To ensure that the Arbitral Tribunal remains within the limits of its jurisdiction.

(v)               To minimise the supervisory role of courts in arbitral process

(vi)             To permit an Arbitral Tribunal to use mediation, conciliation or other procedures during the arbitral proceedings to encourage settlement of disputes.

(vii)           To provide that settlement enforcement reached by the parties as a result of conciliation proceedings will have the same status and effect as an arbitral award on agreed terms on the substance of the dispute rendered by an Arbitral Tribunal.

(viii)         To provide that for purposes of enforcement of foreign awards, ever arbitral award made in a country to which one of the two international conventions relating to foreign awards, to which India is a party applies, will be treated as a foreign award.

Therefore, the Bill seeks to achieve the above objects.

Preamble and applicability of the Arbitration and Conciliation Act, 1996:

The Preamble of the Act speaks about the UNCITRAL Model Law which made initially in proposing this amendment Act. The UNCITRAL adopted in 1985 the Model Law on International Commercial Arbitration. The General Assembly of UN has recommended that all countries give due consideration to the said Model Law, in view of the desirability of uniformity of the law of arbitral procedures and the specific needs of international commercial arbitration practice. The UNCITRAL also adopted in 1980 a set of Conciliation Rules. This General Assembly of the UN has recommended the use of these Rues in cases where the disputes arise in the context of international commercial relations and the parties seek amicable settlement of their disputes by recourse to conciliation. An important feature of the said UNCITRAL Model Law and Rules is that they have harmonised concepts on arbitration and conciliation of different legal systems of the world and thus certain provisions, which are designed for universal application. Though the aid UNCITRAL Model Law and Rues are intended to deal with international commercial arbitration and conciliation, they could, with approximate modifications, serve as a model for legislation on domestic arbitration and conciliation. The present Bill seeks to consolidate and amend the law relating to domestic arbitration, international commercial arbitration, enforcement of foreign arbitral awards and define the law relating to conciliation taking into account the said UNCITRAL Model Law and Rules.

Preliminary is the first Chapter of the Arbitration and Conciliation Act, 1996. This Chapter consists of one Section.  The Section speaks about the extension of the Act and existence of the Act. As stated earlier the said Act came into force on 25th day of January 1996. It extends to whole of India. The Provision clause to this Section says that Parts I, III and IV shall extend to Jammu and Kashmir on insofar as they relate to international commercial arbitration or, as the case may be, international commercial conciliation.

CONTENTS OF ARBITRATION AND CONCILIATION ACT, 1996:

The Act consists of four Parts. Part I speaks about Arbitration and it contains ten chapters. Part II speaks on Enforcement of Certain Foreign Awards, which contains two Chapters. Part III provides the provisions for Conciliation. Part IV speaks on Supplementary Provisions. The Act also contains three Schedules. To understand, the Arbitration Act, 1996 is necessary to know certain important terms like arbitration, arbitral award, arbitration tribunal, international commercial arbitration, etc. The Act mainly speaks on the provisions of arbitration agreement, the tribunal, international commercial arbitration etc. Hence, the necessity to know the meaning of the terms in detail.

Important Definitions:

The Section 2 of the Arbitration and Conciliation Act, 1996 reads as follows:

“(1) In this Part, unless the context otherwise requires, —

(a) “arbitration” means an arbitration whether or not administered by permanent arbitral institution;

(b) “arbitration agreement” means an agreement referred to in Section 7;

(c) “arbitral award” includes an interim award;

(d) “arbitral tribunal” means a sole arbitrator or a panel of arbitrators;

(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;

(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—

• an individual who is a national of, or habitually resident in, any country other than India; or
• a body corporate which is incorporated in any country other than India; or
• a company or an association or a body of individuals whose central management and control is exercised in any country other than India; or
• the Government of a foreign country;

(g) “legal representative” means a person who in law represents the estate of a deceased person, and includes any person who intermeddles with the estate of the deceased, and where a party acts in a representative character, the person on whom the estate devolves on the death of the party so acting;

(h) “party” means a party to an arbitration agreement;

(2) Scope.—This Part shall apply where the place of arbitration is in India.

(3) This Part shall not affect any other law for the time being in force by virtue of which certain disputes may not be submitted to arbitration.

(4) This Part except sub-section (1) of Section 40, Section 41 and 43 shall apply to every arbitration under any other enactment for the time being in force, as if the arbitration is pursuant to an arbitration agreement and as if that enactment were an arbitration agreement, except insofar as the provisions of this Part are inconsistent with that other enactment or with any rules made thereunder.

(5) Subject o the provisions of sub-section (4), and save insofar as is otherwise provided by any law for the time being in force or in any agreement in force between India and any other country or countries, this Part shall apply to all arbitration and to all proceedings relating thereto.

(6) Construction of references.—Where this Part, except Section 28, leaves the parties free to determine a certain issue, that freedom shall include the right of the authorise any person including an institution, to determine that issue.

(7) An arbitral award made under this Part shall be considered as a domestic award.

(8) Where this Part,—

(a) refers to the fact that the parties have agreed or that they agreed or that they may agree, or

(b) in any other way refers to an agreement of the parties,

that agreement shall include an arbitration rules referred to in that agreement.

(9) Where this Part, other than clause (a) of Section 25 or clause (a) of sub-section (2) of Section 32, refers to a claim, it shall also apply to a counter-claim, and where it refers to a defence, it shall also apply to a defence to that counter-claim.”

Section 2(1) opens with the words “unless otherwise requires” which means that definition only which has to be taken wherever that term occurs in the Act and it would not be permissible to construe the term in any other manner.

Section 2(2) says that “this part shall apply where the place of arbitration is in India”.

ARBITRATION:

Section 2(1)(a) says, “arbitration means an arbitration whether or not administered by permanent arbitral institution”.

Law permits the parties to settle their differences either by mutual concessions or by mediation of a third person. When the parties agreed to decide to their disputes with the mediation of a third person, but with all the legal formalities undergone, then that process is called arbitration. Arbitration means the submission by two or more parties of their dispute to the judgment of the third person and who is to decide the controversy in a judicial manner. This third person who is deciding the controversy for the parties is called arbitrator.

For a valid arbitration, the following are the most important ingredients:

1. Parties: There must be minimum of two parties. the maximum number of parties is unlimited.
2. Arbitration Agreement: For referring a matter to Arbitration, there must be Arbitration Agreement which is an agreement by the parties to submit the arbitration, all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. There must be proof of record for existence of Arbitration Agreement.
3. Dispute or Differences: The dispute referred to Arbitration may be either present or future disputes  and such disputes must be in respect of defined legal relationship whether such legal relationship has arisen out of the contract or otherwise.
4. Dispute of Civil Nature: The dispute must be of civil nature.

Types of Arbitration:

Arbitration may be divided into 4 types:

1. Ad-hoc or Temporary Arbitration: Where a dispute arises between parties in a business transaction, it is usually settled by appointing an individual as arbitrator whose award is final. Sometimes, it may through meditation or conciliation by a third party.

1. Business or Contractual Arbitration: With the increased commercial and business activities, it has become necessary to settle the disputes arising out of business dealings quickly with least expenses and in a confidential manner. It is accomplished by incorporating an arbitration clause in every contract. When once the dispute arises, the dispute is settled either through a named Arbitrator or Arbitrators. Most of the business disputes are settled through this method.

1. Institutional Arbitration: In the case of big industrial establishments, where very huge monetary transactions are involved, the disputing parties, even at the time of entering the contract, incorporates the arbitration clause for reference to established institutions who may act or arrange for arbitrators. Usually such arbitral institutions have their own people and keep a panel of experts in various fields of profession.

1. Statutory or Legal Arbitration: Various statutes enactments provide for compulsory arbitration. The choice of arbitration is left to the disputing parties and since the arbitration is compulsory, the disputing parties have to come to unanimity in the choice of arbitrators.

Receipt of Written Communications:

Section 3 of the Arbitration and Conciliation Act, 1996 reads as follws:

“(1) Unless otherwise  agreed by the parties,—

(a) any written communication is deemed to have been received if it is delivered to the addressee personally or at his place of business, habitual residence or mailing address, and

(b) if none of the places referred to in clause (a) can be found after making a reasonable inquiry, a written communication is deemed to have been received if it is sent to the addressee’s last known place of business, habitual residence or mailing address b registered letter or by any other means which provides a record of the attempt to deliver it.

(2)     The communication is deemed to have been received on the day it is so delivered.

(3) This section does not apply to written communications in respect of proceedings of any judicial authority.”

Section 3 provides that the parties can agree that the way they would serve communication on each other or tribunal would communicate with them. In the absence of any such agreement any written communication is deemed to have been received if it is delivered to the addressee personally or at his place of business, habitual residence or mailing address. If none of such places can be located after making a reasonable inquiry, a written communication shall be deemed to have been served if it is sent to the addressee’s last known place of business, habitual residence or mailing address. The communication may be sent by any other means which provides a record of the attempt to deliver it. The deemed date of service is the date of delivery. The method of service provided by this section is not applicable o written communications in respect of proceedings of any judicial authority.

WAIVER OF RIGHT TO OBJECT:

Section 4 of the Act which deals with waiver rights, reads as follows:

“A party who knows that,—

(a) any provision of this Part from which the parties may derogate, or

(b) any requirement under the arbitration agreement has not been complied with and yet proceeds with the arbitration without stating his objection to such non-compliance without undue delay or, if a time limit is provided for stating that objection, within that period of time, shall be deemed to have waived his right to so object.”

This provision relates to waiver of objection by a party. It is newly incorporated in the Act. The earlier Arbitration Act, 1940 had no similar provision. The word waiver means voluntary and intentional relinquishment of a right by silence or by conduct.

If a party who has actual or constructive knowledge of the rights, on which an objection could be raised during the arbitral proceedings and if the party still keeps quiet and submits to the proceedings and allows the award to be made, then it amounts to waiver.

Waiver may relate to irregularity in arbitral procedure or objection to authority of the arbitrator.

EXTENT JUDICIAL INTERPRETATION:

Section 5 of the Arbitration and Conciliation provides about Extent judicial interpretation. It states as follows:

“Notwithstanding anything contained in an other law for the time being in force, in matters governed by this part, no judicial authority shall intervene except where so provided in this Part.”

This section minimises the intervention of the Courts in the arbitral proceedings. It also prohibits the intervention of judicial authority in arbitral matters. There can be no stay of arbitration proceedings. The arbitration proceedings can be stopped by court’s intervention.

ADMINISTARTIVE ASSISTANCE:

Section 6 of the Arbitration and Conciliation Act, 1996 provides about Administrative assistance and states:

“In order to facilitate the conduct of the arbitral proceedings the parties, or the arbitral tribunal with the consent of the parties, may arrange for administrative assistance by a suitable institution or person”

This section recognises the arbitration administered by a permanent arbitral institution. An arbitral institution is not to arbitrate itself but to provide administrative assistance to arbitral tribunals. Ad-hoc arbitration has been totally removed by institutional arbitration and it provides a specialised expertise due to the experience of the organisation in administering arbitration cases. The Indian Council of arbitration is a premier arbitral institution set up by the Government of India as a national arbitration body having many branches all over India and it ha framed its own rules for arbitration.

ARBITRATION AGREEMENT

Section 7 and 8 of the Arbitration and Conciliation Act, 1996 provide the law relating to Arbitration Agreement. To refer a dispute or difference to Arbitration, the Act envisages the need for an Arbitration Agreement. As per the Act, without an Arbitration Agreement, no dispute can be referred to Arbitration.

ARBITRATION AGREEMENT:

Section 7 of the Act reads as follows:

“(1)  In this Part, “arbitration agreement” means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.

(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.

(3) An arbitration agreement shall be in writing.

(4) An arbitration agreement is in writing if it is contained in—

(a) a document signed by the parties;

(b) an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement; or

(c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other.

(5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.”

The dispute must be in respect of a defined legal relationship whether contractual or not. It follows that the dispute must be of a legal nature. There should be a definite legal relationship between the parties like seller and buyer, lessor and lessee, partners, principal and agent, etc. In each case, such defined legal relationship need not arise through a contract. It may arise even in the absence of a contract. An agreement must be in writing. An oral agreement to submit a dispute to arbitration is not binding. If the agreement is in writing it will bind, even if some of its details are filled in by oral understanding. An arbitration agreement is in writing if it is contained in—

(i)                 a document signed by the parties;

(ii)               an exchange of letters, telex, telegrams or other means of telecommunication which provide record of the agreement or

(iii)             an exchange of statement of claim and defence in which the existence of the agreement is alleged by one party and not denied by another.

There is no prescribed form of arbitration agreement. If arbitration is contained in a document signed by the parties, then it is deemed as an Arbitration Agreement in writing. There need not be any specific arbitration agreement or arbitration clause in writing and it may be simply in the form of a document signed by the parties expressing their intention of submission to an arbitration. An arbitration agreement through exchange of letters, telex, telegrams or other means of telecommunication also constitutes the form of written arbitration agreement. Similarly, exchange of statements of claim and defence where the existence of an agreement is alleged by one party and not denied by the other, also constitutes written arbitration agreement.

POWER TO REFER PARTIES TO ARBITRATION WHERE THERE IS AN ARBITRATION AGREEMNENT:

Section 8 of the Act:

“(1) A judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement, 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 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.”

Before deciding the application for stay and referring to arbitration, the judicial authority has to satisfy himself of the following points:

(a)    that a valid arbitration agreement exists between the parties;

(b)   that the dispute before the judicial authority is arbitrable;

(c)    that one of the parties has started legal proceedings; and

(d)   that the party has not submitted the first statement the first statement on he substance of the dispute

INTERIM MEASURES, ETC. BY COURT:

Section 9 of the Act:

“A party may, before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with Section 36, apply to a Court,—

(j) for the appointment of the guardian for a minor or a person of unsound mind for the purposes of arbitral proceedings; or

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

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

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

(c) the detention, preservation or inspection of any property or thing which is the subject matter of the dispute in arbitration, or as to which any question may arisen therein and authorising for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party, or authorising any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence;

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

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

and the Court shall have the same power for making orders as it has for the purpose of, and in relation to any proceedings before it.”

ARBITRAL TRIBUNAL:

COMPOSITION OF ARBITRAL TRIBUNAL:

The 1940 Act carried its First Schedule listing provisions which were made a part of the agreement and they used to be known a implied terms. These provisions have been removed from the new Act. Some of the concepts of the Schedule, however, continue to be valid under the heading “Composition of Arbitral Tribunal”, Section 10 provides as follows:

“(1) The parties are free to determine the number of arbitrators, provided that such number hall not be even number.

(2) Failing the determination referred to in sub-section (1), the Arbitral Tribunal shall consist of a sole arbitrator.”

If the parties want more than one arbitrator, it has to be mentioned in their agreement expressly, failing which the matter will be referred to a sole arbitrator who is appointed with the consent of the parties. Where the opposite party declined to give consent even after second notice, the court would get the power on the application of the other party to appoint an arbitrator.

The parties are free to determine the number of arbitrators. It is stated in the provisions of Section 10(1) that the number of arbitrator should not be even number. If the parties had not mentioned in the agreement the number of arbitrators, then a presumption of law arises that the Arbitral Tribunal shall consist of sole arbitrator. But according to a Supreme Court decision in Narayan Prasad v. Nikunji Kumar Lohia, AIR 2002 SC 1139 that the Arbitration cannot be invalidated merely because the number of arbitrators shall not be even number. It is also further stated that, according to Section 11(3) of the 1996 Act, it is stated that when the arbitral tribunal consists of two arbitrator then they should appoint a third arbitrator. But at the same time, if the arbitrators agree and give a common award, then the award is valid.

MATTERS OF APPOINTMENT:

Section 11 of the Act, states the procedure for Appointment of the Arbitrators. The Section reads as follows:

“(1)  A person of any nationality may be an arbitrator, unless   otherwise agreed b the parties.

(2) Subject to sub-section (6), the parties are free to agree on a procedure for appointing the arbitrator or arbitrators.

Sub-section (2) says where the procedure for appointment has been agreed upon between the parties, the Court’s function is only to implement the agreed procedure. The court cannot appoint an independent arbitrator at the first instance. In Subash Projects and Marketing Pvt. Ltd. v. South eastern Coalfields Ltd. AIR 1998 MP 276, it is decided that where the Section lays down a special procedure for the appointment of arbitrators, the Chief Justice has to take necessary measures for enforcing the procedures laid down. It is understood form sub-section (6) that the Chief Justice or his designate has not to make any appointment but to enforce or compel the party to make the appointment in accordance with the agreed legal procedure. In an other decision made by Andra Pradesh Court, it is held that their agreement ceased to exist so far as the panel aspect was concerned, where the agreement required a panel arbitrators to be constituted by the parties but one of them refused to cooperate in this process The Chief Justice could, on a party’s request, appoint a sole arbitrator. It is also decided in Allahabad High Court where the opposite party remained silent as to the request for reference to the agreed arbitrator also did not work and an application was then made to the Chief Justice and hence an award given by the arbitrator after such application was held to be without jurisdiction and non-est in the eyes of law.

(3) Failing any agreement referred to in sub-section (2), in an arbitration with three arbitrators, each party shall appoint the third arbitrator, and the two appointed arbitrators shall appoint the third arbitrator who shall act as the presiding arbitrator.

Sub-section (3) provides that in the absence of an agreed procedure, where the arbitration has to be three arbitrators, each party has to point one arbitrator. The two appointed arbitrators have to appoint a third arbitrator who will act as the presiding arbitrator. It is laid down in a Supreme Court decision that it is not necessary that such appointment should be in writing. It is not necessary that the two arbitrators should hold a meeting for taking a decision in the presence of each other after making joint deliberations. It is also held in a Supreme Court judgement in Ador Samia (P) Ltd. v. Peekay Holdings Ltd. AIR 1999 SC 3246 that powers of Chief Justice under Section 11 are administrative powers and therefore while exercising his powers under Section 11 he does not act as a court.

(4) If the appointment procedure in sub-section (3) applies and—

(a) a party fails to appoint an arbitrator within the receipt of a request to do so from the other party; or

(b) the two appointed arbitrators fail to agree on the third arbitrator within thirty days from the date of their appointment.

The appointment shall be made, upon request of a party, by the Chief Justice or any person or institution designated by him.

Sub-section (4) says that where the two appointed arbitrators fail to agree on the third arbitrator within 30 days from the date of their appointment a party may make a request to the Chief Justice. Sub-section (4)(a) applies where the arbitrator is not named in the agreement. If he is not so named, appointment can be with the agreement of all the parties. If some other mode of appointment is specified in the agreement then Section 11 will not apply. But sub-section (4)(a) would apply even where only one party has been given the power to appoint without the concurrence of the other.

(5) Failing any agreement referred to in sub-section (2), in an arbitration with a sole arbitrator, if the parties fail to agree on the arbitrator within thirty days from receipt of a request by one party from the other party to so agree the appointment shall be made, upon request of a party, by the Chief Justice or any person or institution designated by him.

(6) Where, under an appointment procedure agreed upon by the parties,—

(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 that procedure; or

(c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure,

a party may request the Chief Justice or any person or institution designated by him to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.

Sub-section (6) provides that the appointment of arbitrators by the Chief Justice. The expression Chief Justice in this connection virtually means the court because in most cases the Chief Justices have authorised Civil judges. The reason for the construction of the provision is to ensure that the appointment is made by a person occupying a high judicial office, who would naturally act with due care and caution to make certain that a component, independent and impartial arbitrator is appointed.

In the three cases mentioned in the section Chief Justice gets the power to appoint an arbitrator. They are:

(i)                 where he parties fail to appoint or concur in the appointment of  the arbitrator or arbitrators.

(ii)               where the two appointed arbitrators fail to appoint or concur in the appointment of the presiding arbitrator.

(iii)             where the person or institution designated by the parties for appointment fails to act.

A thirty days’ clear notice is necessary to concur the appointment and if it’s failed then an application can be made to the court. The Chief Justice must have due regard to the qualifications of the arbitrators required by the parties under their agreement and also independence and impartiality of the person in question. An application for appointment of arbitrator made before giving any notice to the other party or raising a demand against him was held to be incompetent.

Where the Arbitral Tribunal happened to be constituted without complying with the requirement of 30 days’ notice and the parties agreed to terminate his mandate before he had passed any award or rejected the claim, the High Court directed that the application be placed before the Chief Justice for naming an arbitrator in place of the outgoing arbitrator.

In Datar Switchgears Ltd. v. Tata Finance Ltd., AIR 2000 SCW 3925 Supreme Court has held that it is sufficient if the opposite part makes an appointment even after 30 days of the demand but before the first party has moved the court under Section 11. (Nucon India (P) Ltd. v. Delhi Vidyut Board, AIT 2001 Del 227)

(7) A decision on matter entrusted by sub-section (4) or sub-section (5) or sub-section (6) to the Chief Justice or the person or institution designated by him is final.

(8) The Chief Justice or the person or instiution designated by him, appointing an arbitrator, shall have due regard to—

(a) any qualifications required of the arbitrator by the agreement of the parties; and

(b) other considerations as are likely to secure the appointment of an independent and impartial arbitrator.

(9) In the case of appointment of sole or third arbitrator in an international commercial arbitration, the Chief Justice of India or the person or institution designated by him may appoint an arbitrator of a nationality other than the nationalities of the parties where the parties belong to different nationalities.

Sub-Section (9) of the Act provides that in the case of sole or third arbitrator in an international commercial arbitration, the Chief Justice of India or his nominee may appoint an arbitrator of a nationality other than the nationalities of the parties where the parties belong to different nationalities. It is found in a Supreme Court decision that there is noting wrong in the two arbitrators having formed an opinion in consultation with each other that a person of a third nationality would be preferable as presiding arbitrator.

(10) The Chief Justice ma make such scheme as he may deem appropriate for dealing with matters entrusted by sub-section (4) or sub-section (5) or sub-section (6) to him.

(11) Where more than one request has been made under sub-section (4) or sub-section (5) or sub-section (6) to the Chief Justices of different High Courts or their designates, the Chief Justice or his designate to whom the request has been first made under the relevant sub-section shall alone be competent to decide on the request.

(12) (a) Where the matters referred to in sub-section (4), (5),(6),(7),(8) and (10) arise in an international commercial arbitration, the reference to the “Chief Justice” in those sub-sections shall be construed as a reference to the “Chief Justice of India”.

(b) Where the matters referred to in sub-section (4), (5),(6),(7),(8) and (10) arise in any other arbitration, the reference to “Chief Justice” in those sub-sections shall be construed as a reference to the Chief Justice of the High Court within whose local limits the Principal Civil Court referred to clause (e) of sub-section (1) of Section 2 is situate and, where the High Court itself is the Court referred to in that clause, o the Chief Justice of that High Court.”

CHALLENGE TO ARBITRATORS:

Section 12 of the Act reads as follows:

“(1)      When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances likely to give rise to justifiable doubts as to his independence or impartiality.

Section 12(1) says that when a person is approached in connection with his possible appointment as an arbitrator, he is under a duty to disclose in writing any circumstances likely to give rise to justifiable doubts as to his independence or impartiality.

In a dispute arising out of construction contract, an ex-officer of the employer-authority which had awarded the contract was appointed as the arbitrator. In his official capacity he was dealing with all the matters of the contract and he had also correspond with the contractor in that capacity. The Supreme Court held his continuance as an arbitrator would not be fair to the parties. [Bharat Coking Coal Ltd. v. L.K.Ahuja & Co., AIR 2001 SC 1179]

Sub-section (1) casts a duty upon a person who is approached for appointment as an arbitrator to disclose in writing any circumstances which are liable to cast justifiable doubts as to his independence or impartiality.

Russel states that: “There is universal agreement amongst jurists of all countries that it is of the first importance that Judicial Tribunals should be honest, impartial and disinterested. The rule applies in full force to Arbitral Tribunals, subject only to this exception, that parties who are free to choose their own Tribunal may, provided they act with full knowledge, choose dishonest, partial or interested arbitrators (though this exception is in its turn subject to a statutory exception which gives parties who have so chosen a locus poenitentiae in certain circumstances). But apart from this exception, arbitrators who are in all other respects suitably qualified are disqualified by dishonesty, partiality or interest.”

It is understood that the arbitrator must be, and must be seen to be, disinterested and unbiased. Unless both parties, with full knowledge of the facts, expressly agree to his acting, no one should adjudicate in proceedings in the outcome of which he has a direct pecuniary interest. It is made clear that the arbitrator should not have any contacts with the parties, directly or indirectly, such that it creates an appearance of partiality.

If there is any real doubt about the matter, the arbitrator should disclose the facts to the parties and should ask if they object to his accepting the appointment. If the facts become known to him after appointment, he should disclose them and ask if they object to his continuing.

It is well settled that there must be purity in the administration of justice as well as in administration or quasi-judicial functions as are involved in the adjudicatory process before the arbitrators.

(2) An arbitrator, form the time of his appointment and throughout the arbitral proceedings, shall, without delay, disclose to the parties in writing any circumstances referred to in sub-section (1) unless they have already been informed of them by him.

Sub-section (2) casts a duty on the arbitrators after his appointment and throughout the arbitral proceedings to make to the parties the disclosures, mentioned in sub-section (1) relating to matters which may have arisen after the appointment began. He may not do so if he has already made the disclosure before the appointment.

(3) An arbitrator may be challenged only if—

(a) circumstances exist that give rise to justifiable doubts as to his independence or impartiality; or

(b) he does no posses the qualifications agreed to by the parties.

It requires the arbitrator to disclose to the parties in writing and without any delay any circumstances developing after the time of his appointment and during the course of arbitral proceedings which give rise to a justifiable doubt about his independence or impartiality. Thus an arbitrator can be challenged, whether he discloses his disqualification or not if there are justifiable doubts about his independence or impartiality.

In other words, the appointment of an arbitrator can be challenged only one or more of the following grounds:

(a)    that circumstances exist which give rise to justifiable doubts as to his independence or impartiality; or

(b)    that he does not possess the qualifications agreed to by the parties.

The appointment cannot be challenged on any other grounds.

(4) A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reason of which he becomes aware after the appointment has been made.

The appointment can be challenged only on those grounds or only for those reasons of which the party became aware after the appointment of the arbitrator. If he was aware of the grounds or reasons before the appointment, he cannot challenge the appointment on those grounds or reasons.

Party’ Challenge to his own arbitrator:

An arbitrator can be challenged by the party who appointed him or in whose appointment he participated only for reasons of which the party became aware after the appointment has been made.

Section 13 reads as follows:

(1) Subject to Sub-Section (4), the parties are free to agree on a   procedure for challenging an arbitrator.

(2) Failing any agreement referred to in sub-section (1), a party who intends to challenge an arbitrator shall, within fifteen days after becoming aware of the constitution of the Arbitral Tribunal or after becoming aware of any circumstances referred to in sub-section (3) of Section 12, send a written statement of the reasons for the challenge to the Arbitral Tribunal.

(3) Unless the arbitrator challenged under sub-section (2) withdraws from his office or the other party agrees to the challenge, the Arbitral Tribunal shall decide on the challenge.

(4) If a challenge under any procedure agreed upon by the parties or under the procedure under sub-section (2) is no successful, the Arbitral Tribunal shall continue the arbitral proceedings and make an arbitral award.

(5) Where the arbitral award is made under sub-section (4), the party challenging the arbitrator may make an application for setting aside such an arbitral award in accordance with Section 34.

(6)         When an arbitral award is set aside on an application made under sub-section (5), the court may decide as to whether the arbitrator who is challenged is entitled to any fees.

This section provides that the parties are free to agree on a procedure for challenging the Arbitrator. The parties can settle the dispute by agreement the procedure by which the arbitrator in question would be challenged. If there is no prescribed procedure, then the Arbitral Tribunal will decide whether the Arbitrator must be removed or not. This should be done in fifteen days. However, if the challenge is detected by the Tribunal, then the Arbitral Tribunal must continue the arbitral proceedings and make the award though there is no appeal against the rejection of the challenge by the Arbitral Tribunal. It permits the challenging party to make an application to the Court for setting aside the award in accordance with Section 34. If the Court set aside the award, then it can decide whether the Arbitrator is entitled to any fees or not.

The procedure is somewhat like the procedure under the preceding Act for seeking the leave of the court for revoking the authority of the arbitrator. Some earlier rulings on the subject have not lost their significance. An arbitration can be revoked only with the consent of the parties. If such revocation is failed to do so, then the arbitrator gets an irrevocable authority to proceed with the matter even if one of the parties refuses to submit to the arbitration.

Failure or impossibility to act:

Section 14 of the Act reads as follws:

“(1) The mandate of an arbitrator shall terminate if—

(a) he becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay, and

(b) he withdraws from his office or the paries agree to the termination of his mandate.

(2) If a controversy remains concerning any of the grounds referred to in clause (a) of sub-section (1), a party may, unless otherwise agreed b the parties, apply to the Court to decide on the termination of the mandate.

(3)    If, under this section or sub-section (3) of Section 13, an arbitrator withdraws from his office or a party agrees to the termination of the mandate of an arbitrator, it shall not imply acceptance of the validity of any ground referred to in this section or sub section (3) of Section 12.”

From the above Section it is made clear that the mandate i.e., the arbitral proceedings gets terminated in the following circumstances:

(1)    A situation may arise where the Arbitrator appointed becomes unable to carry out his functions as Arbitrator. It may due to ill health, death, accident, etc. Thus the incapacity may be due to physical conditions or it ma also due to other forms of incapacity like the Arbitrator subsequently acquiring some interest in the subject matter of the dispute or Arbitrator leaving abroad without intention to return immediately.

(2)    The Arbitrator cannot act without undue delay. The fact that an Arbitrator or Umpire, after a request by either party to enter on and proceed with the reference, does not within one month comply with the request, may constitute a neglect or refusal o act within the meaning of this Section.

(3)    He may also withdraw from his office suo motu.

(4)    The parties may agree to the termination of the mandate. In case there is difference of opinion between the arbitral parties as regards the incapacity of the Arbitrator or his failure to act without undue delay, then either party may approach the Court of law for decision. However if there are other means available to settle the issue, then they can do so without approaching the Court.

Therefore, the term termination of the mandate does not mean termination of arbitration agreement but it only means the termination of the authority of the arbitrator. The effect of termination of the mandate is that the arbitration proceedings is affected but not the arbitration agreement and reference to the arbitration.

Termination of mandate and substitution of arbitrator:

Section 15 of the Act reads as follows:

“(1) In  addition to the circumstances referred to in Section  13 or Section 14, the mandate of an arbitrator shall terminate—

(a) where he withdraws form office for an reason; or

(b) by or pursuant to agreement of the paries;

(2) Where the mandate of the arbitrator terminates, a   substitute arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced.

(3) Unless otherwise agreed by the parties, where an arbitrator is replaced under sub-section (2), an hearings previously held may be repeated at the discretion of the Arbitral Tribunal.

(4)     Unless otherwise agreed by the parties, an order or ruling of the Arbitral Tribunal made prior to the replacement of an arbitrator under this section shall not be solely because there has been a change in the composition of the Arbitral Tribunal.”

Under this Section, the Arbitrator can withdraw from office for any reason and on his withdrawal the arbitration proceedings i.e., the mandate of arbitrator gets terminated. Similarly, by the agreement of parties, the mandate of arbitrator may be terminated.

A new Arbitrator is appointed in the place of the old Arbitrator as per the rules of appointment of Arbitrator. The newly appointed arbitrator, if the parties agree, need not repeat the hearing previously held and can continue the proceedings, from where it was left.

Further because of the change in the composition of the Arbitral Tribunal, the order or ruling of the Arbitral Tribunal before such change were not invalid. However, if the parties insist that the entire proceedings should be started afresh by ignoring the orders already made by the earlier Arbitrator, then the newly constituted Tribunal has no discretion but to start the proceedings afresh. It is held in Fertiliser Corporation V. Ravi Kumar, AIR 1979 Orissa 13 that after the Arbitrator is removed, the Court can appoint a new arbitrator or supersede the reference itself.

The Supreme Court held in Santokh Singh Arora v. Union of India, AIR 1992 SC 1809 that Arbitration must be confined to disputes which were the subject matter of reference before the Arbitrator. New disputes subsequent to the reference cannot be raised before the substituted Arbitrator.

Jurisdiction of the Arbitral Tribunal

The study of jurisdiction of the Arbitral Tribunal is important because it should exercise its hope of authority within the terms of reference of disputes. In the absence of jurisdiction no arbitral proceedings can commence and even if it commences disputes shall be null and void.

In the Arbitration and Conciliation Act, 1940, if the arbitration clause contained in a contract is null and void, then the arbitration agreement also becomes null and void. But under the present Act, the arbitration clause contained in a contract is treated as independent of the other terms of contract and hence even if the contract is null and void, the arbitration clause may still be valid.

Competence of Arbitral Tribunal to rule on its jurisdiction:

Section 16 of the Act reads as follows:

” (1) The Arbitral Tribunal may rule on its on jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for the purpose,—

(a) an arbitration clause which forms part of contract shall be treated as an agreement independent of the other terms of the contract; and

(b) a decision by the Arbitral Tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.

Section 16(1) empowers an Arbitral Tribunal to decide—

(c)                the question as to its jurisdiction, and

(d)         the objection as to existence or validity of the arbitration agreement.

An arbitrator has no authority or jurisdiction beyond that defined by the terms of the contract or what the parties desire under the contract. He has no authority to abdicate the terms of the contract. Objections regarding applicability of the arbitration clause in the agreement to the facts of the case, though go to the root of the jurisdiction, even o they must be raised before the arbitrator for decision.

In other words, the arbitral Tribunal may have its own rules of proceedings, however such rules should not vitiate the terms of reference of arbitration. It can have its own rulings on any objection regarding the existence of arbitration agreement or the validity of such agreement. However, the arbitrator cannot decide the question as to existence and/or validity of the arbitration agreement itself.

(2) A plea that the Arbitral Tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a party shall not be precluded from raising such a plea merely because he has appointed, or participated in the appointment of, the arbitrator.

Section 16(2) empowers the arbitration clause contained in the contract must be treated as agreement independent of other terms of contract and hence even if the contract is null and void it does not ipso jure invalidate the arbitration clause. The arbitration clause survives even after the parties have broken or repudiated the rest of the contract and will remain applicable for the settlement of the resulting dispute. The repudiation or breach of the main contract does not put an end to the arbitration clause.

(3) A plea that the Arbitral  Tribunal is exceeding the scope of the authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings.

Section 16(3) of the Act states that if the Arbitral Tribunal does not have jurisdiction, then such plea must be taken before the submission of counter statement. Even if the party raising such plea has participated in the appointment of arbitrator, even then he can raise such plea only before submission of counter statement. If the Arbitral Tribunal exceeds its scope of authority, then such plea must be raised immediately after such plea of exceeding of its authority is raised in the arbitral proceedings.

(4) The Arbitral Tribunal may, in either of the case referred to in sub-section (2) or sub-section (3), admit a later plea if it considers the delay justified.

The Arbitral Tribunal may admit the plea that it does not have jurisdiction or has exceed its authority even after the submission of the counter statement provided the reasons for delay are justified. If the Arbitral Tribunal is exceeding its scope of its authority, then a plea to this effect must be raised as soon as the matter is noticed to be beyond the scope of authority or otherwise it will be deemed that the party has waived his right to challenge and such plea shall not be entertained at a subsequent stage.

(5) The Arbitral Tribunal shall decide on a plea referred to in sub-section (2) or sub-section (3) and, where the Arbitral Tribunal takes a decision rejecting the plea, continue with Arbitral proceedings and make an arbitral award.

The Arbitral Tribunal must decide on the plea whether it has jurisdiction or has exceeded its authority and if it decides by rejecting the plea then it can continue the arbitral award is passed that the parties can challenge the award in a Court of Law.

(6)      A party aggrieved by such an arbitral award may make any application for setting aside such an arbitral award in accordance with Section 34.”

The party aggrieved by the arbitral award can make an application to a Court for setting aside as per Section 34 of the Act.

Interim Measures ordered by Arbitral Tribunal:

Section 17 of the Arbitration and conciliation Act, 1996 reads as follows:

“(1) Unless otherwise agreed by the parties, the Arbitral Tribunal may, at the request of the party, order a party to take any interim measure of production, as the Arbitral Tribunal may consider necessary, in respect of the subject matter of the dispute.

(2) The Arbitral Tribunal may require a party to provide   appropriate security in connection with a measure ordered under sub-section (1).”

This Section takes care of the production of the subject matter and also provides for appropriate security regarding protection of the subject matter. It empowers the Arbitral Tribunal to order necessary interim measures. The power of the Arbitral Tribunal is restricted because the parties must agree for interim measures; further the Arbitral Tribunal can exercise the power to order interim measures only during the arbitral proceedings. The Arbitral Tribunal does not have suo motu power to order for interim measures but only at the request of either party to arbitration disputes.

Whereas the old Arbitration Act 1940, did not provide any power to the Arbitrator to order interim measures, (but only the Court was empowered), but the present Act has empowered the Arbitral Tribunal to order interim measures. Hence the present Act has strengthened the position of Arbitral Tribunal in arbitration matters. The Arbitrator is empowered to issue order in the nature of the “injunction”, though the term injunction is not expressly used in the Act; however its enforceability is not provided in the Act. The order of the Arbitral Tribunal regarding interim measures is appealable in a Court of law.

Conduct of Arbitral Proceedings

It is necessary that the Arbitrator conduct the arbitral proceedings in an impartial manner. The parties have appointed him because of their trust and confidence in him as arbitrator.  He should come to a conclusion on all matters of difference between the parties referred to him as arbitrator and he must decide either way by way of an award. The conduct of arbitral proceedings is very important because as far as rules of proceedings are concerned, it frames its own rules and it is not bound b CPC or the Indian Evidence Act. It is therefore necessary that there must be principles of natural justice with equal opportunity to both the parties to dispute.

Equal Treatment of parties:

Section 18 of the Act reads as follows:

“The parties shall be treated with equality and such party shall be given a full opportunity to present his case”.

The Arbitral Tribunal must treat both parties equally i.e., both the parties must be given full opportunity to be heard on their cases, presentation of prosecution, defence, interim application, etc. The Arbitral Tribunal must be independent and impartial and must extend equal treatment to each party. It must also give each party a full opportunity to present its case.

Determination of rules of procedures:

Section 19 of the Act reads as follows:

“(1) The arbitral tribunal shall not be bound by the Code of Civil Procedure, 1908 (V of 1908) or the Indian Evidence Act, 1872 (1 of 1872).

(2) Subject to this Part, the parties are free to agree on the procedure to be followed by the arbitral tribunal in conducting its proceedings.

(3) Failing an agreement referred to in sub-section (2), the Arbitral Tribunal may, subject to this Part, conduct the proceedings in the manner it considers appropriate.

(4)          The power of the Arbitral Tribunal under sub-section (3) includes the power to determine the admissibility, relevance, materiality and weight of any evidence”.

The agreement need not specifically require the arbitrator to hear the parties before deciding the dispute before him. The requirement of opportunity for hearing and for production of evidence are an implicit part of all adjudicatory processes. Non-compliance of this requirement may render the award invalid. Where a party had notice of the date, time, and place of the proceedings, but voluntarily failed to appear and could not make out a case that such date did not suit him, it could not be said that there was a denial of reasonable opportunity.

The arbitral tribunal is not bound to follow the provisions contained in the Code of Civil Procedure, 1908 and Indian Evidence Act, 1872. The C.P.C. and the Indian Evidence Act are applicable only to the judicial proceedings, whereas the arbitral proceedings are quasi-judicial proceedings and hence not applicable.

The arbitral proceedings have emanated due to the arbitration agreement and whatever the procedure the agreement has prescribed, the arbitrator is obliged to follow and in the absence of any such prescribed proceedings. The arbitrator must follow the basic principle of natural justice in conducting the arbitral proceedings. The application of the provision of C.P.C. and Indian Evidence Act will hamper quick justice due to legal technicalities.

An arbitrator is not bound by the strict rules of evidence, but he must apply general principles of evidence. It is sufficient if the findings are made on the basis of some evidence. Arbitral tribunal is not bound by the procedure set out by CPC. It is for the parties to agree on a procedure. If there is no procedure set out, then the arbitrator can prescribe his own procedure set out, then the arbitrator can prescribe his own procedure which should not violate the principles of natural justice.

Place of Arbitration:

Section 20 of the Act reads as follows:

“(1) The parties are free to agree on the place of arbitration.

(2) Failing any agreement referred to in sub-section (1), the place of arbitration shall be determined by the Arbitral Tribunal having regard to the circumstances of the case, including the convenience of the parties.

(3)   Notwithstanding sub-section (1) or sub-section (2), the Arbitral Tribunal may, unless otherwise agreed by the parties, meet at any place it considers appropriate for consultation among its members, for hearing witnesses, experts or the parties, or for inspection of documents, goods or other property.”

The parties, under this section, are free to fix by agreement the place where the arbitration proceedings will be held. The parties at all times had a right to fix by agreement the place of arbitration.

Where there is no such agreement, the place of arbitration will be fixed by the arbitral tribunal. But, in this case, the convenience of the parties has to be considered.

Even if the place of arbitration has been fixed under sub-section (1) by agreement of parties or under sub-section (2) by the arbitral tribunal, the tribunal may meet at any other place it considers appropriate—

(a)    for consultation among its members,

(b)   for hearing witnesses or experts,

(c)    for hearing the parties, or

(d)   for inspection of documents, goods or other property.

This is applicable only if the parties otherwise do not agree.

Commencement of arbitral proceedings:

Section 21 of the proceedings reads as follows:

“Unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent.”

The determination of the date of commencement of arbitral proceedings is for purposes of limitation. It is open to the parties by agreement to determine the date of commencement of the proceedings. In the absence of such an agreement Section 21 provides that such date shall be the date on which a request is received from the one party to the other to make a reference of the dispute to arbitration. Section 37(3) of the Arbitration Act, 1940 provides a similar provision regarding the place of arbitration.

Usually, the plaintiff is the affected party in a contract and hence he is the person to invoke the arbitration clause to refer the dispute to arbitration and hence his request that the dispute be referred to arbitration must be received by the respondent and that date is the date of commencement of arbitral proceedings.

Thus, unilateral reference may be sufficient for the commencement of the arbitral proceedings if it is proved that the request had actually been made by the plaintiff to the respondent. Since the arbitration agreement had already been entered into by the mutual consent of the parties there is no need for consen