Q. 2 (e). What are the essential elements for the success of an arbitration? Point out the matters which are covered and which are not covered by the mechanism of Arbitration.
Ans. Essential elements for success of arbitration. For the success of an arbitration mechanism the following elements are required:-
(1) A bona fide intention of the parties to resolve their disputes through the mechanism of arbitration and its cognate means having the parties on equal footing.
(2) Correct and according to needs appointment of arbitrators with the consent of parties and where necessary appointment of experts and technocrats to deal with technical issues or to advise or giving of opinion to solve the dispute by such experts or technocrats. Where parties fail to agree mutually for the appointment of arbitrator/s, the appointment is done by the Court (see Section 11 of the new Act of 1996).
(3) The arbitration tribunal should consist of Arbitrators in odd numbers either sole or in numbers of 3, 5, 7 etc.
(4) The arbitrators should be fair and free from partiality in their conduct. Now the arbitrators have to disclose in writing any circumstances such as existence of direct or indirect past or present relationship with or interest in any of the parties or in relation to the subject-matter in dispute whether financial, business, professional or other kind which is likely to give rise to justifiable doubts as to his independence or impartiality and which are likely to affect his ability to devote sufficient time to the arbitration and in particular his ability to complete the entire arbitration within a period of twelve months. [The new Section 12(1) added by Amendment Act, 2015]
(5) The correct reference of the subject-matter of the dispute for its resolution.
(6) Timely formulation of Arbitral Award by the Arbitration tribunal.
(7) Correct presentation of claims and counter-claims by the parties.
(8) Avoiding of time loss in presentation of claims and counter-claims by the parties.
(9) Presentation of evidences whether oral or documentary should be prompt, systematic and without any loss of time.
(10) Honouring of the Award by both the parties to settle the dispute.
(11) To avoid efforts for causing delay in the implementation of award in the shape of filing of application etc. for setting aside of the award.
(12) The parties to participate in the arbitration proceedings without creating any fake hurdles and to create a friendly atmosphere for the settlement of the disputes.
For the success of the arbitration it is also necessary that there should exist a legal arbitration agreement between the parties. Moreover, the parties must have freely consented to abide by the arbitral Award and the matter of dispute and the Arbitral Tribunal should be certain.
The following types of disputes can be solved through the mechanism of Arbitration:-
(1) Disputes concerning trade, commerce and money lending including contractual and related to construction matters.
(2) Disputes related to employment, contract matters, service matters including consumer related matters which are not covered by the Consumer Protection Act.
(3) Election disputes where the dispute is to be resolved by the arbitration mechanism as per provision or agreement between the parties.
(4) Disputes connected with property matters where parties have opted for arbitration.
The following matters do not come within the purview of arbitration:-
(1) Insolvency matters.
(2) Claim for property situated in a foreign country.
(3) Action related to divorce proceedings-but where mutual divorce is under consideration, the Family arbitration. ly Courts do adopt certain mechanism of arbitration.
(4) Proceedings relating to the execution of Will and Succession etc.
(5) The Industrial disputes which are to be resolved through the Labour Court, but here also the mechanism of negotiation, conciliation, good offices and mutual concessions and agreements etc., the devices and mechanism of arbitration are utilised.
(6) Proceedings regarding the appointment of guardians.
(7) Criminal matters cannot be resolved through arbitration.
(8) The proceedings regarding dissolution of a corporate entity which is governed by the Companies Act, 2013,
(9) The matters covered by tort where the parties, interest of goodwill is affected by the adverse advertising compaign.
(10) The disputes which are settled by the devices under the Consumer Protection Act.
Q. 3 (a). Define “Arbitration” and explain the kinds of Arbitration.
Ans. An arbitration is a reference to the decision of one or more persons either with or without umpire, of some matter or matters in difference with the parties.
Russell has rightly pointed out that, “The essence of an arbitration is that some dispute is referred by the parties for settlement to a tribunal of their own choice instead of a court of law.
According to Section 2 (1) (a) of the Arbitration and Conciliation Act, 1996, “Arbitration means any arbitration whether or not administered by permanent arbitral institution.”
Under this definition, the arbitrations are based on voluntary agreements of parties or which have come into existence due to the operation of law.
Section 2 (1) (a) does not define the term “arbitration”, rather it describes which arbitrations are included within its definition.
In Patanjali v. Rawalpindi Theatres (Pvt.) Ltd., it has been held that an arbitration requires, inter alia, a valid agreement, the terms of which are reduced to writing and the parties thereto are ad idem. In order to constitute an arbitration the agreement must be in writing. It need not be signed by the parties. It is sufficient that the terms are reduced to writing and the agreement of the parties thereto is established.
Kinds of Arbitration. Arbitration may be classified as under.-
(a) Ad hoc Arbitration,
(b) Contractual Arbitration,
(c) Institutional Arbitration,
(d) Statutory Arbitration,
(e) Domestic Arbitration,
(1) International Arbitration,
(g) International Commercial Arbitration, and
(h) Foreign Arbitration.
(a) Ad hoc Arbitration. This type of arbitration is sought when a dispute between the parties arises during the course of business transaction, which could not be settled through mediation or conciliation. As the name suggests, this type of arbitration is a temporary arrangement for the settlement of the dispute.
(b) Contractual Arbitration. A contractual arbitration may be sought for early settlement of a commercial dispute without approaching a court of law. Under this definition, the parties usually choose to insist an arbitration clause as an integral part of the contract to refer their existing or future disputes, to a named arbitrator or arbitrators to be appointed by a designated authority.
(c) Institutional Arbitration. Under institutional arbitration, the parties agree in advance that in the event of future disputes or differences during the course of their commercial transactions, the matter will be referred for settlement by arbitration of the named institution of which one or more parties are the members. Such institutions have their own published rules and they appoint arbitrators from amongst the penal of experts of the concerned profession after obtaining the consent of the parties to the dispute.
(d) Statutory Arbitration. Where an arbitration is statutorily imposed by the State on the parties to a commercial transaction, the parties have no option than to abide by that arbitration. Statutory arbitration differs from the above three types of arbitration, as there is no question of giving consent in the cases of statutory arbitration. As in the cases of above three arbitrations, the parties to the dispute have to submit their consent to it, but in case of statutory arbitration, it is obligatory and binding on the parties.
(e) Domestic Arbitration. Domestic Arbitration takes place when the arbitration proceedings, the subject-matter of the contract and the merits of the disputes are all governed by the Indian laws or when the cause of action for the dispute arises wholly in India or where the parties are otherwise subject to Indian jurisdiction.
(f) International Arbitration.- International Arbitration can take place either in India or outside India in cases where there are ingredients of foreign origin relating to the parties or the subject-matter of the dispute.
(g) International Commercial Arbitration. An International Arbitration is commercial if it relates to disputes arising out of a legal relationship, whether contractual or not, considered as commercial under the law inforce in India, and where atleast one of the parties-
(1) is a national or habitually resident in a country other than India, or
(2) a body corporate which is in any country other than India, or
(3) a company or an association or a body of individuals whose central management and control is exercised in any country other than India, or
(4) the Government of a foreign country.
(h) Foreign Arbitration. A foreign arbitration is an arbitration which is conducted in a place outside India, and the resulting award is sought to be enforced as a foreign award.
Q. 3 (b). What is the Principle of waiver in reference to the Arbitration and Conciliation Act, 1996? Explain.
Ans. Principle of waiver in reference to arbitration.- Section 4 of the Arbitration and Conciliation Act, 1996, deals with waiver of right to object. This section provides that a party who knows that-
(a) any provision of this Part (Part 1) 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.
It is a newly incorporated provision of the Act of 1996. The Arbitration Act, 1940 had no such analogous provision. Section 3 of the Arbitration and Conciliation Act, 1996, is similar to Artic Article 4 of the Model Law. It is based on Article 30 of U.N. Commission on Trade Law Arbitration Rules.
Where it appears to the Arbitral Tribunal that the party had actual or constructive knowledge of the rights, facts or circumstances on which an objection could be raised during the arbitral proceedings and the party still kept quiet and submitted to the proceedings and allowed the award to be made, then it will be precluded from raising such objection consequent to the filing of the award.
Section 4 of the Act provides that if the parties knew the compulsory rather non-compulsory conditions necessary under the Arbitration agreement which has not been complied and even though they did not object within prescribed time and showed no intention to submit objection but give their consent to proceed with arbitration proceedings, it can be said that party has waived his right to object. The principles of waiver in reference to the Arbitration Law has been recognised by the Indian Courts on many occasions. [Indrajit Singh v. Jaliluddin Baig, AIR 1979 Ori. 196 and M/s. 1 Tarapore Co. v. Cochin Shipyard Ltd., AIR 1984 SC 1072, 1087.]
Essential Conditions for Waiver of Right to oppose. The following are the conditions necessary for waiver of right of objection under the Arbitration and Conciliation Act, 1996. These are as follows:-
(1) The party has knowledge of non-fulfilment of conditions necessary under an arbitration agreement.
(2) The party voluntarily gives up his right.
(3) The party should have not submitted himself to arbitration under protest.
(4) The party has not submitted its objection within the prescribed time limit as provided in arbitration agreement.
(5) The right to object is deemed to have given up only where the party proceeds with the arbitration proceedings without submitting to his objection.
(6) The party must have given up his known right, intentionally.
(7) The party is participating in arbitration proceedings without objecting to it. It is deemed that the party has waived his right to object.
The principle of waiver would not apply in arbitration proceedings in the following circumstances-
1. Where there is no arbitration agreement,
2. Where the arbitration agreement or arbitration clause in the contract is void or voidable,
3. Where a mandatory provision of law has been violated in the conduct of arbitration proceedings or making the award,
4. Where there is inherent in lack of jurisdiction it cannot be cured by acquiescence or waiver.
Q. 4 (a). To what extent the “judicial power” is restricted under the Arbitration and Conciliation Act, 1996.
Ans. Scope and extent of judicial intervention under the Act- The scope and extent of judicial intervention has been restricted under the new Arbitration and Conciliation Act, 1996. Section 5 of the Act provides that “notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part (Part 1), no judicial authority shall intervene except where so provided in this Part 1”.
The object of this section is to minimise the intervention of courts in arbitral process. It also seeks to prohibit the intervention of other judicial authority in arbitrable matter. This Act permits stay of legal proceedings but not the stay of arbitration proceedings and thus restricts the grant of interim injunctions in arbitral proceedings.
This provision is similar to the provision contained in Article 5 of the Model Law. According to this section the judicial authorities are not permitted to exercise their powers except as provided by Part I of the Arbitration and Conciliation Act, 1996. Thus, under the said Act (Section 5), the scope of judicial intervention in arbitration has been restricted However, it does not mean that the jurisdiction vested in the superior court established under the provisions of the Constitution of India have bees taken away. The new Arbitration Law makes provision for stay of legal proceedings but not stay of arbitration proceedings. Thus, ordinarily, no court can grant iniunction in arbitration proceedings. Therefore, supervisor role of the court had been restricted by incorporation of this section in the present Arbitration and Conciliation Act, 1996.
Now for the enforcement of the award, since it is equal to a decree, there is no need to obtain the order of the Court for the enforcement of an award.
Q. 4 (b). Whether the Judicial Authority is empowered to refer parties to Arbitration under their Arbitration Agreement? Discuss.
Ans. Power of a judicial authority to refer parties to arbitration. Under Section 8 (1) of the Arbitration and Conciliation Act, 1996-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, notwithstanding any judgment, decree or order of the Supreme Court or any Court refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists. [Amended by 2015 Amendment Act). The following provision has been added in sub-section 8(2)-
Provided that where the original arbitration agreement or a certified copy thereof is not available with the party applying for reference to arbitration under sub-section (1) and the said agreement or certified copy is retained by the other party to that agreement, then the party so applying shall file such application along with a copy of the arbitration agreement and a petition praying the Court to call upon the other party to produce the original arbitration agreement or its duly certified copy before that Court.
Thus, Section 8 gives a right to the claimant (plaintiff) or the defendant to apply to the judicial authority to make order for stay of judicial proceedings before presenting the first statement on the subject-matter of dispute. However, under an arbitration agreement the judicial authority will not be entertaining the stay application but would refer the parties to arbitration. But where the validity of an arbitration agreement is challenged, the judicial authority will have to satisfy itself about the validity of the agreement before granting the stay. Under Section 8 of the Act, one party may make request to the judicial authority to refer to other party to arbitration who is under arbitration agreement. According to the ruling of Supreme Court, before making judgment on an application for stay and reference to arbitration, the judicial authority has to satisfy itself that the following elements are present. –
(1) There is a valid arbitration agreement between the parties. [Bharat Seva Sansthan v. U.P. Electronic Corporation Ltd., AIR 2007 SC 2926]
(2) The disputes are arbitrable, which is lying before the judicial authority.
(3) One of the parties to the dispute, has instituted judicial proceeding.
(4) In case of defendant a written statement and in case of a plaintiff-a claim, as the first statement has not been the subject-matter of dispute.
[See Harvana Telecom Ltd. Sterlight Industries Ltd.. AIR 1999 SC 2354 and Tamil Nadu Electricity Division v. Samudhu and others, AlR 2000 SC 1603, for the above ruling of the Supreme Court.]
This last provision creates a right in the person bringing an action to have the dispute adjudicated by the court, once the other party has submitted his first statement or defence. But if the party who wants the matter to be referred to arbitration, applies to the court after submission of his statemen and the other party who has brought the action, does not object, there is no bar on the court referring the parties to the arbitration but if there is a valid agreement between the parties for solving their disputes through arbitration and this fact is brought before the Court the Court will refer the matter to arbitration, instead of deciding the matter itself.
Section 8 of the Act is in the form of legislative command to the Coun and once the requisite conditions are satisfied, the Court must refer the parties to arbitration.
Q. 4 (c). Whether the Court in India is empowered to issue interim injunction in Arbitration? Explain.
Ans. Interim measures etc. by the Court. Section 9 of the Arbitration and Conciliation Act, 1996 empowers the Indian courts to issue interim injunction/measures where arbitration takes place in India and application to this purpose is made to a court in India. According to this section, a party may before or during arbitration proceedings or at any time after the making of the arbitral award but before its enforcement under Section 36 of the Act, can make a request to court for issuance of interim measures/interim injunction. This is an enabling provision of the present Act, to obtain an interim measures either party to arbitration, may make an application to the court on the following grounds.-
(i) for the appointment of a guardian for a minor or a person of unsound mind for the purposes of arbitral proceedings, or
(ii) for an interim measures for the protection of any of the following matters, specifically-
(a) the preservation, interim custody stody or sale of any goods which are the subject-matter of the arbitration agreement,
(b) securing the amount in dispute in the arbitration,
(c) the detention, preservation or inspection of any property or thing which is the subject-matter of the dispute in arbitration, or as to which any question may arise therein and authorising for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party, or authorising any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence,
(d) interim injunction or the appointment of a receiver, or
(e) any other interim measures 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 relating to any proceedings before it.
Thus, the Act clearly describes that like any other proceedings the court may grant any appropriate interim measures specified in Section 9 on an application made by the party invoking this section.
Under Section 9 of the Act the court may grant interim measures at any stage of arbitration proceedings. However, where to grant interim measures as an interim injunction is the discretionary power of the court, the court may grant or refuse to grant interim measures. The remedy of interim measures is available to any of the party in arbitration proceeding. Under Section 9 of the Act, the court is not empowered to make suo-motu order.
Where before the commencement of the arbitral proceedings, a Court passes an order for any interim measure of protection under sub-section (1) of the Section 9, the arbitral proceedings shall be commenced within a period of 90 days from the date of such order or within such further period as the Court may determine.
Further, once the Arbitral Tribunal has been constituted, the court shall not entertain an application under Section 9(1) unless the Court finds that circumstances exist which may not render the remedy provided under Section 17 efficacious.
Section 9 of the Act does not permit a civil Court to entertain an application for any of the following-
(i) stay of arbitral proceedings;
(ii) challenge to existence or validity of arbitration agreement;
(iii) jurisdiction of arbitral Tribunal;
(iv) removal of arbitrator during the course of arbitral proceedings. [Bhatia International v. Bulk Trading S.A., AIR 2002 SC 1432]
Q. 5 (a). How the arbitrators are appointed? Whether their appointments can be challenged? Explain.
Ans. Appointment of arbitrators. Section 11 of the Arbitration and Conciliation Act, 1996, deals with the matter of appointment of arbitrators. Sub-section (1) of Section 11 ensures that a person of any nationality may be appointed as an arbitrator unless otherwise agreed by the parties.
An arbitrator or arbitrators are appointed according to the arbitration agreement made by the parties. Thus, an arbitrator or arbitrators may be appointed by the parties, or by arbitral institution or by designated authority.
Under Section 11 (2) of the Act, the parties are given freedom to appoint their own arbitrator by mutual agreement or arbitrators may be appointed by a third person designated to do so. This provision is subject to sub-section (6). The parties may also agree to appoint a sub-arbitrator. In case more than one arbitrator is appointed by the parties, arbitrators shall not be even in number.
In case either party fails to agree on the suggested arbitrator and the parties fail to appoint a third arbitrator within prescribed period of 30 days, in such situation.
Sub-section (3) of Section 11 lays down that failing any agreement on a procedure for appointing an arbitrator, 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.
Sub-section (3-A) (which is inserted in Section 11 by Arbitration and Conciliation (Amendment) Act, 2019) lays down-The Supreme Court and the High Court shall have the power to designate, arbitral institutions, from time to time, which have been graded by the Council under Section 43-1 for the purposes of this Act:
Provided that in respect of those High Court jurisdictions, where no graded arbitral institution are available, then, the Chief Justice of the concerned High Court may maintain a panel of arbitrators for discharging the functions and duties of arbitral institution and any reference to the arbitrator shall be deemed to be an arbitral institution for the purposes of this section and the arbitrator appointed by a party shall be entitled to such fee at the rate as specified in the Fourth Schedule:
Provided further that the Chief Justice of the concerned High Court may, from time to time, review the panel of arbitrators.
Sub-section (4) of Section 11 (as amended by the Arbitration and Conciliation (Amendment) Act, 2019) lays down, if the appointment procedure in sub-section (3) applies, and
(a) a party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party, or
(b) the two appointed arbitrators failed to agree on the third arbitrator within thirty days from the date of their appointment,
the appointment shall be made, on an application of the party, by the arbitral institution designated by the Supreme Court, in case of international commercial arbitration, or by the High Court, in case of arbitrations other than international commercial arbitration, as the case may be.
According to sub-section (5) of Section 11, 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 on an application of the party in accordance with the provisions contained in sub-section (4).
According to sub-section (6) of Section 11, 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, the appointment shall be made, on an application of the party, by the arbitral institution designated by the Supreme Court, in case of international commercial arbitration, or by the High Court, in case of arbitrations other than international commercial arbitration, as the case may be.
According to sub-section (6B), the designation of any person or institution by the Supreme Court or, as the case may be, the High Court, for the purposes of this section shall not be regarded as a delegation of judicial power by the Supreme Court or the High Court.
According to the amended sub-section (8), the aforesaid arbitral institution before appointing an arbitrator, shall seek a disclosure in writing from the prospective arbitrator in terms of sub-section (1) of Section 12, and have due regard to-
(a) any qualifications required for the arbitrator by the agreement of the parties; and
(b) the contents of the disclosure and other consideration as are likely to secure the appointment of an independent and impartial arbitrator.
Although, the Act does not prescribe any qualification or guidelines for appointment of arbitrator or third arbitrator, but he is required to have expertise and experience in arbitration.
Appointment of arbitrator according to the arbitration agreement is proper and not invalid unless allegation of bias is proved. [Executive Engineer v. Ganga Ram, AIR 1984 SC 234].
In Konkan Rly. Corporation Ltd. v. M/s. Mehul Construction Co., AIR 2000 SC 2821, the Supreme Court has held that Section 11 (6) aims to removing any dead-lock or in the process undue delay of appointment of arbitrator. Therefore, it is reasonable to hold that while discharging the functions under sub-section (6), the High Court or his nominee shall be acting in his administrative capacity.
Whether appointment of arbitrator can be challenged.- Section 12 (3) of the Arbitration and Conciliation Act, 1996, provides the circumstances under which appointment of arbitrator can be challenged-(1) where the circumstances exist that give rise to justifiable doubts as to arbitrator’s independence or impartiality, (2) the arbitrator does not possess the qualifications agreed to by the parties.
However, appointment of arbitrator cannot be challenged on flimsy grounds. There should be reasonable grounds to challenge the arbitrator. In Jiwan Kumar Lohia v. Durga Dutt Lohia, AIR 1992 SC 188, the Apex Court has ruled that “reasonable apprehension of bias in the mind of a reasonable man, can be a good ground for the termination of the mandate of an arbitrator”.
Under sub-clause (3) of Section 12, the appointment of an arbitrator can be challenged if the arbitrator does not fulfil the qualification agreed by the parties. It is because whether the dispute involved is of technical nature, special knowledge like science or technology or other branch of knowledge is necessary to arbitrate the matter.
When a person is approached regarding his possible appointment as an arbitrator, he shall disclose in writing any circumstances:-
(a) such as the existence either direct or indirect of any past or present relationship with or interest in any of the parties or in relation to the subject-matter matter of the dispute whether financial business, professional or other kind which is likely to give rise to justifiable doubts as to the independence or impartiality, and
(b) which are likely to affect his ability to devote sufficient time to the arbitration and to participate in entire procedure to complete within a period of 12 months.
Section 12 (4) of the Act provides estoppel against a party to challenge who had knowledge of justifiable doubts about the arbitrator’s independency or impartiality before the appointment. That party is not entitled to challenge the appointment of arbitrator later on. But if, the party becomes aware of it after the appointment, he is entitled to challenge the appointment of arbitrator under the Act.
Q. 5(b). Explain the meaning and scope of the expression ‘Kompetenz-Kompetenz’.
Ans. Meaning and scope of the expression ‘Kompetenz Kompetenz’-The doctrine of ‘Kompetenz – Kompetenz’ indicates that an arbitral Tribunal is empowered and has the competence to rule on its own jurisdiction including determining all jurisdictional issues, and the existence and validity of an arbitration agreement.
The underlying object of this doctrine is to minimize judicial intervention in order to ensure that the arbitral process is not thwarted at the very threshold, merely because a preliminary objection is raised by one of the parties.
Kompetenz-Kompetenz (i.e., competence-competence is a jurisprudential doctrine whereby a legal body such as an arbitral Tribunal may have competence or jurisdiction to rule as to the extent of its own competence on an issue before it.
The concept of Kompetenz-Kompetenz arose in the Federal Constitutional Court of Germany. Since then, Kompetenz-Kompetenz has often been important in international arbitration.
The Arbitration and Conciliation Act, 1996 recognises the principle of Kompetenz-Kompetenz. Section 16(1) of the Act lays down, “The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement………..”
In Uttarakhand Purv Sainik Kalyan Nigam Ltd. v. Northern Coal Field Ltd. (dated 27th Nov., 2019 in Special Leave Petition (C) No. 11476 of 2018), the Supreme Court relying on the doctrine of Kompetenz-Kompetenz enshrined in Section 16 of the Arbitration and Conciliation Act, 1996 and the legislative intent to restrict judicial intervention at pre-reference stage held that issue of limitation would be decided by an arbitrator. The Court reaffirmed that the legislative intent of the Arbitration Act is partly autonomy and minimal judicial interference in the arbitration process.
Q. 5 (c). Explain the circumstances when the mandate of an arbitrator can be terminated?
Or
What are the grounds on which the appointment of an arbitrator may be challenged?
Ans. Grounds on which appointment of an arbitrator may be challenged. Section 14 of the Arbitration and Conciliation Act, 1996, prescribes situations where the arbitrator’s power to make order, or in other words, the mandate of an arbitrator can be terminated. According to Section 14(1), the mandate of an arbitrator shall terminate and he shall be substituted by another arbitrator, if he is unable to perform his function de jure or de-facto, or for other reasons fails to act without undue delay; and if he withdraws from his office or the parties agree to the termination of his mandate. The arbitrator’s non-performance of his functions may be due to loss of nationality, death, accident, ill-health or withdrawal from his office.
According to sub-section (2) of Section 14, if there is controversy between the parties in regard with the arbitrator’s failure to perform his function without undue delay, the party is entitled to approach to the Court and to seek the decision of court in the matter, whether the arbitrator’s failure to perform his functions really exist or not? However, if the parties are willing to resolve such matter by mutual agreement then the parties need not seek the court’s intervention.
Literally, termination of mandate of an arbitrator means the termination of the arbitrator’s authority to arbitrate the dispute but not the termination of arbitration agreement or the reference to arbitration.
Thus, following may be the circumstances when the mandate of an arbitrator under Section 14 may be terminated,-
(1) if he becomes incapacitated to perform his functions by the Court’s order, or
(2) if he becomes incapable to perform his function as he leaves India to settle abroad, or
(3) if his office has been abolished, it would be deemed that the arbitrator is de-facto incapable to perform his duties or
(4) if he is unable to perform without undue delay, or
(5) if there is any controversy between the parties as regards the incapacity of the arbitrator.
These circumstances are to be decided by the court. In addition to aforesaid situations, the mandate of arbitrator shall also be terminated as provided under Section 15 (1) of the Act, if-
(A) the arbitrator withdraws from office for any reason, or
(B) by or pursuant to agreement of the parties.
In M/s. Eastern Mineral and Trading Agency v. Steel Authority of India Ltd., AIR 2000 SC 3579, the Supreme Court has held that it is inappropriate to stay the proceedings, if the arbitrator may go ahead with the proceedings and conclude it but will not sign the award, which shall be subject to the order to be passed by the Court in appeal which is pending.
Q. 5 (d) Can an arbitrator be-
(i) removed,
(ii) suspended,
(iii) substituted,
(iv) himself resign.
(1) Removal of an arbitrator.-(a) Where the agreed procedure of appointment of arbitrator has been violated and one of the parties has opposed it, the arbitrator may be removed-see Municipal Corporation of Greater Mumbai v. PWT Projects Ltd., AIR 2005 Bom. 198.
(b) Where there is allegation of partiality and the allegation stands proved.
(c) Where some de facto or de jure incapacity has crept in among the arbitrators/sole arbitrator.
This means when the arbitrator becomes incapable of performing his/her duty mentally or physically in that situation, he may be removed. An arbitrator becomes legally incapable when he becomes insolvent or is punished to a jail term or is appointed on such a post whereby it becomes not possible to act as an arbitrator as e.g. becomes guardian of a party or adorns some constitutional post or becomes a Governor or Ambassador.
According to Russel an arbitrator may be removed on the following reasons:-
(i) Where the arbitrator fails to exercise his power to act or misuses such power.
(ii) Where he is not dedicated to his assigned duty or fails to act bona fide.
(iii) Where he is devoid of necessary qualifications.
(iv) Where he is partial, lacks expertise required for, and/or fails to apply his skills.
(2) Suspension of an arbitrator.-An arbitrator may be suspended on the following grounds:-
Partiality in behaviour, use of power beyond limits or non use of given power, non-courteous behaviour which is indulged in continuously, making knowingly efforts to aid and cause benefit to one of the parties, non-hearing of the other party, deliberate causing of delay, change of place of hearing very frequently, are certain examples which may lead to the suspension of the arbitrator. In case of a sole arbitrator, the Court, otherwise the Arbitral Tribunal itself can cause the suspension of the arbitrator.
Now in Section 14 (1) the substitution of the arbitrator has been provided.
(3) Where an arbitrator can be substituted.- (a) When an arbitrator has died or has become incapable to work due to mental or physical incapacity or legal incapacity.
(b) Where the arbitrator is not active in using his power or he is misusing his power.
(c) He is causing unreasonable delay in making his award.
(d) There is suspicion on his loyalty to the task and is found guilty of partiality.
(e) He is devoid of necessary qualifications, expertise, skill needed for the resolution of the dispute.
(4) Where an arbitrator can voluntarily resign.- (i) Where there is no time to the arbitrator for performing the arbitral duty because of other important engagements.
(ii) When he lacks the expertise needed for the resolution of the dispute.
(iii) When he has been appointed as Ambassador or has been appointed on some other constitutional post whereby it is not possible for him to act as arbitrator also.
(iv) Where he himself finds incapacitated mentally or physically to act as an arbitrator.
(v) Where certain serious allegations have been made against him or his working.
(vi) When in the arbitral proceedings, his arguments and pleas are ignored without officially rejecting them.
(vii) Where he is treated as a Non-entity.
(viii) Where he realises or is forced to realise that because of him, the object of the arbitral proceedings are becoming a farce or failure.
Q. 5 (e). “The parties are free to determine the number of arbitrators”-Discuss.
Ans. Under Section 10 of the Arbitration and Conciliation Act, 1996, it has been provided “The parties are free to determine the number of arbitrators provided that such number shall not be an EVEN number”. As such parties can appoint any number of arbitrators keeping them in odd profile. The preference to an odd numbers of arbitrators is because of the convenience in decision making by majority and avoidance of loss of time which may be spent in establishing the true intention of the arbitrators where their number is even.
In MMTS Ltd. v. Sterlight (India) Pvt. Ltd., AIR 1997 SC 605, where there were two arbitrators i.e. even Number of arbitrators, the Supreme Court held that it will not be treated as an exclusive reason for holding the F arrangement as illegal i.e. there should be other reasons also to treat the arrangement as illegal, it is so, because, the Court held, that keeping of two arbitrators is a legal irregularity which can be rectified, hence the decisions taken by an Arbitral Tribunal consisting of two arbitrators shall not be invalid.
Failing an agreement between the parties regarding the appointment of arbitrator/arbitrators, each party shall appoint one arbitrator and so appointed two arbitrators shall appoint presiding arbitrator. In case a party fails to appoint an arbitrator within thirty days after the request of the other party or two appointed arbitrators fail to agree on the third arbitrator (presiding arbitrator) the appointment shall be made on an application of the party by the arbitral institution designated by the Supreme Court in case of international commercial arbitration or by the High Court in case of other arbitrations.
The provision of third arbitrator as “Umpire” as it was provided in the 1940 Act, is no more in existence, instead of that in the new Act, of 1996. the provision for Presiding Arbitrator has been made who shall be appointed as third arbitrator by the two arbitrators consisting of one each for the contesting two parties. The third arbitrator is appointed by the mutual consent of the two arbitrators representing each party.
Thus number of arbitrators may be one, three or more depending upon the free will of the parties. Number of two is permitted where there is statutory provision or parties insist on this number.
Q. 5 (f). Explain the definition of Arbitrator.
Or
Who is an arbitrator and how is he appointed?
Ans. Definition and appointment of arbitrator. The term Arbitrator has not been defined by the Arbitration and Conciliation Act of 1996. In the old Act of 1940 also it was not defined. English writers Russel and Lord Esher have, no doubt given definition of Arbitrator but those definitions stand in reference to English Law and practically fails to suit our Indian context of Arbitration and Conciliation proceedings.
The Arbitrator is the person or persons in whom parties to the dispute repose their full confidence and place before him/them the matter of dispute for getting solution to such a dispute for which the arbitrators are equipped with quasi-judicial power given to them by law. For exercising this quasi- judicial power, Arbitrators are presumed to act with utmost impartiality and honesty and without any bias towards any party of the dispute. Further, Arbitrators are expected to follow the principles of natural justice in their proceedings, to remain above the bound and to keep transparency, so that their delivery of Award may not be suspected and full justice not only in quantum but also it should be seen that justice has been done to both the parties and possibility of challenge of the Award reduced to the minimum. To decide the dispute, there may be a ‘solo-arbitrator’ that is ‘one arbitrator’ chosen by both the parties or there may be two or more arbitrators chosen equally by both the parties, and if the number of Arbitrators is ‘Even’, then a third arbitrator as ‘presiding Arbitrator’ chosen with the consent of both the parties.
For the age and qualification of Arbitrators, the Act of 1996 is silent. The minor arbitrator is not appointed to avoid legal consequences which may be unpleasant. No qualification of an arbitrator has been laid down in the Act. It is the discretion and needs of the parties, according to which the arbitrators are chosen and even in technical and hard matters, the choice of the parties is the final, because the parties know the competency of the arbitrators in whom they repose their confidence. For the appointment of arbitrators, the parties are authorized to appoint an arbitrator separately and as regards a third or supervisory arbitrator called as presiding arbitrator, they can appoint jointly with mutual consent of both the parties. There can be one arbitrator also who is appointed by the mutual consent of both the parties provided both the parties have confidence in him regarding his impartiality, honesty, transparency and capability of resolving the dispute in a just manner by giving justice to both the parties.
Failing an agreement between the parties with respect to appointment of arbitrator/arbitrators, each party has to appoint one arbitrator and the two appointed arbitrators shall appoint third arbitrator who will be presiding arbitrator. If a party fails to appoint an arbitrator within the stipulated time or two appointed arbitrators fail to agree on the third arbitrator, appointment shall be made on application of the party by the arbitral institution designated by the Supreme Court in case of international commercial arbitration or by the High Court in case of other arbitrations.
Q. 6 (a). How the substitution of an arbitrator is made? Explain.
Ans. Substitution of an arbitrator. Under sub-section (1) of Section 15 of the Act, it has been provided that in addition to the circumstances referred to in Section 13 or Section 14, the mandate of an arbitrator shall terminate:
(a) where he withdraws from office; or
(b) by or pursuant to the agreement of the parties,
sub-section (2) of Section 15 provides that where the mandate of an arbitrator terminates, a substitute arbitrator shall be appointed according to rules that were applicable to the appointment of the arbitrator being replaced.
According to Section 15 (3) any hearing previously held may be repeated at the discretion of the Arbitral Tribunal. Thus, this section provides discretionary power to substituted arbitrator to begin the proceedings from initial stage or from the stage where the previous arbitrator stopped the arbitration proceedings.
According to sub-section (4) of Section 15 despite change in the composition of the Arbitral Tribunal, the proceedings held before appointment of another arbitrator would not be invalid merely on the ground that the constitution of Arbitral Tribunal has been changed.
Thus, where the parties have no objection, the reconstituted Arbitral Tribunal has the discretionary power to repeat the proceedings or not to repeat.
In Atul R. Shah v. Vrijlal Lalklobhai and Co., AIR 1999 Bom. 67, it has been held that under Arbitration and Conciliation Act, 1996, no procedure has been fixed to be followed for the arbitrators. The Arbitral Tribunal may follow its own rules. But the procedure followed must be fair to enable the parties to put their cases. The members of the tribunal being experts, the award passed by them on merits, cannot be interfered with.
Q. 6 (b). Discuss the competence of Arbitral Tribunal to rule on its own jurisdiction.
Ans. Competence of Arbitral Tribunal to rule on its procedure.- The self-explanatory provisions of Section 16 of the Arbitration and Conciliation Act, 1996, provides the competence of Arbitral Tribunal to rule on its jurisdiction. This section provides as follows:
“(1) The Arbitral Tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose:
(a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract, and
(b) a decision by the Arbitral Tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.
(2) A plea that the Arbitral Tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of an arbitrator.
(3) A plea that the Arbitral Tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised, during the arbitral proceedings.
(4) The Arbitral Tribunal may, in either of the cases referred to in sub- section (2) or sub-section (3), admit a later plea if it considers the delay justified.
(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, it may continue with the arbitral proceedings and make an arbitral award.
(6) A party aggrieved by such arbitral award may make an application app for setting aside such an arbitral award in accordance with Section 34.”
Under the Arbitration Act, 1940 it was provided that in case the arbitration clause was contained in a contract which was null and void, the arbitration agreement would also be ipso facto, null and void. But Section 16 (1) (a) of the Arbitration and Conciliation Act, 1996 provides that an arbitration clause which forms part of a contract shall be treated as independent of the other terms of the contract and therefore, if the Arbitral Tribunal decides that the contract is null and void, it shall not render ipso facto the arbitration clause as invalid.
Absence of any concluded contract between the parties has no effect on the existence of a binding arbitration where the parties have irrevocably agreed to resolve all the disputes through arbitration. [Enercon (India) Ltd. v. Enercon GMBH and another, AIR 2014 SC 3152]
Obviously, the question of jurisdiction is a vital issue because in absence of ‘jurisdiction’, no arbitration proceedings can commence, and if commenced they shall be null and void. Whatever is beyond the jurisdiction of the Arbitral Tribunal, would also be beyond the scope of its authority but the converse is not true, that is, a matter beyond the scope of authority of the tribunal need not necessarily be outside its jurisdiction. Thus a matter in the dispute may be within the scope of authority of Arbitral Tribunal but if it is not subjected to reference, the tribunal shall not arbitrate over that particular matter.
The term, ‘jurisdiction’ signifies ‘the power to decide’. An irregularity or illegality in the procedure or in the pleadings, would not be covered by the expression, “jurisdiction”.-
Section 16 empowers the Arbitral Tribunal to decide the vires of its own jurisdiction, i.e., the scope of arbitration on the basis of arbitration agreement and the ‘reference’ made to it. The courts have no jurisdiction to adjudicate upon the question of Arbitral Tribunal’s jurisdiction.
Where the Arbitral Tribunal rejects the objection as to its jurisdiction, there is no provision for appeal against its decision. In that case, the Arbitral Tribunal will be well within the right to continue with the arbitral proceedings and make an award.
The Supreme Court in Jugal Kishore v. Vijayendra, AIR 1993 SC 864, inter alia, has observed that “Arbitrators have all the powers which the court itself had in deciding the issues in the suit…the law does not prevent the arbitrators from deciding questions of their own jurisdiction provisionally or tentatively and to proceed to make their award on that basis; though their decision would be subject to final determination by the court.”
Delay in challenging Arbitrator’s Jurisdiction.- Sub-section (2) of Section 16 provides that the objection as to ‘jurisdiction’ has to be raised not later than the submission of the statement of defence. But sub-section (4) empowers the Arbitral Tribunal to entertain the objection even after the submission of the statement of defence if in its view, the delay is justified. Delay in raising the objection as to arbitrability, i.e., arbitrator’s jurisdiction would normally amount to waiver of the right of challenge the jurisdiction. The case of Delhi Development Authority v. Chandra Kanta and Co., (1994) 2 Arb LR 187 (Del.) illustrates this point.
To sum up, it may be reiterated that Section 16 of the Act confers on the Arbitral Tribunal the power to rule on its own jurisdiction including ruling on any objections with respect to existence or scope of the arbitration agreement. The parties desirous of challenging the jurisdiction of Arbitral Tribunal shall raise the objection not later than submission of the statement of defence. Where it appears that Arbitral Tribunal is exceeding its scope of authority, as plea to this effect shall be raised as soon as the matter alleged to be beyond the scope of authority is raised during the arbitral proceedings, failing which it will be deemed that the party had waived his right to challenge and shall not be entertained at a subsequent stage.
Party aggrieved by such an arbitral award, may make an application for setting aside such an arbitral award in accordance with the relevant provisions of Section 34 of the Act.
Q. 6 (c). What are the interim measures ordered by Arbitral Tribunal?
Ans. Interim measures ordered by Arbitral Tribunal.-Section 17 of the Arbitration and Conciliation Act, 1996, provides in this context as follows. (1) A party may, during the arbitral proceedings apply to the arbitral tribunal :-
(i) for the appointment of a guardian for a minor or person of unsound mind for the purposes of arbitral proceedings; or
(ii) for an interim measure of protection in respect of any of the following matters, namely:-
(a) the preservation, interim custody or sale of any goods which are the subject-matter of the arbitration agreement;
(b) securing the amount in dispute in arbitration;
(c) the detention, preservation or inspection of any property or thing which is subject-matter of the dispute in arbitration, or as to which any question may arise therein and authorising for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party, or authorising any samples to be taken, or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence;
(d) interim injunction or the appointment of a receiver;
(e) such other interim measure of protection as may appear to the arbitral tribunal to be just and convenient;
and the arbitral tribunal shall have the same power for making orders, as the Court has for the purpose of, and in relation to, any proceedings before it.
(2) Subject to any orders passed in an appeal under Section 37, any order issued by the arbitral tribunal under this section shall be deemed to be an order of the Court for all purposes and shall be enforceable under the Code of Civil Procedure, 1908 (5 of 1908), in the same manner as if it were an order of the Court. [Section 17 as amended in 2015 and 2019]
This section enables the Arbitral Tribunal to order interim measures for the protection of the subject-matter of the dispute and also provides for appropriate security in respect of such a measure.
The provisions contained in this section (i.e., Section 17) are analogous to those contained in Section 9 of the Act. But so far as their effect is concerned, both differ in the following aspect:
(1) The court is empowered to make orders under Section 9 ‘before, during or after’ the tribunal proceedings but the Arbitral Tribunal can exercise its power to order interim measures only during the arbitral proceedings. Thus, Arbitral Tribunal’s power under Section 17 is far more restrictive.
(2) The court can exercise its power under Section 9 only when a party applies to it for an interim measure of protection. Though Arbitral Tribunal also makes an order of interim measure “at the request of a party as provided in sub-section (1) of the Section 17 any order issued by the arbitral tribunal under Section 17 would be deemed to be an order of the Court for all purposes and shall be enforceable in the same manner under Code of Civil Procedure, 1908. Such order is subject to any order passed in an appeal under Section 37.
The Arbitral Tribunal, ie., arbitrator/arbitrators did not have any power to order interim measures under the old Arbitration Act, 1940 and the courts alone had the powers to grant interim measures of protection. Therefore, the provisions of Section 17 of the Arbitration and Conciliation Act, 1996 are an innovation seeking to strengthen the position of Arbitral Tribunal in the matters of arbitration.
Under this section, the arbitrator can issue an order to stop a party from doing a particular thing for the protection of the subject-matter of the dispute under reference. Though such an order is in the nature of an ‘injunction’ but the use of the word ‘injunction’ in arbitral proceedings is deliberately avoided since the expression ‘injunction’ exclusively pertains to the domain of the court.
The order for interim measures made by Arbitral Tribunal under Section 17 are appealable under Section 37 (2) of the Act.
Q. 6 (d). Under what circumstances a Court can appoint and remove the arbitrator?
Ans. Appointment and removal of arbitrator by Arbitral Institution/Court-In case of Domestic Arbitration. When a party fails to accede the request of other party to appoint an arbitrator and 30 days are passed after the request without any result, the appointment shall be made, on an application of the party, by the arbitral institution designated by the Supreme Court, in case of international commercial arbitration, or by the High Court, in case of other arbitrations. [Section 11(4) as substituted by Arbitration and Conciliation (Amendment) Act, 2019]
In case of Foreign or International Arbitration or Foreign Commercial Arbitration.
In case, 30 days have passed without the appointment of the arbitrator by the required party to do so, the appointment shall be made, on an application of the party, by the arbitral institution designated by the Supreme Court in case of international commercial arbitration [Section 11(4) as amended in 2019]. Failing any agreement between the parties on a procedure for appointing arbitrator in an arbitration with a sole arbitrator, if the parties fail to agree on the arbitrator within thirty days from the request received from the other party, the appointment shall be made by the arbitral institution [Section 11(5) as amended in 20191. The arbitral institution before appointing an arbitrator, shall seek a disclosure in writing from the prospective arbitrator in terms of Section 12(1) and have due regard to-
(a) any qualifications required for the arbitrator by the agreement of the parties; and
(b) the contents of the disclosure and other considerations as are likely to secure the appointment of an independent and impartial arbitrator. [Section 11(8) as amended in 2019]
Removal of an arbitrator.- Removal of an arbitrator by a Court, implies a High Court having an original civil jurisdiction, duly applicable to the matter in hand.
The grounds for removal of the arbitrator by the concerned High Court may be narrated as follows:
(1) Where the authority accorded to the arbitrator/s as per arbitration agreement is either misused or not used or overused.
(2) As per Section 12 (1), the likely appointed arbitrator is required to give in writing before his actual appointment regarding the circumstances likely to give rise to justifiable doubts as to his independence and/or impartiality and the likely arbitrator gives false declaration and is found to be interested himself in the disputed property or other subject-matters of the dispute existing between the parties.
(3) Mis-behaviour, non-integrity insincerity committed on the part of the arbitrator/s.
(4) Incompetence due to lack of requisite qualification.
(5) Physical incapacity which came after the arbitrator/s have functioned as such and the incapacity is such which may affect the competency of the arbitrator/s.
(6) Other matters of special nature and circumstances hitting the independence, impartiality, expertise and sincerity of the arbitrator/s.
Mere fact that the arbitrator is an employee of one of the parties to the dispute is not a sufficient ground to show that he must necessarily be biased. [International Airport Authority of India v. K.D. Bali, AIR 1988 SC 10991
The challenge of the arbitrator/s should not be postponed for initiating an action under Section 34 to get the award itself cancelled, rather the challenge of appointment of arbitrator/s should be instantaneous, if any incriminative information about the arbitrator/s comes to the knowledge of the parties. [See M/s. Kitku Imports Trade v. Savitri Metal Ltd., (1998) 100 (3) Bom LR 831.]
Q. 6(e). Write short notes on arbitrability.
Ans. Arbitrability.-Arbitrability can be found in UNCITRAL MODEL LAW, which permits the courts of the seat to set aside an arbitral award on the ground that the subject-matter of the dispute is not capable of resolution under the law of the State.
The term arbitrability has different meaning in different contexts. The three facets of arbitrability relating to the jurisdiction of the arbitral Tribunal are as under-
(i) Whether the disputes are capable of adjudication and settlement by arbitration?
That is, whether the disputes, having regard to their nature, could be resolved by a private forum chosen by the parties (the arbitral Tribunal) or whether they would exclusively fall within the domain of public fora (courts).
(ii) Whether the disputes are covered by the arbitration agreement?
That is, whether the disputes are enumerated or described in the arbitration agreement as the matter to be decided by the arbitration or whether the disputes fall under the ‘excepted matters’ excluded from the purview of the arbitration agreement.
(iii) Whether the parties have referred the dispute to arbitration.
Q. 7 (a). Discuss whether the arbitrator is bound to treat the parties on equal footing.
Or
Arbitrator should not discriminate between the parties.
Ans. Equal treatment of parties. Section 18 of the Arbitration and Conciliation Act, 1996 provides that “the parties shall be treated with equality and each party shall be given a full opportunity to present his case”.
This section provides that arbitrators are supposed to perform their functions honestly and impartially. They should provide equal opportunity to the parties to present their case without taking sides. Thus, they have to follow the principles of natural justice in dispensation of justice and no partiality can be done by the arbitrator through arbitral proceedings. The necessity of expressly making a provision regarding equal treatment of parties in Section 18 of the Act was felt because it is quite likely that the arbitrators appointed by individual parties may be favourably inclined to the party appointing them. Therefore, this section provides that no arbitrator should identify himself with the interest of a particular party merely because of the reason that he was appointed by that party.
Emphasising the need for just and fair treatment of parties by arbitrators, Russel observed, “Once the arbitrators enter into a ‘reference they virtually become judges’ in the ’cause’ and must act impartially… They must observe in their proceedings the ordinary rules of administration of justice.”
The Supreme Court in International Airport Authority of India v. K.D. Bali, AIR 1988 SC 1099, observed that “once the arbitrator enters in an arbitration, he must not be guilty of any act which can be construed as indicative of partiality or unfairness”.
While conducting the arbitral proceedings, the arbitrator must extend equal opportunity to both the parties to present their ’cause’. As far as possible he should not examine one party in the absence of another. The parties should be given proper notice of hearing and each party must be given a chance to put up his case. If it is found that the arbitral proceedings were unfair, unreasonable, arbitrary or violative of principles of natural justice, the decision of the arbitrator itself becomes questionable and his award is likely to be set aside.
The fundamental juristic principle of Indian law contained in the maxim audi alteram partem is enshrined in Section 18 of the Arbitration and Conciliation Act, 1996. [Associate Builders v. D.D.A., AIR 2015 SC 620]
It is one of the cardinal principles of natural justice that no person should be condemned unheard, he should be given reasonable opportunity of presenting his case and the authority should act fairly, justly and impartially. If a party needs the help of a counsel or an advocate represents his case, the arbitrator should permit him to do so.
In C.B. Gautam v. Union of India, (1993) 199 ITR 530 (SC), the Supreme Court has observed. “The doctrine of natural justice pervades the procedural law of arbitration. Its observance is the pragmatic requirement of fair play in action.”
In A. K. Kraipak v. Union of India, AIR 1970 SC 170, the Supreme Court has widened the ambit and scope of principles of natural justice and now a Judge or arbitrator has (1) to act fairly without bias in a dispassionate manner; (2) to give proper hearing to the parties and opportunity to contradict the case of the opponent; (3) not to hear one side or accept evidence behind the back of the other party; and finally (4) it must state reasons in the award. [Asbestor Cement Co. v. P.N. Sharma, AIR 1965 SC 15951.
The Arbitral Tribunal should avoid to act on personal knowledge and must derive its conclusions and findings on documents and evidence submitted before it by the parties. [K.P. Poulose v. State of Kerala, (1975) 2 SCC 236].
Section 18 embodies basic principles of natural justice including within it, the following minimum requirements-
(i) Each party to arbitration should have notice of date, time and place of hearing sufficiently in advance,
(ii) Parties should be given reasonable opportunity to present their case,
(iii) Each party must be supplied with relevant statements, documents and evidence adduced by the other side,
(iv) Each party must be given reasonable opportunity to cross-examine the witnesses,
(v) The Arbitral Tribunal should not hear the witness/evidence in absence of parties unless parties have otherwise chosen to remain absent after proper notice.
Q. 7 (b). Discuss that “arbitral tribunal” is free to determine its rules of procedure.
Ans. Determination of rules of procedure. Section 19 of the Arbitration and Conciliation Act, 1996, provides in this context as follows-
(1) The Arbitral Tribunal shall not be bound by the Code of Civil Procedure, 1908 (5 of 1908) or the Indian Evidence Act, 1872 (1 of 1872).
(2) Subject to this Part (i.e., Part I), the parties are free to agree on the procedure to be followed by the Arbitral Tribunal in conducting its proceedings.
(3) Failing any agreement referred to in sub-section (2), the Arbitral Tribunal may, subject to this Part, conduct the proceedings in the manner it considers appropriate.
(4) The power of the Arbitral Tribunal under sub-section (3) includes the power to determine the admissibility, relevance, materiality and weight of any evidence.”
This section provides that Arbitral Tribunal is not bound to follow the procedure contained in the Code of Civil Procedure, 1908, or the Indian Evidence Act, 1872. It is so for two obvious reasons. Firstly, the arbitrator being the creation of an agreement, he is supposed to follow the procedure prescribed by the agreement under which he has been appointed by the parties. Where no procedure has been prescribed by the agreement, he (arbitrator) may conduct the proceedings in a manner he thinks appropriate. Secondly, the Code of Civil Procedure applies only to judicial proceedings in courts. The proceedings before the arbitrator are not judicial proceedings in a court but are of a quasi-judicial nature. Therefore, the arbitrator is not bound by the procedure of the Code of Civil Procedure or the Evidence Act. The purpose of freeing Arbitral Tribunal from the bondage of rules of Civil Procedure and evidence is to get rid of technicalities and rigours of law. Arbitrators are not bound by all judicial formalities or strict rules of procedural law. They may decide ex aequo et bono, i.e., make use of their own knowledge in taking decisions but they must not ignore the fundamental principles of natural justice in conducting the arbitration proceedings. [Govind v. Bhure Lal, (1994) 2 Arb LR 103 (MP)].
The Supreme Court in R. Mc Dill and Co. v. Gauri Shankar, (1991) Arb LR 290 SC, observed that the provisions of Code of Civil Procedure must not be applied in arbitration proceedings where mere procedure is likely to hinder speedy justice, but there should be no hesitation to invoke them if they may be helpful in rendering justice.
Where Arbitration is administered by a Permanent Arbitral Institution. In cases where the parties agree to submit to arbitration by a permanent arbitral institution, the arbitral proceedings are governed by the rules of that institution and they become a part of the arbitration clause by implication as provided by Section 2 (8) of the Arbitration and Conciliation Act, 1996. Thus where the parties have agreed to submit to arbitration by the International Chamber of Commerce (ICC), they shall be deemed to have submitted ipso facto to the rules of that Arbitral Institution (i.e.. ICC).
Admissibility of Evidence. An arbitrator is not tied down by the rules of procedure and evidence like a Judge of a Civil Court. This contention finds support from the Supreme Court’s decision in Kalyan Corporation v. Dulhim Bibi, AIR 1996 SC 1072, wherein it was held that “the question of mode of proof is a question of procedure and is capable of being waived; and therefore, evidence taken in a previous judicial proceeding can be admissible in a subsequent proceeding by consent of parties.” However, the arbitrator is supposed to act honestly in deciding as to the admissibility of the evidence tendered before him. But an arbitrator has no right to call a witness himself without the consent of the parties. If he does so, it shall vitiate the award. A mistaken refusal by arbitrator to hear evidence on matters within arbitral reference will amount to gross omission and, therefore, it will invalidate the proceedings and the award.
In substance, it may be concluded that Arbitral Tribunal is not bound by the procedure set out by Order XXIII, Rule 3 of Code of Civil Procedure. It is for the parties to agree on a procedure and if the parties are silent, then the arbitrator has to prescribe the procedure but the procedure so prescribed should be in consonance with the principles of natural justice. The Tribunal is free to evaluate the evidence and documents placed before it for its admissibility and relevance. It may seek the presence of a witness through the Court.
Similarly, though the rules of evidence do not apply to arbitration proceedings, the documents produced by the parties before the tribunal have to be proved unless admitted. Objections, if any, as to admissibility or relevance must be taken when the documents are taken on record otherwise they would be deemed to have been waived.
Q. 7 (c). Whether the consent of both parties is necessary for commencing arbitral proceedings? Discuss.
Ans. Commencement of arbitral proceedings. Section 21 of the Arbitration and Conciliation Act, 1996, deals with the commencements of arbitral proceedings. This section provides that 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. Thus, if the arbitrator or arbitration institution has been named under an existing arbitration, with agreement between the parties, there is no necessity for the one party to seek the consent from the other party to commence arbitral proceedings. An arbitration proceedings can be commenced on reference made by one party with the purpose to resolve the dispute by arbitration. In such situation there is no need to make request to the other party to give its consent in this regard. The date of commencement of the arbitration proceedings shall be counted from the date on which the request to refer the particular dispute to arbitration is received by the respondent, i.e., date of receipt of request by the respondent that the particular dispute be referred to arbitration for settlement.
In fact, compliance of the provision prescribed under Section 21 of the Act becomes mandatory in case the arbitrator or arbitrators are not specified in the arbitration agreement itself and the parties have not yet nominated the arbitrator. In such situation, a party who is taking initiative to resolve the particular dispute by way of arbitration, has to make special request to the other party expressing his intention to take the recourse of arbitration for setting the particular dispute. The date of commencement of the arbitration proceedings shall be counted from the date the request is received by the respondent.
Section 21 provides that arbitral proceedings in respect of a particular dispute shall commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent. It is therefore clear that the date of commencement of arbitral proceedings does not relate to arbitrator’s entering upon the reference or having been called upon to act as arbitrator but on “receipt of request by the respondent” that the dispute be referred to arbitration for settlement.
The Apex Court in Bhusawal Municipality v. Amalgamated Electric Co., AIR 1966 SC 1654-has held that only one party is entitled to make reference to the dispute to the arbitration specially where there is an existing arbitration agreement between the parties that the dispute is to be referred to arbitration. Thus, to refer the dispute for arbitration the consent of the other party is not necessary to commence arbitral proceedings where there is already an arbitration agreement in this respect. Therefore, there can be an unilateral or a bilateral reference to arbitration. The Apex Court has reassumed this provision in Bhanwarilal v. P.C. Agarwal, AIR 1985 SC 1003, The Court has given rulings that in case there is an agreement of arbitration between the parties under Section 2 (a) of the Arbitration and Conciliation Act, then a reference can be unilateral and the date of commencement of arbitral proceedings shall be counted from the date of a formal request made by a party to the respondent/opposite party.
Now, it can be said that the present Arbitration and Conciliation Act, 1996, does not state that for commencement of arbitral proceedings the request of reference has to be bilateral. Thus, if there is an arbitration agreement between the parties, the reference of dispute to arbitration can be made by one party straightway without seeking prior consent of the other party.
In State of Goa v. Praveen Enterprises, AIR 2011 SC 3814, the Supreme Court carved out an exception to the provision contained in Section 21 of the Act, which relates to saving the limitation for filing counter-claim. If a respondent against whom a claim has been made satisfies the twin test, namely, he had made a claim against the claimant and sought arbitration by serving a notice to the claimant.
Q. 7 (d). In what circumstances an “ex-parte awards” can be made? Whether it can be enforced? Discuss.
Ans. Circumstances regarding ex-parte awards. Section 25 (a) of the Arbitration and Conciliation Act, 1996, empowers the Arbitral Tribunal to dismiss the claims for default and to terminate the arbitral proceedings, i.e., when the claimant fails to communicate his statement of claim in accordance with Section 23 (1) of the Act. However, Section 25 (b) provides that where the respondent fails to communicate his statement of defence in accordance with Section 23 (1) of the Act, the Arbitral Tribunal shall continue the proceedings without treating that failure in itself as an admission of the allegations by the claimant.
It may, however, be noted that once the dispute is referred to Arbitral Tribunal even in default committed by the parties the Arbitral Tribunal may continue the proceedings and under Section 25 (c) the Arbitral Tribunal is empowered to make an arbitral award on the basis of evidence before it. In case the claimant himself commits default and fails to submit his statement of claims as required, then there is nothing to arbitrate. Therefore, the Arbitral Tribunal shall terminate the proceedings and shall have the discretion to treat the right of the respondent to file such statement of defence as having been forfeited.
The Arbitral Tribunal before commencing an ex-parte proceedings has to make sure that the respondent has been intimated about the date, time and place of arbitration proceedings, hearing and also the respondent has been warned in respect of the Arbitral Tribunal’s intention that it may proceed ex parte if he does not submit his statement of defence or does not reply to the notices. In Indian Iron and Steel Co. v. Satna Stones, 1991 (1) Arb. L.R. 208 SC, the Supreme Court has lield that an ex parte award is liable to be set aside which has been made without giving sufficient notice and pre- warning to the respondents. An appeal, however would lie against such an ex-parte award. The Court has further held that the power in respect of ex parte hearing should be exercised with great caution. It is not an inflexible rule of law that the arbitrator shall hear and make the award ex parte, merely because notice to that effect has been given.
However, where the Arbitral Tribunal is fully satisfied that the defaulting party is not willing to contest and disprove the claims of the claimant, in such situation Arbitral Tribunal can proceed ex-parte. In Motor and General Finance v. Sahdeo Singh, 1992 (2) Arb. L.R. 454, where the claimant had submitted all relevant documents in support of his claims, the Arbitral Tribunal had given several notices to the respondent and also allowed number of adjournment with the view to give sufficient opportunity to the respondent to submit his statement of defence. But the respondent did not reply to the notices. Thereupon, Arbitral Tribunal made an arbitral award which was subsequently challenged before the Court. The Court after examining the documents and testimony submitted by the claimant has held that such an ex parte award cannot be set aside which is based on the principles of natural justice.
Thus, an ex-parte award is enforceable and not liable to be set aside by the Court if the Arbitral Tribunal has complied with the principles of natural justice by giving proper and sufficient opportunity to the parties specifically to the respondent to revert the claims presented by the claimant and sufficient time to present his statement of defence. Thus Section 25 of the Act contains innovative provisions which empower the arbitral Tribunal to dismiss for default of the claimant on his failure to submit the statement of claim within time as prescribed in Section 23 (1).
However, in a case where the claimant has failed to file a ‘statement of claim’ within the stipulated time and has also failed to show cause before an order of termination of proceedings is passed, the claimant would be entitled to show cause subsequent to the termination. There is no lack of jurisdiction in the Arbitral Tribunal to recall its earlier order of termination of proceedings on sufficient cause being shown. [SREI Infrastructure Finance Ltd. v. Tuff Drilling (P) Ltd., (2018) 11 SCC 470]
Q. 8 (a). Discuss the rules applicable to substance of dispute.
Ans. Rules applicable to substance of dispute. Section 28 of the Arbitration and Conciliation Act, 1996, deals with the rules applicable to substance of dispute, which are as follows:
(1) Where the place of arbitration is situate in India-
(a) in an arbitration other than an international commercial arbitration, the Arbitral Tribunal shall decide the dispute submitted to arbitration in accordance with the substantive law for the time being in force in India;
(b) in international commercial arbitration:
(i) the Arbitral Tribunal shall decide the dispute in accordance with the rules of law designated by the parties as applicable to the substance of the dispute;
(ii) any designation by the parties of the law or legal system of a given country shall be construed, unless otherwise, expressed, as directly referring to the substantive law of that country and not to its conflict of laws rules;
(iii) failing any designation of the law under Clause (a) by the parties, the Arbitral Tribunal shall apply the rules of law it considers to be appropriate given all the circumstances surrounding the dispute.
(2) The Arbitral Tribunal shall decide ex acquo et bono or as amicable compositeur only if the parties have expressly authorised it to do so.
(3) While deciding and making an award, the arbitral tribunal shall, in all cases, take into account the terms of the contract and trade usages applicable to the transaction.
It may be noted that Section 28 of the Arbitration and Conciliation Act, 1996, lays down the rules applicable to the substance of the dispute. This section allows the parties to see for themselves which procedural law is to be adopted by the arbitrators for the conduct of arbitration proceedings. It is left to them to determine the procedural law of any country even though it may be of the nationality other than that of either of the parties to the arbitration. In case the parties fail to decide the procedure, it will be left to the discretion of Arbitral Tribunal to adopt the alternative law for the conduct of arbitration proceedings. While determining the procedural law, the Arbitral Tribunal will look into all the circumstances of the dispute.
According to Section 28(1)(a) it is mandatory for the arbitral tribunal to decide the dispute according to substantive law of India in an arbitration other than international commercial arbitration. [Oil & Natural Gas Corporation Ltd. v. SAW Pipes Ltd., AIR 2003 SC 2706]
In Gas Authority of India Ltd. v. SPIE CAPAG, S.A., (1994) 1 Arb. L.R. 431 (Del.) the Delhi High Court has held that where the choice of applicability of law to arbitration is not expressly stated in the agreement, the intention of the parties must be gathered from the agreement itself, having regard to other aspects of the contract which may serve as a link between the contract and the country with which it is most closely and vitally connected. This may include considerations as to:
(i) the place where the agreement has been entered into (lex loci); (ii) the place where the contract has been performed; and (iii) the place, i.e., the forum where the dispute has been resolved (lex fori): The Court has further held that where there is an express choice made by the parties regarding the application of the proper law, the agreement will be governed by that law.
In its final judgment the Delhi High Court observed that “There should be no hesitation in holding that the law of India being the proper law of the contract in this case, would govern all the matters under the contract in question including: (a) the arbitration agreement, (b) the arbitration proceedings arising therefrom, and (c) the question of existence, validity, effect (scope) and interpretation of the arbitration clause”.
Q.8 (b). What are the provisions of decision-making by panels of arbitrators under the Arbitration and Conciliation Act, 1996?
Ans. Decision making by Panels of Arbitrators. Section 29 of the Arbitration and Conciliation Act, 1996, provides in this context as follows:
(1) Unless otherwise agreed by the parties, in arbitration proceedings with more than one arbitrator, any decision of the Arbitral Tribunal shall be made by a majority of all its members.
(2) Notwithstanding sub-section (1), if authorised by the parties or all the members of the Arbitral Tribunal, questions of procedure may be decided by the presiding arbitrator.
According to this section, where the number of arbitrators is more than one, the decision shall be taken by the majority unless the parties to arbitration agreement agree that the decision shall be unanimous.
It is not essential that the decision-making by the arbitrators may take place at one place. They can send their decisions through tele- communication. According to sub-section (2) of Section 29, if authorised by the parties or all the members of the Arbitral Tribunal, questions of procedure may be decided by the presiding arbitrator. This provision has been made in order to expedite the arbitral proceedings in more effective way.
Section 29-A as amended in 2019 provides-
(1) The award in the matters other than international commercial arbitration shall be made by the arbitral tribunal within a period of twelve months from the date of completion of proceedings under sub-section (4) of Section 23:
Provided that the award in the matter of international commercial arbitration may be made as expeditiously as possible and endeavour may be made to dispose of the matter within a period of twelve months from the date of completion of pleadings under sub-section (4) of Section 23.
(2) If the award is made within 6 months from the date of reference, the arbitral tribunal shall be entitled to receive additional fees as the parties may agree.
(3) The parties by consent may extend the period for making award not exceeding for 6 months.
(4) If the award is not made within 12 months or extended period within 18 months, then the mandate of the arbitrators shall terminate unless the Courts has either prior to or after the expiry of the period so specified including extended period, extend such period.
Provided that while extending the period, if the Court finds that the proceedings have been delayed for the reasons attributable to the arbitral tribunal, then it may order reduction of fees of arbitrator(s) by not exceeding 5% for each month of such delay.
Provided further that where an application under sub-section (5) is pending, the mandate of the arbitrator shall continue till the disposal of the said application: [Proviso added in 2019]
Provided also that the arbitrator shall be given an opportunity of being heard before the fees is reduced.
The extension of period may be granted on application of any of the parties for a sufficient cause and on such terms and conditions as the Court may impose.
The Court may substitute arbitrators under this arrangement and application for extension of time has to be disposed of within 60 days.
Q. 8 (c). Discuss the powers of Arbitral Tribunal to use mediation and conciliation as modes of settlement of dispute.
Ans. Section 30 of Arbitration and Conciliation Act provides in this context as follows:
“(1) It is not incompatible with an arbitration agreement for an Arbitral Tribunal to encourage settlement of the dispute and with the agreement of the parties, the Arbitral Tribunal may use mediation, conciliation or other procedures at any time during the arbitral proceedings to encourage settlement.
(2) If, during arbitral proceedings, the parties settle the dispute, the Arbitral Tribunal shall terminate the proceedings and, if requested by the parties and not objected to by the Arbitral Tribunal, record the settlement in the form of an arbitral award on agreed terms.
(3) An arbitral award on agreed terms shall be made in accordance with Section 31 and shall state that it is an arbitral award.
(4) An arbitral award on agreed terms shall have the same status and effect as any other arbitral award on the substance of the dispute.”
This section confers on the Arbitral Tribunal the authority to encourage settlement of disputes with the agreement of parties and for this purpose, it authorises the tribunal to use mediation, conciliation or other procedures during the arbitral proceedings for settlement of disputes. Where the settlement is reached during the course of arbitral proceedings, the arbitral award shall be made on the agreed terms and it shall have the same status as an arbitration award on the substance of the dispute or the difference.
Though Section 61 of the present Arbitration and Conciliation Act, 1996 provides for conciliation as an independent method of settlement of disputes arising out of legal relationship, whether contractual or not, this section, i.e., Section 30 permits the use of conciliation or mediation during the arbitral proceedings.
While mediating, the arbitrator would try to help the parties to the dispute in reaching a mutually agreeable solution. In case of conciliation, the arbitrator tries to settle the dispute himself informally and in a friendly manner and if agreed to by the parties, shall record it in the form of an arbitral award.
Sub-section (4) specifically provides the final settlement by the arbitrator/arbitrators even though reached through the process of conciliation shall have the same status and effect as that of an arbitral award so far its validity, finality and enforcement is concerned. This provision is covered under exception as laid down under Section 31 (3) (b) which states that an arbitral award shall state the reasons upon which it is based unless it is an award reached on the basis of settlement through conciliation during the arbitral proceeding. This observation was made by the Supreme Court in Munshi Ram v. Bhanwari Lal, AIR 1962 SC 903.
The arbitrator can make use of measures such as mediation or conciliation for settlement of disputes only with the consent and agreement of the parties. So also the Arbitral Tribunal will record the settlement reached through conciliation in the form of an ‘arbitral award’ only if requested by the parties and agreed by the arbitrator or arbitrators, as the case may be. It must, however, be pointed out that a compromise reached between the parties cannot be treated as award by itself unless the Arbitral Tribunal makes an award on the basis of that compromise. If only some of the disputes are settled through a compromise between the parties, the Arbitral Tribunal shall have the jurisdiction to decide the remaining disputes and make an award in respect of them.
Supreme Court’s Power to enforce Settlement
The Supreme Court in its decision in Virendra Swarup v. Krishna Swarup, (1994) 2 Arb. LR 139 (SC), exercised its power under Article 142 of the Constitution and made an order on a family dispute under arbitration to in the interest of justice. The facts of the case in brief were as follows:
There was a family settlement over a dispute relating to the affairs of Emery (India) Pvt. Ltd. Company between one V and K who were brother-in-laws. The dispute was referred to F, the father of V, who acted as a sole arbitrator as per the arbitration clause incorporated by mutual agreement of V and K. The dispute was resolved by F whose decision was accepted by both V and K. However, when the dispute arose again and referred to F as sole arbitrator, K became suspicious of F’s impartiality in the arbitration proceedings and charged F with favouritism towards his son V. Therefore, F’s appointment as arbitrator was terminated and an application was moved by K in the High Court under the old Arbitration Act, 1940. The High Court rejected the application being misconceived, hence this appeal to the Supreme Court.
Yet another application was filed by K in a Civil Court for removal of Fas arbitrator and for stay of arbitral proceedings and twelve days after this application, K filed a suit for a decree of Rs. 7.35 lakh against V, in which the Court passed an order of interim attachment of Company’s properties on the same day. These orders were referred to the Supreme Court where the appeal was pending. The Supreme Court directed the Civil Court that K’s application for removal of F as arbitrator be disposed of within twenty-one days. It was after the second order of the Supreme Court that the said Civil Court decided only after ten years that it had no jurisdiction to decide K’s application regarding removal of F. Thereupon, the Supreme Court expressed a view that it was not desirable to keep the dispute between these two close relatives lingering for years and therefore, it passed a decree under Article 142 of the Constitution of Rs. 5 lakhs in favour of K in the interest of justice and directed that K should also be paid an interest at the rate of 9% for the preceding eleven years till the amount was paid.
Settlement Reached During Arbitral Proceedings
If the parties have reached a settlement during the arbitral proceedings, the Arbitral Tribunal shall terminate the arbitral proceedings and shall record the settlement in the form of an award in accordance with Section 31 of the Act, if it is so desired by the parties by a written request. However if the settlement is reached between the parties but not recorded in the form of an arbitral award, it would be treated like a ‘settlement agreement’ as provided under Section 73 of the Arbitration and Conciliation Act, 1996. The only difference is that a settlement agreement under Section 73 is formulated by a conciliator whereas a settlement agreement reached between the parties during arbitration proceedings is formulated by the arbitrator. Such a settlement should also be distinguished from a settlement which is reached between the parties after the award is made.
Q. 9 (a). Distinguish between Interim Award and Domestic Award.
Ans. An interim award may be made in case of, need and for dispensation of justice to save the parties from irreparable losses. It can be made in case of domestic as well as in case of Foreign awards also. It shows and contains some interim measures which are amalgamated and accounted for while making final award.
The Domestic Award relates to the arbitration proceedings which are confined within the country and there is no foreign element involved in it to make it a foreign arbitration. In Domestic Award, in case of India, the law applicable in India shall be applied for reaching the decision and solution of the dispute. In Foreign award the law of other countries as per choice and mutual consent of the parties may be applied.
Q. 9 (b). Discuss “Award by Mutual Settlement” and its effect.
Ans. The present Arbitration and Conciliation Act, 1996 provides for settlement of dispute by mutual agreement of parties during the arbitration proceedings. If the parties so desire, the agreement so reached may be recorded in the form of an arbitral award. Thereafter, the arbitration proceedings will terminate. But where only a part of dispute has been settled by mutual agreement of the parties, the reference in respect of the unsettled disputes would continue to be arbitrated unhindered.
Effect of the Award. An arbitral award is binding on the parties a regards the matters referred to and decided by the Arbitral Tribunal. Bu strangers to the arbitration agreement will not be bound by the terms of the award. In this context Russell in his classic work on ‘Arbitration’ hat observed that, “Arbitral award” shall be final and binding on the parties and persons claiming under them respectively. An arbitral award can be a valid piece of conclusive evidence of the facts stated in it as between the parties to the arbitration.
Q. 9 (c). What are the essential attributes of a valid award? Should it be reasoned?
Ans. Essential attributes of a valid award. Under Section 2 (1)(c), Arbitration Award includes an interim award. This section does no define the arbitral award. Generally an arbitral award is an award, i.e., the decision given by the Arbitral Tribunal whose members are chosen by the parties and it includes interim award. The Arbitral Tribunal comes into being where there is a contract for arbitration among the parties.
Form and Contents of Arbitral Award. Section 31 provides for the contents, format and other related things for the award to make it valid The provisions in brief are as follows:-
(1) The award should be in writing and should bear signature of the members of Arbitral Tribunal.
(2) Where the award is signed by the majority of the arbitrators, the award would be treated as signed but there should be narration as to why certain arbitrators have not signed.
(3) If the award is the outcome of agreement between the parties, then the basis of the award need not be given.
(4) It is essential that award should contain the date and place where it was executed.
(5) The copy of the signed award should be given to each party of the arbitration.
(6) The interim award can be arrived at any stage of the arbitral proceedings and in case it becomes the final award due to situation and satisfaction of parties, it may become the final award.
(7) Where there is no otherwise consent or agreement between the parties and the award is in context to payment of money, this payment may include the content of interest. Where a sum is directed to be paid by an arbitral award unless the award otherwise directs, it will carry interest @ 2% higher than the current rate of interest prevalent on the date of award, from the date of award to the date of payment.
(8) The order for expenditure incurred by the Arbitral Tribunal is to be borned by the parties. The expenditure should be clear and must contain the following items :-
1. The name/names of the parties which shall pay off the expenditure or the payment regarding the dispute.
2. Which party shall receive the payment.
3. The amount of expenditure and mode of its ascertainment.
4. The mode of payment of the expenditure The expenditure/cost includes the following-
(a) expenditure of Arbitral Tribunal for charges, fees, remuneration etc. of the arbitrators.
(b) legal fees and expenditure.
(c) Administrative expenditure.
(d) other reasonable expenses.
In every valid award all the above elements shall be included.
In Tamil Nadu Electricity Division v. B.T. Construction Ltd., AIR 1997 SC 1376, it was held that an award should contain those reasons on which it is based. Since the area of an award is private law it should not be with conditions.
In Pradeep Anand v. 1.T.C. Ltd., (2002) 6 SCC 437, it has been held that where one of the parties has raised objections against the award, then while making the award the tribunal shall be duty bound to hear the objector and will narrate the items of objections before arriving at the conclusion.
Effect of the Award
The parties become bound to obey the award. No third person or stranger to the award shall be bound by it. According to Prof. Russell, the parties and persons who are claimants under the award become bound by it and facts mentioned in the award are treated as competent evidence. As has already been mentioned the Arbitral Tribunal has power to give an interim award and it is also treated as equivalent to a Court’s decree and can be enforced as such. Since the finality is the object of arbitration mechanism, the Arbitral Tribunal should not pass a conditional award.
In Mis. Mohinder Singh & Co. v. Board of Trustees of the Port of Bombay, AIR 2007 SC 1844, an appeal in Bombay High Court was filed against Arbitral award which was disposed of by the High Court by passing non-speaking and unreasoned order without applying mind. On appeal to the Supreme Court, the Court noted that “No order on the application was given by the High Court to dispose of the appeal after hearing the parties nor it was passed by a speaking and reasoned order.”
Q. 9 (d). Discuss the finality and enforcement of Arbitral Award.
Ans. Finality of Award. To minimise the interference of the Court and save time in providing a final result in context to arbitral disputes redressal, the award given by an Arbitral Tribunal has been accorded the status of a decree of the Court being directly enforceable and binding against the parties, without obtaining the rule of the Court as was done under the 1940 Act. Rule of the Court signifies the order of the Court for implementation of a decree against the party, when it is duly applied for in a competent Court.
“Subject to this Part (i.e., Part I) an arbitral award shall be final and binding on the parties and persons claiming under them respectively.”
The expression ‘final award’ implies an arbitral award complete in all respects leaving nothing more to be done by the Arbitral Tribunal. Such an award is legally binding on the parties and the persons cliaming under them.
An award would be treated as final unless the arbitrator has decided to issue an interim award, in which case he should state that the award is in interim one and he should expressly reserve to himself all matters not determined by the award.
Finality of award makes it a rule of Court enforceable as decree of the court. [M/s. Oriental Structural Engineers Ltd. v. M/s. Rites and another. AIR 1999 Del 303]
A valid award is treated as final as regards facts and law, so long as any legal defect prima facie is not apparent the Courts desist from interfering the finding of an award.
Enforcement of the Award. Provision for the enforcement of an award has been laid down in Section 36 of the Act-
(1) Where the time for making an application to set aside the arbitral award under Section 34 has expired, then, subject to the provisions of sub- section (2), such award shall be enforced in accordar.ce with the provisions of the Code of Civil Procedure, 1908, in the same manner as if it were a decree of the Court.
(2) Where an application to set aside the arbitral award has been filed in the Court under Section 34, the filing of such an application shall not by itself render that award unenforceable, unless the Court grants an order of stay of the operation of said arbitral award in accordance with the provisions of sub-section (3), on a separate application made for that purpose.
(3) Upon filing of an application under sub-section (2) for stay of the operation of the arbitral award, the Court may, subject to such conditions as it may deem fit, grant stay of the operation of such award for reasons to be recorded in writing:
Provided that the Court shall, while considering the application for grant of stay in the case of an arbitral award for payment of money, have due regard to the provisions for grant of stay of a money decree under the provisions of the Code of Civil Procedure, 1908.
Award of the arbitrator tantamounts to a decree of the Court as per Section 36 of the Arbitration and Conciliation Act, 1996, and therefore, has to be enforced under Civil Procedure Code, 1908 in the same manner as if it were a decree of the Court. [Leela Hotels Ltd. v. Housing and Urban Development Corporation Ltd. (HUDCO), AIR 2012 SC 903]
Where the Indian Law and Indian Courts have not been chosen for the resolving of the dispute and one of the parties is Indian, who has agreed to adopt some foreign Law and foreign Courts then the such award shall be enforceable as per direction of the foreign Court.
Q. 10 (a). Discuss the circumstances when the arbitral proceedings are terminated.
Ans. Termination of arbitral proceedings. Section 32 deals with the circumstances when the arbitral proceedings are terminated.
(1) The arbitral proceedings shall be terminated by the final arbitral award or by an order of the Arbitral Tribunal under sub-section (2).
(2) The Arbitral Tribunal shall issue an order for the termination of the arbitral proceedings where:
(a) the claimant withdraws his claim, unless the respondent objects to the order and the Arbitral Tribunal recognises a legitimate interest on his part in obtaining a final settlement of the dispute,
(b) the parties agree on the termination of the proceedings, or
(c) the Arbitral Tribunal finds that the continuation of the proceedings has for any other reason become unnecessary or impossible.
(3) Subject to Section 33 and sub-section (4) of Section 34, the mandate of the Arbitral Tribunal shall terminate with the termination of the arbitral proceedings.
Section 32 of the Act provides for the termination of arbitral proceedings. Sub-section (1) of this section provides that the arbitral proceedings shall be terminated by the final award or by an order of the Arbitral Tribunal under sub-section (2).
Sub-section (2) of Section 32 describes the eventualities, i.e.. (a) withdrawal of claim by the claimant, (b) by the mutual agreement of the parties to terminate the arbitral proceedings, and (c) tribunal’s finding that the continuation of proceedings has for any other reason become unnecessary or impossible, as the agreement in dispute becomes incapable of performance.