ADR Lectures

Lecture-1 Outline
-

Brief overview of the course

Start Discussions with the Article Would ADR have Saved Romeo
and Juliet
Discuss the difference between arbitration, mediation, conciliation
and negotiation
History of Arbitration in India including Arbitration and Conciliation
Act 1996
What is Arbitration
Lex Arbitri, Seat of Arbitration+ 3 kinds of laws of application

What is ADR?
Would ADR have saved Romeo and Juliet?
from forth the fatal loins of these two foes, A pair of star crossed lovers
take their life
While Romeo and Juliet was portrayed as a romantic love story the central
theme of the story is conflict and failed resolution. Discuss the story of
Romeo and Juliet
On the issue of disputes ( Why, thou wilt quarrel with a man that hajth a
hair more or a hair less in his beard than thou hast)
Disputes are the inevitable outcome of human interaction. It is true that
these disputes can be extremely tedious and stressful. Further,
predominantly, the adversarial system and its functioning exacerbates the
situation rather than provide a fair solution. However, ADR is not a
panacea to all that ails the adversary system. Perfect processes to
resolving disputes cant be found. However, the benefit of ADR is that it is
not prolonged by the procedural hassles that the adversarial system
entails. ADR involves complex strategizing on part of the lawyers to get
the parties to reach a settlement. Much as disputes are the outcome of
human interaction, ADR presents the solutions to such disputes using the
same method.

I have been mentioning dispute as an outcome of human interactionhowever can anyone explain to the class what a dispute in this context
means? For there to be a dispute, there needs to be a consensus between
both parties that a disagreement/dispute exists and a belief that they are
entitled to some kind of resolution or solution to the dispute.

Example: There is a discussion among six people about an event in an

office, where John Doe threatens to sue the company. The cause of
grievance was not being provided a proper workspace. The problem has
occurred because of lack of office space in the company and there are
many more employees aggrieved by the same situation. In this regard
John Does position appears to be unreasonable however if not dealt with
properly it might escalate. The six people involved in taking the decision
on what to do about the issue must propose a solution or means of
resolving the problem. How would the six of you (six students from the
class) decide the dispute? Explain why your method of resolution or
ignoring the problem is the correct approach. Do you think there is an
actual dispute here?
Point of the example- disputes exist in the minds of the beholder-it exists
when someone labels them as such. The form of resolution adopted by
Romeo and Juliet was violence, which did not end well- in fact it escalated
the matter, making it worse.
What do we mean by resolution? Resolution includes three categories- R
as outcome, R as process, R as symbolism (Constancy of purpose in
striving to resolve)- there cant be outcome without having progressed
through resolution as a process and there is symbolic significance in the
process and outcome- hence the three categories overlap.

Disputes exist in the world as a form on social construct- it is an offshoot

of our expectations and desires when conflicted with someone elses
expectations and desires.

Lawyers Role in Dispute Resolution: (Ask students)

-

Complicity in identifying problems as legitimate

Their legal acumen in converting problems into disputes and turning
disputes into claims for redress
Provide with accurate, reasonable and useful information in order to
make an informed decision about the process they choose.

But Is ADR the panacea to all that plagues the adversarial system?
Galanter believes that the idea that there is one right way of managing
disputes is drained of credibility- legal institutions should remain a part of
the dispute resolution process. Writing on ADR tends to be written as if it
was one process rather than recognizing that there are many diverse
qualities within the different forms.

Whats wrong with adversary system? It would take 320 years to clear the
backlog of 31.28 million cases pending in various courts including High
courts in the country, Andhra Pradesh High Court judge Justice V V Rao
said.
"If one considers the total pendency of cases in the Indian judicial system,
every judge in the country will have an average load of about 2,147
cases,"
Senior counsel Adik Shirodkar added, The number of litigations reaching
courts have increased tremendously, but the judiciary strength has not
increased proportionately. The irony is that the government doesnt want
a strong judiciary, because that might create problems, he added.
The current court system is uniquely adept at producing unreasonable
delay, exorbitant cost, unhappy disaffected participants, uneven and often
unfair results. The only people who seem to be profiting are the lawyers
and judges resulting from dissatisfaction and dismay of litigants. However,
demonizing the adversarial system shouldnt be the justification for the
desire to seek out alternatives. The justification should be to provide
clients with satisfactory and speedy results.

What is the way out of this prevailing system? Some scholars have claimed
that there should be a multi doored court house- they call for alternatives
and reserving courts for those activities for which they are best suited and
to avoid swamping and paralyzing them with cases that do not require
their unique capabilities.

Differences between Arbitration, Conciliation, Mediation and Negotiation

(http://www.scribd.com/doc/28710435/Difference-between-arbitrationconciliation-negotiation-and-mediation)
Meaning of Arbitration
As Defined u/s 2(1)(a) it covers any arbitration whether it is administered
by any permanent arbitral institution or not . It also covers arbitration
based on voluntary agreement by the private parties or by operation of
law.

The act does not provide definition of wordArbitration but its literally
recognized meanings settlement of differences or disputes by mutual
understanding or agreement by the parties where the rights and liabilities
of the parties are adjudicated which are binding on them, such settlement
may be before the arbitral tribunal but not by the court of law

However, the definition in section 2(1)(a) of the said act is merely a

clarification that the act covers institutional and ad hoc arbitration. This
definition is based on the definition mentioned in clause (a) of article 2
of UNCITRAL
model
law. According
to
that
provision
the
expressionarbitration is defined as under :-

Arbitration is the means by which the parties to dispute get the matter
settled through the intervention of an agreed third person.Arbitration is
a process that is carried out pursuant to an agreement to arbitrate the
disputed matter

According to Bombay high court the object of arbitration is to decide a

dispute, which has arisen.
According to Halsbury -Arbitrationmeans the reference of dispute
or difference between not less than two parties , for determination, after
hearing both sides in a judicial manner , by a person or persons other than
a court of competent jurisdiction.

Meaning of Conciliation

Part 3 of the act deals with conciliation.Conciliation means settling of

disputes without litigation. Conciliation is the process by which
discussion between parties is kept going through the participation of the
conciliator. The main difference between arbitration and conciliation is
that in arbitration proceedings the award is the decision of arbitral
tribunal while in the case of conciliation the decision is that of the parties
arrived at with the assistance of the conciliator.

The Parties are at liberty to evolve their own procedure of conciliation for
negotiating and arriving at settlement of disputes. It is only when no such
agreement or procedure has been evolved by the parties that the parties
that the provisions of part 3 of the act are invoked and made applicable.

Meaning of Mediation
Mediation is most frequently adopted ADR technique. It contemplates the
appointment and intervention of neutral third person who helps the
parties to reach a negotiated settlement. He does not have the power to
adjudicate or impose an award. It is conducted on a confidential basis and
without prejudice to the legal rights and remedies of the parties. The

process may have to pass through several stages like preparation, joint
sessions, private meetings and final result.

Meaning of Negotiation

1. It is the simplest means for redressal of disputes .In this

mode the parties begin their talk without interference of any third
person. The aim of negotiation is the settlement of disputes by
exchange views and issues concerning the parties. There is an
ample opportunity for presentation of case in this mode of redressal.
If there is understanding and element of patience between the
parties this mode of redressal of dispute is the simplest and most
economical.

2. Negotiation is a communication process used to put deals together

or resolve conflicts. It is a voluntary, non-binding process in
which the parties control the outcome as well as the procedures by
which they will make an agreement. Because most parties place very
few limitations on the negotiation process, it allows for a wide range
of possible solutions maximizing

Difference between conciliation and Arbitration

1. Though like arbitration, conciliation is also another means of settling
disputes, they two differ in many vital aspects. The only similarity
that appears between the two is that a third person is chosen or
nominated by the parties to resolve their disputes.

2. The method of conciliation is generally applicable to existing

disputes, while the mode of arbitration is available for existing as
well as for the future disputes.

3. For adopting the method of conciliation, there is no need for a prior

agreement for resorting to this method, but in arbitration a prior
agreement for arbitration between the parties is required.
4. The pre-agreement in arbitration must be in writing but since no
pre-agreements are required in conciliation, there is no such binding
in the case of conciliation.

5. The conciliation proceedings start by sending a written invitation

and a written acceptance thereof in between the parties. The
invitation may be accepted or rejected by the other party as it has
no binding effect, being an invitation only. The prior written
agreement in arbitration commands a binding effect upon the
parties and its breach by resorting to court, compels court to refer
the matter to the arbitration and parties are bound by the arbitral
agreement.

6. While conciliation proceedings are in progress, there is a bar on

parties from initiating arbitral or judicial proceedings as per section
77 of the new act 1996. In arbitration, the arbitral agreement itself
suggest for redressal of disputes through arbitration and if any
party approaches court, the other party may request the court to
refer the matter to arbitration and court is bound to refer such
matter to the arbitral Tribunal.

7. Where
parties
fail
to
determine
the
number
of arbitrators/conciliators, the act envisages odd number of
arbitrators or sole arbitrators/conciliators. Parties may agree for two
or three conciliators and maximum number of conciliators cannot
exceed three. Where the number of conciliators is more than one,
they as a matter of general rule should act jointly. Parties may seek
assistance in appointment of conciliators, the assistance of any
suitable institution or person. In case of arbitrators there is no bar
on their maximum number but the total should not be even number.
When parties agree for three arbitrators, each party shall appoint
one and these two shall appoint the third arbitrator who shall be
presiding arbitrator.

8. A settlement agreement may be made by the parties themselves and

the conciliator shall authenticate the same. An arbitration award on
other hand, is not merely a settlement agreement but it is judgment
duly signed by the arbitrator.

9. The conciliation proceedings may be unilaterally terminated by a

written declaration by a party to the other party and the conciliator,
but arbitration proceedings cannot be so terminated.

10.
The arbitration proceedings or awards may be used as
evidence in any judicial proceedings but the conciliation proceedings
cannot be used as evidence in any arbitral or judicial proceedings

11.
Last but not the least, an arbitrator has to decide according to
law, but a conciliator can conciliate irrespective of law.

Difference between conciliation and Mediation

1. Though conciliation and mediation appear to be similar in

interchangeable terms, there is subtle difference between the two:

2. In Mediation a mediator, who is neutral and intermediary, plays

an active role by working out compromise formulas after hearing
both the parties. But in case of conciliation, the role of conciliator,
who also plays the role of neutral intermediary, is to bring the
parties together in a frame of mind to forget their animosities and
prepare them for a compromise by adopting amid way approach
which may be acceptable to both the parties in dispute. Thus
a conciliator is an active participant in bridging the gulf between the
parties and suggest solution which is acceptable to the parties.

3. The power of conciliator is larger under the arbitration and

conciliation act and whereas the powers of the mediator is too
limited as he can only suggest proposals for the settlement.
4. The conciliator can make proposals for settlement, formulate
or reformulate the terms of a possible settlement whereas a
mediator would merely facilitate a settlement between the parties.

Difference between Mediation and Arbitration

1. In the process of mediation there is an act of third party relating to

settling of disputes between two contending parties. Whereas an
arbitration is governed by the arbitration agreement wherein an
arbitrator is nominated by the parties.

2. Arbitral award made in conclusion of the arbitral proceedings is

binding on the parties to the arbitration, whereas settlement arrived
at the end of mediation does not have such binding effect on the
parties.
3. The decision of an arbitrator is known as award. Whereas the
decision of a mediator is known as a settlement
4. The procedure of arbitration is based on the ordinary rule i.e. ,
relevant arbitration law and procedure laid down in the arbitration
agreement. Applicability of any such rule is minimal in case of
mediation.

5. An arbitration award is treated as a decree and can be enforced

legally but the settlement arrived at as a result of mediation is not
legally enforceable. Thus, the terms of settlement may be accepted
or rejected by the contending parties.

Difference between Negotiation and others

1. In negotiation there is no interference of the third parties whereas
in the arbitration and conciliation there is third party who acts as
arbitrator and conciliator to settle the disputes between the parties.
2. The arbitral proceedings and award can be used as evidence in
judicial proceedings but the negotiation proceedings cannot be used
as evidence anywhere.

3. In the arbitration proceedings there is a procedure laid down under

the act for the commencement of the proceedings but in negotiation
the parties to dispute on their own motion start a process of
negotiations through correspondence to find the mutually
acceptable solution of the problem.

4. In an arbitration the award is given by the arbitrator and has a

binding effect upon the parties but in the negotiation process there
is compromise between the parties by mutual understanding and
has no binding effect upon on the parties.

5. In the negotiation proceedings the parties will reach to compromise

agreement with the mutual understanding but in the arbitration
there not a settlement agreement, there is judgment or award duly
signed by the arbitrator.

Coming Back to the question posed in the beginning of the class- Would
ADR have saved Romeo and Juliet? We do not know what sparked the feud
between the families but one may argue that the adversary system
wouldnt have dispelled the anger and hatred that consumed these
families. Would negotiation have been able to resolve the dispute or
would mediation be a better exercise? The answer is speculative at best
but surely we can assume that we could have reached a resolution rather
than Romeo and Juliet taking their lives. Take the example of Solomonchild claimed by two women-solution cut him in half-mother relinquishes
her claim.

Where did ADR come from? Pound Conference 1976- Justice Warren Burger
invited Prof.Frank Sander to present the idea of an alternative system of
resolving disputes.
He urged conference participants to envision alternatives, a "rich variety
of different processes, which, I would submit, singly or in combination,
may provide far more 'effective' conflict resolution." And he reminded
them of "the central quality of mediation", namely "its capacity to reorient
the parties toward each other, not by imposing rules on them, but by
helping them to achieve a new and shared perception of their relationship,
a perception that will redirect their attitudes and dispositions toward one
another."
As envisaged, the idea of ADR offered a much greater pareto optimum
situation than the adversarial however as you will learn during the course
of our discussions, the use of mandatory arbitration clauses and other
malpractices have made this method also inaccessible to the powerless.
Further the fact that mediation lacks a formal process and accountability
leaves it open for abuse. As we discuss the nuances of this subject, I want
you to be perceptive of all that plagues the ADR system and since you will
be the new breed of legal reform, I want you to explore ways in which we
can take this noble concept back to its roots and make justice accessible
to all.

Throughout this course, I am not going to teach you- we are going to

discuss, we are going to critique, find ways of addressing the most
pressing concerns this field faces with respect to finding a way to balance
our monetary interests as lawyers and propagating the idea and deliver
justice.

Lecture 2
History of Arbitration and Conciliation Act India, What is Arbitration?

In ancient India, there existed a system of arbitration in the form of

panchayats- these judges were ordinarily elected according to their
wealth, social standing and the influence in the community. They
exercised wide discretionary powers when a dispute was referred to them
and could initiate proceeding suo moto.
Non-compliance with their
decision was met excommunication from the community and religious
services.

Arbitration and mediation as an alternative to dispute resolution by

municipal courts has been prevalent in India from Vedic times. Various
bodies in the form of panchayat existed and these bodies conducted
informal proceedings free for the cumbersome technicalities of municipal
law. Under the system mentioned in the Upanishad the aggrieved party
could appeal against the decision of Kula (a group of persons bound by
family ties) to the Sreni(assembly of tradesmen and artisans belonging to
different tribes but connected in some way with each other); from Sreni to
Puga(a board of persons belonging to different sects and tribes but
residing in the same locality) and finally from the decision of Puga to
Pradvivaca. The decisions of all these bodies were reviewable by
municipal courts.

Upon the arrival of British in India, a movement began to codify the

arbitration practices present in India. They promulgated regulations
in the three Presidency towns viz Calcutta, Bombay and Madras in
exercise of the powers conferred upon it by the British Parliament.
Between the years 1772 and 1827 several regulations. Regulation of
1787 also provided for referral of suits for arbitration- however
these regulations lacked detailed provisions to regulate the
arbitration proceeding. However they introduced substantial
changes to the Panchayat system in the presidency towns by

providing for courts to encourage reference to arbitration and

attaching arbitral awards with the status of a decree.
Bengal Regulations of 1787, 1793 and 1795 introduced procedural
changes by empowering the court to refer suits to arbitration with
the consent of the parties and further authorizing the court to
promote references of cases not exceeding Rs.200 in value to
arbitration, and disputes relating partnership account, debts,
disputed bargains and breach of contract.
Regulation of 1816 in Madras empowered district munsifs to
convene district panchayats of a civil nature in connection with real
estate and personal property. The Bombay Regulation VII of 1827
provided for settlement of civil disputes through arbitration,
wherein the time for making an award had to be stated.
CPC 1859: S.312-325 dealt with arbitration in suits, While S.326-327
provided for arbitration without court intervention.
CPC 1877 and 1882: provisions were reproduced in S.506-526 of the
new Act.
Arbitration Act of 1899: Substantially based on the British
Arbitration of 1889 but was confined to the Presidency towns. It
expanded the meaning of submission to arbitration to mean a
written agreement to submit present and existing disputes to
arbitration whether an arbitrator is mentioned therein or not. The
Act presented complex and cumbersome legal problem- the court
started expressing its dissatisfaction with the prevailing state of the
arbitration law.
Schedules to CPC 1908: The Arbitration Act was not affected by the
Rules as to appeals provided in CPC 1882- The first schedule of the
Code contained provisions relating to law of arbitration that
extended to other parts of India and the Second schedule dealt with
arbitration outside the operation and scope of the 1899 Act. The
Second schedule allowed parties to a dispute or any one of them to
file their arbitration agreement before a court for reference to
arbitration after compliance with the prescribed procedure. Problem
arose with the Specific Relief Act, 1877 which barred the specific
performance of a contract to refer disputes to arbitration and also
provided that the existence of such a contract would bar a suit in
respect of any subject agreed to be referred to arbitration.
Arbitration Act, 1937: In order to bring the Geneva Protocol on
Arbitration Clauses 1923 and GC on Execution of Foreign Arbitral
awards in line with the national legislation the Arbitration (Protocol

and Convention) Act 1937 was passed, applicable only to commercial

matters. It mainly concerned itself with the procedure for filing of
foreign awards, their enforcement and conditions of such
enforcement. Currently you will find a modified version of this Act
under Part 2 of the 1996 Act.
Arbitration Act of 1940: There was growing clamor in the commercial
community as well as judicial reprimand with regard to the lack of
legal clarity in arbitrating disputes. With a view to appease the
society and consolidated Act was passed in 1940- it purported to be
a comprehensive and self-contained code.
After the Second World War and Indias independence, there was a
rise in commercial activity and the commercial community became
increasingly inclined towards arbitration given the delays in the
adversarial system. There was growing judicial debate on the need
to address the lacunae in the 1940 Act- the powers and duties of
arbitrators and procedure for conducting arbitral proceedings after
reference were inadequate. Further the rules for filing awards
differed from one high court to another. There was no provision
preventing an arbitrator from resigning in the course of arbitration
proceedings, thereby exposing parties heavy losses where
arbitrators acted mala fide. There were no provisions requiring the
arbitrator to state reasons for sustaining the award.
Foreign Award (Recognition and Enforcement) Act 1961: Subsequent
to the signing of the New York Convention in 1958- this Act was
passed to give effect to the Convention. It contained only 11
Sections in addition to the text of the New York Convention
reproduced in the Schedule as an appendix. The object of the
legislation was to promote international trade by providing speedy
settlement of disputes arising in trade through arbitration. The New
York Convention applies to an arbitration agreement if it has a
foreign element of flavor involving international trade.
Under the Convention, an arbitration award issued in any other state
can generally be freely enforced in any other contracting state (save
that some contracting states may elect to enforce only awards from
other contracting states the "reciprocity" reservation), only subject
to certain, limited defenses. These defenses are:
a) a party to the arbitration agreement was, under the law applicable
to him, under some incapacity;
b) the arbitration agreement was not valid under its governing law;
c) a party was not given proper notice of the appointment of the
arbitrator or of the arbitration proceedings, or was otherwise unable
to present its case;

d) the award deals with an issue not contemplated by or not falling

within the terms of the submission to arbitration, or contains
matters beyond the scope of the arbitration (subject to the proviso
that an award which contains decisions on such matters may be
enforced to the extent that it contains decisions on matters
submitted to arbitration which can be separated from those matters
not so submitted);
e) the composition of the arbitral tribunal was not in accordance with
the agreement of the parties or, failing such agreement, with the law
of the place where the hearing took place (the "lex loci arbitri");
f) the award has not yet become binding upon the parties, or has been
set aside or suspended by a competent authority, either in the
country where the arbitration took place, or pursuant to the law of
the arbitration agreement;
g) the subject matter of the award was not capable of resolution by
arbitration; or
h) Enforcement would be contrary to "public policy".
Historically, the 1940 Act was heavily criticized due to the
intervention of the Indian courts, which was required during the
arbitral proceedings when an arbitral tribunal needed a time
extension, when drafting the award and during the enforcement
stage.

In addition, national institutions criticized the operation of the 1940

Act, including the Public Accounts Committee of Lok Sabha and the
highest court in India the Indian Supreme Court (Supreme Court)
which observed that the law of arbitration must be simple, less
technical and more responsible to the actual reality of the situations
[and] responsive to the canons of justice and fair play. ( Guru
Nanak Foundation v. Rattan Singh and Sons)- proceedings under the
act have become highly technical, accompanied by unending
prolixity at every stage, providing a legal trap to the unwary

As a result, the Indian Law Commission and the Indian Legislature

considered revising the arbitration legislation. A proposal was
mooted on 27 July 1977 by the Secretary of the Department of Legal
Affairs stating that the Indian government sought to revise the 1940
Act with a view to preventing the enormous delay and
disproportionate costs in arbitral proceedings. This resulted in the
76th Report by the Law Commission of India which, along with the
Model Law (1985) and the observations of the Supreme Court were
the primary factors leading to
UNCITRAL Model Law: the model law created a system which
provided a deregulatory approach to arbitration. The UN Commission
was founded in 1966 with the objective of harmonizing and

promoting the law relating to international trade- The Commission

comprises of 36 member states chosen to represent the worlds
various geographical regions and its principal economic legal
systems. Relevant rules for the purpose of this class- UNCITRAL
Arbitration Rules 1976, UNCITRAL Conciliation Rules 1980. The main
reason for arbitration rules was that most national laws on arbitral
procedure were drafted to meet the needs of domestic arbitration
and many of these laws are in need of revision. Therefore with a
view to achieve greater uniformity of national laws on arbitration
and the modern arbitration practice- the model law was passed.
The Arbitration and Conciliation Act 1996: The new Act with some
significant modifications, adopts the UNCITRAL Model Law in its
entirety- It also adopts and legislates the UNCITRAL Conciliation
Rules with necessary modifications, for law relating to Conciliation.
The Act marked a radical change in the arbitration scenario in India
since the 1940 Act- The 1996 should not be read with 1940 Act as it
will lead to misconstruction.
The Indian Arbitration Act comprises four parts and three schedules,
as follows:
Part I: general provisions on arbitration (General Provisions);
Part II: enforcement of certain foreign awards (Chapter I of Part II of
the Indian Arbitration Act deals with New York Convention awards
and Chapter II covers awards under the 1927 Geneva Convention);

Part III: Conciliation;

Part IV: supplementary provisions;
First Schedule: New York Convention;5
Second Schedule: 1923 Geneva Convention;6 and
Third Schedule: 1927 Geneva Convention. Accordingly, the Indian
Arbitration Act puts domestic awards and foreign awards in two
different and distinct compartments, subject to certain overlapping
provisions.
The General Provisions apply to all other parts and chapters of the
Indian Arbitration Act, unless it is expressly stated otherwise. For
example, Part II provides a separate definition of arbitral award
and contains separate provisions for the enforcement of foreign
awards. In addition, if the arbitral proceedings are seated outside of
India, all or some of the General Provisions may be excluded by the
express or implied agreement of the parties. However, if no such
exclusion is agreed, the General Provisions will apply to the
arbitration and it will not be open for the parties to argue that Part I
of the Indian Arbitration Act is not applicable to the arbitration.
Part I

Chapter 1-7 (taken from UNCITRAL Model Law)

Section 2-6: General Provisions- definition, scope, Construction of

references, mode and manner of receipt of written communications;
limits of judicial intervention in arbitral proceedings and
administrative assistance to facilitate the conduct of arbitral
proceedings.
Section 7-9: Arbitration agreement
Section 10-15: Composition of arbitral tribunal (appointment of
arbitrators, challenge to arbitrators etc.)
Section 16 and 17: Jurisdiction of arbitral tribunals (interim relief,
authority to rule on its own jurisdiction including any challenge to
the validity of an arbitration agreement, separability etc.)
Section 18-27: Conduct of arbitral proceedings (determination of
place of arbitration, commencement of arbitral proceedings, choice
of language, pleadings-statement of claim and defense, expert
appointment by arbitral tribunal
Section 28-33: Making of arbitral award and termination of
proceedings (rules applicable to the substance of the dispute, form
and contents of an arbitral award etc.)
Section 34: Recourse against arbitral awards: setting aside of an
arbitral award

Chapter 8-10

Section 35-36: Finality and enforcement of arbitral awards: Arbitral

award shall be enforceable as if it were a decree of the court under
CPC, 1908.
Section 37: Appeals
Section 38-43: miscellaneous- cost of arbitration; apportionment of
the amount fixed as costs and the consequences of failure of the
parties to make deposits.

Part II
Enforcement of certain foreign awards (Section 44-60)

Chapter 1- 9 Sections- enforcement of New York Convention awards

Chapter 2- 8 Sections- enforcement of Geneva Convention awards

Part III- Conciliation- Not only Conciliation but permits other alternate
procedures to settle disputes
Part IV- Supplementary provisions
Court/Central government)

(Rule

making

power

of

High

In a landmark judgment Booz Allen and Hamilton Inc v. SBI Home Finance
Ltd &Ors (2011) ,the two judge bench of the supreme court ruled that a
suit for enforcement of a mortgage by sale is non-arbitrable. The
examples given by court for non-arbitrable disputes are:
(i) Disputes relating to rights and liabilities which give rise to or arise out
of criminal offences;
(ii) Matrimonial disputes relating to divorce,
restitution of conjugal rights, child custody;

judicial

separation,

(iii) Guardianship matters;

(iv) Insolvency matters;
(v) Winding up matters
(vi) Testamentary matters (grant of probate, letters of administration and
succession certificate); and
(vii) Eviction or tenancy matters governed by special statutes where the
tenant enjoys statutory protection
against eviction and only the
specified courts are conferred jurisdiction to grant eviction or decide the
disputes.
All the above examples are right in rem,exercisable against the world at
large as opposed to right in personam interests protected against specific
individuals.A judgment in rem refers to a judgment that determines the
status of property which operates directly on the property itself. Disputes
relating to righs in rem are thus generally considered to be unsuitable for
private arbitration, though this is not a rigid rule.
The only indication regarding arbitrability in the Arbitration and
Conciliation Act, 1996 are sections 34(2)(b) and 48(2) of the Act which
provide that an arbitrabe award would be set aside if the court found that
the subject matter is incapable of settlement by arbitration.

Lecture 3: Section 2 to 5+Arbitration Agreement

Court

The next core idea is that of Court u/s 2(e) of the Act. U/S 42, unless
otherwise specified, Court means the principal civil court of original
jurisdiction in a district, and includes the HC in exercise of its original
jurisdiction. This definition becomes important for the idea of exclusive
jurisdiction under S. 42. That section attempts to establish one and one
court only. Earlier massive Court intervention happened due to multiple
jurisdiction.
S. 2(e) is a restrictive definition, it restricts the definition of Court to the
principle Civil Court, having original jurisdiction. So Courts like Small
Causes Court etc are not included. Furthermore, the HC, in its appellate
jurisdiction is also not included. But in order to understand what is
meant by principle civil court we must rely on some other Acts. As per
S. 2(4) of the CPC says the principal civil Court is a district court and a
district includes the local limits of the ordinary original civil jurisdiction
of the HC. S. 3(17) of the General Clauses Act states that District Judge
means a judge of the the Principle Civil Court.
So, principle Civil Court is district Court, and includes HC in its original
jurisdiction.
In the Fountainhead case, the SC expressly held that the PCC, would
imply a District Court. Now with regard to which district, the question of
jurisdiction would creep in. Jurisdiction is of three types, pecuniary,
territorial and subject matter. Now, pecuniary jurisdiction is done away
with as the Act emphasises on the PCC, thereby isolating smaller Courts.
But the subject matter of arb has to be where the suit can be filed as per
S. 16-20 of CPC, based on issues like cause of action, immoveable
property.
In the case of Jindal Vijaynagar Steel, it was held that in case of a conflict
between the jurisdictions of the PCC and a chartered HC, which has
jurisdiction as per Letters Patent, the jurisdiction of the HC would

prevail, as S. 120 of the CPC ousts the application of S.15-20 of the CPC
in case of Chartered HC. Therefore, in such a case, the A & C Act, would
become a general Act, which would be overridden by the Letter Patents.
So, even if cause of action has not arisen, a party, which has a
subordinate office in the HCs original jurisdiction, can approach the HC.
In the case of Shivnath Rai Harnarain, there was an arbitrator appointed
who was residing at Singapore, the arb was held at Singapore, and the
award was rendered at Singapore, but the arbitration was to be in
accordance with Indian law. Singapore HC set aside arbitral award, and
asked to reapply for arb. One party asked Indian Court to appoint
arbitrator under S.11 (6)- The SC
held that
under S. 42, any
application will be an application in a foreign court as well, and where
an application is already moved to a foreign Court, in this case
Singapore, only that Court can have jurisdiction to appoint arbitrators.

International Commercial Arbitration

S. 2(1)(f) of the Act defines International Commercial Arbitration. This

definition hinges itself on two ideasI. territorial link- That it must be international, in terms that one of the
parties must be an individual who is a national of, or habitually resident
in, any country other than India; or (ii) a body corporate which is
incorporated in any country other than India; or (iii) a company or an
association or a body of individuals whose central management and
control is exercised in any country other than India; or (iv) the
Government of a foreign country.
II. The nature of the transaction: This denotes that the relationship
between the parties must be a legal relationship (even if not
contractual) but it must be considered as commercial under the Indian
law.
In order to understand what is the significance and ambit of the term
commercial, the case of RMI v Boeing becomes important. In this case,
there was a consulting agreement between RMI and Boeing, by which
RMI was supposed to render consulting service, i.e., promotion of the
Being Aircrafts, and facilitate their sale in India-upon payment of
commission. It also contained arb agreement. Now, based on RMIs
consultation, Air India bought some aircrafts from being, and RMI
therefore asked for commission from Boeing. Boeing refused to pay. RMI
filed a suit at Cal HC, but Boeing asked for a stay saying there is
Arbitration agreement. RMI said there is no arbitration agreement, as

relationship not commercial in nature. According to RMI, a commercial

contract is mercantile in nature involving sale and purchase of goods and
a service agreement providing for rendering consultancy services cannot
be treated as a commercial agreement.
The SC disagreed saying that under the UNCITRAL Model Law, even
commercial representation, i.e, consultation is a commercial relationship.
Furthermore, it also held that as per the interpretation suggested by
Article 301 in Atiabhari Tea Estate and Fatehchand cases, commercial
should be interpreted as liberally as possible. Even the Act is also
designed to facilitate international trade in India, therefore, it is only fit
that commercial be given a liberal construct. So, it was held that there
was an ICA Agreement, and hence, stay given was proper.
However, with regard to the place of location of the party, it is separate
from the nature of the party. The ambit of S. 2(1)(f), in regard to the
location of th party was raised in the case of TDM Infrastructure. In that
case, there was a dispute between two parties, both incorporated in
India, however, one had its central management in Malayasia. The issue
was with regard to the appointment of an arbitrator by the SC. As per S.
11(12), and 11(9), the CJI can only appoint an arbitrator if it is an
international commercial arbitrator as per S. 2(1)(f). So, the question
was, in case of the party whose central management is outside, would cl
(ii) or cl (iii) apply.
The Court is this case held that the thrust of the Act is that Indians
should arbitrate as per the Indian law, and cannot derogate from it. (20)
Therefore, it created a hierarchy between cl (ii) and (iii) and said if a
party is incorporated in India, that is the end of the matter, and it
automatically becomes domestic arbitration. It is only in case of certain
body corporate which do not require registration as per the Companies
Act, would the examination of central management apply. (17). The
reason for this is incorporation is much easier to verify than central
management- and therefore, the Courts must follow the method which is
more certain. However, this creates a problem where a body corporate
has incorporation in India but all property, and management in Africa,
then saying that the arbitration between them is domestic and not
international and Indian law would become applicable and not the law
chosen by parties, as per S. 28.

Also, when Central management in India, but incorporation outside, then

it becomes an ICA, which is also problematic, as it goes against the
policy that Indians cannot derogate from Indian law.
In essence, TDM takes away the right of all Indian incorporated
companies to choose the four laws applicable to them, in a dispute with
another Indian party. Furthermore, it restricts the third aspect o
association of persons ignoring the presence of company. It however,
does not define what is meant by central management.
Now, one core idea is that of Governing Laws. The arbitration
agreement may be separated and governed by different sets of laws.
There can be
i. Law Governing the arbitration agreement
ii. One law governing the contract
iii. One law governing the arbitral procedure (lex arbitri)
iv. One law governing enforcement and recognition.
The idea of seat is always linked to the lex arbitri, if it is not, then it
becomes merely the venue.
Now this raises the question of distinction between Part I and Part II of
the 1996 Act, with regard to the applicability of the different parts to
different types of arbitration. This is because as per S. 2(2) of the Act,
part I of the Act shall apply when the place of arbitration is in India.
In the case of Bhatia International, it was, however, held that Part I
cannot be held restricted to domestic arbitrations, and applies to all
arbitrations, including IC seated outside.
In Bhatia International, there was an arbitration agreement between two
parties, who agreed that the arbitration between them would be
governed by the ICC Rules , and also the seat of arbitration was to be in
Paris. One of the parties, thereafter, filed for an interim measure under S.
9 in the Indore District Court. The opposite party argued that there can
be no interim measure given, as this is an ICA happening outside India,
and by virtue of S. 2(2), Part I does apply to such cases. District Judge
said it has jurisdiction, and so confirmed by the HC-therefore appeal to
the SC.
One striking feature of the Bhatia judgement is that whereas the facts,
dealt with the applicability of S. 9, the judgment incorporated the larger
application of the whole Part I to foreign arbitrations.

Before the SC, the following arguments were raised by the appellant:
i. Section 2(2) of the Act explicitly states that Part I of the Act only
applies to domestic arbitrations. Section 2(2) is incorporated from Article
1(2) of the UNCITRAL M.L., which expressly states that the provisions of
Part I, apart from a few exceptions mentioned therein shall only apply to
domestic arb. The exceptions include interim measure. Since the Act did
not incorporate the exceptions, it is implicit that interim measures
cannot be granted in case arbitration is taking place outside.
ii. Section 2(2), must be read in conjunction with S. 2(4) and 2(5).
Although section S(4) and (5) uses words like any arbitration and every
arbitration proceeding thereto, it is amply clear that the refer to
arbitration proceedings in India, as the other interpretation would render
a conflict between 2(2) &2(4),2(5) , thereby rendering 2(2) redundant.
iii. Part II of the Act deals with elaborate provisions dealing with
arbitrations outside India. However, no provision similar to S. 9 is found
in that case- therefore the legislative intent to not allow interim
measures in foreign arbitrations is implicit.
iv. Section 9 itself makes a reference to enforcement under S. 36- which
is in Part I, and deals with enforcement of domestic award .It does not
make any reference whatsoever, to S. 48, 49, 57, 58 of Part II, which
deals with enforcement of foreign awards. Therefore S. 9 deals only with
domestic awards.
v. S 5 of the Act calls for minimum judicial intervention, so there should
not be intervention to give out interim measures.
[ The Court begins with refuting Sens arguments- it is evident from the
judgement that the Court had arrived at the decision beforehand, and
then sufficed its reason for the same].

Primary arguments of the Court:

The Court held that Part I applies to all arbitration taking place inside
and outside India. The primary arguments given by the Courts, to
incorporate Part I, are on four groundsi. Lacunae in law- The Court held that whereas Part I addressed domestic
arbitration, Part II deals with enforcement of awards from NYC
countries. So by this restrictive interpretation, there is no part dealing

with non-NYC countries. This cannot be the case, as the legislature

cannot leave a lacunae in law.
ii. J& K issue- In J & K, Part I applies to international commercial
arbitrations. However, S. 1 does not restrict that to arb and con taking
place in J&K. So , in essence, whereas S.9, can be used for ICAs
whenever J& K is concerned, it cannot be used for the rest of India. That
is clearly inconsistent with the part of S.1 which says the Act applies to
all of India.
iii. The 2(2) and 2(4)& (5) argument- the Court said that whereas S. 2(5)
has expressly been made subject to S. 2(4), none of them are made
subject to 2(2). Now to hold that Part I does not apply to foreign arbs,
based on S. 2(2), when S. 2(4) and (5) says any arbitration, would imply
reading into them the words Subject to S. 2(2)- which is clearly beyond
the power of the Court. The Court therefore said that 2(2) is a
clarificatory provision, which allows the parties to exclude application of
Part I, in case of an ICA, by express of implied consent. Furthermore, it
also said that in Art. 1(2) of UNCITRAL, the word only has been usedwhereas in S. 2(2) only has been deliberately omitted. So even if under
the UNCITRAL Model, Art 1(2) excludes application of Part I to foreign
arbs, under S. 2(2), such exclusion cannot be read into. [This is exactly
opposite of the appellants contention]
iv. Remediless parties- The Court said that in case it is held that Part I
does not apply, then a party to an ICA, who has property located in India,
would not be able to get an interim relief- this according to the Court,
does not encourage international commercial arbitration.
The idea therefore, in this case , is one of territoriality, i.e., irrespective
of wherever the arbitration is happening, if for eg., assets and properties
are located in India, one must come to the Indian Courts to seek interim
relief.
Subsidiary reasoning of the Courti. Under S. 2(7), an award under Part I is domestic award. Now foreign
award includes only awards under Part II, which deals only with NYC
countries. The need to define a domestic award begs the intention that
it includes non NYC countries awards as well
ii. S. 5, which a part of Part I, denotes judicial authority. Now in case Part
I merely dealt with domestic arb, it would have just merely said courts
as in India, courts are generally the judicial authority. But the fact that

judicial authority has been used shows that the Act envisages that
authorities from other countries , not strictly courts, should also fall
within the ambit of Part I. [this reasoning is really preposterous, as it
assumes that an Indian judicial authority, is, by definition always a Court,
which is not true. There are various tribunals which may also fall under
the purview of judicial authority even inside India. S. 8 itself envisages
such a situation.]
iii. S. 28 of the Act, in Part I, starts with if the arbitration is in India ,
and in case of international commercial arbitration. In case the
legislature had intended that Part I only applies to domestic arbs, there
would have been no need to mention if the arb is in India
iv. With regard to the argument that Part II does not contain any
provision like S. 9 & 17, the Court said that provisions of Part I, are
general in nature, and unless they are specifically overridden by any
provision in Part II.
v. With regard to the argument concerning S. 5, the Court brushed aside
the contention, saying not all applications would be entertained, but only
the specific ones under Cl (i) and (ii) as denoted by S.9
Consequences of the Bhatia judgement:
i. Part I of the Act applies mandatorily to all arbitrations, domestic or
foreign
ii. Parties can, however, exclude the application of Part I by express or
implied consent
Sen made a final argument saying that since parties have chosen ICC
rules and Paris, there is express exclusion. The Court rejected this,
saying that Parties have accepted ICC rules, and Article 23 of the said
rules denote that any party can approach a competent authority for
interim measures, therefore, there was no ouster of jurisdiction of the
Indian Courts. The Court did not deal with what would constitute implied
exclusion.
The next case in line is the case of Indtel Technical Service, which upheld
the rule laid down in Bhatia, this was more so, as the Judge, Kabir. J, was
present in both Bhatia and Indtel. In Intel, the SC had an opportunity to
determine the true ambit of implied exclusion.In this case, there was a
dispute between the two parties, and the clause between them said the
parties shall refer it to adjudication. The parties also referred that the
law governing the proper contract was that of England and Wales. Now

when a dispute arose, there was a call for appointment of arbitrator

under S. 11.
The appellant contended that as per Bhatia, the Indian Courts have
jurisdiction to appoint an arbitrator under Art 11(6). Furthermore, under
the English law, there is no exclusive jurisdiction of to appoint an
arbitrator.
The respondent, relying on the case of NTPC V Singer, contended that
where the law of arbitration was chosen as the law of England and
Wales, it would automatically, unless otherwise chosen, become the law
governing the arb agreemtn, and since in this case, the appointment of
arbitrator was a matter relating to arbitration agreement, the jurisdiction
of the Court would be barred. Furthermore, as per the international
jurisprudence in the matter, in case a seat is not chosen, the law
governing the arbitration agreement would be held to be the law
governing the arbitration proceeding. Therefore, in this case the
respondent, contended that the curial law is the Law of England, and the
Courts of India have no jurisdiction.
However, the Court, giving a blind reading to Bhatia, held that even
when the law of another country is chosen the jurisdiction of the Indian
Courts is not overridden, and therefore, arbitrator under S. 11 can be
appointed. It held that held that Part-I of the said Act would apply...even
in respect of International Commercial agreements, which are to be
governed by laws of another country.
[By doing this, the Court bypassed the established rule of deriving the
curial law from the proper law of contract, in case it is not mentioned.
For no proper rationale, the Court held that there was no implied
exclusion, and therefore Indian Courts have jurisdiction. This was also a
misapplication of Bhatia, as Bhatia has never said that even if arbitration
is governed by law of another country, Indian Courts would have
jurisidiction. Instead, the applicability of Bhatia International depends
upon the seat of arbitration. In this case, the seat of arbitration was not
specified in the agreement. Thus, as per section 20, it had to be
determined by the arbitral tribunal. Furthermore, The laws of England
and Wales were not discussed to check whether they are contrary to or
exclude the application under section 11 of the Act. It is important to
note that section 18 of the Arbitration Act 1996 (U.K.), permits a party to
make an application for appointment of arbitrators to the courts in the
United Kingdom. The nominee was required to determine whether

section 18 runs contrary to or would exclude section 11. The casual

approach adopted in this case is a clear deviation from Bhatia
International.]
The same approach was adopted by the Court in Citation Infowares v
Equinox. The facts of this case was almost similar to Indtel. In this case,
the proper law of contract was chosen as the Californian Law, and
therefore a challenge arose whether the Indian Courts have the power to
appoint an arbitrator. Now in this case, the respondent relied on NTPC v.
Singer to argue the extension of the PLC into the law governing the
arbitration agreement. This case did a more indepth examination of the
NTPC case than the Indtel case. In 14, it held that it is true that the
general rule is that in case of a choice of law governing the contract,
there would be a selection of the proper law of arb agreement. However,
in 15, it stressed on the idea of seta. It held that whereas a presumption
can certainly be drawn that when the seat is mention that ,unless
otherwise agreed, the law of the seat would also be the law of the
contract, and the law of the arb agreement- the presumption which is
otherway around, is not of any use in the present case. Therefore, had
the seat of arbitration been at California, then there could be a
presumption as per the NTPC case, about the PLC and PLAA. But the
presumption about PLAA from the PLC does not oust the jurisdiction of
the Indian courts.[The emphasis on the idea of seat is the major
difference between this case and Indtel]
However, a case of exclusion may be found in the case of Dozco India v
Doosan Infracore. In that case, the law governing the contract, as well as
the seat was chosen as the South Korean Law. The question was, can an
arbitrator still be appointed under S. 11?
The respondent relying on Bhatia, Indtel and Citation argued that the
courts in India would evidently have jurisdiction. Furthermore, since the
clause containing the seat allowed a change in seat, they argues that it
was merely the venue, and seat was not provided.
On the other hand, the petitioners argued that in this case, what can be
changed is the venue and not seat. Seat is fixed as the Korean Law. It
was argued that primarily for this reason, the Indtel and Citation cases
would have no application in the present matter.
The Court noted that the bracketed portion cannot override the main
provision and indeed it denoted the seat in this case. The Court,
thereafter, impliedly relyin on the NTPC position emphasized on the idea

of seat in this case. It held that in case there is a chosen seat, there
would be presumption that the law of the seat is the curial law, and
therefore it derives the idea of curial law from seat. [This brings the
Indian position slightly back with the international jurisprudence on the
matter].
It further distinguished the present case from Indtel and Citation on the
basis that in those cases the seat was not chosen, and merely the proper
law of contract chosen.
However, whereas the Court draws the PLA from the seat, it seems that
it also draws the PLAA from the PLC. This is because, in 15, it says that
all three laws are the same. The question is, if seat determines PLA, what
is the need to determine either PLAA from the PLC.
Since all three laws point to the same law, the Court held that there is an
express exclusion in the present case. However, this was clearly per
incurium as this is a case of implied and not express exclusion.
[The significance of the decision lies that it brings about the emphasis on
the seat of arbitration. Although the fact that PLC was South Korean was
not given its due importance, and the court from now where, presumes
PLC to be same as PLAA, the fact that, in this case, the fact that PLC was
also South Korean is very important. That is because, in Bhatia, the seat
was given in Paris, as also was ICC Rules- therefore, only seat being
foreign is clearly not enough. The difference between this and Bhatia lies
in the fact that in addition to seat, another foreign component was
present. However, the drawing of PLAA from PLC was unnecessary.]
In order to further understand the relevance of seat in implied exclusion,
two more cases needs to be considered- Yograj and Videocon.

In the Videocon case, the PLC was Indian. The seat for arbitration was
fixed at Kuala Lampur, whereas the law governing the AA was in
England. However, the proper law of contract was in India. However, the
seat was shifted to England as there was an epidemic in KL at the time of
arb. Now, one of the parties sought an application u/s S. 9. The
opposition resisted saying that the seat being England(after the change),
and PLAA being England, there is an implied exclusion and only the
English Courts would have the jurisdiction for interim measures. The
other party argued that it was the venue and not seat which changed,
seat still is KL, and therefore there was no implied exclusion- as the

English law was not unanimously chosen. Therefore, according to them,

by an application of Bhatia, Part I applies, as there is no implied or
express exclusion of Part I.

The question therefore was:

I. What is the lex arbitri?
II. What is the jurisdiction of the India Court to give an award under
S.9.?

With regard to the question of lex arbitri, the Indian court, very
surprisingly auumed jurisdiction based surprisingly the test of closest
connection to hold that Indian Courts have jurisdiction to determine lex
arb. They held that since the question of lex arbitri is creating a
stalemate between the parties, and in the interest of ensuring arbitration
continues, they would have jurisdiction to determine which is the seat.

Based on this, they held that since the change in seat requires the
consent of all parties, and that is not present, the seat is still KL.

With regard to the second point, the Court relies on the case of Hardy
Oil, among others, where the proper law of arbitration was English Law,
along with the seat being in England. Based on this they hold that :

In the present case also, the parties had agreed that notwithstanding
Article 33.1, the arbitration agreement contained in Article 34 shall be
governed by laws of England. This necessarily implies that the parties
had agreed to exclude the provisions of Part I of the Act.

And therefore, there is a case of implied exclusion.

[ Now the only problem with this approach is that, whereas in Hardy Oil,
the PLA was English, in this case, the PLAA is English. But he Court
seems to confuse between both the situations, and holds that both
situations are similar.

Now it is not clear if the Court is also saying that based on Hardy Oil,
PLA is also English(since evidently they think both cases are similar. If
they are, then the judgement runs into two major problems. The first one
is that the derivation of PLA from PLAA is inconsistent with the
international practise, where PLA is derived from seat. Secondly, the
Court has already held that seat is KL. Now if they say that PLA is
English, then there arise two lex arbitris for one dispute, which is clearly
very problematic.
In case the PLAA was Indian, and PLC was foreign , itseems Kabir would
have held there is no exclusion- whereas Sirpukar and Singhvi( of Dozco
and Videocon fame) would have held there is]

In the Yograj case, the parties had chosen India as the PLC, and the SIAC
Rules as the curial law. Now the question was whether there is an
implied exclusion of Part I or not.
The Court held that since Singapore is the Seat, and Art. 32 of the SIAC
Rules denotes Singapore Law as PLA, therefore, in this case, the Court
held that there was an implied exclusion. However, it seems that the
Court in this case relied mainly on the SIAC Rules- and if the SIAC Rules
had not denoted that Singapore is the seat, the decision would have gone
otherwise.
[The decision in Yograj Infrastructure could have been a huge leap
forward for arbitration law in India, if it had held that mere specification
of a foreign seat of arbitration leads to the application of foreign curial
law to the proceedings, and an implied exclusion of Part I of the Act. It is
clear that such a ruling would have completely reversed the impact
of Bhatia International through the application of the concept of implied
exclusion. It would also have brought the Indian position in conformity
with internationally accepted principles of arbitration. However, that was
not to be as the decision in Yograj Infrastructure relied on the SIAC
Rules to hold that the IAA would be the curial law and that Part I was
impliedly excluded.]
Another major problem with Yograj is that, it says that SIAC Rules are
applicable only when the arbitration has commenced. Therefore,
Singapore becomes lex arbitri only in a post commencement situation.
But pre commencement, there is no ouster of jurisdiction and therefore
Indian law, would be the lex arb. This is stupid, as it creates two lex
arbitris in one problem.

In essence, what seems to be coming forward is that if there is a foreign

seat, plus another foreign element, then it is a case of implied exclusion.

Therefore, there arises five ideas out of the whole discussioni. Single element is not good enough (Bhatia)
ii. Seat is mandatory for ouster (Citation, Dozco, Yograj, Videocon)
iii. Seat must have another foreign element present(Yograj, Videocon)
Iv. Unless otherwise mentioned seat is PLA (NTPC V SINGER)
V. Unless otherwise mentioned PLC is PLAA (Dozco, Citation)

Case
Name

PLC

Prop
er
Law
of
Arb
Agre
emen
t

Proper
Law of
Arbitra
tion

Seat

Rul
es

Resul
t

Bhati
a

--------

---------

-----------

France

ICC

No
exclu
sion

INDt
el

English->

Migh
t be
Engli
sh

--------

----------

-------

No
Exclu
sion

Migh
t be
forei
gn

----------

Citati
on

California
n

(per
in
curiu
m
decisi
on)
----------

-------

No
Exclu
sion
(per
in
curiu

m
decisi
on)
Dozc
o

South
Korean

Sout
h
Kore
an

South
Korea

South
Kore
a

ICC

Expre
ss
Exclu
sion.
(Expr
ess
bit is
per
incuri
um)

Video
con

Indian

Engli
sh
(may
be
--> )

Englis
h(?)

KL

------

Impli
ed
exclu
sion

Yogra
j

Indian

-------

Singap
ore

Singap
ore

<SIA
C
Rul
es

Impli
ed
exclu
sion

(based
on
SIAC
Rules)

This was all overturned by BALCO in 2012, which brought in the concept of
territoriality in the Indian arbitration law. It held that although the S. 2(1)(e)
and 2(1)(f) does not include the concept of territoriality, on a literal reading
S. 2(2) includes territory, and since it is operative provision, therefore it
overrules the previous sections. This is in stark contrast to Bhatia, wherein
it has been said that territory is not important.

In this case, there was an agreement between BALCO and Kaiser, for
supply of and installation of computer based system. The arbitration clause
denoted that the Proper Law of contract was Indian, whereas, the lex arbitri
was English Law, and the seat was London.

In contrast to Bhatia, where they held that the fact that only is not
mentioned is caussus ommisus, and therefore it is a mere clarificatory
provision-BALCO held that the requirement for only in Article 1(2) of the
ML is necessary because that provision creates certain exceptions therein.
Therefore, only denotes that the exceptions alone have an extra territorial
application.
Furthermore, it also noted that S. 2(2) is not in conflict with S. 2(4) and 2(5)
and when those sections talks about all arbitrations, they only talk about
arbitration, where Part I of the Act is otherwise applicable. As Part I is not
applicable for foreign arbs, as per S. 2(2), S. 2(4) and(5) cannot extend their
applicability.
With regard to the issue of S. 2(7), the Court held that a the definition of
award under S. 2(7) would involve both domestic award, and an award for
ICA located in India.

Further, with regard to the argument concerning S. 28, the Court says the
requirement for distinguishing between for arbitrations happening in India
arises out of the fact that it might so happen that an ICA has India as the
seat.
[Will come to BALCO later]

SECTION 5 CASES

In the beginning, there was a lot of scepticism about arbitration as a

process, and it was treated as always subservient to the Court process. It
virtually required Court intervention at everystep complicating problems
and rendering it a very tiresome and long process. The award of an Arb,
tribunal, in a pre 96 Act scenario, would have to be confirmed by a Court,
and a review would almost always become an appeal. The need of the hour
was a fool proof mechanism which would minimize Court intervention.
Therefore, in 96, an Act, based on the ML was enacted.
The operative section, which minimizes judicial intervention is S. 5:

5.Extent of judicial intervention.- Notwithstanding anything contained in

any other law for the time being in force, in matters governed by this Part,
no judicial authority shall intervene except where so provided in this Part.

This is a limiting provision, which provides the judicial authority the power
to intervene only when provided by the Act. It does not denote the ground
for such intervention. It is noteworthy to see that S. 5 uses the term judicial
authority, and not Court. This becomes important, as S. 2(1)(e) defines
Court, but does not define judicial authority- and any interpretation which
denotes that both are same would clearly be contrary to established
principle of IOS.

Important in this regard is the case of Fair Air Engg v N.K. Modi. In this
case, F.A.E had entered into a contract with the respondent to fix the air
conditioning at his place. However, as the good Lord would have it, they
breach the damn contract. The respondent therefore approach the
Conumser Court, and the appleant, FAE, takes five adjournments in the
Consumer Court, after which they ask the matter to be referred to
arbitration, as per S. 34 of the Arbitration Act, 1940 [equivalent to S.8 of the
96 Act]. The respondent appealed, and the national Commsision held that
since forums under the Consumer Act are not judicial in nature, and
therefore, cannot grant stay under S. 34. Appeal to the SC.

Before the SC, the Appellant contended that since the consumer forum are
divided in hierarchy as per the Consumer Act, furthermore, their procedure
is prescribed as per S. 13, and also there is finality to their orders under 24,
and enforceability of their orders as per S. 25 and penalty for violation, as
per. S. 27, they have all the trapping of a Court, and are therefore judicial
authority.
The Respondent argues that there was no consensus ad idem submitting the
dispute to arbitration. Moreover, since the other party has taken five
adjournments they have acquiesced to the jurisdiction of the Consumer
Forum. Also, CPA
is a special legislation providing special benefits,
and therefore, the Act, being a general law, cannot take away the
enforcement mechanism.

Firstly, going into the nature of the agreement, the Court holds that there
was an arbitration agreement, by ad idem and moreover, the issue of
acquiescence cannot be entertained as it has not been raised earlier.

Moving to the issue of the nature of the tribunal, the Court first examined
the CPA and reviewed that it has the power to adjudicate judicially, and a
sense of judicial review also exists among the tribunals. Moreover there can
be final and binding awards, and penalties. It further distinguishes between
the judicial authority and a Court, and held that even if all trappings of the
Court are not present, similar power and jurisdiction like a Court for
various tribunals include it within the ambit of judicial authority, and
judicial authority should be given a broad definition, than Courts. It
vaguely addresses the issue of lex specialis by saying that S.3 of the CPA
says that the CPA shall not be derogation to any other Act, and therefore if
lex specialis is adopted, then there would be derogation.

Ratio: Tribunal, with power which closely resemble judicial powers, are
judicial authorities. \

Another important case in this regard is the case of Morgan Securities. In

that case, the appellant lent money to the respondent, and the agreement
had an arbitration clause. The Resp does not pay, and the Appellant starts
with the arbitration, and arbitrator makes an award to the resp to hold on to
his property. Apart from the Arbitrator, the Allahabad High Court also
restrained the Respondent Company from dealing with or in any way
encumbering its assets without the permission of the court.

In a proceeding before the AAIFR, that Authority had also passed an order
of restraint against the respondent company.

The respondent in the meanwhile made a reference under Section 15 of

SICA to the Board for Industrial and Financial Reconstruction (for short,
'the Board'). An appeal against the order of winding up was preferred by the
respondent before the Division Bench of the High Court. The High Court set
aside the said order of winding up by an order dated 20.05.2004 and

directed to keep the winding up proceedings in abeyance till the disposal of

the said appeal under SICA.
Now, the High Court, pursuant a provision of the SICA allowed the sale of
the shares. The Appellant challenged this, as under S. 5, HC should have
never intervened to begin with, because S. 5 is a non obstante clause. But
on the other hand, under S. 32 of the SIAC also, there is a non obstante
clause
The question therefore was, is BIFR a judicial authority under the A&C Act?
If it is, then which Act, overrides which, since both the Acts involved in this
case is lex specialis.
In 32, the Court holds that BIFR is a judicial authority, as the term judicial
authority must be interpreted keeping in mind the object and purpose of the
Act and therefore BIFR is a judicial authority.
With regard to the conflict between non-obstante clause , the Court notes
that the Ordinary rule of construction is that where there are two nonobstante clauses,
I. the specific prevails over the general and
II. the latter shall prevail.
Now, in this case, both are specific. But the SIAC is a 1984 Act, whereas
the Act is a 96 Act. But the Court deviates from this and carries out a
purposive interpretation to non-obstante clauses. It holds that it is
equally well-settled that ultimate conclusion would depend upon the
limited context of the statute. In essence, it held that in case of a conflict
of non-obstante clause, the non-obstante clause having a higher goal
would prevail.
The provisions of SICA, it will bear repetition to state, have been made to
seek to achieve a higher goal and, thus, the provisions of SICA would be
applicable, despite Section 5 of the 1996 Act. This is because t he object
for enacting SICA and for introducing the 1994 Amendment was to
facilitate the rehabilitation or the winding up of sick industrial
companies, which in this case, is a higher goal than the sanctity of the
arbitral process, as it touches the lives of several employees and the
economy.
Ratio: In essence, it added the third criteria, in case of a conflict between
non-obstante clauses-that of a higher goal. Therefore, the non-obstante
clause of S.5 is subject to any other non-obstante clause having a higher
goal than it.

ITI v Seimens: The principal question ITI case was, if revision is barred
under S. 5, read with S. 37(3). In this case, there was an interim order by
the arbitral tribunal. The aggrievd party, in accordance with S, 37(2)(b) filed
an appeal against the order in the City Civil Court, wherein the appeal was
dismissed. Now, S. 37(3) bars any second appeal from the decision of the
District Court/ CC Court. However, in any ordinary case, in case a decision
is given by a District Court, in accordance with Section 151 of CPC, an
second appeal can be preferred to the HC. The question was, does S. 5 & 32
bar that second appeal also?
The appellant contended that revision is, in essence equivalent to an appeal,
and as the recourse pattern is to a Court, under S. 5, evidently revision is
ousted.
The respondent argues that there is no provision which says that nothing in
the arbitration Act bars the application of the CPC, neither is revision
barred. Revision being distinct from appeal, it should be allowed.
The Court held that S. 115 of CPC is a supervisory power, distinct from the
power of appeal. In 13, it holds that since the Act itself gives the power to
the Civil Court, and the Civil Court is obviously bound by the CPC, the CPC
would apply in the present case. As CPC would apply, therefore S. 151
would automatically be attracted, and it does not amount to judicial
intervention.
In 18-19, it hold that the Act only takes away the second appeal, and says
nothing about revision. When the power has been given to a Court, instead
of any persona designata , the normal procedures of the Court, including
revision and peal would apply, unless specifically ousted.
Ratio: In case of an appeal to the Civil Court, u/s 37, the CPC would apply.
There can be revision against the decision of the Court u/s 151 of CPC, and
that is not judicial intervention u/s 5 of the Act.
[The Courts decision would have been meaningful, if only the procedural
safeguards are applicable. But the court said that the whole CPC , including
appeals and revisions applicable.]

The next important aspect of judicial intervention is whether a writ petition

is barred by operation of S. 5. Two cases are important in this regard; CDC
Finance, and Tantia Construction.

CDC Finance- In CDC Finance, there was a pledge agreement between the
one company and the shareholders of another company. The shareholder did
not comply wih the P.A., which led to CDC referring the matters to
arbitration. In the meantime, BPL filed a writ petition , stating that this
acquisition by CDC is against the RBI regulation. The Court said that
whatever be the case, it is not correct to invoke the writ jurisdiction of the
Court in view of S. 5 of the A& C Act.
20 of the judgement stated that :

Whatever may be the merits of the writ application, we are of the view
and it has been fairly conceded by the learned Senior Counsel appearing on
behalf of Respondent 1 that the High Court should have had regard to
Section 5 of the 1996 Act before granting the reliefs it did. Under Section 5
of the 1996 Act, courts are restrained from interfering with arbitration
except in the manner provided in the 1996 Act. That the orders passed by
the High Court would amount to a violation of this mandate is not seriously
disputed by the respondents.
Ratio: Writ power, u/Art. 226 should not be invoked when arbitration is
underway.

Tantia Construction: In this case, there was a contract between Tantia and
East Central Railway Co., which contained an arbitration agreement. Tantia,
according to the contract, was supposed to carry out some constructions for
the Railways. Now, the Railways, vide an order, all of a sudden unilaterally
extended / enlarged the amount of work to be done by Tantia. Tantia,
aggrieved by this, approached the SC for certiorari and mandamus, asking
for i. a quashing of the enlarged work, and ii. Payment for work already
done. Railways raised the issue of maintainability, based on S. 5.
The SC, in response to the Railways claim of maintainability, held that since
writ power is mentioned in the Constitution and it is a power of
extraordinary jurisdiction, a court of writ jurisdiction intervening in an arb
process is cool beans. S. 5, being an ordinary law, bars ordinary jurisdiction,
and not extraordinary jurisdiction. Writ jurisdiction cannot be barred by the
presence of an alternate remedy. In 27, it holds:
27. Apart from the above, even on the question of maintainability of the
writ petition on account of the Arbitration Clause included in the
agreement between the parties, it is now well-established that an

alternative remedy is not an absolute bar to the invocation of the writ

jurisdiction of the High Court or the Supreme Court and that without
exhausting such alternative remedy, a writ petition would not be
maintainable. The various decisions cited by Mr. Chakraborty would
clearly indicate that the constitutional powers vested in the High Court or
the Supreme Court cannot be fettered by any alternative remedy
available to the authorities. Injustice, whenever and wherever it takes
place, has to be struck down as an anathema to the rule of law and the
provisions of the Constitution. We endorse the view of the High Court that
notwithstanding the provisions relating to the Arbitration Clause
contained in the agreement, the High Court was fully within its
competence to entertain and dispose of the Writ Petition filed on behalf of
the Respondent Company.
Ratio: An alternative remedy is not an absolute bar to the
invocation of the writ jurisdiction of the High Court or the
Supreme Court. No, not even under S.5 of the Act.
[Strangely, this does not take into account CDC at all, which held the
exact opposite of this ratio. One cannot override the other, because both
are division bench decision. However, Tantia seems to be better decision,
because, i. CDC was summarily disposed decision, not a reasoned one ii.
The line of argument, suggesting that an ordinary statute cannot override
jurisdiction seems to be in consonance with the jurisprudence on this
point]

Section 7 Arbitration Agreement

Must be in the form of an arbitration clause in a contract or in the
form of a separate agreement.
Must be in writing.
It is in writing if
A document is signed by the parties

Exchange of letters, telex, telegrams or other means of

telecommunications which provide a record of the agreement
An exchange of statements of claim and defense in which the
existence of the agreement is alleged by one party and not
denied by another.
The reference in a contract to a document containing an arbitration
clause constitutes an arbitration agreement if the contract is in
writing and the reference is to make that arbitration clause part of
the contract.

SCOPE and ESSENTIALS of Arbitration Agreement

An Arbitration agreement may be in the form of an arbitration

clause or in the form of a separate agreement but has to be in
writing necessarily. Such an agreement can be in one
document and can be gathered from many documents.
However in the absence of the existence of a defined legal
relationship there is no question of there being an arbitration
agreement. It doesnt relate to all kinds of disputes.

No particular form is needed to bring into existence an

arbitration, nor is it necessary that words like arbitrator or
arbitration need be mentioned in an arrangement where
parties had really intended to submit their differences or
disputes to arbitration- Thomson Press India Ltd. v. NCT of
Delhi, 1999 (1) Arb LR 421- While there cant be any
universal format for framing an AA , however the
language used in drafting the clause must specify a clear
intent to refer a dispute to arbitration and not only the
mere possibility.

Essentials of an arbitration agreement: (BSMC v. Encon

Builders, AIR 2003 SC 3688)
I.
II.
III.
IV.

There must be a present or future difference in

connection with some contemplated affairs
There must be intention of the parties to settle
such differences by a private tribunal
The parties must agree to be bound by the decision
of such tribunal
The parties must be ad idem

For the purpose of construing an arbitration

agreement, the term arbitration is not required to
be specifically mentioned therein.

Mere use of the word arbitration or arbitrator will not

make it an arbitration agreement, If it requires or
contemplates a further or fresh content of the parties to
reference to arbitration. For example, parties can, if
they so desire, refer their disputes to arbitration or in
event of any dispute, the parties may also agree to refer
the same to arbitration- Since this doesnt establish a
clear intent to refer the matter to arbitration, it cant
constitute an arbitration agreement. Jagdish Chander v.
Ramesh Chander (2007) 5 SCC 719.

Attributes needed in an arbitration agreement: (K.K.

Modi v. K.N. Modi, 1998 (1) Arb LR 296)
I.
II.
III.
IV.

V.
VI.

VII.

Must contemplate the decision of the tribunal will

be binding
Jurisdiction of such a tribunal must be derived from
consent of the parties/order of the court/terms
which make it clear that process is an arbitration.
Substantive rights of parties will be determined by
agreed tribunal.
Tribunal will determine the rights of parties in an
impartial and judicial manner with the tribunal
owing an equal obligation of fairness towards both
sides.
Decision of the tribunal must be intended to be
enforceable in law.
Agreement must contemplate that the tribunal will
make a decision upon a dispute which is already
formulated at the time when reference is made to
the.
Whether the agreement contemplates that the
tribunal will receive evidence from both sides and
hear their contentions, or at least give the parties.

Defined Legal Relationship: Disputes must be of a legal

nature- matters of moral or spiritual relations are not fit
subjects for arbitration. The word defined would
signify the known categories of legal relationships and
also the upcoming categories. If the matter or
transaction is outside the known categories of relations
under which legal rights or liabilities are likely to be
created, it would not be an arbitrable matter.- ICICI Ltd.

v. East Coast Boat Builders and Engineers Ltd. , (1998) 9

SCC 728.
Present of future disputes: all matters of a civil nature
may form the subject of reference but not a dispute
arising from and founded on an illegal transaction.
The following matters cant be referred to arbitration
I.
Insolvency proceedings
II.
Probate proceedings
III.
Suit under Section 92 CPC
IV.
Proceedings for appointment of guardian
V.
Matrimonial causes-except settlement of terms of
separation or divorce
VI.
Industrial disputes
VII.
Title to immovable property in a foreign country
VIII.
Claim for recovery of octroi duty.

A general reference may be made in respect of disputesit is not necessary to specify the dispute either in the
arbitration agreement or in the reference to arbitrator.
Arbitration agreement survives even when the contract
frustrates:
Since an arbitration agreement is a collateral term in the
contract which relates to resolution of dispute and not
performance- even if performance of the contract comes
to an end on account of repudiation, frustration and
breach of contract, the arbitration agreement would
survive for purpose of resolution of disputes arising
under or in connection with the contract. This position is
recognized under Section 16(1) which inter alia provides
that an arbitration clause which forms part of the
contract has to be treated as an agreement independent
of other terms of contract and a decision that the
contract is null and void shall not entail ipso jure the
invalidity
of
the
arbitration
clause.

National
Agricultural co-op Marketing Fed. India Ltd. v. Gains
Trading Ltd. (2007) 5 SCC 692 .
Whether a contract is frustrated or not is itself a dispute
that arises under a contract and if the contract contains
an arbitration clause that dispute must be referred to
arbitration.
However if the arbitration agreement is illegal- the
arbitrators jurisdiction disappears and any award which

the arbitrator may have made purporting to act under

the legally non-existent arbitration clause is also void.Suwala jain v. Clive Mills Co. Ltd. AIR 1960 Cal 90.

Section 8- Power to refer parties to arbitration where there is an

arbitration agreement

The question whether the parties be referred to arbitration can arise only at
the first instance of an opponent or defendant in a judicial proceeding or at
the highest suo motu at the instance of the judicial authority, when it comes
to know of the existence of an arbitration agreement.- Ardy International
(P) Ltd. v. Ispiration Clothes & U, (2006) 1 SCC 417

Whenever a matter under Section 8 arises there are certain issues that are
to be decided by a court: (Booze Allen & Hamilton v. SBI Home Finance Ltd,
(2011) 5 SCC 532 )
Whether there is an arbitration agreement between the parties
Whether all the parties to the suit are parties to the arbitration
agreement.
Whether the disputes which are the subject matter of the suit fall
within the scope of the arbitration agreement.
Whether the defendant had applied under Section 8 of the Act for
reference before submitting his first statement on the substance of
the dispute; and
Whether the reliefs sought in the suit are such as can be adjudicated
and granted in an arbitration.
Section 8(1) provides that if any party to an arbitration agreement
brings before a judicial authority the matter covered by the
agreement, the other party may apply for stay of the suit and for order

of reference to arbitration. under the 1940 Act the court could stay
such proceedings if it found there was no sufficient reason why the
matter should not be referred to arbitration but now u/s.8 the court
has no choice but to refer the parties to arbitration.

Merely having an arbitration agreement is not good enough. This is because

the even if you have a valid agreement, the moment you make a request, the
party may withdraw consent and say see you in court. In that case, the
point of having a valid arbitration agreement is futile. Therefore, S. 8
imposes an embargo on the parties to necessarily go to arb, by giving the
power to the Courts-Reference to arbitration. This is in toto with S. 8 of the
ML & 2(2) of the NYC.[ But S. 8 uses the word judicial authority instead of
Court. The legislative intent is that even if a matter gets raised anywhere
other that Court, that JA would still be duty bound to make a reference]
PAG Raju v. PVG Raju (2000) 4 SCC 539 Case: This case makes it
clear that even the SC acting under S8 is a judicial authority, and it is
mandatorily bound to refer the parties to arbitration if an application is
made. In this case, the arb agreement was signed during the pendency of
the appeal. The Court states the requirements under S 8 , as follows
(5):

o an arbitration agreement(does not say anything about

validity),
o An action
o The application of a party
o Subject matter of arbitration agreement
o Before submission of first statement of dispute.

Extending the ambit of action the Court holds that there is no bar to
extend the concept even at the appellate stage, provided that the
arbitration agreement comes into existence immdietly before the appeal,
while the litigation is ongoing. As the consequence of S.8, the matter,
ends before the JA and moves to the Tribunal. [under 1940 Act, it was
stayed]

It should be noted that u/s 8, only a party to the arb agreement can make an
application. But the idea of part is associated with only the application and
not the action. Is it a party to a suit or the party to an arbitration
agreement. It is a party to an arbitration agreement. This section envisages
a situation where a party brings the action, and another party moves the
application.
In case of a party who has brought the action to a civil suit, he has waived
his right to apply. In case of the other party, if he has submitted first
statement of dispute, that leads to bilateral avoidance of contract. No
power of the Court to makes a suo moto reference, there must be an
application.[Although in Hardy Mills Intl case the SC seems to suggest a
suo moto power, but thats merely obiter]
One of the primary requirements under S.8 is that the matter in the
action should be a subject matter of the arb agreemnt. In essence,
whatever the matter is- it should be encapsulated within the arb
agreement. [Eg: A clause like all disputes regarding this matter
should be subject to arb]
Sukanya Holdings case: In this case, it was reaffirmed that whatever may
be the matter you are referring, it must fall squarely within the arbitration
agreement. When the whole dispute is covered by the arbitration
agreement, that is perfectly fine. But the problem arises when only some of
the parts of some parties are subject matter of the arbitration agreement,
then there arises a problem. The Court says that allowing some parties to
proceed to the civil court, but restricting the other to arbitration would
delay the whole process, and moreover, there is no provision in the Act
allowing such bifurcation. So in such a case, where only some of the parties
and some of the parts are subject matter, then there can be no reference to
arbitration. But as discussed in PAG this does not impose an embargo
on entering into an arbitration agreement after the matter is in
Court.
The important aspect of S.8 is that the application should be made before
submitting the first statement on the substance of the dispute. S4 of the Act
talks about waiver, which denotes that the failure to ask for arbitration is an
waiver of the right to arbitrate. So the question that needs to be
examined is what exactly is first statement on the substance of the
dispute. Now in the 1940 Act, it was stated that it should be before the
written statement. The usage of the term first statement of dispute makes
it wider. But does that mean submission of documents in incidental

proceedings, like a counter to an application seeking temporary

injunction be also first statement of dispute?
The Rashtriya Ispat Case tells us about this.
Rashtriya Ispat: In this case, there was a reply to a prayer for an interim
order, wherein the party filing reply had to divulge his defence which could
have been taken as the written statement, i.e., that there is an arb
agreement existing. After that it filed an application. This opposed by the
opposite party who claimed that while filing a reply to the prayer for the
interim order, they have filed their first statement on the substance of the
dispute. According to the Court, first statement can be filed even before
written statement. Although it does not exactly denote what a first
statement is, it states that the first statement refers to a submission of the
party making the application under section 8 of the Act, to the jurisdiction
of the judicial authority; and what should be decided by the court is
whether the party seeking reference to arbitration has waived his right to
invoke
the
arbitration
clause.
(22). Based on this, the Court held that a reply to a counter affidavit
cannot be held be a submission of the first statement of dispute.
The Court further says that Disclosure of a defence for the purpose of
opposing a prayer for injunction would not necessarily mean that substance
of the dispute has already been disclosed in the main proceeding.
Supplemental and incidental proceeding are not part of the main
proceeding, and therefore, a counter filed in a supplemental proceeding,
which in this case they were bound to file, cannot be equated with a waiver
of their right to arbitrate.

This was followed in toto in the Booze Allen case.

S.8(2) is a negative connotation, which suggests that the application

under S.8(1) shall not be entertained, unless it is accompanied by
the original arbitration agreement. The precise connotation of
accompany was dealt with in Southern Railway case, Giving a
purposive interpretation to this, the Court held that what the Court
needs is an arbitration agreement to be in place, i.e, if the
agreement is already before the Court or if it is a claims of defence
and
other party does not dispute it, then it can be said to
accompany.

The most important aspect of S.8 is if it is open to the Court to check

the existence or validity of the arb agreement? If it is, then what is
the status and validity of such finding? Now, S 8(3) tells you that you
can start arbitration without a judicial authority. Now what if, in
these parallel proceeding, the tribunal decides that there is no arb
agreement while the Court decides there is?

SBP v Patel Engg: In this case, the question for determination was the
nature of the power exercised by the CJ in an appointment of arbitrator
under S. 11. The Court, while observing that the nature of the CJ cannot be
held to purely administrative, drew an analogy with S.8, wherein relying on
PAG Raju case and Pink City case, it held that it is established law that the
validity must be checked before a reference is done. [But this can be
criticized on the grounds that PAG never said anything about validity and
Pink City said validity has to be checked only when there is a dispute about
the validity. The Court therefore starts from an assumption that u/s 8
validity has to be checked, but ironically this case itself is the authority
which states that the validity must be checked] Taking it a step forward, in
this case, the Court says that the JA is duty bound to check validity before
making a reference u/s 8. (15.) In 19, we see a hint reasoning for that
assumption described above. The Court says that the judicial authority, in
the absence of any restriction in the Act, has necessarily to decide whether,
in fact, there is in existence a valid arbitration agreement and whether the
dispute that is sought to be raised before it is covered by the arbitration
clause. It is difficult to contemplate that the judicial authority has also to act
mechanically or has merely to see the original arbitration agreement
produced before it and mechanically refer the parties to an arbitration."
(19)
Ratio: Therefore, after this case, it is mandatory on the arbitral tribunal to
check whether there is a valid arbitration agreement between the parties.

[ Although it can be argued that this is not really the ratio of the case, as
this case primarily dealt with the nature of the CJs function u/s 11, and its
observation regarding S.8 is, at best, an orbiter. However, the fact remain
that this is 7 judge bench decision, and therefore massively persuasive
decision.
Another important question is what happens when the arbitration
agreement is valid in law, but then the main contract has some really
grave problems? This was answered in the case of India Households.
India Households and Healthcare Ltd. v. LG Household and
Healthcare Ltd., (2007) 5 SCC 510: In this case, there was an arbitration
agreement in the main contract, but the main contract was alleged to be
vitiated by massive fraud, and the parties representing the company were
convicted by a Korean Court. Moreover, the Madras HC had passed a
temporary injunction against India Household restraining them from doing
certain things under the agreement as a response to the allegation that the
agreement was fraudulent. It was argued that the arbitration agreement is
a different agreement altogether and even if the main contract is vitiated by
fraud, the sanctity of the arbitration agreement should be upheld. The court
observed that although normally, where existence of an arbitration
agreement can be found, apart from the existence of the original
agreement, the Courts would construe the agreement in such a
manner so as to uphold the arbitration agreement, however, when a
question of fraud is raised, the same has to be considered
differently. A fraud, the Court held, vitiates all solemn acts.
Relying on the Patel Engineering case, the Court held that it is mandatory
for the JA u/s 8 to satisfy itself about the validity of the arbitration
agreement. Since in this case, the main contract, and consequentially the
arbitration agreement is vitiated by the fraud, there can be no reference to
arbitration. In addition the Court also held that the Madras HC order,
restraining the parties from acting under the agreement would also include
acting under the arbitration clause. The SC, would therefore, not give a
direction which would be contrary to another lawful order.
[However, one question that arise is, in this case, the allegation of frauds
was sub judice. What if the Court deciding that issue later comes in and
says no fraud? In case that is the only decision by the Court, logically, the
arbitration agreement still persists, and a reference to arbitration can be
sought. But in most cases, the Court, after deciding no fraud, goes ahead
and decides all the substantive rights and obligations. In that case, the

matter having already been solved by the Court, it makes no sense to allow
a reference to arbitration again. ]

The jurisprudence on fraud was further refined by N. Radhakrishnan case.

N.Radhakrishnan: In this Court there was an allegation of fraud, but it

was contended by the other party that the same should be referred to
arbitration in view of the arbitration clause, as cases of fraud clearly fall
within the purview of the arbitration clause. However, the Court in this
case, stated that the matter should be tried in a court of law which would
be more competent and have the means to decide such a complicated
matter involving various questions and issues raised in the present
dispute. (12).
Relying on the case of Oomar Sait HG, the Court opined that the civil
court is not prevented from proceeding with the suit despite an
arbitration clause if dispute involves serious questions of law or
complicated questions of fact adjudication of which would depend upon
detailed oral and documentary evidence.
Allegations regarding clandestine operation of business under some
other name, issue of bogus bills, manipulation of accounts, carrying on
similar business without consent of other partner are serious allegations
of fraud, misrepresentations etc., and therefore application for reference
to Arbitrator is liable to be rejected.(13)
Therefore, the jurisprudence evolving from these cases are, wherever there
is even a mere allegation of fraud with regard to the main contract, that
cannot be asked for reference to arbitration under S.8. [Cheap Trick: If you
want to bypass an arbitration agreement , raise an allegation of the main
contract being fraudulent. Mere allegation is enough

One of the primary challenges to inclusion of the power to delve into

the issues of existence of validity by the JA is the scheme of the Act
itself. Whereas S. 8 of the ML expressly states that the court should

refer unless it finds it to be null and void, inoperable or incapable of

being performed. S.8 does not contain any such stipulation. All the
cases above have treated this as a causus ommisus. But if we look at
S. 45, that provision, while dealing with the reference in the
international context, expressly uses the words underlined above. In
that case, is it correct to say that it is caussus ommisus?

The approach of BALCO makes sense. If we restrict Part I to domestic, then

we see that under S. 16, enormous power to the arbitral tribunal to
determine its own jurisdiction. But no such power under Part II. Hence it is
reasonable to approach the court for validity. But does that reconcile with
the stand taken by the above cases?
In conclusion, in 20, the Booze Allen case states that there are five things
that must be checked by the JA before making a reference: i. validity ii. All
parties are party to the arb agreement iii. Subject matter of suit is subject
matter of arb iv. Whether it is before first statement of dispute, and v.
Arbitrability. The exceptions under the section are i. fraud, ii. S7
requirements not met iii. Arbitrability
Now, the problem is, how does the power of the arbitrator u/s 16, to
check his own jurisdiction reconcile with the power of every JA to
check the question of validity?
This could have been reconciled, if the Court in SBP had held that only a
prima facie enquiry into the validity is required. But SBP suggest that there
should be a conclusive enquiry. The way out of this is to argue that SBP
applies to the extent of S.11. However, even after this the problem with
fraud still remains- because on a simple allegation of fraud, the whole
arbitration agreement can be called off, which essentially implies that the
Court has to look at the question of validity. Moreover, several cases post
SBP has held it to be judicial authority on the point of determination of
existence and validity. This makes the power of the arbitral tribunal to
determine on its own jurisdiction and the existence and validity of
the arbitration agreement u/s 16 subject to the determination by the
JA u/s 8- which is clearly unwarranted in the scheme of the Act.

The last question that arises in this regard is that, as has been held,
arbitration is a consensual process. Can a non- party, therefore be
referred to arbitration?
In Sukanya Holdings, it was held that:
i.
ii.

the matter brought must be the subject

matter of the arb agreement, and
ii. That all the parties before the court
must be parties to the arb agreement- there
can be no bifurcation.

The problem with this approach is, that soon after this judgement, lawyers,
to avoid arbitration, started adding non-parties to the arbitration agreement
as respondent frivolously.
However, in cases of international commercial arbitration under part II,
such tactic cannot be adopted. This is because, where S 8 reads if a party
so applies, the phrase under S. 45 is at the request of one of the parties or
any person claiming through or under him. This therefore allows a non
party, who is for eg, bound by a direct relationship with the party, or is a
party of a composite contract, or on the same subject matter to be bound to
the arb agreement. (Eg: In an agreement between A and B containing arb
agreement, B is hired to build the house. B hires X and Y to fix the
electricity, X and Y can, if a dispute so arises, approach the Court U/s 45 to
hold A to the arb agreement.(provided its an international commercial
arbitration to which Part II applies). This is the ratio in Choloro Controls
(68, 79)

Section 9- Interim Measure

The interim measures are invoked by the court under this section to protect
the right under adjudication before the arbitral tribunal from being
frustrated. The section contemplates issuance of interim measures by a
court only at the instance of a party to an arbitration agreement with regard
to the subject matter of the arbitration agreement.

The purpose of S.9 is to ensure that the property which is the subject matter
of arbitration is not diverted or destroyed and also to ensure that the
parties are able to fully exploit the evidentiary value of the property in
dispute. The court has the same power for making an interim order under
Section 9 of the Act, for the purpose of appointing a guardian or for
preservation, interim custody etc. of goods, as it has for the purpose of and
in relation to any proceedings before it. Hence the court will act according
to the powers vested in it by the procedural laws such as the CPC and IEA.

These orders are aimed at:

-

Preserving the assets

Protecting the position of the parties
Maintaining status quo
Procuring evidence

Principles Governing Grant of an Injunction

The principles governing grant of an ad interim injunction are the same as
in other civil matters. It is on the plaintiff to show there is a prima facie
case and that the balance of convenience lies in his favor and if the
injunction is not granted he is likely to suffer irreparable injury. Hence the
following factors must be considered while granting interim injunction:
-

Whether the person seeking injunction has made out a prima facie
case
Whether the balance of convenience is in his favor, that is, whether it
could cause greater inconvenience to him if the injunction is not
granted that the inconvenience that would be caused to the other
party if the injunction is granted.
Whether the person seeking temporary injunction would suffer
irreparable injury. (DM Fabrics v, Sand Plast India Ltd., (1995 (1)
Arb LR 282).

It is not necessary that all the conditions stated above must be

presented for obtaining an order of temporary injunction. Condition
1 must be present, which is a sine qua non, along with at least any
one of the other two conditions must be present.

Temporary Injunctions are regulated by Order 39 of the CPC. Rule 1

states that such an injunction can be granted if the plaintiff proves
by affidavit or otherwise-

Any property in danger of being wasted, damaged or alienated

by any party to the suit, or wrongfully sold in execution of a
decree; or
The defendant threatens or intends to remove or dispose of his
property with a view to defrauding his creditors; or
The defendant threatens to dispossess, the plaintiff or
otherwise cause injury to the plaintiff in relation to any
property in dispute in the suit.

In the case of InHouse Production there was an interim order sought with
regard to the stoppage of airing of a TV show called Vikramaditya. The
petitioner claimed an interim injunction t0 stop the other party from
assigning the market right of this particular serial to another and to stop
airing of the show. The Court, in this context , discussing the various issues
further clarified that above position, wherein it held that ordinary procedure

while operating u/ 9 must mean that while considering the question of

grant of any interim relief in the nature of injunction, underlying principles
for grant of injunction as applicable in proceedings under Order 39 Rules 1
and 2 of the Code of Civil Procedure would be applicable.
It further held that the court is required to satisfy itself that there is a
prima facie case in favour of the party asking for injunction and irreparable
injury or damage would be caused if injunction is not granted and balance
of convenience lies in favour of the applicant(9).

Now. 9 specifically denotes that an interim measure may be asked for

only by a a party. The question arose in the NHAI V China Coal
case, if a non-party can be added as a party to the arbitration
agreement by the Court.
NHAI V China Coal: In this case there was a contract between National
Highway Authority of India and China Coal for the construction of a
highway. This contained an arb agreement. Now, CC entered into another
hire purchase contract with SRI, which also had an arbitration agreement.
Now, when a dispute between NHAI and CC arose, NHAI approached the
Del HC asking for an interim order seeking that the machinery of CC would
not be moved from the site. This was granted. Now SRI, on the other hand,
approached the Cal HC, seeking an appointment of receiver for the
machinery of CC. The Cal HC, without considering the Del HC judgement,
also granted the same. Evidently, these two judgements were in conflict.
Therefore, SRI, approached the Delhi HC, during the S.9 proceeding,
claiming that the judgement affected his right and he be also treated as
party to the S.9 proceedings.
The Court, however, rejected this request held that , the Intervenor has no
privity of contract with NHAI. It is also clear that the Intervenor is not a
party to the arbitration proceedings Therefore, Intervenor cannot s be a
party in the arbitral proceedings pending between NHAI and China Coal, it
has no locus standi in the present proceedings. The interim orders that may
be passed under Section 9 or Section 17 are with respect to the parties to
the arbitration and in connection with the subject matter thereof. (15.5)

Section 9(ii)(a) Preservation, interim custody or sale of any goods

The term Goods has not been defined in the Act- so we look into Section
2(7) of the Sale of Goods Act, 1930 which defines Goods as every kind of
moveable property other than actionable claims and money and
includes stock and shares, growing crops, grass, and things attached

to of forming part of the land which are agreed to be severed before

sale of under the contract of sale. This definition is relevant for S.9 of
the Act as it confers powers on the court for preservation, interim custody
or sale of any goods, which are the subject matter of the arbitration
agreement. The court can protect the Subject-matter from damage,
deterioration or destruction and also from being misappropriated by the
party who has control or custody of them. Under this clause it is not
necessary for the court to find out whether the respondent is seeking to
dispose of the property or taking the property outside the jurisdiction of the
court.

Section 9(ii)(b) Securing the amount in dispute in the arbitration:

This provision is not attracted unless the amount sought to be secured is
actually dispute in the arbitration. Each case under this section has to be
considered in its own facts and circumstances and on the principles of
equity, fair play and good conscience. Under this clause the applicant must
produce adequate material before the court on the basis of which the court
can form its opinion that unless the jurisdiction is exercised under this
provision, there is a real danger of the respondent defeating, delaying or
obstructing the execution of the award made against it.- Global Company
v. National Fertilizers Ltd. AIR 1998 Del 397

Whether it is necessary for a party seeking interim injunction under

Section 9(ii)(b) to satisfy the conditions of attachment under Order
38, Rule 5, CPC?

Order XXXVIII Rule 5: Where defendant may be called upon to

furnish security for production of property.- (1) Where, at any stage of
a suit, the court is satisfied, by affidavit or otherwise, that the defendant,
with intent to obstruct or delay the execution of any decree that may be
passed against him,
(a) is about to dispose of the whole or any part of his property, or
(b) is about to remove the whole or any part of his property from the local
limits of the jurisdiction of the court, the court may direct the defendant,
within a time to be fixed by it, either to furnish security, in such sum as may
be specified in the order, to produce and place at the disposal of the court,

when required, the said property or the value of the same, or such portion
thereof as may be sufficient to satisfy the decree, or to appear and show
cause why he should not furnish security.
(2) The plaintiff shall, unless the court otherwise directs, specify the
property required to be attached and the estimated value thereof.
(3) The court may also in the order direct the conditional attachment of the
whole or any portion of the property so specified.
(4) If an order of attachment is made without complying with the provisions
of sub-rule (1) of this rule, such attachment shall be void.

National Shipping Company of Saudi Arabia v. Sentrans Industries

Limited AIR 2004 Bom 136:
Facts: The Appellant sought an order directing the respondent to deposit a
sum of 2.8 Million Dollars in order to secure the claim of the petitioner in
the Arbitration proceedings. The appellant contends that the respondent(his
agent) has breached the obligations relating to accounting and financial
reporting contained in the agreement. The appellant contends that the
respondent had received and collected freight in the sum of Rs. 1,75,56,374
but hadnt paid it to the appellant, in breach of his fiduciary duty.
Contention of the appellant: the District Court erred in holding that an
order for deposit could not be made as the case under Order 38 of CPC was
not made out.
Contention of the respondent: The relationship between the appellant
and the respondent is of principal and agent and there are claims and
counter-claims made by one against the other. Till its finally determined
who is the debtor and who is the creditor, no party can lay a claim on any
item of money which is a part of the general accounts.
Holding of the High Court: No material has been placed by the appellant
to indicate even remotely that respondent by its acts is intending to defeat
the claim of the appellant and if no interim protection order is passed by the
court, in the event of appellant succeeding before Arbitral Tribunal, it would
not be possible for the appellant to derive fruits of the award. There are
notable differences between the 1940 Act and the 1996 Act- the specific
exclusion of the term all provisions of CPC shall apply indicates in itself
that the 1996 Act was intended to be a self-contained code. If the intention
of the court was to apply the provisions of CPC then there was no reason for
the legislature to specifically enact Section 9. The substantive provisions for
granting interim relief under the CPC cant be read into the act, there are

independent provisions dealing with that. However where the act is silent
on procedural issues, recourse may be taken to the provisions under CPC.
The exercise of power under Section 9(ii) (b) cant be restricted by
importing the provisions of Order 38 Rule 5. The guiding factor for
exercise of court power under this clause has to be whether the
order deserves to be passed for justice to the cause. The application
for interim injunction under Section 9(ii)(b)
is guided by equitable
consideration and each case has to be considered in light of its facts and
circumstances.

Section 9(iii)(c)
property

Detention,

preservation

or

inspection

of

any

The purpose of such interim measures is to prevent the property or thing

from being altered, destroyed or disposed of, before the evidence of existing
state can be secured for the purpose of arbitration. An interim measure can
also be ordered by the court in relation to property or thing regarding
which any question may arise in the arbitral proceedings. Under this clause
the court is within its powers to authorize any person to enter upon any
land or building, which is in possession of any party to the arbitration
proceeding with the objective of obtaining full information or evidence.

Section 9(ii)(d)- Interim injunction or the appointment of a receiver

Pending disposal of disputes by the arbitrators, the respondents moved an
application u/s. 9(d) for an ad-interim injunction restraining the appellant
from transferring or alienating the alumina lying in the appellants silos.
Held that in order to protect the interests of the parties on grounds
of equity and balance of convenience, the respondent were allowed
to take the goods while the appellant would be paid, as an interim
measure, the value of the goods. The respondent was also asked to
furnish a bank guarantee for the difference in value as claimed by
the appellant and value fixed by the court. The appellant in turn had
to give an undertaking to pay all sums which may become payable
under the award within 6 weeks from the same becoming payable..NALCO v. Gerald Metals AIR 2004 SC 1433.

Whether
Interim
Measures
can
be
commencement of arbitral proceedings?

invoked

before

the

Sundaram Finance v. NEPC India (1999) 2 SCC 479:

Facts: Respondent entered into a hire purchase agreement with appellant
for supply to 2 wind turbine generators along with all accessories. Payments
to be made by the respondent in 36 installments. After payment of the first
15 installments the respondent committed default.
The agreement contained an arbitration clause. The appellant found out
that litigation was pending against the respondent and brought an
application under section 9 praying the appointment of an Advocate
Commissioner to take custody of the hire-purchase machinery and restore
the interim custody of the appellant. The trial court passed an interim order
to take possession of the turbines with the help of the police. Respondents
filed a petition U/A. 227 before the Madras High Court.
Contention of the respondents: There were no arbitration proceedings
pending and even the arbitrator had not been appointed, hence an
application u/s.9 is not maintainable.
High Courts Holding: Any party, who has an agreement for arbitration
with another can rush to Civil Court and straight away get an order under
Section 9 and thereafter keep quiet without referring the matter to
Arbitration. The very fact that Section 8 comes after Section 9 , the only
interpretation that could be given to Section 9 is that it could be availed of
when an arbitration proceeding is pending before the arbitral tribunal.
Hence S.9 can only be availed of when an arbitration proceeding is pending
before the arbitral tribunal or is at the reference stage before the court or
after the Arbitral award has been made.
Holding of the Supreme Court: 1996 Act is very different from the 1940
Act and the provision have be interpreted and construed independently.
Section 21 states that arbitration proceedings are said have commenced on
the date of which a request for the dispute to be referred to arbitration is
received by the respondent. It is in this context that the court must examine
and interpret the expression before or during arbitral proceedings
mentioned under Section 9 of the Act. Meaning has to be given to the word
before, any interpretation like the one given by the High Court would
have the effect of rendering the term u/s.9 redundant. Reading the
section as a whole it appears to us that the court has jurisdiction to
entertain an application under Section 9 either before arbitral
proceedings or during arbitral proceedings or after making of the
award but before it is enforced in accordance with Section 36 of the
Act. Further Article 9 of the ML seeks to clarify that approaching the court
for interim measures would not be regarded as being incompatible with an
arbitration agreement. Under the English Arbitration Act a proposed party

has been given the right to approach the court. When an application is
filed under Section 9 there must be a manifest intention on the part
of the applicant to take recourse to the arbitral proceedings. While
passing an interim order the Court must ensure that effective steps are
taken by the applicant for commencing the arbitral proceedings.
The issue of manifest intention was addressed in the case of Firm Ashok
Traders v. Gurumukh Das Saluja AIR 2004 SC 1433. In that case, there
was a partnership agreement, which was not communicated to the ROC, but
the firm entered into a contract anyway. The partnership agreement had an
arb clause. Now disputes arose between the partners, and a group of
partners filed an interim application under S. 9 seeking for appointment of a
receiver. The Court dealt with two issues in that case
-

Is an application under S.9 barred by S. 61 of the A&C Act, and

Can S.9 be evoked before commencement?

The question regarding S. 61 is not relevant for our purpose. With regard to
the interim application before the start of the proceedings, the Court noted
that the word before comes before the word arbitration proceedings
which must imply that the two events sought to be interconnected by use of
the term 'before' must have proximity of relationship by reference to
occurrence; the later event proximately following the preceding event as a
foreseeable or 'within sight' certainty. Therefore, u/s 9, the initation of
arbitration must be within a reasonable time from making the application.
The distance of time must not be such as would destroy the proximity of
relationship of the two events between which it exists and elapses.(17)

The Court observed that The party having succeeded in securing an

interim measure of protection before arbitral proceedings cannot afford to
sit and sleep over the relief, conveniently forgetting the 'proximately
contemplated or 'manifestly Intended' arbitral proceedings itself. It is
important to note that the Court also held that If arbitral proceedings are
not commenced within a reasonable time of an order under Section 9, the
relationship between the order under Section 9 and the arbitral
proceedings would stand snapped. Therefore, the Court is obliged to ask
the parties as to when and how it intends to start arbitration proceedings
while issuing an order u/s 9, and it may put in actual conditions to the party
and can recall the order if that is not followed.
An application for interim measure can be made either before or during
arbitral proceedings or at the time after making arbitral award. It was held

that when at the post reference stage an application for interim measure
can be entertained by the court keeping the question of jurisdiction or
validity of arbitration agreement open for the arbitral tribunal then the
same can also be made at a pre-reference stage on a prima facie view.Kohli Bros. v. Atlantis Multiplex Pvt. Ltd. AIR 2008 All 43

Principles governing appointment of Receivers

The Court, u/s 9, can appoint a receiver. However, it should be noted that
appointment of receiver is an extreme measure, to be taken only when the
interest of the other party or creditors are severely threatened and there in
the T. Krishnaswamy case, the Court noted down the condition for
appointment of receiver. It noted that 13. The five principles which can he
described as the "panch sadachar' of our Courts exercising equity
jurisdiction in appointing receivers are as follows(13):
(1) The appointment of a receiver pending a suit is a matter resting in the
discretion of the Court. The discretion is not arbitrary or absolute: it is a
sound and judicial discretion, taking into account all the circumstances of
the case, exercised-for the purpose of permitting the ends of justice, and
protecting the rights of all parties interested in the controversy and the
subject-matter and based upon the fact that there is no other adequate
remedy or means of accomplishing the desired objects of the judicial
proceeding
(2) The Court should not appoint a receiver except upon proof by the
plaintiff that prima facie he has very excellent chance of succeeding in the
suit.
(3) Not only must the plaintiff show a case of adverse and conflicting claims
to property, but, he must show some emergency or danger or loss
demanding immediate action and of his own right, he must be reasonably
clear and free from doubt. The element of danger is an important
consideration. A Court will not act on possible danger only; the danger must
be great and imminent demanding immediate relief. It has been truly said
that a Court will never appoint a receiver merely on the ground that it will
do no harm.
(4) An order appointing a receiver will not be. made where it has the effect
of depriving a defendant of a 'de facto' possession since that might cause
irreparable wrong. If the dispute is as to title only, the Court very
reluctantly disturbs possession by receiver, but if the property is exposed to
danger and loss and the person in possession has obtained it through, fraud
or force the Court will interpose by receiver for the security of the property.

It would be different where the property is shown to be 'in medio', that is to

say, in the enjoyment of no one, as the Court can hardly do wrong in taking
possession: it will then be the common interest of all the parties that the
Court should prevent a scramble as no one seems to be in actual lawful
enjoyment of the property and no harm can be done to anyone by taking it
and preserving it for the benefit of the legitimate who may prove successful.
Therefore, even if there is no allegation of waste and mismanagement the
fact that the property is more or less 'in medio' is sufficient to vest a Court
with jurisdiction to appoint a receiver.
Otherwise a receiver should not be appointed in supersession of a bone fide
possessor of property in controversy and bona fides have to be presumed
until the contrary is established or can be indubitably inferred.
(5) The Court, on the application of a receiver, looks to the conduct of the
party who makes the application and will usually refuse to interfere unless
his conduct has been free from blame. He must come to Court with clean
hands and should not have disentitled himself to the equitable relief by
laches, delay, acquiescence etc.

Whether the power conferred under Section 9 can be used to

challenge normal and routine orders passed by the tribunal?
Deepak Mitra v. District Judge, Allahabad:
Facts: KN Mitra and his Brother in law floated two companies in 1953 for
the purposes of publishing and printing work. Mr. Mitra dies leaving behind
his widow and five sons and a daughter. BN Ghosh also died leaving behind
his widow. After the death of Mr. Mitras widow (incumbent chairperson).
Mrs. Mitras will was challenged by her sons and a spate of litigation
followed. Finally a division bench of the Allahabad High Court appointed an
arbitrator for resolution of all disputes contained in the writ petition before
them. During the arbitral proceedings there was a plea to vertically divide
the immoveable and moveable assets of the two companies equally and
second to hold the AGM to ascertain the wishes of the shareholders with
respect to the division of the properties in two units. Elaborate orders were
passed by the arbitrator with a view to propose various modes of partition
of assets and properties for consideration in the meeting. A report was
submitted to the arbitrator that the opinion poll was against the division of
the properties of the two companies. Ashok Mitra and M.Mitra filed an
application that no voting rights be permitted with respect to the shares
devolved upon them. The arbitral tribunal passed an order that majority of
shareholders were against the partition or division of the property and
consequently, the suggestion for division of the properties which came from

the side of one or the other party, was ignored. This was challenged by
Ashok and Manmohan before the Distict judge who put a stay on the order.

Contention of the Petitioner: In the petition before the HC, Deepak Mitra
challenged that the impugned order could not be made the subject matter
of challenge as the said order cant be termed to be an award and since the
order dated 11/4/1998 had become final, it could not be reopened and
challenged by the DJ who has illegally assumed the jurisdiction not vested
in him by passing the interim order staying the result on basis of the voting
in the extraordinary meeting.

Contention of the Respondent: The order following the voting is an

interim award granted by the tribunal and can be challenged under Section
34 before the DJ. Under Section 9(ii)(d) the DJ has the power to pass interim
orders independent of the proceedings under Section 34 of the Act.

Whether order following the voting falls within the ambit of definition
of award?
If the order is an interim award, is the DJ a proper court to entertain
an application under Section 34 of the Act and has a power under
Section 9(ii)(d) to pass an interim order?

Holding of High Court: The arbitral tribunal can make any interim award
on any matter it may make a final award upon as per Section 31(6) of the
Act. Under Section 2(1)(c) an interim award is also an award and has to be
made in the same way as an award after hearing the parties, and on
consideration of the evidence adduced. In order to be an interim award the
arbitrator must determine some part of the disputes referred to it. Interim
award is virtually intended to be in the nature of a decree and thus is liable
to set aside as the final arbitral award and the provisions of Section 34 of
the Act may be invoked for the purpose. The order following the voting only
states that the exploratory mission with regard to the division of property
failed. Hence it is not an interim award as it doesnt decide rights of the
parties or determines their liability. In principle, an interim award for that
matter is a final determination of a particular issue or claim in the
arbitration. Hence, since there is no interim award here the DJ exceeded his
jurisdiction to entertain an application which otherwise is not legally
maintainable. Power under Section 9 is not unbridled. There are
certain restrictions attached. Firstly, it may be exercised by the court
to the same extent and in the same manner as it could for the

purpose of or in relation to any proceeding before it and secondly

the exercise of the power to make interim arrangements should not
militate against any power which might be vested in the Arbitral
Tribunal. Hence, the power under Section 9 is to be exercised by the
court only in sparing circumstances.

J&K State Forest Corporation v. Abdul Karim Wali (1989 (2) SCR 380):
Interest to be paid by UOI-matter referred to arbitration- held that the court
could not direct UOI by mandatory injunction to pay the amounts due under
the contracts to the company. Instance that Section 9 is not intended to
confer on the Court a blanket power to pass any interim measure during the
pendency of the proceedings.

Filing for an interim measure u/s 9 means an undisputed existence with

regard to the validity and existence of the arbitration agreement, however,
it is open for the Court ot suo moto check the validity and declare it invalid.
The instance of checking the validity while granting interim measure u/s 9
is in addition to the inquiry into the existence and validity u.s 9 an 11. The
question of conflict between these decisions have not been addressed yet.
However, the question of a conflict between S. 17 and S. 9 has been
addressed in the China Coal case. In that case, the Court holds that
Obviously, the court being higher in the hierarchy and being a judicial
forum, would have primacy insofar as overlapping orders are concerned.
Another reason for this is that the orders passed by an Arbitral Tribunal
granting or refusing to grant an interim measure under Section 17 are
appealable under Section 37(2)(b) of the said Act. So, any order that may be
passed by an Arbitral Tribunal is always subject to orders that may be
passed by a Court in an appeal preferred there against.(14).
It must also be noted that the issue of (non) enforcement of the order of the
tribunal under S. 17 was also addressed in the M.D. Army case. In that
case the Court held that the power in toothless in as much as ther is no
means for enforcement.
A bare perusal of the aforementioned provisions would clearly
show that even under Section 17 of the 1996 Act the power of the
arbitrator is a limited one. He cannot issue any direction which
would go beyond the reference or the arbitration agreement.
Furthermore, an award of the arbitrator under the 1996 Act is not

required to be made a rule of court; the same is enforceable on its

own force. Even under Section 17 of the 1996 Act, an interim order
must relate to the protection of the subject-matter of dispute and
the order may be addressed only to a party to the arbitration. It
cannot be addressed to other parties. Even under Section 17 of the
1996 Act, no power is conferred upon the Arbitral Tribunal to
enforce its order nor does it provide for judicial enforcement
thereof.(58)
However, no party disobeys an express interim order, as it is the same
arbitral tribunal which will decide the case, and an express disregard for its
authority may reflect in the award so given by the arbitrator, which, is very
much capable of enforcement.
The arbitral tribunal can grant an award from the commencement of the
arbitration, and even before it, and the interim measure can continue till the
disposal of the case.

What Cant be done by the Court

-

Granting stay of arbitration proceedings pending disposal of

objections to a partial arbitral award. (Pradeep Anand v. ITC Ltd.
AIR 2002 SC 2799)

Jurisdiction of Courts
-

Bhatia- Applicability of Part I to arbitrations outside India

Balco- Overrules Bhatia
Respondent claimed that original agreement as well as the
supplementary agreement were not executed at Delhi and were
executed at the corporate office of the consultants at Noida. The court
held that the place of making the contract was not mentioned in the
agreement and the office of the consultants being in Delhi and stamp
papers having been purchased from Delhi, Delhi Courts had
jurisdiction. Ansal Buildwell Ltd. v. NEIGHMS 2005(1) Arb LR 431.
A civil court has no jurisdiction to direct the arbitrators to give an
interim award and that too for a specific sum.- UOI v. Om
Construction & Supply Co., AIR 1994 All 334.

Section 10, 11: Composition and Jurisdiction of Arbitral Tribunals

It is open to the parties to confer upon an arbitral tribunal such powers and
prescribe such procedure for it to follow as they think fit, so long as they
are not opposed to the law. This is also found under S.28 of the Act and the
tribunal can depart from it only under an express agreement between
parties in which case the dispute may be decided according to justice and
fairness or what is good according to equity and conscience and not
necessarily according to technical legal requirements.
Now, the question is, is this provision, which says shall not be an even
number directory or mandatory? This question arose in the case of Lohia v
Lohia (2002) 3 SCC 572.
In this case there was a family dispute which was sought to be solved by the
appointment of two arbitrators. The dispute was solved, and an award was
rendered by the tribunal. The parties aggrieved by the award, very cleverly
challenged the award, and asked to Court of set it aside on the ground of
violation of S.10. Cal HC accepted this challenge and set it aside. Appeal
also dismissed, and matter reaches SC.
The Respondents arguments were as follows:
I. The provision under S.10 is a mandatory provision as shall not has been
used. Therefore, any agreement which permits the parties to appoint an
even number of arbitrators would be contrary to this mandatory provision of
the said Act.[...] Such an agreement would be invalid and void as the
Arbitral Tribunal would not have been validly constituted.
II. With regard to waiver, it was argued that waiver can only be allowed for
derogable provisions as per S. 4 (a). In this case, the odd number being a
mandatory requirement, this cannot be waived u/s 4.
III. Section 10 compulsorily precludes appointment of an even number of
Arbitrators in public interest and as a matter of public policy. If there are an
even number of Arbitrators there is a high possibility that, at the end of the
arbitration, they may differ. In that case, parties would be left remediless

and would have to start litigation or afresh arbitration all over again.[ This
goes on to emphasise its non-derogable nature]

IV.With regard to komepetez- kompetenz (tribunals power to rule on its

own jurisdiction), it was argued that S. 16, where the arbitral tribunal can
rule on its own jurisdiction has no provision dealing with the composition of
the arbitral tribunal. However, S.34, which allows the Court to set aside an
award, has composition of the tribunal as a ground. Therefore, this
suggests, that a Court and not the tribunal can, u/s 16 look into the issue of
faulty composition of the tribunal, and therefore, it is not open to say that in
case of faulty composition- approach tribunal u//s16. This is because a
composition being faulty, the tribunal is not validly constituted, and an
inherent assumption under for S.16 to come into force is that the tribunal
must be validly constituted in the first place].

The Appellants responded in the following manner:

I. S. 10 starts with parties are free to determine. Since arbitration is a
matter of agreement between the parties. He submits that generally, in an
arbitration, the parties are free to determine the number of arbitrators and
the procedure. Therefore, even after the parties have determined to appoint
an even number, under S.16, [parties are free to object. Under
Section 16(2) such an objection can be taken even though the parties had
appointed or participated in the appointment of the arbitrator. Therefore, an
objection to the number can be raised under S.16 and since it has not been
raised in this case, it has to be considered to be waived.
II. Section 34(2)(a)(v) does not permit the setting aside of an award on the
ground of composition of the arbitral tribunal if the composition was in
accordance with the agreement of the parties. Section 34(2)(a)(v) would
come into play only if the composition was not in accordance with the
agreement of the parties. In this case the composition is in accordance with
the agreement of the parties and, therefore, the award cannot be set aside
on this ground.
III. Even if it is faultily constituted, under S.34, the Court may set aside the
award. The usage of the word may suggests that it is at the direction of the
Court, and hence cannot be said to be a mandatory provision.
IV. They raised a counter public policy argument stating that there could be
no law which permits a party who has so appointed and participated to then

resile and seek to have the award set aside. It would be against public
policy to permit waste of time, money and energy spent in the arbitration by
having the award set aside. It would also be inequitable to permit such a
party to challenge the award on this ground.
The SC finally says that:
The answer to this question would depend on question as to whether, under
the said Act, a party has a right to object to the composition of the arbitral
tribunal, if such composition is not in accordance with the said Act and if so
at what stage. It therefore emphasise on the idea of a waiver, i.e., if you
have a right to object then you may choose not to object and therefore, it id
directory.(15)
Now it should be noted that this case was before SBP v Patel Engg, when
Konkan Railways v Rani Construction, (Konkan Railways III) held the
ground. Since the thrust of Konkan was that S.11 is an adminsitraitve
power, and not judicial, it had made that observation of the ground that
Section 16 enables the arbitral tribunal to rule on its own jurisdiction. It is
held that the arbitral tribunals authority under Section 16, is not confined to
the width of its jurisdiction but goes also to the root of its jurisdiction.
It therefore held that under S.16, the party has a choice to challenge the
composition of the tribunal before the tribunal itself, and under S.16(2) he is
not barred from doing that simply because he participated in the
proceeding. It therefore held that S.10 is derogable because a party is free
not to object within the time prescribed in Section 16(2).(17)
With regard to the public policy argument, it held that if parties provide for
appointment of only two arbitrators, that does not mean that the agreement
becomes invalid. Under Section 11(3) the two arbitrators should then
appoint a third arbitrator who shall act as the presiding arbitrator. Such an
appointment should preferably be made at the beginning. However, there is
no bar to appointing him at a later stage, and if any difference so arises, this
appointment solves all problem. If no difference, then no such appointment
needed, or if appointment at beginning, his dissent of no relevance. (18)
The problem with this approach is, that it does not state whether this third
person to be appointed would be an umpire or an arbitrator. If it is an
arbitrator, and his appointment happens at the very end, then the whole
proceedings would have to be restarted. But on the other hand, if he is an
umpire, he can hear the opinion of the two arbitrators and therefore choose
one.

The 1940 Act provided for the appointment of an umpire, but the 96 act
makes no mention of an umpire. For the purpose of adjudication all
arbitrators on the same level.
Now, this case says that if the appointment is made at the beginning, and
the third disagrees with the findings of the other two (chosen by the parties)
his disagreement is inconsequential. This is not possible if it was an umpire.
So, if it is agreed that it does talk about an arbitrator, that leaves us with
the problem of restarting everything all over again.
Further this Act is the third case after Bhatia and Balco which rewrites the
law, in so far as it holds that S.10 is not mandatory, and the arbitrators can,
in case of a disagreement appoint a third arb. It renders the words shall
not totally nugatory.
The Court also seemd to have confused between the choice of the parties to
choose the number and the choice to choose even and odd. Whereas the
parties have the choice to choose number, the provision prima facie
mandates odd and not even.
*This part was not done in class, but seems important. In the later Part,
Venugopal seemed to argue that the u/s 34, the parties can challenge an
award, even if it is accordance with the agreement of the parties, if such an
agreement is in conflict with the non-derogable provisions of the Act. Now,
he interprets failing such an agreement as an agreement which is not in
consonance with Part I, and therefore, any agreement not in consonance
with part I needs to be set aside. [This argument makes very little sense to
me, as it seesm he was confused between the first part which said if
agreement-then it must be in contravention to non derogable provisions
and the second part, which says only if agreement not there, then against
any provision of the whole Act.This intrerpretation renders nugatory the
fact that in some situations it is only deviation from the non-derogatory
clause on which it can eb struck down]
The Court comes in and clarifies and says that Section 34(2)(a)(v) only
applies if "the composition of the arbitral tribunal or the arbitral procedure
was not in accordance with the agreement of the parties". These opening
words make it very clear that if the composition of the arbitral tribunal or
the arbitral procedure is in accordance with the agreement of the parties,
as in this case, then there can be no challenge under this provision.
The question of "unless such agreement as in conflict with the provisions
of this Act" would only arise if the composition of the arbitral tribunal or

the arbitral procedure is not in accordance with the agreement of the

parties. When the composition or the procedure is not in accordance with
the agreement of the parties , but even in such a case the right to
challenge the award is restricted.
Therefore, even if the composition of the arbitral tribunal or the arbitral
procedure is not in accordance with the agreement of the parties but if
such composition or procedure is in accordance with the provisions of the
said Act, then the party cannot challenge the award.
The words failing imply absence of an agreement, and in that case,
violation of any provision of the Act would ne enough to set aisde.
Ratio: S.10 is a derogable provision. The parties must raise an objection
about number before the tribunal us/16. If not, it is considered as waiver u/s
4.

Section 11- Appointment of Arbitrators

Can the Court create its own procedure when a procedure for
appointment has been agreed upon between the parties?

BSNL v. Subhash Chandra Kanchan, (2006) 8 SCC 279

Facts: The parties entered into a contract pursuant to a notice inviting
tender by Appellant No.1- The contract contained an arbitration clause
which provided for appointment of chief engineer as the arbitrator and if
there was no chief engineer then the administrative head of the said
Telecommunication/Postal Department. Further it envisaged that no person
other than the one appointed by the Chief Engineer or administrative head
of telecom/postal should act as an arbitrator.

2002- notice for arbitration issued by the respondents- Gurbax Singh C.E.
appointed as the sole arbitrator (drafted on 4.2.2002- dispatched on
7.2.2002). An application was also filed by the respondent before the Orissa
HC u/s.11.
Gurbax Singh resigned- hence the C.E. appointed A.K. Naik on 7.7.2002- he
also resigned- Gurbax Singh appointed as the arbitrator on 17.3.2003.

These appointments were made during the pendency of proceedings before

the HC.
2006 HC appointed B.C. Bhattacharya as the arbitrator.
18.3.2006- parties appeared before the court appointed arbitrators and
participated in proceedings.
27.1.2006- application filed by the appellant u/s. 151 of CPC contending
modification of HCs order claiming that they had put their objection on
hold wrt appointment of B.C. Bhattacharya and it didnt constitute as waiver
of any objection to the appointment.
3.3.2006- HC refused to recall its order claiming that the appellant failed to
cite any reasons as to why he has an objection against the appointment of
BhattaCharya.

Contention of the Appellants: The HC had no jurisdiction to appoint

any other person other than the one appointed by the C.E.
Contention of the Respondents: HC has exercised its discretionary
jurisdiction, which this court shouldnt interfere with.
Holding of the Court: The Appellants must be held to waive their right as
they consented to the appointment of Bhattacharya. appointment of
substitute arbitrator must be done according to the original
agreement or provision applicable to the appointment of the
arbitrator at the initial stage Yashwith Constructions v. Simplex.
In this case however the appellants have waived their right under the
arbitration agreement by consenting to the proceedings.

Whether the arbitrator loses his power to decide on a dispute, when

an application is filed u/s.11 ?

Universal Construct and Trading Company v. Garwhal Mandal Vikas

Nigam Ltd. ( AIR 2004 All 115)

Facts: Petitioner appointed as the commissioning agent to promote the sale

of the product of flush doors. Agreement between parties contained an
arbitration clause which stated that the sole arbitrator shall be the MD of
Garhwal Mandal Vikas Nigam Ltd. in case of a dispute. Dispute arose in

2000 and the petitioner made a request for reference to arbitration- the
respondent conveyed merely that no amount is due to the petitioners firm.
Petitioned moved an application under Section 11. Admittedly the
respondent conveyed that the GM referred the mattered for arbitration to
the MD. The petitioner objected under Section 13(2) before the arbitrator
claiming that because the GM of the respondent failed to refer the dispute
within a prescribed period, the petitioner had filed an application under
Section 11(6).

Contention of the Respondent: The MD of the Nigam is the only person

who can act as arbitrator between the parties and incase of any
disagreement only Section 11(5) can be invoked. Further u/s. 11(12)(b) the
reference to CJ must be construed as reference to the CJ within whose local
jurisdiction the PCC is situated- hence reference should have been made to
the CJ of Uttaranchal HC. The petitioner has also submitted his reply to the
arbitrator u/s/ 13(2) this means that the petitioner has accepted the
jurisdiction of arbitral tribunal and the question of jurisdiction of arbitral
Tribunal shall be decided by the Tribunal itself. Award has already been
made by the tribunal and the only recourse the petitioner can take is under
Section 34 for setting aside.

Holding of the Court: As per Section 11(4), (5), (6) a party can apply
before the CJ under three contingencies.
i.
ii.
iii.

If a party fails to act as required under the procedure

The parties, or the two appointed arbitrators, fail to reach an
agreement expected of them under the procedure; or
A person, including an institution, fails to perform any
function entrusted to him or it under that procedure.

The arbitration clause doesnt provide how the arbitrator is to be appointedin case of silence the procedure under the prescribed act should be
followed. In the present circumstances there was a reference and the
agreed arbitrator refused to enter into the reference- hence a party can only
request the CJ u/s/ 11(6) for appointment of arbitrator under such
circumstances. As per the position in a catena of decisions before
various High Courts- the contention of the opposite party is

misconceived- if the opposite party has not made an appointment

within a period of thirty days of the demand for appointment- the
right to appoint is not forfeited and continues but such right ceases
to exist if an application under S.11 is moved for appointment of an
arbitrator.(Nucon v. DESU relying on Datar Switchgears ). Relying on
this reasoning the contention regarding petitioner only having
recourse under Section 34 is not maintainable as the arbitrator lost
his power to decide on the dispute after the filing of application
u/s.11/ Further the agreement between parties doesnt contain any
jurisdiction clause and there is no clause excluding the jurisdiction of any
court. Relying on ABC Laminart case the court held that since in this case
the cause of action has arisen within the jurisdiction of the Lucknow Bench
of Allahabad High Court- the contention of the opposite parties that CJ of
UHC has jurisdiction has no force.

Maheshwari Engineers & Associates v. UOI (AIR 2000 AP 57)

Facts: Petitioner entered into an agreement with the first respondent for
execution of cable distribution work including street lighting. The petitioner
argues that due to default on part of the first respondent there was delay in
execution of the work within the stipulated time and the first respondent
illegally terminated the contract. The contract in question contained an
arbitration clause- MMS Nanda was appointed as the Chief Engineer to
resolve the disputes- the petitioner questioned the appointment of the
arbitrator. During the pendency of the suit u/s.11 before the APHC the C.E.,
army hq, addressed a letter to G.S. Mehta and informed that the contract in
question contains an arbitration clause and the C.E. has the power to
appoint a sole arbitrator and because disputes have arisen MR. Nanda has
been appointed had been appointed but since he resigned the C.E. has
appointed Mr. G.S. Mehta.
Contention of the Petitioner: The arbitration clause states that both
parties should agree in writing for referring the matter to the arbitrator- the
respondents have not obtained in writing the consent of the petitioner for
appointment of the third respondent as the arbitrator and hence it is liable
to be ignored. Further the C.E. had no power to nominate a second person
as the arbitrator and the only remedy was approaching the court. The new
arbitrator is under the influence of the appointing authority and there is an
element of bias present.

Contention for the Respondent: The petitioner has made an appearance

before the third respondent that is the second arbitrator, and had given his

consent for extension of time by three months subject to the result of the
application before this Court.
Issue: Whether the C.E. could appoint a second arbitrator when an
arbitrator resigns? Whether the court can intervene and appoint an
arbitrator when the arbitrator refuses to act?

Holding of the Court: While the court can intervene and appoint an
arbitrator when the arbitrator refuses to act- such intervention can
be done in the absence of clear words or explicit language
expressing the intent of parties. in the instant case where parties have
voluntarily agreed for appointment of arbitrator to be named by a
designated authority- the petitioners plea is not tenable.

SPM Engineers Ltd. V. Guwahati Municipal Corporation (AIR 2002

Gau 114)
Facts: Agreements were entered into between the parties for carrying out
the works regarding the water supply scheme. There were two arbitration
petitions and both contracts in question. Both contracts contained an
arbitration clause which stipulated that the decision of the Commissioner,
GMC shall be final. The applicants claim that certain disputes have arisen
which couldnt be settled amicably and that the applicants in each case
issued a notice to the Commissioner, GMC.

Contention of the Applicants: Commissioner, GMC failed to act and enter

upon the reference within 30 days of the receipt of the notice- hence the CJ,
GHC should appoint an arbitrator under Section 11(6) (c). Further wherever
a clause in the agreement provides for the decision of a dispute between the
parties by any person named therein, such a clause would amount to an
arbitration clause. (State of U.P. v. Tipper Chand).
Contention of the Respondents: The concerned clauses do not amount
to any reference of any disputes to the arbitration of the Commissioner,
GMC, rather they only envisage that the decision of the Commissioner on
any of the matters referred to in the aforesaid clauses shall be final- the
Commissioner is not an arbitrator.
Holding of the Court: Relying on the decision of the Apex Court in State
of U.P. v. Tipper Chand and Rukmanibai Gupta v. The Collector, JabalpurThe court held that for there to be an arbitration clause it is not necessary

that the term arbitrator or arbitration is used, rather what needs to be

seen is that the agreement intended to settle any dispute by a particular
person in a judicial manner. Hence, in the instant case an arbitration clause
exists and envisages the Commissioner, GMC as the arbitrator. The facts of
the case highlight that the Commisioner failed to enter upon the reference
and act as an arbitrator within 30 days of the receipt of notices. In light of
this, the court proceeded under Section 11(6) for appointment of arbitrator
(A person, including an institution, fails to perform any function
entrusted to him or it under that procedure.)

G.Premjee Trading Pvt. Ltd. v. Ashoka Alloys Ltd.( AIR 1999 Del 83)
Facts: A Sale and Purchase contract was entered into between the
petitioner and respondent- wherein the respondent agreed to purchase
shredded scrap- as per the contract the letter of credit was to be establishes
within seven days of signing the contract and shipment was to be effected
within a certain time period. It is alleged that the respondent committed
breach of contract by failing to establish Letter of Credit and also failed to
take delivery of the goods. The matter was referred for arbitration and the
petitioner moved the court for appointment of arbitrator under Section 11.
The respondent appeared in the matter but hasnt filed any reply- the
counsel for the respondent appeared in the matter and contested the
petition mainly on three counts.

Contention of the respondent: Person instituting the present proceedings

(Girija Bhan) has no authority to institute the proceedings; there was no
contract relied upon by the petitioner, it was merely a proposal; petitioner
has failed to identify and indicate the disputes alleged to arisen between the
parties in the petition.

Holding of the Court: Since the power of attorney has been executed in
favor of Girija Bhan, she is entitled to institute the current proceedings.
Further the document in question has been categorized as a Sale and
Purchase contract and under the same the respondent agreed to purchase
and the petitioner agreed to sell the goods- the said document also contains
an arbitration clause, stating that all disputes arising out of the agreement
could be settled amicably failing which, by arbitration in Delhi. Hence the
content of document indicates that there indeed is a concluded contract
between the parties, which contains an arbitration agreement. Considering
the nature of Section 11, which empowers the court with an

administrative power- the court is obliged to give deference to the

procedure agreed upon between the parties for appointment of
arbitrator. However, if no such procedure has been prescribed, then
Section 11(5) provides for the procedure for appointment of a sole
arbitrator- the court shall have the power to appoint an arbitrator.

SBP v. Patel Engineering AIR 2006 SC 450

What is the nature of the function of the Chief Justice or his

designate under Section 11?

While acting under Section 11(6), the Chief Justice or the person or
institution designated by him, is bound to decide:
Whether he has jurisdiction?
Whether there is an arbitration agreement?
Whether the applicant is a party?
Whether the conditions for exercise of power have been fulfilled?
If an arbitrator is appointed, who is the fit person, in terms of the
provision?
By virtue of imposing a duty on the highest judicial authority, the statute
intends that the CJ acts judicially and has to necessarily consider whether
his power has been rightly invoked or the conditions for the performance of
his duty are shown to exist.
S.16 of the act only makes explicit, what is otherwise implicit. When the
tribunal decides two questions- namely the question of jurisdiction and the
question of exceeding the scope of authority- the same is open to immediate
challenge in an appeal. However what is the scope of the rights conferred
on the arbitral tribunal when read with Section 11(7) when constituted
under Section 11(6)?

- It would be incongruous to say after the Chief Justice had appointed an

arbitral tribunal, the tribunal can turn around and say that the CJ had no
jurisdiction or authority to appoint the tribunal. Hence the issue of
jurisdiction and the validity of arbitration agreement, when decided by the
court, will be binding on the parties when the matter goes to the arbitral
tribunal. Section 16 recognizes the competence of a tribunal to rule on its
own jurisdiction- however this means that it may define the contours of its
jurisdiction, when such issues arise before it- this can happen when the
parties have gone to the arbitral tribunal without recourse to S.8 or S.11because where the jurisdictional issues are decided before a reference is
made- S.16 cant be held to empower the arbitral tribunal to ignore the
decision made by the judicial authority or the CJ before the reference was
made. This is the position arising out of S.11(7) r/w S.16- Konkan
Railways case only considered the arbitral tribunals power to rule on its
jurisdiction and with respect to any objection as to the existence of validity
of the arbitration agreement- no mention about the impact of Section 11(7)
on the arbitral tribunal constituted by an order under Section 11(6).
In Konkan Railways, while deciding on the nature of power u/s.11(6)- the
court stated that although the power has been vested with a CJ or his
nominee u/s.11- it was imperative for the Chief Justice to bear in mind the
legislative intent that the arbitral process should be set in motion without
any delay whatsoever and all contentious issues to be raised before the
arbitral tribunal itself. Further in view of S.16 it would be appropriate for
the Chief Justice to appoint an arbitrator without wasting any time or
without entertaining any contentious issue by a party objecting to the
appointment of an arbitrator. Hence the order passed should be purely
administrative, thereby facilitating the achieving of the object of the Act,
i.e. speedy disposal of commercial disputes and that such an order could
not be subjected to judicial review. However an order refusing to appoint an
arbitrator made by the Chief Justice could be challenged under Article 226
of the Constitution.
However the court in this case observed certain problems with this
approach- firstly what if a plea for non-existence of arbitration agreement is
raised by a party in suit u/s.11- is the court supposed to come to a
conclusion without following the adjudicatory process? If so, why has this
power been conferred on the highest judicial authority? Dragging a party to
arbitration, when there is no arbitration agreement or when there existed
no arbitrable dispute can certainly affect the right of that party and even in
monetary terms, impose a serious liability on him for meeting the expenses
of the arbitration. By the time an aggrieved party can challenge the award
under Section 34, it would have spent a considerable amount on the arbitral
proceedings. Further deciding on such issues in the initial stage would take

care of a host of issues, leaving the party aggrieved with a remedy of

approaching this court under Article 136 of the Constitution. Once the
matter is decided on its merits-the arbitral tribunal would be able to decide
the dispute on merits unhampered by preliminary and technical objections.
In the long run this would be more conducive to minimizing judicial
intervention in matters coming under the Act.
Further the order of Chief Justice u/s.11(6) of the Act subjected to the
scrutiny under Article 226 at the hands of another judge of the HC seems
incongruous. Further it was noticed in other countries where UNCITRAL
model was being followed that the court could decide such issues judiciallyif the order of CJ or his nominee were to be treated as administrative orderit could be challenged before the Single Judge bench or a Division Bench of
the High Court and then the SC under Article 136, which would cause
further delay in arbitral proceedings.
It is fundamental to the procedural jurisprudence that right of no person
shall be affected without given the chance to be heard.
The basic
requirement for exercising the power mentioned under/s. 11(6) is the
existence of an arbitration agreement- hence he must consider certain
issues before proceeding with the appointment.

Whether the CJ of HC or CJI can designate a non-judicial body or

authority to exercise power under S.11(6) of the Act?

- The UNCITRAL Model Law under Article 11 provides for the making of a
request under Article 11, wherein it mentions court or other authority ,
however Section 11 of the act mentions the CJ or the person or institution
designated by him. This reflects that the framers must have taken a
conscious decision to add the greatest credibility in the constitution of an
arbitral tribunal- hence the power should be restricted to highest judicial
authority. Hence, the power of designation is restricted to judges since such
a power is conferred to a class and not to an individual (not a Persona
Designata). Moreover since the power is a judicial power it can be
conferred on a judicial authority only. What the CJ can do is seek the help of
a non-judicial body to point out a suitable person as an arbitrator in the
context of Section 11(8) of the Act and on getting the necessary
information.

Now can the CJHC designate a district judge to perform functions

under Section 11(6) of the Act? Since the intent of the statue is to

entrust the power to the highest judicial authority and the term court
hasnt been used in this section- the CJ cant designate a district judge to
perform the functions under Section 11(6) of the Act- this restriction flows
from the scheme of the act. When the CJ is entrusted with the power, he
would be able to designate another judge of the High Court for exercising
that power under Section 11(6) of the Act. A non-judicial body or institution
cant be equated with a judge of the High Court under this section. Further
once arbitration has commenced, the parties have to wait until the award is
pronounced unless of course a right of appeal is available under Section 37
of the Act at an earlier stage.

Summary of the Ratio:

1. Power exercised under Section 11(6) is a judicial power
2. Power can be delegated on to another Judge of the concerned HC and
by the CJI to another Judge of the SC.
3. In case of such delegation, the power exercised by the designated
judge would be that of the CJ as conferred by the statute.
4. CJ or his designate will be able to decide the preliminary issues.
i.

Jurisdiction

ii.

Existence of arbitration agreement

iii.

Existence of a live claim

iv.

Existence of condition for the exercise of his power and

qualification of the arbitrator

5. Designation of a district judge as the authority under Section 11(6) is

not warranted under the scheme of the Act.
6. Once the matter reaches an arbitral tribunal or the sole arbitrator, the
High Court would not interfere with orders passed by the arbitrator or
the arbitral tribunal during the course of arbitration proceedings.
7. Since its a judicial order u/s.11 appeal will lie against that order only
under Article 136 of the Constitution.
8. There can be no appeal against an order of the CJI or his designate
while entertaining an application under Section 11(6) of the Act.
9. In a case where an arbitral tribunal has been constituted by the
parties without having recourse to Section 11(6), the arbitral tribunal

will have the jurisdiction to decide all matters as contemplated by

Section 16 of the Act.
10.
All pending application under Section 11(6) of the act have to
adopt the law laid down in this judgment.
11.
Any such application before the District Judge u/s.11(6) must be
transferred to be dealt by the CJ of concerned High Court.
12.

Decision of Konkan Railways v. Rani Constructions is overruled.

Dissenting Opinion (Justice Thakker): There is nothing in Section 11

which contemplates a response from the other party- it doesnt contemplate
a decision by the Chief Justice or his designate on any controversy that the
other party may raise even in regard to its failure to appoint an arbitrator
within the period of 30 days. The only job of the CJ or his designate is to fill
the gap left by a party to the arbitration agreement or by two arbitrators
appointed by the parties and nominate an arbitrator. Further there is no
reason whatsoever to conclude that the grounds for challenge under
Section 13 are not available only because the arbitrator has been nominated
by the Chief Justice or his designate under Section 11. E.g. CJ appointing an
arbitrator even before the expiry of 30 days- in such a case it can be
concluded that arbitral tribunal is improperly constituted and be without
jurisdiction. Hence the aggrieved party should be able to ask the arbitral
tribunal to rule on its own jurisdiction. Further Section 11 doesnt contain
any element of adjudication- moreover the finality attached to 11(7) doesnt
mean that the order passed by the CJ cant be made the subject matter of
the dispute under the Act- S.16 must be read in conformity with the finality
clause. The principle of Competence-Competence obliges a court hearing
any claim to refrain from hearing substantive arguments as to the
arbitrators jurisdiction until such time the arbitrators themselves have had
the opportunity to do so. From a practical standpoint rule is intended to
ensure that a party cant succeed in delaying the arbitral proceedings by
alleging that the arbitration agreement is invalid or non-existent. Such
delay is avoided by allowing the arbitrators to rule on this issue themselves,
subject to subsequent review by the courts and by inviting the courts to
refrain until the final award is made. This principle in itself gives legitimacy
to the tribunal to rule on such matters.

Function under Section 11 is administrative

May be performed by any person or institution designated by the CJ

or CJI

U/S.16 the CJ should be Prima Facie satisfied that the conditions laid
down in Section 11 are satisfied.

Competence-Competence principle must be observed

Even though writ under Article 226 is maintainable- the court will
give due consideration to S.5,16,34, 37 before ruling on the issue

There is a need for the court to issue a notice to the parties, who
might be affected by the decision but not under a duty to act
judicially but under a duty to act fairly

Meeting of arbitrators for appointing third arbitrator

The SC in Grid Corp of Orissa Ltd. v. AES Corp( AIR 2002 SC 3435)
laid down certain points with respect to this-

1. Appointment should actually be made

2. It should be made on basis of prior consultation between the two
original arbitrators
3. Information about the appointment is communicated by both or
either to the parties.
4. The appointment need not be in writing
5. There is no need for the arbitrators to meet physically in one place
for purpose of consultation
6. Parties need not be consulted or included in the appointment
process

Death of an arbitrator or refusal to act

In cases of vacancy caused by death, termination of mandate, the

appointment procedure has to be started again- the effect of the provisions

in the Arbitration and conciliation Act, 1996 is such that a new arbitrator
can be appointed by the same procedure by which the original appointment
was made. It is only in the absence of such a procedure that an approach
can be made to the Chief Justice.
Two conditions required before vacancy is sought to be filled up
1. The arbitration agreement should not indicate that the vacancy
was not intended to be filled up.
2. The parties could not concur in the choice.
The scope of this power was explained in Prabhat General Agencies v. UOIthe agreement was to refer certain to the judicial commissioner- the court
ordered reference but the JC refused to act- One of the parties applied for
appointment of another arbitrator- The other objected on the ground that
the parties intended the matter to be decided only by the Judicial
Commissioner- the court rejected this contention stating that JC wasnt
named as the arbitrator for any specialized knowledge possessed by himthe terms of the agreement made it certain that there was room for vacancy
to be filled up . Refusal to act in legal sense means denial to do something
which one is obliged to do under the law- it may be express or implied.

In Priyabrata Bose v. Phani Bhushan Ghose- an arbitrators refusal to

proceed until his fee was paid was considered a refusal to act. Once the
court is satisfied that the arbitrator has refused to discharge his obligations,
the court can act in the matter

Section 11(9) Appointment of arbitrator in ICA

A British national and a professional expert entered into an agreement with
a company- he was to provide technical know-how and was made a director
of a subsidiary of the company- 40% of the equity shares of the company
were also allotted to him. The agreement provided for arbitration- dispute
arose- The SC said he could not be regarded as a mere employee of the
company and hence the arbitration is an ICS therefore application before
the CJI is maintainable. Comed Chemicals Ltd. v. C.N. Ramachand,
(2009)1 SCC 9.

Jurisdiction
Indtel Technical Services Pvt. Ltd. v. W.S. Atkins (AIR 2009 SC 1132)

Facts: By a Memorandum of Understanding, hereinafter referred to as "the

Memorandum", entered into between the appellant and the respondent on
11th June, 2002, the parties agreed to collaborate on an exclusive basis for
jointly preparing and submitting their tender for work associated with the
designing, manufacturing, supply, installation, test and commissioning
contract for the Indian Railways Crashworthiness Project. Pursuant thereto
the parties jointly prepared and submitted a tender signed by both the
parties on 30.9.2002 in response to a bid invitation by RITES Limited, a
Public Sector Undertaking of the Ministry of Railways, on 30.9.2002.

Without any valid or justifiable reason the respondent terminated the

Memorandum on 12.11.2002 and on 15.11.2002 unilaterally withdrew the
joint bid submitted to RITES without any reference to the applicant.

The applicant ultimately filed the present application for the appointment of
a sole Arbitrator under Section 11(9) of the Arbitration Act, 1996, as per
Clause 13(2) of the Memorandum of Understanding dated 11 th June, 2002.
Inasmuch as, one facet of the dispute between the parties involves the
wording of the said clause of the Agreement, the same is reproduced
hereinbelow for the sake of reference:
CLAUSE 13 - SETTLEMENT OF DISPUTES
13.1. This Agreement, its construction, validity and performance shall be
governed by and constructed in accordance with the laws of England and
Wales;
13.2 Subject to Clause 13.3 all disputes or differences arising out of, or in
connection with, this Agreement which cannot be settled amicably by the
Parties shall be referred to adjudication;
13.3 If any dispute or difference under this Agreement touches or concerns
any dispute or difference under either of the Sub Contract Agreements,
then the Parties agree that such dispute or difference hereunder will be
referred to the adjudicator or the courts as the case may be appointed to
decide the dispute or difference under the relevant Sub Contract Agreement
and the Parties hereto agree to abide by such decision as if it were a
decision under this Agreement.

Contention of the Appellants: It was submitted that whenever the

jurisdiction of the domestic courts is invoked, the courts have to look to
their own laws to see whether they have jurisdiction to take up such matter.
It was contended that since in the instant case an application had been
made under Section 11 of the Arbitration and Conciliation Act, 1996, it is
the said law which has to be treated as the relevant Indian Municipal Law
applicable to the instant case.
Mr. Gupta urged that a three-Judge Bench of this Court had in Bhatia
International v. Bulk Trading S.A [2002]2SCR411 held that Part-I of the
Arbitration and Conciliation Act, 1996, applies both to domestic and
international arbitrations, irrespective of whether the seat of arbitration is
in India or not. It was urged that while the present Memorandum was
undoubtedly an International Commercial Arbitration, Part-I of the aforesaid
Act would still apply thereto and this Court would have jurisdiction to
entertain the application made under Section 11 of the aforesaid Act.

The parties had decided that the law relating to the working or an
understanding of the Agreement was to be the law of England and Wales,
there is nothing in the Memorandum to warrant a conclusion that the seat
of arbitration is to be outside India in the Courts of England and Wales or
that the parties had mutually excluded the application of any of the
provisions of Part-I of the aforesaid Act to the Agreement.

all contracts which provide for arbitration and contain a foreign element
may involve three relevant systems of law, which include the law governing
the substantive contract or the proper law of contract, or the law governing
the agreement to arbitrate, which is the proper law of the arbitration
agreement, or the law governing the conduct of the arbitration proceedings
which is the curial law. It was submitted that in the present case, the parties
had mutually chosen the law of England and Wales to be the proper law of
contract and it could, therefore, be contended that the proper law of the
arbitration agreement is also the law of England and Wales. He, however,
urged that there was nothing in the agreement to indicate that the parties
had agreed as to the venue of arbitration. He submitted that the law which

was to govern the conduct of arbitration or the curial law, not having been
indicated by the parties, the same could be determined only by the
Arbitrator. He submitted that when the Arbitrator to be appointed in the
instant case, chooses the seat of arbitration, the law relating thereto will
govern the law of the conduct of the arbitration proceedings. Mr. Gupta
urged that the above proposition finds full support in the decision of this
Court in National Thermal Power Corporation v. Singer Company and
Another [1992]3SCR106 where in paragraph 28, it has been observed that
questions relating to the jurisdiction of the Arbitrator to decide a particular
issue relating to the continuance of an arbitration agreement, its validity,
effect and interpretation are determined exclusively by the proper law of
the arbitration agreement. The procedural power and duties of the
Arbitrator are regulated in accordance with the rules chosen by the parties
to the extent that those rules are applicable and sufficient and are not
repugnant to the procedural law and practice of the seat of arbitration. It
was further observed that the concept of party autonomy in international
contracts is respected by all systems of law so far as it is not incompatible
with the proper law of the contract or the mandatory procedural rules of the
place where the arbitration is agreed to be conducted or any overriding
public policy.

Contention of the Respondents: It was urged that an application under

Section 11 of the Arbitration and Conciliation Act, 1996, is nothing but a
step in performance of the arbitration clause and since the performance of
the Memorandum is to be governed by the laws of England and Wales,
according to the choice of the parties, it is the procedural law of England
and Wales which has to be applied to the performance of the arbitration
agreement as well. Referring to the decision in the National Thermal Power
Corporation case (supra), which had also been referred to by Mr. Gupta, Mr.
Tripathi submitted that in the said decision the views of jurists such as
Dicey, Mustill and Boyd and Russel had been reiterated in support of the
contention that the overriding principle is that the courts of the country,
whose substantive laws govern the arbitration agreement, are competent
courts in respect of all matters arising under the arbitration agreement, and
the jurisdiction exercised by the courts of the seat of arbitration is merely
concurrent and not exclusive and strictly limited to the matter of procedure.
When the parties expressly choose the proper law of the contract, as in the
instant case, in the absence of a clear intention such law must govern the
arbitration agreement also though it is collateral and ancillary to the main
contract.

Mr. Tripathi urged that similarly where the seat of arbitration is indicated,
then, unless there is an indication to the contrary, it will be deemed that the
place where the proper law governing the arbitration proceedings is in
force is the place chosen by the parties to be the seat of arbitration as well.
Learned Counsel referred to the decision of the Court of Appeal in Naviera
Amazonica Peruana S.A. v. Compania internacional De Seguros Del Peru,
reported in Lloyd's Law Reports 1988 (Vol.I) 116, wherein it was held that
while interpreting an arbitration clause the use of the phrase "arbitration
agreeing to the conditions of laws of London" means that the arbitration
was to be held in London, not by the implication of some additional term,
but by giving to those words their ordinary commercial meaning.
Mr. Tripathi submitted that in this case also since the parties had stipulated
the law which was to govern the Memorandum, but had not indicated the
seat of arbitration, in keeping with the consistent views expressed by the
Courts and jurists, it must be held that the seat of arbitration must
necessarily be the Courts of England and Wales. Mr. Tripathy submitted that
consequently this Court has no jurisdiction to entertain the applicant's
petition under Section 11(9) of the Arbitration and Conciliation Act, 1996,
and the same was liable to be dismissed.
Mr. Tripathy also urged that the expression "may be referred to arbitration"
or "can be referred to arbitration" have consistently been held by the Indian
Courts to be antithetical to the concept of arbitration. Reference was made
to various decisions on this count as well. Regarding use of the expression
"adjudication", Mr. Tripathy submitted that a final decision arrived in such
adjudication proceedings would not make it a valid arbitration agreement.
He urged that unless it is the clear intention of the parties that arbitration is
to be the only forum for adjudication of disputes, the requirement of a valid
arbitration clause is not fulfilled.

Holding of the Court: The decision in the Bhatia International case

(supra) has been rendered by a Bench of Three Judges and governs the
scope of the application under consideration, as it clearly lays down that the
provisions of Part-I of the Arbitration and Conciliation Act, 1996, would be
equally applicable to International Commercial arbitrations held outside
India, unless any of the said provisions are excluded by agreement between
the parties expressly or by implication, which is not so in the instant case.
Furthermore, from the wording of Clause 13.2 and Clause 13.3 I am
convinced, for the purpose of this application, that the parties to the

Memorandum intended to have their disputes resolved by arbitration and in

the facts of this case the petition has to be allowed.

Citation Infowares v. Equinox Corporation ((2009)7SCC220)

Facts: The applicant M/s Citation Infowares Ltd. is a company registered
under the Companies Act carrying on business in United States of America
as also in Gurgaon, India through its establishment/subsidiary. The
respondent Equinox Corporation is also a company registered within the
appropriate laws of United States of America, having its office at 10,
Corporate Park, Suit No. 130, Irvine, CA- 92606, USA. The Equinox
Corporation has been carrying on business in India through outsourcing. It
is also carrying on business in India through its own establishment in India,
Equinox Global Services Private Limited (hereinafter called `EGSPL'). The
said EGSPL is a company registered under the Companies Act and has its
office in Gurgaon. It is pleaded in the application that the respondent
company Equinox Corporation (hereinafter called `EC') had entered into an
outsourcing agreement singed in Kolkata, India with the applicant Citation
Infowares Ltd (hereinafter called `CIL') on 09.02.2004 wherein the
applicant was engaged as a service provider on terms and conditions
contained in the agreement. It was agreed in this agreement dated
09.02.2004 that CIL which had bagged orders from its client and since it
had sufficient funds, space and existing infrastructure to execute the
projects and since it required expert manpower to provide service to its
client and further since CIL had approached EC for providing the required
number of resources to CIL as against the monthly charges at mutually
agreed consideration, EC had agreed to provide resources and, hence, both
the parties had, in short, mutually agreed to do the business on certain
agreed terms.

It is the claim of the applicant that it created infrastructure for seating

capacity of 200 customized seats at Gurgaon address of the respondents
and same were being utilized by the respondent. All the three agreements
were signed at Kolkata, India and the services were being provided and
rendered under the said agreement by the applicant at Gurgaon, India.
On this backdrop, by a notice dated 09.01.2008 sent through e-mail, the
respondent terminated the agreements dated 25.01.2007 w.e.f. 07.03.2008.
According to the applicant, this termination of agreement was illegal and
wrongful, causing it huge loss. The applicant assessed the damages to be

compensated by the respondent tentatively at US $ 23,49,182. The

applicant also pleads that the respondent had also failed to pay the
outstanding amount of US $ 6,32,182 payable to the applicant under the
contract against the invoice raised by the applicant for the period from July,
2007 to January, 2008. The applicant also claimed on this amount the
interest @ 18 % per annum

The agreement dated 25.01.2007 which has already been referred to. Under
the said agreement Clause 10.1 provided as under:
10.1 Governing law- This agreement shall be governed by and interpreted
in accordance with the laws of California, USA and matters of dispute, if
any, relating to this agreement or its subject matter shall be referred for
arbitration to a mutually agreed Arbitrator.
On the disputes arisen, the applicant invoked arbitration clause by its notice
dated 08.02.2008 and further notice dated 09.02.2008 informing the
respondent about appointment of Arbitrator and requested the respondent
to agree to the said appointment. The respondent did not agree within the
period of 30 days provided in Section 11(5) of the Arbitration and
Conciliation Act, 1996 (hereinafter called the `Arbitration Act') and, thus,
parties have failed to agree to the appointment of sole Arbitrator within the
time limit prescribed under that Section necessitating the present
application for appointment of an Arbitrator by this Court since this
happens to be an international arbitration.

Contention of the Respondent: The respondent urged from the language

of the clause that where the governing law is agreed between the parties,
say foreign law, then essentially, the question of appointment of arbitrator
also falls in the realm of the said foreign law and not within the realm of
Arbitration and Conciliation Act. The Learned Senior Counsel further urged
that in the wake of language of Clause 10.1, it was very clear that the
agreement was to be governed by and interpreted in accordance with the
Laws of California and further in continuation of the earlier words, it was
provided that the matters of dispute relating to the agreement or its subject
matter, would be referred to arbitration to a mutually agreed arbitrator. The
Learned Senior Counsel, therefore, urged that considering the positive
language of Clause 10.1, it was clear that the parties had specifically agreed
that the matter of appointment of arbitrator would also be governed by the
Laws of California. The Learned Senior Counsel urged that, therefore, there
was a clear cut agreement between the parties to that effect and as such, as
held in Bhatia International v. Bulk Trading S.A. reported in

[2002]2SCR411 (cited supra), parties had expressly excluded the provisions

of Part I of the Arbitration and Conciliation Act, 1996. The Learned Senior
Counsel very heavily relied on the last part of Para 32 of the judgment in
case of Bhatia International (cited supra). The learned Senior Counsel,
therefore,
urged
that
even
if
judgment
in
case
of Bhatia
International (cited supra) was held applicable, it was in fact, liable to be
read in favor of the respondent and not the applicant. The Learned Senior
Counsel also invited our attention to another judgment of this Court
in National Thermal Power Corporation v. Singer Company and
Anr. reported in MANU/SC/0146/1993 : [1992]3SCR106 and Sumitomo
Heavy Industries Limited v. ONGC Limited reported in AIR1998SC825 .
Apart from these judgments, the Learned Senior Counsel relied on a
decision of the House of Lords in case of James Miller & Partners Ltd. v.
Whitworth Street Estates Ltd. in support of the proposition that where
the parties have agreed that the governing law would be a foreign law,
normally the question relating to Arbitral Tribunal would also be governed
by such foreign law. The other decision relied upon by the Learned Senior
Counsel is the decision of Privy Council in Bay Hotel and Resort ltd. v.
Cavalier Construction Co. Ltd.reported in 2001 UKPC 34/2001 WL
825663 and the decision of Queen's Bench (Commercial Court) in case
of ABB Lummus Global Ltd. v. Keppel Fels Ltd. reported in 1999(2) LLR
24.

Holding of the Court: There may be presumption where the parties have
agreed to hold arbitration in a particular country. In that circumstance, the
presumption would arise that the law of the country where the arbitration is
agreed to be held would apply as a law of contract. Where there has been
no specific expression about the law of contract, the situation is otherwise.
In this way the law of contract is agreed upon as the Californian law.
However, there is no agreement in respect of the law governing the
procedure of arbitration. Again in paragraph 25 the Court expressed that
the party had the freedom to choose the law governing international
agreement of choosing substantive law of arbitration agreement as well as
the procedural law governing the conduct of the arbitration. It is then the
choice to be exercised by the parties or by implication, except to such
situations where there is no express choice of the law governing the
contract as a whole or the arbitration agreement in particular. There is, in
absence of any contrary intention, a presumption that the parties have
intended that the proper law of contract as well as the law governing
arbitration agreement are the same as the law of the country in which the
arbitration is agreed to be held. Here again the stress is on the agreement

about the country where the arbitration is agreed to be held and precisely
this situation is absent in the present case. Here the substantive law of
contract governing the contract is specifically agreed upon. However, the
place where arbitration would be held is not to be found in the language of
Clause 10.1. Therefore, the situation inNational Thermal Power
Corporation's case (cited supra) was not applicable to the present case.

The Court undoubtedly further goes on to say that where the proper law of
contract is expressly chosen by the parties such a law must, in the absence
of unmistakable intention to the contrary, govern the arbitration agreement
which, though collateral or ancillary to the contract, is nevertheless a part
of the contract. It is this expression which has been heavily relied upon by
the learned senior counsel for the respondent.
However, in Bhatia International (cited supra), duly considered in Indtel
Technical Services' case (cited supra) is apart from the fact that the
provisions of the Arbitration and Conciliation Act, 1996 were not applicable
either in Singer's case or even in Sumitomo Heavy Industries' case (cited
supra). The issue regarding the applicability of Part I of the 1996 Act to
international commercial arbitration also did not fall for consideration in
these cases. It may be that the Arbitrator might be required to take into
account the applicable laws which may be the foreign laws but that does not
effect the jurisdiction under Section 11 which falls in Part I which has been
specifically held applicable in Bhatia International
Seen the striking similarity between Clause 10.1 and Clauses 13.1 and 13.2
which have been quoted above and further the view expressed by learned
Judge in Indtel Technical Services' case (cited supra) regarding the
exclusion, it is not possible to read even distantly such an implied exclusion
of Part I. It cannot be forgotten that one of the contracting parties is the
Indian party. The obligations under the contract were to be completed in
India. Further considering the nature of the contract, it is difficult to read
any such implied exclusion of Part I in the language of Clause 10.1. That
argument of learned senior counsel for the respondent therefore must be
rejected.
This means that the contentions raised based on the three foreign cases by
Shri K.K. Venugopal James Miller & Partners' case (cited supra), Bay
Hotel and Resort' case (cited supra) and ABB Lummus Global's
case (cited supra) need not be considered in view of the binding nature of
the three aforementioned decisions inBhatia International (cited
supra), Venture Global Engineering's case (cited supra), and Indtel

Technical Services' case (cited supra). However, since those cases are
actively relied upon the same are considered as follows.
In the first mentioned case, the question was as to the applicable law of
contract and not the applicable law of arbitration where the parties had
specifically agreed on the law of contract. The factual situation was,
therefore, different. The relied on observations at page 616 of the decision
are more in the nature of obiter.
In so far as the Bay Hotel and Resort' case (cited supra) is concerned the
reliance is placed on paragraph 35 of the said decision to the following
effect:
Two points in the speech of Lord Wilberforce are notable here. First, he
said that in the normal case where the contract itself is governed by English
law, any arbitration would be held under English procedure. Secondly, he
said that the mere fact that the arbitrator was to set either partly or
exclusively in another part of the United Kingdom, or, for that matter,
abroad, would not lead to a different result; the place might be chosen for
many reasons of convenience or be purely accidental; a choice so made
should not affect the parties' rights. The passage in his speech is at page
616 of the report.

These observations apply to the normal case which is not a case here.
As regards the third decision in ABB Lummus Global's case (cited supra)
the relied upon passage again does not clinch the issue. What is stated
there is that where the parties chose the curial law of arbitration they
would be taken to choose the place and sitting of arbitration. In my opinion
the observations are not apposite to the present controversy.
Accordingly, I appoint Hon'ble Mr. Justice R.C.Lahoti (Ex. CJI) as the sole
Arbitrator to arbitrate upon the disputes which have arisen between the
parties hereto as set out in the present application. The sole Arbitrator
would be entitled to decide upon the procedure to be followed in the
arbitration proceedings, sittings of the proceedings as also to settle his fees
in respect thereof. However, the law governing the contract would be the
Californian Law.

Section 12- Challenge to Arbitrators

Section 12 lays down the grounds for challenging the arbitrator with the
intent of revoking his authority.
The authority may be challenged only if
i.

Circumstances exist that give rise to justifiable doubts as to his

independence or impartiality

ii.

He doesnt possess the qualifications agreed to by the parties

iii.

The challenge may be made by a party only for reasons of which he

becomes aware after the appointment has been made.

a) Doubt as to independence or impartiality at initial stage: S.11 of

the 1940 empowered the court to remove an arbitrator on 2 grounds

i.

Arbitrator failed to use all reasonable dispatch in entering on

and proceeding with the reference and making the award

ii.

The arbitrator had misconducted himself or the proceedings

The present Act only provides for removal of the arbitrators either by the
parties themselves or by the Arbitral Tribunal.

Bharat Coking Coal Ltd. V. L.K. Ahuja & Co. (2001) 4 SCC 86
Facts: 2 works were assigned by the appellant for construction pursuant to
a tender. The work was assigned to the respondent and the date for
completion of the respective works were fixed as 24/3/1983 and 19/3/1983.
The respondent sought extension of time which was granted by the
appellant- disputes arose between the parties and the matter was referred
to the sole arbitrator. The arbitrator made two awards in respect of the two
contracts, which were filed in the court of the Civil Judge. The awards
made were only with reference to payment of material escalation in the two
claims.

Holding of the Court: The award rendered by the arbitrator is hybrid i.e.
neither a speaking award nor a non-speaking award. If its a non-speaking
award it cant be challenged unless it is proven that arbitrator has wholly

travelled outside the contract which gives him the jurisdiction. However in
the case of a speaking award the court can interfere if there is an error
apparent on the face of the award it may also be shown that the arbitrator
has misconducted himself in arriving at certain conclusions which are either
plainly contrary to law or to the terms of the contract or ignored the
provisions of contract or the evidence on record and such other similar
matters. After looking into the concerned clause relating to provision of
materials, the court came to the conclusion that the arbitrator failed to
apply his mind and the case will clearly disclose that there is an error
apparent on the face of the award. Further the arbitrator had dealt with the
matter himself as an officer who had correspondence with the contractor at
the time when he was an officer of the appellant- it would not be fair to the
parties- Hence the award was to be set aside and new arbitrator had to be
appointed.
b) Disclosure of circumstances by proposed arbitrator: The
arbitrator must be, and must be seen to be disinterested and
unbiased.
The arbitrator should have no connection, direct or
indirect, with a party such that it creates an appearance of partiality.
It is easier to recognize than to define the boundary between what
previous connections do and do not disqualify. Test: Whether a
reasonable person who was not a party to the dispute would
think it likely that the connection was close enough to cause
the arbitrator to be biased.

Ranjit Thakur v. UOI (AIR 1987 SC 2386)

Issue: What is the test of bias? (Generally, and not specifically vis--vis
A&C Act)

Facts: The appellant, a Signal Man in a Signal Regiment of the Armed

Services, while serving out a sentence of 28 days' rigorous imprisonment
(1st punishment) imposed on him by the Commanding officer of the
Regiment respondent No. 4, for violating norms for presenting
representations to higher officers, was alleged to have committed another
offence (2nd punishment) by refusing to eat his food on March 29, 1985
when ordered to do so. He was charged under section 41(2) of the Army
Act, 1950 for disobeying a lawful command given by his superior officer. A
sentence of rigorous imprisonment for one year was imposed by a Summary
Court Martial consisting of respondent No. 4 and others.

The soldier is contending bias in the order of the Summary Court Martial,
because Respondent 2 and 4 who had complained against him for disrespect
in the 1st Punishment are now sitting as adjudicators in the Court Martial
relating to the 2nd punishment.

Holding of the Court: The test of real likelihood of bias is whether a

reasonable person, in possession of relevant information, would have
thought that bias was likely and is whether respondent 4 was likely to be
disposed to decide the matter only in a particular way. It is the essence of a
judgment that it is made after due observance of the judicial process; that
the Court or Tribunal passing it observes, at least the minimal requirements
of natural justice, is composed of impartial persons acting fairly and without
bias and in good faith. A judgment which is the result of bias or want of
impartiality is a nullity and the trial "coram non-judice".
In considering whether there was a real likelihood of bias, the court does
not look at the mind of the justice himself or at the mind of the chairman of
the tribunal, or whoever it may be, who sits in a judicial capacity. It does not
look to see if there was a real likelihood that he would, or did, in fact favour
one side at the expense of the other. The court looks at the impression
which would be given to other people. Even if he was as impartial as could
be nevertheless if right minded persons would think that in the
circumstances there was a real likelihood of bias on his part, then he should
not sit ....... ". Hence there is an element of bias present in the instant case
and the soldier should be acquitted.

International Airport Authority v. KD Bali (AIR 1988 SC 1099)

Issue: What is the test for bias under A&C Act, 1940?
Facts: The petitioner invited tenders for the construction of the terminal
building of a new international passenger complex (Phase II) at the Bombay
Airport. The respondent No. 2, a partnership firm, submitted a tender which
was accepted and a formal agreement followed, with a provision in the
agreement for settlement of disputes through a sole arbitrator Dispute
arose Petitioner cried foul over bias of the arbitrator
Rule: It is well-settled that there must be purity in the administration of
justice as well as quasi-justice involved in the adjudicatory process before
the arbitrator. Once the arbitrator enters on an arbitration, he must not be
guilty of any act which can possibly be construed as indicative of partiality
or unfairness. It is not a question of the effect which a misconduct on his
part had in fact upon the result of the proceeding, but of what effect it

might possibly have produced. It is not enough to show that even if

there was misconduct on his part, the award was unaffected by it and
was in reality just; the arbitrator must not do anything which is not
in itself fair and impartial. In the words of Lord O'Brien, L.C.J, there
must be a real likelihood of bias and not a mere suspicion of bias
before proceedings can be quashed on the ground that the person
conducting the proceedings is disqualified by interest. The purity of
administration requires that the party to the proceedings should not
have apprehension that the authority is biased and is likely to decide
against the party, but it is equally true that it is not every suspicion
felt by a party which must lead to the conclusion that the authority
hearing the proceedings is biased, as held by the High Court. The
apprehension must be judged from a healthy, reasonable and
average point of view and not on a mere apprehension of any
whimsical person. It cannot be and should never be in a judicial or quasijudicial proceeding that a party who is a party to the appointment could
seek the removal of an appointed authority or an arbitrator on the ground
that the appointee being his nominee had not acceded to his prayer about
conduct of the proceedings. It is the reasonableness and apprehension of an
average honest man that must be taken note of.
Holding of the Court: The learned Judge examined the circumstances
advanced before him of bias by arbitrator. The first was that the arbitrator
did not record the minutes of the meetings. This in our opinion was not a
reasonable request to make and the arbitrator had rightly declined to do so.
The next circumstance urged was that the preliminary objections raised by
the petitioner were rejected without a speaking order. It was not necessary
for the arbitrator to record a long reasoned order on the preliminary
objections and indeed the law does not demand writing such a long order.
Third issue answered: Section 13(b) confers power on the arbitrator to state
special case but it does not make it obligatory on the part of the arbitrator
to state a special case as soon as the party desires to do so. In the instant
case the petitioner itself agitated issue of jurisdiction before the arbitrator
and by its conduct submitted the question of jurisdiction and other
questions of law for determination of the arbitrator. Once having done so, it
was not proper for the petitioner to ask the arbitrator to state a special
case.
The other point sought to be urged by the petitioner was that the venue of
the arbitration was changed from conference room at Santacruz Airport,
Bombay, to the conference room at Indian Merchants Chambers at
Churchgate, Bombay. It is the claim of the petitioner that this change of
venue was without the consent of the petitioner. Change of venue in no
manner would indicate that the arbitrator was prejudiced against the

petitioner and no prayer was made to the arbitrator not to change the
venue. This is solely a fallacious ground to make out a case of alleged bias.
Having failed and realised that respondent No. 1 was not willing to submit
to the dictates of the petitioner, the petitioner declined to contribute for the
air-ticket and providing for accommodation. No party should be allowed to
throw out the arbitration proceeding by such tactics and if the arbitrator
has not surrendered to pressure in our opinion, the arbitrator cannot be
faulted on that score nor the proceedings of the arbitrator be allowed to be
defeated by such method. There was another ground sought to be made
before us that there was a loss of confidence. We find no reasonable ground
for such loss of confidence. It appears that the matter was adjourned
thereafter but by merely making an application for adjournment and
refusing to attend the arbitration proceeding, a party cannot forestall
arbitration proceeding.
There was no substance found in the alleged grounds of apprehension of
bias, examined in this light.

India Oil Corporation v. M/s Raja Transport

Issue: Whether it is justified to assume that when an employee of one of the

parties to the dispute is appointed as an arbitrator, he will not act
independently or impartially?
Facts: Under an agreement dated 28.2.2005, the appellant appointed the
respondent as its dealer for retail sale of petroleum products. . By letter
dated 6.8.2005, the appellant terminated the dealership of the respondent
on the recommendation of its Vigilance Department Arb Agreement
contained provision for appointment of an IOC executive as sole arbitrator.
Holding of the Court: It is quite common for governments, statutory
corporations and public sector undertakings while entering into contracts,
to provide for settlement of disputes by arbitration, and further provide that
the Arbitrator will be one of its senior officers. If a party, with open eyes and
full knowledge and comprehension of the said provision enters into a
contract with a government/statutory corporation/public sector undertaking
containing an arbitration agreement providing that one of its
Secretaries/Directors shall be the arbitrator, he cannot subsequently turn
around and contend that he is agreeable for settlement of disputes by
arbitration, but not by the named arbitrator who is an employee of the other
party. No party can say he will be bound by only one part of the agreement
and not the other part, unless such other part is impossible of performance

or is void being contrary to the provisions of the Act, and such part is
severable from the remaining part of the agreement.however, if the
appellant feels that the arbitrator has not acted independently or
impartially, or he has suffered from any bias, it will always be open to the
party to make an application under section 34 of the Act to set aside the
award on the ground that arbitrator acted with bias or malice in law or fact.
It is now well settled by a series of decisions of this Court that
arbitration agreements in government contracts providing that an
employee of the Department (usually a high official unconnected
with the work or the contract) will be the Arbitrator, are neither void
nor unenforceable Nothing in sections 11, 12, 18 or other
provisions of the Act suggests that any provision in an arbitration
agreement, naming the Arbitrator will be invalid if such named
arbitrator is an employee of one of the parties to the arbitration
agreement.
The decisions under the old Act (1940 Act) on this issue are not
irrelevant when considering the provisions of the new 1996 Act
There can however be a justifiable apprehension about the
independence or impartiality of an Employee-Arbitrator, if such
person was the controlling or dealing authority in regard to the
subject contract or if he is a direct subordinate (as contrasted from
an officer of an inferior rank in some other department) to the
officer whose decision is the subject matter of the dispute. Where
however the named arbitrator though a senior officer of the
government/statutory body/government company, had nothing to do with
execution of the subject contract, there can be no justification for anyone
doubting his independence or impartiality, in the absence of any specific
evidence. Therefore, senior officer/s (usually heads of department or
equivalent) of a government/statutory corporation/ public sector
undertaking, not associated with the contract, are considered to be
independent and impartial and are not barred from functioning as
Arbitrators merely because their employer is a party to the contract.
The position may be different where the person named as the Arbitrator is
an employee of a company or body or individual other than the state and its
instrumentalities. For example, if the Director of a private company (which
is a party to the Arbitration agreement), is named as the Arbitrator, there
may be valid and reasonable apprehension of bias in view of his position and
interest, and he may be unsuitable to act as an Arbitrator in an arbitration
involving his company.

c) Doubts developing afterwards: It requires the arbitrator to disclose

to the parties in writing and without any delay any circumstances
developing after the time of his appointment and during the course of
the arbitral proceedings which give rise to a justifiable doubt about
his independence of impartiality.

Section 13- Procedure for Challenge

The procedure is somewhat like the procedure under the preceding Act for
seeking the leave of the court for revoking the authority of the arbitrator.
Hence certain principles laid down in earlier cases have not lost their
significance.

AmarChand Lalitkumar v. Shree Ambika Jute Milss Ltd. ( AIR 1966

SC 1036)
Facts: Seller of raw jute entered into an agreement to supply jute to a millthe seller failed to supply- dispute arose- matter was referred to arbitration
to the chamber of commerce. Seller challenged the authority of the
chamber stating that due to the scarcity of jute price had shot up placing
the seller and buyer in two different camps and the Chamber was part of
the buyers camp- hence its decision wouldnt be impartial.
Holding of the Court: Before the court exercises its discretion to give
leave to revoke an arbitrators authority, it should be satisfied that a
substantial miscarriage of justice would take place in the event of its
refusal- the grounds on which leave to revoke could be given were
put under five heads:
1. Excess or refusal of jurisdiction by arbitrator
2. Misconduct of arbitrator
3. Disqualification of arbitrator
4. Charges of fraud
5. Exceptional cases.

Section 14 Failure or impossibility to act

Section 14(1) sets out certain grounds on which the mandate or authority of
an arbitrator can be terminated:

1. When the arbitrator either in law or factually becomes unable to

perform his functions; or
2. For some reason he fails to act without undue delay
3. The parties agree to the termination.

Shyam Telecom v. Arm Ltd. (2008(3)ARBLR615(Delhi))

Issue: Whether the mandate of an Arbitrator terminates on the expiry of

the stipulated period for making the Award as provided in the Arbitration
Agreementwithin the meaning of Section 14 of the Arbitration and
Conciliation Act, 1996?
Facts: Arb agreement states that arbitrator shall come out with an award
within 6 months 6 months elapse Arb. says that since claimant has
continued with the proceedings even after 6 months, he has waived the 6
month decision clause. Claimant moves to Court against this order.

Holding of the Court: In the opinion of this Court, the expression "de jure"
is amply wide so as to cover a situation like the case in hand. This view is
based on the settled legal position that arbitration agreement is the
fountain head of the Arbitrator's power and authority and the parties as well
as the Arbitrator are governed and controlled by the terms of the said
Arbitration agreement. Unless parties agree to the contrary, the terms of
Arbitration agreement must operate in full. The consequence of the
Arbitrator not concluding the proceedings and rendering the Award within
the period prescribed under the Arbitration agreement as in the present
case would uncloth the Arbitrator of his legal authority to continue with the
proceedings unless the parties agree to extend the period of making the
Award or a party waives his right to such an objection. It must, therefore,
be held that expiry of the prescribed period for making the Award,
would render the Arbitrator 'de jure' unable to continue with the
proceedings and has the effect of termination of the mandate of the
Arbitrator within the meaning of Section 14 of the Act

It is true that 1996 Act does not prescribe any time limit for making and
publishing the Award but that does not mean that parties cannot by mutual
agreement provide for a time limit for making the Award by the Arbitrator
and if so prescribed it would run contra to the provisions of the Act. This
view appears to be more plausible and acceptable having regard to the
object of having Arbitration as the alternate mode for settlement of
disputes/differences between the parties. The method of Arbitration to
resolve the disputes/differences between the parties certainly aims at
expeditious resolution of/the disputes because it is considered that the time
taken by the Courts established by the State for resolution of the disputes is
unduly long and cumbersome. It must, therefore, be held that the provision
of time limit for rendering Award by the Arbitrator in an Arbitration
agreement is not hit by the provisions of the Act and is to be given effect
unless the parties agreed to modify or extend the same by mutual consent.
However, no objection was raised about the continuation of the Arbitral
proceedings but the petitioner continued to participate in substantive
proceedings before the Arbitrator up till the final stage of the proceedings.
In the opinion of this Court, these facts and circumstances are so glaring so
as to attract the doctrine of waiver within the meaning of Section 4 of the
Act. It is a settled legal position that waiver will be deemed to have taken
place when a party knowing that an irregularity has been committed, did
not object to the same but participated in the Arbitration proceedings
without protest. Section 4 of the 1996 Act corresponds to Article IV of
'UNCITRAL Modern Law'. The principle of waiver is not new in the
Arbitration law as it was so far contained in the case law and has been
codified in the statute. Besides, in the opinion of the Court the right to
object the continuance of the proceedings on the ground of expiry of the
stipulated period is one which falls in Part-I of the Act and which is
derogable. The object of providing time limit for rendering an Award by the
Arbitrator is aimed at expeditious resolution of the disputes rather than to
leave the disputes unsettled or inconclusive on the expiry of the stipulated
period. -Thus, looking at the matter from any angle, this Court is of the
opinion that having regard to the entirety of the facts and circumstances,
the petitioner will be deemed to have waived its right to object about the
continuation of the proceedings or alleging the termination of the mandate
of the Arbitrator simply on the ground that the time prescribed under
Article IV(3) of the Divestment agreement for making the Award had
expired.
Decision By waiver, the Arb Tribunals mandate continues Arb.
proceedings to be resumed.

NHAI v. K K Sarin

Issues: Whether the appointment of the arbitrator on the ground of bias

can be challenged under Section 14 of the Act or the grievance, if any, with
respect thereto is to be made only at the stage of Section 34 of the Act?
If grievance of bias can be made under Section 14, then whether the
grievance can be made directly before the court or the complaining party is
required to first pursue the measures under Sections 12 and 13 of the Act?
Holding of the Court: Issue 1 - Section 14 permits a party to approach the
court to return a finding if "a controversy remains" as to whether the
arbitrator has become de jure or de facto unable to perform his functions.
The 1996 Act in Section 5 thereof otherwise prohibits judicial intervention
except where so provided by the Act itself. Thus unless Section 14 permits
judicial intervention in the case of a bias being made out against the
arbitrator, the petition on the said ground shall not lie.
Issue 2 - . Section 16(2) uses the words "not later than........" for the reason
of nature of plea therein. The court in such proceedings has a limited role
after the award. A plea required by law to be raised before the arbitrator, if
not raised, cannot be raised for the first time in challenge to the award
before the court. Without the same being raised before the arbitrator, the
court will have no way of satisfying itself of correctness of adjudication
thereof by the arbitrator. Similarly, the mandate of arbitrators does not
terminate immediately on bias being alleged. Section 13 requires such plea
of bias to be raised before the arbitrator. Section 14 as interpreted above
also permits court to be approached where the controversy of arbitrator
being biased remains, inspite of decision under Section 13 by the arbitrator
and if such plea can be adjudicated in a summary manner. Else the remedy
is only under Section 34 as provided in Section 13(5).
To me, the scheme of the Act appears to be that the challenge has to be first
made before the arbitrator in accordance with the Section 13 of the Act and
upon such challenge being unsuccessful the challenging party has a remedy
of either waiting for the award and if against him to apply under Section 34
of the Act or to immediately after the challenge being unsuccessful
approach the court under Section 14 of the Act. The court when so
approached under Section 14 of the Act will have to decide whether the
case can be decided in a summary fashion. If so, and if the court finds that
the case of de jure inability owing to bias is established, the court will
terminate the mandate. On the contrary, if the court finds the challenge to

be frivolous and vexatious, the petition will be dismissed. But in cases

where the court is unable to decide the question summarily, the court would
still dismiss the petition reserving the right of the petitioner to take the
requisite plea under Section 34 of the Act. This is for the reason of the
difference in language in Section 14 and in Section 34 of the Act. While
Section 14 provides only for the court deciding on the termination of the
mandate of the arbitrator, Section 34 permits the party alleging bias to
furnish proof in support thereof to the court.
Decision - The petitioner, in the present case, has not approached the
arbitral tribunal with the plea of bias and has straightaway approached this
court. The same is not permissible.

Section 15- Termination of mandate and substitution of arbitrator

Yashwith Construction v. Simplex Concrete ( AIR 2006 SC 2798)

Issue: Sec. 15 - Whether appointment of new arbitrator requires Sec. 11

route (authorization by Chief Justice) or simply you may apply the
Arbitration Agreement requirements?
Facts:
On a dispute having arisen, the Managing Director of the
respondent company appointed an arbitrator in terms of the arbitration
clause. The arbitrator resigned. Thereupon the Managing Director of the
respondent company, in view of the mandate in the arbitration agreement
promptly appointed another arbitrator.
Holding of the Court: In our view, the learned Chief Justice and the
Division Bench have rightly understood the scope of Section 15 of the Act.
When the arbitrator originally appointed in terms of the arbitration
agreement withdrew for health reasons, the Managing Director, as
authorized originally by the arbitration agreement, promptly appointed a
substitute arbitrator. It is true that in the arbitration agreement there is no
specific provision authorizing the Managing Director to appoint a substitute
arbitrator if the original appointment terminates or if the originally
appointed arbitrator withdraws from the arbitration. But, this so called
omission in the arbitration agreement is made up by the specific provision
contained in Section 15(2) of the Act. The withdrawal of an arbitrator from
the office for any reason is within the purview of Section 15(1)(a) of the Act.
Obviously, therefore Section 15(2) would be attracted and a substitute
arbitrator has to be appointed according to the rules that are applicable for

the appointment of the arbitrator to be replaced. Therefore, what Section

15(2) contemplates is an appointment of the substituted arbitrator or the
replacing of the arbitrator by another according to the rules that were
applicable to the appointment of the original arbitrator who was being
replaced. The term "rules" in Section 15(2) obviously referred to the
provision for appointment, contained in the arbitration agreement or any
Rules of any Institution under which the disputes were referred to
arbitration.. When Section 15(2) says that a substitute arbitrator
can be appointed according to the rules that were applicable for the
appointment of the arbitrator originally, it is not confined to an
appointment under any statutory rule or rule framed under the Act
or under the Scheme. It only means that the appointment of the
substitute arbitrator must be done according to the original
agreement or provision applicable to the appointment of the
arbitrator at the initial stage.
Since here, the power of the Managing Director of the respondent is saved
by Section 15(2) of the Act and he has exercised that power on the terms of
the arbitration agreement, we see no infirmity either in the decision of the
learned Chief Justice or in that of the Division Bench.

Section 16- Kompetenz Kompetenz

Section 16(1) empowers an Arbitral Tribunal to decide:
1) The question as to its jurisdiction
2) The objection as to the existence or validity of the arbitration
agreement.
-

Even if the Arbitral Tribunal holds that the contract is null and void it
will not result in the automatic invalidity of the arbitration clause.
A plea with regard to the jurisdiction of the tribunal or its composition
must be raised right at the beginning and normally not later than the
statement of defense.
When an arbitrator fails to decide on any particular matter, the court
may set aside such an award. E.g. plea of jurisdiction raised by one
party even before filing of statement of defense and ignored by the
arbitrator.
The power available to the Arbitral Tribunal is available only when it
has been constituted without intervention under Section 11 or Section
8.
The arbitrator has no power to order the winding up of a company,
this power is vested only with the courts under the Companies Act-

however he/she may adjudicate upon the question whether or not the
company was functional.

Section 34- Setting Aside of an Arbitral Award

There exists sound logic recognizing the authority of the arbitrator to rule
on disputes and the fact that it cant be lightly interfered with. However this
is not to say that there is no check on an arbitrators authority. Under the
1940 Act there were three remedies available against the decision of the
arbitrator namely- modification, remission and setting aside. Under the
1996 this can be divided into 2 groups- Setting aside & returning of
award back to the tribunal for removal of defects.

MMTC v Vicnivan Agency

Facts: Respondent was appointed by petitioner for handling Wheat in the
Port of Tuticorin. Disputes arose between the petitioner and the first
respondent with regard to the payment of storage rent. The Arbitrator
conducted an enquiry and passed an award. Aggrieved by the said award,
the first respondent filed a petition under Section 34 of the Arbitration and
Conciliation Act, 1996. When the same was pending, the first respondent
filed an Interlocutory Application under Section 34(4) of the Act, seeking to
remit the award back to the Arbitrator so as to eliminate the grounds for
setting aside the award. District Court remitted the matter back to the
Arbitrator for fresh consideration after sufficient opportunities to both sides
and further directed the award already passed to be kept in abeyance for a
period of six months in terms of Section 34(4) of the Act.
Issue: Whether District court had the power to direct Arbitral Tribunal to
hear matter afresh? Court held that under 1940, Act the power of court was
wide and it could do so. However under the 1996 Act, the section to give
such extensive power is excluded and the court could only suggest the
tribunal to remove defects. However, it is the discretion of tribunal to
entertain such direction of the court. It may refuse to reconvene and
reconsider the matter. However, if it decides to reconvene, it may hear the
matter on its terms.

Contention of Respondent:
The first contention relates to the payment of storage rent made by the
Bangalore Office to the first respondent, in respect of which an affidavit was
filed by the petitioner before the Arbitrator after the conclusion of the
proceedings and about which the first respondent had no opportunity of
hearing. (Some affidavit was filed after conclusion of hearing by petitioner
and arbitral tribunal took it as evidence. It did not give opportunity to
respondent to present his case)
The second contention relates to the alleged diversion of Cargo from Kandla
Port to Tuticorin Port during the period from February to April 2001, on
account of which the petitioner allegedly made special payments. (The
respondent was forced to pay some money for alleged diversion of Cargo.
He later found out that no such diversion was made, and petitioner falsely
claimed it, thereby committed fraud. Respondent found that out through
RTI filed after conclusion of proceeding in arbitral tribunal)

Contention of Petitioner:
The first respondent cannot lead fresh evidence obtained through RTI after
completion of the proceeding by taking the advantage of Section 34 (4) of
the Act. Arbitrator is not a civil court and hence would become functus
officio after the award. He can resume the proceedings only by virtue of an
order passed by a court. The proceedings arising out of a challenge to an
arbitration award before a court cannot also be equated to an appeal under
Order XLI of the Code of Civil Procedure so as to invoke Rule 27 of Order
XLI. Therefore under normal circumstances, it is not possible to allow a
party to rely upon an evidence which he caught hold of after the conclusion
of the arbitral proceedings.
The purpose of an order of remand under Section 34(4) of the Act, is not to
enable the parties to have a re-hearing nor to enable the parties to adduce
fresh and additional evidence. The object of Section 34(4) of the Act, is only
to eliminate the grounds for setting aside an award. The district court could
have not ordered the fresh proceeding

Holding of the Court: Court stated that first issue raised by the petitioner
is certainly a ground for setting aside the award in terms of Section 34(2) of
the Act and that therefore Section 34(4) of the Act, could be invoked in the
present case, can be appreciated even by a bare reading of Section 34 of
the Act. Under 34 (2) arbitral award can be set aside if the party seeking it
to be set aside furnishes proof that he was under some incapacity or that he

was otherwise unable to present his case. Court stated that tribunal did not
give respondent an opportunity to present his case under contention 1 and
therefore the occasion to invoke Section 34(4) of the Act, so as to remove
the incapacity or inability on the part of the first respondent to present his
case in terms of Section 34(4) of the Act, had arisen. Court quoted Russell
for the above conclusion:
There would be an irregularity if the tribunal receives and acts on fresh
evidence obtained after the proceedings have closed, but prior to the
award, without giving the parties an opportunity to be heard on it
The court had to determine if it had power to force the tribunal to
reconvene and hear matter afresh under section 34 (4). It discussed the
scope of section 34
Three conditions are to be satisfied for the Court to adjourn the proceedings
under Section 34(4) of the Act and direct matter to tribunal, viz.,:
(i) that an application under Section 34(1) of the Act, to set aside the award
should have been received by the Court;
(ii) that the Court considers it appropriate; and
(iii) that it is so requested by a party.
The court held that power to reconvene was apparent in 1940 Act, However
1996 Act only gave directory power, without any mandate attached. Court
then discussed the difference between new and old act. There are at least
six distinguishing features between Section 16(1) of the 1940 Act and
Section 34(4) of the 1996 Act, which are as follows:
(a) While Section 16(1) of the 1940 Act, empowered the Court "to remit the
matter for reconsideration to the Arbitrator", Section 34(4) of the 1996 Act,
empowers the court just to adjourn the proceedings to enable the arbitral
tribunal to do what in his opinion would eliminate the grounds for setting
aside the arbitral award. Thus there is an essential difference in the power
conferred upon the court.
(b) Under Section 16(1) of the old Act, the remand by the Court is "upon
such terms as the Court may think fit". On the contrary, Section 34(4) of the
New Act, leaves it to the discretion of the arbitral tribunal to do what in the
opinion of the arbitral tribunal was required to eliminate the grounds for
setting aside the award. In other words, the Court used to fix the terms of
reference while remitting the matter for reconsideration to the Arbitrator
under Section 16(1) of the old Act. But under the new Act, the arbitral
tribunal itself determines the scope of the enquiry, so as to eliminate the
grounds of objection.

(c) Section 16(1) of the old Act, enumerated three pre-conditions on the
very substance of the matter, under Clauses (a), (b) and (c), without
satisfying which, the Court cannot remit the matter for reconsideration. On
the other hand, Section 34(4) of the new Act, does not prescribe any
condition precedent on the substance of the matter but prescribes three
procedural conditions namely that there should be an application under
Section 34(1) of the new Act and that a request should emanate from a
party and the Court considers it appropriate to invoke the power under
Section 34(4) of the new Act.
(d) While the purpose of an enquiry under Section 16(1) of the old Act, was
to have a fresh award upon reconsideration of the previous award, the
purpose of the enquiry under Section 34(4) of the new Act, is to eliminate
the grounds for setting aside the arbitral award. This is why Section 16(1)
of the old Act, was not linked to the provisions of Section 30 of the old Act,
under which an award can be set aside on specified grounds. In contrast,
the power under Section 34(4) of the new Act, is linked to the grounds for
setting aside the award under Section 34(2) of the new Act.
(e) Since there was a provision under Section 14 of the 1940 Act, to file the
arbitration award into Court, the Court was empowered under the 1940 Act,
to do any of the following, namely:
(i) to modify or correct the award under Section 15
(ii) to remit the award for reconsideration under Section 16
(iii) to pass a judgment in terms of the award under Section 17 or
(iv) to set aside the award under Section 30.
But under the 1996 Act, the Court has only two sets of powers after the
award is pronounced viz.,
(i) to set aside the award under Section 34(2); or
(ii) to adjourn the proceedings to enable the arbitral tribunal to resume the
proceedings or to take such other action as in the opinion of the tribunal
will eliminate the grounds for setting aside the arbitral award.
The power to correct or modify an award under Section 15 of the old Act,
has also been taken away though a power is now conferred upon the
arbitral tribunal itself to correct any computation errors or clerical or
typographical or similar errors under Section 33 of the new Act.
(f) It appears from a combined reading of Sections 14, 16 and 17 of the old
Act that the power to remit an award for reconsideration could be exercised
even suo moto by the court.

. In view of the aforequoted sections, it can be stated thata After receipt of an award, the Court can suo motu refuse to make
award rule of the Court on the ground that (i) part of the award is
upon a matter not referred to arbitration; and (ii) the award is
imperfect in form or contains any obvious error. The Court can also
remit the award to arbitrator in case (i) where the award has left
undetermined any matter referred to arbitration; or (ii) where it has
determined any matter not referred to arbitration; or (iii) the award is
so indefinite as to be incapable of execution; or (iv)is on the face of it
illegal.
The Court to which an application under 34 (4) is presented, if so requested
by a party and if the Court thinks it appropriate that any one or more of the
grounds for setting aside the award as prescribed under Section 34(2)
exists and that it is also capable of being eliminated, may pass an order
simply adjourning the proceedings, with an indication as to the grounds that
exist for setting aside the award. It will then be open to the arbitral tribunal
to resume the arbitral proceedings and to take such other action which in
its opinion, befits the situation. It may be open to the arbitral tribunal to do
all that is necessary to eliminate the grounds for setting aside the award.
The terms "to take such other action" and "in the opinion of the arbitral
tribunal" appearing in Section 34(4) give a clear indication that sufficient
elbow space is available to the arbitral tribunal to do whatever is necessary
in its opinion to eliminate the grounds. There is no restriction placed by the
Act upon the arbitral tribunal as to what it should do under Section 34(4)
the arbitral tribunal may even refuse to do anything further and leave it to
the Court to decide the matter on its own merits under Section 34(2), since
Section 34(4) is only an enabling provision and not strictly an order of
remand, so as to compel the Arbitrator to do something. This is why Section
34(4) uses the expression "to give the arbitral tribunal an opportunity". The
opportunity may or may not be made use of. If the tribunal chooses not to
make use of the opportunity so afforded, then the Court will have to
consider the application under Section 34(1), in tune with the parameters
laid down under Section 34(2). There is no difficulty in coming to the
conclusion that the arbitral tribunal may also entertain additional evidence
after resumption of the proceedings, since there are no fetters under
Section 34(4). All that is required under Section 34(4) is the subjective
satisfaction of the arbitral tribunal that the venture undertaken by it would
eliminate the grounds for setting aside the award.
The District Court, in such circumstances, ought to have just highlighted
the prima facie existence of the grounds for setting aside the award and
adjourned the proceedings to enable the arbitral tribunal to resume the

proceedings or to take such other action as in the opinion of the arbitral

tribunal would eliminate the grounds for setting aside the award. It was
then open to the arbitral tribunal to do what in his opinion is necessary to
eliminate the grounds for setting aside the award. Therefore, the Civil
Revision Petition is allowed to a limited extent.

Setting aside means that it is rejected as invalid meaning that the

award is avoided and the matter becomes open for decision again.
The court cant interfere into the award on merits. State of UP v.
Harish Chandra & Co.

Even where the arbitrator, as required by the parties, prepared a reasoned

award and the court gets the power to demand more detailed or adequate
reasons, the court will be vigilant to see that the power is used only for the
proper purpose and not as an indirect way of obtaining a review of the
merits of an award.- Shanmughasundaram v. Diravia Nadar (2005) 10
SCC 728.

Kershaw Mechanical Services Ltd. v. Kendrick Construction Ltd.

(2006) 4 All ER 79: lays down the principles to be applied by a court while
reviewing an award.
i.
ii.
iii.

Read the award as a whole in a fair and reasonable manner- it

should not engage in minute textual analysis
Where the arbitrators experience allowed him in determining a
question of law- the court would accord some deference to the
arbitrators decision on that question.
The question of law decided upon by such arbitrator may be
reversed if the court came to the conclusion that it was an
incorrect application of the law and correct application would have
resulted in a different decision.

The applications under Section 34 are summary proceedings. The Supreme

Court laid down certain all the grounds which would attract application
under Section 34. (ONGC v. Saw Pipes Ltd.)
i.
ii.
iii.

For reasons mentioned in Section 34(2)(a)(i) to (v)

For reasons stated in Section 28(1)(a)
For reasons stated in Section 34(2)(b)(ii) on ground of conflict with
public policy of India, that is to say, if it is contrary to:

(a) Fundamental policy of Indian Law

(b)The interest of India
(c) Justice or morality
(d)If it is patently illegal
iv.

For reasons stated in 13(5) and 16(6)

Mc. Dermott International Inc v. Burn Standard Co. Ltd.
( 2006) 11 SCC 181
Facts: BSCL and McDermott International Inc. (for short "MII")
entered into Technical Collaboration Agreement on 25 thSeptember,
1984 in terms whereof the latter agreed to transfer technology to
the former with regard to design, construction and operation of a
fabrication yard. The said agreement contains a separate
arbitration clause between the parties. However, with regard to the
fabrication and installation of off-shore platforms, BSCL decided to
give a sub-contract of the work to MII on a project by project basis.
BSCL while retained the job of fabrication of the ED and EE decks,
six helidecks and procurement of materials for the overall project
other than pipeline materials and some process equipment which
was issued by ONGC sub-contracted the remaining work.
In terms of a letter of intent dated 14 th September, 1984 a contract
was entered into by and between BSCL and ONGC for fabrication
and installation of offshore platforms
A part of the said contract work was assigned to MII in respect of
fabrication, transporation and installation of structures, modules,
platforms and pipeline components on or about 1 st January, 1986.
The work under the said agreement was to be completed within 24
months but in all respects it was completed in early 1989.
Disputes and differences having arisen between the parties, MII
invoked the arbitration clause by a legal notice dated 10 thApril,
1989. Several proceedings as regards invocation of arbitration
clause were initiated by the parties before the Calcutta High Court.
The said proceedings ultimately ended in favour of MII leading to
appointment of two arbitrators for determination of the disputes
and differences between the parties. The arbitrators who were
earlier appointed were removed and Mr. Justice A.N. Sen, a retired
Judge of this Court was appointed as a sole arbitrator. It is stated
that Mr. Justice A.N. Sen declined to act as an Arbitrator and by an

order dated 28thAugust, 1998, Mr. Justice R.S. Pathak was

appointed by this Court as a sole arbitrator.
BSCL filed an application under Section 34 of the Act questioning
the said partial award dated 9thJune, 2003 as also the additional
award dated 29thSeptember, 2003.
The learned Arbitrator thereafter took up the left over matters for
his consideration, viz., points Nos. 6, 8 and 9 observing that ONGC
in the meantime had expressed no interest in participating in the
decision making process at the inter-party level and, thus, arrived
at an inference that the machinery set up under the sub-contract
has broken down and it would be for him to determine the same.
An application was filed by BSCL under Section 34 of the Act
praying for setting aside the final award.
Holding of the Court: The 1996 Act makes provision for the
supervisory role of courts, for the review of the arbitral award only
to ensure fairness. Intervention of the court is envisaged in few
circumstances only, like, in case of fraud or bias by the arbitrators,
violation of natural justice, etc. The court cannot correct errors of
the arbitrators. It can only quash the award leaving the parties free
to begin the arbitration again if it is desired. So, scheme of the
provision aims at keeping the supervisory role of the court at
minimum level and this can be justified as parties to the agreement
make a conscious decision to exclude the court's jurisdiction by
opting for arbitration as they prefer the expediency and finality
offered by it. However, this Court, as would be noticed hereinafter,
has the occasion to consider the matter in great detail in some of
its decisions.
The 1996 Act does not use the expression "partial award". It uses
interim award or final award. An award has been defined under
Section 2(c) to include an interim award. Sub-Section (6) of
Section 31 contemplates an interim award. An interim award in
terms of the said provision is not one in respect of which a final
award can be made, but it may be a final award on the matters
covered thereby, but made at an interim stage.
The learned arbitrator evolved the aforementioned procedure so as
to enable the parties to address themselves as regard certain
disputes at the first instance. As would appear from the partial

award of the learned arbitrator, he deferred some claims. He

further expressed his hope and trust that in relation to some
claims, the parties would arrive at some sort of settlement having
regard to the fact that ONGC directly or indirectly was involved
therein. While in relation to some of the claims, a finality was
attached to the award, certain claims were deferred so as to enable
the learned arbitrator to advert thereto at a later stage. If the
partial award answers the definition of the award, as envisaged
under Section 2(c) of the 1996 Act, for all intent and purport, it
would be a final award. In fact, the validity of the said award had
also been questioned by BSCL by filing an objection in relation
thereto.
We are of the opinion that it is final in all respects with regard to
disputes referred to the arbitrator which are subject matter of such
award. We may add that some arbitrators in stead and in place of
using the expression "interim award" use the expression "partial
award". By reason thereof the nature and character of an award is
not changed. As, for example, we may notice that in arbitral
proceedings conducted under the Rules of Arbitration of the
International Chamber of Commerce, the expression "partial
award" is generally used by the arbitrators in place of interim
award. In any view of the matter, BSCL is not in any way
prejudiced. We may state that both the partial award and the
final award are subject matter of challenge under
Section 34 of the Act.
34(2)(a)(i)- If a minor of a person of unsound mind is a party, he
must be properly represented by a proper guardian otherwise the
award would be liable to be set aside. In order to protect the
interest of a party Section 9 of the Act enables the party to apply to
the court for the appointment of a guardian for a minor or a person
of unsound mind for the purposes of arbitral proceedings.
34(2)(a)(ii)- Invalidity of agreement
NRDC v. Silicon Ceramica Ltd. AIR 1998 Del 52
Facts: The petitioner is a Public Undertaking which is authorised to grant
licences for use of the inventions, know - hows, expertise etc. developed by
different Central Government laboratories, including Central Electronics
Engineering Research Institute (for short `CEERI'), Pilani. The respondent
is a company incorporated under the Indian Companies Act and is

manufacturing semi-conductor packages. The petitioner granted license to

the respondent to use the process developed by Ceeri for manufacture of
"TO-5, TO-18, etc." semi-conductor packages vide license agreement dated
23rd February, 1972 (for short `the agreement'). It was agreed by the
respondent to pay royalty to the petitioner at the rate of 3 per cent of the
sale price of the semi-conductor packages manufactured by it. The royalty
was to be paid by the 1st day of May and 1st day of November of every
calendar year. The agreement postulated levy' of interest in case of failure
to pay royalty on due dates.

It is the case of the petitioner that the respondent failed to file the returns
and to pay the royalty as per the terms and conditions of the agreement
despite repeated demands. The petitioner, in the circumstances, Therefore,
filed a petition in this Court under Section 20 of the Arbitration Act for
appointment of an Arbitrator to adjudicate its claims against the respondent
for payments due to the former from the latter on account of royalty and
interest.
The Court by its order dated August 1, 1989 directed the Managing Director
of the petitioner to enter upon reference and in case he was unwilling to
act, liberty was granted to him to appoint an arbitrator. Pursuant to this
direction the Managing Director, by his letter dated 25th/26th September,
1989, appointed Mr. Justice Vyas Dev Mishra, retired Chief Justice of the
High Court of Himachal Pradesh, as the sole arbitrator

But, unfortunately, he expired on June 20, 1990. This necessitated the

appointment of a new arbitrator. For this purpose the petitioner moved an
application under Section 28 of the Indian Arbitration Act, 1940. The
respondent did not file any reply to the application nor appeared in the
matter despite service. On December 17, 1991, this Court appointed Mr.
Justice S.S. Chadha, a retired Judge of this Court, as the new arbitrator to
fill the vacancy caused by the demise of Mr. Justice Mishra. Pursuant to his
appointment as Arbitrator, Mr. Justice Chadha made and published his
award on September 5, 1992.

Contention of the Respondent:

1. The arbitrator Mr. Justice S.S. Chadha did not have the
jurisdiction to deal with the matters in dispute as he was appointed
in place of late Mr. Justice Vyas Dev Mishra who was appointed by
the Managing Director of the petitioner instead of its Chairman
which is the named authority in the arbitral clause for appointing
the arbitrator for adjudication and determination of the disputes
between the parties;
2. Since the agreement between the parties, permitting the
respondent to use the know-how process, to manufacture TO-5,
TO-18, etc. semi-conductor packages, covering a patent for glass to
metal sealing was not registered under Sections 68 and69 of the
Patents Act, 1970 (for short `the Act'), the license agreement
including the arbitration clause is void ab-initio, and consequently
the award entered by the arbitrator, is a nullity;
3. As the respondent manufactures TO-3 semi-conductor packages,
which are not the subject-matter of the license agreement, the
determination of the arbitrator that the respondent was liable to
pay a sum of Rs. 1,67,305.00 as royalty for the first fourteen years
of their manufacture is void ab-initio;
4. The arbitrator enlarged the scope of the arbitration by awarding
royalty up to the year 1990 though in the claim petition the
petitioner had claimed royalty up to the year 1995.

Contention of the Petitioner: the learned counsel for the petitioner

contended that the respondent is estopped from raising the question of
jurisdiction of the arbitrator inasmuch as such an objection was not raised
when the first arbitrator Justice Vyas Dev Mishra was appointed. The same
was not raised even in reply to the application of the petitioner under
Section 28 of the Indian Arbitration Act, 1940, for appointment of a new
arbitrator after the demise of Mr. Justice Mishra. The respondent also did
not raise the plea in its reply to the claim filed by the petitioner before the
arbitrator. Such a question was not even raised in the amended reply filed
by the respondent. The conduct of the respondent clearly demonstrates that
it had acquiesced to the jurisdiction of the arbitrator.

Learned counsel for the petitioner also cited the decision of the Supreme
Court in Prasun Roy v. Calcutta Metropolitan Development Authority and
another, MANU/SC/0017/1987 : [1987]3SCR569 , where the Hon'ble Court

while explaining the principle of waiver and estoppel held that long
participation and acquiescence in the proceedings precludes a party from
contending that the proceedings were without jurisdiction.

In Chellapan's case on which reliance was placed in Prasun Roy's case the
Supreme Court held that a party which submitted to the jurisdiction of the
umpire and took part in the proceedings before him without demur will be
precluded by his acquiescence from challenging the award for lack of
jurisdiction. Similarly, in M/s. Neelkantan & Bros v. Superintending
Engineer, National Highways Salem and others, MANU/SC/0303/1988 :
AIR1988SC2045 , cited by the learned counsel for the petitioner, the
Supreme Court held that if the parties to the reference either agree before
hand to the method of appointment or afterwards acquiesce in the
appointment made with full knowledge of all circumstances they will be
precluded from seeking to invalidate the proceedings before the arbitrator.
In all these cases there was no dispute relating to the existence or the
validity of the arbitration clause.

Holding of the Court: It is clear that where the party questions the
very existence of the arbitration agreement on the ground of it being
a nullity, the parties to the reference are not precluded from
challenging the jurisdiction of the arbitrator or the award made by
him in spite of the fact that they were parties to the reference and
participated before the arbitrator. When the very foundation of the
reference to the arbitrator is being shaken on the ground of the
alleged invalidity of the agreement containing the arbitration clause,
the participation of the party in the arbitration proceedings
culminating in an award will be of no consequence and he would be
entitled to move an application before the Court under Section 33 of
the Arbitration Act for a declaration that the arbitration agreement
does not exist or the same is a nullity or void ab-initio.

Section 68 has no application as it applies to an assignment of a patent or

creation of an interest therein, etc. There is no patent covering the process

of manufacture of semi-conductor packages which has been assigned to the

respondent. Learned counsel for the respondent had not been able to lay his
finger on any of the clauses of the agreement whereby any patent was
assigned to the respondent. Clause 10 of the agreement inter alias provides
that the agreement itself shall be the sole repository of the terms agreed to
between the parties. Learned counsel for the respondent even in the face of
clause 10 is trying to import something which is not contained in the
agreement. In order to search for the terms agreed to between the parties
one is not allowed to travel outside the agreement.

In this view of the matter I hold that agreement including the arbitration
clause is valid and is not hit by Section 68 of the Act.

Since in the present case the interpretation placed by the arbitrator in

respect of clause 1 of the agreement is plausible and possible the same has
to be affirmed. Assuming that the interpretation placed by the respondent is
also possible but that does not make the award vulnerable as when a
contract is capable of more than one interpretation the arbitrator can select
any one of them.

In M/s. Hindustan Tea Co. v. M/s. K.Sashikant & Co. and another,
MANU/SC/0002/1986 : AIR1987SC81 , the Supreme Court held that under
the law the arbitrator is made the final arbiter of disputes between the
parties and the award is not open to challenge on the ground that the
arbitrator has reached a wrong conclusion or has failed to appreciate facts.
Again
in
Puri
Construction
Pvt.
Ltd.
v. Union
of
India,
MANU/SC/0427/1989 : AIR1989SC777 , it was held that when a Court is
called upon to decide the objections raised by a party against an arbitration
award, the jurisdiction of the Court is limited as expressly indicated in the
Act and it has no jurisdiction to sit in appeal and examine the correctness of
the award on merits.
Having regard to the above discussion, Point No. 3 is decided against the
respondent and the award of the arbitrator that TO-3 semi-conductor
packages are covered under the agreement is affirmed.

S.34(2)(a)(iii)- Notice not given to a party, unable to present case:

Section 34(2)(a)(iii) permits challenge to an award on grounds:

1. Party not given proper notice of the appointment of an arbitrator
2. Party was not given proper notice of the arbitral proceedings
3. The party was for some reason unable to present his case

State of Gujarat v. B.B. Chauhan (AIR 2003 NOC 211)

Facts: The work of constructing of Up-stream parapet wall on top of
earthen dam of Sukhi reservoir project was entrusted to the respondent
vide L.C.B. Agreement No. 8/1987-88 and the work order was issued in
favor of the respondent vide appellant's letter dated 17.12.1987 with the
time limit of six months from the date of issue of work order. The actual
date of commencement of work was 08.02.1988 and thus, the work was
initially started late by 53 days and even, thereafter, it was alleged by the
appellant that the respondent did not maintain proportionate progress of
the work to complete the same within the time limit stipulated in the tender
agreement.
Since the opponent's work was very slow, the appellant addressed several
letters dated 03.02.1988, 24.03.1988, 12.04.1988, 30.05.1988, 12.07.1988,
23.08.1988 and 29.10.1988 for acceleration of the work. It was submitted
that upto 16.06.1988, the opponent had worked only 10% of the contract
work and for that work, the opponent was paid Rs. 54,861=22ps. and since
no progress was made in completion of contract work, the appellant
terminated the contract on 05.12.1988.
It was the say of the appellant that none of earlier letters including letters
dated 12.12.1988, 24.12.1988, 28.02.1989 and 28.03.1989 was received by
the appellant and copies of those letters were first time received by the
appellant along with respondent's letter dated 15.04.1989, in which the
respondent has appointed one Mr. V.D. Patel, Retired, Superintending
Engineer, Irrigation Department, Vasundhara Society, Vadodara as an
arbitrator.
Since the appointment of the arbitrator was not made in accordance with
clauses 51 & 52 of the agreement, the said appointment was challenged by
the appellant before the Civil Court, Baroda by way of Special Civil Suit No.
111 of 1989. Interim relief granted by the Court in the said proceedings was
vacated on 30.06.1989 and the arbitrator made an award on 21.07.1989. On
this date, the Special Civil suit No. 111 of 1989 challenging the appointment
of the arbitrator was not finally disposed of and on that count, though the
request for adjournment of arbitration proceedings was made by the
appellant, the same was not accepted by the arbitrator and ex-parte award

was passed by the arbitrator accepting more or less, the entire claim of the
respondent.

Holding of the Court: It is rather strange and shocking to observe that

the manner and method in which the arbitrator is appointed, despite the
appointment of the arbitrator being under challenge, and despite the fact
that the arbitrator's attention being drawn to the noncompliance of the
terms and conditions of clauses 51 and 52 of the agreement, conducting exparte proceedings and their culmination in the award based on complete
non application of mind and resulting into gross miscarriage of justice,
rejection of the appellant's application for setting aside the ex-parte award
and making the award as the rule of the Court in a quite astonishing
manner raise very serious doubts and suspicions about the entire
transactions. It is apparent on the face of the record that the respondent
has master minded the whole plan of robing the appellant - State
Government, the arbitrator, instead of remaining neutral or impartial, gave
quite imaginary award in favour of the respondent, the concerned officials
of the State Government chose to remain rather aloof or indifferent to the
arbitration proceedings and the trial Court has put its seal without proper
examination or evaluation of the points at issue. The cumulative effect of all
these things is that the respondent has come out as an ultimate beneficiary
not only at the cost of the State exchequer but also at the costs of equity,
fair play and justice.

Court is of the view that the arbitrator should have verified and/or carefully
examined as to whether proper notices were served on the appellant and
due procedure has been followed prior to his appointment as the arbitrator.
The facts on record further warrant that the arbitrator should have waited
till the final outcome of the suit wherein his appointment as arbitrator was
challenged. The fact situation further demands that before passing any exparte award, the arbitrator should have minutely and meticulously
examined the claim of the respondent. One can understand that they
claimant will never restrict his claim, but the deciding authority should
always take due care and caution. Here, the arbitrator has not taken any
care whatsoever. Whatever was stated in the statement of claim was
believed to be gospel truth and the claim was virtually accepted in its
entirety.

Before arriving at this conclusion, the Hon'ble Court referred to and relied
upon its earlier judgment in the case of M/s. Alopi Parshad & Sons Ltd. v.
Union Of India reported inMANU/SC/0057/1960 : A.I.R. 1960 SC 588,
wherein it is observed that the award may be set aside on the ground of an
error on the face thereof, when in the award or in any document
incorporated with it, as for instance, a note appended by the arbitrator
stating the reasons for the decision wherein the legal propositions which
are the basis of the award are found to be erroneous. While emphasizing the
position that "misconduct" in Section 30(a)of the Act comprises legal
misconduct, the Supreme Court held it to be complete in itself when the
arbitrator was found to have, on the face of the award, arrived at a decision
by ignoring very material and relevant documents which throw abundant
light on the controversy to help a just and fair decision or arrived at an
inconsistent conclusion on his own finding. The Apex Court has further
observed that it is also, by now, well settled that an arbitrator is not a
conciliator and his duty is to decide the disputes submitted to him according
to the legal rights of the parities and not according to what he may consider
it to be fair and reasonable. Arbitrator was held not entitled to ignore the
law or misapply it and cannot also act arbitrary, irrationally, capriciously or
independently of the contract. The Court has further observed that Courts
of law have a duty and obligation in order to maintain purity of standards
and preserve full faith and confidence in alternate dispute redressal method
of arbitration. When on the face of the award, it is shown to be based upon
a proposition of law which is unsound on findings recorded which are
absurd or so unreasonable and irrational that no reasonable or right
thinking person or authority could have reasonably come to such a
conclusion on the basis of the materials on record or the governing position
of law to interfere.
As a result of this finding, we do not have slightest hesitation in our mind in
setting aside the impugned award of the arbitrator dated 21.07.1989 as
affirmed by the learned Trial Court, vide its judgment and order dated
17.01.1990, as wholly uncalled for and illegal. The present appeal is
accordingly allowed and the judgment & decree passed by the learned trial
Court rejecting the appellant's application for setting aside the award and
making the award as rule of the court, is hereby quashed and set aside.

Section 34(2)(a)(iv)- Award beyond the scope of reference- The reference of

a dispute under an agreement defines the limits of the authority and the
jurisdiction of the arbitrator- the arbitrators authority has its source in the
reference- he cant traverse beyond the reference.

UOI v. Om Prakash Baldev Krishna: Government contract contained a

clause which provided for an authority to conduct assessment with respect
to the value of tools, materials lying at the site- It was held that the
designate authority having carried out the assessment, an assessment and
determination by the arbitrator of the same claim was inoperative and the
award was liable to be set aside.

However the scope of reference may be enlarged when parties file their
statements putting forth claims not covered by the original reference. Mc.
Dermott v. BSCL

Public Policy & Patent Illegality (Extracts from S.Badrinaths Article

available on SSRN - PUBLIC POLICY AND SETTING ASIDE
PATENTLY ILLEGAL ARBITRAL
AWARDS IN INDIA)

The Model Law was based on the philosophy of limited grounds for setting
aside arbitral awards at the legal seat of arbitration and the grounds are
almost identical to those of the New York Convention for refusal to
recognize or enforce foreign awards. The same philosophy was adopted in
the Indian context under Section 34 of the Act. One of those grounds is
public policy, by virtue of which, any award rendered by the arbitral tribunal
that is contrary to the public policy of India could be set aside.
Initially, the courts in India interpreted this ground of public policy in a
sumptuary manner, in consonance with practice in various countries. Many
nations created a distinction between domestic and international
commercial arbitrations and adopted a narrow approach towards public
policy in the latter cases as compared to the former. As regards
international commercial arbitration, numerous countries interpreted public
policy, both for setting aside and enforcement in a narrow manner.8 India
virtually adopted the Model Law even for governing domestic arbitrations.9
It can be presumed, as a matter of logical consequence, that the Indian
Parliament created no distinction between domestic and international
arbitration, and instead adopted a uniform law for both domestic and
international arbitrations based on the philosophy of the Model Law. This
would mean that India created no qualitative distinction between public
policy for domestic and international arbitrations but simply adopted the
UNCITRAL philosophy of restrictive reading of the public policy ground to
set aside arbitral awards. After the enactment of the 1996 Act, the courts

and even the commentators interpreted Section 34(2)(b(ii) in a narrow

manner.
The Supreme Court, but in Oil and Natural Gas Corporation Ltd. v. SAW
Pipes Ltd.(SAW Pipes), broadly read the ground of public policy to the
consternation of many lawyers and stakeholders of the arbitral process. The
reason for their anguish was that in SAW Pipes, the Court held that an
award could be set aside if it was patently illegal. This meant that there
were chances that substantive review of arbitral awards could take place in
the set aside proceedings, which reflected unjustified judicial mistrust and
hostility towards arbitration. The SAW Pipes decision has been criticized for
subverting the arbitral process and for being in contradiction to the policies
contained in the Act, especially the policies of finality of awards and
minimum judicial intervention into the arbitral process. The judgment, it
has been argued, has struck at the heart of arbitration in India by
potentially exposing all awards to be questioned in courts and has made
commercial dispute resolution a time-consuming and expensive process,
and has hindered foreign investment in India.

The concept of public policy has been used in several senses. In political
science literature, public policy has been defined to mean purposeful
decisions made by authoritative actors in a political system which have the
formal responsibility of making binding choices among the societal goals.
This conception of public policy, then, would include every governmental
decision directed towards a particular purpose. Public policy has also been
used to denote something concerning public interest or public good.
However, some have defined public policy to mean the most fundamental
principles of a state or a legal system. Public policy has also been used to
refer to those laws that are meant of the protection of political, social and
economic of organisation of a state such as embargoes, foreign exchange
control regulation, police regulations, tax laws etc. and these laws are
compulsorily applicable to the situation irrespective of the law applicable.
Such a conception of public policy has been called lois de police.

Perhaps the best reflection of the role of ideology in shaping the meaning of
public policy is the restraint of trade doctrine developed by the English
Courts. The restraint of trade doctrine is one of the earliest applications of
the doctrine of public policy. The earliest formulation of the doctrine was
that all restraints were held to be against public policy and were therefore
void. Later, the scope of public policy as regards agreements on restraint of
trade lessened when the courts began to recognize that only general

agreements in restraint of trade were bad and partial restraints made upon
good and adequate consideration were valid. Presently it has been
recognized that there is no distinction between partial and total restraints
and a restraint of trade would be valid if it is reasonable, in the interest of
the contracting parties and is in the interests of the public.48 It could be
concluded that the scope of public policy to make agreements on restraint
of trade unenforceable diminished with the changing economic conditions.
Similarly, the courts of several nations have assigned a minimal role to the
concept of public policy in the context of enforcement of foreign arbitral
awards for economic reasons and reasons of international comity and
reciprocity. Thus, where ideology has impelled the courts to interpret public
policy in a narrow manner they have done so.

One of the challenges for arbitration law is to strike a fine balance between
finality of arbitral awards on the one hand, and fairness and justice through
judicial review on the other.India has tried to deal with this challenge but
has not succeeded. The success of a well-structured framework of
arbitration depends mainly on its relationship with the courts.
UNCITRAL explains:
[I]t will be one of the more delicate and complex problems of the
preparation of a Model Law to strike a balance between the interest of the
parties to freely determine the procedure to be followed and the interests of
the legal system expected to give recognition and effect thereto.
The first substantive legislation in India exclusively on arbitration was the
Arbitration Act 1899, which was primarily based on the English Arbitration
Act, 1889.52 But the Act did not achieve the purposes for which it was
enacted. Delay was the norm and complexity was the laws chief feature.53
The need was felt for replacing the existing law with a law that would apply
uniformly to the whole of India and establish a workman-like system of
commercial arbitration.54 Consequently, the Arbitration Act of 1940
(hereinafter, 1940 Act) was enacted to comprehensively cover all forms of
arbitration and also to curb the delays in the arbitral process.
The 1940 Act contained two broad ways by which an arbitral award could
be interfered with by the courts:
1. The court could, by virtue of Section 16(1) remit an award for the
reconsideration of the arbitrator or,
2. The court could set aside an award on the satisfaction of any one of the
grounds mentioned in Section 30.Remittal of the award could be ordered by

the court to the arbitral tribunal on satisfaction of at least one of the

grounds mentioned in Section 16(1). The grounds were as follows:
i. Tribunal has left undetermined any matter referred to arbitration in its
award or where the award contains any matter referred to arbitration.
ii. Award is incapable of execution due to its indefiniteness.
iii. Illegality of the award is apparent on the face of the record.
Section 30 dealt with setting aside of arbitral awards and contained three
grounds on the basis of which alone an award could be set aside. Section 30
was regarded as exhaustive and an award could not be set aside on grounds
extraneous to those contained in it. But the vice was that the grounds
contained in the said section were construed so broadly that the actual
effect of exhaustiveness of grounds contained therein was rendered
nugatory. Section 30(a) provided that an award could be set aside if the
arbitrator or umpire had misconducted himself or the proceedings. Courts
interpreted misconduct extensively and set aside arbitral awards when (i)
there was a defect in the procedure followed by him (ii) the arbitrator
committed breach and neglect of duty and responsibility (iii) the arbitrator
acted contrary to the principles of equity and good conscience (iv) acts
beyond the reference (vi) the arbitrator proceeds on extraneous
circumstances (vii) ignores material documents (viii) the arbitrator based
the award on no evidence.60 Thus it can be seen that misconduct was
construed in its broadest sense, without due regard to the delays and the
costs, reducing arbitration to an alternative but inappropriate form of
dispute resolution.
Similarly, the expression is otherwise invalid in Section 30(c) was given
the widest possible meaning.61 The result of such a wide reading of the
grounds was that arbitration became only the first step in the chain of
appeals to various courts resulting in subversion of the arbitral process.
Instead of ensuring a cheap and swift dispute resolution mechanism,
arbitration became an expensive affair.

To give effect to its obligations under the Geneva and the New York
Conventions, the Parliament passed the Arbitration (Protocol and
Convention) Act in 1937 and the FARE Act in 1961. Though the 1940 Act
contained no ground of public policy for setting aside arbitration, the FARE
Act 1961, which was based on the New York Convention, contained a
specific ground on the basis of which a foreign award could be refused
enforcement for being contrary to public policy. The Supreme Court of India
was called upon to decide the nature and scope of the ground of public

policy in refusing enforcement of foreign awards in Renusagar v. General

Electric Ltd.

In this case, one of the parties assailed the arbitral award on the ground
that the award
of interest on interest was contrary to public policy and, consequently,
unenforceable by
virtue of Section 7(1)(b)(ii) FARE Act 1961. The court held, after
considering the objects of
the FARE Act 1961, the principles of private international law and the
position of law in
France, USA and UK, held that the ground of public policy should be
narrowly construed.
The court distinguished between Section 7(1)69 Arbitration (Protocol and
Convention) Act,
1937, where enforcement of an award could be refused on the ground that
the recognition or
enforcement of the award would be contrary to the public policy or to the
law of India, and
Section 7(1)(b)(ii)70 of the FARE Act 1961, where a foreign award could be
refused
enforcement for being contrary to public policy. The absence of the
expression the law of India in Section 7(1)(b)(ii) of the FARE Act 1961
meant that the FARE Act required something more than mere breach of
Indian law for the award to be refused enforcement. It
held:
Since the Foreign Awards Act is concerned with recognition and
enforcement of foreign awards which are governed by the principles of
private international law, the expression "public policy" in Section 7(1)(b)(ii)
of the Foreign Awards Act must necessarily be construed in the sense the
doctrine of public policy is applied in the field of private international law.
Applying the said criteria it must be held that the enforcement of a foreign
award would be refused on the ground that it is contrary to public policy if
such enforcement would be contrary to (i) fundamental policy of Indian law;
or (ii) the interests of India; or (iii) justice or morality.

The 1996 Act

Meanwhile, it was felt that the 1940 Act was obsolete in the age of
globalization and there was a need for a new mechanism that would satisfy
the needs of trade and commerce. Hence the Arbitration and Conciliation
Act 1996 was passed on the basis of the UNCITRAL Model Law on
International Commercial Arbitration, 1985. The 1996 Act was aimed at,
inter alia, consolidating and amending the law on arbitration so that the Act
comprehensively covers the law on domestic and international commercial
arbitration and conciliation. The 1996 Act is based on the policies of party
autonomy, minimum judicial interference and speedy and efficient
settlement of disputes. The provision of law to challenge arbitral awards,
contained in Section 34, is also based on the same policy goals.

Even error apparent on the face of the record was not a ground by which
arbitral awards could be set aside. In Rail India Technical and Economic
Services Limited v. Ravi Constructions and Anr., the Karnataka High Court
held:
Under the old Act, the award could be challenged on the ground that there
was an error apparent on the face of the award or on the ground that the
Arbitrator had misconducted himself by giving inconsistent conclusions, or
by ignoring the provisions of law or by making an award in the absence of
any evidence or by completely ignoring the material evidence. But, those
grounds for interference are not available under the 1996 Act. An award
can be challenged only on the grounds enumerated in Section 34 of the new
ActIt is, not permissible for the Court exercising power under Section 34
of the Act or this Court in an appeal under Section 37 of the Act, to examine
the correctness or validity of the award on any ground other than what is
specified in Section 34. Therefore, the challenge to the award on the
ground that it is erroneous, is liable to be rejected.
However, in Oil and Natural Gas Co. Ltd. V. SAW Pipes Ltd., the Supreme
Court radically altered the position of law by holding that an award that is
patently illegal could be set aside by virtue of Section 34(2)(b)(ii).

SAW Pipes drastically changed the landscape of arbitration in India. The

verdict did two things to Indian arbitration. One, it brought back the
practice under the 1940 Act of setting aside arbitral awards on the basis of
patent illegality and, two, it brought back, as a consequence the

apprehension that the arbitral process would become merely a first step in
the long march towards remedy.
The facts of SAW Pipes are as follows. SAW Pipes entered into a contract
with Oil and Natural Gas Co Ltd. (ONGC) for the supply of casing pipes on a
particular date, time being essence of the contract. SAW Pipes, the supplier
in the contract, attempted to procure raw materials from an Italian firm but
couldnt do so in time because of a general strike of the steel mill workers
all over Europe. Therefore, respondent by its letter dated 28th October,
1996 conveyed to the appellant that Italian suppliers had faced labour
problems and was unable to deliver the material as per agreed schedule.
SAW Pipes asked for an extension to ONGC, which was granted with a
specific stipulation, in accordance with the terms of the contract, that the
amount equivalent to liquidated damages for delay in supply of pipes would
be recovered from the SAW Pipes. ONGC deducted US $ 3,04,970.20 and
Rs.15,75,559/- as liquidated damages for the delay. The respondent
contested it and consequently arbitration proceedings were initiated.
Arbitral Tribunal concluded that strikes in Europe did not come within the
ambit of 'Force Majeure' in the contract between the parties and therefore
ONGC was right in deducting the damages. It was also contended by SAW
pipes that delay was due to customs duty also but contention rejected by
the tribunal. However, the arbitral tribunal held that it was for ONGC to
prove the quantum of damages suffered because of delay in supply of goods
under the contract, which ONGC failed to establish. Therefore the tribunal
concluded that ONGC had wrongfully withheld the said amount while
making its payments to SAW Pipes and the tribunal also held that SAW
Pipes was entitled to recover an interest at the rate of 12 per cent per
annum from1st April 1997 till the date of the filing of statement of claim and
18 per cent per annum interest pendente lite till the date of payment is
made.
ONGC challenged the award on the ground, inter alia, that the award was,
on the face of it, illegal. The Supreme Court had to decide the validity of the
award and more importantly, it had to decide whether an arbitral award
could, in the first place, be challenged on the ground of patent illegality or
error apparent on the face of the record.
The Supreme Court widened the scope of challenge of arbitral awards by
broadly reading Section 34(2)(a)(v)83 and 34(2)(b)(ii) of the 1996 Act. As
regards Section 34(2)(b)(ii), it held that the term public policy is capable
of being interpreted in a narrow or a broad manner depending upon the
context in which it is used.84 The court found that there was no necessity to
construe the term narrowly and also felt that such a construction would
render certain provisions of the Act, like Section 28, nugatory. It reasoned

that an award passed in contravention of Sections 24, 28 or 31 and

challenges under Sections 13(5) or 16(6) could be brought under Section 34
only by reading public policy broadly.85 Hence, it concluded that an
award could be set aside if it was contrary to (a) fundamental policy of
Indian law, or (b) the interest of India or (c) justice or morality, or if the
award was patently illegal. However, the court cautioned:
Illegality must go to the root of the matter and if the illegality is of trivial
nature it cannot be held that award is against the public policy. Award could
also be set aside if it is so unfair and unreasonable that it shocks the
conscience of the Court. Such award is opposed to public policy and is
required to be adjudged void.

Post-SAW Pipes
The SAW Pipes decision that an award which is contradictory to the
substantive law of India could be challenged under Section 34(2)(1)(v)
provided the violation is patently illegal and at the same time, any patently
illegal award could be set aside by virtue of Section 34(2)(b)(ii). The courts,
after SAW Pipes, have followed the same path and have set aside patently
illegal awards under Section 34(2)(b)(ii). The consequence being breach of
substantive law has been brought under the purview of Section 34(2)(a)(v),
which one may argue is not intended by the Act.
Several scholars have, of late, shown concern about the arbitration
subsisting in lawlessness. They have begun questioning the ability of private
dispute resolution systems to render speedy and efficient justice and have
usually argued for some kind of review of arbitral awards for substantial
legal errors contained therein. One of the most frequent complaints against
arbitration is its moorings in the area of lawlessness.

Several scholars have, of late, shown concern about the arbitration

subsisting in lawlessness. They have begun questioning the ability of private
dispute resolution systems to render speedy and efficient justice and have
usually argued for some kind of review of arbitral awards for substantial
legal errors contained therein. One of the most frequent complaints against
arbitration is its moorings in the area of lawlessness.
This feeling for the need of policing stems from the fact that arbitration
does not include appeal to another judicial forum. Arbitral awards are
regarded as final and binding between the parties and there are no
possibilities of re-opening the arbitral award on the ground that the
arbitrator had erred in the application of law or had ignored the law.

Further, at times parties are forced to arbitrate even when there is no valid
arbitration agreement by the virtue of the doctrines of severability and
competence expressed in Section 16 of the Indian Act. In other words, the
decision as to whether there is an arbitration agreement and whether it is
valid or not is determined by the arbitral tribunal. Also, the arbitrators have
been accused of often disregarding express terms in the contract but since
review of awards

The arbitral tribunals have even been charged with disregarding express
provisions of law and for not giving due attention to substantive norms. The
tribunal, it is observed, often does not give due regard to the substantive
legal principles that have been statutorily recognized or developed by the
courts over a period of time. The consequences of disregarding substantive
norms, according to Brunet are four-fold:
1. Substantive legal norms are created on the basis of effective policy
reasons or by evolution through common law. If substantive legal norms are
disregarded, it would lead to frustration the intent behind those substantive
norms.
2. Such disregard might injure third parties who are not representing as
dispute participants.
3. It would cause existing substantive norms to atrophy and become
inefficacious
4. Elevate procedural over substantive norms.
It is chiefly through substantive law that the society implements its goals. If
the arbitrator disregards the substantive law and decides a dispute in
accordance with his whim and- fancy, it would lead to defeat of these goals.
The Courts, by turning their face away from such faux pas would be
miserably failing in its duty to prevent subversion of societal goals and
endangering public good.
The same issue can be looked at from a different angle also. Posner argues
that the purpose of legal rules, that is to increase economic efficiency,
would be frustrated if substantive legal rules are not properly applied by the
Court. Judicial error, for him, was a source of social costs which was to be
removed by the procedural system. Scholars, especially from the Law and
Economics movement, have been in favour of the need for appeal processes.
It is their argument that appellate courts harness the information about
erroneous decisions from the litigants and correct those erroneous
decisions at low cost.

The same rationale would equally apply to arbitration. The difference

between arbitration and litigation is more functional than structural, that is,
arbitration has been differentiated from the litigation on the basis of
informality, swiftness and private character of the arbitral process, which
are the perceived advantages of arbitration over litigation. In both cases,
however, the structural character remains the same- a third person is made
to sit as a neutral decision-maker (who is called as arbitrator in arbitration,
though his ultimate function is to find the truth and apply the law, which is
the same as an adjudicator) and the decision-maker gives a final decision
which is to be enforced in a court of law. The arbitrator, like the judge,
applies the law to facts found by him and decides the dispute. Hence, he is
prone to the errors that a judge is likely to commit.
A legal system has to foster an error-free arbitration mechanism so that the
values of an accurate dispute resolution mechanism could be attained. One
way of achieving such an end is by allowing the courts to correct errors in
the arbitral awards. Thus, from the vantage points of justice and efficiency,
it can be seen that there is exists a necessity of substantive review of
arbitral awards on merits.
Landes & Posner ask how requisite standardization of law could be achieved
in the absence of a single source for precedent production. In his opinion,
private arbitration is strongly biased against the creation of precise rules.
On the other hand, even if it could be predicted that an arbitrator will
decide in a particular manner, the same would also prove to be problematic.
Such an arbitrator, whose position on issues is known, will not be
approached due to the factor of predictability. As a consequence, private
judges would apply vague standards in resolving disputes so that the parties
to a dispute cannot predict the way he determines an issue and would
choose him to resolve it

Landes & Posner ask how requisite standardisation of law could be achieved
in the absence of a single source for precedent production. In his opinion,
private arbitration is strongly biased against the creation of precise rules.
On the other hand, even if it could be predicted that an arbitrator will
decide in a particular manner, the same would also prove to be problematic.
Such an arbitrator, whose position on issues is known, will not be
approached due to the factor of predictability. As a consequence, private
judges would apply vague standards in resolving disputes so that the parties
to a dispute cannot predict the way he determines an issue and would
choose him to resolve it.

Giving the courts the power to review errors made by the arbitrators would
help in correcting arbitrator errors and also ensure, through the doctrine of
precedents, that law is stable, uniform, coherent, consistent and up-to-date.
In the absence of substantive review of arbitral awards whether on patent
or latent errors, it is doubtful whether the Indian Act could do complete
justice to the parties wishes of ensuring a bias free tribunal. On this issue,
Goolam Vahanvati contends that there have been several complaints about
arbitration being a corrupt affair and that the Apex Courts opinion in SAW
Pipes was a reaction against these corrupt practises.

R.A. Sharma argues that arbitration has become a lucrative business for
some contractors, who by hook or crook, try to exempt themselves from
contractual liability by turning to the arbitration mechanism. He mentions
the example of an arbitration between the Government of Andhra Pradesh
(AP) and a contractor where the contractor finished 50 % of the contracted
work and instigated a dispute. The matter was referred to arbitration,
where the initial claim was for 7.99 lakhs but raised it to 80.94 lakhs. After
the award and the decision before the Supreme Court, the Government of
AP had to pay a total of Rs 81 Lakhs. Such large scale corruption, argues RA
Sharma, is rampant in the arbitration industry.168 Arijit Pasayat J, in a
speech delivered off the Bench, mentions a case in which dispute arose on a
contract worth Rs 2.5 Lakhs and was referred to arbitration. The claimant
claimed Rs 1 crore for the mental tension but the arbitrator unjustly
awarded Rs 25 Lakhs.

The 1996 Act provides no mechanism for preventing such massive frauds on
the public exchequer. The unholy collusions between the arbitrators and the
parties could be reduced if the courts are allowed to review the arbitral
awards on merits.

Several scholars have contended that the 1996 Act never allowed for a
judicial interference into the arbitral award on the basis of patent illegality
and that SAW Pipes was wrong in reading patent illegality into public policy
under Section 34(2)(b)(ii). The fallouts of reading public policy in a broad
manner as was done in SAW Pipes, are analyzed in this section.
The Model Law is based upon the triple pillars182 of party autonomy,
minimum judicial intervention and fair & efficient arbitral procedure.
It is pertinent to note that Section 34(2) of the 1996 Act, which contains the
grounds for setting aside arbitral awards, is almost identical to that of the
grounds for setting aside in Article 34(2) Model Law. Absent any compelling
feature in the Act that would show otherwise, it can be safely assumed that
the Indian Parliament, by not altering the text of the grounds in the Model
Law, conveyed its collective intent that the Act contemplated challenge of
arbitral awards only to the extent conceived by the UNCITRAL. This is
relevant in the context of invoking public policy in setting aside awards. On
public policy, the UNCITRAL elaborated that public policy was something
more than merely the political stance or international policies of a State- it
comprised the fundamental notions and principles of justice. The
UNCITRAL referred specifically to the interpretation of public policy in the
New York Convention and concluded that public policy not only covered the
French notion of ordre public which consisted of principles of procedural
justice but also principles of law and justice in a substantive sense,
instances being corruption, bribery, and fraud.
The same text has been adopted in the 1996 Act with an additional
explanation that basically concurs with the view of the UNCITRAL. Adopting
the Model Law shows that the Act did not contemplate a return to the
previous law wherein review of the award on merits was allowed, which is
the consequence of the SAW Pipes judgement. Justice D.R. Dhanuka
comments on the exclusion of patent illegality as a ground for setting aside
awards in the 1996 Act:

It is of considerable significance that [SAW Pipes] enlarges the scope of

challenge to the awards much beyond the availability of grounds of
challenge under the Arbitration Act 1940 even though it is clear from the
scheme of Section 34 of the Act that the grounds available under the Act
are intended to be very much restricted and several grounds of challenge
set out in Section 30 of the Act of 1940 are deliberately omitted from
Section 34 of the Act of 1996.
Further, Section 34(2) contains the term only, like the analogous provision
in the Model Law, which goes to show that the grounds of setting aside are
limited only to those found in the said section and that they are meant to be
read in a restrictive manner. Expanding the scope of public policy to include
patent illegality would render the term only redundant and would result
in subverting the policy of limited grounds of challenge of awards.

In the 1996 Act, there was no express provision for setting aside arbitral
award on the ground of patent illegality. The rationale for excluding this
ground is not difficult to seek. It was obvious that the then existing arbitral
mechanism was sabotaged due to frequent intervention by the courts using
the ground of patent illegality or error apparent on the face of the record. In
fact, arbitration was reduced to a first round of dispute resolution followed
by several rounds of litigation in the courts. To avoid such a consequence,
the Legislature chose not to include the ground of patent illegality in
Section 34 of the Act.
Sarah Hilmer remarks on the return to the age of judicial hostility to
arbitration and arbitral awards:
Unfortunately, in Saw Pipes the Supreme Court has opened the floodgates
to arbitral litigation. That means, once more that the "lawyers will laugh
and legal philosophers weep.
The upshot of reading patent illegality into public policy under Section 34 is
that there are no incentives for the parties to arbitrate in India; rather,
parties to international contracts would choose forums like Singapore or
Hong Kong in Asia for resolving their disputes or go to traditional venues
like London or Paris.

The benefits of a strong mechanism that is supportive of international

arbitration are three-fold. First, an efficient arbitration mechanism would
leave no reason for the foreign party contracting with the Indian party to
bargain for a neutral seat of arbitration. Where a dispute arises, the Indian
party need not, for example, go to London or Hong Kong to resolve the

dispute; instead India can be chosen as the seat for arbitration. This would
prove inexpensive for the Indian entity. Two, encouraging foreign parties to
arbitrate in India would give way for the creation of arbitration industry in
India. It would create demand for a strong secretarial staff like translators,
clerical staff etc and also for quality arbitrators. Three, the influx of parties
from abroad and quality foreign arbitrators could lead to improvement in
domestic arbitration standards.
Thus, the argument is that it would be in the interests of the participants of
the dispute resolution process to have a limited role of public policy sans
patent illegality in setting aside patently illegal awards.
A proper arbitration mechanism would act as an efficient alternative to the
courts of law in India where delay and unpredictability are the norms.
Hence an effective arbitration scheme would create an alternative dispute
resolution process by which the vices of delay and unpredictability of the
courts can be avoided and instead, and at the same time, the coercive
Power of the state can be tapped to enforce the awards. Such a system
would ensure that the contractual expectations of the parties are enforced
by state and disputes concerning such expectations are easily resolved. This
would give fillip to commercial transactions- both domestic and
international. If parties are allowed to challenge awards on substantive
aspects of the award, it will lead to delay and defeat of contractual
expectations of the parties.
Proper working of the legal institutions is necessary for economic
development. The World Development Report, 2005, of the World Bank
states:
To be an effective backstop, the law must not give the loser in an
arbitration proceeding a long period or numerous ways to challenge
the award. The United Nations Commission on International Trade Law
recommends that courts should be permitted to set aside awards only in
limited and precisely defined situations. Otherwise, as happened in
India, litigation over the validity of awards can spiral out of control
as the losing side seeks to win in court what it lost at the arbitration
table

The elements, referred to as ideal paradigms , included a set of universal

rules applied uniformly and predictably, a regime of property law that
protects future labour and, more importantly, a regime of contract law that
secures future expectations of the parties. The absence of effective and
inexpensive contract enforcement mechanisms has been regarded as one of
the reasons for the stagnation in economic development in developing

countries. Clague, Keefer, Knack, and Olson devised a mechanism to find a

link between contract enforcement, investment and economic development.
They found a positive relation between Contract Intensive Money (CIM) and
gains from trade. Contract Intensive Money according, to them, was the
ratio of the noncurrency money to the total supply of money. They argued
that higher CIM showed that the legal regime secured contract and
property rights and was investment friendly. A regime, which contained
proper third party enforcement mechanisms, encouraged the use of
noncurrency money and more non-simultaneous transactions where, for
example, parties could buy or sell goods and services postponing payment
to the future. This decreased the risk of non-performance of contracts and
this in turn encouraged investment. Therefore countries with a low CIM
count could look improve its law to ensure proper enforcement of
contractual obligation as a part of their path to increased economic
development.

One of the arguments was that exclusive public policy that is of patent
illegality would be beneficial because of finality of arbitral awards and
consequent swift, efficient and inexpensive dispute resolution. On the other
hand, the notion of public policy that is inclusive of patent illegality will
result in a legal system with minimum errors, rule-formulation and
amplification and would also ensure the relatively impartial arbitral
tribunal. Several scholars and judges have chosen either of these two
approaches. Some have chosen the inclusive version of public policy without
due regard to the promptness of the arbitral process in dispensing justice
and some, the exclusive version without considering the necessity of an
impartial tribunal which bases its decisions not on extraneous
considerations but on rule of law. Sabin aptly describes this dichotomy:
Some past attempts to reduce arbitrator misconduct and error, while
increasing arbitrator accountability, have relied on simplistic changes to the
current system, while others have suggested more serious regulation.
Almost inevitably, however, these propositions for reform, while logically
derived from arbitration's similarity to the judicial process, undermine the
very purposes of arbitration. In other words, although these reformers
would not destroy arbitration, their proposals would effectively eliminate it
by undermining its feasibility.

Possible Reforms:
-

Arbitral Apex Authority

Fee Shifting

Renusagar Power Co Ltd v. General Electric

Facts: Renusagar, an Indian Company, entered into an agreement with

General Electric which was an American Company for the selling of
electrical products for a thermal power plant. A dispute arose between the
two and they eventually initiated arbitration proceedings. Renusagar was
absent during the initial stages of the proceeding and the tribunal
considered its written submission to rule in favor of its jurisdiction. The
award was against Renusagar and GE approached the Bombay HC to
enforce the award. This case deals with the Foreign Awards Act and
Renusagar contented that the award cannot be enforced because of the
grounds given in section 7, first that the party was unable to present the
case (Section 7(1)(a)(ii)) and second that the enforcement of the award
would be against the public policy(Section 7(1)(b)(ii)).
Issues: What is the meant by public policy as given in section 7 of the
Foreign Awards Act and is the award unenforceable as contrary to the
understanding of public policy?
Holding of the Court: One of the contentions of the appellant was the
expansion of the term public policy in the Act to the extent that it would
include the public policy of State of New York as well. The court held that
the words refer to the public policy of India because it was the intention of
the legislation to give effect to NYC objective to reduce the time taken in
the enforcement of foreign arbitral awards. If the public policy was read in
a way to include even the policy of the courts which govern the contract it
would run counter to the expressed intention.
The court then goes on to the discussion of narrow view and broad view
taken by different courts in context of public policy. The court states that
while applying the rule of public policy in domestic law it can be broadened
but when it comes to the application in the field of conflict of laws it is more
limited. The court stated that Article V (2) (b) of the NYC do not postulate a
situation of refusal of enforcement of an award just because it is contrary to

the law of a country and similarly section & of the Foreign Awards Act has
been used in a narrow sense. The court held a ground that it is contrary to
the public policy of India can only work if the award is contrary to (i)
fundamental policy of Indian law; or (ii) the interests of India; or (iii) justice
or morality. In the present case the court held that the award did not
contravene any of the aforesaid criteria and just contravention of the FERA
provisions were not enough.

ONGC v. Saw Pipes

Facts: ONGC had a contract with the respondent company for the supply of
equipment for Offshore Oil Exploration. Because of alleged delay from the
suppliers the appellants filed for an arbitration proceeding. The arbitral
tribunal gave an award against the appellants. The appellants challenged
the award on the ground that it was illegal and erroneous as it
misinterpreted the law on the subject and did not decide the dispute in
accordance with the terms of the contract.
Issues: Whether the court would have jurisdiction under Section 34 of the
Act to set aside an award passed by the Arbitral Tribunal which is patently
illegal or in contravention of the provisions of the Act or any other
substantive law governing the parties or is against the terms of the
contract?
Holding of the Court: The first question which the court refers to is
whether a court can set aside an award if the arbitral tribunal has not
followed the mandatory procedure as prescribed under the Act. It states
that the arbitral tribunal has to decide the dispute in accordance with the

substantive law for the time being in force in India according to section 28.
When this and under provisions of the Act are read with section 34 of the
Act, the legislative intent is that the award could be set aside as it would
mean that the tribunal has acted beyond its jurisdiction. Hence when an
award is contrary to the substantive provisions of law or the provisions of
the Act or against the terms of the contract, it would be patently illegal,
which could be interfered under Section 34.
The court then looked into the expression public policy of India. The court
referred to the Renusagar case and the appellant contended that in that
case the term public policy was in the context of enforcement of a foreign
award while here it is a question of setting aside of a domestic award and
hence the term has to be given a wider scope. The court accepted this
argument and said that giving the term a narrower scope would render
some provisions of the Act nugatory.
If the award is patently in violation of statutory provisions it cannot be said
to be in public interest and hence the court added an extra criteria to
render an award invalid under section 34 on the ground of being against to
public policy and that was patent illegality. This was an addition to the
criteria laid down in Renusagar. Patent illegality was defined as an illegality
which must go to the root of the matter and not of a trivial nature. In the
present case, the courts held that the award was patently illegal as the
tribunal had not based its finding on the clear terms of the contract and on
the substantive law of the nation.

Phulchand Exports v. OOO Patriot

Facts: An Indian company, the Appellants entered into an agreement with a

Russian Company. After a dispute with relation to the non-delivery of the
goods, the matter was referred to an Arbitral tribunal in Russia which gave

an award which stated that the appellants were at fault. The respondents
tried to enforce the award in the Bombay HC, but the appellants contented
that the award was contrary to the principles of public policy and hence
should not be enforced. The HC overruled the objections.
Issues: Will the expression public policy in section 48 be the same as used
in Section 34?
Holding of the Court: The court depended on the ONGC v Saw Pipes
definition of public policy and stated that the expression used in section 48
also has to be given the same wider meaning, and that the present award
could be set aside if it is patently illegal. ONGC had also mentioned that an
award would be against the public policy if it was unreasonable or
unconscionable (similar to Central Inland). In the present case, the court
held that the award was not unreasonable or unconscionable and hence
could not be held to be contrary to the public policy of the country.
-Case commentary for Shri Lal Mahal v. Progetto Spa was mailed.

Section 36- Enforcement of Arbitral Award

Section 35 (Finality of arbitral awards): Section 28(1)(a) requires in an
arbitration, which is not ICA, to decide the dispute in accordance with the
substantive law of India. Following this finality is attached to an award
when:
-

It is legal
It is reasonable and possible to be performed
Must dispose of matters (arbitrators award puts an end to the
proceedings-the court will not interfere with the findings of the
arbitrator even if the court feels on merits that the arbitrator should
have come to a different conclusion)

Enforcement
Section 36 provides for direct enforcement of awards without having to get
them converted into a rule of the court. It allows an award to be enforced
in the same manner as if it were a decree of the court subject to the expiry
of the time limit for making an application to set aside the arbitral award
under Section 34.
1940 Act- award had to be first filed in a court where it would be converted
into a judgment in terms of the award- it would then be converted into a

decree for its enforcement. Under the 1996 the award becomes immediately
enforceable without any further act of the court.
Subhash Projects Marketing Pvt. Ltd v. Assam Urban Water Supply &
Sewage Board (AIR 2003 Gau 158)
Facts: The revision petitioner herein contends that to resolve and settle a
dispute with regard to the entitlement of the present petitioner to certain
outstanding dues, the parties to the present revision petition had agreed to
refer the dispute to arbitration, pursuant whereto the revision petitioner,
had appointed one Sri S. K. Jain as its Arbitrator. The Managing Director of
the respondent Board by letter dated 12.12.1996 appointed one Sri K.D.
Lahkar as its Arbitrator and both the Arbitrators appointed one Sri Jatin
Hazarika, IAS (Retired) as the umpire. According to the revision petitioner,
the arbitral Tribunal as constituted above entered into the reference of the
dispute between the parties and the respondent Board had time and again
sought for and was granted adjournments to enable it to file its reply to the
claims made by the present revision petitioner. Consequent upon
appointment of a new Managing Director of the respondent Board, for the
first time, in the proceeding held by the Tribunal on 27.8.1997, a question
was raised with regard to the competence and jurisdiction of the arbitral
Tribunal to hear the dispute. Such objections to the jurisdiction of the
Tribunal was taken by the respondent Board, inter alia, on the ground that
the contract agreement between the parties did not visualize any reference
to arbitration and that the then Managing Director of the Board had
unauthorisedly appointed Sri K. D. Lahkar as its arbitrator.
According to the revision petitioner, several adjournments were granted at
the instance of the respondent Board to enable it to place before the
Tribunal the opinion of the Legal Remembrancer with regard to the
jurisdiction of the Tribunal to hear the dispute which opinion was stated to
have been sought for. Eventually, as the aforesaid opinion of the Legal
Remembrancer was not placed before the Tribunal in spite of grant of
several opportunities and as no written statement was also filed on behalf of
the respondent Board, the arbitral Tribunal in a sitting held on 23.2.1998,
while keeping the question of jurisdiction alive and pending passed an
interim award in favour of the claimant revision petitioner for a sum of Rs.
35 lakhs to be paid by the respondent Board against a Bank Guarantee to be
furnished by the revision petitioner herein.
Contention of the revision petitioner: The said interim award was not
challenged by the respondent Board by filing an application for setting aside
the same as contemplated by Section 34 of the Arbitration and Conciliation
Act, 1996 (hereinafter referred to as the Act). On expiry of the period of
limitation for filing such an application as prescribed by Section 34 of the

Act, the revision petitioner filed an application for execution of the award,
on the basis of which Money Execution Case No. 5 of 1998, was registered
in the court of learned District Judge, Kamrup at Guwahati.
Under Section 16 of the Act, objections to the competence and jurisdiction
of arbitral Tribunal to entertain a dispute must be raised and decided by the
Tribunal and not by any other Forum, in the instant case, such a question
was raised on behalf of the respondent Board which has been kept pending
and the interim award has been passed on account of persistent failure on
the part of the respondent Board to contest the proceeding before the
learned Tribunal, in any meaningful manner. An interim award, it is
submitted, is within the competence of an arbitral Tribunal by virtue of
Sections 17 and 31 of the Act.
Learned counsel has further contended that all the limitations
inherent in an executing court to consider the legality of the decree
passed would also apply to the court executing an award under
Section 36. As an executing court cannot go behind the decree to
examine its legality or tenability, the court executing an award
passed under the Act would also be bound by such limitations. That
apart, in view of the provisions of Section 34 of the Act, no objection
to the execution of the award can be taken by the "Judgment Debtor"
on any of the grounds enumerated in Section 34. To hold otherwise
would be rendering the provisions of Section 34 nugatory
Contentions for the respondent board: The interim award dated
23.2.1998 is a nullity in law inasmuch as reference of the alleged dispute
between the parties to Arbitration by the person holding the office of the
Managing Director of the respondent Board at the relevant point of time
was wholly unauthorized, it is also submitted by Mr. Choudhury that in the
instant case there was no arbitration agreement between the parties and
when an award passed is a nullity in law, no application to set aside such an
award is contemplated; all objections to the award can be taken at the stage
of execution. That apart, it has been contended on behalf of the respondent
Board that the award or the copy of the same furnished to the respondent
Board is without the signatures of an the Arbitrators; it is not properly
stamped and is merely the minutes of the proceedings held before the
Arbitrator on 23.2.1998. Such minutes of the proceedings before the
Arbitrator cannot partake the character of an award within the meaning of
Section 31 of the Act. On the aforesaid broad grounds, it is contended that
no illegality or infirmity can be found in the order of the learned court
below rejecting the application for execution.

Holding of the Court: Section 31 of the Act does not prescribe any
particular form or manner of passing an award. An award is an expression
of an adjudication of a dispute between the parties and as long as the
manifestation of the decision on the dispute raised is clear and unambiguous, it will not be correct to hold an award to be invalid merely
because it does not subscribe to any particular format. An unstamped or
insufficiently stamped award is at best a curable irregularity.
In view of the clear language of Section 47 of the Code of Civil Procedure, it
has always been understood that while the executing court cannot go
behind the decree to determine its legality, objections regarding the
validity of the decree has to be decided in an execution proceeding.
However, such objections must appear on the face of the record and
cannot be left to be determined by a long drawn process either of
evidence or reasoning. The same principles of law would
undoubtedly apply to the execution of an award under Section 36 of
the Act. It is also our considered view that the inhibitions that would
operate upon the court while executing an award would be somewhat more
in view of the provisions of Section 34 of the Act. As Section 34 of the Act
has enumerated specific grounds on which an application for setting aside
of an award may be filed, any such objection to the award on the grounds
enumerated in Section 34 cannot be allowed to be agitated or re-agitated
while resisting the execution of the award.
Registration of Award
This again is not provided for under the 1996 Act. The Registration Act
1908 provides that if any non-testamentary document purports or operates
to create, declare, assign limit or extinguish , any title, right or interest in
any immovable property, the same is required to be registered and if it is
not, it is invalid. Hence, if an award purports to impact any immovable
property it is required to be registered. Registration fees again vary from
state to state.The effect of non-stamping or non-registration of an award
came to be considered by the Supreme Court of India in the case of M
Anasuya Devi v Manik Reddy. The court held that s 34 of the 1996 Act
permits an award to be set aside only on the grounds enumerated therein
and non-stamping or non-registration of an award is not one of them.
Accordingly, an award cannot be set-aside on the ground that it is nonstamped/improperly stamped or unregistered. However, if it is not, it may
become relevant at the stage where it is sought to be executed as a decree.
Hence, the Supreme Court deferred the issue of non-stamping or nonregistration to the execution stage. Since registration fees can be quite
substantial, the decision accords relief to the winning party to first
overcome the objections to the award stage (s 34) and then pay the fees.

Enforcement of award in part

In a dispute between a contractor and a housing society, an arbitration
award was passed and filed in the court to which no objection was filed by
the society. The contractor wanted some part of the award to be modified
but also filed an application for making certain portion of the award as a
rule of the court pending further consideration of his objections. The court
held that it had power to pronounce judgment on that portion of the award,
which was admitted and was severable. Bharat Overseas Construction
(P) Ltd. V. University Teachers Coop Housing Society Ltd. (AIR 1991
Del 20)
Res Judicata
Bhai Hospital Trust Ors. v. Parvinder Singh & Ors. ( AIR 2002 Del
311)
Facts: Bhai Hospital Trust is stated to be a trust with plaintiff Nos. 2 to 4 as
its Trustees. The defendant No. 6 (Jagdish Anand) is also stated to be one of
the first trustees of he above said trust. The present suit has been filed by
the plaintiffs for a declaration against defendants 11 to 4 that defendants 1
to 4 were nt the lawfully appointed trustees of Bhai Hospital Trust. They
have no legal right or authority to seek to act as such and that plaintiffs 2 to
4 and defendant No. 6 are the only lawful trustees of Bhai Hospital Trust. it
also seeks a permanent/prohibitive injunction against defendants 1 to 4
restraining them f or in any manner intermeddling or interfering in the
affairs and assets of the plaintiff No. 1 trust (Bhai Hospital Trust). A
mandatory injunction is also claimed against defendants 1 to 5 requiring
them to forthwith make over to plaintiffs 2 to 4 and defendant No. 6 of the
share certificates relating to the shares owned by Bhai Hospital Trust.
In order to accommodate and provide for the aspiration of his sons and to
set them up in life, plaintiff No. 2 while retaining overall control,
management and direction placed and promote his sons to look after day to
day operations of one of the three principal companies. The first defendant
was groomed over a period and finally placed to look after day to day
operation of defendant No. 5, Ranbaxy Laboratories Ltd as its Vice
President and Managing Director. plaintiff No. 2 continued to be the
Chairman. The other two sons were likewise placed in charge of day to day
operations of Max India Ltd. and Montaris Industries Ltd. plaintiff No. 2
noticed and realised that though the actual spheres of functioning of his

three sons was separate, the intricate intermingled shareholding pattern of

the three main companies could result in undesirable disputes, differences
and disharmony amongst the three sons and their families after his demises.
plaintiff NO. 2 thought it prudent to devise some family settlement
acceptable to all.
In 1991 the first defendant approached plaintiff No. 2 and persuaded him to
transfer/arrange for transfer of shares of Ranbaxy and control and
management of holding companies owning share in Ranbaxy subject to
continued overall supervision and control of the plaintiff No. 2. plaintiff No.
1 (Bhai Hospital Trust) Trust) holds over one lakh equity shares in Ranbaxy.
This fact was mentioned in the second schedule of the family settlement and
eventual control thereof was to be ultimately transferred to the first
defendant and his family group in due course.
The behavior of first defendant became so disrespectful, arrogant that
plaintiff No. 2 was forced to resign as Chairman and Managing Director of
Ranbaxy. The arbitration proceedings relate only to whether the first
defendant has failed to carry out his obligations under the family settlement
with regard to his carrying out of his duties and obligation under the overall
supervision and control of plaintiff No. 2.
According to the plaintiffs trustees had been appointed and plaintiffs 2 to 4
and defendant 6 were the only trustees.
Contention of the defendant: It is claimed that defendant No. 1 is a mere
usurper and intermeddler taking over the record, assets and management
of plaintiff No. 1 trust. Asserting that defendants 1 to 4 are not the trustees
the aforesaid reliefs as such have been claimed.. In the written statement
filed defendant No. 1 took various pleas, but for purposes of he present
order it is relevant to mention that it has been pleaded that even the
plaintiffs admit that Bhai Hospital Trust holds well one lakh equity shares in
Ranbaxy and figured in Second schedule in the family settlement. Eventual
control was ultimately to be transferred to defendant No. 1 as per the family
settlement of 30th December, 1989. As per defendant No. 1 it was between
all the family members of plaintiff No. 2, his wife, three sons and their
children. In terms of the said family settlement the ownership, management
and control over Bhai Hospital Trust was to be transferred and to be vested
in the group of defendant No. 1 In pursuance to the effectuation of the
family settlement on 19th January, 1991 defendant No. 2 was already a
trustee of Bhai Hospital Trust, became its managing trustee. Defendants 2,
3 and 4 were inducted as additional trustees. plaintiff No. 1 along with
others had resigned as trustees. Disputes had arisen and as a result of
which disputes between plaintiff No. 2 and defendant No. 1 pertaining to
the said family settlement and the alleged breaches were referred to the
sole arbitration of Justice E S Venkataramiah. The arbitrator had since given

the award. It has been pleaded keeping in view the aforesaid that the
present suit was not maintainable and would be barred under Section 32 of
the Arbitration Act, 1940 in as much as the prayers sought in the suit by the
plaintiffs amount to contesting the award and nullifying the effect thereto.
On the same lines it has further been pleaded that the present suit would be
barred by the principles of res judicata. In pursuance thereto that the above
referred to two preliminary issues had been framed.
Holding of the Court:
Whether the suit is barred and/or liable to be stayed under the provisions of
Section32 of the Arbitration Act? The present suit is only with respect to
the rights that were conferred on certain trustees in pursuance of the
document of trust. The capacity in which the present suit, Therefore is filed
is totally different. Since they were not parties to the agreement as trustees
and particularly plaintiffs 3 and 4 were not even parties at all to the said
agreement holding that suit is maintainable does not tantamount in any way
to setting aside of the award.
The attention of the court has been drawn towards the decision of the
Patna High Court Lachuman Singh v. Maker Singh and Ors. AIR 1954 Pat
27 The Division Bench of the court held that Section 32 of the Arbitration
Act, 1940 is in a very wide term and where effect on decreeing a partition
suit will be to set aside an award under Section 32 will be a bar to the suit.
Indeed that is not the controversy before us. The award in no event as
between the parties to the agreement is being set aside. If certain rights of
their as trustees exists then ratio decidendi of Lachuman Singh (supra) will
not apply when a person is not bound by the award an independent right
occurs to him and the Section 32 of the Arbitration Act, 1940 Therefore will
not be a bar from filing of such a suit.
Whether the suit is barred by principles of res judicata in view? As already
pointed above award has been made a rule of the court and decree in terms
of the same has been passed. Keeping in view the said fact it has bene
urged that principles of res judicata would apply and the present suit
Therefore is barred. The principle of law in this regard pertaining to
Section 11 of the Code of Civil Procedure is not in controversy i.e. where
between the parties matter has been heard and finally adjudicated. Thus to
put an end to the litigation the law clearly provides that the earlier decision
would operate as resjudicata.
In other words either in the earlier decision the parties should be common
or they shall be holding under the same title of the parties which were
before the court. Herein the position as already referred to above is

different. plaintiffs 3 and 4 are claiming themselves to be the trustees of

plaintiff No. 1. They were not parties to arbitration agreement. The rights of
the trustees as already referred to above are different and cannot be
merged with that of the individual rights that a person may have. In that
view of the mater when there were not parties as trustees to the arbitration
agreement (some of them not even parties), the decision of the arbitrator
which has been made a rule of the court and decree passed will not operate
as res judicata so as to bind the plaintiff vis-a-vis the nature of the suit that
has been filed an they claim that they are the trustees and not the
defendants 1 to 4. Issue is decided in favor of the plaintiffs.
Subhash & Co v. DDA (AIR 2000 Del 423)- A decision on objections to
an award has the effect of Res Judicata.

Centorade Minerals and Metals Ltd. v. Hindustan Copper Ltd. (2006)

11 SCC 245
Facts: M/s. Centrotrade Minerals and Metal Inc. (for short, "Centrotrade"),
Appellant in SLP (C) No. 18611 of 2004 and the Hindustan Copper Limited
(for short "HCL"), Appellant in SLP (C) No. 21340 of 2004 entered into a
contract for sale of 15,500 DMT of Copper Concentrate to be delivered at
Kandla Port in the State of Gujarat in two separate consignments
The seller in terms of the contract was required to submit a quality
certificate from an internationally reputed assayer, mutually acceptable to
the parties. After the consignments were delivered, the payments
therefore had been made. However, a dispute arose between the parties
as regard the dry weight of concentrate copper.
Clause 14 of the contract contained an arbitration agreement, which reads as under:
All disputes or differences whatsoever arising between the parties out of, or relating to, the
construction, meaning and operation or effect of the contract or the breach thereof shall be
settled by arbitration in India through the arbitration panel of the Indian Council of
Arbitration in accordance with the Rules of Arbitration of the Indian Council of Arbitration.
If either party is in disagreement with the arbitration result in India, either party will have
the right to appeal to a second arbitration in London, UK in accordance with the rules of
conciliation and arbitration of the International Chamber of Commerce in effect on the date
hereof and the results of this second arbitration will be binding on both the parties.
Judgment upon the award may be entered in any court in jurisdiction.

Centrotrade invoked the arbitration clause. The Arbitrator appointed by

the Indian Council of Arbitration made a NIL award. Centrotrade
thereupon invoked the second part of the said arbitration agreement on or
about 22nd February, 2000. An award was made pursuant thereto.
HCL, during pendency of the proceedings before the arbitrator, filed a suit
in the court at Khetri in the State of Rajasthan questioning initiation of
the second arbitration proceeding before International Chamber of
Commerce inter alia contending that the provision for second arbitration
was void and a nullity. No interim order was passed therein despite having
been prayed for, whereupon an appeal was preferred by HCL before the
District Judge, which was also dismissed. In a revision filed by HCL, the
High Court granted an injunction. In the meanwhile the sole arbitrator
had commenced arbitration proceedings. Centrotrade filed a special leave
application before this Court questioning the said order of injunction
passed by the Rajasthan High Court and by an order dated 8th February,
2001, the said order of interim injunction was vacated.

When no defence submission or supporting evidence was produced by

HCL within the time prescribed, a fax was sent to them by the learned
Arbitrator on 30th July, 2001 giving it one last opportunity to inform him
by return of any intention on their part to put in a defence and to seek an
extension of time for doing so. A further fax was sent on 9th August, 2001
whereby the Arbitrator informed the parties that he was proceeding with
the award. On 11th August, 2001, the Arbitrator received a fax from Fox
& Mandal (representing HCL) requesting for extension of time for one
month to put in a defence, pursuant whereto on 16th August, it was
directed that any submission in support of an application for extension of
time for a defence and any submissions on the substantive merits of the
dispute together with any evidence relied in relation to the application
and any submissions made thereupon should be received by him by 31st
August, 2001 in absence whereof he would not give any consideration
thereto. On 27th August, 2001, Fox & Mandal sought for a further three
weeks' extension of time for making their submissions and serving
supporting evidence, pursuant whereto a time for filing those submissions
of evidence was extended until 12th September, 2001. Submissions
containing about seventy-five pages were received by the Arbitrator on
13th September, 2001 without any supporting evidence or any
justification for not complying with the earlier orders passed by him. The
Arbitrator, however, considered the submissions made by HCL in making
the award. Finally the award was rendered in favor of Centorade.

HCL filed an application purported to be under Section 48 of the 1996 Act

in the Court of District Judge Alipore, Calcutta. HCL also filed a suit
before the Civil Judge, Senior Division, Alipore which was marked as T.S.
No. 78 of 2001 praying for a declaration that the ICC award is void and a
nullity, as also for permanent injunction and damages.
Centrotrade, in the meanwhile, filed an application for enforcement of the
said award dated 29th September, 2001 in the Court of the District Judge,
Alipore which was numbered as Execution Case No. 1 of 2002. Upon an
application made in terms of Clause 13 of the Letters Patents of the
Calcutta High Court by Centrotrade, the said execution case was
transferred to the Calcutta High Court.
A learned Single Judge of the said court by a judgment and order dated
10th March, 2004 allowed the said execution petition. Aggrieved by and
dissatisfied therewith, HCL preferred an appeal, which was allowed by
reason of the impugned order dated 20th May, 2004. Both the parties are
before us questioning the correctness of the said judgment.

Contention of Centorade:
(i) In a two-tier arbitration, the second arbitration proceedings having
taken place in London, the award of Mr. Cooke was a foreign award within
the meaning of Section 44 of the Act.
(ii) The learned Single Judge was satisfied that the HCL was not unable to
present his case in the arbitration proceedings within the meaning of
Section 48(1)(b) of the Act which finding having not been reversed by the
Division Bench, no case has been made out for setting aside the award.
Even otherwise refusal of an adjournment by an Arbitrator is not a ground
for challenging an arbitral award.

Contention of HCL:
(i) The definition of an award as contained in Section 2(2) of the 1996 Act
must be read with the other provisions thereof, viz., Sections2(5), 2(6) and
2(7) as also Section 42 thereof in view of the fact that the Indian law was
applicable in relation to the contract in question.

(ii) Indian law in relation to enforcement of the terms and conditions of

the contract being applicable, both the awards are governed by the Indian
law.
(iii) The second part of the arbitration agreement contained in Clause 14
of the agreement is void and of no effect being opposed to public policy.
Having regard to the fact that the first award was made in terms of the
Indian law, reference to the second arbitrator was impermissible
inasmuch as the 1996 Act envisages only one award.
(iv) The object of the Act being to provide an integral framework and the
parties having chosen Indian law, even assuming that Part II of the Act
applies, Section 44 clearly makes an exception therefore in view of the
decision of this Court in Bhatia International v.MANU/SC/0185/2002 :
Bulk Trading S.A. and Anr. [2002]2SCR411 .
(v) In any event, the Arbitrator did not give adequate opportunities of
hearing and as the procedures prescribed under the ICC Rules were not
followed, the award is liable to be set aside. The Arbitrator, having
proceeded to prepare an award without the pleadings of the parties
before him and considering only the first part of the written statement
without waiting for the second part, misconducted himself at the
proceeding. Had an opportunity been given, HCL could have crossexamined the expert on whose report, the award has been made.
(vi) Neither any issue was raised, nor any date was fixed for hearing and,
as the parties were not given an opportunity to examine the witnesses, the
award is liable to be set aside in terms of Section 48(1)(b) of the 1996 Act.
(vii) The judgment of the High Court to the extent that the arbitration
clause has been held to be valid is erroneous.

Holding of the Court:

1. The 1996 Act, puts domestic awards and foreign awards in two
different and distinct compartments, subject of course to certain
overlapping provisions as has been noticed in some decisions of this
Court. It may not, therefore, be possible to hold that the 1996 Act
contemplates that an arbitration award can be an admixture of domestic
award and foreign award.
2. The 1996 Act in no uncertain terms speaks of an arbitration agreement,
as would appear from the interpretation clause contained in Clause 2(b)

as also Section 7 thereof, which excludes the concept of two tier

arbitration capable of being enforced under two different chapters.
3. A multi-tier arbitration may be held to be operative and valid when it
was governed solely by the 1940 Act or the 1961 Act inasmuch as in such
an event, the procedure laid down therein could have been followed. The
1996 Act, however, on the other hand, repeals and replaces not only the
1940 Act but also the 1961 Act and provides for different forums and
different procedures for resolution of a dispute through an arbitrator. It is
inconceivable that one part of the arbitration agreement shall be
enforceable as a domestic award but the other part would be enforceable
as a foreign award. An award made in terms of one arbitration agreement
can either be a domestic award or a foreign award; wherefore different
procedures have been laid down, even when the consequences from such
award are different and when the grounds thereof are also different and
distinct. The fundamental legislative policy brought out by the 1996 Act,
thus, being not in consonance with having two-tier arbitration which had
two different statutes governed by two different provisions and would be
subject to different procedures, in our opinion, is not valid. Whereas, in
the decisions and authorities relied upon by Mr. Cooke, the second
arbitration was also before the same institution governed by the laws of
the same country, in the instant case, the Indian law would be applicable
in relation to the first part of the arbitration, namely, the Indian Council of
Arbitration, whereas second part thereof would be governed by
International Chamber of Commerce, Paris Rules. Both parts of the
arbitration proceeding, therefore, have not been carried out under the
same institution. An arbitration agreement envisioning different
procedures at different stages cannot be countenanced under the 1996
Act. Had the appeal been provided within the set-up of Indian Council of
Arbitration, subject to the compliance of time frame, probably the
agreement would have been valid. But, it is not so. As observed in Hiralal
Agarwalla (supra), such a submission must be within a submission. In
such an event the first award may not be capable of being filed in court to
which question Ghosh, J. did not go into.

4. A person may waive his right. Such waiver of right is permissible even
in relation to a benefit conferred under the law. But it is trite that no right
can be waived where public policy or public interest is involved.
Jurisdiction on a tribunal/ court is a creature of statute. Jurisdiction on
Arbitration can be conferred by agreement between the parties. But, the
contract between the parties must be in obedience to law and not in
derogation thereof. Contracting out is permissible provided it does not

deal with a matter of public policy. An agreement under no circumstances

can violate the Public Policy.
5. The appellate Arbitrator, therefore, could not have made an award in
terms whereof a deemed decree passed by a court of India capable of
being enforced in terms of Section 34 of the 1996 Act would stand set
aside. The said award, therefore, is contrary to the legislative policy in
India.
6. A jurisdictional issue can be raised in two ways. A party to an
arbitration proceeding may take part in arbitral proceedings and raise the
question of jurisdiction before the arbitral tribunal. He may also challenge
the jurisdiction of the arbitrator without participating in the arbitral
proceedings.
7. Under the English Arbitration Act, an appeal on jurisdiction would
involve rehearing of the matter by the court at which the party can
adduce evidence and reargue the entire issue of evidence. There is
absolutely no reason as to why the said principle shall not apply to India.
If a jurisdictional issue can be raised before the court even for the first
time, the court would be entitled to take on records even the fresh
hearing, it goes without saying that it would also be entitled to determine
the jurisdictional fact.
8. In Primetrade AG v. Ythan Ltd. (2006) 1 AER 367, jurisdictional issue
based on interpretation of documents executed by the parties fell for
consideration having regard to the provisions of the Carriage of Goods by
Sea Act, 1992. It was held that as the appellant therein did not become
holder of the bills of lading and alternatively as the conditions laid down
in Section 2(2) were not fulfilled, the arbitrator had no jurisdiction to
arbitrate in the disputes and differences between the parties.

Dissenting (Tarun Chatterjee): Before parting with this aspect of the

matter, we may take into consideration the question whether an
arbitration clause that leads to both domestic and foreign awards on the
same dispute, i.e. an arbitration clause providing for two different modes
of arbitration, is valid or not under the Act. In His Lordship's view even if
a two tier agreement is valid under the 1996 Act, it cannot be such that
one award is governed by Part I of the Act and the award in the second
tier governed by Part II of the 1996 Act, as the procedure applicable to
the arbitration proceedings as well as for enforcement of the awards is
different under different parts. In my view, there is nothing under the
1996 Act prohibiting the parties from entering into an agreement

whereunder the first arbitration proceeding is conducted under Part I of

the 1996 Act and the appeal therefrom is conducted under Part II of the
1996 Act. In fact, earlier, two separate legislations, i.e. the 1940 and 1961
Act, dealt with domestic awards and foreign awards respectively.
However, the legislature keeping in mind the necessity to have similarity
in administration of domestic awards as well as foreign awards, has
consolidated the laws relating to domestic and foreign awards in the 1996
Act, in effect making both the types of awards enforceable under the same
Act. Keeping this in mind, and also that parties' autonomy is paramount, I
am of the view that it is not impermissible under the 1996 Act to have one
part of the award governed by Part I and the other part by Part II. Further,
an appeal is an intrinsic part of the original proceeding and it is the final
award that comes out after on appeal is preferred from the first award,
that is relevant for the purpose of 1996 Act. Thus it follows that nothing in
the 1996 Act prohibits me parties from providing a two tier arbitration
wherein one tier is dealt with under Part I and the other under Part II of
the 1996 Act. Such an agreement does not violate the provisions of
Sections 34 and 36 of the 1996 Act and it cannot be said to be invalid as
being opposed to public policy of India. Therefore, in my view, the second
part of Clause 14 of the agreement and the ICC arbitration in its
furtherance, are not invalid as being opposed, to public policy of India.
It is well recognized as my learned brother S.B. Sinha, J. had pointed out
that party autonomy is a paramount consideration of the 1996 Act subject
only to such safeguards as are necessary in the public interest. Therefore,
so long as an agreement between the parties to enter into an appellate
arbitration does not derogate from the public interest, it is always
permitted. The object of Section 35 of the Act as observed in the 176th
Report of the Law Commission, is to limit the ambit of court intervention
in arbitral awards and this object is not affected by allowing appellate
arbitrations. In this connection, it may be noted that even in foreign
jurisdiction such as U.K., the appellate arbitrations are permitted. (See
Russel on Arbitration 22nd Edition page 393).
That apart, even two tier arbitrations wherein the original arbitration
proceeding is domestic and thus governed by Part T of 1996 Act, and the
appellate proceeding is foreign and thus governed by Part II of the Act can
be permitted. The judgment of my learned brother S.B. Sinha, J. that, such
proceedings are opposed to the public policy of India because the Act
provides different procedures in respect of domestic and foreign awards
appears to be based on his views that the final award in such a case would
be "an admixture of domestic and foreign award", such that "one part of
arbitration agreement shall be enforceable as a domestic award but the
other part would be enforceable as a foreign award." But we must keep it
in mind that the doctrine of merger equally applies in cases of appellate

arbitrations, such that on the issuance of appellate award, the original

award merges with it and only the appellate award is valid and capable of
enforcement. This was also the intention of the parties while
incorporating Part II of Clause 14 of the agreement, which clearly says
that only the award that would be passed by the ICC arbitrator would be
binding on the parties and the judgment upon that award may be entered
in any court of jurisdiction. Therefore, I am unable to agree that such two
tier arbitration proceedings culminate into an admixture of two different
types of awards, as there is eventually only one award that subsists.

It appears that the first part of the arbitration agreement deals with
arbitration in accordance with the Rules of Arbitration of the Indian
Council of Arbitration. This part of Clause 14 of the arbitration agreement
does not say that the results of the arbitration will be binding on both the
parties. Nor it says that the judgment upon the award of the first
arbitration may be entered in any court of jurisdiction. On the other hand,
the second Part of Clause 14 of the agreement, as quoted above, clearly
states that if a party is in disagreement with the arbitration result in India
then the aggrieved party would have a right to appeal to a second
arbitration in London, U.K. The word 'appeal', in my view, in this part of
Clause 14 of the agreement has significance. If the phrase 'in
disagreement with the arbitration result in India' and the word 'appeal'
are read together, we may come to inevitable conclusion that the ICC
arbitrator would act as an appellate arbitrator based in London, U.K.
Moreover, if the second arbitration is not treated as an appeal, then it
would be pointless for a party dissatisfied with a 'NIL' Award in India to
refer the matter for a second arbitration in London, U.K. as the 'NIL'
Award would always prevail over the ICC Award, Accordingly, this would
defeat the object of the provision in the second part of Clause 14 which
clearly states" that the results of this second arbitration will be binding on
both the parties'
From a bare perusal of Section 44 of the Act, it appeal's that in order to
come to a conclusion that a particular award is a foreign award, the
following conditions have to he satisfied.
(1) The legal relationship between the parties must be commercial.
(2) The award must be made in pursuance of an agreement in writing
(3) The award must be made in a convention country.

In the present case, it cannot be disputed that the aforesaid three

conditions were satisfied, that is to say, there exists a commercial
relationship between the parties, the ICC award was made in pursuance
of an agreement in writing between the parties and the award was made
in a Convention Country ( London, U.K.). In spite of all these conditions
having been fully satisfied, the Division Bench of the Calcutta High Court
differed with the views of the learned Single Judge by holding that it was
a domestic award.
Section 44 of the Act, as quoted herein above, therefore, makes an award
foreign, if the above mentioned criteria are fulfilled, 'unless the context
otherwise requires'. The Division Bench, however, laid heavy stress on this
phrase to say that, even though the ICC award fulfils conditions under
Section 44 of the Act, it cannot be considered to be a "foreign award".
According to the Division Bench one of the situations to which the phrase
"unless the context otherwise requires" is applicable, is when the law
governing an arbitration agreement is Indian law. Thereby, saying, that if
the law governing the "otherwise foreign award" is Indian, the award
becomes a domestic award. While coming to this decision, the Division
Bench relied on the decisions of this Court in Sumitomo Heavy industries
Limited v. MANU/SC/0834/1998 : ONGC Ltd. AIR1998SC825 and National
Thermal Power Corporation v. MANU/SC/0146/1993 : Singer Company
[1992]3SCR106 . However, the aforesaid two decisions of this Court were
based on Section 9(b) of the repealed Foreign Awards (Recognition and
Enforcement) Act, 1961. Under the repealed Foreign Awards (Recognition
and Enforcement) Act 1961, Section 9(b) expressly provided that its
provisions would not be applicable to any award made on an arbitration
agreement governed by the law of India. However, on repeal of this 1961
Act, by Section 85 of the Act, no corresponding provision to Section 9(b)
of the 1961 Act has been made. In other words, the position of law under
Section 9(b) of the Foreign Awards (Recognition and Enforcement) Act,
1961 was deliberately not incorporated in the present Act. Therefore,
under the present Act, an award in pursuance of an arbitration agreement
governed by Indian Law, if the conditions under Section 44 are satisfied,
will not cease to be a foreign award, merely because the arbitration
agreement is governed by the law of India. Accordingly, in my view, the
aforesaid two decisions of this Court on which strong reliance was placed
by the Division Bench of the Calcutta High Court can easily be
distinguished. The Division Bench of the Calcutta High Court also held
that Section 48(1)(e) of the Act is one such provision which attracts the
first part of Section 44 i.e. the phrase "unless the context otherwise
requires". Section 48(1)(e) reads as under:

48. Conditions for enforcement of foreign awards. (1) Enforcement of a foreign award may be refused, at the request of the
party against whom it is invoked, only if that party furnishes to the court
proof that (e) The award has not yet become binding on the parties, or has been set
aside or suspended by a competent authority of the country in which, or
under the law of which, that award was made.
From a bare reading of this Section, it is evident that Section 48(1)(e)
deals with the grounds for refusal of the enforcement of a Foreign Award.
Production of proof that such an award has been set aside or suspended
by a competent authority of the country in which, or under the law of
which, that award was made, cannot change a foreign award to a
domestic award, but merely makes it a foreign award which may not be
enforced. In Sumitomo Heavy Industries Limited v. MANU/SC/0834/1998 :
ONGC Ltd. AIR1998SC825 it was however held, in substance, by this
Court, where the contract is governed by Indian law and the seat of the
arbitration is elsewhere, wherein arbitrability of the dispute is
established, procedural law of the country of seat of arbitration governs
the conduct of the arbitration proceedings till the award is delivered.
Therefore, the phrase "or under the law of which that award was
made" used in Section 48(1)(e) refers to the law of the country in
which the arbitration had its seat rather than the country whose
law governs the substantive contract. It is true that the contract
and the agreement clause is governed by the substantial law of
India, It is an admitted position that the seat of the second
arbitration was in U.K. Therefore, relying on Sumitomo Heavy
Industries v. ONGC Ltd. (Supra) the relevant country was U.K.
under the procedural law of which the award was made. Thus,
Section 48(1)(e) does not by itself contemplate attracting first part
of Section 44 of the Act.
In this connection, the next, question is whether the expression "unless
the context otherwise requires" as used in Section 44 of the Act ever
comes into play. This question can be looked into by the following
illustration where the expression takes relevance. Let us consider a
contract, including the arbitration agreement, governed by Indian Law
and under it the scat of arbitration is mentioned as U.K.. However, before
the commencement of the arbitration proceeding, the parties agree that
though the physical seat of arbitration is in U.K., for all purposes the seat
of arbitration shall be deemed to be India and the arbitral proceedings
shall be conducted under the curial law of India. In this situation, though
all the conditions under Section 44 were satisfied the award by the

arbitrator cannot be said to be a foreign award. In such a situation, the

expression "unless the context otherwise requires" in Section 44 takes
meaning and becomes applicable and relevant.

There is yet another aspect in this matter on the question whether the
award that was passed by the ICC arbitrator was a foreign award or not.
According to the Division Bench, as noted herein earlier, the award passed
by the ICC arbitrator was not a foreign award. Sub-section (2) of Section 2
of the Act clearly says that Part I of the Act shall apply where the place of
arbitration is in India. Sub-section (7) of Section 2 of the Act says that an
arbitral award made under Part I shall be considered as a domestic
award. In view of Sub-sections (2) and (7) of Section 2 of the Act read with
Section 44, in respect, of which I have already dealt, with, there cannot be
any doubt that the Division Bench was wrong in its conclusion that the
award passed by the ICC arbitrator was a domestic award. As noted
herein earlier, we should also keep in mind that Section 9(b) of the
Foreign Awards (Recognition and Enforcement) Act, 1961 which provided
that it did not apply to an arbitral award made pursuant to an arbitration
agreement governed by law of. India, has been clearly omitted by Section
51 of the 1996 Act. In this connection, reference may be made to a
decision of this Court in Shreejee Trace (I) Pvt. Ltd. v. Paperline
International Inc. : (2003)9SCC79 .
I am of the view that HCL could not effectively present its case. before the
ICC arbitrator and therefore enforcement of the ICC award should be
refused in view of Section 48(1)(b) of the Act. Accordingly, the judgment of
the Division Bench and also the judgment of the learned Single Judge of the
Calcutta High Court must be set aside and the matter be remitted back to
the ICC arbitrator for fresh disposal of the arbitral proceedings in
accordance with law after giving fair and reasonable opportunity to both the
parties to present their cases before him. In view of the fact that I have set
aside the award of the ICC arbitrator on the ground that HCL was unable to
effectively present its case before the ICC arbitrator, in compliance with
Section 48(1)(b) of the Act, I direct the ICC arbitrator to pass a fresh award
within three months from the date of commencement of the fresh arbitral
proceedings.
Accordingly, both the appeals are disposed of. There will be no order as to
costs.
ORDER

In view of difference of opinion, the matter is referred to a larger Bench for

consideration. The Registry of this Court shall place the matter before the
Hon'ble the Chief Justice for constitution of a larger Bench.

M. Banerjee v. M.N. Bhagabati & Ors. (AIR 2003 GAU 13)

Facts: M/s. M. Banerjee & Sons made a prayer to the Court for directing
the sole Arbitrator Shri M. N. Bhagabati to file the original award dated
16.2.2000 in the Court and on receipt of the award passed necessary order
for proceeding with the Execution of the award. But, the learned Assistant
District Judge, passed orders on 26.7.2000 that as no decree has been filed
and enclosed with the Execution Application, the Application is dismissed.
Aggrieved by the said order dated 26.7.2000 passed by the learned
Assistant District Judge, Shillong, dismissing (Arb.) Misc. Ex. 4(H) 2000
M/s. M. Banerjee and Sons, have filed a Revision under Section 115 of the
Code of Civil Procedure, 1908 numbered as CR(P) 39 (SG) 2000 before this
Court. Along with the said CR (P), M/s. M. Banerjee and Sons have also filed
Misc. Case No. 163(SH)2000, for transferring the said (Arb.) Misc.
Execution case No. 4(H)2000 from the Court of the learned Assistant
District Judge, Shillong, to the Court of the Assistant District Judge,
Shillong.
On 22.9.2000, the State Bank of India, filed an application under
Section 34 of the Arbitration and Conciliation Act, 1996, in the Court of the
learned District Judge, Kamrup, Guwahati, which was numbered as Misc.
(Arbitration) Case No. 474 of 2000. In the said application, the State Bank
of India, prayed for setting aside the award passed by Shri M. N. Bhagawati,
Sole Arbitrator on 16.2.2000, and pending disposal of the said application,
to stay the operation of the award. On 28.9.2000, the learned District Judge,
Kamrup, admitted the aforesaid application under Section 34 of the
Arbitration and Conciliation Act, 1996 (for short the Act, 1996) and passed
further orders that pending hearing of the application, the operation of the
Arbitral Award dated 16.2.2000 passed by the sole Arbitrator, shall remain
stayed. Thereafter, M/s. M. Banerjee and Sons filed Misc. Case No. 168 (SH)
2000 before this Court in CR(P) 39 (SH) 2000 praying for transfer of Misc.
(Arb) Case No. 474 of 2000 from the Court of the learned District Judge,
Kamrup to this Court and in the interim for stay of the operation of the
order dated 28.9.2000 passed by the learned District Judge in the said Misc.
(Arb) Case No. 474 of 2000 and for staying of further proceedings of the
said case before the learned District Judge, Kamrup. On 3.11.2000, the
Court issued notice in the said Misc. Case No. 168 (SH) 2000, and passed
orders that in the meantime further proceedings of the said case before the
learned District Judge, Kamrup, Guwahati, between the State Bank of India
and M/s. M. Banerjee and Sons shall remain suspended. After receipt of the

said notice, the State Bank of India, has filed Misc. Case 182(SH) 2000, in
this Court contending inter alia that Shillong Bench of this Court had no
jurisdiction to pass orders in respect of the case arising at Guwahati and for
setting aside the order passed by this Court in Misc. Case No. 168 (SH)
2000 on 3.11.2000 staying further proceedings in Misc. (Arbitration) Case
No., 474 of 2000
Contention of the Petitioner: M/s. M. Banerjee and Sons submitted that
under Section 36 of the Act of 1996, the award of the Arbitrator can be
enforced under the Code of Civil Procedure, 1908 in the same manner as if
it were a decree of the Court. Thus, the view taken by the learned Assistant
District Judge, Shillong in the impugned order dated 26.7.2000, that the
award dated 16.2.2000, passed by the Arbitrator can only be executed if it
has been made a decree of the Court is erroneous in law. According to Mr.
Sen, the learned Assistant District Judge, Shillong, should have exercised
jurisdiction and executed the award of the Arbitrator on the application filed
by the petitioner and as he has failed to exercise jurisdiction vested in him
this Court in exercise of its power under Section 115 of the Civil Procedure
Code, 1908, can set aside the said order dated 26.7.2000, and the learned
Assistant District Judge, Shillong, should remit the matter back to the
Assistant District Judge, Shillong for passing order for execution of the
award. He further submitted that Section 42 of the Act, 1996, clearly
provides that where with respect to a arbitration agreement any application
under the part has been made in a Court, that Court alone shall have
jurisdiction over the arbitral proceedings and all subsequent application
arising after that agreement and the arbitral proceedings shall be made in
that Court and in no other Court. They cited decisions for the proposition
that if two Courts have got jurisdiction to decide a dispute, it was open for
the parties to incorporate a clause in the agreement that only one out of the
two Courts will have jurisdiction to decide the dispute.
Contention of the Respondent: The State Bank of India, on the other
hand, submitted that the contract out of which the dispute arises was
executed at Guwahati outside the State of Meghalaya and the Courts at
Shillong had no jurisdiction to decide the dispute between the parties. He
further argued that the Shillong Bench of the Gauhati High Court has no
jurisdiction to entertain any application with regard to a case arising at
Guwahati. He referred to the order of the President in the Notification
dated 1.2.1995 by which the permanent Bench of the Gauhati High Court at
Shillong was constituted to show that the permanent Bench of the Gauhati
High Court at Shillong could exercise jurisdiction and powers vested in the
Gauhati High Court in respect of cases arising in the State of Meghalaya.
Holding of the Court: Since the application of M/s. M. Banerjee and Sons,
(Arb.) Misc. Execution Case No. 4(H)2000, in the Court of the learned

Assistant District Judge, Shillong, was first in point of time, the learned
Assistant District Judge, Shillong, had jurisdiction over the arbitral
proceedings as provided under Section 42 of the Act, 1996, all subsequent
applications arising out of the agreement and the arbitral proceeding shall
have to be made in the Court of the learned Assistant District Judge,
Shillong, and in no other Court. Hence, the Court of the learned District
Judge, Kamrup Guwahati had no jurisdiction to entertain the application of
the State Bank of India, under Section 34 of the Act, 1996 and passed
orders thereon on 28.9.2000.In Khaleel Ahmed Dakhani vs. Hatti Gold
Mines Co. Ltd. (supra), Hatti Gold Mines Co. Ltd., filed an application for
setting aside the award dated 28.8.1998 under Section 34 of the Act, 1996,
in the Court of the Principal Civil Judge, Bangalore and while this
application was pending, Khaleel Ahmed Dakhani, filed an application for
execution of the award in the Court of the Principal District Judge, Raichur.
On a Revision filed by Hatti Gold Mines Co. Ltd., the High Court set aside
the order passed by the Principal District Judge, Raichur, and allowed the
Revision. Khaleel Ahmed Dakhani, challenged the order passed by the High
Court before the Supreme Court and the Supreme Court held that in the
circumstance, the Principal District Judge, Raichur, should not have
entertained the application for execution and other attachment of movable
property of the respondent, and that the High Court took a correct view in
the matter and rightly set aside the impugned order. In the said case,
however, the High Court has not dealt with the provisions of Section 42 of
the Act, 1996. In Guru Nanak Foundation vs. M/s. Rattan Singh & Sons
(supra), the High Court had the occasion to deal with the sub-section (4) of
Section 41 of the Arbitration Act, 1940, which contains similar provisions as
in Section 42 of the Act, 1996, and the Supreme Court held that, where an
application is made under reference to a Court competent to entertain it,
that Court alone will have jurisdiction over the arbitration proceeding and
all subsequent applications arising out of that reference and the arbitration
proceeding shall have to be made in that Court alone and no other Court. In
the said case of M/s. Guru Nanak Foundation vs. M/s. Rattan Singh and
Sons, the Supreme Court has gone so far as to say that Section 31(4) of the
Arbitration Act, 1940, not only confers exclusive jurisdiction on the Court to
which an application is made in reference but simultaneously ousts the
jurisdiction of any other Court which may as well have the jurisdiction in
this behalf.
Coming now to the Civil Revision CR(P) 39(SH) 2000, against the order
dated 26.7.2000 in (Arb) Execution Case No. 4(H) 2000 of the Court of the
learned Assistant District Judge, Shillong, it appears from the said
impugned order dated 26.7.2000 of the learned Assistant District Judge,
Shillong, that the only reason given by him for dismissing the said execution
case is that no decree has been filed and enclosed along with the arbitration

application. Section 36 of the Act, 1996, which provides for enforcement of

the award is quoted herein below :
"36. Enforcement - Where the time for making an application to set aside
the arbitral award under Section 34 has expired, or such application having
been made, it has been refused, the award shall be enforced under the Code
of Civil Procedure, 1908 (5 of 1908) in the same manner as if it were a
decree of the Court."
It will be clear from the very language of Section 36 of the Act, 1996,
quoted above that arbitral award has to be enforced under the Code of Civil
Procedure, 1908, and in the same manner as if it were a decree of the
Court. Hence for the purpose of execution, the award itself is to be treated
as a decree of the Court. The learned Assistant District Judge, could not
have dismissed the application for execution on the ground either that the
decree has not been filed along with the Execution application or that the
award has not been made a decree of the Court. The learned Assistant
District Judge has, in my considered opinion, failed to exercise the
jurisdiction vested in him under law. Civil Revision is accordingly allowed
and the impugned order of the Assistant District Judge dated 26.7.2000, is
set aside. The learned Assistant District Judge, Shillong, will have to hear
the parties and pass fresh orders in accordance with law in the said (Arb.)
Misc. Execution case No. 4(H)2000 filed by M. Banerjee and Sons.
Section 37: Appealable Orders
ITI v. Siemens Ltd. ( (2002) 5 SCC 510)
Issue: The principal question that arises for our consideration is whether a
revision petition under Section 115 of the Civil Procedure Code (the 'Code')
lies to the High Court as against an order made by a civil court in an appeal
preferred under Section 37 of the Act. If so, whether on the facts and
circumstances of this case, such a remedy by way of revision is an alternate
and efficacious remedy or not.
Contention of the Appellants: Learned senior counsel appearing for the
appellants submitted that the right of second appeal is specifically taken
away under Section 37(2) of the Act. Therefore, by implication it should be
held that even a revision is not maintainable under Section 115 of the Act.
He pointed out that under Section 5 of the Act, there is a bar against
judicial intervention by any judicial authority unless the same is specifically
provided under Part I of the Act. It is his contention that since a revision is
not specifically provided for and the Code not being made applicable to
proceedings arising under the Act, a revision to the High Court does not lie.

Therefore, he contends that the appellant's only remedy is to approach this

Court by way of this appeal.
According to Mr. Parasaran, the Court in the case of Nirma Ltd. (supra) has
erroneously founded its conclusion on the said judgment in Shyam Sunder
Agarwal's case. Learned counsel argued that the case of Shyam Sunder
Agarwal (supra) arose under the Arbitration Act, 1940 which Act had made
the provisions of the Code specifically applicable to proceedings arising
under the said Act in the civil court whereas in the present Act such
provision making the Code applicable is not found. Therefore, there is a
substantial difference in law between the cases of Shyam Sunder Agarwal
(supra) and Nirma Ltd. (supra). Therefore, the order of this Court in Nirma
Ltd. (supra) is not a good law, hence, requires reconsideration
Contention of the Respondent: learned counsel appearing for the
respondent in reply contended that under Section 37 of the Act an appeal is
provided to a civil court as defined under Section 2(e) of the Act. He pointed
out that though there is no specific reference as to the application of the
Code to the proceedings arising under Section37, there is no express
exclusion of the Code either. Therefore, in the absence of any such express
exclusion, the appeal being provided to a civil court, the Code should apply
to the proceedings before the civil court.
Holding of the Court: The question still remains as to whether when a
second appeal is statutorily barred under the Act and when the Code is not
specifically made applicable, can it be said that a right of revision before the
High Court would still be available to an aggrieved party ? As pointed out by
Mr. Chidambaram, this Court in the case of Nirma Ltd. (supra) while
dismissing an SLP by a reasoned judgment has held : "In our opinion, an
efficacious alternate remedy is available to the petitioner by way of filing a
revision in the High Court under Section 115 of the Code of Civil Procedure.
Merely because a second appeal against an appellate order is barred by the
provisions of Sub-section (3) of Section 37, the remedy of revision does not
cease to be available to the petitioner, for the City Civil Court deciding an
appeal under Sub-section (2) of Section 37 remains a court subordinate to
the High Court within the meaning of Section 115 of the C.P.C."
It is true in the present Act application of the Code is not specifically
provided for but what is to be noted is : Is there an express prohibition
against the application of the Code to a proceeding arising out of the Act
before a civil court? We find no such specific exclusion of the Code in the
present Act. When there is no express exclusion, we cannot by inference
hold that the Code is not applicable.

When the Act under Section 37 provided for an appeal to the civil
court and the application of Code not having been expressly barred,
the revisional jurisdiction of the High Court gets attracted. If that be
so, the bar under Section 5 will not be attracted because conferment
of appellate power on the civil court in Part I of the Act attracts the
provisions of the Code also.
Provisions of Section 37 of the Act of 1996 bars Second Appeal and
not revision under Section 115 of the Code of Civil Procedure. The
Power of appeal under Section 37(2) of the Act against order of
arbitral Tribunal granting or refusing to grant an interim measure is
conferred on court. Court is defined in Section 2(e) meaning the
'principal Civil Court of Original Jurisdiction' which has 'jurisdiction
to decide the question forming the subject-matter of the arbitration
if the same had been the subject matter of the suit'. The power of
appeal having conferred on a Civil court all procedural provisions
contained in the Code would apply to the proceedings in appeal.
Such proceedings in appeal are not open to Second Appeal as the
same is clearly barred under Sub-section (3) of Section 37. But I
agree with the conclusion reached by Brother Hegde J. that the
supervisory and revisional jurisdiction of High Court under
Section 115 of the Code of Civil procedure is neither expressly nor
impliedly barred either by the provisions of Section 37 or
Section 19(1) of the Act.

MEDIATION

What is Mediation? It is a voluntary, non-binding and private dispute

resolution process in which a neutral person helps the parties try to reach a
negotiated settlement.

Voluntary

Mediator has no authority to make a binding determination

If the parties cant agree there will be no settlement and the case will
proceed to the next stage in the litigation process. However, if
settlement is reached the agreed terms will form part of an
enforceable contract.

Mediation is a private process i.e. the proceedings and terms of settlement

are usually confidential. However there may be some cases, where one of
the parties may seek some kind of public vindication or apology for past
conduct and there is no reason why a public declaration cant form part of a
mediated settlement.

The role of a mediator is to assist the parties in their negotiations with each
other and help the parties work towards a consensual resolution of the
dispute. However parties themselves remain responsible for their own
decisions and answerable for the terms of any settlement that may be
agreed.

Sometimes mediation may be ordered by a court and refusal to mediate

might attract sanctions. In England the standard for imposing such
sanctions is that the contesting party must show that the other party has
behaved unreasonably in failing to mediate.

There are certain factors which are taken into consideration when assessing
whether a party has behaved unreasonably and these include:
-

The nature of the dispute

The merits of the case

The extent to which other settlement methods have been attempted

Whether the cost of the mediation would be disproportionately high

Whether any delay in setting up and attending the mediation would

have been prejudicial

Whether the mediation had a reasonable prospect of success.

To make the decision whether or not to have a case or dispute proceed to

mediation requires:
-

An understanding of the process; what mediation actually

entails and its different forms

An appreciation of possible outcomes to the dispute

Sufficient knowledge of the strength of the case of your client

An understanding of the value of the case in terms of cost

efficiency; time efficiency; What the client wants to achieve and
whether the remedy is available from the court

Knowledge about the client; his/her business affairs; any

ongoing or intended ongoing relationship between the parties.

As a mediator/lawyer what do you need to do?

Getting the client to mediate- familiarize the client with the concept of
mediation; most clients are extremely nervous of the court
environment but they are not too familiar with mediation and might
worry about being rushed

Mediators are trained to investigate the potential for joint gains in

resolving disputes- that is one of the most important tools in unlocking
the potential for settlement

You would need to persuade your client or both parties what value
there is in avoiding arguments over the merits of the case.

Try to show them the remedies outside the court.

Apprise him/her of the litigation risk, and cost/benefit analysis, private

affair.

The client may feel that going to mediation will show weakness
however as a mediator/lawyer you should be able point to the court
rules on active management (S.89 CPC)

Mediating mediation in India ( extracts from Hiram Chodoshs

article
available
at
http://lawcommissionofindia.nic.in/adr_conf/chodosh4.pdf )
The debate over mediation in India, therefore, simultaneously engages legal
actors at two levels: mediation of specific legal conflicts, and mediation of
system-wide conflicts over the shape, scope, and timing of mediation reform
itself.

National judicial systems have not been able to keep pace with substantive
commitments to democracy, free markets, and globalization. Political and
economic interference with impartiality and delay in the administration of
justice currently undermine the achievement of core objectives in many
countries.
An excessively partial or slow process renders fundamental public legal
principles ineffectual, eviscerates private legal rights and obligations,
cultivates conditions conducive to corruption, and favors the powerful over
the weak. These common institutional problems undermine equality under
the law and corrode the incentives critical to legal compliance.
The growing importance of recently implemented law has also imposed new
burdens on courts. New rights create new forms of legally cognizable

claims and disputes. In most market-oriented or democratic countries, case

filings are on the rise; yet, most countries are not close to keeping pace.
India is far from alone on this single index: in many countries from Latin
America to Eastern Europe case filings (roughly) doubled over a single
decade.

In light of this global challenge to national court systems, what promise, if

any, does mediation offer? Does mediation, as one particular form or cluster
of attributes that differ from features of European-originating court
systems, offer even a partial solution to meet these pressing burdens?

Mediation is no panacea, no magic solution to overcome the institutional

challenges of national court systems. Similar to other alternative dispute
resolution techniques, however, it does offer a cluster of features that differ
from the formal judicial systems of Europe that have had global influence
over the primary ways in which legal conflicts are resolved.
In particular, mediation may serve to relieve some of the pressures
currently impeding the performance of European-style court systems. First,
mediation may have a modest effect on political interference with the
courts. By placing control for the resolution of disputes in the hands of the
parties, the state has less power to interfere with the resolution of private
disputes, and by relieving the burden of the courts, the political branches
may be less able to debilitate the courts through neglect, e.g., paltry public
investments in their institutional well-being. Second, mediation reduces the
incentives for corruption because the neutral third-party has no authority to
bind the parties to an outcome of his or her choosing. This lack of power
over the parties (and a lack of monopoly over dispute resolution by the
courts more generally) means that officials have greater difficulty extracting
rents from litigants through coercive means. Finally, putting aside the more
controversial role of plea-bargaining in criminal procedure, mediation is
utilized in attempts to reduce court backlogs and delays.

Imagine the legal system in the metaphor of a funnel designed to sift

through small and large stones in an effort to produce precious gems. If I
pour stones into the wide mouth of the funnel at the top, the system will
process them through a narrow channel, producing the gems through the
narrow mouth at the bottom. Lets assume that the stones en masse
represent all of the legally cognizable disputes in society, and the gems that
come through the narrow neck represent judicial decisions as the

articulation of public norms that then guide the society in its public and
private behavior. Lets further assume that the purpose of the funnel is to
find and process the gems, not (by itself) to resolve every single dispute in
the society.

Now lets imagine that, because of the sheer scale of the number of disputes
in society and the unchanged, narrow neck of the funnel, the stones (and
even smaller jewels) are creating a bottleneck, and too many disputes put
into the funnel are not allowing the valuable ones, (those worth the public
investment of the courts), to pass through the system efficiently.
As an advanced form of facilitated negotiation, the mediator employs both
(1) sophisticated bargaining techniques that allow the parties to think
beyond the formal parameters of the law, and (2) facilitations skills that
attempt to neutralize the self-destructive aspects of the conflict. (dots/line
exercise)

Interest based approach: The famous story of two girls who fight over an
orange presents the adjudicator with the task of finding a rule of decision:
who had it first (property); who purchased it (contract); who needs it more
(equity)? The arbitrator (upon failure to find a rule of decision) might split
the difference, awarding half to each girl. The mediator, however, will ask
the girls why they each want the orange. If one wants the juice and the
other wants the rind from the skin, the girls will quickly agree to a
distribution that meets the interests of both. This process of interest
identification and accommodation creates a win-win outcome of mutual
gains.
Not every case, perhaps not even most, will resolve this easily, and may
require other distributional bargaining strategies, but the exploration of
interests (beyond positions) provides a powerful negotiation strategy for
creating durable settlements of seemingly irreconcilable conflicts.

Integrative approach: The parties cannot agree on how to share or

cooperate, an effective mediator may explore integrative bargaining
strategies. Integrative bargaining explores the investment of resources
outside those at stake in the controversy. A wonderful illustration of
integrative bargaining is a story I have heard in many different cultural
contexts. In this story, a camel herdsman dies and leave seventeen camels
to his three sons. The will provides that the eldest shall receive 1/2 of the
camels, the middle son 1/3, and the youngest 1/9. The sons do not want to

wait to breed the camels before their distribution, and they do not want to
sell them off because they are worth more to keep than to sell on the open
market. They go to a wise man who has a simple solution. He lends them a
camel and sends them home to think about their problem and directs them
to return the next day and give him back the loaned camel.
When they go home, they count the camels; they now have eighteen, which
to their pleasant surprise divides evenly: the eldest gets nine; the middle
son gets six; and the youngest gets two. The distribution adds up to
seventeen. They return the extra camel to the wise man the next day and
are forever grateful for his assistance.

Joint Communication: Mediations reestablish joint communication

between the parties in three significant ways. First, particularly in private
mediation, the parties may have to communicate about logistics for the
mediation itself (e.g., timing, exchange of documents, confidentiality
agreements, etc.). Second, the mediator brings the parties together and in
the first joint session, they hear from one another their varied points of view
(and often those of their attorneys). Third, as the mediator moves from
private caucusing into the settlement or agreement phase, the parties
frequently begin to speak directly to one another. Joint communication of
each varied kind is obviously no guarantee to settlement; however, this one
factor may be key to bringing parties together where resistance to
communicating with one another further escalates the conflict.

An effective mediator establishes a positive tone and environment

conducive to settlement by behaving in a professional, confident,
purposeful, open, constructive, and socially engaging manner. By setting an
example, the mediator may encourage through body language and
emotional tones the kind of behavior expected in the session. Again, this can
have a neutralizing impact on the more negative, insecure, closed-minded,
destructive, and resistant behavior frequently encountered in adversaries.
Acknowledgement & Active Listening: Both as a necessary tool for
effective facilitation and as a way of acknowledging the viewpoints of each
side, active listening is an essential quality of a good mediator. It allows for
a more accurate comprehension of the dispute, the ability to distinguish
dispositive or helpful from irrelevant or unhelpful comments, positions from
interests, less important interests from higher priority ones. Again, active
listening also signals to the parties that what they have to say is important,
and that can encourage the parties to listen actively to one another as well.
Acknowledgment of one party by another (without apology) often defuses a

conflict by allowing the combating parties to feel that their voice has been
heard.

Neutrality in speech: Finally, an effective mediator will be careful in the

choice of words. Damages may become bills or expenses. Liability
may become responsibility. Your side of the story may be restated as
factual background. Again, here, by rephrasing more neutrally, the
mediator defuses the language of its explosive impact without changing the
core meaning, and by doing so, may encourage the parties by example to
speak with fewer offensive or conflictual phrases and words that put the
other side on the defensive.

Imagine this statement: My wife is a conniving whore, who has used her
scheming mind to transfer all my savings to her lover! I detest her and wish
she were dead! The effective mediator may reframe the outburst- I can
understand your sentiments as you feel you have been cheated but let us
focus on resolving this issue amicably.
Here no judgment, only acknowledgment has been expressed in a neutral
way without losing the substance of what was declared.
Sequencing: Effective mediators control the sequencing of what is
discussed by setting the agenda, deferring, and redirecting. They may
postpone the discussion of positions until they explore interests. The may
advance those topics they believe are more likely to bring the parties
together. (think about the scene from wedding crashers)
Changing the Messenger: In conflictual relationships, even close ones,
suggestions by one party are automatically discounted by the other. The
very same suggestion may come from a third party and be far more readily
accepted. Mediators are able to supply that role. They can solicit ideas from
one side, and communicate those suggestions to the other, without
attribution, and thus without any reactive discounting by the recipient.
Changing the messenger thus can advance acceptance of the message, and
confidential private caucusing allows the mediator to play this important
role of a go-between.

Stages of Mediation
Preparation: In the preparation phase, the mediator is selected (whether
by the court as part of an annexed process from a panel of eligible neutrals,
or by the parties themselves in a private mediation). In the absence of

statutory rules that govern the confidentiality of the mediation process or in

the event of a private mediation in which the neutral is compensated, a
mediation agreement must be negotiated. Provisions may include the time,
place, and duration of the mediation, as well as the terms of the neutrals
engagement. In some mediations, the parties prepare short statements or
memoranda or supply key documents to the mediator to save time by
acquainting the neutral with the case.

Introduction: In the first session, the mediator attempts to set a positive

tone, relaxed atmosphere, basic structure, and ground rules for the
mediation. The neutral often begins with a self-introduction of mediation
experience and credentials. The parties and lawyers introduce themselves.
The mediator then explains the process, the limited role of the neutral,
explains the restrictions of confidentiality, disposes of any administrative
matters, and solicits questions from the parties before proceeding.

Joint Sessions : The joint session focuses on input from the parties (and
their attorneys) on the nature of the dispute and attempts to explore any
early avenues for settlement. Parties usually tell their stories (and may be
listening to one another for the first time since the conflict erupted). The
lawyers may discuss how they see the case from a positional point of view.
The mediator may use several communication techniques (reframing,
agenda setting) to confirm comprehension of the factual and legal
background and the emotional postures of the parties. Unless the case can
be settled in the joint session, the mediator will ask the parties whether
they would be willing to go into private caucuses.
Private Caucuses: In the private caucus, the mediator is often able to gain
a deeper understanding of the problem. The parties are freer to discuss
their views candidly, sharing information they would not convey to the other
litigants, acknowledging weaknesses in their legal positions, identifying and
prioritizing their interests, and exploring settlement options that would be
difficult to discuss directly with the other party. Mediators may also use
ATNA (alternative to a negotiated agreement) strategies to conduct a form
of reality testing and to achieve a more rational perspective on the
resolution of the conflict.
Agreement: Assuming the parties have reached an agreement in either
private or subsequent joint sessions, the mediator will transition into the
agreement phase. The terms of settlement will be articulated and further
clarified. The mediator will facilitate the drafting of the agreement, if
necessary, as well as efforts to transfer consideration and dismiss claims

simultaneously, thus minimizing the low risk of non-compliance with the

consensual agreement. The mediator may also take interest in remaining
informed about any necessary future exchanges as part of a settlement,
e.g., transfers of custodial children from one spouse to another.

Main issues for promoting mediation in India

How should mediation attract litigants from a purely economic point of
view?
Who will serve as neutrals in mediation?
How will mediation be initiated (for which cases) and concluded?
Which attributes of mediation are most likely to be effective in different
litigation contexts?
How should the courts establish quality controls (including ethics and
discipline) over the emerging practice of mediation?
How should the courts build both internal and external capacity without
incurring unaffordable costs?

First, the early economics of mediation may be critical to its long-term

growth. Developing a pro bono commitment of neutrals (at least outside of
high stakes commercial disputes, where parties are already paying for
mediation services) may be necessary. If addressed with costs in addition to
court fees, litigants will be reluctant to enter mediations. Furthermore,
ensuring Section 89 or Order X proceedings take place before the framing
of issues can take advantage of any applicable court fee reduction rules.
Working with lawyers on how to structure fee arrangements for cases that
settle (e.g., splitting in half the expected total fees from full blown trial and
appeal before they have completed even close to half the work, thus sharing
the savings with clients) will be equally necessary.

Second, the potential pool of mediators should be as large as possible so as

not to foreclose the application of invaluable human resources, even from
unexpected subsets of professionals. In addition to judges (as specialists
within court), retired judges, lawyers (both junior and senior), and academic
experts in ADR in collaboration with law students in legal services clinics,

non-lawyers
(including
doctors,
accountants,
psychologists) should be considered as well.

engineers,

family

Third, coordination of the mediation process with the trial system will need
to be developed further. In particular, the specific trigger for mediation will
need to be chosen. Court-annexed mediation through Section 89 or Order X
requires a case management event to give life to the rule. The chief judges
of courts will have to designate the official responsible for triggering the
process (whether a judicial officer, registrar, or special administrator), and
case event tracking mechanisms must ensure continuing oversight of the
annexed ADR process to ensure unsettled cases return to the trial track
without undue delay (e.g., within two months) or are dismissed upon full
settlement. Ways in which to capture the benefits of unsuccessful
mediation by allowing the parties to narrow the issues clarified by the
mediation can also be explored. Whether the choice of ADR technique is
obligatory or voluntary, the specific timing of that choice, and the cases
subjected to the process (old or new, family or commercial) are additional
questions to be resolved.

Fourth, the selection of specific attributes (the negotiating techniques, the

communication skills, the structure and sequence) of Indian mediation will
be tested against the context of a wide range of legal disputes. Whether
these processes will be primarily evaluative or facilitative, employ private
caucusing or a community model, ensure confidentiality or embrace
publicity (in cases of public interest) will require special attention to the
specific nature of the controversies to which mediation will be applied. Here
it is important to avoid dogmatic perspectives about foreign models
(whether wholly positive or negative), to resist the view of any specific
configuration as necessary to the essentials of mediation, and to stress the
value experimentation and pragmatism as a way to maximize the values of
the great array of techniques offered by mediation practices.

Fifth-Ways to achieve oversight; evaluating mediators through survey of

litigants and lawyers, periodic retraining+determination of ethics
(impartiality, disclosure of conflict of interest, confidentiality)

Finally, the courts will seek ways in which to build human resources and
administrative capacity for mediation as a complementary institution.
Stategies include building court units (with internal staff or external panels

of trained neutrals) to perform mediation services or act merely as clearing

houses. Legal educators are also exploring ways to enhance a growing set
of graduate diploma courses, experiential mediation education, and training
methodologies, in particular for young lawyers. Here, as demonstrated by
this national conference, there is much opportunity for exchange and
collaboration in pursuit of common goals.

None of the foregoing concerns (or preliminary answers) is necessarily

dispositive of the adaptability of mediation to India. Groups of leaders in the
legal community raise many important issues (ranging from the relationship
of mediation to the judicial system, types of cases where mediation may be
difficult to apply, and the currently limited capacity of human resources to
conduct mediations effectively). Once it is understood that mediation is
intended to complement (not replace) the judicial process, that it is highly
adaptable to different contexts, and that expertise in India is already
growing rapidly, these apprehensions may quickly dissipate.