INTRODUCTIONThe significant increase in the role of international trade in the economic development of nations over the last few decades has been accompanied by a considerable increase in the number of commercial disputes as well. In India too, rapid globalization of the economy and the resulting increase in competition has led to an increase in commercial disputes. At the same time, however, the rate of industrial growth, modernization, and improvement of socio-economic circumstances has, in many instances, outpaced the rate of growth of dispute resolution mechanisms. In many parts of India, rapid development has meant increased caseloads for already overburdened courts, further leading to notoriously slow adjudication of commercial disputes.1 As a result, alternative dispute resolution mechanisms, including arbitration, have become more crucial for businesses operating in India as well as those doing businesses with Indian firms. In sum, although the huge influx of overseas commercial transactions spurred by the growth of the Indian economy has resulted in a significant increase of commercial disputes, arbitration practice has lagged behind. The present arbitration system in India is still plagued with many loopholes and shortcomings, and the quality of arbitration has not adequately developed as a quick and cost-effective mechanism for resolution of commercial disputes. 1 Nearly 30 million cases pending in courts (www.rtiindia.org). I. ARBITRATION IN INDIA: THE BASICS A Brief History of Arbitration Law in India Arbitration has a long history in India. In ancient times, people often voluntarily submitted their disputes to a group of wise men of a community—called the panchayat—for a binding resolution.2 Modern arbitration law in India was created by the Bengal Regulations in 1772, during the British rule. The Bengal Regulations provided for reference by a court to arbitration, with the consent of the parties, in lawsuits for accounts, partnership deeds, and breach of contract, amongst others.3 Until 1996, the law governing arbitration in India consisted mainly of three statutes: (i) the 1937 Arbitration (Protocol and Convention) Act, (ii) the 1940 Indian Arbitration Act, and (iii) the 1961 Foreign Awards (Recognition and Enforcement) Act.4 The 1940 Act was the general law governing arbitration in India along the lines of the English Arbitration Act of 1934, and both the 1937 and the 1961 Acts were designed to enforce foreign arbitral awards (the 1961 Act implemented the New York Convention of 1958).5 The government enacted the Arbitration and Conciliation Act, 1996 (the 1996 Act) in an effort to modernize the outdated 1940 Act. The 1996 Act is a comprehensive piece of legislation modeled on the lines of the UNCITRAL Model Law. This Act repealed all the three previous statutes (the 1937 Act, the 1961 Act and the 1940 Act).6 2 K Ravi Kumar, ‘Alternative Dispute Resolution in Construction Industry’, International Council of Consultants (ICC) papers, www.iccindia.org. at p 2. K Ravi Kumar is assistant executive engineer, Salarjung Museum, Hyderabad. 3 ibid. 4 ibid. 5 The New York Convention of 1958, i.e. the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards, is one of the most widely used conventions for recognition and enforcement of foreign awards. It sets forth the procedures to be used by all signatories to the Convention. This Convention was first in the series of major steps taken by the United Nation since its inception, to aid the development of international commercial arbitration. The Convention became effective on June 7, 1959. 6 The 1996 Act, Section 85. Its primary purpose was to encourage arbitration as a cost-effective and quick mechanism for the settlement of commercial disputes.7 The 1996 Act covers both domestic arbitration and international commercial arbitration. The Arbitration Act, 1940 The Arbitration Act, 1940, dealt with only domestic arbitration. Under the 1940 Act, intervention of the court was required in all the three stages of arbitration, i.e. prior to the reference of the dispute to the arbitral tribunal, in the duration of the proceedings before the arbitral tribunal, and after the award was passed by the arbitral tribunal. Before an arbitral tribunal took cognizance of a dispute, court intervention was required to set the arbitration proceedings in motion. The existence of an agreement and of a dispute was required to be proved. During the course of the proceedings, the intervention of the court was necessary for the extension of time for making an award. Finally, before the award could be enforced, it was required to be made the rule of the court. While the 1940 Act was perceived to be a good piece of legislation in its actual operation and implementation by all concerned - the parties, arbitrators, lawyers and the courts, it proved to be ineffective and was widely felt to have become outdated.8 The Arbitration and Conciliation Act, 1996 The 1996 Act, which repealed the 1940 Act, was enacted to provide an effective and expeditious dispute resolution framework, which would inspire confidence in the Indian dispute resolution system, attract foreign investments and reassure international investors in the reliability of the Indian legal system to provide an expeditious dispute resolution mechanism. The 1996 Act has two significant parts – Part I provides for any arbitration conducted in India and enforcement of awards thereunder. Part II provides for enforcement of foreign awards. Any arbitration conducted in India or enforcement of award thereunder (whether domestic or international) is governed by Part I, while enforcement of any foreign award to which the New York Convention or the Geneva Convention applies, is governed by Part II of the 1996 Act. The 1996 Act contains two unusual features that differed from the UNCITRAL Model Law. First, while the UNICITRAL Model Law was designed to apply only to international commercial arbitrations,9 the 1996 Act applies both to international and domestic arbitrations. Second, the 7 Justice Ashok Bhan in his inaugural speech delivered at the conference on ‘Dispute Prevention and Dispute Resolution’ held at Ludhiana, India, October 8, 2005. 8 Arbitration and Conciliation Act, 1996, Statement of Objects and Reasons. 1996 Act goes beyond the UNICITRAL Model Law in the area of minimizing judicial intervention.10 The changes brought about by the 1996 Act were so drastic that the entire case law built up over the previous fifty-six years on arbitration was rendered superfluous. 11 Unfortunately, there was no widespread debate and understanding of the changes before such an important legislative change was enacted.12 The Government of India enacted the 1996 Act by an ordinance, and then extended its life by another ordinance, before Parliament eventually passed it without reference to a Parliamentary Committee—a standard practice for important enactments.13 In the absence of case laws and general understanding of the Act in the context of international commercial arbitration, several provisions of the 1996 Act were brought before the courts, which interpreted the provisions in the usual manner.14 The Law Commission of India prepared a report on the experience of the 1996 Act and suggested a number of amendments.15 Based on the recommendations of the Commission, the Government of India introduced the Arbitration and Conciliation (Amendment) Bill, 2003, in Parliament for amending the 1996 Act.16 It has not been taken up for consideration. In the meantime, Government of India, the Ministry of Law and Justice, constituted a Committee popularly known 9 See Article 1 of the UNICITRAL Model Law 10 S K Dholakia, ‘Analytical Appraisal of the Arbitration and Conciliation (Amendment) Bill, 2003’, ICA’s Arbitration Quarterly, ICA, New Delhi, 2005 vol. XXXIX/No.4 at page 3. S K Dholakia is a Member of ICC International Court of Arbitration and Senior Advocate, Supreme Court of India. 11 (1999) 2 SCC 479 (Sundaram Finance vs. NEPC Ltd.). The Supreme Court held at p 484 thus: ‘The provisions of this Act (the 1996 Act) have, therefore, to be interpreted and construed independently and in fact reference to the 1940 Act may actually lead to misconstruction.’ 12 supra, note 10. 13 supra, note 10. 14 supra, note 10. 15 The full report of the 176th Report of the Law Commission of India can be downloaded from www.lawcommissionofindia.nic.in. The full report of the 176th Report of the Law Commission of India can be downloaded from www.lawcommissionofindia.nic.in. 2003. 16 The Arbitration and Conciliation (Amendment) Bill. . 2003 was introduced in Parliament on December 22. THE ARBITRATION AND CONCILIATION ACT. The Committee submitted its report in January 2005.nic. 2003. (b) “Arbitration agreement” means an agreement referred to in section 7.as the ‘Justice Saraf Committee on Arbitration’. II. to study in depth the implications of the recommendations of the Law Commission of India contained in its 176th Report and the Arbitration and Conciliation (Amendment) Bill. It is available on the website www. 1996 defines the term of this Act. 1996 General Provisions Definitions (Part I of the Act) Section 1 of the Arbitration And Conciliation Act.in. The definitions are as follows : Section (1) (a) “Arbitration” means any arbitration whether or not administered by permanent arbitral institution.lawmin. (2) The communication is deemed to have been received on the day it is so delivered. (g) “Legal representative” means a person who in law represents the estate of a deceased person. jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit. or (ii) A body corporate which is in corporate in any on n try other than India. (f) “International commercial arbitration” means an arbitration relating to disputes arising out of legal relationships. or (iv). . considered as commercial under the law in force in India and where at least one of the parties is(i) An individual who is a national of. habitual residence or mailing address. (h) “Party” means a party to an arbitration agreement. a written communication is deemed to have been received if it is sent to the addressee’s last known place of business. and includes any person who intermeddles with the estate of the deceased.any country other than India. habitual residence or mailing adderss by registered letter or by any other means which provides a record of the attempt to deliver it.(c) “Arbitral award” includes an interim award. (d) “Arbitral tribunal” means a sole arbitrator or a panel of arbitrators. The Government of a foreign country. (e) “Court” means the principal Civil Court of original jurisdiction in a district. Receipt of written communications (1) Unless otherwise agreed by the parties. the person on whom the estate devolves on the death of the party so acting. and. but does not include any civil court of a grade inferior to such principal Civil Court. having. or habitually resident in. whether contractual or not. and includes the High Court in exercise of its ordinary original civil jurisdiction. or any Court of Small Causes. Any written communication is deemed to have been received if it is delivered to the addressee personally or at his place of business. where a party acts in a representative character. 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. and If none of the places referred to in clause (a) can be found after making a reasonable inquiry. (3) An arbitration agreement shall be in writing. shall be deemed to have waived his right to so object Extent of judicial intervention Notwithstanding anything contained in any other law for the time being in force. no judicial authority shall intervene except where so provided in this Part. or the arbitral tribunal with the consent of the parties. if a the limit is provided for stating that objection. Waiver of right to object A party who knows that Any provision of this Part from which the parties may derogate.(3) This section does not apply to written communications in respect of proceedings of any judicial authority. in matter governed by this Part. Arbitration Agreement Arbitration agreement is defines as follows in the Act: (1) In this Part. Administrative assistance. . -In order to facilitate the conduct of the arbitral proceedings. or Any requirement under the arbitration agreement. may arrange for administrative assistance by a suitable institution or person. whether contractual or not. Has not been complied with and yet proceeds with the arbitration without stating his objection to such non-compliance without undue delay or. (2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. (4) An arbitration agreement is in writing if it is contained in A document signed by the parties. 6. within that period of time. the parties. “arbitration agreement” means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship. Securing the amount in dispute in the arbitration. (5) There reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract. Interim injunction or the appointment of a receiver. a. or authorising any samples to be taken or any observation to be made. any proceedings before it. telex. or experiment to be tried. namely: The preservation. or as to which any question may arise therein and authorising for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party. which is the subject of an arbitration agreement. before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with section 36. shall. which are the subject matter of the arbitration agreement. refer the parties to arbitration. if a party so applies not later than when submitting his first statement on the substance of the dispute. apply to a court: (i) For the appointment of a guardian for a minor or a person of unsound mind for the purposes of arbitral proceedings. or (ii) For an interim measure of protection in respect of any of the following matters. The application referred to in sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof. etc. preservation or inspection of any property or thing which is the subjectmatter of the dispute in arbitration. Notwithstanding that an application has been made under sub-section (1) and that the issue is pending before the judicial authority. Interim measures. an arbitration may be commenced or continued and an arbitrat award made. which may be necessary or expedient for the purpose of obtaining full information or evidence. interim custody or sale of any goods. (e) Such other interim measure of protection as may appear to the court to be just and convenient. and in relation to. telegrams or other means of telecommunication which provide a record of the agreement. . by court A party may. Power to refer parties to arbitration where there is an arbitration agreement A judicial authority before which an action is brought in a matter. or An exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other. The detention. An exchange of letters. And the Court shall have the same power for making orders as it has for the purpose of. b. III. (2) Subject to sub-section (6). the arbitral tribunal shall consist of a sole arbitrator. (2) Failing the determination referred to in sub-section (1). provided that such number shall not be an even number. Appointment of Arbitrators. . COMPOSITION OF ARBITRAL TRIBUNAL Number of arbitrators (1) The parties are free to determine the number of arbitrators. the parties are free to agree on a procedure for appointing the arbitrator or arbitrators. unless otherwise agreed by the parties. (1) A person of any nationality may be an arbitrator. The appointment shall be made. unless the agreement on the appointment procedure provides other means for securing the appointment. by the Chief Justice or any person or institution designated by him. by the Chief Justice or any person or institution designated by him. fails to perform any function entrusted to him or it under that procedure. (7) A decision on a matter entrusted by sub-section (4) or sub-section (5) or sub-section (6) to the Chief Justice or the person or institution designated by him is final. A party fails to act as required under that procedure. (4) If the appointment procedure in sub-section (3) applies and A party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party. each party shall appoint one arbitrator. fail to reach an agreement expected of them under that procedure. in an arbitration with a sole arbitrator. if the parties fail to agree on the arbitrator within thirty days from receipt of a request by one party from the other party to so agree the appointment shall be made. A party may request the Chief Justice or any person or institution designated by him to take the necessary measure. including an institution. (6) Where. upon request of a party. the Chief Justice of India or the person or institution designated by him may appoint . (8) The Chief Justice or the person or institution designated by him. and (b) Other considerations as are likely to secure the appointment of an independent and impartial arbitrator. and the two appointed arbitrators shall appoint the third arbitrator who shall act as the presiding arbitrator. or A person. in an arbitration with three arbitrators. or The two appointed arbitrators fail to agree on the third arbitrator within thirty days from the date of their appointment. or The parties. (9) In the case of appointment of sole or third arbitrator in an international commercial arbitration. in appointing an arbitrator. or the two appointed arbitrators. (5) Failing any agreement referred to in sub-section (2). upon request of a party. under an appointment procedure agreed upon by the parties.(3) Failing any agreement referred to in sub-section (2). shall have due regard to(a) Any qualifications required of the arbitrator by the agreement of the parties. (12) Where the matters referred to in sub-sections (4). . he shall disclose in writing any circumstances likely to give rise to justifiable doubts as to his independence or impartiality. (7). (2) An arbitrator. (10) The Chief Justice may make such scheme. (7). (8) and (10) arise in any other arbitration. the reference to “Chief Justice” in those sub-sections shall be construed as a reference to the Chief Justice of the High Court within whose local limits the principal Civil Court referred to in clause (e) of sub-section (1) of section 2 is situate and. without delay. the Chief Justice or his designate to whom the request has been first made under the relevant subsection shall alone be competent to decide on the request. (5). or He does not possess the qualifications agreed to by the parties. (11) Where more than one request has been made under sub-section (4) or subsection (5) or subsection (6) to the Chief Justices of different High Courts or their designates. (6). disclose to the parties in writing any circumstances referred to in sub-section (1) unless they have already been informed of them by him. Grounds for challenge (1) When a person is approached in connection with his possible appointment as an arbitrator. (5). the reference to “Chief Justice” in those subsections shall be construed as a reference to the “Chief Justice of India”. where the High Court itself is the Court referred to in that clause.an arbitrator of a nationality other than the nationalities of the parties where the parties belong to different nationalities. Where the matters referred to in sub-sections (4). shall. (3) An arbitrator may be challenged only if Circumstances exist that give rise to justifiable doubts as to his independence or impartiality. (6). as he may deem appropriate for dealing with matters entrusted by sub-section (4) or sub-section (5) or subsection (6) to him.(8) and (10) arise in an international commercial arbitration. from the time of his appointment and throughout the arbitral proceedings. to the Chief Justice of that High Court. within fifteen days after becoming aware of the constitution of the arbitral tribunal or after becoming aware of any circumstances referred to in sub-section (3) of section 12. the party challenging the arbitrator may make an application for setting aside such an arbitral award in accordance with section 34. a party who intends to challenge an arbitrator shall. unless otherwise agreed by the parties. it shall not imply acceptance of the validity of any ground referred to in this section or sub-section (3) of section 12. the court may decide as to whether the arbitrator who is challenged is entitled to any fees. (2) Failing any agreement referred to in sub-section (1). Failure or impossibility to act (1) The mandate of an arbitrator shall terminate if He becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay. (4) If a challenge under any procedure agreed upon by the parties or under the procedure under sub-section (2) is not successful. (2) If a controversy remains concerning any of the grounds refer-red to in clause (a) of subsection (1). and He withdraws from his office or the parties agree to the termination of his mandate. an arbitrator withdraws from his office or a party agrees to the termination of the mandate of an arbitrator. the arbitral tribunal shall continue the arbitral proceedings and make an arbitral award. (3) Unless the arbitrator challenged under sub-section (2) withdraws from his office or the other party agrees to the challenge. only for reasons of which he becomes aware after the appointment has been made. (6) Where an arbitral award is set aside on an application made under subsection (5). a party may.(4) A party may challenge an arbitrator appointed by him. under this section or sub-section (3) of section 13. (5) Where an arbitral award is made under sub-section (4). or in whose appointment he has participated. Challenge procedure (1) Subject to sub-section (4). the parties are free to agree on a procedure for challenging an arbitrator. (3) If. the arbitrat tribunal shall decide on the challenge. send a written statement of the reasons for the challenge to the arbitral tribunal. . apply to the court to decide on the termination of the mandate. IV. has yet to make an impact. though gradually creeping in the arbitration system in India. which are discussed in the following paragraphs. The advantages of institutional arbitration over ad hoc arbitration in India need no emphasis and the . Termination of mandate and substitution of arbitrator (1) In addition to the circumstances referred to in section 13 or section 14. but current ground realities indicate that these goals are yet to be achieved. or By or pursuant to agreement of the parties. an order or ruling of the arbitral tribunal made prior to the replacement of an arbitrator under this section shall not be invalid solely because there has been a change in the composition of the arbitral tribunal. (2) Where the mandate of an arbitrator terminates. The concept of institutional arbitration. The ground realities can be ascertained from the study and analysis of the various aspects in conducting arbitration. (3) Unless otherwise agreed by the parties. (4) Unless otherwise agreed by the parties.Institutional Arbitration and Ad Hoc Arbitration Arbitrations conducted in India are mostly ad hoc. a substitute arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced. any hearings previously held may be repeated at the discretion of the arbitral tribunal. One of the objectives of the 1996 Act was to achieve the twin goals of cheap and quick resolution of disputes. WORKING OF ARBITRATION IN INDIA Arbitration in India is still evolving. where an arbitrator is replaced under subsection (2). Types of Arbitration Practice . A. the mandate of an arbitrator shall terminate Where he withdraws from office for any reason. it is difficult to expect cooperation among the parties. There will be professionalism in conducting arbitration. • In institutional arbitration. because the scrutiny removes possible legal/technical flaws and defects in the award. • In ad hoc arbitration. the institution will have ready facilities to conduct arbitration. • In the event the arbitrator becomes incapable of continuing as arbitrator in an institutional arbitration. . as well as library facilities. Such arbitral institutions also provide for specialized arbitrators. where one party (whose nominee arbitrator is incapacitated) has to re-appoint the new arbitrator. This advantage is not available in an ad hoc arbitration. This requires co-operation between the parties and involves a lot of time. Before the award is finalized and given to the parties. substitutes can be easily located and the procedure for arbitration remains the same. the arbitrators are not subject to such institutional removal sanctions. This facility is not available in ad hoc arbitration. the procedural rules are already established by the institution. • In institutional arbitration. This requires cooperation of the parties and can be time consuming. the experienced panel scrutinizes it. • In institutional arbitration. which increase the cost of arbitration. The fees are also fixed and regulated under rules of the institution. in institutional arbitration. In contrast. trained secretarial/administrative staff. where the likelihood of court interference is higher. When a dispute is in existence. the possibilities of the court setting aside the award is minimal. Other problems include getting trained staff and library facilities for ready reference. on the other hand. In institutional arbitration.wide prevalence of ad hoc arbitration has its ramifications in affecting speedy and costeffectiveness of the arbitration process. There are a number of advantages of institutional arbitration over ad hoc arbitration in India. Formulating rules is therefore no cause for concern. and they may be removed from the panel for not conducting the arbitration properly. the arbitral institutions maintain a panel of arbitrators along with their profile. the arbitrators are governed by the rules of the institution. the procedures have to be agreed upon by the parties and the arbitrator. These advantages are not available to the parties in ad hoc arbitration. As a result. In ad hoc arbitration. The parties can choose the arbitrators from the panel. some of which are discussed below: • In ad hoc arbitration. infrastructure facilities for conducting arbitration pose a problem and parties are often compelled to resort to hiring facilities of expensive hotels. many arbitral institutions such as the International Chamber of Commerce (ICC) have an experienced committee to scrutinize the arbitral awards. Arbitration Practice Across Industries Generally speaking. Inspite of the numerous advantages of institutional arbitration over ad hoc arbitration. where the manner of settling disputes has substantially evolved separately across various industry sectors. New Delhi. An important secondary effect of this development is that arbitration has also streamlined a sector-specific approach to cater to the technicalities and specific requirements of such specific sectors. Arbitration in the construction industry Construction/infrastructure is one of the fastest growing sectors of the Indian economy. The growth in the infrastructure and the IT industry in India is a recent development. there is no marked difference in arbitration practice from one industry to another in India. This tendency is counterproductive. since there is considerable scope for parties to be aggrieved by the functioning of ad hoc tribunals. and a result of the globalization of the Indian economy. October 16. Chief Justice of India. B. it is easy to maintain confidentiality of the proceedings. are the construction industry and the IT industry. the Indian Council of Arbitration (ICA). In ad hoc arbitration.• In institutional arbitration. unlike in Europe. An empirical survey will reveal that a considerable extent of litigation in the lower courts deals with challenges to awards given by ad hoc arbitration tribunals. as the secretarial and administrative staffs are subject to the discipline of the institution. and millions of dollars are spent in construction related disputes.17 Some of the arbitral institutions in India are the Chambers of Commerce (organized by either region or trade). The exceptions to this rule. and the International Centre for Alternate Dispute Resolution (ICADR). the Federation of Indian Chamber of Commerce and Industry (FICCI). arbitration in construction and IT industry disputes are characterized by certain peculiarities quite distinct from other industries. on International Conference on ‘Institutional Arbitration in Infrastructure and Construction’. 1. there is currently an overwhelming tendency in India to resort to ad hoc arbitration mechanisms. the amount of capital blocked in 17 Inaugural address by Justice K G Balakrishnan. 2008. however. it is difficult to expect professionalism from the secretarial staff. Due to the technical complexities and long term nature of relationships between parties in these industries. . According to a survey conducted in 2001 by the Construction Industry Development Council. 1 Standard Contracts of Central and State Governments and Industry Giants Over the last four decades in India. generally covering either all disputes arising from the contract or all disputes save a few ‘excepted matters.2 Unique Features of Arbitration in the Construction Industry In the standard forms adopted by the government departments like the Central Public Works Department (CPWD). arbitration clauses are provided in the contract themselves. It says in Hudson’s Building and Engineering Contracts “it does not seem to be appreciated by many arbitrators that construction contracts give rise to disputes of unusual difficulty and complexity even by comparison with other types of litigation…and… performance of contracts runs over much longer periods than most other forms of commercial contract. with potential scope of argument and financial disagreement arising constantly during the construction period. and public and private companies have all been entering into contracts with builders as part of their commercial activities. 11th Edition. as well as private corporations. Military Engineer Services (MES). there has been a great deal of construction activity both in the public and private sectors.construction sector disputes was over INR 540. U.000 million.20 railways and public enterprises. there are exemption clauses or exclusion clauses that make the decision of an 18 The Economic Times. Often. Sweet and Maxwell. . 20 Military Engineer Services (MES) is one of the largest government construction agencies in India and provides works cover to army. Hudson’s Building and Engineering Contracts. have their own standard terms of contract.K. state instrumentalities. these contracts provide for remedial measures to meet various contingencies.18 Ad hoc arbitration is still very popular in the construction industry. which is quite distinct from the general arbitration practice19 seen in other industries. 1. 2008 19 Alfred Arthur Hudson and Ian Norman Duncan Wallace. disputes and differences often arise between the parties. April 10. Arbitration in the construction industry has a unique feature. The central and state governments and instrumentalities of the states.’ 1. catering to their individual needs. Despite these extensive and time-tested contracts. The rights and obligations. Central and state governments. 2003.” Hudson is the recognized text on the interpretation and drafting of Building and Engineering Contracts.. although an arbitration clause may include within its purview all the possible disputes relating to the transaction. and with large sums of money and cash flow pressures involved on both sides. To meet these situations. privies and privileges of the respective parties are formally written. navy and air force. In Food Corporation of India vs. in case one of the parties is not satisfied with such decision. .’ make the decision of a particular authority final and binding on both the parties. The DRB meets with the employer and the contractor representatives during regular site visits. and encourages the resolution of disputes at the job level. The DRB is a panel of three experienced. and impose a liability on the officer to give a decision within a stipulated time. In these situations.authority named in the agreement. and not subject to arbitration. 1. situations arise for which immediate decisions on a point of difference or dispute is required to avoid costly delays. the provision expressly provides that if none of the parties opt for the choice to refer the matter to arbitration within the time limit thus prescribed. The DRB process helps the parties to solve problems before they escalate into major disputes. Sreekanth Transport. and concurrence by the parties to the decision of the named adjudicator is obviously presumed by reason of unequivocal acceptance of the terms of the contract of the parties. accepted by both the parties at the start of the work as neutral persons and having thorough knowledge of the project will not normally be 21 (1999) 4 SCC 491. or if the officer does not render a decision. There has been a series of judicial decisions. because in construction contracts. the decision last rendered shall be treated as final and binding upon both the parties. The proceedings of the DRB can be brought as evidence before an arbitral tribunal or other judicial forum. final and binding on the parties. The DRB is organized before construction begins and meets periodically at the job site.21 the Supreme Court held that ‘excepted matters’ do not require any further adjudication. which have held that if a particular matter has been excluded from the purview of arbitration incorporating excepted matter clause/exclusion clause. The board members could also be presented as witnesses. ‘Exception’ can also operate differently. respected and impartial reviewers. since the agreement itself provides a named adjudicator. However.3 Dispute Review Board in the Construction Industry The concept of a Dispute Review Board (DRB) is quite common in the construction industry. There may be certain clauses in the contract which empower either the engineer-in-charge or the consultant to take an on-the-spot decision regarding points of difference between the builder and the employer. Recommendations made by the three experts known for their reputation. and made familiar with the project procedures and the participants. The DRB members are kept abreast of the developments and progress in the job. The clause further provides reference of the matter to arbitration. the same shall not be re-agitated in arbitration. the ‘excepted matters’ or ‘exclusion clauses. Such clauses also provide a right of appeal to a superior officer within a particular time. These clauses are included. and are provided with the contract plans and specifications. 22. Arbitration in the Information Technology (IT) Industry 22 O P Goel. and (vii) arrangement of facilities and services for hearings. 26 This type of institution-administered arbitration has clear advantages over ad hoc arbitrations for construction companies.4 Specialized Arbitral Institutions in the Construction Industry In India. India (CIDC). and that during that year.24 1. (iii) strict codes of ethics for arbitrators. Due to such requirements. On this consideration.changed by any such tribunal. Arbitration under the auspices of the CIAC has the following features: (i) tight timelines for appointment of arbitrators and for rendering of the award. O P Goel is the former Director General in the Civil Public Works Department (Works). . in cooperation with the Singapore International Arbitration Centre (SIAC). 24 Brief report from the DRB Foundation Forum Papers. It would therefore become difficult to go against the tribunal. New Delhi. ICA. (iv) transparent management of arbitrator’s fees. speedy and cost-efficient manner. April 10. 2006. the Construction Industry Development Council. public sector undertakings and government departments that have construction contracts. the construction industry felt the need to introduce new measures to resolve disputes in a fair. (v) published scales of fees. (ii) trained arbitrators consisting of professionals from the construction industry as well as the legal fraternity.4. 25The Economic Times. set up an arbitration centre in India called the Construction Industry Arbitration Council (CIAC). 2. 26 CIAC is a Registered Society with its headquarters in New Delhi. p14. and almost no case goes up to arbitration. XL/No. only 31 were taken by the parties to the arbitral tribunal. substantial sums amounting to several crores of Indian rupees (INR) are locked up in contractual disputes in the construction sector alone.23 The statistics up to the year 2001 indicate that there were 818 projects with DRBs valued at US $ 41 billion. ICA’s Arbitration Quarterly. ‘Role of Dispute Resolution Boards’. 2008. (vi) monitoring of the progress of the cases by the Secretariat of the CIAC. 25 Therefore. due acceptance is given to the system world wide.. 1221 disputes were settled by the DRBs. vol. and out of 1038 recommendations made. 23 ibid. This is particularly true in ad hoc arbitration. Thus. has started the process of identifying and training specialized arbitrators for disputes connected with the IT industry. In relation to this aspect. in some cases at least. Further.27 Fast track arbitration is required in a number of disputes such as infringement of patents/trademarks. Thus. which is now considered to be an apex arbitral institution in the country. and the reduced span of time makes it more cost-effective. which is a departure from the intent of the 1996 Act. destruction of evidence. C. the venues and court fees are decided by arbitrators with the consent of the parties. Fast Track Arbitrations Establishment of fast track arbitrations is a recent trend aimed at achieving timely results. which do not allow any laxity or scope for extensions of time and the resultant delays. There is a growing recognition that arbitration is becoming a costly affair. consisting of high profile arbitrators such as retired Supreme Court and High Court judges. charge high arbitration fees. it is an emerging trend amongst large corporations involved in high-stake commercial disputes—including government undertakings—to hold ad hoc arbitrations in five-star hotels and other costly venues. long term relationship. it can reasonably be argued that only such corporations can afford costly arbitration. where the fees of the arbitrators are not regulated. IT disputes typically center on contractual or intellectual property (IP) law issues.IT disputes differ from disputes in other industries mostly in their substance. but decided by the arbitral tribunal with the consent of the parties. Some of the arbitral tribunals. Although this cannot be a conclusion that applies to all large corporations. the larger the parties. Fast track arbitration is a time-bound arbitration. The Indian Council of Arbitration (ICA). thereby lowering the costs and difficulties associated with traditional arbitration. The reason could be that in ad hoc arbitration. with stricter rules of procedure. the ICA conducted an in-depth seminar on Alternate Dispute Redressal methods for the IT sector in India’s major cyber cities like Bangalore and Hyderabad for the purpose of creating an expert pool of arbitrators specialized in cyber laws. . the costlier will be the arbitration. marketing of products in violation of 27 Fast track arbitrations are best suited in those cases in which oral hearings and witnesses are necessary. D. IT projects tend to be complex and characterized by a network of responsibilities shared between parties that are dedicated to carry through a technology-related. Arbitration Practice by Industry Size There is no marked difference in the arbitration practice based upon the size of the industry. A large company is assumed to have better funds for incurring these expenses. The Arbitration and Conciliation (Amendment) Act. Section 13(4) expedites arbitral proceedings by providing that if a challenge to an arbitral proceeding is not successful. the parties are given complete autonomy in choosing the fastest possible method of appointing an arbitrator. Section 11(2) of the 1996 Act provides that the parties are free to agree on a procedure for appointing an arbitrator. More importantly. parties may request the arbitral tribunal to settle disputes within a fixed timeframe of three to six months or any other time agreed upon by the parties. 28 Section 11(6) of the Arbitration and Conciliation Act. The 1996 Act has built-in provisions for fast track arbitration. and constituting a valid arbitral tribunal. ‘Fast Track Arbitration’. and will also specify the procedures to be followed by such fast track arbitral tribunals. 2006. the Indian Council of Arbitration (ICA) has pioneered the concept of fast track arbitration in India.29 As a premier Indian organization for institutionalized arbitration. ICA’s Arbitration Quarterly. Section 23(3) of the 1996 Act enables parties to fix time limits for filing of claims. 1996. replies and counter claims. 28 a party does not have to approach a court for appointment of an arbitrator. 2003.1 at p 8 Indu Malhotra is an advocate of the Supreme Court of India.patent/trademark laws. Section 25 authorizes an arbitral tribunal to proceed ex parte in the event of default of a party. before commencement of the arbitration proceedings. under Section 11(6) of the 1996 Act. Thus. Section 29 even empowers the presiding arbitrator to decide questions of procedure. 29 Indu Malhotra. construction disputes in time-bound projects. if the agreement provides for a mechanism to deal with the failure of the other party to appoint the arbitrator. Section 24(1) also permits the parties to do away with the requirement of an oral hearing. . provides for appointment of an arbitrator by the parties in case of failure by the parties to appoint the arbitrators. so as to pronounce an award within six months. wherein filing of pleadings and evidence will be on fast track basis. vol. Section 13(1) confers the freedom on parties to choose the fastest way to challenge an arbitral award. if they so desire. ICA. Theoretically. the arbitral tribunal shall continue proceedings and pass an award. XLI/No. licensing contracts. Under the rules of the ICA. proposes to introduce a single-member fast track arbitral tribunal. and franchises where urgent decisions are required. the Act of 1899 and 1940. Arbitration started as a delegalization reform to resolve conflict with mutual love and trust. we had two enactments for Arbitration. I would promulgate a law making all commercial disputes compulsorily referable to arbitration. “ If I were appointed a dictator of this country. It is meant to be far superior to a black letter law. Even late Shri Nani Palkhiwala remarked succinctly. more so in business dealings. The criticism against the justice delivery system is continuous and we keep on hearing related phrases like ‘Back Breaking delay’. Hence the Arbitration and Conciliation Act. COMPETENCE AND JURISDICTION OF ARBITRAL TRIBUNALS Competence of Arbitral Tribunal to rule on its own jurisdiction In all walks of life. in the short span of my appointment and assassination.1996. The word ‘Arbitration’ appears to have originated from the word arbitrary. it is usual to come across disputes.V.After independence of India. . Arbitration system is a means to provide an easy and expedient mechanism for dispute resolution without the need of resorting to a long drawn litigation. it was observed that the Act of 1940 has outlived its utility and was not in line with economic reforms introduced in India. There are an estimated 30 million cases pending in various courts in the country. viz. 1996 came into force on 25-1. The Father of Nation Mahatma Gandhi was also a staunch believer of arbitral process for resolving the problems in our predominantly rural society at affordable costs via Panchayat Raj. and ‘ System on the verge of brink’. This is meant to be Justice without law. The parties involved in the disputes refer them to a peer who is supposed to be a person of nobility having capability to resolve the disputes.” With the long British Rule in India. Arbitration seeks to remove blockade caused by chocking legal pollution. ‘Elusive Justice’. In olden days informal system of Arbitration existed in the shape of Panchayats. AND WHEREAS the said Model Law and Rules make significant contribution to the establishment of a unified legal framework for the fair and efficient settlement of disputes arising in international commercial relations. however. with respect to the existence or validity of the arbitration agreement.’ This section 16 provides that: ‘(1) The arbitral tribunal may rule on its own jurisdiction. “Whereas the United Nations Commission on International Trade law has adopted the UNCITRAL Model Law on International Commercial Arbitration in 1985. and a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause. AND WHEREAS it is expedient to make law respecting arbitration and conciliation. and whereas the General Assembly of the United Nations has recommended that all countries give due consideration to the said Model Law. or participated in the appointment of. .In the PREAMBLE of the act. Section 16 is enacted which bears the title ‘Competence of Arbitral Tribunal to rule on its own Jurisdiction. including ruling on any objections.” Jurisdiction Of Arbitral Tribunals (Section 16) The Chapter IV of the Act is titled as ‘Jurisdiction of the Arbitral Tribunals’. AND WHEREAS the UNCITRAL has adopted the UNCITRAL Conciliation Rules in 1980. Under that chapter. and for that purpose an arbitration clause which forms part of a contract shall be treated as an agreement independent of the terms of the contract. it stated that. (2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence. taking into account the aforesaid Model Law and Rules. in view of the desirability of uniformity of the law of arbitral procedures and the specific needs of international commercial arbitration practice. an arbitrator. AND WHEREAS the General Assembly of the United Nations has recommended the use of the said Rules in cases where a dispute arises in the context of international commercial relations and the parties seek on amicable settlement of that dispute by recourse to conciliation. a party shall not be precluded from raising such a plea merely because that he has appointed. (6) A party aggrieved by such an arbitral award may make an application for setting aside such an arbitral award in accordance with section 34. Ordinarily the courts do not interpret an arbitration agreement by applying strict rules of construction. A procedure laid down in . in either of the cases referred to in sub-section (2) or subsection (3). it is necessary to apply a common sense approach and not be allowed to be thwarted by a narrow pedantic or too legalistic view. The language employed u/s 16 of the Act clearly shows that the said provision is only an enabling one conferring the requisite powers on the Arbitral Tribunal to decide whether there is any existence of clause in the arbitration agreement. In such cases. It is manifest and goes without saying that the arbitrator being a creature of the agreement.(3) A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings. mere attendance on earlier dates in the arbitral proceedings does not debar the party from raising objections only if statement of defence is yet not filed. must operate within the four corners of the said agreement and can not travel beyond the same. which can be objected to by the party.’ The Arbitral Tribunal is now empowered under the new Act to rule on its own jurisdiction. (4) The arbitral tribunal may. If the challenge succeeds. the same can be challenged u/s 34[2][a][v] of the Act. Arbitration clause contained in the agreement being an integral part of the same. In case of illegal contract. which are normally applied to a conveyance and other formal documents. However. the appeal lies u/s 37[2][a]. would automatically perish if that agreement itself were non-est. including ruling on any objections with respect to existence or validity of the Arbitration Agreements. which it is bound to decide. Arbitrability is certainly an issue. the arbitral tribunal is bound to decide. An admitted liability can be no ground for arbitration since it is devoid of dispute. When the question is raised about non-existence or invalidity of the arbitration agreement. admit a later plea if it considers the delay justified. The Chapter IV of the Act is titled as ‘Jurisdiction of the Arbitral Tribunals’.Before filing statement of defence. the Arbitral Tribunal is lacking the powers necessary to adjudicate upon this reference. where the arbitral tribunal takes a decision rejecting the plea. If the challenge is rejected. It is axiomatic that no ruling can be given only after hearing both the parties. The party can now contest that. Under that chapter. This power u/s 16 is unique in the Act. Now the Act itself provides that the arbitral tribunal can rule on its jurisdiction. (5) The arbitral tribunal shall decide on a plea referred to in sub-section (2) of sub-section (3) and. the parties by acquiescence cannot confer jurisdiction on court. Section 16 is enacted which bears the title ‘Competence of Arbitral Tribunal to rule on its own Jurisdiction. continue with the arbitral proceedings and make an arbitral award. a party can challenge jurisdiction of Arbitral Tribunal. the Arbitral Tribunal shall pass an order whenever. domain. Defaulting party should bear the hardship of his own default in lodging the time barred claims and ought not transmit the hardship to the other party after the impugned claim is allowed to be time barred. There must be a clear-cut case to prove that the reference is totally devoid of the jurisdiction. On the other hand. there ought to be merit in the contentions advanced by the party. if it comes to a conclusion that. This is sine qua non for giving the jurisdiction to the Arbitral Tribunal in the reference. 1996. The Arbitration and Conciliation Act. the plea u/s 16 shall be decided as it strikes at very authority. dominion and portal. possess and get seized of the jurisdiction when the claim has become time barred. confines. 1963 applies to the Arbitration and Conciliation Act. The contention goes to the very root of the jurisdiction of the Arbitral Tribunal. Delay defeats Justice and equity adds only promptitude and resultant consequences.Section 16 of the Arbitration and Conciliation Act. portal. The law does not help one who sleeps over his rights to the alleged claim. The Arbitral Tribunal must be persuaded to accede to the submissions and then only accordingly uphold the preliminary objection for interdiction at the very threshold. the averments of the party are not sufficient to clothe the Arbitral Tribunal with the jurisdiction necessary to initiate this reference. U/S 16(5) of the Act. The Arbitral Tribunal ought to be fortified by the arguments advanced and the plea raised by the party ought to be quite tenable and sustainable in the eyes of law. as all the parties to the reference are duly clothed with the inherent rights to object to the jurisdiction. 1996 cannot be bypassed. Thus when the alleged dispute is not Arbitrable and falls outside the purview of the Honourable Arbitral Tribunal because the claim travels beyond the time barred jurisdiction and no jurisdiction can be arrogated in such a case. boundaries. Consequently. The Limitation Act. Section 16 is undoubtedly an enabling Section. The concluding words alone cannot be blindly applied de hors the actual findings and directions contained in the judgments. Although the decision u/s 16 is not award. Apropos the ratio of judgments heavily relied upon by the party it should be noted that any judgments and orders of courts cannot be construed or interpreted like acts of parliament or as mathematical theorems. The party can advert the attention of the arbitrator to the foundation or substratum or bedrock or the jurisdictional facts necessary for conferring of or vesting in the jurisdiction to this Arbitral Tribunal by making an averment that a claim has to be within the framework of the Byelaws of the NSE. precincts. . it has no jurisdiction to deal with the matter in this reference. The Arbitral Tribunal cannot acquire. It is a well-settled proposition that a proceeding is a nullity when the authority conducting it has no power to have seizing over the reference. realm of the Arbitral Tribunal and its authority. a plea is raised u/s 16(2). 1996 mandates that prior to assumption of the jurisdiction. the Arbitral Tribunal ought to refuse to deal with the matter at all. Under the circumstances. when the Arbitral Tribunal suffers from inherent want of the jurisdiction because of Time barred claim. the jurisdiction is taken away. Be that as it may. Ltd vs. The order embodying the decision u/s 16(5) pursuant to the application u/s 16(2) is not an interim award. Kirit Mehta [2000 III AD 153 SC].w. Vs. Even the Honourable High Court having Judicature at Bombay had also an occasion to substantiate this ratio in a recent case wherein they refused to treat that as an Interim Award and hence not challengeable u/s 34 of the Act.R. the Arbitral tribunal cannot proceed with the merits without passing a speaking order u/s 16(5) r. . which is binding on all the authorities functioning there under. it was held that the whole award was vitiated because it could not be said that the question of Arbitrability was considered as implication. As was held in the case of Uttam Singh v/s Hindustan Steel [AIR 206 MP 1982].it is always a good practice to record reasoning u/s 31[3] so that the same can form part of final award and shall enable all parties to convince the court to translate the logic behind the same when put to challenge u/s 34.” Thus. Wellington Associates vs. State of Rajasthan [44 SCL 67 (Del)] it was held that. Ltd. N. the Arbitral clause has to be considered as an independent agreement and will not suffer the consequences of being void. “Section 16 confers power upon arbitrator to rule on its own jurisdiction including any objection with respect to existence or valid ity of Arbitration Agreement.s. it would be wrong to assume that this power given to arbitrator precludes the Chief Justice or his designate to decide a question as to the existence of arbitration clause u/s 11.C. “Even if agency agreement [containing Arbitration clause] is terminated.Choksey 4 CLA-BL SUPP-SNR-7 BOM]. Hence it will be open to the Arbitral Tribunal to decide the issue of voidness of the contract while considering the dispute under the arbitral clause. In the case of Perfect Equipment Pvt. 16(2) of the Act. but he gave a composite award consisting of a lump sum. “ Where the Arbitrator was required to decide in the first place with reasons the question of Arbitrability. respondent is entitled to refer dispute to Arbitration u/s 16(1)(a)” and after agreeing to appointment of an Arbitrator. However.” Even though the contract may be void. the importance of preliminary issue was clearly upheld by the Apex Court also in the case of T.” In the case of D-Ionic India Pvt. This view is held in the case of Southern Gas Ltd v/s Visveswariya Iron & Steel Ltd [9 SCC 555] by the Apex Court of India. the petitioner cannot complain that respondent should have first right to resolve dispute amicably. [G. In the case of Premier Fabricators v/s Heavy Engineering Corp. [4 SCC 319]. the Supreme Court held that. Didwania vs. Prestige Enterprises [44 SCL 74 (MUM)] it was held that. A. Electricity v/s Bridge Tunnel Constructions [4 SCC 121]. When a party raises a preliminary issue to be decided in priority. and the arbitrator rejects it. U/s 16[4]. the arbitral tribunal has discretion to exercise power conferred due to word ‘May’ therein. ‘A decision on a question whether proceedings before arbitrators should be stayed or not cannot be subject matter of a final arbitral award.” Normally the power of granting specific performance is discretionary and the discretion has been conferred by Specific Relief Act only on civil courts. However. hence mandatory. Under the enabling section 16[1]. U/s 16[2]. Synthetics [1999(3) MLJ 216] it was held that a party can always raise the challenge to existence or validity of the Arbitration Agreement u/s 16[5] at any stage and the arbitrator is bound to decide the same. vs. It would be simply a decision u/s 16. [41SCL 259] the Bombay High Court held that. In the case of Pharmaceutical Products of India Ltd. his decision is not appealable. . Vs Meena Khetan [2 ARB LR 695 SC]. Olympus Superstructures Pvt. The effect of conjoint reading of various sections like 16. It is still within its competence to decide its validity. the party cannot raise it later u/s 34. the objection as to jurisdiction is to be raised not later than the submission of the statement of defence but u/s 16[3]. It is not an interim award. Ltd. Brawn Lab Ltd. Decision of the arbitrator that the contract was null and void or termination of main contract by performance or otherwise. Transport vs. The decision of the Arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the Arbitration clause. 34 etc. section 16[5] uses word ‘shall’. the aggrieved party is already given the right to challenge the award u/s 34. In the case of S. Olympus Superstructures pvt. Vs Tata Finance Ltd. is that if no plea is raised u/s 16. Vs. U/s 16[6].” In the case of East Coast Boat Builders [AIR 1999 DEL 44] it was held that. Fitty Int’ [l GmBH (2000) 2 Arb LR 64 DEL]. ‘Where the jurisdiction of an arbitrator is challenged. will not render the arbitration clause invalid. Thus even if the contract is non-est. GCM. Ltd. not even an interim award. objection as to scope of authority is to be raised as soon as a matter alleged to be beyond the scope of its authority is raised. Merely because the sections of the Specific Relief confer discretion on courts to grant specific performance of a contract does not mean that parties cannot agree that the discretion will be exercised by arbitral tribunal of their choice. An Arbitration clause is severable from and independent of other terms of contract.N. the Arbitral Tribunal is authorised to admit the plea even later if it considers that the delay was justified.But this is a grey area where later proceedings u/s 34 is barred or not is subject to interpretations. Meena Khetan [2 ARB LR 695 SC]. the arbitration clause is not rendered invalid. ❊ Section 16 conspicuously avoids adverbial clause ‘unless otherwise agreed’ so that the parties cannot modify the power. admit a later plea if it considers the delay justified. Competence of arbitral tribunal to rule on its jurisdiction (1) The arbitral tribunal may rule on its own jurisdiction. where the arbitral tribunal takes a decision rejecting the plea. (2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defense. (4) The arbitral tribunal may. hence they could not be referred to arbitration because this power rests with the Arbitrator himself. (6) A party aggrieved by such an arbitral award may make an application for setting aside such an arbitral award in accordance with section 34. . When an application is made u/s 11[6] for an appointment of an arbitrator. [Sharma & Sons vs. in either of the cases referred to in sub-section (2) or sub-section (3). continue with the arbitral proceedings and make an arbitral award. an arbitrator. The Supreme Court observed that section 16[5] does not violate the basic structure of the Constitution as the order thereunder is certainly subject to any judicial scrutiny even if after award is passed as per the time and manner laid down by the Act passed by the Parliament. and for that purpose. E-inC. a party shall not be precluded from raising such a plea merely because that he has appointed. Competence-Competence Principle: Analysing certain Sec. Union of India [2 SCC 178] Thus the power of the Arbitral Tribunal to rule on its jurisdiction is unique. (3) A plea that the arbitral tribunal is exceeding the scope of its authority shall he raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings. (5) The arbitral tribunal shall decide on a plea referred to in sub-section (2) or sub-section (3) and. 11 and Sec. 45 decisions. no objection can be raised that the claim fell outside the purview of arbitration. including ruling on any objections with respect to the existence or validity of the arbitration agreement.- An arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract. or participated in the appointment of. and A decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause. however.Army [2 ARB LR 31 AP]. Babar Ali vs. 31 However. Thus. 2013). L. has limited this inherent power of the arbitral tribunal. in cases of reluctance of a party to appoint its arbitrator nominee or to sort out differences of opinion between the parties or their arbitrators.34 Further.C. 162 (SC) (India) [hereinafter Konkan I]. precluding delegation to the district judge. OF ARB. 32 SBP & Co.. is to appoint the members of the tribunal or presiding arbitrator respectively is Section 11. 11 is the 7-judge bench decision in SBP & Co. at 347 (describing the shorthand term competence/competence as 'the power of an arbitral tribunal to decide upon its jurisdiction' or 'its competence to decide upon its own competence'). 31 Article 6(3) of the Arbitration and ADR Rules. Patel Engineering Ltd. Patel Engineering Ltd. Ltd. by overruling the Konkan Railway cases. Article 21(1) of the UNCITRAL Rules clearly provides for the power with the arbitral tribunal to rule on such objections which allege that it has no jurisdiction.R. The paternalistic view of the Supreme Court precluding the 30 See id.. reopening these issues after being constituted by the CJI or his designate settling these jurisdictional issues. v. the threshold review by the courts. l. Konkan Railway Corpn.30 Section 16 of the 1996 Act statutorily recognises this principle. Assimilating the Negative Effect of Kompetenz-Kompetenz in India: Need to Revisit the Question of Judicial Intervention?. One such key provision considered as a last resort measure. 2000 (3) Arb. at least for now.in/sites/default/files/Harshad.C. Ltd.iccwbo. click: 'Rules'. Section 11 gives considerable power to the Chief Justice of India (CJI) to make such appointments in such a limbo in cases of 'international commercial arbitration'. One of the leading pronouncements of the Indian Supreme Court on Sec. For a detailed critique of this judgment see Pratyush Panjwani & Harshad Pathak. Mehul Construction Co.. . 2012 (ICC). (2002) 2 S.C.33 It concluded that nature of function performed by the Chief Justice or his nominee (designate) under Section 11(6) was a judicial function and not an administrative one. http://ijal. whose intervention is sought under various provisions of the 1996 Act to enforce the arbitration agreements.2 INDIAN J. 618 (India). 35 The Supreme Court restricted the power of the arbitral tribunal under Section 16. v. Similar power is conferred under the International Chamber of Commerce (ICC) Rules. v. Rani Construction Pvt. and Chief Justice of a High Court to another judge of the High Court. 33 Konkan Railway Corporation Ltd. the SBP Court restricted the scope of the power of delegation. 388 (India) [hereinafter Konkan III]. (Nov. ruling out the possibility for the arbitral tribunal to decide on its own jurisdiction.C. 2.org/products-and-services/arbitration-and-adr/. the CJI could only designate his responsibility to a Supreme Court Judge.pdf. (2005) 8 S. available at: http://www. v.32 This judgment settled the interpretation of Section 11. as held by the Konkan Railway cases.The competence-competence principle in arbitration is an inherent power of the arbitral tribunal.. in accordance with the normal rules of designation of judicial work in the courts. Boghara Polyfab Pvt. 11 judgments of the Indian Supreme Court. 4. (b) whether the arbitration agreement is valid. v. Ltd. 37 Antrix Corporation v." One of the recent Sec. 2013 (2) Arb. § 11(6) reads thus: " Where.creature from questioning the creator apparently curtails the legislative purpose behind Section 16. 170.) (2006) (pointing out how the benefits of arbitration over litigation may be offset when a person residing in a remote taluka will have to come to file his Section 11 application)." 35 See also Justice S. REP. Devas Multimedia. Further. where the court showed proenforcement bias. in light of SBP decision as follows:36 "It is thus clear that when a contract contains an arbitration clause and any dispute in respect of the said contract is referred to arbitration without the intervention of the court.C. A.R. (SUPP. Ltd. is the judgment of Antrix Corporation v. the Arbitral Tribunal can decide the following questions affecting its jurisdiction: (a) whether there is an arbitration agreement. in case of determination of 'preliminary facts'.R. Furthermore. fails to perform any function entrusted him or it under that procedure.. fail to reach an agreement expected of them under that procedure. Settled Law Unsettled. Ltd.M. Boghara Polyfab Pvt. under an appointment procedure agreed upon by the parties. L.37 Showing a pragmatic approach. delineated the scope of Section 16 power. a party may request the Chief Justice or any person or institution designated by him take the necessary measure. A division bench of the Supreme Court in National Insurance Co.I.. In case of ICA the costs will be further enhanced. which appears to be a somewhat mandatory exercise to be undertaken under Section 11. 2009 S. or (c) a person. unless the agreement on the appointment procedure provides other means for securing the appointment. this may lead to a mini-trial before the commencement of arbitration with large litigation expenses and other attendant costs. L. "expediting the arbitration process with minimum judicial intervention" should guide the Chief Justice or his designate when he chooses to either decide these jurisdictional issues or leaves them to the Arbitral Tribunal. Ltd. the court in ¶ 17 has emphasised that the object of the 1996 Act is. supra note 13. or (b) the parties. the court held that the arbitration agreement (or clause) can be invoked only 34 The Arbitration and Conciliation Act. Devas Multimedia. (c) whether the contract in which the arbitration clause is found is null and void and if so whether the invalidity extends to the Arbitration clause also. Jhunjhunwala.1 ARB. ¶ 16 (India).. or the two appointed arbitrators. 226 (SC) (India). as the application will be filed in the Supreme Court at New Delhi. 36 National Insurance Co. .(a) a party fails to act as required under that procedure. v. including an institution. as its arbitrator nominee in accordance with the UNCITRAL Rules. were to be conducted in accordance with the rules and procedure of the ICC or UNCITRAL. without exhausting the mediation option. The petitioner repeatedly insisted on mediation. in accordance with these rules. the petitioner served notice to the respondent to appoint its arbitrator within thirty days to join the arbitration proceeding commenced by the petitioner. Saving face or upholding ‘Rule of Law’: Reflections on Antrix v. At this stage.in/sites/default/files/Nidhi%20Gupta. 2013). as its nominee arbitrator. “in case the other party is dissatisfied or aggrieved by the appointment of an Arbitrator in terms of the Agreement.2 INDIAN J. to assuage the petitioner's grievance. as was done by the respondent Devas in this case. The strategy of the petitioner was to use the Indian Supreme Court to nullify the respondent's first mover advantage by obtaining sanction for its version of arbitration proceedings. his/its remedy would be by way of a petition Under Section 13. and seeking its judicial enforcement. as the respondent did not join the petitioner's arbitration.once. consequentially prevailing over the respondent's proceedings. by a three member arbitral tribunal having New Delhi as the seat of arbitration. the agreement between the parties had an arbitration clause providing for arbitration as a dispute resolution mechanism. Understandably.. leading to an anomalous situation.pdf. and called upon the petitioner to join the arbitration. . where it is said that. The basic question was. 38 Thus. the petitioner without joining in the arbitration proceedings commenced by the respondent initiated its own arbitration proceedings by appointing Ms Sujata Manohar. In Antrix-Devas. the Supreme Court disappointed the petitioner by showing a pro-arbitration approach thereby preventing the abuse of Section 11 jurisdiction. though being aware of initiation of arbitration proceedings by the respondents. after failure of mediation to resolve their disputes within three weeks. Pursuant to the dispute having arisen. in ¶ 32 of the judgment. 2. whereas the respondent was adamant on proceeding with the arbitration which it had commenced. Ct. Furthermore. OF ARB. and not a second time. as the Chief Justice’s nominee would have replaced the arbitrator already appointed under the ICC Rules. L. and. Instead. available at http://ijal. (critiquing the suggestion of the Sup. the petitioner took to litigation under Section 11(6) approaching the Supreme Court to appoint an arbitrator for Devas in accordance with the UNCITRAL Rules. This disjunctive choice created a conflicting scenario between the parties. as one of them had to trump over the other. Thus.. 34 as the appropriate provisions of the 1996 Act which could be invoked by it in case of dissatisfaction with the arbitrator's selection by the respondent. an anomaly would have resulted. the Supreme Court suggested Section 13 and subsequently Sec. Subsequently. a former judge of the Supreme Court of India. the arbitration 38 27 See Nidhi Gupta. the arbitration proceedings. Devas Multimedia P. which of the two proceedings should be allowed to continued. as per this clause.. as the petitioner Antrix tried to do. Appreciably. (Nov. Ltd. If the Court had not taken this view. QC. and nominated Mr Veedar. two parallel arbitration proceedings had been initiated by independent invocation of the arbitration clause by both the parties. the respondent unilaterally requested for arbitration under the ICC Rules. Petitioner had its project office at Mumbai (India). 39 was delivered in the year 2013 by the Indian Supreme Court. 562 (India).C. exercising Section 11(6) powers. in fact. incorporated and registered under the law of Hong Kong. the author comments on limited application of Section 34. 11 by the petitioner in this judgment. in case it needs to be appointed. clearly provided for the 3-member arbitral tribunal. thereafter. 11 proceedings can be initiated. though there was no such express direction by the Court. under Section 34 of the 1996 Act. 18 | Page 39Schlumberger Asia Services Ltd. Does invoking the arbitration clause by either party preclude exercise of Sec. are suggested by the author as the proper alternatives to Section 34). if the parties or their nominee arbitrators disagree on the choice of the third arbitrator. v. a well-known Indian Pubic Sector Enterprise. as required according to the arbitration clause..” The author opines that. as submitted. the respondent was not resisting the same. . One more Section 11 judgment can be discussed with benefit. though not answered in the judgment. This judgment in Schlumberger Asia Services Ltd. Sec. even post appointment of the arbitrator nominees by the parties. Some questions. v. is registered under the Indian Companies Act. being the Chief Justice's nominee. Furthermore. 11 is meant to provide for judicial interference in case a party is resisting enforcement of a valid arbitration clause. disregarding the already appointed petitioner's nominee arbitrator and petitioner's prayer to appoint the respondent's nominee arbitrator and (curiously) the third presiding arbitrator. In that event Antrix-Devas judgment should not preclude invoking Section 11 jurisdiction once again. only in a case where the seat of arbitration in this arbitration is India. it had invoked the same. with each party appointing one arbitrator each and the third arbitrator appointed by these two arbitrators. suggestion to Antrix to invoke Section 13 is inappropriate. as the cause of action will be different then. Oil and Natural Gas Corporation Ltd. and as a necessary implication of the Court’s judgment. 1956.proceedings commenced by the petitioner got vitiated. such a disagreement may arise in appointing the third arbitrator to constitute the three member arbitral tribunal. because Antrix has challenged ‘the constitution of the arbitral tribunal itself and the validity of the tribunal constituted by the ICC’ and that the ICC Rules would govern ICC Arbitration. The Judge. as the case may be.C. to which it had initially agreed. Otherwise. (2013) 7 S. need to be analysed here in light of this judgment. the petitioner would be required to join the ICC Arbitration commenced by the respondent. even in this case if the parties do not sort out their acrimony while proceeding with the ICC Arbitration. Thus. as per the clear language of the enactment. Sec. The petitioner is a foreign company. In this case. Oil and Natural Gas Corporation Ltd. and the respondent. The Supreme Court prevented the misuse of Sec. The arbitration clause. delivered an interesting order constituted according to the arbitration clause. 11 jurisdiction by the Court? The answer to this is clearly in the negative. Section 48 or 57. This clearly has adverse implications for the petitioner also. the respondent plainly denied any liability towards the petitioner. and another one in 2010. It apparently exceeded its jurisdiction by constituting the entire arbitral tribunal by designating two retired judges of the Indian Supreme Court as the arbitrators and a former Chief Justice of India as the presiding arbitrator/chairman. should have also directed that the two arbitrators should appoint a presiding arbitrator. much good was undone when it decided to appoint all the three members of the arbitral tribunal as discussed previously. Thus. and the petitioner's plea. that the Chief Justice or his nominee 'can decide the question whether the claim was a dead one. the judge chose not to decide the respondent's above objections leaving it to the arbitral tribunal to decide them. Subsequent to this. the petitioner first sent a reminder in the year 2009. showing considerable respect for the competence-competence principle (though not expressly mentioning or discussing it). Since. failing which it clearly designated the Chief Justice of India. the arbitration clause itself provided for a post request period of thirty days to be provided to the other party to appoint its nominee. in substance. This approach of the Court is laudable. In reply to the notice sent in the year 2012. Thus.After the dispute had arisen the petitioner issued a legal notice in the year 2008. Thus. but also the arbitration clause to the extent it provided for the manner of appointment of the third arbitrator. there was no question concerning appointment of the third arbitrator. While exercising the powers under Sec. However. The judge. 11 the judge erroneously disregarded not only the petitioner's nominee. and yet another one in the year 2012. it would have been more equitable for the Judge to only appoint an arbitrator on behalf of the respondent. These constant reminders were disregarded by the respondent. giving thirty days period. detailing the dispute. the judge imposed his will on both the parties by appointing three retired justices of his court as members of the arbitral tribunal. failing which the petitioner was to take legal steps for appointing respondent's arbitrator instead. despite the observations of seven judge bench of the same court in SBP & Co. and now it called upon the respondent to appoint its nominee arbitrator. in case of international commercial arbitration.11 under the said circumstances. this decision compromised on party autonomy and . the parties in essence had contractually agreed to the invocation of Sec. invoking the arbitration clause. the Court erred in prematurely appointing the presiding arbitrator on its own. or a long barred claim that was sought to be resurrected'. In the same notice it was importantly also mentioned that the petitioner had appointed its nominee arbitrator. as clear from the arbitration clause. before the Court. as the authority who 'shall appoint arbitrators/presiding arbitrator'. which could have only arisen when the two arbitrators failed to reach a mutual agreement with respect to the choice of the third arbitrator. as per the arbitration clause. the petitioner filed a Sec. Notably. After the respondent failed to appoint its nominee arbitrator. as prescribed in the arbitration clause. in each of these reminders. 11(6) petition whose disposal culminated in the judgment which is being discussed. Perhaps. As a whole. The respondent resisted this petition on the ground that it was barred by limitation and that it raised dead claims. when seized of an action in a matter in respect of which the parties have made an agreement referred to in section 44. importing. at the request of one of the parties or any person claiming through or under him.45. for inter alia. A three-judge bench decision of the Indian Supreme Court in the Chloro Controls..” This non-obstante clause in Section 45 is important. 1908 (5 of 1908).on the autonomy of the arbitrators to choose the third arbitrator.e. 41 See P. 641 (India) [hereinafter Chloro Controls]. 45 independent of the Part I provisions in the 1996 Act. LAW RELATING TO ARBITRATION AND CONCILIATION 923 (7th ed. a judicial authority. Ltd. Severn Trent Water Purification Inc. Towards achieving these objectives several 40 The Arbitration and Conciliation Act. (2013) 1 S. 40 An academic commentator opines. refer the parties to arbitration. A United States Corporation (the foreign JV Partner) and an Indian Company (Indian JV Partner) formed a 50:50 Indian JV Company registered under the Indian Companies Act. 2009) [hereinafter P. C MARKANDA]. 45.. to direct even associated non-parties to arbitration.42 thus marks an important contribution to Section 45 jurisprudence. to which the New York Convention Applies. contained in Chapter I of Part II of the 1996 Act dealing with the “power of the judicial authority to refer parties to arbitration” when it is seized of a matter in respect of which the parties have made an (arbitration) agreement referred to in the Section 44 i. v. this provision has no application there is a plurality of agreements which converge on disputes arising 'out of a single transaction or a series of transactions which are inextricably linked with each other. the Supreme Court of India has. making the arbitration clause a casualty in the end. supra note 13. See also supra note 6 for the text of Section 44. overriding the dispute resolution clauses in the other ancillary agreements. in a recent decision. The principal purposes of this JV were designing. 1956. manufacturing.' 41 However. The following are the facts shorn of details of the complex corporate structure of the entities involved. 42 Chloro Controls (I) Pvt. concluded otherwise albeit not without difficulties. unless it finds that the said agreement is null and void. let us converge on Section 45. C. Power Of The Judicial Authority To Refer Parties To Arbitration(Section 45) Next. exporting and marketing of gas and electro-chlorination equipment.C. shall. § 45 reads: “ Notwithstanding anything contained in Part I or in the Code of Civil Procedure. The court applied the 'Group of Companies Doctrine' to make a reference to arbitration under Sec. that due to the expression "an agreement" in Sec. it makes the exercise of judicial power under Sec. .C. inoperative or incapable of being performed. MARKANDA. in accordance with the arbitration clause of the principal joint venture (JV) agreement. but instead had a jurisdiction clause. the same parties executed the Financial and Technical knowhow Agreement. This order was impugned inter alia before the Supreme Court. The arbitration clause in the principal agreement. Place of arbitration was London and arbitration proceedings were 'to be governed by and subject to English laws'. Meanwhile. this arbitration clause was different from the one in the principal agreement. The former contained an arbitration clause similar to the principal agreement providing for arbitration. the single judge of the High Court disallowed the plea of the foreign JV partner. 43 The other agreements were anticipated in the principal agreement itself and on execution were appended to the shareholder agreement. and out of these agreements three of these agreements contained a distinct arbitration clause each. which was the shareholders agreement. the foreign JV partner served a notice to the Indian parties to terminate JV agreements and sought from the High Court the reference of the matter to arbitration instead. noticeably. between the JV Co. The Exports Sales Agreement. ¶ 21. There were in all six such ancillary agreements which were executed. for the parties to litigate. subject to the English Law. 45 was resisted primarily on the ground that the three of the major agreements (referred to previously as the ancillary agreements) did not have an arbitration clause. The reference under Sec. It was 43 See id. and the foreign JV partner. ¶ 26. including a supplementary collaboration agreement whose sole purpose was to fulfil the conditions to obtain governmental approvals. on intra court appeal. On the other hand. United States. and the Trademark Registered User Agreement also. . Thus. during the suit's pendency. The 'international distributor agreement' (an appended agreement) did not contain an arbitration clause. Though. however had a specific arbitration clause. provided for dispute resolution by arbitration according to the ICC Rules by three arbitrators designated in accordance with these rules. The latter agreement did not contain an arbitration clause. Managing Directors Agreement neither contained an arbitration clause nor a jurisdiction clause.ancillary agreements were executed post the principal or the 'mother agreement' (as the Court called it). Similarly. to be invoked in case of failure of negotiations to settle their dispute. 44 See id. Place of arbitration was fixed as Pennsylvania and it talked about judgment upon award to be entered by a competent court. 44 conferring jurisdiction to federal courts and state courts in the Eastern District of Commonwealth of Pennsylvania. Some of these agreements had variations in the parties. the division bench made the reference to arbitration under Section 45 of the 1996 Act. in London. according to the ICC Rules. and one had a jurisdiction clause. A suit was commenced by the Indian collaborators seeking the Mumbai High Court's declaration to validate the JV agreements and delineate their scope. This clause provided for settlement of any dispute arising out of or connected with the agreement by arbitration in accordance with the Rules of American Arbitration Association. the right of a party under Sec. The Court accorded priority to the Chapter I of Part II stating that it was unaffected by Part I of Act. 49 See id. 45.48 exists for post-award challenges during the enforcement of a “foreign award”. but.45 As this matter concerns Chapter I of Part II of the 1996 Act. Plea against bifurcation of causes of action was also made on basis of a previous Indian Supreme Court pronouncement in Sukanya Holdings. ¶ 127-28. (2003) 5 S. subject to satisfaction of certain statutory preconditions contained in Sections 44 and 45. ¶ 78.45 to obtain a judicial order of reference to arbitration was interpreted as a conditional one.thus contended.45 was interpreted to impose a mandatory duty on the Court to make a reference upon fulfilment of the statutory conditions. ¶ 64. Jayesh H. the arbitration clause in the principal agreement (i. it also provided for a threshold review by the courts. it had some discursive aspects which could have been eliminated or reduced in the judgment.49 This imposition of a mandatory duty upon a Sec. as reflected in Sec. Despite the appreciable problem solving approach highlighted in the above judgment. before referring dispute to arbitration. the Court concluded that the above interpretation of Sec. rather than a mandatory duty. shareholder agreement) was unenforceable. 47 This is in accordance with the literal meaning of the enactment. Furthermore. Pandya. v.. under Sec. 46 While interpreting the phrase 'at the request of one of the parties or any person claiming through or under him' in Sec. 47 See id 48 See id.48 Thus. operative and capable of being performed’..e. the Court rightly extended the scope of the expression 'any person' beyond 'the parties' who are signatories to the arbitration agreement. that due to indefiniteness and uncertainty. the expression 'shall' in Sec. The Court further noticed that an 45 Sukanya Holdings Pvt. Even Sec. where the court has an opportunity for reviewing inter alia validity of the arbitration agreement after the arbitral tribunal has completed its task. dealing with the arbitration under the New York Convention. 46 See id.45.45 court clearly does not augur well for ‘competence-competence’ principle. 45 to achieve the legislative intent favouring arbitration. which was discussed in the preceding paragraph of the judgment. 45. It may be argued here that it should be read as a discretionary power of the court.45 to do a threshold review on a challenge to the validity of the arbitration agreement. While interpreting Sec. by giving a clear finding that arbitration agreement was ‘valid.C. the Indian Apex Court went on to liberally construe Sec. 531 (India).C.45 does not permit any ambiguity and is according to the legislative mandate. and not an absolute right. Ltd. . 54 It also justified this rendering of finality on the basis of furthering cause of justice and it being in interest of parties.45 jurisdiction. It appears that the Court confused itself between the scope of Sec. 41 Chloro Controls. FOUCHARD GAILLARD GOLDMAN ON INTERNATIONAL COMMERCIAL ARBITRATION 2 (Emmanuel Gaillard & John Savage eds. ¶ 131 . does not do any favour to the parties and the tribunal by taking upon itself to decide ‘objections going to the 50 See. in 14 50 YEARS OF THE NEW YORK CONVENTION: ICCA INTERNATIONAL ARBITRATION CONFERENCE 693 (Albert Jon Van Den Berg ed.11. 54 Id. supra note 31. it strangely sought justification from Sec. noted absence of a provision like Sec.45. prima facie means prima facie.41 The basic question is whether this should be viewed as a merit of the kompetenz-kompetenz rule or its demerit. It can determine if the agreement exists as between the parties and has been entered into in circumstances which are not manifestly aberrational.45.application for appointment of arbitral tribunal under Section 45 would also be governed by Section 11(6). judgement. 1999). 52 See id 53 Chloro Controls. The court seized of the matter can assess the arbitration agreement on its face. 51 Emmanuel Gaillard. To interpret the scope of Sec.11 was not in issue it was discussed along-with the SBP& Co. and so mixed up the two provisions. to justify threshold judicial review requirement under Sec.50 Referring to Fouchard Gaillard Goldman on International Commercial Arbitration. The Urgency of not Revising the New York Convention. when the courts adopt ‘pro-arbitration bias’ it is indeed proper not to curtail the arbitral tribunal's autonomy. that the level of threshold review by the courts should be restricted to what he calls the ‘prima facie test’.52 The prima facie test is explained in the following words:53 “In reality.” Though the Court. ¶130. through its threshold review.45 and Sec. ¶ 129. We must note that one of the editors of the authority relied on by the Court also advocates. the Court adopted the Sec. judgment. After all. Though Sec.11(7) of the same Act to lend finality to judicial determination under Sec. supra note 31..11(6) standard by relying on the SBP & Co. Nothing further is required and any argument going beyond such a simple assessment on the basis of generally accepted practices should be left to the arbitrators to decide in the first instance.55 A counterview can be that the court..51 which was that it deprived courts of their jurisdiction. 2009).16 in Chapter I of Part II of the 1996 Act. the Court cited the so-called negative effect of ‘KompetenzKompetenz’ rule. Supreme Court of India (Unreported) (India). rather than indulging to adjudicate the ‘complex issues’ involved. operative and capable of being performed’.. The dispute concerned the part 55Id. v. A commentator points out to some of the problems which may be encountered by the trial court seeking to give a final finding on these issues pertaining to the validity of the arbitration agreement at the Sec. Thus. enormous expenditure of time and money. Despite these observations in the dicta. available at http://judis..45 standard to check whether 'agreement is null and void. 895/2014.45 stage like: difficulties. MSM Satellite (Singapore) Pte Ltd. Ltd. 59 This is an important takeaway lesson for the foreign investors contemplating a similar scenario in an investment deal.aspx?filename=41175 [Hereinafter “World Sport Group case”].'). the scope of the same should be kept to minimum possible. C. ¶ 162. it can be said that the Court held that the disputes arising from and referring to multiparty agreements are capable of being referred to arbitration. it should focus on reducing delays and expeditiously refer the matter to arbitration. 57 Chloro Controls.56 Rather.in/supremecourt/imgs1. inoperative and incapable of being performed. supra note 30. ¶ 131 (the court laid Sec. unfeasible scenario of proving foreign law through affidavits. MSM Satellite (Singapore) Pte. Civil Appeal No. 58 See id.nic..60 the Court had an opportunity to examine correctness of an order of a division bench of the Bombay High Court issuing an injunction restraining the arbitration by ICC at Singapore. as delineated by the Supreme Court. 56 See P. . supra note 31. In a recent 2014 decision rendered by the Indian Supreme Court in World Sport Group (Mauritius) Ltd. MARKANDA. in accordance with the agreement between the parties as per their intention.57 An interventionist court can defeat the usual benefits of the arbitration process under the guise of doing a threshold review leading to the opposite results than intended. under Sec. 59 World Sport Group (Mauritius) Ltd v. and the phrase ‘valid.root of the matter’. at 925. When parties have chosen arbitration as their preferred mode of dispute resolution party autonomy needs to be respected and given full play. as termed by itself.58 should be read as analogous terms extending to only the prima facie review to be done in the manner and to the extent described above. except in the rarest cases which stand patently and clearly disqualified.45. 60 1 crore = 10 million. . ¶ 9.. that it has denied these allegations of respondents before the Bombay High Court in its affidavit-in-reply and gave gist of its defence taken before the High Court). was that unless the arbitration clause itself. and also simultaneously conveyed in the same clause its decision to rescind the ‘facilitation deed’ with immediate effect. The single judge dismissed this application of MSM. 62 Id. here the ‘facilitation deed’ was assailed as vitiated by fraud or misrepresentation. MSM filed its first suit in the Bombay High Court for recovering the said sum of money paid to WSGM and sought a declaration from the court that the ‘facilitation deed’ was void. 62 On the same day. on June 28. will have the jurisdiction to decide all issues including the validity and scope of the arbitration agreement.61 made by the respondent (MSM) to the appellant (WSGM) during 2009 under a ‘facilitation deed’ between these parties. supra note 50. 2010. was assailed as vitiated by fraud or misrepresentation. MSM resisted this move of WSGM and in response filed a second suit in the Bombay High Court on June 30. ¶ 5. 64 See id. apart from the underlying contract. which gave a notice to the respondent.payment totalling the amount of 125 crores. the Arbitral Tribunal. 2010. Against this decision of the division bench WSGM preferred an appeal before the Supreme Court which culminates in the judgment under discussion. ¶ 25. MSM. as sought by MSM. based on the judicial authorities cited by it endorsing Kompetenz-Kompetenz principle enshrined in Sec. WSGM responded by invoking the arbitration clause (numbered 9 and titled ‘governing law’) in the ‘facilitation deed’ sending a request for arbitration to ICC Singapore. to tender its reply to WSGM’s arbitration request. an application seeking temporary injunction against the WSGM for continuing with the arbitration proceedings initiated by them was also filed by MSM. claiming inter alia a declaration that since the said ‘facilitation deed’ was rescinded the appellant WSGM ‘was not entitled to invoke the arbitration clause in the facilitation deed’. to use Sec. 16. The basic contention of the appellant WSGM.. 45 terminology) contained in it was not made out to be ‘null and void’ on basis of the factual allegations of fraud or misrepresentation alleged by the 61 World Sport Group.63 In this second suit. granting temporary injunction. claiming the said ‘facilitation deed’ to be voidable at option of MSM in ‘view of the false representations and fraud played by WSGM’. 2010. Three days later. This order was challenged in appeal by MSM before a division bench of the Bombay High Court which allowed the appeal. and thus sent a legal notice to the appellant through its lawyers on June 25. The respondent now sought to recover this amount. and not the court. but the arbitration clause (or agreement. ¶ 12 (the appellant further contended. 64 According to the appellant. 63 Id. ¶ 26. 65 Id. the court rightly concluded that: “the arbitration agreement does not become “inoperative or incapable of being performed” where allegations of fraud have to be inquired into and the court cannot refuse to refer the parties to arbitration as provided in Section 45 of the Act on the ground that allegations of fraud have been made by the party which can only be inquired into by the court and not by the arbitrator.com/blog/2014/01/24/proceduralissues-resulting-froma-fraud-claim-in-international-commercial-arbitration-anenglish-law-perspective (discussing. See also id. v.. it held that the dispute should be decided by the arbitrator in accordance with the arbitration agreement viz. and (erroneously) citing Fiona Trust v.” The Apex Court further correctly observed. .) in which the application of the doctrine of separability was explained and affirmed by the House of Lords). in subscribing to a literal interpretation of the arbitration agreement by looking at its scope). The respondent. Procedural Issues Resulting from a Fraud Claim in International Commercial Arbitration: An English Law Perspective. http://kluwerarbitrationblog.65 and it stood independent of and separate from the ‘facilitation deed’. 45 ‘did not empower a court to decline reference to arbitration on the ground that another suit on the same issue is pending in the Indian court’. Fili Shipping Company Ltd. and criticising the approach of the Sup. ¶ 29. 2014). ‘the arbitration agreement was inoperative or incapable of being performed as allegations of fraud could be enquired into by the court and not by the arbitrator. where the Sup. and inoperative or incapable of being performed. KLUWER ARB.. 66 Id. Ct. See also Elaine Wong. 45.. The Back and Forth of the Arbitrability of Fraud in India. Privalov against [2007] UKHL 40 (instead of the correct name Premium Nafta Products Ltd. See also Abhinav Bhushan & Niyati Gandhi. ¶ 24.. inter alia how in England due to absence of public policy that accusations of fraud are decided by courts these issues can fall within the scope of arbitration agreement subject to its wordings. clause 9 between the parties. Fili Shipping Company Ltd. BLOG (Jan. v. Ct. http://kluwerarbitrationblog.respondent. 13. [2007] UKHL 40 and excerpts from the same to explain the principle of separability.67 So. on the other hand. contended that. 2014). allowing the appeal and restoring the single judge’s decision. cites correctly the House of Lords decision as Premium Nafta Products Ltd. Thus. 24. in essence.’66 After an elaborate discussion on the interpretation of the terms null and void. which are used in Sec.com/blog/2014/02/13/the-back-and-forth-ofthearbitrability-of-fraud-in-india (discussing inter alia the above WSGM v. KLUWER ARBITRATION BLOG (Feb. that Sec. to support its argument the ‘principle of separability’ was invoked by the appellant. Despite the appreciable approach of the Supreme Court in relying on Sec. MSM judgment and “direct impeachment” test requiring ‘allegation of fraud to be made specifically targeting the arbitration agreement for the dispute to go before courts when a standard arbitration agreement is contained in the main contract’. 45. It is suggested that in such matters. 136 of the Indian Constitution. . 67 The Arbitration and Conciliation Act. and result in pyrrhic victories in arbitration. under Art. cause numerous avoidable problems for the arbitral tribunal. supra note 13. in letter and spirit. apart from huge litigation costs and undermining the efficacy of arbitral tribunal’s autonomy. § 9 (provides for certain useful interim measures by Court obtainable by a party before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced.). when the legislative policy and provisions clearly call for reference to arbitration. the Supreme Court should without any delay expeditiously dispose of such commercial cases. the delay in disposal of this appeal is a cause of concern. was filed way back in the year 2010. Any inordinate delay in reference to the arbitration may. considering that the Special Leave Petition to appeal. in certain cases. The practice of appointing retired judges has recently come under strong criticism from the proponents of the alternate dispute resolution mechanism. This change in the mindset must focus on the need to make the system more effective. and has not yet reached the stage to effectively fulfill the needs accentuated with commercial growth. lawyers and parties involved. Based on the identified problems. nor is arbitration law taught as a specialized subject in any of the law colleges. Despite the 1996 Act’s prohibition of judicial intervention.’) courts continue to intervene in direct defiance of the agreement of the parties. there are still inherent problems that hindered in the working of successful arbitration in India which are multifold – starting from requirement for amendment of certain provision of law to changing the mindset of the stakeholders who are judges. judges and lawyers) to know and to understand the direction of the new law. Indian courts do restrain themselves from interfering with arbitral awards.should make efforts to change general attitude towards arbitration. Notwithstanding the interventionist instincts and expanded judicial review. and observe the dichotomy between arbitration and litigation. (i. arbitrators. ‘no judicial authority shall intervene except where so provided in [that] part. none of the 259 universities in India has a separate faculty or department of arbitration law. There is reason for complaint that the appointment of arbitrators is widely perceived as avenues of patronage of superannuated judges. it is necessary for the players in arbitration proceedings (i.61 However. arbitrators. Arbitration occupies a prime position in commercial dispute resolution in India. For instance.62 (iii) Power vested in the Chief Justice of a High Court (or any person or institution designated by him) for appointment of an arbitrator under Section 11 of the 1996 Act is not being used properly. An examination of the working of 32 arbitration in India reveals that arbitration as an institution is still evolving.arbitrators. in the panels of arbitrators who may be . Therefore.e. Unless this is corrected. Presently. India does not come across as a jurisdiction which carries an antiarbitration bias. attractive and functional. respect the will of the parties set out in arbitration clauses. Viewed in its totality. CONCLUSION The 1996 Act was enacted to achieve this purpose of quick and cost-effective dispute resolution.VI. the following recommendations can be made: (i) Universities in India could create a separate faculty or department for arbitration law to encourage specialized study and incisive research. judges and lawyers. (ii) All stakeholders .e. the legitimacy of Section 11 is bound to be seriously undermined. This practice should be corrected. the court did take judicial notice of the injustice that could be caused to the beneficiary of an arbitral award due to the ‘automatic’ stay by mere challenging of awards. accountants. appears to have partially remedied this flaw. The Court refused to impose any condition on the applicant pending disposal of its application for setting aside the award under Section 34. The real problem in enforcing foreign awards around the globe despite the enabling provision of the New York Convention. (vii) Provisions in the arbitration laws in India that require entire arbitral tribunals to impart effective interim measures at par with the authority of a national court should be amended. without being required to deposit a part of the award amount. amongst lawyers and judges. (iv) There is requirement for legislative amendment to remove the anomaly which enables a defeated party to avoid execution of arbitral awards by merely filing an application for setting aside under Section 34 of the 1996 Act. and an effective mechanism for carrying out these provisions should be put in place. Nevertheless. reasoning being that any such order would run counter to the letter and spirit of the Act. Ordinarily. Although the 1996 Act confers powers on arbitral tribunals to issue interim relief. In fact. there is variance in the degree and efficacy of these interim measures. is not a legal one.selected by those having disputes. the ‘law of arbitration’. this awarded amount would be deposited as a matter of course in case of a judgment debtor challenging a money decree before a civil court. 1958. college professors make up the second largest group of arbitrators. vs. i. but it is a lack of awareness particularly. but the Bill has not yet been taken up for consideration and passed by the Parliament.which is to ensure speedy and efficient dispute-resolution in the commercial context. In NALCO Ltd. the Supreme Court of India has recently expressed a hope that suitable legislative action would undo this situation. of the benefits of international arbitration and of its true consensual nature (vi) Questions relating to lack of impartiality of arbitrators and procedural defects in the conduct of arbitration proceedings are the subject-matter of frequent litigation and hence add to the caseload before an already overburdened judiciary. dentists. judicial interventions with arbitral proceedings and awards in India have come to constitute a distinct branch of law. managers and other professionals serve as arbitrators in cases recorded in the Encyclopedia Americana. lawyers dominate in commercial fields of arbitration. (v) The government should disseminate knowledge of the benefits of alternate dispute resolution mechanisms to foster growth of an international arbitration culture amongst lawyers. The Arbitration and Conciliation (Amendment) Bill. maintained by the American Arbitration Association.e. Pressteel Fabrications (P) Ltd. 2003. judges and national courts. and physicians.63. . Retired judges will not fit the bill for these categories. This trend clearly frustrates the foundational aim of providing for arbitration clauses . Under the 1996 Act. an arbitral tribunal has no mechanism to enforce its own direction. provided such institutions maintain quality standards in conducting proceedings. and (b) providing appropriate security in connection thereof. this is a flaw that weakens the entire arbitration mechanism. .(a) protection of the subject matters in dispute. infrastructure facilities. No doubt. time and cost saving procedures and uniformity of laws standards that will make the ADR system more sound and acceptable among the business community. For this reason. (viii) There is an emerging trend to go for settlement of business disputes by institutional arbitration. The standards are evaluated in terms of professional arbitrators. the arbitral tribunal is possessed of limited powers to direct interim measures. pertaining to: . which is like being a toothless tiger. Moreover. it can well be said that the arbitral tribunal does not have any coercive authority to secure implementation of its interim measures. Independent institutions should impart training for nurturing competent professionals who are trained to delve into the crux of the dispute for its resolution. and at times makes it appear spineless.
Report "COMPETENCE AND JURISDICTION OG ARBITRAL TRIBUNAL IN INDIA WITH CASE LAWS"