Module-II

ARBITRATION GOVERNED UNDER

PART-I
 What is Arbitration
• A private method of dispute resolution
• A consensual dispute resolution process
• To resolve their commercial or trade related disputes at
venue selected by the parties.
• Without recourse to court of law
• By reference to a neutral third party for its
determination chosen by the parties themselves
• With a binding end result which is internationally
enforceable
• Avail interim reliefs if required
• Confidentiality in the process.
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 Contrast with litigation
• A Private form of dispute settlement
• Arbitration offers a quicker, cheaper, and more streamlined
procedure than litigation.
• Parties choose arbitration as the method of dispute resolution
• Agreement to arbitrate
• Limited right of appeal
• The "internationalist" quality of the arbitral tribunal that makes
arbitration attractive -- with party-nominated arbitrators often
chosen from the parties' respective countries, and the chairperson
from yet a third country

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 Contrast
Arbitration Mediation/Conciliation
1. Private Adjudication 1. Facilitative

2. Totally binding 2. Non-binding unless

agreement is reached
between parties
3. Adjudicatory

4. Has power to grant 3. Facilitative/Evaluative

interim-measures
5. Awards and agreements 4. No
are enforceable 5. No
internationally
 History of Arbitrations

• Popular process of dispute resolution between

commercial and trader groups from ancient time.
• Primary reason- Limiting the intervention of court
and external sanctions
• Initially no legal frame work
• Peer-group pressure among the trader groups and
communities as the main force which resulted in
obligating the parties to abide by the decision of the
arbitrations tribunals.

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Party Autonomy in Arbitration

(1) What set of rules will apply to the arbitration

(2) What procedural law will apply to the arbitration
(3) What substantive law will apply to the dispute
being arbitrated

Both the proceedings and, to a certain extent, the

results, are determined by these three fundamental
decisions.

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 Objective of A & C Act 1996
(a) To comprehensively cover international commercial
arbitration and conciliation as also domestic arbitration and
conciliation;

(b) To minimize the supervisory role of courts in the arbitral

process;

(c) To provide that every final arbitral award is enforced in the

same manner as if it was a decree of court

(d) To ensure that Indian law is harmonized with the

international legal framework
Applicability of Part-I
 Bhatia International V. Bulk Trading S.A.(2002) 4 SCC 105
• Contract contained an arbitration clause which provided that arbitration was to be as per the rules
of the International Chamber of Commerce (ICC).

• Issue:-
Whether Indian Courts have power to grant interim relief U/S 9 of the A&C Act 1996?

• Arguments for appellant

1. Part I of the Act only applies to arbitrations where the place of arbitration is in India.
2. Framing the said Act the legislature has purposely not adopted art 1(2) of the UNCITRAL Model
Law. He submits that this clearly shows the intention of the legislature that they did not want part I
to apply to arbitrations which take place outside India.
3. Sec 2(f) of the said Act defines an international commercial arbitration. International commercial
arbitration could take place either in India or outside India. If the international commercial
arbitration takes place out of India then part I of the said Act would not apply.
4. When arbitration is being held in Paris i.e. out of India. To such arbitrations part I does not apply.
Sec 9 and 17 fall in part I. Therefore Sec 9 and 17 would not apply and cannot be used in cases
where the place of arbitration is not in India.

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 Opinion of the court
Consequence for accepting the arguments to the appellant:-
a. leave a party remediless inasmuch as in international commercial arbitrations
which take place out of India the party would not be able to apply for interim
relief in India even though the properties and assets are in India. Thus a party
may not be able to get any interim relief at all.

a. amount to holding that the legislature has left a lacunae in the said Act. There
would be a lacunae as neither part I or II would apply to arbitrations held in a
country which is not a signatory to the New York Convention or the Geneva
Convention (non-convention country). It would mean that there is no law, in
India, governing such arbitrations.

b. lead to an anomalous situation, inasmuch part I would apply to Jammu and

Kashmir in all international commercial arbitrations but part I would not apply
to the rest of India if the arbitration takes place out of India.

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 Contd.
1. A construction that results in hardship, serious inconvenience,
injustice, absurdity or anomaly or which leads to inconsistency or
uncertainty and friction in the system which the statute purports to
regulate has to be rejected and preference should be given to that
construction which avoids such results.
2. The definition makes no distinction between international
commercial arbitrations held in India or outside India…The said Act
nowhere provides that its provisions are not to apply to
international commercial arbitrations which take place in a non-
convention country.
3. There would also be an anomaly inasmuch as even if an
international commercial arbitration takes place outside India, part
I would continue to apply in Jammu and Kashmir, but it would not
apply to the rest of India.
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 Contd.

The wording of sub-s (2) of s 2 suggests that the intention of the

legislature was to make provisions of part I compulsorily
applicable to an arbitration, including an international
commercial arbitration, which takes place in India. Parties
cannot, by agreement, override or exclude the non-derogable
provisions of part I in such arbitrations. By omitting to provide
that part I will not apply to international commercial arbitrations
which take place outside India the affect would be that part I
would also apply to international commercial arbitrations held
out of India. But by not specifically providing that the provisions
of part I apply to international commercial arbitrations held out
of India, the intention of the legislature appears to be to ally
parties to provide by agreement that part I or any provision
therein will not apply.
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 Bharat Aluminum and Co. vs. Kaiser Aluminium and Co.
• Arbitration Act, 1996 has accepted the territoriality principle which has been adopted in
the UNCITRAL Model Law. Section 2(2) makes a declaration that Part I of the Arbitration
Act, 1996 shall apply to all arbitrations which take place within India. Part I of the
Arbitration Act, 1996would have no application to International Commercial Arbitration
held outside India.
• Therefore, such awards would only be subject to the jurisdiction of the Indian courts
when the same are sought to be enforced in India in accordance with the provisions
contained in Part II of the Arbitration Act, 1996.
• The provisions contained in Arbitration Act, 1996 make it crystal clear that there can be
no overlapping or intermingling of the provisions contained in Part I with the provisions
contained in Part II of the Arbitration Act, 1996.
• In our opinion, the provision contained in Section 2(2) of the Arbitration Act, 1996 is not
in conflict with any of the provisions either in Part I or in Part II of the Arbitration Act,
1996. In a foreign seated international commercial arbitration, no application for interim
relief would be maintainable under Section 9 or any other provision, as applicability of
Part I of the Arbitration Act, 1996 is limited to all arbitrations which take place in India.
Similarly, no suit for interim injunction simplicitor would be maintainable in India, on the
basis of an international commercial arbitration with a seat outside India.

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 Contd..
• Reliance Industries Ltd. v. Union of India (SC 2014)
[Implied Exclusion]
– London as seat; English law as AAL, PLC: Indian law: Held
that there was implied exclusion because of choice of seat
and AAL. Relevant factors for implied exclusion – seat and
AAL.
• Eitzen Bulk v. AshapuraMinechem (SC 2016)
[Implied Exclusion + Foreign Seat as Exclusive
Jurisdiction clause]
– London as seat, AAL was English. Held Part I was excluded.
Choice of juridical seat = Attracts the law of the seat as the
curial law.
 Applicability of Part-I after the
(Amendment ) Act 2015
Section 2(2) This Part shall apply where the place of
arbitration is in India:
Provided that subject to an agreement to the
contrary, the provisions of sections 9, 27 and clause
(a) of sub-section (1) and sub-section (3) of section 37
shall also apply to international commercial
arbitration, even if the place of arbitration is outside
India, and an arbitral award made or to be made in
such place is enforceable and recognised under the
provisions of Part II of this Act.
 Commencement of the (Amendment ) Act 2015
Section 26 of the Amendment Act: “Nothing contained in this Act shall apply to the arbitral
proceedings commenced, in accordance with the provisions of section 21 of the principal Act,
before the commencement of this Act unless the parties otherwise agree but this Act shall apply in
relation to arbitral proceedings commenced on or after the date of commencement of this Act.”

Electrosteel Limited v. Reacon Engineers (Calcutta H.C., January 14, 2016)

Where the arbitration has commenced before October 23, 2015, court proceedings in respect of
such arbitrations will not see the applicability of the Amending Act.
Rendezvous Sports World v. BCCI (Bombay High Court, June 30, 2016)
View is that the Amending Act will be applicable to all court proceedings pending on October 23,
2015 or filed after October 23, 2015 in relation to arbitration proceedings initiated prior to the
enforcement date of the Amending Act.
Tufan Chatterjee v. Rangan Dhar (AIR 2016 Cal 213)
It is seen that the first part of Section 26 specifically restricts the non applicability of the
Amendment Act "to the arbitral proceedings". The said Section does not prohibit the applicability
of the Amendment Act to proceedings before the Court. Therefore, according to High Court it
allows application of amended provisions to fresh applications (relating to arbitrations
commenced before or after October 23, 2015), pending court proceedings and fresh arbitrations
 Types of Arbitration
Institutional Arbitration:
Clause-
“ All disputes arising in connection with the present contract shall be finally
settled under the rules of ICC”
Advantages
• Degree of permanency
• Modern rules of arbitration
• High quality technical support facility
• Better scrutiny of awards
Disadvantages
• Cost is higher (Cost is determined on the ad-volerem of the amount involved in the claim)
• Time problems with the respondent (As there is a fixed period on the respondent to submit
his response to the issues raised by the party initiating arbitration).
• Lack of greater flexibility
• Process is extremely technical and involves higher time for its resolution.

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 Contd.
Ad-Hoc Arbitration-
 Clause-
“ All dispute or differences arising out of or in connection with this
agreement shall be referred to and determined by arbitration”.

Advantages
– Parties agree there own rules
– Greater flexibility offered
– Usually less costly and less technical in comparison to institutional
arbitration
– The Adoption of UNCITRAL RULES OF ARBITRATION provides modern
rules.

Disadvantages
– Depends on co-operation and effectiveness of parties.
– Grater chance of existence of factual errors in the award.

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 Important Terms in Arbitration
• Arbitration Agreement

• Arbitrator

• Tribunal

• Award

• Seat

• Court
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 Definition of ‘Court’ (Amendment ) Act 2015
Section 2 (1)(e) “Court” means—

(i) in the case of an arbitration other than international

commercial arbitration, the principal Civil Court of original
jurisdiction in a district, and includes the High Court in exercise of its
ordinary original civil jurisdiction…

(ii) in the case of international commercial arbitration, the

High Court in exercise of its ordinary original civil jurisdiction,
having jurisdiction to decide the questions forming the subject-
matter of the arbitration if the same had been the subject-matter of
a suit, and in other cases, a High Court having jurisdiction to hear
appeals from decrees of courts subordinate to that High Court
 Commercial Courts Act 2015
Section 10 :
Where the subject-matter of an arbitration is a commercial dispute of a Specified Value
and--
(1) If such arbitration is an international commercial arbitration, all applications or appeals
arising out of such arbitration under the provisions of the Arbitration and Conciliation Act,
1996 that have been filed in a High Court, shall be heard and disposed of by the
Commercial Division where such Commercial Division has been constituted in such High
Court.
(2) If such arbitration is other than an international commercial arbitration, all applications
or appeals arising out of such arbitration under the provisions of the Arbitration and
Conciliation Act, 1996 that have been filed on the original side of the High Court, shall be
heard and disposed of by the Commercial Division where such Commercial Division has
been constituted in such High Court.
(3) If such arbitration is other than an international commercial arbitration, all applications
or appeals arising out of such arbitration under the provisions of the Arbitration and
Conciliation Act, 1996 that would ordinarily lie before any principal civil court of original
jurisdiction in a district (not being a High Court) shall be filed in, and heard and disposed of
by the Commercial Court exercising territorial jurisdiction over such arbitration where
such Commercial Court has been constituted.
 Transfer of Pending Suits
Section 15:
(1) All suits and applications, including applications under the Arbitration and
Conciliation Act, 1996, relating to a commercial dispute of a Specified Value pending
in a High Court where a Commercial Division has been constituted, shall be
transferred to the Commercial Division.
(2) All suits and applications, including applications under the Arbitration and
Conciliation Act, 1996, relating to a commercial dispute of a Specified Value pending
in any civil court in any district or area in respect of which a Commercial Court has
been constituted, shall be transferred to such Commercial Court:
[Provided that no suit or application where the final judgment has been reserved by
the Court prior to the constitution of the Commercial Division or the Commercial
Court shall be transferred either under sub-section (1) or sub-section (2).]
(3) Where any suit or application, including an application under the Arbitration and
Conciliation Act, 1996, relating to a commercial dispute of Specified Value shall
stand transferred to the Commercial Division or Commercial Court under sub-section
(1) or sub-section (2), the provisions of this Act shall apply to those procedures that
were not complete at the time of transfer.
 What is an Domestic & International
Arbitration?
-  The Arbitration and Conciliation Act, 1996
(i) An individual who is a national of, or habitually resident
in, any country other than India; or

(ii) A body corporate which is in corporate in any on n try

other than India; or

(iii) A company or an association or a body of individuals

whose central management and control is exercised in any
country other than India; or

(iv). The Government of a foreign country

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 Problem-I
A is a company incorporated under the Companies Act,
1956. Sometime in or around 2013, A entered into an
agreement with B a company incorporated under the
laws of the State of Delaware in the United States of
America, where under A agreed to provide B with
consultant services for promotion of sale of B aircrafts
in India. Definitive Purchase Agreement for purchase of
two aircrafts were executed between B and Air India in
2015. A claimed commission from B on the said
transaction but B refused to pay the same.

Q. If arbitration takes place between the parties, it is a Domestic

or an International arbitration?
 Problem-II
AIR India entered into a catering supply agreement in
July 2013 with GM Food Corporation (GM) a self-
owned company registered in Singapore by one
named Mr. Kurmunon a citizen of Singapore. Mr.
Kurmunon has been residing in India for last five years
and for all purposes had been conducting the business
of GM from India. The contract had a dispute
resolution clause stating that any dispute arising out
of this contract shall be referred to arbitration at
Kolkata.
Q. If an arbitration in taking place between AIR India
and GM at any stage will the arbitration be treated
as a Domestic or an International arbitration?
 CHOICE OF FOREIGN SEAT BY INDIAN
PARTIES
• Atlas Export v. Kotak Co. (1999, SC, 3j): Indian parties chose foreign
arbitrators and arbitrated in a foreign seat – held that not violative of PP.
• TDM Infrastructure Pvt. Ltd vs. UE Development Pvt. Ltd. (2008, SC, 2j):
It is part of Indian public policy that Indian nationals should not be
permitted to derogate from Indian law.
• Aadhar Mercantile v. ShriJagadhamba Agricultural Co. Export (2015,
Bom): Indian parties chose Singapore as seat and English law as applicable
law – held that choice of foreign PLC by Indian parties was violative of PP
(by relying on TDM).
• Sasan Power v. North American Coal Corporation India (2015, MP HC):
Held Indian parties are free to choose a foreign seat and hence, foreign
curial law and foreign AAL:
• Observations in TDM were only obiter, larger bench decision in Altas
• Bar under section 28 not concerned with choice of seat, AAL or arbitration
law.
 What is Arbitrability?
Not every type of disputes can be submitted to
arbitration. The international conventions and domestic
statues require that certain matter of types of disputes
cannot be subject matter of arbitration. This subject
matters or disputes are considered as no arbitrable
subjects and the principle is known as ‘arbitrability’. The
decision relating to what is not arbitrable in particular
jurisdiction lies with the state and its domestic court.
Arbitrability in essence, is a matter of national public
policy. As public policy can differ from one country to
another, the arbitrability of a particular dispute may
vary considerably from jurisdiction to jurisdiction.
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 Stage of Challenge

• Union of India v. Raunaq Constructions

(2009, SC)
– While making a reference to arbitration
– Before an AT during the course of the
arbitral proceedings
– At the stage of challenging an award or its
enforcement
 Booz Allen and Hamilton vs. SBI Home Finance Ltd.
•Whether the subject matter of the suit is `arbitrable', that is capable of
being adjudicated by a private forum (arbitral tribunal)

Arbitral tribunals are private fora chosen voluntarily by the parties to the
dispute, to adjudicate their disputes in place of courts and tribunals which
are public fora constituted under the laws of the country. Every civil or
commercial dispute, either contractual or non-contractual, which can be
decided by a court, is in principle capable of being adjudicated and resolved
by arbitration unless the jurisdiction of arbitral tribunals is excluded either
expressly or by necessary implication. Adjudication of certain categories of
proceedings are reserved by the Legislature exclusively for public fora as a
matter of public policy. Certain other categories of cases, though not
expressly reserved for adjudication by a public fora (courts and Tribunals),
may by necessary implication stand excluded from the purview of private
fora. Consequently, where the cause/dispute is inarbitrable, the court where
a suit is pending, will refuse to refer the parties to arbitration…
 Examples of non-arbitrable disputes
• Disputes relating to rights and liabilities which give rise to
or arise out of criminal offences;
• Matrimonial disputes relating to divorce, judicial
separation, restitution of conjugal rights, child custody;
• Guardianship matters;
• Insolvency and winding up matters;
• Testamentary matters (grant of probate, letters of
administration and succession certificate)
• Eviction or tenancy matters governed by special statutes
where the tenant enjoys statutory protection against
eviction 
• Criminal Matters

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 Reason
• A right in rem is a right exercisable against the world at large, as contrasted from a
right in personam which is an interest protected solely against specific individuals.
Actions in personam refer to actions determining the rights and interests of the
parties themselves in the subject matter of the case, whereas actions in rem refer to
actions determining the title to property and the rights of the parties, not merely
among themselves but also against all persons at any time claiming an interest in
that property.

• Correspondingly, judgment in personam refers to a judgment against a person as

distinguished from a judgment against a thing, right or status and Judgment in rem
refers to a judgment that determines the status or condition of property which
operates directly on the property itself.

• Generally and traditionally all disputes relating to rights in personam are

considered to be amenable to arbitration; and all disputes relating to rights in rem
are required to be adjudicated by courts and public tribunals, being unsuited for
private arbitration. This is not however a rigid or inflexible rule. Disputes relating
to sub-ordinate rights in personam arising from rights in rem have always been
considered to be arbitrable.
 Problem
Timeson an Indian weekly having registered office at Kolkata
also publishes a foreign language edition in Bangladesh, a
country which is a party to the New York convention. An article
appearing both in India and Bangladesh editions, based on
apparently reliable information that was checked as carefully as
possible, stated that a Bangladesh central minister Mr. Kazi
Mukta had taken a bribe in connection with his official duties.
Mr. Kazi Mukta charged Timeson for defamation and demanded
a compensation for loss of his reputation (as in his view the
information was false and based on inappropriate facts) $
300,000 US from Timeson.

Q. Can Timeson request Mr. Mukta to resolve their dispute

through arbitration?
 Arbitrability of Fraud
Radhakrishnan Vs. Maestro Engineers & Ors (2010) 1 SCC 72
–Allegations of fraud not arbitrable – complex, can invite criminal action – if the
defendant party so requests.
Swiss Timing Limited vs. Organising Committee, Commonwealth Games (2014)
6. SCC 677
–Radhakrishnan case – per incuriam; fraud can be arbitrable – reference to
section 16
–Reference to arbitration u/8 – for allegations that the contract is voidable,
except when void per se (wagering contracts, consideration prohibited by law).
–Objective – to avoid circumvention of arbitration agreements
–Pendency of criminal proceedings not a bar to arbitration.
–Changed traditional rights in rem v. personam dichotomy.
World Sport Group (Mauritius) Ltd. v. MSM Satellite (Singapore) Pte. Ltd., (2014)
11 SCC
–Allegations of fraud in the underlying contract- severability – arbitration
agreement not vitiated – matter still arbitrable.
 What is an Arbitration Agreement?

Arbitration primarily being a contractual process

requires the free consent of the parties to
arbitrate. The arbitration agreement is the
foundation stone on which the entire arbitration
process consolidates. Therefore requirement of a
valid arbitration agreement is a mandatory
requirement in all national and international law
governing arbitration.

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 Functions of an arbitration agreement
1. It shows that the parties have consented to
resolve the disputes by arbitration
2. Once parties have express their consent to
arbitrate they cannot unilaterally withdraw
from arbitration
3. Agreement establishes the jurisdiction of the
tribunal.
4. Agreement to arbitrate is an universally
enforceable agreement [ Art II (3) of NYC and
Art 8 UML]
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 Arbitration agreement
Valid Legal Requirements for Arbitration
Agreement
1. Agreement in writing
2. Dispute arises in respect to defined legal
relationship, whether contractual or not
3. Deals with existing or future disputes
4. Subject matter is capable of settlement by
arbitration

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 Binding Intention to arbitrate
• K.K. Modi v. K.N. Modi, (1998, SC)
– For clarifications, matterwas to bereferred to Chairman, IFIC – held NOT an arb agreement but an
expert’sdetermination (no determination of judicial nature envisaged).
• Bihar State Mineral Development Corporation v. Encon Builders (2003, SC) [Pre-amendment]
– Matter to be referred to MD – would be final and binding – NOT an agreement to arbitrate as no intention to
resort to arbitration can be evinced.
– Also, hit by public policy – due to bias – order completely null and not waiver applicable.
• Wellington Associate v. Kirit Mehta (2000, SC) [Pathological Defect + Severability]
– Exclusive jurisdiction clause – followed by a clause saying “may be referred to arbitration” - held NOT an arb
agreement but a mereenabling provision – fresh consent to arbitrateneeded.
•  Visa International Ltd. v. Continental Resources USA (2009, SC)
– Dispute to be settled amicably under the 1996 Act, finally between parties – held to be an arb agreement. Factors:
– No need for use of the word ‘arbitration’
– Intention of the parties
– Gathered from surrounding circumstances – conduct, correspondence
– No advantage of inartistic drafting
• Centrotrade Minerals and Metal Inc. vs. Hindustan Copper Ltd. (2006) 11 SCC 245
– Two-tier arbitration clause – violative of PP (i) appellate capacity of an arbitrator not envisaged (ii) an award
cannot be a DA and FA simultaneously.
• Powertech World Wide Limited vsDelvin International (2012, SC)
– Dispute to be settled amicably through an arbitrator in India/UAE – some ambiguity, intention to arbitrate clear
from correspondence.
 THIRD PARTY ENFORCEMENT
• Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya (2003, SC)[Under Part I]
• Reference u/s 8 – issues and parties cannot be split as no such provision and
splitting would only result in hassles. To be referred, all parties and all issues need
to be within the scope of the Arb Agreement.
• Chloro Controls Pvt. Ltd. v. Severn Trent Water Purification (2013, SC) [Under Part II]
– Non-parties can be referred to arbitration – ambit of section 45 is broader and in
consonance with the pro-arbitration approach in ICA for joinder of third parties.
– However, it is exceptional remedy and needs to be justified by the party so
claiming – e.g. substitution or novation etc.
– Distinguished Sukanya.
– Third parties can be bound – direct relationship with signatory; commonality of
interests; composite transactions.
• S. N. Prasad v. Monnet Finance Ltd. (2010, SC) [Not a case of third party
enforcement] [Part I]
– Recognised a party can become party to the arb agreement by (i) IMPLIED
CONSENT (ii) CONDUCT.
– Also, discussed the meaning of statement of claim and defence.
An arbitration agreement in writing consists of
four aspects

(1) In a contract containing an arbitration clause signed

by the parties,
(2) In a contract contained in exchange of letters,
telegrams telex, telegrams or other means of
telecommunication.
(3) 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.
(4) Incorporation by reference to another contract

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 Writing Requirement
• Great Offshore Ltd. v. Iranian Offshore Engineering & Construction Co. (SC, 2008)
[Part I]
– CP containing an arbitration clause exchanged by fax and signed by one party –
valid – the contentions rejected:
– The contract filed before the court was a copy and not original
– The contract was signed only by one of the parties; had not signed on every page
– The contract was signed by fax
• Shakti Bhog Foods v. Kola Shipping (2009, SC) [Section 7(4)(b)] [Part I]
– CP containing an arb clause exchanged by letter – valid even when not signed.
• Trimex International v. Vedanta Aluminium (2010, SC) [Section 7(4)(b)] [Part I]
– Accepted contract (containing an arb clause) sent by email by email – valid and
binding – no need for a formal document as there was consent to arbitrate in
record.
• Unissi (India) v. Post Graduate Institute of Medical Education and Research(2009,
SC)
– Tender (containing an arb clause) was sent – delivery accepted – held valid and
binding arb clause because acceptance of the contract by conduct.
 Problem
• A contract containing an arbitration clause is formed
on the basis of a text proposed by one party, which
is not explicitly accepted in writing by the other
party, but that latter party refers in writing to the
contract in subsequent correspondence, invoice or
letter of credit by mentioning, for example, its date
or contract number.
Q. Whether there is a binding arbitration agreement ?

• A bill of lading contains an arbitration clause that is

not signed by the shipper or the subsequent holder.
Q. Whether there is a binding arbitration agreement ?

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Autonomy of an arbitration agreement

The autonomy of the arbitration agreement is understood

by arbitral tribunals and courts to mean, above all,
separability of the arbitral clause from the main agreement.
To speak of autonomy is to consider the arbitration clause
as separate from the main contract.

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 Indian Position
Sec 16 (1) of the Arbitration & Conciliation Act 1996.
(a) An arbitration clause which forms part of a contract shall be treated as an
agreement independent of the other terms of the contract; and
(b) A decision by the arbitral tribunal that the contract is null and void shall not
entail ipso jure the invalidity of the arbitration clause

Case:
• SMS Tea Estates Pvt. Ltd. v. Chandmari Tea Company Pvt. Ltd.,
2011(4)ARBLR265(SC)

• State of Orissa v. Klockner and Co. 1996 (1) Arb. LR 591

• National Agricultural Coop. Marketing Federation Ltd. v. Gains trading Ltd.

(2007) 5 SCC 692

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 Important points to remember
1. There is no doubting that the principle of the autonomy of the arbitration
agreement, in its traditional meaning of separability, is today a general
principle of international arbitration law.
2. So long as the validity of the arbitration agreement itself is not questioned, the
arbitrators must declare that they have jurisdiction and proceed to judge on
the merits, whereby they may possibly rule that the main contract is non-
existent or void."  
3. It follows that arbitrators no longer need to determine the law applicable to
the contract and/or the arbitration agreement in order to check that a plea
concerning the existence or the validity of the main contract does not affect
ipso facto their jurisdiction.
4. They do not even have to try to determine the intention of the parties in this
regard since the principle inherently implies that this is the parties' intention.

 
 CHOICE OF LAW GOVERNING
ARBITRATION AGREEMENT
• Law governing arbitration: Sumitomo Corp v. CDC
Financial Services (2008, SC):Choice of seat implies
choice of governing law of arbitration and vice versa.
• Proper law of the contract: NTPC v. Singer Company
(1993, SC): (i) Parties free to choose (ii) Intention of
the parties (iii) Impute intention using the real and
closest connection test.
• Proper law of arbitration: NTPC v. Singer: Choice of
PLC = AAL, unless there is a contrary intention. If not
PLC, then law of seat as the AAL (rebuttable
presumption).
Judicial Regulation of
Arbitration

Copyright to Anirban Chakraborty, 2010

•Arbitration is private process with public
consequence.

•An introduction to UNCITRAL Model law on

International Commercial Arbitration

•Pillars of A& C Act 1996

Party autonomy in arbitration

Equal treatment of parties in
arbitration
Minimal Court Intervention
Waiver of rights
Copyright to Anirban Chakraborty, 2010
 Reference to Arbitration
Sec-8 Power to refer parties to arbitration where there is an
arbitration agreement.
(1) A judicial authority before which an action is brought in a matter,
which is the subject of an arbitration agreement, shall, if a party
so applies not later than when submitting his first statement on
the substance of the dispute, refer the parties to arbitration.
(2) The application referred to in sub-section (1) shall not be
entertained unless it is accompanied by the original arbitration
agreement or a duly certified copy thereof.
(3) Notwithstanding that an application has been made under sub-
section (1) and that the issue is pending before the judicial
authority, an arbitration may be commenced or continued and an
arbitrat award made.

Copyright to Anirban Chakraborty, 2010

 Contd.
Nature of court intervention to enforce foreign arbitration
agreement?
“a challenge to the arbitration agreement under
Section 45 on the ground that it is “null and void,
inoperative or incapable of being performed” is to be
determined on a prima facie basis.”

Copyright to Anirban Chakraborty, 2010

 MEANING OF COURT [SECTION 8, 45
REFERENCES]
• Part I: Skypak Couriers Ltd. v. Tata Chemicals Ltd. (2005, SC): Consumer
forum cannot direct parties to resort to arbitration u/8 even when the
service agreement contains an arbitration clause – issue of remedy for the
consumer and section 3 COPRA.
• Part I :P. G. Anand v. PVG Raju (2000, SC)[Reference under section 8]
• Reference u/s 8 would be made (i) even when the arbitration agreement
comes into existence between the parties during the pendency of a suit
and (ii) even after filing of the statement, if the party who has brought the
suit does not object resorting to arbitration - reflecting the pro-arbitration
stance of the court.
• PART II:Sumitomo Corp v. CDC Financial Services (2008, SC): Matter u/s 45
heard before CLB with request for reference to arbitration – rejected by
CLB – appeal u/s 50. Held that appeal lies not before the “court” but the
appropriate appellate body to the CLB.
 Interim-Measures
Interim Measures
In arbitration, due to the lapse of time between commencement of arbitral
proceedings and issuance of the final award, interim measures often constitute a
key tool to prevent irreparable and non-compensatory harm to one party.
Nature of Interim Measures
An interim measure is any temporary measure, whether in the form of an award
or in another form, by which, at any time prior to the issuance of the award by
which the dispute is finally decided.
Difference with Section 9 application
• Maintainable even before the commencement of proceedings
• Sec 17 would operate only during the existence of the arbitral tribunal and it
being functional
[Firm Asoke Traders v. Gurumukh Das (2004) 3 SCC 151 at para 18]
 Conditions for granting interim measures
Gujarat Bottling Co. Ltd. vs. Coca Cola Company and Others,
1995(5) SCC 545
The object of the interlocutory injunction is to protect the
plaintiff against
a. injury by violation of his right for which he could not be
adequately compensated in damages recoverable in the action if the
uncertainty were resolved in his favour at the trial.(Irreparable
injury)
b. The need for such protection has, however, to be weighed
against the corresponding need of the defendant to be protected
against injury resulting from his having been prevented from
exercising his own legal rights for which he could not be adequately
compensated. The court must weigh one need against another and
determine where the “balance of convenience‟ lies."

(
 Type of interim measures
1. Maintain or restore the status quo pending determination of the
dispute
2. Take action that would prevent, or refrain from taking action that
is likely to cause, current or imminent harm or prejudice to the
arbitral process itself

3. Provide a means of preserving assets out of which a subsequent

award may be satisfied

4. Preserve evidence that may be relevant and material to the

resolution of the dispute.
 Recourse for aggrieved parties
An appeal shall lie under Section 37 from an order
1. Court
• Granting or refusing to grant any measure under section 9

2. Arbitral Tribunal
• Granting or refusing to grant an interim measure under
section 17
 Composition of arbitral tribunal
Section 10 gives freedom to the parties to
a. determine the number of arbitrators
b. but imposes a restriction that it shall not be an
even number.

Section 11 is ’Appointment of arbitrators’

• A person of any nationality may be an arbitrator
• Parties can agree on a procedure for appointing
• Parties can appointment of an arbitrator
• Each party could appoint one arbitrator, and the two
arbitrators so appointed, could appoint the third
arbitrator, who would act as the presiding arbitrator.
 Appointment of arbitrators
• Parties have power to select the arbitrator, its
qualification and procedure. [Sec 10 and 11 of A&C Act
1996]
• Power of Court to appointment arbitrator [Sec 11 (5) &
(6) A&C Act 1996]
• Nature of the power exercised by Chief Justice or his
representative during appointment of an arbitrator -
Judicial

Case law discussed:

1. SBP & Co v. Patel Engineering Ltd. (2005) 8 SCC 618
2. National Insurance Co. Ltd. vs. Boghara Polyfab Pvt. Ltd., (2009) 1
SCC 267
 Chief Justices Power to appoint arbitrator
• Where either the party or parties had failed to
– nominate their arbitrator
– two nominated arbitrators had failed to agree on
the presiding arbitrator
 Problem
Manipoco Pvt. Ltd. (Mani) an electronic toy's manufacturing company
registered in Japan entered into a licensing agreement with Benani-Leo Toy's
Pvt. Ltd. (Leo) an India company for manufacturing and sale of its toys in India
in 2013. The agreement had a arbitral cause which stated that “any dispute
arising from this contract will be submitted to arbitration in Japan by a sole
arbitrator appointed by both parties and the award will be final and binding.”
A dispute has raised between the parties in 2015 relating to payments of
royalty and fees on the account of sale. Leo has requested for arbitration.
Mani has not responded.

Q. What is the recourse for Leo if he wants to enforce the arbitral clause?

Q. Where will Leo file the application?

Q. If Leo instead of arbitration files a law suit in India. Mani now wants to
enforce the arbitral clause, what is its recourse ?
 Duty of Independence and Impartiality of an
Arbitrator

Duty to disclose any bias

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

Grounds for challenge

 Circumstances exist that give rise to justifiable doubts as
to his independence or impartiality
 He does not possess the qualifications agreed to by the
parties
 What is-Bias?
• A predisposition to decide for or against one party, without proper regard
to the true merits of the dispute is bias.

• Reasonable apprehension of bias in the mind of a reasonable man can be

a ground for removal of the arbitrator.

• There must be reasonable apprehension of that predisposition. The

reasonable apprehension must be based on cogent materials.

Denel(Proprietary) ltd. vs. Bharat Electronics ltd.

[(2010) 6 SCC 394]
Courts cannot interpose and interdict the
appointment of an Arbitrator, whom the parties
have chosen under the terms of the contract unless
legal misconduct of the arbitrator, fraud, and
disqualification is pleaded and proved

Copyright to Anirban Chakraborty, 2010

 Grounds for disqualification
1. The relationship of the arbitrator to one of the
parties was unknown to the other party
2. The arbitrator has performed as a lawyer, legal
officer or legal consultant for any party in the past.
3. The arbitrator has been an adjudicator in any matter
before him in the capacity of a judge
4. Fraudulent collusion
5. Arbitrator was indebted to one of the parties
6. Arbitrator has rendered some legal service to any of
the parties free of charge in the past
 Problem
A and R two companies entered into a
contract vide a purchase order. Art 26 of
the terms and conditions of the purchase
order provided for arbitration if any
dispute arises by the Chairman or
Managing Director of company R.
Question:
Can company A subsequently dispute the appointment
of R’s Managing Director on the ground of bias?

Copyright to Anirban Chakraborty, 2010

 Indian Oil Corporation v. Raja Transport
(2009, SC) [Pre-amendment]
• Instrumentalities of State - employees can be
impartial arbitrators, esp. senior employees –
however, should not be the
controlling/dealing authority or direct
subordinate. No such rule for officers of
private companies – bias due to interest in the
outcome.
 Termination of mandate
The mandate of an arbitrator shall be
terminated if:-
Becomes de jure or de facto unable to
perform his functions
Fails to act without undue delay 
He withdraws from his office
By agreement parties decide to the
termination of his mandate
 Jurisdiction of the arbitrator
Arbitration & Conciliation Act

Sec 16- Competence of arbitral tribunal to rule on its jurisdictional-

The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections
with respect to the existence or validity of the arbitration agreement, and for that
purpose, -
(a) An arbitration clause which forms part of a contract shall be treated as an agreement
independent of the other terms of the contract
(b) A decision by the arbitral tribunal that the contract is null and void shall not entail
ipso jure the invalidity of the arbitration clause (Olympus Superstructure Ltd. vs. Meena
[(1999) 5 SCC 651)
 Sources of Competence-Competence
Domestic Arbitration
 Section 31 & 33 of the Arbitration Act, 1940
No power of arbitrators to decide its jurisdiction.
Khardha Co. Ltd vs. Raymon & Co ( AIR 1962 SC 1810)

International Commercial Arbitration

 Ordinarily as a rule, an arbitrator has no authority to
clothe himself with power to decide the question of his
own jurisdiction unless parties, expressly conferred such
a power on him.
Renusagar Power Corp. vs. GEC (AIR 1985 SC 1156)
 Manner of challenging jurisdiction
A plea that the arbitral tribunal does not have
jurisdiction shall be raised not later than the submission
of the statement of defence

A plea that the arbitral tribunal is exceeding the scope

of its authority shall be raise as soon as the matter
alleged to be beyond the scope of its authority is raised
during the arbitral proceedings.
 What is the procedure that the arbitrators need to follow?

Chapter V of Part-I - Conduct of arbitral proceedings.

Section 18 mandates that parties to the arbitral proceedings shall be treated

with equality and each party shall be given full opportunity to present his case.
Section 19 specifically provides that arbitral tribunal is not bound by the Code
of Civil Procedure 1908 or the Indian Evidence Act 1872 and parties are free to
agree on the procedure to be followed by the arbitral tribunal in conducting its
proceedings. Failing any agreement between the parties subject to other
provisions of Part-I, the arbitral tribunal is to conduct the proceedings in the
manner it considers appropriate. This power includes the power to determine
the admissibility, relevance, the materiality and weight of any evidence.
Sections 20, 21 and 22 deal with place of arbitration, commencement of
arbitral proceedings and language respectively. Thereafter, Section 23, 24 and
25 deal with statements of claim and defence, hearings and written
proceedings and procedure to be followed in case of default of a party.

Chapter VI - Making of arbitral award and termination of proceedings.

Relevant sections which require consideration are Section 28 and 31.

 Choice of Proper Law of Contract
N T P C v. The Singer Company, AIR 1993 SC 998
The fundamental question is whether the arbitration agreement contained in the contract is
governed by the law of India so as to save it from the ambit of the Foreign Awards Act
and attract the provisions of the Arbitration Act, 1940. Which is the law which governs
the agreement on which the award has been made?

• The term 'proper law of a contract' means the system of law by which the parties
intended the contract to be governed, or, where their intention is neither expressed nor
to be inferred from the circumstances, the system of law with which the transaction has
its closest and most real connection.
• the whole of the contract must be looked at, and the contract must be regulated by the
intention of the parties as appearing from the contract. It is perfectly competent to
those who, under such circumstances as I have indicated, are entering into a contract, to
indicate by the terms which they employ which system of law they intend to be applied
to the construction of the contract, and to the determination of the rights arising out of
the contract.
• Where, however, the intention of the parties is not expressly stated and no inference
about it can be drawn, their intention as such has no relevance. In that event, the courts
endeavour to impute an intention by identifying the legal system with which the
transaction has its closest and most real connection.
 Arbitral Award
Meaning
• An instrument embodying a decision of an
arbitrator or arbitrators as regards matters
referred to him.
• Settlement agreement under the conciliation
process is not an award
Statutory Definition
“ Arbitral awards includes an interim award”
[According to Section 2(1) (c)]
 .
Requirements of a valid award
To be valid an award must comprise a decision by the
tribunal on the matters referred with which it deals. An
award must also be final, in the sense of being a
complete decision without leaving matters to be dealt
with subsequently or by a third party, and it must be
certain.
[Russell on Arbitration, 21st Ed., at page 277]
Kinds of award
• Domestic award (Arbitral award made under Part-I)
[Bhatia International vs. Bulk Trading (AIR 2002 SC
1432)
Part-I extends to arbitration taking place outside
the territory of India]
• Foreign Award
Classification of awards
1.Final award
2.Interim award
3.Consent award
4.Additional Award
 Forms and contents of an award [Sec 31]
1. Written form and signed
2. Date and place
3. Reasons
Exception
• The parties have agreed that no reasons are to be given, or
• The award is an arbitral award on a-reed terms under section 30.
4. Delivery of award
5. Stamp duty
6. Awarding interest and period
7. Costs
 Fees and expenses of arbitrators and witnesses
 Legal fees
 Administration fees
 Expenses incurred in connection with arbitral proceedings
 Question of presumption in favour of awards
1. A Court should approach an award with a desire to support it, if that is reasonably possible,
rather than to destroy it by calling it illegal;

2. Unless the reference to arbitration specifically so requires, the arbitrator is not bound to deal
with each claim or matter separately, but can deliver a consolidated award. The legal position is
clear that unless so specifically required, an award need not formally express the decision of the
arbitrator on each matter of difference;

3. unless the contrary appears the Court will presume that the award disposes of finally all the
mattes in difference; and

4. where an award is made ‘de praemissis’ (that is, of and concerning all matters in dispute referred
to the arbitrator), the presumption is that the arbitrator intended to dispose of finally all the
matters in difference; and his award will be held final, if by any intendment it can be made so.
[Smt. Santa Sila Devi v. Dhirendra Nath Sen , AIR 1963 SC 1677]
 Grounds for setting aside arbitral award
An arbitral award may be set aside by the court only if

• Incapacity
• Invalid arbitration agreement
• With out proper notice
• Exceeding the scope of submission to arbitration
• Composition of the arbitral tribunal
• Arbitrability
• Public Policy
 Fundamental policy of Indian Law
 Interest of India
 Justice and morality
 Patently illegal [ ONGC vs. SAW Pipes Ltd. ( AIR 2003 SC 3041)]

Procedure for setting aside

• An application for setting aside an award be made before a competent court having jurisdiction to
hear such an application
• Made before three months elapsed from the date on which the party making that application had
received the arbitral award
What Meaning could be Assigned to the Phrase 'Public Policy of
India'?

The phrase 'Public Policy of India'

India is not defined under
the Act. Hence, the said term is required to be given
meaning in context and also considering the purpose of
the section and scheme of the Act. It has been
repeatedly stated by various authorities that the
expression 'public policy' does not admit of precise
definition and may vary from generation to generation
and from time to time. Hence, the concept 'public
policy' is considered to be vague, susceptible to narrow
or wider meaning depending upon the context in which
it is used.
 What is a “patently illegal award”?

The award which is, on the face of its, patently in violation of statutory
provisions cannot be said to be in public interest. Such
award/judgment/decision is likely to adversely affect the administration of
justice. Hence, in our view in addition to narrower meaning given to the term
'public policy' in Renusagar's case, it is required to be held that the award could
be set aside if it is patently illegal. Result would be - award could be set aside if
it is contrary to:
– fundamental policy of Indian law; or
– the interest of India; or
– justice or morality; or
– in addition, if it is patently illegal.

The nature of illegality-

Illegality must go to the root of the matter and if the illegality is of trivial
nature it cannot be held that award is against the public policy. Award
could also be set aside if it so unfair and unreasonable that it shocks the
conscience of the court. Such award is opposed to public policy and is
required to be adjudged void.
 ONGC Vs Western Geco (2014)9SCC263
What then would constitute the 'Fundamental policy of Indian Law‘?

Include all such fundamental principles as providing a basis for administration of

justice and enforcement of law in this country.
we may refer to three distinct and fundamental juristic principles that must
necessarily be understood as a part and parcel of the Fundamental Policy of
Indian law. The first and foremost is the principle that in every determination
whether by a Court or other authority that affects the rights of a citizen or leads
to any civil consequences, the Court or authority concerned is bound to adopt
what is in legal parlance called a 'judicial approach' in the matter. The duty to
adopt a judicial approach arises from the very nature of the power exercised by
the Court or the authority does not have to be separately or additionally
enjoined upon the fora concerned. What must be remembered is that the
importance of Judicial approach in judicial and quasi judicial determination lies
in the fact so long as the Court, Tribunal or the authority exercising powers that
affect the rights or obligations of the parties before them shows fidelity to
judicial approach, they cannot act in an arbitrary, capricious or whimsical
manner.

Copyright to Anirban Chakraborty, 2010

 TIME PERIOD FOR CHALLENGING AN
AWARD: UNDER SECTION 34
• Union of India v. Popular Construction Co (2001,
SC):
– Section 5 of the LA was inapplicable to an application for setting aside
an award because section 34(4).
• State of Goa v. Western Builders, (2006, SC)
– Section 43 of 1996 Act suggests other provisions of the LA Act are not
excluded – hence, exclusion of time wasted in prosecuting bona fidely
before a court without any jurisdiction.
• State of Goa v. Praveen Enterprises, (2012, SC)
– Computation of limitation period = time when the COA arose and the
date of which arbitral proceedings were commenced or when the
given claim was raised before the arbitrator in CC.
 Appeal
An appeal shall lie from the order of
1. Court
• Granting or refusing to grant any measure under section
9;
• Setting aside or refusing to set aside an arbitral award
under section 34

2. Arbitral Tribunal
• Accepting the plea referred to in sub-section (2) or sub-
section (3) of section 16; or
• Granting or refusing to grant an interim measure under
section 17
• No second appeal shall lie from an order passed in appeal
 Finality of an award
Arbitral award shall be final and binding on the
parties and persons, claiming under them
respectively.

Enforcement
Where the time for making an application to set
aside the arbitral award under section 34 has
expired, or
such application having been made, it has been
refused
the award shall be enforced under the Code of
Civil Procedure 1908 (5 of 1908) in the same
manner as if it were a decree of the court.