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INTRODUCTION
State the object and scope of Arbitration and Conciliation law in India. [16] May 08
Define Arbitration Agreement. Explain the nature, meaning and importance
of Arbitration Agreement. [16] Dec 06, 05, 03, Dec 02, 02, Dec 01
Introduction: To internationalise the Arbitration Law in India, it was felt that the
Arbitration Law, 1940 has become out dated in the present scenario of economic reforms
world wide. The Law Commission of India as well as the domestic and international
arbitration and conciliation bodies including several experts in the field of arbitration
relating to trade and industry have proposed amendments, modifications to the
Arbitration Act, 1940 to make the law more responsive and effective to suit most with the
law dealing with the settlement of disputes in respect of domestic and international
commercial matters. There was no law in India to provide the comprehensive enactment
to meet the present requirements to settle domestic and international commercial disputes
amicably by arbitration and conciliation machinery.
At the international level it was also felt that the increasing arbitration and conciliation
acceptance in trade and industry is the most important requirement of the present
commercial activities, and as such the United Nations Commission on International Trade
Law (UNCITRAL) have adopted the Model Law with focus on International Commercial
Arbitration in the year 1985. Subsequently, the General Assembly of the United Nations
affirmed and all member countries were directed to give recognition to the United
Nations Commission on International Trade's Model Law, which was introduced with the
object to make arbitration procedure and practice in the matter of international
commercial activities uniform and simple.
The United Nations Commission on International Trade also adopted a set of conciliation
rules in the year 1980 which were recommended by the General Assembly of the United
Nations to be followed by the member countries where the parties in international
commercial disputes intended to settle their dispute amicably without taking recourse of
strict legal system.
Although, aforesaid Model Law and Conciliation Rules provided international
commercial arbitration and conciliation, there was still a need to legislate law on
domestic arbitration and conciliation on the pattern of the Model Law and Conciliation
Rules. With this object and based on the UNCITRAL Model Law and New York
Convention and Conciliation Rules – the Arbitration and Conciliation Bill, 1995 was
introduced in both the Houses of Parliament on 8th May, 1995. This Bill contained the
reflection of the International Chamber of Commerce Arbitration Rules and in their 1993
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resolution - the Chief Ministers and Chief Justices emphasized the requirements of such
settlement of dispute. The resolution was on the pattern of the United Nations
Commission on International Trade's Model Law and New York Conventions and
Conciliation Rules after the recommendation. The General Assembly of the United
Nations in the matters relating to the International Commercial disputes, thus provided
the harmonious settlement of the dispute by adopting procedure and practice of the
arbitration and conciliation.
India formulated and enacted the new law ‘The Arbitration and Conciliation Law, 1996’
with effect from 16th August; 1996.
There are 86 Sections besides the Preamble and three Schedules in this Act. The Act has
been divided in four parts, in which Part I provides, general provision on arbitration, Part
II provides the enforcement of certain foreign awards, Part III deals with conciliation, and
Part IV deals with supplementary provisions. The Preamble contains the object of this
Act and three Schedules are modeled texts of the Geneva Convention on the execution of
Foreign Arbitral Award, 1927 the Geneva protocol on Arbitration Clauses, 1923 and the
New York Convention on the Recognition and Enforcement of Foreign Arbitral Award,
1993 respectively.
Salient Features of the Arbitration and, Conciliation Act, 1996
The Arbitration and Conciliation Act, 1996 contained the following salient features:
1. A Comprehensive Statute - The Arbitration and Conciliation Act, 1996, is fully
related to the domestic, international and inter-state arbitrations and understanding
point of view. This Act provides importance of enforcement of international
arbitral awards and also conciliation matters as well. The Comprehensive nature
of this Act is the result of the United Nations Commission on International
Commercial Arbitration, 1985 because the Geneva Assembly of the United
Nations had emphasized and also recommended uniform model law on arbitration
among the countries.
2. An Explanatory Code - The old Act of 1940 had no scope for international
arbitration whereas this Act of 1996 is an explanatory and a complete code in
itself, rather an exhaustive Code. For the first time a procedure for Arbitral
Tribunals is provided in this statute, it also gives status of tribunal to the
Arbitrators or Board of Arbitrations or statutory Arbitrations.
3. Curtailment of the Courts’ Powers - The Act has limited the powers of court
rather restricted the exercise of judicial power, in other words confined the extent
of judicial intervention as provided under Section 5 of the Act –‘Notwithstanding
anything contained in any other law for the time being in force, in matters
governed by this part; no judicial authority shall intervene except where so
provided in this part.’ Finality of arbitral awards under Section 35 is subject to
this part according to which an arbitral award shall be final and binding on the
parties and persons claiming under them respectively. Thus, the Act itself
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provides finality of arbitral awards and its enforcement (Section 36) without
intervention of the Court.
4. Procedure for Conduct of Arbitration and Awards in detail – Chapter V of the
Arbitration and Conciliation Act, 1996 from Section 18 to Section 27 provides
detailed procedure, practice whether in hearings or statements of claim and
defence. The Arbitral Tribunals are empowered to settle any objections raised in
respect of jurisdiction or scope of authority of the arbitrators.
5. Precised Powers of the Court - The Act of 1996 has précised the powers of the
court by taking assistance only in certain specific matters. The Court's assistance
can be sought in taking evidence only with the prior approval of the arbitral
tribunals, as under Section 27(1): ‘The arbitral tribunal or a party with the
approval of the arbitral tribunal, may apply to the court for assistance in taking
evidence.’ In the matter of jurisdiction Section 42 of the Act of 1996 states that:
‘Notwithstanding anything contained elsewhere in this part or in any other law for
the time being in force, where with respect to an. arbitration agreement any
application under this part has been made in a court, that court alone shall have
jurisdiction over the arbitral proceedings and all subsequent applications arising
out of that agreement and the arbitral proceedings shall be made in that court and
in no other court.’
6. Powers of the Arbitrators enhanced - In comparison with the old Act, the new Act
has enhanced the powers of the arbitrators in respect of jurisdiction of Arbitral
Tribunals and also improved the competency of the arbitrators to rule. Chapter IV,
Section 16 and Section 17 of the Act 1996 provide these measures.
7. A new form of Conciliation - Part III of the Act, 1996 deals with new
internationalized conciliation approach and explains the application and scope of
conciliation. The Act under Section 63 intends to prescribe number of conciliators
and in case of more than one conciliator, it should be by the agreement of the
parties. Section 63(2) States: ‘Where there is more than one conciliator, they
ought, as a general rule, to act jointly.’ Thus, the new Act contains object of
conciliation' more wide, and much emphasis has been provided on mutual rather
consented conciliation in every respect.
8. International applicability - Under the old Act of 1940, there was no provision for
applicability of any interim award made by the Foreign Arbitral Tribunal i.e., an
Arbitral Tribunal Constituted by the ICC Court Arbitration at London. But, the
new Act of 1996, has provisions for applicability of Foreign Arbitral Tribunal's
awards.
Scope of Arbitration Law in India
In the present time the globalization of trade and commerce and economic liberalization
created need for effective implementation of economic reforms. It was realized that the
old Indian Arbitration Law, 1940 is not effective enough to meet the present day
requirement. Since the multinational companies/enterprises are pouring into India in the
field of banking, insurance, building, construction, electricity, telecommunication etc.
and there is commercial interaction between India and foreign countries wherein such
parties who agree or have agreed for arbitration in case of dispute arising out of such
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commercial activities, it shall be determined and settled in accordance with the
Arbitration and Conciliation Act, 1996 and the rules framed thereunder.
However, it is to be noted that the expression ‘commercial’ in the context of the
Arbitration Law has been observed by the Apex Court in R.M. Investment and Trading
Co. Pvt. Ltd. v. Boeing Company, as follows: ‘While construing the expression
"commercial" in section 2 of the Act, it has to be borne in mind that the Act is calculated
and designed to subserve the cause of facilitating international trade and promotion
thereof by providing speedy settlement of disputes arising in such trade through
arbitration and any expression or phrase occurring therein should receive a.liberal
construction".
In the present case the Apex Court has held that consultancy rendered by R.M.
Investment and Trading Co. Pvt. Ltd. to Boeing Company for the purpose of developing
commercial activities of sale of Boeing aircrafts is purely "commercial" in nature, hence,
relationship between two companies with each other is commercial.
In another case, the Apex Court has held that activities such as exchange of commodities
for money or other commodities, carriage of persons and goods by road, rail, air or
waterways, contract, postal and telegraph services, banking, insurance and transactions in
stock exchange are considered to be commercial interaction within the ambit of Article
301 of the Constitution of India, 1950 which deals with freedom of trade, commerce and
intercourse – ‘Subject to the other provisions of this part, trade, commerce and
intercourse throughout the territory of India shall be free.’
Thus, all kinds of commercial activities may be arbitrable provided there is an agreement
in this regard between the parties. But in Kamini Engineering Corporation v. Re
Traction, the Apex Court has held that merely providing technical assistance in
electrification of railways which did not involve assistance or consultancy into active
business and therefore such an agreement cannot be interpreted to be commercial in
nature as it is outside the scope of term ‘commercial’ in the context of the Arbitration
Act.
Where there is an arbitration agreement within the meaning of Section 7 of the
Arbitration and Conciliation Act, 1996 in case of dispute the conflicting parties can be
referred for arbitration. S. 7(1) of the Arbitration and Conciliation Act, 1996 defines the
term ‘arbitration agreement’ as follows: ‘Arbitration agreement’ means an agreement by
the parties to submit to arbitration all or certain disputes which have may arise or which
may arise between them in respect of defined legal relationship, whether contractual or
not.’
S. 7(2) of the said Act provides that an arbitration agreement may be in the form of an
arbitration clause in a contract or in the form of a separate agreement Although Section
7(3) makes it compulsory that an arbitration agreement shall be in writing. According to
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S. 7(4) of the Arbitration and Conciliation Act, 1996 an arbitration agreement may
contain the following:
1. a document signed by the parties;
2. an exchange of letter, telex, telegram, or other means of telecommunication which
provides a record of the agreement; or
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.
Therefore, it can, be said to come within the scope of the Arbitration Act, there are three
essentials:
• such an agreement must be in writing;
• there must have definite parties;
• parties must have intention to settle their disputes by way of arbitration.
Conclusion
Explain the statement of objects and reasons stated in the BILL on the law
of arbitration and conciliation. [16] May 08
Introduction: On 16th May, 1995 the Bill relating to law of arbitration and conciliation
was introduced in the Rajya Sabha by the then Minister of Law and Justice. On 17th May,
1995 the Chairman, of Rajya Sabha referred the Bill to the Parliamentary Committee. On
28th November, 1995 the said Committee submitted its report to the Parliament. The then
Central Government was compelled to promulgate an Ordinance on Arbitration and
Conciliation Act as the Winter Session of the Parliament in December, 1995 expired
without transacting any business. Only on 16th July, 1996 the Rajya Sabha passed the
Arbitration and Conciliation Bill, 1995 and on 2nd August, 1996 the Lok Sabha also
cleared the said Bill, thereafter it received the assent of the President of India on 16th
August, 1996 and it became an Act i.e., the Arbitration and Conciliation Act, 1996 came
into force on 25th January, 1996.
Statement of Objects and Reasons
The present Arbitration and Conciliation Act, 1996 is substantially based on the three
statutes, namely:
• The Foreign Awards (Recognition and Enforcement} Act, 1961;
• The Arbitration (Protocol and Convention) Act, 1937; and
• The Arbitration Act, 1940.
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It was realized from all quarters that the (Indian) Arbitration Act, 1940 has become
outdated as it contained the general law relating to arbitration and with a view to provide
more responsive arbitration law to contemporary requirements and also to provide
effective law dealing with settlement of both domestic and international disputes
regarding commercial intercourse such major reformative amendments in the (Indian)
Arbitration Act, 1940 have been incorporated by the Indian Parliament. Undoubtedly the
arbitration and conciliation in the commercial transactions are getting global recognition
as a machinery for settlement of disputes.
The Model Law on International Commercial Arbitration has been adopted by the United
Nations Commission on International Trade, Law (UNCTIRAL) in 1985. The United
Nation's General Assembly has recommended that all countries give due recognition to
said Model Law, in view of the desirability of uniformity of the Law of arbitral
procedures and specific needs of international commercial arbitration practice. Also, the
United Nations Commission on International Trade Law (UNCTIRAL) has adopted a set
of Conciliation Rules in 1980. It was intended by the General Assembly of the United
Nations that these Conciliation Rules are to be used in case of disputes arising in the
context of the international commercial relations and. conflicting parties can seek friendly
settlement of their disputes by taking recourse to conciliation. It is important to note that
the United Nations Commission on International Trade Law (UNCTIRAL), the Model
Law and Rules aimed to harmonise the concept of arbitration and conciliation of different
legal systems worldwide, therefore, these UNCITRAL Model Law have such provisions
which are designed for universal application.
It would be seen that the said UNCITRAL Model Law and Rules served as a model for
legislation on domestic arbitration and conciliation. The Arbitration and Conciliation Bill,
1995 seeks to consolidate and amend the law relating to domestic arbitration,
international commercial arbitration, enforcement of foreign arbitral awards and to define
the law relating to conciliation, taking into account the United Nations Commission on
International Trade Law (UNCITRAL), Model Law and Rules.
The Arbitration Act, 1940 has become outdated - Object of the Present Act
In Objects and Reasons appended to the Arbitration and Conciliation Bill, 1995 it has
been stated that the Arbitration Act, 1940 has become outdated and therefore, the present
Bill sought to consolidate and amend the law relating to domestic arbitration and
International commercial arbitration.
Prior to the promulgation of the Arbitration and Conciliation Act, 1996 the law on
arbitration in India was substantially contained in three enactments, namely the
Arbitration Act, 1940, the Arbitration (Protocol and Convention) Act, 1937 and the
Foreign Awards (Recognition and' Enforcement) Act, 1961. In the statement of Objects
and Reasons appended to the Bill it was stated that the Arbitration Act 1940, which
contained the general law on arbitration, had become outdated. The said objects and
reasons stated that the United Nations Commission on International Trade Law
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(UNCITRAL) adopted in 1985 the Model Law on International Commercial Arbitration.
The General Assembly had recommended that all countries give due consideration to the
said Model Law which along with the rules, was stated to have harmonized concepts on
arbitration and conciliation of different legal systems of the world and thus contained
provisions which were designed for universal application. The above said statement of
objects and reasons in para 3 states that ‘though the said UNCITRAL Model Law and
Rules are intended to deal with international commercial arbitration and conciliation they
could, with appropriate modifications serve as a model for legalization on domestic
arbitration and conciliation. The present Bill seeks to consolidate and amend the law
relating to domestic arbitration, international commercial arbitration, enforcement of
foreign awards and to define the law relating to conciliation, taking into account the said
UNCITRAL Model Law and Rules.
The main objectives of the said Bill are as follows:
1. to comprehensively cover international commercial arbitration and conciliation as
also domestic arbitration and conciliation;
2. to make provision for an arbitral procedure which is fair, efficient and capable of
meeting the needs of the specific arbitration;
3. to provide that the arbitral tribunal gives reasons for its arbitral award;
4. to ensure that the arbitral tribunal remains within the limits of its jurisdiction;
5. to minimize the supervisory role of courts in the arbitral process;
6. to permit an arbitral tribunal to use mediation, conciliation or other procedures
during the arbitral proceedings to encourage settlement of disputes;
7. to provide that every final arbitral award is enforced in the same manner as if it
were a decree of the court;
8. to provide that a settlement agreement reached by the parties as a result of
conciliation proceedings will have the same status and effect as an arbitral award
on agreed terms on the substance of the dispute rendered by an arbitral tribunal;
and
9. to provide that for the purpose of enforcement of foreign awards, every arbitral
award made in a country to which one of the two international conventions
relating to foreign arbitral awards to which India is a party applies, will be treated
as a foreign award.
It is to be noted that in this context the International Conventions mean the New York
Convention and the Geneva Convention relating to foreign arbitral awards, to which
India is a party, and which will be considered as a foreign award.
It would be relevant to be mentioned here that the expression ‘arbitration’ has been
included in Entry 13 of the Concurrent Lists of the 7th Schedule to the Constitution of
India, 1950. Thus, State Legislature can enact legislation relating to arbitration only with
obtaining the assent of the President of India. When the assent is obtained the enacted law
can become effective in the State concerned.
Conclusion
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ARBITRATION AGREEMENT
What is an arbitration agreement? Discuss the essential conditions of an
arbitration agreement under the Arbitration and Conciliation Act, 1996.
[16] May 05, 04, May 03, Dec 02, Dec 01
Define ‘Arbitration Agreement’ & State its essentials [10] May 07, Dec 06, 05, Dec 05, May 04, 03, Dec 02, 02, Dec 01
Arbitration Agreement [10] May 09, May 08, Dec 06, Dec 03
Explain the important features of an arbitration agreement. What are the
advantages of settling disputes through arbitration? [16] Dec 04
Introduction: Section 2(1)(b) of the Act of 1996 provides that the word ‘Arbitration
Agreement’ is to be interpreted and understood with reference to Chapter II, Section 7 of
the Arbitration and Conciliation Act, 1996.
Section 2(1)(b) of the Arbitration and Conciliation Act, 1996 while defining arbitration
agreement, refers to Section 7 which may be read as a part thereof. Section 7 states:
Arbitration agreement
(1) In this Part, "arbitration agreement" means an agreement by the parties to submit
to arbitration all or certain disputes which have arisen or which may arise
between, them in respect of a defined legal relationship, whether contractual or
not.
(2) An arbitration agreement may be in the form of an arbitration clause in a contract
or in the form of a separate agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is contained in
• a document signed by the parties;
• an exchange of letter, telex, telegram or other means of telecommunication
which provide a record of the agreement; 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.
(5) The reference in a contract to a document containing, an arbitration clause
constitutes an arbitration agreement if the contract is in writing and the reference
is such as to make that arbitration clause part of the contract.
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Inference of an Agreement
The term ‘agreement’ has been defined under the Indian Contract Act, 1872. The said Act
defines that every promise and every set of promises forming the consideration for each
other is an agreement.
It is voluntary agreement, it is willingness of either side to abide by arbitral award of the
arbitrator. Thus, agreement is a reciprocal promise from either side. Arbitration
agreement gives right to parties to initiate arbitration proceedings when rights of the
parties are violated or liabilities of the parties are not being discharged. The
determination whether a particular clause amounts to a valid submission is whether both,
parties are bound by the clause or not and whether a right has been expressly given to
both the parties to initiate proceedings.
Essential Ingredients of a Valid Arbitration Agreement
It is settled legal position that a valid agreement should have the following:
(1) it must be in writing;
(2) there must be agreement between the parties;
(3) the parties must be ad idem; and
(4) there should be intention of the parties to have their disputes or differences
referred and decided through arbitration.
Thus, the parties, disputes and finality of the decision are three essentials of an arbitration
agreement. However, the statutory essentials of an arbitration agreement may be listed as:
• an agreement;
• it must be in writing;
• it may be relating to either present or future differences or disputes;
• whether an arbitrator is named therein or not.
Validity of an arbitration agreement does not depend on the number of arbitrators
It is well settled legal position that the validity of an arbitration agreement does not
depend on the number of arbitrators specified therein. The present Arbitration and
Conciliation Act, 1996 does not suggest anywhere that a number of arbitrators is a part of
an arbitration agreement.
Factum of a contract - Submission to Arbitrator for decision
The parties are free to submit by an agreement even the factum of a contract for the
decision by the arbitrator. It is all a matter of interpretation of a contract from which th
arbitrators derive their authority.
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Parties should intend to settle their disputes by arbitration
It is one of the essential requirement of an arbitration agreement that the parties should
intend to make a reference to arbitration in case of any dispute relating to the terms of the
contract. There must be clear intention in this regard, because consent of the parties is
necessary before making a reference to arbitration. Where, there is express intention in
the agreement to resolve the disputes if it arises by way of arbitration and on arising of
dispute a reference to arbitration may be made by one party without the consent of the
other party.
Bilateral Rights of Reference to the Parties
Whether the arbitration agreement should show mutuality to confer the right to exercise
to initiate arbitration proceeding. On the point there is conflicting opinions expressed by
the High Courts.
The Calcutta High Court in New India Assurance Co. Ltd. v. Central Bank of India,
observed that - "where there is an arbitration agreement providing the option to the
parties, to elect the dispute being referred to the arbitration, it amounts to a valid
arbitration agreement and merely unilateral option as to refer the dispute to arbitration
does not negative the very existence of the arbitration agreement, it only restricts the
enforceability. The court opined though it lacks mutuality but it can not be treated as
invalid.
On the other hand the Delhi High Court in Union of India v. Bharat Engineering
Corporation, was of the opinion that an arbitration agreement should show bilateral
rights of reference to arbitration in a case of disputes or differences arising between the
parties.
Under the Act oral agreement cannot be recognized
It is one of the essential requirement that an arbitration agreement must be in writing.
Neither the Arbitration Act, 1940 nor the Arbitration and Conciliation Act, 1996
recognises oral agreement. It is a mandatory provision as provided under Section 7 of the
new Act, 1996 which must be complied with to make a valid arbitration agreement.
In Owal Chand, v. Madan Lal, the court has refused to recognize oral agreement,
regarding arbitration of dispute and, it was held that oral submission / agreement may be
the basis of a suit but it cannot be a basis of arbitration as it has no weight in the eyes of
law.
Signature of parties is necessary in arbitration agreement
Even the Arbitration and Conciliation Act, 1996 nowhere says that an arbitration
agreement should necessarily be signed by both the parties, though the Act makes it
mandatory that an arbitration agreement must be in writing. The Apex Court in Jugal
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Kishore Rameswardas v. Mrs. Goelbai Hormusji, has held that it is not necessary that
both the parties should sign the arbitration, agreement. Such agreement must be reduced
into writing and may be signed by one party showing terms of arbitration agreement and
the other party accepts the terms therein. It can be said that wherein one party signs a
written agreement/arbitration agreement and other party accepts the same, it amounts to a
legal arbitration agreement.
The Utility of Arbitration
1. Quick and Cheap – Compared to ordinary litigations, the arbitral proceedings are
much cheaper and quick.
2. Acquaintance with the arbitrator - The parties themselves mutually agree to
appoint the sole arbitrator or a panel of arbitrators. Generally such arbitrators are
related with the same field and technical qualities. Therefore, the parties have
personally acquaintance with such arbitrators. Before the arbitral tribunal, the
parties can freely express their opinions, which cannot be expressed before the
court of law. This helps the arbitral tribunal to come to a conclusion very easily
and speedily.
3. Only one arbitral proceeding - Before the court of the law, there would be many
cases pending. It is also not possible to a Judge to concentrate on all of them at
one time and to dispose them speedily. Hence adjournments frequently take place.
The result is that much time is taken in ordinary civil courts. There are examples
in India, some cases have been prolonged for two or three decades or more. This
prolongation and unnecessary adjournments do not occur in arbitral proceedings.
Moreover, the arbitral tribunal generally has only one arbitral proceeding before
it. Therefore, it can concentrate on it and can dispose it very easily and speedily.
4. Legal Practitioners - Legal Practitioners are also one of the causes for delaying
legal proceedings. As there is no involvement of legal practitioners in the arbitral
proceedings, and the parties themselves present before the arbitral tribunal, the
dispute is solved speedily.
5. Language and Procedure - In the Courts, English is commonly used, which may
not be known to several litigants. The legal procedures are also complicated in the
courts. The litigants cannot know all the legal procedures and language. This is
not the position before the arbitral tribunal. The parties can agree the terms
regarding the language and procedure, which are acquainted to them.
6. William H. Gal in his ‘The Law of Arbitration’ explains the concepts of
arbitration and litigation as follows - 'One of the principal advantages of
arbitration over litigation is commonly stated to be that, where the dispute
concerns a technical matter such as a building contract, the person chosen to
arbitrate will normally be an expert in the subject matter of the dispute, whereas a
judge will seldom have any practical experience of the technicalities of the trade
in question.’
7. In Northern Health Authority vs. Derek Crouch Ltd., the Court of Appeal
observed: ‘The court does not have the power which the arbitrator had to open up
and review the exercise of the architect a discretion since the court's jurisdiction
was limited to determining and enforcing the contractual rights of the parties. The
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arbitrator, on the other hand, because the parties’ agreement expressly gave him
such power, was entitled to modify the parties’ contractual rights by substituting
his own discretion for that of the architect if he disagreed with the architect’s
certificates and opinions. Accordingly, if the parties chose to litigate rather than
arbitrate the court would not have the same power.’
8. Complementary to C.P.C. - The Arbitration and Conciliation Act, 1996 is only
complementary and not contradictory to the Civil Procedure Code, 1908. It means
it works on the same principles, aims and objects of the Civil Procedure Code. An
award passed by the arbitral tribunal is equal to a ‘decree’ of a civil court. Even
though the arbitral tribunal is exempted from the adjective law, it has to follow
the principles of natural justice, which include the adjective laws inherently.
Further the arbitral tribunal should follow the substantive laws strictly.
Conclusion
Under what conditions judicial authority can refer parties to arbitration?
When can the parties seek interim order from the court for arbitration?
[16] Dec 06, May 01
Explain the powers of court to pass interim orders. [16] May 09, May 07, May 05, Dec 05, Dec 04, May 03, Dec 03
Explain the rules relating to interim measures, etc. by the courts with
decided cases. [16] May 08
Introduction: S. 8 and 9 of the Arbitration and Conciliation Act, 1996 refer to the
matters dealing with the provisions wherein the judicial authority can refer parties to
arbitration and the interim reliefs that can be asked for respectively.
Power to refer parties to arbitration where there is an arbitration agreement [S. 8]
Section 8 of the Act, 1996 is on the pattern of Article 8 of the Model Law. It states:
(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.
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(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 arbitral award made.
Section 8(1) provides discretionary power to the judicial authority, and the parties to an
arbitration agreement make such request before a judicial authority but not later than
submitting his first statement, the judicial authority should refer the parties to arbitration.
It is necessary for application of this sub-section that a judicial authority can refer only
the subject-matter of an arbitration agreement but not otherwise.
Although, under Section 8(1) a court cannot adopt on its own motion to avail this
provision; the parties have to apply with request, however while considering such
request, the court cannot go into the merits of the dispute.
Section 8(2) provides mandatory provision for application of Section 8(1) which
specified that, "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.
Section 8(3) empowered the arbitral tribunal to start off arbitration and if already
commenced can continue arbitration and also can make award, it is not the point that an
application under Section 8(1) is pending before the court. Thus, the parties are not
deprived to initiate arbitral proceeding even if proceeding before a judicial authority have
already commenced. The main object of this sub-section is to discourage deserters
instead push them to their agreement to arbitration.
It is important to note that Section 8 of the 1996 Act postulates not only request by the
party for staying legal proceedings but also contemplates for referring the parties to
arbitration.
Expression ‘Party’ under Section 8
Although, Section 2(1)(h) of the Arbitration and Conciliation Act, 1996 defines the
expression ‘party’, it means a party to an arbitration agreement. Thus, the party to an
arbitration agreement, may be between two or more persons, it may also be between body
of persons or incorporated bodies. But, certainly they are disputed parties who submit
their dispute for settlement under the arbitration agreement.
It is to be noted that the ‘party’ referred to in Section 8(1) of the Arbitration and
Conciliation Act, 1996 is a party who is entitled to maintain the application thereunder.
The party to the arbitration agreement who has himself instituted the suit is clearly not
the ‘party’ envisaged. In Magma Leasing Ltd. v. NEPC Micon Ltd. wherein first
defendant however, a party to the arbitration agreement who has elected to institute the
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ARBITRATION, CONCILIATION & ADR SYSTEMS 15
suit in question in enforcement of its rights and as such it cannot be said to be a ‘party’
within the meaning of that section 8(1) of the Act.
Judicial Authority under Obligation to Refer the Parties for Arbitration
Under Section 8 of the new Act the judicial authority is under obligation not only to make
an order for staying proceedings, but also under obligation to refer the parties for
arbitration.
The Delhi High Court in Gas Authority of India Ltd. v. Spie Capag observed that while
considering application whether to grant stay of proceedings and refer the parties to
arbitration, the judicial authority has to consider the following issues:
1. Dispute before the judicial authority is arbitrable.
2. There is a valid arbitration agreement between the parties.
3. One of the parties of the arbitration agreement has started legal proceedings.
4. The party has not submitted the first statement on the substance of dispute.
Mere defect in the form of arbitration agreement would not be proper to deny the right of
the parties to go into arbitration.
No Appointment of an Arbitration through Court
Under the new Arbitration and Conciliation Act 1996 there is no provision for
appointment of' arbitrator by seeking intervention of the court, though contrary to the old
Arbitration Act, 1940 namely S. 20 provided that a party could commence proceedings in
court by moving an application under said section of the old Act for appointment of an
arbitrator and simultaneously it could move an application for interim relief under the 2nd
Schedule r/w S. 41(b) of the Arbitration Act, 1940.
As said above the Arbitration and Conciliation Act, 1996 does not contain a provision
similar to Section 20 of the Arbitration Act, 1940, nor is Section 9 or Section 17 similar
to Section 41(c) and the Second Schedule to the Arbitration Act, 1940. It is to be
specifically noted that Section 8 of the new Act, 1996 is not in the pari materia with
Section 20 of the Arbitration Act, 1940. It is only if in an action which is pending before
the court that a party applies that the matter is the subject of an arbitration agreement
does the court get jurisdiction to refer the parties to arbitration.
Arbitration Proceedings and Legal Proceedings to be continued Concurrently
It is very special feature of the Arbitration and Conciliation Act, 1996 which makes
provision particularly Section 8(3) that arbitration proceedings and legal proceedings may
be continued concurrently. S. 8 nowhere prohibits starting or initiating or continuing
arbitration proceedings when an application for stay of legal proceeding is pending before
the judicial authority or the court. The Calcutta High Court in G.V.S Packing Co v. Vinod
Textiles, observed that the provision of S. 8 is equally applicable in winding up
proceedings of a company.
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It is to be noted that an order made by the court / judicial authority while exercising
power u/S 8 of the A&C Act, 1996 is not challengeable, thus such order is not appealable
u/S 37 of the said Act.
Non-existence of a valid arbitration agreement - High Court cannot pass a decree in
terms of award
In Tamil Nadu Electricity Board v. Sumathi, a writ petition was filed claiming
compensation on account of death due to tortuous act. However, the High Court held and
referred the matter to the arbitrator and made the award rule of the court and also passed
a decree in terms of award. The Supreme Court while considering the above mentioned
case observed that since disputed question of facts arose in the present appeals the High
Court should not have entertained writ petitions, under Article 226 of the Constitution of
India, 1950 and then referred the matter to arbitration in violation of the provisions of the
Act, 1996. There was no arbitration agreement within the meaning of Section 7 of the
Act, 1996 under the Arbitration and Conciliation Act, 1996. Award can be enforced as if
it is a decree of account and yet the High Court passed a decree in terms of the award
which is not warranted by the provisions of the new Act, 1996. Appellant also had raised
plea of bar of limitation as in many cases if suits had been filed those would have been
dismissed as having been filed beyond the period of limitation. The Supreme Court held
that exercise of jurisdiction by the High Court in entertaining the writ petition was not
proper and High Court in any case could not have proceeded to have the matter
adjudicated by an arbitrator in violation of the provisions of the new Arbitration and
Conciliation Act, 1996.
Submission of first statement not a bar on the court referring the parties to arbitration
The Supreme Court in P. Anand Gajapathi Raju v. P.V.G. Raju, while considering the
power of the court to refer the dispute to arbitration under Section 8 of the new Act, 1996
where during the pendency of the dispute before the Supreme Court, parties entered into
arbitration agreement and sought reference, it was held that the submission of first
statement on substance of dispute was not a bar on the court referring the parties to
arbitration provided other parties do not object. In the present case the court observed as
follows: ‘The conditions which are required to be satisfied under sub-sections (1) and (2)
of Section 8 before the court can exercise its powers are:
1. There is an arbitration agreement.
2. A party to the agreement brings an action in the court against the other party.
3. Subject-matter of the action is same as the subject-matter of the arbitration
agreement.
4. The other party moves the court for referring the parties to arbitration before it
submits his first statement on the substance of dispute.
The last provision creates a right in the person bringing the action to have the dispute
adjudicated by court, once the other party has submitted his first statement of defence.
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But, if the party, who wants the matter to be referred to arbitration applies to the court
after submission of his statement and the party who has brought the action does not
object, as is the case before the court, therefore, is no bar on the court referring the parties
to arbitration.
Grounds for which Stay of Legal Proceedings may be Refused
There are certain circumstances when judicial authority may refuse the stay of legal
proceeding, these are as under:
1. When it appears that the party has waived his right to seek stay of legal
proceedings before submission of first statement on the substance of dispute.
2. When the Judicial authority or court is of the view that no adequate relief would
be available to the party.
3. When the Court / Judicial authority is of the opinion that no contract has in fact
been concluded between the parties.
4. When the contract itself is vitiated by bias or fraud.
5. When the main contract is void ab initio or illegal or non-existent.
6. Where the suits or claim has foundation on Hundies or on Negotiable Instruments.
Interim Measures etc by Court [Section 9]
Section 9 empowers the courts to grant interim measures at their discretion, thus it is the
discretionary power of the court. The Court while considering an application made by a
party would consider the various aspects of the matter such as whether prima facie case
has been made out, whether the loss would be huge or beyond economic repair, if the
suitable interim measures not being granted. But, such measures can be granted in aid of
the arbitration proceedings and not to frustrate them.
An application to the court to grant interim measures can be made on specified purposes
under the Act,
1. for the appointment of a guardian for a minor or person of unsound mind for the
arbitral proceeding;
2. to obtain custody, preservation and sale of any goods provided such goods is the
subject-matter of an arbitration agreement;
3. to cause recovery of the amount as a result of an arbitral award;
4. to detain, preserve and inspect any property or thing which is subject-matter of an
arbitration agreement,
5. to obtain interim injunction,
6. to appoint a receiver.
The aforesaid purposes to grant interim measures contained in [clauses (a) to (e). Section
9 of the Act provide certain guidelines to a court and also provides the grounds to the
parties in an arbitration agreement.
To grant interim measures under Section 9, a court has discretionary power and this
section does not specify all the interim measures. The court has to take account of every
aspect of each case and also requirement of a case. This power of the courts to grant
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interim measures cannot be taken away by the parties by contest as it is the requirement
of the Act.
Interim Measures given by Court
Wherein the parties may feel the need for safeguarding interim custody preservation,
protection, storage, sale or disposal of the whole or part of the subject-matter of the
dispute or for its inspection or for samples to be taken, such matters had to be referred to
the court under Second Schedule to the old Indian Arbitration Act, 1940.
The new Arbitration and Conciliation Act, 1996 Under Section 9 and under Section 17
enables the court and arbitrator respectively to take interim measures. Section 31(6) also
empowers the arbitrator at any time during the arbitration proceedings to make an interim
arbitral award on any matter with respect to which the arbitrator may make a final award.
Thus, under the new Act, 1996 makes provision for exercising powers as to interim
measures and relating to the matter to which the arbitrator's final award may be based.
Granting of Interim Injunction / Interim Measure
Whether to grant interim injunction/interim measure is a discretionary power of the court.
It is to be noted that the powers conferred upon the court u/s 9 of the new Act, 1996 are
wider in scope than those powers conferred upon the Arbitral Tribunal u/s 17 of the new
Act.
While considering the grant of interim measures, the court may see, amongst other things,
as such:
1. whether the applicant has made out a prima facie case;
2. whether the balance of convenience is in his favour; and
3. whether he would suffer irreparable injury if such measures are not granted.
It is a settled position that interim injunction / interim measure can be granted in aiding
the arbitration proceedings and not to frustrate them. However, in guise of granting
interim measures / interim injunction, the court cannot adjudicate the subject – matter of
the dispute, because that task belongs to the arbitral Tribunal and not to the court.
Interim Order may be made even Before Commencement of Arbitration
Proceedings
The Apex Court in Ms. Sundaram Finance Ltd v. M/s N.E.P.C India Ltd., observed that
Section 9 of the new Act, 1996 does not contemplate, unlike Section 20 of the Arbitration
Act, 1940, a party applying to a court for appointing an arbitrator when no matter is
pending before the court. Under the new Act appointment of arbitrator is made as per the
provisions of Section 11 which does not require the court to pass a judicial order
appointing arbitrator/arbitrators. The High Court was, therefore wrong in referring to
these provisions of the Arbitration Act, 1940 while interpreting Section 9 of the new Act.
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Under the new Act, 1996 the court can pass interim orders when the request to refer the
dispute is received by the respondent as per S. 21 of the Act. The material words
occurring in Section 9 are ‘before or during the arbitral proceedings.’ This clearly
contemplates two stages when the court can pass interim orders i.e. during the arbitral
proceedings or before the arbitral proceedings. There is no reason as to why S. 9 of the
new Act should not be liberally construed.
Conclusion
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COMPOSITION OF ARBITRAL TRIBUNAL
Define an Arbitrator. Explain the provisions relating to appointment of
arbitrators under the Act. What are the grounds on which the appointment
can be challenged? [16] May 08, Dec 01
Explain the provisions relating to appointment and removal of arbitrators.
[16] May 07, Dec 06, May 04, May 03, Dec 03, May 01
On what grounds the appointment of an arbitrator can be challenged in
court? Discuss. [16] Dec 06, 06
Introduction: An ‘Arbitrator’ may be defined as ‘a private, neutral person chosen to
arbitrate a disagreement, as opposed to a court of law. An arbitrator could be used to
settle any non-criminal dispute, and many business contracts make provisions for an
arbitrator in the event of a disagreement. Generally, resolving a disagreement through an
arbitrator is substantially less expensive than resolving it through a court of law.’
The legal definition of an ‘arbitrator’ is the submission of a dispute to an unbiased third
person designated by the parties to the controversy, who agree in advance to comply with
the award—a decision to be issued after a hearing at which both parties have an
opportunity to be heard.
Appointment of Arbitrators [S. 11]
Section 11 of the Act, 1996 is the lengthiest section. There are 12 clauses under this
section which elaborate on the matter.
Section 11(1) - After internationalization of present Act, nationality of an arbitrator is
immaterial and so this Section 11(1) of the Act provides freedom to the parties to appoint
a person of any nationality as an arbitrator, however, the parties may restrict themselves
to certain nationalities of the states to be appointed as an arbitrator. There is no
discrimination in respect of nationality of an arbitrator. Therefore, a foreign national may
be appointed as an arbitrator.
Section 11(2) - This sub-section prescribes a procedure appointing the arbitrators and the
parties have been given the freedom to lay-down procedure under this sub-section (2)
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ARBITRATION, CONCILIATION & ADR SYSTEMS 21
although this sub-section (2) is to be read with sub-section (6) and sub-section (8) and the
freedom of the parties provided in this sub-section is subject to certain restriction as to
follow mandatory provisions laid-down in sub-section (6).
Section 11(3) - This sub-section (3) would come into operation when the parties fail to
reach agreement on an appointment procedure. An arbitration agreement with three
arbitrators if failed, each party is given authority to appoint one arbitrator and these two
appointed arbitrators shall appoint the third arbitrator who shall be the presiding arbitrator
in the arbitration.
Section 11(4) - Further, this sub-section (4) deals with the circumstances when a party
fails to appoint an arbitrator within prescribed time limit i.e., 30 days, even after the
receipt of request relating to appointment of an arbitrator from the other party or
according to sub-section (4)(b). The two appointed arbitrators fail to agree on the
appointment of the third arbitrator within prescribed time limit i.e.. 30 days, from the date
of their appointment, in such situation this sub-section (4) provides that the Chief Justice
of India or the Chief Justice of a High Court is authorized to make an appointment upon
request of a party. Although, any institution designated by the Chief Justice of India or
Chief Justice of a High Court may appoint an arbitrator. It is expected that these
functionaries would act upon request of the parties expeditiously and these functionaries
are not required to consult the parties or the arbitrators while making such appointment.
Section 11(5) - Under sub-section (5) failing any agreement referred to in sub-section (2),
there would be a sole arbitrator. Where the parties could not arrive to an agreeable
position on arbitrator within 30 days time from the date of the receipt of a request by one
party from the other party to do so, in such circumstances the Chief Justice or any person
or institution designated by the Chief Justice should make an appointment under the
provision of sub-section (5) of Section 11 of the Act .
Failure to appoint arbitrator on new method empowers other party to seek remedy from
court for appointment of arbitrator.
Section 11(6) - Sub-section (6) contains a mandatory provision and it comes into play
when the parties had agreed on an appointment procedure i.e., when the parties or the two
appointed arbitrators failed to appoint a third arbitrators, a person including an institution
has failed to perform a function entrusted to him under that agreed procedure. That means
that when there is a complete failure on an agreed appointment procedure, this sub-
section would be operated to eliminate obstacles.
Section 11(7) - Sub-section (7) states that there is no appeal and a decision is final, on a
matter entrusted by sub-section (4) or sub-section (5) or sub-section (6) to the Chief
Justice or the person or an institution designated by the Chief Justice.
Section 11(8) - Sub-section (8) provides guidelines in the matter of appointment of an
arbitrator by the Chief Justice or the person or institution designated by him. It is
provided under this sub-section (8) that gives guidelines while making the appointment of
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an arbitrator. The functionaries mentioned in the sub-section, shall have due regard to
these guidelines:
(a) any qualifications required of the arbitrator by the agreement of the parties, and
(b) other considerations as are likely to secure the appointment of an independent and
impartial arbitrator.
Though, this sub-section (8) does not prescribe the qualification of an arbitrator but
specifies more particularly that an arbitrator should be an independent and impartial
person.
Section 11(9) - Sub-section (9) also provides guidelines to functionaries i.e., the Chief
Justice of India or the person or institution designated by him, in the matter of
appointment of sole arbitrator or third arbitrator in an international commercial
arbitration, that these functionaries should appoint an arbitrator of a nationality other than
the nationalities of the parties, in case the parties belong to different nationalities. Thus,
sub-section (9) aimed to eliminate scope of partiality by nationality of different countries
between the parties and arbitrator / arbitrators.
Section 11(10) - Sub-section (10) provides power to the Chief Justice to make an
appropriate scheme in respect of the matters entrusted to him, by sub-section (4) or sub-
section (5) or sub-section (6). The powers vested under this sub-section (10) is of
administrative nature therefore the scheme made by the Chief Justice would be of
administrative character which is essential for enforcement of the Act effectively.
Section 11(11) - Sub-section (11) provides solution to the problem when different parties
approach to different Chief Justices or their designates, under sub-section (4), or sub-
section (5) or sub-section (6). The Chief Justice or his designate to whom the request has
been first made under the relevant sub-section shall alone be competent to decide on the
request. That means the Chief Justice or his designate who first receives and accepts the
request shall have power to decide on the entrusted matter.
Section 11(12) - Sub-section (12) explains that in case of international commercial
arbitration reference is to be made to the Chief Justice of India and. in case of domestic
commercial arbitration reference is to be made to the Chief Justice of High Court within
whose local limit the principal court in clause (e) of sub-section 1(1) of Section 2 is
situate and where the High Court itself is the Court referred to in that clause, then the
Chief Justice of that High Court.
Grounds for Challenge [S. 12]
Section 12, is on the pattern of Article 12 of the Model Law which provides grounds for
challenge to an arbitrator and to enforce that justice, fair play, impartiality and
independency must be followed by an arbitrator.
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Section 12(1) contains an expectation of an honest, willful, disclosure from a prospective
arbitrator to make in writing such disclosures which is likely to cause question mark as to
his independence or impartiality as an arbitrator.
As per the subject of this Section 12(1) a prospective arbitrator is duty bound to disclose
his antecedent which is likely to affect his role as an arbitrator.
Section 12(2) lays down duty of an arbitrator since he has been appointed as an arbitrator
and throughout the arbitral proceeding if any circumstances mentioned in Section 12(1)
arise, to be disclosed in writing to the parties, unless the parties have already been
informed by an arbitrator. An arbitrator shall also be proceeded without delay in this
regards.
Section 12(3) provides ground for challenging the arbitrator, when:
i. the circumstances present to cause justifiable doubts to his independence or
impartiality, or
ii. found not qualified as per the agreement between the parties.
Thus, sub-section (3) averts the flimsy ground to challenge by providing good, reasonable
grounds to challenge the arbitrator.
In Jiwan Kumar Lohia v. Durga Dutt Lohia, the Supreme Court of India said, that
‘Reasonable apprehension of bias in the mind of a reasonable man, can be a good ground
for the termination of the mandate of an arbitrator.’
Section 12(4) provides estoppel against a party to challenge who had knowledge of any
ground mentioned in sub-section (3) before the appointment of an arbitrator, if this is not
so, a party may challenge an arbitrator appointed by him and it does not matter if he has
participated in appointment but he could know only after the appointment.
Duty to disclose is cast on the prospective arbitrator
Sub-sections (1) and (2) of Section 12 of the Arbitration and Conciliation Act, 1996 make
it mandatory for the prospective arbitrator i.e., before the appointment as an arbitrator to
disclose to the parties in dispute in writing any circumstances likely to give rise to
justifiable doubts as to his impartiality or independence. Undoubtedly, the use of
expression ‘shall’ connotes that these provisions are imperative. An arbitrator has to
discharge this duty ‘without delay’ i.e., before he takes over as an arbitrator. It is the
mandate of Section 12(1) and 12(2), of the Act, 1996.
It is submitted that an arbitrator has to follow the principle of natural justice and fair play
while conducting arbitration.
Conclusion
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State the powers of court to appoint an arbitrator. [10] Dec 05, Dec 04
Powers of the Chief Justice of High Court to appoint Arbitrators [10] Dec 02
Under what circumstances can court remove the arbitrators? Illustrate.
[16] May 09, May 06, Dec 05, Dec 05, Dec 05, Dec 03
Introduction: The expressions ‘without delay’ as occurring in Section 12(2) of the
Arbitration and Conciliation Act, 1996 means there should not be undue or unreasonable
delay on the part of arbitrator's duty to disclose when such person is first approached in
connection with his possible appointment as an arbitrator. Section 12(2) provides that this
duty of the arbitrator has to be discharged from the time person is appointed as an
arbitrator and maintain it throughout the arbitral proceedings. Hence, an arbitrator has to
discharge this duty ‘without delay.’ This provision is intended to commence speedy
arbitration and its adjudication.
The Delhi High Court in Union of India v. Somnath Chadha observed that ‘the main
object of referring a dispute to an arbitrator for adjudication is the speedy end of the
strife. This object in the court's view stands frustrated on account of unreasonable neglect
on the part of the appellant / claimant to promote the conduct of arbitration proceedings.
It was held that delay or negligence in appointment of arbitrator or commencement of
arbitration proceedings would defect the very purpose of the arbitration itself. It is to be
reiterated that the scope of arbitration is to avoid the prolong litigation in the courts. It is
an aid to speedy decision. In these circumstances the court may intervene and appoint an
arbitrator.
In Ved Prakash Mittal v. Union of India, the Full Bench of the Delhi High Court held that
an opportunity is given by the court to designated officer to exercise his power of
appointment of arbitrator within a stipulated period failing which the court would appoint
the arbitrator itself.
Where the office of the designated officer is abolished the court can appoint an arbitrator
under Section 8 of the Arbitration Act, 1940.
Similarly, in Sankar and Sankar v. State of West Bengal, it was held that if a person
permitted to appoint arbitrator under Arbitration clause neither appoints an arbitrator nor
enters on the reference himself and there is silence for more than one year it would be a
clear case of failure and neglect. In that event the court can appoint an arbitrator itself.
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Appointed arbitrator must possess qualifications agreed to by the parties
In Anuptech Equipment Pvt. Ltd. v. Ganpati Cooperative Housing Society Ltd., the
Bombay High Court has held that if the appointed arbitrator does not possess the
qualifications agreed to by the parties in the arbitration agreement, his very appointment
being void ab initio, the arbitration proceedings would be totally null and void and any
order passed by him, e.g., terminating arbitration proceedings for default of a party in
filing claim statement, would be a nullity.
Termination of mandate and Substitution of Arbitrator [S. 15]
Only S. 15(1) and (d) is modeled on Article 15 of the Model Law.
Section 15 (1) provides two more additional grounds for termination of arbitrator’s
authority. These grounds are:
(a) that the arbitrator has withdrawn himself from office for any reason;
(b) that the parties have consented each other to terminate arbitrator’s authority.
Under sub-section (1) the parties have freedom to remove an incompetent arbitrator who
is not able to perform by reasons whatsoever, by their consent. Thus, sub-section (1) too
recognizes the freedom of the parties to agree and prescribe conduct of their arbitration.
Section 15(2) provides answer to question that how a substitute arbitrator should be
appointed. This sub-section (2) would come into operation when the mandate of an
arbitrator has been terminated on whatsoever ground. The parties may abandon the
arbitral proceedings when a sole arbitrator, offers departure of originally appointed
arbitrator. Although a substitute arbitrator shall be appointed as per the rules applicable to
the case and any party not permitted to stop appointment of a substitute arbitrator, thus,
the consent of the parties is necessary in this regard.
Section 15(3) provides discretionary power to the substituted arbitrator who may begin
with the proceedings from the initial stage or from the stage where the former arbitrator
stopped the proceedings.
Section 15(4) provides despite change in composition of the arbitral tribunal the
proceedings held prior to appointment of another arbitrator shall not be invalid solely on
the ground that the composition of arbitral tribunal has been changed. Although, freedom
given to the parties under sub-section (4) that they may agree that the arbitral tribunal
may again commence proceedings from initial stage.
Termination of mandate of arbitrator
Wherein an appointed arbitrator on his withdrawal from the office ceases to be an
arbitrator his mandate terminates. As regards the termination of the mandate of the
arbitrator appointed in Government contract, situation may arise where the appointed
arbitrator, being a Government officer retires from his service. In such an event, it has
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ARBITRATION, CONCILIATION & ADR SYSTEMS 26
been held that the mandate of the appointed Arbitrator on retirement/resignation from
employment itself terminates.
It is noteworthy that Section 15 is a complimentary Section to Sections 13 and 14 as
regards to the arbitrator withdrawing from his office which is also contemplated by
Section 13(3) which has been enunciated in Section 15(1)(a).
Section 15(1)(b) makes provision of withdrawing from office if the agreement between
the parties have been made to cancel appointment of arbitrator, who have appointed him
as an arbitrator. In other words – ‘The arbitrator withdrawing from office in accordance
with the agreement of the parties as the parties who appointed him by consent can cancel
the appointment.’
Substitution of arbitrator
Section 15(2) of the Act provides that where the mandate of an arbitrator terminates a
substitute arbitrator shall be appointed according to the rules that were applicable to the
appointment of the arbitrator being replaced. However, according to Section 15(3) unless
otherwise agreed by the parties, where an arbitrator is replaced under Section 15(2), any
hearing previously held may be repeated at the discretion of the arbitral tribunal.
Sections 15(1)(a) and (4) deal with procedural aspects regarding the action on the
appointment of the substitute arbitrator. It is settled law of arbitration if in the mid of
arbitration proceedings the arbitrator withdraws or retires and if any mandate made, it
would stand terminated.
In Punjab State v. Pritam Singh, wherein reference of dispute was made to
Superintending Engineer in Public Works Department as sole arbitrator as per arbitration
agreement. After his retirement, proceedings were being taken up by his successor, which
was never objected to, by the parties. It was held that the subsequent order by court on
application under Section 27 made by the party directing opposite party to produce
evidence before original arbitrator and directing original arbitrator to continue with the
proceedings, in spite of the fact that he has ceased to act as an arbitrator is not
sustainable.’
Conclusion
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State under what circumstances a sole arbitrator can be appointed [8] May 07, Dec 04, Dec 03
Introduction: S. 10 of the A&C Act, 1996 makes a provision for the number of
arbitrators that will be appointed, saying: ‘The parties are free to determine the number of
arbitrators, provided that such number shall not be an even number.’
Sole Arbitrator
If the parties want more than one arbitrator, they will have to expressly provide in the
agreement, otherwise the reference is to be to a sole arbitrator appointed with the consent
of the parties. Where the opposite party declined to give consent even after second notice,
the court would get the power on the application of the other party to appoint an
arbitrator. Under the Arbitration and Conciliation Act, 1996, the matter has to be referred
to the Chief Justice.
No need to mention specific dispute
A mere assertion of the claim covered by the arbitration clause to the notice of the other
party was held sufficient to invoke arbitration. There is no need for raising any specific
dispute. A tripartite agreement involved an international commercial arbitration. One
party (the applicant) was opposed by the other two. The application was under Section
11(5) before the Supreme Court. The respondents contended that no specific dispute was
raised by the applicant and, therefore, the arbitration clause could not be involved. It was
held that the existence of a dispute could be inferred from the facts and circumstance of
the case. The contract was a commercial document. An arbitration clause imports in itself
all disputes. It must be interpreted so as to give effect to the contract rather to invalidate
it. A narrow technical approach is not proper. The objectives of the 196 Act are to
provide less expensive and more efficacious remedy to the parties to settle their disputes.
On the partie's failure to determine the number of arbitrators the Supreme Court can
exercise the power under Section 10(2) to appoint a sole arbitrator. Appointing three
arbitrators would have been burdensome to the parties and therefore against the
objectives of the Act.
Case Laws
In Subhash Projects & Marketing Ltd. v. South Eastern Coal Fields Ltd., it was held that
recourse to court by one party for appointment of arbitrator under S. 8 of the Arbitration
and Conciliation Act, 1996 will not preclude the other party to appoint sole arbitrator
when procedure for appointment is stipulated in the arbitration agreement.
In another case it has been held that when procedure for appointment of arbitrator is
provided in arbitration agreement between the parties by the contractor which stipulates
that the Chief Engineer can appoint anyone as an arbitrator from the list of three
PALLAVI BHOGLE
ARBITRATION, CONCILIATION & ADR SYSTEMS 28
candidates submitted by the contractor, is not availed of by the Chief Engineer, it would
amount to an implied consent given by the Chief Engineer for appointment of sole
arbitrator by contractor. Although, in certain circumstance, the substitution of sole
arbitrator may be justified and he is considered competent to arbitrate on the matter.
In State of Andhra Pradesh v. I. Chandrasekhara Reddy, wherein sole arbitrator provided
in the contract between the parties, was directly concerned with the contract work in
dispute, the court ordered substitution of arbitrator, and that the plea that award passed by
substituted arbitrator was nullity for want of reference is not tenable, since order of
substitution itself gave jurisdiction of arbitrator to enter upon reference, which order had
become final.
Conclusion
Explain what grounds amount to misconduct of arbitrators. State the
remedy available for the parties under such circumstances. [16] May 06
Introduction: Removal of arbitrators is discussed under Ss 12 & 13 of the Act. One of
the grounds for removal is that of Misconduct.
Misconduct
The Allahabad High Court held that where an arbitrator demanded his fee from one party
only and refused to proceed further until he was paid and allowed the statutory period to
expire without his doing anything, that was not considered misconduct so as to justify his
removal provided that the fee demanded by him was reasonable and not exorbitant
In the case of Pratt v. Swanmore Builders Ltd and Baker, the arbitrator was nominated by
the President of the Institute of Arbitrators. The dispute was about a building contract.
The challenge was on the ground of delay and misconduct. The facts raised were that the
arbitrator took no steps to ascertain what the scope of the arbitration agreement between
the parties was; he demanded £3000 from the builders as security for the final award,
which they were unable to pay; he then made further orders for payment by both parties,
£500 as security for the arbitrator's fee and expenses, and £500 as security for the costs of
reference; that he made various mistakes in sending to Miss Pratt a copy of an important
letter which he had received from the builders and which contained incorrect and
incomprehensible expressions and lastly, that he ordered the arbitration to proceed
without any security unmindful of the fact that it would make the proceedings a wasted
effort as the builders had already indicated to Miss Pratt that they would go into
liquidation if she won the award.
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She applied for removal of the arbitrator. The court had to consider whether the arbitrator
had misconducted himself or the proceedings. The court pointed out that the word
"misconduct" in this context did not have any moral significance but was used in a
technical sense as denoting irregularity. It is distinct from error which is not only normal
in human affairs but also a occupational hazard. The court thought that the right test to
apply was that indicated by Cozens – Hardy in Enoch and Zaretzky, Block & Co, Re,
namely, whether having regard to the arbitrators conduct, it would be fair to leave the
arbitration in his hands, or, in other words, by looking at the arbitrators mistakes,
whether, by reason of them, the proceedings have been reduced to such confusion that
there was no reasonable prospect of justice being done, if he were permitted to continue.
The court noted how unfair the arbitrator was towards Miss Pratt in going ahead with the
arbitration without any security, and decided that the arbitrator should be removed on
grounds of misconduct.
The court also ordered that the arbitration agreement should cease to have effect with
respect to the dispute referred.
Personal knowledge not to be used for ousting competent evidence
Though one of the principal advantages of arbitration is that it can be conducted by a
person who is an expert on the subject-matter of dispute, it would not permit him to use
his personal knowledge to supersede other competent evidence. That may amount to
misconduct justifying his removal.
Conclusion
Explain the powers and functions / duties of Arbitral Tribunal under the
Act. [16] May 08, 06, Dec 03, 02
State the powers of an arbitrator [6] May 09, May 05, Dec 05, May 03
Introduction: There are several provisions incorporating in the Arbitration and
Conciliation Act, 1996 explaining the provisions about the powers, duties and functions
of the arbitrator. Section 2(1)(d) defines ‘Arbitral Tribunal’: Arbitral Tribunal means a
sole arbitrator or a panel of arbitrators.
According to the provisions of the arbitration clause/agreement or by the order of the
Court, there may be a sole arbitrator or a panel of arbitrators. When there are more than
one arbitrator, the Arbitration Act, 1940 termed the title ‘Umpire’ to the head of the
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panel. The Arbitration and Conciliation Act, 1996 has given the title ‘President’ to the
head of the panel, who shall preside over the functions.
Whether there is only one arbitrator or a panel of arbitrators, it is called the ‘Arbitral
Tribunal.’ Therefore, the powers, duties and functions explained in the statute for Arbitral
Tribunal are also the powers, duties and functions of the Arbitrator.
The Powers of the Arbitrator/Arbitral Tribunal
1. No interference by judicial authority - Arbitration is one of the important means
to settle the disputes outside the court, that too with the consent of the parties. The
arbitrator/arbitral tribunal enjoys its extreme jurisdiction to entertain the arbitral
proceedings. The Courts have no authority or power to interfere with such arbitral
proceedings or the powers of the arbitral tribunal, except where so provided in the
Act.
2. Administrative Assistance – To conduct the arbitral proceedings, the arbitral
tribunal requires assistants. S. 6 empowers the arbitral tribunals to appoint such
number of administrative assistants for conducting the arbitral proceedings.
3. Jurisdiction – S. 16 explains the provisions about ‘competence of arbitral tribunal
to rule on its jurisdiction.’
4. Interim measures ordered by the arbitral tribunal - Section 9 of the 1996 Act
empowers the Court to pass interim measures. Section 17 empowers the arbitral
tribunal to pass interim measures under certain circumstances. If the arbitral
tribunal passes an order for the preservation or protection or custody of certain
property, which is the subject-matter of the arbitral proceedings, to a person, the
tribunal may ask such person to provide appropriate security for that property.
5. Determination of rules of procedure - The Civil Procedure Code, 1908 and the
Indian Evidence Act, 1872 do not apply to the arbitral proceedings. Section 19 of
1996 Act gives the power to the arbitrator/arbitral tribunal to determine the rules
of procedure itself.
6. Place of arbitration - Section 20 gives the opportunity to the parties to the
arbitration agreement to determine the place of arbitration. If there is no such
provision or agreement in the arbitration clause or agreement, the
arbitrator/arbitral tribunal is empowered to determine the place of arbitration.
7. Language - The parties may determine the language to be used in the arbitration
proceedings according to their convenient and usage in the trade, and incorporate
such a clause in the arbitration agreement. However, if the parties do not provide
such a clause, and do not come to an understanding, the tribunal has power to
determine which language is to be used in the arbitral proceedings. This is
explained in Section 22 of the 1996 Act.
8. Statements of claim and defence - The arbitral tribunal receives the statement of
claim from the party, who initiated the arbitral proceedings, and the statement of
defence from the opposite party. The arbitral tribunal is also empowered to
receive the evidence and record accordingly. Section 23 contains this provision.
9. Hearing and Written Proceedings – If the parties agree to conduct the arbitral
proceedings orally, the arbitral tribunal conducts the proceedings orally. If there is
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no such clause or agreement between the parties, the tribunal is empowered to
determine whether to hold the proceedings orally or written. S. 24 contains this
provision.
10. Default of a party - It is the duty of the parties to submit the necessary documents
and statements to the arbitral tribunal as and when necessary and directed by the
tribunal. If any one of the parties fails to submit the statement and evidence, the
tribunal is empowered to proceed with the arbitral proceedings, after giving
sufficient opportunity to such party. S. 25 contains this provision.
11. Expert appointment by arbitral tribunal - If the arbitral tribunal opines it necessary
to obtain the expert opinion, it is empowered to appoint one or more experts in the
concerned subject. Section 26 empowers the arbitrar/arbitral tribunal to do so.
12. Court assistance in taking evidence - According to Section 27, if necessary, the
arbitral tribunal may seek the assistance of the Court in taking evidence.
13. Award - After completing the arbitral proceedings, the arbitrator/arbitral tribunal
is empowered to pass an award. The arbitrator, if there is a sole arbitrator, or the
arbitrator, if there is a panel of arbitrators, should sign and date on the arbitral
award. This award is equal a Decree of a Court.
14. Settlement – While the arbitral proceedings are pending before him or it, the
arbitrator of arbitral tribunal may encourage the parties to settle the dispute. S. 30
contains this provision.
15. Termination of proceedings - The arbitral tribunal is empowered to terminate the
proceedings under the circumstances narrated in Section 32.
16. Suspension of the proceedings - The arbitral tribunal has the power to suspend the
arbitral proceedings, in the following circumstances:
a. if the parties claiming or counter-claiming do not deposit the necessary
expenses before the arbitral tribunal;
b. if both the parties do not come forward with clean hands;
c. if both the parties do not co-operate with the arbitral proceedings; etc.
17. Correction and interpretation of the award; additional award - Under Section 33,
the arbitral tribunal is empowered to correct, interpret the award issued by it. It is
also empowered to pass an additional award.
18. Interest - The arbitral tribunal may order for interest on the sum awarded.
19. Deposits - The arbitral tribunal is empowered to fix the amount of the deposit or
supplementary deposit, as the case may be under Section 38.
20. Remuneration: The arbitrator or the panel of arbitrators are entitled to receive
remuneration as per the terms of the arbitration agreement or as fixed by the
court.
21. Lien on arbitral award and deposits as to costs - According to S. 39, the arbitral
tribunal can exercise lien on arbitral award and deposits as to costs.
Duties of the Arbitrator/Arbitral Tribunal
1. Equal treatment of parties - The arbitrator/arbitral tribunal should conduct the
arbitration proceedings without any partiality to any person or party. The tribunal
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must treat both the parties equally. It must provide full opportunities to both the
parties to present their case. Section 1 further explains this provision.
2. Concerned with the dispute only - The arbitral tribunal must concentrate its
arbitral proceedings on the dispute. It should not exceed and go beyond the
dispute. An arbitral award may be set aside by the court, if the arbitral award
deals with a dispute not contemplated by or not falling within the terms of the
submission to arbitration, or it contains decisions or matters beyond the scope of
the submission to arbitration.
3. Duty to follow the provisions of the 1996 act - The arbitrator or arbitral tribunal
should follow the provisions of the Arbitration and Conciliation Act, 1996 and
other concerned statutes in force. The Court may set aside an arbitral award, if the
composition of the arbitral tribunal or the arbitral procedure was not in
accordance with the agreement of the parties unless such agreement was in
conflict with a provision of this Part from which the parties cannot derogate, or,
failing such agreement, was not in accordance with this part.
4. Public policy - The arbitral tribunal should follow the public policy. If its
proceedings or award is against the public policy, the Court may set aside the
award.
5. Time limitation - The arbitral tribunal should complete the arbitral proceedings
within the time limits prescribed by the court, in case if the arbitral tribunal is
appointed by the Court.
6. Remuneration - The arbitrator is entitled to receive remuneration as per the
arbitration agreement or as fixed by the Court or as per the agreement reached by
the parties. When once his fee or remuneration is fixed, he should not demand
more than that fixed remuneration or fee. It is against the principles of natural
justice and legal provisions, if he demands more than agreed.
7. Reasoned Award – It is the duty of the arbitral tribunal to give reasons for its
coming to the conclusions of such award.
8. Principles of Natural Justice – The arbitral tribunal should follow the principles of
natural justice i.e. audi alterum partem, notice, one cannot judge his own case,
etc.
9. Withdrawal from the arbitral proceedings – If the arbitrator has any personal
interest, either economic interest or a personal relationship with any of the parties,
he must not accept the arbitratorship. If he has noticed such interest during the
arbitral proceedings, he must express it to the parties concerned and withdraw
from the arbitratorship.
10. Notices to legal representatives - There are no provisions in the Arbitration and
Conciliation Act, 1996, regarding the notices to be sent or information to be given
or to implead the legal representatives on the record if one of the parties dies
during the pendency of the proceedings. Even though there are no such provisions
in the Act, it is the duty of the arbitral tribunal to send the notices or information
to the legal representatives to the deceased party, when it receives the information
about the death of such party. Until the legal representatives are impleaded on the
record, the arbitral tribunal must adjourn the proceedings.
11. Finality and reasonableness in the award - It is the duty of the arbitral tribunal to
see that the award must be complete and final, as well as reasonable. If there is
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any defect or gaps, certain award will not be considered valid. In the case of
Dresser v. Finnis, a dispute was referred to the arbitrators regarding the
merchantable quality of sleepers supplied by the respondent to the appellant. The
arbitrator gave the award stating that some of the sleepers were merchantable and
some not. The arbitrator also directed the buyer/appellant to sell all the sleepers at
the market rate, and selling broker to determine the difference of amount between
the merchantable sleepers and not merchantable sleepers. Aggrieved with the
award, the appellant approached the Court. The Court set aside the award opining
that there was no finality and reasonableness in the award.
12. Legal and possible – It is the duty of the arbitral tribunal to see that the award
must be legal and possible to implement it. Section 14 of the 1996 Act states that
the award must be set aside if it is impossible to implement the award.
13. Duty to render accounts - Where the party or parties deposit the amount before the
arbitral tribunal towards the costs and expenses of the arbitral proceedings, it is
the duty of the arbitral tribunal to render the account, and return the balance
amount to the concerned parties. [S. 38]
14. Ex aequo et bono - This Latin phrase means ‘according to what is just and good.’
It is the duty of the arbitral tribunal to decide the dispute ex aequo et bono
(according to what is just and good). If the parties in the dispute authorize him, he
may act friendly with both the parties to bring them together and settle the matter
in an amicable way. This is explained by Section 28(2).
15. Usages – In all cases, the arbitral tribunal shall decide in accordance with the
terms of the contract and shall take into account the usages of the trade applicable
to the transaction.
16. Settlement - It is also one of the duties of the arbitral tribunal to encourage
settlement between the parties.
Conclusion
Arbitral Tribunal 10] Dec 01
Introduction: Under S. 2(1)(d) of the Arbitration and Conciliation Act, 1996 the term
‘arbitral tribunal’ means a sole arbitrator or a panel of arbitrators. It is also to be noted
that composition of arbitral tribunal has been provided in Chapter II namely, in Section
10 of the said Act, wherein the parties are free to determine the number of arbitrators,
provided that such number shall not be even number. Failing the determination referred
to in Section 10(1) of the Act, arbitral tribunal shall consist of a sole arbitrator. A sole
arbitrator or a panel of arbitrators can be appointed by third designated party provided
there is an agreement in this regard.
Abolition of the umpire system under the new Act
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Where the number of arbitrators agreed upon is three and in, absence of procedure
regarding appointment of the umpire or Presiding Arbitrator, each party shall appoint one
arbitrator and the two arbitrators so appointed, shall appoint a third arbitrator as Presiding
Arbitrator. Under the old Arbitration Act, 1940 such Presiding Officer was referred to as
umpire, however the umpire system has been abolished under the new Arbitration and
Conciliation Act, 1996.
Arbitrators to have requisite qualifications agreed to by the parties
The old Arbitration Act, 1940 was silent on the subject of qualification of arbitrators.
Now the new Act emphasizes on appointment of arbitrator / arbitrators who have
specialization in the respective field relating to arbitrable dispute in hand. It has been
seen that most of the disputes are technical in nature requiring special knowledge of
technology, commerce, industries etc. and such disputes can be, adjudicated upon only by
persons having expertise in these fields. Thus, on the ground of non possessing of
requisite qualifications, the appointment of an arbitrator can be challenged.
Arbitrator to rule its own jurisdiction
Under the Arbitration Act, 1940 there was no provision on the issue and where the
authority of the arbitrator was disputed the parties were required to refer the dispute to
the court for proper adjudicati6n. But, the new Arbitration and Conciliation Act, 1996 has
conferred on the arbitrator / arbitral tribunal the power to rule upon its own jurisdiction
regarding the validity or existence of te arbitration agreement.
Arbitral tribunal is not a court
An arbitral tribunal though discharges the functions of quasi-judicial nature on principle
of natural justice and fair play, but an arbitral tribunal is not a court of law. The Apex
Court in Engineering Mazdoor Sabha v. Hind Cycles Ltd., has held that the arbitral
tribunal does not constitute a court in technical sense.
Arbitration proceedings to proceed expeditiously
Wherein the arbitrators are unable to perform expeditiously and fail to proceed
expeditiously, in such a case an aggrieved party can seek court's intervention. The Apex
Court in Government of Andhra Pradesh v. K.M. Rao, permitted the appointment of
person ex-officio to perform as' arbitrator in place of originally appointed Government
Engineers. In the present case three arbitrators were appointed who were Government
officers and Engineers and consequently the arbitration proceedings could not be
undertaken expeditiously. Therefore, the court was justified in directing the appointment
of persons ex- officio.
It is submitted that the very purpose of arbitration proceedings will be defeated if the
proceedings are not being held expeditiously.
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Impartiality in arbitration proceedings must be maintained
The mandate of the new Arbitration law makes mandatory provision that arbitrators are
required to disclose expressly any situations and circumstances which are likely to give
rise to reasonable doubt regarding their independence or impartiality in the proceedings.
Thus, the arbitrators are under a legal obligation to intimate the parties expressly i.e., in
writing about their interest, if any in the dispute.
Establishment of statutory arbitral tribunal
Several State Governments in India have established arbitral tribunals by incorporating
Special Act, these tribunals are given jurisdiction to deal with the disputes of differences
regarding claims exceeding certain value. Ordinarily, these statutory tribunals deal with
the arbitration wherein the Government is one of the arties. Members of such statutory
arbitral tribunals are appointed by the Government and these tribunals have their own
procedure. Undoubtedly statutory arbitral tribunals are not to be treated as arbitral
institutions, because statutory arbitral tribunals directly arbitrate being 'ex-officio'
arbitrators whereas arbitral institutions provide the list of arbitrators for the parties, to
make option regarding appointment of the arbitrator.
It was held that such arbitral tribunal exercises judicial power of State.
Conclusion
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ARBITRATION, CONCILIATION & ADR SYSTEMS 36
JURISDICTION OF ARBITRAL TRIBUNALS
Discuss whether the arbitral tribunal is competent to rule on its own
jurisdiction. Explain the powers of arbitral tribunal in passing interim orders.
[16] Dec 02, May 01
Jurisdiction of Arbitral Tribunal [10] May 02
What do you mean by interim reliefs and when the arbitrators can pass the
interim award? [16] May 06
Explain under what circumstances an arbitrator can pass an interim order
and state the other powers of an arbitrator. [16] Dec 06
Introduction: Chapter IV of the Arbitration and Conciliation Act, 1996 discusses
provisions that fall under the heading of ‘Jurisdiction of Arbitral Tribunal’
As explained in the case of Ispat Engg & Foundry Works v. SAIL, ‘An arbitrator has no
authority or jurisdiction beyond that defined by the terms of the contract or what the
parties desire under the contract. He has no authority to abdicate the terms of the
contract.’
Competence of Arbitral Tribunal [S. 16]
Section 16 of the Act, 1996 is a key section of the Act and sub-sections (1) to (4) of
Section 16 are modeled on Article 16 [paragraphs (1) and (2)] of the Model Law. Section
16 is analogous to Section 13 of the Arbitration Act, 1940.
S. 16(1), empowers the arbitral tribunal to make rules on its own jurisdiction; including
any objections, in respect to the existence or validity of the arbitration agreement,
however over such matters ultimate control exercised by the courts as provided under
Section 34 of the Act, 1996.
This is an important element in modem arbitration law, referred to as ‘competence de law
competence’ meaning law is competent to rule in its own sphere.’
Sub-section (1) contained principle of ‘autonomy’ and distinguishes the arbitration clause
from other clauses in the agreement. Thus, an arbitration clause is independent of the
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ARBITRATION, CONCILIATION & ADR SYSTEMS 37
other terms of contract and the arbitral tribunal cannot invalidate an arbitration clause
while invalidating the other clauses of an agreement.
Section 16(1) contained the expression ‘The Arbitral Tribunal may rule’. That means it is
the discretionary powers of an arbitral tribunal which it may exercise on its own motion
or at the request of a party. An arbitrator cannot be compelled to exercise those powers.
Section 16(2) provides plea to raise objections to jurisdiction but no time limit is
prescribed. The arbitral tribunal itself may move motion relating to the question of
jurisdiction, however the parties have also vested rights to raise objections to jurisdiction
but ‘not later than the submission of the statement of defence.’ A party shall not be
deprived of such right to raise objections to jurisdiction merely on the ground that he has
appointed or participated in the appointment of an arbitrator. Thus, an aggrieved party
has an opportunity to raise a jurisdictional plea before an arbitral tribunal even after
appointment of an arbitrator.
Section 16(3) states that as soon as an arbitral tribunal goes beyond the scope of his
authority objections to be raised while the arbitral proceedings are in progress and in this
context Section 16(4) waived off the time limit provided such delay is justified and
reasonable.
Section 16(5) and (6) are not modeled on the basis of the Model Law, although, these two
sub-sections are to be read together. Sub-section (5) states ‘The arbitral tribunal shall
decide on a plea referred to in Section 16(2) and (3), and where the arbitral tribunal takes
a decision rejecting the plea, continue with the arbitral proceedings and make an arbitral
award.’ That means a plea of objections to jurisdiction made by a party before an arbitral
tribunal and an arbitral tribunal proceeds by rejecting such plea and also makes an arbitral
award, in such cases, an aggrieved party may approach to the court for setting aside such
an arbitral award according to Section 34 of the Act as this provision is available to an
aggrieved party under sub-section (6) of Section 16 of the Act.
To eradicate abuse of the constitutional remedy through ‘Writ’ expressly not provided in
Section 16(6) of the Act. Thus, the writ jurisdiction of the High Court under Article 226
of the Constitution may not be available in the face of Section 34 of the Act, with object
to prevent unscrupulous methods, no provision in respect of instant court control is
available, if it is not so, it would discourage the arbitral proceedings. Therefore, the
arbitral tribunal to commence or continue the arbitral proceedings and also empowered to
rule the jurisdiction while the objection to jurisdiction issue of an arbitral tribunal is
pending before the Court, such are not stayed under Section 16 of the Act, 1996.
However, before referring the matter for arbitration, arbitration agreement must be in
existence. Without there being any arbitration agreement in existence, the Court would
have no jurisdiction to refer the matter for arbitration prima facie. It is required to be
considered whether arbitration clause exists or not, in the view of fresh contract between
the parties.
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ARBITRATION, CONCILIATION & ADR SYSTEMS 38
When objections to jurisdiction have to be raised
Section 16(2) of the Act deals with the question as to when objections to jurisdiction have
to be raised. No time limit as such has been prescribed within which the arbitral tribunal
itself can raise such objection suo motu. However, if the either party raising objections as
to jurisdiction, it must be raised ‘not later than the submission of the statement of
defence’ to the claim or counter claim, as the case may be. However, for construction of
term ‘defence’, the Section 2(9) of the Act, 1996 can be referred. In case arbitral tribunal
enters upon the consideration of a matter when it has no jurisdiction to do under the
arbitration clause or submission between the parties, then it cannot derive jurisdiction by
a mere appearance of a party under protest. It was held that in such circumstances, a party
is not estopped from challenging the eventual award of the tribunal under Section
34(2)(iv) or (v) as the case may be.
In Prasun Roy v. Calcutta Metropolitan Development Authority, the Apex Court has held
that where a party is aware from the very commencement that by reason of some
disability the matter is legally incapable of being submitted to arbitration, even though
took parts in arbitration proceedings without protest and fully avails of the entire
arbitration proceedings, but when he sees that the arbitral award has gone against him
comes forward to challenge the entire arbitration proceeding on the ground that it lacks
jurisdiction to arbitrate the disputed matter, if cannot be allowed to challenge as it is
known disability. This principle would be applied before or after making of the arbitral
award. It is well settled legal principle that a party will not be allowed to blow hot and
cold at the same time. In other words, it can be said that long participation in the
arbitration proceedings and acquiescence in the proceedings preclude such a party who
has taken part in the entire proceedings but raised the objection as to want of jurisdiction
only when the arbitral award goes against him, such a party is estopped from challenging
the jurisdiction of the arbitral award. Therefore, it cannot be allowed to be challenged on
such ground of ‘known disability.’
Where there is no arbitration agreement as defined under Section 2(a) of the Arbitration
Act, 1940, there is an initial want or jurisdiction which cannot be cured by acquiescence.
The Apex Court in Waverly Jute Mills Co. Ltd. v. Rayman & Co. (India) Pvt. Ltd/ held
that if a contract containing the arbitration clause is not legal and m fact void, the
arbitration clause which is one of the terms thereof must also perish along with it and the
dispute relating to the validity of a contract is, in such cases, for the court and not for the
arbitrator to decide. The court further held that a dispute as to the validity of a contract
could be subject-matter of an agreement of arbitration in the same manner as a dispute
relating to a claim made under the contract but such an agreement would be effective and
operative only when it is separate from the dependence of the contract which is impugned
as illegal. It is settled position that an agreement for arbitration is the very foundation on
which the jurisdiction of the arbitrator to act rests and where that is not in existence at the
time when he enters on his duties, such arbitration proceedings must be held to be
entirely without jurisdiction or absence of jurisdiction, mere consent of the parties cannot
confer jurisdiction. However, mere denial of existence of the arbitration agreement by
one of the parties does not denude the arbitrators of their jurisdiction.
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ARBITRATION, CONCILIATION & ADR SYSTEMS 39
It is submitted that though the arbitral tribunal is competent to decide and determine its
jurisdiction under Section 16 of the new Act, 1996 but the tribunal has to work out within
the parameters laid down in the arbitration clause. While the arbitrator can decide the
question regarding the existence of a valid contract including the arbitration clause
therein. In case the Arbitral tribunal decides its jurisdiction wrongly the aggrieved party
can seek remedy before the court of law, because arbitral tribunal is not final authority
and cannot overlap the authority rather jurisdiction of the court of law, specifically where
question of law is involved. It is settled principle of jurisdiction.
Section 16 does not take away jurisdiction of the Chief Justice to decide the question of
existence of arbitration agreement
The Apex Court in Wellington Association Ltd v Kirit Mehta, has held that S. 16 of the
new Act, 1996 does not takeaway the jurisdiction of the Chief Justice of India or his
designate, if need be, to decide the question of the existence of the arbitration agreement.
The court observed that Section 16 does not declare that except the arbitral tribunal, none
else can determine such a question. Merely because the new Act, 1996 permits the
Arbitrator to decide this question, it does not necessarily follow that at the stage of
Section 11 the Chief Justice of India or his designate cannot decide a question as to the
existence of the arbitration clause. The interpretation put on section 16 by the petitioner is
that only the arbitral tribunal can decide about the existence of the arbitration clause is
not acceptable for other reasons also apart from the result flowing from the use of the
word ‘may’ in Section 16 of the new Act, 1996.
Interim Measures ordered by Arbitral Tribunal [S. 17]
Section 17 deals with the power of arbitrators to make an interim award. It is based on
Article 17 of the Model Law. Section 17 of the Act, 1996 is analogous to Section 27 of
the Arbitration Act, 1940.
Section 17 provides power to arbitrators to take such interim measures, which is
necessary and also reasonable at the request of a. party. An arbitral tribunal cannot order
interim measures as such on its own motion.
Under Section 17(1), such interim measures as an order may be issued by an arbitral
tribunal at the request of a party on the ground of protection as is necessary regarding the
subject-matter of the dispute, such order given to a party has to follow these interim
measures.
Ordinarily an interim award is intended to be effective during the pendency of the
arbitration, till the final award is given.
Section 17(2) provides that the arbitral tribunal may require a party to provide proper
security relating to the measures ordered by the arbitral tribunal. The arbitral tribunal
empowered to order interim measures of protection reflects modern trend in new
arbitration law.
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ARBITRATION, CONCILIATION & ADR SYSTEMS 40
Thus, the arbitral tribunal is competent to order interim measures to the parties which
originates from an agreement i.e., between the parties, but the arbitral tribunal not
competent to order interim measures to affect right of a party who is not a party to such
agreement.
An interim award / measures must determine some part of the dispute referred to
arbitration. It cannot deal with another matter. The Allahabad High Court, held that an
award of stay or an injunction pending determination of dispute is foreign to concept of
interim award. The Co-operative Societies Act, 1912 does come within the purview of
the Arbitration Act.
Scope of Section 17
It can be seen that Section 17 of the Arbitration and Conciliation Act, 1996 deals with the
interim measures/relief etc. in respect of the subject-matter of dispute. When the request
is made by either party and tribunal considers it necessary for protection of subject-matter
of dispute referred, may order interim measures. Thus, the arbitral tribunal cannot order
as to interim measures ‘suo motu’
The expression ‘appropriate security’ referred to in Section 17 of the Act, 1996 may
include preservation, protection and safe custody of subject-matter of dispute. It is lo be
noted that the arbitral tribunal is competent only to order a party take interim measures
within the ambit of the arbitration agreement, therefore, tribunal cannot order interim
measures which are capable to affect the right of the third parties.
Under Section 17 of the Act the extent and scope of interim measures may include the
preservation, custody or sale of goods which are the subject-matter of the dispute. It also
includes recording of evidence which may not be available at a later stage 'of the arbitral
proceedings, protection of trade secrets and proprietary information; stabilization of the
relationship of the parties in a long term project which might include the use or
maintenance of machines or works on the continuation of a certain phase of a
construction if necessary to prevent irreparable harm.
Under Section 17 the interim measures ordered by the arbitral tribunal subject to the rules
stated therein to the arbitration agreement of the parties. However, Section 17 does not
confer power on the arbitral tribunal to enforce its orders. However, Section 37(2) of the
Act makes provision that an order of tribunal whether granting or refusing to grant
interim measures is appealable to a court, thus interim measures are subject to judicial
consideration. There is also no bar to seek judicial enforcement of the interim measures
under Section 9 of the Arbitration & Conciliation Act, 1996. It is submitted that the scope
of interim measures under S. 9 of the A&C Act, 1996. It is submitted that the scope of
interim measures which can be granted under Section 17 are very limited in comparison
with the interim measures which may be granted by the court.
Conclusion
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CONDUCT OF ARBITRAL PROCEEDINGS
State the composition of the Arbitral Tribunal and explain the rules relating
to conduct of arbitral proceedings as provided under the Act. [16] May 08, Dec 02
Discuss the procedure for conduct of proceedings before the arbitral
tribunals and state under what circumstances an expert can be appointed?
[16] May 04, May 01
Introduction: There is a certain code of conduct to be followed in arbitral proceedings.
S. 18 of the Act, 1996, deals with this matter. It contains mandatory provision that the
parties to an arbitration must be meted out equal treatment and also equal opportunity to
present his case before the arbitral tribunal.
Equal Treatment of Parties [S. 18]
In other words, Section 18 provides principle of natural justice, that an arbitral tribunal
should treat the parties with equality and provide equal opportunities for presentation,
prosecution, defence and interim application in' respect of the case. Under this Section
principle of justice and fair play must be applicable during entire process of arbitration.
On a number of occasions, the Supreme Court of India embodied the aforesaid principle
and said that “the arbitral tribunal should create confidence, not only by doing justice
between the parties, but also by creating a feeling that Justice appears to have been done.
It is well estabtished, universally recognised principle not only under the arbitration law
but also is the essence of any other laws.”
Expression ‘equal treatment of parties’
The expression ‘equal treatment of parties’ denotes that arbitral tribunal is required to
follow the principle of natural justice and fair play while conducting arbitration
proceedings. It is necessary that the parties must be given full and equal opportunity to
put up their contentions. According to Russell – “once the arbitrators enter into a
‘reference’ they virtually become judges in the ‘cause’ to act impartially - They must
observe in their proceedings the ordinary rules of administration of justice.”
The Apex Court is of the view that ‘once the arbitrator enters in arbitration, he must not
be guilty of any act which can be construed as an indicative of partiality or unfairness.
Arbitrators to render equal opportunity to the parties
In the absence of fairness and equal opportunity to the arbitrating parties and making of
arbitral award, it will not only defeat the very substratum of the arbitration but also make
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such arbitral award unsustainable in the eyes of law. Arbitrator occupies the position as a
Judge and he is bound to follow the principle of natural jurisprudence. During the course
of arbitration proceedings, the arbitrator must provide equal opportunity to both the
parties to present their ‘cause.’ No ex parte arbitration proceeding is desirable.
A party should not be examined in the absence of another
In the context of law of arbitration ordinarily, it is not permissible to examine one party
in the absence of another. Thus, there is no ex parte arbitration as such. It is the
fundamental principle of natural justice that no order should be passed without hearing
both the parties in arbitration. No one should be condemned unheard rather unilaterally.
Where it is found that the arbitration proceedings were arbitrary, unfair and were not
based on the principles of natural justice, the arbitral award is liable to be set aside.
Even, the arbitrator is expected to permit the parties to take the help of an advocate, if the
parties sought such expertise in legal assistance.
Determination of Rules of Procedure [S. 19]
Section 19 of the Act, 1996 is on the pattern of Article 19 of the Model Law except sub-
section (1) of Section 19. Section 19 provides for procedure to be adopted by the arbitral
tribunal.
Section 19(1) states that the arbitral tribunal shall not be bound by the Code of Civil
Procedure, 1908 or by the Indian Evidence Act, 1872. The principle existing in sub-
section (1) is to reduce wide scope of litigation by narrowing application of various
statutes. Thus, the procedure laid-down in these enactments mayor may not be adopted
by the arbitral tribunal.
Section 19(2) is the most liberal part in the context of modern arbitration law, which
provides freedom to the parties to determine the procedure to be followed by the
arbitration tribunal while conducting its proceedings, such procedure is to be prescribed
as per the agreement between the parties. Thus, sub-section (2) gives convenience to the
parties to adopt consented or mutually agreed procedure to be followed by the arbitral
tribunal in its proceedings, but subject to provisions of Part I of the Act. The freedom
provided in sub-section (2) is of continuing one, therefore, it is desirable to consult the
arbitral tribunal if the parties wish to make any changes in procedure after constitution of
an arbitral tribunal.
Section 19(3) provides measure in the event of the parties not reaching an agreement to
prescribe the rule of procedure to conduct arbitral proceedings, in such a case the arbitral
tribunal itself may conduct the proceedings ‘in the manner it considers appropriate’ as
provided in sub-section (3).
In other words; if the parties fail to prescribe mutually any procedure, in such a case the
arbitral tribunal shall be free to prescribe a procedure as it thinks just and proper.
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Section 19(4) provides specified powers to the arbitral tribunal to determine the
admissibility, relevancy, materiality and weight of any evidence produced before it. Thus,
the arbitral tribunal may not adopt procedure contained in the Indian Evidence Act, 1872
but may adopt the principles of equity, justice and fair play.
It is settled law of procedure that the civil courts have to follow the procedure laid down
in the Code of Civil Procedure, 1908 and in regard to evidence they have to follow the
provisions laid down in the Evidence Act, 1872 which is being a procedural law,
applicable to the Civil Courts and also to Criminal Courts. However, statutory Tribunals
may have their procedure laid-down by their governing statutes. In the context of an
arbitrator, private tribunal has its private procedure and for this purpose the arbitration
agreement may contain the rules of procedure prescribed by the parties. It is to be noted
that in the absence of rules of procedure in the arbitration agreement, under Section 19 of
the new Act, 1996, an arbitrator is at liberty to prescribe the procedure himself but such a
self governing procedure must be in conformity with the principle of natural justice and
fair play. It is for the arbitrator to ensure the compliance with the principle of natural
justice even if the arbitration agreement contained the rules of procedure, for arbitration,
an arbitrator cannot ignore the principle of natural justice.
Arbitration proceedings should be governed by the principle of natural justice
The Delhi High Court in Modi Industries Ltd. v. Union of India observed that an
arbitrator is not necessarily to be a person familiar with the laws of procedure, however,
he occupies the position as a Judge appointed by the parties in whose sense of justice they
have faith. Therefore, his procedure should be such as a reasonable man should follow in
deciding the disputes impartially.
Where there is no special procedure agreed or consented to by the parties or justified by
the peculiar circumstances of the case, as and when the arbitrntor is appointed on account
of his skill and knowledge of the subject, his procedure should be governed by the
principles of natural justice.
Concrete principles of natural justice must prevail
Though some of the High Courts are of opinion that in no way the principle of natural
justice can be overlooked in making of the rules of procedure regarding arbitration. For
instance, in Kesholal Ram Dayal v. LaxmanRao Ram Krishna the court observed that the
procedure adopted by the arbitrator should not be against the principle of natural justice.
It is clear that the arbitrator may not be strictly bound by the rules and procedure
observed in a court but it does not mean that his procedure should be opposed to natural
justice.
The court would be reluctant to interfere unless there is something radically wrong and
vicious in the proceedings.
There are two opinions in respect of complying with the principles of natural justice.
While one view is that the arbitrator has to regard the principle of natural justice, the
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other view is that the parties can prescribe their private procedure which may disregard
the principle of natural justice, while adopting the reasoning and concrete principle of
natural justice.
Expert Appointed by Arbitral Tribunal [S. 26]
Section 26 of the Act, 1996 is modeled on Article 26 of the Model Law, except sub-
section (3) of Section 26.
Section 26 lays down provision about appointment of expert by the arbitral tribunal for
the purpose to obtain expert evidence on the matters, mostly such practices prevail in
civilized countries.
Section 26(1) empowered the arbitral tribunal to appoint one or more experts to take their
reports on specific issues relating to the matter before it, however, report of experts do
decide the disputes, the reports are merely advisory in nature. Thus, the arbitral tribunal
has to decide the dispute, not the experts. The experts provide assistance to the arbitral
tribunal in which matters their reports to be sought to be determined by the arbitral
tribunal. Under sub-section (1), clause (b) the arbitral tribunal is vested with power to
order a party to give any, relevant information, to produce any documents or to provide
access to such documents, goods or other property for inspection/instruction of the
expert.
S. 26(1), [Clauses (a) and (b)] are intended to provide facilities to the experts whose
expert reports become necessary on specified issue as to arrive at a decision by the
arbitral tribunal.
Section 26(2) states that the expert may participate in an oral hearing when either party
makes such request or the arbitral tribunal considers it necessary. However, such
participation of expert can be allowed only after the expert has submitted his, written
report. Such participation of expert is permitted under sub - section (2) to give
opportunities to the parties to interrogate and testify expert witnesses on specified issues.
However, the parties may agree mutually not to have such participation of expert.
The provisions contained in Section 26(2) is an affirmative to principle embodied in
Section 18 of the Act.
Section 26(3) provides that, at a party's request, expert shall permit examination of any
documents, goods or other property, on which the expert report is relied. It is intended
that the expert will not prepare his report on material facts which are not disclosed to the
parties.
However, the parties may agree mutually, not to have such examination of documents,
goods or other property by the expert.
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Relevancy of Opinions of Expert
According to S. 45 of the Indian Evidence Act, 1872: ‘When the court has to form an
opinion upon a point of foreign law or of science or, or as to identify the handwriting or
finger impression, the opinion, upon that point, of persons specially skilled in such
foreign law, science or art, or in question as to identity of handwriting or finger
impressions, are relevant facts’
‘Such persons are called experts’
.
The courts have been accustomed to act on the opinion of experts. The purpose is very
clear. There are many matters which require professional or specialized knowledge which
the court may not possess. For example, when the court has to determine the cause of a
ship-wreck or an air crash, there may be many technical causes behind it and therefore,
the court will need the assistance of technicians, as they are better acquainted with such
cases.
The appointment of an expert by the tribunal is common and recognized in civilized
countries. It is to be noted that the arbitral tribunal is only empowered and not obliged to
appoint experts. Only with the prior consent of the parties may the arbitral tribunal seek
assistance of an expert. Whether expert opinion is relevant, is to be determined by the
tribunal.
An expert can testify as a witness
There is no prohibition to testify the expert as a witness, provided the arbitral tribunal
considers it necessary or if a party so requests.
The expert can take part in an oral hearing but only after he has delivered his written or
oral report so that the parties can cross – examine him.
Arbitral tribunal can seek assistance of legal expert
Under Section 26(1) of the new Act, 1996 if the arbitral tribunal considers it necessary or
on prior consent made by the party, it may seek assistance of a legal expert during the
arbitration proceedings. This section specifically empowers the arbitral tribunal to
appoint one or more experts i.e., legal experts, technical or financial experts and to report
to the arbitral tribunal on specific issues to be determined by the tribunal. The arbitral
tribunal may require a party to give the expert any relevant information to produce
relevant documents. It is clear from the above provision that the arbitral tribunal is not
empowered to seek the assistance of expert including legal expert or to appoint the expert
without first securing the consent of the parties.
Conclusion
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Explain the procedure for conduct of arbitral proceedings with reference to
taking of evidence and hearing of the case by the arbitral tribunal. [16] May 09, Dec 05, May 01
Court assistance in taking evidence [16] Dec 02
Introduction: There is a certain code of conduct to be followed in arbitral proceedings.
This code of conduct extends to taking of evidence and hearing of the case by the court.
Hearing and Written Proceedings [S. 24]
Section 24 of the Act, 1996 is on the pattern of Article 24 of the Model Law. Section 24
deals with healings and written proceedings before the arbitral tribunal.
Section 24(1) provides that if the parties could not have an agreement relating to mode of
arbitral proceedings, in such cases, the arbitral tribunal may itself determine whether it
would conduct the proceedings on oral hearing of the parties or allow oral arguments or
conduct the proceedings in writing relying upon the statement and documents or other
materials.
The oral hearings are not held if the parties have not agreed to it. The parties are
permitted to change their agreement a any stage of the proceedings relating to oral or
other hearings.
It is the discretionary power of the arbitral tribunal to administer oath to the parties or
witnesses or not. The Punjab and Haryana High Court in Balwant Singh v. Chief
Secretary to Gavernment of Punjab, said that if the arbitral tribunal does not administer
oath, it does not affect the admissibility of the statements of the witnesses.
Section 24(2) states that the parties shall be given sufficient advance notice of any
hearing and also of any meeting of the arbitral tribunal for the purposes of inspection of
documents, goods or other property. However Section 24(2) does not state who shall give
such notice but it is the arbitral tribunal’s accountability to serve and also confirm that
sufficient notice is given to the parties, regarding hearings and written proceedings. The
requirements of Section 18 in which the principles of equity and fairness are contained
are to be followed under this Section 24(2) of the Act. It is an essential requirement of the
Act; No one is permitted to derogate.
Section 24(3) provides measure relating to the parties to have equal and fair access to
written proceedings. It states that all statements, documents and application made to the
arbitral tribunal by one party shall be communicated to the other party, including any
expert report as such received by the arbitral tribunal or other evidentiary document on
which the arbitral tribunal is likely to rely while making its decision, these are to be
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communicated to all parties. Thus, whatever written proceedings are submitted by one
party, have to be communicated to the other party.
Admissibility of the statement of the witnesses without administering oath
It is a discretionary power of the arbitral tribunal whether or not to administer the oath to
the parties or witnesses. In Balwant Singh v. Chief Secretary to Government of Punjab, it
was held that if the arbitral tribunal / does not administer the oath, it does not affect the
admissibility of the statements of witnesses.
Both parties have full and equal access to written proceedings
It is well settled that whatever written proceedings are submitted by one party will have
to be communicated to the other party. Since, it is not specified as to the authority who
will communicate the written proceedings of one party to the other party, it seems that the
arbitral tribunal which is an administering institution is to ensure that such written
proceedings have been communicated to the other party. Thus, documents which are
evidentiary in nature are required to be communicated.
Court’s Assistance in Taking Evidence [S. 27]
Section 27 provides significant approach in nature of arbitration where an arbitral tribunal
may take a court's assistance to get evidences as such through that court, according to
court's process.
Section 27(1) provides that the arbitral tribunal or a party, with the permission of the
arbitral tribunal, may seek court's assistance, by an application, for taking evidence.
Under sub-section (1) the arbitral tribunal seeks a court's assistance to make arbitration
proceedings effective and efficient. However, under sub-section (1) it is clearly stated
that the party may only seek court's assistance with the approval of the arbitral tribunal,
this is to prevent abuse of process.
Section 27(2) provides requirements as such application, the names and addresses of the
parties, nature of the claim, relief sought and required evidence sought through court.
Section 27(3) states that under obligation as such the court may execute the request of the
arbitral tribunal in taking evidence according to rules and competence of the court and
such evidence is to be provided to the arbitral tribunal. Such evidence is to be provided
directly to the arbitral tribunal.
Section 27(4) provides that while making order, the court may issue the same ‘processes’
to witnesses as it may issue in suits tried before it.
Section 27(5) provides for disadvantages, penalties, and punishment to persons, who do
not comply according to the issued process. The courts have to adopt same procedure as
the Civil Courts.
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Section 27(6) explains 'processes' which includes summonses and commissions for
examination of witnesses and summonses to produce documents.
Award would be rendered invalid on non-consideration of material evidence
Under Section 27 of the Arbitration and Conciliation Act, 1996 the arbitral tribunal can
seek the courts assistance in taking evidence by applying suo moto or on request by a
party. The arbitral tribunal has no power to issue summons to persons except the
disputing parties in arbitration.
The Apex Court in K.P. Poulose v. State of Kerala, held that once it is decided that the
consideration of material evidence by the arbitral tribunal and making of arbitral award
amounts to unfair arbitration proceeding, the arbitral award would be rendered invalid
and liable to be set aside.
Award liable to be set aside if there is refusal to issue summons to the witness
The Delhi High Court in Lalit Mohan v. Building Committee has held that once the
arbitrator had permitted the witness to be examined, it is not proper on the part of the
arbitrator to decline to issue summons to the sole witness i.e., the building adviser and
instead ask the party to bring the sole witness before the arbitral tribunal, at its own
responsibility. In the present case the court observed that the arbitrator ought to have,
issued summon to the witness who is to be examined. The arbitral award was, therefore
liable to be set aside.
It is submitted that the provision to seek the court's assistance in taking evidence of a
witness is necessary because the arbitral tribunal has not been conferred power to
summon witness or to issue process as such.
Conclusion
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ARBITRAL AWARD AND TERMINATION OF
PROCEEDINGS
Define Award. Discuss the essential conditions of valid award [10] May 05, Dec 03
Define award and state the effects of award. [6] Dec 04
Introduction: Under Section 2(1)(c) the word ‘Arbitral Award'’ is not really defined, but
it does state that the ‘Arbitral award’ includes an interim award. Although Section 31(6)
submits explanation in this regard as under: ‘The Arbitral Tribunal may, at any time
during the arbitral proceedings, make an interim arbitral award on any matter with respect
to which it may make a final arbitral award. Thus, an interim award may be the Arbitral
Award. So, an interim award may be a final award.
According to H. Lexicon - It is an instrument which embodies a decision of an arbitrator
or arbitrators as regards matters referred to him or them.
Although; according to Russell – ‘An award in order to be valid, must be final, certain,
consistent and possible and must decide matters to be submitted and no more than the
matters submitted.’
An arbitral award is not a contract but the decision determined out of the contract
An award, whether it is arbitral or an interim award is a decision of the Arbitrator or
Arbitrators which is determined after contentions of the parties are considered and an
arbitrator or the arbitrators put his or their opinion in the form of decision. The consent of
the parties may not be present in a decision. An arbitral award decided by the Arbitral
Institution judicially will have binding effect in respect of the parties in dispute.
The contents of an arbitral award must be in writing, not oral. An arbitral award is like a
decree which comes into effect from the date on which it has been signed and right of the
related parties come into effect from that date onward.
Any agent on behalf of the parties to dispute if authorized by the parties may refer to
arbitration for settlement of matter.
In Kishan Lal v. Ram Swaroop the Allahabad High Court held that the Vakalatnama
submitted by the parties differ in respect of their contents. The Vakalatnama submitted by
the plaintiff authorized the counsel to compromise the suit or proceeding; in another
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ARBITRATION, CONCILIATION & ADR SYSTEMS 50
aspect the Vakalatnama on record, authorizes the counsel to refer the matter to arbitration
which includes power to compromise in arbitration. Therefore, if an agent is authorized
to compromise the dispute it is deemed that he has power to refer the matter for
arbitration.
It is expected that the arbitrator has accepted all claims and counter-claims and
considered fully in quasi-judicial manner before it could arrive at the final award.
An arbitral award should have the following ingredients:
1. It must be written.
2. The parties to arbitration must be competent.
3. The Arbitration Agreement must be fit to assign dispute before any domestic
tribunals.
4. A decision of the domestic tribunal must be written.
5. The contents of an award must be subject-matter of the arbitration.
6. An award must be determined on principles of mutual justice.
7. The arbitrator must sign while giving award and also mention date therein.
Arbitral award operates as res judicata
In Shashi Sekhareswar v. Lali Mohan, the Privy Council, inter alia observed that a
decree passed on the foundation of arbitral award would have the same effect as an
ordinary judgment of a court and on the question which has already been decided by the,
arbitrators it operates as res judicata. But, where a claim in question has not been
included as a subject-matter of reference to arbitration, it was held that principle of res
judicata will not be applied in respect of the claim.
In the view of the Apex Court, an arbitral award is to be treated as a decree passed by the
Civil Court, and it is binding on the parties.
It is submitted that an arbitral award is not a contract but a decision given on the basis of
terms of a contract. An arbitral award must be in writing because it is like a decree of the
Civil Court Such award comes into operation from the date it has been signed, rights and
liabilities of the parties concerned come into force from the date onwards.
Essentials of Arbitral Award
It is well settled legal position that a valid, proper and enforceable arbitral award must
have the following essential ingredients:
1. An arbitral award must be in writing and signed.
2. The parties must be competent to initiate arbitration proceedings.
3. A sustainable arbitral award must be reasoned one - Section 31(3) of the
Arbitration and Conciliation Act, 1996.
4. There must be arbitration clause to assign disputes or differences before arbitral
tribunal.
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ARBITRATION, CONCILIATION & ADR SYSTEMS 51
5. The content of an arbitral award must be connected with the subject-matter of the
dispute arbitrated;
6. An arbitral award must be founded on the principle of mutuality.
Where the arbitral award is based on mutual settlement of the dispute by the parties, no
reason need be given.
Arbitral award may be Final or Interim
An arbitral award may be a final award or an ‘interim award’ unless there is an agreement
to the contrary between the parties and depending upon the, nature of the dispute, the
arbitrator could make an interim award. An interim award has the same sanctity as final
award. However, if it is not complied with, it cannot be enforced through the court by the
same procedure as in the case of final award.
Time limit for making the arbitral award
The Arbitration and Conciliation Act, 1996 does not provide any time limit as such for
completing the arbitration. However, an arbitrator can be terminated if he fails to act
without undue delay.
Arbitral award by consent
The Arbitration and Conciliation Act, 1996 recognizes the liberty of the parties to come
to a settlement. The arbitrator, if satisfied about the genuineness and validity of the
settlement has to give an award in terms of the settlement. The Act further envisages that
the arbitrator may encourage efforts at settlement. It is to be noted that the Arbitration
Act, 1940 was silent on this point.
Contents of arbitral award
The requirements of the contents and form of arbitral award are as under:
1. An arbitral award shall be made in writing and shall be signed by the member of
the arbitral tribunal.
2. For the purpose of Section 31(1), in arbitral proceedings with more than one
arbitrator, the signatures of the majority of all the members of the arbitral tribunal
shall be sufficient so long as the reason for any omitted' signature is stated.
3. The arbitral award shall state its date and the place of arbitration as determined in
accordance with Section 20 and the award shall be deemed to have been made at
that place.
Arbitral award shall be final and binding on the parties
As provided under Section 35 of the Arbitration and Conciliation Act, 1996 an arbitral
award shall be final and binding on the parties and persons claiming under them. Where
the time for making the application to set aside an arbitral award has expired or where
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such application has been refused by the court, the award shall be enforced as if it were
the decree of the court.
An arbitral award treated as a decree of a court
The Apex court in Satish Kumar v. Surendra Kumar, has held that an arbitral award is
treated as a decree of a court and it does not matter whether it has passed into decree or
not hence it is binding upon the parties.
Conclusion
What do you mean by Domestic Award? Discuss the provisions relating to
form and contents of an Arbitral Award? [16] May 08, May 07, May 05, May 03, Dec 03
Explain the contents of an arbitral award. When can an additional award be
made? [16] Dec 02, Dec 01
Introduction: Under Section 2(1)(c) the word ‘Arbitral Award'’ is not really defined, but
it does state that the ‘Arbitral award’ includes an interim award. Although Section 31(6)
submits explanation in this regard as under: ‘The Arbitral Tribunal may, at any time
during the arbitral proceedings, make an interim arbitral award on any matter with respect
to which it may make a final arbitral award. Thus, an interim award may be the Arbitral
Award. So, an interim award may be a final award.
According to H. Lexicon - It is an instrument which embodies a decision of an arbitrator
or arbitrators as regards matters referred to him or them.
Although; according to Russell – ‘An award in order to be valid, must be final, certain,
consistent and possible and must decide matters to be submitted and no more than the
matters submitted.’
An arbitral award is not a contract but the decision determined out of the contract
Form and Content of Arbitral Award [S. 31]
Section 31 prescribes form and contents of interim award, interest to be paid and costs of
the parties borne as to the arbitral proceedings.
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Section 31(1) states that ‘an arbitral award shall be made in writing and shall be signed
by the members of the arbitral tribunal.’ The Supreme Court of India, in Hindustan
Construction Co. v. Union of India ,explained that the word ‘signing’ means writing
one's name on the award. However, no oral award is permitted under this sub-section
31(1) of the Act as observed by The Allahabad High Court in Satyapal v. Ved Prakash.
If, an, arbitral award is signed by the majority of the members of arbitration, it fulfills the
requirement of the Act.
Section 31(2) lays down that if there is a multi-members arbitration system the signature
of the majority of members will be sufficient to fulfill the requirements of the section.
Although the reasons should be mentioned in the award as to why the signatures of the
remaining members are not there. Thus, the members dissenting from an arbitral award
cannot stop the award.
Section 31(3) provides that if the arbitral award is in terms of the settlement of the parties
or if the parties have agreed that no reason need be given by the arbitrators then it is not
necessary to give the basis of an arbitral award; otherwise it is the requirement of this
section that the arbitrators have a statutory obligation to give in writing the facts on
which the arbitral award is based. This provides transparency and fairness in decision
making by an arbitral tribunal.
The arbitral tribunal is not required to give as detailed a judgment as Judges do. It simply
has to give the trend of its thought process.
Section 31(4) states that the arbitral award should bear its date and place of arbitration, as
determined in accordance with Section 20 of the Act. In an arbitral award, date and place
of arbitration must be mentioned mainly for two purposes:
• If case of the possibility of an appeal against the arbitral award, or
• For enforcement of the arbitral award.
Section 31(5) directs that a signed copy of the award is to be delivered to each party and
receipt of signed copy of the award is the requirement of the Act.
Section 31(6) provides that the arbitral tribunal may make an ‘interim’ arbitral award at
any stage of the arbitration proceedings before it makes the final arbitral award. Thus,
under Section 31(6) interim arbitral award and final arbitral award are not the same.
Therefore, an interim arbitral award would not terminate the arbitral proceedings.
Section 31(7) provides for interest, payable to the other party, at such rate as it deems
reasonable on the whole or any part of the money. Interest shall be included in the sum
awarded in the arbitral award. If, no rate of interest is mentioned then it shall be at the
rate of 18% per annum. It shall also be mentioned in the award as to whether the interest
shall be payable for the whole or any part of the period between the date on which the
cause of action arose and the date on which the award is made.
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Section 31(8) lays down provision about the costs to be awarded by the arbitral tribunal.
The arbitral tribunal has to specify the followings:
• which party is entitled to costs;
• which party shall pay the costs
• the amount of costs; and
• by which method the costs is determined.
An award shall be made in writing and signed by members of tribunal
Section 31(1) of the Arbitration and Conciliation.Act, 1996 states that an arbitral award
shall be made in writing and shall be signed by the members of the arbitral tribunal. It
seems that the legislative intended to give the award a definite nature by providing a
mandatory condition that the award must be reduced into writing and also signed by the
arbitrators, so that in case of difference in opinions the same can be found out prima
facie. Further sub-section (2) of Section 31 provides that wherein the arbitral proceedings
are conducted by more than one arbitrator, the signature of all the members of the arbitral
tribunal is not necessary so long as reason for any omitted signature is stated. In other
words if there is omission of signature of any of arbitrators in the award, the reason
for doing so should be stated.
The Apex Court in Dwarka Das v. India Engineering observed that an arbitral award
must not merely be in writing but it should also be duly signed by the arbitrators.
Arbitral award should state the reasons upon which it is based
The Apex Court in Tamil Nadu Electricity Board v. M/s Bridge Tunnel Constructions
and others observed that law on the arbitral award, as governed by the new Arbitration
and Conciliation Act, 1996, mandates that the award should state the reason upon which
it is based. In other words, unless:
• the parties have agreed that no reasons are to be given, or
• the award is an arbitral award on agreed terms under Section 30 of the new Act,
1996.
The arbitral award should state the reasons, in support of determination of the liability or
non-liability.
Wherein not mandatory to give reasons for the arbitral award
Although, an arbitrator being a judicial authority a substitute for the civil court, must give
reasons for his decision. Specifically, when the parties in the arbitration agreement
stipulate that the arbitrator must give reasons, he is bound by the agreement to which he
owes his existence. It is settled legal principle that when an arbitrator accepts the
appointment, he accepts all the terms of the agreement. But, where the arbitration
agreement under which the appointment of arbitrator is made, it does not stipulate
categorically that the arbitral award must contain reason upon which it is based, in such
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situations it is not a mandatory requirement that the arbitrator must give reasons for the
award.
While clarifying the position the Supreme Court in Raipur Development Authority v.
Chokhamol Contractors, has held that though it was not a mandatory requirement that the
arbitrator must give reasons for the arbitral award, he was bound to give reasons if the
arbitration agreement so stipulated or if the parties so require.
Conclusion
Define arbitral award. Discuss the provisions relating to correction,
interpretation and additional award. [16] May 09, Dec 05, May 02, Dec 01
Define Award. State the circumstances under which an award can be
modified and cancelled. [16] May 07, May 06, May 04, Dec 04
Introduction: Under Section 2(1)(c) the word ‘Arbitral Award'’ is not really defined, but
it does state that the ‘Arbitral award’ includes an interim award. Although Section 31(6)
submits explanation in this regard as under: ‘The Arbitral Tribunal may, at any time
during the arbitral proceedings, make an interim arbitral award on any matter with respect
to which it may make a final arbitral award. Thus, an interim award may be the Arbitral
Award. So, an interim award may be a final award.
According to H. Lexicon - It is an instrument which embodies a decision of an arbitrator
or arbitrators as regards matters referred to him or them.
Although; according to Russell – ‘An award in order to be valid, must be final, certain,
consistent and possible and must decide matters to be submitted and no more than the
matters submitted.’
An arbitral award is not a contract but the decision determined out of the contract
Correction and Interpretation of Award; Additional Award [S. 33]
Section 33 is modelled on Article 33 of the Model Law. It provides as to correction and
interpretation of award and additional award. Section 33 of the Act, 1996 entrusts three
functions mainly to an arbitral tribunal, when, the mandate of the arbitral tribunal is
terminated under section 32 of the Act. Chiefly, these functions are:
• corrections in the award, if any
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• interpretations of specific points of the award
• it may make an additional award.
Both sub-sections (1) and (3) of Section 33 are relating to corrections and interpretation
of an award. Clause (a) of Section 33(1), provides that a party with notice to other party
may apply for correction and computation of errors, it may be any clerical or
typographical errors or any other errors of a similar nature which have occurred in the
award. Thus, a party with notice to the other party may seek explanation of specified
point or decision in the arbitral tribunal. Under sub-section (3) the arbitral tribunal is
empowered to correct its own decision rather can remove errors as such within 30 days
prescribed period i.e., from the date of the arbitral award.
Under clause (b) of Section 33(1) if a party has agreed with other party, then with notice
to other party, may request to the arbitral tribunal to give an interpretation of a specific
point, so as to remove ambiguities in the award. However, there is no provision to seek
re-examination of the award.
Section 33(2) provides that on justifiable ground if a request is made to the arbitral
tribunal, may correct the mistake or give interpretation of the award within 30 days from
the receipt of the request. Such a request is made under sub-section (1).
Sub-section (4) of Section 33 provides that if something remained undecided or left in the
arbitral award, the aggrieved party with notice to the other party may request the arbitral
tribunal an additional award on claims submitted in the arbitral proceedings, but not
decided, however, such a request can only be made within 30 days from receipt of the
award. Thus, an additiorial award can be requested, when the claims presented before the
arbitral tribunal, but a part of claim incidentally omitted.
Sub-section (5) of Section 33 provides that an additional award can be made only on
justifiable request made to the arbitral tribunal by an aggrieved party.
Section 33(6) under an extraordinary circumstances to meet the end of fairness and
justice, the arbitral tribunal is empowered to extend the time-limit i.e., 30 days as
prescribed under sub-sections (2) and (5) of Section 33, for making correction or giving
interpretation of the arbitral award.
Section 33(7) follows the provision of the preceding sub-sections. It makes Section 31 of
the Act i.e., form and contents of arbitral award or to an additional award applicable to
such correction or interpretation of the arbitral award or make additional arbitral award as
the case may be.
After the arbitrator has made the award, he becomes functus officio, that is to say he
ceases to function thereafter with reference to the arbitration. However, if there is no
agreement to the contrary, he may correct that in an award, at any time after the award
has been made, any clerical mistake or error arising therein by an accidental slip or
omission.
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Arbitral award should be construed liberally
It is settled rule of interpretation that any arbitral award should be construed liberally and
wholly, but not in isolation, thus, to give effect to the real intention of the arbitral
tribunal. Thus wherein the arbitral award is silent and does not express clearly in respect
of some claims it should be presumed that the claim was not upheld.
However, the Delhi High Court in R. Murlidhar v. NPCC wherein an arbitral tribunal
made an arbitral award on the subject matter referred to it, the court would draw
presumption in favour of the validity of the arbitral award that the arbitrator has taken
into consideration all the subject matter of disputes referred to him. The court would also
presume that the arbitral award is final and complete.
Arbitral award can be modified
It can be said that the arbitral award can be modified wherein either of the party brings
into the notice of the arbitral tribunal that the certain issues have not been taken up, in
fact these were referred for arbitration or there is apparent error in the award or there is
omission or accidental slip in the award, the arbitral tribunal will consider these issues
and if it is justified the arbitral tribunal under its discretion would modify the award.
Conclusion
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RECOURSE AGAINST ARBITRAL AWARD
State the grounds and circumstances on which the court can set-aside the
arbitral award. [16] May 08, Dec 06, May 05, Dec 05, Dec 04, May 03, Dec 03, May 02, May 01
Explain the powers of the court in setting aside award. [16] Dec 03
State the exceptions to the rule that no judicial authority shall intervene in
arbitration proceedings. [16] Dec 02
Introduction: Section 34 of the Act is one of the most important sections of the present
Act, and deals with the issue of setting aside an arbitral award.
Section.34 provides for the ground and circumstances when an arbitral award may beset
aside. It empowers the courts to review the whole arbitration process followed in a
presented case and also to examine constitutionality of the arbitration process and the
parties are not permitted to lessen the dignity of it. No prescribed form of an application
for setting aside an award is necessary. Though the High Court may prescribe form of
such application.
Section 34(1) provides that an application for setting aside the arbitral award may be
made to a Court, in accordance with sub-section (2) and sub-section (3).
On a number of occasions, the Supreme Court had said that as a general rule, the Court
should approach the award with a desire to support it, if that is reasonably possible, rather
than to destroy it, by calling illegal. The court is not empowered to set-aside the award
suo moto.
Section 34(2) provides the list as ground for setting aside an arbitral award by the court
and the party who is seeking setting aside an arbitral award, makes. an application and
furnishes proof of the followings:
1. a party was under some incapacity, or
2. the arbitration agreement is not valid under the law to which the parties have
subjected to or, failing any indication thereon, under the law for the time being in
force, or
3. the party making the application was not given proper notice of the appointment
of an arbitrator or of the arbitral proceedings or was otherwise unable to present
his case.
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4. The arbitral award deals with a dispute not contemplated by or not falling within
the terms of the submission to arbitration, or it contains decision on matters
beyond the scope of the submission to arbitration. Sub-section (2)(a)(iv) is relied
on the principle that the arbitral tribunal, being a creature of the arbitration
agreement, is not competent to go beyond the scope of the submission to
arbitration. Thus, an arbitral tribunal being a creature of the agreement between
the parties it does not have its own jurisdiction as such, thereby it is not a judicial
body to exercise judicial power of the State. However, the reasonableness of the
reasons, given by the arbitral tribunal cannot be challenged.
The proviso to sub-section is based on the ‘principle of severability’, thus if the
reasonably good and reasonably bad parts of an arbitral award can be separated the whole
of the award should not be set aside. Therefore, if the unreasonable bad part of an arbitral
award is severable, only the bad portion may be set aside.
Section 34(2)(a)(v) provides that composition of the arbitral tribunal and the arbitral
procedure are not as per the agreement of the parties and also an arbitral award, in such
cases the parties are permitted to put an application to the court for setting aside the
arbitral award, it is necessary to apply this provision by the parties that the agreement of
the parties was not in conflict with the provision of Part I. Part I provides autonomy to the
parties.
Section 34(2)(b) (i) and (ii) provides the power to a court to set aside an arbitral award,
when an application by a party is presented before it. However, either condition should
exist-with proof:
• The subject-matter of the dispute is not capable of settlement by arbitration under
the law for the time being in force, or if the subject-matter is not arbitrable under
the prevailing law of the State, such an arbitral award if made on such
unarbitrable matter, would be set aside.
• an arbitral award is in conflict with the public policy of India.
That means, if the procedure adopted to make an arbitral award and an arbitral award
itself is opposed to public policy of India, it would be capable of being set-aside by the
court, on an application made to the Court by a party. For application of this provision it
is necessary that it must involve the public policy of India and not any international
public policy.
The New York Convention (UNCITRAL), and many international treaties also regarded
and used the term ‘public policy’ and it has been covered as fundamental principles of
law and justice which includes substantive and procedural aspects.
The explanation added to Section 34(2)(b)(ii) which states that an arbitral award given by
violation of Section 75 or Section 81 in Part III of the Act, 1996 or an arbitral award
induced and obtained by fraud or by unfair means or by corruption would be regarded as
against public policy of India. The Supreme Court of India had also upheld the
importance and application of the "Doctrine of Public Policy" in several. rulings.
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Section 34(3) prescribes the time-limit within which an application for setting aside an
arbitral-award should be presented before a competent court. However, for the purpose of
calculation, the prescribed period of three months as provided under sub-section (3) is the
period that commences from the date on which the applicant receives the award and
expires three months thereafter. It is a mandatory provision. In a case, if a request has
been made under Section 33, the time limit shall be calculated from the date on which
that request had been disposed of by the arbitral tribunal.
It is also provided under sub-section (3) that when the court is satisfied and is in opinion
that the party has been prevented from filing an application due to ‘sufficient cause’
within the statutory period of three months, in such cases the Court may entertain the
application within a further period of thirty days, but not thereafter.
Section 34(4) provides that on receipt of application under sub-section (1), the Court may
consider, it appropriate and if it is so requested by a party, adjourn the proceedings for a
fixed period of time with an object to give sufficient opportunity to the arbitral tribunal to
re-begin the proceedings after a pause or to take any other initiative for removal of the
ground for setting aside the arbitral award. This provision is included in the Act of 1996
which was not available in the Arbitration Act, 1940. Thus new form of the remission
procedure with better concept was introduced, it intends that the court should mark first
the remediable defects in the arbitral award and refer the same to the arbitral tribunal, so
that the arbitral tribunal can resume the proceeding. It is obvious that the object behind
this remission procedure is to encourage and give reasonable opportunity to the arbitral
tribunal to escalate rectified arbitration proceedings.
The Allahabad High Court in State v. Reshma Devi, ruled that the subsection (4) of
Section 34, does not contemplate that the court could confirm part of the award and remit
the rest to the arbitral tribunal.
The Court may direct the arbitral tribunal to resume the proceedings or to take certain
measures which is necessary for removal of the grounds for setting aside the arbitral
award.
Limitation of Power of the Court to Intervene
It is to be noted that Section 34 of the new Act, 1996 restricts grounds for setting aside
the arbitral award. In other words this section specify the ground on which the court may
order for setting aside of arbitral award. The implication of Section 34 has been
considered by the courts which are taken up by the Bombay High Court in United India
Insurance Co. Ltd. v. Kumar Texturiser. The court observed that the present Act, 1996
contains three Sections, namely Sections 34, 37(2) and 14(2) which inherently empowers
the court to intervene in the matter. However, Section 34 of the Act, 1996 is the main
section. The present case is for a declaration that there is no arbitral dispute. It was held
that considering the express language of Section 5 of the Act, 1996 i.e., extent of judicial
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intervention and the absence of present case falling under Section 14(2) or Section 34 or
Section 37(2), this court will have no jurisdiction to entertain petition.
It has been seen that Section 5 of the Act, 1996 specifically states that no judicial
authority shall intervene except where so provided in Part I i.e., general provisions,
arbitration agreement composition and jurisdiction of arbitral tribunal, conduct of
arbitration proceedings, making of arbitral award, termination of proceedings, recourse
against arbitral award and finality and enforcement of arbitral award etc. of the Act,
1996. In Union of India v. East Coast Boat Builders Engineers Ltd., the Delhi High Court
observed that on perusal of the provisions of Part I of the Act it is apparent that nowhere
it is provided that a court may intervene and entertain a petition challenging the order
passed by arbitral tribunal under Section 16(5) taking a decision that the arbitral tribunal
has jurisdiction to proceed with the arbitration case.
Scope of challenge to jurisdiction of arbitrator considered by the Rajasthan High Court in
Union of India v. Rattan Singh Gehlot, where it was held that in an unreasoned award
unless it is found by seeing at the arbitral award that an error has been committed by the
arbitrator, no interference can be made. The court observed that this is different from
saying that when a challenge is made to the arbitration award by saying that the arbitrator
has acted beyond his jurisdiction. It has to be determined that there is a distinction
between disputes as to the adjudication of the arbitrator and the dispute as to in what way
the jurisdiction should be exercised. In the later cases the court has no role to play but in
the former cases where there is a challenge to the jurisdiction of the arbitrator the courts
have reasons to interfere. The court further observed that this is within the domain of the
court to see whether the arbitrator has acted within its jurisdiction or out side jurisdiction.
To that extent the court is required to adjudicate.
It is well settled legal principle that the question regarding jurisdiction is to be raised at
the first instance, it cannot be allowed to be raised at a later point of time even under
Section 34 of the Act, 1996. Hence, it is a meagre ground for setting aside of arbitral
award.
The scheme of the Act, 1996 shows that the legislature did not provide appeal against the
order under Section 16(5) where arbitral tribunal takes a decision by rejecting the plea
that the arbitral tribunal has no jurisdiction. In such cases, the arbitral tribunal shall go
ahead with the arbitral proceedings and make an arbitral award without delay and without
being interfered in the arbitral process at that stage by any court in their supervisory role.
Which Court is Empowered to Set Aside an Arbitral Award
It is settled legal principle that the place wherein the parties entered into the arbitration
agreement, that court is competent to entertain the application under Section 34 of the
Act, 1996.
In case wherein the disputed properties situated within the jurisdiction of two courts
located at different places, either of the court would have jurisdiction to entertain
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application for setting aside of the arbitral award, however the court which first entertains
such application no such application can be entertained by any other court.
In case of an international commercial arbitration it will be governed by Article 3 of the
Geneva Convention or Article V, Para 1(a) of the New York Convention. These
provisions of the Convention provide that the country in which or under the law of which
the arbitral award was made, the court of that country only would have jurisdiction to set
aside the arbitral award.
Award found Not Unreasonable Cannot be Interfered by the Court
In T.P. George v. State of Kerala, the Supreme Court considered the reasonableness of
the award and the question whether the arbitrator can award interest for pre-reference
period. In this case the High Court has held that the interest could not be granted by the
arbitrator but the reasoning given by the High Court held to be not sustainable on appeal
the question arose before the Supreme Court that whether the High Court was right in
setting aside the award of interest from the date of the award. The Supreme Court
observed that the High Court has not at all considered the letter dated 6th October, 1983
and 24th November, 1983 nor dealt with the question as to whether or not the
supplemental Agreement was not executed. The High Court has not even considered the
effect of the Supplemental Agreement having been executed without prejudice to the
claims which had already been made. Even if the High Court had considered these
aspects it could not have been substituted its views for those of the arbitrator as it could
not be said that the view taken by the arbitrator is unreasonable or one which cannot be
arrived at by a reasonable person. The impugned judgment of the High Court is not
sustainable.
Effect of an Arbitral Award being Set Aside
Once the arbitral award is set aside by the court while exercising the power under Section
34, the effect of an award being set aside is that it becomes unenforceable by law. The
parties have to be reverted to their former position in respect of the subject-matter of
dispute.
It is settled legal position that as soon as the arbitral award is made, an arbitral tribunal is
functus officio, thus it ceases to function, on the authority of the court's order as provided
under Section 34(4) the arbitral tribunal may resume its power and may conduct fresh
arbitration proceedings, when the matter has been remitted back to the tribunal. While
clarifying this point, the Apex Court in Narain Das v. Narsingh Das, observed that the
court is empowered to order the tribunal to correct or modify an arbitral award where it is
imperfect in form, but the court cannot substitute its own order for the arbitrator's award.
Conclusion
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FINALITY AND ENFORCEMENT OF ARBITRAL AWARDS
Finality and Enforcement of Arbitral Awards [10] May 03
Introduction: Provisions relating to the finality and enforcement of Arbitral Awards are
dealt with under Ss 35 ad 36 of the Act
Finality of Arbitral Awards [S. 35]
Section 35 states that the final arbitral award is binding upon the parties and any other
persons claiming under them. To achieve finality, the arbitral award should not be
challenged within the period of time provided under Section 34(3). Such an arbitral
award has not only achieved finality, but also becomes a binding force on the parties, not
required to make the rules of the court.
This is a reformative provision in the Act of 1996. After the finality of an arbitral award,
rights and liabilities of the parties relating to the said claims etc. are to be decided in
accordance with the said arbitral award.
As stated in the case of Satish Kumar v. Surinder Kumar, an arbitral award may, in effect,
declare, distinguish, limit, title or interest, whether it is present or future, whether vested
or contingent, and if the value of the moveable property is one hundred rupees and more
to be mandatorily registered under the Registration Act, 1908 under Section 17(1)(b).
Thus, the finality of arbitral award should have some legal effects to the parties under the
claim. In Kedar Nath v. Ambika Prasad before the Allahabad High Court it was
contended that the award was not a mere waste of paper, but gives rise to some legal
effect.
Rights and liabilities of the parties to be determined only on basis of award
It is well settled rule that when the arbitral award becomes final, the rights and liabilities
of the parties are to be determined only on the basis of the said award. All claims which
are the subject-matter of a reference to arbitration are merged in a valid award.
Subsequently, no action can be commenced on the original claim which had been the
subject-matter of the arbitral proceedings.
Award is capable of being executed in its own right
The requirement under the old Arbitration Act, 1940 was that unless the arbitral award
becomes the rule of the court, it is not capable to be executed or enforced. Now, under the
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new Act, an arbitral award is capable of being executed in its own right. It is to be treated
like a decree under the CPC. However, before incorporation of the new Act, 1996 the
question of enforceability of the arbitral award was considered by the Apex Court in
Hanskumar Kishan Chand v. Union of India. The Court observed that the award of an
arbitrator is unenforceable by its own right, unless it has the ‘imprimatur’ of the court
stamped on it. When the court passes orders in respect of the award saying that it can be
filed and decree issued in terms thereof, then only does the award becomes enforceable.
Now the award no longer requires filing in the court of law and obtaining a decree in
terms thereof. Under the new Act, 1996 namely, under Section 35 which declares that an
arbitral award shall be final and binding on the parties and persons claiming under them
respectively. Thus, the award shall be enforced under the Civil Procedure Code, 1908 in
the same manner as if it were a decree of the court.
When the award is compulsorily registrable
Wherein the value of the arbitral award is one hundred rupees and upwards or relating to
immovable property, it is compulsorily registrable under Section 17 (1)(b) of the Indian
Registration Act, 1908. Where the award declares, assigns, limits or extinguishes,
whether in the future or the present, any title, right or interest vested or contingent and its
value in terms of money is one hundred rupees or more or is immovable property, in the
view of said section of Registration Act, 1908, it is required to be registered. Further,
Section 49 of the Registration Act, 1908 provides that the arbitral award which is
required to registered, if unregistered, will be considered inadmissible as evidence.
Enforcement [S. 36]
Section 36 provides condition for enforcement of an arbitral award and its procedure as to
how the award will be enforced. There ate two conditions to be fulfilled to become an
award enforceable. It is the mandatory provision.
The conditions are:
1. under Section 34, time limit for making an application for setting aside an arbitral
award has expired, or
2. such an application has been made but it has been refused;
If either condition is fulfilled the award shall be enforced under the Code of Civil
Procedure, 1908 in the same mariner as if it were a decree of the Court. In fact an arbitral
award is not a decree of the court but, mutatis mutandis shall apply to the enforcement of
an arbitral award. Section 36 contains the words ‘in the same manner as if it were a
decree of the court’ thus, an arbitral award must include essential ingredients of a decree
of the court, to become capable of being enforced.
An arbitral award made on oral submission is not enforceable.
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Under the new Act, 1996 the requirement as to stamping of the arbitral award and making
of the rule of the court and issuing of a decree in terms thereof have been taken away.
Now the arbitral award itself is executable without these formalities which were
necessary under the old Act, 1940.
Enforcement of award
Khaleel Ahmed Dakhami v. Hatti Gold Mines Ltd., the fact of the present case is as
follows: Award allowed some of the claim of the appellant. The respondent filed an
application under Section 34 for setting aside the award. Earlier caveat had been filed by
the appellant along with application under S.9 i.e., interim measures etc. by court, the
appellant also filed an application under Section 36 for execution of the award without
mentioning pendency of application under Section 34, i.e., for setting aside of arbitral
award. It was held that the application under Section 36 for enforcement of award could
not be entertained.
Conclusion
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APPEALS
Which orders are not appealable under the Act? [16] May 06
Discuss on what grounds appeal can be filed against an award passed by the
arbitrator. [16] Dec 06
Discuss the orders which are appealable and orders which are not appealable
under the Act. [16] May 09, May 05, Dec 04, May 03
Discuss the appealable orders under the Act. Does second appeal lie from an
order passed in appeal? [16] May 04, May 01
Against which orders appeal lies? Discuss to which court appeal lies against
orders. [16] Dec 01]
Introduction: Section 16(2) explains that a plea that the arbitral tribunal does not have
jurisdiction which shall be raised not later than the submission of the statement of
defence; however, a party shall not be precluded from raising such a plea merely because
he has appointed, or participated in the appointment of an arbitrate.
Sub section (3) of Section 16 explains that a plea that the arbitral tribunal is exceeding
scope of its authority shall be raised as soon as the matter alleged to be beyond the scope
of authority is raised during the arbitral proceedings.
Objection relating to jurisdiction of the arbitral tribunal may be raised by anyone of the
parties to the proceedings as laid down in sub-section (2) or (3) of Section 16within the
time limit prescribed in those sub-sections before the arbitral tribunal. The arbitral
tribunal decides the objection. The aggrieved party may appeal on those orders.
Appealable Orders [S. 37] Section 37(1) provides for appeals against orders of court in two ways:
• To pass any interim measures under Section 9, or
• To set aside or refuse to set aside an arbitral award under Section 34.
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Further, this sub-section (1) provides that an appeal shall lie to the court authorised by
law to hear appeals from original decrees of the court passing the order. Thus, this sub-
section (1) provides for an appeal from court orders.
Section 37(2) provides that an appeal shall lie to a court from an order of the arbitral
tribunal, when either of the following conditions are fulfilled:
• under Section 16(2) or SeCtion 16(3) referred application has been accepted or,
• under Section 17, to grant interim measure or refusing to grant interim measure.
The orders of arbitral tribunal have been made apealable, this is a new stage of
development seen in the A&C Act, 1996. Now, the arbitral tribunal has freedom to act in
a judicial way.
Section 37(3) prohibits second appeals, from an order passed in appeal under this section,
but further states that any right to appeal to the Supreme Court is in no way prohibited.
Thus, second appeals can be made to the Supreme Court under the Constitution of India,
and also as provided in the SC Rules. It was held by the Allahabad High Court that the
jurisdiction conferred on the Supreme Court by the Constitution of India cannot be taken
away or abridged by any statute.
Section 37 of Act, 1996 barred a second appeal from an appellate order. A revisional
application against an appellate order under Section 37 is not maintainable, even before
the High Court.
Interim measures ordered by the arbitral tribunal
Section 17 empowers the arbitral tribunal to grant interim measures. Sub-section (1) of
Section 17 says that unless otherwise agreed by the parties, the arbitral tribunal may, at
the request of a party, order a party to take any interim measure of protection as the
arbitral tribunal may consider necessary in respect of the subject matter of the dispute.
S. 17(2) explains that the arbitral tribunal may require a party to provide appropriate
security in connection with a measure ordered under sub-section (1).
The party aggrieved by the interim orders granted by the arbitral tribunal has a right to
appeal against that order under clause (b) of sub-section (2) of Section 37.
Second Appeal
S. 37 (1) & (2) contain the provisions regarding ‘appealable orders’. The Appeal Court
decides the matters appealed before it. The orders of the Appeal Court are final. No
further appeal shall lie from the orders of the Appellate Court.
However, the right to appeal to the Supreme Court is still exists to the aggrieved party.
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Section 37(3) explains that no second appeal shall lie from an order passed in appeal
under this section, but nothing in this section shall affect or take away any right to appeal
to the Supreme Court.
Powers of the Appellate Court
The Appellate Court has to exercise the following rights and powers:
1. First of all, it must verify whether there has been a reference to arbitration.
2. Next to it, it has to see whether there is any award.
3. The next important thing to observe is that whether the ground sought by the
appellant flows from any of the four grounds named in Section 37.
4. The Appellate Court has no authority to take fresh evidence or to pursue new
documents and scrutinize them.
5. If the Appellate Court confirms the award given by the arbitral tribunal, it need
not give reasons for its decision for affirming it. However, if the Appellate Court
reverses the award given by the arbitral tribunal, then it should give reasons for its
decision.
6. The Appellate Court should not consider the appeals, which are time barred or
come within the purview of res judicata.
Conclusion
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MISCELLANEOUS
An arbitration agreement is not discharged by death of any party. Discuss.
[16] Dec 06, Dec 05, 04, Dec 03
Introduction: Chapter X of the A&C Act gives us the miscellaneous provisions under
the Act.
Arbitration Agreement not to be discharged by death of party thereto [S. 40]
Section 40 deals with the event of the death of any party in an arbitration agreement.
Section 40(1) provides that any party shall not be discharged by the death in an arbitral
agreement and in such cases an arbitral agreement shall be enforced against the legal
representative of the deceased. The expression ‘legal representative’ is defined in Section
2(1) of the Act, 1996.
In a Partnership agreement which contained an arbitration which contained an arbitration
clause due to the death of the partner, the partnership automatically dissolved, but under
the arbitration act, the right of legal representative would come into effect so to make an
application in this regard is provided in the arbitration clause.
It is clear that under Section 40(1) the death of any party will not discharge him in the
arbitration agreement; the arbitration agreement shall be enforceable by the deceased's
legal representative or against the legal representative of a deceased. However, if there is
an arbitration. agreement as such that the right of a party shall be extinguished on death
of that party, in this instance the arbitration agreement is not enforceable by the legal
representative of the deceased other party
Whether a legal representative is bound by such an agreement or not, would depend upon
the contents of the subject-matter of agreement. Whether the rights given are purely
personal or as survivor in respect of the legal representative.
When the hearing has concluded and one of the parties dies, all his legal representatives
are brought on the record and made parties to the reference. This can be done by giving
notice to them where the reference is not through court and where a proceeding for
substitution of legal representative is not necessary.
Section 40(2) provides that the death of any party, who has appointed an arbitrator, the
authority of that arbitrator shall not be revoked, due to death of the party who has
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appointed him. Thus, once an arbitrator is appointed, he becomes an independent
authority in any respect, even, on the death of the party who appointed him.
Section 40(3) provides that this sub-section (3) does not affect the operation of the
provisions contained in sub-sections (1) and (2) where the right of action to be
extinguished by the death of a person in an arbitration agreement. Some examples where
the right of action is extinguished by the death of a person are as follows:
1. Right of pre-emption
2. Right of office
3. Suit of damages for breach of betrothal
4. Right of damages for defamation
5. Suit for injunction
6. Right of damages for malicious prosecution
7. Suit of damages for malicious search
8. Suit of damages for wrongful arrest.
Reference would continue on the death of party
As provided under Section 40 of the Act, 1996, on the death of party arbitration
proceedings will survive according to the terms of the agreement. This provision is
equally applicable to all the parties in arbitration. In fact, their legal representatives will
be brought on record and arbitration proceedings will be continued as per the terms
contained in the arbitration agreement. In Tirath Lal Day v. Smt Bhuwan Moyee Dasi, the
then Federal Court observed that on the death of party, the arbitrator is under obligation
to serve notice upon the legal representative of the deceased party to appear in the
arbitration proceedings and reference will continue. If there is no service of notice upon
such legal representative, the arbitral award will not be binding on such legal
representative.
Wherein during the course of arbitral proceedings the death of a party takes place, all the
legal representatives who are bound by the arbitral award will be entitled to be given
opportunity to put up their case. Failure to serve such notice will not bind them by the
award.
It is submitted that on the death of party the serving of notice upon the legal
representative is a mandatory requirement and in case of non-compliance of the same,
award will not be binding on the legal representatives.
Conclusion
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Insolvency of party in arbitral proceedings [10] May 01
Introduction: Chapter X of the A&C Act gives us the miscellaneous provisions under
the Act.
Provision in case of insolvency [S. 41]
Section 41 has been enacted with the object to fix standard law for the arbitration
agreement and proceeding on insolvency.
Thus, to take standard law in this regard this section has no application to statutory
arbitration under any other law. Presently this section has no operation.
Section 41(1) deals with such an arbitration agreement which is executed by an insolvent,
it is immaterial for the purpose of this sub-section (1) that he became an insolvent before
or after the insolvency proceedings, but he must have become an insolvent before
declaration of it. If, any disputes arise during the contract or in order to make the
contract, it shall be submitted to arbitration on agreed terms. If the receiver adopts the
contract which includes the official assignee, it will be enforceable by or against him so
far as it relates to any such dispute.
Section 41(2) provides that where in the matters sub-section (1) is not to be applied, sub-
section (2) shall be applied. However to apply sub-section (2), the following conditions
may be present for consideration:
1. The matter does not come under Section 41(1).
2. An arbitration agreement should be in existence before the commencement of the
insolvency proceedings.
3. Any matter as such to be determined by the arbitration.
4. The Court should be of opinion after consideration of each and every aspect of the
matter that it should be determined by the arbitration.
5. A written request by the party or by the receiver should be made before the
Insolvency Court that the matter may be referred to the arbitration.
6. The matter, relating to an agreement which is to be determined in the context of
the insolvency proceedings.
Section 43(3) provides the expression ‘receiver’, shall include official assignee.
Thus, an official assignee is treated as a receiver in the view of sub-section (3) of section
41 of the new Act, 1996.
Scope of Section 41
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The mandate of Section 41 shows that with the insolvency of a party the arbitration
agreement does not itself become invalid, but it will be determined on the basis whether
the receiver adopts the arbitration agreement or not. In case receiver adopts the arbitration
agreement and seeks recourse from the Insolvency Court to refer the matter to the arbitral
tribunal, the Insolvency Court will decide whether the matter is to be referred to the
arbitral tribunal or not or whether the matter is to be tried by the Insolvency Court itself.
Although, in case the party becomes insolvent after the commencement of the arbitral
proceedings, the arbitral tribunal is under obligation to serve a notice on the receiver to
put up the case on behalf of the insolvent party as it is required in the event of death of
the party, notice to be served upon the legal representative of the deceased party.
Thus, it is discretionary power of the judicial authority i.e., Insolvency Court to refer such
matters to the Arbitral Tribunal or to decide the matter itself.
Conclusion
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NEW YORK CONVENTION AWARDS
What is meant by foreign awards? Explain the conditions for their
enforcement under New York Convention Awards. [16] Dec 06, May 02, Dec 01
What do you mean by International Commercial Arbitration? Discuss the
difference between arbitration and conciliation? [16] Dec 06, May 01
Define ‘International Commercial Arbitration’. Explain the legal provisions
relating to New York Convention Award. [16] May 05, May 03, Dec 01
International Commercial Arbitration [10] May 04
New York Convention Award [10] May 09, May 08, May 07, Dec 06, May 04, Dec 03
Introduction: ‘The essence of the theory of ‘transnational arbitration’ is that the institu-
tion of international commercial arbitration is an autonomous juristic entity which is
independent of all national courts and all national systems of law.’ ‘One of the primary
purposes of transnationalist movement is to break the links between the arbitral process
and the courts of the country in which the arbitration takes place.’
The Arbitration and Conciliation Act, 1996 provides for certain aspects of international
commercial arbitration.
Definitions
International Commercial Arbitration
The term ‘international commercial arbitration’ has been defined in Section (2)(1)(f) of
the Arbitration and Conciliation Act, 1996 as follows: ‘International commercial
arbitration means an arbitration relating to disputes arising out of legal relationships,
whether contractual or not, considered as commercial under the law in force in India and
where at least one of the parties is:
i. an individual who is a national of, or habitually resident in, any country other
than India; or
ii. a body corporate which is incorporated in any country other than India; or
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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,
or an arbitration to be considered as international arbitration within the meaning of this
definition it is necessary that;
(a) the dispute must arise out of a legal relationship which is commercial, irrespective of
the fact whether such relationship is contractual or not; and
(b) at least one of the parties to the dispute is a foreign national or a company registered
in a foreign country or a company, management and control of which is exercised
from a foreign country or the Government of a foreign country.
According to a quotation by the Supreme Court in R.M Investments Trading Co. Pvt. Ltd
v. Boeing Co, the term ‘commercial’ refers to any relationship which is of commercial
nature, not necessarily confined only to transactions. This is because the expression
‘commercial relationship’ is capable of including a large number of transactions, and as
such, making it difficult to be enumerated for the purpose of S. 44 of the A&C Act, 96.
Foreign Award
Section 44 of the A&C Act, 1996 is on the pattern of Article I of the New York
Convention and similar to Section 2 of the 1961 Act which defines a ‘Foreign Award’
under Chapter I, Part II. The Supreme Court said in the case of Ramji Dayawala & Sons
v. Invest Import that this Chapter would not be applied where the awards are made in
foreign countries which are not parties to the New York Convention.
According to S. 44 of the Act, 1996 the term ‘foreign award’ means an arbitral award on
differences between persons arising out of legal relationships, whether contractual or not,
considered as commercial under the law in force in India, made on or after the 11th day of
October, 1960
The term ‘foreign award’ means the award made as a result of foreign arbitration which It
becomes necessary to understand the term ‘foreign arbitration’. The Calcutta High Court
in the case of Serajuddin v. Micheal Golodetz laid down the necessary conditions relating
to the term foreign arbitration:
a. arbitration should have been held in foreign lands, by foreign arbitrator;
b. arbitration by applying foreign laws;
c. as a party foreign national is involved.
These are essential elements of a foreign arbitration resulting in a foreign award.
To explain the term ‘foreign award’ the Apex Court in N.T.P.C v. Singer Company,
observed that where in London an Interim award, was made which arose out of an
arbitration agreement governed by the Indian Laws. It was held that such an arbitral
award cannot be treated as a foreign award and it is purely a ‘domestic award’ which was
governed by the laws of India in respect of the agreement and arbitration.
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Power of judicial authority to refer parties to arbitration [S. 45]
Section 45 has been enacted in line with Article II (3) of the New York Convention. The
object of this section is to give an overriding effect, if any, to the provisions of Part I and
the provisions of the Code of Civil Procedure which are opposed to the provision
contained in the present Act.
It is the requirement of this section that the judicial authority make sure that the
arbitration agreement is valid, operative and capable of being performed before referring
the parties to arbitration in respect of disputes for which there is an arbitration agreement
in writing between the parties. Although, with the use of the word ‘shall’, it becomes a
discretionary power of the judicial authority, so unless specified conditions are not
fulfilled, this section cannot be invoked.
Further, the expression that a ‘judicial authority when seized of an action in a matter in
respect of which the parties have made an agreement referred to in S. 44’, means that the
judicial authority refers the parties to arbitration can compel a party who is not willing to
go to arbitration for unobvious reasons known best to that party.
Section 45 states that the judicial authority may refer the parties to arbitration at the
request of one of the parties or any person claiming through or under him. Thus, it is
necessary that any party should make a request before the judicial authority, when seeking
relief under an arbitration agreement. The judicial authority has to find out that the
arbitration agreement through which party is seeking reference of dispute to an arbitration
is not null and void, inoperative or incapable of being performed. It is necessary under
this section that the judicial authority has to record its findings whatsoever its directions
may be.
When foreign award is binding [S. 46]
Section 46 has been incorporated with a liberal object to recognize all the ‘Foreign
Awards’ under this Chapter which is enforceable in India, even for the purpose of
defence, set-off or in any legal proceedings in India. Thus, any foreign award under this
Chapter becomes enforceable and shall have binding force upon the parties between
whom it was made. These parties may rely on such a foreign award by way of claim,
defence, set-off and in any legal proceedings initiated in India.
Conditions for enforcement of foreign award [S. 48]
Section 48 has been enacted on the basis of Article V of the New York Convention and
Section 7 of the 1961 Act. Section 48 provides the conditions for enforcement of foreign
awards. In which there are three sub-sections.
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Sub-section (1)
Under sub-section (1) there are clauses (a) to (e):
Clause (a)
According to sub-section (1), enforcement of a foreign award may be refused provided
that the party makes such a request against whom it is applied. But that party is required
to submit certain proof regarding his revocation. Clause (a) provides that if the parties
made an arbitration agreement under Section 44 in compliance of law applied to the
parties, but due to some incapacity or when the arbitration agreement becomes invalid
under the law or contrary to law of the country, in such cases the court may refuse to
enforce a foreign award by order. The Scope of this clause (a) was specifically explained
by the Delhi High Court, in Gas Authority of India Ltd. v. SPIE CAPAG SA saying that
‘an arbitration agreement is not valid under the law to which the parties have subjected it
or, failing any indication thereon, under the law of the country where the award was
made.’
Further, when, an arbitration agreement is made, but it is induced by way of fraud, undue
influence or misrepresentation and contrary to law, by which the arbitration agreement is
to be governed, as a result of such an arbitration agreement a foreign award shall not be
enforceable provided the parties against whom it is invoked make an application with the
request before the court.
Clause (b)
Clause (b) of sub-section (1) of Section 48 provides the condition where the principle of
natural justice is not followed. When the party who has been aggrieved and against whom
the award is made, has not been given proper notice of the appointment of the arbitrator
or the arbitral proceedings or not been given proper opportunity for presentation of his
case in the arbitration, if he applies against the enforcement of such a foreign award and
the court is of opinion that in fact the principle of natural justice has not been adopted
during the arbitration proceedings to make such an award, may refuse to enforce such
award. Accordingly, a foreign award made in violation of this principle cannot be
enforced.
Clause (c)
Clause (c) provides the principle that to ensure a valid award it must deal only with
questions actually submitted to the arbitral tribunal by the parties. In other words if the
award has contemplated differences not referred to the arbitral tribunal it cannot be
enforced and is liable to be refused. Thus, an arbitral tribunal must confine its jurisdiction
to the terms of submission.
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Clause (d)
Clause (d) provides that the arbitral authority or the arbitral procedure is inconsistent with
the agreement of the parties and if the award is made, it cannot be enforced. Clause (d),
clearly states the grounds, when, enforcement of a foreign award is not to be acted upon.
These are:
1. When, the composition of the arbitral authority is not in compliance with the
agreement of the parties.
2. When, the arbitral procedure adopted, is contrary to the provisions in the
agreement of the parties.
3. When, the arbitration agreement itself is contrary to the law of the country, where
the arbitration took place.
Clause (e)
Clause (e) provides that, when the award has been set aside or suspended by a competent
authority of the concerned country or it has not become binding on the parties, it shall not
be enforced.
Thus, the jurisdiction and competence to set aside the award is vested with the courts of
the country in which or under the law of which the award is made.
The Supreme Court of India said that the award can be said to have become ‘binding’ on
the parties only when it has become enforceable and the enforceability must be
determined as per the law applicable to the award.
Sub-section (2)
Sub-section (2) of Section 48 provides additional grounds in turn vested powers to the
court to refuse enforcement of an arbitral award. Under this sub-section (2), the Court
may refuse to enforce a foreign award if it finds that:
• the subject-matter of the difference between the parties is not capable of
settlement by arbitration under the law of India, or
• if the enforcement of such a foreign award is opposed to the public policy of
India.
In such cases, the court may refuse the enforcement of such a foreign award. The
expression ‘public policy’ is subject to interpretation from time to time as also to
currently prevailing circumstances, the present Act having not defined it.
The Supreme Court of India held that the enforcement of a foreign award would be
refused on the ground that it is contrary to public policy if such enforcement would be
contrary to
1. fundamental policy of Indian law, or
2. the interests of India, or
3. Justice or morality.
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Sub-section (3)
Sub-section (3) of Section 48 provides that when, the party makes an application before
the court with the request to set-aside or suspend the enforcement of a foreign award, the
court is empowered to adjourn its decision on enforcement and may also order the other
party to give suitable security.
Enforcement of Foreign Awards [S. 49]
Section 49 has been incorporated on the basis of Article III of the New York Convention,
however, conditions for enforcement of a foreign award have been provided in Section 47
and Section 48 of the Act.
Section 49 provides that when the Court is not only of opinion but also satisfied that a
foreign award can be enforced by the Court, the award shall be deemed to be a decree of
the court. In this context, the Supreme Court of India had held that ‘The award must be
executed as it is and there is no scope for addition to, or substraction from, the award.’
Thus, enforcement of a foreign award is to be carried out in accordance with its contents
without any change in this respect.
Conclusion
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GENEVA CONVENTION AWARDS
Define foreign award and state the provisions regarding Geneva Convention
Award. [16] May 07, Dec 03
Under what conditions the foreign award can be enforced under Geneva
Convention Award? Discuss. [16] May 06, Dec 04, Dec 03, Dec 02, May 01
Discuss the powers of judicial authority to refer parties to arbitration
under the Geneva Convention and point out the defects in the Geneva
Convention. [16] May 02
Geneva Convention Award [10] Dec 05
Introduction: ‘The essence of the theory of ‘transnational arbitration’ is that the institu-
tion of international commercial arbitration is an autonomous juristic entity which is
independent of all national courts and all national systems of law.’ ‘One of the primary
purposes of transnationalist movement is to break the links between the arbitral process
and the courts of the country in which the arbitration takes place.’
The Arbitration and Conciliation Act, 1996 provides for certain aspects of international
commercial arbitration.
Interpretation [S. 53]
Section 53 has been enacted on the basis of Article 1 of the Geneva Protocol and Article
1(1) of the Geneva Convention and also Section 2 of the 1937 Act.
Section 53 provides meaning of ‘Foreign Award’, it means an arbitral award on
differences in respect of the matter which has been arbitrated as commercial matter under
the law in force presently in India after the 28th of July, 1924.
In this context, expression ‘differences’ contains disputes vice-versa.
Section 53 has limited application because it applies to the jurisdiction of different parties
to the Geneva Convention. The Central Government by notification in official Gazette
has to declare the territories to which the Geneva Convention would be applied. Thus, if
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the award is made in such territories which is not a party to the Geneva Convention
Chapter II does not apply. It is important to note that the Central Government under
Section 2 of the Arbitration (Protocol and Convention) Act, 1937 may make declaration
by notification in the official Gazette, list of parties to the Geneva Convention and
the territories to which the Geneva Convention applies, such a declaration is to be made
by the Central Government only when the Central Government is satisfied that reciprocal
provisions have been made.
Further, Section 53 provides that finality of a foreign award will not be recognized, if
there is any pending proceedings in respect of validity of such a foreign award under
consideration as such in the country in which it is made.
Power of judicial authority to refer parties to arbitration [S. 54]
Section 54 is enacted on the basis of Article 4 of the Geneva Protocol. Section 54
provides that any provisions given in Part I or in the Code of Civil Procedure, 1908 shall
not be applied if it is contrary to the provisions contained in Chapter II of the present Act.
It provides power to the judicial authority to refer the parties to the decision of the
arbitrators, if the following requirements of conditions are fulfilled:
1. there should be dispute regarding a contract made between persons to whom
Section 53 applies, and
2. the contract must include an arbitration agreement, in this respect it is immaterial
whether referring to present or future differences,
3. a party to the arbitration agreement must initiate legal proceedings opposed to
another party in such arbitration agreement,
4. the judicial authority must be of opinion that the agreement or the arbitration can
proceed and it is operative,
5. the judicial authority has to be satisfied that the arbitration is valid under Section
53 of the Act and capable of being carried into effect.
No time limit has been prescribed under Section 54 of the Act; however, it may be
determined in light of circumstances by the judicial authority.
Foreign awards when binding [S. 55.]
Section 55 is enacted on the basis of Article 1(1) of the Geneva Convention and Section
4(2) of the 1937 Act.
Section 55 provides that a foreign award which has enforceability under this Chapter II,
the Geneva Convention Award, will be acted as binding force upon the parties against
whom it was made and such a foreign award will become the basis to seek defence, set-
off or otherwise any. legal proceedings in India, by the parties. Thus, under this Chapter,
enforcement of such a foreign award with be explained with references trusted in that
award.
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Conditions for enforcement of foreign award [S. 57]
Section 57 is enacted on the basis of Article 1 and Article 2 of the Geneva Convention
and also Section 7 of the 1937 Act.
Section 57 provides the conditions essential for enforcement of foreign awards. Section
57(1) and Section 57(2) lays down specified conditions which are to be fulfilled before
the foreign award is enforced in India. The onus to produce these evidences lie on the
party who is seeking enforcement of the award.
Section 57(1) provides that a foreign award may be enforceable under this Chapter. Sub-
section (1), clauses (a) to (e) deal with the enforcement of foreign awards.
Clause (a)
It states one of the conditions for enforcement of a foreign award is that the award has
been made in pursuance of a submission to arbitration which is valid under the law
applicable thereto. Thus, if the terms submitted to arbitration are illegal or contrary to law
in force, the award given by the arbitral tribunal in pursuance of terms of arbitration
clause will not be enforceable.
The Madras High Court said that ‘if the contract is illegal, the award given by the arbitral
tribunal in pursuance of arbitration clause in the contract will not be enforceable.
Clause (b)
The subject-matter of the award is capable of settlement by arbitration under the law of
India. Thus, it is intended that the disputes should be arbitrable under the law of India.
Clause (b) is similar to clause (a) of Section 48(2) of the Act. .
Clause (c)
It is one of the pre-conditions before enforcement of a foreign award that the award made
by the arbitral tribunal which has been constituted as per the agreed terms between the
parties and also in accordance with law governing the arbitration proceedings;
Clause (d)
‘Finality’ of the award is to be proved by the party who is seeking enforcement of the
award. The award has become final in the country in which it has been made, however
finality of the award can be opposed or appealed on the ground, if for the purpose of
contesting the validity of the award, if it is proved that in respect of validity of the award
any proceedings are pending. However, where the time for setting aside of the award by
proceedings in a foreign court had long expired; the foreign award must be held to be
final.
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Clause (e)
It is also a necessary condition that the enforcement of a foreign award should not be
contrary to public policy of India. Thus, if any agreement between a foreign party and an
Indian party is contrary to the law of India, it will not be enforced. Similarly, if it is
opposed to the interest of public at large in India, a foreign award cannot be enforced.
However, ‘where a contract provided for payment of liquidated damages for breach of
contract and the arbitrators awarded maximum amount named in the contract, the foreign
award is not had on the face of it nor can it be said to be against the law of India as
contained in Section 73 and Section 74 of the Contract Act.
Section 57(2)
It provides that despite the conditions contained in sub-section (1) being fulfilled, the
Court may refuse the enforcement of a foreign award if any of the following conditions
existed:
(a) the award has been annulled in the country in which it was made,
(b) the party against whom the award is sought to be used, was not given notice of the
arbitration proceedings in sufficient time to enable him to present his case, or that,
being under a legal incapacity, he was not properly represented.
(c) the award does not deal with differences contemplated by or falling within the
terms of the submission to arbitration, as it contains decisions on matters beyond
the scope of the submission to arbitration.
However, under this Section 57(2) the Court is empowered to postpone the enforcement
of a foreign award or may order to provide guarantee in this regard if such a foreign
award is not the result of all the differences submitted to the arbitral tribunal.
Section 57(3)
It provides extra grounds to oppose the enforcement of a foreign award by the party
against whom the award is made. These grounds are in addition to the grounds provided
under clauses (a) and (c) of sub-section (1) of Section 57 and clauses (b) and (c) of sub-
section (2) of the same section. It is the right given to the party to oppose enforcement of
a foreign award based on said grounds, thus, the party can question the validity of the
award before the Court. But, the court is empowered to refuse enforcement of the award
or adjourn enforcement of the award after giving reasonable opportunity to the party
within reasonable time, against whom the award is made.
Enforcement of foreign award [S. 58]
Section 58 is enacted on the basis of Article 1(1) of the Geneva Convention. The
provisions contained in Section 58 are similar to the provisions of Section 49 of the
present Act.
Conclusion
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Explain ‘Protocol on Arbitration Clauses’. [16] Dec 01
Introduction: Under Section 53, the Second Schedule of the Arbitration and Conciliation
Act, 1996 contains the ‘Protocol on Arbitration Clauses.’ On it all the Contracting States,
including India, signed, it is binding on all the Contracting States.
The undersigned, being duly authorized, declared that they accept, on behalf of the
countries which they represent, the following provisions:
1. Each of the Contracting States recognizes the validity of an agreement whether
relating to existing or future differences between parties subject respectively to
the jurisdiction of different Contracting States by which the parties to a contract
agree to submit to arbitration all or differences that may arise in connection with
such contract relating to commercial matters any other matter capable of
settlement by arbitration, whether or not the arbitration is to take place in a
country to whose jurisdiction none of the parties is subject. Each Contracting
State reserves the right to limit the obligation mentioned above to contacts which
are considered, as commercial under its national law. Any Contracting State
which avails itself of this right will notify the Secretary-General of the League of
Nations in order that the other Contracting States may be so informed.
2. The arbitral procedure, including the constitution of the Arbitral Tribunal, shall be
governed by the will of the parties and by the law of the country in whose
territory the arbitration place. The Contracting States agree to facilitate all steps in
the procedure which require to be taken in their own territories, in accordance
with the provisions of their law governing arbitral procedure applicable to
existing differences.
3. Each Contracting State undertakes to ensure the execution by its authorities and in
accordance with the provisions of its national laws of arbitral awards made in its
own territory under the preceding articles.
4. The Tribunals of the Contracting Parties on being seized or a dispute regarding a
con made between persons to whom Article 1 applies and including an Arbitration
Agreement with referring to present or future differences which is valid in virtue
of the said article and capable of being carried into effect, shall refer the parties on
the application of either of them to the decision of the Arbitrators. Such reference
shall not prejudice the competence of the judicial tribunals in case the agreement
or the arbitration cannot proceed or becomes inoperative.
5. The present Protocol, which shall remain open for signature by all States, shall be
ratified. The ratification shall be deposited as soon as possible with the Secretary-
General of the League of Nations, who shall notify such deposit to all the
Signatory States.
6. The present Protocol will come into force as soon as two ratifications have been
deposited. Thereafter it will take effect, in the case of each Contracting State, one
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month after the notification by the Secretary-General of the deposit of its
ratification.
7. The present Protocol may be denounced by any Contracting State on giving one
year’s notice. Denunciation shall be effected by a notification addressed to the
Secretary-General of the League, who will immediately transmit copies of such
notification to all the other Signatory States and inform them of the date on which
it was received. The denunciation shall take e one year after the date on which it
was notified to the Secretary-General, and shall operate only in respect of the
notifying State.
8. The Contracting States may declare that their acceptance of the present Protocol
does include any or all of the under-mentioned territories; that is to say, their
colonies, overseas possessions or territories, protectorates or the territories over
which they exercise a mandate. The said States subsequently adhere separately on
behalf of any territory thus excluded. The Secretary – General of the League of
Nations shall be informed as soon as possible of such adhesions. He shall notify
such adhesions to all Signatory States. They will take effect one month after the
notification by the Secretary – General to all Signatory States. The Contracting
States may also denounce the Protocol separately on behalf of any of the
territories referred to above. Article 7 applies to such denunciation.
Conclusion
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ARBITRATION, CONCILIATION & ADR SYSTEMS 85
CONCILIATION
What is meant by conciliation? Discuss the provisions relating to
appointment, functions and removal of conciliators under the Act. [16] May 09, May 03, Dec 02, 02, Dec 01
State the circumstances under which a conciliator is appointed. Explain the
powers and duties of a conciliator. [16] May 07, May 05, May 04, Dec 04
Explain the procedure to be followed in appointing conciliator. When can the
conciliation proceedings be terminated? [16] May 08, Dec 06, Dec 05, May 02, Dec 02, Dec 02, Dec 01
Conciliation [10] May 06
Introduction: Part III of the Arbitration and Conciliation Act, 1996 deals with
conciliation. Conciliation means ‘the settling of disputes without litigation’ Conciliation
is a process by which discussion between parties is kept going through the participation
of a conciliator. The main difference between arbitration and conciliation is that in
arbitration proceedings the award is the decision of the Arbitral Tribunal while in the case
of conciliation the decision is that of the parties arrived at with the assistance of the
conciliator.
The terms ‘arbitration’ and ‘conciliation’ have been distinguished in Halsbury’s Laws of
England as follows: ‘The term ‘arbitration’ is used in several senses. It may refer either to
a judicial process or to a non-judicial process. A judicial process is concerned with the
ascertainment, declaration and enforcement of rights and liabilities as they exist, in
accordance with some recognized system of law. An industrial arbitration may well have
for its function to ascertain and declare, but not to enforce, what in the arbitrator's opinion
ought to be the respective rights and liabilities of the parties, and such a function is non-
judicial. Conciliation is a process of persuading parties to reach agreement, and is plainly
not arbitration; nor is the chairman of conciliation boards an arbitrator.’
The law relating to conciliation has been codified for the first time in India on the pattern
of UNCITRAL Conciliation Rules.
Commencement of Conciliation Proceedings [S. 62]
Section 62 is enacted on the basis of Article 2 of the UNCITRAL Conciliation Rules.
PALLAVI BHOGLE
ARBITRATION, CONCILIATION & ADR SYSTEMS 86
Section 62 provides that any party to dispute may commence conciliation without the
term ‘claimant’ or ‘plaintiff’ and such terms are not to be used in conciliation.
Section 62 provides that any party to dispute wishing to initiate conciliation has to fulfill
the following conditions:
1. The party initiating conciliation should send a written invitation to the other party.
Such a written invitation should mention the subject of dispute.
2. The party initiating conciliation should state that the invitation is under Part III.
3. The invitation must briefly identify the subject of the dispute.
Appointment of Conciliators [S. 64]
Section 64 is enacted on the basis of Article 4 of the UNCITRAL Conciliation Rules.
S. 64 provides the procedure for appointment of conciliators, there may be one
conciliator or two or three conciliators.
Section 64(1) provides that the parties have to decide one name of a sole conciliator,
where by on agreement one conciliator is appointed to conduct conciliation proceedings
[clause (a)]. However, according to clause (b) where two conciliators are appointed by
the parties to conduct conciliation proceedings, each party is authorized to appoint one
conciliator. But, under clause (c) of sub-section (1), where three conciliators are
appointed to conciliate each party is authorized to appoint one conciliator and the third
conciliator by name and by the agreement between the parties he will be appointed to act
as the presiding conciliator in conciliation proceedings.
Under the Act, the presiding conciliator is nt authorized to take a binding decision, in
case od differences of opinion between the conciliators. However, the parties by an
agreement may confer such power to the presiding conciliator. The obvious purpose
behind this is to have speedy and smooth conciliation.
Although, these above-mentioned provisions are subject to the provisions contained in
sub-section (2) of Section 64.
Section 64(2) provides freedom to the parties to make an approach with request to any
institution which has its known reputation for rendering conciliation services or any
eminent person in the field of conciliation to recommend suitable, individuals to conduct
conciliation. Under this sub-section (2), clause (b) the parties are permitted by an
agreement in this respect to to appoint one or more conciliators directly by such an
institution a person who is providing expertise services in the area of conciliation.
It is provided that each party may appoint a conciliator independently without taking the
opinion of the other party. It is a direct appointment by the party or the parties who
jointly agree that an institution or a person appoints conciliators [two or more], directly.
PALLAVI BHOGLE
ARBITRATION, CONCILIATION & ADR SYSTEMS 87
Proviso to sub-section (2) of Section 64 provides guidelines to the institution or person,
who is requested by the parties to recommend or appoint conciliators. Such institution or
person is required to give due regards to consideration while recommending or
appointing conciliators in respect af their independent and impartial conciliation. Also,
while appointing a sole or third conciliator in connection with international commercial
conciliation it is advisable to take into account the nationality of a conciliator, vis-à-vis
the nationalities of the parties.
No time is laid down for appointment of conciliators under S. 64, however it is expected
that the parties to dispute would take the earliest initiative to settle their disputes by way
of taking services of the professional conciliators.
Submission of statements to conciliator [S. 65]
Section 65 is enacted on the basis of Article 5 of the UNCITRAL Conciliation Rules.
Section 65 deals with the conduct of conciliation upon appointment of conciliator or
conciliators.
Section 65(1) provides that when the conciliator has been appointed, he will make a
request to each party asking him to submit a written statement summarily describing the
nature of dispute and specified points of issue. Under sub-section (1) each party will send
a copy of such submission of statement to the other party. The parties are not required to
submit their statement of pleadings as such in details as required in the arbitral
proceedings under Section 23 of the Act, 1996.
Such submission of statement by the parties to the conciliator is intended to provide him
information about the general nature of dispute.
Section 65(2) provides that it is at the discretion of the conciliator to call upon any parties
to submit a further written statement to clarify his position and support his grounds of the
facts, which may be supplemented by any other documents or evidences, if the party
thinks appropriate. It is required under this sub-section (2) that anything submitted by the
party to the conciliator, a copy of the same documents must be sent to the other party.
Section 65(3) provides that the conciliator is further enabled to request for additional
information by the parties at any stage of the conciliation proceedings, if, the conciliator
is of opinion that it is necessary for the purpose to expedite the conciliation proceedings.
Administrative Assistance [S. 68]
Section 68 is enacted on the basis of Article 8 of the UNCITRAL Conciliation Rules;
Although, this section contained provision similar to those given in Section 6 of the Act
in respect of the arbitration.
Section 68 deals with provisions relating to administrative assistance to facilitate the
conduct of the conciliation proceedings. Such administrative assistance may be procured
PALLAVI BHOGLE
ARBITRATION, CONCILIATION & ADR SYSTEMS 88
from a suitable institution or person, however such administrative assistance will be taken
only after mutual consent of the parties or the conciliator with the consent of the parties
has taken place in this matter. Mainly, the nature of such administrative assistance is to
provide lists of conciliator arrange meeting for conciliators, and to provide two way
commcations services, including translation and interpretation services.
Communication between Conciliator and Parties [S. 69]
Section 69 is enacted on the basis of Article 9 of the UNCITRAL Conciliation Rules.
Section 69 deals with procedural communication powers of the conciliator, which is to
take place between the conciliator and the parties all together or separately, with each
party in the conduct of the conciliation proceedings.
Section 69(1) provides power to communicate to the conciliator, thus the conciliator may
1. invite the parties to meet him, or
2. communicate with them orally or in writing.
3. meet or communicate with the parties together, or
4. meet or communicate with each of them separately.
So, it is required under sub-section (1) of Section 69 that the conciliator should provide
reversible communication or meeting to the parties jointly or each party separately but he
should not refuse meeting with the one party and meet or communicate with the other
party; He must be impartial in such communication or meeting.
Section 69(2) provides freedom to the parties to determine the place for meeting with
conciliator by mutual agreement, if there is no such agreement between the parties, the
conciliator is empowered to determine the place for such meeting only after the parties
have been consulted and given their consents. Sub-section (2) is intended to provide
common convenient place with consideration in respect of time of travel, costs of travel
to such places, however, this matter becomes important especially in case of international
conciliation.
Disclosure of Information [S. 70]
Section 70 is enacted on the basis of Article 10 of the UNCITRAL Conciliation Rules.
Section 70 provides privilege to the conciliator whether to disclose information made
known to him by one party to the other party. However the conciliator is not expected to
disclose such information except the substance of the factual information in connection
with the dispute, received from one party to the other party.
It is to be noted that in conciliation the conciliator is a person who should win the
confidence of the parties by keeping their confidences. However, the conciliator may
make disclosure of such factual information to the other party in order that the other party
PALLAVI BHOGLE
ARBITRATION, CONCILIATION & ADR SYSTEMS 89
may have the opportunity to present any explanation, which the conciliator considers
appropriate.
Proviso to Section 70 of the Act, states that if the party gives any information to the
conciliator subject to a specific condition that it be kept confidential, in such cases the
conciliator is not allowed to disclose such information given on a ‘specified condition’ to
the other party.
It is to be further noted that Section 65(1) and Section 65(2) are not attracted by the
proviso to Section 70.
Termination of Conciliation Proceedings [S. 76]
Section 76 is enacted on the basis of Article 15 of the UNCITRAL Conciliation Rules.
This section is analogous to Section 32, Part I of the Act, 1996, however with one
contradiction that ‘A conciliation is wholly a voluntary process therefore it can come to
an end as and when desired to do so.’
S. 76 lays down 4 situations when the conciliation proceedings can be terminated.
Although other than these prescribed grounds, there are other grounds to terminate
proceedings as well, such as death of the party or conciliator.
Under S. 76, the following are the ways to terminate conciliation proceedings:
1. Clause (a) - by the signing of the settlement agreement by the parties, on the date
of the agreement, or
2. Clause (b) - by a written declaration of the conciliator, after consultation with the
parties, to the effect that further efforts of conciliation are no longer justified, on
the date of the declaration, or
3. Clause (c) - by a written declaration of the parties addressed to the conciliator to
the effect that the conciliation proceedings are terminated, on the date of the
declaration, or
4. Clause (d) - by a written declaration of a party to the other party and the
conciliator, if appointed, to the effect that the conciliation proceedings are
terminated, on the date of the declaration.
No time limit as such is provided u/s 76, that within what period the conciliation
proceedings can be terminated. Although, the date of such declaration is counted.
Because of a voluntary nature of the conciliation the parties are not required to state the
reasons for termination of the conciliation proceedings.
Conclusion
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ARBITRATION, CONCILIATION & ADR SYSTEMS 90
State under what circumstances a sole arbitrator can be appointed. [8] Dec 04
Introduction: Part III of the Arbitration and Conciliation Act, 1996 deals with
conciliation. Conciliation means ‘the settling of disputes without litigation’ Conciliation
is a process by which discussion between parties is kept going through the participation
of a conciliator. The main difference between arbitration and conciliation is that in
arbitration proceedings the award is the decision of the Arbitral Tribunal while in the case
of conciliation the decision is that of the parties arrived at with the assistance of the
conciliator.
The terms ‘arbitration’ and ‘conciliation’ have been distinguished in Halsbury’s Laws of
England as follows: ‘The term ‘arbitration’ is used in several senses. It may refer either to
a judicial process or to a non-judicial process. A judicial process is concerned with the
ascertainment, declaration and enforcement of rights and liabilities as they exist, in
accordance with some recognized system of law. An industrial arbitration may well have
for its function to ascertain and declare, but not to enforce, what in the arbitrator's opinion
ought to be the respective rights and liabilities of the parties, and such a function is non-
judicial. Conciliation is a process of persuading parties to reach agreement, and is plainly
not arbitration; nor is the chairman of conciliation boards an arbitrator.’
The law relating to conciliation has been codified for the first time in India on the pattern
of UNCITRAL Conciliation Rules.
Commencement of Conciliation Proceedings [S. 62]
Section 62 is enacted on the basis of Article 2 of the UNCITRAL Conciliation Rules.
Section 62 provides that any party to dispute may commence conciliation without the
term ‘claimant’ or ‘plaintiff’ and such terms are not to be used in conciliation.
Section 62 provides that any party to dispute wishing to initiate conciliation has to fulfill
the following conditions:
1. The party initiating conciliation should send a written invitation to the other party.
Such a written invitation should mention the subject of dispute.
2. The party initiating conciliation should state that the invitation is under Part III.
3. The invitation must briefly identify the subject of the dispute.
Number of Conciliators [S. 63]
Section 63 is based on Article 3 of the UNCITRAL Conciliation Rules.
Section 63 deals with numbers of conciliators.
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ARBITRATION, CONCILIATION & ADR SYSTEMS 91
Section 63(1) states that ‘there shall be one conciliator unless the parties agree that there
shall be two or three conciliators. This sub-section (1) clearly indicates its preference for
a sole conciliator but also provides freedom to the parties in dispute to appoint 2 or more
conciliators, by mutual agreement.
Sole Conciliator
Under Section 63(1) a sole conciliator is preferred for the following reasons:
1. A sole conciliator will be more likely to win the faith of the parties.
2. Scope of conflicting opinions between the conciliators is reduced by appointment
of a sole conciliator.
3. Appointment of a sole conciliator will be less expensive comparatively.
4. A sole conciliator would provide speedy conciliation, because meeting of
conciliators within short intervals is likely to cause delay.
Section 63(2) states that ‘where there is more than one conciliator, they ought, as a
general rule, to act jointly.’ That means, sub-section (2) emphasizes on panel decision
making where there is more than one conciliator, as a general rule, all conciliators have to
conciliate jointly and should have their own strategic understanding, as to how, they have
to settle disputes.
Conclusion
What is conciliation? Who is a conciliator? Explain the role of conciliator in
conciliation proceedings. [16] Dec 06, May 05, May 02, Dec 02, May 01, Dec 01
Introduction: Part III of the Arbitration and Conciliation Act, 1996 deals with
conciliation. Conciliation means ‘the settling of disputes without litigation’ Conciliation
is a process by which discussion between parties is kept going through the participation
of a conciliator. The main difference between arbitration and conciliation is that in
arbitration proceedings the award is the decision of the Arbitral Tribunal while in the case
of conciliation the decision is that of the parties arrived at with the assistance of the
conciliator.
The terms ‘arbitration’ and ‘conciliation’ have been distinguished in Halsbury’s Laws of
England as follows: ‘The term ‘arbitration’ is used in several senses. It may refer either to
a judicial process or to a non-judicial process. A judicial process is concerned with the
ascertainment, declaration and enforcement of rights and liabilities as they exist, in
accordance with some recognized system of law. An industrial arbitration may well have
for its function to ascertain and declare, but not to enforce, what in the arbitrator's opinion
PALLAVI BHOGLE
ARBITRATION, CONCILIATION & ADR SYSTEMS 92
ought to be the respective rights and liabilities of the parties, and such a function is non-
judicial. Conciliation is a process of persuading parties to reach agreement, and is plainly
not arbitration; nor is the chairman of conciliation boards an arbitrator.’
The law relating to conciliation has been codified for the first time in India on the pattern
of UNCITRAL Conciliation Rules.
Commencement of Conciliation Proceedings [S. 62]
Section 62 is enacted on the basis of Article 2 of the UNCITRAL Conciliation Rules.
Section 62 provides that any party to dispute may commence conciliation without the
term ‘claimant’ or ‘plaintiff’ and such terms are not to be used in conciliation.
Section 62 provides that any party to dispute wishing to initiate conciliation has to fulfill
the following conditions:
4. The party initiating conciliation should send a written invitation to the other party.
Such a written invitation should mention the subject of dispute.
5. The party initiating conciliation should state that the invitation is under Part III.
6. The invitation must briefly identify the subject of the dispute.
Number of Conciliators [S. 63]
Section 63 is based on Article 3 of the UNCITRAL Conciliation Rules.
Section 63 deals with numbers of conciliators.
Section 63(1) states that ‘there shall be one conciliator unless the parties agree that there
shall be two or three conciliators. This sub-section (1) clearly indicates its preference for
a sole conciliator but also provides freedom to the parties in dispute to appoint 2 or more
conciliators, by mutual agreement.
Role of Conciliator [S. 67]
Section 67 is enacted on the basis of Article 7 of the UNCITRAL Conciliation Rules,
which prescribe role of the conciliator.
Section 67(1), provides basic role of the conciliator, he has to render assistance in an
independent and impartial manner to the parties who are putting their own efforts to settle
the disputes in very friendly process of conciliation. Thus, it becomes the duty of the
conciliator to exercise his skill of conciliation.
Section 67(2) provides fundamental principles of natural justice to the conciliator with
object of fairness and justice besides considerations for the rights and obligations of the
PALLAVI BHOGLE
ARBITRATION, CONCILIATION & ADR SYSTEMS 93
parties. The conciliator also has to take into account of the present circumstances of the
given dispute by assessing other things like the usage of trade concerned and previous
business practice between the parties, if it so exists. The conciliator while making
settlement of the dispute is required to assess every such thing which relates to the
dispute. Although the conciliator is not bound by the Code of Civil Procedure, 1908 and
the Indian Evidence Act, 1872 u/s 66, but he cannot act arbitrarily in the conduct of
conciliation proceedings.
S. 67(3) provides discretionary method, which is appropriate in the view of conciliator,
may be adopted by him to conduct conciliation proceedings, however, the parties to
conciliation can express their wishes freely to the conciliator not only in respect of
conduct of conciliation proceedings but can also make a request to the conciliator to
record oral statement to speedup conciliation and early settlement of dispute.
If a party makes a request to the conciliator to hear witnesses, the expenses incurred on
calling such a witness would be borne by the party wh made such request and it is
necessary in respect of calling witnesses to be heard by the conciliator the other party
should have expressly agreed on this issue.
Section 67(4) provides that the conciliator is authorised at his discretion to make
proposals for a settlement of the dispute, at any stage of the conciliation proceedings and
such proposals are not required to be made in writing and the conciliator is not bound to
state reasons for such proposals. In the interest of justice, fair play and speedy settlement
of the disputes, such freedom is provided to the conciliator under sub-section (4) of
Section 67.
Conclusion
What is the effect of settlement agreement in conciliation proceedings?
How to enforce the settlement agreement? Explain. [16] May 01, Dec 01
Settlement [10] Dec 01
Introduction: Part III of the Arbitration and Conciliation Act, 1996 deals with
conciliation. Conciliation means ‘the settling of disputes without litigation’ Conciliation
is a process by which discussion between parties is kept going through the participation
of a conciliator. The main difference between arbitration and conciliation is that in
arbitration proceedings the award is the decision of the Arbitral Tribunal while in the case
PALLAVI BHOGLE
ARBITRATION, CONCILIATION & ADR SYSTEMS 94
of conciliation the decision is that of the parties arrived at with the assistance of the
conciliator.
The terms ‘arbitration’ and ‘conciliation’ have been distinguished in Halsbury’s Laws of
England as follows: ‘The term ‘arbitration’ is used in several senses. It may refer either to
a judicial process or to a non-judicial process. A judicial process is concerned with the
ascertainment, declaration and enforcement of rights and liabilities as they exist, in
accordance with some recognized system of law. An industrial arbitration may well have
for its function to ascertain and declare, but not to enforce, what in the arbitrator's opinion
ought to be the respective rights and liabilities of the parties, and such a function is non-
judicial. Conciliation is a process of persuading parties to reach agreement, and is plainly
not arbitration; nor is the chairman of conciliation boards an arbitrator.’
The law relating to conciliation has been codified for the first time in India on the pattern
of UNCITRAL Conciliation Rules.
Commencement of Conciliation Proceedings [S. 62]
Section 62 is enacted on the basis of Article 2 of the UNCITRAL Conciliation Rules.
Section 62 provides that any party to dispute may commence conciliation without the
term ‘claimant’ or ‘plaintiff’ and such terms are not to be used in conciliation.
Section 62 provides that any party to dispute wishing to initiate conciliation has to fulfill
the following conditions:
1. The party initiating conciliation should send a written invitation to the other party.
Such a written invitation should mention the subject of dispute.
2. The party initiating conciliation should state that the invitation is under Part III.
3. The invitation must briefly identify the subject of the dispute.
Suggestions by parties for settlement of dispute [S. 72]
Section 72 is enacted on the basis of Article 12 of the UNCITRAL Conciliation Rules.
Section 72 provides freedom to each party in respect of the conciliation to submit his own
suggestions to the conciliator for the settlement of the dispute. However, the parties are
not bound to submit, it is only an expectation from the parties to submit their suggestions
in the interest of settlement of dispute.
Settlement of Agreement [S. 73]
Section 73 is enacted on the basis of Article 13 of the UNCITRAL Conciliation Rules.
PALLAVI BHOGLE
ARBITRATION, CONCILIATION & ADR SYSTEMS 95
S. 73 prescribes procedure for successful end of conciliation proceedings.
Section 73(1) provides that when the conciliator is able to formulate and is of the opinion
that acceptable elements of settlement to the parties exist, then the conciliator will
prepare the terms of possible settlement which shall be subjected to observation by the
parties. The conciliator on receipt of formula which has undergone observations process
by the parties, the conciliator may reformulate the terms of a possible settlement, with
keeping view on such observations.
Section 73(2) provides that in situation, the parties could come to a stage to accept the
settlement proposed by the conciliator, the parties may draw up and sign a written
settlement agreement. It is at the discretion of the parties to make such agreement in
writing or not, however, the parties may request the conciliator to draw up or assist in
drawing up the settlement agreement.
In this context, it is advisable to draw up such a settlement agreement in writing, so that
the contents are clear and relevant as to the settlement terms, although there is no
requirement as such that the settlement agreement must state reasons on which it has been
settled under sub-section (2).
Section 73(3) provides that at the moment the parties sign the settlement agreement, it,
attains finality and would be binding on the parties and persons claiming under them
respectively.
Section 73(4) provides that the conciliator is required to authenticate the settlement and
would furnish a copy to each of the parties. If, there is more than one conciliator, all
conciliators are required to authenticate the settlement agreement.
Status and Effect of Settlement Agreement [S. 74]
There is no provision in the UNCITRAL Conciliation Rules as contained in Section 74
which provides status and effect of settlement agreement similar to an arbitral award
given by an arbitral tribunal under Section 30. Thus, under Section 74, the settlement
agreement shall have the same status and effect as if it is an arbitral award on agreed
terms on the substance of the dispute rendered by an arbitral tribunal under Section 30.
As settlement agreement has been given similar status as to an arbitral award on agreed
terms on the substance of dispute and also same effects, although a settlement agreement
is the result of the parties choice by self determination, a party to such an agreement may
be estopped from invoking the grounds for setting aside under Section 34,Chapter VII,
however Section 61(2) read with Section 34(2)(b)(i) of the Act, which provides that ‘the
court is not barred from setting aside the agreement if it finds that the subject-matter of
the dispute is not capable of settlement by conciliation’ or if the settlement agreement is
opposed to public policy of India.
PALLAVI BHOGLE
ARBITRATION, CONCILIATION & ADR SYSTEMS 96
A settlement agreement is treated like a decree of the court, but the executing court may
refuse to grant prayer if it is of opinion that the settlement agreement has been made in
contravention of Section 34(2)(b) and hence without jurisdiction.
Conclusion
Explain the confidentiality in conciliation proceedings [8] May 07, Dec 04, Dec 03, May 02
Introduction: Part III of the Arbitration and Conciliation Act, 1996 deals with
conciliation. Conciliation means ‘the settling of disputes without litigation’ Conciliation
is a process by which discussion between parties is kept going through the participation
of a conciliator. The main difference between arbitration and conciliation is that in
arbitration proceedings the award is the decision of the Arbitral Tribunal while in the case
of conciliation the decision is that of the parties arrived at with the assistance of the
conciliator.
The terms ‘arbitration’ and ‘conciliation’ have been distinguished in Halsbury’s Laws of
England as follows: ‘The term ‘arbitration’ is used in several senses. It may refer either to
a judicial process or to a non-judicial process. A judicial process is concerned with the
ascertainment, declaration and enforcement of rights and liabilities as they exist, in
accordance with some recognized system of law. An industrial arbitration may well have
for its function to ascertain and declare, but not to enforce, what in the arbitrator's opinion
ought to be the respective rights and liabilities of the parties, and such a function is non-
judicial. Conciliation is a process of persuading parties to reach agreement, and is plainly
not arbitration; nor is the chairman of conciliation boards an arbitrator.’
The law relating to conciliation has been codified for the first time in India on the pattern
of UNCITRAL Conciliation Rules.
Commencement of Conciliation Proceedings [S. 62]
Section 62 is enacted on the basis of Article 2 of the UNCITRAL Conciliation Rules.
Section 62 provides that any party to dispute may commence conciliation without the
term ‘claimant’ or ‘plaintiff’ and such terms are not to be used in conciliation.
Section 62 provides that any party to dispute wishing to initiate conciliation has to fulfill
the following conditions:
1. The party initiating conciliation should send a written invitation to the other party.
Such a written invitation should mention the subject of dispute.
PALLAVI BHOGLE
ARBITRATION, CONCILIATION & ADR SYSTEMS 97
2. The party initiating conciliation should state that the invitation is under Part III.
3. The invitation must briefly identify the subject of the dispute.
Disclosure of Information [S. 70]
Section 70 is enacted on the basis of Article 10 of the UNCITRAL Conciliation Rules.
Section 70 provides privilege to the conciliator whether to disclose information made
known to him by one party to the other party. However the conciliator is not expected to
disclose such information except the substance of the factual information in connection
with the dispute, received from one party to the other party.
It is to be noted that in conciliation the conciliator is a person who should win the
confidence of the parties by keeping their confidences. However, the conciliator may
make disclosure of such factual information to the other party in order that the other party
may have the opportunity to present any explanation, which the conciliator considers
appropriate.
Proviso to Section 70 of the Act, states that if the party gives any information to the
conciliator subject to a specific condition that it be kept confidential, in such cases the
conciliator is not allowed to disclose such information given on a ‘specified condition’ to
the other party.
It is to be further noted that Section 65(1) and Section 65(2) are not attracted by the
proviso to Section 70.
Confidentiality [S. 75]
Section 75 is enacted on the basis of Article 14 of the UNCITRAL Conciliation Rules.
S. 75 provides that the ‘principle of confidentiality’ and on the basis of it the conciliator
and the parties are required to keep all matters relating to the conciliation proceedings
‘close to their chest’. Section75 forbids disclosure to strangers on any matters relating to
the conciliation proceedings. However, such confidentiality is not restricted to matters
relating to the proceeding which also extends to the settlement agreement except where
its disclosure is necessary for purposes of implementation and enforcement.
It is obvious Section 75 has been designed to gain confidence between the parties and the
conciliator and in their commercial interests. The nature and character of the conciliation
proceedings have also been taken into consideration.
Conclusion
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ARBITRATION, CONCILIATION & ADR SYSTEMS 98
ALTERNATIVE DISPUTES REDRESSAL
“The ADR is not an alternative to the formal judicial system but only a
supplement to it”. Comment. [16] May 08
Explain the role and importance of Alternate Dispute Resolution system in
modern times. [16] Dec 06
Introduction: The Supreme Court made the following observation in Guru Nanak
Foundation v Rattan Singh & Sons: Interminable, time consuming, complex and
expensive court procedures impelled jurists to search for an alternative forum, less
formal, more effective and speedy for resolution of disputes avoiding procedural claptrap
and this led them to the Arbitration Act, 1940. However, the way in which the
proceedings under the Act are conducted and without exception challenged in Courts, has
made lawyers laugh and legal philosophers weep. Experience shows and law reports bear
ample testimony that the proceedings under the Act have become highly technical,
accompanied by unending prolixity, at every stage providing a legal trap to the unwary.
Informal forum chosen by the parties for expeditious disposal of their disputes has by the
decisions of the courts, been clothed with ‘legalese’ of unforeseeable complexity.’
The movement towards ADR was endorsed by a resolution at a meeting of Chief
Ministers and Chief Justices. The meeting noted that the courts were not in a position to
undertake the entire burden of administration of justice and that a number of disputes
were capable of being disposed of by alternative methods such as arbitration,
conciliation, mediation and negotiations. The meeting emphasized that litigants should be
encouraged to adopt other methods because they provided procedural flexibility, saved
valuable time, and involved less expenditure and strain as compared with conventional
trials in civil courts.
Concept of ADR
ADR or ‘Alternative Dispute Resolution’ is an attempt to devise machinery which should
be capable of providing an alternative to the conventional methods of resolving disputes.
An alternative means the privilege of choosing one of two things or courses offered at
one's choice. It does not mean the choice of an alternative court but something which is
an alternative to court procedures or something which can operate as court annexed
procedure.
Human conflicts are inevitable. Disputes are equally inevitable. It is difficult to imagine a
human society without conflict of interests. Disputes must be resolved at minimum
PALLAVI BHOGLE
ARBITRATION, CONCILIATION & ADR SYSTEMS 99
possible cost both in terms of money and time, so that more time and more resources are
spared for constructive pursuits.
For resolution of disputes there is a legal system in every human society. Every injured
person is supposed to go to courts for his redressal. All the legal systems are trying to
attain the legal ideal that wherever there is a wrong there must be a remedy so that
nobody shall have to take law into his own hand. Courts have become overcrowded with
litigants. Naturally, litigants have to face so much loss of time and money that at long last
when a relief is obtained; it may not be worth the cost.
Hence, began the search for alternatives to the conventional court system. A large
number of quasi-judicial and administrative tribunals have been created for quicker
reliefs. All these tribunals and forums are an alternative method of dispute redressal. But
even such tribunals and forums have become overcrowded with the result that they are
not able to provide relief within good time. Many tribunals in service matters have been
able to provide relief only when the aggrieved employee has already retired from his
position.
There thus remains the need of an alternative remedy which will not be bogged down by
costs and delays. Perhaps the search will culminate in a remedy in which there is the
minimum most role of official authorities and there is the maximum play of a wholly
private mechanism. As and when such a method of dispute resolution is discovered or
devised, or if it has already been discovered or devised, it will be entitled to be given the
name of ADR, Alternative Dispute Resolution.
Definition and Scope of ADR
‘Alternative Dispute Resolution’ (ADR) is supposed to provide an alternative not only to
civil litigation by adjudicatory procedures but includes also arbitration itself. The
institution of arbitration came into being as a very useful alternative to litigation. But it is
now being viewed as closer to litigation because it has to be in accordance with statutory
provisions and becomes virtually an adjudicatory process with all the formalities of the
functioning of a court. A method of dispute resolution would be considered as a real
alternative only if it can dispense with the adjudicatory process, even if it is not wholly a
consensual process. It may be worked by a neutral third person who may bridge the gap
between the parties by bringing them together through a process of conciliation,
mediation or negotiations.
Nevertheless, arbitration has also been considered as an alternative to litigation and is
generally included in the study of all other alternative. This is so because arbitration has
been the mother source of other alternatives, not only in substance but also in the
procedural working of the alternative methods. The principles and procedure of
arbitration have influenced the growth of many of the ancillary and hybrid processes used
in the alternative methods of dispute resolution.
PALLAVI BHOGLE
ARBITRATION, CONCILIATION & ADR SYSTEMS 100
ADR can be defined as a technique of dispute resolution through the intervention of a
third party whose decision is not legally binding on the parties. It can also be described as
mediation though mediation is only one of the modes of ADR. The method is neither that
of litigation nor that of arbitration. ADR flourishes because it avoids rigidity and
inflexibility which is inevitable in the litigation process apart from high lawyer and court
fee and long delays. ADR aims to provide the parties with cheap, speedy and less
formalistic remedy to the aggrieved party. It aims at providing a remedy which is most
appropriate in the circumstances of the case. This makes ADR a viable substitution for
arbitration or litigation.
Advantage of Alternative means of Dispute Redressal
The advantages are as follows:
1. The alternative means of dispute redressal can be invoked at any time, even if the
matter is pending in the Court of Law. Similarly it can be terminated at any time
except in case of compulsory arbitration.
2. The disputes can be resolved comparatively more economically and speedily.
Disputes can be maintained as the personal subject-matter. Sometime disputes are
resolved within one or two days, time because the procedure adopted by the
mediator is controlled and consented by the parties. Thus, real solution of the
dispute can be arrived at by the system of alternative means of dispute redressal.
3. The system of alternative means of dispute redressal can be followed without
seeking legal assistance from the advocates / lawyer.
4. This system effectively reduces the work-load of the court.
5. Finally, this system provides flexible procedure; strict procedure of law is not
applicable to alternative means of dispute redressal.
Conclusion
PALLAVI BHOGLE
ARBITRATION, CONCILIATION & ADR SYSTEMS 101
What is meant by Alternative Dispute Resolution system? What are the
alternative dispute resolution systems presently available in settling
disputes? [16] May 05, May 03
Introduction: The Supreme Court made the following observation in Guru Nanak
Foundation v Rattan Singh & Sons: Interminable, time consuming, complex and
expensive court procedures impelled jurists to search for an alternative forum, less
formal, more effective and speedy for resolution of disputes avoiding procedural claptrap
and this led them to the Arbitration Act, 1940. However, the way in which the
proceedings under the Act are conducted and without exception challenged in Courts, has
made lawyers laugh and legal philosophers weep. Experience shows and law reports bear
ample testimony that the proceedings under the Act have become highly technical,
accompanied by unending prolixity, at every stage providing a legal trap to the unwary.
Informal forum chosen by the parties for expeditious disposal of their disputes has by the
decisions of the courts, been clothed with ‘legalese’ of unforeseeable complexity.’
The movement towards ADR was endorsed by a resolution at a meeting of Chief
Ministers and Chief Justices. The meeting noted that the courts were not in a position to
undertake the entire burden of administration of justice and that a number of disputes
were capable of being disposed of by alternative methods such as arbitration,
conciliation, mediation and negotiations. The meeting emphasized that litigants should be
encouraged to adopt other methods because they provided procedural flexibility, saved
valuable time, and involved less expenditure and strain as compared with conventional
trials in civil courts.
Definition and Scope of ADR
‘Alternative Dispute Resolution’ (ADR) is supposed to provide an alternative not only to
civil litigation by adjudicatory procedures but includes also arbitration itself. The
institution of arbitration came into being as a very useful alternative to litigation. But it is
now being viewed as closer to litigation because it has to be in accordance with statutory
provisions and becomes virtually an adjudicatory process with all the formalities of the
functioning of a court. A method of dispute resolution would be considered as a real
alternative only if it can dispense with the adjudicatory process, even if it is not wholly a
consensual process. It may be worked by a neutral third person who may bridge the gap
between the parties by bringing them together through a process of conciliation,
mediation or negotiations.
Nevertheless, arbitration has also been considered as an alternative to litigation and is
generally included in the study of all other alternative. This is so because arbitration has
been the mother source of other alternatives, not only in substance but also in the
procedural working of the alternative methods. The principles and procedure of
arbitration have influenced the growth of many of the ancillary and hybrid processes used
in the alternative methods of dispute resolution.
PALLAVI BHOGLE
ARBITRATION, CONCILIATION & ADR SYSTEMS 102
ADR can be defined as a technique of dispute resolution through the intervention of a
third party whose decision is not legally binding on the parties. It can also be described as
mediation though mediation is only one of the modes of ADR. The method is neither that
of litigation nor that of arbitration. ADR flourishes because it avoids rigidity and
inflexibility which is inevitable in the litigation process apart from high lawyer and court
fee and long delays. ADR aims to provide the parties with cheap, speedy and less
formalistic remedy to the aggrieved party. It aims at providing a remedy which is most
appropriate in the circumstances of the case. This makes ADR a viable substitution for
arbitration or litigation.
Alternative Dispute Resolution Systems
In the field of alternative means of dispute redressal, the important alternative means are
as follows:
Negotiation
It is the simplest means for redressal of disputes. In this mode the parties begin their talk
without interference of any third person. The aim of negotiation is the settlement of
disputes by exchange of views and issues concerning the parties. There is an ample
opportunity for presentation of case in this mode of redressal. If there is understanding
and element of patience between the parties this mode of redressal of dispute is the
simplest and most economical.
Conciliation and Mediation
Where the parties fail to arrive at any settlement of their dispute by negotiation, in such
circumstances the parties may take the assistance of some third person who is
independent in respect of the subject-matter of dispute. Such person induces the parties to
come to an amicable settlement of their dispute by means of conciliation and mediation.
In course of conciliation and mediation that independent person may use his goodwill and
impression in resolving disputes. He also induces the parties to exchange their disputed
points relating to the subject-matter of dispute.
Med-Arbitration
This mode is a link between the settlement and arbitration. In this mode the conflicting
parties may authorize the third independent person to adjudicate upon the subject-matter
of dispute. Wherein the settlement by negotiation is failed, the mode of med-arbitration
can be followed. This mode is not controlled by the Arbitration and Conciliation Act,
1996 or the Arbitration Act, 1940.
PALLAVI BHOGLE
ARBITRATION, CONCILIATION & ADR SYSTEMS 103
Medola
This process begins when the parties fail to reach at any settlement of dispute by
mediation. In this mode that person who was doing mediation occupies the place of
arbitrator. This person impartially picks up the disputed points from the proposals taken
up between the parties during the negotiation. Disputed points so picked up by that third
person are binding upon the parties. That person keeps the agreed points aside and the
disputed points are taken up so as to settle the dispute by taking to a middle course to the
satisfaction of the parties in dispute.
Mini trial
It is different from a formal case trial. In this mode the parties have the freedom to select
an impartial and honest person of undisputed integrity and the parties can present their
case in a summarized form. That person on the basis of submission of the parties
considers the positive and negative points concerning the parties and thereafter he renders
advice to the parties and consequently the parties negotiate on such advice. In fact that
person acts as a catalyst in such mini trial.
Arbitration
According to Byrne's Law Dictionary, ‘Arbitration means the determination of disputes
by the decision of one or more persons called arbitrators. Practically, every question,
which might be determined by a civil action, may be referred to arbitration.
Under Section 1 of the Encyclopedia of the Laws of England, the term arbitration means
a settlement of a dispute by the decision of not a regular and ordinary court of law but of
one or more persons who are called arbitrators.
The essence of arbitration is that some dispute is referred to by the parties for settlement
to a tribunal of their own choice instead of to a court.
In the context of India arbitration is a reference to the decision of one or more persons,
either with or without an umpire, of some matter or matter in difference between the
parties.
In popular parlance arbitration may be defined as a private process set up by the parties as
a substitute for court litigation to obtain a decision on their dispute.
Fast Track Arbitration
It is a kind of arbitration in which arbitration proceedings are conducted in a less
expensive manner. In this mode a decision can be arrived at within one or two day’s time.
Ordinarily, this process is adopted for settlement of commercial or business disputes.
Conclusion
PALLAVI BHOGLE
ARBITRATION, CONCILIATION & ADR SYSTEMS 104
In what way Lok-Adalat is an effective system in Alternative Dispute
Resolution system? Discuss. [16] May 09, May 06, Dec 2006, May 2004
Lok Adalat [10] Dec 04, May 03
State the concept/meaning of Alternative Resolution system. “Lok Adalat is
an effective alternative dispute resolving method”. Discuss. [16] May 07, Dec 05, May 04
Introduction: The Supreme Court made the following observation in Guru Nanak
Foundation v Rattan Singh & Sons: Interminable, time consuming, complex and
expensive court procedures impelled jurists to search for an alternative forum, less
formal, more effective and speedy for resolution of disputes avoiding procedural claptrap
and this led them to the Arbitration Act, 1940. However, the way in which the
proceedings under the Act are conducted and without exception challenged in Courts, has
made lawyers laugh and legal philosophers weep. Experience shows and law reports bear
ample testimony that the proceedings under the Act have become highly technical,
accompanied by unending prolixity, at every stage providing a legal trap to the unwary.
Informal forum chosen by the parties for expeditious disposal of their disputes has by the
decisions of the courts, been clothed with ‘legalese’ of unforeseeable complexity.’
The movement towards ADR was endorsed by a resolution at a meeting of Chief
Ministers and Chief Justices. The meeting noted that the courts were not in a position to
undertake the entire burden of administration of justice and that a number of disputes
were capable of being disposed of by alternative methods such as arbitration,
conciliation, mediation and negotiations. The meeting emphasized that litigants should be
encouraged to adopt other methods because they provided procedural flexibility, saved
valuable time, and involved less expenditure and strain as compared with conventional
trials in civil courts.
Concept of ADR
ADR or ‘Alternative Dispute Resolution’ is an attempt to devise machinery which should
be capable of providing an alternative to the conventional methods of resolving disputes.
An alternative means the privilege of choosing one of two things or courses offered at
one's choice. It does not mean the choice of an alternative court but something which is
an alternative to court procedures or something which can operate as court annexed
procedure.
Human conflicts are inevitable. Disputes are equally inevitable. It is difficult to imagine a
human society without conflict of interests. Disputes must be resolved at minimum
PALLAVI BHOGLE
ARBITRATION, CONCILIATION & ADR SYSTEMS 105
possible cost both in terms of money and time, so that more time and more resources are
spared for constructive pursuits.
For resolution of disputes there is a legal system in every human society. Every injured
person is supposed to go to courts for his redressal. All the legal systems are trying to
attain the legal ideal that wherever there is a wrong there must be a remedy so that
nobody shall have to take law into his own hand. Courts have become overcrowded with
litigants. Naturally, litigants have to face so much loss of time and money that at long last
when a relief is obtained; it may not be worth the cost.
Hence, began the search for alternatives to the conventional court system. A large
number of quasi-judicial and administrative tribunals have been created for quicker
reliefs. All these tribunals and forums are an alternative method of dispute redressal. But
even such tribunals and forums have become overcrowded with the result that they are
not able to provide relief within good time. Many tribunals in service matters have been
able to provide relief only when the aggrieved employee has already retired from his
position.
There thus remains the need of an alternative remedy which will not be bogged down by
costs and delays. Perhaps the search will culminate in a remedy in which there is the
minimum most role of official authorities and there is the maximum play of a wholly
private mechanism. As and when such a method of dispute resolution is discovered or
devised, or if it has already been discovered or devised, it will be entitled to be given the
name of ADR, Alternative Dispute Resolution.
Lok Adalat
The establishment of Lok Adalats under the Legal Services Authority Act, 1987 is one of
the alternative means of dispute resolution or redressal. The preamble of the said Act
shows that the Lok Adalats constituted to provide expeditious, economical and competent
legal services to the weaker sections of the society to perform the constitutional
obligations on behalf of the State. Even the commercial disputes may be adjudicated by
the Lok Adalats.
Establishment of Lok Adalats
S. 19 of the LSA Act, 1987, provides that every State Authority or District Authority or
the Supreme Court Legal Services Committee or every High Court Legal Services
Committee, or, as the case may be, Taluk Legal Services Committee may organize Lok
Adalat at such intervals and places and for exercising such jurisdiction and for such areas
as it thinks fit.
Every Lok Adalat organized for an area shall consist of such number of:
a) serving or retired Judicial Officer, and
b) other persons,
PALLAVI BHOGLE
ARBITRATION, CONCILIATION & ADR SYSTEMS 106
of the area as may be specified by the State Authority or the Supreme Court Legal
Services Committee, or the High Court Legal Services Committee or, as the case may be,
the Taluk Legal Services Committee, organizing such Lok Adalat.
Rule 13 of National Legal Services Authority Rules holds that a person shall not be
qualified to be included in the Lok Adalat unless he is:
1. a member of Legal profession; or
2. a person of repute who is especially interested in the implementation of the Legal
Services Schemes and Programmes, or
3. an eminent social worker who is engaged in the upliftment of the weaker section
of the people, including the Scheduled Castes, Scheduled Tribes, women,
children, rural and urban labour.
Section 19 of the Legal Services Authority Act, 1987 further provides the experience and
qualifications of other persons as mentioned earlier for Lok Adalats other than those who
are to be prescribed by the Central Government in consultation with the Chief Justice of
the Supreme Court, shall be such as may be prescribed by the State Government in
consultation with the Chief Justice of the High Court.
Jurisdiction of Lok Adalat
In accordance with S. 19 of the Legal Services Authority Act, 1987 a Lok Adalat shall
have jurisdiction to determine and to arrive at a compromise or settlement between the
parties to a dispute in respect of:
• any case pending before, or
• any matter which is falling within the jurisdiction of, and is not brought before,
any court for which the Lok Adalat is organized.
Provided that the Lok Adalat shall have no jurisdiction in respect of any case or matter
relating to an offence not compoundable under any law.
Cognizance of cases by Lok Adalats
S. 20(1) holds that where in any case pending before any court for which the Lok Adalat
is organized:
i.
(a) the parties thereof agree; or
(b) one of the parties thereof makes an application to the court, for referring the case
to the Lok Adalat for settlement and if such court is prima facie satisfied that
there are chances of such settlement; or
ii. the court is satisfied that the matter is an appropriate one to be taken cognizance of the
Lok Adalat,
the Court shall refer the case to the Lok Adalat, provided that no case shall be referred to
the Lok Adalat under sub-clause (i)(b) or (ii) by such court except after giving a
reasonable opportunity of being heard to the parties.
PALLAVI BHOGLE
ARBITRATION, CONCILIATION & ADR SYSTEMS 107
Every Lok Adalat while determining any reference before it under the Act, act with
utmost expedition to arrive at a compromise or settlement between the parties and shall
be guided by the principles of justice, equity, fair play and other legal principles.
Where no award is made by the Lok Adalat on the ground that no compromise or
settlement could be arrived at between the parties, the record of the case shall be returned
by it to the court, from which the reference has been received under sub-section (1) for
disposal in accordance with law.
Where no award is made by the Lok Adalat on the ground that no compromise or
settlement could be arrived at between the parties in a matter referred to in sub-section
(2) that Lok Adalat shall advise the parties to seek remedy in a court.
Where the record of the case is returned under sub-section (5) to the court, such court
shall proceed to deal with such case from the stage which was reached before the
reference under sub-section (1).
Award of the Lok Adalat
Section 21 of the Legal Services Authorities Act provides that every award of the Lok
Adalat shall be deemed to be a decree of a civil court or, as the case may be, an order of
any other court and where a compromise or settlement has been arrived at, by a Lok
Adalat in a case referred to it under sub-section (1) of S. 20, the court fee paid in such
case shall be refunded in the manner provided under the Court Fees Act, 1870.
Every award made by a Lok Adalat shall be final and binding on all the parties to the
dispute, and no appeal shall lie to any court against the award.
Powers of the Lok Adalat
S. 22 makes provisions in relation to the powers of the Lok Adalat and it provides that the
Lok Adalat shall, for the purposes of holding any determination under this Act, have the
same powers as are vested in a civil court under the Code of Civil Procedure,1908 while
trying a suit in respect of the following matters namely:
a) the summoning and enforcing the attendance of any witness and examining
him on oath;
b) the discovery and production of any document;
c) the reception of evidence on affidavits;
d) the requisitioning of any public record or document or copy of such record or
document from any court or office; and
e) such other matters as may be prescribed.
Without prejudice to the generality of the powers mentioned above every Lok Adalat
shall have the requisite powers to specify its own procedure for the determination of any
dispute coming before it.
Conclusion: Thus, the Lok Adalat is an alternative means of dispute redressal system,
under which flexible, less expensive and expeditious settlement of dispute is sought. Lok
PALLAVI BHOGLE
ARBITRATION, CONCILIATION & ADR SYSTEMS 108
Adalat is a non-judicial forum which is organized by the judicial authorities. It can be
said that the nature of procedure adopted by the Lok – Adalats are similar to arbitration,
conciliation and mediation procedure. Lok Adalats and National Legal Services are
required to adjudicate the subject-matter of disputes by adopting the technique of mutual
understanding and to induce exchange of view between the parties, so that the decision
can be determined by mutuality. Therefore, the alternative means of dispute redressal
emphasizes the conciliation and settlement in their procedure.
Constitution and Functions of National Legal Services Authority [10] May 09
State Legal Services Authority [10] Dec 06
Legal Services Authority [10] May 05, May 04
Introduction: Section 3(1) of Legal Services Authorities Act provides that the Central
Government shall constitute a body known as the National Legal Services Authority to
exercise the powers and perform the functions conferred on, or assigned to the Central
Authority under this Act. Central Authority according to Section 2(o)(a) of this Act
means the National Legal Services Authority constituted under Section 3:
S. 3(2) of this Act further provides that the Central Authority shall consist of:
a) The Chief Justice of India who shall be Patron-in-Chief.
b) A serving or retired Judge of the Supreme Court to be nominated by the President,
in consultation with the Chief Justice of India, who shall be the Executive
Chairman.
c) Such number of other members, possessing such experience and qualification, as
may be prescribed by the Central Government, to be nominated by that
Government in consultation with the Chief Justice of India.
According to Rule 3 of the National LSA Rules the Central Authority shall consist of not
more than 12 members and further it provides that the following shall be ex-officio
members of the Central Authority:
i. Secretary, Department of Legal Affairs, Ministry of Law, Justice and
Company Affairs, Government of India or any of his nominee;
ii. Secretary, Department of Expenditure in the Ministry of Finance, Government
of India or any of his nominee;
PALLAVI BHOGLE
ARBITRATION, CONCILIATION & ADR SYSTEMS 109
iii. Two Chairman of the State Legal Services Authority as may be nominated by
the Central Government in consultation with the Chief Justice of India
A person shall not be qualified for nomination as a member of the Central Authority
unless he is:
• an eminent person in the field of law, or
• a person of repute who is especially interested in the implementation of the legal
services scheme, or
• an eminent social worker who is engaged in the upliftment of the weaker sections of
the people which includes the scheduled castes, scheduled tribes, women, children,
rural and urban labours.
The terms of office and other conditions related to the members and the Member-
Secretary of the Central Authority shall be such as may be prescribed by the Central
Government after consulting with the Chief Justice of India.
Powers and Functions
Rule 6 also states the powers and functions of the Member-Secretary of the National
Legal Services Authority. According to the rules, the following shall be the powers and
functions of the Member Secretary:
1. to work out modalities of the legal services, schemes and programmes approved
by the Central Authority and ensure their effective monitoring and
implementation throughout the country;
2. to exercise the powers related to administrative, finance and budget matters as
that of the Head of the Department in a Central Government;
3. to manage the funds, records and properties of the Central Authority;
4. to maintain true and proper accounts of the Central Authority including checking
and auditing in respect thereof periodically;
5. to draft and prepare Annual Income and Expenditure Accounts and balance-sheet
of the Central Authority;
6. to liaise with the social action groups and the State Legal Services Authority;
7. to prepare and maintain up to date and complete statistical information, including
process made in the implementation of various legal services programmes from
time to time;
8. to process project proposal for financial assistance and issue utilisation certificates
thereof;
9. to convene meetings/seminars and workshops connected with legal services
programmes and preparation of reports and follow up action thereon,
10. to produce video and documentary films and publish material, literature and
publications to inform general public about the various aspect of the legal services
programme, and
11. to perform such other functions as may be required for effective functioning of
the Central Authority.
PALLAVI BHOGLE
ARBITRATION, CONCILIATION & ADR SYSTEMS 110
These rules further state the term of office and conditions related to the members and
Member-Secretary of the Central Authority. According to Rule 7, the members of the
Central Authority nominated by the Central Government under Rule 3, shall hold office
for a term of two years and a retiring member shall be eligible for re-nomination for not
more than one term. Any member appointed by the Central Government under Rule 3
may be removed by the Central Government if in the opinion of the Central Government
it is not desirable to continue him as a member.
Function of the Central Authority
Section 4 of the Legal Services Authorities Act, 1987 makes provisions related to
functions of the Central Authority. The Central Authority according to S. 4 shall perform
all or any of the functions as under:
1. it can formulate policies and principles to make legal services available under the
provisions of this Act;
2. it can frame the most effective and economical schemes for the purpose of
making legal services available under this Act;
3. it can utilise the funds at its disposal and make appropriate allocation of funds to
the State Authorities and District Authorities;
4. it can take steps required with regard to consumer protection, environmental
protection or any other matter of special concern to the weaker sections of the
society by way of social justice litigation and for this purpose, give training to
social workers in legal skills;
5. it can organise legal aid camps, especially in rural areas, slums or labour colonies
with the dual purpose of educating the weaker sections of the society as to their
rights as well as encouraging the settlement of disputes through Lok Adalats;
6. it can encourage the settlement of disputes by way of negotiations, arbitration and
conciliation;
7. it can undertake and promote research in the field of legal services with special
reference to the need for such services among the poor;
8. it can do all necessary things for the purpose of ensuring commitment to the
fundamental duties of the citizens under Part IV-A of the Constitution;
9. it can provide grants-in-aid for specific schemes, to various voluntary social
service institution and the State and District Authorities, from out of the amounts
placed at its disposal of the implementation of legal services schemes under the
provisions of this Act;
10. it can develop, in consultation with the Bar Council of India, programmes for
clinical legal education and promote guidance and supervise the establishment
and working. of legal services clinics in Universities, law colleges and other
institutions;
11. it can monitor and evaluate the implementation of the legal aid programmes at
periodic intervals and provide for independent evaluation of programmes and
schemes implemented in whole or in parts by funds provided under this Act;
12. it can take appropriate measures for spreading legal literacy and legal awareness
amongst the people and, in particular, to educate weaker sections of the society
PALLAVI BHOGLE
ARBITRATION, CONCILIATION & ADR SYSTEMS 111
about the rights, benefits and privileges guaranteed by social weHare legislations
and other enactments as well as administrative programmes and measures;
13. it can make special efforts to enlist the support of voluntary social welfare
institutions working at the grass-root level particularly among the Schedule Castes
and Scheduled Tribes, women, children, rural and urban labour; and
14. it can co-ordinate and monitor the functioning of State Authorities, District
Authorities, Supreme Court Legal Services Committee, High Court Legal
Services Committee, Taluk Legal Services Committee, and voluntary social
service institutions and other legal services organisations and give general
directions for the proper implementation of the legal services programmes.
Thus these are the functions that the Central Authority can perform. Section 5 of this Act
provides that in the discharge of its functions under this Act, the Central Authority shall,
whenever appropriate, act in co-ordination with other governmental and non-
governmental agencies, universities and other engaged in the work of promoting the
cause of legal services to the poor.
Conclusion: Thus, the Lok Adalat and National Legal Services Authority are the
alternative means of dispute redressal system, under which flexible, less expensive and
expeditious settlement of dispute is sought. Lok Adalats and National Legal Services are
required to adjudicate the subject-matter of disputes by adopting the technique of mutual
understanding and to induce exchange of view between the parties, so that the decision
can be determined by mutuality. Therefore, the alternative means of dispute redressal
emphasizes the conciliation and settlement in their procedure.
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