1
Delay defeats justice and equity adds only promptitude and resultant consequences. Defaulting party should bear the hardship of his own default in lodging the time barred claims and ought not transmit the hardship to the other party after the impugned claim is allowed to be time barred.
2
Arbitration is a procedure in which a dispute is submitted, by agreement of the parties, to one or more arbitrators who make a binding decision on the dispute. In choosing arbitration, the parties opt for a private dispute resolution procedure instead of going to court. Its principal characteristics are:
Arbitration is consensual consensual
Arbitration can only take place if both parties have agreed to it. In the case of future disputes arising under a contract, the parties insert an arbitration clause in the relevant contract. An existing dispute can be referred to arbitration by means of a submission a submission agreement between the parties. In contrast to mediation, a party cannot unilaterally withdraw from arbitration.
The parties choose the arbitrator(s)
Under the the WIPO Arbitration Rules, Rules, the parties can select a sole arbitrator together. If they choose to have a three-member arbitral tribunal, each party appoints one of the arbitrators; those two persons then agree on the presiding arbitrator. Alternatively, the Center can suggest potential arbitrators with relevant expertise or directly appoint members of the arbitral tribunal. The Center maintains an extensive roster of arbitrators arbitrators ranging from seasoned dispute-resolution generalists to highly specialized practitioners and experts covering the entire legal and technical spectrum of intellectual property.
Arbitration is neutral
In addition to their selection of neutrals of appropriate nationality, parties are able to choose such important elements as the applicable law, language and venue of the arbitration. This allows them to ensure that no party enjoys a home court advantage.
Arbitration is a confidential procedure procedure
The WIPO The WIPO Rules specifically protect the confidentiality of the existence of the arbitration, any disclosures made during that procedure, and the award. In certain circumstances, the WIPO Rules allow a party to restrict access to trade secrets or other confidential information that is submitted to the arbitral tribunal or to a confidentiality advisor to the tribunal.
The decision of the arbitral tribunal is final and easy to enforce
Under the WIPO Rules, the parties agree to carry out the decision of the arbitral tribunal without delay. International awards are enforced by national courts under the New York
2
Arbitration is a procedure in which a dispute is submitted, by agreement of the parties, to one or more arbitrators who make a binding decision on the dispute. In choosing arbitration, the parties opt for a private dispute resolution procedure instead of going to court. Its principal characteristics are:
Arbitration is consensual consensual
Arbitration can only take place if both parties have agreed to it. In the case of future disputes arising under a contract, the parties insert an arbitration clause in the relevant contract. An existing dispute can be referred to arbitration by means of a submission a submission agreement between the parties. In contrast to mediation, a party cannot unilaterally withdraw from arbitration.
The parties choose the arbitrator(s)
Under the the WIPO Arbitration Rules, Rules, the parties can select a sole arbitrator together. If they choose to have a three-member arbitral tribunal, each party appoints one of the arbitrators; those two persons then agree on the presiding arbitrator. Alternatively, the Center can suggest potential arbitrators with relevant expertise or directly appoint members of the arbitral tribunal. The Center maintains an extensive roster of arbitrators arbitrators ranging from seasoned dispute-resolution generalists to highly specialized practitioners and experts covering the entire legal and technical spectrum of intellectual property.
Arbitration is neutral
In addition to their selection of neutrals of appropriate nationality, parties are able to choose such important elements as the applicable law, language and venue of the arbitration. This allows them to ensure that no party enjoys a home court advantage.
Arbitration is a confidential procedure procedure
The WIPO The WIPO Rules specifically protect the confidentiality of the existence of the arbitration, any disclosures made during that procedure, and the award. In certain circumstances, the WIPO Rules allow a party to restrict access to trade secrets or other confidential information that is submitted to the arbitral tribunal or to a confidentiality advisor to the tribunal.
The decision of the arbitral tribunal is final and easy to enforce
Under the WIPO Rules, the parties agree to carry out the decision of the arbitral tribunal without delay. International awards are enforced by national courts under the New York
3
Convention, Convention, which permits them to be set aside only in very limited circumstances. More than 140 than 140 States are party to this Convention. Arbitration is a binding dispute settlement procedure in which the dispute is submitted to an arbitral tribunal consisting of a sole or an odd number of arbitrators which makes a decision in the form of an award on the dispute that is binding on the parties and thus it finally settles the dispute. It is a method of dispute resolution involving one or more neutral third parties who are usually agreed to by the disputing parties and whose decision is binding
1
Arbitration at its core is a form of dispute resolution, which comprises of a private judicial determination of a dispute by an independent third party. It is considered as a private dispute redressal process which is widely encouraged for promoting twin motives of overcoming high pendency of cases and reducing the cost of litigation. The prominent feature of the system is that, instead of filing a case in court, the parties can refer their case to an arbitral tribunal whose decision is binding and is termed as an award. The process of arbitration can start only if there exists a valid Arbitration Agreement between the parties prior to the emergence of the dispute. As per Section 7, such an agreement must be in writing. The contract regarding which the dispute exists, must either contain an arbitration clause or must refer to a separate document signed by the parties containing the arbitration agreement. The existence of an arbitration agreement can also be inferred by written correspondence such as letters, talex, or telegrams which provide a record of the agreement. An exchange of statement of claim and defence in which existence of an arbitration agreement is alleged by one party and not denied by other is also considered as valid written arbitration agreement. Any party to the dispute can start the process of appointing arbitrator and if the other party does not cooperate, the party can approach the office of Chief Justice for appointment of an arbitrator. There are only two grounds upon which a party can challenge the appointment of an arbitrator – – reasonable doubt in the impartiality of the arbitrator and the lack of proper qualification of the arbitrator as required by the arbitration agreement. A sole arbitrator or a panel of arbitrators so appointed constitute the Arbitration Tribunal. Except for some interim measures, there is very little scope for judicial intervention in the arbitration process. The arbitration tribunal has jurisdiction over its own jurisdiction. Thus, if a party wants to challenge the jurisdiction of the arbitration tribunal, it can do so only before the tribunal itself. If the tribunal rejects the request, there is little the party can do except to approach a court after the tribunal makes an award. Section 34 provides certain grounds upon
1
th
Black’s Law Dictionary -17 Edition
4
which a party can appeal to the principal civil court of original jurisdiction for setting aside the award. Once the period for filing an appeal for setting aside an award is over, or if such an appeal is rejected, the award is binding on the parties and is considered as a decree of the court.
For an agreement to be considered as an arbitration agreement there must be:
An intention of the parties to settle their differences di fferences by a private tribunal.
Such Parties must agree in writing, to be bound by the decision of such tribunal.
Parties must be ad-idem(consensual on the same point or effect)
Scope of Arbitration is quite wide, thus a karta of a HUF, a Company and parties to an arbitration agreement can all submit their disputes to arbitration. To Quote Mr. Justice V.R Krishna Iyer of Supreme Court of India :
“Intermediate 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, by avoiding procedural clap trap, led to the arbitration act.
To facilitate a fair resolution of disputes by an impartial third party, without unnecessary expense or delay.
2
ibid
5
One of the primary objectives of Arbitration is to facilitate disputing parties, a complete freedom for resolving their disputes, in a manner of their choice, subject only to such safeguards as are necessary in public interest.
Avoiding court’s interference in dispute resolution ,is another key feature of Arbitration
Arbitration may either be an adhoc or an institutional arbitration . While in case of an adhoc arbitration, parties jointly select the arbitrator(s), to work out details of procedure, together with arbitral tribunal, as and when a dispute arises. However in instances where parties to dispute agree to employ, services of an arbitration institution, it is termed as institutional arbitration. As against Adhoc Arbitration, Institutional Arbitration has many advantages, more particularly so, because it is conducted according to its own set of rules and procedures and is duly supervised by a professionally trained staff, Thus chances of its procedural breakdown are quite remote.
Almost any type of civil dispute can be settled by ADR, Disputes related to Business, Contract, Construction, Commercial recoveries, Family disputes, Property and Insurance are some of the disputes open to resolution by Arbitration as a mode of ADR.
Matrimonial matters ,like divorce or maintenance;
Insolvency matters like declaring a person as insolvent.
Criminal offences.
Dissolution or winding up of a company;
6
Questions as to genuineness or authenticity of a will : cannot be referred to arbitration and such matters must be decided in accordance with, law dealing with probate of wills under succession act.
Disputes outside the purview of contract: cannot be referred to arbitration, only courts are competent to interpret a contract, where it is found that the dispute raised in a suit is outside or independent of a contract. Then arbitration clause shall not encompass such an issue.
Any commercial matter including an action in tort if it arises out of or relates to a contract can be referred to arbitration. However, public policy would not permit matrimonial matters, criminal proceedings, insolvency matters anti-competition matters or commercial court matters to be referred to arbitration. Employment contracts also cannot be referred to arbitration but director - company disputes are arbitrable (as there is no master servant relationship here)5. Generally, matters covered by statutory reliefs through statutory tribunals would be nonarbitrable.
One of the fundamental features of the Act is that the role of the court has been minimised. Accordingly, it is provided that any matter before a judicial authority containing an arbitration agreement shall be referred to arbitration (Section 8 provided the non - applicant objects no later than submitting its statement of defense on merits). Further, no judicial authority shall interfere, except as provided for under the Act (Section 5). In relation to arbitration proceedings, parties can approach the Court only for two purposes: (a) for any interim measure of protection or injunction or for any appointment of receiver etc.6; or (b) for the appointment of an arbitrator in the event a party fails to appoint an arbitrator or if two appointed arbitrators fail to agree upon the third arbitrator. In such an event, in the case of domestic arbitration, the Chief Justice of a High Court may appoint an arbitrator, and in the case of international commercial arbitration, the Chief Justice of the Supreme Court of India may carry out the appointment7. A court of law can also be approached if there is any controversy as to whether an arbitrator has been unable to perform his functions or has failed to act without undue delay or there is a dispute on the same. In such an event, the court may decide to terminate the mandate of the arbitrator and appoint a substitute arbitrator. Conduct of arbitration proceedings:
7
The arbitrators are masters of their own procedure and subject to parties agreement, may conduct the proceedings "in the manner they consider appropriate." This power includes- "the 3
power to determine the admissibility, relevance, materiality and weight of any evidence". The only restrain on them is that they shall treat the parties with equality and each party shall be 4
given a full opportunity to present his case, which includes sufficient advance notice of any 5
hearing or meeting. Neither the Code of Civil Procedure nor the Indian Evidence Act applies to 6
arbitrations. Unless the parties agree otherwise, the tribunal shall decide whether to hold oral hearings for the presentation of evidence or for arguments or whether the proceedings shall be conducted on the basis of documents or other material alone. However the arbitral tribunal shall hold oral hearings if a party so requests (unless the parties have agreed that no oral hearing shall be held).
7
Arbitrators have power to proceed exparte where the respondent, without sufficient cause, fails to communicate his statement of defence or appear for an oral hearing or produce evidence. However, in such situation the tribunal shall not treat the failure as an admission of the allegations by the respondent and shall decide the matter on the evidence, if any, before it. If the claimant fails to communicate his statement of the claim, the arbitral tribunal shall be 8
entitled to terminate the proceedings.
The Act provides that the arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. The arbitration agreement shall be deemed to be independent of the contract containing the arbitration clause, and invalidity of the contract shall not render the arbitration agreement void. Hence, the arbitrators shall have jurisdiction even if the contract in which the arbitration agreement is contained is vitiated by fraud and/or any other legal infirmity. Further, any objection as to jurisdiction of the arbitrators should be raised by as party at the first instance, i.e., either prior
3
Section 19 (3) and (4) Section 18 5 Section 24 (2) 6 Section 19 of Act and Section 1 of the Evidence Act. 7 Section 24 8 Section 25 4
8
to or along with the filing of the statement of defence. If the plea of jurisdiction is rejected, the arbitrators can proceed with the arbitration and make the arbitral award. Any party aggrieved by such an award may apply for having it set aside under Section 34 of the Act. Hence, the scheme is that, in the first instance, the objections are to be taken up by the arbitral tribunal and in the event of an adverse order, it is open to the aggrieved party to challenge the award. .9
In SBP & Co. v. Patel Engg Ltd the Supreme Court of India (in a decision rendered by a Bench of Seven Judges) held that the nature of power conferred on the Court under Section 11 of the Act is judicial (and not administrative) in nature. Accordingly, if parties approach the Court for appointment of arbitral tribunal (under Section 11) and the Chief Justice pronounces that he has jurisdiction to appoint an arbitrator or that there is an arbitration agreement between the parties or that there is a live and subsisting dispute to be referred to arbitration and the Court constitutes the Tribunal as envisaged, this would be binding and cannot be re-agitated by the parties before the arbitral tribunal. In S.B.P & Co. case the Supreme Court has defined what exactly the Chief Justice, approached with an application under Section 11 of the Act, is to decide at that stage. The Chief Justice has the power to decide his own jurisdiction in the sense whether the party making the motion has approached the right court. He has to decide whether there is an arbitration agreement, as defined in the Act and whether the person who has made the request before him, is a party to such an agreement. He can also decide the question whether the claim was a dead one; or a long-barred claim that was sought to be resurrected and whether the parties have concluded the transaction by recording satisfaction of their mutual rights and obligations or by receiving the final payment without objection.
The Court in SBP & Co case, inter alia, concluded as follows: (i) The power exercised by the Chief Justice of the High Court or the Chief Justice of India under Section 11(6) of the Act is not an administrative power. It is a judicial power. (ii) The power under Section 11(6) of the Act, in its entirety, could be delegated, by the Chief Justice of the High Court only to another Judge of that Court and by the Chief Justice of India to another Judge of the Supreme Court. (iii) In case of designation of a Judge of the High Court or of the Supreme Court, the power that is exercised by the designated Judge would be that of the Chief Justice as conferred by the statute.
9
(2005) 8 SCC 618
9
(iv) The Chief Justice or the designated Judge will have the right to decide the preliminary aspects as indicated in the judgment. These will be, his own jurisdiction to entertain the request, the existence of a valid arbitration agreement, the existence or otherwise of a live claim, the existence of the condition for the exercise of his power and on the qualifications of the arbitrator or arbitrators. The Chief Justice or the designated Judge would be entitled to seek the opinion of an institution in the matter of nominating an arbitrator qualified in terms of Section 11(8) of the Act if the need arises but the order appointing the arbitrator could only be that of the Chief Justice or the designated Judge. (v) The District Judge does not have the authority under Section 11(6) of the Act to make appointment of an arbitrator. (vi) The High Court cannot interfere with the orders passed by the arbitrator or the Arbitral Tribunal during the course of the arbitration proceedings and the parties could approach the Court only in terms of Section 37 of the Act (appealable orders) or in terms of Section 34 of the Act (setting aside or arbitral award). (vii) Since it is a judicial order, an appeal will lie against the order passed by the Chief Justice of the High Court or by the designated Judge of that Court only under Article 136 of the Constitution to the Supreme Court. (viii) No appeal shall lie against an order of the Chief Justice of India or a Judge of the Supreme Court designated by him while entertaining an application under Section 11(6) of the Act. (ix) Where an Arbitral Tribunal has been constituted by the parties without having recourse to Section 11(6) of the Act, the Arbitral Tribunal will have the jurisdiction to decide all matters as contemplated by Section 16 of the Act.
Time-limit for the pleas as to the lack of jurisdiction
Although arbitrators have authority to rule on their jurisdiction, they cannot do it on their own initiative. A plea as to the lack of jurisdiction has to be submitted by the respondent in due time—under Art.16(2) not later than the statement of defence. Belated objections regularly cannot be taken into account, as the lack of objection has to be construed as the waiver of the
10
right to object and conclusion of a valid arbitration agreement. Still, the arbitrators have the right to admit the plea if the delay in their submission is considered justified.
Under one reported case, it seems that the court held that the plea has to be sufficiently substantiated: an allegation that arbitration agreement does not exist because the party was not successor to the main contract was held to be a substantive defence that precluded later 11
procedural objections as to the jurisdiction.
An arbitrator may be challenged only in two situations. First, if circumstances exists that give rise to justifiable grounds as to his independence or impartiality; second, if he does not posses the qualifications agreed to by the parties. A challenge is required to be made within 15 days of the petitioner becoming aware of the constitution of the arbitral tribunal or of the circumstances furnishing grounds for challenge. Further, subject to the parties agreement, it is the arbitral tribunal (and not the court - unlike under the old Act of 1940) which shall decide on the challenge. If the challenge is not successful the tribunal shall continue with the arbitral proceedings and render the award, which can be challenged by an aggrieved party at that stage. This is another significant departure from the Model Law, which envisages recourse to a 10
court of law in the event the arbitral tribunal rejects the challenge.
The Indian courts have held that "the apprehension of bias must be judged from a healthy, reasonable and average point of view and not on mere apprehension of any whimsical person. Vague suspicions of whimsical, capricious and unreasonable people are not our standard to 11
regulate our vision."
The courts had an opportunity to evaluate the effect of lack of objections as to the jurisdiction of the tribunal in the arbitral proceedings on subsequent setting aside proceedings. A German court held that a party regularly loses its right to raise the lack or invalidity of the arbitration agreement in the setting aside proceedings if there was no objection to jurisdiction in the 12
arbitral proceedings. As stated by the same court, failure to raise this objection amounts to 10
Article 13 of Model Law International Airports Authority of India v. K.D. Bali &Anr; (1988) 2 SCC 360.
11
11
conclusion of the new arbitration agreement by passive behaviour of the party. This seems to be a generally accepted position, both under MAL Rules and under some national arbitration 13
laws.
However, the courts in various jurisdictions had expressed diverging views as to the consequences of cases in which objection to jurisdiction was raised in the arbitral proceedings, but the preliminary decision of arbitrators was not attacked under MAL 16(3) before the competent court. In one Singapore case, the court held that a party was not prevented from submitting an application for the setting aside of the award on the basis of lack of jurisdiction simply because the party did not challenge arbitral decision on jurisdiction under para.(3) 14
before a competent court. German courts, on the contrary, held that this was a necessary prerequisite for the successful raising of this ground in setting aside proceedings.
15
It seems that there were no controversies regarding the recognition of arbitrators’ discretionary powers to decide whether they would rule on jurisdiction in a separate ruling, or in the final award. As to the consequences of such decision, one court held that decision to postpone the ruling on jurisdiction until the final award cannot be attacked, but that in such a case only setting aside proceedings could review whether the arbitrators erred in finding that they are competent to decide.
16
If the arbitral tribunal decides on the issue of jurisdiction as a preliminary question, and concludes that it has jurisdiction, this ruling may be subject to challenge under MAL 16(3). Regularly, the competent authority will be a state court. However, in some jurisdictions that is not necessarily so. For example in Croatia—whose Law on Arbitration departs slightly from the text of the MAL in respect of designation of authority from MAL 6—parties may by their agreement transfer the authority to control separate decisions on jurisdiction to some other authority. Thus Croatian courts have already confirmed that the arbitration rules of an institutional arbitration institution may replace court control with some other controlling mechanism (e.g. with the decision of the president of the arbitral institution). The time-limit for the application to the court is 30 days from the date when the party has received notice of the ruling of the arbitral tribunal. As to this time-limit, a German court held that an application was launched in due time if it was submitted to a court within the 30-day period, notwithstanding the fact that the court to which the application was filed was not 17
competent.
12
One potentially controversial decision dealt with the consequences of the form of the preliminary ruling by which arbitrators assert their jurisdiction. The MAL does not determine in 18
which form the arbitrators should decide on jurisdiction as a preliminary issue. In procedural theory, it should be taken for granted that such a decision is of a procedural and not a substantive nature. From that, it would follow that the arbitrators may issue it only in the form of a procedural order. However, in some jurisdictions, such decisions are being taken in the form of arbitral awards as well. Diverging judicial opinions as to the effect of designation of the decision on jurisdiction as ‘‘arbitral award on jurisdiction’’ are noted. High German juridical authorities, while noting strong and influential voices in the doctrine that such decisions cannot be regarded as arbitral awards, since there are no procedural arbitral awards ( Prozeßschiedsspruche¨ ), have finally decided that such decisions can take the form of arbitral award, and even be attacked in setting 19
aside proceedings. In these cases, however, the German courts dealt only with the 20
preliminary decision in which the arbitrators have declined their jurisdiction.
The view that a decision made under MAL 16(3) can take form of the award was also taken by a 21
Bermuda court, yet with even more far-reaching consequences. That court found that, if the preliminary decision on jurisdiction was issued in the form of an award, it might be challenged in separate setting-aside proceedings, even if the party successfully challenged the ruling in accordance with the procedure set out in Art.16(3). This particular decision opens a number of issues, including those relating to duplication of work, possible diverging decisions, applicability of the grounds from Art.34 MAL, etc. Another interesting opinion on the possibility of review-i ng arbitral decisions on jurisdiction was expressed in a recent Croatian case, where the Constitutional Court, changing its previous case law, held that it can control the arbitral ruling that declined jurisdic-tion on the basis of an 22
alleged breach of the right to access to an efficient dispute-resolution mechanism. Again, the decision was controversial: it was issued with several dissenting opinions and criticised in the 23
doctrine.
An arbitral tribunal (or arbitration tribunal) is a panel of one or more adjudicators which is convened and sits to resolve a dispute by way of arbitration. The tribunal may consist of a sole arbitrator, or there may be two or more arbitrators, which might include either a chairman or an umpire. The parties to a dispute are usually free to agree the number and composition of the arbitral tribunal. In some legal systems, an arbitration clause which provides for two (or any
13
other even number) of arbitrators is understood to imply that the appointed arbitrators will select an additional arbitrator as a chairman of the tribunal, to avoid deadlock arising. Different legal systems differ as to how many arbitrators should constitute the tribunal if there is no 12
agreement.
Arbitral tribunals are usually constituted (appointed) in two types of proceedings:
ad hoc arbitration proceedings are those in which the arbitrators are appointed by the
parties without a supervising institution, relying instead on the procedural law and courts of the place of arbitration to resolve any differences over the appointment, replacement, or authority of any or all of the arbitrators; and
institutional arbitration proceedings are those in which the arbitrators are appointed under the supervision of professional bodies providing arbitration services, such as the American Arbitration Association (which conducts international proceedings through its New York-based division, the ICDR), the LCIA in London or the ICC in Paris. Although these institutions (and many others) are headquartered in their respective cities, they are capable of supervising the appointment of arbitral tribunals in nearly any country, avoiding the need for the parties to involve local courts and procedures in the event of disagreement over the appointment, replacement, or authority of any or all of the arbitrators.
Permanent tribunals tend to have their own rules and procedures, and tend to be much more formal. They also tend to be more expensive, and, for procedural reasons, slower
13
.(^ Under
the UNCITRAL Model Law on International Commercial Arbitration (adopted by various countries around the world), the default number is three (Article 10(2)). However, some 14
countries have provided that the default number is one (see for example, section 15 .
The parties are generally free to determine their own procedure for appointing the arbitrator or 15
arbitrators, including the procedure for the selection of an umpire or chairman. If the parties 12
Under the UNCITRAL Model Law on International Commercial Arbitration (adopted by various countries around the world), the default number is three (Article 10( 2)). However, some countries have provided that the default number is one (see for example, section 15(2) of the Arbitration Act 1996 of the United Kingdom. 13 .Under the UNCITRAL Model Law on International Commercial Arbitration 14 of the Arbitration Act 1996 of the United Kingdom 15
See for example, Article 11(2) of the UNCITRAL Model Law on International Commercial Arbitration
and section 16(1) of the Arbitration Act 1 996 of the United Kingdom.
14
decline to specify the mode for selecting the arbitrators, then the relevant legal system will usually provide a default selection process. Characteristically, appointments will usually be made on the following basis: If the tribunal is to consist of a sole arbitrator, the parties shall jointly appoint the arbitrator not later than (for example) 28 days after service of a request in writing by either party to do so.
If the tribunal is to consist of three arbitrators: 1.each party shall appoint one arbitrator not later than (for example) 14 days after service of a request in writing by either party to do so, and 2.the two so appointed shall forthwith appoint a third arbitrator as the chairman of the tribunal.
If the tribunal is to consist of two arbitrators and an umpire1.each party shall appoint one arbitrator not later than (for example) 14 days after service of a request in writing by either party to do so, and 2.the two so appointed may appoint an umpire at any time after they themselves are appointed and shall do so before any substantive hearing or forthwith if they cannot agree on a matter relating to the arbitration. Most arbitration clauses will provide a nominated person or body to select a sole arbitrator if the parties are unable to agree (for example, the President of the relevant jurisdiction's Bar Association, or a recognised professional arbitration organisation such as the LCIA, or a relevant professional organisation). In default of such a provision, where the parties are unable to agree, an application for an appointment is usually made to the court.
16
A well drafted arbitration clause will also normally make provision for where a party to the dispute seeks to cause delay by refusing to make or agree an appointment. Often this will allow the "non-defaulting" party to appoint a sole arbitrator and for the arbitration to proceed on that basis.
16
17
See for example, Article 11(3) of the UNCITRAL Model Law on I nternational Commercial Arbitration and section 18 of the Arbitration Act 1996 of the United Kingdom. 17 Often reinforced by the law, see for example, section 17 of the Arbitration Act 1996 of the United Kingdom.
15
The parties may make provision for the arbitrator's fees (although in some jurisdictions, whether the parties are agreeing to submit an existing dispute to arbitration, they may not provide that each party bears its own costs). However, the position may be different between, on the one hand, as between the arbitrators and the parties, and on the other hand, as between the parties themselves. Although the parties may provide differently in the appointment of the arbitrator, the usual rule is that the parties are jointly and severally liable for the arbitrator's fees. If the arbitrator is 18
not paid, then they may sue either or both parties for unpaid fees.
In many jurisdictions, after making the award, the tribunal will order that the losing party pays the legal costs of the winning party, and this may include the arbitrator's fees. However, this does not affect the joint and several liability referred to above; but it does mean that the winning party may maintain a separate action against the losing party for the unpaid costs, or to be reimbursed for arbitrator's fees that the winning party has been forced to pay, but which the losing party was ordered to pay.
Where the tribunal consists of an odd number of arbitrators, one of them may be designated as the umpire or chairman. The selection of title actually carries some significance. When an arbitrator is "chairman", then they will not usually exercise any special or additional powers, and merely have a 19
presidential function as the tribunal member who sets the agenda. Where a member of the tribunal is an umpire, they usually do not exercise any influence on proceedings, unless the other arbitrators are unable to agree — in such cases, then the umpire steps in and makes the decision alone.
In some legal systems, it used to be common for each party to the dispute to appoint an arbitrator and for those two arbitrators to appoint a third arbitrator (who may or may not be called an umpire). However, the two arbitrators appointed by the parties to the dispute would essentially act as advocates
18
.^ In some jurisdictions this is mandatory, see for example section 28 of the Arbitration Act 1996 of
the United Kingdom 19
Although in some cases the Chairman will have a casting vote if the tribunal is unable to agree on a matter.
16
for the party who appointed them, and the umpire would effectively act as a sole arbitrator. However, such systems can lead to difficulty, as other countries may be reluctant to enforce an arbitration award where two of the three "arbitrators" are clearly unable to demonstrate impartiality or independence. The standards for enforcing such awards are set out in the New York Convention, as interpreted by local 20
law.
In most legal systems the parties are free to specify in what circumstances the appointment of an arbitrator may be revoked. In default most legal systems provide either that (i)
the parties to the dispute must act jointly to remove an arbitrator, or
(ii)
the other members of the arbitral tribunal must act to remove the arbitrator, and/or
(iii)
the court must act to remove an arbitrator. Most legal systems reserve a power to the court to remove arbitrators who are unfit to act, or are not impartial.
It is generally accepted that one cannot force a person to continue as an arbitrator against their will, and arbitrators may resign if they are unwilling to proceed with the arbitration. Where the arbitrator becomes aware of facts that might be seen to affect his or her impartiality, they are often under a duty to resign. The parties are generally free to agree with the arbitrator what should happen with respect to (i) the arbitrator's fees, and (ii) any liability of the arbitrator (such as wasted costs), if the arbitrator should resign, with or without cause.
The authority of an arbitrator is personal, and an appointment ceases upon death.Unless the parties have otherwise provided, the death of a party does not usually revoke the appointment of any arbitrator appointed by the deceased, and any agreement relating to the appointment is enforceable in the usual way against the personal representatives of t he deceased. 20
See "New York Arbitration". CMS Legal.Retrieved 21 May 2012.
17
If a vacancy arises (through resignation or death, or otherwise) then the parties are free to agree: 1. Whether, and if so, how, the vacancy shall be filled 2. Whether, and if so, to what extent, the previous proceedings shall stand 3. What effect, if any, the arbitrator's ceasing to hold office has on any appointment or order made by that arbitrator (alone or jointly) Most legal systems provide that, in default of agreement, a new arbitrator shall be appointed using the 21
provision for appointments which applied to the original arbitrator that has vacated office; the tribunal itself (once reconstituted) should determinate whether, and if so, to what extent, previous proceedings stand; and the appointments and orders made by the previous arbitrator are unaffected.
An "arbitration hearing" can be either procedural or evidentiary. As in court systems, a "procedural hearing" focuses exclusively on how the proceedings are to be conducted. By contrast, an "evidentiary hearing" is the equivalent to what in the courts of many countries would be called a trial, with the presentation of evidence in the form of documents and witnesses. Although evidentiary hearings are generally available as a means to assist the arbitral tribunal in deciding contested factual issues, arbitration rules do not usually require them and leave the means of decided disputed factual issues to the discretion of the tribunal. Many decisions of arbitral tribunals are made without any hearing at all. Where it may be appropriate to do so, arbitral tribunals can make decisions solely upon documentary evidence, which may or may not be accompanied by witness statements, which in the US are referred to as affidavits. Witness statements represent the testimony a witness would give if called to testify, and on which the witness is subject to questioning by the arbitral tribunal and, at times, cross examination by the other party. Specific types of arbitration, for example, may rely exclusively on documents to decide disputes, such as in the growing field of online dispute resolution. In addition, some organizations, may specifically provide provide as part of their organizational bylaws or standard terms and conditions that disputes shall be arbitrated without an oral hearing and upon documentary evidence only, an example being certain trade associations, such as GAFTA.
21
See for example, Article 15 of the UNCITRAL Model Law on International Commercial Arbitration and section 27 of the Arbitration Act 1996 of the United Kingdom.
18
The duties of a tribunal will be determined by a combination of the provisions of the arbitration agreement and by the procedural laws which apply in the seat of the arbitration. The extent to which the laws of the seat of the arbitration permit "party autonomy" (the ability of the parties to set out their own procedures and regulations) determines the interplay between t he two.
However, in almost all countries the tr ibunal owes several non-derogable duties. These will normally be:
To act fairly and impartially between the parties, and to allow each party a reasonable opportunity to put their case and to deal with the case of their opponent (sometimes shortened 22
to: complying with the rules of "natural justice" and
To adopt procedures suitable to the circumstances of the particular case, so as to provide a fair means for resolution of the dispute.
23
Matters of procedure are normally determined either by the law of the seat of the arbitration, or by the tribunal itself under its own inherent jurisdiction (depending on national law). Procedural matters normally include:
Mode of submitting (and challenging) evidence
Time and place of the hearing
Language and translations
Disclosure of documents and other evidence
Use of pleadings and/or interrogatories
Use of legal advisors
The appointment of experts and assessors
22
See for example Article 18 of the UNCITRAL Model Law on International Commercial Arbitration
23
For example, in England these are codified in section 33 of the Arbitration Act 1996
19
Provisions relating to appeals vary widely between different jurisdictions, but most legal systems recognise that the right to appeal (or, technically, the right to seek to set aside) an award in an arbitration should be limited.
Usually such challenges are made on one of two bases: 1. That the tribunal did not have substantive jurisdiction to determine the matter; or 2. There was a serious irregularity on the part of the tribunal. Examples of serious irregularities may include: 1.failure of the tribunal to act in accordance with the rules of natural justice, or allowing a fair hearing; 2. The tribunal exceeding its powers (other than by exceeding its jurisdiction); 3 .Failure of the tribunal to conduct proceedings in accordance with the procedure agreed by the parties; 4 .Failure of the tribunal to deal with all the issues put to it for resolution; 5. Uncertainty or ambiguity as to the effect of the award; 6. The award being procured by fraud, or otherwise being procured in a way contrary to public policy; 7. Failure to comply with the requirements for the form of the award (e.g. in writing or in a specific language); 8. Irregularities in the conduct of the proceedings. In some jurisdictions it is also possible to appeal against an award on a point of law, however, such 24
appeals normally require either the permission of the othe r parties, or the leave of the court.
Specialised arbitration organizations have been formed in order to settle disputes in the matter of specialised issues, they work in only a very limited field but are highly specialised in the work they do. For this purpose they have made a special rules, procedures and regulations which they follow during the proceedings of arbitration. These institutions prove very useful in the cases where a very deep and specialised knowledge is needed in settlement, which in t urn can be cost effective and time saving.
24
See for example section 69 of the Arbitration Act 1996 of the United Kingdom
20
Such specialised institutions include: 1. Arbitration and Mediation Center, WIPO 2. Center for Effective Dispute Resolution 3. German Maritime Arbitration Association 4. Maritime Arbitration Association of the United States 5. Tokyo Maritime Arbitration Association
The act of 1996 has defined arbitration in the following, manner “Arbitration means any arbitration whether or not administered by permanent arbitral institution” A fair, just and quick process of resolution of disputes is indispensable in any democratic society becoming increasingly aware of their human and legal rights. The human and material resources in Courts are inadequate to meet the ever growing demands, resulting in backlog of cases and delay in the administration of justice. Our justice delivery system is bursting at the seams and unless timely measures are adopted, for the quick disposal of cases, particularly at the grass-roots it will lead to very dire consequences. In certain disputes like financial matters involving the individuals, firms and even multinational companies, they do not want to submit to the jurisdiction of the courts of obvious reasons of delay, rigid procedural rules and provisions of appeals and revisions. The simple logic is that both the parties are not interested in getting a proposition of law on any point laid down but they are interested to settle their money matters and for that purpose they can even give up certain claims which they are otherwise entitled to. One such method of dispute resolution is arbitration governed in India by the Arbitration and Conciliation Act 1996.
In most legal systems, the arbitral tribunal is able to rule upon its own jurisdiction (often referred to as the doctrine of "Kompetenz-Kompetenz" in international law). Briefly, this enables the arbitral tribunal to determine for itself whether:
21
1. An arbitration agreement is valid, 2.Whether the tribunal has been properly constituted under applicable law, and 3.What matters are to be determined by the arbitration under the agreement. 25
The doctrine, although continental in origin, has been recognised at common law, and has now been widely codified into national law.
26
Section 5 Extent of judicial intervention. Notwithstanding anything contained in any other law for the time being in force, in matter governed by this Part, no judicial authority shall intervene except where so provided in this Part. In the case of this section the courts have tried to protect the sanctity of the section and in a judgement in 2007 the Supreme Court held that “Superior Court’s power of judicial review has wide amplitude but the same should not be exercised when there exists an arbitration clause. The Supreme Court in another case held the High Court justified in holding that photo copies of lease agreements could be taken on record for ascertaining the existence of arbitration clause. The Court should exercise power under Article 142 to meet the situations which cannot be effectively and appropriately tackled by existing provisions of law. The Apex Court however seems to have gone against the principle of sanctity of the arbitration agreement when it held that "no party can be allowed to take advantage of inartistic drafting of arbitration clause in any agreement as long as clear intention of parties to go for arbitration in case of any future disputes is evident from the agreement and material on record including surrounding circumstances."
The Indian law of arbitration is contained in the Arbitration and Conciliation Act 1996 (Act).
1
The Act is based on the 1985 UNICITRAL Model Law on International Commercial Arbitration and the UNCITRAL Arbitration Rules 1976. The Statement of Objects and Reasons of the Act recognises that India's economic reforms will become effective only if the nation's dispute 25
26
See Christopher Brown Ltd v GenossenschaftOsterreichischerWaldbesitzer R GmbH [1954] 1 QB
See for example, Article 16 of the UNCITRAL Model Law on International Commercial Arbitration and section 30 of the Arbitration Act 1996 of the United Kingdom.
22
resolution provisions are in tune with international regime. The Statement of Objects and Reasons set forth the main objectives of the Act as follows:
i.
to comprehensively cover international and commercial arbitration and conciliation as also domestic arbitration and conciliation;
ii.
to make provision for an arbitral procedure which is fair, efficient and capable of meeting the needs of the specific arbitration;
iii.
to provide that the arbitral tribunal gives reasons for its arbitral award;
iv.
to ensure that the arbitral tribunal remains within the limits of i ts jurisdiction;
v.
to minimise the supervisory role of courts in the arbitral process;
vi.
to permit an arbitral tribunal to use mediation, conciliation or other procedures during the arbitral proceedings to encourage settlement of disputes;
vii.
to provide that every final arbitral award is enforced in the same manner as if it were a decree of the court;
viii.
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
ix.
to provide that, for purposes 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."
x.
Arbitration is particularly popular as a means of dispute resolution in the commercial sphere (for a summary of the various arenas in which arbitration is usually chosen, see the specific article on "arbitration"). One of the reasons for doing so is that, in international trade, it is often easier to enforce an arbitration award in a foreign country than it is to enforce a judgment of the court.
23
Under the New York Convention 1958, an award issued in a contracting state can generally be freely enforced in any other contracting state, only subject to certain, limited defences. Those defences are: 1. a party to the arbitration agreement was, under the law applicable to him, under some incapacity; 2. the arbitration agreement was not valid under its governing law; 3. a party was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings, or was otherwise unable to present its case; 4. the award deals with an issue not contemplated by or not falling within the terms of the submission to arbitration, or contains matters beyond the scope of the arbitration (subject to the proviso that an award which contains decisions on such matters may be enforced to the extent that it contains decisions on matters submitted to arbitration which can be separated from those matters not so submitted); 5. the composition of the arbitral authority was not in accordance with the agreement of the parties or, failing such agreement, with the law of the place where the hearing took place (the "lex loci arbitri"); 6. the award has not yet become binding upon the parties, or has been set aside or suspended by a competent authority, either in the country where the arbitration took place, or pursuant to the law of the arbitration agreement; 7. the subject matter of the award was not capable of resolution by arbitration; or 8. enforcement would be contrary to "public poli cy". Virtually every significant commercial country in the world is a party to the Convention, but relatively few countries have a comprehensive network for cross-border enforcement of judgments of the court. Hence in many countries, particularly in emerging markets, a foreign arbitration award is much easier to enforce than an award of the court. For example, it is very difficult to enforce foreign judgments in the former CIS countries, but it is considerably easier to enforce awards of an arbitration tribunal. The other characteristic of cross-border enforcement of arbitration awards that makes them appealing to commercial parties is that they are not limited to awards of damages. Whereas in most countries only monetary judgments are enforceable in the cross-border context, no such restrictions are imposed on arbitration awards and so it is theoretically possible (although unusual in practice) to obtain an injunction or an order for specific performance in an
24
arbitration proceeding which could then be enforced in another New York Convention contracting state. The New York Convention is not actually the only treaty dealing with cross-border enforcement of arbitration awards. The earlier Geneva Convention on the Execution of Foreign Arbitral Awards 1927 remains in force, but the success of the New York Convention means that the Geneva Convention is rarely utilised in practise.
Jurisdiction National Olympic Committees, have recognised the jurisdiction of the CAS and included in their statutes an arbitration clause referring disputes to it. Through compliance with the 2009 World Anti-Doping Code all Olympic International Federations have recognised the jurisdiction of CAS for anti-doping rule violations.[1][2] Decisions of CAS can be appealed to the Swiss Federal Tribunal.[3
History With the intermixing of sports and politics, the body was originally conceived by International Olympic Committee (IOC) President Juan Antonio Samaranch to deal with disputes arising during the Olympics. It was established as part of the IOC i n 1984. Ten years later, a case decided by the CAS was appealed to the Federal Supreme Court of Switzerland, challenging CAS impartiality. The Swiss court ruled that the CAS was a true court of arbitration, but drew attention to the numerous links which existed between the CAS and the IOC. In response, the CAS underwent reforms to make itself more independent of the IOC, organizationally and financially. The biggest change resulting from this reform was the creation of an "International Council of Arbitration for Sport" (ICAS) to look after the running and financing of the CAS, thereby taking the place of the IOC. As of 2004, the majority of recent cases considered by the CAS dealt with transfer disputes within professional association football or with doping.
25
Originally, in ancient India, ADR as we know today was the way disputes were generally settled. The whole village by way of Gram Panchayat used to solve the problems of the villagers by sitting together and mediating the problems faced by the two parties. Since the advent of the modern legal system, this method of dispute settlement has largely been set aside. Today, this age old method of dispute settlement has become corporate savvy and exclusive to big concerns. It has become the talk of the boardrooms and the way the corporate world now looks towards settlement of disputes.
The reason as to why such a phenomenon is witnessed in our country is very interesting. First of all, the process still is a very costly affair as very few people specialize in this field that are competent enough to arbitrate on various matters, thereby resulting in making ADR a very exclusive and high end service. Secondly, ADR is just too flexible in nature and there is no guarantee in its proceedings. There is no set procedure which is required to be followed while finding solutions through ADR. Such a system juxtaposed with the modern legal system which is time-tested, predictable and follows a set procedure, becomes a much safer and hence attractive option for dispute settlement for the common man. Also, the Indian Law recognizes mainly Arbitration as a way of ADR which pretty much curtails the full scope of ADR. The major drawback due to the same is that Arbitration involves the principle of arbitrability of subject matter. Since most matters which have a specific legislation to its name are left out due to the non-arbitrability of its subject matter, the actual scope of ADR is heavily compromised on. It is important that if ADR has to reach the common man and not just remain a corporate toy then it be allowed to spread out its wings and fl y.
In India prior to 1996 Arbitrations were governed by Arbitration and Conciliation Act of 1940. New Act was passed in 1996 which brought changes in the said law in India. Changes under the new Act called Arbitration and Conciliation Act of 1996 are summarized as under: One of the important changes brought in by the Arbitration and Conciliation Act, 1996, (hereinafter referred to as the 1996 Act or Act of 1996) in the field of law concerning arbitration, compared to the analogous provisions in the earlier enactment, Arbitration Act of 1940 (herein after referred to as the 1940 Act or Act of 1940) is relating to `enforcement of awards'.
26
In the new Act of 1996, it seems, the legislature has wisely incorporated two : (i) Conferring finality to the arbitral award under Section 35 and (ii) Enforcement of awards in the same manner as if it were a decree of the court under Section 36. Section 35 gives recognition to the arbitral award as final and binding, unless impeached on the grounds set out under Section 34. Of course, in the Act of 1940 as an implied condition it was prescribed, in the First Schedule, that the award is final and binding on the parties and persons claiming under them respectively. Yet there was confusion or confrontation for sometime on the point of recognition of award unless and until decreed.
Undoubtedly, arbitration is a speedy and effective remedy to resolve disputes between the parties by experts in technical, commercial or like fields, selected by parties' own choice as far as possible, or otherwise, with the intervention of court. Experience shows that under the old Act of 1940 once the award is published by the arbitrator it is only the end of one round of litigation for commencement of another round, which at times becomes more onerous and time consuming because under Section 14 of that Act the arbitrator has to file the award before the court, either on request of the interested party or on direction of the court, the affected or defeated party can, seek to modify the award under Section 15, remit the award under Section 16 or even seek to set aside the award under Section 33 for the grounds set out in Section 30. Under the new Act of 1996, the second round of litigation to confirm the award into a decree has been taken away, of course, subject to the power of the court to have the final word on the award, because the award is still subject to scrutiny under Section 34 for impeachment which however gives only a narrow scope for interference by the court compared to the grounds under 1940 Act. In yester years the scope of interference on the ground of misconduct was very limited, whereas, later on, courts began to scrutinize awards with lot of suspicion and circumspection. Besides, the ground of excessive jurisdiction of arbitrator got judicial acceptance as a new dimension in challenging award and at times it went out of proportion so that ultimately Supreme Court had to caution in State of Rajasthan Vs. Puri Construction Company Ltd. (1994) 6 SCC 485) "It is necessary, however, to put a note of caution that in the anxiety to render justice to the party to arbitration, the court should not reappraise the evidences intrinsically with a close scrutiny for finding out that the conclusion drawn from some
27
facts, by the arbitrator is, according to the understanding of the court, erroneous. Such exercise of power which can be exercised by an appellate court with power to reverse the finding of fact is alien to the scope and ambit of challenge of an award under the Arbitration Act." Thus it is a unique feature of the arbitral award under the 1996 Act that the party need not wait for a formal decree for enforcement of the award. Kerala High Court in Ramaswamy vs. Principal Subordinate Judge, 1997 (2) KLT 393 has held that the Execution Court is duty bound to accept the execution petition with a certified copy of the award. Later on, Kerala High Court has made clear in Sulekha Clay Mines Vs. Union of India, 2000 (1) KLT 691 = 2000 (1) KLJ 472 (by J. B. Koshy J.) that the `court' defined under Section 2 (e) of the Act 1996 (as far as Kerala is concerned), is the District Court, being the Principal Civil Court of the District.
It is to be borne in mind, the enforcement of an arbitral award, though final and binding, is again subject to two conditions under S.36. (i) Time for making application to set aside the arbitral award under Section 34 has to expire i.e. three months from the date of receipt of the copy of the arbitral award plus 30 days which Court could give extension in its discretion, if concerned party proves sufficient cause, but not thereafter. (ii) If such an application is made it has to be refused.
Under the Act of 1940 the time limit was subject to application of the law of limitation since provisions of Limitation Act is applicable to arbitration also, under Section 37 of the said Act. The decision of the Supreme Court in State of A. P. Vs. Chandra Sekhara Reddy and other (1998) 7 SCC 141 on 22.0.1998 which has been followed by other High Court also make the point clear. The Full Bench of the Kerala High Court had held so even before, by judgment dt. 31.3.1998 in C.M.P No. 3131/1997 in MFA 724/97, upholding a Division Bench decision still earlier, in State of Kerala Vs. Madhusoodanan Pillai (1994(1) KLT 268) in view of contrary decisions of two Division Benches. However, under the 1996 Act the discretionary power conferred on the court for extension of time for thirty days beyond three months followed by the expression "but not thereafter" in S.34 (3) proviso prescribes a cut off date.
28
(1) Before the commencement of the 1996 Act Regarding enforcement of domestic awards and foreign awards there are certain differences under the two enactments of 1940 and 1996. In the 1940 Act Section 17 make clear (apparently in the case of domestic awards) once a judgment was pronounced according to the award a decree shall follow which always could be executed under the provisions of the Code of Civil Procedure. The said Act is silent about enforcement of foreign award. However, being a party to the Multilateral International Conventions, viz. the Geneva Convention of 1927 and the New York Convention of 1958, India enacted two legislations for enforcement of foreign arbitral awards i.e. (i) The Arbitration (Protocol and Convention) Act, 1937 for enforcement of foreign arbitral awards to which the Geneva Convention of 1927 applied, (ii) the Foreign awards (Recognition and Enforcement) Act, 1961 pursuant to the New York Convention of 1958 with a distinction that the Geneva Convention ceased to apply to those awards to which the New York Convention applied. It is relevant in this context to note, the Geneva Convention suffered from certain defects which hampered the speedy settlement of disputes through arbitration and thus the New York Convention was entered into. The New York Convention seeks to remedy those defects by providing for much more simple and effective methods of obtaining recognition and enforcement of the foreign awards.
(2) After the commencement of Arbitration & Conciliation Act, 1996 By the enactment of 1996 adequate provisions have been brought in for enforcement of a domestic award as also foreign award under the self same Act. Enforcement of domestic award has been brought under Chapter VIII of Part I which contains only two sections viz. Sections 35 &36.Provisions for enforcement of foreign awards under New York Convention are provided under Part II, Chapter I consisting of Sections 44 to 52 whereas enforcement of Geneva Convention awards has been brought under Part II, Chapter II consisting of Sections 53 to 60.
Competence of Arbitral Tribunal to rule on its own jurisdiction
29
There are an estimated 30 million cases pending in various courts in the country. Andin this backdrop, ADR is today more preferred by businesses. Considering the speed and comparative low cost, ADR is meant to be far superior to a black letter law. This project may deals with a crucial aspect of Arbitral Tribunal.
Jurisdiction (from the Latin ius, iuris meaning "law" and dicere meaning "to speak") is the practical authority granted to a formally constituted legal body or to a political leader to deal with and make pronouncements on legal matters and, by implication, to administer justice within a defined area of responsibility. The term is also used to denote the geographical area or subject-matter to which such authority applies.
In all walks of life, it is usual to come across disputes, more so in business dealings. In olden days informal system of Arbitration existed in the shape of Panchayats. The Father of Nation Mahatma Gandhi was also a staunch believer of arbitral process for resolving the problems in our predominantly rural society at affordable costs via Panchayat Raj. The word ‘Arbitration’ appears to have originated from the word arbitrary. The parties involved in the disputes refer them to a peer who is supposed to be a person of nobility having capability to resolve the disputes. There are an estimated 30 million cases pending in various courts in the country. The criticism against the justice delivery system is continuous and we keep on hearing related phrases like ‘Back Breaking delay’, ‘Elusive Justice’, and ‘ System on the verge of brink’. Arbitration system is a means to provide n easy and expedient mechanism for dispute resolution without the need of resorting to a long drawnlitigation. This is meant to be Justice without law. It is meant to be far superior to a black letter law. Arbitration seeks to remove blockade caused by chocking legal pollution. Arbitration started as a delegalization reform to resolve conflict with mutual love and trust. Even late ShriNaniPalkhiwala remarked succinctly, “ If I were appointed a dictator of this country, in the short span of my appointment and assassination, I would promulgate a law making all commercial disputes compulsorily referable to arbitration.” With the long British Rule in India, we had two enactments for Arbitration, viz. the Act of 1899 and 1940.After independence of India, it was observed that the Actof 1940 has outlived its utility andwas not in line with economicreforms introduced in India. Hencethe Arbitration and ConciliationAct, 1996 came into force on 25-1- 1996. In the PREAMBLE of the act, it stated that, “Whereas the United Nations Commission on International Trade law has adopted the UNCITRAL Model Law on
30
International Commercial Arbitration in 1985; and whereas the General Assembly of the United Nations has recommended that all countries give due consideration to the said Model Law, in view of the desirability of uniformity of the law of arbitral procedures and the specific needs of international commercial arbitration practice; AND WHEREAS the UNCITRAL has adopted the UNCITRAL Conciliation Rules in 1980; AND WHEREAS the General Assembly of the UnitedNations has recommended the use of the said Rules in cases where a dispute arises in the context of international commercial relations and the parties seek on amicable settlement of that dispute by recourse to conciliation; AND WHEREAS the said Model Law and Rules make significant contribution to the establishment of a unified legal framework for the fairand efficient settlement of disputes arising in international commercial relations; AND WHEREAS it is expedient to make law respecting arbitration and conciliation, taking into account the aforesaid Model Law and Rules;” For the first time a novel provision has been introduced under 16.
‘(1)The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections, with respect to the existence or validity of the arbitration agreement, and for that : (a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the terms of the contract; and (b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause. (2) A plea that the arbitral tribunaldoes not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of, an arbitrator. A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings. The arbitral tribunal may, in either case, admit a later pl ea if it considers the delay justified. (3) A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings. (4) The arbitral tribunal may, in either of the cases referred to in sub-section (2) or sub-section (3), admit a later plea if it considers the delay justified. (5) The arbitral tribunal shall decide on a plea referred to in sub-section (2) of sub-section
31
(3) and, where the arbitral tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and make an arbitral award. (6) A party aggrieved by such an arbitral award may make an application for setting aside such an arbitral award in accordance with section 34.Before filing statement of defence, a party can challenge jurisdiction of Arbitral Tribunal, which it is bound to decide. (7) The arbitral tribunal may rule on a plea either as a preliminary question or in an award on the merits. If the arbitral tribunal rules as a preliminary question that it has jurisdiction, any party may request, within thirty days after having received notice of that ruling, the court specified in article 6 to decide the matter, which decision shall be subject to no appeal; while such a request is pending, the arbitral tribunal may continue the arbitral proceedings and make an award. Today, the right of the arbitrators to rule on their own jurisdiction is an almost fully uncontroversial part of the well-established doctrine and practice in international arbitration. The provision of Art.16 MAL in its basic idea now really reflects the globally harmonised approach to the issue universally called Kompetenz Kompetenz. Practically all countries recognise the right of the tribunal to decide on their jurisdiction, subject to the subsequent court control. This is also demonstrated by some 20 cases collected in CLOUT, which all, without exception, assert the right of arbitrators to rule on their own jurisdiction.Yet, in certain details, the law is still different, even in the countries that have adopted the MAL. There is now a ‘‘wide consensus that the arbitral tribunal has the power to rule on all aspects of 4
its own jurisdiction’’. Reported decisions have showed that the courts recognise the right of the arbitral tribunal to determine:
whether arbitration agreement exists between the parties.
whether the matter in dispute comes within the scope of the arbitration agreement.
what is the proper interpretation of the arbitration agreement.
whether the arbitration agreement is valid or was terminated.
It is manifest and goes without saying that the arbitrator being a creature of the agreement, must operate within the four corners of the said agreement and cannot travel beyond the same. This power u/s 16 is unique in the Act. Now the Act itself provides that the arbitral tribunalcan rule on its jurisdiction. It is axiomatic that no ruling can be given only after hearing
32
boththe parties. If the challengesucceeds, the appeal lies u/s 37[2][a]. If the challenge is rejected, the same can be challenged u/s 34[2][a][v] of the Act. The language employed u/s 16 of the Act clearly shows that the said provision is only an enabling one conferring the requisite powers on the Arbitral Tribunal to decide whether there is any existence of clause in the arbitration agreement. However, mere attendance on earlier dates in the arbitral proceedings does not debar the party from raising objections only if statement of defense is yet not filed. In case of illegal contract, the parties by acquiescence cannot confer jurisdiction on court. When the question is raised about non-existence or invalidity of the arbitration agreement, the arbitral tribunal is bound to decide. Arbitration clause contained in the agreement being an integral part of the same, would automatically perish if that agreement itself were non-est. An admitted liability can
be no ground for
arbitration since it is devoid of dispute. Ordinarily the courts do not interpret an arbitration agreement by applying strict rules of construction, which are normally applied to a conveyance and other formal documents. In such cases, it is necessary to apply a common sense approach and not be allowed to be thwarted by a narrow pedantic or too legalistic view. Arbitrability is certainly an issue, which can be objected to by the party. The Chapter IV of the Act is titled as ‘Jurisdiction of the Arbitral Tribunals’. Under that chapter, Section 16 is enacted which bears the title ‘Competence of Arbitral Tribunal to rule on its own Jurisdiction.’ The Arbitral Tribunal is now empowered under the new Act to rule on its own jurisdiction, including ruling on any objections with respect to existence or validity of the Arbitration Agreements. The party can now contest that; the Arbitral Tribunal is lacking the powers necessary to adjudicate upon this reference. A procedure laid down in Section 16 of the Arbitration and Conciliation Act, 1996 cannot be bypassed, as all the parties to the reference are duly clothed with the inherent rights to object to the jurisdiction, domain, precincts, confines, portal, boundaries, realm of the Arbitral Tribunal and its authority. The Arbitration and Conciliation Act, 1996 mandates that prior to assumption of the jurisdiction, the plea u/s 16 shall be decided as it strikes at very authority. The Arbitral Tribunal cannot acquire, possess and get seized of the jurisdiction when the claim has become time barred. The contention goes to the very root of the jurisdiction of the Arbitral Tribunal, when the Arbitral Tribunal suffers from inherent want of the jurisdiction because of Time barred claim. Consequently, the jurisdiction is taken away. The party can advertthe attention of the arbitrator to the foundation or substratum or bedrock or the jurisdictional facts necessary for conferring of or vesting in the jurisdiction to this Arbitral Tribunal by making an averment that a claim has to be within the framework of the Byelaws of the NSE. This is sine qua non for giving the jurisdiction to the Arbitral Tribunal in the reference. Apropos the ratio of
33
judgments heavily relied upon by the party it should be noted that any judgments and orders of courts cannot be construed or interpreted like acts of parliament or as mathematical theorems. The concluding words alone cannot be blindly applied de hors the actual findings and directions contained in the judgments. On the other hand, the averments of the party are not sufficient to clothe the Arbitral Tribunal with the jurisdiction necessary to initiate this reference. Be that as it may, there ought to be merit in the contentions advanced by the party. It is a well-settled proposition that a proceeding is a nullity when the authority conducting it has no power to have seisinover the reference. The Arbitral Tribunal ought to be fortified by the arguments advanced and the plea raised by the party ought to be quite tenable and sustainable in the eyes of law. The Arbitral Tribunal must be persuaded to accede to the submissions and then only accordingly uphold the preliminary objection for interdiction at the very threshold. There must be a clear-cut caseto prove that the reference is totallydevoid of the jurisdiction, dominion and portal. The Limitation Act, 1963 applies to the Arbitration and Conciliation Act, 1996. The law
does not help one
who sleeps over his rights to the alleged claim. Delay defeats Justice and equity adds only promptitude and resultant consequences. Defaulting party should bear the hardship of hisown default in lodging the time barred claims and ought not transmit the hardship to the other party after the impugned claim is allowed to be time barred. U/S 16(5) of the Act, the Arbitral Tribunal shall pass an order whenever, a plea is raised u/s 16(2). Section 16 is undoubtedly an enabling Section. Under the circumstances, the Arbitral Tribunal ought to refuse to deal with the matter at all, if it comes to a conclusion that, it has no jurisdiction to deal with the matter in this reference. Thus when the alleged dispute is not Arbitrable and falls outside the purview of the Honourable Arbitral Tribunal because the claim travels beyond the time barred jurisdiction and no jurisdiction can be arrogated in such a case. Although the decision u/s 16 is not award, it is always a good practice to record reasoning u/s 31[3] so that the same can form part of final award and shall enable all parties to convince the court to translate the logic behind the same when put to challenge u/s 34.Section 16(2) in The Arbitration And Conciliation Act, 1996 A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a party shall not be precluded from raising such a pica merely because that he has appointed, or participated in the appointment of, an arbitrator. The order embodying the decision u/s 16(5) pursuant to the application u/s 16(2) is not an interim award. As was held
In the case of Uttam Singh v/s Hindustan Steel [AIR 206 MP 1982].
34
Even the Honourable HighCourt having Judicature at Bombayhad also an occasion to substantiatethis ratio in a recent case whereinthey refused to treat that as anInterim Award and hence not challengeable u/s 34 of the Act. When aparty raises a preliminary issue tobe decided in priority, the Arbitraltribunal cannot proceed with themerits withoutpassing a speakingorder u/s 16(5)r.w.s. 16(2) of theAct.
This view isheld in the case ofSouthern Gas Ltdv/s VisveswariyaIron & Steel Ltd[9 SCC 555] by theApex Court ofIndia,
which isbinding on all the authorities functioning there under. In the case ofPremier Fabricators v/s HeavyEngineering Corp. *4 SCC 319+,the Supreme Court held that, “Where the Arbitrator was requiredto decide in the first place with reasons the question of Arbitrability,but he gave a composite award consisting of a lump sum, it was heldthat the whole award was vitiatedbecause it could not be said that thequestion of Arbitrability was considered as implication.”
Thus, theimportance of preliminary issuewas clearly upheld by the Apex Court also in the case of T. N Electricity v/s BridgeTunnelConstructions [4 SCC 121]. However, it would be wrong to assume that this power given to arbitrator precludes the Chief Justice or his designate to decide a question as to the existence of arbitration clause u/s 11.
Wellington Associates vs. Kirit Mehta [2000 III AD153 SC].
In the case of Perfect Equipment Pvt. Ltd vs. Prestige Enterprises [44 SCL 74 (MUM)]
it was held that, “Even if agency agreement [containing Arbitration clause] is terminated, respondent is entitled to refer dispute to Arbitration u/s 16(1)(a)” and after agreeing to appointment of an Arbitrator, the petitioner cannotcomplain that respondent shouldhave first right to resolve disputeamicably.”
In the case of D-Ionic India Pvt. Ltd. Vs. State of Rajasthan [44 SCL 67 (Del)
it was held that, “Section 16 confers power upon arbitrator to rule on its own jurisdiction including any objection with respect to existence or validity of Arbitration Agreement.” Even though the contract may be void, the Arbitral clause has to be considered as an independent agreement and will not suffer the consequences of being void. Hence it will be open to the Arbitral Tribunal to decide the issue of voidness of the contract while considering the dispute under the arbitral clause. [G.R. Didwania vs.A.C.Choksey4 CLA-BL SUPP-SNR-7 BOM].
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In the case of Pharmaceutical Products of India Ltd. Vs Tata Finance Ltd. [41SCL 259] the
Bombay High Court held that, ‘A decision on a question whether proceedings before arbitrators should be stayed or not cannot be subject matter of a final arbitral award, not even an interim award. It would be simply a decision u/s 16.” In the case of East Coast Boat Builders [AIR 1999 DEL 44] it was held that, ‘Where the jurisdiction of an arbitrator is challenged, and the arbitrator rejects it, his decision is not appealable. It is not an interim award.” Normally the power of granting specific performance is discretionary and the discretion has been conferred by Specific Relief Act only on civil courts. Merely because the sections of the Specific Relief confer discretion on courts to grant specific performance of a contract does not mean that parties cannot agree that the discretion will be exercised by arbitral tribunal of their choice.
Olympus Superstructures pvt. Ltd. VsMeenaKhetan [2 ARB LR 695 SC].
An Arbitration clause is severable from and independent of other terms of contract. The decision of the Arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the Arbitration clause. Thus even if the contract is non-est, the arbitration clause is not rendered invalid. It is still within its competence to decide its validity.
Brawn Lab Ltd. vs. Fitt yInt’ *l GmBH (2000) 2 Arb LR 64 DEL].
Decision of the arbitratorthat the contract was null and voidor termination of main contract byperformance or otherwise, willnot render the arbitration clauseinvalid. Olympus SuperstructuresPvt. Ltd. Vs. MeenaKhetan [2ARB LR 695 SC].
In the case of S.N. Transport vs. GCM. Synthetics [1999(3) MLJ 216]
it was held that a party canalways raise the challenge toexistence or validity of theArbitration Agreement u/s 16[5]at any stage and the arbitrator isbound to decide the same.Section 16 conspicuously avoidsadverbial clause ‘unless otherwise agreed’ so that the partiescannot modify the power. Underthe enabling section 16[1], thearbitral tribunal has discretion toexercise power conferred due toword ‘May’ therein. However,section 16*5+ uses word ‘shall’,hence mandatory. U/s 16*2+, theobjection as to jurisdiction is to beraised not later than the submission of the statement of defencebut u/s 16[3], objection as toscope of authority is to be raisedas soon as a matter alleged to bebeyond the scope of its authorityis raised. U/s 16[4], the ArbitralTribunal is authorised to admitthe plea even later if it considersthat the delay was justified. U/s16[6], the aggrieved party isalready given the right to challenge the award u/s 34. The effectof conjoint reading of varioussections like 16, 34 etc. is that ifno plea is raised u/s 16, the partycannot raise it later u/s 34.But thisis a grey area where later proceedings u/s 34 is barred or not issubject to interpretations.When an application is made u/s11[6] for an
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appointment of anarbitrator, no objection can beraised that the claim fell outsidethe purview of arbitration; hencethey could not be referred toarbitration because this powerrests with the Arbitrator himself.
[Sharma & Sons vs. E-inC.Army [2 ARB LR 31 AP].
The Supreme Court observed that section 16[5] does not violate the basic structure of the Constitution as the order thereunder is certainly subject to any judicial scrutiny even if after award is passed as per the time and manner laid down by the Act passed by the Parliament. Babar Ali vs. Union of India [2 SCC 178] Thus the power of the Arbitral Tribunal to rule on its jurisdiction is unique.
Court clarifies jurisdiction of arbitral tribunal in relation to scope of contract
In Oil and Natural Gas Corporation v Wig Brothers Builders and Engineers Pvt Ltd January 18 2011the Supreme Court reaffirmed the principle that, pending adjudication before it, an arbitral tribunal cannot go beyond the scope of the contract. The court held that in the event that any arbitral award is found to violate the express provision contained in the contract which is the subject matter of the proceeding, such award will be beyond the tribunal's jurisdiction and thus merit interference. In the present case the arbitrator, while passing his award, overlooked a clause of the contract which imposed a specific bar on the award of any compensation for any act which led to a delay in the execution of the work, and awarded damages for a delay in completion of the work. The Supreme Court set aside the award to the extent that the arbitrator had proceeded in manifest disregard of the express terms of the contract. Facts The appellant entrusted a construction job to the respondent under a contract dated October 11 1983. Clause 25 of the contract provided for the settlement of disputes by arbitration. Certain disputes arose between the parties and the parties were referred to a sole arbitrator under the contract. Several claims and counterclaims were made, and the arbitrator held, among other things, that the delay in completion of the work was due to the fault of both the appellant and the respondent contractor, and that both were equally liable for the delay. Accordingly, the arbitrator awarded damages against the appellant for the loss incurred on account of the delay in completion of the contract, which was attributable to the appellant. The appellant challenged the award by filing a petition under Sections 30 and 33 of the Arbitration Act 1940. The civil court dismissed the petition and made the award rule of the
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court. On appeal, the High Court upheld the judgment of the civil court. Aggrieved by the above decision, the appellant challenged the arbitrator's award before the Supreme Court, insofar as he had awarded compensation for the delay in completion of the contract on account of the appellant's failure to perform its contractual obligations under the first claim.
The Supreme Court allowed the appeal and held that the arbitrator had exceeded his jurisdiction by awarding damages against the appellant while ignoring the express bar contained in Clause 5A of the contract. This clause specifically barred any claim for damages and provided for a time extension for the completion of work in case delay was caused by any act of the appellant in the execution of the work. While considering the matter before it, the court reiterated the following well-settled principles:
The court does not examine the award as an appellate court. It will not re-examine the material on record.
An award is not open to challenge on the grounds that the arbitrator reached a wrong conclusion or failed to appreciate some facts.
If an error is apparent on the face of the award, or there is misconduct on the part of the arbitrator or legal misconduct in conducting the proceedings or in making the award, the court will interfere with the award.
While allowing the appeal, the court referred to and relied on several judgments. It observed that in Associated Engineering Co v Government of AP( and Rajasthan State Mines and Minerals Ltd v Eastern Engineering Enterprises ,it had already been established that:
"the arbitrator is the creature of the contract between the parties and hence if he ignores the specific terms of the contract, it would be a question of jurisdictional error which could be corrected by the court and for that limited purpose, agreement is required to be considered. Therefore, the arbitrator cannot award an amount which is ruled out or prohibited by the terms of the agreement. "
The Supreme Court observed that in Ramnath International Construction (P) Ltd v Union of India it had considered a similar situation wherein the contract contained a clause which
provided a clear bar to any claim for compensation for delays, in respect of which extensions had been sought and obtained. The court held that:
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"such a clause amounts to a specific consent by the contractor to accept extension of time alone in satisfaction of claims for delay and not to claim any compensation; and that in view of such a bar contained in the contract in regard to award of damages on account of delay, if an arbitrator awards compensation, he would be exceeding his jurisdiction."
In view of the above, the appeal was allowed in part and the court concluded that the arbitrator had exceeded his jurisdiction by awarding damages and ignoring the express bar contained in the contract. The court observed that "in the event of the work being delayed for whatsoever reason, the Respondent will only be entitled to extension of time for completion of work but will not be entitled to compensation or damages."
With regard to the other claims, the award was not disturbed and the judgment of the lower courts was affirmed.
The Supreme Court has once again clarified that an arbitral tribunal cannot exercise its power ex debitojustitiae (as a matter of right). The arbitrator's jurisdiction is confined to the four corners of the agreement from which it derives authority, and only such orders may be passed as may be the subject matter of reference. The arbitral tribunal has no jurisdiction to make an award against the specific terms of the contract executed between the parties. Therefore, any award made in manifest disregard of the contract, despite being bona fide, will be deemed arbitrary.
In State of U.P. v. Allied Constructions [2003 (6) SCALE 265], this Court held:
"...Interpretation of a contract, it is trite, is a matter for arbitrator to determine Section 30 of the Arbitration Act,1940 providing for setting aside an award is restrictive in its operation. Unless one or the other condition contained in Section 30 is satisfied, an award cannot be set aside. The arbitrator is a Judge chosen by the parties and his decision is final. The Court is precluded from reappraising the evidence. Even in a case where the award contains reasons, the interference therewith would still be not available within the jurisdiction of the Court, unless, of course, the reasons are totally perverse or the judgment is based on a wrong proposition of law. As error apparent on the face of the records would not imply closer scrutiny of the merits of documents and materials on record. One it is f ound that the view of the arbitrator is a plausible one, the Court will refrain Itself f rom interfering..."
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CONCLUSION
