CHAPTER I : INTRODUCTION
Parties determine to settle their disputes finally in accordance with the provisions of the Act in case of failure to arrive at amicable settlement. Once the parties agree for resolution of dispute in accordance with the Arbitration and Conciliation Act 1996, the said Act will tae care of the entire processes and procedure. A clear intention of the parties to submit themselves the mselves before the arbitration proceedings for settlement of disputes is sufficient. Arbitration was originally frowned upon as e!pelling the purview of the court. "his scenario came to be changed by the dictum of law laid down by the #ouse of $ords in Scott V. Avery 1, in which it was held that till an award has been made, no right of action shall arise. "his
clau clause se maes maes an award award a condi conditi tion on prece precede dent nt to any right right of acti action on for for comme commenci ncing ng the the arbitration proceedings. %t was decided in that case that though it is a principle of law that parties cannot oust the &urisdiction of the Court, any person may agree that no right of action shall accrue to him till the arbitrator have decided on any difference, that may arise between the parties to the agreement. DEFINITIONS
Article '(a) of the *odel $aw defines arbitration to mean +any arbitration whether or not administered by a permanent arbitral institution. "herefore, it pertains to pure ad hoc arbitration and to any type of administered or institutional arbitration. "he definition of -Arbitration in /ection ' (1) (a) of the Arbitration and Conciliation Act 1996' is merely a clarification that the Act covers both adhoc and institutional arbitration. "his definition corresponds to the definition
1 ( 1856)25L. J.Ex.308
2 Se c t i o n2i nt heAr bi t r at i o n andCo nc i l i at i o nAc t1996De fini t i o ns . -( 1)I nt hi sPar t ,
unl e s st hec o nt e x to t he r wi s er e q ui r e s , -( a)" ar bi t r a t i o n"me ansanyar b i t r at i o nwhe t he r o rno tadmi ni s t e r e dbype r ma ma ne nta r bi t r a li ns t i t ut i o n; 1
as mentioned in clause (a) of Article ' of 0C%"2A$ *odel $aw on %nternational Commercial Arbitration.
DISPUTES THAT CAN BE SETTLED BY ARBITRATION •
3asically all disputes of Civil or 4uasi Civil nature involving Civil 2ights fall within the
•
&urisdiction of Arbitration. Arbitration. Almost all disputes 5 commercial, civil, labour and family disputes in respect of which
•
the parties are entitled to conclude a settlement 5 can be settled by A..A. procedures. isput isputes es involv involving ing &oint &oint ventures ventures,, constr construct uction ion pro&ect pro&ects, s, partne partnersh rship ip differ differenc ences, es, intellectual property rights, personal in&ury, product liabilities, professional liability, real estate securities, contract interpretation and performance, insurance claim and 3aning 7 non83aning transaction disputes fall within the &urisdiction of Arbitration. %t is e!panding to the areas or construction health care, telecommunication, entertainment and technology based industries.
CHAPTER II : KINDS OF ARBITRATION AD-HOC ARBITRAT ARBITRATION ION
hen hen a disp disput utee or diff differ eren ence ce aris arises es betwe between en the the part partie iess in cour course se of comme commerc rcia iall transaction and the same could not be settled friendly by negotiation inform to conciliation or mediat mediation ion,, in such such case case ad8hoc ad8hoc arbitr arbitrati ation on may be sought sought by the conflic conflicti ting ng partie parties. s. "his "his arbitration is agreed to get &ustice for the balanc e of the un8settled part of the dispute only. o nly. itho ithout ut resort resorting ing to an %nstit %nstituti ution, on, if the partie partiess themse themselve lvess agree agree and arrang arrangee for arbitration, it is termed as Adhoc Arbitration. %t may be domestic, international or foreign arbitration. -"he e!pression +Ad #oc, as in +Ad #oc Arbitration or +Ad #oc /ubmission is used in two :uite different senses; an agreement to refer an e!isting dispute, and
either future or e!isting disputes to arbitration without an arbitration institution being specified to supervise the proceedings, or atleast to supply the procedural rules for the arbitration. Ad #oc Arbitration means that the arbitration is not conducted pursuant to the rules of an arbitral institution. /ince, parties are not obliged to submit their arbitration to the rules of an arbitral institution= they may largely stipulate their own rules of procedure. %n other words, Ad #oc Arbitration is a do it yourself arbitration. "he geographical location of Adhoc Arbitration will be of great importance, because most of the difficulties concerning the arbitration will be resolved in accordance with the national law of the seat of arbitration. %f the parties have arranged to Ad #oc Arbitration before one or three arbitrators and that one of the parties does not participate in the proceedings at all. #ow many arbitrators will be appointed> ho will decide that> And who will appoint the arbitrator(s)> "he answer largely depends on and generally is bound by the arbitration and procedural rules of the nation which is the seat of arbitration. %f the seat of arbitration is in %ndia, for e!ample, according to "he Arbitration and Conciliation Act 1996, failing a determination by the parties of the number of arbitrators, the arbitral tribunal shall consist of one arbitrator. "hat arbitrator shall be appointed by the Chief ?ustice of the /upreme Court of %ndia or the Chief ?ustice of a #igh Court of %ndia. %f the place of arbitration is to be Cairo, according to the @ygyptian Arbitration $aw 199, failing a determination by the parties of the number of arbitrators, the number of arbitrators shall be three, and the court of appeals of Cairo shall appoint the co arbitrator of the failing party. "he two co arbitrators will then have B days to agree on the third arbitrator, if they cannot, then the court of appeals of Cairo shall appoint the third arbitrator. +Ad #oc Arbitration is, therefore, arbitration agreed to and arranged by the parties themselves, without recourse to an arbitral institution. %t is= however, open to the parties to agree to adopt the 2ules framed by a particular arbitral institution without submitting its disputes to such institution. +Ad #oc Arbitration may be domestic or international commercial arbitration. /ection 6 of the Arbitration and Conciliation Act 1996 provides that in order to facilitate the conduct of the arbitral proceedings, the parties or the arbitral tribunal, with the consent of the parties may arrange for such administrative assistance by a suitable institution or persons. 3
INSTITUTIONAL ARBITRATION
hen arbitration is conducted by an arbitral %nstitution, it is called %nstitutional Arbitration. "he parties may specify, in the arbitration agreement, to refer the dispute or differences to be determined in conformity with the rules of a particular arbitral %nstitution. One or more arbitrators are appointed in such arbitration from a pre8selected panel by the governing body of the institution or even by selection by the disputants themselves but restricted to the limited panel. "his ind of arbitration there is prior agreement between the parties that in case of future differences or disputes arising between the parties during their commercial transactions, such differences or disputes will be settled by arbitrations per clause provide in the agree ment. -%nstitutional Arbitration is arbitration conducted under the rules laid down by an established arbitral organiDation. /ection '(6) of the Arbitration and Conciliation Act 1996 provides that where Part % e!cept section 'E, leaves the parties free to determine a certain issue, that freedom shall include the right of the parties to authoriDe any person including an institution, to determine that issue. /ection '(E) of the Act e!pressly provides that where
Part % +refers to
the fact that the parties have agreed or that they may agree, or in any other way refers to an agreement of the parties, that agreement shall include any arbitration rules referred to in that agreement. /ome of the leading %ndian institutions are "he %ndian Council of Arbitration (%CA), ew elhi, Federation of %ndian Chambers of Commerce and %ndustry (F%CC%), ew elhi, %nternational Centre for Alternative ispute 2esolution (%CA2), ew elhi, 3engal Chamber of Commerce and %ndustry, %ndian Chamber of Commerce, the @ast %ndia Cotton Association $td., and the Cotton "e!tiles @!port Promotion Council. "here are a large number of such institutions in the other metropolitan cities. /ome of the leading international institutions are, %nternational Chamber of Commerce (%CC), Paris, $ondon Court of %nternational Arbitration ($C%A), $ondon, $ondon *aritime 4
Arbitration Association ($*AA), %nternational Centre for /ettlement of %nvestments isputes (%C/%), $ondon, Grain and Feed "rade Association (GAF"A), $ondon, and American Arbitration Association (AAA), ew Hor. orld %ntellectual Property OrganiDation (%PO), an agency of the 0nited ations, offering services for intellectual property disputes. 3y and large, basically the rules of these institutions follow a similar pattern, although they are e!pressly formulated for arbitrations that are to be administered by the institution concerned= the clause recommended by the %CC, for instance, states; -All disputes arising in connection with the present contract shall be finally settled under the 2ules of Conciliation and Arbitration of the %nternational Chamber of Commerce by one or more arbitrators appointed in accordance with the said 2ules. /uch a clause is evidently advantageous, because even if at some future stage, one party starts dragging its feet to proceed further with arbitration proceedings, it will nevertheless be possible to arbitrate effectively, because a set of rules e!ists to regulate the way in which the arbitral tribunal is to be appointed and the arbitration is to be administered and conducted. Parties will be well advised to verify in advance whether the arbitral institution to which they wish to refer their disputes has some e!perience in the particular commercial sector concerned. An institution with the relevant e!perience will typically have a list, or panel of potential arbitrators with e!pertise in the field, from which it may appoint one or more in a case where the parties themselves will not appoint the arbitrators. /ome arbitral institutions do not grant to the parties the liberty of designating an arbitrator or a co arbitrator. "hey may, in accordance with their rules, recogniDe parties to choose an arbitrator from a list, which the institution provides. /ome arbitral institutions may restrict the arbitrators appearing on this list to nations of their own country, or to persons, with a specialist bacground. Other arbitral institutions may not use a list system at all and give the parties complete freedom to select the arbitrator or arbitration at their choice. STATUTORY ARBITRATION
%t is mandatory arbitration which is imposed on the parties by operation of law. %n such a case the parties have no option as such but to abide by the law of land. %t is apparent that statutory arbitration differs from the above ' types of arbitration because (i)
"he consent of parties is not necessary= 5
(ii) (iii)
%t is compulsory Arbitration= %t is binding on the Parties as the law of land= For @!ample; /ection B1of the orth @astern #ill 0niversity Act, 19IB, /ection ', B1 and B' of the efence of %ndia Act, 19I1 and /ection B(c) of "he %ndian "rusts Act, 1EE' are the statutory provision, which deal with statutory arbitration. "herefore, all disputes referred to Jisputes8/ettlement8"rustJ, shall be decided through JArbitral "ribunalsJ under /tatutory Arbitration.
hen arbitration is conducted in accordance with the provisions of a special enactment, which specifically provides for arbitration in respect of disputes arising on matters covered by that enactment, it is called /tatutory Arbitration. /tatutory Arbitration is such a proceeding where the parties are referred to the arbitrator in terms of the provision made in a particular statute. "here are a number of Central and /tate Acts, which provide for such arbitrations. "he provisions of Part % of "he Arbitration and Conciliation Act 1996 in general apply to /tatutory Arbitrations, e!cept sub sec. (1) of /ec. of this Act providing that arbitration agreement shall not be discharged by the death of any party thereto= /ec. 1 of 1996 Act providing for the enforceability or otherwise of arbitration agreement to which insolvent is a party or is ad&udged insolvent afterwards and /ec. B of 1996 Act providing for the applicability of the $imitation Act to arbitrations. 3ut such of the provisions of Part %, which are inconsistent with the enactment or the rules of any particular statutory arbitration, shall not apply to that ind of /tatutory Arbitration. DOMESTIC OR INTERNATIONAL ARBITRATION
Arbitration which occurs in %ndia and have all the parties within %ndia is termed as omestic Arbitration. An Arbitration in which any party belongs to other than %ndia and the dispute is to be settled in %ndia is termed as %nternational Arbitration. Foreign Arbitration; hen arbitration proceedings are conducted in a place outside %ndia and the Award is re:uired to be enforced in %ndia, it is termed as Foreign Arbitration. %nternational Arbitration is +commercial if it relates to disputes arising out of a legal relationships, whether contractual or not, considered as commercial under the law in force in %ndia and where at least one of the parties is8 6
(1) an individual who is a national of, or habitually resident in, any country o ther than %ndia or (') a body corporate which is incorporated in any country other than %ndia, or (B) a company or an association or a body of individuals whose central management and control is e!ercised in any country other than %ndia or () the government of a foreign country. %n %nternational Commercial Arbitration the arbitral tribunal shall decide the dispute in accordance with the rules of law designated by the parties as applicable to the substance of the dispute= any designation by the parties of the law or legal system of a given country shall be construed, unless otherwise e!pressed, as directly referring to the substantive law of that country and not to its conflict of laws rulesB. FLIP-FLOP ARBITRATION
%n this arbitration, the parties prepare their own cases, and then re:uest the arbitrator to decide one of the two. On the proof adduced by the parties, the arbitrator decides upon the correctness of either submissions and passes an award finally in favour of that party. "his system has travelled from the 0/A to the 0nited Kingdom, epartment of the @nvironment, "ransport have produced a glossary of commercial property terms. Flip8flop Arbitration is defined as being +A form of arbitration under which the arbitrator bases his award on the submission he considers most reasonable. %t is claimed that this encourages parties to be more reasonable in their submissions and reduces polariDation. Flip Flop Arbitration is also called as +Pendulum Arbitration. #owever, the use of pendulum arbitration has been endorsed in employment arbitrations and encourages both employers and employees to start negotiations from a realistic starting point. "his method is adopted on the basis that the parties being businessmen, will tae a pragmatic approach and should be encouraged to be reasonable in the formulation of their cases. FAST TRACK ARBITRATION
Fast "rac Arbitration also called as documents only arbitration is time bound arbitration, with stricter rules of a procedure, which do not allow for any la!ity or scope for e!tensions of 3 Sec. 28 (b) (i) (ii) of the Arbitration and Conciliation Act
7
time and delays. Fast "rac Arbitrations are best suited in those cases, which can be resolved on the foundation of documents, and that oral hearings and witnesses are not necessary. "he reduced span of time maes it cost effective. As the arbitral process became more and more comple!, the ultimate users, i.e. "he ma&or arbitral institutions all over the world, notably the %CC court became LL more critical about the usual arbitral process and started looing for more time as well as cost effective ways for resolving the disputes by arbitration albeit getting through the surrounding foliage in order to reach to the essential issues as soon as possible by adopting an accelerated procedure. "his generated the notion of +Fast "rac Arbitration or +ocuments only arbitration. "his precisely means that in the absence of an agreement by the parties that there shall not be oral hearings, the arbitral tribunal may upon re:uest, and put forth by a party shall permit oral hearing during the appropriate phase of the proceedings. Awards in fast trac arbitrations are final and binding, are lie decrees of the court, and are most effective when immediate dispute redressal is re:uired, and there is no need to go into minute details of facts, and intricate :uestions of law. Pleadings are filed within the stipulated time frame, failing which, the arbitration does not proceed or proceeds e!parte, and arbitrators mae the arbitration does not proceed or proceeds e!parte, and arbitrators mae the award in the least possible time. %t is relevant to note that Fast "rac Arbitration, as its name suggest, is still an arbitral process seeing to resolve the dispute between the parties by arbitration and it is not an A2 techni:ue lie mediation or conciliation. "he resulting award is binding on the parties and enforceable as a decree of the court. /ec. BL of "he Arbitration and Conciliation Act 1996 /ec.B6 of "he Arbitration and Conciliation Act 1996 Further, -such arbitrations are common place in certain categories of domestic arbitrations, notably in relation to small claims cases involving, for e!ample, complaints by holiday maers against tour operators and climes under insurance policies. %n the international conte!t, the main e!amples of +documents only arbitrations are those conducted under the 2ules of the $ondon *aritime Arbitrators Association, in connection with disputes arising out of charter parties and related documents. ocuments only arbitration is not 8
oral and is based only on the claim statement and statement of defence, and a written reply by the claimant, if any. %t also includes the documents submitted by the parties with their statements along with a list of reference to the documents or other evidence submitted by them. "he written submissions may simply tae the form of a letter to the tribunal from the party or his representative, or may be a more formal document produced by lawyers. "he parties may agree upon, or, in default, the tribunal may adopt the procedure to resolve the dispute only on the basis of the documents submitted to the tribunal and without any oral hearing or cross8e!amination of the witnesses. %n a situation where the parties have agreed that +no oral hearing shall be held, the normal assumption would be that the tribunal is bound by this agreement. ocuments only arbitrations are appropriate in simple disputes, or where the parties are situated far from one another, and they consider a hearing inconvenient and unnecessary, or if the dispute revolves around a point of law, an interpretation of a document or a technical term. ocuments only arbitration is also appropriate where written arguments can be submitted and there is no need to e!amine witnesses. #owever, where the credibility of witnesses is in issue, it will not be appropriate. "he main advantages of the documents only arbitration are in cost, speed and convenience. "he Arbitration and Conciliation Act 1996, emphasiDe the autonomy of the parties by encouraging them to decide their own procedures, provides default procedures, which the parties can include, e!clude or modify, which would better, suits their re:uirements. "he Act is fast trac friendly. Parties are free to mae the arbitration time bound and rapid, without the ris of derogating from the provisions of the Act, which empower the parties to mould the arbitration according to the degree of haste re:uired. "hus, the Act has provisions that allow for fast trac arbitrations. All that remains then is the will of the parties, the conduct of the proceedings by the arbitral tribunals, and &udicial determination not to interfere. CHAPTER III : SUBJECT ATTER OF ARBITRATION
Any commercial matter including an action in tort if it arises out of or relates to a contract can be referred to arbitration. #owever, public policy would not permit matrimonial 9
matters, criminal proceedings, insolvency matters anti8competition matters or commercial court matters to be referred to arbitration. @mployment contracts also cannot be referred to arbitration but director 8 company disputes are arbitrable (as there is no master servant relationship here) . Generally, matters covered by statutory reliefs through statutory tribunals would be non8 arbitrable. ROLE OF THE COURT
One of the fundamental features of the Act is that the role of the court has been minimiDed. Accordingly, it is provided that any matter before a &udicial authority containing an arbitration agreement shall be referred to arbitration (/ection E provided the non 8 applicant ob&ects no later than submitting its statement of defense on merits). Further, no &udicial authority shall interfere, e!cept as provided for under the Act (/ection L). %n relation to arbitration proceedings, parties can approach the Court only for two purposes; (a) for any interim measure of protection or in&unction or for any appointment of receiver etcL = 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. %n such an event, in the case of domestic arbitration, the Chief ?ustice of a #igh Court may appoint an arbitrator, and in the case of international commercial arbitration, the Chief ?ustice of the /upreme Court of %ndia may carry out the appointment6. 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. %n such an event, the court may decide to terminate the mandate of the arbitrator and appoint a substitute arbitrator. JURISDICTION OF THE ARBITRATOR
4 ComedChemi cal sLt d.v .C. N.Ramc hand2008( 13)SCALE 17
5 Thi sc anbee v e n pr i ort ot hei ns t i t ut i ono far bi t r a t i o npr o c e edi ng s,pr o vi de dt hati t
i sc l e art hatt heappl i c anti nt e ndst ot a ket hedi s put et oar b i t r a t i on. 6 Se c t i o n11o ft heAc t .
10
"he Act provides that the arbitral tribunal may rule on its own &urisdiction, including any ob&ections with respect to the e!istence or validity of the arbitration agreement. "he 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. #ence, the arbitrators shall have &urisdiction even if the contract in which the arbitration agreement is contained is vitiated by fraud and
7 ( 2005)8SCC 618
11
the transaction by recording satisfaction of their mutual rights and obligations or by receiving the final payment without ob&ection. "he Court in /3P 7 Co case, inter alia, concluded as follows; (i) "he power e!ercised by the Chief ?ustice of the #igh Court or the Chief ?ustice of %ndia under /ection 11(6) of the Act is not an administrative power. %t is a &udicial power. (ii) "he power under /ection 11(6) of the Act, in its entirety, could be delegated, by the Chief ?ustice of the #igh Court only to another ?udge of that Court and by the Chief ?ustice of %ndia to another ?udge of the /upreme Court. (iii) %n case of designation of a ?udge of the #igh Court or of the /upreme Court, the power that is e!ercised by the designated ?udge would be that of the Chief ?ustice as conferred by the statute. (iv)
"he Chief ?ustice or the designated ?udge will have the right to decide the
preliminary aspects as indicated in the &udgment. "hese will be, his own &urisdiction to entertain the re:uest, the e!istence of a valid arbitration agreement, the e!istence or otherwise of a live claim, the e!istence of the condition for the e!ercise of his power and on the :ualifications of the arbitrator or arbitrators. "he Chief ?ustice or the designated ?udge would be entitled to see the opinion of an institution in the matter of nominating an arbitrator :ualified in terms of
/ection 11(E) of the Act if the need arises but the
order appointing the arbitrator could only be that of the Chief ?ustice or the designated ?udge. (v) "he istrict ?udge does not have the authority under /ection 11(6) of the Act to mae appointment of an arbitrator. (vi) "he #igh Court cannot interfere with the orders passed by the arbitrator or the Arbitral "ribunal during the course of the arbitration proceedings and the parties could approach the Court only in terms of /ection BI of the Act (appealable orders) or in terms of /ection B of the Act (setting aside or arbitral award).
12
(vii) /ince it is a &udicial order, an appeal will lie against the order passed by the Chief ?ustice of the #igh Court or by the designated ?udge of that Court only under Article 1B6 of the Constitution to the /upreme Court. (viii) o appeal shall lie against an order of the Chief ?ustice of %ndia or a ?udge of the /upreme Court designated by him while entertaining an application under /ection 11(6) of the Act. (i!)
here an Arbitral "ribunal has been constituted by the parties without having
recourse to /ection 11(6) of the Act, the Arbitral "ribunal will have the &urisdiction to decide all matters as contemplated by /ection 16 of the Act. CHALLEN!E TO ARBITRATOR
An arbitrator may be challenged only in two situations. First, if circumstances e!ists that give rise to &ustifiable grounds as to his independence or impartiality= second, if he does not possess the :ualifications agreed to by the parties. A challenge is re:uired to be made within 1L days of the petitioner becoming aware of the constitution of the arbitral tribunal or of the circumstances furnishing grounds for challenge. Further, sub&ect to the parties agreement, it is the arbitral tribunal (and not the court 8 unlie under the old Act of 19) which shall decide on the challenge. %f 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. "his is another significant departure from the *odel $aw, which envisages recourse to a court of law in the event the arbitral tribunal re&ects the challengeE. "he %ndian courts have held that -the apprehension of bias must be &udged from a healthy, reasonable and average point of view and not on mere apprehension of any whimsical person. Mague suspicions of whimsical, capricious and unreasonable people are not our standard to regulate our vision.9 CONDUCT OF ARBITRATION PROCEEDIN!S 8 Ar t i c l e13o fMo de lLa w
9 I nt e r na t i o na lAi r p or t sAut ho r i t yo fI ndi av .K. D.Ba l i& Anr ;( 1988)2SCC 360
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"he arbitrators are masters of their own procedure and sub&ect to parties agreement, may conduct the proceedings -in the manner they consider appropriate. "his power includes8 -the power to determine the admissibility, relevance, materiality and weight of any evidence1. "he only restrain on them is that they shall treat the parties with e:uality and each party shall be given a full opportunity to present his case11, which includes sufficient advance notice of any hearing or meeting1'. either the Code of Civil Procedure nor the %ndian @vidence Act applies to arbitrations1B. 0nless 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. #owever the arbitral tribunal shall hold oral hearings if a party so re:uests (unless the parties have agreed that no oral hearing shall be held)1. Arbitrators have power to proceed e!parte where the respondent, without sufficient cause, fails to communicate his statement of defence or appear for an oral hearing or produce evidence. #owever, 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. %f the claimant fails to communicate his statement of the claim, the arbitral tribunal shall be entitled to terminate the proceedings1L. TAKIN! OF EVIDENCE IN ARBITRAL PROCEEDIN!S
10 Se c t i o n19( 3)a nd( 4)
11 Sect i on18
12 Se c t i o n24( 2)
13 Sect i on19ofActandSect i on1oft heEvi denceAct .
14 Sect i on24
15 Sect i on25
14
"he %ndian Oaths Act 1969 e!tends to persons who may be authoriDed by consent of parties to receive evidence. "his Act thus, encompasses arbitral proceedings as well16. /ection E of the said Act states that every person giving evidence before any person authoriDed to administer oath -shall be bound to state the truth on such sub&ect. "hus, witnesses appearing before an arbitral tribunal can be duly sworn by the tribunal and be re:uired to state the truth on oath and upon failure to do so, commit offences punishable under the %ndian Penal Code1I. #owever, the arbitrators cannot force unwilling witnesses to appear before them and for this courts assistance is provided for vide /ection 'I of the Act. 0nder this provision the arbitral tribunal or a party with the approval of the tribunal may apply to the court seeing its assistance in taing evidence (this is also provided for in the *odel $aw). #owever, /ection 'I of the %ndian Act goes beyond the *odel $aw as it states that any person failing to attend in accordance with any order of the court or maing any other default or refusing to give evidence or guilty of any contempt of the arbitral tribunal, shall be sub&ect to lie penalties and punishment as he may incur for lie offences in suits tried before the court. Further, the court may either appoint a commissioner for taing evidence or order that the evidence be provided directly to the arbitral tribunal. "hese provisions e!tend to any documents to be produced or property to be inspected. /ection '6 provides for appointment of e!perts by the arbitral tribunal for any specific issue. %n such situation a party may be re:uired to give the e!pert any relevant information or produce any relevant document, goods or property for inspection as may be re:uired. %t will be open to a party (or to the arbitral tribunal) to re:uire the e!pert after delivery of his report, to participate in an oral hearing where the parties would have an opportunity to put :uestions to him. !OVERNIN! LA"
%n an international commercial arbitration, parties are free to designate the gove rning law for the substance of the dispute. %f the governing law is not specified, the arbitral tribunal shall apply the rules of law it considers appropriate in view of the surrounding circumstances. For 16 Rai purDev el opmentAut hor i t yv .ChokhamalCont r act or s,( 1989)2SCC 721.
17 Sec t i on191and193oft heI ndi anPenalCode.
15
domestic arbitration, however, (i.e., between %ndian parties), the tribunal is re:uired to decide the dispute in accordance with the substantive laws of %ndia. "he /upreme Court in TD I#$r%&tr'ct're (P) Lt*. v. UE Deve+o,-e#t I#*% (P) Lt*.1E held that irrespective of where the +central management and control is e!ercised by a
company, companies incorporated in %ndia, cannot choose foreign law as the governing law of their arbitration. "he nationality of companies incorporated in %ndia being %ndian, the intention of the legislature is that %ndian nationals should not be permitted to derogate from %ndian law as it would be against public policy. "he Court was of the view that Jinternational commercial arbitrationJ meant an arbitration between parties where at least one of it is a body corporate incorporated in a country other than %ndia. here both companies are incorporated in %ndia (and thereby had %ndian nationalities), then the arbitration between them cannot be said to be an international commercial arbitration (even though the central management and control of the company may be e!ercised from a country other than %ndia). FOR AND CONTENT OF A"ARDS
"he arbitrators are re:uired to set out the reasons on which their award is based, unless the parties agree that no reasons are to be given or if it arises out of agreed terms of settlement. "he tribunal may mae an interim award on matters on which it can also mae a final award. %ndian law provides for a very healthy 1EN interest rate on sums due under an award. "hus, unless the arbitral tribunal directs otherwise, the award will carry interest at 1EN per annu m from the date of the award till the date of payment. "he tribunal is free to award costs, including the cost of any institution supervising the arbitration or any other e!pense incurred in connection with the arbitration proceedings. SETTIN! ASIDE OF A"ARDS
"he grounds for setting aside an award rendered in %ndia (in a domestic or international arbitration) are provided for under /ection B of the Act. "hese are materially the same as in Article B of the *odel $aw for challenging an enforcement application. An award can be set aside if; 18 2008( 2)Ar bLR 439( SC)12
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a) a party was under some incapacity= or b) the arbitration agreement was not valid under the governing law= or c) a party was not given proper notice of the appointment of the arbitrator or on the arbitral proceedings= or d) the award deals with a dispute not contemplated by or not falling within the terms of submissions to arbitration or it contains decisions beyond the scope of the submissions= or e) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties= or f) the sub&ect matter of the dispute is not capab le of settlement by arbitration= or g) the arbitral award is in conflict with the public policy of %ndia. A challenge to an award is to be made within three months from the date of receipt of the same. "he courts may, however, condone a delay of ma!imum B days on evidence of sufficient cause. /ub&ect to any challenge to an award, the same is final and binding on the parties and enforceable as a decree of the Court. Considerable controversy has been generated as to whether an award is liable to be challenged under /ection B on merits. "he earlier view, as e!pounded by the /upreme Court in Re#' S%/%r Po0er Co. Lt*. v. !e#er%+ E+ectrc Co 1. was that an award could be set aside if it
is contrary to the public policy of %ndia or the interests of %ndia or to &ustice or morality 5 but not on the grounds that it is based on an error of law or fact. "he /upreme Court in that case was faced with the issue to determine the scope of public policy in relation to proceedings for enforcement of a foreign award under the Foreign Awards (2ecognition and @nforcement) Act, 1961. "he Court also held that in proceedings for enforcement of a foreign award the scope of en:uiry before the court in which the award is sought to be enforced would not entitle a party to the said proceedings to impeach the award on merits.
19 ( 1994)Supp( 1)SCC 644
17
#owever, in a later /upreme Court of %ndia decision in O+ %#* N%t'r%+ !%& Cor,or%to# v&. S%0 P,e& 23 the Court added an additional ground of -patent illegality, thereby
considerably widening the scope of &udicial review on the merits of the decision. %n /aw Pipes case the court accepted that the scheme of /ection B which dealt with setting aside the domestic arbitral award and /ection E which dealt with enforcement of foreign award were not identical. "he court also accepted that in foreign arbitration, the award would be sub&ect to being set aside or suspended by the competent authority under the relevant law of that country whereas in domestic arbitration the only recourse is to /ection B. "he /upreme Court observed; “But in a case where the judgment and decree is challenged before the Appellate Court or the Court exercising revisional jurisdiction, the jurisdiction of such Court would be wider. Therefore, in a case where the validity of award is challenged there is no necessity of giving a narrower meaning to the term public policy of !ndia. "n the contrary, wider meaning is re#uired to be given so that the patently illegal award passed by the arbitral tribunal could be set aside. $imilarly, if the award is patently against the statutory provisions of substantive law which is in force in !ndia or is passed without giving an opportunity of hearing to the parties as provided under $ection %& or without giving any reason in a case where parties have not agreed that no reasons are to be recorded, it would be against the statutory provisions. !n all such cases, the award is re#uired to be set aside on the ground of patent illegality.' "he court in /aw Pipes case although adopted the wider meaning to the term +public policy but limited its application to domestic awards alone. "he /aw Pipes case has generated some controversy, and it remains to be seen if it will stand the test of time. "he position of a foreign award has also undergone some recent controversy. A foreign award is enforceable under Part %% of the Act if it is rendered in a country that is a signatory to the ew Hor Convention or Geneva Convention and that territory is notified by the Central Government of %ndia. Once an award is held to be enforceable it is deemed to be a decree of the 20 ( 2003)5SCC 705
18
court and can be e!ecuted as such. 0nder the Act there is no procedure for setting aside a foreign award. A foreign award can only be enforced or refused to be enforced but it cannot be set aside. "his fundamental distinction between a foreign and a domestic award has been altered by the /upreme Court in the recent case of Ve#t're !+o4%+ E#/#eer#/ v. S%ty%- Co-,'ter Servce& Lt*. 21 (Menture Global). #ere the /upreme Court was concerned with a situation where
a foreign award rendered in $ondon under the 2ules of the $C%A was sought to be enforced by the successful party (an %ndian company) in the istrict Court, *ichigan, 0/A. "he dispute arose out of a &oint venture agreement between the parties. "he respondent alleged that the appellant had committed an -event of default under the shareholders agreement and as per the said agreement e!ercised its option to purchase the appellants shares in the &oint venture company at boo value. "he sole arbitrator appointed by the $C%A passed an award directing the appellant to transfer its shares to the respondent. "he respondent sought to enforce this award in the 0/A. "he appellant filed a civil suit in an %ndian istrict Court seeing to set aside the award. "he istrict Court, followed by the #igh Court, in appeal, dismissed the suit holding that there was no such procedure envisaged under %ndian law. #owever, the /upreme Court in appeal, following its earlier decision in the case of B5%t% I#ter#%to#%+ v. B'+6 Tr%*#/ 22 held that even though there was no provision in Part %%
of the Act providing for challenge to a foreign award, a petition to set aside the same would lie under /ection B Part % of the Act (i.e. it applied the domestic award provisions to foreign awards). "he Court held that the property in :uestion (shares in an %ndian company) are situated in %ndia and necessarily %ndian law would need to be followed to e!ecute the award. %n such a situation the award must be validated on the touchstone of public policy of %ndia and the %ndian public policy cannot be given a go by through the device of the award being enforced on foreign shores. Going further the Court held that a challenge to a foreign award in %ndia would have to meet the e!panded scope of public policy as laid down in /aw Pipes (supra) (i.e. meet a challenge on merits contending that the award is -patently illegal).
21 ( 2008)4SCC 190
22 ( 2002)4SCC 105
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"he Menture Global case is far reaching for it creates a new procedure and a new ground for challenge to a foreign award (not envisaged under the Act). "he new procedure is that a person seeing to enforce a foreign award has not only to file an application for enforcement under /ection E of the Act, it has to meet an application under /ection B of the Act seeing to set aside the award. "he new ground is that not only must the award pass the ew Hor Convention grounds incorporated in /ection E it must pass the e!panded -public policy ground created under /ection B of the Act. %n practice, the statutorily enacted procedure for enforcement of a foreign award would be rendered superfluous till the application for setting aside the same (under /ection B) is decided. "he statutorily envisaged grounds for challenge to the award would also be rendered superfluous as notwithstanding the success of the applicant on the ew Hor Convention grounds, the award would still have to meet the e!panded -public policy ground (and virtually have to meet a challenge to the award on merits). "he Menture Global case thus largely renders superfluous the statutorily envisaged mechanism for enforcement of foreign awards and substitutes it with a &udge made law. "he ?udgement thus is erroneous. *oreover, in so far as the ?udgment permits a challenge to a foreign award on the e!panded interpretation of public policy it is per incuriam as a larger, three 3ench decision in the case of 2enu /agar (supra) holds to the contrary. Further /aw Pipes (on which Menture Global relies for this proposition) had clearly confined its e!panded interpretation of public policy to domestic awards alone (lest it fall foul of the 2enu /agar case which had interpreted the e!pression narrowly). "he /upreme Court in Menture Global did not notice this self8created limitation in /aw Pipes nor did it notice the narrower interpretation of public policy in 2enu /agar and therefore application of the e!panded interpretation of public policy to foreign awards is clearly per incuriam.
CONCLUSION :
"hus to conclude, the different inds of arbitration and the proceedings of arbitration has been discussed in detail in the light of decided case laws. %ndia has in place a modern, an efficient Arbitration Act. %t has put in place a progressive piece of legislation which is essentially 20
based on the *odel $aw and the 0C%"2A$ Arbitration 2ules. Any departure therefrom is essentially aimed at eeping court intervention at bay. BIBLIO!RAPHY : BOOKS REFERRED : 1. 7LA" OF ARBITRATION 8 CONCILIATION9 by Avtar /ingh, "enth @dition 2. ARBITRATION AND CONCILIATION ACT1; by r./.C."ripathi, Fifth @dition <. ARBITRATION CONCILIATION AND ALTERNATIVE DIPUTE RESOLUTION SYSTES by r./.2.myneni,
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