chapter-viii judicial response -...
TRANSCRIPT
249
CHAPTER-VIII
JUDICIAL RESPONSE
In terms of Article l4l of the Constitution, the Supreme Court is
enjoined to declare law. The term „declined‟ is wider than the term “found”
or “made”. To declare means to announce opinion. Indeed the term “made”
involves a process, while the term “declare” expresses result. The law
declared by the Supreme Court is the law of the land. It is a precedent for
itself and for all Courts/Tribunals and Authorities in India1. To deny this
power of the Supreme Court on the footing that it only “finds” law but does
not “make” it, is to make ineffective the powerful instrument of justice
placed in the hands of the highest judiciary.
While the position of the Supreme Court is subordinate to the
legislature, it must be recognized that in the Supreme Court‟s effort to
achieve its purpose of „declaring‟ the law, creativity is involved. A statute is
binding; but is the statutes, as interpreted by the Supreme Court that is
binding on all other courts. The Supreme Court is not mere interpreter of the
existing law. As wing of the State, it is a source of the law. Therefore,
mere legislature provisions cannot fill the gap of huge lacunas of the
existing laws. Therefore, the Supreme Court and the High Court‟s of this
country and earlier the House of Lords, the Privy Council‟ as well as, the
existing High Court before 26th
January l950, have contributed a lot in the
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1. Rupa Ashok Hurra vs. Ashok Hurra (2002) 4 SCC 388 .
250
development of law in various fields. The same is exactly applicable with
reference to arbitration law and practices in India.
The Supreme Court and High Courts have played a great role in the
development of Arbitration Law not only in India but also world over. The
Arbitration and Conciliation Act, l996 is the product of the laws laid down
in different cases as well as UNCITRAL Model Law and arbitration law
world over.
The Supreme Court observed in Narain Khamman Vs. Pradhuman
Kumar2 that it is now well settled that though the statement of objects and
reasons accompanying a legislative bill cannot be used to determine the true
measuring and effect of the substantive provisions of statute. It is
permissible to refer to the statement of objects and reasons accompanying a
bill, for the purpose of understanding the back ground, the antecedent state
of affairs, the surrounding circumstances in relation to the statute and the
evil which the statute sought to remedy.
In Fuerst Day Lawson Ltd. Vs Jindle Exports Ltd3 , the Supreme
Court observed that the object of the Act is to provide speedy and
alternative solutions to the dispute and avoid protraction of litigation. The
provisions of the Act to be interpreted accordingly.
In Ashok Tradrs Vs Gurumukh Das Saluja4, the Supreme Court has
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2. AIR l985 S C 4
3. AIR 2001 SC 2291
4. (2004)(3) SCC l55
251
observed that the Arbitration and Conciliation Act, l996 is a long leave in
the direction of an alternative dispute resolution system. It is based on the
UNCITRAL model. The cases decided under the proceeding Act have to be
applied with caution for determining the issues arising for decision under
the new Act.
The Act of l996 is very much different for the preceding Act of l940.
The provision of the new Act are to be construed uninfluenced by the
principles underlying the l940 Act. In order to get help in construing these
provisions, it is more relevant to refer to UNCITRAL Model Law rather
than the l940 Act. Applications to the courts for appointment for an
arbitrator is not contemplated by the new Act5.
The term “Arbitration”, was defined by Ronrilly MR in Colliens Vs
Colliens6 .
“An Arbitration is a referece to the decision of one or more persons,
either with or without an umpire7, of a particular matter in difference
between parties.”
On the fact of that case the parties to assail wanted the price to be
determined by a third party. Ronrilly Mr hold that this was not an
“Arbitration”.
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5. Sundaram Finance Limited Vs NEPL India Limited AIR l999 SC 565
6. 28 LJ CH l86
7. Shreejee Traco (I) Pvt Ltd. Vs Paper Line International INC (2003)9 SCC 79
252
The position of a valuer is different from that of an arbitrator in this
respect that a valuer would be liable if a party suffers loss on account of his
negligent judgment, but an Arbitrator enjoys the status and immunity of a
Judge.
In many cases experts like engineers, accountants and architects are
appointed arbitrators. In such cases the experts have to act in a judicial
manner and the fact that he has also to make some valuations or assessment
in the process will not reduce his status as an arbitrator. He will enjoy
immunity unless he acted fraudulently8.
“Arbitration requires a dispute, an agreement to refer future disputes
to arbitration is only an agreement, and not a arbitration. Even where a
dispute has arisen and the parties agree to have it decided by a third person,
that may not be an arbitration unless that person is to act judicially”.
Where there is no dispute there cannot be an arbitration or reference.
Where a sint was based upon a contract containing an arbitration Act it was
held that before making a reference, the court has to determine whether
prima facie a dispute existed between the parties or whether the dispute was
of a frivolous nature9.
The existence of an arbitral dispute is a condition precedent for
exercise of the power by the arbitrator10
. The agreement to refer disputes
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8. Bargees Vs Purchase & Sons (Farms) Ltd. (l983) 2 WLR 36
9. Delhi Printing & Publishing Co. Pvt. Ltd. Vs Munia Pal Corpn. of Delhi AIR l993 Del. 320
10. Union Of India Vs Popular Builders Calcutta (2000)8 SCC 1
253
and differences to arbitration must be expressly or impliedly spelt out from
the clause. The Supreme Court held in State of Orissa Vs Damodar Das11
that the cause did not have the effect of being an arbitration clause. The
court said that the clause did not contain an agreement nor it envisaged any
difference or dispute that might arise or had arisen in the execution of the
words for reference to arbitration12
, where one party raised a dispute and it
was desired by the other. It was held that it had to be treated as a dispute.
The objection raised could be exclusively within the jurisdiction of the
Arbitral Tribunal13
.
It is not permissible for complainant to raise new disputes in relation
to damages claimed to have been sustained by him after the disputes have
been referred to Arbitration. The scope of arbitration has to be confined to
the disputes which were the subject matter of the arbitration before the first
Arbitratorl4.
Whatever be the type of dispute, the matter in dispute must be of
Civil nature. Maters of criminal nature cannot be referred to arbitration. In
most cases, references to arbitration shuts out the jurisdiction of the courts,
except as provided in the Act and since criminal courts cannot be deprived
of their jurisdiction to try criminal, no criminal matter can be referred to
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11. AIR l996 SC 942
12. The Applied the principles laid down in State of UP Vs Tipper Chand(1980)2 SCC 341 and overrules
Ram Lal Jaggannnath Vs Anurag State AIR l966 Punj. 436
13. Ranjul Baruah Vs Humaligarh Reginary Ltd. (2002)1 SCC 2ll Gan
14. Santokh Singh Arora Vs Union of India AIR l992 SC l809
254
arbitration. If it is an implied term of the arbitration agreement or of the
reference to arbitration that a complaint for non compoundable offence will
not be further proceeded with, the arbitration agreement is illegal and an
award, if any is invalid and it is immaterial whether a prosecution has been
actually started or not l5. A criminal complaint cannot be referred
l6.
Any matter of civil nature can be referred to Arbitration. Disputes
relating to property, ownership or tenancy, claims for damages howsoever
arising, partnership matters, disputes between institutions, like a company,
and its members, can all be referred to Arbitration. But some matters
involving a special type of jurisdiction cannot be so referred e.g. matters
under the Electricity Supply Act, l948, which contains its own statutory
provision which are not arbitral except as provided.
The Supreme Court in Punjab SEB Vs Guru Nanak Cold Storage &
Ice Factory Manufacturers l7
that the matters relating to Electricity Supply is
not arbitral because of the special provisions of the Electricity Supply Act.
The Arbitrator can decide matters connected with the contract. The
matters of the winding up of a company cannot be referred to arbitrationl8
The Court explained the position as follows:-
“Section 8(1) of the Arbitration and Conciliation Act, l996 provides
that the judicial authority before whom the action is brought in matter will
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15. Kamini Kumar Basu Vs Birendra Nath Bose AIR l930 PC l00
16. Malka Vs Sardar AIR l929 Lah 394
17. AIR l996 SC 2684
18. Haryana Telecom Ltd. Vs Sterlite Industries (India) Ltd. AIR l999 SC 2354.
255
refer the parties to arbitration, the said matter in accordance with the
arbitration matters. This, however, postulates that what can be referred to
the arbitrator is only that dispute or matter which the arbitrator is competent
or empowered to decide. The claim in the petition for winding up is not for
money the petition filed under the Companies Act would be to the effect, in
matter like this, that the company has become commercially insolvent and
therefore should be wound up. The power to order winding up of a
company is contained in the Companies Act and is conferred on the Court.
An arbitrator, not withstanding any agreement between the parties would
have no jurisdiction to order winding up of a company”.
One of the principle advantages of arbitration over litigation is
commonly stated to be that, where the dispute concerns technical matter
such as a building contract, the person chosen to arbitrate will normally be
an expert in the subject matter in the dispute, whereas a judge will seldom
have any practical experience of the technicalities of trade in question.
This brings about a difference between judicial and arbitrator‟s power
emphasizing this fact, the court of appeal observedl9
–
“The court does not have the power which the arbitrator had to open
up and review the exercise of the architects‟ discretion since the courts
jurisdiction was limited in determining and enforcing the contractual right
of the parties”.
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19. Northern health authority v Derek cronch Ltd (1984) 2 act ER 175 CA
256
The second important feature of an arbitration is the agreement
between the parties to the dispute to refer the matter to arbitration.
ARBITRATION AGREEMENT
The reference should be by means of a written agreement; Section
7(3) prescribes that ”an arbitration agreement shall be in writing,” An oral
agreement to submit a dispnte to arbitration is not binding. If the agreement
is in writing it will bind, even if some details are filed in by oral
understanding.20
It is not necessary that agreement should be signed by both
or either party. It is sufficient that the written agreement has been orally
accepted by the parties or that one has signed and the other has accepted.21
The Supreme Court emphasized that the only thing required is writing and
not signature of the parties. It seems that the position in this respect under
the new Act would remain the same, whatever the form or contents of the
agreement, it is necessary for the Act to apply that there should be a
mandatory requirement for settlement of disputer by means of arbitration.
An agreement that parties may go in for suit or may also go in for arbitration
is not an arbitration agreement. 22
In Rukmani Gupta v/s Collector, Jabalpur23
. The Supreme Court laid
down that an arbitration clause is not required to be stated in any particular
form.
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20. Banarasi das v cane commissioner, DIR 1963 SC 1417
21. Union of India v Rallia Ram DIR 1963 SC 1685
22. Wellington Associates Ltd V Kriti Mehta AIR 2000 SC 1379 .
23. AIR 1981 SC 479
257
If the intention of the parties to refer the dispute to arbitration can be clearly
ascertained from the terms of the agreement, it is immaterial whether or not
the expression “arbitration” or “arbitrator” has been used. Nor it is
necessary that it should be contained in the some contract document24
. An
arbitration clause may be incorporated into an existing contract by specific
references to it. An arbitration clause may be incorporated into an existing
contract by specific references to it25
. Where the party showed that
arbitration clause in the signed agreement crept in by mistake, it was held
that the civil court was in error in acting upon a clause which the parties did
not intend to be their and appointing an arbitrator on that basis26
.
An agreement by telex has been held to be an agreement in writing27
.
A letter was sent by one party to the other suggesting settlement of disputes,
if any through arbitration. The other parties accepted the some. This
exchange of letters was held to have constituted an arbitration agreement28
.
COMPOSITION OF ARBITRAL TRIBUNAL
The Arbitral Tribunal is the creature of an agreement. The arbitral
tribunal must also act and make its award in accordance with the general
law of the land and the agreement29
. Where the parties do not determine the
number, a presumption of law arises that the arbitral tribunal shall consist of
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24. JK Jain V DDA (1995) 6SCC 571
25. UP Rajkiya Nirman Nigam Ltd. V Indure (P) Ltd. AIR 1996 SC 2375
26. M Dayanand Reddy V AP Industrial Infrastructure Corp Ltd AIR 1993 SC 2268
27. Arab – African Energy Corp. Ltd V Olieprodukten (1983) 2 Lloyd's rep 419
28. Ganga pollution contral unit, Up jal Nigam, naini v civil judge, Allahabad AIR 2001 All 149
29. Irrigation Deptt, govt of Orissa v G.c Roy AIR 1992 SC 732
258
a sole arbitrator. An agreement is not to be invalidated simply because it
provides for appointment of an even member of arbitrator30
. This further
supported by Supreme Court ruling31
. The court said - “undoubtedly, section
10 of the Arbitration and Conciliation Act 1996 provides that the members
of arbitrators shall not be an even member, however the provisions of the
securities contract (Regulation) Act, 1956 as to matters of arbitration under
the act would prevail over section 10 of the 1996 Act Accordingly, an award
of an arbitral tribunal consisting of even members of arbitrators was held to
be valid32
.
Where the arbitration clause provided that the two arbitrators
nominated by the parties shall appoint a third arbitrator would act as the
chairman. The case had arisen under the repeated Arbitration Act of 1940.
The court said that the third appointed Arbitration would sit as a member of
the arbitral Tribunal along with the other two arbitrators. He Court not be
deemed to be an Umpire. One of the nominated arbitrators having died, the
court held that the party could nominate a new arbitrator, no fresh right
accrued to appoint a new chairman33
.
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30. MMTC Ltd v/s starlite industries India Ltd(1996) 6 SCC 716
31. Narayan Prasad Yadav v/s Nikunj Kumar Lohia AIR 2002 SC 1139
32. Stock Exchange, Mumbai v/s Vinay Babna AIR 999 bin 266
33. Ethiopian Airlines V Stic travels private Ltd AiR 2001, SC 2659
259
APPOINTMENT OF ARBITRATORS
Where the procedure for appointment has been agreed upon between
the parties , the court's function is only to implement the agreed procedure .
The court cannot appoint an independent arbitrator at the first instance34
.
Similar has been the decision of the MP high court35
. The AP High Court in
Deepak Galvanizing & Engineering Industries (P) Ltd v/s Govt of India36
.
The Delhi High Court in the Continental Construction Ltd v/s NHPC Ltd37
,
and the Bombay High Court in R.P. Sonza and co. v/s Chief Engineer ,
PWD38
, took a contrary view. There it was held that the court has to appoint
an independent arbitration when the opposite party has failed to appoint the
named arbitrator. The AP High Court did not agree with this approach. The
court citied the following passage from the judgment Supreme Court in
Konkan Rly Corpn Ltd v Mehul Contraction co.39
“White subsection (4) and
(5) deal with removal of obstacles arising in the absence of agreement
between the parties on a procedure for appointing the arbitrators and sub-
section (6) seeks to remove obstacles arising when there is an agreed
appointment procedure. These obstacles are identified in clause (a), (b) and
(c) of subsection (6), provides a cure to these problems by permitting the
agreed party to request the Chief Justice to take the necessary measure, i.e.
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34. Bell House Assn (p) Ltd V/s G.M. Souther Rly, Madras AIR 2001 KER 163
35. Subhash Project and Marketing Ltd v/s South Eastern Coalfields Ltd , AIR 1998 M.P. 276
36. 1997 Arb LR 635
37. (1998) 1 Arb LR 534
38. (1999) 3 Arb LR 495
39. AIR 2000 SC 2821
260
to make appointment. Sub section (6) there fore, aims at removing any dead
lock or undue delay in the appointment process.
Where the agreement required a panel of arbitrators to be constituted
by the parties but one of them refused to co-operate in this process. It was
held that their agreement ceased to exist so for as the panel aspect was
concerned. The Chief Justice Court on a party's request, appoint a sole
arbitrator40
.
Where the opposite party remained silent as to the request for
reference to the agreed arbitrator and arbitrator also did not work and an
application was then made to the Chief Justice, an award given by the
arbitrator after such application was held to be without jurisdiction and won-
est in the eyes of law41
.
Any person may be appointed as an arbitration, even if he is
personally acquainted with the subject matter of the reference or has an
interest, and if this fact in known to both parties, it is no objection to his
appointment42
. Where the parties voluntarily agreed through tender
document for appointment of arbitrator to be named by a designated
authority, a subsequent plea by the party that the arbitrator so appointed was
under the influence of the appointing authority was held to be not tenable43
.
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40. K. Venkatswaran v/s state of A.P. (2003) 4 Andh LT 724
41. Universal construction and trading co. Ltd v/s Garhwal Mandal Vikas Nigam Ltd AIR 2004 All 115
42. Amar Chand Lalit Kumar v Shree Ambika Jute Mills Ltd AIR 1966 SC 1036
43. Maheshwari Engineers & Associates v/s Union of India AIR 2000 A P 57 .
261
(ii) APPOINTMENT OF AGREED ARBITRATORS
The parties may appoint an agreed arbitrator44
, or each party may
appoint his own arbitrator or they may designate a person either by his name
or as the holder of an office who shall appoint the arbitrators.
Parities are free to agree on a procedure for appointment of sole
arbitration. Either of the parties can be vested with the power to appoint an
arbitrator. The power of the Chief Justice arises only when the parties fail to
work as required by the agreement. The clause in the agreement was to the
effect that the contractor was authorized to appoint one of the person from
the panel provided to him on the failure of the appointing authority was to
do so. The agreement did not require that the sole arbitrator to be appointed
by the contractor was to be approved by the appointing authority. Therefore
the appointment was beyond challenge45
.
(iii) APPOINTMENT OF NAMED ARBITRATOR
Where the agreement itself specifies the arbitrator it is obligatory upon
the court, should it decide to refer the matter, to refer it only to the
arbitration clause and appoint another person as an arbitrator46
. Where the
named arbitrator refuses or fails to act or where the agreement does not
name, any arbitrator and the parties also do not agree upon an arbitrator,
there only the court gets the power to appoint an arbitrator.
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44. Govt of AP v/s K Mastan Rao, 1995 supp (4) SCC 528 AIR 1994 Sc 490
45. Ranjul Baruah v/s Numaligarh Refinery Ltd (2002) 1 CCC 211 (Gau)
46. Ranjul Baruah v Numaligarh Refinery Ltd (2002) 1 CCC 211 (Gauh)
262
In the case before the Supreme Court the agreement specified and named
the arbitrator. Hence there was no occasion or warrant before the court to
call upon the parties to submit a panel of names. The Court was bound to
refer the dispute only to the arbitrator named and specified in the
agreement47
.
(iv) DIRECTION TO NAMED ARBITRATOR
Where the agreement was to get the dispute settled by referring to the
executing director of the corporation, but he gave no response to the
invocation of his jurisdiction and the aggrieved party approached the Chief
Justice for an appointment, it was held the no compelling circumstance
existed to justify an appointment outside the terms of the agreement. No
case bias was made out against the executive director. The court directed the
executive director to enter upon the references. The petitioner was allowed
to raise before the arbitrator the matter of his expenses48
.
Where a party or parties fail to act according to the agreed procedure
or the two appointed arbitrator fails to agree over their presiding arbitrator
or the person institutions designated by the parties fails to act, a request can
be made to the Chief Justice or any person or institutions designated by him
to take the necessary measure49
.
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47. Punjab Agriculture University v/s Association Construction (2003) 3 Raj 431 (P&H) 48. D.K. Gupta & co. v/s Indian Oil corpn Ltd AIR 2003 Ori 32.
49. According to the rules framed by the Chief Justice, if the person or institutions designated by the
Chief Justice is not acting, an approach can be made to the Chief Justice again.
263
But this will be subject to any other procedure for securing the appointment
as may be agreed upon by the parties in the eventualities contemplated
above50
.
(v) APPOINTMENT WHERE ARBITRATOR NOT NAMED
Differences between the parties arose in the performance of a sale and
purchase transaction. There was an arbitration clause in the contract, but the
name of the arbitrator was not mentioned. It was held that a sole arbitrator
could be appointed under section 11(5)51
.
(vi) APPOINTMENT BY CHIEF JUSTICE [SECTION 11(6)]
The expression Chief Justice in this connection virtually means the
court because in most cases the Chief Justices have authorized civil judges .
The reason for the provision is to ensure that the appointment is made by a
person occupying a high judicial office, who would naturally act with due
care and caution to make certain that a competent, independent and
impartial arbitrator is appointed52
.
In the three cases mentioned in the section the Chief Justice gets the
power to appoint an arbitrator. They are:
(1) where the parties fail to appoint or concur in the appointment of an
arbitrator or arbitrators53
;
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50. Union of India v/s Prahlad Moharana, (1996) Supp Arb LR 267 .
51. G. premier trading (p) Ltd v Ashoka alloys Ltd, AIR 1999 Del 83 52. Konkan Rly Corpn v Rani Construction P Ltd,(2002) 2 Scc 388;
53. B.S. Jaireth v S.P. Sinha, AIR 1994 Cal 68 explosives Consultation & Application Private Ltd IDL
Industries Ltd AIR 2001 AP 256 .
264
(2) where the two appointed arbitrators fails to appoint or concur in the
appointment of the presiding arbitrators54
;
(3) where the person or institutions designated by the parties for
appointing fails to act55
.
(vii) THIRTY-DAYS NOTICE
Before asking the Chief Justice to act in the matter, a thirty days clear
notice should be given to the other party concur in the appointment and if he
fails to do so then an application can be made to the court. The court will
also give an opportunity to the other party to explain his position. The chief
Justice must have due regard to the qualifications of the arbitrator required
by the parties under their agreement and also independence and impartiality
of the person in question56
.
An application for appointment of arbitrator made before giving any
notice to the other party or raising a demand against him was held to be
incompetent57
.
Where the Arbitral Tribunal happened to be constituted without
complying with the requirement of 30 days' notice and the parties agreed to
terminate his mandate before he had passed any award or rejected the claim,
the High Court directed that the application be placed before the Chief
Justice for naming an arbitrator in place of the outgoing arbitrator58
. ============================================================================
54. MMTC v Starline Industries India Ltd, (1996) 6 SCC 716.
55. Union of India v D Khosla & co. AIR 2001 J&K 48.
56. Pan Atlantic Groups Inc v Hassneh Ins. Co of Israel, (1992) 2 Lloyd's Rep 120, CA
57. Jamadar Singh v/s Engineer- in – Charge , AIR 200 patna 200:
58. Magma leasing Ltd V Tonganagao Tea Co. Private Ltd, AIR 2004 NOC 181 (cal)
265
The High Court of Delhi has held that running out of thirty days does
not deprive the defaulting party of his right to make the appointment. The
right continues even after the expiry of 30 days. It ceases only when an
application is made under section 11 (16) for appointment by the Chief
Justice59
.
The court followed the Supreme Court decision in Datar Switchgears
Ltd v Tata Finance Ltd60
.
(viii) Meeting of Arbitrators For Appointing Third Arbitrator
It is not necessary that the two arbitrators should hold a meeting for
taking a decision in the presence of each other after making joint
deliberations. They can achieve effective consultation also by using the
electronic media. The requirement of law is that there should be an
appointment of arbitrator61
.
The Court also laid down that such appointment is not a judicial act
and cited the example and authorities to the effect that an appointment by
the Chief Justice is not a Judicial act and that much less it would be judicial
when the appointment is by the two appointed arbitrators. The points laid
down by the Supreme Court have been thus summarized.
The requirement of law is satisfied if appointment is (i) actually
made; (ii) is made on the basis of prior consultation between the two
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59. Nucon India (p) Ltd v Delhi Vidyut Board, AIR 2001 Del 227
60. (2000) 8 SCC 151: AIR 2000 SCW 3925.
61. Grid Corpn of Orissa Ltd v AES Corporation, AIR 2002 SC 3435
266
original arbitrator; and (iii) information as to appointment is communicated
by both or either to the parties62
.
Chief Justice is not Court for This Purpose
The Bombay High Court held in case before it63
; “The Supreme Court
by its Judgment in Ador Samia (p) Ltd v Peekay Holdings Ltd64
has
categorically held that the powers of the Chief Justice under Section 11 are
administrative powers and therefore the Chief Justice, while exercising
power under section 11 does not act as a court.”
The application for appointment of an arbitrator does not create an
exclusive jurisdiction in the court of the Chief Justice or that of his
nominee65
.
The Chief Justice has to see that an appointment is made without
touching the controversies in the case. Once it was clear that there was an
arbitration clause in existence, the Chief Justice or his designate
(ix) No Time limit for seeking appointment Through chief Justice
In a case before the High court of Delhi67
on this point, the court cited
the decision of the Supreme Court in Datar Swithgears Ltd v Tata Finance
Ltd68
. The court said:, ”So far as cases under Section 11 (6) are concerned
no time-limit has been prescribed under the Act, Whereas a period of 30
days has been prescribed under Section 11 (4) and (5)”. ============================================================================
62. European grain and Shipping Ltd v Johnston, (1982) 3 AIR ER 989
63. Garden finance Ltd v Prakash Inds Ltd, AIR 2002 Bom 8 at p 11.
64. AIR 1999 SC 3246
65. Garden Finance Ltd v Prakash Inds Ltd AIR 2001 Bom 8. would have no option but to perform the
statutory function of making an appointment as quickly as possible66
.
267
(x) Parties' Failure to Concur or Agree
In Tritonia Shipping inc v South Nelson Forest Products
Corporation69
.
A charter party provided for ”arbitration to be settled in England. “A
dispute arose between the ship owners and the charterers. The Ship owners
requested the charters to concur in the appointment of an arbitrator but he
refused to cooperate. It was held that the court could appoint an arbitrator to
settle the dispute. Clause (a) of section 11 (4) applies where the arbitrator is
not named in the agreement. If he is not son named, appointment can be
with the concurrence of all the parties. If some other made of appointment is
specified in the agreement eg. Where the parties agree that the arbitrator has
to be appointed by a person designated in the agreement either by name or
office, Section 11 will not apply but sub-section (4)(a) would apply even
where only one party has been given the power to appoint without the
concurrence of the other70
.
The court had Jurisdiction under section 27 of the repealed arbitration
Act, 1950 (English) and under section 28 of the repealed 1940 Act (Indian)
[both Acts have been repealed by 1996 respective Acts] an unfettered
discretion to grant an extension of time for the appointment of an arbitrator,
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66. K venkateswarlu v state of AP ., (2003) 3 RAJ 214 (ap)
67. Nucon India (private) Ltd v Delhi Vidyut board AIR
68. AIR 2000 SCW 3925
69. (1966) 1 Lloyds Rep 114
70. Harbans Singh Tuli Builders Private Ltd v Union Of India, (1992)2 SCC 225.
268
but it would inevitably require payment of costs to the other party unless the
latter was unfairly opposing the application71
.
(xi) Existence of valid agreement
Since the appointment has to be in accordance with the parties‟
agreement, the Supreme Court has laid down that the appointing authority
would have the power to examine whether a valid arbitration agreement
exists. In this case the clause provided that disputes may be referred to
arbitration. This was held to be not sufficient to constitute an arbitration
agreement. Therefore, the appointment of an arbitrator could not be
demanded on the basis of such an agreement72
. The court said that even if
the Chief Justice or his designate is to be treated as an administrative
authority, where in the course of a petition under Section 11 the existence of
an arbitration agreement is questioned, the Chief Justice or his designate
must decide the questions. In a subsequent decision, Nimet Resources Inc v
Essar Steels Ltd73
, the Supreme Court has tightened the position to this
extent unless the Chief Justice is absolutely sure that there exists no
agreement, an order of appointment should not be refused. The rest of the
matter can be decided by the arbitrator under section 16.
In a case before the Allahabad High Court the acceptance of the
tender for converting meter gauge into broad guage was subject to the
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71. UN/ FAO World Food Programme v Filla Enterprise S.A (1981) com LR 81.
72. Wellingtion Associates, Ltd v Kirit Mehta, (2000) 4 SCC 272
73. AIR 2000 SC 3107
269
submission of bank and performance guarantees equivalent to 5% of the
construction cost within 15 days of the issuance of the letter of acceptance.
The contractor never furnished the guarantees. No concluded contract could
arise in the circumstances. The arbitration clause was not allowed to be
invoked74
.
In the absence of any specified time-limit for the appointment of an
arbitrator in the arbitration clause, an appointment cannot be challenged on
the ground of any delay75
.
(xii) Death of Arbitrator or Refusal to act
In the case of vacancy caused by death, termination of mandate, the
appointment procedure has to be started again. The effect of the provisions
in the Arbitration and Conciliation Act, 1996 is such that a new arbitrator
can be appointed by the same procedure by which the original appointment
was made76
. It is only on the failure of such procedure that an approach can
be made to the Chief Justice77
.
If an arbitrator resigns or informs the parties of his inability to act, it
would be express refusal. Even the court cannot force him to arbitrate78
.
Refusal to act may as well be inferred.
============================================================================
74. Ganesh Shanker Pandey & Co v Union of India, AIR 2004 All 26
75. Avtar Singh Chadha v M.C. of Delhi (1998) 1 Arb LR 397 Delhi
76. Satya v Vidharbha Distilleries, (1998) 30 Corpt LA 42 Bom
77. Haryana State Cooperative Supply & Marketing Federation v National Trading Co, (2003) 4 RAJ 51
(P&)
78. Shibcharan v Raliram, ILR (1885) 7 All 20;
270
Circumstance may indicate that the failure to discharge duties of an
arbitrator amounts to refusal to act. It was held in Priyabrata Bose v Phani
Bhusan Ghose79
that an arbitrator‟s refusal to proceed unless his fee was
paid was a refusal to act. Inaction or inordinate delay may create an
inference of refusal80. Once the court is satisfied that the arbitrator has
refused to discharge his obligations, the court can act in the matter.
(xiii) Merits of case not to be examined in exercising power of
appointment
In Fertiliser Corpn of India v Ravi Kumar Ohri81
the Orissa High
Court held that the court does not make reference of any dispute. Its powers
are limited only to the appointment of an arbitrator. After the appointment is
made, it is for the parties to file their claim before the arbitrator who is to
decide the same on merits. The High Court of Delhi has been of the same
view82
. Whether the notice for the appointment of an arbitrator given to the
other party was within or out of time is a question which falls within the
province of the arbitrator to whom the dispute is to be referred and he can
decide that questions. The Court is only to see whether there is a dispute
and, if so, it is to be referred as per the agreement of the parties.
In a case before the Supreme Court83
it was found that the existence
of the arbitration agreement was not clear and the correspondence between ============================================================================
79. AIR 1937 Cal 523
80. Manohar Singh Sahay & Co v Jogendra Singh Kalra, AIR 1984 Pat 3
81. AIR 1979 Ori 19
82. Ved Prakash Mithal v Union of India AIR 1984 Del 325 FB;
83. Nimet Resources Inc v Essar Steels Ltd, (2000) 7 SCC 497;
271
the parties also did not show a clear existence of the agreement. Even in
such a case it was held that it was better for an arbitrator to go into these
questions under Section 16. The Chief Justice may not be able to decide the
questions in the exercise of the administrative power under the section.
A preliminary issue was raised before the Chief Justice as to
habitability. The Chief Justice appointed an arbitrator keeping the
preliminary issued open and permitting the parties to raise it before the
arbitrator. This was held to be neither unjust nor unreasonable and also
consistent with the provisions of Sections 16 and 3484
.
An order under Section 11(6) holding the dispute to be not arbitrable
under ICA Rules on account of conflict between Rule 22(a) and the
arbitration clause in the agreement was held to be adjudicatory and
appealable under Article 136 and Rules of Arbitration of the Indian Council
of Arbitration85
.
(xiv) Amalgamation of company
Where a company, which was a party to the arbitration agreement,
was merged into another company with all its rights, liabilities and assets,
the implement of the merged company was held to be necessary in the
invocation of the arbitration clause86
.
============================================================================
84. New India Assurance Co Ltd v Hanjer Fibers Ltd, AIR 2003 Guj 311 (FB). The court followed the
Constitution Bench decision in Konkan Rly Corpn Ltd v Rani Construction (P) Ltd. AIR 2002 SC 778
85. Food Corpn of India v Indian Council of Arbitration, (2003) 6 SCC 564
86. Larson and Toubro Ltd v DLF Industries Ltd, [2003] RAJ 148 (Del)
272
(xv) Recall of order of appointment
A sole arbitrator was appointed on the petitioner‟s application.
Subsequently he stated that he no longer wished to pursue the proceedings
and sought recall of the order. The court said that the behaviour of the
petition was objectionable. But because he was not in a state of good health,
the order could be recalled. He was ordered to suffer costs to the extent
already expended87
.
(xvi) Appointment in case of international arbitration
Section 11(9) provides that in the case of sole or third arbitrator in an
international commercial arbitration, the Chief Justice of India or his
nominee may appoint an arbitrator of a nationality other than the
nationalities of the parties where the parties belong to different nationalities.
The following explanation of this provision is to be found in a decision of
the Supreme Court88
.
“There is no quarrel with the proposition that Section 11(9) of
the Act is not mandatory and the word „may‟ therein cannot be read
as „shall‟ and to appoint an arbitrator not belonging to the nationality
of either of the parties is not mandatory. However, the is nothing
wrong in the two arbitrators having formed an opinion in consultation
with each other that a person of a third nationality would be
============================================================================
87. Shiva Sanjaya Enterprises v Tamura Electric Works Ltd, (2002) 10 SCC 495
88. Grid Corpn of Orissa Ltd v AES Corpn, (2002) 7 SCC 736.
273
preferable as presiding arbitrator. The submission based on „mistake
of law‟ doctrine is unwarranted and beside the point.
(xvii) Even number of arbitrators
Where a Civil Judge, acting under the 1940 Act appointed two
arbitrators on the application of a party, it was held that it was not in
accordance with the law, because at the time of the order the new Act had
come into force and an appointment of even number of arbitrators without
arranging for the appointment of a third arbitrator was not compatible with
the provision of the new Act89
.
(xviii) Appeal or Review (Writ remedy)
A petition under Article 136 of the Constitution can lie for
challenging a judgment, decree, determination, sentence or order in any
cause or matter passed or made by any court or tribunal in the territory of
India. As the Chief Justice of the High Court or his designate under Section
11(6) of the Act acts in administrative capacity, an order of the Chief Justice
is not an order of any court exercising any judicial function, nor is it a
tribunal having the trappings of a judicial authority. It must, therefore, be
held that that orders passed by the Chief Justice under Section 11(6) of the
Act being of an administrative nature, cannot be subjected to any challenge
directly under Article 136 of the Constitution90
. But in the case of non-
============================================================================
89. Steel Authority of India v Rana Construction Co, (2003) 4 RAJ 464.
90. Ador Samia (P) Ltd v Peekay Holdings Ltd, (1999) 8 SCC 572;
274
performance of duty, the writ of mandamus would lie91
.
The legality of an appointment cannot be questioned after it has
attained its finalty92
.
An application for judicial review does not lie against an order
appointing an arbitrator. The court said that such order could not be made
the subject-matter for issue of the writ of certiorari. The aggrieved party can
raise his grievance before the arbitrator himself in accordance with the
provision of the Act93
.
3. CHALLENGE TO ARBITRATORS
(i) Doubt as to independence or impartiality at initial stage
Once of the grounds for challenge is the existence of a doubt about
the arbitrator‟s independence or impartiality.
The present Act does not contemplate there removal of an arbitrator
by the court. Section 5 of the repealed Arbitration Act, 1940, provided that
unless a contrary intention was expressed in the arbitration agreement the
authority of an appointed arbitrator could be revoked with the leave of the
court.
The present Act contemplates the removal of an arbitrator either by
the parties themselves or by the Arbitral Tribunal.
============================================================================
91. Konkan Railway Corpn Ltd v Mehul Construction Co, (2000) 7 SCC 201;
92. Behari Lal Sharma v Union of India, AIR 2001 Raj 389.
93. Gauttam Packaging Industries v Gold Crest Finance (India) Ltd. AIR 2001 Kant 510.
275
In a dispute arising out of a construction contract, an ex-officer of the
employer authority which had awarded the contract was appointed as the
arbitrator. In his official capacity he was dealing with all the matters of the
contract and he had also corresponded with the contractor in that capacity.
The supreme Court held his continuance as an arbitrator would not be fair to
the parties94
.
It is well settled that there must be purity in the administration of
justice as well as in administration or quasi-judicial functions as are
involved in the adjudicatory process before the arbitrators. It is well settled
that once the arbitrator enters in an arbitration, the arbitrator must not be
guilty of any act which can possibly be construed as indicative of partiality
or unfairness. It is not a question of the effect which misconduct on his part
had in fact upon the result of the proceeding, but of what effect it might
possibly have produced. It is not enough to show that, even if there was
misconduct on this part, the award was unaffected by it, and was in reality
just; arbitrator must not do anything which is not in itself fair and
impartial95
.
An arbitrator ought to be an indifferent and impartial person between
the disputants96
. When the parties entrust their fate into the hand of an
arbitrator, it is essential that there must be abundant good
============================================================================
94. Bharat Coking Coal Ltd v L.K. Ahuja & Co, AIR 2001 SC 1179.
95. International Airports Authority of India v K.D. Bali, (1988) 2 SCC 360
96. WHARTONIS LAW LEXICON, 12th Edn, p 65.
276
Faith. The arbitrator must be absolutely disinterested and impartial97
. An
interested person is disqualified from acting as an arbitrator. The interest
disqualifies the arbitrator if it is calculated to produce a bias in his mind.
The test is whether he is likely to be biased. Actual bias need not be
proved98
. Every disclosure which might in the least affect the minds of those
who are proposing to submit their disputes to the arbitration of any
particular individual as regards his selection and fitness for the post ought to
be made so that every party may have an opportunity of considering
whether the reference to arbitration to that particular individual should or
should not be made99
.
(ii) Grounds of Challenge
The appointment of an arbitrator can be challenged only on one or
more of the following grounds:
(a) that circumstance exist which give rise to justifiable doubts as
to his independence or impartiality, or
(b) that he does not possess the qualifications agreed to by the
parties.
The appointment cannot be challenged on any other grounds.
The appointment can be challenged only on those grounds or only for
those reasons of which the party became aware after the appointment of the
arbitrator. If he was aware of the grounds or reasons before the appointment,
he cannot challenge the appointment on those grounds or reasons100
. ============================================================================
97. Nihal Chand v Shanti Lal, AIR 1935 Oudh 349;
98. Kemp v Rose (1858) 1 Giff 258
99. Motharam Dowlatram v Mayadas Dowlatram, AIR 1925 Sind 150
100. Novel Granites Ltd v Lakshmi General Finance Co Ltd, (2003) 3 RAJ 110 (Mad)
277
(iii) Procedure of Challenge
On this point also the Act gives freedom to the parties to settle by
agreement the procedure by which the arbitrator in questions would be
challenged. If there is no agreement on the point or the parties have failed to
agree, then the procedure to be followed is that the party wishing to present
the challenge has to inform the Arbitral Tribunal of the matter. This should
be done within fifteen days. If the other party agrees to the challenged and
the arbitrator does not voluntarily withdraw, the Tribunal shall decide the
matter. If the challenge is not successful, the Tribunal shall continue with
the proceeding and make an award101
. The party who challenged the
arbitrator may challenge the award also and make an application for setting
aside in accordance with Section34102
.
The procedure is somewhat like the procedure under the preceding
Act for seeking the leave of the court of revoking the authority of the
arbitrator.
The principles to be followed were explained by the Supreme Court
in Amar Chand Lalitkumar v Shree Ambika Jute Mills Ltd103
.
Before the court exercises its discretion to give leave to revoke an
arbitrator‟s authority, it should be satisfied that a substantial miscarriage of
============================================================================
101. Novel Granites Ltd v Lakshmi General Finance Co Ltd, (2003) 3 RAJ 160 (Mad)
102. Harik Rice Mills v State of Punjab (1998) 1 Punj LR 395 P&H
103. AIR 1966 SC 1036
278
justice will take place in the event of its refusal…. It must not be forgotten
that arbitration is a particular method for the settlement of disputes.
The grounds on which leave to revoke could be given were put under
five heads:
1. Excess or refusal of jurisdiction by the arbitrator104
.
2. Misconduct of arbitrator105
.
3. Disqualification of arbitrator106
.
4. Charges of fraud107
.
5. Exceptional cases108
.
Following this case in Panchu Gopal Bose v Board of Trustees for
Port of Calcutta109
, the Supreme Court revoked the agreement of arbitration
in reference to a claim over which the petitioner slept for more than 10
years.
(iv) Bias on Part of Arbitrator
Explaining the concept of bias in relation to a Judicial Tribunal, the
Supreme Court said110
: “That the test to be applied is not whether in fact a
bias has affected the judgment but whether a litigant could reasonably
apprehend that a bias attribute to a member of the Tribunal might have
operated against him in the final decision of the Tribunal.
============================================================================
104. Madura Mills v Krishna Ayyar, AIR 1937 Mad 405
105 Mohd. Wahiduddin v Hakimudin, ILR (1901) 20 Cal 278.
106. Gulam Mohd Khan v Gopaldas. AIR 1933 Sind 68
107. Bansidhar v Sital Prasad, ILR 29 All 13
108. Bombay Insurance Co v Ahmedbholy, ILR 34 Bom 1
109. (1993) 4 SCC 338
110. Jiwan Kumar Lohia v Durga Dutt Lohia, (1992) 1 SCC 56
279
The test of likelihood of bias is whether a reasonable person, in possession
of the relevant information, would have thought that bias was likely and
whether the person concerned was likely to be disposed to decide the matter
only in a particular way. These tests would also apply to an arbitrator, while
considering whether there is a reasonable ground for apprehension that the
arbitrator will be biased, on an application under Section 5 of the repealed
1940 Act, [Sections 12-15 of the Arbitration and Conciliation Act, 1996] the
court should be satisfied that substantial miscarriage of justice will take
place in the event of the refusal to entertain the application. The court must
bear in mind that arbitration is a particular method for settlement of disputes
and the parties should not be relieved from a Tribunal they have chosen
because they fear that the arbitrator‟s decision may go against them”.
(v) Arbitrator , an Employee of One Party
The fact that the arbitrator is an employee of one of the parties is not
sufficient in itself to show that he must necessarily be biased. This figured
in the judgment of the Supreme Court in International Airport Authority v
K.D. Bali110-a
.
(vi) Appointment of three or more arbitrators
Section 10 provides that the parties are free to determine the number
of arbitrator.
============================================================================
110(a). (1988) 1 Arb LR 408.
280
The only restriction being that such number is not to be an even number111
.
Section 11 provides112
that where the agreement is for arbitration by three
arbitrators, each party is to appoint one arbitrator and the two appointed
arbitrators are to appoint a third arbitrator who is to act as the presiding
arbitrator113
. An agreement for appointment of two arbitrators, one by each
party, and for appointment of an umpire by the two arbitrators, which
practice was in existence before the 1996 Act came into force, has been held
to be valid under the new Act also. The only difference that would come is
that the umpire will act as a presiding arbitrator, he would participate in
proceedings and the decision will be by majority114
.
4- JURISDICTION OF ARBITRAL TRIBUNAL
(i) Existence or validity of agreement
An arbitrator has no authority or jurisdiction beyond that defined by
the terms of the contract or what the parties desire under the contract. He
has no authority to abdicate the terms of the contract115
. Objections
regarding applicability of the arbitration clause in the agreement to the fact
of the case, though go to the root of the jurisdiction, even so they must be
raised before the arbitrator for decision116
.
============================================================================
111. MMTC Ltd v Sterlite Industries (India) Ltd, (1996) 6 SCC 716
112. Section 11(3)
113. Ibid. Parties to name one arbitrator each and the two arbitrators to name the third.
114. MMTC Ltd v Sterlite Industries (India) Ltd, (1996) 6 SCC 716 115. Ispat Engg & Foundry Works v Steel Authority of India Ltd. (2001) 6 SCC 347
116. Hindustan Petroleum Corpn Ltd v Pinkcity Midway Petroleum‟s, (2203) 6 SCC 503
281
Whether there was a conflict between R. 22(a) of ICA Rules and the
arbitration clause in the agreement deed and therefore appointment of
Arbitral Tribunal by ICA on the request of one of the parties would be
illegal, it was held that this was a questions to be decided by the Arbitral
Tribunal itself after it is constituted and a reference is made to it and not by
High Court or Supreme Court. Nor can ICA decide it. Hence, ICA was
directed to nominate the arbitrator as sought by the party concerned and
place the matter before him. Parties were granted liberty to raise and pursue
all objections and contentions before him as envisaged under S. 16 of the
Act and also on merits117
.
(ii) Challenge to Jurisdiction
Section 16(1) empowers an Arbitral Tribunal to decide-
(i) the questions as to its jurisdiction, and
(ii) the objection as to the existence or validity of the arbitration
agreement.
For this purpose an arbitration clause in a contract shall be treated as
an arbitration agreement independent of the contract.
If the purpose an arbitration clause in a contract shall be treated as an
arbitration agreement independent of the contract.
======================================================================= =====
117. Food Corpn of India v India Council of Arbitration, (2003) 6 SCC 564
282
Whether a particular dispute comes within the purview of the
arbitration clause as incorporated (in the conditions of carriage of the Bills
of Lading) was held to be a matter to be decided by the arbitrator in the first
instance118
.
Though there was no similar provision in the erstwhile 1940 Act, the
position in law was more or less the same.
The competence to decide questions of jurisdiction is available to
statutory tribunals where they are functioning under the 1996 Act. RUMA
PAL J of the Supreme Court119
cited an observation of the Supreme Court to
the effect that the Arbitral Tribunal‟s authority under the section is not
confined to the width of its jurisdiction but goes to the very root of its
jurisdiction120
.
(iii) Tribunal Exceeding Jurisdiction
An objection that the Arbitral Tribunal is entertaining some matter
beyond its jurisdiction or authority can be raised before the tribunal. Such an
objection must be raised as soon as such matter is raised before the tribunal.
The tribunal has also to decide whether it has territorial jurisdiction121
. The
Supreme Court has also observed that though the jurisdiction of the
arbitrator emanates from the agreement and reference under it, it is trite that
============================================================================
118. Owners and Parties Interested in the Vessel M.V. Baltic Confidence v STC, (2001) 7 SCC 473
119. Secur Industries Ltd v Godrej & Boyce Mfg Co Ltd, (2004) 3 SCC 447.
120. Konkan Rly Corpn Ltd v Rani Construction (P) Ltd, (2002) 2 SCC 388
121. Secur Industries Ltd v Godrej & Boyce Mfg Co Ltd, (2004) 3 SCC 447.
283
in a given situation the arbitrator can determine all question of law and fact
including the construction of the contract122
.
The Tribunal is competent to rule on its own jurisdiction. The
doctrine of Kompetenz –Kompetenz applies. Conferment of such power on
the Arbitral Tribunal has been done with the intention of an objective of
setting the arbitral proceedings in motion without any hurdles is future
also123
.
(iv) Challenging the Award
When an award has been made after rejection of the objections as to
lack of or excess of jurisdiction the aggrieved party may make an
application under Section 34 to set aside the award. In these proceedings the
award can be challenged, inter alia, on the ground that the objections were
wrongly rejected124
.
(v) Arbitration Clause is Collateral or Ancillary Contract
The arbitration agreement contained in the arbitration clause in a
contract is often referred to as a collateral or ancillary contract in relation to
the main contract of which it forms a part in the sense that it survives even
after the parties have broken or repudiated the rest of the contract and will
remain applicable for the settlement of the resulting dispute.
================================================================ ============
122. Chairman And MD, NTPC Ltd v Reshmi Constructions, Builders and Contractors, (2004) 2 SCC 663
123. Karnataka State Road Transport Corpn v M. Keshava Raju, AIR 2004 Kant 109
124. Vipul Agrwal v Atul Kandia & Co, AIR 2003 All 280
284
The repudiation or breach of the main contract does not put an end to the
arbitration clause. The failure of the main contract
Constitutes the occasion for the application of the arbitration clause. The
main contract does not become irrelevant. That still provides the framework
within which the rights and liabilities of the parties would be determined.
The arbitration would, therefore, proceed according to the proper or
application law of contract125
. Section 7(2) of the Arbitration and
Conciliation Act, 1996 provides that an arbitration agreement may be in the
form of an arbitration clause in a contract or in the form of a separate
agreement. Section 16(1)(b) further provides that a decision by the Arbitral
Tribunal that the contract is null and void shall not entail ipso jure the
invalidity of the arbitration clause.
The supreme Court has described the arbitration clause as separable
from other clause of the contract (partnership deed in this case). The
arbitration clause constitutes in itself an independent agreement126
.
(vi) When appeal lies
The decision of the Arbitral Tribunal on its jurisdiction is not an
award. It is an order which may culminate in closure of the proceedings and
in that event an appeal lies under Section 37.
============================================================================
125. National Thermal Power Corpn v Singer Co. (1992) 3 SCC 551 126. Ashok Traders v Gurumukh Das Saluja (2004) 3 SCC 155
285
If it does not terminate the proceedings, the order can be challenged when
the award itself is challenged127
.
(v) Interpretation of arbitration clause
The Supreme Court refused to subscribe to the view that the
interpretation of the arbitration clause can be or should be left to be
determined by the arbitrator alone and that such a determination cannot be
done by the court at any stage128
.
(vi) Form and contents of award
Reasons for award
The Arbitration Act, 1940, [repealed] contained no provision
regarding the giving of reasons by an arbitrator. Decisions on the question
whether an arbitrator must give reasons for his award were not uniform. In
Indian Oil Corpn Ltd v Indian Carbon Ltd129
, the Supreme Court observed
that there was a trend that reasons should be stated in an award. That
question was referred to a Constitution Bench of the Court. The Constitution
Bench in Raipur Development Authority v Chokhamal Contractors130
laid
down that an arbitrator was not obliged to give reasons for his award except
when he was required to do so by-
(i) the arbitration agreement; or
(ii) the reference or deed of submission;
============================================================================
127. Harinarayan G. Bajaj v Sharedeal Finacial Consultants (P) Ltd, AIR 2003 Bom 296
128. GM, Northern Rly v Sarvesh Chopra, (2002) 2 Supreme 170
129. AIR 1988 SC 1340.
130. AIR 1990 SC 1426
286
(iii) the statute governing the arbitration;
The position has now been reversed by the Legislature by enacting
sub-section(3) of Section 31. It provides that an Arbitral Tribunal must state
reasons for its award except-
(a) when the parties have agreed that no reasons be given, or
(b) when the award is on agreed terms under Section.
Thus, a reasoned award is compulsory unless exempted by the
parties131
.
5. TERMINATION OF PROCEEDINGS
(i) Automatic termination
The arbitration proceedings stand automatically terminated when the
final arbitral award is made.
Where the contract under which an arbitration arose is assigned to
another person on an assignment takes place by reason of takeover of the
concern, it becomes the duty of the assignee to give notice to the arbitrator,
within a reasonable period, that he has succeeded to the rights of the
previous party to the arbitration. His failure to do so would bring the
arbitration agreement to an end132
.
(ii) Termination by Tribunal
An order for the termination of arbitral proceedings has to be passed
by the Arbitral Tribunal in the following cases:
============================================================================
131. Koneru Venkata Subbaiah v Koneru Venugopal, AIR 2003 NOC 148 (AP)
132. N.B.P. Developments v Buldko & Sons, (1992) 8 Const LJ 377
287
(a) when the claimant withdraws his claim. But an order will not
be passed if the respondent objects and has a legitimated
interest in obtaining a final settlement of the dispute;
(b) when the parties agree to the termination;
(c) when the continuation of the proceedings has become
unnecessary or impossible.
There is an automatic termination of proceedings when the final
award is passed. In this case no final award was still passed by the
arbitrator. The parties also had not made any joint request for termination of
proceedings. There was also no order passed by the Tribunal as per Section
32(2). The court accordingly held that the arbitration proceeding could not
be said to have come to an end133
.
An order terminating proceedings does not necessarily amount to an
award. Hence, remedies against an award may not be available against a
termination. Where the decision of the arbitrator was that there was no
jurisdiction or that there was no arbitrable dispute, the court said that this
was not an award. An appeal would lie against such an order but not a
proceeding under Section 34134
.
============================================================================
133. Kifayatullah Haji Goolam Rasool v Bilkish Ismail Mehsania, AIR 2000 Bom 424.
134. Harinarayan G. Bajaj v Sharedeal Finacial Consultants (P) Ltd, AIR 2003 Bom 296
288
SETTING ASIDE AWARD
The effect of an award no doubt is that the parties cannot appeal
against it as its merits and the court cannot interfere with it on merits. The
Supreme Court has observed:135
“An arbitrator is a judge appointed by the
parties and as such an award passed by him is not to be lightly interfered
with.” The conclusion of an arbitrator on facts, even if erroneous in the
opinion of the court cannot be interfered with136
. Where the view of the
arbitrator is a plausible view and cannot be ruled as one which it is
impossible to accept, the court should not substitute its own view in place of
that of the arbitrator137
. But this does not mean that there is no check on the
arbitrator‟s conduct. In order, therefore, to assure proper conduct of
proceedings, the law allows certain remedies against an award. These
remedies can be obtained through a court of law having jurisdiction over the
matter138
.
The Supreme Court has observed that “Section 34 of the Act is based
on Article 34 of the UNCITRAL Model Law and it will be noticed that
under the 1996 Act the scope of the provisions for setting aside the award is
far less than it was under Sections 30 or 33 of the 1940 Act”139
.
============================================================================
135. Indu Engg & Textiles Ltd v Delhi Development Authority, (2001) 5 SCC 691.
136. Ibid.
137. Smita Contractors Ltd v Euro Alloys Ltd, (2001) 7 SCC 728.
138. Hindustan Construction Co v Governor of Orissa, (1995) 3 SCC 8
139. Olympus Superstructures (P) Ltd v Meena Vijay Khetan, (1999) 5 SCC 651
289
The Supreme Court, however, felt that the scope of provisions under the old
and new Acts is more or less the same.
Setting aside and award means that it is rejected as invalid. Not that
the court can itself decide the matter or can interfere into the award on
merits, but only this that the award is avoided and the matter becomes open
for decision again140
.
The totality of the grounds for setting aside as are available under the
Act have been presented by the Supreme Court in the following chart:141
The court can set aside an award:
(1) for the reasons mentioned in S. 34(2)(a)(i) to (v)
(2) for the reasons stated in S. 28(1)(a)142
(3) for the reasons stated in S. 34(2)(b)(ii) on ground of conflict with
the public policy of India, that is to say, if it is contrary to:
(a) fundamental policy of Indian Law; or
(b) the interest of India; or
(c) justice or morality; or
(d) if it is patently illegal.
(4) for the reasons stated in Ss. 13(5)143
and 16(6)144
.
============================================================================
140. State of UP v Harish Ch. & Co, (1999) 1 SCC 63
141. Oil & Natrul Gas Commission Ltd v Saw Pipes Ltd, (2003) 5 SCC 705
142. Not following the substantive law for the time being in force in India.
143. Rejection of the challenge to the arbitrator under S. 13 by reason of his impartiality etc,
144. Protest as to the jurisdiction of the Arbitral Tribunal.
290
Notice not given to party
Section 34(2)(a)(iii) permits challenge to an award on the grounds:
(i) that the party was not given proper notice of the appointment of an
arbitrator, or
(ii) that the party was not given proper notice of the arbitral
proceedings, or
(iii) that the party was for some reason unable to present his case.
It is essential that the parties be given proper notice of the arbitral
proceedings so that they may file their statements of claim or defence as
required by Section 23145
.
If for any good reasons a party is prevented form appearing and
presenting his case before the Tribunal, the award will be liable to be set
aside as the party will be deemed to have been deprived of an opportunity of
being heard.
Under Section 30 of the Arbitration Act, 1940, [repealed] also these
things constituted good grounds for setting aside an award.
Award beyond scope of reference
Section 34(1)(a)(iv) of the present 1996 Act provides that an arbitral
award is liable to be set aside if it deals with a dispute.
(a) not contemplated by the reference, or
(b) not falling within the terms of the reference, or
============================================================================
145. State of Gujarat v B.B. Chauhan, AIR 2003 NOC 211 (Guj),
291
(c) it contains a decision in matters beyond the reference146
If the decision in respect of the matters outside the Tribunal‟s
jurisdiction can be separated from the decision on matters within its
jurisdiction, then only that part of the arbitral award which contains decision
on matters outside its jurisdiction may be set aside.
There is a distinction between disputes as to the jurisdiction of the
arbitrator and disputes as to which way the jurisdiction should be exercised.
The court can interfere in the former type of situation when there has been a
challenge to the jurisdiction of the arbitrator147
.
Where Award exceeds Submission
The words “terms of the submission to arbitration” in Section
34(2)(a)(iv) have been held to mean and refer to the terms of the arbitration
clause. A reference to Section 28 which uses the words “disputes submitted
to arbitration” and Section 43(2) which uses the words “submit future
disputes to arbitration,” makes it apparent that what is meant is a reference
to the terms of the arbitration clause148
.
It was pointed out by the Supreme Court149
under the earlier Act that
if an award dealt with a matter not covered by the agreement it could either
be modified under Section 15(a) or remitted under Section 16(1)(a) of the
repealed 1940 Act, and where a matter is dealt with an the invitation of the
=================================================================== =========
146. Rajinder Krishan Khanna v Union of India, (1998) 7 SCC 129
147 Union of India v Rattan Singh, AIR 1999 Raj 117
148. Olympus Superstructures (P) Ltd v Meena Vijay Khetan, (1999) 5 SCC 651
292
parties contained in their statement, there can be no difficulty in holding that
the arbitrators acted within jurisdiction. The effect of the decision is that if
an arbitrator decides a matter which is not referred to him in the original
submission, but which was raised by the parties in their subsequent
statements or otherwise, the award is not vitiated. This is so because the
agreement for arbitration is the very foundation on which the jurisdiction of
the arbitrator rests and the parties can always enlarge his jurisdiction either
originally or during the pendency of the adjudication.
Public Policy : Fraud and Corruption
Section 34(2)(b)(ii) provides that an application for setting aside an
arbitral award can be made if the arbitral award is in conflict with the public
policy of India.
The Supreme Court attempted the following explanation of the
concept:150
The phrase “public policy of India” occurring in S. 24(2)(b) is not
defined in the Act. The concept “public policy” is considered to be vague,
susceptible to narrow or wider meaning depending upon the context in
which it is used. Hence, it should be given meaning in the context and also
considering the purpose of the section and scheme of the Act151
.
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149. Waverly Jute Mills v Raymon & Co, (1963) 3 SCR 209
150. Oil & Natural Gas Corpn Ltd v Saw Pipes Ltd, (2003) 3 SCC 705
151. Ibid, Papr 16
293
Finality of arbitral awards
The award is final in the sense that there can neither be a further
award on the same subject, not an appeal against the finality of the award.
The aggrieved party may apply to the court, if there is a ground, for setting
aside the award, but the court cannot be called upon to decide the matter152
.
Must be legal
The award must be in accordance with the principles of the relevant
law, otherwise it will be illegal, beings against the law. Thus, where an
arbitrator awarded ownership in perpetuity, it was held to be void as
offending the rule against perpetuity153
.
Must be reasonable and possible
An award requiring a party to do an act which is unreasonable or not
possible, is bad. An award the one of the parties should do a thing which is
out of his power to do, or to deliver up a thing which is in the custody of
another person, is void, as it requires the party to do an impossible act154
.
Finality, effect and enforcement of award
The arbitrator‟s power the matter submitted to him is complete and
final. The award of a arbitrator is ordinarily final and conclusive unless a
contrary intention can be inferred from the agreement itself155
. He has the
power to do what the court could have done if the matter had been before
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152. Damodar Engg and Construction Co v Board of Trustees for the Port of Calcutta, (1994) 1 SCC 370
153. Bishop v Bishop, (1639) 21 ER 532
154. Lee v Elkins, 12 Mod Rep 585
155. Ispat Engg & Foundry Works v Hukamchand Mills Ltd, AIR 1967 SC 1030
294
the court. His award puts an end to the proceedings. The court will not
interfere with the findings of the arbitrator even if the court feels on merits
that the arbitrator should have come to a different conclusion. “His award on
both fact and law is final. There is no appeal from his verdict. The count
cannot review his award and correct any mistake in his adjudication unless
an objection to the validity of the award is apparent on the face of it.”156
Enforcement
Under the preceding 1940 Act, an award could be enforced after
crossing a few hurdles between the award and its enforcement. It had first to
be filed in the court where it would be converted into a judgment in terms of
the award. This was known for its enforcement157
. All these steps are no
longer necessary under the 1996 Act. Section 34(1), recourse to the court
against an arbitral award cannot be made beyond the period prescribed. The
importance of the period fixed under Section 34 is enforceable as soon as
the limitation period under Section 34 expires. This is a significant
departure from the provisions of the Arbitration Act, 1940. Now the
consequence of the time expiring under Section 34 of the 1996 Act is that
the award becomes immediately enforceable without any further act of the
court158
.
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156. Madanlal v Hukamchand mills Ltd, AIR 1967 AIR 1967 1030
157. Walter Rosario v Corporation Bank, AIR 2001 Kant 483
158. Union of India v Popular Construction Co, (2001) 8 SCC 470
295
An award under the 1940 Act provides an illustration as to
jurisdiction for this purpose. The works were executed in India. In
accordance with the parties, agreement the award was delivered in London.
The Indian party applied to the Bombay High Court for an order that the
award be filed in Bombay for its enforcement. The Supreme Court ruled that
this was legally allowable159
.
The execution of an award has to be in accordance with the
provisions of the Civil Procedure Code. Section 31(4) of the 1940 Act
(repealed) had no application in that respect160
.
A compromise award has the effect of a decree161
.
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159. Sumitomo Heavy Industries Ltd v ONGC Ltd, (1998) 1 SCC 305
160. N.V. Chowdhary v Hindustan Steel Works Construction Ltd, AIR 2002 NOC 15 (AP)
161. Saraswati Trading Agency v Union of India, AIR 2002 Cal 51.