final arbitration presentation

7/29/2019 Final Arbitration Presentation

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ARBITRATION KEY ASPECTS


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The law relating to Arbitration is contained in theArbitration and Conciliation Act, 1996. It came intoforce on the 25th day of January 1996. This Act is ofconsolidating and amending nature and is not

exhaustive. But it goes much beyond the scope of itspredecessor, the 1940 Act. It provides for domesticArbitration and also enforcement of foreign arbitralawards. It also contains the new feature onconciliation. It proceeds on the basis of the UN Model

Law so as to make our law accord with the Lawadopted by the United Nations Commission onInternational Trade Law (UNICITRAL).


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OBJECTIVES

to comprehensively cover international commercial arbitration and conciliation as also domesticarbitration and conciliation.

2. to make provision for an arbitral procedure which is fair, efficient and capable of meetingthe needs of the specific arbitration

3. to provide that the Arbitral tribunal gives reasons for its arbitral award.

4. to ensure that the Arbitral tribunal remains within the limits of its jurisdiction.

5. to minimize the supervisory role of courts in the arbitral process.

6. to permit an Arbitral Tribunal to use mediation conciliation or other procedure during thearbitral proceedings to encourage the settlement of disputes.

7. to provide that every final arbitral award is enforced in the same manner as if it were thedecree of the court.

8. to provide that a settlement agreement reached by the parties as a result of conciliationproceedings will have the same status and effect as an arbitree award on agreed terms on thesubstance of the dispute rendered by an Arbitral Tribunal; and

9. to provide that, for purposes of enforcement of foreign awards, every arbitral awardmade in a country to which one of the two international conventions relating to foreign arbitralawards to which India is a party applies will be treated as a foreign award.


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2.Definitions

2.Definitions.- (1) In this Part, unless the contextotherwise requires,-

(a) "arbitration" means any arbitration whetheror not administered by permanent arbitralinstitution;

(b) "arbitration agreement" means anagreement referred to in section 7;

(c) "arbitral award" includes an interim award; (d) "arbitral tribunal" means a sole arbitrator or

a panel of arbitrators;


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2.Definitions

(h) "party" means a party to an arbitration

agreement.


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Arbitration agreement

7.Arbitration agreement.- (1) In this Part, "arbitration agreement" means

an agreement by the partie to submit to arbitration all or certaindisputes which have arisen or which may arise between them in respect

of a defined legal relationship, whether contractual or not.

(2) An arbitration agreement may be in the form of an arbitration

clause in a contract or in the form of a separate agreement.

(3) An arbitration agreement shall be in writing.

(4) An arbitration agreement is in writing if it is contained in- (a) a

document signed by the parties; (b) an exchange of letters, telex,

telegrams or other means of telecommunication which provide a

record of the agreement; or (c) an exchange of statements of claim and

defence in which the existence of the agreement is alleged by one partyand not denied by the other.

(5) The reference in a contract to a document containing an arbitration

clause constitutes an arbitration agreement if the contract is in writing

and the reference is such as to make that arbitration clause part of the

contract.


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Incorporation by reference

The principles regarding incorporation of arbitration clause by reference has been

summarised in M.R. Engineers and Contractors Pvt. Ltd. Vs. Som Datt Builders

Ltd. [(2009) 7 SCC 696] as under:

An arbitration clause in another document, would get incorporated into a

contract by reference, if the following conditions are fulfilled :

The contract should contain a clear reference to the documents containingarbitration clause;

the reference to the other document should clearly indicate an intention to

incorporate the arbitration clause into the contract;

The arbitration clause should be appropriate, that is capable of application in

respect of disputes under the contract and should not be repugnant to any termof the contract.

General reference not helpful. Must be specific.

If referring contract states in terms of execution and performance arbitration

agreement does not follow. However, if it specifies a section of another contract,

for e.g. General Conditions to a Contract and such Conditions, contain an

arbitration agreement, then there is an incorporation by reference.


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8.Power to refer parties to arbitration where

there is an arbitration agreement

8.Power to refer parties to arbitration where there is anarbitration agreement.- (1) A judicial authority before which anaction is

brought in a matter which is the subject of an arbitrationagreement shall, if a party so applies not later than when

submitting his first statement on the substance of the dispute, refer the parties to

arbitration.

(2) The application referred to in sub-section (1) shall not beentertained unless it is accompanied by the original arbitration

agreement or a duly certified copy thereof. (3) Notwithstanding that an application has been made under

sub-section (1) and that the issue is pending before the judicial

authority, an arbitration may be commenced or continued and anarbitral award made.


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Under the new provisions (S.8) of the 1996 Act, therequirements of stay application and of an order forreference to arbitration were stated by the Supreme Courtin P Anand Gajapati Raju v PVG Raju as follows:

1. there must be an arbitration agreement 2. a party to an agreement brings an action to the court

against the other party,

3. the subject matter of the action is the same as thesubject matter of the arbitration agreement.

4. the other party moves the court for referring theparties to arbitration before submitting the first statementon the substance of the dispute.


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9.Interim measures etc.by Court 9.Interim measures etc.by Court.- A party may, before, or during arbitral

proceedings or at any time after the making of the arbitral award but before it

is enforced in accordance with section 36, apply to a court-

(i) for the appointment of a guardian for a minor or person of unsound mind

for the purposes of arbitral proceedings; or

(ii) for an interim measure or protection in respect of any of the following

matters, namely:- (a) the preservation, interim custody or sale of any goodswhich are the subject-matter of the arbitration agreement; (b) securing the

amount in dispute in the arbitration; (c) the detention, preservation or

inspection of any property or thing which is the subject-matter of the dispute

in arbitration, or as to which any question may arise therein and authorising

for any of the aforesaid purposes any person to enter upon any land or

building in the possession of any party or authorising any samples to be takenor any observation to be made, or experiment to be tried, which may be

necessary or expedient for the purpose of obtaining full information or

evidence; (d) interim injunction or the appointment of a receiver; (e) such

other interim measure of protection as may appear to the Court to be just and

convenient, and the Court shall have the same power for making orders as it

has for the purpose of, and in relation to, any proceedings before it.


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Composition of arbitral tribunal

10.Number of arbitrators.- (1) The parties are

free to determine the number of arbitrators,

provided that such number shall not be an

even number. (2) Failing the determinationreferred to in sub-section (1), the arbitral

tribunal shall consist of a sole arbitrator.


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11.Appointment of arbitrators

11.Appointment of arbitrators.- (1) A person of any nationality may be

an arbitrator, unless otherwise agreed by the parties. (2) Subject to

sub-section (6), the parties are free to agree on a procedure for

appointing the arbitrator or arbitrators.

(3) Failing any agreement referred to in sub-section (2), in an

arbitration with three arbitrators, each party shall appoint one

arbitrator, and the two appointed arbitrators shall appoint the third

arbitrator who shall act as the presiding arbitrator.


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When Party fails to appoint! (4) If the appointment procedure in sub-section (3) applies and- (a) a party fails to

appoint an arbitrator within thirty days from the receipt of a request to do so from the

other party; or (b) the two appointed arbitrators fail to agree on the third arbitratorwithin thirty days from the date of their appointment, the appointment shall be made,

upon request of a party, by the Chief Justice or any person or institution designated by

him.

(5) Failing any agreement referred to in sub-section (2), in an arbitration with a sole

arbitrator, if the parties fail to agree on the

arbitrator within thirty days from receipt of a request by one party from the other partyto so agree the appointment shall be made,

upon request of a party, by the Chief Justice or any person or institution designated by

him.

(6) Where, under an appointment procedure agreed upon by the parties,-

(a) a party fails to act as required under that procedure; or

(b) the parties, or the two appointed arbitrators, fail to reach an agreement expected ofthem under that procedure; or

(c) a person, including an institution, fails to perform any function entrusted to him or it

under that procedure,

a party may request the Chief Justice or any person or institution designated by him to

take the necessary measure, unless the

agreement on the appointment procedure provides other means for securing theappointment.


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Failing any agreement

(5) Failing any agreement referred to in sub-section (2), in anarbitration with a sole arbitrator, if the parties fail to agree onthe arbitrator within thirty days from receipt of a request byone party from the other party to so agree the appointment shallbe made, upon request of a party, by the Chief Justice or any

person or institution designated by him. (6) Where, under an appointment procedure agreed upon by the

parties,- (a) a party fails to act as required under thatprocedure; or (b) the parties, or the two appointed arbitrators,fail to reach an agreement expected of them under thatprocedure; or (c) a person, including an institution, fails to

perform any function entrusted to him or it under thatprocedure, a party may request the Chief Justice or any personor institution designated by him to take the necessary measure,unless the agreement on the appointment procedure providesother means for securing the appointment.


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(7) A decision on a matter entrusted by sub-section (4) or sub-section (5) or

sub-section (6) to the Chief Justice or the person or institution designated by

him is final.

(8) The Chief Justice or the person or institution designated by him, in

appointing an arbitrator, shall have due regard to- (a) any qualifications

required of the arbitrator by the agreement of the parties and (b) otherconsiderations as are likely to secure the appointment of an independent and

impartial arbitrator.


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Employee arbitrators

Generally, in government contracts arbitration by employee of thegovernment/ statutory bodies/public sector undertakings, is provided.Are employee arbitrators neutral?

In Indian Oil Corporation Ltd. and Ors. Vs. Raja Transport [(2009) 8 SCC520], the Supreme Court held that a senior office of the governmentbody who has nothing to do with execution of the contract areindependent and impartial and not barred from functioning asarbitrators merely because their employer is a party to the contract.

However, Court suggests that it would be appropriate ifgovernments/public sector reconsider policy of providing for arbitrationby employee arbitrators in deference to the specific provisions of the Act

which requires independence and impartiality


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(9) In the case of appointment of sole or third arbitrator in an international

commercial arbitration, the Chief Justice of India or the person or institution

designated by him may appoint an arbitrator of a nationality other than the

nationalities of the parties where the parties belong to different nationalities.

(10) The Chief Justice may make such scheme as he may deem appropriate for

dealing with matters entrusted by sub-section (4) or sub-section (5) or sub-

section (6) to him.

(11) Where more than one request has been made under sub-section (4) or sub-

section (5) or sub-section (6) to the Chief Justices of different High Courts or theirdesignates, the Chief Justice or his designate to whom the request has been first

made under the relevant sub-section shall alone be competent to decide on the

request.

(12) (a) Where the matters referred to in sub-sections (4), (5), (6), (7), (8) and (10)

arise in an international commercial arbitration the reference to "Chief Justice" in

those sub-sections shall be construed as a reference to the "Chief Justice ofIndia". (b) Where the matters referred to in sub-sections (4), (5), (6), (7), (8) and

(10) arise in any other arbitration, the reference to "Chief Justice" in those sub-

section shall be construed as a reference to, the Chief Justice of the High Court

within whose local limits the principal Civil Court referred to in clause (e) of sub-

section (1) of section 2 is situate and, where the High Court itself is the "Court

referred to in that clause, to the Chief Justice of that High Court


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12.Grounds for challenge

12.Grounds for challenge.- (1) When a person is approached inconnection with his possible appointment as an arbitrator, he shalldisclose in writing any circumstances likely to give rise to justifiabledoubts as to his independence or impartiality.

(2) An arbitrator, from the time of his appointment and throughout thearbitral proceedings, shall, without delay, disclose to the parties in

writing anya circumstances referred to in sub-section (1) unless theyhave already been informed of them by him.

(3) An arbitrator may be challenged only if- (a) circumstances exist thatgive rise to justifiable doubts as to his independence or impartiality, or(b) he does not possess the qualifications agreed to by the parties.

(4) A party may challenge an arbitrator appointed by him, or in whose

appointment he has participated, only for reasons of which he becomesaware after the appointment has been made.


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13.Challenge Procedure

13.Challenge procedure.- (1) Subject to sub-section (4), the parties are free to

agree on a procedure for challenging an arbitrator.

(2) Failing any agreement referred to in sub-section (1), a party who intends to

challenge an arbitrator shall, within fifteen days becoming aware of the

constitution of the arbitral tribunal or after becoming aware of any

circumstances referred to in sub-section (3) of section 12, send a written

statement of the reasons for the challenge to the arbitral tribunal. (3) Unless the arbitrator challenged under sub-section (2) withdraws from his

office or the other party agrees to the challenge, the arbitral tribunal shall decide

on the challenge.

(4) If a challenge under any procedure agreed upon by the parties or under the

procedure under sub-section (2) is not successful, the arbitral tribunal shall

continue the arbitral proceedings and make an arbitral award.

(5) Where an arbitral award is made under sub-section (4), the party challenging

the arbitrator may make an application for setting aside such an arbitral award in

accordance with section 34.

(6) Where an arbitral award is set aside on an application made under sub-

section (5), the Court may decide as to whether the arbitrator who is challengedis entitled to any fees.


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34.Application for setting aside

arbitral award

To be read from the Act in detail.

DIFFERENCE BETWEEN (s. 20)SEAT AND

VENUE../ with respect to the Judgements in

excel sheet.


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Finality and enforcement of arbitral

awards

35.Finality of arbitral awards.- Subject to this

Part an arbitral award shall be final and binding

on the parties and persons claiming under them

respectively. 36.Enforcement.- Where the time for making an

application to set aside the arbitral award under

award shall be endorsed under the Code of CivilProcedure, 1908 (5 of 1908) in the same manner

as if it were a decree of the Court


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Appeals

37.Appealable orders.- (1) An appeal shall lie from the followingorders (and from no others) to the Court authorised by law tohear appeals from original decrees of the Court passing the order,namely:--- (a) granting or refusing to grant any measure undersection 9: (b) setting aside or refusing to set aside an arbitralaward under section 34.

(2) Appeal shall also lie to a court from an order of the arbitraltribunal---- (a) accepting the plea referred to in sub-section (2) orsub-section (3) of section 16; or (b) granting or refusing to grantan interim measure under section 17.

(3) No second appeal shall lie from an order passed in appeal

under this section, but nothing in this section shall affect or takenaway any right to appeal to the Supreme Court


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Writ remedy

Writ remedy is not a routine jurisdiction but an extraordinary jurisdiction meantfor an extraordinary purpose. In contractual matters, the courts are reluctant toexercise their writ jurisdiction.

However, even in contractual matters the State and its instrumentalities are dutybound to act fairly and reasonably. If the impugned act of the State is arbitrary orunfair or unreasonable a writ is maintainable. [Kumari Shrilekha Vidyarthi vs.State of U.P. and Ors. ,(1991) 1 SCC 212]

Writ petition may not be an appropriate remedy when disputed questions offacts are involved and the parties are required to lead evidence. [Mrs. SanjanaM. Wig Vs. Hindustan Petro Corporation Ltd, (2005) 8 SCC 242.]

Existence of arbitration clause in an agreement is normally a bar to the exerciseof Writ Jurisdiction, however, not an absolute bar. There are certain exceptionswhere the writ jurisdiction can be invoked even in the presence of arbitration

clause. Facts and circumstances test.

Examples of effective use of writ remedy in projects


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Governing law of arbitration

Dispute referred to international commercial arbitration can be subjectto three different laws.

Landmark judgment: National Thermal Power Corporation Vs. The SingerCompany and others [(1992)3SCC551],

1. Proper lawLaw governing the substantive contract

2. Law governing the construction and validity of the arbitration agreementLaw governing the agreement to arbitrate and the performance of thatagreement.

3. Procedural law of arbitrationLaw governing the conduct of thearbitration.

In majority of cases, all three will be the same. But (1) will often be

different from (2) and 3), and rarely, (2) may also differ from (3). Where parties fail to choose the law governing the arbitration

proceedings, it would be the country where the arbitration is held (seat).

Seat not to be confused with venue of arbitration.


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43.Limitations

- (1) The Limitation Act, 1963 (36 of 1963), shall, apply to arbitrations as it appliesto proceedings in court.

(2) For the purposes of this section and the Limitation Act, 1963 (36 of 1963), anarbitration shall be deemed to have commenced on the date referred in section21.

(3) Where an arbitration agreement to submit further disputes to arbitration

provides that any claim to which the agreement applies shall be barred unlesssome step to commence arbitral proceedings is taken within a time fixed by theagreement, and a dispute arises to which the agreement applies the Court, if it isof opinion that in the circumstances of the case undue hardship would otherwisebe caused, and notwithstanding that the time so fixed has expired, may on suchterms, if any, as the justice of the case may require, extend the time for suchperiod as it thinks proper.

(4) Where the Court orders that an arbitral award be set aside, the periodbetween the commencement of the arbitration and the date of the order of theCourt shall be excluded in computing the time prescribed by the Limitation Act,1963 (36 of 1963), for the commencement of the proceedings (includingarbitration) with respect to the dispute so submitted


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Foreign Arbitral Awards -

Part 1 applies to domestic arbitrations while Part II to foreign arbitrations.Constitution

In Bhatia Internationaland Venture Global, Supreme Court had effectively heldthat for international commercial arbitrations, when a party sought to enforce anaward under Part II, Indian courts would have jurisdiction and Part I would also

apply. Thus, problematic features of Part I are now incorporated into foreign

arbitrations which fall under Part II. Routine challenges to foreign awards.

In Bharat Aluminum Co. v. Kaiser Aluminum Technical Service Inc.[2012 (8) SCALE333] prospectively overruled the judgment in Bhatia International and VentureGlobal. The principles enunciated in Bharat Aluminum are as follow:

Part I is not applicable to international commercial arbitration held outside India.

However, Part I would apply to international commercial arbitrations held inIndia.

In international commercial arbitrations held outside India, interim relief cannotbe granted by Indian courts under Section 9 or any other provision of the Act.

Section 34 would apply only if the seat of arbitration is in India.


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Foreign Arbitral Awards -

Enforcement of awards rendered in international commercialarbitration held outside India would only be subject to thejurisdiction of the Indian courts when such award are sought to beenforced in India in accordance with the provisions contained inPart II of the Act.

The seat of arbitration will decide the applicable law ofarbitration.

The venue of arbitration may change, but it will have no effect onthe seat of arbitration. The seat of the arbitration remains theplace initially agreed by or on behalf of the parties.

Bharat Aluminium to apply only post 06.09.2012. Therefore, any

application for relief under Section 9 or 34 in respect of foreignseated arbitration will continue to be governed by the Bhatiaprinciple. If existing international arbitration agreements are pre06.09.2012, advisable to have them amended.


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Enforcement of foreign award

Foreign awards under New York and Geneva Convention can beenforced under the Part II of the Act.

Foreign award cannot be set aside. The Indian courts may onlyenforce it or refuse to enforce it.

Conditions for enforcement:

The award must satisfy the definition of foreign award undersection 44 (for New York Convention) and section 53 (for GenevaConvention).

A party applying for enforcement of a foreign award must producebefore the court:

Original award or a copy of the award duly authenticated .

Original arbitration agreement or certified copy thereof.

Such other evidence as may be necessary to prove that the awardis a foreign award.


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Enforcement can be refused on followinggrounds:

Incapacity

No proper notice of appointment of arbitrator or arbitral

proceedings

Arbitral award outside the scope of the agreement

Composition of arbitral tribunal or procedure not inaccordance with agreement of the parties

Award not yet binding on the parties or has been set aside by

a competent court of another country. Court finds that subject matter of dispute is not capable of

settlement by arbitration under the law or arbitral award is inconflict with public policy of India


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A foreign award cannot be assailed on merits.[Glencore Grain Rotterdam B.V. Vs. ShivnathRai Harnarain [2008 (4) ARBLR 497 (Delhi)]

Once the court determines that a foreignaward is enforceable it can straightaway beexecuted as a decree. No separate applicationis required to convert the judgment into adecree. [M/s. Fuerst Day Lawson Ltd. vs. JindalExports Ltd. (2001) 6 SCC 356]


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Consumer Protection vs. Arbitration

with respect to Insurance Companies District Fora should decide the claim of insurance on merit

instead of referring the matter to arbitrator - 2005(1) CPC10 N.C.

Existence of arbitration clause in the insurance policycannot oust the jurisdiction of Consumer Forum - 1997(1)CPC 288 H.P.

Insurance claim settled at Rs. 5228181 with cost byarbitration - Interferences with the order is barred in viewof Section of Arbitration Act - 2007(2) CPC 366 N.C.

Provisions of Arbitration Act, 1996 should be resorted tofor enhancement of insurance claim if provided in policy -1997(1) CPC 245 N.C.

(DISCUSS OTHER CASES MENTIONED IN EXCEL SHEET)


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DRAFTING ARBITRATION CLAUSES The parties should decide between institutional and ad hoc arbitration.

Benefits?

The parties should select a set of arbitration rules and use the modelclause recommended for these arbitration rules as a starting point.

In the absence of special circumstances, the arbitration clause should bebroadly worded. The scope of dispute subject to arbitration should not belimited.

The parties should select the seat of arbitration practical and juridicalfactors.

Despite Bharat Aluminium, better to expressly exclude Part I if intention isfor the same not to apply.

The parties should specify the number of arbitrators impact on overallcost, duration and the quality of the arbitral proceedings.

The parties should specify the method of selection and replacement ofarbitrators and, when ad hoc arbitration is chosen, should select anappointing authority.


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Where applicable, time limits for each event, for e.g.nominating arbitrator, should be specified.

The parties should specify the language of arbitration.Language of documentation, effect of choice on

arbitrators/counsel must be considered. The parties should indicate the rules of law governing

the contract, venue, seat of arbitration, etc.

Alternative dispute resolution mechanisms such asconciliation, DRBs, expert determination, etc. should beclearly specified.

Parties may consider specifying the powers of thearbitral tribunal to grant interim relief.


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The clause should specify a period of time for negotiation ormediation, triggered by a defined and undisputable event (i.e. awritten request), after which either party can resort to arbitration.

The clause should avoid the trap of rendering arbitration permissive,

not mandatory. This happens when the parties provide that disputesnot resolved by negotiation or mediation may be submitted toarbitration.

The clause should define the disputes to be submitted tonegotiation or mediation and to arbitration in identical terms.Disputes which are not intended to be subjected to mediation /conciliation should be explicitly mentioned.


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The clause should address the consequences of

the multiplicity of parties for the appointment of

the arbitral tribunal. In a multiparty context, it is

often not workable to provide that 'each party'appoints an arbitrator.

The clause should address the proceduralcomplexities (intervention, joinder) arising from

the multiplicity of parties.


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It is common for a single international transaction toinvolve several related contracts. Drafting arbitrationclauses in a multi-contract setting presents specificchallenges. Expert advice should be taken beforedrafting such clauses.

The arbitration clauses in the related contracts shouldbe compatible.

The parties should consider whether to provide forconsolidation of arbitral proceedings commencedunder the related contracts.


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THANKYOU

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