This page contains the ADR Notes of the 5 Year BALLB Hons course in law schools. These notes briefly discuss the history, philosophy, objectives, and laws concerning Alternative Dispute Resolution in India.
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INTRODUCTION: ADR NOTES
ADR concerns with Life Skills
1. Conflict and dispute management
2. Dispute (we don’t want to talk to the opposite side due to the breakage of communication)
2 types of Dispute resolution
1. Adjudicatory
2. Non-Adjudicatory
ADJUDICATORY
We look for the 3rd neutral party to adjudicate upon our dispute.
It is of two types-
1. Litigation
1.1 Adversarial
1.2 Inquisitorial
2. Arbitration
A lot of autonomy in this compared to litigation.
Parties can choose-
1. Judge
2. Venue
3. Time
4. Procedure (Arbitration proceedings not bound by CPC 1908)
5. If an international party, the law as well
Arbitral Award under Arbitration is as good as Judicial decree and is executable by courts. (Order 21 CPC)
NON-ADJUDICATORY
No adjudication in this
It prevailed in rudimentary forms in ancient times but was gradually swallowed by state established court systems.
Role of 3rd person is only as a helper or facilitator
Types–
1. Mediation
2. Conciliation
3. Negotiation (3rd party involved)
Generally, people hire expert negotiators on their behalf.
Advantages–
1. Confidentiality of dispute and proceedings
2. Less Cost
3. Can further improve relationships in future
In Mediation and Conciliation 3rd party only acts as a facilitator.
Order 23 CPC– All civil disputes can be settled outside of court.
In India, the conciliator is supposed to have a pro-active role unlike in Western Nations
The is no law for mediation in India but all High Courts have formulated some rules.
Lok-Adalats
Conciliation
Concept of pre-litigation settlement
In the US and Canada, pre-litigation ADR is mandatory
S.89 CPC-After litigation is initiated, the court can refer the parties for ADR.
WHAT IS THE NEED FOR ADR?
Problem with civil litigation
1. Roscoe Pound (1904)- “Popular causes of disaffection with civil courts”
2. Overburdening of courts
3. Rigid procedure
4. Post-Modernism– Questioning dominant narratives and mainstream and power of states.
5. Waves of access to justice movements
It was initially thought that courts should be available to everyone but when it could be made then people stressed Legal Aid and after that focus shifted to simplification of laws.
6. Ineffective remedies provided by courts
Eg.- In matrimonial disputes, the inability of courts to force a spouse to live with another.
You cannot promote a system that has no merit or just because some other system is failing.
The term ADR was given by Prof. Frank Sander.
When parties have a legal dispute, they have certain other non-legal issues as well. But the court only addresses legal issues. So only the tip of the ice-berg is decided. Parties also do not understand the proceedings. Parties, therefore, feel alienated from the system.
7. Lack of litigation system in trans-border commerce.
8. E-commerce and cyber-space problems.
9. Shortcomings of litigation in Commercial disputes.
10. Cost of litigation.
11. Duration of litigation. (whole day)
12. Litigation Stress which affects one’s health, productivity, relationship, etc
13. The social stigma attached to litigation.
So people were encouraged to for productive dispute resolution mechanisms like ADR.
OBJECTIVES OF ADR
Clarification of the wrong and the Rectification of the harm.
1. Facts collection takes place in litigation as well.
2. The difference is in the purpose of the collection of facts.
3. In Litigation, it is for substantiating one’s claim and trash others.
4. In ADR, the whole purpose of collection of information is to facilitate give and take where people who are giving something to another person, don’t feel the pinch of it in a negative manner but under the impression that the other party needs it more than them.
5. Most of the time, people are not able to do this on their own, hence 3rd neutral party gets involved.
Assumption of responsibility
1. In litigation accused is not under any responsibility. It’s the prosecution who has to prove the case beyond a reasonable doubt.
2. In ADR, due to the mutual understanding of requirements and needs of each other.
Improvement of relationship.
1. In litigation, the relationships are damaged.
2. In ADR, there is a scope of improvement.
3. Even if parties have to part ways, they should amicably.
4. Overcome the irrationality of the dispute. Because in ADR made to understand each other’s interests.
Moving Forward
1. Litigation, cannot foresee what happens to parties after the judgment.
2. ADR process wants that people have satisfactory experience so that they can amicably sort out future disputes as well.
3. ADR system has a different conception of Harm. Harm is considered to have a relationship aspect. The overall impact of the harm has to be studied.
4. A different conception of Justice.
5. The multidimensional concept of Justice.
6. Building an atmosphere of trust.
PROCEDURAL VALUES OF ADR
Essentials for successful ADR
In litigation, such values include fair-play, due process, etc
In ADR they are-
Participation
1. In litigation, there is indirect participation through counsel.
2. The incentive in litigation is- winning one’s case and prevent a miscarriage of justice.
3. The very core value in ADR.
4. For extraction of truth by making the parties sit across the table. (Collection of fact is important in any adjudication)
5. Psychological reason-they feel a sense of empowerment. The impression that they own and control the process. In litigation, once they appoint the advocate, everything is out of their hand.
6. Participation is confidential-
7. Respect should be given to all.
8. The common enemy is the dispute.
9. The dispute is depersonalized.
Fair Treatment
1. No procedural law is applicable on ADR but PNJ (Natural Justice) is applicable.
2. Parties are given a voice.
3. Respect of Agreed outcome
4. New York Convention provides for international recognition to Arbitral Award.
5. The legal system of any country should give recognition to the arbitral award.
6. The flexibility of process and outcome
7. Access to justice is important in any system
8. The process should be user-friendly and not over-bureaucratic
9. So that there is a possibility of a creative solution to disputes.
Confidentiality
1. In order to ensure a free and fair discussion amongst the parties.
2. Problem-
3. Takes away transparency.
4. Any proposal, admission, and confession are confidential.
5. There may be a situation where parties may enter into an agreement that is not in the interest of society.
6. Marc Galanter calls ADR as second class justice.
7. Eg- an MNC produces defective goods. The affected party enters into an ADR settlement and due to the confidentiality of the matter, people never know what products are defective.
Early Intervention
1. ADR process seeks early intervention in dispute rather than letting it the full-fledged legal battle. The aim is to de-escalate the dispute and preventing the dispute from occurring.
PROBLEMS WITH ADR
Marc Galanter (*)
1. Confidentiality which results in a lack of transparency.
2. Imbalance of power-No the same negotiating skills in all parties. This differential affects bargaining power.
3. Justice may be compromised due to compromised settlement.
Oven Fist Article- ‘Against settlement’
Imbalance of Power.
The choice is not actually a free choice
Choose is constrained by limited financial resources. Also, not all people are able to do a cost-benefit analysis.
A person with lesser financial resources has a temptation to get the remedy asap even if it is lesser. Generally in Indian ADRs, if A has caused 5000 damage to B. Arbitrator will ask B his demand and then A how much he is ready to pay. The settlement value reached is generally is half of the actual value.
In ADR, 3rd person has no neutrality in the process unlike a judge in a litigation
Lack of proper due-process
Lack of authoritative consent.
Eg. the dispute related to a company. In ADR, there is no power to check whether a 3rd neutral person has the consent of all members of the organization.
But nothing bars ADR personal from calling other interested persons.
Lack of continual judicial authority and scrutiny
ADR process thinks that with the settlement, things will come to an end.
There are problems related to execution etc.
Courts sometimes give continuous mandamus such as in environmental cases.
The primary case is peace rather than justice.
Diminishes the remedial value of the law.
Over a period of time, there will be a complete loss of precedent and public standard of conduct.
Law performs the social function as judges are appointed by the State (Public). This is missing in ADR.
Lack of accountability for private and public institutions.
Because everyone will go for a confidential ADR process.
ADR will lower the image of the Judicial system in the eyes of people.
It’s alternative, not the primary.
NEGOTIATION
We are negotiating in our everyday life even if there is no dispute. We even negotiate with ourselves in certain cases.
Purpose of Negotiation-
Favorable outcome
Get to the solution ASAP
Concern about an ongoing relationship (Holistic)
The agreement should not be against the societal/legal norms.
Cater to the legitimate interests of parties.
Default ways of Negotiation
We hold on to the extreme position (of demand), stick on to it for some time and then start narrowing down our demands by giving some concessions.
Problems-
U tend to be associated with the demands you are making. The more u justify your demand, the more u get associated with that demand and more difficult for u is to budge from that demand. It gets associated with your ego in some way. Fear of not losing the face. Earlier u had one issue-the demand but now u have issues of saving our face and ego. We arbitrarily select the extreme/maximum position. Just arguing over ur demand without looking at other perspectives.
Involves a lot of time and energy. U tend to dominate the other side. U try the corner the other person. This affects the relationship.
Another person can be equally dominating or can just walk away.
Two persons-soft and a hard bargainer. Former wants an amicable agreement. The latter is interested in getting what he wants from the agreement. He is not concerned about other things.
There has to be barter between relationship and demand.
That’s why principled negotiation looks down upon such bargaining.
This kind of bargaining does not help in a negotiating where there multiple parties such as in UN. People with common demands club themselves in a group.
Principled Negotiation PN
In principled negotiation, we have to look for mutual interests and if there are contrasting interests, we should look for objective criteria to resolve that contrasting interests. You also increase the size of the pie.
STAGES IN A SUCCESSFUL NEGOTIATION
Stage 1- Depersonalize the Dispute
You have to separate the problem and disputants. In two stages-making another party to depersonalize the dispute as well as yourself.
When we have a dispute, we tend to be angry with the other person.
Everyone is bothered about what others think about them. Everyone has their own perception of things rights and wrongs. Because of this, from a set of facts, we tend to give importance to only those facts which are going to substantiate our interests.
So Some basic human traits should be known to any good negotiators.
People are not the problem, the problem is the problem.
Every negotiator have to main interests in the dispute-
The substance of the dispute
Relationship with the other person.
3 problem areas in dealing with Human beings-
1. Perception
You have to understand the perception of another party as well as yours.
Because of ingrained value system and social upbringing. Difficult but one can make an honest effort.
U have to get into their shoes to know their needs and wants. It can help u to rephrase the demand.
U should not deduce their intentions from your fears. If u have a disagreement with a person and u see a person running towards u, u might think that another person is coming to fight with u.
2. Emotion
You have to understand the emotions of another party as well as yours.
Play an important role in all disputes.
Emotions need to be handled first.
Have to control emotional outburst.
3. Communication
Lack of communication has to be overcome.
You have to understand the communication of other parties as well as yours.
Problems–
We talk as if the negotiation is like a debate or a trial to persuade the 3rd person.
You have to persuade the other person u are negotiating with and not the 3rd party.
Talking to harass the other person
Another person is not listening
Misunderstanding
These are also the major reasons for the breakdown of negotiation.
Solutions
There has to be an active listening (to ensure the trust)
To make them feel that u understand them by acknowledging them properly.
Acknowledge some of their interests as appropriate.
Unless and until there is some common ground, there can be no further discussion.
Another problem is another person will keep repeating.
By default, we don’t give too much importance to claims of other persons because we think that another person will think that his demands are more legitimate.
Don’t keep putting the fault on another person. He will go defensive.
Use a neutral language and not adversarial language.
Instead of calling another person cheater, fraud, u can say that u feel that demand is a little bit higher, so can u please justify it.
Eg-Two parties claim the same orange.
Either u snatch the whole thing by hard-bargaining or donate it by soft-bargaining.
The Question u put is- Why u want it?
Because it is easier to negotiate on reasons of interests.
Unless there is a trust, other parties would like to reveal his secrets.
Understanding the needs and interests of another party as well as ours.
You have to make a chart of their demands, needs and interests and yours as well and then do a comprehensive analysis.
Once u start asking questions (Why) it becomes easier for you to make a proposal?
Recognition–
Everyone wants that the other party recognize the fact that they have been wronged.
In many cases, people are just willing to take back the whole case because other party rendered an apology.
Control
If u have control in the whole process, it is easier for u to resolve the dispute.
Reasons why people are not able to arrive at a creative solution
Premature Judgement
Fear that people will reject the idea
We feel that there is a need to search a single answer
A person in distress cannot be expected to be creative.
We feel some solutions are fixed
For example in the partition, u presume that the house has to be necessarily divided by whatever means.
The pie can be enlarged and then divided
By generating values.
By dividing it into two stages
Come up with the idea to enlarge the pie
Dividing the pie.
You need to have an objective way to decide the irreconcilable difference-
People generally have toss of coin etc to decide objectively or if an issue of dividing a sweet, then one person cuts the pie and others choose it.
If there is a divorcing couple and the dispute is regarding the custody of the child. The person who does not get the custody of the child gets the visiting right. So first they are asked to devise a visiting plan before the decision of court regarding the custody.
Example-U r asking 10 lac, another party is giving only 2 lac. Either u can keep silly bargaining or walkway. Or you can ask why u want 10 lac or want to give only 2 lac. Look at the market value.
What will happen if there is a big power difference between parties?
When you are bargaining with a big company, there might be a possibility that u reach an asymmetric agreement. Your interests are-
Prevent the pressure
How u can maximize maximum no. of interests?
In such cases, u decide a bottom line, the minimum beyond which u are not going to budge.
If u are going to sell a car, u fix a bottom line. Generally, people fix an arbitrary bottom line because of emotions. Because of bottom line ur mind is closed to any creative solution. This is unskilled negotiators technique.
Another way– Developing your BATNA. This is the best technique. Batna means deciding other alternatives if there is no agreement, how long can you keep?
But u also need to be careful here. Because Batna may prevent u from reaching an agreement because u feel that u already have an alternative. The problem will also arise in choosing the best amongst the alternatives.
If we are giving for a negotiation. We know that our Batna is going to court or arbitration. We need to weight the Batna. The problem with negotiators is that they are under the psychological impression that they are under a superior bargaining position because of the research on Batna they have done.
You can also do research about the BATNA of another side.
NEGOTIATION JUJITSU
If u are following the whole rules of the game and other person is not.
You side-step the attack of other person and deflects it one them.
Action and reaction cycle-The more the person gets defensive, the more other person vilifies so Negotiation Jujitsu helps in such cases.
If another person is unreasonable, rejecting all your proposals, then u can ask a question-
Why u think my proposal is unreasonable?
Negotiation Jujitsu-by asking them difficult questions by reality testing.
To act like a rational person.
You may also employ a neutral 3rd person to arbitrate.
Some other Tricks-
Earlier it was thought-
You should call the other party to negotiate in our place to give yourself a psychological boost.
Have more people on your side accompanying you.
Later research showed that going to their place is more effective because it creates an impression that u have already given them something.
Another school says that u should choose a 3rd neutral venue.
Good Boy, Bad Boy strategy-The advocate act like a good guy while the client act as a good guy in order to influence the other side.
The threat of walk-out
Importance of Negotiation is not only in negotiation but in other adjudication as well.
WHY NEGOTIATION FAILS?
1. Strategic Reasons
Lack of trusts– People are always under impression that another party is using some trick.
So the willingness to share information is necessary.
If negotiators are stubborn on strategies, it creates an atmosphere distrusts.
Because of the distributive nature of negotiations, parties are under negotiators’ dilemma as to how much information they should reveal, and sometimes this leads to information asymmetry.
Negotiators are always fearful of the amount of information they should reveal in order to avoid being exploited by the other side.
2. Principle-Agent diversion/conflict of interest-
Sometimes people go to the negotiating table along with other persons or advocates and other person’s interests may conflict with the principle.
For example, if a company is involved in a dispute with another company, directors, and shareholders of the same company might differ.
3. Lack of Rationality and the presence of Suspicion
The cognitive barrier-mind is not able to possess the information in a correct manner because it is unable to function rationally in a stressful situation.
If u are going to a theater and there are two doors. It costs 20/-if u go through gate 1 but in gate 2, there is a lottery system-it may cost u either 0 or 100. Research shows that people generally chose gate 1 because most people are risk-averse. General Human tendency is to prefer status-quo.
In a dispute, ur advocate has suggested you accept a proposal if other party offers it. The other party offers the same proposal. Will u accept it?
If u go for shopping and the shopkeeper offers a price which u were thinking on the way. Will u accept it?
Generally, we look with suspicion of any proposal made by the other party.
Parties have reached an inefficient agreement.
Certain disputes can never be resolved
Value system
Religious values
CONFLICT MANAGEMENT
Gaining momentum today
To understand conflict management people need to know-
The reasons for conflict-
Fight over limited resources (anything of any value)
Lack of clarity of roles.
Personality clashes.
Power and status difference.
Goal differences.
Breakage of communication.
Factors need to be considered-
Importance of issue at stake
Importance of relationship
Time to dispose of the dispute
The relativity of Power.
Kenneth Thomas and Ralph Kilmann- Developed conflict role instrument
Talked about 5 different Conflict Management Responses
1. Avoidance
2. Competing
3. Accommodating
4. Compromising
5. Collaborating
These responses are based on two dimensions-
1. Assertiveness-
2. How much u need to cooperate-
Avoidance–
Default method we have. We generally deny/ignore the existence of a dispute.
Because we don’t want to escalate the dispute.
The apprehension of danger from a more powerful opponent.
The pettiness of issues and relationships.
That time and place are not correct.
People who regularly use this technique is not good. Creates an apprehension that u lack self-esteem.
Competing-
It’s basically a hard position bargaining.
You are not interested in the interest of the other party.
When the issue is more important than the relationship.
Time constraint.
You feel u are more powerful and hence can assert your demands.
Not very good when the issue concerns close inter-personal relationships.
Not good in the long run.
A person may make a lot of enemies.
Accommodating-
Soft position bargaining.
You are willing to let go of your interest.
The relationship is more important to u.
Or u use it as a strategy for future bargaining power.
Or to create goodwill.
The not very good agreement I long run because the person may feel used and exploited.
Compromising-
You are ready to split the dispute.
Both the relationship and the issue are equally important to you.
Time is less.
Power is almost is equal.
Most commonly used method.
Not best because u have to let go of your interest. But better than nothing.
It’s a kind of truce.
Collaborative-
Try to find out an amicable settlement.
High on assertiveness as well high on cooperativeness.
Both issues and relationship are equally important.
Power is also equal.
Parties have a lot of time.
CLIENT COUNSELING
Role of the lawyer
How advocates come into the picture.
The conventional way of counseling a client-
Hierarchy in the relationship.
Advocates are considered to be greedy people.
Advocates behave like an expert
If the client is telling the problem, advocate needs to give a prompt answer.
This is the expectation of the client from her advocate.
But this has ramifications as an advocate might not give good advice if she gave an answer in haste.
Generally, advocate behaving as they as are so busy so as to give an impression to the client that advocate is so busy. He gives so much time to the client, the client might feel that the advocate has no other work and going to extract all money from him.
Advocate after listening 2-3 lines might give assurances
Problem–
The difficulty for an advocate to ask money. This task is generally given to junior associate.
More problem if he loses the case
So advocate can take the help of the ADR method.
Two things advocate can do-
1. Therapeutic Jurisprudence-
2. Preventive Law-
Firstly, Interviewing and counseling of the client have to be done.
In interviewing time is given to the client to explain his whole case.
Then counseling is to be done in the following manner.
Therapeutic Jurisprudence-
Therapeutic means the process of healing.
Lawyers are generally trained to look into two aspects- legal and financial. Therapeutic Jurisprudence says that other aspects should also be looked into such as emotional and psychological status which the lawyer should understand. This is the quality of Emotional Intelligence (EI) to cater to the needs of the client.
Advocating has to do the drafting adequately and not just exaggerate everything.
He has to see whether what he is doing will have a positive or negative effect on the client.
He has to understand all the needs of the client.
Because if the client is impressed with your work, even if u lose the case, the trust will still remain.
Preventive Law-
Law should be used to prevent the dispute from happening.
Advocate has to be in touch with the client at all times.
The client should always take the advice of a lawyer before entering any business in order to prevent future dispute.
Four things u have included to ensure u are including Therapeutic Jurisprudence and Preventive Law in your advocacy career.
Identifying issues when there are psychological concerns.
Determine the legal procedure having a positive effect
Analyze future legal procedure through a Preventive Law having Therapeutic Jurisprudence.
We have to be far-sighted to see the ramifications and consequences of the actions.
Establish a system for dealing with unanticipated events in order to avoid the non-therapeutic legal procedure.
Unless and until you are in touch with our client throughout, u cannot know unanticipated event.
Basically, the whole purpose of this is to win the trust of the client.
When u have to choose the options of dispute resolution for our client, u have to keep in mind theses consideration.
Whether he wants to confront the opposite side?
You can suggest him negotiations.
Whether he wants to tell his story to a 3rd neutral person?
If a client feels that negotiation is not going to work out, u can suggest mediation or conciliation
Whether want to testify in a courtroom?
Whether he can withstand the publicity of the court process.
But don’t lose your own relevance if choose some other option
Whether would like to detach himself from the process as far as possible?
Depends upon the time and emotions of the client.
GOOD FAITH IN NEGOTIATION
Implications of good faith clauses-
Parties have a duty not to negotiate with a 3rd party when negotiation is already happening with the 2nd party (in violation)
Lockout and exclusivity agreement.
It is your duty to tell another party if there are offers from other parties.
Duty to disclose-
In the US if there is a concealment of material facts, it may amount to a breach of good faith and misrepresentation.
The requirement of good faith in negotiation-
Participation should also be in good faith.
That u are on the table with the honest intention that it will resolve the dispute.
That does not mean entering into an agreement not conducive to our interests.
Difficult to determine the yardstick of good faith.
How the court enforce good faith?
If in agreement, u are getting 50000 and refused. In court, u are getting 3000. Then the court will infer that good faith has been breached.
Not many countries enforce good-faith because it will lead to satellite litigation.
MEDIATION
The problem with the definition.
Where parties in dispute employ a 3rd neutral person to help them arrive at a settlement but who does not have any decision making power.
Two school of thoughts-
1. Mediation is a facilitated/assisted negotiation. The role of the mediator is just the facilitate the negotiation between parties.
2. The role of the mediator should depend on the need of the parties. If the parties want a passive role, he should do a passive role. Talks about the grid of mediation orientation-
Pure Facilitative to Pure Evaluative.
Broad-Broad-Narrow-Narrow. At one spectrum it is pure facilitative and at another spectrum, it is pure evaluative.
Evaluative mediation means the mediator gives an opinion about the strength and weaknesses of each party.
If there is a dispute, there will be litigation, business, personal, and community issues/interests.
If the mediator is focusing on litigation issues, he is doing a purely evaluative role.
Court only addresses correctional issues.
Sometimes parties just empowerment by the whole process.
ADR has two goals-
1. To resolve the present dispute
2. To help the parties to better resolve the future dispute and prevent future disputes.
Community aspect example-
Labour Issue-
First, they need to resolve the current dispute
Secondly, contemplation about changes in the labor policy of the organization.
Evaluative Mediator-
Assumes what parties expect from him for evaluation of the strength and weakness of their case.
Requires some knowledge of the law.
He is required to give his opinion regarding the weakness and strengths of the parties.
Should know how to weigh the evidence.
Mediator plays a dominant role.
Will bring all the adversarial practices of the litigation.
Facilitative Mediator-
Helps the parties talk to each other to gain the confidence of each other. Passive role. Support the parties wherever he feels there is a need.
All characteristics of ADR is present here.
Can take care of all issues be it litigation, business, personal and community issues/interests if the parties want him to do that.
Pros and Cons of these processes-
Evaluative mediator seems to be better serving the cause of Justice. But people can go to court for the same thing.
Self-determination aspect is missing.
There can be a more creative solution than facilitative mediation such as PRINCIPLED NEGOTIATION where u increase the size of the pie.
When the parties know that mediator is going to evaluate, there will be less communication between the parties. Same adversarial tendencies of the court will come into the picture. More polarization.
There may be no settlement in the evaluative model. If the evaluator mediator tells one party that he has a very good case. Then he will be less likely to settle.
Mediation is based on two principles– 1. Self-determination/party autonomy and 2. Neutrality of the mediator and the process.
Can the mediator be held liable if he gives wrong/ineffective evaluation?
In spite of the detailed rule of discovery in litigation, parties try to hide facts. In mediaton, they are more likely to hide facts. The element of uncertainty more in mediation.
If any system adopts the evaluative system, non-lawyers are out of the profession. However, the theory of mediation does not place any such demands that only lawyers can be mediators.
Mediators are most of the time doing evaluative mediation.
Legal illiteracy of the people.
Two types of mediation/negotiation-
1. Right based-
Hard-position bargaining
Not going beyond the monetary aspect of compensation
Facilitative mediation is an example of right based mediation
2. Interest-based-
Soft-position bargaining
Looking at another aspect as well.
MODELS OF MEDIATION
Pragmatic Model
This is the problem-solving model
The principled negotiation method
The mediator is expected to help the parties
Developed by Harvard Law
Depersonalize the dispute
Focusing on the interest
Objective criteria
The parties can do anything- soft-position, hard-position, facilitative, evaluative, etc.
Problem-solving is a facilitative model. The mediator will depersonalize the dispute. Then move from position to interest, etc. Certain of these steps require a reality test. This brings some element of the evaluative model.
Issues-
Imbalance of Power
This is also the general critique of the ADR process.
Principles of contracts should not be the concern of the mediator. In 2 hours he cannot do anything to remedy the balance of power but he should try to obliquely help the party at the lesser pedestal. At most he can not sign the settlement. If signed by the mediator, the settlement is as good as a decree of a court. But parties can go to the court under S.89 CPC and pray that they have settled. But if they breach the agreement, it cannot be enforced.
Mediator has to remain neutral in the eyes of the parties.
It is understood that parties have gone for mediation because they cherish self-determination.
Confidentiality is also an important aspect.
2. Transformative Model
Aim is to transform the individual disputant
Two Goals-
Empowerment-when an individual disputant becomes rational enough to understand his underlying interests and stakes.
Recognition-when individual disputant after empowerment also starts understanding the interests of other sides as well.
Purely Facilitative
People thought that the previous model was functioning like a pre-trial judicial settlement like Lok-Adalats.
Problem–
The Problem-solving model was thought to be perpetuating inequalities.
This model is the most facilitative. The mediator can achieve the two goals by-
Listening to the parties
Allowing them to talk
Making them do self-reflection
Making them understand the legitimate demands and interests of another party.
This model is appropriate for inter-personal disputes and not pure commercial disputes.
Seen as an opportunity for growth.
They have to do the cost-benefit analysis of the options presented.
Issue of Power-Imbalance
It is not a concern here.
It will affect only when there is an issue of rights and liabilities.
Here right and liabilities are not decided in a particular context but the primary aim is transformation.
Narrative Model
The result of post-modernist discourse, constructionism, deconstructionism. Inspired by Derrida and Fuco.
The dispute lies in the stories/narrative of the people.
This model was given by John Winslet and Gerald Monk.
Believes that dispute actually occurs due to the narrative of the parties.
Mediator has to identify the conflict-saturating story and deconstruct it.
Then has to explore the alternating story already existing prior to the conflict-saturating story and deconstruct it.
Then present an alternative story.
He cannot be neutral.
He is there to expose the thinking pattern of the parties.
Fusco says that Power is not coercion but knowledge. Power is a commodity that can always be renegotiated. There should be a holistic understanding of power.
The moment the conflict-saturating story is deconstructed, parties get back the power.
Issues in ADR Process
Confidentiality
All the ADR process provide confidentiality of the process.
This also ensures neutrality.
They also provide for neutrality.
Board of conciliators under the Industrial Dispute Act. A conciliator has to send a report to the government. This has an impact on confidentiality.
Countries have started incorporating exceptions to confidentiality to deal with mischiefs, crimes, etc.
In some cases, the mediator can be called as a witness.
If he notices deception, he can call off the mediation.
ADR is considered confidential but not for the purpose of enforcement.
2 types of court-annexed ADRs-
1. ADR services in all courts
2. Services not provided by the court.
Referring to the parties to ADR.
Motiram v Ashok Kumar 2010
A family dispute was referred SC mediation center.
Good faith participation issue was brought before SC
Held that mediation proceedings are confidential. The mediator can’t sent a detailed report of mediation.
Salem Advocate Bar Association v Bar Association 2005
Issues–
Whether the court becomes prejudiced in case there is no settlement suggested by the court?
Effective implementation of S.89 CPC
S.89 breaches confidentiality of ADR
No. He is there just to refer and not discuss further than that.
No. That even after settlement, the matter is in the hands of parties. They can withdraw court proceedings. But they can also get it enforced. Mediation privilege can be waived by the parties.
Perry Kansagar v Smriti Madan Kansagar
The case of custody and guardianship of children. In such a case, confidentiality is not absolute.
The mediator appointed a counselor in place of the court.
UNCITRAL Convention on Enforcement of Mediation settlement (Singapore Convention)-provides for honoring of mediated agreements in other countries on a reciprocal basis.
There has to be settlement agreement in writing
Some proof that this settlement has been arrived in mediation (by providing a signature of mediator and letter from an institution which facilitated that)
Enforceability
This is a major issue with ADR.
Unpredictability
In meditation, this problem occurs
Even if parties reach a settlement, its mere contract.
Two types of Agreements-
1. Agreement to mediate clause in a contract
2. U follow the mediation process and reach a settlement
But New York convention is about Arbitration provides for the enforceability of both Agreements in an arbitration.
UN Convention on Mediation is on similar lines as NYC on mediation but only provides for the second type of agreement and not the first one.
But generally, the agreements talked about are of commercial nature.
India has not ratified both conventions.
When courts can refuse to enforce the mediation agreement?
Bad Faith on part of mediator
Partiality of Mediator
Mediator has breached any code of conduct
Abuse of the mediation process
Breach of Duty of disclosure by the mediator.
Neutrality of the mediator
Impartiality of mediator
He should have no interest in the outcome of the dispute.
Neutrality to be looked from two perspective-
1. Procedure
2. Structural Fairness
Structure of dispute between parties and the relationship between parties.
Some people say that mediator cannot do anything about the structural difference between parties.
Others say that he can change the structure to some extent.
Process Fairness
Both the parties have a stake in the selection of a mediator
Both the parties have a stake in the procedure
Same timing gives to parties by the mediator in caucuses.
Outcome Fairness
He should try that agreement reached is also fair.
If the settlement is one-sided, asymmetrical, he can refuse to sign it.
Content
Mediator Liability
Two interlinked issues-
1. Mediator Liability
2. Mediator Immunity
Two process
1. Voluntary
In this case, there is a client relationship with the mediator and he can be held liable as he is charging fees.
Action on conflict of interest
Breach of confidentiality is another issue where the mediator can be held liable.
But the moment parties file the case against a mediator, confidentiality of the process will be breached so everything has to be balanced between two conflicting goals.
Court-annexed Mediation
Since parties do not pay any money so HC rule provides for complete immunity
However, he can be depanelled as a mediator for abuse of process.
Two school of thoughts regarding immunity of mediator-
The mediator should be immune like Judges
Should not be immune because functions are not like Judges
In Pro-Bono cases, the mediator is granted immunity
Legality and Ethical Issues
Concerns regarding compulsory/mandatory mediation.
You can forcefully take the horse to the river but cannot force it to drink the water.
Issues
Pressure to Settle
MEDOLA or Med-Arb (Mediation-Arbitration)
(S.30 of the Arbitration Conciliation Act)
Initially, there will be an effort to settle the dispute by mediation which if fails then mediator assumes the role of Arbitrator.
Pros–
Settlement because Arbitration is adjudicatory in nature and is binding.
Cons–
Takes away the voluntary character of the process.
Sub-optimal settlement
Solution
Have a different person as mediator and arbitrator.
It can add to the cost and time.
Why mandatory ADR?
1. Overburdening of Court
2. Post-retirement benefits of Judges.
Policy considerations in mandatory ADR-
Party Autonomy, consent of parties, etc
How fair is it for a judge to refer a case to mediation?
The duty of Judge is to adjudicate
By referring to ADR, isn’t he abdicating his responsibility?
When the parties choose the ADR process it fair but if the court compels them, it does not seem fair.
This mandate for compulsory ADR should be for limited time and purpose and not for all times to come.
Problem with arguments in favor of compulsory ADR.
Participation in Good Faith compromised in compulsory ADR.
Whether there is a conflict between neutrality and confidentiality?
Uncitral proposed replacing the word conciliation with mediation.
The requirement of Good Faith Participation.
Issues–
1. Non-appearance of Parties
2. Parties Appear but pay no interest in the process.
3. The content of the settlement is problematic.
TWO TYPES OF ADRs
Voluntary ADR
There is a dispute resolution clause in the contract of parties.
Even if there is no agreement, parties on their own go for ADR
It is assumed that parties have knowledge made the choice of not going to courts.
Once the parties have decided to arbitrate, there are various national and intl. agreements recognizing the framework of Arbitration.
THE voluntary ADR process is not binding except in Arbitration.
Mandatory ADR/Court Annexed
This concept was not accepted for a long time because of the undermining of the voluntariness character of ADR.
Roscoe Pound’s article on courts was rejected.
In 1976 a conference in the US was held on the theme- “Popular causes of disaffection against the administration of Justice.”
ADR was on the agenda.
It was acknowledged that the court cannot handle all disputes.
That there should be a search for ADR
Recognized that litigation is not best for a certain kind of disputes.
3 things have to be done-
Types of ADRs
Qualities of ADRs
Types of Disputes
Civil Reforms Justice Act introduced ADR in the US-
Were introduced as a voluntary process.
They conducted pilot ADRs.
It was noted that people were not interested because of so many reasons-
People do not want to experiment with something which is new
Adversarial tendencies.
Lawyers were against ADR process.
Doubts about the quality of services.
So ADR was made mandatory.
Mandatory only at the first stage.
How does it function?
Either court directs parties to choose ADR
S.89 of CPC
The statute mandates that.
Legal Service Authority Act.
Commercial courts Act.
Concerns regarding compulsory/mandatory mediation.
You can forcefully take the horse to the river but cannot force it to drink the water.
Pressure to Settle
Non-participation of parties.
When the parties choose the ADR process it fair but if the court compels them, it does not seem fair.
This mandate for compulsory ADR should be for limited time and purpose and not for all times to come.
Problem with arguments in favor of compulsory ADR-
Participation in Good Faith compromised in compulsory ADR.
Whether there is a conflict between neutrality and confidentiality?
Uncitral proposed replacing the word conciliation with mediation.
The requirement of Good Faith Participation.
Issues–
Non-appearance of Parties
Parties appear but pay no interest in the process.
The content of the settlement is problematic.
Multi-Door Court House
Promote ADR through the court.
People in the screening department evaluate the case and people will accordingly choose that door.
Training and Qualification all over the world-
Differs in different countries
Generally, there is 40 hours of training to become a mediator. Then he has to settle 10 cases under Senior mediator. Sometimes evaluation is also conducted.
The approach in Private Mediation
One school says that the mediator should also be an expert in the subject matter.
ADR PROGRESS IN UK
Lord Wolf Committee 1994 recommended reforms in civil justice.
He identified 3 important problems in the Civil Justice System
1. Cost
2. Delay
3. The complexity of the Process
That we have the same process for 5 Rupee claim and 5000 Rupee claim.
Proposed 3 solutions-
1. Pre-Action Protocol
2. Judicial Case management
3. ADR
4 Objectives
1. Avoidance of litigation
2. Encouragement of settlement
3. Avoidance of adversarial attitude and promoting cooperative behavior
4. To reduce cost, delay and complexity
PRE-ACTION PROTOCOL
1. Prior to litigation or trial
2. Means that prior to litigation commencement, there should be a cooperative discussion between parties.
3. Cooperative and not adversarial communication to explore the possibility of settlement.
4. They should exchange documents.
5. U have to identify the issues at an early stage.
JUDICIAL CASE MANAGEMENT
2. Tracking of cases.
3. Introduction of ICT (Information and Communication Technology)
4. Court and case management strategies
5. Judiciary needs to take control of how the case is proceeding and should give a timeline and someone should keep track of the timeline.
Salem Advocate Bar Association case II 2005
ADR
The Wolf Committee advocated early settlement with the informed consent of the parties and not a compulsory imposition by courts.
Earlier parties were settling due to frustration with the legal process at the last stage.
In the final report, he says that the court should encourage ADR but the court should also be empowered to impose sanctions in case of wilful disobedience.
PROGRESS IN INDIA
After the Lord Wolf Committee 1994 in the UK, SC of India also started research in India to identify problems with civil litigation and come up with the plausible commission. Malimath Committee, 127th and 129th law commission reports.
In 1984 an experiment was conducted in Himachal Pradesh.
They established a conciliation cell.
Whenever cases were filed in court, they were referred to this cell to explore the possibilities of settlement.
The experiment was successful.
In 1996 Arbitration and Conciliation Act was passed based on UNCITRAL 1985.
CPC was amended in 1999 and 2002 and S.89 was reintroduced to facilitate
COURT-ANNEXED ADR.
It is a mixture of UK and US system.
The court was empowered to frame an opinion on whether there is a scope of a settlement.
Language borrowed from 1985 UNCITRAL.
To be read with Order 10 Rule 1 (a)
It has to be done after the pleadings ie after plaint and Written Statement has been filed. The court can refer the matter to mediation, conciliation, Lok Adalat, and Arbitration. If that fails matter will come back to trial except in Arbitration which is adjudicatory in nature and is binding.
There is no recognized mechanism of Judicial Settlement in India so the Judicial Settlement will happen as per the Lok Adalat Act.
In the Salem Bar Advocate Association case, the ambiguity of S.89 was challenged. The contradiction between Shall and May used in the section
Justice Jagannath Rao Committee Report-How S.89 has to be applied.
To give effect to S.89
No contradiction between shall and may.
Order 10 Rule 1 also uses shall.
The word shall is for formulating the terms of the settlement and may is for reformulation.
Terms of Settlements
Salem Bar Advocate Association case
1st issue was regarding S.80.
If effectively used lots of litigation can be avoided. 1 person should be designated to reply to all notices under S.80
There should be an element of personal liability attached with S.80
Judicial Impact Assessment
Whenever a bill is introduced in Parliament, a financial memorandum should be given to access the cost for implementation of such law. No. of the court to be created, no of judges and staff to be recruited, etc.
No law should be passed without a cost-benefit analysis.
How to implement S.89
The clarification of the words May, Shall and Terms of the settlement
Pleadings should not be sent to ADR professional and he should start afresh.
Regarding Fees
Court-annexed ADR should be free of cost like Lok Adalats as it is referred by the court. If its free parties are more likely to explore such avenues.
Refund of the court fee
If matter gets settled in court, court fee should be refunded. A similar provision exists in the Lok Adalat Act.
Difference between Mediation and Conciliation?
Conciliation was already provided in the Arbitration and Conciliation Act
In US, the mediator has a more proactive role and conciliator has a more facilitative role.
It was suggested that they should be used interchangeably but the court stressed the difference and said in India we have the opposite of what lies in the US.
Labour law and Family law also use the term conciliation.
Mediation is a recent phenomenon.
ADR and Mediation rules
After completion of pleadings, courts have to thoroughly inform the parties about all ADR process. If parties don’t want to preserve any relationship, they should go for Arbitration. If they want to preserve relationship they should opt mediation or conciliation. If there is only a purely monetary/commercial dispute regarding the amount they should go for Lok Adalat. Lok Adalat is also a conciliatory forum. A settlement arrived in Lok Adalat is as good as a decree of the court.
If none of the parties want arbitration, the court should look whether they want to go for conciliation or mediation.
If the parties do not agree to any of these proceedings, the court can send them to any process based on its understanding.
But it is not mentioned in rules that the court shall take the consent of parties before refereeing them to ADR.
In another case Anand Raju v Gajapathi Raju, parties were litigating and reached till SC which referred them to Arbitration.
Court formulated 4 tracks-
1. Family issues, rent issues
To be completed in 9 months
2. Monetary issues
To be completed in 12 months
3. Property and IPR
To be completed in 24 months
4. All other cases
To be completed in 24 months
Fixation of the time limit by issuing notice/summon
A tight timeline
A lot of time gets wasted in the procedure ‘Calling of cases’ where bailiff calls the case number to see if the parties/advocates are present. Half of the day is wasted in this.
In HC, parties have to appear before registrar 1 or 2 days before the actual date who will see whether the regular procedure has been followed or not before letting them go before the Judge.
If a person moves an injunction order against another person. The other person will give him a date to appear. The opposite party can appear before that date also. The court will accommodate hearing that matter in its schedule.
Commissioner
Used to appointed under Order 18 for the speedy recording of evidence.
HC has to conduct an exam and those lawyers who pass the test have to the exam.
Afcon infrastructure case 2010-
One party asked that the matter be referred to arbitration under S.89 but the other party objected.
Trial Court said that the word ‘shall’ in S.89 makes it a legislative command and referred it to arbitration after framing 16 issues and HC affirmed this.
The party appealed to SC.
SC identified 2 problems-
Typographical error– mixed the definition of mediation with the judicial settlement.
Today meditation is no longer done under Lok Adalat after the passing of Mediation and Conciliation rules 2004.
Parties can consensually modify the terms of the settlement.
Trial Judge does not have to formulate any terms of the settlement but only has to give a brief the nature dispute and then refer to the appropriate method of ADR.
If the parties want Arbitration, there is no point of formulating terms of the settlement.
Whether the reference to ADR is mandatory?
The section uses the word shall which is a legislative command but the section also says that where it appears to the court that there is a possibility of settlement.’
Cases that will not be referred to the ADR- Rape cases, corruption, grave offenses.
What are the appropriate proceedings?
Arbitration is generally for commercial dispute and requires consent of parties.
Arbitration creates +ve and -ve obligations for parties. It excludes parties right to approach the court. When the matter is referred to arbitration, the role of courts end. Parties have to bear all expenses. And once the award it passed, parties have limited right for review, revision and can only appeal.
So the court said that parties can be referred to arbitration only after their consent in writing. This should be done by joint memo.
Arbitration requires full payment of costs related to the procedure.
Conciliation– Court should again go back to the Arbitration and Conciliation Act and consent of parties is required here as well.
Part III (S.62) of the Act talks about the procedure of conciliation.
One of the party should be sent an invite to the other party.
Expenses will be borne by the parties.
A settlement arrived at is as good as arbitral award and a civil decree.
Mediation– If the case is complex, the case should be sent to mediation.
Mediation services are free of cost
Lok Adalat is also free of cost
The Judicial settlement is also free of cost.
The NALSA Act also provides that if parties settle through this process, court fee will also be waived off.
Judicial Settlement
Mediation which happens under the aegis of Judge.
Lok Adalat
Can happen at the pre-litigation stage.
Parties can opt for Lok Adalat once the court proceedings have started.
If the court feels such and one of the parties want it, the court can refer it after hearing the other party.
Here there is no compulsion for parties to enter into a settlement.
Parties always have the option of coming back to court.
Process and Stage of Referral
Order 10 Rule 1 talks about this.
When the parties are requesting, whatever stage it might be, the court should consider in refereeing the case for ADR settlement.
Caution in a matrimonial dispute.
In one of the case, DK Srinivasan v Deepa 2014, court stressed on pre-litigation mediation in matrimonial disputes.
MEDIATION CENTERS AND RULES
In 2002, S,89 was introduced and then the mediation rules were enacted
Mediation and Conciliation Rules 2004
All HC have their own mediation rules
3 Steps-
Setting up mediation centers
Mediation training
First to Judicial officials and then to lawyers
In Delhi 3 types of meditation centers-
District court
Mediators come thrice a week
The process is free of cost
In civil cases, at S.89 stage, the court refers the parties to mediation center
Parties approach the mediation office which assigns them a mediator who are generally judges.
High Court
Completely run by advocates
Referred to a panel of mediators
Again free of cost
Mediators are paid from the centers.
Pre-litigation mediation also happens.
Matrimonial disputes generally go to women’s commission
Delhi State Government
Known as Delhi Dispute Resolution Authority
Caters to pre-litigation disputes
Currently, services are free of cost.
Mediation and Conciliation Rules 2004
Rule 4: Qualification of persons to be impaneled. Under Rule 3
Retired Judges of SC or HC
District or Sessions Judge is Retired officers of Delhi Higher Judicial Service
Legal Practitioners with at least 10 years standing at the Bar at the level of the SC or HC or District Court
Experts or other professionals with at least 15 years standing
Persons who are themselves experts in the mediation/conciliation
New Rule- 40 hours training
Whether mediators in Ayodhya case are qualified under this?
Rule 4-Disqualifications of Persons
Any person who has been adjudged as insolvent or persons
Rule 26-Fee of mediator/conciliator and costs
Not followed much as mediation is free of cost.
Every advocate has to do pro-bono work.
For every successfully mediated case, lawyers get an honorarium.
In HC mediators are paid proportionally for all the cases he attends. If he is able to settle the case, the gets a higher honorarium.
In pre-litigation mediation, lawyers get sitting honorarium.
Different payments models in different courts.
The settlement is the easiest yardstick to measure success.
Rule 27-Ethics to be followed by mediator/conciliator
On the basis of these ethics, a complaint can be filed against the lawyer.
PRIVATE MEDIATION
In India, mediation is not that strong.
Mediation is not binding in the private sphere.
In court-annexed mediation, there is a possibility of settlement affirmed by the court and then it is as good as a decree.
In private mediation, the settlement is as good as an agreement that can be enforced in court.
The med-arb process can also be followed.
A conciliation settlement is as good as an arbitration settlement under S.30 of Act.
Order 23 CPC allows the party to settle even if they have filed a case.
An arbitration agreement is considered as a powerful agreement. But with this party forego their right to go to court.
Consent award is as good as an arbitral award.
There is a discussion in India to remove the artificial distinction between private mediation and private conciliation. (Distinction in India is that if it is court-annexed mediation, it will be covered by mediation rules)
The distinction between mediation and conciliation-
They are different in India because SC said so in Salem advocate case.
Part III of the Arbitration Act talks about only conciliation. In India, mediation is more facilitative but conciliator is more pro-active.
Uncitral has decided to do away the distinction between different process
In conciliation neutral has to play a pro-active role.
Parties after entering into a settlement in mediation can withdraw that. (Salem case)
If they want the settlement to be binding, they can request the court to pass a consent decree.
In other countries, even in private mediation, parties can ask the court to pass a consent decree.
Part III of Arbitration Act applies to commercial disputes.
Mediation Convention (on the lines of NY Convention) provides the enforcement mechanism of mediation settlement.
ADR PROCESSES IN INDUSTRIAL DISPUTE
ID Act gives an important role to ADR process
The Act provides for conciliation officers and conciliation boards.
CO investigates the case and helps the parties to settle the dispute.
Provides for mediation and Conciliation.
CO is the labor commissioner and the act does not provide that he needs to have ADR skills.
Family Law-
HMA uses another kind of process under S.23. Casts a duty on the court to help the parties arrive at reconciliation and preserve the institution of marriage.
Lok Adalat
It’s under the Legal Services Authority Act which came into force into 1994.
Inspired by DPSP.
Central government initiated a scheme CELAS which drafted the LSA Act.
Provides for the organization of LSAs and Lok Adalats.
Now a new chapter has been added providing for Permanent Lok Adalat.
Free Legal Aid.
The composition of Lok Adalat
Retired Judicial Officers.
Most of the time 3 people serving on the Lok adalats- Judicial officer (serving or retired), Lawyer and a social worker. These days they have also started including skilled mediator.
Jurisdiction of Lok Adalat
Simply excludes criminal cases.
Provides no pecuniary limit. (S.19)
Cases can be referred to at any stages- pre as well as post litigation.
In ancient India, there used to be Panchayats which performed both judicial and administrative functions.
Later panchayat was bifurcated into Nyaya Panchayat and Gram Panchayat.
Could not succeed as people preferred courts.
In 1980s court tried to revive these institutions.
There is no need of advocate in Lok Adalat.
If Lok Adalat is happening, anyone can approach it and it will be free of cost.
If another party does not respond to notice, there will be no sanction.
Chapter VI of Legal Services Act 1987 (S.19-22)
Under S.22 Lok Adalats are deemed to be civil court in relation to certain things.
Can it grant injunctions?
Generally not as it requires leading of evidence.
But Parliament has power to invest such power in Lok Adalats.
Pending Matters-
S.20 LSA Act- Parties have to tell the court that case is referred to Lok Adalat.
When Lok Adalat is happening, all pending cases are automatically transferred to it. (Afcon Industries case)
But in this way, a case gets so less time as Lok Adalats happen for one day only.
The award will be binding means it is final and non-appealable. (based on S.96 CPC which provides that consent decree are non-appealable)
Once the case gets settled, parties can get a refund from the court.
Chapter VIA LSA (S.22A-S.22E)- Pre-litigation Conciliation and Settlement
Establishes Permanent Lok Adalat (S.22B).
Generally Lok Adalats used to happen used to be 4-5 times a year and whenever it happens it used to be for one day.
A party used to get very less time for his/her case.
LSA was created with two purposes- clear backlog of cases and avoid delay.
Though jurisdiction of Lok Adalat is unlimited but only petty cases get referred to it in practice.
Initially people were very happy but later got dissatisfied with the they way things were going in Lok Adalat.
Marc Gallenter and Jayant Krishnan- conducted a research on people’s dissatisfaction with Lok Adalat and concluded-
Psyche of people that a judge is anyway handling both of the cases.
Political Agenda– state has to show that cases are being solved fast. Judges have to earn points for solving as many cases as they can.
Lawyers come prepared under the impression of settlement so they try to bring their issues. Results in disconnect between the lawyer and the judge.
ABDUL Hasan and NALSA v Delhi Vidyut Board
Problems of lok adalat explained.
All these forums were adjudicatory in nature.
Problem of Lok adalat was its non-permanent nature.
So a permanent non-adjudicatory authority was felt. (achieved by 2002 amendment)
If at pre-litigation stage they arrive at a settlement, can they backtrack on it?
State of Punjab v Jallore Singh 2008
SC held that in all cases of award of lok adalats, S.22 of LSA applies along with S.97 and they only remedy is writ petition u/a 226 of constitution.
So permanent lok-adalats PLA for Public Utility Service.
Composition- Compositionis same as a Lok Adalats but non-judicial members shall be from PUSs.
Jurisdiction is 10 lakhs and non-compoundable offences.
Once the party has approached and PLA has accepted, then other party is barred from approaching other authorities.
When a matter comes to PLA, it will never go to court.
Award of PLA is final and non-appealable. (S.22E)
PLA is available only at pre-litigation stage but Lok Adalats are available at all stages.
PLA can propose a settlement to parties which the parties may agree or disagree.
It is not bound by any procedural law.
Criticism of PLAs–
Cost on public exchequer
There were already so many forums.
Problem with treating cases as petty disputes
Second hand justice to poor people.
Composition of members (the problem with decision with majority)
Lack of access to court-once one party has approached, other party is barred from going to any other forum.
Med-arb problem– u cannot say that following med-arb procedure will lead to good justice.
Less flow of information as party know that information revealed can be used later by PLA in adjudication
Lack of fair procedure– majority of members are from non-legal arena.
Final nature of the award- completely excludes the parties from approaching to court.
Bar Council of India v UOI
Raised 4 objections-
1. Hand in glove kind of situation-
PUS approach the PLA as majority members are from PUS.
PUS members are generally drawn from same entity where dispute arose.
This discourages others from approach PLA.
Court can never intervene regarding the quality of services provided by court.
Court said that this is a far-fetched argument as actual practice does not show this to be happening.
2. Services provided by PLA relates to FR u/a 21.
Any breach in quality of services will violate FR u/a 21
How can PLA decide such important issue.
The remedy of writ petition is discretionary and very limited.
No procedural safeguards as no CPC etc applies
3. Non-Judicial member can lead to majority decision
Majority members from PUS
Court said that such cannot be questioned non-judicial members are selected using a rigorous process. Unless n until there actual case of bias, integrity cannot be questioned.
4. PLA cannot ouster jurisdiction of other specialised forums such as Consumer Fora
Those specialised forums such as Consumer Foras are compensatory in nature but PLA is conciliatory in nature.
Court said that right to access to justice does not mean only civil court. It is legislative prerogative to decide the kind of forum. No FR to appeal.
Court said that there is no ouster of jurisdiction as Act used the word ‘may’ and not ‘shall’.
Problem of Med-arb
Same person should not act as a mediator and arbitrator.
Parties will not reveal information during mediation for the fear that same can be used later in the adjudication.
Order 37 provides for expedited summary proceedings in case of commercial disputes.
Med-Arb was developed internationally with same intentions.
Lack of Right to appeal.
Court said that if right to appeal is given, then this mechanism of dispute resolution at pre-litigation stage loses its relevance. Also appeal is in civil case.
Since the award of PLA is a deemed decree of Civil court (under Chapter 6 LSA) and a civil court decree is appealable under S.96 CPC.
So if is conciliating, it’s a consent award and not-appealable but if it’s adjudicating (award on merit), then S.96 CPC applies and is appealable.
Under Lok-Adalat there are two types of cases-pre-litigation and post litigation. S.21 provides that every award of the Lok Adalat shall be deemed to be a decree of a civil court or, as the case may be, an order of any other court and where a compromise or settlement has been arrived at by a Lok Adalat in a case referred to it under sub-section (1) of section 20, the court-fee paid in such case shall be refunded in the manner provided under the Court-fees Act, 1870.
United India Insurance case
There was an insurance claim of premise which was insured and burglary happened there and 15 lac was allegedly looted. Issue was whether burglary actually happened or not. The insurance surveyor noticed that burglary was an insider job.
Aggrieved by this the victim filed a case in consumer fora which rejected the petition. After that victim approached PLA. Since PLA has jurisdiction was only 10 lac, so the victim reduced the claim to 15 lac.
PLA said that it does not have jurisdiction as-
Burglary is a non-compoundable criminal offence.
No pecuniary jurisdiction.
CRITIQUE OF COURT-ANNEXED ADR PROGRAM
(From Article)
Marc Gallenter article- Vanishing Trial
If 100 case are filed, then only 10-20% are conclusively decided by court. Judges very pro-active in telling litigants that they should settle.
Jaundiced view of civil courts being created.
All over the world, people are told that there is a crisis in civil justice system.
Says the civil justice system has been driven from public sphere to private sphere.
Outside threat- over emphasis given by countries to criminal justice system as a result of which more conducts are criminalised
In India, these services are free of cost, it is being planned to charge some amount in future.
Two basis on which ADR was supposedly promoted are mutually contradictory-
ADR was promoted on two basis-
1. Lack of access to justice
Docket Exclusion- because of court’s inability to handle cases, people lost their faith in ADR.
2. Too many laws
These two are mutually contradictory as one side are saying there is problem of access to justice but on other side u saying there are two many laws.
Post retirement post for judicial officers etc.
Three problems-
1. The prominent feature of its voluntariness so it should remain voluntary in nature.
2. ADR mechanism cannot supplant or replace litigation.
3. When u are introducing and promoting a system, it should be promoted on its merit.
Alternative in ADR?
ADR is a different mechanism altogether and it should be compared with similar mechanism and not to adjudication court system.
A very Rosy picture of ADR
4 Stories of Mediation
Propounded by HAZEL JANE
1. Satisfaction story of mediation
Mediation should be promoted because it can satisfy all disputants.
Expedited Justice
Less costly
2. Social Justice story of mediation
Post-Modernistic philosophy.
Talking about Relativism.
Individualism and Collectivism.
Social justice theory says that during the mediation, focus should be on the common interests between the parties. Implied emphasis on community interests.
3. Transformative story of Mediation
Mediation can lead to transformation of a lot of things-
The way in which disputes are resolved
Transformation in people
Transformation in whole society by promoting the values of self-respect, mutual respect, responsibility, etc which have been ignored by adjudicatory method.
4. Oppression story of Mediation
Preferred by people who do not like mediation
Mediation promotes oppression of already marginalised people of the society.
New weapon of torture in the hands of state against the have-nots.
Rigour of social justice legislation will be reduced as they also come under the ambit of mediation.
For example- PLA ousters the jurisdiction of consumer fora, etc.
She says therefore that mediation is not Panacea for all kinds of dispute.
Mediation is also capitulating to same narratives.
Earlier it was thought that court is the best system to solve dispute. Same thing promoted about mediation and court-annexed ADR that it is the best but by saying so we are not really promoting diversity in dispute resolution mechanism or giving choices to people.
Taking about Lord Wolf Report, she says-
Prior to this there were ADR professional who were willing to provide these services but there was no market.
Even after doing all this, nothing happened.
Royal Bank case
In case of India, complicated cases are to be referred to Mediation and not Lok Adalat
In another case, court said that there is no presumption in favour of mediation.
Her problem is with the mandatory nature of the ADR.
She says that more research is needed to determine which process is better for which kind of dispute.
Whereas earlier court had to give reason when they referred a case to ADR but now they have to give reason for referring the case to trial.
ARBITRATION
ARBITRATION AGREEMENT
- S.7 of the Arbitration Act 1996.
- The first step when one opts for arbitration is formulating of Arbitration agreement
- Directly taken from S.7 of UNCITRAL.
- SECTION 7-Arbitration agreement means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.
- An arbitration agreement may be in the form of an arbitration clause in a contractor in the form of a separate agreement.
- An arbitration agreement shall be in writing.
- An arbitration agreement is in writing if it is contained in-
- A document signed by the parties;
- An exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement; or
- An exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other.
- There 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.
- A phonic conversation in recorded form amounts to arbitration agreement.
- Mahesh Kumar v Rajasthan State Road Transport Corporation
- During the arbitration process, one party claimed that she was not party to arbitration agreement.
- KK Modi v KN Modi
- It was a family dispute regarding property dispute.
- Parties had agreed that that all dispute shall be decided by such and such Act.
- Such and such act talks about AA.
- International Arbitration Agreement
- It’s necessary for parties to specify-
- Institution
- Place
- Language
- Rules
- Bells and whistles clause
- Other procedure
- Joinder clause- inclusion of other parties
- It’s necessary for parties to specify-
- Problems with AA
- In relation to parties-
- One cannot enter into an agreement with oneself
- Suppose in an AA it’s mentioned that one party shall unilaterally decide the arbitration conditions.
- This is allowed.
- Consent
- Consent was an important factor in AA
- Parties started bringing bogus parties to say that they had not signed the AA, hence no consent and hence no arbitration.
- PR Shah Stocks Shares Ltd. v BHH Securities Ltd 2011
- A entered into an agreement with B and then entered into other agreement with C.
- Court said that if subject matters of both agreements are same, it can be decided by single arbitration tribunal.
- Chorus Control India Ltd. v Severn Terant Water Purification 2012
- Multiple agreements were entered into multiple parties.
- SC held that that it has to be looked whether ancillary agreements can come under mother agreement.
- Court also looked at the issue of bogus arrangement to evade the process of court.
- Signature
- Signature is not mandatory for parties who are not primary.
- Rukmani Gupta v Collector 1980
- Case about written clause.
- Language of arbitration clause is important and intent matters more than just words.
- Mallikarjun v Gulbarga University
- Court laid down essential requirement of AA
- Arbitration dispute should be a dispute that parties can foresee.
- AA mentioned in a ‘will agreement’ is valid for not binding o parties who are not parties to the will agreement.
- What about AA mentioned in an invoice or Bills?
- Valid.
- What about AA mentioned in Sub-contracts?
- No. It will not bind the subsequent parties.
- Wellington Association v Kirti Mehta
- It was mentioned in agreement that parties may either solve the dispute themselves or refer it arbitration.
- S.7 uses the word, shall.
- Time
- Collins v Collins
- If in a sale contract between parties A and B, they engage the services of a valuer C to decide the value of the property.
- Valuer is not an arbitrator as he/she does not have judicial power.
- State of UP v Tipirchand
- Engineer was given the task to determine the suitability of a building.
- He was held not to be an arbitrator.
- Collins v Collins
- In relation to parties-
Fundamental Principles of Arbitration-
- Why people chose Arbitration over other ADR processes-
- Party Autonomy
- You can chose time, venue, procedure, Judge who has some expertise in the area of the dispute.
- Expert arbitrator will take lesser time in deciding the dispute. It also has a negative aspect associated with it- he/she can dominate what parties are presenting to him.
- Finality of the award.
- In civil courts, there are lots of remedies such as revision, review, appeals, etc.
- Commercial disputes require speedy conclusion of disputes.
- Presumptive validity of the award.
- Presumptive validity of AA.
- Confidentiality
- This is generally absent in civil litigation.
- Problems–
- Confidentiality affects the transparency in issues that have public importance.
- Cost and the Speed
- This is generally available only in case of ad-hoc arbitration and not institutional arbitration.
- In India, even in ad-hoc arbitration judges acts like if they are in courtrooms.
- Party Autonomy
- Disadvantages
- Limited power of the Arbitral Tribunal AT
- Courts have broader powers (S.151 CPC).
- AT derives its power from the AA and this has lots of implication.
- Only powers given in AA can be exercised by the AT.
- In civil court, court can pass order against 3rd parties as well (joinder).
- Consolidation proceedings is missing (S.10 CPC)
- Only the signatories to the AA are parties to AT.
- LSA grants some powers of civil court to Lok Adalat. This power is not available to AA as it is not created by a statute but by parties. Because of this reason, court has to keep interfering in Arbitration proceedings.
- If parties want, they may have a clause that their causes can be joined together and be heard by one tribunal.
- So AT does not power of joinder or consolidation unless parties give them.
- Tribunal can take the help of court to collect evidences (under S.27 of the Arbitration Act).
- S.17 of the Arbitration Act modeled on A.17 of UNCITRAL.
- A.17 of the UNCITRAL– Whether dependent on will of parties or mandatory provision?
- Unless otherwise agreed by the parties…’
- Read 246 Law commission Report.
- Limited power of the Arbitral Tribunal AT
Character of ARBITRATION AGREEMENT
- Standalone
- Can be of 2-3 types-
- Part of Main contract
- As a separate document
- AA is independent of the Main contract
- If contract is void, AA does not ipso facto become void.
- Separability Doctrine.
- Competence Competence
- AT has jurisdiction to decide its own jurisdiction.
- This is a quality of civil court.
- S.2(f)- Definition of International Commercial Arbitration ICA.
- Nature of Dispute
- Focussed on Party
- 2 views
- Where lies the central control and management
- What is the place of incorporation
- TDM infrastructure case.
- Since both companies are incorporated in India, it cannot be treated as international arbitration.
- Amendment in 2015- in-respect of companies, place of incorporation.
- UNCITRAL Model on ICA
- Article 3- An arbitration is international if…
- Nationality is important.
- Place of business should be different.
- Article 3- An arbitration is international if…
- NY Convention
- Article 1– foreign arbitral award…
- If we talking about India, then awards passed outside India shall be a foreign award.
- Article 1– foreign arbitral award…
- Two theories regarding NY Convention
- Seat Theory of Arbitration
- It’s origin is Article 5(1)e of NY Convention and Article 2 of UNCITRAL.
- Power to annul arbitral award rests with the country where the seat of AT is located.
- Suppose in India, 2 Indian parties are arbitrating. Since it is a domestic arbitration in India, NY convention does not apply and courts of India have power to annul the award.
- Suppose 2 foreign Nationals are arbitrating in India. Indian Arbitration Act will apply and court will have power to annul the award.
- Procedure shall be covered by the country where the seat is located.
- If an award is passed in UK and one of the parties assets are located in India, then the parties have to file for recognition of that award in India under part 2 of Arbitration Act.
- Translocalised/ Delocalised Theory of Arbitration.
- Origin is again Article 5(1)(e) of NY Convention
- Parties chose arbitration because they want a neutral forum.
- Seat Theory of Arbitration
- Definition of Court-
- S.2 Arbitration Act– Court means the principal Civil Court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction, having, jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit, but does not include any civil court of a grade inferior to such principal Civil Court, or any Court of Small Causes;
- Only few courts have jurisdiction regarding arbitration
- Wrt ICA, HC has jurisdiction. The underlying reason is expediency and expertise.
- S.2(2)–
- S.2(7)–An arbitral award made under this Part shall be considered as a domestic award.
- This implies that power to set aside a domestic award lies with domestic courts.
- Subject matter of dispute is very important-
- In CPC it was pecuniary, territorial and subject-matter.
- Here pecuniary and subject jurisdiction matter the most.
- All court inferior to sitting city or district court do not have jurisdiction.
- S.5
- BALCO Judgement
- Court equated domestic arbitration with ICA.
- In ICA, parties have right to choose neutral forum.
- Wrt. Domestic arb. 2 courts will have jurisdiction-
- The court which parties choose as seat of arb.
- The place where assets of parties are located. (u/s 20)
- Criticised- S.20 has to be interpreted in the light of definition of Court provided in S.2.
- Difference between ICA and Domestic Arb
- In ICA parties have right to choose the law and not in domestic arb. (S.28)
- In ICA, 5 different laws can be made applicable and parties can chose which countries law will govern their capacity to enter arb. agreement. (S.28)
- The law that will govern parties capacity to enter into AA.
- The law that will govern the validity of AA.
- The law that decides the procedure of the AA (Lex Arbitrai)
- The law governing the rights and liabilities of the parties.
- The law that will be applicable for recognition and enforcement of arbitral award.
- In an Indian is entering into an AA with a French. They may choose British laws to decide the validity of their AA.
- Parties cannot choose the law governing the procedure of AA (Lex Arbitrai) as by default the law of the seat/forum of Arbitration ie the law of the place where Arb forum is located.
- Important-
- Most provisions of Arbitration Act are not mandatory (S.4) This is to promote party autonomy.
- The sections that start with ‘unless otherwise agreed by parties’ are not mandatory in nature.
- If Lex Arbitrai does not contain all mandatory arbitrary provision, then parties can chose any arbitration centre rules (London, Hong Kong, Singapore, etc)
- For example if Arbitration is happening in UK, Arbitration Act of UK will apply as Lex Arbitrai but Arbitration Act of UK does not contain detailed procedure like CPC. In such case parties can chose any arbitration centre rules (London, Hong Kong, Singapore, etc).
- If there is any lacuna in the Arbitration centre rule, then by default Arbitration Act of that country will apply.
- Lex Arbitrai (Procedure of Arb) covers 3 things-
- Internal procedure of Arb.
- How tribunal shall be constituted, etc.
- All this will be provided by in the Lex Arbitrai.
- Most of these procedures are not mandatory.
- The external relationship between the tribunal and courts of India
- S.8 of Arb Act India.
- S.9, S.11, S.27, S.37
- Most of these provisions are mandatory in nature.
- Parties cannot chose provisions that are against fair trial (S.18)
- The external relationship between the tribunal and the broader public policy of the state-
- Public policy along with substantial and procedural rights
- Basic procedures to ensure fair trial.
- These are mandatory provisions.
- Certain disputes are not arbitrable. For example- Consumer Forum Disputes, etc.
- Internal procedure of Arb.
- All these are based on the seat theory of Arbitration.
- Currently Singapore is the best destination for Arb.
- India is also trying to rapidly improve its Arb. system to attract FDI.
- DELOCALISED THEORY OF ARBITRATION
- Provides that Arbitration should be free of national boundaries.
- Parties right to choose law should be unrestricted including the Lex Arbitrai (procedural aspect).
- Most countries have jurisdiction on their nationals only.
- Other reason behind this was non-pro-arbitration legal systems of countries.
- There seat of arbitration should have limited power to interfere in the arbitration.
- They are saying S.34 should not apply.
- The only power should be with the court executing
- Reasons–
- To avoid 2 sets of laws in deciding seat of arbitration. Courts where assets are located may refuse to enforce arbitral award keeping in mind their own public policy, etc.
- To avoid difficulty of alignment between laws of countries ‘A’ (laws of countries chosen for arbitration), country ‘B’ (where arbitral seat is situated) and country ‘C’ (where arbitral award is to be enforced).
- Advantages–
- A and B have dispute.They have chose laws of X has lex arbitrai, laws of Y as seat of arbitration and the award is to be enforced in country Z. In this case courts of Y will have no jurisdiction.
- Limitations-
- 2 courts will have jurisdiction. You can chose any arbitration laws of any country but mandatory procedure of Lex arbitrai will apply.
- Courts of seat will have jurisdiction regarding mandatory provisions but for other matters other courts shall also have jurisdiction.
- Bhatia International Case
- Indian Arb. Act has extra-territorial application (a reading of S.2 under which it does not say it will not apply outside India).
- ONGC v Saw Pipes.
- SC broadened the scope of public policy and gave more powers to interfere in Arbitration Awards.
- Venture Global v Satyam Computers
- There was an AA between Indian and US Company. Place of Arbitration was US, award was made there but since one of the party was Indian, simultaneous proceedings started in India. This was beneficial to Indian company.
- BALCO Judgement
- SC conclusively decided that we do not follow delocalised theory and Indian Arb. Act does not extra-territorial application.
- We follow UNCITRAL model and seat theory.
ARBITRATION AGREEMENT
- Most important document as powers of tribunal emerge from AA.
- If parties have decided that AA will grant compensation of x amount. Tribunal does not have power to decide on equity.
- Unlike civil courts, parties can chose which of their disputes would be decided by the AT.
- Two things-
- FORMAL VALIDITY of AA (S.7 of Arbitration Act)
- Requirement of writing-
- Art. 2 of NY Convention
- It provides that each contracting party shall recognise agreements in Writing.
- The term agreements in Writing includes arbitration clause.
- Requirement of writing has now been done away with by an amendment.
- In 2006, UNCITRAL law was amended which gave two options to countries.
- Protected the writing form of agreement but the word writing has been given broader meaning.
- Completely did away with written and signature requirement.
- Signature Requirement
- Done away by UNCITRAL amendment 2006
- Capacity
- Consent is very important aspect of AA.
- Whether there is contradiction between NY Convention and UNCITRAL?
- Maximum is provided by NY Convention and countries signatory to NYC cannot provide more onerous than provided in NYC.
- A.7 of NYC gives freedom to parties to have some beneficial legislation.
- Requirement of writing-
- SUBSTANTIAL VALIDITY
- A.2 of NYC and A.8 of UNCITRAL-
- When there is AA, there is duty on courts to refer the parties to Arbitration but if the AA is null and void there is no such requirement.
- There can be sometime pathological arbitration clauses in AA.
- Kinds of defects in AA-
- Indefinite or vague AA.
- Consent is missing.
- AA referring to seats of of Arbitration which have ceased to exist.
- Blank arbitration agreement mentioning intention to arbitrate is valid.
- Mutually contradictory clauses in AA.
- Uncertain AA ie intention to arbitrate is missing- “parties may arbitrate.’
- One party will file a case and claim pathological arbitration.
- FORMAL VALIDITY of AA (S.7 of Arbitration Act)
- Positive obligation to Arbitrate on Parties-
- Specific performance of AA is generally not done except in few countries because Arb is all about party autonomy and nothing prevent them to terminate AA.
- Article 8 of UNCITRAL, Article 2(3) of NYC and S.8 of Indian Arb. Act– Duty of court is to dismiss the civil proceedings and refer the parties to Arbitration.
- A and B have AA. A approaches court. B also comes to court and asks court to dismiss it. If court thinks that AA is null and void, then civil proceedings will happen.
- In US they have a federal Arb. Act and provides for specific performance of AA. They not only just dismiss but compel parties to arbitrate.
- Exceptions–
- AA is null and void-
- Capacity, consent, fraud, duress, undue influence.
- Unconscionability of AA-non-symmetrical and arbitrary. All major decisions taken by one party. But generally they are considered valid (if there is signature) under the presumption that parties have agreed to it with their eyes opened. Provided other party has not abused his dominant power.
- AA is null and void-
- Negative obligation not to litigate-
- Before NYC and UNCITRAL, remedy of breach of Arbitration was compensation.
- Modern remedies include anti-suit injunction and non-enforcement of court decision.
- Anti-suit injunction
- In respect of ICA.
- Court at Seat of Arb can file anti-suit injunction.
- Non-Enforcement of court decision-
- Anti-suit injunction
- Can Waiver be ground for avoiding Arbitration?
- S.8 of Arbitration Act.
- Mahesh Kumar v Rajasthan State Road Corporation
- One party filed a civil suit and other party filed a WS in which he alleged that there is an AA and therefore the suit should be dismissed. They also raised a counter claim.
- Other party argued that this party has waived of right to arbitration by filing written statement without raising any objection.
- Court held this to be waiver u/a 2 of NYC, u/a 8 of UNCITRAL and u/s 8 of Arbitration Act. He also filed a counter claim.
- Indian courts do not take into account intention but US Act provides that waiver cannot be automatic.
- Objection of inconvenient seat
- Generally such arguments are not accepted by courts.
- Multi-layered dispute settlement
- Sometimes parties agree that for for first 30 days, they will try to negotiate failing which they will mediate and failing which they will arbitrate. But if they they directly arbitrate, will that be valid?
- Different courts have treated this differently.
- What should be the approach of court regarding A.2 of NYC and A.8 of UNCITRAL?
- Competence Competence a French Doctrine which means that tribunal has capacity to deal with all jurisdictional objections. This power does not lies with tribunal.
- Secondly, court should not decide jurisdictional objections and should wait for the tribunal to decide it.
- Thirdly, if in any situation, court has to decide jurisdictional objections they should decide it in a prima-facie manner and refer it to tribunal for conclusive determination.
- US Approach– Under Federal Arbitration Act if court is seized with jurisdiction issue, then court should conclusively decide the jurisdiction and then refer it to arbitration.
- Few Exceptions-
- If agreement provides that jurisdiction issues shall be decided by the tribunal only.
- Few Exceptions-
- 3-4 Jurisdictional Issues-
- Existence of Arb Agreement- whether AA exists or not?
- Court will decide the matter.
- Validity of Arb Agreement
- Court will decide it.
- Arbitrability of the Dispute
- Competence of the tribunal
- Independence and impartiality of the Arbitrator
- Existence of Arb Agreement- whether AA exists or not?
- A.8 of UNCITRAL– Arbitration agreement and substantive claim before court
- A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.
- Where an action referred to in paragraph (1) of this article has been brought, arbitral proceedings may nevertheless be commenced or continued, and an award may be made, while the issue is pending before the court.
- S.8 Indian Arb Act- Power to refer parties to arbitration where there is an arbitration agreement. –
- A judicial authority before which an action is brought in a matter, which is the subject of an arbitration agreement, shall, if a party so applies not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration.
- The application referred to in sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof.
- Notwithstanding that an application has been made under sub-section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitrate award made.
- Till 2005 SC was of the opinion that courts have power to only look compliance of formal compliance which include-
- Whether parties are parties to Arb Agreement.
- Whether have filed within the time limit
- Subject matter of AA is same as subject matter of suit
- SBP Patel Engineering 2005 5J
- It was in respect of S.11.
- Also held that though we have not used the same phrase as A.8 of UNCITRAL, we cannot expect the section to mean that court can overlook the requirement of looking at jurisdiction. It cannot just keep mechanically referring cases to arbitration just by looking at AA.
- This case led to a lot of delays as court started deciding jurisdiction issues and then refer to Arb. Tribunal.
- Hamilton case
- SC held that it is also important to decide issue of arbitrability before referring the parties to AT.
- Sukanya Holding v Jayesh Pandey 2003 (READ)
- There was a multi-party dispute and some of which were party to AA.
- In such a case one party contended that the suit cannot be referred to AT.
- Others contended that in such a case the matter should be bifurcated.
- SC held that this is not allowed.
- Bifurcation is allowed under CPC but not Arbitration Act.
- Only those parties who are subject to AA are to be included.
- Unless subject matter of both AA and Suit is same, matter cannot be referred to AT.
- Chlorocontrol case 2013
- It introduced the group of companies doctrine in India. But it was later held that group of companies doctrine does not apply to S.8.
- Competence Competence a French Doctrine which means that tribunal has capacity to deal with all jurisdictional objections. This power does not lies with tribunal.
3 Departures from Article 8 UNCITRAL
- India Act uses the word ‘Judicial Authority’ in place of word ‘Court’ used in UNCITRAL- Because we wanted to broaden the scope of court.
- Definition of Party- because we wanted to include non-signatories also
- We have not used the word ‘unless arbitration is found to be null & void’
Extent of Judicial Intervention
S.5- Extent of Judicial Intervention- Notwithstanding anything contained in any other law for the time being in force in matters governed by this part, no judicial authority shall intervene except where so provided in this part.
S.16– Competence of arbitral tribunal to rule on its jurisdiction.
Difference between old and new Arbitration Act-
- Earlier there was no competence competence doctrine available to AT. So court were the only entities to look into Jurisdiction.
- In one case court said court should should only look at the procedural requirements-
Procedural Requirements for reference to AT-
- Whether application filed before statement (WS kind of thing) on substance of dispute.
- Along with application, original or certified copies of AA should also be filed.
Bogara Polyfab case-
- SC tried to explain Patel Engineering and laid down 2 categories of questions
- Should be decided by court– Whether there AA, whether parties in suit are parties to AA, etc?
- May or may not be decided by court–
- Should not be decided by court–
- Scope in S.8
- Valid Arbitration Agrement
- Prima facie determination
Law Commission suggestions-
- Affirmed 4 procedural requirement
- See prima-facie if there is AA. Prima-Facie means no elaborate leading of evidence. If prima-facie court feels there is no AA, then court should conclusively decide whether there is valid AA and this issue of validity of AA will not be re-opened again.
- Criticism– What do we mean by valid AA? There can be different interpretations-
- Null and void? Or
- Incapable of being performed? Or
- Both?
BOOZE ALLEN HAMILTON v SBI Housing Finance Ltd (Landmark)
- Fist case in which issue of arbitrability was decided.
- S.7. talk about scope about AA.
- Held that court has to decide the issue of arbitrability at stage S.8, 9, 11.
- SC laid down 3 test to determine whether dispute is arbitrable-
- Whether under the law of the country, the dispute is capable being settled by arbitration.
- Whether dispute comes within the scope of Arbitration Agreement.
- If mentioned in AA, whether parties have mentioned it in their pleadings.
- Certain rights are in rem and certain are rights-in-personal (against individual). All disputes relating to latter can be referred to arbitration.
- Wrt rights-in-rem, they are not arbitrable as they affect public at large and should be decided by public forum.
- It also gave an indicative list of disputes that are not arbitrable.
- Court also provided certain exceptions-
- Certain subordinate rights in rights-in-rem. Eg-granting of copyright. But subordinate rights such as licensing (giving permission to other to use your work), etc can be arbitrated upon.
Two Bombay HC decision, questioned this test-
- Rakesh Kumar Malhotra v Rajendra Kumar Malhotra-
- Shareholders alleged mismanagement on company. HC said that if we apply Booze Allen test, it is arbitrable but it gives a feeling that it is not right. So we have to see the remedies that parties are asking for. (Criticism- parties can deliberately ask for remedies which cannot be given by arbitration in order to defeat the AA)
- Issue regarding fraud- Firstly a suit was filed and then an S.8 application was filed.
- Abdul Qadir v Madhav Prabhakar 1962
- If there is an allegation of fraud, than that person has right to defend in a public fora.
- N Radhakrishnan v Maestro Engineers 2009
- SC applied the ratio Abdul Qadir and held that all issues of fraud are non-arbitrable.
Bharat Rasiklal v Gautam Rasiklal 2012
Swiss Timing Ltd v Organising Committee 2014 (Wrt S.11)
SC held that ration of N Radhakrishnan is not a correct law regarding ICA.
After this there was 246 Law Commission Report which suggested that allegation of fraud should be made arbitrable. The suggestions were not accepted however.
A Aiyyaswami v A Paramasivam 2016 SC
This was in respect to domestic arbitration. Court differentiated between Serious Allegation of Fraud and Fraud Simpliciter. The latter was held to be arbitrable. SAF involves complex set of facts which involves leading of evidence. The court also upheld the Booze Allen Test.
World Sports Group Ltd. v MSM Satellite
It was held that allegation of all kinds of fraud (regarding AA) was held to be arbitrable wrt ICA which is happening outside India. A (India) is arbitration with B (Chinese) in London. A files a civil in India wrt alleged violation of AA. In such situation S.8 will not apply but S.45 will apply.
S.45 Power of judicial authority to refer parties to arbitration. Notwithstanding anything contained in Part I or in the Code of Civil Procedure, 1908 (5 of 1908) a judicial authority, when seized of an action in a matter in respect of which the parties have made an agreement referred to in section 44, shall, at the request of one of the parties or any person claiming through or under him, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.
As per this section court has full authority to go into all aspects of validity. But SC gave it a more progressive interpretation and held that Fraud is also arbitrable. But in case of domestic arbitration, Serious Allegations of Fraud are not arbitrable. (Criticism- presumes that arbitration cannot decide complex set of facts. Arbitrator has power of calling evidence but have to seek the help of court.) This case is in line with Booze Allen.
Difference between Validity of AA & Arbitrability of Dispute– Arbitrability is wider.
After 2015 amendment, Patel Engineering and Bogara judgement do not apply. It was suggested that S.7 should also be amended that to include arbitrability.
S.34 talks about application for setting aside arbitral award-
Article 8 UNCITRAL talks about AA which is null and void, inoperative or incapable of being performed. Incapable of being performed includes arbitrability.
Fraud is to be decided by which law?– S.34 and S.48 of Arbitration Act-
S.34(2)(b)-The court finds that- (i) The subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or (ii) The arbitral award is in conflict with the public policy of India.
S.48-Conditions for enforcement of foreign awards.
SUPREME COURT ARBITRABILITY OF DIFFERENT TYPES OF DISPUTES
CONSUMER DIPUSTE
- In many cases court held that remedy under S.3 COPRA is in addition to other remedies.
- If one party moves COPRA forum and other moves a S.8 application, COPRA forum held that it is not mandatory for them to refer to Arbitration as the act provides that arbitration is an additional remedy and not exclusive remedy.
- S.2(3) of Arb. Act provides that it shall not affect other acts which provide that certain disputes are not arbitrable.
Skypack Couriers ltd. v Tata Chemicals 2000
Trans-Mediterranean Airways case 2011
National Seeds Corporation Ltd. v Madusudan Reddy 2012 (IMP)
It was held that it is not mandatory for consumer forums to refer the dispute to AT as COPRA is a beneficial legislation which is a result of many intl. conventions.
Rosedale Developers v Aghor Bhattacharya 2013
This was prior to 2015 Amendment.
BUT AFTER 2015 AMENDMENT, these cases don’t apply
Aftab Singh v Emar MGF Land Ltd. 2017 (decided by National Consumer Dispute Resolution Forum)
- Disputes which are to be adjudicated and governed by statutory enactment established for specific public purpose to sub-serve a particular public policy are not arbitrable.
- There are a vast domain of legal universe that are not arbitrable and kept at a distance of private dispute resolutions.
- The amendment was meant for a different purpose leaving status quo ante unaltered and subsequently reaffirmed and restated by SC.
- The act itself accepts that certain disputes are non-arbitrable (S.2).
IMP-When a party has approached a consumer fora, they have opted that remedy out of civil court, arbitration and consumer fora. It means consumer has selected that fora so consumer fora is not bound to refer the consumer to another forum. Also many remedies regarding consumer disputes are not available in arbitration.
Emar MGF Land Ltd v Aftab Singh (SC) 2018
SC affirmed the test of Booze Allen and held that consumer disputes are right-in-rem.
Once the person files a case in consumer forum, it cannot be referred to Arbitration.
IP DISPUTES
US and Switzerland have made all IP disputes arbitrable.
In India IP disputes have been held to be right in rem.
Eros Intl. Media Ltd. v Telemax 2016
Court said that we should not look at the nature of the right but nature of the remedy as to whether that remedy can be granted by the fora.
COMPETITION DISPUTES
Whether insolvency disputes can be arbitrated. Not after insolvency code.
Internationally they are arbitrable in certain context.
In India, they are understood to have public interest connotation attached to them. Right in rem.
CCI is invested with power to investigate the issue once an application is filed.
Mitsubishi Motor Corporation v Solar Price 1985 US Judgement
Anti-trust claims are arbitrable if they have an international element.
Interpreted to mean 2nd look doctrine which means court have a right of 2nd look over the award to check its validity.
Eco-Swiss China Time Ltd. v Benetton
In respect of International Disputes, anti-trust claims are arbitrable.
LABOUR DISPUTES.
S.10 of ID talks about dispute resolution.
Kingfisher Airlines v Prithvi Malhotra
These disputes can be referred to Arbitration but not under Arb. Act but under ID Act.
Rajesh Korat v Immovity 2017
S.8 is not mandatory for labour dispute
Chloro Control v Severen Trent Purifiers
Introduced the concept of non-signatories in arbitration.
Dow Chemical v Saint
Group of companies doctrines (similar to lifting the veil)
This is to include non-signatories in Arbitration.
Court has to see-
- Whether non-signatory is directly related to the signatories of AA?
- Whether there is commonality of the subject matter?
- Whether nature of transaction is composite.
- Whether mother agreement cannot be executed unless the execution of the subsidiary agreement?
- Whether it is more equitable to include those non-signatories.
Amit Lalchand v Rishabh
Case under pre-amended S.8
A party contended that apply chloro control ratio and refer parties to Arbitration.
SC held that it is bound by Sukanya holding which held that bifurcation of cause of action is not allowed in Domestic Arbitration. Reference to S.45.
Court held that in case of Domestic Arbitration, S.8 will apply as held in Sukanya.
To resolve this issue, S.8 was amended to bring it in uniformity with S.45. Because in many case there are complex business structure where a subsidiary company of an international company is based in India.
READ 246th REPORT OF THE LAW COMMISSION FOR FURTHER CLARIFICATION.
Rishabh Pant case
After amendment court applied the ratio of Chloro Control on both S.8 and 45 and group of countries now recognised in India.
S.45-Power of judicial authority to refer parties to arbitration. Notwithstanding anything contained in Part I or in the Code of Civil Procedure, 1908 (5 of 1908) a judicial authority, when seized of an action in a matter in respect of which the parties have made an agreement referred to in section 44, shall, at the request of one of the parties or any person claiming through or under him, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.
The power of the non-signatory is only to move the S.45 application.
In absence of AA, parties cannot be forced to arbitrate except in certain exceptional circumstances.
Some amendments were made in S.8(2) as well.
Why parties have to submit a copy of AA along with S.8 application?
- To check the prima-facie validity of the agreement
Ex-party arbitral award is also good and binding.
S.37-gives a list of orders which are appealable in nature. But only one appeal is available.
S.37-Appealable orders. –
- An appeal shall lie from the following orders (and from no others) to the court authorised by law to hear appeals from original decrees of the court passing the order, namely: –
- (a) Granting or refusing to grant any measure under section 9;
- (b) Setting aside or refusing to set aside an arbitral award under section 34.
- An appeal shall also lie to a court from an order of the arbitral tribunal–
- (a) Accepting the plea referred to in sub-section (2) or sub-section (3) of section 16; or
- (b) Granting or refusing to grant an interim measure under section 17.
- No section, but nothing in this section shall affect or take away any right to appeal to the Supreme Court.
IMPORTANCE OF SEAT OF ARBITRATION
- Lex Arbitrai
- What should be the considerations while selecting the seat?
- Consequences–
- Seat decides the Lex arbitrai ie Arbitration Act of that country will be applicable
- Procedural matters governing the Arbitration tribunal
- Relationship between Arbitration tribunal and national courts
- Relationship between Arbitration tribunal and national public policy.
- Power to annul arbitral award rests with court of the seat.
- Seat decides the Lex arbitrai ie Arbitration Act of that country will be applicable
S.20-Place of arbitration. –
- The parties are free to agree on the place of arbitration.
- Failing any agreement referred to in sub-section (1), the place of arbitration shall be determined by the arbitral tribunal having regard to the circumstances of the case, including the convenience of the parties.
- Notwithstanding sub-section (1) or sub-section (2), the arbitral tribunal may, unless otherwise agreed by the parties, meet at any place it considers appropriate for consultation among its members, for hearing witnesses, experts or the parties, or for inspection of documents, goods or other property.
Different between seat and Venue-
Parties can also select venue. Tribunal can go to venue in certain cases. It has freedom to meet at any other place and conduct hearing.
Venues have no importance as such. Their significance only for the purpose of the
Mandatory and Directory provisions in Arbitration Act-
- Parties have freedom to chose technical procedural matters.
- Default provisions applies in case parties do not choose.
Considerations before choosing seat-
- Whether the country is party to NY Convention and Uncitral Model as all signatories enter into a reciprocal relationships to honour the award
- Whether it is a neutral place?
- Convenience and cost.
Consequences–
Seat will affect the both external and internal aspect of arbitration.
Some countries lex arbitrai provide detailed procedure of arbitration which is binding.
In India arbitration act, there are certain mandatory requirements- S.8 and S.19.
Indian Act also sets a time limit.
S.29- 12 months time limit
Many other countries do not find it very convenient as arbitration is based on consent of parties.
Internal Aspects of arbitration are governed by lex-arbitrai to a minimum extent
External Aspects of Lex Arbitrai
- The Act of referring to arbitration.
- It has to be checked what kind of role court perform in referring parties to arbitration
- Mode of exercise of power by court in granting interim measures of protection.
- Prior to amendement,
- Both court and arbitration tribunal had power to grant interim measures of protection.
- Tribunal did not have power to enforce its orders.
- Tribunal did not have power over 3rd parties.
- Appointment and removal of arbitrators-
- Powers available to court
- Prior to amendment, India law was lacking on this aspect.
- S.11 mentioned Chief Justice.
- Appellate powers available to court.
Seat theory of Arbitration-
- Article 1(2) of Uncitral-
- S.2(2) of India Arbitration Act- This Part shall apply where the place of arbitration is in India.
- S.2(3) This Part shall not affect any other law for the time being in force by virtue of which certain disputes may not be submitted to arbitration.
- S.2(4) This Part except sub-section (1) of section 40, sections 41 and 43 shall apply to every arbitration under any other enactment for the time being in force, as if the arbitration were pursuant to an arbitration agreement and as if that other enactment were an arbitration agreement, except in so far as the provisions of this Part are inconsistent with that other enactment or with any rules made thereunder.
- S.2(5)- Subject to the provisions of sub-section (4), and save in so far as is otherwise provided by any law for the time being in force or in any agreement in force between India and any other country or countries, this Part shall apply to all arbitrations and to all proceedings relating thereto.
- S.2(7)- An arbitral award made under this Part shall be considered as a domestic award.
De-localised theory of Arbitration-
- Freedom and autonomy to parties to choose Lex-arbitrai
- How India adopted delocalised and then reverted back to seat theory.
- In Bhatia International India adopted delocalised theory of arbitration. This was a case of ICA happening in Paris outside India. One India party moved a S.9 application in Indore court as the other party was planning to sell all its assets in India. The Indian party claimed that it that happens, the decree passed by Paris tribunal will of no use.
- Issue was whether Indian court can grant interim measure of protection in arbitration happening outside India?
- Court held that Indian court can pass interim measure of protection.
- The matter later came to SC which held that Indians when arbitrating outside will have freedom to chose Indian arbitration Law.
- Court said if you look at definition of ICA, it does not make any distinction regarding seat of arbitration.
- Court said S.2(2) have to be read with S.2(4) and S.2(5). Art. 1 (2) of Uncitral use the word ‘Only’ but it has not been adopted in Indian act and the word ‘Only’ is not there in S.2(2), it means that it will apply to all and every arbitration including those happening outside India. If ICA or domestic arb is happening in India, the will compulsorily apply and the parties can derogate only from the non-mandatory provisions. When ICA is happening outside India, parties can waive-off any of the provisions of the Act.
- The reasoning was that law cannot be interpreted so as to leave people remediless.
- Award passed by tribunal in a non-convention (non-signatory to NY or Uncitral) shall be treated as domestic arbitration.
- The principle of implied exclusion– Choosing the substantive law of India (Contract Act) does not mean automatically choosing procedural law of India (Arbitration Act).
- Videocon Industries case
- Tosco v Jushan
- Yograj Infrastructure v Sangyong Engineering (on S.37)
- In most of these case, substantive law was India and some parties were claiming that this implies that they have also chosen procedural law of India but court rejected this contention.
- ONGC v Saw Pipes 2003
- SC widened the scope of interference by court at S.34 stage on the ground of public policy.
- Court can see whether the award is patently illegal. Patently illegal means error of procedure. law, etc.
- See the Latest case- Bar & Bench
- Venture Global v Satyam Engineering 2008
- ICA was happening outside India. Award was passed in Mississippi. One party passed a S.9 application in Secunderabad.
- Dual effect of Bhatia and ONGC is making India an unpopular destination for arbitration.
Problem with Bhatia- applied part 1 of Arb Act to ICA. By extending it to S.11 and 34, they took away the fundamental principles of arbitration.
Reliance Industries v UOI 2014
Whether Indian party has right to chose seat outside India? When Indians are arbitrating outside, whether the award should be treated as Domestic?
APPOINTMENT OF ARBITRATOR, PROCEDURE, TRIBUNAL, ETC
S.10 (Arb. Act)- Number of arbitrators-
- The parties are free to determine the number of arbitrators, provided that such number shall not be an even number.
- Failing the determination referred to in sub-section (1), the arbitral tribunal shall consist of a sole arbitrator.
A.10 (Uncitral)- Article 10. Number of arbitrators-
- The parties are free to determine the number of arbitrators.
- Failing such determination, the number of arbitrators shall be three.
Narayan Prasad Lohia v Nikunj Kumar Lohia 2002 SC
Apart from no. of arbitrator, mandatory and non-mandatory provisions of act were discussed.
There was a family cum business dispute. They had appointed 2 person to solve the dispute.
One of the contention was regarding no. of arbitrators. Court said that such objections have to be first raised before the tribunal within time limit provided under S.16.
S.34- Application for setting aside arbitral award. –
- Recourse to a court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and subsection (3).
- An arbitral award may be set aside by the court only if-
- (a) The party making the application furnishes proof that-
- (i) A party was under some incapacity, or
(ii) The arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or - (iii) The party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
- (iv) The arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration:
- Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or
- (v) The composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or
- (i) A party was under some incapacity, or
- (b) The court finds that-
- (i) The subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
- (ii) The arbitral award is in conflict with the public policy of India.
- Explanation. –Without prejudice to the generality of sub-clause (ii), it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81.
- (a) The party making the application furnishes proof that-
- An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal:
Provided that if the court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter. - On receipt of an application under sub-section (1), the court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award.
S.4- Waiver of right to object. -A party who knows that-
- Any provision of this Part from which the parties may derogate, or
- Any requirement under the arbitration agreement, has not been complied with and yet proceeds with the arbitration without stating his objection to such non-compliance without undue delay or, if a the limit is provided for stating that objection, within that period of time, shall be deemed to have waived his right to so object.
Court said that India deviated from Uncitral model on account of public policy.
Also, S.16 nowhere talks about composition of the tribunal.
Implication of S.4, 16 and S.10, is that S.10 comes out as non-mandatory. One do not have right of wavier as regards to mandatory provision. Court also said that the act is not an exhaustive one.
S.34(2)(5)– Application to set aside the award if the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part;
Court said that this provision will come into picture if mandatory provisions are not complied with. But S.10 is not a mandatory provision.
S.29-Decision making by panel of arbitrators –
- Unless otherwise agreed by the parties, in arbitral proceedings with more than one arbitrator, any decision of the arbitration tribunal shall be made by a majority of all its members.
- Notwithstanding sub-section (1), if authorised by the parties or all the members of the arbitral tribunal, questions of procedure may be decided by the presiding, arbitrator.
This means that even if there are even no. of arbitrators, there is no problem if one of them has been given special responsibility that his word be more authoritative than others.
Court said that if there is even split, then parties can ask the presiding arbitrator to decide the deadlock.
S.29 (Uncitral)- Decision making by panel of arbitrators
In arbitral proceedings with more than one arbitrator, any decision of the arbitral tribunal shall be made, unless otherwise agreed by the parties, by a majority of all its members. However, questions of procedure may be decided by a presiding arbitrator, if so authorized by the parties or all members of the arbitral tribunal.
S.12-Grounds for challenge. –
- When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances likely to give rise to justifiable doubts as to his independence or impartiality.
- An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall, without delay, disclose to the parties in writing any circumstances referred to in sub-section (1) unless they have already been informed of them by him.
- An arbitrator may be challenged only if-
- (a) Circumstances exist that give rise to justifiable doubts as to his independence or impartiality, or
- (b) He does not possess the qualifications agreed to by the parties.
- A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made.
S.11-Appointment of arbitrators. –
- A person of any nationality may be an arbitrator, unless otherwise agreed by the parties.
- Subject to sub-section (6), the parties are free to agree on a procedure for appointing the arbitrator or arbitrators.
- 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.
- If the appointment procedure in sub-section (3) applies and-
- A party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party; or
- The two appointed arbitrators fail to agree on the third arbitrator within 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.
- 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 party to so agree the appointment shall be made, upon request of a party, by the Chief Justice or any person or institution designated by him.
- Where, under an appointment procedure agreed upon by the parties, –
- A party fails to act as required under that procedure; or
- The parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or
- 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 the appointment.
If there has to be a sole arbitrator, parties will have to jointly such arbitrator. This right can be given to an arbitration institutions or another person.
If nothing works, then approach court which shall appoint arbitrators.
This is in line with Uncitral
Duties of Arbitrator-
- Fair trial
- S.18-Equal treatment of parties. –The parties shall be treated with equality and each party shall be given a full opportunity to present his case.
- He/she has to act judicially
S.13- Challenge to procedure –
- Subject to sub-section (4), the parties are free to agree on a procedure for challenging an arbitrator.
- Failing any agreement referred to in sub-section (1), a party who intends to challenge an arbitrator shall, within fifteen days after 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.
- Unless the arbitrator challenged under sub-section (2) withdraws from his office or the other party agrees to the challenge, the arbitration tribunal shall decide on the challenge.
- 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.
- 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.
- 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 challenged is entitled to any fees.
Coming back to S.11-
There has been an amendment due to some problem-
- Earlier there was no duty on the arbitrator as regards to his/her impartiality
Amendments–
- The word chief justice has been omitted (now only HC and SC)
- Timeline of 60 days to decide arbitration application
- Court has to check before appointing arbitrator and has to look at S.8 as well
- The word ‘court’ is mentioned in Uncitral but in Arb. Act ‘Chief Justice’ has been mentioned.
- Reasons-
- S.6A, 7 provide that order is final and non-appealable.
Konkan Railway v Rani Construction 2002 SC
Elaborate discussion as to why ‘Chief Justice’ has been used. Because power to appoint arbitrator was given to highest judicial authority. Chief Justices also perform dual functions- judicial and administrative. They did not want to call it a judicial function. CJ under S.11 is not adjudicating any dispute.
SBP v Patel Enginering 7J
Konkan railways was overruled. Held that appointment of arbitrator is judicial function.
National Insurance Company v Bogara Ployfab 2005
They clarified the ration of Patel Engineering. They laid down 3 categories-
- First category must be decided by court and include-
- F
- Second category may be decided by the court and include-
- F
- Third category should be decided by the tribunal and not court and include-
- F
There was lot of criticism after Patel Engineering and an amendment was done in 2011 to replace Chief Justice with High Court and Supreme Court.
Now S.8 and S.11 are on a different scale. Earlier it meant that that court can decide on all jurisdictional issues but now only prima-facie validity of the AA.
Clause 1 of S.11– parties can chose arbitrator of any nationality.
Clause 1 of S.11– In case of ICA, court has to ensure that nationality of the arbitrator is different from the nationality of the parties in order to ensure the nationality of the parties.
Time period of 30 days is also mentioned. After the notice of arb. Appointment has been given to other party and if the other party does not respond within 30 days, then an application can be moved. Court said that if somebody appoints arbitrator beyond 30 days but before application is moved by other party, it is valid.
Court in a case held-
- 5 year is a case of beyond limitation period by using S.43.
- A miscellaneous provision in limitation act provides, then if no time limit is provided then period of limitation is 3 years.
S.12-Grounds for challenge. –
- When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances likely to give rise to justifiable doubts as to his independence or impartiality.
- An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall, without delay, disclose to the parties in writing any circumstances referred to in sub-section (1) unless they have already been informed of them by him.
- An arbitrator may be challenged only if-
- Circumstances exist that give rise to justifiable doubts as to his independence or impartiality, or
- He does not possess the qualifications agreed to by the parties.
- A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made.
Why the section was amended and schedules were added?
- Judgements of 2015 and prior to 2015 have not been overruled.
- S.8 talks about valid AA and S.11 talks about existence of AA.
- Both require different treatment. Access to court is an issue in S.8 and parties have a duty to arbitrate and not litigate.
- S.11 just talks about appointment of arbitrator. Intervention should be of different nature here.
- In S.12 amendments were needed to clarify ‘conflict of interest’. Clause 5 was added because of the problem of named arbitrator in government contracts.
- Indian Oil Corporation v Raja Transport Pvt. ltd. 2009 IMP
- Facts-
- Under an agreement dated 2005, IOC appointed Raja Transport as its dealer for retail sale of petroleum products. Clause 69 of the agreement provided for settlement of dispute by sole arbitration.
- By letter dated 6.8.2005, the appellant terminated the dealership of the respondent on the recommendation of its Vigilance Department.
- The respondent filed Suit No.43/2005 in the Court of Civil Judge, Junior Division, Rishikesh.
- In the said suit, the appellant filed an application under section 8 of the Act read with Order VII Rule 11 of CPC, praying that the suit be rejected and the matter be referred to arbitration in terms of Clause 69 of the agreement.
- Civil Judge by an order dated 2005 allowed that application and directing the parties to refer the matter to arbitration within two months, with a further direction that appellant shall not stop supplies to the respondent for a period of two months.
- Both appellant and respondent challenged the order dated 16.11.2005.
- The respondent also filed an application under Section 9 of the Act seeking an interim injunction against the appellant. This is allowed.
- The respondent in a letter to appellant alleged that it did not expect fair treatment or justice, if the Director (Marketing) or any other employee of the appellant was appointed as arbitrator.
- The appellant submits that the said request, apart from being contrary to the arbitration agreement, was also contrary to the subsequent order.
- In this background, the respondent filed an application (Arbitration Application No.2/2006) under section 11(6) of the Act in March 2006 before the Chief Justice of Uttaranchal High Court praying for appointment of an independent arbitrator.
- The said petition was resisted by the appellant by contending that an arbitrator can be appointed only in terms or clause 69 of the agreement.
- The learned Chief Justice, after hearing the parties allowed the application by the impugned order dated 26.9.2008, and appointed a retired High Court Judge as sole arbitrator to decide the dispute.
- Issue–
- In what circumstances, the Chief Justice or his designate can ignore the appointment procedure or the named arbitrator in the arbitration agreement, to appoint an arbitrator of his choice?
- Held-
- Arbitration is a binding voluntary alternative dispute resolution process by a private forum chosen by the parties.
- It is quite common for governments, statutory corporations and public sector undertakings while entering into contracts, to provide for settlement of disputes by arbitration, and further provide that the Arbitrator will be one of its senior officers.
- If a party, with open eyes and full knowledge and comprehension of the said provision enters into a contract with a government/statutory corporation/public sector undertaking containing an arbitration agreement providing that one of its Secretaries/Directors shall be the arbitrator, he can not subsequently turn around and contend that he is agreeable for settlement of disputes by arbitration, but not by the named arbitrator who is an employee of the other party. No party can say he will be bound by only one part of the agreement and not the other part, unless such other part is impossible of performance or is void being contrary to the provisions of the Act, and such part is severable from the remaining part of the agreement.
- The arbitration clause is a package which may provide for what disputes are arbitrable, at what stage the disputes are arbitrable, who should be the arbitrator, what should be the venue, what law would govern the parties etc.
- A party to the contract cannot claim the benefit of arbitration under the arbitration clause, but ignore the appointment procedure relating to the named Arbitrator contained in the arbitration clause.
- It is now well settled by a series of decisions of this Court that arbitration agreements in government contracts providing that an employee of the Department (usually a high official unconnected with the work or the contract) will be the Arbitrator, are neither void nor unenforceable.
- Nothing in sections 11, 12, 18 or other provisions of the Act suggests that any provision in an arbitration agreement, naming the Arbitrator will be invalid if such named arbitrator is an employee of one of the parties to the arbitration agreement. Sub- section (2) of section 11 provides that parties are free to agree upon a procedure for appointment of arbitrator/s. Sub-section (6) provides that where a party fails to act, as required under the procedure prescribed, the Chief Justice or his designate can take necessary measures. Sub- section (8) gives the discretion to the Chief Justice/his designate to choose an arbitrator suited to meet the requirements of a particular case. The said power is in no way intended to nullify a specific term of arbitration agreement naming a particular person as arbitrator. The power under sub-section (8) is intended to be used keeping in view the terms of the arbitration agreement. The fact that the named arbitrator is an employee of one of the parties is not ipso facto a ground to raise a presumption of bias or partiality of lack of independence on his part.
- The position may be different where the person named as the Arbitrator is an employee of a company or body or individual other than the state and its instrumentalities. For example, if the Director of a private company (which is a party to the Arbitration agreement), is named as the Arbitrator, there may be valid and reasonable apprehension of bias in view of his position and interest, and he may be unsuitable to act as an Arbitrator in an arbitration involving his company. If any circumstance exists to create a reasonable apprehension about the impartiality or independence of the agreed or named Arbitrator, then the court has the discretion not to appoint such a person.
- Subject to the said clarifications, we hold that a person being an employee of one of the parties (which is the state or its instrumentality) cannot per se be a bar to his acting as an Arbitrator. Accordingly, the answer to the first question is that the learned Chief Justice was not justified in his assumption of bias.
- Facts-
- Indian Oil Corporation v Raja Transport Pvt. ltd. 2009 IMP
- While the provisions relating to independence and impartiality are more explicit in the new Act, it does not mean that the old Act (Arbitration Act, 1940) enabled persons with bias to act as Arbitrators. What was implicit under the old Act is made explicit in the new Act in regard to impartiality, independence and freedom from bias. The decisions under the old Act on this issue are therefore not irrelevant when considering the provisions of the new Act. At all events, M. P. Gupta and Ace Pipeline are cases under the new Act. All the decisions proceed on the basis that when senior officers of government/statutory corporations/public sector undertakings are appointed as Arbitrators, they will function independently and impartially, even though they are employees of such Institutions/organisations. IMP
Secretary to Government, Transport Department, Madras v. Munusamy Mudaliar 1988
Facts– The contract between the respondent and State Government contained an arbitration clause providing that the Superintending Engineer will be the arbitrator. Disputes arising in respect of cancellation of the contract by the department were referred to the said Arbitrator. An application under section 5 of Arbitration Act, 1940 was filed by the contractor for removal of the arbitrator on the ground of apprehended bias on the part of the arbitrator as he was an employee of the State Government and was subordinate of the chief Engineer who took the decision to cancel the contract. This Court negatived the said contention and held that unless there is allegation against the named arbitrator either against his honesty or mala fide or interest in the subject matter or reasonable apprehension of the bias, a named and agreed arbitrator cannot and should not be removed in exercise of a discretion vested in the Court under Section 5 of the Act.
Ace Pipeline Contract Pvt. Ltd. v. Bharat Petroleum Corporation Ltd. 2007
Facts-
- The Arbitration clause by the Petroleum Corp. provided that the arbitration will be by its Director (Marketing) or some other officer nominated by the Director (Marketing).
- The contractor expressed an apprehension about the independence and impartiality of the named arbitrator and prayed for appointment of a retired Judge as Arbitrator in his application under section 11(6) of the Act.
Held-
- In the present case, in fact the appellant’s demand was to get some retired Judge of the Supreme Court to be appointed as arbitrator on the ground that if any person nominated in the arbitration clause is appointed, then it may suffer from bias or the arbitrator may not be impartial or independent in taking decision. Once a party has entered into an agreement with eyes wide open it cannot wriggle out of the situation (by contending) that if any person of the respondent BPCL is appointed as arbitrator he will not be impartial or objective.
- However, if the appellant feels that the arbitrator has not acted independently or impartially, or he has suffered from any bias, it will always be open to the party to make an application under section 34 of the Act to set aside the award on the ground that arbitrator acted with bias or malice in law or fact. IMPORTANT
Northern Railway Administration v. Patel Engineering Co. Ltd. 2008
After examining the scope of sub-sections (6) and (8) of section 11, this Court held : The crucial expression in sub-section (6) is “a party may request the Chief Justice or any person or institution designated by him to take the necessary measures“. This expression has to be read along with requirement in sub-section (8) that the Chief Justice or the person or an institution designated by him in appointing an arbitrator shall have “due regard” to the two cumulative conditions relating to qualifications and other considerations as are likely to secure the appointment of an independent and impartial arbitration.
Summary of S.11 (Indian Oil Corporation v Raja Transport Pvt. ltd. 2009)
- Where the agreement provides for arbitration with three arbitrators (each party to appoint one arbitrator and the two appointed arbitrators to appoint a third arbitrator), in the event of a party failing to appoint an Arbitrator within 30 days from the receipt of a request from the other party (or the two nominated arbitrators failing to agree on the third arbitrator within 30 days from the date of the appointment), the Chief Justice or his designate will exercise power under sub-section (4) of section 11 of the Act.
- Where the agreement provides for arbitration by a sole arbitrator and the parties have not agreed upon any appointment procedure, the Chief Justice or his designate will exercise power under sub-section (5) of section 11, if the parties fail to agree on the arbitration within thirty days from the receipt of a request by a party from the other party.
- Where the arbitration agreement specifies the appointment procedure, then irrespective of whether the arbitration is by a sole arbitrator or by a three-member Tribunal, the Chief Justice or his designate will exercise power under sub-section (6) of section 11, if a party fails to act as required under the agreed procedure (or the parties or the two appointed arbitrators fail to reach an agreement expected of them under the agreed procedure or any person/institution fails to perform any function entrusted to him/it under that procedure).
- While failure of the other party to act within 30 days will furnish a cause of action to the party seeking arbitration to approach the Chief Justice or his designate in cases falling under sub-sections (4) & (5), such a time bound requirement is not found in sub-section (6) of section 11. The failure to act as per the agreed procedure within the time limit prescribed by the arbitration agreement, or in the absence of any prescribed time limit, within a reasonable time, will enable the aggrieved party to file a petition under Section 11(6) of the Act.
- Where the appointment procedure has been agreed between the parties, but the cause of action for invoking the jurisdiction of the Chief Justice or his designate under clauses (a), (b) or (c) of sub-section (6) has not arisen, then the question of Chief Justice or his designate exercising power under sub-section (6) does not arise. The condition precedent for approaching the Chief Justice or his designate for taking necessary measures under sub-section (6) is that (i) a party failing to act as required under the agreed appointment procedure; or (ii) the parties (or the two appointed arbitrators), failing to reach an agreement expected of them under the agreed appointment procedure; or (iii) a person/institution who has been entrusted with any function under the agreed appointment procedure, failing to perform such function.
- The Chief Justice or his designate while exercising power under sub-section (6) of section 11 shall endeavour to give effect to the appointment procedure prescribed in the arbitration clause.
- If circumstances exist, giving rise to justifiable doubts as to the independence and impartiality of the person nominated, or if other circumstances warrant appointment of an independent arbitrator by ignoring the procedure prescribed, the Chief Justice or his designate may, for reasons to be recorded ignore the designated arbitrator and appoint someone else.
S.13- Challenge to procedure of appointment of Arbitrators–
- Subject to sub-section (4), the parties are free to agree on a procedure for challenging an arbitrator.
- Failing any agreement referred to in sub-section (1), a party who intends to challenge an arbitrator shall, WITHIN FIFTEEN DAYS after 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.
- Unless the arbitrator challenged under sub-section (2) withdraws from his office or the other party agrees to the challenge, the arbitration tribunal shall decide on the challenge.
- 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.
- 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.
- 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 challenged is entitled to any fees.
S.13– provides both mandatory and non-mandatory provisions. Provides for challenge to the procedure of arbitrator appointment. Parties can choose any challenge procedure but if that fails then, tribunal will go on to decide the matter. Later on when the award is passed, parties can challenge under S.34. This is different from A.13 uncitral. There immediate remedy in form of appeal is allowed. So S.12 gives grounds which gives rise to justifiable doubts regarding the neutrality of arbitrator.
S.14- Failure or impossibility to act—
- The mandate of an arbitrator shall terminate and he shall be substituted by another arbitrator, if-
- (a) he becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay; and
- (b) he withdraws from his office or the parties agree to the termination of his mandate.
- If a controversy remains concerning any of the grounds referred to in clause (a) of sub-section (1), a party may, unless otherwise agreed by the parties, apply to the Court to decide on the termination of the mandate.
- If, under this section or sub-section (3) of section 13, an arbitrator withdraws from his office or a party agrees to the termination of the mandate of an arbitrator, it shall not imply acceptance of the validity of any ground referred to in this section or sub-section (3) of section 12.
Act of withdrawal by arbitrator does not mean he has accepting all the allegations on his neutrality as true. IMP
In India, except for the final order, there is no recourse available to civil court. S.34 and S.37 provides only one appeal regarding arbitral award.
S.15-Termination of mandate and substitution of arbitrator-
- In addition to the circumstances referred to in section 13 or section 14, the mandate of an arbitrator shall terminate-
- (a) where he withdraws from office for any reason; or
- (b) by or pursuant to agreement of the parties.
- Where the mandate of an arbitrator terminates, a substitute arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced.
- Unless otherwise agreed by the parties, where an arbitrator is replaced under sub-section (2), any hearings previously held may be repeated at the discretion of the arbitral tribunal.
- Unless otherwise agreed by the parties, an order or ruling of the arbitral tribunal made prior to the replacement of an arbitrator under this section shall not be invalid solely because there has been a change in the composition of the arbitral tribunal.
S.14 includes all other situations than mentioned in S.12 and S.14.
Cases on this point-
Voestalpine Schenen v DMRC 2016
After the dispute arose, Voestalpine Schenen approached DMRC expressing to appoint a former SC Judge as arbitrator. DMRC proposed 5 names from PSUs and Railway. One was appointed as an arbitrator. In SC, it was challenged that such appointment violates the provision. SC said that if legislature had been against this (appointment of govt. employees as arbitrator), they would have mentioned this in the schedule. Imputing bias on a high ranking official is baseless. All see the previous cases like Ace Pipeline, Northern Railway v Patel Engineering, Bharat Petroleum v Raja Transport, etc.
HRD Corporation v Gayle India 2017
4 Arbitration happened between parties. Objections were raised against 2 arbitrators- Justice Lahoti had given legal advice to Gayle and Justice Doabia had presided over in a previous case concerning one of the parties. Schedule 5 and 7 entries 15, 16 and 22 r/w S.13 gives a timeline within which objection has to be raised.
Entires 1-19 are similar in schedule 5 and 7 but in schedule 5, there us duty on arbitrator to disclose. Schedule 5 are the grounds which give justifiable doubts regarding the neutrality of arbitrator. Schedule 7 has to be read along with S.12(5).
If these entries were not mentioned in Schedule 5, then there would have been no duty on arbitrator to disclose.
Entry 1 and 2 of Schedule 7- Does not apply in the present case.
Entry 8, 15 and 16
TRF Ltd v Energo Engineering Projects ltd. IMP
Named arbitrator became ineligible in the light of S.12(5). But parties have right to waive this objection. Whether his nominee also becomes ineligible?
Court said yes. An independent arbitrator has to be appointed under S.11
BBNL v UTL 2019 SC (IMP as discusses all previous cases on the interpretation of Section 12(5) of the Arbitration and Conciliation Act, 1996)
- Facts-
- On 05.08.2013, BBNL floated tender inviting bids for a turnkey project for GPON and Solar Power equipment.
- United Telecoms Limited (UTL) was selected as L-1 bidder.
- On 30.09.2014, Advance Purchase Order was issued.
- On 03.01.2017, UTL asked for the appointment of Arbitrator to decide the dispute.
- On 17.01.2017, CMD, BBNL appointed a Sole Arbitrator.
- During the Arbitration Process, Supreme Court passed Judgment in TRF Limited, holding that Managing Director (CMD) cannot appoint an arbitrator as he is one of the parties to the Arbitration.
- Because of TRF Limited Judgement, BBNL prayed to Sole Arbitrator that given TRF Judgment, he is de jure unable to perform the function of Arbitrator. Accordingly, he should withdraw as Arbitrator and let High Court appoint substitute Arbitrator.
- On 21.10.2017, this Application was rejected by the Sole Arbitrator.
- On 28.10.2017, BBNL filed Petition under Section 14 and 15 before Delhi High Court seeking the appointment of a substitute Arbitrator.
- On 22.11.2017, this Petition was rejected by Delhi High Court primarily on following grounds:
- BBNL who appointed Arbitrator is estopped from raising a plea that such Arbitration cannot continue; and
- UTL filed Statement of Claim without objecting/ reserving any objection about the appointment of Arbitrator. This would amount to express agreement in writing, therefore, wavier as per Section 12(5) of the Act.
- Issue–
- Whether High Court was right in rejecting Petition filed by BBNL seeking the appointment of substitute Arbitrator?
- Held–
- Supreme Court allowed the appeal and set aside the judgment passed by Delhi High Court, thereby, terminating the mandate of Sole Arbitrator. Apex Court further directed Delhi High Court to appoint substitute arbitrator with consent of both parties.
Re: BBNL v UTL
AA mentioned that CMD (managing Director) shall nominate arbitrator. During the proceedings, TRF judgement came holding that Managing Director (CMD) cannot appoint an arbitrator as he is one of the parties to the Arbitration.
Contention– Whether office of the arbitrator should be terminated? The arbitrator refused. BBNL contended that under S.12, 13, 14 and TRF judgement if arbitrator cannot arbitrate then his named arbitrator also cannot arbitrate. UTL contended under S.12(4) which provides that A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made. So UTL contended that BBNL already knew about S.12(5) as dispute occurred post 2015 amendment. Also, S.13 gives a timeline of 15 days within which objection has to be raised otherwise its deemed waiver. Court discussed all three judgements and held that this is a case of void-ab-initio appointment. This is a case of De-Jure inability under S.12(5). COURT READ S.12(5) WITH PROVISO. Court did not agree that there is a waiver by the conduct of the parties. S.7 is now relaxed which provides agreement in writing but S.12(5) requires waiver in writing. If the case falls under S.12(5) then it has to be read along with S.12(4).
INTERIM MEASURES OF PROTECTION (S.9 and S.17)
Interim measures have been provided both in Uncitral and Arb. Act.
S.9 and S.17 deals with Interim Measures of Protection. Both have been amended in 2015.
S.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 of protection in respect of any of the following matters, namely
- (a) the preservation, interim custody or sale of any goods which 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 taken or 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.
- Where, before the commencement of the arbitral proceedings, a Court passes an order for any interim measure of protection under sub-section (1), the arbitral proceedings shall be commenced within a period of ninety days from the date of such order or within such further time as the Court may determine.
- Once the arbitral tribunal has been constituted, the Court shall not entertain an application under sub-section (1), unless the Court finds that circumstances exist which may not render the remedy provided under section 17 efficacious.
S.9 available at 3 stages-
- Before the tribunal is constituted. They are basically interlocutory orders, etc Order, 32, 38, 39, 40 of CPC 1908.
- During the Arbitration Process.
- After the Award is passed. There is an interim period before the award is executed. S.34
S.17-Interim measures ordered by Arbitral Tribunal-
- A party may, during the 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 the arbitral tribunal—
- for the appointment of a guardian for a minor or person of unsound mind for the purposes of arbitral proceedings; or
- for an interim measure of protection in respect of any of the following matters, namely:
- the preservation, interim custody or sale of any goods which are the subject-matter of the arbitration agreement;
- securing the amount in dispute in the arbitration;
- 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 taken, or 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;
- interim injunction or the appointment of a receiver;
- such other interim measure of protection as may appear to the arbitral tribunal to be just and convenient, and the arbitral tribunal shall have the same power for making orders, as the Court has for the purpose of, and in relation to, any proceedings before it.
- Subject to any orders passed in an appeal under section 37, any order issued by the arbitral tribunal under this section shall be deemed to be an order of the Court for all purposes and shall be enforceable under the Code of Civil Procedure, 1908 (5 of 1908), in the same manner as if it were an order of the Court.
Reasons for the Amendment in 2015-
- Earlier power of tribunal was limited to parties only and to the subject matter of the dispute
- Tribunal did not have power to execute its orders.
- Tribunal did not have power to pass order wrt 3rd parties
- S.13 is a non-mandatory provision which gives power to parties to grant power to tribunal to pass interim measures.
- S.9(2)- It gives a time period as to when parties approach court. Parties used to approach civil court, obtain interim protection and then did not arbitrate. So S.9(2) imposes time limit of 90 days within which arb tribunal has to be constituted. Court will have to look whether parties have manifest intention to arbitrate.
- S.9(3)- Once the tribunal is constituted, then ordinarily court will not grant interim measures of protection. Parties will have to approach tribunal only u/s 17.
- S.17(1)– AT will have same powers like civil court for making orders.
- S.17(2)– Any Order of interim measures of protection passed by AT shall be deemed to order of Civil court and shall be executable.
- 246 LCI Report- If any party does not honour order of AT, AT should files a petition under S,27 of the Act.
- S.27(5)- not obeying orders of AT amounts to contempt and if its is proved then all penalties mentioned in Order 16 and 39 CPC are applicable.
- S.17 has been amended on lines of Art.17 Uncitral. In 2006 there was amended in Uncitral as well.
Under what criteria AT grant interim measure of protection?
Under what criteria CPC grant interim measure of protection under Order 38-39?
- Prima-Facie case
- Balance of Convenience
- Irreparable Injury
Uncitral Model Law earlier did not provide the criteria but the amended article 17 does provide the criteria-
- Irreparable Injury.
- Balance of Convenience.
- Prima-Facie case-There is reasonable possibility that the party will actually prove its case.
Article 17(b)– Ad-interim measures of protection. They are basically ex-parte interim measures of protection but later opportunity of hearing is given to 3rd party.
There are certain countries that treat interim measures of protection as award but others like India do not treat them as award.
Article 17(c)- Ad-interim measures of protection will be in force only for 20 days. Within 20 days either objections have to be raised. It can be extended as well. It cannot be executed by civil court but is binding on parties only.
Article 17E- Provision of Security
- The arbitral tribunal may require the party requesting an interim measure to provide appropriate security in connection with the measure.
- The arbitral tribunal shall require the party applying for a preliminary order to provide security in connection with the order unless the arbitral tribunal considers it inappropriate or unnecessary to do so.
Tribunal can ask for security from the party asking interim measure of protection in order to deter parties from filing mala-fide applications.
Article 17F-
- The arbitral tribunal may require any party promptly to disclose any material change in the circumstances on the basis of which the measure was requested or granted.
- The party applying for a preliminary order shall disclose to the arbitral tribunal all circumstances that are likely to be relevant to the arbitral tribunal’s determination whether to grant or maintain the order, and such obligation shall continue until the party against whom the order has been requested has had an opportunity to present its case. Thereafter, paragraph (1) of this article shall apply.
Its like S.39 of CPC. Parties have duty to inform the tribunal if there is any change in the circumstances after the interim measure of protection has been passed.
Article 17H- Recognition and enforcement
- An interim measure issued by an arbitral tribunal shall be recognized as binding and, unless otherwise provided by the arbitral tribunal, enforced upon application to the competent court, irrespective of the country in which it was issued, subject to the provisions of article 17 I.
- The party who is seeking or has obtained recognition or enforcement of an interim measure shall promptly inform the court of any termination, suspension or modification of that interim measure.
- The court of the State where recognition or enforcement is sought may, if it considers it proper, order the requesting party to provide appropriate security if the arbitral tribunal has not already made a determination with respect to security or where such a decision is necessary to protect the rights of third parties.
Article 17I- Grounds for refusing recognition or enforcement
- Recognition or enforcement of an interim measure may be refused only:
- (a) At the request of the party against whom it is invoked if the court is satisfied that:
- (i) Such refusal is warranted on the grounds set forth in article 36(1)(a)(i), (ii), (iii) or (iv); or
- (ii) The arbitral tribunal’s decision with respect to the provision of security in connection with the interim measure issued by the arbitral tribunal has not been complied with; or
- (iii) The interim measure has been terminated or suspended by the arbitral tribunal or, where so empowered, by the court of the State in which the arbitration takes place or under the law of which that interim measure was granted; or
- (b) If the court finds that:
- (i) The interim measure is incompatible with the powers conferred upon the court unless the court decides to reformulate the interim measure to the extent necessary to adapt it to its own powers and procedures for the purposes of enforcing that interim measure and without modifying its substance; or
- (ii) Any of the grounds set forth in article 36(1)(b)(i) or (ii), apply to the recognition and enforcement of the interim measure.
- (a) At the request of the party against whom it is invoked if the court is satisfied that:
- Any determination made by the court on any ground in paragraph (1) of this article shall be effective only for the purposes of the application to recognize and enforce the interim measure. The court where recognition or enforcement is sought shall not, in making that determination, undertake a review of the substance of the interim measure.
Article 17J- Court-ordered interim measures
A court shall have the same power of issuing an interim measure in relation to arbitration proceedings, irrespective of whether their place is in the territory of this State, as it has in relation to proceedings in courts. The court shall exercise such power in accordance with its own procedures in consideration of the specific features of international arbitration.
This means that any court will have power to grant interim measure of protection.
Article 9– Irrespective of whether you have entered in AA, you can still approach the court.
UNCITRAL talks about seat theory of Arbitration. But Article 1 makes an exception in the form of Article 17H, 17I and 17J.
Article 9 is regarding Domestic Arb and Article 17J is for ICA.
How S.17 different from A17?
- We have not adopted certain features like ex-parte injunction orders for which parties have to go to court.
- Tribunal’s order are treated as as good as decree of court and can be executed and enforced.
S.2(2) was amended in the light of Bhatia International regarding seat theory and delocalisation. The case was based on S.9. Court granted interim measures of protection but Later Courts started applying this ratio on other sections like S.11.
Post 2015 parties to free to move S.9 application if assets are located in India provided they have mentioned in AA. There can be implied application of this section as well. Because in Bhatia Intl. court said that part 1 shall apply unless parties have expressly excluded its application in AA. This was doctrine of IMPLIED EXCLUSION– which means that if parties have chosen a seat, it means parties have impliedly excluded.
S.2(2)-This Part shall apply where the place of arbitration is in India. Provided that subject to an agreement to the contrary, the provisions of sections 9, 27 and clause (a) of sub-section (1) and sub-section (3) of section 37 shall also apply to international commercial arbitration, even if the place of arbitration is outside India, and an arbitral award made or to be made in such place is enforceable and recognised under the provisions of Part II of this Act.
S.37 gives a list of appealable order.
S.37-Appealable orders.—
- An appeal shall lie from the following orders (and from no others) to the Court authorised by law to hear appeals from original decrees of the Court passing the order, namely:—
- refusing to refer the parties to arbitration under section 8;
- granting or refusing to grant any measure under section 9;
- setting aside or refusing to set aside an arbitral award under section 34.
There was a problem regarding S.9(2) which provides that 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. This is known as INCLUSIVE APPROACH. SC generally follow this approach.
EXCLUSIVE APPROACH- It provides that the court is not require to follow the strict requirements of CPC but only general principles of CPC has to be applied rather than literal and rigid application of all orders eg-Order 38, 39 and 40. HC generally follow this approach.
Article 17J tries to resolve this dilemma.
SOME INTERNATIONALLY RECOGNISED CONCEPTS
- Emergency Arbitration– for granting interim measure of protections in ICA prior to the constitution of the tribunal. This for when parties do want to go to the court for interim measure of protections under S.9
- Lot of Intl. Arb. Centres have provisions regarding this under which parties appoint an emergency arbitrator for granting interim measure of protections before the tribunal is constituted.
- She/He has the maximum tennure of 10 days.
- He can look into jurisdictional matters only in a prima-facie manner.
- His decisions are not binding on the subsequently constituted arb. tribunal.
- Within 2 days he has to give schedule to parties as to how he is going to decide the matter.
- In India, certain institutions have similar provision-
- Delhi, Mumbai, Madras Arbitration Centres, etc.
- Law Commission has already suggested that arb. Tribunal definition in Arb. Act should be amended to include emergency arbitrator.
- HSBC v Avital Post Studios (Mumbai HC) 2014
- Parties had gone to Singapore Arb Centre for Arb. As per AA. S.9(1) was held to applicable.
- Under SAC, an emergency arbitrator passed an award. For its enforcement, parties approached Indian court.
- HC passed an order in line with S.9. The court basically passed an interim measure of protection and not literally executed the emergency award.
- Rafels Designs Intl India Pvt. Ltd v Educomp Professional Education Ltd 2016
- Delhi HC refused to enforce the award by an emergency arbitrator as the act does not provide it.
- However post amendment, S.9 (interim measure of protection) will be applicable only if parties have mentioned it.
- HSBC v Avital Post Studios (Mumbai HC) 2014
- Definition of award has not been changed in Indian act.
- LCI suggestion of Emergency Arb was rejected.
- Problem-
- Enforcement of award of emergency arbitrator in India.
- Only when an Arb Award gets protection of NY Convention 1958, it can be enforced in India.
- Solution–
- Uncitral should widen the definition of award.
Chapter 5- Talks about conduct of arb. Proceedings (S.23-26)
Read. 16, 18, 19
S.18– Codification of mandatory PNJ
S.19– Exclusion of CPC and Evidence Act.
S.20– Seat of Arb
S.21 r/w S.29A–
S.29A was not suggested by LCI but they recognised the problem of delay in arb. To prevent delay, they wanted to promote institutional arbitration. In institutional arb., there is check on arbitrators which is not there in case of ad-hoc arb headed by judges.
S.29A-Time limit for arbitral award-
- The award shall be made within a period of twelve months from the date the arbitral tribunal enters upon the reference.
- Explanation.— For the purpose of this sub-section, an arbitral tribunal shall be deemed to have entered upon the reference on the date on which the arbitrator or all the arbitrators, as the case may be, have received notice, in writing, of their appointment.
- If the award is made within a period of six months from the date the arbitral tribunal enters upon the reference, the arbitral tribunal shall be entitled to receive such amount of additional fees as the parties may agree.
- The parties may, by consent, extend the period specified in sub- section (1) for making award for a further period not exceeding six months.
- If the award is not made within the period specified in sub- section (1) or the extended period specified under sub-section (3), the mandate of the arbitrator(s) shall terminate unless the Court has, either prior to or after the expiry of the period so specified, extended the period:
- Provided that while extending the period under this sub-section, if the Court finds that the proceedings have been delayed for the reasons attributable to the arbitral tribunal, then, it may order reduction of fees of arbitrator(s) by not exceeding five per cent for each month of such delay.
- The extension of period referred to in sub-section (4) may be on the application of any of the parties and may be granted only for sufficient cause and on such terms and conditions as may be imposed by the Court.
- While extending the period referred to in sub-section (4), it shall be open to the Court to substitute one or all of the arbitrators and if one or all of the arbitrators are substituted, the arbitral proceedings shall continue from the stage already reached and on the basis of the evidence and material already on record, and the arbitrator(s) appointed under this section shall be deemed to have received the said evidence and material.
- In the event of arbitrator(s) being appointed under this section, the arbitral tribunal thus reconstituted shall be deemed to be in continuation of the previously appointed arbitral tribunal.
- It shall be open to the Court to impose actual or exemplary costs upon any of the parties under this section.
- An application filed under sub-section (5) shall be disposed of by the Court as expeditiously as possible and endeavour shall be made to dispose of the matter within a period of sixty days from the date of service of notice on the opposite party.
This provision brought difficulties in govt. contracts where authorities usually are transferable.
NBCC Ltd v JG Engineering Pvt. Ltd 2010 (before amendment)
An arb. Was appointed and his time period was extended for 6 months.
Issue– Can HC impose a timeline of 6 months?
HC has no power to set timeline as per S.5. Also when the act does not provide any timeline, then court cannot do that. Timeline can be extended only by parties.
Problem of Timeline-
- Internationally discouraged
- Takes away party autonomy
Section 21-Commencement of arbitral proceedings- Unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent.
Commencement happens when one party send notice to other party. To be r/w S.3 which talks about receipt of written communication. Parties can decide the receipt of communication.
Section 29A- Time limit for arbitral award.—
- The award shall be made within a period of twelve months from the date the arbitral tribunal enters upon the reference.
- Explanation.— For the purpose of this sub-section, an arbitral tribunal shall be deemed to have entered upon the reference on the date on which the arbitrator or all the arbitrators, as the case may be, have received notice, in writing, of their appointment.
- If the award is made within a period of six months from the date the arbitral tribunal enters upon the reference, the arbitral tribunal shall be entitled to receive such amount of additional fees as the parties may agree.
- The parties may, by consent, extend the period specified in sub- section (1) for making award for a further period not exceeding 6 months.
- If the award is not made within the period specified in sub- section (1) or the extended period specified under sub-section (3), the mandate of the arbitrator(s) shall terminate unless the Court has, either prior to or after the expiry of the period so specified, extended the period:
- Provided that while extending the period under this sub-section, if the Court finds that the proceedings have been delayed for the reasons attributable to the arbitral tribunal, then, it may order reduction of fees of arbitrator(s) by not exceeding five per cent for each month of such delay.
- The extension of period referred to in sub-section (4) may be on the application of any of the parties and may be granted only for sufficient cause and on such terms and conditions as may be imposed by the Court.
- While extending the period referred to in sub-section (4), it shall be open to the Court to substitute one or all of the arbitrators and if one or all of the arbitrators are substituted, the arbitral proceedings shall continue from the stage already reached and on the basis of the evidence and material already on record, and the arbitrator(s) appointed under this section shall be deemed to have received the said evidence and material.
- In the event of arbitrator(s) being appointed under this section, the arbitral tribunal thus reconstituted shall be deemed to be in continuation of the previously appointed arbitral tribunal.
- It shall be open to the Court to impose actual or exemplary costs upon any of the parties under this section.
Section 43- Limitations-
- The Limitation Act, 1963 (36 of 1963), shall, apply to arbitrations as it applies to proceedings in Court.
- For the purposes of this section and the Limitation Act, 1963 (36 of 1963), an arbitration shall be deemed to have commenced on the date referred in section 21.
- Where an arbitration agreement to submit future disputes to arbitration provides that any claim to which the agreement applies shall be barred unless some step to commence arbitral proceedings is taken within a time fixed by the agreement, and a dispute arises to which the agreement applies, the Court, if it is of opinion that in the circumstances of the case undue hardship would otherwise be caused, and notwithstanding that the time so fixed has expired, may on such terms, if any, as the justice of the case may require, extend the time for such period as it thinks proper.
- Where the Court orders that an arbitral award be set aside, the period between the commencement of the arbitration and the date of the order of the Court shall be excluded in computing the time prescribed by the Limitation Act, 1963 (36 of 1963), for the commencement of the proceedings (including arbitration) with respect to the dispute so submitted.
Section 29B Fast track procedure-
- Notwithstanding anything contained in this Act, the parties to an arbitration agreement, may, at any stage either before or at the time of appointment of the arbitral tribunal, agree in writing to have their dispute resolved by fast track procedure specified in sub-section (3).
- The parties to the arbitration agreement, while agreeing for resolution of dispute by fast track procedure, may agree that the arbitral tribunal shall consist of a sole arbitrator who shall be chosen by the parties.
- The arbitral tribunal shall follow the following procedure while conducting arbitration proceedings under sub-section (1),—
- the arbitral tribunal shall decide the dispute on the basis of written pleadings, documents and submissions filed by the parties without any oral hearing;
- the arbitral tribunal shall have power to call for any further information or clarification from the parties in addition to the pleadings and documents filed by them;
- an oral hearing may be held only, if, all the parties make a request or if the arbitral tribunal considers it necessary to have oral hearing for clarifying certain issues;
- the arbitral tribunal may dispense with any technical formalities, if an oral hearing is held, and adopt such procedure as deemed appropriate for expeditious disposal of the case.
- The award under this section shall be made within a period of six months from the date the arbitral tribunal enters upon the reference.
- If the award is not made within the period specified in sub- section (4), the provisions of sub-sections (3) to (9) of section 29A shall apply to the proceedings.
- The fees payable to the arbitrator and the manner of payment of the fees shall be such as may be agreed between the arbitrator and the parties.
IMPORTANT TOPICS– Arbitral Award – Setting Aside – Recognition Of Foreign Arbitral Award
These are provided in section 31 and article 31 of UNCITRAL. ACA – there are different type of awards.
S.31-Form and contents of arbitral award.—
- An arbitral award shall be made in writing and shall be signed by the members of the arbitral tribunal.
- For the purposes of sub-section (1), in arbitral proceedings with more than one arbitrator, the signatures of the majority of all the members of the arbitral tribunal shall be sufficient so long as the reason for any omitted signature is stated.
- The arbitral award shall state the reasons upon which it is based, unless—
- (a) the parties have agreed that no reasons are to be given, or
- (b) the award is an arbitral award on agreed terms under section 30.
- The arbitral award shall state its date and the place of arbitration as determined in accordance with section 20 and the award shall be deemed to have been made at that place.
- After the arbitral award is made, a signed copy shall be delivered to each party.
- The arbitral tribunal may, at any time during the arbitral proceedings, make an interim arbitral award on any matter with respect to which it may make a final arbitral award.
- (a) Unless otherwise agreed by the parties, where and in so far as an arbitral award is for the payment of money, the arbitral tribunal may include in the sum for which the award is made interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made.
- (b) A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of two percent higher than the current rate of interest prevalent on the date of award, from the date of award to the date of payment.
- Explanation.—The expression “current rate of interest” shall have the same meaning as assigned to it under clause (b) of section 2 of the Interest Act, 1978 (14 of 1978).
- The costs of an arbitration shall be fixed by the arbitral tribunal in accordance with section 31A.
Section 31(6) talks about interim award. If there are 7-8 issues then on some issues it can be passed and the rest can be postponed. Interim award is different from interim order. Interim award is as good as final award as it decides rights and liabilities of parties and is like a preliminary decree. We treat interim and final order which decides R & L of the party.
Settlement award is provided in section 13.
AA does prevent parties to settle dispute outside Arb.
Section 30 provides that irrespective of AA you are not prevented from settling the dispute by following any other method of ADR. During the arb proceedings, if parties want to settle the dispute they can inform the tribunal. If they settle the dispute they have 2 options i.e. terminate the mandate of tribunal and settlement award passed by tribunal.
Orders granted under Section 9, 17 and 16 – 16 and 17 are not of the status of award but are important orders. S.17 provides for interim measures by tribunal which are appealable. We have procedural order, interim award and final award.
Under CPC Order 23, consent decree can be passed here as well. In consent decrees there is no right to appeal.
Section 31(3)(b) – talks about mandatories.
If there is a Settlement Award, parties should not move S. 34 application unless they want to claim that there was fraud, misrepresentation, etc.
Forms and contents of the arb award – Award should talk about AA. Recitals are not mentioned in 31 and are not mandatory. All or majority of arbitrators should sign the award. Reason of dissent should also be mentioned.
Secondly, they also have to mention place, date and time of the award. Seat is important for the purpose of ICA.
Section 31 talks about the content of the arbitral award- Under the old act arbitral award was not final unless court has passed confirmatory award. Lots of time was taken by court. Whatever arbitrator had decided used to be of no benefit. Under 1996 Act, reasons have to be given in writing. Exceptions
- parties can decide, then arb won’t write reasons
- there is no need to write reasons
- if award is on agreed term as per section 30.
Sufficiency of reason is not a ground for setting aside the award as it is not mentioned in section 34. But it is in ICA. Arbitral award – brief reason has to be stated.
S.31(5) – tribunal has to deliver a copy of the award to each party. In arb proceedings the duty of arb is to hand over the copy of award to each party. Date on award is important for calculation of interest under S.31(7) and S.31(8).
S.31(7) – interest – section 34 of CPC also talks about interest.
3 types of interests can be awarded-
- Pre award – is non mandatory in nature and depends on party autonomy. It mentions that party may give power to tribunal or it can decide either ways. If AA is silent then this provision will apply. Then it is discretion of tribunal to decide the quantum of interest.
- Pendent lite – till the time dispute is pending
- Post award – after passing of order till the date of actual payment of amount. This was added in 2015. It is a mandatory provision [31(7)(b)]. This is pre award + interest and parties do not have autonomy in this. A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of two percent higher than the current rate of interest prevalent on the date of award, from the date of award to the date of payment”. Earlier it was 18%, but LCI was against this.
Can the arb tribunal grant compound interest?
pre award + interest + interest on interest. Under section 3 of interest
Arb. Act provides that the court cannot grant compound interest. So a civil court cannot grant it. Arbitral tribunal is as good as civil court.
SC in State of Haryana v SL Arora (2010), held that we cannot interpret the act to mean tribunal can grand CI. It is against public policy.
But in the case of Renusagar v General Electric (judgment in respect of ICA) SC held that granting CI is not against Public Policy.
In Hyder Consulting v Governor of Orissa (2014) SC held that section 31(7) (a) and (b) is nowhere preventing tribunal from granting CI. Interest Act only talks about court and not tribunal.
S.31(8) was amended because earlier power of tribunal was subject to party autonomy. There was no punitive action for delaying the process. LCI suggested there should be strict measures on imposition of cost similar to litigation.
SECTION 34- Application for setting aside arbitral award-
- Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub- section (3).
- An arbitral award may be set aside by the Court only if—
- (a) the party making the application furnishes proof that—
- a party was under some incapacity, or
- the arbitration agreement is not validunder the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being
in force; or - the party making the application was not given proper
notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or - the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration:
- Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or
- the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or
- (b) the Court finds that—
- the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or (Arbitrability)
- the arbitral award is in conflict with the public policy of India.
- Explanation 1—For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,—
- (i) the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81; or
- (ii) it is in contravention with the fundamental policy of Indian law; or
- (iii) it is in conflict with the most basic notions of morality or justice.
- Explanation 2—For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.
- (2A) An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court, if the Court finds that the award is vitiated by patent illegality appearing on the face of the award:
- Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by re-appreciation of evidence.]
- (3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award, or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal:
- Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter.
- (4) On receipt of an application under sub-section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award.
- (5) An application under this section shall be filed by a party only after issuing a prior notice to the other party and such application shall be accompanied by an affidavit by the applicant endorsing compliance with the said requirement.
- (6) An application under this section shall be disposed of expeditiously, and in any event, within a period of 1 year from the date on which the notice referred to in sub-section (5) is served upon the other party.
- (a) the party making the application furnishes proof that—
S.34(5)– Before you file appeal you have to give notice. Procedure of CPC not applicable here (S.90)
S.34(6)– Time frame under which appeal application has to be disposed of. (1 year)
Court cannot modify the error in the arbitral award but can only annul the award. It cannot sit as a court of appeal. Court cannot do any correction/modification by correct. Parties have to do arbitration all over again. If the application is rejected, the Arb Award remain as it is.
S.34(3)– An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award, or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal:
So one has to file the appeal within 30 days after receiving
SECTION 43– Limitation Act applies to all proceedings.
SECTION 5 (Limitation Act)– Condonation of Delay. Reason of delay is important than length of delay.
S.36- Enforcement– Before one moves a 34 application, one has to file an application to stay the award and also submit security.
All objections under S.34 have to be first raised before tribunal.
Article 5(1)(a) and S.48(a) are similar and they are similar across the world.
Article 5(2) grounds are country specific.
Two grounds that allow courts to go into the merits of the case-
- S.34(2)(b)(i)– Arbitrability (Booze Allen Hamilton case)
- S.34(2)(b)(ii)– Public Policy
- Public Policy is a dynamic concept that changes with time.
- Public Policy deduced from Constitution and S.23 Contract Act
- Explanation 1—For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if-
- the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81; or
- it is in contravention with the fundamental policy of Indian law; or
- it is in conflict with the most basic notions of morality or justice.
- Explanation 2—For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.
Narrow and Broad definition of Public Policy-
Narrow Approach– The court should strictly go by heads of public policy decided by the govt without being creative.
Broad Approach- Court should be capable of creating new heads of public policy.
Gherulal Parekh v Basheshar Nath (gave narrow interpretation of public policy)
CIWT Central Inland Water Tribunal (gave broad interpretation of public policy)
Renusagar v General Electricity Company 1996
Laid down 3 heads of public policy-
- Fundamental policy of Indian law
- Interest of India
- Justice or Morality
ONGC v Saw Pipes 2003
ONGC had ordered steel from some company in Europe. Delivery was delayed due to strike in Europe. Agreement clause provided that in case of delay, there will be deduction from payment. ONGC deducted the amount. AT held that deduction was illegal because ONGC could not prove the actual injury caused to them due to the delay. In Appeal ONGC alleged that AT violated the terms of the contract while deciding the case and also that-
- Violation of S.24
- That AT has violated S.28(3) which provides that it has to decide according to to terms of the contract
- That AT cannot impose interest.
- Violation of S.31(3)
- S.74 of Contract Act
- That award violating these provision will be patently illegal
Court held that such defects have to be covered in Patent Illegality. Public Policy was broadened to include Patent Illegality.
Difference between S.34 (Domestic Award) and S.48 (ICA)
Court said that it is not bound by Renusagar judgement as it is in context of recognition and enforcement of Foreign Arbitral Award. Process in both are different. In case of ICA, award becomes final and binding and in such cases court has narrow scope of intervention even in cases of public policy. In ICA, award becomes enforceable at the seat, only question is whether it can be enforced in India.
Criticism-
- It widened the scope of Public Policy
- It set-back the clock back to 1940 era under which court had very wide power of rejection of award.
S.24 Problem
Court held if there is violation of S.24, no recourse available in S.34
S.31(3) If reasoning is not given-
Court held that such awards can be set aside on ground of patent illegality
S.28(3) If award is not in line with the terms of the contract
Court held that such awards can also be set aside on the ground of patent illegality ie error manifest on the face of the record.
(Now 2015 amendment has included all these grounds of ONGC in the Arb Act.)
Venture Global v Satyam Computers
There was an AA between Indian and US Company. Place of Arbitration was US, award was made there but since one of the party was Indian, simultaneous proceedings started in India. This was beneficial to Indian company as it filed a S.9 application claiming interim measure of protection. US company filed a S.34 application for setting aside the award.
Phoolchand Exports v Patriot 2011 (based on ONGC Ratio)
Case b/w Indian and Russian company. India company agreed to supply high quality polished rice to Russia. AA provided that if the goods are not delivered on time, whole amount would have to be returned. Due to engine failure of Ship, goods did not reach on time. AT decided that half of the amount be returned.
Shri Lal Mahal v Progetto Grano 2013 (Clarified ONGC and Renusagar)
Case b/w Indian and Italian company. Indian company was to provide grains. A certifying agency was to provide quality assurance certificate during uploading of cargo. Italian company also did quality check in Italy and concluded that grains were of sub-standard quality. AT held against Indian company. Court held that ONGC (patent illegality) will apply to Domestic Arb. And Renusagar will apply to ICA. Even in case of checking public policy, court cannot go into merits of the award.
Now we have 3 Categories-
- Purely Domestic Award
- Public Policy and Patent illegality ground available.
- But will not include re-appreciation of evidence
- ICA happening in India
- Patent illegality ground not available
- ICA happening outside India
- Patent illegality ground not available.
Art. 28(3) is now amended but earlier provided that AT should decide according to terms of the contract. Now it will have to take into account the terms of the contract and not necessarily decode according to it.