THE ARBITRATION AND CONCILIATION ACT, 1996
I.
The law on arbitration in India was substantially contained in three enactments, namely - the Arbitration Act, 1940, the Arbitration (Protocol and Convention) Act, 1937 and the Foreign Awards (Recognition and Enforcement) Act, 1961. The Arbitration Act, 1940 was widely felt to have become outdated. The Law Commission of India, several representative bodies of trade and industry and experts in the field of arbitration had proposed amendments to this Act to make it more responsive to contemporary requirements. It was also felt that economic reforms taking place in India may not become fully effective if the laws dealing with settlement of both domestic and international commercial disputes remains out of tune with such reforms. Conciliation, like arbitration is also getting worldwide recognition as an instrument for settlement of disputes.
The United Nations Commissions on International Trade Law (UNCITRAL) adopted the Model law on International Commercial Arbitration in 1985. The General Assembly of the United Nations has recommended that all countries give due consideration to the said Model Law in view of the desirability of uniformity of the law of arbitral procedures and the specific needs of international commercial arbitration practice. The UNCITRAL also adopted a set of Conciliation Rules in 1980. The General Assembly of the United Nations has recommended the use of these Rules in cases where the disputes arise in the context of international commercial relations and the parties seek amicable settlement of their disputes by recourse to conciliation. An important feature of the said UNCITRAL Model Law and Rules is that they have harmonised concepts on arbitration and conciliation of different legal systems of the world and thus contain provisions which are
designed for universal application. The UNCITRAL Model Law and Rules, though, are intended to deal with international commercial arbitration and conciliation, they could, with appropriate modifications, serve as a model for legislation on domestic arbitration and conciliation.
In India, in order to consolidate and amend the law relating to domestic arbitration, international commercial arbitration, enforcement of foreign arbitral awards and to define the law relating to conciliation, taking into account the Model Law and Conciliation Rules adopted by the UNCITRAL, the President of India promulgated on 16th January, 1996, the Arbitration and Conciliation Ordinance, 1996 as the Parliament was not in session and the circumstances existed which rendered it necessary to take immediate action. The ordinance could not be replaced by an Act as the Parliament session was prorogued without passing the Bill. But in order to give further continued effect to the provisions of the said Ordinance, the President promulgated the Arbitration and Conciliation (Second) Ordinance, 1996 on 26th March, 1996 which could also not be passed by the Parliament. On 21st June, 1996, the President promulgated the Arbitration and Conciliation (Third) Ordinance, 1996. To replace the Ordinance of 21st June, 1996, the Arbitration and Conciliation Bill was introduced in the Parliament. The Bill was passed by both the Houses of Parliament and received the assent of the President on 16th August, 1996 and was titled as the Arbitration and Conciliation Act, 1996.
The main objects of the Act are-
(i) to comprehensively cover international and commercial arbitration and conciliation as also domestic arbitration and conciliation;
(ii) to make provision for an arbitral procedure which is fair, efficient and capable of meeting the needs of the specific arbitration;
(iii) to provide that the arbitral tribunal gives reasons for its arbitral award;
(iv) to ensure that the arbitral tribunal remains within the limits of its jurisdiction;
(v) to minimise the supervisory role of courts in the arbitral process;
(vi) to permit an arbitral tribunal to use mediation, conciliation or other procedures during the arbitral proceedings to encourage settlement of disputes;
(vii) to provide that every final arbitral award is enforced in the same manner as if it were a decree of the court;
(viii) to provide that a settlement agreement reached by the parties as a result of conciliation proceedings will have the same status and effect as an arbitral award on agreed terms on the substance of the dispute rendered by an arbitral tribunal; and
(ix) to provide that, for purposes of enforcement of foreign awards, every arbitral award made in a country to which one of the two international conventions relating to foreign arbitral awards to which India as a party applies, will be treated as a foreign award. .
The Arbitration and Conciliation Act, 1996 extends to the whole of India:
Provided that Parts I, III and IV of the Act shall extend to the State of Jammu and Kashmir only insofar as they relate to international commercial arbitration or as the case may be international commercial conciliation.
The Act of 1996 came into force on 22nd August, 1996. But the Arbitration and Conciliation Ordinance as promulgated by the President of India on 16th January, 1996 came into force on 25th January, 1996 and till the Act of 1996 came into force on 22nd August, 1996, two Arbitration and Conciliation Ordinance were passed on 26th March, 1996 and 21st June, 1996 respectively.
The Arbitration and Conciliation Act, 1996 has four Parts.
As per section 2(2) the provisions of Part I (section 2 - section 43) apply only where the place of arbitration is in India. Sub-section 3 of section 2 lays down that Part I of the Act shall not affect any other law by virtue of which certain disputes may not be submitted to arbitration. An award made under the provisions of Part I shall be considered as a domestic award [section 2(7)]. Part II (section 44 - section 60) of the Act provides for enforcement of certain foreign awards. The provisions contained in Part III (section 61 - section 81) deals with conciliation and Part IV (section 82 - section 86) lays down some supplementary provisions.
The three Schedules of the Act are-
First Schedule - Convention on the recognition and enforcement of foreign arbitral award.
Second Schedule - Protocol on arbitration clauses.
Third Schedule - Convention of the execution of foreign arbitral award.
Section 2(1)(a) lays down that arbitration means any arbitration whether or not administered by permanent arbitral institution.
This definition does not give a clear picture about what arbitration is. So, let us look at some authoritative definitions of arbitration. According to Black's Law Dictionary, arbitration is a method of dispute resolution involving one or more neutral third parties who are agreed to by the disputing parties and whose decision is binding. According to Halsbury's Laws of England (4th Edn.,) an arbitration is the reference of a dispute or difference between not less than two parties for determination, after hearing both sides in a judicial manner, by a person or persons other than a court of competent jurisdiction. According to Ronald Bernstein, where two or more persons agree that a dispute or a potential dispute between them shall be decided in a legally binding way by one or more impartial persons in a judicial manner, that is upon evidence put up before him or them, the agreement is called an arbitration agreement or a submission to an arbitration. In his words, "In an arbitration your claim, instead of being heard publicly in court and decided by a judge, is heard privately by one, two or three persons (arbitrators) chosen by agreement between you and the person against whom you are claiming (the respondent); or, if you cannot agree upon the choice, chosen by someone whom you have agreed upon to choose; if all else fails, chosen by the Court. The procedure for deciding your claim can, if you insist, be almost as formal as if you had gone to court. But it is much more likely to be a relaxed and informal procedure...... If there is a hearing, it will be in private...... Above all, it is in most cases much quicker than going to court. And when the arbitrator has made his decision (which is called an "award"), it can be enforced as if it were an order of the court". According to M.A. Sujan, arbitration in popular parlance may be defined as a private process set up by the parties as a substitute for court litigation to obtain a decision on their disputes.1
Thus, arbitration is an alternative to the Court litigation and is advantageous insofar as it offers procedural flexibility and confidentiality. It also ensures a speedy resolution of the dispute(s) between the parties. At one time, arbitration was regarded as ousting the jurisdiction of the courts but in Scott
v. Avery, (1856) 5 HL Cas 811, it was held that arbitration do not oust the jurisdiction of the court and hence, legal. But an arbitration agreement cannot totally oust the jurisdiction of courts over the subject matter of arbitration. If it does so, the agreement itself become void as being contrary to public policy. In the words of Sir John Donaldson, MR, arbitrators and Judges are partners in the business of dispensing justice, the Judges in the public sector and the arbitrators in the private sector.2
Types of Arbitration
(a) Domestic arbitration.-Domestic arbitration means an arbitration proceeding which takes place in India and in accordance with the Indian law and the cause of action wholly arisen in India between the parties who are subject to Indian jurisdiction.
(b) International commercial arbitration.-International commercial arbitration means an arbitration relating to disputes arising out of legal relationship, whether contractual or not, considered as commercial under the law in force in India and where at least one of the parties is-
(i) an individual who is a national of, or habitually resident in any country other than India; or
(ii) a body corporate which is incorporated in any country other than India; or
(iii) a company or an association or a body of individuals whose central management and control is exercised in any country other than India; or
(iv) the Government of a foreign country. [Section 2(1)(f)]
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1.M.A. Sujan: Law of Arbitration.
2.Quoted by Ronald Bernstein in the Handbook of Arbitration Practice.
In an international arbitration there are elements of foreign origin in relation to the parties or the subject-matter of the dispute.
(c) Institutional arbitration.-This type of arbitration is administered by an arbitration institution. The parties to an arbitration agreement may stipulate in the agreement to refer the dispute between them to an arbitration institution for resolution. The Indian Council of Arbitration (ICA), New Delhi, Federation of Indian Chambers of Commerce and Industry, New Delhi, and International Center for Alternative Dispute Resolution (ICADR), New Delhi are the leading arbitration institutions in India.
(d) Statutory Arbitration.-Some Central and State Acts provide for resolution of disputes arising under the Act by arbitration. Section 2(4) of the Arbitration and Conciliation Act provides that except sections 40(1), 41 and 43, Part I of the Act shall apply to every arbitration under any other enactment as if the arbitration were pursuant to an arbitration agreement and as if that other enactments were an arbitration agreement, unless the provisions of Part I are inconsistent with that other enactment or with any rules made thereunder.
In the case of any inconsistency between the provisions of that Act and the provisions of Part I of the Arbitration Act, the provisions of that Act will prevail.
(e) Ad hoc arbitration.-Ad hoc arbitration refers to arbitration where the procedure is either agreed by the parties or in the absence of an agreement, the procedure is laid down by the arbitral tribunal at a preliminary meeting once the arbitral tribunal has been constituted. In ad hoc arbitration, the Arbitration is agreed to and arranged by the parties themselves without any assistance from an Arbitral Institution. If the parties do not agree as to the person who will be the Arbitrator or if one of the parties is reluctant as to the choice of the Arbitrator or in appointing the Arbitrator, the other party will have to resort to court for relief under section 11 of the Arbitration and Conciliation Act. In ad hoc arbitration, the fees of the Arbitrator is agreed upon by the parties or fixed by the arbitral tribunal.
(f) Fast track arbitration or document only arbitration.-Fast track arbitration is a specialised type of arbitration, which is very fast and time bound. It can be adopted for the resolution of international as well as domestic disputes. The agreement for the resolution of dispute through fast track arbitration is the same as for the ordinary arbitration, except that, in addition to the provision for arbitration, it provides that the parties have agreed for fast track arbitration. The parties can adopt the Fast Track Arbitration Rules of any institution for the speedy and time bound resolution of their dispute. Fast track arbitration is suitable for those disputes where the parties wish a resolution of disputes very fast, such as within a few days or few weeks.
Documents only arbitration is based only on the claim statement and statement of defence and a written reply by the claimant if any. The written submission by the parties may be in the form of letters written to the tribunal or may be a formal document produced by lawyers.
(g) Look-sniff arbitration.-Look-sniff arbitration or quality arbitration is a combination of the arbitral process and expert opinion. The arbitrator in this type of arbitration is a person having special knowledge and expertise in a particular area of business. The expert in the field examines the commodity concerned or its samples and gives to the parties his decision on the quality of the goods based on such inspection. There are no formal hearings or submissions by the parties.
(h) Flip-flop arbitration or pendulum arbitration.-In this type of arbitration, the parties formulate their cases beforehand and then they invite the arbitrator to chose one of the two. The arbitrator makes an award favouring any one of the parties. He cannot decide somewhere in between. He must, after hearing the evidence adduced by the parties, decide as to the case of which of the parties is correct. In this type of arbitration, the party who inflates his claim may loose everything.
This type of arbitration is also called baseball arbitration.
Advantages-
(i) Parties are free to appoint the person of their choice as arbitrator.
(ii) Arbitration entitles the parties to agree upon procedural rules to be followed by the arbitral tribunal in conducting the proceeding.
(iii) Much less expensive and less time consuming than court litigation.
(iv) Ensures a fair trial by an impartial tribunal.
(v) Arbitration gives the parties freedom from judicial intervention except where otherwise provided in the Act.
(vi) Parties have the freedom to choose a place for the arbitration proceedings.
(vii) Arbitration proceedings are conducted in private and are protected by the laws of privilege and confidentiality.
(viii) It is not necessary to appoint lawyers for representing the parties in the arbitration proceedings. The parties may represent themselves in person or they may appoint specialists and experts in a particular field e.g., Engineers, Scientists etc. for representing in the arbitration proceedings.
(ix) An arbitral award has the enforceability like a decree of a Court. Further foreign arbitral awards are also enforceable under the Arbitration and Conciliation Act, 1996.
Disadvantages-
(i) Though arbitration is regarded as an expeditious and less expensive method of resolution of disputes between the parties but it cannot always guarantee an expeditious resolution of dispute. The arbitrator also charge substantial amount of fees. Further, under certain circumstances, an expeditious disposal of the dispute may be advantageous for one party while for the other it may be disastrous.
(ii) The procedure in an arbitral proceeding although is flexible but is uncertain and will have to be ascertained by the parties which may prove to be expensive.
(iii) Some benefits are available only in court litigation and not in arbitration, e.g. injunction.
(iv) The lack of procedural rigidity in arbitral proceeding may make the arbitral procedure less effective than court procedure.
(v) In case of multi party dispute relating to the same subject-matter, it is often difficult to join the parties to arbitration and to consolidate the arbitration proceedings.
Section 2(1)(b) provides that "arbitration agreement" means an agreement referred to in section 7.
According to section 7(1), "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.
For detailed discussion on arbitration agreement, see Chapter 2.
Section 2(1)(c) only lays down that an arbitral award includes an interim award and does not clearly define what an arbitral award is.
In simple language, an arbitral award is the expression by an arbitral tribunal of adjudication of a dispute between the parties before the tribunal. In H.G. Bajaj v. Share Deal Finance Consultants Pvt. Ltd., MANU/MH/0864/2002 : AIR 2003 Bom 296, it was held that an arbitral award is the final determination of a claim or part of a claim or counter-claim by the Arbitral Tribunal. Section 31 provides that an arbitral award shall be made in writing and shall be signed by the members of the arbitral tribunal. If the arbitral tribunal consists of more than one arbitrator, it will be sufficient if a majority of the members of the tribunal sign it provided reasons are given for the omitted signatures.
An arbitral award, as long as clear and unambiguous, cannot be flawed merely because it does not subscribe to any particular format. Thus an unstamped or insufficiently stamped award is a curable irregularity, but not vitiating the award [Subhash Projects and Marketing Ltd. v. Assam Urban Water Supply and Sewerage Board, 2003 (Supp) Arb LR 382 (Gau) (DB)].
The following four types of award are contemplated under the Arbitration and Conciliation Act, 1996,-
(i) Interim award - An interim award is the determination of some preliminary issue(s) arising out of the dispute. It is a temporary or provisional arrangement and is subject to final determination of the dispute. An interim award should clearly specify as to which of the claims or issues it relates, otherwise the award may be liable to be set aside under section 34. An interim award is final with respect to those issues which it has decided and is binding on the parties and persons claiming under them.
(ii) Additional award - Section 33(4) lays down that where a party on receipt of an arbitral award finds that it has omitted to decide certain claims which were presented in the arbitral proceedings, in the absence of an agreement to the contrary, that party on a notice to the other within thirty days from the receipt of the award, may make a request to the arbitral tribunal to make an 'additional award' with respect to the claims so omitted. If the arbitral tribunal considers the request made is justified, it shall make the additional arbitral award within sixty days of receipt of the request [Section 33(5)]. However, the arbitral tribunal may extend the time limit for making the additional award [Section 33(6)].
(iii) Settlement or agreement awards - This type of award is made on the basis of the terms of a settlement or agreement between the parties.
Section 30(2) provides that if, during an arbitral proceeding, the parties settle the dispute, the arbitral tribunal shall terminate the proceedings and if requested by the parties and not objected to by the arbitral tribunal, record the settlement in form of an arbitral award or agreed terms. It is permissible for the arbitral tribunal with the agreement of the parties, to use mediation, conciliation or other Alternative Dispute Resolution procedure at any time during the course of arbitral proceedings for bringing about settlement between the parties [Section 30(1)].
An arbitral award so made on the basis of agreed terms shall have the same status and effect as any other arbitral award on the substance of the dispute [Section 30(4)]. A settlement or agreed award is final and binding on the parties and persons claiming under them (Section 35).
(iv) Final award - A final award of an arbitral tribunal finally determines all the issues in dispute between the parties.
A final award determines all the issues in the arbitration once and for all. It is a complete decision on the matters dealt with. Such an award is final and is binding on the parties and on any person claiming under them. A final award is conclusive as to the issues with which it deals, unless and until it is set aside by the Court under section 34 of the Act.
Foreign awards are those awards which are made in foreign countries. These awards are enforceable in India under the Arbitration and Conciliation Act, 1996. The term foreign award in relation to the New York Convention is defined in section 44 in Chapter I of Part II of the Act. It lays down that a 'foreign award' means an arbitral award on differences between persons arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India, made on or after the 11th day of October, 1960-
(a) in pursuance of an agreement in writing for arbitration to which the convention set forth in the First Schedule applies, and
(b) in one of such territories as the Central Government, being satisfied that reciprocal provisions have been made may, by notification in the official Gazette, declare to be territories to which the said convention applies.
The term foreign award, in relation to the Geneva Convention Awards is defined in section 53 in Chapter 2 of Part II of the Act. It lays down that "foreign award" means an arbitral award on differences relating to matters considered as commercial under the law in force in India made after the 28th day of July, 1924,-
(a) in pursuance of an agreement for arbitration to which the protocol set forth in the Second Schedule (Protocol on Arbitration Clauses) applies, and
(b) between persons of whom one is subject to the jurisdiction of some one of such powers as the Central Government, being satisfied that reciprocal provisions have been made, may, by notification in the Official Gazette, declare to be parties to the convention set forth in the Third Schedule (Convention of the Execution of Foreign Arbitral Awards), and of whom the other is subject to the jurisdiction of some other of the powers aforesaid, and
(c) in one of such territories as the Central Government, being satisfied that reciprocal provisions have been made, may, by like notification, declare to be territories to which the said convention applies.
A foreign award under Chapter 2 of Part II of the Act (dealing with Geneva Convention Award) shall not be deemed to be final if any proceedings for the purpose of contesting the validity of the award are pending in the country in which it was made.
The New York Convention Award and the Geneva Convention Award are enforceable in India under sections 48 and 57 of the Arbitration and Conciliation Act, 1996.
Section 2(1)(d) says that an "arbitral tribunal" means a sole arbitrator or a panel of arbitrators.
An arbitral tribunal is creature of agreement. The parties to the arbitration confer upon it such power and prescribe such procedure as they deem fit. However, the agreement which creates an arbitral tribunal must be in conformity with law and the tribunal must also act and make its award in accordance with the law of the land and the agreement. [Irrigation Deptt. Govt. of Orissa v. G.C. Roy, MANU/SC/0142/1992 : (1992) 1 SCC 508].
Section 10 says that the parties to an arbitration are free to determine the number of arbitrators. But such number shall not be an even number. In the case of failing of parties to determine the number of arbitrators, the arbitral tribunal shall consist of a sole arbitrator.
Under section 11 of the Act, the parties can agree on a procedure for appointing an arbitrator.
An arbitrator may be a person of any nationality unless otherwise agreed by the parties [Section 11(1)].
The appointment of an arbitrator may be challenged under the provisions of section 12 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.
Section 2(1)(e) defines the expression 'Court' as 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.
Thus Court under the Arbitration and Conciliation Act, 1996 means-(i) principal Civil Court of original jurisdiction in a district, and (ii) the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the arbitration.
But any civil court of a grade inferior to a principal civil court or a court of small causes does not come under the purview of the term court as defined under section 2(1)(e) of the Act.
Definition of "Court" under section 2(e) excludes any civil court inferior to principal civil court in district or any court of small causes. The District Courts are deemed to be Principal Civil Court of original jurisdiction. The "Principal District Judge" of district alone will have jurisdiction to decide question forming subject-matter of arbitration and not other court (S.M. Suparies M/s v. Karnataka Bank, AIR 2011 Karn 38).
The principal Civil Court of original jurisdiction in a district is the District Court [Ankati Satyamaiah v. Sallangula Lalaiah, (2003) 2 Arb LR 431 (435) (AP)]. In a district, the court of District Judge is the 'principal Civil Court' for the purposes of the Act. The expression District Judge includes Additional District Judge and Joint District Judge.
In the definition of court under section 2(1)(e), a High Court having ordinary original jurisdiction is also included within the expression 'principal
Civil Court of original jurisdiction'. Only three High Courts in India have ordinary original civil jurisdiction. These High Courts are the High Courts of Calcutta, Delhi and Bombay. Thus, only the High Courts in these cities are the 'principal Civil Court' for the purposes of the Act.
Any civil court of a grade inferior to the principal Civil Court and any court of small causes are expressly excluded from the purview of the term court under section 2(1)(e). An interesting case on this point is Surat Singh v. State of Himachal Pradesh, 2003 (3) Arb LR 606 (HP)(DB). In this case, an arbitral award was challenged by an application under section 34 of the Act, before the High Court of Himachal Pradesh. The Court directed the application to be returned for presentation to the Court of Senior Sub-Judge, Shimla because it did not have the pecuniary jurisdiction in the case for setting aside the arbitral award. The Senior Sub-Judge, Shimla doubted his jurisdiction to deal with the application for setting aside the arbitral award under section 34 because his court did not come under the definition of 'Court' in section 2(i)(e) of the Act. He referred the matter to the Division Bench of the High Court. The Division Bench held that the Court of the Senior Sub-Judge would not fall within the definition of 'Court' as defined in the Act and transferred the application to the Court of District Judge, Shimla.
Section 2(1) (f) lays down that "international commercial arbitration" means an arbitration relating to disputes arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India and where at least one of the parties is-
(i) an individual who is a national of, or habitually resident in, any country other than India; or
(ii) a body corporate which is incorporated in any country other than India; or
(iii) a company or an association or a body of individuals whose central management and control is exercised in any country other than India; or
(iv) the Government of a foreign country.
International commercial arbitration can take place in India or in any other country. When such arbitration takes place in India, it will be governed by Part I of the Act and award made in such arbitration will be a domestic award.
International commercial arbitration is the result of private contract between the parties but after an award is made in the arbitration proceedings, its enforcement assumes a public character and can be enforced by the municipal courts of a country through its local laws.
A foreign award is enforceable in India under sections 49 and 58 of the Act and it is immaterial whether or not the arbitration agreement was governed by the law in India.
Section 2(1)(g) defines the term legal representative as a person who in law represents the estate of a deceased person, and includes any person who intermeddles with the estate of the deceased, and, where a party acts in a representative character, the person on whom the estate devolves on the death of the party so acting.
Three types of persons are included in the definition of legal representative under section 2(1)(g). They are-(i) a person who in law represents the estate of a deceased person; (ii) a person who intermeddles with the estate of the deceased; and (iii) a person on whom the estate of the deceased devolves where the deceased was acting in a representative character.
When a party to an arbitration agreement dies, his legal representatives are entitled to submit the dispute arising out of the contract to arbitration and the award made in the arbitration proceedings is final and binding on the legal representatives. If a person dies intestate, the definition would cover the legal heir and successors of the deceased.
The definition includes an intermeddler as a legal representative. An intermeddler is a person who confers a benefit on another without being requested or having a legal duty to do so, and who therefore has no legal grounds to demand restitution for the benefit conferred.1 In Chocklingam v. Kruppan, MANU/TN/0272/1947 : AIR 1948 Mad 386, it was held that the term intermeddler has been used in the sense as executor de son tort, i.e. a person who, without legal authority, takes on the responsibility to act as an executor or administrator of a decedent's property to the detriment of the estate's beneficiaries or creditors. In Andhra Bank Ltd. v. R. Srinivasan, MANU/SC/0022/1961 : AIR 1962 SC 232, it was held that even if a person intermeddles with a part of the estate of the deceased, he is a legal representative and is liable to the extent of the property in his possession. Where the claim is of a representative character, a person on whom the estate devolves on the death of the party to arbitration acting in a representative capacity, is a legal representative. [Sumshwar Bind v. Baldeo Sahu, MANU/UP/0462/1934 : AIR 1935 All 390]. It is to be noted that an arbitral award to be binding on the legal representatives of a decreased party to the arbitration agreement must be made after bringing the name of the legal representatives on record of the arbitral proceedings.
Section 2(1)(h) lays down that "party" means a party to an arbitration agreement.
For becoming a party to an arbitration agreement, a person (natural or artificial) must be eligible to enter into a contract under section 11 of the Indian Contract Act, 1872, every person who is of the age of majority according to the law to which he is subject, and who is of sound mind and is not disqualified from contracting by any law to which he is subject, has the capacity to enter into a contract. Thus, a minor or a lunatic cannot be a party
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1. Black's Law Dictionary, 7th Edn., p. 1114.
to an arbitration agreement. Further, any person who was disqualified by any law cannot be a party to an arbitration agreement. A person who is usually of sound mind, but occasionally of unsound mind, loses the capacity to contract during the period when he is of unsound mind but can enter into contract during the period when he is of sound mind.
A contract entered into by a minor is void ab initio. But a joint contract entered into by a major party and a minor party is enforceable against the major party but not enforceable against the minor party [Jamna Bai v. Vasant Rao, 43 IA 99]. The provisions as to lunacy or minority does not effect the contractual capacity of artificial persons like companies, societies etc. but these legal persons cannot enter into a contract if prohibited by any law to enter into a contract.
Section 2(2) provides that Part I of the Act shall apply where the place of arbitration is in India.
In Bhatia International v. Bulk Trading S.A., MANU/SC/0185/2002 : AIR 2002 SC 1432, the Supreme Court interpreting the words of section 2(2) that "This Part shall apply where the place of arbitration is in India", observed that it is not provided in section 2(2) that Part I shall not apply where the place of arbitration is not in India nor that Part I will 'only' apply where the place of arbitration is in India. Concluding from this the Court held that the provisions of Part I would apply to all arbitrations and to all proceedings relating thereto. Where such arbitration is held in India, the provisions of Part I would compulsorily apply and parties are free to deviate only to the extent permitted by the derogable provisions of Part I. In case of international commercial arbitrations held out of India, provisions of Part I would apply unless the parties by agreement, express or implied, exclude all or any of its provisions. In that case the laws or rules chosen by the parties would prevail. Any provision in part I which is contrary to or excluded by that law or rules will not apply.
According to the Court such an interpretation of section 2(2) is necessary otherwise there would be a lacunae in the Act as neither Part I nor Part II would apply to arbitrations held in a country which is not a signatory to the New York Convention or the Geneva Convention (i.e. a convention country) and it would mean that there is no law, in India, governing such arbitrations. Further, a contrary interpretation of section 2(2) will lead to an anomalous situation, inasmuch as Part I would apply to Jammu and Kashmir in all international commercial arbitrations but Part I would not apply to the rest of India if the arbitration takes place out of India. The Court was of the view that if the provisions of Part I is not made applicable to an arbitration proceeding held in a country other than India, a party would be left remediless inasmuch as in international commercial arbitrations which take place out of India. The party would not be able to apply for interim relief in India even though the properties and assets are in India. Thus a party may not be able to get any interim relief at all.
Thus, the present position of law after the decision of the Supreme Court in Bhatia International case, MANU/SC/0185/2002 : AIR 2002 SC 1432, is that an award made in international commercial arbitration held in a non-convention country is a 'domestic award' and such award is enforceable under the provisions of Part I of the Act.
Section 2(3) lays down that Part I of the Act shall not affect any other law for the time being in force by virtue of which certain disputes may not be submitted to arbitration.
Usually, disputes effecting civil rights where damages is the remedy can be referred to arbitration. But there are certain disputes of civil nature which cannot be referred to arbitration because either decisions of courts or some express provisions of law prohibits such disputes from referring it to arbitration. Matters of criminal nature may be referred to arbitration subject to the policy of the law permitting such matters to be compromised. If the matter is non-compoundable under law, it cannot be referred to arbitration. In Fazal Ellahie v. Nazir Ahmed, AIR 1938 Sind 130, it was held that arbitrators cannot assume powers of a magistrate and an arbitral award acquitting certain persons of the offence of criminal misappropriation is a nullity.
The following is an illustrative list of disputes which cannot be referred to arbitration.
(i) Proceedings for winding up of a company under the Companies Act, 1956 [Haryana Telecom Ltd v. Sterlite Industries, MANU/SC/0401/1999 : (1999) 5 SCC 688].
(ii) If under the law certain particular kind of disputes is to be determined by a particular tribunal.
(iii) Insolvency proceedings including the question whether or not a certain person should be declared to be an insolvent [Managilal v. Devicharan, MANU/NA/0022/1947 : AIR 1949 Nag 110].
(iv) Probate proceedings [Gopi Rai v. Baij Nath, MANU/UP/0201/1930 : AIR 1930 All 840].
(v) Questions of genuineness or otherwise of a Will [Khelawati v. Chet Ram, AIR Punj 67]. But disputes as to construction of a Will can be referred to arbitration [Russell on Arbitration, 19th Edn.].
(vi) Guardianship proceedings [Sami Chetti v. A.K. Chetti, MANU/TN/0346/1923 : AIR 1924 Mad 484].
(vii) Dispute as to succession to the office of a muttawali falling within the scope of section 92 of the Code of Civil Procedure [Mahomed Ibrahim Khan v. Ahmed Said Khan, ILR (1910) 32 All 503].
(viii) Dispute as to any immovable property situated outside India [Nachiappa Chettiar v. Subramaniam Chettiar, MANU/SC/0185/1959 : AIR 1960 SC 307].
(ix) Disputes leading to a change of status e.g. divorce petition.
(x) Disputes arising from and founded on an illegal transaction [Haji Habib Haji Peer Mohd. v. Bhikam Chand Janakilal, AIR 1954 Nag 306].
(xi) A matter in proceedings under section 145, Cr. P.C. [Kalikanath Barman v. Rajnath Barman, AIR 1952 Assam 118]. Arbitrators have no power to decide on the point of actual possession. They can only submit a report and the Magistrate would then be bound to take that report into consideration before passing an order under section 145, Cr. P.C. [Gangadhar v. Balakrishna, MANU/NA/0074/1929 : AIR 1929 Nag 285].
(xii) A criminal complaint cannot be referred to arbitration [Malka v. Sardar, AIR 1929 Lah 394].
Arbitration may be under an arbitration agreement entered into between the parties or it may be under the provisions of a statute specifically providing for arbitration about matters covered under that statute. In the latter case, where the reference to arbitration emanates from an enactment of the Parliament or a state legislature, the arbitration is called statutory arbitration. There are many Central and State Acts which provide for reference to arbitration of any dispute arising under that statute. Some examples are:- Contract Act, 1872 (section 28), Electricity Act, 1910 (section 52), Industrial Disputes Act, 1947 [sections 2(aa), 2(b) and 10A], Payment of Bonus Act, 1965 [section 2(7)] etc.
Examples of some of the State Acts are:-
Assam Land and Revenue Regulation, 1886 (section 143); West Bengal Security Act, 1950 [section 29(3)(b)]; Delhi Cooperative Societies Act, 1972 (sections 60 and 61); Punjab Cooperative Societies Act, (Sections 55, 56 and 82) etc.
Sub-section (4) of section 2 of the Arbitration and Conciliation Act, 1996 lays down that Part I of the Act except sections 40(1), 41 and 43 shall apply to every arbitration under any other enactment as if the arbitration were pursuant to an arbitration agreement and as if that other enactment were an arbitration agreement, except insofar as the provisions of Part I are inconsistent with that other enactment or with any rules made under that Act.
In case of statutory arbitration, its parameters are circumscribed by the statute itself and the statute is a complete code with respect to the procedure and practice of arbitration. The award resulting from statutory arbitration is enforceable as provided in the statute itself and such statute, generally, expressly exclude the application of the arbitration statutes. In Mysore State Electricity Board v. Bangalore Woollen Cotton and Silk Mills Ltd., MANU/SC/0007/1962 : AIR 1963 SC 1128 (1134), the Supreme Court in view of the provisions of section 76(1) of the Indian Electricity Act, 1910, held that the dispute relating to revision of rates of tariff was not arbitrable under the Arbitration Act.
III.
Section 3(1) lays down that unless otherwise agreed by the parties,-
(a) any written communication is deemed to have been received if it is delivered to the addressee personally or at his place of business, habitual residence or mailing address, and
(b) if none of the places mentioned to in (a) above can be found after making a reasonable inquiry, a written communication is deemed to have been received if it is sent to the addressee's last known place of business, habitual residence or mailing address by registered letter or by any other means which provides a record of the attempt to deliver it.
The arbitration award was duly sent by the arbitration with acknowledgment due. The envelop was returned with endorsement "not claimed" was sufficiently stamped. It was held that since petitioner failed to prove that award was not served though endorsed "not claimed". The petitioner filed after lapse of statutory period of 120 days hence the application was barred by limitation (New Globe Transport Corporation v. Magma Shrachi Finance Ltd., MANU/WB/0102/2011 : AIR 2011 Cal 72).
Section 3(2) then lays down that the communication is deemed to have been received on the day it is so delivered. Thus, under the provisions of sub-sections 1 and 2 of section 3, the service of a written communication can be made in the following ways-
1. By delivering it personally to the addressee.
2. By delivering it at his place of business, habitual residence or mailing address; or
3. If the places mentioned in 2 above cannot be found after making a reasonable inquiry, the communication will be deemed to have been received by the addressee if it is sent to his last known place of business, habitual residence or mailing address by a registered letter or by any other means which provide a record of the attempt to deliver it.
4. The communication will be deemed to have been received by the addressee on the date when it is so delivered to him.
In an arbitration proceeding, it is necessary to inform a party about certain procedural step or that there are arbitration proceedings going on to which he is a party. Sometimes, addresses of a party is not known. Section 3 of the Act thus deals with the issue as to when written communication is deemed to have been received by the addressee. The words 'unless otherwise agreed by the parties' in section 3(1) indicate that the parties are free to choose a particular procedural rule for the receipt of their communication and in cases where they have not choosen any such rules, the provisions of section 3 applies. If a person, to whom the communication is addressed, refuses to receive it, the serving officer shall affix a copy of the document on the outer door or some other conspicuous part of the house in which the addressee ordinarily resides or carries on business or personally works for gain. If that is not done, the service will not be effective [Surinder Kumar v. Union of India, 1994 (1) Arb LR 16 (Del)]. The burden of showing that the addressee has duly received the communication lies on the serving party. [Schumacher v. Laurel Island Ltd., The Santa Cruz Tres, (1995) 1 Lloyd's Rep. 208]. The written communication shall be deemed to have been received by the addressee when his place of business, habitual residence or mailing address cannot be found after mailing a reasonable inquiry and the communication is sent to the addressee's last known place of business, habitual residence or mailing address by registered letter, it will be deemed to have been received on the date the communication is delivered to the addressee at his last known place of business etc. and not when it was sent.
Section 3(3) provides that the provisions of section 3 does not apply to written communication in respect of proceedings of any judicial authority.
Section 4 of the Act provides that a party who knows that-
(a) any provision of this Part from which the parties may derogate, or
(b) 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 time limit is provided for stating that objection, within that period of time, he shall be deemed to have waived his right to so object. The word waiver means voluntary relinquishment or abandonment, express or implied, of a legal right or advantage. The party alleged to have waived a right must have had both knowledge of the existing right and the intention of forgoing it.1 The term waiver has been judicially defined as the abandonment of a right in such a way that the other party is entitled to place the abandonment by way of confession and avoidance if the right is thereafter asserted.2 Waiver is an intentional relinquishment of known right or such conduct as warrants an inference of the relinquishment of that right. It is an intentional act and implies consent to disperse with or forego something to which a person has a right. Waiver on the part of a party is referable to a conduct signifying intentional abandonment of right. It may be express or even may be implied but should be manifest from some overt act. It is a mixed question of fact and law and must, therefore, be considered in the light of facts of each case. [Ram Babu v. Ramprasad, 1981 Jab LJ (SN) 39]. Under the provisions of section 4, there are four pre-conditions for waiver of the right to object:-
(i) Non-Compliance of a non-mandatory provision of the Act or arbitration agreement.-There must be non-compliance with a non-mandatory provision of Part I of the Act or with any covenant of the arbitration agreement by a party to the arbitral proceedings. If a party has not complied with the requirements of any of such provisions the other party has the right to object to the arbitral proceedings and if he does not so object he will be deemed to have waived his right to so object. Similarly, non-compliance with any covenant of the arbitration agreement by a party entitles the opposite party to object to such non-compliance and if he does not object to the non-compliance, he will be deemed to have waived his right to so object.
(ii) Knowledge of non-compliance.-The defaulting party must have the knowledge of such non-compliance of a non-mandatory provision or any provision of the arbitration agreement before it can be deemed to have waived its right to object. Such knowledge may be inferred from the circumstances because existence of knowledge may be
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1. Black's Law Dictionary, 7th Edn., p. 1574.
2. A/e N9/264, Art. 5, para. 2.
proved by proof of circumstances from which the knowledge can be inferred. In the absence of the knowledge of such non-compliance, there is no occasion for the party to raise his objection, and the other party cannot set up the plea of waiver.
(iii) Proceeding with the arbitration.-If a party proceeded with the arbitration proceeding without objecting to the breach of the statutory or contractual right, he will be deemed to have waived his right to object. Thus, once a party has participated in the arbitration proceedings, despite some disability, of which the party had knowledge, which would otherwise render the arbitration proceedings invalid, he cannot later challenge it on the ground of such illegality. If a party allows the arbitrator to proceed with the reference without objecting to his jurisdiction or competence, he will not subsequently be heard to say that the award be set aside on any such ground [New India Assurance Co. v. Dalmia Iron & Steel Ltd., MANU/WB/0017/1965 : AIR 1965 Cal 42].
(iv) Failure to state objection without delay.-For the purpose of establishing the plea of waiver, it must be shown that the defaulting party failed to state his objection as to non-compliance of the statutory or contractual requirement without undue delay or if a time limit is provided for stating that objection, within that period of time. If the\ party does not state his objection without undue delay or if a time limit is provided, within that period of time, he will be deemed to have waived his right to object. If any irregularity comes to the knowledge of a party at the time of reference, he must state his objection in his pleading before the arbitral tribunal and then proceed with the arbitral proceedings. In cases where the] irregularities comes to the knowledge of a party during the arbitration proceedings but before the award is made, he must state his objection\ forthwith and then continue with the proceedings. By so objecting, he preserves his right to challenge the arbitral proceedings and the resulting award at a later stage on the ground of such irregularity. But if a party comes to know about the irregularity after the making of the award, the provision of section 4 are not attracted. However, the party can file an application under section 34 of the Act for setting aside the award.
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Estoppel |
Waiver |
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1. Estoppel accentuates intentional representation by one person to another to believe something to be true and act upon such belief. If the latter has acted upon such belief, the former will not be allowed by the Court to deny the truth of his representation in legal proceeding. |
1. Waiver does not involve any representation by one of the parties to the other.It is an intentional relinquishment of known right or such conduct as warrants an inference of the relinquishment of that right. |
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2. Estoppel is governed by the rule of evidence and it is a matter only of proof. It is a matter of conduct of the person concerned who by his representation to another has induced the latter to alter his position. |
2. Waiver is contractual and is an agreement to release or not to assert a right. |
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3. In case of estoppel by representation, the fact that the plea of estoppel. |
3. Waiver is created upon knowledge of all the facts by both the parties. |
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4. Estoppel is a rule of evidence and it does not create any substantive right. |
4. Waiver may constitute a cause of action when a person agrees to waive his right. |
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5. The principle behind estoppel is that if a person has acted to his detriment or altered his position on the basis of any declaration, act or omission of another person, that other person will not be allowed in any suit or proceedings between himself and the other person or his representative to go back upon it to the detriment of the opposite party. [Haji Muhammad Yunus v. and endeaHaji Muhammad Ismail, PLD vors to set it aside if it is not in 159 (WP) Kara 755] his favour. |
5. The principle behind waiver is that when an irregularity is committed in arbitration proceedings, the party who considers himself to be adversely affected by it, must object to it without undue delay. If he does not, the court would not permit him to lie by or act is an indecisive manner, so as to obtain the benefit of the award if it is in his favour [Pioneer Engg. Works v. Union of India, MANU/BH/0102/1959 : AIR 1959 Pat 374] |
In Kripa Sindhu v. Sudha Sindhu, AIR 1993 Cal 496, a dispute was referred without intervention of court to three arbitrators under an arbitration agreement. After the hearing was concluded, one of the three arbitrators died. Only two remaining arbitrators then made the award. Before the death of the third arbitrator, the parties had entered into an agreement providing that if one of the arbitrators became incapable of acting, the unanimous award by the remaining two arbitrators would be binding on the parties. It was held that the condition that the award was to be by three arbitrators was waived by the parties when they entered into a record agreement providing that award by two arbitrators would be binding.
In Hindustan Construction Co. Ltd. v. Governor of Orissa, MANU/SC/0436/1995 : (1995) 3 SCC 8, in course of arbitral proceedings it was noticed that the dispute under reference was beyond the pecuniary jurisdiction of the arbitral tribunal. The State Government then referred the dispute to a special tribunal which proceeded with the arbitration and made its award. In view of the fact that the State Government itself had constituted the special tribunal and had participated in the proceedings without raising any objection, till the award was made, the Supreme Court held that the government could not be permitted to raise the belated objection merely because the award was made against it.
In R.C. Bhalla v. N.C. Bhalla, AIR 1996 Del 24, both the parties to an arbitration proceedings, in relation to a dispute regarding distribution of assets, participated in the proceedings. The parties argued on all questions in issue and also participated in the division of assets. One of the parties was, thereafter, not permitted to raise an objection before the court that the question of division of assets and liabilities was beyond the scope of the reference.
In Jagmohan v. Suraj Narain, AIR 1935 Oudh 499, an objection was taken against the award that there had been no proper reference to arbitration inasmuch as there was no written application as required by Paragraph 1 of Schedule II, C.P.C., and also because the matters in difference which the arbitrator was required to determine were not clearly set forth. It was held that when the arbitrator started his proceedings, no objection was raised on behalf of the applicant about the arbitrator having no jurisdiction to proceed with the matter. The applicant took his chance before the arbitrator, and the award having gone against him, he could not be permitted to raise that objection.
In Board of Trustees of Paradeep Port Trust v. Natwar Iron and Steel Works Co., 1994 (1) Arb LR 54, there was contract between the parties for the purchase of scrap from the Paradeep Port Trust. The entire stock of the scrap could not be removed by the purchaser. Thereafter, the Port Trust forfeited the security deposit and terminated the contract. The dispute which thus arose was referred for arbitration to an employee of the Paradeep Port Trust. Both the parties put their respective claim and counter-claim before the arbitrator and also placed materials before him. The arbitrator made an award which went against Paradeep Port Trust. The Port Trust then challenged the award inter alia on the ground that there was no arbitration clause in the agreement and therefore reference to arbitration was invalid. It was held that the Paradeep Port Trust having itself referred the dispute to one of its employees and having also participated in the arbitration without objection, it was not entitled to raise an objection that in the absence of an arbitration clause, the reference was bad in law.
In President of India v. Kesar Singh, AIR 1966 J&K 113, there were two contracts between the parties. The new contract replaced the old one. There was no arbitration clause in the new contract. However, reference was made to the arbitrator under the new contract. The contractor objected to the jurisdiction of the arbitrator but participated in the arbitration proceedings. It was held that the contractor's participation thereafter did not constitute
waiver. The whole arbitration proceeding was invalid and the whole award was liable to be set aside.
In Dilip Singh v. Khilan Singh, MANU/MP/0025/1979 : AIR 1979 MP 117, an application was made under section 14 of the Arbitration Act, 1940, for making an award rule of the court, no step was taken for appointment of guardian ad litem of minor non-applicant. It was held that order of the court making the award rule of the court was void ab initio. The order was set aside and the trial court was directed to proceed with the appointment of guardian ad litem for minor and thereafter to proceed afresh in accordance with law.
In Paramjit Singh v. State of Himachal Pradesh, MANU/HP/0003/1979 : AIR 1979 HP 17, the person acting as an arbitrator was transferred and did not thereafter wish to continue as an arbitrator, but was required to continue under the directions of his superior officer, and who thereafter made the award. It was held that an arbitrator could not be compelled to work in the face of his refusal and the entire proceedings in which the arbitrator had been compelled to work in spite of his refusal were void ab initio. Submission to such proceeding could not validate the proceedings.
It is to be noted that an objection regarding inherent want of jurisdiction in the arbitrator can be allowed to be raised at any stage. The mere fact that the party objecting had appeared before the arbitrator at earlier stages of the proceedings and also participated would not operate as estoppel against it in challenging the jurisdiction. [Jagannath Kapoor v. Premier Credit and Instalment Co. (P) Ltd., MANU/UP/0018/1973 : AIR 1973 All 49]. It is also to be noted that mere signature by a party to an award does not necessarily in all cases estop the party from afterwards disputing the correctness of the award. It must be clear that when the party attached his signature he was aware that the irregularity had been committed. [Alagappa v. Chidambaram, MANU/TN/0246/1930 : AIR 1931 Mad 619].
V.
Section 5 of the Arbitration and Conciliation Act, 1996 lays down that in matters governed by Part I of the Act, no judicial authority shall intervene except where so provided in this Part.
This section intends to minimise the intervention of judicial authorities in arbitration proceedings. Sometimes, the parties to arbitration proceedings take recourse to dilatory tactics by obtaining stay of the arbitration proceeding by an order of the court.
This section, by allowing less chance to delay or stall proceedings by intentionally taking recourse to dilatory court proceedings, functions to accelerate the arbitration proceedings.
This section prohibits not only the law courts from interfering with the arbitration proceedings except so far as provided by Part I of the Act, but it also prohibits any other authority on which the judicial power of the state is conferred.
Part I of the Act permits judicial intervention in the arbitration proceeding in the following cases-
(1) Section 8: Power to refer parties to arbitration where there is an arbitration agreement.
(2) Section 9: Power of the Court to pass interim orders.
(3) Section 13(5): Where an arbitral award is made, after a party to the arbitration proceeding challenged the arbitrator, either under any procedure agreed upon by the parties or under section 13(2), and has failed, the party challenging the arbitrator may make an application under section 34 for setting aside the award.
(4) Section 14(2): If a controversy remains regarding whether the mandate of an arbitrator terminated on the ground of his becoming de jure or de facto unable to perform his functions or for other reasons failing to act without undue delay, a party may, unless otherwise agreed by the parties, apply to the Court to decide on the termination of mandate.
(5) Section 16(6): When a contention is raised before an arbitral tribunal regarding its jurisdiction or competence and the tribunal made an award rejecting such contentions, the party aggrieved by such an arbitral award may make an application under section 34 for setting aside the award.
(6) Section 27: Court's power to provide assistance to the arbitral tribunal in taking evidence.
(7) Section 34: Power of the Court to set aside an arbitral award or to remit the award to the arbitral tribunal.
(8) Section 37: Appellate Court's jurisdiction to hear appeals from:-
(i) Original decrees of the court passing an order granting or refusing to grant any measure under section 9.
(ii) Original decrees of the Court setting aside or refusing to set aside an arbitral award under section 34.
(iii) Arbitral Tribunal's order accepting the plea referred in sub section (2) or sub-section (3) of section 16.
(iv) Arbitral tribunal's order granting or refusing to grant an interim measure under section 17.
9. Sub-sections (2) and (4) of Section 39: If in any case, an arbitraltribunal refuses to deliver its award except on payment of the costsdemanded by it, the Court may, on an application in this behalf,order that the arbitral tribunal shall deliver the arbitral award to theapplicant on payment into Court by the applicant of the costsdemanded. The Court then, after such inquiry as it thinks fit, orderthat out of the money so paid into Court there shall be paid to thearbitral tribunal by way of costs such sum as the Court may considerreasonable and the balance, if any, shall be refunded to theapplicant.
The Court may make such orders as it thinks fit respecting the costs of the arbitration where any question arises respecting such costs and the arbitral award contains no sufficient provision concerning them.
10. Section 43(3): Where the arbitration agreement provides that any claim relating to a dispute to which the agreement applies shall be barred unless some step to commence the arbitral proceedings is taken within a time fixed by the agreement, the Court may extend the time for such period as it thinks proper.
Section 6 of the Act provides that in order to facilitate the conduct of the arbitral proceedings, the parties, or the arbitral tribunal with the consent of the parties, may arrange for administrative assistance by a suitable institution or person.
The object of this section is to expedite the arbitral proceedings. This section gives freedom to the parties to an arbitration proceeding to engage an arbitration institution (e.g. Indian Council of Arbitration), or a person who has specialisation in conducting arbitration proceedings.
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