ADR is an extremely important section as it carries four marks in the exam. The best strategy for tackling this section is to be familiar with the basic concepts of ADR and the scheme of the Arbitration and Conciliation Act, 1996.
A Study Module on ADR
Important Case Laws
In Renusagar Power Co Ltd vs. General Electric, AIR 1985 SC 1156
the Supreme Court said that the object of this legislation was to facilitate and promote international trade by providing for speedy settlement of disputes arising in trade through arbitration. It was stated that ordinarily, as a rule, an arbitrator had no authority to clothe himself with power to decide the question of his own jurisdiction unless parties expressly conferred such a power on him. ‘
Further the Court held that the question as to the validity of the contract was also for the court to decide under Section 33 and not for the arbitrator. If there was no arbitration clause at the time of entry of the arbitrators on their duties, the whole proceedings would be without jurisdiction.
Case- Bhatia International v Bulk Trading SA, AIR 2002 SC 1432,
The Supreme Court of India interpreted the scope of Part I of the Act to apply to arbitrations held outside India and in turn applied Section 9 in support of arbitrations seated outside India. The said Act does not say that its provisions will not apply to international commercial arbitrations which take place in a non- convention country. Part II of the Act only applies to arbitrations which take place in a convention country.
The court held that where such arbitration is held in India the provisions of Part I would compulsorily apply. However, in cases of international commercial arbitrations held outside India, the provisions of Part I would apply unless the Parties by agreement, express or implied, excluded all or any of its provisions.
In that case, the laws or rules chosen by the Parties would prevail. Any provision of Part I specifically excluded will not apply. The present judgment enabled the aggrieved parties in foreign arbitrations to apply for interim relief in India.
Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., [(2012) 9 SCC 552]
In the landmark cases of Bhatia International and Venture Global Engineering, the Supreme Court had held that Part I of the Arbitration and Conciliation Act, 1996 set out the procedures, award, interim relief and appeal provisions with respect to an arbitration award and held that it would apply to all arbitrations held out of India, unless the parties by agreement, express or implied, exclude all or any of its provisions. The Supreme Court held that there is a clear distinction between Part I and Part II which apply to completely different fields and with no overlapping provisions.
The Court in this case also drew a distinction between a ‘seat’ and ‘venue’. The arbitration agreement designates a foreign country as the seat/place of the arbitration and also selects the Act as the law governing the arbitration proceedings. The Court also clarified that the choice of another country as the seat of arbitration inevitably imports an acceptance that the law of that country relating to the conduct and supervision of arbitrations will apply to the proceedings. Therefore, it can be understood that Part I applies only to arbitrations having their seat / place in India.
The Court disagreed with the observations made in Bhatia International case and further observed on a logical construction of the Act, that the Indian Courts do not have the power to grant interim measures when the seat of arbitration is outside India. Therefore, the arbitral proceedings prior to the award contemplated under Section 36 can only relate to arbitrations which take place in India. The Court further held that in foreign related international commercial arbitration, no application for interim relief will be maintainable in India, either by arbitration or by filing a suit.
Case- K.K Modi v K.N Modi AIR 1998 SC 1297
This case talks about the attributes that make an agreement, an arbitration agreement. According to the Court, a clause will amount to an arbitration clause only if it contemplates that the decision of the tribunal will be binding on the parties to the agreement. The Court further went on to say that only if the parties consent to going with the procedure of arbitration for dispute resolution or if the Court or a statute enables the tribunal to conduct the arbitration process, only then must the jurisdiction of the arbitration tribunal may be exercised.
The agreement must also agree to it that the substantive rights of the parties will be determined by the agreed tribunal. To be enforceable in law, the agreement of the parties to refer their disputes to the decision of the tribunal must be intended. The agreement must also contemplate that the tribunal will make a decision upon a dispute which is already formulated at the time when a reference is made to the tribunal.
Other important factors include whether the agreement contemplates that that tribunal will receive evidence from both sides and give the parties opportunity to put forth their issues and hear their contentions; whether the wording of the agreement is consistent with the view that the process was intended to be an arbitration; and whether the agreement requires the tribunal to decide the dispute according to law.
Case- J&K State Forest Conservation vs. Abdul Karim Wani, AIR 1989 SC 1498
The Supreme Court held that the interim measures can be granted to aid the arbitration proceedings and not to frustrate them. The court further held that in the guise of granting an interim measure, the Court cannot resolve the substance of the dispute – that task belongs to the arbitral tribunal and not the Court.
The issues, in this case, were that how should an arbitration clause construed in a Contract and whether a dispute between parties can be referred to arbitration or not? The Supreme Court, in this case, held that the Court should refrain from expressing opinion on merits of the dispute. The Court should find out the intention of the parties, and that intention has to be found out by reading the terms broadly, clearly, without being circumscribed.
It was further held in this case that the jurisdiction of Court to make interim order is only ‘for the purpose’ of arbitration proceedings and a court should not to frustrate the same.
Case- National Thermal Power Corporation vs. Singer company, 1992 SCR (3) 106.
In this case, it was held that the Judge has to apply the proper law for the parties by putting himself in the place of a “reasonable man”. He has to determine the intention of the parties by asking himself “how a just and a reasonable person would have regarded the problem”. It has been held that where the parties have not expressly or impliedly selected the proper law, the courts impute an intention by applying the objective test to determine. The judge has to apply the proper law for the parties by putting himself in the place of a reasonable man.
Case- Puri Construction Company v Union Of India, AIR 1986 SC 777
It was held by the SC that when the court is called upon to decide the objections raised by a party against an award, the jurisdiction of the court is limited, as expressly indicated in the act and it has no jurisdiction to sit in appeal and examine the correctness of the award on merits.
The Court also held that if there is no legal proposition either in the award or in any document annexed with the award which is erroneous and the alleged mistakes or alleged errors, are only mistakes of fact and if the award is made fairly, after giving adequate opportunity to the parties to place their grievances in the manner provided by the arbitration agreement, the award is not amenable to corrections of the Court.
Case- Venture Global Engineering v Satyam Computer Services Ltd (2008) 4 SCC 190
The SC held that the enforcement of foreign awards need not be restricted to grounds under Section 45 (which were narrower), but can also be challenged on the grounds of domestic public policy in India (under Section 34 of the Act). Prior to this judgment the judicial position was that Part I of the Act applies only to domestic awards and Part II applies to foreign awards.
The SC held that the Indian courts have the power to intervene in foreign awards issued in international arbitrations held outside India. According to the Court the award was issued outside India; the parties had not expressly excluded the application of Part I of the Act in its contract; and in view of the non-obstante provision of the shareholder’s agreement, Indian law is applicable.
This means that the parties have a right to go to court in India seeking an injunction against the enforcement of a foreign award. It was held by the SC that if the new facts are relevant and material, the concealment of which opposes fraud, it opposes general public policy principles and a party attempting to set aside the arbitral award, will be allowed to introduce the new facts and materials.
Satish Kumar vs. Surinder Kumar, AIR 1970 SC 833
This case talked about Section 35 that contemplates the finality of arbitral awards. The Supreme Court has held that after the award becomes final, the rights and liabilities of the parties in respect of said claims can be determined only on the basis of the said award, thereafter, no action can be started on the original claim which had been the subject matter of the arbitral proceedings.
It was held by the Supreme Court, that the award is in fact, a final adjudication of a court of the rights and liabilities of the parties, which on the face of it is conclusive upon the merits of the controversy submitted. It was further held that, an award given under the Arbitration Act requires registration under section 17(1) (b) of the Registration Act if the award affects partition of an immovable property exceeding the value of Rs, 100/-.
ONGC vs. Saw Pipes, AIR 2003 SC 2629
Section 34 spells out the grounds for setting aside the award. The idea of patent illegality was discussed at length in this case. The Supreme Court held that an award shown to be suffering from ‘patent error of law’ could also be challenged under the head “award being in conflict with public policy of India” thereby expanding the grounds for setting aside of a foreign award. In ONGC, the Supreme Court interpreted ‘patent illegality’ to be under the scope of ‘public policy’ under Section 34.
The Court had relied significantly on the distinction between enforcement of foreign awards and domestic awards to give an expansionary ambit to public policy in case of the latter. When the award is erroneous on the basis of record with regard to the propositions of law or its application, the court will have jurisdiction to interfere in the award. However, such failure of procedure should be patent, thereby affecting the rights of the parties.
Datar Switchgears Ltd vs. Tata Finance Ltd., 2000 (3) RAJ 181 (SC)
What is the role of the Chief Justice if a party does not act as per the arbitration clause? The issue in this case was about the appointment of an arbitrator under Section 11(6). It was held that Section 11(5) can be invoked by a party who has requested the other party to appoint an arbitrator and the latter fails to make any appointment within 30 days from the receipt of the notice. An application u/s 11 (6) can be filed when there is a failure of procedure for appointment of arbitrator. This failure can arise under different circumstances.
It can be a case where a party who is bound to appoint an arbitrator refuses to do so or where the 2 appointed arbitrators fail to appoint the 3rd arbitrator. If the appointment of an arbitrator is entrusted to any person or institution and such person or institution fails to discharge such function, the aggrieved party can approach the Chief Justice for appointment of arbitrator. In this case, it cannot be said that there was a failure of procedure as prescribed by the Act.
Sundaram Finance Ltd. v. N.E.P.C. India Ltd., AIR 1999 SC 565.
Can interim orders be passed before commencement of arbitral proceedings (i.e. before issue of notice of commencement of arbitration) as well? The issue in this case was whether under Section 9 of the 1996 Act, the court has jurisdiction to pass interim orders even before arbitral proceedings have commenced and before an Arbitrator is appointed. The Indian Arbitration Act borrows heavily from the UNCITRAL Model Law.
Therefore it is important to know that Article 9 of the Model law states that: “It is not incompatible with an arbitration agreement for a party to request, before or during arbitral proceedings, from a court an interim measure of protection and for a court to grant such measure”.
Article 9 seeks to clarify that merely because a party to an arbitration agreement requests the court for an interim measure “before or during arbitration proceedings”, such recourse would not be regarded as being incompatible with an arbitration agreement. Arbitration may commence and continue notwithstanding a party having approached the court for interim protection. The expression “before or during arbitration proceedings” used in Section 9 seems to have been inserted with a view to give it the same meaning as those words in Article 9 of UNCITRAL Model Law.
Olympus Super Structures Pvt. Ltd. v. Meena Vijay Khetan, AIR 1999 SC 2102.
The issue in this case was whether questions regarding jurisdiction of Arbitrator and scope of reference to Arbitrator under Section 16 of the 1996 Act can be raised at a subsequent stage when the award is challenged under Section 34. In this case the Court also looked into the issue whether the disputes relating to specific performance of contract can be referred to arbitration.
The Supreme Court observed that if the parties before the arbitrator had any objection to the Arbitrator’s jurisdiction the same should be raised before the Arbitrator as provided in Section 16 (2) and (3) of the Act (this is the competence-competence doctrine). Section 16(5) requires the Arbitral Tribunal to decide on the plea referred to in Section 16(2) or (3) at the initial stage itself and if the pleas are rejected by the Arbitral Tribunal, it will continue with the arbitral proceedings and make the arbitral award. However the party aggrieved by such an arbitral award may make an application to set aside the arbitral award under Section 34 of the Act of 1996.
Further the Court in this case decided that the right to specific performance deals with contractual rights and it is open to the parties to agree to refer the issues relating to specific performance to arbitration. There is no prohibition in the Specific Relief Act, 1963 that issues relating to specific performance of contract relating to immovable property cannot be referred to arbitration. Nor is there such a prohibition in the Act of 1996.
Narayan Prasad Lohia vs. Nikunj Kumar Lohia, 2002(1) RAJ 381 (SC)
The Court in this case discussed whether an arbitration agreement becomes invalid on the ground that it provided for appointment of only two arbitrators, considering that the act requires an odd number of arbitrators. It was held that even if the parties provided for appointment of 2 arbitrators, the agreement does not become invalid. Under Section 11(3) the two arbitrators should then appoint a third arbitrator who shall act as presiding arbitrator.
However, such an appointment should preferably be made in the beginning, even though the two arbitrators may also appoint a third arbitrator at a later stage, if such a situation arises when the two arbitrators differ in opinion. This ensures that on a difference of opinion the arbitration proceedings do not reach a stalemate. However there would be no need of a third arbitrator when both the arbitrator so appointed agree and give a common award.
National Aluminium Company Ltd vs. Metalimpex Ltd, 2001(1) RAJ 548 (SC), Appointment of arbitrator contrary to agreement
The arbitration agreement in this case envisaged that two arbitrators would in turn appoint an umpire. One arbitrator was appointed by the petitioner who requested the respondent to appoint the other. On the failure of the respondent to do so, the petitioner approached the Chief Justice for appointment of sole arbitrator.
It was held that a sole arbitrator cannot be appointed in such circumstances in the absence of an agreement between the parties in this regard. Since the arbitration agreement envisages two arbitrators who in turn would appoint the presiding arbitrator, it will not be legal to appoint the sole arbitrator, unless both parties agree to it before the court. In this regard, see the note on Datar Switchgears above.
P. Anand Gajapathi Raju and others vs. P.V.G. Raju and others, (2000) 4 SCC 539
Can an arbitration agreement be entered into after a suit is filed? The issue in this case was whether an “arbitration agreement” mentioned in
Section 8 includes an arbitration agreement entered into during the pendency of a suit before a court. The parties entered into an arbitration agreement during the pendency of the appeal in the court and agreed to refer their disputes to an arbitrator. If the party who wants the matter to be referred to arbitration applies to the court after submission of his statement and the party who has brought the action does not object, as it was in the present case, there is no bar on the court referring the parties to the arbitration.
It was held that the phrase “which is the subject of an arbitration agreement” does not, in the context, necessarily require that the agreement must be already in existence before the action is brought in the court. The phrase also connotes an arbitration agreement being brought into existence while the action is pending.
Skypak Couriers Ltd vs. Tata Chemicals Ltd, (2000) 5 SCC 294
Availability of consumer forum remedies where there is an arbitration clause This case discussed if the existence of an arbitration agreement was a bar to seek remedy under the Consumer Protection Act. If there is an arbitration clause in an agreement, and a complaint is made by a consumer regarding a certain deficiency of service, the redressal agency constituted under the Consumer Protection Act can still entertain such a complaint. The Supreme Court found fault with the procedure followed by the National Consumer Disputes Redressal Commission in referring a complaint received by a consumer to a third party for consensual adjudication.
The Court stated that it did not find any provision in the Consumer Protection Act which authorizes the Commission to refer a pending proceeding before it to a third party for consensual adjudication and later make the decision of the so-called consensual arbitrator, an order of the Commission itself.
Even if there exists an arbitration clause in an agreement and a complaint is made by the consumer, in relation to a certain deficiency of service, then the existence of an arbitration clause will not be a bar to the entertainment of the complaint by the Redressal Agency constituted under the Consumer Protection Act, since the remedy provided under the Act is in addition to the provisions of any other law for the time being in force.
M.V.Baltic Confidence and another vs. State Trading Corporation of India Ltd. and another, (2001) 7 SCC 473,
A standard arbitration clause contained in a Charter Party Agreement was incorporated in a Bill of Lading. However, the expression “Charter Party” was not changed to “Bill of Lading” while incorporating the arbitration clause in the Bill of Lading. The question here arises whether the arbitration clause can be still held to be valid.
The Supreme Court observed that the issue to be considered in this case was “what was the intention of the parties to the Bill of Lading while incorporating the Arbitration Clause”. The court further said that while incorporating the conditions of the Charter Party Agreement in the Bill of Lading, specific reference has to be made to the arbitration clause by use of the expression: “including the law and arbitration clause”.
The Supreme Court also observed that while ascertaining the intention of the parties, attempt should be made to give meaning to the incorporating clause and to give effect to it and not to invalidate or frustrate it by giving a literal, pedantic and technical reading of the clause.
In Konkan Railways Corp Ltd Vs Mehul Construction Co, AIR 2000 SC 2821,
It was held by a three judge bench of the Supreme Court, that the order of the Chief Justice in case of appointment of arbitrators in case of domestic arbitrations and that of the Chief Justice of India in an International commercial arbitrations (this is made under Section 11 of the Arbitration and Conciliation Act), shall be deemed to have been made in his administrative capacity and the aggrieved party could approach the arbitral tribunal under Section 16 for challenging the jurisdiction of the tribunal.
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