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This article is written by Ms. Nikara Liesha Fernandez from the School of Law, Christ University, Bangalore. This article deals with the main law governing the emerging field of Arbitration and Conciliation in India as well as its applicability made by the court of law.

Introduction 

In light of the exponential increase in commercial disputes all over the world due to the factors of globalisation, industrialisation and liberalisation, the process of alternative dispute resolution (commonly known as ADR) has become very popular among individuals both in India as well as abroad. In India, also known by its common name of ‘out of court settlement’, ADR can be defined as a set of ‘dispute resolution processes and techniques that act as a means for disagreeing parties to come to a win-win position to prevent the lengthy process of litigation. It is a collective term used for the ways that the parties can settle disputes with the help of a neutral third party.’ 

ADR has gained widespread appeal as it is a relatively economical, speedier means by which parties can settle their disputes amicably without the hassle of taking the matter to court. It is a private, generally informal and non-judicial procedure for adjudicating disputes. The beauty of this process is that the parties themselves can choose their arbitrators who in their mind can provide the best assistance in settling the dispute and this creates a comfortable background for the proceedings to take place. An arbitral award or the verdict given by the arbitrator has the same effect as an order given by a court of law and thus the decision of the same is legally binding on both parties. 

Essential components of the arbitral process

The four requirements for a successful arbitration procedure to take place are-

  1. An arbitration agreement
  2. A dispute
  3. A reference to a third party for its determination
  4. An award by the third party

ADR is a broad name given to an umbrella under which there are five main means of settling disputes namely arbitration, mediation, conciliation, negotiation and Lok Adalats. This article will deal with an in-depth analysis of arbitration and a mention of mediation and conciliation as well. 

An overview of the Arbitration and Conciliation Act, 1996

Changes brought about by the new Act

The Arbitration and Conciliation Act, 1996 (“Act”) repealed the erstwhile Arbitration and Conciliation Act of 1940 with the implementation of new provisions based on the UNCITRAL Model Law on International Commercial Arbitration, 1985. Its applicability extends to the whole of India. Although largely following the same philosophy, the Arbitration Act deviated from the Model Law in some aspects. For example, the standard for referring parties under the Arbitration Act is significantly lower than that prescribed by the Model Law. The Arbitration Act also prescribes time limits for the completion of the arbitration which the Model law does not. Model law also contains detailed provisions with relation to the costs affixed with the arbitration while the Arbitration Act lacks the same. 

The salient features of this Act, as stated in the preamble of the same to are to ‘consolidate and amend’ the law relating to the settling of issues through the process of arbitration within India (domestic arbitration) as well as International Commercial arbitration and enforcement of foreign arbitral awards in India. The Act also aims at defining the law relating to conciliations and matters concerned with or incidental thereto. 

This act is applicable only to civil cases and the arbitral tribunal (defined in Section 2(1)(d) of the Act) is not subjected to the provision of the Code of Civil Procedure, 1908 or the Indian Evidence Act, 1872. 

Some of the characteristics with regards to the arbitration process which can be inferred from the act are that arbitration is a neutral, consensual and confidential procedure. The parties are free to choose their own arbitrators which constitutes a form of arbitration known as Ad Hoc arbitration. The other form of arbitration is arbitration which is organized by permanent institutions (such as the Indian Chamber of Commerce) wherein the institution itself appoints arbitrators to settle disputes brought to them. 

Main topics covered under the Act

The act provides for in-depth provisions regarding the following:

  1. Arbitration agreements-

This refers to an agreement between two parties who have due to a defined legal relationship, whether contractual or not, to solve a certain dispute which has already arisen between the two of them or is yet to arise through the process of arbitration. The agreement can either be in the form of an arbitration clause provided in a contract or a separate agreement but the same must be in writing to prove the existence of a relationship between the two parties. 

Once the judicial authority to whose notice such an agreement is brought is satisfied with the arbitral agreement, they grant the parties with the permission to begin the arbitration process. This is done after the presence of such an arbitral agreement has been established by the same judicial authority. 

  1. Mediation and Conciliation-

The Court, with the permission of the parties and if they themselves are satisfied that there exist certain conditions through which the dispute can be settled through the means of mediation or conciliation, can refer the parties to go through with the same. 

  1. Interim Measures-

The Court also has the power to issue certain interim measures as per the conditions enumerated under Section 9(1) of the Act. 

  1. Arbitral Tribunal-

This Act provides for the formation of an arbitral tribunal and provisions for the appointment of the members of the tribunal as well. The parties are free to choose their own panel of arbitrators, of any nationality, provided that such a number of arbitrators are selected such that the total number of arbitrators is not an even number. In the absence of the same, the Arbitral Tribunal can even consist of a single arbitrator. There are certain grounds on which the appointment of the arbitrator can be challenged as well such as having any personal interest whether direct/indirect/present/past relationship with the subject matter of the dispute or any factors which are likely to interfere with the arbitrator’s ability to devote sufficient time and perform due diligence in solving the dispute within the period of twelve months. 

  1. Jurisdiction of Arbitral Tribunals-

The Arbitral Tribunals only have the authority to rule on matters falling within their own jurisdiction of the dispute at hand. The arbitral tribunal also has the power to issue interim measures similar to those which can be granted by the Court as stated above in point c).

  1. Conduct of arbitral proceedings- 

The act ensures equality in the treatment of both parties throughout the arbitration process. The parties can themselves decide the arbitral procedure they wish to adopt as well as the place where they want the procedure to be carried out. The language of the procedure to be used is at the liberty of the parties to decide. Either the parties of the tribunal can decide upon the period of time to be allotted to the parties to form their claims, defences and statements of facts. Normally, the decisions regarding the hearing and written proceedings are made by the tribunal unless otherwise agreed by the parties. The arbitral tribunal also has the power to appoint an expert to advise on certain issues which may arise during the arbitration proceedings and can apply to the Court in case it needs its assistance in taking evidence.

  1. Making of arbitral award and termination of proceedings- 

Chapter IV of this Act deals with the rules applicable to the substance of the dispute and the decision-making power of the panel of arbitrators as well as the time limit permitted for delivering an arbitral award (includes a provision for a fast-track procedure). The other features which fall under this subheading are discussed in detail in the following analysis of the case of Chintels India Ltd. v. Bhayana Builders Pvt. Ltd. (2021).  

The case of Chintels India Ltd v. Bhayana Builders Pvt Ltd

Facts

This case was brought as an appeal before the High Court of Delhi under Article 133 and 134A of the Indian Constitution which dealt with the main issue of whether the order passed by the single judge of the Delhi High Court refusing the condonation of delay beyond the prescribed time limit of the applicant with respect to an arbitral award was within his power and correct and whether this order could be appealed against in the Supreme Court under Section 37(1)(c) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as ‘the Act’.). 

Issues

The High Court judgment pointed out that whether the application was denied on the basis of lack of the territorial jurisdiction of the High Court or on the basis of filing the application after the prescribed period of time, the appeal would either way not be maintainable. The Court passed this reasoning based strongly on the judgment of the Bombay High Court in the case of State of Maharashtra and Anr. v. M/s Ramdas Construction Co. and Anr. (2007).

The Court further went on to mention that due to the wording of Section 34(3) of the Act, namely ‘but not thereafter’, the intent of the Act was to create a sort of time bar for appeals and as such, any further delay on the same basis, on the consideration of Section 34 as a whole and not limited to (2) is applicable to Section 37(1)(c) of the Act dealing with the subject of appeals.

The appellant in the present case then sent in an application to the High court for a certificate of appeal in order to take the impugned order of the HC to the Supreme Court. The former granted the same to the applicant on the reasoning that denial of the same would provide the aggrieved with no other option than to file a Special Leave Petition to the Supreme Court to hear its case under Article 136 of the Constitution and this would be a hindrance to the Supreme Court who was only supposed to hear a limited number of cases of constitutional importance and not merely an issue based on a matter of delay. Thus, bound by the dicta of the Supreme Court in the case of Bgs Sgs Soma Jv v. Nhpc Ltd. (2019) the power of appeal was granted to the applicant which brings us to the present case. 

Contentions of parties to the case 

Submissions by the appellants

The counsel for the appellants relying on the judgment of the Supreme Court in the case of  Essar Constructions v. N.P. Rama Krishna Reddy (2000) argued that Section 39 of the Act, which was the issue in the aforementioned case, was pari materia to Section 37 of the same, which was applicable in the present case. According to Section 39 of the Act, an arbitral tribunal has the power to refuse to deliver its award except on the payment of the costs demanded to it and Section 37 of the Act deals with the power of a single judge to refuse to condone delays beyond the prescribed period of time for appeals. Given the similarity in the material nature of the two sections, the appeal in the present case was maintainable. To further buttress his argument, the counsel for the appellant further cited the cases of Chief Engineer of BPDP/REO Ranchi v. Scoot Wilson Kirpatrick India (P.) Ltd. (2006) and Fuerst Day Lawson Ltd. v. Jindal Exports Ltd. (2011). 

For his next argument, the counsel for the appellants stated that an order condoning the delay in filing of an appeal provided no sense of finality and thus was on a different footing from an order refusing to condone a delay in the filing of an appeal. As such, the law was not stated correctly in the cases of Union of India v. V.P. Seth and Anr., (2005) and State of Maharashtra v. Ramdas Construction Co. (2006) which held that when the right of appeal had already been granted by a statute, even dismissal on a preliminary ground constituted the dismissal of an appeal. Thus, the counsel for the appellant requested that the Supreme Court overrule the same. 

With reference to Section 37(1)(c) of the Act, the counsel for the appellants relied on a line from the judgment of Damodar Valley Corporation v. Sanjay Singh Rathor (2018) wherein it was held that statutory interpretation must not be limited in the face of wider construction. Based on this, the counsel for the appellants claimed that the Bgs Sgs Soma Jv judgment relied on a completely different question of whether an application to set aside an award granted under Section 34 of the Act should be returned to a proper court depending on where the seat of arbitration was located. This did not answer the issue at hand and the judgment referred to by the court in the same case, namely State of Maharashtra and Anr. v. M/s Ramdas Construction Co. and Anr. (2007) dealt only with the question of whether a delay of 4 months in filing an appeal prevented a case from falling within the jurisdiction of the Court. Thus, this judgment did not go into the maintainability aspect of the appeal at all which was a prime issue in the case at hand. 

Submissions by the respondents

Refuting the arguments advanced by the counsel for the appellants, the counsel for the respondents denied the applicability of the Essar case to the case at hand. According to him, Section 37 of the Act was not pari materia to Section 39 of the same as both were materially different. Section 39 concerns itself with Section 30 of the Act which deals with the issue of settlements which is distinctly different from Section 37 which deals with orders passed under Section 34 of the act. 

The counsel for the respondents brought the Court’s attention to Section 5 of the Act which explicitly mentioned judicial intervention should be kept to a minimum in the arbitration process. This was further strengthened by the counsel for the respondents as he established the nexus between the same with the statement of objects of the Act along with the non-obstante clause of Section 37(1) which rendered the same exhaustive in nature through the usage of the words ‘and no others’ as well as ‘namely’. 

The counsel for the respondents relied on the judgments of Bgs Sgs Soma Jv and Harmanprit Singh Sidhu v. Arcadia Shares & Stock Brokers (P) Ltd. (2016) which stated that an appeal was a creature of statute and as such had to be read with the same with no further expansion of the meaning of the words of the same. The Court had also explicitly stated in Para 17 of the aforementioned judgments that there was no ambiguity in Section 17(1)(c) of the Act and the refusal of an appeal had to be on the grounds of proper merit and not on a preliminary ground only. The Supreme Court in its judgment in the case of Union of India v. Simplex Infrastructures Ltd. (2017) held that whether or not the delay in filing the appeal was condoned or not, the arbitral award cannot be set aside.

The counsel for the respondents concluded his arguments by stating that the judgment of the Bombay High Court Division Bench in the Ramdas Construction case was indeed the correct interpretation of the law and that the court must accept the same, overruling any contrary judgments.  

Findings of the court 

The Supreme Court, in this case, held that an application to set aside an order as per Article 34(1) of the Act had to be in accordance with clauses (2) and/or (2A) as well as (3) of the same. It was mandatory that the application for the appeal itself must be made within the prescribed time and in failure of the same, it had to be made within a period of three months. The application in the case of the latter was to be accompanied by an application for condonation of the delay provided it is within a further period of 30 days. The Court also held that Section 5 of the Limitation Act, which dealt with the extension of the prescribed period in certain cases, was not applicable in the present case as a delay beyond 120 days is not condoned. 

The Court went on to hold that Section 37(1)(c) of the Act refers to Section 34 of the same as a whole and is not limited only to Section 34(2). As such, the order refusing the condonation of delay under Section 34(3) is further strengthened. 

Referring to the Essar case, the Court held that by reading Section 39(1)(vi) of the Act together with Section 17, an application to set aside an award rejected solely on the grounds of delay without any sufficient cause under Section 5 of the Limitation Act would also be an appealable order. To further elaborate on the same, the court referred to its judgment in the case of Union of India v. Manager, Jain and Associates (2001) wherein it was held that there can be no quarrel with the argument that Section 5 of the Limitation Act providing for condonation of delay was excluded from the scope of Section 34(3) of the Act. The court agreed that this case did not actually deal with the issue of maintainability of the appeal which clearly was maintainable and due to the fact that the High Court did not consider the same, the impugned order was dismissed. 

The Court further referred to the case of Fuerst Day Lawson Ltd. [Fuerst Day Lawson Ltd. v. Jindal Exports Ltd., (2011) agreed that there was no material difference between Section 37 and Section 39 of the Act.

Once again with respect to the Essar case, the Court held that the wording of Section 37(1)(c) of the Act, namely ‘under Section 34’ was absent in Section 39(1)(vi), it is pari materia to Section 37(1)(c). Section 37(2)(a) states that if a preliminary ground of the arbitrator not having the jurisdiction to continue with the proceedings is established, an appeal can lie and the determination of the same is final in nature, bringing the arbitral proceedings to an end. However, if the converse is held by an arbitrator, an appeal will not lie. As this observation is strengthened by Section 16 clauses (5) and (6) of the Act, the Court found it difficult to agree with the counsel for the respondents in this present case.  

Referring to the judgment of a single judge bench in the case of Union of India v. Simplex Infrastructures Ltd., (2016), which condoned the delay in filing of a petition under Section 34 regardless of whether it was said to be without jurisdiction, the Court held that ‘the remedy of the appeal has been provided only against an order of setting aside or refusing to set aside an arbitral award under Section 34. No appeal is provided against an order passed by the court of competent jurisdiction condoning the delay in filing the petition under Section 34 of the Act as such.

In answer to the issue put forward in the present case, as to whether the single judge’s judgment condoning the delay in filing an application under Section 34 was without jurisdiction, the Court held that such an order is in the exercise of the jurisdiction conferred upon it by the Statute. Thus, it was not possible for the Simplex case judgment to be held as an authority to govern the case at hand. The reasoning that it is the converse position with respect to the facts contained in the present appeal before the court is not a valid argument as to make the case appealable, it must follow that even where the delay is not condoned, the same position prevails. This reasoning would be contrary to the reasoning of the Simplex judgment. 

new legal draft

With respect to the Bgs Sgs Soma judgment, the court in the present case held that it indeed deals with a completely different question than the issue at hand by stating a line from the judgment of Amar Nath Om Prakash v. State of Punjab (1985), that ‘It is well settled that judgments are not to be construed like Euclid’s theorems’. On similar lines, the court cited its judgment from Sreenivasa General Traders v. State of A.P (1983) by saying that judgments of the courts are not to be construed as statues and must instead be read in the context in which they occur. “Judges interpret statutes, they do not interpret judgments. They interpret words of statutes; their words are not to be interpreted as statutes.” Quoting Lord Halsbury, the court stated that, “a case is only an authority for what it actually decides and not for what may seem to follow logically from it.”

With respect to the Bgs Sgs Soma Jv judgment, the Court held that a mere preliminary step that did not lead to an application being rejected finally cannot be characterised as an order which would result in an order sealing an application’s fate with finality once and for all. The Court’s focus was thus neither on the language of Section 37(1)(c), nor were any arguments addressed so as to correct its interpretation. Thus, this case could not act as a valid precedent applicable to the case at hand. 

Lastly, referring to the Ramdas construction case, the Court held that the scope of inquiry under Section 34(3) of the Act was restricted only to ascertaining the cause for delay in filing the application and nothing in relation to the merits of the application itself for setting aside the award. Thus, an order passed in the exercise of powers under this clause cannot extend to the subject matter of the application for setting aside the award as it was restricted only to the aspect of setting aside the application. 

As Section 37 of the Act refers only to orders dealing with the aspect of setting aside or the refusal to set aside arbitral awards, it cannot form an appealable order under the same. Since the appellate powers under Section 37 are not related to the proceedings which precede the enquiry regarding the setting aside/ refusal to set aside an arbitral award, the consequence of an order of dismissal of the application for condonation of delay cannot by itself amount to an appealable order under Section 34(1) for the purpose of an appeal under Section 37(1). Thus, the Ramdas Construction case did not state the law correctly nor did it follow the Essar judgment and is thus against the interpretation made by the Court in this case as well of Section 37(1)(c). 

The Court also overruled the judgment of the Bombay High Court in the Ramdas construction case on the grounds that it did not state the law correctly. 

The Court also held the respondent’s argument with regards to the limited nature of Section 37 of the Act from the scope of judicial intervention due to the non-obstante clause as invalid as the same is followed by the terms “except where so provided in this Part”. 

Thus, the Court finally answering the question posed to it by this case stated that an appeal under Section 37(1)(c) of the Arbitration Act, 1996 was indeed maintainable against an order refusing to condone the delay in filing an application under Section 34 of the same to set aside an award. The present appeal was thus allowed, setting aside the impugned High Court judgment. The matter was thus remitted to a Division Bench of the Delhi High Court to decide whether the single judge’s refusal to condone the delay is correct or not.  

Conclusion 

From the detailed discussion above we see that the provisions of Arbitration and Conciliation Act,1996 coupled with the judicial interpretations by the Courts of law have, over time, proved to indeed serve the purpose of the Acts in the delivery of justice through alternative dispute resolution. The most recent amendment to the Act has been the Arbitration and Conciliation (Amendment) Act 2019, which has brought with it numerous additional salient features to suit the dynamic needs of society and to encourage the interest of the same in the process of arbitration, mediation and conciliation as well as other alternative dispute resolution mechanisms. The significant feature of the amendment is the establishment of an Arbitration Council of India to maintain uniformity in the standards of all matters regarding arbitration throughout the country to ensure the system continues to reduce the caseload of the higher courts to ensure that justice prevails in all matters with respect to all sections of society.  

References 

  1. https://indiankanoon.org/doc/155272142/
  2. https://www.indiacode.nic.in/bitstream/123456789/1978/1/AAA1996__26.pdf
  3. https://www.legalbites.in/introduction-arbitration-conciliation-act/
  4. https://poseidon01.ssrn.com/delivery.php?ID=377005116116022065065068070108118000010018028080064039094027113077084085110003116121101050022063001111037109028013122073019087005025004048052080085080112073071092094001062078085111023126072126066019108004123107119093065018028028008094091096028088007083&EXT=pdf&INDEX=TRUE
  5. https://uk.practicallaw.thomsonreuters.com/9-502-0625?transitionType=Default&contextData=(sc.Default)&firstPage=true 
  6. https://www.indiacode.nic.in/bitstream/123456789/1978/1/AAA1996__26.pdf 
  7. http://www.lawcom.gov.uk/app/uploads/2015/03/cp190_Expert_Evidence_Consultation.pdf

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