Arbitration
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This article is written by Misbah Salman Fazalbhoy, pursuing Certificate Course in Arbitration: Strategy, Procedure and Drafting from LawSikho.The article has been edited by Aatima Bhatia (Associate, LawSikho) and Ruchika Mohapatra (Associate, LawSikho).

Introduction

In 1996 the central government enacted the Arbitration and Conciliation Act, 1996 which contains provisions on the handling of national and international arbitration proceedings and defines the law for the conduct of arbitration proceedings. Since then, globalisation, industrialisation and liberalisation have multiplied manifolds. Arbitration has increasingly become a preferred option for resolving business disputes both globally and in India. In this article, we will attempt to understand whether the Arbitration and Conciliation Act, 1996 allows the court to refer the dispute between the parties to arbitration at the stage of an appeal using the P. Anand Gajapathi Raju v. P.V.G. Raju case

Facts of the case 

1. During the pendency of an appeal before the Supreme Court, the Petitioners and respondents, in this case, had entered into an arbitration agreement to resolve the dispute between them.

2. The parties had agreed to refer and settle this specific dispute which was presented in front of the Supreme Court via this appeal through arbitration, amongst others. 

3. The arbitration was a domestic arbitration seated in India and governed by the provisions of the Arbitration and Conciliation Act 1996 (“the Act”). 

4. For the same, the Parties jointly appointed Justice S. Ranganathan, a retired Judge of the Supreme Court as sole Arbitrator, since the arbitration agreement provided for a sole arbitrator.  

5. The arbitration agreement was in writing (in the form of an application), signed by the Parties, and met all the requirements of Section 7 of the Act

6. The parties applied to the Supreme Court to refer their dispute to arbitration pursuant to Section 8 of the Act

arbitration

Issues before the court 

Does the new Act i.e. the Arbitration and Conciliation Act, 1996 allow the court to refer the dispute between the parties to arbitration at the stage of an appeal? 

Decision of the court 

The court held that the powers conferred upon it under Section 8 of the Act were broad enough to cover an application for reference of a dispute to arbitration made in an appeal. The court allowed the application and referred the parties to the arbitration. 

Reasoning given for the decision 

1. In the old Arbitration Act (The Arbitration Act, 1940) sections 21 to 25 required the parties to apply to the courts for an order referring the dispute to arbitration and then the suit itself stands disposed of. However, in Part 1 (which deals with arbitrations seated in India) of the Arbitration and Conciliation Act, 1996 Act there is a clear intention of the Legislature to minimise judicial interference by Courts in arbitration proceedings. As per Section 5 of the 1996 Act

“Extent of judicial intervention.—Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part.”

2. After clarifying the minimal intervention object of the 1996 Act the court expounded on its scope of authority. Section 8 of the 1996 Act provides courts with the authority to refer the parties before it to arbitration when certain conditions are fulfilled – 

Section 8(1) states that the Court should refer the parties to arbitration unless it finds that there is prima facie no valid arbitration agreement between the parties.

Section 8(2) requires the parties making the application for reference of the dispute to submit with such application the original arbitration agreement or a duly certified copy thereof if the original agreement is unavailable for valid reasons. 

3. There are 4 conditions that are required to be satisfied before a competent court can, using its powers under Section 8, refer the parties to the arbitration. They are:

  1. There should exist a valid arbitration agreement between the parties.
  2. One of the parties to such arbitration agreement brings an action in court against the other party in violation of such agreement to arbitrate.
  3. The subject matter of the action in court should fall under the scope of disputes agreed to be settled by arbitration in the arbitration agreement. 
  4. Finally, the other party, against whom such action has been brought, applies to the court to refer the parties to arbitration pursuant to such valid arbitration agreement before it submits its first statement to such court. 

4. In the present case, the conditions and pre-requisites as set out in sub-clauses 1 and 2 of Section 8 are properly satisfied. There is an existing arbitration agreement that is not denied by either party. Both the parties to the suit are parties to the arbitration agreement in question and the subject matter of arbitration falls within the scope of disputes covered in the arbitration agreement. The fourth prerequisite is also satisfied. Even though the party applied to the court to refer the matter to arbitration after submitting their written statement, the other party did not object to such reference and hence, in the court’s view, there is no bar. Therefore all 4 requirements of Section 8 are satisfied and the parties could be referred to arbitration.

5. The next question required to be answered before the court was – is it necessary that the arbitration agreement in question should be entered into between the Parties before an action is brought to Court? 

The court answered in the negative. The phrase “which is the subject of an arbitration agreement” is broad enough to suggest that even an arbitration agreement that is entered into after the said action is brought or during the pendency of such an action is covered under the phrase. 

6. Section 8(3) states that “Notwithstanding that an application has been made under sub-section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made.”

7. The court held that the word “is” is broad enough to cover all present and some past and future actions as well. To reach this conclusion, the Court took help from the definition of the word in the Black’s Law Dictionary. 

 “Black’s Law Dictionary has defined the word “is” as follows: This word, although normally referring to the present, often has a future meaning, but is not synonymous with shall have been. It may have, however, a past significance, as in the sense of has been.”

8. Identifying the language in Section 8 as peremptory the court held that in the present circumstances of the case it would be obligatory upon the court to refer the parties to arbitration under the new Act i.e., the 1996 Act as amended, since all the conditions and pre-requisites were fulfilled. 

9. The court also opined that the present application under Section 8 was not an application contemplated under Section 42 of the Act and hence the court to which the parties shall have any further recourse shall be a court as decided under Section 2 ( e) of the Act and not the present court. 

10. In light of its decision and reasoning the court allowed the application and referred the parties to the arbitration. 

Similar judgments

Below are some judgments of various Indian courts referencing the current case and following its decision – 

Tata Steel Ltd. v/s M/s H. R. Construction (P) Ltd. 

In this case, the Jharkhand High Court at Ranchi set aside an order of the Civil Judge, Sr. Division – 1, Jamshedpur in a money suit and followed the Supreme Court’s decision in P. Anand Gajapathi by disposing off the writ petition with a direction to the Civil Judge to consider the application filed under Section 8 by the petitioner – defendant. The Court however did not make any opinion or share any view on the merits of the section 8 application filed by the parties and left that decision to the Civil Judge. 

Hindustan Petroleum Corpn. Ltd. v. Pinkcity Midway Petroleum

The Supreme Court held that if there is an arbitration agreement or an arbitration clause in an agreement between the parties, it would be binding on the civil court to refer the dispute to arbitration. 

Swiss Timing Ltd. v. Commonwealth Games 2010 Organising Committee

Though this case did not directly refer to an application made under section 8 for reference to arbitration, it did touch upon similar points of law and the rights of a party to have the dispute settled through the chosen and agreed upon dispute resolution mechanism in a contract between them. The Supreme Court referred to the Court’s decision in P. Anand Gajapathi and opined on the ruling in N. Radhakrishnan v. Maestro Engineers saying that the current position of law was the one laid down in P. Anand Gajapathi and the Hindustan case (discussed in point 2 above). It observed that the judgment in P. Anand Gajapathi was not even brought to the attention of the Court in the N. Radhakrishnan case, therefore the same was neither considered nor followed. 

Conclusion

The present judgment is a step in the right direction. By allowing the parties to pursue alternate modes of dispute resolution while waiting for the court system to resolve its differences, the courts are rightly promoting ADR methods. This will not only help educate and create awareness in people about other dispute resolution methods but will also help ease the burden on courts. By allowing the parties to submit their dispute voluntarily to an arbitrator, a matter which could have taken up a lot of the court’s time turned into a simple application for reference to arbitration. Such pro-arbitration decisions also project a worthy image of India on the global platform. They show India’s seriousness towards becoming a global hub for alternate dispute resolution. 

References

  1. https://www.mondaq.com/india/court-procedure/845782/salient-features-of-the-arbitration-and-conciliation-amendment-bill-2019

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