Introduction

According to WIPO, Arbitration is a procedure in which a dispute is submitted, by agreement of the parties, to one or more arbitrators who make a binding decision on the dispute. In choosing arbitration, the parties opt for a private dispute resolution procedure instead of going to court[1].

According to CIARB, Arbitration is a non-judicial process for the settlement of disputes where an independent third party, an arbitrator, makes a decision that is binding[2].

From the above definitions, it is clear that arbitration is a process for dispute resolution where the dispute is not resolved by a judge but a neutral third party i.e. arbitrator. Further the arbitration rests on the existence of an arbitration agreement whereby which the parties agree to settle their dispute, present or future, via arbitration. Prima facie, it’s a form of consultative process whereby which both parties enter into a neutral arbitration clause/agreement after consultation and negotiations, whereby they decide to resolve their dispute via arbitration where both the parties will have a say in the appointment of Arbitrator.

Problem

Lately the trend is rising whereby which the companies, both private and PSUs, are taking unfair advantage of their position, by drafting standard one sided, company favoring, contracts when they need to engage services of a contractor and in the said contract, they include an unreasonable arbitration clause in which unfair advantage is given to the company with respect to the appointment of arbitrator as the company makes itself the sole appointing authority and then the contractors, because of their no bargaining power, are forced to sign such one sided contracts.

The effect of such contracts is that, the company tend to become an unreasonable boss instead of being a consumer obtaining services of the contractor, and then the circus begins.

The contractor performs his services and asks for his fees by raising invoices. The company start ignoring the contractor and keep on delaying his payment. Because of this, dispute arises and in order to resolve it, the contractor takes the route of dispute resolution mechanism as is provided in the contract and that’s when the contractor realizes that the contractor does not have any kind of say in the appointment of arbitrator and everything is vested in the hands of company. In such situation, since the contractor deem himself to be bound by the agreement, he starts the process of dispute resolution in accordance with the arbitration clause in the contract, by sending a notice to the company asking for the appointment of arbitrator. And once again, the company did not pay any heed to the contractor’s notice asking for appointment of arbitrator and to the surprise of contractor, he lands in a situation, where the company did not initiate the arbitration process and the time fixed for initiation of arbitration proceedings is lapsed. The contractor lands in an unforeseen situation where his problems don’t seem to end.

In such situation, what should a contractor do? Is he left totally remediless or is there something he can do to get the redressal of his grievance?

Fortunately, there’s still something that a contractor in this situation, can do.

Solution

Section 9 & 11 Arbitration and Conciliation Act, 1999

The first thing which a contractor can do is to file a Section 9 Arbitration and Conciliation Act, 1999 petition for interim relief whereby which he can ask the court to grant an order to require the company to deposit the disputed amount in court or an order for restraining the company from disposing off its assets till the time the dispute is resolved. This interim relief will be valid for 90 days as after the 2015 amendment, time limit of 90 days has been added in section 9 which stipulates that if the interim relief is granted before commencement of arbitral proceedings, the arbitration must commence within 90 days.

After getting interim relief, the contractor will have to file a petition under section 11 of Arbitration and Conciliation Act 1999 for the appointment of arbitrator. Section 11 provides that if there is a specific procedure in the agreement for the appointment of arbitrator and the said procedure is breached, a party can move to the court for the appointment of an arbitrator. But since the company did not participate in the appointment of arbitrator even after service of the notice, chances of its cooperating here in section 11 proceedings or during the arbitration if the court appoints an arbitrator under section 11, are very slim which will render the interim relief obtained under section 9 otiose.

Further one can argue that once the arbitrator is appointed under section 11, the arbitration will take place irrespective of the fact as to whether the company participates or not as if it does not, the arbitrator will pass an ex parte award. This argument is perfectly valid but my concern is, even if things happen according to this argument, there are still plenty of ways for the company to challenge the said ex parte award, obtained by the contractor, and stall the entire process of its execution which will create further worse condition for the contractor than it was in the very beginning as now the contractor will end up losing some years of his life and huge amount of legal fees which he had spent in order to conduct the arbitration proceedings and obtain the arbitral award and now, after all that, he is again at square one.

So, is there any other option whereby which the contractor can save his time, money and make sure that his dispute when gets resolved, it should be once and for all? Yes!

Civil Suit

Yes, a civil suit in the presence of an arbitration clause/agreement. To take a different position, in my opinion, the contractor can also avail the redressal of his grievance by way of a civil suit.

In my opinion, the contractor should take recourse to CPC and file a civil suit in the competent civil court to seek the relief to his grievances and further if the dispute is with respect to the withholding of payment, the contractor should file a summary suit.

Suit

Now with the filing of civil suit, the contractor can also file an application under order 39 rule 1 & 2 for the grant of interim relief in one go. The moment contractor files a suit, the company will file a section 8 (Arbitration and Conciliation Act, 1999) petition and in such situation, the contractor should contest the said section 8 petition claiming that the entire arbitration clause/agreement is void ab initio by pleading the grounds as are mentioned in the contract act, which are applicable in the given situation, which renders the contract void ab initio.

Word of warning though, at this stage, do not contest the validity of entire agreement as in a recent judgment of Sasan Power Ltd. vs North American Coal Corporation India Private Ltd.[3], SC has clarified that during section 8 proceedings, the court cannot go into the question of validity of entire agreement and can only look at the question of validity of arbitration clause/agreement i.e. whether the arbitration clause/agreement is null and void, inoperative or incapable of being performed?

Now, that contractor is contesting the validity of arbitration clause/agreement, he should take another ground that the company has drafted a self-serving contract, which is clear from the fact that the arbitration clause in the contract, which is drafted by the company, makes the company, the sole authority to appoint the arbitrator, and when in accordance with said contract’s arbitration clause, the contractor sent a notice invoking the arbitration, the company neither respond to it nor initiated the arbitration proceeding and now by way of section 8 petition, it’s trying to manipulate the court to take advantage of its breach of a contract which the company drew itself in its favor and it’s a settled principle of law that a party which drafts a contract cannot take the advantage of its own breach or of the vague provisions of the contract so drawn by it and in such situation the benefit will always go to the non-drafting party, which in this case is the contractor.

If these grounds are pleaded right, the chances of getting a relief from the court is bright which is better than feeling remediless and being a victim to the wrong doings of the errant companies which employs the services of contractor and then refuse to pay their fees.

Further, if the court dismiss section 8 petition filed by the company, the contractor might end up securing some interim relief in accordance with the relief prayed for in the plaint i.e. the court will either order the company to deposit the disputed amount in the court or order the company to not to dispose of its asset till the final adjudication of the dispute.

Summary Suit

In case that the dispute is with respect to the withholding of payment even after issuance of the invoices to the company, the contractor can file a summary suit in the court of competent jurisdiction.

When a summary suit is filed, the company will be required to file a leave to defend but the company will file section 8 petition and the moment the company files section 8 petition, it will lose its right to file leave to defend and the contractor, on that ground can avail the decree in his favor.

Bottom line

The above opinion prescribes a remedy for the contractors who think that they are left remediless by the errant companies which refuse to pay them their deserved fees and then hold the one-sided agreement, which the contractors were forced to sign because of no bargaining power of them, over their head.

Now, the contractors in such position does not have to worry anymore and when faced with such situation, they should consult a lawyer and get the process started.

Lacuna

The above discussion throws light on a glaring lacuna in Code of Civil Procedure (CPC) which should have been fixed by now via an amendment but not fixed yet.

The lacuna is that it is a settled law under section 8 of Arbitration and Conciliation Act that if there exists a contract in which the dispute resolution mechanism is provided as arbitration and one party in breach of same, files a civil suit instead of invoking the arbitration or in contravention of arbitration clause/agreement then the other party should file a section 8 petition to refer the dispute to the arbitration but the condition is that the said section 8 petition must be filed before filing first pleading/statement on claim/Written Statement in the court and if the section 8 petition is not filed at the very first instance then the party loses its right to get the dispute referred to the arbitration. Now, the situation is really perverse when it comes to summary suits as in that case, the condition on defendant is that he has to file a leave to defend within 10 days, at the first instance in order to get a chance to defend the suit and if the defendant fail to do same, he lost the opportunity to defend the suit and the said suit be decreed against him.

Now in cases where a summary suit if filed on the basis of a contract which includes an arbitration clause/agreement and the defendant files a section 8 petition in the summary suit, he loses his right to defend the suit and if he files a leave to defend, he loses his right to get the dispute referred to arbitration.

Solution

The parliament should take note of this lacunae and pass an amendment whereby which it should add a new proviso to order 37 rule 3(5) stating that “if a summary suit is filed on the basis of a contract and in the said contract, arbitration clause is provided for the resolution of disputes then the filing of section 8 petition by the defendant at first instance instead of filing a leave to defend will not disentitle him from filing a leave to defend. The court should first consider the section 8 petition in such cases and if the court rejects section 8 petition, it is then that the defendant be given a chance of 10 days to file his leave to defend.”

[1] http://www.wipo.int/amc/en/arbitration/what-is-arb.html

[2] http://www.ciarb.org/dispute-appointment-service/arbitration/what-is-arbitration

[3] SLP (c) No. 33227 of 2015