1

MODULE II

ARBITRATION
 OUTLINE FOR MODULE II 2
 Historical background of Arbitration
 UNCITRAL Model Law and AC Act, 1996
 Purpose and Objectives of the Act
 Definitions and Arbitration Agreement
 Arbitral Tribunal – Composition, Jurisdiction and Conduct
 Making and setting aside of Arbitral awards
 Enforcement of foreign Arbitral Awards
 HISTORICAL BACKGROUND 3
 Indian Arbitration Act, 1940 – procedural defects and abuse of arbitral
process
 Arbitrator was not required to pass a reasoned award
 Several rounds of litigation began again
 Aim of speedy and effective disposal was lost
 Reference to UNCITRAL Model Law
 UNCITRAL MODEL LAW 4
 UNITED NATIONS COMMISSION ON INTERNATIONAL TRADE -
for unification and harmonization of ITL.
 Core body which mandatorily coordinates legal activities and avoids
duplication.

 Recognizes the value of Arbitration and aims at reducing disparities

of national laws.
 Consolidates and amends various laws.
LEGISLATIVE BACKGROUND 5

Article 51 of Constitution of India

Malimath Committee Report and 129th LCI Report
Arbitration and Conciliation Bill XXX of 1995
Arbitration and Conciliation Act of 1996 – promulgated
on 16th January and effective from 25th January, 1996.
 OBJECTIVES OF THE BILL 6

1. Arbitral procedure

2. Giving a reasoned award

3. Limits the arbitral tribunal

4. Minimise supervisory role of courts

5. Use of other ADR Processes

6. Enforcement of an award

7. Enforcement of foreign awards

SALIENT FEATURES OF 1996 ACT 7

Responsive to change

In line with International practices

Consolidating and Amending Legislation

Party autonomy
SALIENT FEATURES OF 1996 ACT 8

Contractual Rights are not affected

Fair and impartial manner to resolve disputes

Limited termination of mandate of Arbitration

Exclusion of Act from Applicability

PRINCIPLES GOVERNING 9
ARBITRATION
Avoidance of unnecessary delay and wasteful
expenditure
Choice given to parties
Will of parties to prevail
Equal treatment of parties
PRINCIPLES GOVERNING 10
ARBITRATION
Arbitration to end with a final award
Arbitral tribunal to decide the venue for arbitration in
case of a dispute
Award in itself is a decree
DEFINITION OF ARBITRATION 11

 Section 2 (1) (a): any arbitration whether administered by a permanent

arbitral tribunal or not.
 Not defined anywhere in the Act.
“ A judicial process concerned with the ascertainment, declaration and
enforcement of rights and liabilities as they exist, in accordance with
some recognized system of law” – HALSBURY’S LAWS OF
ENGLAND
 ARBITRAL AWARD 12

Section 2 (1) (c): Arbitral award includes an interim award.

Award is also not defined anywhere in the Act.
It is the final determination of particular issues or claims.
It is different from orders/decisions.
It is also different from a partial or an interim award.
FINALITY OF ARBITRAL AWARD 13

Finality of an arbitral award shall take place in three

senses:

1. Determination of all issues

2. It should be a complete decision

3. It should be binding and valid

UNDERSTANDING INTERIM AWARD
14

 Interim award is the immediate relief given to the parties.

 It is binding and enforceable.
 Mohan Das v. ADJ No. 3, Jodhpur (2010): interim award has to
grant some relief by way of determination of tentative rights of the
parties.
 Satwant Singh Sodhi v. State of Punjab(1993):interim award will
have effect only till the time the final award is not delivered.
 15
HARMONIOUS CONSTRUTION
Meenakshi Chettier v. Velambal Ammal (1944)

Ramesh Vaish v. Banwari Lal Jaipuria (1999)

Liberty Shoes Ltd. v. Harish Kumar Gupta (2006)

Commissioner Kolhapur Municipal Corporation v. Fairdeal

Construction (2008)
CONDITION OF A VALID AWARD 16

 Must conform to submissions

 Complete decision must be delivered
 Certain in nature
 Susceptible to challenge
 Clear and unambiguous terms
 Must contain adjudication
ARBITRAL TRIBUNAL: Sec. 2 (1) (d) 17

Arbitral Tribunal: Means a sole arbitrator or panel or arbitrators.

It is constituted by the parties and has the power and the duty to
determine the disputes between them as per the agreement.
Gayatri Projects Ltd. v. State of Orissa (2004): the rules of an
arbitral tribunal shall prevail under all circumstances, if the parties
have decided to be bound by them.
DUTIES OF ARBITRAL TRIBUNAL 18

 S. 11: to disclose the existence of any interest with relation to the parties
or subject matter.
 S. 12: to possess the qualifications as agreed between the parties.
 S. 14: to act impartially and fairly.
 S. 16: to rule on its own jurisdiction
 S. 16: to give ruling upon the validity of the Arbitration agreement.
 S. 17: to pass interim orders/measures.
DUTIES OF ARBITRAL TRIBUNAL 19

 S. 18: To treat parties with equality.

 S. 19: to discard the applicability of other laws if required by the
parties.
 S. 20: to determine the venue of arbitration.
 S. 23: to adjudicate upon counter claims.
 S. 24: to give sufficient notice for holding meetings.
 S. 26: to appoint experts for reporting on specific issues.
 20
DUTIES OF ARBITRAL TRIBUNAL
 S. 28: to make award and decision keeping in mind the circumstances of
the case.
 S. 29: to decide the disputes within a period of a year.
 S. 30: to record settlement between the parties in the form of an award.
 S. 31: to sign and give reasons for an arbitral award.
 S. 38: to fix amount of deposits in respect of claims.
 S. 39: to deliver a copy of the award.
CHOICE OF NUMBER OF ARBITRATORS
21

Parties are free to decide the number of arbitrators.

If the number is not specified in the Arbitration
agreement reference to Sec 10 is required.
Common practice is to have an arbitral panel
consisting three arbitrators.
 COURT – Sec 2 (1) (e) 22

 Ingredients:

1. In case of arbitration other than ICA

2. Principal Civil Court of original jurisdiction in a district shall have

jurisdiction

3. Includes a High Court of a State

4. To decide questions forming subject matter of arbitration

5. Does not include a court inferior to the Principal Civil Court

 JURISDICTION OF A COURT 23

 Award can be challenged only in a Court in which a suit would lie with
reference to the subject matter of the dispute.
 Amendment Act 2015: Commercial courts et up as per the provisions of
the “Commercial Courts, Division and Appellate Division of the High
Court Act”.
 Kumud Agarwalla v Fertilizer Corp. of India (1985): Parties cannot by
agreement oust the jurisdiction of a particular court.
 JURISDICTION OF A COURT 24

The Principal Civil Court is the superior most court exercising

jurisdiction in a district over which it extends.
M/S B.M.G. Construction v. National Small Industries
Corporation Ltd. And Others (2012): HC is included in Principal
Civil Court only if it exercises original civil jurisdiction and has
the power to determine subject matter of arbitration as regular suit.
 COMPETENT COURT 25

Bharat Aluminium Company Ltd. v. Kaiser Aluminium

Technical Services (2012): “Subject matter of arbitration” is
confined to Part I only. Therefore, two courts have
jurisdiction:

1. Courts having jurisdiction over the cause of action

2. Court where arbitration takes place

 COMPETENT COURT 26

 Khaleel Ahmed Dakhan v. Hatti Gold Mines Co. Ltd. (2000):

For filing a suit the parties must show:

1. Cause of action arose within the jurisdiction of the said court

2. The respondent resides within the jurisdiction of the said

court

3. The respondent carries business within the jurisdiction of the

said court
FACTORS DETERMING JURSIDICTION
27

1. Cause of Action: Alaknanda Hydro electric Power Ltd. v. Shring

Construction Co. Pvt. Co. Ltd. (2009).

2. Subject Matter of the dispute: Trehan Promoters and Builders

Pvt. Ltd. v. Welldone Technology Parks Development Pvt. Ltd.
(2009).

3. Venue of Arbitration: Bharat Aluminium Company Ltd. v. Kaiser

Aluminium Technical Services (2012).
FACTORS DETERMING JURSIDICTION
28

3. Immovable Property: Magnum Builders and Developers and

Chawla Construction v. Ircon Int’l Ltd. (2009).

4. Place of making contract: ABC Laminart v. AP Agencies (1989)

5. Place of payment of money: Indian Oil Corporation Ltd. v.

Multimetals Ltd. (1981).

6. Agreement regarding Jurisdiction: Swastik Gas Pvt. Ltd. v. IOC

Ltd. (2013).
 INT’L COMMERCIAL ARBITRATION
29

 Defined in Sec 2 (1) (f) of the Act.

 Ingredients:

1. Dispute arising out of a legal relationship

2. Is considered Int’l when one of the parties is:

2.1. an individual who is national or habitually resident in any other

country

2.2. A body corporate situated outside India

 INT’L COMMERCIAL ARBITRATION
30
2.3. association or body of individuals whose central management is
exercised in any other country than India

2.4. Government of a foreign country

 Based on Article 1 of UNCITRAL Model Law.
 GAIL v. SPIE CAPAG (1994): the NYC will be applied even if an
agreement does not lead to a foreign award, if there is a flavour or
international trade or commerce.
 PARTY – Sec 2 (1) (h) 38

 “Party” means a party to an Arbitration.

 Meaning of the term “party” introduced in the 1996 Act.
 Purpose of the insertion is to make clear that non – parties or strangers
have no right to the Arbitration agreement.
 Chennai Container Terminal Pvt. Ltd. v. Union of India (2007): Award is
final and binding on the parties and can be enforced only against the
party.
PARTY TO AN ARBITRATION AGREEMENT
39

 Balliboi Ltd. v. Union of India (2014): An agent who provides technical

support at a site of an industry and carries out the repairs is not liable
under the contract and therefore not a “party” to the Arbitration
Agreement.
 Eureka Buidlers v. Gulabchand (2013): Persons who are not signatories
to an Arbitration agreement or the contract in which the arbitral clause is
incorporated will not be a “party”.
PARTY TO AN ARBITRATION AGREEMENT
40

 Sayaji Mills v. Aradhan Investments Ltd. (1980): Nominees are not

entitled to enforce any provisions of the contract containing an
arbitral clause as they are not “party” to the contract.
 Padam Chand Jain v. Hukum Chand Jain (1999): Merely putting
signatures on an agreement does not make the signatories the parties
to the Arbitration agreement nor does it give the signatories the right
to refer to arbitration.
 SECTION 4 - WAIVER 43

 Enacted to control conduct of parties during arbitral proceedings.

 Purpose: Unnecessary technical objections with regard to
continuation or otherwise of arbitration proceedings and challenge to
an award at a subsequent stage should be discouraged.
 R. S Jiwani v. Ircon Int’l Ltd. (2010): Object of this provision is not
to prolong the litigation on such objection which maybe waived.
 MEANING OF WAIVER 44

 HALSBURY’S LAWS OF ENGLAND: “Waiver is the

abandonment of a right which maybe express or implied.”
 It is the intentional or voluntary relinquishment of a known right or
conduct as warrants an inference of relinquishment of such a right.
 Essentially unilateral.
 Distinct from Estoppel: Chinoy Chalani & Co. v. Y. Anjiah (1957)
 SECTION 4 - WAIVER 45

 Section 4 read with Section 16:

1. A plea of Arbitral tribunal not having jurisdiction not to be raised later than
submission of statement of defence.

2. A plea of Arbitral Tribunal exceeding scope of jurisdiction shall be raised as

soon as the matter alleged to be beyond the scope of its authority raised.

3. If decision is taken of rejecting the plea the aggrieved party may apply for
setting aside an award.
 SECTION 4 - WAIVER 46

 BSNL v. Motorola India Pvt. Ltd. (2009): the objection regarding any defect
of the arbitral tribunal has to be raised prior to the first arbitration hearing.
 Chinoy Chalani & Co. v. Y. Anjiah: Mere silence will not be waiver and a
provision cannot be waived in law, if the statutory provision is based on
public policy + difference b/w waiver and estoppel.
 Objection must be raised in writing and sent to the Tribunal with a copy to
the other party.
 ILLUSTRATIONS OF WAIVER 47

A party who appoints an arbitrator cannot later complain that the

arbitrator had no authority.
A party who takes benefit of an award seeking to enforce it through
courts cannot later asserts that the same had no authority.
 When a party knows that the arbitrator appointed by the other party
lacks necessary qualifications, nevertheless proceeds with the process
has waived his right.
 ILLUSTRATIONS OF WAIVER 48

 Partiality on the part of an Arbitrator.

 Failing to examine witnesses on oath.
 Choosing third Arbitrator by draw of lots.
 Proceeding without hearing evidence or any particular argument.
 Section 13: A challenge to the authority of an arbitral tribunal has to be
made 15 days after becoming aware of the constitution of such an arbitral
tribunal. If not, then the right has been waived.