INTERNATIONAL COMMERCIAL ARBRITATION WITH INDIAN ASPECT
In partial fulfilment for the award of degree
AMITY LAW SCHOOL
AMITY UNIVERSITY RAJASTHAN
SUBMITTED BYSUPERVISED BY
GOURAV KUMAWAT Dr. ASHU MAHARSHI
LLMIIndSEMESTERAmity Law School, Jaipur
Amity Law School
This is to certify that the project entitled “INTERNATIONAL COMMERCIAL ARBRITATION WITH INDIAN ASPECT” submitted by Mr. Gourav Kumawat LLM Enrollment No (A21501816002) batch 2016-2017 to Amity Law School, Amity University Rajasthan, Jaipur is a record of the candidate’s own work carried out by her under my supervision.
Signature of Supervisor
Dr. ASHU MAHARISHI
ACKNOWLEDGEMENTThis dissertation is an effort made by me with the astute guidance our esteemed Dean Rear Admiral H, Gupta. His valuable inputs and constant encouragement has inspired me to carry out this research fruitfully. He gave me his valuable time to discuss the facts of this topic and guided me towards an enlightening and holistic research.
I also put on record my gratitude towards the library staff, who have provided me help and
access to all the resourceful material for my research. This dissertation was not possible without the blessing of my parents and support of my family.
This study bears testimony to the active encouragement and guidance of a host of friends and well-wishers.
In particular I would like to thank my supervisor Dr. Ashu Maharshi for her indefatigable support.
Table of Contents
Title Page – 1
Certificate – 2
Acknowledgement – 3
List of Cases – 9
List of Abbreviations – 13
1 Chapter -1 Introduction 1.1 Introduction – 14
1.2 The Growth of Arbitiation law in India – 16
1.3 Statement of Problem – 18
1.4 Research Question of the Stduy – 20
1.5 Review of literature – 20
1.6 Objective of the Research – 26
1.7 Hypothesis of the research – 27
1.8 Methodology of the research – 27
1.9 Source of the Research – 28
1.10 Significant of the Research – 28
2 Chapter – 2 Origin Growth and development of international Commercial Arbitration 2.1 Introduction – 30
2.2 Section – A :- International Scenario – 30
2.2.1 Ancient History to the Birth of Modern International law – 30
2.2.2 Early 20th Century : The growth of International Commercial Arbitration (1880-1920) – 33
2.2.3 The Gigantic Growth of international commercial Arbitration 1950 to the Present – 37
2.3 Section – B indian Scenario – 47
2.3.1 Ancient Period to till British Period – 47
2.3.2 British Period to till independence period – 51
22.214.171.124 The Code of civil procedure 1859 – 53
126.96.36.199 The indian contract Act 1872 – 53
188.8.131.52 The Arbitration Act 1899 – 54
184.108.40.206 The schedules to the code of civil procedure 1908 – 55
220.127.116.11 The Arbitration Act 1940 – 56
2.3.3 Indpendence period to the present – 58
18.104.22.168 The Foreign Awards (Recognition and enforcement) Act 1961 – 58
22.214.171.124 Recommendation Law commission of india on the Act of 1940 – 58
126.96.36.199 The supreme court of The Act of 1940 – 59
188.8.131.52 The Arbitration and conciliation Act 1996 – 59
184.108.40.206 The Arbiration and conciliation Act 1996 (Amendment 2015) – 62
2.4 Conclusion – 62
3 Chapter – 3 – International Commercial Arbitration under indian law 3.1 Introduction – 64
3.2 Arbitration in india “General features” – 67
3.2.1 Coverage – 67
3.2.2 International Arbitration Under India Law – 69
3.2.3 Definition of court in the Arbitration Act 1996 – 72
3.2.4 Waiver of the right of object – 75
3.3 Arbitration Agreements – 78
3.3.1 Conditions of the validity of an Arbitration Agreement – 80
3.4 Arbitration Tribunal – 84
3.4.1 Appointment procedure – 85
3.4.2 Challenging the Appointment of an Arbiter – 88
3.4.3 Arbiter’s Responsibility – 90
3.4.4 Jurisdiction of the Arbitral Tribunal – 90
3.4.5 Power to enforce orders for interim measures – 93
3.5 Arbitration Procedure – 94
3.5.1 Procedural law of Arbitration – 95
3.5.2 Date, Place, and Language – 96
3.5.3 Time – Schedule – 99
3.6.4 The Adversarial Procedure – 100
3.6.5 Suspension and interuption of the Arbitration proceedings – 104
3.7 Substantive law of Arbitration – 105
3.8 Arbitral Awards – 107
3.8.1 Binding Awards, without the possibility of appeal – 108
3.8.2 Interim Measures – 108
3.8.3 Settlement during Proceeding – 113
3.8.4 Formal features of an award – 113
3.8.5 Interpretation, Correction and Additional Awards – 116
3.9 Arbitration Costs – 116
3.10 Formal features of Arbitration – 118
3.11 Conclusion – 119
4 Chapter – 4 Judicial Court intervention vacation and enforcement of Arbitral Awards made under indian law 4.1 Introduction – 120
4.2 Inadmissibility of a case about which is an Arbitration Agreement. – 121
4.3 Court’s Competences Regarding the Arbitration process – 122
4.4 Setting aside an arbitration award – 124
4.4.1 Invalidity of arbitration agreement – 127
4.4.2 Incapacity to enter into an arbitration agreement. – 128
4.4.3 Lack of Due Process – 129
4.4.4 illegality in compostion of the tribunal procedure – 129
4.4.5 Lack of Jurisdication – 131
4.4.6 Being Against Public policy – 131
4.5 enforcing an arbitral award – 132
4.5.1 Procedure of enforcement of awards – 132
4.5.2 The tribunal’s power to grant enforcement of orders – 134
4.5.3 Grounds ofr refusing enforcement of an arbitral award – 134
4.6 Public policy under indian law – 136
4.7 Appeals – 137
4.7.1 Order passed by the court – 139
4.7.2 Order passed by arbitral tribunal – 141
4.7.3 Second appeal against the order of the appeal – 142
4.8 Conclusion – 144
5 Chapter – 5 Enforcement of foreign arbitral awards in india – 5.1 Introduction – 146
5.2 Background of enforcing foreign Arbitral awards in india – 147
5.3 Definition of foreign award – 148
5.3.1 Distinction between the foreign award and domestic award – 149
5.4 General provisions – 151
5.5 Grounds for Non- enforcement of foreign arbitral awards – 153
5.5.1 Not being issued by a competent body – 155
5.5.2 Non-comptiance with indian law or a court decision. – 156
5.5.3 Improper summon and legal representation – 157
5.5.4 Non-Arbitrability of the dispute – 158
5.5.5 Non-enforcement of the foreign award in the country where it is made – 159
220.127.116.11 Non-binding awards – 160
5.5.6 Awards being against public policy – 161
5.7 Not considering the merit of the case – 163
5.7.1 Ordering interim measures. – 164
5.8 The procedure for enforcement of a foreign award – 165
5.9 Appealable orders – 167
5.10 Chapter II not to apply in chapter I of the Act 1996. – 169
5.11 Conclusion – 169
6 Chapter – 6 Conclusion and Recommendations – 6.1 Findings and suggestions – 171
6.2 Testing of the Hypothesis – 175
6.3 Conclusion – 177
Bibliography – 182
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LIST OF ABBREVIATIONS
AAAAmerican Arbitration Association
AALCCAsian –African Legal Consultative Committee
ADJAdditional District Judge
ADRAlternative Dispute Resolution
CMEACouncil for Mutual Economic Assistance Countries
CPCCode of Civil Procedure
ECAFEUnited Nations Economic Commission for Asia and the Far East
ECEUnited Nations Economic Commission for Europe
ECOSOCUnited Nations’ Economic and Social Council
GAFTAGrain and Feed Trade Association
GPGeneva Protocol on Arbitration Clauses in Commercial Matters
ICAInternational Commercial Arbitration
ICCInternational Chamber of Commerce
ICJInternational Court of Justice
ICSIDInternational Centre for the Settlement of Investment Disputes
IUSCTIran-US Claims Tribunal
LCIALondon Court of International Arbitration
NYCNew York Convention
PCAPermanent Court of Arbitration
UNCITRALUnited Nations Commission on International Trade Law
UNCITRAL ARUnited Nations Commission on International Trade Law
CHAPTER – 1
Since the beginning of recorded human society, there have always been disputes and differences. It is an inseparable part of humanity to disagree, and this causes disputes. Depending upon the level of these, they can be resolved in afriendly manner without the mediation of an external party, or they may need an independent party to settle the disputes. As human relations became more complex,so did the disputes that arise in civilized society.
This function of resolving disputes become a State subject and it was entrusted to judiciary, one of the organs of State machinery.
Practically, there are various methods of alternative dispute resolution.Among them, arbitration has been an effective mechanism of settling disputes sincethe first stage of the legal thinking of human, in Greece, Rome, Persia, China, Egyptand India.It has rapidly developed throughout the urban development of humanand has now reached the flourishing stages witnessed today both nationally andinternationally.
Interestingly, the major reasons why parties opted for arbitration inancient times, namely; congestion, delays and expensive nature of litigation in thecourts, remain the same today. In modern times however, arbitration has becomemore attractive for various reasons such as its privacy, party control of the processand the international recognition and enforcement of arbitral awards, as againstCourt judgments. Basically, arbitration offers parties the opportunity to settle theirdisputes using private and optional means, the result of which is binding andenforceable.
Arbitration is a legal technique for resolution of all types disputes outside the national courts, when in the parties to a dispute refer it to one or more neutral third party (the “arbiter” or “arbitral tribunal”), by whose final decision (the arbitral award) they agree to be bound The parties to an arbitration agreement usuallychoose experts who are familiar with law and the actual or potential disputesbetween them. The agreement to arbitrate is usually included in the contract and isknown as an arbitration clause. By this method, parties agree that in the event of adispute, such dispute will be submitted to arbiters for determination.
Arbiters are preferred because they are better placed than national Courts to deal with the several legal problems that arise frame transnational relations. Arbiters employ proceduresthat are more flexible, and readily apply international merchants, than national lawsthat may not cater for their needs. Arbiter should, on the one hand, know the nature of the disputes, in order to be able to arbitrate. On the other hand, they should know the applicable national and international law, in order to conduct arbitration andmake an arbitral award that satisfies legal principles, and is enforceable.
Since the disputants may select the arbiters, they can ensure that expertsdetermine their disputes. The disputants can set up Ad hoc arbitration panels orsubmit their dispute to any of the internationally established arbitration bodies thatare found in many parts of the world which are also known as institutionalarbitration. At international levels, a lot of institutions were created to provide aframework for the conduct of international arbitration. The most notable being theInternational Court of Arbitration of the International Chamber of Commerce (Paris,France), the Zürich Chamber of Commerce (Switzerland), American ArbitrationAssociation (New York City, United States), the Vienna Arbitral Centre (Austria),International Centre for Settlement of Investment Disputes (Washington, D.C.,
09)(United States), and the London Court of International Arbitration (London, UnitedKingdom).
There is however various international conventions and protocols that wereentered into by various States to bring in sync the rules governing InternationalCommercial Arbitration. The most arguably and important international instrumentsthat have developed international arbitration to its modern status was the UnitedNations Convention on Recognition and Enforcement of Foreign Arbitral Award,1958 (the New York Convention, 1958) and the Model Law, 1985 introduced by theUnited Nations Commission on International Trade Law (UNCITRAL) in 1985.They provide an essential legal framework for international arbitration procedure in many jurisdictions around the world. These efforts were followed by various other conventions including the European Convention of 1961 and the Washington
Convention of 1965.As a result of these international conventions, most States have
enacted legislations that seek to strongly restrict negative interference of the courts
in arbitration proceedings. Consequently, it seems that agreements intended tobroaden the scope of courts beyond the predetermined standards have no supportunder these international instruments.
It is important to note that the development of International CommercialArbitration (ICA) is an ongoing process and even today various internationalorganizations are working towards further improving the existing system and alsovarious States have associated themselves with this new phenomenon in the legalfield to enhance their economy and development of their countries judicial system.And, India is no exception.
1.2 The Growth of Arbitration law in India
Although India has only recently experienced a major expansion into theareas of arbitration and conciliation but it is not a new concept for India. Themodern legal context in India with a long and vibrant history has been influenced byat least three strands of legal tradition. Without resorting to a rigid scale ofmeasurement arbitration in India since today can be divided in to three phases. Theyare as follows:
a) Ancient period to till British period.
b) British period to till Independence period.
c) Independence period to the Present.
The origin of arbitration may be traced back to the age-old system of village Panchayats prevalent in ancient India. Disputants often voluntarily submitted theirdisputes to a group of wise men of a community— closely related to modern-dayarbitration called the Panchayat—for a binding resolution.The final decisions ofPanchas while sitting collectively as Panchayat commanded great respect becauseof the popular belief that they were the embodiment of voice of God and thereforehad to be accepted and obeyed unquestionably. In course of time this mode of divinedispensation of justice through Panch Parmeshwar underwent radical changes withthe changing pattern of sociality and growth of human knowledge and civilization.This old, fully tested system still carried the efficacy of disputes resolution andmaintenance of peace with full satisfaction to both the disputants.
This system hasnow got a constitutional recognition under Articles 243 to 243O of IndianConstitution which was inserted as Part IX of the Constitution of India.’The lack of a single homogeneous legal system in the State and theincapacity for self rejuvenation of the major legal systems (Hindu and Muslim)coupled with the break down and fragmentation of central political authority (theMughal Emperor at Delhi) presented a confusing vacuum in the rule and legaljudicial system at the time of the advent of the British.’The British came to India as trader with establishment of East IndiaCompany (approximately 1600 B.C.). Compelled and tempted by the then circumstances in India, the British merchants turned in to administrators andconquerors.
Although, British did not abrogate the system relating to arbitration asprevalent in the country at the time, they came in to power. But their regime hadintroduced various laws closely relating to arbitration which were applicable eitherto a part of the country or subsequently to the whole nation. Like most Indian laws,the law relating to arbitration in India is also based on the English arbitration law.A basic form of arbitration, as it is recognized today, was introduced between1772 and 1827 in the Presidency towns of Madras, Calcutta and Bombay.
The Bengal Regulations of 1787, 1793 and 1795 were the first to introduce the concept of the courts referring matters to arbitration as well as the procedure forThe conduct of arbitration proceedings. After the establishment of the Legislative Council for India, it passed the Code of Civil Procedure of 1859 which was repealedby the Act of 1877 and subsequently revised by the Code of Civil Procedure Act,1882. Later, the Act was further replaced by the Code of Civil Procedure of 1908.This Code was contained elaborate provisions relating to arbitration in Sections 89 ,104 and Second Schedule of the Code of Civil Procedure of 1908. The IndianArbitration Act of 1899 as a first Indian legislation devoted entirely to arbitration,however, continued to be applied only to subject-matters which were not before aCourt of law for adjudication. This Act was built on English common lawprinciples.
Ultimately in 1940 after a largely unsatisfactory of the Act, 1899, TheIndian Government base on the English Arbitration Act, 1934 opened an importantchapter in the history of the law of arbitration in British period as in this year wasenacted the Arbitration Act, 1940.
After independence in 1947, with increasing emphasis on arbitration therewas more and more judicial grist exposing the infirmities, shortcomings and lacunaein the Arbitration Act of 1940. It was not compatible with the new aspirations anddimensions of multiple needs of the emerging social and economy trends. As the Actof 1940 was largely unsatisfactory, India opened a new chapter in its arbitration lawwhen it enacted the Arbitration and Conciliation Act, 1996.This Act repealed all previous statutory provisions on arbitration in India
were contained mainly of three different statutes, namely;
the Arbitration(Protocol and Convention) Act, 1937
the Indian Arbitration Act, 1940 and
the Foreign Awards (Recognition and Enforcement) Act, 1961.
It has two mainparts about Arbitration and part III of the Act on the base on UNCITRAL Conciliation Rules, 1980 is only about Conciliation.
The present Act is mainly inspired by UNCITRAL Model Law, 1985 andNew York Convention, 1958. Its primary objectives of the Act were to achieve twingoals in arbitration as a cost effective and quick mechanism with the minimum courtintervention for the settlement of commercial disputes. The Act, 1996 is barely 18years old and what is the Indian experience is obvious by the fact the Act not metthe purpose for which the Act was passed.
1.3 Statement of the Problems
This study concerned with ICA in India. The earlier Arbitration Act, 1940 was primarily designed with domestic commercial arbitration in mind and therefore,it is of limited assistance in ICA sphere. For solve of this serious lacuna, Indianlegislature with enactment of the Arbitration Act, 1996, has highly developed rulesand principles all aspects of ICA but practically, it faced many serious problemswith them which cannot be overlook in present day of intentional trade transactions.
That means, the road for ICA in India is bumpy. Umpteen problems exist such as;
There is no separate Act for ICA in India.
The present contexts the draft Articles provisionally adopted by theArbitration Act, 1996 do not provide clear guidance.
Judicial interference in arbitral process is not minimal.
Foreign arbitral awards in India are not recognized and enforced smoothly
India does not constitute an ideal or even advisable forum for international
arbitration, mainly due to the existing uncertainty in this area of legalpractice.
Arbitration legislation and practice in India lagged behind many other
countries in the world.
In fact, the present Arbitration Act, 1996 did not effectively facilitate ICA. Ithas sufficed in the past, but as ICA is ever increasing and changing, the present Acthas become outdated.
This phenomenon has serious impact on the economic, socialand political scenarios of India.
In social scenario, most of Indian parties in anarbitration agreement do not want to subject themselves to refer to the ArbitrationAct, 1996. They provide for a seat of arbitration outside of India. And in theeconomic and political scenarios, increasing engagement of India with the worldeconomy and the opening of the Indian economy to international business hasrequired providing reliable legal means of dispute settlement. Lack of an updatedlegal rules for resolving international commercial disputes, can be a serious obstacleto the development of international business, and particularly foreign investment inIndia. The investors will invest, only if they are persuaded that real protection andremedies are guaranteed by law.
The key concern lies in an understanding of ICA on the present ArbitrationAct, 1996. Hence the research problem for the present study is entitled”International Commercial Arbitration: A Legal Analysis With SpecialReference To The Contemporary Issues Under Indian Law.”
1.4 Research Questions of the Study
The research has the following questions:
How did arbitration grow?
What is the position of ‘International Commercial Arbitration’ in India?
How far the international conventions are effective in facilitating the
International Commercial Arbitration?
What are the procedural problems of the Indian Arbitration and Conciliation
Act of 1996?
What are the grounds in which Courts can intervene?
How far the International Commercial Arbitration has served its purpose of
being an international forum for resolving commercial disputes in the light of
the problems faced during the enforcement of foreign award?
7. Whether International Commercial Arbitration is successful and fruitful?
1.5Review of Literature
Review of literature is very important to study the different aspects ofInternational Commercial Arbitration, which gives a clear picture about thedevelopment of ICA all over the world. ICA literature helps us to know the differentaspect of ICA in both national and international levels. And, it has made greatcontribution towards development of international trade law.The studies available in India having direct and indirect bearings on theobjectives ofpresent study are reviewed under some prominent area namely publicpolicy, definition of the court in the Arbitration Act, 1996 and its interpretation,judicial Court intervention, recognition and enforcement of foreign award, and etc.
These are as follow;
Rajan, R. Desing. (2005) carried out a historical review of the origin andgrowth of arbitration to its present period of development in India. This book createda clear picture and certain view of arbitration in India with a brief history ofInternational Commercial Arbitration. The author without a deep discussion hasconcluded that arbitration method in India suffered from fatal diseases such as slow,expensive, lack of infrastructural facilities, lack of adequate knowledge of potentialparties, lack of institutional framework and contestants avoid finality. The author forremedies of the poor conditions of working of arbitral process in India has suggestedthirteen technical solutions such as development of arbitration culture,infrastructural facilities, fast track arbitration awareness programs, teaching andtraining at law school and setting up more arbitration center, etc.
Suri, Prit. (2005) conducted a study entitled “Enforcement of ForeignAwards in India: Simplification Under the 1996 Act” with the goal to understand thepresent situation of India for enforcement of foreign awards. But without anysuggestion for improvement of this mechanism in India, she has concluded that theArbitration Act, 1996 has provided an effective and efficient basis for disputeresolution between Indian and foreign companies by minimising the intervention ofCourts in the arbitral process. Nonetheless, the role of the Courts is not completelydispensed with, since they play a crucial role in the enforcement of arbitral awards.
Jujjavarapu, Aparna Devi. (2007)in a research work entitled “JudicialReview of International Commercial Arbitral Awards by National Courts in theUnited States and India” has highlighted that though India has not effectivelyrecognized many non-statutory standards for reviewing arbitral awards, Indiancourts have been inconsistent in their approach in setting-aside of the arbitral awardsunder the Arbitration Act, 1996. This is a cause for concern since it is precisely thisindependence from the courts which is imperative for achieving some of the keygoals of arbitration, namely speed and efficiency.
Atul, Chitale. (2007) in a study entitled “The Asia-Pacific ArbitrationReview – Country Overview (India)” has tried to answer the question, whyarbitration is not succeed in India? To answer the question, the author focused onthe speed in arbitration process without an enough attention for others factors likeexpensive and judicial Court intervention. The author has concluded that eventhough the numbers of ICA in relation to India are growing, most arbitrationagreements provide for seat of arbitration outside of India. This is largely on accountof the fact that the court process in India is slow and disputant parties don’t want
to subject themselves to the jurisdiction of Indian courts and there is also a lack ofreputable arbitral institution in India.
Dickstein, Stephanie. (2007)carried out a Comparative study entitled “AComparative Study: The Rule of Law and International Commercial Arbitration inChina and India.” The first argument presented by author was that India’s judicialsystem is characterised by the rule of law to a greater extent than China’s is. Thetransaction costs associated with adjudicating international commercial disputes aretherefore lower in India than they are in China. This makes going to court to resolvea commercial dispute more attractive in India whereas it is more attractive to foreigninvestors in China to seek alternatives to adjudication. In second argument, theauthor believed the rule of law is that politicians and other government officials areless able to interfere to prevent the Indian judiciary from scrutinising the arbitral
process then their Chinese counterparts are in the Chinese system. This is explainedby the existence of stronger rule of law provisions in India.
Dev, Chopra. (2008)in a study entitled “Supreme Court’s Role vis a visIndian Arbitration and Conciliation Act, 1996” with the aim to examines someaspects of the growth of judicial law making by the Supreme Court in the last twelveyears of the working of the Indian Arbitration and Conciliation Act, 1996. It alsoexamined the negative role of the Supreme Court in taking the law backward thuspreventing the growth of international trade and commerce. According to conclusionof this study, the court interference should be minimal as is set out in the Model Law(1985) on which the is based. The Arbitration Act, 1996 experience is obvious bythe fact that the Court’s interference is not minimal and the Indian courts are hyperactive. The Supreme Court has also forgotten that the Arbitration Act, 1996 wasintended as an alternative dispute resolution method as it was both less timeconsuming and was effective and for promoting international trade and commerceand by continuously interfering in such matters these purposes are defeated.
Agarwal, Anurag K. (2008) in his article entitled “Resolving BusinessDisputes in India by Arbitration: Problems Due to the Definition of ‘Court” hasconcluded that an Arbitration as a method for speedy redressal of business disputesis facing uncertainty in India. Court intervention has to be reduced to the minimum.It is true that this intervention can never be eliminated. Thus, there is an urgent needto speed up the numerous matters pending in the subordinate courts, particularly inthe court of District Judges. This can easily be done if the legislation allows transferof these matters to the courts of the Additional District Judges.
Kachwaha, Sumeet. (2008)without understand the real difference betweenrecognition and enforcement, carried out a study entitled “Enforcement ofArbitration Awards in India”. The author used both phrases together and did notmake a distinction between them. According to conclusion of this study, therecognition and enforcement of awards is of paramount important for the success ofarbitration in international arena. This is well evidenced by the fact that theenforcement of awards worldwide is considered one of the primary advantages of
arbitration but unfortunately the Indian enforcement mechanism for foreign awardshas thus been rendered inefficient, clumsy and uncertain. The most effectivesolution to the present problem would be just solved by an amendment to theArbitration Act, 1996. Article 1(2) of Model Law on ICA should be added the Act,1996 and notwithstanding the interventionist instincts and expanded judicial review,Indian courts do restrain themselves from interfering with arbitral awards.
Hirani, Lavin. (2009)carried out a study entitled “The Legal Regimes Affecting International Commercial Arbitration in India ; Singapore”. The authortried to separately describe the arbitration laws of both countries without anycomparative tool and technique. He has concluded that India with its vast populationand current enormous economic growth has great potential to become a world classcenter for ICA. India due to its new liberal policies has opened up to foreigninvestments in various fields and the legal sector must make full use of thisopportunity to tap the international market for commercial disputes by ironing
out its issues with the problem of judiciary and faulty systems which are nowhindering its progress to become a hub for arbitration in spite of there being so.
Anthony, Aust. (2010)in his book entitled “Handbook of InternationalLaw” has believed that ICA is not necessarily cheaper or less complicated thanjudicial. But the parties should better able to control the process (choice of arbiters,languages, confidentiality, etc.).
Vasudha Sharma. & Pankhuri Agarwal. (2010)in their article entitled”Rendering India in to an Arbitration Friendly Jurisdiction- Analysis of theProposed Amendments to the Arbitration and Conciliation Act, 1996″ haveconcluded that the Indian legislature has proposed some significant changes in theArbitration Act, 1940 with the intention of upholding the ‘minimal judicialintervention’ standard and to clear the confusion created by some innovative judicialinterpretations of the Act and to some extent its poor drafting itself as set out in theArbitration and Conciliation Act, 1996.
Indian legislature by an emergent legislativeaction should amended the Indian law of arbitration with a view to removing theserious lacuna and difficulties exist in the present law of arbitration. But the authordid not attention that the enactment of an Act itself could not sufficient in renderingIndia an arbitration friendly jurisdiction.
Rebello, Akash Pierre. (2010)in a study entitled “Of Impossible Dreamsand Recurring Nightmares: The Set Aside of Foreign Awards In India” hasconcluded that majority deviations from the Model Law in applying certainprovisions only to domestic arbitration and not to international arbitration hasprompted courts to fill in the gaps by recourse to judicial interpretation. And, it canbe observed that the judgment was motivated as much by conservative judicialattitudes towards arbitration in India as by faulty drafting of Arbitration Act.Therefore, essential to reclaiming the dream of arbitral autonomy and finality in
India will be a softening of judicial attitudes towards arbitration.
S.S.Misra. (2010)in his book entitled “Law of Arbitration ; Conciliation inIndia with Alternative Dispute Resolution Mechanism” has believed that the presentArbitration Act, 1996 has sought to remove many serious defects with which theearlier Arbitration Act, 1940 suffered and at the same time, has also incorporatedmany modern concepts of arbitration which are universally accepted by mostcountries of the world. It may be reasonably concluded that the working of theArbitration Act, 1996 would bring about qualitative improvement in the arbitrationpractice in India.
Gupta, Pankaj Kumar, and Sunil Mittal. (2011)in their paper entitled”Commercial Arbitration in India” has concluded that the present arbitration systemin India is still has loopholes and the quality of arbitration has not adequatelydeveloped as a quick and cost effective mechanism for resolution of commercialdisputes. The concerned channels like arbiters, judges and lawyers should efforts tochange general attitude of people towards arbitration.
Fali S. Nariman. (2011)in a study entitled “Ten Steps to SalvageArbitration in India: The First LCIA-India Arbitration Lecture” has concluded thatIndia has not yet achieved what legislature initially set out to do when they enactedthe Arbitration and Conciliation Act, 1996, which was to establish an efficient,competent and credible system of International Commercial Arbitration.” He hassuggested remedial measures such as: Establishment of an arbitration bar, necessityof good arbiters, set up a new Act, foreign parties must expressly exclude Part I andthe like. Unfortunately, Nariman in his study did not suggest any step for
improvement of arbitration process in India.
N.V.Paranjape. (2015) conducted a book entitled “Law Relating to ofArbitration & Conciliation in India.” He has believed that the desired eradication ofCourts interference, direct implementation of awards at per with a court decree,autonomy of parties and procedures, transparency with confidentiality of documentsand proceedings, impartiality of arbiters, their numbers and procedures forappointment and their workings has been ensured by due provisions in the presentAct of 1996. The working of the Act has been found satisfactory by those whohappen to be its beneficiary and users.
S.C.Tripathi. (2016)in his book entitled “Law of Arbitration &Conciliation in India with Alternative Means of Settlement of Disputes Resolution”has believed that the Arbitration Act of 1996, in compare with earlier ArbitrationAct, 1940 is more comprehensive and the civil court can intervene only where it sospecifically provided in the Act but, unfortunately, the old Act, 1940 had givenenormous powers to Civil Courts, which resulted in interference by Court, before, inbetween and after the arbitration proceedings.
In Sebastian, Tania, ; Garima Budhiraja Arya. (2013) in their paperentitled ” Critical Appraisal of ‘patent Illegality’ as a Ground for Setting Aside anArbitral Award in India” has tried to answer the question, whether ‘patent Illegality’should be added as a ground for setting aside an arbitral award in India or not.
According to conclusion of this study, the Arbitration laws in India are beingexpanded by way of judicial interpretation and it is contrary to legislative intention.Ambiguity and uncertainty of the term public policy as a fatal disease of Indianarbitration Law will always be open to varied judicial interpretations. Althougharbitration improved in the Arbitration Act, 1996 but recent court interpretations ofpublic policy have pushed Indian law backwards. An emergent legislature actionwould undo this serious lacuna.
The same gap founded in all above literatures is that lack of sources andmaterial is much more evident on the issue of ICA and particularly enforcement offoreign and international awards in India. Few existing works dealing with the issueof ICA in India fall into two categories, namely, those that consider the Indian lawof arbitration or part of it, and those that consider the law in the context of a widercomparative study. The first category usually does not extend beyond short papers,and the treatment of the Indian law in the latter is also very brief. More importantly,recent developments in the law have not been discussed sufficiently in the existing literature. Hence, a comprehensive study centering on the Indian law of arbitration,having both comparative and developmental approaches, seems necessary.
1.6 Objectives of the Research
The research has the following objectives:
1. The primary objective of this study is to analyze the past and presentarbitration system in India.
2. To discuss worldwide developments in International CommercialArbitration.
3. To bring out more information and explanatory analysis of legal problem ofInternational Commercial Arbitration.
4. To provide an overview and a legal analysis of the procedure and theprinciples applicable to International Commercial Arbitration.
5. To investigate several aspects of judicial intervention in arbitral proceedings.
6. To see various legal problems a foreign company may encounter after anarbitration settlement, in terms of enforcement procedure and why they arise.
7.To draw conclusions, provide critique and in discussing the various andproblems entailed and also to suggest for scholars interested in InternationalCommercial Arbitration, in order to advance understanding of thisimportant and growing field and also make a series of recommendations forfurther research in this rapidly growing field.
1.7 Hypotheses of the Research
Based on the objectives of study, the following hypotheses are formulated:
1. The Arbitration and Conciliation Act of 1996 does not appear to be a welldrafted legislation.
2. Indian law of arbitration is now less in line with universally acceptedstandards and practice.
3. The problems of enforcement of foreign award in India are not connectedwith international mechanism of arbitral awards.
4. The Model Law, 1985 and international conventions like the New YorkConvention, 1958 are positively effective in developing and facilitating theinternational arbitration in India.
1.8 Methodology of the Research
This study is a critical examination of the Indian law of arbitration, whilestudying its links to other parts of Indian law. For this purpose, Doctrinal Methodhas be adopted. It is substantially doctrinal in nature with a combination of Critical,Comparative, Historical and Analytical approaches.The researcher has gathered much information based on library research withemphasis primary and secondary documents. A law library contains highlyspecialized materials and this requires special skill to handle. Basically legalmaterial consists of statutory law and conventions. Researcher uses the PrimarySources for ICA research – treaties, arbitral awards, Court’s decisions both atnational or international level and arbitration rules. Also included are SecondarySources crucial to thorough research – treatises, periodical literature, currentawareness tools and web links.
1.9 Sources of the Research
The Model Law and the New York Convention of 1958, including theirhistorical legislative documents, have been essential sources because of theirwide-spread implementation around the world. Institutional arbitration rulesare also of value when looking at the form requirement.
National arbitration legislation has also been of important value whentreating the form requirements to arbitration agreements, as well as judicialdecisions. The decisions have mostly been used to provide examples of the different interpretations existing regarding the provisions in the New YorkConvention of 1958.
Documents from the work done in the entire world in the area of ICA havebeen instrumental, as have general books on ICA and articles published invarious international journals. Many sources regarding the form requirementmay be viewed as slightly outdated compared to the latest developments inthe area, thus newer articles in international journals and informationavailable on the Internet constitute important contribution. Notwithstanding,there are few updated and relevant sources on the subject.
For the Case Law, this study uses a variety of available sources includingnational gazettes and journals, which publish court decisions on Domesticand International Commercial Arbitration. The Case Law includes analysisof approximately all available court decisions in India and international casesrelated with topic.
Finality, this study also looks the publications of the International Chamberof Commerce (ICC) and the International Council of CommercialArbitration’s (ICCA) yearbook international arbitration.
1.10 Significant of the Research
With the increasing role of international business and developing economy,the risk of commercial disputes has also grown substantially. Therefore, theimportance of international dispute resolution mechanism including arbitration as ameans of resolving commercial disputes has assumed greater importance in recentdecades. It means that ICA has become the dominant methods of settlement ofinternational commercial disputes and hence its importance has increased. Thishas been because of the demand of business community, which considers arbitrationas the most appropriate method of dispute settlement in international trade. Therehave been attempts at cooperation as well as competition in the world, regardingICA.
In this environment, in the 1990s, India with liberalization of its economyopened the doors to foreign investors in various sectors and the resulting increase incompetition has led to an increase in commercial disputes. But geometric growth ofinternational commercial disputes was a big shock for a judicial system like Indiawhich suffered from a fatal disease of sluggish in practice. Therefore, there wereeven greater needs of international arbitration to help judicial authorities to settle allcommercial disputes.
Afterwards, international arbitration receiving such great attention by Indiangovernment and academicians. As a result, studies and research work oninternational arbitration are coming out very rapidly in India in last decade but it stillis far from an ideal when compared with other countries.
Therefore, the rational for undertaking this study is because there is ashortage of modern scholarly works dealing with issues covered in this thesis. Thesame is with reliable source and update information on arbitration case and practicein this part of the world. Hence, the present study proposes to bridge the gap in theliterature and research relating to topic and to give useful insights on ICA in India.
Finality, several important benefits can be derived from the further study this thesis represents. The conceptual benefit will be an argument that this study willbe of interest to people involved in international commercial trade, with Indiancompanies, whether they are in a position of a company that uses internationalarbitration clauses in their contracts, or in position of a lawyer or arbitersrepresenting a party in an ICA and for those wishing to improve the Indian law ofarbitration. In such study, potential parties to commercial arbitration in India andtheir legal representatives may find insights that make them aware of proceduralopportunities as well as perils and anomalies existing in Indian arbitrationregulations. Since there are not sufficient, if any, in-depth studies to deal with the stand some other relevant barriers thoroughly, it has been imperative to embark onsuch study.
ORIGIN, GROWTH AND DEVELOPMENT OF
INTERNATIONAL COMMERCIAL ARBITRATION
International Commercial Arbitration (ICA) in world is no means a recentphenomenon, though it has been organized on more scientific line, expressed inmore crystal clear terms and employed more comprehensively in dispute resolutionin recent years than before. But, a better and complete understanding of the presentis possible only when we have some idea of the past because the roots of the presentlie buried in the past by studying the history and development of arbitration laws inworld.
Therefore, in this Chapter, the issue of development of arbitration isconsidered. For this purpose, first, the study traces the development of arbitrationfrom its early foundations to the well-established dispute resolution mechanism thatit has become today. In the next Section, the interplay between the two strandswithin the context of Indian legal system, as the background to the Indian arbitrationlaw, is studied. It begins with a review of modernization process of the legal systemin the country, stressing business legislation. An examination of adjudicative bodiesin India is followed.
2.2. SECTION – A: INTERNATIONAL SCENARIO
2.2.1 Ancient History to the Birth of Modern International Law
International Commercial Arbitration (ICA) has seen gigantic growth in thelate 19th and early 20th century and has indubitably become the preferred method forresolving international commercial disputes in worldwide. However, the concept ofdisputant parties referring to a neutral third party of their choice for the resolution ofdisputes between them is very much older and dates back to beginning of recordedhuman society. Arbitration is said to have existed ‘long before law was established,or courts were organized, or judges had formulated principles of law’.
Resort to arbitration indeed seems natural: when two persons want to resolvea disagreement between them, an instinctive reaction is to turn to a mutuallyrespected third person, such as tribal elder. It is therefore not surprising thatarbitration was practiced in ancient periods in all corners of the world.The ancient Sumerians, Persians, Egyptians, Indians, Greeks and Romans allhad a tradition of arbitration. Archaeological research reports that Clay tablets fromcontemporary south of Iraq recite a dispute between one Tulpunnaya and herneighbor,Killiover water rights in village near Kirkuk which was resolved byarbitration (with Tulpunnaya being awarded Ten silver shekels and an Ox), but asmatter of fact, arbitration owed its beginnings to commercial disputes as it startedwith trade disputes being resolved by peers as early as the Babylonian days.
The Sumerian Code of Hammurabi (c. 2100 BC) was promulgated in Babylon, andunder the Code it was the duty of the sovereign to administer justice througharbitration. Arbitration for resolve individual, commercial and financial disputeswas also popular in ancient Egypt; it has been said that until about the mid-20thcentury, most of disputes would be settled out of court by recourse to a respectedand popular elder chosen for his wisdom, integrity and standing in the community.
Eastwards, in India also has an ancient history of resolving disputes in a three-tieredstructure that is comparable to modern-day arbitration. In ancient times, long beforethe courts of law were established, people often voluntarily submitted their disputesto a group of wise men of a community— closely related to modern-day arbitrationcalled the Panchayat—for a binding resolution. This system continued throughuntil the British arrived in India and made significant changes to the legal systemwith the first Bengal Regulations, enacted in 1772 during the British rule, followedby the Arbitration Act, 1940, which was later modernized by the Arbitration andConciliation Act,1996. Arbitration was no less common in West. Early matters of arbitration fromthe West include ancient Greek, in certain for the resolution of maritime disputeswith trading partners such as the Phoenicians and between Greek city States (the Greeks were subsequently influenced by their Egyptian ancestry and continued theuse of arbitration) and ancient Rome. After an apparent decline in usage under lateRoman practice, ICA between State-like entities in Europe experienced a revivalduring the middle ages.
Arbitration was the preferred method for resolving civilmatters and wide variety of regional and local forms of arbitration were used toresolve private law dispute throughout during the middle ages in Europe. It was alsoused to resolve colonial power struggles between States, such as to define the areasof influence among colonial empires particularly American and British colonies inthe 15th and 16th centuries.
Western countries would often turn to the Pope (head of the Roman Catholic Church) to arbitrate such matters, giving the arbitral award an almost divineauthority. Indeed, one of the famous examples of the age’s division of thediscoveries of the new world include the arbitral decision rendered in 1493, in theclarified borders between Spanish and Portuguese colonies in the Pacific Ocean andpaved the way for the linguistic division of Latin America between Spanish andPortuguese in the Treaty of Tordesillas in 1494. It also clarified land ownershipdivision in India. International disputes were also frequently referred to othersovereigns who acted as arbiters in the resolution of those disputes.
The first ICA of the modern era is often said to be the Alabama Claims Arbitration which took place in the consequence of the American Civil War. TheUnited States (U.S) claimed that Britain had violated neutrality obligations underinternational law by allowing the battle ship CSS Alabama to be constructed inBritain in full knowledge that it would enter into service with the Confederacy. Asa result, the U.S asserted that Union merchant marine and naval forces had sufferedheavy direct and collateral damages.16 After years of unsuccessful US diplomaticinitiatives to obtain compensation, in 1871, President Grant’s appointed Secretary ofState Hamilton Fish, worked out an arbitration agreement with Sir John Rose
(British representative) in Washington to create a commission consisting of sixmembers from the British Empire and six members from the United States (totally12 members) to resolve the Alabama claims.
On 8th March 1871, the WashingtonTreaty was signed at the State Department and after 16 days on 24th May 1871 theU.S. Senate ratified the treaty. According to parties’ agreement, an arbitral tribunalCharles Sumner, then Chairman of the Senate Foreign Relations Committee, argued that British aidto the Confederacy had prolonged the Civil War by two years and indirectly cost the US hundredsof millions or even billions of dollars (Sumner suggested US$2.125 billion). Some Americansadopted this argument and suggested that Britain should offer Canada to the US as compensation met in Geneva. The arbitral tribunal issued its decision in September 1872,ordering Britain Government to pay the U.S some $15.5 million18 (This wouldcorrespond to about $ 200 million in 2014) in compensation for direct damagessuffered. The arbitral tribunal was rejected indirect damages.
The following inferences may drive from the Alabama Claims result:
a) The universal recognition of International Commercial Arbitration.
b) A number of significant improvements of certain principles of internationalarbitration.
c) Codifying international law to facilitate peaceful solutions to internationalcommercial disputes.
d) A precursor to the Hague Conventions of 1899 and 1907 (which institutedthe Permanent Court of Arbitration), and perhaps even part of the inspirationfor aspects of the League of Nations, the United Nations (UN) and theInternational Court of Justice (ICJ).
2.2.2 Early 20th Century: The Growth of International CommercialArbitration (1880 to 1920)
In the late 19th century, international arbitration began to gather significantmomentum but its governance remained the preserve of national law. Without anyinternational regulation of arbitration, the enforcement of awards was handleddifferently in different States.The seeds of ICA saw know it today were sewn inthe late 19th and early 20th centuries as a response to growing international business,mainly in Europe continental, and the desire for an internationally enforceable,commercially sensible mechanism to resolve disputes.
Arbitral institutions contributed substantially to the growth of internationalarbitration during this period. A large number of institutions with arbitration rules
The amicable settlement of disputes between States is the subject of theHague Conventions of 29th July 1899 and 18th October 1907. As a result of theHague Convention, 1899, the Permanent Court of Arbitration (hereafter “the PCA”)was set up at The Hague, in the Peace Palace (offered by Mr. Carnegie).
It becamethe first worldwide institution for the resolution of international disputes betweenStates or between States and private individuals (cf. Article 20 of the HagueConvention, 1899 and Article 41 of the Hague Convention, 1907). The PCAprovides for mediation, good offices, inquiry/fact-finding commissions, andconciliation and arbitration services. However, the PCA does not have any authorityto intervene in a dispute in any way on its own initiative; its sole objective is toenable or facilitate the amicable resolution of disputes.
Over the decades that followed, a group of international businessmen whocalled themselves ‘Merchants of Peace’ set up the International Chamber ofCommerce (ICC) with the inception of the former occurring in 1919 and the later in 1923.It quite rightly claims to be the most important private internationalorganization in the world’s economy 24 and quickly realized that an effectivemechanism for resolving international business disputes would foster growth ininternational trade and commerce and assist in achieving world peace. It coversapproximately 5,000 large firms and 1,500 industrial organizations, is established in
over 50 States through its own national groups and provides a worldwide operating20A few years ago, the London Court of International Arbitration was established an office in India.
and discussion forum for the main concerns of economic activity throughout theworld. Its many expert committees, made up of representatives from all over theworld, compile commentaries and reports on central topics in the law of Finance,International Payment Transactions, Credit Insurance, Insurance Law, TaxHarmonization, Environmental Protection Law, Energy Law, privatization, MergerControls, Marketing, International Transportation (including Maritime Law and AirTraffic Law), Telecommunications, Commercial Practices (to name just a few of the committees).
The vital part played by the ICC in international arbitration, particularlythrough two institutions: the ICC’s Institute of International Business Law andPractice as a scientific institution (presided over by Professor Pierre Lalive, Geneva)and, even more importantly, the International Court of Arbitration of the ICC, theworld’s foremost arbitral institution. Recently, the ICC registered its 10,000th cases. The ICC began administering international disputes in 1921 and had dealtwith 15 such cases before the ICC International Court of Arbitration (‘ICC Court’)was set up in the year 1923 which become a truly universal institution headquarteredin Paris. The ICC Court’s mission was to foster international trade and commerce byproviding a framework for the resolution of international commercial disputes.Various ICC congresses in the early 1920s called strongly for better legalrecognition of arbitration, which was rapidly gaining popularity among international
businessmen. The following resolution was adopted at an ICC Congress in Rome in
” The International Chamber of Commerce considers that for the purposeindicated in the preceding resolutions it is desirable that one or moreinternational conventions should be negotiated with the least possible delay,to embrace the largest possible number of States, particularly those ofcommercial importance. Such conventions should pledge the contracting
States to recognize and make effective arbitration clauses in internationalcommercial contracts, and to provide that if two disputant parties of differentnationalities agree to refer disputes that may arise between them toarbitration, an action brought by either party in any country shall be stayed by the Court, provided that the Court is satisfied that the other party is, andhas been, willing to carry out the arbitration.”
During the first decades of the twentieth century, businesses community andlegal fraternity in developed States called for legislation to facilitate the use ofarbitration in resolving domestic and, particularly, international commercial disputes.In 24 September 1923, initially under the auspices of the newly foundedICC, major trading nations negotiated the Geneva Protocol on Arbitration Clauses(hereafter the GP, 1923) in Commercial Matters. The GP (1923) was ultimatelyratified by the Brazil, France, Germany, India, Japan, United Kingdom (UK), andabout 24 other Nations. Although the United States of America (USA) did not ratifythe GP (1923), the nations that did so represented a very significant portion of theinternational trading community at the time. The GP (1923) was the first genuine
international convention especially concerned with commercial arbitration to beadopted internationally.The GP (1923) played a vital and critical—if often underappreciated—role in
the development of the legal framework for ICA. Among other things, provisions I, III and IV of the GP (1923) planted the seeds for a number of principles ofenormous future importance to international arbitral process.
Afterwards, the next step forward was the Geneva Convention on theExecution of Foreign Arbitral Awards of 1927 (hereafter the GC, 1927) , which didnot replace, but complemented the GP (1927). The Convention’s focus wasenforcement of foreign awards, and, unlike the GP (1923), did not limit itself toenforcement of domestic arbitral awards. The Convention set requirements forrecognition and enforcement of awards, as well as conditions for refusing enforcement of such awards, and listed the documents necessary for requestingenforcement of an award. With the growth of international commerce in the Post-War era, it became more and more clear that the GC (1927), too, did not meet therequirements of ever expanding international arbitration.
Under the Convention, forrecognition and enforcement of an award, not only must it have been made in theterritory of a signatory State, but also the disputant parties to the dispute must havebeen subject to the jurisdiction of a High Contracting Party.On many occasions,however, both these conditions cannot be met, as arbitration is usually conducted ina country to whose jurisdiction none of the disputant parties were subject. Thedisputants prefer a third neutral country as the seat of arbitration. Hence,enforcement of foreign arbitral awards needed a more pro-enforcement andcomprehensive regulatory regime.
The outbreak of Second World War halted international business. Thoughtthe two decades from 1927 the outbreak of Second World War there was a steadydevelopment in Europe continental of arbitration as recognized means of disputesettlement in international commercial matters. However, its immediate aftermath saw huge economic growth and trade, particularly from the 1950s onwards whenglobal commerce between private parties began to flourish.
2.2.3 The Gigantic Growth of International Commercial Arbitration 1950 tothe Present
It turned out that the language of these Protocol and Convention was farfrom ideal, with various shortcomings and ambiguous provisions. Neither of theseConvention has much practical effect today because they have been superseded bythe New York Convention, 1958. Perhaps the most important milestone in the entirehistory of ICA was the adoption of the New York Convention. Clearly, theimpressive upturn of international arbitration and the success of arbitral institutionssuch as the ICC and others are closely linked to the significance of the New YorkConvention of 1958 on the Recognition and Enforcement of Foreign ArbitralAwards (hereafter the NYC, 1958). It placed the GP (1923) and the GC (1927) on a new basis. The NYC (1958) is one step beyond the GC (1927), in the sense that itapplies to arbitral awards irrespective of where they are made.
The Convention was adopted—like many national arbitration statutes—specifically to address the needs of the international business community, and inparticular to improve the legal regime provided by the GP (1923) and the GC (1927)for the international arbitral process. The first draft of what became the Conventionwas prepared by the ICC in 1953. The ICC introduced the draft with the observationthat ” the Geneva Convention, 1927 was a considerable step forward, but it nolonger entirely meets modern economic requirements”, and with the fairly radicalobjective of “obtaining the adoption of a new international system of enforcement ofarbitral awards.”
Preliminary drafts of a revised convention were prepared by the ICC and theUnited Nations’ Economic and Social Council (“ECOSOC”), which then providedthe basis for a three-weeks conference in New York (USA)—the United NationsConference on Commercial Arbitration—attended by 45 States in the Spring of1958.
The New York Conference resulted in a document- the New YorkConvention-that was in many respects a radically innovative instrument, whichcreated for the first time a comprehensive and an universal legal regime for theinternational arbitral process. The original drafts of the NYC (1958) were focusedentirely on the recognition and enforcement of arbitral awards, with no seriousattention to the enforcement of international arbitration agreements.
This draftingapproach paralleled that of the Geneva treaties (where the GP (1923) dealt witharbitration agreements and the GC (1927) addressed awards. It was only late in theConference that the delegates recognized the limitations of this approach andconsidered a proposal from the Dutch delegation to extend the treaty from therecognition of awards to international arbitration agreements. That approach, whichwas eventually adopted, and the resulting provisions regarding the recognition andenforcement of international arbitration agreements form one of the central elementsof the Convention.
The text of the Convention was approved on 10 June 1958, by 35 votes to none with abstentions of the Conference (with only the United States and threeother countries abstaining). The Convention is set forth in English, Chinese, French, Russian and Spanish texts, all of which are equally authentic. The text ofthe Convention is only a few pages long, with the instrument’s essential substancebeing contained in five concisely drafted provisions (Articles I through V). Despiteits brevity, the Convention is now widely regarded as “the cornerstone of currentInternational Commercial Arbitration.” In the suitable words of Judge Stephen Schwebel, earlier President of the ICJ, “It works” or, as the late Sir Michael Kerr putit; the NYC (1958) “is the foundation on which the whole of the edifice ofinternational arbitration rests.
The NYC (1958) made a number of significant improvements in the regimeof the Geneva Protocol and Geneva Convention for the enforcement of internationalarbitration agreements and arbitral awards. Particularly important were the NYC’s to establish a single uniform set of international legal standards for the enforcement ofarbitration agreements and arbitral awards. And also, it has been applied in over 700State court decisions in which the national courts have generally supported theConvention to a significant extent.
Nevertheless, it was still felt that ICA practiceneeded more back-up in the form of specialist as well as regional multilateraltreaties. Specialist conventions may address particular requirements of traderelationships in a specific area of commerce, while regional conventions providemore incentive and confidence for encouraging countries to join.The essential merits of the NYC (1958) arethe recognition of arbitrationagreements (as per Article II of the NYC, 1958). And the setting of theyardsticks and criteria for the recognition and enforcement of international arbitralawards (as per Articles IV and V). It is according to these principles and criteria thatnational legislators have successfully been guided in international arbitration mattersever since 1958. The Model Law also reflects these criteria.
In 1961, three years after the adoption of the NYC (1958), a great deal ofimportance is also attached, with regard to the development of international arbitration, to the European Convention (hereafter the EC, 1961) on ICA of 21stApril 1961 (sometimes also called “the Geneva Convention, 1961”) drawn up underthe aegis of the UN Economic Commission for Europe and ratified by 22 countries (but not by Switzerland). The EC (1961) as the first regional convention wasadopted to facilitate arbitration in commercial relations within Europe andparticularly between the Western and Eastern European States.
The Convention is noteworthy as being the first international instrument tohave the words “International Commercial Arbitration” in its title. This was morethan a curiosity. It signaled a change in the attitude towards arbitration ofinternational commercial disputes. The nation-State would be in charge of the rules,but those rules should recognize the special requirements of an arbitration whichinvolves international economic matters and in which one or both disputant parties may be foreign.
The Convention addresses the three principal phases of the internationalarbitral process;
Arbitration Agreements: in this regard, the Convention provides for alimited, specified number of bases for the invalidity of such agreements inproceedings concerning recognition of arbitral awards, but instead does notexpressly provide for their presumptive validity.
Arbitral Procedure: in this regard, the Convention restirictly limits the role ofState courts and confirms the maximum autonomy of the parties and thearbiters (or arbitral institution) to link the arbitration proceedings.
And,Arbitral Awards: in this regard, the Convention is designed to supplementthe NYC (1958), substantially dealing solely with the effects of a judicialdecision annulling an arbitral award in the arbitral seat in other jurisdictions(and not with other recognition obligations).
There was also progress in regard to the rules of procedure that governed thearbitration. In 1966, the Arbitration Rules for Ad hoc arbitrations were adopted byboth the United Nations Economic Commission for Europe (ECE) and the UnitedNations Economic Commission for Asia and the Far East (ECAFE). The same year,the EC (1961) providing a Uniform Law on Arbitration was adopted by the Council of Europe.
Afterwards, the World Bank Convention on the Settlement of InvestmentDisputes between States and Nationals of other States of 28th March 1965, knownas the ICSID Convention or the Washington Convention, 1965 (hereafter the WC,1965), must be mentioned. The Convention provides for arbitration when disputes.
The WC (1965) provides for international methods of settlement and,particularly, international conciliation or arbitration. The Convention is designed tofacilitate the settlement of ‘investment disputes’ that the parties have agreed tosubmit to the WC (1965). As to such disputes, the Convention provides bothconciliation and arbitration procedures. Arbitration is governed by the ICSIDArbitration Rules and the ICSID Convention. These facilities are made availablethrough the WC (1965) to which Contracting States and nationals of ContractingStates may submit their investment disputes if they so desire.
It is, however, the task of Conciliation Commissions and Arbitral Tribunalsconstituted under the Convention to conduct conciliation and arbitration. It is a mainfeature of the WC (1965) that it considers only disputes to which a State or Stateentity is a party. Under the Preamble of the Convention, “Mutual consent by thedisputant parties to submit such disputes to conciliation or to arbitration throughsuch facilities constitutes a binding agreement which requires in particular that dueconsideration be given to any recommendation of conciliators, and that any arbitralaward be complied with.” More importantly, Contracting States must recognizeand enforce arbitral awards made by the ICSID, as if they were final judgments of
their national courts.
The WC (1965) contains a number of comparatively unusual provisionsrelating to international arbitration. For example, the WC’s final awards are directlyenforceable in signatory States, without any method of judicial review in Statecourts. This is a fundamental and substantial difference from the NYC (1958)model, where arbitral awards are subject to annulment (in the arbitral seat) and non-recognition (elsewhere). The WC’s caseload has very significantly increased in thepast two decades, particularly as a consequence of arbitrations brought pursuant toBilateral Investment Treaties (BITs) or investment protection legislation.
Except aforementioned conventions, there are many regional conventions aswell as bilateral or multilateral treaties between countries for the arbitrationespecially in the recognition and enforcement of arbitral award.
As an example, TheMoscow Convention of 26th May 1972 provided for a referral to arbitration of alldisputes which arise between economic organizations of the former Council forMutual Economic Assistance Countries (CMEA Countries). The arbitration ruleswere unified in 1974 under the “Uniform Arbitration Rules of the Arbitration Courtsattached to the Chambers of Foreign Trade of the CMEA Countries.” They wereslightly amended in 1987. Arbitration was thus the compulsory dispute resolutionmechanism within the COMECON, and the system became widely harmonizedthroughout the member States. Awards were final and binding and enforceable inthe same manner as court judgments; grounds for refusal of enforcement were strictly limited.
For instance in Latin America, the Inter-American Convention on ICA- that so called “Panama Convention” (hereafter the PC, 1975) – was adopted by theOrganization of Latin American States in 30 January 1975. Fifteen (15) Countries,including the USA, have joined the Convention. The NYC (1958) served as a modeland was largely followed. The PC(1975) marks a very significant improvementregarding the recognition of an arbitration clause or arbitration agreement, by doingaway with the requirement, in some of the Latin American States, according towhich an arbitration clause was nothing more than a kind of natural obligationwas an economic organization under the leadership of the SovietUnion that comprised the countries of the Eastern Bloc along with a number of Socialist
States elsewhere in the world.
The COMECON was the Eastern Bloc’s reply to the formation of theOrganization for European Economic Co-operation in non-communist Europe. The descriptiveterm was often applied to all multilateral activities involving members of the organization, ratherthan being restricted to the direct functions of COMECON and its organs. This usage wassometimes extended as well to bilateral relations among members, because in the system ofsocialist international economic relations, multilateral accords typically of a general nature tended to be implemented through a set of more detailed, bilateral agreements; which had to be corroborated by a fresh submission agreement once a dispute hadactually arisen.
According to its Article 3, disputants were free to determine the arbitral procedure absent such agreement, the procedure would be conducted underthe Rules of the Inter-American Commercial Arbitration Commission. And also,under Article 4 of the Convention, “An arbitral decision or award that is notappealable under the applicable law or procedural rules shall have the force of afinal judicial judgment. Its execution or recognition may be ordered in the samemanner as that of decisions handed down by national or foreign ordinary courts, inaccordance with the procedural laws of the country where it is to be executed andthe provisions of international treaties.”
Although the PC (1975) follows theregime of enforcement set by the NYC (1958), unlike the latter, it does notdistinguish between foreign and domestic arbitral awards. The Amman Convention on Commercial Arbitration of 1987 was agreed bythe Arab Ministers of Justice, and signed by 13 Arab League in 1987 (it should beremarked that Saudi Arabia has not yet ratified this Convention). After itsratification by eight States, namely Iraq, Jordan, Lebanon, Libya, Palestine, Sudan,Tunisia and Yemen, the Convention came into force in 25 June 1993. Since today,however, no other State ratified or acceded to the Convention. The preamble of theConvention refers to “the need to conceive unified Arab rules on commercial
arbitrations which would find their place amongst the international and regionalarbitration rules.” Under Article 4 of the above Convention, the Arab Centre forCommercial Arbitration (with headquarters in Rabat, Morocco) will be establishedfor the settlement of commercial disputes particularly between Arab entities.
Nevertheless, the Centre has not been established yet, and the Convention has notyet become operative. Consequently, no commercial dispute has been referred toarbitration under the Convention.Alongside multilateral conventions and bilateral treaties, national statutesplay an indispensable essential role in regulating arbitration. Divergence amongnational laws of various States has appeared as an impediment to facilitation ofinternational arbitration.
Thus, the law on ICA first emerged as a patchwork ofdiverse national laws on arbitration. The increasing complexity of internationaltransactions, the growth of international trade and the disappointment with theregulation of international trade by these various State laws fostered a climateconductive to harmonization and unification of these laws under the auspices ofvarious international organizations, including the United Nations. Thus, there havesome attempts at harmonizing such laws. Chief among such attempts was theadoption of the United Nations Commission on International Trade Law ArbitrationRules (hereafter the UNCITRAL AR) which were shaped in the mid-1970s out ofthe need to create an instrument for the settlement of disputes arising in internationaltrade in the form of internationally accepted rules for Ad hoc arbitration.
The UNCITRAL AR provide a real and attractive option for Ad hocarbitratio first, as an option or alternative to institutional arbitration under the an arbitral institution (such as that of the International Chamber of Commerce(Paris), the Zürich Chamber of Commerce (Switzerland), the London Court ofInternational Arbitration(London), the Vienna Arbitral Centre (Austria), etc. And,second, as an alternative to “pure” Ad hoc arbitration (i.e. arbitration which is solelygoverned by the national arbitration Act – for instance, in Switzerland, by ChapterTwelve of the Private International Law). Moreover, the UNCITRAL AR have beendesigned to serve as a model for arbitral institutions as their single or optional rules.
The UNCITRAL AR acquired particular importance after 1981 because they were chosen as the arbitration rules applicable to the Iran-US Claims Tribunal(hereafter the IUSCT), based on the 1981 Algers Agreement 63 between the USA andIran. In the past 32 years, therefore, thousands of arbitration cases have been decidedon the basis of the UNCITRAL AR, and a substantial arbitration practice in theresolve the crisis in relations between the Islamic Republic of Iran and the United States ofAmerica arising out of the November 1979 hostage crisis at the United States Embassy in Tehran,and the subsequent freezing of Iranian assets by the United States of America.
The Government ofthe Democratic and Popular Republic of Algeria served as intermediary in the search for a mutuallyacceptable solution. Having consulted extensively with the two Governments as to thecommitments each was willing to undertake in order to resolve the crisis the Government of Algeria recorded those commitments in two Declarations made on 19 January 1981. The “GeneralDeclaration” and the “Claims Settlement Declaration”, collectively “Algiers Declarations”, werethen adhered to by Iran and the United States’.
The UNCITRAL was also the starting point so to speak for the veryextensive work done for creating the UNCITRAL Model Law. Their close contactscan be seen from a comparison of numerous provisions.Shortly after adopting the UNCITRAL AR, in effort to break down theremaining barriers to international trade as a resolute the disparities in national tradelaw, the United Nations Commission on International Trade Law (UNCITRAL) andthe UN General Assembly in 1985, also approved UNCITRAL Model Law (the ML,1985). This proposed the ML (1985) was to be based on the provisions of the NYCof 1958 and the provisions of the aforementioned the UNCITRAL AR.The UNCITRAL is a body of world experts which has as its main purposethe progressive harmonization and unification of the national laws governinginternational trade. Its approach to harmonization has been to rely on Model Lawsrather than on international conventions. The ML was adopted in 1985.
It wasdrafted by a Working Group of UNCITRAL for extensive consultation and debates
consisting of States, the business and international arbitration community (betweenrepresentatives of the UNCITRAL Secretariat, International Council ForArbitration; ICC International Court of Arbitration and the ICC), and regionalorganization (Asian–African Legal Consultative Committee “AALCC”). The mainpolicy objectives of the ML (1985) are as follows:
“a the liberalization of International Commercial Arbitration by limitingthe role of national courts, and by giving effect to the doctrine of the’Autonomy of the Will’, allowing the disputant parties freedom to choose howtheir disputes should be determined;
b The establishment of a certain defined core of mandatory provisions toensure fairness and due process;
c The provision of a framework for the conduct of international commercialarbitration, so that in the event of the disputant parties being unable to agreeon procedural matters, the arbitration ‘would nevertheless be capable ofbeing completed; and,
dThe establishment of other provisions to aid the enforceability of awardsand to clarify certain controversial practical issues.”
On purpose, the goal was not to draft an international convention, which thenwould have to be ratified by the States rather, the goal was a more modest one, i.e.to simply work out a model for a piece of legislation to be adapted by the nationallegislators, thus allowing States more flexibility to incorporate it in their ownnational legislation. This approach was certainly wise, as demonstrated by theimpressive acceptance which the ML (1985) has had to date.
The United Nations General Assembly was approved in the same year thatlegal uniformity governing arbitral procedures was desirable and recommended that”all States give due consideration to the UNCITRAL Model Law on InternationalCommercial Arbitration”.
The ML (1985) was designed to be implemented by national legislators, withthe purpose of further harmonizing the treatment of ICA in different States. The ML(1985) consists of 36 Articles, which deal widely with the issues that arise in Statecourts in connection with ICA. Among other things, the ML (1985) comprisesprovisions as follows;
a) Enforcement of arbitration agreements. Articles. 7-9
b) Appointment of and challenges to arbiters. Articles. 10-15
c) Jurisdiction of arbiters. Article. 16
d) Provisional measures. Article. 17
e) Arbitral proceedings, including language, seat (or place) of arbitration, and procedures. Articles. 18-26
f) Evidence-taking and discovery. Article. 27
g) Applicable substantive law. Article. 28
h) Arbitral awards. Articles. 29-33
i) Setting aside or vacating awards. Article. 34
j) Recognition and enforcement of foreign arbitral awards, including bases for
non-recognition. Articles. 35-36
Under the ML (1985), written international arbitration agreements arepresumptively valid and enforceable, subject to limited, specified exceptions. Article 8 of the Law provides for the enforcement of valid arbitration agreements,regardless of the arbitral seat, by way of a dismissal or stay of national courtlitigation. The ML (1985) also adopts the Separability Doctrineand expresslygrants arbiters the authority (Kompetenz-Kompetenz Theory or Competenz-Competenz Theory ) to consider their own jurisdiction.
The ML (1985) prescribes a principle of judicial non-intervention in the arbitral proceeding process limits) with regard to the arbitral procedures and, absent agreementbetween the disputant parties, the tribunal’s authority to prescribe such procedures.The basic approach of the ML (1985) to the arbitral proceedings is to define a basicset of procedural rules which subject to a very limited number of fundamental,non-derogable principles of fairness, due process, and equality of treatment thedisputant parties are free to alter by agreement. The ML (1985) also provides forjudicial assistance to the arbitral process in prescribed respects, includingprovisional measures, constitution of a tribunal, and evidence-taking.
The ML (1985) mandates the presumptive validity of international arbitralawards, subject to a limited, exclusive list of grounds for annulment of arbitral awards in the arbitral seat these grounds precisely parallel those available under theNYC (1958) for non-recognition of an award (i.e., lack or excess of jurisdiction,non-compliance with arbitration agreement, due process violations, public policy, and non-arbitrability). The ML (1985) also requires the recognition andenforcement of foreign arbitral awards (made in arbitral seats located outside therecognizing State), again on terms identical to those prescribed in the NYC (1958).
During the 28 years since the ML’s adoption (in 1985), significantdevelopments have occurred in the field of international commercial arbitration. In2006, UNCITRAL adopted a limited number of amendments to the ML (1985).
The principal revisions were made as follows:
a) The addition of general interpretative principles. Article. 2
b) The definition and written form of an arbitration agreement. Article. 7
c) The availability of and standards for provisional measures from international arbitral tribunals and national courts. Article. 17
d) Procedures for recognition of awards. Article. 35
The 2006 revisions of the ML make useful improvements (for the most part).Nonetheless, the most important accomplishment of the revisions is their tangibleevidence of the ongoing process by which States and business representatives seekto improve the international legal regime for the arbitral process.The ML (1985) and its revisions represent a significant further step, beyondthe NYC (1958), towards the development of a predictable “pro-arbitration” legalframework for commercial arbitration. But the ML (1985) goes beyond theConvention by prescribing in significantly greater detail the legal framework forinternational arbitration, by clarifying points of ambiguity or disagreement under the Convention, and by establishing directly applicable national legislation.
2.3 SECTION- B: INDIAN SCENARIO
“It (arbitration) is indeed a striking feature of ordinary Indian life. And Iwould go further and say that it prevails in all ranks of life to much greater extentthan is the case in England. To refer matters to a Panch is one of the natural waysof deciding many a dispute in India…” Marten (Chief Justice)Arbitration in India is an integrated part of its history and legal system, as itis dependent on various other pieces of legislation for its proper functioning. Hence,the Arbitration law cannot be examined thoroughly, unless the legal context withinwhich it has developed is explored sufficiently. The modern legal context in Indiahas been influenced by at least three strands of legal tradition.Without resorting to arigid scale of measurement arbitration in India since today can be divided in to three
a) Ancient period to till British period;
b) British period to till Independence period; and,
c) Independence period to the Present.
2.3.1 Ancient Period to till British Period
Every textbook writer on Indian arbitration law starts his work with the sameritualistic statement that India has always held a deep rooted commitment to thephilosophy of arbitration in general. Before the advent of English rulers andapplication of English laws in India, arbitration was prevalent and was widelyaccepted and respected not only in redressal of social matters but also in matters oftrade and commerce with a slight difference of composition and style of working.
In ancient times, long before the courts of law were established, people oftenvoluntarily submitted their disputes to a group of wise men of a community-closedrelated to modern day- arbitration called the Panchayat for a binding resolution (in village level). The Panchayat infiltrate in to villages of India for thousands ofyears. The concept of arbitration is a laudable one and the system is in vogue in thiscountry since the days of the Panch and Panchayats. The Hindi words Panch (or arbiter) and Panchayat (a panel of group of arbiters) are probably as old as Indianfolklore; Hence council of meeting consisting of five or more members of a villageor a cast assembled to judge or resolve disputes. There was no Code of laws thatapplied uniformly to all of India; that vast subcontinent east and south of Indus river.
There were royal courts in administrative canters, but they did not produce a unifiednational legal system such as had developed in the West. The sparse textual lawinfluenced but did not displace the local or customary law. Throughout most ofancient (even Medieval period) in India, there was no direct or systematic statecontrol of the majority of Indians lived.
In Pre-British India, there were innumerable overlapping local jurisdictions,and many groups enjoyed minimum autonomy in administering law on to them.Royal courts would not be settled disputes in villages and even in cities, but by thevillage headman, or by arbitral tribunals of the locality, or of the caste within whichthe dispute arose, or of guilds and associations of merchants or artisans. On the otherview, disputes might be taken for settlement to the Panchayat of the locallydominant caste, or to landowners, government officials or religious dignitaries.Settlements brought about by the Panchayats were honoured, and its decisions wererarely interfered with.Traditional arbitration model characterized in India from the earliest time.Itis mentioned in Rig-Veda (the oldest literary work) that dates from approximately1500 to 100 B.C.
The village was the basic unit of administration in early Vedicperiod. During this period, Ancient Aryans –who lived in small villages – weresown the seeds of regular system of administration. The most remarkable feature ofthe Ancient Aryans polity consisted in the institution of popular assemblies of whichthree namely the ‘Samiti’ and the ‘Sabha’ with an additional Vidhata Assembly.
ASamiti was the early Vedic folk assembly that in some cases enjoyed that right ofelecting a kind while the Sabha exercised some judicial functions and acted as thenational judiciary but Veddhata Assembly was associated with military, civil and religious functions.The mediator/arbiter of disputes was namely Madhyamasi.In the later Vedic period, the Ancient Aryan had conquered the whole ofNorthern India and had started penetrating in to the South. In this period, the SamitiAssembly sank in to a narrow body corresponding to the kings Privy Council. TheCivil cases were decided by the king with the help of assessors, sometimes, the kingdelegated this power to the Adhyaksha (Chief Justice). Generally, in later Vedic age,the Sabha acted as arbiter in certain cases such as the disputes regarding boundariesof property.
The system Sabha Assembly continued to be prevalent during the age ofSutras. In addition to that institutions, there had existed Parishads (Assemblies oflearned men who knew law) whose decisions on the interpretation of the Vedic textswere binding. The method of procedure generally embraced by them was carriedunanimously or referred for arbitration to a committee of arbiter.In the course of time, the village bodies took the form of Pnchayats thatlooked into the affairs of village. They had the authorities to enforce law and order.
In Dharmashastras period (9th century A.D.), there were three kind of popularinstitutions or arbitration courts vis:
a) Puga a board of persons belonging to different sects and clans but residingin the same locality;
b) Sreni an assembly of tradesmen and artisans belonging different clans butconnected in some way with each other ; And,
c) Kula an assembly of members of a tribe and speak of the power of thesecourts to decide law suits. All three institutions were known as Pnchayatsand their members Panchas.
They were private tribunals, not constituted by the king. They decidedalmost all civil cases between the inhabitants of the village. Against the decisions ofthese arbitration court, appeals were provided to the courts of judges appointed bythe king and ultimately to the king himself.Afterwards, in the Mouryan period, the village was the bedrock ofadministration. The villagers used to organize works of public utility and recreation,settle all civil disputes, and act as trustees for the possession of minors. But, theyhad not yet evolved regular village councils. It appeared to have evolved into regularbodies in the Gupta period. They were known as Panchamandalas in central Indiaand Gramajanapadas in Bihar. These bodies negotiated with the government forconcessions and settlement of disputes.
The inscription of Chola Dynasty shows theconstruction and functions of the village assembly and their executive committees.The elected delegates forming village council were performed by the village administrations.India has been subjected precisely to unusual experience with a long andvibrant history. Medieval India witnessed different judicial administrations bydifferent rulers in different period of time. The Muslim Law starting from the Arabconquest of Sindh in 712 A.D., to death of Bahadur Shah II in 185794 which camevia Cochin, Surat and Mumbai ports in South West and Khyber pass in North.Imam Abu Hinifa and his disciples Abu Yusuf and Imam Mohammad in thecommentary, which came be famous as Hedaya, systematically compiled theMuslim law.The religious language of Muslims was Arabic but court languagethought this era was Persian which it was translated (Arabic to Persian).The Muslim rule contains provisions for arbitration between the disputant
parties. The Arabic word for arbitration is Tahkeem while the word for an arbiter is Hakam. An arbiter was required to process the qualities essential for a Kazee-anofficial judge presiding over a court of law but the Persian word for arbiter is Salisand a party to arbitration is Salisee and arbitration agreement is Salisnama while the word for the award is Faisla.
During the Muslim rule, all Muslims in India were governed by Shari’at ruleor Shari’ah law (the basic law of the Muslims) and the non-Muslims (mostly Hindu)continued to be governed by their own personal law (i.e. Hindu law). Practically,Muslim rule for more than one century could not obliterate the traditional system ofarbitration from the Indian soil. And practice of arbitration in the traditional form ofPanchayats (Ancient Hindu period) continued in this period.The village bodies were the keystone of administration in Mughal period. In
this period, the villages were governed by their own Panchyats, especially in theregime of Sher Shah. Each Panchayat comprised of village elders who looked afterthe interest of the people and administered justice and imposed punishment ondefaulters. The head man of the village, a semi government official, acted as apipeline between the village Panchayat and the higher administrative hierarchy.
Akbar (the great, Indian king of Mughal Empire) accepted this system and made itan indispensable part of civil administration. In this period, each village had its ownPanchayats. It was maximum autonomous in its own sphere and exercisedauthorities of justice, punishment, administrative control and local taxation.The Mughals introduced elaborate administrative machinery with a hierarchyof officials, especially in the field of revenue. The Mughal local administrativesystem lasted over centuries. It was with the collapse of the Mughal strong hold, theBritish established their hegemony in India.
2.3.2 British Period to till Independence Period
‘The lack of a single homogeneous legal system in the country and theincapacity for self rejuvenation of the major legal systems (Hindu and Muslim)coupled with the break down and fragmentation of central political authority (theMughal Emperor at Delhi) presented a confusing vacuum in the law and legalsystem at the time of the advent of the British.’
Like most Indian laws, the law relating to arbitration in India is also based on the English arbitration law. The British came to India as traders, and before longestablished an inroad in to the cultural nexuses of the land. In the days ofMughals, the establishment of the East India Company (approximately 1600 B.C.)had been exclusively commercial, and the company was chiefly concerned with themanagement of its own factory at Calcutta, exercising jurisdiction and power overEnglishmen residing in what were known as the ‘East Indies’. After the battles ofPlassey (in 1757) and of Buxar (in 1764), Lord Clive acquired from the MughalEmperor the Diwani of Bengal, Bihar and Orissa, and thereafter, the companyassumed far greater territorial responsibilities.
The East India Company did not abrogate the law relating to arbitration ascommon and widespread in the country at the time company came into power but ithas undergone a phenomenon transformation. It has grown from the level of villageelders sitting under a Banyan tree and resolving dispute to the degree of gaining statutory recognition.The first attempt to codify arbitration practices in India wasmade by the British in the late 18th century through sequences of regulations madeapplicable to the three presidency towns viz Calcutta, Mumbai and Madras, inexercise of the powers conferred upon it by the British Parliament.The Orissa High Court in the case of State of Orissa & Ors. v. Gangaram Chhapolia & Anr on 26th July 1982, gives a brief description of the succession oflegal developments leading to the formal regulation of arbitration laws before in theCode of Civil Procedure (1859), as they occurred in Eastern India ;-
“The first attempt at codifying the law was made by the Bengal Regulationsof 1772 and 1780 where provision was made for submission of disputedaccounts to decision by arbitration. In 1781, Sir Elijah Impey’s Regulationincluded a provision that “the Judge do recommend, and so far as he can,without compulsion, prevail upon the disputant parties to submit to thearbitration of one person, to be mutually agreed upon by parties.” In 1787,
regulation for the Administration of Justice was passed and it containedrules for referring suits to arbitration with consent of disputant parties.There was no detailed provision, however, to regulate the arbitrationproceedings. In 1793 Regulation XVI was enacted with a view to promotingreference of disputes of certain categories to arbitration and to “encouragepeople of credit and character to act as arbiters”. Regulation VI of 1813
made some improvement to the Regulation of 1793 and arbitration wasavailable in cases of disputes in regard to land. Bengal Regulation VII of1822 authorized the Revenue Officers to refer rent and revenue disputes toarbiters and the Collectors were enjoined to induce disputant parties toagree to such arbitration. Bengal Regulation IX of 1883 authorized the
Settlement Officers to refer disputes to arbitration.”
The application of English laws since 1726 and establishment of Presidencytowns thereafter in its wake brought spectacular changes in Indian judicial systemand arbitration system as well. The time line of regulations introduced by the EastIndia Company on the basis of English laws, touching upon arbitration was:
a) Bengal Regulations I of 1772, 1781, 1787, XVI of 1793, 1795, 1813, 1814,1822, 1832, 1893 and the like ;
b) Madras Regulations I of 1802 and IV, VI, VII of 1822; and,
c) Bombay Regulations I of 1799, IV, VI of 1827.
The Regulations introduced compulsory arbitration, empowered reference tothe limits of court intervention, provided protections to secure fairness and laiddown the procedure for attendance and cross-examination of witnesses. Numerousof these provisions were rudimentary and even incompatible with each otherprovisions. But there can be positive that they contained the first albeit unrefinedversions of provisions that form part of modern arbitration law.
18.104.22.168 The Code of Civil Procedure, 1859
The regulations in Bengal, Mumbai and Madras about arbitration with slightmodification continued to operate till the enactment of Code of Civil Procedure, 1859. After the establishment of Legislative Council in 1834, the Code of CivilProcedure, 1859 (hereafter the Grant Code) laid the foundations for the governanceof country and the administration of justice according to procedure established bylaw. The Grant Code continued arbitral provisions but was not applicable toSupreme Court (hereafter the SC), Presidency small cause courts and non regulation provinces.
The Grant Code (with later adaptations) has remained till this day therudiments of Civil Law in the country. Practically, the Grant Code formed thebedrock of Indian legal system.Sections 312 to 325 provided for arbitration bydisputants to pending suits, Section 326 for filing in court of an agreement to refer toarbitration and Section 327 for filing of an award without the intervention of Court.In other words, the Code of Civil Procedure (1859) recognized three distinct types ofarbitration. Also, this Code for first time permitted references to arbitration withoutthe intervention of the court.
The distinction between arbitration in suits and not insuits continued to be a distinctive feature of the Indian law of arbitration untilpresent in the Arbitration and Conciliation Act of 1996. The Grant Code was repealed by the Code of Civil Procedure, 1877, whichsubstantially reproduced the provisions of the Code of 1859 regarding arbitration.The Code of 1877 again revised in the year 1882 by the Code of Civil Procedure,1882 but provisions regarding arbitration contained in Sections 506 to 526 remained substantially the same. This Code recognized only references to arbitration ofdisputes that had actually arisen and to a named arbiter.
22.214.171.124 The Indian Contract Act, 1872
The Third Commission of British- India formed in 1861 under thestewardship of Chairman Sir John Romilly, with initial members as Sir EdwardRyan, R. Lowe, J. M. Macleod and Sir W. Erly (succeeded by J. Hendeson ), hadpresented the report on Contract law for India as draft Contract Law (1866). TheDraft law was enacted as the Act, 1872 (on 25th April 1872) and the Indian ContractAct, 1872 came in to force with effect from 1st September 1872. Before this Act,there was no codified law for contract in India.The Indian Contract Act, 1872, by Section 28,recognises arbitrationagreement as an exception to the agreement in restrain of legal proceeding. Section28, declares that every agreement in restraint of legal proceeding is void.
The onlyexception tolerated is the reference of contractual disputes to arbitration. Theagreement to refer future disputes to arbitration was treated as a bar if the other partyfiled a suit on the same matter (This Section was repealed after the amendment of1996 which in to force from 8th January 1997). Likewise, Specific Relief Act, 1878by Section 21 prohibited parties from wriggling out of agreement to refer futuredisputes to arbitration.
126.96.36.199 The Arbitration Act, 1899
The first arbitration law in India was enacted in the shape of the ArbitrationAct, 1899 which was based on the English Arbitration Act, 1899. It was the first substantive legislation on the law of arbitration in India, nevertheless, it applicationwas only confined to the Presidency towns and was later expended to several othercommercial towns if Provincial Government so desired.This Act was made applicable to matters which were not pending before acourt of law for adjudication.
The scope of this Act was confined to the basis ofagreement for referring disputes for arbitration without the intervention of court.This Act recognized for the first time reference of disputes that might arise in futureto an arbiter whether named or not. And, it showed a clear picture of arbitration bydefining the expression “submission” to mean “a written agreement to submitpresent and future differences to arbitration whether an arbiter is named therein ornot.”Prior to that, the expression ‘submission’ was confined only to ‘subsistingdisputes.’ Thus, before the legislation, a contract to refer disputed matters toarbitration was governed by 3 statutes, namely;
(a) The Code of Civil Procedure, 1859;
(b) The India Contract Act, 1872; and,
(c) The Specific Relief Act, 1878.
In view of the provisions of the Contract Act, 1872 and the Specific Relief Act, 1878, no contract reference to existing or future disputes to arbitration, could beparticularly enforced. However, a disputant who refused to perform was debarredfrom bringing a suit on the same subject. In this situation, by and large the courtshad to draw sustenance from the Common Law principles of English law.Consequently, the law of arbitration was far from satisfactory.
188.8.131.52 The Schedules to the Code of Civil Procedure, 1908
The Code of Civil Procedure was first formulated in 1859 and was laterimproved in time line of 1877, 1859, 1882 ,and to its new form that was re-enactedin 1908. The arbitration provisions in this Code were contained in First Schedule(Sections 89 & 104) which these Sections and Second Schedule of the Code of CivilProcedure (1908). Sections 1 to 16 of the Second Schedule dealt with arbitration insuits, Sections 17 to 19 contained an enforcement device of enforcing agreement forreference and Sections 20 to 21 provided a procedure for enforcing arbitrationawards in a Court of law, if arrived at without judicial intervention. It was repealedby the Arbitration Act, 1940 and presently the Arbitration and Conciliation Act,
The First Schedule to this Code contained provisions relating to the law ofarbitration which extended to the other parts of India wile Second Schedule dealwith arbitration outside the operation and scope of the Act, 1899 and too recognizedonly references to arbitration of disputes that had actually arisen and to a namedarbiter. Thus, the Code of Civil Procedure of 1908 and the Indian Arbitration Act,1899 continued concurrently with matters and provisions regarding arbitration.
184.108.40.206 The Arbitration (Protocol and Convention) Act, 1937
After the First World War (1914-1919) and establishment of League ofNations in 1920, the world economy on assurance of world peace began togethermomentum and for encouraging international transactions and to reduce seriousdifficulties ingrained, therein the Geneva Protocol on Arbitration Clauses, 1923(came in to force on 28th July 1924) into and in India to enforce foreign arbitrationawards, the Arbitration (Protocol and Convention) Act, 1937 was enacted. Again,India become the party of two multilateral convention by the name of the GenevaConvention on the Execution of Foreign Arbitral Awards, 1927 (came into force 25th
July 1929) and the Convention on The Recognition and Enforcement of ForeignArbitral Awards of 1958, commonly famous as the New York Convention, 1958.
Indian Government has enacted implementing legislation on 1937.TheArbitration (Protocol and Convention) Act, 1937 which came in to force on 4thMarch, 1937. The main purpose of the Act was to give effect to the GP (1923) and the GC (1927).The Act provide for the enforcement of arbitral agreements to which theprotocol applied and the enforcement of foreign arbitral awards to which theConvention of 1927 applied. Also, this Act applied only to such matters as wereconsidered ‘Commercial’ under the law in force in India. The operation of thisAct was based on reciprocal arrangements and it mainly concerned itself with theprocedure for filing ‘foreign awards’, their enforcement and the conditions of suchenforcement.
The Rules framed by the High Court’s provided details in respect ofthe proceedings under the Act. Thereafter the Arbitration Act, 1940 was enactedwherein no provision for dealing with foreign awards was made on the belief thatforeign awards are duly covered by the Arbitration (Protocol and Convention) Act,1937, though it was a blunder as the said Act, 1937 did not fulfil the desiredneed. 123 Ultimately, the provisions of this Act now have been amended andconsolidated in the Arbitration and Conciliation Act of 1996 in part II, Chapter2.
220.127.116.11 The Arbitration Act, 1940
Ultimately in 1940, The Indian Government opened an important chapter inthe history of the law of arbitration in British period as in this year was enacted theArbitration Act, 1940 (hereafter the Act, 1940). The Act was enacted base on theAct of 1899, certain provisions in the largely second schedule of the Code of CivilProcedure, 1908 and the English Arbitration Act, 1934.The Act was a complete and consolidated legislation on arbitration but it did
not contain the provisions relating to ICA and specially laid down the frameworkwithin which domestic arbitration was conducted in India. The silent feature of the Act, 1940 may be summed up as follows;
It made provision for control of judicial intervention in three types as fallow:
(a) arbitration without judicial -intervention;
(b) arbitration in suits i.e.,arbitration with judicial -intervention in pending suits; and
(c) arbitrationwith judicial -intervention, in cases where no suit was pending before thecourt. It then proceeded to make further provisions, common to all the threekinds of arbitration.
b) The Act, 1940 in Section 2(2) defined the ‘written agreement’ to mean a’written agreement to submit present or future differences to arbitration,
whether an arbiter is named therein or not.’
c) It also introduced deeming provisions to include the ‘provisions set out inthe First Schedule’; in so far they were applied in every arbitrationagreement unless excluded. Section. 3
d) This Act of 1940 made provisions for protecting the ‘arbitration agreement’ from being vitiated by the only presence of some lacuna in it. Sections. 6 &7
e) A court can remove an arbiter and the umpire and to substitute for them, with new ones ensuring that the arbitration did not fail by reason of want ofmisconduct or diligence on their part. Section. 11
f) It conferred certain authorities on the arbiters and the umpire to facilitate theeffective discharge of their functions. Section. 13
g) It authorized the State court to deal judicially with the arbitral award after it had been filed before it, allowing it to pass its verdict, including thejurisdiction to modify, Set aside or remit the arbitral award. These provisionsmostly applied to non-judicial intervention cases.
h) In cases of arbitration with judicial-intervention, where there was no pendingsuit in the court, detailed provisions were made relating to the form andmanner of making an application to the court for filing the ‘agreement’ andalso as to an order of reference to the arbiter appointed by the disputantparties. The Arbitration Act, 1940 provided that the arbitration has toproceed in line with its other provisions, insofar as they could be made
relevant. Section. 20
i) In cases of arbitration with judicial-intervention, where a lawsuit wasactually pending, all the interested disputants might agree to refer any issuein dispute to arbitration. The Act, 1940 made detailed provisions as to theappointment of arbiter and the order of reference. Sections. 21 to 25
j) The Act made general provisions to the effect that the awards should beapproved by the court by a judgment as to the existence, validity and effectof the arbitral awards or of ‘arbitration agreement’ between the disputantparties to the ‘agreement’ or persons claiming under them. The intention ofthe legislature, in enacting these provisions, was ‘to make only one Court asthe venue for all matters connected with the “arbitration-agreement” or “award” and also to make “applications” (not “suits”) as the basis forapproaching that court. The intention was to make explicit that no suit of anykind whatsoever would lie in this behalf.
2.3.3 Independence Period to the Present
After the end of the Second World War – especially after the Independencein 1947- the trade and large industry received a great fillip and the businesscommunity became more and more inclined towards arbitration for settlement oftheir disputes particularly in international level, as against court-litigation, whichinvolved heavy cost and inexplicable and inordinate delays.
With increasing emphasis on arbitration there was more and more judicialgrist exposing the infirmities, shortcomings and lacunae in the Arbitration Act of1940. For instance, the provisions of this Act, about the duties and powers of thearbiters or about the procedure for conducting the proceedings after a reference,were notably inadequate.
The Act was silent about the shortcomings inherent in individual privatecontracts. The rules providing for filing awards differed from one High Court toanother. The lack of provisions prohibiting an arbiter or umpire from resigning atany time in the course of the arbitration proceedings exposed the disputant parties toheavy losses particularly where the arbiters or umpire acted mala fide. The Act alsodid not make distinction between the ‘agreement’ made in advance to submit futuredifferences and a ‘submission’ made after a dispute had arisen.
There were no provisions requiring the arbiter to state reasons for sustainingthe award. There was no remedy against a non-speaking award albeit such an awardcould lead to suspicion and embarrassment.
18.104.22.168 The Foreign Awards (Recognition and Enforcement) Act, 1961
According to Lord Mustill the NYC (1958) was ‘The most effective instanceof International legislation in the entire history of commercial law’ in which Indiawas a signatory to it. The Foreign Awards (Recognition and Enforcement) Act, 1961came into force on 30th November, 1961. The main purpose of the aforesaid Act wasto give effect to the NYC (1958) and the Act prescribed the law and procedure forthe enforcement of foreign awards in India to which the said convention applied.The SC in the case of Renusagar Power Co. Ltd. v. General Electricdelivered a landmark judgment and held that the main purpose of the legislationwasto facilitate and promote international trade by providing for speedy settlement ofdisputes arising in trade through arbitration.
22.214.171.124 Recommendation Law Commission of India on the Act of 1940
The Law Commission of India under the Chairmanship of Hon’ble justiceMr. H.R. Khanna, in its report dated 9th November 1978, suggested extensivemodifications and amendments in the Arbitration Act of 1940, taking into accountcommercial realities and in order to settle the conflicting decisions on variouspoints.
126.96.36.199 The Supreme Court on the Act of 1940
Several technical objections were being taken by the legal experts, whicheventually led the SC of India to observe in Guru Nanak’s Case on 29th September,1981, as under:
“Interminable, time-consuming, complex and expensive Court proceduresimpelled jurists to search for an alternative forum, less formal, moreeffective and speedy for resolution of disputes avoiding procedural claptrapand this led them to arbitration Act, 1940 (‘Act’ for short). However, the wayin which the proceedings under the Act are conducted and without anexception challenged in Courts, has made lawyers laugh and legalphilosophers weep. Experience shows and law reports bear ample testimonythat the proceedings under the Act have become highly technicalaccompanied by unending prolixity, at every stage providing a legal trap tothe unwary. Informal forum chosen by the disputant parties for expeditiousdisposal of their disputes has, by the decisions of the Courts been clothedwith ‘legalese’ of unforeseeable complexity.”
188.8.131.52 The Arbitration and Conciliation Act, 1996
To internationalize the arbitration law in India, it was felt that the ArbitrationLaw, 1940 had become outdated in the present scenario of economic reformsworldwide. The Commission of India, domestic and international arbitration bodiesas well as several experts in the field of arbitration relating to business and industryand all concerned –the disputants, arbiters, lawyer and the courts have proposedextensive modifications and amendments to the Act, 1940 to make the law moreeffective and flexible to suit most with the law dealing with the settlement ofdisputes in respect of domestic and international commercial matters.
There was nocomprehensive enactment in India to meet the present requirements to settledomestic and international commercial disputes amicably through arbitrationmachinery.The need for reform in the law relating to arbitration thus becomesnecessary and urgent. The question then was whether the Act, 1940 should beamended or the new law be written on a clean state?
On 4th December 1993, there was a historic conference of Chief Ministersand Chief Justices under the chairmanship of the Prime Ministers of India to dealwith the menace of ever increasing number of dockets. It was also recognized thatIndian economic reforms may not become fully effective it the law dealing withsettlement of both domestic and international commercial disputes remained out oftune with such reforms. The government had also before it several internationalmodels including the UNCITRAL Model Law on International CommercialArbitration, UNCITRAL Rules on Arbitration & Conciliation and the InternationalCommercial Arbitration Act, 1986 of British Columbia.
It was, felt that there weredefinite advantages in discarding the old law and in enacting a new law, based onthe Model Law, which has harmonized the Common and Civil Law concepts onarbitration and thus contain provisions designed for universal application.At least, the Arbitration and Conciliation Bill, 1995 was drafted andintroduced in the Rajya Sabha on 16th May, 1995.
As the parliament was not insession at that time and the President of India was satisfied that circumstancesexisted which rendered it necessary for him to take immediate action, in exercise ofthe power conferred by Clause (1) of Article 123 of the Indian Constitution. ThePresident promulgated to the Arbitration & Conciliation Ordinance, 1996 on the 16thJanuary 1996 which was brought into force with effect from the 25th January 1996. The Ordinance could not be replaced by an Act because on account of prorogationof the Parliament session and, the Ordinance lapsed automatically after 6 months. Inorder to give further continued effect to the provisions of the said Ordinance, thePresident Shankar Dayal Sharma promulgated the Arbitration &Conciliation(Second) Ordinance, 1996 on 26th March 1996.
This Ordinance was promulgated asthe Arbitration & Conciliation (third) Ordinance, 1996. 129 Meanwhile, theArbitration & Conciliation Bill, 1995 was passed by the Parliament and on 16thAugust 1996, the Bill received the assent of the President Shankar Dayal SharmaArticle 123 of the Indian Constitution reads as; Empowers the President to promulgateOrdinances when both the Houses of Parliament are not in session if he is satisfiedthat circumstance exist rendering it necessary to take immediate action. Corresponding powershave been conferred by the Constitution on the Governor under article 213. Similar powers havebeen conferred on the Administrator under article 239B when the Legislature of aUnion territory is not in session.
On the plain language of Articles 123, 213 and 239B there is nodoubt that the satisfaction mentioned in those articles is subjective satisfaction and that it is notjustifiable. There is no doubt that this was also the intention of the makers of the Constitution.However, litigation is pending involving the justifiability of this issue and contentions are beingraised that the issue is subject to judicial scrutiny. To place the matter beyond doubt, it isproposed to provide in the Constitution that the satisfaction of the President,Governor or Administrator shall be final and conclusive and shall not be questioned in anycourt on any groundand came on statute book as the Arbitration and Conciliation Act, 1996 on 22ndAugust 1996.
The Act, 1996 has two main parts about Arbitration and part III of the Act onthe base on UNCITRAL Conciliation Rules, 1980 is only about Conciliation. Part Iof the Act is more comprehensive and provides provisions for any arbitrationconducted in India and enforcement of arbitral awards there under, irrespective ofnationalities of disputants. And, Part II of the Act is more restricted and provides forenforcement of foreign arbitral awards. On the other words, any arbitrationconducted in India or enforcement of arbitral award there under (whether domesticor international) is governed by Part I, while enforcement of any foreign arbitralaward to which the NYC (1958) or the GC (1927 ) applies, is governed by Part II ofthe Act, 1996.
The Act, 1996 contains two unusual features that differed from the ML(1985). First, while the ML (1985) was designed to apply only to ICA, the Act of1996 applies both to international and domestic arbitrations. Second, the Act, 1996goes beyond the ML (1985) in the area of minimizing judicial intervention.The working of the Arbitration Act of 1996 over the years has shown that itdoes not sufficiently fulfill the requirements of domestic as well as internationalarbitrations in certain specific areas. Therefore, the Government of India hasintroduced the Arbitration and Conciliation (Amendment) Bill, 2003.
184.108.40.206The Arbitration and Conciliation Act, 1996 (Amendment 2015)
The Government of India decided to amend the Arbitration and Conciliation Act, 1996 by introducing the Arbitration and Conciliation (Amendment) Bill, 2015 in the Parliament. The Union Cabinet chaired by the Prime Minister, had given its approval for amendments to the Arbitration and Conciliation Bill, 2015 taking into consideration the Law Commission’s recommendations, and suggestions received from stake holders.
In an attempt to make arbitration a preferred mode of settlement of commercial disputes and making India a hub of international commercial arbitration, the President of India on 23rd October 2015 promulgated an Ordinance (“Arbitration and Conciliation (Amendment) Ordinance, 2015) amending the Arbitration and Conciliation Act, 1996.
In international level, The modern law governing ICA began only in the decade of the 1920 with the organization of the ICC Court of InternationalArbitration, the adoption of the GP (1923) and the GC(1927). There was nosubstantial further development until the adoption of the NYC in 1958. Thesubsequent years have been ones of rapid progress. Approximately all States havebecome party to the NYC (1958). The convention played a vital and critical role inthe development of the legal framework for international commercial arbitration andit especially made a number of significant improvements in the regime of Genevaprotocol and Geneva Convention for enforcement of international arbitrationagreements and recognition and enforcement of arbitral award.
The increasing complexity of international transactions, the growth ofinternational trade and the disappointment with the regulation of international tradeby these various State laws fostered a climate conductive to harmonization andunification of these laws under the auspices of various international organizations,including the United Nations.
The UNCITRAL Arbitration Rules of 1976 have beenwidely used and have become the model on which many institutional arbitrationrules are based. The Model Law of 1985 has been the basis of most arbitrationstatutes adopted since then.Indeed, the Section- A of this study shows that ICA has become so popularbut it is far from an ideal and universal method. The most important reasons of thementioned points are:
a) The present international convention and legal institution are not adequatefor dealing with the problem of international commercial arbitration.
b) The global scenarios existed in international commercial arbitration are notcertainly encouraging.
c) The Model law has not met the purpose which was determined for it.
In a State level, Arbitration in India is an integrated part of its legal systemand it has an important place in the world. The modern legal context in India has been influenced by at least two strands of legal tradition.The first is the Pre-British period, or the Ancient period, which is thehistorical background to Indian law, and still dominates many of its parts. In all
States of countries where there has been statutory vacuum regarding arbitration, it isusually filled by it. The prevalent method of the arbitration in India was the Panchayat, which despite some disparities, is not much different from new versions of Panchayat regarding arbitration.The second is the Western legal tradition especially the English ArbitrationLaw, which has now received international recognition through InternationalConventions such as the NYC (1958) and the ML (1985), and has influenced Indianlaw through the process of modernization. Modernization of the Indian legal systembegan as late as 1961, but ever since it has been forcefully underway, particularly inBusiness Law.
Regarding the interplay of the two strands of legal tradition in India, twoconflicting trends can be identified: a move away from the first period and towardsmodernization of the legal system .The present legal framework in India is the resultof the balance between the two trends in that State.After a large unsatisfactory, India opened a fresh chapter in its arbitration
law when it enacted the Arbitration and Conciliation Act, 1996 in attempt tomodernize the outdated Act, 1940. In other words, before the Act, 1996, the processof settling disputes in India “Made lawyer laugh and legal philosophers weep.”
The present Act, 1996 is mainly inspired by ML (1985). Its primaryobjectives of the Act were to achieve twin goal in arbitration as a cost effective andquick mechanism with the minimum Court intervention for the settlement ofcommercial disputes. The Act, 1996 is barely 18 years old and what is the Indianexperience is obvious by the fact the Act not met the purpose for which the Act waspassed.Indeed, the Section B of this study shows that the rich background and closecontact or copy with foreign arbitration law even modern international standard arenot adequate for dealing with the problems of arbitration in a country like India.Practically, the problems are not connected with aforesaid factors, but with thecomplications of its implementation in India.
INTERNATIONAL COMMERCIAL ARBITRATION UNDER
Current Indian arbitration law, the Arbitration and Conciliation Act, 1996came into force in 25thJanuary 1996. This Act is a unification statute in the sense that it was intended togive effect to multiple international commitments undertaken by India, namely, theModel Law, 1985 (the ML, 1985), the New York Convention, 1958 (the NYC,1958) and the like. The present Act, 1996 not only consolidate, but also to unifyIndian Law both on Domestic and International Commercial Arbitration (ICA).The existing Indian Law of arbitration deserves a detailed examination,
firstly because the analysis of the ICA in India is not possible without an inclusiveunderstanding of Indian Law of arbitration in general. Secondly, the Arbitration Act,1996 not applies only to Domestic arbitration, but also to International arbitrationtaking place outside India, provided that the Act is chosen as the applicable law bythe disputant parties. There are some other Acts of Indian Law, such as IndianContract Act, The Foreign Awards (Recognition and Enforcement) Act, 1961 andetc., which are relevant to arbitration and particularly to international arbitration.
The earlier Arbitration Act (the Arbitration, Act 1940) is also discussed, whenappropriate. The Act of 1996 governs the enforcement of foreign court judgmentsand orders and arbitration awards as well as the procedure of executing enforcementorders of domestic as well as foreign sentences and arbitral awards. It is discussed inthe Chapters on the enforcement of arbitral awards in India.This Chapter is an extensive analytical examination of the present IndianLaw of arbitration. It attempts to follow a comparative approach, emphasizing thesimilarities and differences between the Indian Law of arbitration and the ModelLaw (the ML, 1985).
This is not only because the ML can be regarded as a yardstickfor assessing various national laws of arbitration, but also because Indian Law itselfis mainly inspired by it. Since such inspiration has been made possible through theBritish legal system, comparison has also been made with the English Law ofArbitration, whose legal systems have developed in close contact with each other.Provisions of Indian Law regarding various kinds of arbitration, arbitrationagreements, and arbitration tribunals as well as procedural and substantive laws ofarbitration, and arbitral awards, among other, are discussed in this Chapter. Thepowers of the Court concerning arbitration in various stages, including vacation andenforcement, are mainly dealt with in the next Chapter.
The main objectives of the Arbitration and Conciliation Bill, 1995 as statedin the statement of objects and reasons are as follows:
“i) To comprehensively cover international and commercial arbitration andconciliation as also domestic arbitration and conciliation;
ii) To make provision for an arbitral procedure this is fair, efficient andcapable of meeting the needs of the specific arbitration;
iii) To provide that the arbitral tribunal gives reasons for its arbitral award;
iv) To ensure that the arbitral tribunal remains within the limits of itsjurisdiction;
v) To minimize the supervisory role of courts in the arbitral process;
vi) To permit an arbitral tribunal to use mediation, conciliation or otherprocedures during the arbitral proceedings to encourage settlement ofdisputes;
vii) To provide that every final arbitral award is enforced in the samemanner as if it were a decree of the court;
viii) To provide that a settlement agreement reached by the disputants as aresult of conciliation proceedings will have the same status and effect as anarbitral award on agreed terms on the substance of the dispute rendered byan arbitral tribunal; and,
ix) to provide that, for purposes of enforcement of foreign awards, everyarbitral award made in a country to which one of the two InternationalConventions relating to foreign arbitral awards to which India is a partyapplies, will be treated as a foreign award.”
The provisions enacted in the Arbitration Act, 1996 aim to achieve the aboveobjectives but statement of objects and reasons which accompanies a Bill does notform part of the Act as passed by the legislature and it is not permissible to refer to itin interpreting the provisions of the present Act, 1996. In 1997, the Supreme Court(SC) in case State of Haryana v. Chanan Malemphasis that the objects and reasonsgive an insight into the background as to why a particular provision was introduced.
Though objects and reasons cannot be the ultimate guide in interpretation of statues,it often times aids in finding out what really persuaded the legislature to enact aparticular provision. And also, the SC observed in Narain Khamman v. PardumanKumar :”It is now well settled that though the statement of objects and reasonsaccompanying a legislative Bill cannot be used to determine the true meaning andeffect of the substantive provisions of a statute, it is permissible to refer to thestatement of objects and reasons accompanying a Bill ,for the purpose ofunderstanding the background ,the antecedent state of affairs ,the surroundingcircumstances in relation to the statute, and the evil which the statute sough to remedy.”
Major thrust and legislative intent of the Act 1996,as stated in the Objectivesto the Arbitration and Conciliation Bill, 1995, is to reduce excessive judicialintervention due to which the earlier Arbitration Act, 1940 suffered seriousinfirmities. Section 8 (1) of the Act, 1996, therefore it make mandatory duty for thejudicial authority i.e Court to stay legal proceeding if started, where the subjectmatter has already been referred to an arbitral tribunal. Similar provisions are madein connection with the New York Convention, 1958 (the NYC, 1958) and GenevaConvention, 1927 (the GC, 1927) under Sections 44 and 54 of the Act respectively.
The SC in its decision in Food Corporation of India v. Indian Council ofArbitration has pointed out that the legislative intent of the Arbitration Act of 1996is to minimize the supervisory role of the court in arbitral process and expeditiousappointment of arbiter so that all contentious issues may be decided by the processof arbitration without recourse to litigation.
Emphasizing the need for interpreting the provisions of the Act in the light ofit objects and reasons, the Apex Court in Fuerst Day Lawson Ltd. v. Jindal ExportsLtd., observed that the Act is meant to provide speedy and alternative solution ofdisputes so as to avoid protected litigation. The Court further held that thoughobjects and reasons of an enactment cannot be the ultimate guide in interpretation ofstatutes but they do help in finding out the true legislative intent behind enacting aparticular provision of the Act.
The SC has observed in P.Anand Gajapati Raju v. P.C.G.Raju , thelegislative intention of the Act has been provided in Sections 5;8 and such theseSections have been interpreted. In Section 5, the effort is to curtail judicialintervention and to give solution through less costly remedy, and in Section 8,arbitration has been made a compulsory step. Likewise in Everest Lasson Ltd. v.Jindal Exports Ltd.,the SC while underlining the object of the Act, 1996, has heldthat through alternative dispute resolution system, the dispute should be resolvedquickly and with lesser costs. The legislative attitude of the people should also becurtailed.
3.2 Arbitration in India: General Features
It can be said that the thrust of the Act, 1996 is to encourage and facilitatearbitration. It introduces arbitration as a reliable method of dispute resolution, withbinding and enforceable outcomes. It is presented as a regulated procedure thatcannot be obstructed with dilatory tactics. For example, a challenge to theappointment of an arbiter cannot stop the proceedings, unless it is granted either bythe arbitration tribunal or the Court. The Act also intends to limit court interventionin arbitration procedures. For instance, an arbitration tribunal decides about its ownjurisdiction, without the possibility of court intervention, until the end of thearbitration proceedings.
According to the Act of 1996, arbitration means any ‘Arbitration’ whether or not administered by permanent arbitral institution. The definition covers all kinds ofarbitration conducted through any mode of arbitration but does not focus any lighton the term arbitration itself. Further, the definition covers only part I of theenactment, though usually definitions cover whole of particular statute. In this Act,this is a novel experiment which confines the scope of definitions, perhaps tomitigate the disputes of interpretation, and them without enlarging the scope ofconfusion.
The Act of 1996 has a comprehensive coverage, and applies to all kinds ofarbitration in India. Article 2 of the Arbitration Act, 1996 provides that this law isapplicable to any arbitration between persons of public or private law, irrespectiveof the nature of their legal relationship, provided the arbitration takes place in theIndia. In case of ICA taking place abroad, the law would be applicable, if thedisputants have agreed to make their arbitration subject to the jurisdiction of the law.While the ML, 1985 applies only to International arbitration, the Act, 1996,following the English Arbitration Law of 1996, covers not only Internationalarbitration, but also Domestic arbitration.
The main focus of the Act, 1996 is ICA. Hence, it is very important to seehow commercial arbitration is defined, under Indian Law. Practically, the Indianarbitration law does not provide exhaustive definition of expression ‘Commercial’.However, in ordinary parlance the expression “Commercial” means any activityinvolving commerce and trade and wherein nature of relationship is commercial.
The Apex Court in Fetech Chand v. State of Maharashtra, laid downdefinition of expression “commercial”-“Any service or activity which in modernbusiness would be considered to be lubricant for the wheels of commerce isCommercial.”
In the view of the Foreign Awards (Recognition ; Enforcement) Act, 1961the term “Commercial” should be interpreted broadly having regard to a number ofactivities which are essential elements of modern international trade. The SC inR.M.Investments ; Trading Co. v. Boeing Co.,has held that consultancy serviceare commercial nature. The court observed that consultancy services includingmanagerial assistance and relevant information are being provided with the purposeto promote sale of Boeing aircrafts and as such are commercial activities in nature.
Thus, it can be said that the term “Commercial” has wide scope to includevarious activities pertaining to business and trade. The footnote annexed to Article1(1) of the ML (1985) to reads as follows:
“The term commercial should be given a wide interpretation so as to covermatter arising from all relationships of a commercial nature, whethercontractual or not. Relationships of a commercial nature, include, but arenot limited to the following transactions: any trade transactions for thesupply or exchange of goods and services; distribution agreement;
commercial representation or agency; factoring, leasing; construction of works; constructions; engineering; licensing; investment; financing;banking; exploitation agreement of concession; joint venture and otherforms of industrial or business cooperation; carriage of goods or passengersby air, sea, rail, or road.”
This footnote was intentionally excluded from the main body of the ML(1985) because there was a serious concern that in adopting a precise definition forsuch an important and sensitive term, States, especially socialist and developingStates, would lose the freedom to retain judicial control over essential Stateregulated objectives. The compromise was to include a footnote giving adoptingStates the freedom to retain control over essential activities while still encouragingthe widest interpretation possible. Thus, the ML (1985) gives wide latitude tocharter States to define those “Commercial” matters that would give rise toarbitration.
The Act, 1996 in Article 2(1) (f) defines ‘Commercial’ as “Disputes arisingout of a legal relationship, whether contractual or not, considered as commercialunder the law in force in India.” This Article is inspired by the definition of”Commercial” given by Article 1(1) of the ML (1985), while emphasizing issuesparticular to India. While the ML (1985) provides for the definition of the term’Commercial’ in a footnote for Article 2 of Indian Law, that is alien to the abovedrafting technique, defines the term extensively in a separate Article.
In the view of the SC of India the expression commercial as occurring inSection (2) (f) of the Act, 1996 and in Section (2) of the Foreign Awards(Recognition and Enforcement) Act, 1961 should be construed broadly havingregard to manifold activities which are integral parts of international trade today andthe aid can also be taken from footnote annexed to Article 1 of the ML (1985) for this purpose.
3.2.2 International Arbitration under Indian law
Another serious problem related to the concept of arbitrability inInternational arbitration is defining what is meant by the term “International”. Thiswarrants the attention for two main reasons. First, whether a dispute is arbitrablemay be defined differently under either domestic or international rules of arbitration.As a result, a dispute which may be arbitrable under international arbitration rulesmay not be so under domestic rules. Second, in context of the Act of 1996, it followsthat if a dispute was not considered “International,” then enforcement of foreignawards found in Part II under the Act of 1996 and select provisions of Part I wouldbe inapplicable to an arbitral proceeding. Thus, how arbitration law defines aninternational dispute become important for disputants that seek to take advantage ofICA rules.
The ML considers an arbitration ‘International’ if:
The place of business of the disputants is in different States;
b. The place of arbitration is outside the State of which the disputantshave their places of business;
c. The place where a substantial part of the obligations of thecommercial relationship is to be performed is outside the State inwhich the disputants have a business;
d. The place with which the subject matter of the dispute is most closelyconnected is in a State other than the one in which the disputantshave their places of business; or
e. The subject matter of the arbitration agreement is related to morethan one State.
Thus, the ML focuses primarily on the place of the disputants, arbitration, ordispute. The Act of 1996 definition of what constitutes “International” is at variancewith the ML, 1985. Section 2(1)(f) of the Arbitration Act, 1996 provides that;
“Aarbitration is international where at least one of the disputants is:
(1) anindividual who is a national of, or habitually resident in, any country otherthan India; or
(2) a body corporate which is incorporated in any countryother than in India; or
(3) a company or an association or a body ofindividuals whose central management and control is exercised in anycountry other than India; or
(4) the government of a foreign country.”
It is a main feature of the Act, 1996 that it makes a crystal clear distinction between International and Domestic arbitrations. Overlooking such as distinctionhas been a shortcoming of most legal systems in the world, leading to a uniformtreatment of both types of arbitration. The disputants to an ICA are permitted,under Article of the Act of 1996 to make the arbitration process subject to the Act.
International arbitration is defined by the law as cases of arbitration where thesubject-matter of the dispute is related to international trade, in one of the following ways the principal business centre of the disputants are located in two differentcountries. While the wording of the ML revolves around the disputants “places of business”, Indian Law emphasizes their “principal business centre”, in order todistinguish between marginal and central business activities. If a party has severalbusiness centres, the centre that is close relevant to the dispute is regarded as hisbusiness centre.
If a party does not have a business centre, his place of domicile isconsidered as his business centre. For instance, under the Act of 1996 definition, anycommercial contract between an Indian national and a non-resident Indian habituallyresident abroad or a foreign national automatically is considered “International” andsubject to international arbitration standards regardless of whether the transactionwas local in nature. By the same token, a foreign firm in India would not besubject-matter to International arbitration under the Act of 1996 whose’management and control’ is exercised within India.
On the other hand, under theML, the disputants has to expressly agree that the subject-matter of the dispute isconnected to more than one State, if the arbitration is to be considered asinternational. However, Indian Law does not provide for a criterion to determine thatthe subject-matter of a dispute is linked to more than one State. By focusing on thestatus of the disputants, the Indian approach seems to ignore the disputants’ actualconnections to international business and the forum related to that commerce. As aresult, there is a serious danger that International arbitrations will be categorizedarbitrarily potentially aggrieving a party wishing to arbitrate under internationalrules.
The ML’s approach should be adopted because of its focus on the substance of the commercial interaction reflects more accurately the commercial reality of thedisputants and/or forum. The result would be a more predictable application of therules to disputants seeking to take benefit of international arbitration rules in India.Practically, if definitions of “International” and “Commercial” are combined,it can be seen that Indian Law provides for a comprehensive definition of ICA whichcovers arbitration in disputes concerning imports, foreign investment and contractsfor construction, development or technology transfer, as well as Indian investmentabroad, and the like. The comprehensive definition of ICA indicates the intention ofthe Indian Parliament to encourage foreign investment and international businessthrough facilitating arbitration.
3.2.3 Definition of ‘Court’ in the Arbitration Act, 1996
The term of “Court” has neither been defined in the Code of Civil Procedure1908 nor in the General Clauses Act. But the term of “Court” has been definedunder Section 2(1) (e) of the Arbitration Act, 1996. The definition of Court given bythe Act, 1996 has created a serious difficulty for the legal fraternity and also thebusiness community. The matter has gone up to the Courts for interpretation and thedecision has not been flattering for the legislative wing of the Government.
One of the chief objectives of the present Act, 1996 is to minimize thesupervisory role of Courts in arbitral process. The best of intentions do not succeedin the lack of strong will to implement them and at times due to absence of foresight.
The many cases were pending in the Courts for unreasonable periods of time. One ofthe main reasons for this inexplicable and inordinate delay is the ambiguous ofdefinition to the term court and the way it has been defined in the present Act, 1996.
Some of cases are as follows:
Western Shipbreaking Corporation v. Clare Haven Ltd.
b) Indian Telephone Industries Ltd., Naini, Allahabad v. District Judge,Allahabad; Others.
c) Managing Director, Sundaram Finance Ltd., Madras ; Another v. G.S.Nandakumar.
d) National Thermal Power Corporation v. R. S. Avtar Singh and Company;Another.
e) Valliappa Software Technological Park Private Ltd., Bangalore v. C.Sundaram ; Others.
f) Globsyn Technologies Ltd. v. Eskaaycee Infosys.
g) State of Tamil Nadu, Rep. by Superintending Engineer, ; Another v. R.Sundaram ; Another.
h) Jindal Vijayanagar Steel( JSW Steel Ltd.) v. Jindal Praxair Oxygen Co. Ltd.
According to Article 2 (c) of the ML, the term of “Court” means a main bodyor a vital organ of the judicial system of a State. The equivalent provision in theArbitration Act, 1996 is Section 2(1) (e), which read as follows: ‘Court’ means theprincipal Civil Court of original jurisdiction in a district, and includes the HighCourt in exercise of its ordinary original civil jurisdiction, having jurisdiction todecide the questions forming the subject-matter of the arbitration if the same hadbeen the subject-matter of a suit, but does not include any civil court of a gradeinferior to such principal Civil Court, or any Court of Small Causes.
Barring an insufficient cities where the High Court’s exercise OrdinaryOriginal Civil Jurisdiction, all issues pertaining to arbitration have to be filed in the’principal Civil Court of original jurisdiction in a district’.By definition this is theCourt of the “District Judge” (hereafter DJ). Each civil court of a grade inferior tosuch principal Civil Court or any Court of Small Causes has been intentionallykept out by the legislature. This leaves the Court of the DJ and only this court tohave jurisdiction over arbitration cases.
The definition of the term of court in the Act, 1940 is substantially differentfrom the Arbitration Act, 1996. The equivalent meaning in the Arbitration Act, 1940is Section 2 (C), which is as follows: “Court” means a Civil Court havingjurisdiction to decide the questions forming the subject-matter of a suit, but doesnot, except for the purpose of arbitration proceedings under Section 21include aSmall Cause Court.Owing to this new definition of the term “Court”, there is enormous load ofwork on the DJ, which was earlier (under Article 2 (c) of the Act, 1940) shared byother judges in the Civil Court. The experience of the last seventeen years (from thedate of the Arbitration Act, 1996 came in to force) testifies it apply that the DJ isnot able to earmark as much time as is expected to Civil issues like arbitration andthe cases are simply piling up.
It adds to inexplicable and inordinate delay andmakes matters worse for the disputant parties. The DJ as the senior-most judgepresides over of civil cases and as a matter of practice; it is also as the SessionsJudge when she preside over the criminal cases. The highest court in each districtJudiciary is that of “District and Sessions Judge” (hereafter D&SJ). Most of the timethe D&SJ is earmark to Criminal matters because they are much more urgent thanthe civil matters like arbitration. Even with the best of intentions, the D&SJ isgenerally not able to devote enough time for arbitration cases which need in-depthstudy. To make the matter worse, each judge must complete a target of number ofcases in a calendar year. Its performance is evaluated as per the number of casesdecided. It finds it convenient to decide small and simple cases which do not requiresuch in-depth study as the arbitration cases do.
Thus, the arbitration subject matterskeep pending and litigants have no action but to wait patiently. At times, disputantparties do choose for extra-legal methods to settle the dispute which is not a goodpractice for the society and the economy. It shows a bad picture to the Indianjudicial system and erosion in faith starts taking place. It also compels national andforeign investors and business partners to perceive India as a place with the fataldisease of sluggish moving judiciary in practice. Therefore, there is an adverse effecton the business in particular and economy in general.
The case Indian Telephone Industries Ltd., Naini, Allahabad v. DistrictJudge, Allahabad & Others, has been a landmark in the history of Indianarbitration. In 1997, just a year had passed since the present Act came into force,the issue of the definition of the term ‘Court’ came up in a landmark case (I.T.I.Case) before the Allahabad High Court. The High Court faced the challenging taskof answering the basic question as to whether the term ‘Court’ as defined in thepresent Act includes the Court of Additional District Judge ( hereafter ADJ) alongwith the Court of DJ or not. Further, if it did not include the Court of ADJ, whether
the DJ could transfer an application filed in its Court with reference to arbitrationmatters under the Arbitration Act, 1996 to the Court of any of the ADJs as is done inusual course or not.
At least in 1998, the High Court has observed that the language of Section2(e), defining the Court, left no choice for interpreting that the Court would alsoinclude the court of ADJ alongwith the Court of the DJ. By imagination the word”Court” could include not the Court of the ADJ. The Parliament made it plain andsimple by using words and phrases like, “includes” ,”means” and “does notinclude”. The Legislature had exhaustively explained the meaning of the term’Court’ in that the word “includes” is a term of enlargement while the word “means”is a term of restriction and when both the words “means” and “includes” are usedtogether to define a thing, the intendment of the parliament is to supply restrictedmeaning to the term of the ‘Court’. The use of phrase “but does not include” furtherrestricted the meaning of the term Court. Hence, it was not possible to relate anyother meaning to the term ‘Court’ besides the obvious meaning of the Court of theDJ.
On the matter of the authority of the DJ to transfer the case to the Court ofany of the ADJs, the Allahabad High Court held that Indian legislator in the schemeof the Act of 1996 prevented such a transfer on two counts. First, Section 42 of thepresent Act, 1996 prohibited such a transfer in the instant case and Secondly, theCourt of ADJ was not the principal Civil Court of Original Jurisdiction the CalcuttaHigh Court in Kerventor Agro Ltd. v. Seagram Co. Ltd., observed that where thepecuniary jurisdiction of principal Civil Court of District i.e. the DJ in civil cases islimited to Ten Lakh Rupees and beyond that jurisdiction was vested in the HighCourt, the award in question being more than Ten Lakh Rupees, will be referred to
High Court for being set aside.
The decision of High Court in I.T.I as a surprise and big shock to theentire legal fraternity and also to the business community. No one had expected thatthe jurisdiction of ADJ would be barred and merely the DJ exclusively would havejurisdiction over arbitration cases. The most recent obvious consequence would havebeen clogging the Court of the DJ and making all the Courts of the ADJ ‘arbitrationdry’.Legal specialists saw no point in taking the matter to the SC as theinterpretation of the terms as per the Act of 1996 was crystal clear. There could havebeen no other interpretation and Justices in the I.T.I. case, wrote such a judgmentthat it left no scope for appeal.
3.2.4 Waiver of the Right to Object
Article 4 of ML (1985) clearly define the meaning of Waiver of the Right toObject which is reads as a party who knows that any provision of this Law fromwhich the parties may derogate or any requirement under the arbitration agreementhas not been complied with and yet proceeds with the arbitration without stating hisobjection to such non-compliance without undue delay or, if a time-limit is providedtherefore, within such period of time, shall be deemed to have waived his right to object. For instance, on 25th May 1999, Arbitration Court attached to theHungarian Chamber of Commerce and Industry, Hungary in Sour Cherries Case(Hungarian seller v. Austrian buyer)has observed that a dispute arose between aHungarian seller and an Austrian buyer over a commercial contract for the purchaseand sale of sour cherries. Although the commercial contract did not contain a valid
arbitration clause, the arbitral tribunal found that it had jurisdiction to hear the issue.This was because the Hungarian seller had submitted its claim to the arbitral tribunaland the Austrian buyer, without stating any objection concerning jurisdiction, put forward its defence.
The provision relating to Waiver of Objection by a party is newlyincorporated in the Indian Arbitration Act, 1996 as the earlier Arbitration Act, 1940had no such analogous provision. The word waiver connotes voluntary andinternational relinquishment of a known right or privilege by silence or by conduct.
Where it appears to the arbitral that the party had actual or constructiveknowledge of the rights, facts or circumstances on which an objection could beraised during the arbitral proceedings and the party still keeps quite and submits tothe proceedings and allows the award to be made, then it will be precluded fromraising such objection consequent to the filing of the award.
It would be worthwhile to state the facts of the decision of the SC in State ofRajasthan v. Construction Company,to understand the implications of waiver inarbitration award. In this case SC has observed:-where the appellant knowinglysubmits to the arbitration proceeding having full knowledge of the circumstance onwhich an objection could be filed but still refrains from doing so and takes a chancein the hope that decision may favourable to him, shall be deemed to have waived hisright to protest and an objection raised subsequent to making of the award shall notaffect the substance of arbitration.
The application of doctrine of waiver in case of international abandonmentor relinquishment of a known right shall apply to proceeding before an arbitraltribunal (which includes a sole arbiter or an uneven number of arbiters), whether itmay be relating to an irregularity in arbitral procedure or objection as to authorityof arbiter or his award.
Under Article 4 of the Act, 1996, if a party to a dispute that is underconsideration by an arbitral tribunal knowingly continues to proceed with thearbitration, despite the breach of any condition stipulated in the arbitrationagreement or provided for in Indian Law where non-compliance is permitted byagreement, and fails to raise an objection, it shall be deemed to have waived hisright to objection. The objection must be raised within the period agreed upon or,unlike the Act, 1996 in Article 4 of the ML, if there is no such agreement, withinsixty days from the date it is deemed that is aware of it.
This means that no suchobjection may be raised in later stages of arbitration or in setting aside orenforcement proceedings. This is a reflection of a principle of good faith or the bona fides principle. The legislature by devising this provision has intended to protectthe arbitration from abuse, and to consolidate the arbitral award, while providing thedisputants with the right to object to any breach of the arbitration agreement or thelaw.
This is, however, a contentious issue, particularly when a right guaranteed bythe law is breached. It unduly widens the possibility of a waiver, contrary to theprovisions of general rules. The question is whether a party’s silence regarding aviolation of the law results in the waiver of his right of objection, no matter howgross is the violation. The above provision of Indian Law, however, specifies thatthe right to object can only be waived with regard to the rules from which thedisputant parties may derogate, if they agree so. In other words, such a waiver doesnot cover a violation of mandatory rules of law. Moreover, it can be argued that ifthe inexplicable and inordinate delay in raising an objection was justified, the partymaintains his right to object. Also, if an objection has been raised, but not acceptedby the tribunal, or if a party has not taken part in the arbitration proceedings, orcould not do so, he may raise an objection in later stages, such as in vacation orenforcement proceedings.
Practically, the principle of waiver would not apply in arbitration proceedings in the following circumstances:-
i. Where there is no arbitration agreement;
ii. Where the arbitration agreement or arbitration clause in the contract is voidor voidable;
iii. Where a mandatory provision of law has been violated in the conduct ofarbitration proceedings or making the award; and,
iv. Where there is inherent lack of jurisdiction, it cannot be cured by acquiescence or waiver.
3.3 Arbitration Agreements
Under the Act of 1940, arbitration agreements were legally valid, thoughthere was not express provision as to their being binding. As mentioned before, this meant that the disputants could refer to arbitration the disputes about which therewas an arbitration agreement, but the Act did not contain any Article preventing thecourt from considering such disputes. A main feature of the Act of 1996, however, isthat it recognizes arbitration agreements as binding.
Under Article 8(1) of the Act of1996, “a judicial authority before which an action is brought in a matter which isthe subject of an arbitration agreement shall, if a party applies not later than whensubmitting his first statement on the substance of the dispute, refer the disputants toarbitration.”It is evident from various provisions of the present Act that it applies tovoluntary arbitrations, that is, where there is an agreement as to referring anyoccurring dispute to arbitration, rather than compulsory arbitration which is
provided for under some other statutes. And, the SC in Powertech World Wide Ltd.v. Delving International General Trading LLCreiterated that if arbitrationagreement ingredients are satisfied, there would be a binding agreement.
The Act of 1940 as well as the Act of 1996 recognizes both arbitrationclauses and submission agreements as the legal basis for referring to arbitrationdisputes that may arise between two disputants in respect of their legalrelationships, whether contractual or not. It follows that the dispute must be of alegal nature. Issues of moral spiritual relations are not fit subject matter ofarbitration.
Article 7(1) of the Act of 1996 provides that ” In this Part, ‘arbitrationagreement’ means an agreement by the disputants to submit to arbitration all orcertain disputes which have arisen or which may arise between them in respect of adefined legal relationship, whether contractual or not.”
It is obvious that when a dispute concerns non-contractual relationships,referral to arbitration can only be authorized in form of a submission agreement; assuch an agreement cannot precede the dispute. Where the law has given jurisdictionto determine, certain matters to specified tribunals only, such matters cannot bereferred to arbitration, e.g.:
a) Insolvency proceedings;
b) Probate proceedings;
c) Suit under Section 92 of Code of Civil Procedure, 1908;
d) Title to immovable property in a foreign State;
e) Claim for recovery of Octroi duty;
f) Illegal transactions;
g) Matrimonial causes-except settlement of terms of separation or divorce;
h) Proceedings for appointment of guardian;
i) Lunacy proceedings;
j) Criminal proceedings;
k) Matters connected with Industrial disputes.
A serious difficulty in most States that their arbitration law has been inspiredby the French legal regime requires the disputes referred to arbitration be specifiedin the arbitration agreement, otherwise the agreement is legally void. Such arequirement rules out the possibility of having an arbitration clause. In this system,court proceedings are considered as a better protection of the rights of the disputants,and arbitration is viewed with suspicion. Therefore, the disputants should not signaway their right to a court trial before they are fully aware of the dispute. Anarbitration clause would give away the “right to a trial” beforehand, and wastherefore long deemed illegal.
Under Article 7(5) of the Act of 1996, it is regarded as a valid agreement to refer to arbitration, if a reference is made in a commercial contract to anotherdocument that contains an arbitration clause, on the condition that the reference isclear that the clause is considered as an integral part of the first contract. Thedecision of the SC in Groupe Chimique Tunisien SA v. Southern PetrochemicalsIndustries Corpn Ltd.an example of arbitration agreement by reference to adocument.Regarding the interpretation of the applicability of an arbitration agreementin India, it can be argued that, following the English legal system, suchinterpretation is usually made on the basis of general rules. The first of such rules isthat any interpretation should not divert from the expressed will of the disputants,and that preference should be given to declaration rather than indication.
The secondrule requires finding out the common intent of the disputants, when it is notexpressly mentioned, taking into account the nature of the transaction alongside thecustomary practice and the principles of trust and faith. The third rule is that whendoubt arises as to whether or not disputes, or a certain dispute, are to be referred toarbitration, the arbitration agreement should be interpreted as not referring thosedisputes to arbitration. In other words, interpretation of arbitration agreementsshould be made on a strictly narrow basis. This rule is based on the general rule thatany ambiguity should be interpreted to the advantage of the debtor. Referring toarbitration is, however a procedural agreement for resolving disputes, and as suchdoes not involve a debtor or creditor. Nevertheless, since recourse to arbitration isconsidered as an exceptional dispute settlement method, any doubt as to theapplicability of an arbitration agreement should be interpreted as resolving thedispute through litigation.
3.3.1 Conditions of the Validity of an Arbitration Agreement
Section 7 of the present Arbitration Act, 1996 is on the pattern of Article 7 ofthe ML, which has been taken from Article II (1) of the NYC (1958). TheArbitration Act, 1940 also is not silent about the wording of an arbitrationagreement.
Under Article 7(3) of the Act, 1996, arbitration agreements must be inwriting, otherwise, they are not legally valid. The Arbitration Act, 1940 did notrecognize oral arbitration agreement or awards. The present Act of 1996, however,makes it mandatory that all arbitration agreements must necessarily be in writing.
Thus the court in Gopal Chand v. Madan Lal, refused to recognize oral agreementand held that, “oral submission cannot be the basis of a suit”. And also, the SC inNimet Resource Inc. ; another v. Essar Steel Ltd.,reiterated that the arbitrationagreement is treated as written, provided it is included in a written instrument dulysigned by the disputants, or if it is included in correspondence between thedisputants by way of exchange of letters, telegraphs or other new written forms ofcommunication. This opens the way for broadening the concept of written form tocover modern means of communication (such as; Fax, Telex and E-Mail), whose useis growing with the expansion of E-Commerce.
A very recent means of written communication is sending messages by mobile phones there is no reason to regard an arbitration agreement exchangedthrough such messages as invalid. Regarding the electronic exchange of writtenagreements, the exchanged written documents must be capable of being retrievedfrom the machine. In Shakti Bhog Foods Ltd. v. Kola Shipping Ltd.,it was heldthat arbitration agreement need not be in writing, signed by both disputants and theinference as to existence thereof could also be drawn from the acts of the disputantparties to the agreement by way of Exchange of Letters/Faxes, Email, etc., must
contain the arbitration clause in the absence of any agreement held, not acceptable inview of there being no specific requirement under Section 7 to this effect.
It can be argued that, in the Indian legal system, a written agreement isrequired for the valid conclusion of an arbitration agreement, and is not merely theevidence of the existence of such an agreement. Probably that is why like the ML,1985 that considers “an exchange of statements of claim and defence in which theexistence of an agreement is alleged by one party and not denied by another” as awritten arbitration agreement68the Act, 1996, contain such a provision. Nevertheless,it can be argued that the Indian legislative has not had any objection to conceive ofstatements made by the plaintiff and the defendant to qualify as an arbitrationagreement.
Moreover, it may be argued that, following the legal practice in India , ifthe disputants during court proceedings agree to refer their dispute to arbitration,their agreement may be incorporated in a court decision, which without needing thesignature of the disputants can be considered as a written valid arbitrationagreement.It should be mentioned that although an arbitration agreement, whether as anarbitration clause or a submission agreement, must be in writing, the mainagreement need not to be written, if there is no such requirement under the law.An agreement to refer to arbitration is valid, only if it is concluded betweenphysical or legal persons who are legally competent to exercise their rights. Sincethe Act, 1996 does not specify who is competent to exercise his or her rights, and toenter into an arbitration agreement, the question needs to be answered by reference
to other pieces of Indian legislation. As touched upon before, for instance, theContract Act precludes minors and those under guardianship (unless through theirlegal representative or guardian), the insane, bankrupts and, in some versions, thedisabled and terminally ill to enter into any arbitration agreement.
A seriousdifficulty with Indian Law is that, regarding foreigners, it does not indicate who hasthe capacity to enter into any arbitration agreement, nor does it make crystal clearwhich law applies in order to determine who is competent to conclude suchagreements. Here again, it can be said that the existing law indicates the conditionsto be met, if a foreigner is competent to be party to an arbitration agreement.
Foreigners are competent to make an arbitration agreement on the basis of IndianLaw, under the same circumstances that Indian can.
Although there is no particular rule for multi-party arbitration, sucharbitration is allowed, under Indian law, as Article 7(1) of the Act, 1996 reads, “Theterm “Disputants to submit to the arbitration” shall mean, in the context of thislaw, the disputants to the arbitration even if they are multiple in number.”
Similarly, there are neither doctrinal views by lawyers nor a provision in Indian Lawon the issues of succession or assignment of the main contract, merger or acquisitionof a party, non-limited partnerships, de facto companies, non-incorporated businessassociations, consortia, contractual joint ventures, integrated groups of firmscontrolled by a mother company. The same can be said about consolidation ofarbitral proceedings.The succession of the main contract, all rights and obligationscontained in it, including those created by the arbitration clause, are transferred tothe succeeding company. Such a view is consistent with the view of the SC. ,
in case DHV BV v. Tahal Consulting Engineers Ltd., Indian SChas observed- one of the component of a tripartite arrangement was a head-contractwhich contained arbitration clause. The question was that the applicability of the clause between the head contract and sub-contractor. The head–contract specifiedcertain specific obligations between the head-contractor and sub –contractors. It wasalso signed by head-contractor and sub-contractor. It was held that the arbitrationclause had become applicable to disputes in respect of the specified obligationsbetween the head-contractor and sub–contractors.
On the other hand, multi-party arbitration, whether they involve one contractwith multiple disputants or multiple contracts as well as multiple disputants, hascomplexities that need to be attended to. General rules of Indian private or companylaws provide tools necessary for making a legal decision, when such issues areinvolved.
Allowing all legal persons of public and private law to enter into anarbitration agreement means that the Act, 1996 does not prohibit public bodies toconclude such agreements. However, the question may arise as to whether publicbodies can enter into an arbitration agreement, without obtaining State authorization.In other words, who is a competent public body to enter into an arbitrationagreement? As a matter of fact, referring to arbitration disputes to which a publicbody is a party has sometimes been in question in India. The objection to thecompetence of public bodies to enter into arbitration agreements was grounded on aconcern for the prejudice that it might have on the sovereignty of the State. In India,the government or any governmental department cannot enter into any agreement
for arbitration, unless a special consent is given by the government authorizing therelevant department to enter into such an agreement.
It is well settled legal positionthat the Government contract must satisfy the mandatory condition of Article 299 ofthe Constitution of India, 1950.It is undoubtedly true that if the Governmentarbitration agreement has not been executed in accordance with the mandatoryrequirement of aforesaid Article, then it cannot be enforced by or against theGovernment. Thus, it is clear that Article 299 of the Constitution of India, 1950authorizes the Government of India /the State Government to enter in to contract forany purpose subject to the mode and manner provided for it in Article 209 of theConstitution of India, 1950.
i. It must be expressed to be made by President or by the Governor of the Stateas the case may be.
ii. It must extend on behalf of President or the Governor as the case may be.
iii. Its execution must be by such person and in such manner as the President orGovernor may direct or authorize.
The Apex Court in Bihar EGF Cooperative Society v. Sepahi Singhobserved that failure to comply with these mandatory conditions nullifies thecontract and such contract will be void and unenforceable. Hence, there is noquestion of estoppels or ratification of the provisions of Article 299 (1) of theConstitution of India (1950). It is to be noted that under Chapter IV of the IndianPartnership Act, 1932, namely, Sections 18, 19; 22 emphasize that if the arbitrationagreement is executed by one of the partners of company; it is binding on all
partners. In Union of India v. A.L.Rallia,the SC reiterated that the valid arbitrationagreement signed by partner binding all.
An arbitration agreement is invalid, if it is about disputes that are notarbitral under Indian Law. Article 2 of the Act, 1996 implies that almost anydispute arising from legal relationships between persons can be resolved byarbitration. It does not matter what the nature of the legal relationship is. Bothprivate and public entities can resort to arbitration. This is much wider than thescope of arbitrability under the Act, 1940. In other words, ‘one may refer toarbitration any dispute whether it is contractual or non-contractual.As seen, in the question of arbitrability, an issue of public policy is involved.
Issues connected to public policy cannot be subject to arbitration. For instance, thematters subject to the statutory rules about expropriation of private property, foreignbusinesses or foreign investment cannot be referred to arbitration. Under IndianLaw, this restriction is primarily expressed in terms of prohibition of referring toarbitration those disputes that cannot be subject to reconciliation or compromise.This is rooted in the British rule. The Indian rule is comparable to the previousEnglish law, according to which issues related to public policy as well as personalstatus could not be subject to compromise, and hence could not be referred toarbitration.
Excluding from arbitration issues that cannot be subject to compromise hasgiven rise to some difficulties, since “there is not a total identity between matterswhich can be subject to compromise, and arbitral matters.” For instance, it hasbeen argued that disputes in administrative contracts 79 cannot be subject tocompromise, while the Act, 1996 permits referring them to arbitration.
The thrust of Indian Law of arbitration is the autonomy of arbitration clauses, in the sense that even if the main contract proved to be invalid, thearbitration clause can still be valid. The autonomy of arbitration clauses is afundamental principle without which referral to arbitration will be unreliable. Article16(1) of the Act, 1996 reads: “An arbitration clause which forms part of a contractshall be treated as an agreement independent of the other terms of the contract and adecision by the arbitral tribunal that the contract is null and void shall not entail ipsojure the invalidity of arbitration clause.” This is similar to Article 16(1) of ML
(1985) and the English Arbitration Law, 1996.
3.4 Arbitration Tribunal
The arbitral tribunal is the creature of an arbitration agreement by disputantparties. It is open to the disputants to confer upon it such authorities and powers andprescribe such procedure for it to follow, as they think fit, so long as they are notopposed to law. The arbitration agreement has to be in conformity with themandatory rule of law. According of the SC decision in Irrigation Deptt, Govt ofOrissa v. G.C. Roy, the arbitral tribunal must also act and make its award inaccordance with the general law of the land and the agreement.Article 10 of the Arbitration Act, 1996 provides that the arbitration tribunalmust be constituted according to the arbitration agreement. Following Article 10 ofthe ML (1985), the number of arbiters can be determined by the disputants, but ifthey fail to do so, the number will be three.
It would have been better if the law,rather than mentioning number three, would have mentioned odd number, in order tocover disputes in which there are more than two disputants. It is undoubtedly truethat there is no limit on the number of arbiters, but the total should be odd andmanageable to have a possible result. But there is some exemption such in Contracts(Regulation) Act, 1952 which adopted the By-Laws of East Indian CottonAssociation for arbitral purposes where in Even number of arbiters is permitted andthis shall be valid under Sub-Section 2 of Section 3 in Chapter II of aforesaid Act.
In other words, the law should have left open the possibility of appointing atribunal consisting of more than three people, in multiple-party disputes, where thereis no agreement as to the number of the arbiters. The Indian Law of arbitration,however, goes beyond the ML, and requires that the number of arbiters must not beeven. The Arbitration Act, 1996 revoked the provision of the old Indian Law (theArbitration Act, 1940) that required the appointment of an Umpire by sucharbiters. Experience shows that arbitral proceedings involving an even number ofarbiters is mostly time consuming and is not economical.
3.4.1 Appointment Procedure
Under Article 10(1) of the Arbitration Act, 1996, the procedure for selectingthe arbiters is agreed on by the disputants. However, if there is no agreement onsuch a procedure, where only one arbiter must be appointed, upon the request of oneparty, the Chief Justice (or his nominee) will appoint the arbiter. Where threearbiters must be appointed, each party will select one arbiter, and the third arbiterwho will act as the chairman of the tribunal will be selected by the first two arbiters.
In this case, if a party fails to appoint his arbiter, within thirty days of a requestmade by the other party, or if the first two arbiters fail to select the third one, withinthirty days of their appointment, the appointment will be made by the Chief Justiceor any institution designated by him. This is exactly what is prescribed by Article11(3) of the ML except in a word. The SC in the case Konkan Railway Corpn Ltd v.Rani Construction (P) Ltd. , has observed: “… The Act (The Arbitration andConciliation Act, 1996) and the Model Law are not identically drafted. UnderSection 11 the appointment of an arbiter, in the event of a party to the arbitrationagreement failing to carry out his obligation to appoint an arbiter, is to be made by,”the Chief Justice or any person or institution designed by him”; under Clause 11 ofthe Model Law it is to be made by a Court.”
Following Article 11(4) of the ML, the Indian Law provides that if theprocedure agreed upon for the appointment of the arbiters is not observed by a party,or if both disputants cannot reach an agreement expected of them on the procedure,or if the two appointed arbiters cannot agree on a necessary issue, or even if a thirdparty fails to carry out a responsibility assigned to it, the Chief Justice or anyinstitution designated by him, upon the request of a party, initiate the requiredprocedure or take the action, unless the arbitration agreement provides another wayof doing so. The Chief Justice (or his nominee) in his intervention shall take intoconsideration the law and the disputants’ agreement and his final decision is not
subject to appeal. Article 11(2) of the Act, 1996 implicitly allows the disputants to
confer the right to appoint an arbiter on a third party. Some legal regimes do notallow such a possibility.
In general, Indian Law set the criteria for being appointed as an arbiter. Itprovides that minors and those who are under guardianship or debarred fromexercising their civil rights because of criminal conviction or misdemeanourconsidered as a breach of honour or trust, or those who are declared bankrupt cannotserve on an arbitration tribunal, unless rehabilitated. Although no specificqualification is legally required for being an arbiter, legal training and experience, aswell as professional expertise, may be regarded as a plus in being appointed as anarbiter.
More importantly, Sex or Nationality cannot be a reason for precludingsomebody from serving on a tribunal, unless the disputants have agreed so, or it isrequired by law. In other words, while the disputants to an arbitration agreement canagree on precluding the appointment of arbiters on the basis of Nationality andGender, the law does not stipulate such a restriction. Allowing women andparticularly foreigners to act as arbiters significantly facilitate internationalarbitration in India, because foreign disputants may prefer to appoint non-Indians asarbiters.
It should, however, be noted that Article 11(1) of the Act, 1996 implicitlyrecognizes restricting the appointment of foreigners as arbiters, if both disputantsagree upon such a restriction. For instance, the SC in Malaysian Airlines SystemBHD v. Stic Travels (P) Ltd.has held that under Section 11(9) of the presentAct,1996 objection as to the Nationality of arbiter is a mandatorily considerablefactor to be viewed and the court is bound to appoint an arbiter of nationality ofeither of the party. In the present case the court observed that while nationality ofarbiter is a matter to be kept in view, it does not follow from Section 11(9) of theAct that the proposed arbiter is necessarily disqualified because he belongs to thenationality of one of the disputants.
The word “May” is not used in the sense of”Shall”. The provision is not mandatory rule. In case the party, who belongs to anationality other than that of the proposed arbiter, has no objection the Chief Justiceof India (or his nominee) can appoint an arbiter belonging to a nationality of one ofthe disputants. In case there is objection by one party to the appointment of anarbiter belonging to the nationality of the opposite party, the Chief Justice of India(or his nominee) can certainly consider the objection and see if an arbiter notbelonging to the nationality of either party can be appointed.
In this respect, Indian Law significantly follows from the ML, 1985. Theonly limitation that can be regarded as legitimate by the ML, 1985 is nationality.Unfortunately there is no provision even case law about appointment of a womenarbiter in India. The legal restrictions stipulated in some legal regimes for and theauthority and power of the disputants to restrict the membership of a tribunal to aparticular Sex can be attributed to the origin of religious rules especially in the Muslim States.
Under the Indian Law, when appointed to conduct the arbitration procedure,the arbiter must express their acceptance of their position in writing. However,neither does the ML, of which Indian Law of arbitration is a close copy, contain anyprovision about the acceptance of a position as an arbiter in writing. Moreimportantly, Article 12(3) of the Act, 1996 provides that, when accepting theposition, an arbiter must reveal any circumstances which may “give rise to doubts asto his independence or impartiality.” If such circumstances arise after theappointment or during the arbitration proceedings, the arbiter must “take theinitiative in notifying the same to the disputants to the arbitration and other arbiters.”The need for revealing circumstances that prejudice the impartiality of the arbiters is also stipulated in the ML and even in English law.
It may be considered as a shortcoming of the Indian Law of arbitration that itdoes not specify different types of facts that may be regarded as affecting theimpartiality of an arbiter. This can be compared, for instance, with the USA UniformArbitration Act (2000), which provides some examples of such facts, that is, apersonal or financial interest in the outcome of the proceedings, an existing or pastrelationship with a party, witness, counsel, or another arbiter. Such a shortcoming,however, can be attributed to the fact that India has very recently joined the club ofthe most arbitration friendly jurisdictions, and may be dealt with in near future, asthe US has adopted the above provisions as late as the year 2000. It can also be
concluded that after the issuance of an arbitral award, and even before thecompletion of challenging or enforcement of the award, establishing anyrelationship between an arbiter and a party would not affect the validity of theaward.
3.4.2 Challenging the Appointment of an Arbiter
The old topic of revoking the authority of an arbiter and seeking his removalhas been given a new jargon, namely, challenging the arbiter. Precisely, Section 12of the Arbitration Act, 1996 provides the reasons before and after the appointment of arbiter which lead a party to challenge it. This part of the Indian Law ofArbitration is analogous to Section 11 of the Act, 1940 and mainly similar to what isexpressed under Articles 12 of the ML, 1985.
The appointment of an arbiter cannot be objected, “Unless there appearcircumstances giving rise to serious doubt and suspicion concerning his impartiality or independent functioning.”Moreover, under Article 12 (3) of the Act, 1996, aparty that has appointed an arbiter, or participated in his appointment cannotchallenge his appointment, unless the reasons for having serious doubt about hisimpartiality and independence have been known after his appointment.
One difference between the ML and Indian Law is that the former, but notthe latter, specifies an arbiter’s lack of qualifications agreed by the disputant partiesas a ground for challenging him. It can be argued, nevertheless, that the groundmay be a basis for challenging an arbiter, under the Indian Law too, although notbeing provided for expressly.It is to be noted that the Arbitration Act, 1940 does not have any provisionabout qualification for the appointment of an arbiter. Whereas Section 12 (3) of theArbitration Act, 1996 clearly provides the appointment of an arbiter may bechallenged if he does not possess the requisite qualification agreed to by thedisputants.
Because in the field of arbitration it was realized that the number ofdisputes could not be resolved due to lack of requisite qualification, expertise andexperience in that particular subject which is in dispute such as mining,manufacturing, engineering and blasting and the like thus an arbiter is required tohave specific knowledge in field relating to issue of the dispute in hand. In otherwords, an arbiter should be well versed in field concerning the issue of the dispute.In Anuptech Equipment Pvt. Ltd. v. Ganpati Cooperative Housing SocietyLtd.,the Bombay High Court has held that if the appointed arbiter does not possessthe qualifications agreed to by the disputant parties in the arbitration agreement, hisvery appointment is void ab initio and the arbitration proceedings would be totallynull and void and any order passed by him, e.g., terminating arbitration proceedingsfor default of a party in filing claim statement, would be a nullity.Section 13 of the Act, 1996 is analogous to Section 30 and Section 34of Arbitration Act, 1940. Also, this Section is based on Article 13 of ML.It has been argued that the decision of thecourt in such a case, unlike a successful challenge to an arbiter in the court, does notlead to the invalidity of the proceedings or nullity of the award, if it has been madebefore the court decision.
The Indian Law, however, should be criticized for notcontaining an explicit provision similar to Article 14 (2) of the ML. According tothis Article, if an arbiter withdraws from his office, or if a party agrees to terminatean arbiter’s mandate, this does not imply that the ground for challenging him isaccepted either by him or by the relevant party.
The existence of such provision canbe regarded as creating peace of mind for the arbiters to cease their functions. It maybe asked whether provisions regarding challenging an arbiter are mandatory rules, or
the disputants are allowed to agree upon different rules for challenging arbiters.While the spirit of the law points to the autonomy of the disputants, particularly withregard to the procedural law of arbitration, specifying the above rules amounts toproviding for mandatory rules.
3.4.3 Arbiters’ Responsibility
As seen before, the arbiters must accept their position in writing. Thisrequirement indicates the contractual nature of the relationship between the arbitersand the disputant parties, under Indian Law. This means that by accepting their postin writing, the arbiters commit themselves to go through the arbitral procedure,follow the requirements of the arbitration agreement, and finally issue an award. Itcan be said that, by accepting their post, the arbiters create legal responsibility forthemselves not only to follow the rules set in the arbitration agreement, but also tocomply with Indian Law of arbitration at large. For instance, they are obliged todeclare any circumstance that might prejudice their impartiality or independence.
Arbiters may be liable for their actions or omissions, as judges are.
Hence, they mayalso be liable to compensation, if they are guilty of fraud or gross negligence givingrise to losses for any of the disputants. Although there is no provision to such effectin Indian Law, such liability may be concluded from the general principles of law inIndia. Nevertheless, it may be possible for the arbiters to have immunity fromliability, as rules of many arbitration institutions contain an immunity clause.
3.4.4 Jurisdiction of the Arbitral Tribunal
The jurisdiction in context to tribunal consists in and is confined to thereference made by the disputants to the tribunal to decide the contentious issuesforming the dispute between the disputants. In International Pharmaceuticals v.Union of India, the Delhi High Court observed that the legislative intention ismanifest in view of the enactment of Chapter IV and Section 16 of the Act of 1996to have the disputes between the disputants adjudicated by arbitral forumexpeditiously.The expression used in Section 16 (1) of the Act, 1996 that “ArbitralTribunal may rule on any objections with respect to the existence or validity of the
arbitration agreement” shows that the Arbitral Tribunal’s authority under Section16 of the Act, 1996 is not confined to the width of its own jurisdiction, but goes tothe very root of its own jurisdiction and there is no impediment in contending beforethe tribunal that it had been wrongly constituted.
Article 16 of the Arbitration Act, 1996 provides that it is within thecompetence of an arbitration tribunal to decide about any objection to its lack ofjurisdiction, and to “the non-existence or invalidity or the irrelevancy of thearbitration agreement to subject matter of the dispute.? Such objections must beraised before a period of time set for the submission of a defence, as agreed uponbetween the disputants or decided by the arbitration tribunal. The participation ofone party in the process of appointing the tribunal does not deprive that party fromraising the above objections.
Any other objection alleging that an issue raised byone party during the course of the arbitration proceedings is not covered by thearbitration agreement must be made immediately. Nevertheless, any delayedobjection may be considered by the tribunal, if it holds that the reasons for such adelay are justifiable.108 Under Article 16 (5), the arbitration tribunal must decideabout the objections to its jurisdiction, the non-existence, invalidity or theirrelevancy of the arbitration agreement to the dispute either before or jointly withdeciding on the dispute itself.
This part of the Indian Law of arbitration is analogous to Section 13 of theAct, 1940 and mainly similar to what is expressed under Articles 16 of the ML.More importantly, Indian Law diverges from the ML on the issue of recourse to thecourt for objecting to the tribunal’s decision on its own jurisdiction. Under Article16(3) of the ML, a request to the court can be made within thirty days of thetribunal’s informing the disputants of the rejection of their objection to itsjurisdiction.
The Court decision shall be subject to no appeal. However, Indian Lawdoes not provide for such a possibility, and the disputants can request the competentCourt to decide on the matter only after the issuance of the final award, throughapplying for its annulment. India, like the ML, does not explicitly mentions whetherthe irrelevancy of the arbitration agreement to the dispute as one of the issues to bedecided by the tribunal or not.
One may say that Indian Law provides an arbitration tribunal with excessivepower and authority, since it allows the tribunal to rule on its own jurisdictionwithout any possibility of appeal. Any external intervention to the tribunal’sdecision concerning its competence to consider a dispute must be delayed until theaward on the merit of the dispute is issued by the tribunal. Nevertheless, it can beargued that the power vested in the tribunal in this regard is not excessive, and ismainly intended to prevent a party from obstructing the arbitration proceedings, since as said before, it is ultimately possible to request the setting aside of an awardthrough the court.
Furthermore, it is a general principle of law known as Kompetenz- Kompetenz theory (or Compétence de la Compétence) that arbitration tribunals aswell as Courts determine their own jurisdiction. As a matter of fact, although theprevious Indian authority for considering arbitral awards, the court, never examinedthe subject-matter of a dispute, it did make the necessary investigation to ensure thatthe arbiters had not exceeded their powers. There is no reason to expect the present competent courts, under of the Arbitration Act, 1996 do otherwise.
The old Indian Law of arbitration, that is, the Act, 1940, provided that thecourt could at any stage of an arbitration procedure raise the issue of the tribunal’slack of jurisdiction. This could be done not only at the request of one of thedisputants, but also on the Court’s own motion. This was regarded as the excessivepower of the courts at the expense of contractual obligations of the disputantsinvolved. However, it is the intention of the present Indian Law of arbitration tolimit the possibility of judicial intervention to challenging the arbitral award merelyafter its issuance. The only problem is that when, after the issuance of the award, the
court decides that the arbitral tribunal did not have jurisdiction, this means that aconsiderable amount of time and money spent by the disputants and the arbiters iswasted. Given the policy of facilitating arbitration, however, such a problem isworthy of toleration.
The question might arise as to what would happen, if the tribunal decidesthat it does not have jurisdiction to decide on a dispute. Such a possibility is not verylikely, as arbiters would be ending their own job and going against the intention ofthe disputants to see their dispute ended. However, it is still a possibility that needsto be dealt with, and stipulated through law provisions. The Indian Law is notexplicit on such occasion, but it can be argued that such a decision would be finaland subject to no appeal, and that the court would not be able to rule on the contrary,as it has been said about the English law of arbitration.
3.4.5 Power to Enforce Orders for Interim Measures
Section 17 is based on Article 17 of the ML, 1985 and it is analogous toSection 27 of the Act, 1940. Under Article 17 of the Act 1996, the arbitrationtribunal has also some enforcing power, if the disputants have an agreement to thiseffect. This is mainly when a party fails to execute orders of the tribunal to takeinterim measures. Such measures, under Article 17(1), can be in the form of anattachment or appropriate security to cover the cost of some other measures requiredby the tribunal or conservatory orders with regard to perishable goods. The
arbitration tribunal has the authority and power, upon the request of one party, togrant permission to the other party to take necessary steps for the execution of itsorders, without prejudice to the party’s right to resort to the court for an order and itsexecution.
It is well settled legal principle that the arbitral tribunal / court which hasjurisdiction to make final order, even in lack of expressed provision can makeinterim order as well. Thus, the arbitral award includes an interim award. In cases,Union of India v. East Coast Boat Builders & Engineers Ltd., and United IndiaInsurance Co. Ltd. v. Kumar Texturisers,the High Court has observed that in theArbitration Act, 1996 though the term arbitral award has been defined but definitionis only an inclusive definition, that is to say, the arbitral award includes an interimaward. Thus, the arbitral tribunal is competent to order interim measures to thedisputants which originate from an agreement i.e., between the disputants, but thearbitration tribunal is not competent to order interim measures to effect the right of aparty who is not a party to such agreement .An interim order /measures must determine some part of the dispute referredto arbitration. It cannot deal with any other matter.
The Allahabad High Court incase Anand Prakash v. Asstt Registrar Co-Operative Societies held that an award ofstay or an injunction pending determination of dispute is foreign to concept ofinterim award. 111 The Co-operative Societies Act, 1912 does come within the preview of the Arbitration Act.
The position under the Act, 1940 was that a party could commence pleading in court by moving an application under Section 20 for appointment ofan arbiter and simultaneously it could move an application for interim relief underthe Second Schedule read with Section 41(b) of the Act, 1940. The Act, 1996does not contain a provision similar to Section 20 of the old Act, 1940. Nor isSection 17 similar to Section 41(b) and the Second Schedule to the old Act, 1940taken to prejudice any power which may be vested in an arbitrator or umpire for making orderswith respect to any of such matters.Under Section 17 the interim measure ordered by the arbitral tribunal aresubject to the rules stated therein to arbitration agreement of the disputant parties.However, Section 17 does not confer power on the arbitral tribunal; to enforce itsorders. However, Section 37 (2) of the Act makes provision that an order to tribunalwhether granting or refusing to grant interim measures is appealable to a court, thusinterim measures are subject to judicial consideration.
There is also no bar to seekjudicial enforcement of the interim measures under Section 9 of the Arbitration Act,1996. It is submitted that the scope of interim measures which can be granted underSection 17 are very limited in comparison with the interim measures which may begranted by the Court.
3.5 Arbitration Procedure
It was the Act of 1940 that for the first time set procedural rules forarbitration in India. Under the Act, there must have been oral hearings the disputantparties had the right to legal representation and it was possible to call a witness,who could be fined, if he failed to attend a hearing. Cross-examination, by the leaveof arbiters, and appointment of umpire was also allowed. The disputants could agreeto empower arbiters to act as amiable compositeur. Unless agreed otherwise, theaward must have been issued within a period after the request for arbitration wasmade to the competent court. The replacement of the Act of 1940 with the Act of1996 introduced a set of procedural rules more in line with the rules accepted by therest of the world.
These rules are analyzed in the following Sections has arisen to which the agreement applies, they or any of them, instead of proceeding underChapter II, may apply to a Court having jurisdiction in the matter to which the agreement relates,that the agreement be filed in Court. The application shall be in writing and shall be numberedand registered as a suit between one or more of the parties interested or claiming to be interestedas plaintiff or plaintiffs and the remainder as defendant or defendants, if the application has been presented by all the parties or if otherwise between the applicant as plaintiff and the otherparties as defendants.
(3) On such application being made, the Court shall direct notice thereof tobe given to all parties to the agreement other than the applicants, requiring them to show causewithin the time specified in the notice why the agreement should not be filed. Where nosufficient cause is shown, the Court shall order the agreement to be filed, and shall make anorder of reference to the arbitrator appointed by the parties, whether in the agreement orotherwise, or, where the parties cannot agree upon an arbitrator, to an arbitrator appointed by the Court. Thereafter the arbitration shall proceed in accordance with, and shall be governed by,the other provisions of this Act so far as they can be made applicable.
3.5.1 Procedural law of arbitration
The Procedural law (or lex arbitri) is only one fraction of legal norms whichare applicable and used during arbitration proceedings by the arbitral tribunal. Thelex arbitri as part of arbitration which it comes to such a complex subject asregulation of arbitral proceedings. It may be classified as below:
a) Internal Procedural Law: A body of rules which relates to the internalconduct of arbitration proceedings and governs relations betweendisputant parties and disputants and arbiters.
b)External Procedural Law: A body of law which regulates therelationship between tribunal and national courts in cases ofrecognition and enforcement of the award or other procedural matterslike as interim measures or challenge of arbiters.Practically, the distinction between procedure and substance law has notalways been recognized in the law of arbitration. For in instance in case Union ofIndia v McDonnell Dougla arbitral tribunal recognized that procedural lawforms a separate part of the law that governs arbitration:
“The fact that the law of India is the proper law of the arbitration agreementdoes not, however, necessarily entail that the governing the arbitrationproceedings themselves is also the law of India, unless there is in thatagreement some effective express or implied term to that effect. In otherwords, it is, subject to one proviso, open to the parties to agree that their
agreement to arbitrate disputes will be governed by one law, but that theprocedures to be adopted in any arbitration under that agreement will be governed by another law.”
Article 19 (2) of the Act of 1996 is most liberal part in the context of modernarbitration law which allows the disputant parties to an arbitration agreement tochoose the law applicable to their disputes. Specifically regarding the arbitrationprocedure, Indian Law of arbitration provides that the procedure of arbitration mustbe agreed upon by the disputant parties to the arbitration. It also permits thedisputant parties to subject the arbitration procedure to the rules and regulationsadopted by an arbitration organization or centre in India or abroad. That means whenthe law allows the disputant parties to choose the procedure, either party may
authorize a third party, which may be any arbitration organization or centre basedeither in India or abroad, to choose such procedure. For instance, in Aurohill GlobalCommodities Ltd. v. Maharashtra Stc Ltd.,Articles 19&20 of the arbitrationagreement stated that all disputes arising in connection with their agreement will beresolved by arbitration locally under the British rules of arbitration.
In the absence of any agreement between the disputants regarding thearbitration procedure, the tribunal itself, while taking account of the Act of 1996,can adopt the suitable arbitration procedure.120 While Indian Law is explicit aboutthe possibility of adopting procedural rules established by an international or Indianarbitration institution, adopting procedural law of a foreign State is implicitlyrecognized. In this regard, Indian Law exactly follows the pattern set by Article 19(2) of the ML, 1985. It explicitly provides that the power conferred upon the arbitraltribunal in conducting the arbitration includes the power to determine theadmissibility, relevance, materiality and weight of any evidence.
Nevertheless, thearbiters have an authority and power to do so subject to not undermining the right ofdefence. As a general rule, it is accepted that arbiters are not bound by restrictiverules on the administration of justice, as judges are.As noted earlier, the Arbitration Act of 1996 can also be chosen by thedisputants as the applicable law to arbitration outside India. The question mightarise, however, as to which law applies to the procedural details not specified by theAct, for instance, about the details of a valid summons would it be the national lawat the seat of arbitration or Indian Law? It may be said that if the disputants agree onIndian Law as a whole as the applicable law, the details as determined by IndianLaw applies to the arbitration procedure. Otherwise, the law of the forum country
will be applicable.
3.5.2 Date, Place and Language
‘The commencement of the arbitration is the first formal step that a claimantmust take and in many regards is the most important.’ The authors of this quotehighlight that the claimant will therefore have to “consider the content of the noticeof commencement and the time when that notice needs to be served.” Section 21 of the Act, 1996 is modelled on Article 21 of the ML, it providesas to when the arbitral proceeding are to commence and it also provides a maximumfreedom to the disputants to decide upon the date, in respect of particular dispute,
when to being the arbitral proceeding. If the disputants could not agree on date ofcommencement of arbitration proceeding in respect of a dispute, the arbitralproceedings are deemed to begin on the date on which request to refer the particulardispute to arbitration is received by the respondent.
An application containingrequest to begin arbitral proceedings must clearly mention date on which a requesthas been made. This Section is of close related to Section 3 and the savingsprovision in Section 85(2) (a), it is the running period of limitation. Section 21 provides that arbitral proceeding in respect of a particular disputeshall commence on the date on which a request for that dispute to be referred toarbitration is received by the respondent. It is, therefore, clear that the datecommencement of arbitration proceedings should be deemed to commence from thedate of service of a notice for appointment of an arbiter and not from the date whenthe request is received by the respondent for initiating action for arbitration, hasfound place in Milk food Ltd. v. G.M.C. Ice Cream (P) Ltd., . Thus byinterpretation above case, the SC has preferred the date of commencement of thearbitration proceedings from the date of notice served to respondent instead of thedate of receipt of the notice by respondent, though in Section 21 of the ArbitrationAct, 1996, it is clearly mentioned that commencement of proceedings shall betreated from the date of receipt of such notice by the respondent.
The determination of place of arbitration plays a key role in the arbitral process. So, it is necessary for the disputants to provide for an express choice ofthe seat of arbitration in their agreement, or after a specific controversy has arisen. Under Article 20 of the Act, 1996, the disputants to an arbitration agreement are amaximum free to agree on the place of arbitration as the venue of arbiter is to befixed by the disputants by mutual consent. However, if they fail to do so, the tribunalcan decide on the place of arbitration, while taking into account the convenience ofthe disputants and the circumstances of the case.
Some commentators strongly arguethat the arbitration tribunal’s choice of the place of arbitration is not as wide as thatof the disputants. Hence, arbiters cannot choose a place outside India, unless it isapproved by the disputants. It is also worth mentioning that if the disputants havechosen the arbitration rules of an arbitration centre, this does not necessarily indicatethat they have agreed that the place of arbitration to be where the arbitration centreis located.
The choice of the place of arbitration may have significant legalimplications, since if the disputants have not agreed on the law of arbitration, thelaw of the place applies to the case. Consequently, the arbitral award will be subjectto the judicial review in the country where it is made, and the country’s procedurallaw on issues such as arbitrability and international public policy may be applicableto the arbitration.
Even if the disputants have agreed on the law of arbitration, insome cases the law of the seat of arbitration might still be relevant.Under Indian Law, irrespective of the choice of the place, the arbitrationtribunal has the authority “to convene in any place it deems appropriate to undertakeany arbitral procedure, such as the oral hearing of the disputants to the dispute,witnesses or experts, the sighting of documents, the viewing of merchandise orproperty, the conducting of deliberations amongst its members, or otherwise.
This is because, in certain circumstances, it might be more effective to conduct someparts of the proceedings somewhere other than the seat of arbitration. For instance,inspections have to be carried out where the goods or properties are located or somewitnesses or expert might not be available in the place of arbitration.
Where the convenience of the disputants was ignored by the tribunal infixing the venue of the tribunal, it was held by the Allahabad High Court asequivalent to the breach of natural justice in the case of U.P. Forest Corporation v.Vishwa Nath Goshwami.The disputants and subject matter of the dispute weresituated at Almora whereas the venue of the arbitral tribunal was fixed Lucknow inabove case. To facilitate the convenience of the disputants, the venue of the arbitraltribunal may be challenged and this will not come under of category of misconduct.
It is in the best discretion of the arbiters to visit the home of a sick witness to obtainhis evidence as well as to refuse to visit the home of a sick witness for recording his
evidence. It will not be treated as misconduct.The issue of determination of languages as such especially becomessignificant in subject matter of ICA. Article 22(1) of the Act, 1996, while requiring(mostly in) English as the official language of the State to be used in arbitration,respects the contractual nature of arbitration, by allowing the disputant parties or thetribunal to choose the language they prefer.
The language of the proceedings is to be indicated by the disputants undertheir agreement, failing which the arbitral tribunal will determine the language of itsproceedings. The language so selected is to apply to any written statement of a party,any hearing and any arbitral award, decision and any communication by the tribunal.The arbitral tribunal may order that documents filed before it shall be translated into that language.
The provision contained in Section 22 of the present Act, 1996 is to make theAct applicable to International arbitration, because it involves languages of different. The earlier Arbitration Act, 1940 did not contain any provision dealing withlanguages.
Time schedule is vital for a judicial system like India which suffered from the fataldisease of sluggish moving in practice The India judicial system is impaired byinexplicable and inordinate delays. Many a time parties suffer because their disputes arenot settled in a rational time. The emergence of time schedule has light a fresh hope. Arbitration agreement may even contemplate reference of a time barred claim. Apolicy of insurance required the assured to refer the matter to arbitration within twelvemonths of the company’s disclaimer. The assured it after twelve months and yet thereference was held to be binding. Under Section 25(3) of the Indian Contract Act of 1872,a time-barred claim can, therefore, validly from the subject matter of reference.
A distinction, however is to be made between an arbitration agreement entered into about atime-barred claim and a reference made on the basis of an arbitration clause after theexpiry of the period of limitation. In the latter case no reference can be made as the right toclaim cease to subsist and the relief with respect to the dispute has become time-barred.Ruby General Insurance Co Ltd. v. Peare Lal Kumar is a typical case of itskind. In this case, Punjab High Court has emphasized – “…but where there is no specificreference of time-barred claim the arbiter can reject a claim on the ground that it is timebarred. And also in the case of Sarkar & Sarkar v. State of W.B., the Calcutta HighCourt in 1992, has observed whether the claim is time- barred is for the arbiter to decide.
The disputants may make a plea that the claim is time barred. It will be for the arbiter todecide the matter.The Indian Law of arbitration, which is concerned with the effectiveness ofarbitration processes, does not sets a time schedule for considering a dispute and makingthe award. The benefit is mainly to preclude any dilatory tactics used by a violating partyor even by the arbiters. Neither the ML, 1985 and various international arbitration treatiesand conventions or institutions to which India follow them, nor does Indian Law provide aschedule for different stages of arbitration, such as arbitration process, submittingstatements of claim and defence, or notifying a party of such statements.
3.6.4 The Adversarial Procedure
Article 23 of the Act, 1996, which is equivalent to Article 23 of the ML,specifies the requirements of statements of claim and defence by the disputants.Article 23(1) of the Act, 1996, reads; “within the period of time agree upon by thedisputants or determined by the arbitral tribunal, the claimant shall State the factssupporting his claim, the points at issue and relief or remedy sough, and therespondent shall State his defence in respect of these particulars, unless thedisputants have otherwise agreed as to the required elements of those
statements.” Such a statement initiates the arbitral proceedings. It is worthy ofmention that a statement of claim requires much more details than that is requiredfor a request to refer a dispute to arbitration. A statement of claim must be providedwithin the period of time agreed upon by the disputant parties or prescribed by thetribunal.
Under the Arbitration Act, 1996, the disputants can enclose to theirstatements the copies of some supporting documents or evidence, and can makereference to them in their statements. The arbitration tribunal has the right to requirea party to submit the original documents or evidence relied upon in the statements.Article 24(3) of the Act, 1996 requires that each party must be provided with thecopies of the submissions, documents, evidence, experts’ reports and any otherrecord submitted to the arbitration tribunal by one of the disputants or others.
Article 23(3) of the Indian Law permits a party to amend or supplement his claim ordefence during the course of arbitration proceedings, unless the tribunal rules thatsuch modification is inadmissible in order to prevent delay in making the arbitralaward. This provision is equivalent to Article 23(2) of the ML (1985). However, ithas been argued that the authority and power granted by Indian Law to the arbitraltribunal should be used with caution, in order not to prejudice the right of a party tofair hearing.
Regarding hearings, Article 24(1) of the Act, 1996 provides that thearbitration tribunal can arrange hearing sessions in which the disputants can explainthe subject-matter of the dispute, and present their evidence and arguments. On theother hand, unless the disputants agree otherwise, the tribunal may issue its awardonly on the basis of written submissions and documents. Therefore, a request for ahearing can be refused, unless requested by both disputants. However, the tribunal’srejection of holding hearings may be considered as a breach of due process, andconsequently may be regarded as a ground for setting aside or non-enforcing thearbitral award. Hence, the tribunal should allow holding hearings, even if the requestis made only by one of the disputants and refused by the other. This Section is on thepattern of Article 24 of the ML, 1985 that states, unless the disputants have agreed
otherwise, upon the request of a party, the tribunal shall hold oral hearings.Nonetheless, it can be said that the Indian Law of arbitration completely requiresholding an oral hearing, upon the request of only one of the disputants. This isbecause, for instance, Article 26(2) of the Act, 1996 provides that the tribunal maydecide to convene a session to hear its expert’s report, if requested by one of thedisputants.
Compared to Sections 43 ; 44 of the English Arbitration Act, 1996, theIndian Law of Arbitration is less specific about the authorities and powers of anarbitration tribunal in relation to witnesses, evidence and the like.For instance,under the English law, inquisitional powers is granted to the tribunal, in order toplay an active role in ascertaining the facts and the law, whereas such a power forcross-examination is not explicitly provided for, under the Indian Law. This can beregarded as a shortcoming of this legal system.Under Article 18 of the Arbitration Act, 1996, “the disputants shall betreated with equality and each party shall be given full opportunity to present hiscase.”This provision secures certain important requirements of due process, that is,non-discrimination and equal treatment of the disputants, as well as full opportunityfor claim and defence.
It is the equivalent provision to Article 18 of the ML.The complainant’s failure to submit his written statement of claim, withoutany acceptable reason, requires the tribunal to terminate the proceedings, unless thedisputant parties have agreed otherwise.On the other hand, if the respondent fails to submit his statement of defence, in the absence of an acceptable reason, thearbitration tribunal must continue the proceedings. Such a failure however is nottantamount to admitting the claims of the complainant by the respondent. Article25(c) of the Act, 1996 provides that if a party fails to take part in a hearing or tosubmit a required document, the tribunal may continue the award on the basis of the available evidence.
These provisions are stipulated, inorder to preclude dilatory tactics by a party.The Arbitration Act of 1996 authorizes the arbitration tribunal to use expertviews in the arbitration proceedings. Article 26(1) of the Act, 1996 reads”Unlessotherwise agree by the disputants, the arbitration tribunal may appoint one ormore experts to report to on specific issues determined by the arbitral tribunal”. Ithas been argued that the appointment of experts (i.e., legal expert, technical expertand financial expert) is usually made upon the request of one of the disputants. Thetribunal may also do so, without requiring the consent of the disputants, if it finds it necessary. In such a case, however, the disputants may refuse to reimburse theexpenses arising from employing the experts.
The Indian Law need to goes beyondArticle 26(1) (a) of the ML, 1985 by stressing that expert reports must be recordedin the form of minutes. It also requires that the copies of the tribunal’s decisionspecifying the scope of the functions assigned to the expert shall have to be sent toeach of the disputants.148 This requirement is necessary because, under Article 26(1)(b) of the Act, 1996, the disputants are obliged to provide the experts with anyrelevant information, and to enable them to inspect and check any of the documents,goods and other properties relating to the dispute as may be required by the experts. Again here Indian Law need to goes beyond the ML, and provides that inany dispute between the disputants and the experts, regarding access to the aboveinformation, the tribunal shall make the decision. This is an important provisionas it may settle many such differences that often arise between a party and theexperts.
The experts usually investigate technical or accounting issues, and if theapplicable law is a foreign law, they may provide the tribunal with legal assistance.Another advantage of Indian Law over the ML is that the former requires thetribunal to send a copy of expert reports immediately to the disputants in order togive them the opportunity to comment on it and pursue and check the documentson International Commercial Arbitration relied upon by the experts. Inspired by the ML, Article 26(2) ; (3) of the Act,1996 provides that unless the disputants have agreed otherwise, the tribunal, uponthe request of one party or on its own initiative, can decide to convene a hearingwhere the disputants can discuss with the experts about their report that has alreadybeen submitted. The disputants can also present their own experts who can expresstheir views regarding the tribunal experts’ reports. Beyond such expert discussion,the disputant parties can present their own experts during the arbitration proceedingswhich it is not clear in this Act.
In services of most famous institutional arbitration bodies in India, such asthe Construction Industry Arbitration Council or the Indian Council of Arbitration,helps in avoidance of appointment of separate experts because they empanelthemselves as arbiters who are experts of fields and when an expert is appointed asan arbiter depending upon the nature of the dispute, his expertise may serve thepurpose and a separate expert need not be appointed. In view of Russell, “Thefunction of the arbiter does not need up with the appointment of an expert intechnical matters, but he must form his own judgment upon the information orOpinionreceived from the expert.”
It means in spite of obtaining the opinion ofexpert the arbitral tribunal is not bound to rely on such opinions, but the tribunal isrequired to form its own judgment upon the opinion of expert.It is clear that the arbitral tribunal have no power to issue processes forwitnesses. Article 27 of the Arbitration Act, 1996 is a significant feature of theIndian Law of arbitration that it allows the intervention of the Court in takingevidence. This Section signifies very impressive approach in matter of arbitrationwhere an arbitral tribunal may take a Court’s assistance to get evidences as suchthrough that court, according to Court’s process. Such a decision is final, withoutallowing any appeal. Following a request by the arbitration tribunal, the ChiefJustice of Court can also issue orders for judicial delegation.
Under Sub-Section (1) of Article 27 of the Arbitration Act, 1996, the tribunalas well as any party with the approval of the tribunal can apply to the competenceCourt for assistance in taking evidence. Under Section 43 of the repealed ArbitrationAct, 1940, only the arbiter or umpire could apply and not a party.The relevant ML provision that has inspired the Indian provision onlyvaguely mentions court assistance in taking evidence. By contrast, the EnglishArbitration Act, 1996 contains a more articulate provision, in this regard. Itprovides that “A party to arbitral proceedings may use the same court proceduresas are available in relation to legal proceedings to secure the attendance before thetribunal of a witness in order to give oral testimony or to produce documents orother material evidence.”
The permission of the tribunal or the disputantsagreement is needed for recourse to such procedures. The above provision isapplicable, when the witness is in the UK, and when the arbitral proceedings areconducted in England, Wales or Northern Ireland.Since, unlike court procedures, arbitration is meant to be free fromformalities, the disputants may personally undertake the representation of their case,without seeking professional assistance. Nevertheless, a party can give the power ofattorney to somebody else at various stages of arbitration. Such power must be giventhrough special authorization, when it is required by the law. However, the power ofattorney before the arbitration tribunal can usually be granted less formally, throughwritten communications or even orally, while representation before the court shouldbe notarized. The Indian Law does not require the representative to be a lawyer. Inoral hearings, the disputants may be accompanied by legal counsels, who may beforeign citizens and not necessarily lawyers admitted to the bar.
Although not explicitly stated in the law, the arbiters may render their awardafter summary proceedings, when the respondent does not have an arguable andmeritorious defence. Making a summary award, before full disclosure of documents,helps avoiding undue delay and expenses, in the absence of defences. The tribunalshould conduct summary proceedings in such a way that the defendant cannotchallenge the award in an action for setting it aside.
3.6.5 Suspension and Interruption of the Arbitration Proceedings
Neither the ML, nor does India allows the suspension of arbitral proceedingsin certain circumstances set out in law. The arbitral proceedings are interrupted inthe following cases the death of one of the disputants, his loss of capacity, thecommencement of proceedings for forgery, or the commencement of criminalproceedings for forgery or for other criminal offences. Any procedural action takenduring the interruption period is void, and this period is not considered as part of thetime limit for arbitration proceedings.On the other hand, if an issue is raised that does not fall under thejurisdiction of the tribunal, or if a legal action is taken regarding the forgery of adocument submitted to the tribunal or any other criminal offence, the arbitrationproceedings can continue, on the condition that the tribunal comes to the conclusionthat the outcome of the above legal action will not have any impact on the decisionof the tribunal.
However, if such an impact is predicted, the arbitration proceedingsmust be suspended, until a final decision about the alleged offence is made by theCourt.
It is important to notice that, it is the arbitration tribunal that decides whether matter outside its jurisdiction may affect its decision, and hence halt theproceedings or not. Therefore, not any matter outside the jurisdiction of the tribunal,but relating to the proceedings, can automatically interrupt the proceedings.
3.7 Substantive Law of Arbitration
The Act, 1996 provides that the disputants to an arbitration agreement canchoose the law to be applied to their disputes by the arbiters. Under Article 7 of theAct, 1996, if the two disputants to the arbitration agree to make the legal relationshipbetween those subject to the provisions of a model-format contract, an internationaltreaties and convention or any other text, effect shall be given to the provisions ofsuch text, including any provisions relating to arbitration which it contains.Specifically regarding the substantive law of arbitration, Article 28(1) (i) ofthe Act, 1996 provides that the arbiters must apply to the subject-matter of thedispute the terms and conditions agreed upon by the disputant parties.
Thus,”autonomy” provided under this sub-Section would promote ICA in India. InAurohill Global Commodities Ltd. v. Maharashtra Stc. Ltd.Articles 19&20 of thearbitration agreement provided that “this Agreement and the rights and obligationsof the disputants hereto shall be governed by and construed and given effect to inall respects in accordance with the local law.”In the above case, the arbiters notonly applied the relevant provisions of Indian Law, but also when there was no suchprovision relating to the dispute, they referred to the jurisprudence of the IndianCourt.
Under the Indian Law, if the disputants have chosen the law of a country tobe applied to resolve their disputes, it is the substantive rules of such law that applyto the dispute, and not its conflict of laws rules, unless the disputants agreeotherwise.
The SC in TDM Infrastructure (P) Ltd. v. UE Development India (P)Ltd., has observed Section 28 has been held to be imperative in nature. Thelegislative intent is that Indian nationals should not be permitted to derogate fromIndian Law. That is a part of the public policy of the country.
Therefore, under the Act, 1996, the disputants can make their disputessubject to foreign law. In this way, India follows England, in allowing theapplication of foreign laws on disputes referred to arbitration in the country, withoutbeing considered as a foreign arbitration. Authorizing the contracting disputants tostipulate for a foreign law to govern their agreement, on the condition that it is notcontrary to public policy. It can be considered as a shortcoming of the Indian Law ofarbitration that it does not stipulate a situation where the disputants’ choice of theapplicable law is implicit.
In the absence of an agreement by the disputants on the applicable law to thesubstance of the dispute, the arbitration tribunal shall apply the law that it finds”very much relevant to the dispute.” When deciding on the substance of thedispute, the tribunal must take into consideration the terms of the agreement as wellas the commercial customary laws which are relevant to the subject-matter of thedispute. The latter requirement can be interpreted as the need for the agreement tocomply with the current trade customs and usages prevailing in the similar type oftransactions.
The Indian Law of contracts plays an important role in determining theproper law applicable to the contract, indicating the type of the contract, which canbe the sale of goods or real property, the terms of employment, and ownership ofintellectual property developed as part of a work for hire, and the like.It is an important feature of the Indian Law of Arbitration that, following theML, it allows the tribunal to decide ex aequo et bono or as amiable compositeurits historical origins in French law,
and to facilitate conciliation between the disputants, if thedisputants expressly authorize it to do so. Though, ex aequo et bono have not beendefined under sub Section (2) but, the disputants may tell the words to arbitraltribunal to do. The disputants are permitted to seek an amicable rout independentlythrough arbitration, but cannot dictate against the public policy of India. The wording of the Indian provision authorizing the arbiters to settle a
dispute as amiable compositeur reinforces the above mentioned confusion. It statesthat if the disputants expressly authorize the tribunal to reach conciliation betweenthe disputants, the arbitration tribunal may resolve the dispute on the basis of equityand fairness, without being restricted to the applicable law.
This makes arbitration procedures See for example, the New Code of Civil Procedure (France), arts. 1474,1495 and 1496, and the Québec Code of Civil Procedure, Art. 944.10. See also Art. 1054(2) ofthe Netherlands Arbitration Act; Art. 182 of the 1987 Swiss Law on Private International Law;Art. 28(1) of the 1993 Russian Law on International Commercial Arbitration; Art. 834(1), Part I,of the Italian Code of Civil Procedure; 1051(1) of the German Code of Procedure and the U.K.
Hence, it is said that the Western concept of arbitration by amiablecomposition has not yet fully assimilated into Indian legal systems and that theconcept of equity, in Indian legal thinking, is not linked to adjudication but tomutual concessions. The aforementioned difficulties can be addressed bymodification of the law and the expansion of doctrinal works.
3.8 Arbitral Awards
Arbitral proceedings are ended when an award is made by the arbitrationtribunal. The arbitration tribunal, if consisted of more than one person, must makeits award on the basis of the majority vote, unless otherwise is agreed by thedisputants. Hence, it is conceivable that the disputant parties agree that the awardmust be made unanimously, or by the chairman of the tribunal. A possibility aboutwhich Indian Law is silent is the cases where despite the disputant parties agreement, a majority vote is not achieved, for example, when each arbiter gives adifferent vote.
The law should provide appropriate arrangements for such apossibility. One way out of this difficulty can be providing the presiding arbiter withthe right to make the final decision. Although, there is no umpire system under theAct of 1996 but the Apex Court in Reserve Bank Of India v. S.S. Investment Ltd.considered the question when two arbiters have given different arbitral awards,thus disagreeing with each other and consequently appointment of arbiter sought formaking reference which was challenged by one of the arbiters.
The Court has heldthat disagreement between two arbiters and their action i.e., allowing the time limitto expire without making an arbitral award, clearly shows their disagreement to eachother, hence the appointment of umpire was justified and umpire’s entering upon the reference was not illegal. The Act of 1996 requires that the arbitration award or a part of it cannot bepublished without the approval of the disputant parties. This is because arbitration isa confidential method of dispute settlement. However, when an arbitration case isbrought before the court, whether for enforcement or setting aside, it may becomepublic and available for comment and citation.
3.8.1 Binding Awards, without the Possibility of Appeal
The binding nature of the arbitral award is fundamental in the concept ofarbitration. The awards passed in accordance with the provisions of the Act of 1996shall not be subject to appeal in any manner prescribed by law. Other decisions ofthe tribunal are also not subject to appeal. For instance, under Article16(5) of theAct of 1996, there is no right of appeal to the tribunal against its decision regardingobjections to its jurisdiction, or the non-existence, invalidity or the irrelevancy of thearbitration agreement to the dispute. This indicates not only that there cannot be anyappeal against such awards by recourse to arbitration, but also that it is not possibleto resort to the court to appeal against these awards. Although, as we will see later, itis possible to request a Court action for setting aside the award, such a legal actioncannot be considered as an appeal.
This is because errors of fact and law are notusually investigated, when a request for vacating an award is dealt with. Onlyprocedural irregularities or substantive problems involving obvious and gravemistakes may lead to the nullity of an award. Although there cannot be an appealagainst an award, it cannot be ruled out that a dispute be referred to arbitrationagain, for instance if the award is annulled.
Practically, Modern legal regimes tend to deny the possibility of appealagainst an arbitral award. Nevertheless, under certain circumstances, appeal ispossible in India, within a fixed period of time, and before the enforcement of theaward by the Court. For instance, appeal is allowed, unless the disputants have anagreement to the contrary or if the award is a result of amiable composition, orcompromise, there will be no possibility of appeal.
3.8.2 Interim Measures
The availability and handling of Interim Measures in ICA has become one ofthe main subjects in developing a legal setup for arbitration and it can have asubstantial effect on the final award in international arbitration, especially whensubject matters relating to protection of evidence and assets arise before or duringthe course of the proceedings.The ML, 1985 in Article 17(2) clearly defines “Interim Measures” as;”An interim measure is any temporary measure, whether in the form of anaward or in another form, by which, at any time prior to the issuance of theaward by which the dispute is finally decided, the arbitral tribunal orders a
(a) Maintain or restore the status quo pending determination of the dispute;
(b) Take action that would prevent, or refrain from taking action that is likely to
cause, current or imminent harm or prejudice to the arbitral process itself;
(c) Provide a means of preserving assets out of which a subsequent award may
be satisfied; or
(d) Preserve evidence that may be relevant and material to the resolution of thedispute.”
The Indian Law, unlike the ML (1985), expressly permits the tribunal tomake interim and partial awards. Under Article 31(6) of The Act of 1996, thearbitration tribunal may issue provisional decisions, or decide on part of the claims,before making its final award. Partial awards dispose of some of the main matters,and usually are made on the basis of the urgency of some issues. For instance whena contractor has completed his works, but the employer refuses to issue thecertificate of completion until the final award is made. In such a case, the tribunalmay order the issuance of the certificate. Interlocutory awards on the other handdeal with procedural issues such as the non-arbitrability of the dispute the invalidityof the arbitration agreement and lack of jurisdiction of the tribunal. As seen before interlocutory awards can be made before, or jointly with the final award.Interlocutory awards do not require enforcement though partial awards may do so.
The Article is silent about enforceability of such awards which is probably left tothe judicial authorities to decide upon. Those partial awards that finally resolve amatter should be enforceable.The Act of 1996 also stipulates another type of interim measures that aremainly intended to protect the subject-matter of the dispute. Under Article 17(1) ofthe present Arbitration Act, 1996, upon the request of a party, the arbitration tribunalmay issue orders to any of them to take suitable temporary or precautionarymeasures necessitated by the nature of the dispute.
The tribunal may also order thesubmission of an adequate security to cover the cost of the measures to be taken byits orders. Such a pragmatic measure secures compliance with the tribunal sprotective orders. Both types of arbitral orders are allowed on the condition that thedisputants already have an agreement permitting the tribunal to issue such orders.There is no difference between this Article and its equivalent under the ML, 1985. Only certain urgent types of interim measures can be ordered by the tribunal such as the sale of perishable goods the destruction of food harmful to public health and the suspension of the calling of guarantees.
A tribunal is not competent to ordermeasures like placing a building under sequestration, or imposing conservatoryattachment on assets or disputed sums of money due to the nature of such measures.The emphasis of Article 17(1) of the Act of 1996 that the interim award must be”necessary in respect of subject matter of the dispute” is susceptible to a restrictiveinterpretation according to which only provisional measures that are directly related to the subject-matter of the dispute can be permitted. Hence, for instance freezing ofassets that are not directly the subject-matter of the dispute may not be allowed.
TheSC in M.D. Army Welfare Housing Organization v. Sumangal Services (P) Ltd,held that the power conferred on the arbiter under Section 17 is a limited one. Itcannot issue any direction which would go beyond the reference or the arbitrationagreement. The interim order made by the arbitral tribunal under Section 17 mustrelate to the protection of subject matter of dispute and the order may addressed onlyto a party to the arbitration. It cannot be addressed to other disputants. But no powerhas been conferred on the arbitral tribunal under this Section to enforce its order nordoes it provide for judicial enforcement thereof.
Neither the Indian Law, nor the ML, does explicitly provide for thetermination or modification of interim measures, but there is no reason to assumethat they do not allow such decisions.
A more important issue is that they do notprovide for the obligation of the party requesting the interim award to inform thetribunal of any material change to the circumstances requiring the measure. Thismay be considered as a shortcoming of both pieces of law.It is significant to note that the Act of 1996 has not provided for anymechanism for execution of order made by the arbitral tribunal under Section 17,neither in the Section itself nor in any other Section of the Act. Perhaps this is aserious lacuna which has escaped attention of the framers of the present Act, 1996.
However, certain States notably Canada and Scotland have specifically provided intheir arbitration law that an order of the arbitral tribunal regarding interim measuresshall take the form of an arbitral award which would be enforceable just like anaward made by the arbitral tribunal. In the lack of any particular mechanism for enforceability of direction ofarbitral tribunal regarding interim measures pertaining to protection of the subjectmatter of the dispute and providing adequate security in connection thereof theprovision contained in Section 17 appears to be a “toothless tiger” and totallydepends upon the morality of the disputants. It is heartening to note that theproposed Arbitration (Amendment) Bill, 2003 seeks to remove this lacuna byintroducing two new Section 24 (A)179 and 24 (B) in the Act in order to provideon efficacious mechanism of imparting interim measures.
If the result of the interim measures is to be ensured the followingsuggestions by Dr S.S.Misra may be implemented by adding them through amendment of Section 17.
I. “The interim order may be treated at par the ‘award’ whose enforceability isensured as a Court- decree.
II. In case of non-compliance of the interim measures ordered by the arbitraltribunal, it should have the power to order;
a) Striking out the pleading,
b) Imposition of costs including examplanary costs,
c) Ignoring of material documents,
d) Ignoring of material documents,
e) Drawing of adverse inferences from the evidences produced before
the arbitral tribunal
“24A. (1) If a party fails, without showing sufficient cause, to comply with a directions made
under Section 17, or time schedule determined under section 23 or orders passed under section24, as the case may be, the arbitral tribunal may make a peremptory order to the same effect prescribing such time for compliance as it considers appropriate.
(2) If a claimant fails to comply with a peremptory order made under sub-section (1) in relation to adirection specified in clause (c) of section 17, the arbitral tribunal may dismiss his claim andmake an award accordingly.
(3) If a party fails to comply with any peremptory order made under sub-section (1), other than theperemptory order in relation to a direction specified in clause (c) of section 17, then the arbitraltribunal may (a) make such order as it thinks fit as to payment of costs of the arbitralproceedings incurred in consequence of the non-compliance (b) direct that the party in defaultshall not be entitled to rely upon any allegations in his pleadings or upon any material which wasthe subject-matter of the order (c) draw such adverse inference from the act of non-complianceas the circumstances may justify (d) Proceed to make an award on the basis of such materials ashave been provided to it, without prejudice to any action that may be taken under section 25.”
“24 B.(1) Without prejudice to the power of the Court under section 9, the Court may, on anapplication made to it by a party, make an order requiring the party to whom the order of thearbitral tribunal was directed, to comply with the peremptory orders of the arbitral tribunal madeunder sub-section (1) of section 24A. (2) An application under sub-section (1) may be madeby— (a) the arbitral tribunal, after giving notice to the parties; or (b) a party to the arbitralproceedings with the permission of the arbitral tribunal after giving notice to the other parties.
3) No order shall be made by the Court under sub-section (1), unless it is satisfied that the partyto whom the order of the arbitral tribunal was directed, has failed to comply with it within thetime fixed in the order of the arbitral tribunal or if no time was fixed, within a reasonable time.
(4) Any order made by the Court under sub-section (1) shall be subject to such orders if any asmay be made by the Court on appeal under clause (b) of sub-section (2) of section 37.”
As a last resort the arbitral tribunal may be authorized to prepare the best forapproaching the court by issuing a peremptory order on the line of interimmeasures, and the ball of enforcement as such to be placed in the Courtyardof the Court.”
3.8.3 Settlement during Proceedings
Since settlement of the dispute cheaply and speedily is the ideal of the ML,1985 and the main object of the present Arbitration Act, 1996, Section 30 providesand encourages mutual settlement of dispute by disputants before the arbitraltribunal. The legislator with this section gives this position to tribunal that to theextent possible it should encourage the disputants to come to a voluntary settlementand for this purpose to use arbitration. This is a developmental and new specificprovision of the Act of 1996, in arbitration law.Article 30 of the Act of 1996 provides that if, during arbitral proceedings, thedisputants reach a settlement ending their dispute, they may submit to the tribunalthe terms of their settlement agreement. In such a case the tribunal passes a decisionthat mentions the terms of the settlement and terminates the proceedings. Thedecision containing settlement will have the same effect as an award has regardingenforcement. But where only certain portion of dispute has been settled through thecompromise between the disputant parties, the reference in respect of unsettleddisputes would continue to be arbitrated unhindered.
The submission of a settlement in the form of an enforceable awardprecludes a party from embarking on a dilatory tactic by entering into a settlementthat cannot be enforced. Whereas the Indian Law expressly provides that the awardmade on agreed terms must have the same formal requirements that a normal awardhas, Indian Law is also explicit in this regard. The Apex Court in Harendra H.Mehta v. Muksh H. Mehta, observed that during pendency of arbitral proceedingdisputants entered into settlement, yet wanting arbiter to pass award in terms ofsettlement. It has been held that settlement arrived at between the disputants did nothave effect of revoking arbitration agreement. It cannot be said that award passedwas not an arbitral award though a consent award. However, a compromise reachbetween the disputants cannot be considered as an arbitral award by itself, exceptwhen the arbitral tribunal makes an award on the basis of that compromise.
3.8.4 Formal Features of an Award
An arbitral award must be written and signed by the arbiters, if not by allthen at least by the majority of the arbiters. For members who have not signed reasons thereof should be recorded so that partiality or deprivation from participation may revealed. The Apex Court in Dwarka Das v. IndiaEngineering,observed that an arbitral award must not merely be in writing but itshould also be duly signed by the arbiters. If the reasons for omission of signatureof other arbiters are mentioned in the award, an arbitral award signed by majorityarbiters would also be valid. Hence the possibility of the refusal by some arbiters tosign the award is envisaged.
It is implicit in the above provision that the dissentientarbiters are permitted to mention their dissenting opinion, which would be annexedto the award. However, it cannot be concluded that such an opinion forms anintegral part of the award. Such an opinion might be helpful when a court considersthe recognition and enforcement of the arbitral award or more importantly, itsvacation. However, the question might arise as to what would happen if thedissentient arbiters refuse to state the reasons for not signing the award. In such a case it seems that the award would be invalid, unless the other arbiters state thereason for the dissentient arbiters refusal which in turn seems inappropriate.
The Apex Court in Tamil Nadue ElectricityBoard v. M/S. Bridge Tunnel Constructions & Othersobserved that the arbitralaward should state the reason upon which it is based, unless:-
a) The parties have agreed that no reasons are to be given; or
b) The award is an arbitral award on agreed terms under Section 30 of theArbitration Act, 1996.
In other words, an award may not contain the reasons for making thedecision. Mentioning the reasons for making the award is important when a courtconsiders setting it aside. Hence, this provision of Indian Law has been criticized fornot taking seriously such a need. It has been argued that party autonomy should notapply to the methods of making the award and the conditions of its validity.
Particularly when the disputants do not authorize the arbiters to act as amiablecompositeurs, but to make an award according to the law, it should be crystal clearon which grounds the arbiters have based their award. The above provision of Indialaw may be intended to protect those awards made outside India and under IndianLaw that, because of the prevailing law at the seat of arbitration, might not mentionthe reasons for making the award.The Arbitration Act, 1996 is much more precise than the ML, 1985 regardingthe formal features of the award if add a provision that the award must contain thenames and addresses of the disputants and the arbiters the latter’s nationality andcapacity a copy of the arbitration agreement the summary of the claims thestatements and documents, the summary of the award the date and place of makingthe award, and if required, the grounds of the award. The tribunal must deliver acopy of the award duly signed to each party.
The shortcoming of Indian Law even The old Arbitration Act, 1940 did not require arbiters to give reasons in support of arbitral awardthe ML, 1985 is that is not the deadline set by the former to deliver a copy of the award to the disputants.
The Act of 1996 provides that an arbitral award is like a decree of a court, itis directly enforceable without the necessity of a further order of the court for itsenforcement. Since the decrees, judgments and orders of courts are exempted frombeing registered under Section 17(2) (vi) of the Registration Act, 1908, an awardmade by tribunal should also be exempt from registration.The Act however, does not specifically mention whether an award is exemptfrom registration or not.
The present Section also does not clarify whether an awardhas to be written on a stamp paper or it may simply be written on an ordinary plainpaper and adhesively stamped. In 2003, the Andhra Pradesh High Court inCh,Kodandapani; Others v. Kedidela Rajamoulicase has been held thatunstamped and unregistered arbitration award is not admissible in evidence forpronouncing judgment in accordance with it.
The aforesaid Court further held thatarbitral award creating rights in immovable property by extending less for six yearsfrom the date of arbitral award being unregistered cannot be relied on.It may be stated that the earlier Arbitration Act of 1940 required that after anaward is made by arbitral tribunal an order of the court was necessary forenforcement as a decree of the Court. But now since this requirement is dispensedwith the Act of 1996 because of the fact that an award has force of a decree anddirectly enforceable without the necessity of Court’s order the earlier case law onthis point has obviously become redundant.
However, the SC in a number of caseshas held that even under the earlier arbitration Act of 1940, an arbitral award whichdoes not of its own force create or extinguish any right, title or interest in immovableproperty need not be registered.
In S.V.Chandra v. S.V.Sivaliga, the SC observed that an award effectingmere division of partnership property on dissolution does not require registration asit creates no new rights. But where the award makes an allotment of the partnershipshares, it clearly creates an absolute interest in the property hence it has to be dulyregistered.There is no time limit for registering the arbitral award, and it is up to theparty to do so in his own time. Such registration, however, is crucial if theenforcement of the award by court becomes necessary due to the refusal of thelosing party to comply voluntarily with the award.
3.8.5 Interpretation, Correction and Additional Awards
The provision relating to correction of errors in the award also existed in theearlier Arbitration Act of 1940, but there was no provision on interpretation ofaward. Sub-section (2) and (4) of Section 31 of the Act, 1996 clearly postulates thatthe arbiters have the jurisdiction to interpret their award and, if necessary for thatpurpose, they may even amend their core arbitral award. Therefore, it is aninnovative provision in the present Act of 1996 which is based on the analogy ofinterpretation of international commercial arbitral awards for removal of doubtsand ambiguities in the arbitral award to saving the disputants from court interventionand in result saving of time and money which is spent in court proceedings.Under the Act, 1996, however, each of the disputants can request thearbitration tribunal to interpret its award, if he considers it ambiguous.
Article 33 ofthe present Act, 1996 provides that such a request must be made within thirty (30)days of the receipt of the award. Before making his request, this party must informthe other party of his intention to make the request. The interpretation is consideredas the complementary and integral part of the award. The arbitration tribunal isobliged to provide its interpretation within thirty days (one month) of receiving therequest. This period can be extended for another thirty days (one month), ifnecessary.
Article 33 of the Act, 1996 provides that, upon the expiry of the arbitrationperiod and within thirty days of the receipt of the award, a party may request thetribunal to make an additional award regarding the claims raised in the proceedingsthat are not dealt with in the award. The other party must be notified before makingsuch a request. The arbitral tribunal must make the additional award in sixty days(two months), or in ninety days (three months), if an extension is necessary. Although not provided for in the Indian Law it can be said that after the expiry ofthe period for the tribunal to interpret the award to make correction to it or to issuean additional award the court that originally had jurisdiction over the dispute may
provide the interpretation, correction or additional awards.What distinguishes Indian Law from the ML, in this regard, is that while thelatter allows the disputants to agree upon a time limit for making a request forinterpretation, correction or additional awards, the former fixes the thirty days(one month) limit for a request for interpretation or an additional award, and doesnot set a limit for a party to request correction, though such correction, if made onthe tribunal’s own initiative, must be made within thirty days of the issuance of theaward.
3.9 Arbitration Costs
Sub -Section 8 of Article 31a of the Arbitration Act, 1996 which is replacesClause 8 of the First Schedule of repealed Act of 1940,201 empowers the arbiter todetermine and arbitral award costs of arbitration including the fees and expenses ofarbiters and witnesses, legal administering arbitration and other fees incurred inconnection with the arbitral proceedings and the arbitral award. In Mohd.Akbar v.Attar Singh case the Privy Council emphasized that arbitral award of costs is at the discretion of the arbitral tribunal.
The Government of India, in the Rules of the Indian Council of Arbitrationcontains elaborate provisions relating to fees and expenses incurred for arbitrationproceedings and award. Rules 28 and 29 of the Indian Council of Arbitrationprovide that clearly incidental costs and charges of reference and arbitral award andthe like shall be at discretion of arbitral tribunal. The scale of fees chargeable foradministrative work and arbiter’s fees is given in Rule 30.
Where the disputants fail to agree as to the arbiter’s costs, it would bemisconduct on the part of an arbiter to conclude an agreement as to his fees with oneparty only. The court may at the request of a party remit the arbitral award back tothe arbiter for reconsideration if his decision as to cost s is arbitrary.
In case BlueHorizon Shipping Co. v. E.D. ; F. Man Ltd.,a ship had suffered damage at twoberthing. The umpire found that only on one of these occasions the master was atfault and the ship-owner was entitled to recover for that but not for other. As to costshe decided that each party has to bear his own costs because there was only partialsuccess. The case was sending back for reconsideration because the appointment ofcosts was not in accordance with the established principles.There is no regulated fee structure for arbiters in an Ad hoc arbitration. InUnion of India v. Singh Builders Syndicate case, the SC has held that it isnecessary to find an urgent solution for the problem to save arbitration from thearbitration cost in an Ad hoc arbitration. In practice, the arbiter’s fees are decidedby the arbiter, with the consent of the disputant parties. The fee varies fromapproximately INR 1,000.00 to INR 50,000.00 per hearing for an arbiter, dependingupon the professional standing of the arbitrator and the size of the claim. Thenumber of hearings required and the cost of the arbitral venue also very widely.
In contrast, Institutional arbitration has provided a solution, as the Arbitrators fees is not fixed by the Arbitrators themselves on case to case basis, butis governed by a uniform rate prescribed by the institution under whose aegis theArbitration is held. Most famous institutional arbitration bodies in India, such as theConstruction Industry Arbitration Council or the Indian Council of Arbitration have their own schedules of arbiters fees and administrative fees, based on the amountsclaimed. They also charge a nominal, non-refundable registration fee on the basis ofthe claim amount including determined interest in each case, as under:
3.10 Formal Features of Arbitration
We have already examined formal features necessary to be observed invarious stages of arbitration. In this Section these formal requirements and thosethat are not yet considered are discussed together Concerning written communication between the disputants and othersinvolved in the arbitration procedure Article 3 of the Act, 1996 provides that anyletter or notice must be delivered to the addressee personally or to his place ofbusiness or domicile or to his postal address, unless otherwise has been agreed bythe disputants. In case that none of these addresses are found, such a writtencommunication is deemed to have been received if sent by registered mail to theaddressee’s last place of business, domicile or postal address.
The arbitration agreement must be in writing, although it can be exchangedthough any means of communication. An arbiter’s acceptance of his position must also be in writing. An application to challenge the appointment of an arbiter too must be in writing. Further, statements of claim and defence submitted by thedisputants to the tribunal must be in writing.
The arbitral award must be written and signed by the arbiters, if not by all then at least by the majority of the arbiters stating the reason for not containing thesignatures of the other arbiters. It must contain the reasoning for making the decision unless the disputants have agreed otherwise or not required by theapplicable procedural law. The award must contain the names and addresses of the disputants and the arbiters the arbiters capacity and nationality the text ofarbitration clause, the summary of the claims, the statements and documents, thesummary of the award, and the date and place of making the award.
A pattern can be recognized concerning the formal requirements at various stages of arbitration under Indian Law and that is the emphasis on writing as theway of recording events and evidence and communicating between all thoseinvolved. Although most arbitration legal regimes in various States require writingas a method of making the arbitral agreement and the award Indian Law is more persistent and requires such a method in some other stages of arbitration. This canbe attributed to the influence of English Law on the Indian Law of Arbitration.
In India, there has been a conscious attempt to revise those provisions andcustomary rules that hinder arbitration or to find some ways of reconciling thoserules with the requirements of modern arbitration. The Indian Law of arbitration hasmore and more become aligned with the internationally accepted standards of arbitration as it is heavily influenced by the ML 1985. It has also become more andmore regulated and codified.
More importantly, it has become more reliable andfacilitative of arbitration. International arbitration institutions have also beenestablished in India such as the London Court of International Arbitration, though mainly domestic rather than international disputes are referred to them.International arbitration, particularly in commercial disputes, is recognized,under the present Indian Law of arbitration. Broad definition of ICA, in India,facilitates arbitration in various areas of international business investment development and technology transfer. However, differences between domestic and international arbitration with a view to providing a more favourable environment for international arbitration are not seriously taken into account.There has been a tendency towards strengthening the contractual features ofarbitration and to make it more independent of Indian judicial system in order toattract the confidence of foreign disputants to arbitration.
At the same time, there hasbeen an attempt to protect such contractual agreements through the legal system for instance by allowing court intervention on certain occasions which will beelaborated in the next Chapter. Nevertheless, it can be said that the court andspecifically the Chief Justice of the competent court, is given too much power particularly when a disagreement between the disputants impedes the arbitrationprocedure.
This might be interpreted as the residual of the approach towardsjudicialisation of arbitration in India, and may weaken the confidence of a foreignparty in Indian arbitration. Under Indian Law, formal requirements of arbitralagreements and awards are much more detailed than they are under many other legalsystems and particularly the ML and this might not be regarded as favourable tointernational arbitration.
JUDICIAL COURT INTERVENTION: VACATION AND
ENFORCEMENT OF ARBITRAL AWARDS MADE UNDER
Indian Law of arbitration originates from the contractual obligations madethrough arbitration agreements seriously and so far as possible it tries to limitcourt intervention in cases where there are arbitration agreements. The minimize the judicial intervention of Courts the policy of the Arbitration Act 1996 has been tomake the arbitral proceedings it self self sufficient result oriented cheap and popularamong the business community so that it may utilize the mode of arbitration insettling their disputes instead of knocking the doors of the Courts. Nevertheless given that arbitral awards are binding and enforceable arbitration has some judicialfeatures that need to be taken into account. Admittedly it is a difficult task to strike a
balance between judicial and contractual features of arbitration and there has beenan attempt by the Indian legislative to follow internationally established patterns inthis regard. In this Chapter, four categories of Court interventions are discussed:
a) Referring to arbitration a dispute about which there is an arbitrationagreement, when an action is made to bring the dispute before the court;
b) Court competence in the process of arbitration;
c) The possibility of setting aside an award by the Court; and
d) Finally, the role of the court in the enforcement of an award.
The interference of the judicial system is particularly crucial in consideringthe vacation and enforcement of an award, where the ultimate upshot of thearbitration process is at stake. As it is said, enforcement of the award is “the momentof truth” for arbitration. Hence, it is important to assess the rules on setting asideand enforcing awards by the Indian Court, to see to what extent they converge with,or diverge from internationally accepted standards and attract the confidence offoreign or even Indian parties. In this Chapter powers of the Indian court withregard to arbitration are discussed. First the inadmissibility before the court of adispute about which there is an arbitration agreement, and then the court’scompetences during the arbitration process are examined. In the next Section, theissue of setting aside an arbitral award, as it is provided for under Chapter VII of theArbitration Act of 1996, is explored in some detail.
The last Section, which is on thecrucial issue of enforcement, begins by examining the background to enforcement ofawards in India and general provisions of the existing Indian Law. Then, theprocedure for enforcement of awards is discussed. It is followed by exploringgrounds for refusing enforcement of arbitral awards in India. Chapter VII of theArbitration Act of 1996 governs enforcement of awards made in India, whetherinternational or domestic, as well as those made outside India but under Indian Law.Enforcement of foreign arbitral awards is discussed in the next Chapter. Finally theimportant issue of public policy under Indian Law which plays an important role invacation and non-enforcement of arbitral awards is considered in this Chapter.
4.2 Inadmissibility of a Case about which there is an Arbitration Agreement
If any disputant to an arbitration agreement brings before a judicial authority the subject-matter covered by the agreement, the other disputant may apply for stayof the suit and for order of reference to arbitration. Under Section 34 of the Arbitration Act 1940the competence Court could stay such proceedings if it foundthat there was no sufficient reasons why the subject matter should not be referred in accordance with the parties agreement. But now under the Arbitration Act 1996in mandatory form of Section 27, the Court is under an obligatory to refer thedisputants to arbitration.
Given that Indian Law recognizes arbitration agreements if is contained inany condition of Section 7 the Act of 1996 as binding, if there is an arbitrationagreement regarding a dispute, it will be inadmissible before the court. Article 8(1)of the Arbitration Act of 1996 provides that the court dismisses a suit that is filedregarding a dispute about which there is an arbitration agreement, provided that thedefendant raises his objection to the admissibility of the case, before submitting anydefence on the merit of the case.
Moreover, filing a suit in respect of a dispute aboutwhich there is an arbitration agreement does not prevent the commencement orcontinuation of the arbitration proceedings or the passing of an award. Althoughthis provision is about cases where the Indian Law of arbitration is applicable, givenIndia’s accession to the New York Convention, 1958 (the NYC, 1958), Indian courtsmust do the same in cases where Indian Law of arbitration is not applicable, but theConvention is.When an action is taken to bring a dispute about which there is an arbitrationagreement before the court, it is crucial that one of the parties, and presumably thedefendant, request the court to refer the dispute to arbitration.
The Supreme Court(SC) in the case of Sukanya Holding(P) Ltd. v. Jayesh H. Pandya & Other, hasmade it clear that the word “Matter” used in Section 8 refer to the entire subjectmatter of the suit which relates to arbitration agreement. The SC also in BharatSewa Sansthan v. U.P. Electronic Corporaton Ltd.,has held that before a Courtentertains application under Section 8 of the Arbitration Act 1996, is has todetermine on the basis of available evidence that there exists an arbitrationagreement between the disputantsrefer the disputants to arbitration in terms of their arbitration agreement. Nothingremains to be decided in the original action or the appeal arising there from.
There is a same approach where the dispute was covered by the arbitrationclause. The SC in Agri Gold Exims Ltd. v. Sri Lakshmi Knits & Wovens Ltd.,hasobserved that if in an agreement between the parties before the Civil Court there is aclause for arbitration it is mandatory for the Civil Court to refer the dispute to anarbiter. In the instance case the existence of an arbitral clause in the agreement isaccepted by both of the disputants as also by the Court. Therefore, in view ofmandatory of language of Section 8 of the Arbitration Act 1996, the Court by itselfcannot refer a dispute about which there is an arbitration agreement to arbitration ora clause for arbitration.
However, if the parties explicitly or implicitly did not objectto a dispute being considered by the court, they cannot object to the Court andrequest arbitration, when the substantive part of the dispute is considered. All otherStates which on the pattern of Article 8 of the Model Law, 1985 (the ML, 1985) states follow the same rule about the inadmissibility of a case about which there isan arbitration agreement or arbitral clause.
4.3 Court’s Competences Regarding the Arbitration Process
Under the Arbitration Act of 1996, regarding those issues of domesticarbitration that are referred to the Indian Judiciary the competent court is the courtdesignated by Article 2(e) of the Arbitration Act of 1996 on the judicial system law.As to international arbitration, whether the proceedings are carried out in or outsideIndia, the competent court is reference to the law of India. This provision is in linewith the English Arbitration Law, which considers the court that has originaljurisdiction as competent to decide upon such issues.Article 9 of the Arbitration Act of 1996 provides that, upon the request of aparty to an arbitration agreement, the court is competent to take interim orconservatory measures, whether before the commencement, or during the course, ofthe arbitration proceedings or at any time after the making of the tribunal award butbefore it is enforce. Such measures are of temporary or precautionary nature, and areintended to protect the outcome of the arbitration procedure. Sequestration or theattachment of the debtor’s assets by the court may be carried out on the basis of thisprovision.
The question might arise as to whether the Indian competent court can order interim measures when the seat of arbitration is outside India. The answer tothis question may be positive, if the applicable law is the Arbitration Act of 1996.
However, in other cases, the answer may not be so straightforward.Under the Indian Law of arbitration the Court may also be involved intaking evidence. If requested by the arbitration tribunal, the Chief Justice of thecompetent court for assistance in taking evidence may invite the witnesses who failto appear before the tribunal or abstain from doing so or issue judicial delegation orders. Under English Arbitration Act too the tribunal can apply to the court tocompel attendance of witnesses and production of evidence.
We have already seen that the Chief Justice of the competent court has somepowers in appointing an arbitrator, if a party or either parties or even a third party has failed to appoint the arbitrator as required. Under the Arbitration Act of 1996,the rejection of a challenge to the appointment of an arbitrator can also be appealed by making a request to the competent court, in case of international arbitration.
Arequest for the removal or disqualification of arbitrators can be brought before the court in most Europe States including France and German.The court may also intervene when the tribunal is faced with an issue fallingoutside its jurisdiction, such as the forgery of a document or any other criminaloffence connected with the proceedings that require to be dealt with by the court. Ina nutshell, it seems that in order to tackle some difficulties arising fromdisagreement between the parties, Indian Law has given some powers to the court.
While the first category of court intervention, that is, the inadmissibility of a caseabout which there is an arbitration agreement is of negative nature the second onediscussed in this Section is positive. In other words, in the first category the court isasked not to interfere with the settling of a dispute about which there is anarbitration agreement whereas in the second category the Court is asked to interfereto deal with an issue that has hindered the arbitration process. Although it might besaid that such interventions may undermine the confidence of some parties particularly non-Indian ones we should notice that such interventions are mostly ofprocedural nature, and are intended to remove problems that can affect the speed andfairness of the arbitration process.
4.4 Setting Aside an Arbitration Award
The Arbitration Act of 1996 does not provide for an appeal against anarbitral award. However, the party who is aggrieved with an arbitral award may takerecourse to a court against the said award on any of the grounds stated in Section 34.The SC in Oil Natural Gas Corporation Ltd. v. SAW Pipes Ltd.,had anoccasion to elaborate and lay down proof grounds for setting aside of award whichare available to both domestic as well as foreign awards. According to the SC thesegrounds are; –
1. ‘The Court can set aside the arbitral award under section 34(2) of theArbitration Act if the party making the application furnishes proof that.A party was under some incapacity, or
ii. The arbitration agreement is not valid under the law to which theparties have subjected it or, failing any indication thereon, under thelaw for the time being in force; or
iii. The party making the application was not given proper notice of theappointment of an arbitrator or of the arbitral proceedings or wasotherwise unable to present his case; or
iv. The arbitral award deals with a dispute not contemplated by or notfalling within the terms of the submission to arbitration, or itcontains decisions on matter beyond the scope of the submission toarbitration.
2. The Court may set aside the award;-
i. (a)If the composition of the arbitral tribunal or the arbitralprocedure was not in accordance with the agreement of theparties;
(b) Failing such agreement, the position of the arbitral tribunalwas not in accordance with Part I of the Act;
ii. If the arbitral procedure was not in accordance with-
(a) The agreement of the parties; or
(b) Failing such agreement, the position of the arbitral tribunalwas not in accordance with
3. The arbitral award could be set aside if it is;-
a) Against the public policy; or
b) Against fundamental policy of Indian law; or
c) Against the justice and morality; or
d) Against the patently illegal; or
e) Against the interest of India.’
Setting aside an arbitration award is one of the most important Sections ofthe present Act. Section 34 of the Arbitration Act of 1996 is modelled on Article 34of the ML (1985) and also this Section is analogous to Section 30 of the ArbitrationAct, 1940. The SC of India in Olympus Superstructures Pvt. Ltd. v. Meena VijayKhetan & othersobserved that Section 34 of the Arbitration Act of 1996 is basedon Article 34 of the ML (1985) and it will be noticed that under the Arbitration Actof 1996 the scope of the provisions for setting aside the award is almost the sameunder Section 30 or Section 33 of the Arbitration Act, 1940. But in Municipal Corpnof Greater Mumbai v. Prestress Products (India)the Rajasthan High Court hasemphasized there is a difference in scope for interference under earlier and presentActs. The Act, 1996 was brought into being with the express parliamentary objectiveof curtailing judicial intervention Section 34 significantly reduces the extent ofpossible challenge to an award. The court is duty bound to effectuate the letter andspirit of legislation.
Article 34(1) of the Arbitration Act of 1996 provides that the party againstwhom the award is made can request the setting aside of the award within ninetydays (three months) of being notified of the award. The proviso to Sub-Section (3)of Section 34 permits the disputant a further period of thirty days (one month) afterexpiry of three months if the court is satisfied that the disputant was prevented by asufficient cause from making application within the aforesaid period of threemonths. However, no application for setting aside the arbitral award can beentertained by the court after the expiry of these additional thirty days period.
InUnion of India v. Shring Construction Co. (P.) Ltd.,the Apex Court clearlyreiterated that Section 14 of the Limitation Act, 1963 would apply whileSection 14 of the Limitation Act, 1963 reads as “Exclusion of time of proceeding bonafide in court without jurisdiction. In computing the period of limitation for any suit the time during whichthe plaintiff has been prosecuting with due diligence another civil proceeding whether in a courtof first instance or of appeal or revision against the defendant shall be excluded where theproceeding relates to the same matter in issue and is prosecuted in good faith in a court which considering the application for setting aside the arbitral award under Section 34(3)of the Arbitration Act, 1996.
Article 34 of the Arbitration Act of 1996 is inspired by Article 34(3) of theML (1985), in compare with various legal systems India is more precise and statesthat the three months deadline for challenging an award also applies from the datethe arbitral tribunal has disposed of a request for a correction or interpretation of theaward or for an additional award dealing with claims presented in the arbitralfrom defect of jurisdiction or other cause of a like nature is unable to entertain it.
(2) Incomputing the period of limitation for any application the time during which the applicant hasbeen prosecuting with due diligence another civil proceeding whether in a court of first instanceor of appeal or revision against the same party for the same relief shall be excluded where suchproceeding is prosecuted in good faith in a court which from defect of jurisdiction or other causeof a like nature is unable to entertain it. Notwithstanding anything contained in rule 2 ofOrder XXIII of the Code of Civil Procedure, 1908 (5 of 1908) the provisions of sub- section (1)shall apply in relation to a fresh suit instituted on permission granted by the court under rule 1 of that Order, where such permission is granted on the ground that the first suit must fail by reasonof a defect in the jurisdiction of the court or other cause of a like nature. Explanation For thepurposes of this section –
(a) in excluding the time during which a former civil proceeding waspending the day on which that proceeding was instituted and the day on which it ended shallboth be counted;
(b) a plaintiff or an applicant resisting an appeal shall be deemed to beprosecuting a proceeding;
(c) misjoinder of parties or of causes of action shall be deemed to bea cause of a like nature with defect of jurisdiction.”
In fact, no such details are mentioned inmost national arbitration laws. Also the Indian legislative provides that the courtmay suspend the setting aside proceedings for a period of time determined by it if itfinds it appropriate or if requested by a party “in order to give the arbitral tribunalan opportunity to resume the arbitral proceedings or to take such other action as inthe arbitral tribunal’s opinion will eliminate the grounds for setting aside.”
Unfortunately, most of arbitration laws do not contain such a provision that isintended to resolve problems arising from arbitration by referring them back toarbitration as wished by the parties in the first place. Providing the tribunal with anopportunity to remove grounds that may lead to the vacation of the award manifestsrespect for the contractual agreement of the parties, and expresses confidence of alegal system in arbitration.In order to respect the contractual nature of arbitration Indian Law hasrestricted the grounds on the basis of which an arbitral award can be vacated.
It hasbeen the intention of the Indian legislative to permit the setting aside of awards only in certain circumstances in order to facilitate and protect arbitration. This has been a major step forward since Indian courts can no longer review the facts and law of thedispute concerned. The grounds for vacating an award are to a large extent inspiredby what is provided under the ML (1985). However, a shortcoming of Indian Law isthat it does not make it clear who has the responsibility to establish these grounds while under the ML (1985) the onus of proof regarding some grounds is on theparty requesting the vacation of the award and regarding other grounds on the court.
4.4.1 Invalidity of Arbitration Agreement
If there is no agreement between the parties to refer the dispute to arbitration or if such agreement is voidor if it has a time limit that before referring the disputehas been ended the award may be set aside. Like the ML (1985), Indian Law doesnot specify the voidability, or relative nullity, of an agreement as a ground forsetting aside the award. More importantly, the ML (1985) states that the validity ofan agreement must be assessed against the law to which the parties have referred orin the absence of such agreement against the law of the seat of arbitration but theIndian Law does not make it clear which law is relevant. It is however, assumedthat the parties have chosen the Arbitration Act of 1996 to govern their dispute.
Nevertheless, if arbitration is taken place outside India despite selecting Indian Law sometimes the law at the seat of arbitration might prevail. In general, under Indian Law an arbitration agreement has to be in writing in order to be valid. Issues such as the number of arbitrators being even and nonarbitrabilityof the subject-matter of the disputes covered by the agreement may alsolead to the nullity of the award. It has been argued that voidable agreements cannotbe nullified, if a valid waiver has already been made by the party making a claimregarding the voidability of the award. Also, if an award is made after the expiry ofthe arbitration agreement, but within the time period extended by the tribunal or bythe parties, it cannot be set aside.
4.4.2 Incapacity to Enter into an Arbitration Agreement
As per Section 34(2)(i) of the Act, 1996 incapacity of a disputant is to beexamined. Under this Section an award can be nullified, if either party has beeninsane or under some incapacity (if not represented through a guardian) to enter intoan arbitration agreement, under the law that governs the issue of capacity. Anarbitral award will not be binding on him It is enforceable on the legalrepresentative of incapacity person and the legal representative may apply for settingaside the arbitral award or oppose.In order to protect the interest of such a party Section 9 of the ArbitrationAct of 1996 enables him to apply to the court for appointment of a guardian for aminor or a person of unsound mind for purposes of arbitral proceedings. The groundof incapacity would cease to be available when the incompetent person isrepresented by a guardian.
4.4.3 Lack of Due Process
A basic requirement of a process is the right to a fair hearing and adversaryproceedingsalso referred to as audio et alteram partem. These fundamental rightsare protected with same content in Sections 34(2) (iii) & 48(1) (b) 32 of the Arbitration Act, 1996, which are about due process. They cover for instance improper notice of the arbitral proceedings inability to present a case and a denialof the right to be heard. Those Sections ensure certain standards of fairness. ThoseSections are probably the most important ground for refusal under the ArbitrationAct, 1996, and is necessary for ensuring the future of arbitrations at both domestic
and international level.
It is essential the disputants be given proper notice of the arbitral proceedingsso that they may file their statements of claim or defence as required by Section23. If one of the parties has been unable to present his defence or claims, becausehe was not properly notified of the appointment of the arbitrators or of theproceedings, the award can be vacated. Punjab and Haryana High Court in caseKrishna Lal v. Union of Indiahas held that an arbitral award declared on basis of proceedings inspections of goods and property etc., without giving proper notice tothe other party is liable to be set aside.
There is a minor, though important, difference between Indian Law and theML (1985) to the effect that the ML (1985) provision is rather vague and general and states that if a party was unable to present his case the award may be set aside. In general, under Indian Law lack of due process in the form of breach of fairnessand equal treatment of the parties in the hearings as well as problems such aspreventing a party from presenting his evidence or from bringing his expert to giveevidence can result in the setting aside of an award.
4.4.4 Illegality in Composition of the Tribunal or in Tribunal Procedure
As per Article 34(2) (a) (v) of the Arbitration Act of 1996, an arbitral awardcan be set aside because of illegality and faulty procedure and defective compositionof arbitral tribunal. It may be divided in two particular headings:-
a) Lacuna in the formation of arbitral tribunal.
b) The procedure followed by the tribunal or misconduct of the arbiters.
Therefore, if the composition of the arbitration tribunal or the appointment ofthe arbitrators has been contrary to the parties agreement or to the law the award may be vacated.This covers issues such as the number of the arbiters and theprocedure, through which the arbitrators are appointed, and even the independenceand impartiality of the arbiters. For instance it has been suggested that if an arbiter upon his appointment did not disclose circumstances that might causes seriousdoubt about his impartiality and independence and the aggrieved party becomesaware of these circumstances after the award is issued the award may be set aside.
This is because it is required by the law that the tribunal be composed of impartialand independent arbitrators. The wording of the Indian provision indicates that indetermining the composition of the tribunal, there is no priority for the parties agreement over the Indian Law and vice versawhereas the international trend is togive priority to the agreement. Particularly, if a rule of Indian Law is considered asmandatory the parties cannot agree to its contrary. Hence, under Article 10(1) of theArbitration Act of 1996 if the number of arbiters is even the award will benullified. In Narayan Prasad Lohia v. Nikunj Kumar Lohiathe SC has held thatthe composition of tribunal or arbitral procedure are in accordance with agreement of the disputants Section 34 of the Arbitration Act, 1996 does not allow challenge toan arbitral award merely on the ground that composition of the tribunal was in conflict of Section 10 of the aforesaid Act. Although it is an establishedinternational practice to require the number of arbitrators to be odd, it does not seemjustified that violation of this rule must lead to the vacation of the award particularly in international arbitration.
4.4.5 Lack of Jurisdiction
The term jurisdiction signifies the power to decide the proceduralirregularity or illegality and defects in pleadings whether legal or otherwise wouldnot be covered by the expression jurisdiction.The SC in Premier Fabricators v. Heavy Engineering Corporatorshadheld that the arbitral tribunal before proceeding in the matter itself ascertainwhether the matter is capable of being decided by it or not. The question ofjurisdiction can also be a ground for setting aside an award under Section34.Article 34(2)(a)(v) of the Arbitration Act of 1996 provides that if the award isabout a dispute that does not fall within the ambit of the arbitration agreement orgoes beyond the scope of the agreement it may be set aside.
If it is possible toseparate that part of the award that settles issues falling within the scope of theagreement and the other part dealing with issues not falling within that scope, onlythe latter part will be vacated. The possibility of litigation against a tribunaldecision by objecting to its jurisdiction or the irrelevancy of the arbitrationagreement to the dispute is also stated in Article 16(3) of the Arbitration Act of1996.
Then, if the tribunal acts beyond its jurisdiction, the aggrieved party mayrequest the court to vacate the award on the basis of lacking validity. But a pleacannot be permitted to be raised in proceedings under Section 34 of the Act forsetting aside the award where a party has received notice and he does not raise a pleof lack of jurisdiction before the arbitral tribunal for instance , in Gas Authority ofIndia Ltd. v. Keti Construction (I) Ltd. where a party has received notice and hedoes not raise a plea of lack of jurisdiction before the Arbitral Tribunal, he mustmake out a strong case why he did not do so, if he chooses to move a petition forsetting aside the award under Section 34(2)(v) of the Act on the ground that thecomposition of arbitral tribunal was not in accordance with the agreement of theparties. If plea of jurisdiction is not taken before the arbitrator as provided inSection 16 of the Act, such a plea cannot be permitted to be raised in proceedingsunder Section 34 of the Act for setting aside the award, unless good reasons areshown.
4.4.6 Being Against Public policy
The public policy as an inconsistent unpredictable and dynamic politicaltool is against the enforcement of awards in judicial activity’s framework. But unfortunately there is no certain view and a universal consensus on the meaning ofthe phrase public policy in the legal communities. The unambiguous and uncertainty of public policy clearly run the big risk of impinging upon Indian arbitration as aneffective method of dispute resolution.
Under the Indian law if an award is contrary to “The Public Policy” of India the court may nullify it under Article 34(2) (b) (iii) the Arbitration Act of 1996. Inthis context, arbitral awards can be voided on the basis of the above Article, only ifits consequences contradict the basic principles of Indian Law.
“The Court can set aside an awardThe reasons stated in Section 34 (2) (b) (ii) onground of conflict with the public policy of India that is to say, if it is contrary to:
a) Fundamental policy of Indian Law ; or
b) The interest of India; or
c) Justice or morality; or
d) If it is penalty illegal.”
A provision stipulated in the ML (1985), and also, in the Indian Law, is thatif the dispute is not capable of being resolved through arbitration the award issued about it may be set aside. For instance an arbitration agreement that refers a nonarbitrabledispute to arbitration may be regarded as invalid and therefore the awardrendered on its basis may be set aside. Also, making an award about a non-arbitrabledispute is against the applicable law if it is the Arbitration Act of 1996 and thusmay be vacated.It worth mentioning that in most legal systems certain disputes are not arbitrable because they are closely against to public policy.
However, it is notadequately justifiable to vacate an award if the dispute in question is merely relatedto public policy. It would be more justifiable to set aside an award if it is againstpublic policy. It was best if the Indian legislative has wisely avoided mentioningnon-arbitrability of a dispute expressly as a ground for the vacation of the award and instead has emphasized being against public policy as a ground for doing so.
4.5 Enforcing an Arbitral Award
Enforceability is what distinguishes arbitration from other Alternative Dispute Resolution methods and puts it alongside litigation. The reason that many businesses particularly in international trade, opt for arbitration to settle theirexisting or prospective disputes are that arbitral awards are enforceable at law.Enforcement is the point where a purely contractual agreement is transformed into ajudicial decision. Therefore, arbitration has the advantages of Alternative DisputeResolution mechanisms by providing the parties with an independent, flexible andprivate method tailored to their needs, as well as the advantage of litigation, that is,enforceability of the final decision. Various States have adopted different judicialmechanisms for enforcing arbitral awards. It is undoubtedly true that the tendency ininternational and municipal laws is to facilitate enforcement of arbitral awards.
The Indian Law does not make a distinction between recognition andenforcement. This is a disadvantage of the present law, as a wining respondent maywish to request recognition of an award, in order to block new actions by the losingclaimant, or a wining party may have to delay the enforcement of an award, andrecognition of the award would guarantee such a future action.
It seems to be achronic problem with most arbitration legal regimes that they rarely stipulate theissue of recognition as distinct from enforcement. Despite after the enactment of the present Act 1996, an award of tribunalcan directly be enforced as decree but practically, the enforcement of domestic aswell as international arbitral awards needs a legal action. Their enforcement needs alegal action converting the award into a Court judgment. In general, this requirementworks to the disadvantage of arbitration, and can help an aggrieved party who mightwish to delay the compliance with the award.
4.5.1 Procedure of Enforcement of Awards
Although, an arbitral procedure is the result of a private arrangement, thearbitral award constitutes a final and binding decision on the dispute between thedisputants. If the failing party does not perform voluntarily, the arbitral award may be enforced by a court.
Section 36 of the Arbitration Act, 1996 is not modelled on the ML (1985).This provision makes a clear crystal departure from the old Arbitration Act of 1940.
Under the old Act, after making of the award by the Arbitral Tribunal, the partieshad to make an application to the court to make the award a rule of the court and it is only then the award could be executed as a decree of the Court. The making of theapplication to the court for recognition of the award as a decree was termed as filingof the award. But this requirement has been done away with under the ArbitrationAct of 1996.
There is no need for filing the award and it can be enforced straightaway without the necessity for the intervention of the Court. Obviously, this wouldmean saving of time of the parties in filing the award for execution by a Court. In other words the arbitral award has now been given a similar status as any otherdecree of the Court and it may be enforced like a decree in accordance with of theCivil Procedure Code, 1908.The enforcement of award under Section 36 is confined to domesticarbitrations i.e. awards which are enforceable in India. For enforcement of foreignawards, the provisions of Section 48 of part II of the present Act shall be applicable.
For procedure of enforcement of awards, the Madras High Court in ShiviKant Engineers and Contractors v. Aurofood Ltd.,has held that the appropriateindication thereon, under the law of the country where the award was made or the partyagainst whom the award is invoked was not given proper notice of the appointment of thetime for enforcement of an award comes when the time for setting aside an awardunder Section 34 has expired or proceedings in this respect have failed.
As such itmay be said that proceedings under Section 36 are subject to proceedings of Section34 of the Act. This becomes evident when a party desires part performance of theaward during the pendency of the application to set aside the award. The CalcuttaHigh Court in Damodar Valley Corporation v. Calcutta Electric Supply Co. Ltd., has held that execution of part of award is not permissible during pendency of anapplication to set aside the award under Section 34 of the Act. The SC in NationalAluminium Co. Ltd. v. Pressteel and Fabrications (P) Ltd ,has also held that once an application under Section 34 for setting aside is filed the award simply becomesnon-executable under Section 36 of the Act.
The filling an application under Section34, the award becomes dormant and no executable decree or execution proceedingscan be initiated for enforcing any part of such a dormant award.Practically, in a request for enforcement the court procedure will be thesame as that of ordinary cases. The parties present their arguments submissions witnesses and evidenceand there may be several hearings. And also, under Indian Law the procedure of executing enforcement orders for an award is the same as thatof judgments, and is relatively straightforward. A request for executing enforcementorders must be made to the court of the area where it is to be enforced and it will becarried out under the supervision of an enforcement judge, assisted by sufficient number of benifits.
4.5.2 The Tribunal’s Power to Grant Enforcement of Orders
Alongside the Court, the arbitration tribunal has some power to enforcecertain decisions of its own, if the parties have already agreed so. These are ordersfor temporary or precautionary measures or security guarantees. If a party fails to execute such orders upon the request of the other party the tribunal may grantpermission to such other party to take necessary steps for the execution of the order. Such a possibility, however does not prejudice the right of this party to request thechief justice to execute the order. This is because the original authority to issue andenforce interim measures is the court.
However, the problem is that unlike the court the tribunal does not have the punitive power of the State that is the instrument ofenforcement. So, if a party does not voluntarily comply with an interim award thereis not much that the tribunal can do. Therefore, the question might arise as to what isthe point of a provision empowering the tribunal to issue and enforce interim orders.It has been argued that there might be certain interim or conservatory measures thatthe tribunal might order without the need for the voluntary cooperation of a partyand without punitive powers.
These are for instance the “proof of the capacity of aparty by an expert appointed by the Tribunal or if the Tribunal orders that the goods subject to the dispute be stored in a vault or with a trustee or in a bank accountsubject to the arbitral tribunal signature (or its chairman), or ordering not towithdraw a letter of guarantee before an award was made”. If the wining party or thetribunal has already some control over the other party’s goods and assets orpromissory notes signed by it, such enforcement powers by tribunal may beeffectively used. Such a power is not stipulated in the ML (1985).
4.5.3 Grounds for Refusing Enforcement of an Arbitral Award
Grounds for refusing enforcement of an arbitral award in India are notmodelled on the ML (1985) as a separate provision. The ML (1985) on InternationalCommercial Arbitration regarding grounds for refusal of enforcing awards. On theone hand the ML (1985) puts it at the discretion of the court to do so by providing that it may refuse enforcement, if there are grounds to do. Moreover, a ground forrefusing enforcement of awards that is not stipulated in the ML (1985) is wherethere is a conflict between the award and a court decision already made in a Stateabout the subject-matter of the dispute. Conflict between an award and a courtdecision already made may appear in several forms.
Such a conflict may be veryobvious, for instance, when an award has already been vacated by the courtorwhen there is a court decision about the same subject-matter. In these cases, refusingenforcement of the award is completely justified. However, when the conflict is notso straightforward, or is partial, the complications of the case render making a decision very difficult and denying enforcement of the award may not be so easilyjustified.
On the other hand, the ML (1985) provides for a wider range of reasons fordenying enforcement of an award. For instance it states that if a party to anagreement has been under some incapacity or if the agreement is invalid under the applicable law the award may not be enforced. Under the ML (1985), ifthe aggrieved party was not given proper notice of the appointment of an arbitratoror of the tribunal proceedings or the party was not able to present his case the awardmay not be enforced.
Also, the ML (1985) provides that if the dispute about which the award wasmade does not fall within the jurisdiction of the tribunal or if the award containsdecisions on matters beyond the scope of submission to arbitration the award maybe denied enforcement. Under the ML (1985), if the composition of the tribunal wasnot according to the parties agreement or failing such agreementit was notaccording to the law at the seat of arbitration the award may not be enforced.
The ML (1985) has also been criticized for creating some confusion. Forinstance, it has been asked whether a court can enforce an award if it is proved thatthere is a ground for setting it aside, but it has not been set aside either because theperiod for applying to the court for vacating it has been expired or for whateverreason such application was not made or the court did not vacate the award. Intheory the enforcing court should not pay any attention to the grounds that may leadto the nullification of the award, but it seems untenable to assume that even if it isestablished that there is such a ground the enforcing court can ignore it.
4.6 Public Policy under Indian Law
In various parts of this Research, we have noticed that the concept of publicpolicy plays an important part in arbitration particularly when the court intervenes whether in reviewing or enforcing an award. Hence, it is necessary to explore theissue of public policy under Indian Law more closely. We have already seen thatthe legal concept of public policy indicates the existence of a general interest or avalue fundamental for a society. Generally, public policy is a complex andambiguous legal issue. Various countries may adhere to different concepts ofgeneral interest and consequently public policy. The latter is closely related to mandatory rules of law and more specifically to certain mandatory rulesexpressing fundamental values or interests in a country.
In business law, publicpolicy can be about issues such as trademarks, industrial property rights bankruptcy contract between a foreign company and a local distributor, certain constructioncontracts or public works, for instance urbanization or general utilities programmes.It may also contain economic mandatory prescriptions, such as exchange regulationsand rules for protecting certain groups of people like the consumers, tenants, theemployees, commercial agents or distributors. In arbitration, the arbitrationprocedure, such as the appointment of arbitrators or the substance of an arbitrationaward, may be considered as public policy issues.
The SC in case of Oil and Natural Gas Corporation Ltd. v. SAW Pipes Ltd.defined public policy as a number of basic regulations withoutagreeing upon which the society cannot survive. These regulations that cannot bechallenged by the individual cover a gamut of legal and economic issues.Nevertheless, public policy is thought as being subject to change from time to timeand from one place to another. In the following, some issues regarded as beingmatters of public policy by the Indian courts are considered. In general publicpolicy issues can be classified in four categories those about the economic order of the country those regarding the judicial order those about individual liberties andreligious moral principles.
Religious moral principles form the fourth category of public policy issues inIndia. Hence, a breach of the specific religious is considered as a violation of public policy in India particularly those such as India that recognize the most of religiousas a source of law. However, the question arises as to whether all religious rules areconsidered as a part of public policy. It has been said that fundamental rules of theeach religious are regarded as public policy.
A rule is considered as fundamental, ifit is absolute in the method in which it is proved and in the meaning that it purports.Therefore, a rule stated in the recognized religious book, about whose meaning thereis no disagreement among the leader is considered as a fundamental rule that cannotbe violated. Prohibition of usury is an example of such a rule in Islam. The difficultyis that, however, there are rules with Quranic origin about whose meaning there is no consensus while being considered as fundamental. Moreover, many otherfundamental rules have their source in the Hadith,but there is disagreement aboutthe authenticity of their source With regard to the impact of Indian public policy on arbitration andparticularly international arbitration two approaches may be followed First, a broadinterpretation of public policy may be adopted that limits arbitration andparticularly international arbitration.
This approach has a tendency towardsconsidering all matters falling within the exclusive jurisdiction of the Indian court asissues of public policy. Advocate of this approach however, usually make adistinction between domestic and international arbitration with the latter being moreaffected by public policy. For instance, whereas a broader category of disputes isregarded as arbitrable in India and under Indian Law few matters may be referredto foreign arbitration. Moreover, according to this approach a violation of anymandatory rule of Indian Law can result in the non-enforcement of a foreign award.
Finally, it should be mentioned that since, under theArbitration Act of 1996, the parties are permitted to choose procedural andsubstantive law applicable to their disputes the Decree as a whole cannot beconsidered as of public policy nature though some parts of it may be so.
To curb more than necessary interference of the courts in subject-matter ofarbitral solution, the Arbitration Act of 1996 has provided the avenues of appeals insome selected issues very cautiously so that disputants may be saved from thelabyrinth of court technicalities and proceedings as well as to get cheap and timelysolutions of their disputes.As is well known the right of appeal is given by law and hence unless it is provided in the law no appeal can be preferred against any subordinate order. Forinstance, In Apex Court inNeelkantha v. Superintending Engineer, held that thereis no appeal from the decision of the arbitrator and the Court has no power to correctany error or mistake in the arbitrator’s verdict nor can it review the award. To copy the need of satiation of disgusted party, the Arbitration Act of 1996 provides certainremedies under Section 34 within the specified circumstance to satisfy that disgustedparty. But they are quite different from an appeal.
The SC in Sardar Singh v.Krishna Devi,has held emphasizing the finality of arbitral proceedings through the Arbitral Tribunal that the disposing of claims of disputant parties through anaward by the arbitral tribunal is recognized as final as per provisions of theArbitration Act, 1996.
Section 37 of the Arbitration Act of 1996 is not modelled on the ML (1985),but it is analogous to Section 39 of the Arbitration Act, 1940. However this Sectionspecifies some scope of appeal from the orders of the Courts as well as the ArbitralTribunal. It is evident from the phraseology used in Section 37 that it providesappeal against the orders of Arbitral Tribunal not against the awards formulated byit.
Moreover appealable orders have been specified in Sections 9, 16(2), 16(3), 17and 34 the Arbitration Act of 1996 and no appeal is preferable against any orderwhich is not specified. No period of time is however specified for filing an appeal.Presumably, the provisions of Article 116 of the Schedule of Limitation Act, 1963will apply in matters of appeals made under above Section. List of certain ordersin the Arbitration Act, 1996 which are not appealable.
a) An order of a court for reference or refusal thereof. Under Section. 8
b) An order of Chief Justice for appointment of arbiter(s). Under Section. 11
c) An order by the Arbitral Tribunal regarding the impartiality or fairness of arbitrators if any doubt is alleged by a party. Under Sections. 12 & 13
d) An order determining the jurisdiction or non-jurisdiction of an ArbitralTribunal. Under Section. 14(2)
e) An order by the Arbitral Tribunal rejecting the objection regarding thejurisdiction of it. Under Section. 16(5)
f) An order by the Arbitral Tribunal passed regarding non-compliance by anyparty. Under Section. 25
g) An order of a Court to facilitate presence of witnesses before the ArbitralTribunal is so requested. Under Section. 27
h) An order by the Arbitral Tribunal where claim of a party is withdrawn.Under Section. 32(2)(a)
i) An order by the Arbitral Tribunal passed under this section where theTribunal finds that the continuation of the proceedings has for any otherreason become unnecessary or impossible. Under Section. 32(2)(c)
j) An order of a Court rejecting the request of remission of the award to thearbitral tribunal. Under Section. 34(4)
k) An order by a Court regarding payment of expenses. Under Section. 39(2)& (4)
l) An order of judicial authority in case of insolvency directing the submissionof the matter to the Arbitral Tribunal. Under Section. 41
m) An order of a Court regarding future disputes where time is extended. UnderSection. 42 (3)
All this signifies the object of the present Act, 1996 regarding minimalinterference of the courts in matters of arbitration scheme of Section 37 providesthree parts one and two for nominating orders which happen to be appealable whilepart third prohibits second appeal except in rare matters competent for second appealin supreme courts has been kept open. It is well known that matters competent forsecond appeal in the SC are rare hence in certain matters only second appeal can bepreferred in the SC. Moreover under Article 136 of the Indian Constitution 1950 the special appeal to the SC has been provided yet the SC in matters of arbitrationtries to escape its authority of entertaining appellate jurisdiction. Section 37 of theAct, 1996 provides for appeals against orders.
4.7.1 Order passed by the Court
It is important to note that Section 37 sub-clause (1) of the Arbitration Act of1996 provides for appeals against order and not against the arbitral award. Theorders against which an appeal lies are specifically laid down in this Sub-Sectionand no other orders are appealable. The following orders of the Court under the arbitration Act, 1996 are appealable:
a) Under Section 9 of the Act, 1996
The Courts have been authorized to take certain interim measure to makeeffective the proceedings of arbitration and in this connection it can pass orders forappointment of a guardian or to protect the disputed subject matter of the arbitration its security sale deposit of money or appointment of a receiver or for interiminjunctionan order can be passed by the court. These orders can be passed beforethe commencement of arbitral proceedings or during the proceedings or afterformulation of the award (but before its implementation). Section 37 (1) (a) makesappealable these orders made under Section 9 in the shape of interim measures.
In the case of M/s Archon & Other v. M/s Sewda Construction Co. &Others, the dispute related to construction of a multi-storied building named’Surya Enclave’ at the cost INR. 2.65 Crores. It was alleged that respondents usedsub-standard building material as well as sub-standard unskilled workers in theconstruction work. The respondents were asked to rectify the defects and ascertainquality construction work failing which petitioners would terminate the contract andtake up the construction work themselves. Since respondents failed to comply withthe conditions the site of ‘Surya-Enclave’ was eventually taken over by petitionerson 29/05/2004. Meanwhile the respondents moved the District Court, Kamrup, andGuwahati for interim measure of protection under Section 9 of the Act, 1996 againstthe termination order. The court granted ex-parte interim relief to the respondent andordered status quo restraining petitioners from interfering with the constructionwork.
b) Under Section 34 of the Act, 1996
Likewise as recourse against arbitral award a party under Section 34 mayapproach a Court to get the award set aside. The Court may set aside the award ormay refuse by rejecting the application for setting aside the award. Under Section37, an appeal may be preferred against the orders passed by the court under Section34, either way i.e., where the court passed on an order to set aside the award orwhere it has rejected the application for setting aside an award. It is to be noted that the courts exercise its jurisdiction as per provisions contained in Section 2(1) (e) ofthe Act, 1996 in arbitral matters and provisions of appeal in Section 37 are againstthe orders passed by a court in exercise of that jurisdiction and as such the orderspassed by a court under Section 34 get extinguished under the appellate orders of acourt under Section 37 of the Act, 1996.
As such appellate Court should be chosen as High Court and the SC, as thecase may be. The Calcutta High Court in Vishwa Bharati v. Sarkar &Sarkar,hasheld that under Section 34 the proceedings against an award would lie at a HighCourt of proper jurisdiction and not any other Court.
4.7.2 Order passed by the Arbitral Tribunal:-
The orders of tribunal have been made appealable. This is a new stage ofdevelopment in the Arbitration Act, 1996. It is undoubtedly true that the tribunal hasfreedom to act in judicial way.The following orders of the Arbitral Tribunal under the Arbitration Act 1996
a) Orders passed under Section 16(2)70 or 16(3)71 of the Act, 1996
To minimize judicial interference by courts in issues of arbitral proceedings the tribunals have been empowered to determine its own jurisdiction under Section16 of the Arbitration Act, 1996. Under this Section72 an aggrieved party is given aright to challenge award on that ground in accordance with Section 34. If the plea ofjurisdiction is not raised at this stage then it cannot be raised under Section 34.However, under both the Sections 31&16, a party cannot file such a petition unlessthe procedure contemplated thereby is followed. It is settled law that if the ArbitralTribunal accepts the plea about lack of its jurisdiction or that certain dispute isbeyond the scope of its authority an appeal lies from such order to court underSection 37(2) (a) of the Arbitration Act, 1996.
The Bombay High Court in Atul R. Shah v. Vrijal Lalloo Bhai &Co.Hasheld that a court without jurisdiction merely on account of non-objection by theparties cannot assume jurisdiction in itself. The same is also applicable to ArbitralTribunal.
In National Thermal Power Corporation Ltd. v. Siemens AtkeingesellsChaft., wherein opposite party has not taken any plea of jurisdiction before Arbitral Tribunal but has raised certain counterclaims. However, claimant has opposed such counterclaimsinter alia, on the ground that they were not arbitrable.The Arbitral Tribunal by a partial award rejected the counterclaims of the oppositeparty as having already been settled in earlier meeting between the parties. It washeld that such a partial award did not involve a question of jurisdiction. Hence, the case of opposite party even if it was aggrieved by such a partial award it did notfall within the preview of Section 16(2) or 16(3) of the Act. So appeal filed by it Section 16(2) of the Arbitration Act 1996 reads as;-
A plea that the arbitral tribunal does not havejurisdiction shall be raised not later than the submission of the statement of defence however, aparty shall not be precluded from raising such a plea merely because that he has appointed orparticipated in the appointment of an arbitrator.An appeal against the decision of the arbiters under Section 16 of the Arbitration Act 1996 that they had no jurisdiction to go into the dispute must befiled before the “Principal Civil Court of Original Jurisdiction in the District” as defined in Section 2(1) (e) This Section does not include the High Court where itis not exercising any original civil jurisdiction Since, in Pandey & Co Builders (P)
Ltd. v. State of Bihar,the Patna High Court does not exercise any original civiljurisdiction, no such appeal would lie before it.
Orders passed under Section 17 of the Act, 1996
Under Section 17 of the Arbitration Act, 1996, the Arbitral Tribunal hasbeen authorized to pass such orders which manage interim measure such as toprotect the property of subject-matter of the dispute and appointment of some personto take charge of it or sell it or to function as receiver etc., an appeal can bepreferred against orders which accept the request of such interim measures or which reject such a request under Section 37 of the Act, 1996.
4.7.3 Second appeal against the order of the appeal
Section 37 sub-clause (3) which is replaced Section 39 of the repealed Act of 1940 prohibits second appeal against the order of the appeal obviously to minimizecourts interference in arbitral matters. The Section only bars a second appeal and notrevision. But the right of the parties go to SC against the orders passed under Section75Section 37(2) (a) of the Arbitration Act 1996 reads as ; – Appealable orders.- (1) An appeal shalllie from the following orders (and from no others) to the Court authorised by law to hearappealsfrom original decrees of the Court passing the order, namely:- (a) granting or refusing to grantany measure under Section 9 .”
In this context the SC in Mulkaj Chhabra ; Others v. NewKenilworth Hotel Ltd. ; Another, has held that the impugned order passed underthe Arbitration Act, 1996 is admittedly appealable before a Division Bench of HighCourt under Section 37 of the aforesaid Act. Hence, no interference is warrantedunder Article 136 of the Constitution of India 1950. Thus, second appeals can bemade to the SC under the Constitution of India (1950) and is also provided in the SCRules.
It was held by the Allahabad High Court in Kanpur Nagar Mahapalika vNarain Das,that the jurisdiction conferred on the SC by the Constitution of India(1950) cannot be taken away or abridged by any statue Since the primary objectives of the Arbitration Act, 1996 were to achievewin goal in arbitration as a cost effective and quick mechanism with the minimumCourt intervention for the settlement of commercial disputes, no review is permittedagainst the orders made by the Court but some of the High Courts in those earlierdecisions under the Act 1940,
particularly those of Punjab High Court inRamchandra v. T.N.Corporationand Bihar High Court in State of Bihar v. KhetanBrothershave allowed review of such order. But revision is neither prohibited normentioned in the Section, hence to give justice SC has affirmed to rely on thisremedy. In Shyam Sunder Agarwal ; Co. v. Union of India, the Apex Court hasheld that Part I does not contemplate any revision of appellate order under Section37 of the Arbitration Act, 1996, but where under the preview of some specialenactment, if any civil Court has passed any final order then the revisionaljurisdiction of the High Court shall not be treated as barred. The Arbitration Act,1996 does not contain any express bar against the exercise of the revisional powerby the High Court provided exercise of such revisional power does not mitigateagainst giving effect to the provisions of the Arbitration Act, 1996.
In I.T.I Ltd. v. Siemen’s Public Communications Network Ltd., the SC hasheld that such a revision under Section 115 of Code of Civil Procedure, 1908 willnot be deemed as interference in the arbitral process as contemplated by Section 5 ofthe Arbitration Act, 1996 and as such revision of order may be in the High Court.This decision of the SC has been affirmed in Nirma Ltd. v. Lungi Lent JesEnergietecnik Gmbh.which has emphasized in terms of similarity of reasoning arevision under section 115 of Code of Civil Procedure, 1908 would also lie from anon-appealable original order, if passed by a court under the provisions of theArbitration Act, 1996. Recently in Ashok Kumar Singh & Others v. Shanty Devi &Others the Patna High Court has held that when remedy of appeal is providedunder the Act, revision petition under Code of Civil Procedure 1908 would not bemaintainable.
In line with the international arbitration practice, the Indian Law ofarbitration provides for four categories of court intervention in arbitration. While inthe first category, the court is required not to interfere with the settling of a disputeabout which there is an arbitration agreement, in the other categories, courtintervention is requested. In the second category court interference is mainlyintended to assist the tribunal in making a decision or securing some of the rights ofthe parties, during the arbitration process and before a final decision is rendered. Inconsidering the vacation of the award, the integrity of the arbitration and itsoutcome, as well as safeguarding the legal rights of the parties particularly those of the aggrieved party are guaranteed by the court. Enforcement, on the other hand, isthe intervention of judicial bodies for securing the rights of the wining party andcompliance with the outcome of arbitration.
Regarding court powers during the arbitration process, such as taking interimor conservatory measures, involving in taking evidence or fining an uncooperative witness appointing an arbitrator extending the time limit for arbitration and thelike, it can be said that such measures are of precautionary or procedural nature.They are primarily devised to remove anything that may hinder the arbitrationprocess. While Indian rules on setting aside an award, to a considerable extent, catchup with international standards, such as those set up by the ML (1985), such rulescan be subject to some criticisms.
Court investigation on the way that the applicablelaw has been applied in arbitration can be interpreted as allowing examination of themerit of the case, which is now outdated in the present practice of arbitration. TheIndian Law is also unduly silent about the law that governs the legal capacity of theparties to an arbitration agreement. More importantly it is not specific on whom theburden of proof is to establish grounds for setting aside an award. Indian Law couldhave provided the tribunal with an opportunity to remove the grounds that may leadto the vacation of the award, as a token of respect for the contractual agreement ofthe parties.
As to enforcement in the past stringent examination of arbitration awardsby the courts at the stage of enforcement was a feature of arbitration in most countries including India. This led to a virtual re-examination or re-hearing ofrelevant cases. However, in the recent years the situation has dramatically changed.
From the discussions of this Chapter, it can be concluded that regarding enforcementof arbitral awards, there has been a significant development in Indian Law. A proenforcementbias can be identified in the present Indian Law of arbitration. Whereasthe earlier Law of Arbitration, 1940 very briefly addressed the issue of enforcement,the intention in enacting the present law was to catch up with internationallyestablished practices of enforcement of arbitral awards. It can also be said that ingeneral Indian Law is not more than the ML (1985) and the NYC (1958) facilitativeof enforcement of awards whether domestic or international, made under IndianLaw.
Requesting enforcement of awards is made relatively straightforward by theArbitration Act of 1996. More importantly, the grounds for refusing enforcement ofan award are not modelled on the ML as a separate provision but generally it canlimited to three possibilities when the award is in conflict with a previously madedecision by Indian courts when it endangers the public policy in India or whensome requirements of due process have not been observed. It should however, benoted that such an awards is made according to Indian Law so the aggrieved partyhas already had the opportunity to challenge it and the grounds for vacating anaward, under Indian Law, are relatively extensive.
A feature of the Arbitration Actof 1996 is that while a request for enforcing an award can only be made after theexpiry of the ninety day period for challenging it, it also permits the suspension ofenforcing the award, if the award is being challenged in the court.A lacuna in Indian Law is that it does not contain a clear and comprehensivedefinition of public policy. Given the importance of the concept of public policy invarious areas of arbitration law, ambiguity in the definition of the concept mayeasily be abused and create distrust among those, particularly foreign parties, whomay wish to resort to arbitration in their disputes with Indian parties.
Thus, animportant step to be taken by the Indian legislative is to provide a crystal definitionof the concept. More importantly, it is necessary to make a clear distinction betweendomestic and international public policy, and respectively apply them to domesticand foreign awards. International awards rendered under Indian Law may be subjectto either type of public policy, depending on the case.
ENFORCEMENT OF FOREIGN ARBITRAL AWARDS IN
In international trade, arbitration, rather than litigation, is the preferredmethod of dispute resolution, since it is easier to enforce an arbitral award than acourt decision, in a foreign State. From a practical point of view, this is becausethere are more multilateral conventions and bilateral treaties facilitating enforcementof foreign arbitral awards than there are for enforcement of court decisions. From atheoretical point of view, enforcement of arbitral awards is easier, because of thecontractual nature of arbitration.
An arbitral award is the consequence of a privatedispute settlement procedure, while a court ruling represents the sovereignty of theState where they are issued. It is easier for a national court to enforce theconsequence of a contractual agreement between two private parties, than a decisionrepresenting the sovereignty of a foreign State. Therefore, as seen, in the previousChapters, the tendency in international convention and municipal laws is to facilitateenforcement of arbitral awards.
In this Chapter, it is examined to what extent Indian Law is facilitative ofenforcement of foreign arbitral awards, so far as they are not covered by bilateral ormultilateral treaties. As we have seen in the Chapter IV, the law of arbitration inIndia has gone through deep changes in recent decades. Regulations on enforcementof foreign awards have significantly improved in recent years. Previous Indian Lawdid not make any distinction between domestic and foreign awards, and nodefinition of a foreign arbitral award was made. Therefore, it was assumed thatforeign awards were subject to retrial and challenge, and that the same legalprocedure and scrutiny were applied to foreign awards as those applied to domesticawards. Present Indian Law.
however, in some aspects, goes beyond the New YorkConvention, 1958 (the NYC, 1958) to facilitate enforcement of foreign awards. Inthis Chapter, after a brief review of the background to the issue of enforcing foreignarbitral awards in India, and legal developments in this regard, those parts of theArbitration Act, 1996 that address enforcement of foreign arbitral awards areexamined.
These parts of Indian Law apply to foreign arbitral awards that can beenforced under international conventions or bilateral treaties to which India is aparty. Following an examination of general provisions of Indian Law regardingenforcement of foreign awards, grounds for non-enforcement of such awards areconsidered. Then, the competence of the court regarding foreign awards isdiscussed.
5.2 Background of Enforcing Foreign Arbitral Awards in India
The international commercial activities were in existence to the present eraas well. Of course, its volume and participating units were limited. The advent ofindustrial revolution technical and mechanical utilization and informationtechnology explosion have made the world very small in its reach and transactionshave grown enormously between the different nations. Where there are voluminousand numerous transactions (both at international & domestic level), it is but naturalthat there shall be disputes as well. The settle these international commercialdisputes speedy and satisfactorily, as per international norms, in India there weretwo separate Acts, namely:
a) The Arbitration (Protocol & Convention) Act, 1937: It was enacted as aresult of Geneva Protocol (1923) & Geneva Convention, 1927 (the GC,1927) under the auspices of League of Nations.
b) The Foreign Awards (Recognition & Enforcement) Act, 1961: It wasenacted as a result of the NYC (1958), under the auspices of United NationsOrganizationAfter the enactment of the Arbitration Act, 1996, the two aforesaid Act standrepealed, and with certain modifications, their close relevant provisions have beenincorporated in Chapter I with heading ‘Enforcement of Certain Foreign Awards’and ‘New York Convention Awards’ and Chapter II with heading “GenevaConvention Awards” respectively of Part II of the present Act, 1996.
However, the Supreme Court (SC) in Thyssen Sthlunion GMBH v. SteelAuthority of Indiahas held that there is not much difference in the provisions ofthe Foreign Awards (Recognition & Enforcement) Act, 1961 and the ArbitrationAct, 1996 regarding enforcement of the foreign award. The definition of ‘foreignaward’ is also same in both the enactments. The only difference appears to be thatwhile under the Foreign Awards (Recognition & Enforcement) Act, 1961 a decreefollows, whereas under the present Arbitration Act, 1996, a foreign award is alreadystamped as the decree.
The Part II of the present Arbitration Act, 1996 contains in Chapter I theprimary provisions of the NYC (1958) which deals and covers both arbitralagreement and awards, having foreign texture and in Chapter II, likewise, theprovisions of the Geneva Convention, 1927 (the GC, 1927) are contained. Thus partII of the present Arbitration Act, 1996, regulates the awards made under the NYC(1958) in Chapter I or the GC (1927) in Chapter II for its enforcement.Section 52 of the present Arbitration Act, 1996 provides that Chapter I ofPart II excludes the application of Chapter II but Chapter II does not exclude theapplication of Chapter I. Excepting Section 52 (in Chapter I) of the Act, 1996, boththe Chapters (Chapter I and Chapter II) consist of 8 Sections each dealing with sameissue and wording of the Sections is also almost the same barring Section 47 ofChapter I and Section 57 of Chapter II which deal with the enforcement of foreignawards.
5.3 Definition of Foreign Award
A foreign award has been defined in Section 44 of the present ArbitrationAct, 1996. It gives an understanding about the term of foreign awards as also the term Commercial in context of foreign award. Under this Section, the term’Foreign Award’ means an arbitral award made on or after the 11th day of October,1960 on differences between persons arising out of legal relationships, whethercontractual or not, considered as commercial under the law in force in India.
Thefirst Act as to foreign awards was the Foreign Awards (Recognition & Enforcement)Act, 1961 and because the Arbitration Act, 1996 takes over the provisions of theAct, 1961, the Section provides that is necessary that foreign award was made on orafter the 11th day of October, 1960.It is undoubtedly true that the origin of foreign awards comes from foreignarbitration. In the other word, the term ‘Foreign Award’ means the arbitral awardmade as a result of foreign arbitration which is not a domestic arbitration. Itbecomes necessary to understand the term ‘foreign arbitration’.
The Calcutta HighCourt in Case Serajuddin v. Michael Golodetz,laid down the necessary conditionsrelations relating to term ‘foreign arbitration’ or essential elements of a foreignarbitration, resulting into the foreign arbitral award these are as following points;-
a. Arbitration should have been held in foreign lands;
b. by foreign arbiters
c. Arbitration by applying foreign laws;&
d. As a party foreign national is involved. In the instant case since the case wasdecided on the basis of American Arbitration Law, on foreign land involvinga foreign party under a foreign arbitration, it was held to be a foreignarbitration.
To interpret the term ‘Foreign Award’, the SC in N.T.P.C. v. Singer Co.,observed that where in London an interim award was made which arose out of anarbitration agreement governed by the laws of India. It was held that such an arbitralaward cannot be treated as a foreign award and it is purely a ‘Domestic Award’because it was governed by the Indian laws both in respect of agreement andarbitration.
1994, just a year had passed since the SC ruling in aforesaid case, theDelhi High Court in Gas Authority of India Ltd. v. Spie Capage S.A.examined indepth the historical developments which led to the NYC (1958) and GC (1927) andtheir result implementation under the two enactments i.e., The Arbitration (Protocoland Convention) Act, 1937 and the Foreign Awards (Recognition and Enforcement)Act, 1961 which now repealed by the Arbitration Act 1996.The definition of ‘Foreign Award’ for the purposes of the GC (1927) ascontained in this Section differs from the foreign award as defined in Section 44under the NYC (1958). The differences may be stated as follow:
Section 44 of the New York Convention,1958
Section 53 of the Geneva Convention,1927
The words ‘arising out of legalrelationships, whether contractual or not asused in Section 44.Section 53 failed to utilise these words instead of this it use “relating to mattersconsidered as commercial”.The definition of ‘Foreign Award’ as givenin Section 44 under the NYC (1958) beginswith the non–obstanate clause i.e., ‘underthe context otherwise requires’.But Section 53 is devoid of this beginning Section 44 insists that the agreement mustbe in writingSection 53 simply talks of agreementsimpliciter, omitting the words ‘in writing’.
5.3.1 Distinction between the Foreign Award and Domestic Award
A Foreign award as distinguished from domestic award is one which has any of following elements No Domestic Award Foreign AwardThe parties should have their nexusof birth or business to Indian origin.Two Indians residing in a foreignState and carrying on their businessin that State if agree to decide theirdisputes through arbitration regulated by Indian laws the arbitral .One of the disputant parties is anational of foreign State. But there canbe a situation where same Indiannational sharing property and businessin India and some foreign State haveresorted to decide their Disputethrough arbitration applying the foreignaward out of such arbitrationagreement shall be treated asdomestic even though it was givenin foreign territory.law regarding their commercialtransactions it was held to be a foreignaward. The case of Harendra H. Mehtav. Mukesh H. Mehta,may be cited toillustrate the point further.
2 The range of issue remains confinedto Indian characteristics coveringbusiness and its cognate expressionswithin the limit of Indian territory.The subject matter of arbitrationagreement is international in character.That is, it deals with internationalcommerce trade or investment and the like.
3 The award is made in the territory ofIndia, though an arbitral award givenin a foreign State for the dispute ofthe two parties of Indian origin andnationality governed by the Indianlaw shall also be a domestic award.The award is made in a foreign State But in situation may be where in twoforeign parties carrying on business inIndia agree to resolve their disputesthrough arbitration applying some foreign law it will be aforeign award out of such arbitration agreement though given in the Indianterritory.
4 The domestic award confines itselfwithin the territory of India.The party should belong to that Satewith which the element of reciprocityexists as per Notification in the OfficialGazette published by the IndianGovernment. A State with which theelement of reciprocity is non-existent,the award if any shall not be deal withunder the Arbitration Act, 1996.
After 4 years, in Harendra H. Mehta v. Mukesh H. Mehta,the SC hasclarified the issue. In this particular case, two brothers having their joint business inIndia as well as USA. They also had properties in both States. When differencesarose between them, they entered into an arbitration agreement at USA for thedistribution of their all properties and business between them. The arbitralproceedings were held and award made in USA. The parties entered in to settlementduring the pendency of arbitral proceedings and the arbitral award was made interms of the said settlement. The issues on which the SC was deciding primarilywere:-
I. The legal relation between the disputant.
II. The award came out of the settlement between the disputant hence itwas not an arbitral award.
III. The award was not made a decree by the USA Federal Court.
IV. The arbitral award was not registered.
The SC after considering all the issues decided that the award was a Foreignaward, and inter alia, held that:-
I. The legal relationship of commercial nature under the Indian Law,though disputants were brothers and this fact did not take the award out of the preview of the present Act of 1996.
II. Though the award was made in terms of settlement between theparties, but still it was an award under the Act of 1996.
III. The Indian Courts cannot refuse the enforcement of this award on theground that USA Federal Court had not issued a decree for the samebecause under the Arbitration Act,1996 the award becomes directlyenforceable without going to court for its decree.
IV. The registration of award is not compulsory and necessary for itsenforcement under the present Act of 1996.
5.4 General Provisions
Indian Law recognizes applying foreign laws in arbitration, whether inprocedural or substantive issues. As we have already seen under the Arbitration Act 1996, the disputant parties to an arbitration agreement are allowed to choose thelaw applicable to the issue of their disputes. They can subject their legalrelationships to any monetary rule of law, including foreign laws, internationalconvention, bilateral treaties or model-format contracts.
The most important provisions of Indian Law regarding enforcement offoreign arbitral awards are Articles 44 and 49 of the Arbitration Act, 1996 taken inconjunction with each other. Under Article 49, foreign arbitral awards are enforcedin the same way that foreign sentences and orders are enforced in India.
This pointsto the adherence of the Indian legislator to the fundamental attitude that does notconsider international arbitral awards as distinct from international judgments, andis, thus, not very much favourable to international arbitration, in terms ofenforcement. In this regard, too Indian Law follows the English legal pattern.
Articles 44 of the Act of 1996 provides that orders and awards made in aforeign State may be granted leave to enforce in India on the same conditions thatthe concerned State enforces the orders and awards issued in the India. The aboveprovisions show that there has to be a mutual policy of the enforceability of foreignawards between India and the relevant foreign State.
The arbitral award should have been given in that territory where on thebasis of reciprocity the NYC (1958) is applicable. For territories to which the NYC(1958) is applicable, the government of India, in its official Gazette shall bedeclaring the names of States and territories where reciprocally the NYC (1958) willapply. The Foreign Awards (Recognition and Enforcement) Act, 1961 was passedwhich nearly 44 State territories were declared which had reciprocal acceptability ofNYC (1958). The list so declared in 1961, still remains valid due to Section 85(2)(b) of the Arbitration Act, 1996. If an award is made in a country which is not asignatory of NYC (1958), then the provisions of the Section shall not be applicableto that award and that award shall not be treated as a foreign award under the presentAct, 1996.
The SC in Bhatia International v. Bulk Trading S.A.,12 observed thatawards in arbitration proceedings which take place in a non-convention country arenot considered to be ‘foreign award’ under the arbitration Act, 1996.they would thusnot be covered by Part II. It is an acceptable approach for all members of theNYC(1958). For instance, under English Arbitration Act, 1996, if an arbitral awardis singed in a State which is a party to the NYC (1958), English Court can hear an As per C.A. arbitration quarterly Vol. XVIII, No.3 October-December 1993 the followingcountries have reciprocal provisions in context to New York Convention, 1958:- Austria,Belgium, Botswana, Bulgaria, Cuba, Czechoslovak Socialist Republic, Chile, Denmark,Ecuador, Arab Republic of Egypt, Finland, France, Germany, Ghana, Greece, Hungary, Italy,Japan, Republic of Korea, Malagasy,Republic,Mexico,Morocco,Nigeria,Netherlands,Norway,philipines,Poland,Romania,spain,Sweden,Switzerland, Syria Arab Republic, Thailand, Trinidad And Tobago, Tunisia, U.S.S.P., U.K.,United Republic of Tanzania, U.S.A., Central African Republic, Kuwait, San Mario; appeal from the award if it was made under English law. In case Hiscox v.Outhwaite the English Court has held that the disputants referred disputearbitration in England on the basis of an agreement made under English law. Thearbitration concluded in an award which was signed by the arbiter in Paris (France).The claimant appealed against the award for remission and for statement of furtherreasons.
But as against this, the GC (1927) requires that the parties to the award mustbelong two different signatory States, and then only the award may be recognizedand enforced. In other word, if the award has been ma in a country which is notsignatory to the GC (1927) or if it is between persons who are not subject ofjurisdiction of signatory State it may not be recognized and enforced. The principleof reciprocity in enforcing foreign awards is a reflection of Article I (3) of the NYC(1958), where such a principle is emphasized. The principle is adopted by mostcountries but not all.
Thus, when seized of a foreign award, in order to enforce it, it must beestablished that the rendering country allows enforcement of awards made in India,and apply the same conditions that are applied to the enforcement of Indian awardsin that State. In other words, it has to be proved that no more restrictive conditionthan those of Indian Law applies to the enforcement of an Indian award in the saidState. A refusal of enforcement of Indian awards in that State leads to the denial ofenforcement of awards rendered there in India. Also, stricter conditions forenforcement of Indian awards in a State than those applied in India triggers similarrestrictions for enforcement of awards made in that State, if they are to be enforcedin India.
There are two serious difficulties however with this requirement. First, theIndian provision does not specify what the conditions referred to are. Second, thereis no mention of on that the burden of proof for the existence of the reciprocity condition is the requesting party or the Court. Such vagueness in the language ofthe Article can give rise to disputes over its interpretation. It has been argued that ifArticle 49 means that the Indian judge has to take into consideration exactly thesame conditions for enforcing a foreign award in India that are applied by the courtsat the seat of arbitration when they enforce awards made in India, this imposes adifficult task on the judge.
This is because it is difficult for a judge to know theconditions for enforcing a foreign award in another State. Furthermore, unless thereis a precedent or specific provision of law in the other State, it is so difficult to provethat there is such a mutual policy. Imposing such a condition may result in nonenforcementof an arbitral award.
In principle, a local judge should refer to the law of the seat of arbitration toacquaint himself with provisions relating to the enforcement of foreign awards inthat State. This is famous as legislative exchange. He should also refer tointernational conventions or treaties concluded between the In general, under Indian law if enforcement of a foreign award is sought inIndia, it is Indian Law that determines the enforcement procedure. This is in linewith the general rule in has to international conventions on enforcement of awards,according to which the law of the enforcing country is applicable to enforcement procedure. If no multilateral or bilateral treaty governs enforcement of a foreignaward, its enforcement in India requires a court decision.
5.5 Grounds for Non-Enforcement of Foreign Arbitral Awards
The Arbitration Act, 1996 provides for certain grounds for refusingenforcement of foreign arbitral awards. In this respect Indian Law generally followsthe NYC (1958). Nevertheless, there are some significant differences that arediscussed in the following Sections. The main difference is that while under the Convention these grounds may but not must result in non-enforcement of a foreign award, under Indian law they shall have such a legal impact.
In other words, if thereexists such a ground, the Convention provides judges with the discretion to or not toenforce the award, but Indian Law clearly prohibits them from enforcing such anarbitral award.
The Section 34 of Arbitration Act, 1996 covered some of the grounds forsaid aside which are same with Section 48. This Section has been enacted on the 15 For instance Article III, the New York Convention, 1958.Section 34 of the Arbitration Act, 1996 reads as “Application for setting aside arbitral award.-
(1)Recourse to a Court against an arbitral award may be made only by an application for settingaside such award in accordance with sub-section (2) and sub-section (3). (2) An arbitral awardmay be set aside by the Court only if—
(a) the party making the application furnishes proof that-
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid underthelaw to which the parties have subjected it or, failing any indication thereon, under the law for thetime being in force; or
the party making the application was not given proper notice of theappointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present hiscase; or
the arbitral award deals with a dispute not contemplated by or not falling within theterms of the submission to arbitration, or it contains decisions on matter beyond the scope of the submission to arbitration Provided that, if the decisions on matters submitted to arbitration canbe separated from those not so submitted, only that part of the arbitral award
Attainsdecisions on matters not submitted to arbitration may be set aside; or
the composition of thearbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties,unless such agreement was in conflict with a provision of this Part from which the parties cannotderogate or failing such agreement, was not in accordance with this Past; or
(b) the Court findsthat (i) the subject-matter of the dispute is not capable of settlement by arbitration under thelaw for the time being in force, or (ii) the arbitral award is in conflict with the public policy.
(3) An application for setting aside may not be made after three months have elapsed from the dateon which the party making that application had received the arbitral award or if a request hadbeen made under section 33, from the date on which that request had been disposed of by thebasis of Article V of the NYC (1958) and also Section 7 of the Foreign Awards(Recognition & Enforcement) Act, 1961.The Section 48 of the Arbitration Act, 1996 had an occasion to elaborate andlay down proof grounds for setting aside of award which are available in foreign awards. Briefly stated these grounds are; –
a) If the arbitral agreement is not valid.
b) Due process of law has been violated.
c) Arbiter has exceeded his authority.
d) Irregularity in the composition of Arbitral Tribunal or arbitral proceedings.
e) Award being set aside or suspended in the country in which or under the lawwhich that award was made.
f) Non-arbitrability of dispute.
g) Award being contrary to public policy.
5.5.1 Not Being Issued by a Competent Body
Article 48(1) of the Arbitration Act, 1996 provides that a foreign awardcannot be enforced, if it has not been issued by a competent judicial authority,according to the international jurisdiction rules of the country where it has beenmade. As we already know under Article 49 of the Arbitration Act 1996 the rulesapplying to foreign Court decisions also apply to foreign awards. It can be arguedthat the extension of the above rule to foreign arbitral awards means that such anaward cannot be enforced in India, if it is not issued by a competent arbitrationtribunal according to the law of the country where it is made. If this interpretation isarbitral tribunal.
Provided that if the Court is satisfied that the applicant was prevented bysufficient cause from making the application within the said period of three months if mayentertain the application within a further period of thirty days, but not thereafter.
On receiptof an application under sub-section (1), the Court may, where it is appropriate and it is sorequested by a party adjourn the proceedings for a period of time determined by it in order togive the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such otheraction as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitralaward.
Since the above provision of Indian Law does not directly address the issueof the jurisdiction of the rendering body, it does not deal with the possibility of anaward being issued on a dispute which is partially within the jurisdiction of thetribunal. Under most legal systems recognition and enforcement may be granted tothose parts of the award in which the tribunal has acted within its jurisdiction, ifsuch parts can be separated from the other parts. There is no reason not attribute thesame view to the Indian law. The difficulties and ambiguities raised by the aboveprovision of Indian Law once again indicate that it would have been better.
5.5.2 Non-Compliance with Indian Law or a Court Decision
Article 48(1) (d) of Arbitration Act, 1996 provides that a foreign orders andaward that entails a breach of a rule of the laws practiced in India shall not beenforced. The problem with this provision is that it does not specify which types ofrules cannot be breached by the award. It can be interpreted that they must not beagainst the ordinary law of India. This, however goes beyond the internationallyestablished rules and particularly the NYC (1958) which requires a foreign awardnot to be against the mandatory rules of law in the enforcing State. Indian Law even goes further and requires that a foreign orders and award the enforcement of whichis sought in India must not contradict orders and award already issued in India. Thisimplies the priority of an Indian court decision over a foreign judgment or award interm of their execution in India.
Such a situation arises in the case of jointjurisdiction, when both the Indian and foreign courts have jurisdiction to hear adispute. As seen before the exclusive jurisdiction of a domestic court leads to nonenforcementof a foreign award, even if no domestic decision has yet been made. Onthe other hand it can be said that if the judgment is made by the Indian courtlacking jurisdiction to hear the case and the defendant did not made any objection tothe competence of the court, the judgment is considered as if it were made by thecourt having jurisdiction. Such a judgment consequently has priority of enforcementover foreign sentences and awards regarding the same dispute.
Nevertheless, inother cases of lack of jurisdiction or joint jurisdiction there is no reason for thepriority of a decision made by the Indian court over a foreign arbitration award.Under the above situation of Indian Law filing a lawsuit with the Indiancourt does not bar the enforcement of a foreign award, because enforcement of suchan award may be barred only if a contradicting Indian court sentence has alreadybeen made. The provision does not also require denying enforcement of an award.
Ifcourt proceedings on the same or a related subject pending in India have begunbefore the foreign arbitral proceedings. Under many legal systems such as theEnglish law the losing party may request a stay of the order for enforcementpending determination of any application to set aside the award before the competent foreign authority. It may also be asked whether the Indian court wouldenforce the foreign award, if a court judgment has already been rendered or courtproceedings are pending in a third country. India may or may not have a contractwith the latter country for enforcing Court judgments. India is under obligation toenforce court judgments rendered in countries with which it has a bilateral ormultilateral treaty. India is a party to several international conventions forenforcement of foreign award.
5.5.3 Improper Summons and Legal Representation
The Orissa High Court in Orient Paper Mills v. Civil Judge,did not allowthe summoning the chairman of arbitral tribunal as a witness. The application wasmade under Articles 226 &227 of the (Indian) Constitution for a direction to theCivil Judge for issuing summons. The award was submitted by the tribunal. Itrejected the claim with a full statement of reasons. The ground on which theChairman was sought to be summoned was that the tribunal considered certaindocument behind the back of the party. The Court said that this ground, ifestablished, would have enabled the party to get the remedy of setting aside. In thepresence of such a crystal remedy, there was hardly any need for summoning the arbiter as a witness.
The Orissa High Court held that a foreign award can be enforced, only ifboth disputant parties have been summoned to appear and legally represented.
Thisdecision is a reflection of Article V (1) (b) of the NYC (1958).Although Article 48(1) (b) of the Act, 1996 does not explicitly express equaltreatment, fair hearing, full and proper opportunity for the parties to present theircase and having access to the other party’s documents as conditions for theenforcement of a foreign award, it can be interpreted as to prohibiting most types offailure to comply with fairness in arbitration proceedings. For instance, the Arbitralcourt decision, an order for security may be made by the enforcing court (Ibid., 317).Tribunal’s refusal to hold a hearing requested by one of the disputant parties may beregarded as a violation of due process, and thus a ground for denying enforcement of the award.
5.5.4 Non-Arbitrability of the Dispute
Enforcement of an arbitral award may be refused if the court finds that theissue of the difference is not capable of settlement by arbitration under the law ofIndia. Article 48(2) (a) of Arbitration Act, 1996 provides that the dispute aboutwhich a foreign award is made must be arbitrable under Indian Law. This isequivalent of Article V (2) (a) of the NYC (1958). As we have seen in chapter IV of this research, Article 2 of the present Act, 1996 implies that almost anydispute arising from legal relationships between private and public entities can besettled by arbitration. However, disputes that cannot be subject to reconciliation orcompromise cannot be settled through arbitration.Generally speaking, almost all subject-matters in dispute not being of acriminal nature, may be referred to arbitration. Where the law has given jurisdictionto determine a particular matter to specified tribunals only, determination of thatmatter by other tribunals is excluded.
The SC in Union of India v. Popular Buildersheld that the existence ofarbitrable dispute is a condition precedent for exercise of power by an arbiter. TheSC in U.P.Rajkiya Nirman Nigam Ltd. v. Indure(P) Ltd., has also emphasized thatthe arbitrability of a claim depends on the construction of the clause in the contractand on this point the finding of the arbiter is not conclusive and that ultimately it isthe court that decides the controversy. That was the position under the repealedArbitration Act 1940. Section 16 of the Arbitration Act 1996 empowers the arbitersto decide such question. The decision of the arbiter in this respect being appealable ultimately the matter goes for the decision of the court. The same effect was thedecision of the SC in Union of India v. G.S.Atwal &Co.
5.5.5 Non-Enforceability of the Foreign Award in the Country Where It IsMade
Article 48(1)(e) of Arbitration Act, 1996 provides that a foreign arbitralaward whose enforcement is sought in India has to be enforceable in the countrywhere or under the law of which it has been made. In other words, enforcement offoreign award may be refused if the award has not yet binding on the disputants orhas been set aside or suspended by a competent authority of the State in which thataward was made. The SC in Centrotrade Mineral & Metals Inc v. Hindustan CopperLtd.has explained the phrase ” the country under the law of which, it has beenmade” in Article 48(1) (e) of Arbitration Act, 1996, refers to the law of the State inwhich the arbitration has its seat rather than the sate whose law governs thesubstantive contracts.
Under Article V (1) (e) of the NYC (1958), a foreign awardmay not be enforced, if it has not yet become binding on the disputant parties, or hasbeen set aside or suspended in the country where it is made. The above Indianprovision is probably intended to reflect the restriction expressed in the NYC(1958), as the requirement of enforceability entails, among other things, that anaward has not been set aside or suspended, and is binding. However, Indian Law issimilar with the Convention. Some States require the award to be binding, under thelaw at the seat of arbitration or under the applicable law, but Indian Law justrequires it to be enforceable under the law at the seat of arbitration.
This means thatif the award is made in another country under the law of a third State, it cannot beenforced in India, unless it is enforceable in the State where it is made. This imposesan extra restriction on enforcement of foreign awards in India. The enforceabilitycondition may amount to the need for double enforcement, at the seat of arbitrationas well as in the enforcing State.
This is while it has been a main purpose of the NYC (1958) to abolish theneed for obtaining leave to enforce twice once in the State where it is made andthen in the country where its enforcement is sought. Moreover, there are some legalregimes including France and USA, whose law is more facilitative of arbitrationthan the NYC (1958) is. The national laws of these countries provide that an awarddefective under the law at the seat of arbitration or under the applicable law can stillbe enforced. For instance, in Hilmarton Ltd. v. Omnium de traitement et devalorisation, the French Court recognized an award set aside in Switzerland.
220.127.116.11 Non-binding Awards
The system of double ‘exequatur’ (leave for enforcement) has beendispensed with by the NYC (1958) which was not prevalent in the GC (1927), byusing the word binding instead of final. That means the enforcement of NYC awardscan be sought in another State without seeking leave for enforcement ‘exequatur’from the State where the arbitral award was made. The expression binding impliesthat arbitral award is binding on the disputant parties and is effective so much so thatit would no longer be open to ordinary means of recourse including appeal againstthe foreign award.
This provision, too, reflects Article V Para (1) (e) of the NYC (1958). Thedifference however is that, under Article 1(2) (d) of the GC (1927), an award has tobe final in order to be enforced, whereas the NYC (1958) provides that the awardmust merely be binding. This means that some types of interim awards particularlyconservatory measures if they are considered to be binding can be enforced underthe Convention, but not under the GC (1927). Foreign awards that are not yet finalmay be revoked later so their enforcement may create practical difficulties. Thus requiring awards to be final under the GC puts an extra condition for enforcingforeign awards compared to what is required by the NYC (1958). Then, a bindingarbitral award is enforceable but it is not final as long as it is open to meansOfrecourse’. It is for this reason that the NYC (1958) avoided to use the term final (asis found in Article 1(2) (d) of the GC, 1927) in place of binding.
5.5.6 Awards Being against Public Policy
As we have seen, the expression ‘Public Policy’ is subject to interpretationfrom place to place and time to time as also to currently prevailing circumstances,the Arbitration Act, 1996 having not defined it.Section 48 (2) (b) of the Act, 1996 empowers the Court to set aside thearbitral award made outside India if it violates Public Policy. Similar provision iscontained in Section 34(2) (b) where the arbitral award is made in India. Underabove Article, a foreign orders or award the enforcement of which is sought in Indiamust not contain anything against Public Policy.The legislature of India used of the words “if the Court finds that” in theSection makes it crystal that it is not necessary for the party to plead that the arbitralaward violates Public Policy but the duty is cast on the court itself to see that thearbitral award is not in violation of Public Policy.
In Renusagar Power Co. Ltd. v.General Electric Co. Ltd.,which arose under the Foreign Awards (Recognition &Enforcement) Act, 1961 which implemented the NYC (1958) of 1958 relating torecognition and enforcement of foreign arbitral awards, the SC inter-alia observed:”In order to attract the bar of Public Policy, the enforcement or the award mustinvolve something more than mere violation of the law of India. The enforcement ofa foreign award would be contrary to Public Policy if it is contrary to:
a) Fundamental policy of Indian Law;
b) The interests of India;
c) Justice and morality.”
After 9 years, the SC in Oil & National Gas Corporation Ltd. v. SAW Pipes Ltd.,has observed that the term “Public Policy” does not admit a precisedefinition. For the purpose of Sections 34 & 48, the phrase “Public Policy” has to begiven a wider connotation and the award could be set aside if it is;
a) Fundamental policy of Indian Law;
b) The interests of India;
c) Justice and morality;
d) Is patently illegal; or
e) It is so unfair and unreasonable that it shocks the conscience of the Court.
The Bombay High Court in Open Sea Maritime Inc. v. R. Pyarelal International Pvt. Ltd.observed that wherein the enforcement of foreign award, isobjected on the ground that suit was filed by the petitioners in Bombay High Courton original said. This was in respect of the same issue which was referred to for thearbitration. Notice in respect of the said suit was also given to the arbiter. Hence thepetitioners could not have preceded with the arbitral proceedings. It was held that itamounted to fraud and hence the enforcement of the foreign award would becontrary to the public policy of India.
It is violation of Section 48 (2) (b) of theArbitration Act, 1996. This decision was approved by the SC in Phulchand ExportsLtd. v. OOO Patriot.Likewise, The SC rejected the contention that enforcement of foreign arbitralaward made in Ukraine would be against Public Policy as the arbiter was anemployee of one the disputant parties and, therefore, would not be independent incase Transoccan Shipping Agency v. Black Sea Shipping.It may however bestated that the phrase Public Policy has been interpreted differently by courtsdepending on whether the arbitral award is made by international or domesticarbitration tribunal.
An important feature of the Renusagar Power Co. and Oil & National GasCorporation Ltd. Cases are that the SC emphasizes the rules of morality andconduct as separate from Public Policy. Under most other national laws on the otherhand Public Policy is taken as including the rules of morality. The NYC (1958)provides for the non-enforcement of awards if they contravene Public Policy of theenforcing country without specifying ethical rules. The serious problem with theabove Indian provision is that no clear distinction is made between Domestic andInternational Public Policy.
Moreover, it is not clear whether the Indian court, whenconsidering enforcement of a foreign award, takes into account International PublicPolicy or otherwise. For instance, may a breach of a sanction regime imposed by theUN result in the non-enforcement of an award made outside India.More importantly, the above Case of the SC does not specify which kinds ofmoral rules must be complied with. Are awards assessed against fundamental moralrules or moral rules in general.
Also, it is not clear whether internationally acceptedmoral standards are the criteria for refusing enforcement of foreign awards or moralstandards prevalent in Indian society. Indian society as a traditional Hindu &Muslim society has moral standards many of which do not correspond with themoral values accepted in the other States particularly Secular West. Although IndianLaw does not explicitly refer to Hinduism or Islamic teachings as standards ofmorality, such teachings are embedded in Indian culture.
Unfortunately, so far there has not been sufficient case law to clarify theabove ambiguous and complex issues in Indian law, and it is expected that whensuch questions arise in the context of a legal case, there will not be an easy solution.Such ambiguities might dissuade foreign parties from recourse to arbitration to settletheir prospective disputes with Indian parties. Probably it would have been safer ifthe phrase “rules of morality” were not in the Indian legal system, in order to avoidany controversy over its interpretation. It is heartening to note that the Arbitration(Amendment) Bill, 2003 seeks to define the term Public Policy so as to give it anexact meaning.
5.7 Not Considering the Merit of the Case
Like India, most legal regimes do not permit a substantive review of foreignarbitral awards. However, as discussed before under Indian Arbitration Act, 1996 aforeign arbitral award have not been reviewed on the basis of its merits, or moreprobably its proceedings might have been reviewed in order to ensure thatprocedural requirements mandatory rules of Indian lawpublic policy and goodmorals were observed.
The Delhi High Court in Ludwing Wunscha & Co. v. RaunaqInternational has held that Section 46 of the Arbitration Act, 1996 provides that aforeign award cannot be challenged on merits be final conclusive and binding forall purpose, expert the circumstances set out in Section 48 of the Arbitration Act,1996 in which enforcement thereof will be refused. Domestic courts cannot set asideor annul a foreign award. The Court has only jurisdiction to decide whether theforeign award is enforceable or not.The point is that from a strictly legal perspective, there was no text of law orany international convention prohibiting the Indian Court from examining the issueof the dispute. Nevertheless in practice the court recognized and granted leave toenforce awards made outside India even if they were made in favour of the foreign party without reviewing the subject-matter of the dispute.
The various grounds available for challenge of the arbitral award do notpostulate a challenge to the award on merits. This is so because the exhaustive listof grounds enumerated in the Section does not include a mistake in fact or lawcommitted by the arbiter. Moreover the enforcing judge is confined to verify thejustification of the objections on the basis of the specified grounds and to weigh theviolation of public policy of his State. It is also because the principles of ICA do notallow judicial interference with the substance of arbitration by a State court.
The SC in Renusagar Power Co. Ltd. v. General Electric Co. Ltd., observed that in enforcement proceedings of a foreign arbitral award the scope ofenquiry before the court in which award is sought to be enforced is limited to theconditions mentioned in Section 48. This Section does not make provision whichenables a party to the said proceedings to challenge the award on merits. Thus, it iscrystal that before a foreign arbitral award is enforced the provisions of Sections 44and 47 of the present Arbitration Act 1996 are required to be fulfilled.
Recent Indian laws are more explicit that Indian courts are not competent forthe substantive review of foreign judgments and awards. The Arbitration Act, 1996does not include issues of fact and law in the list of grounds for decliningenforcement of such awards. However there are some provisions of Indian Law thatmight be interpreted as authorizing Indian courts to investigate some of types ofsubstantive matters of fact with regard to foreign awards. For instance, under Article48 (2) (b) (Explanation) of the Arbitration Act, 1996, a foreign orders and awardcannot be enforced in India, if it is based on fraud or corruption.
5.7.1 Ordering Interim Measures
Indian judicial systems, even before the present Arbitration Act, 1996, havebeen ready to order interim or conservatory measures in disputes referred todomestic not international arbitration. For granting of interim measures by a Courtin context to foreign parties of an arbitral agreement the question of jurisdiction ofthe Court arises. The question of whether Article 2(2) the Arbitration Act, 1996stripped Indian Courts’ jurisdiction to issue interim measures in ICA held outsideIndia was decided in the seminal case of Olex Focas Pvt. Ltd. & Others v. SkodaExport Co. Ltd.The Delhi High Court vacated the ex parte interim injunctionAnother authority to the same effect, in Marriott International Inc & Others v.Ansal Hotels Ltd.,arbitration was under the NYC (1958) at a place outside India,the Delhi High Court refused to issue any interim order in such a matter.
Thisdecision was not approved by the SC in Bhatia International v. Bulk Trading S.A.In instant case, the three Judges Bench of the SC attempted to resolve the ambiguityof Article 2(2) of the Arbitration Act, 1996 by taking the bold view that despite its contrary wording the entire Part I of the Act, 1996 was also applicable to ICA held outside India thereby indisputably going against the conceptual and architecturaldemarcations established by the Arbitration Act, 1996 between foreign and domesticarbitrations.
To uphold its holding, the Court reasoned that it was necessary todetermine whether the language of the Arbitration Act 1996 was a very plain andunambiguous as to admit only one interpretation. One may however question whatambiguity exactly lies in Scope this Part shall apply where the place of arbitrationis in India. Yet, finding that the language was uncertain and ambiguous, the Courtengaged in a lengthy discussion about the purpose of the Arbitration Act 1996 reasoning that “the conventional way of interpreting a statute is to seek the intention of its makers. ”
5.8. The Procedure for Enforcement of a Foreign Award
Section 49 of the Arbitration Act, 1996 confers the status of decree onforeign arbitral award as a result of which it becomes executable by its own force.This deeming provision has been incorporated in this Section with a view toensuring smooth and speedy execution of recognized and unobjectionable foreign awards. In other word this Section empowers the foreign award to be executed asDecree of the Court if the Court is satisfied that the award in question isrecognizable and enforceable under the Act, 1996.
Section 49 of the Arbitration Act, 1996 provides that when the Court not justof opinion but also satisfied that an award can be enforced by the Court, the foreignarbitral award shall be deemed to be a decree of the Court. In this respect context,the SC in Koch Navigation Inc. v. M/s. H.P.C.L.held that the foreign award has tobe executed as it is and there is no scope for addition to, or subtraction from, theaward. It means enforcement of a foreign award is to be carried out in accordancewith its contents without any change in this context.
In Fuerst Day Lawson v. Jindal Export Ltd.,the SC has observed that theprovisions of Sections 46 to 49 of the present Arbitration Act, 1996, read together make it crystal that no separate proceedings are necessary for the enforcement offoreign award. The Court can decide the enforceability of the award to make it adecree or rule of the Court and also take up its enforcement in the same proceedingsinstead of two separate proceedings.It may be reiterated that even in case of domestic award the Arbitration Act,1996equates it to a decree of the Court enforceable by its own force without thenecessity of award being filed in the competent Court for execution as a decree.There is no right of appeal against the recording of satisfaction by the Court, underSection 49 of the Act, 1996.It has to be stated that the procedure for enforcement of awards under the GCof 1937, the NYC (1958) and Section 49 of present Arbitration Act, 1996 is muchthe same.
Any person who is interested in enforcing a foreign award may apply inwriting to any Court having jurisdiction over the subject matter of the award. TheCourt for this purpose would be principal Civil Court of original jurisdiction in aDistrict and High court exercising original civil jurisdiction. Alongwith the awardand the agreement on which it is based, sufficient evidence showing that the awardis a foreign award should also be filed by the party applying for the enforcement ofthe arbitral award. The arbitral award becomes a decree of the Court on Court beingsatisfied that it is a foreign award enforceable under the law. There is no provision inthe Arbitration Act, 1996 for issue of notice to the affected party before Court makesit a decree.
In M/s Kochi Navigation Co. v. M/s Hindustan Petroleum CorporationLtd.,the Apex Court has observed that the meaning of the foreign award should beinterpreted in the light of the NYC (1958) and it’s implementing legislation in India.The arbitral award has to be executed as it is. The only ground on which it may bemodified is its ambiguity.As we have seen, under Article 49 of the Act, 1996, foreign award may beenforced in India in the same way that the concerned country enforces the orders andaward made in India. We have already seen that under Article III of the NYC(1958), a State where the enforcement of an award is sought must enforce the awardaccording to its local law, without imposing more onerous conditions or higher feesthan are required in the enforcement of its own domestic awards. India has joinedthe Convention.
Therefore, if another State enforces foreign awards, including thosemade in India, in the same way that it enforces its domestic awards, awards made inthat country are enforced in India as if they were awards made in India.
As a matterof law, most countries, particularly those joined the NYC (1958), treat foreignawards as if they were domestic awards. If this is so, the procedure for the enforcement of domestic award would also be applicable to the enforcement offoreign awards in India. Similar situation exists in the English Law, where theprocedure for executing enforcement orders of an award, whether domestic orforeign, is the same as that of Court judgments, for which the execution departmentof the court is responsible.As such where enforcement proceedings of a foreign award as a decree failto give result, order of High Court or the SC may be sought and in failure of thisorder, the remedy of contempt of court may be availed of as a solution.
5.9 Appealable Orders
Under Sub-section (2) of Section 50 of the Arbitration Act, 1996, theprovision has been made for appeals confining it to refusal certain orders madecontext to;-
a) Referral of dispute to arbitration under Section 45.
b) Enforcement of foreign award under Section 48 of the Arbitration Act, 1996.
This Sub-section enumerates two circumstances referred to under Section 45& 48 when an appeal shall lie against those orders and under Sub-section (2) ofSection 50 the Arbitration Act, 1996, there is no provision for a second appeal butthe Section does not preclude the right of the disputants to appeal to the SC (asguaranteed by the Indian constitution) against the order passed by appellant Court.The main question in this regard is whether an appeal against an order ofSingle Judge of High Court under Section 45 of the Act, 1996 refusing to referdisputants to arbitration would lie to Division Bench of that High Court.
The HighCourt of Calcutta in State of West Bengal v. M/s Gourangalal Chatterjee,held thatno appeal shall lie to double bench against the order of Single Judge Bench on thisissue. But the High Court of Bombay had taken a contrary view in this regard in itsdecision in Vanita Khanolkar v. Pragna M. Pai,observed that such an appeal ispermissible relying upon Clause 15 of Letters Patent applicable to High Court ofBombayappropriate to direct this special leave petition to be placed before its three JudgeBench.
In instant case, the SC constituted a three Judge Bench which was todeterminate the Delhi High Court Single Judge decision refusing the referral of thesubject matter to arbitration under Section 45 of the present Arbitration Act, 1996and not allowing appeal against such order to double bench of the same High Court .
The SC held that appeal to double bench should have been allowing and the DelhiHigh Court failed to take notice of Section 10 of the Delhi High Court Act, 1996 and Clause 10 of Letters Patent applicable to High Court of Delhi.The SC regretted that in above case because the intent appeal before the SCwas against the order of Single Judge of the Delhi High Court wherein the HighCourt had taken a view that no further appeal would lie under Section 50 of the Act,1996 against order made under Section 45 of the Act refusing to refer disputants toarbitration. It learned Single Judge had not taken notice of Section 10 of the DelhiHigh Court Act, 1996, and Clause 10 of Letters Patent applicable to High Court ofDelhi.
Just after three years, in M/s. I.T.I. Ltd. v. Siemers Public CommunicationsNetwork Ltd.,the SC held that even though no second appeal shall lie from theorder of the appellate Court passed under Section 37 of the Arbitration Act, 1996,but a revision petition under Section 115 of the Civil Procedure Code, 1908 can befiled against such orders. On the analogy of the above case, it may be said that underSection of the Act, also, a revision petition against a reverse order of the appeal maybe preferred.
The SC in Sumitomo Corporation v. CDC Financial Services(Mauritius)Ltd.& Others, held that Section 50 of the Arbitration Act, 1996 provides for appeal Section 10 in the Delhi High Court Act, 1966 reads as:- Powers of Judges.
(1) Where a singleJudge of the High Court of Delhi exercises ordinary original civil jurisdiction conferred by subsection of section 5 on that Court, an appeal shall lie from the judgment of the single Judge toa Division Court of that High Court.
(2) Subject to the provisions of sub- section (1), the law inforce immediately before the appointed day relating to the powers of the Chief Justice, singleJudges and Division Courts of the High Court of Punjab and with respect to all matters ancillaryto the exercise of those powers shall, with the necessary modifications, apply in relation to the High Court of Delhi. It is crystal from theprovision contained in Section 37 of the Arbitration Act, 1996 which provides thatappeal would lie to the Court which hears the appeal and not the Court whichexercises original jurisdiction if the issue had been a suit as provided in theexplanation to Section 47 or Section 2(c) of the Arbitration Act, 1996.
5.10 Chapter II Not to Apply in Chapter I of Part II of the Act, 1996
It has already been stated that Chapter I and Chapter II of part II of theArbitration Act, 1996 relate to foreign award made under the NYC (1958) and theGC (1927) respectively. Section 52 of the present Arbitration Act, 1996 which isbased on Article VII (2) of the NYC (1958) and Section 10 of the Foreign Awards(Recognition & Enforcement) Act, 1961 statutorily excludes the application ofsucceeding Chapter I relating the NYC (1958) awards to foreign awards to whichthe GC (1927) i.e., Chapter II of Part II of the present Arbitration Act, 1996 applies.
Then, the foreign awards which shall be governed by the GC, 1927 provisions shallbe regulated by Chapter I and shall not be permitted to be intermingled by theprovisions of the NYC (1958) contained in Chapter I of Part II of the present Act,1996.The NYC (1958) in Article VII (2) strongly emphasized that the GenevaProtocol of 1923 and the GC of 1927 shall come to an end to have effect betweencontracting State to extent, as they become bound by the NYC (1958). Practically,most of the countries have signed the NYC (1958). Normally, the NYC (1958)awards are enforceable in India because it becomes a party of this Convention on 13July 1960. To avoid ambiguities and difficulties, a State like India which issignatory of both the Conventions, must adopt and practice under the NYC (1958)only.
As we have seen in this Chapter, it was assumed that, under earlier IndianLaw (the Arbitration Act, 1940), foreign awards were open to retrial and challenge.This was because in previous Indian Laws there were no rules and regulations onenforcement of award rendered outside India. Nevertheless, the case examined inthis Chapter showed that Indian legal authorities tended to grant leave to enforcesuch arbitral awards. Recent legal developments have shown the intention of theIndian legislature to move significantly towards recognition of foreign arbitrationand enforcement of foreign arbitral awards. There has been a serious attempt tocatch up with advanced legal systems in the world and to enact internationallyrecognized regulations and standards for facilitating enforcement of foreign awards.
The Arbitration Act, 1996, in particular, has made a significant contribution in thisregard. Recourse to foreign arbitration is permitted under present Act, while itexplicitly allows enforcement of foreign arbitral awards. The Decree does notrequire considering the merit of a foreign award that is sought to be enforced inIndia, and enforces them on the same conditions that Indian awards are enforced atthe seat of arbitration. But contrary, under provisions of the Civil Procedure Code 1908, foreign judgment can be held valid and conclusive if it decided on merits.
Despite being a big step towards facilitation of enforcement of foreign arbitral awards the present Act 1996, in some aspects, is more restrictive than the NYC(1958). For instance, under Indian Law, non-compliance with the rules of moralityleads to the denial of enforcement of an award, but the Convention does not containsuch provision that is susceptible to interpretation and controversy.
An important problem with Indian Law, and specifically the Arbitration Act 1996, is that regarding enforcement it treats foreign arbitral awards and foreigncourt decisions similarly. Hence, some features of foreign sentences such as enforceability are required from foreign awards. The condition of enforceability ofan arbitral award at the seat of arbitration may be interpreted as the need for double enforcement of an award what the NYC (1958) is deliberately intended to avoid.Moreover, because of not making a distinction between foreign awards and courtdecisions, issues particular to foreign awards are not properly addressed in IndianLaw. Consequently, facilities reserved for enforcing foreign awards in mostadvanced legal systems are not provided for under Indian Law.
In a nutshell, it can be argued that Indian legal system has significantlymoved towards creating a facilitative environment for enforcing foreign arbitralawards. Nevertheless, some improvements are necessary to bring India in line withadvanced legal regimes in the world and to provide for the needs of internationalarbitration. The first step, in this regard should be enacting legislation directlyaddressing foreign arbitration as distinct from foreign court decisions and orders.
CONCLUSION AND RECOMMENDATIONS
6.1 Findings and Suggestions
Practically, the road for International CommercialArbitration (ICA) in Indiais not smooth. It is still in neophyte stage with many loopholes that obstructed inworking of successful of this method in India which are multifold starting fromemergent needs to modify or amendment of certain provisions of the ArbitrationAct, 1996 to changing the mindset of all potential parties who are involved.
Based on the identified lacuna, the following suggestions can be made:
Finding 1: The Arbitration Act, 1996 applies both to international and domestic arbitrations unlike the Model Law, which was designed to apply onlyto International Commercial Arbitration.
Suggestion: Domestic arbitration and International Commercial Arbitrationshould be kept separate. This will bring about effectiveness and clarity forusers of the said legislation. Hence, Indian legislature by an emergentlegislative action should adoption a separate Act for InternationalCommercial Arbitration.
Finding 2: Expression ‘Arbitration’ has not been defined under theArbitration Act, 1996. Like other legal regimes, India has avoided defining thearbitration and has instead attempted to distinguish it from other methods ofalternative dispute resolution. The definition in Section 2(1)(a) of the Act, 1996based on clause (a) of Article 2 of Model Law is merely a clarification that theAct covers Ad hoc and Institution arbitration.
Suggestion: For solve of this serious problem, Indian legislature shouldconfines the scope of definitions, perhaps to mitigate the disputes ofinterpretation, and them without enlarging the scope of confusion.
Finding 3) The Arbitration Act, 1996 does not define the term”International Arbitration”. The Indian legislature used the phrase”International Commercial Arbitration” in Section 2(1)(f) of The ArbitrationAct, 1996.
Suggestion: It is proposed to be modified by defining “InternationalCommercial Arbitration” which is commercial in nature as “InternationalArbitration” because all cases are not commercial in nature.
Finding 4.) The Arbitration Act, 1996 does not provide exhaustivedefinition of expression “Commercial”. While the Model Law provides for thedefinition of the term “Commercial” in a footnote for Article 2 of theArbitration Act, 1996, that is alien to the above drafting technique, defines theterm extensively in a separate Article.
Suggestion: The expression commercial as occurring in Section (2)(f) of Act,1996 and in Section (2) of the Foreign Awards (Recognition andEnforcement) Act, 1961 should be construed broadly having regard tomanifold activities which are integral parts of international trade today andthe aid can also be taken from footnote Annexed to Article 1 of the ModelLaw for this purpose.
Finding 5: Multi-party arbitration, whether they involve one contractwith multiple disputants or multiple contracts as well as multiple disputants,has complexities that need to be attended to. There is no particular rule forMulti-party arbitration, such arbitration is allowed, under Indian law, asArticle 7(1) of the Act, 1996.
Suggestion: It is time for the Indian law of arbitration to develop a rule thatcould determine when a third party wants to participate in an ongoingarbitration. There are many international rules that determine when a thirdparty could party could participate in an arbitration. The Arbitration Act,1996 should be influenced by these rules if the legislature decide to includewhen a third party wants to participate in an arbitration. Therefore, It isproposed to be added a new Section in the Act, in order to define aparticular rule for Multi-party arbitration. This subject can be addressed bythe future research.
Finding 6.) There is no distinction between domestic public policy,which is applied to domestic awards, and international public policy, which incertain circumstances is applied to international awards issued under theArbitration Act, 1996.
Suggestion: Indian legislature as an emergent action should be made acrystal distinction between domestic and international public policy.
Finding 7: The major lacunas in Section 8 of the Arbitration Act, 1996are as follows;-
• There is no provision in the Act, 1996 for bifurcating the suit into twoparts, one to be referred to arbitration for adjudication and the other tobe decided by the Civil Court.
• Sub-section (3) of Section 8 of the Arbitration Act, 1996 is against theCode of Civil Procedure. Although Sub-section (3) of Section 8 does notprohibit commencement or continuance of arbitration proceeding evenwhen a suit and an application for stay are pending hearing in a Courtof law. It means that this sub-section permit both arbitrationproceedings and legal proceeding to be continued concurrently but theCode of Civil Procedure does not permit two Courts concurrentlyproceeding with same cause action between same disputants.
Suggestion: There is an emergent need of reformulating Indian law in thisregard.
Finding 8) the Arbitration Act, 1996 have been ready to orderinterim measure in disputes referred to domestic not international arbitration.
Suggestion: It is ideal to added order interim measure in disputes referred tointernational and foreign arbitration. Although, it is very difficult but is possible.
Finding 9: The Arbitration Act, 1996 is less specific about theauthorities and powers of an arbitration tribunal in relation to witnesses,evidence, etc.
Suggestion: The aid can be taken from Sections 43 & 44 the EnglishArbitration Act, 1996 for this purpose.
Finding 10: Section 28 (2) of the Arbitration Act, 1996 authorizing thearbiters to settle a dispute as amiable compositeur. An important misgivingabout arbitration by amiable composition is that, in some jurisdictions, it issometimes confused with mediation or conciliation by a nominated third party.It states that if the disputants expressly authorize the tribunal to reachconciliation between the disputants, the arbitration tribunal may resolve thedispute on the basis of equity and fairness, without being restricted to theapplicable law. This makes arbitration similar to a conciliation process. But,there are fundamental differences between arbitration and conciliation. Theleast is that the award of arbiters acting as amiable compositeur is binding,whereas conciliators can only recommend a solution.
Suggestion: the Western concept of arbitration by amiable composition hasnot yet fully assimilated into Indian legal systems; and that the concept ofequity, in Indian legal thinking, is not linked to adjudication but to mutualconcessions. The aforementioned difficulties can be addressed bymodification of the law and the expansion of doctrinal works.
Finding 11: There is no provision for review of;-
There is no provision for review of appointment of arbiter by the Courtwhere the court has passed order appointing an arbiter due to failure ondisputants to appoint their arbiter.
The order made by the competent court under Section 8 of the ArbitrationAct, 1996 for staying or refusing to stay legal proceedings cannot bechallenged in appeal because such an order is not included as “appealableOrder” under Section 37 of the Arbitration Act, 1996. Therefore, the Courthas no other discretion but to refer the matter to arbitration.
Suggestion: It is proposed to be added this order to list of the ground oforder.
Finding 12: There is no right of appeal against;
An arbitral award.The finding and recording of satisfactory proceeding by the Court,under Section 49 of the Arbitration Act, 1996.
Suggestion: These serious lacunas which have escaped attention of theframers of Arbitration Act, 1996 can be addressed by modification of thelaw.
Finding 13: The Arbitration Act, 1996 does not make a distinctionbetween recognition and enforcement of arbitral award. This is a disadvantageof the Arbitration Act, 1996, as a wining respondent may wish to requestrecognition of an award, in order to block new actions by the losing claimant,or a wining party may have to delay the enforcement of an award, andrecognition of the award would guarantee such a future action. It seems to be achronic problem with most arbitration legal regimes that they rarely stipulatethe issue of recognition as distinct from enforcement.
Suggestion: Indian legislature by an emergent legislative action shouldadoption of the Recognition Act as a separate part of the Arbitration Act.
Finding 14: Aggrieved party can avoid execution of awards by onlyfiling an application for setting aside under Sections 34 and 48 of theArbitration Act 1996, without being required to deposit a certain part of thearbitral award amount.
Suggestion: It is ideal to be added a new Section in order the depositreferred to the Sections 34 and 48 of the Arbitration Act, 1996.
Finding 15: Like the Model Law, the Arbitration Act, 1996 has problemof definition of regard to arbitrability. That means that the scope ofarbitrability remains textually undefined. Compared to arbitrable subjectmatters, numbers of non- arbitrable subjects are more in India.
Suggestion: It is ideal to be added a new provision for defining orenumerating matters considered as arbitrability issues in the Arbitration Act,1996. And also, Indian arbitration legislation should allow a wider range ofdisputes to be capable of a reference to arbitration than it is permitted now.Limitation of arbitration to those disputes that can be subject to compromiseis no longer in tune with new developments in arbitration globally. More andmore areas that have traditionally been considered as non-arbitrable arenow gradually opened to arbitration. Certain stock market, bankruptcy, antitrustand public law as well as patent and intellectual property law disputeshave been allowed settlement through arbitration in the jurisprudence ofsome Western countries.
6.2 Testing the Hypotheses
Hypothesis One: “The Arbitration and Conciliation Act of 1996 does not appearto be a well drafted legislation.”
The present contexts the draft Articles provisionally adopted by theArbitration Act, 1996 do not provide clear guidance and it does not expressed inmore crystal clear terms. For example, The Arbitration Act, 1996 does not provideexhaustive definition of expression “Commercial”. While the Model Law providesfor the definition of the term “Commercial” in a footnote for Article 2 of theArbitration Act, 1996, that is alien to the above drafting technique, defines the termextensively in a separate Article. Therefore, the researcher accept the hypothesisformulated as “The Arbitration and Conciliation Act of 1996 does not appear to bea well drafted legislation.”
Hypothesis Two: “Indian law of arbitration is now less in line with universallyaccepted standards and practice.”
Although, India has highly developed rules and principles governing allaspects of arbitration in recent years but practically, it faced many seriousprocedural problems with international arbitration which cannot be overlooked inthe present day of international trade transactions. The implication is that Indianlaw of arbitration is now less in line with universally accepted standards andpractice, which is one of the main reasons why a country like India with richbackground in arbitration, close copied foreign arbitration law even moderninternational standard, still is not a world centre for arbitration. Therefore, theresearcher accept the hypothesis formulated as “Indian law of arbitration is nowless in line with universally accepted standards and practice.”
Hypothesis Three: “The problems of enforcement of foreign award in India arenot connected with international mechanism of arbitral awards.”
Although, the present international conventions and legal institutions are notadequate for dealing with the problem of enforcement award but the real problem isthe lack of proper international mechanism for enforcement and implementation ofarbitral awards.
The problems of enforcement award in a country like India which is famous as problematic State in enforcement of award are not connected with internationalmechanism, but with complication of its implementation. The research shows thatthe main problem is inside the administrative routines, interpretation and settlementof the existing international rules in national law. Therefore, the researcher acceptsthe hypothesis formulated as “The problems of enforcement of foreign award inIndia are not connected with international mechanism of arbitral awards.”
Hypothesis Four: “The Model Law, 1985 and international conventions like theNew York Convention, 1958 are positively effective in developing and facilitatingthe international arbitration in India.”
There is a positive relationship between development of Indian law ofarbitration and accession to the Model Law and international Conventions by Indiangovernment. Recent modifications of the international Conventions and the ModelLaw in India introduced by the Arbitration and Conciliation Act, 1996 and them Courts practice in India clearly show how the international Conventions and theModel Law can contribute to the development of international business.It is undoubtedly true that adoption of the Model Law and internationalConventions encouraged the development of arbitration in India, but that theadoption itself could not overcome all of the problems and deficiencies in the legalframework which surrounds International Commercial Arbitration. Therefore, theresearcher accept the hypothesis formulated as “The Model Law, 1985 andinternational conventions like the New York Convention, 1958 are positivelyeffective in developing and facilitating the international arbitration in India”.
The Law of arbitration in India has gone through deep changes in recent decades. Regulations on enforcement of foreign awards have significantly improved in recent years. This has been achieved through adoption of new legislations as wellas accession to international and regional conventions. India became a party to the New York Convention of 1958, as the single most important convention on the recognition and enforcement of foreign awards with effect from October 11,1960. It has been a break through that erased the uncertainties and suspicions that marred an interest to resort to arbitration with Indian parties.
At the regional level, India did notjoin any convention. India should, however, accelerate the process of considering accession to, and ratification of, international and regional conventions on enforcement of international arbitration awards in order of their priority for its commercial relationships with the outside world. At the international level, it has been said the convergence of legal systems or harmonization of commercial law will, in the long run, stabilize and strengthen national economies and will create a healthy competitive environment.
As to arbitration legislation, alongside the modernization of the Indian legal system, its law of arbitration has also been significantly improved since 1940. While arbitration practice used to be regulated according to the New York Convention of 1958, since then there has been a trend towards codification and institutionalization of the practice. It can be said that the legal structure required for modern arbitrationis now in place in the country. The diversity of religious and custom, have not been major impediments on the way towards modernization of arbitration, save for foreign arbitration.
Nevertheless, the existing Indian law of arbitration law has departed, to a large extent, form traditional law. It can be said that the Indian law of arbitration is primarily influenced by modern internationally accepted patterns of arbitration, such as the Model Law. Such influence is mainly conveyed through western legal systems, particularly that of the United Kingdom. This is an advantage of the type of legal transplant experienced with regard to the Indian law of arbitration that it has been made possible through the English legal system, who serich background in arbitration is very much similar to that of India. The United Kingdom has been the pioneers of western countries to adopt modern laws. The long history of its legal system, the magnitude of the cases brought before its courts, and the insightfulness of many of its legal writers have made it into a relatively reliable authority for the adoption new laws. As touched upon before, many other pieces of legislation in India have been inspired by the English model. Hence, the adoption of an arbitration law identical to the English Arbitration Law guarantees some degrees of compatibility with the rest of the legal body in India.
The modernization of the Indian arbitration law can be better understood within the wider context of the Asian region where most of countries, in recent decades, have adopted present arbitration laws conforming to international standards, and established modern arbitration centers. They have intended to enhance their domestic arbitration practice, as demanded by their business communities, and to attract international arbitration.
Present Indian law of arbitration is an achievement realized in a relatively short period of time. Nevertheless, there are some difficulties and lacunae that need to be dealt with. The Indian legal system provides for a comprehensive set of rules governing commercial arbitration. Most of these rules are provided for in a statute separate from other sets of laws that is Law of Arbitration 1940, while the rest are integrated in other statutes such as the Arbitration Act, 1996 for civil and commercial disputes.
The Indian legislature has intended to encourage and facilitate arbitration. Under the law arbitration is a regulated and reliable method of dispute resolution, with binding and enforceable out comes. Present Indian law of arbitration allows both institutional and Ad hoc types of arbitration. There are several bodies engaged in international arbitration in India such as such as Indian Council of Arbitration, Federation of Indian Chamber of Commerce and Industry, etc. The lawis, however, particularly in favour of Ad hoc arbitration where the parties can freely choose arbiters as well as procedural and substantive rules of arbitration. The process of the development of the Indian law of arbitration indicates a move towards strengthening the contractual features of arbitration, at the expense of its judicial features. Such a move can bolster the confidence of foreign businesses. The extent of court intervention in the arbitration process is now limited.
Nevertheless, safe guarding arrangements are stipulated to guarantee a healthy arbitration process and more importantly compliance with its outcome. For instance an arbitration tribunal decides on its own jurisdiction and only after the issuance of the award the competence of the tribunal can be challenged at a court. On the other hand, dilatory tactics such as a challenge to the appointment of an arbitrator cannot obstruct the proceedings, unless either the tribunal or the court grants such a challenge.
The move towards emphasize on the contractual feature of arbitration has however, been undermined by giving too much power to the court incase of disagreement between the parties. Under Article 34 the Arbitration Act 1996, the competent court has the power to set aside an award made under the Act, if the applicable law has not been applied. This may be interpreted as allowing the substantive review of awards which is contrary to what is accepted in many advanced legal systems. Moreover, specifying too many formal requirements for an arbitral agreement or award, in order to be valid might frighten foreign parties from resort to arbitration in India.
An important issue in this regard is the power of the court to set aside an award which is to secure a just and rightful solution for the dispute. Internationally however the tendency is towards restricting the power in order to prevent its abuseby a reluctant party. Indian law too should move in this direction without compromising the rights of the parties to have an effective judicial control. This can be achieved by limiting the grounds for setting aside an award. Particularly the ground of failure to apply the applicable law to the dispute should be removed as it unnecessarily opens the way for the substantive review of awards. Similarly the provision allowing the court to set aside an award, if there is a defect or indicates of them in the arbitration award or in the proceedings to the extent that it affects the terms of the award should be removed as it does not provide a clear definition of such defects.
Moreover, Indian law should allow the parties to agree on a waiver of their right to bring before the court a request for vacating the award what is not permitted under the current law. Unlike the Arbitration Act, 1940, the Arbitration Act, 1996 recognizes International Commercial Arbitration, but some how treats it similarly from domestic arbitration as same Courts have jurisdiction to deal with the issues relating to the two types of arbitration. Nevertheless, the distinction between domestic and international arbitration is not sufficiently taken into consideration as international arbitration should be subject to less restrictions and scrutiny and be provided with a more favourable treatment.
The grounds for vacating a domestic award can be more than those leading to setting aside a foreign award. For instance a crystal distinction should be made between domestic public policy which is applied to domestic awards and international public policy which in certain circumstances is applied to international awards issued under Indian law. More importantly, the Arbitration Act 1996 recognizes recourse to foreign arbitration. It also contains a definition of foreign arbitral awards, and makes a distinction between domestic and foreign awards.
Under the Arbitration Act 1940, it was assumed that foreign awards must be treated as if they were domestic ones that is they were subject to the legal procedure and scrutiny applicable to domestic awards and more importantly subject to judicial review. This is no longer the case However, again lack of a definition of international public policy applicable to foreign awards is a deficiency of Indian law that needs to be addressed.
The Arbitration Act, 1940 addressed the issue of enforcement very briefly and the Indian court was assumed to have the power to examine meticulously an award, when considering its enforcement. Since there was no rule on the enforcement of foreign awards they too were assumed to be subject to retrial andto the similar extent of legal scrutiny.
By enacting the Arbitration Act 1996, the Indian arbitration law has shifted towards a pro-enforcement position to the extent that it can also be said that the law is generally more than the Model Law facilitative of enforcement of arbitral awards. It is relatively straight forward to apply for the enforcement of awards made under the Act 1996, whether in or outside of India. Since it has already been possible to challenge such awards at the Indian court by drawing upon the relatively extensive grounds for vacating them the grounds for refusing enforcement of an award arerestricted. Awards can be refused enforcement, only if they are:
(a) against a decision already made by Arbitral Tribunal and Courts,
(b) contrary to the public policy of India, or
(c) if the requirements of due process have not been observed in making them. A feature of the Act, 1996 is that while a request for enforcing an award can only be made after the expiry of the ninety day period for challenging the award the suspension of enforcing the award is also permitted, if the award is being challenged in the court.
Making a distinction between domestic and foreign awards the Act 1996 even more facilitates the enforcement of foreign and international awards. Also, the Supreme Court decision allows enforcement of foreign arbitral awards, without requiring a review of their merit. While Indian law of arbitration recognizes the effect of multi lateral conventions or bilateral treaties, if they are applicable to aforeign award under the New York Convention (1958) or Geneva Convention (1927) the most favourable law or conventions can be applied when enforcing a foreign award.
Hence, it is possible to go for the “most favourable regime” of enforcement available within the Indian legal system and treaties joined by India. As a matter of fact in many aspects the current Indian law is more than the New York Convention facilitative of enforcement of foreign and international awards. Incertain aspects however the Indian law lags behinds the Convention and universally accepted standards. For instance while the grounds expressed in Article V of the Convention may result in the non-enforcement of an award, Indian law obliges the court to refuse enforcement of an award, if such grounds exist. The latter also mentions non-compliance with the rules of morality as a ground for the refusal of enforcement of an award whereas no such a ground is recognized under the Convention. Such a requirement may lead to broad or conflicting interpretations undermining the required Uniformity.
Finality, it is an ideal time for a reform of Indian’s arbitration legislation. By acknowledging globally accepted practices and rules the Indian law of arbitration should be amended with a view to removing the serious lacuna and difficulties mentioned above and to improve its arbitration land scape on a domestic as well as international level. Adoption of various legislations regulating arbitration, including international arbitration setting up several bodies engaged in arbitration, whether domestic or international, and accession to international and regional conventions and treaties should be accomplished while an attempt is made at co-ordination between them.
Lack of such co-ordination leads to confusion, and under mines the very rationale of resort to arbitration which is simplicity and saving of time. Careful regional or international convergence and legal transplants in the are a of International Commercial Arbitration may be useful, if they are compatible with the rest of legal body in India.
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