LCI Learning

Share on Facebook

Share on Twitter

Share on LinkedIn

Share on Email

Share More


The Arbitration and Conciliation Act, 1966, vide its Section 7, has provided the following definition for Arbitration Agreement: -

“…arbitration agreement means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.”

In simplified terms, it refers to a consensus between the parties to a legal relationship to submit their disputes for arbitration rather than taking it to a Court. Disputes here may include both- disputes that have already arisen and the disputes which the parties expect to arise in future while entering into the legal relationship. It is not necessary that the legal relationship arises exclusively from a contract.

The Section also contains that the agreement has to mandatorily be ‘written’, where ‘written’ can mean either a document signed by the parties, an exchange of letters, telex, telegrams or other means of telecommunication [including communication through electronic means] which provide a record of the agreement, or an exchange of statements of claim and defense in which the existence of the agreement is alleged by one party and not denied by the other.

The effect of an arbitration agreement is such that even if one of the parties to the dispute brings an action before a Court, the Court may still refer the parties to arbitration, provided that the other party files an application, accompanied by the original arbitration agreement or a duly certified copy, apprising the Court of such arbitration agreement no later than the date of submitting his first statement on the substance of the dispute.

A. Arbitration Clauses

Section 7(2) provides that the arbitration agreement can either be in the form of an arbitration clause in a contract or in the form of a separate agreement. While a separate agreement refers to an agreement solely dedicated to the terms and conditions of an arbitration mutually assented by the parties, an arbitration clause is a more convenient manner to enter into arbitration agreement wherein the party/parties simply insert a clause in their legal contract expressing their intention to submit any dispute which might arise in future to arbitration rather than a Court.

The example for an arbitration clause in a contract is as follows:

“Any dispute or difference whatsoever arising between the parties out of or relating to the construction, meaning, scope operation or effect of this contract or the validity or the breach thereof shall be settled by arbitration in accordance with the Rules of Arbitration of the Indian Council of Arbitration and the award made in pursuance thereof shall be binding on the parties.”

While making an arbitration agreement (whether a separate agreement or a clause), the parties remain free to decide upon the number of arbitrators and the place for arbitration. The parties may either opt for a sole arbitrator, three arbitrators where each parties appoint one each and the two arbitrators appoint a presiding arbitrator, or any other number of arbitrators, provided that it is not an even number. Another important factor to be kept in mind is that, it should precisely define the scope and the subject matter of the reference, so as to leave no vagueness or uncertainty about it when the dispute arises in the future and also clearly confer competence on the arbitrator to deal with the dispute.

B. Parties’ Capacity To Enter Into Arbitration Agreement

The Indian Council of Arbitration has clarified that since arbitration agreement is an agreement, it should be governed by the provisions of the Indian Contract Act, 1872. The 1872 act has laid the following criteria for a party to enter in an arbitration agreement:

  • Every person (including a foreigner) who is competent to contract can enter into an arbitration agreement. He must have attained the age of majority according to the law to which he is subject and must be of sound mind and must not be disqualified from contracting by the law by which he is governed.
  • In the case of a partnership, a partner may enter into an arbitration agreement on behalf of the partnership, only if he is so authorized in writing by the other partners or in the partnership agreement itself.
  • The Directors or other officers of a company can enter into an arbitration agreement on behalf of the company, subject to the restrictions, if any, contained in the Memorandum of Association or Articles of Association of the Company.
  • Central and State Governments can enter into such agreement, subject to fulfillment of Constitutional requirements.
  • Public undertakings can enter into an arbitration agreement like any private party. Such agreement can be with private parties within the country or with foreign parties or foreign States and State agencies

C. Arbitration And Exclusivity Of Jurisdiction

According to the Indian Council of Arbitration, all disputes which can be decided by a civil court, involving private rights, can be referred to arbitration. However, it also states that there are certain matters which, as a general practice, are not referred for arbitration. The matters which are generally not referred for arbitration include:

  • Matrimonial matters, like divorce or restitution of conjugal rights;
  • matters relating to guardianship of a minor or other person under disability;
  • testamentary matters, for example, questions about the validity of a will;
  • insolvency matters, such as adjudication of a person as an insolvent;
  • criminal proceedings;
  • questions relating to charities or charitable trusts;
  • matters falling within the purview of the Monopolies and Restrictive Trade Practices Act;
  • Dissolution or winding up of a company.

Even though the above listed matters are not usually referred for arbitration, it is to be noted that these are not expressly barred under any statute and this is merely a matter of general practice. All matters, other than the above listed, are frequently referred for arbitration rather than the cumbersome process of the courts.

Jurisdiction of Arbitral Tribunals

Section 16 of the Arbitration and Conciliation Act, 1966 lays down the Doctrine of Competence wherein the arbitral tribunals have competency to rule on its own jurisdiction. It means that in case any of the parties is dissatisfied by the ruling of the tribunal, the tribunal will still have the power to review its ruling before the party can go to a court. During an arbitral proceeding, a plea by one of the parties claiming that the tribunal does not have jurisdiction has to be submitted before the submission of statement of defense, and a plea claiming that the arbitral tribunal is exceeding the scope of its authority has to be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings. Sub-section (5) empowers the arbitral tribunal to decide upon such pleas and either admit or reject it.

D. Intervention By Courts

Section 5 of the Act provides that no judicial authority shall intervene with matters provided in the first Part dealing with provisions of arbitration, except where so provided in the Part itself.

The High Courts and the Supreme Court has power, vide Section 11, to designate arbitral institutions. When the parties fail to appoint an arbitrator, or when the two appointed arbitrators fail to appoint a presiding arbitrator, the High Courts and the Supreme Court have the power to make the appointment(s) respectively in cases of domestic and international commercial arbitration.

Section 34 lays provisions for recourse against arbitral awards by courts. Sub-section (2) empowers the court to set aside the arbitral award if the party making the application evidently establishes that either a party was under some incapacity; the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration; or the composition of the arbitral 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 the Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with the Part.

The Court may also set aside the arbitral award if it finds that the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or the arbitral award is in conflict with the public policy of India. The Court may adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award.

E. Waiver of Rights to Object

Waiver of Right to Object can be determined with respect to a party which proceeds with the arbitration without any objection, even when they know that a requirement under the agreement has not been met. Section 4 of the Arbitration Act, 1996 lays down circumstances under which a party, even after knowing, fails to adhere to Part I or any other requirement under the arbitration agreement. If the party does not raise their objection against the non-complying party, within the stipulated time, without undue delay, even when they know that the agreement has failed to satisfy Part I or any other requirement under the arbitration agreement, then that party is said to have waived its right to object. This idea has come about in good faith to protect the arbitral proceedings from complexity, and the principle upon which this provision is based is “estoppel” or “venire contra factum proprium.”

The judicial court, in many of its judgements, has made it absolutely clear that the parties to an arbitral proceeding cannot raise an objection as and when they please, and if they do so, they have to provide court with a reasonable justification for the same. In Satish Kumar v. Union of India, the court held that a party which does not object to certain fact before the tribunal is estopped from doing so at a later stage of the proceedings. The silence of the party in not raising an objection amounts to be an inconsistent behavior even after knowing about its non-compliance, which leads to a waiver of the party’s right to object. For the purposes of the waiver of party’s right to object, there must be reasonable time period, and the circumstances & the nature of the case must be taken into consideration.

An arbitral tribunal which was formed out of the result of agreement between parties has been conferred with the power to rule on any objection raised by either party with respect to the actuality or validity of an arbitration agreement, under Section 16 of the Arbitration and Conciliation Act, 1996.

According to Section 16(2) of the Act, if a party seeks to challenge the jurisdiction or composition of an arbitral tribunal, it must take no longer than the moment of submission of the statement of defence. Section 16(2) of the Arbitration Act further states that such a challenge can be taken even though the parties may have already participated in the process of appointment of the arbitrator. But if a party chooses to refrain from raising any such objection or challenge at or before this stage, there will be a deemed waiver of party’s right to object under Section 4 of the Act.

After the ruling of an arbitration tribunal that the party has waived its right to object, the party also surrenders its right to object the non-compliance in further proceedings in judicial courts. Only objections which will be raised against violation of non-mandatory provisions of applicable arbitration law can be waived. However, there are certain exceptions to this. An objection against violation of mandatory provisions of arbitration agreement can also be waived. Section 16(2) and 16(3) of Arbitration Act are the exceptions. Section 16(2) provides that a plea challenging the jurisdiction of Arbitral Tribunal cannot be raised later than the submission of the statement of defence. Whereas, Section 16(3) provides that an objection can be raised if an arbitral tribunal is exceeding its scope and the same shall be raised before the matter alleged to be beyond the scope of its authority during the proceedings.

In the case of Quippo, SC held that if a party does not dispute a legitimate fact before the arbitral tribunal, it would lose its right to object with respect to all those given matters. The main motive behind this concept is to protect arbitral proceedings and is completely based on the principle of estoppel, which ceases a person from bringing up something against his own previous action or statement.

F. Types of disputes

The Arbitral Tribunal is a private bench which is chosen by the parties to the dispute to get their civil or commercial disputes resolved. Every civil and commercial dispute is capable of being resolved by arbitration unless it is barred by the jurisdiction of Arbitral Tribunal. The Arbitration and Conciliation Act, 1996 do not specifically exclude certain category of civil or commercial disputes from arbitrability.

Under Section 8 of the Act, it requires that if in case an action is brought before a Judicial Authority in a matter, which is the subject to the provisions of an arbitration agreement, the parties shall be referred by the court to arbitration subject to the exception given in Section 8 of the Act. Section 8 of the Act casts burden on the Judicial Courts to refer to arbitration in terms of the existence of Arbitration Agreement. Categorically, the Act does not exclude the particular types of disputes which are to be treated as non-arbitrable. However, the judicial courts in certain category of issues refuse to refer the disputed parties to arbitration under Section 8 of the Act. Some of the category of disputes which are reserved specifically to be tried by Public fora (Courts and Tribunals) which are constituted under the law and which are commonly considered as non-arbitrable disputes are as follow:

i. Criminal offenses;
ii. matrimonial disputes
iii. guardianship issues;
iv. insolvency and winding-up disputes;
v. matters related to grant of probate, letters of administration and succession certificate;
vi. matters related to eviction of tenants where tenant enjoys statutory protection against eviction by special statutes;
vii. patent, trade-marks and copyright;
viii. anti-trust/competition laws;
ix. fraud

G. Arbitration Agreement and reference of Dispute in Agreements

Section 7 of the Act defines arbitration agreement as a mutual agreement by the parties to proceed with arbitration on all or some disputes which have arisen in the past or will arise on a future date between them with reference to a defined legal and commercial relationship, whether contractual or not.

An Arbitration agreement can be made by any two parties entering into a contract according to which if any disputes arises between them with regard to the contract agreement is to be resolved, without going with the litigation procedure and with the help of an Arbitrator. The agreement must mention as to who should select the arbitrator, the number of arbitrators, regarding what kind of dispute the Arbitrator should give decision, the place and venue of arbitration, etc.

If both the parties agree, they need to sign the Arbitration Agreement and then the decision shall be binding on the parties. If someone is a party to any contract and if they wish to resolve any disputes with the help of an Arbitrator, without going to court, then they should make this agreement.

Arbitration agreement is like a contingent contract which means that these agreements would come into being or become enforceable only in case a dispute arises between the parties.

Essentials of Arbitration Agreement

The presence of a dispute is an important condition for arbitration. In cases where parties have successfully settled their disputes, they cannot oppose the settlement and invoke an arbitration clause.

  • Written Agreement

It is very essential that an arbitration agreement should be in writing. As per Section 7 (4) of the Arbitration Act, a separate agreement or clause in commercial agreement is considered to be in writing, if it is contained in:

  1. A document duly signed by both the parties;
  2. An exchange of letters, telex, telegrams or other mediums which can provide a record of the agreement; or
  3. An interchange of statements of claim and defence in which the availability of the agreement is alleged by one party and left undefined by another.
  • Intention

Intention to form agreement of the parties is of prime importance. No such form has been provided for an arbitration agreement and nowhere has it been defined that terms like arbitration, arbitrator are essential requirements in an arbitration agreement. According to a leading case law in this subject, the intention of the parties to take their dispute to arbitrators should be clearly interpreted from the arbitration agreement.

  • Signature

An arbitration agreement is not completed until and unless it is signed by the parties. The agreement may be in the form of a signed document by both the parties which contains all the terms and conditions or it may also be a signed document by one party which will contain the terms and conditions and an acceptance which is signed by the other party. It will also make agreement valid if one party puts his signature in the written agreement and the other party agrees to it.

The Supreme Court of India in a landmark judgement laid down the following attributes which must be present in a valid arbitration agreement:

  1. The arbitration agreement must hold the clause that the decision of the arbitral tribunal will be binding on the parties to the agreement.
  2. That the jurisdiction of the tribunal which will decide the rights and awards of the parties must be decided from their consent, or from a Court’s order or from a statute, the terms should be included which makes it clear that the process is to be arbitration.
  3. The agreement must include that there are certain rights of the parties will be determined by the arbitration tribunal.
  4. That the tribunal will decide the rights of the parties in an impartial and fair, judicial manner with the tribunal being unbiased and equal to both sides.
  5. The agreement of the parties to advert their disputes to the judgement of the tribunal must be intended to be enforceable in law.
  6. The agreement must include that the tribunal will make a decision upon an issue which is already drafted at the time when a reference is made to the tribunal.

H. Reference to Arbitration

The expression ‘reference’ in Arbitration and Conciliation Act, 1996 refers to an actual reference by both the parties together after disputes have arisen between them for solution from arbitration and name of arbitrator or arbitrators is required. Therefore a ‘reference’ requires sign of both the parties.

Reference o arbitration also describes various acts. It can be done by mutual consent of both the parties or by appointed arbitrator or by a court on an application by a party to the arbitral agreement. These are as follows:

· If an agreement mentions that all disputes between both the parties to the contract shall be decided by arbitration and that decision will be final and binding on them, the ‘reference’ contemplated is the act of both the parties to the agreement, referring their issues to an arbitrator to settle the issues.

· If there’s a clause in agreement which says that in the event of dispute between parties to agreement, there shall be an authority named who will nominate the arbitrator, the ‘reference’ contemplated is an act of that authority to appoint arbitrator and get issues solved.

· If the parties fail to appoint the arbitrator or arbitrators as mandatory required by the arbitration agreement, or if the authority named fails to appoint the arbitrator, on an application made by one of the parties to the agreement, the court can appoint the arbitrator.

I. Arbitration and Interim Measures

Section 9 of Arbitration and Conciliation Act, 1996 covered the provisions for interim measures which has now been amended. It stated that a party could apply for interim measures at any time during the arbitral process except when the award is to be enforced.

The amended act has made two changes to the section. Firstly, an application of interim measures for protection could only be entertained by the court only if situations arise under which relevant provisions under Section 17 have not been effective. Secondly, if an order of interim measures for protection is passed before the commencement of arbitral proceedings, the same should begin within 90 days of the order being passed or the within the time stipulated by the Court.

Interim Measures under Arbitration and Conciliation

Interim measures/orders are temporary measures/orders passed by the court during or in the course of pendency of litigation proceedings.

The question we seek an answer to is – Since arbitration tribunal is not a regular court, and cannot enforce its order, can a party to an arbitration proceeding apply to a regular court seeking an interim order.

The answer is YES, it can. Civil Procedure Code, 1908 has ample provisions to facilitate interim measures. For a court to grant an interim order for protection, for instance an injunction, it has to follow three basic principles. These were laid down by Andhra Pradesh High Court in N V Choudhary v Hindustan Steelworks Constructions ltd and are as follows –

1. A prima facie case should be established by the applicant

2. It should be verified if the balance of convenience tilts in applicant’s favour

3. Also, whether the refusal of an interim order will result in irreparable loss for the applicant

Since the court has powers to enforce its orders unlike an Arbitration tribunal, the applicant is protected if the respondent is at fault.

Under Arbitration and Conciliation Act, 1996, a party can apply for the order “before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with section 36, apply to a court—“

The provisions of section 9 were restated in the case of Sundaram Finance Ltd. v NEPC India Ltd. It also added that a court will not be debarred from considering the application simply because a notice had not been issued under Section 21 of the said Act.

Different Interim Measures one can apply for

As specified in the Section 9 of the Arbitration and Conciliation Act, 1996, following are the interim measures one can apply for –

1. Appointment of a guardian for a minor or a person of an unsound mind for the purpose of arbitral proceedings

2. An interim measure for protection can be sought for the following-

2.i – preservation, interim custody or sale of any goods that are subject matter of the case

2.ii- securing an amount in dispute

2.iii- the detention, preservation or inspection of any property or thing which is the subject-matter of the dispute in arbitration, or as to which any question may arise therein and authorising for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party, or authorising any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence

2.iv – an interim injunction

2.v – an interim appointment of a receiver

2.vi- an interim measure of protection that may appear to the court to be just and convenient

If an application is made for any of these interim measures, the court has the vested powers to make an order for the purpose of and/or in relation to civil proceedings before it.

In the case of Ion Exchange Ltd. v Paramount Ltd – the court held that an application filed under section 9 without informing the opposite party shall not be considered bona-fide, with a view of denying a legal remedy to the applicant party.

Different factors under which one can seek interim measures

There is no statutory principle guiding interim applications and no single test will provide a common solution – yet, there is enough jurisprudence to guide the courts in most interim applications. Acknowledging that interim orders can be granted at any step during the proceedings, even after the judgement has been passed – being orders of freezing injunctions which are passed for the enforcement of the passed judgements.

Let us take a closer look at what they are –

1. The Inescapable Dilemma

Originating from the principle of equity, interim injunctions have been codified as a statutory right. Pursuing to the latin maxin of audi alteram partem – both/all parties have a right to a fair court hearing before their rights are subjected to restrictions.

2. Status Quo – the fallacy

The principle of status quo requires the arbitrating parties to keep things the way they are until the final judgement is made. This principle is said to have been fatally flawed since the order of interim relief concerns itself with preservation of rights and not physical objects. The idea to be considered is if the order would provide a just outcome at the end of the litigation.

3. Governing Principles

As is one of the principles(established in N V Choudhary v Hindustan Steelworks Constructions ltd) an interim measure order is granted if the applicant can show a prima facie case based on merits. Thus, if the judge is convinced that the applicant had a good chance of succeeding in the final judgement then usually an injunction is granted.

4. Restraint on Publication

The leading authority of restraint on publication has been established under Cream Holdings Limited v Banerjee. Under this test the applicant is supposed to show that he will succeed at trial. The dilemma in these cases is regarding balancing freedom of right to expression and right to protection against defamation.

5. Freezing Injunctions

Established in the case Naviera SA v International Bulkcarriers SA , also known as Mareva Injunction – protects the claimant’s rights against defendant from dissipating his assets, consequently turning the litigation into a futile exercise.

J. The Special Relief (Amendment) Act, 2018

Amended from the Special Relief Act of 1963, the amended act is enforced in accordance with growing Indian economy, the need to uphold the sanctity of contract agreed upon and facilitating “ease of doing business” in India.

Section 20A of the Act curbs the power of the court in granting injunctions for contracts having ‘infrastructural project’ where granting injunction could cause a delay in the progress or competition of such projects.

The act further includes Section 20B requiring the government to appoint one or more civil courts as ‘special courts’ to exercise jurisdiction regarding contracts of “Infrastructure projects”.


"Loved reading this piece by Priaanti Thaakre?
Join LAWyersClubIndia's network for daily News Updates, Judgment Summaries, Articles, Forum Threads, Online Law Courses, and MUCH MORE!!"






Tags :


Category Students, Other Articles by - Priaanti Thaakre 



Comments


update