Tag Archives: ARBITRATION

M/s. Consolidated Engineering Enterprises Versus Principal Secretary, (Irrigation Department) and OTHERS [ ALL SC 2008 APRIL]

KEYWORDS:- APPLICABILITY OF LIMITATION LAW IN ARBITRATION

AIR 2008 SCW 4182 : JT 2008 (6) SC 22 : (2008) 6 SCALE 748 : (2008) 7 SCC 169

(SUPREME COURT OF INDIA)

M/s. Consolidated Engineering Enterprises Appellant
Versus
Principal Secretary, (Irrigation Department) and OTHERS Respondent

WITH

Hatti Gold Mines Co. Ltd. Appellant
Versus
Vinay Heavy Equipments Respondent

(Before : K. G. Balakrishnan, C.J.I. R. V. Raveendran And J. M. Panchal, JJ.)

Civil Appeal Nos.2461 with 2462 of 2008 (arising out of SLP (C) Nos. 10311 with 15619 of 2005, Decided on : 03-04-2008.

Arbitration and Conciliation Act, 1996—Sections 34 and 43—Delay—Limitation Act, 1963—Sections 5 and 14—Application of—Provisions have to be interpreted so as to advance the cause of justice rather than abort the proceedings—Principle of exclusion of time spent in bona fide litigious activity can be applied to the proceedings under the Act—Held: That provisions of Section 14 of Act of 1963 apply to the proceedings.

Counsel for the Parties:

R. F. Nariman, Sr. Advocate, Joseph Poockatt, Nikhil Majithia, Prashant Kumar, A. S. Bhasme, Varun Thakur, Hage Lampu and Sanjay R. Hegde, with him for the appearing parties.

Judgment

Raveendran, J—I respectfully agree with the judgment proposed by learned Brother Panchal, J. Having regard to the importance of the issue, I am add ing a few of my own reasons.

2. Two questions of law arise for our consideration :

(i) Whether Limitation Act, 1963 is inapplicable to a proceeding in a court, under the Arbitration and Conciliation Act, 1996?

(ii) Even if Limitation Act, 1963 is applicable, whether applicability of section 14 of the said Act is excluded to proceedings under section 34(1) of the Arbitration and Conciliation Act, 1996?

Re : Question No. (i) :

3. Learned counsel for the appellant contended that the Arbitration and Concili ation Act, 1996 (AC Act for short) is a self-contained Code relating to arbitration and all matters incidental thereto including limitation. He submitted that section 34(3) of AC Act prescribes the period of limitation for an application for setting aside the arbitral award, when such period can be extended and the limit to which it could be extended. Section 43 of the AC Act makes the provisions of the Limitation Act, 1963 (‘Limitation Act’ for short) applicable only to proceedings in arbitration and not to proceedings in court. Therefore, the provisions of Limitation Act are inapplicable to proceedings in a court under the AC Act.

4. To decide this question, reference to the relevant provisions of the AC Act and Limitation Act is necessary.

4.1) Part I of AC Act relates to arbitration. It contemplates a party approaching a court in three circumstances :

(a) for grant of interim measures under section 9;

(b) for setting aside an arbitral award, under section 34(1; and

(c) for filing appeals under section 37.

As section 9 deals with applications for interim measures, the question of limitation does not arise. In regard to applications for setting aside an award under sub-section (1) of section 34, sub-section (3) thereof prescribes a limitation of three months, different from the period of one month prescribed in the Schedule to the Limitation Act. Section 37 does not prescribe any period of limitation for filing appeals. If Limitation Act is inapplicable to court proceedings under AC Act, there will be no limitation for filing appeals under section 37. If Limitation Act is applicable, the period of Limitation for appeals filed under section 37 of AC Act will be governed by Article 116 of the Schedule to the Limitation Act.

4.2) Section 43 of the AC Act, relates to limitation and it is extracted below :

“43. Limitation. – (1) The Limitation Act, 1963 (36 of 1963, shall apply to arbi trations as it applies to proceedings in Court.

(2) For the purposes of this section and the Limitation Act, 1963 (36 of 1963, an arbitration shall be deemed to have commenced on the date referred in section 21.

(3) Where an arbitration agreement to submit future disputes to arbitration pro vides that any claim to which the agreement applies shall be barred unless some step to commence arbitral proceedings is taken within a time fixed by the agreement, and a dispute arises to which the agreement applies, the Court, if it is of opinion that in the circumstances of the case undue hardship would otherwise be caused, and not withstanding that the time so fixed has expired, may on such terms, if any, as the justice of the case may require, extend the time for such period as it thinks proper.

(4) Where the court orders that an arbitral award be set aside, the period between the commencement of the arbitration and the date of the order of the Court shall be excluded in computing the time prescribed by the Limitation Act, 1963 (36 of 1963, for the commencement of the proceedings (including arbitration) with respect to the dispute so submitted.”

Section 2(1)(e) of the Act defines ‘Court’ as follows :

“2(1)(e). ‘Court’ means the principal Civil Court of original jurisdiction in a dis trict, and includes the High Court in exercise of its ordinary original civil jurisdic tion, having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit, but does not include any civil court of a grade inferior to such principal Civil Court, or any Court of Small Causes.”

4.3) Let me next refer to the relevant provisions of Limitation Act. Section 3 of the Limitation Act provides for the bar of limitation. It provides that subject to the provisions contained in sections 4 to 24 (inclusive, every suit instituted, appeal preferred, and application made after the prescribed period shall be dismissed although limitation has not been set up as a defence. Prescribed period” means that period of limitation computed in accordance with the provisions of the Limitation Act. ‘Period of limitation’ means the period of limitation prescribed for any suit, appeal or application by the Schedule to the Limitation Act (vide section 2(j) of the said Act). Section 29 of Limitation Act relates to savings. Sub-section (2) thereof which is relevant is extracted below :

“29(2) Where any special or local law prescribes for any suit, appeal or applica tion a period of limitation different from the period prescribed by the Schedule, the provisions of Section 3 shall apply as if such period were the period prescribed by the Schedule and for the purposes of determining any period of limitation prescribed for any suit, appeal or application by any special or local law, the provisions con tained in sections 4 to 24 (inclusive) shall apply only in so far as, and to the extent to which, they are not expressly excluded by such special or local law.”

4.4) Article 116 of the Schedule prescribes the period of limitation for appeals to High Court (90 days) and appeals to any other court (30 days) under the Code of Civil Procedure, 1908. It is now well settled that the words ‘appeals under the Code of Civil Procedure, 1908’ occurring in Article 116 refer not only to appeals preferred under Code of Civil Procedure, 1908, but also to appeals, where the procedure for filing of such appeals and powers of the court for dealing with such appeals are governed by Code of Civil Procedure (See decision of the Constitution Bench in Vidyacharan Shukla vs. Khubchand Baghel – AIR 1964 SC 1099). Article 119 (b) of the Schedule prescribes the period of limitation for filing an application (under Ar bitration Act, 1940, for setting aside an award, as thirty days from the date of ser vice of notice of filing of the award.

5. AC Act is no doubt, a special law, consolidating and amending the law relating to arbitration and matters connected therewith or incidental thereto. AC Act does not prescribe the period of limitation, for various proceedings under that Act, except where it intends to prescribe a period different from what is prescribed in the Limi tation Act. On the other hand, Section 43 makes the provisions of Limitation Act, 1963 applicable to proceedings – both in court and in arbitration – under the AC Act. There is also no express exclusion of application of any provision of the Limi tation Act to proceedings under AC Act, but there are some specific departures from the general provisions of Limitation Act, as for example, the proviso to section 34(3) and sub-sections (2) to (4) of section 43 of the AC Act.

6. Where the Schedule to the Limitation Act prescribes a period of limitation for appeals or applications to any court, and the special or local law provides for filing of appeals and applications to the court, but does not prescribe any period of limita tion in regard to such appeals or applications, the period of limitation prescribed in the Schedule to the Limitation Act will apply to such appeals or applications and consequently the provisions of sections 4 to 24 will also apply. Where the special or local law prescribes for any appeal or application, a period of limitation different from the period prescribed by the Schedule to the Limitation Act, then the provisions of section 29(2) will be attracted. In that event, the provisions of section 3 of Limitation Act will apply, as if the period of limitation prescribed under the special law was the period prescribed by the Schedule to Limitation Act, and for the pur pose of determining any period of limitation prescribed for the appeal or application by the special law, the provisions contained in sections 4 to 24 will apply to the extent to which they are not expressly excluded by such special law. The object of section 29(2) is to ensure that the principles contained in sections 4 to 24 of Limita tion Act apply to suits, appeals and applications filed in a court under special or local laws also, even if it prescribes a period of limitation different from what is prescribed in the Limitation Act, except to the extent of express exclusion of the application of any or all of those provisions.

7. It may be noticed at this juncture that the Schedule to the Limitation Act prescribes the period of limitation only to proceedings in courts and not to any pro ceeding before a Tribunal or quasi-judicial authority. Consequently section 3 and section 29(2) of Limitation Act will not apply to proceedings before Tribunal. This means that the Limitation Act will not apply to appeals or applications before Tribu nals, unless expressly provided.

8. Learned counsel for the appellant contended that section 43 of the AC Act makes applicable the provisions of Limitation Act only to arbitrations, thereby ex pressing an intent to exclude the application to any proceedings relating to arbitra tion in a court. The contention of appellant ignores and overlooks section 29(2) of the Limitation Act and section 43(1) of the AC Act. Sub-section (1) of section 43 of the Act provides that the Limitation Act shall apply to Arbitrations as it applies to proceedings in court. The purpose of section 43 of AC Act is not to make Limitation Act inapplicable to proceedings before court, but on the other hand, make Limita tion Act applicable to arbitrations. As already noticed, the Limitation Act applies only to proceedings in court, and but for the express provision in section 43, the Limitation Act would not have applied to arbitration, as Arbitrators are Private Tri bunals and not courts. Section 43 of the AC Act, apart from making the provisions of Limitation Act, 1963 applicable to arbitrations, reiterates that Limitation Act ap plies to proceedings in court. Therefore, the provisions of Limitation Act, 1963 apply to all proceedings under the AC Act, both in court and in arbitration, except to the extent expressly excluded by the provisions of the AC Act.

Re : Question No. (ii) :

9. The learned counsel for the appellant next contended that even if Limitation Act applied, section 14 is excluded by reason of the proviso to section 34(3) and at best, prosecution before a wrong forum can be considered as a sufficient cause for explaining the delay, in which event condonation cannot be for a period in excess of 30 days. He submitted that sub-section (3) of section 34 prescribes the period of limitation for an application to set aside an award as three months, and the proviso thereto provides for extension of such period of limitation, by a period not exceed ing one month. He pointed out that the object of the AC Act is to expedite arbitration proceedings with minimal judicial intervention as is evident from Section 5 of that Act. He further submitted that the legislature, while incorporating a provision for extension of time for an application under section 34(1) of AC Act, on sufficient cause being shown, did not choose to incorporate any provision for excluding the time spent before a wrong court, and therefore, section 14 of the Limitation Act, 1963 is inapplicable; and even if the principle underlying section 14(2) of Limita tion Act is held to be applicable, as a sufficient cause for extension of the period of limitation, the extension on that ground can be only for a period not exceeding thirty days as provided in the proviso to sub-section (3) of section 34 of the AC Act. In Supplort of the aforesaid contentions, reliance is placed on the decisions of this Court in Commissioner of Sales Tax, U.P. V.Parson Tools and Plants, Kanpur (1975) 3 SCR 743, Union of India vs. Popular Construction Co. (2001) 8 SCC 470 ) and Fairgrowth Investments Ltd vs. Custodian (2004) 11 SCC 472. The Appellant also contended that the decision rendered by two Judges Bench of this Court in State of Goa vs. Western Builders (2006) 6 SCC 239 ) holding that section 14 of Limitation Act applied to applications under section 34 of the AC Act was not good law as it failed to notice the earlier decision of a larger Bench in Parson Tools and failed to follow Popular Construction.

10. The respondents, on the other hand, contended that having regard to sec tion 29(2) of the Limitation Act, provisions of sections 4 to 24 of that Act would apply for determining the period of limitation prescribed for an application under any special law, unless expressly excluded by such special law. The AC Act, which is a special law, prescribes a period of limitation for an application to set aside an award, different from what was prescribed under the Limitation Act. It also excludes application of section 5 of the Limitation Act to an application under section 34(1, by making an express provision in the proviso to section 34(3, for extension of period of limitation. Sections 4 and 6 to 24 of the Limitation Act would however apply to an application under section 34(1) of the AC Act, as they are not excluded. Respondents also contended that the question is squarely covered by the decision of this Court in State of Goa vs. Western Builders (2006) 6 SCC 239. They submitted that the decisions in Popular Construction (su pra) and Fairgrowth (supra) are inapplicable, as they deal with section 5 and not section 14 of the Limitation Act. They also contended that the decision in Parson Tools did not relate to a proceeding before a court, but a proceeding before a Tribunal.

11. Section 34 of AC Act relates to applications for setting aside an arbitral award. Sub-section (1) provides that recourse to a court against an arbitral award may be made only by an application for setting aside such an award in accordance with sub -sections (2) and (3). Sub-section 2 contains the grounds on which an arbitral award can be set aside. Sub-section (3) which is relevant is extracted below :

“34(3). An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal :

Provided that if the Court is satisfied that the applicant was prevented by suffi cient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereaf ter.”

11.1. Section 5 of Limitation Act, providing for extension of prescribed period in certain cases, reads thus :

“5. : Any appeal or any application, other than an application under any of the provisions of Order XXI of the Code of Civil Procedure, 1908, may be admitted after the prescribed period, if the appellant or the applicant satisfies the court that he had sufficient cause for not preferring the appeal or making the application within such period.”

**********

11.2. Section 14 of Limitation Act relates to exclusion of time of proceeding bona fide in court without jurisdiction. Sub-section (2) thereof relevant for our pur pose is extracted below :

“14(2) In computing the period of limitation for any application, the time during which the applicant has been prosecuting with due diligence another civil proceed ing, whether in a court of first instance or of appeal or revision, against the same party for the same relief shall be excluded, where such proceeding is prosecuted in good faith in a court which, from defect of jurisdiction or other cause of a like na ture, is unable to entertain it.”

12. Sub-section (3) of section 34 of the AC Act prescribes the period of limita tion for filing an application for setting aside an award as three months from the date on which the applicant has received the arbitral award. The proviso thereto vests in the court, discretion to extend the period of limitation by a further period not ex ceeding thirty days if the court is satisfied that the applicant was prevented by suffi cient cause for not making the application within three months. The use of the words “but not thereafter” in the proviso makes it clear that even if a sufficient cause is made out for a longer extension, the extension cannot be beyond thirty days. The purpose of proviso to section 34(3) of AC Act is similar to that of Section 5 of the Limitation Act which also relates to extension of the period of limitation prescribed for any application or appeal. It vests a discretion in a court to extend the prescribed period of limitation if the applicant satisfies the court that he had sufficient cause for not making the application within the prescribed period. Section 5 of Limitation Act does not place any outer limit in regard to the period of extension, whereas the proviso to sub-section (3) of section 34 of the AC Act places a limit on the period of extension of the period of limitation. Thus the proviso to sub-section 34(3) of the AC Act is also a provision relating to extension of period of limitation, but differs from section 5 of the Limitation Act, in regard to period of extension, and has the effect of excluding section 5 alone of the Limitation Act.

13. On the other hand, Section 14 contained in Part III of Limitation Act does not relate to extension of the period of limitation, but relates to exclusion of certain period while computing the period of limitation. Neither sub-section (3) of section 34 of the AC Act nor any other provision of the AC Act exclude the applicability of section 14 of the Limitation Act to applications under section 34(1) of the AC Act. Nor will the proviso to section 34(3) exclude the application of section 14, as sec tion 14 is not a provision for extension of period of limitation, but for exclusion of certain period while computing the period of limitation. Having regard to section 29(2) of Limitation Act, section 14 of that Act will be applicable to an application under section 34(1) of the AC Act. Even when there is cause to apply section 14, the limitation period continues to be three months and not more, but in computing the limitation period of three months for the application under section 34(1) of the AC Act, the time during which the applicant was prosecuting such application before the wrong court is excluded, provided the proceeding in the wrong court was pros ecuted bona fide, with due diligence. Western Builders therefore lays down the correct legal position.

14. Reliance placed by the appellant on the decision of three Judges of this Court in Parson Tools (supra) is totally misplaced. That decision re lated to section 10(3B) of the U. P. Sales Tax Act, 1958 which provided a limitation period of one year for invoking the revisional jurisdiction and further provided that the revising authority may on sufficient cause being shown, entertain an application within a further period of six months. The appellant con tended that section 10(3B) of the U.P. Sales Tax Act considered in Parsons Tools is similar to proviso to section 34(3) of the AC Act and therefore the following obser vations in Parson Tools, with reference to section 10(3B) of U. P. Sales Tax Act, making section 14(2) of the Limitation Act inapplicable to a revision under section 10(3B) of U. P. Sales Tax Act, would also make section 14(2) inapplicable, to an application under section 34(1) of the AC Act :

“Three features of the scheme of the above provision are noteworthy. The first is the no limitation has been prescribed for the suo motu exercise of its jurisdiction by the Revising Authority. The second is that the period of one year prescribed as limi tation for filing an application for revision by the aggrieved party is unusually long. The third is that the Revising Authority has no discretion to extend this period be yond a further period of six months, even on sufficient cause shown. As rightly pointed out in the minority judgment of the High Court, pendency of proceedings of the nature contemplated by section 14(2) of the Limitation Act, may amount to a sufficient cause for condoning the delay and extending the limitation for filing a revision application, but S. 10 (3-B) of the Sales Tax Act, gives no jurisdiction to the Revising Authority to extend the limitation, even in such a case, for a further period of more than six months.”

“………..We are of the opinion that the object, the scheme and language of S.10 of the Sales-Tax Act do not permit the invocation of S.14(2) of the Limitation Act, either, in terms, or, in principle, for excluding the time spent in prosecuting proceed ings for setting aside the dismissal of appeals in default, from computation of the period of limitation prescribed for filing a revision under the Sales-tax. “

[Emphasis   Supplied )

The said observations have to be read and understood with reference to the issue that was being considered in that case. In Parson Tools, this court did not hold that section 14(2) was excluded by reason of the wording of section 10(3B) of the Sales Tax Act. This Court was considering an appeal against the Full Bench decision of the Allahabad High Court. Two Judges of the High Court had held that the time spent in prosecuting the application for setting aside the order of dismissal of appeals in default, could be excluded when computing the period of limitation for filing a revision under section 10 of the said Act, by application of the principle underlying section 14(2) of the Limitation Act. The minority view of the third Judge was that the revisional authority under section 10 of the U P Sales Tax Act did not act as a court but only as a Revenue Tribunal and therefore the Limitation Act did not apply to the proceedings before such Tribunal, and consequently neither sec tion 29(2) nor section 14(2) of Limitation Act applied. The decision of the Full Bench was challenged by the Commissioner of Sales Tax before this Court, contending that the Limitation Act did not apply to tribunals, and section 14(2) of Limitation Act as excluded in principle or by analogy. This Court upheld the view that Limitation Act did not apply to Tribunals, and that as the Revisional Authority under section 10 of UP Sales Tax Act was a Tribunal and not a court, Limitation Act was inapplicable. This Court further held that the period of pendency of proceedings before the wrong forum could not be excluded while computing the period of limitation by applying section 14(2) of Limitation Act. This Court however held that by applying the prin ciple underlying section 14(2, the period of pendency before the wrong forum may be considered as a ‘sufficient cause’ for condoning the delay, but then having regard to section 10(3B, the extension on that ground could not extend beyond six months. The observation that pendency of proceedings of the nature contemplated by section 14(2) of the Limitation Act, may amount to a sufficient cause for condoning the delay and extending the limitation and such extension cannot be for a period in excess of the ceiling period prescribed, are in the light of its finding that section 14(2) of Limitation Act was inapplicable to revisions under section 10(3B) of U. P. Sales Tax Act. These observations cannot be interpreted as laying down a proposition that even where section 14(2) of Limitation Act in terms applied and the period spent before wrong forum could therefore be excluded while computing the period of limitation, the pendency before the wrong forum should be considered only as a sufficient cause for extension of period of limitation and therefore, subjected to the ceiling relating to the extension of the period of limitation. As we are concerned with a proceeding before a court to which section 14(2) of Limitation Act applies, the decision in Parson Tools which related to a proceeding before a tribunal to which section 14(2) of Limitation Act did not apply, has no application.

15. The decision in Popular Construction is also of no assis tance. That decision makes it clear that AC Act, 1996 being a special law, and section 34 thereof prescribing a period of limitation different from that prescribed under the Limitation Act and providing a ceiling on the period by which the period of limitation could be extended, the corresponding provisions in the Limitation Act prescribing the period of limitation for filing an application for setting aside an award (Article 119(b) of the Schedule to Limitation Act ) and for extending the period of limitation for sufficient cause (section 5 of the Limitation Act, were inapplicable. It did not relate to applicability of section 14(2) of Limitation Act. Nor did this Court consider the applicability of section 14(2). Therefore, the decision in Popular Construction will not apply. Fairgrowth merely reiterates the principle in Popular Construction in regard to the exclusion of section 5 of Limitation Act, as is evident from the following observations :

“……….the general rule as far as special and local Acts are concerned is that the specified provisions including Section 5 of the Limitation Act will apply provided the special or local Act provides a period of limitation different from that prescribed under the Limitation Act. There is an additional requirement viz. that the special local Act does not expressly exclude the application of the Limitation Act.”

Therefore it has to be held that section 14(2) of the Limitation Act, 1963 is appli cable to proceedings under section 34(1) of the AC Act.

16. I agree that the appeal arising from SLP (C) No. 10311/2005 is to be dis missed and appeal arising from SLP (C) No. 15619/2005 is to be allowed.

17. J.M. PANCHAL, J. :- Civil Appeal No. 2461 of 2008 @ SLP(C) No. 10311/ 2005

Leave granted.

18. The instant appeal is directed against judgment dated April 4, 2005 rendered by the Division Bench of the High Court of Karnataka at Bangalore in Misc. First Appeal No.4465 of 2003, by which, decision dated October 24, 2002 passed by the learned District Judge, Bangalore Rural District, Bangalore in A.S. No. 2 of 2000 dismissing the application submitted by the appellant under Section 34 of the Arbi tration and Conciliation Act, 1996 (the Act for short) as time barred has been set aside and the matter is remanded to the District Court with a direction to proceed further with the matter in accordance with law.

19. The appellant is an enterprise engaged in civil engineering construction as well as development of infrastructure. It entered into an agreement dated January 20, 1989 with the respondent for construction of earthen bund, head sluices and the draft channel of the Y.G. Gudda tank. During the subsistence of the contract, dis putes arose between the parties. Therefore, the appellant invoked Arbitration clause No. 51 of the agreement pursuant to which the disputes were referred to the sole arbitrator for adjudication. The sole arbitrator made his award on April 10, 1999 in favour of the appellant. Feeling aggrieved by the said award, the respondents pre ferred an application dated July 5, 1999 to set aside the award as contemplated by Section 34 of the Act in the court of learned Civil Judge (Senior Division, Ramanagaram, Bangalore Rural District. The said application was registered as A.C. No. 1 of 1999. It was realized by the respondents that an application for setting aside the award should have been filed before the learned Principal District Judge, Banga lore District (Rural). Therefore, the respondents submitted an application on July 26, 2000 in the Court of learned Civil Judge (Senior Division, Ramanagaram with a request to transfer the application made for setting aside the award to the court of learned Principal District Judge (Rural, Bangalore. The learned Civil Judge (Senior Division, Ramanagaram passed an order directing return of the suit records for presentation before the proper court. The respondents collected the papers from the court of learned Civil Judge (Senior Division, Ramanagaram and presented the same in the court of learned Principal District Judge, Bangalore (Rural) on August 21, 2000. The present application for setting aside the award, filed by the respon dents, was numbered as A.S. No. 2 of 2000. The District Court framed preliminary issue for determination which was as under :

“Whether the defendant proves that the present suit is barred by the limitation under Section 34(3) of the Arbitration and Conciliation Act, 1996.” The respondents examined one witness and produced certain documents whereas on behalf of the appellants one witness was examined. After appreciating the evidence and hearing the learned counsel for the parties, the learned District Judge held that the suit/application for setting aside the award, was time barred and dismissed the same by his judgment dated October 24, 2002.

20. Thereupon the respondents invoked appellate jurisdiction of the High Court of Karnataka at Bangalore by filing Misc. First Appeal No.4465 of 2003 under Sec tion 37 of the Act. The issue, namely, whether the provisions of Sections 12 and 14 of the Limitation Act, 1963 are applicable to an application filed under Section 34 of the Act was pending for consideration in other matters also. The appeal filed by the respondents was, therefore, taken up for hearing with other matters. The Division Bench of the High Court of Karnataka was of the view that the learned District Judge, Bangalore Rural District, Bangalore committed an error in holding that Sec tion 14 of the Limitation Act was not applicable to an application submitted under Section 34 of the Act and, therefore, the time taken during which the respondents had been prosecuting in the court of learned Civil Judge (Senior Division, Ramanagaram was not excludable. On facts, the High Court held that there was no lack of bona fide on the part of the respondents and that the respondents had dili gently prosecuted the matter before the other court. In view of these conclusions, the High Court by Judgment dated April 4, 2005 set aside the decision dated October 24, 2002 rendered by the learned District Judge, Bangalore (Rural) in A.S. No.2 of 2000 and has directed the learned District Judge to proceed further with the matter in accordance with law, giving rise to the instant appeal.

Civil Appeal No……… of 2008 @ SLP (C) NO. 1561 9/2005

21. Leave granted.

22. This appeal is directed against the judgment dated April 4, 2005 rendered by the Division Bench of the High Court of Karnataka in W.P. No. 7089 of 2003 by which it is held that Sections 12 and 14 of the Limi tation Act are applicable to an application submitted under Section 34 of the Act, but the appellant is not entitled to exclusion of time as contem plated by Section 14 of the Limitation Act, because the appellant had not prosecuted application for setting aside the award made by the arbitrator, in other courts, with due diligence and in good faith.

23. The appellant is a public sector undertaking of the Government of Karnataka. It had invited tenders by way of public notification for mining and transporting ore from Ajjanahalli mine to Ingaldal. The tender submitted by the respondent was ac cepted on May 10, 1999 and an agreement was entered into between the parties. The respondent was directed to commence the work from May 26, 1999 and to deploy required number of vehicles etc. The respondent did not follow the instructions given by the appellants and, therefore, disputes arose between the parties. The appellant and the respondent mutually agreed to terminate the contract as per the clause men tioned in the contract. The respondent made claim with respect to the works done by it during the subsistence of the contract. The claim was not accepted by the Appellant. Therefore the dispute was referred to the sole arbitrator for adjudication as stipulated by the contract. The arbitrator made his award on March 15, 2002. The appellant filed an application on June 6, 2002 in the court of learned Civil Judge (Senior Division, Chitradurga to set aside the award made by the arbitrator on the footing that the court of learned Civil Judge (Senior Division) was the Principal Civil Court of original jurisdiction in the District and that two other cases, namely, Arbitration Case No. 1/97 and 1/2001 were also pending in the court of learned Civil Judge (Senior Division, Chitradurga. After sometime, the appellant realized that the appropriate court before which an application for setting aside the award should have been made was the court of learned District Judge, Chitradurga. Therefore, the appellant filed an application under order VII, Rule 10A seeking prayer to return the application to it for presentation before the District Court, Chitradurga. The learned Civil Judge (Senior Division, Chitradurga after hearing the learned counsel for the parties directed the appellant to present the application made under Section 34 of the Act before the District Court, Chitradurga by an order dated October 29, 2002 and directed the parties to appear before the learned District Judge on November 21, 2002. In view of the directions given by the learned Civil Judge (Senior Division, Chitradurga the appellant presented the application filed under Section 34 of the Act before the District Court, Chitradurga on November 21, 2002. The respondent raised a preliminary objection regarding jurisdiction of the learned District Judge, Chitradurga to entertain the application submitted under Section 34 of the Act on the ground that the agreement was entered into between the parties within the jurisdic tion of city of Bangalore and, therefore, the City Civil Court, Bangalore had juris diction to entertain the application filed by the appellant. The learned District Judge, Chitradurga by an order dated February 3, 2003 held that he had no jurisdiction to entertain the application submitted by the appellant and accordingly returned the application, for presentation before the appropriate court. The appellant thereafter presented the application for setting aside the award, before the VIth Additional City Civil Court, Bangalore on February 10, 2003 which was registered as an appeal. Along with the appeal, the appellant also filed an application under Section 14 read with Section 5 of the Limitation Act and prayed to exclude the time taken in pros ecuting the proceedings bona fide before the two courts which had no jurisdiction. The learned Judge of City Civil Court, Bangalore dismissed the application, as time barred, by an order dated July 17, 2003. Thereupon the appellant invoked extra ordinary jurisdiction of the High Court of Karnataka under Article 226 of the Con stitution by filing Writ Petition No.7089 of 2003. The questions posed for consider ation of the High Court was, whether the provisions of Sections 12 and 14 of the Limitation Act were applicable to an application filed under Section 34 of the Act and whether the appellant had prosecuted the matter in other courts with due diligence and in good faith. After hearing the learned counsel for the parties, the High Court by Judgment dated April 4, 2005 held that the provisions of Sections 12 and 14 of the Limitation Act are applicable to a proceeding under the Act. However, on appreciation of facts the High Court held that the appellant had not prosecuted the matter in other courts, with due diligence and in good faith. In view of the above mentioned conclusion the High Court has dismissed the writ petition filed by the appellant vide Judgment dated April 4, 2005, giving rise to the instant appeal.

24. This Court has heard the learned counsel for the parties at length and in great detail as well as considered the documents submitted by the parties.

25. The question posed for consideration before the Court is whether the provi sion of Section 14 of the Limitation Act would be applicable to an application sub mitted under Section 34 of the Act of 1996 for setting aside the award made by the arbitrator. In order to resolve the controversy it would be advantageous to refer to certain provisions of the Limitation Act and Section 34 of the Act of 1996. Section 14 and relevant part of S. 29(2) of the Limitation Act, necessary for the purpose of deciding the issue, read as under :

“14. Exclusion of time of proceeding bona fide in court without jurisdiction –

(1) In computing the period of limitation for any suit the time during which the plaintiff has been prosecuting with due diligence another civil proceeding, whether in a court of first or of a appeal or revision, against the defendant shall be excluded, where the proceeding relates to the same matter in issue and is prosecuted in good faith in a court which, from defect of jurisdiction or other cause of a like nature, is unable to entertain it.

(2) In computing the period of limitation for any application, the time during which the applicant has been prosecuting with due diligence another civil proceed ing, whether in a court of first instance or of appeal or revision, against the same party for the same relief shall be excluded, where such proceeding is prosecuted in good faith in a court which, from defect of jurisdiction or other cause of a like na ture, is unable to entertain it.

(3) Notwithstanding anything contained in Rule 2 of Order 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 reason of a defect in the jurisdiction of the court or other cause of a like nature.

Explanation – For the purpose of this section, –

(a) in excluding the time during which a former civil proceeding was pending, the day on which that proceeding was instituted and the day on which it ended shall both be counted.

(b) a plaintiff or an applicant resisting an appeal shall be deemed to be prosecut ing a proceeding.

(c) misjoining of parties or of cause of action shall be deemed to be a cause of a like nature with defect of jurisdiction.”

“29(2). Where any special or local law prescribes for any suit, appeal or applica tion a period of limitation different from the period prescribed by the Schedule, the provision of section 3 shall apply as if such period were the period prescribed by the Schedule and for the purpose of determining any period of limitation prescribed for any suit, appeal or application by any special or local law, the provisions contained in sections 4 to 24 (inclusive) shall apply only in so far as, and to the extent to which, they are not expressly excluded by such special or local law.” However, Section 34 of the Arbitration and Conciliation Act, 1996 reads as under :

“34. Application for setting aside arbitral award. –

(1) Recourse to a Court against an arbitral award may be made only by an appli cation for setting aside such award in accordance with sub-section (2) and sub-sec tion (3).

(2) An arbitral award may 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 under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or

(iii) the party making the application was not given proper notice of the appoint ment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

(iv) 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 :

Provided that, if the decisions on matters submitted to arbitration can be sepa rated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or

(v) 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 this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or

(b) the Court finds that –

(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or

(ii) the arbitral award is in conflict with the public policy of India.

Explanation – Without prejudice to the generality of sub-clause (ii) of clause (b, it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81.

(3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal :

Provided that if the Court is satisfied that the applicant was prevented by suffi cient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereaf ter.

(4) On receipt of an application under sub-section (1, the Court may, where it is appropriate and it is so requested by a party, 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.”

26. A bare reading of sub-section (3) of Section 34 read with the proviso makes it abundantly clear that the application for setting aside the award on the grounds mentioned in sub-section (2) of Section 34 will have to be made within three months. The period can further be extended, on sufficient cause being shown, by another period of 30 days but not thereafter. It means that as far as application for setting aside the award is concerned, the period of limitation prescribed is three months which can be extended by another period of 30 days, on sufficient cause being shown to the satisfaction of the Court. Section 29(2) of the Limitation Act, inter alia pro vides that where any special or local law prescribes for any suit, appeal or applica tion a period of limitation different from the period of limitation prescribed by the schedule, the provisions of Section 3 shall apply as if such period was the period prescribed by the schedule and for the purpose of determining any period of limita tion prescribed for any suit, appeal or application by any special or local law, the provisions contained in Sections 4 to 24 shall apply only insofar as, and to the ex tent, they are not expressly excluded by such special or local law. When any special statute prescribes certain period of limitation as well as provision for extension up to specified time limit, on sufficient cause being shown, then the period of limitation prescribed under the special law shall prevail and to that extent the provisions of the Limitation Act shall stand excluded. As the intention of the legislature in enacting sub-section (3) of Section 34 of the Act is that the application for setting aside the award should be made within three months and the period can be further extended on sufficient cause being shown by another period of 30 days but not thereafter, this Court is of the opinion that the provisions of Section 5 of the Limitation Act would not be applicable because the applicability of Section 5 of the Limitation Act stands excluded because of the provisions of Section 29(2) of the Limitation Act.

27. However, merely because it is held that Section 5 of the Limitation Act is not applicable to an application filed under Section 34 of the Act for setting aside an award, one need not conclude that provisions of Section 14 of the Limitation Act would also not be applicable to an application submitted under Section 34 of the Act of 1996.

28. Section 14 of the Limitation Act deals with exclusion of time of proceeding bona fide in a court without jurisdiction. On analysis of the said Section, it becomes evident that the following conditions must be satisfied before Section 14 can be pressed into service :

(1) Both the prior and subsequent proceedings are civil proceedings prosecuted by the same party;

(2) The prior proceeding had been prosecuted with due diligence and in good faith;

(3) The failure of the prior proceeding was due to defect of jurisdiction or other cause of like nature;

(4) The earlier proceeding and the latter proceeding must relate to the same mat ter in issue and;

(5) Both the proceedings are in a court.

The policy of the Section is to afford protection to a litigant against the bar of limitation when he institutes a proceeding which by reason of some technical defect cannot be decided on merits and is dismissed. While considering the provisions of Section 14 of the Limitation Act, proper approach will have to be adopted and the provisions will have to be interpreted so as to advance the cause of justice rather than abort the proceedings. It will be well to bear in mind that an element of mistake is inherent in the invocation of Section 14. In fact, the section is intended to provide relief against the bar of limitation in cases of mistaken remedy or selection of a wrong forum. On reading Section 14 of the Act it becomes clear that the legislature has enacted the said section to exempt a certain period covered by a bona fide litigious activity. Upon the words used in the section, it is not possible to sustain the interpretation that the principle underlying the said section, namely, that the bar of limitation should not affect a person honestly doing his best to get his case tried on merits but failing because the court is unable to give him such a trial, would not be applicable to an application filed under Section 34 of the Act of 1996. The principle is clearly applicable not only to a case in which a litigant brings his application in the court, that is, a court having no jurisdiction to entertain it but also where he brings the suit or the application in the wrong court in consequence of bona fide mistake or law or defect of procedure. Having regard to the intention of the legisla ture this Court is of the firm opinion that the equity underlying Section 14 should be applied to its fullest extent and time taken diligently pursuing a remedy, in a wrong court, should be excluded.

29. At this stage it would be relevant to ascertain whether there is any express provision in the Act of 1996, which excludes the applicability of Section 14 of the Limitation Act. On review of the provisions of the Act of 1996 this Court finds that there is no provision in the said Act which excludes the applicability of the provi sions of Section 14 of the Limitation Act to an application submitted under Section 34 of the said Act. On the contrary, this Court finds that Section 43 makes the provi sions of the Limitation Act, 1963 applicable to arbitration proceedings. The pro ceedings under Section 34 are for the purpose of challenging the award whereas the proceeding referred to under Section 43 are the original proceedings which can be equated with a suit in a court. Hence, Section 43 incorporating the Limitation Act will apply to the proceedings in the arbitration as it applies to the proceedings of a suit in the court. Sub-section (4) of Section 43, inter alia, provides that where the court orders that an arbitral award be set aside, the period between the commence ment of the arbitration and the date of the order of the court shall be excluded in computing the time prescribed by the Limitation Act, 1963, for the commencement of the proceedings with respect to the dispute so submitted. If the period between the commencement of the arbitration proceedings till the award is set aside by the court, has to be excluded in computing the period of limitation provided for any proceedings with respect to the dispute, there is no good reason as to why it should not be held that the provisions of Section 14 of the Limitation Act would be appli cable to an application submitted under Section 34 of the Act of 1996 more particu larly where no provision is to be found in the Act of 1996, which excludes the appli cability of Section 14 of the Limitation Act, to an application made under Section 34 of the Act. It is to be noticed that the powers under Section 34 of the Act can be exercised by the court only if the aggrieved party makes an application. The juris diction under Section 34 of the Act, cannot be exercised, suo motu. The total period of four months within which an application, for setting aside an arbitral award, has to be made is not unusually long. Section 34 of the Act of 1996 would be unduly oppressive, if it is held that the provisions of Section 14 of the Limitation Act are not applicable to it, because cases are no doubt conceivable where an aggrieved party, despite exercise of due diligence and good faith, is unable to make an application within a period of 4 months. From the scheme and language of Section 34 of the Act of 1996, the intention of the Legislature to exclude, the applicability of Section 14 of the Limitation Act, is not manifest. It is well to remember that Section 14 of the Limitation Act does not provide for a fresh period of limitation but only provides for the exclusion of a certain period. Having regard to the legislative intent, it will have to be held that the provisions of Section 14 of the Limitation Act, 1963 would be applicable to an application submitted under Section 34 of the Act of 1996 for set ting aside an arbitral award.

30. We may notice that in similar circumstances the Division Bench of this Court in State of Goa vs. Western Builders, (2006) 6 SCC 239 has taken a similar view. As observed earlier the intention of the legislature in enacting Section 14 of the Act is to give relief to a litigant who had approached the wrong forum. No canon of construction of a statute is more firmly established than this that the purpose of interpretation is to give effect to the intention underlying the statute. The interpretation of Section 14 has to be liberal. The language of beneficial provision contained in Section 14 of the Limitation Act must be construed liberally so as to Supplress the mischief and advance its object. Therefore, it is held that the provisions of Section 14 of the Limitation Act are applicable to an application sub mitted under Section 34 of the Act of 1996 for setting aside an arbitral award.

31. The plea that in view of the decision rendered by three Judge Bench of this Court in Commissioner of Sales Tax, Uttar Pradesh vs. Parson Tools and Plants, Kanpur, (1975) 3 SCR 743 the provisions of Section 14 of the Limitation Act should not be held to be applicable to an application filed under Section 34 of the Act, has no substance. The question determined in the Commis sioner of Sales Tax, Uttar Pradesh (supra) was whether under the circumstances of the case, Section 14 of the Limitation Act extended the period for filing of the revi sions by the time during which the restoration application remained pending as be ing prosecuted bona fide. In the said case, Sales-Tax Officer had made two assess ment orders. The assessee had filed appeals before the Appellate Authority. The appeals were dismissed in default as the assessee did not remain present on the specified date. The assessee filed two applications for setting aside such dismissal, under Rule 68(6) of the U.P. Sales Tax Rules. During the pendency of the applica tion a Single Judge of Allahabad High Court declared Rule 68(5) of the Rules ultra vires under which the appeals were dismissed for default. In view of the ruling of High Court, the Appellate Authority dismissed the appeals. The assessee, therefore, filed two revision petitions. They were filed more than 18 months after the dismissal of the appeals. The revisions were accompanied by two applications in which the assessee had prayed for exclusion of time spent by him in presenting the aborting proceedings under Rule 68(6) for setting aside the dismissal of his appeals. The revisional authority excluded the time spent in those proceedings from computation of limitation by applying Section 14 of the Limitation Act. The High Court dis missed the Reference made on the motion of the Commissioner of Sales-Tax. In appeal, this Court held that (1) if the legislature in a special statute prescribes a certain period of limitation, then the Tribunal concerned has no jurisdiction to treat within limitation, an application, by excluding the time spent in prosecuting in good faith, on the analogy of Section 14(2) of the Limitation Act and (2) the Appellate Authority and Revisional Authority were not courts but were merely administrative Tribunals and, therefore, Section 14 of the Limitation Act did not, in terms, apply to the proceedings before such Tribunals. From the judgment of the Supreme Court in Commissioner of Sales Tax, U.P. (supra, it is evident that essen tially what weighed with the Court in holding that Section 14 of the Limitation Act was not applicable, was that the Appellate Authority and Revisional Authority were not courts. The stark features of the revisional powers pointed out by the court, showed that the legislature had deliberately excluded the application of the principles underlying Sections 5 and 14 of the Limitation Act. Here in this case, the Court is not called upon to exmine scope of revisional powers. The Court in this case is dealing with Section 34 of the Act which confers powers on the Court of the first instance to set aside an award rendered by an arbitrator, on specified grounds. It is not the case of the contractor that the forums before which the Government of India undertaking had initiated proceedings for setting aside the arbitral award are not courts. In view of these glaring distinguishing features, this Court is of the opin ion that the decision rendered in the case of Commissioner of Sales Tax, Uttar Pradesh, Lucknow (supra) did not decide the issue which falls for consideration of this Court and, therefore, the said decision cannot be construed to mean that the provisions of Section 14 of the Limitation Act are not applicable, to an application submitted under Section 34 of the Act of 1996.

32. The contention that in view of the decision of Division Bench of this Court in Union of India vs. Popular Constructions Co., (2001) 8 SCC 470 the Court should hold that the provisions of Section 14 of the Limitation Act would not apply to an application filed under Section 34 of the Act, is devoid of substance. In the said decision what is held is that Section 5 of the Limitation Act is not applicable to an application challenging an award under Section 34 of the Act. Section 29(2) of the Limitation Act inter alia provides that where any special or local law prescribes, for any application, a period of limitation different from the period prescribed by the schedule, the provisions contained in Sections 4 to 24 shall apply only in so far as, and to the extent to which, they are not expressly excluded by such special or local law. On introspection, the Division Bench of this Court held that the provisions of Section 5 of the Limitation Act are not applicable to an appli cation challenging an award. This decision cannot be construed to mean as ruling that the provisions of Section 14 of the Limitation Act are also not applicable to an application challenging an award under Section 34 of the Act. As noticed earlier, in the Act of 1996, there is no express provision excluding application of the provi sions of Section 14 of the Limitation Act to an application filed under Section 34 of the Act for challenging an award. Further, there is fundamental distinction between the discretion to be exercised under Section 5 of the Limitation Act and exclusion of the time provided in Section 14 of the said Act. The power to excuse delay and grant an extension of time under Section 5 is discretionary whereas under Section 14, exclusion of time is mandatory, if the requisite conditions are satisfied. Section 5 is broader in its sweep, than Section 14 in the sense that a number of widely different reasons can be advanced and established to show that there was sufficient cause in not filing the appeal or the application within time. The ingredients in respect of Sections 5 and 14 are different. The effect of Section 14 is that in order to ascertain what is the date of expiration of the prescribed period, the days excluded from oper ating by way of limitation, have to be added to what is primarily the period of limi tation prescribed. Having regard to all these principles, it is difficult to hold that the decision in Popular Construction Co. (supra) rules that the provisions of Section 14 of the Limitation Act would not apply to an application challenging an award under Section 34 of the Act.

33. As this Court holds that Section 14 of the Limitation Act, 1963 is applicable to an application filed under Section 34 of the Act, 1996 for setting aside an award made by an arbitrator, the appeal arising from Special Leave Petition (C) No. 10311 of 2005 will have to be dismissed because the Division Bench of the High Court of Karnataka has in terms held that there was no lack of bona fide on the part of the respondents and that the respondents had diligently prosecuted the matter before the other court and had also immediately after coming to know the lack of jurisdiction of the court had filed the memo seeking withdrawal of the appeal and presented the same before the lower court which had the jurisdiction.

34. As far as the appeal arising from Special leave Petition (C) No. 15619 of 2005 is concerned, this Court finds that the view taken by the High Court of Karnataka that the provisions of Sections 12 and 14 of the Limitation Act, 1963 are applicable to the proceedings under the Arbitration and Conciliation Act, 1996 is eminently just and is hereby upheld. However, this Court finds it difficult to uphold the finding recorded by the Division Bench of the High Court that the appellant had not pros ecuted the matter in other courts with due diligence and in good faith and was, there fore, not entitled to exclusion of time taken in prosecuting the matter in wrong courts.

35. To attract the provisions of Section 14 of the Limitation Act, five conditions enumerated in the earlier part of this Judgment have to co-exist. There is no manner of doubt that the section deserves to be construed liberally. Due diligence and cau tion are essentially pre-requisites for attracting Section 14. Due diligence cannot be measured by any absolute standards. Due diligence is a measure of prudence or activity expected from and ordinarily exercised by a reasonable and prudent person under the particular circumstances. The time during which a court holds up a case while it is discovering that it ought to have been presented in another court, must be excluded, as the delay of the court cannot affect the due diligence of the party. Sec tion 14 requires that the prior proceeding should have been prosecuted in good faith and with due diligence. The definition of good faith as found in Section 2(h) of the Limitation Act would indicate that nothing shall be deemed to be in good faith which is not done with due care and attention. It is true that Section 14 will not help a party who is guilty of negligence, lapse or inaction. However, there can be no hard and fast rule as to what amounts to good faith. It is a matter to be decided on the facts of each case. It will, in almost every case be more or less a question of degree. The mere filing of an application in wrong court would not prima facie show want of good faith. There must be no pretended mistake intentionally made with a view to delaying the proceedings or harassing the opposite party. In the light of these prin ciples, the question will have to be considered whether the appellant had prosecuted the matter in other courts with due diligence and in good faith. As is evident from the facts of the case, initially the appellant had approached the court of learned Civil Judge, Senior Division, Chitradurga for setting aside the award made by the arbitra tor. On direction dated October 29, 2002 issued by the learned Civil Judge (Senior Division, Chitradurga, the appellant had presented the application for setting aside the award before the learned District Judge, Chitradurga. Before the learned District Judge, Chitradurga an objection was raised by the respondent that the application was not maintainable before the said court and that the application was maintainable before the learned Judge, City Civil Court, Bangalore. The District Judge, Chitradurga by an order dated February 3, 2003 held that it had no jurisdiction to entertain the application submitted by the applicant and accordingly returned the application for presentation before the appropriate court. The question of jurisdiction was seriously contested between the parties not only before the court of learned Civil Judge (Se nior Division, Chitradurga but also before the learned District Judge, Chitradurga. The question of jurisdiction had to be considered by the courts below because of establishment of City Civil Court, Bangalore under a special enactment and in view of the definition of the word court as given in Section 2(e) of the Arbitration and Conciliation Act, 1996 which means the principal civil court of original jurisdiction in a district. The record does not indicate that there was pretended mistake inten tionally made by the appellant with a view to delaying the proceeding or harassing the respondent. There was an honest doubt about the court competent to entertain the application for setting aside the award made by the arbitrator. The mere fact that the question of jurisdiction is an arguable one would not negative good faith because the appellant believed bona fide that the court in which it had instituted the proceeding had jurisdiction in the matter. By filing the application in the courts which had no jurisdiction to entertain the same, the appellant did not achieve any thing more particularly when the lis was never given up. Under the circumstances this Court is of the opinion that the Division Bench of the High Court of Karnataka was not justified in concluding that the appellant had not prosecuted the matter in other courts with due diligence and in good faith. The said finding being against the weight of evidence on record, is liable to be set aside and is hereby set aside. We, therefore, hold that the appellant had prosecuted the matter in other courts with due diligence and in good faith and, therefore, is entitled to claim exclusion of time in prosecuting the matter in wrong courts. Therefore, the appeal arising from SLP(C) No. 15619 of 2005 will have to be allowed.

36. For the foregoing reasons civil appeal arising from SLP(C) No. 10311 of 2005 fails and is dismissed. The judgment rendered by the Division Bench of the High Court of Karnataka on April 4, 2005, in W.P. No. 7089 of 2003 dismissing the application filed by the appellant under Section 34 of the Arbitration and Concilia tion Act, 1996 for setting aside the award of the arbitrator, is set aside, and civil appeal arising from SLP(C) No. 15619 of 2005, is allowed. The Division Bench of the High Court of Karnataka is directed to proceed further with the matter in accor dance with law. There shall be no order as to costs in both the appeals.

Whether Section 14 of the limitation Act can be relied upon for excluding the time spent in prosecuting remedy before a wrong forum in the context of the provisions contained in Arbitration and Conciliation Act, 1996.

The question whether Section 14 of the limitation Act can be relied upon for excluding the time spent in prosecuting remedy before a wrong forum was considered by a two Judge Bench in State of Goa v. Western Builders (supra) in the context of the provisions contained in Arbitration and Conciliation Act, 1996. The Bench referred to the provisions of the two Acts and observed:

There is no provision in the whole of the Act which prohibits discretion of the court. Under Section 14 of the limitation Act if the party has been bona fidely prosecuting his remedy before the court which has no jurisdiction whether the period spent in that proceedings shall be excluded or not. Learned Counsel for the Respondent has taken us to the provisions of the Act of 1996: like Section 5, Section 8(1), Section 9, Section 11, sub- sections (4), (6), (9) and Sub-section (3) of Section 14, Section 27, Sections 34, 36, 37, 39(2) and (4), Section 41, Sub-section (2), Sections 42 and 43 and tried to emphasise with reference to the aforesaid sections that wherever the legislature wanted to give power to the court that has been incorporated in the provisions, therefore, no further power should lie in the hands of the court so as to enable to exclude the period spent in prosecuting the remedy before other forum. It is true but at the same time there is no prohibition incorporated in the statute for curtailing the power of the court under Section 14 of the limitation Act. Much depends upon the words used in the statute and not general principles applicable. By virtue of Section 43 of the Act of 1996, the limitation Act applies to the proceedings under the Act of 1996 and the provisions of the limitation Act can only stand excluded to the extent wherever different period has been prescribed under the Act, 1996. Since there is no prohibition provided under Section 34, there is no reason why Section 14 of the limitation Act (sic not) be read in the Act of 1996, which will advance the cause of justice. If the statute is silent and there is no specific prohibition then the statute should be interpreted which advances the cause of justice.

19. The same issue was again considered by the three-Judge Bench in Consolidated Engineering Enterprises v. Principal Secretary, Irrigation Department (supra) to which reference has been made hereinabove. After holding that Section 5 of the limitation Act cannot be invoked for condonation of delay, Panchal, J (speaking for himself and Balakrishnan, C.J.) observed:

Section 14 of the limitation Act deals with exclusion of time of proceeding bona fide in a court without jurisdiction. On analysis of the said section, it becomes evident that the following conditions must be satisfied before Section 14 can be pressed into service:

(1) Both the prior and subsequent proceedings are civil proceedings prosecuted by the same party;

(2) The prior proceeding had been prosecuted with due diligence and in good faith;

(3) The failure of the prior proceeding was due to defect of jurisdiction or other cause of like nature;

(4) The earlier proceeding and the latter proceeding must relate to the same matter in issue and;

(5) Both the proceedings are in a court.

The policy of the section is to afford protection to a litigant against the bar of limitation when he institutes a proceeding which by reason of some technical defect cannot be decided on merits and is dismissed. While considering the provisions of Section 14 of the limitation Act, proper approach will have to be adopted and the provisions will have to be interpreted so as to advance the cause of justice rather than abort the proceedings. It will be well to bear in mind that an element of mistake is inherent in the invocation of Section 14. In fact, the section is intended to provide relief against the bar of limitation in cases of mistaken remedy or selection of a wrong forum. On reading Section 14 of the Act it becomes clear that the legislature has enacted the said section to exempt a certain period covered by a bona fide litigious activity. Upon the words used in the section, it is not possible to sustain the interpretation that the principle underlying the said section, namely, that the bar of limitation should not affect a person honestly doing his best to get his case tried on merits but failing because the court is unable to give him such a trial, would not be applicable to an application filed under Section 34 of the Act of 1996. The principle is clearly applicable not only to a case in which a litigant brings his application in the court, that is, a court having no jurisdiction to entertain it but also where he brings the suit or the application in the wrong court in consequence of bona fide mistake or (sic of) law or defect of procedure. Having regard to the intention of the legislature this Court is of the firm opinion that the equity underlying Section 14 should be applied to its fullest extent and time taken diligently pursuing a remedy, in a wrong court, should be excluded.

At this stage it would be relevant to ascertain whether there is any express provision in the Act of 1996, which excludes the applicability of Section 14 of the limitation Act. On review of the provisions of the Act of 1996 this Court finds that there is no provision in the said Act which excludes the applicability of the provisions of Section 14 of the limitation Act to an application submitted under Section 34 of the said Act. On the contrary, this Court finds that Section 43 makes the provisions of the limitation Act, 1963 applicable to arbitration proceedings. The proceedings under Section 34 are for the purpose of challenging the award whereas the proceeding referred to under Section 43 are the original proceedings which can be equated with a suit in a court. Hence, Section 43 incorporating the limitation Act will apply to the proceedings in the arbitration as it applies to the proceedings of a suit in the court. Sub-section (4) of Section 43, inter alia, provides that where the court orders that an arbitral award be set aside, the period between the commencement of the arbitration and the date of the order of the court shall be excluded in computing the time prescribed by the limitation Act, 1963, for the commencement of the proceedings with respect to the dispute so submitted. If the period between the commencement of the arbitration proceedings till the award is set aside by the court, has to be excluded in computing the period of limitation provided for any proceedings with respect to the dispute, there is no good reason as to why it should not be held that the provisions of Section 14 of the limitation Act would be applicable to an application submitted under Section 34 of the Act of 1996, more particularly where no provision is to be found in the Act of 1996, which excludes the applicability of Section 14 of the limitation Act, to an application made under Section 34 of the Act. It is to be noticed that the powers under Section 34 of the Act can be exercised by the court only if the aggrieved party makes an application. The jurisdiction under Section 34 of the Act, cannot be exercised suo motu. The total period of four months within which an application, for setting aside an arbitral award, has to be made is not unusually long. Section 34 of the Act of 1996 would be unduly oppressive, if it is held that the provisions of Section 14 of the limitation Act are not applicable to it, because cases are no doubt conceivable where an aggrieved party, despite exercise of due diligence and good faith, is unable to make an application within a period of four months. From the scheme and language of Section 34 of the Act of 1996, the intention of the legislature to exclude the applicability of Section 14 of the limitation Act is not manifest. It is well to remember that Section 14 of the limitation Act does not provide for a fresh period of limitation but only provides for the exclusion of a certain period. Having regard to the legislative intent, it will have to be held that the provisions of Section 14 of the limitation Act, 1963 would be applicable to an application submitted under Section 34 of the Act of 1996 for setting aside an arbitral award.

In his concurring judgment, Raveendran, J. referred to the judgment in State of Goa v. Western Builders (supra) and observed:

On the other hand, Section 14 contained in Part III of the limitation Act does not relate to extension of the period of limitation, but relates to exclusion of certain period while computing the period of limitation. Neither Sub-section (3) of Section 34 of the AC Act nor any other provision of the AC Act exclude the applicability of Section 14 of the limitation Act to applications under Section 34(1) of the AC Act. Nor will the proviso to Section 34(3) exclude the application of Section 14, as Section 14 is not a provision for extension of period of limitation, but for exclusion of certain period while computing the period of limitation. Having regard to Section 29(2) of the limitation Act, Section 14 of that Act will be applicable to an application under Section 34 of the AC Act. Even when there is cause to apply Section 14, the limitation period continues to be three months and not more, but in computing the limitation period of three months for the application under Section 34 of the AC Act, the time during which the applicant was prosecuting such application before the wrong court is excluded, provided the proceeding in the wrong court was prosecuted bona fide, with due diligence. Western Builders therefore lays down the correct legal position.

20. The same view was reiterated in Coal India Limited v. Ujjal Transport Agency .

 

Whether Section 5 of the limitation Act can be invoked for condonation of delay in filing an application under Section 34 of the Arbitration and Conciliation Act, 1996.

In Union of India v. Popular Construction Company , Supreme Court considered the question whether Section 5 of the limitation Act can be invoked for condonation of delay in filing an application under Section 34 of the Arbitration and Conciliation Act, 1996. The two-Judge Bench referred to earlier decisions in Vidyacharan Shukla v. Khubchand Baghel, AIR 1964 SC 1099, Hukumdev Narain Yadav v. Lalit Narain Mishra, (1974) 2 SCC 133, Mangu Ram v. MCD, (1976) 1 SCC 392, Patel Naranbhai Marghabhai v. Dhulabhai Galbabhai, (1992) 4 SCC 264 and held:

As far as the language of Section 34 of the 1996 Act is concerned, the crucial words are ‘but not thereafter’ used in the proviso to Sub-section (3). In our opinion, this phrase would amount to an express exclusion within the meaning of Section 29(2) of the limitation Act, and would therefore bar the application of Section 5 of that Act. Parliament did not need to go further. To hold that the court could entertain an application to set aside the award beyond the extended period under the proviso, would render the phrase ‘but not thereafter’ wholly otiose. No principle of interpretation would justify such a result.

Furthermore, Section 34(1) itself provides that recourse to a court against an arbitral award may be made only by an application for setting aside such award ‘in accordance with’ Sub-section (2) and Sub-section (3). Sub-section (2) relates to grounds for setting aside an award and is not relevant for our purposes. But an application filed beyond the period mentioned in Section 34, Sub-section (3) would not be an application ‘in accordance with’ that Sub-section. Consequently by virtue of Section 34(1), recourse to the court against an arbitral award cannot be made beyond the period prescribed. The importance of the period fixed under Section 34 is emphasised by the provisions of Section 36 which provide that:

36. Enforcement.-Where the time for making an application to set aside the arbitral award under Section 34 has expired ….the award shall be enforced under the Code of Civil Procedure, 1908 (5 of 1908) in the same manner as if it were a decree of the court.

This is a significant departure from the provisions of the Arbitration Act, 1940. Under the 1940 Act, after the time to set aside the award expired, the court was required to ‘proceed to pronounce judgment according to the award, and upon the judgment so pronounced a decree shall follow’ (Section 17). Now the consequence of the time expiring under Section 34 of the 1996 Act is that the award becomes immediately enforceable without any further act of the court. If there were any residual doubt on the interpretation of the language used in Section 34, the scheme of the 1996 Act would resolve the issue in favour of curtailment of the court’s powers by the exclusion of the operation of Section 5 of the limitation Act.

In Consolidated Engineering Enterprises v. Principal Secretary, Irrigation Department and Ors. (supra), a three-Judge Bench again considered Section 34(3) of the Arbitration and Conciliation Act, 1996. J.M. Panchal, J., speaking for himself and Balakrishnan, C.J., referred to the relevant provisions and observed:

….When any special statute prescribes certain period of limitation as well as provision for extension up to specified time-limit, on sufficient cause being shown, then the period of limitation prescribed under the special law shall prevail and to that extent the provisions of the limitation Act shall stand excluded. As the intention of the legislature in enacting sub- section (3) of Section 34 of the Act is that the application for setting aside the award should be made within three months and the period can be further extended on sufficient cause being shown by another period of 30 days but not thereafter, this Court is of the opinion that the provisions of Section 5 of the limitation Act would not be applicable because the applicability of Section 5 of the limitation Act stands excluded because of the provisions of Section 29(2) of the limitation Act.

 

The Arbitration and Conciliation Act, 1996

EDITION 2018

Preliminary

Part 1 – Arbitration

Chapter I – General provisions
Chapter II – Arbitration agreement
Chapter III – Composition of arbitral tribunal
Chapter IV – Jurisdiction of arbitral tribunals
Chapter V – Conduct of arbitral proceedings
Chapter VI – Making of arbitral award and termination of proceedings
Chapter VII – Recourse against Arbitral Award
Chapter VIII – Finality and Enforcement of Arbitral Awards
Chapter IX – Appeals
Chapter X – Miscellaneous

Part 2-Enforcement of certain Foreign Awards[44-60]

Chapter I – New York Convention Awards
Chapter II – Geneva Convention Awards

Part 3-Conciliation [61-82]

Part 4- Supplementary Provisions

SEVEN SCHEDULES

Devider

The Arbitration and Conciliation Act, 1996

(26 of 1996)

[16th August, 1996]

An Act to consolidate and amend the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards as also to define the law relating to conciliation and for matters connected therewith or incidental thereto.
Preamble. – Whereas the United Nations Commission on International Trade Law (UNCITRAL) has adopted the UNCITRAL Model Law on International Commercial Arbitration in 1985;
And Whereas the General Assembly of the United Nations has recommended that all countries give due consideration to the said Model Law, in view of the desirability of uniformity of the law of arbitral procedures and the specific needs of international commercial arbitration practice;
And Whereas the UNCITRAL has adopted the UNCITRAL Conciliation Rules in 1980;
And Whereas the General Assembly of the United Nations has recommended the use of the said Rules in cases where a dispute arises in the context of international commercial relations and the parties seek an amicable settlement of that dispute by recourse to conciliation;
And Whereas the said Model Law and Rules make significant contribution to the establishment of a unified legal framework for the fair and efficient settlement of disputes arising in international commercial relations;
And Whereas it is expedient to make law respecting arbitration and conciliation, taking into account the aforesaid Model Law and Rules;
Be it enacted by Parliament in the forty seventh year of the Republic as follows:

Preliminary

1. Short title, extent and commencement. – (1) This Act may be called The Arbitration and Conciliation Act , 1996.
(2) It extends to the whole of India:
Provided that Parts I, III and IV shall extend to the State of Jammu and Kashmir only in so far as they relate to international commercial arbitration or, as the case may be, international commercial conciliation.
Explanation. – In this sub-section, the expression international commercial conciliation shall have the same meaning as the expression international commercial arbitration in clause (f) of sub-section (1) of section 2, subject to the modification that for the word arbitration occurring therein, the word conciliation shall be substituted.
(3) It shall come into force on such [date] as the Central Government may, by notification in the Official Gazette, appoint.

Devider

Part I

Arbitration

CHAPTER I

General Provisions

2. Definitions. – (1) In this Part, unless the context otherwise requires,
(a) arbitration means any arbitration whether or not administered by permanent arbitral institution;

(b) arbitration agreement means an agreement referred to in section 7;

(c) arbitral award includes an interim award;

(d) arbitral tribunal means a sole arbitrator or a panel of arbitrators;

[(e) “Court” means—

(i) in the case of an arbitration other than international commercial arbitration, the principal Civil Court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit, but does not include any Civil Court of a grade inferior to such principal Civil Court, or any Court of Small Causes;

(ii) in the case of international commercial arbitration, the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit, and in other cases, a High Court having jurisdiction to hear appeals from decrees of courts subordinate to that High Court;]

(f) international commercial arbitration means an arbitration relating to disputes arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India and where at least one of the parties is

(i) an individual who is a national of, or habitually resident in, any country other than India; or

(ii) a body corporate which is incorporated in any country other than India; or

(iii) [* * *] an association or a body of individuals whose central management and control is exercised in any country other than India; or

(iv) the Government of a foreign country;

(g) legal representative means a person who in law represents the estate of a deceased person, and includes any person who inter-meddles with the estate of the deceased, and, where a party acts in a representative character, the person on whom the estate devolves on the death of the party so acting;

(h) party means a party to an arbitration agreement.

Scope

(2) This Part shall apply where the place of arbitration is in India.

[Provided that subject to an agreement to the contrary, the provisions of sections 9, 27 and clause (a) of sub-section (1) and sub-section (3) of section 37 shall also apply to international commercial arbitration, even if the place of arbitration is outside India, and an arbitral award made or to be made in such place is enforceable and recognised under the provisions of Part II of this Act.]
(3) This Part shall not affect any other law for the time being in force by virtue of which certain disputes may not be submitted to arbitration.
(4) This Part except sub-section (1) of section 40, sections 41 and 43 shall apply to every arbitration under any other enactment for the time being in force, as if the arbitration were pursuant to an arbitration agreement and as if that other enactment were an arbitration agreement, except insofar as the provisions of this Part are inconsistent with that other enactment or with any rules made thereunder.
(5) Subject to the provisions of sub-section (4), and save insofar as is otherwise provided by any law for the time being in force or in any agreement in force between India and any other country or countries, this Part shall apply to all arbitration’s and to all proceedings relating thereto.

Construction Of References

(6) Where this Part, except section 28, leaves the parties free to determine a certain issue, that freedom shall include the right of the parties to authorise any person including an institution, to determine that issue.

(7) An arbitral award made under this Part shall be considered as a domestic award.

(8) Where this Part
(a) refers to the fact that the parties have agreed or that they may agree, or

(b) in any other way refers to an agreement of the parties,

that agreement shall include any arbitration rules referred to in that agreement.

(9) Where this Part, other than clause (a) of section 25 or clause (a) of sub-section (2) of section 32, refers to a claim, it shall also apply to a counter-claim, and where it refers to a defence, it shall also apply to a defence to that counter-claim.

3. Receipt of written communications. – (1) Unless otherwise agreed by the parties,

(a) any written communication is deemed to have been received if it is delivered to the addressee personally or at his place of business, habitual residence or mailing address, and

(b) if none of the places referred to in clause (a) can be found after making a reasonable inquiry, a written communication is deemed to have been received if it is sent to the addressees last known place of business, habitual residence or mailing address by registered letter or by any other means which provides a record of the attempt to deliver it.

(2) The communication is deemed to have been received on the day it is so delivered.
(3) This section does not apply to written communications in respect of proceedings of any judicial authority.

4. Waiver of right to object. – A party who knows that
(a) any provision of this Part from which the parties may derogate, or

(b) any requirement under the arbitration agreement,

has not been complied with and yet proceeds with the arbitration without stating his objection to such non-compliance without undue delay or, if a time limit is provided for stating that objection, within that period of time, shall be deemed to have waived his right to so object.

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

6. Administrative assistance. – In order to facilitate the conduct of the arbitral proceedings, the parties, or the arbitral tribunal with the consent of the parties, may arrange for administrative assistance by a suitable institution or person.

CHAPTER II

Arbitration Agreement

7. Arbitration agreement. – (1) In this Part, 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.
(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is contained in
(a) a document signed by the parties;

(b) an exchange of letters, telex, telegrams or other means of telecommunication [including communication through electronic means] which provide a record of the agreement; or

(c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other.

(5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.
8. Power to refer parties to arbitration where there is an arbitration agreement. – [(1) A judicial authority, before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then, notwithstanding any judgment, decree or order of the Supreme Court or any Court, refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists.]
(2) The application referred to in sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof.
[Provided that where the original arbitration agreement or a certified copy thereof is not available with the party applying for reference to arbitration under sub-section (1), and the said agreement or certified copy is retained by the other party to that agreement, then, the party so applying shall file such application along with a copy of the arbitration agreement and a petition praying the Court to call upon the other party to produce the original arbitration agreement or its duly certified copy before that Court.]
(3) Notwithstanding that an application has been made under sub-section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made.

9. Interim measures, etc., by Court. – (1) A party may, 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:

(i) for the appointment of a guardian for a minor or a person of unsound mind for the purposes of arbitral proceedings; or

(ii) for an interim measure of protection in respect of any of the following matters, namely:

(a) the preservation, interim custody or sale of any goods which are the subject-matter of the arbitration agreement;

(b) securing the amount in dispute in the arbitration;

(c) 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;

(d) interim injunction or the appointment of a receiver;

(e) such other interim measure of protection as may appear to the Court to be just and convenient,

and the Court shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it.

(2) Where, before the commencement of the arbitral proceedings, a Court passes an order for any interim measure of protection under sub-section (1), the arbitral proceedings shall be commenced within a period of ninety days from the date of such order or within such further time as the Court may determine.
(3) Once the arbitral tribunal has been constituted, the Court shall not entertain an application under sub-section (1), unless the Court finds that circumstances exist which may not render the remedy provided under section 17 efficacious.

CHAPTER III

Composition Of Arbitral Tribunal

10. Number of arbitrators. – (1) The parties are free to determine the number of arbitrators, provided that such number shall not be an even number.
(2) Failing the determination referred to in sub-section (1), the arbitral tribunal shall consist of a sole arbitrator.

11. Appointment of arbitrators. – (1) A person of any nationality may be an arbitrator, unless otherwise agreed by the parties.
(2) Subject to sub-section (6), the parties are free to agree on a procedure for appointing the arbitrator or arbitrators.
(3) Failing any agreement referred to in sub-section (2), in an arbitration with three arbitrators, each party shall appoint one arbitrator, and the two appointed arbitrators shall appoint the third arbitrator who shall act as the presiding arbitrator.
(4) If the appointment procedure in sub-section (3) applies and
(a) a party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party; or

(b) the two appointed arbitrators fail to agree on the third arbitrator within thirty days from the date of their appointment, the appointment shall be made, upon request of a party, by [the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court].

(5) Failing any agreement referred to in sub-section (2), in an arbitration with a sole arbitrator, if the parties fail to agree on the arbitrator within thirty days from receipt of a request by one party from the other party to so agree the appointment shall be made, upon request of a party, by [the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court].
(6) Where, under an appointment procedure agreed upon by the parties.
(a) a party fails to act as required under that procedure; or

(b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or

(c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure,

a party may request [the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court] to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.
[(6A) The Supreme Court or, as the case may be, the High Court, while considering any application under sub-section (4) or sub-section (5) or sub-section (6), shall, notwithstanding any judgment, decree or order of any Court, confine to the examination of the existence of an arbitration agreement.
(6B) The designation of any person or institution by the Supreme Court or, as the case may be, the High Court, for the purposes of this section shall not be regarded as a delegation of judicial power by the Supreme Court or the High Court.]
(7) A decision on a matter entrusted by sub-section (4) or sub-section (5) or sub-section (6) to [the Supreme Court or, as the case may be, the High Court or the person or institution designated by such Court is final and no appeal including Letters Patent Appeal shall lie against such decision].
[(8) The Supreme Court or, as the case may be, the High Court or the person or institution designated by such Court, before appointing an arbitrator, shall seek a disclosure in writing from the prospective arbitrator in terms of sub-section (1) of section 12, and have due regard to—
(a) any qualifications required for the arbitrator by the agreement of the parties; and

(b) the contents of the disclosure and other considerations as are likely to secure the appointment of an independent and impartial arbitrator.]

(9) In the case of appointment of sole or third arbitrator in an international commercial arbitration, [the Supreme Court or the person or institution designated by that Court] may appoint an arbitrator of a nationality other than the nationalities of the parties where the parties belong to different nationalities.
[(10) The Supreme Court or, as the case may be, the High Court, may make such scheme as the said Court may deem appropriate for dealing with matters entrusted by sub-section (4) or sub-section (5) or sub-section (6), to it.]
(11) Where more than one request has been made under sub-section (4) or sub-section (5) or sub-section (6) to [different High Courts or their designates, the High Court or its designate to whom the request has been first made] under the relevant sub-section shall alone be competent to decide on the request.
[(12) (a) Where the matters referred to in sub-sections (4), (5), (6), (7), (8) and sub-section (10) arise in an international commercial arbitration, the reference to the “Supreme Court or, as the case may be, the High Court” in those sub-sections shall be construed as a reference to the “Supreme Court”; and
(b) where the matters referred to in sub-sections (4), (5), (6), (7), (8) and sub-section (10) arise in any other arbitration, the reference to “the Supreme Court or, as the case may be, the High Court” in those sub-sections shall be construed as a reference to the “High Court” within whose local limits the principal Civil Court referred to in clause (e) of sub-section (1) of section 2 is situate, and where the High Court itself is the Court referred to in that clause, to that High Court.]

[(13) An application made under this section for appointment of an arbitrator or arbitrators shall be disposed of by the Supreme Court or the High Court or the person or institution designated by such Court, as the case may be, as expeditiously as possible and an endeavour shall be made to dispose of the matter within a period of sixty days from the date of service of notice on the opposite party.
(14) For the purpose of determination of the fees of the arbitral tribunal and the manner of its payment to the arbitral tribunal, the High Court may frame such rules as may be necessary, after taking into consideration the rates specified in the Fourth Schedule.
Explanation. – For the removal of doubts, it is hereby clarified that this sub-section shall not apply to international commercial arbitration and in arbitration’s (other than international commercial arbitration) in case where parties have agreed for determination of fees as per the rules of an arbitral institution.]
[11A. Power of Central Government to amend Fourth Schedule. – (1) If the Central Government is satisfied that it is necessary or expedient so to do, it may, by notification in the Official Gazette, amend the Fourth Schedule and thereupon the Fourth Schedule shall be deemed to have been amended accordingly.
(2) A copy of every notification proposed to be issued under sub-section (1), shall be laid in draft before each House of Parliament, while it is in session, for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in disapproving the issue of the notification or both Houses agree in making any modification in the notification, the notification shall not be issued or, as the case may be, shall be issued only in such modified form as may be agreed upon by the both Houses of Parliament.]

12. Grounds for challenge – [(1) When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances,—
(a) such as the existence either direct or indirect, of any past or present relationship with or interest in any of the parties or in relation to the subject-matter in dispute, whether financial, business, professional or other kind, which is likely to give rise to justifiable doubts as to his independence or impartiality; and

(b) which are likely to affect his ability to devote sufficient time to the arbitration and in particular his ability to complete the entire arbitration within a period of twelve months.

Explanation 1. – The grounds stated in the Fifth Schedule shall guide in determining whether circumstances exist which give rise to justifiable doubts as to the independence or impartiality of an arbitrator.
Explanation 2. – The disclosure shall be made by such person in the form specified in the Sixth Schedule.]

(2) An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall, without delay, disclose to the parties in writing any circumstances referred to in sub-section (1) unless they have already been informed of them by him.
(3) An arbitrator may be challenged only if.
(a) circumstances exist that give rise to justifiable doubts as to his independence or impartiality, or

(b) he does not possess the qualifications agreed to by the parties.

(4) A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made.
[(5) Notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject-matter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator:
Provided that parties may, subsequent to disputes having arisen between them, waive the applicability of this sub-section by an express agreement in writing.]

13. Challenge procedure. – (1) Subject to sub-section (4), the parties are free to agree on a procedure for challenging an arbitrator.
(2) Failing any agreement referred to in sub-section (1), a party who intends to challenge an arbitrator shall, within fifteen days after becoming aware of the constitution of the arbitral tribunal or after becoming aware of any circumstances referred to in sub-section (3) of section 12, send a written statement of the reasons for the challenge to the arbitral tribunal.
(3) Unless the arbitrator challenged under sub-section (2) withdraws from his office or the other party agrees to the challenge, the arbitral tribunal shall decide on the challenge.
(4) If a challenge under any procedure agreed upon by the parties or under the procedure under sub-section (2) is not successful, the arbitral tribunal shall continue the arbitral proceedings and make an arbitral award.
(5) Where an arbitral award is made under sub-section (4), the party challenging the arbitrator may make an application for setting aside such an arbitral award in accordance with section 34.
(6) Where an arbitral award is set aside on an application made under sub-section (5), the Court may decide as to whether the arbitrator who is challenged is entitled to any fees.

14. Failure or impossibility to act. – [(1) The mandate of an arbitrator shall terminate and he shall be substituted by another arbitrator, if’]
(a) he becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay; and

(b) he withdraws from his office or the parties agree to the termination of his mandate.

(2) If a controversy remains concerning any of the grounds referred to in clause (a) of sub-section (1), a party may, unless otherwise agreed by the parties, apply to the Court to decide on the termination of the mandate.
(3) If, under this section or sub-section (3) of section 13, an arbitrator withdraws from his office or a party agrees to the termination of the mandate of an arbitrator, it shall not imply acceptance of the validity of any ground referred to in this section or sub-section (3) of section 12.

15. Termination of mandate and substitution of arbitrator. – (1) In addition to the circumstances referred to in section 13 or section 14, the mandate of an arbitrator shall terminate
(a) where he withdraws from office for any reason; or

(b) by or pursuant to agreement of the parties.

(2) Where the mandate of an arbitrator terminates, a substitute arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced.
(3) Unless otherwise agreed by the parties, where an arbitrator is replaced under sub-section (2), any hearings previously held may be repeated at the discretion of the arbitral tribunal.
(4) Unless otherwise agreed by the parties, an order or ruling of the arbitral tribunal made prior to the replacement of an arbitrator under this section shall not be invalid solely because there has been a change in the composition of the arbitral tribunal.

CHAPTER IV

Jurisdiction Of Arbitral Tribunals

16. Competence of arbitral tribunal to rule on its jurisdiction. – (1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose,
(a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and

(b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.

(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of, an arbitrator.
(3) A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings.
(4) The arbitral tribunal may, in either of the cases referred to in sub-section (2) or sub-section (3), admit a later plea if it considers the delay justified.
(5) The arbitral tribunal shall decide on a plea referred to in sub-section (2) or sub-section (3) and, where the arbitral tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and make an arbitral award.
(6) A party aggrieved by such an arbitral award may make an application for setting aside such an arbitral award in accordance with section 34.

17. Interim measures ordered by arbitral tribunal – (1) A party may, during the 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 the arbitral tribunal—
(i) for the appointment of a guardian for a minor or person of unsound mind for the purposes of arbitral proceedings; or

(ii) for an interim measure of protection in respect of any of the following matters, namely:—

(a) the preservation, interim custody or sale of any goods which are the subject-matter of the arbitration agreement;

(b) securing the amount in dispute in the arbitration;

(c) 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;

(d) interim injunction or the appointment of a receiver;

(e) such other interim measure of protection as may appear to the arbitral tribunal to be just and convenient, and the arbitral tribunal shall have the same power for making orders, as the court has for the purpose of, and in relation to, any proceedings before it.

(2) Subject to any orders passed in an appeal under section 37, any order issued by the arbitral tribunal under this section shall be deemed to be an order of the Court for all purposes and shall be enforceable under the Code of Civil Procedure, 1908, in the same manner as if it were an order of the Court.]

CHAPTER V

Conduct Of Arbitral Proceedings

18. Equal treatment of parties. – The parties shall be treated with equality and each party shall be given a full opportunity to present his case.

19. Determination of rules of procedure. (1) The arbitral tribunal shall not be bound by the Code of Civil Procedure, 1908 (5 of 1908) or the Indian Evidence Act, 1872 (1 of 1872).
(2) Subject to this Part, the parties are free to agree on the procedure to be followed by the arbitral tribunal in conducting its proceedings.
(3) Failing any agreement referred to in sub-section (2), the arbitral tribunal may, subject to this Part, conduct the proceedings in the manner it considers appropriate.
(4) The power of the arbitral tribunal under sub-section (3) includes the power to determine the admissibility, relevance, materiality and weight of any evidence.

20. Place of arbitration. – (1) The parties are free to agree on the place of arbitration.
(2) Failing any agreement referred to in sub-section (1), the place of arbitration shall be determined by the arbitral tribunal having regard to the circumstances of the case, including the convenience of the parties.
(3) Notwithstanding sub-section (1) or sub-section (2), the arbitral tribunal may, unless otherwise agreed by the parties, meet at any place it considers appropriate for consultation among its members, for hearing witnesses, experts or the parties, or for inspection of documents, goods or other property.

21. Commencement of arbitral proceedings. – Unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent.

22. Language. – (1) The parties are free to agree upon the language or languages to be used in the arbitral proceedings.
(2) Failing any agreement referred to in sub-section (1), the arbitral tribunal shall determine the language or languages to be used in the arbitral proceedings.
(3) The agreement or determination, unless otherwise specified, shall apply to any written statement by a party, any hearing and any arbitral award, decision or other communication by the arbitral tribunal.
(4) The arbitral tribunal may order that any documentary evidence shall be accompanied by a translation into the language or languages agreed upon by the parties or determined by the arbitral tribunal.

23. Statements of claim and defence. – (1) Within the period of time agreed upon by the parties or determined by the arbitral tribunal, the claimant shall state the facts supporting his claim, the points at issue and the relief or remedy sought, and the respondent shall state his defence in respect of these particulars, unless the parties have otherwise agreed as to the required elements of those statements.
(2) The parties may submit with their statements all documents they consider to be relevant or may add a reference to the documents or other evidence they will submit.
[(2A) The respondent, in support of his case, may also submit a counterclaim or plead a set-off, which shall be adjudicated upon by the arbitral tribunal, if such counterclaim or set-off falls within the scope of the arbitration agreement.]
(3) Unless otherwise agreed by the parties, either party may amend or supplement his claim or defence during the course of the arbitral proceedings, unless the arbitral tribunal considers it inappropriate to allow the amendment or supplement having regard to the delay in making it.

24. Hearings and written proceedings. – (1) Unless otherwise agreed by the parties, the arbitral tribunal shall decide whether to hold oral hearings for the presentation of evidence or for oral argument, or whether the proceedings shall be conducted on the basis of documents and other materials:
Provided that the arbitral tribunal shall hold oral hearings, at an appropriate stage of the proceedings, on a request by a party, unless the parties have agreed that no oral hearing shall be held.
[Provided further that the arbitral tribunal shall, as far as possible, hold oral hearings for the presentation of evidence or for oral argument on day-to-day basis, and not grant any adjournments unless sufficient cause is made out, and may impose costs including exemplary costs on the party seeking adjournment without any sufficient cause.]
(2) The parties shall be given sufficient advance notice of any hearing and of any meeting of the arbitral tribunal for the purposes of inspection of documents, goods or other property.
(3) All statements, documents or other information supplied to, or applications made to the arbitral tribunal by one party shall be communicated to the other party, and any expert report or evidentiary document on which the arbitral tribunal may rely in making its decision shall be communicated to the parties.

25. Default of a party. – Unless otherwise agreed by the parties, where, without showing sufficient cause,
(a) the claimant fails to communicate his statement of claim in accordance with sub-section (1) of section 23, the arbitral tribunal shall terminate the proceedings;

(b) the respondent fails to communicate his statement of defence in accordance with sub-section (1) of section 23, the arbitral tribunal shall continue the proceedings without treating that failure in itself as an admission of the allegations by the claimant [and shall have the discretion to treat the right of the respondent to file such statement of defence as having been forfeited];

(c) a party fails to appear at an oral hearing or to produce documentary evidence, the arbitral tribunal may continue the proceedings and make the arbitral award on the evidence before it.

26. Expert appointment by arbitral tribunal. – (1) Unless otherwise agreed by the parties, the arbitral tribunal may
(a) appoint one or more experts to report to it on specific issues to be determined by the arbitral tribunal, and

(b) require a party to give the expert any relevant information or to produce, or to provide access to, any relevant documents, goods or other property for his inspection.

(2) Unless otherwise agreed by the parties, if a party so requests or if the arbitral tribunal considers it necessary, the expert shall, after delivery of his written or oral report, participate in an oral hearing where the parties have the opportunity to put questions to him and to present expert witnesses in order to testify on the points at issue.
(3) Unless otherwise agreed by the parties, the expert shall, on the request of a party, make available to that party for examination all documents, goods or other property in the possession of the expert with which he was provided in order to prepare his report.

27. Court assistance in taking evidence. – (1) The arbitral tribunal, or a party with the approval of the arbitral tribunal, may apply to the Court for assistance in taking evidence.
(2) The application shall specify
(a) the names and addresses of the parties and the arbitrators;

(b) the general nature of the claim and the relief sought;

(c) the evidence to be obtained, in particular,

(i) the name and address of any person to be heard as witness or expert witness and a statement of the subject-matter of the testimony required;

(ii) the description of any document to be produced or property to be inspected.

(3) The Court may, within its competence and according to its rules on taking evidence, execute the request by ordering that the evidence be provided directly to the arbitral tribunal.
(4) The Court may, while making an order under sub-section (3), issue the same processes to witnesses as it may issue in suits tried before it.
(5) Persons failing to attend in accordance with such process, or making any other default, or refusing to give their evidence, or guilty of any contempt to the arbitral tribunal during the conduct of arbitral proceedings, shall be subject to the like disadvantages, penalties and punishments by order of the Court on the representation of the arbitral tribunal as they would incur for the like offences in suits tried before the Court.
(6) In this section the expression Processes includes summonses and commissions for the examination of witnesses and summonses to produce documents.

CHAPTER VI

Making Of Arbitral Award And Termination Of Proceedings

28. Rules applicable to substance of dispute. – (1) Where the place of arbitration is situate in India,
(a) in an arbitration other than an international commercial arbitration, the arbitral tribunal shall decide the dispute submitted to arbitration in accordance with the substantive law for the time being in force in India;

(b) in international commercial arbitration,

(i) the arbitral tribunal shall decide the dispute in accordance with the rules of law designated by the parties as applicable to the substance of the dispute;

(ii) any designation by the parties of the law or legal system of a given country shall be construed, unless otherwise expressed, as directly referring to the substantive law of that country and not to its conflict of laws rules;

(iii) failing any designation of the law under clause (a) by the parties, the arbitral tribunal shall apply the rules of law it considers to be appropriate given all the circumstances surrounding the dispute.

(2) The arbitral tribunal shall decide ex aequo et bono or as amiable compositeur only if the parties have expressly authorised it to do so.
[(3) While deciding and making an award, the arbitral tribunal shall, in all cases, take into account the terms of the contract and trade usages applicable to the transaction.]

29. Decision making by panel of arbitrators. – (1) Unless otherwise agreed by the parties, in arbitral proceedings with more than one arbitrator, any decision of the arbitral tribunal shall be made by a majority of all its members.
(2) Notwithstanding sub-section (1), if authorised by the parties or all the members of the arbitral tribunal, questions of procedure may be decided by the presiding arbitrator.

29A. Time limit for arbitral award. – (1) The award shall be made within a period of twelve months from the date the arbitral tribunal enters upon the reference.
Explanation. – For the purpose of this sub-section, an arbitral tribunal shall be deemed to have entered upon the reference on the date on which the arbitrator or all the arbitrators, as the case may be, have received notice, in writing, of their appointment.
(2) If the award is made within a period of six months from the date the arbitral tribunal enters upon the reference, the arbitral tribunal shall be entitled to receive such amount of additional fees as the parties may agree.
(3) The parties may, by consent, extend the period specified in sub-section (1) for making award for a further period not exceeding six months.
(4) If the award is not made within the period specified in sub-section (1) or the extended period specified under sub-section (3), the mandate of the arbitrator(s) shall terminate unless the Court has, either prior to or after the expiry of the period so specified, extended the period:
Provided that while extending the period under this sub-section, if the Court finds that the proceedings have been delayed for the reasons attributable to the arbitral tribunal, then, it may order reduction of fees of arbitrator(s) by not exceeding five per cent. for each month of such delay.
(5) The extension of period referred to in sub-section (4) may be on the application of any of the parties and may be granted only for sufficient cause and on such terms and conditions as may be imposed by the Court.
(6) While extending the period referred to in sub-section (4), it shall be open to the Court to substitute one or all of the arbitrators and if one or all of the arbitrators are substituted, the arbitral proceedings shall continue from the stage already reached and on the basis of the evidence and material already on record, and the arbitrator(s) appointed under this section shall be deemed to have received the said evidence and material.
(7) In the event of arbitrator(s) being appointed under this section, the arbitral tribunal thus reconstituted shall be deemed to be in continuation of the previously appointed arbitral tribunal.
(8) It shall be open to the Court to impose actual or exemplary costs upon any of the parties under this section.
(9) An application filed under sub-section (5) shall be disposed of by the Court as expeditiously as possible and endeavour shall be made to dispose of the matter within a period of sixty days from the date of service of notice on the opposite party.

29B. Fast track procedure. – (1) Notwithstanding anything contained in this Act, the parties to an arbitration agreement, may, at any stage either before or at the time of appointment of the arbitral tribunal, agree in writing to have their dispute resolved by fast track procedure specified in sub-section (3).
(2) The parties to the arbitration agreement, while agreeing for resolution of dispute by fast track procedure, may agree that the arbitral tribunal shall consist of a sole arbitrator who shall be chosen by the parties.
(3) The arbitral tribunal shall follow the following procedure while conducting arbitration proceedings under sub-section (1):
(a) The arbitral tribunal shall decide the dispute on the basis of written pleadings, documents and submissions filed by the parties without any oral hearing;

(b) The arbitral tribunal shall have power to call for any further information or clarification from the parties in addition to the pleadings and documents filed by them;

(c) An oral hearing may be held only, if, all the parties make a request or if the arbitral tribunal considers it necessary to have oral hearing for clarifying certain issues;

(d) The arbitral tribunal may dispense with any technical formalities, if an oral hearing is held, and adopt such procedure as deemed appropriate for expeditious disposal of the case.

(4) The award under this section shall be made within a period of six months from the date the arbitral tribunal enters upon the reference.
(5) If the award is not made within the period specified in sub-section (4), the provisions of sub-sections (3) to (9) of section 29A shall apply to the proceedings.
(6) The fees payable to the arbitrator and the manner of payment of the fees shall be such as may be agreed between the arbitrator and the parties.]

30. Settlement. – (1) It is not incompatible with an arbitration agreement for an arbitral tribunal to encourage settlement of the dispute and, with the agreement of the parties, the arbitral tribunal may use mediation, conciliation or other procedures at any time during the arbitral proceedings to encourage settlement.
(2) If, during arbitral proceedings, the parties settle the dispute, the arbitral tribunal shall terminate the proceedings and if, requested by the parties and not objected to by the arbitral tribunal, record the settlement in the form of an arbitral award on agreed terms.
(3) An arbitral award on agreed terms shall be made in accordance with section 31 and shall state that it is an arbitral award.
(4) An arbitral award on agreed terms shall have the same status and effect as any other arbitral award on the substance of the dispute.

31. Form and contents of arbitral award. – (1) An arbitral award shall be made in writing and shall be signed by the members of the arbitral tribunal.
(2) For the purposes of sub-section (1), in arbitral proceedings with more than one arbitrator, the signatures of the majority of all the members of the arbitral tribunal shall be sufficient so long as the reason for any omitted signature is stated.
(3) The arbitral award shall state the reasons 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.

(4) The arbitral award shall state its date and the place of arbitration as determined in accordance with section 20 and the award shall be deemed to have been made at that place.
(5) After the arbitral award is made, a signed copy shall be delivered to each party.
(6) The arbitral tribunal may, at any time during the arbitral proceedings, make an interim arbitral award on any matter with respect to which it may make a final arbitral award.
(7)(a) Unless otherwise agreed by the parties, where and insofar as an arbitral award is for the payment of money, the arbitral tribunal may include in the sum for which the award is made interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made.
[(b) A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of two per cent. higher than the current rate of interest prevalent on the date of award, from the date of award to the date of payment.

(8) The costs of an arbitration shall be fixed by the arbitral tribunal in accordance with section 31A.]
Explanation. For the purpose of clause (a), costs means reasonable costs relating to
(i) the fees and expenses of the arbitrators and witnesses,

(ii) legal fees and expenses,

(iii) any administration fees of the institution supervising the arbitration, and

(iv) any other expenses incurred in connection with the arbitral proceedings and the arbitral award.

31A. Regime for costs – (1) In relation to any arbitration proceeding or a proceeding under any of the provisions of this Act pertaining to the arbitration, the Court or arbitral tribunal, notwithstanding anything contained in the Code of Civil Procedure,1908, shall have the discretion to determine—
(a) whether costs are payable by one party to another;

(b) the amount of such costs; and

(c) when such costs are to be paid.

Explanation. – For the purpose of this sub-section, “costs” means reasonable costs relating to—
(i) the fees and expenses of the arbitrators, Courts and witnesses;

(ii) legal fees and expenses;

(iii) any administration fees of the institution supervising the arbitration; and

(iv) any other expenses incurred in connection with the arbitral or Court proceedings and the arbitral award.

(2) If the Court or arbitral tribunal decides to make an order as to payment of costs,—
(a) the general rule is that the unsuccessful party shall be ordered to pay the costs of the successful party; or

(b) the Court or arbitral tribunal may make a different order for reasons to be recorded in writing.

(3) In determining the costs, the Court or arbitral tribunal shall have regard to all the circumstances, including—
(a) the conduct of all the parties;

(b) whether a party has succeeded partly in the case;

(c) whether the party had made a frivolous counter claim leading to delay in the disposal of the arbitral proceedings; and

(d) whether any reasonable offer to settle the dispute is made by a party and refused by the other party.

(4) The Court or arbitral tribunal may make any order under this section including the order that a party shall pay—
(a) a proportion of another party’s costs;

(b) a stated amount in respect of another party’s costs;

(c) costs from or until a certain date only;

(d) costs incurred before proceedings have begun;

(e) costs relating to particular steps taken in the proceedings;

(f) costs relating only to a distinct part of the proceedings; and

(g) interest on costs from or until a certain date.

(5) An agreement which has the effect that a party is to pay the whole or part of the costs of the arbitration in any event shall be only valid if such agreement is made after the dispute in question has arisen.]

32. Termination of proceedings. – (1) The arbitral proceedings shall be terminated by the final arbitral award or by an order of the arbitral tribunal under sub-section (2).

(2) The arbitral tribunal shall issue an order for the termination of the arbitral proceedings where
(a) the claimant withdraws his claim, unless the respondent objects to the order and the arbitral tribunal recognises a legitimate interest on his part in obtaining a final settlement of the dispute,

(b) the parties agree on the termination of the proceedings, or

(c) the arbitral tribunal finds that the continuation of the proceedings has for any other reason become unnecessary or impossible.

(3) Subject to section 33 and sub-section (4) of section 34, the mandate of the arbitral tribunal shall terminate with the termination of the arbitral proceedings.

33. Correction and interpretation of award; additional award. – (1) Within thirty days from the receipt of the arbitral award, unless another period of time has been agreed upon by the parties
(a) a party, with notice to the other party, may request the arbitral tribunal to correct any computation errors, any clerical or typographical errors or any other errors of a similar nature occurring in the award;

(b) if so agreed by the parties, a party, with notice to the other party, may request the arbitral tribunal to give an interpretation of a specific point or part of the award.

(2) If the arbitral tribunal considers the request made under sub-section (1) to be justified, it shall make the correction or give the interpretation within thirty days from the receipt of the request and the interpretation shall form part of the arbitral award.
(3) The arbitral tribunal may correct any error of the type referred to in clause (a) of sub-section (1), on its own initiative, within thirty days from the date of the arbitral award.
(4) Unless otherwise agreed by the parties, a party with notice to the other party, may request, within thirty days from the receipt of the arbitral award, the arbitral tribunal to make an additional arbitral award as to claims presented in the arbitral proceedings but omitted from the arbitral award.
(5) If the arbitral tribunal considers the request made under sub-section (4) to be justified, it shall make the additional arbitral award within sixty days from the receipt of such request.
(6) The arbitral tribunal may extend, if necessary, the period of time within which it shall make a correction, give an interpretation or make an additional arbitral award under sub-section (2) of sub-section (5).
(7) Section 31 shall apply to a correction or interpretation of the arbitral award or to an additional arbitral award made under this section.

CHAPTER VII

Recourse Against Arbitral Award

34. Application for setting aside arbitral award. – (1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3).

(2) An arbitral award may 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 under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or

(iii) 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

(iv) 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:

Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or

(v) 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 this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or

(b) the Court finds that

(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or

(ii) the arbitral award is in conflict with the public policy of India.

[Explanation 1. – For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,—

(i) the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81; or

(ii) it is in contravention with the fundamental policy of Indian law; or

(iii) it is in conflict with the most basic notions of morality or justice.

Explanation 2. – For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.

[(2A) An arbitral award arising out of arbitration’s other than international commercial arbitration’s, may also be set aside by the Court, if the Court finds that the award is vitiated by patent illegality appearing on the face of the award:

Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.

(3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal:

Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter.

(4) On receipt of an application under sub-section (1), the Court may, where it is appropriate and it is so requested by a party, 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.

(5) An application under this section shall be filed by a party only after issuing a prior notice to the other party and such application shall be accompanied by an affidavit by the applicant endorsing compliance with the said requirement.

(6) An application under this section shall be disposed of expeditiously, and in any event, within a period of one year from the date on which the notice referred to in sub-section (5) is served upon the other party.

CHAPTER VIII

Finality And Enforcement Of Arbitral Awards

35. Finality of arbitral awards. – Subject to this Part an arbitral award shall be final and binding on the parties and persons claiming under them respectively.

36. Enforcement. – (1) Where the time for making an application to set aside the arbitral award under section 34 has expired, then, subject to the provisions of sub-section (2), such award shall be enforced in accordance with the provisions of the Code of Civil Procedure, 1908, in the same manner as if it were a decree of the court.
(2) Where an application to set aside the arbitral award has been filed in the Court under section 34, the filing of such an application shall not by itself render that award unenforceable, unless the Court grants an order of stay of the operation of the said arbitral award in accordance with the provisions of sub-section (3), on a separate application made for that purpose.
(3) Upon filing of an application under sub-section (2) for stay of the operation of the arbitral award, the Court may, subject to such conditions as it may deem fit, grant stay of the operation of such award for reasons to be recorded in writing:
Provided that the Court shall, while considering the application for grant of stay in the case of an arbitral award for payment of money, have due regard to the provisions for grant of stay of a money decree under the provisions of the Code of Civil Procedure, 1908.

CHAPTER IX

Appeals

37. Appealable orders. – (1) An appeal shall lie from the following orders (and from no others) to the Court authorised by law to hear appeals from original decrees of the Court passing the order, namely:
[(a) refusing to refer the parties to arbitration under section 8;

(b) granting or refusing to grant any measure under section 9;

(c) setting aside or refusing to set aside an arbitral award under section 34.]

(2) An appeal shall also lie to a Court from an order of the arbitral tribunal
(a) accepting the plea referred to in sub-section (2) or sub-section (3) of section 16; or

(b) granting or refusing to grant an interim measure under section 17.

(3) No second appeal shall lie from an order passed in appeal under this section, but nothing in this section shall affect or take away any right to appeal to the Supreme Court.

CHAPTER X

Miscellaneous

38. Deposits. – (1) The arbitral tribunal may fix the amount of the deposit or supplementary deposit, as the case may be, as an advance for the costs referred to in sub-section (8) of section 31, which it expects will be incurred in respect of the claim submitted to it:
Provided that where, apart from the claim, a counter-claim has been submitted to the arbitral tribunal, it may fix separate amount of deposit for the claim and counter-claim.
(2) The deposit referred to in sub-section (1) shall be payable in equal shares by the parties:
Provided that where one party fails to pay his share of the deposit, the other party may pay that share:
Provided further that where the other party also does not pay the aforesaid share in respect of the claim or the counter-claim, the arbitral tribunal may suspend or terminate the arbitral proceedings in respect of such claim or counter-claim, as the case may be.
(3) Upon termination of the arbitral proceedings, the arbitral tribunal shall render an accounting to the parties of the deposits received and shall return any unexpended balance to the party or parties, as the case may be.

39. Lien on arbitral award and deposits as to costs. – (1) Subject to the provisions of sub-section (2) and to any provision to the contrary in the arbitration agreement, the arbitral tribunal shall have a lien on the arbitral award for any unpaid costs of the arbitration.
(2) If in any case an arbitral tribunal refuses to deliver its award except on payment of the costs demanded by it, the Court may, on an application in this behalf, order that the arbitral tribunal shall deliver the arbitral award to the applicant on payment into Court by the applicant of the costs demanded, and shall, after such inquiry, if any, as it thinks fit, further order that out of the money so paid into Court there shall be paid to the arbitral tribunal by way of costs such sum as the Court may consider reasonable and that the balance of the money, if any, shall be refunded to the applicant.
(3) An application under sub-section (2) may be made by any party unless the fees demanded have been fixed by written agreement between him and the arbitral tribunal, and the arbitral tribunal shall be entitled to appear and be heard on any such application.
(4) The Court may make such orders as it thinks fit respecting the costs of the arbitration where any question arises respecting such costs and the arbitral award contains no sufficient provision concerning them.

40. Arbitration agreement not to be discharged by death of party thereto. – (1) An arbitration agreement shall not be discharged by the death of any party thereto either as respects the deceased or as respects any other party, but shall in such event be enforceable by or against the legal representative of the deceased.
(2) The mandate of an arbitrator shall not be terminated by the death of any party by whom he was appointed.
(3) Nothing in this section shall affect the operation of any law by virtue of which any right of action is extinguished by the death of a person.

41. Provisions in case of insolvency. – (1) Where it is provided by a term in a contract to which an insolvent is a party that any dispute arising there out or in connection therewith shall be submitted to arbitration, the said term shall, if the receiver adopts the contract, be enforceable by or against him so far as it relates to any such dispute.
(2) Where a person who has been adjudged an insolvent had, before the commencement of the insolvency proceedings, become a party to an arbitration agreement, and any matter to which the agreement applies is required to be determined in connection with, or for the purposes of, the insolvency proceedings, then, if the case is one to which sub-section (1) does not apply, any other party or the receiver may apply to the judicial authority having jurisdiction in the insolvency proceedings for an order directing that the matter in question shall be submitted to arbitration in accordance with the arbitration agreement, and the judicial authority may, if it is of opinion that, having regard to all the circumstances of the case, the matter ought to be determined by arbitration, make an order accordingly.
(3) In this section the expression receiver includes an Official Assignee.

42. Jurisdiction – Notwithstanding anything contained elsewhere in this Part or in any other law for the time being in force, where with respect to an arbitration agreement any application under this Part has been made in a Court, that Court alone shall have jurisdiction over the arbitral proceedings and all subsequent applications arising out of that agreement and the arbitral proceedings shall be made in that Court and in no other Court.

43. Limitations. – (1) The Limitation Act, 1963 (36 of 1963), shall apply to arbitration’s as it applies to proceedings in Court.

(2) For the purposes of this section and the Limitation Act, 1963 (36 of 1963), an arbitration shall be deemed to have commenced on the date referred in section 21.

(3) Where an arbitration agreement to submit future disputes to arbitration provides that any claim to which the agreement applies shall be barred unless some step to commence arbitral proceedings is taken within a time fixed by the agreement, and a dispute arises to which the agreement applies, the Court, if it is of opinion that in the circumstances of the case undue hardship would otherwise be caused, and notwithstanding that the time so fixed has expired, may on such terms, if any, as the justice of the case may require, extend the time for such period as it thinks proper.

(4) Where the Court orders that an arbitral award be set aside, the period between the commencement of the arbitration and the date of the order of the Court shall be excluded in computing the time prescribed by the Limitation Act, 1963 (36 of 1963), for the commencement of the proceedings (including arbitration) with respect to the dispute so submitted.

Devider

Part II

Enforcement Of Certain Foreign Awards

CHAPTER I

New York Convention Awards

44. Definition. – In this Chapter, unless the context otherwise requires, foreign award means an arbitral award on differences between persons arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India, made on or after the 11th day of October, 1960
(a) in pursuance of an agreement in writing for arbitration to which the Convention set forth in the First Schedule applies, and

(b) in one of such territories as the Central Government, being satisfied that reciprocal provisions have been made may, by notification in the Official Gazette, declare to be territories to which the said Convention applies.

45. Power of judicial authority to refer parties to arbitration. – Notwithstanding anything contained in Part I or in the Code of Civil Procedure, 1908 (5 of 1908), a judicial authority, when seized of an action in a matter in respect of which the parties have made an agreement referred to in section 44, shall, at the request of one of the parties or any person claiming through or under him, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.
46. When foreign award binding. – Any foreign award which would be enforceable under this Chapter shall be treated as binding for all purposes on the persons as between whom it was made, and may accordingly be relied on by any of those persons by way of defence, set off or otherwise in any legal proceedings in India and any references in this Chapter to enforcing a foreign award shall be construed as including references to relying on an award.
47. Evidence. – (1) The party applying for the enforcement of a foreign award shall, at the time of the application, produce before the Court
(a) the original award or a copy thereof, duly authenticated in the manner required by the law of the country in which it was made;

(b) the original agreement for arbitration or a duly certified copy thereof; and

(c) such evidence as may be necessary to prove that the award is a foreign award.

(2) If the award or agreement to be produced under sub-section (1) is in a foreign language, the party seeking to enforce the award shall produce a translation into English certified as correct by a diplomatic or consular agent of the country to which that party belongs or certified as correct in such other manner as may be sufficient according to the law in force in India.
[Explanation. – In this section and in the sections following in this Chapter, “Court” means the High Court having original jurisdiction to decide the questions forming the subject-matter of the arbitral award if the same had been the subject matter of a suit on its original civil jurisdiction and in other cases, in the High Court having jurisdiction to hear appeals from decrees of courts subordinate to such High Court.]
48. Conditions for enforcement of foreign awards. – (1) Enforcement of a foreign award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the Court proof that
(a) the parties to the agreement referred to in section 44 were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or

(b) the party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

(c) the award deals with a difference 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:

Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be enforced; or
(d) the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or

(e) the award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.

(2) Enforcement of an arbitral award may also be refused if the Court finds that
(a) the subject-matter of the difference is not capable of settlement by arbitration under the law of India; or

(b) the enforcement of the award would be contrary to the public policy of India.

[Explanation 1. – For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,—
(i) the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81; or

(ii) it is in contravention with the fundamental policy of Indian law; or

(iii) it is in conflict with the most basic notions of morality or justice.

Explanation 2. – For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.]
(3) If an application for the setting aside or suspension of the award has been made to a competent authority referred to in clause (e) of sub-section (1) the Court may, if it considers it proper, adjourn the decision on the enforcement of the award and may also, on the application of the party claiming enforcement of the award, order the other party to give suitable security.

49. Enforcement of foreign awards. – Where the Court is satisfied that the foreign award is enforceable under this Chapter, the award shall be deemed to be a decree of that Court.

50. Appealable orders. – (1) An appeal shall lie from the order refusing to
(a) refer the parties to arbitration under section 45;

(b) enforce a foreign award under section 48,

to the Court authorised by law to hear appeals from such order.
(2) No second appeal shall lie from an order passed in appeal under this section, but nothing in this section shall affect or take away any right to appeal to the Supreme Court.

51. Saving. – Nothing in this Chapter shall prejudice any rights which any person would have had of enforcing in India of any award or of availing himself in India of any award if this Chapter had not been enacted.

52. Chapter II not to apply. – Chapter II of this Part shall not apply in relation to foreign awards to which this Chapter applies.

CHAPTER II

Geneva Convention Awards

53. Interpretation. – In this Chapter foreign award means an arbitral award on differences relating to matters considered as commercial under the law in force in India made after the 28th day of July, 1924,
(a) in pursuance of an agreement for arbitration to which the Protocol set forth in the Second Schedule applies, and

(b) between persons of whom one is subject to the jurisdiction of some one of such Powers as the Central Government, being satisfied that reciprocal provisions have been made, may, by notification in the Official Gazette, declare to be parties to the Convention set forth in the Third Schedule, and of whom the other is subject to the jurisdiction of some other of the Powers aforesaid, and

(c) in one of such territories as the Central Government, being satisfied that reciprocal provisions have been made, may, by like notification, declare to be territories to which the said Convention applies,

and for the purposes of this Chapter an award shall not be deemed to be final if any proceedings for the purpose of contesting the validity of the award are pending in the country in which it was made.
54. Power of judicial authority to refer parties to arbitration. – Notwithstanding anything contained in Part I or in the Code of Civil Procedure, 1908 (5 of 1908), a judicial authority, on being seized of a dispute regarding a contract made between persons to whom section 53 applies and including an arbitration agreement, whether referring to present or future differences, which is valid under that section and capable of being carried into effect, shall refer the parties on the application of either of them or any person claiming through or under him to the decision of the arbitrators and such reference shall not prejudice the competence of the judicial authority in case the agreement or the arbitration cannot proceed or becomes inoperative.
55. Foreign awards when binding. – Any foreign award which would be enforceable under this Chapter shall be treated as binding for all purposes on the persons as between whom it was made, and may accordingly be relied on by any of those persons by way of defence, set off or otherwise in any legal proceedings in India and any references in this Chapter to enforcing a foreign award shall be construed as including references to relying on an award.

56. Evidence. – (1) The party applying for the enforcement of a foreign award shall, at the time of application, produce before the Court
(a) the original award or a copy thereof duly authenticated in the manner required by the law of the country in which it was made;

(b) evidence proving that the award has become final; and

(c) such evidence as may be necessary to prove that the conditions mentioned in clauses (a) and (c) of sub-section (1) of section 57 are satisfied.

(2) Where any document requiring to be produced under sub-section (1) is in a foreign language, the party seeking to enforce the award shall produce a translation into English certified as correct by a diplomatic or consular agent of the country to which that party belongs or certified as correct in such other manner as may be sufficient according to the law in force in India.

Explanation 1. – In this section and all the following sections of this Chapter, Court means the principal civil Court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction over the subject-matter of the award if the same had been the subject-matter of a suit, but does not include any civil Court of a grade inferior to such principal civil Court, or any Court of Small Causes.
[Explanation. – In this section and in the sections following in this Chapter, “Court” means the High Court having original jurisdiction to decide the questions forming the subject-matter of the arbitral award if the same had been the subject matter of a suit on its original civil jurisdiction and in other cases, in the High Court having jurisdiction to hear appeals from decrees of courts subordinate to such High Court.]
57. Conditions for enforcement of foreign awards. – (1) In order that a foreign award may be enforceable under this Chapter, it shall be necessary that
(a) the award has been made in pursuance of a submission to arbitration which is valid under the law applicable thereto;

(b) the subject-matter of the award is capable of settlement by arbitration under the law of India;

(c) the award has been made by the arbitral tribunal provided for in the submission to arbitration or constituted in the manner agreed upon by the parties and in conformity with the law governing the arbitration procedure;

(d) the award has become final in the country in which it has been made, in the sense that it will not be considered as such if it is open to opposition or appeal or if it is proved that any proceedings for the purpose of contesting the validity of the award are pending;

(e) the enforcement of the award is not contrary to the public policy or the law of India.

[Explanation 1. – For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,—
(i) the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81; or

(ii) it is in contravention with the fundamental policy of Indian law; or

(iii) it is in conflict with the most basic notions of morality or justice.

Explanation 2. – For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.]
(2) Even if the conditions laid down in sub-section (1) are fulfilled, enforcement of the award shall be refused if the Court is satisfied that
(a) the award has been annulled in the country in which it was made;

(b) the party against whom it is sought to use the award was not given notice of the arbitration proceedings in sufficient time to enable him to present his case; or that, being under a legal incapacity, he was not properly represented;

(c) the award does not deal with the differences contemplated by or falling within the terms of the submission to arbitration or that it contains decisions on matters beyond the scope of the submission to arbitration:

Provided that if the award has not covered all the differences submitted to the arbitral tribunal, the Court may, if it thinks fit, postpone such enforcement or grant it subject to such guarantee as the Court may decide.
(3) If the party against whom the award has been made proves that under the law governing the arbitration procedure there is a ground, other than the grounds referred to in clauses (a) and (c) of sub-section (1) and clauses (b) and (c) of sub-section (2) entitling him to contest the validity of the award, the Court may, if it thinks fit, either refuse enforcement of the award or adjourn the consideration thereof, giving such party a reasonable time within which to have the award annulled by the competent tribunal.

58. Enforcement of foreign awards. – Where the Court is satisfied that the foreign award is enforceable under this Chapter, the award shall be deemed to be a decree of the Court.

59. Appealable orders. – (1) An appeal shall lie from the order refusing
(a) to refer the parties to arbitration under section 54; and

(b) to enforce a foreign award under section 57,

to the Court authorised by law to hear appeals from such order.
(2) No second appeal shall lie from an order passed in appeal under this section, but nothing in this section shall affect or take away any right to appeal to the Supreme Court.
60. Saving. – Nothing in this Chapter shall prejudice any rights which any person would have had of enforcing in India of any award or of availing himself in India of any award if this Chapter had not been enacted.

Devider

Part III

Conciliation

61. Application and scope. – (1) Save as otherwise provided by any law for the time being in force and unless the parties have otherwise agreed, this Part shall apply to conciliation of disputes arising out of legal relationship, whether contractual or not and to all proceedings relating thereto.
(2) This Part shall not apply where by virtue of any law for the time being in force certain disputes may not be submitted to conciliation.

62. Commencement of conciliation proceedings. – (1) The party initiating conciliation shall send to the other party a written invitation to conciliate under this Part, briefly identifying the subject of the dispute.
(2) Conciliation proceedings shall commence when the other party accepts in writing the invitation to conciliate.
(3) If the other party rejects the invitation, there will be no conciliation proceedings.
(4) If the party initiating conciliation does not receive a reply within thirty days from the date on which he sends the invitation, or within such other period of time as specified in the invitation, he may elect to treat this as a rejection of the invitation to conciliate and if he so elects, he shall inform in writing the other party accordingly.

63. Number of conciliators. – (1) There shall be one conciliator unless the parties agree that there shall be two or three conciliators.
(2) Where there is more than one conciliator, they ought, as a general rule, to act jointly.

64. Appointment of conciliators. – (1) Subject to sub-section (2),
(a) in conciliation proceedings with one conciliator, the parties may agree on the name of a sole conciliator;

(b) in conciliation proceedings with two conciliators, each party may appoint one conciliator;

(c) in conciliation proceedings with three conciliators, each party may appoint one conciliator and the parties may agree on the name of the third conciliator who shall act as the presiding conciliator.

(2) Parties may enlist the assistance of a suitable institution or person in connection with the appointment of conciliators, and in particular,
(a) a party may request such an institution or person to recommend the names of suitable individuals to act as conciliator; or

(b) the parties may agree that the appointment of one or more conciliators be made directly by such an institution or person:

Provided that in recommending or appointing individuals to act as conciliator, the institution or person shall have regard to such considerations as are likely to secure the appointment of an independent and impartial conciliator and, with respect to sole or third conciliator, shall take into account the advisability of appointing a conciliator of a nationality other than the nationalities of the parties.

65. Submission of statements to conciliator. – (1) The conciliator, upon his appointment, may request each party to submit to him a brief written statement describing the general nature of the dispute and the points at issue. Each party shall send a copy of such statement to the other party.
(2) The conciliator may request each party to submit to him a further written statement of his position and the facts and grounds in support thereof, supplemented by any documents and other evidence that such party deems appropriate. The party shall send a copy of such statement, documents and other evidence to the other party.
(3) At any stage of the conciliation proceedings, the conciliator may request a party to submit to him such additional information as he deems appropriate.
Explanation. – In this section and all the following sections of this Part, the term conciliator applies to a sole conciliator, two or three conciliators as the case may be.

66. Conciliator not bound by certain enactments. – The conciliator is not bound by the Code of Civil Procedure, 1908 (5 of 1908) or the Indian Evidence Act, 1872 (1 of 1872).
67. Role of conciliator. – (1) The conciliator shall assist the parties in an independent and impartial manner in their attempt to reach an amicable settlement of their dispute.
(2) The conciliator shall be guided by principles of objectivity, fairness and justice, giving consideration to, among other things, the rights and obligations of the parties, the usages of the trade concerned and the circumstances surrounding the dispute, including any previous business practices between the parties.
(3) The conciliator may conduct the conciliation proceedings in such a manner as he considers appropriate, taking into account the circumstances of the case, the wishes the parties may express, including any request by a party that the conciliator hear oral statements, and the need for a speedy settlement of the dispute.
(4) The conciliator may, at any stage of the conciliation proceedings, make proposals for a settlement of the dispute. Such proposals need not be in writing and need not be accompanied by a statement of the reasons therefor.

68. Administrative assistance. – In order to facilitate the conduct of the conciliation proceedings, the parties, or the conciliator with the consent of the parties, may arrange for administrative assistance by a suitable institution or person.

69. Communication between conciliator and parties. – (1) The conciliator may invite the parties to meet him or may communicate with them orally or in writing. He may meet or communicate with the parties together or with each of them separately.
(2) Unless the parties have agreed upon the place where meetings with the conciliator are to be held, such place shall be determined by the conciliator, after consultation with the parties, having regard to the circumstances of the conciliation proceedings.
70. Disclosure of information. – When the conciliator receives factual information concerning the dispute from a party, he shall disclose the substance of that information to the other party in order that the other party may have the opportunity to present any explanation which he considers appropriate:
Provided that when a party gives any information to the conciliator subject to a specific condition that it be kept confidential, the conciliator shall not disclose that information to the other party.

71. Co-operation of parties with conciliator. – The parties shall in good faith co-operate with the conciliator and, in particular, shall endeavour to comply with requests by the conciliator to submit written materials, provide evidence and attend meetings.

72. Suggestions by parties for settlement of dispute. – Each party may, on his own initiative or at the invitation of the conciliator, submit to the conciliator suggestions for the settlement of the dispute.

73. Settlement agreement. – (1) When it appears to the conciliator that there exist elements of a settlement which may be acceptable to the parties, he shall formulate the terms of a possible settlement and submit them to the parties for their observations. After receiving the observations of the parties, the conciliator may reformulate the terms of a possible settlement in the light of such observations.
(2) If the parties reach agreement on a settlement of the dispute, they may draw up and sign a written settlement agreement. If requested by the parties, the conciliator may draw up, or assist the parties in drawing up, the settlement agreement.
(3) When the parties sign the settlement agreement, it shall be final and binding on the parties and persons claiming under them respectively.
(4) The conciliator shall authenticate the settlement agreement and furnish a copy thereof to each of the parties.

74. Status and effect of settlement agreement. – The settlement agreement shall have the same status and effect as if it is an arbitral award on agreed terms on the substance of the dispute rendered by an arbitral tribunal under section 30.

75. Confidentiality. – Notwithstanding anything contained in any other law for the time being in force, the conciliator and the parties shall keep confidential all matters relating to the conciliation proceedings. Confidentiality shall extend also to the settlement agreement, except where its disclosure is necessary for purposes of implementation and enforcement.

76. Termination of conciliation proceedings. – The conciliation proceedings shall be terminated
(a) by the signing of the settlement agreement by the parties on the date of the agreement; or

(b) by a written declaration of the conciliator, after consultation with the parties, to the effect that further efforts at conciliation are no longer justified, on the date of the declaration; or

(c) by a written declaration of the parties addressed to the conciliator to the effect that the conciliation proceedings are terminated, on the date of the declaration; or

(d) by a written declaration of a party to the other party and the conciliator, if appointed, to the effect that the conciliation proceedings are terminated, on the date of the declaration.

77. Resort to arbitral or judicial proceedings. – The parties shall not initiate, during the conciliation proceedings, any arbitral or judicial proceedings in respect of a dispute that is the subject-matter of the conciliation proceedings except that a party may initiate arbitral or judicial proceedings where, in his opinion, such proceedings are necessary for preserving his rights.

78. Costs. – (1) Upon termination of the conciliation proceedings, the conciliator shall fix the costs of the conciliation and give written notice thereof to the parties.
(2) For the purpose of sub-section (1), costs means reasonable costs relating to
(a) the fee and expenses of the conciliator and witnesses requested by the conciliator with the consent of the parties;

(b) any expert advice requested by the conciliator with the consent of the parties;

(c) any assistance provided pursuant to clause (b) of sub-section (2) of section 64 and section 68;

(d) any other expenses incurred in connection with the conciliation proceedings and the settlement agreement.

(3) The costs shall be borne equally by the parties unless the settlement agreement provides for a different apportionment. All other expenses incurred by a party shall be borne by that party.
79. Deposits. – (1) The conciliator may direct each party to deposit an equal amount as an advance for the costs referred to in sub-section (2) of section 78 which he expects will be incurred.
(2) During the course of the conciliation proceedings, the conciliator may direct supplementary deposits in an equal amount from each party.
(3) If the required deposits under sub-sections (1) and (2) are not paid in full by both parties within thirty days, the conciliator may suspend the proceedings or may make a written declaration of termination of the proceedings to the parties, effective on the date of that declaration.
(4) Upon termination of the conciliation proceedings, the conciliator shall render an accounting to the parties of the deposits received and shall return any unexpended balance to the parties.

80. Role of conciliator in other proceedings. – Unless otherwise agreed by the parties,
(a) the conciliator shall not act as an arbitrator or as a representative or counsel of a party in any arbitral or judicial proceeding in respect of a dispute that is the subject of the conciliation proceedings;

(b) the conciliator shall not be presented by the parties as a witness in any arbitral or judicial proceedings.

81. Admissibility of evidence in other proceedings. – The parties shall not rely on or introduce as evidence in arbitral or judicial proceedings, whether or not such proceedings relate to the dispute that is the subject of the conciliation proceedings,
(a) views expressed or suggestions made by the other party in respect of a possible settlement of the dispute;

(b) admissions made by the other party in the course of the conciliation proceedings;

(c) proposals made by the conciliator;

(d) the fact that the other party had indicated his willingness to accept a proposal for settlement made by the conciliator.

Devider

Part IV

Supplementary Provisions

82. Power of High Court to make rules. – The High Court may make rules consistent with this Act as to all proceedings before the Court under this Act.

83. Removal of difficulties. – (1) If any difficulty arises in giving effect to the provisions of this Act, the Central Government may, by order published in the Official Gazette, make such provisions, not inconsistent with the provisions of this Act as appear to it to be necessary or expedient for removing the difficulty:
Provided that no such order shall be made after the expiry of a period of two years from the date of commencement of this Act.
(2) Every order made under this section shall, as soon as may be after it is made, be laid before each House of Parliament.

84. Power to make rules. – (1) The Central Government may, by notification in the Official Gazette, make rules for carrying out the provisions of this Act.
(2) Every rule made by the Central Government under this Act shall be laid, as soon as may be, after it is made before each House of Parliament while it is in session, for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification in the rule or both Houses agree that the rule should not be made, the rule shall thereafter have effect only in such modified form or be of no effect, as the case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that rule.

85. Repeal and saving. – (1) The Arbitration (Protocol and Convention) Act, 1937 (6 of 1937), the Arbitration Act, 1940 (10 of 1940) and the Foreign Awards (Recognition and Enforcement) Act, 1961 (45 of 1961) are hereby repealed.
(2) Notwithstanding such repeal,
(a) the provisions of the said enactments shall apply in relation to arbitral proceedings which commenced before this Act came into force unless otherwise agreed by the parties but this Act shall apply in relation to arbitral proceedings which commenced on or after this Act comes into force;

(b) all rules made and notifications published, under the said enactments shall, to the extent to which they are not repugnant to this Act, be deemed respectively to have been made or issued under this Act.

86. Repeal of Ordinance 27 of 1996 and saving. – (1) The Arbitration and Conciliation (Third) Ordinance, 1996 (27 of 1996) is hereby repealed.
(2) Notwithstanding such repeal, any order, rule, notification or scheme made or anything done or any action taken in pursuance of any provision of the said Ordinance shall be deemed to have been made, done or taken under the corresponding provisions of this Act.

Devider

The First Schedule

See section 44

Convention on the Recognition and Enforcement of Foreign Arbitral Awards

Article I

1. This Convention shall apply to the recognition and enforcement of arbitral awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought, and arising out of differences between persons, whether physical or legal. It shall also apply to arbitral awards not considered as domestic awards in the State where their recognition and enforcement are sought.
2. The term arbitral awards shall include not only awards made by arbitrators appointed for each case but also those made by permanent arbitral bodies to which the parties have submitted.
3. When signing, ratifying or acceding to this Convention, or notifying extension under article X hereof, any State may on the basis of reciprocity declare that it will apply the Convention to the recognition and enforcement of awards made only in the territory of another Contracting State. It may also declare that it will apply the Convention only to differences arising out of legal relationships, whether contractual or not, which are considered as commercial under the national law of the State making such declaration.
Article II

1. Each Contracting State shall recognise an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of defined legal relationship, whether contractual or not, concerning a subject-matter capable of settlement by arbitration.
2. The term agreement in writing shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams.
3. The Court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative and incapable of being performed.
Article III

Each Contracting State shall recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon, under the conditions laid down in the following articles. There shall not be imposed substantially more onerous conditions or higher fees or charges on the recognition or enforcement of arbitral awards to which this Convention applies than are imposed on the recognition or enforcement of domestic arbitral awards.
Article IV

1. To obtain the recognition and enforcement mentioned in the preceding article, the party applying for recognition and enforcement shall, at the time of the application, supply:
(a) the duly authenticated original award or a duly certified copy thereof;

(b) the original agreement referred to in article II or a duly certified copy thereof.

2. If the said award or agreement is not made in an official language of the country in which the award is relied upon, the party applying for recognition and enforcement of the award shall produce a translation of these documents into such language. The translation shall be certified by an official or sworn translator or by a diplomatic or consular agent.

Article V

1. Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that
(a) the parties to the agreement referred to in article II were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or

(b) the party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case; or

(c) the award deals with a difference 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; provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognised and enforced; or

(d) the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or

(e) the award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.

2. Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that
(a) the subject-matter of the difference is not capable of settlement by arbitration under the law of that country; or

(b) the recognition or enforcement of the award would be contrary to the public policy of that country.

Article VI

If an application for the setting aside or suspension of the award has been made to a competent authority referred to in article V(1)(e), the authority before which the award is sought to be relied upon may, if it considers it proper, adjourn the decision on the enforcement of the award and may also, on the application of the party claiming enforcement of the award, order the other party to give suitable security.
Article VII

1. The provisions of the present Convention shall not affect the validity of multilateral or bilateral agreements concerning the recognition and enforcement of arbitral awards entered into by the Contracting States nor deprive any interested party of any right he may have to avail himself of an arbitral award in the manner and to the extent allowed by the law or the treaties of the country where such award is sought to be relied upon.
2. The Ganeva Protocol on Arbitration Clauses of 1923 and the Ganeva Convention on the Execution of Foreign Arbitral Awards of 1927 shall cease to have effect between Contracting States on their becoming bound and to the extent that they become bound by this Convention.

Article VIII

1. This Convention shall be open until 31st December, 1958 for signature on behalf of any Member of the United Nations and also on behalf of any other State which is or hereafter becomes member of any specialised agency of the United Nations, or which is or hereafter becomes a party to the Statute of the International Court of Justice, or any other State to which an invitation has been addressed by the General Assembly of the United Nations.
2. This Convention shall be ratified and the instrument of ratification shall be deposited with the Secretary-General of the United Nations.
Article IX

1. This Convention shall be open for accession to all States referred to in article VIII.
2. Accession shall be effected by the deposit of an instrument of accession with the Secretary-General of the United Nations.
Article X

1. Any State may, at the time of signature, ratification or accession, declare that this Convention shall extend to all or any of the territories for the international relations of which it is responsible. Such a declaration shall take effect when the Convention enters into force for the State concerned.
2. At any time thereafter any such extension shall be made by notification addressed to the Secretary-General of the United Nations and shall take effect as from the ninetieth day after the day of receipt by the Secretary-General of the United Nations of this notification, or as from the date of entry into force of the Convention for the State concerned, whichever is the later.
3. With respect to those territories to which this Convention is not extended at the time of signature, ratification or accession, each State concerned shall consider the possibility of taking the necessary steps in order to extend the application of this Convention to such territories, subject, where necessary for constitutional reasons, to the consent of the Governments of such territories.

Article XI

In the case of a federal or non-unitary State, the following provisions shall apply:
(a) with respect of those articles of this Convention that come within the legislative jurisdiction of the federal authority, the obligations of the federal Government shall to this extent be the same as those of Contracting States which are not federal States;
(b) with respect to those articles of this Convention that come within the legislative jurisdiction of constituent States or provinces which are not, under the constitutional system of the federation, bound to take legislative action, the federal Government shall bring such articles with a favourable recommendation to the notice of the appropriate authorities of constituent States or provinces at the earliest possible moment;
(c) a federal State Party to this Convention shall, at the request of any other Contracting State transmitted through the Secretary-General of the United Nations, supply a statement of the law and practice of the federation and its constituent units in regard to any particular provision of this Convention, showing the extent to which effect has been given to that provision by legislative or other action.

Article XII

1. This Convention shall come into force on the ninetieth day following the date of deposit of the third instrument of ratification or accession.
2. For each State ratifying or acceding to this Convention after the deposit of the third instrument of ratification or accession, this Convention shall enter into force on the ninetieth day after deposit by such State of its instrument of ratification or accession.
Article XIII

1. Any Contracting State may denounce this Convention by a written notification to the Secretary-General of the United Nations. Denunciation shall take effect one year after the date of receipt of the notification by the Secretary-General.
2. Any State which has made a declaration or notification under article X may, at any time thereafter, by notification to the Secretary-General of the United Nations, declare that this Convention shall cease to extend to the territory concerned one year after the date of the receipt of the notification by the Secretary-General.
3. This Convention shall continue to be applicable to arbitral awards in respect of which recognition or enforcement proceedings have been instituted before the denunciation takes effect.
Article XIV

A Contracting State shall not be entitled to avail itself of the present Convention against other Contracting States except to the extent that it is itself bound to apply the Convention.

Article XV

The Secretary-General of the United Nations shall notify the States contemplated in article VIII of the following:
(a) signatures and ratifications in accordance with article VIII;
(b) accessions in accordance with article IX;
(c) declarations and notifications under articles I, X and XI;
(d) the date upon which this Convention enters into force in accordance with article XII;
(e) denunciations and notifications in accordance with article XIII.
Article XVI

1. This Convention, of which the Chinese, English, French, Russian and Spanish texts shall be equally authentic, shall be deposited in the archives of the United Nations.
2. The Secretary-General of the United Nations shall transmit a certified copy of this Convention to the States contemplated in article XIII.

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The Second Schedule

See section 53

Protocol on Arbitration Clauses

The undersigned being duly authorised, declare that they accept, on behalf of the countries which they represent, the following provisions:
1. Each of the Contracting States recognises the validity of an agreement whether relating to existing or future differences between parties subject respectively to the jurisdiction of different Contracting States by which the parties to a contract agree to submit to arbitration all or any differences that may arise in connection with such contract relating to commercial matters or to any other matter capable of settlement by arbitration, whether or not the arbitration is to take place in a country to whose jurisdiction none of the parties is subject.
Each Contracting State reserves the right to limit the obligation mentioned above to contracts which are considered as commercial under its national law. Any Contracting State which avails itself of this right will notify the Secretary-General of the League of Nations in order that the other Contracting States may be so informed.
2. The arbitral procedure, including the constitution of the Arbitral Tribunal, shall be governed by the will of the parties and by the law of the country in whose territory the arbitration takes place.
The Contracting States agree to facilitate all steps in the procedure which require to be taken in their own territories, in accordance with the provisions of their law governing arbitral procedure applicable to existing differences.
3. Each Contracting State undertakes to ensure the execution by its authorities and in accordance with the provisions of its national laws of arbitral awards made in its own territory under the preceding articles.
4. The Tribunals of the Contracting Parties, on being seized of a dispute regarding a contract made between persons to whom Article I applies and including an Arbitration Agreement whether referring to present or future differences which is valid in virtue of the said article and capable of being carried into effect, shall refer the parties on the application of either of them to the decision of the Arbitrators.
Such reference shall not prejudice the competence of the judicial tribunals in case the agreement or the arbitration cannot proceed or becomes inoperative.
5. The present Protocol, which shall remain open for signature by all States, shall be ratified. The ratification shall be deposited as soon as possible with the Secretary-General of the League of Nations, who shall notify such deposit to all the Signatory States.
6. The present Protocol will come into force as soon as two ratifications have been deposited. Thereafter it will take effect, in the case of each Contracting State, one month after the notification by the Secretary-General of the deposit of its ratification.
7. The present Protocol may be denounced by any Contracting State on giving one years notice. Deunciation shall be effected by a notification addressed to the Secretary-General of the League, who will immediately transmit copies of such notification to all the other Signatory States and inform them of the date on which it was received. The denunciation shall take effect one year after the date on which it was notified to the Secretary-General, and shall operate only in respect of the notifying State.
8. The Contracting States may declare that their acceptance of the present Protocol does not include any or all of the under-mentioned territories: that is to say, their colonies, overseas possessions or territories, protectorates or the territories over which they exercise a mandate.
The said States may subsequently adhere separately on behalf of any territory thus excluded. The Secretary-General of the League of Nations shall be informed as soon as possible of such adhesions. He shall notify such adhesions to all Signatory States. They will take effect one month after the notification by the Secretary-General to all Signatory States.
The Contracting States may also denounce the Protocol separately on behalf of any of the territories referred to above. Article 7 applies to such denunciation.

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The Third Schedule

See section 53

Convention on the Execution of Foreign Arbitral Awards

Article 1.

(1) In the territories of any High Contracting Party to which the present Convention applies, an arbitral award made in pursuance of an agreement, whether relating to existing or future differences (hereinafter called a submission to arbitration) covered by the Protocol on Arbitration Clauses opened at Geneva on September 24th, 1923, shall be recognised as binding and shall be enforced in accordance with the rules of the procedure of the territory where the award is relied upon, provided that the said award has been made in a territory of one of the High Contracting Parties to which the present Convention applies and between persons who are subject to the jurisdiction of one of the High Contracting Parties.
(2) To obtain such recognition or enforcement, it shall, further, be necessary:
(a) that the award has been made in pursuance of a submission to arbitration which is valid under the law applicable thereto;

(b) that the subject-matter of the award is capable of settlement by arbitration under the law of the country in which the award is sought to be relied upon;

(c) that the award has been made by the Arbitral Tribunal provided for in the submission to arbitration or constituted in the manner agreed upon by the parties and in conformity with the law governing the arbitration procedure;

(d) that the award has become final in the country in which it has been made, in the sense that it will not be considered as such if it is open to opposition, appeal or pourvoi en cessation (in the countries where such forms of procedure exist) or if it is proved that any proceedings for the purpose of contesting the validity of the award are pending;

(e) that the recognition or enforcement of the award is not contrary to the public policy or to the principles of the law of the country in which it is sought to be relied upon.

Article 2.

Even if the conditions laid down in Article I hereof are fulfilled, recognition and enforcement of the award shall be refused if the Court is satisfied:
(a) that the award has been annulled in the country in which it was made;

(b) that the party against whom it is sought to use the award was not given notice of the arbitration proceedings in sufficient time to enable him to present his case; or that, being under a legal incapacity, he was not properly represented;

(c) that the award does not deal with the differences contemplated by or falling within the terms of the submission to arbitration or that it contains decisions on matters beyond the scope of the submission to arbitration.

If the award has not covered all the questions submitted to the arbitral tribunal, the competent authority of the country where recognition or enforcement of the award is sought can, if it thinks fit, postpone such recognition or enforcement or grant it subject to such guarantee as that authority may decide.
Article 3.

If the party against whom the award has been made proves that, under the law governing the arbitration procedure, there is a ground, other than the grounds referred to in Article 1(a) and (c), and Article 2(b) and (c), entitling him to contest the validity of the award in a Court of Law, the Court may, if it thinks fit, either refuse recognition or enforcement of the award or adjourn the consideration thereof, giving such party a reasonable time within which to have the award annulled by the competent tribunal.
Article 4.

The party relying upon an award or claiming its enforcement must supply, in particular:
(1) the original award or a copy thereof duly authenticated, according to the requirements of the law of the country in which it was made;
(2) documentary or other evidence to prove that the award has become final, in the sense defined in Article 1(d), in the country in which it was made;
(3) when necessary, documentary or other evidence to prove that the conditions laid down in Article 1, paragraph (1) and paragraph (2)(a) and (c), have been fulfilled.
A translation of the award and of the other documents mentioned in this Article into the official language of the country where the award is sought to be relied upon may be demanded. Such translations must be certified correct by a diplomatic or consular agent of the country to which the party who seeks to rely upon the award belongs or by sworn translator of the country where the award is sought to be relied upon.
Article 5.

The provisions of the above Articles shall not deprive any interested party of the right of availing himself of an arbitral award in the manner and to the extent allowed by the law or the treaties of the country where such award is sought to be relied upon.
Article 6.

The present Convention applies only to arbitral awards made after the coming into force of the Protocol on Arbitration Clauses opened at Geneva on September 24th, 1923.
Article 7.

The present Convention, which will remain open to the signature of all the signatories of the Protocol of 1923 on Arbitration Clauses, shall be ratified.
It may be ratified only on behalf of those Members of the League of Nations and Non-Member States on whose behalf the Protocol of 1923 shall have been ratified.
Ratification shall be deposited as soon as possible with the Secretary-General of the League of Nations, who will notify such deposit to all the signatories.
Article 8.

The present Convention shall come into force three months after it shall have been ratified on behalf of two High Contracting Parties. Thereafter, it shall take effect, in the case of each High Contracting Party, three months after the deposit of the ratification on its behalf with the Secretary-General of the League of Nations.
Article 9.

The present Convention may be denounced on behalf of any Member of the League or Non-Member State. Denunciation shall be notified in writing to the Secretary-General of the League of Nations, who will immediately send a copy thereof, certified to be in conformity with the notifications, to all the other Contracting Parties, at the same time informing them of the date on which he received it.
The denunciation shall come into force only in respect of the High Contracting Party which shall have notified it and one year after such notification shall have reached the Secretary-General of the League of Nations.
The denunciation shall come into force only in respect of the High Contracting Party which shall have notified it and one year after such notification shall have reached the Secretary-General of the League of Nations.
The denunciation of the Protocol on Arbitration Clauses shall entail, ipso facto, the denunciation of the present Convention.
Article 10.

The present Convention does not apply to the Colonies, Protectorates or Territories under suzerainty or mandate of any High Contracting Party unless they are specially mentioned.
The application of this Convention to one or more of such Colonies, Protectorates or Territories to which the Protocol on Arbitration Clauses opened at Geneva on September 24th, 1923, applies, can be effected at any time by means of a declaration addressed to the Secretary-General of the League of Nations by one of the High Contracting Parties.
Such declaration shall take effect three months after the deposit thereof.
The High Contracting Parties can at any time denounce the Convention for all or any of the Colonies, Protectorates or territories referred to above. Article 9 hereof applied to such denunciation.
Article 11.

A certified copy of the present Convention shall be transmitted by the Secretary-General of the League of Nations to every Member of the League of Nations and to every Non-Member State which signs the same.

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[The Fourth Schedule]

[See section 11 (14)]

Sum in dispute Model fee
Up to Rs. 5,00,000 Rs. 45,000
Above Rs. 5,00,000 and up to Rs. 20,00,000 Rs. 45,000 plus 3.5 per cent. of the claim amount over and above Rs. 5,00,000
Above Rs. 20,00,000 and up to Rs. 1,00,00,000 Rs. 97,500 plus 3 per cent. of the claim amount over and above Rs. 20,00,000
Above Rs. 1,00,00,000 and up to Rs. 10,00,00,000 Rs. 3,37,500 plus 1 per cent. of the claim amount over and above Rs. 1,00,00,000
Above Rs. 10,00,00,000 and Rs. 20,00,00,000 up to Rs. 12,37,500 plus 0.75 per cent. of the claim amount over and above Rs. 1,00,00,000
Above Rs. 20,00,00,000 Rs. 19,87,500 plus 0. 5 per cent. of the claim amount over and above Rs. 20,00,00,000 with a ceiling of Rs. 30,00,000

Note. – In the event, the arbitral tribunal is a sole arbitrator, he shall be entitled to an additional amount of twenty-five per cent. on the fee payable as per the table set out above.

Devider

[The Fifth Schedule]

[See section 12 (1)(b)]

The following grounds give rise to justifiable doubts as to the independence or impartiality of arbitrators:
Arbitrator’s relationship with the parties or counsel
1. The arbitrator is an employee, consultant, advisor or has any other past or present business relationship with a party.
2. The arbitrator currently represents or advises one of the parties or an affiliate of one of the parties.
3. The arbitrator currently represents the lawyer or law firm acting as counsel for one of the parties.
4. The arbitrator is a lawyer in the same law firm which is representing one of the parties.
5. The arbitrator is a manager, director or part of the management, or has a similar controlling influence, in an affiliate of one of the parties if the affiliate is directly involved in the matters in dispute in the arbitration.
6. The arbitrator’s law firm had a previous but terminated involvement in the case without the arbitrator being involved himself or herself.
7. The arbitrator’s law firm currently has a significant commercial relationship with one of the parties or an affiliate of one of the parties.
8. The arbitrator regularly advises the appointing party or an affiliate of the appointing party even though neither the arbitrator nor his or her firm derives a significant financial income therefrom.
9. The arbitrator has a close family relationship with one of the parties and in the case of companies with the persons in the management and controlling the company.
10. A close family member of the arbitrator has a significant financial interest in one of the parties or an affiliate of one of the parties.
11. The arbitrator is a legal representative of an entity that is a party in the arbitration.
12. The arbitrator is a manager, director or part of the management, or has a similar controlling influence in one of the parties.
13. The arbitrator has a significant financial interest in one of the parties or the outcome of the case.
14. The arbitrator regularly advises the appointing party or an affiliate of the appointing party, and the arbitrator or his or her firm derives a significant financial income therefrom.
Relationship of the arbitrator to the dispute.
15. The arbitrator has given legal advice or provided an expert opinion on the dispute to a party or an affiliate of one of the parties.
16. The arbitrator has previous involvement in the case.
Arbitrator’s direct or indirect interest in the dispute
17. The arbitrator holds shares, either directly or indirectly, in one of the parties or an affiliate of one of the parties that is privately held.
18. A close family member of the arbitrator has a significant financial interest in the outcome of the dispute.
19. The arbitrator or a close family member of the arbitrator has a close relationship with a third party who may be liable to recourse on the part of the unsuccessful party in the dispute.
Previous services for one of the parties or other involvement in the case
20. The arbitrator has within the past three years served as counsel for one of the parties or an affiliate of one of the parties or has previously advised or been consulted by the party or an affiliate of the party making the appointment in an unrelated matter, but the arbitrator and the party or the affiliate of the party have no ongoing relationship.
21. The arbitrator has within the past three years served as counsel against one of the parties or an affiliate of one of the parties in an unrelated matter.
22. The arbitrator has within the past three years been appointed as arbitrator on two or more occasions by one of the parties or an affiliate of one of the parties.
23. The arbitrator’s law firm has within the past three years acted for one of the parties or an affiliate of one of the parties in an unrelated matter without the involvement of the arbitrator.
24. The arbitrator currently serves, or has served within the past three years, as arbitrator in another arbitration on a related issue involving one of the parties or an affiliate of one of the parties.
Relationship between an arbitrator and another arbitrator or counsel
25. The arbitrator and another arbitrator are lawyers in the same law firm.
26. The arbitrator was within the past three years a partner of, or otherwise affiliated with, another arbitrator or any of the counsel in the same arbitration.
27. A lawyer in the arbitrator’s law firm is an arbitrator in another dispute involving the same party or parties or an affiliate of one of the parties.
28. A close family member of the arbitrator is a partner or employee of the law firm representing one of the parties, but is not assisting with the dispute.
29. The arbitrator has within the past three years received more than three appointments by the same counsel or the same law firm.
Relationship between arbitrator and party and others involved in the arbitration
30. The arbitrator’s law firm is currently acting adverse to one of the parties or an affiliate of one of the parties.
31. The arbitrator had been associated within the past three years with a party or an affiliate of one of the parties in a professional capacity, such as a former employee or partner.
Other circumstances
32. The arbitrator holds shares, either directly or indirectly, which by reason of number or denomination constitute a material holding in one of the parties or an affiliate of one of the parties that is publicly listed.
33. The arbitrator holds a position in an arbitration institution with appointing authority over the dispute.
34. The arbitrator is a manager, director or part of the management, or has a similar controlling influence, in an affiliate of one of the parties, where the affiliate is not directly involved in the matters in dispute in the arbitration.
Explanation 1. – The term “close family member” refers to a spouse, sibling, child, parent or life partner.
Explanation 2. – The term “affiliate” encompasses all companies in one group of companies including the parent company.
Explanation 3. – For the removal of doubts, it is clarified that it may be the practice in certain specific kinds of arbitration, such as maritime or commodities arbitration, to draw arbitrators from a small, specialised pool. If in such fields it is the custom and practice for parties frequently to appoint the same arbitrator in different cases, this is a relevant fact to be taken into account while applying the rules set out above.

[The Sixth Schedule]

[See section 12 (1)(b)]

Name:
Contact Details:
Prior Experience (Including Experience With Arbitrations):
Number Of Ongoing Arbitrations:
Circumstances disclosing any past or present relationship with or interest in any of the parties or in relation to the subject-matter in dispute, whether financial, business, professional or other kind, which is likely to give rise to justifiable doubts as to your Independence or Impartiality (List Out):
Circumstances which are likely to affect your ability to devote sufficient time to the arbitration and in particular your ability to finish the entire arbitration within twelve months (list out):

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[The Seventh Schedule]

[See section 12 (5)]

Arbitrator’s relationship with the parties or counsel
1. The arbitrator is an employee, consultant, advisor or has any other past or present business relationship with a party.
2. The arbitrator currently represents or advises one of the parties or an affiliate of one of the parties.
3. The arbitrator currently represents the lawyer or law firm acting as counsel for one of the parties.
4. The arbitrator is a lawyer in the same law firm which is representing one of the parties.
5. The arbitrator is a manager, director or part of the management, or has a similar controlling influence, in an affiliate of one of the parties if the affiliate is directly involved in the matters in dispute in the arbitration.
6. The arbitrator’s law firm had a previous but terminated involvement in the case without the arbitrator being involved himself or herself.
7. The arbitrator’s law firm currently has a significant commercial relationship with one of the parties or an affiliate of one of the parties.
8. The arbitrator regularly advises the appointing party or an affiliate of the appointing party even though neither the arbitrator nor his or her firm derives a significant financial income therefrom.
9. The arbitrator has a close family relationship with one of the parties and in the case of companies with the persons in the management and controlling the company.
10. A close family member of the arbitrator has a significant financial interest in one of the parties or an affiliate of one of the parties.
11. The arbitrator is a legal representative of an entity that is a party in the arbitration.
12. The arbitrator is a manager, director or part of the management, or has a similar controlling influence in one of the parties.
13. The arbitrator has a significant financial interest in one of the parties or the outcome of the case.
14. The arbitrator regularly advises the appointing party or an affiliate of the appointing party, and the arbitrator or his or her firm derives a significant financial income therefrom.
Relationship of the arbitrator to the dispute
15. The arbitrator has given legal advice or provided an expert opinion on the dispute to a party or an affiliate of one of the parties.
16. The arbitrator has previous involvement in the case.
Arbitrator’s direct or indirect interest in the dispute
17. The arbitrator holds shares, either directly or indirectly, in one of the parties or an affiliate of one of the parties that is privately held.
18. A close family member of the arbitrator has a significant financial interest in the outcome of the dispute.
19. The arbitrator or a close family member of the arbitrator has a close relationship with a third party who may be liable to recourse on the part of the unsuccessful party in the dispute.
Explanation 1. – The term “close family member” refers to a spouse, sibling, child, parent or life partner.
Explanation 2. – The term “affiliate” encompasses all companies in one group of companies including the parent company.
Explanation 3. – For the removal of doubts, it is clarified that it may be the practice in certain specific kinds of arbitration, such as maritime or commodities arbitration, to draw arbitrators from a small, specialised pool. If in such fields it is the custom and practice for parties frequently to appoint the same arbitrator in different cases, this is a relevant fact to be taken into account while applying the rules set out above.

Introduction to the Indian Law of Arbitration and Conciliation Act 1996

Arbitration is a mechanism or a method of resolution of disputes that unlike court takes place in private, pursuant to agreement between the parties. The parties agree to be bound by the decision rendered by a chosen arbitrator after giving hearing. The endeavour of the court should be to honour and support the award as far as possible[Markfed Vanaspati & Allied  vs Union Of India on 14 September, 2007]

Russell on Arbitration 19th Edition at Pages 110-111 described the entire genesis of arbitration as under:- An arbitrator is neither more or less than a private judge of a private court (called an arbitral tribunal) who gives a private judgment (called an award). He is a judge in that a dispute is submitted to him; he is not a mere investigator but a person before whom material is placed by the parties, being either or both of evidence and submissions; he gives a decision in accordance with his duty to hold the scales fairly between the disputants in accordance with some recognized system of law and rules of natural justice. He is private in so far as (1) he is chosen and paid by the disputants (2) he does not sit in public (3) he acts in accordance with privately chosen procedure so far as that is not repugnant to public policy (4) so far as the law allows he is set up to the exclusion of the State Courts (5) his authority and powers are only whatsoever he is given by the disputants agreement (6) the effectiveness of his powers derives wholly from the private law of contract and accordingly the nature and exercise of those powers must not be contrary to the proper law of the contract or the public policy of England bearing in mind that the paramount public policy is that freedom of contract is not lightly to be inferred with.Whatever has been mentioned by Russell in this paragraph is equally true for Indian Arbitrators

The Arbitration and Conciliation Act, 1996 which has repealed the Arbitration Act of 1940 and which seeks to achieve the twin objectives of obliging the Arbitral Tribunal to give reasons for its arbitral award and reducing the supervisory role of Courts in arbitration proceedings. Section 31(3) of the said Act obliges the arbitral tribunal to state the reasons upon which it is based unless the parties have agreed that no reasons be given or the arbitral award is based on consent of the parties. There is, therefore, a paradigm shift in the legal position under the new Act which prescribes a uniform requirement for the arbitrators to give reasons except in the two situations mentioned above. The change in the legal approach towards arbitration as an Alternative Dispute Resolution Mechanism is perceptible both in regard to the requirement of giving reasons and the scope of interference by the Court with arbitral awards. While in regard to requirement of giving reasons the law has brought in dimensions not found under the old Act, the scope of interference appears to be shrinking in its amplitude, no matter judicial pronouncements at time appear to be heading towards a more expansive approach, that may appear to some to be opening up areas for judicial review on newer grounds falling under the caption “Public Policy” appearing in Section 34 of the Act. [M/S Anand Brothers P.Ltd.Tr.M.D vs Union Of India & Ors on 4 September, 2014]

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This Paper Covers following Topics :

Indian Arbitration 

The Statute
FICCI Tribunal of Arbitration
Services in Arbitrations in India
Notifications and Circulars
Press Releases
Schemes, Reports & Forms
List of Institutions Providing
Supreme Court Judgments

International Arbitration

UNCITRAL Model Laws
International Convention and Treaties
International Statutes
International Arbitral Institutions-Rules & Procedures
Rules and Procedures of Other Institutions
Disputes Settled by Permanent Court of Arbitration
Institutional and Specialized Arbitration
International Commercial Arbitration

Sports Arbitration

  • International Cases
  • Model Arbitration Agreement
  • Model Arbitration Award (Domestic)

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Arbitration and Conciliation Act, 1996

 PART I

Arbitration

1. General Provisions

2. Arbitration Agreement

3. Composition of Arbitral Tribunal [Ss. 10–11]

4. Jurisdiction of Arbitral Tribunals

5. Conduct of Arbitral Proceedings

6. Making of Arbitral Award and Termination of Proceedings

7. Recourse Against Arbitral Award

8. Finality and Enforcement of Arbitral Awards

9. Appeals

10. Miscellaneous

 PART II

Enforcement of Certain Foreign Awards

1. New York Convention Awards

2. Geneva Convention Awards

 PART III

Conciliation

Conciliation

 PART IV

Supplementary Provisions

Supplementary Provisions

First Schedule

Second Schedule

Third Schedule

 PART V

Alternative Disputes Redressal

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Setting aside an Arbitral Award in India

The Arbitration and Conciliation Act, 1996

34. Application for setting aside arbitral award.

(1)Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3).

(2)An arbitral award may 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 under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or

(iii)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

(iv)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:

Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or

(v)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 this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or

(b)the Court finds that—

(i)the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or

(ii)the arbitral award is in conflict with the public policy of India.

Explanation 1. For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,—

(i)the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81; or

(ii)it is in contravention with the fundamental policy of Indian law; or

(iii)it is in conflict with the most basic notions of morality or justice.

Explanation 2.—For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.

(2A)An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court, if the Court finds that the award is vitiated by patent illegality appearing on the face of the award:

Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.

(3)An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal:Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter.

(4)On receipt of an application under sub-section (1), the Court may, where it is appropriate and it is so requested by a party, 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.

(5)An application under this section shall be filed by a party only after issuing a prior notice to the other party and such application shall be accompanied by an affidavit by the applicant endorsing compliance with the said requirement.

(6)An application under this section shall be disposed of expeditiously, and in any event, within a period of one year from the date on which the notice referred to in sub-section (5) is served upon the other party.

COMMENT –The principle of Intervention:  The law with regard to Section 34 of Arbitration and Conciliation Act, 1996, is well settled that the jurisdiction of the Court to interfere with the award made by an arbitrator is very limited and consequently the court while entertaining an objection petition under Section 34 of the said Act cannot sit as a Court of Appeal and that evidence is not to be re- appreciated. The Apex Court in the case of Markfed Vanaspati and Allied Industries v. Union of India reported in (2007) 7 Supreme Court Cases 679, while relying on Bijendra Nath Srivastava (Dead) through LRs v. Mayank Srivastava And Others reported in (1994) 6 Supreme Court Cases 117, has observed that “the arbitrator is the sole judge of the quality as well as the quantity of the evidence. It will not be for the court to take upon itself the task of being a judge of the evidence before the arbitrator. The court should approach an award with a desire to support it, if that is reasonably possible, rather than to destroy it by calling it illegal.” Further in Mcdermott International Inc. v. Burn Standard Co. Ltd. & Ors reported in (2006) 11 SCC 181 it has been held by the Apex Court that “the 1996 Act makes provision for the supervisory role of courts, for the review of the arbitral award only to ensure fairness. Intervention of the court is envisaged in few circumstances only like, in case of fraud or bias by the arbitrators, violation of natural justice, etc.” Recently, the observations of the Apex Court in para 21 in P.R. Shah, Shares and Stock Brokers Private Limited v. B.H.H. Securities Private Limited And Others reported in (2012) 1 Supreme Court Cases 594 is worth noting in this respect. Para 21 reads as under:-
“21. A court does not sit in appeal over the award of an Arbitral Tribunal by reassessing or reappreciating the evidence. An award can be challenged only under the grounds mentioned in Section 34 (2) of the Act. Therefore, in the absence of any ground under section 34 (2) of the Act, it is not possible to re-examine the facts to find out whether a different decision can be arrived at.”

Appreciation of facts and evidence: Where the Arbitral Tribunal has assessed the material and evidence placed before it in detail, the court while considering the objections under Section 34 of the said Act does not sit as a court of appeal and is not expected to re-appreciate the entire evidence and reassess the case of the parties. The jurisdiction under section 34 is not appellate in nature and an award passed by an Arbitrator cannot be set aside on the ground that it was erroneous. It is not open to the court to interfere with the award merely because in the opinion of the court, another view is possible. The duty of the court in these circumstances is to see whether the view taken by the Arbitrator is a plausible view on the facts, pleadings and evidence before the Arbitrator. Even if on the assessment of material, the court while considering the objections under section 34 is of the view that there are two views possible and the Arbitral Tribunal has taken one of the possible views which could have been taken on the material before it, the court would be reluctant to interfere. The court is not to substitute its view with the view of the Arbitrator if the view taken by the Arbitrator is reasonable and plausible.

Where the law has given jurisdiction to determine, certain matters to specified tribunals only, such matters cannot be referred to arbitrations

a) Insolvency proceedings
b) Probate proceedings
c) Appeal under Section 92, CPC
d) Proceedings for appointment of guardian
e) Matrimonial causes – except settlement of terms of separation or divorce
f) Title to immovable property in a foreign country
g) Claim for recovery of octroi duty

Lok adalats have no adjudicatory or judicial functions — their functions relate purely to conciliation and must be based on compromise or settlement between the parties

In  State of Punjab & Another Vs Jalour Singh & Others [AIR 2008 SC 1209] Apex Court

Held

Lok Adalats have no adjudicatory or judicial functions. Their functions relate purely to
conciliation. A Lok Adalat determines a reference on the basis of a compromise or settlement between the parties at its instance, and puts its seal of confirmation by making an award in  terms of the compromise or settlement. When the Lok Adalat is not able to arrive at a settlement or compromise, no award is made and the case record is returned to the court from which the reference was received, for disposal in accordance with law. No Lok Adalat has the power to “hear” parties to adjudicate cases as a court does. It discusses the subject-matter with the parties and persuades them to arrive at a just settlement. In their conciliatory role, the Lok Adalats are guided by the principles of justice, equity and fair play. When the LSA Act refers to “determination” by the Lok Adalat and “award” by the Lok Adalat, the said Act does not contemplate nor require an
adjudicatory judicial determination, but a non-adjudicatory determination based on a compromise or settlement, arrived at by the parties, with guidance and assistance from the Lok Adalat. The “award” of the Lok Adalat does not mean any independent verdict or opinion arrived at by any decision-making process. The making of the award is merely an administrative act of incorporating the terms of settlement or compromise agreed by parties in the presence of the Lok Adalat, in the form of an executable order under the signature and seal of the Lok Adalat. (Para 8)

Many sitting or retired Judges, while participating in the Lok Adalats as members, tend to conduct the Lok Adalats like courts, by hearing parties, and imposing their views as to what is just and equitable, on the parties. Sometimes they get carried away and proceed to pass orders on merits, as in this case, even though there is no consensus or settlement. Such acts; instead of fostering alternative dispute resolution through the Lok Adalats, wiH drive the litigants away from the Lok Adalats. The Lok Adalats should resist their temptation to play the part of judges and constantly strive to function as conciliators. The endeavour and effort of the Lok Adalats should be to guide and persuade the parties, with reference to principles of justice, equity and fair play to compromise and settle the dispute by explaining the pros and cons, strengths and weaknesses, advantages and disadvantages of their respective claims. (Para 9 )

Whether the reference to ADR Process is mandatory Under Section 89 of Code [CPC]

Section 89 starts with the words “where it appears to the court that there exist elements of a settlement”. This clearly shows that cases which are not suited for ADR process should not be referred under section 89 of the Code. The court has to form an opinion that a case is one that is capable of being referred to and settled through ADR process. Having regard to the tenor of the provisions of Rule 1A of Order 10 of the Code, the civil court should invariably refer cases to ADR process. Only in certain recognized excluded categories of cases, it may choose not to refer to an ADR process. Where the case is unsuited for reference to any of the ADR process, the court will have to briefly record the reasons for not resorting to any of the settlement procedures prescribed under section 89 of the Code. Therefore, having a hearing after completion of pleadings, to consider recourse to ADR process under section 89 of the Code, is mandatory. But actual reference to an ADR process in all cases is not mandatory. Where the case falls under an excluded category there need not be reference to ADR process. In all other case reference to ADR process is a must.

The following categories of cases are normally considered to be not suitable for ADR process having regard to their nature :

(i) Representative suits under Order 1 Rule 8 CPC which involve public interest or interest of numerous persons who are not parties before the court. (In fact, even a compromise in such a suit is a difficult process requiring notice to the persons interested in the suit, before its acceptance).

(ii) Disputes relating to election to public offices (as contrasted from disputes between two groups trying to get control over the management of societies, clubs, association etc.).

(iii) Cases involving grant of authority by the court after enquiry, as for example, suits for
grant of probate or letters of administration.

(iv) Cases involving serious and specific allegations of fraud, fabrication of documents, forgery, impersonation, coercion etc.

(v) Cases requiring protection of courts, as for example, claims against minors, deities and mentally challenged and suits for declaration of title against government.

(vi) Cases involving prosecution for criminal offences.

All other suits and cases of civil nature in particular the following categories of cases (whether pending in civil courts or other special Tribunals/Forums) are normally suitable for ADR processes :

(i) All cases relating to trade, commerce and contracts, including
• disputes arising out of contracts (including all money claims);
• disputes relating to specific performance;
• disputes between suppliers and customers;
• disputes between bankers and customers;
• disputes between developers/builders and customers;
• disputes between landlords and tenants/licensor and licensees;(2008) 2 SCC 660
28
• disputes between insurer and insured;

(ii) All cases arising from strained or soured relationships, including
• disputes relating to matrimonial causes, maintenance, custody of children;
• disputes relating to partition/division among family members/co- parceners/
co-owners; and
• disputes relating to partnership among partners.

(iii) All cases where there is a need for continuation of the pre-existing relationship in
spite of the disputes, including
• disputes between neighbours (relating to easementary rights, encroachments,
nuisance etc.);
• disputes between employers and employees;
• disputes among members of societies/associations/Apartment owners
Associations;

(iv) All cases relating to tortious liability including
• claims for compensation in motor accidents/other accidents; and

(v) All consumer disputes including
• disputes where a trader/supplier/manufacturer/service provider is keen to
maintain his business/professional reputation and credibility or `product
popularity.

The above enumeration of `suitable’ and `unsuitable’ categorization of cases is not intended to be exhaustive or rigid. They are illustrative, which can be subjected to just exceptions or additions by the court/Tribunal exercising its jurisdiction/discretion in referring a dispute/ case to an ADR process. [ AFCONs Infrastructure Ltd. and AnOTHER Vs Cherian Varkey Construction Co. (P) Ltd. and OTHERS [ALL SC 2010 JULY ]

AFCONs Infrastructure Ltd. and AnOTHER Vs Cherian Varkey Construction Co. (P) Ltd. and OTHERS [ALL SC 2010 JULY ]

KEYWORDS: Alternative Dispute Resolution- Arbitration

HELD:- A civil court exercising power under Section 89 CPC cannot refer a suit to arbitration unless all the parties to the suit agree to such reference. If the reference is to arbitration or conciliation, the court has to record that the reference is by mutual consent. If the reference is to any other non-adjudicatory ADR process, the court should briefly record the same. [Paras 49(ii), 44(i) and 44(ii)]

  • The trial court did not adopt the proper procedure while enforcing Section 89. Failure to invoke Section 89 suo motu after completion of pleadings and considering it only after an application under Section 89 was filed, is erroneous. Consequently, the orders of the trial court referring the matter to arbitration and of the High Court affirming the said reference are set aside. The trial court will new consider and decide upon a non-adjudicatory ADR process. [Paras 49(i), 50, 47 and 48]

JT 2010 (7) SC 616 : (2010) 7 SCALE 293 : (2010) 8 SCC 24 : (2010) 8 SCR 1053

(SUPREME COURT OF INDIA)

AFCONs Infrastructure Ltd. and AnOTHER Appellant
Versus
Cherian Varkey Construction Co. (P) Ltd. and OTHERS Respondent

(Before : R. V. Raveendran and J. M. Panchal, JJ.)

Civil Appeal No. 6000 of 2010 (Arising out of SLP (C) No. 760 of 2007); Decided On: 26-07-2010

Civil Procedure Code, 1908—Section 89 read with Order 10, Rule 1A—Alternative Dispute Resolution (ADR)—Reference to arbitration without consent of parties—Court cannot formulate terms of settlement without discussion with parties—Court has to formulate terms of possible settlement—Court has to give option to parties to choose any of ADR processes—There can be reference to arbitration only if there is an arbitration agreement between parties—If there is no agreement between parties for reference to arbitration, Court cannot refer matter to arbitration under Section 89—When a matter is referred to conciliation, matter does not go out of stream of Court process permanently—If there is no settlement matter is returned to Court for framing issues and proceeding with trial.

Arbitration and Conciliation Act, 1996—Sections 30, 62 and 64—Civil Procedure Code, 1908—Section 89 read with Order 10, Rule 1A—Alternative Dispute Resolution (ADR)—Award of Arbitrators is binding on parties and is executable/enforceable as if a decree of a Court—Arbitration being an adjudicatory process, it always ends in a decision.

Interpretation of Statute—Rules of construction—Where words of statute are clear and unambiguous, provision should be given its plain and normal meaning, without adding or rejecting any words—Departure from literal rule of plain and straight reading can be only in exceptional cases.

Civil Procedure Code, 1908—Section 89 Order 10 Rule 1A—Arbitration & Conciliation Act, 1996—Sections 8, 74 and 30—Legal Services Authority Act, 1987—Sections 20(1) and 21.

JUDGMENT

R.V. Raveendran, J—Leave granted. The general scope of Section 89 of the Code of Civil Procedure (‘Code’ for short) and the question whether the said section empowers the court to refer the parties to a suit to arbitration without the consent of both parties, arise for consideration in this appeal.

2. The second respondent (Cochin Port Trust) entrusted the work of construction of certain bridges and roads to the appellants under an agreement dated 20.4.2001. The appellants sub-contracted a part of the said work to the first respondent under an agreement dated 1.8.2001. It is not in dispute that the agreement between the appellants and the first respondent did not contain any provision for reference of the disputes to arbitration.

3. The first respondent filed a suit against the appellants for recovery of ` 210,70,881 from the appellants and their assets and/or the amounts due to the appellants from the employer, with interest at 18% per annum. In the said suit an order of attachment was made on 15.9.2004 in regard to a sum of ` 2.25 crores. Thereafter in March 2005, the first respondent filed an application under Section 89 of the Code before the trial court praying that the court may formulate the terms of settlement and refer the matter to arbitration. The appellants filed a counter dated 24.10.2005 to the application submitting that they were not agreeable for referring the matter to arbitration or any of the other ADR processes under Section 89 of the Code. In the meanwhile, the High Court of Kerala by order dated 8.9.2005, allowed the appeal filed by the appellants against the order of attachment and raised the attachment granted by the trial court subject to certain conditions. While doing so, the High Court also directed the trial court to consider and dispose of the application filed by the first respondent under Section 89 of the Code.

4. The trial court heard the said application under Section 89. It recorded the fact that first respondent (plaintiff) was agreeable for arbitration and appellants (defendants 1 and 2) were not agreeable for arbitration. The trial court allowed the said application under Section 89 by a reasoned order dated 26.10.2005 and held that as the claim of the plaintiff in the suit related to a work contract, it was appropriate that the dispute should be settled by arbitration. It formulated sixteen issues and referred the matter to arbitration. The appellants filed a revision against the order of the trial court. The High Court by the impugned order dated 11.10.2006 dismissed the revision petition holding that the apparent tenor of Section 89 of the Code permitted the court, in appropriate cases, to refer even unwilling parties to arbitration. The High Court also held that the concept of pre existing arbitration agreement which was necessary for reference to arbitration under the provisions of the Arbitration & Conciliation Act, 1996 (‘AC Act’ for short) was inapplicable to references under Section 89 of the Code, having regard to the decision in Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya and Anr., (2003) 5 SCC 531. The said order is challenged in this appeal.

5. On the contentions urged, two questions arise for consideration:

(i) What is the procedure to be followed by a court in implementing Section 89 and Order 10 Rule 1A of the Code?

(ii) Whether consent of all parties to the suit is necessary for reference to arbitration under Section 89 of the Code?

6. To find answers to the said questions, we have to analyse the object, purpose, scope and tenor of the said provisions. The said provisions are extracted below:

89. Settlement of disputes outside the court. – (1) Where it appears to the Court that there exist elements of a settlement which may be acceptable to the parties, the Court shall formulate the terms of settlement and give them to the parties for their observations and after receiving the observations of the parties, the Court may reformulate the terms of a possible settlement and refer the same for –

(a) arbitration;

(b) conciliation;

(c) judicial settlement including settlement through Lok Adalat; or

(d) mediation.

(2) where a dispute has been referred –

(a) for arbitration or conciliation, the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall apply as if the proceedings for arbitration or conciliation were referred for settlement under the provisions of that Act;

(b) to Lok Adalat, the Court shall refer the same to the Lok Adalat in accordance with the provisions of Sub-section (1) of Section 20 of the Legal Services Authority Act, 1987 (39 of 1987) and all other provisions of that Act shall apply in respect of the dispute so referred to the Lok Adalat;

(c) for judicial settlement, the Court shall refer the same to a suitable institution or person and such institution or person shall be deemed to be a Lok Adalat and all the provisions of the Legal Services Authority Act, 1987 (39 of 1987) shall apply as if the dispute were referred to a Lok Adalat under the provisions of that Act;

(d) for mediation, the Court shall effect a compromise between the parties and shall follow such procedure as may be prescribed.

Order 10 Rule 1A. Direction of the Court to opt for any one mode of alternative dispute resolution.–After recording the admissions and denials, the Court shall direct the parties to the suit to opt either mode of the settlement outside the Court as specified in Sub-section (1) of section 89. On the option of the parties, the Court shall fix the date of appearance before such forum or authority as may be opted by the parties.

Order 10 Rule 1B. Appearance before the conciliatory forum or authority.–Where a suit is referred under Rule 1A, the parties shall appear before such forum or authority for conciliation of the suit.

Order 10 Rule 1C. Appearance before the Court consequent to the failure of efforts of conciliation.–Where a suit is referred under Rule 1A and the presiding officer of conciliation forum or authority is satisfied that it would not be proper in the interest of justice to proceed with the matter further, then, it shall refer the matter again to the Court and direct the parties to appear before the Court on the date fixed by it.

7. If Section 89 is to be read and required to be implemented in its literal sense, it will be a Trial Judge’s nightmare. It puts the cart before the horse and lays down an impractical, if not impossible, procedure in Sub-section (1). It has mixed up the definitions in Sub-section (2). In spite of these defects, the object behind Section 89 is laudable and sound. Resort to alternative disputes resolution (for short ‘ADR’) processes is necessary to give speedy and effective relief to the litigants and to reduce the pendency in and burden upon the courts. As ADR processes were not being resorted to with the desired frequency, Parliament thought it fit to introduce Section 89 and Rules 1A to 1C in Order X in the Code, to ensure that ADR process was resorted to before the commencement of trial in suits. In view of its laudable object, the validity of Section 89, with all its imperfections, was upheld in Salem Advocate Bar Association v. Union of India reported in, (2003) 1 SCC 49 – for short, Salem Bar – (I) but referred to a Committee, as it was hoped that Section 89 could be implemented by ironing the creases. In Salem Advocate Bar Association v. Union of India, (2005) 6 SCC 344 – for short, Salem Bar-(II) this Court applied the principle of purposive construction in an attempt to make it workable.

What is wrong with Section 89 of the Code?

8. The first anomaly is the mixing up of the definitions of ‘mediation’ and ‘judicial settlement’ under Clauses (c) and (d) of Sub-section (2) of Section 89 of the Code. Clause (c) says that for “judicial settlement”, the court shall refer the same to a suitable institution or person who shall be deemed to be a Lok Adalat. Clause (d) provides that where the reference is to “mediation”, the court shall effect a compromise between the parties by following such procedure as may be prescribed. It makes no sense to call a compromise effected by a court, as “mediation”, as is done in Clause (d). Nor does it make any sense to describe a reference made by a court to a suitable institution or person for arriving at a settlement as “judicial settlement”, as is done in Clause (c). “Judicial settlement” is a term in vogue in USA referring to a settlement of a civil case with the help of a judge who is not assigned to adjudicate upon the dispute. “Mediation” is also a well known term and it refers to a method of non-binding dispute resolution with the assistance of a neutral third party who tries to help the disputing parties to arrive at a negotiated settlement. It is also synonym of the term ‘conciliation’. (See: Black’s Law Dictionary, 7th Edition, Pages 1377 and 996). When words are universally understood in a particular sense, and assigned a particular meaning in common parlance, the definitions of those words in Section 89 with interchanged meanings has led to confusion, complications and difficulties in implementation. The mix-up of definitions of the terms “judicial settlement” and “mediation” in Section 89 is apparently due to a clerical or typographical error in drafting, resulting in the two words being interchanged in Clauses (c) and (d) of Section 89(2). If the word “mediation” in Clause (d) and the words “judicial settlement” in Clause (c) are interchanged, we find that the said clauses make perfect sense.

9. The second anomaly is that Sub-section (1) of Section 89 imports the final stage of conciliation referred to in Section 73(1) of the AC Act into the pre-ADR reference stage under Section 89 of the Code. Sub-section (1) of Section 89 requires the court to formulate the terms of settlement and give them to the parties for their observation and then reformulate the terms of a possible settlement and then refer the same for any one of the ADR processes. If Sub-section (1) of Section 89 is to be literally followed, every Trial Judge before framing issues, is required to ascertain whether there exists any elements of settlement which may be acceptable to the parties, formulate the terms of settlement, give them to parties for observations and then reformulate the terms of a possible settlement before referring it to arbitration, conciliation, judicial settlement, Lok Adalat or mediation. There is nothing that is left to be done by the alternative dispute resolution forum. If all these have to be done by the trial court before referring the parties to alternative dispute resolution processes, the court itself may as well proceed to record the settlement as nothing more is required to be done, as a Judge cannot do these unless he acts as a conciliator or mediator and holds detailed discussions and negotiations running into hours.

10. Section 73 of AC Act shows that formulation and reformulation of terms of settlement is a process carried out at the final stage of a conciliation process, when the settlement is being arrived at. What is required to be done at the final stage of conciliation by a conciliator is borrowed lock, stock and barrel into Section 89 and the court is wrongly required to formulate the terms of settlement and reformulate them at a stage prior to reference to an ADR process. This becomes evident by a comparison of the wording of the two provisions.

Section 73(1) of Arbitration Section 89(1) of Code of Civil Procedure and Conciliation relating to a stage before reference to Act, 1996 relating to the final an ADR process. stage of settlement process in conciliation. When it appears to the Where it appears to the Court that there conciliator that there exist elements of a settlement which may exist elements of a settlement be acceptable to the parties, the Court which may be acceptable to the shall formulate the terms of parties, he shall settlement and give formulate the terms of a them to the parties for their observations possible settlement and after receiving the observations of the and submit them to the parties, the Court may reformulate the parties for their observations. terms of a possible settlement and refer the After receiving the observations same for (a) arbitration; of the (b) conciliation; parties, the conciliator may (c) judicial settlement reformulate the terms of a including settlement through Lok Adalat; possible settlement in the or (d) mediation. light of such observations.

Formulation and re-formulation of terms of settlement by the court is therefore wholly out of place at the stage of pre ADR reference. It is not possible for courts to perform these acts at a preliminary hearing to decide whether a case should be referred to an ADR process and, if so, which ADR process.

11. If the reference is to be made to arbitration, the terms of settlement formulated by the court will be of no use, as what is referred to arbitration is the dispute and not the terms of settlement; and the Arbitrator will adjudicate upon the dispute and give his decision by way of award. If the reference is to conciliation/mediation/Lok Adalat, then drawing up the terms of the settlement or reformulating them is the job of the conciliator or the mediator or the Lok Adalat, after going through the entire process of conciliation/ mediation. Thus, the terms of settlement drawn up by the court will be totally useless in any subsequent ADR process. Why then the courts should be burdened with the onerous and virtually impossible, but redundant, task of formulating terms of settlement at pre-reference stage?

12. It will not be possible for a court to formulate the terms of the settlement, unless the judge discusses the matter in detail with both parties. The court formulating the terms of settlement merely on the basis of pleadings is neither feasible nor possible. The requirement that the court should formulate the terms of settlement is therefore a great hindrance to courts in implementing Section 89 of the Code. This Court therefore diluted this anomaly in Salem Bar (II) by equating “terms of settlement” to a “summary of disputes” meaning thereby that the court is only required to formulate a ‘summary of disputes’ and not ‘terms of settlement’.

How should Section 89 be interpreted?

13. The principles of statutory interpretation are well settled. Where the words of the statute are clear and unambiguous, the provision should be given its plain and normal meaning, without adding or rejecting any words. Departure from the literal rule, by making structural changes or substituting words in a clear statutory provision, under the guise of interpretation will pose a great risk as the changes may not be what the Legislature intended or desired. Legislative wisdom cannot be replaced by the Judge’s views. As observed by this Court in somewhat different context: “When a procedure is prescribed by the Legislature, it is not for the court to substitute a different one according to its notion of justice. When the Legislature has spoken, the Judges cannot afford to be wiser.” See: Shri Mandir Sita Ramji v. Lt. Governor of Delhi, (1975) 4 SCC 298. There is however an exception to this general rule. Where the words used in the statutory provision are vague and ambiguous or where the plain and normal meaning of its words or grammatical construction thereof would lead to confusion, absurdity, repugnancy with other provisions, the courts may, instead of adopting the plain and grammatical construction, use the interpretative tools to set right the situation, by adding or omitting or substituting the words in the Statute. When faced with an apparently defective provision in a statute, courts prefer to assume that the draftsman had committed a mistake rather than concluding that the Legislature has deliberately introduced an absurd or irrational statutory provision. Departure from the literal rule of plain and straight reading can however be only in exceptional cases, where the anomalies make the literal compliance of a provision impossible, or absurd or so impractical as to defeat the very object of the provision. We may also mention purposive interpretation to avoid absurdity and irrationality is more readily and easily employed in relation to procedural provisions than with reference to substantive provisions.

Maxwell on Interpretation of Statutes (12th Edn., page 228), under the caption ‘modification of the language to meet the intention’ in the chapter dealing with ‘Exceptional Construction’ states the position succinctly:

Where the language of a statute, in its ordinary meaning and grammatical construction, leads to a manifest contradiction of the apparent purpose of the enactment, or to some inconvenience or absurdity, hardship or injustice, which can hardly have been intended, a construction may be put upon it which modifies the meaning of the words, and even the structure of the sentence. This may be done by departing from the rules of grammar, by giving an unusual meaning to particular words, or by rejecting them altogether, on the ground that the legislature could not possibly have intended what its words signify, and that the modifications made are mere corrections of careless language and really give the true meaning. Where the main object and intention of a statute are clear, it must not be reduced to a nullity by the draftman’s unskilfulness or ignorance of the law, except in a case of necessity, or the absolute intractability of the language used.

This Court in Tirath Singh v. Bachittar Singh, AIR 1955 SC 830 approved and adopted the said approach.

In Shamrao V. Parulekar v. District Magistrate, Thana, Bombay, AIR 1952 SC 324 this Court reiterated the principle from Maxwell:

if one construction will lead to an absurdity while another will give effect to what commonsense would show was obviously intended, the construction which would defeat the ends of the Act must be rejected even if the same words used in the same section, and even the same sentence, have to be construed differently. Indeed, the law goes so far as to require the Courts sometimes even to modify the grammatical and ordinary sense of the words if by doing so absurdity and inconsistency can be avoided.

13.3 In Molar Mal v. Kay Iron Works (P) Ltd. (2004) 4 SCC 285 this Court while reiterating that courts will have to follow the rule of literal construction, which enjoins the court to take the words as used by the Legislature and to give it the meaning which naturally implies, held that there is an exception to that rule. This Court observed:

That exception comes into play when application of literal construction of the words in the statute leads to absurdity, inconsistency or when it is shown that the legal context in which the words are used or by reading the statute as a whole, it requires a different meaning.

13.4 In Mangin v. Inland Revenue Commission 1971 (1) All. ER 179 the Privy Council held:

The object of the construction of a statute, be it to ascertain the will of the legislature, it may be presumed that neither injustice nor absurdity was intended. If, therefore a literal interpretation would produce such a result, and the language admits of an interpretation which would avoid it, then such an interpretation may be adopted.

13.5 A classic example of correcting an error committed by the draftsman in legislative drafting is the substitution of the words ‘defendant’s witnesses’ by this Court for the words ‘plaintiff’s witnesses’ occurring in Order VII Rule 14(4) of the Code, in Salem Bar-II. We extract below the relevant portion of the said decision:

Order VII relates to the production of documents by the plaintiff whereas Order VIII relates to production of documents by the defendant. Under Order VIII Rule 1A(4) a document not produced by defendant can be confronted to the plaintiff’s witness during cross-examination. Similarly, the plaintiff can also confront the defendant’s witness with a document during cross-examination. By mistake, instead of ‘defendant’s witnesses’, the words ‘plaintiff’s witnesses’ have been mentioned in Order VII Rule (4). To avoid any confusion, we direct that till the legislature corrects the mistake, the words ‘plaintiff’s witnesses, would be read as ‘defendant’s witnesses’ in Order VII Rule 4. We, however, hope that the mistake would be expeditiously corrected by the legislature.

13.6 Justice G.P. Singh extracts four conditions that should be present to justify departure from the plain words of the Statute, in his treatise “Principles of Statutory Interpretation” (12th Edn. – 2010, Lexis Nexis – page 144) from the decision of the House of Lords in Stock v. Frank Jones (Tipton) Ltd. 1978 (1) All ER 948:

…a court would only be justified in departing from the plain words of the statute when it is satisfied that (1) there is clear and gross balance of anomaly; (2) Parliament, the legislative promoters and the draftsman could not have envisaged such anomaly and could not have been prepared to accept it in the interest of a supervening legislative objective; (3) the anomaly can be obviated without detriment to such a legislative objective; and (4) the language of the statute is susceptible of the modification required to obviate the anomaly.

14. All the aforesaid four conditions justifying departure from the literal rule, exist with reference to Section 89 of the Code. Therefore, in Salem Bar -II, by judicial interpretation the entire process of formulating the terms of settlement, giving them to the parties for their observation and reformulating the terms of possible settlement after receiving the observations, contained in Sub-section (1) of Section 89, is excluded or done away with by stating that the said provision merely requires formulating a summary of disputes. Further, this Court in Salem Bar-II, adopted the following definition of ‘mediation’ suggested in the model mediation rules, in spite of a different definition in Section 89(2)(d):

Settlement by ‘mediation’ means the process by which a mediator appointed by parties or by the Court, as the case may be, mediates the dispute between the parties to the suit by the application of the provisions of the Mediation Rules, 2003 in Part II, and in particular, by facilitating discussion between parties directly or by communicating with each other through the mediator, by assisting parties in identifying issues, reducing misunderstandings, clarifying priorities, exploring areas of compromise, generating options in an attempt to solve the dispute and emphasizing that it is the parties’ own responsibility for making decisions which affect them.

All over the country the courts have been referring cases under Section 89 to mediation by assuming and understanding ‘mediation’ to mean a dispute resolution process by negotiated settlement with the assistance of a neutral third party. Judicial settlement is understood as referring to a compromise entered by the parties with the assistance of the court adjudicating the matter, or another Judge to whom the court had referred the dispute.

15. Section 89 has to be read with Rule 1A of Order 10 which requires the court to direct the parties to opt for any of the five modes of alternative dispute resolution processes and on their option refer the matter. The said rule does not require the court to either formulate the terms of settlement or make available such terms of settlement to the parties to reformulate the terms of possible settlement after receiving the observations of the parties. Therefore the only practical way of reading Section 89 and Order 10, Rule 1A is that after the pleadings are complete and after seeking admission/denials wherever required, and before framing issues, the court will have recourse to Section 89 of the Code. Such recourse requires the court to consider and record the nature of the dispute, inform the parties about the five options available and take note of their preferences and then refer them to one of the alternative dispute resolution processes.

16. In view of the foregoing, it has to be concluded that proper interpretation of Section 89 of the Code requires two changes from a plain and literal reading of the section. Firstly, it is not necessary for the court, before referring the parties to an ADR process to formulate or re-formulate the terms of a possible settlement. It is sufficient if the court merely describes the nature of dispute (in a sentence or two) and makes the reference. Secondly, the definitions of ‘judicial settlement’ and ‘mediation’ in Clauses (c) and (d) of Section 89(2) shall have to be interchanged to correct the draftsman’s error. Clauses (c) and (d) of Section 89(2) of the Code will read as under when the two terms are interchanged:

(c) for “mediation”, the court shall refer the same to a suitable institution or person and such institution or person shall be deemed to be a Lok Adalat and all the provisions of the Legal Services Authority Act, 1987 (39 of 1987) shall apply as if the dispute were referred to a Lok Adalat under the provisions of that Act;

(d) for “judicial settlement”, the court shall effect a compromise between the parties and shall follow such procedure as may be prescribed.

The above changes made by interpretative process shall remain in force till the legislature corrects the mistakes, so that Section 89 is not rendered meaningless and infructuous.

Whether the reference to ADR Process is mandatory?

17. Section 89 starts with the words “where it appears to the court that there exist elements of a settlement”. This clearly shows that cases which are not suited for ADR process should not be referred under Section 89 of the Code. The court has to form an opinion that a case is one that is capable of being referred to and settled through ADR process. Having regard to the tenor of the provisions of Rule 1A of Order 10 of the Code, the civil court should invariably refer cases to ADR process. Only in certain recognized excluded categories of cases, it may choose not to refer to an ADR process. Where the case is unsuited for reference to any of the ADR process, the court will have to briefly record the reasons for not resorting to any of the settlement procedures prescribed under Section 89 of the Code. Therefore, having a hearing after completion of pleadings, to consider recourse to ADR process under Section 89 of the Code, is mandatory. But actual reference to an ADR process in all cases is not mandatory. Where the case falls under an excluded category there need not be reference to ADR process. In all other case reference to ADR process is a must.

18. The following categories of cases are normally considered to be not suitable for ADR process having regard to their nature:

(i) Representative suits under Order 1 Rule 8 CPC which involve public interest or interest of numerous persons who are not parties before the court. (In fact, even a compromise in such a suit is a difficult process requiring notice to the persons interested in the suit, before its acceptance).

(ii) Disputes relating to election to public offices (as contrasted from disputes between two groups trying to get control over the management of societies, clubs, association etc.).

(iii) Cases involving grant of authority by the court after enquiry, as for example, suits for grant of probate or letters of administration.

(iv) Cases involving serious and specific allegations of fraud, fabrication of documents, forgery, impersonation, coercion etc.

(v) Cases requiring protection of courts, as for example, claims against minors, deities and mentally challenged and suits for declaration of title against government.

(vi) Cases involving prosecution for criminal offences.

19. All other suits and cases of civil nature in particular the following categories of cases (whether pending in civil courts or other special Tribunals/Forums) are normally suitable for ADR processes:

(i) All cases relating to trade, commerce and contracts, including

– disputes arising out of contracts (including all money claims);

– disputes relating to specific performance;

– disputes between suppliers and customers;

– disputes between bankers and customers;

– disputes between developers/builders and customers;

– disputes between landlords and tenants/licensor and licensees;

– disputes between insurer and insured;

(ii) All cases arising from strained or soured relationships, including

– disputes relating to matrimonial causes, maintenance, custody of children;

– disputes relating to partition/division among family members/co- parceners/co-owners; and

– disputes relating to partnership among partners.

(iii) All cases where there is a need for continuation of the pre-existing relationship in spite of the disputes, including

– disputes between neighbours (relating to easementary rights, encroachments, nuisance etc.);

– disputes between employers and employees;

– disputes among members of societies/associations/Apartment owners Associations;

(iv) All cases relating to tortious liability including

– claims for compensation in motor accidents/other accidents; and

(v) All consumer disputes including

– disputes where a trader/supplier/manufacturer/service provider is keen to maintain his business/professional reputation and credibility or ‘product popularity.

The above enumeration of ‘suitable’ and ‘unsuitable’ categorization of cases is not intended to be exhaustive or rigid. They are illustrative, which can be subjected to just exceptions or additions by the court/Tribunal exercising its jurisdiction/discretion in referring a dispute/case to an ADR process.

How to decide the appropriate ADR process under Section 89?

20. Section 89 refers to five types of ADR procedures, made up of one adjudicatory process (arbitration) and four negotiatory (non adjudicatory) processes – conciliation, mediation, judicial settlement and Lok Adalat settlement. The object of Section 89 of the Code is that settlement should be attempted by adopting an appropriate ADR process before the case proceeds to trial. Neither Section 89 nor Rule 1A of Order 10 of the Code is intended to supersede or modify the provisions of the Arbitration and Conciliation Act, 1996 or the Legal Services Authorities Act, 1987. On the other hand, Section 89 of the Code makes it clear that two of the ADR processes – Arbitration and Conciliation, will be governed by the provisions of the AC Act and two other ADR Processes – Lok Adalat Settlement and Mediation (See: amended definition in para 18 above), will be governed by the Legal Services Authorities Act. As for the last of the ADR processes – judicial settlement (See: amended definition in para 18 above), Section 89 makes it clear that it is not governed by any enactment and the court will follow such procedure as may be prescribed (by appropriate rules).

21. Rule 1A of Order 10 requires the court to give the option to the parties, to choose any of the ADR processes. This does not mean an individual option, but a joint option or consensus about the choice of the ADR process. On the other hand, Section 89 vests the choice of reference to the court. There is of course no inconsistency. Section 89 of the Code gives the jurisdiction to refer to ADR process and Rules 1A to IC of Order 10 lay down the manner in which the said jurisdiction is to be exercised. The scheme is that the court explains the choices available regarding ADR process to the parties, permits them to opt for a process by consensus, and if there is no consensus, proceeds to choose the process.

22. Let us next consider which of the ADR processes require mutual consent of the parties and which of them do not require the consent of parties.

Arbitration

23. Arbitration is an adjudicatory dispute resolution process by a private forum, governed by the provisions of the AC Act. The said Act makes it clear that there can be reference to arbitration only if there is an ‘arbitration agreement’ between the parties. If there was a pre-existing arbitration agreement between the parties, in all probability, even before the suit reaches the stage governed by Order 10 of the Code, the matter would have stood referred to arbitration either by invoking Section 8 or Section 11 of the AC Act, and there would be no need to have recourse to arbitration under Section 89 of the Code. Section 89 therefore pre-supposes that there is no pre-existing arbitration agreement. Even if there was no pre-existing arbitration agreement, the parties to the suit can agree for arbitration when the choice of ADR processes is offered to them by the court under Section 89 of the Code. Such agreement can be by means of a joint memo or joint application or a joint affidavit before the court, or by record of the agreement by the court in the ordersheet signed by the parties. Once there is such an agreement in writing signed by parties, the matter can be referred to arbitration under Section 89 of the Code; and on such reference, the provisions of AC Act will apply to the arbitration, and as noticed in Salem Bar-I the case will go outside the stream of the court permanently and will not come back to the court.

24. If there is no agreement between the parties for reference to arbitration, the court cannot refer the matter to arbitration under Section 89 of the Code. This is evident from the provisions of AC Act. A court has no power, authority or jurisdiction to refer unwilling parties to arbitration, if there is no arbitration agreement. This Court has consistently held that though Section 89 of the Code mandates reference to ADR processes, reference to arbitration under Section 89 of the Code could only be with the consent of both sides and not otherwise.

24.1 In Salem Bar (I) this Court held:

It is quite obvious that the reason why Section 89 has been inserted is to try and see that all the cases which are filed in court need not necessarily be decided by the court itself. Keeping in mind the law’s delays and the limited number of Judges which are available, it has now become imperative that resort should be had to alternative dispute resolution mechanism with a view to bring to an end litigation between the parties at an early date. The alternative dispute resolution (ADR) mechanism as contemplated by Section 89 is arbitration or conciliation or judicial settlement including settlement through Lok Adalat or mediation. x x x x x If the parties agree to arbitration, then the provisions of the Arbitration and Conciliation Act, 1996 will apply and that case will go outside the stream of the court but resorting to conciliation or judicial settlement or mediation with a view to settle the dispute would not ipso facto take the case outside the judicial system. All that this means is that effort has to be made to bring about an amicable settlement between the parties but if conciliation or mediation or judicial settlement is not possible, despite efforts being made, the case will ultimately go to trial.

Emphasis supplied)

24.2 In Salem Bar – (II), this Court held:

Some doubt as to a possible conflict has been expressed in view of used of the word “may” in Section 89 when it stipulates that “the court may reformulate the terms of a possible settlement and refer the same for” and use of the word “shall” in Order 10 Rule 1A when it states that “the court shall direct the parties to the suit to opt either mode of the settlement outside the court as specified in Sub-section (1) of Section 89”.

The intention of the legislature behind enacting Section 89 is that where it appears to the court that there exists an element of a settlement which may be acceptable to the parties, they, at the instance of the court, shall be made to apply their mind so as to opt for one or the other of the four ADR methods mentioned in the section and if the parties do not agree, the court shall refer them to one or the other of the said modes. Section 89 uses both the words “shall” and “may” whereas Order 10 Rule 1A uses the word “shall” but on harmonious reading of these provisions it becomes clear that the use of the word “may” in Section 89 only governs the aspect of reformulation of the terms of a possible settlement and its reference to one of ADR methods. There is no conflict. It is evident that what is referred to one of the ADR modes is the dispute which is summarized in the terms of settlement formulated or reformulated in terms of Section 89.

One of the modes to which the dispute can be referred is “arbitration”. Section 89(2) provides that where a dispute has been referred for arbitration or conciliation, the provisions of the Arbitration and Conciliation Act, 1996 (for short “the 1996 Act”) shall apply as if the proceedings for arbitration or conciliation were referred for settlement under the provisions of the 1996 Act. Section 8 of the 1996 Act deals with the power to refer parties to arbitration where there is arbitration agreement. As held in P. Anand Gajapathi Raju v. P.V.G. Raju, (2000) 4 SCC 539 the 1996 Act governs a case where arbitration is agreed upon before or pending a suit by all the parties. The 1996 Act, however, does not contemplate a situation as in Section 89 of the Code where the court asks the parties to choose one or other ADRs including arbitration and the parties choose arbitration as their option. Of course, the parties have to agree for arbitration.

(Emphasis supplied)

24.3 The position was reiterated by this Court in Jagdish Chander v. Ramesh Chander (2007) 5 SCC 719 thus:

It should not also be overlooked that even though Section 89 mandates courts to refer pending suits to any of the several alternative dispute resolution processes mentioned therein, there cannot be a reference to arbitration even under Section 89 CPC, unless there is a mutual consent of all parties, for such reference.

(Emphasis supplied)

24.4 Therefore, where there is no pre-existing arbitration agreement between the parties, the consent of all the parties to the suit will be necessary, for referring the subject matter of the suit to arbitration under Section 89 of the Code.

Conciliation

25. Conciliation is a non-adjudicatory ADR process, which is also governed by the provisions of AC Act. There can be a valid reference to conciliation only if both parties to the dispute agree to have negotiations with the help of a third party or third parties either by an agreement or by the process of invitation and acceptance provided in Section 62 of AC Act followed by appointment of conciliator/s as provided in Section 64 of AC Act. If both parties do not agree for conciliation, there can be no ‘conciliation’. As a consequence, as in the case of arbitration, the court cannot refer the parties to conciliation under Section 89, in the absence of consent by all parties. As contrasted from arbitration, when a matter is referred to conciliation, the matter does not go out of the stream of court process permanently. If there is no settlement, the matter is returned to the court for framing issues and proceeding with the trial.

The other three ADR Processes

26. If the parties are not agreeable for either arbitration or conciliation, both of which require consent of all parties, the court has to consider which of the other three ADR processes (Lok Adalat, Mediation and Judicial Settlement) which do not require the consent of parties for reference, is suitable and appropriate and refer the parties to such ADR process. If mediation process is not available (for want of a mediation centre or qualified mediators), necessarily the court will have to choose between reference to Lok Adalat or judicial settlement. If facility of mediation is available, then the choice becomes wider. It the suit is complicated or lengthy, mediation will be the recognized choice. If the suit is not complicated and the disputes are easily sortable or could be settled by applying clear cut legal principles, Lok Adalat will be the preferred choice. If the court feels that a suggestion or guidance by a Judge would be appropriate, it can refer it to another Judge for dispute resolution. The court has to use its discretion in choosing the ADR process judiciously, keeping in view the nature of disputes, interests of parties and expedition in dispute resolution.

Whether the settlement in an ADR process is binding in itself ?

27. When the court refers the matter to arbitration under Section 89 of the Act, as already noticed, the case goes out of the stream of the court and becomes an independent proceeding before the arbitral tribunal. Arbitration being an adjudicatory process, it always ends in a decision. There is also no question of failure of ADR process or the matter being returned to the court with a failure report. The award of the arbitrators is binding on the parties and is executable/enforceable as if a decree of a court, having regard to Section 36 of the AC Act. If any settlement is reached in the arbitration proceedings, then the award passed by the Arbitral Tribunal on such settlement, will also be binding and executable/enforceable as if a decree of a court, under Section 30 of the AC Act.

28. The other four ADR processes are non-adjudicatory and the case does not go out of the stream of the court when a reference is made to such a non- adjudicatory ADR forum. The court retains its control and jurisdiction over the case, even when the matter is before the ADR forum. When a matter is settled through conciliation, the Settlement Agreement is enforceable as if it is a decree of the court having regard to Section 74 read with Section 30 of the AC Act. Similarly, when a settlement takes place before the Lok Adalat, the Lok Adalat award is also deemed to be a decree of the civil court and executable as such under Section 21 of the Legal Services Authorities Act, 1987. Though the settlement agreement in a conciliation or a settlement award of a Lok Adalat may not require the seal of approval of the court for its enforcement when they are made in a direct reference by parties without the intervention of court, the position will be different if they are made on a reference by a court in a pending suit/proceedings. As the court continues to retain control and jurisdiction over the cases which it refers to conciliations, or Lok Adalats, the settlement agreement in conciliation or the Lok Adalat award will have to be placed before the court for recording it and disposal in its terms. Where the reference is to a neutral third party (‘mediation’ as defined above) on a court reference, though it will be deemed to be reference to Lok Adalat, as court retains its control and jurisdiction over the matter, the mediation settlement will have to be placed before the court for recording the settlement and disposal. Where the matter is referred to another Judge and settlement is arrived at before him, such settlement agreement will also have to be placed before the court which referred the matter and that court will make a decree in terms of it. Whenever such settlements reached before non-adjudicatory ADR Fora are placed before the court, the court should apply the principles of Order 23 Rule 3 of the Code and make a decree/order in terms of the settlement, in regard to the subject matter of the suit/proceeding. In regard to matters/disputes which are not the subject matter of the suit/proceedings, the court will have to direct that the settlement shall be governed by Section 74 of AC Act (in respect of conciliation settlements) or Section 21 of the Legal Services Authorities Act, 1987 (in respect of settlements by a Lok Adalat or a Mediator). Only then such settlements will be effective.

Summation

29. Having regard to the provisions of Section 89 and Rule 1A of Order 10, the stage at which the court should explore whether the matter should be referred to ADR processes, is after the pleadings are complete, and before framing the issues, when the matter is taken up for preliminary hearing for examination of parties under Order 10 of the Code. However, if for any reason, the court had missed the opportunity to consider and refer the matter to ADR processes under Section 89 before framing issues, nothing prevents the court from resorting to Section 89 even after framing issues. But once evidence is commenced, the court will be reluctant to refer the matter to the ADR processes lest it becomes a tool for protracting the trial.

30. Though in civil suits, the appropriate stage for considering reference to ADR processes is after the completion of pleadings, in family disputes or matrimonial cases, the position can be slightly different. In those cases, the relationship becomes hostile on account of the various allegations in the petition against the spouse. The hostility will be further aggravated by the counter-allegations made by the respondent in his or her written statement or objections. Therefore, as far as Family Courts are concerned, the ideal stage for mediation will be immediately after service of respondent and before the respondent files objections/written statements. Be that as it may.

31. We may summarize the procedure to be adopted by a court under Section 89 of the Code as under:

a) When the pleadings are complete, before framing issues, the court shall fix a preliminary hearing for appearance of parties. The court should acquaint itself with the facts of the case and the nature of the dispute between the parties.

b) The court should first consider whether the case falls under any of the category of the cases which are required to be tried by courts and not fit to be referred to any ADR processes. If it finds the case falls under any excluded category, it should record a brief order referring to the nature of the case and why it is not fit for reference to ADR processes. It will then proceed with the framing of issues and trial.

c) In other cases (that is, in cases which can be referred to ADR processes) the court should explain the choice of five ADR processes to the parties to enable them to exercise their option.

d) The court should first ascertain whether the parties are willing for arbitration. The court should inform the parties that arbitration is an adjudicatory process by a chosen private forum and reference to arbitration will permanently take the suit outside the ambit of the court. The parties should also be informed that the cost of arbitration will have to be borne by them. Only if both parties agree for arbitration, and also agree upon the arbitrator, the matter should be referred to arbitration.

e) If the parties are not agreeable for arbitration, the court should ascertain whether the parties are agreeble for reference to conciliation which will be governed by the provisions of the AC Act. If all the parties agree for reference to conciliation and agree upon the conciliator/s, the court can refer the matter to conciliation in accordance with Section 64 of the AC Act.

f) If parties are not agreeable for arbitration and conciliation, which is likely to happen in most of the cases for want of consensus, the court should, keeping in view the preferences/options of parties, refer the matter to any one of the other three other ADR processes: (a) Lok Adalat; (b) mediation by a neutral third party facilitator or mediator; and (c) a judicial settlement, where a Judge assists the parties to arrive at a settlement.

(g) If the case is simple which may be completed in a single sitting, or cases relating to a matter where the legal principles are clearly settled and there is no personal animosity between the parties (as in the case of motor accident claims), the court may refer the matter to Lok Adalat. In case where the questions are complicated or cases which may require several rounds of negotiations, the court may refer the matter to mediation. Where the facility of mediation is not available or where the parties opt for the guidance of a Judge to arrive at a settlement, the court may refer the matter to another Judge for attempting settlement.

(h) If the reference to the ADR process fails, on receipt of the Report of the ADR Forum, the court shall proceed with hearing of the suit. If there is a settlement, the court shall examine the settlement and make a decree in terms of it, keeping the principles of Order 23 Rule 3 of the Code in mind.

(i) If the settlement includes disputes which are not the subject matter of the suit, the court may direct that the same will be governed by Section 74 of the AC Act (if it is a Conciliation Settlement) or Section 21 of the Legal Services Authorities Act, 1987 (if it is a settlement by a Lok Adalat or by mediation which is a deemed Lok Adalat). If the settlement is through mediation and it relates not only to disputes which are the subject matter of the suit, but also other disputes involving persons other than the parties to the suit, the court may adopt the principle underlying Order Rule 3 of the Code. This will be necessary as many settlement agreements deal with not only the disputes which are the subject matter of the suit or proceeding in which the reference is made, but also other disputes which are not the subject matter of the suit.

(j) Settlement is ex facie illegal or unenforceable, the court should draw the attention of parties thereto to avoid further litigations and disputes about executability.

32. The Court should also bear in mind the following consequential aspects, while giving effect to Section 89 of the Code:

(i) If the reference is to arbitration or conciliation, the court has to record that the reference is by mutual consent. Nothing further need be stated in the order sheet.

(ii) If the reference is to any other ADR process, the court should briefly record that having regard to the nature of dispute, the case deserves to be referred to Lok Adalat, or mediation or judicial settlement, as the case may be. There is no need for an elaborate order for making the reference.

(iii) The requirement in Section 89(1) that the court should formulate or reformulate the terms of settlement would only mean that court has to briefly refer to the nature of dispute and decide upon the appropriate ADR process.

(iv) If the Judge in charge of the case assists the parties and if settlement negotiations fail, he should not deal with the adjudication of the matter, to avoid apprehensions of bias and prejudice. It is therefore advisable to refer cases proposed for Judicial Settlement to another Judge.

(v) If the court refers the matter to an ADR process (other than Arbitration), it should keep track of the matter by fixing a hearing date for the ADR Report. The period allotted for the ADR process can normally vary from a week to two months (which may be extended in exceptional cases, depending upon the availability of the alternative forum, the nature of case etc.). Under no circumstances the court should allow the ADR process to become a tool in the hands of an unscrupulous litigant intent upon dragging on the proceedings.

(vi) Normally the court should not send the original record of the case when referring the matter for an ADR forum. It should make available only copies of relevant papers to the ADR forum. (For this purpose, when pleadings are filed the court may insist upon filing of an extra copy). However if the case is referred to a Court annexed Mediation Centre which is under the exclusive control and supervision of a Judicial Officer, the original file may be made available wherever necessary.

33. The procedure and consequential aspects referred to in the earlier two paragraphs are intended to be general guidelines subject to such changes as the concerned court may deem fit with reference to the special circumstances of a case. We have referred to the procedure and process rather elaborately as we find that Section 89 has been a non-starter with many courts. Though the process under Section 89 appears to be lengthy and complicated, in practice the process is simple: know the dispute; exclude ‘unfit’ cases; ascertain consent for arbitration or conciliation; if there is no consent, select Lok Adalat for simple cases and mediation for all other cases, reserving reference to a Judge assisted settlement only in exceptional or special cases.

Conclusion

34. Coming back to this case, we may refer to the decision in Sukanya Holdings relied upon by the respondents, to contend that for a reference to arbitration under Section 89 of the Code, consent of parties is not required. The High Court assumed that Sukanya Holdings has held that Section 89 enables the civil court to refer a case to arbitration even in the absence of an arbitration agreement. Sukanya Holdings does not lay down any such proposition. In that decision, this Court was considering the question as to whether an application under Section 8 of the AC Act could be maintained even where a part of the subject matter of the suit was not covered by an arbitration agreement. The only observations in the decision relating to Section 89 are as under:

Reliance was placed on Section 89 CPC in support of the argument that the matter should have been referred to arbitration. In our view, Section 89 CPC cannot be resorted to for interpreting Section 8 of the Act as it stands on a different footing and it would be applicable even in cases where there is no arbitration agreement for referring the dispute for arbitration. Further, for that purpose, the court has to apply its mind to the condition contemplated under Section 89 CPC and even if application under Section 8 of the Act is rejected, the court is required to follow the procedure prescribed under the said section.

The observations only mean that even when there is no existing arbitration agreement enabling filing of an application under Section 8 of the Act, there can be a reference under Section 89 to arbitration if parties agree to arbitration. The observations in Sukanya Holdings do not assist the first respondent as they were made in the context of considering a question as to whether Section 89 of the Code could be invoked for seeking a reference under Section 8 of the AC Act in a suit, where only a part of the subject- matter of the suit was covered by arbitration agreement and other parts were not covered by arbitration agreement. The first respondent next contended that the effect of the decision in Sukanya Holdings is that “section 89 of CPC would be applicable even in cases where there is no arbitration agreement for referring the dispute to arbitration.” There can be no dispute in regard to the said proposition as Section 89 deals, not only with arbitration but also four other modes of non-adjudicatory resolution processes and existence of an arbitration agreement is not a condition precedent for exercising power under Section 89 of the Code in regard to the said four ADR processes.

35. In the light of the above discussion, we answer the questions as follows:

(i) The trial court did not adopt the proper procedure while enforcing Section 89 of the Code. Failure to invoke Section 89 suo moto after completion of pleadings and considering it only after an application under Section 89 was filed, is erroneous.

(ii) A civil court exercising power under Section 89 of the Code cannot refer a suit to arbitration unless all the parties to the suit agree for such reference.

36. Consequently, this appeal is allowed and the order of the trial court referring the matter to arbitration and the order of the High Court affirming the said reference are set aside. The Trial Court will now consider and decide upon a non-adjudicatory ADR process.


Chronological list of cases cited
1. (2007)5 SCC 719, Jagdish Chander v.Ramesh Chander
2. (2005) 6 SCC 344, Salem Advocate Bar Assn.c(II) v. Union of India
4. (2003) 5 SCC 531, Sukanya Holdings (P) Ltd. v. Jayesh H.Pandya
5. (2003) 1 SCC 49, Salem Advocate Bar Assn. (I) v. Union of India
6. (2000) 4 SCC 539, P. Anand Gajapathi Raju v. P. V.G. Raju
7. (2000) 4 SCC 285, Molar Mai v. Kay Iron Works (P) Ltd.
8. (1978) 1 WLR 231 : (1978) 1 All ER 948 (HL), Stock v. Frank Jones (Tipton) Ltd
9. (1975) 4 SCC 29S,Shri Mandir Sita Ramji v. Lt. Governor of Delhi
10. 1971 AC 739 : (1971) 2 WLR 39 : (1971) 1 All ER 179 (PC), Mangin v.IRC
10. AIR 1955 SC 830, Tirath Singh v. Bachittar Singh
11. AIR 1952 SC 324 : 1952 Cri LJ 1503, Shamrao V. Parulekarv. District Magistrate, Thana

Salem Advocate Bar Assn. (II) v. Union of India, (2005) 6 SCC 344, relied on
Black’s Law Dictionary, 7th Edn., pp. 1377 and 996, referred to
Salem Advocate Bar Assn. (I) v. Union of India, (2003) 1 SCC 49; Salem Advocate Bar Assn. (II) v.
Union of India. (2005) 6 SCC 344, relied on
Salem Advocate Bar Assn. (II) v. Union of India, (2005) 6 SCC 344; Shri iviandir Sita Ramji v. Lt.
Governor of Delhi, (1975) 4 SCC 298; Tirath Singh v. Bachittar Singh, AIR 1955 SC 830; Shamrao V.
Parulekar v. District Magistrate, Thana, AER 1952 SC 324 : 1952 Cri U 1503: Molar Mai v. Kay Iron
Works (P) Ltd., (2000) 4 SCC 285; Mangin v. IRC, 1971 AC 739 : (1971) 2 WLR 39 : (1971) 1 All ER
179 (PC); Stock v. Frank Jones (Tipton) Ltd, (1978) I WLR 231 : (1978) 1 All ER948 (HL), relied on
Maxwell: Interpretation of Statutes (12th Edn., p. 228); Principles of Statutory Interpretation (12th Edn. 2010, Lexis Nexis, p. 144), referred to

ARBITRATION ACT 2001 [Singapore]

Table of Contents
Arbitration Act
(CHAPTER 10)
Long Title
Part I PRELIMINARY
1 Short title
2 Interpretation
3 Application of this Act
Part II ARBITRATION AGREEMENT
4 Definition and form of arbitration agreement
5 Arbitration agreement not to be discharged by death of party
Part III STAY OF LEGAL PROCEEDINGS
6 Stay of legal proceedings
7 Court’s powers on stay of proceedings
8 Reference of interpleader issue to arbitration
Part IV COMMENCEMENT OF ARBITRAL PROCEEDINGS
9 Commencement of arbitral proceedings
10 Powers of Court to extend time for beginning of arbitral proceedings
11 Application of Limitation Act and Foreign Limitation Periods Act 2012
Part V ARBITRAL TRIBUNAL
12 Number of arbitrators
13 Appointment of arbitrators
14 Grounds for challenge
15 Challenge procedure
16 Failure or impossibility to act
17 Arbitrator ceasing to hold office
18 Appointment of substitute arbitrator
19 Decision by panel of arbitrators
20 Liability of arbitrator
Part VI JURISDICTION OF ARBITRAL TRIBUNAL
21 Separability of arbitration clause and competence of arbitral tribunal to rule on its own jurisdiction
21A Appeal on ruling of jurisdiction
Part VII ARBITRAL PROCEEDINGS
22 General duties of arbitral tribunal
23 Determination of rules of procedure
24 Statements of claim and defence
25 Hearings and written proceedings
26 Consolidation of proceedings and concurrent hearings
27 Power to appoint experts
28 General powers exercisable by arbitral tribunal
29 Powers of arbitral tribunal in case of party’s default
30 Witnesses may be summoned by subpoena
31 Court’s powers exercisable in support of arbitral proceedings
Part VIII AWARD
32 Law applicable to substance of dispute
33 Awards made on different issues
34 Remedies
35 Interest
36 Extension of time for making award
37 Award by consent
38 Form and contents of award
39 Costs of arbitration
40 Fees of arbitrator
41 Power to withhold award in case of non-payment
42 Court may charge property with payment of solicitor’s costs in arbitration
43 Correction or interpretation of award and additional award
44 Effect of award
Part IX POWERS OF COURT IN RELATION TO AWARD
45 Determination of preliminary point of law
46 Enforcement of award
47 No judicial review of award
48 Court may set aside award
49 Appeal against award
50 Supplementary provisions to appeal under section 49
51 Effect of order of Court upon appeal against award
52 Application for leave of Court, etc.
Part X MISCELLANEOUS
53 Notice and other requirements in connection with legal proceedings
54 Powers of Court and Registrar
55 Rules of Court
56 Proceedings to be heard otherwise than in open court
57 Restrictions on reporting of proceedings heard otherwise than in open court
58 Application to references under statutory powers
59 Immunity of arbitral institutions
59A Authentication of awards and arbitration agreements
60 Service of notices
61 Reckoning periods of time
62 Appointment of mediator
63 Power of arbitrator to act as mediator
64 Act to bind Government
65 Transitional provisions

Devider

ARBITRATION ACT
(CHAPTER 10)
(Original Enactment: Act 37 of 2001)

REVISED EDITION 2002
(31st July 2002)
An Act to provide for the conduct of arbitration.
[1st March 2002]

PART I
PRELIMINARY

Short title
1. This Act may be cited as the Arbitration Act.
Interpretation
2.—(1) In this Act, unless the context otherwise requires —
“appointing authority” means the appointing authority designated under section 13(8) or (9);
“arbitral tribunal” means a sole arbitrator or a panel of arbitrators or an arbitral institution, and includes an emergency arbitrator appointed pursuant to the rules of arbitration agreed to or adopted by the parties including the rules of arbitration of an institution or organisation;
“arbitration agreement” means an arbitration agreement referred to in section 4;
“award” means a decision of the arbitral tribunal on the substance of the dispute and includes any interim, interlocutory or partial award but excludes any order or direction made under section 28;
“Court” means the High Court in Singapore;
“court”, for the purposes of sections 6, 7, 8, 11(1), 55, 56 and 57, means the High Court, District Court, Magistrate’s Court or any other court in which the proceedings referred to in those sections are instituted or heard;
[Deleted by Act 12 of 2012 wef 01/06/2012]
[Deleted by Act 12 of 2012 wef 01/06/2012]
“party” means a party to an arbitration agreement or, in any case where an arbitration does not involve all of the parties to the arbitration agreement, means a party to the arbitration*;
* See section 9 of the Contracts (Rights of Third Parties) Act (Cap. 53B) on third parties who are treated as parties to an arbitration agreement.
“the place of the arbitration” means the juridical seat of the arbitration designated by —
(a) the parties to the arbitration agreement;
(b) any arbitral or other institution or person authorised by the parties for that purpose; or
(c) the arbitral tribunal as authorised by the parties,
or determined, in the absence of such designation, having regard to the arbitration agreement and all the relevant circumstances.
(2) Where any provision in this Act allows the parties to determine any issue, the parties may authorise a third party, including an arbitral institution, to make that determination.
(3) Where any provision in this Act refers to the fact that the parties have agreed or that they may agree or in any other way refers to an agreement of the parties, such agreement includes any arbitration rules incorporated in that agreement.
(4) Where any provision in this Act refers to a claim, it shall also apply to a cross-claim or counter-claim, and where such provision refers to a defence, it shall also apply to a defence to such cross-claim or counter-claim.
Application of this Act
3. This Act shall apply to any arbitration where the place of arbitration is Singapore and where Part II of the International Arbitration Act (Cap. 143A) does not apply to that arbitration.
PART II
ARBITRATION AGREEMENT
Definition and form of arbitration agreement
4.—(1) In this Act, “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.
(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if its content is recorded in any form, whether or not the arbitration agreement or contract has been concluded orally, by conduct or by other means.
(5) The requirement that an arbitration agreement shall be in writing is satisfied by an electronic communication if the information contained therein is accessible so as to be useable for subsequent reference.
(6) Where in any arbitral or legal proceedings, a party asserts the existence of an arbitration agreement in a pleading, statement of case or any other document in circumstances in which the assertion calls for a reply and the assertion is not denied, there shall be deemed to be an effective arbitration agreement as between the parties to the proceedings.
(7) A reference in a contract to any document containing an arbitration clause shall constitute an arbitration agreement in writing if the reference is such as to make that clause part of the contract.
(8) A reference in a bill of lading to a charterparty or other document containing an arbitration clause shall constitute an arbitration agreement in writing if the reference is such as to make that clause part of the bill of lading.
(9) In this section —
“data message” means information generated, sent, received or stored by electronic, magnetic, optical or similar means, including, but not limited to, electronic data interchange (EDI), electronic mail, telegram, telex or telecopy;
“electronic communication” means any communication that the parties make by means of data messages.
Arbitration agreement not to be discharged by death of party
5.—(1) An arbitration agreement shall not be discharged by the death of any party to the agreement but shall continue to be enforceable by or against the personal representative of the deceased party.
(2) The authority of an arbitrator shall not be revoked by the death of any party by whom he was appointed.
(3) Nothing in this section shall be taken to affect the operation of any written law or rule of law by virtue of which any right of action is extinguished by the death of a person.
PART III
STAY OF LEGAL PROCEEDINGS
Stay of legal proceedings
6.—(1) Where any party to an arbitration agreement institutes any proceedings in any court against any other party to the agreement in respect of any matter which is the subject of the agreement, any party to the agreement may, at any time after appearance and before delivering any pleading or taking any other step in the proceedings, apply to that court to stay the proceedings so far as the proceedings relate to that matter.
(2) The court to which an application has been made in accordance with subsection (1) may, if the court is satisfied that —
(a) there is no sufficient reason why the matter should not be referred in accordance with the arbitration agreement; and
(b) the applicant was, at the time when the proceedings were commenced, and still remains, ready and willing to do all things necessary to the proper conduct of the arbitration,
make an order, upon such terms as the court thinks fit, staying the proceedings so far as the proceedings relate to that matter.
(3) Where a court makes an order under subsection (2), the court may, for the purpose of preserving the rights of parties, make such interim or supplementary orders as the court thinks fit in relation to any property which is or forms part of the subject of the dispute to which the order under that subsection relates.
(4) Where no party to the proceedings has taken any further step in the proceedings for a period of not less than 2 years after an order staying the proceedings has been made, the court may, on its own motion, make an order discontinuing the proceedings without prejudice to the right of any of the parties to apply for the discontinued proceedings to be reinstated.
(5) For the purposes of this section, a reference to a party includes a reference to any person claiming through or under such party.
Court’s powers on stay of proceedings
7.—(1) Where a court stays proceedings under section 6, the court may, if in those proceedings property has been arrested or bail or other security has been given to prevent or obtain release from arrest, order that —
(a) the property arrested be retained as security for the satisfaction of any award made on the arbitration; or
(b) the stay be conditional on the provision of equivalent security for the satisfaction of any such award.
(2) Subject to the Rules of Court and to any necessary modification, the same law and practice shall apply in relation to property retained in pursuance of an order under this section as would apply if it were held for the purposes of proceedings in the court which made the order.
Reference of interpleader issue to arbitration
8. Where in proceedings before any court relief by way of interpleader is granted and any issue between the claimants is one in respect of which there is an arbitration agreement between them, the court granting the relief may direct the issue between the claimants to be determined in accordance with the agreement.
PART IV
COMMENCEMENT OF ARBITRAL PROCEEDINGS
Commencement of arbitral proceedings
9. Unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute shall commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent.
Powers of Court to extend time for beginning of arbitral proceedings
10.—(1) Where the terms of an arbitration agreement to refer future disputes to arbitration provide that a claim to which the arbitration agreement applies shall be barred unless —
(a) some step has been taken to begin other dispute resolution procedures which must be exhausted before arbitral proceedings can be begun;
(b) notice to appoint an arbitrator is given;
(c) an arbitrator is appointed; or
(d) some other step is taken to commence arbitral proceedings,
within a time fixed by the agreement and a dispute to which the agreement applies has arisen, the Court may, if it is of the opinion that in the circumstances of the case undue hardship would otherwise be caused, extend the time for such period and on such terms as the Court thinks fit.
(2) An order of extension of time made by the Court under subsection (1) —
(a) may be made only after any available arbitral process for obtaining an extension of time has been exhausted;
(b) may be made notwithstanding that the time so fixed has expired; and
(c) shall not affect the operation of section 9 or 11 or any other written law relating to the limitation of actions.
Application of Limitation Act and Foreign Limitation Periods Act 2012
11.—(1) The Limitation Act (Cap. 163) and the Foreign Limitation Periods Act 2012 shall apply to arbitral proceedings as they apply to proceedings before any court and any reference in both Acts to the commencement of proceedings shall be construed as a reference to the commencement of arbitral proceedings.
(2) The Court may order that in computing the time prescribed by the Limitation Act or the Foreign Limitation Periods Act 2012 for the commencement of proceedings (including arbitral proceedings) in respect of a dispute which was the subject-matter of —
(a) an award which the Court orders to be set aside or declares to be of no effect; or
(b) the affected part of an award which the Court orders to be set aside in part or declares to be in part of no effect,
the period between the commencement of the arbitration and the date of the order referred to in paragraph (a) or (b) shall be excluded.
(3) Notwithstanding any term in an arbitration agreement to the effect that no cause of action shall accrue in respect of any matter required by the agreement to be referred until an award is made under the agreement, the cause of action shall, for the purposes of the Limitation Act and the Foreign Limitation Periods Act 2012, be deemed to have accrued in respect of any such matter at the time when it would have accrued but for that term in the agreement.
PART V
ARBITRAL TRIBUNAL
Number of arbitrators
12.—(1) The parties are free to determine the number of arbitrators.
(2) Failing such determination, there shall be a single arbitrator.
Appointment of arbitrators
13.—(1) Unless otherwise agreed by the parties, no person shall be precluded by reason of his nationality from acting as an arbitrator.
(2) The parties are free to agree on a procedure for appointing the arbitrator or arbitrators.
(3) Where the parties fail to agree on a procedure for appointing the arbitrator or arbitrators —
(a) in an arbitration with 3 arbitrators, each party shall appoint one arbitrator, and the parties shall by agreement appoint the third arbitrator; or
(b) in an arbitration with a sole arbitrator, if the parties are unable to agree on the arbitrator, the arbitrator shall be appointed, upon the request of a party, by the appointing authority.
(4) Where subsection (3)(a) applies —
(a) if a party fails to appoint an arbitrator within 30 days of receipt of a first request to do so from the other party; or
(b) if the 2 parties fail to agree on the appointment of the third arbitrator within 30 days of the receipt of the first request by either party to do so,
the appointment shall be made, upon the request of a party, by the appointing authority.
(5) If, under an appointment procedure agreed upon by the parties —
(a) a party fails to act as required under such procedure;
(b) the parties are unable to reach an agreement expected of them under such procedure; or
(c) a third party, including an arbitral institution, fails to perform any function entrusted to it under such procedure,
any party may apply to the appointing authority to take the necessary measure unless the agreement on the appointment procedure provides other means for securing the appointment.
(6) Where a party makes a request or makes an application to the appointing authority under subsection (3), (4) or (5), the appointing authority shall, in appointing an arbitrator, have regard to the following:
(a) the nature of the subject-matter of the arbitration;
(b) the availability of any arbitrator;
(c) the identities of the parties to the arbitration;
(d) any suggestion made by any of the parties regarding the appointment of any arbitrator;
(e) any qualifications required of the arbitrator by the arbitration agreement; and
(f) such considerations as are likely to secure the appointment of an independent and impartial arbitrator.
(7) No appointment by the appointing authority shall be challenged except in accordance with this Act.
(8) For the purposes of this Act, the appointing authority shall be the President of the Court of Arbitration of the Singapore International Arbitration Centre.
(9) The Chief Justice may, if he thinks fit, by notification published in the Gazette, appoint any other person to exercise the powers of the appointing authority under this section.
Grounds for challenge
14.—(1) Where any person is approached in connection with his possible appointment as an arbitrator, he shall disclose any circumstance likely to give rise to justifiable doubts as to his impartiality or independence.
(2) An arbitrator shall, from the time of his appointment and throughout the arbitral proceedings, disclose without delay any such circumstance as is referred to in subsection (1) to the parties unless they have already been so informed by him.
(3) Subject to subsection (4), an arbitrator may be challenged only if —
(a) circumstances exist that give rise to justifiable doubts as to his impartiality or independence; or
(b) he does not possess the qualifications agreed to by the parties.
(4) A party who has appointed or participated in the appointment of any arbitrator may challenge such arbitrator only if he becomes aware of any of the grounds of challenge set out in subsection (3) as may be applicable to the arbitrator after the arbitrator has been appointed.
Challenge procedure
15.—(1) Subject to subsection (3), the parties are free to agree on a procedure for challenging an arbitrator.
(2) If the parties have not agreed on a procedure for challenge, a party who intends to challenge an arbitrator shall —
(a) within 15 days after becoming aware of the constitution of the arbitral tribunal; or
(b) after becoming aware of any circumstance referred to in section 14(3),
send a written statement of the grounds for the challenge to the arbitral tribunal.
(3) The arbitral tribunal shall, unless the challenged arbitrator withdraws from his office or the other party agrees to the challenge, decide on the challenge.
(4) If a challenge before the arbitral tribunal is unsuccessful, the aggrieved party may, within 30 days after receiving notice of the decision rejecting the challenge, apply to the Court to decide on the challenge and the Court may make such order as it thinks fit.
(5) No appeal shall lie against the decision of the Court under subsection (4).
(6) While an application to the Court under subsection (4) is pending, the arbitral tribunal, including the challenged arbitrator, may continue the arbitral proceedings and make an award.
Failure or impossibility to act
16.—(1) A party may request the Court to remove an arbitrator —
(a) who is physically or mentally incapable of conducting the proceedings or where there are justifiable doubts as to his capacity to do so; or
(b) who has refused or failed —
(i) to properly conduct the proceedings; or
(ii) to use all reasonable despatch in conducting the proceedings or making an award,
and where substantial injustice has been or will be caused to that party.
(2) If there is an arbitral or other institution or person vested by the parties with power to remove an arbitrator, the Court shall not exercise its power of removal unless it is satisfied that the applicant has first exhausted any available recourse to that institution or person.
(3) While an application to the Court under this section is pending, the arbitral tribunal, including the arbitrator concerned may continue the arbitral proceedings and make an award.
(4) Where the Court removes an arbitrator, the Court may make such order as it thinks fit with respect to his entitlement, if any, to fees or expenses, or the repayment of any fees or expenses already paid.
(5) The arbitrator concerned is entitled to appear and be heard by the Court before it makes any order under this section.
(6) No appeal shall lie against the decision of the Court made under subsection (4).
Arbitrator ceasing to hold office
17.—(1) The authority of an arbitrator shall cease upon his death.
(2) An arbitrator shall cease to hold office if —
(a) he withdraws from office under section 15(3);
(b) an order is made under section 15(4) for the termination of his mandate or his removal;
(c) he is removed by the Court under section 16 or by an institution referred to in section 16(2); or
(d) the parties agree on the termination of his mandate.
(3) The withdrawal of an arbitrator or the termination of an arbitrator’s mandate by the parties shall not imply acceptance of the validity of any ground referred to in section 14(3) or 16(1).
Appointment of substitute arbitrator
18.—(1) Where an arbitrator ceases to hold office, the parties are free to agree —
(a) whether and if so how the vacancy is to be filled;
(b) whether and if so to what extent the previous proceedings should stand; and
(c) what effect (if any) his ceasing to hold office has on any appointment made by him (alone or jointly).
(2) If or to the extent that there is no such agreement, the following subsections shall apply.
(3) Section 13 (appointment of arbitrators) shall apply in relation to the filling of the vacancy as in relation to an original appointment.
(4) The arbitral tribunal (when reconstituted) shall determine whether and if so to what extent the previous proceedings should stand.
(5) The reconstitution of the arbitral tribunal shall not affect any right of a party to challenge the previous proceedings on any ground which had arisen before the arbitrator ceased to hold office.
(6) The ceasing to hold office by the arbitrator shall not affect any appointment by him (alone or jointly) of another arbitrator, in particular any appointment of a presiding arbitrator.
Decision by panel of arbitrators
19.—(1) In arbitral proceedings with more than one arbitrator, any decision of the arbitral tribunal shall be made, unless otherwise agreed by the parties, by all or a majority of all its members.
(2) Any question of procedure may be decided by a presiding arbitrator if so authorised by the parties or all members of the arbitral tribunal.
Liability of arbitrator
20. An arbitrator shall not be liable for —
(a) negligence in respect of anything done or omitted to be done in the capacity of the arbitrator; or
(b) any mistake of law, fact or procedure made in the course of arbitral proceedings or in the making of an arbitral award.
PART VI
JURISDICTION OF ARBITRAL TRIBUNAL
Separability of arbitration clause and competence of arbitral tribunal to rule on its own jurisdiction
21.—(1) The arbitral tribunal may rule on its own jurisdiction, including a plea that it has no jurisdiction and any objections to the existence or validity of the arbitration agreement, at any stage of the arbitral proceedings.
(2) For the purpose of subsection (1), an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract.
(3) A decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure (as a matter of law) the invalidity of the arbitration clause.
(4) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence.
(5) A party shall not be precluded from raising the plea that the arbitral tribunal does not have jurisdiction by the fact that he has appointed, or participated in the appointment of, an arbitrator.
(6) A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings.
(7) Notwithstanding any delay in raising a plea referred to in subsection (4) or (6), the arbitral tribunal may admit such plea if it considers the delay to be justified in the circumstances.
(8) The arbitral tribunal may rule on a plea referred to in this section either as a preliminary question or in an award on the merits.
(9) If the arbitral tribunal rules —
(a) on a plea as a preliminary question that it has jurisdiction; or
(b) on a plea at any stage of the arbitral proceedings that it has no jurisdiction,
any party may, within 30 days after having received notice of that ruling, apply to the Court to decide the matter.
(10) [Deleted by Act 12 of 2012 wef 01/06/2012]
(11) [Deleted by Act 12 of 2012 wef 01/06/2012]
Appeal on ruling of jurisdiction
21A.—(1) An appeal from the decision of the High Court made under section 21 shall lie to the Court of Appeal only with the leave of the High Court.
(2) There shall be no appeal against a refusal for grant of leave of the High Court.
(3) Where the High Court, or the Court of Appeal on appeal, decides that the arbitral tribunal has jurisdiction —
(a) the arbitral tribunal shall continue the arbitral proceedings and make an award; and
(b) where any arbitrator is unable or unwilling to continue the arbitral proceedings, the mandate of that arbitrator shall terminate and a substitute arbitrator shall be appointed in accordance with section 18.
(4) In making a ruling or decision under this section or section 21 that the arbitral tribunal has no jurisdiction, the arbitral tribunal, the High Court or the Court of Appeal (as the case may be) may make an award or order of costs of the proceedings, including the arbitral proceedings (as the case may be), against any party.
(5) Where an award of costs is made by the arbitral tribunal under subsection (4), section 39(1) shall apply with the necessary modifications.
(6) Where an application is made pursuant to section 21 ―
(a) such application shall not operate as a stay of the arbitral proceedings or of execution of any award or order made in the arbitral proceedings unless the High Court orders otherwise; and
(b) no intermediate act or proceeding shall be invalidated except so far as the High Court may direct.
(7) Where there is an appeal from the decision of the High Court pursuant to subsection (1) —
(a) such appeal shall not operate as a stay of the arbitral proceedings or of execution of any award or order made in the arbitral proceedings unless the High Court or the Court of Appeal orders otherwise; and
(b) no intermediate act or proceeding shall be invalidated except so far as the Court of Appeal may direct.
PART VII
ARBITRAL PROCEEDINGS
General duties of arbitral tribunal
22. The arbitral tribunal shall act fairly and impartially and shall give each party a reasonable opportunity of presenting his case.
Determination of rules of procedure
23.—(1) Subject to the provisions of this Act, the parties are free to agree on the procedure to be followed by the arbitral tribunal in conducting the proceedings.
(2) Failing such agreement, the arbitral tribunal may, subject to the provisions of this Act, conduct the arbitration in such manner as it considers appropriate.
(3) The power conferred on the arbitral tribunal under subsection (2) includes the power to determine the admissibility, relevance, materiality and weight of any evidence.
Statements of claim and defence
24.—(1) Within the period of time agreed by the parties or, failing such agreement, as determined by the arbitral tribunal, the claimant shall state —
(a) the facts supporting his claim;
(b) the points at issue; and
(c) the relief or remedy sought,
and the respondent shall state his defence in respect of the particulars set out in this subsection, unless the parties have otherwise agreed to the required elements of such statements.
(2) The parties may submit to the arbitral tribunal with their statements, all documents they consider to be relevant or other documents which refer to such documents, or other evidence.
(3) Except as otherwise agreed by the parties, either party may amend or supplement his claim or defence during the course of the arbitral proceedings, unless the arbitral tribunal considers it inappropriate to allow such amendment, having regard to the delay in making the amendment.
Hearings and written proceedings
25.—(1) Subject to any contrary agreement by the parties, the arbitral tribunal shall determine if proceedings are to be conducted by oral hearing for the presentation of evidence or oral argument or on the basis of documents and other materials.
(2) Unless the parties have agreed that no hearings shall be held, the arbitral tribunal shall, upon the request of a party, hold such hearings at an appropriate stage of the proceedings.
(3) The parties shall be given sufficient notice in advance of any hearing and of any meeting of the arbitral tribunal for the purposes of inspection of goods, other property or documents.
(4) All statements, documents or other information supplied to the arbitral tribunal by one party shall be communicated to the other party.
(5) Any expert report or evidentiary document on which the arbitral tribunal may rely in making its decision shall be communicated to the parties.
Consolidation of proceedings and concurrent hearings
26.—(1) The parties may agree —
(a) that the arbitral proceedings shall be consolidated with other arbitral proceedings; or
(b) that concurrent hearings shall be held,
on such terms as may be agreed.
(2) Unless the parties agree to confer such power on the arbitral tribunal, the tribunal has no power to order consolidation of arbitral proceedings or concurrent hearings.
Power to appoint experts
27.—(1) Unless otherwise agreed by the parties, the arbitral tribunal may —
(a) appoint one or more experts to report to it on specific issues to be determined by the tribunal; and
(b) require a party to give the expert any relevant information or to produce, or to provide access to, any relevant documents, goods or other property for his inspection.
(2) Unless otherwise agreed by the parties, if a party so requests or if the arbitral tribunal considers it necessary, the expert shall, after delivery of his written or oral report, participate in a hearing where the parties have the opportunity to put questions to him and to present other expert witnesses in order to testify on the points at issue.
General powers exercisable by arbitral tribunal
28.—(1) The parties may agree on the powers which may be exercised by the arbitral tribunal for the purposes of and in relation to the arbitral proceedings.
(2) Without prejudice to the powers conferred on the arbitral tribunal by the parties under subsection (1), the tribunal shall have powers to make orders or give directions to any party for —
(a) security for costs;
(b) discovery of documents and interrogatories;
(c) giving of evidence by affidavit;
(d) a party or witness to be examined on oath or affirmation, and may for that purpose administer any necessary oath or take any necessary affirmation;
(e) the preservation and interim custody of any evidence for the purposes of the proceedings;
(f) samples to be taken from, or any observation to be made of or experiment conducted upon, any property which is or forms part of the subject-matter of the dispute; and
(g) the preservation, interim custody or sale of any property which is or forms part of the subject-matter of the dispute.
(3) The power of the arbitral tribunal to order a claimant to provide security for costs as referred to in subsection (2)(a) shall not be exercised by reason only that the claimant is —
(a) an individual ordinarily resident outside Singapore; or
(b) a corporation or an association incorporated or formed under the law of a country outside Singapore, or whose central management and control is exercised outside Singapore.
(4) All orders or directions made or given by an arbitral tribunal in the course of an arbitration shall, by leave of the Court, be enforceable in the same manner as if they were orders made by the Court and, where leave is so given, judgment may be entered in terms of the order or direction.
Powers of arbitral tribunal in case of party’s default
29.—(1) The parties may agree on the powers which may be exercised by the arbitral tribunal in the case of a party’s failure to take any necessary action for the proper and expeditious conduct of the proceedings.
(2) Unless otherwise agreed by the parties, if, without showing sufficient cause —
(a) the claimant fails to communicate his statement of claim in accordance with section 24, the arbitral tribunal may terminate the proceedings;
(b) the respondent fails to communicate his statement of defence in accordance with section 24, the arbitral tribunal may continue the proceedings without treating such failure in itself as an admission of the claimant’s allegations; and
(c) any party fails to appear at a hearing or to produce documentary evidence, the arbitral tribunal may continue the proceedings and make the award on the evidence before it.
(3) If the arbitral tribunal is satisfied that there has been inordinate and inexcusable delay on the part of the claimant in pursuing his claim, and the delay —
(a) gives rise, or is likely to give rise, to a substantial risk that it is not possible to have a fair resolution of the issues in that claim; or
(b) has caused, or is likely to cause, serious prejudice to the respondent,
the tribunal may make an award dismissing the claim.
Witnesses may be summoned by subpoena
30.—(1) Any party to an arbitration agreement may take out a subpoena to testify or a subpoena to produce documents.
(2) The Court may order that a subpoena to testify or a subpoena to produce documents shall be issued to compel the attendance before an arbitral tribunal of a witness wherever he may be within Singapore.
(3) The Court may also issue an order under section 38 of the Prisons Act (Cap. 247) to bring up a prisoner for examination before an arbitral tribunal.
(4) No person shall be compelled under any such subpoena to produce any document which he could not be compelled to produce on the trial of an action.
Court’s powers exercisable in support of arbitral proceedings
31.—(1) The Court shall have the following powers for the purpose of and in relation to an arbitration to which this Act applies:
(a) the same power to make orders in respect of any of the matters set out in section 28 as it has for the purpose of and in relation to an action or matter in the Court;
(b) securing the amount in dispute;
(c) ensuring that any award which may be made in the arbitral proceedings is not rendered ineffectual by the dissipation of assets by a party; and
(d) an interim injunction or any other interim measure.
(2) An order made by the Court under this section shall cease to have effect in whole or in part (as the case may be) if the arbitral tribunal, or any such arbitral or other institution or person having power to act in relation to the subject-matter of the order, makes an order which expressly relates to the whole or part of that order of the Court.
(3) The Court, in exercising any power under this section, shall have regard to —
(a) any application made before the arbitral tribunal; or
(b) any order made by the arbitral tribunal,
in respect of the same issue.
(4) Provision may be made by Rules of Court for conferring on the Registrar of the Supreme Court (within the meaning of the Supreme Court of Judicature Act (Cap. 322)) or other officer of the Court all or any of the jurisdiction conferred by this Act on the Court.
PART VIII
AWARD
Law applicable to substance of dispute
32.—(1) The arbitral tribunal shall decide the dispute in accordance with the law chosen by the parties as applicable to the substance of the dispute.
(2) If or to the extent that the parties have not chosen the law applicable to the substance of their dispute, the arbitral tribunal shall apply the law determined by the conflict of laws rules.
(3) The arbitral tribunal may decide the dispute, if the parties so agree, in accordance with such other considerations as are agreed by them or determined by the tribunal.
Awards made on different issues
33.—(1) Unless otherwise agreed by the parties, the arbitral tribunal may make more than one award at different points in time during the proceedings on different aspects of the matters to be determined.
(2) The arbitral tribunal may, in particular, make an award relating to —
(a) an issue affecting the whole claim; or
(b) a part only of the claim, counter-claim or cross-claim, which is submitted to the tribunal for decision.
(3) If the arbitral tribunal makes an award under this section, it shall specify in its award, the issue, or claim or part of a claim, which is the subject-matter of the award.
Remedies
34.—(1) The parties may agree on the powers exercisable by the arbitral tribunal as regards remedies.
(2) Unless otherwise agreed by the parties, the arbitral tribunal may award any remedy or relief that could have been ordered by the Court if the dispute had been the subject of civil proceedings in that Court.
Interest
35.—(1) Subject to subsection (3), unless otherwise agreed by the parties, the arbitral tribunal may, in the arbitral proceedings before it, award simple or compound interest from such date, at such rate and with such rest as the arbitral tribunal considers appropriate, for any period ending not later than the date of payment on the whole or any part of —
(a) any sum which is awarded by the arbitral tribunal in the arbitral proceedings;
(b) any sum which is in issue in the arbitral proceedings but is paid before the date of the award; or
(c) costs awarded or ordered by the arbitral tribunal in the arbitral proceedings.
(2) Nothing in subsection (1) shall affect any other power of the arbitral tribunal to award interest.
(3) Where an award directs a sum to be paid, that sum shall, unless the award otherwise directs, carry interest as from the date of the award and at the same rate as a judgment debt.
Extension of time for making award
36.—(1) Where the time for making an award is limited by the arbitration agreement, the Court may by order, unless otherwise agreed by the parties, extend that time.
(2) An application for an order under this section may be made —
(a) upon notice to the parties, by the arbitral tribunal; or
(b) upon notice to the arbitral tribunal and the other parties, by any party to the proceedings.
(3) An application under this section shall not be made unless all available tribunal processes for application of extension of time have been exhausted.
(4) The Court shall not make an order under this section unless it is satisfied that substantial injustice would otherwise be done.
(5) The Court may extend the time for such period and on such terms as it thinks fit, and may do so whether or not the time previously fixed by or under the arbitration agreement or by a previous order has expired.
(6) The leave of the Court shall be required for any appeal from a decision of the Court under this section.
Award by consent
37.—(1) If, during arbitral proceedings, the parties settle the dispute, the arbitral tribunal shall terminate the proceedings and, if requested by the parties and not objected to by the arbitral tribunal, record the settlement in the form of an arbitral award on agreed terms.
(2) An arbitral award on agreed terms —
(a) shall be made in accordance with section 38;
(b) shall state that it is an award; and
(c) shall have the same status and effect as any other award on the merits of the case.
(3) An award on agreed terms may, with the leave of the Court, be enforced in the same manner as a judgment or order to the same effect, and where leave is so given, judgment may be entered in terms of the award.
Form and contents of award
38.—(1) The award shall be made in writing and shall be signed —
(a) in the case of a single arbitrator, by the arbitrator himself; or
(b) in the case of 2 or more arbitrators, by all the arbitrators or the majority of the arbitrators provided that the reason for any omitted signature of any arbitrator is stated.
(2) The award shall state the reasons upon which it is based, unless the parties have agreed that no grounds are to be stated or the award is an award on agreed terms under section 37.
(3) The date of the award and place of arbitration shall be stated in the award.
(4) The award shall be deemed to have been made at the place of arbitration.
(5) After the award is made, a copy of the award signed by the arbitrators in accordance with subsection (1) shall be delivered to each party.
Costs of arbitration
39.—(1) Any costs directed by an award to be paid shall, unless the award otherwise directs, be taxed by the Registrar of the Supreme Court within the meaning of the Supreme Court of Judicature Act (Cap. 322).
(2) Subject to subsection (3), any provision in an arbitration agreement to the effect that the parties or any party shall in any event pay their or his own costs of the reference or award or any part thereof shall be void; and this Act shall, in the case of an arbitration agreement containing any such provision, have effect as if there were no such provision.
(3) Subsection (2) shall not apply where a provision in an arbitration agreement to the effect that the parties or any party shall in any event pay their or his own costs is part of an agreement to submit to arbitration a dispute which has arisen before the making of such agreement.
(4) If no provision is made by an award with respect to the costs of the reference, any party to the reference may, within 14 days of the delivery of the award or such further time as the arbitral tribunal may allow, apply to the arbitral tribunal for an order directing by and to whom such costs shall be paid.
(5) The arbitral tribunal shall, after giving the parties a reasonable opportunity to be heard, amend its award by adding thereto such directions as it thinks fit with respect to the payment of the costs of the reference.
Fees of arbitrator
40.—(1) The parties are jointly and severally liable to pay to the arbitrators such reasonable fees and expenses as are appropriate in the circumstances.
(2) Unless the fees of the arbitral tribunal have been fixed by written agreement or such agreement has provided for determination of the fees by a person or institution agreed to by the parties, any party to the arbitration may require that such fees be taxed by the Registrar of the Supreme Court within the meaning of the Supreme Court of Judicature Act (Cap. 322).
Power to withhold award in case of non-payment
41.—(1) The arbitral tribunal may refuse to deliver an award to the parties if the parties have not made full payment of the fees and expenses of the arbitrators.
(2) Where subsection (1) applies, a party to the arbitral proceedings may, upon notice to the other parties and the arbitral tribunal, apply to the Court, which may order that —
(a) the arbitral tribunal shall deliver the award upon payment into Court by the applicant of the fees and expenses demanded, or such lesser amount as the Court may specify;
(b) the amount of the fees and expenses demanded shall be taxed by the Registrar of the Supreme Court; and
(c) out of the money paid into Court, the arbitral tribunal shall be paid such fees and expenses as may be found to be properly payable and the balance of such money (if any) shall be paid out to the applicant.
(3) A taxation of fees under this section shall be reviewed in the same manner as a taxation of costs.
(4) The arbitrator shall be entitled to appear and be heard on any taxation or review of taxation under this section.
(5) For the purpose of this section, the amount of fees and expenses properly payable is the amount the applicant is liable to pay under section 40 or under any agreement relating to the payment of fees and expenses of the arbitrators.
(6) No application to the Court may be made unless the Court is satisfied that the applicant has first exhausted any available arbitral process for appeal or review of the amount of the fees or expenses demanded by the arbitrators.
(7) This section shall apply to any arbitral or other institution or person vested with powers by the parties in relation to the delivery of the award by the tribunal and any reference to the fees and expenses of the arbitrators shall be construed as including the fees and expenses of that institution or person.
(8) The leave of the Court shall be required for any appeal from a decision of the Court under this section.
Court may charge property with payment of solicitor’s costs in arbitration
42. Section 117 of the Legal Profession Act (Cap. 161) (which empowers a Court in which a solicitor has been employed in any proceeding to charge property recovered or preserved in the proceeding with the payment of his costs) shall apply as if an arbitration were a proceeding in the Court, and the Court may make declarations and orders accordingly.
Correction or interpretation of award and additional award
43.—(1) A party may, within 30 days of the receipt of the award, unless another period of time has been agreed upon by the parties —
(a) upon notice to the other parties, request the arbitral tribunal to correct in the award any error in computation, any clerical or typographical error, or other error of similar nature; and
(b) upon notice to the other parties, request the arbitral tribunal to give an interpretation of a specific point or part of the award, if such request is also agreed to by the other parties.
(2) If the arbitral tribunal considers the request in subsection (1) to be justified, the tribunal shall make such correction or give such interpretation within 30 days of the receipt of the request and such interpretation shall form part of the award.
(3) The arbitral tribunal may correct any error of the type referred to in subsection (1)(a) or give an interpretation referred to in subsection (1)(b), on its own initiative, within 30 days of the date of the award.
(4) Unless otherwise agreed by the parties, a party may, within 30 days of receipt of the award and upon notice to the other party, request the arbitral tribunal to make an additional award as to claims presented during the arbitral proceedings but omitted from the award.
(5) If the arbitral tribunal considers the request in subsection (4) to be justified, the tribunal shall make the additional award within 60 days of the receipt of such request.
(6) The arbitral tribunal may, if necessary, extend the period of time within which it shall make a correction, interpretation or an additional award under this section.
(7) Section 38 shall apply to an award in respect of which a correction or interpretation has been made under this section and to an additional award.
Effect of award
44.—(1) An award made by the arbitral tribunal pursuant to an arbitration agreement shall be final and binding on the parties and on any person claiming through or under them and may be relied upon by any of the parties by way of defence, set-off or otherwise in any proceedings in any court of competent jurisdiction.
(2) Except as provided in section 43, upon an award being made, including an award made in accordance with section 33, the arbitral tribunal shall not vary, amend, correct, review, add to or revoke the award.
(3) For the purposes of subsection (2), an award is made when it has been signed and delivered in accordance with section 38.
(4) This section shall not affect the right of a person to challenge the award by any available arbitral process of appeal or review or in accordance with the provisions of this Act.
PART IX
POWERS OF COURT IN RELATION TO AWARD
Determination of preliminary point of law
45.—(1) Unless otherwise agreed by the parties, the Court may, on the application of a party to the arbitral proceedings who has given notice to the other parties, determine any question of law arising in the course of the proceedings which the Court is satisfied substantially affects the rights of one or more of the parties.
(2) The Court shall not consider an application under this section unless —
(a) it is made with the agreement of all parties to the proceedings; or
(b) it is made with the permission of the arbitral tribunal and the Court is satisfied that —
(i) the determination of the question is likely to produce substantial savings in costs; and
(ii) the application is made without delay.
(3) The application shall identify the question of law to be determined and, except where made with the agreement of all parties to the proceedings, shall state the grounds on which it is said that the question should be decided by the Court.
(4) Unless otherwise agreed by the parties, the arbitral tribunal may continue the arbitral proceedings and make an award while an application to the Court under this section is pending.
(5) Except with the leave of the Court, no appeal shall lie from a decision of the Court on whether the conditions in subsection (2) are met.
(6) The decision of the Court on a question of law shall be a judgment of the Court for the purposes of an appeal to the Court of Appeal.
(7) The Court may give leave to appeal against the decision of the Court in subsection (6) only if the question of law before it is one of general importance, or is one which for some other special reason should be considered by the Court of Appeal.
Enforcement of award
46.—(1) An award made by the arbitral tribunal pursuant to an arbitration agreement may, with leave of the Court, be enforced in the same manner as a judgment or order of the Court to the same effect.
(2) Where leave of the Court is so granted, judgment may be entered in the terms of the award.
(3) Notwithstanding section 3, subsection (1) shall apply to an award irrespective of whether the place of arbitration is Singapore or elsewhere.
No judicial review of award
47. The Court shall not have jurisdiction to confirm, vary, set aside or remit an award on an arbitration agreement except where so provided in this Act.
Court may set aside award
48.—(1) An award may be set aside by the Court —
(a) if the party who applies to the Court to set aside the award proves to the satisfaction of the Court that —
(i) a party to the arbitration agreement was under some incapacity;
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it, or failing any indication thereon, under the laws of Singapore;
(iii) 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;
(iv) the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration, except that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the award which contains decisions on matters not submitted to arbitration may be set aside;
(v) the composition of the arbitral tribunal or the arbitral procedure is not in accordance with the agreement of the parties, unless such agreement is contrary to any provisions of this Act from which the parties cannot derogate, or, in the absence of such agreement, is contrary to the provisions of this Act;
(vi) the making of the award was induced or affected by fraud or corruption;
(vii) a breach of the rules of natural justice occurred in connection with the making of the award by which the rights of any party have been prejudiced; or
(b) if the Court finds that —
(i) the subject-matter of the dispute is not capable of settlement by arbitration under this Act; or
(ii) the award is contrary to public policy.
(2) An application for setting aside an award may not be made after the expiry of 3 months from the date on which the party making the application had received the award, or if a request has been made under section 43, from the date on which that request had been disposed of by the arbitral tribunal.
(3) When a party applies to the Court to set aside an award under this section, the Court may, where appropriate and so requested by a party, suspend the proceedings for setting aside an award, for such period of time as it may determine, to allow the arbitral tribunal to resume the arbitral proceedings or take such other action as may eliminate the grounds for setting aside an award.
Appeal against award
49.—(1) A party to arbitral proceedings may (upon notice to the other parties and to the arbitral tribunal) appeal to the Court on a question of law arising out of an award made in the proceedings.
(2) Notwithstanding subsection (1), the parties may agree to exclude the jurisdiction of the Court under this section and an agreement to dispense with reasons for the arbitral tribunal’s award shall be treated as an agreement to exclude the jurisdiction of the Court under this section.
(3) An appeal shall not be brought under this section except —
(a) with the agreement of all the other parties to the proceedings; or
(b) with the leave of the Court.
(4) The right to appeal under this section shall be subject to the restrictions in section 50.
(5) Leave to appeal shall be given only if the Court is satisfied that —
(a) the determination of the question will substantially affect the rights of one or more of the parties;
(b) the question is one which the arbitral tribunal was asked to determine;
(c) on the basis of the findings of fact in the award —
(i) the decision of the arbitral tribunal on the question is obviously wrong; or
(ii) the question is one of general public importance and the decision of the arbitral tribunal is at least open to serious doubt; and
(d) despite the agreement of the parties to resolve the matter by arbitration, it is just and proper in all the circumstances for the Court to determine the question.
(6) An application for leave to appeal under this section shall identify the question of law to be determined and state the grounds on which it is alleged that leave to appeal should be granted.
(7) The leave of the Court shall be required for any appeal from a decision of the Court under this section to grant or refuse leave to appeal.
(8) On an appeal under this section, the Court may by order —
(a) confirm the award;
(b) vary the award;
(c) remit the award to the arbitral tribunal, in whole or in part, for reconsideration in the light of the Court’s determination; or
(d) set aside the award in whole or in part.
(9) The Court shall not exercise its power to set aside an award, in whole or in part, unless it is satisfied that it would be inappropriate to remit the matters in question to the arbitral tribunal for reconsideration.
(10) The decision of the Court on an appeal under this section shall be treated as a judgment of the Court for the purposes of an appeal to the Court of Appeal.
(11) The Court may give leave to appeal against the decision of the Court in subsection (10) only if the question of law before it is one of general importance, or one which for some other special reason should be considered by the Court of Appeal.
Supplementary provisions to appeal under section 49
50.—(1) This section shall apply to an application or appeal under section 49.
(2) An application or appeal may not be brought if the applicant or appellant has not first exhausted —
(a) any available arbitral process of appeal or review; and
(b) any available recourse under section 43 (correction or interpretation of award and additional award).
(3) Any application or appeal shall be brought within 28 days of the date of the award or, if there has been any arbitral process of appeal or review, of the date when the applicant or appellant was notified of the result of that process.
(4) If on an application or appeal it appears to the Court that the award —
(a) does not contain the arbitral tribunal’s reasons; or
(b) does not set out the arbitral tribunal’s reasons in sufficient detail to enable the Court to properly consider the application or appeal,
the Court may order the arbitral tribunal to state the reasons for its award in sufficient detail for that purpose.
(5) Where the Court makes an order under subsection (4), it may make such further order as it thinks fit with respect to any additional costs of the arbitration resulting from its order.
(6) The Court may order the applicant or appellant to provide security for the costs of the application or appeal, and may direct that the application or appeal be dismissed if the order is not complied with.
(7) The power to order security for costs shall not be exercised by reason only that the applicant or appellant is —
(a) an individual ordinarily resident outside Singapore; or
(b) a corporation or association incorporated or formed under the law of a country outside Singapore or whose central management and control is exercised outside Singapore.
(8) The Court may order that any money payable under the award shall be brought into Court or otherwise secured pending the determination of the application or appeal, and may direct that the application or appeal be dismissed if the order is not complied with.
(9) The Court may grant leave to appeal subject to conditions to the same or similar effect as an order under subsection (6) or (8) and this shall not affect the general discretion of the Court to grant leave subject to conditions.
Effect of order of Court upon appeal against award
51.—(1) Where the Court makes an order under section 49 with respect to an award, subsections (2), (3) and (4) shall apply.
(2) Where the award is varied by the Court, the variation shall have effect as part of the arbitral tribunal’s award.
(3) Where the award is remitted to the arbitral tribunal, in whole or in part, for reconsideration, the tribunal shall make a fresh award in respect of the matters remitted within 3 months of the date of the order for remission or such longer or shorter period as the Court may direct.
(4) Where the award is set aside or declared to be of no effect, in whole or in part, the Court may also order that any provision that an award is a condition precedent to the bringing of legal proceedings in respect of a matter to which the arbitration agreement applies, shall be of no effect as regards the subject-matter of the award or, as the case may be, the relevant part of the award.
Application for leave of Court, etc.
52.—(1) An application for the leave of the Court to appeal or an application referred to in section 21A(1), 36(6) or 49(3)(b) or (7) shall be made in such manner as may be prescribed in the Rules of Court.
(2) The Court shall determine an application for leave to appeal without a hearing unless it appears to the Court that a hearing is required.
(3) For the purposes of this section —
(a) an application for leave of the Court may be heard and determined by a Judge in Chambers; and
(b) the Court of Appeal shall have the like powers and jurisdiction on the hearing of such applications as the High Court or any Judge in Chambers has on the hearing of such applications.
PART X
MISCELLANEOUS
Notice and other requirements in connection with legal proceedings
53.—(1) References in this Act to an application, appeal or other step in relation to legal proceedings being taken upon notice to the other parties to the arbitral proceedings, or to the arbitral tribunal, are references to such notice of the originating process as is required by the Rules of Court.
(2) Subject to any provision made by Rules of Court, a requirement to give notice to the arbitral tribunal of legal proceedings shall be construed —
(a) if there is more than one arbitrator, as a requirement to give notice to each of them; and
(b) if the arbitral tribunal is not fully constituted, as a requirement to give notice to any arbitrator who has been appointed.
(3) References in this Act to making an application or appeal to the Court within a specified period are references to the issue within that period of the appropriate originating process in accordance with the Rules of Court.
(4) Where any provision of this Act requires an application or appeal to be made to the Court within a specified time, the Rules of Court relating to the reckoning of periods, the extending or abridging of periods, and the consequences of not taking a step within the period prescribed by the Rules, shall apply in relation to that requirement.
(5) Provision may be made by Rules of Court amending the provisions of this Act —
(a) with respect to the time within which any application or appeal to the Court must be made;
(b) so as to keep any provision made by this Act in relation to arbitral proceedings in step with the corresponding provision of the Rules of Court applying in relation to proceedings in the Court; or
(c) so as to keep any provision made by this Act in relation to legal proceedings in step with the corresponding provision of the Rules of Court applying generally in relation to proceedings in the Court.
(6) Nothing in this section shall affect the generality of the power of the Rules Committee to make Rules of Court.
Powers of Court and Registrar
54. Provision may be made by Rules of Court for conferring on the Registrar of the Supreme Court or other officer of the Court all or any of the jurisdiction conferred by this Act on the Court.
Rules of Court
55. The Rules Committee constituted under section 80 of the Supreme Court of Judicature Act (Cap. 322) may make Rules of Court regulating the practice and procedure of any court in respect of any matter under this Act.
Proceedings to be heard otherwise than in open court
56. Proceedings under this Act in any court shall, on the application of any party to the proceedings, be heard otherwise than in open court.
Restrictions on reporting of proceedings heard otherwise than in open court
57.—(1) This section shall apply to proceedings under this Act in any court heard otherwise than in open court.
(2) A court hearing any proceedings to which this section applies shall, on the application of any party to the proceedings, give directions as to whether any and, if so, what information relating to the proceedings may be published.
(3) A court shall not give a direction under subsection (2) permitting information to be published unless —
(a) all parties to the proceedings agree that such information may be published; or
(b) the court is satisfied that the information, if published in accordance with such directions as it may give, would not reveal any matter, including the identity of any party to the proceedings, that any party to the proceedings reasonably wishes to remain confidential.
(4) Notwithstanding subsection (3), where a court gives grounds of decision for a judgment in respect of proceedings to which this section applies and considers that judgment to be of major legal interest, the court shall direct that reports of the judgment may be published in law reports and professional publications but, if any party to the proceedings reasonably wishes to conceal any matter, including the fact that he was such a party, the court shall —
(a) give directions as to the action that shall be taken to conceal that matter in those reports; and
(b) if it considers that a report published in accordance with directions given under paragraph (a) would be likely to reveal that matter, direct that no report shall be published until after the end of such period, not exceeding 10 years, as it considers appropriate.
Application to references under statutory powers
58. This Act shall apply in relation to every arbitration under any other written law (other than the International Arbitration Act (Cap. 143A)), as if the arbitration were commenced pursuant to an arbitration agreement, except in so far as this Act is inconsistent with that other written law.
Immunity of arbitral institutions
59.—(1) The appointing authority, or an arbitral or other institution or person designated or requested by the parties to appoint or nominate an arbitrator, shall not be liable for anything done or omitted in the discharge or purported discharge of that function unless the act or omission is shown to have been in bad faith.
(2) The appointing authority, or an arbitral or other institution or person by whom an arbitrator is appointed or nominated, shall not be liable, by reason only of having appointed or nominated him, for anything done or omitted by the arbitrator, his employees or agents in the discharge or purported discharge of his functions as arbitrator.
(3) This section shall apply to an employee or agent of the appointing authority or of an arbitral or other institution or person as it applies to the appointing authority, institution or person himself.
Authentication of awards and arbitration agreements
59A.—(1) For the purposes of the enforcement of an award in any Convention country, the Minister may by order appoint such persons holding office in such arbitral institution or other organisation as the Minister may specify in the order, to authenticate any award or arbitration agreement or to certify copies thereof.
(2) Any person appointed under subsection (1) —
(a) shall comply with any condition imposed by the Minister; and
(b) shall not, without the written consent of the parties, directly or indirectly disclose any matter, including the identity of any party to the award or arbitration agreement, to any third party.
(3) An award or arbitration agreement or a copy thereof duly authenticated or certified by a person appointed under subsection (1) shall be deemed to have been authenticated or certified by a competent authority in Singapore for the purposes of enforcement in any Convention country.
(4) For the avoidance of doubt, nothing in this section shall —
(a) prevent any person from authenticating any award or arbitration agreement or certifying copies thereof in any other manner or method or by any other person, institution or organisation; or
(b) affect the right of a person to challenge or appeal against any award by any available arbitral process of appeal or review, or in accordance with the provisions of this Act.
(5) In this section, “Convention country” has the same meaning as in section 27(1) of the International Arbitration Act (Cap. 143A).
Service of notices
60.—(1) The parties are free to agree on the manner of service of any notice or other document required or authorised to be given or served in pursuance of the arbitration agreement or for the purposes of the arbitral proceedings.
(2) If or to the extent that there is no such agreement as is referred to in subsection (1), subsections (3) and (4) shall apply.
(3) A notice or other document may be served on a person by any effective means.
(4) If a notice or other document is addressed, prepaid and delivered by post —
(a) to the addressee’s usual or last known place of residence or, if he is or has been carrying on a trade, profession or business, his usual or last known place of business; or
(b) if the addressee is a body corporate, to the body corporate’s registered office,
it shall be treated as effectively served.
(5) This section shall not apply to the service of documents for the purposes of legal proceedings, for which provision is made by Rules of Court.
(6) References in this Part to a notice or other document include any form of communication in writing and references to giving or serving a notice or other document shall be construed accordingly.
Reckoning periods of time
61.—(1) The parties may agree on the method of reckoning periods of time for the purposes of —
(a) any provision agreed by them; or
(b) any provision of this Act having effect in default of such agreement.
(2) If or to the extent that the parties have not agreed on the method of reckoning time, periods of time shall be reckoned in accordance with this section.
(3) Where the act is required to be done within a specified period after or from a specified date, the period shall begin immediately after that date.
(4) Where an act is required to be done within or not less than a specified period before a specified date, the period shall end immediately before that date.
(5) Where the act is required to be done, a specified number of clear days after a specified date, at least that number of days shall intervene between the day on which the act is done and that date.
(6) Where the period in question being a period of 7 days or less would include a Saturday, Sunday or a public holiday, that day shall be excluded.
Appointment of mediator
62.—(1) In any case where an agreement provides for the appointment of a mediator by a person who is not one of the parties and that person refuses to make the appointment or does not make the appointment within the time specified in the agreement or, if no time is so specified, within a reasonable time of being requested by any party to the agreement to make the appointment, the Chairman of the Singapore Mediation Centre may, on the application of any party to the agreement, appoint a mediator who shall have the like powers to act in the mediation proceedings as if he had been appointed in accordance with the terms of the agreement.
(2) The Chief Justice may, if he thinks fit, by notification published in the Gazette, appoint any other person to exercise the powers of the Chairman of the Singapore Mediation Centre under subsection (1).
(3) Where an arbitration agreement provides for the appointment of a mediator and further provides that the person so appointed shall act as an arbitrator in the event of the mediation proceedings failing to produce a settlement acceptable to the parties —
(a) no objection shall be taken to the appointment of such person as an arbitrator, or to his conduct of the arbitral proceedings, solely on the ground that he had acted previously as a mediator in connection with some or all of the matters referred to arbitration; and
(b) if such person declines to act as an arbitrator, any other person appointed as an arbitrator shall not be required first to act as a mediator unless a contrary intention appears in the arbitration agreement.
(4) Unless a contrary intention appears therein, an agreement which provides for the appointment of a mediator shall be deemed to contain a provision that in the event of the mediation proceedings failing to produce a settlement acceptable to the parties within 4 months, or such longer period as the parties may agree to, of the date of the appointment of the mediator or, where he is appointed by name in the agreement, of the receipt by him of written notification of the existence of a dispute, the mediation proceedings shall thereupon terminate.
Power of arbitrator to act as mediator
63.—(1) If all parties to any arbitral proceedings consent in writing and for so long as no party has withdrawn his consent in writing, an arbitrator may act as a mediator.
(2) An arbitrator acting as a mediator —
(a) may communicate with the parties to the arbitral proceedings collectively or separately; and
(b) shall treat information obtained by him from a party to the arbitral proceedings as confidential, unless that party otherwise agrees or unless subsection (3) applies.
(3) Where confidential information is obtained by an arbitrator from a party to the arbitral proceedings during mediation proceedings and those proceedings terminate without the parties reaching agreement in settlement of their dispute, the arbitrator shall before resuming the arbitral proceedings disclose to all other parties to the arbitral proceedings as much of that information as he considers material to the arbitral proceedings.
(4) No objection shall be taken to the conduct of arbitral proceedings by a person solely on the ground that that person had acted previously as a mediator in accordance with this section.
(5) For the purposes of this section and section 62 —
(a) any reference to a mediator shall include a reference to any person who acts as a conciliator;
(b) any reference to mediation proceedings shall include a reference to conciliation proceedings.

Act to bind Government
64. This Act shall bind the Government.
Transitional provisions
65.—(1) This Act shall apply to arbitration proceedings commenced on or after 1st March 2002 but the parties may in writing agree that this Act shall apply to arbitration proceedings commenced before that date.
(2) Notwithstanding the repeal of the Arbitration Act (Cap. 10, 1985 Ed.), where the arbitration proceedings were commenced before 1st March 2002, the law governing the arbitration agreement and the arbitration shall be the law which would have applied if this Act had not been enacted.
(3) Where an arbitration agreement made or entered into before 1st March 2002 provides for the appointment of an umpire or an arbitral tribunal comprising 2 arbitrators, the law to the extent that it governs the appointment, role and function of the umpire shall be the law which would have applied if this Act had not been enacted.
(4) For the purposes of this section, arbitration proceedings are to be taken as having commenced on the date of the receipt by the respondent of a request for the dispute to be referred to arbitration, or, where the parties have agreed in writing that any other date is to be taken as the date of commencement of the arbitration proceedings, then on that date.

Though an arbitrator is specified in the agreement for arbitration, if circumstances so warrant, the Chief Justice or the designated Judge is free to appoint an independent arbitrator

Supreme court in the case of Union of India v. BESCO Ltd. [Civil Appeal
No.4483 of 2017], while examining the issue as to whether the Chief Justice of a
High Court or any person or institution designated by him, while exercising power
under Section 11(6) of the Arbitration and Conciliation Act, 1996 is bound to
nominate an arbitrator as specified in the agreement for arbitration, it was held that
“though an arbitrator is specified in the agreement for arbitration, if circumstances so
warrant, the Chief Justice or the designated Judge is free to appoint an independent
arbitrator, having due regard to the qualification, if any, and other aspects as
required under Section 11(8) of the Act.”[On 27th March, 2017]

Place of arbitration determines the law applicable to arbitration and related matters and in pursuance arbitration agreement if the arbitration took place outside India Part-I of the Arbitration Act to be excluded.

Supreme court in the case of Imax Corporation v. M/s E-City Entertainment (I) Pvt. Ltd. [Civil Appeal No.3885 of 2017], while addressing the issue as to whether the seat of arbitration itself is a decisive factor to exclude Part-I of the Arbitration and Conciliation Act, 1996, it was held that “the relationship between the seat of arbitration and the law governing arbitration is an integral one.”
It was held that “the place of arbitration determines the law that will apply to the
arbitration and related matters like challenges to the award etc.” and “if in pursuance
of the arbitration agreement, the arbitration took place outside India, there is a clear
exclusion of Part-I of the Arbitration Act.”

[On 10th March, 2017]

M/s. S. B. P. and Co. Versus M/s. Patel Engineering Ltd. and ANOTHER[ALL SC 2005 OCTOBER]

KEYWORDS:- ARBITRATION-

c

DATE:-26-10-2005-

What is the nature of the function of the Chief Justice or his designate under Section 11 of the Arbitration and Conciliation Act, 1996?

AIR 2006 SC 450 : (2005) 4 Suppl. SCR 688 : (2005) 8 SCC 618 : JT 2005 (9) SC 219 : (2005) 9 SCALE 1

(SUPREME COURT OF INDIA)

M/s. S. B. P. and Co. Appellant
Versus
M/s. Patel Engineering Ltd. and ANOTHER Respondent

(Before : R. C. Lahoti, C.J.I., B. N. Agrawal, Arun Kumar, G. P. Mathur, A. K. Mathur, P. K. Balasubramanyan And C. K. Thakker, JJ.)

Civil Appeal No. 4168 of 2003, with C. A. Nos. 4169, 4170-4173 of 2003, 4076 of 2004, 3777 of 2003 and 6562, 6563-6564, 6565-6566 of 2005 (Arising out of SLP (Civil) Nos. 3205, 14033-14034 of 2004 and 21272-21273 of 2002), Decided on : 26-10-2005.

Arbitration and Conciliation Act, 1996—Sections 11 and 11(6), Arbitration Act, 1940—Sections 2(b), 7, 8, 20 and 21—Arbitration and Conciliation Act, 1996—Section 85.

Judgment

P. K. Balasubramanyan, J—(For themself and on behalf of R. C. Lahoti, C.J. I., B. N. Agrawal, Arun Kumar, G. P. Mathur, A. K. Mathur, JJ.) :- Leave granted in SLP(C) Nos.3205/2004, 14033- 14034/2004, 21272-273/2002.

What is the nature of the function of the Chief Justice or his designate under Section 11 of the Arbitration and Conciliation Act, 1996 is the question that is posed before us. The three Judges bench decision in Konkan Rly. Corpn. Ltd. vs. Mehul Construction Co., [(2000) 7 SCC 201] as approved by the Constitution Bench in Konkan Railway Corpn. Ltd. and Anr. vs. Rani Construction Pvt. Ltd. [(2002) 2 SCC 388] has taken the view that it is purely an administrative function, that it is neither judicial nor quasi-judicial and the Chief Justice or his nominee performing the function under Section 11(6) of the Act, cannot decide any contentious issue between the parties. The correctness of the said view is questioned in these appeals.

2. Arbitration in India was earlier governed by the Indian Arbitration Act, 1859 with limited application and the Second Schedule to the Code of Civil Procedure, 1908. Then came the Arbitration Act, 1940. Section 8 of that Act conferred power on the Court to appoint an arbitrator on an application made in that behalf. Section 20 conferred a wider jurisdiction on the Court for directing the filing of the arbitration agreement and the appointment of an arbitrator. Section 21 conferred a power on the Court in a pending suit, on the agreement of parties, to refer the differences between them for arbitration in terms of the Act. The Act provided for the filing of the award in court, for the making of a motion by either of the parties to make the award a rule of court, a right to have the award set aside on the grounds specified in the Act and for an appeal against the decision on such a motion. This Act was replaced by the Arbitration and Conciliation Act, 1996 which, by virtue of Section 85, repealed the earlier enactment.

3. The Arbitration and Conciliation Act, 1996 (hereinafter referred to as ‘the Act’) was intended to comprehensively cover international and commercial arbitrations and conciliations as also domestic arbitrations and conciliations. It envisages the making of an arbitral procedure which is fair, efficient and capable of meeting the needs of the concerned arbitration and for other matters set out in the objects and reasons for the Bill. The Act was intended to be one to consolidate and amend the law relating to domestic arbitrations, international commercial arbitrations and enforcement of foreign arbitral awards, as also to define the law relating to conciliation and for matters connected therewith or incidental thereto. The preamble indicates that since the United Nations Commission on International Trade Law (UNCITRAL) has adopted a Model Law for International Commercial Arbitration and the General Assembly of the United Nations has recommended that all countries give due consideration to the Model Law and whereas the Model Law and the Rules make significant contribution to the establishment of a unified legal framework for a fair and efficient settlement of disputes arising in international commercial relations and since it was expedient to make a law respecting arbitration and conciliation taking into account the Model Law and the Rules, the enactment was being brought forward. The Act replaces the procedure laid down in Sections 8 and 20 of the Arbitration Act, 1940. Part I of the Act deals with arbitration. It contains Sections 2 to 43. Part II deals with enforcement of certain foreign awards, and Part III deals with conciliation and Part IV contains supplementary provisions. In this case, we are not concerned with Part III, and Parts II and IV have only incidental relevance. We are concerned with the provisions in Part I dealing with arbitration.

4. Section 7 of the Act read with Section 2 (b) defines an arbitration agreement. Section 2(h) defines ‘party’ to mean a party to an arbitration agreement. Section 4 deals with waiver of objections on the part of the party who has proceeded with an arbitration, without stating his objections referred to in the section, without undue delay. Section 5 indicates the extent of judicial intervention. It says that notwithstanding anything contained in any other law for the time being in force, in matters governed by Part I, no judicial authority shall intervene except where so provided in Part I. The expression ‘judicial authority’ is not defined. So, it has to be understood as taking in the courts or any other judicial fora. Section 7 defines an arbitration agreement and insists that it must be in writing and also explains when an arbitration agreement could be said to be in writing. Section 8 confers power on a judicial authority before whom an action is brought in a matter which is the subject of an arbitration agreement, to refer the dispute to arbitration, if a party applies for the same. Section 9 deals with the power of the Court to pass interim orders and the power to give interim protection in appropriate cases. It gives a right to a party, before or during arbitral proceedings or at any time after the making of the arbitral award but before its enforcement in terms of Section 36 of the Act, to apply to a court for any one of the orders specified therein. Chapter III of Part I deals with composition of arbitral tribunals. Section 10 gives freedom to the parties to determine the number of arbitrators but imposes a restriction that it shall not be an even number. Then comes Section 11 with which we are really concerned in these appeals.

5. The marginal heading of Section 11 is ‘Appointment of arbitrators’. Sub-Section (1) indicates that a person of any nationality may be an arbitrator, unless otherwise agreed to by the parties. Under sub-section (2), subject to sub-section (6), the parties are free to agree on a procedure for appointing the arbitrator or arbitrators. Under sub-section (3), failing any agreement in terms of sub-section (2), in an arbitration with three arbitrators, each party could appoint one arbitrator, and the two arbitrators so appointed, could appoint the third arbitrator, who would act as the presiding arbitrator. Under sub-section (4), the Chief Justice or any person or institution designated by him could make the appointment, in a case where sub-section (3) has application and where either the party or parties had failed to nominate their arbitrator or arbitrators or the two nominated arbitrators had failed to agree on the presiding arbitrator. In the case of a sole arbitrator, sub-section (5) provides for the Chief Justice or any person or institution designated by him, appointing an arbitrator on a request being made by one of the parties, on fulfilment of the conditions laid down therein. Then comes sub-section (6), which may be quoted hereunder with advantage:

“(6) Where, under an appointment procedure agreed upon by the parties,-

(a) a party fails to act as required under that procedure; or

(b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or

(c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure,

a party may request the Chief Justice or any person or institution designated by him to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.”

Sub-section (7) gives a finality to the decision rendered by the Chief Justice or the person or institution designated by him when moved under sub-section (4), or sub-section (5), or sub-section (6) of Section 11. Sub-section (8) enjoins the Chief Justice or the person or institution designated by him to keep in mind the qualifications required for an arbitrator by the agreement of the parties, and other considerations as are likely to secure the appointment of an independent and impartial arbitrator. Sub-section (9) deals with the power of the Chief Justice of India or a person or institution designated by him to appoint the sole or the third arbitrator in an international commercial arbitration. Sub-section (10) deals with Chief Justice’s power to make a scheme for dealing with matters entrusted to him by sub-section (4) or sub-section (5) or sub-section (6) of Section 11. Sub-section (11) deals with the respective jurisdiction of Chief Justices of different High Courts who are approached with requests regarding the same dispute and specifies as to who should entertain such a request. Sub-section 12 clause (a) clarifies that in relation to international arbitration, the reference in the relevant sub-sections to the ‘Chief Justice’ would mean the ‘Chief Justice of India’. Clause (b) indicates that otherwise the expression ‘Chief Justice’ shall be construed as a reference to the Chief Justice of the High Court within whose local limits the principal Court is situated. ‘Court’ is defined under Section 2(e) as the principal Civil Court of original jurisdiction in a district.

6. Section 12 sets out the grounds of challenge to the person appointed as arbitrator and the duty of an arbitrator appointed, to disclose any disqualification he may have. Sub-section (3) of Section 12 gives a right to the parties to challenge an arbitrator. Section 13 lays down the procedure for such a challenge. Section 14 takes care of the failure of or impossibility for an arbitrator to act and Section 15 deals with the termination of the mandate of the arbitrator and the substitution of another arbitrator. Chapter IV deals with the jurisdiction of arbitral tribunals. Section 16 deals with the competence of an arbitral tribunal, to rule on its jurisdiction. The arbitral tribunal may rule on its own jurisdiction, including ruling on any objection with respect to the existence or validity of the arbitration agreement. A person aggrieved by the rejection of his objection by the tribunal on its jurisdiction or the other matters referred to in that Section, has to wait until the award is made to challenge that decision in an appeal against the arbitral award itself in accordance with Section 34 of the Act. But an acceptance of the objection to jurisdiction or authority, could be challenged then and there, under Section 37 of the Act. Section 17 confers powers on the arbitral tribunal to make interim orders. Chapter V comprising of Sections 18 to 27 deals with the conduct of arbitral proceedings. Chapter VI containing Sections 28 to 33 deals with making of the arbitral award and termination of the proceedings. Chapter VII deals with recourse against an arbitral award. Section 34 contemplates the filing of an application for setting aside an arbitral award by making an application to the Court as defined in Section 2(e) of the Act. Chapter VIII deals with finality and enforcement of arbitral awards. Section 35 makes the award final and Section 36 provides for its enforcement under the Code of Civil Procedure, 1908 in the same manner as if it were a decree of court. Chapter IX deals with appeals and Section 37 enumerates the orders that are open to appeal. We have already referred to the right of appeal available under Section 37(2) of the Act, on the Tribunal accepting a plea that it does not have jurisdiction or when the arbitral tribunal accepts a plea that it is exceeding the scope of its authority. No second appeal is contemplated, but right to approach the Supreme Court is saved. Chapter X deals with miscellaneous matters. Section 43 makes the Limitation Act, 1963 applicable to proceedings under the Act as it applies to proceedings in Court.

7. We will first consider the question, as we see it. On a plain understanding of the relevant provisions of the Act, it is seen that in a case where there is an arbitration agreement, a dispute has arisen and one of the parties had invoked the agreed procedure for appointment of an arbitrator and the other party has not co-operated, the party seeking an arbitration, could approach the Chief Justice of the High Court if it is an internal arbitration or of the Supreme Court if it is an international arbitration to have an arbitrator or arbitral tribunal appointed. The Chief Justice, when so requested, could appoint an arbitrator or arbitral tribunal depending on the nature of the agreement between the parties and after satisfying himself that the conditions for appointment of an arbitrator under sub-section (6) of Section 11 do exist. The Chief Justice could designate another person or institution to take the necessary measures. The Chief Justice has also to have the qualification of the arbitrators in mind before choosing the arbitrator. An arbitral tribunal so constituted, in terms of Section 16 of the Act, has the right to decide whether it has jurisdiction to proceed with the arbitration, whether there was any agreement between the parties and the other matters referred to therein.

8. Normally, any tribunal or authority conferred with a power to act under a statute, has the jurisdiction to satisfy itself that the conditions for the exercise of that power existed and that the case calls for the exercise of that power. Such an adjudication relating to its own jurisdiction which could be called a decision on jurisdictional facts, is not generally final, unless it is made so by the Act constituting the tribunal. Here, sub-section (7) of Section 11 has given a finality to the decisions taken by the Chief Justice or any person or institution designated by him in respect of matters falling under sub-sections (4), (5) and (6) of Section 11. Once a statute creates an authority, confers on it power to adjudicate and makes its decision final on matters to be decided by it, normally, that decision cannot be said to be a purely administrative decision. It is really a decision on its own jurisdiction for the exercise of the power conferred by the statute or to perform the duties imposed by the statute. Unless, the authority satisfies itself that the conditions for exercise of its power exist, it could not accede to a request made to it for the exercise of the conferred power. While exercising the power or performing the duty under Section 11(6) of the Act, the Chief Justice has to consider whether the conditions laid down by the section for the exercise of that power or the performance of that duty, exist. Therefore, unaided by authorities and going by general principles, it appears to us that while functioning under Section 11(6) of the Act, a Chief Justice or the person or institution designated by him, is bound to decide whether he has jurisdiction, whether there is an arbitration agreement, whether the applicant before him, is a party, whether the conditions for exercise of the power have been fulfilled and if an arbitrator is to be appointed, who is the fit person, in terms of the provision. Section 11(7) makes his decision on the matters entrusted to him, final.

9. The very scheme, if it involves an adjudicatory process, restricts the power of the Chief Justice to designate, by excluding the designation of a non-judicial institution or a non-judicial authority to perform the functions. For, under our dispensation, no judicial or quasi-judicial decision can be rendered by an institution if it is not a judicial authority, court or a quasi-judicial tribunal. This aspect is dealt with later while dealing with the right to designate under Section 11(6) and the scope of that designation.

10. The appointment of an arbitrator against the opposition of one of the parties on the ground that the Chief Justice had no jurisdiction or on the ground that there was no arbitration agreement, or on the ground that there was no dispute subsisting which was capable of being arbitrated upon or that the conditions for exercise of power under Section 11(6) of the Act do not exist or that the qualification contemplated for the arbitrator by the parties cannot be ignored and has to be borne in mind, are all adjudications which affect the rights of parties. It cannot be said that when the Chief Justice decides that he has jurisdiction to proceed with the matter, that there is an arbitration agreement and that one of the parties to it has failed to act according to the procedure agreed upon, he is not adjudicating on the rights of the party who is raising these objections. The duty to decide the preliminary facts enabling the exercise of jurisdiction or power, gets all the more emphasized, when sub-section (7) designates the order under sub-section (4), (5) or (6) a ‘decision’ and makes the decision of the Chief Justice final on the matters referred to in that sub-section. Thus, going by the general principles of law and the scheme of Section 11, it is difficult to call the order of the Chief Justice merely an administrative order and to say that the opposite side need not even be heard before the Chief Justice exercises his power of appointing an arbitrator. Even otherwise, when a statute confers a power or imposes a duty on the highest judicial authority in the State or in the country, that authority, unless shown otherwise, has to act judicially and has necessarily to consider whether his power has been rightly invoked or the conditions for the performance of his duty are shown to exist.

11. Section 16 of the Act only makes explicit what is even otherwise implicit, namely, that the arbitral tribunal constituted under the Act has the jurisdiction to rule on its own jurisdiction, including ruling on objections with respect to the existence or validity of the arbitration agreement. Sub-section (1) also directs that an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract. It also clarifies that a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause. Sub-section (2) of Section 16 enjoins that a party wanting to raise a plea that the arbitral tribunal does not have jurisdiction, has to raise that objection not later than the submission of the statement of defence, and that the party shall not be precluded from raising the plea of jurisdiction merely because he has appointed or participated in the appointment of an arbitrator. Sub-section (3) lays down that a plea that the arbitral tribunal is exceeding the scope of its authority, shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings. When the Tribunal decides these two questions, namely, the question of jurisdiction and the question of exceeding the scope of authority or either of them, the same is open to immediate challenge in an appeal, when the objection is upheld and only in an appeal against the final award, when the objection is overruled. Sub-section (5) enjoins that if the arbitral tribunal overrules the objections under sub-section (2) or sub-section (3), it should continue with the arbitral proceedings and make an arbitral award. Sub-section (6) provides that a party aggrieved by such an arbitral award overruling the plea on lack of jurisdiction and the exceeding of the scope of authority, may make an application on these grounds for setting aside the award in accordance with Section 34 of the Act. The question, in the context of sub-section (7) of Section 11 is, what is the scope of the right conferred on the arbitral tribunal to rule upon its own jurisdiction and the existence of the arbitration clause, envisaged by Section 16(1), once the Chief Justice or the person designated by him had appointed an arbitrator after satisfying himself that the conditions for the exercise of power to appoint an arbitrator are present in the case. Prima facie, it would be difficult to say that in spite of the finality conferred by sub-section (7) of Section 11 of the Act, to such a decision of the Chief Justice, the arbitral tribunal can still go behind that decision and rule on its own jurisdiction or on the existence of an arbitration clause. It also appears to us to be incongruous to say that after the Chief Justice had appointed an arbitral tribunal, the arbitral tribunal can turn round and say that the Chief Justice had no jurisdiction or authority to appoint the tribunal, the very creature brought into existence by the exercise of power by its creator, the Chief Justice. The argument of learned Senior Counsel, Mr. K.K. Venugopal that Section 16 has full play only when an arbitral tribunal is constituted without intervention under Section 11(6) of the Act, is one way of reconciling that provision with Section 11 of the Act, especially in the context of sub-section (7) thereof. We are inclined to the view that the decision of the Chief Justice on the issue of jurisdiction and the existence of a valid arbitration agreement would be binding on the parties when the matter goes to the arbitral tribunal and at subsequent stages of the proceeding except in an appeal in the Supreme Court in the case of the decision being by the Chief Justice of the High Court or by a Judge of the High Court designated by him.

12. It is common ground that the Act has adopted the UNCITRAL Model Law on International Commercial Arbitration. But at the same time, it has made some departures from the model law. Section 11 is in the place of Article 11 of the Model Law. The Model Law provides for the making of a request under Article 11 to “the court or other authority specified in Article 6 to take the necessary measure”. The words in Section 11 of the Act, are “the Chief Justice or the person or institution designated by him”. The fact that instead of the court, the powers are conferred on the Chief Justice, has to be appreciated in the context of the statute. ‘Court’ is defined in the Act to be the principal civil court of original jurisdiction of the district and includes the High Court in exercise of its ordinary original civil jurisdiction. The principal civil court of original jurisdiction is normally the District Court. The High Courts in India exercising ordinary original civil jurisdiction are not too many. So in most of the States the concerned court would be the District Court. Obviously, the Parliament did not want to confer the power on the District Court, to entertain a request for appointing an arbitrator or for constituting an arbitral tribunal under Section 11 of the Act. It has to be noted that under Section 9 of the Act, the District Court or the High Court exercising original jurisdiction, has the power to make interim orders prior to, during or even post arbitration. It has also the power to entertain a challenge to the award that may ultimately be made. The framers of the statute must certainly be taken to have been conscious of the definition of ‘court’ in the Act. It is easily possible to contemplate that they did not want the power under Section 11 to be conferred on the District Court or the High Court exercising original jurisdiction. The intention apparently was to confer the power on the highest judicial authority in the State and in the country, on Chief Justices of High Courts and on the Chief Justice of India. Such a provision is necessarily intended to add the greatest credibility to the arbitral process. The argument that the power thus conferred on the Chief Justice could not even be delegated to any other Judge of the High Court or of the Supreme Court, stands negatived only because of the power given to designate another. The intention of the legislature appears to be clear that it wanted to ensure that the power under Section 11(6) of the Act was exercised by the highest judicial authority in the concerned State or in the country. This is to ensure the utmost authority to the process of constituting the arbitral tribunal.

13.Normally, when a power is conferred on the highest judicial authority who normally performs judicial functions and is the head of the judiciary of the State or of the country, it is difficult to assume that the power is conferred on the Chief Justice as persona designata. Under Section 11(6), the Chief Justice is given a power to designate another to perform the functions under that provision. That power has generally been designated to a Judge of the High Court or of the Supreme Court respectively. Persona designata, according to Black’s Law Dictionary, means “A person considered as an individual rather than as a member of a class”. When the power is conferred on the Chief Justices of the High Courts, the power is conferred on a class and not considering that person as an individual. In the Central Talkies Ltd., Kanpur vs. Dwarka Prasad (1961) 3 SCR 495) while considering the status in which the power was to be exercised by the District Magistrate under the United Provinces (Temporary) Control of Rent and Eviction Act, 1947, this Court held:

“a persona designata is “a person who is pointed out or described as an individual, as opposed to a person ascertained as a member of a class, or as filling a particular character.” (See Osborn’s Concise Law Dictionary, 4th Edition., p.253). In the words of Schwabe, C.J., in Parthasardhi Naidu vs. Koteswara Rao, [I.L.R. 47 Mad 369 F.B.] personae designatae are, “persons selected to act in their private capacity and not in their capacity as Judges.” The same consideration applies also to a well-known officer like the District Magistrate named by virtue of his office, and whose powers the Additional District Magistrate can also exercise and who can create other officers equal to himself for the purpose of the Eviction Act.”

In Mukri Gopalan vs. Cheppilat Puthanpurayil Aboobacker [(1995) 5 SCC 5] this Court after quoting the above passage from the Central Talkies Ltd., Kanpur vs. Dwarka Prasad, applied the test to come to the conclusion that when Section 18 of the Kerala Buildings (Lease and Rent Control) Act, 1965 constituted the District Judge as an appellate authority under that Act, it was a case where the authority was being conferred on District Judges who constituted a class and, therefore, the appellate authority could not be considered to be persona designata. What can be gathered from P. Ramanatha Aiyar’s Advanced Law Lexicon, 3rd Edition, 2005, is that “persona designata” is a person selected to act in his private capacity and not in his capacity as a judge. He is a person pointed out or described as an individual as opposed to a person ascertained as a member of a class or as filling a particular character. It is also seen that one of the tests to be applied is to see whether the person concerned could exercise the power only so long as he holds office or could exercise the power even subsequently. Obviously, on ceasing to be a Chief Justice, the person referred to in Section 11(6) of the Act could not exercise the power. Thus, it is clear that the power is conferred on the Chief Justice under Section 11(6) of the Act not as persona designata.

14. Normally a persona designata cannot delegate his power to another. Here, the Chief Justice of the High Court or the Chief Justice of India is given the power to designate another to exercise the power conferred on him under Section 11(6) of the Act. If the power is a judicial power, it is obvious that the power could be conferred only on a judicial authority and in this case, logically on another Judge of the High Court or on a Judge of the Supreme Court. It is logical to consider the conferment of the power on the Chief Justice of the High Court and on the Chief Justice of India as presiding Judges of the High Court and the Supreme Court and the exercise of the power so conferred, is exercise of judicial power/authority as presiding Judges of the respective courts. Replacing of the word ‘court’ in the Model Law with the expression “Chief Justice” in the Act, appears to be more for excluding the exercise of power by the District Court and by the court as an entity leading to obvious consequences in the matter of the procedure to be followed and the rights of appeal governing the matter. The departure from Article 11 of the Model Law and the use of the expression “Chief Justice” cannot be taken to exclude the theory of its being an adjudication under Section 11 of the Act by a judicial authority.

15.We may at this stage notice the complementary nature of Sections 8 and 11. Where there is an arbitration agreement between the parties and one of the parties, ignoring it, files an action before a judicial authority and the other party raises the objection that there is an arbitration clause, the judicial authority has to consider that objection and if the objection is found sustainable to refer the parties to arbitration. The expression used in this Section is ‘shall’ and this Court in P. Anand Gajapathi Raju vs. P.V. G. Raju [(2000) 4 SCC 539] and in Hindustan Petroleum Corporation Ltd. vs. Pink City Midway Petroleum [(2003) 6 SCC 503] has held that the judicial authority is bound to refer the matter to arbitration once the existence of a valid arbitration clause is established. Thus, the judicial authority is entitled to, has to and bound to decide the jurisdictional issue raised before it, before making or declining to make a reference. Section 11 only covers another situation. Where one of the parties has refused to act in terms of the arbitration agreement, the other party moves the Chief Justice under Section 11 of the Act to have an arbitrator appointed and the first party objects, it would be incongruous to hold that the Chief Justice cannot decide the question of his own jurisdiction to appoint an arbitrator when in a parallel situation, the judicial authority can do so. Obviously, the highest judicial authority has to decide that question and his competence to decide cannot be questioned. If it is held that the Chief Justice has no right or duty to decide the question or cannot decide the question, it will lead to an anomalous situation in that a judicial authority under Section 8 can decide, but not a Chief Justice under Section 11, though the nature of the objection is the same and the consequence of accepting the objection in one case and rejecting it in the other, is also the same, namely, sending the parties to arbitration. The interpretation of Section 11 that we have adopted would not give room for such an anomaly.

16.Section 11(6) does enable the Chief Justice to designate any person or institution to take the necessary measures on an application made under Section 11(6) of the Act. This power to designate recognized in the Chief Justice, has led to an argument that a judicial decision making is negatived, in taking the necessary measures on an application, under Section 11(6) of the Act. It is pointed out that the Chief Justice may designate even an institution like the Chamber of Commerce or the Institute of Engineers and they are not judicial authorities. Here, we find substance in the argument of Mr. F.S.Nariman, learned senior counsel that in the context of Section 5 of the Act excluding judicial intervention except as provided in the Act, the designation contemplated is not for the purpose of deciding the preliminary facts justifying the exercise of power to appoint an arbitrator, but only for the purpose of nominating to the Chief Justice a suitable person to be appointed as arbitrator, especially, in the context of Section 11(8) of the Act. One of the objects of conferring power on the highest judicial authority in the State or in the country for constituting the arbitral tribunal, is to ensure credibility in the entire arbitration process and looked at from that point of view, it is difficult to accept the contention that the Chief Justice could designate a non-judicial body like the Chamber of Commerce to decide on the existence of an arbitration agreement and so on, which are decisions, normally, judicial or quasi judicial in nature. Where a Chief Justice designates not a Judge, but another person or an institution to nominate an arbitral tribunal, that can be done only after questions as to jurisdiction, existence of the agreement and the like, are decided first by him or his nominee Judge and what is to be left to be done is only to nominate the members for constituting the arbitral tribunal. Looking at the scheme of the Act as a whole and the object with which it was enacted, replacing the Arbitration Act of 1940, it seems to be proper to view the conferment of power on the Chief Justice as the conferment of a judicial power to decide on the existence of the conditions justifying the constitution of an arbitral tribunal. The departure from the UNCITRAL model regarding the conferment of the power cannot be said to be conclusive or significant in the circumstances. Observations of this Court in paragraphs 389 and 391 in Supreme Court Advocates on Record Association vs. Union of India [(1993) 4 SCC 441 at 668] support the argument that the expression chief justice is used in the sense of collectivity of judges of the Supreme Court and the High Courts respectively.

17. It is true that the power under Section 11(6) of the Act is not conferred on the Supreme Court or on the High Court, but it is conferred on the Chief Justice of India or the Chief Justice of the High Court. One possible reason for specifying the authority as the Chief Justice, could be that if it were merely the conferment of the power on the High Court, or the Supreme Court, the matter would be governed by the normal procedure of that Court, including the right of appeal and the Parliament obviously wanted to avoid that situation, since one of the objects was to restrict the interference by Courts in the arbitral process. Therefore, the power was conferred on the highest judicial authority in the country and in the State in their capacities as Chief Justices. They have been conferred the power or the right to pass an order contemplated by Section 11 of the Act. We have already seen that it is not possible to envisage that the power is conferred on the Chief Justice as persona designata. Therefore, the fact that the power is conferred on the Chief Justice, and not on the court presided over by him is not sufficient to hold that the power thus conferred is merely an administrative power and is not a judicial power.

18.It is also not possible to accept the argument that there is an exclusive conferment of jurisdiction on the arbitral tribunal, to decide on the existence or validity of the arbitration agreement. Section 8 of the Act contemplates a judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement, on the terms specified therein, to refer the dispute to arbitration. A judicial authority as such is not defined in the Act. It would certainly include the court as defined in Section 2(e) of the Act and would also, in our opinion, include other courts and may even include a special tribunal like the Consumer Forum (See Fair Air Engineers (P) Ltd. and another vs. N.K. Modi (1996) 6 SCC 385). When the defendant to an action before a judicial authority raises the plea that there is an arbitration agreement and the subject matter of the claim is covered by the agreement and the plaintiff or the person who has approached the judicial authority for relief, disputes the same, the judicial authority, in the absence of any restriction in the Act, has necessarily to decide whether, in fact, there is in existence a valid arbitration agreement and whether the dispute that is sought to be raised before it, is covered by the arbitration clause. It is difficult to contemplate that the judicial authority has also to act mechanically or has merely to see the original arbitration agreement produced before it, and mechanically refer the parties to an arbitration. Similarly, Section 9 enables a Court, obviously, as defined in the Act, when approached by a party before the commencement of an arbitral proceeding, to grant interim relief as contemplated by the Section. When a party seeks an interim relief asserting that there was a dispute liable to be arbitrated upon in terms of the Act, and the opposite party disputes the existence of an arbitration agreement as defined in the Act or raises a plea that the dispute involved was not covered by the arbitration clause, or that the Court which was approached had no jurisdiction to pass any order in terms of Section 9 of the Act, that Court has necessarily to decide whether it has jurisdiction, whether there is an arbitration agreement which is valid in law and whether the dispute sought to be raised is covered by that agreement. There is no indication in the Act that the powers of the Court are curtailed on these aspects. On the other hand, Section 9 insists that once approached in that behalf, “the Court shall have the same power for making orders as it has for the purpose of and in relation to any proceeding before it”. Surely, when a matter is entrusted to a Civil Court in the ordinary hierarchy of Courts without anything more, the procedure of that Court would govern the adjudication [See R.M.A.R.A. Adaikappa Chettiar and anr. vs. R. Chandrasekhara Thevar (AIR 1948 P.C. 12)]

19. Section 16 is said to be the recognition of the principle of Kompetenz- Kompetenz. The fact that the arbitral tribunal has the competence to rule on its own jurisdiction and to define the contours of its jurisdiction, only means that when such issues arise before it, the Tribunal can and possibly, ought to decide them. This can happen when the parties have gone to the arbitral tribunal without recourse to Section 8 or 11 of the Act. But where the jurisdictional issues are decided under these Sections, before a reference is made, Section 16 cannot be held to empower the arbitral tribunal to ignore the decision given by the judicial authority or the Chief Justice before the reference to it was made. The competence to decide does not enable the arbitral tribunal to get over the finality conferred on an order passed prior to its entering upon the reference by the very statute that creates it. That is the position arising out of Section 11(7) of the Act read with Section 16 thereof. The finality given to the order of the Chief Justice on the matters within his competence under Section 11 of the Act, are incapable of being reopened before the arbitral tribunal. In Konkan Railway (supra) what is considered is only the fact that under Section 16, the arbitral tribunal has the right to rule on its own jurisdiction and any objection, with respect to the existence or validity of the arbitration agreement. What is the impact of Section 11(7) of the Act on the arbitral tribunal constituted by an order under Section 11(6) of the Act, was not considered. Obviously, this was because of the view taken in that decision that the Chief Justice is not expected to decide anything while entertaining a request under Section 11(6) of the Act and is only performing an administrative function in appointing an arbitral tribunal. Once it is held that there is an adjudicatory function entrusted to the Chief Justice by the Act, obviously, the right of the arbitral tribunal to go behind the order passed by the Chief Justice would take another hue and would be controlled by Section 11(7) of the Act.

20.We will now consider the prior decisions of this Court. In Sundaram Finance Ltd. vs. NEPC India Ltd. (1999) 2 SCC 479) this Court held that the provisions of the Act must be interpreted and construed independently of the interpretation placed on the Arbitration Act, 1940 and it will be more relevant to refer to the UNCITRAL model law while called upon to interpret the provisions of the Act. This Court further held that under the 1996 Act, appointment of arbitrator(s) is made as per the provision of Section 11 which does not require the Court to pass a judicial order appointing an arbitrator or arbitrators. It is seen that the question was not discussed as such, since the court in that case was not concerned with the interpretation of Section 11 of the Act. The view as above was quoted with approval in Ador Samia Private Limited vs. Peekay Holdings Limited and Others (1999) 8 SCC 572) and nothing further was said about the question. In other words, the question as to the nature of the order to be passed by the Chief Justice when moved under Section 11(6) of the Act, was not discussed or decided upon.

21.In Wellington Associates Ltd. vs. Kirit Mehta (2000) 4 SCC 272) it was contended before the designated Judge that what was relied on by the applicant was not an arbitration clause. The applicant contended that the Chief Justice of India or the designate Judge cannot decide that question and only the arbitrator can decide the question in view of Section 16 of the Act. The designated Judge held that Section 16 did not exclude the jurisdiction of the Chief Justice of India or the designated Judge to decide the question of the existence of an arbitration clause. After considering the relevant aspects, the learned Judge held :

“I am of the view that in cases where – to start with – there is a dispute raised at the stage of the application under Section 11 that there is no arbitration clause at all, then it will be absurd to refer the very issue to an arbitrator without deciding whether there is an arbitration clause at all between the parties to start with. In my view, in the present situation, the jurisdiction of the Chief Justice of India or his designate to decide the question as to the “existence” of the arbitration clause cannot be doubted and cannot be said to be excluded by Section 16.”

22.Then came Konkan Railway Corporation Ltd. vs. Mehul Construction Co. (2000) 7 SCC 201) in which the first question framed was, what was the nature of the order passed by the Chief Justice or his nominee in exercise of his power under Section 11(6) of the Arbitration and Conciliation Act, 1996 ? After noticing the Statement of Objects and Reasons for the Act and after comparing the language of Section 11 of the Act and the corresponding article of the model law, it was stated that the Act has designated the Chief Justice of the High Court in cases of domestic arbitration and the Chief Justice of India in cases of international commercial arbitration, to be the authority to perform the function of appointment of an arbitrator, whereas under the model law, the said power was vested with the court. When the matter is placed before the Chief Justice or his nominee under Section 11 of the Act it was imperative for the Chief Justice or his nominee to bear in mind the legislative intent that the arbitral process should be set in motion without any delay whatsoever and all contentious issues left to be raised before the arbitral tribunal itself. It was further held that at that stage, it would not be appropriate for the Chief Justice or his nominee, to entertain any contention or decide the same between the parties. It was also held that in view of the conferment of power on the arbitral tribunal under Section 16 of the Act, the intention of the legislature and its anxiety to see that the arbitral process is set in motion at the earliest, it will be appropriate for the Chief Justice to appoint an arbitrator without wasting any time or without entertaining any contentious issue by a party objecting to the appointment of an arbitrator. The Court stated :

“Bearing in mind the purpose of legislation, the language used in Section 11(6) conferring power on the Chief Justice or his nominee to appoint an arbitrator, the curtailment of the power of the court in the matter of interference, the expanding jurisdiction of the arbitrator in course of the arbitral proceeding, and above all the main objective, namely, the confidence of the international market for speedy disposal of their disputes, the character and status of an order appointing an arbitrator by the Chief Justice or his nominee under Section 11(6) has to be decided upon. If it is held that an order under Section 11(6) is a judicial or quasi-judicial order then the said order would be amenable to judicial intervention and any reluctant party may frustrate the entire purpose of the Act by adopting dilatory tactics in approaching a court of law even against an order of appointment of an arbitrator. Such an interpretation has to be avoided in order to achieve the basic objective for which the country has enacted the Act of 1996 adopting the UNCITRAL Model.”

23.The Court proceeded to say that if it were to be held that the order passed was purely administrative in nature, that would facilitate the achieving of the object of the Act, namely, quickly setting in motion the process of arbitration. Great emphasis was placed on the conferment of power on the Chief Justice in preference to a court as was obtaining in the model law. It was concluded “ The nature of the function performed by the Chief Justice being essentially to aid the constitution of the arbitral tribunal immediately and the legislature having consciously chosen to confer the power on the Chief Justice and not a court, it is apparent that the order passed by the Chief Justice or his nominee is an administrative order as has been held by this Court in Ador Samia case (supra) and the obser-vations of this Court in Sundaram Finance Ltd. case (supra) also are quite appropriate and neither of those decisions require any reconsideration.”

24. It was thus held that an order passed under Section 11(6) of the Act, by the Chief Justice of the High Court or his nominee, was an administrative order, its purpose being the speedy disposal of commercial disputes and that such an order could not be subjected to judicial review under Article 136 of the Constitution of India. Even an order refusing to appoint an arbitrator would not be amenable to the jurisdiction of the Supreme Court under Article 136 of the Constitution. A petition under Article 32 of the Constitution was also not maintainable. But, an order refusing to appoint an arbitrator made by the Chief Justice could be challenged before the High Court under Article 226 of the Constitution. What seems to have persuaded this Court was the fact that the statement of objects and reasons of the Act clearly enunciated that the main object of the legislature was to minimize the supervisory role of courts in arbitral process. Since Section 16 empowers the arbitral tribunal to rule on its own jurisdiction including ruling on objections with respect to the existence or validity of an arbitration agreement, a party would have the opportunity to raise his grievance against that decision either immediately or while challenging the award after it was pronounced. Since it was not proper to encourage a party to an arbitration, to frustrate the entire purpose of the Act by adopting dilatory tactics by approaching the court even against the order of appointment of an arbitrator, it was necessary to take the view that the order was administrative in nature. This was all the more so, since the nature of the function performed by the Chief Justice was essentially to aid the constitution of the arbitral tribunal immediately and the legislature having consciously chosen to confer the power on the Chief Justice and not on the court, it was apparent that the order was an administrative order. With respect, it has to be pointed out that this Court did not discuss or consider the nature of the power that the Chief Justice is called upon to exercise. Merely because the main purpose was the constitution of an arbitral tribunal, it could not be taken that the exercise of power is an administrative power. While constituting an arbitral tribunal, on the scheme of the Act, the Chief Justice has to consider whether he as the Chief Justice has jurisdiction in relation to the contract, whether there was an arbitration agreement in terms of Section 7 of the Act and whether the person before him with the request, is a party to the arbitration agreement. On coming to a conclusion on these aspects, he has to enquire whether the conditions for exercise of his power under Section 11(6) of the Act exist in the case and only on being satisfied in that behalf, he could appoint an arbitrator or an arbitral tribunal on the basis of the request. It is difficult to say that when one of the parties raises an objection that there is no arbitration agreement, raises an objection that the person who has come forward with a request is not a party to the arbitration agreement, the Chief Justice can come to a conclusion on those objections without following an adjudicatory process. Can he constitute an arbitrary tribunal, without considering these questions? If he can do so, why should such a function be entrusted to a high judicial authority like the Chief Justice. Similarly, when the party raises an objection that the conditions for exercise of the power under Section 11(6) of the Act are not fulfilled and the Chief Justice comes to the conclusion that they have been fulfilled, it is difficult to say that he was not adjudicating on a dispute between the parties and was merely passing an administrative order. It is also not correct to say that by the mere constitution of an arbitral tribunal the rights of parties are not affected. Dragging a party to an arbitration when there existed no arbitration agreement or when there existed no arbitrable dispute, can certainly affect the right of that party and even on monetary terms, impose on him a serious liability for meeting the expenses of the arbitration, even if it be preliminary expenses and his objection is upheld by the arbitral tribunal. Therefore, it is not possible to accept the position that no adjudication is involved in the constitution of an arbitral tribunal.

25.It is also somewhat incongruous to permit the order of the Chief Justice under Section 11(6) of the Act being subjected to scrutiny under Article 226 of the Constitution at the hands of another Judge of the High Court. In the absence of any conferment of an appellate power, it may not be possible to say that a certiorari would lie against the decision of the High Court in the very same High Court. Even in the case of an international arbitration, the decision of the Chief Justice of India would be amenable to challenge under Article 226 of the Constitution before a High Court. While construing the scope of the power under Section 11(6), it will not be out of place for the court to bear this aspect in mind, since after all, courts follow or attempt to follow certain judicial norms and that precludes such challenges (see Naresh Shridhar Mirajkar and others. vs. State of Maharashtra and another (1966) 3 SCR 744) and Rupa Ashok Hurra vs. Ashok Hurra and another (2002) 4 SCC 388).

26.In Nimet Resourcs Inc. and Anr. vs. Essar Steels Ltd. (2000) 7 SCC 497) the question of existence or otherwise of an arbitration agreement between the parties was itself held to be referable to the arbitrator since the order proceeded on the basis that the power under Section 11(6) was merely administrative.

27.The correctness of the decision in Konkan Railway Corpn. Ltd. vs. Mehul Construction Co. (supra) was doubted in Konkan Railway Cooperation Ltd. vs. Rani Construction Pvt. Ltd. and the order of reference, is reported in (2000) 8 SCC 159. The reconsideration was recommended on the ground that the Act did not take away the power of the Court to decide preliminary issues notwithstanding the arbitrator’s competence to decide such issues including whether particular matters were “excepted matters”, or whether an arbitration agreement existed or whether there was a dispute in terms of the agreement. It was noticed that in other countries where UNCITRAL model was being followed, the court could decide such issues judicially and need not mechanically appoint an arbitrator. There were situations where preliminary issues would have to be decided by the court rather than by the arbitrator. If the order of the Chief Justice or his nominees were to be treated as an administrative one, it could be challenged before the single Judge of the High Court, then before a Division Bench and then the Supreme Court under Article 136 of the Constitution, a result that would cause further delay in arbitral proceedings, something sought to be prevented by the Act. An order under Section 11 of the Act did not relate to the administrative functions of the Chief Justice or of the Chief Justice of India.

28.The reference came up before a Constitution Bench. In Konkan Railway Construction Ltd. vs. Rani Construction Pvt. Ltd. (2002) 2 SCC 388), the Constitution Bench reiterated the view taken in Mehul Construction Co.’s case (supra), if we may say so with respect, without really answering the questions posed by the order of reference. It was stated that there is nothing in Section 11 of the Act that requires the party other than the party making the request, to be given notice of the proceedings before the Chief Justice. The Court went on to say that Section 11 did not contemplate a response from the other party. The approach was to say that none of the requirements referred to in Section 11(6) of the Act contemplated or amounted to an adjudication by the Chief Justice while appointing an arbitrator. The scheme framed under the Arbitration Act by the Chief Justice of India was held to be not mandatory. It was stated that the UNCITRAL model law was only taken into account and hence the model law, or judgments and literature thereon, was not a guide to the interpretation of the Act and especially of Section 11.

29. With respect, what was the effect of the Chief Justice having to decide his own jurisdiction in a given case was not considered by the Bench. Surely, the question whether the Chief Justice could entertain the application under Section 11(6) of the Act could not be left to the decision of the arbitral tribunal constituted by him on entertaining such an application. We also feel that adequate attention was not paid to the requirement of the Chief Justice having to decide that there is an arbitration agreement in terms of Section 7 of the Act before he could exercise his power under Section 11(6) of the Act and its implication. The aspect, whether there was an arbitration agreement, was not merely a jurisdictional fact for commencing the arbitration itself, but it was also a jurisdictional fact for appointing an arbitrator on a motion under Section 11(6) of the Act, was not kept in view. A Chief Justice could appoint an arbitrator in exercise of his power only if there existed an arbitration agreement and without holding that there was an agreement, it would not be open to him to appoint an arbitrator saying that he was appointing an arbitrator since he has been moved in that behalf and the applicant before him asserts that there is an arbitration agreement. Acceptance of such an argument, with great respect, would reduce the high judicial authority entrusted with the power to appoint an arbitrator, an automaton and sub servient to the arbitral tribunal which he himself brings into existence. Our system of law does not contemplate such a situation.

30. With great respect, it is seen that the court did not really consider the nature of the rights of the parties involved when the Chief Justice exercised the power of constituting the arbitral tribunal. The court also did not consider whether it was not necessary for the Chief Justice to satisfy himself of the existence of the facts which alone would entitle him or enable him to accede to the request for appointment of an arbitrator and what was the nature of that process by which he came to the conclusion that an arbitral tribunal was liable to be constituted. When, for example, a dispute which no more survives as a dispute, was referred to an arbitral tribunal or when an arbitral tribunal was constituted even in the absence of an arbitration agreement as understood by the Act, how could the rights of the objecting party be said to be not affected, was not considered in that perspective. In other words, the Constitution Bench proceeded on the basis that while exercising power under Section 11(6) of the Act there was nothing for the Chief Justice to decide. With respect, the very question that fell for decision was whether there had to be an adjudication on the preliminary matters involved and when the result had to depend on that adjudication, what was the nature of that adjudication. It is in that context that a reconsideration of the said decision is sought for in this case. The ground of ensuring minimum judicial intervention by itself is not a ground to hold that the power exercised by the Chief Justice is only an administrative function. As pointed out in the order of reference to that Bench, the conclusion that it is only an administrative act is the opening of the gates for an approach to the High Court under Article 226 of the Constitution, for an appeal under the Letters Patent or the concerned High Court Act to a Division Bench and a further appeal to this Court under Article 136 of the Constitution of India.

31. Moreover, in a case where the objection to jurisdiction or the existence of an arbitration agreement is overruled by the arbitral tribunal, the party has to participate in the arbitration proceedings extending over a period of time by incurring substantial expenditure and then to come to court with an application under Section 34 of the Arbitration Act seeking the setting aside of the award on the ground that there was no arbitration agreement or that there was nothing to be arbitrated upon when the tribunal was constituted. Though this may avoid intervention by court until the award is pronounced, it does mean considerable expenditure and time spent by the party before the arbitral tribunal. On the other hand, if even at the initial stage, the Chief Justice judicially pronounces that he has jurisdiction to appoint an arbitrator, that there is an arbitration agreement between the parties, that there was a live and subsisting dispute for being referred to arbitration and constitutes the tribunal as envisaged, on being satisfied of the existence of the conditions for the exercise of his power, ensuring that the arbitrator is a qualified arbitrator, that will put an end to a host of disputes between the parties, leaving the party aggrieved with a remedy of approaching this Court under Article 136 of the Constitution. That would give this Court, an opportunity of scrutinizing the decision of the Chief Justice on merits and deciding whether it calls for interference in exercise of its plenary power. Once this Court declines to interfere with the adjudication of the Chief Justice to the extent it is made, it becomes final. This reasoning is also supported by sub-section (7) of Section 11, making final, the decision of the Chief Justice on the matters decided by him while constituting the arbitral tribunal. This will leave the arbitral tribunal to decide the dispute on merits unhampered by preliminary and technical objections. In the long run, especially in the context of the judicial system in our country, this would be more conducive to minimising judicial intervention in matters coming under the Act. This will also avert the situation where even the order of the Chief Justice of India could be challenged before a single judge of the High Court invoking the Article 226 of the Constitution of India or before an arbitral tribunal, consisting not necessarily of legally trained persons and their coming to a conclusion that their constitution by the Chief Justice was not warranted in the absence of an arbitration agreement or in the absence of a dispute in terms of the agreement.

32. Section 8 of the Arbitration Act, 1940 enabled the court when approached in that behalf to supply an omission. Section 20 of that Act enabled the court to compel the parties to produce the arbitration agreement and then to appoint an arbitrator for adjudicating on the disputes. It may be possible to say that Section 11(6) of the Act combines both the powers. May be, it is more in consonance with Section 8 of the Old Act. But to call the power merely as an administrative one, does not appear to be warranted in the context of the relevant provisions of the Act. First of all, the power is conferred not on an administrative authority, but on a judicial authority, the highest judicial authority in the State or in the country. No doubt, such authorities also perform administrative functions. An appointment of an arbitral tribunal in terms of Section 11 of the Act, is based on a power derived from a statute and the statute itself prescribes the conditions that should exist for the exercise of that power. In the process of exercise of that power, obviously the parties would have the right of being heard and when the existence of the conditions for the exercise of the power are found on accepting or overruling the contentions of one of the parties it necessarily amounts to an order, judicial in nature, having finality subject to any available judicial challenge as envisaged by the Act or any other statute or the Constitution. Looked at from that point of view also, it seems to be appropriate to hold that the Chief Justice exercises a judicial power while appointing an arbitrator.

33. In Attorney General of the Gambia vs. Pierre Sarr N’jie (1961 Appeal Cases 617) the question arose whether the power to judge an alleged professional misconduct could be delegated to a Deputy Judge by the Chief Justice who had the power to suspend any barrister or solicitor from practicing within the jurisdiction of the court. Under Section 7 of the Supreme Court Ordinance of the Gambia, the Deputy Judge could exercise “all the judicial powers of the Judge of the Supreme Court”. The question was, whether the taking of disciplinary action for professional misconduct; was a judicial power or an administrative power. The Judicial Committee of the Privy Council held that a judge exercises judicial powers not only when he is deciding suits between the parties but also when he exercises disciplinary powers which are properly appurtenant to the office of a judge. By way of illustration, Lord Dening stated “Suppose, for instance, that a judge finding that a legal practitioner had been guilty of professional misconduct in the course of a case, orders him to pay the costs, as he has undoubtedly power to do (see Myers vs. Elman, per Lord Wright). That would be an exercise of the judicial powers of the judge just as much as if he committed him for contempt of court. Yet there is no difference in quality between the power to order him to pay costs and the power to suspend him or strike him off.”

34.The above example gives an indication that it is the nature of the power that is relevant and not the mode of exercise. In Shankarlal Aggarwal and Ors. vs. Shankar Lal Poddar and Ors., (1964) 1 SCR 717) this Court was dealing with the question whether the order of the Company Judge confirming a sale was merely an administrative order passed in the course of the administration of the assets of the company under liquidation and, therefore, not a judicial order subject to appeal. This Court held that the order of the Company Judge confirming the sale was not an administrative but a judicial order. Their Lordships stated thus :

“It is not correct to say that every order of the Court, merely for the reason that it is passed in the course of the realization of the assets of the Company, must always be treated merely as an administrative one. The question ultimately depends upon the nature of the order that is passed. An order according sanction to a sale undoubtedly involves a discretion and cannot be termed merely an administrative order, for before confirming the sale the court has to be satisfied, particularly where the confirmation is opposed, that the sale has been held in accordance with the conditions subject to which alone the liquidator has been permitted to effect it, and that even otherwise the sale has been fair and has not resulted in any loss to the parties who would ultimately have to share the realization.

It is not possible to formulate a definition which would satisfactorily distinguish between an administrative and a judicial order. That the power is entrusted to or wielded by a person who functions as a court is not decisive of the question whether the act or decision is administrative or judicial. An administrative order would be one which is directed to the regulation or supervision of matters as distinguished from an order which decides the rights of parties or confers or refuses to confer rights to property which are the subject of adjudication before the court. One of the tests would be whether a matter which involves the exercise of discretion is left for the decision of the authority, particularly if that authority were a court, and if the discretion has to be exercised on objective, as distinguished from a purely subjective consideration, it would be a judicial decision. It has sometimes been said that the essence of a judicial proceeding or of a judicial order is that there would be two parties and a lis between them which is the subject of adjudication, as a result of that order or a decision on an issue between a proposal and an opposition. No doubt it would not be possible to describe an order passed deciding a lis between the authority that is not a judicial order but it does not follow that the absence of a lis necessarily negatives the order being judicial. Even viewed from this narrow standpoint, it is possible to hold that there was a lis before the Company Judge which he decided by passing the order. On the one hand were the claims of the highest bidder who put forward the contention that he had satisfied the requirements laid down for the acceptance of his bid and was consequently entitled to have the sale in his favour confirmed, particularly so as he was supported in this behalf by the Official Liquidators. On the other hand, there was the first respondent and the large body of unsecured creditors whose interests, even if they were not represented by the first respondent, the court was bound to protect. If the sale of which confirmation was sought was characterized by any deviation subject to which the sale was directed to be held or even otherwise was for a gross undervalue in the sense that very much more could reasonably be expected to be obtained if the sale were properly held, in view of the figure of Rs.3,37,000/- which had been bid by Nandlal Agarwalla it would be duty of the court to refuse the confirmation in the interests of the general body of creditors, and this was the submission made by the first respondent. There were thus two points of view presented to the court by two contending parties or interests and the court was called upon to decide between them, and the decision vitally affected the rights of the parties to property. Under the circumstances, the order of the Company Judge was a judicial order and not administrative one, and was therefore not inherently incapable of being brought up in appeal.”

35. Going by the above test it is seen that at least in the matter of deciding his own jurisdiction and in the matter of deciding on the existence of an arbitration agreement, the Chief Justice when confronted with two points of view presented by the rival parties, is called upon to decide between them and the decision vitally affects the rights of the parties in that, either the claim for appointing an arbitral tribunal leading to an award is denied to a party or the claim to have an arbitration proceeding set in motion for entertaining a claim is facilitated by the Chief Justice. In this context, it is not possible to say that the Chief Justice is merely exercising an administrative function when called upon to appoint an arbitrator and that he need not even issue notice to opposite side before appointing an arbitrator.

36. It is fundamental to our procedural jurisprudence, that the right of no person shall be affected without he being heard. This necessarily imposes an obligation on the Chief Justice to issue notice to the opposite party when he is moved under Section 11 of the Act. The notice to the opposite party cannot be considered to be merely an intimation to that party of the filing of the arbitration application and the passing of an administrative order appointing an arbitrator or an arbitral tribunal. It is really the giving of an opportunity of being heard. There have been cases where claims for appointment of an arbitrator based on an arbitration agreement are made ten or twenty years after the period of the contract has come to an end. There have been cases where the appointment of an arbitrator has been sought, after the parties had settled the accounts and the concerned party had certified that he had no further claims against the other contracting party. In other words, there have been occasions when dead claims are sought to be resurrected. There have been cases where assertions are made of the existence of arbitration agreements when, in fact, such existence is strongly disputed by the other side who appears on issuance of notice. Controversies are also raised as to whether the claim that is sought to be put forward comes within the purview of the concerned arbitration clause at all. The Chief Justice has necessarily to apply his mind to these aspects before coming to a conclusion one way or the other and before proceeding to appoint an arbitrator or declining to appoint an arbitrator. Obviously, this is an adjudicatory process. An opportunity of hearing to both parties is a must. Even in administrative functions if rights are affected, rules of natural justice step in. The principles settled by Ridge vs. Baldwin [(1963) 2 All ER 66] are well known. Therefore, to the extent, Konkan Railway (supra) states that no notice need be issued to the opposite party to give him an opportunity of being heard before appointing an arbitrator, with respect, the same has to be held to be not sustainable.

37. It is true that finality under Section 11 (7) of the Act is attached only to a decision of the Chief Justice on a matter entrusted by sub-Section (4) or sub-Section (5) or sub-Section (6) of that Section. Sub-Section (4) deals with the existence of an appointment procedure and the failure of a party to appoint the arbitrator within 30 days from the receipt of a request to do so from the other party or when the two appointed arbitrators fail to agree on the presiding arbitrator within 30 days of their appointment. Sub-Section (5) deals with the parties failing to agree in nominating a sole arbitrator within 30 days of the request in that behalf made by one of the parties to the arbitration agreement and sub-Section (6) deals with the Chief Justice appointing an arbitrator or an arbitral tribunal when the party or the two arbitrators or a person including an institution entrusted with the function, fails to perform the same. The finality, at first blush, could be said to be only on the decision on these matters. But the basic requirement for exercising his power under Section 11(6), is the existence of an arbitration agreement in terms of Section 7 of the Act and the applicant before the Chief Justice being shown to be a party to such an agreement. It would also include the question of the existence of jurisdiction in him to entertain the request and an enquiry whether at least a part of the cause of action has arisen within the concerned State. Therefore, a decision on jurisdiction and on the existence of the arbitration agreement and of the person making the request being a party to that agreement and the subsistence of an arbitrable dispute require to be decided and the decision on these aspects is a prelude to the Chief Justice considering whether the requirements of sub-section (4), sub-section (5) or sub-section (6) of Section 11 are satisfied when approached with the request for appointment of an arbitrator. It is difficult to understand the finality referred to in Section 11(7) as excluding the decision on his competence and the locus standi of the party who seeks to invoke his jurisdiction to appoint an arbitrator. Viewed from that angle, the decision on all these aspects rendered by the Chief Justice would attain finality and it is obvious that the decision on these aspects could be taken only after notice to the parties and after hearing them.

38. It is necessary to define what exactly the Chief Justice, approached with an application under Section 11 of the Act, is to decide at that stage. Obviously, he has to decide his own jurisdiction in the sense, whether the party making the motion has approached the right High Court. He has to decide whether there is an arbitration agreement, as defined in the Act and whether the person who has made the request before him, is a party to such an agreement. It is necessary to indicate that he can also decide the question whether the claim was a dead one; or a long barred claim that was sought to be resurrected and whether the parties have concluded the transaction by recording satisfaction of their mutual rights and obligations or by receiving the final payment without objection. It may not be possible at that stage, to decide whether a live claim made, is one which comes within the purview of the arbitration clause. It will be appropriate to leave that question to be decided by the arbitral tribunal on taking evidence, along with the merits of the claims involved in the arbitration. The Chief Justice has to decide whether the applicant has satisfied the conditions for appointing an arbitrator under Section 11(6) of the Act. For the purpose of taking a decision on these aspects, the Chief Justice can either proceed on the basis of affidavits and the documents produced or take such evidence or get such evidence recorded, as may be necessary. We think that adoption of this procedure in the context of the Act would best serve the purpose sought to be achieved by the Act of expediting the process of arbitration, without too many approaches to the court at various stages of the proceedings before the Arbitral tribunal.

39. An aspect that requires to be considered at this stage is the question whether the Chief Justice of the High Court or the Chief Justice of India can designate a non-judicial body or authority to exercise the power under Section 11(6) of the Act. We have already held that, obviously, the legislature did not want to confer the power on the Court as defined in the Act, namely, the District Court, and wanted to confer the power on the Chief Justices of the High Courts and on the Chief Justice of India. Taking note of Section 5 of the Act and the finality attached by Section 11 (7) of the Act to his order and the conclusion we have arrived at that the adjudication is judicial in nature, it is obvious that no person other than a Judge and no non-judicial body can be designated for entertaining an application for appointing an arbitrator under Section 11(6) of the Act or for appointing an arbitrator. In our dispensation, judicial powers are to be exercised by the judicial authorities and not by non-judicial authorities. This scheme cannot be taken to have been given the go-by by the provisions in the Act in the light of what we have discussed earlier. Therefore, what the Chief Justice can do under Section 11(6) of the Act is to seek the help of a non-judicial body to point out a suitable person as an arbitrator in the context of Section 11(8) of the Act and on getting the necessary information, if it is acceptable, to name that person as the arbitrator or the set of persons as the arbitral tribunal.

40. Then the question is whether the Chief Justice of the High Court can designate a district judge to perform the functions under Section 11(6) of the Act. We have seen the definition of ‘Court’ in the Act. We have reasoned that the intention of the legislature was not to entrust the duty of appointing an arbitrator to the District Court. Since the intention of the statute was to entrust the power to the highest judicial authorities in the State and in the country, we have no hesitation in holding that the Chief Justice cannot designate a district judge to perform the functions under Section 11(6) of the Act. This restriction on the power of the Chief Justice on designating a district judge or a non-judicial authority flows from the scheme of the Act.

41. In our dispensation of justice, especially in respect of matters entrusted to the ordinary hierarchy of courts or judicial authorities, the duty would normally be performed by a judicial authority according to the normal procedure of that court or of that authority. When the Chief Justice of the High Court is entrusted with the power, he would be entitled to designate another judge of the High Court for exercising that power. Similarly, the Chief Justice of India would be in a position to designate another judge of the Supreme Court to exercise the power under Section 11(6) of the Act. When so entrusted with the right to exercise such a power, the judge of the High Court and the judge of the Supreme Court would be exercising the power vested in the Chief Justice of the High Court or in the Chief Justice of India. Therefore, we clarify that the Chief Justice of a High Court can delegate the function under Section 11(6) of the Act to a judge of that court and he would actually exercise the power of the Chief Justice conferred under Section 11(6) of the Act. The position would be the same when the Chief Justice of India delegates the power to another judge of the Supreme Court and he exercises that power as designated by the Chief Justice of India.

42. In this context, it has also to be noticed that there is an ocean of difference between an institution which has no judicial functions and an authority or person who is already exercising judicial power in his capacity as a judicial authority. Therefore, only a judge of the Supreme Court or a judge of the High Court could respectively be equated with the Chief Justice of India or the Chief Justice of the High Court while exercising power under Section 11(6) of the Act as designated by the Chief Justice. A non-judicial body or institution cannot be equated with a Judge of the High Court or a Judge of the Supreme Court and it has to be held that the designation contemplated by Section 11(6) of the Act is not a designation to an institution that is incompetent to perform judicial functions. Under our dispensation a non-judicial authority cannot exercise judicial powers.

43. Once we arrive at the conclusion that the proceeding before the Chief Justice while entertaining an application under Section 11(6) of the Act is adjudicatory, then obviously, the outcome of that adjudication is a judicial order. Once it is a judicial order, the same, as far as the High Court is concerned would be final and the only avenue open to a party feeling aggrieved by the order of the Chief Justice would be to approach to the Supreme Court under Article 136 of the Constitution of India. If it were an order by the Chief Justice of India, the party will not have any further remedy in respect of the matters covered by the order of the Chief Justice of India or the Judge of the Supreme Court designated by him and he will have to participate in the arbitration before the Tribunal only on the merits of the claim. Obviously, the dispensation in our country, does not contemplate any further appeal from the decision of the Supreme Court and there appears to be nothing objectionable in taking the view that the order of the Chief Justice of India would be final on the matters which are within his purview, while called upon to exercise his jurisdiction under Section 11 of the Act. It is also necessary to notice in this context that this conclusion of ours would really be in aid of quick disposal of arbitration claims and would avoid considerable delay in the process, an object that is sought to be achieved by the Act.

44. It is seen that some High Courts have proceeded on the basis that any order passed by an arbitral tribunal during arbitration, would be capable of being challenged under Article 226 or 227 of the Constitution of India. We see no warrant for such an approach. Section 37 makes certain orders of the arbitral tribunal appealable. Under Section 34, the aggrieved party has an avenue for ventilating his grievances against the award including any in-between orders that might have been passed by the arbitral tribunal acting under Section 16 of the Act. The party aggrieved by any order of the arbitral tribunal, unless has a right of appeal under Section 37 of the Act, has to wait until the award is passed by the Tribunal. This appears to be the scheme of the Act. The arbitral tribunal is after all, the creature of a contract between the parties, the arbitration agreement, even though if the occasion arises, the Chief Justice may constitute it based on the contract between the parties. But that would not alter the status of the arbitral tribunal. It will still be a forum chosen by the parties by agreement. We, therefore, disapprove of the stand adopted by some of the High Courts that any order passed by the arbitral tribunal is capable of being corrected by the High Court under Article 226 or 227 of the Constitution of India. Such an intervention by the High Courts is not permissible.

45. The object of minimizing judicial intervention while the matter is in the process of being arbitrated upon, will certainly be defeated if the High Court could be approached under Article 227 of the Constitution of India or under Article 226 of the Constitution of India against every order made by the arbitral tribunal. Therefore, it is necessary to indicate that once the arbitration has commenced in the arbitral tribunal, parties have to wait until the award is pronounced unless, of course, a right of appeal is available to them under Section 37 of the Act even at an earlier stage.

46. We, therefore, sum up our conclusions as follows:

i) The power exercised by the Chief Justice of the High Court or the Chief Justice of India under Section 11(6) of the Act is not an administrative power. It is a judicial power.

ii) The power under Section 11(6) of the Act, in its entirety, could be delegated, by the Chief Justice of the High Court only to another judge of that court and by the Chief Justice of India to another judge of the Supreme Court.

(iii) In case of designation of a judge of the High Court or of the Supreme Court, the power that is exercised by the designated, judge would be that of the Chief Justice as conferred by the statute.

(iv) The Chief Justice or the designated judge will have the right to decide the preliminary aspects as indicated in the earlier part of this judgment. These will be, his own jurisdiction, to entertain the request, the existence of a valid arbitration agreement, the existence or otherwise of a live claim, the existence of the condition for the exercise of his power and on the qualifications of the arbitrator or arbitrators. The Chief Justice or the judge designated would be entitled to seek the opinion of an institution in the matter of nominating an arbitrator qualified in terms of Section 11(8) of the Act if the need arises but the order appointing the arbitrator could only be that of the Chief Justice or the judge designate.

(v) Designation of a district judge as the authority under Section 11(6) of the Act by the Chief Justice of the High Court is not warranted on the scheme of the Act.

(vi) Once the matter reaches the arbitral tribunal or the sole arbitrator, the High Court would not interfere with orders passed by the arbitrator or the arbitral tribunal during the course of the arbitration proceedings and the parties could approach the court only in terms of Section 37 of the Act or in terms of Section 34 of the Act.

(vii) Since an order passed by the Chief Justice of the High Court or by the designated judge of that court is a judicial order, an appeal will lie against that order only under Article 136 of the Constitution of India to the Supreme Court.

(viii) There can be no appeal against an order of the Chief Justice of India or a judge of the Supreme Court designated by him while entertaining an application under Section 11(6) of the Act.

(ix) In a case where an arbitral tribunal has been constituted by the parties without having recourse to Section 11(6) of the Act, the arbitral tribunal will have the jurisdiction to decide all matters as contemplated by Section 16 of the Act.

(x) Since all were guided by the decision of this Court in Konkan Railway Corpn. Ltd. and Anr. vs. Rani Construction Pvt. Ltd. [(2002) 2 SCC 388] and orders under Section 11(6) of the Act have been made based on the position adopted in that decision, we clarify that appointments of arbitrators or arbitral tribunals thus far made, are to be treated as valid, all objections being left to be decided under Section 16 of the Act. As and from this date, the position as adopted in this judgment will govern even pending applications under Section 11(6) of the Act.

(xi) Where District Judges had been designated by the Chief Justice of the High Court under Section 11(6) of the Act, the appointment orders thus far made by them will be treated as valid; but applications if any pending before them as on this date will stand transferred, to be dealt with by the Chief Justice of the concerned High Court or a Judge of that court designated by the Chief Justice.

(xii) The decision in Konkan Railway Corpn. Ltd. and Anr. vs. Rani Construction Pvt. Ltd. [(2002) 2 SCC 388] is overruled.

47. The individual appeals will be posted before the appropriate Bench for being disposed of in the light of the principles settled by this decision.

Per C. K. THAKKER, J—

48. I have had the benefit of going through the judgment prepared by my learned brother P. K. Balasubramanyan (‘majority judgment’ for short). I, however, express my inability to agree with the majority judgment on the question as to the nature of function performed by the Chief Justice of the High Court/Chief Justice of India or ‘any person or institution designated by him’ under sub-section (6) of Section 11 of the Arbitration and Conciliation Act, 1996.

49. The concept of arbitration is not unknown to India. In good old days, disputes between private individuals used to be placed before Panchas and Panchayats. Likewise, commercial matters were decided by Mahajans and Chambers. Formal arbitration proceedings, however, came into existence after Britishers started commercial activities in India. The provisions relating to arbitration were found in the Code of Civil Procedure, 1859 (Act VIII of 1859) which was repealed by Act X of 1877. A full-fledged law pertaining to arbitration in India was the Arbitration Act, 1899. A consolidated and amended law relating to arbitration was passed in 1940, known as the Arbitration Act, 1940 (Act X of 1940).

50. As has been said, protracted, time consuming, atrociously expensive and complex Court procedure impelled the commercial world to an alternative, less formal, more effective and speedy mode of resolution of disputes by a Judge of choice of the parties which culminated into passing of an Arbitration Act. Experience, however, belied expectations. Proceedings became highly technical and thoroughly complicated. The provisions of the Act made ‘lawyers laugh and litigants weep’. Representations were made from all quarters of the society to amend the law by making it more responsive to contemporary requirements. Moreover, apart from arbitration, conciliation had been getting momentum and world wide recognition as an effective instrument of settlement of disputes. There was no composite statute dealing with all matters relating to arbitration and conciliation.

51. The United Nations Commission on International Trade Law (UNCITRAL) adopted a Model Law in 1985 on International Commercial Arbitration. The General Assembly of the United Nations recommended member-States to give due consideration to the Model Law to have uniformity in arbitration procedure which resulted in passing of the Arbitration and Conciliation Act, 1996. The Act is a complete Code in itself and consolidates and amends the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards. The Preamble expressly refers to UNCITRAL Model Law on International Commercial Arbitration and UNCITRAL Conciliation Rules.

52. Over and above ‘Preliminary’ (Section 1), the Act is in four parts. Part I (Sections 2 to 43) deals with Arbitration. Part II (Sections 44 to 60) contains provisions relating to Enforcement of Foreign Awards. While Part III (Section 61 to 81) provides for Conciliation, Part IV (Sections 82 to 96) relates to Supplementary Provisions. In these cases, we are mainly concerned with Part I.

53. General provisions are found in Chapter I (Sections 2 to 6). Section 2(b) defines ‘arbitration agreement’ as referred to in Section 7. ‘Arbitral tribunal’ means a sole arbitrator or a panel of arbitrators – S. 2 (d). Clause (h) defines ‘party’ as a party to arbitration agreement.

54. Section 5 restricts judicial intervention. The said section is material and reads thus;

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

55. Chapter II deals with ‘Arbitration agreement’. Section 7 declares that by an arbitration agreement, the parties may submit to arbitration all or certain disputes between them. Such agreement must be in writing. Section 8 confers power on a judicial authority to refer the dispute to arbitration in certain cases. Section 9 enables the Court to make interim orders.

56. Chapter III provides for composition of Arbitral Tribunal. Section 10 allows parties to determine the number of arbitrators but declares that ‘such number shall not be an even number’. Section 11 relates to appointment of arbitrators. It is relevant and material and may be quoted in extenso:

“11. Appointment of arbitrators.- (1) A person of any nationality may be an arbitrator, unless otherwise agreed by the parties.

(2) Subject to sub-section (6), the parties are free to agree on a procedure for appointing the arbitrator or arbitrators.

(3) Failing any agreement referred to in sub-section (2), in an arbitration with three arbitrators, each party shall appoint one arbitrator, and the two appointed arbitrators shall appoint the third arbitrator who shall act as the presiding arbitrator.

(4) If the appointment procedure in sub-section (3) applies and-

(a) a party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party; or

(b) the two appointed arbitrators fail to agree on the third arbitrator within thirty days from the date of their appointment;

the appointment shall be made, upon request of party, by the Chief Justice or any person or institution designated by him.

(5) Failing any agreement referred to in sub-section (2), in an arbitration with a sole arbitrator, if the parties fail to agree, the appointment shall be made, upon request of a party, by the Chief Justice or any person or institution designated by him.

(6) Where, under an appointment procedure agreed upon by the parties,-

(a) a party fails to act as required under the procedure; or

(b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or

(c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure,

a party may request the Chief Justice or any person or institution designated by him to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.

(7) A decision on a matter entrusted by sub-section (4) or sub-section (5) or sub-section (6) to the Chief Justice or the person or institution designated by him is final.

(8) The Chief Justice or the person or institution designated by him, in appointing an arbitrator, shall have due regard to-

(a) any qualification required for the arbitrator by the agreement of the parties, and

(b) other considerations as are likely to secure the appointment of an independent and impartial arbitrator.

(9) In the case of appointment of sole or third arbitrator in an international commercial arbitration, the Chief Justice of India or the person or institution designated by him may appoint an arbitrator of a nationality other than the nationalities of the parties where the parties belong to different nationalities.

(10) The Chief Justice may make such scheme as he may deem appropriate for dealing with matters entrusted by sub-section (4) or sub-section (5) or sub-section (6) to him.

(11) Where more than one request has been made under sub-section (4) or sub-section (5) or sub-section (6) to the Chief Justices of different High Courts or their designates, the Chief Justice or his designate to whom the request has been first made under the relevant sub-section shall alone be competent to decide on the request.

(12) (a) Where the matters referred to in sub-sections (4), (5), (6), (7), (8) and (10) arise in an international commercial arbitration the reference to “Chief Justice” in those sub-sections shall be construed as a reference to the “Chief Justice of India”.

(b) Where the matters referred to in sub-sections (4), (5), (6), (7) (8) and (10) arise in any other arbitration, the reference to “Chief Justice” in those sub-sections shall be construed as a referencce to the Chief Justice of the High Court within whose local limits the principal Civil Court referred to, in clause (e) of sub-section (1) of Section 2 is situate and, where the High Court itself is the Court referred to in that clause, to the Chief Justice of that High Court.”

57. Section 12 requires the arbitrator to disclose the disqualification, if any. It also permits parties to challenge such arbitrator. Whereas Section 13 lays down procedure for challenge, Sections 14 and 15 deal with special situations.

58. Chapter IV relates to jurisdiction of Arbitral Tribunals. Section 16 is another important provision and confers power on the Arbitral Tribunal to rule on its own jurisdiction. It reads thus;

“16. Competence of arbitral tribunal to rule on its jurisdiction.- (1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose.-

(a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and

(b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the submission clause.

(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of an arbitrator.

(3) A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings.

(4) The arbitral tribunal may, in either of the cases referred to in sub-section (2) or sub-section (3) admit a later plea if it considers the delay justified.

(5) The arbitral tribunal shall decide on a plea referred to in sub-section (2) or sub-section (3) and, where the arbitral tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and make an arbitral award.

(6) A party aggrieved by such an arbitral award may make an application for setting aside such an arbitral award in accordance with section 34.”

59. Chapters V and VI relate to ‘Conduct of Arbitral Proceedings’ and ‘Making of Arbitral Award and Termination of Proceedings’. Chapters VII, VIII and IX provide for ‘Recourse Against Arbitral Award’, ‘Finality and Enforcement of Arbitral Awards’ and ‘Appeals’ respectively. Chapter X covers ‘Miscellaneous’ matters.

60. The controversy in the present group of matters centres round interpretation of Section 11 and the nature of function performed by the Chief Justice under sub-section (6) thereof. According to one view, it is administrative, while according to the other view, it is judicial or quasi-judicial.

61. I have already quoted Section 11. It provides for appointment of arbitrators. Sub-sections (1) to (3) which confer power on parties to arbitration agreement to appoint arbitrators present no difficulty. Sub-sections (4) to (6) deal with cases where there is failure by the parties to appoint an arbitrator or arbitrators or default by two arbitrators in appointing the third arbitrator. The Act in such eventuality empowers the Chief Justice or any person or institution designated by him to take necessary steps for securing the appointment. Sub-section (7) of Section 11 makes the ‘decision’ of the Chief Justice ‘final’. Sub-section (8) requires the Chief Justice or the person or institution designated by him in appointing an arbitrator to have due regard to qualifications required of the arbitrator by the agreement of the parties as also other considerations as are likely to secure the appointment of independent and impartial arbitrator. Sub-section (10) enables the Chief Justice to frame a scheme dealing with matters entrusted to him by sub-sections (4) to (6).

62.Section 11 came to be interpreted by this Court in few cases. In Sundaram Finance Ltd. vs. NEPC India Ltd., (1999) 2 SCC 479, a two Judge Benh was called upon to consider whether under Section 9 of the Act, the ‘Court’ had jurisdiction to pass interim orders before arbitral proceedings commenced and before an arbitrator was appointed. Considering the scope of the said provision, this Court held that the ‘Court’ had no jurisdiction to entertain application under Section 9 before initiation of arbitration proceedings.

63. The Court, however, taking note of UNCITRAL Model Law, observed :

“Under the 1996 Act, appointment of Arbitrator(s) is made as per the provision of Section 11 which does not require the Court to pass a judicial order appointing Arbitrator(s)”.                                                                            (emphasis supplied)

64. It is, no doubt, true that the question about nature of function to be performed by the Chief Justice under Section 11 did not strictly arise in that case and, hence, the above observation could not be termed as ‘ratio’. As I will presently show, in a subsequent case, it was submitted that the statement was in the nature of ‘passing observation’ or ‘obiter’.

65.In Ador Sami Private Ltd. vs. Peekay Holdings Ltd. and others, (1999) 8 SCC 572, a direct question arose before a two-Judge Bench. There, an order passed by the Chief Justice under sub-section (6) of Section 11 of the Act was challenged in this Court under Article 136 of the Constitution. The question before the Court was whether a special leave petition was maintainable. Reproduing the observation in Sundaram Finance Ltd., the Court held that the order passed by the Chief Justice under Section 11 of the Act was administrative in nature. Referring to a decision of the Constitution Bench in Indo China Steam Navigation Co. Ltd. vs. Jasjit Singh, Additional Collector of Customs and Ors., (1964) 6 SCR 594 the Court observed that it is well settled that a petition under Article 136 of the Constitution would lie against an order made by a Court or Tribunal. Since the Chief Justice or his desingate acts under Section 11(6) of the Act in administrative capacity, the order could not be said to have been passed by a Court or by a tribunal having trappings of a Court. Special leave petition was hence held not maintainable.

66.In Konkan Railway Corporation Ltd. vs. Mehul Construction Co. (Konkan Railway Corporation Ltd. I), (2000) 7 SCC 201, the point was again considered by a three- Judge Bench. It was observed that an important question had arisen for consideration of the Court as to the nature of the order passed by the Chief Justice under Section 11(6) of the Act and the remedy available to the aggrieved party against such order. Referring to Sundaram Finance Ltd. and Ador Samia Private Ltd., the Court held that the function performed by the Chief Justice was essentially to aid the constitution of Arbitral Tribunal. The Legislature had consciously chosen to confer the power on the ‘Chief Justice’ and not on the ‘Court’. The order passed by the Chief Justice or his nominee was administrative order. The Court considered UNCITRAL Model Law of International Commercial Arbitration, the old Act of 1940 and the relevant provisions of 1996 Act and observed that the sole objective was to resolve disputes as expeditiously as possible so that trade and commerce are not adversely affected on account of litigation. The Statement of Objects and Reasons of the Act clearly enunciated the object of the legislation that it was intended to minimize the supervisory role of the Court in arbitral process.

67. According to the Court, when the matter is placed before the Chief Justice or his nominee under Section 11 of the Act, it is imperative for the Chief Justice or his nominee to bear in mind the legislative intent. The Chief Justice or his nominee is not expected to entretain contentious issues between the parties and decide them. Section 16 of the Act empowers the Arbitral Tribunal to rule on its own jurisdiction. Combined reading of Sections 11 and 16 make it crystal clear that questions as to qualifications, independence and impartiality of Arbitral Tribunal as also of the jurisdiction of the tribunal can be raised before the arbitrator who will decide them. The function of the Chief Justice or his nominee is just to appoint an arbitrator without wasting time. The nature of the function to be performed by the Chief Justice is essentially to aid the constitution of the tribunal and is administrative. If the function is held to be judicial or quasi-judicial, the order passed by the Chief Justice or his nominee would be amenable to judicial intervention and a reluctant litigant would attempt to frustrate the object of the Act by adopting dilatory tactics by approaching a Court of law against an appointment of arbitrator. Such an interpretation should be avoided to achieve the basic objective for which the Act has been enacted.

68.In Konkan Railway Corporation Ltd. vs. Rani Construction Pvt. Ltd. (Konkan Railway Corporation Ltd. II), (2000) 8 SCC 159 , a similar question had come for consideration before a two-Judge Bench. The attention of the Court was invited to earlier decisions including a three-Judge Bench decision in Konkan Railway Corporation Ltd.I. It was, however, argued by the learned Solicitor General that once a contention is raised that the matter cannot be referred to arbitration, the issue has to be decided by the Chief Justice or his nominee and such an order cannot be characterized as administrative. When the attention of the learned Solicitor General was invited to Sundaram Finance Sundaram Finance Ltd., he submitted that the question about nature of the order under Section 11 was never raised before the Court and the observation that the order passed by the Chief Justice or his nominee under Section 11 was administrative was merely ‘passing observation’ or ‘obiter’. In Ador Samia, special leave petition under Article 136 of the Constitution was dismissed merely relying upon observation in Sundaram Finance Ltd. It was no doubt true that in Konkan Railway Corporation Ltd. I, a three-Judge Bench held that an order passed under Section 11 of the Act by the Chief Justice or his nominee was administrative in nature but it required reconsideration in view of several factors. It was submitted that the Act did not take away the power of the Court to decide preliminary issues; the Chief Justice or his nominee was bound to consider whether there was an arbitration agreement, or whether an arbitration clause existed or the matters were ‘excepted matters’. Again, if the order of the Chief Justice or his nominee would be treated as administrative, it could be challenged before a High Court under Article 226 of the Constitution, then before a Division Bench in Letters Patent Appeal/Intra-court Appeal and then before the Supreme Court under Article 136 of the Constitution which would further delay arbitration proceedings. It was, therefore, necessary to reconsider the law laid down in Konkan Railway Corporation Ltd. I.

69.In view of the contentions raised before a two-Judge Bench, an order was passed directing the Registry to place the papers before Hon. the Chief Justice for passing appropriate orders. Konkan Railway Corporation Ltd. II was thus placed before a Constitution Bench of five Judges. The Constitution Bench, (2002) 2 SCC 388 considered the relevant provisions of the Act and the scheme framed by the Chief Justice of India known as “The Appointment of Arbitrators by the Chief Justice of India Scheme, 1996”.

70.Discussing the Statement of Objects and Reasons and considering the relevant provisions of the Act, the Court held that the only function the Chief Justice or his designate was required to perform was to fill the gap left by a party to the arbitration agreement or two arbitrators appointed by the parties and nominate an arbitrator or umpire so that Arbitral Tribunal is expeditiously constituted and arbitration proceedings commenced. According to the Constitution Bench, the order passed by the Chief Justice or his desingate under Section 11nominating an arbitrator could not be said to be ‘adjudicatory order’ and the Chief Justice or his designate could not be described as ‘Tribunal’. Such an order, therefore, could not be challenged under Article 136 of the Constitution. The decision of three-Judge Bench in Konkan Railway Corporation Ltd. 1 was thus affirmed.

71.The Court observed : “Section 11 of the Act deals with the appointment of arbitrators. It provides that the parties are free to agree on a procedure for appointing an arbitrator or arbitrators. In the event of there being no agreement in regard to such procedure, in an arbitration by three arbitrators each party is required to appoint one arbitrator and the two arbitrators so appointed must appoint the third arbitrator. If a party fails to appoint an arbitrator within thirty days from the request to do so by the other party or the two arbitrators appointed by the parties fail to agree on a third arbitrator within thirty days of their appointment, a party may request the Chief Justice to nominate an arbitrator and the nomination shall be made by the Chief Justice or any person or institution designated by him. If the parties have not agreed on a procedure for appointing an arbitrator in an arbitration with a sole arbitrator and the parties fail to agree on an arbitrator within thirty days from receipt of a request to one party by the other party, the nomination shall be made on the request of a party by the Chief Justice or his designate. Where an appointment procedure has been agreed upon by the parties but a party fails to act as required by that procedure or the parties, or the two arbitrators appointed by them, fail to reach the agreement expected of them under that procedure or a person or institution fails to perform the function entrusted to him or it under that procedure, a party may request the Chief Justice or his designate to nominate an arbitrator, unless the appointment procedure provides other means in this behalf. The decision of the Chief Justice or his designate is final. In nominating an arbitrator the Chief Justice or his designate must have regard to the qualifications required of the arbitrator in the agreement between the parties and to other considerations that will secure the nomination of an independent and impartial arbitrator.

There is nothing in Section 11 that requires the party other than the party making the request to be noticed. It does not contemplate a response from that other party. It does not contemplate a decision by the Chief Justice or his designate on any controversy that the other party may raise, even in regard to its failure to appoint an arbitrator within the period of thirty days. That the Chief Justice or his designate has to make the nomination of an arbitrator only if the period of thirty days is over does not lead to the conclusion that the decision to nominate is adjudicatory. In its request to the Chief Justice to make the appointment the party would aver that this period has passed and, ordinarily, correspondence between the parties would be annexed to bear this out. This is all that the Chief Justice or his designate has to see. That the Chief Justice or his designate has to take into account the qualifications required of the arbitrator by the agreement between the parties (which, ordinarily, would also be annexed to the request) and other considerations likely to secure the nomination of an independent and impartial arbitrator also cannot lead to the conclusion that the Chief Justice or his designate is required to perform an adjudicatory function. That the word ‘decision’ is used in the matter of the request by a party to nominate an arbitrator does not of itself mean that an adjudicatory decision is contemplated.

As we see it, the only function of the Chief Justice or his designate under Section 11 is to fill the gap left by a party to the arbitration agreement or by the two arbitrators appointed by the parties and nominate an arbitrator. This is to enable the arbitral tribunal to be expeditiously constituted and the arbitration proceedings to commence. The function has been left to the Chief Justice or his designate advisedly, with a view to ensure that the nomination of the arbitrator is made by a person occupying high judicial office or his designate, who would take due care to see that a competent, independent and impartial arbitrator is nominated.

It might be that though the Chief Justice or his designate might have taken all due care to nominate an independent and impartial arbitrator, a party in a given case may have justifiable doubts about that arbitrator’s independence or impartiality. In that event it would be open to that party to challenge the arbitrator under Section 12, adopting the procedure under Section 13. There is no reason whatever to conclude that the grounds for challenge under Section 13 are not available only because the arbitrator has been nominated by the Chief Justice or his designate under Section 11.

It might also be that in a given case the Chief Justice or his designate may have nominated an arbitrator although the period of thirty days had not expired. If so, the arbitral tribunal would have been improperly constituted and be without jurisdiction. It would then be open to the aggrieved party to require the arbitral tribunal to rule on its jurisdiction. Section 16 provides for this. It states that the arbitral tribunal may rule on its own jurisdiction. That the arbitral tribunal may rule “on any objections with respect to the existence or validity of the arbitration agreement” shows that the arbitral tribunal’s authority under Section 16 is not confined to the width of its jurisdiction, as was submitted by the learned counsel for the appellants, but goes to the very root of its jurisdiction. There would, therefore, be no impediment in contending before the arbitral tribunal that it had been wrongly constituted by reason of the fact that the Chief Justice or his designate had nominated an arbitrator although the period of thirty days had not expired and that, therefore, it had no jurisdiction.”

72. Regarding the scheme, the Court observed that such scheme could not govern the Act. Since Section 11 did not contain any element of ‘adjudication’ and the function of the Chief Justice or his designate was purely administrative, there was no question of issuing notice to affected persons or to afford opportunity of hearing. The scheme, however, contained clause 7 (Notice to affected persons) and expressly provided for issuance of notice to persons likely to be affected thereby. It thus went ‘beyond terms of Section 11’ and was, therefore, bad.

73. The Court, in this connection, observed ;

“The schemes made by the Chief Justices under Section 11 cannot govern the interpretation of Section 11. If the schemes, as drawn, go beyond the terms of Section 11 they are bad and have to be amended. To the extent that The Appointment of Arbitrators by the Chief Justice of India Scheme, 1996, goes beyond Section 11 by requiring, in clause 7, the service of a notice upon the other party to the arbitration agreement to show cause why the nomination of an arbitrator, as requested, should not be made, it is bad and must be amended. The other party needs to be given notice of the request only so that it may know of it and it may, if it so chooses, assist the Chief Justice or his designate in the nomination of an arbitrator.”

74. The point was thus concluded by a Constitution Bench of five Judges wherein it was held that the function performed by the Chief Justice or his designate was administrative and did not contain any adjudicatory process. The order passed by the Chief Justice or his designate could not be challenged before this Court under Article 136 of the Constitution.

75. In the light of the above legal position, when these matters were placed before a Constitution Bench of five Judges on July 19, 2005, the following order was passed :

“After hearing the learned counsel for the parties, we are of the opinion that the cases may call for re-consideration of the decision of this Court in Konkan Railway Corporation Ltd. and Anr. vs. Rani Construction Pvt. Ltd. (2002) 2 SCC 388, in particular the view taken in paras 18 to 21 thereof, which is by a Constitution Bench.

Be placed before a seven Judge Bench.”paragraph

76. That is how, the matters have been placed before us.

77. We have heard the learned counsel for the parties at considerable length. It was urged by Mr. Venugopal, Senior Advocate that when the Chief Justice is requested to make an appointment of an arbitrator under sub-section (6) of Section 11 of the Act, the Chief Justice must apply his mind and satisfy himself about the fulfillment of conditions for the exercise of power for appointment of an arbitrator. The Chief Justice for that purpose, is bound to decide certain preliminary or ‘jurisdictional’ facts before taking a decision of appointment of arbitrator. He must be convinced that there is an ‘arbitration agreement’ under Section 7 of the Act, the other party has refused to make an appointment, or parties or two arbitrators have failed to reach an agreement or a person or institution has failed to perform the function entrusted to him or it. Moreover, the Chief Justice in appointing an arbitrator ‘shall have regard to’ qualifications, independence and impartiality of the arbitrator. The Chief Justice, after considering all those factors will come to a conclusion whether the provisions of law have complied with and only then he may make such order. The issues arise before the Chief Justice are thus contentious issues and require adjudication. Such adjudication affects rights of parties. The ‘duty to act judicially’ is, therefore, implicit and the decision is judicial or quasi-judicial.

78. I am unable to uphold the argument. In my view, it is based on the misconception that wherever a statute requires certain matters to be taken into account and the authority is obliged to apply its mind to those considerations, the action, decision or adjudication must be held judicial or quasi-judicial. With respect, this is not the legal position.

79. It is settled law that in several cases, an appropriate authority may have to consider the circumstances laid down in the Act, apply its mind and then to take a decision. Succh decision may affect one or the other party and may have far reaching consequences. But from that it cannot be concluded that the decision is judicial or quasi-judicial and not administrative.

80.Before more than fifty years, in State of Madras vs. P. Sarthy, (1953) SCR 334, the Constitution Bench of this Court while interpreting the provisions of Section 10 of the Industrial Disputes Act, 1947 held that the action of the Government of referring or refusing to refer the matter for an adjudication to Labour Court or Industrial Tribunal is administrative.

81. The Court stated :

This is, however, not to say that the Government will be justified in making a reference under S. 10(1) without satisfying itself on the facts and circumstances brought to its notice that an industrial dispute exists or is apprehended in relation to an establishment or a definite group of establishments engaged in a particular industry. It is also desirable that the Government should, wherever possible, indicate the nature of the dispute in the order of reference. But it must be remembered that in making a reference under S. 10(1) the Government is doing an administrative act and the fact that it has to form an opinion as to the factual existence of an industrial dispute as a preliminary step to the discharge of its function does not make it any the less administrative in character. The Court cannot, therefore, canvass the order of reference closely to see if there was any material before the Government to support its conclusion, as if it was judicial or quasi-judicial determination. No doubt, it will be open to a party seeking to impugn the resulting award to show that what was referred by the Government was not an industrial dispute within the meaning of the Act, and that, therefore, the Tribunal had no jurisdiction to make the award. But, if the dispute was an industrial dispute as defined in the Act, its factual existence and the expediency of making a reference in the circumstances of a particular case are matters entitrely for the Government to decide upon, and it will not be competent for the Court to hold the reference bad and quash the proceedings for want of jurisdiction merely because there was, in its opinion, no material before the Government on which it could have come to an affirmative conclusion on those matters.                                                             (emphasis supplied)

82.Now, it cannot be disputed that the action of the Government (of referring the dispute or refusing to refer it) certainly affects one party or the other. Still an action which is otherwise administrative in nature does not change its character and remains as it is irrespective of the consequences likely to ensue or the effect of decision on parties to such dispute. (See also Prem Kakar vs. State of Haryana, (1976) 3 SCR 1010 ; Sultan Singh vs. State of Haryana, (1996) 2 SCC 66; Secretary, Indian Tea Association vs. Ajit Kumar Barat, (2000) 3 SCC 93)).

83. Several similar actions having far reaching consequences have been held administrative, for instance, an order of acquisition or requisition of property; an order making an appointment to a civil post, an order granting sanction to prosecute a public servant; etc.

84. It cannot be gainsaid that there must be an ‘arbitration agreement’ between the parties. It also cannot denied that there must be default or failure on the part of one party to appoint an arbitrator. But that will not make the function performed by the Chief Justice as judicial or quasi-judicial. Chapter II (Arbitration Agreement) precedes Chapter III (Composition of Arbitral Tribunal). Therefore, when the question as to composition of Arbitral Tribunal and appointment of an arbitrator comes up for consideration, it can safely be assumed that there is an arbitration agreement, inasmuch as it is in consonance with the legislative scheme and the question as to the appointment of arbitrator arises only in view of such agreement. Moreover, before exercising the power to appoint an arbitrator, the Chief Justice must peruse the relevant record relating to an agreement and failure by one party in making an appointment which would enable him to act. There is, however, no doubt in my mind that at that stage, the satisfaction required is merely of prima facie nature and the Chief Justice does not decide lis nor contentious issues between the parties. Section 11 neither contemplates detailed inquiry, nor trial nor findings on controversial or contested matters.

85. The Law Commission, in 176th Report on Arbitration and Conciliation (Amendment) Bill, 2001, after referring to the relevant Rules and legal opinion, stated:

It is, therefore, clear that the ICC Rules and the opinion of jurists support the view that at the stage of Section 11, it is permissible to decide preliminary issues. There are considerale advantages if such issues are decided at that stage, inasmuch as a decision at that stage saves time and expense for the parties. As pointed out by Fouchard and others, there is no question of an ‘automatic appointment’ of arbitrators, whenever an application is made for an appointment of arbitrators. The appointing authority normally considers if a case is made out for appointment of arbitrators and such a decision can be taken on undisputed facts available at that stage.                                                                                                              (emphasis supplied)

86. As Fouchard, Gaillard, Goldman on International Commercial Arbitration (1994 edn.); (para 854) pithily put it; “the Court should only verify that the clause is not patently void, as it would be unreasonable to require it to appoint an arbitrator where there is no indication that an arbitration clause exists. The Court should not be seen to automatically appoint arbitrators in cases where the arbitration clearly has no contractual basis and the award has no chance of being recognized in any jurisdiction”.                                                         (emphasis supplied)

87.At the stage of exercising powers under sub-section (6) of Section 11, the Chief Justice is bound to apply his mind to allegations and counter-allegations of the parties and will form an opinion on the available material. Thus, in Wellington Associates Ltd. vs. Kirit Mehta, (2000) 4 SCC 272 at the stage of Section 11, it was argued that the relevant clause relied upon by the applicant was not an ‘arbitration clause’. It merely permitted parties to agree, in future, to go to arbitration.

88.Upholding the objection, the Court observed that the clause was not an arbitration clause and the application was not maintainable. It held that Section 16 did not take away the jurisdiction of the Chief Justice to decide the question of ‘existence’ of the arbitration agreement. The said section did not declare that except the Arbitral Tribunal, none else could determine such question. “Merely because the new Act permits the arbitrator to decide this question, it does not necessarily follow that at the stage of Section 11, the Chief Justice of India or his designate cannot decide the question as to the existence of the arbitration clause.” (See also Malaysian Airlines System vs. Stic Travels (P) Ltd. (2001) 1 SCC 509; Nimeet Resources INC vs. Essar Steels Ltd.; (2000) 7 SCC 497; Shin Etsu Chemical Co. Ltd. vs. Aksh Optifibre Ltd. and Anr. (2005) 7 SCC 234).

89. It was then argued that sub-section (7) of Section 11 empowers the Chief Justice to decide the question and uses the expression ‘decision’ which is significant. Whenever a statute confers power on an authority to pass an order or to take a decision, it must be held that the function is judicial or quasi-judicial and duty to act judicially must be inferred.

90. Even this contention is not well founded. Sub-section (7), no doubt, uses the term ‘decision’. But as I have already observed earlier, the Chief Justice forms prima facie opinion as to the fulfillment of conditions speified in sub-section (6). The decision neither contemplates adjudication of lis between two or more parties nor resloves controversial and contentious issues. It merely requires the Chief Justice to take an appropriate action keeping in view the provisions of Part II and sub-sections (1), (4) and (5) of Section 11. Regarding matters which the Chief Justice is expected to consider, such as qualification, independence and impartiality of arbitrator, they are statutory provisions and the Chief Justice is obliged to keep them in view as per mandate of the Legislature. The said fact, however, does not make the function of the Chief Justice judicial or quasi-judicial.

91. It was also submitted that there is an important provision which cannot be lost sight of and it is the finality of decision rendered by the Chief Justice. Sub-section (7) expressly declares that the decision of the Chief Justice under sub-section (6) of Section 11 is ‘final’. It was submitted that in view of finality attached to the order passed by the Chief Justice, the order passed by him cannot be made subject-matter of dispute under the Act and all provisions, including Section 16 must be read in conformity with ‘finality clause’. For that reason also, the action must be held judicial or quasi-judicial.

92.As to the ambit and scope of Section 16, I will refer to little later, but in my view, finality of an order has nothing to do with the nature of function to be performed by the Chief Justice. Several statutes declare an order passed, decision taken or declaration made by the competent authority ‘final’ or ‘final and conclusive’ or ‘final and conclusive and is not open to challenge in any Court’. This is known as ‘statutory finality’ and such clauses require to be interpreted in juxta-position of constitutional provisions. As a general rule, no appeal, revision or review lies against an order which has been treated by a statute as ‘final’. It may not be challenged by instituting a civil suit in certain cases. But such finality cannot take away the jurisdiction of High Courts or the Supreme Court and judicial review is available against ‘final’ orders albeit on limited grounds. (Vide Somvanti vs. State of Punjab, (1963) 2 SCR 774; Neelima Misra vs. Harvinder Kaur Paintal and Ors. (1990) 2 SCC 746).

93. But there is another important reason why the function of the Chief Justice under Section 11 should be considered administrative. All the three sub-sections, (4), (5) and (6) of the said section empower the Chief Justice or ‘any person or institution designated by him’ to exercise the power of the Chief Justice. No provision similar to the one in hand was present in 1940 Act. Parliament, therefore, has conscioulsy and intentionally made the present arrangement for the first time allowing exercise of the power by the Chief Justice himself or through ‘any person or institution designated by him’, since the function is administrative in character and is required to be performed on prima facie satisfaction under sub-section (6) of Section 11 of the Act.

94. Now, let us consider Section 16 of the Act. This section is new and did not find place in the old Act of 1940. Sub-section (1) of that section enables the Arbitral Tribunal to rule on its own jurisdiction. It further provides that the jurisdiction of the tribunal includes ruling on any objections with respect to existence or validity of the arbitration agreement. Sub-sections (2), (3) and (4) lay down procedure of raising plea as to the jurisdiction of the Arbitral Tribunal and entertaining such plea. Sub-section (5) mandates that the Arbitral Tribunal ‘shall decide’ such plea and, ‘where the arbitral tribunal takes a decision rejecting the plea, continue with the arbitration proceedings and make an arbitral award’. Sub-section (6) is equally important and expressly enacts that a party aggrieved by arbitral award may invoke Section 34 of the Act for setting aside such award. The provision appears to have been made to prevent dilatory tactics and abuse of immediate right to approach the Court. If an aggrieved party has right to move the Court, it would not have been possible to preclude the Court from granting stay or interim relief which would bring the arbitration proceedings to a grinding halt. The provisions of Section 16(6) read with Section 5 now make the legal position clear, unambiguous and free from doubt.

95. Section 16 (1) incorporates the well known doctrine of Kompetenz – Kompetenz or competence de la competence. It recognizes and enshrines an important principle that initially and primarily, it is for the Arbitral Tribunal itself to determine whether it has jurisdiction in the matter, subject of course, to ultimate Court-control. It is thus a rule of chronological priority. Kompetenz-Kompetenz is a widely accepted feature of modern international arbitration, and allows the Arbitral Tribunal to decide its own jurisdiction including ruling on any objections with respect to the existence or validity of the arbitration-agreement, subject to final review by a competent Court of law; i.e. subject to Section 34 of the Act.

96. Chitty on Contract (1999 edn.; p. 802) explains the principle thus :

English law has always taken the view that the arbitral tribunal cannot be the final adjudication of its own jurisdiction. The final decision as per the substantive jurisdiction of the tribunal rests with the Court. However, there is no reason why the tribunal should not have the power, subject to review by the Court, to rule on its own jurisdiction. Indeed such a power (often referred to as the principle of “Kompetenz – Kompetenz” has been generally recognized in other legal systems. It had also been recognized by English Law before the 1986 Act, but Section 30 of the Act put this on a statutory basis. Unless otherwise agreed by the parties, the arbitral tribunal may rule on its substantive jurisdiction that is, as to (a) whether there is valid arbitration agreement; (b) whether the tribunal is properly constituted; and (c) what matters have been submitted to arbitration in accordance with the arbitration agreement. Any such ruling may be challenged by any arbitral process of appeal or review or in accordance with the provisions of Part I of the Act, notably by an application under Section 32 or by a challenge to the award under Section 67.                                                                                                               (emphasis supplied)

Alan Redfern and Martin Hunter in their work on “Law and Practice of International Commercial Arbitration”, (4th edn.), (para 5-34) also said :

When any question is raised as to the jurisdiction of the Arbitral Tribunal, a two stage procedure is followed. At the first stage, if one of the parties raises ‘one or more pleas concerning the existence, validity or scope of the agreement to arbitrate’, the ICC’s Court must satisfy itself of the prima facie existence of such an agreement (ICC Arbitration Rules 6(2)). If it is satisfied that such an agreement exists, the ICC’s Court must allow the arbitration to proceed so that, at the second stage, any decision as to the jurisdiction of the Arbitral Tribunal shall be taken by the Arbitral Tribunal itself.

To cite Fouchard, Gaillard, Goldman again:

658. – More fundamentally, although the arbitrators’ jurisdiction to rule on their own jurisdiction is indeed one of the effects of the arbitration agreement (or even of a prima facie arbitration agreement, since the question would not arise in the absence of a prima facie arbitration agreement), the basis of that power is neither the arbitration agreement itself, nor the principle of pacta sunt servanda under which the arbitration agreement is binding.

The competence – competence principle enables the arbitral tribunal to continue with the proceedings even where the existence or validity of the arbitration agreement has been challenged by one of the parties for reasons directly affecting the arbitration agreement, and not simply on the basis of allegations that the main contract is void or otherwise ineffective. The principle that the arbitration agreement is autonomous of the main contract is sufficient to resist a claim that the arbitration agreement is void because the contract containing it is invalid, but it does not enable the arbitrators to proceed with the arbitration where the alleged invalidity directly concerns the arbitration agreement. That is a consequence of the competence -competence principle alone. The competence-competence principle also allows arbitrators to determine that an arbitration agreement is invalid and to make an award declaring that they lack jurisdiction without contradicting themselves. Of course, neither of those effects results from the arbitration agreement. If that were the case, one would immediately be confronted with the “vicious circle” argument put forward by authors opposed to the competence-competence principle: how can an arbitrator, solely on the basis of an arbitration agreement, declare that agreement to be void or even hear a claim to that effect? The answer is simple : the basis for the competence-competence principle lies not in the arbitration agreement, but in the arbitration laws of the country where the arbitration is held and, more generally, in the laws of all countries liable to recognize an award made by arbitrators concerning their own jurisdiction. For example, an international arbitral tribunal sitting in France can properly make an award declaring that it lacks jurisdiction for want of a valid arbitration agreement, because it does so on the basis of French arbitration law, and not on the basis of the arbitration agreement held to be non-existent or invalid. Similarly, it is perfectly logical for the interested party to rely on that award in other jurisdictions, provided that those other jurisdictions also recognize the competence -competence principle. As we shall now see, the legal basis for the principle does not prejudice the subsequent review by the Courts, in France or in the country where recognition is sought, of the arbitrators’ finding that the arbitration agreement is non-existent or invalid.

659.- Even today, the competence-competence principle is all too often interpreted as empowering the arbitrators to be the sole Judges of their jurisdiction. That would be neither logical nor acceptable. In fact, the real purpose of the rule is in no way to leave the question of the arbitrators’ jurisdiction in the hands of the arbitrators alone. Their jurisdiction must instead be reviewed by the Courts if an action is brought to set aside or to enforce the award. Nevertheless, the competence competence rule ties in with the idea that there are no grounds for the prima facie suspicion that the arbitrators themselves will not be able to reach decisions which are fair and protect the interests of society as well as those of the parties to the dispute. This same philosophy is also found in the context of arbitrability, where it serves as the basis for the case law which entrusts arbitrators with the task of applying rules of public policy (in areas such as antitrust law and the prevention of corruption), subject to subsequent review by the Courts.

660. – However, it is important to recognize that the competence-competence rule has a dual function. Like the arbitration agreement, it has or may have both positive and negative effects, even if the latter have not yet been fully accepted in a number of jurisdictions. The positive effect of the competence competence principle is to enable the arbitrators to rule on their own jurisdiction, as is widely recognized by international conventions and by recent statutes on international arbitration. However, the negative effect is equally important. It is to allow the arbitrators to be not the sole Judges, but the first Judges of their jurisdiction. In other words, it is to allow them to come to a decision on their jurisdiction prior to any court or other judicial authority, and thereby to limit the role of the Courts to the review of the award. The principle of competence-competence thus obliges any Court hearing a claim concerning the jurisdiction of an arbitral tribunal- regarding, for example, the constitution of the tribunal or the validity of the arbitration agreement – to refrain from hearing substantive argument as to the arbitrators’ jurisdiction until such time as the arbitrators themselves have had the opportunity to do so. In that sense, the competence-competence principle is a rule of chronological priority. Taking both of its facets into account, the competence-competence principle can be defined as the rule whereby arbitrators must have the first opportunity to hear challenges relating to their jurisdiction, subject to subsequent review by the Courts.

From a practical standpoint, the rule is intended to ensure that a party cannot succeed in delaying the arbitral proceedings by alleging that the arbitration agreement is invalid or non-existent. Such delay is avoided by allowing the arbitrators to rule on this issue themselves, subject to subsequent review by the Courts, and by inviting the Courts to refrain from intervening until the award has been made. Nevertheless, the interests of parties with legitimate claims concerning the invalidity of the arbitration agreement are not unduly prejudiced, because they will be able to bring those claims before the arbitrators themselves and, should the arbitrators choose to reject them, before the Courts thereafter. The competence-competence rule thus concerns not only the positive, but also the negative effects of the arbitration agreement.

97. In Renusagar Power Co. Ltd. vs. General Electric Co. and Anr. (1984) 4 SCC 679, considering the relevant provisions of the Foreign Awards (Recognition and Enforcement) Act, 1961, this Court held that the arbitrator or umpire is competent to provisionally decide his own jurisdiction, if the arbitration agreement so provides, however, subject to final determination by a competent Court.

The Court stated :

“As explained earlier the scheme that emerges on a combined reading of Ss. 3 and 7 of the Foreign Awards Act clearly contemplates that questions of existence, validity or effect (scope) of the arbitration agreement itself, in cases where such agreement is wide enough to include within its ambit such questions, may be decided by the arbitrators initially but their determination is subject to the decision of the Court and such decision of the Court can be had either before the arbitration proceedings commence or during their pendency, if the matter is decided in a Section 3 petition or can be had under Sec. 7 after the award is made and filed in the Court and is sought to be enforced by a party thereto. In the face of such schemes envisaged by the Foreign Awards Act which governs this case it will be diffficult to accept the contention that the arbitrators will have no jurisdiction to decide questions regarding the existence, validity or effect (scope) of the arbitration agreement. In fact the scheme makes for avoidance of dilatory tactics on the part of any party to such agreement by merely raising a plea of lack of arbitrator’s competence- and a frivolous plea at that- and enables the arbitrator to determine the plea one way or the other and if negatived to proceed to make his award with the further safeguard that the Court would be in a position to entertain and decide the same plea finally when the award is sought to be enforced.”                                                                                  (Emphasis supplied)

98. In the instant case, according to the majority, Section 16(1) only makes explicit what is even otherwise implicit, namely, that the tribunal has the jurisdiction to rule its own jurisdiction, ‘including ruling on any objections with respect to the existence or validity of the arbitration agreement.’

99. So far, so good and I am in respectful agreement with these observations. The matter, however, does not rest there. Over and above sub-section (1), Section 16 contains other sub-sections and in particular, sub-sections (5) and (6). The former requires the tribunal to continue the proceedings in case it decides that the tribunal has jurisdiction in the matter and the latter provides remedy to the aggrieved party.

100.In my opinion, conjoint reading of sub-sections (1), (4), (5) and (6) makes it abundantly clear that the provision is ‘self contained’ and deals with all cases, even those wherein the plea as to want of jurisdiction has been rejected. As a general rule, such orders are subject to certiorari jurisdiction since a Court of limited jurisdiction or an inferior tribunal by wrongly interpreting a statutory provision cannot invest itself with the jurisdiction which it otherwise does not possess. But it is always open to a competent Legislature to invest a tribunal of limited jurisdiction with the power to decide or determine finally the preliminary or jurisdictional facts on which exercise of its jurisdiction depends. In such cases, the finding recorded by the tribunal cannot be challenged by certiorari. (Vide Ujjam Bai vs. State of U. P., (1963)1 SCR 778.

101. As a general rule, neither in England, nor in India, such jurisdiction is granted on a Court of limited jurisdiction or on an inferior tribunal.

102. In Halsbury’s Laws of England, (4th edn. vol. 1; para 56); it has been stated:

It is possible for an inferior tribunal to be vested with power to determine conclusively questions demarcating the limits of its own jurisdiction. Such a grant of power must now be regarded as exceptional, in view of the very restrictive interpretation placed by the Courts on statutory formulae purporting to exclude their inherent supervisory jurisdiction, and their reluctance to be precluded by subjectively worded grants of power from determining judicially ascertainable matters delimiting the area of competence of inferior tribunals, especially where the relevant question is one of law.

(Emphasis supplied)

103.In fact, one of the points of differentiation between a Crown’s Court and a statutory tribunal is that whereas a Court has inherent power to decide the question of its own jurisdiction, although as a result of inquiry, it may turn out that it has no jurisdiction to try the suit, the jurisdiction of a tribunal constituted under a statute is strictly confined to the terms of the statute creating it. The existence of preliminary or ‘jurisdictional’ fact is a sine qua non to the assumption of jurisdiction by a tribunal of limited jurisdiction. If the jurisdictional fact does not exist, the tribunal cannot act. But a Legislature may confer such power on a Court of limited jurisdiction or on an inferior tribunal (vide Ebrahim Aboobaker vs. Custodian General, AIR 1952 SCR 319; Ujjam Bai vs. State of U. P., (1963) 1 SCR 778; Raja Anand vs. State of U. P., (1967) 1 SCR 373; Naresh Shridhar Mirazkar vs. State of Maharashtra, (1966) 3 SCR 744; Raza Textiles Ltd. vs. I. T. O., (1973) 1 SCC 633; Shiv Chander vs. Amar Bose, (1990) 1 SCC 234; Shrisht Dhawan vs. Shaw Brothers, (1992) 1 SCC 534; Vatticherubura Village Panchayat vs. Nari Venkatarama Deekshithulu, (1991) 2 Suppl. SCC 228; Executive Officer, Arthanareswarar Temple vs. R. Sathya-moorthy and Others, (1999) 3 SCC 115).

104. Let us consider the principle in the light of case-law on the point.

105. Keeping in view, the distinction referred to hereinabove, before more than hundred years, in Queen vs. Commissioner of Income Tax, (1888)21 QB 313, Lord Esher, M. R. made the following observations :

“When an inferior Court or tribunal or body, which has to exercise the power of deciding facts, is first established by Act of Parliament, the legislature has to consider, what powers it will give that tribunal or body. It may in effect say that, if a certain state of facts exists and is shown to such tribunal or body before it proceeds to do certain things, it shall have jurisdiction to do such things, but not otherwise. There it is not for them conclusively to decide whether that state of facts exists, and, if they exercise the jurisdiction without its existence what they do may be questioned, and it will be held that they have acted without jurisdiction. But there is another state of things which may exist. The legislature may intrust the tribunal or body with a jurisdiction, which includes the jurisdiction to determine whether the preliminary state of facts exists as well as the jurisdiction, on finding that it does exist, to proceed further or do something more. When the legislature are establishing such a tribunal or body with limited jurisdiction, they also have to consider, whatever jurisdiction they give them, whether there shall be any appeal from their decision, or otherwise there will be none. In the second of the two cases I have mentioned it is an erroneous application of the formula to say that the tribunal cannot give themselves jurisdiction by wrongly deciding certain facts to exist, because the legislature gave them jurisdiction to determine all the facts, including the existence of the preliminary facts on which the further exercise of their jurisdiction depends; and if they were given jurisdiction so to decide, without any appeal being given, there is no appeal from such exercise of their jurisdiction.”                                                                              (Emphasis supplied)

106.The above statement of law has been quoted with approval by this Court in several cases. In Chaube Jagdish Prasad and Anr. vs. Ganga Prasad Chaturvedi, (1959) 1 Suppl. SCR 733 the Court stated :

“These observations which relate to inferior Courts or tribunals with limited jurisdiction show that there are two classes of cases dealing with the power of such a tribunal (1) where the legislature entrusts a tribunal with the jurisdiction including the jurisdiction to determine whether the preliminary state of facts on which the exercise of its jurisdiction depends exists and (2) where the legislature confers jurisdiction on such tribunals to proceed in a case where a certain state of facts exists or is shown to exist. The difference is that in the former case the tribunal has power to determine the facts giving it jurisdiction and in the latter case it has only to see that a certain state of facts exists.” (Emphasis supplied)

107. Again, in Addanki Tiruvenkata Thata Desika Charyulu vs. State of Andhra Pradesh and Anr. AIR 1964 SC 807, the Settlement Officer was empowered to decide finally as to whether inam village was an ‘inam estate’. It also barred jurisdiction of Civil Court from questioning the correctness of the decision.

108. Considering the question as to extent to which the powers of statutory tribunals are ‘exclusive’, the Constitution Bench after referring to Commissioner of Income Tax, stated :

“It is manifest that the answer to the question as to whether any particular case falls under the first or the second of the above categories would depend on the purpose of the statute and its general scheme, taken in conjunction with the scope of the enquiry entrusted to the tribunal set up and other relevant factors.”

109. As already indicated by me earlier, sub-setion (1) of Section 16 does not merely enable the Arbitral Tribunal to rule on its own jurisdiction, but requires it to continue arbitral proceedings and pass an arbitral award. (Sub-section (5)) It allows the aggrieved party to make an application for setting aside the award in accordance with Section 34. (Sub-section (6)). Thus, in my judgment, Section 16 can be described as ‘self-contained Code’ as regards the challenge to the jurisdiction of Arbitral Tribunal. As per the scheme envisaged by Parliament, once the Arbitral Tribunal rules that it has jurisdiction, it will proceed to decide the matter on merits and make an award. Parliament has also provided the remedy to the aggrieved party by enacting that he may make an application under Section 34 of the Act. In the circumstances, the proceedings cannot be allowed to be arrested or interference permitted during the pendency of arbitration proceedings.

110. It was submitted by Mr. Venugopal that once the Chief Justice is satisfied as to fulfillment of conditions for the exercise of power to appoint an arbitrator and his decision is ‘final’, it would be impossible to hold that the Arbitral Tribunal can go behind the decision of the Chief Justice and hold otherwise.

111. Mr. Venugopal suggested that Section 16 should be so construed that it would apply only to the cases covered by sub-sections (2) and (3) of Section 11 and not to sub-section (6) of Section 11 and the appointment of an arbitrator made by the Chief Justice. By such interpretation, submitted the counsel, both the provisions can be harmoniously interpreted and properly applied.

112. Though the majority observed it to be ‘one of the ways of reconciliation’, I have my own reservation in accepting it. Firstly, the function of the Court is to interpret the provision as it is and not to amend, alter or substitute by interpretative process. Secondly, it is for the Legislature to make a law applicable to certain situations contemplated by it and the judiciary has no power in entering into ‘legislative wisdom’. Thirdly, as held by me, the ‘decision’ of the Chief Justice is merely prima facie decision and sub-section (1) of Section 16 confers express power on the Arbitral Tribunal to rule on its own jurisdiction. Fourthly, it provides remedy to deal with situations created by the order passed by the Arbitral Tribunal. Finally and importantly, the situation envisaged by Mr. Venugopal would seldom arise. Normally, when parties agree on the appointment of an arbitrator or arbitrators, there would hardly be any dispute between them on such appointment which may call for intervention by Arbitral Tribunal under Section 16 of the Act. For all these reasons, I am unable to persuade myself to hold that Section 16 has limited application to cases covered by sub-sections (2) and (3) and not to sub-section (6) of Section 11 of the Act. The phraseology used by the Legislature does not warrant interpretation sought to be suggested by Mr. Venugopal.

113. It was also submitted that in case of failure on the part of the party to the arbitration agreement in appointing an arbitrator, an application can be made under Section 11 of the Act and arbitrator can be appointed by the Chief Justice or any person or institution designated by him. It was urged that it is settled law that judicial or quasi-judicial power has to be exercised by the authority to whom it is granted and cannot be delegated. As the intention of Parliament was to confer the power on the highest judicial authority in the State and in the country, it cannot be allowed to be exercised by ‘any person’ or institution’.

114. In my view, the submission is ill-conceived and has been made by looking at the matter from an incorrect angle. It first assumes that the function performed by the Chief Justice is judicial or quasi-judicial and then proceeds to examine legal position on that basis and attempts to salvage the situation by urging that the power must be exercised by the Chief Justice. In that case, however, the subsequent part “or any person or institution designated by him” (Chief Justice) would become redundant. Realising the difficulty and keeping in view the principles relating to interpretation of statutes, Mr. Nariman, Senior Advocate submitted that Section 11 provides for dichotomy of functions. It contemplates two situations, and deals with two stages. The first stage consists of consideration of preliminary facts and taking of decision as to whether an arbitrator can be appointed. The second stage allows nomination of an arbitrator. According to Mr. Nariman, the first part is essentially a judicial function which cannot be delegated to ‘any person or institution’ and at the most, it can be delegated to any Judge of the Court. The second stage, however, is more or less ministerial and at that stage, the Chief Justice may, if he thinks fit, take help of any person or institution so that proper and fit person is appointed as arbitrator.

115. Though the submission weighed with the majority, I express my inability to agree with it for several reasons. Firstly, as earlier noted, it proceeds on the basis that the function of the Chief Justice is judicial or quasi-judicial, which is not correct. In my view, it is administrative which is apparent from the language of Section 11 and strengthened by Section 16 which enables the Arbitral Tribunal to rule on its own jurisdiction. Secondly, a Court of law must give credit to Parliament that it is aware of settled legal position that judicial or quasi-judicial function cannot be delegated and if the function performed by the Chief Justice is judicial or quasi-judicial in nature, keeping in view legal position, it would not have allowed delegation of such function to ‘any person or authority’. Thirdly, the majority held, and I am in respectful agreement with it, that the conferment of power on the Chief Justice is not as ‘persona designata’. Hence, the power can be delegated. Finally, if the legislative intent is the exercise of power by the Chief Justice alone, one fails to understand as to how it can be exercised by a ‘colleague’ of the Chief Justice as well.

116. In my opinion, acceptance of the submission of Mr. Nariman would result in rewriting of a statute. The scheme of the legislation does not warrant such construction. No Court much less the highest Court of the country would interpret one provision (Section 11) of an Act of Parliament which would make another provision (Section 16) totally redundant, otiose and nugatory. The Legislature has conferred power on the Chief Justice to appoint an arbitrator in certain contingencies. By the same pen and ink, it allowed the Chief Justice to get that power exercised through ‘any person or institution’. It is not open to a Court to ignore the legislative mandate by making artificial distinction between the power to be exercised by the Chief Justice or by his ‘colleague’ and the power to be exercised by other organs though Legislature was quite clear on the exercise of power by the person and authorities specified therein. I accordingly reject the argument.

117. It was then urged that the principal ground for holding the function of the Chief Justice under sub-section (6) of Section 11 as administrative was to ensure immediate commencement of arbitration proceedings and speedy disposal of cases. In reality, however, it is likely to cause delay for the simple reason that if the order passed by the Chief Justice of the High Court is treated as judicial or quasi judicial, it can only be challenged in the Supreme Court under Article 136 of the Constitution. So far as the order of the Chief Justice of India is concerned, it is ‘final’ as no appeal/application/writ petition lies against it. But if such decision is held to be administrative, initially, it can be challenged on the judicial side of the High Court under Article 226 of the Constitution. Normally, under the High Court Rules, such petitions are dealt with and decided by a Single Judge. Hence, the decision of a single Judge can further be challenged by filing a Letters Patent Appeal or Intra-Court Appeal under the relevant clause of the Letters Patent applicable to the High Court concerned. Finally, an order passed by the Division Bench can always be made subject-matter of challenge before this Court under Article 136 of the Constitution. Thus, an interpretation sought to be adopted for the purpose of reducing litigation and speedy disposal of proceedings would really result in increase of litigation and delay in disposal of cases.

118. I must admit that once it is held that the order passed by the Chief Justice is administrative, it can be challenged in Writ Petition, Letters Patent Appeal and in Special Leave Petition. But in my opinion, while exercising extraordinary jurisdiction under Article 226 of the Constitution, the High Court would consider the provisions of the Act, such as, limited judicial intervention of Court (Section 5); power of Arbitral Tribunal to rule on its own jurisdiction and the effect of such decision (Section 16). It will also keep in mind the legislative intent of expeditious disposal of proceedings and may not interfere at that stage. Ultimately, having jurisdiction or power to entertain a cause and interference with the order are two different and distinct matters. One does not necessarily result into the other. Hence, in spite of jurisdiction of the High Court, it may not stall arbitration proceedings by allowing the party to raise all objections before the Arbitral Tribunal.

119. In Laxmikant Revchand Bhojwani and Anr. vs. Pratapsingh Mohansingh Pardeshi, (1995) 6 SCC 576, the relevant Rent Act did not provide for further appeal or revision against an order passed by the appellate authority. The aggrieved party, therefore, invoked supervisory jurisdiction of the High Court. The High Court allowed the petition and set aside the order passed by the appellate Court.

120. Quashing the order of the High Court and keeping in view the legislative scheme, this Court said;

“Before parting with this judgment we would like to say that the High Court was not justified in extending its jurisdiction under Article 227 of the Constitution of India in the present case. The Act is a special legislation governing landlord-tenant relationship and disputes. The legislature has, in its wisdom, not provided second appeal or revision to the High Court. The object is to give finality to the decision of the appellate authority. The High Court under Article 227 of the Constitution of India cannot assume unlimited prerogative to correct all species of hardship or wrong decisions. It must be restricted to cases of grave dereliction of duty and flagrant abuse of fundamental principles of law or justice, where grave injustice would be done unless the High Court interferes.”

(See also Koyilerian Janaki and Ors. vs. Rent Controller (Munsiff), Cannore and Ors. (2000) 9 SCC 406; Ouseph Mathai and Ors. vs. M. Abdul Khadir, (2002) 1 SCC 319).

121.In State of Orissa and Others vs. Gokulananda Jena, (2003) 6 SCC 456, relying upon Konkan Railway Corporation Ltd. II , the High Court of Orissa held that since the order passed by the Chief Justice was administrative, it was not amenable to writ jurisdiction under Article 226 of the Constitution.

122.Holding that the High Court was wrong and the writ petition under Article 226 was maintainable, a two Judge Bench stated;

“However, we must notice that in view of Section 16 read with Sections 12 and 13 of the Act as interpreted by the Constitution Bench of this Court in the M/s. Konkan Railway, (supra) almost all disputes which could be presently contemplated can be raised and agitated before the Arbitrator appointed by the Designated Judge under Section 11(6) of the Act. From the perusal of the said provisions of the Act, it is clear that there is hardly any area of dispute which cannot be decided by the Arbitrator appointed by the Designated Judge. If that be so, since an alternative efficacious remedy is available before the Arbitrator, writ Court normally would not entertain a challenge to an order of the Designated Judge made under Section 11(6) of the Act which includes considering the question of jurisdiction of the Arbitrator himself. Therefore, in our view even though a writ petition under Article 226 of the Constitution is available to an aggrieved party, ground available for challenge in such a petition is limited because of the alternative remedy available under the Act itself.”                                                 (Emphasis supplied)

123. The above observations clearly go to show that though the constitutional remedy cannot be taken away and an aggrieved party can invoke the jurisdiction of the High Court against an order passed by the Chief Justice, the writ Court will be circumspect

in entertaining a petition and in exercising extraordinary jurisdiction in such cases.

124. As has been held in earlier decisions as also in the majority judgment, the paramount consideration of Parliament in selecting the Chief Justice and in conferring upon him the power to appoint an arbitrator is to ensure complete independence, total impartiality and highest degree of credibility in arbitral process. The Chief Justice of India and Chief Justices of High Courts have been specially chosen considering their constitutional statuts as Judges of superior Courts and their rich experience in dealing with such matters. The office occupied by them would infuse greater confidence in the procedure in appointing an arbitrator and in ensuring fairness, integrity and impartiality.

125. But that does not mean that the Chief Justice is exercising judicial or quasi-judicial power. On the contrary, the Chief Justice, acting in administrative capacity, as distinguished from judicial capacity, is expected to act quickly and expeditiously without being inhibited by procedural requirements and ‘technical tortures’. In undertaking the task to appoint an Arbitral tribunal, he is neither required to consult parties nor arbitrators. The Chief Justice would thus uphold, preserve and protect solemnity of agreement between the parties to arbitration. This practice is prevalent in England and in other countries since several years.

126. I intend to conclude the discussion on this point by quoting the following pertinent observations of Lord Hobhouse in Palgrave Gold Mining Co. vs. Mc Millan, 1892 AC 460. Dealing with a similar situation and repelling an identical contention, before more than hundred years, the Law Lord rightly declared;

It is very common in England to invest responsible public officials with the duty of appointing Arbitrators under given circumstances. Such appointment should be made with integrity and impartiality, but it is new to their Lordships to hear them called judicial acts……”                                                                                      (Emphasis supplied)

127. The last question relates to issuance of notice to the party likely to be affected and affording an opportunity of hearing before making an order of composition of Arbitral Tribunal. Section 8 of the old Act of 1940 expressly provided written notice and opportunity of hearing in case of appointment of an arbitrator or umpire. The present Act of 1996 neither provides for issuance of notice nor for opportunity of being heard.

128. In exercise of power under sub-section (10) of Section 11 of the Act, the Chief Justice of India had framed a scheme, known as “The Appointment of Arbitrators by the Chief Justice of India Scheme, 1996”. Clause 7 provided for issuing notice to affected persons and read thus;

“Notice to affected persons.- subject to the provisions of paragraph 6, the Chief Justice or the person or the institution designated by him shall direct that a notice of the request be given to all the parties to the arbitration agreement and such other person or persons as may seem to him or is likely to be affected by such request to show cause, within the time specified in the notice, why the appointment of the arbitrator or the measure proposed to be taken should not be made or taken and such notice shall be accompanied by copies of all documents referred to in paragraph 2 or, as the case may be, by information or clarification, if any, sought under paragraph 5.”

129.In Konkan Railway Corporation Ltd. II , the Constitution Bench held the function of the Chief Justice of appointment of an arbitrator under sub-section (6) of Section 11 as administrative and not judicial. In the light of the said finding, the Court proceeded to state that it was not necessary to issue notice to the parties likely to be affected. Section 11 did not provide for such notice. The Court however, did not stop there. It held that by making a provision for issuance of notice, the scheme went ‘beyond the terms of Section 11’ and was bad on that ground. A direction was, therefore, issued to amend it.

130. Since the majority judgment has held the function of the Chief Justice as judicial, it ruled that such notice ought to be issued and opportunity of hearing ought to be afforded by the Chief Justice to the person or persons likely to be affected thereby in an appointment of arbitrator.

131. I have, on the other hand, held that the function of the Chief Justice under sub-section (6) of Section 11 is neither judicial nor quasi-judicial but administrative. It is also true that unlike Section 8 of the 1940 Act, 1996 Act does not envisage issuance of notice to the party likely to be affected by the order of the Chief Justice.

132.The question however, is : Can such clause in the scheme prepared by the Chief Justice of India be held bad as going ‘beyond the terms of Section 11’? The Constitution Bench so held in Konkan Railway Corporation Ltd. II . With great respect to the Constitution Bench, such provision cannot be held inconsistent with the parent Act or otherwise bad in law. The Constitution Bench did not assign any reason as to why it was of the view that clause 7 could not stand or how it violated Section 11. But reference to Jaswant Sugar Mills Ltd. vs. Lakshmi Chand, (1963) 1 Suppl. SCR 242; Engineering Mazdoor Sabha vs. Hind Cycles Ltd., (1963) 1 Suppl. SCR 625 and Associated Cement Companies Ltd. vs. P. N. Sharma (1965) 2 SCR 366 clearly shows that since the Constitution Bench was of the view that while performing function of appointing an Arbitral tribunal, the chief Justice was not acting as a Court or Tribunal, he was not expected to issue notice or afford an opportunity of hearing to the parties likely to be affected by such decision.

133. Once the function of the Chief Justice is held to be administrative, there may not be ‘duty to act judicially’ on the part of the Chief Justice. Nevertheless in such cases, an administrative authority is required to act ‘fairly’. Basic procedural fairness requires such notice to the opposite party. The Principle in R. vs. Electricity Commissioners, (1924)1 KB 171 or Ridge vs. Baldwin, 1964 AC 40 may not apply to administrative functions, but another concept which developed at a later stage and accepted in public law field and found place in Administrative Law of ‘duty to act fairly’ would apply to administrative actions as well.

134. By now, it is well settled that when an administrative action is likely to affect rights of subjects, there would be a duty on the part of the authority to act fairly.

135. In Pearlberg vs. Varty (Inspector of Taxes), (1972) 2 All ER 6, Lord Pearson said;

“A tribunal to whom judicial or quasi-judicial functions are entrusted is held to be required to apply those principles (i.e. the rules of natural justice) in performing those functions unless there is a provision to the contrary. But where some person or body is entrusted by Parliament that administrative or excutive functions there is no presumption that compliance with the principles of natural justice is required although, as ‘Parliament is not to be presumed to act unfairly’, the Courts may be able in suitable cases (Perhaps always) to imply an obligation to act with fairness.” 5          (Emphasis supplied)

136. In R. vs. Commissioner for Racial Equality, 1982 AC 779, Lord Diplock stated :

“Where an act of Parliament confers upon an administrative body functions which involve its making decisions which affect to their detriment the rights of other persons or curtail their liberty to do as they please, there is a presumption that Parliament intended that the administrative body should act fairly towards those persons who will be affected by their decisions.”

137.The above principles have been accepted and applied in India also. In the leading case of Keshav Mills Co. Ltd. vs. Union of India, (1973) 1 SCC 380, a textile mill was closed down. A Committee was appointed by the Government of India to investigate into the affairs of the mill-company under the Industries (Development and Regulation) Act, 1951. After affording opportunity to the Company, a report was prepared by the Committee and submitted to the Government. A copy of the report, however, was not supplied to the Company. On the basis of the report, the Government took over the management of the Company. The said action was challenged by the company inter alia on the ground of violation of principles of natural justice inasmuch as no copy of the report submitted by the Committee to the government was supplied to the Company nor was hearing afforded before finally deciding to take over the management.

138. Rejecting the contention and observing that no prejudice had been caused to the mill company, this Court did not interfere with the order. 139.Speaking for the Court, A. K. Mukherjea, J. stated :

“The second question, however, as to what are the principles of natural justice that should regulate an administrative act or order is a much more difficult one to answer. We do not think it either feasible or even desirable to lay down any fixed or rigorous yardstick in this manner. The concept of natural justice cannot be put into a strait-jacket. It is futile, therefore, to look for definitions or standards of natural justice from various decisions and then try to apply them to the facts of any given case. The only essential point that has to be kept in mind in all cases is that the person concerned should have a reasonable opportunity of presenting his case and that the administrative authority concerned should act fairly, impartially and reasonably. Where administrative officers are concerned, the duty is not so much to act judicially as to act fairly.

(Emphasis supplied)

140.In Mohinder Singh Gill vs. Chief Election Commission, (1978) 1 SCC 405 after considering several cases, Krishna Iyer, J. stated :

“Once we understand the soul of the rule as fairplay in action and it is so – we must hold that it extends to both the fields. After all, administrative power in a democratic set-up is not allergic to fairness in action and discretionary executive justice cannot degenerate into unilateral injustice. Nor is there ground to be frightened of delay, inconvenience and expense, if natural justice gains access. For fairness itself is a flexible, pragmatic and relative concept, not a rigid, ritualistic or sophisticated abstraction. It is not a bull in a China shop, nor a bee in one’s bonnet. Its essence is good conscience in a given situation; nothing more – but nothing less”.                                            (Emphasis supplied)

141. In Nally Bharat Engineering Co. Ltd. vs. State of Bihar, (1990) 2 SCC 48, the Government on an application by a dismissed workman transferred his case from one Labour Court to another Labour Court without issuing a notice or giving opportunity to the employer.

142. Setting aside the order and referring to several cases, the Supreme Court invoked the ‘acting fairly’ doctrine. The Court stated: “Fairness, in our opinion, is a fundamental principle of good administration. It is a rule to ensure the vast power in the modern State is not abused but properly exercised. The State power is used for proper and not for improper purposes. The authority is not misguided by extraneous or irrelevant considerations. Fairness, is also a principle to ensure that statutory authority arrives at a just decision either in promoting the interest or affecting the rights of persons. To use the time hallowed phrase that ‘justice should not only be done but be seen to be done’ is the essence of fairness equally applicable to administrative authorities. Fairness is thus a prime test for proper and good administration. It has no set form or procedure. It depends upon the facts of each case.” (Emphasis supplied)

143. Quoting the observations of Paul Jackson, the Court said :

“It may be noted that the terms ‘fairness of procedure’, ‘fair play in action’, ‘duty to act fairly’ are perhaps used as alternatives to ‘natural justice’ without drawing any distinction. But Prof. Paul Jackson points out that ‘such phrases may sometimes be used to refer not to the obligation to observe the principles of natural justice but, on the contrary, to refer to a standard of behaviour which, increasingly, the Courts require to be followed even in circumstances where the duty to observe natural justice is inapplicable’.”

(Emphasis supplied)

de Smith states :

“The principal value of the introduction of the ‘duty to act fairly’ into the Courts’ vocabulary has been to assist them to extend the benefit of basic procedural protections to situations where it would be both confusing to characterize as judicial or even quasi-judicial, the decision-makers’ functions, and inappropriate to insist on a procedure analogous to a trial.”

(‘Judicial Review of Administrative Action’: (1995); P. 399)

144. It is thus clear that the doctrine of ‘fairness’ has become all pervasive. As has been said the ‘acting fairly’ doctrine proved useful as a device for evading confusion which prevailed in the past. “The Courts now have two strings to their bow.” An administrative act may be held to be subject to the requirement and observance of natural justice either because it affects rights or interests and hence would involve a ‘duty to act judicially’ or it may be administrative, pure and simple, and yet, may require basic procedural protection whih would involve ‘duty to act fairly’. (Wade and Forsyth; ‘Administrative Law’; (2005; pp. 492-94; de Smith; “Judicial Review of Administrative Action”, (1995); pp. 397-98)

145. ‘Acting fairly’ is thus an additional weapon in the armoury of the Court. It is not intended to be substituted for another much more powerful weapon ‘acting judicially’. Where, however, the former (‘acting judicially’) cannot be wielded, the Court will try to reach injustice by taking resort to the latter – less powerful weapon (‘acting fairly’). (See C. K. Thakker : “From Duty to Act Judicially to Duty to Act Fairly”, (2003) 4 SCC 1).

146. As the Chief Justice is performing administrative function under sub-section (6) of Section 11 in appointing an arbitrator, there is no ‘duty to act judicially’ on his part, nonetheless there is ‘duty to act fairly’ which requires him to issue notice to the other side before taking a decision to appoint an arbitrator. I am, therefore, of the view that clause 7 of the scheme as stood prior to the amendment, could neither be held bad in law nor inconsistent with Section 11 of the Act. I am, therefore, in respectful agreement with the majority judgment on that point.

147. On the basis of the above findings, my conclusions are as under,

(i) The function performed by the Chief Justice of the High Court or the Chief Justice of India under sub-section (6) of Section 11 of the Act (i.e. Arbitration and Conciliation Act, 1996) is administrative, – pure and simple-, and neither judicial nor quasi-judicial.

(ii) The function to be performed by the Chief Justice under sub-section (6) of Section 11 of the Act may be performed by him or by ‘any person or institution designated by him’.

(iii) While performing the function under sub-section (6) of Section 11 of the Act, the Chief Justice should be prima facie satisfied that the conditions laid down in Section 11 are satisfied.

(iv) The Arbitral Tribunal has power and jurisdiction to rule ‘on its own jurisdiction’ under sub-section (1) of Section 16 of the Act.

(v) Where the Arbitral Tribunal holds that it has jurisdiction, it shall continue with the arbitral proceedings and make an arbitral award.

(vi) A remedy available to the party aggrieved is to challenge the award in accordance with Section 34 or Section 37 of the Act.

(vii) Since the order passed by the Chief Justice under sub-section (6) of Section 11 of the Act is administrative, a Writ Petition under Article 226 of the Constitution is maintainable. A Letters Patent Appeal/ Intra-Court Appeal is competent. A Special Leave Petition under Article 136 of the Constitution also lies to this Court.

(viii) While exercising extraordinary jurisdiction under Article 226 of the Constitution, however, the High Court will be conscious and mindful of the relevant provisions of the Act, including Sections 5, 16, 34 to 37 as also the object of the legislation and exercise its power with utmost care, caution and circumspection.

(ix) The decision of the Constitution Bench in Konkan Railway Corporation Ltd. II , to the extent that it held the function of the Chief Justice under sub-section (6) of Section 11 of the Act as administrative is in consonance with settled legal position and lays down correct law on the point.

(x) The decision of the Constitution Bench in Konkan Railway Corporation Ltd.II, to the extent that it held clause 7 of “The Appointment of Arbitrators by the Chief Justice of India Scheme, 1996” providing for issuance of notice to affected parties as ‘beyond the term of Section 11’ and bad on that ground is not in accordance with law and does not state the legal position correctly.

(xi) Since the Chief Justice is performing administrative function in appointing an Arbitral Tribunal, there is no ‘duty to act judicially’ on his part. The doctrine of ‘duty to act fairly’, however, applies and the Chief Justice must issue notice to the person or persons likely to be affected by the decision under sub-section (6) of Section 11 of the Act.

(xii) All appointments of Arbitral Tribunals so far made without issuing notice to the parties affected are held legal and valid. Henceforth, however, every appointment will be made after issuing notice to such person or persons. In other words, this judgment will have prospective operation and it will not affect past appointments or concluded proceedings.


Counsel for the Parties:

B. Dutta, Addl. Solicitor General; K. K. Venugopal; C. S. Vaidyanathan; Radhakrishnan, Harish Chandra; F. S. Nariman, Gaurab K. Banerji; Rakesh Dwivedi; Sr. Advs., S. Muralidhar, Jashan Brar, Amit Sharma Naveen R. Nath, Mrs. Lalit Mohini Bhat; Ms. Anithe Shenoy, Ms. Hetu Arora, Ms. Subhadra Chaturvedi; S. Udaya Kr. Sagar; Ms. Bina Madhavan; Ms. Pooja Nanekar; Ms. Susan; A. Vinayagum; Hemal K. Sheth, Ms. C. K. Sucharita; S. W. A. Qadri; Aarohi Bhall, B. K. Prasad, Ms. Anil Katiyar; Ms. Indu Malhotra; Darius Khambatta; Jai Munim; Mustafa Doctor, Ranjit Shetty, P. S. Sudheer; Pratap Venugopal, Subhash Sharma, Atul Y. Chitaley, Mrs. Suchitra Atul Chitale, Ms. Sujeeta Shrivastava; Ms. Tarandeep Mahal, Sanjay R. Hegde; Advocate (NP), Jaydeep Mazumdar, Saurav Agarwal, T. N. Singh Harsha Rao, P. Vinay Kumar, Ms. Sneha Bhaskaran; Mrs. D. Bharathi Reddy; Krishnan Venogopal; Prasad Vijayakumar; Siddhartha Singh; Amit Dhingra, Gaurav Liberhan, Ms. Niranjana Singh, Ms. Vimla Sinha; Abhishek Chaudhary, Gaurav Dhama, Adarsh Upadhyay, S. K. Dhingra and Ms. Shefali Dhingra, Advocates with them, for appearing parties.

M/s. ONGC Mangalore Petrochemicals Ltd. Vs. M/s. ANS Constructions Ltd. & ANR.[ALL SC 2018 FEBRUARY]

KEYWORDS:- appointment of an arbitrator -EXAMPLES OF ARBITRABLE DISPUTE-

c

DATE:- February 7, 2018-

Whether after the contract comes to an end by completion of the contract work and acceptance of the final bill in full and final satisfaction and after issuing a ‘no-demand certificate’ by the contractor, can any party to the contract raise any dispute for reference to arbitration?”

  • Necessitas non habet legem is an age-old maxim which means necessity knows no law.
  • the raising of the Final Bill and mutual agreement of the parties in that regard, all claims, rights and obligation of the parties merge with the Final Bill and nothing further remains to be done. There was full and final settlement of the claim and there was really accord and satisfaction and in our view no arbitrable dispute existed so as to exercise power under Section 11 of the Act.

ACT:- Section 11 of the Arbitration and Conciliation Act, 1996

SUPREME COURT OF INDIA

[Civil Appeal No. 1659 of 2018 arising out of Special Leave Petition (C) No. 12939 of 2015]

R.K. Agrawal, J.

1. Leave granted.

2. This appeal is directed against the final judgment and order dated 12.01.2015 passed by the High Court of Karnataka at Bengaluru in C.M.P. No. 35 of 2014 whereby learned single Judge of the High Court allowed the petition filed by the respondent No. 1- Company for appointment of an arbitrator for resolution of the dispute between the appellant-Company and respondent No. 1-Company.

3. Brief facts:

(a) Respondent No. 1-the Contractee Company was awarded a Contract for “Site Grading, Construction of Roads, Water Drains and Compound Wall for Aromatic Complex at Mangalore” in Mangalore SEZ by the appellant-Contractor on 17.03.2008. The total contract value as per the Letter of Acceptance (LOA) was Rs. 163,25,68,576/- which was subsequently revised to Rs. 195,68,24,399.02/- vide letter dated 20.09.2010 and the completion period was also extended upto 30.11.2010.

(b) On 21.09.2012, the Contractee Company submitted a No Dues/No Claim Certificate certifying the payment of all the bills and in total settlement of all the claims whatsoever against the Contract. Thereafter, on 10.10.2012, the appellant herein-the Contractor Company made a payment of the final bill of Rs. 20.34 crores to the Contractee Company.

(c) Subsequently, on 24.10.2012, the Contractee Company withdrew letter dated 21.09.2012 for “No Dues/No Claim Certificate” stating that it was a pre-requisite condition for release of their long due legitimate payment against the works executed under the Contract and the same was furnished by the Contractee Company under duress and coercion of the appellant-Contractor.

(d) The Contractee-Company, vide letter dated 12.01.2013 to the appellant-Contractor, submitted a claim of Rs. 96,88,48,642.00 for the losses incurred during execution of the contract at Mangalore. On 19.06.2013, the appellant-Contractor issued a Completion Certificate stating that the works awarded under the Contract have been executed and completed in all respects and no claim certificate has also been submitted by the Contractee-Company. After several communication in writing, the appellant-Contractor, vide letter dated 25.07.2013, denied the claim of the contractee-Company.

(e) Vide letter dated 14.09.2013, the contractee-Company sent a notice to the appellant-Contractor for resolving the dispute between the parties through Arbitration as envisaged under Article 9.0.2.0 to the Contract and appointed Mr. K. Mohandas, Former General Manager (Law)- SBI as its Arbitrator. The appellant-Contractor, vide letter dated 18.10.2013 denied the request of the contractee-Company as not tenable in law.

(f) Being aggrieved by the decision of the appellant-Contractor in not referring the dispute to Arbitration, the contractee-Company preferred a C.M.P. No. 35 of 2014 before the High Court of Karnataka at Bangalore.

(g) Learned single Judge of the High Court, vide judgment and order dated 12.01.2015, allowed the petition filed by the contractee-Company.

(h) Being aggrieved by the order dated 12.01.2015, the appellant-Contactor has filed this appeal by way of special leave before this Court.

4. Heard Mr. P.S. Narasimha, learned senior counsel for the appellant-Company and Mr. P. Vinay Kumar for the Respondents. Point for consideration:

5. The only point for consideration before this Court is whether the respondent-Contractee Company has made out a case for referring the dispute to Arbitration?

Rival Submissions:

6. Learned senior counsel for the Contractor-the appellant Company strenuously contended that the High Court erred in holding that the contractee-Company established a case to show that there was a genuine and serious dispute regarding the claim and that the claim that No Dues Certificate/No Claim Certificate was issued under duress/coercion is erroneous and unsustainable. Learned senior counsel further contended that there was no withholding of payment and the extension was granted subject to the contractee-Company’s request and the contract does not provide for escalation of costs.

7. Learned senior counsel further contended that the delay in payment does not arise at all because as per Clause 6.4.0.0, there was no obligation cast upon the Contractor to pay the RA Bills in full but it was to be done merely on the assessment of the Engineer-in charge. The High Court erred in referring to few letters exchanged much prior to the Final Bill. In fact, the alleged claims were never brought up at the time of issuance of Final Bill or No Dues Certificate on 21.09.2012 and now at this stage it is not open for the contractee-Company to raise the issue of losses incurred during the execution of the Contract.

8. Learned senior counsel finally contended that when both the parties to a contract confirm in writing that the contract has been fully and finally discharged by performance of all obligations and there are no outstanding claims or disputes, court will not refer the subsequent claim or dispute to arbitration. There was complete accord and satisfaction of the contract between the parties and nothing further was left to be done by either parties. The High Court was not right in allowing the petition filed by the contractee-Company and no case is made out for referring the dispute to Arbitration and also for the payment of the alleged amount to the contractee-Company.

9. Per contra, learned counsel for the contractee-Respondent No. 1 herein submitted that during the execution of Contract, the contractee Company raised Running Account Bills (RA Bills) to the Contractor-Company for the expenses incurred towards carrying out the construction work but the same were cleared with inordinate delay and even the final bill to the tune of Rs. 20.34 crores was released by the appellant- Contractor only when the contractee Company furnished “No Dues/No Claim Certificate” dated 21.09.2012. Upon submitting the above Certificate, the appellant-Contractor issued a Completion Certificate approving the work carried out by the contractee under the Contract.

10. Learned counsel for the contractee-Company further submitted that since the appellant-Contractor was not clearing the legitimate and genuine dues payable under the RA Bills and was always at the mercy of the appellant-Contractor for the release of payment from the very beginning of the Contract, the last payment of Rs. 20.34 crores and the release of performance bank guarantee was deliberately withheld by the appellant-Contractor. The work got completed on 30.06.2011 and it was only after the submission of No-Dues Certificate on 21.09.2012, the final payment was released. Due to non-payment of RA Bills on time, the contractee-Company was under severe financial crunch and 8 could not have refused to issue the “No Dues Certificate” which was issued under duress and has no meaning in the eyes of law.

11. Learned counsel further submitted that it is prima facie evident that there is a genuine and serious dispute between the parties which requires the appointment of an Arbitrator under the clauses of the Contract to adjudicate upon the claims made by the contractee and it will cause grave injustice to the party if the claims are not adjudicated in terms of the Contract. Learned counsel further submitted that under these circumstances, the withdrawal of No Dues/No Claim Certificate, which was given under duress, is not an afterthought and in a number of decisions of this Court it has been held that if a party who has executed the discharge agreement or discharge voucher alleges that execution of such document was on account of fraud/coercion/undue influence practiced by the other party then such discharge of the contract by such agreement would be rendered void and cannot be acted upon.

12. Learned counsel further submitted that the contractee-Company could not continue with the work due to various reasons like pooja, shifting of idols, non-availability of free encumbrance of site, obstruction in the blasting work, stoppage of hard rock blasting, issues with respect to work to be given to local contractors, non-vacation of project displaced families, permission for forest clearance, permission for shifting of wooden logs etc. and the huge expenditure as disclosed in the claim was incurred by the contractee-Company due to the factors attributable to the appellant-Contractor.

13. Learned counsel finally contended that the “No Dues Certificate” was filed by the contractee-Company under duress owing to their huge payment pending towards the appellant-Contractor which was rightly withdrawn for the losses incurred due to the appellant-Contractor. Further, when there is an Arbitration clause in the agreement, the contractee Company has the right to invoke the same. The High Court was right in allowing the petition filed by the contractee-Company and no interference is sought for by this Court in this regard.

Discussion:

14. The appellant Contractor-ONGC Mangalore Petrochemicals Ltd. invited tender for “Award of Work for Site Grading, Construction of Roads, Storm Water Drains & Compound Wall for Aromatic Complex at Mangalore”. The bid document was issued by M/s Toyo Engineering India Limited (TEIL)-Respondent No. 2 herein on behalf of the OMPL (the contractor) being their Project Management Consultant. M/s ANS Constructions Limited-Respondent No. 1 herein submitted its bid on 15.11.2007. Respondent No. 1 herein was awarded the Contract vide Letter of Acceptance (LOA) dated 17.03.2008. The total Contract Value was estimated at Rs. 163,25,68,576/- which was later on revised to Rs. 195,68,24,399.02, pursuant thereto, the completion period was also extended upto 30.11.2010.

15. During the subsistence of the contract, the contractee-Company raised RA Bills for the expenses incurred 11 towards carrying out the construction work. It is evident on record that the contractee-Company made several requests to the appellant-Contractor to clear their legitimate and genuine dues payable under the Bills which was paid to them after inordinate delay. It is also the claim of the contractee-Company that the contractee was compelled to file No Dues Certificate/No Claim Certificate dated 21.09.2012 in order to get the release of the Final Bill under the Contract.

On 10.10.2012, the contractor-Company made the payment of the final bill of Rs. 20.34 crores to the contractee-Company. After the release of the Final Bill, the contractee-Company withdrew the “No Dues/No Claim Certificate” stating that the letter dated 21.09.2012 was pre-requisite condition for release of their long due legitimate payment against the works executed under the Contract and the same was furnished under duress and coercion of the appellant-Contractor. Further, on 12.01.2013, the contractee-Company submitted a claim for Rs. 96,88,48,642.00 for the losses incurred during execution of the contract at Mangalore.

16. The appellant-Contractor, vide letter dated 25.07.2013, rejected the claim of the contractee-Company on the ground that the Contractee has submitted No Dues/No Claim Certificate and withdrawal of the same on the ground that it was obtained under duress and coercion is wrong, incorrect and not tenable in law. Being aggrieved by the rejection of their claim, the contractee-Company invoked the Arbitration clause under the Contract and appointed its Arbitrator. The appellant-Contractor, vide letter dated 18.10.2013, declined to nominate its Arbitrator.

The contractee-Company filed a Civil Miscellaneous Petition under Section 11 of the Arbitration and Conciliation Act, 1996 (in short ‘the Act’) for the appointment of an Arbitrator in lieu of the nominee arbitrator of the appellant-Contractor so that the said arbitrator along with the nominee arbitrator already appointed by the contractee-Company agree upon the appointment of the third/presiding arbitrator for constitution of a three member Arbitral Tribunal as per the agreed terms of the Contract for adjudicating upon the dispute arising out of execution of the Contract.

17. Learned senior counsel for the appellant-Contractor, after taking us through the material on record, submitted that the contract has come to an end and the obligations therein have been discharged and there is no point of raising a belated claim in the form of losses incurred during the execution of the Contract that too after submitting the Final Bills as well as the No Dues Certificate. In support of his claim, learned senior counsel relied upon a decision of this Court in Union of India and Others vs. Master Construction Co. (2011) 12 SCC 349 wherein it was held as under:-

“18. In our opinion, there is no rule of the absolute kind. In a case where the claimant contends that a discharge voucher or no-claim certificate has been obtained by fraud, coercion, duress or undue influence and the other side contests the correctness thereof, the Chief Justice/his designate must look into this aspect to find out at least, prima facie, whether or not the dispute is bona fide and genuine. Where the dispute raised by the claimant with regard to validity of the discharge voucher or no-claim certificate or settlement agreement, prima facie, appears to be lacking in credibility, there may not be a necessity to refer the dispute for arbitration at all.

19. It cannot be overlooked that the cost of arbitration is quite huge-most of the time, it runs into six and seven figures. It may not be proper to burden a party, who contends that the dispute is not arbitrable on account of discharge of contract, with huge cost of arbitration merely because plea of fraud, coercion, duress or undue influence has been taken by the claimant.

A bald plea of fraud, coercion, duress or undue influence is not enough and the party who sets up such a plea must prima facie establish the same by placing material before the Chief Justice/his designate. If the Chief Justice/his designate finds some merit in the allegation of fraud, coercion, 14 duress or undue influence, he may decide the same or leave it to be decided by the Arbitral Tribunal. On the other hand, if such plea is found to be an afterthought, make-believe or lacking in credibility, the matter must be set at rest then and there.”

18. Further, learned senior counsel relied upon a judgment of this Court in New India Assurance Co. Ltd. vs. Genus Power Infrastructure Ltd. (2015) 2 SCC 424 wherein this Court has held as under:-

7. The question that arises is whether the discharge in the present case upon acceptance of compensation and signing of subrogation letter was not voluntary and whether the claimant was subjected to compulsion or coercion and as such could validly invoke the jurisdiction under Section 11 of the Act. The law on the point is clear from following decisions of this Court. In National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd in paras 26 and 51 it was stated as under:

“26. When we refer to a discharge of contract by an agreement signed by both the parties or by execution of a full and final discharge voucher/receipt by one of the parties, we refer to an agreement or discharge voucher which is validly and voluntarily executed. If the party which has executed the discharge agreement or discharge voucher, alleges that the execution of such discharge agreement or voucher was on account of fraud/coercion/undue influence practised by the other party and is able to establish the same, then obviously the discharge of the contract by such agreement/voucher is rendered void and cannot be acted upon. Consequently, any dispute raised by such party would be arbitrable.

* * *

51. The Chief Justice/his designate exercising jurisdiction under Section 11 of the Act will consider whether there was really accord and satisfaction or discharge of contract by performance. If the answer is in the affirmative, he will refuse to refer the dispute to arbitration. On the other hand, if the Chief Justice/his designate comes to the conclusion that the full and final settlement receipt or discharge voucher was the result of any fraud/coercion/undue influence, he will have to hold that there was no discharge of the contract and consequently, refer the dispute to arbitration.

Alternatively, where the Chief Justice/his designate is satisfied prima facie that the discharge voucher was not issued voluntarily and the claimant was under some compulsion or coercion, and that the matter deserved detailed consideration, he may instead of deciding the issue himself, refer the matter to the Arbitral Tribunal with a specific direction that the said question should be decided in the first instance.”

8. In the decision rendered in Union of India v. Master Construction Co this Court observed as under:

“18. In our opinion, there is no rule of the absolute kind. In a case where the claimant contends that a discharge voucher or no-claim certificate has been obtained by fraud, coercion, duress or undue influence and the other side contests the correctness thereof, the Chief Justice/his designate must look into this aspect to find out at least, prima facie, whether or not the dispute is bona fide and genuine. Where the dispute raised by the claimant with regard to validity of the discharge voucher or no-claim certificate or settlement agreement, prima facie, appears to be lacking in credibility, there may not be a necessity to refer the dispute for arbitration at all.

19. It cannot be overlooked that the cost of arbitration is quite huge-most of the time, it runs into six and seven figures. It may not be proper to burden a party, who contends that the dispute is not arbitrable on account of discharge of contract, with huge cost of arbitration merely because plea of fraud, coercion, duress or undue influence has been taken by the claimant. A bald plea of fraud, coercion, duress or undue influence is not enough and the party who sets up such a plea must prima facie establish the same by placing material before the Chief Justice/his designate. If the Chief Justice/his designate finds some merit in the allegation of fraud, coercion, duress or undue influence, he may decide the same or leave it to be decided by the Arbitral Tribunal. On the other hand, if such plea is found to be an afterthought, make-believe or lacking in credibility, the matter must be set at rest then and there.

* * *

22. The above certificates leave no manner of doubt that upon receipt of the payment, there has been full and final settlement of the contractor’s claim under the contract. That the payment of final bill was made to the contractor on 19-6-2000 is not in dispute. After receipt of the payment on 19-6-2000, no grievance was raised or lodged by the contractor immediately. The authority concerned, thereafter, released the bank guarantee in the sum of Rs 21,00,000 on 12-7-2000. It was then that on that day itself, the contractor lodged further claims.”

9. It is therefore clear that a bald plea of fraud, coercion, duress or undue influence is not enough and the party who sets up a plea, must prima facie establish the same by placing material before the Chief Justice/his designate. Viewed thus, the relevant averments in the petition filed by the respondent need to be considered, which were to the following effect:

“(g) That the said surveyor, in connivance with the respondent Company, in order to make the respondent Company escape its full liability of compensating the petitioner of such huge loss, acted in a biased manner, adopted coercion, undue influence and duress methods of assessing the loss and forced the petitioner to sign certain documents including the claim form. The respondent Company also denied the just claim of the petitioner by their acts of omission and commission and by exercising coercion and undue influence and made the petitioner Company sign certain documents, including a pre-prepared discharge voucher for the said amount in advance, which the petitioner Company were forced to do so in the period of extreme financial difficulty which prevailed during the said period.

As stated aforesaid, the petitioner Company was forced to sign several documents including a letter accepting the loss amounting to Rs 6,09,55,406 and settle the claim of Rs 5,96,08,179 as against the actual loss amount of Rs 28,79,08,116 against the interest of the petitioner Company. The said letter and the aforesaid pre-prepared discharge voucher stated that the petitioner had accepted the claim amount in full and final settlement and thus, forced the petitioner Company to unilateral acceptance of the same.

The petitioner Company was forced to sign the said document under duress and coercion by the respondent Company. The respondent Company further threatened the petitioner Company to accept the said amount in full and final or the respondent Company will not pay any amount towards the fire policy. It was under such compelling circumstances that the petitioner Company was forced and under duress was made to sign the acceptance letter.”

10. In our considered view, the plea raised by the respondent is bereft of any details and particulars, and cannot be anything but a bald assertion. Given the fact that there was no protest or demur raised around the time or soon after the letter of subrogation was signed, that the notice dated 31-3-2011 itself was nearly after three weeks and that the financial condition of the respondent was not so precarious that it was left with no alternative but to accept the terms as suggested, we are of the firm view that the discharge in the present case and signing of letter of subrogation were not because of exercise of any undue influence. Such discharge and signing of letter of subrogation was voluntary and free from any coercion or undue influence. In the circumstances, we hold that upon execution of the letter of subrogation, there was full and final settlement of the claim. Since our answer to the question, whether there was really accord and satisfaction, is in the affirmative, in our view no arbitrable dispute existed so as to exercise power under Section 11 of the Act. The High Court was not therefore justified in exercising power under Section 11 of the Act.”

19. When we refer to discharge of a contract by an agreement signed by both the parties or by execution of a full and final discharge voucher/receipt by one of the parties, we refer to an agreement or discharge voucher which is validly and voluntarily executed. If the party which has executed the discharge agreement or discharge voucher, alleges that the execution of such discharge agreement or voucher was on account of fraud/coercion/undue influence practised by the other party and is able to establish the same, then obviously the discharge of the contract by such agreement/voucher is rendered void and cannot be acted upon. Consequently, any dispute raised by such party would be arbitrable. But in case the party is not able to establish such a claim or appears to be lacking in credibility, then it is not open to the courts to refer the dispute to arbitration at all.

20. In support of the claim of duress and coercion while issuing the said Certificate, learned counsel for the contractee-Company has taken us through a decision of this Court in National Insurance Company Limited vs. Boghara Polyfab Private Limited (2009) 1 SCC 267 wherein it was held as under:-

“24. What is however clear is when a respondent contends that the dispute is not arbitrable on account of discharge of the contract under a settlement agreement or discharge voucher or no-claim certificate, and the claimant contends that it was obtained by fraud, coercion or undue influence, the issue will have to be decided either by the Chief Justice/his designate in the proceedings under Section 11 of the Act or by the Arbitral Tribunal as directed by the order under Section 11 of the Act. A claim for arbitration cannot be rejected merely or solely on the ground that a settlement agreement or discharge voucher had been executed by the claimant, if its validity is disputed by the claimant.

50. Let us consider what a civil court would have done in a case where the defendant puts forth the defence of accord and satisfaction on the basis of a full and final discharge voucher issued by the plaintiff, and the plaintiff alleges that it was obtained by fraud/coercion/undue influence and therefore not valid. It would consider the evidence as to whether there was any fraud, coercion or undue influence. If it found that there was none, it will accept the voucher as being in discharge of the contract and reject the claim without examining the claim on merits. On the other hand, if it found that the discharge voucher had been obtained by fraud/undue influence/coercion, it will ignore the same, examine whether the plaintiff had made out the claim on merits and decide the matter accordingly. The position will be the same even when there is a provision for arbitration.

51. The Chief Justice/his designate exercising jurisdiction under Section 11 of the Act will consider whether there was really accord and satisfaction or discharge of contract by performance. If the answer is in the affirmative, he will refuse to refer the dispute to arbitration. On the other hand, if the Chief Justice/his designate comes to the conclusion that the full and final settlement receipt or discharge voucher was the result of any fraud/coercion/undue influence, he will have to hold that there was no discharge of the contract and consequently, refer the dispute to arbitration.

Alternatively, where the Chief Justice/his designate is satisfied prima facie that the discharge voucher was not issued voluntarily and the claimant was under some compulsion or coercion, and that the matter deserved detailed consideration, he may instead of deciding the issue himself, refer the matter to the Arbitral Tribunal with a specific direction that the said question should be decided in the first instance.

52. Some illustrations (not exhaustive) as to when claims are arbitrable and when they are not, when discharge of contract by accord and satisfaction are disputed, to round up the discussion on this subject are:

(i) A claim is referred to a conciliation or a pre-litigation Lok Adalat. The parties negotiate and arrive at a settlement. The terms of settlement are drawn up and signed by both the parties and attested by the conciliator or the members of the Lok Adalat. After settlement by way of accord and satisfaction, there can be no reference to arbitration.

(ii) A claimant makes several claims. The admitted or undisputed claims are paid. Thereafter negotiations are held for settlement of the disputed claims resulting in an agreement in writing settling all the pending claims and disputes. On such settlement, the amount agreed is paid and the contractor also issues a discharge voucher/no-claim certificate/full and final receipt. After the contract is discharged by such accord and satisfaction, neither the contract nor any dispute survives for consideration. There cannot be any reference of any dispute to arbitration thereafter.

(iii) A contractor executes the work and claims payment of say rupees ten lakhs as due in terms of the contract. The employer admits the claim only for rupees six lakhs and informs the contractor either in writing or orally that unless the contractor gives a discharge voucher in the prescribed format acknowledging receipt of rupees six lakhs in full and final satisfaction of the contract, payment of the admitted amount will not be released.

The contractor who is hard-pressed for funds and keen to get the admitted amount released, signs on the dotted line either in a printed form or otherwise, stating that the amount is received in full and final settlement. In such a case, the discharge is under economic duress on account of coercion employed by the employer. Obviously, the discharge voucher cannot be considered to be voluntary or as having resulted in discharge of the contract by accord and satisfaction. It will not be a bar to arbitration.

(iv) An insured makes a claim for loss suffered. The claim is neither admitted nor rejected. But the insured is informed during discussions that unless the claimant gives a full and final voucher for a specified amount (far lesser than the amount claimed by the insured), the entire claim will be rejected. Being in financial difficulties, the claimant agrees to the demand and issues an undated discharge voucher in full and final settlement. Only a few days thereafter, the admitted amount mentioned in the voucher is paid. The accord and satisfaction in such a case is not voluntary but under duress, compulsion and coercion. The coercion is subtle, but very much real. The “accord” is not by free consent. The arbitration agreement can thus be invoked to refer the disputes to arbitration.

(v) A claimant makes a claim for a huge sum, by way of damages. The respondent disputes the claim. The claimant who is keen to have a settlement and avoid litigation, voluntarily reduces the claim and requests for settlement. The respondent agrees and settles the claim and obtains a full and final discharge voucher. Here even if the claimant might have agreed for settlement due to financial compulsions and commercial pressure or economic duress, the decision was his free choice. There was no threat, coercion or compulsion by the respondent. Therefore, the accord and satisfaction is binding and valid and there cannot be any subsequent claim or reference to arbitration.”

21. Learned counsel further relied upon a decision of this Court in R.L. Kalathia & Co. vs. State of Gujarat (2011) 2 SCC 400 wherein it was held as under:-

“10. Before going into the factual matrix on this aspect, it is useful to refer the decisions of this Court relied on by Mr Altaf Ahmed. In NTPC Ltd. v. Reshmi Constructions, Builders & Contractors1 which relates to termination of a contract, one of the questions that arose for consideration was:

“(i) Whether after the contract comes to an end by completion of the contract work and acceptance of the final bill in full and final satisfaction and after issuing a ‘no-demand certificate’ by the contractor, can any party to the contract raise any dispute for reference to arbitration?”

While answering the said issue this Court held:

“27. Even when rights and obligations of the parties are worked out, the contract does not come to an end inter alia for the purpose of determination of the disputes arising thereunder, and, thus, the arbitration agreement can be invoked. Although it may not be strictly in place but we cannot shut our eyes to the ground reality that in a case where a contractor has made huge investment, he cannot afford not to take from the employer the amount under the bills, for various reasons which may include discharge of his liability towards the banks, financial institutions and other persons. In such a situation, the public sector undertakings would have an upper hand. They would not ordinarily release the money unless a ‘no-demand certificate’ is signed. Each case, therefore, is required to be considered on its own facts.

28. Further, necessitas non habet legem is an age-old maxim which means necessity knows no law. A person may sometimes have to succumb to the pressure of the other party to the bargain who is in a stronger position.”

22. In the case at hand, the High Court allowed the appeal filed by the contractee on the assertion that the No Dues Certificate was given on account of coercion/undue influence practiced by the appellant-Contractor. The contractee, while basing its claim, relied upon the letters issued to the appellant-Contractor for releasing the payment of RA Bills. Whether there has been duress and coercion exerted against the contractee-Company by the appellant-Contractor has to be examined keeping in mind the background in which the said letters have been exchanged between the parties.

Learned counsel for the contractee-Company categorically submitted the relevant dates for our perusal to show that RA Bills were raised on various dates for making payments to suppliers and others but were advertently delayed causing grave financial crisis to the contractee-Company to carry out the works and losses on account of delay in settling the claims of the contractee-Company periodically.

However, it is contended from the side of the appellant-Contractor that the High Court was not right in considering it a genuine and serious dispute regarding the claim made and the conduct of the parties as reflected in the correspondence exchanged between the parties disclosing that the contractee-Company encountered several financial constraints.

23. Pursuant to taking a false claim of duress and coercion while filing the No Dues Certificate, the contractee-Company, vide letter dated 12.01.2013 to the appellant-Contractor, submitted a claim for Rs. 96,88,48,642.00 for the losses incurred during execution of the contract at Mangalore.

It has been claimed that the contractee-Company could not continue with the work due to various reasons like pooja, shifting of Idols, non-availability of free encumbrance of site, obstruction in the blasting work, stoppage of hard rock blasting, issues with respect to work to be given to local contractors, non-vacation of project displaced families, permission for forest clearance, permission for shifting of wooden logs etc. and the huge expenditure as disclosed in the claim was incurred by the contractee-Company due to the factors attributable to the appellant-Contractor. Clause 6.6.0 of the General Conditions of Contract deals with “Claims by the Contractor” (contractee in the case at hand).

Clause 6.6.1.0. 24 of the Contract states that in case of a claim of extra compensation or remuneration, the Contractee shall give notice in writing of its claim within 10 days from the date of issue of orders or instructions related to any works for which the Contractee claims such additional payment. The notice shall give full particulars of the nature of such claim, grounds on which it is based and the amount claimed. Unless and until notice is given, the Contractor shall not be liable to pay extra compensation to the Contractee.

Clause 6.6.3.0 states that any claim of the Contractee in accordance with Clause 6.6.1.0 shall be separately included in the Final Bill prepared by it in the form of Statement of Claims, giving particulars of the nature of claims, ground on which it is based and the amount claimed and shall be supported by a copy of the notice and the Contractor shall not be liable in respect of any notified claim not specifically reflected in the Final Bill in accordance with the provisions of Clause 6.6.3.0 which shall be deemed to have been waived by the Contractee.

24. From the materials on record, we find that the contractee-Company had issued the “No Dues/No Claim Certificate” on 21.09.2012, it had received the full amount of the final bill being Rs. 20.34 crores on 10.10.2012 and after 12 days thereafter, i.e., only on 24.10.2012, the contractee-Company withdrew letter dated 21.09.2012 issuing “No Dues/No Claim Certificate”. Apart from it, we also find that the Final Bill has been mutually signed by both the parties to the Contract accepting the quantum of work done, conducting final measurements as per the Contract, arriving at final value of work, the payments made and the final payment that was required to be made. The contractee-Company accepted the final payment in full and final satisfaction of all its claims.

We are of the considered opinion that in the presents facts and circumstances, the raising of the Final Bill and mutual agreement of the parties in that regard, all claims, rights and obligation of the parties merge with the Final Bill and nothing further remains to be done. Further, the appellant-Contractor issued the Completion Certificate dated 19.06.2013 pursuant to which the appellant-Contractor has been discharged of all the liabilities. With regard to the issue that the “No-Dues Certificate” had been given under duress and coercion, we are of the opinion that there is nothing on record to prove that the said Certificate had been given under duress or coercion and as the Certificate itself provided a clearance of no dues, the contractee could not now turn around and say that any further payment was still due on account of the losses incurred during the execution of the Contract.

The story about duress was an afterthought in the background that the losses incurred during the execution of the Contract were not visualised earlier by the contractee. As to financial duress or coercion, nothing of this kind is established prima facie. Mere allegation that no-claim certificates have been obtained under financial duress and coercion, without there being anything more to suggest that, does not lead to an arbitrable dispute. The conduct of the contractee clearly shows that “no-claim certificate” was given by it voluntarily; the contractee accepted the amount voluntarily and the contract was discharged voluntarily. Conclusion:

25. Admittedly, No-Dues Certificate was submitted by the contractee-Company on 21.09.2012 and on their request Completion Certificate was issued by the appellant- Contractor. The contractee, after a gap of one month, that is, on 24.10.2012, withdrew the No Dues Certificate on the grounds of coercion and duress and the claim for losses incurred during execution of the Contract site was made vide letter dated 12.01.2013, i.e., after a gap of 3 1/2 (three and a half) months whereas the Final Bill was settled on 10.10.2012.

When the contractee accepted the final payment in full and final satisfaction of all its claims, there is no point in raising the claim for losses incurred during the execution of the Contract at a belated stage which creates an iota of doubt as to why such claim was not settled at the time of submitting Final Bills that too in the absence of exercising duress or coercion on the Contractee by the appellant-Contractor. In our considered view, the plea raised by the contractee-Company is bereft of any details and particulars, and cannot be anything but a bald assertion.

In the circumstances, there was full and final settlement of the claim and there was really accord and satisfaction and in our view no arbitrable dispute existed so as to exercise power under Section 11 of the Act. The High Court was not, therefore, justified in exercising power under Section 11 of the Act.

26. In view of the foregoing discussion, we set aside the judgment and order dated 12.01.2015 passed by the High Court. The appeal is allowed.

J. (R.K. AGRAWAL)

J. (AMITAVA ROY)

NEW DELHI;

FEBRUARY 7, 2018.

M/s. Indian Farmers Fertilizer Co-Operative Ltd. Vs. M/s. Bhadra Products [SC 2018 January]

KEYWORDS:-ARBITRATION-Interim award-jurisdiction- Error of Law- Error of jurisdiction-

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DATE:- January 23, 2018-

  • Interim award can  be set aside under Section 34 of the Arbitration and Conciliation Act, 1996
  • The award dated 23rd July, 2015 is an interim award, which being an arbitral award, can be challenged separately and independently under Section 34 of the Act. We are of the view that such an award, which does not relate to the arbitral tribunal’s own jurisdiction under Section 16, does not have to follow the drill of Section 16(5) and (6) of the Act. Having said this, we are of the view that Parliament may consider amending Section 34 of the Act so as to consolidate all interim awards together with the final arbitral award, so that one challenge under Section 34 can be made after delivery of the final arbitral award.

ACTS:- Section 34 of the Arbitration and Conciliation Act, 1996

SUPREME COURT OF INDIA

M/s. Indian Farmers Fertilizer Co-Operative Ltd. Vs. M/s. Bhadra Products

[Civil Appeal No. 824 of 2018 arising out of SLP (C) No.19771 of 2017]

R.F. Nariman, J.

1. Leave granted.

2. An interesting question arises as to Whether an award delivered by an Arbitrator, which decides the issue of limitation, can be said to be an interim award, and whether such interim award can then be set aside under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the Act”). The brief facts necessary to dispose of the present appeal are as follows.

3. The appellant before us issued a tender enquiry to 19 parties, including the respondent, for supply of Defoamers. The respondent submitted its bid, pursuant to which a Letter of Intent dated 2nd November, 2006 was issued to the respondent for supply of 800 Metric Tonnes of Defoamers to be used for production of 3,08,880 Metric Tonnes of P2O5. By 11th April, 2007, the respondent had supplied 800 Metric Tonnes of Defoamers, however, they could not achieve the targeted production by the end of 1st November, 2007, which was the validity of the supply period. After considerable delay, on 6th June, 2011, the respondent issued a legal notice demanding payment of Rs.6,35,74,245/- on 27th September, 2012.

The appellant made it clear that there was nothing due and payable to the respondent. Since disputes arose between the parties, on 1st October, 2014 the respondent invoked arbitration, and on 25th January, 2015, Justice Deepak Verma, a retired Judge of the Supreme Court, was appointed as the sole arbitrator. On 3rd March, 2015, issues were framed. On 23rd July, 2015, the learned Arbitrator thought it fit to take up the issue of limitation first, inasmuch as the counsel appearing for both the parties submitted that this issue could be decided on the basis of documentary evidence alone.

This issue was then decided in favour of the claimant stating that their claims had not become time barred. A petition filed under Section 34 of the Act challenged the aforesaid award, styling it as the ‘First Partial Award’. On 8th October, 2015, the District Judge, Jagatsinghpur, dismissed the Section 34 Petition stating that the aforesaid award could not be said to be an interim award and that, therefore, the Court lacked jurisdiction to proceed further under Section 34 of the Act. The appeal to the High Court of Orissa was dismissed by the impugned order dated 30th June, 2017, reiterating the reasoning of the learned District Judge.

4. Appearing on behalf of the appellant, Mr. K.K. Venugopal, learned Attorney General, has argued before us that the award made on 23rd July, 2015 is an interim award under the Act and would, therefore, be amenable to challenge under Section 34 of the Act as such. He referred us to various provisions of the Act and buttressed his stand with reference to a number of judgments, including, in particular, the judgment of National Thermal Power Corpn. Ltd. v. Siemens Atkeingesellschaft, (2007) 4 SCC 451. He also referred us to various judgments on what constitutes an interim award and argued that, according to him, the point of limitation being one of the issues raised by the parties, was finally decided by the aforesaid award and would, therefore, be amenable to challenge.

5. Shri Ajit Kumar Sinha, learned senior advocate appearing on behalf of the respondent, also placed reliance on various sections of the Act, in particular Sections 16 and 37 thereof. According to the learned senior advocate, a ruling on the point of limitation is a ruling on “jurisdiction” and any finding thereon goes to the root of the case. This being the case, the drill of Section 16 has to be followed, and as the plea of limitation has been rejected by the learned Arbitrator, the arbitral proceedings have to continue further and the challenge has to be postponed only after all other issues have been decided.

According to the learned senior advocate, the scheme of Section 37, in particular Section 37(2)(a), also makes it clear that appeals lie only from an order under Section 16 accepting the plea but not rejecting it. Also, according to the learned senior advocate, the present award cannot be said to be an interim award, but is merely an order passed under Section 16 of the Act. He also relied upon several judgments to buttress his point of view and relied heavily upon judgments which held that a decision on a point of limitation goes to jurisdiction in which case Section 16 of the Act would get attracted.

6. Having heard learned counsel for both parties, it is important to first set out the relevant provisions of the Act, which are as under:

“2. Definitions.-

(1) In this Part, unless the context otherwise requires,-

(c) “arbitral award” includes an interim award;

xxx xxx xxx

16. Competence of arbitral tribunal to rule on its jurisdiction.-

(1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose,-

(a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and

(b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.

(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of, an arbitrator.

(3) A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings.

(4) The arbitral tribunal may, in either of the cases referred to in sub-section (2) or sub-section (3), admit a later plea if it considers the delay justified.

(5) The arbitral tribunal shall decide on a plea referred to in sub-section (2) or sub-section (3) and, where the arbitral tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and make an arbitral award.

(6) A party aggrieved by such an arbitral award may make an application for setting aside such an arbitral award in accordance with section 34.

xxx xxx xxx

31. Form and contents of arbitral award.-

(6) The arbitral tribunal may, at any time during the arbitral proceedings, make an interim arbitral award on any matter with respect to which it may make a final arbitral award.

xxx xxx xxx

32. Termination of proceedings.-

(1) The arbitral proceedings shall be terminated by the final arbitral award or by an order of the arbitral tribunal under sub-section (2).

xxx xxx xxx

37. Appealable orders.-

(1) An appeal shall lie from the following orders (and from no others) to the Court authorised by law to hear appeals from original decrees of the Court passing the order, namely:-

(a) refusing to refer the parties to arbitration under section 8;

(b) granting or refusing to grant any measure under section 9;

(c) setting aside or refusing to set aside an arbitral award under section 34.

(2) Appeal shall also lie to a court from an order of the arbitral tribunal-

(a) accepting the plea referred to in sub-section (2) or sub-section (3) of section 16; or

(b) granting or refusing to grant an interim measure under section 17.

(3) No second appeal shall lie from an order passed in appeal under this section, but nothing in this section shall affect or take away any right to appeal to the Supreme Court.”

7. The point at issue is a narrow one: whether an award on the issue of limitation can first be said to be an interim award and, second, as to whether a decision on a point of limitation would go to jurisdiction and, therefore, be covered by Section 16 of the Act.

8. As can be seen from Section 2(c) and Section 31(6), except for stating that an arbitral award includes an interim award, the Act is silent and does not define what an interim award is. We are, therefore, left with Section 31(6) which delineates the scope of interim arbitral awards and states that the arbitral tribunal may make an interim arbitral award on any matter with respect to which it may make a final arbitral award.

9. The language of Section 31(6) is advisedly wide in nature. A reading of the said sub-section makes it clear that the jurisdiction to make an interim arbitral award is left to the good sense of the arbitral tribunal, and that it extends to “any matter” with respect to which it may make a final arbitral award. The expression “matter” is wide in nature, and subsumes issues at which the parties are in dispute. It is clear, therefore, that any point of dispute between the parties which has to be answered by the arbitral tribunal can be the subject matter of an interim arbitral award.

However, it is important to add a note of caution. In an appropriate case, the issue of more than one award may be necessitated on the facts of that case. However, by dealing with the matter in a piecemeal fashion, what must be borne in mind is that the resolution of the dispute as a whole will be delayed and parties will be put to additional expense. The arbitral tribunal should, therefore, consider whether there is any real advantage in delivering interim awards or in proceeding with the matter as a whole and delivering one final award, bearing in mind the avoidance of delay and additional expense. Ultimately, a fair means for resolution of all disputes should be uppermost in the mind of the arbitral tribunal.

10. To complete the scheme of the Act, Section 32(1) is also material. This section goes on to state that the arbitral proceedings would be terminated only by the final arbitral award, as opposed to an interim award, thus making it clear that there can be one or more interim awards, prior to a final award, which conclusively determine some of the issues between the parties, culminating in a final arbitral award which ultimately decides all remaining issues between the parties.

11. The English Arbitration Act, 1996, throws some light on what is regarded as an interim award under English Law. Section 47 thereof states:

“47 Awards on different issues, & c.

(1) Unless otherwise agreed by the parties, the tribunal may make more than one award at different times on different aspects of the matters to be determined.

(2) The tribunal may, in particular, make an award relating-

(a) to an issue affecting the whole claim, or

(b) to a part only of the claims or cross-claims submitted to it for decision.

(3) If the tribunal does so, it shall specify in its award the issue, or the claim or part of a claim, which is the subject matter of the award.”

12. By reading this section, it becomes clear that more than one award finally determining any particular issue before the arbitral tribunal can be made on different aspects of the matters to be determined. A preliminary issue affecting the whole claim would expressly be the subject matter of an interim award under the English Act. The English Act advisedly does not use the expression “interim” or “partial”, so as to make it clear that the award covered by Section 47 of the English Act would be a 10 final determination of the particular issue that the arbitral tribunal has decided.

13. In Exmar BV v National Iranian Tanker Co. [1992] 1 Lloyd’s Rep. 169, an interim final award was made, which contained the decision that it would not issue any such award in the claimant’s favour pending determination of the respondent’s counter claims. Detailed reasons were given for this decision. The Judge, therefore, characterized the aforesaid award as an award finally deciding a particular issue between the parties, and concluded that as a result thereof, he had jurisdiction to review the tribunal’s decision.

14. In Satwant Singh Sodhi v. State of Punjab (1999) 3 SCC 487 at 491 and 493, an interim award in respect of one particular item was made by the arbitrator in that case. The question before the Court was whether such award could be made the rule of the Court separately or could be said to have been superseded by a final award made on all the claims later.

This Court held:

“6. The question whether interim award is final to the extent it goes or has effect till the final award is delivered will depend upon the form of the award. If the interim award is intended to have effect only so long as the final award is not delivered it will have the force of the interim award and it will cease to have effect after the final award is made. If, on the other hand, the interim award is intended to finally determine the rights of the parties it will have the force of a complete award and will have effect even after the final award is delivered. The terms of the award dated 26-11-1992 do not indicate that the same is of interim nature.” On the facts of the case, the Court then went on to hold:

“11. This Court in Rikhabdass v. Ballabhdas [AIR 1962 SC 551 : 1962 Supp (1) SCR 475] held that once an award is made and signed by the arbitrator, the arbitrator becomes functus officio. In Juggilal Kamlapat v. General Fibre Dealers Ltd. [AIR 1962 SC 1123 : 1962 Supp (2) SCR 101] this Court held that an arbitrator having signed his award becomes functus officio but that did not mean that in no circumstances could there be further arbitration proceedings where an award was set aside or that the same arbitrator could never have anything to do with the award with respect to the same dispute. Thus in the present case, it was not open to the arbitrator to redetermine the claim and make an award.

Therefore, the view taken by the trial court that the earlier award made and written though signed was not pronounced but nevertheless had become complete and final, therefore, should be made the rule of the court appears to us to be correct with regard to Item 1 inasmuch as the claim in relation to Item 1 could not have been adjudicated by the arbitrator again and it has been rightly excluded from the second award made by the arbitrator on 28-1-1994.

Thus the view taken by the trial court on this aspect also appears to us to be correct. Therefore, the trial court has rightly ordered the award dated 28-1-1994 to be the rule of the court except for Item 1 and in respect of which the award dated 26-11-1992 was ordered to be the rule of the court.” It is, thus, clear that the first award that was made that finally determined one issue between the parties, with respect to Item no.1 of the claim, was held to be an interim award inasmuch as it finally determined claim 1 between the parties and, therefore, could not be re-adjudicated all over again.

15. In McDermott International Inc. v. Burn Standard Co. Ltd. (2006) 11 SCC 181 at page 211-212, under the heading ‘validity of the partial award’, this Court held:

“68. The 1996 Act does not use the expression “partial award”. It uses interim award or final award. An award has been defined under Section 2(c) to include an interim award. Sub-section (6) of Section 31 contemplates an interim award. An interim award in terms of the said provision is not one in respect of which a final award can be made, but it may be a final award on the matters covered thereby, but made at an interim stage.

69. The learned arbitrator evolved the aforementioned procedure so as to enable the parties to address themselves as regards certain disputes at the first instance. As would appear from the partial award of the learned arbitrator, he deferred some claims. He further expressed his hope and trust that in relation to some claims, the parties would arrive at some sort of settlement having regard to the fact that ONGC directly or indirectly was involved therein. While in relation to some of the claims, a finality was attached to the award, certain claims were deferred so as to enable the learned arbitrator to advert thereto at a later stage. If the partial award answers the definition of the award, as envisaged under Section 2(c) of the 1996 Act, for all intent and purport, it would be a final award. In fact, the validity of the said award had also been questioned by BSCL by filing an objection in relation thereto.

70. We cannot also lose sight of the fact that BSCL did not raise any objection before the arbitrator in relation to the jurisdiction of the arbitrator. A ground to that effect has also not been taken in its application under Section 34 of the Act. We, however, even otherwise do not agree with the contention of Mr Mitra that a partial award is akin to a preliminary decree. On the other hand, we are of the opinion that it is final in all respects with regard to disputes referred to the arbitrator which are subject-matters of such award. We may add that some arbitrators instead and in place of using the expression “interim award” use the expression “partial award”.

By reason thereof the nature and character of an award is not changed. As, for example, we may notice that in arbitral proceedings conducted under the Rules of Arbitration of the International Chamber of Commerce, the expression “partial award” is generally used by the arbitrators in place of interim award. In any view of the matter, BSCL is not in any way prejudiced. We may state that both the partial award and the final award are subject-matter of challenge under Section 34 of the Act.” The aforesaid judgment makes it clear that an interim award or partial award is a final award on matters covered therein made at an intermediate stage of the arbitral proceedings.

16. Tested in the light of the statutory provisions and the case law cited above, it is clear that as the learned Arbitrator has disposed of one matter between the parties i.e. the issue of limitation finally, the award dated 23rd July, 2015 is an “interim award” within the meaning of Section 2(1)(c) of the Act and being subsumed within the expression “arbitral award” could, therefore, have been challenged under Section 34 of the Act.

17. However, Shri Sinha has argued before us that the award dated 23rd July, 2015 being a ruling on the arbitral tribunal’s jurisdiction would fall within Section 16 of the Act, and inasmuch as the decision taken on the point of limitation was rejected, the drill of Section 16 must be followed in which case all other issues have to be decided first, and it is only after such issues are decided that such an award can be challenged under Section 34 of the Act. Section 16 of the Act lays down what, in arbitration law, is stated to be the Kompetenz-kompetenz principle, viz. that an arbitral tribunal may rule on its own jurisdiction.

At one time, the law was that the arbitrator, being a creature of the contract, could not rule on the existence or validity of the arbitration clause contained in the contract. This, however, gave way to the Kompetenz principle which was adopted by the UNCITRAL Model Law. Article 16 of the UNCITRAL Model Law, on which Section 16 of the Act is based, reads as follows:

“Article 16. Competence of arbitral tribunal to rule on its jurisdiction

(1) The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. For that purpose, an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract. A decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.

(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence. A party is not precluded from raising such a plea by the fact that he has appointed, or participated in the appointment of, an arbitrator. A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings. The arbitral tribunal may, in either case, admit a later plea if it considers the delay justified.

(3) The arbitral tribunal may rule on a plea referred to in paragraph (2) of this article either as a preliminary question or in an award on the merits. If the arbitral tribunal rules as a preliminary question that it has jurisdiction, any party may request, within thirty days after having received notice of that ruling, the court specified in article 6 to decide the matter, which decision shall be subject to no appeal; while such a request is pending, the arbitral tribunal may continue the arbitral proceedings and make an award.”

18. The Statement of Objects and Reasons of the Act expressly refers to the UNCITRAL Model Law in the following terms:

“3. Though the said UNCITRAL Model Law and Rules are intended to deal with international commercial arbitration and conciliation, they could, with appropriate modifications, serve as a model for legislation on domestic arbitration and conciliation. The present Bill seeks to consolidate and amend the law relating to domestic arbitration, international commercial arbitration, enforcement of foreign arbitral awards and to define the law relating to conciliation, taking into account the said UNCITRAL Model Law and Rules.”

19. It may be noticed that Section 16(1) to (4) are based on Article 16 of the UNCITRAL Model Law. The Kompetenz principle deals with the arbitral tribunal’s jurisdiction in the narrow sense of ruling on objections with respect to the existence or validity of the arbitration agreement. What is important to notice in the language of Section 16(1) is the fact that the arbitral tribunal may rule on its own jurisdiction, which makes it clear that it refers to whether the arbitral tribunal may embark upon an inquiry into the issues raised by parties to the dispute.

20. Here again, the English Arbitration Act of 1996 throws some light on the problem before us. Sections 30 and 31 of the said Act read as under:

“30 Competence of tribunal to rule on its own jurisdiction. –

(1) Unless otherwise agreed by the parties, the arbitral tribunal may rule on its own substantive jurisdiction, that is, as to-

(a) whether there is a valid arbitration agreement,

(b) whether the tribunal is properly constituted, and

(c) what matters have been submitted to arbitration in accordance with the arbitration agreement.

(2) Any such ruling may be challenged by any available arbitral process of appeal or review or in accordance with the provisions of this Part.

31 Objection to substantive jurisdiction of tribunal. –

(1) An objection that the arbitral tribunal lacks substantive jurisdiction at the outset of the proceedings must be raised by a party not later than the time he takes the first step in the proceedings to 18 contest the merits of any matter in relation to which he challenges the tribunal’s jurisdiction. A party is not precluded from raising such an objection by the fact that he has appointed or participated in the appointment of an arbitrator.

(2) Any objection during the course of the arbitral proceedings that the arbitral tribunal is exceeding its substantive jurisdiction must be made as soon as possible after the matter alleged to be beyond its jurisdiction is raised.

(3) The arbitral tribunal may admit an objection later than the time specified in subsection (1) or (2) if it considers the delay justified.

(4) Where an objection is duly taken to the tribunal’s substantive jurisdiction and the tribunal has power to rule on its own jurisdiction, it may-

(a) rule on the matter in an award as to jurisdiction, or (b) deal with the objection in its award on the merits. If the parties agree which of these courses the tribunal should take, the tribunal shall proceed accordingly.

(5) The tribunal may in any case, and shall if the parties so agree, stay proceedings whilst an application is made to the court under section 32 (determination of preliminary point of jurisdiction).”

These sections make it clear that the Kompetenz principle, which is also followed by the English Arbitration Act of 1996, is that the “jurisdiction” mentioned in Section 16 has reference to three things:

(1) as to whether there is the existence of a valid arbitration agreement;

(2) whether the arbitral tribunal is properly constituted; and (3) matters 19 submitted to arbitration should be in accordance with the arbitration agreement.

21. That “jurisdiction” is a coat of many colours, and that the said word displays a certain colour depending upon the context in which it is mentioned, is well-settled. In the classic sense, in Official Trustee v. Sachindra Nath Chatterjee, (1969) 3 SCR 92 at 99, “jurisdiction” is stated to be: “In the order of Reference to a Full Bench in the case of Sukhlal v. Tara Chand [(1905) ILR 33 Cal 68] it was stated that jurisdiction may be defined to be the power of a Court to hear and determine a cause, to adjudicate and exercise any judicial power in relation to it: in other words, by jurisdiction is meant the authority which a Court has to decide matters that are litigated before it or to take cognizance of matters presented in a formal way for its decision.

An examination of the cases in the books discloses numerous attempts to define the term ‘jurisdiction’, which has been stated to be ‘the power to hear and determine issues of law and fact’, the authority by which the judicial officer take cognizance of and ‘decide causes’; ‘the authority to hear and decide a legal controversy’, ‘the power to hear and determine the subject-matter in controversy between parties to a suit and to adjudicate or exercise any judicial power over them;’ ‘the power to hear, determine and pronounce judgment on the issues before the Court’; ‘the power or authority which is conferred upon a Court by the Legislature to hear and determine causes between parties and to carry the judgments into effect’; ‘the power to enquire into the facts, to apply the law, to pronounce the judgment and to carry it into execution’.” (Mukherjee, Acting CJ, speaking for Full Bench of the Calcutta High Court in Hirday Nath Roy v. Ramachandra Barna Sarma ILR 68 Cal 138)

22. A Constitution Bench of this Court in Ittavira Mathai v. Varkey Varkey, (1964) 1 SCR 495 at 501-503, made a distinction between an erroneous decision on limitation being an error of law which is within the jurisdiction of the Court, and a decision where the Court acts without jurisdiction in the following terms: “The first point raised by Paikedy for the appellant is that the decree in OS No. 59 of 1093 obtained by Anantha Iyer and his brother in the suit on the hypothecation bond executed by Ittiyavira in favour of Ramalinga Iyer was a nullity because the suit was barred by time. In assuming that the suit was barred by time, it is difficult to appreciate the contention of learned counsel that the decree can be treated as a nullity and ignored in subsequent litigation.

If the suit was barred by time and yet, the court decreed it, the court would be committing an illegality and therefore the aggrieved party would be entitled to have the decree set aside by preferring an appeal against it. But it is well settled that a court having jurisdiction over the subject-matter of the suit and over the parties thereto, though bound to decide right may decide wrong; and that even though it decided wrong it would not be doing something which it had no jurisdiction to do. It had 21 the jurisdiction over the subject-matter and it had the jurisdiction over the party and, therefore, merely because it made an error in deciding a vital issue in the suit, it cannot be said that it has acted beyond its jurisdiction.

As has often been said, courts have jurisdiction to decide right or to decide wrong and even though they decide wrong, the decrees rendered by them cannot be treated as nullities. Learned counsel, however, referred us to the decision of the Privy Council in Maqbul Ahmad v. Onkar Pratap Narain Singh [AIR (1935) PC 85] and contended that since the court is bound under the provisions of Section 3 of the Limitation Act to ascertain for itself whether the suit before it was within time, it would act without jurisdiction if it fails to do so. All that the decision relied upon says is that Section 3 of the Limitation Act is peremptory and that it is the duty of the court to take notice of this provision and give effect to it even though the point of limitation is not referred to in the pleadings.

The Privy Council has not said that where the court fails to perform its duty, it acts without jurisdiction. If it fails to do its duty, it merely makes an error of law and an error of law can be corrected only in the manner laid down in the Civil Procedure Code. If the party aggrieved does not take appropriate steps to have that error corrected, the erroneous decree will hold good and will not be open to challenge on the basis of being a nullity.”

23. It is in this sense of the term that “jurisdiction” has been used in Section 16 of the Act. Indeed, in NTPC (supra) at 460-461, a Division Bench of this Court, after setting out Sections 16 and 37 held:

“10. Now, the only question that remains to be decided in the present case is whether against the order of partial award an appeal is maintainable directly under Section 37 of the Act or not. We have considered the submissions of learned counsel for the appellant and after going through the counterclaim and the partial award, we are of the opinion that no question of jurisdiction arises in the matter so as to enable the appellant to file a direct appeal under Section 37 of the Act before the High Court. As already mentioned above, an appeal under sub-section (2) of Section 37 only lies if there is an order passed under Sections 16(2) and (3) of the Act. Sections 16(2) and (3) deal with the exercise of jurisdiction.

The plea of jurisdiction was not taken by the appellant. It was taken by the respondent in order to meet their counterclaim. But it was not in the context of the fact that the Tribunal had no jurisdiction, it was in the context that this question of counterclaim was no more open to be decided for the simple reason that all the issues which had been raised in Counterclaims 1 to 10 had already been settled in the minutes of meeting dated 6-4-2000/7-4-2000 and it was recorded that no other issues were to be resolved in first and third contracts.

Therefore, we fail to understand how the question of jurisdiction was involved in the matter. In fact it was in the context of the fact that the entire counterclaims have already been satisfied and settled in the meeting that it was concluded that no further issues remained to be settled. In this context, the counterclaims filed by the appellant were opposed. If any grievance was there, that should have been (sic raised) by the respondent and not by the appellant. It is only the finding of fact recorded by the Tribunal after considering the counterclaim vis-à-vis the minutes of meeting dated 6-4-2000/7-4-2000. Therefore, there was no question of jurisdiction involved in the matter so as to enable the appellant to approach the High Court directly.” Interestingly, in a separate concurring judgment, P.K. Balasubramanyan, J., held:

“17. In the larger sense, any refusal to go into the merits of a claim may be in the realm of jurisdiction. Even the dismissal of the claim as barred by limitation may in a sense touch on the jurisdiction of the court or tribunal. When a claim is dismissed on the ground of it being barred by limitation, it will be, in a sense, a case of the court or tribunal refusing to exercise jurisdiction to go into the merits of the claim. In Pandurang Dhoni Chougule v. Maruti Hari Jadhav [AIR 1996 SC 153 : (1996) 1 SCR 102] this Court observed that: (AIR p. 155, para 10)

“It is well settled that a plea of limitation or a plea of res judicata is a plea of law which concerns the jurisdiction of the court which tries the proceedings. A finding on these pleas in favour of the party raising them would oust the jurisdiction of the court, and so, an erroneous decision on these pleas can be said to be concerned with questions of jurisdiction which fall within the purview of Section 115 of the Code.” In a particular sense, therefore, any declining to go into the merits of a claim could be said to be a case of refusal to exercise jurisdiction.

18. The expression “jurisdiction” is a word of many hues. Its colour is to be discerned from the setting in which it is used. When we look at Section 16 of the 24 Act, we find that the said provision is one, which deals with the competence of the Arbitral Tribunal to rule on its own jurisdiction. SBP & Co. v. Patel Engg. Ltd. [(2005) 8 SCC 618] in a sense confined the operation of Section 16 to cases where the Arbitral Tribunal was constituted at the instance of the parties to the contract without reference to the Chief Justice under Section 11(6) of the Act.

In a case where the parties had thus constituted the Arbitral Tribunal without recourse to Section 11(6) of the Act, they still have the right to question the jurisdiction of the Arbitral Tribunal including the right to invite a ruling on any objection with respect to the existence or validity of the arbitration agreement. It could therefore rule that there existed no arbitration agreement, that the arbitration agreement was not valid, or that the arbitration agreement did not confer jurisdiction on the Tribunal to adjudicate upon the particular claim that is put forward before it.

Under sub-section (5), it has the obligation to decide the plea and where it rejects the plea, it could continue with the arbitral proceedings and make the award. Under sub-section (6), a party aggrieved by such an arbitral award may make an application for setting aside such arbitral award in accordance with Section 34. In other words, in the challenge to the award, the party aggrieved could raise the contention that the Tribunal had no jurisdiction to pass it or that it had exceeded its authority, in passing it.

This happens when the Tribunal proceeds to pass an award. It is in the context of the various sub-sections of Section 16 that one has to understand the content of the expression “jurisdiction” and the scope of the appeal provision. In a case where the Arbitral Tribunal proceeds to pass an award after overruling the objection relating to jurisdiction, it is clear from sub-section (6) of Section 16 that the parties have to resort to Section 34 of the Act to get rid of that award, if possible. But, if the Tribunal declines jurisdiction or declines to 25 pass an award and dismisses the arbitral proceedings, the party aggrieved is not without a remedy. Section 37(2) deals with such a situation.

Where the plea of absence of jurisdiction or a claim being in excess of jurisdiction is accepted by the Arbitral Tribunal and it refuses to go into the merits of the claim by declining jurisdiction, a direct appeal is provided. In the context of Section 16 and the specific wording of Section 37(2)(a) of the Act, it would be appropriate to hold that what is made directly appealable by Section 37(2)(a) of the Act is only an acceptance of a plea of absence of jurisdiction, or of excessive exercise of jurisdiction and the refusal to proceed further either wholly or partly.

19. In a case where a counterclaim is referred to and dealt with and a plea that the counterclaim does not survive in view of the settlement of disputes between the parties earlier arrived at is accepted, it could not be held to be a case of refusal to exercise jurisdiction by the Arbitral Tribunal. Same is the position when an Arbitral Tribunal finds that a claim was dead and was not available to be made at the relevant time or that the claim was not maintainable for other valid reasons or that the claim was barred by limitation.

They are all adjudications by the Tribunal on the merits of the claim and in such a case the aggrieved party can have recourse only to Section 34 of the Act and will have to succeed on establishing any of the grounds available under that provision. It would not be open to that party to take up the position that by refusing to go into the merits of his claim, the Arbitral Tribunal had upheld a plea that it does not have jurisdiction to entertain the claim and hence the award or order made by it, comes within the purview of Section 16(2) of the Act and consequently is appealable under Section 37(2) (a) of the Act.”

26 (at pages 463-464)

24. This judgment is determinative of the issue at hand and has our respectful concurrence. However, various judgments were referred to by learned senior advocate appearing on behalf of the respondent, in which “jurisdiction” in the wide sense was used. Thus, a jurisdictional error under Section 115 of the Code of Civil Procedure, 1908, dealing with revision petitions, was held to include questions which relate to res judicata and limitation. [See Pandurang Dhoni Chougule v. Maruti Hari Jadhav (1966) 1 SCR 102 at 107)].

25. This judgment was expressly referred to in the context of Anisminic v. Foreign Compensation Commission, (1969) 2 AC 147, delivered in England, which virtually made all “errors of law” “errors of jurisdiction” in the Administrative Law sphere and explained in M.L. Sethi v. R.P. Kapur, (1972) 2 SCC 427 at 435 as under: “…The dicta of the majority of the House of Lords in the above case would show the extent to which “lack” and “excess” of jurisdiction have been assimilated or, in other words, the extent to which we have moved away from the traditional concept of “jurisdiction”.

The effect of the dicta in that case is to 27 reduce the difference between jurisdictional error and error of law within jurisdiction almost to vanishing point. The practical effect of the decision is that any error of law can be reckoned as jurisdictional. This comes perilously close to saying that there is jurisdiction if the decision is right in law but none if it is wrong. Almost any misconstruction of a statute can be represented as “basing their decision on a matter with which they have no right to deal”, “imposing an unwarranted condition” or “addressing themselves to a wrong question”.

The majority opinion in the case leaves a Court or Tribunal with virtually no margin of legal error. Whether there is excess of jurisdiction or merely error within jurisdiction can be determined only by construing the empowering statute, which will give little guidance. It is really a question of how much latitude the court is prepared to allow. In the end it can only be a value judgment (see H.N.R. Wade, “Constitutional and Administrative Aspects of the Anisminic case”. Law Quarterly Review, Vol. 85,1969, p. 198).

Why is it that a wrong decision on a question of limitation or res judicata was treated as a jurisdictional error and liable to be interfered with in revision? It is a bit difficult to understand how an erroneous decision on a question of limitation or res judicata would oust the jurisdiction of the court in the primitive sense of the term and render the decision or a decree embodying the decision a nullity liable to collateral attack. The reason can only be that the error of law was considered as vital by the court. And there is no yardstick to determine the magnitude of the error other than the opinion of the Court…”

26. Likewise, in Hari Prasad Mulshanker Trivedi v. V.B. Raju (1974) 3 SCC 415 at 423-424, a Constitution Bench of this Court again referred to the blurring of lines between errors of law and errors of jurisdiction found in Anisminic (supra) as follows: “Though the dividing line between lack of jurisdiction or power and erroneous exercise of it has become thin with the decision of the House of Lords in the Anisminic case, [(1967) 3 WLR 382] we do not think that the distinction between the two has been completely wiped out. We are aware of the difficulty in formulating an exhaustive rule to tell when there is lack of power and when there is an erroneous exercise of it.

The difficulty has arisen because the word “jurisdiction” is an expression which is used in a variety of senses and takes its colour from its context, (see per Diplock, J., at p. 394 in the Anisminic case). Whereas the “pure” theory of jurisdiction would reduce jurisdictional control to a vanishing point, the adoption of a narrower meaning might result in a more useful legal concept even though the formal structure of law may lose something of its logical symmetry.

“At bottom the problem of defining the concept of jurisdiction for purpose of judicial review has been one of public policy rather than one of logic”. [S. A. Smith : “Judicial Review of Administrative Action”, 2nd Edn., p. 98] And viewed from the aspect of public policy as reflected in the provisions of the 1950 and 1951 Acts, we do not think that a wrong decision on a question of ordinary residence for the purpose of entering a person’s name in the electoral roll should be treated as a jurisdictional error which can be judicially reviewed either in a civil court or before an election tribunal.”

27. In ITW Signode India Ltd. v. CCE (2004) 3 SCC 48 at 74, a case strongly relied upon by Shri Sinha, this Court held in the context of limitation qua recovery of duty under Section 11A of the Central Excise Act, 1944 as follows: “69. The question of limitation involves a question of jurisdiction. The finding of fact on the question of jurisdiction would be a jurisdictional fact. Such a jurisdictional question is to be determined having regard to both fact and law involved therein.

The Tribunal, in our opinion, committed a manifest error in not determining the said question, particularly, when in the absence of any finding of fact that such short-levy of excise duty related to any positive act on the part of the appellant by way of fraud, collusion, wilful misstatement or suppression of facts, the extended period of limitation could not have been invoked and in that view of the matter no show-cause notice in terms of Rule 10 could have been issued.”

28. Given the context of Section 11A of the Central Excise Act, 1944, obviously the expression “jurisdiction” would mean something more than merely being able to embark on the merits of a dispute. In a recent judgment under Section 9A of the Code of Civil Procedure, 1908 (as inserted by the State of Maharashtra), this Court in Foreshore Coop. Housing Society Ltd. v. Praveen D. Desai (2015) 6 SCC 412, referred to the 30 expression “jurisdiction” occurring in Section 9A and held an earlier judgment of this Court to be per incuriam.

Though the Constitution Bench judgment in Ittavira (supra) was mentioned by the Bench, referring to the argument of one of the counsel for the parties, in the concluding portion, this judgment is not referred to at all. In any case, the reasoning of the Court in that case was in the context of Section 9A which, when contrasted with Order XIV of the Code of Civil Procedure, 1908, made the Court accept the wider concept of “jurisdiction” as laid down in Pandurang (supra).

29. In our view, therefore, it is clear that the award dated 23rd July, 2015 is an interim award, which being an arbitral award, can be challenged separately and independently under Section 34 of the Act. We are of the view that such an award, which does not relate to the arbitral tribunal’s own jurisdiction under Section 16, does not have to follow the drill of Section 16(5) and (6) of the Act. Having said this, we are of the view that Parliament may consider amending Section 34 of the Act so as to consolidate all interim awards together with the final arbitral award, so that one challenge under Section 34 can be made after delivery of the final arbitral award. Piecemeal challenges like piecemeal awards lead to unnecessary delay and additional expense.

30. The appeal is, accordingly, allowed and the impugned judgment is set aside. The Section 34 proceedings before the District Judge, Jagatsinghpur may now be decided. There shall, however, be no order as to costs.

 (R.F. Nariman)

 (Navin Sinha)

New Delhi;

January 23, 2018.

M/s. Inox Wind Ltd. Vs. M/s. Thermocables Ltd [SC 2018 January]

KEYWORDS:-APPOINTMENT OF ARBITRATOR-STANDARD FORM OF CONTRACT-

Capture

DATE:-January 05, 2018-

  • Though general reference to an earlier contract is not sufficient for incorporation of an arbitration clause in the later contract, a general reference to a standard form would be enough for incorporation of the arbitration clause.
  • The purchase order is a single contract and general reference to the standard form even if it is not by a trade association or a professional body is sufficient for incorporation of the arbitration clause.

ACTS:-Section 11 (6) of the Arbitration and Conciliation Act, 1996

HISTORY: The Appellant,  issued a notice dated 30.10.2014 proposing the name of a sole arbitrator in terms of the Standard Terms and Conditions. In the absence of any response, the Appellant moved the High Court of Judicature at Allahabad by filing an application under Section 11 (6) of the Act.

SUPREME COURT OF INDIA

M/s. Inox Wind Ltd. Vs. M/s. Thermocables Ltd.

[Civil Appeal No. 19 of 2018 arising out of SLP (Civil) No.31049 of 2016]

L. NAGESWARA RAO, J.

1. Leave granted.

2. This appeal is directed against the judgment of the High Court of Judicature at Allahabad dismissing the application filed by the Appellant under Section 11 (6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as ‘the Act’).

3. The Appellant is a manufacturer of wind turbine generators (WTGs). The Respondent is engaged in the business of manufacture of wind power cables and other types of cables. Two purchase orders dated 13.12.2012 and 02.02.2013 were issued by the Appellant to the Respondent for supply of cables for their WTGs. According to the Purchase Order, the supply was to be according to the terms mentioned in the order and the Standard Terms and Conditions that were attached thereto. Apart from the other conditions, the Standard Terms and Conditions contain a clause pertaining to dispute resolution. The said clause provides for a dispute to be resolved by a sole arbitrator in accordance with the provisions of the Arbitration and Conciliation Act, 1996. The material on record indicates that the Respondent accepted all the terms and conditions mentioned in the Purchase Order except the delivery period as is evident from a letter dated 15.12.2012.

4. The Respondent, pursuant to the Purchase Order, supplied wind power cables to the Appellant. While laying the cables supplied by the Respondent-company, the Appellant discovered that the outer sheaths of the cables of 150 sq. mm. were cracked. This forced them to stop the WTGs so as to avert damage to expensive equipment. According to the Appellant, the Respondent-company did not replace the cables. The Appellant, therefore, was constrained to issue a notice dated 30.10.2014 proposing the name of a sole arbitrator in terms of the Standard Terms and Conditions. In the absence of any response, the Appellant moved the High Court of Judicature at Allahabad by filing an application under Section 11 (6) of the Act.

5. The High Court dismissed the said application by holding that an arbitrator cannot be appointed as the Appellant did not prove the existence of an arbitration agreement. The High Court relied upon the judgment of this Court in M.R. Engineers and Contractors Private Limited v. Som Datt Builders Limited, (2009) 7 SCC 696 to hold that there is no special reference to the arbitration clause in the standard terms and conditions, so the arbitration clause cannot be said to have been incorporated into the purchase order.

6. We have heard the counsel for the Appellant and Respondent. The judgment of this Court in M.R. Engineers’ case (supra) was relied upon by both the parties. Before proceeding further, it would be necessary to appreciate the ratio of the said judgment. A few facts necessary to understand the dispute in the said case are that the Appellant therein was a sub-contractor of the Respondent. The Appellant was entrusted a part of the work by the Respondent-contractor which pertained to ‘construction of project directorate building’. It was mentioned in the sub-contract that it shall be carried out as per the terms and conditions applicable to the main contract.

A dispute arose between the parties which made the Appellant therein to approach the High Court for appointment of an arbitrator under Section 11 (6) of the Arbitration and Conciliation Act, 1996. The High Court of Kerala rejected the application on the ground that the arbitration clause in the main contract was not incorporated by reference in the contract between the Appellant and Respondent therein. In the appeal before this Court, the Appellant submitted that his case was squarely covered by Section 7 (5) of the Act and that the arbitration clause from the main contract was incorporated by reference in the sub contract between him and the Respondent.

7. This Court considered the scope of Section 7 (5) of the Act and held that a conscious acceptance of the arbitration clause found in another document is necessary for the purpose of incorporating it into the contract. It was further held that general rules of construction of contracts would have to be followed as there were no guidelines in Section 7(5) regarding the conditions that need to be fulfilled before construing a reference to a portion of a contract as a reference incorporating the whole of it along with the arbitration clause contained in it. While distinguishing ‘reference’ to another document from ‘incorporation’, this Court observed that the relevant factor was the intention of the parties either to adopt the document in its entirety or to borrow specific portions of the said document. In this connection, the Court held as follows: (M.R. Engineers’ case, para 17-19)

“17. We will give a few instances of incorporation and mere reference to explain the position (illustrative and not exhaustive). If a contract refers to a document and provides that the said document shall form part and parcel of the contract, or that all terms and conditions of the said document shall be read or treated as a part of the contract, or that the contract will be governed by the provisions of the said document, or that the terms and conditions of the said document shall be incorporated into the contract, the terms and conditions of the document in entirety will get bodily lifted and incorporated into the contract.

When there is such incorporation of the terms and conditions of a document, every term of such document (except to the extent it is inconsistent with any specific provision in the contract) will apply to the contract. If the document so incorporated contains a provision for settlement of disputes by arbitration, the said arbitration clause also will apply to the contract.

18. On the other hand, where there is only a reference to a document in a contract in a particular context, the document will not get incorporated in entirety into the contract. For example, if a contract provides that the specifications of the supplies will be as provided in an earlier contract or another purchase order, then it will be necessary to look to that document only for the limited purpose of ascertainment of specifications of the goods to be supplied. The referred document cannot be looked into for any other purpose, say price or payment of price. Similarly, if a contract between X and Y provides that the terms of payment to Y will be as in the contract between X and Z, then only the terms of payment from the contract between X and Z, will be read as part of the contract between X and Y. The other terms, say relating to quantity or delivery cannot be looked into.

19. Sub-section (5) of Section 7 merely reiterates these well-settled principles of construction of contracts. It makes it clear that where there is a reference to a document in a contract, and the reference shows that the document was not intended to be incorporated in entirety, then the reference will not make the arbitration clause in the document, a part of the contract, unless there is a special reference to the arbitration clause so as to make it applicable.”

8. Relevant passages from Russell on Arbitration 23 rd Edition (2007) which were relied upon by this Court for interpretation of Section 7 (5) of the Arbitration and Conciliation Act, 1996 are as under: (M.R. Engineers’ case, para 20-21)

“20. The following passages from Russell on Arbitration throw considerable light on the position while dealing with Section 6(2) of the (English) Arbitration Act, 1996 corresponding to Section 7(5) of the Indian Act. (See pp. 52-55, 23rd Edn.):

“Reference to another document.-The terms of a contract may have to be ascertained by reference to more than one document. Ascertaining which documents constitute the contractual documents and in what, if any, order of priority they should be read is a problem encountered in many commercial transactions, particularly those involving shipping and construction. This issue has to be determined by applying the usual principles of construction and attempting to infer the parties’ intentions by means of an objective assessment of the evidence.

This may make questions of incorporation irrelevant, if for example it is clear that the contractual documents in question are entirely separate and no intention to incorporate the terms of one in the other can be established. However, the contractual document defining and imposing the performance obligations may be found to incorporate another document which contains an arbitration agreement. If there is a dispute about the performance obligations, that dispute may need to be decided according to the arbitration provisions of that other document. This very commonly occurs when the principal contractual document refers to standard form terms containing an arbitration agreement.

However the standard form wording may not be apt for the contract in which the parties seek to incorporate it, or the reference may be to another contract between parties at least one of whom is different. In these circumstances it may be possible to argue that the purported incorporation of the arbitration agreement is ineffective.

The draftsmen of the Arbitration Act, 1996 were asked to provide specific guidance on the issue, but they preferred to leave it to the court to decide whether there had been a valid incorporation by reference. (Para 2.044) *** Subject to drawing a distinction between incorporation of an arbitration agreement contained in a document setting out standard form terms and one contained in some other contract between different parties, judicial thinking seems to have favoured the approach of Sir John Megaw in Aughton, namely, that general words of incorporation are not sufficient. Rather, particular reference to the arbitration clause needs to be made to comply with Section 6 of the Arbitration Act, 1996, unless special circumstances exist. (Para 2.047) Reference to standard form terms.-

If the document sought to be incorporated is a standard form set of terms and conditions the courts are more likely to accept that general words of incorporation will suffice. This is because the parties can be expected to be more familiar with those standard terms including the arbitration clause.” (Para 2.048)

21. After referring to the view of Sir John Megaw in Aughton Ltd. v. M.F. Kent Services Ltd. [(1991) 57 BLR 1] that specific words were necessary to incorporate an arbitration clause and that the reference in a sub-contract to another contract’s terms and conditions would not suffice to incorporate the arbitration clause into the sub-contract, followed in Barrett & Son (Brickwork) Ltd. v. Henry Boot Management Ltd.[1995 CILL 1026] , Trygg Hansa Insurance Co. Ltd. v. Equitas Ltd. [(1998) 2 Lloyds’ Rep 439] and AIG Europe (UK) Ltd. v. Ethniki [(2000) 2 All ER 566 (CA)] and Sea Trade Maritime Corpn. v. Hellenic Mutual War Risks Assn. (Bermuda) Ltd. No. 2 [2006 EWHC 2530] , Russell concludes:

“The current position therefore seems to be that if the arbitration agreement is incorporated from a standard form a general reference to those terms is sufficient, but at least in the case of reference to a non-standard form contract in the context of construction and reinsurance contracts and bills of lading a specific reference to the arbitration agreement is necessary.”

9. This Court also discussed the scope of Section 7 (5) of the Act and summarised as follows: (M.R. Engineers’ case, para 24)

“24. The scope and intent of Section 7(5) of the Act may therefore be summarised thus:

(i) An arbitration clause in another document, would get incorporated into a contract by reference, if the following conditions are fulfilled:

(1) the contract should contain a clear reference to the documents containing arbitration clause,

(2) the reference to the other document should clearly indicate an intention to incorporate the arbitration clause into the contract,

(3) the arbitration clause should be appropriate, that is capable of application in respect of disputes under the contract and should not be repugnant to any term of the contract.

(ii) When the parties enter into a contract, making a general reference to another contract, such general reference would not have the effect of incorporating the arbitration clause from the referred document into the contract between the parties. The arbitration clause from another contract can be incorporated into the contract (where such reference is made), only by a specific reference to arbitration clause.

(iii) Where a contract between the parties provides that the execution or performance of that contract shall be in terms of another contract (which contains the terms and conditions relating to performance and a provision for settlement of disputes by arbitration), then, the terms of the referred contract in regard to execution/performance alone will apply, and not the arbitration agreement in the referred contract, unless there is special reference to the arbitration clause also.

(iv) Where the contract provides that the standard form of terms and conditions of an independent trade or professional institution (as for example the standard terms and conditions of a trade association or architects association) will bind them or apply to the contract, such standard form of terms and conditions including any provision for arbitration in such standard terms and conditions, shall be deemed to be incorporated by reference. Sometimes the contract may also say that the parties are familiar with those terms and conditions or that the parties have read and understood the said terms and conditions.

(v) Where the contract between the parties stipulates that the conditions of contract of one of the parties to the contract shall form a part of their contract (as for example the general conditions of contract of the Government where the Government is a party), the arbitration clause forming part of such general conditions of contract will apply to the contract between the parties.”

10. It was ultimately found that the intention of the parties was not to incorporate the main contract in its entirety into the sub-contract. Further, this Court held that the arbitration clause in the main contract was inapplicable to the contract between the parties as the main contract was between the Public Works Department, Government of Kerala and the contractor in which the arbitration clause contemplated appointment of a committee of three arbitrators, with one each to be appointed by the State of Kerala and the Respondent therein and the third to be nominated by the Director General Road Development, Ministry of Surface Transport Roads in Government of India. Appointment of a committee of arbitrators with representatives of State of Kerala and the Government of India was totally irrelevant for the contract between the contractor and the sub-contractor.

11. Section 6 (2) of the Arbitration Act, 1996 which extends to England, Wales and Northern Ireland is in pari materia with Section 7 (5) of the Arbitration and Conciliation Act, 1996 and it reads as under:-

“6. Definition of arbitration agreement. …

(2) The reference in an agreement to a written form of arbitration clause or to a document containing an arbitration clause constitutes an arbitration agreement if the reference is such as to make that clause part of the agreement.”

12. It will be useful to understand the interpretation of the incorporation issue in England. The question whether the general words of incorporation are sufficient to incorporate an arbitration agreement arose for consideration of the High Court of Justice, Queen’s Bench Division, Commercial Court in Sea Trade Maritime Corporation v. Hellenic Mutual War Risks Association (Bermuda) Limited, The Athena [2006] EWHC 2530 (Comm). In the said case the difference between incorporation in a single contract case and a two contract case was recognized. If there is a reference to a secondary document in a contract between two parties and that secondary document is a contract to which at least one party is different from the parties to the contract in question, it would be a two contract case.

In other words, if the secondary document is between other parties or if only one of the parties to the contract in dispute is party to an earlier contract to which a reference is made, then it would be a two contract case. In such a contract general reference to the earlier contract would not be sufficient to incorporate the arbitration clause. However, if the reference is to standard terms in a contract that would be a case of ‘single contract’ and the use of general words to incorporate the arbitration agreement by a reference is permissible. As the reference in that case was to a standard form of contract which was a single contract case, Justice Langley held that the general words of incorporation were enough to incorporate an arbitration clause.

13. The question of incorporation of the arbitration clause from an earlier contract by general reference into a later contract came up for consideration before the Queen’s Bench Division again in Habas Sinai Ve Tibbi Gazlar Isthisal Endustri AS v. Sometal SAL [2010] EWHC 29 (Comm). The contract in the said case pertained to sale of 10,000 metric tons of steel scrap. There were several terms in the contract under the headings material, quantity, price, shipment, discharge, rate, payment and final weight. Apart from the said terms, the contract contained a clause which was in the following terms: “All the rest will be same as our previous contracts.”

14. The dispute that arose in that case was whether general words mentioned above were capable of incorporating an arbitration clause. The difference in approach between cases in which the parties incorporate the terms of a contract between the other parties or between one of them with a third party on the one hand and those in which they incorporate the standard terms on the other hand, was noticed. The following broad categories in which the parties attempt to incorporate an arbitration clause were recognized by the Court, which are as follows:

“(1) A and B make a contract in which they incorporate standard terms. These may be the standard terms of one party set out on the back of an offer letter or an order, or contained in another document to which reference is made; or terms embodied in the rules of an organisation of which A or B or both are members; or they may be terms standard in a particular trade or industry.

(2) A and B make a contract incorporating terms previously agreed between A and B in another contract or contracts to which they were both parties (3) A and B make a contract incorporating terms agreed between A (or B) and C. Common examples are a bill of lading incorporating the terms of a charter to which A is a party; reinsurance contracts incorporating the terms of an underlying insurance; excess insurance contracts incorporating the terms of the primary layer of insurance; and building or engineering sub contracts incorporating the terms of a main contract or sub-sub contracts incorporating the terms of a sub contract.

(4) A and B make a contract incorporating terms agreed between C and D. Bills of lading, reinsurance and insurance contracts and building contracts may fall into this category.”

15. In Habas’s case (supra), Justice Christopher Clarke followed the ratio in the case of ‘the Athena’ (supra) and held that in single contract cases (categories 1 and 2), a general reference would be sufficient for incorporation of an arbitration clause from a standard form of contract. In cases falling under categories 3 and 4 mentioned above which are two contract cases, it was held that a stricter rule has to be followed by insisting on a specific reference to the arbitration clause from an earlier contract. Reliance placed on the judgment of Sir John Megaw in Aughton v MF Kent Services [1991] 31 Con L.R. 60 was repelled in the following terms:

“53 I do not regard myself as bound by the decisions of the Court of Appeal in Aughton v Kent and The Ethniki to reach a different conclusion. Both were two-contract cases. Further the judgments of Sir John Megaw and Lord Justice Ralph Gibson are, in part in conflict so as to preclude either of them being binding authority even in a two contract case. The agreement of Evans LJ with Sir John Megaw’s ” analysis of the authorities with regard to arbitration clauses and specifically with regard to the incorporation of charterparty arbitration clauses into bills of lading ” was obiter.”

16. The point pertaining to the independent nature of an arbitration clause being determinative of the dispute pertaining to incorporation was also dealt with in the said judgment as follows:

“51 Like Langley J, however, I do not accept that, in a single contract case, the independent nature of the arbitration clause should determine whether it is to be incorporated. A commercial lawyer would probably understand that an arbitration clause is a separate contract collateral to another substantive contract and that the expression “arbitration clause” is, on that account, something of a misnomer for “the arbitration contract which is ancillary to the primary contract”.

But a businessman would have no difficulty in regarding the arbitration clause (as he would call it) as part of a contract and as capable of incorporation, by appropriate wording, as any other term of such a contract; and it is, as it seems to me to a businessman’s understanding that the court should be disposed to. give effect. A businessman who had agreed with his counterparty a contract with 10 specific terms under various headings and then agreed with the same counterparty terms 1-5 under the same headings as before and, as to the rest, that all the terms of the previous contract should apply, would, I think, be surprised to find that “all” should be interpreted so as to mean “all but the arbitration clause”.

17. For a better understanding of the single and two contract cases and reference to standard form terms it is relevant to examine Russell on Arbitration 24 th Edition (2015) which is as under: (See pp. 52-54, 24rd Edn.) “Reference to standard form terms, single and two contract cases. If the document sought to be incorporated is a standard form set of terms and conditions the courts are more likely to accept that general words of incorporation will suffice. This is because the parties can be expected to be more familiar with those standard terms, including the arbitration clause.

In Sea Trade Maritime Corp v. Hellenic Mutual War Risks Association (Bermuda) Ltd, (The “Athena”) No.2 the Court drew a distinction between what is described as a “two contract case”, that is where the arbitration clause is contained in a secondary document which is a contract to which at least one party is different from the parties to the contract in question, and “a single contract case” where the arbitration clause is in standard terms to be found in another document.

Relying on dictum of Bingham LJ in Federal Bulk Carries Inc v. C. Itoh & Co Ltd (The “Federal Bulker”), Langley J stated that: “In principle, English law accepts incorporation of standard terms by the use of general words and, I would add, particularly so when the terms are readily available and the question arises in the context of dealings between established players in a well-known market. The principle, as the dictum makes clear, does not distinguish between a term which is an arbitration clause and one which addresses other issues. In contrast, and for the very reason that it concerns other parties, a “stricter rule” is applied in charterparty/bills of lading cases. The reason given is that the other party may have no knowledge nor ready means of knowledge of the relevant terms. Further, as the authorities illustrate, the terms of an arbitration clause may require adjustment if they are to be made to apply to the parties to a different contract.”

The Court therefore reinforced the distinction between incorporation by reference of standard form terms and of the terms of a different contract, and concluded that in a single contract case general words of incorporation are sufficient, whereas by its nature a two contract case may require specific reference to the other contract, unless the secondary document is stated to be based on standard form terms containing an arbitration agreement. In that case, presumably specific reference to the arbitration clause would not be needed.

As discussed below, this approach has been endorsed in subsequent cases, albeit drawing a slightly different but “material” distinction between incorporation of the terms of a separate contract – standard or otherwise – made between the same parties which are treated as “single contract” cases, even where there is in fact more than one contract; and those where the terms to be incorporated are contained in a contract between one or more different parties which are treated as the “two contract” cases. (Para 2-049)

Extension of the single contract cases. Recently, the courts appear to have extended the “single contract” principle applicable to standard form contracts, where general words of incorporation will suffice, to other types of contract where the same rationale can be said to apply. Thus, if the document sought to be incorporated is a bespoke contract between the same parties, the courts have accepted this as a “single contract” case where general words of incorporation will suffice, even though the other contract is not on standard terms and constitutes an entirely separate agreement.

The rationale for this approach is that the parties have already contracted on the terms said to be incorporated and are therefore even more likely to be familiar with the term relied on than a party resisting incorporation of a standard term. Put another way, if general words of incorporation are sufficient for the latter, they should be even more so for the former. The courts also appear to have accepted as a “single contract” case a situation where the contract referred to is between one of the parties to the original contract and a third party, where the contracts as a whole “were entered into in the context of a single commercial relationship”.(Para 2-050)

[Emphasis Supplied]

18. This Court in M.R. Engineers’ case, which is discussed in detail supra, held the rule to be that an arbitration clause in an earlier contract cannot be incorporated by a general reference. The exception to the rule is a reference to a standard form of contract by a trade association or a professional institution in which case a general reference would be sufficient for incorporation of an arbitration clause. Reliance was placed by this Court on Russell on Arbitration 23 rd Edition (2007) . The development of law regarding incorporation after the judgment in M.R. Engineers requires careful consideration.

It has been held in Habas Sinai Ve Tibbi Gazlar Isthisal Endustri AS v Sometal SAL [2010] EWHC 29 (Comm) that a standard form of one party is also recognized as a ‘single contract’ case. In the said case, it was also held that in single contract cases general reference is enough for incorporation of an arbitration clause from a standard form of contract. There is no distinction that is drawn between standard forms by recognized trade associations or professional institutions on one hand and standard terms of one party on the other. Russell on Arbitration 24 th Edition (2015) also takes note of the Habas’s case.

19. We are of the opinion that though general reference to an earlier contract is not sufficient for incorporation of an arbitration clause in the later contract, a general reference to a standard form would be enough for incorporation of the arbitration clause. In M.R. Engineers this Court restricted the exceptions to standard form of contract of trade associations and professional institutions. In view of the development of law after the judgment in M.R. Engineers’ case, we are of the opinion that a general reference to a consensual standard form is sufficient for incorporation of an arbitration clause. In other words, general reference to a standard form of contract of one party will be enough for incorporation of arbitration clause.

A perusal of the passage from Russell on Arbitration 24th Edition (2015) would demonstrate the change in position of law pertaining to incorporation when read in conjunction with the earlier edition relied upon by this Court in M.R. Engineers’ case. We are in agreement with the judgment in M.R. Engineer’s case with a modification that a general reference to a standard form of contract of one party along with those of trade associations and professional bodies will be sufficient to incorporate the arbitration clause.

20. In the present case, the purchase order was issued by the Appellant in which it was categorically mentioned that the supply would be as per the terms mentioned therein and in the attached standard terms and conditions. The Respondent by his letter dated 15.12.2012 confirmed its acceptance of the terms and conditions mentioned in the purchase order except delivery period. The dispute arose after the delivery of the goods.

No doubt, there is nothing forthcoming from the pleadings or the submissions made by the parties that the standard form attached to the purchase order is of a trade association or a professional body. However, the Respondent was aware of the standard terms and conditions which were attached to the purchase order. The purchase order is a single contract and general reference to the standard form even if it is not by a trade association or a professional body is sufficient for incorporation of the arbitration clause.

21. For the aforementioned reasons, the appeal is allowed and the judgment of the High Court is set aside. Justice Sushil Harkauli is appointed as the Arbitrator to adjudicate the dispute between the parties.

 [S.A. BOBDE]

 [L. NAGESWARA RAO]

New Delhi;

January 05, 2018

Arbitration and Conciliation Act, 1996  

Law Library-

Arbitration and Conciliation act 1996

Preliminary

Part 1 – Arbitration

Chapter I – General provisions
Chapter II – Arbitration agreement
Chapter III – Composition of arbitral tribunal
Chapter IV – Jurisdiction of arbitral tribunals
Chapter V – Conduct of arbitral proceedings
Chapter VI – Making of arbitral award and termination of proceedings
Chapter VII – Recourse against Arbitral Award
Chapter VIII – Finality and Enforcement of Arbitral Awards
Chapter IX – Appeals
Chapter X – Miscellaneous

Part 2-Enforcement of certain Foreign Awards[44-60]

Chapter I – New York Convention Awards
Chapter II – Geneva Convention Awards

Part 3-Conciliation [61-82]

Part 4- Supplementary Provisions

THE FIRST SCHEDULE-THE SECOND SCHEDULE-THE THIRD SCHEDULE-THE -FOURTH SCHEDULE –THE FIFTH SCHEDULE-THE SIXTH SCHEDULE-THE SEVENTH SCHEDULE

The Appointment of Arbitrators by the CJI Scheme 1996

The Arbitration and Conciliation Act, 1996 (“Act”) has been amended by the Arbitration and Conciliation (Amendment) Ordinance, 2015 (“Ordinance”), promulgated by the President of India on October 23, 2015.

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The Arbitration and Conciliation Act, 1996 [ ALL SECTIONS WITH NOTES ] 

[16th August, 1996]

BE it enacted by Parliament in the Forty-seventh Year of the Republic of India as follows:

An Act to consolidate and amend the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards as also to define the law relating to conciliation and for matters connected therewith or incidental thereto.

Preamble.—WHEREAS the United Nations Commission on International Trade Law (UNCITRAL) has adopted the UNCITRAL Model Law on International Commercial Arbitration in 1985; 

AND WHEREAS the General Assembly of the United Nations has recommended that all countries give due consideration to the said Model Law, in view of the desirability of uniformity of the law of arbitral procedures and the specific needs of international commercial arbitration practice; 

AND WHEREAS the UNCITRAL has adopted the UNCITRAL Conciliation Rules in 1980; 

AND WHEREAS the General Assembly of the United Nations has recommended the use of the said Rules in cases where a dispute arises in the context of international commercial relations and the parties seek an amicable settlement of that dispute by recourse to conciliation; AND WHEREAS the said Model Law and Rules make significant contribution to the establishment of a unified legal framework for the fair and efficient settlement of disputes arising in international commercial relations; 

AND WHEREAS it is expedient to make law respecting arbitration and conciliation, taking into account the aforesaid Model Law and Rules;

COMMENT- UNCITRAL was created in 1996 by the UN General Assembly.Since inception it has produced the following documents .

♥ The United Nations Commission on International Trade Law (UNCITRAL) is the core legal body of the United Nations system in the field of international trade law, with a mandate to further the progressive harmonization and unification of the law of international trade.

The New York Convention was prepared by the United Nations prior to the establishment of UNCITRAL in 1969. Nevertheless, promotion of the New York Convention is an integral part of the Commission’s programme of work.

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PRELIMINARY

1. Short title, extent and commencement.

(1) This Act may be called the Arbitration and Conciliation Act, 1996.

(2) It extends to the whole of India:

Provided that Parts I, III and IV shall extend to the State of Jammu and Kashmir only in so far as they relate to international commercial arbitration or, as the case may be, international commercial conciliation.

Explanation—In this sub-section, the expression “international commercial conciliation” shall have the same meaning as the expression “international commercial arbitration” in clause (f) of sub-section (1) of section 2, subject to the modification that for the word “arbitration” occurring therein, the word “conciliation” shall be substituted.

(3)It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint.

COMMENT – Part 2 (NYCA and GCA)  and International arbitration have full application to the State of Jammu & Kashmir, and for this, no additional amendment has been required to the Constitution of Jammu and Kashmir u/s 147  of it.

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Part I

 Arbitration Chapter I General provisions

2. Definitions.—

(1) In this Part, unless the context otherwise requires,

(a)“arbitration” means any arbitration whether or not administered by permanent arbitral institution;

(b)“arbitration agreement” means an agreement referred to in section 7;

(c)“arbitral award” includes an interim award;

(d)“arbitral tribunal” means a sole arbitrator or a panel of arbitrators;

(e)“Court” means—(i) in the case of an arbitration other than international commercial arbitration, the principal Civil Court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit, but does not include any Civil Court of a grade inferior to such principal Civil Court, or any Court of Small Causes;

(ii) in the case of international commercial arbitration, the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit, and in other cases, a High Court having jurisdiction to hear appeals from decrees of courts subordinate to that High Court;

(f)“International commercial arbitration” means an arbitration relating to disputes arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India and where at least one of the parties is—(i) an individual who is a national of, or habitually resident in, any country other than India; or (ii) a body corporate which is incorporated in any country other than India; or (iii) an association or a body of individuals whose central management and control is exercised in any country other than India; or (iv) the Government of a foreign country;

(g)“legal representative” means a person who in law represents the estate of a deceased person, and includes any person who intermeddles with the estate of the deceased, and, where a party acts in a representative character, the person on whom the estate devolves on the death of the party so acting;

(h)“party” means a party to an arbitration agreement.


Scope

(2) This Part shall apply where the place of arbitration is in India:

Provided that subject to an agreement to the contrary, the provisions of sections 27 and clause (a) of sub-section (1) and sub-section (3) of section 37 shall also apply to international commercial arbitration, even if the place of arbitration is outside India, and an arbitral award made or to be made in such place is enforceable and recognised under the provisions of Part II of this Act. 

(3)This Part shall not affect any other law for the time being in force by virtue of which certain disputes may not be submitted to arbitration.

(4)This Part except sub-section (1) of section 40, sections 41 and 43 shall apply to every arbitration under any other enactment for the time being in force, as if the arbitration were pursuant to an arbitration agreement and as if that other enactment were an arbitration agreement, except in so far as the provisions of this Part are inconsistent with that other enactment or with any rules made thereunder.

(5)Subject to the provisions of sub-section (4), and save in so far as is otherwise provided by any law for the time being in force or in any agreement in force between India and any other country or countries, this Part shall apply to all arbitrations and to all proceedings relating thereto.


Construction of reference

(6)Where this Part, except section 28, leaves the parties free to determine a certain issue, that freedom shall include the right of the parties to authorise any person including an institution, to determine that issue.

(7)An arbitral award made under this Part shall be considered as a domestic award.

(8)Where this Part—(a)refers to the fact that the parties have agreed or that they may agree, or (b)in any other way refers to an agreement of the parties,that agreement shall include any arbitration rules referred to in that agreement.

(9)Where this Part, other than clause (a) of section 25 or clause (a) of sub-section (2) of section 32, refers to a claim, it shall also apply to a counterclaim, and where it refers to a defense, it shall also apply to a defense to that counterclaim.

3. Receipt of written communications—

(1)Unless otherwise agreed by the parties,—(a)any written communication is deemed to have been received if it is delivered to the addressee personally or at his place of business, habitual residence or mailing address, and (b)if none of the places referred to in clause (a) can be found after making a reasonable inquiry, a written communication is deemed to have been received if it is sent to the addressee’s last known place of business, habitual residence or mailing address by registered letter or by any other means which provides a record of the attempt to deliver it.

(2)The communication is deemed to have been received on the day it is so delivered.(3)This section does not apply to written communications in respect of proceedings of any judicial authority.

COMMENT: Written communication is the seed of the constitution of any arbitration tribunal and Arbitration proceeding starts with u/s 21 of the Act. U/S 29A an arbitral tribunal shall be deemed to have entered upon the reference on the date on which the arbitrator or all the arbitrators, as the case may be, have received notice.

4. Waiver of right to object.
A party who knows that—(a) any provision of this Part from which the parties may derogate, or

 (b)any requirement under the arbitration agreement,has not been complied with and yet proceeds with the arbitration without stating his objection to such non-compliance without undue delay or, if a time limit is provided for stating that objection, within that period of time, shall be deemed to have waived his right to so object.

5. Extent of judicial intervention.

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

 6. Administrative assistance.

In order to facilitate the conduct of the arbitral proceedings, the parties, or the arbitral tribunal with the consent of the parties, may arrange for administrative assistance by a suitable institution or person.

 

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Chapter II

Arbitration agreement

 7. Arbitration agreement.

(1)In this Part, “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. (2)An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.

(3)An arbitration agreement shall be in writing.

(4)An arbitration agreement is in writing if it is contained in—(a)a document signed by the parties; (b)an exchange of letters, telex, telegrams or other means of telecommunication including communication through electronic means which provide a record of the agreement; or (c)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.

(5)The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.

8. Power to refer parties to arbitration where there is an arbitration agreement.
(1)A judicial authority, before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then, notwithstanding any judgment, decree or order of the Supreme Court or any Court, refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists.

(2) The application referred to in sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof:

Provided that where the original arbitration agreement or a certified copy thereof is not available with the party applying for reference to arbitration under sub-section (1), and the said agreement or certified copy is retained by the other party to that agreement, then, the party so applying shall file such application along with a copy of the arbitration agreement and a petition praying the Court to call upon the other party to produce the original arbitration agreement or its duly certified copy before that Court.

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

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9. Interim measures, etc., by Court.

(1)A party may, 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— (i)for the appointment of a guardian for a minor or person of unsound mind for the purposes of arbitral proceedings; or

(ii)for an interim measure of protection in respect of any of the following matters, namely

(a)the preservation, interim custody or sale of any goods which are the subject-matter     of   the arbitration agreement; 

(b)securing the amount in dispute in the arbitration;

(c)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;

(d)interim injunction or the appointment of a receiver;

(e)such other interim measure of protection as may appear to the Court to be just and convenient,and the Court shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it.

(2)Where, before the commencement of the arbitral proceedings, a Court passes an order for any interim measure of protection under sub-section (1), the arbitral proceedings shall be commenced within a period of ninety days from the date of such order or within such further time as the Court may determine.

(3)Once the arbitral tribunal has been constituted, the Court shall not entertain an application under sub-section (1), unless the Court finds that circumstances exist which may not render the remedy provided under section 17 efficacious.

COMMENT – The Court has limited jurisdiction u/s 7(3) to entertain an application if any special or exceptional circumstances beyond the control of section 17 has not been established. U/S 17 the arbitral tribunal is competent to provide interim measures to an aggrieved party. This section shall be read with section 5 of the act.

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Chapter III

Composition of arbitral tribunal

 10. Number of arbitrators.—

(1) The parties are free to determine the number of arbitrators, provided that such number shall not be an even number. (2) Failing the determination referred to in sub-section (1), the arbitral tribunal shall consist of a sole arbitrator.

11. Appointment of arbitrators.—

(1)A person of any nationality may be an arbitrator, unless otherwise agreed by the parties.

 (2)Subject to sub-section (6), the parties are free to agree on a procedure for appointing the arbitrator or arbitrators.

(3)Failing any agreement referred to in sub-section (2), in an arbitration with three arbitrators, each party shall appoint one arbitrator, and the two appointed arbitrators shall appoint the third arbitrator who shall act as the presiding arbitrator.

(4)If the appointment procedure in sub-section (3) applies and—(a)a party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party; or (b)the two appointed arbitrators fail to agree on the third arbitrator within thirty days from the date of their appointment,the appointment shall be made, upon request of a party, by the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court;

(5)Failing any agreement referred to in sub-section (2), in an arbitration with a sole arbitrator, if the parties fail to agree on the arbitrator within thirty days from receipt of a request by one party from the other party to so agree the appointment shall be made, upon request of a party, by the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court.

(6) Where, under an appointment procedure agreed upon by the parties,—(a)a party fails to act as required under that procedure; or (b)the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or (c)a person, including an institution, fails to perform any function entrusted to him or it under that procedure,a party may request the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.

(6A)The Supreme Court or, as the case may be, the High Court, while considering any application under sub-section (4) or sub-section (5) or sub-section (6), shall,   notwithstanding any judgment, decree or order of any Court, confine to the examination of the existence of an arbitration agreement.

(6B)The designation of any person or institution by the Supreme Court or, as the case may be, the High Court, for the purposes of this section shall not be regarded as a delegation of judicial power by the Supreme Court or the High Court.

(7)A decision on a matter entrusted by sub-section (4) or sub-section (5) or sub-section (6) to the Supreme Court or, as the case may be, the High Court or the person or institution designated by such Court is final and no appeal including Letters Patent Appeal shall lie against such decision.

(8)The Supreme Court or, as the case may be, the High Court or the person or institution designated by such Court, before appointing an arbitrator, shall seek a disclosure in writing from the prospective arbitrator in terms of sub-section (1) of section 12, and have due regard to—(a)any qualifications required for the arbitrator by the agreement of the parties; and(b)the contents of the disclosure and other considerations as are likely to secure the appointment of an independent and impartial arbitrator.

(9)In the case of appointment of sole or third arbitrator in an international commercial arbitration, the Supreme Court or the person or institution designated by that Court may appoint an arbitrator of a nationality other than the nationalities of the parties where the parties belong to different nationalities.

(10)The Supreme Court or, as the case may be, the High Court, may make such scheme as the said Court may deem appropriate for dealing with matters entrusted by sub-section (4) or sub-section (5) or sub-section (6), to it.

(11)Where more than one request has been made under sub-section (4) or sub-section (5) or sub-section (6) to the Chief Justices of different High Courts or their designates, different High Courts or their designates, the High Court or its designate to whom the request has been first made under the relevant sub-section shall alone be competent to decide on the request.

(12)(a)Where the matters referred to in sub-sections (4), (5), (6), (7), (8) and sub-section (10) arise in an international commercial arbitration, the reference to the “Supreme Court or, as the case may be, the High Court” in those sub-sections shall be construed as a reference to the “Supreme Court”; and(b)Where the matters referred to in sub-sections (4), (5), (6), (7), (8) and sub-section (10) arise in any other arbitration, the reference to “the Supreme Court or, as the case may be, the High Court” in those sub-sections shall be construed as a reference to the “High Court” within whose local limits the principal Civil Court referred to in clause (e) of sub-section (1) of section 2 is situate, and where the High Court itself is the Court referred to in that clause, to that High Court.

(13)An application made under this section for appointment of an arbitrator or arbitrators shall be disposed of by the Supreme Court or the High Court or the person or institution designated by such Court, as the case may be, as expeditiously as possible and an endeavour shall be made to dispose of the matter within a period of sixty days from the date of service of notice on the opposite party.

(14)For the purpose of determination of the fees of the arbitral tribunal and the manner of its payment to the arbitral tribunal, the High Court may frame such rules as may be necessary, after taking into consideration the rates specified in the Fourth Schedule.

Explanation.—For the removal of doubts, it is hereby clarified that this sub-section shall not apply to international commercial arbitration and in arbitrations (other than international commercial arbitration) in case where parties have agreed for determination of fees as per the rules of an arbitral institution.

 11A. Power of Central Government to amend Fourth Schedule.—

(1)If the Central Government Government is satisfied that it is necessary or expedient so to do, it may, by notification in the Official Gazette, amend the Fourth Schedule and thereupon the Fourth Schedule shall be deemed to have been amended accordingly.

(2)A copy of every notification proposed to be issued under sub-section (1), shall be laid in draft before each House of Parliament, while it is in session, for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in disapproving the issue of the notification or both Houses agree in making any modification in the notification, the notification shall not be issued or, as the case may be, shall be issued only in such modified form as may be agreed upon by the both Houses of Parliament.

 12. Grounds for challenge (of the appointment of arbitrator)

(1)When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances,(a)such as the existence either direct or indirect, of any past or present relationship with or interest in any of the parties or in relation to the subject-matter in dispute, whether financial, business, professional or other kind, which is likely to give rise to justifiable doubts as to his independence or impartiality; and(b)which are likely to affect his ability to devote sufficient time to the arbitration and in particular his ability to complete the entire arbitration within a period of twelve months.

 Explanation 1.—The grounds stated in the Fifth Schedule shall guide in determining whether circumstances exist which give rise to justifiable doubts as to the independence or impartiality of an arbitrator.

Explanation 2.—The disclosure shall be made by such person in the form specified in the Sixth Schedule.

(2)An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall, without delay, disclose to the parties in writing any circumstances referred to in sub-section (1) unless they have already been informed of them by him.

(3)An arbitrator may be challenged only if—(a)circumstances exist that give rise to justifiable doubts as to his independence or impartiality, or(b)he does not possess the qualifications agreed to by the parties.

(4)A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made.

(5)Notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject-matter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator:

Provided that parties may, subsequent to disputes having arisen between them, waive the applicability of this sub-section by an express agreement in writing.

13. Challenge procedure-( challenge to be made before the tribunal only)

(1)Subject to sub-section (4), the parties are free to agree on a procedure for challenging an arbitrator.

(2)Failing any agreement referred to in sub-section (1), a party who intends to challenge an arbitrator shall, within fifteen days after becoming aware of the constitution of the arbitral tribunal or after becoming aware of any circumstances referred to in sub-section (3) of section 12, send a written statement of the reasons for the challenge to the arbitral tribunal.

(3)Unless the arbitrator challenged under sub-section (2) withdraws from his office or the other party agrees to the challenge, the arbitral tribunal shall decide on the challenge.

(4)If a challenge under any procedure agreed upon by the parties or under the procedure under sub-section (2) is not successful, the arbitral tribunal shall continue the arbitral proceedings and make an arbitral award.

(5)Where an arbitral award is made under sub-section (4), the party challenging the arbitrator may make an application for setting aside such an arbitral award in accordance with section 34.

(6)Where an arbitral award is set aside on an application made under sub-section (5), the Court may decide as to whether the arbitrator who is challenged is entitled to any fees.

COMMENT A party failed to challenge the appointment of the Arbitrator before the same tribunal can challenge the Award passed by it U/S 34.

14. Failure or impossibility to act.

(1)The mandate of an arbitrator shall terminate and he shall be substituted by another arbitrator, if(a)he becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay; and (b)he withdraws from his office or the parties agree to the termination of his mandate.

(2)If a controversy remains concerning any of the grounds referred to in clause (a) of sub-section (1), a party may, unless otherwise agreed by the parties, apply to the Court to decide on the termination of the mandate.

(3)If, under this section or sub-section (3) of section 13, an arbitrator withdraws from his office or a party agrees to the termination of the mandate of an arbitrator, it shall not imply acceptance of the validity of any ground referred to in this section or sub-section (3) of section 12.


15. Termination of mandate and substitution of arbitrator—

(1)In addition to the circumstances referred to in section 13 or section 14, the mandate of an arbitrator shall terminate

(a)where he withdraws from office for any reason; or (b) by or pursuant to agreement of the parties.

(2)Where the mandate of an arbitrator terminates, a substitute arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced.

(3)Unless otherwise agreed by the parties, where an arbitrator is replaced under sub-section (2), any hearings previously held may be repeated at the discretion of the arbitral tribunal.

(4)Unless otherwise agreed by the parties, an order or ruling of the arbitral tribunal made prior to the replacement of an arbitrator under this section shall not be invalid solely because there has been a change in the composition of the arbitral tribunal.

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Chapter IV

Jurisdiction of arbitral tribunals

 16. Competence of arbitral tribunal to rule on its jurisdiction.

(1)The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose,—(a)an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and(b)a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.

 (2)A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of, an arbitrator.

(3)A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings.

(4)The arbitral tribunal may, in either of the cases referred to in sub-section (2) or sub-section (3), admit a later plea if it considers the delay justified.

(5)The arbitral tribunal shall decide on a plea referred to in sub-section (2) or sub-section (3) and, where the arbitral tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and make an arbitral award.

(6)A party aggrieved by such an arbitral award may make an application for setting aside such an arbitral award in accordance with section 34.

COMMENT– The tribunal shall decide its own jurisdiction and the party failed in the question of jurisdiction may challenge the Award u/s 34 for setting aside.


17. Interim measures ordered by arbitral tribunal.

(1)A party may, during the 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 the arbitral tribunal

(i)for the appointment of a guardian for a minor or person of unsound mind for the purposes of arbitral proceedings; or

(ii)for an interim measure of protection in respect of any of the following matters, namely:

(a)the preservation, interim custody or sale of any goods which are the subject-matter of the arbitration agreement;

(b)securing the amount in dispute in the arbitration;

(c)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;

(d)interim injunction or the appointment of a receiver;

(e)such other interim measure of protection as may appear to the arbitral tribunal to be just and convenient,and the arbitral tribunal shall have the same power for making orders, as the court has for the purpose of, and in relation to, any proceedings before it.

(2)Subject to any orders passed in an appeal under section 37, any order issued by the arbitral tribunal under this section shall be deemed to be an order of the Court for all purposes and shall be enforceable under the Code of Civil Procedure, 1908 (5 of 1908), in the same manner as if it were an order of the Court.

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Chapter V

Conduct of arbitral proceedings [CLICK]

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Chapter VI

Making of arbitral award and termination of proceedings

28. Rules applicable to substance of dispute.

(1)Where the place of arbitration is situate in India,—(a)in an arbitration other than an international commercial arbitration, the arbitral tribunal shall decide the dispute submitted to arbitration in accordance with the substantive law for the time being in force in India;

(b)in international commercial arbitration—

(i)the arbitral tribunal shall decide the dispute in accordance with the rules of law designated by the parties as applicable to the substance of the dispute;

(ii)any designation by the parties of the law or legal system of a given country shall be construed, unless otherwise expressed, as directly referring to the substantive law of that country and not to its conflict of laws rules;

(iii)failing any designation of the law under clause (a) by the parties, the arbitral tribunal shall apply the rules of law it considers to be appropriate given all the circumstances surrounding the dispute.

(2)The arbitral tribunal shall decide ex aequo et bono(from equity and conscience) or as amiable compositeur(equity) only if the parties have expressly authorised it to do so.

(3)While deciding and making an award, the arbitral tribunal shall, in all cases, take into account the terms of the contract and trade usages applicable to the transaction.

COMMENT – The concept of amiable compositeur has its historical origins in French law, namely in amicabilis compositor of canon law, who acted rather as conciliator than decision-maker in a dispute, and in dispute settlement through the arbitrator which developed in the second half of the 17th century and who was not bound to apply strict rules of civil procedure and substantive law (ex aequo et bono). The concept was first enacted in the Code Napoleon and the French Code of Civil Procedure of 1806

An arbitrator acting as amiable compositeur is deciding the dispute before him according to law and legal principles, nevertheless is authorized to modify the effect of certain nonmandatory legal provisions. Ex aequo et bono is a dispute settlement out of law, according to moral principles. An arbitrator deciding as ex aequo et bono is allowed to disregard not only the non-mandatory rules, but also the mandatory provisions of law, as long as they respect international public policy (Bühring-Uhle, Ch.: Arbitration and Mediation in International Business, The Netherlands: Kluwer Law Internaitonal, 2006, p. 40 )

However to avoid subjectivity of the arbitrator in the application of equity, the parties may make use of their right to provide the arbitrators with specific criteria for their decision – either by reference to amiable composition developed in a particular legal system, or by referring to some broad notion of fairness, or by including a set of concrete standards to guide the arbitrators in reaching their decisions. This way the arbitrator is guided by what the parties consider to be fair and equitable.

29. Decision making by panel of arbitrators.—

(1) Unless otherwise agreed by the parties, in arbitral proceedings with more than one arbitrator, any decision of the arbitral tribunal shall be made by a majority of all its members.

(2) Notwithstanding sub-section (1), if authorised by the parties or all the members of the arbitral tribunal, questions of procedure may be decided by the presiding arbitrator.

29A. Time limit for arbitral award.—

(1)The award shall be made within a period of twelve months from the date the arbitral tribunal enters upon the reference.

Explanation.—For the purpose of this sub-section, an arbitral tribunal shall be deemed to have entered upon the reference on the date on which the arbitrator or all the arbitrators, as the case may be, have received notice, in writing, of their appointment.

(2)If the award is made within a period of six months from the date the arbitral tribunal enters upon the reference, the arbitral tribunal shall be entitled to receive such amount of additional fees as the parties may agree.

(3)The parties may, by consent, extend the period specified in sub-section (1) for making award for a further period not exceeding six months.

(4)If the award is not made within the period specified in sub-section (1) or the extended period specified under sub-section (3), the mandate of the arbitrator(s) shall terminate unless the Court has, either prior to or after the expiry of the period so specified, extended the period:Provided that while extending the period under this sub-section, if the Court finds that the proceedings have been delayed for the reasons attributable to the arbitral tribunal, then, it may order reduction of fees of arbitrator(s) by not exceeding five per cent. for each month of such delay.

(5)The extension of period referred to in sub-section (4) may be on the application of any of the parties and may be granted only for sufficient cause and on such terms and conditions as may be imposed by the Court.

(6)While extending the period referred to in sub-section (4), it shall be open to the Court to substitute one or all of the arbitrators and if one or all of the arbitrators are substituted, the arbitral proceedings shall continue from the stage already reached and on the basis of the evidence and material already on record, and the arbitrator(s) appointed under this section shall be deemed to have received the said evidence and material.

(7)In the event of arbitrator(s) being appointed under this section, the arbitral tribunal thus reconstituted shall be deemed to be in continuation of the previously appointed arbitral tribunal.

(8)It shall be open to the Court to impose actual or exemplary costs upon any of the parties under this section.

(9)An application filed under sub-section  (5) shall be disposed of by the Court as expeditiously as possible and endeavour shall be made to dispose of the matter within a period of sixty days from the date of service of notice on the opposite party.

29B. Fast track procedure (more speedy procedure within the procedure)

(1)Notwithstanding anything contained in this Act, the parties to an arbitration agreement, may, at any stage either before or at the time of appointment of the arbitral tribunal, agree in writing to have their dispute resolved by fast track procedure specified in sub-section (3).

(2)The parties to the arbitration agreement, while agreeing for resolution of dispute by fast track procedure, may agree that the arbitral tribunal shall consist of a sole arbitrator who shall be chosen by the parties.

(3)The arbitral tribunal shall follow the following procedure while conducting arbitration proceedings under sub-section (1):—

(a)The arbitral tribunal shall decide the dispute on the basis of written pleadings, documents and submissions filed by the parties without any oral hearing;

(b)The arbitral tribunal shall have power to call for any further information or clarification from the parties in addition to the pleadings and documents filed by them;

(c)An oral hearing may be held only, if, all the parties make a request or if the arbitral tribunal considers it necessary to have oral hearing for clarifying certain issues;

(d)The arbitral tribunal may dispense with any technical formalities, if an oral hearing is held, and adopt such procedure as deemed appropriate for expeditious disposal of the case.

(4)The award under this section shall be made within a period of six months from the date the arbitral tribunal enters upon the reference.

(5)If the award is not made within the period specified in sub-section (4), the provisions of sub-sections (3) to (9) of section 29A shall apply to the proceedings.

(6)The fees payable to the arbitrator and the manner of payment of the fees shall be such as may be agreed between the arbitrator and the parties.

30. Settlement.—

(1)It is not incompatible with an arbitration agreement for an arbitral tribunal to encourage settlement of the dispute and, with the agreement of the parties, the arbitral tribunal may use mediation, conciliation or other procedures at any time during the arbitral proceedings to encourage settlement.

(2)If, during arbitral proceedings, the parties settle the dispute, the arbitral tribunal shall terminate the proceedings and, if requested by the parties and not objected to by the arbitral tribunal, record the settlement in the form of an arbitral award on agreed terms.

(3)An arbitral award on agreed terms shall be made in accordance with section 31 and shall state that it is an arbitral award.

(4)An arbitral award on agreed terms shall have the same status and effect as any other arbitral award on the substance of the dispute.

31. Form and contents of arbitral award.—

(1)An arbitral award shall be made in writing and shall be signed by the members of the arbitral tribunal.

(2)For the purposes of sub-section (1), in arbitral proceedings with more than one arbitrator, the signatures of the majority of all the members of the arbitral tribunal shall be sufficient so long as the reason for any omitted signature is stated.

(3)The arbitral award shall state the reasons 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.

(4)The arbitral award shall state its date and the place of arbitration as determined in accordance with section 20 and the award shall be deemed to have been made at that place.

(5)After the arbitral award is made, a signed copy shall be delivered to each party.

(6)The arbitral tribunal may, at any time during the arbitral proceedings, make an interim arbitral award on any matter with respect to which it may make a final arbitral award.

(7)(a)Unless otherwise agreed by the parties, where and in so far as an arbitral award is for the payment of money, the arbitral tribunal may include in the sum for which the award is made interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made.(b)A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of two per cent. higher than the current rate of interest prevalent on the date of award, from the date of award to the date of payment.

Explanation.—The expression “current rate of interest” shall have the same meaning as assigned to it under clause (b) of section 2 of the Interest Act, 1978 (14 of 1978).

(8)The costs of an arbitration shall be fixed by the arbitral tribunal in accordance with section 31A.

Explanation—For the purpose of clause (a), “costs” means reasonable costs relating to—(i)the fees and expenses of the arbitrators and witnesses,(ii)legal fees and expenses,(iii)any administration fees of the institution supervising the arbitration, and(iv)any other expenses incurred in connection with the arbitral proceedings and the arbitral award.

31A- Regime for costs—

(1)In relation to any arbitration proceeding or a proceeding under any of the provisions of this Act pertaining to the arbitration, the Court or arbitral tribunal, notwithstanding anything contained in the Code of Civil Procedure, 1908 (5 of 1908), shall have the discretion to determine—(a)whether costs are payable by one party to another;(b)the amount of such costs; and(c)when such costs are to be paid.Explanation.—For the purpose of this sub-section, “costs” means reasonable costs relating to—(i)the fees and expenses of the arbitrators, Courts and witnesses;(ii)legal fees and expenses;(iii)any administration fees of the institution supervising the arbitration; and(iv)any other expenses incurred in connection with the arbitral or Court proceedings and the arbitral award.

(2)If the Court or arbitral tribunal decides to make an order as to payment of costs,—(a)the general rule is that the unsuccessful party shall be ordered to pay the costs of the successful party; or(b)the Court or arbitral tribunal may make a different order for reasons to be recorded in writing.

(3)In determining the costs, the Court or arbitral tribunal shall have regard to all the circumstances, including—(a)the conduct of all the parties;(b)whether a party has succeeded partly in the case;(c)whether the party had made a frivolous counterclaim leading to delay in the disposal of the arbitral proceedings; and(d)whether any reasonable offer to settle the dispute is made by a party and refused by the other party.

(4)The Court or arbitral tribunal may make any order under this section including the order that a party shall pay—(a)a proportion of another party’s costs;(b)a stated amount in respect of another party’s costs;(c)costs from or until a certain date only;(d)costs incurred before proceedings have begun;(e)costs relating to particular steps taken in the proceedings;(f)costs relating only to a distinct part of the proceedings; and(g)interest on costs from or until a certain date.

(5)An agreement which has the effect that a party is to pay the whole or part of the costs of the arbitration in any event shall be only valid if such agreement is made after the dispute in question has arisen.


32. Termination of proceedings.

(1)The arbitral proceedings shall be terminated by the final arbitral award or by an order of the arbitral tribunal under sub-section (2).

(2)The arbitral tribunal shall issue an order for the termination of the arbitral proceedings where—(a)the claimant withdraws his claim, unless the respondent objects to the order and the arbitral tribunal recognises a legitimate interest on his part in obtaining a final settlement of the dispute,(b)the parties agree on the termination of the proceedings, or(c)the arbitral tribunal finds that the continuation of the proceedings has for any other reason become unnecessary or impossible.

(3)Subject to section 33 and sub-section (4) of section 34, the mandate of the arbitral tribunal shall terminate with the termination of the arbitral proceedings.

33. Correction and interpretation of award; additional award.

(1)Within thirty days from the receipt of the arbitral award, unless another period of time has been agreed upon by the parties(a)a party, with notice to the other party, may request the arbitral tribunal to correct any computation errors, any clerical or typographical errors or any other errors of a similar nature occurring in the award;(b)if so agreed by the parties, a party, with notice to the other party, may request the arbitral tribunal to give an interpretation of a specific point or part of the award.

(2)If the arbitral tribunal considers the request made under sub-section (1) to be justified, it shall make the correction or give the interpretation within thirty days from the receipt of the request and the interpretation shall form part of the arbitral award.

(3)The arbitral tribunal may correct any error of the type referred to in clause (a) of sub-section (1), on its own initiative, within thirty days from the date of the arbitral award.

(4)Unless otherwise agreed by the parties, a party with notice to the other party, may request, within thirty days from the receipt of the arbitral award, the arbitral tribunal to make an additional arbitral award as to claims presented in the arbitral proceedings but omitted from the arbitral award.

(5)If the arbitral tribunal considers the request made under sub-section(4) to be justified, it shall make the additional arbitral award within sixty days from the receipt of such request.

(6)The arbitral tribunal may extend, if necessary, the period of time within which it shall make a correction, give an interpretation or make an additional arbitral award under sub-section (2) or sub-section(5).

(7)Section 31 shall apply to a correction or interpretation of the arbitral award or to an additional arbitral award made under this section.

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Chapter VII

Recourse against Arbitral Award

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Chapter VIII

Finality and Enforcement of Arbitral Awards

35. Finality of arbitral awards.

Subject to this Part an arbitral award shall be final and binding on the parties and persons claiming under them respectively.


36. Enforcement.

(1)Where the time for making an application to set aside the arbitral award under section 34 has expired, then, subject to the provisions of sub-section (2), such award shall be enforced in accordance with the provisions of the Code of Civil Procedure, 1908 (5 of 1908), in the same manner as if it were a decree of the court.

(2)Where an application to set aside the arbitral award has been filed in the Court under section 34, the filing of such an application shall not by itself render that award unenforceable, unless the Court grants an order of stay of the operation of the said arbitral award in accordance with the provisions of sub-section (3), on a separate application made for that purpose.

(3)Upon filing of an application under sub-section (2) for stay of the operation of the arbitral award, the Court may, subject to such conditions as it may deem fit, grant stay of the operation of such award for reasons to be recorded in writing:Provided that the Court shall, while considering the application for grant of stay in the case of an arbitral award for payment of money, have due regard to the provisions for grant of stay of a money decree under the provisions of the Code of Civil Procedure, 1908 (5 of 1908).

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Chapter IX

Appeals

37. Appealable orders.

(1)An appeal shall lie from the following orders (and from no others) to the Court authorised by law to hear appeals from original decrees of the Court passing the order, namely:

(a)refusing to refer the parties to arbitration under section 8;

(b)granting or refusing to grant any measure under section 9;

(c)setting aside or refusing to set aside an arbitral award under section 34.

(2)Appeal shall also lie to a court from an order of the arbitral tribunal—

(a)accepting the plea referred to in sub-section (2) or sub-section (3) of section 16; or

(b)granting or refusing to grant an interim measure under section 17.

(3)No second appeal shall lie from an order passed in appeal under this section, but nothing in this section shall affect or take away any right to appeal to the Supreme Court.

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Chapter X

Miscellaneous

38. Deposits.—

(1)The arbitral tribunal may fix the amount of the deposit or supplementary deposit, as the case may be, as an advance for the costs referred to in sub-section (8) of section 31, which it expects will be incurred in respect of the claim submitted to it:Provided that where, apart from the claim, a counter-claim has been submitted to the arbitral tribunal, it may fix separate amount of deposit for the claim and counter-claim.(2)The deposit referred to in sub-section (1) shall be payable in equal shares by the parties:Provided that where one party fails to pay his share of the deposit, the other party may pay that share:Provided further that where the other party also does not pay the aforesaid share in respect of the claim or the counter-claim, the arbitral tribunal may suspend or terminate the arbitral proceedings in respect of such claim or counter-claim, as the case may be.(3)Upon termination of the arbitral proceedings, the arbitral tribunal shall render an accounting to the parties of the deposits received and shall return any unexpended balance to the party or parties, as the case may be.

39. Lien on arbitral award and deposits as to costs.—

(1)Subject to the provisions of sub-section (2) and to any provision to the contrary in the arbitration agreement, the arbitral tribunal shall have a lien on the arbitral award for any unpaid costs of the arbitration.

(2)If in any case an arbitral tribunal refuses to deliver its award except on payment of the costs demanded by it, the Court may, on an application in this behalf, order that the arbitral tribunal shall deliver the arbitral award to the applicant on payment into Court by the applicant of the costs demanded, and shall, after such inquiry, if any, as it thinks fit, further order that out of the money so paid into Court there shall be paid to the arbitral tribunal by way of costs such sum as the Court may consider reasonable and that the balance of the money, if any, shall be refunded to the applicant.

(3)An application under sub-section(2) may be made by any party unless the fees demanded have been fixed by written agreement between him and the arbitral tribunal, and the arbitral tribunal shall be entitled to appear and be heard on any such application.

(4)The Court may make such orders as it thinks fit respecting the costs of the arbitration where any question arises respecting such costs and the arbitral award contains no sufficient provision concerning them.

40. Arbitration agreement not to be discharged by death of party thereto.—

(1)An arbitration agreement shall not be discharged by the death of any party thereto either as respects the deceased or as respects any other party, but shall in such event be enforceable by or against the legal representative of the deceased.

(2)The mandate of an arbitrator shall not be terminated by the death of any party by whom he was appointed.

(3)Nothing in this section shall affect the operation of any law by virtue of which any right of action is extinguished by the death of a person.

41. Provisions in case of insolvency.—

(1)Where it is provided by a term in a contract to which an insolvent is a party that any dispute arising thereout or in connection therewith shall be submitted to arbitration, the said term shall, if the receiver adopts the contract, be enforceable by or against him so far as it relates to any such dispute.

(2)Where a person who has been adjudged an insolvent had, before the commencement of the insolvency proceedings, become a party to an arbitration agreement, and any matter to which the agreement applies is required to be determined in connection with, or for the purposes of, the insolvency proceedings, then, if the case is one to which sub-section (1) does not apply, any other party or the receiver may apply to the judicial authority having jurisdiction in the insolvency proceedings for an order directing that the matter in question shall be submitted to arbitration in accordance with the arbitration agreement, and the judicial authority may, if it is of opinion that, having regard to all the circumstances of the case, the matter ought to be determined by arbitration, make an order accordingly.

(3)In this section the expression “receiver” includes an Official Assignee.


42. Jurisdiction.

Notwithstanding anything contained elsewhere in this Part or in any other law for the time being in force, where with respect to an arbitration agreement any application under this Part has been made in a Court, that Court alone shall have jurisdiction over the arbitral proceedings and all subsequent applications arising out of that agreement and the arbitral proceedings shall be made in that Court and in no other Court.

43. Limitations.

(1)The Limitation Act, 1963 (36 of 1963), shall apply to arbitrations as it applies to  proceedings in court.

(2)For the purposes of this section and the Limitation Act, 1963 (36 of 1963), an arbitration shall be deemed to have commenced on the date referred to in section 21.

(3)Where an arbitration agreement to submit future disputes to arbitration provides that any claim to which the agreement applies shall be barred unless some step to commence arbitral proceedings is taken within a time fixed by the agreement, and a dispute arises to which the agreement applies, the Court, if it is of opinion that in the circumstances of the case undue hardship would otherwise be caused, and notwithstanding that the time so fixed has expired, may on such terms, if any, as the justice of the case may require, extend the time for such period as it thinks proper.

(4)Where the Court orders that an arbitral award be set aside, the period between the commencement of the arbitration and the date of the order of the Court shall be excluded in computing the time prescribed by the Limitation Act, 1963 (36 of 1963), for the commencement of the proceedings (including arbitration) with respect to the dispute so submitted.

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Part 2-Enforcement of certain Foreign Awards[44-60]

Chapter I – New York Convention Awards
Chapter II – Geneva Convention Awards

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Part III of The Arbitration And Conciliation Act, 1996 [sec 61 t0 81]

Law of Conciliation

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Part IV

 Supplementary Provisions

82. Power of High Court to make rules.

The High Court may make rules consistent with this Act as to all proceedings before the Court under this Act.

83. Removal of difficulties.

(1)If any difficulty arises in giving effect to the provisions of this Act, the Central Government may, by order published in the Official Gazette, make such provisions, not inconsistent with the provisions of this Act as appear to it to be necessary or expedient for removing the difficulty:Provided that no such order shall made be after the expiry of a period of two years from the date of commencement of this Act.

(2)Every order made under this section shall, as soon as may be after it is made, be laid before each Houses of Parliament.

84. Power to make rules.

(1)The Central Government may, by notification in the Official Gazette, make rules for carrying out the provisions of this Act.

(2)Every rule made by the Central Government under this Act shall be laid, as soon as may be, after it is made before each House of Parliament while it is in session, for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification in the rule or both Houses agree that the rule should not be made, the rule shall thereafter have effect only in such modified form or be of no effect, as the case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that rule.

85. Repeal and savings.

(1)The Arbitration (Protocol and Convention) Act, 1937 (6 of 1937), the Arbitration Act, 1940 (10 of 1940) and the Foreign Awards (Recognition and Enforcement) Act, 1961 (45 of 1961) are hereby repealed.(2)Notwithstanding such repeal,(a)the provisions of the said enactments shall apply in relation to arbitral proceedings which commenced before this Act came into force unless otherwise agreed by the parties but this Act shall apply in relation to arbitral proceedings which commenced on or after this Act comes into force;(b)all rules made and notifications published, under the said enactments shall, to the extent to which they are not repugnant to this Act, be deemed respectively to have been made or issued under this Act.

86. Repeal and saving.

(1)The Arbitration and Conciliation (Third) Ordinance, 1996 (Ord. 27 of 1996) is hereby repealed.(2)Notwithstanding such repeal, any order, rule, notification or scheme made or anything done or any action taken in pursuance of any provision of the said Ordinance shall be deemed to have been made, done or taken under the corresponding provisions of this Act.

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THE FOURTH SCHEDULE

See section 11(14)     

Sum in dispute Model fee
Up to Rs. 5,00,000 Rs. 45,000
Above Rs. 5,00,000 and up to Rs. 20,00,000 Rs. 45,000 plus 3.5 per cent. of the claim amount over and above Rs. 5,00,000
Above Rs. 20,00,000 and up to Rs. 1,00,00,000 Rs. 97,500 plus 3 per cent. of the claim amount over and above Rs. 20,00,000
Above Rs. 1,00,00,000 and up to Rs. 10,00,00,000 Rs. 3,37,500 plus 1 per cent. of the claim amount over and above Rs. 1,00,00,000
Above Rs. 10,00,00,000 and up to Rs. 20,00,00,000 Rs. 12,37,500 plus 0.75 per cent. of the claim amount over and above Rs. 1,00,00,000
Above Rs. 20,00,00,000 Rs. 19,87,500 plus 0.5 per cent. of the claim amount over and above Rs. 20,00,00,000 with a ceiling of Rs. 30,00,000

Note:- In the event, the arbitral tribunal is a sole arbitrator, he shall be entitled to an additional amount of twenty-five per cent. on the fee payable as per the table set out above.

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THE FIFTH SCHEDULE

(See section 12 (1)(b)

The following grounds give rise to justifiable doubts as to the independence or impartiality of arbitrators :Arbitrator’s relationship with the parties or counsel(1)The arbitrator is an employee, consultant, advisor or has any other past or present business relationship with a party.(2)The arbitrator currently represents or advises one of the parties or an affiliate of one of the parties.(3)The arbitrator currently represents the lawyer or law firm acting as counsel for one of the parties.(4)The arbitrator is a lawyer in the same law firm which is representing one of the parties.(5)The arbitrator is a manager, director or part of the management, or has a similar controlling influence, in an affiliate of one of the parties if the affiliate is directly involved in the matters in dispute in the arbitration.(6)The arbitrator’s law firm had a previous but terminated involvement in the case without the arbitrator being involved himself or herself.(7)The arbitrator’s law firm currently has a signifi