ARBITRATION KEY ASPECTS

The law relating to Arbitration is contained in the Arbitration and Conciliation Act, 1996. It came into force on the 25th day of January 1996. This Act is of consolidating and amending nature and is not exhaustive. But it goes much beyond the scope of its predecessor, the 1940 Act. It provides for domestic Arbitration and also enforcement of foreign arbitral awards. It also contains the new feature on conciliation. It proceeds on the basis of the UN Model Law so as to make our law accord with the Law adopted by the United Nations Commission on International Trade Law (UNICITRAL).

OBJECTIVES

to comprehensively cover international commercial arbitration and conciliation as also domestic arbitration and conciliation. 2. to make provision for an arbitral procedure which is fair, efficient and capable of meeting the needs of the specific arbitration 3. to provide that the Arbitral tribunal gives reasons for its arbitral award. 4. to ensure that the Arbitral tribunal remains within the limits of its jurisdiction. 5. to minimize the supervisory role of courts in the arbitral process. 6. to permit an Arbitral Tribunal to use mediation conciliation or other procedure during the arbitral proceedings to encourage the settlement of disputes. 7. to provide that every final arbitral award is enforced in the same manner as if it were the decree of the court. 8. to provide that a settlement agreement reached by the parties as a result of conciliation proceedings will have the same status and effect as an arbitree award on agreed terms on the substance of the dispute rendered by an Arbitral Tribunal; and 9. to provide that, for purposes of enforcement of foreign awards, every arbitral award made in a country to which one of the two international conventions relating to foreign arbitral awards to which India is a party applies will be treated as a foreign award.

2.Definitions
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;

2.Definitions
(h) "party" means a party to an arbitration agreement.

Arbitration agreement
7.Arbitration agreement.- (1) In this Part, "arbitration agreement" means an agreement by the partie 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 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.

Incorporation by reference
The principles regarding incorporation of arbitration clause by reference has been summarised in M.R. Engineers and Contractors Pvt. Ltd. Vs. Som Datt Builders Ltd. [(2009) 7 SCC 696] as under: An arbitration clause in another document, would get incorporated into a contract by reference, if the following conditions are fulfilled : The contract should contain a clear reference to the documents containing arbitration clause; the reference to the other document should clearly indicate an intention to incorporate the arbitration clause into the contract; 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. General reference not helpful. Must be specific. If referring contract states in terms of execution and performance arbitration agreement does not follow. However, if it specifies a section of another contract, for e.g. General Conditions to a Contract and such Conditions, contain an arbitration agreement, then there is an incorporation by reference.

8.Power to refer parties to arbitration where there is an arbitration agreement

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 so applies not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration. (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. (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.

 Under the new provisions (S.8) of the 1996 Act, the requirements of stay application and of an order for reference to arbitration were stated by the Supreme Court in P Anand Gajapati Raju v PVG Raju as follows: 1. there must be an arbitration agreement 2. a party to an agreement brings an action to the court against the other party, 3. the subject matter of the action is the same as the subject matter of the arbitration agreement. 4. the other party moves the court for referring the parties to arbitration before submitting the first statement on the substance of the dispute.

9.Interim measures etc.by Court

9.Interim measures etc.by Court.- 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 or 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.

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
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.

When Party fails to appoint!

(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 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 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 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 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.

Failing any agreement

(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 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 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.

(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 qualifications required of 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.

Employee arbitrators
Generally, in government contracts arbitration by employee of the government/ statutory bodies/public sector undertakings, is provided. Are employee arbitrators neutral? In Indian Oil Corporation Ltd. and Ors. Vs. Raja Transport [(2009) 8 SCC 520], the Supreme Court held that a senior office of the government body who has nothing to do with execution of the contract are independent and impartial and not barred from functioning as arbitrators merely because their employer is a party to the contract. However, Court suggests that it would be appropriate if governments/public sector reconsider policy of providing for arbitration by employee arbitrators in deference to the specific provisions of the Act which requires independence and impartiality

(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 subsection (6) to him. (11) Where more than one request has been made under sub-section (4) or subsection (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 subsection shall be construed as a reference to, the Chief Justice of the High Court within whose local limits the principal Civil Court referred to in clause (e) of subsection (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

12.Grounds for challenge

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 likely to give rise to justifiable doubts as to his independence or impartiality. (2) An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall, without delay, disclose to the parties in writing anya 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.

13.Challenge Procedure
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 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 subsection (5), the Court may decide as to whether the arbitrator who is challenged is entitled to any fees.

34.Application for setting aside arbitral award

To be read from the Act in detail. DIFFERENCE BETWEEN (s. 20)SEAT AND VENUE../ with respect to the Judgements in excel sheet.

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.- Where the time for making an application to set aside the arbitral award under award shall be endorsed under the Code of Civil Procedure, 1908 (5 of 1908) in the same manner as if it were a decree of the Court

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) granting or refusing to grant any measure under section 9: (b) 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 taken away any right to appeal to the Supreme Court

Writ remedy
Writ remedy is not a routine jurisdiction but an extraordinary jurisdiction meant for an extraordinary purpose. In contractual matters, the courts are reluctant to exercise their writ jurisdiction. However, even in contractual matters the State and its instrumentalities are duty bound to act fairly and reasonably. If the impugned act of the State is arbitrary or unfair or unreasonable a writ is maintainable. [Kumari Shrilekha Vidyarthi vs. State of U.P. and Ors. ,(1991) 1 SCC 212] Writ petition may not be an appropriate remedy when disputed questions of facts are involved and the parties are required to lead evidence. [Mrs. Sanjana M. Wig Vs. Hindustan Petro Corporation Ltd, (2005) 8 SCC 242.] Existence of arbitration clause in an agreement is normally a bar to the exercise of Writ Jurisdiction, however, not an absolute bar. There are certain exceptions where the writ jurisdiction can be invoked even in the presence of arbitration clause. Facts and circumstances test. Examples of effective use of writ remedy in projects

Governing law of arbitration

Dispute referred to international commercial arbitration can be subject to three different laws. Landmark judgment: National Thermal Power Corporation Vs. The Singer Company and others [(1992)3SCC551], 1. Proper law Law governing the substantive contract 2. Law governing the construction and validity of the arbitration agreement Law governing the agreement to arbitrate and the performance of that agreement. 3. Procedural law of arbitration Law governing the conduct of the arbitration. In majority of cases, all three will be the same. But (1) will often be different from (2) and 3), and rarely, (2) may also differ from (3). Where parties fail to choose the law governing the arbitration proceedings, it would be the country where the arbitration is held (seat). Seat not to be confused with venue of arbitration.

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 in section 21. (3) Where an arbitration agreement to submit further 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

Foreign Arbitral Awards Part 1 applies to domestic arbitrations while Part II to foreign arbitrations. Constitution In Bhatia International and Venture Global, Supreme Court had effectively held that for international commercial arbitrations, when a party sought to enforce an award under Part II, Indian courts would have jurisdiction and Part I would also apply. Thus, problematic features of Part I are now incorporated into foreign arbitrations which fall under Part II. Routine challenges to foreign awards. In Bharat Aluminum Co. v. Kaiser Aluminum Technical Service Inc. [2012 (8) SCALE 333] prospectively overruled the judgment in Bhatia International and Venture Global. The principles enunciated in Bharat Aluminum are as follow: Part I is not applicable to international commercial arbitration held outside India. However, Part I would apply to international commercial arbitrations held in India. In international commercial arbitrations held outside India, interim relief cannot be granted by Indian courts under Section 9 or any other provision of the Act. Section 34 would apply only if the seat of arbitration is in India.

Foreign Arbitral Awards Enforcement of awards rendered in international commercial arbitration held outside India would only be subject to the jurisdiction of the Indian courts when such award are sought to be enforced in India in accordance with the provisions contained in Part II of the Act. The seat of arbitration will decide the applicable law of arbitration. The venue of arbitration may change, but it will have no effect on the seat of arbitration. The seat of the arbitration remains the place initially agreed by or on behalf of the parties. Bharat Aluminium to apply only post 06.09.2012. Therefore, any application for relief under Section 9 or 34 in respect of foreign seated arbitration will continue to be governed by the Bhatia principle. If existing international arbitration agreements are pre 06.09.2012, advisable to have them amended.

Enforcement of foreign award

Foreign awards under New York and Geneva Convention can be enforced under the Part II of the Act. Foreign award cannot be set aside. The Indian courts may only enforce it or refuse to enforce it. Conditions for enforcement: The award must satisfy the definition of foreign award under section 44 (for New York Convention) and section 53 (for Geneva Convention). A party applying for enforcement of a foreign award must produce before the court: Original award or a copy of the award duly authenticated . Original arbitration agreement or certified copy thereof. Such other evidence as may be necessary to prove that the award is a foreign award.

Enforcement of foreign award

Enforcement can be refused on following grounds:
Incapacity No proper notice of appointment of arbitrator or arbitral proceedings Arbitral award outside the scope of the agreement Composition of arbitral tribunal or procedure not in accordance with agreement of the parties Award not yet binding on the parties or has been set aside by a competent court of another country. Court finds that subject matter of dispute is not capable of settlement by arbitration under the law or arbitral award is in conflict with public policy of India

Enforcement of foreign award

A foreign award cannot be assailed on merits. [Glencore Grain Rotterdam B.V. Vs. Shivnath Rai Harnarain [2008 (4) ARBLR 497 (Delhi)] Once the court determines that a foreign award is enforceable it can straightaway be executed as a decree. No separate application is required to convert the judgment into a decree. [M/s. Fuerst Day Lawson Ltd. vs. Jindal Exports Ltd. (2001) 6 SCC 356]

Consumer Protection vs. Arbitration with respect to Insurance Companies

District Fora should decide the claim of insurance on merit instead of referring the matter to arbitrator - 2005(1) CPC 10 N.C. Existence of arbitration clause in the insurance policy cannot oust the jurisdiction of Consumer Forum - 1997(1) CPC 288 H.P. Insurance claim settled at Rs. 5228181 with cost by arbitration - Interferences with the order is barred in view of Section of Arbitration Act - 2007(2) CPC 366 N.C. Provisions of Arbitration Act, 1996 should be resorted to for enhancement of insurance claim if provided in policy 1997(1) CPC 245 N.C. (DISCUSS OTHER CASES MENTIONED IN EXCEL SHEET)

DRAFTING ARBITRATION CLAUSES

The parties should decide between institutional and ad hoc arbitration. Benefits? The parties should select a set of arbitration rules and use the model clause recommended for these arbitration rules as a starting point. In the absence of special circumstances, the arbitration clause should be broadly worded. The scope of dispute subject to arbitration should not be limited. The parties should select the seat of arbitration practical and juridical factors. Despite Bharat Aluminium, better to expressly exclude Part I if intention is for the same not to apply. The parties should specify the number of arbitrators impact on overall cost, duration and the quality of the arbitral proceedings. The parties should specify the method of selection and replacement of arbitrators and, when ad hoc arbitration is chosen, should select an appointing authority.

 Where applicable, time limits for each event, for e.g. nominating arbitrator, should be specified. The parties should specify the language of arbitration. Language of documentation, effect of choice on arbitrators/counsel must be considered. The parties should indicate the rules of law governing the contract, venue, seat of arbitration, etc. Alternative dispute resolution mechanisms such as conciliation, DRBs, expert determination, etc. should be clearly specified. Parties may consider specifying the powers of the arbitral tribunal to grant interim relief.

 The clause should specify a period of time for negotiation or mediation, triggered by a defined and undisputable event (i.e. a written request), after which either party can resort to arbitration. The clause should avoid the trap of rendering arbitration permissive, not mandatory. This happens when the parties provide that disputes not resolved by negotiation or mediation may be submitted to arbitration. The clause should define the disputes to be submitted to negotiation or mediation and to arbitration in identical terms. Disputes which are not intended to be subjected to mediation / conciliation should be explicitly mentioned.

 The clause should address the consequences of the multiplicity of parties for the appointment of the arbitral tribunal. In a multiparty context, it is often not workable to provide that 'each party' appoints an arbitrator. The clause should address the procedural complexities (intervention, joinder) arising from the multiplicity of parties.

 It is common for a single international transaction to involve several related contracts. Drafting arbitration clauses in a multi-contract setting presents specific challenges. Expert advice should be taken before drafting such clauses. The arbitration clauses in the related contracts should be compatible.

The parties should consider whether to provide for consolidation of arbitral proceedings commenced under the related contracts.

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