THE ARBITRATION

AND
CONCILIATION ACT,
1996
(A ct No. 26 of 1996)

WITH
ALTERNATIVE MEANS OF SETTLEMENT
OF DISPUTES

By
Dr. S.C. TRIPATHI
B.Sc., M.A., LL.M., P.G.D.P.M., D.Phil. (Law)
Advocate, High Court, Allahabad

SIXTH EDITION
2012

CENTRAL LAW PUBLICATIONS

107, DARBHANGA CASTLE, ALLAHABAD
ISBN : 978-93-81292-90-7

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 P R E F A C E TO T H E S IX TH E D IT IO N

The International Community as well as national community with the

view to resolve commercial disputes rather civil disputes had introduced
arbitration law alongwith making provisions of conciliation. Now, it is
regarded as an omnipotent universal tool to seek early and economical
settlement of disputes by means o f an agreement between disputing parties.
The current edition of this book contains topics such as London Court
of International Arbitration, Meaning of Arbitration, Guarantor—when not a
party to agreement, meaning o f word ‘court’ in case of intentional arbitration
an ouster of jurisdiction can not be implied, company is a party to
arbitration agreement, meaning of party to an agreement, Giving of arbitral
award without a dispute. An arbitration agreement is binding. Plea of
non-existence of arbitration agreement, Granting of interim
injunction—when can be, shifting of seat of international commercial
arbitration, Power of Chief Justice and bar of principle of Res-judicata,
Appointment of arbitrator and power of Indian Council of Arbitration,
Survival of arbitration clause itself is arbitrable. Before appointing an
arbitrator—what issues to be decided? Appointment of Government servant
as an arbitrator by Government, once authority refuses to appoint
arbitrator—He loses said power, Arbitral Tribunal—whether have the status
of a Civil Court, concept of public policy "Fraud" in making of arbitral
award, power o f arbitral Tribunal to award interest, Limitation Act, 1963
qua application under Section 34, what amounts to judicial misconduct and
enforceability of international arbitral award, have been discussed vividly
and placed at relevant context.
It is expected that this edition after incorporation of these latest
topics/sub-topics would be useful for the students fraternity at large.
Further, the concept of Lok Adalat, Award of Lok Adalat is a decree and
settlement of matrimonial dispute by Lok Adalat have also been added in
this edition.
—AUTHOR
 CONTENTS

INTRODUCTION
Page
Salient Features of the Arbitration and Conciliation Act, 1996 ... 2
1. A Comprehensive Statute ... 2
2. An Explanatory Code ... 2
3. Curtailment of the Courts’ Powers ... 2
4. Procedure for Conduct of Arbitration and Awards
in detail ... 3
5. Precised Powers of the Court ... 3
6. Powers o f the Arbitrators enhanced ... 3
7. A new form of Conciliation ... 3
8. International applicability ... 3
Scope of Arbitration Law in India ... 4
Whether the arbitration clause is a part of contract ... 5
Bill on the Law of Arbitration and Conciliation ... 5
Statement of Objects and Reasons ... 6
The Arbitration Act, 1940 has become outdated—
Object o f the present Act ... 7
Arbitration Act, 1996 should be interpreted keeping in mind
the UNCITRAL Model Law ... 8
Composition of the Arbitration and Conciliation Act, 1996 ... 9
Part I—Arbitration ... 9
Part II— Enforcement of Certain Foreign Awards ... 9
Part III— Conciliation ... 9
Part IV—Supplementary Provisions ... 9
Difference between Arbitration Act, 1940 and Arbitration
and Conciliation Act, 1996 ... 10
London Court of International Arbitration (LCIA) ... 10
Origin—Setting up Committee ... 11
Formation of Tribunal ... 11
Inauguration of Chamber ... 11
Re-naming of tribunal ... 11
Joining o f other bodies ... 11
Current Operation ... 12
Functions ... 12
Member 1 to 35 from 6 are of U.K. Nationality ... 12
( vii)
v iiL '' THE ARBITRATION A N D CONCILIATION ACT, 1996

Page

Procedure ... 12
"GIST" o f LCIA ... 12

THE ARBITRATION A N D C O N C IL IA T IO N ACT, 1996

Preamble ••• 14
Consolidating and Amending Act ... 14
Consolidating Act ... 15
Amending Acts ... 15
How far is previous law relevant ... 16
The provisions of 1996 Act are to be interpreted without any
influence of 1940 Act ... 17
(1) Render assistance in interpretation of statute—
Legitimacy of ... 17
(2) Whether the preamble is referable ... 17
(3) For ascertaining the intention of the Legislature ... 17
(4) Ambiguity in statute, preamble may be examined to
determine its purpose and object ... 18
(5) Use of Preamble ... 18
(6) Purpose of Preamble ... 18
(7) Two propositions regarding Preamble ... 18
(8) Preamble is not the source of any substantive power ... 19
(9) Preamble may be used to remove ambiguity ... 19
(10) Where enacting part of the Act is ambiguous—
Preamble can be referred ... 19
(11) No reference of dispute to arbitrator by intervention
of the court ... 20
(12) Provisions of the new Act held to be intra vires and
not arbitrary ... 20

PRELIMINARY
Section
1. Short title, extent and commencement ... 21
(i) Interpretation of explanation ... 22
(ii) Explanation is a part of the section to which it is
appended ... 22
(iii) Explanation added to clarify certain ambiguities ... 22
(iv) In spite of many clauses in a section only one
explanation may be provided ... 22
(v) Test to determine the request for reference—Made
before passing of the Act, 1996 ... 23
CONTENTS ix

Section Page

PART I
ARBITRATION
Chapter I
General provisions
2. Definitions ... 24
(i) All statutory definitions must be read subject to
qualification ... 26
(ii) Interpretation of definition ... 26
(iii) Interpretation of definition—Principle of ... 26
(iv) Words defined to have same meaning unless the
context otherwise requires ... 26
(v) Popular meaning of words should be taken ... 27
(vi) All statutory definitions have to be read subject to the
qualification variously expressed in the definition ... 27
(vii) Reference to dictionary meaning—Permissibility o f ... 27
Definition of—
(a) Arbitration ... 28
(b) Arbitration Agreement ... 31
(c) Arbitral Award ... 39
(d) Arbitral Tribunal ... 44
(e) Court ... 46
(f) International Commercial Arbitration ... 48
(g) Legal Representative ... 53
(h) Party ... 55
Section 2(2).—Scope ... 56
Construction of References ... 59
3. Receipt of written communications ... 60
4. Waiver of right to object ... 61
(i) Expression "Waiver"—Meaning of ... 62
(ii) Failure to raise objection within prescribed time—
Amounts to "waiver" of right ... 62
(iii) Conditions necessary when aparty waives his right ... 62
(iv) Attending arbitration proceedings under protest does
not amount to waiver of right ... 63
(v) When the principle of waiver would not apply in
arbitration proceedings ... 64
Party taken benefit under award, cannot challenge
the same ... 64
5. Extent of judicial intervention ... 64
(i) Whether revisional jurisdiction of the High Court
taken away ... 65
X THE ARBITRATION AND CONCILIATION ACT, 1996

Section Page

(ii) Judicial intervention in arbitration proceedings—

Extent of ... 66
(iii) Expression "Judicial Authority"—Its meaning and
scope ... 66
6. Administrative assistance ... 66

Chapter II
Arbitration Agreement
7. Arbitration agreement ... 67
(i) Term "agreement"— Connotation of ... 68
(ii) Form of an arbitration agreement ... 69
(iii) What constitutes an "arbitration agreement" ... 69
(iv) Oral arbitration agreement is not recognised ... 71
(v) Genuineness of agreement—Initial burden o f proving ... 71
(vi) Existence o f arbitration agreement—inference of ... 71
(vii) Existence of arbitration agreement established ... 72
(viii) Existence of arbitration agreement—inference as to
can be drawn from letters/faxes etc. ... 72
(ix) Plea of non-existence of arbitration agreement—when
not available ... 73
(x) An arbitration agreement is not necessarily to be
signed by both the parties ... 73
(xi) Arbitrable Disputes ... 74
(xii) Arbitration Award given without a dispute between
the parties is Nullity ... 75
(xiii) Arbitration clause may subsist even on full and final
settlement of the claim/bill ... 76
(xiv) Arbitration clause—providing that "Any Dispute
between the parties shall be referred to arbitration" ... 77
(xv) Whether mutuality is required to constitute a valid
arbitral agreement ... 77
(xvi) Arbitration agreement relating to either present or
future disputes ... 80
(xvii) Arbitration clause under the Government contract ... 81
(xviii) Whether the parties of a firm can enter into the
arbitration agreement ... 83
(xix) Memorandum of understanding-does not constitute
arbitration clause ... 85
(xx) Arbitration agreement held to be valid, requiring
two arbitrators to appoint third arbitrator ... 85
(xxi) Agreement requires arbitrator’s appointment ... 86
(xxii) In absence o f arbitration agreement—No intervention
by the court 86
CONTENTS xi

Section - Page

(xxiii) The clause was not an arbitration clause ... 87

(xxiv) Vagueness in arbitration clause ... 87
(xxv) When provision for arbitration constitute an
arbitration agreement—two conditions necessary ... 87
(xxvi) Arbitration agreement of enlargement of scope
of dispute ... 87
(xxvii) Judicial Authority would have jurisdiction to go
into said question in certain circumstances - ... 88
(xxviii) Validity of clause of arbitration agreement—
Imposing condition of depositing 10% of amount
claimed ... 88
(xxix) Arbitration Agreement is Binding ... 91
(xxx) "Guarantor" to arbitration agreement—There is no
arbitration agreement ... 91
8. Power to refer parties to arbitration where there is an
arbitration agreement ... 91
(i) Expression ‘Party’ under Section 8— Meaning of ... 93
(ii) Applicability of Section 8— Obligatory for the Court
to refer parties to arbitration in terms of arbitration
agreement ... 93
(iii) Nature o f Section 8 ... 93
(iv) Expression "first statement on the substance of the
dispute"—Meaning of ... 94
(v) Beneficiary cannot be prevented from invoking
Bank Guarantee ... 94
(vi) Judicial authority under obligation to refer the
parties for arbitration ... 94
(vii) No appointment of an arbitrator through court ... 95
(viii) Death of named arbitrator—In such eventuality
court can appoint arbitrator ... 95
(ix) Question regarding winding up of the company
cannot be referred to arbitration ... 95
(x) Arbitral proceedings and legal proceedings to be
continued concurrently ... 96
(xi) Civil Procedure—Arbitrability o f subject matter
of suit ... 96
(xii) When complaint can be sued before consumer
forum—contract containing arbitration clause ... 97
(xiii) Mortgage suit—Limitation qua Reference to Dispute
for Arbitration ... 97
(xiv) Pendency o f application under Section 8 in any suit—
Does not bar appointment of arbitrator under
Section 11 ... 98
XII THE ARBITRATION AND CONCILIATION ACT, 1996

Section Page

(xv) Non-existence of a valid arbitration agreement—

High Court cannot pass a decree in termsof award ... 98
(xvi) Submission of first statement not a bar on the court
referring the parties to arbitration ... 99
(xvii) Application under Section 8 without certified copy
of agreement ... 99
(xviii) Filing of application under Section 8—No time
limit prescribed ... 100
(xix) On what grounds stay of legal proceedings may
be refused ... 100
(xx) Stay proceeding should be disposedof expeditiously ... 100
(xxi) Reference made during repeal of the Arbitration
Act, 1940— Effect of ... 101
(xxii) Reference of dispute to arbitration—Difference
between Section 34 of the Arbitration Act, 1940 and
Section 8 of the New Act, 1996 ... 101
(xxiii) Reference to arbitration cannot be made— Contract
for supply o f goods ... 102
(xxiv) Reference o f dispute for arbitration improper ... 102
(xxv) Reference— Maintainability of application ... 102
(xxvi) No provision in the Act for splitting the cause
or parties ... 103
(xxvii) Suspension of supply of petroleum products to the
respondent dealer—whether dispute is covered by
arbitration clause ... 103
(xxviii) Arbitrable dispute—when jurisdiction of the civil
court not ousted ... 104
(xxix) International commercial arbitration—Section 8 of
the Act has no application ... 104
9. Interim measures etc. by Court ... 105
(i) Interim measures by court ... 106
(ii) Granting of interim injunction—When can be ... 106
(iii) Proceeding under Section 9 of the Act is maintainable
only between the parties to arbitrationagreement ... 107
(iv) Power of the Court to pass interim order—Principle
applicable for ... 107
(v) Granting of interim injunction order— what factors
to be taken in consideration ... 107
(vi) Invoking o f Section 9 in matter relating to
Bank Guarantee ... 108
(vii) Encashment of Bank Guarantee— When Arbitration
proceedings pending ... 108
(viii) Granting of Interim Injunction/Interim measure ... 109
CONTENTS xiii

Section Page

(ix) Interim Order may be made even before

commencement of arbitration proceedings ... 109
(x) Interim Protection order—Statutory discretion
under Section 9(ii)(b) to be exercised judicially ... 109
(xi) "Interim relief'— Order passed by the Court should
fall within the meaning of expression "an interim
measure of protection" as distinguished from all
time or permanent protection ... 110
(xii) No injunction granted—When the plaintiff has
already invoked the remedy available ... Ill
(xiii) Hire purchase agreement— Owner was well within
its right to resort to arbitration in terms of
arbitration clause in agreement. ... Ill
(xiv) Power to grant interim relief—Court is not bound
by limits of Order 39, Rules 1 and 2 o f C.P.C. ... 112
(xv) Sale of iron ore—Totally restraining appellant is
not proper ... 112
(xvi) Restitution of conjugal rights—Burden on non­
applicant to show the cause for withdrawal from
society of applicant ... 113
(xvii) No Specific Provision for Payment o f Court-fees
under the Act o f 1996 ... 113
(xviii) Existence of arbitration clause—photocopies of
original agreements can be taken on record ... 114
(xix) Release of outstanding dues cannot be granted by
way of interim relief ... 114
(xx) Joint business under a Trade Mark—when order
of injunction sustainable ... 114
(xxi) International Commercial Arbitration—Seat of
Arbitration— Shifting by Consent of Parties ... 115

Chapter III
Composition O f Arbitral Tribunal
10. Number of arbitrators ... 116
(i) Who is "arbitrator"? ... 117
(ii) Freedom to determinenumber of arbitrators ... 117
(iii) Court may make appointment if the parties do not
concur 118
\(iv) Agreement providingfor twoarbitrators ... 118
(y) Party entitled to invoke arbitration clause—
When can be ... 118
11. Appointment of arbitrators ... 118
fi) Legislative intention ... 122
XIV THE ARBITRATION A N D CONCILIATION ACT, 1996

Section Page

(ii) Phrase "failing any agreement"—What it

contemplates ... 122
_ (iii) Appointment of an arbitrator by an ex-officio
designated official ... 123
(iv) Appointment of arbitrator—Power of Indian Council
of Arbitration ... 123
(v) Arbitrator to be independent and impartial person ... 123
(vi) Before appointing an arbitrator—what issues to
be decided? ... 125
(vii) Proceedings for appointment of arbitrator under
Section 11 has a very narrow scope ... 125
(viii) No assumption as to failure to arbitrate properly ... 126
(ix) International commercial arbitration—appointment
of arbitrator ... 126
(x) International commercial arbitration—Existence of
arbitration agreement ... 126
(xi) Appointment o f arbitrator qua International
Commercial Agreement ... 127
(xii) International Commercial arbitration agreement—
Arbitration clause alleged to have been obtained by
fraud—Arbitrator cannot be appointed ... 127
(xiii) International arbitration—When, provisions of
Section 11(6) does not apply ... 128
(xiv) International commercial arbitration—Nationality
of arbitrator ... 128
(xv) Foreign award—when application under Section 11(6)
of the Act, 1996—Not maintainable ... 129
(xvi) Appointment of sole arbitrator—When it can be made... 129
(xvii) Word "May" in Section 11(9) is taken as "shall" ... 130
(xviii) Order passed under Section 11(6) is administrative
remedy ... 130
(xix) Order passed under Section 11(6) cannot be
challenged under Article 136 of the Constitution ... 131
(xx) Right to make appointment of arbitrator is not
forfeited— When, Appointment has not been made
within 30 days of denial ... 131
(xxi) Objection as to nationality of arbitrator ... 132
(xxii) Government contracts—Appointment of an arbitrator
by a ‘Designated person’ ... 132
(xxiii) Appointment of arbitrator— Order of the Chief Justice
or his designate under Section 11 is a Judicial order? ... 134
(xxiv) Precondition for exercise of power—Appointment of
arbitrator ... 137
CONTENTS xv

Section Page

(xxv) Appointment of arbitrator, when the procedure is

not provided by agreement between parties ... 138
(xxvi) Order made by judge designated by the Chief Justice
for appointment of arbitrator—Whether writ petition
is maintainable against ... 139
(xxvii) Power of Chief Justice/his Designate—Maintainability
of claim Qua Bar of Res-Judicata ... 139
(xxviii) Apprehension regarding bias in Government
arbitration ... 140
(xxix) Appointment of Government Servant as arbitrator
by Government—Whether proper? ... 142
(xxx) Selection of an arbitrator—He must show the
highest faith ... 143
(xxxi) Appointment of Arbitrator—cannot be made in
violation of arbitration clause of contract ... 144
(xxxii) When, appointment of arbitrator notsustainable ... 144
(xxxiii) Application under Section 11 against appellant was
misconceives ... 145
(xxxiv) Appointment o f Arbitrator— Objection to
maintainability of application for ... 146
(xxxv) Appointment o f Arbitrator—Application by L.R. of
the deceased partner ... 146
(xxxvi) Appointment o f Arbitrator—When the Chief Justice
cannot be approached straightway ... 146
(xxxvii) Appointment of Arbitrator within 30 daysof demand ... 147
(xxxviii) Failure of authorities to appoint arbitrator within
reasonable time— "Mandamus" canbe issued ... 148
(xxxix) Acceptance and receipt of final bill without protest—
Applicant is prohibited from raising any dispute
with reference ... 149
(xl) Arbitration agreement is a matterof contract ... 149
(xli) Appointment of arbitrator—Arbitration whether
binding ... 149
(xlii) Parties settle their dispute througharbitration ... 149
(xliii) Existence of a valid and enforceable arbitration
agreement is a condition precedent before an
arbitrator can be appointed ... 150
(xliv) Parties free to adopt procedure appointment of
arbitrator ... 151
(xlv) Preliminary objection—Whether dispute is arbitrable
or not? ... 151
(xlvi) Appointment of arbitrator by court—Preliminary
issues may be decided by Chief Justice or his
designate ... 151
XVI TH E A R B IT R A T IO N A N D C O N C IL IA T IO N ACT, 1996

Section Page

(xlvii) Arbitrator can be appointed by the General

Manager, Railway ... 152
(xlviii) International commercial arbitration—Chief Justice
of India alone empowered to appoint arbitrator ... 152
(il) Company incorporated in India, would always be
controlled in India ... 153
(1) Appointment of arbitrator—Only power of Civil Court
is to refer parties to arbitration ... 153
(li) Waiver of right of appointment of arbitrator ... 153
(lii) Once Authority Refuses to Appoint Arbitration—He
loses said power ... 154
(liii) No Existence of Arbitral Agreement ... 154
(liv) Jurisdiction for appointment of arbitrator by Court—
When cannot be exercised ... 154
(lv) Removal of arbitrator appointed by the High Court—
When can be ... 155
(lvi) Appointment of arbitrator—when named in
arbitration agreement—whether can be challenged ... 155
(lvii) Absence of arbitration agreement—Arbitrator can’t
be appointed ... 156
(lviii) When parties failed to appoint arbitrator under
official procedure ... 156
(lix) Electricity Act, 2003 will prevail over Section 11 of
the Act, 1996— Disputes between licensees and
generating companies ... 156
(lx) Survival of arbitration clause itself is arbitrable ... 156
(lxi) Deletion of Arbitration clause—Non tendered items
cannot be described as an arbitration agreement ... 157
(lxii) Undue delay in deciding claim between parties,
"amounts to withdrawal of arbitration" ... 157
(lxiii) Arbitration agreement was in non-existent—In
absence purchase order/contract ... 158
. lSr'U-rounds for challenge . ... 158
(i) Duty to disclose is cast on the prospective arbitrator ... 159
(ii) The word "only" in Section 12(3)— Significance of ... 160
(iii) Expression "refusal" to act as arbitrator—Meaning o f ... 160
(iv) Power of the court regarding appointment if
authorised person fails to appoint ... 161
(v) Appointed arbitrator must possess qualifications
agreed to by the parties ... 161
(vi) When the composition or the procedure o f Arbitral
Tribunal is challengeable ... 162
\ 13^Ghallenge procedure ... 162
No scope for dialatory tactics ... 163
CO NTENTS xvii

Section Page

14. Failure or impossibility to act ... 165

(i) Phrases and terms contained in Section 14(1)—
Connotations of ... 166
(ii) Expression "unable to perform his function"—
Meaning of ... 166
(iii) When an arbitrator becomes incapable of acting
‘de facto’ ... 166
(iv) Vacancy created on account of retirement or
withdrawal by arbitrator can be filled ... 167
(v) Making and publishing the arbitral award—when
corut can exercise its inherent power in extending
time fixed by the parties ... 168
15. Termination of mandate and substitution
of arbitrator ... 168
(i) Termination o f mandate of arbitrator ... 169
(ii) Substitution of arbitrator ... 169
(iii) Insolvency notice cannot be issued on basis of an
arbitration ... 170

Chapter IV
jurisdiction O f Arbitral Tribunals
16. Competence of arbitral tribunal to rule on its jurisdiction ... 171
(i) Scope of Section 16 ... 173
(ii) Submission to jurisdiction of arbitration—What
amounts to ... 173
(iii) When objections to jurisdiction have to be raised ... 173
(iv) Constitution of arbitral tribunal—When can be
challenged ... 177
(v) Want of jurisdiction—When such plea can be raised ... 177
(vi) Question o f Jurisdiction—Arbitral Tribunal has
Power to rule on its own jurisdiction ... 177
(vii) Harmonising effect should be given to arbitration
clause in main agreements ... 178
(viii) Section 16 does not take away jurisdiction of the
Chief Justice to decide the question of existence of
arbitration agreement ... 178
(ix) Execution o f the Interior Agreement is "connected"
with the execution of main agreement ... 179
(x) Setting aside of arbitral award ... 179
(xi) Remittance of arbitral award by the civil judge ... 180
(xii) Enforceability of arbitration agreement to be
determined by the Arbitral Tribunal ... 181
XVIII THE A R B IT R A T IO N A N D C O N C IL IA T IO N A C T , 1 9 9 6

Section Page

(xiii) Reference— It is for the arbitrator to decide whether

he would proceed with ... 181
(xiv) Arbitrability of disputes—Power of arbitrator to
decide ... 182
(xv) Termination contract— shall not entail "ipso jure"
the invalidity of "arbitration clause" ... 182
(xvi) Memorandum of Understanding—Dispute Raised
to be referred to Arbitration ... 183
(xvii) Plea that offer termination of the MOU arbitration
clause—would also cease to exist not acceptable ... 183
17. Interim measures ordered by arbitral tribunal ... 183
Scope of Section 17 ... 184

Chapter V
Conduct O f Arbitral Proceedings
18. Equal treatment of parties ... 185
(i) Expression "equal treatment of parties"—
Connotation of ... 186
(ii) Arbitrators to render equal opportunity to theparties ... 186
(iii) A party should not be examined in absenceof another ... 186
(iv) Section 18 reflects principles which are well
established by Constitutional Law ... 187
(v) Arbitral award must be based on evidence. ... 188
19. Determination of rules of procedure ... 188
English Law ... 189
Indian Law ... 192
(i) Arbitral proceedings should be governed by the
principle of natural justice ... 192
(ii) Recital "in whatever manner" does not constitute
deviation from the principles of natural justice ... 192
(iii) Condition precedent be performed by the arbitrator
before making award ... 193
(iv) Concrete principle of contractual justice must prevail
over vague principle of natural justice ... 193
(v) Absence of a written notice to a party—Whether
invalidates the arbitration proceedings ... 195
(vi) Power of the arbitrator regarding admissibility of
evidence ... 196
(vii) Whether "hearsay evidence" may be admitted in
the arbitral proceedings ... 198
(viii) Arbitral Tribunal—Whether have the status of a
Civil Court ... 198
20. Place of arbitration ... 198
CONTENTS x ix

Section Page

Venue of arbitration ... 199

21. Commencement of arbitral proceedings ... 199
(i) Making a claim does not by itself commence the
arbitration proceedings ... 200
(ii) Applicability of the new Act, 1996 or the old Act, 1940 ... 200
(iii) Arbitral proceeding commenced before enforcement
the Act, 1996 ... 200
(iv) A party can seek Interim Relief from the court even
before commencement of arbitral proceedings ... 200
(v) ‘Partly’ reference of disputes—Not permissible ... 201
(vi) Reference can be unilateral ... 201
(vii) Granting of Interim relief—Commencement of
arbitral proceedings is independent. ... 202
22. Language • ... 202
23. Statements of claim and defence ... 203
(i) It is imperative to state all material facts ... 204
(ii) Statement of claim must contain full particulars ... 204
(iii) Scope of pleadings ... 205
(iv) Where amendment sought, drastic in nature, cannot
be allowed ... 205
(v) Ordinarily, amendment/supplement is allowed in the
arbitration proceedings ... 205
(vi) Expression "claim"—Construction of ... 205
(vii) When counter claim by the appellant was
maintainable ... 206
24. Hearings and written proceedings ... 206
(i) Admissibility o f the statement of the witnesses
without administering oath ... 207
(ii) Both parties have full and equal access to written
proceedings ... 207
25. Default of a party ... 207
(i) Words "sufficient cause"— Deserve liberal
interpretation ... 209
(ii) When the ‘ex-parte’ award is liable to be set aside ... 209
(iii) An arbitrator may proceed ex parte— Default in
appearance of Other Party ... 210
(iv) When arbitral tribunal "may" continue the
proceedings ... 210
(v) Power of Arbitral Tribunal—Termination of
proceeding ... 211
(vi) No civil suit is maintainable against the order
passed under Section 25(a) ... 211
XX TH E A R B IT R A T IO N A N D C O N C IL IA T IO N A C T , 19 96

Section Page

26. Expert appointed by arbitral tribunal ... 211

(i) Opinions of expert—How far relevant ... 213
(ii) An expert can be testified as awitness ... 213
(iii) Arbitral tribunal can seek assistance of legal expert ... 214
27. Court’s assistance in taking evidence ... 214
(i) Non-consideration of material evidence—Award would
be rendered invalid ... 215
(ii) Refusal to issue summons to the witness—Award
liable to be set aside ... 216

aChapter VI
Making of Arbitral Award and
^Termination of Proceedings
28. Rules applicable to substance of dispute ... 216
(i) Freedom to choose national laws of differentStates ... 218
(ii) International Commercial transaction should have
"Foreign Jurisdiction clause" ... 218
(iii) Where the choice of applicability of law is not
specified— ... 219
(iv) Payment o f Escalation—Entitlement ... 220
29. Decision making by panel of arbitrators ... 220
(i) Substantial miscarriage of justice indecisionmaking ... 221
(ii) All arbitrators required to give their united
consideration ... 221
(iii) Question of procedure may be decided by the
presiding arbitrator ... 221
(iv) Different arbitral awards by the two arbitrators—
Appointment of umpire justified ... 222
30. Settlement ... 222
(i) Consent award is an arbitral award ... 223
(ii) Where during arbitral proceedings settlement
reached—Effect of ... 223
(iii) An arbitral award on agreed terms will befinal ... 224
(iv) In the interest of justice family dispute under
arbitration may be interfered ... 224
(v) Arbitrator by revising wage has not misconducted
himself ... 225
31. Form and contents of arbitral award ... 226
(i) An award shall be made in writing and signed by
members of tribunal ... 228
(ii) Arbitral award should state the reasons upon which
it is based ... 229
CONTENTS xxi

Section Page

(iii) Wherein it is not mandatory to give reasons for the

arbitral award ... 230
(iv) Arbitrator’s jurisdiction to award interest ... 232
(v) Interest—When it may be awarded ... 232
(vi) Arbitrator has jurisdiction to award interest for
pre-reference period ... 232
(vii) The arbitrator’s jurisdiction to award "pendente lite"
interest ... 233
(viii) Whether compound interest is permissible through
arbitral award ... 236
(ix) Reduction of statutory rate of 18% by Court—When
warranted ... 236
(x) When the award becomes complete and final ... 236
(xi) What amounts to ‘interim award’ ... 237
(xii) Arbitration costs—At the discretion of thetribunal ... 237
(xiii) Non-speaking award is invalid ... 238
(xiv) Division Bench to give decision on all thegrounds ... 238
(xv) Unstamped and unregistered arbitration award—
Not admissible as an evidence ... 238
32. Termination o f proceedings ... 238
(i) Implication o f Section 32 ... 239
(ii) Dissenting arbitrator cannot be allowed to sign, after
the award is filed in the court ... 240
(iii) Doctrine o f res-judicata—Applicability of ... 240
33. Correction and interpretation of award; additional award ... 241
(i) Arbitral award should be construed liberally ... 242
(ii) Words in accord with the intention ... 243
(iii) Arbitral award can be modified ... 243
(iv) Review on merits— an arbitrator has no power ... 244

Chapter VII
-Recourse Against Arbitral Award
34. Application for setting aside arbitral award ... 244
(i) Scope of Section 34 ... 248
(ii) The words "terms of the submission to arbitration"—
Meaning of ... 248
(iii) Phrase "Public Policy of India"—Meaning o f ... 248
(ix) Concept of public policy—"Fraud" in making of
arbitral award ... 249
(v) Expression "Fraud" in making of award has not to
be normally construed ... 250
/
XXII TH E A R B IT R A T IO N A N D C O N C IL IA T IO N A C T , 19 96

Section Page

(vi) Expression "but not thereafter" in proviso to

Section 34(3)— Scope of ... 250
(vii) Limitation of power of the court to intervene ... 251
(viii) Arbitrator’s existence depends upon the agreement ... 252
(ix) Setting aside of non-speaking award ... 253
(x) Whether the issue of lack of jurisdiction could be
raised for the first time ... 253
(xi) Which court empowered to set aside arbitral award ... 254
(xii) Setting aside of the award when it conflicts with the
public policy ... 254
(xiii) Award found not unreasonable cannot be interfered
by the court ... 256
(xiv) Limitation period to challenge the award—Whether
Section 5 of the Limitation Act is applicable ... 257
(xv) Whether the provisions of Section 5 of the Limitation
Act, 1963 are applicable to an application under
Section 34 of the Act, 1996 ... 258
(xvi) Application for setting aside of arbitral award—
Limitation Act, 1963 does not apply ... 258
(xvii) Limitation Act, 1963 Qua—application under
Section 34 ... 258
(xviii) Arbitral award— Challenging of commencement of
period of limitation ... 259
(xix) Decision of Joint Arbitration Committee cannot be
treated as an award ... 259
(xx) Grounds for setting aside of arbitral award ... 259
(xxi) Dispute regarding specific performance of contract
cannot be referred for arbitration ... 260
(xxii) Powers of Arbitral Tribunal Decision on the issue
not referred ... 261
(xxiii) Misconduct—Setting aside of the arbitral award ... 261
(xxiv) Misconduct in arbitration proceedings ... 263
(xxv) Judicial misconduct—Setting aside of arbitralaward ... 264
(xxvi) A part of the arbitral award cannot be set aside ... 264
(xxvii) Arbitrator can appear as witness in proceeding for
setting aside an award ... 264
(xxviii) Effect of an arbitral award being set aside ... 265
(xxix) Correctness of electric metre—Arbitrator cannot
exceed the existing exclusive jurisdiction ... 266
(xxx) Arbitral Award made rule of the Court ... 266
(xxxi) Application was rightly allowed— Grounds under
Section 34(4) of the Act ... 266
(xxxii) Arbitrator has uoc adopted "Fast Track Procedure" ... 266
CONTENTS x x iii

Section Page

(xxxiii) Arbitral award—When it cannot be set aside ... 267

(xxxiv) Non setting aside of ex-parte award—when can be ... 267
(xxxv) Objection to award—Belated filing of, although
delay explained ... 268
(xxxvi) Arbitral award— Grant of compensation to bidder
for loss ... 268
(xxxvii) Execution of arbitral award—whether registration
is necessary ... 268
(xxxviii) Petition under Section 34 of the Act challenging
arbitration award—Filed before any principal Civil
Court of original jurisdiction which is not High
Court— No court fee payable ... 269
(xxxix) Interpretation of contractual term by arbitrator—
Interference by Court—Scope of ... 269
(xl) Powers of Arbitral Tribunal to Award of interest—
qua Part Award Period—Rate of Interest ... 270
(xli) No interest on interest, or compound interest cannot
be awarded ... 270
(xlii) Interest—when Arbitral Tribunal cannot award ... 270
(xliii) Maritime Arbitration—Award of Demurrage, Interest
and cost to masters—When sustainable ... 271

^ Chapter VIII
(1£iflfdTfy And Enforcement O f Arbitral Awards
35. Finality of arbitral awards 271
(i) Rights and liabilities of the parties to be determined
only on basis of award 272
(ii) Award is capable of beiug*executed in its own 272
(iii) When award is compulsorily registrable 273
(iv) Final arbitral award can be questioned only on
ground o f lack of jurisdiction 273
36. Enforcement 273
(i) Enforcement of award 274
(ii) Enforcement of arbitral award—When entire arbitral
award not becoming final 275
(iii) Arbitral award—Whether requires registration 275
(iv) Enforcement of arbitral award—Cross decrees—
Applicability of Order 21, Rules 18, 19 of the Civil
Procedure Code, 1908 275
XXIV THE A R B IT R A T IO N A N D C O N C IL IA T IO N ACT, 1996

Chapter IX
Appeals
Section Page

37. Appealable orders ... 276

(i) Scope of Section 37 ... 277
(ii) Appeal filed against partial award—not maintainable ... 277
(iii) Revision application is not maintainable against
appellate order ... 278
(iv) No second appeal would lie against order passed
under Section 37 ... 278
(v) Section 37(3) bars only a second appeal and not
revision ... 278
(vi) No appeal is maintainable as appeal from
appellate order ... 278
(vii) Appeal under Article 136 of the Constitution of
India, 1950 is ordinarily not maintainable ... 279
(viii) No interference under Article 136 of the Constitution
of India—When the order is appealable ... 279
(ix) Power of Arbitral Tribunal to award interest ... 280
(x) Filing of direct appeal under Section 37—Not
permissible ... 280
(xi) Plea that there is no arbitration clause—cannot be
raised by the principal ... 280
(xii) Appeal against Arbitral Tribunal is not maintainable
in the High Court ... 281
(xiii) Order passed under Section 8—Not appealable under
Clause 15 of the Letters Patent ... 281

Chapter X
Miscellaneous
38. Deposits ... 282
Voluntary mode of payment of fees acceptable ... 283
Deposits ... 283
Fees and Expenses ... 284
39. Lien on arbitral award and deposits as to costs ... 284
(i) Either party opposing the lien of arbitrator or
arbitral award ... 285
(ii) Discretion must be exercised judicially ... 285
40. Arbitration agreement not to be discharged by death of
party thereto ... 286
Reference would continue on the death of party ... 287
41. Provision in case of insolvency ... 287
CO NTENTS XXV

Section Page
Scope of Section 41 289
42. Jurisdiction 289
(i) Place of execution of agreement is a deciding factor 290
(ii) Courts cannot clothe themselves with jurisdiction 291
(iii) Cause of action does not confer jurisdiction 291
(iv) Scope of Section 42 291
(v) Continued jurisdiction of the arbitrator 291
(vi) Jurisdiction of Court—Setting aside of award 291
43. Limitations 292
(i) Failure to file application within three years—Suits
time barred 293
(ii) Expressions "undue" in "undue hardship"—
Meaning of 294
(iii) Expression "Court"—Meaning of 294
(iv) Period of limitation runs from the date o f cause
of arbitration 294
(v) Applicability of the Limitation Act, 1963 296
(vi) Application of Section 14 of the Limitation Act is
not excluded 297
(vii) Statutory arbitration—What amounts to 298

PART II
ENFORCEMENT OF CERTAIN FOREIGN AWARDS
Introduction 299

Chapter I
New York Convention Awards
44. Definition 300
(i) The term "foreign award"—Meaning of 302
(ii) Distinction between the "foreign award" and
"Domestic award" 303
(iii) "Foreign Award"—When can be treated as
"Domestic Award" 303
(iv) Meaning of term "Commercial relationship" in the
context of foreign awards 304
(v) Words "law in force in India"—Meaning of 304
45. Power of judicial authority to refer parties to arbitration 304
(i) Expression "shall" denotes obligation upon the
judicial authority 305
xxvi THE ARBITRATION AND CONCILIATION ACT, 1996

Section Page

(ii) Applicability of Section 45 ... 306

(iii) Bifurcation of subject matter of suit not contemplated
under the Act, 1996 ... 306
(iv) Proceedings parallel to the arbitration cannot be
allowed to continue ... 306
(v) Petition for stay of admiralty suit in High Court.
is allowed ... 307
(vi) High Court refusing to refer the dispute to
arbitration— Conflicting decision on this issue ... 307
(vii) The conflicting awards would not, under the
arbitration agreement, be incapable of performance ... 307
46. When foreign award binding ... 308
47. Evidence ... 308
(i) Phrase "at the time of the application"—
Interpretation of ... 310
(ii) Time limit for enforcement of foreign awards ... 310
(iii) Arbitration and Conciliation Act, 1996— What is the
date of the commencement—Enforcement of foreign
award ... 310
48. Conditions for enforcement of foreign awards ... 310
(i) Whether the award can be challenged on merits ... 314
(ii) Scope of Section 48(l)(a) ... 314
(iii) International Award—Validity and its enforcement ... 314
(iv) Enforcement of award would be contrary to the
public policy—Violative of Section 48 ... 314
(v) No jurisdiction to order winding up of the company ... 315
49. Enforcement o f foreign awards ... 315
Application barred by limitation ... 315
50. Appealable orders ... 315
51. Saving ... 316
52. Chapter II not to apply ... 316

Chapter II
Geneva Convention Awards
53. Interpretation ... 316
Definition o f term "foreign award"—Under Section 44 of
the New York Convention and Section 53 of the
Geneva Convention ... 317
54. Power of judicial authority to refer parties to arbitration ... 318
55. Foreign awards when binding ... 318
56. Evidence ... 319
 CO NTENTS xxvii

Section Page

57. Conditions for enforcement of foreign awards—Enforcement

of foreign awards 320
(i,i If the contract is illegal—Foreign award cannot
be enforced 323
li i Enforcement of foreign award in India 323
55 Enforcement o f foreign awards 323
59. Appealable orders 323
60. Saving 323

PART III
CONCILIATION
vJblrCApplication and scope 324
62. "Commencement of conciliation proceedings 325
Who is conciliator 326
63. Number of conciliators 326
Why sole conciliator? 326
64. ^ Appointment of conciliators 327
65. Submission of statements to conciliator 328
66. Conciliator not bound by certain enactments 329
:67./'ltole of conciliator 330
68. Administrative assistance 331
69. Communication between conciliator and parties 331
70. Disclosure of information 332
71. Co-operation of parties with conciliator 333
72. Suggestions by parties for settlement of dispute 333
73. Settlement agreement 333
(i) Settlement between the parties is binding having
status of arbitral award 334
(ii) When settlement agreement acquires status of
arbitral award 335
74. Status and effect of settlement agreement 335
75. Confidentiality 336
76. Termination of conciliation proceedings 336
77. Resort to arbitral or judicial proceedings 337
78. Costs 338
79. Deposits 339
v-gGr'iToIe of conciliator in other proceedings 340
81. Admissibility of evidence in other proceedings 341
XXVIII THE A R B IT R A T IO N A N D C O N C IL IA T IO N A C T , 19 96

PART IV
SUPPLEMENTARY PROVISIONS
Section Page

82. Power of High Court to make rules 343

Scope of the Rules framed thereunder 343
83. Removal of difficulties 344
Legislature cannot be approached for removal of every
difficulty 345
84. Power to make rules 345
85. Repeal and savings 346
(i) Scope of Section 85 347
(ii) Applicability of the new Act, 1996— Reference of
dispute for arbitration 347
(iii) No narrow meaning of the phrase "in relation to
arbitral proceedings" 348
(iv) Date of commencement of arbitral proceedings in the
context of "saving clause" 348
(v) Applicability of Act, 1996 by consent of party 348
86. Repeal of Ordinance 27 of 1996 and saving 348
Scope of Section 86 349

THE FIRST SCHEDULE

Convention on the Recognition and Enforcement of Foreign
Arbitral Awards ... 350

THE SECOND SCHEDULE

Protocol on Arbitration Clauses ... 355

THE THIRD SCHEDULE

Convention on the Execution of Foreign Arbitral Awards ... 357

ALTERNATIVE MEANS OF SETTLEMENT OF DISPUTES

Alternative Dispute Resolution : Why needed ... 362
Methods of ADR ... 364
Difference between Conciliation and Mediation ... 364
Merits of ADR ... 365
Demerits of ADR ... 365
Indian Statutes & ADR ... 366
ADR : Knowing the problems in hand ... 367
Chief Processes of ADR ... 368
CONTENTS x x ix

Page

Models : Client’s Interview ... 369

1. Additional advantage of the Alternative means of
Dispute Redressal ... 370
2. Importance of Alternative Meansof Dispute Redressal ... 370
3. Mediation and arbitration—Distinction of ... 372
4. Who is a mediator? ... 372
5. Why mediator? ... 373
6. Rules for Mediation ... 374
7. Limitation of Mediator ... 375
8. How to enforce Mediator’s settlement. ... 375
9. When Mediator’s settlement may not be enforced ... 376
Negotiation—What is? ... 376
Essential Ingredients of Negotiation ... 376
Negotiation—Need for ... 377
State of Negotiation ... 377
Power sources for Negotiation ... 378
Styles of Negotiation ... 378
Kinds of approaches to negotiation ... 379
Qualities o f Negotiation Power ... 379
Obstructions to Negotiation ... 379
Trade unions and negotiation ... 380

LOK-ADALATS ... 381

What is Lok Adalat? ... 381
Benefits Under Lok Adalat ... 381
1. Establishment of Lok Adalats ... 382
2. Jurisdiction of Lok Adalat ... 382
3. Congnizance of cases by Lok Adalats ... 383
4. Award of the Lok Adalat ... 383
5. Award of Lok Adalat shall be final ... 384
6. Award of Lok-Adalat is a Decree ... 385
7. Settlement of matrimonial dispute—by Lok-Adalat ... 386
8. Powers o f the Lok Adalat ... 386
9. Lok Adalat Award as good as Court Decision ... 386
10. Lok Adalat can pass order—only when there is
compromise between the parties ... 387
11. Lok Adalat can make an award touching rights
of minor ... 387
12. Award passed by Lok Adalat—Not immune from
judicial review under Article 227 of the Constitution
of India, 1950 ... 388
13. Lok Adalat and ADR ... 388
XXX THE A R B IT R A T IO N A N D C O N C IL IA T IO N ACT, 1996

Page
THE NATIONAL LEGAL SERVICE AUTHORITY ... 389
1. Appointment of Chairman of State Legal Service
Authority ... C89
2. Organisation, Power and Functions ... 389
Powers and Functions ... 391
3. Function o f the Central Authority ... 394

ALTERNATIVE MEANS OF DISPUTES RESOLUTION

IN INDIA ... 396
Arbitration is an Important Alternative Dispute Resolution
(ADR) Process ... 397
Supreme Court’s Judgment, 2005 and ADR ... 398
Legal Aid ... 399
Legal Aid under Constitution of India, 1950 ... 400
Legal Aid to Accused at State Expenses in certain Cases ... 401
Section 304—Legal aid to accused at State expenses in
certain cases ... 401
Legal Aid Scheme— Committee for Implementing ... 401
Whether Free Legal Services, Available in All Cases ... 401
Legal Services obtained by Misrepresentation—withdrawal of ... 402
What includes—Legal Service .... 402

APPENDICES
I. The Appointment of Arbitrators by the Chief Justice of
India Scheme, 1996 ... 403
II. ICC Rules of Conciliation and Arbitration ... 406
III. Statutes and Rules of International Court of Arbitration ... 418
IV. Rules of Arbitration of the Indian Council of Arbitration ... 424

ANNEXURE ... 442

INDEX 444
 TABLE OF CASES

A Anuptech Equipments Pvt. Ltd. v.

Ganpati Cooperative Housing
A.G. v. Prince Ernest Augesstus of
Society Ltd., 162, 211
Hanover, 17
Anurag Malik v. Amit Malik & another,
A.K Kraipak v. Union of India, 186, 187
269
ABC Laminari v. A.P. Agencies, 291
Arain & Co. v. Union of India, 133
Aboobacker Latif v. Reception Asha Lata S. Lahoti v. Hira Lai
Committee, 196 Liladhar, 298
ACE Pipeline Contracts (P) Ltd. v. Ashoka Construction Co. v. Union of
Bharat Petroleum Coprn. Ltd., 125, India, 234
131, 147, 148
Associated Engineering Co. v.
Adhunik Steels Ltd. v. Orissa Maganese Government of Andhra Pradesh,
and Minerals (P.) Ltd., 107, 220 176, 246, 262
Ador Sarnia Pvt. Ltd. v. Pee Kay Atiabari Tea Co. Ltd. v. State of Assam,
Holdings Ltd., 131 4
Agio Counter Trade P. Ltd. v. Punjab Atlas Cycle Industries v. State of
Iron and Steel Co. Ltd., 125 Haryana, 345
Agri Gold Exims Ltd. u. Sri Lakshmi Atul R. Shah v. V. Vrijlal Lalloobhai &
Knits and Wovens Ltd., 77, 95 Co., 277, 291
Ahluwalia & Co., Hoshiarpur and Aurohill Global Commodities Ltd. v.
another (M/s.) v. Surinder Mohan & Maharashtra STC Ltd., 173, 218
another, 103
Ahluwalia Co. u. I.F.S. Cooperative B
Society, 80 B. Rama Swamy v. B. Rangaswamy, 267
Aishbai v. Essaji, 197 B.B. Verma v. The Chairman-cum-
Alok Mishra v. Garima Mishra, 386 Managing Director, South Eastern
Alva Aluminium Ltd., Bangkok v. Coalfields Ltd., 87
Gabriel India Ltd., 126 B.C. Dagara v. M.KD. Mineraal and
Amar Nath Chand Prakash v. Bharat Export (P) Ltd., 112
Heavy Electricals, 76 B.N. Srivastava v. M. Srivastava, 246
Amstar Investment Pvt. Ltd. v. Shree B.S.N.L. v. Subhash. Chandra Kanchan,
Shree Iswar Satyanarayan Jee & 153 :
others, 181 B.S.N.L. v. Telephone Cables Ltd., 158
Analytica (India) Pvt. Ltd. v. I.T. Source Babanaft International v. Avant
L.L.C. & another, 152 Petroleum, 200
Anand Prakash v. Asstt. Registrar Babar Ali v. Union of India, 20
Co-operative Societies, 184, 237 Baboolal v. Director of Municipal
Andhra Pradesh v. KM. Rao, 46, 64 Administration, -18
Andhra Pradesh Tourism Development Babulal v. Ram Swarup, 294
Corporation & another v. Pampa Badri Choudhary v. Champa
Hotels Ltd., 125 Choudhary, 264
Anil Kumar v. Neel Kanta & others, 178 Balika Devi u. Kedar Nath Puri, 33, 38
( xxxi )
 INTR O D U C TIO N

To internationalise the Arbitration Law in India, it was felt that the

Arbitration Law, 1940 had become outdated in the present scenario of
economic reforms worldwide. The Law Commission of India, domestic and
international arbitration and conciliation bodies as well as several experts in
the field of arbitration relating to trade and industry have proposed
amendments and modifications to the Arbitration Act, 1940 to make the law
more responsive and effective to suit most with the law dealing with the
settlement o f disputes in respect of domestic and international commercial
matters. There was no comprehensive enactment in India to meet the
present requirements to settle domestic and international commercial
disputes amicably through arbitration and conciliation machinery.
At international level too, it was also felt that the increasing
arbitration and conciliation acceptance in trade and industry is the most
important requirement of the present commercial activities, and as such the
United Nations Commission on International Trade Law (UNCITRAL) too
adopted the Model Law with focus on International Commercial Arbitration
in the year 1985, Subsequently, the General Assembly of the United Nations
affirmed and all member countries were directed to give recognition to the
United Nations Commission on International Trade’s Model Law, which was
introduced with the object to make arbitration procedure and practice in the
matter of international commercial activities uniform and simple.
The United Nations Commission on International Trade also adopted a
set of conciliation rules in the year 1980 which were recommended by the
General Assembly of the United Nations to be followed by the member
countries where the parties in international commercial disputes intended to
settle their dispute amicably without taking recourse of strict legal system.
Both, the Model Law and the conciliation rules of the United Nations
Commission on International Trade had the object of uniform, universal
application of the arbitration and conciliation in respect of international
commercial disputes with specific intention to abstain from different legal
systems of the countries.
Although, aforesaid Model Law and Conciliation Rules provided
international commercial arbitration and conciliation yet there was need to
legislate law on domestic arbitration and conciliation on the pattern of the
Model Law and Conciliation Rules. With this object and based on the
UNCITRAL Model Law and New York Convention and Conciliation
Rules—the Arbitration and Conciliation Bill, 1995 was introduced in both
the Houses of Parliament on 8th May, 1995. This Bill contained the
reflection of the International Chamber of Commerce Arbitration Rules and
in their 1993 resolution—the Chief Ministers and Chief Justices emphasised
. . — —
2 THE ARBITRATION AND CONCILIATION ACT, 1996

on the pattern of the the United Nations Commission on International

Trade’s Model Law and New York Conventions and Conciliation Rules after
the recommendation. The General Assembly of the United Nations in the
matters relating to the International Commercial disputes, thus provided the
harmonious settlement of the dispute by adopting procedure and practice of
the arbitration and conciliation. Besides India many other countries
including Australia, Austria, Bahrain, Bermuda, Bulgaria, Canada, Cyprus,
Egypt, Finland, Hong Kong, Hungary, Mexico, Nigeria, Peru, The Russian
Federation, Scotland, Singapore, Tunisia, Sri Lanka, U.S.A. etc. have
enacted law modelled on the model Law. ICC1 Rules and Conciliation Rules.
Finally, India formulated and enacted the new law "The Arbitration
and Conciliation Act, 1996 (No. 26 of 1996) with effect from 16th August,
1996.
There are 86 Sections besides the Preamble and three Schedules in this
Act. The Act has been divided in four parts, in which Part I provides general
provision on arbitration, Part II provides the enforcement of certain foreign
awards, Part III deals with conciliation and Part IV deals with
supplementary provisions. The Preamble contains object of this Act and the
three Schedules are modelled texts of the Geneva Convention on the
execution of Foreign Arbitral Award, 1927, the Geneva Protocol on
Arbitration Clauses, 1923 and the New York Convention on the Recognition
and Enforcement of Foreign Arbitral Award, 1958 respectively.

Salient Features of the Arbitration and

Conciliation Act, 1996
The Arbitration and Conciliation Act, 1996 contains the following
salient features :
1. A Comprehensive Statute.-—The Arbitration and Conciliation Act,
1996, is related to the domestic, international and inter-state arbitrations.
This Act provides importance to enforcement of international arbitral awards
and conciliation matters as well. The comprehensive nature of this Act is the
result of the United Nations Commission on International Commercial
Arbitration, 1985 because Geneva Assembly of the United Nations had
emphasised and also recommended uniform model law on arbitration among
the countries.
2. An Explanatory Code.—The old Act of 1940 had no provision for
international arbitration whereas this Act of 1996 is an explanatory and a
complete Code in itself, rather it is an exhaustive Code. For the first time a
procedure for setting of Arbitral Tribunals is provided by this statute, it also
gives status of Tribunal to the Arbitrators or Board of Arbitrations or
Statutory Arbitrations.
3. Curtailment of the Courts’ Powers.—The Act has limited the
powers of court rather restricted the exercise o f judicial power, in other
words, it has confined the extent of judicial intervention as under Section 5
of the Act— "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."

1, International Chamber of Commerce, The Arbitration Rules.

IN T R O D U C T IO N 3

Finality o f arbitral awards is given under Section 351 according to

which an arbitral award shall be final and binding on the parties and
persons claiming under them respectively. Thus, the Act itself provides
finality to arbitral awards and its enforcement (Section 36) without
intervention of the Court.
4. Procedure for Conduct of Arbitration and Awards in
detail.— Chapter V o f the Arbitration and Conciliation Act, 1996 from
Section 18 to Section 27 provides detailed procedure and practice in hearings
as well as statements of claim and defence.
The Arbitral Tribunals are empowered to settle any objections raised in
respect of jurisdiction or scope of authority of the arbitrators.
5. Precised Powers of the Court.—The Act of 1996 has precised the
powers of the court by taking assistance only in certain specific matters. The
Court’s assistance can be sought in taking evidence only with the prior
approval of the arbitral tribunals, as under Section 27(1) "The arbitral
tribunal or a party with the approval of the arbitral tribunal, may apply to
the court for assistance in taking evidence."
In the matter o f jurisdiction Section 42 of the Act of 1996 states that
"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."
6. Powers of the Arbitrators enhanced.—In comparison with the
old Act, the new Act has enhanced the powers of the arbitrators in respect
o f jurisdiction of Arbitral Tribunals and has also improved the competence
of the arbitrators to rule. Chapter IV, Section 16 and Section 17 of the Act,
1996 provide these measures.
7. A new form of Conciliation.— Part III of the Act, 1996 deals with
new internationalised approach to conciliation and explain its application
and scope. The Act under Section 63 intends to prescribe number of
conciliators and in case of more than one conciliator, their number should be
decided by the agreement of the parties.
Section 63(2) States— "Where there is more than one conciliator, they
ought, as a general rule, to act jointly."
Thus, the new Act makes scope of conciliation more wide, and much
emphasis has been provided on mutual rather consensual conciliation in
every respect.
Section 66 of the Act, 1996 takes away restrictions of certain
enactments from conciliation. "The Conciliator is not bound by the Code of
Civil Procedure, 1908 (5 of 1908) or the Indian Evidence Act, 1872 (1 of
1872)."
8. International applicability.—Under the old Act of 1940, there
was no provision for applicability of any interim award made by the Foreign
Arbitral Tribunal i.e., An Arbitral Tribunal constituted by I.C.C. Court

1. S ub je ct to C h a p te r M i l o f th e A ct.
4 THE A R B IT R A T IO N A N D C O N C IL IA T IO N A C T , 1996

Arbitration at London.1 But, the new Act of 1996, has provisions for
applicability of Foreign Arbitral Tribunal’s awards.

Scope of Arbitration Law in India

The globalisation of trade and commerce and economic liberalisation
created need for effective implementation of economic reforms. It was
realised that old Indian Arbitration Law, 1940 is not effective enough to
meet the present day requirements. The multinational companies/enterprises
are pouring into India in the field of banking, insurance, building
construction, electricity, telecommunication, etc. and there is commercial
interaction between India and foreign countries wherein parties agree or
have agreed for arbitration in case of dispute arising out of such commercial
activities and the dispute shall be determined and settled in accordance with
the Arbitration and Conciliation Act, 1996 and the rules framed thereunder.
However, it is to be noted that the expression "commercial" in the
context of the Arbitration Law has been observed by the Apex Court in R.M.
Investment and Trading Co. Pvt. Ltd. v. Boeing Company,2 as follows :
"While construing the expression "commercial" in section 2 of the
Act, it has to be borne in mind that the Act is calculated and designed
to subserve the cause of facilitating international trade and promotion
thereof by providing speedy settlement of disputes arising in such trade
through arbitration and any expression or phrase occurring therein
should receive a liberal construction".3
In this case the Apex Court has held that consultancy rendered by R.M.
Investment and Trading Co. Pvt. Ltd. to Boeing Company for the purpose of
developing commercial activities of sale of Boeing aircrafts is purely
"commercial" in nature, hence, relationship between the two companies with
each other is commercial.
In another case4 the Apex Court has held that activities such as
exchange of commodities for money or other commodities, carriage of persons
and goods by road, rail, air or waterways, contract, postal and telegraph
services, banking, insurance and transactions in stock exchange are
considered to be commercial interaction within the ambit of Article 301 of
the Constitution of India, 1950 which deals with freedom of trade, commerce
and intercourse— "Subject to the other provisions of this part (i.e., Part XIII
of the Constitution of India, 1950 under heading, Trade, commerce and
intercourse within the territory of India), trade, commerce and intercourse
throughout the territory of India shall be free."
Thus, all kinds of commercial activities may be arbitrable provided
there is agreement in this regard between the parties. But in Kamini
Engineering Corporation v. Re Traction,5 the Apex Court has held that
merely providing technical assistance in electrification o f railways did not
1. The National Thermal Power Compn. Ltd. v. The Singer Co. & others, 1991 (1) CCC 732
(Delhi).
2. AIR 1994 SC 1136.
3. See also Renusagar Power Co. Ltd. v. General Electric Co., AIR 1985 SC 1156; Koch
Navigation v. Hindustan Petroleum, AIR 1989 SC 2198.
4. Atiabari Tea Co. Ltd. v. State o f Assam, AIR 1961 SC 232.
5. AIR 1965 Bom. 114.
INTRODUCTION

involve assistance or consultancy into active business and therefore such an

agreement could not be interpreted to be commercial in nature as it is
outside the scope of the term ‘commercial’ in the context of the Arbitration
Act.
Where there is an arbitration agreement within the meaning of Section
7 of the Arbitration and Conciliation Act, 1996, in case of dispute the
conflicting parties can be referred for arbitration. Section 7(1) of the
Arbitration and Conciliation Act, 1996 defines the term ‘arbitration
agreement’ as follows— "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 defined legal relationship,
whether contractual or not".
Sub-section (2) of Section 7 of the said Act provides that an arbitration
agreement may be in the form of an arbitration clause in a contract or in
the form of a separate agreement. Although Section 7(3) makes it
compulsory that an arbitration agreement shall be in writing. According to
Section 7(4) o f the Arbitration and Conciliation Act, 1996 an arbitration
agreement may be contained in the following—
(a) a document signed by the parties;
(b) an exchange of letter, telex, telegram or other means of
telecommunication which provides 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.
Therefore, it can be said that to come within the scope of the
Arbitration Act, there are three essentials—
(1) such an agreement must be in writing;
(2) there must be definite parties;
(3) parties must have intention to settle their disputes by way of
arbitration.1
W h e th e r th e a r b i t r a t i o n c la u s e is a p a r t o f c o n tr a c t
As provided under Section 7(5) of the Arbitration and Conciliation Act,
1996 the reference in a contract to a document containing arbitration clause
con stitu tes an arbitration agreement if the contract is in writing and the
reference is such as to make that arbitration clause part of the contract.

B il l o n th e L a w o f A r b i t r a t i o n a n d C o n c ilia tio n
On 16th May, 1995 the Bill relating to law of arbitration and
conciliation was introduced in the Rajya Sabha by the then Minister of Law
and Justice. On 17th May, 1995 the Chairman of Rajya Sabha referred the
Bill to the Parliamentary Committee. On 28th November, 1995 the said
Committee submitted its report to the Parliament. The then Central
Government was compelled to promulgate an Ordinance2 on Arbitration and
Conciliation Act as the Winter Session of the Parliament in December, 1995
expired without transacting any business. Only on 16th July, 1996 the Rajya

1. Union o f India v. Janki Prasad Agarwal, AIR 1986 All. 15.

2. Ordinance No. 8 of 1996 published in Gazette Extraordinary Part II Section 1.
6 THE ARBITRATION A N D CONCILIATION ACT, 1996

Sabha passed the Arbitration and Conciliation Bill, 1995 and on 2nd August,
1996 the Lok Sabha also cleared the said Bill, thereafter it received the
assent of the President of India on 16th August, 1996 and it became an Act,1
i.e., the Arbitration and Conciliation Act, 1996 came into force on 25th
January, 1996.
S tatem ent of Objects and Reasons
(As appended to the Arbitration and Conciliation Bill, 1995).
The present Arbitration and Conciliation Act, 1996 is substantially
based on the three statutes, namely,—
(i) The Foreign Awards (Recognition and Enforcement) Act, 1961;
(ii) The Arbitration (Protocol and Convention) Act, 1937; and
(iii) The Arbitration Act, 1940.
It was realised from all quarters that the (Indian) Arbitration Act, 1940
has become outdated as it contained the general law relating to arbitration
and with a view to provide more responsive arbitration law to contemporary
requirements and also to provide effective law dealing with settlement of
both domestic and international disputes regarding commercial intercourse
such major reformative amendments in the (Indian) Arbitration Act, 1940
have been incorporated by the Indian Parliament. Undoubtedly the
arbitration and conciliation in the commercial transactions are getting global
recognition as a machinery for settlement of disputes.
The Model Law on International Commercial Arbitration has been
adopted by the United Nations Commission on International Trade Law
(UNCITRAL) in 1985. The United Nation’s General Assembly has
recommended that all countries give due recognition to said Model Law, in
view of the desirability of uniformity of the Law of arbitral procedures and
specific needs of international commercial arbitration practice. Also, the
United Nations Commission on International Trade Law (UNCITRAL) has
adopted a set o f Conciliation Rules in 1980. It was intended by the General
Assembly of the United Nations that these Conciliation Rules are to be used
in case o f disputes arising in the context of the international commercial
relations and conflicting parties can seek friendly settlement of their
disputes by taking recourse to conciliation. It is important to note that the
United Nations Commission on International Trade Law (UNCITRAL), the
Model Law and Rules aimed to harmonise the concept o f arbitration and
conciliation of different legal systems worldwide, therefore, these
UNCITRAL Model Law have such provisions which are designed for
universal application.
It would be seen that the said UNCITRAL Model Law and Rules served
as a model for legislation on domestic arbitration and conciliation. The
Arbitration and Conciliation Bill, 1995 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 United Nations Commission on
International Trade Law (UNCITRAL), Model Law and Rules.

1. Notification No. G.S.R. 375 (E) dated 22nd August 1996.

INTRODUCTION 7

T h e A rb itra tio n Act, 1940 has become outdated— Objects o f the

present A ct
In Objects and Reasons appended to the Arbitration and Conciliation
Bill, 1995 it has been stated that the Arbitration Act, 1940 has become
outdated and, therefore, the present Bill sought to consolidate and amend
the law relating to domestic arbitration and International commercial
arbitration.
Prior to the promulgation of the Arbitration and Conciliation
Ordinance, 1996 the law on arbitration in India was substantially contained
in three enactments, namely the Arbitration Act, 1940, the Arbitration
(Protocol and Convention) Act, 1937 and the Foreign Awards (Recognition
and Enforcement) Act, 1961. In the statement of Objects and Reasons
appended to the Bill it was stated that the Arbitration Act, 1940, which
contained the general law on arbitration, had become outdated. The said
Objects and Reasons stated that the United Nations Commission on
International Trade Law (UNCITRAL) adopted in 1985 the Model Law on
International Commercial Arbitration. The General Assembly had
recommended that all countries give due consideration to the said Model
Law which alongwith the rules, was stated to have harmonised the concepts
on arbitration and conciliation of different legal systems of the world and
thus contained provisions which were designed for universal application. The
abovesaid statement of Objects and Reasons in para 3 states that "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 legalisation 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 awards and to define the law relating to
conciliation, taking into account the said UNCITRAL Model Law and
Rules."1
The main objectives of the said Bill are as follows—
(i) to comprehensively cover international commercial arbitration
and conciliation as also domestic arbitration and conciliation;
(ii) to make provision for an arbitral procedure which is fair,
efficient and capable of meeting the needs of the specific arbitration;
(iii) to provide that the arbitral tribunal gives reasons for its
arbitral award;
(iv) to ensure that the arbitral tribunal remains within the limits
of its jurisdiction;
(v) to minimise the supervisory role of courts in the arbitral
process;
(vi) to permit an arbitral tribunal to use mediation, conciliation
or other procedures during the arbitral proceedings to encourage
settlement of disputes;
(vii) to provide that every final arbitral award is enforced in the

1. M is. Sundaram Finance Ltd. v. M is. NEPC India Ltd., AIR 1999 SC 565 : 1999 (1)
Supreme 126 : 1999 (2) SCC 479.
8 THE ARBITRATION AND CONCILIATION ACT, 1996

same manner as if it were a decree of the court;

(viii) to provide that a settlement agreement reached at by the
parties as a result of conciliation proceedings will have the same status
and effect as an arbitral award on agreed terms on the substance of the
dispute rendered by an arbitral tribunal; and
(ix) to provide that for the purpose 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.
It is to be noted that in this context the International Conventions
mean the New York Convention and the Geneva Convention relating to
foreign arbitral awards, to which India is a party, and which wall be
considered as a foreign award.
It would be relevant to mention here that the expression "arbitration"
has been included in Entry 13 of the Concurrent List of the 7th Schedule to
the Constitution o f India, 1950. Thus, State Legislature can enact legislation
relating to arbitration only after obtaining the assent of the President of
India. When such assent is obtained the enacted law can become effective in
the State concerned.1
According to the Apex Court the main objective of the Arbitration and
Conciliation Act, 1996 is to make provision for an arbitral procedure which
is fair, efficient and capable of meeting the needs of the specific arbitration
and to minimise the supervisory role of courts in the arbitral process and to
permit an Arbitral Tribunal to use mediation, conciliation or other
procedures during the arbitral proceedings in the settlement of disputes.
In Bharat Sewa Sansthan v. U.P. Electronics Corporation Ltd..,
wherein the dispute raised by the appellant Bharat Sewa Sansthan against
the respondent corporation in terms of the arbitration clause contained in
the lease agreement is arbitral. It was held by the Supreme Court that the
disputed claims involved therein can be appropriately tackled and
adjudicated upon by the arbitrator in terms of the arbitration clause.
A rb itra tio n Act, 1996 should be in te rp re te d keeping in m in d the
U N C IT R A L M odel L a w
In view of the Apex Court the Preamble o f the Arbitration and
Conciliation Act, 1996 makes it amply clear that Parliament has enacted the
Act almost on the same lines as the Model Law, which was drafted by the
United Nations Commission on International Trade Law. The provisions of
the Act should be interpreted keeping in mind the Model Law as the concept
under the present Act has undergone a complete change. It will, therefore,
be useful to take note of the corresponding provisions of the UNCITRAL
Model Law. The whole object and scheme of the Act is to secure an
expeditious resolution of disputes. Therefore, where a party raises a plea
that the Arbitral Tribunal has not been properly constituted or has no
jurisdiction, it must do so at the very threshold so that remedial measures
may be immediately taken and time and expense involved in hearing of the

1. G.C. Kanungo v. State o f Orissa, AIR 1995 SC 1655.

2. AIR 2007 SC 2961.
INTRODUCTION 9

matter before the Arbitral Tribunal found to be either not properly

constituted or lacking in jurisdiction may be avoided. Such a plea must be
raised before the Arbitral Tribunal right at the beginning and normally not
later than in the statement of defence. The commentary on Model Law
clearly illustrates the aforesaid legal position.1

Composition of the Arbitration and

Conciliation Act, 1996
The present Arbitration and Conciliation Act, 1996 consists of four
parts as follows—
Part I—Arbitration
Part II—Enforcement of Certain Foreign Awards
Part III— Conciliation
Part IV— Supplementary Provisions.
P a rt I —A rb itra tio n
It contains Chapters I to X (Sections 1 to 43) which deal with general
provisions, Arbitration Agreement, Composition of Arbitral Tribunal,
Jurisdiction of Arbitration Tribunals, Conduct of Arbitral Proceedings,
Making o f Arbitral Award and Termination of Proceedings, Recourse Against
Arbitral Award, Finality and Enforcement of Arbitral Awards, Appeals and
Miscellaneous etc.
P a rt I I —E n fo rcem en t o f C e rta in Foreign Aw ards
It contains Chapters I to II (Sections 44 to 60) which deal with New
York Convention Awards and Geneva Convention Awards, thus this part is
modelled on these conventions.
P a rt I I I — C o n ciliatio n
There is no Chapter as such in Part III, however it contains Sections
61 to 81 which deal with conciliation machinery.
P a rt IV —S u p plem entary Provisions
There is also no Chapter in this part, but it comprises of Sections 82
to 86 and Schedules (First to Third).
It is apparent that the Arbitration and Conciliation Act, 1996 is
modelled on the UNCITRAL Model Law and Rules so as to facilitate
settlement of commercial disputes by international arbitration and domestic
arbitration, as the case may be and thus, to promote commercial transaction
worldwide. It has been seen that countries like Russian Federation, Finland,
Kenya, Egypt, Mexico, Nigeria, Malta, Sri Lanka, Hong Kong, Australia,
Singapore, Bahrain, Bulgaria, and Ukraine etc. have enacted arbitration law
based on UNCITRAL Model Law. In recent time the American States have
also adopted and enacted arbitration law modelled on the basis of the
UNCITRAL Model Law and Rules.

1. Gas Authority o f India Ltd. v. Keti Construction (I) Ltd., (2007) 5 SCO 38.
10 THE ARBITRATION AND CONCILIATION ACT, 1996

Difference between Arbitration Act, 1940 and Arbitration and

Conciliation Act, 1996

Arbitration Act, 1940 Arbitration and Conciliation Act,

1996

(1) This Act was not so (1) The present Act of 1996 is more
comprehensive. comprehensive.
(2) It covers domestic arbitrations. (2) It covers domestic as well as
international arbitrations.
(3) No conciliation provisions in this (3) It contains conciliation
Act. provisions, besides
supplementary provisions for its
implementation.
(4) No provisions for enforcement of (4) There is an exclusive provision
foreign arbitral award. dealing with the enforcement of
foreign arbitral award.
(5) It was not based on (5) This is based on the United
international arbitration Nations Commission on
patterns. International Trade Law
(UNCITRAL)—Model Law.
(6) No unified formula ' for (6) There is unified formula for both
settlement of dispute by international, commercial and
arbitration. domestic arbitration.
(7) There was no statutory (7) There is statutory recognition of
recognition of conciliation which conciliation for settlement of all
deals with the settlement of all disputes.
disputes.
(8) This Act o f 1940 does not deal (8) This Act of 1996 provides
with the conciliation machinery. binding effect of conciliator’s
findings.
(9) The Act of 1940 had given (9) Wherein the new Act, 1996 the
enormous powers to the civil Civil Court can intervene only
courts, which resulted in where it is so specifically
interference by court, before, in provided in the Act, 1996.
between and after the
arbitration proceedings.

London Court of International Arbitration (LCIA)

The London Court of International Arbitration (which goes by the name
of it synonyms (LCIA) is a London based institution providing the service of
international arbitration.
History.— "The "London" portion of the name is deceptive as the
administrative head quarters of the LCIA" are merely based there. It is an
international institution and provides a forum of dispute resolution
proceedings for all parties, irrespective of their location or system of Law.
Although Arbitration and the Provisional of formal arbitration tribunals are
INTRODUCTION 11

the institution’s main focus, the LCIA is also active in mediation, a form of
Alternative Dispute Resolution (ADR) History."
O rig in — S etting up Com m ittee
The LCIA charts its history from 5th A p ril, 1883, the Court of
common council of the city of London set up a committee to draw up
proposals for the establishment of a tribunal for the arbitration o f domestic
and in particular of trans-national commercial disputes arising within the
ambit of the city.
In a slightly gushing report the L a w q u a rte rly R eview wrote at
inauguration of the tribunal. This chamber is to have all the virtues which
the law lacks. It is to be expeditious where the law is slow, cheap where the
law is costly, simple where the law is technical a Pacemaker instead of a
stirrer-up of strife submission of Report by Committee.
In 1884, the committee submitted its plan for a tribunal that would be
administered by the city of London C orporation, with the co-operation of
the London C ham ber of Commerce & In d u s try . However, though the
plan had arisen out o f an identified and urgent need, it was to be put on ice
pending the passing of the E nglish A rb itra tio n Act, 1889.
F o rm a tio n o f T rib u n a l
In April 1891 the scheme was finally adopted and the new tribunal was
named, "The city of London Cham ber of A rb itra tio n " it was to sit at
the G u ild h a ll in the city, under the administrative charge o f an
A rb itra tio n C om m ittee made up of members o f the London C ham ber
and o f th e C ity C orporation.
In a u g u ra tio n of C ham ber
The Chamber was formally inaugurated on 23 Novem ber 1892, in the
presence of a large and distinguished gathering, which included the then
President of the Board of Trade.
Considerable interest was also shown both by the press and in legal
commercial circle.
R e-nam ing o f trib u n a l
In April 1903, the tribunal was re-named the "London Court of
Arbitration" and, two years later, the court moved from the G u ild h a ll to
nearby premises of the London Cham ber of Commerce. The Court’s
administrative structure remained largely unchanged for the next seventy
years.
J o in in g of o th e r bodies
In 1975, the institute of Arbitrators (later the chartered institute)
joined the other two administering bodies and the earlier arbitration
committee became the "Joint Management Committee," reduced in size from
the original twenty four members to eighteen, six representative from each
of the three organisation. The director of the in s titu te of a rb itra to rs
became th e "R egistrar of the London C ourt of A rb itra tio n ."
In 1981, the name of the Court was changed to "The London Court of
international arbitration" to reflect the nature o f its work, which was, by
12 THE ARBITRATION AND CONCILIATION ACT, 1996

that time. Predominantly International.

Current Operation
Paramount institute.—The LCIA remains one of the bigger
permanent international arbitration institute today. It promulgate its own
rules and procedures, which are frequently adopted in "Ad hoc
Arbitration" even where the LCIA is not involved
As a company not for profit limited by Guarantee.—The LCIA is
formed as a not-for-profit company limited by guarantee. The LCIA
Board of Director (made up largely of Prominent London based arbitration
practitioners) is concerned with the operation and development of the LCIA’s
business and with its compliance with applicable company law.
The Board does not have an active role in the administration of dispute
resolution procedures, through it does maintain a proper interest in the
conduct o f the LCIA’s administrative function.
Functions
The LCIA Court is the final authority for the proper application of the
LCIA Rules, its base function are appointing tribunals, determining
challenges to arbitrators and controlling cost.
Although the LCIA Courts meets regularly in plennary session, most of
the function, to be performed by it under LCIA Rules and procedures are
performed on its behalf, by the president, by a vice-president or by a division
of the court.
Member 1 to 35 from 6 are of U.K. Nationality
The Court is made up of up to thirty five members, selected to provide
and maintain a balance of leading practioners in commercial arbitration,
from the major trading areas of the world and of whom no more than six
may be of U.K. nationality.
Secretariat.—Headed by the Registrar, the LCIA Secretariat is based
at the international dispute resolution center in London and is responsible
for the day to day administration of all dispute referred to the LCIA.
Procedure
LCIA case administered is highly flexible. All cases are allocated
dedicated computer and hard copy files and computerised account ledgers.
Every case is computer maintained, but the level of administrative supports
adopt to the needs and wishes of the parties and tribunal (or ADR neutral)
and to the circumstances of each case.
Because o f confidentiality laws, the LCIA does not publish facts or
statics about the matters it adjudicated upon.
"GIST" OF LCIA
(1) LCIA—reference
(2) Definition—
(3) Origin
(A) Setting up Committee— 5th April 1883
(B) Proposal for forming a tribunal
INTRODUCTION 13

(C) Submission of Report of Committee— 1884

(D) Formation of tribunal—-1891
(E) Inauguration of tribunal— 1892
(F) Re-naming of tribunal— 1903
(G) Joining of the two bodies— 1975
(H) Including of word "International— 1981
(I) Current operation
(J) Secretariat
 T H E ARBITRATION AND C O N C ILIA TIO N
ACT, 19961
(Act No. 26 of 1996)
[16th August, 1996]
A n A ct to consolidate and am end the law relatin g to dom estic
arbitration, in ternational com m ercial arbitration and enforcem ent o f
foreign arbitral aw ards as also to define the law relating to
conciliation and for m atters connected therew ith or incidental
thereto.
Preamble.— W H E R E A S the U nited N ations C om m ission on
International T rade L aw (U N CITRA L) has adopted the U N C IT R A L
M odel L aw on International Com m ercial A rbitration in 1985;
A N D W H E R E A S the G eneral A ssem bly o f the U nited N ations
has recom m en ded that all countries give due consideration to the
said M odel Law , in view o f the desirability o f uniform ity o f the law
o f arbitral procedures and the specific needs o f international
com m ercial arbitration practices;
A N D W H E R E A S the U N C ITR A L has adopted the U N C IT R A L
C onciliation Rules in 1980;
A N D W H E R E A S the G eneral A ssem bly o f the U nited N ations
has recom m en ded the use o f the said Rules in cases w here a dispute
arises in the context o f international com m ercial relations and the
parties seek an am icable settlem ent o f that dispute by recourse to
conciliation;
A N D W H E R E A S the said M odel Law and Rules m ake
significant contribution to the establishm ent o f a unified legal
fram ew ork for the fair and efficient settlem ent o f disputes arising in
international com m ercial relations;
A N D W H E R E A S it is expedient to m ake law respecting
arbitration and conciliation, taking into account the aforesaid M odel
Law and Rules;
BE it enacted b y Parliam ent in the F orty-seventh Y ear o f the
R epublic o f India as follow s :—
COMMENTS
Consolidating and A m ending Act
When the object of an Act as given before the preamble or in the
preamble is to "consolidate and amend the law" such Act does not merely
consolidate the pre-existing enactment, but the "law" on the subject, and
1. Published in Gazette of India Part II, Section 1 dated 19th August, 1996 (No. 55).
( 14 )
THE ARBITRATION A N D CONCILIATION ACT, 1996 15

further it does not merely consolidate pre-existing law, but also "amends" it,
which includes addition to the derogation from the pre-existing law. It
follows that such an Act is a complete code in itself as regards the subject
it deals with.
The Privy Council in Ram Das v. Amir Chand,1 contended that the
Indian Contract Act, 1872 was primarily a consolidating Act and therefore,
ought, in default o f a clear expression to the contrary, to be read as
embodying the law, as existing when it was passed.
It is legitimate in the interpretation of a section in an Amending and
Consolidating Act to refer to the previous state of the law for the purpose of
ascertaining the scope, object and intention of the Legislature.
According to Justice M ookerjee—-"Whether the statute codify or
amends law, if its provisions are expressed in clear and unambiguous terms,
resort should be to the pre-existing law, although such reference may be
useful and legitimate where the provisions are of doubtful import or one
couched in language which had previously acquired a technical meaning".
Consolidating A ct
In considering the question whether words "consolidating the law" have
the effect of amending the law, the presumption with which one starts is
that a consolidating Act is not intended to alter the law. Prima facie,
therefore, the same effect ought to be given to the provisions of a
consolidating Act as was given to those of the Act for which it was
substituted and unless there are clear words altering the law, it ought not
regard it as altered.
A m ending Acts
If the words of a previous statute are re-enacted, it may be assumed
that the law should be continued as it previously existed.2
But, where sections are repealed and re-enacted in slightly different
form, there would be a presumption against implied, as contrasted with
express alteration in the scope of the section. Where an amending Act alters
the language of the principal statute, the alterations must be taken to have
been deliberately made.3
A change in the wording of an enactment does not necessarily involve
a change in the law. Amendments are often made to clear up ambiguities
and such amendments which are intended to prevent mis-interpretation do
not in themselves alter the law in any way.4
There are innumerable cases in the history of legislation where the
Legislature has added or deleted words in order to clarify the position.0
Thus, if a section in a Chapter of an Act is amended, it is not intended
to operate independently of the other provisions of the Chapter but the
whole chapter, in the present form must be read as one Act.
It is well settled rule of interpretation of statutes that no statute shall
: AIR 1916 PC 7(9).
.1 Sarain Singh v. Baba, AIR 1918 Pun. 633.
5 F~aser & Co. v. Revenue Minister , 1949 AC 24.
4. Secretary o f State v. Pusvendu Narayan, AIR 1915 Cal. 807.
5. Kikabhoy v. Income-tax Commissioner, AIR 1950 Bom. 6.
16 THE ARBITRATION A N D CONCILIATION ACT, 1996

be construed to have retrospective operation unless such a construction

appears very clearly in the terms of the Act or arises by necessary or distinct
implication. It appears further well established that a retrospective
operation is not to be given to a statute so as to impair the existing right or
obligation otherwise than as regards the matter of procedure unless that
effect cannot be avoided without doing violence to the language of the
enactment. It is thus clear that unless a clear and unambiguous intention is
indicated by the Legislature by adopting suitable express words in that
behalf, no provision of a statute should be given retrospective operation if by
such operation vested rights are likely to be affected.1
It is dangerous and may be misleading together with the meaning of
the words used in an enactment merely from what was said by any speaker
in the course of a debate in Parliament on the subject. Such a speech cannot
be used to defeat or detract from a meaning which clearly emerges from a
consideration of the enacting words actually used.2
Any amendment cannot be held to have retrospective effect unless the
Legislature or the authority concerned expresses its intention in clear
terms.3
The power of the Legislature to pass the Act prospectively as well as
retrospectively, is within the scope of its legislative competence and subject
to other constitutional limitation. The power of the Legislature to enact law
is plenary.4
Where a subsequent Act incorporates provisions for a previous Act then
the borrowed provisions become an integral and independent part of the
subsequent Act and are totally unaffected by any repeal or amendment in
the previous Act.5
H ow fa r is p re v io u s la w relevant
The object of codifying the law is to end as far as possible the conflict
of decisions.6
Where the law has been codified, it is of little avail to enquire what is
the law apart from such codification and the court must look to the Code
itself as a guide in the matter. This is a prima facie rule but there are well
recognised exceptions, as L ord H erch ell observed— "I am of course, far
from asserting that resort may never be had to the previous state of the law
for the purpose of aiding the construction of the Code". A codifying statute
would not thus exclude reference to earlier case-law on the subject covered
by the statute for the purpose of throwing light on the true interpretation of
the words which they are or can be considered to be open to rival
constructions.
Reference to previous legislation may be forced upon a court by reason
o f the ambiguity employed in the use of terms, which the mind cannot grasp

1. Prabhashankar v. Ruk Mani, AIR 1976 Raj. 17.

2. Loka Shikshana Trust v. Income-tax Commissioner, Mysore, AIR 1976 SC 10 : 101 LTR
234.
3. Sri Krishna Das v. State, AIR 1975 Pat. 262.
4. State o f M.P. v, M.V. Narasimhan, AIR 1975 SC 1835.
5. Ram Das v. Am ir Chand, AIR 1916 PC 7.
6. Burn & Co. v. Me. Donald, (1909) 36 C 354.
THE ARBITRATION A N D CONCILIATION ACT, 1996 17

without a previous preliminary interpretation.

The provisions of 1996 A ct are to be in te rp re te d w ith o u t any
influence o f 1940 A ct
It is settled legal position that the provisions of the Arbitration and
Conciliation Act, 1996 are not pari materia with the provisions of the
Arbitration Act, 1940. Therefore, the provisions of the Act of 1996 are to be
interpreted without any influence of the Arbitration Act, 1940.
The Arbitration and Conciliation Act, 1996 is very different from the
Arbitration Act, 1940. The provisions of this Act have, therefore, to be
interpreted and construed independently and in fact reference to the Act,
1940 may actually lead to misconstruction. In other words the provisions of
the Act, 1996 have to be interpreted being uninfluenced by the principles
underlying the Arbitration Act, 1940. In order to get help in construing these
provisions it is more relevant to refer to the UNCITRAL Model Law rather
than the Arbitration Act, 1940. Therefore, it cannot be said that the
Arbitration and Conciliation Act, 1996 is in pari materia with the provisions
of the Arbitration Act, 1940.1
PREAM BLE
Dictionary meaning of "preamble" means a preliminary statement or
preface. But, in legal context it is an introduction to statute or Bill,
explaining the facts and assumption behind it. The word "preamble" itself
may be invoked where an operative part of a statute is ambiguous, the
preamble may be referred to show the purpose and object of the Act. It is
only when it conveys a clear and definite meaning in comparison with
relatively obscure or indefinite enacting words that a preamble may
legitimately prevail.2
(1) R e n d e r assistance in in te rp re ta tio n of statute—L egitim acy
of.—The Apex Court in Kochuni & others v. States o f Madras and Kerala,3
has observed that preamble of statute is a key to the understanding o f it
and it is well settled position that the preamble may legitimately be
considered to clarify ambiguity in enacting words of a statute or to ascertain
the meaning of expressions which may have more than one meaning or to
maintain the purpose of the Act within the purview of its actual scope,
whenever enacting expression creates doubts.
(2) W h e th e r the pream ble is referable.— It has been held that the
preamble is referable when it is necessary to plead the purpose of
enactment. It is perfectly permissible to refer to the objects and reasons of
the Bill in order to find out what was the mischief which was sought to be
prevented or removed by the Legislature enacting a particular
Act/Provision.4
(3) F o r ascertaining the in te n tio n o f the Legislature.—The use
of preamble and title is permissible for ascertaining the intention of the
! M/s. Sundaram Finance Ltd. v. M/s. NEPC India Ltd., AIR 1999 SC 565 : 1999 (1)
Supreme 126 : 1999 (2) SCC 479.
1 AG. v. Prince Ernest Augesstus o f Hanover, (1957) 1 All. ER 49.
3. Affi 1960 SC 1080 (1097).
4, Skree Siddeeshwar Saha Sekhar Kankhama Ltd. & others v. State o f Maharashtra &
others. AIR 1984 Bom. 81.
18 THE ARBITRATION A N D CONCILIATION ACT, 1996

Legislature, the title and preamble can be looked to and taken into
consideration without objection. Both together afford the key to the
understanding of the purpose of the Act as the Legislature usually utilises
them for expressing its intention though neither the title nor its preamble
can be utilised for restricting or extending the meaning of the operative part
when its language is clear and not open to doubt. They do not override the
clear meaning of the enactment.1
(4) A m b ig u ity in statute, pream ble m ay be exam ined to
d eterm in e its purpose and object.—It is perfectly true that when the
language of a statute is unambiguous, it is not for the court to consider what
the intention of the Legislature might have been. However, when any doubt
or ambiguity appears, the court is perfectly competent to examine the
preamble of a statute to determine what was the purpose and object that
the Legislature had in mind when putting the particular legislation on
statute book.2
(5) Use of P ream ble.—The preamble as well as the aims and object
of the Act can be used for limited purpose only for ascertaining the
conditions prevailing at the time of legislation and for finding out the
purpose of the enactment by furnishing valuable historical material. It has
been so held by the Division Bench of Bombay High Court in Baboolal v.
Director o f Municipal Administration? wherein the court ruled that
ordinarily use of preamble in interpreting the statutes can be permitted only
for limited aim and object. When the language of the Act is clear, the
preamble cannot be invoked to curtail or restrict the scope o f the enactment.4
(6) Purpose of P ream ble.—The preamble is the key to open the
mind of Legislature, but it cannot override the expression of provision of the
enacting part. In Keshvanand Bharti v. State o f Kerala? the Apex Court has
laid down the following purposes which the preamble serves—
(1) It shows the source from which the particular legislation comes, it
means historical aspect of the legislation.
(2) It contains the scope, extent and area over which it will be applied.
(3) It declares the object, reason and purpose of the particular
enactment.
(7) Tw o propositions re garding P ream ble.—According to Lord
H a lsb u ry —in Powell v. Kempton Park Race Course Co.?—two propositions
are quite clear—
(i) a preamble may afford useful light as to what a statute intends to
reach, and
(ii) that, if an enactment is itself clear and unambiguous, no preamble
can qualify or cut down the enactment.

1. Union o f India v. Mohim Chandra Dutta, AIR 1952 Assam 159.

2. Shid Virappa Gurusatappa Chinvas & others v. Shivalingappa Basalingappa Chinvas,
AIR 1951 Bom. 137 (FB).
3. AIR 1974 Bom. 219; See also The Nagpur Hotel Owner’s Association & others v. The
Corporation o f the City o f Nagpur & others, AIR 1979 Bom. 100.
4. Rashtriya Mill Mazdoor Sangh v. N.T.P.C., AIR 1996 SC 710.
5. AIR 1973 SC 1461.
6. (1899) AC 143.
THE ARBITRATION A N D CONCILIATION ACT, 1996 19

Thus, a preamble cannot be used to curtail rights and privileges if the

enacting part provides them.
(8) P ream ble is not the source o f any substantive pow er.—The
preamble has never been regarded as the source of any substantive power
conferred on the Government nor can the preamble be regarded as the
source of any prohibition and limitation.1 It is impossible to subscribe to the
•new that the preamble holds the key of the Act, however a preamble
contains in a nutshell its object and purpose.
The preamble is not a platitude but the mode of realisation c f object
behind the Act.2
(9) P ream ble m ay be used to rem ove am biguity.—Undoubtedly,
the preamble may be used to remove any ambiguity or to determine the
correct meaning o f words which may have several meanings, but the use of
preamble cannot be permitted to eliminate the operative provision of a
statute.3
(10) W here enacting p a rt o f the A ct is ambiguous—P ream ble
can be re fe rre d .—Wherein the enacting part of an Act is explicit and
unambiguous, the preamble cannot be referred to, to control, qualify or
restrict it, but where the enacting part of the Act is ambiguous the preamble
can be referred to explain and elucidate it.4
It is submitted that the present Arbitration and Conciliation Act, 1996
being a consolidating and amending law, the Act is a complete code in itself
and exhaustive of the matters dealt with therein, while there are, other laws
dealing with matters not covered by the present Arbitration and Conciliation
Act, 1996 for example—Non-arbitrability of certain disputes, capacity of
parties to conclude an arbitration agreement and enforcement of arbitral
awards etc.
The preamble of the Arbitration and Conciliation Act, 1996 shows that
the (Indian) Arbitration Act, 1940 has been repealed and in fact it has been
re-written, the Part-I of the present Act is virtually on the foundations of
the UNCITRAL Model Law on International Commercial Arbitration. Part
II of the Act is on the foundations of the Geneva and New York Conventions
for giving effect to which they were enacted. However, Part III of the Act
lays down, a new legal regime for both domestic conciliation of all disputes
capable of settlement by agreement of the parties and International
Commercial Conciliation. This part is also virtually based on the UNCITRAL
Conciliation Rules. Part IV of the Act namely ‘supplementary provisions’
lays down the power of High Court to make rules, removal o f difficulties,
power to make rules and repeal and saving etc. with a view to bring
practicability in the present Act.
Thus, it can be said that the present Act is mainly based on the
UNCITRAL Model Law on International Commercial Arbitration, 1985, the
UNCITRAL Conciliation Rules, 1980 and the provisions adopted in the

1L R ef by President o f India under Article 143(1) o f the Constitution o f India , 1950, AIR
I960 SC 845.
1 Gamkhnath v. State o f Punjab, AIR 1967 SC 1643.
1 Sssie o f Rajasthan v. Leela Jain, AIR 1965 SC 1269.
- M ohisder Prasad Singh v. State o f H.P., AIR 1995 H.P. 15 (FB).
20 THE ARBITRATION AND CONCILIATION ACT, 1996

Geneva and New York Conventions. Accordingly, Indian Courts may permit
recourse to these provisions, treaties and Conventions. The Apex Court in
Renusagar Power Co. Ltd. v. General Electric Company? held that in the
case of treaty implementing statutes, their provisions should be consistent
with their literal and grammatical sense and should receive a liberal
construction.
In M is. Doypack System Put. Ltd. v. Union o f India? the Apex Court
has held that the interpretation of a statute being an exercise in the
ascertainment of meaning, everything which is logically relevant should be
admissible. The primary duty of the court is to give effect to the real
intention of the Parliament in enacting legislation.
(11) No reference of dispute to arbitrator by intervention of
the court.— In preamble and in the Arbitration and Conciliation Act, 1996
there is no provision for reference of the matter to arbitrator by intervention
of the court. However if during the pendency, there is agreement between
the parties, they can proceed according to the provisions of the new
Arbitration and Conciliation Act, 1996 and when award is made it is a
decree which cannot be filed in the Hi|h Court rather it has to be filed
according to Section 2(e) of the said Act.'
Similarly, the Apex Court in P. Anand Gajapathi Raju v. P.V.G. Raju,'
has held that there is no provision in the new Act for referring the matter
to an arbitrator by intervention of the court. However, if during the
pendency of the proceedings in the court parties have entered into an
arbitration agreement then they have to proceed in accordance with the
provisions of the new Act and when award is made it is a decree and it
cannot be filed in the High Court and it has to be filed in the court as
defined in clause (e) of Section 2 of the new Act for its enforcement as a
decree under Section 36 of the new Act. If there is challenge to the award
recourse has to be taken under Section 34 of the new Act.
(12) Provisions of the new Act held to be intra vires and not
arbitrary.— The Apex Court in Babar Ali v. Union o f India? held that
question of jurisdiction can be raised only after passing of the award. There
is no question of the Arbitration and Conciliation Act, 1996 being
unconstitutional or in any way offending the basic structure of the
Constitution o f India, as the High Court has rightly observed that judicial
review is available for challenging the award in accordance with the
procedure laid down therein. Only because the question of jurisdiction of the
arbitrator is required to be considered after the award is passed and not at
any penultimate stage by the appropriate court, it cannot be a ground for
submitting that such an order is not subject to any judicial scrutiny. The
time and manner of judicial scrutiny can legitimately be laid down by the
Act passed by the Parliament. Hence, the challenge of the vires of the Act
was rightly rejected by the High Court.

1. AIR 1985 SC 1156.

2. AIR 1988 SC 782.
3. Tamil Nadu Electricity Board v. Sumathi, AIR 2000 SC 1603 : 2000 (4) SCC 543 : 2000
(3) Supreme 673.
4. 2000 (4) SCC 539.
5. 2000 (2) SCC 178 : 1999 (10) JT 508.
PRELIMINARY 21

P R E L IM IN A R Y
Section 1. Short title, extent and commencement.—(1)
This A ct m ay be called the A rbitration and Conciliation A ct, 1996.
12) It extends to the w hole o f India :
P rovided that Parts I, III and IV shall extend to the State o f
Jam m u and K ashm ir only in so far as they relate to international
com m ercial arbitration or, as the case m ay be, international
com m ercial conciliation.
E xp la n a tion .— In this sub-section, the expression "international
com m ercial conciliation" shall have the sam e m eaning as the
expression "international com m ercial arbitration" in clause (f) o f
sub-section (1) o f Section 2, subject to the m odification that for the
w ord "arbitration" occurring therein, the w ord "conciliation" shall be
substituted.
(3) It shall com e into fo r c e . on such date as the Central
G overnm ent m ay, b y notification in the O fficial G azette, appoint.
COMMENTS
Section 1 of this Act contains the short title o f the Act which is
self-explanatory that this Act deals with arbitration and conciliation,
however sub-section (2) of Section 1 of the Act states that this Act applies
to the whole territory of India, except the State of Jammu and Kashmir but
in matter of international commercial arbitration and international
commercial conciliation this Act would apply even to the State of Jammu
and Kashmir. Thus, in case of domestic commercial arbitration and domestic
commercial conciliation this Act shall not be applied to the State o f Jammu
and Kashmir.
In case of foreign awards the Parliament is competent to extend and
enact law applicable to the whole of India, with no exception to the State of
Jammu and Kashmir. Parliament is empowered by virtue of Article 253 and
Entries 13 and 14 in the Union list in the Seventh Schedule of the
Constitution to make legislation in this regards as Part II of the Act deals
with implementation in respect of international agreements and awards.
The 1996 Act is very different from the Arbitration Act, 1940. The
provisions of this Act have, therefore, to be interpreted and construed
independently and in fact reference to 1940 Act may actually lead to
misconstruction. In other words the provisions of 1996 Act have to be
interpreted being uninfluenced by the principles underlying the 1940 Act. In
order to get help in construing these provisions it is more relevant, to refer
:: the UNCITRAL Model Law rather than the 1940 Act.1
It is apparent that the Arbitration and Conciliation Act, 1996 deals
with both arbitration and conciliation. Section 1(2) of the Act states that it
extends to the whole of India and then specifies that Parts I, III and IV
containing general provisions on arbitration and conciliation and
1. M/s. Sundaran Finance Ltd. v. M/s. N.E.P.C., India Ltd.. AIR 1999 SC 565.
22 THE ARBITRATION A N D CONCILIATION ACT, 1996

supplementary provisions extend to the State of Jammu and Kashmir only

in so far as they relate to international commercial arbitration and
international commercial conciliation. An explanation appended to
sub-section (2) of Section 1 clarifies that the expression "international
commercial conciliation" would have the same meaning as the "international
commercial arbitration" in Section 2(l)(f) of the Act, subject to the
modification that for the expression "arbitration" occurring therein, the
expression "conciliation" shall be substituted thus, it is clear that the present
Arbitration and Conciliation Act deals with international/domestic
commercial arbitration as well as international/domestic commercial
conciliation in the same spirit. In other words the scope and ambit of
arbitration law and conciliation machinery in commercial intercourse have
been widened.
(i) Interpretation of explanation
Explanation to any provision of the Act has to be read in consonance
with the main object of the Act. In Bihta Cooperative Development Cane
Marketing Union Ltd. & others v. The State o f Bihar & others/ the Apex
Court held that it is well settled principle of statutory construction that the
explanation must be read so as to harmonize with and clear up any
ambiguity in the main provision.
(ii) Explanation is a part of the section to which it is appended
The Apex Court in Bengal Immunity Company v. State o f Biharf
observed that it is well settled rule of interpretation that an explanation is
a part of the section to which it is appended and whole lot should be read
together to know the substantial meaning of the provision. Undoubtedly, the
explanation creates a legal fiction only for some definite purpose.
(iii) Explanation added to clarify certain ambiguities
The Apex Court in S. Sundaram v. V.R. Pattabhiraman, observed that
it is well settled legal position that an explanation appended to a statutory
provision is not a substantive provision in any sense of the term but as the
plain meaning of the word itself shows it is merely meant to explain or
clarify certain ambiguities which may have crept in the statutory provision.
(iv) In spite of many clauses in a section only one explanation may
be provided
There may be a case where in spite of many clauses in a section only
one explanation is appended to the section as is the case with Section 20 of
the Code of Civil Procedure, 1908. In such matter, it is the duty of the court
to see that to which clause the explanation is connected with. Thus, the
intention o f Legislature should be taken into consideration to determine that
an explanation in question is intended to remove ambiguity of the concerned
clause/clauses of a section.4

1. 1967 (3) SCR 848 : AIR 1967 SC 389.

2. AIR 1955 SC 661.
3. AIR 1985 SC 582.
4. Patel Roadways Ltd. v. Prasad Trading Co., AIR 1999 SC 1514.
PRELIMINARY 23

(v) Test to determine the request for reference—Made before

passing of the Act, 1996
If the request for referring the dispute for arbitration was made prior
to 26-1-1996, the date of coming into force of the Act, then the proceedings
would be governed by the old Arbitration Act, 1940 but i f the request is
made after the said date, i.e., after coming into force of the Arbitration and
Conciliation Act, 1996, then the proceedings will be governed by the new
Act. In such circumstances, where the demand for referring the dispute for
arbitrations is made and the arbitration suit filed before 26-1-1996, the
provisions of the old Arbitration Act, 1940 would apply for adjudication of
the dispute.
A mere look at sub-section (2)(a) of section 85 of the Arbitration and
Conciliation Act, 1996 would show that despite the repeal o f the Arbitration
Act, 1940, the provisions of the said enactment shall be applicable in relation
to the arbitral proceedings which had commenced prior to the coming into
force of the new Act. The new Act came into force on 26-1-1996 and the
question, therefore, was whether on that date, the arbitral proceedings in
the impugned suits had commenced or not. Section 21 <5f the new Act lays
down that unless otherwise, agreed to between the parties, the arbitration
suits in respect of arbitration dispute commenced on the date on which the
request for referring the dispute for arbitration was received by the
respondent and, therefore, it must be found out that whether the request for
referring the dispute was moved on and after 26-1-1996 or before that. If the
request was made before that date, then on a cojoint reading of sections 21
and 85(2)(a) of the Arbitration and Conciliation Act, it must be held that
these proceedings would be governed by the old Arbitration Act, 1940. The
cases filed before 26-1-1996, therefore, had to be decided under the old Act.
The suits in questions were filed before 26-1-1996 and, therefore, they have
to be decided under the old Act of 1940, the provision of new Act i.e., the
Arbitration and Conciliation Act, 1996 will not apply.1

1. Shetty’s Constructions Co. Pvt. Ltd. v. Konkan Railway Construction, 1998 (6) JT 643 :
1998 (5) SCC 599.
 PART I

A R B IT R A T IO N

CHAPTER I

GENERAL PROVISIONS
Section 2. Definitions.— (1) In this part, unless the context
otherw ise requires,—
(a) "arbitration" m eans any arbitration w hether or not
adm inistered by perm anent arbitral institution;
(b) "arbitration agreem ent" m eans an agreem ent referred to in
S ection 7;
(c) "arbitral award" includes an interim award;
(d) "arbitral tribunal" m eans a sole arbitrator or a panel o f
arbitrators;
(e) "Court" m eans the principal Civil C ourt o f original
ju risd iction in a district, and includes the H igh Court in
exercise o f its ordinary original civil jurisdiction , having
ju risd iction to decide the questions form ing the
subject-m atter o f the arbitration i f the sam e had been the
subject-m atter o f a suit, but does not include any civil court
o f a grade inferior to such principal Civil Court, or any
C ourt o f Sm all Causes;
(f) "international com m ercial arbitration" m eans an arbitration
relating to disputes arising out o f legal relationships,
w h ether contractual or not, considered as com m ercial under
the law in force in India and w here atleast one o f the
parties is—
(i) an individual who is a national of, or habitually
resident in, any country other than India; or
(ii) a b ody corporate w hich is incorporated in any country
other than India; or
(iii) a com pany or an association or a body o f individuals
w hose central m anagem ent and control is exercised in
any country other than India; or
(iv) the G overnm ent o f a foreign country;
(g) "legal representative" m eans a person w ho in law represents
the estate o f a deceased person, and includes any person
w ho interm eddles w ith the estate o f the deceased, and,
w h ere a party acts in a representative character, the person
( 24 )
ARBITRATION 25

on whom. the estate devolves on the death o f the party so

acting:
h parry m eans a party to an arbitration agreem ent.
Scope..— 2 i This Part shall apply w here the place o f arbitration
is in Imdha.
13 This Part shall not affect any other law for the tim e being
in force b y virtue o f w hich certain disputes m ay not be subm itted to
-arbitration.
4 This P art except sub-section (1) o f Section 40, Sections 41
and 43 shall apply to every arbitration under any other enactm ent
for the tim e being in force, as i f the arbitration w ere pursuant to an
arbitration agreem ent and as i f that other enactm ent w ere an
arbitration agreem ent, except in so far as the provisions o f this Part
are inconsistent w ith the other enactm ent or w ith any rules m ade
thereunder.
(5) Subject to the provisions o f sub-section (4), and save in so
far as is otherw ise provided by any law for the tim e being in force or
in any agreem ent in force betw een India and any other country or
countries, this Part shall apply to all arbitrations and to all
proceedings relating thereto.
C on stru ction o f references.— (6) W here this Part, except
Section 28, leaves the parties free to determ ine a certain issue, that
freedom shall include the right o f the parties to authorise any person
in clu din g an institution to determ ine that issue.
(7) A n arbitral aw ard m ade under this Part shall be considered
as a dom estic award.
(8) W here this Part—
(a) refers to the fact that the parties have agreed or that they
m ay agree, or
(b) in any other w ay refers to an agreem ent o f the parties,
that agreem ent shall include any arbitration rules referred to in that
agreem ent.
(9) W here this Part, other than clause (a) o f Section 25 or
clause (a) o f sub-section (2) o f Section 32, refers to a claim , it shall
also apply to a counter-claim , and w here it refers to a defence, it
shall also apply to a defence to that counter-claim .
COMMENTS
Section 2 of the Arbitration and Conciliation Act, 1996 mainly provides
the definitions of various terms used throughout in the Act, thus it is a
definition clause. Section 2(1) [from (a) to (h)] o f the said Act provides
definition in the context of the Act for application of this new enactment.
Every term right from arbitration, arbitral agreement, arbitral award,
arbitral tribunal, court, international commercial arbitration, legal
26 THE ARBITRATION AND CONCILIATION ACT, 1996

representative and party for the purpose of this Act are subjected to the
requirement that meaning of these terms may differ if the context requires
otherwise.
(i) All statutory definitions must be read subject to qualification
The Apex Court in V. F. & G. Insurance & Co. v. M is. Fraser & Ross,1
observed that "It is well settled that all statutory definitions or abbreviations
must be read subject to the qualification variously expressed in the
definition clause which created them and it may be that even where the
definition is exhaustive inasmuch as the word to have somewhat different
meaning in different sections of the Act depending upon the subject or the
context."
It has been seen that definition or interpretation clauses exist generally
in the earlier parts of a statute as the Section 2(1) of the Arbitration and
Conciliation Act, 1996 contains definition of various terms and expressions
used in the said Act. In other words certain words or expressions used in
different parts of the Arbitration and Conciliation Act, 1996 are defined in
Section 2(1) of the said Act. The meaning of these words wherever they exist
in the Act will be in accordance with their meaning given under the
definition clauses.
(ii) Interpretation of definition
The two Judges Bench of Apex Court has held that while interpreting
a definition, it has to be borne in mind that the interpretation placed on it
should not only be not repugnant to the context, it should also be such as
would aid the achievement of the purpose which is sought to be served by
the Act. The Court further observed that construction which would defeat or
was likely to defeat the purpose of the Act has to be ignored and not
accepted.2
It is submitted that while defining the terms used under the Act the
substratum and purpose of that Act, should not be overlooked because it
would defeat the purpose which is sought to be achieved by the Act. While
dealing with the interpretation of terms used in the Act in a particular sense
it should be judicially defined in keeping with the view what the legislature
intended rather desired to be sought.
(iii) Interpretation of definition—Principle of
It is the cardinal principle of interpretation o f law that the definition
given in a statute is not always exhaustive unless it is expressly made clear
in the statute itself. The key words in the definition should be taken into
interpretation of definition clause if the context so warrants.3
(iv) Words defined to have same meaning unless the context
otherwise requires
A definition clause does not necessarily apply to all possible contexts in
which the word may be found in a particular statute. Sometimes a strict
adherence to definition may lead to an anomaly or even repugnancy. All

1. AIR I960 SC 971 see also S. K. Gupta v. K. P. Jain, AIR 1979 SC 734.
2. K. V. Muthu v. Angamuthu Animal, 1997(1) Supreme 13.
3. Kalpnath Rai etc. v. State (through CBI), 1997 (9) Supreme 293.
ARBITRATION 27

statutory definitions must be read subject to the qualifying words "unless

the contest odiwarwise requires" even though the definition clause does not
contain iDes© words.
(Vi Popular meaning of words should be taken
ha the rase o f words not defined in an Act, it is an ordinary canon of
imtorpretation that words in the first instance have to be taken in their
popular meaning, and in order to ascertain as to what the popular meaning
■of *ie word is one has to take recourse to the dictionary.2
vi) All statutory definitions have to be read subject to the
qualification variously expressed in the definition
In Whirlpool Corporation v. Registrar o f Trade Marks, Mumhai &
others,3 it has been held that all statutory definitions have to be read subject
to the qualifications variously expressed in the definition clauses which
created them. It may be even where the definition is exhaustive inasmuch
as the word defined is said to mean a certain thing. The court observed that
it is possible for the word to have somewhat different meaning in different
sections o f the Act depending upon the subject or context. That is why all
definitions in statutes generally begin with the qualifying words. Thus, there
may be sections in the Act where the meaning may have to be departed from
on account of the subject or context in which the word had been used and
that will be giving effect to the opening sentence in the definition clause.
The Supreme Court said that the court has not only to look at the context,
the collocation and the object of such words relating to such matter and
interpret the meaning intended to be conveyed by the use of the words under
those circumstances.
(vii) Reference to dictionary meaning—Permissibility of
When the word or term is not so defined in the Act exhaustively, it may
be permissible to refer to dictionary to find out the meaning of that word as
is understood in the common parlance. But where the dictionary gives
divergent meaning or more than one meaning of a word, in that case it is
not safe to construe the said word according to the suggested dictionary
meaning o f that word. In such a situation the word has to be construed in
the context of the provision of the Act and the scheme of the Act. Thus, it
is the settled principle of interpretation that the meaning of words occurring
in the provision of the Act must take their colour from the context in which
they are so used. In other words, for arriving at the true meaning of a word,
the said word should not be detached from the context.4
Thus, if the meaning of the word in question is clear according to the
provision of the Act, the dictionary meaning of that word should not be
imported.
Therefore, the definition clause of this Act is to be interpreted as the

1. V. K. Balakrishnan v. Asoka Bank Ltd., AIR 1966 Kerala 42 (F.B.).

2. Cantonment Board, Poona v. Western India Theatres Ltd., AIR 1954 Bom. 261 (D.B.).
3. 1998 (8) Supreme 176; see also Vanguard Fire & General Insurance Co. Ltd., Madras v.
Fraser & Ross, AIR 1960 SC 971.
4. Commissioner o f Income-tax, Bangalore v. Venkateswara Hatcheries (P.) Ltd. etc., 1999
(3) Supreme 202.
28 THE ARBITRATION AND CONCILIATION ACT, 1996

expression contained and defined but not otherwise. Any matter within the
ambit of this Act and the terms used therein shall have the same meaning
and purpose as contained in Section 2(1).
Now, it will be pertinent to provide comments on various expressions
and terms defined in the definition clause, namely, Section 2 of the
Arbitration and Conciliation Act, 1996.
(a) ARBITRATION
As defined under Section 2(l)(a) it covers any arbitration whether it is
administered by any permanent arbitral institution or not. It also covers
arbitration based on voluntary agreement by the private parties or by
operation of law.
The Act does not provide definition of the word "Arbitration" but its
literally recognised meaning is "settlement" of differences or disputes by
mutual understanding or agreement by the parties where the rights and
liabilities of the parties are adjudicated which are binding on them, such
settlement may be before the arbitral tribunal but not by the court of law.
What is Arbitration?
Notably, expression "Arbitration" has not been defined under the
Arbitration and Conciliation Act, 1996. However, the definition in Section
2(lXa) of the said Act is merely a clarification that the Act covers institutional
and ad hoc arbitration. This definition is based on The definition mentioned in
clause (a) of Article 2 of UNCITRAL Model Law. According to that provision
the expression "Arbitration" is defined as under—
"Arbitration" is the means by which the parties to a dispute get
the matter settled through the intervention of an agreed third person."
In other words "Arbitration" is a process that is carried out pursuant
to an agreement to arbitrate the disputed matter.
According to the Bombay High Court the object o f arbitration is to
decide a dispute, which has arisen.1
According to Halsbury—‘Arbitration’ means "the reference of dispute or
difference between not less than two parties, for determination, after hearing
both sides in a judicial manner, by a person or persons other than a Court
of competent jurisdiction."
In view of the above definition of expression ‘Arbitration’, the
ingredients necessary to constitute the ‘arbitration’ are as under :—
(1) There is an arbitration clause in the agreement to resolve the
dispute by means of arbitration.
(2) There is dispute between two or more parties.
(3) There is arbitrable dispute in terms of agreement between the
parties.
(4) Dispute is referred to third person/persons other than a Court of
Competent Jurisdiction.
(5) Person or persons constituting arbitration are under obligation to
resolve the dispute/differences in a judicial manner—that is by
hearing of both the parties.
1. F.J. Raja v. K.P. & Co., AIR 1934 Bom 476.
ARBITRATION 29

Meaning of "Arbitration"
Section 2(1) (a)‘ defines "Arbitration" as meaning any arbitration matter
or not administered by a permanent arbitral institution. Thus, this definition
recognises that the arbitration could be under a body like Indian chambers
of commence or the International chamber of commerce. Arbitration under
the International chamber of commerce would be held imminent cases, out
o f India.1
Kinds of Arbitration
Generally, arbitration is of seven lands, which are as follows :—
(i) Ad-hoc arbitration.
(ii) Institutional Arbitration.
(iii) Contractual Arbitration.
(iv) Statutory Arbitration.
(v) Domestic Arbitration.
(vi) International Arbitration.
(vii) Foreign Arbitration.
(i) Ad-hoc Arbitration.—When a dispute or difference arose between
the parties in course of commercial transaction and the same could not be
settled friendly by negotiation in form of conciliation or mediation, in such
case ad-hoc arbitration may be sought by the conflicting parties.
(ii) Institutional Arbitration.—This kind of arbitration is when
there is a prior agreement between the parties that in case of future
differences or disputes arising between the parties during their commercial
transactions, such differences or disputes will be settled by arbitration and
it will be referred to the named institution of which one or more o f them are
members. It is to be noted that such named institutions have their own
published rules and with the consent of the parties can appoint arbitrators
from among the panel of experts/professional arbitrators. It is known as
institutional arbitration.
(iii) Contractual Arbitration.—Due to growth of commercial
activities rather commercial transactions in modern time there are frequent
occasions for differences and disputes between the parties which is required
to be settled amicably. Thus, to seek early settlement of differences and
disputes without talcing recourse to the court of law, the parties involved in
commercial transactions choose to incorporate an arbitration clause as a part
of the agreement to refer their future or existing differences or disputes to
a named arbitrator/arbitrators to be appointed by a designated authority.
This is known as contractual arbitration.
(iv) Statutory Arbitration.—It is mandatory arbitration which is
imposed on the parties by operation of law. In such a case the parties have
no option as such but to abide by the law of land. It is apparent that
statutory arbitration differs from the above three kinds of arbitration
because :—
(i) the consent of parties is not necessary,

1. Financial Software & System Put. Ltd. v. ACI Worldwide Corporation, 2011 (6) LJ 432
Mad.
30 THE ARBITRATION A N D CONCILIATION ACT, 1996

(ii) it is a compulsory arbitration,

(iii) it is binding on the parties as the law of land.
For example.—Section 31 of the North Eastern Hill University Act,
1973, Sections 24, 31 and 32 of the Defence of India Act, 1971 and Section
43(c) of the (Indian) Trusts Act, 1882 are the statutory provisions which deal
with statutory arbitrations.
It is said that arbitration is an alternative to court litigation which is
very expensive and lethargic. Arbitration does not adversely affect the public
reputation of the conflicting parties. Comparatively, arbitration is speedier
and economical settlement of disputes.
(v) Domestic Arbitration.—The term "Domestic Arbitration” denotes
arbitration which occurs in India. This is when the subject-matter rather
scope of the agreement, the merits of the dispute and the procedure for
arbitration are all governed by Indian law or when the cause of action for
the dispute has arisen wholly in India or where the parties of commercial
transaction are otherwise subject to Indian jurisdiction. The Arbitration and
Conciliation Act, 1996 mentions the term "domestic arbitration" in its
preamble and the term "domestic award" in Section 2(7) read with section
2(2) of the said Act. It is to be noted that Article 51(d) of the Constitution
of India, 1950 makes provision that the State should encourage settlement
of international disputes by arbitration, it includes domestic arbitration.
(vi) International Arbitration.—A foreign ingredient is found in
"international arbitration". When atleast one of the parties involved is
domiciled or resident outside India or subject-matter o f the difference or
dispute is related to a place outside India, such arbitration is treated as an
international arbitration. However, the law applicable to such arbitration
proceedings may be the foreign law or may be the Indian law subject to
terms of the contract between the parties and the rules of conflict of laws.
Section 2(l)(f) of the Arbitration and Conciliation Act, 1996 defines the
term "International Commercial Arbitration" as arbitration relating to
disputes arising out of legal relationship, whether contractual or not,
considered as commercial under the law in force in India where atleast one
o f 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) a company or 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.
In this regard Section 28 of the Act deals with the rules applicable to
the substance of dispute namely where the place of arbitration is situate in
India and also rules applicable to international commercial arbitration as
provided in Section 28(l)(b) of the Act.
(vii) Foreign Arbitration.—When the arbitration proceeding is
conducted in a place outside India, it is called "foreign arbitration". In such
~.RB "RATION 31

arbitration a "foreign award" is sought to be enforced.

(b) ARBITRATION AGREEMENT
Section 2(l)(b) of the Act of 1996 provides that the word "Arbitration
Agreement" is to be interpreted and understood with reference to Chapter
II, Section 7 of the Arbitration and Conciliation Act, 1996.
Section 2(l)(b) of the Arbitration and Conciliation Act, 1996 while
defining arbitration agreement, refers to Section 7 which may be read as a
part thereof. Section 7 is set out below for ready reference :—
"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 o f 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 letter, telex, telegram or other means of
telecommunication which provide a record o f 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."
It is to be noted that arbitration agreement is an important segment of
the Act which requires careful consideration and comprehensive study,
which is hereunder :—
(i) Inference of an agreement.—The term ‘agreement’ has been
defined under the Indian Contract Act, 1872. The said Act defines that
every promise and every set of promises forming the consideration for each
other is an agreement.
It is a voluntary agreement, it is willingness of either side to abide by
arbitral award of the arbitrator. Thus, agreement is a reciprocal promise
from either side. Arbitration agreement gives right to parties to initiate
arbitral proceedings when rights of the parties are violated or liabilities of
the parties are not being discharged. The determination whether a
particular clause amounts to a valid submission is whether both parties are
bound by the clause or not and whether a right has been expressly given to
both the parties to initiate proceedings.1
(iil Essential ingredients of a valid arbitration agreement.—It is
settled legal position that a valid agreement should have the following :—

i . Maritime Itraliana, Steamship Co. v. Burjor Framroze Joshi, AIR 1929 Bom. 185 : ILR
54 Bom. 278.
32 THE ARBITRATION A N D CONCILIATION ACT, 1996

(i)
it must be in writing;
(ii)
there must be agreement between the parties;
(iii)
the parties must be ad idem; and
(iv)
there should be intention of the parties to have their disputes or
differences referred and decided through arbitration.1 Thus, the
parties, disputes and finality of the decision are three essentials
of an arbitration agreement. However, the statutory essentials of
an arbitration agreement may be listed as :—
1. an agreement;
2. it must be in writing;
3. it may be relating to either present or future differences or
disputes;
4. whether an arbitrator is named therein or not.
A Valid Arbitration Agreement—Ingredients of.—In terms of
Section 2(l)(b) read with Section 7 of the Arbitration and Conciliation Act,
1996 a valid arbitration agreement must contain the ingredients as under—
1. There must be a written arbitration agreement between the
parties;
2. The agreement must be for reference to arbitration;
3. The dispute to be submitted to arbitration is in respect of defined
contractual relationship between the parties.
Intention of the parties.—According to the Supreme Court2 when the
agreement was in writing and not a contingent or a future contract was a
contract at that time, endeavour should always be made to find out the
intention of the parties and that intention has to be found out by reading
the terms broadly, clearly and without being circumscribed.
(iii) What amounts to arbitration agreement.—The Madhya
Pradesh High Court in M.P. Housing Board v. Satish Kumar Raizada,3 has
held that where the words "reference" and "final", "conclusive" and "binding"
were used in the clause, it amounts to arbitration agreement. However,
clause 29(2) of the contract read as under :—
"If any party to the contract is not satisfied with the decision of
the "Superintending Engineer", it may make a reference to the Chief
Engineer, P.W.D., Madhya Pradesh, through the Executive Engineer
concerned within 30 days from the date of communication of the
decision of the Superintending Engineer, and the Chief Engineer will
give his decision after hearing the parties and his decision thereon
shall be final, conclusive and binding on all parties to the contract. In
case no reference is made within the period specified above, the
decision o f the Superintending Engineer shall be final, conclusive and
binding on the parties."
The High Court expressed the view that the use of the word "reference"
in the above clause denoted that the Chief Engineer was to act as an
arbitrator. It was further held that it was true that the word "award" was
1. Union of India v. Janki Prasad Aggarwal, AIR 1986 All. 15.
2. J. & K. State Forest Corporation v. Abdul Karim Wani, AIR 1989 SC 1498.
3. AIR 1958 SC 118.
ARBITRATION 33

not mentioned in the clause but that would not make any difference since
"award" also meant official decision on the matters in dispute. The clause
was held to be an arbitration agreement.
(iv) V a lid ity of an a rb itra tio n agrcement;does not depend on
the n u m b er o f a rb itra to rs .—It is well settled legal position that the
validity of an arbitration agreement does not depend on the number of
arbitrators specified therein.1 The present Arbitration and Conciliation Act,
1996 does not suggest anywhere that number of arbitrators is a part of an
arbitration agreement.
(v) F actu m of a contract—Submission to A rb itra to r fo r
decision.—The parties are free to submit by an agreement even the factum
of a contract for the decision by the arbitrator. It is all a matter of
interpretation of a contract from which the arbitrators derive their
authority.2
(vi) D iffere n c e betw een a reference and an a rb itra tio n
agreem ent.—The important difference between a reference, and an
arbitration agreement or an arbitration clause, is that where the agreement
relates to a present dispute, it generally amounts to a reference, but if it is
entered into merely to provide for any future dispute or disputes, it is an
arbitration clause. The definition of an "arbitration agreement" makes it
clear that future differences can form the basis of an agreement to refer
those disputes, as and when they arise to an arbitrator.3
(v ii) C o n stitutio n of agreem ent betw een p arties—term s to be
reduced to w ritin g .—To constitute an arbitration agreement in writing, it
is not necessary that it should be signed by the parties and that it is
sufficient if the terms are reduced to writing and the agreement of the
parties thereto is established.4
(v iii) W hen dispute shall be re fe rre d to a rb itra tio n .—While
Section 7(1) of the Arbitration and Conciliation Act, 1996 spells out the
internal elements of an agreement, sub-sections (2) to (5) thereof deal with
its external aspects. Section 7(2) read with Section 2(l)(b) of the said Act
recognises an arbitration agreement, whether it is in the form of an
arbitration clause in a contract or in the form of a separate agreement.
Whereas a contract is generally used for incorporating an arbitration clause
for future disputes, a separate agreement can contain an arbitration clause
both for existing and future disputes. An arbitration clause is not required
to be stated in any particular form. What is required to be ascertained is
whether the parties have agreed that if disputes arise between them in
respect of the subject-matter of the agreement such dispute shall be referred
to arbitration, then such an agreement would spell out an arbitration
agreement.5
Similarly, it was held that failure to pay within time stipulated in the
agreement resulting in breach of the terms of the agreement, it would
validly make the matter to be referred for arbitration provided the terms of
M M T C Ltd. v. Sterlite Industries (India) Ltd., A I R 1997 S C 605.
1. Chamthmal v. Bhagwan Das, A I R 1973 B om . 337.
} S c ... ta D e c ; v Kedar Nath, A I R 1956 A ll. 377 at 382, 383.
4. J u g a i K is k o r e v G o o l Bc>. A IR 1955 S C 812 : (1 9 5 5 ) 2 S C R 8 5 7 : 1956 S C A 499.
5 Rukmaruhai G:.pta v. Collector, Jabalpur, A I R 1981 S C 479.
34 THE ARBITRATION AND CONCILIATION ACT, 1996

agreement contain such clause.1

But, the Apex Court in State o f Uttar Pradesh v. Tipper Chand,2 while
rejecting the findings of the trial court has held that agreement clause in
question merely gave supervisory and administrative control to the
Superintending Engineer and no specific words as ‘arbitration agreement’
appeared in the agreement, therefore, it did authorise parties to refer the
dispute to arbitral forum. In the present case the agreement contained a
clause that "except where otherwise specified in the contract, the decision of
the Superintending Engineer (SE) for the time being shall be final,
conclusive and binding on all the parties to the contract upon all questions
relating to the meaning of specifications, designs, drawing and instructions.
The decision of S.E. as to the quality of workmanship or materials used on
the work or any other questions of claim etc. whether arising out of or
relating to the contract, designs, drawing, classifications, estimates,
introduction orders or conditions concerning execution or progress of work
would also be final and conclusive and binding on the contractor. In this case
the defendant put his contention that above clause in the agreement is to be
treated as an arbitration agreement, however the specific expression
"arbitration agreement" have not appeared in the agreement, while
accepting the plea of the defendant the courts below held that above
agreement clause amounted to an arbitration agreement under Section 34 of
the Arbitration Act, 1940. But, the Apex Court was of the view that only
power conferred on S.E. to take decision oh his own in matter of supervision
and execution of the work and consequently exercise
supervisory/administrative control over it, there is no mention in the
agreement that in case of dispute the matter will be referred to arbitral
forum. Hence, in absence of arbitration agreement the parties can be
referred to arbitration for settlement of their dispute.
(ix) P arties should in ten d to settle th e ir disputes by
a rb itra tio n .— It is one of the essential requirements of an arbitration
agreement that the parties should intend to make a reference to arbitration
in case of any dispute relating to the terms of the contract. There must be
clear intention in this regard, because consent of the parties is necessary
before making a reference to arbitration. Where, there is express intention
in the agreement to resolve the dispute if it arises by way of arbitration, on
arising o f dispute a reference to arbitration may be made by one party
without the -consent of the other party.3
(x) W h eth er a rb itra tio n agreem ent should show b ila te ra l rights
o f reference to the parties.—Whether the arbitration agreement should
show mutuality to confer the right to exercise to initiate arbitration
proceedings. On the point there is conflicting opinions expressed by the High
Courts.
The Calcutta High Court in New India Assurance Co. Ltd. v. Central
Bank o f In d iaf observed that— "where there is an arbitration agreement
providing the option to the parties to elect the dispute being referred to the
1. Nandlal Verma & Co. Ltd. v. Alexendra Jute Mills Ltd., A I R 1 9 8 9 C al. 8.
2. A I R 1 980 S C 1522.
3. Banvari Lai v. P.C. Agarwal, A IR 1985 S C 1003.
4. A I R 1985 C al. 76.
ARBITRATION 35

arbitration, it amounts to a valid arbitration agreement and merely

unilateral option as to refer the dispute to arbitration does not negative the
very existence of the arbitration agreement, it only restricts the
enforceability. The court opined though it lacks mutuality but it cannot be
treated as invalid.
On the other hand the Delhi High Court in Union o f India v. Bharat
Engineering Corporation , l was of the opinion that an arbitration agreement
should show bilateral rights of reference to the parties that means either of
the party should have right of reference to arbitration in a case of disputes
or differences arising between the parties. To illustrate the point the
arbitration clause o f agreement is being given, which reads as under :—
"In the event of any dispute or difference between the parties, the
contractor; after 90 days of his presenting his final claim on disputed
matters, may demand in writing that the dispute or difference be
referred to arbitration. Such demand for arbitration shall specify the
matters which are in question, the difference or dispute and only such
dispute or difference of which the demand has been made and no other,
shall be referred to arbitration."
In this case the court 'has held that in the view of Section 2(a) of the
Arbitration Act, 1940 such arbitration clause in the agreement is not
permissible as it lacks mutuality, an arbitration agreement should have
bilateral terms for reference of disputes to arbitration, it is invalid and not
sustainable.
It is to be noted on the above point till date there is no Hon’ble
Supreme Court’s ruling, it is yet to come.
(xi) U n d e r the A ct oral agreem ent cannot be recognised.—It is
one o f the essential requirements that an arbitration agreement must be in
writing. Neither the Arbitration Act, 1940 nor the Arbitration and
Conciliation Act, 1996 recognises oral agreement. It is a mandatory provision
as provided under Section 7 of the new Act, 1996 which must be complied
with to make a valid arbitration agreement.
In Gopal Chand v. Madan Lai,2 the court refused to recognise oral
agreement regarding arbitration of dispute and it was held that oral
submission/agreement may be the basis of a suit but it cannot be a basis of
arbitration as it has no weight in the eyes of law. Similarly, the Apex Court
in M. Dayanand Reddy v. A.P. Industrial Infrastructure Corporation Ltd. &
others,3 observed that the Arbitration Act, 1940 recognises only written
arbitration agreement and the terms of such agreement must be reduced
into writing, thus, to become a valid arbitration agreement, although, no
particular format is prescribed under the Act.4
(x ii) W h eth er the signature o f p arties is necessary in
a rb itra tio n agreem ent.—Even the Arbitration and Conciliation Act, 1996
nowhere says that an arbitration agreement should necessarily be signed by
both the parties, though the Act makes it mandatory that an arbitration

1. IL R 1 977 D el. (Vol.- ID 57.

2. 1 9 9 0 ) 2 A rb . L R 139.
3. A IR 1 993 SC 22 6 8.
4. Smt. Rukmani Bai Gupta v. The Collector, Jabalpur, A IR 1 989 S C 479.
36 Arbif THE ARBITRATION AND CONCILIATION ACT, 1996
an ^1
agreement must be in writing. The Apex Court in J u gal K ishore
R a m esw a rd a s v. M rs. G oelbai H orm u sji ,l has held that it is not necessary
that both the parties should sign the arbitration agreement. Such agreement
must be reduced into writing and may be signed by one party showing terms
of arbitration agreement and the other party accepts the terms therein. It
can be said that wherein one party signs a written agreement/arbitration
agreement and other party accepts the same, it amounts to a legal
arbitration agreement.2
(x iii) A greem ent m ust expressly or im p lie d ly spell out
a rb itra tio n clauses.—The Apex Court in State o f O rissa v. D a m od a r D a s,3
observed that agreement to refer disputes or differences to arbitration must
be expressly or impliedly spelt from the clause. The relevant clause 25 of the
agreement is as under :—
"25. Decision of Public Health Engineer to be final, conclusive
and binding on all parties to the contract upon all questions relating to
the meaning o f the specifications, drawing and instructions
hereinbefore mentioned and as to the quality of workmanship or
materials used on the work, or as to any other question, claim, right
matter or thing whatsoever in any way arising out of, relating to the
contract, drawings, specifications, estimates, instructions, orders or
these conditions or otherwise concerning the works or the execution or
failure to execute the same, whether arising during the progress of the
work or after the completion or the sooner determination thereof of the
contract."
It was held that clause 25 of the agreement does not contain an
arbitration agreement and there is no arbitration clause in the agreement
nor it envisages any difference or dispute that may arise or had arisen
between the parties in execution of the works for reference to an
arbitration.4
But, the Karnataka High Court in L ach m an n a B. H oram a n i v. S tate o f
K a rn a ta k a ,5 considered the arbitration agreement, namely, clause 29 of the
agreement and held that there is a clause for making reference to an
arbitrator in case of dispute. In present case the petitioner had already
served the notice and there was no response. The court directed that the
arbitrator had to be appointed on account of failure of the respondent in
responding to the request of the petitioner.
The Apex Court in recent judgment in B h ara t B h u san B an sa l v. U.P.
S m all In d u stries C orporation Ltd. 3 has considered its judgment including
the above case7 and observed as follows
"Clause 24 does not mention that dispute can be referred to the
arbitration of the Managing Director. Clause 24 also does not spell out
any duty on the part of the Managing Director to record evidence or to
1. A I R 1955 S C 812.
2. Bharat Steel Tubes v. State o f Bihar, (1 9 9 3 ) A rb . L R 120.
3. A I R 1996 S C 942.
4. State o f Orissa v. Damodar Das, A I R 1 996 S C 9 4 2 ,
5. A I R 1 9 9 8 K a n t. 405.
6. A I R 1 999 S C 899.
7. State o f Orissa v. Damodar Das, A I R 1 996 SC 942.
ARBITRATION 37

hear both parties before deciding the question before him. From the
wording of clause 24 it is difficult to spell out any intention of the
parties to leave any disputes to the adjudication of the Managing
Director of the respondent as an arbitration."
The court ruled that clause 24 of the agreement cannot be treated as
an arbitration agreement.
(xvi) ‘Government Arbitration Agreement’ must satisfy the
requirement of Article 299 of the Constitution of India.—It is well
settled that arbitration agreement must be in writing and signed. However,
if it relates to Government contract it will have, to satisfy the mandatory
requirements of Article 299 of the Constitution. Normally, arbitration
agreement forms a part of the Government Contract, it is as if two contracts
are rolled into one. The essentials of Government arbitration agreement are
as under :—
1. Such an agreement must be expressed, to be made by the
President or the Governor.
2. Such an agreement must be in writing.
3. Execution of such agreement must be by such person and in such
manner as the Government might direct or authorise. It is obvious
if the agreement has not been executed in accordance with Article
299 o f the Constitution of India, 1950, the same cannot be
enforced against the Government or by the Government.1
(xv) Government Arbitration Agreement must be signed by
authorised person.—I f agreements involving Rs. 50,000 and above are to
be signed by the Superintending Engineer, any agreement signed by the
Executive Engineer would be ‘non est’ in law, even though the negotiations
may have been entered into by Superintending Engineer himself.2
(xvi) Arbitration Agreement by Partners of firm.—According to
Russell3 :
"Partners will only be bound by a submission to arbitration upon
proof that they either expressly authorised it beforehand or have
subsequently adopted and ratified it, or unless, by the terms of the
submission, it can be implied that the arbitration was within the
normal scope of the trade or business of the partnership."
Thus, English Law provides that if the agreement is executed by one
of the partners, it is binding on all and it may be treated within the normal
scope of business.
Under the Indian Law.—When one partner signs on behalf of all the
partners in the firm name, it can well be contended that all partners are
signatories through the signing partner as their agent. However, the
question to the validity of an arbitration agreement signed by one partner
in the firm-name must be determined by reference to the relevant legal
provisions, which are contained in Sections 18, 19 and 22 of the Partnership
Act, 1832. It is to be seen that Section 18 of the Partnership Act, 1832
postulates that subject to the provisions of this Act, a partner is the agent
1. AIR 1967 SC 203.
2. Chandra Blian Singh v. State o f Bihar, AIR 1976 Pat. 15.
3. On Arbitration. 20th Edn. p. 32.
38 THE ARBITRATION A N D CONCILIATION ACT, 1996

of the firm for purpose of the business of the firm.

A firm can lawfully be made a party to a reference arbitration. If a firm
enters into a contract containing an arbitration clause in the name of the
firm, the award can be in the name of the firm. An award of arbitration is
not bad because it is made agpinst a firm.1
(xvii) Disputes ariH also difference can be ■ referred to
arbitration.—The Jammu and Kashmir High Court in Ghulam Qadir
Baksh v. State o f J. & K. ,2 observed that apart from dispute, difference also
can be referred to arbitration. Difference is a much wider term than dispute.
"Differences" show the working of the mind of the parties with respect to a
certain matter while "dispute" is a more positive term when the differences
have assumed a more definite and concrete form.
(xviii) Present or future disputes may be referred to
arbitration.-—LThe Arbitration and Conciliation Act, 1996 makes provision
that the arbitration agreement may contain present or future disputes.
Wherein the agreement relates to a present dispute it may amount to a
reference but if it relates to future disputes it is an arbitration
clause/arbitration agreement. It is to be understood that practice of inserting
arbitration clause is an integral part of a business contract.3
(xix) Which disputes are arbitrable.—Under arbitration agreement
the disputes specified therein, are arbitrable disputes. Such disputes would
be considered within the scope of th e. arbitration agreement. In Union o f
India v. D. Bose,4
"A dispute regarding accord and satisfaction based on a no claim
certificate by the contractor was held to be arbitrable."
The question, what is arbitrable dispute, was considered by the Apex
Court in Olympus Superstructures Pvt. Ltd. v. Meena Vijay Khetanf and the
court observed that the words in the main agreement are important and it
is to be seen that disputes arising are in relation to the subject-matter of
the agreement. The words used in the clause in question should be
interpreted liberally to determine whether the dispute which has arisen is
within the ambit of arbitration clause or in main contract.
(xx) Whether Arbitrator can grant specific performance.— On
this point there are conflicting opinions of the various High Courts. The
Punjab, Bombay and Calcutta High Courts are of the view that an arbitrator
can grant specific performance of a contract relating to immovable property
under an award.6
But, the Delhi High Court in P.N.B. Finance Ltd. v. Shital Prasad
Jain? has held that the arbitrator cannot grant specific performance under
1. Vallabhadas Naraindas & Co. v. Keshav Himatlal, AIR 1927 Bom. 428 : 29 Bom. LR
600.
2. AIR 1972 J. & K. 44.
3. Balika Devi v. Kedar Nath Puri, AIR 1956 All. 377.
4. AIR 1981 Cal. 95.
5. AIR 1999 SC 2102.
6. Lakshmi Narain v. Raghbir Singh, AIR 1956 Punjab 245; Fertiliser Corporation o f India
v. Chemical Construction Corporation, ILR (1974) Bom. 856 (DB); Keventer Agro Ltd. v.
Seegram Corporation Ltd., APO 498 of 1997 and APO 449 of 1998.
7. AIR 1991 Del. 13.
ARBITRATION 39

the arbitration agreement.

It is to be noted that view taken by the Punjab, Bombay and Calcutta
High Courts seem to be correct. There is no prohibition in the Specific Relief
Act, 1963 that issues relating to specific performance of contract relating to
immovable property cannot be referred to arbitration. Also there is no
prohibition contained in the Arbitration and Conciliation Act, 1996.
(xxi) "Guarantor"—when not a party to agreement.—The
Supreme Court in S.N. Prasad, M l s Hitek Industrial (Bihar) Ltd. v. Monnet
Finance Ltd. Sectems,1 ruled that having made only one of the guarantors to
execute the loan agreements and having failed to get the appellant to
execute the loan agreements, the joint respondent cannot contend that the
appellant who did not sign the loan agreements containing the arbitration
clause should also be deemed to be a party to the arbitration and be bound
by the awards.
The court observed that an arbitration agreement between the lender
on the one hand and the borrower and one of the guarantors on the other,
cannot be deemed or construed to be an arbitration agreement in respect of
another guarantor who was not a party to the arbitration agreement. There
was no arbitration agreement as defined under Section 7(4) (a) or (b) of the
Act, 1956, in so far as appellant was concerned, though there was an
arbitration agreement of defined under Section 7(4) (a) of the Act 1996 in so
far as appellant was concerned through there was an arbitration agreement
as defined under Section 7(4)(a) of the Act in regard to the second and third
respondents. Further as the letter dated 27.10.1995 does not refer to any
document containing arbitration c la u s e , th ere is a lso n o a r b itra tio n
agreement between first respondent and appellant as contemplated under
Section 7(5) of the Act, 1996.
The Court expressed the view that a guarantor for a loan who is not a
party to the loan agreement containing of the arbitration agreement
executed between the lender and borrower, cannot be made a party to a
reference to arbitration in regard to a dispute relating to re-payment of such
loan and subjected to arbitration award.
(c) ARBITRAL AWARD
Under Section 2(lXc) the word "Arbitral Award" is not defined but it
states that the "Arbitral award" includes an interim award. Although
Section 31(6) submits explanation in this regard as under "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. Thus, an interim award may be the Arbitral Award. So, an
interim award may be a final award.
According to H. Lexicon— "It is an instrument which embodies a
decision of an arbitrator or arbitrators as regards matters referred to him or
them.
Although, according to Russell— "An award in order to be valid, must
be final, certain, consistent and possible and must decide matters to be
submitted and no more than the matters submitted".

1. 2010 (4) Arb. L.R. 205 (S.C.).

40 THE ARBITRATION A N D CONCILIATION ACT, 1996

An arbitral award is not a contract but the decision determined out of

the contract.
An award, whether it is arbitral or interim award is a decision of the
arbitrator or arbitrators which is determined after contentions o f the parties
are considered and an arbitrator or the arbitrators put his or their opinion
in the form of decision. The consent of the parties may not be present in a
decision. An arbitral award decided by the Arbitral Institution judicially will
have binding effect in respect of the parties in dispute.
The contents of an arbitral award must be in writing, not oral. An
arbitral award is like a decree which comes into effect from the date on
which it has been signed and right of the related parties come into effect
from that date onward.1
Any agent on behalf of the parties to dispute if authorised by the
parties may refer the matter to arbitration for settlement of dispute.
In Kishan Lai v. Ram. Swaroop,2 the Allahabad High Court held that
the Vakalatnama submitted by the parties differ in respect of their contents.
The Vakalatnama submitted by the plaintiff authorised the counsel to
compromise the suit or proceeding. In another aspect the Vakalatnama on
record, authorises the counsel to refer the matter to arbitration which
includes power to compromise in arbitration. Therefore, if an agent is
authorised to compromise the dispute it is deemed that he has power to refer
the matter for arbitration.
It is expected that the arbitrator has accepted all claims and
counter-claims and considered them all in quasi-judicial manner before it
could arrive at the final award.
"Arbitral award"—Form and Contents of.—It is to be noted that
the definition of "arbitral award" in Section 2(l)(c) o f the Arbitration and
Conciliation Act, 1996 is not an exhaustive definition. However, every
arbitral award must contain the following five things :—
(i) Factual aspect of disputed matter;
(ii) Submission of the parties;
(iii) Contention of parties to rival submission;
(iv) Arbitrator’s view;
(v) Delivery of an arbitral award.
There is no prescribed form of arbitral award. However, Section 31 of
the Act, 1996 provides certain criteria, which is to be followed by the
arbitrator while delivering the arbitral award.3
Terms and Contents of Arbitral award.—The following terms and
contents are required to be mentioned in the arbitral award :—
1. The arbitral award must be in writing and signed by the
arbitrator/arbitrators.
2. The arbitral award must be based on reasoning. It must be a
speaking award.
3. The arbitral award must show date and place of arbitration.
1. Lai Das v. Bai Lai, 11 Bom. LR 20.
2. 1965 ALJ 698 at 705.
3. Charan Sharan Khemka v. Achint Chemicals. 20fi5M(2) Raj 465 (Raj.).
ARBITRATION 41

4. A certified copy of arbitral award is required to be delivered to

each party.
5. If the arbitral award is for payment of money, the arbitral award
may include interest at such rate as the arbitral tribunal deems
reasonable.
6. The costs of the arbitration, shall be fixed by arbitral award.
7. The language used in passing the arbitral award must be free
from any ambiguity.
(i) A r b itr a l a w a rd operates as res ju d ic a ta .— In Shashi
Sekhareswar v. Lalit Mohan,1 the Privy Council, inter alia observed that a
decree passed on the foundation of arbitral award would have the same
effect as an ordinary judgment of a court and on the question which has
already been decided by the arbitrators it operates as res judicata. But,
where a claim in question has not been included as a subject-matter of
reference to arbitration, it was held that principle o f res judicata will not be
applied in respect of the claim.J
In the view of the Apex Court an arbitral award is to be treated as a
decree passed by the Civil Court, and it is binding on the parties.3
It is submitted that an arbitral award is not a contract but a decision
given on the basis of terms of a contract. An arbitral award must be in
writing because it is like a decree of the Civil Court.
(ii) Essentials of A rb itra l A w ard.—It is well settled legal position
that a valid, proper and enforceable arbitral award must have the following
essential ingredients, which are as follows :—
1. An arbitral award must be in writing and signed.
2. The parties must be competent to initiate arbitral proceedings.
3. A sustainable arbitral award must be reasoned one—Section 31(3)
of the Arbitration and Conciliation Act, 1996.
4. There must be arbitration clause to assign disputes or differences
before arbitral tribunal.
5. The contents of an arbitral award must be connected with the
subject-matter of the dispute arbitrated.
' 6. An arbitral award must be founded on the principle of mutuality.
Where the arbitral award is based on mutual settlement of the dispute
by the parties, no reason need be given.4
(iii) A r b itra l a w a rd m ay be fin a l or in te rim .9 —An arbitral award
may be a final award or an "interim award" unless there is an agreement to
the contrary between the parties and depending upon the nature of the
dispute,‘the arbitrator could make an interim award. An interim award has
the same sanctity as final award. If it was not complied with, it could not
be enforced through the court by the same procedure as in the case of final
award.5
1. A I R 1925 P C 34.
2. Damoder Engineering Construction Co. In Re, (1 9 9 4 ) 1 A rb . L T 133.
3. Satish Kumar v. Surendra Kumar, A IR 1970 SC 833.
4. S e ctio n 3 0 (3 ) o f th e A r b itr a tio n a n d C o n cilia tio n A ct, 1996.
5. S e ctio n 2 7 o f th e A r b itr a tio n a n d C o n cilia tio n A ct, 1996.
42 THE ARBITRATION AND CONCILIATION ACT, 1996

(iv) T im e lim it fo r m aking the a rb itra l aw ard.— The Arbitration

and Conciliation Act, 1996 does not provide any time limit as such for
completing the arbitration. However, mandate of an arbitrator can be
terminated if he fails to act without undue delay "which means in fact if he
is guilty o f undue delay."1
(v) A r b itr a l a w a rd by consent.—The Arbitration and Conciliation
Act, 1996 recognizes the liberty of the parties to come to a settlement. The
arbitrator, if satisfied about the genuineness and validity of the settlement
has to-give an award in terms of the settlement. The Act further envisages
that the arbitrator may encourage efforts at settlement.2 It is to be noted
that the Arbitration Act, 1940 was silent on this point.
(vi) Contents of a rb itra l aw ard.—The requirements of the contents
and form of arbitral award are as under3—
"1. An arbitral award shall be made in writing and shall be
signed by the member of the arbitral tribunal.
2. For the purpose of Section 31(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 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.
(v ii) A r b itra l a w a rd to be made by m a jo rity .—It is mandate of
Section 29(1) o f the Arbitration and Conciliation Act, 1996 that the decision
of the arbitral tribunal shall be made by the majority of all its members. An
arbitral award was required to be signed by the arbitrator to give it validity.
Where there were more than two arbitrators, then unless the arbitration
agreement provided for a unanimous decision, the award would have to be
the decision o f the majority. In case an arbitrator dissented from the
majority decision, he could append his dissenting opinion to the majority
decision, though it is not obligatory.4
(v iii) A r b itra l aw ard shall be fin a l and b in d in g on the
p arties.—As provided under Section 35 of the Arbitration and Conciliation
Act, 1996 an arbitral award shall be final and binding on the parties and
persons claiming under them. Where the time for making the application to
set aside an arbitral award has expired or where such application has been
refused by the court, the award shall be enforced as if it were the decree of
the court.5
It is to be noted that under the present Act it will not be necessary to
make the award a rule of the court and to pass a decree in terms of the
award, as is mandatory under the repealed law.
(ix) L a w of L im ita tio n Applicable to A rb itra l A w a rd .—It is the
mandate of the present Act that the enforcement of an arbitral award shall
1. S e ctio n 14 o f th e A r b itr a tio n a n d C o n cilia tio n A ct, 1996.
2. S e ctio n 30 o f th e A r b itr a tio n a n d C o n cilia tio n A c t, 1996.
3. S e ctio n 31 o f th e A r b itr a tio n a n d C o n cilia tio n A c t, 1996.
4. S e ctio n s 2 ( l ) ( c ) a n d 2 9 (1 ) o f th e A rb itr a tio n a n d C a n c illia tio n A c t, 1996.
5. S e c tio n 3 6 o f th e A r b itr a tio n a n d C o n cilia tio n A ct, 1996.
ARBITRATION 43

be subject to Limitation Act,1 as it is applicable to "contracts" and thus a

suit for specific performance could be filed within the period of limitation as
prescribed under Article 54 of the Limitation Act, 1963. Therefore, after the
expiry o f period of limitation an arbitral award cannot be set aside. It would
amount to waiver of rights by the parties.
On the point of limitation for setting of arbitral award, Section 34 of
the Act provides that an application for setting aside the arbitral award may
not be made after three months have elapsed from the date on which the
party making that application has received an award on ground, specified in
the section.
(x) W h eth er stamp d u ty payable on a rb itra l aw ard .—In fact the
Arbitration and Conciliation Act, 1996 contains no provision regarding
payment of stamp duty on the arbitral award. Thus, an arbitral award has
to be stamped with requisite stamp duty in accordance with the Indian
Stamp Act, 1899. This point is outside the scope of law of arbitration. It is
true that the rates of stamp duty vary from State to State. In case arbitral
award is not adequately stamped or there is insufficiency as to stamp duty,
even then the arbitral award can be admitted in evidence after payment of
proper stamp duty together with the penalty prescribed under the Indian
Stamp Act, 1899.
(xi) E vidence adm issibility of unstam ped a rb itra l aw ard.—In
Kodandapami v. Kadidela Raja Mouli'2 it was held that if an unstamped
and unregistered arbitral award is admitted in evidence without objection,
it cannot be ignored in view of Section 36 of the Stamp Act. But, if it is
compulsorily registrable as creating a lease for six years in immovable
property, it cannot be relied upon as evidence of acquisition of any right in
immovable property. It cannot be used to resist the claim of the landlord for
recovery of possession of the demised premises.
(x ii) W h eth er a rb itra to r can aw ard interest.— Section 31(8) of the
Arbitration and Conciliation Act, 1996 empowers the arbitrator to award
interest from the date of submission to arbitration to the date of the arbitral
award. Thus, under this Act the arbitrator’s power extends to the
pre-arbitration period and also to the period for which the arbitration
remains pending.
The Apex Court in Secretary to the Government o f Orissa v. Raghunath
Mahapatra ,3 has held that even under the Arbitration Act, 1940, the
arbitrator could award interest from the date of submission to arbitration to
the date of the award. Section 31(d) of the Arbitration and Conciliation Act,
1996 empowers the arbitrator, in a monetary award to include interest on
the amount, unless otherwise agreed by the parties. Thus, the provision
under the new Act has widened the powers of the arbitrator because the
power is expressed as "covering the whole or any part of the period between
the date on which the cause of action arose and the date on which the
arbitral award is made."
(x iii) An In te rim a w a rd is a p a rt o f fin a l a w ard .—According to

1. S e c tio n 3 4 (3 ) o f th e A r b itr a tio n a n d C o n cilia tio n A ct, 1996.

2. A I R 2 0 0 3 A P 257.
3. (1 9 9 2 ) C L A 54.
44 THE ARBITRATION AND CONCILIATION ACT, 1996

Section 2(l)(c) of the Arbitration and Conciliation Act, 1996 the expression
"arbitral award" shall include an interim award also. Thus, under this
provision the arbitrator is empowered to make interim award if it is sought
or it depends upon the nature of dispute. An interim award shall have the
same sanctity as final award. Thus, an interim award, if it is passed, shall
be binding on the parties to arbitration.1
(xiv) An arbitral award treated as a decree of a court.—The
Apex Court in Satish Kumar v. Surendra Kumar,2 has held that an arbitral
award is treated as a decree of a court and it does not matter whether it
has passed? into decree or not hence it is binding upon the parties.
(xv) Foreign arbitral awards.—Under Part II of the Arbitration and
Conciliation Act, 1996 the foreign arbitral awards are enforceable in
accordance with the Geneva Convention and New York Convention and such
foreign arbitral awards are considered as a decree of a court. However, if
neither of the convention is adopted, by any country such country shall be
outside the scope of Part II of the Act and such foreign arbitral awards
cannot be enforced in India.3
(xvi) Arbitral Award under Act, 1996 distinguished from the
Arbitral Award under old Arbitration Act, 1940.—The Supreme Court
in Morgan Securities and Credit (P) Ltd. v. Modi Rubber Ltd.,4 has held that
under old Arbitration Act, 1940 an arbitral award was required to be made
a use of Court to make it enforceable, but under the new Arbitration and
Conciliation Act, 1996, an arbitral award is to be treated to be a decree even
without intervention of the court only for the limited purpose of its
enforceability.
In view of the Supreme Court an arbitral award under the Arbitration
and Conciliation Act, 1996 indisputably stands on a different footing vis-a-vis
an arbitral award made under the Arbitration Act, 1940. Whereas under the
Act, 1940, an arbitral award was required to be made a rule of the Court to
make it enforceable, the Arbitration and Conciliation Act, 1996, however
raises a legal fiction. Once an application challenging an award is filed, the
award remains under suspension in the sense that it would not be
enforceable. Only upon expiry of the period specified in Section 34 of the Act,
1996 to challenge an award or when such objection is refused, would the
same become enforceable. Section 36 of the Act, 1996 merely specifies as to
how such an award can be enforced by laying down that it can be enforced
as if it were a decree. The legal fiction created under Section 36 of the Act,
1996 has, therefore, a limited application. An arbitral award is to be treated
to be a decree even without intervention of the court only for limited purpose
o f its enforceability.
(d) ARBITRAL TRIBUNAL
Under Section 2(l)(d) of the Arbitration and Conciliation Act, 1996 the
term "arbitral tribunal" means a sole arbitrator or a panel of arbitrators. It

1. Section 35 of the Arbitration and Conciliation Act, 1996.

2. AIR 1970 SC 833.
3. Sections 49 and 58 of the Arbitration and Conciliation Act, 1996 read with Section 44-A
of the Code of Civil Procedure, 1908.
4. AIR 2007 SC 683.
ARBITRATION 45

is to be noted that composition of arbitral tribunal has been provided in

Chapter II namely, in Section 10 of the said Act, wherein the parties are
free to determine the number of arbitrators, provided that such number
shall not be even number. Failing the determination referred to in Section
10(1) of the Act, arbitral tribunal shall consist of a sole arbitrator. A sole
arbitrator or a panel of arbitrators can be appointed by third designated
party provided there is an agreement in this regard.
(i) A b o litio n of the um pire system u n d e r the new Act.—Where
the number o f arbitrators agreed upon is three and in absence of procedure
regarding appointment of the umpire or Presiding Arbitrator, each party
shall appoint one arbitrator and the two arbitrators so appointed, shall
appoint a third arbitrator as Presiding Arbitrator. Under the old Arbitration
Act, 1940 such Presiding Officer was referred to as umpire, however the
umpire system has been abolished under the new Arbitration and
Conciliation Act, 1996.
(ii) A rb itra to rs to have requisite qualifications agreed to by
th e parties.—The old Arbitration Act, 1940 was silent on the subject of
qualification of arbitrators. Now the new Act emphasises on appointment of
arbitrator/arbitrators who have specialisation in the respective field relating
to arbitrable dispute in hand. It has been seen that most of the disputes are
technical in nature requiring special knowledge of technology, commerce,
industries etc. and such disputes can be adjudicated upon only by persons
having expertise in these fields. Thus, on the ground of non-possessing of
requisite qualifications, the appointment of an arbitrator can be challenged.1
(iii) A rb itrator- to ru le its own ju ris d ic tio n .—Under the
Arbitration Act, 1940 there was no provision on the issue of jurisdiction of
arbitrator and where the authority of the arbitrator was disputed the parties
were required to refer the dispute to the court for proper adjudication. But,
the new Arbitration and Conciliation Act, 1996 has conferred on the
arbitrator/arbitral tribunal the power to rule upon its own jurisdiction
regarding the validity or existence of the arbitration agreement.2
In view of the Apex Court the expression "jurisdiction" connotes "power
to decide" therefore mere irregularity in arbitral proceeding is covered within
the expression jurisdiction.3
In case any party seeks to challenge the jurisdiction of arbitral tribunal
he must raise his objection before the submission of the statement of defence
but not at later stage of arbitral proceedings. It is well settled that objection
as to jurisdiction has to be settled at initial stage of the arbitral proceedings.
(iv) A r b itra l trib u n a l is not a court.—An arbitral tribunal, though
discharges the functions of quasi-judicial nature on principle of natural
justice and fair play, yet an arbitral tribunal is not a court of law. The Apex
Court in Engineering Mazdoor Sabha v. Hind Cycles Ltd. ,4 has held that the
arbitral tribunal does not constitute a court in technical sense.

1. S e c tio n 12 o f th e A r b itr a tio n a n d C o n cilia tio n A ct, 1996.

2. S e ctio n 1 6 (1 ) o f th e A r b it r a tio n a n d C o n cilia tio n A ct, 1996.
3. Syndicate Bank v. Gangadhar, A I R 1992 K a n t. 163; see a lso Union o f India v. Keshori
Lai, A I R 1 9 5 9 S C 13 6 0; Ravi Engineering v. Narang Mills, A I R 1 9 9 4 P . & H . 183.
4. A IR 1 963 S C 874.
46 THE ARBITRATION A N D CONCILIATION ACT, 1996

(v) Arbitration proceedings to proceed expeditiously.—Wherein

the arbitrators are unable to perform expeditiously and fail to proceed
expeditiously, in such a case an aggrieved party can seek court’s
intervention. The Apex Court in Government o f Andhra Pradesh v. K.M.
Rao,1 permitted the appointment of person ex-officio to perform as arbitrator
in place of originally appointed Government Engineers. In the present case
three arbitrators were appointed who were Government officers and
Engineers and the arbitration proceedings were not undertaken
expeditiously. Therefore, the court was justified in directing the appointment
of persons ex-officio.
It is submitted that the very purpose of arbitral proceedings will be
defeated if the proceedings are not held expeditiously.
(vi) Impartiality in arbitration proceedings must be
maintained.—The mandate of the new Arbitration law lays down that
arbitrators are required to disclose expressly any situations and
circumstances which are likely to give rise to reasonable doubt regarding
their independence or impartiality in the proceedings. Thus, the arbitrators
are under a legal obligation to intimate the parties expressly i.e., in writing
about their interest, if any in the dispute.2
(vii) Establishment of statutory arbitral tribunal.— Several State
Governments in India have established arbitral tribunals by incorporating
Special Act, these tribunals are given jurisdiction to deal with disputes or
differences regarding claims exceeding certain value. Ordinarily, these
statutory tribunals deal with the arbitration wherein Government is one of
the parties. Members of such statutory arbitral tribunals are appointed by
the Government and these tribunals have their own procedure. Undoubtedly
statutory arbitral tribunals are not to be treated as arbitral institutions,
because statutory arbitral tribunals directly arbitrate being ‘ex-officio’
arbitrators whereas arbitral institutions provide the list of arbitrators for the
parties to make choices regarding appointment of the arbitrator.
It was held that such arbitral tribunal exercises judicial power of
State.3
(e) COURT
The term ‘Court’ has been defined under Section 2(l)(e) of the
Arbitration and Conciliation Act, 1996. The said section does not include an
arbitral tribunal. According to Section 2(l)(e) of the Act the 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 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."
An arbitral tribunal is constituted to settle disputes when the parties
intended to settle dispute mutually by agreement but the court is constituted
by the State invested with the State’s given inherent judicial powers. Under
1. (1994) 1 Arb. LR 177.
2. Section 12 of the Arbitration and Conciliation Act, 1996.
3. G.C. Kanungo v. State o f Orissa , AIR 1995 SC 1655.
ARBITRATION 47

the Act the expression "Civil Court" does not include a revenue court.1 In
order to determine the jurisdiction of the court it does not mean necessarily
that the whole subject-matter should be raised in its jurisdiction. The
jurisdiction of the court would fall under the circumstances where the
contestants reside, or disputed property is situated in local limit o f that
court.2 In Monghayar Electricity Supply Co.3 the Patna High Court held that
the "Court" means "Civil Court" and it is well settled that the "Revenue
Court" is not a Civil Court because the subject-matter before a revenue court
differs from the matter which comes before a civil court. Section 2(e) is to
be read with Section 31 of the Arbitration Act, 1940 which determines the
jurisdiction of the Court.4
To decide jurisdiction of the Court on subject-matter of arbitration, the
Court necessarily has to weigh the pleadings o f the parties and the court has
to mark out the points of difference between the parties.5
.The expression "Court" under Section 2(l)(e), includes a High Court
which is exercising original civil jurisdiction would be the court for the
purpose of the Act. .
According to Section 2(4) o f the Code o f Civil Procedure, 1908— "The
principal Civil Court of original jurisdiction in a district is the district court".
Thus every civil court cannot be the principal civil court o f original
jurisdiction.
It is clear that the principal civil court of original jurisdiction is a part
of ordinary hierarchy of courts which is distinguished from a subordinate
court.6 The last part of Section 2(l)(e) also provides distinction that "any civil
court of a grade inferior to such principal civil court, or any court of small
causes".
M ean in g o f w o rd "Court"
The word "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 to decide the question
forming the subject matter of the arbitration if the same had been the
subject matter o f a suit, but does not include any civil court o f a grade
inferior to such Principal Civil Court or any court of small causes.7
A rb itra l a w a rd can be challenged in th e court
Arbitration agreement may cover all the disputes between the parties
in the proceedings before the court and even more than that. In the present
case arbitration agreement has to satisfy the requirement of Section 7 of the
new Act. The language o f Section 8 of the new Act is pre-emptory. It is
therefore obligatory for the court to refer the parties to arbitration in terms
of their arbitration agreement. Nothing remains to be decided in the original
action or the appeal arising therefrom. There is no question of continuance
1. Jai Singh v. Mangtoo, AIR 1962 HP 10, 13.
2. Kansetji v. Shivabai, AIR 1943 Bom 32.
3. AIR 1968 Pat 166.
4. Tebu Enterprises P. Ltd. v. Chaimco Industries Ltd., AIR 1984 Cal 24 (DB).
5. Indian Minerals Co. v. N.I.L.M. Assocn., AIR 1958 All 692, 696.
6. Mallappa v. Mallava, AIR 1960 Mys 292, 293.
7. Motilaoswal Securities Ltd. Mumbai v. D. Renuka, 2011 (3) MLJ 89 (Mad.).
48 THE ARBITRATION AND CONCILIATION ACT, 1996

o f the proceedings till the arbitral proceedings conclude and the award
becomes final in terms of the provisions of the new Act. All the rights and
obligations and remedies of the parties would now be governed by the new
Act including the right to challenge the award. The court to which the party
shall have recourse to challenge the award would be the court defined in
Section 2(e) o f the new Act and not the court to which an application under
Section 8 of the new Act is made.1
In Manohar Lai v. Vinesh Anand,2 the Apex Court has held that the
arbitrator is not included in the definition of "Court'Tor the purpose of
Section 195 of Cr.P.C. and therefore, provisions of Section 340, Cr.P.C. will
not be attracted.
(f) IN T E R N A T IO N A L C O M M E R C IA L A R B IT R A T IO N
Section 2(l)(f) of the Act is based on the Model Law, which derives
guidelines from the footnote annexed to Article 1 of the Model Law. It is the
subject to interpretation as to international commercial relationships in
reference to the law o f India. Section 28 provides rules applicable to
substance of dispute, where the place of arbitration is in India or any foreign
country.
The Supreme Court of India in R.M. Investments and Trading Co. Pvt.
Ltd. v. Boeing Co.,3 held that the expression "commercial" in Section 2 of the
Foreign Awards (Recognition and Enforcement) Act, 1961 should be
construed broadly having regard to the manifold activities which are integral
part of international trade today and that aid can also be taken from the
footnote annexed to Article 1 of the Model Law for this purpose.
To invoke international commercial arbitration it is necessary that
atleast 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) a company or 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.
The above definition of expressions "International Commercial
Arbitration" is based on Article 1 of the Model Law. It appears from the
above definition that the nationality of the parties are the only determinants
to constitute an international commercial arbitration and not the
subject-matter of arbitration. Therefore, if the parties to particular
international and commercial intercourse are Indian nationals, in such a
case international commercial arbitration under the Arbitration and
Conciliation Act, 1996, will not be invoked.

1. P. Anand Gajapathi Raju v. P.V.G. Raju, A IR 2 0 0 0 S C 1 886 : 2 0 0 0 (3 ) S u p re m e 4 6 4 :

2 0 0 0 (4 ) J T 590.
2. A I R 2 0 0 1 S C 1 820 : 2 0 0 1 (4 ) J T 873 (SC ).
3. A I R 1 994 S C 11 3 6, 1140.
ARBITRATION 49

(i) A p p lic a b ility of Act, 1996 to in te rn a tio n a l com m ercial

a rb itra tio n .—The Supreme Court in Bhatia International v. Bulk Trading
S.A.,1 ruled that the provisions of Part I would apply to all arbitrations and
to all proceedings relating thereto. Where such arbitration is held in India
the provisions o f Part I would compulsorily apply and parties are free to
deviate only to the extent permitted by derogable provisions o f Part I. In
cases of international commercial arbitrations held out of India provisions of
Part I would apply unless the parties by agreement, express or implied,
exclude all or any of its provisions. In that case the laws or rules chosen by
the parties would prevail. Any provision, in Part I which is contrary to or
excluded by that law or rules will not apply.
However, Article 23 of the ICC Rules permits parties to apply to a
competent judicial authority for interim and conservatory measures.
Therefore, in such cases an application can be made under Section 9 of the
Arbitration and Conciliation Act, 1996.
The Court was of the view that if the submission made on behalf of the
appellant Part I of the Arbitration and Conciliation Act, 1996 does not apply
if the arbitration takes place outside India, if accepted it would—
(a) amount to holding that the legislature has left a lacunae in the
said Act. There would be a lacunae as neither Part I or Part II
would apply to arbitration held in a country which is not a
signatory to the New York Convention or the Geneva Convention
(hereinafter called "a non-convention country"). It would mean
that there is no law in India, governing such arbitration;
(b) lead to an anomalous situation, inasmuch as Part I would apply
to Jammu and Kashmir in all international commercial
arbitrations but Part I would not apply to the rest of India if the
arbitration takes place out of India;
(c) lead to a conflict between sub-section (2) of Section 2 on the one
hand and sub-section (2) of Section 2 would also be in conflict with
Section 1 which provides that the Act extends to the whole of
India;
(d) leave a party remediless inasmuch as in international commercial
arbitrations which take place out of India the party would not be
able to apply for interim relief in India even though the properties
and assets are in India. Thus, a party may not be able to get any
interim relief at all.
The Court further said that it must be borne in mind that the very
object of the Arbitration and Conciliation Act, 1996 was to establish a
uniform legal framework for the fair and efficient settlement of disputes
arising in international commercial arbitration.
A reading of the provisions of the Arbitration and Conciliation Act,
1996 shows that it applies to arbitrations which are held in India between
Indian nationals and to international commercial arbitrations whether held
in India or out of India. Section 2(l)(f) defines an international commercial
arbitration. The definition makes no distinction between international
commercial arbitration held in India or outside India. An international
1. (2 0 0 2 ) 4 S C C 105 : A I R 2 0 0 2 S C 1432.
50 THE ARBITRATION AND CONCILIATION ACT, 1996

commercial arbitration may be held in a country which is signatory to either

the New York Convention or the Geneva (i.e., the Convention country). An
international commercial arbitration may be held in a non-convention
country. The said Act nowhere provides that its provisions are not to apply
to international commercial arbitration which take place in a non-convention
country. Admittedly, Part II only applies to arbitrations which take place in
a Convention country.
The Apex Court in National Agricultural Coop. Marketing Federation
India Ltd. v. Gains Trading Ltd.,1 has held that merely because Hong Kong
is mentioned as the venue it does not imply that laws in force in Hong Kong
would apply, since the arbitration clause clearly states that the Arbitration
and Conciliation Act, 1996 will apply.
In view of the Apex Court the rules of interpretation require the
arbitration clause to be read in the ordinary and natural sense, except where
that would lead to absurdity. No part of a term or clause should be
considered as a meaningless surplus, when it is in consonance with the other
parts of the clause and expresses the specific intention o f parties.
The arbitration clause in the aforesaid case makes it clear that the
matter in dispute shall be referred to and finally resolved by arbitration in
accordance with the provisions of the Arbitration and Conciliation Act, 1996
(or any statutory modification, enactment or amendment thereof) and the
venue o f arbitration shall be Hong Kong. This interpretation does not render
any part of the arbitration clause meaningless or redundant. Merely because
the parties have agreed that the venue of arbitration shall be Hong Kong, it
does not follow that laws in force in Hong Kong will apply. The arbitration
clause states that the Arbitration and Conciliation Act, 1996 (An Indian
Statute) will apply. Therefore, the said Act will govern the appointment of
arbitrator.
(ii) In te rn a tio n a l Com m ercial A rb itra tio n , ouster of
ju ris d ic tio n to be expressed.—Section 2(l)(f) o f the said Act defines an
international commercial arbitration and makes no distinction between
international commercial arbitrations which take place in India or
international commercial arbitrations which take place outside India. Section
2(l)(e) defines— "Court" but does not provide that the Courts in India will
not have jurisdiction if an international commercial arbitration takes place
outside India. The Courts in India would have jurisdiction even in respect of
an international commercial arbitration. An ouster of jurisdiction cannot be
implied. An ouster of jurisdiction has to be express.”
In international commercial arbitrations parties are at liberty to
choose, expressly or by necessary implication, the law and the procedure to
be made applicable. The procedure on the rules governing such arbitration
may be o f the country where the arbitration is being held or the body under
whose aegis the arbitration is being held— all bodies which conduct
arbitrations and all countries which have rules and laws governing
arbitrations. Thus, Section 28 of the Act does not provide for rules where the
place of arbitration is out of India.3
1. A I R 2 0 0 7 S C 23 2 7.
2. Bhatia International v. Bulk Trading S.A., (2 0 0 2 ) 4 S C C 105 : A I R 2 0 0 2 S C 1432.
3. Ibid.
ARBITRATION 51

(iii) In te rn a tio n a l A rb itra tio n —A n ouster o f ju ris d ic tio n cannot

be im p lied .—According to the Madras High Court Section 2(1) (f) of the
Arbitration and Conciliation Act, 1996 defines an international commercial
arbitration and makes no distinction between intend commercial arbitrations
when take place in India or international commercial arbitration when take
place outside India. Section 2(1) (e) defines "court" but does not provide that *
the courts in India will not have jurisdiction if an international commercial
arbitration takes place outside India. The Courts in India would have
jurisdiction even in respect of an international commercial arbitration.
Hence, ouster of jurisdiction cannot be implied. An ouster o f jurisdiction has
to be express.
(iv) Essentials to constitute in te rn a tio n a l com m ercial
a rb itra tio n . 197In Gas Authority o f India Ltd. v. Sopica Spie Capagf the
Delhi High Court laid down the essential ingredients to constitute an
international commercial arbitration, which are as follows :—
(i) atleast one of the parties should have its place of business abroad;
or
(ii) as per the agreement the performance is required abroad; or
(iii) the subject-matter of the commercial transaction is located
abroad; or
(iv) one of the parties to commercial transaction is a foreign national.
It is clear from the above rulings of the court that to qualify the
international character of the commercial arbitration, there are three chief
essentials— as under
1. The parties should have commercial transaction between the parties.
2. Either party should have foreign location o f principal business.
3. Subject-matter of the commercial transaction should be in a
foreign country.
(v) Expression "Commercial"—C onnotation of.—The Indian
Arbitration Law does not provide exhaustive definition of the expression
"commercial". However, in ordinary parlance the expression "commercial"
means any activity involving trade and commerce and wherein nature of
relationship is commercial.
The Apex Court in Fateh Chand v. State o f Maharashtra ,2 laid down
definition o f expression "commercial"— "any service or activity which in
modern business would be considered to be lubricant for the wheels of
commerce is commercial".
In the view o f the Foreign Awards (Recognition and Enforcement) Act,
1961 the term "commercial" should be interpreted broadly having regard to
a number of activities which are essential elements of modern international
trade. The Supreme Court in R.M. Investments & Trading Co. v. Boeing Co.,3
has held that consultancy services are of a commercial nature. The court
observed that consultancy services including managerial assistance and
relevant information are being provided with the purpose to promote sale of

1. A I R 1 9 9 4 D e l. 75.
2. A I R 1 977 S C 1825.
3. A I R 1 994 S C 1136.
52 THE ARBITRATION AND CONCILIATION ACT, 1996

Boeing aircrafts and as such are commercial activities in nature.

Thus, it can be said that the term "commercial" has wide scope to
include various activities pertaining to trade and business. The footnote
annexed to Article 1 of the Model Law too reads as follows :—
"The term ‘commercial’ should be given a wide interpretation so as
to cover matters arising from all relationship of a commercial nature,
whether contractual or not. Relationships of a commercial nature
include, but are not limited to, the following transactions : any trade
transaction for the supply or exchange of goods or services; distribution
agreement; commercial representation or agency, factoring, leasing;
construction works, consulting, engineering, licensing, investment,
financing, banking, insurance, exploitation agreement or concession,
joint venture and other forms of industrial or business co-operation,
carriage of goods or passengers by air, sea, rail or road."
Therefore, Section 2(l)(f) of the Arbitration and Conciliation Act, 1996
leaves the matter o f determining as to what are commercial relationships to
the law for the time being in force in India. The present law is on the
foundation of the UNCITRA1 Model Law on International Commercial
Arbitration, 1985, the courts in India are expected to derive guidance from
the footnote annexed to Article 1 of the said Model Law in the application
and interpretation of the term "commercial" in Section 2(l)(f) of the
Arbitration and Conciliation Act, 1996.
In the view of the Apex Court the expression "commercial" as occurring
in Section 2(l)(f) of the Act, 1996 and in Section 2 of the Foreign Awards
(Recognition and Enforcement) Act, 1961 should be construed broadly having
regard to manifold activities which are integral parts of international trade
today and the aid can also be taken from footnote annexed to Article 1 of
the Model Law for this purpose.1
(vi) Whether arbitration is international.—The UNCITRAL Model
Law provides the definition of International Commercial Arbitration. Article
1(3) of the Model Law defines as under :—
Arbitration is international under Article 1(3) :
(a) if the parties at the time of the conclusion of their arbitration
agreement had their places of business in different States; or
(b) even if they have their places of business in the same State, if the
place of arbitration or the place where substantial part of
obligation of the commercial relationship is to be performed or the
place with which the subject-matter of the dispute is most closely
connected, is outside that State; or
(c) the parties have expressly agreed that the subject-matter of the
arbitration agreement relates to more than one country.
Thus, the arbitration is said to be international in terms of the
UNCITRAL Model Law only on consideration of one of the three
elements :—
(i) parties;
(ii) the place of arbitration; and
1. R.M. Investment and Trading Co. v. Boeing Co., AIR 1994 SC 1136.
ARBITRATION 53

(iii) the subject-matter.

But, in accordance with Section 2(f) of the Arbitration and Conciliation
Act, 1996 only the factor of parties determines the character of arbitration
to be international.
The Apex Court in National Aluminium Co. Ltd. v. Metalimpex Ltd.?
held that arbitration between an Indian Company and Bangladeshi company
was an international commercial arbitration.
(vii) "International Commercial Arbitration" vis-a-vis "Domestic
Arbitration".—The Supreme Court in T.D.M. Infrastructure Private Ltd. v.
U.E. Development India Pvt. Ltd ,,2 had an occasion to interpret the word
"means" in the context of international commercial arbitration vis-a-vis
domestic arbitration. According to the Court word "means" occurring in an
interpretation clause must be given restrictive meaning. "International
Commercial Arbitration" and "Domestic Arbitration" connote two different
things. Former means "a body corporate which is incorporated in any
country other than India". "Domestic arbitration" is excluded from the
purview of "International Arbitration". A company incorporated in a country
other than India is excluded from the said definition. It cannot be included
on the premise that its central management and control is exercised in any
country other than India. Section 2(l)(f)(iii) of the Act includes a company
registered and incorporated under the Companies Act but the same also
includes an association o f persons or body of individuals which may also be
a foreign company. In such cases the Court would not interpret the words
in such a manner which would be opposed to the intention of the parties. A
statute providing an arbitration between the parties and a taxing statute
must be interpreted differently. Hence, provisions of Income Tax Act are not
in pari-materia with provisions o f the Act, 1996.
(viii) Arbitration—Foreign Award—Applicability of Part I of
the Arbitration and Conciliation Act, 1996.—In view of the Supreme
Court3 the provisions of Part I of the Act, 1996 would apply to all
arbitrations including international arbitration and to all proceedings
relating thereto. Where proceeding is held in India, those provisions would
compulsorily apply and parties would be free to deviate therefrom to the
extent permissible therein. However, in case of international commercial
arbitrations out of India, these provisions would apply unless parties by
agreement, express or implied, exclude all or any of its provisions.
(g) LEGAL REPRESENTATIVE
The definition of "Legal Representative" contained in Section 2(l)(g) of
the Act, 1996 does not differ from the definition provided by the Act of
1940—Section 2(d).
The phrase "legal representative" has been defined under Section 2(11)
of the Civil Procedure Code, 1908, which states that—
"legal representative" means a person who in law represents the
estate of a deceased person, and includes any person who intermeddles
1. 2001 (6) SCO 372.
2. 2008 (2) Arb. LR 439.
3. Inventure Global Engineering v. Satyam Computer Services Ltd. & another , 2Q08 (1) Arb.
LR 137 (SC).
54 THE ARBITRATION AND CONCILIATION ACT, 1996

with the estate of the deceased, and where a party sues or is sued in
representative character the person on whom the estate devolves on the
death of the party so suing or sued. Section 40(1) of the Act also
recognises the legal representative, which states that "Arbitration
agreement not to be discharged by death of party thereto". Thus, the
rights of a deceased would be transferred to the person, namely the
legal representative. Therefore, arbitration would not be terminated by
the death of the party.
The Indian Succession Act, has extended the expression legal
representative and also the courts, now it includes heirs and persons who
are without the title i.e., heirs, administrators or executors, however they
are in possession of the estate of the deceased.
The following persons are legal representatives—
1. who represents the estate of deceased person,
2. who interferes with the estate of deceased person, and
3. a representative of any legal representative.
L e g a l r e p r e s e n t a t iv e — U n d e r th e C o d e o f C i v i l P r o c e d u r e , 1908
(i) T h e r e s h o u ld b e s u b s t a n t ia l r e p r e s e n t a t io n . — Considering the
phrase "legal representative" the Madras High Court in Subramania Pillai
v. Masterly,1 has observed that "it is not always a legal requisite that,
inevitably, only the heirs, all of them or any of them should figure as legal
representatives. The procedural law requiring representation will stand
satisfied if there is substantial representation in the sense that all that could
be done in defence was done by some one interested in the issue in the' suit.
( ii) T h e w o r d " re p r e s e n ta tiv e " is m u c h w id e r t h a n th e w o r d s
"le g a l r e p r e s e n t a t iv e " . —The Apex Court in Gangabai Gopaldas Mohata v.
Fulchand & others,2 observed that the word "representative" used in Section
47 of the Code of Civil Procedure, 1908 is much wider than the words "legal
representative" used in Section 50 of the Code. If a person approaches the
executing court claiming to be representative of decree holders’ interest in
the decree and decree holder disputes, the executing court has to resolve the
dispute by proceeding with the execution of decree.
( iii) A "V en d ee" i s n o t a le g a l r e p r e s e n t a t iv e . —A reading of the
definition of the phrase legal representative’ given in Section 2(11) of the
Code of Civil Procedure, 1908 would show that a person can be said to be
legal representative if he represents the estate of a deceased. In the present
case namely ‘Babulal Jain’, he, did not represent the estate of the deceased
inasmuch as the right which ‘Babulal Jain’ had, did not accrue on the death
of deceased, but on a transfer made to him by the latter in his lifetime.
Therefore, he could not come in as a man entitled to have his name
substituted in consequence of the death of the original plaintiff. It was held
that ‘Babulal Jain’ could not be a legal representative o f the deceased during
the lifetime of the latter.3
Similarly, a transferee is not a legal representative. The Himachal

1. AIR 1979 Mad. 303 (DB).

2. AIR 1997 SC 1812 : 1997(11 JT 343.
3. Krishan Sharma v. Shital Prasad, AIR 1979 All. 345.
ARBITRATION 55

Pradesh High Court in Subharam v. Bahadur Singh? while considering

various authorities held that a transferee is not a legal representative o f a
deceased vendor and does not come within the definition given under Section
2(11) of the Code of Civil Procedure, 1908.
(iv) The term "legal representative" is not confined to legal
heirs alone.— While considering the term 'legal representative’ the Apex
Court in Charanjilal Shrilal Goenka (deceased) through LR’s v. Jasjit
Singh,2 has held that the term ‘legal representative’ is very wide and
inclusive. Therefore, it is not confined to legal heirs alone and includes
executors, administrators, assigners or persons who acquired interest under
Order XXII, Rule 10 or legatee under a will. Similarly, Full Bench of the
Sikkim High Court in Bishnu Kala v. Bishnu M aya? has held that legal
representative for the purpose of a civil suit need not be, as will be
irresistibly clear from the definition of the expression "legal representative"
in Section 2(11) o f the Code of Civil Procedure, 1908, the legal heirs of the
persons concerned or a person who in law represents the estate of the
deceased, but may also be person intermeddling* with the estate of the
deceased even though such person is not the legal heir.
But where in a claim petition under the Motor Vehicles Act, the injured
claimant died during the pendency of claim petition and her husband was
substituted as legal representative, on the death of such husband, his
mother cannot be brought on record as she is not legal representative of the
victim.4
Thus the above discussion of the term ‘legal representative’ shows that
a person who in law represents the estate of a deceased person, who
intermeddles with the estate of the deceased and also person who acts in a
representative character and on whom the estate devolves on the death of
the party so acting, all these persons are considered as legal representative’,
even in the context of the Arbitration and Conciliation Act, 1996 because
definition of the term given in Section 2(lXg) of the Act affirms its scope
widely.
(h) PARTY
According to Section 2(l)(h) o f the Arbitration and Conciliation Act,
1996 the expression ‘party5 means a party to an arbitration agreement. It is
to be noted that for the first time the expression ‘party’ has been defined
under the new Arbitration and Conciliation Act, 1996. Thus, the arbitration
agreement may be between two or more persons, or between body o f persons
or between incorporated bodies and also between the person/persons and
incorporated body/bodies. But, certainly they are disputed parties who
submit their dispute for settlement under an arbitration agreement.
However, in arbitration dispute the parties are called ‘claimant’ and
‘respondent’ but not ‘plaintiff and ‘defendant’ as it is done in a civil suit. In
view o f present Arbitration Law the legal representatives of the claimant
and the respondent are treated as a party to an arbitration agreement, thus

1. AIR 1973 H.P. 44.

2. 1993 (2) SCC 507 : 1993 (2) JT 341.
3. AIR 1980 Sikkim (FB).
4. New India Assurance Co. v. Kashmirilal, AIR 1990 P. & H. 98.
56 THE ARBITRATION AND CONCILIATION ACT, 1996

they can participate and put their submission before the arbitral tribunal.
The Apex Court in Custodian o f Banco Ultamarino v. Nalini Bai, has
held that persons who represent the estate even without title either as
administrators or executors, who are in possession o f the estate of deceased
respondent/claimant are required to be inducted as ‘party’ to an arbitration
agreement.
In the context of the arbitration proceedings ‘parties interested’, cannot
be treated as a party because such person (party) is not a party to an
arbitration agreement. The arbitral tribunal under the new Act, 1996 only
empowers to settle the dispute between the parties, but the tribunal cannot
entertain ‘parties interested’. Although ‘parties interested’ may appear as a
witness in the arbitral proceeding before the arbitral tribunal but it would
be erroneous to name ‘parties interested’ as a party.
Section 2(2). SCOPE
Sub-section (2) of Section 2 deals with the scope of application of Part I
which is further covered from sub-section (2) to sub-section (5). Sub-section
(2) applies where the place of arbitration is in India. Thus, it is based on the
principle of territorial application of national laws.
Sub-section (3) states that "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". That means Part I would not be affected where
certain disputes are not arbitrable and in this respect Section 34(2)(b) of the
Act provides—When 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, on
(ii) the arbitral award is in conflict with the public policy of India.
Enforcement of foreign awards are subject to fulfilment of certain
conditions and these conditions are laid down in Section 48(2)(a) and 48(2)(b)
that 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.
Chapter II of Part II Section 57(l)(b) and (e) provide condition for
enforcement of foreign award which states that "The subject-matter of the
award is capable of settlement by arbitration under the law of India, the
enforcement of the award is not contrary to the public policy or the law of
India" respectively.
So, a foreign award would not be applied if it is opposed to the public
policy in India and enforcement of foreign awards would also not be applied
if it is contrary to the laws of India.
Under the present Act a private arbitration is not permissible.
Although, with reference to Section 10-A of the Industrial Disputes Act,
1947, there is provision for voluntary reference of industrial disputes to

1. AIR 1989 SC 1589.

ARBITRATION 57

arbitration, but declares that nothing in the Arbitration Act, 1940 shall
apply to arbitration under the said section.1
The proceedings under the Foreign Exchange Regulation Act, 1973 are
of quasi-criminal nature and also tax determination by statutory authorities
under various enactments. Such matters are non-arbitrable.
Similarly, under the Companies Act, 1956 under Section 433,
compulsory winding up of a company by the order of the court which affects
the public at large, no relief can be sought in the matter of winding-up by
way o f arbitration.“
In V. V. Pushpakaran v. P. K. Sarojini,3 the Kerala High Court held
that "A judgment, order or decree in exercise of the matrimonial jurisdiction,
which confers upon or takes away from any person any legal character, or
which declares any person to be entitled to any such character not as against
any specified person but absolutely, could be rendered only by a competent
court having jurisdiction and it is a decision in rem and not in personam
alone. That is a matter which cannot be referred to arbitration and decided
by the arbitrators".
A dispute relating to private rights of the parties may be referred to
arbitration.
Thus, the restitution of conjugal rights being a private right (between
the husband and wife) may be referred to an arbitral tribunal.4
In India, under Section 320 of the Code of Criminal Procedure, offences
have been categorised in three categories—
1. Compoundable between the parties.
2. Compoundable with the leave of the court.
3. Non-compoundable, thus the non-compoundable offences are not to
be referred for arbitration, however second category of offences
may be referred for arbitration with prior sanction by the
competent court.
To secure the ends of justice some High Courts are of opinion that
Section 482 of the Code of Criminal Procedure enables the courts to permit
compounding of non-compoundable offences.5 The Andhra Pradesh High
Court in a case of dowry death and cruelty to married woman, where the
parties sought to compound the offence under Section 498-A of I.P.C. to live
a happy and harmonious matrimonial life, held that in view of the larger
interests of the parties and to secure ends of justice the court below is
directed by exercising powers under Section 482 of the Code of Criminal
Procedure to accord permission to compound the offence after examining the
parties in court and after satisfying about the voluntary nature of the
settlement and the consequent filing of the petition in question for purposes

1. Special Officer, Management o f T.U.G.S. Ltd. v. S. Longanathan , 1986 Lab IC 1871, 1875
(Mad).
2. Shri Trilok Chand Jain v. Swastika Ship (P) Ltd., 1990 (2) PLR 655, 656.
3. AIR 1992 Kerala 9, 11.
4. Ramudamma v. Kasi Naidu, AIR 1945 Mad 269, 270.
5. State o f Rajasthan v. Gopal L ai , 1992, Cr LJ 273 (Raj); S.N. Rathi v. State o f Maharashtra,
1992 Cr LJ 2106 (Bom) and Thathapadi Venkatalakshmi v. State o f A.P., 1991 Cr LJ 749
(AP).
58 THE ARBITRATION A N D CONCILIATION ACT, 1996

o f compounding the offence.1

Similarly, conflicting opinions have been given by the courts for
application of powers under Section 145 of the Code o f Criminal Procedure,
which provides procedure for disputes relating to land or water likely to
cause breach o f peace. Such matters may be settled by making, reference to
arbitral proceedings because nothing in this Code forbids the amicable,
settlement of disputes. Some courts have given opposite opinion.2
Section 2(h)— Settlement agreement company is a party to
arbitration agreement only
The Supreme Court in Sirajuddin Kasim & another v. Paramount
Investment Ltd. ,3 explored the expression "party" means a party to
"Arbitration agreement". In the present case two foreign companies entered
into a contract relating to farm-out transaction procured by respondent on
commission basis. There existed a "share holders agreement" coming an
arbitration clause executed between respondent and promoter of petitioner,
the company, who is also a director and a holder of 75% share capital in the
P-2, the company is a party to arbitration agreement, but not a party to
"settlement agreement". The question whether its rights have been
superseded by "settlement agreement" is also an arbitrable dispute.
In terms of Section 2(h), the company is a party to arbitration
agreement
According to the Supreme Court4— "Party" means a party to
"Arbitration Agreement". In the present case two foreign companies entered
into a contract, pertaining to Farm out transaction procured by the
respondent, on commission basis. There existed a "share holders agreement,
containing an ‘arbitration clause’ and a "Settlement Agreement", executed
between respondent and promoter of the petitioner No. 2, the company who
is also a Director and a holder of 75% share capital. Hence, in terms of
Section 2(h), the Company is a party to Arbitration Agreement but not a
party to "Settlement Agreement". The question whether its rights have been
superseded by "Settlement Agreement" is also an arbitrable dispute.
"Party to an agreement"—Meaning of
A party to an agreement means a party who is signatory to the
agreement and it does not include a non-signatory also.
In WESCARE (I) Ltd. v. Suhuthi Finance Ltd.5 the Madras High Court
ruled that in such circumstances, the maintainability of Section 9 application
itself against the second respondent is questionable and doubtful if the
second respondent has not signed nor ratified the agreement.
In the context of the Code of Civil Procedure, Rule 2 of Order II
conflicting opinions in respect of arbitral proceedings have been given by the
courts. Justice Rankin of the Privy Council and Justice P.B. Mukherji

1. 1991 Cr LJ 750-751 (A.P.).

2. Hari Prasad Tiwari v. Sewak Das, 40 Ind Cas 333, 334 and Kalikanta Barman v. Rainath
Barman, AIR 1952 All 118.
3. 2010 (8) SCO 557 : 2010 (8) JT 261 (SC).
4. Sirajuddin Kasim & another v. Paramount Investment Ltd., 2010 (8) SCC 557.
5. 2011 (J) MLJ 569 (Mad).
ARBITRATION 59

of the Calcutta High Court are of the view that Rule 2 of Order II of the
Code o f Civil Procedure is not applicable to arbitral proceedings. The
particular case is arbitrable or not would depend upon primarily on the
connotation of the arbitration agreement and secondly, nature of dispute
referred to arbitration and thirdly, on the character of awards. Thus, an
award cannot be given again and again over the matters referred to the
arbitration. According to Justice Mallick of the Calcutta High
Court— "embodied in an award cannot be subject-matter of a fresh reference
and to that extent the rule of res-judicata applies to arbitral proceeding."1
But, in Jiwani Engineering Works v. Union o f India,2 Justice S. Mukherji
said that— "The purpose of arbitration proceeding is speedy disposal of
dispute. To say that hundred or more different disputes could be permitted
to be entertained simply because one was not part of the previous dispute
would be defeating the object of arbitration proceeding. I do not see why the
principle behind Order II, rule 2 of the Code of Civil Procedure should not
be applied in the arbitral proceeding".
The arbitrators are appointed by the private parties at their personal
efforts for settlement of their dispute. Whether it is in India or some foreign
country it is obvious that the arbitrators do not discharge sovereign’s
function. Thus where the question of law is involved in the subject-matter,
specifically the court of law is considered to be the right place to settle the
differences rather disputes as also where the legislation does not expressly
provide for settlement of dispute by arbitration. As per the Supreme Court
generally speaking, the law of arbitration is intended for settlement of
private dispute.3 Thus, the matter would be arbitrable provided relevant law
permits it.
Section 2(4) of the present Act, 1996 is an extract of Section 40 of the
Act, 1940. Sub-section (4) deals with statutory arbitration where the statute
provides arbitration by an appropriate enactment in this regard and
excludes the application of Sections 40(1), 41 and 43 to statutory arbitration.
Section 2(5) of the present Act, 1996 has been enacted on the basis of
Section 47 of the Act, 1940. Sub-section (5) states that "in any agreement in
force between India and any other country or countries and it shall apply to
any law for the time being in force and also any law which has come into
operation after the passing of the Act, 1996 for enforcement of any foreign
award.
The provision contained in Part I of the Act, 1996 would be applied to
all arbitrations and to all proceedings.
CONSTRUCTION OF REFERENCES
Section 2(6) of the Act, 1996 provides freedom to the parties as of their
right to select arbitrators or arbitration institution. This sub-section is based
on Article 2(d) of the Model Law. To achieve this object rather right of the
parties to arbitration, Section 10 (Number of arbitrators), Section 11
(Appointment o f arbitrators) and Section 20 (place of Arbitration) have been
enacted under the Act, so that the parties are able to determine these
1. Kerarimal v. Union o f India, AIR 1964 Cal 545.
2. AIR 1978 Cal 228.
3. Raipur Development Authority v. Chokhamol Contractors, AIR 1990 SC 1445.
60 THE ARBITRATION AND CONCILIATION ACT, 1996

aspects in arbitration agreement. Chapter VI, Section 28 o f the Act provides

rule making powers in case of disputes and the matter required to be
referred to arbitration which shall be applied to arbitration in India and
equally effective in matter of international commercial arbitration.
Section 2(7) states that "An arbitral award made under this part shall
be considered as a domestic award". The combined reading of Section 2(2)
and Section 2(7) implies that where the place of arbitration is in India, an
award whether it has been given in domestic arbitration or in international
commercial arbitration shall be regarded as a domestic award.
Section 2(8) provides that whether any matter for the purpose of
arbitration refers to the fact that the parties have agreed or that they may
agree or in any other way refer to an agreement of the parties, such
agreement between the parties, wherever referred to in the Act will be
treated as arbitration rules contained in that agreement.
Section 2(9) provides the rule of construction which excludes the
application of provisions contained in Section 25, Clause (a) and Section
32(2) Clause (a), however a reference to a claim applies to a counter-claim
and that a reference to defence applies to a defence to that counter claim.
Section 23(1), Section 27(2)(b) and Section 33(4), Section 38(1) and (2)
and Section 43(3) provide a reference to a "claim" and Section 23(1) provides
a reference to a "defence". The rule of construction as laid-down in Section
2(9) of the Act, 1996 would be applied in all the aforesaid references.
S e c t io n 3. R e c e ip t of w rit t e n c o m m u n i c a t i o n s . — (1)
U nless otherw ise agreed by the parties,—
(a) any w ritten com m unication is deem ed to h ave been received
i f it is delivered to the addressee personally or at his place
o f business, habitual residence or m ailin g address, and
(b) i f none o f the places referred to in clause (a) can be found
after m akin g a reasonable inquiry, a w ritten com m unication
is deem ed to have been received i f it is sent to the
addressee’s la st know n place o f business, habitual residence
or m ailing address by registered letter or b y an y other
m eans w h ich provides a record o f the attem pt to deliver it.
(2) T he com m unication is deem ed to have been received on the
day it is so delivered.
(3) This section does not apply to w ritten com m unication in
respect o f proceedings o f any judicial authority.
COMMENTS
Section 3 of the Act, 1996 is borrowed from Article 3 o f Model Law
which is based on UNCITRAL Arbitration Rule, Article 2(1).
Section 3, mainly deals with the communications in writing
inter-parties and it prescribes modes of receipt of written communications.
This section does not deal with communication relating to proceeding of any
judicial authority.
According to Section 3, a communication cannot be communicated,
ARBITRATION 61

delivered or sent where there is violation of manner provided under this

section. It does not matter whether such communication is personal or
constructive, if the modes of communication have not been followed as
specified in sub-section (1) [clause (a) and clause (b)], it will amount to
violation of statutory provision for receipt of written communications. Such
communication may be from the parties or an arbitral institution or
tribunal.
Section 3(1) enumerates that "unless otherwise agreed by the parties"
it means that mode of communication can be determined and regulated by
agreement between the parties that is the manner in which a written
communication would be delivered or sent. Clause (a) and clause (b) come
into play only when the subject is not covered by an agreement between the
parties.
Section 3(l)(b) provides the expression "after making a reasonable
inquiry".
The term "reasonable inquiry" has not been defined in the Act, but it
means ordinarily due diligence to be made, however it depends upon the
facts of each case. It also prefers written communication and a reasonable
inquiry to find out proper mailing address.
Section 3(2) states that "the communication is deemed to have been
received on the day it is so delivered" when any of the modes o f written
communication is followed as specified in Section 3(1).
Section 3(3) provides that "This section does not apply to written
communications in respect of proceedings of any judicial authority", but in
respect o f such written communication the High Courts under Section 82 are
empowered to make rules. Generally, aforesaid provisions would not be
applied to written communications in respect of judicial proceedings.
S ection 4. W aiver o f right to object. — A p a r ty w h o k n o w s
th a t—
(a ) a n y p ro v is io n o f th is P a rt fro m w h ic h th e p a rtie s m ay
d e ro g a te , o r
(b ) a n y re q u ire m e n t u n d e r th e a r b itr a tio n a g re e m e n t,
h a s n o t b e e n c o m p lie d w ith a n d y e t proceeds w ith th e a r b itr a tio n
w ith o u t s ta tin g h is o b je c tio n to su ch n o n -c o m p lia n c e w ith o u t u n d u e
d e la y o r, i f a tim e lim it is p ro v id e d fo r s ta tin g th a t o b je c tio n , w ith in
th a t p e rio d o f tim e , s h a ll be deem ed to h a v e w a iv e d h is r ig h t to so
o b je c t.
COMMENTS
Section 4 of the Arbitration and Conciliation Act, 1996 is founded on
Article 4 of the UNCITRAL Model Law which in fact is modelled on Article
30 of the UNCITRAL Arbitration Rules.
The above provision of the new Act, 1996 deals with waiver of right to
object. It states that if a party is having knowledge about the
non-compliance of a non-mandatory provision of Part I or any requirement
under the arbitration agreement and even though proceeds with the
arbitration proceedings and he does not advance his objection within time
62 THE ARBITRATION AND CONCILIATION. ACT, 1996

stipulated for submitting that objection, it amounts to waiver o f right to

object on the part of that party. In the context of the Law of Arbitration
there are several rulings regarding the principle of waiver of right.1 It is to
be noted that the old Arbitration Act, 1940 had no such provision.
(i) Expression "Waiver"—Meaning of.—The expression ‘waiver’
means relinquishing of a claim freely."The abandonment o f a right in such
a way that the other party is entitled to plead the abandonment by way of
confession and avoidance if the right is thereafter asserted.2
In Darnley v. London, Chatham and Dover Rwy,3 it was held that a
waiver must be an intentional act with knowledge.
According to the Apex Court the term "waiver" connotes voluntary and
intentional giving up of a known right by conduct or by silence.4
(ii) Failure to raise objection within prescribed time—Amounts
to waiver of right.—Wherein the parties knew the compulsory or
non-compulsory conditions necessary under the arbitration agreement which
has not been complied with and yet they did not object within the time limit
and expressed the intention to raise objection but gave consent to undertake
the arbitral proceedings, it amounts to waiver of right by that party who
does so. The doctrine of waiver in reference to the Law of Arbitration has
been followed by courts in India in a number of cases.5
(iii) Conditions necessary when a party waives his right.—
Section 4 o f the Arbitration and Conciliation Act, 1996 does not specify the
provisions of Part I from which no derogation is permitted, they will have to
be determined from the remaining part of Part I. It means that mandatory
provisions are those from which the parties cannot derogate even if both the
parties agree so to do.
A party waives his right to object if the following conditions are
fulfilled :—
A. There must be a voluntary relinquishment of a known
right.—The party against whom the rule in Section 4 is invoked must have
known of the non-compliance. A party can be said to know non-compliance
if he is familiar with or aware of such non-compliance. It has been
held-—“knowledge’ means the state of mind entertained by a person with
regard to existing facts which he has himself observed, or the existence of
which has been communicated to him by persons whose veracity he has no
reason to doubt.6 Knowledge of non-compliance can also be inferred from the
circumstances of the case. Section 4 makes knowledge on the party waiving
his right to object a requirement, since the essential element o f waiver is
that there must be a voluntary and intentional relinquishment of a known

1. M/s. Tarapore & Co. v. Cochin Shipyard Ltd., Cochin, AIR 1984 SC 1072; Chowdhri
Murtaza Hussain v. Bibi Bechunnisa, 3 Ind.. App. 209; Donald Campbells Co. v. J.
Girdhari Lai, AIR 1920 PC 123.
2. Banning v. Wright, (1972) 2 All ER 987.
3. (1867) 16 LT 217; See also Chnsdell v. Tickner, (1987) 19 HLR 406.
4. Bisheshwar Nath v. Commissioner, Income-tax, AIR 1959 SC 149.
5. Indrajit Singh v. Jaliluddin Baig, AIR 1979 Orissa 196; see also M/s. Tarapore & Co. v.
Cochin Shipyard Ltd., AIR 1984 SC 1072.
6. Prasun Roy v. Calcutta M.D. Authority, AIR 1988 SC 205.
ARBITRATION 63

right, it means the forsaking of a right at the proper opportunity.1

B. Either party can waive his right.—The non-compliance spoken
of in Section 4 can be either by the other party or by the arbitral tribunal
or by any other party. Thus, either the claimant or the respondent can waive
his right. Because Section 4 does not state what kind of non-compliance
would amount to the waiver of his right.
C. Arbitration under objection—Does not constitute waiver of
right.—A party cannot be said to have waived his right to object so long as
he has made it clear that he is proceeding with the arbitration under
objection.
D. Objection to be raised "without undue delay".—The objection
to non-compliance under Section 4 should be raised "without undue delay"
or if a time limit is provided for stating that objection,2 within that period
of time. A party would not be deemed to have waived his right if on account
of circumstances beyond his control he is prevented for an extended period
of time from sending any communication at all.
E. Party proceeds with arbitration without objection.—The
right to object can be said to have been waived only if the party proceeds
with the arbitration without objecting and acts of such "proceedings" would
include for example, appearance at a hearing or a communication to the
arbitral tribunal or the other party.3
F. Waiver of right—Extent of.—-Waiver is not limited to the arbitral
proceedings but extends to subsequent court proceedings in the context of
Section 34 of the Arbitration and Conciliation Act, 1996. However, where an
arbitral tribunal has ruled that a party was deemed to have waived his right
to object, the court could come to a different conclusion in its review o f the
arbitral procedure under Section 34(2)(v) of the Act of 1996.4
(iv) Attending arbitration proceedings under protest does not
amount to waiver of right.—The Madhya Pradesh High Court in Govind
v. Bhurelal & others,5 observed that if a party is attending arbitration
proceedings under protest, it does not amount to the waiver of right by that
party. In the present case wherein on 14th March 1989 the arbitrators
directed ‘Govind’ to attend a meeting, whereas the said ‘Govind’ sought a
week’s time to submit his reply. In the view of ‘Govind’s request 25th March
1989 was fixed for the meeting by the arbitrators. Consequently, ‘Govind’
attended meeting on 25th March 1989 and also signed the arbitral award.
However, before doing so ‘Govind’ has submitted his objection challenging
the jurisdiction of arbitrators. It was held that the principle of waiver or
estoppel would not be applied to the case in hand because the objection was
raised on 25th March 1989 when the arbitral award was being made.
However, wherein a party took part in an arbitral proceedings under
protest, it will not amount to waiver of right by that party and that party

1. Provash Chandra Dalevi v. Biswanath Banerjee, AIR 1989 SC 1834.

2. Sections 13(2) and 16(2) of the Arbitration and Conciliation Act, 1996.
3. Radhey Shyam Kedia v. Sriniuas Pandit , AIR 1990 Cal. 75; see also Prasun Roy v. Calcutta
M.D. Authority , AIR 1988 SC 205.
4. P.C. Rao’s The Arbitration and Conciliation Act, 1996, Ed. 1997, p. 52.
5. (1994) 2 Arb. LR 103 (M.P.).
64 THE ARBITRATION AND CONCILIATION ACT, 1996

would not be bound by such arbitral award and can object to it.1 Similarly,
in Government o f Andhra Pradesh v. K.M. Rao,2 wherein the petitioner
raised objection upon insistence of arbitrator during arbitral proceedings but
however he took part in the arbitral proceeding under protest. The Apex
Court has held that it does not constitute waiver o f right and arbitral award
was liable to be set aside.
(v) When the principle of waiver would not apply in
arbitration proceedings.—There are certain occasions and circumstances
when the principle of waiver does not apply in arbitral proceedings, these
are as under :—
(i) absence of arbitration agreement;3
(ii) in case where arbitration clause in the contract is void or
voidable;4
(iii) absence or lack of jurisdiction, the same cannot be rectified by
waiver;5
(iv) in case where mandatory provision of law has not been complied
with, while conducting arbitral proceedings.
Party taken benefit under award, cannot challenge the
same.—The Bombay High Court in Indian Oil Corporation Ltd. v. Khaerner
Construction India Ltd.,6 has held that a party while objecting to the arbitral
award under Section 30 of the Arbitration Act, 1940 was found to have
accepted benefit which accrued because of the award. That accepting the
benefit amounted to acquiescence on the part of that party, which precluded
it from impugning the arbitral award.
Even, when the party participated in the arbitral proceedings held
under the old Arbitration Act, 1940 he can simply waive of the findings of
arbitrator.7
Section 5. Extent of judicial intervention.— N o tw ith ­
s ta n d in g a n y th in g c o n ta in e d in a n y o th e r la w fo r th e tim e b e in g in
fo rc e , in m a tte rs g o v e rn e d b y th is P a rt, no ju d ic ia l a u th o r ity s h a ll
in te rv e n e e x c e p t w h e re so p ro v id e d in th is P a rt.
COMMENTS
Section 5 of the Arbitration and Conciliation Act, 1996 intends to
minimise the judicial interference in the arbitral proceedings. This provision
shows the intention of the Legislature that settlement of disputes or
differences between the parties should be done in amicable atmosphere, and
in speedier and economical manner.
Section 5 of the Act, 1996 is in pattern of Article 5 of the Model law.
It deals with the role of the courts in the context of arbitration law provided
in Part I. This section would be applied to the matters governed either

1. Sakalu. Ram v. State o f Madhya Pradesh, (1994) 2 Arb. LR 254 (SC).

2. AIR 1994 SC 490.
3. Union o f India v. Rallia Ram, AIR 1963 SC 1685.
4. Ridge v. Baldwin, (1964) AC 40.
5. Krishnalal v. State o f J. and K., (1994) 4 SCC 422.
6. AIR 2000 Bom. 248.
7. Sardar Sarovar Narmada Nigam Ltd. v. Aarti Steel Industries, 2001 Arb. WLJ 526.
ARBITRATION 65

expressly or impliedly by Part I of the Act. It will not be applied to the

matters outside the ambit of Part I. Thus, the judicial authorities are not
permitted to exercise their powers except as specified by Part I, thus the
embarrassment to the parties is eliminated and they know what functions
are assigned to the judicial authorities.
The object of Section 5 is to restrict the scope of judicial intervention
in the arbitration. Although, it does not override the jurisdiction vested in
the superior courts constituted under the provision of the Constitution of
India. The revisional jurisdiction of the High Court under the Code of Civil
Procedure, 1908 or under any other statute cannot be said to have been
superseded under the Arbitration Act, 19401 (now old law).
The expression "Judicial Authority" in Section 5 of the Act, 1996 means
that the judicial authority may not necessarily be a court, in other words,
all the authorities which are vested with judicial powers conferred by the
State are judicial authorities. It is to be noted that the expression "court" is
defined in Section 2(l)(e) of the Arbitration and Conciliation Act, 1996.
Whereas Section 5 uses the expression "judicial authority". The "judicial
authority" may not, therefore, necessarily be a "court", it covers all
authorities on whom the judicial power of the State is conferred.
The expression "intervene" as occurring in Section 5 of the Act, covers
assistance and control or supervision.
(i) Whether revisional jurisdiction of the High Court taken
away.— Under the present Arbitration and Conciliation Act, 1996 the
rulings o f the Supreme Court and the other High Courts are yet to come in
regard to whether revisional jurisdiction of the High Court has been taken
away in view o f Section 5 of the Act. In absence of provision similar to
Section 5 in the Arbitration Act, 1940, the Supreme Court in Shyam Sunder
Agarwal & Co. v. Union o f India? held that the revisional jurisdiction of the
High Court under the Code of Civil Procedure, 1908 or under any other
statute cannot be said to have been superseded under the Arbitration Act,
1940.
Thus, by incorporation of provisions as to ‘extent of judicial
intervention’ under Section 5 of the new Act, 1996 the judicial intervention
in arbitral process is only restricted. The revisional jurisdiction of the High
Court has not been taken away because other provisions in Part I provide
for court’s intervention namely, Sections 8, 9, 14, 27, 34, 37, 39, 41 and 43
of the Arbitration and Conciliation Act, 1996, although, these provisions seek
to restrict the scope of judicial intervention in arbitral process. To get rid of
the prevailing tendency of taking recourse to the court of law as a delaying
tactic the new Act 1996 is to be particularly welcomed.
It is to be specifically mentioned that Section 5 of the new Act, 1996
does not, however, affect the jurisdiction including revisional jurisdiction of
the High Court vested in the High Courts or in the superior courts by the
Constitution of India, 1950.

1. Shyam Sunder Agrawal & Co. v. Union o f India. AIR 1996 SC 1321.
2. AIR 1996 SC 1321; see also Orient Transport Co. v. M/s. Jaya Bharat C. & I. Co. Ltd.,
AIR 1987 SC 2289.
66 THE ARBITRATION AND CONCILIATION ACT, 1996

(ii) Judicial intervention in arbitration proceedings—Extent

of.—The Apex Court in P. Anand Gajapathi Raju v. P.V.G. Raju,1 observed
that main function of Section 5 of the Arbitration and Conciliation Act, 1996
is to reveal the object of the said Act, 1996 and encourage expeditious and
less expensive settlement of resolution of dispute with minimum interference
of the court.
Section 5 which is contained in Part I of the Arbitration and
Conciliation Act, 1996, defines the extent of judicial intervention in arbitral
proceedings. 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 that part. Section 5
brings out clearly the object of the new Act, namely, that of encouraging
resolution o f disputes expeditiously and less expensively and when there is
an arbitration agreement, the court’s intervention should be minimal.
Keeping the legislative intention in mind, Section 8 o f the new Act, 1996
may be construed. Once the other party has submitted his statement in
defence, his right to bring action will continue but if the party who wants
the matter to be referred to arbitration applies to the court after submission
of his statement and no objection is raised, the court may refer the dispute
to the arbitration.
(iii) Expression "Judicial Authority"—Its meaning and
scope—Whether BIFR is judicial authority.—The Arbitration and
Conciliation Act, 1996 does not define the term "Judicial Authority". What
is defined in Section 2(l)(e) of the Act, 1996 thereof is "Court". In its
ordinary parlance "Judicial Authority" would comprehend a Court defined
under the Act, 1996 but also Courts which would either be a Civil Court or
other authorities which perform judicial functions or quasi-judicial functions.
The expression "Judicial Authority" must be interpreted having regard to the
purport and object for which the Act, 1996 was enacted. The Supreme Court
in Morgan Securities and Credit (P) Ltd. v. Modi Rubber Ltd.,2 explained
that the Board for Industrial and Financial Reconstruction (BIFR) exercises
statutory functions. It is a quasi- judicial authority. It exercises various
powers under the Code of Civil Procedure, 1908. Judging the Constitution of
BIFR and having regard to the width of its jurisdiction BIFR is a "Judicial
Authority" within the meaning of Section 5 o f the Arbitration and
Conciliation Act, 1996.
Section 6. Administrative assistance.— In o rd e r to fa c ilita te
th e c o n d u c t o f th e a r b itr a l p ro c e e d in g s , th e p a rtie s , o r th e a r b itr a l
tr ib u n a l w ith th e c o n s e n t o f th e p a rtie s , m a y a rra n g e fo r
a d m in is tra tiv e a s s is ta n c e b y a s u ita b le in s titu tio n o r p e rs o n .
COMMENTS
Section 6 of the Act, 1996, has its object to facilitate the conduct of the
arbitral proceedings. This section provides freedom to the parties or arbitral
institution to choose suitable experts in arbitration rather to seek
administrative assistance in arbitration. In the context of Section 6
"administrative assistance" includes services in respect of arbitration such as
1. AIR 2000 SC 1886 : 2000 (4) JT 590 : 2000 (4) SCC 539.
2. AIR 2007 SC 683.
ARBITRATION 67

receiving and sending communications, arranging meeting, translation,

interpretation, list of arbitrators and also appointing arbitrators etc. It is
intended under this section that economical and efficient persons having
goodwill in the field of arbitration or such kind of arbitration institution
would be chosen by the parties, who are in disputes.

CHAPTER II

ARBITRATION AGREEMENT
Section 7. Arbitration agreement.— (1) In th is P a rt,
" a r b itr a tio n a g re e m e n t" m e a n s a n a g re e m e n t b y th e p a rtie s to s u b m it
to a r b itr a tio n a ll o r c e rta in d is p u te s w h ic h h a v e a ris e n o r w h ic h m a y
a ris e b e tw e e n th e m in re s p e c t o f a d e fin e d le g a l re la tio n s h ip , w h e th e r
c o n tra c tu a l o r n o t.
(2 ) A n a r b itr a tio n a g re e m e n t m a y be in th e fo rm o f a n
a r b itr a tio n c la u s e in a c o n tra c t o r in th e fo rm o f a s e p a ra te
a g re e m e n t.
(3 ) A n a r b itr a tio n a g re e m e n t s h a ll be in w r itin g .
(4 ) A n a r b itr a tio n a g re e m e n t is in w r itin g i f i t is c o n ta in e d in —
(a ) a d o c u m e n t s ig n e d b y th e p a rtie s ;
(b ) a n e xch a n g e o f le tte r , te le x , te le g ra m s o r o th e r m e a n s o f
te le c o m m u n ic a tio n w h ic h p ro v id e a re c o rd o f th e a g re e m e n t;
or
(c) a n e xch a n g e o f s ta te m e n ts o f c la im a n d d efence in w h ic h th e
e x is te n c e o f th e a g re e m e n t is a lle g e d b y one p a r ty a n d n o t
d e n ie d b y th e o th e r.
(5 ) T h e re fe re n c e in a c o n tra c t to a d o c u m e n t c o n ta in in g a n
a r b itr a tio n c la u s e c o n s titu te s a n a r b itr a tio n a g re e m e n t i f th e c o n tra c t
is in w r itin g a n d th e re fe re n c e is su ch as to m a k e th a t a r b itr a tio n
c la u s e p a r t o f th e c o n tra c t.
COMMENTS
Section 7 of the Act, 1996 is on the pattern of Article 7 of the Model
Law, which has been taken from Article II (1) of the New York Convention,
1958.
Section 7 defines an arbitration agreement. This section states that an
arbitration agreement is an agreement which provides that in case of
dispute, it is to be submitted to "arbitration", the nature o f such agreement
would be voluntary, however it does not matter whether such dispute is a
present or future dispute, Section 7(1) of the Act, recognises both types of
disputes.
Section 7(1) provides classification by means of agreement between the
parties that all or certain disputes are to be submitted to arbitration and
also an agreement in respect of existing dispute and future dispute. However
it is expected that arbitration agreement is to be made in specific clauses,
but no particular form of arbitration agreement is prescribed under the Act.
68 THE ARBITRATION AND CONCILIATION ACT, 1996

In Rukmanibai v. Collector, Jabalpur/ the Supreme Court said that

what is required to be ascertained is whether the parties have agreed that
if disputes arise between them in respect of the subject-matter of the
agreement such dispute shall be referred to arbitration, then such
agreement would spell out an arbitration agreement. That means what is
required under Section 7(2) to (5) is the terms of an arbitration agreement
which must be very clear and specific, may be, in form of clauses and
expression used in an arbitration agreement such as "arbitrator",
"arbitration" and "arbitral tribunal" should be defined. The clauses contained
in an arbitration agreement is not like the clauses of a contract because the
clauses of an arbitration agreement are enforceable under this Act.
Section 7(3) makes necessary that an arbitration agreement must be in
writing so, it does not recognise oral or verbal agreement. Section 2(a) of the
Arbitration Act, 1940 also provided similar condition in respect of an
arbitration agreement.
Section 7(4) affirms essential condition that an arbitration agreement
must be in writing signed by the parties and it recognises the modern mode
of communication such as telex, telegrams, letters and also a communication
by means of tele-communication which forms a record o f the arbitration
agreement. Section 7(4)(c) deals with an arbitration agreement contained in
an exchange of statements in respect of claim and defence in which the
existence of the agreement is alleged by one party and not denied by the
other party.
Although, Section 7(4), clause (b) and clause (c) explains that it is not
necessary that an arbitration agreement in all cases should be signed by the
parties."
Section 7(5) explains that in a contract agreement if the reference is
made as to ‘arbitration clause’ it will amount to an "arbitration agreement".
Thus, an "arbitration clause" can be a part of a contract provided it is in
writing. Now, it is clear that this sub-section recognises the practice
prevailing in such documents of contract containing an arbitration clause.
(i) Term "agreement"—Connotation of
The term "agreement" has been defined by the Contract Act as every
promise and ‘every set of promises forming the consideration for each other
is an agreement’. The consideration for an arbitration agreement is
willingness o f either side to abide by the decision (award) of the arbitrator.
An arbitration agreement is a reciprocal promise proceeding from either
side. The test to determine whether a particular clause amounts to a valid
submission is whether both parties are bound by the clause and not whether
a right has been expressly given to both the parties to initiate arbitral
proceedings.3 Thus, it can be said that an agreement/arbitration agreement
is an instrument containing reciprocal promises between the parties with the
object that in case of any dispute arising out of a contract, the same would
be liable to be submitted for arbitration.

1. AIR 1981 SC 479, 481 and State o f Orissa v. Shri Damodar Das, 1996 (1) Scale 68.
2. Banarsi Das v. Cane Commr. AIR 1963 SC 1417.
3. Maritime Itraliana Steamship Co. v. Burjor Framroze Joshi, AIR 1929 Bom. 185; Woodall
v. Pearl Assurance Co., (1919) 1 KB 593.
ARBITRATION 69

(ii) Form of an arbitration agreement

Section 7(2) of the Act provides that an arbitration agreement may be
in the form of an arbitration clause in a contract or in the form of a separate
agreement. Thus, if there is an arbitration agreement either as an
arbitration clause in the agreement of a contract itself or there is a separate
agreement for purpose of arbitration, it makes no distinction in the eyes of
law because it satisfies the requirement of Section 7(2) of the Act. It appears
from above provision that Section 7(2) deals with external aspects of an
arbitration agreement : Whereas a contract is generally used for
incorporating an arbitration clause for future disputes, a separate agreement
can contain an arbitration clause both for existing and future disputes. Thus,
an arbitration clause is not required to be endorsed in any particular form,
what is required to be ascertained is whether the parties have agreed that
if disputes arise between them in respect of the subject-matter of the
agreement such disputes shall be referred to arbitration, then such an
agreement would spell out an arbitration agreement.1
(iii) What constitutes an "arbitration agreement"
In Jagdish Chander v. Ramesh Chander,2 the Apex Court had occasion
to lay down the principle as to what constitutes an arbitration agreement,
which are the following :—
(a) Intention of parties.—The intention of the parties to enter into
an arbitration agreement shall have to be gathered from the terms of the
agreement. If the terms of the agreement clearly indicating an intention on
the part of the parties to the agreement to refer their disputes to a j rivate
tribunal for adjudication and a willingness to be bound by the decision of
such tribunal on such disputes, it is an arbitration agreement. While there
is specific form of an arbitration agreement, the words used should disclose
a determination and an obligation to go to arbitration and not merely
contemplate the possibility of going to arbitration. Where there is merely a
possibility o f the parties agreeing to arbitration in future, as contrasted from
an obligation to refer disputes to arbitration, there is no valid and binding
arbitration agreement.
(b) Clause relating to settlement of disputes.—Even if the words
"arbitration" and "Arbitral Tribunal" (or arbitrator) are not used with
reference to the process of settlement or with reference to private tribunal
which has to adjudicate upon the disputes, in a clause relating to settlement
of disputes, it does not detract from the clause being an arbitration
agreement if it has the attributes or elements of an arbitration agreement.
They are :
(a) the agreement should be in writing;
(b) the parties should have agreed to refer any disputes (present or
future) between them to the decision of a private tribunal;
(c) the private tribunal should be empowered to adjudicate upon the
disputes in an impartial manner, giving due opportunity to the
1. Rukmanibai v. Collector, Jabalpur, AIR 1981 SC 479; State o f West Bengal v. Haripada
Santra, AIR 1990 Cal. 83; State o f Orissa v. Dam ,.ar Das, 1996 (1) Scale 68; see P.C.
Rao on Arbitration Law, Ed. 1997, p. 55.
2. (2007) 5 SCC 719.
70 THE ARBITRATION AND CONCILIATION ACT, 1996

parties to put forth their case before it; and

(d) the parties should have agreed that the decision of the private
tribunal in respect of disputes will be binding on them;
(c) Specific and direct intent to settlement of dispute by
arbitration.—Where the clause provides that in the event of disputes
arising between the parties, the disputes shall be referred to arbitration, it
is an arbitration agreement. Where there is specific and direct expression of
intent to have the disputes settled by arbitration, it is not necessary to set
out the attributes of an arbitration agreement to make it an arbitration
agreement. But where the clause relating to settlement of disputes, contains
words which specifically exclude any of the attributes of an arbitration
agreement or contains any thing that detracts from an arbitration
agreement, it will not be an arbitration agreement. For example—where an
agreement requires or permits an authority to decide a claim or dispute
without hearing or requires the authority to act in the interests of only one
of the parties or provides that the decision of the authority will not be final
and binding on the parties, or that if either party is not satisfied with the
decision o f the authority, he may file a civil suit seeking relief, it cannot be
termed as an arbitration agreement.
(d) Mere use of word "arbitration", not sufficient.— But mere use
o f the word "arbitration" or "arbitrator" in a clause will not make it an
arbitration agreement, if it requires or contemplates a further fresh consent
of the parties for reference to arbitration. For example use of words such as
"parties" can, if they so desire, refer their disputes to "arbitration" or in the
event of any dispute, the parties may also agree to refer the same to
"arbitration" or "if any dispute arises between the parties, they should
consider settlement by arbitration", in a clause relating to settlement of
disputes, indicate that the clause is not intended to be an arbitration
agreement.
Thus to constitute a valid arbitration agreement in terms of Section 7
of the Arbitration and Conciliation Act, 1996 the aforesaid elements must
essentially be available in the contents of the relevant arbitration clause in
the contract in question.
(e) "Contents" of Arbitration Agreement.—An arbitration
agreement is considered to be writing if it is contained in—
(a) a document signed by parties, or
(b) an exchange of letters, telex, telegrams or other means of
telecommunication which provide a record o f agreement, or
(c) an exchange of statement of claim and defence wherein, existence
of the agreement is alleged by one party and defined by other, or
(d) contract between parties making a reference to another document
containing an arbitration clause indicating a mutual intention to
incorporate the arbitration clause in such document.
The provision for arbitration constitute an arbitration agreement, two
conditions must be satisfied—
(i) it should be between parties to dispute, and
(ii) it should relate to or be applicable to the dispute.
ARBITRATION 71

In Indowind Energy Ltd. v. Wescare (I) Ltd. & another,1 the Supreme
Court held that the appellant/petitioner Indowind is' not a party to
arbitration agreement, hence no claim against it on dispute with it can be a
subject matter of reference to arbitration.
(iv) Oral arbitration agreement is not recognised
According to Section 7(3) of the Arbitration and Conciliation Act, 1996
an arbitral agreement must be in writing, it means the present Act does not
recognise the so called oral arbitration agreement. However, Section 7(4) of
the Act recognises the modem form of communication, like an exchange of
letters, telex, telegrams or other means of telecommunication provided these
communications provide a record of the agreement.
(v) Genuineness of agreement—Initial burden of proving
In Great Offshore Ltd. v. Iranian Offshore Engineering and
Construction Co.,2 where Charter Party Agreement (CPA) contained an
arbitration clause. In existence of a concluded contract, the initial burden of
proof is on applicant to prove that a valid contract containing an arbitration
clause existed. Once, on producing of faxed CPA, on its face, it appears
legitimate and the onus shifted to respondent to prove that it was forged.
All matters, save for whether alleged contract/arbitration clause was formed,
would be more appropriately addressed by an Arbitral Tribunal. Whether
applicant’s vessel combination was not fit for the agreed purpose, is one such
issue. Applicant contended that faxed CPA is binding, and a concluded
contract. It is stated that it is signed by both the parties, applicant’s
statement to this effect was not denied in the pleadings, respondents
admitted that original CPA was ready in their office and will be handed over
to the applicant. Nothing was left for respondent to do but to sign. By saying
"ready" it may be inferred that it was signed. Whereas respondent’s letter
did not deny the fact that original CPA was signed by respondent and was
waiting in their office, even though applicant had asserted as such in its
letter. Notably, respondent did not deny this fact for considerable time.
Charter Party Agreement (CPA) in question was found to be prima facie
legitimate and its genuineness more probable. Nothing to show that it was
forged. Further, correspondence, as it is more than just pleading, adds
additional weight to the applicant’s story. Fax header, suggest that the
document is genuine. Hence, initial burden of applicant is discharged. While
respondent failed in its pursuit. Faxed Charter Party Agreement (CPA) was
held to be valid even under law. The Supreme Court further held that once,
such an agreement existed, applicant is entitled to reference of dispute to an
arbitrator, who is to be appointed by the Court.
(vi) Existence of arbitration agreement—inference of
According to the Apex Court3 existence of an arbitration agreement can
be inferred from a document signed by the parties or an exchange of letter,
telex, telegram or other means of telecommunication, which provide a record

1. 2010 (2) Arb. LR 232 (SC).

2. 2008 (6) Supreme £30.
3. 2008 (7) Supreme 150.
72 THE ARBITRATION AND CONCILIATION ACT, 1996

o f the agreement. In Shakti Bhog Foods Ltd. v. Kola Shipping Ltd.,1 the
Apex Court held that signing of first page of Charter Party Agreement, was
not denied. However, subsequent correspondence between the parties, too
supported conclusion regarding existence of such agreement. Hence, Section
7 of the Act, 1996 does not postulate that letters/faxes or mails or any other
communication should contain arbitration clause in absence of any
agreement.
(vii) Existence of arbitration agreement established
The Supreme Court in Powertech World Wide Ltd. v. Delvim
International General Trading LLC2 observed that on co-joint reading of
correspondence between parties and attending circumstances are read
co-jointly with the petition of petitioner and with particular reference to
purchase contract it is found that the parties had an agreement in writing
and mere ad idem in their intention to refer these matters to arbitrator in
accordance with provision of the Act, 1996. Further, correspondence between
parties particularly, responds from the respondent’s side, conclusively proved
that the respondent had omitted existence of an arbitration agreement
between then and omitted to the idea of appointing a common/sole
arbitrator. Any ambiguity in arbitration clauses contained in purchase
contract stood extinct by correspondence between parties. Hence, consensus
ad idem in rela'ion to exercise of arbitration agreement and settlement of
dispute through arbitration became crystal clear.
(viii) Existence of arbitration agreement—inference as to can be
drawn from letters/faxes etc.
The Apex Court in M l s. Shakti Bhog Foods Ltd. v. Kola Shipping Ltd. ,3
has held that an arbitration agreement may be in the form of an arbitration
clause in a contract or in the form o f a separate agreement and furthermore
an arbitration is considered to be in writing if it is contained in a document
signed by the parties or in an exchange of letter, telex, telegram or other
means of telecommunication which provide a record of the agreement or an
exchange of statement of claim and defence in which the existence of an
agreement is alleged by one party and not denied by other party. From the
provision of Section 7 of the Act is is clear that a Charter Party Agreement
(CPA) need not be in writing signed by both parties and this could as well
be made out from the acts of the parties to the agreement by way of their
exchange of letters and information through fax, e-mails etc. The
letters/faxes or mails or any other telecommunication need not contain the
arbitration clause in the absence of any agreement. The expressions of
Section 7 of the Act do not specify any requirement to this effect.
In the present case, the first page of the Charter Party Agreement
(CPA) containing arbitration clause was signed by the concerned party and
the subsequent correspondence between the parties also led to the conclusion
that there was indeed a Charter Party Agreement. Hence, there existed a
valid arbitration agreement between the parties.

1. A.I.R. 2009 S.C. 12.

2. 2011 (8) Supreme 107.
3. AIR 2009 SC 12.
ARBITRATION 73

(ix) Plea of non-existence of arbitration agreement—when not

available
The Division Bench of Calcutta High Court in Nicco Corpn. Ltd. v.
Simplex Infrastructure Ltd.1 ruled that plea of non existence of arbitration
agreement is not available as the appellant itself had nominated and
appointed arbitrator for adjudication of dispute and arbitration agreement
could be found in the contract which was executed before letter o f intent
(LOI) was issued. The Court observed that in the present case moreover both
parties have filed their respective pleading before the arbitrator making
claim and counter claim without any reason whatsoever. Hence, award not
liable to be set aside.
(x) An arbitration agreement is not necessarily to be signed by both
the parties
According to Section 7(4)(a) of the Arbitration and Conciliation Act,
1996 a document, namely an arbitration agreement should be signed by the
parties. However, a plain reading of Section 7(4)(b) to (c) clearly shows that
it is not necessary that the arbitration agreement between the parties
should, in all cases, be signed by both the parties.2
Whether an arbitration agreement needs to be signed, the judgment of
the Apex Court in Union o f India v. A.L. Rallia Ram,3 settles the
controversy by holding that it is not a condition of an effective arbitration
agreement that it must be incorporated in a formal agreement executed by
both the parties thereto nor is it required to be signed by the parties. A
document signed by one party and accepted by the other is enough for the
purpose.4 The agreement may be in the form of a signed document by both
parties containing all the terms, or a signed document by one party
containing the terms and a plain acceptance either signed or orally accepted
by the other party, or, in the third case, an unsigned document containing*
the terms of the submission to arbitration agreed to orally by both parties.5
It is sufficient if one party signs the written submission and the other
accepts it. No particular form of writing or a formal agreement is necessary.
The agreement may be gathered from several documents or even be inferred
from correspondence consisting of a number of letters, though connected by
oral evidence or from other documents.6
While following the above view the Allahabad High Court in Fertilizer
Corporation v. Domestic Engineering Installation ,7 observed that the tender,
the acceptance of the tender and the work order issued by F contained all
the terms of the contract, and the parties treated themselves bound by the
agreement from the work order. It was held that the arbitration clause
contained in these docu-ients was binding on the parties, even though the
formal agreement was executed subsequently.

1. AIR 2012 Cal. 32 (DB).

2. Banarsi Das v. Cane Commissioner, AIR 1963 SC 1417.
3. AIR 1963 SC 1985.
4. See also Ram Lai Murlidhar v. Haribusi Puranmal, AIR 1934 Cal. 796.
5. Jugal Kishore Rameshwar Das v. Goolbhai Hurmushji, AIR 1985 SC 812.
6. Sukhmal Bansidhar v. Babu Lai Kedia, ILR (1920) 42 All. 525.
7. AIR 1970 All. 31.
74 THE ARBITRATION AND CONCILIATION ACT, 1996

In view of the above discussion, it can be safely affirmed that it is well

settled legal position that Section 2(a) of the Arbitration and Conciliation
Act, 1996 provides that an agreement in writing means that the terms of an
agreement should be expressed in writing and the agreement should be such
that it binds both the parties and that the actual signatures of botli the
parties on the arbitration agreement is not essential. The agreement may be
in the form of a signed document by both the parties containing all the
terms or a signed document by one party or it may be an unsigned document
containing the terms of submission to arbitration. It is sufficient if one party
signs the submission and the other accepts it. The acceptance may be by
word of mouth or may be by conduct. If there is submission clause in a
contract it is not necessary that the contract must be signed by the other
party before the other party can be bound by the submission clause, that
party may accept the contract orally or he may accept it by writing. It would
depend upon the circumstances of each case whether the mere delivery of a
contract note and retention of that contract note by the party does amount
to acceptance or not? The Chief Justice of Bombay High Court Mr. Chagla
in Gulamali v. Vishwambarlal,1 has said though an agreement must be in
writing it need not be signed by the parties. What is necessary is that the
term must be reduced to writing and the fact that the parties had agreed to
reference must be established. Thus, while writing o f the arbitration
agreement is mandatory, signing has not been so made.2
(xi) Arbitrable Disputes
It is settled legal position that the existence of disputes or differences
is a pre-necessary condition for the arbitration. It is also necessary that such
disputes or differences must come within the scope o f arbitration agreement
or arbitration clause. In I.D.P. Ltd. v. Indo Swiss Co.,3 the Apex Court has
held that in an agreement of sale and purchase, the "difference" as to quality
and quantity would be treated as dispute, which is arbitrable under the
terms o f an arbitration clause.
In Union o f India v. Kishorilal,4 the Apex Court observed that— "An
arbitration clause is a collateral term of a contract as distinguished from its
substantive terms, but nonetheless it is an integral part of it. If an
arbitration clause is couched in widest terms, the dispute, whether there is
frustration or repudiation of the contract, will be covered by it. It is not
because the arbitration clause survives, but because, though such
repudiation ends the liability of the parties to perform the contract. It does
not put an end to their liability to pay damages for any breach of the
contract. The contract is still in existence for certain purposes. But where
the dispute is whether the said contract is void ab initio, the arbitration
clause cannot operate on those disputes, for its operative force depends upon
the existence of the contract and its validity too. If the dispute is whether
the contract is wholly superseded or not by a new contract between the
parties, such a dispute must fall outside the arbitration clause, for if it is
superseded, the arbitration clause falls within it."
1. AIR 1949 Bom. 158 : 51 Bom. LR 79.
2. M.A. Sujan on Law of Arbitration 2nd Ed. 2001, p. 144.
3. 1996 (1) SCC 54.
4. AIR 1959 SC 1362, this ruling was relied on in AIR-1974 SC 158.
ARBITRATION 75

Thus, the existence of arbitration clause is necessary and the contract

in question should not be void ab initio and if any dispute arises which does
not fall outside the arbitration clause, such disputes are arbitrable. Even in
case of frustration of contract if the arbitration clause is operative according
to the terms of the contract, dispute is arbitrable.
For example— In Naihani Jute Mills v. Khyaliram,1 the Apex Court
observed as follows :—
"In cases of frustration, it is the performance of the contract which
comes to an end but the contract would still be in existence for
purposes such as the resolution o f disputes arising under or in
connection with it. The question as to whether the contract became
impossible of performance and was discharged under the doctrine of
frustration would still have to be decided under the arbitration clause
which operates in respect of such purposes."
Thus, even on death of contract or frustration of contract or repudiation
of contract, the arbitration clause of the contract may survive and dispute is
liable to be referred to arbitration. On the above principle the Apex Court
in Bharat Heavy Electricals Ltd. v. Amar Nath Bhan Prakash, has laid
down the law that "a dispute as to whether there was discharge of the
contract by accord and satisfaction is a dispute arising out of the contract
and is liable to be referred to arbitration."
It is submitted that in any eventuality in the contract if the arbitration
clause survives and remains operative as per the terms of agreement, such
clause can be invoked in case of disputes arising within the ambit of that
clause. If the final bill has been accepted and payment received that should
be the end of the matter and no dispute can under those circumstances
survive which can be referred for arbitration. Once claim is settled finally it
cannot be reactivated for the purpose of arbitration, however, when fraud or
coercion is alleged and the same is proved, consequently the claim gets
revived.
(xii) Arbitration Award given without a dispute between the parties
is Nullity
The Supreme Court in Ramesh Kumar & another v. Fesru Ram &
another etc.3 held that the modus oper-andi adopted by the respondents to
obtain title to lands without a conveyance and without incurring the stamp
duty and registration charges due in respect of a conveyance by obtaining a
share any collusive arbitration awards when there was no dispute and then
obtaining a nominal decree in terms of the said awards would be a fraud
committed upon the court and the State Government by evading liability to
pay the stamp duty and registration charges.
In the instant case the Supreme Court observed that the irregularities,
illegalities suppressions and misrepresentation which culminated in the
orders directing that the awards be made decrees of the court, show that the
decrees in terms of the awards were obtained fraudulently.

1. AIR 1968 SC 522.

2. (1982) 1 SCC 625.
3. 2011 (8) SCC 613.
76 THE ARBITRATION AND CONCILIATION ACT, 1996

(xiii) Arbitration clause may subsist even on full and final

settlement of the claim/bill
The Bombay High Court in Union o f India v. Ajit Mehta,1 observed as
under—
"In spite o f a full and final settlement of the claim, the arbitration
clause in the contract may subsist where the party invoking it alleges
that in fact there was no accord and satisfaction for some reasons such
as the final bill was submitted or report was given under coercion,
mistake or misrepresentation without prejudice, under protest etc. For
then that itself becomes a dispute arbitrable under the clause.
However, when there is no such allegation made when invoking the
arbitration clause, and it is invoked simply, it will have to be held that
the contract itself had come to an end and with it the arbitration clause
which is a part and parcel of it...."
In the above case wherein dispute between parties in question was
whether there was accord and satisfaction, since the arbitrator failed to
decide the question it was held that the arbitrator is guilty of legal
misconduct.
While considering the question of full and final settlement the court
has innovated the concept of accord and satisfaction. What is the legal
concept of accord and satisfaction. According to Pollock and
Mulla2— "accord and satisfaction is the purchase of a release from an
obligation whether arising under contract or tort by means of any valuable
consideration not being the actual performance of the obligation itself. The
accord is the agreement by which the obligation is discharged. The
satisfaction is the consideration which makes the agreement operative. The
consideration may be executory. As accord is an agreement there must be
two minds ‘ad idem’.... An accord and satisfaction is only a method of
discharge of a contract. It does not annihilate the contract but only makes
the obligation arising from it unenforceable."
The Apex Court in Union o f India v. Kishori Lai Gupta,3 observed that
accord and satisfaction are a question of fact. They imply an agreement to
take the money in satisfaction of the claim in respect o f which it is sent.
Acceptance under protest in full satisfaction does not operate as accord.4
In Jivuami Engineering Works (P.) Ltd. v. Union o f India,5 the Calcutta
High Court observed that there is no question that by granting no claim
certificate, the contractor became disentitled to refer any dispute which
arises out of contract to arbitration under arbitration clause— It is so well
known and a notorious fact that unless a no claim certificate is issued by
the contractor final bill will not be made. However, "the dispute whether the
contract came to an end or not" was found to be the province of the
arbitrator to decide.6
It was held that the reference of dispute under Section 20 o f the
1. AIR 1990 Bom. 45.
2. On Indian Contract and Specific Relief Acts, 10th Ed. p. 515.
3. AIR 1959 SC 1362.
4. Am ar Nath Chand Prakash v. Bharat Heavy Electricals. AIR 1972 All. 176.
5. AIR 1981 Cal. 101.
6. Jai Chand Bhasin v. Union o f India, AIR 1983 Del. 508.
ARBITRATION 77

Arbitration Act, 1940 is not barred by the existence of no claim certificate.

Thus, it can be said that no claim certificate is not a conclusive
evidence that in fact the settlement of dispute sought, did not exist.
(xiv) Arbitration clause—providing that "Any Dispute between the
parties shall be referred to arbitration"
In Agri Gold Exims Ltd. v. Sri Lakshmi Knits and Wovens Ltd.,1 where
there was memorandum of understanding between the parties having
arbitration clause therein, providing that "any dispute" between the parties
shall be referred to arbitration. It was held by the Supreme Court that the
expression "any dispute" is of very wide amplitude and comprehends dispute
of any nature whatsoever. In the present case disputes and differences arose
between the parties and after death of Managing Director of the respondent
company, successor Managing Director assured the appellant that the
commitments and obligations would be met by the respondents. In purported
settlement of dispute regarding amount due and owing to appellant,
respondents issued five post dated cheques to appellant. But two of the
cheques were dishonoured. As a result the respondents sent two demand
drafts to the appellant without prejudice to their rights and contentions.
However, before the receipts of the said payments, appellant filed a suit for
money decree stating that cause o f action wherefore arose when the
memorandum of understanding was executed and on subsequent dates when
various transactions took place and when the first cheque was dishonoured.
Notably, respondent neither filed written statement nor disclosed their
defence in the suit but raised a dispute in regard to the claim o f appellant
and filed an application for reference of the dispute to arbitration in terms
of arbitration clause. But, the application was dismissed on the ground that
no dispute existed for reference to arbitration.
The High Court in revision directed the parties to take recourse to the
Arbitration and Conciliation Act, 1996 as the suit was not maintainable. The
Supreme Court while holding that the High Court was justified in referring
the dispute to arbitration held that there existed dispute between the parties
within the meaning o f the arbitration clause, as the dispute was not confined
to non payment under the two dishonoured cheques.
In the instant case the Supreme Court observed that the term "dispute"
must be given its general meaning under the Arbitration and Conciliation
Act, 1996. The arbitration agreement entered into by and between the
parties is of wide amplitude. The arbitration agreement brings within its
fold dispute of any nature whatsoever. It is in broadest term indeed.
(xv) Whether mutuality is required to constitute a valid arbitral
agreement
It is well settled legal principle that the mutuality is a sine qua non of
the validity of a contract, which is equally applicable to an arbitration
agreement but the question is mutuality about what?
There are two' views on this point.
1. The Arbitration clause must give bilateral rights of reference. It
means either party may, in the event of dispute arising, refer to
1. (2007) 3 SCC 686.
78 THE ARBITRATION AND CONCILIATION ACT, 1996

arbitration.1
2. "Mutuality" is permissible to stipulate in the arbitration clause
itself to one party to initiate arbitration in regard to disputes of
his choice. Such a clause would qualify as an arbitration
agreement.
On this topic it would be meaningful to discuss leading case o f Union
o f India v. Bharat Engineering Corporation,2 in the instant case, the
arbitration clause reads as follows :—
"In the event of any dispute or difference between the
parties.... the contractor, after 90 days of his presenting his final claim
on disputed matters, may demand in writing that the dispute or
difference be referred to arbitration, such demand for arbitration shall
specify the matters which are in question, a dispute or difference, and
only such dispute or difference of which the demand has been made
and no other, shall be referred to arbitration."
The Division Bench of the Delhi High Court has held that this
Arbitration clause did not amount to an arbitration agreement. An
agreement to agree or a contingent agreement was not permissible under
Section 2(a) of the Arbitration Act, 1940 as the arbitration agreement is
required to be mutual, only one party having right to exercise the option to
commence arbitration proceedings would not qualify as an arbitration
agreement. It is only when the option was exercised that it resulted in an
arbitration agreement with mutual rights to make the reference.
On an Arbitration Russell while referring the above ruling stated :—
"The only direct authority is the Union o f India clause and its
analysis depends on the reasoning that because a Union of India clause
gives rise to an option, therefore it cannot be an arbitration clause
because as is well known, a contract of option is necessarily different
from the contract into which it matures when the option is exercised.
Further, he goes on to state that— "It is submitted that the Union of
India clause is plainly an arbitration, that it is valid, that it is completely
unilateral and that the only mutuality it confers on the non-privileged party
is the inevitable one that once the privileged party has chosen to arbitrate
the non-privileged party can and must ipso facto arbitrate also".
The Calcutta High Court in New India Assurance Company Ltd. v.
Central Bank o f India,3 while following the ruling of the Delhi High Court
in Union o f India v. Bharat Engineering Corporation,4 has held that there is
a valid arbitration agreement.
The arbitration clause o f New India Assurance Co. Ltd. case0 provided
as under :—
"if any dispute shall arise as to whether the company is liable
under this policy or as to the amount of its liability, the matter shall,
if required by the company be referred to the decision of two neutral
1. B aron v. Sunder Land Corporation , (1966) 2 QB 56.
2. ILR (1977) 2 Del. 57 (DB).
3. AIR 1985 Cal. 76.
4. ILR (1977) 2 Del. 57 (DB).
5. AIR 1985 Cal. 76.
ARBITRATION 79

persons as arbitrators one of whom shall be named by each party or of

an umpire who shall be appointed by the said arbitrators,..."
The Calcutta High Court though dissented with the view taken by the
Delhi High Court in Union o f India v. Bharat Engineering Corporation/ had
put reliance on the English case of Westful Larsen & Co. v. V. Ikerigi
Compania Neuiera S.A/ and in this case the arbitration agreement was as
follows—
"....either party may elect to have the dispute referred to the
arbitration of a single arbitrator in London.... such election shall be
made by written notice by one party to the other not later than 21 days
after receipt o f a notice given by one party to the other of a dispute
having arisen under this charter. It was contended in that case that
there was no existing or binding agreement to arbitrate. It was an
agreement to agree or a contract of option. It conferred right on one
party to arbitrate only and lacked mutuality."
It was held that—"I am satisfied that the objection is not well founded.
The proviso is not an agreement to agree because on a valid election to
arbitrate no further agreement is needed or contemplated.........I see force in
the contention that until election is made there is no agreement to arbitrate
but once the election is duly made (and the option is exercised) it is an
agreement.
The Calcutta High Court did not place reliance on Bharat Engineering
Corporation case but accepted the view taken by R u ssell on ‘Law of
Arbitration’ and the court has held that—
There is a valid agreement between the parties but both the
parties have agreed that when future disputes will arise it is only the
privileged party who will have the right to make the reference, but the
privileged party can also render the arbitration agreement infructuous
by not exercising his option. This ‘option’ does not negative the
existence of the arbitration agreement but only restricts its
enforceability. If the privileged party alone can refer the dispute, it can
do so only on the basis of the advance consent by the other party
recorded in the agreement that reference would be by the privileged
party alone. This unilateral right to make the reference flows from the
agreed term in the contract.3
The law o f mutuality cited above has been considered by the Patil in
his "Law of Arbitration" (at page 29), he made submission on this point as
under— "the view taken by Russel and also by the Calcutta High Court
upholding the validity of the agreement all through, but coupled with the
Court exercising the power to make the reference on behalf of the privileged
party if the said party malafidely refuses to make the reference, is a
desirable law." To sum up the above discussion, it is very clear that unless
there is an enforceable contract a privileged party cannot enforce arbitral
agreement on the other unprivileged party in absence of mutuality. From the

1. ILR (1977) 2 Del. 57 (DB).

2. (1983) 1 All ER 382.
3. See also, M.A. Sujan on Law relating to Arbitration and Conciliation 2nd Ed. 2001, p.
139.
80 THE ARBITRATION AND CONCILIATION ACT, 1996

above discussion it appears that the courts intend to encourage arbitration

and interpret arbitration clause to support the validity and enforceability of
an arbitration agreement rather than negating its ^ validity and
enforceability. In the view of above discussion if two views are possible, the
view supporting validity and enforceability o f arbitration agreement is to be
preferred to the other view.
The Delhi High Court in Bharat Engineering Corporation case held
that for an arbitration agreement to be valid, both the parties must agree to
submit differences to arbitration. The promises become binding by mutual
agreement. As there is like promise on each side, the contract is called
bilateral. This view of the court has been criticised by Russell.1 However a
different view has been taken by the Calcutta High Court in New India
Assurance Co. v. Central Bank.2 While mutuality is sine quo non of
arbitration agreement the question is mutuality in respect o f what :
Bindingness of award or initiating arbitral proceedings? It has been
judicially held that mutuality vis-a-vis award is sine quo non." The test is
whether both parties are bound by the award or not.
Whether a right has been expressly given to both parties to
initiate arbitration3—Where an arbitration clause made unilateral option
to arbitrate and bound only one of the parties to submit to arbitration, it
was held that the arbitration agreement was not valid for want of mutuality.
The Court observed that "it is an essential ingredient of an arbitration
clause that either party may refer the dispute to arbitration."4 It is clear
from the above ruling that the arbitration clause must provide bilateral right
o f reference to both the parties.
It is submitted that the 'arbitration clause in the agreement should
have certainty as to the existence o f present or future disputes, place of
arbitration and the subject-matter of dispute relevant to the arbitration
clause.
(xvi) Arbitration agreement relating to either present or future
disputes
In arbitration the existence of dispute is an essence. Thus the dispute
is the pre-necessary condition for the very existence of arbitration. If there
is no dispute, there can be no arbitration. Therefore, it can be said that "a
live dispute is the very lifeblood of the arbitration as stated by M.A. Sujan
in Law Relating to Arbitration and Conciliation. In absence of dispute, the
initiation of arbitration becomes futile. It should be made clear that
expression ‘dispute’ means assertion of a claim by one party and denial by
the other.0 To establish arbitration there is a positive assertion and negative
aspect of denial.
In the present time commercial transaction has become complex and
the parties agree to settle future dispute by entering into arbitration
1. 20th Ed. p. 43, para 38.
2. (1985) Arb. LR 159 (Cal.).
3. Brindaban Chandra v. Billeswar Lai , AIR 1938 Cal. 10; M.A. Sujan on Law Relating to
Arbitration & Conciliation, 2nd Ed. 2001, p. 141.
4. Ahluwalia Co. v. I.F.S. Cooperative Society, (1994) 1 Arb. L.R. 18% (Del.).
5. Chandmal Ganeshmul v. Nippon Munkwa Kabushiki Kaisha, AIR 1921 Cal. 342;
Uttamchand Saligram v. Jew a Manooji, AIR 1920 Cal. 143.
ARBITRATION 81

agreement. It would be very convenient if the arbitration clause between the

parties should have provision to refer either the present or future disputes
for arbitration. Thus, the present disputes as well as future disputes are
arbitrable disputes under the arbitration agreement.
It appears that the old rigid norms of no denial affirms no dispute and
consequently there is no arbitration. Now even the sustained silence
amounts to denial. This point was considered by Saville J.1 who considered
first the question whether a dispute or difference arises in respect of an
indisputable claim i.e., a claim that cannot be resisted on either the facts or
the law. He rejected the bald proposition that if a claim is indisputable then
it cannot form the subject of a "dispute" or "difference" within the meaning
o f an arbitration clause. His reasoning was that the normal meaning of
dispute is not to be limited and that such a definition leads to the absurd
result that a claimant with an indisputable claim cannot refer it to
arbitration, that an arbitrator has no jurisdiction to make an award on such
a claim and that a claim to which there is an indisputable defence is equally
disqualified from reference to arbitration.
The judge preferred the test of Templeman LJ in Ellerine v.
Klinger,2 :
"There is a dispute until the defendant admits that the sum is due
and payable."3
Hence if there subsists no present or future dispute there can be
no arbitration.
(xvii) Arbitration clause under the Government contract
It is well settled legal position that the Government contract must
satisfy the mandatory conditions of Article 299 of the Constitution of India,
1950. It is desirable to reproduce the Article 299 which states as under :—
"299(1). All contracts made in the exercise of the executive power
of the Union or of a State shall be expressed to be made by the
President or by the Governor of the State, as the case may be, and all
such contracts and all assurance of property made in the exercise of
that power shall be executed on behalf of the President or the Governor
by such persons and in such manner as he may direct or authorise.
(2) Neither the President nor the Governor shall be personally
liable in respect of any contract or assurance made or executed for the
purpose o f the Constitution, or for the purpose of any enactment
relating to the Government of India heretofore in force, nor shall any
person making or executing any such contract or assurance on behalf
of any o f them be personally liable in respect thereof."
Thus, Article 299 of the Constitution authorises the Government of
India/the State Government to enter into contract for any purpose subject to
the mode and manner provided for it in Article 209 of the Constitution. A
contract is binding on the Government of India if the undermentioned
1. Hayter v. Nelson & Home Insurance Co., High Court London, The Times March 29, 1990
contributed by David A. Fraser reprinted by kind permission from IBA’s International
Litigation News July, 1990.
2. (1982) 1 WLR 1375.
3. See also State o f Orissa v. B.C. Passayat, AIR 1983 Ori. 29.
82 THE ARBITRATION AND CONCILIATION ACT, 1996

conditions are satisfied that1—

1. It must be expressed to be made by the President or by the
Governor of the State as the case may be.
2. It must be extended on behalf of the President or the Governor as
the case may be.
3. Its execution must be by such person and in such manner as the
President or Governor may direct or authorise.
The Apex Court in Bihar EGF Cooperative Society v. Sepahi Singh,2
observed that failure to comply with these mandatory conditions nullifies the
contract and such contract will be void and unenforceable. Hence, there is
no question of estoppel or ratification of the provisions of Article 299(1) of
the Constitution o f India, 1950.
It is to be noted that the contractual liability of the State under
Constitution of India, 1950 is the same as that of an individual under
ordinary law of contracts. Although the Government contracts are made in
the name of the President he is not personally liable in respect of any
Government contract.
Normally, arbitration agreement forms a part of the Government
Contract, it is like as if two contracts are immersed into one. It is clear that
if the Government arbitration agreement has not been executed in
accordance with the mandatory requirement of Article 299 of the
Constitution, then such Government Contract/Government arbitration
agreement cannot be enforced by or against the Government. The existence
of arbitration clause in the Government Contract is necessary to seek
reference of dispute arising out of such contract for the arbitration and in
absence o f arbitration clause dispute, if arises, cannot be arbitrated. To
illustrate the point in Food Corporation o f India v. Surendra3 wherein the
contract provided that the decision of the Principal Officer shall be final in
respect o f issue concerning to quantity and quality of works and in view of
that provision, the Principal Officer decided a dispute. The Apex Court has
held that "the same could no longer be liable to be arbitrated when there is
no arbitration clause in the agreement/contract. Similarly, in Prahartak
Commercial Corporation v. Chief Administrator, Dando Karanya Project,4
the Apex Court observed where the arbitration clause of the Government
Contract contained "in the event of a dispute, the decision o f the
Superintending Engineer of the Circle shall be final", it was held that since
contract provides unilateral condition, the same could not be imposed by-an
arbitration.
It is ‘sine qua non’ of arbitration that the dispute must arise. Unless
dispute exists, there can be no reference to the arbitrator. Therefore, if the
Government arbitration agreement uses the language ‘opinion’, ‘declaration’,
‘comment’, but not the word ’decision’, it can well be said that this would not
amount to arbitration, besides it being not a decision, it would not be an
excepted matter but would fall within the scope o f arbitration agreement

1. Dr. J.N. Pandey on Constitutional Law of India, 32nd Ed. 1998 p. 541.
2. AIR 1977 SC 2149.
3. AIR 1988 SC 734.
4. AIR 1991 SC 957.
ARBITRATION 83

and would become arbitrable.1 Perhaps, if the designated officer has declared
or given opinion or his comment, it could be urged that such matter is
evidence or conclusive evidence, if so stipulated, but it is for the arbitrator
to decide ultimately.
No arbitration can be made under the Arbitration Act, 1940 where the
subject-matter of dispute has been excluded from the arbitration clause.2
Wherein agreements involving a valuation of Rs. 50,000 and above are
to be signed by the Superintending Engineer, whereas it was signed by the
Executive Engineer, it was held that it would be non est in law and it is not
arbitrable even though the negotiations may have been entered into by the
Superintending Engineer himself.3
(xviii) Whether the parties of a firm can enter into the arbitration
agreement'
Ordinarily, the law is that if the arbitration agreement is executed by
one of the partners of a firm, it is binding on all partners. It is well settled
law that a partner is the agent of the firm. Chapter IV of the Indian
Partnership Act, 1932, namely, Sections 18, 19 and 22 deal with the relation
o f partners to third parties. Section 18 of the said Act, 1932
provides— "subject to the provisions of this Act, a partner is the agent o f the
firm for the purpose of the business of the firm." Thus, the agency is an
essential element of relation as to partnership. As regards third parties a
partner is the agent of the partnership business. Therefore, a partner is both
Principal and Agent. When he acts for himself and his own interest is
common with other partners, he is a Principal and when he acts for the
partners, he is an Agent. It is the accepted principle of partnership liability.
In leading English case Cox v. Hickman ,4 Lord Wensley had held as
under :—
"A man who allows another to carry trade whether in his own
name or not to buy and sell and to pay over all the profits to him, is
undoubtedly the Principal and the person so employed is the Agent and
the Principal is liable for the Agent’s contract in the course o f his
employment, so if two or more agree that they should carry on a trade,
and share the profits of it, each is a Principal and each is an Agent for
the other and each is bound by the other’s contract in carrying on the
trade, as much as a single Principal would be by the act of an Agent
who was to give the whole of the profits to his employer."
Thus, wherein two or more persons agree that they should carry on
trade and share its profit, obviously, each such person is Principal and each
such person is an Agent for other and each such person is bound by the
other’s contract to the same extent, as a single Principal would be by the act
of an Agent who was to give his whole profits to his employer.5
According to Section 19 o f the Indian Partnership Act, 1932 the partner

1. M.A. Mistry v. Union o f India, ILR 1973 (2) Del. 916; see also M.A. Sujan on Law Relating
to Arbitration Conciliation, 2nd Ed. 2001, p. 159.
2. K. Shashidharan v. Kerala State Corporation, AIR 1994 SC 2534.
3. Chandra Bhan Singh v. State o f Bihar, AIR 1976 Pat. 15.
4. 8 H.L.C. 268.
5. R.D. Srivastava on the Indian Partnership Act, 1932, 7th Ed. p. 35.
84 THE ARBITRATION AND CONCILIATION ACT, 1996

has implied authority as an agent of the firm and if he exercised upon it

that binds the firm. Section 19 of the Act states as under—
"(1) Subject to the provision of Section 22 (mode o f doing act to
bind firm), the act of a partner which is done to carry on in the usual
way, business of the kind carried on by the firm binds the firm.
The authority of a partner to bind the firm conferred by Section
19 is called the "implied authority".
(2) In the absence of any usage or custom or trade to the
contrary, the implied authority of a partner does empower him to—
(a) submit a dispute relating to the business of the firm to
arbitration;
(b) open a banking account on behalf of the firm in his own
name;
(c) Compromise or relinquish any claim or portion of a claim
by the firm;
(d) withdraw a suit or proceedings filed on behalf of the
firm;
(e) admit any liability in a suit or proceeding against the
firm;
(f) acquire immovable property on behalf of the firm;
(g) transfer immovable property on behalf of the firm;
(h) enter into partnership on behalf of the firm."
As provided under Section 22 of the Indian Partnership Act, 1932 and
in order to bind a firm an act or instrument done or executed by a partner
or other person on behalf of the firm shall be done or executed—
(a) in the firm name;
(b) in a manner expressing or implying an intention to bind the firm.
However, if it is done or executed by a partner in his individual
name and it is not done or executed in the firm name, it will not
bind other partners of the firm.1
It is submitted that in the context of the arbitration law if a partner of
the firm is duly complying with the provisions laid down under the Indian
Partnership Act, 1932 and enter into the arbitration agreement, it is binding
on all the partners. Russell2 summed up as follows :—
"Partners will only be bound by a submission to arbitration upon
proof that they either expressly authorised it before hand or have
subsequently, adopted and ratified it, or unless, by the terms of the
submission, it can be implied that the arbitration was within the
normal scope of the trade or business of the partnership.
When one partner signs on behalf of all partners in the firm name, it
can well be contended that all partners are signatories through the signing
partner as their agent. But, the question to validity o f an arbitration
agreement signed by one partner in the firm name must be determined by
reference to the relevant legal provisions, which are contained in Sections

!. Sharandas Appa v. Radhepha, AIR 1933 Bom. 1101.

2. On Arbitration. 20th Edn. p. 32.
ARBITRATION 85

18, 19 and 22 of the Indian Partnership Act, 1932.

As provided under Section 7(4)(a) of the Arbitration and Conciliation
Act, 1996, the arbitration agreement must be signed by the parties. The
arbitration agreement can be in the form of signed document by both the
parties mentioning all terms of the arbitration agreement or can be signed
document by one mentioning the terms and a plain acceptance signed by the
other party. It was held that it would be sufficient if one party puts his
signature and the other party accepts the same.1 It constitutes the valid
arbitration agreement signed by the partner binding all.
(xix) Memorandum of understanding does not constitute
arbitration clause
Where the understanding was arrived at between the two groups of
families and the terms o f the settlement were reduced in memorandum of
understanding, the terms of which stipulated reference o f dispute regarding
implementation of such memorandum to the Chairman of the Financial
Corporation which had lent money, it could not be said that it was an
arbitration agreement, nor it could be said that the chairman was acting as
an arbitrator. In K.K. Modi v. K.N. Modi,2 where in the clause 9 of the
memorandum was intended to clear any difficulty, which may arise in the
implementation o f the agreement but this clause did not contemplate any
judicial determination by the Chairman. It never intended to be for any
different decision than what was already agreed upon between the parties
to the dispute. It was meant for a proper implementation of the settlement
already arrived at. Looking to the scheme of the memorandum of
understanding and the purpose behind clause 9, the High Court rightly came
to conclusion that it was not agreement to refer the dispute to arbitration.
It was rather meant to be an expert’s decision. In such circumstances, the
memorandum of understanding could not be termed as arbitration
agreement for reference to the arbitration.
In the present case the memorandum of understanding recording
family settlement of the dispute about the division of assets between the two
groups belonging to the same family business, clause 9 of said memorandum
providing that the dispute, clarification etc. regarding the said agreement
shall be referred to the Chairman, Industrial Financial Corporation of India
whose decision shall be final. It was held by the Supreme Curt that it will
constitute reference of issue and not arbitration agreement.
(xx) Arbitration agreement held to be valid, requiring two
arbitrators to appoint third arbitrator
Section 7(3) requires an arbitration agreement to be in writing and
Section 7(4) prescribed the kind of that writing. But there was nothing in
Section 7 to indicate the requirement of number of arbitrators. Section 10 of
the present Act, deals with number of arbitrators. Sub-section (1) of Section
10 says that the parties are free to determine number of arbitrators but it
shall not be of even number. Sub-section (2) of Section 10 says that failing
the determination referred to in sub-section (1) of Section 10, the arbitral

1. Union o f India v. A.L. Rallia, AIR 1963 SC 1985.

2, AIR 1998 SC 1297.
86 THE ARBITRATION AND CONCILIATION ACT, 1996

Tribunal shall consist of a sole arbitrator. Section 11 of the Act provides for
appointment of arbitrators. In M.M.T.C. v. Sterlite Industries India Ltd.,1
wherein the arbitration clause provided that each party shall nominate one
arbitrator and two arbitrators shall then appoint an umpire. It was held that
the arbitration agreement is valid as it satisfied the requirement of Section
7 requiring two arbitrators to appoint third arbitrator. The court observed
that there is nothing in the new Act, to make such agreement unenforceable
in view of the term in the arbitration agreement that two arbitrators would
appoint umpire.
(xxi) Agreement requires arbitrator’s appointment
The Apex Court in Wellington Associates Ltd. v. Kirti Mehta,2 observed
that an arbitration agreement must require appointment of arbitrator.
However, wherein it is mentioned that the parties may go to the court and
may get the matter to be decided from the arbitrator, it was held that it will
not be an arbitration agreement.
In the above case the Apex Court explained that unless the document
filed by the party before the Chief Justice of India or his designate is an
‘arbitration agreement’ as defined in Section 7, requiring a reference in a
mandatory sense, no reference can be made to the arbitral Tribunal.
(xxii) In absence of arbitration agreement—No intervention by the
court
In Tamil Nadu Electricity Board v. Sum athi3 the Apex Court has held
that under Section 7 of the Arbitration and Conciliation Act, 1996, there is
no provision requiring reference of dispute to the arbitration by intervention
of the court in the absence of arbitration agreement. However, where there
is an arbitration agreement, the parties must proceed according to the
provisions of the Act.
The Court observed since disputed questions of facts arose in the
present appeals the High Court should not have entertained writ petitions
under Article 226 of the Constitution of India, 1950 and then referred the
matter to arbitration in violation of the provisions of the new Act, 1996.
There was no arbitration agreement within the meaning of Section 7 of the
new Act, 1996. Under the Act of 1996 award can be enforced as if it is a
decree of a court and yet the High Court passed a decree in terms o f the
award which is not warranted by the provisions of the new Act. The
appellant had also raised the plea of bar of limitation as in many cases if
suits had been filed those would have been dismissed as having been filed
beyond the period of limitation. Exercise of jurisdiction by the High Court in
entertaining the petition was not proper and the High Corut in any case
could not have proceeded to have the matter adjudicated by an arbitrator in
violation of the provisions of the new Act of 1996.
But, where an application for appointment of arbitration was objected
on the ground that there was no contract and arbitration agreement, it was
however, found from the evidence that they were not strangers and there

1. AIR 1997 SC 605 : 1996 (6) SCC 716.

2. AIR 2000 SC 1379 : 2000 (4) SCC 272 : 2000 (4) JT 135.
3. AIR 2000 SC 1603 : 2000 (4) SCC 543 : 2000 (5) JT 526.
ARBITRATION 87

was correspondence about the contract. It was held that the contention of
absence of Arbitration clause was rejected and matter was referred to
Arbitrator.1
(xxiii) The clause was not an arbitration clause
In B.B. Verma v. The Chairman-cum-Managing Director, South Eastern
Coalfields Ltd.,2 where clause 30 of the notice inviting tender reads as
under :
"30. Matter relating to any dispute or differences arising out of
this tender and subsequent contracts awarded based on this tender
shall be subject to the jurisdiction of District Court Bilaspur only".
It was held by the Madhya Pradesh High Court that the above clause
stipulating about territorial jurisdiction of a particular Court was not an
arbitration clause.
(xxiv) Vagueness in arbitration clause
In M/s. Sankor Sealing Systems P. Ltd. v. M/s. Jain Motor Trading
Co. & another,3 where a clause in agreement provided that "settled by the
arbitration o f a neutral person agreed to by both", is vague and uncertain in
view o f language used therein. It was held that expression "neutral person
agreed to by both", is not certain as the who is to be the neutral person and
how the consensus is to be arrived at between the parties, is also not clear,
hence, such arbitration clause cannot be given effect to.
(xxv) When provision for arbitration constitute an arbitration
agreement—two conditions necessary
According to the Supreme Court the provision for arbitration constitute
an arbitration agreement, two conditions must be satisfied—
(i) It should be between partner to dispute, and
(ii) it should relate to or be applicable to the dispute.
In the present case Indo Wind Energy Ltd. was not a party to
arbitration agreement and no claim against it or dispute which it can be a
subject matter of reference to arbitration and neither Section 7(5) nor
Section 7(4) (b) (c) had application in the present case in absence of aforesaid
two conditions as enumerated above.
(xxvi) Arbitration agreement of enlargement of scope of dispute
The Division Bench of Bombay High Court in Ganesh Benzoplast Ltd.
v. Saf Yeast Company Ltd .,4 ruled that even in the course of filing of the
pleadings in the form of statement of claim or statement of defence, if the
pleas are raised which originate from or relate to the subject matter of
dispute, then such pleas could form part of the dispute for adjudication
before the arbitrator, unless in the statement of either of the parties, it is
specifically denied or objected to on the ground that the plea sought to be
raised by the other party is beyond the scope of the dispute for adjudication
by the arbitrator being outside the scope of reference. In other words in case
1. Nimat Resources Inc. etc. v. Essar Steels Ltd., 2000 (6) Supreme 495.
2. 2001 (3) Arb. LR 135.
3. AIR 2004 Mad. 127.
4. A.I.R. 2007 (NOC) 1628 (Bom.) (DB).
88 THE ARBITRATION AND CONCILIATION ACT, 1996

o f enlargement of the scope of dispute in the statement of claim in

comparison to the one referred to, and in the absence of any objection by the
other party, it could be deemed to have been conceded to form the
subject-matter of dispute for adjudication before the Arbitral Tribunal. The
Court expressed the view that it is abdundently clear from Section 16(2)
read with Section 4 of the Act. Therefore, it cannot be said that the scope of
arbitration would always remain restricted to the one initially referred to.
Oi^the contrary, it can be modified if not objected by the opposite party. It
can also be modified by way of amendment.
(xxvii) J u d ic ia l A u th o rity w ould have ju ris d ic tio n to go into said
question in c ertain circumstances
The Supreme Court in India Household and Health Care Ltd. v. L.G.
Household and Health Care Ltd.,1 observed that the jurisdiction of the
arbitrator to determine his own jurisdiction is on the basis of that arbitration
clause which may be treated as an agreement independent of the other terms
of the contract and his decision that the contract is null and void shall not
entail ipso jure the validity of the arbitration clause. But, the question would
be different where the entire contract containing the arbitration agreement
stands vitiated by reason of fraud of this magnitude. It may be noticed that
Part II of the 1996 Act contains a provision for approaching the Court. Section
45 of the 1996 Act contains a non-obstante clause. A judicial authority,
therefore, may entertain an application at the instance of a party which
alleges that there exists an arbitration agreement whereupon judicial
authority may refer the parties to arbitration, save and except in a case where
it finds that the said agreement is null and void, inoperative and incapable of
being performed. Section 8 of the 1996 Act, however, is differently worded.
Thus, as and when a question in regard to the validity or otherwise o f the
arbitration agreement arises, a judicial authority would have the jurisdiction
under certain circumstances to go into the said question.
(x x viii) V a lid ity o f clause of a rb itra tio n agreem ent—Im posing
condition of depositing 10% of am ount claim ed
In National Building Construction Corporation Ltd. & another v. State
o f Haryana and another,2 the Division Bench of the Punjab and Haryana
High Court ruled that arbitration clause requiring disputing party to deposit
10% of amount claimed is not unreasonable. The Court observed that :
"Arbitration clause had laudable object, namely, that no one
should file frivolous claims before the arbitrator. Further that several
arbitration clause in the arbitration agreement did not lack mutuality
as any one of the parties invoking arbitration is required to comply
with the condition of depositing 10% of amount claimed. The Court was
of the view that no unequal bargaining power o f the parties to contract
is discernible from arbitration clause."
A p p lic a b ility o f doctrine of severability.— In Shim Satellite Public
Co. Ltd. v. Jain Studios Ltd.? the Apex Court ruled that where in part
agreement clause is invalid, the doctrine of severability is applicable and
1. Am 2007 SC 1376.
2. A I R 2 0 0 7 P. & H . I l l (D B ).
3. A IR 2 0 0 6 S C 963.
ARBITRATION 89

rest of arbitration agreement rather arbitration clause could be relied on to

appoint arbitrator.
A p p lic a b ility of the Rules of In d ia n Council of A rb itra tio n .—In
C.M.C. Ltd. v. Unit Trust o f India,1 the Supreme Court considered the
applicability of the Rules of Indian Council of Arbitration in view of
arbitration clause between the parties specifically regarding appointment of
arbitrator. The Supreme Court observed that getting resolution of a dispute
by arbitration is a matter of contract between the parties. So long as the
contract does not militate against the provisions of the Arbitration and
Conciliation Act, 1996, nothing in law prevents the arbitration agreement
between the parties being given effect to in full.
In the aforesaid case the relevant part of the arbitration clause reads
thus :
"Each party shall appoint an arbitrator and the arbitrators so
appointed shall appoint an umpire to whom the matter on which the
arbitrators disagree will be referred....the arbitration proceedings shall
be conducted in accordance with the rules prescribed by the Indian
Council of Arbitration."
The Supreme Court while interpreting arbitration clause in question
said that on a true construction o f the arbitration agreement, what is found
is that the parties retained in themselves the right to name an arbitrator of
their own, who in turn had to name a presiding arbitrator so as to constitute
an Arbitral Tribunal. The power to appoint has not been ceded to the Indian
Council of Arbitration. Once the appointments are made and the Arbitral
Tribunal is constituted, the parties have also agreed that the arbitration
proceedings shall be conducted in accordance with the rules prescribed by
the Indian Council of Arbitration. The provision that the proceedings shall
be conducted in accordance with the rules prescribed by the Indian Council
of Arbitration does not in any manner militate against the retention o f the
power by the parties of appointing an arbitrator or constituting an Arbitral
Tribunal. Only if there exists any inconsistency between the two provisions
would the need arise to undertake the exercise of reading down one or
ignoring one as ineffective or inconsistent and giving effect to the other. In
the present case there is no difficulty in reconciling both the clauses in the
arbitration agreement.
The Supreme Court further said that if while contemplating a
resolution of dispute by arbitration the parties also retain in themselves the
power to constitute an Arbitral Tribunal, it cannot be said that there is any
thing wrong in such a provision or that the same cannot be given effect to.
Therefore, the power retained by the parties to name an arbitrator by each,
does not militate either against the provisions of the Act, 1996 or against
the Rules of the Indian Council of Arbitration. The Arbitral Tribunal once
constituted in terms of the Act, 1996 may have to follow the rules of the
Indian Council of Arbitration in that behalf. But, when an Arbitral Tribunal
of persons well versed in law is constituted, surely a proper procedure will
be followed by them and there is no reason to insist on a particular
procedure to be followed.

1. A IR 2 0 0 7 S C 1557.
90 THE ARBITRATION AND CONCILIATION ACT, 1996

Held, power of parties to retain power to appoint arbitrators while

providing that arbitration proceedings would be conducted in accordance
with the rules of the Indian Council of Arbitration, hence it is permissible.
Existence o f a rb itra tio n agreem ent—D e te rm in a tio n of.—Wherein
the respondent contended that in the invoices for the supplies, there is no
reference to arbitration clause or arbitration agreement and therefore, the
disputes are not arbitrable. In this case the purchase orders are contracts.
Invoice is a document which is prepared with reference to the supplies made
under the contract. When the contract (purchase order) incorporates an
arbitration agreement by reference, the invoice need not contain a provision
for arbitration. Hence, there was arbitration agreement by means of contract
(in present case purchase order).1
A rb itra tio n Agreem ent—W hether substituted or m erely
m odified.—In Larsen and Toubro Ltd. v. Fertilizer & Chemicals,
Travancore Ltd. (FCTL),2 where the appellant Larsen and Toubro (L & T)
entering into contract with respondent FCTL containing arbitration clause
in Article 26 of the standard conditions of the contract stipulating the
Chairman and Managing Director (CMD) of FCTL to be the arbitrator in
case of any dispute. Larsen and Toubro by invoking arbitration clause
suggesting names of three persons and FCTL called upon to name one of
them as sole independent arbitrator. Whereas FCTL declining the request
on the ground that only its CMD could be appointed as an arbitrator
according to Article 26 of the contract. In the present case application under
Section 11 of the Arbitration and Conciliation Act, 1996 filed by Larsen and
Toubro for appointment of arbitrator has been rejected by the High Court on
the ground that there was no failure of agreement procedure.
In the Supreme Court appellant Larsen and Toubro Ltd. contented that
special conditions attached to the contract replaced the earlier Article 26 and
CMD of FCTL cannot be treated as an independent arbitrator. It was held
by the Supreme Court that there was an addition and not substitution of the
old contract. The addition only provided the procedure to be adopted in the
arbitration proceedings viz. applicable Act, Rules and their statutory
modification, venue of arbitration and the language of the proceedings.
In view o f the facts of the present case, there was an addition and not
substitution o f condition. Without amendment there was arbitration clause
and if there was no amendment and only substitution, then there was no
amended arbitration clause. In the arbitration request in the statement of
facts it has been clearly stated that Article 26 of the standard terms and
conditions of purchase form part of the work order. The stand of the
appellant that the special conditions of the work order superseded the
standard terms and conditions, is not correct. The special conditions
themselves show that Articles 25 and 26 of the standard conditions
contained provisions for arbitration. The amendments incorporated by the
special conditions only provide that the provisions of the relevant Arbitration
Act and the Rules made thereunder and any statutory modification thereof
for the time being in force will be applicable and the venue of arbitration
1. Groupe Chimique Tunisien S.A. v. Southern Petro-chemicals Industries Ltd. , A I R 2 0 0 6 SC
24 2 2.
2. (2 0 0 8 ) 1 S C C 252.
ARBITRATION 91

and language of the proceedings remain unchanged. The Supreme Court

observed that the mere fact that the arbitrator was named does not render
the arbitration proceedings invalid.
(xxix) A rb itra tio n Agreem ent is B inding
According to the Supreme Court,1 Section 7 states that "an arbitration
agreement is 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. It may be
in the form of an arbitration clause in a contract or in the form o f a separate
agreement and shall be an agreement in writing. An arbitration agreement
is in writing if it is contained in any of the clauses i.e. Clauses (a) to (c) of
Section 7(4). If there ingredients are satisfied, there would be a binding
agreement and aggrieved party would be in a capacity to invoke jurisdiction
of the Supreme Court under section 11(6) o f the Act, 1996.
(xxx) "G uarantor" to a rb itra tio n agreem ent—T here is no a rb itra tio n
agreem ent
In S.N. Prasad M/s Hitek Industrial (Bihar) Ltd. v. Monnet Finance
Ltd. & others,2 whereon arbitration agreement between the lender on the
one hand and the borrower and one of the guarantors on the other, cannot
be deemed or constituted to be an arbitration agreement. The Supreme
Court ruled that there was no arbitration agreement as defined under
Section 7(4) (a) or (b) of the Act; the court observed that in so far as
appellant was concerned, though there was an arbitration agreement as
defined under Section 7(4) (a) of the Act in regard to the second and third
respondents. In the present case as the letter dated 27-10-1995 does not
refer to any document containing arbitration clause, there is also no
arbitration agreement between first respondent and appellant as
^contemplated under section 7(5) of the Act, 1996.
The Supreme Court further observed that a guarantor for a loan who
is not a party to the loan agreement containing the arbitration agreement
executed between the lender and borrower, cannot be made a party to a
reference to arbitration in regard to a dispute relating to re-payment of such
loan and subjected to arbitration award.
Section 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

1. Powertech World Wide Ltd v. Delvin International General Trading LLC, 2 0 1 1 (8 ) S u p rem e
107.
2. 2 0 1 0 (4 ) A rb . L R 2 0 5 (S C ).
92 THE ARBITRATION A N D CONCILIATION ACT, 1996

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.
CO M M EN TS
Section 8 of the Act, 1996 is on the pattern of Article 8 of the Model
Law, however, Section 8 has its own distinction from Article 8 of the Model
Law, which are the followings :
"(i) If, an arbitration agreement is not null and void and one of the
parties to an arbitration agreement before proceeding with the
subject-matter before the court, makes request in his first
statement to refer the subject-matter to an arbitration but not at
later stage, such subject-matter would be referred to an
arbitration, if it is operative and capable o f being performed.
(ii) If, the subject-matter has been brought before the court as in the
aforesaid manner and consequently arbitral proceedings
commenced or continued, an arbitration tribunal may make an
award while the issue is pending before the court.
Section 8(1) provides discretionary power to the judicial authority, and
if the parties to an arbitration agreement make such request before a
judicial authority but not later than submitting his first statement, the
judicial authority should refer the parties to arbitration. It is necessary for
application of this sub-section that a judicial authority can refer only the
subject-matter of an arbitration agreement but not otherwise.
Although, under Section 8(1) a court cannot adopt on its own motion to
avail this provision, the parties have to apply with request, however while
considering such request, the court cannot go into the merits of the dispute.1
Section 8(2) provides mandatory provision for application of Section 8(1)
which specifies that, "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".
Section 8(3) empowered the arbitral tribunal to start arbitration and if
already commenced can continue arbitration and also can make award, it is
not the point that an application under Section 8(1) is pending before the
court. Thus, the parties are not deprived to initiate arbitral proceeding even
if proceeding before a judicial authority has already commenced. The main
object of this sub-section is to discourage deserters and instead push them
to their agreement to arbitration.
Section 8 of the new Act is not in pari materia with Section 20 of the
1940 Act. It is only if in an action which is pending before the court that a
party applies that the matter is the subject of an arbitration agreement does
the Court get jurisdiction to refer the parties to arbitration. The said
provision does not contemplate, unlike Section 20 of the 1940 Act, a party
applying to a court for appointing an arbitrator when no matter is pending
before the Court. 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). The High Court was, therefore,
1. J & K. State Forest Dept. v. Abdul Karim Want, A I R 1989 S C 14 9 8, 1506.
ARBITRATION 93

wrong in referring to these provisions of the 1940 Act while interpreting

Section 9 of the new Act.1
It is important to note that Section 8 of the 1996 Act postulates, not
only request by the party for staying legal proceedings but also contemplates
for referring the parties to arbitration.2
(i) Expression ‘P a rty ’ u n d e r Section 8—M ean in g of
Although, Section 2(l)(h) of the Arbitration and Conciliation Act, 1996
defines the expression "party", it means a party to an arbitration agreement.
Thus, the party to an arbitration agreement, may be between two or more
persons, it may also be between body of persons or incorporated bodies. But,
certainly they are parties to dispute who submit their dispute for settlement
under the arbitration agreement.
It is to be noted that the "party" referred to in Section 8(1) of the
Arbitration and Conciliation Act, 1996 is a party who is entitled to maintain
the application thereunder. The party to the arbitration agreement who has
himself instituted suit is clearly not the "party" envisaged. In Magma
Leasing Ltd. v. NEPC Micon Ltd. ,3 wherein first defendant however, a party
to the arbitration agreement who has elected to institute the suit in question
in enforcement o f its rights and as such he cannot be said to be a "party"
within the meaning of that section 8(1) of the Act.
(ii) A p p lic a b ility of Section 8—O bligatory fo r the C o u rt to re fe r
p arties to a rb itra tio n in term s of a rb itra tio n agreem ent
The Calcutta High Court in Fiat India Pvt. Ltd. v. Rahul Udyog Viniog
Ltd. & another,4 said that the language of Section 8 being pre-emptory, it is
obligatory for the Court to refer the parties to arbitration in terms of their
arbitration agreement and nothing to be decided in the original action or the
appeal arising therefrom.
The conditions, which are required to be satisfied under sub- sections
(1) and (2) of Section 8 of the Act, 1996 before the Court can exercise its
powers, are,—
(1) there is an arbitration agreement;
(2) a party to the agreement brings an action in the Court against
the other party;
(3) 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 it submits its first statement on the substance
o f the dispute,
(iii) N a tu re o f Section 8
The Supreme Court in Hindustan Petroleum Corporation Ltd. v. Pink
City Midway Petroleums,5 has held that Section 8 is pre-emptory in nature
1. M/s. Sundaram Finance Ltd. v. Mts. N.E.P.C. India Ltd., A IR 1 999 S C 5 6 5 : 1999 (2)
S C C 4 7 9 • 1999 Cl) J T 4 9 (S C ).
2. P.W.H. Analgen v. Damodar Ropeways, 1 996 (1 1 ) C H N 97.
3. 1 998 (3 ) R .A .J . 37 at p. 4 1 (C a l.).
4. A I R 2 0 0 4 N O C 9 9 (C a lcu tta ).
5. A I R 2 0 0 3 S C 2 8 8 1 : 2 0 0 3 (6 ) S C C 503.
94 TH E A R B IT R A T IO N A N D C O N C IL IA T IO N ACT, 1996

and mandatory for Civil Court to refer the dispute to arbitrator if the
agreement contained arbitration clause. The Supreme Court observed if
there is any objection as to application of arbitration clause to the facts of
the case, same will have to be raised before the concerned Arbitral Tribunal.
(iv) Expression "first statement on the substance of the
dispute"—Meaning of
The expression "first statement on the substance of the dispute"
contained in Section 8(1) o f the Act, 1996 must be contradistinguished with
the expression "written statement". It implies submission of the party to the
jurisdiction o f the judicial authority. What is, therefore, needed is a finding
on the part of the judicial authority that the party has waived its right to
invoke arbitration clause. If an application is filed before actually filing the
first statement on the substance of the dispute, the party cannot be said to
have waived its right or acquiesced itself to the jurisdiction of the court.
What is, therefore, material is as to whether the petitioner has filed his first
statement on the substance of the dispute or not, if not, his application
under Section 8 of the Act, 1996 may not be held wholly unmaintainable.1
(v) Beneficiary cannot be prevented from invoking Bank Guarantee
Ordinarily, the court would be reluctant to interfere and grant stay on
encashment of the Bank Guarantee unless there is a fraud which has been
detected and proved. The Apex Court in National Thermal Power
Corporation v. Flowmore (P.) Ltd.,2 observed that during pendency of the
arbitration proceedings for award between the parties in dispute and
beneficiary and the party on whose instance Bank Guarantee were
furnished, it would not be a valid ground for preventing the beneficiary from
invoking the Bank Guarantee.
(vi) Judicial authority under obligation to refer the parties for
arbitration
Under Section 8 of the new Act the judicial authority is under
obligation not only to make an order for staying proceedings, but also under
obligation to refer the parties for arbitration.
The Delhi High Court in Gas Authority o f India Ltd. v. Spie Capag,
observed that while considering application whether to grant stay of
proceedings and refer the parties to arbitration, the judicial authority has to
consider the following issues :—
1. Dispute before the judicial authority is arbitrable.
2. There is a valid arbitration agreement between the parties.
3. One o f the parties of the arbitration agreement has started legal
proceedings.
4. The party has not submitted the first statement on the substance
of dispute.
Mere defect in the form of arbitration agreement would not be proper

1. Rashtriya Ispat Nigam Ltd. v. Verma Transport Co., AIR 2006 SC 2800.
2. (1955) 4 SCC 515.
3. (1994) 1 Arb. L.R. 458 (Del.); Relied on Renusagar v. Gas Authority o f India Ltd., AIR
1985 SC 1156.
ARBITRATION 95

to deny the right of the parties to go into arbitration. 1

Court is under obligation to refer the parties to arbitration—
when it can be.—The Supreme Court in Agri Gold Exims Ltd. v. Sri
Lakshmi Knits & Wovens Ltd.,2 has held that Section 8 of the Arbitration
and Conciliation Act, 1996 is pre-emptory in nature. In a case where there
exists an arbitration agreement, the Court is under an obligation to refer the
parties to arbitration in terms of the arbitration agreement.
(vii) No appointment of an arbitrator through court
Under the new Arbitration and Conciliation Act, 1996 there is no
provision for appointment o f arbitrator by seeking intervention of the court,
though on the contrary the old Arbitration Act, 1940, Section 20 provided
that a party could commence proceedings in court by moving an application
under said section of the old Act, 1940 for appointment of an arbitrator and
simultaneously it could move an application for interim relief under the
Second Schedule read with Section 41(b) of the Arbitration Act, 1940.
As said above the Arbitration and Conciliation Act, 1996 does not
contain a provision similar to Section 20 of the Arbitration Act, 1940, nor is
Section 9 or Section 17 similar to Section 41(c) and the Second Schedule to
the Arbitration Act, 1940. It is to be specifically Vioted that Section 8 o f the
new Act, 1996 is not in the pari materia with Section 20 of the Arbitration
Act, 1940. It is only if in an action which is pending before the court that a
party applies that the matter is the subject of an arbitration agreement, the
court get does jurisdiction to refer the parties to arbitration.3
(viii) Death of named arbitrator—In such eventuality court can
appoint arbitrator
In M/s. Modern Metal Industries & another v. Smt. Shanti Parolia &
others,4 where the partnership deed was executed when the Arbitration Act,
1940 was in force. However, named arbitrator died, but the agreement
among the partners does not show that vacancy on death o f arbitrator was
not to be supplied. In the present case no arbitrator was appointed within
15 days of service of notice in terms of Section 8(2) o f the Arbitration and
Conciliation Act, 1996. In the present case Division Bench o f the Allahabad
High Court observed that the partnership deed has been executed when the
old Arbitration Act, 1940 existed and the partnership agreement does not
show that the vacancy on the death of the arbitrator should not be supplied.
It was held that the death of the named arbitrator will not nullify the
arbitration agreement and under Section 8(1) of the Arbitration and
Conciliation Act, 1996 the Court can appoint an arbitrator.
(ix) Question regarding winding up of the company cannot be
referred to arbitration
It is settled legal position that under Section 8 of the Act, 1996 only
the dispute or matter may be referred which the arbitrator is competent or

1. Essar Oil Ltd. v. Owners o f Bange Pegah, 1995(2) Cal. LT 2.

2. (2007) 3 SCC 686.
3. M/s. Sundaram Finance Ltd. v. M/s. N.E.P.C. India Ltd., AIR 1999 SC 565 : 1999 (2)
SCC 479 : 1999 (1) JT 49 (SC).
4. AIR 2004 All 249 (DB).
96 THE A R B IT R A T IO N A N D C O N C IL IA T IO N A C T, 1 9 9 6

empowered to adjudicate. The Apex Court in Haryana Telecom Ltd. v.

Sterlite Industries (India) Ltd.,1 wherein the claim in a petition for winding
up is not for money. The petition filed under the Companies Act, 1956 would
be to the effect, on the ground that the company has become commercially
insolvent and therefore, should be wound up. The court observed that the
power to order winding up of a company is contained under the Companies
Act and is conferred on the court. An arbitrator notwithstanding any
agreement between the parties, would have no jurisdiction to order winding
up of a company. The matter which is pending before the High Court in
which the application was filed by the petitioner herein was related to
winding up of the company. It was held that the parties to the winding up
application cannot be referred to arbitration and the High Court rightly
rejected the said application.
(x) Arbitral proceedings and legal proceedings to be continued
concurrently
It is very special feature of the Arbitration and Conciliation Act, 1996
which makes provision particularly Section 8(3) that arbitration proceedings
and legal proceedings may be continued concurrently .2 Section 8 nowhere
prohibits starting or initiating or continuing arbitral proceedings when an
application for stay of legal proceeding is pending before the judicial
authority or the court." The Calcutta High Court in G.V.S. Packing Co. v.
Vinod Textiles,4 observed that the pr ovision o f Section 8 is equally applicable
in winding up proceedings of a company.
It is to be noted that order made by the court/Judicial authority while
exercising power under Section 8 of the Arbitration and Conciliation Act,
1996, is not challengeable, thus such order is not appealable under Section
37 of the said Act.
(xi) Civil Procedure—Arbitrability of subject matter of suit
In Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd. & others5
where initially a Loan Agreement, for grant of loan towards two flats
entered in to between two borrowers and the Bank, followed by leave and
licence agreement between those borrowers and appellant as licensee over
those flats, paying security amount for its use. In the present matter the
Bank was also party to this agreement. Ultimately, a tripartite agreement,
namely "Deposit Agreement" was also executed between the very same
parties, which contained an arbitration clause disputes—
(a) with regard to creation of charge over the shares and flats;
(b) with regard to enforcement of the charge over such shares and
flats and realisation of sale proceeds therefrom;
(c) application o f sale proceeds towards discharge of liability of
licensors on account of security deposit by licensee, and
(d) with regard to entitlement of licensee/appellant to continue in

1. AIR 1999 SC 2354 : 1999 (9) SCC 688 : 1999(6) Supreme 66.
2. National Agriculture Case, AIR 1989 SC 818.
3. Tractor Export v. Tarapore & Co., AIR 1971 SC 1.
4. AIR 1995 Cal. 260.
5. AIR 2011 SC 2507.
ARBITRATION 97

occupation of the flats until entire dues as indicated in Deposit

Agreement are cleared.
It was held that suit in question was to enforce mortgage to recover the
dues. As such, Bank has also sought delivery of vacant possession. Thus,
considering specific terms of Arbitration Agreement, subject-matter of suit
falls within the scope of the said agreement.
(xii) When complaint can be sued before consumer forum—contract
containing arbitration clause
The Supreme Court in M/s National Seeds Corporation Ltd. v. M.
Madhusudan Reddy & another1 wherein the growers of seeds who have
entered into contract with seeds corporation containing an arbitration clause
are not prevented thereby from filing complaint to consumer forum about
defective foundation seeds supplied to them by corporation. The remedy of
arbitration is not only remedy available to a grower. Further it is an
optional remedy. He can either seek reference to an arbitrator or file a
complaint under the Consumer Act, 1986. If the grower opts for the remedy
o f arbitration, then it may be possible to say that he cannot, subsequently,
file complaint under the Consumer Act, 1986. However, if he chooses to file
a complaint in the first instance before the Competent Consumer Forum,
then he cannot be denied relief by invoking Section 8 o f the Arbitration and
Conciliation Act, 1996. Moreover, the plain language of Section 3 of the
Consumer Protection Act, 1986 makes it clear that the remedy available in
that Act, 1986 is in addition to and not in derogation of the provisions of
any other law for the time being in force.
(xiii) Mortgage suit—Limitation qua Reference to Dispute for
Arbitration
According to the Supreme Court,2 Section 8 provides that 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 from
submitting his first statement on the substance of dispute, refer the parties
to arbitration. In present case the appellant filed his detailed affidavit
opposing application for injunction. Thereafter, it filled an application under
Section 8 , seeking arbitration of the dispute. Till then he had not filed any
written statement. But, filing of reply to application for grant of interim
relief, before filing o f written statement etc., may not amount to submission
of statements on substance of dispute. Whether defendant waived his right
to seek reference and submitted himself to jurisdiction of the court depends
upon his conduct. The application of the plaintiff for interim relief, like
temporary injunction, appointment of receiver etc. have to be contested by
the defendant. Such contest can even lead to appeals and revision or
supplemental proceedings may remain pending for considerable time and
defendant may be contesting all along, defendant cannot be taken to has lost
his right to seek reference.
Hence, at the relevant time, unamended Rule 1 of order 8 of the Code
o f Civil Procedure, 1908 did not prescribe any time limit fo filing written

1. AIR 2012 SC 1160.

2. Booz Allen and Hamilton Inc. y . SBI Home Finance Ltd., 2011 SC 2507.
98 THE ARBITRATION AND CONCILIATION ACT, 1996

statement. Thus, mere passage of time between entering appearance and

date of filing application under Section 8 of the Act cannot lead to inference
that defendant has submitted himself to jurisdiction of, for adjudication of
main dispute." The High Court was not justified in rejecting application
under Section 8 only on ground of delay.
(xiv) Pendency of application under Section 8 in any suit—Does not
bar appointment of arbitrator under Section 11
The Supreme Court in Vijay Kumar Sharma alias Manju v.
Raghunandan Sharma alias Baburam & others1 ruled that arbitration
proceeding vis-a-vis pendency of application for appointment of arbitrator, in
terms o f Section 8(3), pendency of an application under Section 8 , the court
will not come in the way of an arbitration being commenced or continued
and an arbitral award being made.
The Supreme Court explained that neither filing of any suit by any
party to arbitration agreement nor any application being made under
Section 8 by the other party to the court, should obstruct or preclude a party
from initiating any proceedings for appointment of an arbitrator or
proceedings with Arbitral Tribunal. An application under Section 11 or
section 15(2), for appointment of an arbitrator, will not be barred by
pendency of an application under Section 8 in any suit nor will the designate
of the Chief Justice be precluded from considering and disposing of and
application under Section 11 or 15(2). If an arbitrator is appointed by the
designate of Chief Justice under Section 11, nothing prevents the arbitrator
from proceedings with the Arbitration. So, the mere fact that an appeal from
an order dismissing the suit under order 7, Rule 1 of CPC (on the ground
that dispute require to be settled by Arbitration) is pending before the High
Court, will not come in the way of appointment of arbitrator under Section
11 RAV Sections 5(2) if the authority under Section 11 finds it necessary to
appoint an arbitrator.
(xv) Non-existence of a valid arbitration agreement—High Court
cannot pass a decree in terms of award
In Tamil Nadu Electricity Board v. Sumathi,2 a writ petition was filed
claiming compensation on account of death due to tortious act. However, the
High Court held and referred the matter to the arbitrator and made the
award rule of the court and also passed a decree in terms of award. The
Supreme Court while considering the abovementioned case observed that
since disputed question of facts arose in the present appeals the High Court
should not have entertained writ petitions under Article 226 of the
Constitution of India, 1950 and then referred the matter to arbitration in
violation o f the provisions of the Act, 1996. There was no arbitration
agreement within the meaning of Section 7 of the Act, 1996 under the
Arbitration and Conciliation Act, 1996. Award can be enforced as if it is a
decree of court and yet the High Court passed a decree in terms of the
award which is not warranted by the provisions of the new Act, 1996.
Appellant also had raised plea of bar of limitation as in many cases if suits
had been filed those would have been dismissed as having been filed beyond
1. 2010 (1) Arb LR 273 (SC).
2. AIR 2000 SC 1603 : 2001(4) SCC 543 : 2000 (3) Supreme 673.
ARBITRATION 99

the period of limitation. The Supreme Court held that exercise of jurisdiction
by the High Court in entertaining the writ petition was not proper and High
Court in any case could not have proceeded to have the matter adjudicated
by an arbitrator in violation of the provisions of the new Arbitration and
Conciliation Act, 1996.
(xvi) Submission of first statement not a bar on the court referring
the parties to arbitration
The Supreme Court in P. Anand Gajapathi Raju v. P.V.G. Raju,1 while
considering the power of the court to refer the dispute to arbitration under
Section 8 of the new Act, 1996 where during the pendency of the dispute
before the Supreme Court, parties entered into arbitration agreement and
sought reference, it was held that the submission of first statement on
substance of dispute was not a bar on the court referring the parties to
arbitration provided other parties do not object. In the present case the court
observed as follows
"The conditions which are required to be satisfied under
sub-sections (1) and (2) of Section 8 before the court can exercise its
powers are as under—'
(1) There is an arbitration agreement.
‘ ’ ~(2) A party to the agreement brings an action in the court
against the other party.
(3) 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 it submits his first statement on the
substance of dispute.
The last provision creates a right in the person bringing the action to
have the dispute adjudicated by court, once the other party has submitted
his first statement of defence. But, if the party, who wants the matter to be
referred to arbitration applies to the court after submission o f his statement
and the party who has brought the action does not object, as is the case
before the court, then it presents no bar on the court referring the parties
to arbitration.
(xvii) Application under Section 8 without certified copy of
agreement
Wherein the application was filed under Section 8 of the new Act, 1996
without certified copy of the agreement, the court below rejected the
application for want of certified copy of the agreement. The Apex Court
overruled the decision of the court below and held that it is not proper to
reject application filed under Section 8 of the new Act in the absence of copy
o f the agreement and the case was remanded and application under Section
8 of the new Act to be decided according to law .2
A bare reading of Section 8 of the new Act, 1996 shows several
shortcomings which should be commented. Under Section 8(1) o f the new Act
there is no provision under which the court is competent to dismiss, on its
1. AIR 2000 SC 1886 : 2000 (4) SCC 539.
2. Refrigeration & Appliances v. Jayaben Bharat Kumar Thakkar, 2000 (7) Supreme 216.
100 THE A R B IT R A T IO N A N D C O N C IL IA T IO N A C T , 1 9 9 6

own motion, action brought before it in a matter which is the subject of an

arbitration agreement. 1 "It can do so only upon request by a party. While
considering such request the court cannot go into the merits of the dispute.2
Such a request is required to be made by the party concerned "not later than
submitting his first statement on the substance of the dispute". If the party
fails to do so, he will be deemed to have waived its right to invoke the
arbitration agreement during the subsequent phases o f the court
proceedings. The provisions contained under Section 8(1) are mandatory
provisions, the court can exercise its power only if an action is brought in a
matter which is the subject-matter of an arbitration agreement. Whether the
dispute falls within the arbitration agreement depends on (a) what is a
dispute, and (b) what disputes arbitration agreement covers. For this
purpose arbitration must be considered according to its language and in the
light of circumstances in which it is made .3
(xviii) Filing of application under section 8—No time limit
prescribed
The Supreme Court in Booz Allens Hamilton Inc. vT SBI~Hdme Finance
Ltd * held that the provision of Section 8 of the Act does not prescribe any
time limit or filing an application under that section, and only states that
the application under Section 8 of the Act should be filed before submission
of the first statement on the substance of the dispute.
(xix) On what grounds stay of legal proceedings may be refused
There are certain circumstances when judicial authority may refuse the
stay of legal proceeding, these are as under :—
1. When it appears that the party has waived his right to seek stay
o f legal proceedings before submission of first statement on the
substance of dispute."
2. When the Judicial authority or court is of the view that no
adequate relief would be available to the party.
3. When the Court/Judicial authority is of the opinion that no
contract has in fact been concluded between the parties.
4. When the contract itself is vitiated by bias or fraud.
5. When the main contract is void ab initio or illegal or non-existent.6
6 . Where the suits or claim has foundation on Hundies or on
Negotiable Instruments.7
(xx) Stay proceeding should be disposed of expeditiously
In view of a mandate contained in Section 8 of the Arbitration and
Conciliation Act, 1996 any stay proceeding should be disposed of
expeditiously. In Value Ammaturen V.U. Beratung Gmbh & Co. K.G. v.
1. G. Jewat & Co. v. C.S. & W. Mills, AIR 1968 Ker. 310.
2. J. & K. State Forest Corporation v. Abdul Karim Wasi, AIR 1989 SC 1498.
3. Gaya Electric Supply Co. v. State o f Bihar, AIR 1953 SC 182; see also P.C. Rao on
Arbitration & Conciliation Act, 1st Edn. 1997 p. 58.
4. AIR 2011 SC 2507.
5. Section 8(1) or Section 7(4Xc) of the Arbitration & Conciliation Act, 1996.
6. ITC Ltd. v. G.J. Fernandiz, AIR 1989 SC 839.
7. Kisan Sarup v. Podden Mills, AIR 1987 Bom. 198.
ARBITRATION 101

National Fertilizers Ltd,.,1 wherein the matter related to disposing of the stay
granted on issue of amenability of the dispute to international arbitration
regarding interlocutory, interdiction. On an earlier occasion also the Apex
Court has held that in a matter of the nature where amenability of a dispute
to international arbitration is concerned, it was not proper to let loose and
keep at large the orders of injunction of that kind for an unduly long period,
which would clearly be inconsistent to the principle governing international
arbitration and the court must ensure that the matter was dealt with and
disposed of with utmost despatch. The order adjudging the decision of issue
is not interfered in exercise of jurisdiction under Article 136 of the
Constitution of India, 1950. The Apex Court directed the High Court to
dispose of the issue concerning the vacation or otherwise of the injunction
expeditiously.
(xxi) Reference made during repeal of the Arbitration Act, 1940—
Effect of
Wherein under Section 34 of erstwhile Arbitration Act, 1940 and
Section 8 of the Arbitration and Conciliation Act, 1996 the trial court
dismissed the application because the applicant decided not to press for the
application under Section 34 in lieu of the repeal of the Arbitration Act,
1940. Second application, when filed in High Court was also rejected on the
ground of estoppel. On appeal, the Supreme Court held that mere dismissal
in lieu of the repeal of the Act, 1940, cannot constitute, any legal
impediment for having any recourse under the new Act, 1996. Similarly the
plea of estoppel is not sustainable. The Supreme Court observed that instead
o f appointment of a receiver better course for the applicants would be to
refer the matter to arbitration in terms of arbitration agreement. Therefore,
all the orders passed by High Court or by trial court were set aside and trial
court was directed to deal with the matter afresh. Accordingly appeal was
allowed .2
(xxii) Reference of dispute to arbitration—Difference
betweenjsection 34 of the Arbitration Act, 1940 and Section 8 of the
New Act, 1996
It is apparent that Section 8 of the New Act, 1996 has some departure
from Section 34 of the Old Act, 1940. Section 34 gives power to stay the legal
proceedings where there is an arbitration agreement by vesting a discretion -
to the judicial authority, while Section 8 of the New Act mandates the
judicial authority under the statute to refer the matter for arbitration if it
is covered by the arbitration agreement and applied for at the first instance
submitting the statement on substance of the dispute. Thus, on
commencement of the New Act, 1996 the judicial authority is mandatorily
required to refer the dispute in terms of the arbitration agreement and such
award shall remain untampered by any proceedings in the Court under
Section 8(3) of the New Act, 1996. Therefore, the hallmark of the difference
of Section 34 of the Old Act, 1940 and Section 8 of the New Act, 1996 is of
vesting the discretion to the judicial authority for stay, but under the New
Act, 1996, it is mandatory to refer the parties as per agreement. Under the
1. 1998 (6) Supreme 188.
2. Kalpana Kothari v. Sudha Yadav , 2001 (7) SLT 633.
102 THE ARBITRATION A N D CONCILIATION ACT, 1996

old Act, 1940 it is a stay of the proceedings but under the New Act, 1996
the proceedings shall be terminated and the award shall remain
untampered .1
(xxiii) Reference to arbitration cannot be made— Contract for
supply of goods
Wherein a suit is filed for recovery o f amount due, though there is no
serious dispute on the amount payable as the defendant admitted most part
of the liability, said suit can only be a suit for claiming the amount due. It
was held that the defendant cannot insist for reference to arbitration as
disputes between the plaintiff and defendants cannot be said to be forming
part of the subject-matter of agreement within the meaning of Section 8 of
the Arbitration and Conciliation Act, 1996.2
(xxiv) Reference of dispute for arbitration improper
In N.I.I.T. Ltd. v. Apex Computer Services (P) Ltd.,3 where claim of
party was integrally related to agreement even though it related to the
period after expiry of term of agreement. The words "all claims, disputes and
differences of whatever nature" in clause of agreement was of wide
amplitude and covered all disputes, claims and difference arising during
validity of agreement or after its expiry. It has been held by the Allahabad
High Court that reference of dispute for arbitration is not proper.
(xxv) Reference— Maintainability of application
According to the Supreme Court Section 8 of the Act confers a power
on the judicial authority. He must refer the dispute which is the
subject-matter of an arbitration agreement if an action is pending before
him, subject .to the fulfilment of the conditions precedent. The said power,
however, shall be exercised if a party so applies not later than when
submitting his first statement on the substance of the dispute. Once the
conditions precedent are satisfied, the judicial authority is statutorily
mandated to refer the matter to arbitration. What is necessary to be looked
into therefore, inter alia would be as to whether the subject-matter of the
dispute is covered by the arbitration agreement or not.
In Rashtriya Ispat Nigam Ltd. v. Verma Transport Co,,4 where the
existence of a valid agreement stands admitted. There cannot also be any
dispute that the matter relating to termination of the contract would be a
dispute arising out of a contract and thus, the arbitration agreement
contained in the relevant clause of the contract would be squarely attracted.
The Supreme Court observed that Section 8 of the Act, 1996 mandates a
reference. Exercise of discretion by the judicial authority, which was
hallmark of Section 34 of the Arbitration Act, 1940, has been taken away
under the Act, 1996. The direction to make reference is not only mandatory,
but the arbitration proceedings to be commenced or continued and conclusion
thereof by an arbitral award remain unhampered by pendency of the

1. Smt. Charanjit Kaur v. S.R. Cable , AIR 2009 MP 66.

2. M/s. Sankar Sealing Systems P. Ltd. v. M/s. Jain Motors Trading Co. & another , AIR
2004 Mad. 127.
3. 2007 (2) A.L.J. 178 : AIR 2007 (NOC) 986 (All.).
4. AIR 2006 SC 2800.
A R B IT R A T IO N 103

proceedings before the judicial authority.

(xxvi) No provision in the Act for splitting the cause or parties
Wherein a suit for dissolution of a partnership firm accounts and
challenging conveyance deed executed by the firm and third parties who
purchased flats, that is stock in trade firm were joined 4 s defendants.
Whereas application was filed by appellant under Section 8 of the Act, 1996,
the High Court rightly dismissed the application holding that suit apart
from relief of dissolution and accounts, other reliefs were also prayed and all
the defendants to suit were not parties or partners. In appeal against the
impugned order of the High Court, the Supreme Court has held that there
is no provision in the Act, 1996 that where the subject-matter of a suit
included subject of the arbitration agreement as well as other disputes,
matter was required to be referred to arbitration. The Supreme Court
further held that there is no provision in the Act, 1996 for splitting the cause
of action of parties. The words "a matter" in Section 8 of the Act, 1996
indicates that entire subject-matter of the suit should be subject to
arbitration agreement. It is clear that Section 89 of the Code of Civil
Procedure, 1908 could not be resorted to for interpreting Section 8 to split
the cause o f action of parties .1
(xxvii) Suspension of supply of petroleum products to the
respondent dealer—whether dispute is covered by arbitration clause
In Hindustan Petroleum Corporation Ltd. v. M/s. Pink City Midway
Petroleums,2 where the appellant suspended supply o f petroleum products to
the respondent dealer when during an inspection dispensing units of the
respondent were found providing short delivery of product. Though, there is
an arbitration clause in dealership agreement but the trial court and High
Court found that dispute was not covered by arbitration clause. The validity
of view was challenged before the Apex Court. It was held that as per clause
2 0 in the agreement the appellant was entitled to stop or suspend supply of
its products to such a dealer without prejudice to other remedies if dealer
committed default in complying with obligations. The view taken by the
Courts below is unsustainable.
Application for reference to arbitrator—when the dispute is not
covered by arbitration clause.—In M/s. Ahluwalia & Co., Hoshiarpur
and another v. Surinder Mohan & another,3 the arbitration clause No. 22
contained in the present partnership agreement is not a clause with regard to
reference o f all disputes to arbitration which are not specifically mentioned
in the deed of partnership. Since the retirement of a partner is specifically
provided for under clause 17 of the Partnership Agreement, the aforesaid
matter i.e. dispute regarding retirement of partner, was apparently excluded
from the ambit and scope of the arbitration clause. In the court’s considered
opinion, Hindustan Petroleum Corpn. Ltd. v. Pink City Midway Petroleums,4
there was a clause which was worded in widest terms providing that—
"Any dispute or difference of any nature whatsoever, any claim,
1. Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya and another, 2003 (3) Supreme 324.
2. AIR 2003 SC 2881 : 2003 (6) SCC 503.
3. AIR 2004 P. & H. 232.
4. AIR 2003 SC 2881.
104 THE A R B IT R A T IO N A N D C O N C IL IA T IO N ACT, 1996

cross claim, counterclaim or setoff regarding any right, liability, act,

omission or account of any of the parties arising out of or in relation to
this agreement shall be referred to the sole arbitration of the
chairman".
It was in such a situation that the Hon’ble Supreme Court has held
that the question as to whether a dispute between the parties was covered
under an arbitration clause or not, was to be determined by the arbitrator
himself under Section 16 of the Act, 1996.
Hence, Hindustan Petroleum Corpn. Ltd.’s case relied by the petitioner
has no application to the facts and circumstances of the case.
(xxviii) Arbitrable dispute—when jurisdiction of the civil court not
ousted
In Marwadi Shares and Finance Pvt. Ltd. Co. v. Kishor Kumar
Nagjihhai Mavani,1 where there is an arbitration agreement between the
plaintiff and defendant and any dispute and claim between the plaintiff and
defendant is required to be referred to arbitration and in such circumstances
the arbitration would be governed by the Arbitration Act, 1996 and therefore
Section 8 of the Act would be applicable. Therefore, when a suit is filed by
any of the party to the arbitration agreement, the aggrieved party has to
submit an application before the civil court for referring the parties to the
arbitration invoking Section 8 o f the Act and subject to limitation under
Section 8 of the Act and subject to fulfilment of all the conditions referred
to in Section 8 of the Arbitration Act, and the Civil Court is required to refer
the parties to the arbitration.
Therefore, if the conditions provided under Section 8 of the Act are not
satisfied, the Civil Courts are not required to refer the dispute/parties to the
arbitration. Even the aggrieved party who is aggrieved by the award of the
arbitrator can submit an application for setting aside the arbitral award
under Section 34 of the Act. Therefore, even the arbitral award is subject to
the order passed by civil court and subject to limitation under Section 34 of
the Act, 1996 and, therefore, to that extent there is no finality attached to
award by arbitrator.
It was held by the Gujarat High Court that merely because there is
arbitration clause in contract or bye-laws providing for referring dispute to
arbitration, civil court’s jurisdiction would not be barred and it would be
subject to Section 8 of the Act.
(xxix) International commercial arbitration— Section 8 of the Act
has no application
In terms of Section 7 of the Act, an arbitration agreement may be in
the form of an arbitration clause in a contract or in the form of a separate
agreement. An arbitration is considered to be in writing if it is contained in
document signed by the parties or in an exchange of letters, telex, telegrams
or other means of telecommunication which provide a record of the
agreement or an exchange of statement of claim and defence in which the
existence of an agreement is alleged by one party and not denied by the
other. However, ■conduct o f party may also prove relevant for determining
1. A IR 2009 G u j 81.
A R B IT R A T IO N 105

the question of existence of an agreement. Hence, in case of International

Commercial Arbitration, Section 8 of the Act has no application. It is to be
noted that Section 45 of the Act does not require filing of Charter Party
Agreement (CPA) in the Court.
Section 9. In terim m easures etc. b y C ourt. — A p a r ty m a y ,
b e fo re , o r d u rin g a r b itr a l p ro ce e d in g s o r a t a n y tim e a fte r th e m a k in g
o f th e a r b itr a l a w a rd b u t b e fo re i t is e n fo rc e d in a cco rd a n ce w ith
S e c tio n 3 6 , a p p ly to a c o u rt—
( i) fo r th e a p p o in tm e n t o f a g u a rd ia n fo r a m in o r o r p e rs o n o f
u n s o u n d m in d fo r th e pin-poses o f a r b itr a l p ro c e e d in g s ; o r
( ii) fo r a n in te r im m e a s u re o f p ro te c tio n in re s p e c t o f a n y o f th e
fo llo w in g m a tte rs , n a m e ly :—
(a ) th e p re s e rv a tio n , in te r im c u s to d y o r sa le o f a n y goods
w h ic h a re th e s u b je c t-m a tte r o f th e a r b itr a tio n
a g re e m e n t;
(b ) s e c u rin g th e a m o u n t in d is p u te in th e a r b itr a tio n ;
(c) th e in te n tio n , p re s e rv a tio n o r in s p e c tio n o f a n y p ro p e rty
o r th in g w h ic h is th e s u b je c t-m a tte r o f th e d is p u te in
a r b itr a tio n , o r as to w h ic h a n y q u e s tio n m a y a ris e
th e r e in a n d a u th o ris in g fo r a n y o f th e a fo re s a id
p u rp o s e s a n y p e rs o n to e n te r u p o n a n y la n d o r b u ild in g
in th e p o ssession o f a n y p a r ty o r a u th o ris in g a n y
s a m p le s to be ta k e n o r a n y o b s e rv a tio n to be m a d e , o r
e x p e rim e n t to be tr ie d , w h ic h m a y be n e c e s s a ry o r
e x p e d ie n t fo r th e p u rp o s e o f o b ta in in g f u ll in fo rm a tio n
o r e v id e n c e ;
(d ) in te r im in ju n c tio n o r th e a p p o in tm e n t o f a re c e iv e r;
(e) s u c h o th e r in te r im m e a s u re o f p ro te c tio n as m a y a p p e a r
to th e C o u rt to be ju s t a n d c o n v e n ie n t,
a n d th e C o u rt s h a ll h a v e th e sam e p o w e r fo r m a k in g o rd e rs as i t h a s
fo r th e p u rp o s e o f, a n d in re la tio n to , a n y p ro c e e d in g s b e fo re it .
CO M M EN TS
Section 9 of the Act, 1996 is modelled on Article 9 of the Model Law
and identical to Section 41(b) of the Act, 1940. Section 9 deals with interim
measures which can be awarded by the courts. An application to a court in
respect of interim measure can be made by a party before or during arbitral
proceedings or at any time after the making of the arbitral award but before
it is enforced.
Section 9 empowers the courts to grant interim measures at its
discretion, thus it is discretionary power of the court, the Court while
considering an application made by a party, would consider the various
aspects of the matter such as whether prima facie case has been made out,
whether the loss would be huge or beyond economic repair, if the suitable
interim measures are not being granted. But, such measures can be granted
106 THE A R B IT R A T IO N A N D C O N C IL IA T IO N ACT, 1996

in aid o f the arbitration proceedings and not to frustrate them .1

Section 9 provides that an arbitral award is to be enforced in
accordance with Section 36 of the Act which states that "where the time for
making an application to set aside the arbitral award under Section 34 has
expired, or such application having been made, it has been refused, the
award shall be enforced under the Code of Civil Procedure, 1908 in the same
manner as if it were a decree of the court".
An application to the court to grant interim measures can be made on
specified purposes under the Act,
(i) for the appointment of a guardian for a minor or person of
unsound mind for the arbitral proceeding;
(ii) to obtain custody, preservation and sale of any goods provided
such goods are the subject-matter of an arbitration agreement;
(iii) to cause recovery of the amount as a result of an arbitral award;
(iv) to detain, preserve and inspect any property or thing which is
subject-matter of an arbitration agreement,
(v) to obtain interim injunction,
(vi) To appoint a receiver.
The aforesaid purposes to grant interim measures are contained in
[clauses (a) to (e)]. Section 9 of the Act provides certain guidelines to a court
and also provides grounds to the parties in an arbitration agreement.
To grant interim measures under Section 9, a court has discretionary
power and this section does not specify all the interim measures. The court
has to take account of every aspect of each case and also requirement of a
case. This power of the courts to grant interim measures cannot be taken
away by the parties by consent as it is specifically provided by the Act.
(i) Interim measures by court
Wherein the parties may feel the need for safeguarding interim
custody, preservation, protection, storage, sale or disposal of the whole or
part of the subject-matter of the dispute or for its inspection or for samples
to be taken, such matters had to be referred to the court under Second
Schedule to the old Indian Arbitration Act, 1940.
The new Arbitration and Conciliation Act, 1996 under Section 9 and
under Section 17 enables the court and arbitrator respectively to order
interim measures. Section 31(6) also empowers the arbitrator at any time
during the arbitral proceedings to make an interim arbitral award on any
matter with respect to which the arbitrator may make a final award.
Thus, the new Act, 1996 makes provision for exercising powers as to
interim measures and relating to the matter to which the arbitrator’s final
award may be based.
(ii) Granting of interim injunction—When can be
It has been held 2 that under Section 9 of the Arbitration and
Conciliation Act, 1996 it is for the court to grant interim injunction. The
court must be satisfied that
1. J & K State Forest Dept. v. Abdul Karim Wasi, AIR 1989 SC 1498, 1508-9.
2. N. Sekar v.M/s Akash Housing, Chennai, 2011 (3) LW 357 (Mad.).
A R B IT R A T IO N 107

(i) existence of prima facie case,

(ii) balance of convenience, and
(iii) Potential for irreparable loss or injury.
(iii) Proceeding under Section 9 of the Act is maintainable only
between the parties to arbitration agreement
In SREI Infrastructure Finance Ltd. v. Bhageeratha Engineering Ltd. &
others/ where opposite party No. 1 being financed by the present applicant
purchased equipment and entered into arbitration agreement with opposite
party No. 2 for the purpose of execution of project. However, dispute arose
between opposite parties No. 1 and 2 which was referred to arbitration.
Subsequently, an application under Section 9 of the Act, 1996 was moved by
the opposite party No. 1. Ik. was held by the Gauhati High Court that
applicant financier cannot be said to be a party to arbitration agreement
between opposite parties No. 1 and 2 and therefore, he cannot seek
impleadment or protection of his right under Section 9 of the Act, 1996.
(iv) Power of the Court to pass interim order—Principle applicable
for
The Apex Court in Adhunik Steels Ltd. v. Orissa Maganese and
Minerals (P.) Ltd.,2 has held that it is the well recognised principle
applicable to exercise of general power to grant interim relief, including
specific injunctive relief under Order 39 of the Code of Civil Procedure, 1908
and the Specific Relief Act, 1963, would be applicable to exercise the power
under Section 9 o f 'the Arbitration and Conciliation Act, 1996 and further
same is the position regarding appointment of receiver.
(v) Granting of interim injunction order—what factors to be taken
in consideration
The Supreme Court in Transmission Corporation o f A.P. Ltd. v. Lanco
Kondapalli Power (P) Ltd.,3 observed that the interim direction ordinarily
would precede finding of a prima facie case, when existence of a prima facie
case is established, the Court shall consider the other relevant factors,
namely balance of convenience and irreparable injuries. In the present case
the High Court has noticed that the appellant has raised a dispute as
regards to payment of an excess amount of Rs. 35 crores although according
to the respondent a sum of Rs. 132 crores is due to it from the appellant
and the appellant had been paying the amount for the last two years as per
the contract.
However, conduct of the parties is also a relevant factor. If the parties
had been acting in a particular manner for a long time upon interpreting the
terms and conditions of the contract, if pending determination of the lis, an
order is passed that the parties would continue to do so the same would not
render the decision as arbitrary.
Section 9 of the Act, 1996 should be applied so that status quo may be
directed to be maintained having regard to the fact that the parties
understood the workability of the agreement in a particular manner.
1. AIR 2009 Gau. 110.
2. AIR 2007 SC 2563.
3. (2006) 1 SCC 540f
108 THE A R B IT R A T IO N A N D C O N C IL IA T IO N A C T, 1996

The Supreme Court expressed the view that a writ court can also grant
injunction in exercise of its power under Article 226 of the Constitution. If
injunction is refused in the proceeding under Section 9 of the Act, 1996, the
interim order passed in writ proceedings shall continue.'
(vi) Invoking of Section 9 in matter relating to Bank Guarantee
. Wherein no prima facie case has been made for granting injunction and
the petitioners have failed to make out case against the respondent
restraining him from realising the arrears and dues towards licence fee by
encashing the Bank Guarantees furnished by the petitioners, the request for
ad-interim injunction in these cases was rejected pending disposal of the
petition .1
In Essar Oil Ltd. v. Indian Charge Charome Ltd.,2 regarding the
question of irretrievable injustice on account of encashment of Bank
Guarantee, it was neither seriously urged in the petition nor anything was
placed on record to satisfy the court that there would be no possibility
whatsoever for restitution of the amount so recovered after the disputes
between the parties would have been adjudicated by arbitration, for which a
provision existed in the agreement. If the petitioner feels that the amount
under the Bank Guarantee has been wrongly recovered by the first
respondent, it will be open to it to prefer a claim before the Arbitration.
Therefore, it was held that the invocation of the Bank Guarantee had been
in accordance with its terms, the plea of fraud set up in support was held
lacked particulars or proof necessary to interdict encashment o f the
guarantee.
(vii) Encashment of Bank Guarantee— When Arbitration
proceedings pending
In Forcast v. Steel Authority o f India Ltd. ,3 it is not in dispute that a
suit filed by the petitioner against the respondents, was treated as an
application under Section 9 of the Arbitration & Conciliation Act, 1996. On
20th December, 1996, an order of status quo in regard to encashment of
Bank Guarantee in question was made. Subsequently, by the order dated
30th July, 1997 the status quo order was vacated and thereafter on 31st
July, 1997 the respondent No. 1 invoked the Bank Guarantee in question
and on 9th September, 1997, the amount o f that Bank Guarantee was
transferred in the account of respondent No. 1 by the Bank with the transfer
o f the amount o f the Bank Guarantee in question O.M.P. No. 29/97 being
rendered infructuous. Respondent No. 1 was one of the biggest public sector
undertakings and there should not be any difficulty in recovering the
amount of the encashed Bank Guarantee if the arbitral proceedings pending
before International Arbitration Court were ultimately decided in favour of
the petitioner and against respondent No. 1. Thus, the submission referred
to above advanced on behalf of the petitioner was repelled being devoid of
merit.

1. Tata Tele Services Ltd. v. Union o f India. 1999 (2) Arb L.R. 76 (Del.); see also Grid Corpn.
o f Orissa Ltd. v. Indian Charge Charome Ltd., 1998 (2) it.A.J. 416 (SC).
2. 1998 (1) Arb. LR 200 (Del.).
3. 1998 (1) Arb. LR 210 (Del.); Duke Offshore Ltd. v. Burn Standard Co. Ltd., 1999 (2) Arb.
LR 511 (Bom.).
A R B IT R A T IO N 109

(viii) Granting of Interim Injunction/Interim measure

Whether to grant interim injunction/interim measure is a discretionary
power of the court. It is to be noted that the powers conferred upon the court
under Section 9 of the new Act, 1996 are wider in scope than those powers
conferred upon the Arbitral Tribunal under Section 17 o f the new Act, 1996.
While considering the grant of interim measures, the court may see,
among other things such as :—
(a) whether the applicant has made out a prima facie case;
(b) whether the balance of convenience is in his favour; and
(c) whether he would suffer irreparable injury if such measures are
not granted .1
It is settled position that interim injunction/interim measure can be
granted in aiding the arbitration proceedings and not to frustrate them .2
However, in guise of granting interim measures/interim injunction, the court
cannot adjudicate the subject-matter of the dispute, because that task
belongs to the Arbitral Tribunal and not to the court.
(ix) Interim Order may be made even before commencement of
arbitration proceedings
The Apex Court in M/s. Sundaram Finance Ltd. v. M/s. N.E.P.C.
India Ltd.,3 observed that Section 9 of the new Act, 1996 does not
contemplate, unlike Section 20 of the Arbitration Act, 1940, a party applying
to a court for appointing an arbitrator when no matter is pending before the
court. Under the new Act appointment of arbitrator is made as per the
provision o f Section 11 which does not require the court to pass a judicial
order appointing arbitrator/arbitrators. The High Court was, therefore wrong
in referring to these provisions of the Arbitration Act, 1940 while
interpreting Section 9 of the new Act. Under the new Act, 1996 the court
can pass interim orders when the request to refer the dispute is received by
the respondent as per Section 21 of the Act. The material words occurring
in Section 9 are "before or during the arbitral proceedings". This clearly
contemplates two stages when the court can pass interim orders i.e., during
the arbitral proceedings or before the arbitral proceedings. There is no
reason as to why Section 9 of the new Act, 1996 should not be liberally
construed. Meaning has to be given to the word "before" occurring in the said
Section. The court held that the only interpretation that can be given is that
the court can pass interim orders before commencement of arbitral
proceedings. Any other interpretation, like the one given by the High Court,
will have the effect of rendering the word ‘before’ in Section 9 as redundant.
(x) Interim Protection order—Statutory discretion under Section
9(ii)(b) to be exercised judicially
In National Shipping Company o f Saudi Arabia v. Sentrans Industry
Ltd.,4 it was observed that the party seeking protection under Section

1. Bans Ropan v. Illrd A.D.J. , AIR 1993 A.P. 117; see also N.V. Chowdary v. Hindustan
Steel Works Construction Ltd., AIR 1984 A.P. 110.
2. J. & K. State Forest Corp. v. Abdul Karim. Wasi, AIR 1989 SC 1498.
3. AIR 1999 SC 565 : 1999 (2) SCC 479 : 1999 (1) JT 49.
4. AIR 2004 Bom. 136.
110 THE ARBITRATION A N D CONCILIATION ACT, 1996

9(iiiXb) ordinarily must place some material before the Court besides the
merits of the claim that order under Section 9(ii)(b) is eminently needed to
be passed as there is likelihood of an attempt to defeat the award though
the provisions of Order XXXVIII, Rule 1 of C.P.C. are not required to be
satisfied. The statutory discretion given to the Court under Section 9(iiXb)
must be exercised judicially in accordance with the established legal
principles and having regard only to relevant considerations.
In the instant case there was agency agreement and accounting and
financial reporting obligations imposed on the agent but the agent was
alleged to have failed to account freight and other charges collected from the
shippers. When the matter was sub-judice before the Arbitral Tribunal, the
principal sought interim order directing agent to deposit the amount that he
had received from the shippers as security. However, documents relied by
the principal to set up his claim were disputed by the agent before the
Arbitral Tribunal and he had also filed a counter claim. It was held that in
such a case it would not be appropriate to record specific finding even prima
facie with regard to amount allegedly received by the agent from shippers.
Hence, interim order in favour of the principal was not granted.
(xi) "In te rim re lie f'— O rd e r passed by the C o u rt should fa ll w ith in
the m eaning of expression "an in te rim m easure of protection" as
distinguished from a ll tim e or perm anent p rotection
The Supreme Court in Firm Ashok Traders & another etc. v. Gurumukh
Das Saluja & others etc.,1 observed that Section 9 permits application being
filed in the Court before the commencement of the arbitral proceedings but
the provision does not give any indication of time limit for the purpose to
invoke Section 9 of the Act, 1996. However, word ‘before’ as used in Section
9 of the Act connotes before the reference is made for arbitration but
certainly not later on. The party invoicing Section 9 may not have actually
commenced the arbitral proceedings but must be able to satisfy the Court
that the arbitral proceedings are actually contemplated or manifestly
intended and are positively going to commence within a reasonable time.
What is a reasonable time will depend on the facts and circumstances of
each case and the nature of interim relief sought for would itself give an
indication thereof. The distance of time must not be such as would destroy
the proximity of relationship of the two events between which it exists and
elapses.
The Supreme Court expressed the view that the purpose of enacting
Section 9 of the Act, read in the light of the Model Law and UNCITRAL
Rules is to provide "interim measures of protection". Hence, the order passed
by the Court should fall within the meaning of the expression "an interim
measure of protection" as distinguished from an all time or permanent
protection.
If arbitral proceedings are not commenced within a reasonable time of
an order under Section 9 of the Act, 1996, the relationship between the order
under Section 9 and the arbitral proceedings would stand snapped and the
relief allowed to the party shall cease to be an order made "before" i.e., in

1. A IE 2004 SC 1433.
ARBITRATION 111

contemplation of arbitral proceedings.1

(x ii) No in ju n c tio n granted—W hen the p la in tiff has a lre a d y invoked
the rem edy available
In Goyal MG. Gases Ltd. v. Griesheim G.M.B.H.,2 the plaintiff had
sought for enforcement and implementation of the arbitration agreement to
resolve the differences through the process of arbitration. In fact the plaintiff
No. 1 had already filed an application under Section 9 seeking for
restraining the defendant from proceeding with acquisition of the shares of
the BOCL and also seeking to enforce clause 9 of the contract. It was held
that in respect of any dispute arising out of the agreement, the High Court
would be reluctant to exercise powers and jurisdiction and also would not
grant an injunction in respect of the same in the instant suit particularly
when the plaintiff had already invoked the remedy available to it under the
Arbitration & Conciliation Act, 1996.
A plain reading of Section 9 of the new Act, 1996 clearly shows that it
is an enabling section which facilitates a party to apply to a court for an
adequate interim measure for safeguarding his interest in the matters laid
down in the section as it is available in any civil proceeding. It is to be noted
that these measures can be available under Section 9 of the new Act, only
when the application is accompanied by a request for arbitration. It was held
that the relief under Section 9 may be granted before and in anticipation of
any reference to arbitration and it is irrelevant whether the appointment of
arbitrator has been made or not .3 Provision of Section 9 o f the new Act, 1996
does not apply to the International Commercial Arbitration.
It is important to note that under Section 17 of the Arbitration and
Conciliation Act, 1996 the arbitral tribunal has been empowered to issue any
interim measures at the request of the party during the arbitration
proceedings, but the arbitral tribunal cannot order any interim measures
before the commencement of the arbitration proceedings or after the arbitral
award is made.
(x iii) H ire purchase agreem ent—O w ner was w ell w ith in its rig h t to
reso rt to a rb itra tio n in term s of a rb itra tio n clause in agreem ent.
In M/s. TVS Investments Ltd. v. M is. Essorpee Mills Ltd., where
clause 26 of the hire purchase agreement, read as follows :—
"26. All disputes, differences and/or claims, arising out of this
hire purchase agreement whether during its subsistence or thereafter
shall be settled by arbitration in accordance with the provisions of
Indian Arbitration Act, 1940 or any statutory amendments thereof and
shall be referred to the sole arbitration of an arbitrator nominated by
the authorised representative of the owner. The award given by such
an arbitration shall be final and binding on all the parties to this
agreement."
It was held that a reading of the above clause makes it clear that in
1. Firm Ashok Traders & another etc. v. Gurumukh Das Saluja, A I R 2 0 0 4 S C 1433. *
2. 1 999 (2 ) R .A .J . 5 (D el.).
3. Gokuldas v. Union of India, A I R 1989 K er. 169 (ca se d e c id e d u n d e r S e ctio n 4 1 o f th e
2 n d S c h e d u le o f th e A r b it r a tio n A c t, 1940, n o w section 9 o f th e n e w A c t, 1996).
4. A I R 2 0 0 4 M a d . 175 (D B ).
112 THE ARBITRATION AND CONCILIATION ACT, 1996

case of any dispute that arises, the parties are entitled to resort to
arbitration proceedings. Hence, the appellant is well within its right to
approach the learned single judge under the provisions of Arbitration and
Conciliation Act, 1996. A perusal of the hire purchase agreement clearly
discloses that in the hire purchase agreement, the respondent herein is
described as hirer and the appellant as "owner" as per description found in
other clauses of agreement.
(xiv) P o w er to g ra n t in te rim re lie f—C o u rt is not bound by lim its of
O rd e r 39, Rules 1 and 2 of C.P.C.
The Rajasthan High Court in Samit Kevadia & others etc. v. M/s.
Aerens Gold Souk International Ltd.,1 ruled that the Curt while granting
interim relief under Section 9 of the Act is not bound by the limits of Order
39, Rules 1 and 2 of C.P.C. Under Section 151 of the C.P.C., the Court has
got inherent power to protect the rights of the parties pending the suit. In
fact, the legislature in its wisdom has used the words, "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" in Section 9 of the Act. Therefore, the
inherent power contained under Section 151 of the C.P.C. would have to be
ipso-facto read into Section 9 of the Act. Hence, the plea that the Court is
duty bound to consider only three ingredients of Order 39, Rules 1 and 2 of
C.P.C. is not tenable. O f course, the Court would not be justified in jumping
over the limits placed by Order 39, Rules 1 and 2 of C.P.C. in every case.
Since the discretion granted under Section 9 of the Act is a vast one, it has
to be exercised sparingly. The Court must consider the existence of an
arbitration agreement, and the need to preserve the property. It should
prevent the threat to the property. If the nature of the property is likely to
be charged, if the property is likely to be transferred, if the subject matter
of the dispute is likely to disappear during the pendency o f the proceedings,
it should exercise the power under Section 9 of the Act.
Thus, where the party had entered into a sale deed with transferee
firm even before the Government had refused its permission for the second
parcel of land and in case firm was allowed to raise construction or to charge
the nature o f the land in dispute or to transfer, the said land to a third
party, the subject matter of the dispute would disappear and it would lead
to mushrooming of litigation between the parties. The Court was, certainly,
justified in granting a temporary injunction in favour of the respondent.
(xv) Sale of iro n ore—T o ta lly re stra in in g ap p ella n t is n o t p ro p er
In B.C. Dagara v. M.K.D. Mineral and Export (P.) Ltd.,2 where contract
for purchase o f iron ore between the appellant and the respondent; whereas
respondent alleged to have committed breach of contract and the appellant
calling upon the respondent to clear dues. Interim order passed by the Court
below restraining the appellant from terminating the contract and selling
iron ore from mines to third party. It was held that if the respondent is not
protected, it shall bring irreparable loss to it. At the same time, allowing
interim order to continue will bring loss to the appellant who was admittedly
owner of mines. As appellant had agreed not to sell any iron ore to any other
..... — ---------------\
1. A .I.R . 2 0 0 7 (N O C ) 1 0 2 7 ‘(R a jA
2. A I R 2 0 0 7 (N O C ) 525 (O ri.). .
ARBITRATION 113

party, impugned interim order is not proper.

(xvi) R e s titu tio n o f conjugal rights—B urden on n o n-applicant to
show th e cause fo r w ith d ra w a l from society o f a p p lican t
In Mahesh Kumar v. Smt. Anju,1 where in a petition for restitution of
conjugal rights by husband, the wife and her father made categorical
statement that wife has not willing to live with husband on any condition,
withdrawal o f petition by husband for filing of divorce petition voider Section
13 of the Hindu Marriage Act, 1955 on ground of desertion would be proper.
If any order or decree would have been passed in favour of husband, it would
not have served any purpose for either party. The reason is that in the cases
under Section 9 of the said Act the burden is upon the non-applicant to show
cause for withdrawal from society of applicant and if no sufficient reason is
shown by non-applicant for living separate from applicant, the Court can
pass the decree for restitution of conjugal rights. Even after such decree, if
non-applicant wall not discharge his/her obligation and there is no restitution
of conjugal rights between the parties for a period o f one year, as per Section
13(l-A)(ii) of the Act, the applicant of petition under Section 9 of the Act,
can seek divorce decree. Meaning thereby, in the instant case the husband
if would have continued with proceedings under Section 9 and would have
obtained decree under said proceedings, he could have filed the petition for
divorce an year after decree in proceedings under Section 9 of the Act. In
facts o f this case, it is clear that cause of action accrued to husband for
obtaining divorce decree on the ground of desertion under Section 13(1)(1-R)
of the Act during pendency of petition under Section 9 of the Act and in view
of wife and her father’s statements, the husband as a prudent man decided
not to wait further for obtaining decree under Section 9 of the Act and
decided to file present divorce petition under Section 13(lXi-b) o f the Act. In
view of the above reason, the pendency of petition under Section 9 of the Act
might have created unnecessary multiplicity of proceedings, contradiction
and hurdle in deciding the matrimonial dispute between the parties.
(xvii) No Specific Provision fo r Paym ent of Court-fees u n d e r the
A ct of 1996
In M is. Modern Metal Industries and another v. Smt. Shanti Parolia
& others ‘2 where the partnership firm was ,having Bank Account with cash
credit limit upto 15 lacs. The operation of the said account was stopped by
the Bank on the complaint submitted by two partners o f the firm. The firm
and the remaining partner who was authorised to operate the account
challenged the stoppage under Section 9 of the Arbitration and Conciliation
Act, 1996 unsuccessfully.
It is to be noted that Section 9 of the Act provides interim measures
etc. The question is as to what is the valuation of appeal for the purpose of
jurisdiction rather valuation of subject matter of arbitration for the purpose
of jurisdiction. It was held that the Court having jurisdiction to decide the
question forming subject matter of a suit will have jurisdiction to entertain
and decide an application under Section 9 of the Act excluding any civil
court of a grade inferior to such principal civil court or any court of small
1. A I R 2 0 0 7 (N O C ) 3 0 9 (R a j.).
2. A I R 2 0 0 4 A ll. 227.
114 THE ARBITRATION A N D CONCILIATION ACT, 1996

causes. Schedule II to the Court Fees Act, 1870 Item No. 18 prescribes
Court-fees under the Arbitration Act, 1940 for an application under Section
14 or 20 o f the Arbitration Act, 1940 and other application under the
Arbitration Act, 1940. Similarly, 11-A of the Schedule provides Court-fees
payable on memorandum of appeal under Section 39 of the Arbitration Act,
1940. There is no specific provision for payment of Court-fees under the Act
of 1996. It was further held that the proper valuation for the purposes of
jurisdiction in appeal challenging the order under Section 9 i.e., grant of
injunction order to stop operation of Bank Account with cash credit limit,
should be Rs. 15 lacs. The subject matter of the arbitration was the amount
likely to be affected by the exercise of the right of the remaining partners to
operate the Bank account. Hence, the turnover of the firm could not be the
subject matter for the purposes of jurisdiction.
(x v iii) Existence of a rb itra tio n clause—photocopies o f orig in al
agreem ents can be taken on record
The question is relating to admissibility of photocopies of original
agreement in view of Section 65 of the Evidence Act, 1872. The Supreme
Court in Bharat Sewa Sansthan v. U.P. Electronics Corporation Ltd,.,1 ruled
that it was the specific case of the respondent corporation (lessee) before the
High Court that the original agreements are in the possession of the
appellant Sansthan (Lessor), whereas the stand of the appellant Sansthan
was that the original agreements are not in its possession. When both lessor
and lessee denied possession of original lease agreement, the High Court
rightly held that the photocopies of the original agreement could be taken
on record for ascertaining the existence of arbitration clause in terms of
Section 65 of the Evidence Act, 1872.
(xix) Release of outstanding dues cannot be g ranted b y w ay of
in te rim r e lie f
It is settled position that interim order by the court can be passed even
before commencement of arbitral proceedings.
In Himcon Projects Pvt. Ltd. v. LMZ Energy (India) Ltd. & another,2
where contract relating to construction work and dispute raised regarding
payment of dues. However, as per tender document in case o f dispute
appellant had to first approach Engineer-in-chief if dissatisfied by his
decision to file appeal by before the managing Director. In the present case
the appellant had not approached these authorities as per agreed terms and
conditions. So, the appellant itself failed to abide by terms of agreement. The
Division Bench of Chhattisgarh High Court held that thus, it cannot be
alleged hat the respondents had breached contract. Further, as disputes
involve detailed enquiry, as such release o f outstanding dues cannot be
granted by way of interim relief.
(xx) J o in t business u n d e r a Trade M a rk —w hen o rd e r o f inju n ctio n
sustainable
In Suresh Dhanuka v. Sumita Mohapatra3 were condition in the Deed

1. A I R 2 0 0 7 S C 29 6 1.
2. A I R 2 0 1 2 C h h . 2 8 (D B ).
3. A IR 2 0 1 2 S C 892.
ARBITRATION 115

of Allignment clearly stipulate that all goods manufactured by the

respondent under trade mark "Naturoma" would be marketed solely by
appellant. It was also submitted that said trade mark would be used only in
relation to goods connected in course o f trade with both parties. One of other
conditions of deed of alignment was that both parties would be entitled to
design their respective shares in trade mark subject to prior written consent
of other party, which presupposes that parties were absolute owners of their
respective shares in trade mark and even on termination of joint venture, as
has been done in the present case, neither of parties would be entitled to all
or register mark in their own names or jointly with some other party.
In the present case the appellant thus apparently had acquired 50%
interest in trade mark in question together with good will business in
relation to products in which trade mark is used. Thus, injunction order not
permitting respondent to manufacture and market goods under said trade
mark in violation of provisions of deed of allignment would be proper.
(xxi) In te rn a tio n a l Com m ercial A rb itra tio n — Seat of A r b it r a t io n -
S h iftin g b y Consent of P arties
In Videocon Industries Ltd. v. Union o f India & another1 wherein
arbitration agreement was to be governed by English Arbitration Act, 1996.
However, main contract pertained to exploration of petroleum resources.
Five parties entered into a Production Sharing Contract (PSC). On the one
hand it was Government of India and on the other hand a consortium
comprising ONGC Ltd. Videocon Petroleum Ltd., Command Petroleum
(India) Pvt. Ltd. and R aw a Oil (Singapore) Pvt. Ltd. Subsequently, Coirn
Energy U.K. was substituted for command Petroleum and name of Videocon
Petroleum was changed to Petroleum India Limited. Initially, in terms of
Production Sharing Contract, proceedings were to be held at Kualalumpur,
but due to special of epidemic SARS, there same were shifted first to
Amsterdam then to London, none of the parties objected to this. But, in
proceedings in London, Arbitrator recorded consent of parties for shifting-
judicial seat to London. As per Production Sharing Contract seat was at
Kualalumpur, if parties desired to shift the same, they could have done so
by written instrument signed by all of them.
Admittedly, neither there was any agreement between parties to shift
the seat from Kualalumpur to London nor there was any written agreement
to amend relevant clause of Production Sharing Contract. It was held by the
Supreme Court that shift brought by them in the aforesaid manner is
nothing but physical change of venue of arbitration. That cannot amount to
change o f juridical sect from Kualalmpur to Amsterdam and then to London.
In the present case the petition for declaration that Kualalampur
(Malaysia) is a contractual and juridical seat and prayer for direction to
continue arbitration hearing at that place/country. The Question of
maintainability of petition and jurisdiction of the Delhi High Court raised.
In this the Supreme Court observed that—
Notably in Bhatia International v. Bulk Trading S.A.2 the three Judges
Bench of the Supreme Court has held that Part I of the Indian Arbitration
1. A IK 2 0 1 1 S C 20 4 0.
2. (2 0 0 2 ) 4 S C C 105.
116 THE ARBITRATION A N D CONCILIATION ACT, 1996

Act shall apply only to cases in which the venue of arbitration is in India.
However, Single Judge of the Gujarat High Court Vide Handly Oil and gas
Ltd. v. Hindustan Oil Exploration Co. Ltd. Sectems had rightly followed the
law laid down in Bhatia’s case to hold that the District Court Vadodara did
not have jurisdiction to entertain petition under Section 9 of the Act because
parties had agreed that law governing the arbitration will be English
Arbitration Act, 1996. In present case also, parties had agreed that
notwithstanding Article 331, the arbitration agreement contained in Article
34 shall be governed by the laws of England. This implied that they had
agreed to exclude provisions o f Part I of the Arbitration and Conciliation Act,
1996. Hence, as corollary, Delhi High Court had no jurisdiction to entertain
petition under Section of the aforesaid Act, 1996 filed by the respondent. The
Supreme Court was of the view that the High Court cannot be clothed with
such jurisdiction merely because the appellant had earlier filed similar
petition. Application under Section 9 of the Act is liable to be dismissed.

CHAPTER III

COMPOSITION OF ARBITRAL TRIBUNAL

S e c tio n 10. N u m b e r o f a r b it r a t o r s .— (1) ,Th.e parties are
free to determ ine the num ber o f arbitrators, provided that such
num ber shall not be an even number.
(2) F ailing the determ ination referred to in sub-section (1), the
arbitral tribunal shall consist o f a sole arbitrator.
CO M M EN TS
Section 10(1) is taken from Article 10(1) of the Model Law. Sub-section
( 1 ) provides freedom to the parties in respect of number of arbitrators, it is
an obligation given by the Act to the parties but number of arbitrators shall
not be an even number, that means number of arbitrators should always be
an uneven number. Although, this section restricts the freedom of the
parties to appoint only an uneven number of arbitrators whereas Article
10(1) of the Model Law gives freedom to the parties to appoint both even
and uneven number of arbitrators.
Section 10(2) of the Act, 1996, ensures that if the parties could not
arrive into agreement in respect of number of arbitrators (only an uneven
number) it will not be the cause to vitiate the arbitration proceedings. This
sub-section states that in such case of failure "the arbitral tribunal shall
consist of a sole arbitrator", Under Article 10(2) of the Model Law, failing
agreement between the parties the practice prevailing in international
commercial arbitration is to be adopted, that is the number of arbitrators
shall be three. It is clear that Section 10(2) of the Act, 1996 adopts the
prevailing practice in domestic commercial arbitration by prescribing that an
arbitral tribunal shall consist o f a sole arbitrator. 3
There is no restriction under the Act if the parties prefer to have
multi-arbitrator system whether it is in international commercial arbitration
1. Narayan Prasad Lohia v. Nikunj Kumar Lohia & others, 2 0 0 0 (2 ) S u p re m e 69.
ARBITRATION 117

or in domestic commercial arbitration, such provisions under the Act are to

ensure speedy and economical machinery of arbitration. Thus, the parties’
freedom in this regard is recognised under the Act.
(i) Who is "arbitrator"?
The present Arbitration and Conciliation Act, 1996 does not define the
word "Arbitrator". However, in the common parlance the word "arbitrator"
means, a person/persons to whom a particular matter or issue in dispute is
referred with the view to settle on the basis of submission made by the
conflicting parties.
According to RUSSELL, the term "Arbitrator" is defined as follows :—
"An arbitrator is neither more nor 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 o f evidence and submissions,
he gives a decision in accordance with his duty to hold the scales fairly
between the disputants in accordance with some recognised system of
law and the rules of natural justice. He is private insofar 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 pi-ocedure so far as
that is not the requirement 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
disputant’s agreement;
( 6 ) the effectiveness of his powers derives wholly from the private law
of contract and accordingly the nature and exercise of these
powers must not be contrary to the proper law of the contract or
the public policy, bearing in mind that the paramount public
policy is that freedom of contract is not likely to be interfered
with."
In other words "Arbitrator" is a disinterested person to whom
dispute/difference is referred to by the conflicting parties.
(ii) Freedom to determ ine num ber of a rb itra to rs
The old Arbitration Act, 1940 made provision for appointment of an
even number of arbitrators and the appointment of an umpire by such
arbitrators. It is to be noted that there is no umpire system in the new Act,
1996. Experience shows that arbitral proceedings involving an even number
of arbitrators is mostly time consuming and is not economical. Taking into
account of such experiences Section 10(1) of the present Act, 1996 provides
that the parties are free to determine the number of arbitrators provided
that such number shall not be an even number. This provision of the new
Act, 1996 departs from Article 10(1) of the UNCITRAL Model Law which
makes provision for complete freedom to the parties to appoint both even
and odd number of arbitrators. Sub-section (2) of Section 10 further provides
118 THE ARBITRATION A N D CONCILIATION ACT, 1996

that failure to agree on the number of arbitrators does not> discard the
arbitration agreement. In M.M.T.C. Ltd. v. Sterlite Industries (India) Ltd.,1
the Apex Court has held that an arbitration agreement specifying an even
number of arbitrators also cannot be a ground to render the arbitration
agreement invalid.
Thus, the parties are free to adopt multi-arbitrator system either in
international commercial arbitration or domestic commercial arbitration by
invoicing Section 10(1) of the Arbitration and Conciliation Act, 1996. It
appears from the provisions contained in Section 10 of the new Act, 1996
that it gives recognition to the freedom of parties to reach agreement on the
number of arbitrators. It is submitted that an arbitration agreement
specifying even number of arbitrators cannot be a sole ground to render
arbitration agreement invalid .2
(iii) C o u rt m ay m ake appointm ent i f the p arties do not concur
Wherein the arbitration clause contained in the Agreement does not
make provision for the number of arbitrators and the mode of their
appointment it is to be presumed that the reference was intended to a single
arbitrator by reason of provisions of paragraph I of the First Schedule to the
Arbitration Act, 1940. In such circumstances, the mode of appointment is to
be necessarily by consent of parties and if the parties do not concur in the
appointment, the court will make that appointment.3
(iv) A greem ent p ro v id in g fo r tw o a rb itrato rs
The Supreme Court in Group Chimique Tunisien SA v. Southern
Petrochemicals Industries Corporation Ltd. ,4 ruled that Section 10 o f the Act,
provides that the number of arbitrators shall not be "even". In this case the
arbitration clause provides that the dispute shall be referred to two
arbitrators and in that event of arbitrators in writing before proceeding to
the reference. Having regard to Section 10 of the Act. The Arbitral Tribunal
shall consist of three arbitrators (one to be appointed by each of the two
parties and the presiding arbitrator).
(v) P a rty e n title d to invoke a rb itra tio n clause—W hen can be
Wherein the terms and conditions mentioned in the tender form were
treated as party the contract for supply of 200 nitric tonnes Zinc Sulphate
by the respondent to the appellant. Clause 16 of the tender form provided
for reference of any dispute arising out of or concerning the agreement to
the arbitration of an arbitrator nominated by the appellant and an arbitrator
nominated by the respondent. Therefore, the respondent was entitled to
invoke the arbitration clause.5
11. A p p oin tm en t o f arbitrators.— (1) A person o f any
n ationality m ay be an arbitrator, unless otherw ise agreed by the
parties.
(2) Subject to sub-section ( 6 ), the parties are free to agree on a
1. (1996) 6 SCC 716.
2. Ibid.
3 Com. Products Co. (India) Ltd. v. Ayaz Ghadiya, AIR 1997 Bom. 331.
4. A.I.R. 2006 SC 2422.
5. State of U.P. v. Combined Chemicals Co. Pvt. Ltd., 2011 (1) AIR SCW 439.
ARBITRATION 119

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 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.
(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,
(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
 120 THE ARBITRATION AND CONCILIATION ACT, 1996

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 reference 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.
COMMENTS
Section 11 of the Act, 1996 is the lengthiest section of the Act. The
Arbitration and Conciliation Act, 1996 is an internationalised piece of
legislation Act. Section 11 is a model form of Article 1.1 ..of the M odel.Law.
'Fresh application for appointment of arbitration under Section 11 is not
- tenable if it commenced under the old Arbitration Act, 1940.1
Section 11(1)—After internationalisation of present Act, nationality of
an arbitrator is immaterial and so this Section 11(1) o f the Act provides
freedom to the parties to appoint a person of any nationality as an
arbitrator, however, the parties may restrict themselves to certain
nationalities' o f the states to be appointed as an arbitrator. .There is no
discrimination in respect of nationality .of an arbitrator. Therefore, a foreign
national may be appointed as an arbitrator.
Section 11(2).—This sub-section prescribes a procedure appointing the
arbitrators and the parties have been given the freedom to lay-down
procedure under this sub-section (2) although this sub-section (2) is to be
read with sub-section (6) and sub-section (8) and the freedom of the parties
provided in this sub-section is subject to certain restriction as to follow
mandatory provisions laid-down in sub-section (6).
Section 11(3).—Sub-section (3) would come into operation when the
parties fail to reach agreement on an appointment procedure. An arbitration
agreement with three arbitrators if failed, each party is given authority to

1. M.A. Narayan Murthy v. K.N. Navaneeth Guptha, AIR 1999 Kant. 224.
 ARBITRATION 121

appoint one arbitrator and these two appointed arbitrators shall appoint the
third arbitrator who shall be the presiding arbitrator in the arbitration.
Section 11(4).—This sub-section deals with the circumstances when a
party fails to appoint an arbitrator within prescribed time limit i.e., 30 days,
even after the receipt of request relating to appointment of an arbitrator
from the other party or according to sub-section (4)(b). The two appointed
arbitrators fail to agree on the appointment of the third arbitrator within
prescribed time, limit i.e., 30 days, from the date of their appointment, in
such situation this sub-section (4) provides that the Chief Justice of India or
the Chief Justice of a High Court is authorised to make an appointment
_upon request of a party. Although, any institution designated by the Chief
Justice of India or Chief Justice of a High Court may appoint an arbitrator.
It is expected that these functionaries would act upon request of the parties
expeditiously and these functionaries are not required to consult the parties
or the arbitrators while making such appointment.
Section 11(5).—Under sub-section (5) failing any agreement referred
to in sub-section (2), there would be a sole arbitrator. Where the parties
fifluld not arrive to an agreeable position on arbitrator within 30 days’ time
from the date of the receipt of a request by one party from the other party
to do so, in such circumstances the Chief Justice or any person or institution
designated by the Chief Justice should make an appointment under the
"“ provision of sub-section (5) of Section 11 of the Act.
Failure to appoint arbitrator on new method empowers other party to .
seek remedy from court for appointment of arbitrator.1
Section 11(6).— Sub-section (6) contains a mandatory provision and it
comes into play when the parties had agreed on an appointment procedure
i.e., when the parties or the two appointed arbitrators failed to appoint a
third arbitrator, a person including an institution has failed to perform a
function entrusted to him under that agreed procedure. That means that
when there is a complete failure on an agreed appointment procedure, this
sub-section would be operated to eliminate obstacles.
Section 11(7).—Sub-section (7) states that there is no appeal and a
decision is final, on a matter entrusted by sub-section (4) or sub-section (5)
or' sub-section (6) to the Chief Justice or the person or an institution
designated by the Chief Justice.
Section 11(8).—Sub-section (8) provides guidelines in the matter of
appointment of an arbitrator by the Chief Justice or the person or institution
designated by him. The functionaries mentioned in the suh-section, shall
have due regard to these guidelines—
(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.
Though, this sub-section (8) does not prescribe the qualification of an
arbitrator but specifies more particularly that an arbitrator should be an
independent and impartial person.

I. Manoranjan Mondal v. Union o f India, AIR 1999 Cal. 117.

—

122 THE ARBITRATION A N D CONCILIATION ACT, 1996

Section 11(9).— Sub-section (9)also provides guidelines to

functionaries i.e., the Chief Justice of India or the person or institution
designated by him, in the matter of appointment of sole arbitrator or third
arbitrator in an international commercial arbitration, that these
functionaries should appoint an arbitrator of a nationality other than the
nationalities of the parties, in casethe parties belong to different
nationalities. Thus, sub-section (9) aimsto eliminate scopeof partiality by
nationality of different countries between the parties and
arbitrator/arbitrators.
Section 11(10).—Sub-section (10) provides power to the Chief Justice
to make an appropriate scheme in respect of the matters entrusted to him,
by sub-section (4) or sub-section (5) or sub-section (6). The powers vested
under this sub-section (10) is of administrative nature therefore the scheme
made by the Chief Justice would be of administrative character which is
essential for enforcement of the Act effectively.
The Chief Justice of India in case of the Supreme Court and in case of
the High Courts, the Chief Justice of that High Court would make scheme
under this sub-section.
Section 11(11).— Sub-section (11) provides solution to the problem
when different parties approach different Chief Justices or their designates,
under sub-section (4), or sub-section (5) or sub-section (6). 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. That means
the Chief Justice or his designate who first receives and accepts the request
shall have power to decide on the entrusted matter.
Section 11(12).—Sub-section (12) explains that in case of international
commercial arbitration reference is to be made to the Chief Justice of India
and in case of domestic commercial arbitration reference is to be made to
the Chief Justice of High Court within whose local limit the principal court
in clause (e) of sub-section 1(1) of Section 2 is situate and where the High
Court itself is the Court referred to in that clause, then the Chief Justice of
that High Court can do so.
Thus, this sub-section (12) provides explanation to the expression
"Chief Justice" under the Act.
(i) Legislative intention
The legislative intention of Section 11 of the Arbitration and
Conciliation Act, 1996 is that if the other side is not ready to follow the
procedure, the applicant may approach the High Court for the direction to
the other side either to follow the procedure or request the High Court to
appoint one arbitrator in terms of the scheme.1
(ii) Phrase "failing any agreement"—What it contemplates
The Calcutta High Court in I.T.C. Classic Finance Ltd. v. Grapco
Mining & Co. Ltd.,2 observed that the phrase "failing any agreement" in
sub-section (5) of Section 11 of the Arbitration and Conciliation Act, 1996

1. D. Raja Reddy v. Director General, National Institute o f Agricultural Extension Mgt., 1999
(2) Arb. LR 212 (A.P.).
2. 1998 (1) Arb. LR 1 (Cal.).
ARBITRATION 123

clearly contemplates a situation where the procedure for appointment of

arbitrator has not been agreed upon by the parties to the arbitration
agreement, therefore, the said sub-section is inapplicable.
Applicability of Section 11(3), (4) and (5).—According to the
Supreme Court the opening part of Section 11(3) and (5) has used the
expression "failing any agreement referred to in sub-section (2)". Therefore,
Section 11(3) and (5) will come into play only when there is no agreement
between the parties as is referred to in Section 11(2) viz. that the parties
have not agreed on a procedure for appointing the arbitrator or arbitrators.
If the parties have agreed on a procedure for appointing arbitrator or
arbitrators, Section 11(3) and (5) can have no application.
In the present case there being an agreed procedure for resolution of
disputes by arbitration in accordance with the Rules of Arbitration of the
Indian Council o f Arbitration. Hence, Section 11(3), (4) and (5) can have no
application.
(iii) Appointment of an arbitrator by an ex-officio designated
official
An ex-officio designated official who is holding a particular office for the
time being may be appointed as an arbitrator if the parties agreed to do so.
Thus, the Apex Court in Union o f India v. D.N. Ravri & Co.,1 observed that
the agreement provided for appointment of arbitrator by Secretary, Food &
Agriculture, but before such appointment was made the Department of Food
and Agriculture was bifurcated. It has been held that the Secretary, Food
Department could nominate the arbitrator as the subject-matter o f dispute
related to his department.
(iv) Appointment of arbitrator—Power of Indian Council of
Arbitration
The -Madras High Court in M. Mariyam U.I. Asia v. T.N. Muslim
Women Education & Welfare Association,2 ruled that power of the Indian
Council of Arbitration, was under statute, but merely under the authority of
the party then it cannot be equated with the power of the Hon’ble Chief
Justice under Section 11 (6) of the Act.
The High Court observed that once the appointed arbitrator by the
Indian Council of arbitration had refused to act and his mandate stand
terminated, the procedure laid down under the agreement was to be
followed. First to give opportunity to the petitioner to appoint arbitrator in
place of outgoing arbitrator on the failure of the petitioner to appoint
arbitrator, arbitrator could be substituted by the Indian Council of
Arbitration.
(v) Arbitrator to be independent and impartial person
It is clear that when a party applies to the Chief Justice or the person
designated by him under Section 11(6) of the Arbitration and Conciliation
Act, 1996 for appointment of arbitrator or arbitrators on the failure of the
appointing authority to act as required under the agreed procedure, it is the
duty of the Chief Justice or the person designated by him to appoint
1. (1977) 1 SCR 183.
2. 2011 (2) W 858 (Mad).
124 THE ARBITRATION A N D CONCILIATION ACT, 1996

arbitrator/arbitrators himself having due regard to the considerations set out

in Section 11(8) of the said Act which inter alia contemplates appointment
o f independent and impartial arbitrator.1
It is settled legal position that the arbitrator will be at liberty to
interpret the terms o f the agreement and the effect of a particular clause
and will be entitled to take a view giving opportunity to both the parties to
address on that question. In view of the above in S.S. Jetley v. Delhi
Development Authority,2 it was held that the respondents shall appoint an
arbitrator within six weeks from the date of passing of this order. The
arbitrator, as a consequence, shall enter upon the reference and decide the
claims as well as counter claims, if any, if the respondent acted in
accordance with law. Thus, the arbitrator so appointed can enter on the
reference forthwith and proceed with the arbitration proceedings.
In Union o f India v. P.K. Agarwal,3 the Division Bench of the Calcutta
High Court ruled that wherein' the Secretary to Government of India
nominated the appointment of a sole arbitrator, it cannot be treated as
invalid merely on the assumption that since he is a Government employee,
he is likely to be partial and may act with bias. Similar view was expressed
by the Supreme Court in Executive Engineer v. Ganga Ram,4 wherein the
Chief Engineer of the State Public Works Department appointed the
Superintending Engineer to act as an arbitrator. In accordance with the
arbitration clause per se, it was held that unless bias or mala fide is
expressly alleged and proved, such appointment o f an arbitrator cannot be
said to be invalid or illegal. Thus,mere apprehension o f bias or mala fide is
no ground to challenge the appointment of arbitrator.
It would be pertinent to discuss the views of the Delhi High Court in
Trishul Constructions v. Delhi Development Authority,° where in accordance
with the arbitration clause Engineer member of D.D.A. was authorised to
appoint a sole arbitrator. A dispute arose on payment of contractor’s bill,
when the construction work had already been completed, consequently, the
matter was referred for arbitration as per the arbitration clause of the
contract. The validity of the appointment of the sole arbitrator was
challenged by the contractor on the ground that D.D.A. had appointed its
own employee as sole arbitrator w7ho was likely to act with bias and mala
fide and contractor prayed for appointment of another person as an
arbitrator in his place. The Delhi High Court while following the ruling of
the Supreme Court in State o f Madras v. Munuswamy,6 held
that—undoubtedly, reasonable apprehension of bias can be considered as a
good ground for removal of arbitrator but mere allegation is not sufficient,
specifically when an agreed named arbitrator is appointed, thus imaginary
apprehension has no wTeightage in the eyes of law.

1. Larsen & Toubro Ltd. v. Konkan Railway Corporation Ltd., 1999 (2) Arb. LR 354 (Bom.).
2. 1998 (1) Arb. LR 224 (Del.); see also M.V.V. Satyanarayana v. Union o f India, 1999 (2)
R.A.J. 173 (A.P.).
3. (1971) 75 Cal. WN 767.
4. AIR 1984 SC 234.
5. (1994) 2 Arb LR 303 (Del.).
6. AIR 1988 SC 651.
ARBITRATION 125

(vi) Before appointing an arbitrator—what issues to be decided?

The question whether there is an arbitration agreement and whether
the party who has applied under Section 11 of the Act, is a party to such an
agreement, is an issue which is to be decided by the Chief Justice or his
designate under Section 11 of the Act before appointing an arbitrator.
The Supreme Court in Andhra Pradesh Tourism Development
Corporation & another v. Pampa Hotels Ltd. / observed that there can be no
doubt that the issue ought to have been decided by the designate of Chief
Justice and could not have been left to arbitrator. In the present case
designate proceeded on the basis of that while acting under Section 11 of the
Act he was not acting under a judicial capacity but only under an
administrative capacity and therefore he cannot decide there contentions
issues. Any appointment of an arbitrator under Section 11 of the Act made
prior to 26-10-2005 has to be treated as valid and all objections including
the existence or validity of the arbitration agreement, have to be decided by
the arbitrator under Section 16. If any appointment made before 26-5- 2005
that appointment has to be treated as valid even if it is challenged before
the Supreme Court. The Supreme Court issued direction to the arbitrator to
decide the issue in regard to the existence validity of the arbitration
agreement as a preliminary issue relating to jurisdiction.
Allegation of bias—Appointment of arbitrator.—The Apex Court
in ACE Pipeline Contracts (P) Ltd. V. Bharat Petroleum Corpn. Ltd.,2 has
held that once a party has entered into an agreement with eyes wide open
it cannot wriggle out of the situation on the claim that the designated person
being an officer of the other side would not be impartial or objective. The
Apex Court further held that if the appellant feels that the arbitrator has
not acted independently or impartially or he has suffered any bias, it will
always be open to it to make application under Section 34 of the Act to
set-aside the award on the ground that the arbitrator acted with bias or
malice in law or fact.
In the present case, the appellant’s demand was to get some retired
judge of the Supreme Court appointed as arbitrator on the ground that if
any person nominated in the arbitration clause is appointed then it may
suffer from bias or the arbitrator may not be impartial or independent in
talcing decision. Once a party has entered into an agreement with eyes wide
open it cannot wriggle out of the situation simply.
(vii) Proceedings for appointment of arbitrator under Section 11
has a very narrow scope
The Supreme Court in Agio Counter Trade P. Ltd. v. Punjab Iron and
Steel Co. Ltd. ,3 held that the provision of Section 22 o f the Sick Industrial
Companies (Special Provisions) Act, 1985 have been shown to the court. The
present proceedings however, for appointment of an arbitrator under Section
11 of the Arbitration and Conciliation Act, 1996 have a very narrow scope
and the same are not covered by Section 22 of the Sick Industrial Companies
(Special Provisions) Act, 1985. If, however, the respondents desire that the
1. AIR 2010 SC 1806.
2. AIR 2007 SC 1764.
3. 1999 (5) SCC 734.
126 THE A R B IT R A T IO N A N D C O N C IL IA T IO N ACT, 1996

arbitral proceedings should not be proceeded with, it is open to take

appropriate legal steps in that connection under the provisions o f the
Arbitration and Conciliation Act, 1996 and in accordance with law.
(viii) No assumption as to failure to arbitrate properly
In Grid Corporation o f Orissa Ltd. v. Indian Charge Chrome Ltd.,1
wherein the application for appointment of arbitrator was pending before the
Regulatory Commission which adjourned the matter on the ground of filing
of petition by the applicant before the High Court. It was held that the High
Court should not entertain the application under Section 11 assuming that
the Commission had failed to arbitrate properly.
In that case the Apex Court observed that the High Court clearly
exceeded the jurisdiction while entertaining the application of ICCL under
Section 11 of the Arbitration and Conciliation Act, 1996. The High Court
assumed erroneously, that the Regulatory Commission has failed to arbitrate
under Section 37(1) of the Reform Act and this finding was incorrect,
because vide application dated 19-7-1997 ICCL asked the Regulatory
Commission to adjourn the proceedings pending before it on the ground that
it had filed MJC in the High Cotut. In the view o f such application, the
Regulatory Committee did not proceed in the matter. If that be so, the High
Court was wrong in holding that there was failure on the part o f Regulatory
Commission, to arbitrate and consequently the application made by ICCL
under Section 11 was maintainable. In the circumstances of the case, the
application made by ICCL under Section 11 of the new Act, 1996 was
premature, and the High Court could not entertain the same.
(ix) International commercial arbitration—appointment of
arbitrator
In M is. Corned Chemicals Ltd. v. C.N. Ram Chand ,2 wherein the
respondent "British National" and professional expert entered into an
agreement with appellant company. He agreed to provide "technical
know-how" and expertise to appellant for which "fees" were to be paid. He
was also made Director (Technical) and Chief Executive Officer of subsidiary
company of the appellant. Further, 40% equity shares of subsidiary company
were allotted to him. Thus, he cannot be said to be merely an "employee".
The agreement between the parties provided for arbitration. It was held by
the Apex Court that the said arbitration would be "international commercial
arbitration". Therefore, application filed before the Supreme Court under
Section 11 of the Act, 1996 for appointment of arbitrator is maintainable.
(x) International commercial arbitration—Existence of arbitration
agreement
In Alva Aluminium Ltd., Bangkok v. Gabriel India Ltd ,,3 where dispute
relates to breach of contract, involving international commercial arbitration.
Whereas the petitioner is a joint venture between a group in Thailand and
a group in India, while respondent is registered under the Companies Act in
India. Notably, contract pertained to sale of some kind of Alluminium Alloy

1. AIR 1998 SC 1761 : 1998 (5) SCC 438.

2. AIR 2009 SC 494.
3. 2010 (12) JT 210 (SC).
ARBITRATION 127

by former to latter. The Supreme Court observed that undisputably, there

existed a written contract as also the fact that it contained arbitration
clause. Held, legally valid contract indeed come into existence between
parties which contained an arbitration clause for adjudication of dispute that
may arise.
(xi) Appointment of arbitrator qua International Commercial
Agreement
The Apex Court in Indtel Technical Services Pvt. Ltd. v. W.S. Atkins
PLC,1 ruled that when arbitration agreement is silent as to law and
procedure to be followed in implementing arbitration agreement, law
governing the said agreement would ordinarily be the same as the law of
Bhatia International v. Bulk Trading S.A.,2 Part I of the Arbitration and
Conciliation Act, 1996 applies to both domestic and international
arbitrations, irrespective of whether the seat of arbitration is India or not.
It was further held that whereas Part I of the said Act would apply where
place of arbitration is in India, it did not provide that the said Part I would
not apply where place of arbitration is outside India. In the present case for
non application, there has to be exclusion of said provisions by an agreement
between parties expressly or by implication. Presently, there is no such
exclusion. Further, in terms of relevant clauses, the parties held intended to
have their disputes resolved by arbitration.
(xii) International Commercial arbitration agreement—Arbitration
clause alleged to have been obtained by fraud—Arbitrator cannot be
appointed
In India Household and Health Care Ltd. v. L.G. Household and Health
Care Ltd.,3 where existence of an arbitration agreement can be found, apart
from the existence of the original agreement, the courts would construe the
agreement in such a manner so as to uphold the arbitration agreement.
However, when a question of fraud is raised, the same has to be considered
differently. In this case the Supreme Court observed that fraud, as is well
known, vitiates all solemn acts. A contract would mean a valid contract, an
arbitration agreement would mean an agreement which is enforceable in law.
The purported arbitration agreement in the present case is an
International Commercial Arbitration Agreement. Section 16 of the Act,
1996 which is in Chapter 4 of Part I thereof may not thus, be applicable in
this case. Even if it applies, the jurisdiction of the arbitrator to determine
his own jurisdiction is on the basis of that arbitration clause which may be
treated as an agreement independent of the other terms of the contract and
his decision that the contract is null and void, shall not entail "ipso ju re" the
invalidity of the arbitration clause. But, the question would be different
where the entire contract containing the arbitration agreement stands
vitiated by reason of fraud of a big magnitude.

1. (2008) 10 SCC 308.

2. (2002) 4 SCC 105.
3. AIR 2007'SC 1376.
128 THE A R B IT R A T IO N A N D C O N C IL IA T IO N ACT, 1996

(xiii) International arbitration—When, provisions of Section 11(6)

does not apply
In Dezco (India) Pvt. Ltd. v. Doosan Infra Core Co. Ltd.1 wherein issue
raised regarding question of interpretation qua appointment of arbitrator by
Indian Court vis-a-vis applicability of foreign law. The Supreme Court
expressed the view and observed that unless, jurisdiction o f Indian Courts
is specifically excluded by agreement of parties at last part o f the Arbitration
and Conciliation Act, 1996 whereunder there is a power to appoint arbitrator
under Section 11(6) of the said Act, the Supreme Court would have
jurisdiction to appoint an arbitrator even if arbitration is to be governed by
foreign law. In the present case dispute arose out o f distributorship
agreement which respondent company prepared to terminate whereas
existence of arbitration clause not disputed. Factually, petitioner is a
company incorporated in India, while respondent company is incorporated in
Seoul, South Korea and there is no dispute, that in terms of agreement, it
is an international arbitration. Although, in terms of arbitration agreement,
the petitioner was appointed as sale distributor of respondent company in
India and Bhutan. Notably, respondent deals with excavation wheels etc.
Although, the petitioner sought to place reliance on bracketed portion of
relevant clause pertaining to seat of arbitration. But, the prevented portion
o f the clause o f arbitration does not control the main clause, which clearly,
stipulated seat of arbitration would be Seoul, South Korea. Thus, language
is clearly indicative of exclusion of Part-I of the said Act, 1996.
It was held by the Supreme Court that ultimately, arbitration to be
conducted accordance with the rule of International chambers of commerce.
As interpretation of relevant article suggests that the law governing the
arbitration will be Korean Law and the seat of arbitration will be Seoul in
South Korea, question does not arise of applicability of section 11(6) of the
Act, 1996 and appointment of arbitration thereunder.
(xiv) International commercial arbitration—Nationality of
arbitrator
In Dolphin International Ltd. v. Ronak Enterprises Inc., the Apex
Court observed that an arbitrator is required to be appointed whose
nationality would be other than that of either parties and thus he can
neither be Indian nor American. It was suggested by International Chamber
of Commerce, Paris that the respondent would not be suitable as it would
be too much expensive for the parties to get their dispute arbitrated at
Paris. However, it was suggested that Chief Justice of Pakistan, would be
suitable and as he has already given consent, the application was allowed.
Though, there was no written order, the court was informed that it was
to observe only from the point of view of the propriety in the particular case
and will proceed accordingly. It was also agreed that if this view was not
taken, International Commercial Arbitration will have to be appointed whose
nationality was other than the nationality of either party. In the absence of
any agreement between the parties for appointment of arbitration of their
choice, an arbitrator who was neither of Indian nor American nationality,
1. 2010 (4) Arb. LR 253 (SC).
2. 1998 (5) SCC 724.
A R B IT R A T IO N 129

will have to be appointed. Under these circumstances, there was no option

but to appoint such an arbitrator. Unfortunately, the arbitrator, appointed
expressed unwillingness to continue to act as arbitrator and thereafter in
spite of best efforts of the court, the parties could not be persuaded to
suggest the agreed names of the arbitrators. In such circumstances, no other
option was left but to appoint invitum any other arbitrator who was neither
Indian nor American. Hence suggestion to get their dispute arbitrated at
Paris was rejected.
(xv) Foreign award—when application under Section 11(6) of the
Act, 1996—Not maintainable
The Supreme Court in Shivnath Rai Harnarain (India) Ltd. v. Abdul
Ghaffar Abdul Rehman (Dead) by LR’s,1 where the parties agreed to refer to
the arbitrator for resolution of the dispute at Singapore and award of the
Arbitrator was passed at Singapore and further award o f the Arbitrator was
set aside by the High Court of Singapore. It was held that the Court at
Singapore alone have jurisdiction over the arbitral proceedings and all
applications arising out of that agreement shall be made only in that Court
and no other Court. Hence, application under Section 11(6) of the Act is not
maintainable.
(xvi) Appointment of sole arbitrator—When it can be made
In Subhash Projects & Marketing Ltd. v. South Eastern Coal Fields
Ltd.,2 it was held that recourse to court by one party for appointment of
arbitrator under Section 8 of the Arbitration and Conciliation Act, 1996 will
not preclude the other party to appoint sole arbitrator when procedure for
appointment is stipulated in the arbitration agreement.
In another case3 it has been held that when procedure for appointment
of arbitrator as provided in arbitration agreement between the parties by the
contractor stipulates that the Chief Engineer can appoint anyone as an
arbitrator from the list of three candidates submitted by the contractor, is
not availed off by the Chief Engineer, it would amount to an implied consent
given by the Chief Engineer for appointment of sole arbitrator by contractor.
Although, in certain circumstance the substitution of sole arbitrator may be
justified and he is competent to arbitrate the matter.
In State o f Andhra Pradesh v. I. Chandrasekhara Reddy? wherein sole
arbitrator provided in the contract between the parties, was directly
concerned with the contract work in dispute, the court ordered substitution
of arbitrator, and that the plea that award passed by substituted arbitrator
was nullity for want of reference is not tenable, since order of substitution
itself gave jurisdiction of arbitrator to enter upon reference, which order had
become final.
In N.B. Sharma v. Union o f India and others,5 under the arbitration
agreement each party was entitled to appoint arbitrators but the
respondents did not send list of three persons to the petitioner for selection
1. 2008 (2) Arb. LR 121 (SC).
2. AIR 1998 M.P., 276.
3. Executive Engineer, Upper Painganga Project Division v. M.V. Parse, AIR 1999 Bom. 254.
4. AIR 1998 SC 3311.
5. AIR 2004 Pat. 111.
130 THE A R B IT R A T IO N A N D C O N C IL IA T IO N ACT, 1996

as per agreement. Even, the respondents did not appoint their own
arbitrator merely under the apprehension that the claims of petitioner were
time barred. It was held that under the circumstances the High Court is
competent to appoint retired judge of the High Court as sole arbitrator.
(xvii) Word "May" in Section 11(9) is taken as "shall"
In Dolphin International Ltd. v. Ronak Enterprises Inc.,1 the Supreme
Court has held that word "may" occurring in Section 11(9) of the Arbitration
and Conciliation Act, 1996 is taken as "shall". Therefore, an arbitrator is
required to be appointed whose nationality would be other than that of
either parties. Thus, where one 'party was Indian and other American, the
arbitrator has to be neither Indian nor American. In such circumstances,
retired Chief Justice of Pakistan was suggested to be a suitable person to be
named as arbitrator.
(xviii) Order passed under Section 11(6) is administrative remedy
Remedy against the order o f Chief Justice or his nominee about
appointment o f arbitrator—The Supreme Court in Konkan Railway
Corporation Ltd. v. Mehul Construction Co. etc.,2 has held that such order
passed under Section 11(6) is neither judicial nor quasi-judicial but an
administrative remedy and therefore, authorities can make an order of
appointment of arbitrator. Therefore, the order passed under Section 11(6)
is not subject to judicial review, nor the order refusing to appoint arbitrator
is s ubjected to the jurisdiction of the Supreme Court under Article 136 of the
Constitution o f India, 1950. In the present case the court observed that an
analysis of different sub-sections of Section 11 would indicate the character
of the order, which the Chief Justice or his nominee passes under
sub-section (6) o f Section 11. Sections 11(3) and (4) deal with cases in which
a party fails to appoint an arbitrator and thus seeks to avoid frustration or
unreasonable delay in matter of constitution of the arbitral court. It
authorises the Chief Justice of India or the Chief Justice of a High Court
concerned or any person or institution designated by him to make the
appointment upon request of a party, if the other party has failed to appoint
an arbitrator within 30 days from the receipt of a request to that end.
Sections 11(4), 11(5) and 11(6) designedly use the expression "Chief Justice"
in preference to a court or other authority as in paragraphs (3) and (4) of
Article 11 of the Model Law, obviously for the reason that the Chief Justice
acting in his administrative capacity, is expected to act quickly without
encroaching on the requirements that only competent persons are appointed
as arbitrators. Section 11(4) does not lay down any time limit within which
the Chief Justice or nominee, designated by him, has to make the
appointment. It, however, expects that these functionaries would act
promptly. While Sections 11(4) and 11(5) deal with removal of obstacles
arising in the absence of agreement between the parties on a procedure for
appointing the arbitrator or arbitrators, Section 11(6) seeks to remove
obstacles arising when there is an agreed appointment procedure.

1. 1998 (5) SCC 724 : 1998 (6) JT 406.

2. AIR 2000 SC 2821 : 2000 (7) SCC 201 : 2000 (5) Supreme 657; see also Konkan Railway
Corporation Ltd. v. M/s. Rani Constructions Pvt. Ltd., 2000 (7) Supreme 125 : 2000 (8)
SCC 159.
A R B IT R A T IO N 131

(xix) Order passed under Section 11(6) cannot be challenged under

Article 136 of the Constitution
In Ador Sarnia Pvt. Ltd. v. Pee Kay Holdings Ltd.,1 it was held that it
is now well settled that petition under Article 136 of the Constitution can
lie for challenging a judgment, decree, determination, sentence or order in
any cause or material passed or made by- any Court or Tribunal in the
territory of India. As the learned Chief Justice or his designate under
Section 11(6) o f the new Act, 1996 acts in administrative capacity as held by
this court, it is obvious that this order is not passed by any court exercising
any judicial function nor it is a tribunal having trappings of a judicial
authority, orders passed by the learned Chief Justice under Section 11(6) of
the Arbitration and Conciliation Act, 1996 being of an administrative nature
cannot be subjected to any challenge directly under Article 136 of the
Constitution of India, 1950.
(xx) Right to make appointment of arbitrator is not forfeited—
When, Appointment has not been made within 30 days of denial
It is settled legal principle that Section 11(5) of the Act, 1996 may be
involved by a party who has requested the other party to appoint an
Arbitrator and the latter fails to make any appointment within 30 days from
the receipt of the notice. In Datan Switen Gears Ltd. v. Tata Finance Ltd.,2
the Apex Court observed wherein the appellant has not issued any notice to
the 1st respondent seeking appointment of an arbitrator. An application
under Section 11(6) can be filed where there is failure of the procedure for
appointment of arbitrator. This failure of procedure can arise under different
circumstances. It can be a case where a party who is bound to appoint an
arbitrator refuses to appoint the arbitrator or where two appointed
arbitrators fail to appoint the third arbitrator. If the appointment of
arbitrator or any function connected with such appointment is entrusted to
any person or institution and such person or institution fails to discharge
such function, the aggrieved party can approach the Chief Justice for
appointment of Arbitrator.
So far as Section 11(6) is concerned, one party demands the opposite
party to appoint an arbitrator and the opposite party does not make an
appointment within 30 days of the demand, the right to appointment does
not get automatically forfeited after expiry of 30 days if the opposite party
makes an appointment even after 30 days of the demand, but before the first
party has moved the court under Section 11 that would be sufficient. In
other words, in case arising under Section 11(6), if the opposite party has
not made an appointment within 30 days of the demand the right to make
appointment is not forfeited but continues, but an appointment has to be
made before the former files application under Section 11 seeking
appointment of an arbitrator. Only then the right of the opposite party
ceases.
In view of the Supreme Court3 so far as the period o f thirty days is
concerned, it is not mentioned in Section 11(6) of the Act. The period of

1. 1999 (7) Supreme 309.

2. 2000 (8) SCC 151 : 2000 (7) Supreme 145.
3. ACE Pipeline Contract (P) Ltd. v. Bharat Petroleum Corpn. Ltd., AIR 2007 SC 1764.
132 THE A R B IT R A T IO N A N D C O N C IL IA T IO N A C T, 1 9 9 6

limitation is provided only under Section 11(4) and (5) o f the Act. As such
as per the statute, the period of limitation of 30 days cannot be invoked
under Section 11(6) of the Act and beyond that the appointing authority
under the arbitration agreement does not automatically forfeit the right to
make the appointment. The Supreme Court has held that it is totally a
misnomer to read 30 days in Section 11(6) of the Act.
In the instant case the Supreme Court observed that the departmental
lethargy in making appointment of arbitrator in terms of arbitration clause
is well known. Therefore, mandamus can be issued by the Courts in exercise
o f power under Section 11(6) of the Act but the demand should be in the
event of failure by the authorities to appoint arbitrators within a reasonable
time. The Courts are not powerless to issue mandamus to the authorities to
appoint arbitrators as far as possible as per the arbitration clause. But in
large number of cases if it is found that it would not be conducive in the
interest of parties or for any other reasons to be recorded in writing, the
choice can go beyond the designated persons or institutions in appropriate
cases. But Court should normally adhere to the terms o f arbitration clause
and appoint arbitrator/arbitrators named therein except in exceptional cases
for reasons to be recorded or where both parties agree for a common name.
(xxi) Objection as to nationality of arbitrator
The Supreme Court in Malaysian Airlines System BHD v. Stic Travels
(P) Ltd.,: has held that under Section 11(9) of the new Act, 1996 objection
as to the nationality o f arbitrator is a mandatorily considerable factor to be
viewed and the court is bound to appoint an arbitrator of nationality of
either of the party. In the present case the court observed that while
nationality o f the arbitrator is a matter to be kept in view, it does not follow
from Section 11(9) of the Act that the proposed arbitrator is necessarily
disqualified because he belongs to the nationality of one o f the parties. The
word ‘may’ is not used in the sense of "shall". The provision is not
mandatory. In case the party who belongs to a nationality other than that
of the proposed arbitrator, has no objection the Chief Justice of India (or his
nominee) can appoint an arbitrator belonging to a nationality o f one of the
parties. In case there is objection by one party to the appointment of an
arbitrator belonging to the nationality of the opposite party, the Chief
Justice of India (or his nominee) can certainly consider the objection and see
if an arbitrator not belonging to the nationality o f either party can be
appointed.
(xxii) Government contracts—Appointment of an arbitrator by a
‘Designated person’
In contracts with Government, it is generally contained that in cases of
disputes arising out of such contract, the same shall be referred to a
particular officer and the disputes required to be referred to the officer are
specified in the contract itself, namely, arbitration clause. However, where a
name is not specified but only the designation of the officer is specified, the
reference has to be made to that designated officer. The Supreme Court is
o f the view that wherein the name of designated officer is not mentioned but
only designation, it was held that such arbitration clause is not enforceable
1. 2 0 0 0 (8 ) S u p re m e 145.
A R B IT R A T IO N 133

on the ground o f uncertainty.1 However, merely non-mentioning of a named

or designated arbitrator by itself does not make arbitration invalid. Because,
if the particular officer is not available, another officer may be appointed as
an arbitrator.2
But, in due course of time the courts in India widened the scope of
appointment of an arbitrator by a "Designated person". The Calcutta High
Court in Kerorimal v. Union o f India? wherein the reference was made to
the sole arbitration of the Chief Engineer/Additional Chief Engineer and if
both of them were unable or unwilling to act to the sole arbitration of some
other person appointed by the Chief Engineer to act as an arbitrator, it was
held that it was intended that either the Chief Engineer or the Additional
Chief Engineer was intended to be retained by striking off the other. It was
not the intention o f the parties that the Chief Engineer would act in the first
place and if he was unable or unwilling to act, then the Additional Chief
Engineer would act. The arbitration agreement showed that authors had
expressed alternative intention without deciding in favour of either, that,
through inadvertence or negligence, the parties had not struck out either the
Chief Engineer or Additional Chief Engineer from the standard clause, that
ambiguity was therefore, patent and the clause was void for uncertainty. It
was observed that ambiguity could be cured by election. It was pointed out
that such an arbitration agreement should be distinguished from ordinary
commercial agreements and should be strictly construed and it is not
permissible to strain the language and supply words to make an indefinite
agreement definite.'
In case there is a written arbitration agreement between the parties
that the arbitrator should be nominated by certain officer, that officer is
required to nominate the arbitrator and the general rule must be subject to
the specific agreement between the parties.0
The Punjab High Court in Arain & Co. v. Union o f India? observed
where the arbitration clause provides that, in case a particular officer who
is appointed arbitrator is transferred or vacates his office, his "successor in
office" shall be deemed to have been appointed arbitrator, the term
"successor in office" includes various "successors in office.4’
Intention contained in the clause in question must contemplate
arbitration by the designated person. In Bharat Bhusan Bansal v. V.P.
Small Industries Corporation Ltd. ? the Supreme Court while referring to the
clause in the contract, captioned as arbitration clause, observed that a plain
reading o f that clause shows that the Managing Director expressed therein
was referred more in the category of an expert for deciding matters relating
to contract, intention being to avoid disputes rather than decide formulated
disputes in quasi-judicial manner. It was held that clause in question did
not contemplate any arbitration.

1. Basantlal v. Dominion o f India, AIR 1952 SC 340.

2. Governor General in Council v. Associated Livestock Farm, (India) Ltd.. AIR 1948 SC 230.
3. AIR 1959 Cal. 430.
4. M.A. Sujan.on Law Relating to Arbitration and Conciliation, 2nd Ed. 2001. p. 186.
5. Union o f India v. Nath Behari, AIR 1957 Pat. 697.
6. AIR 1964 Punj. 230.
7. AIR 1999 SC 899.
13 4 THE A R B IT R A T IO N A N D C O N C IL IA T IO N ACT, 1996

The clause of the contract namely, arbitration agreement generally

confers power on a designated officer to appoint any person as an arbitrator
to determine the disputes arising out of or in connection with or relating to
the contract. In M.K. Shah Engineers and Contractors Ltd. v. State o f M.P.,1
contract provided pre-requisite obligation so as to exclude the applicability
of arbitration clause. The party complaining was at fault. The Supreme
Court observed that by non-performance the party cannot be permitted to
plead invalidity of arbitration or non-maintainability of arbitration.
It is to be noted that initially the law of arbitration in India was
borrowed from the English Arbitration Acts. The concept o f a public officer
to appoint a sole arbitrator thus has been taken from the English
Arbitration Acts. As observed by the Lahore High Court that "it is very
common in England to invest responsible public officers with the duty of
appointing arbitrators under given circumstances. Such appointments should
be made with integrity and impartiality."2
According to Russell"—"Such a power of appointing a person as an
arbitrator by a designated officer has been held not to be judicial." However,
a question comes up as to what is the nature of such power. Since such
power is exercised by the Government or by a persona designata and every
power exercised by the Government is either legislative, judicial or
executive, power to appoint arbitrator by the Government is an executive
power : Under the contract although the power is given to subordinate of the
Government, yet it cannot be said that the power is given to the
Government. It is only the designated officer who can exercise the power of
appointment, even his superior in hierarchy cannot exercise that power. It
has been said that such power under the contract is given to the officer as
persona designata and as such he cannot be said to exercise that power as
a Government officer in discharge of duties as such.4
(xxiii) Appointment of arbitrator—Order of the Chief Justice or his
designate under Section 11 is a Judicial order?
Section 11 o f the Arbitration and Conciliation Act, 1996 read with
Article 136 o f the Constitution o f India, 1950.—The order of the Chief Justice
or his designate regarding the power of appointment of arbitrator in exercise
of the power under Section 11 of the said Act is not a judicial order but it
is an administrative order, hence such an order is not amenable to the
jurisdiction of the Supreme Court under Article 136 of the Constitution of
India.
The Supreme Court in M/s Konkan Railway Corporation Ltd. &
another v. M/s Rani Construction Pvt. Ltd.,5 while affirming the view of
three Judges in Konkan Railway Corporation Ltd. & another v. Mehul
Construction Pvt. Ltd.,6 observed that :—
"To put in concisely, for an order properly to be the subject of a

1. AIR 1999 SC 950.

2. AIR 1950 Lah. 174.
3. On Arbitration, 20th Edn. p. 123.
4. M.A. Sujan on Law Relating to Arbitration and Conciliation, 2nd Edn. 2001, p. 189.
5. 2002 Cl) Supreme 419.
6. 20^0 (7) SCC 201.
A R B IT R A T IO N 135

petition for special leave to appeal under Article 136 of the Constitution
it must be an adjudicatory order, an order that adjudicates upon the
rival contentions o f parties, and it must be passed by an authority
constituted by the State by law for the purpose of discharging the
State’s obligation to secure justice to its people. 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 30 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 30 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 30 days from the 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 must have regard to the
qualifications required o f 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 30 days. The court further
observed that the Chief Justice or his designate has to make the
nomination of an arbitrator only if the period of 30 days is over, but it
does not lead to the conclusion that the decision to nominate is
adjudicatory."
In the present case the court clarified that the schemes made by the
Chief Justice under Section 11 cannot govern the interpretation of Section
11. If the scheme as drawn goes beyond the terms of Section 11 they are bad
and have to be amended.
The appointment of arbitrators by the Chief Justice of India Scheme,
1996 if 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
136 THE A R B IT R A T IO N A N D C O N C IL IA T IO N A C T , 19 96

and must be amended. The other party needs to be given notice o f the
request only so that it may know of it as it may, and if it so chooses, assist
the Chief Justice or his designate in the nomination of an arbitrator.
Finally, in conclusion the Apex Court held that the order of the Chief
Justice or his designate under Section 11 nominating an arbitrator is not an
adjudicatory order and the Chief Justice or his designate is not a tribunal.
Such an order cannot properly be made the subject o f a petition for special
leave to appeal under Article 136 of the Constitution of India, 1950. It was
further held that the decision of the three Judges Bench in Konkan Railway
Corporation Ltd. & others v. Mehul Construction Co.,1 is affirmed.
To sum up the above case the decision of the three Judges Bench in
Konkan Railway Corporation Ltd. & others v. Mehul Construction Co., that
the order of the Chief Justice or his designate in exercise o f the power under
Section 11 of the present Act, 1996 was an administrative order and that
such order was not amenable to the jurisdiction of the Supreme Court under
Article 136 o f the Constitution is affirmed by the Constitution Bench.
The Supreme Court in S.B.P. & Co. v. Patel Engineering Ltd. &
another,2 has held that the power concerning appointment of arbitrator,
exercised by the Chief Justice of the High Court or the Chief Justice o f India
under Section 11(6) of the Act is not an administrative power. It is a judicial
power. Therefore, .an appeal will lie against that order only under Article
136 of the Constitution of India to the Supreme Court. But 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.
The Court observed that Section 11(6) of the Act combines both the
powers. May be it is more in consonance with Section 8 of the old
Arbitration Act, 1940. 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 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 performed administrative
functions. An appointment of an arbitral tribunal in terms o f 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. The
Chief Justice exercises a judicial power while appointing an arbitrator. 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
need not even issue notice to opposite side before appointing an arbitrator.
The Allahabad High Court in Bharat Wire Ropes Ltd. v. Union o f India
& others f held that the power of Chief Justice or person designated by him,
he has to act independently and judicially and he is not simply perform
administrative functions of authority under agreement.

1. 2000(7) SCC 201.

2. 2005 (8) SCC 618 : 2005 (9) JT 219 (SC); See also Makarshi Dayanand University v.
Anand Coop. Limited Company Society Ltd., AIR 2007 SC 2441.
3. 2012 (5) ADJ 644 (All).
ARBITRATION 137

Power of the Chief Justice— Question whether claim in question

was a live one and/or not barred by limitation.—In deciding an
application under Section 11(6) of the Arbitration and Conciliation Act, 1996
what the Chief Justice or his designate does is to put the arbitration
proceedings in motion by appointing an arbitrator and it is for that purpose
that the finding is given in respect of the existence of the arbitration clause,
the territorial jurisdiction, live issue and the limitation. Unless there is
finding given on these issues, there would be no question o f proceeding with
the arbitration. If the Chief Justice does not, in the strict sense, decide the
issue whether the claim is a dead one or whether the parties have already
concluded the transaction and have recorded satisfaction of their mutual
rights and obligations or whether the parties concerned have recorded their
satisfaction regarding the financial claims, in that event it is for him to
locate such issue and record his satisfaction that such issue exists between
the parties.1
The same is true about the question of limitation which is always a
mixed question o f law and fact. The Chief Justice only has to record his
satisfaction that prima facie the issue has not become dead by the lapse of
time or that any party to the agreement has not slept over its rights beyond
the time permitted by law to agitate those issues covered by the agreement.
It is for this reason that it was pointed out in SBP Case,2 that sometimes it
would be appropriate to leave the question regarding the live claim to be
decided by the Arbitral Tribunal or talcing evidence, along with the merits
of the claims involved in the arbitration. Thus, where the Chief Justice
comes to a finding that there exists a live issue, then naturally this finding
would include a finding that the respective claims of the parties have not
become barred by limitation.3
Once it is concluded that the designated judge was right in holding that
there was a live issue, the question of limitation automatically gets resolved.
Till such time as the settlement talks are going on directly or by way of
correspondence, no issue arises, with the result the clock o f limitation does
not start ticking. Where the negotiations were still on, there would be no
question o f the starting of the limitation period. In the present case,4 things
do not seem to have settled even by 19-1-2005, but that would be for the
Arbitral Tribunal to decide. It is only observed at this stage that the claim
of the respondent cannot be said to have become dead firstly, because of the
settlement or because of lapse of limitation. The question o f limitation is also
left open for the Arbitral Tribunal.
(xxiv) Precondition for exercise of power—Appointment of
arbitrator
The legislative scheme of Section 11 is very clear. If the parties have
agreed on a procedure for appointing the arbitrator or arbitrators as
contemplated by Section 11(2), then the dispute between the parties has to
be decided in accordance with the said procedure and recourse to the Chief
1. Shree Ram Mills Ltd. v. Utility Premises (P.) Ltd., (2007) 4 SCC 599.
2. (2005) 8 SCC 618.
3. Shree Ram Mills Ltd. v. Utility Premises (P.) Ltd., (2007) 4 SCC 599.
4. Ibid.
138 THE A R B IT R A T IO N A N D C O N C IL IA T IO N A C T , 1 9 9 6

Justice or his designate cannot be taken straightway. In the matter of

settlement of dispute by arbitration, the agreement executed by the parties
has to be given great importance and an agreed procedure for appointing the
arbitrators has been placed on high pedestal and has to be given great
importance and preference to any other mode for securing appointment of an
arbitrator. It is for this reason that in Section ll(8 X a ) it is specifically
provided that the Chief Justice or the person or institution designated by
him, in appointing an arbitrator, shall have due regard to any qualifications
required for an arbitrator by the agreement of the parties. The judicial
pronouncements also show that normally the clause in the agreement
providing for settling the dispute by arbitrators having certain qualifications
or in certain agreed manner should be adhered to and should not be
departed from unless there are strong grounds for doing so.
Notably, recourse to Section 11(6) of the Act can be had only where the
parties have agreed on a procedure for appointment of an arbitrator and if
the conditions enumerated in clause (a) or (b) or (c) of the sub-section are
satisfied.
In Iron and Steel Co. Ltd. v. Tiwari Road Lines,1 where there being an
agreed procedure for resolution of disputes by arbitration in accordance with
the Rules of Arbitration of the Indian Council of Arbitration. Section 11(3),
(4) and (5) can have no application. Furthermore, the respondent did not
make any effort to have the dispute settled by arbitration in accordance with
the Rules of Arbitration of the Indian Council of Arbitration. On the
contrary, it straightway moved an application under Section 11 of the Act.
The Supreme Court has held that since the parties here had agreed on a
procedure for appointing an arbitrator for settling the dispute by arbitration
as contemplated by Section 11(2) of the Act and there is no allegation that
any one of the contingencies enumerated in Section 11(6) clause (a) or (b) or
(c) had occurred, the application moved by the respondent was clearly not
maintainable and the court had no jurisdiction to entertain such an
application and pass any order.
(xxv) Appointment of arbitrator, when the procedure is not
provided by agreement between parties
In M/s. Universal Construction and Trading Company, Lucknow v.
Garhwal Mandal Vikas Nigam Ltd., Dehradun & others ,2 wherein the
agreement only contained provision prescribing appointment of a sole
arbitrator. However, the applicant specifically requested the opposite parties
for reference of dispute to arbitrator, but the opposite party remaining silent.
It was held that the applicant can make a request to the Chief Justice under
Section 11(6) of the Act, 1996 for appointment of an arbitrator. Hence, the
plea by opposite party that only arbitrator named in arbitration clause can
act as arbitrator, is misconceived.

1. AIR 2007 SC 2064.

2. AIR 2004 All. 115.
A R B IT R A T IO N 139

(xxvi) Order made by judge designated by the Chief Justice for

appointment of arbitrator—Whether writ petition is maintainable
against
It is to be noted that an administrative order is amenable to the writ
jurisdiction under Article 226 of the Constitution of India and such an order
made by the Designated Judge under Section 11(6) of the Arbitration and
Conciliation Act, 1996 is not an exception to this rule.
In State o f Orissa & others v. Gokulananda Jena,1 the Supreme Court
explained that the power of the High Court under Article 226 to entertain a
writ petition cannot be equated with the power of the Supreme Court to
entertain an appeal under Section 136 of the Constitution of India. The
power of the High Court to entertain a writ petition is an original power
while power of the Supreme Court in entertaining an appeal under Article
136 o f the Constitution is an appellate power. It was held that in view of
Section 16 read with Sections 12 and 13 of the Act, 1996 as interpreted by
the Constitution Bench in M/s. Konkan Railway Corporation Ltd.,2 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) o f the Act which includes considering the
question of jurisdiction of the Arbitrator himself. Therefore, in the Court’s
view even though a writ petition under Article 226 of the Constitution is
available to an aggrieved party, however, ground available for challenge in
such a petition is limited because of the alternative remedy available under
the Act itself.
(xxvii) Power of Chief Justice/his Designate—Maintainability of
claim Qua Bar of Res-Judicata
The Apex Court in Indian Oil Corporation Ltd. v. SPS'Engineering
Ltd.2 observed that in the first place court has to decide whether there
existed an arbitration agreement. The Chief Justice or his Designate is not
expected to go into merits or tenability of claim. For examining whether
claim is barred by res judicta or it is mala fide, it will be necessary to
examine facts and relevant documents. The Court many examine whether
the claim is a deed claim (long barred) or whether parties have, by recording
satisfaction, exhausted all rights, obligation and remedies under the
contract, so that neither the contract nor arbitration agreement survived.
But, such an exercise can be undertaken only when claim is evidently and
patently a long time barred claim and there is no need for any detailed
consideration of evidence. Distinction between obvious deed-claim and claim
involving disputed issues of limitation has to be kept in view else, all
applications under Section 11 will end-up deciding the said issue. The

1. 2003 (2) Arb. L.R . 700 : 2003 (6) SCC 465.

2. AIR 2000 SC 2821 : 2000 (2) SCC 388.
3. AIR 2011 SC 987.
140 THE A R B IT R A T IO N A N D C O N C IL IA T IO N A C T , 19 96

pleadings should also be restricted to existence of dispute and existence of

arbitration agreement. Applicant not require to justify his claim plead
exhaustively in regard to limitation or produce documents to show that
claim is within time. Such issues should normally be left to the Arbitral
Tribunal. So also question as to bar of res judicates does not fall for
consideration in this application.
Thus, there can be no threshold consideration of issue of res judicata.
(xxviii) Apprehension regarding bias in Government arbitration
Generally, the apprehension regarding bias of Government officer
appointed as arbitrator in Government arbitration is that he may be
favouring towards Government. Observations made by the courts is that,
merely because he is a Government employee it cannot be said that he is
biased in favour of Government or he would be leaning towards Government.
The allegation of bias has to be proved to the extent of atleast reasonable
apprehension of bias. There are occasions when the courts have disqualified
the appointed arbitrators because they had intermeddled in their official
capacity in consideration of the claim covered by the reference.
It is to be noted that merely because a Government officer is appointed
as an arbitrator he does not become disqualified because of bias nor can,
such an appointment be challenged on ground of public policy. This question
has been considered by the Apex Court in Transocean Shipping Agency (P.)
Ltd. v. Black Sea S h i p p i n g where the court observed that "the last
objection taken by the appellants is on the ground that the second
respondent being appointed as arbitrator was a high ranking officer of the
first respondent. According to the appellants an award which is given by her
cannot be enforced in India because it would be against the public policy.
There is, however no violation of any public policy in the present case. The
parties had agreed to be governed by the law of Ukraine as far as arbitration
proceedings were concerned. If the award given by the second respondent is
valid under the law of Ukraine, then there is no violation of any public
policy in enforcing it here. Often parties appoint an officer of one of the
parties to the arbitration agreement, as a sole arbitrator. Sometimes the
agreement terms so provide. This does not ipso facto make the arbitration
or the award contrary to any public policy, especially if the officer had not
personally handled disputed transactions and is impartial."
Though, the above case related to a foreign award but the legal points
involved would be equally applicable to domestic arbitration. It will be no
objection to any such appointment that the arbitrator so appointed is a
Government servant, that he had to deal with the matters to which the
contract relates and that in the course of his duties as Government servant
he had expressed views on all or any of the matters in dispute. (As per M.A.
Sujan).
However, Kerala High Court in Union o f India v. P.M. Im bichibi2 has
held that wherein the arbitrator appointed, has participated in the
departmental decision culminating in the rejection of the claim which is the
subject-matter of arbitration, normally, it would amount to bias and
1. AIR 1998 SC 707.
2. AIR 1998 Ker. 72.
A R B IT R A T IO N 141

amenable to disqualification.
But, in recent time a contrary trend of bias has been judicially noticed
in Government appointed arbitrators against the Government and in favour
o f the contractors resulting in wholesale loot’ o f the public exchequer. The
Kerala High Court in State o f Kerala v. N.K. Aboobacker,1 has observed as
under :—
"The contract was in respect of a particular work attached to the
Kaileda Irrigation Project (KIP). The tender submitted by the
respondent in these appeals was accepted and agreement was executed
between him and the Government on 9-5-1984. The work was formation
of Left Bank Main Canal of the K.I.P. (from 47005 to 48254 M.). It
included certain ancillary work such as driving a tunnel etc. While the
work was being executed, the State entered into some supplementary
agreements with the respondent in respect of certain extra work
connected with the main work." After completion of the work the
respondent made claims of damages and compensation alleging that
there were several acts of omission and commission which amounted to
breach of contract on the part of the State Government. As per the
respondent, there was inordinate delay in handing over the site, there
was delay in supply of cement, steel, gelatin and other materials, there
were intermittent interruption of electric supply which resulted in huge
loss of working hours. Respondent complained that on account of series
of defaults, his cost of work increased far higher. The respondent
claimed a consolidated sum of Rs. three crores as his loss in the matter.
Since the State Government repudiated the claim of the respondent, he
invoked arbitration clause in the agreement. The claims were referred
to Superintending Engineer, as the sole arbitrator and the arbitrator
awarded a sum o f Rs. 2,85,79,800 in favour of the contractor which
together with interest awarded at the rate o f 18% per annum has
reached upto Rs. 3,38,36,621.
The learned Sub-Judge while dismissing the petitions of the State
Government passed the decree in favour of the respondent. In appeals
against the impugned decree the contention was raised that when the
arbitrator is bound by the terms of the contract to make reasoned award, he
cannot adopt subterfuge and escape by giving no reasons for awarding a
whopping amount and granting unconscionably bulky amount vastly
disproportionate to the work undertaken which is prima facie evidence of
misconduct on the part of the arbitrator. The Kerala High Court while
following the decisions of the Apex Court on the point has held that the
impugned arbitral award was disproportionately high having regard to the
original claim made and in the totality of the circumstances it would
certainly be a case of non-application of mind and amounted to misconduct
which was highly deprecated.
The Apex Court in Union o f India v. Jain Associates,2 while elaborating
the scope of the expression "misconduct" by the arbitrator observed that—
"If the award is disproportionately high having regard to the

1. AIR 1995 Ker. 327.

2. 1994 (3) JT 303.
142 THE A R B IT R A T IO N A N D C O N C IL IA T IO N ACT, 1996

original claim made and in the totality of the circumstances, it would

certainly be a case of non-application o f mind amounting to legal
misconduct..... It is therefore, clear that the misconduct under Section
30(a) of the Act does not necessarily comprehend or include fraudulent
misconduct or improper misconduct or moral lapse but does not
comprehend and include actions on the part of the arbitrator in the face
o f the award opposed to rational and reasonable principles resulting in
excessive award or unjust result or like circumstances which tend to
show non-application of the mind to the material facts by the arbitrator
or umpire. In truth he points to the fact that the arbitrator or umpire
had not applied his mind and not adjudicated upon the matter although
the award prefaces to determine them. Such situation amounts to
misconduct."
It is settled legal position that "reasonable apprehension of bias in the
mind of a reasonable man can be a ground for removal of the arbitrator. A
pre-disposition to decide for or against one party, without proper regard to
the true merits o f the dispute is bias.1 Thus, in Government arbitration the
apprehension of bias has to be reasonable and allegation as to misconduct
should be that there is non-application o f mind on the part of arbitrator. The
above discussion shows that in certain cases the Government officer, as sole
arbitrator may act unscrupulously not in favour of Government but in favour
of the contractor respondent or other party.
(xxix) Appointment of Government Servant as arbitrator by
Government—Whether proper?
The Supreme Court in Penal (Proprietary Ltd.) v. Government o f India,
Ministry o f Defence2 has an occasion to consider this aspect of the matter
and observed that it is now well settled by a series of decision that
arbitration agreement in Government Contracts providing that an employee
of Department (usually a high official unconnected with the work of the
contract) will be the arbitrator, are neither void nor unenforceable. All the
decisions proceed on the basis that when senior officers of Government/
statutory corporation/PSU are appointed as arbitrators, they will function
independently and impartially even though there are employees of such
institutions/organisations.
In the present case arbitrator, Government servant appointed by the
District Court did not himself commence arbitration proceedings nor did he
appoint any Government servant as arbitrator by Government who was
bound to accept directions issued by Government after filing of petition
under Section 11(6), it is not proper. The Supreme Court held that therefore,
it would not be unreasonable to entertain belief that arbitrator appointed by
Government respondent would not be independent. Hence, petition for
appointment of arbitrator under Section 11(6) is maintainable.
The Supreme Court was of the view that it is true that in normal
circumstances while exercising jurisdiction under Section 11(6) the Court
would adhere to the terms of the agreement as closely as possible. But, if

1. Secretary to Government, Transport Department v. Munuswamy Mudaliar, AIR 1988 SC

22 3 2.
2. A I R 2 0 1 2 S C 817.
A R B IT R A T IO N 143

the circumstances moment, the Chief Justice or the nominee of the Chief
Justice is not debarred from appointing an independent arbitrator other
than the named arbitrator.
Therefore, under the peculiar circumstances of the present case the
Supreme Court appointed independent sole arbitrator.
(xxx) Selection of an arbitrator—He must show the highest faith
In the context of arbitration system it is settled principle that an
arbitrator has to be independent and impartial besides he must show the
highest faith and deep sense of justice and fair play. Undoubtedly an
arbitrator must show "oberrima fides" to the parties whose dispute he is
going to arbitrate. Arbitration is a domestic forum, thus, position of an
arbitrator is different from a judge. When the conflicting parties in a dispute
go to the court they are required to submit their points of contention to the
Judge. They have no option regarding the selection of the Judge to whom
subject-matter of dispute is submitted, but in case of arbitration it being a
domestic forum, the party has every choice as to whom he should select as
the arbitrator. Hence, the arbitrator must show highest faith. To conduct
proper arbitration the arbitrator should make disclosure of all the facts
which are likely to make him biased and likely to influence arbitration.
The Bombay High Court in Satyendra Kumar v. Hind Construction
Ltd.,1 observed that "a circumstance or fact may not bias or influence the
decision of the arbitrator. The arbitrator may have too strong a character,
too deep a sense of justice to be influenced by any consideration extraneous
to or foreign to the evidence which he has got to consider, but the question
is not what is likely, in fact, to happen but what is likely to tend or is
calculated to tend to a particular result." The court further observed that "an
arbitration is as good as the arbitrator. An arbitrator, like Caesar’s wife,
must be above suspicion. He must not only be, in fact, impartial, but also
seem to be so.2 A competent arbitrator enjoys the confidence of the parties
in dispute.
However, process of selection of an arbitrator can take any o f the three
forms :—
(1) an arbitrator may be named in the arbitration agreement or in the
reference;
(2) he may not be named at all;
(3) it may be agreed that the reference shall be to a person to be
appointed by a designated authority.
Undoubtedly, appointment/selection of arbitrator is a contractual
transaction and arbitration agreement is a contract like any other contract
equally governed by the Indian Contract Act, 1872. Once consent for
appointment of an arbitrator is given, it cannot be withdrawn unilaterally
but certain special statutory provisions have to be complied with to solve
such problem.

1. AIR 1952 Bom. 227 : ILR 54 Bom. 37.

2. M.A. Sujan on Law Relating to Arbitration and Conciliation, 2nd Edn. 2001, p. 199.
144 TH E A R B IT R A T IO N A N D C O N C IL IA T IO N A C T , 1 9 9 6

(xxxi) Appointment of Arbitrator—cannot be made in violation of

arbitration clause of contract
In Municipal Corporation, Jabalpur & others v. M/s. Rajesh
Construction Co.,1 wherein the High Court by earlier order directing the
appointment o f arbitrator in compliance with the arbitration clause of
contract. However, said clause provided that the Arbitration Board shall be
constituted only on furnishing security deposit as specified in the contract
by the party invoking arbitration clause. It has been held by the Apex Court
that the failure of party to furnish security deposit, now the order of the
High Court appointing sole arbitrator is liable to be set aside as it would be
contrary to arbitration clause. Hence, it is not sustainable.
Application for appointment of arbitrator—when not
maintainable.—In M/s. Swastic Polytex Pvt. Ltd. v. Oriental Insurance
Co. ,2 where the arbitration clause in the fire insurance contract between the
parties provided that only dispute relating to the quantum to be paid under
the policy shall be referred to arbitrator and if there were other differences
which cannot be separated from the quantum dispute then it cannot be
referred to arbitrator, in such case when the parties had agreed for arbitral
adjudication for limited purpose then the matter has to be referred within
the framework o f their agreement.
Thus, where applicant’s fire insurance claim was rejected on account of
breach o f policy condition and it was not a case of dispute in relation to
quantum claim only but other dispute raised to challenge the validity and
legality o f the order in question by the claimant and such challenge was
excluded by the arbitration clause itself, therefore, application for appointing
the arbitrator would be liable to be dismissed.
In India Household and Health Care Ltd. v. L.G. House Hold and
Health Care Ltd.,3 the Supreme Court has held that applicant has not
appointed its arbitrator. The respondent has also not been called upon to
appoint its arbitrator by a notice or otherwise. An application for
appointment of arbitrator, therefore, is not maintainable unless the
procedure and mechanism agreed to by and between the parties is complied
with. Hence, application for appointment of arbitrator is dismissed as being
not maintainable.
(xxxii) When, appointment of arbitrator not sustainable
The Supreme Court observed in Union o f India & others v. Master
Construction Co.,4 where both the parties to a contract confirm in writing
that the contract has been fully and finally discharged by performance o f all
obligations and there are no outstanding claims or disputes, Courts will not
refer any subsequent claim or dispute to arbitration. Issuance of full and
final discharge voucher or no dues certificate of that kind amounts to
discharge o f the contract by acceptance or performance and the party issuing
the discharge voucher/certificate cannot thereafter make any higher receive
any settled claim nor can it seek reference to arbitration in respect of any

1. AIR 2007 SC 2069.

2. AIR 2009 (NOC) 1438 (Raj).
3. AIR 2007 SC 1376.
4. 2011 AIR (SCW) 2669.
A R B IT R A T IO N 145

claim. 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 necessary to refer
the dispute for arbitration at all. A plea of fraud, coercion, duress or undue
influence is not enough and the party who sets up such plea must prima
facie established the same by placing material before the Chief Justice/his
designate.
It was held by the Supreme Court that mere allegation hat no claim
certificates have been obtained financial duress and coercion, without there
being anything more to suggest that does not lead to an arbitrable dispute.
In the present case the conduct of the contractor clearly shows that ‘no claim
certificates were given by it voluntarily, the contractor accepted the amount
voluntarily and the contract was discharged voluntarily. Hence, appointment
of arbitrator not sustainable.
(xxxiii) Application under Section 11 against appellant was
misconceives
The Supreme Court in Deutsche Post Bank Home Finance Ltd. v.
Taduri Sridhar & another1 held that existence of an arbitration agreement
between parties so also existence of dispute (s) to be referred to arbitration
are conditions precedent.
The Supreme Court was of the view that a ‘dispute’ arise only when
one party to arbitration agreement makes or asserts a claim/demand against
other party to such agreement and the other party refuses/denies that claim
or demand. When a party to arbitration agreement files an application under
Section 11, impleading other party to the said agreement as also a non party
to it as respondent and court merely appoints an arbitrator without deleting
or excluding the non party then, all parties to petition including that non
party will be parties to arbitration. This would be contrary to contract and
the law. Either such non party should be deleted from the array of parties
or when appointing an arbitrator it has to be clarified that arbitrator is
appointed to only to decide dispute between parties to arbitration agreement.
In the present case dispute first respondent and second respondent
Developer cannot be arbitrated under arbitration clause of loan agreement.
First respondent invoked arbitration agreement under construction
agreement between him and second respondent-Developer, wherein
appellant lender was not a party. Existence of an arbitration agreement
between there two will not enable first respondent to implied appellant as a
party to an arbitration in regard to his disputes with developers. In respect
of certain disputes referred for arbitration. There is a reference to appellant
and collusion between appellant and developer. But, no claim was made
against appellant before filing petition under Section 11, nor at any point of
time, any arbitration was sought against appellant on this court, nor he had
been issued any notice. In tripantite Agreement between First Respondent,
Second Respondent-Developers and appellant financer there was no
arbitration agreement. Had it been so and First respondent had made claims
or raised dispute against both the developer and appellant position would
have been different. Hence, application under Section 11 against appellant
1. AIR 2011 SC 1899.
146 THE A R B IT R A T IO N A N D C O N C IL IA T IO N A C T, 1 9 9 6

was misconceives as he was not party to construction contract.

(xxxiv) Appointment of Arbitrator—Objection to maintainability of
application for
In Khivraj Motors v. Guanellian Society1 where in dispute arising out
of Joint Development Agreement, containing arbitration clause and General
Power of Attorney executed by President of respondent society. However,
society objected to competence of its President to execute the agreement and
power o f attorney. It is to be noted that agreement in question was executed
between the appellant as a developer and President of the respondent
society. Latter also executed a general power of attorney in appellant’s
favour to enter into agreements of sale and also to transfer and convey an
extent o f 70% undivided share in property belonging to the society.
In present case while repelling the objection against appointment of
Arbitrator by designate of Chief Justice of concerned High Court, High Court
held that the agreement in question was filed by the father in the capacity
o f President o f society, not in his individual capacity, thus, application was
maintainable. On photocopy of the agreement and power of attorney, court
noted it to be clean that both were not signed by the father in his individual
capacity. In the instant case the Supreme Court held that correctness of
these photocopies not disputed by the appellant. The court further held that
the father not only described himself as President of society but signed it for
and on behalf of the society. Hence, application by respondent society was
maintainable, as petitioner/appellant and respondent were parties to
Development-Agreement Containing Arbitration clause.
(xxxv) Appointment of Arbitrator—Application by L.R. of the
deceased partner
The Supreme Court in Ravi Prakash Goel v. Chandra Prakash Goel &
another,2 has ruled that in view of the provisions of Section 46 read with
Section 48 of the Partnership Act as well as Section 40 of the Arbitration
and Conciliation Act, 1996, the application made by legatee and L.R. of
deceased partner for appointment of an arbitrator under the arbitration
clause of the partnership deed is maintainable. While right to sue for
rendition o f accounts of partnership firm survives on the legal representative
of a deceased partner, he is also entitled to invoke the arbitration clause
contained in the partnership deed. In the instant case the applicant being
the only son of his deceased mother, undisputedly a partner in the
partnership firm with the respondents especially where the dispute
concerning the partnership affairs had arisen already during her life time.
The view that applicant at present has no establishable binding arbitration
agreement with the respondent is erroneous in law and facts.
(xxxvi) Appointment of Arbitrator—When the Chief Justice cannot
be approached straightway
According to the Supreme Court3 the legislative scheme of Section 11
is very clear. If the parties have agreed on a procedure for appointing the

1. AIR 2011 SC 2826.

2. A.I.R. 2007 S.C. 1517.
3. See, The Iron and Steel Co. Ltd. v. M is. Tiwari Road Lines , AIR 2007 SC 2064,
 ARBITRATION 147

Arbitrator or Arbitrators as contemplated by Section 11(2) thereof, then the

dispute between the parties has to be decided in accordance with the said
procedure and recourse to the Chief Justice or his designate cannot be taken
straightway. A party can approach the Chief Justice or his designate only if
the parties have not agreed on a procedure for appointing the arbitrator as
contemplated by Section 11(2) or the various contingencies provided’ for in
s cction 11(6) have arisen.
In the present case the agreement executed between the parties
contains an arbitration clause and clearly provides that all disputes and
differences whatsoever arising between the parties out o f or relating to the
construction, meaning and operation or effect o f the contract or the breach
ith ereof shall be settled by arbitration in accordance with the® Rules of
Arbitration of the Indian Council of Arbitration and the award made in
pursuance thereof shall be binding on the parties. There being agreed
procedure for resolution of disputes by arbitration in accordance with the
Rules of Arbitration of the Indian Council of Arbitration sub-sections (3), (4)
and (5) o f Section 11 can have no application. The stage for invoking Section
11(6) had also not arrived. The Court was of the view tl^at in these
circumstances, the application for appointment of arbitrator moved by the
respondent to the City Civil Court, which was a Designated Authority in
accordance with the scheme framed by the Chief Justice was not
maintainable at all and the City Civil Court had no jurisdiction or authority
to appoint an arbitrator.1
(xxxvii) Appointment of Arbitrator within 30 days of demand
According to the Supreme Court2 Section 11(4) says that in case a party
fails to make appointment of arbitrator within thirty days from the date of
receipt of the requfest to do so from the other party, or that the two
appointed arbitrators fail to nominate the third arbitrator within thirty days
from the date of their appointment, the appointment shall be made by the
Chief Justice or by any person or institution designated by him. Sub-section
(5) of Section 11 says 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.
Therefore, the concept of thirty days is there in sub-sections (4) and (5). This
is in the event o f the parties did not come to appoint arbitrator or the two
nominated arbitrators fail to agree within thirty days for appointment of
third arbitrator, application can be moved under Section 11(5) to the Chief
Justice for appointment of arbitrator. But in sub-section (6), where, the
procedure has already been agreed upon by the parties, as in the present
case, and in that event, if a party fails to act as required under that
procedure or the parties, or the two appointed arbitrators, fail to reach an
agreement expected of them under that procedure or a person, including an
institution, fails to perform any function entrusted to him or it under that

1. Ibid.
2. Ace Pipelines Contracts Pvt. Ltd. v. Bharat Petroleum Corporation Ltd., AIR 2007 SC
1764.
148 THE ARBITRATION AND CONCILIATION ACT, 1996

procedure, a party may in that event, request the Chief Justice or a person
or an institution designated by him to make necessary measures, unless the
agreement on the appointment procedure provides other means for
appointment of arbitrator. Therefore, so far as the period of thirty days is
concerned, it is not mentioned in sub-section (6). The period of limitation is
only, provided under sub-sections (4) and (5) of Section 11. As such, as per
the statute, the period of limitation of thirty days cannot be invoked under
sub-section (6) o f Section 11.
Delay in appointment of arbitrator—Power of the Chief
Justice.—The Supreme Court in Union o f India v. V.S. Engg. (P) Ltd.,1 has
held that in case appointment is not made in time on request by the other
party, power of High Court to appoint arbitrator will not be denuded. The
court was of the view that administrative authorities cannot be allowed to
sleep over the matter and leave the citizens without any remedy. In case
appointing authority does not appoint an arbitrator after expiry of notice
period or before the party approaches the High Court, that High Court will
be fully justified in appointing arbitrator under Section 11 o f the Act.
In the present case the Court observed that railway and public
institutions are very slow in reacting to the request made by a contractor for
appointment of the arbitrator. Therefore, in case, appointment is not made
in time on the request made by the contracting party, then in that case the
power of the High Court to appoint arbitrator under Section 11 of the Act
will not be denuded.
(xxxviii) Failure of authorities to appoint arbitrator within
reasonable time—"Mandamus" can be issued
The Supreme Court in Ace Pipeline Contracts Pvt. Ltd. v. Bharat
Petroleum Corporation Ltd.,2 ruled that :
In case of the Departmental lethargy in making appointment of
arbitrators in terms of the arbitration clause, mandamus can be issued
by the Courts in exercise of powers under Section 11(6) but the demand
should be in the event of failure by the authorities to appoint
arbitrators within the reasonable time. Courts are not powerless to
issue mandamus to the authorities to appoint arbitrators as far as
possible as per the arbitration clause. But in large number of cases if
it is found that it would not be conducive in the interest o f parties or
for any other reasons to be recorded in writing, choice can go beyond
the designated persons or institutions in appropriate cases. But it
should normally be adhered to the terms of arbitration clause and
appoint the arbitrator/arbitrators named therein except in exceptional
cases for reasons to be recorded or where both parties agree for
common name. In the instant case, in fact the appellant’s demand was
to get some retired Judge of the Supreme Court to be appointed as
arbitrator on the ground that if any person nominated in the
arbitration clause is appointed, then it may suffer from bias or the
arbitrator may not be impartial or independent in talcing decision. Once
a party has entered into an agreement with eyes wide open it cannot
1. AIR 2007 SC 285.
2. Ibid.
ARBITRATION 149

wriggle out of the situation that if any person of the respondent

Company is appointed as arbitrator he will not be impartial of
objective. However, if the appellant feels that the arbitrator has not
acted independently or impartially, or he has suffered from any bias, it
will always be open to the party to make an application under Section
34 of the Act to set aside the award on the ground that arbitrator acted
with bias or malice in law or fact.
(xxxix) Acceptance and receipt of final bill without protest—
Applicant is prohibited from raising any dispute with reference
In Sai Engineering Contractors, Tirupathi v. South Central Railway,
Secundrabad & others,1 where applicant was awarded work of replacement
of bridge of timber with new steel channel sleepers of various bridges by
railways. However, arising of dispute between parties and same denied and
disputed by the respondents. Specific ban was imposed under clause 43(2) of
the general conditions of contract that after acceptance of final bill, the
contractor would not be entitled to any further claim arising out of the same
contract. Admittedly, work was completed by 8-1-2003 and final bill was
prepared on 16-1-2003 with reference to which "no claim certificate was
submitted by the applicant and received amount payable under final bill. It
was held that in view of said acceptance and receipt of final bill without any
protest, applicant is prohibited from raising any dispute with reference to
work executed under said agreement.
(xl) Arbitration agreement is a matter of contract
The Supreme Court in C.M.C. Ltd. v. Unit Trust o f India & others,2
ruled that an arbitration agreement is a matter of contract. As long as
arbitration agreement/contract does not militate provisions of the Arbitration
and Conciliation Act, 1996, nothing prevents arbitration agreement/contract
being given full effect.
The Court further observed that even going by the Rules of Arbitration
o f the Indian Council of Arbitration, it is seen that the parties are not
precluded from having a different procedure for appointment of arbitrator.
(xli) Appointment of arbitrator—Arbitration whether binding
According to the Allahabad High Court arbitration is a binding
voluntary alternative dispute resolution process by a private forum, which is
chosen by the parties to the arbitration agreement.3
(xlii) Parties settle their dispute through arbitration
In Trinex International FZE Ltd. Dubai v. Vendanta Aluminium Ltd.
India* Where in clause 5 of the contract containing arbitration clause. This
contract is governed by Indian law and arbitrator in Mumbai Courts.
Further, minute to minute correspondence exchanged between the parties all
the condition prescribed which had been laid down awareness of urgency of
accepting the offer without any further delay to avoid variation in the freight
or other factors, coupled with the e-mail sent under the subject are offer for
1. AIR 2007 (DOC) 123 (AP).
2. A.I.R. 2007 S.C. 1557.
3. Bharat Wire Ropes Ltd. v. Union o f India & others, 2012 (5) ADJ 644 (All).
4. 2010 (1) Arb. LR 286 (SC) : 2010 (3) SCC 1.
 o

150 THE ARBITRATION AND CONCILIATION ACT, 1996

imported bauxite" stated in unequivocal terms, i.e, we confirm the deal for
five shipments", would clearly go to show that offer understanding all the
details and the confirmation by the respondent the petitioner sent a reply
stating that "thanks for the confirmation, just in time to go to the ship
owner". All the above details clearly establish that both the parties were
aware o f various conditions and understood the terms and finally the charter
was entered into a contract by parties. If the intention of the parties was to
arbitrate any dispute which arose in relation to offer and acceptance the
dispute is to be settled by arbitration.
The Supreme Court observed that once the contract is concluded orally
or in writing, the mere fact note found contract has to be prepared and
initiated by the parties would not affect either acceptance of contract *so
entered in to or implementation thereof,even if the found contract has never
been initiated.
Once the offer of the petitioner has accepted following a very strict time .
schedule, the respondent could not escape from the obligation not followed
from such an action.1
(xliii) Existence of a valid and enforceable arbitration agreement is
a condition precedent before an arbitrator can be appointed
According to the Supreme Court2 an arbitrator can be appointed only if
there is an arbitration agreement in regard to the contract in question. If
there is an arbitration agreement in regard to contract A and no arbitration
agreement in regard to contract B, obviously a dispute relating to contract
B cannot be referred to arbitration on the ground that contract A has an
arbitration agreement. Therefore, where there is an arbitration agreement
in the partnership deed dated 12-6-1988 but the dispute is raised and an
appointment o f arbitrator is sought not with reference to said partnership
deed, but with reference to another partnership deed dated 19-5-2000, unless
the party filing the application under Section 11 of the Act is able to make
out that there is a valid arbitration clause as per the contract dated
19-5-2000 there can be no appointment of an arbitrator. The existence of a
valid and enforceable arbitration agreement- a condition precedent before
an arbitrator can be appointed under Section 11 of the Act.International
In this case the Supreme Court observed that when serious allegations
of fraud and fabrication are made, it is not possible for the court to proceed
to appoint an arbitrator without deciding the said issue when relates to the
very validity of the arbitration agreement. Therefore, the fact that the
allegations of fraud, forgery and fabrication are likely to involve recording of
evidence or involve some delay in disposal are not grounds for refusing to
consider the existence of a valid arbitration agreement. Hence, impugned
order of appointing arbitrator set aside. However, the Supreme Court
remitted matter to the High Court for deciding the question whether the
deed dated 19-5-2000 was forged and whether there was a valid arbitration
agreement between partner.

1. Trimex International FZE Ltd., Dubai v. Vedanta Aluminium Ltd., India , 2010 (1) Arb.
42 286 : 2010 (31 SCC 1.
2. Bharat Rasiklal Ashra v. Gautam Rasiklal Asf^a & another, 2011 (6) Supreme 151.
ARBITRATION 151

(xliv) Parties free to adopt procedure appointment of arbitrator

In C.M.C. Ltd. v. Unit Trust o f India and others.1 the Apex Court have
occasion to explain that where arbitration agreement provides procedure for
appointment of arbitrator and further agreement providing that arbitration
proceedings shall be conducted in accordance with Rules of Indian Council
of Arbitration. Thus, the Rules of Council were incorporated in the
arbitration agreement. It does not mean that the parties have not retained
the power of appointment of arbitrator. Hence, the parties are free to adopt
the procedure for appointment o f arbitrator.
(xlv) Preliminary objection—Whether dispute is arbitrable or not?
The Full Bench of Gujarat High Court in New India Assurance Co.
Ltd., Ahmedahad v. Hamjer Fibres Ltd., Surat,2 held that since the arbitral
tribunal is competent to rule on its own jurisdiction including ruling of any
objection with regard to existence or validity of the arbitration agreement,
the order of Chief Justice with regard to preliminary objection, as to whether
dispute is arbitrable or not in view of passing of receipt o f followed final
settlement by petitioner company under Insurance policy and direction that
the preliminary objection to be decided by the Arbitral Tribunal under
Section 16 without expressing any final opinion on the said question and
leaving it open to the parties to raise that question before the arbitrator or
arbitrators could not be said to be vulnerable or in any way unjust,
unreasonable, arbitrary or invalid requiring interference in exercise of
constitutional writ jurisdiction. The Bench further held that the parties
aggrieved by an arbitral award, after rejection of such plea o f jurisdiction or
validity or existence of the arbitration agreement can challenge the same by
invoking the provisions of Section 34 of the Arbitration and Conciliation Act,
1996.
(xlvi) Appointment of arbitrator by court— Preliminary issues may
be decided by Chief Justice or his designate
The Supreme Court in National Insurance Co. Ltd. v. Boghara Polyfab
Pvt. Ltd.,3 ruled about the issues which Chief Justice or his designate is
bound to decide, issues which he can also decide, issues which he may
choose to decide and issues which should be left to Arbitral Tribunal to
decide. While choosing, whether to decide an issue by himself or by Tribunal,
object of the act must be kept in view.
The Court expressed the view that where allegations of
fraud/fabrication are made in regard to documents recording discharge of
contract by full or final settlement, the Chief Justice or his designate decides
the issue where a respondent contends that dispute is not arbitrable on
account of discharge of contract under a settlement agreement or discharge
voucher or no claim certificate and on the other hand claimant contends that
it was obtained by fraud, coercion or undue influence, the issue will have to
be decided by the Chief Justice or his designate in the proceedings under
Section 11 of the Act or by the Tribunal as directed by order made
thereunder. However, where validity of a settlement' agreement or discharge
1. Ibid.
2. AIR 2003 Guj. 311 (FB).
3. 2008 (6) Supreme 725.
152 THE ARBITRATION AND CONCILIATION ACT, 1996

voucher is disputed, claim for arbitration cannot be rejected, solely on that

ground.
Preliminary matters to be determined by the Chief Justice
prior to appointment of arbitrator.—According to the Supreme Court in
order to set into motion the arbitral procedure, the Chief Justice or his
designate has to decide the issues, if raised, regarding territorial jurisdiction
and existence of an arbitration agreement between the parties. In addition
thereto, he can also decide the question whether the claim was a dead one
in the sense that the parties have already concluded the transaction by
recording satisfaction of their mutual rights and obligations or have recorded
satisfaction regarding their financial claims. Nevertheless, at that stage it
may not be possible to decide whether a live claim made, is one which comes
within the purview of the arbitration clause and this question should be left
to be decided by the Arbitral Tribunal on taking evidence. Purely, for the
purpose of deciding whether the arbitral procedure is to be set into motion
or not, the Chief Justice or his designate has to examine and record his
satisfaction that an arbitration agreement exists between the parties and
that in respect of the agreement a live issue, to be decided between the
parties, still exists. On being so satisfied, he may allow the application and
appoint an Arbitral Tribunal or a sole arbitrator, as the case may be.
However, if he finds and is convinced that the claim is a dead one or is
patently barred by time, he may hold so and decline the request for
appointment of an arbitrator.1
(xlvii) Arbitrator can be appointed by the General Manager,
Railway
The Supreme Court in Union o f India and another v. M/s. V.S.
Engineering (P.) Ltd.,2 ruled that whenever the agreement specifically
provided for appointment of two Gazetted Railway Officers of equal status
as arbitrators by the General Manager, Railway, then in that case the Court
should give this latitude to the General Manager to make appointment. In
case the General Manager, Railway does not appoint the arbitral tribunal
after expiry of notice of 30 days or before the party approaches the High
Court, in that case the High Court will be fully justified in appointing
arbitrator under Section 11 of the Act.
(xlviii) International commercial arbitration— Chief Justice of India
alone empowered to appoint arbitrator
In Analytica (India) Pvt. Ltd. v. I.T. Source L.L.C. & another,3 where
one of the parties to agreement was an Indian company and another was an
American company. However, dispute arose out of legal relationships under
contract entered between the parties. It was held that since dispute falls
within definition of International Commercial Arbitration in terms of Section
2(1) of the Act, 1996, the Chief Justice of India alone is competent for
appointment of arbitrator in International Commercial Arbitration
agreement. Hence, the party cannot approach the Chief Justice of High
Court.
1. DHVBV v. Tahal Consulting Engineers Ltd.., AIR 2007 SC 3113.
2. AIR 2007 SC 285.
3. AIR 2007 (NOC) 423 (Kai\).
ARBITRATION 153

(il) Company incorporated in India, would always be controlled in

India
In TDM Infrastructure Private Ltd. v. U.E. Development India Private
Ltd.,1 where parties are companies registered and incorporated under the
Companies Act, 1956 while Directors and share-holders of the petitioner
company are said to be residents of Malaysia and Board of Directors, too sit
in Malaysia. The respondent contended that the petitioner company being
registered in India, the Court has no jurisdiction to appoint an arbitrator, as
in law the company must be held to be situate in India notwithstanding the
Directors and foreign nationals and for all intent and purport, the company
incorporated in India would always be controlled in India. The Supreme
Court has held that once it is proved that both companies are incorporated
in India and thus they have been domiciled in India, the arbitration
agreement entered into by and between them would not be an "International
Commercial Arbitration Agreement" and thus the question of applicability of
clause (iii) of Section 2(l)(f) of the Act would not arise. Only in a case where,
however, a body corporate which need not necessarily be a company
registered and incorporated under the Companies Act—For example—An
association or body of individuals, the exercise of Central management and
control in any country other than India may have to be taken into
consideration.
(1) Appointment of arbitrator—Only power of Civil Court is to refer
parties to arbitration
The Himachal Pradesh High Court in Pawan Sharma v. Tarkeshwar
Shah,2 has ruled that it is not the duty of the Court to adjourn the matter
to enable the parties to report to the Court about appointment of arbitrator
and then make reference. However, such course if followed, it could at best
be called as superfluous act and order passed cannot be recalled as illegal
moreover, such recall would result into restoration o f civil suit, which is not
permissible in law.
(li) Waiver of right of appointment of arbitrator
In B.S.N.L. v. Subhash Chandra Kanchan,3 wherein appellants who
were required under the arbitration clause to communicate appointment of
arbitrator by them, but they failed to do so within the time contemplated
under Section 11. In the present case application for appointment of
arbitrator was filed by the respondent under the said section before the High
Court. Accordingly, High Court appointed specified person as arbitrator on
consent. Although, subsequently application under Section 151 of the Code
of Civil Procedure, 1908 was made by the appellant before the High Court
for modification of its order on the ground that no such consent had been
given. In the result the High Court refused to recall its order. In appeal
before the Supreme Court it has been held that the appellants by consenting
to appointment of arbitrator, waived their rights to make appointment and
it was not open to them to subsequently contend that no consent was given
by them. The Court further held that the contention that counsel who gave
1. 2008 (2) Arb. L.R. 439 (SC).
2. AIR 2007 (NOC) 156 (H.P.).
3. AIR 2006 SC 3335.
154 THE ARBITRATION AND CONCILIATION ACT, 1996

the consent before the High Court had no instructions in that behalf cannot
be accepted when no such statement was made before the High Court. It
amounts to waiver of right of appointment of arbitrator.
(lii) Once Authority Refuses to Appoint Arbitration—He loses said
power
In Bharat Wine Ropes Ltd. v. Union o f India & others,! wherein dispute
had arisen with regard to supplies made, delay in making supplies made,
and non payment of dues. The present petitioner filed writ petition in
connection with the non payment of dues. The High Court found that there
is a arbitration between the parties and therefore petitioner relegated to the
remedy of approaching the High Court under Section 11 for appointment of
an arbitrator. Where as earlier authorities refused to refer dispute/claims
raised by the petitioner to the arbitration on the ground that on examination
by the Competent Authority, claims are not acceptable.
The Allahabad High Court held that the instant case the existence of
arbitration agreement between the parties not disputed. Once authority
refuses to appoint arbitrator, he loses the said power regarding appointment
o f arbitration and then the Chief Justice as person or institution designated
by him deem acquire power to appoint an arbitrator in terms of SectiorA
11(8). However, in the present case arbitration clause in the agreement does
not provide for any particular qualification for appointment of an arbitrator
except that the should be gazetted railway officer and arbitrator is not
named in the agreement. No particular qualification provided in the
agreement. Then an independent and impartial arbitrator has to be
appointed.
(liii) No Existence of Arbitral Agreement
In GEI Industrial Systems Ltd. v. Bharat Heavy Electricals Ltd.2 where
dispute arose between parties, because of reduction of quantity in purchase
of coolers from 12 to 8 and in order to determine whether a party wants to
go for arbitration or not, there must be an intention o f parties to settle
dispute by the private tribunal. However, combined reading o f letters of
correspondents indicates that opposite party were considering o f resolving
dispute by arbitration. But, it does not mean that they had agreed for
resolution of dispute by arbitration and a concluded arbitral agreement came
into existence between the parties. The Madhya Pradesh High Court held
that in such circumstances it can be concluded that there was no arbitral
agreement between parties.
(liv) Jurisdiction for appointment of arbitrator by Court—When
cannot be exercised
The Supreme Court in National Highways Authority o f India v.
Bumihiway DDB Ltd. (JV)f' has said that under Section 11(6) of the Act,
1996 the Court has jurisdiction to make the appointment only when the
person including an institution, fails to perform any function entrusted to it
under the procedure o f appointment provided for in the arbitration

1. 2012 (5) ADJ 644 (All).

2. AIR 2012 M.P. 44.
3. (2006) 10 SCO 763.
ARBITRATION 155

agreement. In the present case, the relief claimed by the respondents by

invoking Section 11(6) is wholly erroneous as prior to the order dated
1-7-2005, the respondents only sought a clarification frpm IRC and without
making a reference to them, immediately filed the petition under Section
11(6) on the purported ground that IRC had failed to make the appointment
within the stipulated time. This was in express violation of the contract
agreement as IRC was the designated authority for appointment of the
presiding arbitrator. Hence, the assumption of jurisdiction and adjudication
by the High Court was vitiated.
The Supreme Court in Reva Electric Co. Pvt. Ltd. v. Green Mobil1 has
reiterated that in the matters where intervention of the Chief Justice is
sought for appointment of a sole arbitrator under Section 11(4), (5) and (6)
of the Arbitration o f Conciliation Act, 1996 the Chief Justice or his designate
will have to decide certain preliminary issues like whether there exists a
valid arbitration agreement or not.
(lv) Removal of arbitrator appointed by the High Court—When can
be
The Supreme Court in Union o f India v. V.S. Engg. (P) Ltd. ? observed
that Railways and public institutions are very slow in reacting to the request
made by a contractor for appointment of the arbitrator. Therefore, in case
appointment is not made in time on the request made by the contracting
party, then in that case the power o f the High Court to appoint arbitrator
under Section 11 of the Act will not be denuded. Administrative authorities
cannot be allowed to sleep over the matter and leave the citizens without
any remedy. Authorities shall be vigilant and their failure shall certainly
give rise to cause* the affected party. In case the General Manager, Railways
does not appoint the Arbitral Tribunal after expiry of the notice of 30 days
or before the party approaches the High Court, in that case, the High Court
will be fully justified in appointing arbitrator under Section 11 of the Act. It
is the discretion of the High Court that they can appoint any railway officer
or they can appoint any High Court judge according to the given situation.
In M.P. Gupta case,3 it is clearly stated that whenever the agreement
specifically provided for appointment of two Gazetted Railway Officers of
equal status as arbitrators by the General Manager, Railways, then in that
case the Court should give his latitude to the General Manager to make
appointment. In the present case,4 the General Manager, Railways is
directed to appoint the Arbitral Tribunal within a period of 30 days from the
date of receipt of a certified copy of this order. The Arbitral Tribunal so
appointed shall enter into the matter and dispose off the arbitration
proceedings as expeditiously as possible. Consequently, the appointment of
arbitrator by the High Court is set aside.
(lvi) Appointment of arbitrator—when named in arbitration
agreement—whether can be challenged
The Supreme Court in Larsen and Toubro Ltd. v. Fertilizer and
1. 2011 (13) Scale 169.
2. AIR 2007 SC 285.
3. (2004) 10 SCC 504.
4. Union o f India v. V.S. Engg. (P) Ltd., AIR 2007 SC 285.
156 THE ARBITRATION AND CONCILIATION ACT, 1996

Chemicals, Travancore Ltd,.,1 has ruled that there must be reasonable

apprehension of the biased pre-disposition. Mere imagination of a
ground/reason cannot be an excuse in apprehending bias in the mind of
chosen rather named arbitrator. Further, the mere fact that the arbitrator
was named in contract does not render the arbitration proceedings invalid.
(lvii) Absence of arbitration agreement—Arbitrator can’t be
appointed.—The Supreme Court in Jagdish Chander v. Ramesh Chancier?
ruled that the existence of an arbitration agreement as defined under
Section 7 of the Act, 1996 is a condition precedent for exercise o f power to
appoint an Arbitrator/Arbitral Tribunal, under Section 11 of the said Act by
the Chief Justice or his designate. It is not permissible to appoint an
arbitrator to adjudicate the disputes between the parties in the absence of
an arbitration agreement or mutual consent.
(Iviii) When parties failed to appoint arbitrator under official
procedure
In M/s. Reva Electric Car Co. P. Ltd. v. M/s Green mohil,&were in the
dispute the parties clearly relate to subject matter of the relationship
between the parties which came into existence through the memorandum of
understanding clearly. The dispute therefore raised by the petitioner needs
to be refused to arbitration. However, under the arbitration clause a
reference was to be made that the disputes were to be referred to a single
arbitrator. It was held by the Supreme Court that since the parties have
failed to appoint an arbitrator under the agreed procedure, it is necessary
the court to appoint the arbitrator, exercising its power under Section 11(4)
and 11(6) of the Arbitration and Conciliation Act, 1996.
(lix) Electricity Act, 2003 will prevail over Section 11 of the Act,
1996—Disputes between licensees and generating companies
The Supreme Court in Gujarat Urja Vikas Nigam Ltd. v. Essar Power
Ltd.? has held that the Electricity Act, 2003 will prevail over Section 11 of
the Arbitration and Conciliation Act, 1996, because the Electricity Act, 2003
has come into force w.e.f. 10-6-2003, after this date all adjudication of
disputes between licensees and generating companies can only be done by
the State Commission or the arbitrator appointed by it. However, Section
S6(l)(f) is only restricted to the authority which is to adjudicate or arbitrate
between licensees and generating companies. The procedural and other
matters relating to such proceedings will ofcourse be governed by the
Arbitration and Conciliation Act, 1996 unless there is a conflicting provision
in the Electricity Act, 2003.
(lx) Survival of arbitration clause itself is arbitrable
Instant case0 there was failure of the parties to concur upon the
arbitration. Where in dispute arose out of Farm-out transaction on
commission basis. Main concern is Shareholders’ Agreement (SHA),
1. (2008) 1 SCC 252.
2. (2007) 5 SCC 719.
3. AIR 2012 SC 739.
4. 2008 (2) Arb. LR 1 (SC).
5. Sirajuddin Kasim & another v. Paramount & Instrument Ltd., 2010 (8) SCC 557.
ARBITRATION 157

containing arbitration clause, followed by settlement agreement. The parties

are two foreign companies incorporated in two different countries-Singapore
and Mauritius. However, settlement agreement arrived at between P. 1 and
respondent company, P 2 is not party therein. Petitioners are P-2, the
company in Singapore and P-2 its Director, Promoter and Shareholders.
Petitioner company deals and takes in cotton, timber, loging, acquisition,
operation and sale of Oil and Gas Assets, Mining magnese and other details.
Whereas respondent company is engaged in investment business by way of
equities in private and public companies. Oil blocks procured by petitioner
company were farmed out to OIL and IOC (Indian Oil Company) by
respondent through their company.
It was held as P-2 was not party to "Settlement Agreement", its right
under SHA prima facie, not superseded by execution of the former.
Arbitration clause was invoked prior to filing of suit for damages by
respondent in Singapore. In totality, question involved to survival of
arbitration clause, itself is arbitrable, as the sole arbitrator appointed and
directed.
(lxi) Deletion of Arbitration clause—Non tendered items cannot be
described as an arbitration agreement
The Supreme Court in State o f Orissa & other v. Bhagyadhan Dash1
observed that last sentence of clause 10 does not refer to arbitration as the
need of settlement of disputes. It does not provide for reference o f disputes
between the parties to arbitration. It does not make the decision of the
Superintendent Engineer binding on either party. It does not provide or refer
to any procedure which would show that Superintendent Engineer is to act
judicially after considering the submission of both parties. It does not
disclose any intention to make the Superintendent Engineer an arbitrator in
respect of disputes that may arise between the Engineer-in-charge and the
contractor. The said clause was deleted by the State Government from the
standard conditions o f contract by Official Memorandum. When the State
Government has consciously and intentionally deleted the provision for
arbitration from its contracts, it will be a travesty of justice to need another
clause in the contract providing for execution of non-tendered items and the
method of determination of the rates therefore, as a provision for arbitration.
In present case proviso to clause 10, which provides that the decision of the
Superintendent Engineer is "final", merely discloses an intention to exclude
the rates for extra items decided by the Superintendent Engineer from the
scope of arbitration, as an excepted matter, when there was an arbitration
agreement (clause 23) in the contract.
It was held by the Supreme Court that when the arbitration agreement
was deleted provisions dealing with non-tendered items cannot be described
as an arbitration agreement.
(lxii) Undue delay in deciding claim between parties, "amounts to
withdrawal of arbitration"
In Jarnail Singh Sandhu v. National Projects Construction Corporation

1. (2011) 7 SCC 406.

158 TH E A R B IT R A T IO N A N D C O N C IL IA T IO N A C T , 19 96

Ltd. & another where serving officer of one party sole arbitrator, appointed
as arbitrator did not conduct arbitral proceedings for two years and
meanwhile he retired from service on attaining age of superannuation. It
was held by the Orissa High Court undue delay in deciding claim between
parties amounts to withdrawal as arbitrator. In the present case arbitrator
after retirement had put conditions to continue as arbitrator which was
accepted by the corporation but not by other party. Hence, petitioner other
party entitled for appointment of arbitrator.
(lx iii) A rb itra tio n agreem ent was in non-existent— In absence
purchase o rd e r/c o n tra c t
In B.S.N.L. v. Telephone Cables Ltd.2 wherein dispute regarding non
placing of purchase order, however clause 20 in contract providing
arbitration, will not apply in regard to any dispute in regard to the tender
or bid or non-placing of a purchase order, but will apply only in regard to
any contract awarded by BSNL by placing a purchase order. A contract is
entered in pursuance of the bid, when purchase order is placed by BSNL on
a bidder. Where a purchase order is not placed, there is no contract or
agreement the terms of general conditions including the arbitration clause
do not come into existence. In other words there is no arbitration agreement
at all. BSNL intended to have arbitration only where it had entered in to
contracts and there were disputes relating to such contracts. It did not
intend to have arbitrations in regard to tender stage dispute or the contract
differences, at a stage where there was no privity of contract?. It was held by
the Supreme Court that arbitration clause in Section III was not an
arbitration agreement in present during the biding process, but a provision
that was to come into existence in future, if a purchase order was placed.
Hence, the respondent cannot invoke the arbitration clause in regard to that
dispute of the arbitration agreement was not existent in the absence of
purchase order. Thus, application under section 11 o f the Act, 1996 was not
maintainable.
Section 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 ally 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
e 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

1. AIR 2012 Orissa 9.

2. 2010 (5) SCO 213.
ARBITRATION 159

whose appointment he has participated, only for reasons of which he

becomes aware after the appointment has been made.
CO M M EN TS
Section 12, is on the pattern of Article 12 of the Model Law which
provides grounds for challenge to an arbitrator and to enforce that justice,
fair play, impartiality and independency must be followed by ah arbitrator.
This Section 12 of the Act, .1996 is analogous to Section 11 of the Act,
1940.
Section 12(1) contains an expectation of an honest wilful disclosure
from a prospective arbitrator to make in writing such disclosures which is
likely to cause doubt as to his independence or impartiality as an arbitrator.
As per the object o f this Section 12(1) a prospective arbitrator is duty
bound to disclose his antecedent which is likely to affect his role as an
arbitrator.
Section 12(2) lays down duty o f an arbitrator since he has been
appointed as an arbitrator and throughout the arbitral proceeding if any
circumstances mentioned in Section 12(1) arise, to be disclosed in writing to
the parties, unless the parties have already been informed by an arbitrator.
Section 12(3) provides ground for challenging the arbitrator, when,—
(i) the circumstances present cause justifiable doubts to his
independence or impartiality, or
(ii) found not qualified as per the agreement between the parties.
Thus, sub-section (3) averts the flimsy ground to challenge by providing
good reasonable grounds to challenge the arbitrator.
In Jiwan Kumar Lohia v. Durga Dutt Lohia,1 the Supreme Court of
India said, that "Reasonable apprehension of bias in the mind of a
reasonable man, can be a good ground for the termination of the mandate
o f an arbitrator".
Section 12(4) provides estoppel against a party to challenge who had
knowledge o f any ground mentioned in sub-section (3) before the
appointment o f an arbitrator, if this is not so, a party may challenge an
arbitrator appointed by him and it does not matter if he has participated in
appointment but he could know only after the appointment.
(i) D u ty to disclose is cast on th e prospective a rb itra to r
Sub-sections (1) and (2) of Section 12 of the Arbitration and
Conciliation Act, 1996 make it mandatory for the prospective arbitrator i.e.,
before the appointment as an arbitrator to disclose to the parties in dispute
in writing any circumstances likely to give rise to justifiable doubts as to his
impartiality or independence/ Undoubtedly, the use of expression "shall"
connotes that these provisions are imperative. An arbitrator has to discharge
this duty "without delay" i.e., before he takes over as an arbitrator. It is the
mandate of Sections 12(1) and 12(2) of the Act, 1996.
It is submitted that an arbitrator has to follow the principle of natural
justice and fair play while conducting arbitration.
1. AIR 1992 SC 188, 189.
2. Nandyal Cooperative Spinning Mills v. K.V. Mohan Rao, (1993) 2 SCC 654.
160 THE A R B IT R A T IO N A N D C O N C IL IA T IO N A C T, 1 9 9 6

(ii) Th e w o rd "only" in Section 12(3)— S ignificance o f

It is well settled that sub-section (3) of Section 12 provides statutory
grounds for challenging an arbitrator. Section 12(3) of the Act provides as
under :—
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."
It appears from the above provisions that the word "only" signifies that
the ground mentioned in the said provision is available for challenging an
arbitrator, thus other grounds for challenge not available therein. Thus, an
arbitrator cannot be challenged on flimsy grounds. However, the Apex Court
in Jiwan Kumar Lohia v. Durgadutt Lohia,1 observed that a reasonable
apprehension of bias in the mind of a reasonable man can be a good ground
for termination of the mandate of an arbitrator.
It is necessary that a reasonable apprehension of bias must be based
on materials and also it must be prima facie proved. The Apex Court in
Secretary to the Government, Transport Department, Madras v.
Munnuswamy,2 has held that a pre-disposition to decide for or against one
party, without proper regard to the true merits of the dispute amounts to
bias. A reasonable apprehension must be based on cogent evidence. Mere
doubt that an arbitrator is biased, would not be sufficient to constitute bias
on the part of an arbitrator.
It is to be noted that the old Arbitration Act, 1940 contained no such
prescribed qualification for the appointment of an arbitrator. Whereas the
present Arbitration and Conciliation Act, 1996, namely, Section 12(3)
provides that the appointment of an arbitrator may be challenged if he does
not possess the qualification agreed to by the parties. Because in the field of
arbitration it was realised that a number of disputes could not be settled due
to lack of expertise in the field which is in dispute like engineering, mining,
manufacturing and blasting etc., thus an arbitrator is required to have
specific knowledge in the field relating to the subject-matter of the dispute
in hand. In other words an arbitrator should be well versed in the field
concerning the subject-matter of the dispute.
thi
(iii) E x p re s s io n "refusal" to act as a rb itra to r—M e an in g of
When a person is offered to act as an arbitrator, he can refuse such
offer expressly or impliedly. Thus, an unwilling arbitrator cannot be
compelled to act. The Supreme Court in State o f West Bengal v. National
Builder,3 explained the meaning of the expression "refusal" and according to
the court "refusal" to act means denial to do something which one is obliged
to do under law.
Thus, where the arbitrator declined to grant extension of time and
closed the proceedings and the parties were directed to determine their
future course of action, in such circumstances a reasonable presumption

1. AIR 1992 SC 188.

2. AIR 1988 SC 2232.
3. AIR 1994 SC 200.
A R B IT R A T IO N 161

would be drawn that he has declined to continue as arbitrator any further.1

Wherein a nominated person/arbitrator in accordance with the
arbitration agreement, declined to act as an arbitrator or refused to conduct
arbitration proceedings, it does not frustrate the arbitration clause, in such
situation the parties can substitute a new arbitrator.2
(iv* P o w er o f th e c o u rt re g ard in g ap p o in tm en t i f au th o rised person
rails to a p p o in t
The expressions "without delay" as occurring in Section 12(2) of the
Arbitration and Conciliation Act, 1996 means there should not be undue or
unreasonable delay on the part of arbitrator’s duty to disclose when such
person is first approached in connection with his possible appointment as an
arbitrator. Sub-section (2) of Section 12 provides that this duty of the
arbitrator has to be discharged from the time a person is appointed as an
arbitrator and maintain it throughout the arbitral proceedings. Hence, an
arbitrator has to discharge this duty "without delay". This provision is
intended to ensure speedy arbitration and its adjudication.
The Delhi High Court in Union o f India v. Somnath Chadhaf observed
that "the main object of referring a dispute to an arbitrator for adjudication
is the speedy end o f the strife. This object in the court’s view stands
frustrated on account of unreasonable neglect on the part of the
appellant/claimant to promote the conduct of arbitration proceedings."
It was held that delay or negligence in appointment of arbitrator or
commencement of arbitration proceedings would defeat the very purpose of
the arbitration itself. It is to be reiterated that the scope of arbitration is to
avoid the prolong litigation in the courts. It is an aid to speedy decision. In
these circumstances the court may intervene and appoint arbitrator.
In Ved Prakash Mittal v. Union o f India,4 the Full Bench of the Delhi
High Court held that an opportunity is given by the court to designated
officer to exercise his power of appointment o f arbitrator within a stipulated
period failing which the court would appoint the arbitrator itself.
Where the office of the designated officer is abolished the court can
appoint an arbitrator under Section 8 of the Arbitration Act, 1940.5
Similarly, in Sankar and Sankar v. State o f West Bengal,6 it was held
that if a person permitted to appoint arbitrator under Arbitration Clause
neither appoints an arbitrator nor enters on the reference himself and there
is silence for more than one year it would be a clear case of failure and
neglect. In that event the court can appoint an arbitrator itself.
(v) A p p o in ted a rb itra to r m ust possess q u a lific a tio n s agreed to by
th e p a rtie s
In Anuptech Equipment Pvt. Ltd. v. Ganpati Cooperative Housing

1. State o f U.P. v. Sandul Singh, AIR 1985 All. 67.

2. Sabyasachi Das v. Swapan Das, (1994) 1 Arb. LR 75 (Cal).
3. 1984 R.L.R. 452 (Del.).
4. AIR 1985 Del. 325 (F.B.).
5. D.R. Gupta v. Steel Authority o f India Ltd., AIR 1985 Ori. 224; see also Union o f India
v. Om Prakash, AIR 1987 All. 138.
6. AIR 1992 Cal. 365.
162 THE A R B IT R A T IO N A N D C O N C IL IA T IO N A C T , 1 9 9 6

Society Ltd.,1 the Bombay High Court has held that i f the appointed
arbitrator does not possess the qualifications agreed to by the parties in the
arbitration agreement, his very appointment is void cib initio and the
arbitration proceedings would be totally null and void and any order passed
by him, e.g., terminating arbitration proceedings for default o f a party in
filing claim statement, would be a nullity.
(v i) W hen th e com position o r th e procedu re o f A rb itra l T rib u n a l is
challengeable
The Apex Court in Narayan Prasad Lohia v. Nikunj Kumar Lohia &
others,2 has held that when the composition or the procedure of Arbitral
Tribunal or the procedure is not in accordance with agreement o f the parties,
it is challengeable. In such situation the parties get a right to challenge the
award but it can only be challenged if the agreement of the parties is in
conflict with a provision of Part I which the parties cannot derogate.
In the present case the Apex Court observed that when the composition
or the procedure is not in accordance with the agreement of the parties then
the parties get a right to challenge such arbitral award. But even in such a
case the right to challenge the arbitral award is restricted. It can only be
challenged if the agreement o f the parties is in conflict with provision of Part
I which the parties cannot derogate. In other words, even if the composition
of the arbitral tribunal or the arbitral procedure is not in accordance with
the agreement of the parties but if such composition or procedure is in
accordance with the provisions of the Arbitration and Conciliation Act, 1996,
then the party cannot challenge the award.
It is submitted that now it is clear that when the composition or the
procedure of the Arbitral Tribtmal is not in accordance with the agreement
of the parties then the parties get a right to challenge the award and it can
only be challanged if the agreement of the parties is in conflict with
provision of Part I of the said Act which the parties cannot derogate.
Section 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 undiii ; 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 arbiteral proceedings and

1. AIR 1999 -Bom. 219;

2. 2000 (2) Supreme 69.
A R B IT R A T IO N 163

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.
COMMENTS
Section 13 of the new Act, 1996 is analogous to Section 30 and Section
34 of the Arbitration Act, 1940. This Section 13 is based on Article 13 of the
Model Law.
Section 13(1) lays down challenge procedure and provides freedom to
the parties to agree on a procedure for challenging the arbitrator.
Section 13(2) states "Failing any agreement referred to in sub-section
(1)", a party who has intention to challenge an arbitrator after such failure
on agreement of challenging procedure, within 15 days from the day he
became aware o f the constitution of the arbitral tribunal or any
circumstances ’ contained in Section 12(3), a party has to send a written
statement containing reasons for such challenge to the arbitral tribunal,
then the arbitral tribunal would decide the matter.
Under Section 13(3) it is mandatory to decide upon the challenge by the
arbitral tribunal, whether there is a sole arbitrator or more arbitrators in
the arbitral tribunal. This sub-section (3) provides that "unless the arbitrator
challenged under sub-section (2) withdraws from his office or the party
agrees to challenge" sub-section (3) cannot be invoked.
Under Section 13(4), though the arbitral tribunal turned down the
challenge yet its decision is not final, however in the event of failure of
challenge, the arbitral tribunal shall continue the arbitral proceedings and
can also make an arbitral award.
Under Section 13(5), where an arbitral award is made under
sub-section (4), the party who had challenged the arbitrator is permitted to
make an application for setting aside such an arbitral award, as provided
under Section 34 of the Act, 1996.
Under Section 13(6), when the arbitral award is set-aside under
sub-section (5), on the ground that the challenge application was incorrectly
turned down, in such a situation, the court while setting aside the arbitral
award may decide on the subject, whether the arbitrator who is challenged
is entitled to any fees or not. Under this sub-section (6) it is the
discretionary power of the court which shall depend upon the circumstances
and facts of each case to be finally decided by the Court. Thus, an
arbitrator’s entitlement to receive any remuneration for his services, when
he is challenged is at the discretion of the court.
N o scope fo r d ia la to ry tactics.—The Punjab and Haryana High
Court in Harika Rice Mills v. State o f Punjab? observed that the Parliament
has incorporated the present Arbitration and Conciliation Act, 1996 based on
164 THE A R B IT R A T IO N A N D C O N C IL IA T IO N ACT, 1996

the Model Law on International Commercial Arbitration approved by the

General Assembly of the United Nations subject to slight modifications
suiting local conditions in our country. The said Model Law provides that a
party has been given a right to challenge the appointment of an arbitrator
before the arbitrator himself and if that party is unsuccessful the Model
Law, namely. Article 12(3) provides a last resort to that party to approach
the court to challenge the appointment of arbitrator at that stage itself
without waiting for the arbitrator to make the arbitral award. Although
Sections •13(4) and 13(5) of the Arbitration and Conciliation Act, 1996 make
distinct provision with a view to prevent dialatory tactics, the Parliament
has not allowed the unsuccessful party to challenge the appointment
immediately when its challenge had been unsuccessful before the arbitration
and requires such a party to wait and challenge the same only after the
arbitral award has been made.
Although Section 12 of the Act, 1996 prescribes the grounds to
challenge the appointment of arbitrator and Section 13 of the Act provides
procedure applicable to challenge the appointment o f arbitrator, the
procedure laid down under Section 13 has to be followed, unless some other
procedure is stipulated in the contract between the parties. Where the
arbitral tribunal consists of one sole arbitrator and only one of the parties
has challenged his appointment while the other party has not affirmed with
the challenge, in such circumstances the arbitrator himself becomes the
deciding authority of his own cause and decides his own fate. This provision
under Section 13 is unfortunate and contrary to the well settled principle of
natural justice. "God may save the challenging party". Section 13 further
provides that if the challenged arbitrator overrules the objection, the party
aggrieved by the decision cannot approach to the court, but has to wait till
final arbitral award is made and then take recourse to the court under
Section 34 of the Act by making application for setting aside the arbitral
award.
It would have been more appropriate if the Parliament had made
provision to address the challenge to an independent panel on the lines of
American Arbitration Law which makes provision for challenge to the
American Arbitration Association, namely Rule 20 o f the American
Arbitration Association.1
It is submitted that Section 13 lays down the procedure for challenging
the appointment o f an arbitrator. The party who challenges the appointment
of arbitrator on grounds provided under Section 12 of the Act, may within
15 days after becoming aware of the constitution of the arbitral tribunal or
after becoming aware o f any circumstances giving rise to justifiable doubts
as to his impartiality or as to his independence, raise express objection to
the arbitral tribunal. However, contrary to accepted principle of natural
justice the arbitral tribunal is given the power to decide its own fate on the
objection o f the challenging party. If the challenge is not successful i.e., the
arbitrator himself does not withdraw from his office or the other party does
not agree to the challenge, the arbitral tribunal shall continue the
proceedings and make the arbitral award. After the award has been made
the party challenging the appointment of the arbitrator can make an
1. See also Yark Hanover v. American Arbitration Association, 1995 US 169'(New Y o rk).
A R B IT R A T IO N 165

application for setting aside the arbitral award under Section 34 of the Act
1996. If the Court sets aside the award, the court is also empowered to
decide as to whether the arbitrator who was under challenge, is entitled to
any fees or not, on account of arbitration. In other words in case an arbitral
award has been set aside on an application made under Section 13(5) of the
Act, then the entitlement of challenged arbitrator’s remuneration rather fees
would be decided by the Court.
S e c tio n 14. F a ilu r e o r im p o s s ib ility to a c t.— (1) The
m andate of an a rb itra to r shall term in ate i f —
(a) he becomes d e j u r e or d e fa c t o unable to perform his
functions or for other reasons fails to act w ith o u t undue
delay; and
(b) he w ith d raw s from his office or th e parties agree to the
te rm in a tio n o f his m andate.
(2 ) I f a controversy rem ains concerning any o f the grounds
referred to in clause (a) of sub-section (1), a p a rty m ay, unless
otherw ise agreed to by the parties, apply to th e C ourt to decide on
the te rm in a tio n o f the m andate.
(3 ) If, under th is section or sub-section (3) o f Section 13, an
a rb itra to r w ith d raw s from his office or a p a rty agrees to the
te rm in a tio n o f the m andate o f an a rb itra to r, it shall not im ply
acceptance o f th e v a lid ity o f any ground referred to in this section or
sub-section (3) o f Section 12.
COMMENTS
Section 14 is modelled on Article 14 of the Model Law which provides
the circumstances in which the mandate of an arbitrator fails or becomes
impossible to act. In such situation mandate of an arbitrator shall be
terminated or an arbitrator’s authority shall be terminated.
In K a lich a ra n S h arm a v. State o f U .P.,1 the Court said that, "if an
arbitrator fails to use ‘all reasonable dispatch’ in the conduct of the arbitral
proceedings, his mandate is liable to be terminated".
Thus, the mandate of an arbitrator shall also be terminated, if he fails
to act, without undue delay.
"(a) when he becomes de ju r e or de fa cto unable to act or unable
to act without undue delay; and
(b) when he withdraws from his office or the parties agree to the
termination of his mandate".
Thus, the authority of an arbitrator shall also be terminated, if he
himself withdraws from the office or the parties agree to do so.
Section 14(2) enumerates if some controversy comes into existence
relating to the grounds provided in Section 14(l)(a) mandate of the
arbitrator shall be terminated, however, a party may apply to the Court for
determination of the controversy and the court shall decide upon the
consensual character of arbitration.

1. AIR 1985 Del 389.

166 TH E A R B IT R A T IO N A N D CONCILIATION ACT, 1 9 9 6

Section 14(3) seeks to resolve the controversy and departure of an

arbitrator respectfully, sub-section (3) states that, if the arbitrator
withdraws as aforesaid from his office or a party agrees to such termination
of the arbitrator’s mandate or authority, it shall not imply acceptance of the
validity o f any ground mentioned in Section 12(3) and Section 14(1).
(i) Phrases and term s contained in Section 14(1)— C onnotations o f
The phraseology used specifically in sub-section (1) of Section 14 is
similar to the phrases incorporated in Article 14 o f the Model Law. Heading
of Section 14 reads—‘Failure or impossibility to act" and the ‘de jure’ or ‘de
facto’ inability referred in sub-section (l)(a) of Section 14 means—
(a) ‘de ju re’ impossibility means factors personal to an arbitrator to act,
i.e., insanity, and
(b) ‘de facto’ impossibility means factors beyond the control of an
arbitrator, i.e., imprisonment or war, not fit enough to act.
Besides these phrases Section 14(lXa) reads—the mandate of an
arbitrator is liable to be terminated if "for other reasons" he "fails to act
without undue delay". The expression/phrase ‘other reasons’ means—
those reasons which arise due to the failure of an arbitrator to act.
However, expression "without undue delay" shows the time
element/factor and not relating to the efficiency of an arbitrator to act. Thus,
if an arbitrator fails to use "all reasonable dispatch" in the conduct of the
arbitral proceedings, his mandate is liable to be terminated.1
It is to be noted that the termination of an arbitrator’s mandate is not
the automatic legal consequence of the inability or failure of an arbitrator to
act. The situation as such of termination of the mandate of an arbitrator
arises only under Section 14(l)(b) when, "he withdraws from his office or the
parties agree to the termination of his mandate" under the circumstances
referred to in Section 14(lXa) of the Arbitration and Conciliation Act, 1996.
(ii) Expressions "unable to perfo rm his function"—M e a n in g of
Under Section 14(lXa) of the Arbitration and Conciliation Act, 1996 the
expression "unable to perform his functions" refer to incapability of the
arbitrator to perform his functions as an arbitrator. It means that incapacity
may be physical or of some other kind. For instance if an arbitrator acquires
some interest in the subject-matter of the dispute, it is treated that an
arbitrator is ‘de jure’ incapable to continue to act as an arbitrator. In
Juggilal v. General Fibres,2 the Apex Court was of the view that the
argument "the arbitrator becomes incapable of acting" as contained in
Section 8(l)(b) of the (old) Arbitration Act, 1940 denotes only physical
incapacity, is not acceptable. The court observed that it may also refer to
any incapacity like acquiring of interest in the subject-matter of dispute as
such after the appointment of the arbitrator.
(iii) W hen an a rb itra to r becomes incapable o f actin g ‘de facto ’
Legally, the term "de facto" means in fact or in reality, whereas term

1. Kalicharan Sharma v. State o f U.P., AIR 1985 Del. 389; see also P.C. Rao’s Arbitration
and Conciliation Act, 1996 1st Edn. 1997, p. 71.
2. AIR 1962 SC 1122.
ARBITRATION 167

"de jure" means by right or by lawful title. Thus, term "de facto" connotes
physical incapacity to act as an arbitrator in the context of Section 14(lXa)
of the Act, 1996. The circumstances may arise when an arbitrator goes
abroad, leaves India and settles down abroad or an arbitrator appointed by
virtue of his office rather ex-officio but his office has been abrogated, would
be treated to have become incapable of acting "de fa'cto" as an arbitrator. An
arbitrator may also become "de facto" unable to perform his function on
account of his withdrawal from arbitral tribunal or wherein an arbitrator
expresses his inability in writing to proceed with the arbitration after
entering upon the reference.1
On this point it would be appropriate to make it clear that the death
o f an arbitrator cannot be construed as inability or incapacity to perform his
function as an arbitrator, because the death of an arbitrator results into
impossibility o f performance, but not his inability to perform his function as
an arbitrator. However, in case of death of an arbitrator, his place may be
occupied by another arbitrator by invoicing Section 15(2) of the Arbitration
and Conciliation Act, 1996. Thus, an arbitrator may be substituted in certain
circumstances. ,
(iv ) V acancy created on account of re tire m e n t o r w ith d ra w a l by
a rb itra to r can be fille d
The present Arbitration and Conciliation Act, 1996 makes provision for
filling-up the vacancy arisen on account of resignation or withdrawal of
previously appointed arbitrator. In such circumstances, an appointed
arbitrator would be replaced by a newly appointed arbitrator, in other words
by another arbitrator. When an arbitrator is replaced under Section 15(2) of
the Act, any hearings previously held may be repeated at the discretion of
the arbitral tribunal.
However, Section 14 of the Act makes provision that on the ground as
to his inability to act as arbitrator after he has entered upon the reference
whether that arbitrator is dead or alive, the mandate o f the arbitration will
be terminated. Therefore, the vacancy may be caused on any account but it
can be filled by appointing another substitute arbitrator in fhe place which
was earlier occupied. It would be relevant to illustrate the decision in M/s.
V.K. Constructions v. Army Welfare Organisation,2 wherein after entering
upon the reference and after giving notice to M/s. V.K. Constructions
arbitrator resigned. Consequently, the Army Welfare Organisation duly
appointed another person to act as an arbitrator, however, this appointment
of arbitrator was challenged by the appellants. It was held that the
appointment of arbitrator by the respondent i.e., Army Welfare Organisation
on account of vacancy created by resignation of the previous arbitrator was
as per the provision laid down in Section 8(1) of the (old) Arbitration Act,
1940, which is at present provided in Section 14 of the Arbitration and
Conciliation Act, 1996. Hence, the appointment/substitution of arbitrator is
justified and there is no illegality on the part of respondents Army Welfare
Organisation in appointing a new arbitrator when previously appointed
arbitrator has already resigned. In the present case the court further

1. Section 14(lXa) of the Act, 1996.

2. (1995) 1 Arb. LR 184.
168 THE A R B IT R A T IO N A N D C O N C IL IA T IO N A C T , 1 9 9 6

observed that "the power of court to supply the vacancy created on account
of resignation of the previous arbitrator could only be invoked where the
party (respondents) neglected or failed to fill up the vacancy created on
account of the resignation of the previous arbitrator.
(v) M a k in g and p u b lish in g the a rb itra l a w a rd —w hen co u rt can
exercise its in h e re n t po w er in extending tim e fix e d b y th e p a rties
The Supreme Court in N.B.C.C. Ltd. v. J.G. Engineering Pvt. Ltd.1
observed that unlike Section 28 of the Arbitration Act, 1940 under this Act
of 1996 court does not have any power to extend the time. At the same time,
courts are though not empowered to fix a time limit, yet, on application of
other party, they can do so in exercising their inherent powers. But, where
Arbitration Act, itself provides for enlargement of time and parties have
taken recourse to it, and consented to enlargement of time by arbitrator,
courts can exercise its inherent power in extending time fixed by the parties
in absence of consent of either of them.
Section 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.
COMMENTS
Section 15(1) is modelled on Article 15 of the Model Law.
Section 15(1) provides two more additional grounds for termination of
arbitrator’s authority. These grounds are—
(a) that the arbitrator has withdrawn himself from office for any
reason, or
(b) that the parties have consented to each other to terminate
arbitrator’s authority.
Under sub-section (1) the parties have freedom to remove an
incompetent arbitrator who is not able to perform by reasons whatsoever, by
their consent. Thus, sub-section (1) too recognises the freedom of the parties
to agree and prescribe conduct of their arbitrator.

1. AIR 2010 SC 640 : 2010 (2) SCC 385.

ARBITRATION 169

Section 15(2) provides answer to question that how a substitute

arbitrator should be appointed. This sub-section (2) would come into
operation when the mandate of an arbitrator has been terminated on
whatsoever ground. The parties may abandon the arbitral proceedings when
a sole arbitrator offers departure of originally appointed arbitrator. Although
a substitute arbitrator shall be appointed as per the rules applicable to the
case and any party is not permitted to stop appointment o f a substitute
arbitrator, thus, the consent of the parties is not necessary in this regard.
Section 15(3) provides discretionary power to the substituted arbitrator
who may begin with the proceedings from the initial stage or from the stage
where the former arbitrator stopped the proceedings.
Section 15(4) provides despite change in composition of the arbitral
tribunal the proceedings held prior to appointment of another arbitrator
shall not be invalid solely on the ground that the composition of arbitral
tribunal has been changed. Although, freedom given to the parties under
sub-section (4) that they may agree that the arbitral tribunal may again
commence proceedings from initial stage.
(i) Termination of mandate of arbitrator
Wherein an appointed arbitrator on his withdrawal from the office
ceases to be an arbitrator, his mandate terminates. As regards the
termination o f the mandate of the arbitrator appointed in Government
contract, situation may arise where the appointed arbitrator, being a
Government officer retires from his service. In such an event, it has been
held that the mandate of the appointed arbitrator on retirement/resignation
from employment itself terminates.1
It is noteworthy that Section 15 is a complimentary section to Sections
13 and 14 as regards to the arbitrator withdrawing from his office which is
also contemplated by Section 13(3) which has been enunciated in Section
15(lXa).
Section 15(l)(b) makes provision of withdrawing from office if the
agreement between the parties have been made to cancel appointment of
arbitrator, who have appointed him as an arbitrator. In other words—the
arbitrator withdraws from office in accordance with the agreement of the
parties as the parties who appointed him by consent can cancel his
appointment.
(ii) Substitution of arbitrator
Section 15(2) of the Act provides that 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. However, according to Section 15(3) unless otherwise agreed by the
parties, where an arbitrator is replaced under Section 15(2), any hearing
previously held may be repeated at the discretion of the arbitral tribunal.
Sections 15(l)(a) and (4) deal with procedural aspects regarding the
action on the appointment of the substitute arbitrator. It is settled law of
arbitration if in the mid of arbitral proceedings the arbitrator withdraws or
retires and if any mandate made, it would stand terminated.
1. U n ion o f I n d ia v. G ird h a ri L a i, 1999 (2) R.A.J. 269 (Raj.).
17 0 THE A R B IT R A T IO N A N D C O N C IL IA T IO N ACT, 1996

To illustrate the legal position on the point the decision of the cases
can be referred which are set out as under—
In Punjab State v. Pritam Singh,1 the court held, "wherein reference of
dispute was made to Superintending Engineer in Public Works Department
as sole arbitrator as per arbitration agreement. After his retirement,
proceedings were being taken up by his successor, which was never objected
to, by the parties. It was held that the subsequent order by court on
application under Section 27 made by the party directing opposite party to
produce evidence before original arbitrator and directing original arbitrator
to continue with the proceedings, in spite of the fact that he has ceased to
act as an arbitrator is not sustainable."
Implications of Section 15 has also been considered by the Rajasthan
High Court in Union o f India v. Girdhari Lai,2 and the court observed :—
"As far as implication of Section 15 of the Arbitration and
Conciliation Act, 1996 is concerned, that is clear. An appointed
arbitrator on his withdrawal from the office ceases to be an arbitrator
and his mandate terminates. The power of the court as regards the
extension of period of arbitrator could be exercised by the court when
an arbitrator is appointed by it and where the arbitrator is appointed
under the contract and it is provided that he can act as an arbitrator
so long as he is in service then it cannot be said that his period can be
extended as the mandate itself has come to an end under Section 15
and something which has got exhausted cannot be saved unless a
power is vested in the court by some legislation to extend the time. The
power to extend the time in the Arbitration and Conciliation Act, 1996
is not available."
To sum up the position the above cited cases relating to the
Government contract, wherein the appointed arbitrator being a Government
officer may retire from his service, in such circumstances on retirement the
mandate o f the appointed arbitrator will be terminated, his successor may
repeat the arbitration hearings. Since, the present Act does not provide any
specific provisions to deal with the private contract or corporate contract,
thus, the provisions contained in Sections 12, 13, 14 and 15 would equally
be applicable to such contract. Hence, the provision for substitution of
arbitrator and termination of mandate of arbitrator remains identical.
(iii) Inso lven cy n otice cannot be issued on basis o f an a rb itra tio n
In Paramjeet Singh Patheja v. ICDS Ltd.,3 the Supreme Court ruled
that no insolvency notice can be issued under Section 9(2) of the Presidency
Towns Insolvency Act, 1909 on the basis of the Arbitration Award. The
Court was of the view that an Arbitration Award does not satisfy any o f the
requirements of a decree. It is not rendered the suit nor is an arbitral
proceedings commenced by the institution of a plaint. A legal fiction ought
not to be extended beyond its legitimate field. As such, an award rendered
under the provisions of the Act, 1996 cannot be construed to be a "decree"
for the purpose o f Section 9(2) of the Insolvency Act. An insolvency notice
1. AIR 1999 P. & H. 347.
2. AIR 1999 Raj. 106.
3. AIR 2007 SC 168.
A R B IT R A T IO N 171

should be in strict compliance with the requirements in Section 9(3) of the

Act, 1909 and Rules made thereunder. The Court said that it is well settled
established rule that a provision must be construed in a manner which
would give effect to its purpose and to cure the mischief in the light of which
it was enacted.

CHAPTER IV

JURISDICTION OF ARBITRAL TRIBUNALS

Section 16. C om petence o f arbitral tribu n al to ru le on its
ju risd ictio n .— (1) The arbitral tribunal may rule on its own
jurisdiction, including riding on any objections with respect to the
existence or validity of the arbitration agreement, and for that
purpose,—
(a) an arbitration clause which forms nart 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 nidi
fW - and void shall not entail ip s o h ir e the invalidity of the
, f ! 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.
y \(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.
CO M M EN TS
Section 16 of the Act, 1996 is a key section of the Act and sub-sections
(1) to (4) of Section 16 is modelled on Article 16 [paragraphs (1) and (2)] of
the Model Law.
172 TH E A R B IT R A T IO N A N D C O N C IL IA T IO N ACT, 1996

Section 16 is analogous to Section 13 of the Arbitration Act, 1940.

Section 16(1) empowers the arbitral tribunal to make rules on its own
jurisdiction, including any objections in respect to the existence or validity
of the arbitration agreement, however over such matters ultimate control is
exercised by the courts as provided under Section 34 of the Act, 1996.
This is an important element in modern arbitration law, referred to as
"competence de law competence" means law is competent to rule in its own
sphere.
Sub-section (1) contains principle of ‘autonomy’ and distinguishes
arbitration clause from other clauses in the agreement.1 Thus, an arbitration
clause is independent of the other terms of contract and the arbitral tribunal
cannot invalidate an arbitration clause while invalidating the other clauses
of an agreement.
Section 16(1) contains expression "The Arbitral Tribunal may rule".
That means it is the discretionary power of an arbitral tribunal which it may
exercise on its own motion or at the request of a party. An arbitrator cannot
be compelled to exercise those powers,—,
Section 16(2) provides plea to raise objections to jurisdiction but no
time limit is prescribed. The arbitral tribunal itself may move motion
relating to question of jurisdiction, however the parties have also vested
rights to raise objections to jurisdiction but ‘not later than the submission of
the statement of defence’. A party shall not be deprived of such right to raise
objections to jurisdiction merely on the ground that he has appointed or
participated in the appointment of an arbitrator. Thus, an aggrieved party
has an opportunity to raise a jurisdictional plea before an arbitral tribunal
even after appointment of an arbitrator.
Section 16(3) states that as soon as an arbitral tribunal goes beyond
the scope of his authority objections are to be raised while the arbitral
proceedings are in progress and in this context Section 16(4) waives off the
time limit provided such delay is justified and reasonable.
Sections 16(5) and (6) are not modelled on the basis of the Model Law,
although, these two sub-sections are to be read together.
Sub-section (5) states "The arbitral tribunal shall decide on a plea
referred to in Sections 16(2) and (3), and where the arbitral tribunal takes
a decision rejecting the plea, it shall continue with the arbitral proceedings
and make an arbitral award". That means if a plea of objection to
jurisdiction made by a party before an arbitral tribunal and an arbitral
tribunal proceeds by rejecting such plea and also makes an arbitral award,
in such cases, an aggrieved party may approach to the court for setting aside
such an arbitral award according to Section 34 of the Act as this provision
is available to an aggrieved party under sub-section (6) of Section 16 of the
Act. __
To eradicate abuse of the constitutional remedy through ‘Writ’ is
expressly not provided in Section 16(6) of the Act. Thus, the writ jurisdiction
of the High Court under Article 226 of the Constitution may not be available
in the face of Section 34 of the Act.2 With the object to prevent unscrupulous
1. M . D a y a n a n d R e d d y v. A .P . In fra stru ctu ra l C orp., AIR 1993 SC 2268, 2271.
2. R u k m a n i B a i G u p ta v. C ollector, J a b a lp u r, AIR 1981 SC 479.
A R B IT R A T IO N ;1 7 3
—1
methods, no provision in respect of instant court control is available, if it is
not so, it would discourage the arbitral proceedings. Therefore, the arbitral
tribunal is free to commence or continue the arbitral proceedings and also
empowered to rule on the jurisdiction while the objection to jurisdiction issue
o f an arbitral tribunal is pending before the Court, proceedings, are not
stayed under Section 16 o f the Act, 1996.
However, before referring the matter for arbitration, arbitration
agreement- inullt be" in existence. Without there being any arbitration
agreement in existence, the Court would have no jurisdiction to refer the
matter for arbitration prima facie. It is required to be considered whether
arbitration clause exists or not, in view of fresh contract between the
parties.1
(i) Scope o f S ection 16
In International Pharmaceuticals v. Union o f India, it was observed
that the legislative intention is manifest in view of the enactment o f Chapter
IV and Section 16 o f the Arbitration and Conciliation Act, 1996 to have the
disputes between the parties adjudicated by arbitral forum expeditiously.
The expression used in Section 16(1) of the Act 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 of the Act is not confined to the width of its jurisdiction,
but goes to the very root of its jurisdiction and there is no impediment in
contending "Before the Arbitral Tribunal that it had been wrongly
constituted.3
(ii) Subm ission to ju ris d ic tio n o f a rb itra tio n —W h at am ounts to
Where a party once appeared before the Arbitrator and sought
extension o f time for filing his written statement, this amounted to
submission to the jurisdiction of the Arbitrator.4
Further, Section 16(3) provides that a plea that the arbitral tribunal is
exceeding the scope of its authority should be raised as soon as the matter
is referred to arbitration and during the proceedings.
(iii) W hen objections to ju ris d ic tio n have to be raised
Section 16(2) of the Act deals with the question as to when objections
to jurisdiction have to be raised. No time limit as such has been prescribed
within which the arbitral tribunal itself can raise such objection suo motu.
However, if either party raises objection as to jurisdiction, it must be raised
"not later than the submission of the statement of defence" to the claim or
counter claim, as the case may be. However, for construction of term
"defence", the Section 2(9) of the Act, 1996 can be referred. In case arbitral
tribunal enters upon the consideration of a matter when it has no
jurisdiction to do under the arbitration clause or submission between the

1. Lloyds Steel Industries Ltd. v. O.N.G.C., AIR 1997 Bom 337.

2. 1998 (3) R.A.J. 248 (Del.).
3. Gas Authority o f India Ltd. v. Keti Construction (I) Ltd., (2007) 5 SCC 38; See also Aurohill
Global Commodities Ltd. v. Maharashtra STC Ltd., AIR 2007 SC 2706.
4. Saraswathi Chemicals, Delhi v. Balmer Lancric & Co. Ltd., Chennai, 2011 (6) MLJ 97
(Mad). ’
174 THE A R B IT R A T IO N A N D C O N C IL IA T IO N A C T, 1 9 9 6

parties, then it cannot derive jurisdiction by a mere appearance of a party

under protest. jt_ was held that in such circumstances, a party is not
estopped from challenging the eventual award of the tribunal under Section
34(2)(iv) or (v) as the case may be.1
In P rasu n R oy v. C alcutta M etropolitan D evelop m en t A u th ority, the
Apex Court has held that where a party is aware from the very
commencement that by reason of some disability the matter is legally
incapable o f being submitted to arbitration, even though it took part in
arbitral proceedings without protest and fully avails o f the entire arbitral
proceedings, but when he sees that the arbitral award has gone against him
comes forward to challenge the entire arbitral proceeding on the ground that
it lacks jurisdiction to arbitrate the disputed matter, it cannot be allowed to
challenge as it is a known disability. This principle would be applied before
or after making of the arbitral award. It is well settled legal principle that
a party will not be allowed to blow hot and cold at the same time. In other
words it can be said that long participation in the arbitral proceedings and
acquiescence in the proceedings precludes such a party from contending that
the proceedings were without jurisdiction. Thus, a party who has taken part
in the entire proceedings but raised the objection as to want o f jurisdiction
only when the arbitral award goes against him, such a party is estopped
from challenging the jurisdiction o f the arbitral award. Therefore, it cannot
be allowed to be challenged on such ground of "known disability".
Where there is no arbitration agreement as defined under Section 2(a)
o f the Arbitration Act, 1940, there is an initial want of jurisdiction which
cannot be cured by acquiescence. The Apex Court in W averlv J u te M ills Co.
Ltd. v. R a y m an & Co. (India) Pvt. L td .,3 held that if a contract containing
the arbitration clause is not legal and in fact void, the arbitration clause
which is one of the terms thereof must also perish along with it and the
dispute relating to the validity of a contract is, in such cases, for the court
and not for the arbitrator to decide. The court further held that a dispute as
to the validity of a contract could be subject-matter o f an agreement of
arbitration in the- same manner as a dispute relating to a claim made under
the contract but such an agreement would be effective and operative only
when it is separate from the dependence of the contract which is impugned
as illegal. It is settled position that an agreement for arbitration is the very
foundation on which the jurisdiction of the arbitrator to act rests and where
that is not in existence at the time when he enters on his duties, such
arbitral proceedings must be held to be entirely without jurisdiction.—In­
absence of jurisdiction, mere consent of the parties cannot confer jurisdiction.
However, mere denial of existence of the arbitration agreement by one
of the parties does not denude the arbitrators o f their jurisdiction.4
According to R u ssell3— "It can hardly be within the arbitrator’s
jurisdiction to decide whether or not a condition precedent to his jurisdiction
had been fulfilled. However, an arbitrator is always entitled to inquire
1. Chetan Das v. Radha Kisson, ATR. 1972 Bom. 553.
2. AIR 1988 SC 205.
3. AIR 1963 SC 90.
4. Vallabhah Pille v. Nirsinghdas Govind Ram Kalami, AIR 1963 Bom. 157.
5. On Arbitration, 18th Edn. p. 73.
 xnoN 175

whether or not he had jurisdiction, An umpire faced with a dispute whether

or not there was a contract from which alone his jurisdiction, if any , can
arise can adopt one of a number of courses. He can refuse to deal with the
matter at all and leave the parties to go to the court or he can consider the
matter and if he forms the view that the contract upon which the claimant
is relying and from which, if established, his jurisdiction can arise is in truth
the contract, he can proceed accordingly."
However in his next edition1 R ussell inserted in the above paragraph
as under— "It has indeed been several times said bluntly that an arbitrator
has no power to decide his own jurisdiction2 and in one case where rules of
an institution prepared to conduct arbitration i.e. International Chambers of
Commerce, gave the arbitrator such power, the court will ignore this when
asked to enforce the award, and decide the question itself."3
Tt. is s u b m it t e d .that4,hough- the arbitral tribunal is competent to decide
and determine its jurisdiction under Section 16 of the new Act, 1996 but the
tribunal has to w ork out within the parameters laid down in the arbitration
clause.
Some of the observations made by the courts on the point, are given as
under :—
In Union o f India v. Rattan Singh (Jehlotf wherein respective
counsels of the parties cited various decisions o f the High Courts and
the Supreme Court and it was revealed that an unreasoned arbitral
award is not by itself bad in law, but an error has to be seen in the
award, which has been committed by the arbitrator, otherwise the court
would be reluctant to make interference. It is different from stating
that when an arbitration award is challenged on the ground that the
arbitrator has acted beyond his jurisdiction. According to the Apex
Court it has to be determined that "there is a distinction between
disputes as to the jurisdiction o f the arbitrator and the disputes as to
in what way the jurisdiction should be exercised". It is to be noted that
in the latter-situations the court has no role to play but in former
situations where there is challenge to jurisdiction of the arbitrator the
courts have interfered with it. It was held that this is within the
jurisdiction of the court of law to examine whether the arbitrator has
acted within its jurisdiction or exceeded the jurisdiction. To that extent
the court was required to decide upon. In the present case the court
having failed to consider this point, the matter is liable to be remitted
back for reconsideration.
In Prxisun Roy v. Calcutta Metropolitan—Development Authority f the
Apex Court has held that "where though a party aware from the beginning
that by reason of some disability the matter is legally incapable of being
submitted to arbitration, participates in arbitration without protest and fully
avails of the entire arbitral proceedings and then when he sees that the
1. On Arbitration, 20th Edn. p. 91.
2. Dalmia Dairy Industries v. National Bank o f Pakistan, (1978) 2 Lloyd’s Rep. 223 C.A.
3. Dalmia Dairy Industries v. National Bank o f Pakistan, (1978) 2 Lloyd’s Ref. 223 C.A.;
see also M.A. Sujan on Arbitration Law, 2nd Edn. 2001, p. 249.
4. AIR 1999 Raj. 117.
5. AIR 1988 SC 205. t
17 6 THE ARBITRATION A N D CONCILIATION ACT, 1996

award has gone against him comes forward to challenge the whole of the
arbitral proceedings ” as without jurisdiction on the ground o f known
disability the same cannot be allowed. The court observed that this principle
applies both before or after making oFthe arbitral awardTTt is based on the
principle that the party cannot be allowed to take advantage" oFTfs own
wrong. Long participation in the arbitral proceedings and acquiescence in
the arbitral proceedings would deprive the party from contending that the
arbitral proceedings were conducted in absence of jurisdiction. This principle
has been followed by the Delhi High Court in V aish B roth ers and Co. v.
U nion o f In d ia ,1 wherein the respondent participated in the arbitral
proceedings without showing any protest and it was held that by
participation and acquiescence in the arbitral proceedings before the
arbitrator, the respondent is estopped from challenging the jurisdiction of
the arbitrator on the ground that the matter could not be referred to the
arbitrator and the award of the arbitrator, therefore cannot be allowed to be
challenged on the ground taken up.
But, in S tate o f K era la v. V.P. J o lly ? wherein the arbitral award was
challenged by the respondent on the ground that the arbitrator allegedly
violated the terms of the contract and the Full Bench of the Kerala High
Court relying upon the decision of the Apex Court in A ssocia ted E n gin eerin g
Co. v. G overn m en t o f A n d h ra P ra d esh ,3 held that if an arbitrator by giving
a non-speaking award acts in contravention o f the clear, obvious or patent
terms o f the main contract, which deals with the rights and obligations of
the parties, such action will be without jurisdiction. For the purpose of
finding out if the arbitrator has so acted, it is open to look outside the
award, including affidavits, pleadings and the terms of the main contract.4
It is submitted that where, no- reason, is. stated in arbitral award, in
other words where basis of findings have not been given in the award, it is
Open to challenge on the ground that the arbitrator has arrived at a wrong
conclusion or failed to appreciate the materials on proper perspectives.
However, "the court has to determine'the distinction between the error
within the jurisdiction and an error in excess of the jurisdiction."
It is clear that the legislature did provide appeal against the order
under Section 16(5) of the Act, 1996 where the, .arbitral tribunal takes a
decision rejecting the plea that the arbitral tribunal has no jurisdiction. In
such case the tribunal shall continue with the proceedings and make an
award expeditiously and the courts in their supervisory role would not
interfere with..the arbitral process. The order made on the point of
jurisdiction by the arbitral tribunal, is not of interim nature under the Act,
because Section 37 of the Act provides for appeal against an order whereby
tjm arbitral tribunal holds that it has no jurisdiction. Hence, the order
passed under Section 16 should not be treated as an interim order/award.
Ik.is well settled legal principle that the Court/Tribunal which has
jurisdiction to make final order, even in absence of expressed provision can
make interim order as well. Thus, the arbitral award includes an interim
1. AIR 1999 Del. 105.
2. AIR 1982 Ker. 87 (FB).
3. (1991) 4 SCC 93 : AIR 1992 SC 232.
4. M A. Singh on Law of Arbitration, p. 257.
 ARBITRATION 177

award. In the Arbitration and Conciliation Act, 1996 though the term
"arbitral award" has been defined but definition is only an inclusive
definition, that is to say, the arbitral award includes an interim award.1
(iv) Constitution of arbitral tribunal—When can be challenged
TtiP Snprpm p OmiT-t in Tno A u t h o r i t y .nf.Inrlin. I .trl V. K etiC o n stru ctio n
(I) Ltd. ,2 has held that when a party raises a plea that the Arbitral Tribunal
not been properly constituted or has no jurisdiction, it must do so at the
very threshold before the Arbitral Tribunal so that remedial measures may
be immediately taken and time and expense involved in hearing of the
matter before the Arbitral Tribunal which may be ultimately found to be
either not properly constituted or lacking in jurisdiction, in proceedings for
setting aside the award, may be avoided. Such plea must be raised before
the Arbitral Tribunal right at the beginning and normally not later than in
the statement o f defence. The Supreme Court said that the commentary on
"Model Law clearly illustrates the aforesaid legal position.
(v) Want of jurisdiction—When such plea can be raised
\JLrCOlympus S u perstru ctures case3 wherein the setting aside o f arbitral
award was sought on the ground that arbitrator exceeded jurisdiction beyond
terms of arbitration agreement. The Supreme Court observed that in the
present context Sections 16(2) and 16(3) are relevant. They refer to two
types of pleas and the stages at which they can be raised. Under Section
16(2) a plea that the arbitral tribunal does not have jurisdiction shall be
raised not later than submissions of the statement of defence; however, a
party shall not be precluded from raising such a plea merely because he has
appointed or participated in the appointment of an arbitrator. Under Section
16(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. These limitations in
Sections 16(2) and 16(3) are subject to the power given to the arbitrator
under Section 16(4) that the Tribunal may, in, either of the cases under
Sections 16(2) and 16(3) admit a later plea if it considered the delay
justified.
(vi) Question of Jurisdiction—Arbitral Tribunal has Power to rule
on its own jurisdiction
The S u prem e C ourt in K h a ern er C em entation In d ia Ltd. v. B ajranglal
A ga rw a l & a n oth er, 4 explained that a bare reading of Section 16 makes it
clear that the arbitral tribunal has the power to rule on its own jurisdiction
jeran when any objection with respect to existence or validity of the
arbitration agreement is raised and a conjoint reading of sub-sections (2), (4)
and (6) of Section 16 would make it clear that such decision would be
amenable to be assailed within the ambit of Section 34 of the Act. The Court
observed that :—
1. Union of India v. East Coast Boat Builders & Engineers Ltd., 1999 (2) R.A.J. 221 (Del.);
See also United India Insurance Co. Ltd. v. Kumar Texturisers 1999 (2) R A J 255 (Bom )
2. (2007) 5 SCC 38.
3. Olympus Superstructures Pvt. Ltd. v. Meena Vijay Khetan, AIR 1999 SC 2102 • 1999 (5)
SCC 651.
4. 2001 (6) Supreme 265 (SC). _
178 THE ARBITRATION AND CONCILIATION ACT, 1996

"the petitioner who is a party to the arbitral proceedings may

raise the question of jurisdiction of the arbitrator as well as the
objection on the ground of non-existence of any arbitration agreement
in the so called dispute in question and such an objection being raised,
the arbitrator does well in disposing of the same as a preliminary issue
so that it may not be necessary to go into the entire gamut of
arbitration proceedings."
Heucev the..question-as to jurisdiction can be decided by the Arbitral
Tribunal as a preliminary issue, without going into the entire matter of
dispute?
In Secur Industries Ltd. v. M is. Godrej & Boyce Mfg. Co. Ltd. &
another,1 it was held by the Supreme Court that the proceedings before the
U.P. Industry Facilitation Council under Interest on Delayed Payments to
Small Scale and Ancillary Industrial Undertakings Act, 1993 are preceedings
under Arbitration and Conciliation Act pursuant to a deemed agreement of
the parties to the dispute. Hence, the High Court had no jurisdiction to stay
the proceeding. It is to be noted that in instant case the U.P. Industry
Facilitation Council had assumed the role of the arbital tribunal. Thus, the
proceeding before the U.P. Industry Facilitation Council could not be stayed
by the Division Bench of the High Court.
According to the Apex Court2 an arbitrator is competent under Section
16 o f the Act, 1996 to rule on its own jurisdiction, including rule on any
bbiectionsw hh respect to existence or validity of arbitration agreement, on
a place being, raised before him that he has no jurisdiction.
(vii) Harmonising effect should be given to arbitration clause in
main agreements
It will Le noted that there are several items in Schedule E of the main
agreement v.iich overlaps the items in Schedule A of the Interior Design
Agreement. In view of the overlapping the Court held—it has to be said that
several items in Schedule A of the Interior Design Agreement are in
modiflcation/substitution of the items in the main agreement. Therefore, the
coverage of the two agreements makes it clear that the execution o f the
Interior Design Agreement is connected with the execution of the main
agreement. It may be noted that the date of main agreement and the
Interior Design Agreement is the same in each of the three cases and clause
3 of the Interior Design Agreement states specifically that the work of the
said renovation, designing and installation shall commence from the
execution thereof, which means that the execution of the Interior Design
Agreement and the main agreement is to be simultaneous.
(viii) Section 16 does not take away jurisdiction of the Chief Justice
to de^ide^fhe question of existence of arbitration agreement
xhe Apex Court in Wellington Association Ltd. v. Kir it M ehta? has held
that Section 16 of the new Act, 1996 does not take away the jurisdiction of
1. 2004 (4) Supreme 107.
2. Anil Kumar v. Neel Kanta & others, 2010 (2) Arb LR 482.
3. Olympus Superstructures Pvt. Ltd. v. Meena Vijay Khetan, AIR 1999 SC 2102 : 1999 (5)
SCC 651.
4. AIR 2000 SC 1379 : 2000 (4) SCC 272.
ARBITRATION 179

the Chief Justice of India or his designate, if need be, to decide the question
o f the "existence" of the arbitration agreement. The court observed that
Section 16 does not declare that except the arbitral tribunal, none else can
determine such a question. Merely because the new Act, 1996 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
a question as to the existence of the arbitration clause. The interpretation
put on section 16 by the petitioner that only the arbitral tribunal can decide
about the "existence of the arbitration clause is not acceptable for other
reasons also apart from the result flowing from the use o f the word ‘may’ in
Section 16 of the new Act, 1996.
(ix) Execution of the Interior Agreement is "connected" with the
execution of main agreement
Wherein the main agreement refers to the payment of the last
instalment of Rs. 17 lakhs against ‘taking of possession’ of the flats. The
main agreement extended upto the time of taking of possession by the
purchasers. Para 8 of the main agreement states that the fixtures, fittings
and amenities to be provided by the developers in the said building and the
flat/unit are those that are set out in Annexure E annexed to the main
agreement. It will be noted that there are several items in Schedule E o f the
main agreement which overlap the items in Schedule A of the Interior
Design Agreement. In view of the overlapping, it has to be said that several
items in Schedule A of the Interior Design Agreement are in
modification/substitution of the items in the main agreement. Therefore, the
coverage o f the two agreements makes it clear that the execution of the
Interior Design 'Agreement is ‘connected’ with the execution of the main
agreement.1 It was held that the dispute arising under both the
agreements/contracts could be referred for arbitration.
(x) Setting aside of arbitral award
In Rajinder Krishna Khanna v. Union o f India,2 wherein setting aside
of the award was sought on such grounds which were beyond the scope of
submission to the arbitration. The writ petition was filed claiming damages
for destruction o f residential house, crops and mango garden, the High Court
rejected this contention. In special leave petition the Apex Court observed
that wherein the parties agreed to go to arbitration according to the
arbitration agreement disputes arising between the parties to S.L.P. shall
stand referred to arbitration. It was alleged by the respondent that the claim
was outside the reference as the award for loss of potential of land would
fall outside the scope o f reference. It was held that in circumstances of the
case the award was set aside but, however, it was held that the granting of
compensation for alleged lost potential of land was not permissible.
A perusal of the award suggests that the learned arbitrators did not
think that they could award compensation for the alleged lost potential of
file land only if they found that the land could not be reclaimed, there is,
tnerefore, no such evidence or discussion or finding in the award. In any
1. Olympus Superstructures Pvt. Ltd. v. Meena Vijay Khetan, A I R 1999 S C 2 1 0 2 : 1 999 (5)
S C C 651.
2. 1 998 (7 ) S C C 129 : 1 998 (8 ) S u p re m e 98.
180 THE ARBITRATION A N D CONCILIATION ACT, 1996

event granting compensation for alleged lost potential of the land was
permissibly not accepted. It ,vas not the case of the appellant in the writ
petition even in the alternative that the land could not be reclaimed and
there was no claim for compensation for alleged lost potential of the land in
averments or particulars in support thereof. The amount for lost potential of
land and interest thereon fell outside the scope of the reference and was not
in relation to the dispute.
It may be permissible to be restated that Section 16 of the Arbitration
and Conciliation Act, 1996 bestows on the Arbitral Tribunal the power to
rule on its jurisdiction relating to existence, extent and scope of the
arbitration agreement. It is necessary that the party who is desirous to
challenge the jurisdiction of the arbitral tribunal shall raise the objection
before the submission of statement of defence. In case the arbitral tribunal
exceeded its scope of au hority, it is to be objected expeditiously by the
aggrieved party and if that party fails to do so, it would be taken as the
waiving of right to object on the part of that party : That party will not be
entitled to raise an objection at the subsequent stage. Wherein the arbitral
tribunal rejected the objection, the tribunal can proceed with the arbitral
proceeding, and can. make final arbitral award. It is only when the final
arbitral award has been made, that aggrieved party can challenge the
impugned arbitral award before the court of law. It is to be noted that
jurisdiction of the arbitral tribunal is always confined to actual reference
"and whatever i; not within the ambit of the reference shall be outside the
scope of authority of the arbitral tribunal.
(xi) Remittanc e of arbitral award by the civil judge
In Sangamma Bhog Scthakari Karkhana Ltd. v. Mls. Krupp Industries
Ltd.,1 where the appellant was co-operative sugar factory manufacturing
sugar from sugarcane. On 17-11-1992 an agreement was entered into
between the appellant and the respondent for design, manufacture,
procurement and supply o f machinery and equipments for modernisation
with continuous fermentation process based on "Encillium Process",
developed and patented by CSIR, New Delhi and National Chemical
Laboratory, Pune. Disputes arose between the parties. The agreement dated
17-11-1992 contained an arbitration clause pursuant whereto the disputes
were referred for arbitration. Two arbitrators were appointed by each of the
parties. By their award dated 20th June, 1999, the learned Arbitrators
directed an amount of Rs. 151.97 lacs to be paid by the respondent to the
appellant in full and final settlement of all claims by and between the
parties.
The Apex Court expressed the view that a perusal o f the judgment of
the learned Civil Judge, Senior Division shows that the learned Judge
formed an opinion that the award suffered from an error apparent on its
face.
There was an omission on the part of the learned arbitrators to
consider a few relevant documents available on record which, in the opinion
o f the learned Civil Judge, if taken into consideration the finding o f the
arbitration would not have been what it was. The learned Civil Judge also
1. 2002 (4) Supreme 165 (SCI.
ARBITRATION 181

formed an opinion that there was a violation of the principles o f natural

justice inasmuch as the parties were not afforded a hearing on the issue on
which the learned arbitrators had based their decision. The learned Civil
Judge was of the opinion that on the totality of the facts and circumstances
of the case instead of setting aside the award the same deserved to be
remitted to the arbitrators with the request to. render the award afresh. The
High Court has, however, formed an opinion that to the extent to which the
award has been set aside by the High Court it was beyond the scope of
reference to the arbitration and hence there was no question o f the parties
being afforded an opportunity of re-arguing the same question before the
arbitrators as the arbitrators could not assume jurisdiction over an issue
which was not referred to them.
In special leave petition before the Supreme Court, it was held that the
trial Court judicially exercised its discretion under Section 16(l)(c) of the
ArBffcration and Conciliation Act, 1996 in remitting the award to arbitrators
for reconsideration. The High Court has erroneously formed an opinion that
that part of award was beyond jurisdiction of the arbitrators. The impugned
judgment o f High Court deserves to be set aside and order o f the Civil Judge
deserves to be restored.
(xii) Enforceability of arbitration agreement to be determined by
the Arbitral Tribunal
In Food Corporation o f India v. Indian Council o f Arbitration & others,1
where Indian Council of Arbitration refused to proceed with arbitration
claims until Food Corporation of India and opposite parties, Millers agree-in
writing afresh that arbitration may be conducted under Rules of Arbitration
of Indian Council o f Arbitration. The same is challenged before the Supreme
Court. It was held that there was an agreement between the par ies to have
their disputes resolved by reference to an arbitrator and it shoula be through
Indian Council of Arbitration. Hence, any objection as to the existence of an
enforceable or valid arbitration agreement had to be adjudicated by the
Arbitral Tribunal after a reference is made to it. It is not for the Indian
Council of Arbitration or the Court to adjudicate on these issues.
(xiii) Reference—Tt is for the arbitrator to decide whether he would
proceed with
The Calcutta High Court in Amstar Investment Pvt. Ltd. v. Shree Shree
Iswar Satyanarayan Jee & others f said that Articles 14 and 16 co-exist in the
UNCITRAL Model Law on International Commercial Arbitration. Under
Article 16, a preliminary question answered by the arbitral tribunal on its
jurisdiction is subject to judicial scrutiny. The provisions of Article 14 and the
de jure inability of the arbitrator to perform his functions, cannot take within
its fold the eagerness of the arbitrator to continue with the reference despite
a challenge to his award to receive the reference made on seemingly
unimpeachable grounds. The Arbitration and Conciliation Act, 1996 is based
on the UNCITRAL Model Law and despite substantial departure from the
provisions of the Model Law in some cases, the said Act incorporates words,
phrases and the effective provisions of the Model Law. Apart from the fact
1. AIR 2003 SC 3011 : 2003 (6) SCC 564.
2. AIR 2007 (NOC) 1708 (Cal.).
182 THE ARBITRATION A N D CONCILIATION ACT, 1996

that if a challenge under Section 16 of the said Act is not upheld or the
decision on the challenge deferred, the challenger has to reserve his grievance
till the arbitral award is rendered. Article 14 of the Model Law on which
Section 14 of the said Act is based does not contemplate such provision to be
an alternative source for questioning the arbitrator’s verdict of negating the
challenge or postponing the adjudication on such issue to a later date.
In the aforesaid case the petitioner did not challenge the arbitrator’s
authority at the earliest stage as envisaged in Section 16 o f the said Act.
The reference progressed to the stage when oral examination was
commenced. It was only thereafter that the petitioner raised the challenge.
True, the petitioner did not merely complain o f its challenge to the
arbitrator’s award having been deferred. For good measure, the three orders
passed at the 26th, 27th and 40th sittings have been shown as grounds in
support o f the arbitrator’s de jure inability to perform his functions. But,
shorn o f the Chaff, it is the arbitrator’s decision to not immediately hold that
he had no authority to adjudicate upon the matters in issue, that is at the
heart of the petitioner’s masked plea and this is precisely what is not
permissible. Held, it is for the arbitrator to decide whether he would proceed
with the reference. Hence, plea that mandate o f arbitrator determined in
view of his de jure inability to perform his functions, is not tenable.
(xiv) Arbitrability of disputes—Power of arbitrator to decide
In Vipin Kumar Gadhok v. Ravinder Nath Khanna/ wherein the
partnership deed dated 1-3-1995 under which the partnership concern M/s.
Controls and Matchless Industries had been set up and which contained the
arbitration agreement which was entered into between "M, S and V, carrying
on business in partnership under the name and style o f Matchless Industries
o f India" (Matchless three) as the first party and "R and A" together as the
second party. It is seen that even in the dissolution deed dated 24-12-2001,
the first party is described as "Matchless three". The firm o f Matchless
Industries of India was impleaded as the fourth respondent in arbitration
application, as the first party under deed dated 1-3-1995 was "Matchless
three". Therefore, when a dispute arose between the partners of "M/s.
Control and Matchless Industries" that is between "R and A" who were the
second party under the deed of partnership, with Matchless three" who were
the first party under the said deed dated 1-3-1995, there is nothing wrong
in arraying M, S, V and Matchless Industries of India as respondents 1 to
4 in the arbitration application. It was held by the Supreme Court that the
High Court has rightly allowed the application for appointment of sole
arbitrator to decide the disputes between applicants 1 and 2 and
respondents 1 to 4 before it. There is, therefore, no question of arbitrator
examining whether the disputes are arbitrable or not with reference to
Matchless Industries of India.
(xv) Termination contract—shall not entail "ipso jure" the invalidity
of "arbitration clause"
Ac£urding to' The Supreme Court2 an arbitration clause is a collateral
!. (2007) 10 SCC 623.
2. See National Agricultural Coop. Marketing Federation India Ltd. v. Gains Trading Ltd .,
AIR 2007 SC 2327.
ARBITRATION 183

term in the contract,- which relates to resolution of disputes,- and not

performance. Even if the performance of the contract comes to an end on
account of repudiation, frustration or breach of contract, the arbitration
agreement would survive for the purpose of resolution of disputes arising
under or in connection with the contract. This position-is now statutorily
recognised under Section 16(1) of the Act which inter a/ia provides, that an
arbitration clause which forms part of the contract, has to be treated as an
agreement independent of the other terms of the contract; and a decision
that the contract is null and void shall not entail "ipso jure" the invalidity
of the arbitration clause.
(xvi) Memorandum of Understanding—Dispute Raised to be
referred to Arbitration
The Apex Court in Reva Electric Con Co. Pvt. Ltd. v. Green Mobil1
observed that even if it was to be accepted that memorandum of
understanding (MOU) was not extended beyond 31-12-2007 and was
terminated on that date, even then arbitration agreement would have
survived in view of Section 16(1) (a) of the Arbitration and Conciliation Act,
1996.
It was held that since disputes between parties related to subject
matter of relationship between the parties which calne into existence
through MOU, therefore, dispute raised by petitioner was to be referred to
arbitration.
(xvii) Plea that offer termination of the MOU arbitration
clause—would also cease to exist not acceptable
According to the Supreme Court2 under Section 16(1), the legislature
makes it clear that while considering any objection with respect to the
existence or validity of the arbitration agreement the arbitration clause
which formed party of the contract, has to be treated as an agreement
independent of the other terms of the contract. To ensure that there is no
misunderstanding. Section 16(1) (b) further provides that even if the Arbitral
Tribunal concludes that the contract is null and void, it should not result as
a matter of law in an automatic invalidation of the arbitration clause.
Section 16(1) (a) presumes the existence of a valid arbitration clause and
mandates the same to be treated as an agreement independent o f the other
Terms of the contract. By virtue of Section 16(1) --(b), it continues to be
enforceable notwithstanding a declaration of the contract being null and
void. In view of the provisions contained in Section 16(1), plea that after
termination of the MOU arbitration clause would also cease to exist cannot
be accepted.
Section 17. Interim measures ordered by arbitral
tribunal.— (1) U nless otherwise agreed by the parties, the arbitral
tribunal m ay, at the request o f a party, order a party to take any
interim m easureT of protection as the arbitral tribunal m ay consider
necessary in respect o f the subject-m atter o f the dispute.

1. 2011 (13) Scale 169.

2. M/s Reva Electric Con Co. Ltd. v. M/s Green Mobil, AIR 2012 SC 739.
184 THE ARBITRATION AND CONCILIATION ACT, 1996

(2) T he arbitral tribunal m ay require a party to provide

appropriate security in connection w ith a m easure ordered under
sub-section
^""" (1).
COMMENTS
Section 17 deals with the power o f arbitrators to make an interim
order. Section 17 is based on Article 17 of the Model Law.
Section 17 of the Act, 1996 is analogous to Section 27 of the Arbitration
Act, 1940.
Section 17 provides power to arbitrators to take such interim measures
which are necessary and also reasonable at the request of a party. An
arbitral tribunal cannot order interim measures as such on its own motion.
Under Section 17(1), such interim measures as an order may be issued
by an arbitral tribunal at the request of a party on the ground of protection
as is necessary regarding the subject-matter of the dispute, such order given
to a party who has to follow these interim measures.
Ordinarily an interim order is intended to be effective during the
pendency o f the arbitration, till the final award is given.1
Section 17(2) provides that the arbitral tribunal may require a party to
provide proper security relating to the measures ordered by the arbitral
tribunal. The arbitral tribunal empowered to order interim measures of
protection reflects modern trend in new arbitration law.
Thus, the arbitral tribunal is competent to order interim measures to
the parties which originate from an agreement i.e., between the parties, but
the arbitral tribunal is not competent to order interim measures to affect the
right of a party who is not a party to such agreement.
An interim order/measures must determine some part of the dispute
referred to arbitration. It cannot deal with any other matter. The Allahabad
High Court, held that an award of stay or an injunction pending
determination of dispute is foreign to concept of interim awrard.2 The
Co-operative Societies Act, 1912 does come within the purview of the
Arbitration Act.
The position under the Arbitration Act, 1940 was that a party could
commence proceedings in court by moving an application under Section 20
for appointment of an arbitrator and simultaneously it could move an
application for interim relief under the Second Schedule read with Section
41(b) of the Act, 1940. The new Act, 1996 does not contain a provision
similar to Section 20 of the old Act, 1940. Nor is Section 9 or Section 17
similar to Section 41(c) and the Second Schedule to the old Act, 1940.3
Scope of Section 17
It can be seen that Section 17 of the Arbitration and Conciliation Act,
1996 deals with the interim measures/relief etc. in respect of the
subject-matter of dispute. When the request is made by either party and
tribunal considers it necessary for protection of subject-matter of dispute

1. Jammu Forest Co. v. State, AIR 1968 J & K 86.

2. Anand Prakash v. Asstt. Registrar Co-operative Societies, AIR 1968 All 22.
3. M/s. Sundaram Finance Ltd. v. N.E.P.C. India Ltd., AIR 1999 SC 565.
ARBITRATION 185

referred, may order interim measures. Thus, the arbitral tribunal cannot
"Order as to interim measures ‘sue motu.'
The expression "appropriate security" referred to in Section 17 o f the
Act, 1996 may include preservation, protection and safe custody of
subject-matter of dispute. It is to be noted that the arbitral tribunal is
competent only to order a party to take interim measures within the ambit
of the arbitration agreement, but cannot order interim measures which are
capable to affect the right of the third parties.
Under Section 17 of the Act the extent and scope of interim measures
may include the preservation, custody or sale of goods which are the
subject-matter of the dispute. It also includes recording of evidence which
may not be available at a later stage of the arbitral proceedings, protection
hi’ trade secrets and proprietary information; stabilization o f the relationship
oT~~the parties in a long term project which might include the use or
maintenance of machines or works on the continuation o f a certain phase of
a construction if necessary to prevent irreparable harm.1
Under Section 17 the interim measures ordered by the arbitral tribunal
are subject to the rules stated therein to the arbitration agreement o f the
parties. However, Section 17 does not confer power on the arbitral tribunal
to enforce its orders. However. Section 37(2) of the Act makes provision that
an order of tribunal whether granting or refusing to grant interim measures
is appealable to a court, thus interim measures are subject to judicial
consideration. There is also no bar to seek judicial enforcement of the
interim measures under Section 9 of the Arbitration and Conciliation Act,
1996. It is submitted that the scope of interim measures which can be
granted under Section 17 are very limited in comparison with the interim
measures which may be granted by the court.

CHAPTER 1/

C O N D U C T OF ARBITRAL PROCEEDINGS
Section 18. Equal treatment of parties.—The parties shall
be treated w ith equality and each party shall be given a full
opportu nity to present his case.
COMMENTS
Section 18 of the Act, 1996 is on the pattern of Article 18 of the Model
Law. It contains mandatory provision that the parties to an arbitration must
be meted out equal treatment and also equal opportunity to present his case
before the arbitral tribunal.
In other words, Section 18 provides principle of natural justice, that an
arbitral tribunal should treat the parties with equality and provide equal
opportunities for presentation, prosecution, defence and interim application
in respect of the case. According to this section principles of justice and fair
play must be applicable during the entire process of an arbitration.
On number of occasions, the Supreme Court of India acknowledged the
1. As per P.C. Rao on the Arbitration & Conciliation Act, 1996 1st Edn. 1997, p. 79.
186 THE ARBITRATION A N D CONCILIATION ACT, 1996

aforesaid principle and said that "The arbitral tribunal should create
confidence, not only by doing justice between the parties, but also by
creating a feeling that justice appears to have been done.1 It is well
established, universally recognised principle, not only under the arbitration
law but also as the essence of any other laws.
(i) Expression "equal treatment of parties"— Connotation of
The expression "equal treatment of parties" denotes that arbitral
tribunal is required to follow the principle of natural justice and fair play
while conducting arbitral proceedings. It is necessary that the parties must
be given full and equal opportunity to put up their contentions. According to
Russell2— "Once the arbitrators enter into a ‘reference’ they virtually
become judges in the ‘cause’ to act impartially—They must observe in their
proceedings the ordinary rules of administration of justice."
The Apex Court is of the view that "once the arbitrator enters in an
arbitration, he must not be guilty of any act which can be construed as
indicative of partiality or unfairness."3
(ii) Arbitrators to render equal opportunity to the parties
In the absence of fairness and equal opportunity to the arbitrating
parties and making of arbitral award, it will not only defeat the very
substratum o f the arbitration but also make such arbitral award
unsustainable in the eyes of law. Arbitrator occupies the position as a Judge
and he is bound to follow the principle of natural justice. During the course
of arbitral proceedings, the arbitrator must provide equal opportunity to
both the parties to present their ‘cause’. No ex parte arbitral proceeding is
desirable.
(iii) A party should not be examined in absence of another
In the context of law of arbitration, ordinarily it is not permissible to
examine one party in the absence of another. Thus, there is no ex parte
arbitration as such.5 It is the fundamental principle of natural justice that
no order should be passed without hearing both the parties in arbitration.
No one should be condemned unheard rather unilaterally.6
Where it is found that the arbitral proceedings were arbitrary, unfair
and were not based on principle of natural justice, the arbitral award is
liable to be set aside.'
Even the arbitrator is expected to permit the parties to take the help
of an advocate, if the parties sought such expertise in legal assistance.

1. Vengamma v. Kesanna, AIR 1953 SC 21, 22-23 and N .K Ahammad v. Madras State
Housing Board, (1979) 1 MLJ 185; K.V. George v. Secy, to Government, Water and Power
Dept., Trivandrum , AIR 1990 SC 53; A.K. Kraipak v. Union o f India, AIR 1970 SC 150.
2. On Arbitration, 20th Edn. p. 233.
3. International Airport Authority o f India v. K.D. Bali, AIR 1988 SC 1099.
4. Vengamma v. Kesanna, AIR 1953 SC 21.
5. Ibid.
6. Commissioner Wealth Tax v. Jagdish Prasad, (1995) 211 ITR 472 (Pat.).
7. Union o f India v. Hindustan Development Corporation, AIR 1994 SC 988.
ARBITRATION 18 7

(iv) Section 18 reflects principles which are well established by

Constitutional Law
The language used by the Legislature in Section 18 of the Arbitration
and Conciliation Act, 1996 shows principles which are otherwise well settled
by the jurisprudence developed by the Apex Court in the context of the
Constitutional and administrative laws.1
There will be no distinction between quasi-judicial function and
administrative function for purpose of application of rules of natural justice.
In D.K. Yadav v. J.M.A. Industries,2 the Apex Court has held that
"termination of the service of a worker without giving reasonable
opportunity of hearing is unjust, arbitrary and illegal. The court further held
that the right to life enshrined in Article 21 of the Constitution includes the
right to livelihood and an order of termination of service of an employee has
civil consequences of depriving him of his livelihood and therefore, fair play
requires that before taking such an action a reasonable opportunity must be
given to him to explain his case. The procedure prescribed for depriving a
person of livelihood must meet the challenge o f Article 14 so it must be
right, just and fair and not arbitrary, fanciful or oppressive. Even the
administrative or4er which involves civil consequences must be made
consistent with the rules of natural justice. The substantive or procedural
laws and action taken under them will have to pass the test under Article
14. There can be no distinction between a quasi-judicial function and an
administrative function for the purpose of principles of natural justice. The
aim of both administrative inquiry as well as quasi-judicial inquiry is the
same that is to arrive at a just decision and if the rule of natural justice is
calculated to secure justice or to put it negatively, to prevent miscarriage of
justice it is difficult to see why it should only apply to quasi-judicial enquiry
and not to administrative enquiry. It must logically apply to both, the Apex
Court declared—the principles of natural justice are part o f Article 14 and
the procedure prescribed by law must be just, fair and reasonable."
Article 14 o f the Constitution of India, 1950 is the basic law of land and
its preamble enshrines the concept of equality and rule of natural justice. It
is a protection against arbitrariness and in case of arbitrary action it is
liable to be dismissed. In Maneka Gandhi v. Union o f India? the Apex Court
propounded a new concept of equality and in the words of Bhagwati
J.— "....Equality is a dynamic concept with many aspects and dimensions and
it cannot be imprisoned within traditional and doctrinaire limits." Article 14
strikes at arbitrariness in State action and ensures fairness and equality of
treatment. The principle of reasonableness, which legally as well as
philosophically, is an essential element of equality or non-arbitrariness,
pervades Article 14 like a brooding omnipresence."
It is well settled doctrine that equality before law and equal protection
of law are the essential ingredients of natural justice. Even in the context of
law of arbitration Section 18 of the Arbitration and Conciliation Act, 1996
reads as under : "The parties shall be treated with equality and each party
1. A.K. Kraipak v. Union o f India , AIR 1970 SC 150; Raipur Development Authority v.
Chokhamal Contractors, AIR 1990 SC 1426.
2. 1993 (3) SCC 258; See also Prof. J.N. Pandey’s on Constitutional Law 36th Ed. p. 85.
3. AIR 1978 SC 597.
188 THE ARBITRATION AND CONCILIATION ACT, 1996

shall be given a full opportunity to present his case. Thus, the arbitral
tribunal is under statutory obligation to abide by the principle of equality
and not be allowed to discriminate the parties arbitrating before tribunal. It
means the parties are entitled to be given a full opportunity to put up their
point of arguments and must be allowed to submit materials in support of
their contention.
Now, it can be very well said that provisions contained in Section 18
show the principle of natural justice and fair play which are well established
by constitutional and administrative laws.
(v) Arbitral award must be based on evidence.
The Supreme Court in Municipal Corporation v. Jagannath,1 has ruled
and reiterated that it is not permissible for the arbitral tribunal to proceed
with personal knowledge. Tribunal has to rely on evidence/documents
submitted before them by the parties. Though, the arbitrators are appointed
by the parties but they should not present themselves as advocates for the
parties who have appointed them. Thus, the arbitrators must give full and
reasonable opportunity to the other party to present his case. All arbitrating
parties must be examined in presence of all the arbitrators or atleast in
presence of majority of arbitrators.
Generally, arbitrators are appointed on the basis o f their expertise in
the subject-matter of dispute referred. Therefore they can assist the parties
to reach at a proper conclusion without making any kind of discrimination.
According to the Apex Court "the doctrine of natural justice pervades
the procedural law of arbitration. Its observance is the pragmatic
requirement o f fair play in action."
Section 19. D eterm ination o f rules o f p roced u re. — (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.
COMMENTS
Section 19 of the Act, 1996 is on the pattern of Article 19 of the Model
Law except sub-section (1) of Section 19. Section 19 provides for procedure
to be adopted by the arbitral tribunal.
Section 19(1) states that the arbitral tribunal shall not be bound by the
Code of Civil Procedure, 1908 and also by the Indian Evidence Act, 1872.
The purpose behind sub-section ( 1 ) is to reduce wide scope o f litigation by

1. AIR 1987 SC 2316.

ARBITRATION 189

narrowing application of various statutes. Thus, the procedure laid-down in

these enactments may or may not be adopted by the arbitral tribunal.
Section 19(2) is the most liberal part in the context of modern
arbitration law, which provides freedom to the parties to determine the
procedure to be followed by the arbitral tribunal while conducting its
proceedings. Such procedure is to be prescribed as per the agreement
between the parties. Thus, sub-section (2) gives convenience to the parties
to adopt consented or mutually agreed procedure to be followed by the
arbitral tribunal in its proceedings, but subject to provisions of Part I of the
Act. The freedom provided in sub-section (2) is of continuing one, therefore,
it is desirable to consult the arbitral tribunal if the parties wish to make any
changes in procedure after constitution of an arbitral tribunal.
Section 19(3) provides measure in the event of the parties not reaching
an agreement to prescribe the rule of procedure to conduct arbitral
proceedings, in such a case the arbitral tribunal itself may conduct the
proceedings "in the manner it considers appropriate" as provided in
sub-section (3).
In other words, if the parties fail to prescribe mutually any procedure,
in such a case the arbitral tribunal shall be free to prescribe a procedure as
it thinks just and proper.
Section 19(4) provides specified powers to the arbitral tribunal to
determine the admissibility, relevancy, materiality and weight o f any
evidence produced before it. Thus, the arbitral tribunal may not adopt
procedure contained in the Indian Evidence Act, 1872 but may adopt the
principles o f equity, justice and fair play.
It is settled law of procedure that the civil courts have to follow the
procedure laid down in the Code of Civil Procedure, 1908 and in regard to
evidence they have to follow the provisions laid down in the Evidence Act,
1872 which is being a procedural law, applicable to the Civil Courts and also
to Criminal Courts. However, statutory Tribunals may have their procedure
laid down by their governing statutes. In the context of an arbitrator, private
tribunal has its private procedure and for this purpose the arbitration
agreement may contain the rules of procedure prescribed by the parties. It
is to be noted that in the absence of rules o f procedure in the arbitration
agreement, under Section 19 of the new Act, 1996, an arbitrator is at liberty
to prescribe the procedure himself but such a self governing procedure must
be in conformity with the principle of natural justice and fair play. It is for
the arbitrator to ensure the compliance with the principle of natural justice
even if the arbitration agreement contains the rules o f procedure for
arbitration. An arbitrator cannot ignore the principle of natural justice.
English Law
Undoubtedly, the English Arbitration Act being pari-materia to the law
of arbitration in India, it is relevant to consider the English Arbitration Act,
on the point o f procedure in arbitration proceedings.
The parties are free to agree on the procedure to be followed by the
arbitral tribunal in conducting its proceedings, thus they may prescribe their
own rules of procedure. It is normally an implied term of an arbitration
190 THE ARBITRATION AND CONCILIATION ACT, 1996

agreement that the arbitrator must decide the dispute in accordance with
the ordinary law, which includes the basic rules as to procedure, although,
the parties can expressly or impliedly consent to depart from those rules.1 If
the rules of procedure are contained in an agreement, it must be considered
in the context of the arbitration. The parties may give powers to arbitrator
to make the rules o f procedure which are applicable in the settling of
disputes/difference between the parties and the arbitrator may also be
empowered to make rules incidental to making the arbitral award as the
arbitrator thinks fit. It is clear that the arbitrator obtains his jurisdiction
solely from arbitration agreement, it is not open to him to reject any part of
that agreement or to disregard any limitation placed on his authority. He
has to take agreement as a whole. He may, however, disregard the rules
which are against the principle of natural justice .2
According to Halsbury3— "Arbitration agreements seldom contain a
complete code of procedure and where there is no express written term
relating to the point of procedure the court has to ascertain the term to be
implied, which it does from the language the parties have used in their
written agreement, the provisions of the Arbitration Act, 1996, surrounding
circumstances, and any custom or trade practice which must be taken to be
incorporated in their agreement. A custom or trade practice however, is not,
to be incorporated in an agreement if it is unreasonable; not because the
parties to a contract cannot expressly agree to something unreasonable, but
because the court will not draw the inference that they have done so by
silence. It is in this connection that some people say "the rules of natural
justice" blown in by a side wind ." 4
According to Jenkins L.J.—
Where the court refused to imply that a trade custom applied, as
it was consistent with the express provisions of the contract which
contained sufficient indication that the arbitration was to be carried out
in accordance with the ordinary manner of carrying out formal
arbitration as distinct from reference of a less formal nature .5
In Myron (owners) v. Tradex Export S.A. Panama City,6 wherein Tradex
Export S.A. Panama City moved an application to set aside or remit an
arbitral award on the ground inter alia that they were expecting an oral
hearing. The court held that they were—familiar with the procedure of
dispensing with oral evidence and argument. Such a departure from the
common law rules could be fully justified provided the parties were agreed.7
In the context of a London Shipping arbitration the parties impliedly
1. Halsbury’s Laws of England, Hailsham Edition, 4th Edn. Vol. 2, Para 505 : London Export
Corporation Ltd. v. Jubilee Coffee Roasting Co. Ltd., (1958) 1 WLR 661 : (1958) 2 All
E.R. 441.
2. Ibid.
3. Laws of England, Hailsham Edition, 4th Edn. Vol. 2, para 534.
4. London Export Corporation Ltd. v. Jubilee Coffee Roasting Co. Ltd., (1958) 2 All. E.R.
441.
5. (1958) 2 All ER 421 : (1958) 1 WLR 675.
6. (1979) 2 All ER 1263; see also French Government v. Tsurushima Maru (owners), (1921)
37 TLR 961 CA.
7. Star International, Honk Kong CU.K.) Ltd. v. Bergbouhandel G.M.B.H., (1966) 2 Lloyd’s
Rep. 16.
ARBITRATION 191

agreed to the customary procedure subject only to qualification that they

could, on giving due notice require matters to be handled with strict
formality .1
Where the agreement of reference requires the witness to be examined
on oath or the arbitrator to have a view, such requirement must be. observed
by the arbitrator.2 However, an arbitrator need not hold a view unless
required to do so by the arbitration agreement.3
Where one party is represented by counsel, the other party must be
given an opportunity of being similarly represented. Thus, an arbitrator can
refuse to hear counsel on either side because it would amount to violation of
fundamental principle o f natural justice and fair play .4
It is settled law in English Arbitration that each party must be
permitted to adduce all his evidence, and must be fully heard. The arbitrator
or umpire should not close the hearing and proceed to make his arbitral
award without notifying those parties.5
An arbitrator is under legal obligation to comply with the rule of
evidence, therefore, he must not admit and act upon evidence which
obviously is inadmissible. For illustration, Court observed in French
Government v. Tsurushima Maru (owner),6 wherein evidence which strictly
is inadmissible is admitted in many references where the parties or the
arbitrators or both, were not familiar with the law of evidence or no
objection was taken, and in cases where the arbitrator admits that which is
not evidence even if he knows it to be inadmissible at law. The court will in
its discretion refuse to set aside his award if his decision is not a misconduct
but a mere mistake .7
It is submitted that the English Arbitration Law emphasises the rule
of evidence to be followed as a rule of arbitration procedure. Hearsay
evidence is, however, generally admissible. In England the Civil Evidence
Act, 1968 regulates the giving of hearsay evidence admissible in the old Act,
namely Section 9 and provides for the admission of hearsay evidence
generally, whether contained in documents or given orally (Section 1) subject
to rules for assessing its weight and the cases in which it can act as
corroboration (Section 6 ). In arbitration strict rule of evidence may be
relaxed where an arbitration agreement does not express a contrary
intention, the arbitration has conferred power in certain circumstances to
examine the parties and their witnesses on oath or affirmation to give
directions as to costs etc.
Thus, it can be said that generally arbitrator has to follow the rules of
procedure in accordance with the arbitration agreement and in absence of
procedure therein, he has to follow the procedure which does not violate the

1. Ibid.
2. Smith v. Goft, (1845) 14 M & W 264.
3. Monday v. Black, (1861) 9 CB (NS) 557.
4. Whatley v. Morland, (1834) 2 Dome. 249; see also Macqueen v. Nottingham Calsedonian
Society, Re, (1861) 9 CB (NS) 793.
5. Re, Maunder, (1883) 49 U 535.
6. (1921) 37 TLR 961 C.A.
7. See also, Hagger v. Baker, (1845) 14 M & W 9; James v. James & Bendall, (1889) 23
Q.B.D. 12 C.A.
192 THE ARBITRATION AND CONCILIATION ACT, 1996

fundamental principles of natural justice.

Indian Law
Originally, the concept of arbitration is a creature of contract, which
has to follow the rules of procedure prescribed in the contract, namely in the
arbitration clause. The present Arbitration and Conciliation Act, 1996
namely, Section 19(1) reads as under—
"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).”
Therefore, arbitral tribunal is not bound to follow the procedural laws
such as Code of Civil Procedure, 1908 and Indian Evidence Act, 1872. It
means the Code of Civil Procedure and Evidence Act do not apply1to the
arbitral proceedings.
In the context o f Indian Arbitration law the proceeding before the
arbitrator is quasi judicial/judicial, the arbitrator has to perform function
like any other Judge. He is bound to observe the ordinary rules laid down
for the administration of justice unless he is expressly prohibited or absolved
from so doing. Ordinary rules of administration of justice would not mean
applicability o f every rule or procedure laid down in the Code of Civil
Procedure for the trial of suits.1
It is well settled legal position that an arbitrator is not bound by the
technical rules of procedure which the courts are required to follow .2
(i) Arbitral proceedings should be governed by the principle of
natural justice
The Delhi High Court in Modi Industries Ltd. v. Union o f India,3
observed that an arbitrator is not necessarily to be a person familiar with
the laws of procedure, however, he occupies the position as a Judge
appointed by the parties in whose sense o f justice they have faith and he is
asked to do justice. Therefore, his procedure should be such as a reasonable
man should follow in deciding the disputes impartially.
Where there is no special procedure agreed or consented to by the
parties or justified by the peculiar circumstances of the case, as and when
the arbitrator is appointed on account of his skill and knowledge of the
subject, his procedure should be governed by the principles o f natural justice.
(ii) Recital "in whatever manner" does not constitute deviation from
the principles of natural justice
Whether the recital in the arbitration agreement as "in whatever
manner he thinks fit" denotes that the arbitrator is absolved from following
the principles of natural justice. While considering the above question the
Apex Court in Dewan Singh v. Champat Singh f observed—
"An arbitrator constitutes a quasi judicial tribunal and it is an
1. Dattaram Munshilal v. Harjimal & Sons, AIR 1930 Sind 170.
2. RamincLer Singh v. Mohinder Singh , AIR 1940 Lak. 186; Gudipoodi Subbayya v. Kotapalli
Seshaya, AIR 1928 Mad. 48(2).
3. ILR (1970) 1 Del. 621; see also Krishna Gopal v. Chandi Prasad, AIR 1953 Nag. 309.
4. AIR 1970 SC 967; see also M.A. Sujan on Law Relating to Arbitration & Conciliation,
2nd Edn. 2001, p. 263.
ARBITRATION 193

implied term of an arbitration agreement that the appointed arbitrator

will determine the disputes referred to him according to the law of the
land. Even a recital in the agreement that the arbitrator can decide "in
whatever manner he thinks fit", cannot be interpreted to empower him
to deviate from the law or the principle of natural justice and to base
his decision on his personal knowledge. An arbitrator is required to
consider the evidence, oral or documentary, placed before him at the
hearing in the presence of both the parties and base his decision on
that evidence. The parties will be unaware of the contents of his
personal knowledge and would have no opportunity to correct any
mis-conceptions that may have crept into it or neutralise the
assumptions made. This would result in denial of justice to the parties.
However, in a commodity transaction arbitration or as a matter of fact
any trade transaction arbitration, a merchant arbitrator may be
authorised to make use of his personal knowledge regarding the
practices o f that trade etc. which is a different matter altogether and
does not result in denial o f justice."
However, the proceeding before the arbitrator is not required to be
conducted with meticulous care as it is needed in Civil Courts if the
substantial compliance with the principles of natural justice is done, such
arbitration is held to be proper. 1
(iii) Condition precedent be performed by the arbitrator before
making award
If the terms and conditions of matter submitted for arbitration make
any condition precedent to be perfoimed by the arbitrator before arriving at
final arbitral award, in such circumstance an arbitrator must comply with
those terms and conditions. To illustrate the point in Chandmul Mulchand
v. S.C. Nordlinger,2 wherein the arbitration agreement provided for survey
however, the arbitrator proceeded without conducting the survey and he
made the arbitral award, the Calcutta High Court held that arbitral award
is invalid;made without jurisdiction.
(iv) Concrete principle of contractual justice must prevail over
vague principle of natural justice
Some of the High Courts are of opinion that in no way the principle of
natural justice can be overlooked in making of the rules of procedure
regarding arbitration. For instance, in Kesholal Ram Dayal v. Laxman Rao
Ram Krishna ,3 the court observed that the procedure adopted by the
arbitrator should not be against the principle of natural justice. It is clear
that the arbitrator may not be strictly bound by the rules and procedure
observed in a court but it does not mean that his procedure should be
opposed to natural justice.
The court would be reluctant to interfere unless there is something

1. Prabhat Kumar v. Jagdish Chandra Narang, AIR 1968 Pat. 395; see also Municipality
o f Ahmedabad v. Ravijibhai Bhailal, AIR 1935 Bom. 127.
2. AIR 1924 Cal. 490 : 27 CLN 261.
3. AIR 1940 Nag. 386; see also Narsingh Narain Singh v. Ajodhya Prasad Singh, 15 CRJ
110.
194 THE ARBITRATION A N D CONCILIATION ACT, 1996

radically wrong and vicious in the proceedings.1

There are two opinions in respect of complying with the principles of
natural justice. While one view is that the arbitrator has to regard the
principle of natural justice and other view is that the parties can prescribe
their private procedure which may disregard the principle of natural justice
while adopting the reasoning and concrete principle of contractual justice.
To what extent the parties can prescribe their own rules of procedure
in the conduct of arbitral proceedings has been considered in D.L. Miller &
Co. Ltd. v. Daluram Goganmull,2 by the Calcutta High Court. In this case
written statements submitted before the arbitrator were exchanged between
the parties, however, the copies of lists showing issues of argument could not
be exchanged between them. Whereas one of the parties demanded to
cross-examine the representative of other party and provided a list
containing 52 questions on the ground that some o f the questions had
already been covered in the written statement and thus these are irrelevant,
the arbitrator refused to permit cross-examination. According to Rule 11 of
the Rules of the Tribunal of Arbitration of the Bengal Chamber of
Commerce, only one copy of each party’s case was to be given to the other
side, and as per Rule 15, the dispute was to be adjudicated on the basis of
the written statements of the parties, by the court o f arbitration. Neither the
oral evidence nor appearance of the parties was permissible under the said
Rules. Even no formal hearing was to be conducted. However, the court had
power to appoint time and place for the hearing of the subject-matter
referred to and also to take oral evidence of the parties under Rule 17 of the
Tribunal of Arbitration of the Bengal Chamber of Commerce, and any
witness on their behalf was required to generally do all other things which
during the proceedings and reference the court might require. It was held
that the rule did not give the parties any unqualified and unfettered legal
right to cross-examine the witness for the other side. In the instant case the
court observed as follows :—
"Time has come to insist that enthusiasm for natural justice must
always be tempered with due and proper regard for contractual justice
to which the parties agree. Parties have the right by contract to provide
for their own private forum of arbitration and also to provide for their
private procedure. Where private procedure speaks in clear terms the
voice of natural justice remains silent.... when the parties agree to go
to arbitration they stipulate not so much for vague principles of natural
justice, as for concrete principle of contractual justice according to the
contracts of the parties and their specific stipulations. Where the
contract of arbitration itself prescribes a private procedure of its own,
then so long as such agreed private procedure is not against the laws
and the statutes of the land, then such agreed procedure must prevail
over the notions and principles of natural justice."
The court further observed if the parties agreed to go to arbitration
under the rules of Chamber of Commerce and the rules provided that the
arbitrators’ names may not be disclosed, the parties will not infringe the
principles of natural justice or the provisions of the Arbitration Act. The
1. Re, Hopper, (1867) LR 2 QB 367; Shiva Hpu v. U. Min. Nyum, AIR 1925 Rang. 383.
2. AIR 1956 Cal. 361.
ARBITRATION 195

court said that the rules are a bargain between the parties and the parties
will be bound by the same. In case the rules provide for the disclosure of the
names of arbitrators to the members of the Chamber of Commerce but not
to the non-members, it does not amount to discrimination within the ambit
of the Article 14 of the Constitution of India, 1950.
Hence, the parties are at liberty to enter into such a contract and
bargain for contractual justice of their own choice . 1
In Union Textile Traders v. Shree Bhowani Cotton Mills Ltd.,2 the Apex
Court observed that it must be borne in mind that if the rules of the
Chamber of Commerce themselves contemplate of parties being notified of
the appointment of the arbitrators, the arbitral award will be invalid if the
arbitrators conceal their names from the parties.
It is submitted that the arbitrator is a creature o f the arbitration
agreement i.e., contract, arbitrator is a contractual judicial tribunal. An
arbitrator draws authority and power from and is also confined to the
contracts. It is clear that the arbitrator is not bound to follow the Code of
Civil Procedure and the provision of the Evidence Act, because these
procedural laws do not apply to the arbitration proceedings. Ordinarily, the
arbitrator is expected to follow the principle o f natural justice while
conducting the arbitration proceedings, unless a special procedure is
prescribed' by the parties in the contract itself, in such situation the parties
can even select a procedure contrary to the principles of natural justice.
(v) Absence of a written notice to a party—Whether invalidates the
arbitration proceedings
It is settled legal position that in the context of arbitral proceedings,
the arbitrator must conduct an impartial and fair procedure and he must
provide full and equal opportunity to both the parties. The Arbitrator must
allow both the parties to submit their evidence and arguments and also
allow cross-examination of the witnesses giving oral evidence. An arbitrator
must give due notice of hearing to the parties and should not conduct
proceeding ex-parte. So long as there is substantial compliance with the
principle of natural justice, arbitral proceeding need not be conducted as is
required in civil courts.
In Thademal v. Menghraj,3 it was held that the absence of a written
notice to a party does not therefore necessarily invalidate the proceedings.
The court observed that a party who fails to appear in spite of having actual
knowledge of the proceedings or in spite of verbal notice of the proceedings,
such party is not entitled to challenge the validity of the arbitral award on
the ground of non-service of formal notice.
The mere absence of formal notice to the parties will not invalidate an
award, if the arbitrator gave the parties a reasonable opportunity of being
heard .4 At the time of delivery of the arbitral award, the intentional absence
of the defendant does not vitiate the arbitral award .0

1. AIR 1966 Cal. 588.

2. AIR 1970 SC 1940.
3. AIR 1930 Sind. 190.
4. Prabhat Kumar v. Jagdish Chandra Narang, AIR 1968 Pat. 395, 399.
5. Joshi Damodarji v. Joshi Ram Nath, AIR 1916 All. 278.
196 THE ARBITRATION AND CONCILIATION ACT, 1996

(vi) Power of the arbitrator regarding admissibility of evidence

Generally, the provisions of the Indian Evidence Act, 1872 do not apply
to the arbitration proceedings, although the arbitrator is a legally authorised
person to take evidence and the arbitrator or arbitral tribunal has been
excluded from the definition of the "court" as provided in Section 2(l)(e) of
the Arbitration and Conciliation Act, 1996. Therefore, it can be said that
though the proceedings before the arbitrator are judicial in nature but the
provisions of the Indian Evidence Act would not be applied. 1 It appears from
the above decision of the Bombay High Court that ordinarily, the arbitrators
are the persons who have no acquaintances with the Law of Evidence and
they may find it difficult as to the rules of evidence enumerated in the
Indian Evidence Act. It has been held that the strict rules of evidence do not
apply to arbitral proceedings." However, it is to be specifically mentioned
that the arbitrator has to follow the basic rules of evidence in order to
comply with the principles of natural justice, it must be given effect to even
by the arbitrator. Thus, the provisions contained in Sections 91 and 92 of
the Indian Evidence Act, 1872, namely, under Section 91 of Evidence Act the
terms of contracts, grants and other disposition of property have been
reduced to the form of a document, and in all cases in which any matter is
required by law to be reduced to the form of a document, no evidence shall
be given in proof of the terms of such contract etc. However, under Section
92 of the Indian Evidence Act, 1872, when the terms of contract are reduced
into writing which is required by law, no evidence of any oral agreement or
statement shall be admitted, as between the parties to any such instrument
or their representatives-in-interest, for the purpose of contradicting, varying,
coding to, or substracting from its terms. Thus, once the terms o f contract
have been reduced into writing as required by law, [As provided in Section
7(3) of the Arbitration and Conciliation Act], no oral evidence is admitted
regarding the terms o f contract. Under the Act, 1996 namely, Section 19 the
arbitral tribunal shall not be bound by the Code of Civil Procedure, 1908 and
the Indian Evidence Act. 1872. But, in keeping view with the principle of
natural justice and fair play arbitral tribunal is expected to follow atleast
the fundamental rules of evidence. The Apex Court in Banarsi Dass v. Brig.
Maharaja Sukhjit Singh,3 observed that the documentary evidence could
have been availed of by a party, but it failed and instead plaintiff laid oral
evidence, it was held since the documentary evidence could be obtained
which the plaintiff failed, he could not rest his case on oral evidence alone
against the record produced by the opposite party.
Oral evidence would be excluded against the documentary evidence,
only when, the execution of disputed document is admitted .4
It is settled legal position that the documentary evidence is more
reliable than the oral evidence. Under Sections 91 and 92 of the Evidence
Act, 1872, there is prohibition of oral evidence for the purpose of
contradicting meaning or adding to the terms o f the such documents. The

1. Aboobacker Latif v. Reception Committee, AIR 1937 Bom. 410.

2. J. Kaikobal v. Kharnbatta, AIR 1930 Lah. 280 (2).
3. 1998 (2) SCC 81 : 1997 (8) JT 556.
4. The General Court Martial v. Col. Aniltej Singh Dhaliwal, AIR 1998 SC 983 : 1998 (1)
SCC 756.
ARBITRATION 197

exception is that any fact which would invalidate the instrument can be
proved by adducing other evidence.1
When is the oral evidence admissible? This question was considered by
the Apex Court in H in d u P u b lic v. R ajd h an i P u ja S am ittee etc. ,2 wherein the
court observed that oral evidence could be adduced to show that the recitals
in a deed were nominal as were not intended to be acted upon or that they
were not meant to alter the existing state of affairs. Oral evidence could,
therefore, be issued to show that the Society’s main concern was the
celebration o f the Durga Puja festivals etc. Therefore, the Deputy
Commissioner was right in relying on this part of the oral evidence.
While determining the admissibility or inadmissibility of evidence
tendered by the parties the arbitrator must act honestly and impartially and
if he determines erroneously, it may amount to legal misconduct on the part
o f the arbitrator.3 The arbitrator is under obligation to hear all evidence
tendered by the parties and he has to decide whether the evidences tendered
are relevant and admissible or irrelevant and inadmissible. However, his
decision should be judicially correct. Simply, shutting out of evidence
without furnishing reasons would amount to misconduct. It is clear that
though the arbitrator has absolute discretion to admit or reject the evidence
adduced by the parties, but if the absolute discretion is exercised against the
basic rule of evidence and public policy, such arbitral proceeding may be
vitiated.4 Mere non-taking of any evidence will not be sufficient ground for
setting aside the arbitral award, unless the award made, is against the
public policy and principles of natural Justice.5
It is settled law of arbitration that the rules of procedure consented and
agreed by the parties has to be followed in the arbitral proceedings. Wherein
both the parties have adduced their evidence and requested the arbitrator to
take them on record and in absence of protest by either party, the
presumption would be drawn that the evidence taken is with the due
consent of the parties.
The Apex Court in K u n d a le & A ssocia tes v. K on ka n H otels (P.) L td .,6
held "the respondents did not, at any time, protest before the arbitrator
against the documents being taken on record without a formal proof as
envisaged under the Evidence Act, Documents on both sides have been taken
on record by the arbitrator. The award being a non-speaking award, there is
no question of the arbitrator dealing in the award itself with various claims
or revised claims made by the parties before him. In the premises, the court
set aside the impugned judgment of the High Court and restored the
judgment and order of the trial court. There will, therefore, be a decree in
terms of the award. The appeal is allowed accordingly." It was held that on
the request made by the parties the arbitrator may take the
documents/evidence without formal proof of consent by the parties. The court

1. Pawan Kumar Gupta v. Rochiram Nagdeo, AIR 1999 SC 1823.

2. AIR 1999 SC 964 : 1999 (2) SCO 583.
3. Aishbai v. Essaji, 38 Bom. 60.
4. Chander Bhan Bilotia v. Ganpatrai Sons, AIR 1944 Cal. 127; see also Maria v. Charlotte,
2 CLR 488; Haji Ahmed v. Essaji, 14 BLR 1007.
5. Ibid.
6. AIR 1999 SC 2010.
198 THE ARBITRATION A N D CONCILIATION ACT, 1996

further held that the consent given expressly or impliedly by acquiescence is

shown by absence of protest. Thus, absence of protest would be treated as if
the consent is given.
(vii) Whether "hearsay evidence" may be admitted in the arbitral
proceedings
In view of the advancement like data fed to a computer it can be relied
in the proceeding before the court for the purpose o f contradicting a witness
etc. In technical sense such evidence is hearsay evidence and ordinarily, it
is not admissible in evidence. The foregoing discussion shows that the
arbitrator is under no obligation to follow the rules envisaged in the Indian
Evidence Act, 1872. However, admissibility of hearsay evidence in the
arbitral proceedings has not been accepted in the context o f India. It seems
to be outside the scope of law of arbitration. But, there is a decision bearing
to this point as in Budh Ram v. Chandra/ it was held that "an award based
on any enquiry made by the arbitrators from the neighbours of the parties
in the presence of the latter cannot be said to be based on a private enquiry
and must be upheld though it is clearly based on hearsay and conjectures."
Though, the arbitrator has an absolute discretion under the arbitration
agreement, but a hearsay evidence has not been recognised in arbitration
proceedings except in certain contingencies.
(viii) Arbitral Tribunal—Whether have the status of a Civil Court
An Arbitral Tribunal is not bound by the Rules of procedure formulated
in the Code o f Civil Procedure, 1908 is made clear by Section 19(1) of the
Arbitration and Conciliation Act, 1996. Therefore, an Arbitral Tribunal is not
a court. Hence, it follows that the Arbitration and Conciliation Act, 1996
elevates an arbitral award to the level of a decree,for the purpose of
execution. But, it does not elevate the Arbitral Tribunal to the status of a
Civil Court.2
S e c tio n 2 0 . P la c e o f a r b it r a t io n . — (1 ) T h e p a rtie s a re fre e to
a g re e o n th e p la c e o f a r b itr a tio n .
(2 ) F a ilin g a n y a g re e m e n t re fe rre d to in s u b -s e c tio n (1 ), th e
p la c e o f a r b itr a tio n s h a ll be d e te rm in e d b y th e a r b itr a l tr ib u n a l
h a v in g re g a rd to th e c irc u m s ta n c e s o f th e case, in c lu d in g th e
c o n v e n ie n c e o f th e p a rtie s .
(3 ) N o tw ith s ta n d in g s u b -s e c tio n (1 ) o r s u b -s e c tio n (2 ), th e
a r b itr a l tr ib u n a l m a y , u n le s s o th e rw is e a g re e d b y th e p a rtie s , m e e t
a t a n y p la c e i t c o n s id e rs a p p ro p ria te fo r c o n s u lta tio n a m o n g its
m e m b e rs , fo r h e a rin g w itn e s s e s , e x p e rts o r th e p a rtie s , o r fo r
in s p e c tio n o f d o c u m e n ts , goods o r o th e r p ro p e rty .
COMMENTS
Section 20 is modelled on Article 20 of the Model Law.
Section 20(1) provides for place of arbitration, where the
arbitrator/arbitrators has/have to meet and conduct proceedings. Under

1. 67 IC 866.
2. Kotak Mahindra Bank Ltd. v. Sivakana Sundari, 2011 (4) LW 745 (Mad).
ARBITRATION 199

sub-section (1) the parties are free to select place of arbitration which may
be decided by an agreement.
Section 20(2) provides that if the party fails to select and fix any place
of arbitration, in such a situation the arbitral tribunal itself may select and
fix place of arbitration. However convenience of the parties is to be taken
into consideration while fixing place of arbitration as to remove scope of
arbitrariness.
Section 20(3) provides power to the arbitral tribunal that it may
conduct its meeting at any place which it considers proper for consultation
among its members, for the .-purpose of hearing witnesses, experts, or the
parties, or for inspection of documents, goods or other property. Sub-section
(3) may be read with Sections 18, 19 and 24 of the Act, 1996.
To sum up the provisions laid down in Section 20 of the present Act,
1996 the parties are free to determine the place of arbitration as the venue
of arbitration, however it is to be fixed by the mutual consent of the parties.
Where there is no mutual consent as to place of arbitration, then the
arbitrator has to fix the venue of arbitration. It is to be noted that arbitrator
while fixing the venue of arbitration has to see the convenience of the
parties and in absence of consent of the parties the'arbitrator has to perform
this duty by consulting its members.
Venue of arbitration
The Supreme Court in Sanshin Chemicals Industry v. Oriental Carbons
and Chemicals Ltd.,1 observed that appeal against the decision relating to
venue of arbitration, can be maintained. Where the parties agreed for
reference of dispute to Arbitral Tribunal, the decision on the venue of
arbitration will have to be determined by Joint Arbitration Committee. It
was held that such decision of the Arbitration Committee will be justified
and will be a decision in the eye o f law and therefore, not appealable.
S e c tio n 21. C om m encem ent of a r b it r a l p ro c e e d in g s .—
U n le s s o th e rw is e a g re e d to b y th e p a rtie s , th e a r b itr a l p ro c e e d in g s in
re s p e c t o f a p a r tic u la r d is p u te com m ence o n th e d a te o n w h ic h a
re q u e s t fo r th a t d is p u te to be re fe rre d to a r b itr a tio n is re c e iv e d b y
th e re s p o n d e n t.
COMMENTS
Section 21 is modelled on Article 21 of the Model Law, it provides as
to when the arbitral proceedings are to commence and it also provides
freedom to the parties to decide upon the date, in respect of a particular
dispute, when to begin the arbitral proceedings. If the parties could not
agree on date of commencement of arbitration proceeding in respect of a
dispute, the arbitral proceedings are deemed to begin on the date on which
request to refer the particular dispute to arbitration is received by the
respondent. An application containing request to begin arbitral proceedings
must clearly mention date on which such a request has been made.
Section 21 is of direct relevance to Section 3 and the savings provision
in Section 85(2)(a), it is the running period of limitation.

1. AIR 2001 SC 1219.

200 THE ARBITRATION A N D CONCILIATION ACT, 1996

(i) Making a claim does not by itself commence the arbitration

proceedings
It is to be understood clearly that making a claim does not by itself
commence the arbitration proceedings, it does not necessarily lead to
commencement of the arbitration proceedings. The court of appeal in
Babanaft International v. Avant Petroleum/ has observed that making a
claim by the party does not show the existence of dispute, whereas request
for reference would arise only when the dispute has arisen between the
parties.
(ii) Applicability of the new Act, 1996 or the old Act, 1940
In Shetty’s Construction Co. Pvt. Ltd. v. Konkan Rly. Construction ,2 the
Apex Court observed, "it is settled position that test to determine whether
request for referring the dispute for arbitration was moved for consideration
on or after 26-1-1996, the date when the Act of 1996 came into force. If the
request was made before that date then the proceedings will be governed by
the old Arbitration Act, 1940 but if the request was made after the said date,
the proceeding will be governed by the new Arbitration and Conciliation Act,
1996."
The court explained that the conjoint reading of Sections 21 and
85(2)(a) of the new Act, shows that where the request for determination of
reference whether before or after 26-1-1996 was made before 26-1-1996 in
that case the proceedings will be governed by the old Act o f 1940. Where it
becomes obvious that the demands of referring the disputes for arbitration
was made by the petitioner in all the cases, much before 26-1-1996 in March
and April 1995 and in fact thereafter all the arbitration suits were filed on
24-8-1995. These suits were obviously filed prior to 25-1-1996 and therefore,
they had to be decided under the old Act of 1940.
(iii) Arbitral proceeding commenced before enforcement the Act,
1996
In U.P. State Sugar Corporation Ltd. v. Jain Construction Co. and
another,3 the Apex Court said that the only question which servives for
consideration is the applicability of the 1996 Act in the facts o f the present
case. Disputes and differences between the parties arose in the year 1991.
The respondent filed an application under Section 20 of the Act, 1940 on
1-5-1991. It invoked the arbitration agreement as contained in Clause 34 of
the contract. The arbitral proceeding was therefore, set in motion. In terms
of Section 21 of the Act, 1996, the arbitral proceedings in respect of a
particular disputes commences on a date on which the request for the
dispute referred to arbitration was received by the respondent. It was held
that in respect o f arbitral proceedings commenced before coming into force
of the Act, 1996 the provisions of the Act, 1940 would apply.
(iv) A party can seek Interim Relief from the court even before
commencement of arbitral proceedings
The Apex Court in M/s. Sundaram Finance Ltd. v. M/s. NEPC India
1. 11982) 3 All E.R. 244, referred in International Builder v. I.O.C., (1998) Arb. LR 552.
2. 1998 (5) SCC 599 : 1998 (6) JT 643.
3. 2004 (6) Supreme 449.
ARBITRATION 201

Ltd.,1 observed that the arbitral proceedings can commence and continue
notwithstanding a party to the arbitral agreement having approached the
court for an order for interim protection. The language of Section 21 read
with Section 9 of the new Act, 1996 is not identical to Article 9 of the
UNCITRAL Model Law but the expression "before or during arbitral
proceedings’ used in Section 9 of the new Act seems to have been inserted
with a view to give it the same meaning as those words have in Article 9 of
the UNCITRAL Model Law. It was held that it is clear that a party to an
arbitration agreement can approach the court for interim relief not only
during the arbitral proceeding but even before the arbitral proceedings.
(v) ‘Partly’ reference of disputes—Not permissible
It is well settled legal position that all disputes are to be referred
jointly to arbitration. In other words the disputes arising under the terms of
the arbitration agreement should be referred to arbitration, if some of
disputes are omitted subsequently, they cannot be referred to arbitration.
Thus, part by part disputes arising out o f the same arbitration agreement
cannot be referred to arbitration.2
(vi) Reference can be unilateral
Earlier, there were conflicting judicial opinions, whether the reference
to arbitration can be made unilaterally without the consent of either party
or the consent of both the parties is necessary for making a valid reference
to arbitration. The Apex Court in Bhanwarilal v. P.C. Agarwal ,3 has held
that wherein an arbitration agreement is in existence between the parties
within the meaning of Section 2(a) of the (old) Arbitration Act, 1940 (Section
2(b) of the new Act, 1996) then a "reference" can be unilateral and the date
o f commencement of arbitral proceedings is the date of formal request by a
party to be referred to arbitration and received by the respondent, which
would be deemed to have been received by the respondent either actually or
by implication. Thus, if it is proved that the request had actually been made
by the party, the unilateral reference may be sufficient for the
commencement of the arbitral proceedings.
The mandate o f present Section 21 of the Arbitration and Conciliation
Act, 1996 is founded on the principle that where a reference is made under
an arbitration agreement already entered into by mutual consent of the
parties, there is no need to seek consent again for making reference to the
arbitration when the dispute between them arises. In Bhusawal
Municipality v. Amalgamated Electric Company,4 the Apex Court had held
that "only one party could make a "reference" and it is not necessary that
the other party must have assented to it when there is an arbitration
agreement between the parties that the disputes arising between them shall
be referred to arbitration.

1. AIR 1999 SC 565 : 1999(2) SCC 479.

2. K.V. George v. State PWD, AIR 1990 SC 53.
3. AIR 1985 SC 1003.
4. AIR 1966 SC 1654.
202 THE ARBITRATION AND CONCILIATION ACT, 1996

(vii) Granting of Interim relief—Commencement of arbitral

proceedings is independent.
The Supreme Court in Firm Ashok Traders & another v. Gurumukh
Das Saluja & others,1 has held that the commencement of arbitral
proceedings is not dependent on interim relief being allowed or denied under
Section 9 of the Arbitration and Conciliation Act, 1996.
S e c tio n 22. L a n g u a g e . — (1) T h e p a rtie s a re fre e to agree
u p o n th e la n g u a g e or la n g u a g e s to be u se d in th e a r b itr a l
p ro c e e d in g s .
(2 ) F a ilin g a n y a g re e m e n t re fe rre d to in s u b -s e c tio n (1 ), th e
a r b itr a l tr ib u n a l s h a ll d e te rm in e th e la n g u a g e o r la n g u a g e s to be
u se d in th e a r b itr a l p ro ce e d in g s.
(3 ) T h e a g re e m e n t o r d e te rm in a tio n , u n le s s o th e rw is e s p e c ifie d ,
s h a ll a p p ly to a n y w r itte n s ta te m e n t b y a p a rty , a n y h e a rin g a n d a n y
a r b itr a l a w a rd , d e c is io n o r o th e r c o m m u n ic a tio n b y th e a r b itr a l
tr ib u n a l.
(4 ) T h e a r b itr a l tr ib u n a l m a y o rd e r th a t a n y d o c u m e n ta ry
e v id e n c e s h a ll be a c c o m p a n ie d b y a tr a n s la tio n in to th e la n g u a g e o r
la n g u a g e s a g re e d u p o n b y th e p a rtie s o r d e te rm in e d b y th e a r b itr a l
tr ib u n a l.

COMMENTS
Section 22 of the Act, 1996 is modelled on Article 22 o f the Model Law.
Section 22 determines in which language or languages the arbitral
proceedings are to be conducted and recorded.
Section 22(1) provides freedom to the parties to determine any
language or languages to be used in arbitral proceedings. The provision laid
down in sub-section (1) of Section 22 is aimed to fulfil the requirements
contained in Section 18 which states that "the parties shall be treated
equally and each party shall be given a full opportunity to present his case",
however, the arbitral tribunal while determining the issue of language or
languages, would consider the capabilities o f the parties and also arbitrators
in respect of language or languages so that arbitrariness and communication
lacuna as such is removed. However the determination of language or
languages is to be done by the arbitral tribunal when the parties failed to
reach any mutual agreement to determine language or languages to be used
in arbitral proceedings—Section 22(2) o f the Act, 1996.
Section 22(3) deals with the statement of claim, written statement,
applications, hearing and award shall be in the language or languages, so
determined.
In other words if there is no agreement or determination in respect of
language or languages or it is not specified that which language or
languages are to be used in the arbitral proceedings, the following can be in
any language or languages, the language used in :—
(i) written statement by a party

1. AIR 2004 SC 1433.

ARBITRATION 203

(ii) any hearing and any arbitral award, and

(iii) decision or other communication by the arbitral tribunal.
Section 22(4) deals in respect of the translated copies of the documents
produced in the proceedings and the languages used in these documents are
other than the determined language or languages, in such cases these
documents shall be furnished in the determined language or languages with
the original document or certified copies thereof. Although, a translated
document need not be duly certified.
Generally, issue o f determination of language or languages as such
especially becomes significant in matter of international commercial
arbitration. However, in India the arbitral proceedings are conducted mostly
in English language.
The provision contained in Section 22 of the present Act is to make the
present Act applicable to international arbitration, because it involves
languages of different countries. The old Arbitration Act, 1940 did not
contain any provision dealing with language.
S e c tio n 23. S ta te m e n ts o f c la im a n d d e fe n c e .— (1) W ith in
th e p e rio d o f tim e a g re e d u p o n b y th e p a rtie s o r d e te rm in e d b y th e
a r b itr a l tr ib u n a l, th e c la im a n t s h a ll s ta te th e fa c ts s u p p o rtin g h is
c la im , th e p o in ts a t is s u e a n d th e r e lie f o r re m e d y s o u g h t, a n d th e
re s p o n d e n t s h a ll s ta te h is defence in re s p e c t o f th e s e p a rtic u la rs ,
u n le s s th e p a rtie s h a v e o th e rw is e a g re e d as to th e re q u ire d e le m e n ts
o f th o s e s ta te m e n ts .
(2 ) T h e p a rtie s m a y s u b m it w ith th e ir s ta te m e n ts a ll d o c u m e n ts
th e y c o n s id e r to be re le v a n t o r m a y a d d a re fe re n c e to th e d o c u m e n ts
o r o th e r e v id e n c e th e y w ill s u b m it.
(3 ) U n le s s o th e rw is e a g re e d b y th e p a rtie s , e ith e r p a r ty m a y
a m e n d o r s u p p le m e n t h is c la im o r defence d u rin g th e co u rse o f th e
a r b itr a l p ro c e e d in g s , u n le s s th e a r b itr a l tr ib u n a l c o n s id e rs i t
in a p p ro p ria te to a llo w th e a m e n d m e n t o r s u p p le m e n t h a v in g re g a rd
to th e d e la y in m a k in g it .
COMMENTS
Section 23 of the Act, 1996 is modelled on Article 23 of the Model Law.
Section 23 provides as to what facts the parties shall mention in their
statement of claim or statement of defence.
Section 23(1) deals with the initial stage o f the arbitral proceedings in
which claimant shall state his claim sequentially and also submit facts in
support of his claim. The claimant is required to project the points at issue
and relief or remedy, he is seeking.
Under sub-section (1) the respondent is required to submit his defence
point-wise and be relevant in response to the claims sought. The parties are
authorised to submit their statements of claim and defence summarily if
there is an agreement to this effect.
A pleading is an essential element of any such proceedings which
should be clear, relevant and must touch-down the matter disputed, it is
204 THE ARBITRATION AND CONCILIATION ACT, 1996

because that the other party may not be taken by surprise and he can make
his defence properly and explanatory to defeat the claims as such.
It is not desirable to place undue emphasis on forms; instead the
substance of the pleading should be considered.1
Sub-section (1) does not specify that statement of claim and defence are
to be in writing but common practice prevails that statements are to be in
writing. These statements and any documents as such are to be
communicated according to Section 24(3) of the Act.
Section 23(2) provides that the parties may submit their statements
and supporting documents with any other evidence, if so, in respect of claim
or defence. However if either party or both the parties fail to fulfil the
requirements o f sub-section (2), the arbitral tribunal may issue appropriate
directions to the parties in this regard.
Section 23(3) states that the parties are permitted to amend or
supplement their claim or defence during the arbitration proceedings. But,
the arbitral tribunal is empowered under sub-section (3) to disallow such
amendment or supplement if there is delay in presenting it and the arbitral
tribunal is in view that at such stage of proceedings it is not proper to allow
such amendment or supplement. Thus, an inappropriate amendment or
supplement would not be allowed by the arbitral tribunal.
The Supreme Court of India held that the tribunal may also see
whether the amendment or supplement is necessary for the purpose of
determining the real questions in dispute between the parties.2
(i) It is imperative to state all material facts
The Apex Court in Ram Sarup Gupta v. Bishun Narain Inter College,3
has held that the purpose of a pleading is to enable the adversary party to
know the case it has to meet. In keeping with the view to have a fair trial
it is imperative that the party should state the essential material facts so
that the other party may not be taken by surprise.
The court is under obligation to give a liberal construction to the
pleading, therefore, no pedantic approach should be adopted to defeat justice
on strict technicalities. The court observed that there should not be undue
emphasis on form; but the substance of the pleading should be considered,
thus it is not desirable to place undue emphasis on technical requirements.
(ii) Statement of claim must contain full particulars
Though, the arbitral tribunal is not bound by the Code of Civil
Procedure, 1908 but the requirement of full particulars in the statement of
claim and also in the statement of defence fall within the scope of the
principle of natural justice and fair play. The Apex Court in D.
Ramachandran v. R.V. Jankiraman,4 observed that pleading or statement of
claim and defence in absence of full particulars and material facts would be
unnecessary and vexatious.

1. Ram Sarup Gupta v. Bishun Narain Inter College , AIR 1987 SC 1242.
2. P.H. Patil v. K.S. Patil, AIR 1957 SC 363, 366.
3. AIR 1987 SC 1242.
4. AIR 1999 SC 1128.
ARBITRATION 205

(iii) Scope of pleadings

In Syed Dastagir v. T.R. Gopala Krishna Setty, the Supreme Court
observed that what is to be seen by the court/tribunal is the true spirit behind
a plea/statement of claim and it is equally well settled that a plea should be
read as a whole. The court further observed that unless statute specifically
requires for a plea to be in any particular form, it can be in any form.
At appellate stage, the scope of the pleading cannot be enlarged in
respect of arguments advanced which are outside the scope of pleading.2
(iv) Where amendment sought, drastic in nature, cannot be allowed
Wherein the application was filed for amendment of the petition filed
under Section 20 of the Arbitration Act, 1940, it was held that where the
amendment sought was drastic in nature, normally it should not be allowed.3
In the present case the Supreme Court observed that the order granting
amendment of the application under Section 20 of the Arbitration Act, 1940
by the trial court and as confirmed by the High Court by the impugned order
are set aside. Consequently, further interim orders based on the amendment
petition passed by the trial Court under Section 20 of the Act would also fall
through.
Even, in the arbitral proceeding wherein under Section 23 is of the
Arbitration and Conciliation Act, 1996 amendment or supplement is sought
in the statement o f claim and defence, if drastic in nature or capable to
change the very substratum of the subject-matter of dispute itself, cannot be
allowed.
(v) Ordinarily, amendment/supplement is allowed in the arbitration
proceedings
The Apex Court in Manoharlal v. N.B.M. Supply, Gurgaon ,4 observed
that the arbitral tribunal should not ordinarily disallow the
amendment/supplement unless the mala fide intention is shown on the part
of the party applying such amendment/supplement and that party had
caused injury to his opponent which may not be compensated for by an order
of costs.
The arbitral tribunal is under obligation to see whether the amendment
or supplement is necessary for the purpose of determining the real question
in dispute between the parties. It would be desirable for the arbitral tribunal
to allow the amendment or supplement which is necessary for the
administration of justice and fair play indeed.5
(vi) Expression "claim"—Construction of
The expression "claim" as occurring in sub-section (3) of Section 23
should not be construed to include the claim only in terms of money,
therefore, it includes any contracting right of which the parties to arbitration
are likely to be deprived. Thus, in the context of arbitration the expression
"claim" construes violation of the contracting rights of the parties which
1. AIR 1993 SC 3029.
2. Netai Beg v. The State o f West Bengal, 2000 (8) SCC 262 : 2000 (6) Supreme 425.
3. Bharat Cooking Coal Ltd. v. Raj Kishore Singh, 2000 (7) Supreme 70.
4. AIR 1969 SC 1267.
5. P.H. Patil v. K.S. Patil, AIR 1957 SC 363.
206 THE ARBITRATION AND CONCILIATION ACT, 1996

caused arbitrable disputes/differences between them.

(vii) When counter claim by the appellant was maintainable
In State o f Goa v. Praveen Enterprisesf where the arbitration
agreement provides for referring all disputes between the parties, (whether
without any exceptions or subject to exceptions), the arbitrator will have
jurisdiction to entertain any counter claim, even though it was not raised at
stage earlier to the stage of pleadings before the arbitrator. Though, the
arbitration clause requires the party invoking the arbitration to specify the
disputes to be referred to arbitration, it does not require the appointing
authority to specify the disputes or refer any specific disputes to arbitration
nor requires the arbitrator to decide only the referred disputes. It does not
bar the arbitrator deciding any counter claims. In the absence of agreement
to the contrary, it has to be held that the counter claims by the appellant
were maintainable and arbitrable having regard to Section 23 read with
Section 2(9) of the Arbitration and Conciliation Act, 1996.
S e c tio n 24. H e a rin g s and w r itte n p ro c e e d in g s .— (1)
U n le s s o th e rw is e a g re e d b y th e p a rtie s , th e a r b itr a l tr ib u n a l s h a ll
d e cid e w h e th e r to h o ld o ra l h e a rin g s fo r th e p re s e n ta tio n o f e vid e n ce
o r fo r o ra l a rg u m e n t, o r w h e th e r th e p ro c e e d in g s s h a ll be c o n d u c te d
o n th e b a s is o f d o c u m e n ts a n d o th e r m a te ria ls :
P ro v id e d th a t th e a r b itr a l tr ib u n a l s h a ll h o ld o ra l h e a rin g s , a t
a n a p p ro p ria te sta g e o f th e p ro c e e d in g s , o n a re q u e s t b y a p a rty ,
u n le s s th e p a rtie s h a v e a g re e d th a t no o ra l h e a rin g s h a ll be h e ld .
(2 ) T h e p a rtie s s h a ll be g iv e n s u ffic ie n t a d v a n c e n o tic e o f a n y
h e a rin g a n d o f a n y m e e tin g o f th e a r b itr a l tr ib u n a l fo r th e p u rp o se s
o f in s p e c tio n o f d o c u m e n ts , goods o r o th e r p ro p e rty .
(3 ) A ll s ta te m e n ts , d o c u m e n ts o r o th e r in fo rm a tio n s u p p lie d to ,
o r a p p lic a tio n m a d e to th e a r b itr a l tr ib u n a l b y one p a r ty s h a ll be
c o m m u n ic a te d to th e o th e r p a rty , a n d a n y e x p e rt re p o rt or
e v id e n tia ry d o c u m e n t o n w h ic h th e a r b itr a l tr ib u n a l m a y r e ly in
m a k in g its d e c is io n s h a ll be c o m m u n ic a te d to th e p a rtie s .
COMMENTS
Section 24 of the Act, 1996 is on the pattern of Article 24 of the Model
Law.
Section 24 deals with hearings and written proceedings before the
arbitral tribunal.
Section 24(1) provides that if the parties could not have an agreement
relating to mode of arbitral proceedings, in such cases, the arbitral tribunal
may itself determine whether it would conduct the proceedings on oral
hearings o f the parties or allow oral argument or conduct the proceedings in
writing relying upon the statements and documents or other materials.
The oral hearings are not to be held, if the parties have not agreed to
it. The parties are permitted to change their agreement at any stage of the
proceedings relating to oral or written hearings.

1. 2001 (8) JT 359 (SC).

ARBITRATION 207

It is the discretionary power of the arbitral tribunal to administer oath

to the parties or witnesses or not. The Punjab and Haryana High Court in
Balwant Singh v. Chief Secretary to Government o f Punjab,1 said that if the
arbitral tribunal does not administer oath, it does not affect the admissibility
of the statements of the witnesses.
Section 24(2) states that the parties shall be given sufficient advance
notice of any hearing and also of any meeting of the arbitral tribunal for the
purposes of inspection of documents, goods or other property. However
Section 24(2) does not state that who shall give such notice but it is the
arbitral tribunal’s accountability to serve and also confirm that sufficient
notice is given to the parties, regarding hearings and written proceedings.
The requirements of Section 18 in which the principles of equity and fairness
are contained are to be followed under Section 24(2) o f the Act. It is an
essential requirement of the Act; No one is permitted to derogate.
Section 24(3) provides measure to the parties to have equal and fair
access to written proceedings. It states that all statements, documents and
application made to the arbitral tribunal by one party shall be
communicated rather provided to the other party, including any expert
report as such received by the arbitral tribunal or other evidentiary
document on which the arbitral tribunal is likely to rely while making its
decision, these are to be communicated to all parties. Thus, whatever written
proceedings are submitted by one party it will have to be communicated to
the other party.2
Section 24(3) is legislated on the principle contained in Section 18 of
the old Act.
(i) Admissibility of the statement of the witnesses without
administering oath
It is a discretionary power of the arbitral tribunal whether to
administer oath to the parties or witnesses or not. It was held in a case that
if the arbitral tribunal/arbitrator does not administer oath, it does not affect
the admissibility of the statements of witnesses.3
(ii) Both parties have full and equal access to written proceedings
It is well settled that whatever written proceedings are submitted by
one party will have to be communicated to the other party. Since, it is not
specified as to the authority who will communicate the written proceedings
of one party to the other party, it seems that the arbitral tribunal which is
an administering institution is to ensure that such written proceedings have
been communicated to the other party. Thus, documents which are
evidentiary in nature are required to be communicated.4
S e c tio n 2 5 . D e f a u lt o f a p a r ty . — U n le s s o th e rw is e a g re e d b y
th e p a rtie s w h e re , w ith o u t s h o w in g s u ffic ie n t ca u se ,—
(a ) th e c la im a n t fa ils to c o m m u n ic a te h is s ta te m e n t o f c la im in

1. AIR 1989 P. & H. 25.

2. Krishan Gopal v. Chandiprasad, AIR 1953 Nag. 309.
3. Balwant Singh v. Chief Secretary to Government o f Punjab, AIR 1953 Nag. 309.
4. Lovely Benefit Chit Fund & Finance Pvt. Ltd. v. Puran Dutt, AIR 1983 Del. 413; see also
Lohia Jute Press P. Ltd. v. New India Assurance Co. Ltd., AIR 1988 Cal. 174.
208 THE ARBITRATION AND CONCILIATION ACT, 1996

a cco rd a n ce w ith s u b -s e c tio n (1 ) o f S e c tio n 2 3 , th e a r b itr a l

tr ib u n a l s h a ll te rm in a te th e p ro c e e d in g s ;
(b ) th e re s p o n d e n t fa ils to c o m m u n ic a te h is s ta te m e n t o f
de fe n ce in a cco rd a n ce w ith s u b -s e c tio n (1 ) o f S e c tio n 2 3 , th e
a r b itr a l tr ib u n a l s h a ll c o n tin u e th e p ro c e e d in g s w ith o u t
tr e a tin g th a t fa ilu r e in its e lf as a n a d m is s io n o f th e
a lle g a tio n s b y th e c la im a n t,
(c) a p a r ty fa ils to a p p e a r a t a n o ra l h e a rin g o r to p ro d u c e
d o c u m e n ta ry e v id e n c e , th e a r b itr a l tr ib u n a l m a y c o n tin u e
th e p ro c e e d in g s a n d m a k e th e a r b itr a l a w a rd o n th e
e v id e n c e b e fo re it .

COMMENTS
Section 25 o f the Act, 1996 is on the pattern of Article 25 of the Model
Law, It deals with default of parties and its after- effects, that means, its
consequences—
Section 25(a) provides that in case the claimant fails to communicate
his statement of claim as per Section 23(1), then in such cases the arbitral
tribunal is empowered under Section 25(a) to terminate the proceedings. In
other words the claimant’s claim would be dismissed. Section 32(3) may be
referred in this context that "the mandate of the arbitral tribunal shall
terminate with the termination of the arbitral proceedings". However, this
clause (a) o f Section 25 of the Act does not specify the consequences of
termination of the arbitral proceeding except termination of arbitral
proceedings.
Section 25(b) deals with the situation when the respondent fails to
communicate his statement of defence, as provided in Section 23(1) of the
Act. However, in such cases of the respondent’s failure, the arbitral tribunal
shall proceed rather it would continue ex parte proceedings. Such a default
on part of the respondent is to be taken as admission of the claim/
acquiescence. Under Section 25(b), the arbitral tribunal may assess failure,
and draw its own determination in this regard.
Section 25(c) deals with the situation if a party fails at an oral hearing
or also fails to produce documentary evidence as such, the arbitral tribunal
shall not terminate the proceeding but it would proceed and continue the
proceedings to an extent even to the stage of "arbitral award" relied on the
evidence before it. This principle was regarded in Lohia Jute Process Pvt.
Ltd. v. New India Assurance Co. Ltd.,1 by the Calcutta High Court. However,
demand of such production of documents from a party by the arbitral
tribunal, the arbitral tribunal is to provide reasonable, sufficient and
specified time limit applicable to a party concerned.
However, Section 25 of the Act would not be applied in the following
situations—
(i) where there is an agreement to the contrary between the
parties, or

1. AIR 1988 Cal 174 and Lovely Benefit Chit Funds Finance Pvt. Ltd. v. Punam Dutt, AIR
1983 Del 413.
ARBITRATION 209

(ii) where the party can show "sufficient cause" for his default.
However it is to be determined by the arbitral tribunal.
(iii) when no negligence or inaction or want of bona fide is
imputable to a party.1
Thus, it is clear that the principles contained in Section 25 of the Act
provide speedy, just and equitable machinery of arbitration.
a) Words "sufficient cause"—Deserve liberal interpretation
Section 25 of the present Act while dealing with default of a party
reads that— "unless otherwise agreed by the parties, where without showing
sufficient cause" the question pertaining to this section is that what
constitutes "sufficient cause", however it is to be adjudicated by the arbitral
tribunal.
The Apex Court in State o f West Bengal v. Howrah Municipality,2 has
held that the words "sufficient cause" deserve liberal interpretation with the
view to advance substantial justice and fair play, specifically in absence of
negligence or any mala fide intention on the part of the party concerned. The
mandate of Section 25 shows that it is intended to make the arbitral
procedure fair and effective. If the "sufficient cause" is shown upto the
satisfaction of the arbitral tribunal by the defaulting party, the arbitral
tribunal is under legal obligation to extend the period of time to th-~
defaulting party for doing the needful, thus to meet the ends of justice and
fair play.
(ii) When the ‘ex-parte’ award is liable to be set aside
The very purpose of the arbitration would be defeated if the arbitral
tribunal proceeds ex-parte. Ordinarily, arbitral tribunal is not keen to
undertake arbitration proceedings ex-parte. The arbitral tribunal before
commencing an ‘ex- parte’ hearing has to satisfy itself that the respondent
has been duly communicated regarding the place/venue, date and time of
hearing. The respondent is also entitled to know the intention o f the arbitral
tribunal to proceed ex-parte. It means the arbitral tribunal has to pre-warn
the respondent about its intention to proceed ex-parte. The relevant
judgment on the point can be seen in the case of Indian Iron & Steel Co. v.
Satna Store.3
Wherein the arbitral tribunal, had given an ex-parte arbitral award
without pre-warning and giving no sufficient notice to the respondent, it was
held that such arbitral award is liable to be set aside by the court as there
was flagrant non-compliance with the principles of natural justice. In the
instant case the court observed as under—
"The power in respect of ex-parte hearing should be exercised with
great caution. It is not an inflexible rule of law that the arbitrators
shall hear and make award ex-parte merely because a notice to that
effect is given. Allowing the arbitrator to proceed ex-parte without
giving an opportunity to the defaulting party would cause immense
hardship. It is the duty of the arbitrator to apply his mind in the facts

1. State o f West Bengal v. Howrah Municipality, AIR 1972 SC 749.

2. AIR 1972 SC 749.
3. (1991) 1 Arb. LR 208 (SC).
210 THE ARBITRATION A N D CONCILIATION ACT, 1996

and circumstances of each case and not to proceed ex-parte

automatically merely because such notice was given. However, if on the
basis of materials before him, the arbitrator is of the opinion that the
absence of party is deliberate with the intention to avoid or delay the
proceedings the arbitrator is certainly entitled to proceed ex-parte in
case of non-appearance. The fact which is to be taken into consideration
is the attitude or the conduct o f the party concerned."
The court further held, while making an ex-parte arbitral award, the
arbitral tribunal should exercise their powers with due care and diligence
because no appeal lies against an ex-parte arbitral award, if the arbitral
award is made and published. Consequently, the arbitrator becomes functus
officio. Neither the review nor revision would lie against the ex-parte arbitral
award if it is published. Thus, it becomes final.
It is submitted that the arbitral tribunal can make ex parte arbitral
award when the absence of party is deliberate with mala fide intention to
delay or avoid the arbitration proceedings. In such circumstance the tribunal
may proceed ex parte against the party/respondent who has knowingly
adopted dilly dallying tactics.
But, wherein the claimant has submitted all the relevant documents
supporting his claim besides filing an affidavit in this regard and whereas
the respondent did not bother to contest or to rebut the claim in spite of
sufficient time given and several adjournment made by the arbitral tribunal,
it was held that it shows that the respondents/applicants "had absolutely
nothing to rebut the testimony" hence the court was reluctant to set-aside
the arbitral award.1 Similarly, in Hemkunt Builders v. Punjab University,2
wherein noti ‘e of appearance and also pre-warning notice regarding ex-parte
proceedings were duly served on the petitioner, but he showed no interest in
the arbitral proceedings, the Delhi High Court held that on the basis of
evidence adduced it was clear that the petitioner was not interested in
contesting or rebutting the claimant’s claims. Therefore, arbitral award was
sustainable.
(iii) An arbitrator may proceed ex parte—Default in appearance of
Other Party
An arbitrator is authorised by nature of his office to proceed ex parte.
He may make an ex parte award if a party fails to appear inspite of notice
to attend. Where a party once appeared before the arbitrator and sought
extension of time for filing his W.S., this amounted to submission of to the
jurisdiction of the arbitration.
It has been held3 that arbitrator can proceed to ad judicate dispute
referred to him ex parte in the event of default of appearance of other party.
If party, who once appear before arbitrator and seek extension of time for
filing W.S. accepts jurisdiction of arbitration.
(iv) When arbitral tribunal "may" continue the proceedings
The Delhi High Court in Lovely Benefit Chit Fund & Finance Pvt. Ltd.

1. Motor and General Finance v. Sahdeo Singh, 1992 (2) Arb. LR 454.
2. (1997) 1 Arb. LR 348 (Del.).
3. Saraswathi Chemicals, Delhi v. Balner Lawrie & Co. Ltd., 2011 (6) M U 97 (Mad.).
A R B IT R A T IO N 211

v. Puran Dutt,1 observed that where no sufficient cause is shown by a party

whether the claimant or the respondent and the party does not make
appearance at an oral hearing in spite of receiving sufficient notice or fails
to produce documentary evidence even though he has been requested to do
so within a specified time, which is a reasonable time limit, it has been held
that the arbitral tribunal "may" continue the arbitration proceedings and is
competent to make arbitral award based on the evidence before it. Thus, the
arbitral tribunal has a discretion to continue the proceedings and the
tribunal, may refuse to admit any documentary evidence from the defaulting
party which is being submitted after expiry of the specified time limit.
(v) Power of Arbitral Tribunal—Termination of proceeding
In M is. Senbo Engineering Ltd. v. State o f Bihar & others,2 wherein
the petitioner contractor sought to appoint an independent person as
arbitrator, however, it was alleged that his request had not been received by
the Chief Engineer. Consequently, sole arbitrator was appointed by the
Authority. Further, the petitioner did not file his statement of the claim
before the sole arbitrator on the ground that the application by him for
appointment of Arbitrator was pending before the Chief Justice of the Patna
High Court. It was held that in the circumstances the petitioner’s failure to
communicate his statement of claim to the sole arbitrator is not attributable
to any negligence or inaction or want of bona fide on his part. Hence, the
petitioner has sufficient cause within the ambit of Section 25(a) of the Act,
1996 for not communicating its statement of claim. Thus, in the present case
the Arbitral Tribunal can recall its order while terminating proceeding under
Section 25(a) of the Act, 1996.
(vi) No civil suit is maintainable against the order passed under
Section 25(a)
The Bombay High Court in Anuptech Equipments Pvt. Ltd. v. Ganpati
Co-operative Housing Society Ltd.,3 has held that order terminating arbitral
proceedings for default of party to file claim statement under Section 25(a)
is an order against which remedy by way of civil suit is not maintainable.
It appears from the above ruling that if such an order is unjustified and
is to be challenged before the court, unless misconduct on the part of
arbitrator is taken up as a ground as specified under Section 34 of the Act,
1996, the order passed under Section 25(a) is not challengeable.
Section 26. Expert appointed 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
1. AIR 1983 Del. 413; see also Lohia Jute Press P. Ltd. v. New India Assurance Co. Ltd.,
AIR 1988 Cal. 174.
2. AIR 2004 Pat. 33.
3. AIR 1999 Bom. 219.
212 THE A R B IT R A T IO N A N D C O N C IL IA T IO N ACT, 1996

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.
COMMENTS
Section 26 of the Act, 1996 is modelled on Article 26 o f the Model Law,
except sub-section (3) o f Section 26.
Section 26 lays down provision about appointment of expert by the
arbitral tribunal for the purpose of obtaining expert evidence on the matters.
Mostly such practices prevail in civilised countries.
Section 26(1) empowered the arbitral tribunal to appoint one or more
experts to take their reports on specific issues relating to the matter before
it, however, report of experts is not to decide disputes, because the reports
o f the experts are merely advisory in nature, thus, the arbitral tribunal has
to decide the dispute, not the experts. The experts provide assistance to the
arbitral tribunal in matters in which their reports are sought for coming to
a decision by the arbitral tribunal. Under sub-section (1), clause (b) the
arbitral tribunal is vested with power to order a party to give any relevant
information, to produce any documents or to provide access to such
documents, goods or other property for inspection/ instruction of the expert.
Section 26(1), [Clauses (a) and (b)] are intended to provide facilities to
the experts whose expert reports become necessary on specified issue as to
arrive at a decision by the arbitral tribunal.
Section 26(2) states that the expert may participate in an oral hearing,
when, either a party makes such request or the arbitral tribunal considers
it necessary, however, such participation of expert can be allowed only after
the expert has submitted his written report including oral report if so. Such
participation o f expert is permitted under sub-section (2) to give
opportunities to the parties to interrogate and testify expert witnesses on
specified issues. However, the parties may agree mutually not to have such
participation of expert.
The provisions contained in Section 26(2) affirms the principle
embodied in Section 18 of the Act.
Section 26(3) provides that, at a party’s request, expert shall permit
examination o f any documents, goods or other property, on which the expert
report is relied. It is intended that the expert will not prepare his report on
material facts which are not disclosed to the parties.
However, the parties may agree mutually, not to have such
examination of documents, goods or other property which are being retained
by the expert.
A R B IT R A T IO N 213

(i) Opinions of expert—How far relevant

According to Section 45 of the Indian Evidence Act, 1872—
"When the court has to form an opinion upon a point of foreign
law or of science or art, or as to identity of handwriting or finger
impression, the opinion, upon that point, of persons specially skilled in
such foreign law, science or art, or in questions as to identity of
handwriting or finger impressions, are relevant facts."
"Such persons are called experts".
The courts have been accustomed to act on the opinion o f experts from
early time.1 The purpose is very clear. There are many matters which
require professional or specialised knowledge which the court may not
possess. For illustration, when the court has to determine the cause of a
ship-wreck or an air-crash, there may be many technical causes behind it
and, therefore, the court will need the assistance of technicians, they being
better acquainted with such cases.2
The above section permits only the opinion of an expert to be cited in
evidence. The weight that ought to be attached to the opinion of an expert
is a different matter from its relevancy. The Act only provides about the
relevancy of expert opinion but gives no guidance as to its value. However,
it is settled legal position that ordinarily an expert opinion needs no
corroboration, it cannot be treated to the same class of evidence as that of
an accomplice and insist upon corroboration.3 An expert should be an
independent person and not an associate of the company in whose favour his
opinion was expressed.4 Section 46 of the Indian Evidence Act, 1872 provides
that facts, not otherwise relevant, are relevant if they support or are
consistent with the opinions of expert, when such opinions are relevant. The
effect of the provision is that when the opinion of an expert is relevant and
has been cited, any fact which will either support his opinion or contradict
it will also become relevant. It is to be noted that the provisions of the
Indian Evidence Act, 1872 do not apply to the arbitral proceedings in strict
sense.
But, in the context of arbitration, Section 26 of the Arbitration and
Conciliation Act, 1996 deals with experts appointed by the arbitral tribunal.
The appointment of an expert by the tribunal is common and recognised in
civilised countries. It is to be noted that the arbitral tribunal is only
empowered and not obliged to appoint experts. Only with the prior consent
o f the parties the arbitral tribunal may seek assistance of an expert.
Whether expert opinion is relevant, it is to be determined by the tribunal
and also to make its own judgment.
(ii) An expert can be testified as a witness
There is no prohibition to testify the expert as a witness provided the
arbitral tribunal considers it necessary or if a party so requests.
The expert can take part in an oral hearing but only after he has
1. Cross, Evidence, 322 (1958); see also Dr. Avtar Singh on Principle of Law of Evidence,
11th Edn. p. 183.
2. I b i d see also Folokes v. Chadal, (1782) 3 Doug. K.B. 157.
3. Murari Lai v. State o f M.P., AIR 1980 SC 531.
4. Ramnathan v. State o f Tamil Nadu , AIR 1978 SC 1204.
214 THE A R B IT R A T IO N A N D C O N C IL IA T IO N A C T , 1 9 9 6

delivered his written or oral report so that the parties could ask questions
rather examine him, thus, the parties are entitled to testify the expert
witnesses on the points at issue.
(iii) Arbitral tribunal can seek assistance of legal expert
Under Section 26(1) of the new Act, 1996 it is provided that if the
arbitral tribunal considers it necessary or on prior consent made by the
party, it may seek assistance of legal expert in the arbitration proceedings.
This section specifically empowers the arbitral tribunal to appoint one or
more experts i.e., legal expert, ^technical expert and financial expert and to
report to the arbitral tribunal on specific issues to be determined by the
tribunal. The arbitral tribunal may require a party to give the expert any
relevant information or to produce relevant documents. It is clear from the
above provision that the arbitral tribunal is not empowered to seek the
assistance of expert including legal expert or to appoint legal expert without
first securing the consent o f the parties.
In view of Russell1— "The function of the arbitrator does not end up
with the appointment of an expert in technical matters, but he must form
his own judgment upon the information or opinion received from the expert."
It means in spite of obtaining the opinion of expert the arbitral tribunal
is not bound to rely on such opinions, but the tribunal is required to form
its own judgment upon the opinions of expert.
Section 27. Court’s 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 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

1. On Arbitration, 20th Edn. p. 230.

ARBITRATION 215

punishments by order of the Court on the representation of the

arbitral tribunals as they would incur for the like offences in suits
tried before the Court.
(6) In this section tire expression "Processes" includes
summonses and commissions for the examination of witnesses and
summonses to produce documents.
COMMENTS
Sub-sections (1) and (3) are on the pattern of Article 27 of the Model
Law whereas sub-sections (2), (4) and (5) are based on the Arbitration Act,
1940.
Section 27 signifies very impressive approach in matter of arbitration
where an arbitral tribunal may take a court’s assistance to get evidences as
such through- that court, according to court’s process.
Section 27(1) provides that the arbitral tribunal or a party with the
permission of the arbitral tribunal, may seek court’s assistance, by an
application, for talcing evidence. Under sub-section (1) the arbitral tribunal
seeks a court’s assistance to make arbitral proceedings effective and
efficient, however, under sub-section (1) a party may also seek court’s
assistance only with the approval of the arbitral tribunal, so that the abuse
of process could be avoided.
Section 27(2) provides requirements as such application, the names and
addresses of the parties, nature of the claim, relief sought and required
evidence sought through court.
Section 27(3) states that as such the court may execute the request of
the arbitral tribunal in taking evidence according to rules and competence
of the court and such evidence is to be provided to the arbitral tribunal.
Such evidence is to be provided directly to the arbitral tribunal.
Section 27(4) provides that while making order, the court may issue the
same "processes" to witnesses as it may issue in suits tried before it.
Section 27(5) provides for disadvantages, penalties, and punishments to
persons, who do not comply according to the issued process. The courts have
to adopt same procedure as the Civil Courts.
Section 27(6) explains ‘processes’ which includes summonses and
commissions for examination of witnesses and summonses to produce
documents.
(i) Non-consideration of material evidence—Award would be
rendered invalid
Under Section 27 of the Arbitration and Conciliation Act, 1996 the
arbitral tribunal can seek the court’s assistance in taking evidence by
applying suo motu or on request by a party. The arbitral tribunal has no
power to issue summon to persons except the disputing parties in the
arbitration.
The Apex Court in K.P. Poulose v. State o f Kerala,1 held that
non-consideration of material evidence by the arbitral tribunal, and making
of arbitral award, amounts to unfair arbitral proceeding and the arbitral
1. AIR 1975 SC 1259.
216 THE A R B IT R A T IO N A N D C O N C IL IA T IO N ACT, 1996

award would be rendered invalid which is liable to be set aside.

(ii) Refusal to issue summons to the witness—Award liable to be set
aside
The Delhi High Court in Lalit Mohan v. Building Committee,1 has held
that once the arbitrator had permitted the witness to be examined, it is not
proper on the part o f the arbitrator to decline to issue summons to the sole
witness i.e., the building adviser and instead ask the party to bring the sole
witness before the arbitral tribunal at its own responsibility. In the present
case the court observed that the arbitrator ought to have issued summon to
the witness who is to be examined. The arbitral award was, therefore liable
to be set aside.
It is submitted that the provision to seek the court’s assistance in
taking evidence of a witness is necessary because the arbitral tribunal has
not been conferred power to summon witness or to issue process as such.

CHAPTER VI

MAKING OF ARBITRAL AWARD AND TERMINATION OF

PROCEEDINGS
Section 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 e x a e q u o e t b o n o or as
a m i a b l e c o m p o s i t e u r only if the parties have expressly authorised it
to do so.

1. AIR 1995 Del. 180.

ARBITRATION 217

(3) In all cases, the arbitral tribunal shall decide in accordance

with the terms of the contract and shall take into account the usages
of the trade applicable to the transaction.
COMMENTS
Section 28 is on the pattern of Article 28 of the Model Law.
Section 28 provides rules for the applicability to decide whether Indian
or Foreign law would be applicable. However, the rules provided relating to
substance of dispute under Section 28 of the Act are to be applied only when
the place of arbitration is in India, be it domestic commercial arbitration or
international commercial arbitration. Under this section, freedom of the
parties is not provided as contained under Section 2(6) of the Act.
Section 28(1), clause (a) provides that except in international
commercial arbitration, if the place of arbitration is in India, the arbitral
tribunal necessarily decides the dispute in accordance with the substantive
law o f India. It is a mandatory provision of the Act. There is no provision to
decide disputes relating to international commercial arbitration because it is
dealt with by the Model Law.
Clause (b)(i) of Section 28(1) provides that, in deciding the dispute in
international commercial arbitration, the arbitral tribunal shall follow the
"rules of law" designated by the parties. Thus, ‘autonomy’ provided under
this sub-section would promote international commercial arbitration in
India.
Clause (b)(ii) of Section 28(1) provides the principle o f construction in
respect of cases where the party designate law or legal system of a given
country. However, clause (b)(iii) of Section 28(1) is not modelled on Article
28(2) of the Model Law, which provides that when the parties fail to
designate law or legal system of a given country, the arbitral tribunal shall
apply "the law determined by the conflict of laws rules, which the arbitral
tribunal considers applicable. It is an alternative clause of Section 28(1).
Section 28(2) is a peculiar piece of arbitration law in respect of India.
Even, the inter-State disputed matters can be put before the International
Court of Justice if, the parties agreed and also authorised the arbitral
tribunal to decide a case ex executo et bono or as amiable compositeur as
recognised under civil laws. Though, ex aequo et bono have not been defined
under sub-section (2), but, the parties may tell the words to the arbitral
tribunal to do. The parties are permitted to seek an amicable route
independently through arbitration, but cannot dictate against the public
policy of India.
The words "ex aequo et bono" means decision founded on equitable
principles of justice and good conscience without adhering to the strict rule
o f the court of law.
Section 28(3) lays down the general rule that the arbitral tribunal shall
decide the disputed matter before it according to the terms of the contract
having in view the usages of trade applicable to the transaction. This
sub-section clearly intended that the terms of contract or usage of trade
must not be opposed to the public policy of India and law applicable to
disputed matter.
218 THE A R B IT R A T IO N A N D C O N C IL IA T IO N ACT, 1 9 9 6

(i) Freedom to choose national laws of different States

The mandate of Section 28 of the Arbitration and Conciliation Act, 1996
shows that the contracting parties have been given freedom to choose
national laws of different States as to which national laws will be applied in
case the disputes arise and to be referred to for arbitration. In fact, this
provision is required to be mentioned in the arbitration agreement itself.
Wherein the parties fail to do so, the arbitral tribunal may decide as to
which national laws will be applied since the parties belong to the different
States. While considering the question of applicability of law in arbitration
proceedings the House of Lords observed as under—
"An agreement to refer disputes to arbitration in a particular
country may carry with it, an implication or inference that the parties
have further agreed that the law governing the contract as well as the
arbitration procedure is to be the law of that country". Thus, in the
absence of agreement regarding applicability of law in arbitration, the
intention of the parties will be the deciding factor."
It is not necessary that the applicability of law chosen should be the
national law o f either party. In Tzartzis & Sykies v. Morark Line A/B,1 the
contracting parties belonged to different nations i.e., Sweden and Greece
respectively and subject to jurisdiction of the same, whereas arbitration
agreement between the parties provided for arbitration in London. It was
held that the applicability of law chosen for arbitration i.e., English Law was
not the law of either party but the parties were competent to select the Law
of their choice for arbitration.
(ii) International Commercial transaction should have 'Foreign
Jurisdiction clause"
It has been seen that wherein there is an international commercial
transaction between the parties, ordinarily, such contractyagreement
regarding the commercial transaction contains, "foreign jurisdiction clause"
that is in case of disputes arising out of the contract between them, such
disputes shall be referred to specified fojreign arbitration. The court of
Appeal in Re, the Hollandia2 had observed—
Under the ‘foreign jurisdiction clause’ the applicability of the
foreign law shall be subject to two conditions, which are as follows :—
(i) the provision contained in such clause should not be
contrary to the law of the countries to which the arbitrating
parties belong, and
(ii) the applicability of such law should not be capable in
reducing the liability of either party to arbitration proceedings, if
any, of the situations found in the foreign jurisdiction clause.
International Commercial arbitration—Applicability of the
rules specified in the arbitration agreement—wavier of—when
inference may be drawn.— In Aurohill Global Commodities Ltd. v.
Maharashtra STC Ltd.,3 where there is international transaction, the
1. Compagnie D ’ Armement Maritime v. Compagnie Tunisienne de Navigation, (1971) AC
572.
2. (1983) 1 ASC 566.
3. AIR 2007 SC 2706.
ARBITRATION 219

petitioner is a company registered in Cyprus. The parties entered into the

alleged contract with open eyes. They agreed to settle their disputes by
arbitration in London and in accordance with the rules of arbitration of
Great Britain. Moreover, vide clause 20 of the alleged contract the parties
agreed that the competent court in Great Britain alone shall have exclusive
jurisdiction to decide all matters including arbitration proceedings to be
instituted. On reading clauses 19 and 20 of the agreement conjointly it is
clear that the procedural law applicable to the arbitration proceedings had
to be the British Rules of Arbitration. The letter dated 19-9-2006 addressed
by the advocate for the respondent concurred only in principle with the offer
made by the petitioner to be guided by the Arbitration and Conciliation Act,
1996. The Supreme Court observed that so far as the procedural law was
concerned, the letter cannot constitute a waiver of the respondent’s right to
be governed by the terms of the arbitration agreement because it is a
concurrence without prejudice. In the circumstances, the parties shall abide
by the terms of the contract and it is not possible for the Supreme Court of
India to substitute the British Rule of Arbitration by the procedural law
under the Arbitration and Conciliation Act, 1996.
(iii) Where the choice of applicability of law is not specified—
Where there is no choice of applicability of law to arbitration specified
in the arbitration agreement, the intention of the parties shall be paramount
consideration to ascertain the applicability of law to arbitration. Besides, the
elements like (i) the. place where the arbitration agreement has been
executed, (ii) the place where the contract is performed, and (iii) the place,
that is the forum where dispute has to be settled, are to be taken into
consideration while determining the choice of applicability of law to
arbitration.
In National Thermal Power Corporation v. Singer Co.,1 the Apex Court
observed that as the disputes between the parties had the closest connection
with India and the Indian Laws and no connection with English Law, the
arbitral award would be governed by the law in force in India. The Court
held that in the present case the contract was between an Indian company
and foreign company. There is existence of-arbitration clause showing that
Indian law shall be applicable to all matters arising out of the contract and
in case of arbitration it has to be governed by the Rules of the International
Chamber of Commerce, Paris. Since, the parties have chosen the Indian law
as proper law to be applied in the contract, it could be applicable to the
arbitration agreement also, hence, arbitral award is to be governed by the
Indian law.
On this point Dicey and Morris2 may be referred—"the right of the
parties to choose any applicable law pertaining to any specified
country....Provided the intention expressed is bona fide and legal and
provided there is no reason for avoiding the choice on the ground of public
policy.3 However, as per Lord Denning4— "The proper law of the contract

1. (1992) 3 SCC 551 : (1992) 8 CLA 116 (SC).

2. 10th Edn. p. 747.
3. Vita Food Products Incorporated v. Unus Shipping , 1939 All ER 513.
4. Boessevain v. Weil, (1949) All ER 146.
220 THE ARBITRATION AND CONCILIATION ACT, 1996

depends not much on the place where it is made, nor even on the intention
of the parties or on the place where it is to be performed, but on the place
with which it has the most substantial connection.
It is submitted that since the arbitration agreement is in the nature of
a contract and when the parties having chosen the law as a proper law of
contract pertaining to all claims and transactions linked with that contract,
that ‘proper law’ should automatically be applied to the arbitral proceedings.
Court not bound by arbitrator’s ruling—unless it bars either
party from raising a plea.—The Supreme Court in Adhunik Steels Ltd. v.
Orissa Manganese and Minerals (P) Ltd.,1 has held that law applicable to
the arbitration proceedings, does not include rulings of arbitrators. However,
the court is not bound by arbitrator’s ruling unless it bars either party from
raising a plea in that behalf.
In the aforesaid case the Supreme Court observed that the attempt
made by Orissa Manganese and Minerals (P) Ltd. to rely upon some other
arbitral award in support of its claim that Rule 37 of the Mineral Concession
Rules, 1960 would apply, is neither here nor there. What is relevant here is
what the arbitrator who may be appointed will hold in the present case and
not what some other arbitrator held in some other arbitration and some
other contract even if it be between the same parties. Moreover, the Court
cannot be bound by what an arbitrator might have held in an arbitration
proceeding unless it be that the said award operates as a bar between the
parties barring either of them from raising a plea in that behalf.
(iv) Payment of Escalation—Entitlement
The Apex Court held that where contractor was not responsible for the
delay and the respondents were responsible for the delay. If so, the
contractor will be entitled to a valid extension under the provisions of the
contract, without levy of any liquidated damages. If the contractor is entitled
to such extension without levy of penalty, then it follows that under clause
10(cc) of the agreement the contractor would be entitled to escalation in
terms of the contract for the work done during the period of extension.
Section 29. D ecision m aking by p an el o f arbitrators.— (1)
U nless otherw ise agreed b y the parties, in arbitral proceedings with
m ore than one arbitrator, any decision o f the arbitral tribunal shall
be m ade b y a m ajority o f all its m em bers.
(2) N otw ithstanding sub-section (1), i f authorised by the parties
or all the m em bers o f the arbitral tribunal, questions o f procedure
m ay be decided b y the presiding arbitrator.
COMMENTS
Section 29 of the Act, 1996 is modelled on Article 29 of the Model Law.
Section 29 provides method of decision making by panel of arbitrators.
Such decisions are mainly of two types.
(i) The substance of the dispute.
(ii) The procedure.
1. AIR 2007 SC 2563.
2. J.G. Engineers Pvt. Ltd. v. Union o f India & another, AIR 2011 SC 2477.
ARBITRATION 221

If, there is a sole arbitrator, such decisions are to be taken by such a

sole arbitrator.
Section 29(1) provides that where there is a panel of arbitrators, the
opinion of the majority shall prevail. But, however, parties may otherwise
agree, such as that the decision of the Presiding arbitrator shall be accepted.
The presence of arbitrators at same place, while making decision is not
necessary. Thus, the arbitrators may make their decision by modern means
of communication such as telex, telephone and fax etc.
Section 29(2) provides that decision on questions of procedure is to be
decided by all members of arbitration or by the presiding arbitrator if
authorised by the parties.
Thus, under Section 29 majority principle applies, but if there is
difference of opinion between each member of arbitration, in such a situation
the arbitral proceedings may have to be terminated as provided under
Section 32 of the Act.
(i) Substantial miscarriage of justice in decision making
It is well settled rule that the majority decision must prevail, where
there is no personal turpitude on the part of arbitrators, a panel of
arbitrators consisting of five arbitrators of which two arbitrators were
illiterate, consequently, the entire arbitral proceedings were actually handled
and dominated by one single arbitrator. It was established that the arbitral
award had not been made by the majority. There was such a mishandling
of arbitration proceedings as to result in substantial miscarriage of justice,
the arbitral award was set aside.1
But the courts would not interfere unless there is something radically
wrong and vicious in the decision making in arbitration.2
(ii) All arbitrators required to give their united consideration
Sometimes an arbitration agreement itself may contain the words that
"the majority decision of the arbitrators shall prevail". But in the opinion of
the Madras High Court as observed in J. Kuppuswami v. Anantharaman3
nevertheless, it is the requirement of law that all the arbitrators must
deliver their united consideration pertaining to the subject-matter of dispute
in arbitration which had been referred to them for making of decision as to
the arbitral award.
(iii) Question of procedure may be decided by the presiding
arbitrator
Under Section 29(1) of the present Arbitration and Conciliation Act,
1996 the presiding arbitrator has been conferred power to decide the
question relating to arbitral procedure in case of any dispute arising during
decision maldng by arbitrators. However, the power of a presiding officer
under Section 29(1) can be exercised, if he is authorised to do so by the
parties or all the members of the arbitral tribunal.

1. Sheo Dutt v. Pandit Vishnu Dutt, AIR 1955 Nag. 116; see also Williams v. Wallis & Cox,
(1914) 2 KB 478.
2. Shiva Hpu v. U. Min. Nyum, AIR 1925 Ran. 383.
3. 1947(1) M.L.J. 297.
222 THE ARBITRATION AND CONCILIATION ACT, 1996

(iv) Different arbitral awards by the two arbitrators—Appointment

of umpire justified
Although, there is no umpire system under the Arbitration and
Conciliation Act, 1996 but the Apex Court in Reserve Bank o f India v. S.S.
Investment Ltd.,1 considered the question when two arbitrators have given
different arbitral awards, thus disagreeing with each other and
consequently, appointment of arbitrator sought for making reference, which
was challenged by one of the arbitrators. The court has held that
disagreement between two arbitrators and their action i.e., allowing the time
limit to expire without making an arbitral award, clearly shows their
disagreement to each other, hence the appointment of umpire was justified
and umpire’s entering upon the reference was not illegal.
S ection 30. S ettlem ent.— (1) It is not incom patible w ith an
arbitration agreem ent for an arbitral tribunal to encourage
settlem ent o f the dispute and, w ith the agreem ent o f the parties, the
arbitral tribunal m ay use m ediation, conciliation or oth er procedures
at any tim e during the arbitral proceedings to encourage settlem ent.
(2) If, during arbitral proceedings, the parties settle the dispute,
the arbitral tribunal shall term inate the proceedings and, i f
requested by the parties and not objected to b y the arbitral tribunal,
record the settlem ent in the form o f an arbitral aw ard on agreed
terms.
(3) A n arbitral aw ard on agreed term s shall be m ade in
accordance w ith section 31 and shall state that it is an arbitral
award.
(4) A n arbitral aw ard on agreed term s shall have the same
status an d effect as any other arbitral aw ard on the substance o f the
dispute.
COMMENTS
Sections 30(2), 30(3) and 30(4) are modelled on Article 30 of the Model
Law.
Section 30 provides and encourages mutual settlement of dispute by
parties before the arbitral tribunal. This is a developmental and new specific
provision of the Act of 1996, in arbitration law.
An arbitration agreement cannot be terminated by abandonment on the
part of claimant but a distinction must be drawn between abandonment of
the claim and abandonment of agreement to arbitrate.2
Section 30(1) states a new function for an arbitral tribunal to encourage
rather try to settle the dispute by mutual agreement. Thus, to settle the
dispute mutually between the parties, the arbitral tribunal may have to
adopt the course of mediation by some person or conciliation under the Act.
The arbitral tribunal may use any other procedure during arbitral
proceedings for encouraging mutual settlement of a dispute.
The arbitral tribunal is empowered to encourage the parties to settle
1. (1992) 2 Arb. LR 391 (SC).
2. Corn Product P. Ltd. v. Ayaz Ghandiza, AIR 1997 Bom 331.
ARBITRATION 223

dispute themselves by legitimate means under Section 30(1) of the Act.

Section 30(2) lays down that if the parties make a request before the
arbitral tribunal and such a request is not objected by it and the parties
arrive at a settlement, then in such situation, the arbitral tribunal shall
terminate the proceedings and record the settlement in the form of arbitral
award as per the agreed terms.
The arbitral tribunal is empowered to reject the request made by the
parties for settlement of their dispute, if the circumstances are opposed to
the public policy in India, fraud and unfair terms of settlement etc.
Section 30(3) mandates that an arbitral award on agreed terms shall
be in the form and content as provided in Section 31 of the Act, however, an
arbitral award and an arbitral award on agreed terms have same meaning
under the Act.
Further, Section 30(4) of the Act, 1996 provides that such an arbitral
award on agreed terms shall have same status as any other award on the
substance of the dispute.
An arbitral award on agreed terms will be final and enforcement of
such award shall be in the same manner as decree under the Code of Civil
Procedure, 1908.
But, where a party seeks to enforce an arbitral award before the court
if the court is of opinion that the award has been made in contravention of
Section 34(2)(b) o f the Act, i.e., without jurisdiction, the court may reject the
prayer merely on this ground.1
Where dispute between supplies of electricity and consumer over fuel
adjustment charges arose, question as to whether formula to calculate
increase in fuel adjustment charges was correctly applied was referred to the
arbitrator and the arbitrator dealing with one of the factors in formula as
extraneous was held to amount to exceed jurisdiction and award was held
liable to be set aside.2
(i) Consent award is an arbitral award
The Apex Court in Harendra H. Mehta v. Mukesh H. Mehta,3 observed
that during pendency of arbitral proceedings parties entered into settlement,
yet wanting arbitrator to pass award in terms of settlement. It has been held
that settlement arrived at between the parties did not have effect of
revoking arbitration agreement. It cannot be said that award passed was not
an arbitral award though a consent award.
However, a compromise reached between the parties cannot be
considered as an arbitral award by itself, except when the arbitral tribunal
makes an award on the basis of that compromise.4
(ii) Where during arbitral proceedings settlement reached—Effect
of
Arbitral tribunal shall terminate the arbitral proceedings if the parties
have arrived at a settlement during the arbitral proceedings. In such
1. Union o f India v. MIs. Jagat Ram Trehan & Sons, AIR 1996 Del 191, 194.
2. D.C.M. Ltd. v. Municipal Corpn. Delhi , AIR 1996 SC 3225.
3. 1999 (5) SCC 108 : AIR 1999 SC 2054.
4. Kapila Textiles v. Madhav, AIR 1963 Mys. 39.
224 THE ARBITRATION AND CONCILIATION ACT, 1996

circumstances if it is so desired by the parties by a written request, the

arbitral tribunal shall record the settlement of the disputing parties in form
of an arbitral award as provided under Section 31 o f the Arbitration and
Conciliation Act, 1996.1
But, in case the settlement of the parties has not been recorded in
accordance with Section 31 of the Act, it will be considered as a "settlement
agreement" as provided under Section 73 of the Arbitration and Conciliation
Act, 1996.2
It is to be noted that a settlement agreement reached between the
parties during arbitral proceedings is made by the arbitrator, whereas a
settlement agreement under Section 73 of the Act is made by a conciliator,
thus it is the outcome o f the conciliation endeavours.
(iii) An arbitral award on agreed terms will be final
On several occasions the Supreme Court and the High Courts have
expressed their opinion that an arbitral award on agreed terms enjoy the
same status and effect as any other award and it may not be open to any
party to get that award set aside on the grounds enumerated in Section
34(2)(a). In legal point of view a party may be stopped from challenging
what has been agreed to by the parties on a voluntary basis. However, in
certain circumstances under Section 34(2Xb), the court may set aside such
an arbitral award on agreed terms on the grounds enumerated in clauses (i)
and (ii) thereof, in case an application is filed by a party under Section 34(1).
In case there is no challenge regarding an arbitral award on agreed terms
and where a party seeks to enforce such an award, the executing court may
decline to grant the prayer if it is of the opinion that the arbitral award on
agreed terms has been made in contravention of Section 34(2)(b) and hence
without jurisdiction. Except in this situation an award on agreed terms will
be final and binding on the parties and shall be enforced under Code of Civil
Procedure, 1908, as if it were a decree of the Court.3
(iv) In the interest of justice family dispute under arbitration may
be interfered
The Supreme Court in the exercise of its power under Article 142(1) of
the Constitution of India, 1950 "may pass such decree or make such order
as is necessary for doing complete justice in any cause or matter pending
before it, and any decree so passed or order so made shall be enforceable
throughout the territory of India in such manner as may be prescribed by
or under any law made by Parliament and the provision in that behalf is so
made and in such manner as the President may by order prescribe."
The Supreme Court in Virendra Swarup v. Krishna. Swarup ,4 while
exercising its power under Article 142 of the Constitution of India, 1950
passed an order on the matter if family dispute under arbitration, with the
view to do a complete justice and in the interest of the same. Summarised
1. Munshi Ram v. Bhanwarilal, AIR 1962 SC 903.
2. Ibid.
3. Ram Singh v. G.A. Coop. Service Society, AIR 1976 P. & H. 99; Kiran Singh v. Chaman
Paswan, AIR 1954 SC 340; Union o f India v. M/s. Jagat Ram Trehan & Sons, AIR 1996
Del. 191; see also P.C. Rao on Arbitration & Conciliation Act, 1996, 1997 Ed., p. 101.
4 (1994) 2 Arb. LR 139 (SC).
ARBITRATION 225

facts of the case were as under :—

Once a family settlement reached over a dispute relating to a company
named M/s. Emery (India) Pvt. Ltd. Said settlement was between the one
V.S. and K.S. who were in relation brother-in-laws. Initially, the
subject-matter of dispute was referred and arbitrated by the father of V.S.
and who performed as a sole arbitrator in accordance with arbitration clause
provided by mutual agreement of V.S. and K.S., the dispute was settled by
that sole arbitrator and also accepted by the parties in dispute. Although,
once again dispute arose between them and once again the subject-matter of
dispute was referred to the said sole arbitrator, but this time K.S. raised
suspicion regarding the sole arbitrator’s impartiality and alleged undue
favour towards his son—V.S. Consequently, the said appointment of sole
arbitration was terminated and K.S. filed an application under the (old)
Arbitration Act, 1940. However, High Court rejected the application as being
misconceived. In appeal before the Supreme Court, it was held that it is not
desirable to keep the dispute between two close relatives pending for years,
therefore, in the interest o f justice it would be appropriate to pass a decree
under Article 142 of the Constitution of India, 1950 and the court directed
Rs. 5 lakhs in favour of K.S. to meet the ends o f justice. In this case the
Supreme Court passed direction in keeping with view to the civil court’s
order of interim attachment of company’s properties on K.S.’s application
and removal o f V.S.’s father as a sole arbitrator and interest on the amount
for the preceding eleven years till the amount was paid. These orders o f the
civil court were referred during the pendency of the appeal before the
Supreme Court.
It is submitted that in exceptional circumstance and in the interest of
justice the superior courts may make interference over the subject-matter of
dispute under arbitration, it is immaterial whether the dispute is the family
dispute or not. It would be pertinent to be mentioned that Section 30 o f the
Arbitration and Conciliation Act, 1996 confers power on the arbitral tribunal
to encourage settlement of disputes with the agreement of parties to achieve
the basic object of the law of arbitration.
(v) Arbitrator by revising wage has not misconducted himself
The Supreme Court in Food Corporation o f India v. M/s. A.M. Ahmed
& Co. & another,1 observed that escalation is normal and routine incident
arising out o f gap of time in this inflationary age in performing any contract
o f any type. In the instant case, the arbitrator has found that there was
escalation by way of statutory wage revision and therefore, he came to the
conclusion that it was reasonable to allow escalation under the claim. Once
it was found that there was delay in execution of the contract due to conduct
of the Food Corporation of India, the Corporation was liable for the
consequences o f the delay, namely, increase in statutory wages. It was held
that the arbitrator had jurisdiction to go into this question.
The Court was of the view that the arbitrator has gone into this
question and has awarded as he did. The arbitrator by awarding wage
revision has not misconducted himself. Thus, making the award rule o f the
Court, was proper. Further, the award has been passed in consonance with
1. AIR 2007 SC 829.
226 THE ARBITRATION A N D CONCILIATION ACT, 1996

the "Principle o f Natural Justice". Therefore, award o f arbitrator earn, be

upheld.
Section 31. F orm and contents o f arbitral aw ard.— (1) An
arbitral aw ard shall be m ade in w riting and shall be signed b y the
m em bers o f the arbitral tribunal.
(2) F or the purposes o f sub-section (1) in arbitral proceeding
w ith m ore th an one arbitrator, the signatures o f the m ajority o f all
the m em bers o f the arbitral tribunal shall be sufficient so lon g as the
reason for any om itted signature is stated.
(3) The arbitral aw ard shall state the reasons upon w h ich it is
based, unless—
(a) the parties have agreed that no reasons are to be given, or
(b) the aw ard is an arbitral aw ard on agreed term s under
S ection 30.
(4) The arbitral aw ard shall state its date and the place o f
arbitration as determ ined in accordance w ith Section 20 and the
aw ard shall be deem ed to have been m ade at that place.
(5) A fter the arbitral aw ard is m ade, a signed copy shall be
delivered to each party.
(6) T he arbitral tribunal m ay, at any tim e du rin g the arbitral
proceedings, m ake an interim arbitral aw ard on an y m atter w ith
respect to w h ich it m ay m ake a final arbitral award.
(7 ) (a) U nless otherw ise agreed by the parties, w h ere and in so
far as an arbitral aw ard is for the paym ent o f m oney, the arbitral
tribunal m ay include in the sum for w hich the aw ard is m ade
interest, at such rate as it seems reasonable, on the w hole or any
part o f the m oney, for the w hole or any part o f the period betw een
the date on w h ich the cause o f action arose and the date on w hich
the aw ard is m ade.
(b) A sum directed to be paid b y an arbitral aw ard shall, unless
the aw ard otherw ise directs, carry interest at the rate o f eighteen per
centum per annum from the date o f the aw ard to the date o f
paym ent.
(8) U nless otherw ise agreed b y the parties,—
(a) the costs o f an arbitration shall be fixed by the arbitral
tribunal;
(b) the arbitral tribunal shall specify—
(i) the party entitled to costs,
(ii) the party w ho shall pay the costs,
(iii) the am ount o f costs or m ethod o f determ ining that
am ount, and
(iv) the m anner in w hich the costs shall be paid.
E xplan ation .— For the purpose o f clause (a), "costs" m eans
ARBITRATION 227

reasonable costs relating to—

(i) the fees and expenses o f the arbitrators and w itnesses,
(ii) legal fees and expenses,
(iii) any adm inistration fees o f the institution supervising the
arbitration, and '
(iv) any other expenses incurred in connection w ith the arbitral
proceedings and the arbitral award.
COMMENTS
Only Sections 31(1), 31(2), 31(3), 31(4) and 31(5) are modelled on
Article 31 o f the Model Law. Section 31 of the Act, 1996 provides the form
and contents o f an arbitral award.
Section 31(6) is analogous to Section 27 of the Arbitration Act, 1940.
Section 31 also prescribes form and contents of interim award, interest
to be paid and costs borne by parties as to the arbitral proceedings.
Section 31(1) states that "an arbitral award shall be made in writing
and shall be signed by the members of the arbitral tribunal". The Supreme
Court of India, in Hindustan Construction Co. v. Uni.nn o f India.1 explained
that the word "signing" means writing one’s name on the award. Although,
no oral award is permitted under sub-section (1) of Secton 31 of the Act as
observed by the Allahabad High Court.2
If an arbitral award is signed by the majority of the members of
arbitration, it fulfils the requirement of the Act.
Section 31(2) lays down that if there is a multi-members arbitration
system the signature of the majority of members will be sufficient to fulfil
the requirements o f the section. Although the reasons should be mentioned
in the award as to why the signatures of the remaining members are not
there. Thus, the members dissenting from an arbitral award cannot stop the
award.
Section 31(3) provides that if the arbitral award is in terms of the
settlement by the parties to dispute, it is not necessary to give basis of an
arbitral award or that the parties have agreed that no reason need be given
by the arbitrators, otherwise it is the requirement o f this section that the
arbitrators have statutory obligation to give in writing the reasons on which
an arbitral award is based. It provides transparency and fairness in decision
making by an arbitral tribunal and to eradicate irrational manner of making
an arbitral award.
The arbitral tribunal is not required to give a detailed judgment as
Judges do. It has to give the trend of its thought process.3
An award made by a private arbitral tribunal is to be stamped under
the Stamp Act, 1899.4
Section 31(4) states that the arbitral award shall bear its date and

1. AIR 1976 SC 526, 527.

2. Satyapal v. Ved Prakash, AIR 1980 A1 268.
3. Naraina R. Israni v. Union o f India, AIR 1993 Del 78 and Gujarat W.S. & S.B. v. Unique
Erectors (Gujarat), Put., Ltd., AIR 1989 SC 973, 976.
4. Darshan Singh v. M/s. Forward India Finance Put. Co., AIR 1984 Del 140, 143.
228 THE ARBITRATION AND CONCILIATION ACT, 1996

place of arbitration, as determined in accordance with Section 20 of the Act.

In an arbitral award date and place of arbitration must be mentioned as to
facilitate mainly for two purposes—
(1) if, there would be an appeal against the arbitral award, or
(2) for enforcement o f the arbitral award.
Section 31(5) directs that a signed copy of the award is to be delivered
to each party and receipt of signed copy of the award is the requirement of
the Act.
Section 31(6) provides that the arbitral tribunal may make ‘interim’
arbitral award at any stage of the arbitration proceedings before it makes
final arbitral award. Thus, under Section 31(6) interim arbitral award and
arbitral award are not the same. Therefore, an interim arbitral award would
not terminate the arbitral proceedings.
Section 31(7) provides for interest, payable to the other party, at such
rate as it deems reasonable on the whole or any part of the money, interest
shall be included in the sum awarded in the arbitral award. If, no rate of
interest is mentioned then it shall be at the rate of 18 per cent per annum.
It shall also be mentioned in the award as to the interest whether it shall
be payable 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.
The provision contained in Section 31(7) is not modelled on the Model
Law, by which the provisions under this sub-section (7) are to be regulated
by each State. The purpose behind such a regulation is to remove confusion
caused by earlier court rulings in the matter relating to payment of interest.
In the same nature clause (b) of Section 31(7) prescribes interest at the rate
of 18 per cent per annum from the date of award to the date of payment, so
that the parties cannot take recourse of malicious practices by delay,
however, the rate o f interest is subject to review from time to time according
to Section 31(7) enactment.
Section 31(8) lays down provision about the costs to be awarded by the
arbitral tribunal. The arbitral tribunal has to specify the followings—
(i) which party is entitled to costs;
(ii) which party shall pay the costs;
(iii) the amount of costs; and
(iv) by which method the costs is determined.
Sub-section (8) is also modelled on the Model Law, thus leaves this
matter to be regulated by municipal law.
(i) A n a w a rd shall b e m ade in w ritin g and sign ed b y m em bers o f
trib u n a l
Section 31(1) of the Arbitration and Conciliation Act, 1996 states that
an arbitral award shall be made in writing and shall be signed by the
members of the arbitral tribunal. It seems that the legislature intended to
give finality in the arbitral award by providing a mandatory condition that
the award must be reduced into writing and also signed by the arbitrators,
so that in case of difference of opinion the same can be found out prima
facie. Further sub-section (2) of Section 31 provides that in arbitral
ARBITRATION 229

proceedings conducted by more than one arbitrator, the signature of all the
members of the arbitral tribunal shall be sufficient so long as reason for any
omitted signature is stated. In other words if there is omission of signature
of any of the arbitrators in the award, the reason for doing so should be
stated.
The Apex Court in Dwarka Das v. India Engineering , l observed that an
arbitral award must not merely be in writing but it should also be duly
signed by the arbitrators/arbitrator. If the reasons for omission of signature
of other arbitrators are mentioned in the award, an arbitral award signed
by majority arbitrators would also be valid.
Wherein arbitral award is made on the foundation of compromise
arrived at by the parties, in such event arbitrator’s signature in the arbitral
award would be desirable.2
Now, under the new Act, 1996 oral award is ruled out, with a view to
eliminating any uncertainty in the matter of the arbitral tribunal’s decision.3
The expression "signing" connotes writing one’s name on the arbitral
award.4
(ii) Arbitral award should state the reasons upon which it is based
The Apex Court in Tamil Nadu Electricity Board v. M/s. Bridge Tunnel
Constructions and others,6 observed that law on the arbitral award, as
governed by the new Arbitration and Conciliation Act, 1996, is other way of
the pre-existing law; it mandates that the award should state the reason
upon which it is based. In other words, unless—
(a) the parties have agreed that no reasons are to be given, or
(b) the award is an arbitral award on agreed terms under Section 30
of the new Act, 1996.
The arbitral award should state the reasons, in support of
determination of the liability/non-liability.
It is a mandatory requirement to make reasoned arbitral award. In fact
it may be noticed that the Arbitration and Conciliation Act, 1996, mandates
recording of reasons in the arbitral award, unless there is an agreement
between the parties not to have reasons.6
It is to be noted that the old Arbitration Act, 1940 did not require an
arbitrator to give reasons in support of the arbitral award. However, the
Supreme Court in Food Corporation o f India v. Great Eastern Shipping Co.
Ltd. ,7 observed that the recent trend, in modern arbitration law, was to have
reasoned awards which was in consonance with the principle of natural
justice.
Section 31(3) of the present Act, 1996 is designed to bring transparency
and honesty in process of decision making by an arbitral tribunal, thus, to

1. AIR 1972 SC 1538.

2. Narayan Das v. Vallabhdas, AIR 1972 SC 1.
3. Satya Pal v. Ved Prakash, AIR 1980 All. 268,
4. Hindustan Construction Co. v. Union of India, AIR 1967 SC 526.
5. AIR 1997 SC 1376 : 1997 (4) SCC 121 : 1997 (3) Supreme 365.
6. State Bank of India v. Ram Das, Secunderabad, 1999 (1) R.A.J. 27 (A.P.).
7. AIR 1988 SC 1198.
230 THE ARBITRATION A N D CONCILIATION ACT, 1996

make the arbitral award sustainable and not liable to be set aside. It would
be against the principle of natural justice if the parties in arbitration do not
know the reasons or the basis on which the arbitral award is based. In M is.
Naraindas R. Israni v. Union o f India? the Delhi High Court observed that
the making of an arbitral award should be a reasonable process and
recording the reasons upon which the arbitral award is based shows the
rationality. The court further observed that it is often seen that unsuccessful
parties will wish to know why they have been unsuccessful. If a reasoned
arbitral award is given, an unsuccessful party will be in a deciding position
to know whether he has a just cause for complaint or not? Even the court
of law can conveniently make assessment of the arbitral award in question.
Although, an arbitrator is not required to give a detailed reason as the
courts of law do, but he has to show the trend of his thought process.
(iii) Wherein it is not mandatory to give reasons for the arbitral
award
An arbitrator being a judicial authority, a substitute for the civil court,
must give reasons for his decision. Specifically, when the parties in the
arbitration agreement stipulate that the arbitrator must give reasons, he is
bound by the agreement to which he owes his existence. It is settled legal
principle that when an arl itrator accepts the appointment, he accepts all the
terms of the agreement. But, where the arbitration agreement under which
the appointment of arbitrator is made does not stipulate categorically that
the arbitral award must contain reason upon which it is based, in such
situations it is not a mandatory requirement that the arbitrator must give
reasons for the award.
While clarifying the position the Supreme Court in Raipur Development
Authority v. Chokhamol Contractors,2 has held that though it was not a
mandatory requirement that the arbitrator must give reasons for the
arbitral award, he was bound to give reasons if the arbitration agreement so
stipulated or if the parties so require.
The Court observed :
"It is now well settled that an award can neither be remitted nor
set aside merely on the ground that it does not contain reasons in
support of the conclusion or decision reached in it except where the
arbitration agreement or the deed of submission require him to give
reasons. The arbitrator or umpire is under no obligation to give reasons
in support of the decision reached by him unless under the arbitration
agreement or in the deed of submission he is required to give such
reasons and if the arbitrator or umpire chooses to give reasons in
support of his decision it is open to the court to set aside the award if
it finds that an error of law has been committed by the arbitrator or
umpire on the fact of the record on going through such reasons. The
arbitrator or umpire shall have to give reasons also where the court has
directed in any order such as the one made under Section 20 or Section
21 or Section 34 of the Act, 1940 (old, Arbitration Act) that reason

1. AIR 1993 Del. 78; see also P.C. Rao on Arbitration & Conciliation Act, 1996 1st Ed. 1997
p. 104.
2. AIR 1990 SC 1426 (The Supreme Court Bench comprising 7 Judges).
ARBITRATION 231

should be given or where the statute which governs an arbitration

required him to do so,"
The Supreme Court while answering the question whether an
arbitrator should be required by law to give reasons for th.e award. The
Court observed as follows—
"The scheme of the (old) Arbitration Act, 1940 is to provide a
domestic forum for speedy and substantial justice, untrammeled by
legal technicalities, by getting the dispute resolved by a person in
whom the parties have full faith and confidence. The award given by
such a person under the scheme of the Act can be assailed only on very
limited ground like those mentioned in Section 30 of the old Arbitration
Act, 1940. The result is that most of the awards at present are made
rules of the court despite objections to their validity by the party
against whom those awards operate to have a provision making it
obligatory for the arbitrator to give reasons for the awards would be
asking for the introduction of an infirmity in the award which in most
cases is likely to prove fatal. Many honest awards wduid thus be set
aside.
Once the arbitrators are compelled to give reasons in support of the
award, the inevitable effect o f that would be that the validity of most of the
award would be challenged on the ground that the reasons, not least of
them, are bad and not germane to the controversy. Sometimes, if four
reasons are given in support of the award and one of the reasons is shown
to be not correct or not germane, the award would be challenged on the
ground that it is difficult to predict as vj how far the bad reason which is
not germane has influenced the decision of the arbitrator. Many awards
would not survive court’s scrutiny in such circumstances.
It is also noteworthy that in a large number of cases the arbitrators
would be laymen. Although their final award may be an honest and
conscientious adjudication of the controversy and dispute, they may not be
able to insert reasons in the award as may satisfy the legal requirements
and the scrutiny of the court. The arbitrators having been chosen by the
parties, it would, in the court’s opinion, be not correct to put extra burden
on them of giving reasons which are strictly rational and germane in the eye
of law in support of their award. Once, the parties have voluntarily chosen
the arbitrators, presumably because they have faith in their impartiality, the
law should not insist upon the recording of reasons by them in their award."
In another important ruling of the Apex Court in Subash Aggarwal v.
Bhilwara Synthetics Ltd.,1 the court directed the Delhi High Court in terms
of the concession made on behalf of the Association and the sole Arbitrator
that the reasoned award shall be passed by the Arbitrator.
It is to be noted that even the administrative authorities giving quasi
judicial decisions must give reasons as it has been held consistently by the
Supreme Court in a number of cases.2

1. AIR 1995 SC 947.

2. Vasudeo Vishwanath Saroj v. New Education Institute, AIR 1986 SC 1955; Mahabir Jute
Mills v. Shibbam Lai , AIR 1975 SC 2057; Rangnath v. Daulat Rao, AIR 1975 SC 2146;
Bechan Singh v. State o f Punjab, AIR 1980 SC 1355.
232 THE ARBITRATION A N D CONCILIATION ACT, 1996

It is submitted that notably the old Arbitration Act, 1940 does not
contain express provision that the arbitration award shall state the reasons
upon which it is based, now with the view to provide greater transparacy in
process thought in arbitration, compliance of fundamental principles of
natural justice and to avoid challenging trend against the award in the
court, thus in other words to avoid the unwarranted court scrutiny and
ultimately to achieve objectives behind the law of arbitration, the Parliament
has promulgated this Arbitration and Conciliation Act, 1996 in which it is
expressly provided namely under Section 30(3) that the arbitral award must
be reasoned one, unless (a) the parties have agreed that no reasons are to
be given, or (b) the award is an arbitral award on agreed terms under
Section 30 of the Act, 1996.
(iv) Arbitrator’s jurisdiction to award interest
An arbitrator is competent to award interest at four stages, namely :—
1. From the stage of cause of action till filing of proceedings.
2. During pendency of proceedings before the Arbitrator.
3. From the date of award and date of decree.
4. Interest arising from the date of decree till realisation of award.1
Also, in the case of State o f Hindustan Construction Co. Ltd. v. State
o f Jammu & Kashmir,2 the Supreme Court has held that the Arbitrator is
competent to award interest from the date of the arbitral award.3
(v) Interest—When it may be awarded
In Food Corporation o f India v. A.M. Ahmed & Co.,4 wherein the
subject matter relates to the performance of the contract between the period
from 8-4-1981 to 7-4-1983, 23 years have already elapsed since the contract
period and that the contractor is being prevented by F.C.I. to receive the
monies spent by him as awarded by the arbitrator. As per the records the
quantum claimed by the respondents was never disputed by F.C.I. and it is
an admitted fact that the wage revision came into force w.e.f. 1-9-1981 and
the contractor firm had paid the workers revised wages from 1-9-1981.
Having considered the totality of the circumstances, it would be just and
proper to award interest @ 9% p.a. throughout instead of 12% as awarded
by the arbitrator for the period in question.
In another case3 the Supreme Court ruled that the grant of interest is
discretionary and the majority of the arbitrators have rightly granted
interest at the rate of 12% pendente lite and at the rate of 18% post pendente
lite. Therefore, no exception can be taken to grant of such interest.
(vi) Arbitrator has jurisdiction to award interest for pre-reference
period
The Apex Court in Executive Engineer, Dhenkanal Minor Irrigation
Division, Orissa etc. v. N.C. Budharaj (Dead) by LR’s,6 observed the
1. T.P. George v. State o f Kerala, AIR 2001 SC 816 : 2001 (2) JT 438 (SC).
2. M R 1992 SC 2192 : 1992 AIR SCW 2647.
3. Ibid.
4. AIR 2007 SC 829.
5. Numaligarh Refinery Ltd. v. Daelim Industrial Co. Ltd., (2007) 8 SCC 466.
6. AIR 2001 SC 626 : 2001 (11 ,TT 486.
ARBITRATION 233

contention that the arbitrator cannot have jurisdiction to award interest for
the period prior to the date of his appointment of entering into reference
which is technical to be countenanced for the simple reason that in every
case the appointment of an arbitrator or even resort to court to vindicate
rights could be only after disputes have cropped up between the parties and
continue to subsist unsettled and that if the arbitrator has the power to deal
with and decide disputes which cropped up at a point of time and for the
period prior to the appointment of an arbitrator, it is beyond comprehension
as to why and for what reason and with what justification the arbitrator
should be denied only the power to award interest for the pre-reference
period when such interest becomes payable and has to be awarded as an
accessory or incidental to the sum awarded as due and payable, taking into
account the deprivation of the use of such sum to the person lawfully
entitled to the same. It was held that the arbitrator has jurisdiction to
award interest for pre-reference period, unless of course there is specific
prohibition in the contract.
(vii) The arbitrator’s jurisdiction to award "pendente lite" interest
The question whether the arbitrator has jurisdiction to award "pendente
lite" interest was considered by the courts in England and also in India.
According to Halsbury’s Law of England— "An arbitrator or umpire has
power to award interest on the amount of any debt or damages for the whole
or any part of the period between the date when the cause of action arose
and the date of power."
In England.—Where a money claim is referred to an arbitrator, it
would include the claim for interest as well. In Podan Trading Co. Ltd. v.
Francois Tagher,1 wherein the dispute was whether the arbitrator had the
power to award interest for the period subsequent to his award. The court
held that prior to Civil Procedure Act, 1833 interest could be awarded in
three cases only, namely, where it is provided by statute or by agreement or
by mercantile custom and in no other situation. Subsequent to the said
enactment however the position was according to the decision that there was
no difference between a court and an arbitrator. It noticed that Section 11
of the Arbitration Act, 1934 specifically empowered the court to award
interest from the date of award and further that Sections 28 and 29 of the
Code o f Civil Procedure empowered awarding ‘of such interest in certain’
other specified situation. Thus, the court held that arbitrator had the same
power as the court in matter of awarding interest. Subsequently, it then
noticed the effect of Law Reforms (Miscellaneous Provisions) Act, 1934 and
observed that Section 3(1) of the said Act empowered only the court to award
interest from the date of cause of action to the date of judgment. It further
noticed the fact that Section 3(2) of this Act repealed Sections 28 and 29 of
the Civil Procedure Code, 1833. By virtue of this appeal, the court held that
the arbitrator has no power to award interest. This may have been an
omission said the court, but it is for the legislature to rectify and not for the
court to fill up the gap."2

1. 1949 (2) All E.R. 62.

2. M.A. Sujan on Law relating to Arbitration and Conciliation 2nd Edn. 2001, p. 319.
234 THE ARBITRATION A N D CONCILIATION ACT, 1996

But, in Chandris v. Isbrandtsen Moller Co. Inc,1 it was held that the
Podan Trading case was erroneously adjudicated and the High Court was
wrong in assuming that the decision in Edwards case2 was based upon the
Civil Procedure Act, 1833. The ratio o f Edwards case is that it is the
submission which empowers the arbitrator towards interest and that power
of the arbitrator was not derived by said Act, 1833.
Lord Tucker observed :—
An arbitrator impliedly or expressly derived power from the
submission and arbitration agreement. He in fact does not derive power
from the statute, namely Civil Procedure Act, 1833, in such situation I
came to the conclusion that the arbitrator has power to award interest.
In India.— By following the legal precedent set up in England
regarding power of the arbitrator to amend pendente lite interest, the
Supreme Court of India in Nachiappa Chettiar v. Subramaniam Chettiar,3
held that the arbitrators to whom the dispute pending in a suit was referred,
awarded interest for all the three periods, namely for the period anterior to
the reference, "pendente lite" and for the period subsequent to award.
However, the award was challenged in view of the decision in Thawardas’s
case.4 The Supreme Court by overruling the objection observed as under :—
It cannot be the ground of objection that the arbitrator is not
empowered to award interest as the arbitral tribunal is not the court within
the meaning of Section 34 of the Code o f Civil Procedure, 1908. However,
the court does not propose to pursue this matter any further because the
present contention was not urged before the High Court and it is not urged
at the time of hearing.
In Ashoka Construction Co. v. Union o f India,5 wherein the arbitrator
made his award and also awarded interest from the date the amount fell
due. The objection before the Supreme Court was raised on the ground that
the arbitrator has acted beyond his jurisdiction in awarding interest. The
court observed as under :—
"The term of the arbitration agreement did not exclude the
jurisdiction of the arbitrator to entertain a claim for interest, on the
amount due under the contract. The award of the arbitrator cannot be
said to be invalid."
The principle of this decision is that since the arbitration agreement
did not exclude the jurisdiction of the arbitrator to entertain claim for
interest he was competent to award interest on the amount due under the
contract.
However, the Supreme Court in Hind Builder v. Union o f India,6
observed as follows :—
"An arbitrator appointed by the court does not have all the powers
o f the court. Generally, speaking, it would only seem reasonable that

1. 1951(1) K.B. 240.

2. Edward v. G.W. Rly. Co., (1851) 138 ER 603.
3. 1960 (2) SCR 209.
4. Thawardas Pherumal v. Union o f India, AIR 1955 SC 468 : 1955 (2) SCR 48.
5. 1971 (3) SCC 66.
6. AIR 1990 SC 1340.
ARBITRATION 235

the power to grant interest pendente lite should be treated as ancillary

to the award of damages or compensation which, but for the delay in
the litigation (whether in court or by way of arbitration), the claimant
should have received much earlier. However, though pendente lite
interest has been made available in court proceedings, its extension to
arbitration law has acquired some technical limitations resulting in
denial of pendente lite interest in most of the cases of arbitration. Even
if it is accepted that an arbitrator appointed by the court has all the
powers of the court, the pendente lite interest could not still be awarded
by an arbitrator appointed by the parties under a private agreement for
which there may be no justification in equity. These anomalies have
arisen because formerly an arbitrator could not be treated as a court to
which the Code of Civil Procedure applied and because now the Interest
Act, 1978, while including arbitration proceedings within its ambit, has,
apart from a reference to Section 34, omitted to provide specifically for
pendente lite interest".
A relevant ruling on this issue may be cited, that is in Kishore
Prabhatilal Sharma v. Vijayendra Prabhatilal Sharma,' the Supreme Court
has observed
The dispute between the parties pending adjudication in a suit
has been referred to arbitrator in the present case and therefore the
arbitrator has all the powers which the court itself would have had in
deciding the issqes in the suit. The claim in the suit and the claims
under the deed of dissolution in the present case were comprehensive
enough to include the claim of interest and its reference to the
arbitrator. It was held that the arbitrator was within his rights in
awarding pendente lite interest.
It is submitted that the Apex Court has reviewed its all previous
decisions and categorically held that the arbitrator has jurisdiction to award
pendente litd interest. As the law laid down by the Apex Court in Secretary,
Irrigation Department o f Orissa v. G.C. Roy,2 same has been incorporated in
Section 31(7)(a) of the present Arbitration and Conciliation Act, 1996 which
states as follows :—
"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 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."
However, where the question of the award by the arbitrator is
concerned, the Apex Court answered by its decision in State o f Orissa v. B.N.
Agarwala,3 holding that admittedly, the reference in the cases at hand was
made before 19th August 1981, when the Interest Act, 1978 was in force.
Interest could not have been awarded in the absence of statute, contract,
usage custom. Therefore, the interest for the pre-reference period was liable

1. AIR 1993 SC 864.

2. AIR 1992 SC 734.
3. AIR 1997 SC 925.
236 THE ARBITRATION AND CONCILIATION ACT, 1996

to be set aside. Now in view of express provision in the Act, 1996, the law
is well settled that the arbitrator is entitled to grant pre-reference, pendente
lite and future interest.
(viii) Whether compound interest is permissible through arbitral
award
The Apex Court in Renusagar Power Co. v. General Electric Company/
inter alia observed that it cannot be said that award of interest on interest
is contrary to public policy in our country therefore, an award cannot be
quashed merely because it has made the party liable for payment of
compound interest unless it is otherwise provided in the arbitration
agreement.
(ix) Reduction of statutory rate of 18% by Court—When warranted
In Me Dermott International Inc. v. Burn Standard Co. Ltd.,1 the Apex
Court ruled that where the powers of the arbitrator to award interest for
pre-award period, interest pendente lite and interest post award period is not
in dispute. The question as to whether interest would be paid on the whole
or part of the amount or whether it should be awarded in the pre-award
period would depend upon the facts and circumstances of each case. The
Arbitral Tribunal in this behalf will have to exercise its discretion as
regards :—
(i) at what rate interest should be awarded;
(ii) whether interest should be awarded on the whole or part of the
award money; and
(iii) whether interest should be awarded for the whole or any part of
the pre-award period.
The Act, 1996 provides for award of 18% interest. The arbitrator in his
wisdom has granted 10% interest both for the principal amount as also for
the interim. By reason of the award, interest thereon was upto the date of
award as also the future interest at the rate of 18% per annum.
However, in some cases, the Supreme Court has resorted to exercise of
its jurisdiction under Article 142 of the Constitution in order to do complete
justice between the parties. In aforesaid case, given the long lapse of time,
it will be in furtherance of justice to reduce the rate of interest to 71%.
To conclude, the arbitral tribunal under Section 31(7) of the new Act,
1996 has been conferred powers to award interest, whether it is simple
interest or compound interest, which it deems reasonable. The tribunal in
its discretion may award interest, 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. Sub-section (7Xb) of Section 31 further provides that the
tribunal may award interest at the rate of 18% per annum from the date of
the award to the date of payment.
(x) When the award becomes complete and final
An arbitral award attains finality when it is signed because signing of
the award gives legal effect. It is a complete award. The Supreme Court in
1. AIR 1994 SC 860.
2. (2006) 11 SCC 181.
ARBITRATION 237

Satwant Singh Sodhi v. State o f Punjab,1 observed that "Section 31 of the

Act provides that when the arbitrator or umpire has made his award, he
shall sign it and shall give notice in writing to the parties of the making and
signing thereof and of the amount of fees and charges payable in respect of
the arbitration and the award. In the language of the section, an award will
be complete as soon as it is made and signed. Thus, mere writing of award
would not amount to making of an award. There can be no finality in the
award except when it is signed because signing of an award gives legal effect
to it and gives validity to an award. It is not necessary that it should also
be delivered or pronounced or filed in the court. Making and delivery of the
award are different stages of an arbitration proceeding. An award is made
when it is authenticated by the person who makes it. The word ‘made’
suggests that the mind of the arbitrator is being declared and it is validly
deemed to be pronounced as soon as the arbitrator has signed it and once
an award has been given by the arbitrator he becomes functus officio. If this
is the position in law, it becomes difficult to support the view taken by the
High Court in stating that the interim award was not pronounced though it
was made and signed by the arbitrator. If he had made the award, the
question of superseding the same could not arise." It was held that the view
taken by the High Court appears to be fallacious and not sustainable. The
court further held that once the award becomes complete and final, it should
be made the rule o f the court.
(xi) What amounts to ‘interim award’
An order of an arbitral tribunal that disputes raised in the claim
petitions are arbitrable is not an ‘interim award’. It is an order by the
arbitral tribunal that it has jurisdiction to deal with the disputes referred to
it. It is an order under Section 16(5) of the Act and an application does not
lie against such order/
The Allahabad High Court in Anand Prakash v. Assistant Registrar,3
has held that an interim award is also an award and has, therefore, to be
made in the same way as an award, after hearing the parties and on
consideration o f the evidence adduced.
(xii) Arbitration costs—At the discretion of the tribunal
Sub-section (8) of Section 31 of the Arbitration and Conciliation Act,
1996 confers powers on the arbitrators to fix and award costs of arbitration,
in accordance with said provision. The arbitration costs include the fees and
expenses of arbitrators and witnesses, legal fees and expenses, supervision
and administrative charges of the arbitrating institution and other
incidental expenses pertaining to the arbitral proceedings and the arbitral
award. It has been held by the Privy Council in Mohammed Akbar v. Attar
Singh,4 that the award of arbitration costs is a discretionary power of the
arbitral tribunal. Thus, it is the tribunal which is required to determine the
costs of an arbitration.

1. AIR 1999 SC 2040.

2. Union o f India v. East Coast Boat Builders & Engineers , AIR 1999 Del. 44.
3. AIR 1968 All. 22.
4. AIR 1945 PC 170.
238 THE ARBITRATION AND CONCILIATION ACT, 1996

(xiii) Non-speaking award is invalid

In Union o f India v. M ls. Raymus Porta Buildings Ltd.,1 the Himachal
Pradesh High Court ruled that a non-speaking award would not be in
consonance with provisions of Section 31 of the Act which says that award
should be speaking one. Whether reasons given by the Arbitrator were valid
or not would be different matter. Hence, arbitral award is invalid.
(xiv) Division Benoji to give decision on all the grounds
In Narayan Prasad Lohia v. Nikunj Kumar L ohiaf wherein single
judge of the High Court set aside the arbitral award on many grounds,
however, in appeal against the impugned order the Division Bench of the
High Court considered only two grounds viz. composition of arbitral award
and award was without reasons. In appeal before the Supreme Court, it was
held that the matter is remanded to the Division Bench to consider all the
grounds before arriving at its decision.
(xv) Unstamped and unregistered arbitration award—Not
admissible as an evidence
In Ch. Kodandapani & others v. Kedidela Rajamouli,3 it has been held
by the Andhra Pradesh High Court that unstamped and unregistered
arbitration award is not admissible in evidence for pronouncing judgment in
accordance with it. The Court further held that the award creating rights in
immovable property by extending lease for six years from the date of award
being unregistered cannot be relied on.
S e c tio n 32. T e r m in a t io n o f p ro c e e d in g s .— (1) T he arbitral
proceedings shall be term inated by the final arbitral aw ard or b y an
order o f the arbitral tribunal under sub-section (2).
(2) T he arbitral tribunal shall issue an order for the term ination
o f the arbitral proceedings w here—
(a) the claim ant w ithdraw s his claim , unless the respondent
objects to the order and the arbitral tribunal recognises a
legitim ate interest on his part in obtaining a final
settlem ent o f the dispute,
(b) the parties agree on the term ination o f the proceedings, or
(c) the arbitral tribunal finds that the continuation o f the
proceedings has for any other reason becom e unnecessary or
im possible.
(3) S ubject to Section 33 and sub-section (4) o f S ection 34, the
m andate o f the arbitral tribunal shall term inate w ith the term ination
o f the arbitral proceedings.
COMMENTS
Section 32 of the Act, 1996 is on the pattern of Article 32 of the Model
Law.
Section 32 deals with the situations that when and how the arbitral
1. AIR 2007 (NOC) 1606 (H.P.).
2. AIR 2003 SC 1065 : 2003 (1) Supreme 729.
3. (2007) 10 SCC 742.
ARBITRATION 239

tribunal may be terminated.

Section 32(1) provides two conditions, if either condition is fulfilled the
arbitral proceedings are terminated. These condition are—
(i) by the final award, or
(ii) by an order of the arbitral tribunal as provided in sub-section
( 2 ).

Sub-section (1), o f Section 32 is not complete in respect of termination

of arbitral proceedings because such termination of arbitration proceedings
are also dealt with by other Sections 25(a), 30(2) and 38(2) of the Act.
Section 32(2) also provides three situations, when the arbitral tribunal
may by order terminate the arbitral proceedings. These situations are—
(i) when, the claimant withdraws his disputed case, and which is
not objected by the respondent, or
(ii) when, the parties have mutually agreed to seek termination
of an arbitral proceedings, or
(iii) when, the arbitral tribunal thinks, that it is unnecessary or
impossible to continue proceedings.
Section 32(3) lays down rule which is subject to Sections 33 and 34(4)
of the Act. Thus in certain contingencies the arbitral tribunal may resume
proceedings. That means, sub-section (3) states consequence of such nature
which may cause an automatic termination of the mandate of the arbitral
tribunal. *
(i) Implication of Section 32
There was no such provision in the old Arbitration Act, 1940 on the
point as to when the arbitral proceedings shall be deemed to have been
terminated. However the new Arbitration and Conciliation Act, 1996 which
came into force with effect from 22nd August, 1996, and Section 32 of it
provides that the arbitral proceedings shall be terminated by the final award
or by an order of the arbitral tribunal. Thus, it can be said that the arbitral
proceedings would come to an end by the final arbitral award.
In Rajputana Hotels Pvt. Ltd. v. Pradeep Kumar Sriya,1 wherein the
arbitrator filed final award in the district court on 12th December, 1996.
This can be treated as the date of termination of arbitral proceedings. It is
to be noted that the new Act came into force on 22nd August 1996 and in
the present case the arbitral proceedings were commenced before the
enforcement of the new Act and were not terminated on 22nd August, 1996,
it was held that in the view of Section 85(l)(a) of the new Act the arbitral
proceedings shall be governed by the old Act, 1940.
But, in N.G. Mitra v. State o f Bihar,2 the Supreme Court t .. opounded
the principle on the implication of new provision/Act relating to procedure as
under :—
"As a general rule the amended law relating to procedure operates
retrospectively. But there is another equally important principle, viz
that a statute should not be construed as to create new disabilities or

1. AIR 1999 Raj. 312.

2. AIR 1970 SC 1636.
240 THE ARBITRATION A N D CONCILIATION ACT, 1996

obligations or impose new duties in respect of transaction which were

complete at the time the amending Act came into force."
According to Lord Blackburn1—
"Now the general rule, not merely of England and Scotland but I
believe of every civilised nation is expressed on the maxim Nova
constitution futuris for mamimponere debet, non praeteritis—prima facie
any law that is made affects future transaction, not past
ones........Alteration in the form of procedure are always retrospective
unless there is some good reason or other why they should not be."
It is submitted that it is well settled legal position that if any alteration
or amendment is made relating to procedural law it should operate
retrospectively, but the new procedural law should not create new
obligations or duties in respect of the transactions which have been
completed before the enforcement of new Act.
(ii) Dissenting arbitrator cannot be allowed to sign, after the award
is filed in the court
It is to be noted that the new Arbitration and Conciliation Act, 1996
does not require the award to be filed in a court after it is made. But, in the
old Arbitration Act, 1940 it was necessary to file the award in the court with
the view to make rule of court. Where the award signed by only two of the
three arbitrators and the third one refused to sign initially, however, later
on he expressed his willingness to sign the same when the award was filed
in the court, it was held that the dissenting arbitrator cannot sign the same
after the filing of the award in the court.2
(iii) Doctrine of res-judicata—Applicability of
It has been held in a number of cases that the doctrine o f res-judicata
is equally applicable in the arbitral proceedings. Once the final arbitral
award is made on the basis of the particular agreement, no second arbitral
award can be made on the basis of that agreement. However, the principle
of res-judicata does not apply to the interim arbitral award which has been
made by the arbitral tribunal under Section 31(6) of the Act. Therefore, once
the final arbitral award is made on a dispute referred to the arbitration, on
the same subject-matter o f dispute no other reference can be made. It is
barred by the doctrine of res-judicata.
In Sudhir Kumar v. J.N. Chemicals,3 on the basis of agreement all the
subject-matters of disputes were referred to the arbitration, which were
finally adjudicated by the award. It was held that since agreement ceases to
operate and merges in the award, hence no second award can be made on
the foundation of that agreement.
But, wherein the arbitral award does not include the whole claim and
at first reference some of the claims have not been arbitrated, the making
of subsequent reference to the arbitration in respect of those left out claims,
it was held that the rule of constructive res-judicata is not applicable in such

1. James Gardner v. Edward A. Lucas, (1878) 3 AC 582.

2. Ramesh v. Karunanoyee , TT.R (1906) 33 Cal. 478.
3. AIR 1985 Cal. 454.
ARBITRATION 241

circumstances.1
S e c tio n 33. C o r r e c tio n a n d in t e r p r e t a t io n o f a w a rd ;
a d d itio n a l a w a r d .— (1) W ithin thirty days from the receipt o f the
arbitral aw ard, unless another period o f tim e has been agreed upon
b y the parties—
(a) a party, w ith notice to the other party, m ay request the
arbitral tribunal to correct any com putation errors, any
clerical or typographical errors or any other errors o f a
sim ilar nature occurring in the award;
(b) i f so agreed by the parties, a party, w ith notice to the other
party, m ay request the arbitral tribunal to give an
in terpretation o f a specific point or part o f the award.
(2) I f the arbitral tribunal considers the request m ade under
sub-section (1) to be justified, it shall m ake the correction or give the
interpretation w ith in thirty days from the receipt o f the request and
the interpretation shall form p a rt o f the arbitral award.
(3) T he arbitral tribunal m ay correct any error o f the type
referred to in clause (a) o f sub-section (1), on its initiative, w ithin
thirty days from the date o f the arbitral award.
(4) U nless otherw ise agreed by the parties, a party w ith notice
to the oth er party, m ay request, w ithin thirty days from the receipt
o f the arbitral aw ard, the arbitral tribunal to m ake an additional
arbitral aw ard as to claim s presented in the arbitral proceedings but
om itted from the arbitral award.
(5) I f the arbitral tribunal considers the request m ade under
sub-section (4) to be justified, it shall m ake the additional arbitral
aw ard w ith in sixty days from the receipt o f such request.
(6) T he arbitral tribunal m ay extend, i f necessary, the period o f
tim e w ith in w h ich it shall m ake a correction, give an interpretation
or m ake an additional arbitral award under sub-section (2) or
sub-section (5).
(7) S ection 31 shall apply to a correction or interpretation o f the
arbitral aw ard or to an additional arbitral aw ard m ade under this
section.
COMMENTS
Section 33 is modelled on Article 33 of the Model Law. It provides as
to correction and interpretation of award and additional award. Section 33
o f the Act, 1996 entrusts three functions mainly to an arbitral tribunal,
when, the mandate of the arbitral tribunal is terminated under Section 32
o f the Act. Chiefly, these functions are—
(i) corrections in the award, if any
(ii) interpretations of specific points of the award

1. Daniels Ltd. v. Carmel etc., (1953) 2 All ER 137.

242 THE ARBITRATION AND CONCILIATION ACT, 1996

(iii) it may make an additional award.

Both sub-sections (1) and (3) of Section 33 are relating to corrections
and interpretation of an award. Clause (a) of Section 33(1), provides that a
party with notice to other party may apply for correction and computation
of errors. It may be any clerical or typographical errors or any other errors
of a similar nature which have occurred in the award. Thus, a party with
notice to the other party may seek explanation of specified point or decision
by the arbitral tribunal. Under sub-section (3) the arbitral tribunal is
empowered to correct its own decision rather can remove errors as such
within 30 days prescribed period i.e., from the date of the arbitral award.
Under clause (b) of Section 33(1) if a party has agreed with the other
party, then with notice to the other party, he may request to the arbitral
tribunal to give an interpretation of a specific point, , so as to remove
ambiguities in the award. However, there is no provision to seek
re-examination of the award.
Section 33(2) provides that on justifiable ground if a request is made to
the arbitral tribunal, it may correct the mistake or give interpretation of the
award within 30 days from the receipt of the request. Such a request is
made under sub-section (1).
Sub-section (4) o f Section 33 provides that if something remained
undecided or left out in the arbitral award, the aggrieved party with notice
to the other party may request the arbitral tribunal an additional award on
claims submitted in the arbitral proceedings, but not decided, however, such
a request can only be made within 30 days from receipt o f the award. Thus,
an additional award can be requested, when the claims are presented before
the arbitral tribunal, but a part of claim is incidentally omitted.
Sub-section (5) of Section 33 provides that an additional award can be
made only on justifiable request made to the arbitral tribunal by an
aggrieved party.
Section 33(6) provides that under extraordinary circumstances to meet
the end of fairness and justice, the arbitral tribunal is empowered to extend
the time-limit i.e., 30 days as prescribed under sub-sections (2) and (5) of
Section 33, for making correction or giving interpretation o f the arbitral
award.
Section 33(7) follows the provision o f the preceding sub-sections. It
makes Section 31 of the Act i.e., form and contents o f arbitral award or to
an additional award, applicable to such correction or interpretation of the
arbitral award or make additional arbitral award as the case may be.
After the arbitrator has made the award, he becomes functus officio,
that is to say he ceases to function thereafter with reference to the
arbitration. However, if there is no agreement to the contrary, he may
correct an award, at any time after the award has been made, any clerical
mistake or error arising therein by an accidental slip or omission.
(i) A r b i t r a l a w a r d s h o u ld b e c o n s t r u e d l i b e r a ll y
It is settled rule of interpretation that an arbitral award should be
construed liberally and wholly, but not in isolation, thus, to give effect to the
ARBITRATION 243

real intention of the arbitral tribunal.1

While affirming the law laid down in earlier decision the Apex Court
in Samta Sila v. Dhirendra Nath Sen,2 observed as under :—
"The court should approach the award with a desire to support it
if that is reasonably possible rather than to destroy it....unless
otherwise required. The award need not formally express the decision
of the Arbitrator on each matter of difference. The silence of the award
on a particular matter is a clear indication that the claim was not
upheld."
Thus wherein the arbitral award is silent and does not express clearly
in respect of some claims, it should be presumed that the claim was not
upheld.
However, the Delhi High Court in R. Murlidhar v. NPCC,3 wherein an
arbitral tribunal made an arbitral award on the subject matter referred to
it, the court would draw presumption in favour of the validity of the arbitral
award that the arbitrator has taken into consideration all the subject matter
of disputes referred to him. The court would also presume that the arbitral
award is final and complete.
( ii) W o rd s i n a c c o r d w it h th e in t e n t io n
It is the interpretation of general words and phrases that the principle
o f strictly adapting the meaning to the particular subject-matter with
reference to which the words are used finds its most frequent application. It
is, therefore, a cannon o f interpretation that all words, if they are general
and not express and precise are to be construed as particular if the intention
be particular, that is, they must be understood as used with reference to the
subject-matter in the mind of the legislature and limited to it.4
It is submitted that the words used in the arbitral award should be
construed on the basis of real intention of the arbitrator under the new Act,
1996, namely, Section 33. The arbitral tribunal has been conferred power to
correct, interpret and if required can make additional award within the
stipulated time. However, this power of the arbitral tribunal will be
exercised only at the request made by the parties in this regard. It is the
discretionary power of the arbitral tribunal which seems to be exercised to
meet the ends of justice and also to achieve the very objectives of the
arbitration.
( iii) A r b i t r a l a w a r d c a n b e m o d ifie d
It can be said that the arbitral award can be modified wherein either
o f the party brings into the notice of the arbitral tribunal that the certain
issues have not been taken up, in fact these were referred for arbitration or
there is apparent error in the award or there is omission or accidental slip
in the award, the arbitral tribunal will consider these issues and if it is
justified the arbitral tribunal under its discretion would modify the award.5

1. Gobardhan Das v. Lakshmi Ram, AIR 1954 SC 689.

2. AIR 1963 SC 1677.
3. AIR 1993 Del. 68.
4. Income Tax Commissioner, Assam v. G. Hyatt, AIR 1971 SC 725.
5. Section 33 of the new Act, 1996.
244 THE ARBITRATION AND CONCILIATION ACT, 1996

(iv ) R e v ie w o n m e r it s — a n a r b it r a t o r h a s n o p o w e r
The Apex Court in State o f Arunachal Pradesh v. Damani Construction
Co.,1 ruled that the application seeking review was not maintainable. The
court explained that this is so, firstly, because the letter seeking review had
not been designed strictly under Section 33 of the Act because under Section
33 of the Act a party can seek certain correction in computation of errors or
clerical or typographical errors or any other errors o f a similar nature
occurring in the award with notice to the other party or if agreed between
the parties, a party may request the Arbitral Tribunal to give an
interpretation of a specific point or part of the award. This application which
was moved by the appellant does not come within any of the criteria falling
under Section 33(1) of the Act. It was designed as if the appellant was
seeking review o f the award. Since, the Tribunal had no power of review on
merits, therefore, the application moved by the appellant was wholly
misconceived. Secondly, it was prayed whether the payment was to be made
directly to the respondent or through the Court or that the respondent might
be asked to furnish bank guarantee from a nationalised bank as it was an
interim award, till final verdict was awaited. The court was o f the view that
both these prayers in this case were not within the scope of Section 33 of
the Act.

CHAPTER VII

RECOURSE AGAINST ARBITRAL AWARD

Section 34. Application for setting aside arbitral
award.— (1) R ecourse to a Court against an arbitral aw ard m ay be
m ade on ly b y an application for setting aside such aw ard in
accordance w ith sub-section (2) and sub-section (3).
(2) A n arbitral aw ard m ay be set aside by the C ourt only i f —
(a) the party m akin g the application furnishes p roof that—
(i) a party w as under som e incapacity, or
(ii) the arbitration agreem ent is n ot va lid under the law to
w h ich the parties have subjected it or, failin g any
indication thereon, under the law for the tim e b ein g in
force; or
(iii) the party m aking the application w as not given proper
notice o f the appointm ent o f an arbitrator or o f the
arbitral proceedings or w as otherw ise unable to present
his case; or
(iv) the arbitral aw ard deals w ith a dispute not
contem plated by or not fallin g w ith in the term s o f the
subm ission to arbitration, or it contains decisions on
m atters beyond the scope o f the subm ission to
arbitration :
1. (2007) 10 SCC 742.
ARBITRATION 245

P ro v id e d th a t, i f th e d e c is io n s o n m a tte rs s u b m itte d to
a r b itr a tio n ca n be s e p a ra te d fro m th o s e n o t so
s u b m itte d , o n ly th a t p a r t o f th e a r b itr a l a w a rd w h ic h
c o n ta in s d e c is io n s o n m a tte rs n o t s u b m itte d to
a r b itr a tio n m a y be s e t a s id e ; o r
(v ) th e c o m p o s itio n o f th e a r b itr a l tr ib u n a l o r th e a r b itr a l
p ro c e d u re w a s n o t in accordance w ith th e a g re e m e n t o f
th e p a rtie s , u n le s s su ch a g re e m e n t w a s in c o n flic t w ith
a p ro v is io n o f th is P a rt fro m w h ic h th e p a rtie s c a n n o t
d e ro g a te , o r, fa ilin g su ch a g re e m e n t, w a s n o t in
a cco rd a n ce w ith th is p a rt; o r
(b ) th e C o u rt fin d s th a t—
( i) th e s u b je c t-m a tte r o f th e d is p u te is n o t ca p a b le o f
s e ttle m e n t b y a r b itr a tio n u n d e r th e la w fo r th e tim e
b e in g in fo rc e , o r
( ii) th e a r b itr a l a w a rd is in c o n flic t w ith th e p u b lic p o lic y
o f In d ia .
E x p l a n a t i o n .— W ith o u t p re ju d ic e to th e g e n e ra lity o f s u b -c la u s e
( ii) i t is h e re b y d e c la re d , fo r th e a v o id a n c e o f a n y d o u b t, th a t a n
a w a rd is in c o n flic t w ith th e p u b lic p o lic y o f In d ia i f th e m a k in g o f
th e a w a rd w a s in d u c e d o r a ffe c te d b y fra u d o r c o rru p tio n o r w a s in
v io la tio n o f S e c tio n 75 o r S e c tio n 81.
(3 ) A n a p p lic a tio n fo r s e ttin g a sid e m a y n o t be m a d e a fte r th re e
m o n th s h a v e e la p s e d fro m th e d a te o n w h ic h th e p a r ty m a k in g th a t
a p p lic a tio n h a d re c e iv e d th e a r b itr a l a w a rd o r, i f a re q u e s t h a d be e n
m a d e u n d e r S e c tio n 3 3 , fro m th e d a te o n w h ic h th a t re q u e s t h a d
b e e n d is p o s e d o f b y th e a r b itr a l tr ib u n a l :
P ro v id e d th a t i f th e C o u rt is s a tis fie d th a t th e a p p lic a n t w a s
p re v e n te d b y s u ffic ie n t cause fro m m a k in g th e a p p lic a tio n w ith in th e
s a id p e rio d o f th re e m o n th s i t m a y e n te rta in th e a p p lic a tio n w ith in
a fu r th e r p e rio d o f t h ir t y d a y s , b u t n o t th e re a fte r.
(4 ) O n re c e ip t o f a n a p p lic a tio n u n d e r s u b -s e c tio n (1 ), th e C o u rt
m a y , w h e re i t is a p p ro p ria te a n d i t is so re q u e s te d b y a p a rty ,
a d jo u rn th e p ro c e e d in g s fo r a p e rio d o f tim e d e te rm in e d b y i t in o rd e r
to g iv e th e a r b itr a l tr ib u n a l a n o p p o rtu n ity to re s u m e th e a r b itr a l
p ro c e e d in g s o r to ta k e s u c h o th e r a c tio n as in th e o p in io n o f a r b itr a l
tr ib u n a l w ill e lim in a te th e g ro u n d s fo r s e ttin g a s id e th e a r b itr a l
a w a rd .
COMMENTS
Section 34 of the Act, 1996 is modelled on Article 34 of the Model Law.
This is one of the most important sections of the present Act.
Section 34 of the Act, 1996 is analogous to Section 30 of the Arbitration
Act, 1940.
Section 34 provides for the ground and circumstances when an arbitral
246 THE ARBITRATION AND CONCILIATION ACT, 1996

award may be set aside. It empowers the courts to review the whole
arbitration process followed in a presented case and also to examine
constitutionality of the arbitration process and the parties are not permitted
to lessen the dignity of it. No prescribed form of an application for setting
aside an award is necessary.1 Though the High Court may prescribe form of
such application.
Section 34(1) provides that an application for setting aside the arbitral
award may be made to a Court, in accordance with sub-section (2) and
sub-section (3).
On a number of occasions, the Supreme Court had said that as a
general rule, the Court should approach the award with a desire to support
it, if that is reasonably possible, rather than to destroy it, by calling it
illegal.2 The court is not empowered to set-aside the award suo motu.
Section 34(2) provides the list of grounds for setting aside an arbitral
award by the court and the party who is seeking setting aside an arbitral
award, makes an application and furnishes proof of the followings—
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the law to which
the parties have subjected to 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.
(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 decision on matters beyond the scope of the submission to
arbitration. Sub-section (2XaXiv) is relied on the principle that the
arbitral tribunal, being a creature of the arbitration agreement, is not
competent to go beyond the scope of the submission to arbitration.3
Thus, an arbitral tribunal being a creature of the agreement between
the parties it does not have its own jurisdiction as such, thereby it is
not a judicial body to exercise judicial power of the State. However, the
reasonableness of the reasons given by the arbitral tribunal cannot be
challenged.4
The proviso to sub-section is based on the "principle of severability",
thus if the reasonable good and reasonable bad part of an arbitral award can
be separated the whole of the award should not be set aside. Therefore, if
the reasonable bad part of an arbitral award is severable, only the bad
portion may be set aside.3
Section 34(2)(a)(v) provides that if composition of the arbitral tribunal

1. Madan Lai v. Sundar Lai, AIR 1967 SC 1233.

2. Trustee, Port o f Madras v. Engineering Constructions Corpn. Ltd., AIR (1995) SC 2423;
see also New India Civil Erectors (P) Ltd. v. O.N.G.C., J.T. (1997) (2) SC 633 : AIR 1997
SC 980.
3. Associated Engineering Co. v. Govt, o f A P ., AIR 1992 SC 232, 240; see also State o f U.P.
v. M/s. Ram Nath International Const. Pvt. Ltd., AIR 1996 SC 782, 785.
4. B.N. Srivastava v. M. Srivastava, AIR 1994 SC 2562.
5. UOI v. Jain Associates, (1994) 4 SCC 655.
ARBITRATION 247

and the arbitral procedure are not as per the agreement of the parties and
an arbitral award is passed in such cases the parties are permitted to put
an application to the court for setting aside the arbitral award. It is
necessary to apply this provision by the parties that the agreement of the
parties was not in conflict with the provision of Part I. Part I provides
autonomy to the parties.
Section 34(2)(bXi) and (ii) provides the power to a court to set-aside an
arbitral award, when an application by a party is presented before it,
however, either condition should exist (—with proof—) -
(i) "The subject-matter of the dispute is not capable of settlement
by arbitration under the law for the time being in force", or if the
subject-matter is not arbitrable under the prevailing law of the State,
such an arbitral award if made on such unarbitrable matter, would be
set aside.
(ii) "an arbitral award is in conflict with the public policy of
India".
That means, if the procedure adopted to make an arbitral a\vard and
an arbitral award itself is opposed to public policy o f India, it would be
capable of being set-aside by the court, on an application made to the Court
by a party. For application of this provision it is necessary that it must
involve the public policy of India and not any international public policy.
The New York Convention (UNCITRAL), and many international
treaties also regarded and used the term "public policy" and it has been
covered as fundamental principles o f law and justice which includes
substantive and procedural aspects.
The explanation added to Section 34(2)(b)(ii) which states that an
arbitral award given by violation of Section 75 or Section 81 in Part III of
the Act, 1996 or an arbitral award induced and obtained by fraud or by
unfair means or by corruption would be regarded as against public policy of
India. The Supreme Court of India had also upheld the importance and
application of the "Doctrine of Public Policy" in several rulings.1
Section 34(3) prescribes the time-limit within which an application for
setting aside an arbitral-award should be presented before a competent
court.
However, for the purpose of calculation the prescribed period of three
months as provided under sub-section (3) is the period that commences from
the date on which the applicant receives the award and expires three
months thereafter. It is a mandatory provision. In a case, if a request has
been made under Section 33, the time limit shall be calculated from the date
on which that request had been disposed of by the arbitral tribunal.
It is also provided under sub-section (3) that when the court is satisfied
and is of the opinion that the party has been prevented by the "sufficient
cause" from filing an application before the court within the statutory period
of three months, in such cases the Court may entertain the application
within a further period o f thirty days, but not thereafter.

1. Rattan Chand Hira Chand v. Askar Namaj Jung , (1991) 3 SCC 67, 77-79; Renusagar
Power Co. Ltd. v. General Electric Co., AIR 1994 SC 860.
248 THE ARBITRATION AND CONCILIATION ACT, 1996

Section 34(4) provides that on receipt of application under sub-section

(1), the Court considering it appropriate and so requested by a party, may
adjourn the proceedings for a fixed period of time with an object to give
sufficient opportunity to the arbitral tribunal to re-begin, after a pause, the
arbitral proceedings or to take any other initiative for removal of the ground
for setting aside the arbitral award. This provision is included in the Act of
1996 which was not available in the Arbitration Act, 1940. Thus new form
of the remission procedure with better concept was introduced. It intends
that the court should mark first the remediable defects in the arbitral award
and refer the same to the arbitral tribunal, so that the arbitral tribunal can
resume the proceeding. It is obvious that the object behind this remission
procedure is to encourage and give reasonable opportunity to the arbitral
tribunal to escalate rectified arbitration proceedings.
The Allahabad High Court in State v. Reshma Devi,1 ruled that the
sub-section (4) of Section 34, does not contemplate that the court could
confirm part o f the award and remit the rest to the arbitral tribunal.
The Court may direct the arbitral tribunal to resume the proceedings
or to take certain measures which are necessary for removal of the grounds
for setting aside the arbitral award.2
(i) S c o p e o f S e c t io n 34
The Supreme Court in Olympus Superstructures Pvt. Ltd. v. Meena
Vijay Khetan & others ,3 observed that Section 34 of the Arbitration and
Conciliation Act, 1996 is based on Article 34 of the UNCITRAL Model Law
and it will be noticed that under the 1996 Act the scope of the provisions for
setting aside the award is almost the same under Section 30 or Section 33
of the Arbitration Act, 1940. It will be noticed that according to sub-clause
(2XaXiv) o f Section 34, the arbitral award may be set aside by the court if
the award deals with a dispute not contemplated by or not falling within the
terms of the submission to arbitrator or if it contains a decision on matters
beyond the scope of the submission to arbitration. The proviso to clause (iv)
deals with severality. The words "terms of the submission to arbitration" in
Section 34(2)(a)(iv), refer to the terms of the arbitration clause. This appears
to be the meaning of the word if one refers to Section 28 which uses the
words ‘dispute submitted to arbitration’ and to Section 43(3) which uses the
words ‘submit future dispute to arbitration’.
(ii) T h e w o r d s " te rm s o f th e s u b m is s io n tp a r b it r a t io n " — M e a n in g o f
The words "terms of the submission to arbitration" in Section
34(2XaXiv) refers to the terms of the arbitration clause. This appears to be
the meaning of the word if one refers to Section 28 which uses the words
"dispute submitted to arbitration" and to Section 43(3) which uses the words
"submit future disputes to arbitration."
( iii) P h r a s e " P u b lic P o l ic y o f In d ia " — M e a n in g o f
The Supreme Court in Oil and Natural Gas Corporation Ltd. v. SAW

1. AIR 1974 All 257, 260.

2. Union o f India v. M/s. J.P. Sharma, AIR 1982 Raj 245.
3. AIR 1999 SC 2102 : 1999 (5) SCC 651.
ARBITRATION 249

Pipes Ltd..,1 explaine d th a t th e phrase "p u b lic p o licy o f In d ia " is n o t re q u ire d

to be g iven a n a rro w m eaning. The said phrase is susceptible o f n a rro w or
w ide m eaning depending upon th e object and purpose o f le g is la tio n . Hence,
th e aw ard passed in c o n tra ve n tio n o f th e e x is tin g pro visio n s o f la w is lia b le
to be set aside.
The concept of "public policy" connotes some matter which concerns
public good and the public interest. What is for public good or in public
interest or what would be injurious or harmful to the public good or public
interest has varied from time to time. However, the award which is, on the
face of it, patently in violation of statutory provisions cannot be said to be
in public interest. Such award/judgment/decision is likely to adversely affect
the administration of justice. Hence, in the Court’s view narrow meaning
given to the term "public policy" in Renusagar’s case'2 it is required to be
held that the award could be set aside if it is patently illegal.
(ix ) C o n c e p t o f p u b lic p o lic y — " F ra u d " in m a k in g o f a r b it r a l a w a r d
The Supreme Court in Venture Global Engineering v. Satyam Computer
Services Ltd. & .another? observed that explanation of Section 34 of the
Arbitration and Conciliation Act, 1996 is like a stable man in the saddle on
the unruly horse of public policy. In this context the concept o f fraud and
expression fraud in the making of the arbitral award has to be construed
normally. This contention of the respondent, the court is unable to accept.
The court further observed that "Fraud" being of infinite variety may
take many forms and expression. The making of the award will have to be
read in conjunction with whether the award was induced or affected by
fraud.
The Supreme Court held that the court is unable to accept the
contentions of the respondents that facts which surfaced subsequent to the
making o f the award, but have a nexus with the facts constituting the
award, are not relevant to demonstrate that there has been fraud in the
making of the award. Concealment of relevant and material facts, which
should have been disclosed before the arbitrator is an act of fraud. If the
argument of the respondent is accepted then a party, who has suffered an
award against another party who has concealed facts and obtained an
award, cannot rely on facts.
Which have surfaced subsequently even if those acts have a bearing on
the facts constituting the award. Conceal and facts in the very nature of
things surface subsequently. Such a construction would defect the principle
o f the process and would be opposed to the concept of public policy
incorporated in the explanation.
The Supreme Court held that the facts conceded must have a causative
link. And if the concealed facts, disclosed after the passing of the award have
a causative link with the facts constituting or inducing the award, such facts
are relevant in a setting aside proceeding and award may set aside as
affected or induced by fraud. The question in this case, is therefore. One of
the relevance of the materials which the appellant wants to bring on record
1. AIR 2003 SC 2629 : 2003 (5) SCC 705.
2. AIR 1985 SC 1156.
3. 2010 (8) JT 583 (SC).
250 THE ARBITRATION AND CONCILIATION ACT, 1996

by way of amendment in its plea for setting aside the award. Whether the
award will be set aside or not is a different question and that has to be
decided by the appropriate court. In the present appeal the Supreme Court
in concerned only with the question whether by allowing the amendment, is
prayed for by the appellant; the court will allow materials facts to be
brought on record in the pending setting aside proceeding.
Hence, the Supreme Court was of the opinion that in the interest of
justice and considering formats of procedure, the court should allow the
appellant to bring whole materials on record as whole materials are not
wholly irrelevant or they may have a bearing on the appellant’s plea for
setting aside the award.
(v) E x p r e s s io n " F r a u d " i n m a k in g o f a w a r d h a s n o t to b e n o r m a lly
co n stru e d
The Supreme Court in Venture Global Engineering v. Satyam Computer
Services Ltd. & another1 ruled that "Fraud" being of "infinite variety" may
take many forms and secondly the expression "the making of the award will
have to be read in conjunction with whether the award" was induced or
affected by fraud. The court further ruled that acts surfaced subsequent to
the making of the award, but have a nexus with the fact constituting the
award, are not relevant to demonstrate that there has been fraud in the
making of the award. Concealment of relevant and material facts, which
should have been disclosed before the arbitrator is an act of fraud. If the
argument o f respondent i.e., expression "fraud" in making o f award has to
be seriously construed, if accepted, then a party, who has suffered an award
againt another party who has concealed facts and obtained an award, cannot
rely on facts which have surfaced subsequently even if those facts have a
bearing on the facts constituting the award. Concealed facts in the very
nature of things surface subsequently. Such a construction would defect the
principle of due process and would be opposed to the concept of public policy
incorporated in the explanation.
The Court further held that the facts concealed must have a causative
link and if the concealed facts disclosed after the passing of award, have a
causative link with the facts constituting or inducing the award, such facts
are relevant in a setting aside proceedings and award may be set aside as
affected or induced by fraud.
The Supreme Court expressed the opinion that in the interest of justice
and considering the fairness of procedure, the court should allow the
appellant to bring those materials on record as those materials are not
wholly irrelevant or they may have a bearing on the appellant’s plea for
setting aside the award.
*
(v i) E x p r e s s io n "b u t n o t th e r e a fte r " in p r o v is o to S e c t io n 34(3)—
Sco p e of
The use of expression "but not thereafter" in the proviso to Section
34(3), places a complete bar precluding the Court from entertaining an
application for setting aside an arbitral award made beyond three months
and a further period of 30 days upon the Court being satisfied about the

1. 2010 (8) JT 583 (SC).

ARBITRATION 251

sufficient cause. Section 43(1) stating that Limitation Act, 1963 shall apply
to arbitrations as it applies to proceedings in Court, does not have the effect
of overriding the bar created by the proviso to Section 34(3).1
(v ii) L im it a t io n o f p o w e r o f th e c o u r t to in t e r v e n e
It is to be noted that Section 34 of the new Act, 1996 restricts grounds
for setting aside the arbitral award. In other words this section specifies the
grounds on which the court may order for setting aside of arbitral award.
The implication of Section 34 has been considered by the courts which are
taken up as under :—
The Bombay High Court in United India Insurance Co. Ltd. v. Kumar
Texturiser,2 observed that the present Act, 1996 contains three sections,
namely, Sections 34, 37(2) and 14(2) which inherently empowers the court
to intervene in the matter. However, Section 34 of the Act, 1996 is the main
section. Wherein present case is for a declaration that there is no arbitral
dispute. It was held that considering the express language o f Section 5 of
the Act, 1996 i.e., extent o f judicial intervention and the absence of present
case falling under Section 14(2) or Section 34 or Section 37(2), this court will
have no jurisdiction to entertain petition.
It has been seen in foregoing pages that Section 5 of the Act, 1996
specifically states that no judicial authority shall intervene except where so
provided in part I i.e., general provisions, arbitration agreement composition
and jurisdiction of arbitral tribunal, conduct of arbitral proceedings, making
of arbitral award, termination of proceedings, recourse against arbitral
award and finality and enforcement of arbitral award etc. of the Act, 1996.
In Union o f India v. East Coast Boat Builders Engineers Ltd.? the Delhi
High Court observed that on perusal of the provisions of Part I of the Act it
is apparent that nowhere it is provided that a court may intervene and
entertain a petition challenging the order passed by arbitral tribunal under
Section 16(5) taking a decision that the arbitral tribunal has jurisdiction to
proceed with the arbitration case.
Scope of challenge to jurisdiction of arbitrator was considered by the
Rajasthan High Court in Union o f India v. Rattan Singh G ehlotf It was held
that in an unreasoned award unless it is found by seeing at the arbitral
award that an error has been committed by the arbitrator, no interference
can be made. The court observed that this is different from saying that when
a challenge is made to the arbitral award by saying that the arbitrator has
acted beyond his jurisdiction. It has to be determined that there is a
distinction between disputes as to the adjudication of the arbitrator and the
dispute as to in what way the jurisdiction should be exercised. In the later
cases the court has no role to play but in the former cases where there is a
challenge to the jurisdiction of the arbitrator the courts have reasons to
interfere. The court further observed that this is within the domain of the
court to see whether the arbitrator has acted within its jurisdiction or out

1. Rajeev Sharda v. E.E., H.P. PWD Theog, Civil & Rent, 2000 (3) JR 586 (H.P.) : 2000 Arb.
WLJ 550.
2. AIR 1999 Bom. 118.
3. AIR 1999 Del. 44.
4. AIR 1999 Raj. 117.
252 THE ARBITRATION AND CONCILIATION ACT, 1996

side jurisdiction. To that extent the court is required to adjudicate.

It is well settled legal principle that the question regarding jurisdiction
is to be raised at first instance it cannot be allowed to be raised at a later
point of time even under Section 34 of the Act, 1996. Hence, it is a meagre
ground for setting aside of arbitral award.
The scheme of the Act, 1996 shows that the legislature did not provide
appeal against the order under Section 16(5) where arbitral tribunal takes
a decision by rejecting the plea that the arbitral tribunal has no jurisdiction.
In such cases, the arbitral tribunal shall go ahead with the arbitral
proceedings and make an arbitral award without delay and without being
interfered in the arbitral process at that stage by any court in their
supervisory role.1
( v iii) A r b it r a t o r ’s e x is t e n c e d e p e n d s u p o n th e a g r e e m e n t
It is settled law of arbitration that the arbitrator is governed by the
terms of agreement and he has to function within the limits o f the said
agreement. Thus, he cannot act beyond the terms of Act. If he makes an
arbitral award by acting beyond the scope of agreement, such award is liable
to be set aside by invoking Section 34 of the Act, 1996.
The Apex Court in Steel Authority o f India v. J.C. Budharaj,2 observed
that the arbitrator cannot deliberately overlook the conditions laid down in
the arbitration agreement which are binding on the parties in the contract.
If he ignores the same it can be very well said that he has acted beyond the
jurisdiction conferred upon him. Undoubtedly the arbitrator derives the
authority from the contract and if he disregards the contract the award
given by him, is arbitrary, it is not sustainable. It has been held that the
deliberate departure from the contract amounts not only to manifest
disregard of the authority but misconduct on his part.
It is to be reiterated that the Arbitration Act, 1940 does not give any
power to the arbitrator to act partially or arbitrarily. In fact, arbitrator’s
jurisdiction depends upon the agreement and he is bound to act within the
ambit of the arbitration agreement. The Apex Court in Continental
Construction Co. Ltd. v. State o f Madhya Pradesh,3 observed that to
determine whether the arbitrator has acted beyond the scope of his
jurisdiction or acted beyond the terms of the agreement between the parties,
arbitration agreement is required to be examined. However, the
interpretation of the arbitration clause in respect of the particular condition
in the agreement would be within the jurisdictional’s purview of the
arbitrator. In case there is no question of interpretation o f any term o f the
contract, but only reading the same as it is and even though the arbitrator
overlooks deliberately and makes arbitral awards despite the prohibition in
the agreement, it was held that such award would be arbitrary, capricious
and without jurisdiction.
Similarly, in New India Civil Erectors (P.) Ltd. v. Oil and Natural Gas
Corporation ,4 the Supreme Court has held that the arbitrator being a
1. MA Sujan on Law Relating to Arb. & Concl. 2nd Edn., pp. 518-519.
2. AIR 1999 SC 3275.
3. AIR 1988 SC 1166.
4. AIR 1997 SC 980.
ARBITRATION 253

creature of the agreement must operate within the four corners of the
agreement and cannot travel beyond it. In the present case the agreement
between the parties clearly says that in measuring the built-up area, the
balcony areas should be excluded. The arbitrators could not have acted
contrary to the said stipulation and awarded any amount to the appellant
on that account. More particularly, arbitrator cannot award any amount,
which is ruled out or prohibited by the terms of agreement.
(ix ) S e t t in g a s id e o f n o n - s p e a k in g a w a r d
The Supreme Court in State o f J. & K. v. Dev Dutt Pandit,1 considered
the scope of challenging a non-speaking award, wherein submission was
made before the court that the arbitral award is a non-speaking award. It
was observed that the Supreme Court cannot go into the mental process of
the arbitrator in making the award on various claims. The court has certain
limitations while examining a non-speaking award but there is no complete
bar in examining if the award is in terms of reference or in terms of the
contract.
The court observed further that when claims are inflated out of all
proportions not only that heavy cost should be awarded to the other party
but the party making such inflated claim should be deprived o f the cost. The
court while sounding a warning of re- inflated claims cautioned that in the
present case under clause 17 of the contract it is the contractor, who is
responsible for any damage or loss to the work or part thereof caused due
to any reason, whatsoever, and he at his own cost is required to repair and
to make good loss or damage. It was held that the contractor could not claim
any loss done to him on account of early onset of monsoon or otherwise.
(x) W h e t h e r t h e is s u e o f l a c k o f j u r is d ic t i o n c o u ld b e r a is e d fo r th e
f ir s t tim e
In matter of Olympus Superstructures Pvt. Ltd. v. Meena Vijay Khetan
& others,2 before the Apex Court a question arose whether in view of the
provisions of Section 16(2) which uses the words ‘not later than’ any such
objection as contained in Section 16(2) not raised before the arbitrator can
be permitted to be raised for the first time under Section 34 of the Act.
Similarly, a question arises whether in view of the proviso of Section 16(3)
which uses the words ‘as soon as’ any objection as contained in Section 16(3)
cannot be raised for the first time under Section 34. There was no necessity
to decide this question in view of the fact that though Section 16 was
referred to during the course of the hearing, the respondents had urged on
merits that the arbitrator had jurisdiction to decide the disputes/differences
concerning the Interior Design Agreements also and that even if the
appellant could be permitted to raise these issues at the stage of Section 34,
there was no substance in the said contention. The Apex Court did not
decide the question in view of the facts of the case, and therefore, the
question was left open.
S e t t in g a s id e o f a r b it r a l a w a r d o n g r o u n d o f l a c k o f
ju r i s d i c t i o n — M a in t a in a b il it y of. —In Gas Authority o f India Ltd. v. Keti

1. AIR 1999 SC 3196.

2. AIR 1999 SC 2102 : 1995 (5) SCC 651.
254 THE ARBITRATION AND CONCILIATION ACT, 1996

Construction (I) Ltd.,1 where a party has received notice and he does not
raise a plea of lack of jurisdiction before the Arbitral Tribunal, he must
make out a strong case why he did not do so, if he chooses to move a petition
for setting aside the award under Section 34(2)(v) of the Act on the ground
that the composition of the Arbitral Tribunal was not in accordance with the
agreement of the parties. If plea of jurisdiction is not taken before the
arbitrator as provided in Section 16 of the Act, such a plea cannot be
permitted to be raised in proceedings under Section 34 of the Act for setting
aside the award, unless good reasons are shown.
(x i) W h ic h c o u r t e m p o w e re d to s e t a s id e a r b it r a l a w a r d
It is settled legal principle that the place wherein the parties entered
into the arbitration agreement that court is competent to entertain the
application under Section 34 of the Act, 1996.2
In cases wherein the disputed properties are situated within the
jurisdiction of two courts located at different places, either of the court would
have jurisdiction to entertain application for setting aside of the arbitral
award, however, in case the court which first entertains such application no
such application is entertainable by other court.3
In case of an international commercial arbitration it will be governed
by Article 3 of the Geneva Convention or Article V, para 1(a) of the New
York Convention. These provisions of the Convention provide that the
country in which or under the law of which the arbitral award was made,
the court o f that country only would have jurisdiction to set aside the
arbitral award.4
( x ii) S e t t in g a s id e o f t h e a w a r d w h e n it c o n f lic t s w it h th e p u b lic
p o lic y
Section 34(2)(b)(ii) of the Arbitration and Conciliation Act, 1996
specifies the ground for setting aside o f the arbitral award which is in
conflict with the ‘public-policy’. To understand the phrase ‘public-policy’ and
its implication it is necessary to consider the case of Gherulal Parakh v.
Mahadeodas Maiyev,5 in which the Supreme Court laid down the law on the
point. The Court observed as under :—
"Public policy or the policy of the law is an illusive concept; it has
been described as ‘untrustworthy guide’, Variable quantity; ‘uncertain
one’, ‘unruly horse’, etc. The primary duty o f a court of law is to enforce
a promise which the parties have made and to uphold the sanctity of
contracts which form the basis of society, but in certain cases, the court
may relieve them o f their duty on a rule founded on public policy; the
doctrine of public policy is extended not only to harmful cases but also
to harmful tendencies; this doctrine of public policy is only a branch of
common law, and, just like any other branch of common law, it is
governed by precedents; the principle has been crystallized under
1. (2007) 5 SCO 38.
2. AIR 1980 Del. 43.
3. AIR 1988 SC 1347.
4. International Standard Electric Corporation v. Bridas Sociedas Anomia, Y.B. XVII, (1992)
U.S. 115.
5. AIR 1959 SC 781.
ARBITRATION 255

different heads although it is permissible for courts to expound and

apply them to different situations, it should only be invoked in clear
and incontestable cases of harm to the public policy, though the heads
are not closed and though theoretically it may be permissible to evolve
a new head under exceptional circumstances of a changing world, it is
advisable in the interest of stability of society not to make any attempt
to discover new heads in these days."
According to P o l lo c k and M u lla ’s view1 "The principle of public policy
is this ‘ex delo malo non oritur actio’ which means a right of action cannot
arise out of fraud.
According to L o r d B r o u g h a m — as he defines the term ‘public
policy’—it is the principle which declares that no one can lawfully do that
which has a tendency to be injurious to public welfare. Public policy
comprehends only the protection and promotion of public welfare.
Public interest or public good can be treated as equal to public policy.
The Supreme Court in Inland Water Transport Corporation Ltd. v. Brojo
Nath Ganguly,2 observed that there is no immunity to law which deals with
the public policy. It keeps changing from time to time as per requirement.
Public policy is based on the standard of customary morality, however basic
elements of customary morality remain unchanged. Activities of corruption
are certainly against the public policy. The use of personal influence by the
ministers of the Government to seek favourable decision would clearly be in
conflict with the public policy.
According to J e s s e l M R 3
"It must not be forgotten that you are not to extend arbitrarily
those rules which say that given contract is void as being against public
policy, because if there is one thing which more than another public
policy requires it is that men o f full age and competent understanding
shall have the utmost liberty of contracting and that their contracts
when entered into freely and voluntarily shall be held sacred and shall
be enforced by the court of law. Therefore, you have this paramount
public policy to consider—that you are not lightly to interfere with this
freedom of contract."
It is not the duty o f court to create new dimension of the public policy,
however the court has to see that rules are not applied arbitrarily and the
freedom of contract is maintained.
It is well settled that the fraud on public law is against the concept of
public policy, however, fraud in public law is not the same in private law.
Fraud in commercial transaction is fraud in the administrative law.4
It is submitted that making of arbitral award which is in conflict of
public policy i.e., public good and public welfare such award is liable to be
set aside by the court of justice and it is not capable to become the rule of
the court. While following the public policy the arbitral tribunal cannot
arbitrate the matter and make award if it relates to—

1. Indian Contract & Specific Relief Act, Hth Edn. Vol. I p. 348.
2. AIR 1986 SC 1571.
3. Printing & Numerical Registering Co. v. Sampson, (1875) LR 19 EQ 462.
4. Shrisht Dhawan v. Shaw Box, AIR 1992 SC 1555.
256 THE ARBITRATION AND CONCILIATION ACT, 1996

(1) Industrial disputes

(2) Matrimonial matters
(3) Insolvency matters
(4) Matters regarding levy of tax, duty or cess
(5) Declaratory suits
(6) Title of immovable property situate in a foreign country
(7) Public charity matters, humanity etc.
( x iii) A w a r d fo u n d n o t u n r e a s o n a b le c a n n o t b e in t e r f e r e d b y th e
co u rt
In T.P. George v. State o f K e r a l a the Supreme Court considered the
reasonableness o f the award and the question whether the arbitrator can
award interest for pre-reference period. In this case the High Court has held
that the interest could not be granted by the arbitrator but the reasoning
given by the High Court is held to be not sustainable. On appeal the
question arose before the Supreme Court that whether the High Court was
right in setting aside the award of interest from the date o f the award. The
Supreme Court observed that the High Court has not at all considered the
letter dated 6th October, 1983 and 24th November, 1983 nor dealt with the
question as to whether or not the supplemental Agreement was not
executed. The High Court has not even considered the effect of the
Supplemental Agreement having been executed without prejudice to the
claims which had already been made. Even if the High Court had considered
these aspects it could not have been substituted its views for those of the
arbitrator as it could not be said that the view taken by the arbitrator is
unreasonable or one which cannot be arrived at by a reasonable person. The
impugned judgment of the High Court is not sustainable.
The Supreme Court while citing its decision as held in the case of
Secretary, Irrigation Department, Government o f Orissa v. G.C. Roy,2 that
the arbitrator has power to grant interest pendente lite. The court cited the
case of Executive Engineer, Dhenkanal Minor Irrigation Division, Orissa v.
N.C. Bhudhraj (Dead) by LR’s,3 wherein it has been held that arbitrator can
award interest for the pre-reference period.
Thus, as for the law laid down by the Supreme Court, interest can be
awarded at all four stages, namely, for the stage of cause of action till filing
of proceedings, during the pendency of proceedings before the Arbitrator, for
the date of award and date of decree and interest arising from the date of
decree till payment. The reasoning given by the High Court that interest
cannot be awarded by the arbitrator is thus fallacious and cannot be
sustained. The direction to pay interest from date of award cannot be
faulted. The impugned judgment of the High Court to the extent that it
disallowed the interest from the date of the award was set aside. Hence, a
reasonable award cannot be interfered by the court under Section 34 of the
Act, 1996.

1. AIR 2001 SC 816 : 2001 (2) JT 438.

2. AIR 1992 SC 732.
3. 2001 (1) JT 486 (SC).
4. T.P. George v. State o f Kerala, AIR 2001 SC 816.
ARBITRATION 257

(x iv ) L im it a t io n p e r io d to c h a lle n g e th e a w a r d — W h e t h e r S e c t io n 5
o f th e L im it a t io n A c t i s a p p lic a b le
The Supreme Court in Union o f India v. Popular Construction Co.,1
observed as far as language of Section 34 of the Act, 1996 is concerned, the
crucial words are "but not thereafter" used in the proviso to Section 34(3).
This phrase would amount to an express exclusion within the meaning of
oection 29(2) of the Limitation Act, 1963, and would, therefore, bar the
application of Section 5 of the Limitation Act, 1963. The 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 as that
would render the phrase “but not thereafter’ wholly otiose. No principle of
interpretation would justify such a result. The court observed further that
apart from the language ‘express exclusion’ may follow from the scheme and
object of the special or local law. "Even in a case where the special law does
not exclude the provisions of Sections 4 to 24 of the Limitation Act, 1963 by
an express reference, it would nonetheless be open to the court to examine
whether and to what extent the nature of those provisions or the nature of
the subject-matter and scheme of the special law exclude their operation. It
was held that the phrase "but not thereafter", used in proviso to Section
34(3) would amount to an express exclusion within the meaning of Section
29(2) of the Limitation Act, 1963 and the applicability of Section 5 of the
Limitation Act would, therefore, be barred.
The time period prescribed under Section 34 of the Arbitration and
Conciliation Act, 1996 to challenge the arbitral award is absolute and
unextendable by the court under Section 5 of the Limitation Act, 1963.2
C h a lle n g in g o f a r b it r a l a w a r d — L im it a t io n p e r io d fo r . —The
Supreme Court in State o f Arunachal Pradesh v. Damani Construction Co.,3
has held that a perusal of the interim award dated 12-10-2003 passed by the
arbitrator clearly shows that it was final to the extent o f the claims decided
therein. This interim award did not mince any words and determined the
amount after discussing the claims in detail and finally calculated the
amount under each of the claims. Therefore, there was no confusion in the
award in question. It was absolute thoughtlessness on the part o f the
appellant to have written a letter after six months, i.e., on 2-4-2004 seeking
review of the interim award.
In the instant case the reply given by the arbitrator dated 10-4-2004
was to the effect that as per the scheme of the Act, 1996 the issues/claims
that have been adjudicated by the interim award dated 12-10-2003 are final
and the same issues cannot be gone into once again at the time o f passing
the final award. Hence, the same does not give any fresh cause of action to
the appellant so as to move an application under Section 34(3) of the Act.
In fact, when award dated 12-10-2003 was passed the only option with the
appellant was either to have moved an application under Section 34 within
three months as required under Section 34(3) of the Act or within the
extended period of another 30 days. But, instead of that a totally
misconceived application was filed and there too the prayer was for review
1. 2001 (7) Supreme 354.
2. Union o f India v. Popular Construction Co. , 2001 (7) Supreme 354 (SC).
3. (2007) 10 SCC 742.
258 THE ARBITRATION AND CONCILIATION ACT, 1996

and with regard to mode of payment, neither of which falls under the
purview of Section 33 of the Act. Therefore, in this background the
application was totally misconceived and the reply sent by the arbitrator
does not entitle the appellant a fresh cause of action so as to file an
application under Section 34(3) of the Act, taking it as the starting point of
limitation from the date of reply given by the arbitrator (i.e., 10-4-2004).
(x v) W h e t h e r th e p r o v is io n s o f S e c t io n 5 o f th e L im it a t io n A c t , 1963
a r e a p p lic a b le to a n a p p lic a t io n u n d e r S e c t io n 34 o f t h e A c t , 1996
In Union o f India v. M/s. Popular Construction Co.,1 the question
raised before the Supreme Court was whether the provisions of Section 5 of
the Limitation Act, 1963 are applicable to an application challenging an
arbitral award, under Section 34 of the Arbitration and Conciliation Act,
1996.
The Supreme Court held that as far as the language of Section 34 is
concerned, the crucial words are "but not thereafter" used in the proviso to
sub-section (3) o f Section 34. This phrase would amount to an express
exclusion within the meaning of Section 29(2) of the Limitation Act and
therefore bars the application of Section 5 of that Act.
It is clear that the provisions of Section 5 of the Limitation Act, 1963
are not applicable to an application challenging an award, under Section 34
of the Arbitration and Conciliation Act, 1996 in view of specific similar
provision in proviso to Section 34(3) of the latter Act.
(x v i) A p p lic a t io n fo r s e t t in g a s id e o f a r b it r a l a w a r d — L im it a t io n
A c t , 1963 d o e s n o t a p p ly
The Calcutta High Court in Union o f India v. M/s. Mukherjee and
Mukherjee Pvt. Ltd.,2 ruled that where an application for setting aside of
arbitral award is filed beyond the period of 30 days as mentioned in proviso
to Section 34 of the Act, the Court has no power to entertain an application.
It was further held that the provision o f Section 5 of the Limitation Act,
1963 will have no manner of application by reason of Section 29 of the
Limitation Act, 1963.
( x v ii) L im it a t io n A c t , 1963 Q u a — a p p lic a t io n u n d e r S e c t io n 34
The Apex Court in Coal India Ltd. & another v. Ujjal Transport Agency
& others,3 ruled that neither section 34(3) of the Act, 1996 nor any other
provision of the Act excludes the application of Section 14 of the Limitation
Act, 1963. Therefore, provision o f Section 14 would apply to application
under Section 34 of the act, 1996. But, even if court has jurisdiction to apply
the said section, the period of limitation will continue to be three months,
subject to extension under proviso to Section 34(3) but in computing the
limitation period of three months, time during which applicant was
prosecuting the matter bona fide and with diligence before the wrong court
will have to be excluded.

1. 2001 (7) Supreme 354 (SC).

2. AIR 2007 (NOC) 894 (Cal.).
3. 2010 (4) Arb. LR 310 (SC).
ARBITRATION 259

( x v iii) A r b i t r a l a w a r d — C h a lle n g in g o f c o m m e n c e m e n t o f p e r io d o f
lim it a t io n
According to the Supreme Court if the law prescribes that a copy of the
order/award is to be communicated, delivered, dispatched, forwarded,
rendered sent to the parties concerned in a particular way and in case the
law also sets a period of limitation for,*challenging the order/award in
question by the aggrieved party, then the period of limitation can only
commence from the date on which the order/award was received by the party
concerned in the manner prescribed by the law.1
(x ix ) D e c is io n o f J o i n t A r b it r a t io n C o m m itte e c a n n o t b e t r e a t e d a s
an a w a rd
On the point of venue of arbitration, the decision o f the Joint
Arbitration Committee in Sanshin Chemicals Industry v. Oriental Carbons
and Chemicals Ltd.,2 the Apex Court observed—In deciding the place of
arbitration the Joint Arbitration Committee shall consider among others the
principle that, if only the quality of the goods is in dispute and/or inspection
of the goods is necessary, arbitration of such case shall take place at the
place where the merchandise is located. The party demanding arbitration
according to as it is resident in India or Japan shall give notice to the
Arbitration Tribunal of the Federation or the Japan Commercial Arbitration
Association, as the case may be. The Arbitration Tribunal of the Federation
or the Japan Commercial Arbitration Association, as the case may be, shall
request both the parties to submit their agreement and reasons within 30
days for preference regarding the place of arbitration. The determination of
the place by the Joint Arbitration Committee shall be final and binding.
The Court further observed that the decision on the question of venue
under Section 20 would not come in way in making o f an arbitral award and
on this view of the matter also, the said decision on the question of venue
will not be either an award or an interim award so as to be appealable under
Section 3"4 of the Act, 1996. The decision o f the Joint Committee on the
question of the venue under clause 8.4 is not a decision, deciding legal rights
of the parties under the contract. There is no mutuality and the said
Committee is merely a machinery for deciding the question of venue. Such
a decision does not have the characteristics of an arbitral award nor even
can it be held to be an interim award. The conclusion of the Joint Committee
is a conclusion on the guidelines contained in second part of clause 8.4 of
the agreement and is not a judicial determination and as such the said
conclusion would not amount to an award. Since, decision of such Committee
cannot be said to be an award or even interim award, no appeal would lie
against such decision.
(x x ) G r o u n d s f o r s e t t in g a s id e o f a r b it r a l a w a r d
In Oil and Natural Gas Corporation Ltd. v. SAIF Pipes Ltd.,3 the
Supreme Court had an occasion to elaborate and lay down proof and grounds
for setting aside of arbitral award. According to the Supreme Court :—

1. State o f Maharashtra v. AR K Builders Pvt. Ltd., 2011 (2) SCC (Civ) 413.
2. AIR 2001 SC 1219.
3. AIR 2003 SC 2629 : 2003 (3) Supreme 449.
260 THE ARBITRATION AND CONCILIATION ACT, 1996

(1) The Court can set aside the arbitral award under Section
34(2) of the Act if 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 been subjected it or falling 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;
(iv) the arbitral award deals with a dispute not
contemplated by or not falling within the terms of submission to
arbitration or it contains decisions on matters beyond the scope of
the submission to arbitration.
(2) The Court may set aside the award—
(i) (a) if the composition of the arbitral tribunal was not in
accordance with the agreement of the parties;
(b) failing such agreement, the composition of the arbitral
tribunal was not in accordance with Part I of the Act;
(ii) if the arbitral procedure was not in accordance with—
(a) the agreement of the parties; or
(b) failing such agreement, the arbitral procedure was
not in accordance with Part I of the Act.
However, exception for setting aside the arbitral award on the ground
of composition of arbitral tribunal or illegality of arbitral procedure is that
the agreement should not be in conflict with the provisions of Part I of the
Act from which parties cannot derogate.
(3) The award could be set aside if it is :—
(1) Against the Public policy; or
(2) Against the Fundamental policy of Indian law; or
(3) Against the Justice and morality; or
(4) Against the Patently illegal; or
(5) Against the Interest o f India.
(x x i) D is p u te re g a rd in g s p e c ific p e rfo rm a n c e o f c o n tr a c t c a n n o t be
r e fe r r e d fo r a r b itr a tio n
The Apex Court in Olympus Superstructures Pvt. Ltd. v. Meena Vijay
Khetan,1 has held that when the dispute was regarding specific performance
of contract, it did not come within the ambit of arbitration and such dispute
cannot be referred for arbitration. In the instant case the court observed that
the right to specific performance of an agreement of sale deals with
contractual rights and it is certainly open to the parties to agree, with a
view to shorten litigation in regular courts to refer the issues relating to
specific performance to arbitration. There is no prohibition in the Specific
Relief Act, 1963 that issues relating to specific performance o f contract
relating to immovable property cannot be referred to arbitration, nor is there

1. AIR 1999 SC 2102.

A R B IT R A T IO N 261

such a prohibition contained in the Arbitration and Conciliation Act, 1996 as

contrasted with Section 15 of the English Arbitration Act, 1950 or Section
48(5)(b) of the English Arbitration Act, 1996 which contained a prohibition
relating to specific performance of contracts concerning immovable property.
(xxii) Powers of Arbitral Tribunal Decision on the issue not
referred
In M SK Projects (I) JV Ltd. v. State o f Rajasthan & others,1 the
Supreme Court ruled that no more res-integra, that, special tribunal like
Arbitral Tribunal, Labour Courts get jurisdiction to proceed with the case
only from the reference made to them.
The Supreme Court observed that it is impermissible for such tribunals
etc. to travel beyond the terms of reference. The powers cannot be exercised
so as to enlarge scope of reference itself. If issue is within the scope of
Arbitration clause, it is no part of province of the court to enter into merits
of the dispute on the issue not referred to it. If award goes beyond the
reference or there is an error apparent on the face of award, it would be
open to the court to interfere with such an award. If arbitrator exceeds his
jurisdiction, while deciding an issue not referred to him, award shall be
liable to be spt aside. Arbitrator can neither be allowed to assume
jurisdiction over such an issue nor can he be permitted to widen his
jurisdiction by holding contrary to the fact that the matter which he wants
to decide is within the submissions of the parties. Error committed in
construction of contract, is an error within the jurisdiction of Arbitrator. But,
when arbitrator commits an error by wondering out side the contract and
deals with a matter not allowed to him, he commits a jurisdictional error.
Extrinsic evidence is admissible in such cases, because, dispute is not
something which arises under or in relation to the contract or dependent on
construction of contract to be determined within the Award. However,
ambiguity in the award can be resolved by admitting extrinsic evidence.
(xxiii) Misconduct— Setting aside of the arbitral award
Mandate of Section 34 of the Act, 1996 clearly shows that an arbitral
award may be set aside by the court on the proven misconduct on the part
of the arbitrator or while conducting arbitral proceedings.
Thus, misconduct may be personal or regarding the proceeding. The
term "personal misconduct" connotes corruption, bias, bribery and having an
interest in the subject-matter of reference, all involving an element of moral
turpitude. Whereas misconduct in proceeding means—
1. Proceeding ex-parte without sufficient cause.
2. Proceeding without serving due notice to the parties regarding
time and place of arbitration.
3. Improper reception/rejection of evidence.
4. Denial of opportunity to party to present his case fairly and fully.
5. Non-compliance of the mandate given under the agreement.
It is to be noted that sometimes the term "legal misconduct" is used in
course of argument and also in delivering the judgment. The term "legal

1. 2011 (8) JT 37 (SC).

262 TH E A R B IT R A T IO N A N D C O N C IL IA T IO N ACT, 1996

misconduct" means misconduct in the judicial sense arising from some

honest though erroneous breach or neglect or denial of responsibility
resulting in miscarriage of justice.1 In the view of the Supreme Court legal
misconduct is complete if the arbitrator on the fact of the award arrives at
an inconsistent conclusion even on his own findings or arrives at a decision
by ignoring the very material documents which throw abundant light on the
controversy to help a just and fair decision.2
The question as to what amounts to misconduct was considered by the
Supreme Court in Ganges Water Proof Works (P.) Ltd. v. Union o f India,3
wherein the court observed—The burden of substantiating the averment
urged as an objection tantamounting to misconduct on the part of the
arbitrator or complaining of violation of principles of natural justice was that
of the petitioner. No evidence was adduced to substantiate the plea. The best
person to depose as to what has actually transpired at the healing and
whether the same was a real hearing or merely any eye wash was the
counsel who actually made submissions on behalf of the petitioner before the
arbitrator. The least that was expected of the petitioner was to have filed an
affidavit of the counsel before court, that was not done. No timely protest
was raised before the arbitrator. The hearing was concluded on 11-8-1982
and the award was made on 23-8-1982. During these 12 days also the
petitioner never urged before the arbitrator that submissions on its behalf
were not permitted to be made by the arbitrator. The learned single judge,
as also the Division Bench, have arrived at findings that the plea was an
afterthought and certainly not substantiated. It was held that there is no
reason to take a view different from the one taken by the High Court.
It does not amount to misconduct, therefore, arbitral award is not liable
to be set aside.
In another case Associated Engineering Co. v. Government o f Andhra
Pradesh,4 it was observed that four claims contained therein were not
payable in accordance with the terms of contract, in fact, it prohibited such
payment for this purpose. The court held "this conclusion is reached not by
construction o f the contract but by merely looking at the contract." The court
further observed that the arbitrator is not permitted to act irrationally,
arbitrarily or independently of the contract. The arbitrator’s sole function is
to arbitrate in terms of the contract. A deliberate departure from the
contract amounts not only to manifest disregard of his authority or a
misconduct on his part, but it may tantamount to a mala fide action. A
conscious disregard of the law or the provisions of the contract from which
he derived his authority vitiates the arbitral award.
Thus, deliberate deviation from the terms of reference and arbitration
agreement will amount to misconduct on the part o f the arbitrator.
Failure to consider the counter claim of the respondent during
arbitration proceedings and in spite of that award made, is liable to be set
aside on the ground of misconduct.
1. Ganga Sahai v. Lekraj Singh, ILR (1886) 9 All. 253; Gangaram v. Rosal Singh, AIR 1974
Punj. 36.
2. K.P. Pouose v. State o f Kerala, AIR 1975 SC 1259.
3. AIR 1999 SC 1102.
4. AIR 1992 SC 232.
A R B IT R A T IO N 263

But in the matter of International Airport Authority v, K.D. Bali,1

wherein the arbitrating party partially borne the hotel and air travel
expenses of the arbitrator was held to not amount to misconduct on the part
of arbitrator to invalidate the arbitration proceedings.
However, refusal to allow the law officer of the company to be
represented before the arbitrator, wherein that law officer was full time
employee of the company, it was held that it amounts to misconduct of the
arbitrator and also misconduct of the arbitral proceedings.2
In Nihal Singh v. Shanti Lai,3 it was held that any help given by the
respondent in the preparation of the copy of the arbitral award sent to the
claimant could not by itself affect the validity of the award. The court
observed that these circumstances, though raising some suspicion against
the arbitrator, are not sufficient to establish a charge of misconduct to
justify the setting aside of the award.
An arbitral award may be set aside if there is an error on its face. The
Apex Court while following the ruling laid down in P.T. Scangam v. Bala
Subramania Foundry ,4 and reiterating the principle "in U.P. Hotels v. U.P.
State Electricity Board,5 observed :—
"Even assuming that there was an error o f construction of the
agreement or even that there was an error of law in arriving at a
conclusion, such an error is not an error which is amenable to
correction even in a reasoned award under the law. In order to set
aside an award, there must be a wrong proposition of law laid down in
the award as the basis of the award."
The court can set aside the award only if the misconduct on the part
o f arbitrator is proved or it is apparent for the award that there is no
evidence to support the conclusion or award is based on erroneous legal
preposition.6
The Madras High Court in Mrs. Kamagarani Dorairaj v. A.S.
Dwaragan & others,7 has ruled that an arbitrator is not expected to write to
the Chief Justice directly but the same is to be addressed to the Registrar
General of Court. Arbitrator having sent letter to the Chief Justice directly,
arbitrator himself corrected the mistake in arbitral award. Therefore,
conduct of arbitrator deprecated since it created, an apprehension in the
mind of the petitioner about his impartiality and independence. Hence, ex
parte award passed by him is without jurisdiction.
(xxiv) Misconduct in arbitration proceedings
Section 34(2)(iv) of the Act, 1996 provides that if the arbitral
proceedings have not been conducted in accordance with the arbitration
agreement o f the parties or in accordance with the law of the land in which
arbitration occurred, it amounts to misconduct in arbitration

1. AIR 1988 SC 1099; Jugal Kishore v. Vijayandra, AIR 1993 SC 864.

2. State Trading Corporation v. Molasses Co., AIR 1981 Cal. 440.
3. AIR 1935 Oudh 349.
4. AIR 1987 SC 2045.
5. AIR 1989 SC 268.
6. Gujarat W.S. & S.B. v. Union Electors (Gujarat) P. Ltd., AIR 1989 SC 973.
7. AIR 2007 (NOC) 340 (Mad.).
264 THE ARBITRATION AND CONCILIATION ACT, 1996

proceedings/procedure. In the result validity of such arbitral award may be

challenged.
Wherein the arbitrators do not hold joint deliberations in arriving at a
conclusion and there was no stipulated procedure as such as per the
arbitration agreement to hold such deliberations, it was held that the
application for setting aside the arbitral award is liable to be rejected.1
It should be made clear that the arbitrator has to follow the procedure
as provided in the arbitration agreement. Even in absence of arbitral
procedure in the agreement the arbitrator is expected to follow the procedure
which does not violate the principles of natural justice.
The Calcutta High Court in Jaymac (India) Private Ltd. v. Hindustan
Steel Works Construction Ltd.,2 observed that :—
"Mere irregularity in procedure cannot affect the validity of an
award unless it can be shown that same has resulted in substantial
injustice to the parties even assuming that there is an irregularity. In
the present case it cannot be said that the alleged irregularity in
admitting documents or hearing has resulted in substantial injustice to
the parties. Accordingly there is no reason to set aside the award."
(xxv) Judicial misconduct—Setting aside of arbitral award
I n M / s Sai Jas Glosocks Pvt. Ltd. v. Bharat Alluminium Co. Ltd.,3 the
Chhattisgarh High Court ruled that wherein an arbitrator failed to
adjudicate counter claim raised by the respondent and he has not given any
reason, for finding on one of issues raised for adjudication, it amounts to
judicial misconduct, hence award is liable to be set aside.
(xxvi) A part of the arbitral award cannot be set aside
The Supreme Court and the High Court on a number of occasions
propounded the ruling that there is no provision in Act to set aside the
arbitral award partly.4 Although, if the erroneous part of the award is
severable the proper or good part of the award may be sustained. In case
the bad or erroneous part of the award is not severable, the whole of the
arbitral award is to be set aside.3
(xxvii) Arbitrator can appear as witness in proceeding for setting
aside an award
Wherein the court is of opinion that an arbitrator’s assistance as a
witness is necessary for proper adjudication of the matter, it has jurisdiction
to summon the arbitrator who had arbitrated the matter and made arbitral
award. But no question can be asked to the arbitrator to test his mental
process in arriving at his conclusion.6 Thus, the court should exercise this
power very cautiously and sparingly.
Arbitrator cannot be summoned as a witness to show how he arrived
1. Larsen & Toubro v. State o f Rajasthan, (1994) 2 Arb. LR 15 (Del.).
2. AIR 1990 NOC 128 (Cal.).
3. AIR 2012 Chh. 40 (DB).
4. Mehta Teja Singh & Co. v. Fertilizer Corporation o f India, AIR 1968 Del. 188.
5. Badri Choudhary v. Champa Choudhary, AIR 1937 Pat. 183; Jivarabhai Ujamshi Sheth
v. Chintamanrao Balaji, AIR 1965 SC 214.
6. Ti Tima v. Mohomed, AIR 1940 Rang. 203.
ARBITRATION 265

at a conclusion embodied in the award. However, arbitrator can be

summoned as a witness if there is an allegation of corruption and dishonesty
against him. Whether an arbitrator can be summoned as a witness in court
proceedings regarding the award delivered by him, the Apex Court while
considering this question in State o f Orissa v. Niranjan Swain/ observed
that the argument of appellant relating to calling the arbitrator for
examination as a witness in the court was based on the decision of the
Orissa High Court in State o f Orissa v. D.C. Routray.2 That decision itself
says that even though an arbitrator is a competent witness, the court must
exercise the power of calling him as a witness cautiously and sparingly and
not in a routine manner. It is obvious that when the court is requested to
call the arbitrator for examination as a witness it must be shown that there
is some cogent ground for his examination within the permissible limits.
Nothing has been shown in the present case to indicate that it was at
all necessary to call the arbitrator as a witness to depose on any matter
which could legitimately be examined by the court in the proceedings.
It can be said that the arbitrator is a competent witness and is under
a general obligation to give evidence. The court in order to satisfy itself that
the arbitrator acted within his jurisdiction can question him to show the
subject-matter on which he exercised jurisdiction.3
The hang’s Bench in Leisearch v. Schalit,4 observed that ordinarily in
proceedings to set aside an award, arbitrator cannot be called as a witness
but when the court comes to the conclusion that the only way in which it
can satisfactorily deal with the matter before it is by having the assistance
of the evidence of the arbitrator, the court has jurisdiction to allow the
arbitrator to be called as a witness in regard to the matter which passes
before him during arbitration.
(xxviii) Effect of an arbitral award being set aside
Once the arbitral award is set aside by the court while exercising the
power under Section 34, the effect of an award being set aside is that it
becomes unenforceable by law. The parties have to be reverted to their
former position in respect of the subject-matter of dispute.
It is settled legal position that as soon as the arbitral award is made,
an arbitral tribunal is functus officio, thus it ceases to function, on the
authority of the court’s order as provided under Section 34(4) the arbitral
tribunal may resume its power and may conduct fresh arbitral proceedings,
when the matter has been remitted back to the tribunal. While clarifying
this point the Apex Court in Narain Das v. Narsingh Das,5 observed that
the court is empowered to order the tribunal to correct or modify an arbitral
award where it is imperfect in form, but the court cannot substitute its own
order for the arbitrator’s award.

1. AIR 1990 SC 685.

2. AIR 1983 Orissa 163.
3. Malik on “Principle and Digest of Arbitration Law’ 1990 Edn., p. 54.
4. (1934) 2 KB 353.
5. (1995) 1 Arb. LR 167 (SC).
266 THE A R B IT R A T IO N A N D C O N C IL IA T IO N ACT, 1996

(xxix) Correctness of electric metre—Arbitrator cannot exceed the

existing exclusive jurisdiction
In Union o f India v. Tata Hydro Electric Power Supply Co. Ltd.,1 where
an arbitrator gave an award on a dispute relating to correctness of electric
metre. It was held that such a dispute was within exclusive jurisdiction of
the Electrical Inspector under Section 29 of the Indian Electricity Act.
Hence, the arbitrator has no jurisdiction to enter upon the reference. Thus,
award was liable to be set aside.
(xxx) Arbitral Award made rule of the Court
In West Bengal State Warehousing Corporation & another v. Sushil
Kumar Kayam & others ,2 wherein three issues were referred to the
arbitrator and one o f them was assessment of lost/stolen goods from
warehouse of Corporation. Whereas arbitrator assessed it on the basis of
"goods imported were of damaged condition", the Corporation took the plea
that the damages, if any, are to be restricted to the declared value o f the
goods in the agreement entered into between the Corporation and the
respondent through its clearing agent and the same was rejected by the
arbitrator. The question was whether the arbitrator had acted in excess of
jurisdiction and therefore, the award was liable to be set aside. It was held
that as the arbitrator confined his award within the framework of reference
made to him it could not be said that in assessing the damage he had
exceeded the jurisdiction conferred upon him. The arbitral award was made
rule o f the Court.
(xxxi) Application was rightly allowed—Grounds under Section
34(4) of the Act
In Midex Overseas Ltd. v. Dewas Soya Ltd.,3 where the grounds urged
in the application under Section 34(4) were not connected with the
misconduct of the arbitrators or the lack of jurisdiction but were such that
by resuming arbitral proceedings the Arbitral Tribunal would be enabled to
eliminate the grounds urged for setting aside the arbitral award, it was held
that the application was properly allowed. In the present case the
application was made on the grounds that the arbitrators failed to examine
a broker as a witness and award was not duly stamped.
(xxxii) Arbitrator has not adopted "Fast Track Procedure"
The Rajasthan High Court has ruled in Food Corporation o f India and
others v. Niyaz Mohammad & others,4 that where neither of parties
examined any witness on their behalf nor submitted any affidavit of witness.
Thus, a sole arbitrator cannot be faulted for basing his entire award on
documentary evidence produced by the parties. Merely because he had
decided arbitration case on the basis of documentary evidence, it cannot be
presumed that arbitrator adopted "Fast Track Procedure". Hence, party not
raising objection to such procedure during arbitration proceeding, the party
would be precluded from raising said objection before the High Court.

1. AIR 2000 Bom. 272.

2. 2002 (3) Supreme 662 (SC).
3. 2001 Arb. WLJ 523 (M.P.).
4. AIR 2007 (NOC) 1158 (Raj.).
A R B IT R A T IO N 267

Arbitral award cannot be set aside.

(xxxiii) Arbitral award—When it cannot be set aside
Where a partnership firm was constituted by the appellant and
respondent to carry out and to do business but the respondent was not
allowed to scrutinise the accounts. He has initiated an arbitration
proceedings before the arbitrator for rendition o f accounts on return of the
capital investment while invoking arbitration clause in the partnership
deed/agreement. It was held by the Kerala High Court that the respondent
cannot challeng on the ground that firm was not registered. The Court
further held that there is no valid ground to show that the arbitrator had
committed misconduct or had not considered the entire matter.1
In Lunes Publishers (P.) Ltd. v. General Manager & others,2 wherein
contract entered into by B.S.N.L. with the petitioner for supply of telephone
directories. Dispute arising out of contract and the dispute referred for
arbitration. Arbitrator arrived at conclusion on basis o f evidence and passed
reasoned award. Notably, arbitrator had permitted the parties to submit
their written submissions. Held that the petitioner cannot, therefore, take
plea that no opportunity was given to present its case. In the instant case
arbitrator was appointed as per relevant clauses in agreement and no
question of partiality on his part arises. No ground made out to set aside
arbitral award.
(xxxiv) Non setting aside of ex-parte award—when can be
The Apex Court in Kailash Rani Dang v. Rakesh Bala Aneja and
another,3 has ruled that there was no misconduct alleged against arbitrator
and notably the party against whom award was passed, is proved to have
deliberately stayed away from arbitration proceedings with the view to
frustrate and delay the claim of claimant. The said party is proved to have
refused to accept copy o f award from the postman. It is regarded that he was
deemed to have been served. Filing of application under Section 34 of the
Act by the said party beyond time as permissible for such application, was
no longer maintainable and hence rejection of such application was proper
and there was no illegality.
Setting aside of arbitral award—Application for—Dismissal in
default.—In B. Rama Swamy v. B. Rangaswamy,4 where the arbitral award
passed by the Arbitral Tribunal was challenged before the Civil Court in
terms of Section 34 of the Arbitration and Conciliation Act, 1996. The
petitioner who challenged the award did not present himself before the lower
Court on the date fixed. Therefore, the application was dismissed by the
Civil Court. Thereafter, the petitioner filed an application seeking
restoration of earlier application. When this application was listed, again the
petitioner absented himself and this application was also dismissed in
default.
It was held that since power to entertain an application under Section
34 is only available to the Civil Court all the powers necessary for disposal
1. K.K. Sundaram v. V.N. Reji and another, AIR 2007 (NOC) 526 (Ker.).
2. AIR 2007 (NOC) 808 (Mad.).
3. AIR 2009 SC 1662.
4. AIR 2004 A.F. 280.
268 THE A R B IT R A T IO N A N D C O N C IL IA T IO N ACT, 1996

of such application under the Code of Civil Procedure, 1909 would be

available to such a Court. Hence, the plea that dismissal is not proper since
provisions of the Code of Civil Procedure, 1908 are not applicable to the
proceedings under the Arbitration and Conciliation Act, 1996, is not tenable.
(xxxv) Objection to award—Belated filing of, although delay
explained
The Himachal Pradesh in State o f H.P. v. Himachal Techno Engineers
and another/ has ruled that period of limitation of three months for filing
objection to arbitral award begins running from one day after the date of
receipt o f signed copy of arbitral award. However, this period can be
extended for further thirty days but not thereafter. In the present case the
objection to arbitral award was not filed before expiry of statutory period of
three months or within extended period of thirty-days. Hence, delay cannot
be condoned, even if cause for delay in filing objection to arbitral proceedings
was sufficiently explained.
(xxxvi) Arbitral award— Grant of compensation to bidder for loss
In M l s. M.S.K. Projects (I) (JV) Ltd. v. State o f Rajasthan and another,2
where the Public Works Department invited tenders for reconstruction of
Bharatpur Bye-pass and it was represented by PWD that it also included
Bharatpur-dug section and that the bidder would be entitled to recover the
investment through levy of toll on the users o f Bye-pass including the
Bharatpur-dug section, once this representation was made, and the said
section was included in the project, the PWD would be estopped from
disclaiming the inclusion of the said section in the project. It would further
be estopped from claiming that the bidder is not entitled to collect the toll
on the said section. In case the said section fell under the definition of
"service lane", the PWD should have explained the said position in the
Pre-Bid Conference. But, instead the PWD promised the bidders that they
would be allowed to collect the toll on the said segment. Now, the PWD
cannot be permitted to wriggle out of the said commitment. Consequently,
the PWD were directed to pay a compensation to the bidder for the loss
caused.
(xxxvii) Execution of arbitral award—whether registration is
necessary
The provisions under new Arbitration Act, 1996 are different from
those under the Arbitration Act, 1940 where an award had to be made rule
of the Court and a decree passed in terms thereof before the same could be
executed as a decree. In case of an award under the Act, 1996, the award
itself is executable as a decree. The proviso to Section 23 of the Registration
Act provides and takes care of the position where the period of four months
would commence from the time when such decree would become executable.
A decree would be executable under Section 36 of Act, 1996 only when the
time period as provided under Section 34 of Act, 1996 expires. The said time
period is three months under Section 34(3) of the Act, 1996 extendable by
another 30 days within the meaning of proviso to Section 34(3) of the Act,

1. AIR 2009 H.P. 58.

2. AIR 2007 (NOC) 1566 (Raj.).
A R B IT R A T IO N 269

1996. Thus, in this case where the award is dated 3-6-2001, presentation of
the document for registration on 10-1-2002 is within the time period
stipulated if the aforesaid period is taken into consideration as provided
under Section 34 of the Act, 1996 read with Section 23 of the Registration
Act, 1908. Hence, the question of an application being made under Section
25 of the Act, 1996 would arise only if the period of four months had elapsed
and the further period was sought to be taken into account.1
(xxxviii) Petition under Section 34 of the Act challenging
arbitration award—Filed before any principal Civil Court of original
jurisdiction which is not High Court—No court fee payable
According to the Full Bench of Bombay High Court2 when a petition
under Section 34 of the Act is to be filed before a principal Civil Court of
original jurisdiction which is not a High Court, the question arises as to
which Article of either First Schedule or Second Schedule would apply. In so
far as the challenge to an award made under the Arbitration Act, 1940 is
concerned an application under Section 33 of that Act could be made to a
civil Court and therefore, payment of Court fee was governed by Article 1(a)
of Schedule II. This was so because the application was to be presented to
the Court of Civil Judge which was not a principal Civil Court of Original
Jurisdiction. But, now because of change in the definition of the term
"Court" in the Act, 1996 a petition has to be presented challenging an award
made under the Act, 1996 in terms of the provisions o f Section 34 thereof,
before the principal Civil Court of original jurisdiction. No entry either in
the First Schedule or in the Second Schedule was pointed which applies to
an application or petition to be made before the principal Civil Court of
original jurisdiction, and therefore, when a litigant wants to file- petition
before a principal civil Court having original jurisdiction which is not High
Court, challenging an award made under the Act, 1996, no Court fee under
the Bombay Court Fees Act, 1959 is payable because of absence of a general
or a specific provision. Therefore, it can be said that no Corut Fees under
the Bombay Court Fees Act, 1959 is payable when a petition under Section
34 of Act, 1996 challenging an award is filed before any principal civil court
of original jurisdiction which is not High Court.
(xxxix) Interpretation of contractual term by arbitrator—
Interference by Court—Scope of
According to the Supreme Court in Numaligarh Refinery Ltd. v. Daelim
Industrial Co. Ltd.,3 the Coruts shall not ordinarily substitute their
interpretation for that o f the arbitrator. If the parties with their eyes wide
open have consented to refer the matter to the arbitration, then normally
the finding of the arbitrator should be accepted without demur. There is no
quarrel with this legal proposition. But, in a case where it is found that the
arbitrator has acted without jurisdiction and has put an interpretation on
the clause o f the agreement which is wholly contrary to law then in that
case there is no prohibition for the courts to set the things right.
The general consensus of the view emerging from various judgments of
1. Anurag Malik v. Amit Malik & another, AIR 2007 (NOC) 460 (Del.).
2. Puneet Malhotra and another v. R.S. Gai & others etc., AIR 2009 Bom. 42 (FB).
3. (2007) 8 SCC 466.
270 THE A R B IT R A T IO N A N D C O N C IL IA T IQ N ACT, 1996

the Supreme Court is that the Court should not sit in appeal and normally
should not interfere with the views of the arbitrator in interpretation of the
terms of agreements interpreted by the arbitrator, when the arbitrator is
appointed with the consent of the parties. But in the aforesaid case, the
Court is faced with a peculiar situation in as much as the two of the three
arbitrators have taken another view of the matter. The District Judge has
also set aside the award on some issues and the High Court has also
accepted some items of the majority award of the arbitrators and some items
o f the minority award of arbitrator. In the state of these conflicting views on
the subject, the Supreme Court has to enter into the merit to put an end to
the controversy by adjudicating upon the conflicting views of various forums.
(xl) Powers of Arbitral Tribunal to Award of interest— qua Part
Award Period—Rate of Interest
According to the Supreme Court1 the Arbitrator is competent to award
interest for the period commencing with the date of award of the date of
decree or date of realisation, which ever is earlier.
The Court expressed the view that quit logical for, while amount of
interest is a matter substantive law, the grant of interest for the part award
period is matter of procedure. In terms of Section 3 of the Interest Act, 1978,
Arbitrator is competent to award interest at the rates prevailing in Banking
transactions. Thus, impliedly the Court has power to vary the rate of
interest agreed by the parties. While affirming reduction of rate of interest
from 18% to 10%, the High Court had relied upon decision o f the Supreme
Court in Krishna Bhagya Jal Nigam Ltd. v. Harishchandra Reddy &
another Hence, the court declined to interfere with the rate o f interest so
reduced.
(xli) No interest on interest, or compound interest cannot be
awarded
According to the Apex Court3 no general discretion in courts or
tribunals to award compound interest or interest on interest. However,
compound interest can be awarded only if there is a contract as authority
under a statutes. In terms of Section 3 o f the Interest Act, 1978 courts and
tribunals are empowered to award interest from the date o f cause of action
to the institution o f legal proceedings an arbitration proceedings. Even,
under Section 31(7) of the Act, 1996 refers to payment of compound interest
or interest on interest. But, under the old Act, 1940 arbitral tribunal had no
power to award interest.
(xlii) Interest— when Arbitral Tribunal cannot award
The Supreme Court in Sree Kanatchi Amman Constructions v.
Divisional Railway Manager (works) Palghat Section4 held that the arbtiral
tribunal cannot award interest between the date when the cause of action to
date of award.

1. M SK Projects (I) (JV) Ltd. v. State o f Rajasthan & another, 2011 (8) JT 37 (SC).
2. AIR 2007 SC 817.
3. State o f Haryana Sectors v. S.L. Arora & Co., AIR 2010 SC 1511.
4. 2010 (9) JT 57 (SC).
A R B IT R A T IO N 271

(x liii) M a ritim e A rb itra tio n —A w ard of D em urrage, In te re s t and

cost to m asters—W hen sustainable
Wherein delay in leaving loading part and failure of vessel to discharge
her cargo and owner’s claim for demurrage under agreement crude oil
agreed to be carried by vessel from Egyptian Red Sea Port to safe
Anchorage/lighterage points in Indian Coastline. Notably vessel had only one
chain-stopper/Bow Panama Chock, it could not be safely moved at SBM
point in Vadinar (Gujarat) nominated port o f discharge. Such a nomination
was made when vessel sailed from Red Sea. As per Charter partly
conditions, matters duly complied with relevant condition by giving "notice
of redliners" : on arrival at customary anchorage and after six hours of that
notice, lay time commenced. Charterers were aware o f the equipments on
board the vessel, even then they nominated SBM as destination point for
discharge. None of the parties took pain to see whether those equipments
were sufficient for vessel to safely moov at SBM and to discharge her cargo
safely. Her inability surfaced only later on and she was asked to move away.
As held by the Arbitral Tribunal and subsequently by single judge as also
Division Bench of the High Court responsibility for failure to move at SBM
lay upon charteres, who had a choice to nominate all the ports in India for
discharge o f Cargo, as was subsequently done at Mumbai Port. Lay time
thus held to have recommenced after expiry of six hours from tendering of
notice of readiness upon arrival of vessel at Vadinar. It is no case of
charterers that failure of vessel to discharge at SBM was beyond their
control. Further, Masters have not contributed in such failure as they had
made known the equipments on board the ship.
The Supreme Court observed that in view o f specific conditions in
clause 6 o f the charter party, theoretical and/or academic exercise of what
constitute "Arrivalship" loses much of its relevance. Terms of charter party
were agreed with eyes wide open. Hence, no fault found with award of
demurrage interest and cost to Masters. Therefore, special leave petition is
liable to be dismissed.1

CHAPTER VIII

FINALITY A ND ENFORCEMENT OF
ARBITRAL AWARDS
S ection 35. F in ality o f arbitral aw ards.— Subject to this
Part an arbitral award shall be final and binding on the parties and
persons claiming under them respectively.
CO M M EN TS
Section 35 of Act, 1996 contains essence as, contained in paragraph 7
o f the First Schedule o f the Arbitration Act, 1940.
Section 35 states that the final arbitral award is binding upon the
parties and any other persons claiming under them. To achieve finality, the
arbitral award should not be challenged after the expiry of period of time

1. Shipping Corporation o f India v. Mare Shipping Inc., AIR 2011 SC 2608.

272 THE A R B IT R A T IO N A N D C O N C IL IA T IO N A C T , 19 96

provided under Section 34(3). Such an arbitral award, has not only achieved
finality but also becomes binding force on the parties. This is a reformative
provision in the Act of 1996. After the finality of an arbitral award, rights
and liabilities of the parties relating to the said claims etc. are to be decided
in accordance with the said arbitral award.
An arbitral award may, in effect, declare, extinguish, limit, title or
interest, whether it is present or future, whether vested or contingent, and
if the value of the immovable property is one hundred rupees and more it is
to be mandatorily registered under Section lTQXb)1 o f the Registration Act,
1908.
Thus, the finality of arbitral award should have some legal effects to
the parties under the claim, in Kedar Nath v. Amhika Prasad2 before the
Allahabad High Court it was contended that the award was not a mere
waste paper and some legal effect has to be given effect to. In the aforesaid
case the registration of an arbitral award was questioned, but the Supreme
Court of India in Lachhman Das v. Ram Lai,3 ruled that that award which
is required to be registered under the Registration Act, 1908 (Section 49),
but has not been registered, cannot be received as evidence of any
transaction affecting immovable property.
(i) Rights and liabilities of the parties to be determined only on
basis of award
It is well settled rule that when the arbitral award becomes final the
rights and liabilities o f the parties are to be determined only on the basis of
the said award. All claims which are the subject-matter of a reference to
arbitration are merged in a valid award. Subsequently, no action can be
commenced on the original claim which had been the subject-matter of the
arbitral proceedings.4
(ii) Award is capable of being executed in its own
The requirement under the old Arbitration Act, 1940 that unless the
arbitral award becomes the rule of the court, it is not capable to be executed
or enforced. Now under the new Arbitration and Conciliation Act, 1996 an
arbitral award is capable of being executed in its own right. It is to be
treated like a decree under the Civil Procedure Code, 1908. "In view of M.A.
Sujan—now the arbitral award has been given teeth" However, before
incorporation of the new Act, 1996 the question of enforceability of the
arbitral award was considered by the Apex Court in Hanskumar Kishan
Chand v. Union o f India,0 and it was observed that the award of an
arbitrator is unenforceable by its own right rather force, unless it has the
"imprimatur" of the court stamped on it. When the court passes orders in
respect of the award that it be filed and decree issued in terms thereof, then
only the award becomes enforceable.
Now the award no longer requires filing in the court of law and
1. Satish Kumar v. Surinder Kumar, AIR 1970 SC 833.
2. AIR 1974 All 37.
3. AIR 1989 SC 1923.
4. Satish Kumar v . Surinder Kumar, AIR 1970 SC 833; K.V. George v. Secretary to
Government, Water and Supply Departmt : ' Trivandrum, AIR 1990 SC 53.
5. AIR 1958 SC 947.
A R B IT R A T IO N 273

obtaining a decree in terms thereof. Under the new Act, 1996 namely, under
Section 35 declares that an arbitral award shall be final and binding on the
parties and persons claiming under them respectively. Thus, the award shall
be enforced under the Civil Procedure Code, 1908 in the same manner as if
it were a decree of the court.
(iii) W hen a w a rd is com pulsorily registrable
Wherein the value of the arbitral award is one hundred rupees and
upwards or relating to immovable property, it is compulsorily registrable
under Section 17(lXb) of the Indian Registration Act, 1908. Where the
award declares, assigns, limits or extinguishes, whether in future or present
any title, right or interest rather vested or contingent and its value in terms
of money is one hundred rupees or more or is immovable property, in the
view o f said section of Registration Act, 1908 it is required to be registered.1
Further, Section 49 of the Registration Act, 1908 provides that the arbitral
award which is required to be registered if unregistered, it is inadmissible
as an evidence. Period of limitation regarding registration of the arbitral
award has been dealt with by Sections 23 and 25 o f the Indian Registration
Act, 1908.
(iv) F in a l a rb itra l a w a rd can be questioned only on ground of lack
of ju ris d ic tio n
In R .K Textiles v. Sulabh Textiles ltd.,2 the Bombay High Court held
that an award which has become final and binding can be questioned before
the executing Court only on the ground of lack of jurisdiction and not on any
other ground. The Court explained that the lack of jurisdiction should be
lack of inherent jurisdiction rendering the award to be non-est or nullity.
Section 36, Enforcement.— Where the time for making an
application to set aside the arbitral award under Section 34 has
expired, or such application having been made, it has been refused,
the award shall be enforced under the Code of Civil Procedure, 1908
in the same manner as if it were a decree of the Court.
COMMENTS
Section 36 is not modelled on the Model Law.
Section 36 provides condition for enforcement of an arbitral award and
its procedure that how the award will be enforced. There are two conditions
either to be fulfilled to become an award enforceable. It is the mandatory
provision. The conditions are—
(i) under Section 34, time limit for making an application for setting
aside an arbitral award has expired, or
(ii) such an application has been made but it has been refused.
If, either condition is fulfilled the award shall be enforced under the
Code o f Civil Procedure, 1908 (5 of 1908) in the same manner as if it were
a decree of the Court. In fact an arbitral award is not a decree o f the court
but, mutatis mutandis shall apply to the enforcement of an arbitral award.
Section 36 contains the words "in the same manner as if it were a decree of
1. Satish Kumar v. Surinder Kumar, AIR 1970 SC 833.
2. 2003 Arb. LR 303 (Bom.).
274 THE A R B IT R A T IO N A N D C O N C IL IA T IO N A C T, 1 9 9 6

the court thus, an arbitral award must include essential ingredients of a

decree of the court, to become capable of being enforced.
An arbitral award made on oral submission is not enforceable.1
Under the new Act, 1996 the requirement as to stamping of the arbitral
award and making of the rule of the court and issuing of a decree in terms
thereof have been taken away. Now the arbitral award itself is executable
without these formalities which were necessary under the old Act, 1940.
Thus, it is well said that the "award is given teeth."
(i) Enforcement of award
In Khaleel Ahmed Dakhami v. Hatti Gold Mines Ltd.,2 the fact of the
instant case were as follows :—
Award allowed some of the claim of the appellant and the respondent
filed an application under Section 34 for setting aside the award. Earlier
caveat had been filed by the appellant along with application under Section
9 i.e., interim measures etc. by court. The appellant also filed an application
under Section 36 for execution of the award without mentioning pendency of
application under Section 34, i.e., for setting aside of arbitral award. It was
held that the application under Section 36, for enforcement of instant award
could not be entertained.
In the case the Apex Court observed that the Principal District Judge,
Raichur had, no doubt, jurisdiction in the matter but his holding that the
Principal City Civil Judge, Bangalore would have no jurisdiction is not
commendable. It cannot always be said, in view of Section 10 of the Civil
Procedure Code, 1908, that only one court will have jurisdiction to try the
suit. It is not that the Principal City Civil Court, Bangalore is not a court
within the n eaning of Section 2(e) of the Act, 1996, whether the Principal
City Civil Judge, Bangalore has jurisdiction in the matter or not was still
pending with him when proceedings wTere filed earlier in time than the
execution application by the appellant in the District Court at Raichur. The
award had not attained finality. In these circumstances, the Principal
District Judge, Raichur should not have entertained the application for
execution and ordered attachment of movable properties o f the respondents.
In such circumstances, the Principal District Judge, Raichur should not have
entertained the execution application at all.
Once it is seen that an award of the Arbitral Tribunal is deemed to be
a decree by virtue of Section 36 of the Act, it follows as a corollary that the
Arbitral Tribunal is in the position of a court when passed the decree
(though it may not be the same). But, no application for execution can be
presented to an Arbitrator by the holder of an award, under order 21, Rule
10 of CPC, on the ground that the Arbitral Tribunal in the Court which
passed the decree. Therefore, the provisions of Section 38 of the Act and
Order 21, Rules 5, 6 and 10 of the Code of Civil Procedure cannot be applied
to an Arbitral Tribunal. To put it differently, it is only when an award
holder is entitled to file an execution petition before the Arbitral Tribunal
itself under Order 21, Rule 10, treating it as a count which passed the

1. Golap Chand Agarwalla v. Madan Lai Simolia & others , 1990 (2) CCC 389 (Gauhati).
2. AIR 2000 SC 1926 : 2000 (3) SCC 755.
A R B IT R A T IO N 275

decree that the provisions of Order 21 Rules 5 and 6 of Code would apply.1
(ii) Enforcement of arbitral award—When entire arbitral award not
becoming final
In M/s. National Buildings Construction Corpn. Ltd. v. Lloyd
Insulations India Ltd.,2 so far as the contention with regard to the
enforceability of the Arbitral award during pendency o f the objections under
Section 34 of the Act is concerned, it may be noted that the award of the
arbitrator in the present case is not entirely in favour of one party but it is
in favour of both the parties as it has allowed some claims as well as some
counterclaims. The appellant M/s. National Buildings Construction
Corporation Ltd. did not challenge any part of the award by filing objections
within the stipulated period as provided under Section 34(3) of the Act and,
therefore, the award so far as it has allowed certain claims of the claimant
M/s. Lloyd Insulations (India) Ltd., has attained finality and has become
capable of enforcement as a decree in accordance with the Code o f Civil
Procedure, 1908. However, the award of counterclaim in favour of M/s.
National Buildings Construction Corporation Ltd. has not yet attained
finality and it is not enforceable, it being the subject o f challenge in the
application under Section 34 of the Act. It is therefore, not possible to hold
that the entire award has not become final and is not enforceable unless the
application under Section 34 of the Act is disposed off. It was held by the
Delhi High Court that part of the arbitral award which is not under
challenge has become final and is enforceable under Section 36 of the Act
irrespective of the pendency of the application under Section 34 of the Act
challenging and seeking the setting aside of the other part of the award.
(iii) Arbitral award—Whether requires registration
In Surinder Nath Kapoor v. Kailash Kumar Kapoor & others ,3 where
dissolution of partnership firm by arbitrator in accordance with the arbitral
award made and distribution of assets of firm which included both movable
and immovable properties were also made, it was held that the same does
not amount to partition or transfer or creating/extinguishment of interest.
The Court was of the view that case of dissolution of partnership stands on
a different footing from one of partition. Hence, objection in execution
proceedings that arbitral award is required to be registered compulsorily, is
liable to be rejected.
(iv) Enforcement of arbitral award—Cross decrees—Applicability of
Order 21, Rules 18, 19 of the Civil Procedure Code, 1908
The Supreme Court in M.R. Constructions (P) Ltd. v. Ram Badan
Singh,4 ruled that Rule 18 of Order 21 of the Code is applicable in the case
where the application is made to the Court for execution o f the cross-decrees
in separate suits for payment of two sums of money passed between the
same parties and Rule 19 of Order 21 of the Code is applicable in the case
where the application is made to the Court for the execution of a decree

1. Kotak Mahindra Bank Ltd. v. Sivakana Sendari, 2011 (4) LW 745 (Mad).
2. AIR 2004 Del. 235 (DB).
3. AIR 2007 (NOC) 317 (Raj.).
4. (2007) 11 SCO 19.
276 THE A R B IT R A T IO N A N D C O N C IL IA T IO N ACT, 1996

under which two parties are entitled to recover sums o f money. As rightly
observed by the High Court, in the present case, neither the application has
been made for execution of cross-decrees in separate suits for the payment
of money in between the parties nor is the application made for execution of
a decree in which the parties are entitled to recover sums of money from
each other. In the instant case, the particulars furnished clearly show that
the applications were in respect of two awards in the same arbitration case
and as such the provisions of Rules 18 and 19 of Order 21 o f the Code are
not applicable.

CHAPTER IX

APPEALS
Section 3 7 . Appealable orders.— (1) A n a p p e a l s h a ll lie fro m
th e fo llo w in g o rd e rs (a n d fr o m no o th e rs ) to th e C o u r t a u th o ris e d b y
la w to h e a r a p p e a ls fr o m o r ig in a l decrees o f th e C o u r t p a s s in g th e
o rd e r, n a m e ly ,—
(a ) G r a n tin g o r r e fu s in g to g r a n t a n y m e a s u re u n d e r S e c tio n 9;
(b ) s e ttin g a sid e o r re fu s in g to se t a sid e a n a r b it r a l a w a rd
u n d e r S e c tio n 34,
(2 ) A p p e a l s h a ll also lie to a c o u rt fr o m a n o rd e r o f th e a r b it r a l
t r ib u n a l—
(a ) a c c e p tin g th e p le a re fe rre d to in s u b -s e c tio n (2) or
s u b -s e c tio n (3 ) o f S e c tio n 16; o r
(b ) g r a n t in g o r r e fu s in g to g r a n t a n in t e r im m e a s u re u n d e r
S e c tio n 17.
(3 ) N o second a p p e a l s h a ll lie fr o m a n o rd e r p a sse d i n a p p e a l
u n d e r t h is s e c tio n , b u t n o th in g in t h is s e c tio n s h a ll a ffe c t o r ta k e
a w a y a n y r i g h t to a p p e a l to th e S u p re m e C o u rt.

\ COMMENTS
Section 37 is not modelled on the Model Law, but it is analogous to
Section 39 of the Arbitration Act, 1940.
Section 37(1) provides for appeals against orders o f court in two ways—
(i) To grant any interim measures under Section 9, or
(ii) to set aside or refuse to set aside an arbitral award under
Section 34.
Further, this sub-section (1) provides that an appeal shall lie to "the
court authorised by law to hear appeals from original decrees of the court
passing the order". Thus, this sub-section (1) provides for an appeal from
court orders.
Section 37(2) provides that an appeal shall lie to a court from an order
of the arbitral tribunal, when either of the following conditions are fulfilled—
A R B IT R A T IO N 277

(i) under Section 16(2) or Section 16(3) referred application has been
accepted, or
(ii) under Section 17, to grant interim measure or refusing to grant
interim measure.
The orders of arbitral tribunals have been made appealable. This is a
new stage of development in the Act of 1996. Now, the arbitral tribunal has
freedom to act in a judicial way.
Section 37(3) prohibits second appeals, from an order passed in appeal
under this section, but further states that any right to appeal to the
Supreme Court is in no way prohibited. Thus, second appeals can be made
to the Supreme Court under the Constitution of India and is also provided
in the Supreme Court Rules. It was held by the Allahabad High Court that
"the jurisdiction conferred on the Supreme Court by the Constitution of
India cannot be taken away or abridged by any statute.1
Section 37 of Act, 1996 barred a second appeal from an appellate order.
A revisional application against an appellate order under Section 37 is not
maintainable even before the High Court.2
(i) Scope of Section 37
Under Section 16(6) of the Act, 1996 an aggrieved party is given a right
to challenge award on that ground in accordance with Section 34. If the plea
of jurisdiction is not raised at this stage then it cannot be raised under
Section 34. However, under both the Sections 13 and 16, a party cannot file
such a petition unless the procedure contemplated thereby is followed. It is
settled law that if the Arbitral Tribunal accepts the plea about lack of its
jurisdiction or that certain dispute is beyond the scope of its authority an
appeal lies from such order to court under Section 37(2Xa) of .the new Act,
1996.3
The Bombay High Court in Atul R. Shah v. Vrijjal Lalloo Bhai & Co. ,4
has held that a court without jurisdiction merely on account of non-objection
by the parties cannot assume jurisdiction in itself. The same is also
applicable to arbitral tribunal.
(ii) Appeal filed against partial award—not maintainable
In National Thermal Power Corporation Ltd. v. Siemens Atkeingesells
Chaft,5 wherein opposite party has not taken any plea of jurisdiction before
Arbitral Tribunal, but has raised certain counterclaims. However, claimant
has opposed such counterclaims, inter alia, on the ground that they were not
arbitrable. The Arbitral Tribunal by a partial award rejected the
counterclaims of the opposite party as having already been settled in earlier
meeting between the parties. It was held that such a partial award did not
involve a question of jurisdiction. Hence, the case of opposite party, even if
it was aggrieved by such a partial award, it did not fall within the purview
of Section 16(2) or 16(3) of the Act. So, appeal filed by it against the partial

1. Kanpur Nagar Mahapalika v. Narain Das, A I R 1964 A ll 25.

2. Shyam Sundar Agarwal v. Union o f India, A IR 1996 S C 1321.
3. Kittu Imports Trade Private Ltd. v. Savitri Metals Ltd., 1 999 (2 ) A rb . L R 4 0 5 (B om .).
4. 1 9 9 9 (2 ) A rb . L R 54 (B o m .).
5. A I R 2 0 0 7 S C 1491.
278 THE ARBITRATION A N D CONCILIATION ACT, 1996

award directly under Section 37(2)(a) of the Act, is not maintainable.

(iii) Revision application is not maintainable against appellate
order
In Shyam Sunder Agarwal & Co. v. Union o f India,1 the Apex Court
has held that Part I does not contemplate any revision of the appellate order
under Section 37 of the Act, 1996. In view of the bar contained in Section 5,
a revisional application before the High Court against the appellate order
passed under Section 37 is not maintainable.
(iv) No second appeal would lie against order passed under Section
37
Since a second appeal from an appellate order under Section 37 is
expressly barred, Letters Patent Appeal from an appellate order passed
under Section 37 before a Division Bench of the High Court, it is no
exception to such bar on a second appeal.2 Though, no second appeal would
lie from an appellate order passed under Section 37 of the Act, 1996. But,
no statute is capable to take away the right to appeal to the Supreme Court,
as this jurisdiction has been conferred on the Supreme Court by the
Constitution of India, 1950.3 Thus an appeal may be maintainable from an
appellate order before the Supreme Court.
(v) Section 37(3) bars only a second appeal and not revision
In I.T.I. Ltd. v. Siemens Public Communication Network Ltd. ,4 the
Supreme Court considered whether the order passed under Section 37 is
revisable? It has been held that an appellate order passed by a Court under
Section 37 is revisable by the High Court under Section 115 of the Code of
Civil Procedure, 1908. The Court made it clear that Section 37(3) bars only
a second appeal and not revision. Merely because the new Act, 1996 has not
provided about the Code of Civil Procedure being applicable, an inference
cannot be drawn that Civil Procedure Code is inapplicable to the proceedings
under the Act. The power of revision under Section 115 of the Code cannot
be readily inferred to have been excluded by the provisions of a Special Act
unless such exclusion is clearly expressed by the Act. This decision of the
Supreme Court has been affirmed in Nirma Ltd. v. Lungi Lent Jes
Energietecnik G m bhf
In terms of similarity of reasoning a revision under Section 115 of the
Code would also lie from a non-appealable original order, if passed by a
Court under the provisions of the present Arbitration and Conciliation Act,
1996.
(vi) No appeal is maintainable as appeal from appellate order
The Gujarat High Court in Sundaram Finance Ltd., Chennai v. Govind
Swarup Mittal ,6 wherein the first appellant challenged the arbitral award by
1. AIR 1996 SC 1321.
2. Union of India v. Mohindra Supply Co., AIR 1962 SC 256.
3. Kanpur Nagar Palika v. Narain Das, AIR 1964 All. 25; Union of India v. Nalini Ranjan,
AIR 1955 Cal. 257.
4. 2002 Arb. VVLJ 600 (SC).
5. 2002 Arb. LR 30 (SC).
6. AIR 1999 Guj. 74.
ARBITRATION 279

way of filing application (Civil Misc.) in the city civil court allowed the said
application and set aside the award of sole arbitrator. In this appeal the said
decision of the trial court was under challenge by virtue of the provision in
Section 37(l)(b) of the Act, 1996.
The Court observed as under :—
"The effect of the provision contained in Section 3 would be that
an application under Section 34 for setting aside the arbitral award
must be treated as a substantive proceeding so far as the rights of the
parties to the award are concerned. Such proceedings are required to
be undertaken before the civil court of principal original jurisdiction as
defined under Section 2(e) of the Act, It is obvious , that in an appeal
from order, right o f the parties would be limited whereas in first
appeal, rights of the parties would be better and longer in nature." It
has been held that the appeal, which has been filed by the present
appellant, cannot be said to be maintainable as appeal from order i.e.,
from appellate order.
(vii) Appeal under Article 136 of the Constitution of India, 1950 is
ordinarily not maintainable
In M/s. I.T.l. Ltd. v, M/s. Siemens Public Communication Network
Ltd.,1 the Apex Court held that the supervisory jurisdiction to be exercised
by the High Court under Section 115 of the Code of Civil Procedure, 1908 is
for the purpose of correcting jurisdictional error, if any, committed by a
sub-ordinate Court in exercise of power in appeal under Section 37(2) of the
Arbitration and Conciliation Act, 1996. The approach made to the Revisional
Court under Section 115 of the said Code is not a resort to remedy of appeal.
The Apex Court was of the view that in appeal, interference can be made
both on facts and law whereas in revision only errors relating to jurisdiction
can be corrected. Such revisional remedy is not expressly barred by the
provisions of the Act, 1996. The Apex Court did not find any implied
exclusion of the same on examination of the scheme and relevant provisions
of the Act, 1996.
In the present case the Apex Court further held that a revision under
Section 115 of the Code lies to the High Court as against an order made by
a Civil Court in an appeal under Section 37(2) of the Act, 1S96. Such a
remedy by way of revision is an alternate and efficacious remedy. Hence,
direct appeal under Article 136 of the Constitution of India is ordinarily not
maintainable.
(viii) No interference under Article 136 of the Constitution of
India—When the order is appealable
The Supreme Court in Mulkraj Chhabra & others v. New Kenilworth
Hotels Ltd. & another,2 has held that the impugned order passed under the
Arbitration and Conciliation Act, 1996 is admittedly appealable before a
Division Bench of the High Court under Section 37 of the said Act, hence no
interference is warranted under Article 136 of the Constitution of India,
1950.

1. 2002 (4) Supreme 444 (SC).

2. 2001 (4) Supreme 127 (SC).
280 THE ARBITRATION A N D CONCILIATION ACT, 1996

(ix) Power of Arbitral Tribunal to award interest

The Supreme Court in Krishna Bhagya Jala Nigam Ltd. v. G.
Harishchandra Reddy and another,1 has held that awarding interim @ 18%
for pre-arbitration, pendente lite and post-arbitral award period is not
proper, as interest rate has gone down after economic reforms. Hence, rate
of interest is liable to be reduced, ‘although the arbitral tribunal is
empowered to award interest besides arbitral award.
(x) Filing of direct appeal under Section 37—Not permissible
The Apex Court in National Thermal Power Corporation Ltd. v.
Siemens Atkeingesells Chaft,2 ruled that an appeal under Section 37(2) of the
Act only lies if there is an order passed under Section 16(2) and (3) of the
Act. Section 16(2) and (3) deals 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 o f 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 counterclaim had already been
settled in minutes of meeting and it was recorded that no other issues to be
resolved in contracts. Therefore, no 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 was opposed. If any grievance was
there, that should have been by the respondent and not by the appellant. It
is only the finding of fact recorded by the Tribunal after considering the
counterclaim vis-a-vis the minutes of meeting. Therefore, there was no
question of jurisdiction involved in the matter so as to enable the appellant
to approach the High Court directly.
The Apex Court was of the view that finding of fact recorded by the
Tribunal that all the counterclaims stood covered by the decisions o f the
minutes of meeting though it was initially opposed by the respondent that
it was not arbitrable or tribunal could not go into counterclaim despite that
it examined on the merit of the matter and on the merits the Tribunal
disposed of the counterclaim by giving parties award. The appellant thus,
cannot raise the question of jurisdiction and bring its case under Section
16(2) and (3) of the Act.
Hence, filing direct appeal under Section 37 is not permissible, as no
question o f jurisdiction arises in the matter.
(xi) Plea that there is no arbitration clause— cannot be raised by
the principal
In Krishna Bhagya Jala Nigam Ltd. v. Harishchandra Reddy &
another,3 where plea of "no arbitration clause" was not raised in the written
statement filed by Jala Nigam before the arbitrator. The said plea was not
advanced before the Civil Court in arbitration case. On contrary both the

1. AIR 2007 SC 817.

2. AIR 2007 SC 1491.
3. AIR 2007 SC 817.
ARBITRATION 281

Courts below on facts have found that Jala Nigam had consented to the
arbitration of the disputes by the Chief Engineer, Jala Nigam had
participated in arbitral proceedings. It submitted itself to the authority of
the arbitration. It gave consent to the appointment of the Chief Engineer as
an arbitrator. It filed its written statement to the additional claims made by
the contractor. The Executive Engineer who appeared on behalf of Jala
Nigam did not invoke Section 16 of the Arbitration Act. He did not challenge
the competence of the arbitral tribunal to rule on its jurisdiction. On the
contrary, it submitted to the jurisdiction of the arbitral tribunal. It also filed
written statement. It has been held by the Supreme Court that in the
present case appellant Jala Nigam cannot be permitted to raise new plea in
the First Appeal that there was no arbitration clause in the agreement as it
is not tenable.
(xii) Appeal against Arbitral Tribunal is not maintainable in the
High Court
According to the Division Bench of the Allahabad High Court an appeal
is not maintainable in the High Court against an order passed by the
Arbitral Tribunal under Section 16(2) or 16(3) of the Arbitration and
Conciliation Act, 1996.
Interpreting the provisions of Section 37 of the Act the Bench ruled
that the High Court is not a principal Civil Court of original jurisdiction
(herein Uttar Pradesh). The Court said that against an order passed by
Arbitral Tribunal, appeal would lie in principal Civil Court of original
jurisdiction in a district and not in the High Court, which does not have
ordinary original civil jurisdiction.
The Bench gave this ruling on an appeal filed by M/s. Rampal Singh
Mukhtar Ahmad against the order passed by the Arbitral Tribunal. The
Counsel appearing for the appellant had argued that under Section 37 of the
Act the appeal is maintainable only in the High Court against an order
passed by the Arbitral Tribunal under Section 16(2) or 16(3) of the Act and
not in the principal Civil Court o f original jurisdiction. The court in view of
above observation dismissed the appeal, holding the appeal in the High
Court is not maintainable.1
(xiii) Order passed under Section 8—Not appealable under Clause
15 of the Letters Patent
The Division Bench of Calcutta High Court in Kotak Mahindra
Investment Ltd. v. Kitply Industries Ltd. & another,2 observed that the
Arbitration and Conciliation Act, 1996 is special and comprehensive statute
and it must be read as enactment within meaning of Clause 44 of Letters
Patent. Section 37 of the said Act providing for category of appealable orders
provides for express prohibition with words and from no others." Hence, in
case of express prohibition in matter of maintainability Clause 15 would not
come to rescure litigant. Any order passed under Section 8 of the Arbitration
and Conciliation Act, 1996 not appealable under Clause 15 of Letters Patent.

1. As reported in English daily newspaper "Times of India", dated 10-4-2007.

2. AIR 2012 Cal. 24 (DB).
282 THE ARBITRATION A N D CONCILIATION ACT, 1996

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.
COMMENTS
This section is not modelled on the Model Law.
Section 38 provides power to the arbitral tribunal for the fixation of the
costs of an arbitration.
Section 38(1) deals with power given to the arbitral tribunal to fix the
amount of the deposit or supplementary deposit and also under Section 31(8)
of the Act, 1996 an approximate amount of the costs as an advance in
respect of the claim or counter-claim submitted to the arbitral tribunal. '
It is provided that in case of supplementary claim or counter-claim
submitted to the arbitral tribunal other than primary claim or counter-claim,
the arbitral tribunal may fix separate amount of deposit in respect of such
claim or counter-claim. The tribunal may fix lump-sum amount o f costs
altogether to be deposited either jointly or separately.
Section 38(2) provides that deposit is to be paid in equal shares by the
parties, however, if one party fails to pay his share of deposit the other party
may be ordered to pay the share of that party, i.e., the defaulting party.
However, under any circumstance as such if one party refused to pay the
share of the defaulting party, in such a case the arbitral tribunal is
permitted to exercise its discretionary power to suspend or terminate the
arbitral proceedings but only in respect of such claim or counter-claim.
Thus, the arbitral tribunal has discretionary power to make sure that
fixed payment of deposit is made.
ARBITRATION 283

Section 38(3) provides that when under Section 33 and Section 34 the
arbitral proceeding is terminated, in such a case the arbitral tribunal is
statutorily obliged to furnish an accounting of deposits to the parties, that
how much money as deposits has been received and spent and to make sure
that any unexpended balance is returned to the party or parties, as the case
may be.
Voluntary mode of payment of fees acceptable
Regarding the question of arbitrator’s fees the Apex Court in Jeewan
Industries v. Hali Bawhhauddin,1 observed that it would be convenient to
all concerned if the Central Government takes appropriate steps and
prescribes a Model scale of fees payable to arbitrators, such model scale will
provide guidelines regarding the payment of the arbitrator’s fees. In the
present case the court held that "the voluntary mode of payment of
arbitrator’s fees is an accepted mode if there is no objection in this regard
or there is no bias against any party including the arbitrator.
It is to be noted that for the purpose of deposits, costs, fees and
expenses etc. relating to arbitration, Rules 27, 28, 29 and 30 of the Indian
Council of Arbitration Rules, 1998 may be referred to, which are as
follows :—
Deposits
"Rule 27 : The Registrar may require the Parties before passing the
case on to the arbitrators under Rule 27, to deposit in advance in one or
more instalments such sums of money as he deems necessary to defray
expenses o f the arbitration including the administrative charges and
arbitrator’s fee. As a general rule, the deposits shall be called for in equal
shares from the claimant(s) and the Respondent(s). The arbitral tribunal
may, during the course of the arbitration proceedings or in the arbitration
award, require further sums to be deposited by the parties or anyone of
them to meet the expenses of the arbitration. When one of the parties
neglects or refuses to make the deposit, the Registrar or the arbitral
tribunal, as the case may be, may require such deposit whether in relation
to a claim or a counter-claim to be made by the other party to the dispute
(Claimant or Respondent as the case may be). Should the whole or part of
the deposit be not made by the parties or any one o f them, the Registrar
shall inform the parties or the party concerned that the claim or
counter-claim, as the case may be, will not be the subject-matter of the
reference. The arbitral tribunal shall proceed only in respect of those claims
or counter-claims for which the deposits have been duly paid to the Council
and otherwise may order the suspension or termination of the arbitral
proceedings.
The deposits made shall be taken into account by the arbitral tribunal
in apportioning the cost while making the award. Any deposit made in
excess shall be refunded to such of the parties as the arbitral tribunal may
direct.
The arbitral tribunal shall have a lien for the arbitral award on any
unpaid cost of the arbitration.

1. AIR 1975 Del. 215.

284 THE ARBITRATION A N D CONCILIATION ACT, 1996

Fees and Expenses

Rule 28 : The arbitral tribunal shall be entitled to allow fees and
expenses of witnesses, expenses connected with the selection and carriage of
sample and examination of goods, Licensed Measure’s Department charges,
conveyance, hire, cost of legal or technical advice or proceedings in respect
of any matter arising out of the arbitration incurred by the arbitration
tribunal, and any other incidental expenses and charges in connection with
or arising out of the reference or award as the arbitration tribunal shall, in
its absolute discretion, think fit.
Rule 29 : The cost of the reference and the award including charges,
fees and other expenses shall be in the discretion of the arbitral tribunal,
which may direct to and by whom, and in what proportion, such charges,
fees and other expenses and any part thereof shall be borne and paid, and
may fix and settle the amount of costs to be so paid by any party thereof
and may award costs to be paid as between solicitor and client. In the event,
any administrative fees and expenses are due to the Council, the arbitral
tribunal may award them in favour of the Council."
Rule 30 of the Indian Council of Arbitration provides the fees, costs
and expenses which are incidental to the arbitration, this rule deals with
these items under various heads such as registration fee and administrative
etc.
Thus, arbitration process has to be governed by the Indian Council of
Arbitration Rules, 1998.
Section 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 hen 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 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.
ARBITRATION 285

COMMENTS
Lien on arbitral award and deposits in respect of the costs is not
contained in the Model Law.
Section 39 deals with the unpaid costs of the arbitration. This section
is analogous to Section 38 of the Act, 1940, except sub-section (1). '
Section 39(1) provides a lien to the arbitral tribunal, if the costs of the
arbitration is not paid, however such a lien is subject to provision contained
in sub-section (2). For the purpose o f this Section the meaning of the costs
is provided in explanation to Section 31(8) of the Act, 1996.
Section 39(2) provides that in case arbitral tribunal refuses to declare
the award due to non-payment of the costs as demanded by it the party may
file an application before the court seeking delivery o f the award on payment
o f costs demanded to the court. In this respect the Court may order the
arbitral tribunal to deliver the award and the court may also order an
inquiry in this regard. However, if the Court considers it appropriate it may
order that the money so paid into court shall be paid to the arbitral tribunal
as the costs for the arbitration. The balance of the money, i f any, shall be
returned to the applicant.
Section 39(3) provides that if, an application is made under sub-section
(2), the arbitral tribunal is entitled to appear and also to an opportunity of
being heard before the court on any such application where the fees
demanded have been fixed by written agreement between him and the
arbitral tribunal.
Section 39(4) provides the power to the court that in the absence of
proper and sufficiently reasonable provisions in the arbitral award, if the
question arises in respect of costs of the arbitration, the court may regard
such costs of the arbitration and pass order accordingly, as it thinks fit.
Thus, a reasonable cost of the arbitration is payable by the party
concerned under sub-section (4).
(i) Either party opposing the lien of arbitrator or arbitral award
Section 39(3) of the new Act, 1996 provides that "an application under
Section 39(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." Further, Section 39(1) provides that the arbitral tribunal shall
have a lien on the arbitral award for any unpaid costs o f the arbitration.
Wherein either party or both the parties filed an application opposing the
lien of arbitrator on award, it was held that the arbitral tribunal is entitled
to be heard before passing of an order.1 It seems that Section 37(3) of the
Act makes provision in respect of the arbitrator/arbitrators to appear in
person before the court to justify its lien on the award.
(ii) Discretion must be exercised judicially
Under Section 39 the fixation of the costs or fees is the discretionary
power of the arbitrator, but it has been held by the Privy Council that this
discretion must be exercised fairly and judicially.2
1. Government o f Cylon v. Chandries, (1963) 2 All ER 1.
2. Mohammed Akbar v. Attar Singh, AIR 1945 PC 170.
286 THE ARBITRATION AND CONCILIATION ACT, 1996

Section 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 in respect
of the deceased or in respect of 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.
COMMENTS
This section is not modelled on the Model Law, although it is analogous
to Section 6 of the Arbitration Act, 1940.
Section 40 deals with the event of the death of any party in an
arbitration agreement.
Section 40(1) provides that any party shall not be discharged by the
death, in an arbitral agreement and in such cases an arbitral agreement
shall be enforced against the legal representative of the deceased. The
expression "legal representative" is defined in Section 2(1) o f the Act, 1996.
In Partnership agreement which contained an arbitration clause due to
death of the partner, the partnership is automatically dissolved, but under
the Arbitration Act, 1996 the right of legal representative would come into
effect so to make an application in this regard as provided in the arbitration
clause.1
It is clear that under Section 40(1) the death of any party will not
discharge him in the arbitration agreement, but then an arbitration
agreement shall be enforceable by the deceased’s legal representative or
against the legal representative of a deceased. However, if there is an
arbitration agreement as such that the right of a party shall be extinguished
on death of that party, in this situation the arbitration agreement is not
enforceable by the legal representative of the deceased party or against the
legal representative of the deceased by the other party.
A legal representative, whether he is bound by such an agreement or
not, would depend upon the contents of the subject-matter of agreement,
whether the rights given are purely personal or as survivor in respect of the
legal representative.2
When the hearing has concluded and one of the parties dies, all his
legal representatives are brought on the record and made parties to the
reference. This can be done by giving notice to them where the reference is
not through court and where a proceeding for substitution of legal
representative is not necessary.3
Section 40(2) provides that the death of any party, who has appointed

1. Sundar Lai Haweliwala v. Smt. Bhaguiati D evi , AIR 1967 All 400.
2. Ramji Ram v. Saligi Ram, 14 C U 188.
^ Tirath Lai Day v. Bhuwan Moyee Das , AIR 1949 FC 195.
ARBITRATION 287

an arbitrator, the authority of that arbitrator shall not be revoked, due to

death of a party who has appointed him. Thus, once an arbitrator is
appointed, he becomes an independent authority in every respect, even, on
the death of party who appointed him.
Section 40(3) provides that this sub-section (3) does not affect the
operation of the provisions contained in sub-sections (1) and (2), where the
right of action is to be extinguished by the death of a person in an
arbitration agreement. Some examples where the right of action is
extinguished by the death of a person are as follows :—
1. Right of pre-emption.
2. Right of office.
3. Suit of damages for breach of bethrotal.
4. Right of damages for defamation.
5. Suit for injunction.
6. Right of damages for malicious prosecution.
7. Suit of damagds for malicious search.
8. Suit of damages for wrongful arrest. »
Reference would continue on the death of party
As provided under Section 40 of the Act, 1996, on the death of party
arbitral proceedings will survive according to the terms of the agreement.
This provision is equally applicable to all the parties in arbitration. In fact,
their legal representatives will be brought on record and arbitral proceedings
will continue as per the terms contained in the arbitration agreement. In
Tirath Lai Day v. Smt. Bhuwan Moyee Dasi,1 the then Federal Court
observed that on the death of party the arbitrator is under obligation to
serve notice upon the legal representative o f the deceased party to appear in
the arbitration proceedings and reference will continue. If there is no service
of notice upon such legal representatives the arbitral award will not be
binding on such legal representative.
Wherein during the course of arbitral proceedings the death of a party
takes place, all the legal representatives who are bound by the arbitral
award will be entitled to be given opportunity to put up their case. Failure
to serve such notice will not bind them by the award.2
It is submitted that on the death of party the serving of notice upon
the legal representative is a mandatory requirement and in case of
non-compliance o f the same, award will not be binding on the legal
representatives.
Section 41. Provision in ease of insolvency.—(1) Where it
is provided by a term in a contract to which an insolvent is a party
that any dispute arising out there 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,
1. AIR 1949 FC 195.
2. Bhinayak Das Acharjee Choudhry v. Bhushan Choudhry, AIR 1922 Cal. 226.
290 THE ARBITRATION A N D CONCILIATION ACT, 1996

such.
As no exemption is permitted under Section 42. of the Act, so, the
jurisdiction in cases against Government is in no way an exception.
The Assam High Court has observed in Pratap Chandra Biswas v.
Union o f India,1 that "to say that the Government is not carrying on
business for the purpose o f Section 20 of the Code of Civil Procedure, or
Clause 12 of Letters Patent, even when actually it is engaged in the
business of transport, is to introduce a legal fiction into the case.
However, the Supreme Court in Union o f India v. Ladulal Jain,2 while
upholding the judgment of the Assam High Court has held that :
"The expressions, ‘voluntarily resides or personally works for gain’
as occurred in Section 20 of the said Code ■cannot be appropriately
applied to the case of the Government. The Government can, however,
carry on business. The mere fact that the expression ‘carries on
business’ in Section 20 of the Code is used alongwith the other does not
mean that it would apply only to such persons to whom other two
expressions regarding residence or of personally working for gain would
apply.
Thus, the Union of India carries on the business o f running railways
and the Union Government can be sued in Court within whose territorial
jurisdiction the headquarters of the railway is situate. The Union o f India is
a corporation within the meaning of Explanation II o f Section 20 of the
Code. While operating the railway the Union of India carries on business.
In the view of the Supreme Court’s ruling the Union of India carries
on the business of running railways and can be sued in the Court of the
subordinate judge o f Gauhati within whose territorial jurisdiction the
headquarters of one of the railways run by Union is situated.
(i) Place of execution of agreement is a deciding factor
Wherein not only the acceptance was complete as against the petitioner
in Jaipur when the letter dated 17-11-1987 was communicated to the
petitioner and admittedly formal agreement between the parties was
executed in Jaipur. It was held that the Jaipur Courts will have the
Jurisdiction to try the suit in absence of any contrary clause in the
agreement.3 In the present case under the agreement the parties had agreed
to give exclusive jurisdiction to the courts at Jaipur.
Thus, the place where the agreement is entered into that court will
have jurisdiction. In Topper International Asia Pvt. Ltd. v. Thapan Ispat
Ltd.,4 the’ Bombay High Court observed—If the contract is said to have been
finalised only after both parties had signed, then it is clear that only one of
the parties signed at Ludhiana and the other signed it in Bombay only after
it was received in Bombay. Looking at it either way, it can be said that the
contract was entered into at Bombay and that the Bombay High Court has
jurisdiction to entertain the petition.

1. AIR 1956 Assam 85.

2. AIR 1963 SC 1681.
3. Sunder Builders v. State o f Rajasthan, AIR 1999 Del. 209.
4. (1999) 101(2) Bom. LR 890 (Bom.).
ARBITRATION 291

(ii) Courts cannot clothe themselves with jurisdiction

In Atul R. Shah v. V. Vrijlal Lalloobhai & Co.,1 the Bombay High
Court observed that courts cannot confer jurisdiction on themselves, by
consent o f the parties and clothe themselves with jurisdiction. A court
without jurisdiction merely on account of non-objection by the parties cannot
assume jurisdiction itself. The same is also true of arbitral tribunal—Under
tne new Act, 1996 no procedure has been fixed to be followed by the
tribunal. The arbitral tribunal can follow its own rules. However, procedure
adopted must be fair so as to enable the parties to present their case.
(iii) Cause of action does not confer jurisdiction
In Union o f India v. P. Anantharaman,2 it has been held that the ‘situs’
of cause of action will alone confer jurisdiction on the court in the arbitration
matters. The place of arbitration is determined on the basis of willingness
and convenience of the parties. It is not necessary that the place where the
contract was executed will have jurisdiction because the parties are free to
choose a venue of arbitration far away from the place of execution of
contract.
The court in whose jurisdiction the part of cause of action arose in an
arbitration dispute shall have jurisdiction to determine the validity of the
arbitral award.3
(iv) Scope of'Section 42
It is to be noted that Section 42 seeks to ensure that all matters arising
out of an arbitration are decided by one and the same court. Wherein an
application with respect to an arbitration agreement is made in a court, then
that court alone can exercise jurisdiction over the arbitral proceedings and
all subsequent applications arising out of the arbitration agreement.4
(v) C o n tin u ed ju ris d ic tio n of the a rb itra to r
The Apex Court in Construction India v. Secretary, Works Department,
Government o f Orissa,5 observed that the jurisdiction which is conferred on
an arbitrator is on account of the consent of the parties to the arbitration
agreement. Before the arbitrator, the objection as to jurisdiction of the
arbitrator was withdrawn by the respondents. It shows acquiescence on the
part of the respondents in the continued jurisdiction of the arbitrator to
decide the dispute. The minutes recorded show that after raising the
objection the respondents have withdrawn the same. It was held that this
would indicate a conscious acquiescence on the part of the respondents- in
the continued jurisdiction of the arbitrator.
(vi) Jurisdiction of Court— Setting aside of award
It is settled that the High Court’s exercising extraordinary jurisdiction
under Articles 226 or 227 o f the Constitution of India, 1950 does not come
within the purview of Section 2(e) of the Arbitration and Conciliation Act,
1996 which defines the expression "Court".
1. AIR 1999 Bom. 67.
2. 1991(1) MLJ 286 (Mad.).
3. ABC Laminari v. A.P. Agencies, AIR 1989 SC 1239.
4. Kumbha Mawji v. Dominion o f India, AIR 1953 SC 313.
5. AIR 1998 SC 717 : 1998(1) Arb. LR 127.
292 THE ARBITRATION AND CONCILIATION ACT, 1996

The Rajasthan High Court in M/s. Godara Construction Company v.

The State o f Rajasthan,1 observed that Section 42 of the Act, 1996 refers to
any application made to a Court under Part I of the Act. In this context, this
clause can be invoked only on fulfilment of condition referred to therein.
Firstly, an application must have been made under Part I of the Act of
1996.
Secondly, such application must have been made to a Court.
Obviously, in the context, the Court to which reference is made under
Section 42 of the Act, 1996 ought to be a Court as defined under Section 2(e)
of the Act. It was held that the High Court exercising extraordinary
jurisdiction under Article 226 or 227 of the Constitution does not come
within its purview. Therefore, any plea raised by way of claim or defence in
proceeding under extraordinary jurisdiction cannot bring Section 42 of the
Act, 1996 into operation.
Section 43. Limitations.—(1) The Limitation Act, 1963 (36 of
1963), shall apply to arbitrations as it applies to proceeding 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.
COMMENTS
Section 43 is not based on the Model Law, however, it is analogous to
certain extent, with certain changes to Section 37 of the Arbitration Act,
1940. But, sub-section (2) of Section 37 of the Arbitration Act, 1940 is
completely omitted.
Section 43(1) provides that for the purposes of Part I, arbitral
proceedings are similar to court proceedings, therefore, the Limitation Act,
1963 shall apply to arbitration proceedings as they apply to proceedings in
Court.
The Supreme Court has held that the order in respect of particular

1. AIR 2004 Raj. 66.

ARBITRATION 293

dispute the arbitrator is bound to apply Limitation Act which is necessary

in such claim.1
Section 43(2) states that an arbitration shall be deemed to have
commenced on the date referred to in Section 21 as commencement o f the
arbitral proceedings. Such, determination of date of commencement is for the
purposes o f not only this section but also of the Limitation Act, 1963 in
respect of the particular dispute only.
When, under any agreement between the parties, each party has to
appoint an arbitrator, then in such a case the commencement of arbitration
shall be taken from the moment, when the party intimates to the other
party in respect of such appointment, however he expects from the other
party that either he appoints his arbitrator or accepts appointed arbitrator
as a sole arbitrator by the party.2 The intimation, under the provisions of
this sub-section (2) is mandatory.
Section 43(3) provides power to the court to grant extension of time to
a period which, the court considers proper and reasonable to meet the ends
of justice in respect of the particular matter. The statutory ground for such
extension o f time provided under this ^sub-section is "undue hardship" if, it
is likely to cause to the party seeking relief under sub-section (3), the court
would grant extension as such.
However, such extension of time may be granted either before or after
expiry of the time fixed by the agreement or after that.
The word "undue" in "undue hardship" was explained by the Supreme
Court in Sterling General Insurance Company v. Planters Airways,3 that the
word "undue" in "undue hardship" means something which is not permitted
by the conduct of the claimant or is very much disproportionate to it.
Section 43(4) provides that where an award happens to be set aside by
the court, the period between the commencement of the arbitration and the
date o f the order of the court setting aside the award has to be excluded in
computing the period of limitation for the commencement of fresh
proceedings, including arbitral proceedings with respect to the dispute
submitted.
The Rajasthan High Court has explained the meaning of the word
"court" for the purpose of sub-section (4) the Court said that "The word
‘Court’ in this sub-section includes the appellate Court and the plaintiff is
entitled to the deduction of the period taken by him in filing appeal."4 ,
However, sub-section (4) applies not only to suit but also to
applications. In computing the period of limitation for bringing the legal
representatives under Order XXII, Rule 4 of C.P.C. the period between the
commencement o f the arbitration and the date of the order of the court
superseding the order of reference should be excluded under this sub-section.
(i) Failure to file application within three years— Suits time barred
In view of the provision in Section 37(1) of the Arbitration Act, 1940

1. Wazir Chand v. Union o f India, AIR 1967 SC 990.

2. Mohraj Singh v. Valcon Insurance Co., AIR 1972 Del 182.
3. (1975) 1 SCC 603.
4. Bobuial v. Ram Swarup, AIR 1960 Raj 240.
 294 THE ARBITRATION A N D CONCILIATION ACT, 1996

(now 43), Article 137 of the Limitation Act, 1963 will govern the suits which
in substance and in reality are applications made under Section 20 of the
Arbitration Act. Article 137 o f the Limitation Act, provides that an
application for which no period of limitation is provided elsewhere in the
Second Division c f the Schedule application to the Second Division of the
Schedule to the Limitation Act, 1963 may be made within three years from
the date when the right to sue accrued. In the present suits right to make
the application to the Court under Section 20 of the Arbitration Act, 1940,
became extinct on account of the bar of limitation after 6th o f December,
1969. The present suits which are applications under Section 20 of the
Arbitration Act were filed in 1974. It is, therefore, clear that by virtue of the
provisions of Section 37(1) of the Arbitration Act read with Article 137 of the
Limitation Act, 1963, the present suits were barred.1
• (ii) Expressions "undue" in "undue hardship"—Meaning of
The power conferred under sub-section (3) of Section 43 can be
exercised only where the court considers that in the circumstances of the
case "undue hardship" would be caused if such extension is not given. It can
be exercised by the court either before the expiry of the time fixed by the
agreement or thereafter. The expressions "undue" in "undue hardship"
means something which is not merited by the conduct of the claimant or is
very much disproportionate to it.2
(iii) Expression "Court"—Meaning of
The expression "Court" as occurring in sub-section (4) of Section 43
includes the appellate court and the plaintiff is entitled to the deduction of
the period taken by him in filing the appeal.3
(iv) Period of limitation runs from the date of cause of arbitration
The Apex Court in Panchu Gopal Bose v. Board o f Trustees for Port o f
Calcutta,4 observed as under :—
"The period of limitation for commencing an arbitration runs from
the date on which the cause of arbitration accrued, that is to say, from
the date when the claimant first acquired either a right of action or a
right to require that an arbitration takes place upon the dispute
concerned. Therefore, the period of limitation for the commencement of
an arbitration runs from the date on which, had there been no
arbitration clause, the cause of action would have accrued. Just as in
the case of actions the claim is not to he brought after the expiration
o f a specified number of years from the date on which the cause of
action accrued. So in the case of arbitration, the claim is not to be put
forward after the expiration o f the specified number o f years from the
date when the claim accrued."
Thus, the date on which the cause of arbitration accrued, the period of
limitation begins to run.

1. Union o f India v. M/s. Harshadray Jayanti Lai & Co., 1979 Guj. LR 387.
2. Sterling General Insurance Co. v. Planters Airways, 1975 (1) SCO 603.
3. Babulal v. Ram Swarup, AIR 1960 Raj. 240.
4. AIR 1994 SC 1615.
ARBITRATION 295

Also, in Inder Singh Rakhi v. Delhi Development Authority/ the

Supreme Court observed that "it is true that the party cannot postpone the
accrual of cause of action by reminders or sending reminders but where the
bill had not been fully prepared, the claim made by a claimant is the accrual
of the cause of action. A dispute arises where there is a claim and denial
and repudiation of the claim."
Once the cause of arbitration arose the commencement of period of
limitation could not be stopped by doing unilateral unwarranted
correspondence.
In State o f Orissa v. Damodar Das.2 the Supreme Court has held that
Section 3 of the Limitation Act, 1963 enjoins the court to consider the
question of limitation whether it is pleaded or not. The court citing Russell3
on arbitration observed as under—
"That the period of limitation for commencing an arbitration runs
from the date on which the "cause of arbitration" accrued that is to say,.
from the date when the claimant first acquired either alright of action
or a right to require that an arbitration takes place upon the dispute
concerned. The period of limitation for the commencement of an
arbitration runs from the date on which, had there been no arbitration
clause, the cause of action would have accrued.
Even if there is no limitation period in the arbitration clause if the
cause of arbitration accrued, it would begin to rim. Whether this lacuna in
the arbitration clause is deliberate or not, but no one can be permitted to
take advantage of one’s own wrong.
In M.K. Shah Engineers & Contractors v. State o f MJ3. ,4 it has been
held that the respondent— State of M.P. cannot and could not have been
heard to plead denial of the two appellant’s right to seek reference to
arbitration for non-compliance with earlier part of arbitration clause. In the
present case the court observed that "such reference to arbitration is
required to be preceded by a decision of the Superintending Engineer and a
challenge to such decision within 28 days by the party feeling aggrieved
therewith. The steps preceding the coming into operation of the arbitration
clause though essentials are capable of being waived and if one party has by
its own conduct of its officials disabled such preceding steps being taken, it
will be deemed that the procedural prerequisites were waived. The party at
fault cannot be permitted to set up the bar for non-performance of
prerequisite obligation so as to exclude the applicability and operation of the
arbitration clause."
Thus, a party cannot be allowed to take advantage on account of
non-performance of certain preconditions so as to declare arbitration clause
time barred. The consequences of the expiry of a contractual limitation
period before the completion of the specific act may however be avoided in
three circumstances :—
(1) If the court exercises its discretion statutorily conferred on it, to

1. AIR 1988 SC 1007.

2. AIR 1996 SC 942.
3. By Anthony Walton, 19th Edn., p. 45.
4. AIR 1999 SC 950.
296 THE ARBITRATION A N D CONCILIATION ACT, 1996

extend the period to avoid undue hardship.

(2) If the arbitration clause confers a discretion on the arbitrator to
extend the period and he exercises it.
(3) I f the conduct of the either party precludes his relying on the time
bar against the claimant. (In the Halsbury’s Law of England 4th
Edn. Vol. 2, p. 365).
(v) Applicability of the Limitation Act, 1963
Article 137 of the Limitation Act is applicable to arbitration cases. But
wherein the State enactment of arbitration does not provide any provision
dealing with the time limit for arbitration nor provision for applicability of
the Limitation Act in arbitration, the provisions of Article 137 o f the
Schedule of Limitation Act, 1963 would not be applied. In view to support
this point the case of Dudani Brothers v. State o f Madhya Pradesh/ is
significant. The question taken up in this case was whether a reference
petition before the M.P. Arbitral Tribunal under the M.P. Madhyastham
Adhikaram Adhiniyam, 1983 filed beyond the period of limitation, would
Article 137 of the Schedule of the Limitation Act, 1963 be applied, when
there is no prescribed time limit for filing reference petition under the said
Adhiniyam, 1983. The contention was raised on behalf o f the respondent
that cause o f action arose on 7-12-1982 and in view of Article 137 of the
Schedule of Limitation Act, on 6-12-1985 the three years’ period expired.
Thus, a reference petition filed on 17-12-1988 is time-barred. However, the
petitioner advanced his contention that there is no provision regarding the
time limit in the adhiniyam and also no provision in respect o f applicability
of Limitation Act, hence a reference in question is not time-barred. The
contention of the petitioner was upheld.
In respect of the question regarding applicability of Article 137 of the
Limitation Act, 1963 and limitation prescribed in the clause itself, the Apex
Court in Vulcan Insurance v. Maharaj Singh,2 observed that wherein a
clause in the Insurance Policy providing that "in no case whatever, shall the
company be liable for any loss or damage after the expiry o f 12 months from
the happening of the loss or damage unless the claim is the subject of
pending action or arbitration." The court has held that the clause of
Insurance Policy is valid, legal and Article 137 of the Limitation Act, 1963
will be applicable. The Court held further that the Insurance Company was
well within his right to incorporate a clause prescribing the period of
limitation within which arbitration had to be begun.
It is to be noted that the present Arbitration and Conciliation Act, 1996
does not seek that the reference to the arbitral tribunal to be made through
court and it is within the ambit of the Arbitral Tribunal to determine as to
the matter relating to—
(a) existence or validity of arbitration agreement; and
(b) whether the reference or claim is time-barred.
As an arbitrator derives his authority only from the arbitration
agreement of the parties, thus, claim for arbitration must be made in

1. (1990) 2 Arb. L.R. 74 (MP): see also Wazir Chand v. Union o f India, AIR 1967 SC 990.
2. AIR 1976 SC 287.
ARBITRATION 297

accordance with the provisions of the agreement and within the period of
limitation prescribed therein. Only in absence of time limits in the
agreement, the provisions of Limitation Act may be invoked.
Application seeking extension of time to refer that matter to
arbitration—when can be filed.—According to the Division Bench of
Madras High Court1 the legislature’s intent is clear that an application for
extension o f time under Section 43(3) of the Act could be made even if the
time stipulated under the agreement to refer the matter for arbitration was
over, but the filing of the application should be before making any steps to
commence the arbitral proceedings and not thereafter. The Court when an
application for extension of time is filed, after the period for referring the
matter to arbitration as per the agreement is over and before the
commencement of arbitral proceedings for the purpose o f extension o f time
has to consider, if time is not extended, whether it would cause undue
hardship and whether to grant time or refuse it after taking into
consideration the circumstances in that case. Hence, no question of
consideration of undue hardship would arise when an application was made
after the commencement of arbitral proceedings, and that too, in a case
where the award has actually been passed. The Court was o f the view that
after making a claim before the arbitral proceedings and obtaining an award
on question of limitation, at no stretch of imagination, the appellant could
be allowed to make an application seeking extension of time to refer the
matter to arbitration. In other words it is clear that application for extension
of time could be filed only before commencement of arbitral proceedings and
not subsequently.
(vi) Application of Section 14 of the Limitation Act is not excluded
Section 14 of the Limitation Act, 1963 deals with the exclusion of time
proceeding bona fide in Court without jurisdiction.
In State o f Goa v. Western Builders,2 the Supreme Court observed that
whenever two enactments are overlapping each other on the same area then
the Court should be cautious in interpreting those provisions. It should not
exceed the limit provided by the statute. The extent of exclusion is, however,
really a question o f construction of each particular statute and general
principles applicable are subordinate to the actual words used by the
legislature. Much depends upon the words used in the statute and not
general principles applicable. If two Acts can be read harmoniously without
doing violation to the words used therein, then there is no prohibition in
doing so.
The Arbitration and Conciliation Act, 1996 does not expressly exclude
the applicability of Section 14 of the Limitation Act, 1963. The prohibitory
provision has to be construed strictly. It is true that the Arbitration and
Conciliation Act, 1996 intended to expedite commercial issues, it is also clear
in the Statement o f Objects and Reasons and in order to recognise economic
reforms the settlement of both domestic and international commercial
disputes should be disposed off quickly so that the country’s economic
progress be expedited. The Statement of Objects and Reasons also nowhere
1. Dr. E. Murlidharan v. M ls. Venkataraman & Co. and another, AIR 2009 Mad. 40 (DB).
2. AIR 2006 SC 2525.
298 THE ARBITRATION A N D CONCILIATION ACT, 1996

indicates that Section 14 of the Limitation Act shall be excluded.

(vii) Statutory arbitration—What amounts to
The Bombay High Court in Asha Lata S. Lahoti v. Hira Lai Liladhar,1
has held that arbitration under bye-laws of Bombay Stock Exchange
between a member and member, and even between a member and
non-member, is statutory arbitration.
The Court further held that the provisions of the Indian Limitation Act
do not apply to such statutory arbitration.

1. 1999 (3) Arb. LR 462 (Bom.).

 PART II

E N F O R C E M E N T OF C E R T A I N
FOREIGN AWARDS
INTRODUCTION

With the object to achieve international standard in arbitration law and

to enforce the foreign arbitral awards, the law relating to domestic
arbitration and international commercial arbitration were added, amended
and modified accordingly to suit in order to be effective in regard to the
present global need of arbitration law.
The present enacted law has its origin from various sources. In this
context firstly provisions of the Arbitration (Protocol and Convention) Act,
1937 and secondly, the Foreign Awards (Recognition and. Enforcement) Act,
1961, have been inducted in Part II of Act, 1996 however with certain
deletions and amendments in the Act of 1937 and the Act of 1961, to ensure
and to reflect the provisions enumerated in the Geneva Protocol on
Arbitration Clauses, 1923, the Convention on the Execution of Foreign
Arbitral Award, 1927 and the Recognition and Enforcement of Foreign
Arbitral Awards, 1958.
Thus, Chapter I of Part II with headings "Enforcement of Certain
Foreign Awards" and "New York Convention Awards" respectively were
enacted to incorporate 1961 Act with certain modifications in this regard
are—
(i) Section 45 modifies the provisions of Section 3 of the 1961
Act—to stay of proceedings in respect of matters to be referred to
arbitration, to bring them in line with provisions of Article II (3) of the
New York Convention.
(ii) Section 4(1) of the 1961 Act omitted Section 49 of the Act
which deals with circumstances where the court is satisfied that the
foreign award is enforceable under Chapter I of Part II, the Foreign
Award is considered to be a decree of that Court.
(iii) Filing of Foreign Award in court and court to declare its
judgment accordingly, Sections 5 and 6 of the 1961 Act omitted.
(iv) Section 9(b) of the 1961 Act—Non-application of the 1961 Act
to any award made on an arbitration agreement governed by the law
of India— deleted. This section was subjected to criticism by experts
specially after pronouncement of the Supreme Court o f India in
N.T.P.C. v. Singer Company}
(v) Section 50 of the Act has been inducted to deal with the
matters relating to appeal from certain orders made under Section 45
and Section 48.
1. AIR 1993 SC 998.
( 299 )
300 THE ARBITRATION AND CONCILIATION ACT, 1996

In the same view, Chapter II, the 1937 Act was modified in the
following manner—
(i) Section 3 of the 1937 Act—-Stay of proceedings in respect of
matters to be referred to arbitration has been modified, to make
analogous with provisions of para 4 of the Protocol.
(ii) Section 4(1) of the 1937 Act was omitted. Section 58 of the Act
states that where the court is satisfied that the Foreign award is
enforceable under Chapter II of Part II, shall be considered to be a
decree of that Court.
(iii) Section 5 and Section 6 of the 1937 Act—Filing of Foreign
Award in court and court to declare judgment in accordance with
award—deleted.
(iv) Section 9(b) of the 1937—Non-application of the 1937 Act to
any award made on an arbitration agreement governed by the law of
India— deleted.
(v) Section 59 of the Act has been inducted to make provision for
appeal from certain orders made under Section 54 and Section 57.
Thus Chapter II would be applied, in the matter relating to jurisdiction
of different State parties to the Geneva Convehtion. This Chapter also
applies to where an award is made in foreign country which is a party to
the New York Convention in an arbitration between parties o f the same
nationality or o f different nationalities.

CHAPTER 1

NEW YORK CONVENTION AWARDS

Section 44. Definition.— In th is C h a p te r, u n le s s th e c o n te x t
o th e rw is e re q u ire s , "fo re ig n a w a rd " m e a n s a n a r b itr a l a w a rd o n
d iffe re n c e s b e tw e e n p e rso n s a ris in g o u t o f le g a l re la tio n s h ip s ,
w h e th e r c o n tra c tu a l o r n o t, c o n s id e re d as c o m m e rc ia l u n d e r th e la w
in fo rc e in In d ia , m a d e o n o r a fte r th e 1 1 th d a y o f O c to b e r, 1960—
(a ) in p u rs u a n c e o f a n a g re e m e n t in w r itin g fo r a r b itr a tio n to
w h ic h th e C o n v e n tio n s e t fo r th in th e F ir s t S c h e d u le
a p p lie s , a n d
(b ) in one o f s u c h te r r ito r ie s as th e C e n tra l G o v e rn m e n t, b e in g
s a tis fie d th a t re c ip ro c a l p ro v is io n s h a v e b e e n m a d e m a y , b y
n o tific a tio n in th e O ffic ia l G a z e tte , d e c la re to be te r r ito r ie s
to w h ic h th e s a id C o n v e n tio n a p p lie s .

CO M M EN TS
Section 44 is on the pattern of Article I of the New York Convention
and similar to Section 2 of the 1961 Act which defines a "Foreign Award"
under Chapter I, Part II. The Supreme Court said that this Chapter would
not be applied where the awards are made in foreign countries which are
not parties to the New York Convention.1

1. Ramji Dayawala & Sons v. Invest Import, AIR 1981 SC 2085.

ENFORCEMENT OF CERTAIN FOREIGN AWARDS 301

Chapter I has been incorporated with very broad commercial object to

promote international trade by providing expedious settlement of disputes
relating to international commercial activities and development which is a
global phenomenon of modern time. It is so demanding that it can’t afford
lethargic unsuitable arbitration machinery to settle dispute especially
commercial disputes of international statutes.
In view of the Supreme Court of India the expression "commercial"
should be construed broadly having regard to the manifold activities which
are integral part of international trade today.1
Further, the expression ‘commercial relationship’ contained in opening
paragraph of Section 44 has been explained by the Supreme Court of India
on the basis of the Model Law in R.M. Investments Trading Co. Pvt. Ltd. v.
Boeing Co.2 in the following words—
"The term "commercial" should be given a wide interpretation so
as to cover matters arising from all relationship of a commercial
nature, whether contractual or not; relationships of a commercial
nature include, but are not limited to, the following transactions : any
trade transaction for the supply on exchange o f goods or services :
distribution agreement; commercial representation or agency; factoring;
leasing; construction of works; consulting; engineering; licensing;
investment; financing; banking; insurance; exploitation agreement or
concession; joint venture and other forms o f industrial or business
co-operation; carriage of goods or passengers by air, sea or road.
Thus, according to aforesaid quotation by the Supreme Court any
relationship which is o f commercial nature, is not necessarily to be confined
only to some transaction, because the expression "commercial relationship"
is capable to include a large number of transactions as such, making difficult
to be enumerated for the purpose of the Act in Section 44. To apply under
this section "commercial relationship" must be of commercial nature which
is most essential aspect of relationship to be called "commercial". It is purely
immaterial that such relationship is contractual or not.
In the above cited case, the Supreme Court explained further that "An
agreement between a company in India and a foreign company, where under
the former i.e., R.M. Investment & Trading Co. Pvt. Ltd. agreed to provide
the latter i.e., Boeing Co. with consultant services for promotion of sale of
Boeing aircrafts in India was held to involve commercial relationship within
the meaning of Section 44.
Another expression as contained in Section 44 i.e., "Law in force in
India" in literal sense it means a particular law currently applied in
territory of India, however the Bombay High Court in European Grain and
Shipping v. Bombay Extraction3 case held that the words "law in force in
India" are not intended to mean a particular law specifically enacted for the
purposes of Section 44.
Thus, to deal with the matter relating to particular legal relationship
which is commercial in nature, it does not necessarily mean that it is to be

1. R.M. Investment Trading Co. Pvt. Ltd. v. Boeing Co., AIR 1994 SC 1136, 1140.
2. AIR 1994 SC 1136, 1139-1140.
3. AIR 1983 Bom 45.
302 THE ARBITRATION A N D CONCILIATION ACT, 1996

interpreted and applied through a statutory provision under the law in force
in India.
Clause (a) of Section 44 contains the expression, "An agreement in
writing for arbitration" that means, an agreement should be written to
provide ‘certainty’ in its terms and conditions, so that in case o f exigencies
it can be interpreted to avoid any misunderstanding which may be a cause
of such disputes. According to Article 11(2) of the New York Convention, an
arbitration "in writing" may be either signed by the parties or contained in
an exchange of letters or telegrams. That also means that the parties to an
arbitration agreement in writing are not required to be physically present
while making such an agreement i.e., a resident of India, can make an
arbitration agreement with resident of any foreign national by the modern
means of communication such as telex, fax, cables and telephone etc.
Clause (b) of Section 44 provides the declaration in respect of Section
2(b) of 1961 Act, made by the Central Government which, states the
following territories to be the territories to which the New York Convention
applies—Austria, Belgium, Botswana, Bulgaria, Central African Republic,
Chile, Cuba, Czechoslovok Socialist Republic, Denmark Republic, Ecuador,
Arab Republic of Egypt, Finland, France, German Democratic Republic,
Federal Republic of Germany, Ghana, Greece, Hungary, Italy, Japan,
Kuwait, Republic of Korea, Malagasy Republic, Mexico, Morocco, Nigeria,
The Netherlands, Norway, Philippines, Poland, Romania, San Marino,
Spain, Sweden, Switzerland, Syrian Arab Republic, Thailand, Trinidad and
Tobago, Tunisia, U.S.S.R., U.K., United Republic of Tanzania and United
States of America.
These 44 countries under the declaration by the Central Government
in notification in the official gazette have been declared that on reciprocal
basis India also being a party in the New York Convention may enter into
an arbitration agreement whether it is contractual or non-contractual but
considered as commercial in nature within the meaning of Section 44(b) of
the Act, 1996.
(i) The term "foreign award"—Meaning of
According to Section 44 of the Act, 1996 the term "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.
Certainly, the term "foreign award" means the award made as a result
of the foreign arbitration which is not a domestic arbitration. It becomes
necessary to understand the term "foreign arbitration". The Calcutta High
Court in case of Serajuddin v. Michael Golodetz/ laid down the necessary
conditions relating to the term "foreign arbitration"—these are as under :—
1(a) arbitration should have been held in foreign lands, by foreign
arbitrator;
(b) arbitration by applying foreign laws;
(c) as a party foreign national is involved.
These are essential elements of a foreign arbitration, resulting into the
1. AIR 1960 Cal. 49.
ENFORCEMENT OF CERTAIN FOREIGN AWARDS 303

foreign award.
To explain the term "foreign award" the Apex Court in N.T.P.C. v.
Singer Company? observed that where in London an interim award was
made which arose out of an arbitration agreement governed by the Indian
Laws. It was held that such an arbitral award cannot be treated as a foreign
award and it is purely a "domestic award" which is governed by the laws of
India in respect of the agreement and arbitration.
(ii) Distinction between the "foreign award" and "Domestic award"
In case of a foreign award, one of the parties is a national of foreign
country, whereas this is not necessary in case of domestic award.
In foreign award subject-matter of arbitration agreement deals with the
international commerce and trade, thus, it is international in character.
Also, the award is made in a foreign country. These elements cannot be
found in a "domestic award".
To illustrate the above distinction the decision of the Delhi High Court
in Dorstener Maschine (Germany) v. Sand Plast India? is cited wherein
against the enforcement of foreign award in Germany, an injunction was
sought in India, the Delhi High Court refused to grant an injunction. In fact,
the subject-matter of disputes was referred for arbitration to Indo-German
Chamber of Commerce. Two arbitrators were appointed by each of the party.
In arbitration process the counter claim of the Dorstener was rejected
whereas the claim of Sand Plast was allowed. Since, Dorstener had no assets
in territory of India, Sand Plast on receiving of the copy of the award
initiated the proceedings regarding enforcement of the award in Germany.
The respondent i.e., Dorstener sought an interim injunction against the
enforcement of award. The court while refusing to grant injunction held that
in the view of New York Convention the case being a foreign award and
agreement had a foreign element involving international commerce and
trade the German company should not be permitted to restrain the Indian
Company from enforcing the award in Germany by way of injunction as
such. Hence, New York Convention was applicable to the matter.
(iii) "Foreign Award"—When can be treated as "Domestic Award"
The Supreme Court in Bhatia International v. Bulk Trading S.A.,3
observed that awards in arbitration proceedings which take place in a non­
convention country are not considered to be "foreign award" under the
Arbitration and Conciliation Act, 1996. They would thus not be covered by
Part II. An award passed in an arbitration which takes place in India would
be a "domestic award". There would thus be no need to define an award as
a "domestic award" unless the intention was to cover awards which would
otherwise not be covered by this definition. Strictly, an award passed in an
arbitration which takes place in a non-convention country (i.e., the country
which is not a signatory of UNCITRAL Model Law) would not be a "domestic
award". Thus, the necessity is to define a "domestic award" as including all
awards made under Part I of the said Act. The definition indicates that an

1. AIR 1993 SC 998.

2. (1995) 1 Arb. LR 282 (Del.).
3. (2002) 4 SCC 105 : AIR 2002 SC 1432.
304 THE ARBITRATION AND CONCILIATION ACT, 1996

award made in an international commercial arbitration held in a

non-convention country is also considered to be a "domestic award".
(iv) Meaning of term "Commercial relationship" in the context of
foreign awards
The Supreme Court in R.M. Investment & Trading Co. Pvt. Ltd. v.
Boeing Co.,1 observed that the term "Commercial" in the context of foreign
awards should be construed broadly having regard to the New York
Convention Awards and also manifold activities which are necessary
elements o f modern international trade and commerce. The court is o f the
view that while construing the expression "commercial relationship" in the
context o f Section 44 the reference of the Model Law is desirable which
states :—
"The term "Commercial" should be given a wide interpretation so
as to cover matters arising from all relationship of acommercial
nature, whether contractual or not. Relationship of a commercial
nature include, but are not limited to, the following transactions, any
trade transaction for the supply or exchange of goods or service;
distribution agreement, commercial representation or agency; factoring,
leasing, construction of works, consulting, engineering, licensing,
investment, financing, banking, insurance, exploitation agreement
concession, joint venture and other forms of industrial or business
cooperation, carriage of goods or passengers by air, sea, rail or road."
It was held that the agreement between the Indian Company and
foreign company whereunder the Indian Company agreed toprovide the
foreign company with consultant service for promotion of sale of boeing
aircrafts in India was involving commercial relationship within the meaning
of Section 44.2
(v) Words "law in force in India"—Meaning of
The Bombay High Court in European Grain & Shipping v. Bombay
Extractions,3 has held that the words "law in force in India" are intended to
mean a particular law specifically enacted for the purpose of Section 44.
Section 45. Power of judicial authority to refer parties to
arbitration.— N o tw ith s ta n d in g a n y th in g c o n ta in e d in P a r t I o r in
th e C ode o f C iv il P ro c e d u re , 1908 (5 o f 1 9 0 8 ) a ju d ic ia l a u th o r ity ,
w h e n se ize d o f a n a c tio n in a m a tte r in re s p e c t o f w h ic h th e p a rtie s
h a v e m a d e a n a g re e m e n t re fe rre d to in S e c tio n 4 4 , s h a ll, a t th e
re q u e s t o f one o f th e p a rtie s o r a n y p e rs o n c la im in g th ro u g h o r u n d e r
h im , re fe r th e p a rtie s to a r b itr a tio n , u n le s s i t fin d s th a t th e s a id
a g re e m e n t is n u ll a n d v o id , in o p e ra tiv e o r in c a p a b le o f b e in g
p e rfo rm e d .

CO M M EN TS
Section 45 has been enacted in line with Article II{3) o f the New York
Convention. The object of this section is to give overriding effect, if any,
1. AIR 1994 SC 1136.
2. R.M. Investment & Trading Co. Pvt. Ltd. v. Boeing Co., AIR 1994 SC 1136.
3. AIR 1983 Bom. 36.
ENFORCEMENT OF CERTAIN FOREIGN AWARDS 305

provisions of Part I and the provisions of the Code of Civil Procedure over
are opposed to the provision contained in the present Act.
Section 45 reproduces Section 3 of Act, 1961, but with certain specified
changes to make parallel provision with Article 3 of the New York
Convention. It is the requirement of this Section that the judicial authority
has to make sure that the arbitration agreement is valid, operative and
"-.pable o f being performed before referring the parties to arbitration in
respect of disputes for which there is an arbitration agreement in writing
between the parties. Although, with the use of express "shall" it is in the
sense o f an obligation, therefore, becoming a discretionary power of the
judicial authority, so unless specified conditions are not fulfilled, this section
cannot be invoked. In the words of the Supreme Court of India—The Section
uses the expression "shall" which signifies that it is obligatory upon the
judicial authority to refer the parties to arbitration, if conditions specified
therein afe fulfilled".1
Further, expression that "a judicial authority, when seized of an action
in a matter in respect o f which the parties have made an agreement referred
to in Section 44", that is to say that the judicial authority refers the parties
to arbitration, it does not mean that the judicial authority can compel a
party who is not willing to go to arbitration for reasons known best to that
party.
Section 45 and also Section 44 would be applied to only such
arbitration agreement which concludes to a "Foreign award" however,
Section 45 does not prescribe any time limit within which a party intends to
exercise the arbitration agreement before a judicial authority. According to
the New York Convention which did not touch this point but expected that
such time limit in such matters is to be regulated by the meeting rather
discussion as it depends upon the circumstances of each case.
Section 45 states that the judicial authority may refer the parties to
arbitration at the request of one of the parties or any person claiming
through or under him. Thus, it is necessary that any party should make a
request before the judicial authority, when seeking relief under an
arbitration agreement. The judicial authority has to find out that the
arbitration agreement through which party is seeking reference of dispute to
an arbitration is not null and void, inoperative or incapable of being
performed. It is necessary under this section that the judicial authority has
to record its findings whatsoever its directions may be.
The arbitration clause in an arbitration agreement can only apply to
time charter and not to bill of lading to which plaintiff is a party and said
clause is vague and uncertain and not binding on party.2
(i) Expression "shall" denotes obligation upon the judicial authority
The Apex Court in Renusagar Power Co, Ltd. v. General Electric Co.3
observed that Section 45 uses the expression "shall" which denotes that the
judicial authority is under obligation to refer the parties to arbitration,
1. State o f Orissa v. Klockner & Co., AIR 1996 SG 2140.
2. State Trading Corporation o f India Ltd. v. Owners and Parties Interested in the Vessel
M.V. Baltic Confidence AIR 1999 Cal. 99.
3. AIR 1985 SC 1156; see also State o f Orissa v. Klockner & Co., AIR 1996 SC 2140.
304 THE ARBITRATION A N D CONCILIATION ACT, 1996

award made in an international commercial arbitration held in a

non-convention country is also considered to be a "domestic award".
(iv) Meaning of term "Commercial relationship" in the context of
foreign awards
The Supreme Court in R.M. Investment & Trading Co. Pvt. Ltd. v.
Boeing Co.,1 observed that the term "Commercial" in the context of foreign
awards should be construed broadly having regard to the New York
Convention Awards and also manifold activities which are necessary
elements o f modern international trade and commerce. The court is of the
view that while construing the expression "commercial relationship" in the
context of Section 44 the reference of the Model Law is desirable which
states :—
"The term "Commercial" should be given a wide interpretation so
as to cover matters arising from all relationship of a commercial
nature, whether contractual or not. Relationship of a commercial
nature include, but are not limited to, the following transactions, any
trade transaction for the supply or exchange of goods or service;
distribution agreement, commercial representation or agency; factoring,
leasing, construction of works, consulting, engineering, licensing,
investment, financing, banking, insurance, exploitation agreement
concession, joint venture and other forms of industrial or business
cooperation, carriage of goods or passengers by air, sea, rail or road."
It was held that the agreement between the Indian Company and
foreign company whereunder theIndian Company agreed to provide the
foreign company with consultant service for promotion o f sale of boeing
aircrafts in India was involving commercial relationship within the meaning
of Section 44.2
(v) Words "law in force in India"—Meaning of
The Bombay High Court in European Grain & Shipping v. Bombay
Extractions,3 has held that the words "law in force in India" are intended to
mean a particular law specifically enacted for the purpose of Section 44.
Section 45. Power of judicial authority to refer parties to
arbitration.— N o tw ith s ta n d in g a n y th in g c o n ta in e d in P a rt I o r in
th e C ode o f C iv il P ro c e d u re , 1908 (5 o f 1908) a ju d ic ia l a u th o r ity ,
w h e n s e iz e d o f a n a c tio n in a m a tte r in re s p e c t o f w h ic h th e p a rtie s
h a v e m a d e a n a g re e m e n t re fe rre d to in S e c tio n 4 4 , s h a ll, a t th e
re q u e s t o f one o f th e p a rtie s o r a n y p e rs o n c la im in g th ro u g h o r u n d e r
h im , re fe r th e p a rtie s to a r b itr a tio n , u n le s s i t fin d s th a t th e s a id
a g re e m e n t is n u ll a n d v o id , in o p e ra tiv e o r in c a p a b le o f b e in g
p e rfo rm e d .
CO M M EN TS
Section 45 has been enacted in line with Article 11(3) of the New York
Convention. The object o f this section is to give overriding effect, if any,
1. AIR 1994 SC 1136.
2. R.M. Investment & Trading Co. Pvt. Ltd. v. Boeing Co., AIR 1994 SC 1136.
3. AIR 1983 Bom. 36.
ENFORCEMENT OF CERTAIN FOREIGN AWARDS 305

provisions of Part I and the provisions of the Code of Civil Procedure over
are opposed to the provision contained in the present Act.
Section 45 reproduces Section 3 of Act, 1961, but with certain specified
changes to make parallel provision with Article 3 of the New York
Convention. It is the requirement of this Section that the judicial authority
has to make sure that the arbitration agreement is valid, operative and
^.pable of being performed before referring the parties to arbitration in
respect of disputes for which there is an arbitration agreement in writing
between the parties. Although, with the use of express "shall" it is in the
sense o f an obligation, therefore, becoming a discretionary power of the
judicial authority, so unless specified conditions are not fulfilled, this section
cannot be invoked. In the words of the Supreme Court of India—The Section
uses the expression '‘shall" which signifies that it is obligatory upon the
judicial authority to refer the parties to arbitration, if conditions specified
therein are fulfilled".1
Further, expression that "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", that is to say that the judicial authority refers the parties
to arbitration, it does not mean that the judicial authority can compel a
party who is not willing to go to arbitration for reasons known best to that
party.
Section 45 and also Section 44 would be applied to only such
arbitration agreement which concludes to a "Foreign award" however,
Section 45 does not prescribe any time limit within which a party intends to
exercise the arbitration agreement before a judicial authority. According to
the New York Convention which did not touch this point but expected that
such time limit in such matters is to be regulated by the meeting rather
discussion as it depends upon the circumstances of each case.
Section 45 states that the judicial authority may refer the parties to
arbitration at the request of one of the parties or any person claiming
through or under him. Thus, it is necessary that any party should make a
request before the judicial authority, when seeking relief under an
arbitration agreement. The judicial authority has to find out that the
arbitration agreement through which party is seeking reference o f dispute to
an arbitration is not null and void, inoperative or incapable of being
performed. It is necessary under this section that the judicial authority has
to record its findings whatsoever its directions may be.
The arbitration clause in an arbitration agreement can only apply to
time charter and not to bill of lading to which plaintiff is a party and said
clause is vague and uncertain and not binding on party.2
(i) Expression "shall" denotes obligation upon the judicial authority
The Apex Court in Renusagar Power Co. Ltd. v. General Electric Co.3
observed that Section 45 uses the expression "shall" which denotes that the
judicial authority is under obligation to refer the parties to arbitration,
1. State o f Orissa v. Klockner & Co., AIR 1996 SC 2140.
2. State Trading Corporation o f India Ltd. v. Owners and Parties Interested in the Vessel
M.V. Baltic Confidence AIR 1999 Cal. 99.
3. AIR 1985 SC 1156; see also State o f Orissa v. Klockner & Co., AIR 1996 SC 2140.
ENFORCEMENT OF CERTAIN FOREIGN AWARDS 305

provisions of Part I and the provisions of the Code of Civil Procedure over
are opposed to the provision contained in the present Act.
Section 45 reproduces Section 3 of Act, 1961, but with certain specified
changes to make parallel provision with Article 3 of the New York
Convention. It is the requirement of this Section that the judicial authority
has to make sure that the arbitration agreement is valid, operative and
^.pable of being performed before referring the parties to arbitration in
respect of disputes for which there is an arbitration agreement in writing
between the parties. Although, with the use of express "shall" it is in the
sense o f an obligation, therefore, becoming a discretionary power of the
judicial authority, so unless specified conditions are not fulfilled, this section
cannot be invoked. In the words of the Supreme Court of India—The Section
uses the expression "shall" which signifies that it is obligatory upon the
judicial authority to refer the parties to arbitration, if conditions specified
therein afe fulfilled".1
Further, expression that "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", that is to say that the judicial authority refers the parties
to arbitration, it does not mean that the judicial authority can compel a
party who is not willing to go to arbitration for reasons known best to that
party.
Section 45 and also Section 44 would be applied to only such
arbitration agreement which concludes to a "Foreign award" however,
Section 45 does not prescribe any time limit within which a party intends to
exercise the arbitration agreement before a judicial authority. According to
the New York Convention which did not touch this point but expected that
such time limit in such matters is to be regulated by the meeting rather
discussion as it depends upon the circumstances of each case.
Section 45 states that the judicial authority may refer the parties to
arbitration at the request of one of the parties or any person claiming
through or under him. Thus, it is necessary that any party should make a
request before the judicial authority, when seeking relief under an
arbitration agreement. The judicial authority has to find out that the
arbitration agreement through which party is seeking reference of dispute to
an arbitration is not null and void, inoperative or incapable of being
performed. It is necessary under this section that the judicial authority has
to record its findings whatsoever its directions may be.
The arbitration clause in an arbitration agreement can only apply to
time charter and not to bill of lading to which plaintiff is a party and said
clause is vague and uncertain and not binding on party.2
(i) Expression "shall" denotes obligation upon the judicial authority
The Apex Court in Renusagar Power Co. Ltd. v. General Electric Co.3
observed that Section 45 uses the expression "shall" which denotes that the
judicial authority is under obligation to refer the parties to arbitration,
1. State o f Orissa v. Klockner & Co., AIR 1996 SG 2140.
2. State Trading Corporation o f India Ltd. v. Owners and Parties Interested in the Vessel
M.V. Baltic Confidence AIR 1999 Cal. 99,
3. AIR 1985 SC 1156; see also State o f Orissa v. Klockner & Co., AIR 1996 SC 2140.
306 THE ARBITRATION AND CONCILIATION ACT, 1996

provided the conditions laid down in the arbitration agreement are satisfied.
Even if there is an arbitration agreement between the parties, the court suo
motu cannot refer the parties to the arbitration except that the court is
competent to proceed with the case.
(ii) Applicability of Section 45
The Delhi High Court in Gas Authority o f India Ltd. v. SPIE CAPAG
SA,1 has held that Section 3 of the 1961 Act (which corresponds to Section
45 of the 1996 Act) dealing with stay of proceedings in respect o f matters to
be referred to arbitration applies to an arbitration agreement if it has a
foreign element involving international trade and commerce even though
such an agreement does not result into a foreign award. However, this
decision cannot outrightly be applied because Sections 44 and 45 o f the
present Act, 1996 cover only such arbitration agreement which necessarily
results into a foreign award within the ambit of Section 44 of the Act.
In another case Goyal MG Gases Ltd. v. Griesheim GMBH,2 the court
observed that the provisions of Section 45 of the new Act, 1996 are clear and
apparent that the judicial authority when seized of an action in a matter in
respect of which the parties have made an agreement in the nature o f and
as provided under Section 44 refer the parties to arbitration at the request
of one of the parties or any person claiming through or under him. The
provisions o f the clause referred expressly intended that it would survive the
termination o f agreement under the rules of the International Chamber of.
Commerce, Paris.
(iii) Bifurcation of subject matter of suit not contemplated under
the Act, 1996
In India Household and Health Care Ltd. v. L.G. Household and Health
Care Ltd. ,3 wherein certain of the reliefs prayed for by the applicant relating
to use of the LG logo fall outside the arbitration agreement since the LG
logo belongs to LG corporation which is the owner of the trademark. It is
not a party to the arbitration agreement. It allegedly has filed a separate
suit. In a case of this nature there is no provision in the Arbitration and
Conciliation Act, 1996 that when the subject matter of the suit includes
subject mater of the arbitration agreement as well as other disputes, the
matter is required to be referred to arbitration. There is also no provision
for splitting the cause or parties and referring the subject mater of the suit
to the arbitrators. If the bifurcation of the subject matter of a suit was
contemplated, the legislature would have used appropriate language to
permit such a course. Since there is no such indication in the language, it
follows that bifurcation of the subject matter of an action brought before a
judicial authority is not allowed.
(iv) Proceedings parallel to the arbitration cannot be allowed to
continue
Incorporation of Arbitration clause in the "Bill of Lading" cannot be

1. AIR 1994 Del. 75.

2. 1 999 (2 ) R.A.J. 5 (Delhi); see also State Trading Corpn. o f India Ltd. v. Owners and
Parties Interested in the Vessel M.V. Baltic Confidence, 1 999 (2 ) A n . L .R . 3 2 7 (C a l.)
3. AIR 2007 SC 1376.
ENFORCEMENT OF CERTAIN FOREIGN AWARDS 307

treated as inoperative merely because such incorporation lacks substitution

of the words "charter party" by the words "Bill of Lading" in the conditional
clause o f the Bill o f Lading. While incorporating therein the arbitration
clause o f the charter party agreement, (presently, clause 62 of the
agreement) when the intentions and agreement of the parties to the said
Bills o f Lading are clear, no absurdity or inconsistency would be attributable
for such interpretation. It was held that the proceedings parallel to the
arbitration cannot be allowed to continue. Hence suit is liable to be stayed.1
(v) Petition for stay of admiralty suit in High Court is allowed
In the Owners and Parties Interested in Vessel M.V. Baltic Confidence
& another v. State Trading Corporation o f India Ltd.,2 it was held that when
the arbitration clause of the Charter party agreement (clause 62) has been
incorporated in the Bill of Lading by specific reference by its clause (1) then
it shows that the parties had intended that the disputes arising on the Bill
of Lading should be resolved by arbitrator. Hence, the High Court was
wrong in taking contrary view. Therefore, petition filed by the appellants for
stay of admiralty suit in High Court is allowed.
(vi) High Court refusing to refer the dispute to arbitration—
Conflicting decision on this issue
Where in an appeal preferred against the order passed under Section
45 of the Arbitration and Conciliation Act, 1996 by a single judge of the
High Court refusing to refer' the dispute to the arbitration, there being
conflicting case laws on this question, the matter was directed to be placed
before three Judges Bench of the Apex Court.3
(vii) The conflicting awards would not, under the arbitration
agreement, be incapable of performance
The Bombay High Court in Indian Organic Chemicals Ltd. v. Chemtex
Fibres In c .f has held that possibility o f conflicting awards would merely
make invocation of the arbitral provisions undesirable or improper or
inexpedient. But, that would not be the same thing as "incapable of being
performed" within the meaning of the said expression occurring in the
section.
But, when all the agreements were put together, they became
inoperative as one agreement provided for one set of arbitrators at a
particular place in a country and another agreement provided for another
set of arbitrators at a different place and in a different country. The
Supreme Court has held that the High Court’s view that each of the
agreements standing by itself was valid, operative and capable of being
performed, is totally erroneous. It was necessary to consider only the
relevant agreement and so considered all the conditions contained for the
applicability o f Section 3 of the FARE Act were fully complied with.5
1. Owners & Parties Interested in the Vessel M.V. "Baltic Confidence" v. State Trading
Corporation o f India Ltd., 2 0 0 1 (7 ) S C C 473 : 2 0 0 1 (6 ) S u p re m e 282.
2. 2 0 0 1 (6 ) S u p r e m e 2 8 2 (S C ).
3. M/s. Orma Impex Pvt. Ltd. v. M/s. Nissari Arb Pte. Ltd., A I R 1 9 9 9 S C 2 8 7 1 : 1999 (2)
S C C 541.
4. A IR 1 978 B o m . 106.
5. Sevenska Handels Banker v. Indian Charge Chrome Ltd., 1 994 (1 ) A r b . L R 2 0 5 (SC ).
308 THE ARBITRATION A N D CONCILIATION ACT, 1996

Section' 46. When foreign award binding.— A n y foreign

aw ard w h ich w ou ld be enforceable under this C hapter shall be
treated as bin din g for all purposes on the persons as betw een w hom
it w as m ade, and m ay accordingly be relied on b y any o f those
persons b y w ay o f defence, set o ff or otherw ise in any legal
proceedings in India and any references in this C hapter to enforcing
a foreign aw ard shall be construed as including references to relying
on an award.
CO M M EN TS
Section 46 is enacted parallel with Article III of the New York
Convention and is on the pattern of Section 4(2) o f the 1961 Act.
Section 46 has been incorporated with a liberal object to recognise all
the "Foreign Awards" under this Chapter which is enforceable in India, even
for the purpose of defence, set-off or in any legal proceedings in India. Thus,
any foreign award under this Chapter becomes enforceable and shall have
binding force upon the parties between whom it was made. These parties
may rely on such a foreign award by way of claim, defence, set- off and in
any legal proceedings initiated in India.
Section 47. Evidence.— (1) The party applying for the
enforcem ent o f a foreign aw ard shall, at the tim e o f the application,
produce before the court—
(a) the original aw ard or a copy thereof, duly authenticated in
the m anner required by the law o f the country in w hich it
w as m ade;
(b) the original agreem ent for arbitration or a duly certified
copy thereof; and
(c) such evidence as m ay be necessary to prove that the aw ard
is a foreign award.
(2) I f the aw ard or agreem ent to be produced under sub-section
(1) is in a foreign language, the party seeking to enforce the aw ard
shall produce a translation into English certified as correct b y a
diplom atic or consular agent o f the country to w h ich that party
belongs or certified as correct in such other m anner as m ay be
sufficient according to the law in force in India.
E xp la n a tion .— In this section and all the follow ing sections o f
this C hapter, "Court" m eans the principal Civil Court o f original
ju risd iction in a district, and includes the H igh C ourt in exercise o f
its ordinary original civil jurisdiction, having ju risd iction over the
subject-m atter o f the aw ard i f the same h ad been the subject-m atter
o f a suit, b u t does not include any civil court o f a grade inferior to
such principal Civil Court, or any Court o f Sm all Causes.
CO M M EN TS
Section 47 of the Act, has been enacted paralled to Article IV of the
New York Convention and is in line with Section 8 o f 1961 Act.
ENFORCEMENT OF CERTAIN FOREIGN AWARDS 309

Section 47 provides specified conditions to be fulfilled by the party, who

is seeking enforcement of a foreign award. It is a mandatory provision. Thus,
Section 47 prescribes the evidence the party has to be made prima facie
before the Court for enforcement of a foreign award.
Section 47(1) provides that the following documentary evidences have
to be produced before the Court, at the time of application for the
enforcement of a foreign award—by a party—
1. Original award or a copy of it, which should be authenticated
according to the law of that country in which it was made.
2. The original agreement for arbitration or a certified copy of
arbitration agreement, and
3. Such other evidence as may be necessary to show that the award
is a foreign award.
The Court in its discretion may permit the party to fulfil these
aforesaid conditions during the proceedings. It is expected that the court
should not adhere too strictly in this respect, but to consider the
reasonableness of the circumstances.
Section 47(2) provides that if such an award is in foreign language or
arbitration agreement is in foreign language, its translated copies should be
produced in English. It is required that such translated copies must be
certified as correct translation 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 o f India, in force.
' Explanation attached to this section defines the "Court" for the purpose
o f this chapter. The court means, and excludes any civil court o f a grade
inferior to such principal civil court, or any court of small causes, but it
includes the principal civil court o f original jurisdiction in a district and the
High Court in exercise of its ordinary original civil jurisdiction and any
subject-matter over which it is having jurisdiction of a suit.
No time limit for enforcement of a foreign award has been prescribed
in Part II of Chapter I. The Indian courts have given conflicting views. The
Gujarat High Court is of view that—"It cannot be that a foreign award can
be enforced at any time, though a domestic award can be enforced only
within specified time limit.1 So, the Limitation Act may be applied as it
applies to proceedings in Court.
The Delhi High Court is of the opinion that "Since Part II does not
prescribe any time limit in this regard, the Limitation Act, 1963, being an
integral part o f the procedural law of India, applies.2
Now, it is clear that for enforcement of a foreign award under this
Section 47, Part II, no time limit has been prescribed, however,
non-compliance of the procedural law of India, while such enforcement of a
foreign award is sought before the court in India, the Limitation Act, should
be followed.

1. Orient Middle East Lines Ltd. v. M is. Brace Transport Corpn. o f Monrovia, AIR 1986
Guj 62, 74.
2. Ludwig Wumsche & Co. v. Raunak International Ltd., AIR 1983 Del 247, 250.
310 THE ARBITRATION AND CONCILIATION ACT, 1996

(i) Phrase "at the time of the application"—Interpretation of

Regarding the phrase "at the time of the application" in Section 47(1)
of the Act, 1996 a question may come up whether any o f the conditions laid
down in clauses (a) to (c) of Section 47(1) can be fulfilled after the
application is made. In the view of the pro-enforcement approach of the New
York Convention, a number of commentators and foreign courts are of
opinion that phrase "at the time of the application" should be construed
liberally and that a claimant should be permitted to fulfil the conditions
during proceedings.1
(ii) Time limit for enforcement of foreign awards
' In view of the New York Convention which in Article III provides that
each contracting State shall enforce foreign arbitral award "in accordance
with the rules of procedure of the territory where the award is relied upon".
It is clear that the said article enables the State wherein the award is
sought to be enforced to impose, under its procedural law within the time
limits within which the enforcement of foreign arbitral award must be
sought. It is to be noted that Part II does not provide any period of
limitation for enforcement of such awards, the Limitation Act, 1963,
however, being an integral part of the Procedural law of India, it will be
applicable."
(iii) Arbitration and Conciliation Act, 1996—What is the date of the
commencement—Enforcement of foreign award
The Supreme Court in M/s. Fuerst Day Lawson Ltd. v. Jindal Exports
Ltd .,3 has held that a foreign award given after the commencement of
Arbitration and Conciliation Act, 1996, though arbitral proceedings might
have commenced before its commencement, can be enforced only under
Arbitration and Conciliation Act, 1996.
The question regarding commencement of the date of said Act, the
Gazettle Notification, it is clear that the Act came into force on 22-8-1996.
But the purposive* reading would show that the Act came into force in
-continuation—of the first Ordinance which was brought into force on
25-1-1996. This makes the position clear that although the Act came into
force on 22-8-1996 for all practical and legal purpose it shall be deemed to
have been effective from 25-1-1996 particularly when the provisions of the
Ordinance and the Act are similar and there is nothing in the Act to the
contrary so as to make the Ordinance ineffective as to either its coming in
force on 25-1-1996 or its continuation upto 22-8-1996. Thus, the Supreme
Court is of the view that the Act was brought into force with effect from
22-8-1996 vide notification No. G.S.R. 375 (E) dated 22-8-1996 published in
the Gazette of India and that the Act being a continuation of the Ordinance
is deemed to have been effective from 25-1-1996 when the first Ordinance
came into force.
Section 48. Conditions for enforcement of foreign
awards.— (1 ) E n fo rc e m e n t o f a fo re ig n a w a rd m a y be re fu s e d , a t th e
1. Gibbs Nathaniel (Canada) v. Baba Cashew Industries, 1 983 KLT 1070.
2. Ludwig Wumsche & Co. v. Raunaq International Ltd., A I R 1 983 D el. 2 4 7 .
3. 2001 (4) Supreme 141.
ENFORCEMENT OF CERTAIN FOREIGN AWARDS 311

requ est o f the party against w hom it is invoked, only i f that party'
furnishes to the court p roof that-—
(a) the parties to the agreem ent referred to in Section 44 w ere,
under the law applicable to them , under som e incapacity, or
the said agreem ent is not valid under the law to w hich the
parties have subjected it or, failing any indication thereon,
under the law o f the country w here the aw ard w as m ade;
or
(b) the party against w hom the aw ard is invoked w as not given
proper notice o f the appointm ent o f the arbitrator or o f the
arbitral proceedings or w as otherw ise unable to present his
case; or
(c) the aw ard deals w ith a difference not contem plated b y or not
fallin g w ith in the term s o f the subm ission to arbitration, or
it contains decisions on m atters beyond the scope o f the
subm ission to arbitration :
P rovided that, i f the decisions on m atters subm itted to
arbitration can be separated from those not so subm itted,
that part o f the aw ard w hich contains decisions on m atters
subm itted to arbitration m ay be enforced; or
(d) the com position o f the arbitral authority or the arbitral
procedure w as n ot in accordance w ith the agreem ent o f the
parties or, failin g such agreem ent, w as n ot in accordance
w ith the law o f the country w here the arbitration took
place; or
(e) the aw ard has not yet becom e binding on the parties, or has
been set aside or suspended by a com petent authority o f the
country in w hich, or under the law o f w hich, that aw ard
w as m ade.
(2) E nforcem ent o f an arbitral aw ard m ay also be refused i f the
Court finds that—
(a) the subject-m atter o f the difference is n ot capable of
settlem ent by arbitration under the law o f India; or
(b) the enforcem ent o f the award w ould be contrary to the
public policy o f India.
E xp la n a tion .— W ithout prejudice to the generality o f clause (b),
it is h ereby declared, for the avoidance o f any doubt, that an award
is in con flict w ith the public policy o f India i f the m aking o f the
aw ard w as in du ced or affected by fraud or corruption.
(3) I f an application for the setting aside or suspension o f the
aw ard has b een m ade to a com petent authority referred to in clause
(e) o f su b-section (1) the Court m ay, i f it considers it proper, adjourn
the decision on the enforcem ent o f the aw ard and m ay also, on the
application o f the party claim ing enforcem ent o f the aw ard, order the
312 THE ARBITRATION AND CONCILIATION ACT, 1996

other party to give suitable security.

' COMMENTS
Section 48 has been enacted on the basis of Article V of the New York
Convention and also Section 7 of the 1961 Act.
Section 48 provides the conditions for enforcement o f foreign awards. In
which there are three sub-sections.
Sub-section (1)—Under sub-section (1) there cure clauses (a) to (e) as
the followings.
Clause (a).—According to Sub-section (1) enforcement o f a foreign
award may be refused provided that the party makes such a request against
whom it is applied, but that a party is required to submit certain proof
regarding his revocation— Clause (a) provides that if the parties made an
arbitration agreement under Section 44 in compliance o f law applied to the
parties, but under some incapacity or that an arbitration agreement becomes
invalid under the law to the parties have subjected it and also contrary to
law of the country, where the award was made, in such cases the court may
refuse to enforce a foreign award by order. The Scope o f this clause (a) was
specifically explained by the Delhi High Court, in Gas Authority o f India
Ltd. v. SPIE CAPAG SAl that "an arbitration 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".
Further, when, an arbitration agreement is made, but it is induced by
way of fraud, undue influence or misrepresentation and contrary to law, by
which the arbitration agreement is to be governed, as a result of such an
arbitration agreement a foreign award shall not be enforceable provided the
parties against whom it is invoked make an application with the request
before the court.
Clause (b).— Clause (b) of sub-section (1) of Section 48 provides the
condition where the principle of natural justice is not followed. However, the
party who has been aggrieved and against whom the award is made by not
giving him proper notice of the appointment of the arbitrator or the arbitral
proceedings or not being given proper opportunity for presentation of his
case in the arbitration if he applies against the enforcement of such a foreign
award and the court is of opinion that in fact the principle of natural justice
has not been adopted during the arbitral proceedings to make such an
award, may refuse to enforce such award. Accordingly, a foreign award made
in violation of this principle cannot be enforced.
Clause (c).— Clause (c) of sub-section (1) of Section 48 provides the
principle that to ensure a valid award it must deal only with questions
actually submitted to the arbitral tribunal by the parties. In other words if
the award has contemplated differences not referred to the arbitral tribunal
it cannot be enforced and is liable to be refused. Thus, an arbitral tribunal
must confine its jurisdiction to the terms of submission.
Clause (d)— Clause (d) of sub-section (1) of Section 48 provides that
the arbitral authority or the arbitral procedure is inconsistent with the
agreement of the parties and if the award is made, it cannot be enforced.

1. AIR 1994 Del 86.

ENFORCEMENT OF CERTAIN FOREIGN AWARDS 313

Clause (d), clearly states the grounds, when, enforcement of a foreign award
is not to be acted upon. These are :—
1. When, the composition of the arbitral authority is not in
compliance with the agreement of the parties.
2. When, the arbitral procedure adopted, is contrary to the provisions
of the agreement of the parties.
3. When, the arbitration agreement itself is contrary to the law of the
country, where the arbitration took place.
Clause (e).— Clause (e) of sub-section (1) of Section 48 provides that,
when the award has been set aside or suspended by a competent authority
of the concerned country, or it has not become binding on the parties, it shall
not be enforced.
Thus, the jurisdiction and competence to set aside the award is vested
with the courts of the country in which or under the law of which the award
is made.
The Supreme Court of India said that the award can be said to have
become '‘binding" on the parties only when it has become enforceable and
the enforceability must be determined as per the law applicable to the
award.1
Sub-section (2)—Sub-section (2) of Section 48 provides additional
ground in term of vested powers to the court to refuse enforcement o f an
arbitral award. Under this sub-section (2), the Court may refuse to enforce
a foreign award if it finds that—
(i) the subject-matter of the difference between the parties is not
capable o f settlement by arbitration under the law of India, or
(ii) if the enforcement of such a foreign award is opposed to the
public policy of India.
In such cases, the court may refuse the enforcement of such a foreign
award.
The expression "public policy" is subject to interpretation from time to
time as also to currently prevailing circumstances, the present Act having
not defined it.
The Supreme Court of India held that the enforcement of a foreign
award would be refused on the ground that it is contrary to public policy if
such enforcement would be contrary to—
(i) fundamental policy of Indian law, or
(ii) the interests of India, or
(iii) Justice or morality.
Sub-section (3)—Sub-section (3) of Section 48 provides that when, the
party makes an application before the court with the request to set aside or
suspend the enforcement of a foreign award, the court is empowered to
adjourn its decision on enforcement and may also order the other party to
give suitable security.

1. O.N.G.C. v. Western Co. o f North America, AIR 1987 SC 674, 683, 686.
2. Renu Sagar Power Co. v. General Electric Co., AIR 1994 SC 860, 888.
314 THE ARBITRATION AND CONCILIATION ACT, 1996

(i) W h eth er the a w a rd can be challenged on m erits

The Apex court in Renusagar Power Co. case1 observed that in
enforcement proceedings of a foreign arbitral award, the scope of enquiry
before the court in which award is sought to be enforced is limited to the
conditions mentioned in Section 48. This section does not make provision
which enables a party to the said proceedings to challenge the award on
merits. Thus, it is clear that before a foreign award is enforced the
provisions of Sections 44 and 47 are required to be fulfilled.
(ii) Scope of Section 48(1)(a)
In accordance with Section 48(l)(a) of the Act, the enforcement of a
foreign arbitral award may be declined if the parties to the arbitration
agreement were, under the law applicable to them, under some incapacity
or the said agreement is not valid under the law to which the parties are
subjected or failing any indication thereon, under the law of the country
where such award was made. Thus, the country in which award is invoked,
the rule of that country will be applied.2
(iii) In te rn a tio n a l A w a rd —V a lid ity and its enforcem ent
In present case3 dispute pertained to sale purchase agreement between
the appellant an Indian exporting company and Russian Company, the
buyer. However, the buyer lodged a claim against seller for recovery of USD
285,569.53 in the International Court, which passed the impugned award.
Arbitral Tribunal split the account of losses between parties viz., Seller and
Buyer directing seller to pay USD 138,402.03 along with interest USD
2,562.71 besides, USD 4,869.00 to recover claimants experts to pay registry
and arbitrage fees. It was held that Clause for reimbursement of price of
goods received by seller in no way un-reasonable or unjust. The goods never
arrived at the port of discharge. Arbitral Tribunal, however awarded
reimbursement of only half the price of goods paid by buyer. Hence, award
cannot be held unreasonable unjust or unconscious able or contrary to public
policy of India. Seller cannot escape their liability merely because goods were
insured and buyers were made beneficiaries in Insurance Policy, because
right claim under insurance policy was not subrogated in favour of buyers.
(iv) E n fo rcem ent of a w ard w ould be c o n tra ry to the public
policy—V io la tiv e o f Section 48
The Bombay High Court in Open Sea Maritime Inc. v. R. Pyarelal
International Pvt. Ltd ,,4 observed that wherein the enforcement of award, is
objected on the ground that the suit was filed by the petitioners in Bombay
High Court on original side. This was in respect of the same subject-matter
which was referred to for the Arbitration. Notice in respect of the said suit
was also given to the Arbitrator. Hence the petitioners could not have
proceeded with the arbitral proceedings. It was held that it amounted to
fraud and hence the enforcement of the award would be contrary to the
public policy of this country. It is violative of Section 48(2)(b) of the Act

1. AIR 1994 SC 860, 888.

2. Gas Authority o f India Ltd. v. SPIE CAPAG SA, AIR 1994 Del. 75.
3. Phulchand Exports Ltd. v. OOO Patriot, 2011 (4) Arb. LR 108 (SC).
4. 1999 (2) Arb. LR 383 (Bom.).
ENFORCEMENT OF CERTAIN FOREIGN AWARDS 315

1996.
(v) No ju ris d ic tio n to o rd e r w in d in g up of the com pany
In Haryana Telecom Ltd. v. Sterlite Industries,1 the Supreme Court has
held that an arbitrator, notwithstanding any agreement between the parties,
would have no jurisdiction to order winding up of the company.
Section 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.
COMMENTS
Section 49 has been incorporated on the basis of Article III of the New
York Convention, however, conditions for enforcement of a foreign award
have been provided in Section 47 and Section 48 of the Act.
Section 49 provides that when the Court is not only o f opinion but also
Satisfied that a foreign award can be enforced by the Court, the award shall
be deemed to be a decree of the court. In this context, the Supreme Court
o f India had held that "The award must be executed as it is and there is no
scope for addition to, or substraction from, the award".2
Thus enforcement of a foreign award is to be carried out in accordance
with its contents without any change in this respect.
A p p lic atio n b a rre d by lim ita tio n
In M.V.V. Satyanarayan v. Union o f India? the Andhra Pradesh High
Court held that in the present case the application is barred by limitation
under Article 137 of the Limitation Act, 1963 because the right to apply for
appointment of arbitrator has accrued to the applicant on 22nd April, 1994
but the application under Section 11 of the Arbitration Act, 1940 was filed
on 20th January, 1998,' that is beyond three years.
Section 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 he 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.
COMMENTS
Section 50 of the Act, provides as to what orders are appealable. It
makes provision for appeal against certain orders made under Sections 45
and 48 of the Act.
Section 50(1) provides that if the Court has refused to grant the order
regarding an application made to it :
Sub-section (1) provides that appeal will lie from the following orders—
1. 1999 (2) Arb. LR 685 (SC).
2. Koch Navigation Inc. v. M/s. H.P.C.L., AIR 1989 SC 2198.
3. 1999 (2) Raj. 173 (AP); O.N.G.C. v. M. Gouthamchand Gothi, 1999 (1) Arb. LR 374 (Mad.).
316 THE ARBITRATION AND CONCILIATION ACT, 1996

(a) order which refers the parties to arbitrators under Section 45,
(b) order which enforces a foreign award under Section 48.
Such appeal will lie to the court which is authorised to hear appeals
from such orders.
Section 50(2) states that against orders in such appeals as aforesaid,
no second appeal will lie. Although right to appeal as provided in the
Constitution of India to the Supreme Court will not be taken away.
Section 51. Saving.— Nothing in this Chapter shall prejudice
any right 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.
COMMENTS
Section 51 has been enacted on the basis of Article VII (1) of the New
York Convention and in line with Section 9(a) of the 1961 Act.
Section 52. Chapter II not to apply.— Chapter II of this Part
shall not apply in relation to foreign awards to which this Chapter
applies.
COMMENTS
Section 52 is based on Article VII(2) of the New York Convention and
Section 10 of the 1961 Act. According to Article VII (2) of the New York
Convention, the Geneva Protocol (Arbitration Clauses, 1923) and the Geneva
Convention (The Execution of Foreign Arbitral Award, 1927) shall come to
an end to have effect between contracting States to the extent, as they
become bound by the New York Convention. It happened that on 13 July,
1960 India became a party to the New York Convention. Thus, to look at
Section 52 which states that the foreign awards to which Chapter I of Part
II applies, Chapter II of Part II shall not apply in respect of them.

CHAPTER II

GENEVA CONVENTION AWARDS

Section 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
ENFORCEMENT OF CERTAIN FOREIGN AWARDS 317

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.
COMMENTS
Section 53 has been enacted on the basis of Article 1 o f the Geneva
Protocol and Article 1(1) of the Geneva Convention and also Section 2 of the
1937 Act.
Section 53 provides meaning of "Foreign Award", it means an arbitral
award on differences in respect of the matter which has been arbitrated as
commercial matter under the law in force presently in India after the 28th
o f July, 1924.
In this context, expression "differences" contains disputes and
vice-versa.
Section 53 has limited application because it applies to the jurisdiction
o f different parties to the Geneva Convention. The Central Government by
notification in official Gazette has to declare the territories to which the
Geneva Convention would be applied. Thus, if the award is made in such
territories which is not a party to the Geneva Convention Chapter II does
not apply. It is important to note that the Central Government under
Section 2 of the Arbitration (Protocol and Convention) Act, 1937 may make
declaration by notification in the official Gazette, list of parties to the
Geneva Convention and the territories to which the Geneva Convention
applies, such a declaration is to be made by the Central Government only
when the Central Government is satisfied that reciprocal provisions have
been made.
Further, Section 53 provides that finality of a foreign award will not be
recognised, if there is any pending proceedings in respect o f validity of such
a foreign award under consideration as such in the country in which it is
made. Thus, in the sense of completeness, definition provided for the term
"Finality" under this section is not properly defined, however more complete
definition on the "Finality" has been provided under Section 57(l)(d) of the
Act.
D e fin itio n of te rm "foreign award"—U n d e r Section 44 o f the N ew
Y o rk C onvention and Section 53 of the Geneva Convention

Section 44 Section 53

(1) It begins with the non-obstante (1) There is no such clause or

clause i.e., "unless the context expression,
otherwise requires."
318 THE ARBITRATION AND CONCILIATION ACT, 1996

(2) The expression "arising out of (2) Such expressions are not found
legal relationship, whether in this section.
contractual or not" used in this
section.
(3) It insists that the agreement (3) It speaks only agreement, the
must be in writing. writing stands omitted.

Section 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.
COMMENTS
Section 54 is enacted on the basis of Article 4 of the Geneva Protocol.
Section 54 provides that any provisions given in Part I or in the Code of
Civil Procedure, 1908 shall not be applied if it is contrary to the provisions
contained in Chapter II of the present Act. It provides power to the judicial
authority to refer the parties to the decision of the arbitrators, if the
following requirements of conditions are fulfilled—
(i) there should be dispute regarding a contract made between persons
to whom Section 53 applies, and
(ii) the contract must include an arbitration agreement, in this respect
it is immaterial whether referring to present or future differences,
(iii) a party to the arbitration agreement must initiate legal
proceedings opposed to another party in such arbitration
agreement,
(iv) the judicial authority must be of opinion that the agreement or the
arbitration can proceed and it is operative,
(v) the judicial authority has to be satisfied that the arbitration is
valid under Section 53 of the Act and capable of being carried into
effect.
No time limit has been prescribed under Section 54 of the Act, however,
it may be determined in the light of circumstances by the judicial authority.
Section 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
ENFORCEMENT OF CERTAIN FOREIGN AWARDS 31 9

a foreign award shall be construed as including references to relying

on an award.
COMMENTS
Section 55 is enacted on the basis of Article 1(1) of the Geneva
Convention and Section 4(2) of the 1937 Act.
Section 55 provides that a foreign award which has enforceability under
this Chapter II, the Geneva Convention Award, will be acted as binding
force upon the parties against whom it was made and such a foreign award
will become the basis to seek defence, set-off or otherwise any legal
proceedings in India, by the parties. Thus, under this Chapter, enforcement
of such a foreign award will be explained with references contained in that
award.
Section 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.
E x p l a n a t i o n .—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 a suit, but does not include any civil court of a
grade inferior to such principal Civil Court, or any Court of Small
Causes.
COMMENTS
Section 56 is enacted on the basis of Article 4 of the Geneva Convention
and Section 8 of the 1937 Act.
Section 56(1) provides the requirement of specified evidences which are
to be produced by the party, who is applying for the enforcement of a foreign
award, before the Court. Thus, the burden of production of the following
documents lie on the party, who is seeking enforcement. These are—
(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,
320 THE ARBITRATION AND CONCILIATION ACT, 1996

(b) the proof that an award has finality, and

(c) any other evidences to fulfil conditions mentioned in aforesaid
clauses (a) and (b).
However, these conditions should not be too strictly observed by the
court and the party applying for enforcement may be permitted to submit
these conditions during the proceedings. It is a discretionary power of the
Court under Section 56(1) of the present Act.
Section 56(2) provides that if any documents produced under
sub-section (1) are in a foreign language, are to be translated into English,
certified as correct by a diplomatic or consular agent of the country to which
that party belongs, should be produced by the party who is applying for
enforcement of the award, or the documents in any other foreign language
to be translated into English and certified in such manner as required by
law in force in India.
Section 57. Conditions for enforcement of foreign
awards.— (1) In order that a foreign aw ard m ay be enforceable
under this C hapter, it shall be necessary that—
Enforcement of foreign awards.— (a) the aw ard has been
m ade in pursuance o f a subm ission to arbitration w h ich is valid
under the law applicable thereto;
(b) the subject-m atter o f the aw ard is capable o f settlem ent by
arbitration un der the law o f India;
(c) the aw ard has been m ade by the arbitral tribunal provided
for in the subm ission to arbitration or constituted in the m anner
agreed upon b y the parties and in conform ity w ith the law governing
the arbitration procedure;
(d) the aw ard has becom e final in the country in w hich it has
been m ade, in the sense that it w ill not be considered as such i f it is
open to opposition or appeal or i f it is proved that any proceedings
for th e purpose o f contesting the validity o f the aw ard are pending;
(e) the enforcem ent o f the aw ard is not contrary to the public
policy or the la w o f India.
E xp la n a tion — W ithout prejudice to the generality o f clause (e), it
is h ereby declared, for the avoidance o f any doubt, that an aw ard is
in conflict w ith the public policy o f India i f the m a k in g o f the aw ard
w as in d u ced or affected b y fraud or corruption.
(2) E ven i f the conditions la id dow n in sub-section (1) are
fulfilled, en forcem ent o f the award shall be refused i f the C ourt is
satisfied that—
(a) the aw ard has been annulled in the country in w hich it w as
m ade;
(b) the party against w hom it is sought to use the aw ard w as
n ot given notice o f the arbitration proceedings in sufficient
tim e to enable h im to present his case; or that, b ein g under
ENFORCEMENT OF CERTAIN FOREIGN AWARDS 321

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 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.
COMMENTS
Section 57 is enacted on the basis of Article 1 and Article 2 of the
Geneva Convention and also Section 7 of the 1937 Act.
Section 57 provides the conditions essential for enforcement of foreign
awards. Section 57(1) and Section 57(2) lays down specified conditions which
are to be fulfilled before foreign award is enforced in India. The onus to
produce these evidence lie on the party who is seeking enforcement of the
award.
Section 57(1) provides that a foreign award may be enforceable under
this Chapter, it shall be necessary that sub-section (1), clauses (a) to (e) deal
with the enforcement of foreign awards.
Clause (a)—This clause states one of the conditions for enforcement of
a foreign award is that the award has been made in pursuance of a
submission to arbitration which is valid under the law applicable thereto.
Thus, if the terms submitted to arbitration are illegal or contrary to law in
force, the award given by the arbitral tribunal in pursuance of terms of
arbitration clause will not be enforceable.
The Madras High Court said that "if the contract is illegal, the award
given by the arbitral tribunal in pursuance of arbitration clause in the
contract will not be enforceable.1
Clause (b)—The subject-matter of the award is capable of settlement
by arbitration under the law of India. Thus, it is intended that the disputes
should be arbitrable under the law of India. However, this clause (b) is
similar to clause (a) of Section 48(2) of the Act.
Clause (c)— It is one of the pre-conditions before enforcement of a
foreign award that the award made by the arbitral tribunal has been
constituted as per the agreed terms between the parties and also in

1. Societa Anonmina v. S. Gorakharam Gokalchand, AER 1964 Mad 532.

322 THE ARBITRATION AND CONCILIATION ACT, 1996

accordance with law governing the arbitral proceedings.

Clause (d)— "Finality" of the award is to be proved by the party who
is seeking enforcement of the award. The award has become final in the
country in which it has been made, however finality of the award can be
opposed or appealed on the ground, if for the purpose of contesting the
validity of the award, if it is proved that in respect of validity of the award
any proceedings are pending. However, "where the time for setting aside of
the award by proceedings in a foreign court had long expired, the foreign
award must be held to be final.1
Clause (e)— It is also a necessary condition that the enforcement of a
foreign award should not be contrary to the public policy of India. Thus, if
any agreement between a foreign party and an Indian party is contrary to
the law of India, it will not be enforced. Similarly, if it is opposed to the
interest of public at large in India, a foreign award cannot be enforced.
However, "where a contract provided for payment of liquidated
damages for breach of contract and the arbitrators awarded maximum
amount named in the contract, the foreign award is not bad on the face of
it nor can it be said to be against the law of India as contained in Section
73 and Section 74 of the Contract Act.2
Section 57(2) provides that despite the conditions contained in
sub-section (1) are fulfilled the Court may, refuse the enforcement of a
foreign award if any of the following conditions existed in the opinion of the
Court—These are—
(a) the award has been annulled in the country in which it was made,
(b) the party against whom the award is sought to be used, 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 differences contemplated by or falling
within the terms of the submission to arbitration, as it contains
decisions on matters beyond the scope o f the submission to
arbitration.
However, under Section 57(2) the Court is empowered to postpone the
enforcement of a foreign award or may order to provide guarantee in this
regard if such a foreign award is not the result of all the differences
submitted to the arbitral tribunal.
Section 57(3) provides extra grounds to oppose the enforcement of a
foreign award by the party against whom the award is made. These grounds
are in addition to the grounds provided under clauses (a) and (c) of
sub-section (1) of Section 57 and clauses (b) and (c) of sub-section (2) of
section 57. It is the right given to the party to oppose enforcement o f a
foreign award based on said grounds. Thus, the party can question the
validity o f the award before the Court. The court is empowered to refuse
enforcement of the award or adjourn enforcement of the award after giving
reasonable opportunity to the party within reasonable time, against whom
the award is made.
1. Se Seoil v. Gorakhram Gokal Chanel, 64 Bom LR 113 at 126.
2. Shiva Jute Baling v. Hindley & Co., AIR 1959 SC 1357.
ENFORCEMENT OF CERTAIN FOREIGN AWARDS 323

(i) I f the contract is illeg al—Foreign a w a rd cannot be enforced

In Societa Anonmina v. S. Gorakharam Gokalchand,1 the court
observed that one of the conditions for enforcement o f a foreign award is
that such an award must have been made in pursuance of a submission to
arbitration which is valid under the law applicable thereto. It was held that
if the contract is illegal, the award given by the arbitral tribunal in
pursuance of arbitration clause in the contract will not be enforceable.
(ii) E n fo rcem ent o f foreign aw ard in In d ia
In Se Seoil v. Gorakhram, it was observed that Sections 57(1) and
57(2) specify grounds which should be complied with before a foreign award
is enforced in India. Whether these grounds are satisfied the burden of proof
is on the party seeking enforcement of the award. Section 57(3) confers
power on the court, at the instance of the party opposing the enforcement,
to refuse enforcement of the foreign award on certain grounds provided
therein.
Section 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.
COMMENTS
Section 58 is enacted on the basis of Article 1(1) of the Geneva
Convention. The provisions contained in Section 58 are similar to the
provisions of Section 49 of the present Act. This has already been
commented in foregoing pages.'
Section 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.
COMMENTS
The provisions contained in Section 59 are the same as the provisions
given in Section 50 : which have already been commented.
Section 60. Saving.—Nothing in this Chapter shall prejudice
any right 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.
COMMENTS
A similar provision is contained in Section 51 of the Act.

1. AIR 1964 Mad. 532.

2. 64 Bom. LR 113.
 PART III

CON CILIA TIO N

Section 63 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 Pa t shall not apply where b}' virtue of any law for the
time bein g in force certain disputes may not be submitted to
conciliation
COMMENTS
Section 61 is on the pattern of Article 1 of the UNCITRAL1 Conciliation
Rules.
Section 61 deals with application and scope of conciliation machinery.
Sub-section (1) states that provision of this sub-section applies to all
disputes hether such disputes are contractual or non-contractual, however,
if the provision of any other law being applied for conciliation of dispute, the
provisions contained in Part III would not be applied, thus leaving it open
to the special law. The words "save as otherwise provided by any law for the
time being in force" under sub-section (1) clearly state that where any other
law is being applied for conciliation of disputes, the provision o f Part III will
not apply.
Further, sub-section (1) states "unless the parties have agreed" which
means the parties have been given freedom to follow the provision of Part
III or may not adopt such provisions. Thus, the parties may bring the
agreement to an end.
Part. Ill shows importance to the voluntary conciliation and reflection
of it can be -een in Section 61. In other words principle of part autonomy is
the mam object in the process of conciliation in Part III.
Section 61(2) provides that where by operation of law for the time being
in force specified disputes may not be submitted to conciliation, Part III
shall not be applied.
Section 61(2) is similar to Section 2(3) in Part I, which deals with
arbitration. Similarly, Section 61(2) declares that "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". That means if the law which is in
operation declares itself that certain disputes are not to be submitted for
conciliation, Part III shall not be applied.

1. United Nations Commission on International Trade Law.

( 324 )
CONCILIATION 325

S ection 62. C om m encem ent of conciliation

p roceed in g s.— (1) The party initiating conciliation shall send to
the other party a w ritten invitation to conciliation under this Part,
briefly iden tifyin g the subject o f the dispute.
(2) C onciliation proceedings shall com m ence w hen the other
party accepts in w riting the invitation to conciliate.
(3) I f the other party rejects the invitation, there w ill be no
conciliation proceedings.
(4) I f the party initiating conciliation does not receive a reply
w ith in thirty days from the date on w hich he sends the invitation, or
w ith in such other period o f time as specified in the invitatior he m ay
elect to treat this as a rejection o f the invitation to concilia and i f
he so elects, he shall inform in w riting the other party acco ngly.
COMMENTS
Section 62 is enacted on the basis of Article 2 of the UNCITRAL
Conciliation Rules.
Section 62 provides that any party to dispute ma nence
conciliation without the term "claimant" or "plaintiff and such ' ms are not
to be used in conciliation.
Section 62(1) provides that any party to dispute wishing to initiate
conciliation has to fulfil the following conditions—•
1. The party initiating conciliation should send a written invitation to
other party. Such a written invitation should mention the subject
of dispute.
2. The party initiating conciliation should state that the mvitation is
under Part III.
3. The invitation must briefly identify the subject of dispute.
Section 62(2) states that "Conciliation proceedings shall oe commenced
when the other party accepts in writing the invitation to conciliation". Thus,
verbal or oral acceptance has not been recognised under Section 62(2). Under
this sub-section (2) when the other party accepts the invitation in writing to
conciliation he makes an agreement to conciliate. However he may refuse in
writing, not to conciliate, in such a case conciliation proceedings will not be
commenced.
Section 62(3) provides—"If the other party rejects the invitation, there
will be no conciliation proceedings". There is no time limit prescribed under
Section 62, however, the party who is initiating conciliation thereby sends
the invitation in writing to the other party, specifying time limit in the
invitation within which the other party has to convey his willingness to
conciliate rather his acceptance to conciliate or rejection not to conciliate and
accordingly conciliation proceedings may or may not be com menced.
Although, sub-section (4) provides 30 days time from the date on which,
the party is initiating conciliation to receive i reply from the other party or
within such other period of time as may be specified in the invitation. If, the
party does not receive a reply within the aforesaid period, of time, he has an
326 THE ARBITRATION AND CONCILIATION ACT, 1996

option to elect or reject the invitation to conciliate by sending intimation in

writing accordingly.
As per the UNCITRAL Conciliation Rules [Paragraph (2) of Article
2]—if such acceptance is made orally, it is advisable that it be confirmed in
writing.
Thus, Section 62 emphasises that the invitation or the acceptance must
be made in writing for obvious reason to avoid communication gap and for
records purpose.
Who is conciliator
According to the Chambers 21st Century Dictionary—the expression
"conciliate" means to win over someone, to overcome the hostility of
someone, to reconcile (people in dispute) etc.
Black’s Law Dictionary, 7th Edition defines— "conciliation as a
settlement of a dispute in an agreeable manner, a process in which a neutral
person meets with the parties to a dispute (often labour) and explore how
the dispute might be resolved."
According to Halsbury’s Laws of England, 4th Edition— "Conciliator" is
described as a person persuading parties to reach an agreement.
It is to be noted that whereas decision of the arbitrator is binding on
the parties, the finding of a conciliator is recommendatory in nature.
According to the Supreme Court1 if no specific question of law is
referred, the decision of the arbitrator on that question is not final. The
arbitrator is not a conciliator and cannot ignore the law or misapply it in
order to do what he thinks is just and reasonable. The arbitrator is a
tribunal selected by the parties to decide their disputes according to law and
so is bound to follow and apply it.
S ection 63. N u m b er o f 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.
COMMENTS
Section 63 is based on Article 3 of the UNCITRAL Conciliation Rules.
Section 63 deals with numbers of conciliators.
Section 63(1) states that "there shall be one conciliator unless the
parties agree that there shall be two or three conciliators. Thus sub-section
(1) clearly indicates its preference for a sole conciliator but also provides
freedom to the parties to dispute to appoint two or three conciliators,
however by mutual agreement.
WHY SOLE CONCILIATOR ?
Under Section 63(1) a sole conciliator is preferred for the following
reasons—
1. A sole conciliator will be likely to win faith of the parties.
______ 2. Scope of conflicting opinion between the conciliators is reduced by
1. Continental Construction Co. Ltd. v. The State o f M.P., AIR 1988 SC 1166.
CONCILIATION 327

appointment of a sole conciliator.

3. Appointment o f a sole conciliator will be less expensive
comparatively.
4. A sole conciliator would provide speedy conciliation, because
meeting of conciliators within short intervals is likely to cause
delay.
Section 63(2) states that "where there is more than one conciliator, they
ought, as a general rule, to act jointly". That means, sub-section (2)
emphasises on panel decision making where there is more than one
conciliator. As a general rule, all conciliators have to conciliate jointly and
should have their own strategic understanding, as to how, they have to
settle the dispute.
S ection 64. A p p oin tm en t o f conciliators.— (1) Subject to
sub-section (2),—
(a) in conciliation proceedings w ith one conciliator, the parties
m ay agree on the nam e o f a sole conciliator; t
(b) in conciliation proceedings w ith two conciliators, each party
m ay appoint one conciliator;
(c) in conciliation proceedings w ith three conciliators, each party
m ay appoint one conciliator and the parties m ay agree on
the nam e o f the third conciliator w ho shall act as the
presiding conciliator.
(2) Parties m ay enlist the assistance o f a suitable institution or
person in connection w ith the appointm ent o f conciliators, and in
particular,—
(a) a party m ay request such an institution or person to
recom m end the nam es o f suitable individuals to act as
conciliator; or
(b) the parties m ay agree that the appointm ent o f one or m ore
conciliators be m ade directly by such an institution or
person :
P rovided that in recom m ending or appointing individuals to act
as conciliator, the institution or person shall have regard to such
considerations as are likely to secure the appointm ent o f an
in dependent and im partial conciliator and, w ith respect to a sole or
third conciliator, shall take into account the advisability o f appointing
a conciliator o f a nationality other than the nationalities o f the
parties.
COMMENTS
Section 64 is enacted on the basis of Article 4 of the UNCITRAL
Conciliation Rules.
Section 64 provides the procedure for appointment of conciliators, there
may be one conciliator or two or three conciliators.
Section 64(1) provides that the parties have to decide the name of a
328 TH E A R B IT R A T IO N A N D C O N C IL IA T IO N ACT, 1996

sole conciliator, w hereby on agreement one conciliator is appointed to

conduct conciliation proceedings [clause (a)]. However, according to clause (b)
where two conciliators are appointed by the parties to conduct conciliation
proceedings, each party is authorised to appoint one conciliator. But, under
clause (c) of sub-section (1), where three conciliators are appointed to
conciliate each party is authorised to appoint one conciliator and the third
conciliator by name and by the agreement between the parties he will be
appointed to act as the presiding conciliator in 'conciliation proceedings.
Under the Act, the presiding conciliator is not authorised to take
binding decision, in case of differences of opinion between the conciliators,
however, the parties by an agreement may confer such power to the
presiding conciliator. The obvious purpose behind this is to have speedy and
smooth conciliation.
These above-mentioned provisions are subject to the provisions
contained in sub-section (2) of Section 64.
Section 64(2) provides freedom to the parties to make an approach with
a request to any institution which has its known reputation for rendering
conciliation services or any eminent person in the field of conciliation to
recommend suitable individuals to conduct conciliation. Under this
sub-section (2), clause (b) the parties are permitted by an agreement in this
respect to appoint one or more conciliators directly by such an institution a
person who is providing expertise services in the area of conciliation.
Though, the term "suitable" is not defined under Section 64(2), but
what is suitable is the subject-matter for the parties to decide.
It is provided that each party may appoint conciliator independently
without taking opinion of the other party, it is a direct appointment by the
party or the parties who jointly agree that an institution or a person may
be appointed conciliators [two or more], directly.
Proviso to sub-section (2) of Section 64 provides guidelines to the
institution or person, who is requested by the parties to recommend or
appoint conciliators. Such institution or person is required to give due
regards to consideration while recommending or appointing conciliators in
respect of their independent and impartial conciliation. Also, while
appointing a sole or third conciliator in connection with international
commercial conciliation it is advisable to take into account the nationality of
a conciliator, vis-a-uis the nationalities of the parties.
No time limit is laid-down for appointment of conciliators under Section
64, however it is expected that the parties to dispute would take the earliest
initiative to settle their disputes by way of taking services of the professional
conciliators.
S e c tio n 65. S u b m is s io n o f s ta te m e n ts to c o n c ilia to r .— (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
C O N C IL IA T IO N 329

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 evidences 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.
E xp la n a tion .— In this section and all the following sections of
this Part, the term "conciliator" applies to a sole conciliator, or two
or three conciliators as the case may be.
COMMENTS
Section 65 is enacted on the basis of Article 5 of the UNCITRAL
Conciliation Rules.
Section 65 deals with the conduct of conciliation upon appointment of
conciliator or conciliators.
Section 65(1) provides that when the conciliator has been appointed, he
will make a request to each party asking him to submit a written statement
summarily describing the nature of dispute and specified points of issue.
Under sub-section (1) each party will send a copy of such submission of
statement to the other party. The parties are not required to submit their
statement of pleadings as such in details as required in the arbitral
proceedings under Section 23 of the Act, 1996.
Such submissions of statement by the parties to the conciliator is
intended to provide him informations about general nature of dispute.
Section 65(2) provides that it is at the discretion of the conciliator to
call upon any parties to submit a further written statement to clarify his
position and also to support his grounds of the facts, it may be supplemented
by any other documents, evidences, if the party thinks appropriate. It is
required under this sub-section (2) that any thing submitted by the party to
the conciliator, a copy of the same documents will be sent to the other party.
Section 65(3) provides that the conciliator is further enabled to request
for additional informations by the parties at any stage of the conciliation
proceedings, if, the conciliator is of opinion that it is necessary for the
purpose to expedite the conciliation proceedings.
S e c tio n 66. C o n c ilia to r not bound by c e r t a in
e n a c tm e n ts . —The conciliator is not bound by the Code of Civil
Procedure, 1908 (5 of 1908) or the Indian Evidence Act, 1872 (1 of
1872).
COMMENTS
No such provisions are given in the UNCITRAL Conciliation Rules.
Section 66 provides that the conciliator is not bound by the rules of
procedure, i.e., the Code of Civil Procedure, 1908 or the Indian Evidence Act,
1872. It does not mean that he is not required to follow the principles of
natural justice and fair-play, however it is expected from the conciliator, that
he will be impartial, efficient and integrated in the conduct of conciliation
330 TH E A R B IT R A T IO N A N D C O N C IL IA T IO N A C T, 1 9 9 6

proceedings in a most transparent manner.

S e c tio n 67. R o le o f c o n c ilia to r . —(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 hears 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.
COMMENTS
Section 67 is enacted on the basis of Article 7 o f the UNCITRAL
Conciliation Rules, which prescribe role of the conciliator.
Section 67(1), provides basic role of the conciliator, he has to render
assistance in an independent and impartial manner to the parties who are
putting their own efforts to settle the disputes in a very friendly process of
conciliation. Thus, it becomes the duty of the conciliator to exercise his skill
of conciliation.
Section 67(2) provides fundamental principles of natural justice to the
conciliator with object of fairness and justice besides considerations for the
rights and obligations of the parties. The conciliator also has to take into
account of the present circumstances of the given dispute by assessing other
things like the usage of trade concerned and previous business practice
between the parties, if it so exists. The conciliator while making settlement
o f dispute is required to assess every such thing which relates to the dispute.
Although, the conciliator is not bound by the Code of Civil Procedure, 1908
and the Indian Evidence Act, 1872 under Section 66 but he cannot act
arbitrarily in the conduct of conciliation proceedings otherwise it would
damage the concept of conciliation.
The term "fairness" embodies the concept of "equality" that means
equal treatment and opportunity to the parties in conciliation, it is to be
ensured by the conciliator.
Section 67(3) provides discretionary method, which is appropriate in the
view of conciliator, may be adopted by him to conduct conciliation
proceedings, however, the parties to conciliation can express their wishes
freely to the conciliator not only in respect of conduct of conciliation
proceedings but also can make request to the conciliator to record oral
statement to speedup conciliation and early settlement of dispute.
C O N C IL IA T IO N 331

If a party makes request to the conciliator to hear witnesses, the

expenses incurred on calling such witness would be borne by the party who
made such request and it is necessary in respect of calling witnesses to be
heard by the conciliator the other party should have expressly agreed on this
issue.
Section 67(4) provides that the conciliator is authorised at his
discretion to make proposals for a settlement of the dispute, at any stage of
the conciliation proceedings and such proposals are not required to be made
in writing and the conciliator is not bound to state reasons for such
proposals. In the interest of justice, fair play and speedy settlement of the
disputes, such freedom is provided to the conciliator under sub-section (4) of
Section 67.
Section 68. Adm inistrative 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.
COMMENTS
Section 68 is enacted on the basis of Article 8 of the UNCITRAL
Conciliation Rules; Although, this section contains provision similar to those
given in Section 6 of the Act in respect of the arbitration.
Section 68 deals with provisions relating to administrative assistance
to facilitate the conduct of the conciliation proceedings. Such administrative
assistance may be procured from a suitable institution or person, however
such administrative assistance will be taken only after mutual consent of the
parties or the conciliator with the consent of the parties has taken place in
this matter. Mainly, the nature of such administrative assistance is to
provide lists of conciliator, arrange meeting for conciliators, and to provide
two ways communication services, including translation and interpretation
services.
Section 69. Com m unication between con ciliator 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.
COMMENTS
Section 69 is enacted on the basis of Article 9 of the UNCITRAL
Conciliation Rules.
Section 69 deals with procedural communication powers of the
conciliator, which is to take place between the conciliator and the parties all
together or separately, with each party in the conduct o f the conciliation
proceedings.
332 THE ARBITRATION A N D CONCILIATION ACT, 1996

Section 69(1) provides power to communicate to the conciliator, thus

the conciliator may—
(i) invite the parties to meet him, or
(ii) communicate with them orally or in writing.
(iii) meet or communicate with the parties together, or
(iv) meet or communicate with each of them separately.
So, it is required under sub-section (1) of Section 69 that the conciliator
should provide reversible communication or meeting to the parties jointly or
each party separately but he should not refuse meeting with one party and
meet or communicate with the other party. He must be impartial in such
communication or meeting.
Section 69(2) provides freedom to the parties to determine the place for
meeting with the conciliator by mutual agreement, if there is no such
agreement between the parties, the conciliator is empowered to determine
the place for such meeting only after the parties have been consulted and
given their consents. Sub-section (2) is intended to provide common
convenient place with consideration in respect of time of travel, costs of
travel to such places, however, this matter becomes important especially in
case of international conciliation.
S e c tio n 70. D is c lo s u re of in fo r m a tio n . —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.
COMMENTS
Section 70 is enacted on the basis of Article 10 of the UNCITRAL
Conciliation Rules.
Section 70 provides privilege to the conciliator whether to disclose
information made known to him by one party to the other party. However
the conciliator is not expected to disclose such information except the
substance of the factual information in connection with the dispute, received
from one party to the other party.
It is to be noted that in conciliation the conciliator is a confidential
person who should win confidence of the parties primarily to conduct the
conciliation proceedings. However, the conciliator may make disclosure of
such factual information to the other party in order that the other party may
have the opportunity to present any explanation, which the conciliator
considers appropriate.
Proviso to Section 70 of the Act, states that if, the party gives any
information to the conciliator subject to a specific condition that it be kept
confidential, in such cases the conciliator is not allowed to disclose such
information given on a "specified condition" to the other party.
It is to be noted that Section 65(1) and Section 65(2) are not attracted
C O N C IL IA T IO N 333

by the proviso to Section 70.

S e c tio n 71. C o -o p e ra tio n o f p a r tie s w i t h c o n c ilia to r . —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.
COMMENTS
Section 71 is enacted on the basis of Article 11 of the UNCITRAL
Conciliation Rules.
Section 71 states that the parties are required to co-operate in good
faith with the conciliator and particularly to comply with requests made by
the conciliator in respect of submitting written materials, providing evidence
and attending meetings, as and when called by the conciliator. The parties
are under obligation to co-operate and comply, in each and every respect
with the conciliator which enables him to conduct the conciliation
proceedings effectively.
S e c tio n 72. S u g g e s tio n s b y p a r tie s f o r s e ttle m e n t o f
d is p u te . — 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.
COMMENTS
Section 72 is enacted on the basis of Article 12 of the UNCITRAL
Conciliation Rules.
Section 72 provides freedom to each party in respect of the conciliation
to submit his own suggestions to the conciliator or to give suggestion at the
invitation of the conciliator, for the settlement of the dispute. However, the
parties are not bound to submit, it is only an expectation from the parties
to submit their suggestions in the interest of settlement of dispute.
S e c tio n 73. S e ttle m e n t a g re e m e n t. —(1) When it appears to
the conciliator that there exists 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.
334 THE A R B IT R A T IO N A N D C O N C IL IA T IO N ACT, 1996

COMMENTS
Section 73 is enacted on the basis of Article 13 of the UNCITRAL
Conciliation Rules.
Section 73 prescribes procedure for successful completion of conciliation
proceedings.
Section 73(1) provides that when the conciliator is able to formulate
and is of the opinion that acceptable elements of settlement to the parties
exist, then the conciliator will prepare the terms of possible settlement
which shall be subjected to observation by the parties. The conciliator on
receipt of formula which has undergone observation process by the parties,
may reformulate the terms of a possible settlement keeping in view such
observations.
Section 73(2) provides that in situation, the parties could come to a
stage to accept the settlement proposed by the conciliator, the parties may
draw up and sign a written settlement agreement. It is at the discretion of
the parties to make such agreement in writing or not, however, the parties
may request the conciliator to draw up or assist in, drawing up, the
settlement agreement.
In this context, it is advisable to draw up such settlement agreement
in writing, so that its contents are clear and relevant as to settlement terms,
although there is no requirement as such that the settlement agreement
must state reasons on which it has been settled under sub-section (2).
Section 73(3) provides that the moment the parties sign the settlement
agreement, it attains finality and would be binding on the parties and
persons claiming under them respectively.
Section 73(4) provides that the conciliator is required to authenticate
the settlement and would furnish a copy to each of the parties. If, there is
more than one conciliator, all conciliators are required to authenticate the
settlement agreement.
However, there is no provision in UNCITRAL Conciliation Rules, as
contained in this sub-section (4).
(i) S ettlem ent betw een the parties is b in d in g h a vin g status of
a rb itra l aw ard
The Apex Court in Haresh Dayaram Thakur v. State o f Maharashtra/
has held that the settlement between the parties is binding having status of
arbitral award however it must be signed by the parties. It was not proper
for the conciliator to hold some meeting and draw settlement by himself and
send it to the court.
In the present case the Apex Court observed that from the statutory
provisions, it is manifest that a conciliator is a person who is to assist the
parties to settle the dispute between them amicably. For this purpose
conciliator is vested with wide powers to decide the procedure to be followed
by him untrammeled by the procedural laws like the Code of Civil
Procedure, 1908 or the Indian Evidence Act, 1872. When the parties are able
to resolve the dispute between them by mutual agreement and it appears to
the conciliator that there exists an element of settlement which may be
1. A IR 2000 SC 2281 : 2000 (6) SCC 179.
C O N C IL IA T IO N 335

acceptable to the parties he is to proceed in accordance with the procedure

laid down in Section 73, formulate the terms of a settlement and make it
over to the parties for their observations and the ultimate step to be taken
by a conciliator is to draw up a settlement in the light o f the observations
made by the parties to the terms formulated by him. The settlement takes
shape only when the parties draw up a settlement agreement or request the
conciliator to prepare the same and affix their signature to it. Under Section
73(3) the settlement agreement is signed by the parties and person claiming
under them. It follows, therefore, that a successful conciliation proceeding
comes to an end only when the settlement agreement signed by the parties
comes into existence. It is such an agreement which has the status and
effect of legal sanctity of an arbitral award under Section 74 of the Act,
1996.
(ii) W hen settlem ent agreem ent acquires status of a rb itra l aw ard
In Mysore Cements Ltd. v. Suedala Barmac Ltd.,1 the Supreme Court
observed that it is not that every agreement or arrangement between the
parties to the disputes, arrived at in whatever manner or form, during the
pendency of conciliation proceedings that automatically acquires the status
of a settlement agreement within the meaning of Section 73 of the Act so as
to have the same status and effect as if it is an arbitral award, for being
enforced as if it were a decree of the Court. It is only that agreement which
has been arrived in conformity with the manner stipulated and in the form
envisaged and got duly authenticated in accordance with Section 73 of the
Act which alone can be assigned the status of settlement agreement, within
the meaning o f and for effective purposes of the Act, and not otherwise.
It was held by the Supreme Court that in spite of careful scrutiny,
serious deliberations and analysis of the materials on record, particularly
the memorandum of conciliation proceedings and the letter of consent, that
either taken individually or even together they or any one of them can
legitimately claim to be entitled to or assigned the status of a settlement
agreement within the meaning of Section 73, for the purpose of the Act. The
Court ‘expressed the view that they fall short of the essential legal
pre-requisites to be satisfied for being assigned any such status. Thus,
unless the legal requirements of Section 73 are complied with, a letter of
consent furnished on the same day of a settlement arrived at during
conciliation signed by both the parties and authenticated by the conciliators,
is not enforceable as an arbitration award under Section 74 read with
Sections 30 and 36 o f the Arbitration and Conciliation Act, 1996.
S e c tio n 74. S ta tu s a n d e ffe c t o f s e ttle m e n t a g re e m e n t.—
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.
COMMENTS
There is no provision in the UNCITRAL Conciliation Rules as
contained in Section 74, which provides status and effect of settlement
agreement similar to an arbitral award given by an arbitral tribunal under
1. 2003 (3) Suprem e 283.
336 THE A R B IT R A T IO N A N D C O N C IL IA T IO N ACT, 1996

Section 30. Thus, under Section 74 "The settlement agreement shall have
the same status and effect as if it is an arbitral award on agreed terms on
the substance o f the dispute rendered by an arbitral tribunal under Section
30".
As settlement agreement has been given similar status as to an
arbitral award on agreed terms on the substance of dispute and also same
effects, although a settlement agreement is the result of parties choice by
self determination, a party to such an agreement may be estopped from
invoking the grounds for setting aside under Section 34, Chapter VII.
However Section 61(2) read with Section 34(2)(bXi) of the Act, which
provides that "the court is not barred from setting aside the agreement if it
finds that the subject-matter of the dispute is not capable of settlement by
conciliation", or if the settlement agreement is opposed to the public-policy
of India.
A settlement agreement is to be treated like a decree of the court, but
the executing court may refuse to grant prayer if it is of opinion that the
settlement agreement has been made in contravention of Section 34(2Xb)
and hence without jurisdiction.1
S e c tio n 75. C o n fid e n tia lit y . —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.
COMMENTS
Section 75 is enacted on the basis of Article 14 of the UNCITRAL
Conciliation Rules.
Section 75 provides the "principle of confidentiality" and on the basis of
it the conciliator and the parties are required to keep all matters ‘close to
their chest’ relating to the conciliation proceedings. Section 75 forbids
disclosure to strangers or outsiders any matters relating to the conciliation
proceedings. However, such confidentiality is not restricted to matters
relating to the conciliation proceeding but it also extends to the settlement
agreement except where its disclosure is necessary for purposes of
implementation and enforcement.
It is obvious to gain confidence between the parties and the conciliator
and in their commercial interests that Section 75 has been designed. The
nature and character of the conciliation proceedings have also been taken
into consideration.
S e c tio n 76. T e r m in a t io n o f c o n c ilia tio n p ro c e e d in g s . —The
conciliation proceedings shall be terminated—
(a) by the signing of the settlement agreement by the parties,
on the date of agreement; or
(b) by a written declaration of the conciliator, after consultation

1. Kiran Singh v. Chaman Paswan, AIR 1954 SC 340. 342; UOI v. M is. Jagat Ram Trehan
& So:- ,, AIR 1996 Del 191, 194.
C O N C IL IA T IO N 337

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.
COMMENTS
Section 76 is enacted on the basis of Article 15 of the UNCITRAL
Conciliation Rules. This section is analogous to Section 32, Part I of the Act,
1996, however with one contradiction that "A conciliation is wholly a
voluntary process therefore it can come to an end as and when desired to do
so.
Section 76 lays down four situations, when the conciliation proceedings
can be terminated. Although other than these prescribed grounds, there are
grounds to terminate the conciliation proceedings that is, on death of a party
and may also be on death of a conciliator, but may not necessarily terminate
the conciliation proceedings as in case of appointing a new conciliator
provided the parties agree to do so.
Under Section 76, the following are the ways to terminate the
conciliation proceedings—•
(i) clause (a) by the signing of the settlement agreement by the
parties, on the date of the agreement, or
(ii) clause (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
(iii) clause (c) by a written declaration o f the parties addressed to the
conciliator to the effect that the conciliation proceedings are
terminated, on the date of the declaration, or
(iv) clause (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 o f the declaration.
No time limit as such is provided under Section 76, that within what
period the conciliation proceedings can be terminated. Because of a
voluntary nature of the conciliation the parties are not required to state the
reasons for termination of the conciliation proceedings.
S e c tio n 77. R e s o rt to a r b it r a l o r j u d i c i a l p ro c e e d in g s .—
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
338 THE ARBITRATION AND C O N C IL IA T IO N A C T , 1 9 9 6

proceedings are necessary for preserving his rights.

COMMENTS
Sectior 77 is enacted on the basis of Article 1? of the UNCITRAL
Conciliation Rules.
Section 77 is intended to restrain the parties from initiating or taking
resort to arbitral or judicial proceedings on the subject-matter of dispute
during the conciliation proceedings. This section provides the easily carved
without breaking formula that is why it further provides that a party may
initiate arbitral or judicial proceedings if the party realises that resort to
arbitral or judicial proceedings has become inevitable for safeguarding his
rights, while the conciliation proceedings are being conducted.
As contained in Section 77, the general principle is that when serious
efforts are being made to settle the disputed subject-matter by the
conciliation proceedings, the taking of recourse to arbitral or judicial
proceedings should be avoided on the subject-matter of dispute which is
submitted to conciliator for the purpose of conciliation. On the other
subject-matter, the parties are free to resort to arbitral or judicial proceeding
where their rights are being infringed. Thus, resort to arbitral or judicial
proceedings does not necessarily mean termination of the conciliation
proceedings.
Sc ction 78. Costs.—(1) Upon termination of the conciliation
proceedings, the conciliator shall fix the costs of the conciliation and
give wr'tten notice thereof to the parties.
(?) For the purpose of sub-section (1), "costs" means reasonable
costs rtk ting to—
(a) Lle fee and expenses of the conciliator and witnesses
] equested 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.
COMMENTS
Section 78 is enacted on the basis of Article 17 of the UNCITRAL
Conciliation Rules. The provisions contained in Section 78 is analogous to
provision contained in Section 31(8) of the Act, 1996 which deals with
arbitration.
Section 78 deals with the costs fixation in respect of the conciliation
proceedings.
Section 78(1) provides that after termination of the conciliation
C O N C IL IA T IO N 339

proceedings, the conciliator is empowered to fix the costs of the conciliation

proceedings and will send written notice in respect o f such fixation of the
costs to the parties.
Section 78(2) provides definition of the costs for application of provision
contained in sub-section (1). However, sub-section (2) does not provide any
prescribed scale to measure such as to the costs but it states "costs" means
reasonable costs which may be determined by the conciliator, what is
reasonable. In practice the costs is determined generally at the time of
appointment of the conciliator or before the conciliation proceedings, when
the parties are asked to deposit fix amount as advance. Thereby, it becomes
known to the parties and in case the costs for conciliation is not acceptable
to the parties, they may do away with his services.
There is no provision given in case, the parties are not paying the costs
after deposit of advance amount which is hardly half of the amount of total
costs, how, the conciliator will make recovery of the balance o f amount from
the parties, although Section 39 of the Arbitration law, which deals with
matters concerning the unpaid costs of the arbitration to be secured by way
of lien on arbitral award. So, in the cases of unpaid costs for conciliation,
the conciliator may have to move to a civil court for recovery of unpaid costs
and finally, the court has to determine whether the costs in question is
payable or not, whether the costs is reasonable or not. It is expected that
the conciliator and the parties should settle this issue candidly and honestly.
According to sub-section (2) of Section 78 "costs" means reasonable
costs which includes the following :—
(a) the fee and expenses of the conciliator and witnesses requested by
the conciliator with the consent of the parties,
(Jo) any expert advice requested by the conciliator with the consent of
the parties,
(c) any assistance provided in 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.
Section 78(3) provides that the costs of the conciliation proceedings will
be borne by the parties in line with the principle of ‘Equity’, unless the
settlement agreement provides for a different apportionment.
It is obligatory on the part of the parties to share equally the "Costs",
because in the conciliation proceedings there is no winner or looser as such.
S e c tio n 79. D e p o s its .— (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
340 THE ARBITRATION AND CONCILIATION ACT, 1996

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.
COMMENTS
Section 79 is enacted on the basis of Article 18 of the UNCITRAL
Conciliation Rules and the provision contained in this section is analogous
to the provision given in Section 38, which deals with deposits in arbitration.
There are four sub-sections in Section 79. Sub-section (1) provides that
the conciliator may direct each party to deposit an equal amount as an
advance for the costs on account of the conciliation proceedings as mentioned
in Section 78(2) which he expects will be incurred. It is an approximate
reasonable amount as to the costs to be determined by the conciliator and
to be deposited to him. Under sub-section (2) the conciliator may direct
supplementary deposits in an equal amount from each party, during the
course of the conciliation proceedings.
Sub-section (3) of Section 79 provides power to the conciliator to
suspend or terminate the conciliation proceedings if the required deposits
under sub-section (1) and sub-section (2) are not paid in full by both parties
within thirty days. However the conciliator may make such suspension or
termination of the conciliation proceedings by a written declaration,
communicated to the concerned parties, which will be effective on the date
of such declaration. It is at the discretion of the conciliator ultimately,
therefore, despite the non-payment of deposits to continue or not to continue
the conciliation proceedings.
Sub-section (4) of Section 79 casts a duty on the conciliator that in the
event of termination of the conciliation proceedings, the conciliator is bound
to furnish an account to parties in respect of deposits received and return
any unexpended balance to the parties.
S e c tio n 80. R o le o f c o n c ilia to r in o th e r p ro c e e d in g s .—
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 proceedings 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.
COMMENTS
Section 80 is enacted on the basis of Article 19 of the UNCITRAL
Conciliation Rules.
Section 80 provides the restriction on the conciliator that he is not
permitted to act as an arbitrator or as a representative or counsel for any
party in any arbitral or judicial proceedings in which the subject-matter of
dispute is that which is also the subject-matter of dispute in the conciliation
C O N C IL IA T IO N 341

proceedings. However the conciliator may be permitted to act on such roles

by a settlement agreement or mutual agreement of the parties.
The conciliator is also not allowed to appear as a witness on behalf of
the parties in any arbitral or conciliation proceedings. Although, the
conciliator may be presented by the parties as a witness in any such
proceedings only by an agreement between the parties.
Section 80 will apply only if the parties do agree otherwise.
The purpose of Section 80 is that the conciliator should not be allowed
to be used in favour of or against any party because of his given or gained
knowledge and informations and loose clues of the subject-matter of dispute
to support or oppose any party in any arbitral or judicial proceedings.
Because during the course of the conciliation proceedings the conciliator
being a friendly person with the parties, he knows the strong and weak
points o f the subject-matter of dispute which may cause apprehension or
undue influence to the parties or a party against whom the conciliator
applies his knowledge or acquired information about the subject-matter of
dispute. Thus, to provide equal protection and equal status to the parties
based on the principle of natural justice the provision contained under
Section 80 is necessary.
S e c tio n 81. A d m is s ib ility of e v id e n c e in o th e r
p ro c e e d in g s . — The parties ^hall 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.
COMMENTS
Section 81 is based on Article 20 of the UNCITRAL Conciliation Rules.
Section 81 is enacted with similar object as contained in Section 80,
however Section 81 provides four categories of evidence which cannot be
relied on or introduced as evidence in arbitral or judicial proceedings where
the subject-matter of such proceeding is the same as that o f the conciliation
proceedings.
In fact, there is no absolute prohibition as such in respect of
admissibility of evidence in other proceedings, but the information which has
potentiality to cause prejudice to one party or the other party is inadmissible
in arbitral or judicial proceedings.
Evidences, which are categorised as inadmissible under Section 81 are
as follows—
(a) views expressed or suggestions made by the other party in respect
342 THE A R B IT R A T IO N A N D C O N C IL IA T IO N ACT, 1996

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.
 PART IV

S U P P L E M E N T A R Y PROVIS ION S

Section 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.
COMMENTS
Section 82 of the Act, 1996 confers rules-making power to High Courts
which is consistent with the Act for the purpose of all proceedings before the
court being held under the Arbitration and Conciliation Act, 1996. It
includes appeal cases under this Act. Similar provisions were given in
Section 44 of the Arbitration Act, 1940, Section 10 of the Arbitration
(Protocol and Convention) Act, 1937 and Section 11 of the Foreign Awards
(Recognition and Enforcement) Act, 1961, provides similar rules-making
power to High Courts. It is to be noted that the High Courts are conferred
with powers to make rules only for specified areas.
Under the Arbitration and Conciliation Act, 1996, the High Courts have
been conferred jurisdiction and functions to make rules for speedy
procedures, smooth proceedings and expeditious disposal of the cases before
the court under this Act, including appeals. Under the present Act, Sections
8 and 9, sub-sections (5) and (6) of Section 13, sub-section (2) of Section 14,
sub-section (6) of Section 16, Sections 27, 34, 36 and 37, sub-sections (2), (3)
and (4) o f Section 39, Section 42, sub-sections (3) and (4) o f Sections 43,
Sections 45 to 50 and Sections 54 to 59 deal with the subject.
So, the rules made within the scope and purview of the rule-making
power under a statute and in conformity with its provisions form part of the
statute.1 However where the High Courts have not been provided under
present Act to cover by their rules on such cases the ordinary procedure
under the Code of Civil Procedure, 1908 will be applied.
The Supreme Court, under Article 145 of the Constitution of India has
been conferred power to make rules with the object to regulate the practice
and procedure of the court and further, to make rules for procedure and time
limit for appeal cases. However the power of the Supreme Court under
Article 145 can be exercised only with the approval of the President of India
and the Supreme Court by exercising its power under Article 145 has made
the Supreme Court Rules, 1966, thus, to regulate entire judicial machinery
in uniform practice and procedure.
Scope of the Rules fram ed th ereu n d er
Section 85(2)(b) of the new Act, 1996 reads as under—Notwithstanding
such repeal— "all rules made and notifications published, under the said
enactments shall, to the extent to which they are not repugnant tu this Act,

1. GOC-in-C v. Subash Chandra Yadav, (1988) 2 SCC 351-357.

( 343 )
344 THE A R B IT R A T IO N A N D C O N C IL IA T IO N ACT, 1996

be deemed respectively to have been made or issued under this Act." The
Supreme Court in General Officer Commanding in Chief v. Subash Chandra
Yadau,1 observed that it is well settled that rules made within the scope and
purview of the rule making power under a statute and in conformity with
its provisions form part of the statute.
Where there are no rules of the High Court or such rules do not cover
the case under consideration, ordinary procedure under the Code of Civil
Procedure, 1908 applies.2
S e c tio n 83. R e m o v a l o f d iffic u ltie s . — (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 provision 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 sectio’n shall, as soon as may
be after it is made, be laid before each House of Parliament.
COMMENTS
Section 83 provides removal of difficulties while applying the provisions
of this newly enacted law. Inclusion of such a provision became necessary in
case of application which covers new area of human activities required to
have such provision. The Legislature has used its foresight by passing of the
Act which gives a new dimension in the field of arbitration and conciliation
law in international commercial arbitration and conciliation activities.
Section 83 has been formulated with the object that application of newly
enacted law may become difficult at certain points and neither the courts
nor the legislature should be frequently required to interpret this new law.
Therefore in Act itself provision has been made, that in case any difficulty
arises while applying to the provision of this Act, the Central Government
is burdened by order to publish in the official Gazette clarification, and
application after removal of difficulties in respect of certain provisions of
this, but it must not be inconsistent with the provisions of the Act. Earliest
possible removal of difficulties is intended under sub-section (1) of Section
83. Although such a declaration will not change the legal position because it
will not be inconsistent with the provisions of this Act.
Under Section 83 the Central Government is not exercising any
legislative functions as such. Therefore the Central Government cannot have
power to add or delete from the Act. In this context, the Supreme Court of
India in M.V. Sinai v. Union o f India? observed :
"Further, the Central Government can exercise the power under
the clause only to the extent it is necessary for applying or giving effect
to the Act, and no further. It may slightly tinker with the Act to round
off angularities, smoothen the joints or remove minor obscurities to
make it workable, but it cannot change, disfigure or do violence to the
1. (1988) 2 SCC 351.
2. Nainsukh Das Nagarmal v. Gajanand Shyam Lai, AIR 1921 All. 273.
3. AIR 1975 SC 797.
SU P P LE M E N TA R Y P R O V IS IO N S 345

basic structure and primary features of the Act. In no case, can it under
the guise of removing difficulty, change, the scheme and essential
provisions of the Act".
Further, Section 83 provides time limit i.e. , a period of two years from
the date of commencement of this Act, within which the Central Government
is allowed to make such order. The Central Government cannot make such
order after expiry of the said period. Every order made by the Central
Government under Section 83 was required to be laid before both the Houses
of the Parliament.
Legislature cannot be approached for removal of every difficulty
In M.V. Sinai v. Union o f India/ the Apex Court observed that the
inclusion of "removal of difficulties" clause in the new Act is justified on the
ground that there may be some difficulties in application of new Act and
doubts might arise which should not be left to the courts with the attendant
delays and expense for resolution. The court further observed that the
legislature should not be approached for removal of every difficulty,
howsoever trivial encountered in the application of a statute, by going
through the time consuming, a mandatory process.
S e c tio n 84. P o w e r to m a k e ru le s . — (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 the
Houses agree in making any modification in the rule or both the
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.
COMMENTS
Section 84 confers powers on the Central Government to make rules for
the purpose of carrying out the provision of this Act. In view of the said
purpose the Central Government may make rules, by notification published
in the official gazette. The provision such as contained in sub-section (1) of
Section 84 is generally provided in every enactment to deal with all
contingencies, which may arise while applying the provision of the Act.
The Supreme Court of India in Atlas Cycle Industries v. State o f
Haryana,2 observed that "This provision is devised keeping in view the
difficulties in bringing out a legislation that deals with all contingencies
likely to arise in its application and the desirability of leaving details to be
1. A IR 1975 SC 797.
2. A IR 1979 SC 1149.
346 THE ARBITRATION AND CONCILIATION ACT, 1996

filled afterwards".
Section 84(2) lays down the provision to be followed which prescribes
procedure that every rule made by the Central Government under this Act
will be laid before both the Houses of Parliament, while the Parliament is
in session, for a total period of 30 days. It does not matter whether such a
session is comprising one or two or more sessions, if, before the expiry of the
session immediately following the session or successive session both the
Houses agree on making such rules or any modification that will be given
effect to as it is, if not agreed that will not be given effect. However such
modification or annulment shall be without prejudice to the validity of
anything previously done under the rule. On this procedure the Supreme
Court observed that "The requirement to lay the rules before each House of
Parliament is merely directory and failure to lay the rules has no effect on
their validity and the rules continue to be effective and operative from the
date they were in force".1
Thus, Section 84 provides a negative procedure—the rules made under
this Section require modification or annulment within prescribed time limit
without prejudice to validity of anything done previously. However such
rule-making power is provided in all Central enactments constantly, though
such rules should be laid before each House of Parliament for making any
modification or annulment.
S e c tio n 85. R e p e a l and s av in g s . —(1) The Arbitration
(Protocol and Conventions) 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 came 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.
COMMENTS
Section 85(1) repeals three Acts, which were in force before the
enactment of the present Act, 1996. These are—
(1) The Arbitration (Protocol and Conventions) Act, 1937, (6 of 1937).
(2) The Arbitration Act, 1940 (10 of 1940), and
(3) The Foreign Awards (Recognition and Enforcement) Act, 1961 (45
of 1961).
However, sub-section (2) provides saving clause—Notwithstanding such
repeal—Sub-section (2) Clause (a) provides that the provisions contained in
1. Jan Mohammad Noor Mohammad Bagban v. State of Gujarat, A IR 1966 SC 385; State
(Delhi Admn.) v. V.C. Shukla, A IR 1980 SC 1382, 1418.
SUPPLEMENTARY PROVISIONS 347

repealed enactment shall apply only in relation to arbitral proceedings which

commenced before the present Act came into force, if it is agreed by the
parties, however, the present Act shall apply to an arbitral proceeding which
commenced on or after the present Act, 1996 came into force.
Clause (b) permits all rules made and notifications published under the
said enactments to be applied to the extent to which these rules or
notification are not repugnant to the present Act. Such rules and
notifications shall be deemed to have been made or issued under the present
Act.
Thus, when an Act is repealed and new Act takes place of an old Act,
it is required to make a "Repeal and savings clause" with regard to the
application o f the old Act in respect of pending proceedings.
It is intended under Section 85 that the present Act has been enacted
to consolidate and reform the law which deals with domestic and
international commercial arbitration and enforcement of foreign arbitral
awards.
(i) Scope o f Section 85
In Fresenius A.G. v. Dalmia Industries Ltd.,1 the Allahabad High Court
illustrated the scope of Section 85 of the Act, 1996 wherein the petitioner
felt aggrieved from the order of the Civil Judge and no appeal was provided
and only course left was revision. Court held that the District Judge should
not have disposed of the matter by saying that revision is not maintainable.
Perhaps, it escaped from his mind that he is sitting on the order passed in
suit and not an order passed under the Arbitration Act, 1940 or Foreign
Awards (Recognition and Enforcement) Act, 1961. It was held that the
District Judge committed a jurisdictional error which resulted into failure of
exercise of jurisdiction vested and ultimately failure of justice. There is
hierarchy of forums provided under the statute and hierarchy of forums of
the court provided under the Act.
(ii) A p p lic a b ility of the new Act, 1996—Reference of dispute for
a rb itra tio n
In Shetty’s Construction Co. Pvt. Ltd. case,2 the Apex Court has held
that demand for referring the dispute for arbitration made and arbitration
suit filed before 26-1-1996, the provisions of the new Act, 1996 will not apply
and the proceeding will be governed by the old Act, 1940.
In the present case the court observed that a mere look at Section
85(2)(a) of the new Act, 1996 shows that despite the repeal of Arbitration
Act, 1940, the provision of the said enactment shall be applicable in relation
to the arbitration proceedings which commenced prior to coming into force
of the new Act. The question arose whether on the date the new Act came
into force i.e., 26-1-1996 the arbitral proceedings had commenced or not.
Section 21 of the new Act, 1996 is based on that unless otherwise agreed
between the parties in respect of arbitration dispute commenced on the date
on which the request for referring the dispute for arbitration is received by

1. 1998 (1) A rb . L R 6 (A ll.); see also Milk Food Ltd. v. G.M.C., Ice Cream Pvt. Ltd., 1999
(1) R .A .J. 213 (D e lh i).
2. 1998 (5) SCC 599 : 1998 (6) J T 643.
348 THE ARBITRATION A N D CONCILIATION ACT, 1996

the respondent. Therefore, it must be found out whether the request by the
petitioner for referring the dispute for arbitration was moved for
consideration for the respondents on or after 26-1-1996 or prior thereto. If
such requests were made prior to that date, the provision of old Act shall
apply but if the request was made after that date, the proceedings will be
governed by the new Act, 1996.
(iii) No narrow meaning of the phrase "in relation to arbitral
proceedings"
The Supreme Court in Thyssen Stahlunion GMB H v. Steel Authority
o f India L td .f observed that if narrow meaning of the phrase "in relation to
arbitral proceedings" is to be accepted, it is likely to create great deal of
confusion with regard to the matters where award is made under old Act.
Provisions for the conduct of arbitral proceedings are vastly different in both
the old and new Act. Challenge of award can be made with reference to the
conduct of arbitral proceedings. An interpretation which leads to unjust and
inconvenient results cannot be accepted. In respect of a foreign award given
after the commencement of the new Act there is no vested right to have the
foreign award enforced under the Foreign Award Act (Foreign Award
Recognition and Enforcement Act, 1961).
(iv) Date of commencement of arbitral proceedings in the context of
"saving clause"
The Calcutta High Court in Food Corporation o f India v. Hari Prasad,2
had an occasion to consider •the scope and extent of the saving clause
relating to the date of commencement o f arbitral proceedings and entering
on reference. It was held that the arbitral proceedings deemed to have been
commenced on the date on which the request to refer the dispute to
arbitration is received by the respondent in accordance with Section 21 of
the Arbitration Act, 1940.
The Court held further, that the arbitrator is deemed to have entered
on reference when he begins with some judicial work i.e., admission of
documents for evidence or hearing the witness etc. Thus, mere submission
of claim or counter claim or fixing of date of hearing are not judicial.
(v) Applicability of Act, 1996 by consent of party
In State o f Rajasthan & another v. M/s. Chandi and Company,3
wherein consent for applicability of Act, 1996 is required to be given prior
to passing of award itself and it cannot be beyond outer limit, termination
of arbitral proceedings under Section 32(1) of Act, 1996. It has been held by
the Rajasthan High Court that Act, 1996 nowhere provides that by
agreement, parties may agree that enforcement of award or challenge to
award will be under Act, 1996. No consent of parties can make provisions of
Act, 1996 applicable to the Court proceedings after award was passed under
the Arbitration Act, 1940.
S e c tio n 86. R e p e a l of O rd in a n c e 27 of 1996 and
s a v in g . —(1) The Arbitration and Conciliation (Third) Ordinance,
1. 1996 (6) Scale 441.
2. AIR 1992 Cal. 346.
3. AIR 2007 (NOC) 150 (Raj.).
SUPPLEMENTARY PROVISIONS 349

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.
COMMENTS
Originally, there was the Arbitration and Conciliation Ordinance, 1995,
which was promulgated by the President of India as law with effect from
25th January, 1996, however it was replaced by the Arbitration and
Conciliation (Second) Ordinance, 1996 with effect from 26th March, 1996
and it was also replaced by the Arbitration and Conciliation (Third)
Ordinance, 1996 with effect from 26th June, 1996. Finally, the Arbitration
and Conciliation Act, 1996 with effect from 22nd August 1996, came into
force.
Section 86(1)—The Third Ordinance (The Arbitration and Conciliation
Ordinance, 1996) which contains a ‘saving clause’ has been repealed by
Section 86 of the Act, 1996.
Section 86(2) provides that any order, rule, notification or scheme made
or anything done or any action taken under the provision o f the repealed
Third Ordinance, 1996, will be deemed to have been made, done or taken,
under the relevant provision of the Arbitration and Conciliation Act, 1996
[Act No. 26 of 1996].
Scope of Section 86
In Food Corporation o f India v. Dilip Kumar Dutta,1 the question arose
that if the dispute exists under the old Arbitration Act, 1940 but the notice
of commencement has not yet been served, can the parties be forced to bring
the dispute under the new Act, 1996. It was answered by the Court that the
parties ought to have been guided by the date of dispute that is, cause of
arbitration which ultimately led to the commencement to the satisfaction of
both the Sections 37(3) and 21 of both the Acts respectively.

1. 1999 (2) Arb. LR 67 (Cal.); Rani Construction Pvt. Ltd. v. II.P. State Electricity Board,
1991(1) R.A.J. 332 (H.P.).
 THE FIRST S C H E D U L E
(See Section 44)

C ONVENTION O N THE RECOGNITION A ND 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 o f 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
o f 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 or 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 awards are 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
THE FIRST SCHEDULE 351

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 o f the submission to
arbitration, provided that if the decision 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 o f 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
35 2 THE A R B IT R A T IO N A N D C O N C IL IA T IO N ACT, 1996

(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(l)(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 multi-lateral 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 o f the country where such award is sought to be relied upon.
2. The Geneva Protocol on Arbitration Clauses of 1P23 and the Geneva
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
o f any other State which is or hereafter becomes member o f 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 o f 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 o f the Convention for the State concerned, whichever
is the later.
3. With respect to those territories to which this Convention is not
TH E FIRST S C H E D U LE 353

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 o f 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 o f 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.
35 4 THE A R B IT R A T IO N A N D C O N C IL IA T IO N ACT, 1996

ARTICLE XIV
A Contracting State shall not be entitled to avail itself o f 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.
 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 o f 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 o f 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 States 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 o f the Contracting Parties, on being seized of a
dispute regarding a contract made between persons to whom Article 1
applies and including an Arbitration Agreement whether referring to present
or future differences which is valid by 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 o f Nations, who shall
notify such deposit to all the Signatory States.

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356 THE A R B IT R A T IO N A N D C O N C IL IA T IO N ACT, 1996

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 o f its ratification.
7. The present Protocol may be denounced by any Contracting State
on giving one year’s notice. Denunciation shall be effected by a notification
addressed to the Secretary-General of the League, who will immediately
transmi 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 undermentioned
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.
 THE TH IR D S C H E D U LE
(See section 53)

CO N VENTIO N O N THE EXECUTION OF FOREIGN ARBITRAL

AWARDS
A rticle 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 o f 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 o f settlement by
arbitration under that 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 of pourvoi en cussartion (in the
countries where such forms of procedure exist) 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 o f the country in
which it is sought to be relied upon.
A rticle 2.— Even if the conditions laid down in Article 1 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

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358 TH E A R B IT R A T IO N A N D C O N C IL IA T IO N A C T, 1 9 9 6

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.
A rtic le 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.
A rtic le 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 a sworn translator
of the country where the award is sought to be relied upon.
A rtic le 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.
A rtic le 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.
A rtic le 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
THE THIRD SCHEDULE 359

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.
A rtic le 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.
A rtic le 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 o f 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 o f the League of
Nations.
The Denunciation of the Protocol on Arbitration Clauses shall entail,
ipso facto, the denunciation of the present Convention.
A rtic le 10.—The present Convention does riot 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.
A rtic le 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.
 ALTERNATIVE M E A N S OF S E T T L E M E N T OF
D IS P U TE S

During ancient time arbitration, conciliation and mediation were the

means for settlement of disputes outside the formal legal system. These
alternative means were recognised not only in India but also in other parts
of the world. Thus, settlement of dispute outside the scope of the formal
legal system may be called as an alternative means of settlement of
disputes. However, in the context of the law of arbitration the settlement of
dispute through a mediator is necessarily treated as an alternative means.
The settlement of disputes, outside the scope of the formal legal system was
prevailing in India before the advent of Mogul regime. India is a country of
villages and among the rural folks the settlement of disputes used to be
resolved by rural intellectuals and by prominent persons of villages. On
arrival of Englishmen/Britishers in India this system diminished by the
inception of formal legal system.
The judicial system developed by the Britishers was very expensive and
time consuming and due to these reasons the people’s faith on such legal
system was being diminished. After the independence it was realised that
there is need to have such an alternative means of dispute resolving system
or machinery which may be economical and less time consuming.
Consequently emphasis was put on developing the alternative means for
settlement of disputes which should be scientifically designed. Even, the
International community paid attention towards this traditional alternative
means for settlement of disputes by way of arbitration, conciliation and
mediation. It is to be seen that not only in India but also in China, England
and United States of America this traditional alternative means for
settlement of disputes was prevailing since long. Now, the international
business community is of firm opinion that alternative dispute
resolution—ADR is the only means or way to get rid from the demerits of
the present legal system.
It is a universally admitted fact that arbitration, conciliation and
mediation are efficient alternative means for resolving disputes.
Undoubtedly, these alternative means are less expensive and are not time
consuming which are in fact very important factors for protection of
commercial relationship.
In past years it has been witnessed that settling the disputes by the
alternative means such as arbitration, conciliation and mediation and its
scope have been considerably increased in the business field. Several
developed and developing countries have adopted and recognised the
alternative dispute resolution for resolving the international commercial
disputes. The United States of America is the first country which has net
only campaigned for alternative means for settlement of international
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ALTERNATIVE MEANS OF SETTLEMENT OF DISPUTES 361

commercial disputes but also adopted the system of alternative means of

dispute settlement. It should be made clear that the alternative dispute
resolution is not an alternative to the formal judicial system but only a
supplement to it, its main object being to render economical and speedy
disposal o f disputes. Notably, negotiation, mediation, arbitration and
conciliation are the system which comes within the purview of the
alternative means for disputes resolution.
In view of increasing importance of alternative means for settlement of
disputes, it has become necessary to train the person for this purpose and
impart expertise in this field as skilled persons are required to perform
under the system of alternative disposal of disputes. Thus with the object to
give statutory recognition to alternative means of settlement of disputes, the
necessity of an organisation was felt. On 4th December 1997 the Chief
Ministers of States and the Chief Justices of the High Courts met in New
Delhi to discuss at length the alternative means of dispute resolution. In the
meeting it was declared that the present justice delivering system is not
capable to bear the whole workload and it would be appropriate to deliver
justice by the alternative means of disposal of disputes as well. Under this
system there is a procedural flexibility and also it is time and money saving
besides the absence of tension of regular trial.
In this context the legendaries of various fields i.e., commercial,
administrative and legal unanimously constituted an institution to be called
"International Centre for Alternative Dispute Resolution—ICADR. This
institution was established in Delhi on 31st May, 1995 and registered under
the Society Registration Act, 1960. It is an autonomous non-beneficial
institution. The chief object of this institution is to inculcate and expand the
culture o f alternative dispute resolution. However, other objects of the
International Centre for Alternative Dispute Resolution are as under :—
1. to expand, encourage and popularise the scientific means for
settlement of local, national and international commercial
disputes;
2. to provide assistance and render facilities for arbitration,
conciliation and mediation;
3. to develop the alternative means of dispute resolution among the
communities in accordance with their social, economic and other
requirements;
4. to appoint conciliator and mediator on the request made by the
parties in the dispute. In accordance with the Arbitration and
Conciliation Act, 1996 if the parties are unable to appoint the
mediator or conciliator or arbitrator they can designate or
nominate any person or institution for the appointment of the
mediator. Similar power has also been conferred upon the Chief
Justice;
5. to provide training and skill and also confer diploma and degrees
in the field of the alternative dispute resolution;
6. to provide infrastructural facilities for education, research and
training in the field of alternative means for settlement of
disputes;
362 THE ARBITRATION AND CONCILIATION ACT, 1996

7. to provide scholarship, stipend and fellowship in the matter

relating to alternative means of dispute resolution.
In India the system of alternative means of dispute resolution although
it was prevailing since ancient times but it acquired statutory recognition
only in the 20th century. This system is mostly related to commercial
disputes, thus it deserves further development.
Alternative Dispute Resolution : Why needed
Undoubtedly, Alternative Dispute Resolution (ADR) is a modern
concept which has been developed to settle dispute amicably and speedily
specifically relating to commercial transaction/contract.
Introduction of ADR in modern judicial system is the need of the hour
to deal efficiently, economically and to further expeditious disposal of cases,
Undoubtedly, the system of adjudication needs drastic improvement and
policy makers are compelled to innovate alternate mechanism. It is true that
ADR helps in pre-litigation stage. While considering the legal aspect the
Parliament in India introduced the Legal Services Authorities Act, 1987
which created a legal platform for the ADR machinery for amicable
settlement of disputes by setting up Lok Adalats.
The mounting arrears of pending cases in the Indian Courts involving
inordinate delay in the administration of justice and the expenses of
litigation are the factors undermining the litigant’s faith in the judicial
system.
Now NGO’s working on legal awareness campaign and legal aid are
promoting the ADR mechanism.
It is submitted that ADR mechanism is proving to be an efficient
alternative for redressing grievances or answering a complaint and
rendering justice which is the constitutional right of the people in a
democratic governance.
Notably, due to various reasons the regular litigation has become awful
on account of lethargic, inadequately equipped judicial system. However,
reasons that, why Alternative Dispute Resolution is needed could be
summarised as follows :—
(1) Amicable settlement of disputes.
(2) Speedy disposal of dispute.
(3) Economical settlement of dispute.
(4) A time saving management.
(5) Legal recognition,
(6) Globalisation of commercial activities.
(7) Advent of multi-national corporations.
(8) Industrialisation.
1. Amicable settlement of disputes.—It has been settled now that
ADR provides a friendly settlement of disputes. In business it is a prudent
approach to have a competitor not a rival. In business; wisdom do not have
scope for enmity. It is clear that a healthy competition brings improvement
and it also effects cost of service or commodities in every sphere. In present
scenario even criminal matters are settled amicably. It would be relevant to
ALTERNATIVE MEANS OF SETTLEMENT OF DISPUTES 363

mention the concept of plea bargaining in the Code of Criminal Procedure,

1973 has been incorporated. Meaning thereby that in term of compromise
the compensation can be offered by accused to the complainant and the
Court of Law may put its seal of approval and pass the order accordingly.
(2) Speedy disposal of dispute.—Alternative Dispute Resolution
provides speedy disposal of dispute. Under this system there is no much
scope of adjournment, stay or lengthy session of arguments etc.
(3) Economical settlement of dispute.—It delivers economical
solution/settlement of dispute. In other words litigation expenses and
exorbitant counsel’s fees could be avoided by invoking settlement of dispute
by means of conciliation and mediation.
(4) A time saving management.—Alternative Dispute Resolution is
also known as dispute management. This is a time saving device, wherein
dispute is being settled without following the cumbersome procedure of
ordinary litigation.
(5) Legal recognition.—This system has been recognised in the
Indian Statutes. For instance—now the Civil Procedure Code, 1908, Order
XXXII-A, Rule 3 contains scope for compromise and the decree evolved from
that compromise is not appealable. Notably, Section 12 of the Industrial
Disputes Act, 1947 contemplated provision for conciliation as pre-requisite
for any pressure tactics/collective bargaining. In the same manner Section
23 of the Hindu Marriage Act, 1955 provided the need for Alternative
Dispute Resolution.
(6) Globalisation of commercial activities.—At present time the
globalisation of commercial activities is being campaigned not only in India
but also in other countries like U.S.A., U.K., Germany and France etc.
Practically it is quiet difficult to get acquainted with the foreign law.
Therefore, dispute arising out of international commercial transactions
needed to be settled by negotiation, conciliation and meditation etc.
(7) Advent of multinational corporations.—A number of
multinational corporations are coming to invest and establish their business
and also setting up their infrastructure. These corporations have dynamic
approach toward business activities. Therefore in case of dispute arising,
they should be provided with machinery which deals and resolve dispute
amicably and speedily. Hence, ADR is the only tool to settle dispute in
question quickly and economically,
(8) Industrialisation.—No doubt that in recent past we have
witnessed a great magnitude of industrialisation across the globe and India
is not an exception to it. Thus, the reasons for adoption of ADR cannot be
postponed indefinitely.
It is submitted that on account of aforesaid reasons the need of ADR
cannot be simply overlooked at threshold. Once commercial transactions
carried out it is natural to develop some conflict and differences and
approaching ordinary court of law will be a herculean task specifically in
Indian Judicial System. Hence, ADR contains way to come out while settling
dispute in a most economical and conducive manner.
However, in a broad perspective ADR is not only confined to settlement
of commercial dispute, even civil and criminal matter are settled by
364 THE ARBITRATION AND CONCILIATION ACT, 1996

instrument of Lok Adalat, Nyaya Panchayats and Panchayats in India.

Methods of ADR
It is to be noted that ADR has several methods. However, the principle
of natural justice is required to be followed while adopting any method
under ADR. A negotiator or mediator may follow more than one method
depending upon nature of dispute and strategies. Although, the methods of
ADR are as under.
(i) Arbitration.
(ii) Negotiation.
(iii) Mediation
(iv) Conciliation.
(v) Mini trial.
(vi) Expert appraisal.
(vii) Neutral evaluation.
(viii) Hybrid arbitration.
(i) Arbitration.— It is a determination of a dispute referred to a
person called on arbitrator, but an arbitrator is appointed by a third party
when dispute referred to that party/person.
(ii) Negotiation.—It is a method of settlement of dispute with or
without the assistance of a third person.
(iii) Mediation.— It is a method to achieve a conciliated solution of
dispute.
(iv) Conciliation.—It is a process recognised under the law which is
to be achieved by a conciliator.
Difference between Conciliation and Mediation

Conciliation Mediation

(1) The role of conciliator is more (1) The role of mediator is not more
pro-active. pro-active.
(2) The power of conciliator is larger (2) The power of mediator is too
under the Arbitration and limited as he can only suggest
Conciliation Act, 1996. proposals for settlement.
(3) The conciliator can make (3) Whereas a mediator would
proposals for settlement, merely facilitate a settlement
formulate or reformulate the between the parties.
terms of a possible settlement.

(v) Mini trial.—It is a method when conflicting parties approach the

senior executives to adjudicate the dispute.
(vi) Expert appraisal.—Under this method an expert of relevant
field is appointed to investigate and furnish non-binding opinion.
(vii) Neutral evaluation.—It is a non-binding evaluation carried out
in a reasoned manner.
(viii) Hybrid arbitration.—This method is an appropriate
ALTERNATIVE MEANS OF SETTLEMENT OF DISPUTES 365

combination of conciliation and mediation.

It is to be made clear that goal and nature of dispute decides the type
of process to be followed. It means that the disputing parties have first to
admit their requirements and thereafter choose the appropriate Alternative
Dispute Resolution method.
Merits of ADR
The ADR process has the merits as under :—
(i) ADR process can be initiated at any time, whenever disputing
party takes recourse to ADR.
(ii) It can provide more expeditious and less expensive settlement
of dispute.
(iii) It promotes conducive and amicable mechanism.
(iv) ADR programmes are not rigid.
(v) No lawyer’s assistance is mandatory, it does not mean that
role o f lawyer is diminished.
(vi) ADR concept reduces the work load of the regular Courts of
law.
(vii) ADR helps in confining dispute as a private matter.
(viii) ADR can be used to reduce the gravity of contentious issues
between the parties.
Demerits of ADR
There is no method which do not have its own demerits. In other words
particular ADR method may not suit the requirement o f the parties. In over
all ADR has the following demerits—
(i) Unfamiliarity of process is a factor causing obstruction in
ADR.
(ii) In case of unequal position of the parties, the weaker party
may not be willing to submit to ADR process, may prefer Court’s
protection.
(iii) Investment of time and energy in ADR.
(iv) Lack of binding effect of solution arrived after exercise of
ADR process.
(v) Disputes relating to right of parties and title could not be
decided by means of ADR because in such matter the decision arrived
at after ADR process lacks enforcement.
(vi) Practically ADR process is slow as before initiation of said
process consent of the party concerned is to be obtained.
In Interior’s India v. M ls. Balmer Lawrie and Co. Ltd. and another,
wherein the preliminary objection taken on behalf of the respondent that
there is no arbitration agreement in writing between the parties and this
petition, thus, is not maintainable, is without any substance and is liable to
be rejected at the very threshold. There is no dispute to the fact that the
work was allocated to the petitioner by means of a Work order dated 22nd
July, 2003. This letter clearly provided "the entire work shall be carried out
1. AIR 2007 Del. 16.
366 THE ARBITRATION A N D CONCILIATION ACT, 1996

as per the terms and conditions given in the contract between ONGC and
Balmer Lawrie. Payment shall be released on back to back basis on receiving
payment from ONGC." This is the main stipulation o f Work order and it is
a one page order. What shall be the specification of the contract, how
payments would be made and how the work is to be executed and completed
has been spelled out in the main contract between the parties. The contract
between respondents, No. 1 and No. 2. Therefore, is an integral part of the
Work order issued by the respondent No. 1 in favour of the petitioner.
Arbitration clause being clause No. 2 would equally be applicable in all its
force between respondent No. 1 and the petitioner as it would be between
ONGC and respondent No. 1. The conduct of the parties even in their cones
produce as when the petitioner invoked the arbitration agreement is not
denial of the arbitration agreement. Apparently, there is an arbitration
clause (clause No. 42) which itself is part of the terms and conditions of the
main agreement executed between respondents No. 1 and 2 which in turn is
an integral part o f the Work order issued by the respondent No. 1 to the
petitioner.
The Delhi High Court ruled that in these circumstances, the objection
raised on behalf of the respondent in regard to maintainability o f the
petition is without any merit and is rejected. Hence, objection that there was
no arbitration agreement in writing is, therefore, untenable.
Indian Statutes & ADR
The ADR mechanism has been statutorily recognised in Order 32-A
Rule 3 of the Code of Civil Procedure, 1908 which contains scope of
compromise and decree passed on compromise between the parties, is not
appealable.
Section 12 of the Industrial Disputes Act, 1947 deals with conciliation
as the pre-condition for collective bargaining. Similarly, Section 23 of the
Hindu Marriage Act, 1955 recognised the necessity for ADR. However, the
Family Courts Act, 1984 shows a greater emphasis on ADR rather
conciliatory approach for settlement of matrimonial dispute. The present
Arbitration and Conciliation Act, 1996 makes provision for settlement of
disputes/differences by means of ADR mechanism.
In 1984 the Himachal Pradesh High Court evolved the technique to
dispose off the cases pending in subordinate courts by conciliation, with the
view to reduce the arrears of cases. Notably, this technique was in the
nature of the Michigan Mediation method.
The Law Commission of India in its 77th and 131st reports suggested
setting up o f mediation centres across the country at least at the State and
District levels to reduce the backlog of pending cases in High Courts and
District Courts. In December, 1993 the resolution to this effect was passed
in the conference of Chief Ministers and Chief Justices.
The Concept of ADR found a well structural place in the Arbitration
and Conciliation Act, 1996 which is based on United Nations Commission on
International Trade Law (UNCITRAL) Conciliation Rules, 1980. The said
provisions have universal familiarity for settlement of domestic as well as
international commercial disputes/differences.
ALTERNATIVE MEANS OF SETTLEMENT OF DISPUTES 367

By virtue of the CPC (Amendment) Act, 1999 a new Section 89 was

incorporated in the Code of Civil Procedure, 1908. Sub-section (1) of Section
89 of the Code, 1908 states that "where it appears to the Court that there
exist elements of 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 observation of the parties, the Court
may formulate 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.
Settlement upon reference.—When the parties come to a settlement
upon a reference made by the Court for mediation and the parties want the
same, there has to be some public record of the matter in which the suit is
disposed off and, therefore, the Court must record the settlement and pass
decree in terms thereof and, if necessary, proceed to execute it in accordance
with law.1
Now, it has been realised that formal legal system will not be capable
to deal with the entire burden of pending cases, therefore, the present
sysetm deserves drastic change for the sake of wodering litigants. Thus, it
is high time to take recourse to ADR mechanism.
Difference between Adjudication and ADR process.— Basically,
there are five differences between adjudication and ADR process. These are
as below :—

Adjudication ADR

(1) While adjudication looks to past (1) Whereas this process looks to
i.e., factual aspect of dispute. future.
(2) Relationship between parties not (2) ADR process focusses on
focussed. relationships between the
parties.
(3) It seeks to set up liability or (3) It seeks to reform the
fault. relationship.
(4) It results in laying down general (4) Whereas it results in custom
rule. based solution.
(5) Important role assigned to (5) Whereas in ADR process clients
advocate appearing on behalf of play the role.
the party.

ADR : Knowing the problems in hand

It is most essential to know the problem in hand and for purpose of
initiating ADR process, knowing the problem is a pre requisite. This fact can
be achieved by holding interview of the parties. Thus, ascertainment of the
problem can be done while establishing communication between the
counsellor and parties. Because ADR is a process o f interpersonal
!. Salem Advocate Bar Association (II) v. Union o f India, AIR 2005 SC 3353.
368 THE ARBITRATION AND CONCILIATION ACT, 1996

communication a successful communication can only yield to successful ADR

result.
Interpersonal "communication".—The expression "communication"
means exchanging views and feelings. Generally, it is witnessed that party
submitting to ADR may not be skilful in communication and projecting
disputed points; therefore counselling is necessary process which commences
after the client is thoroughly interviewed and counsellor is equipped with
whole information to deal with the problem. The client cum aggrieved person
needs guidance. A client’s interview is more than just a commercial
conversation and social work and psychology are substantially connected to
the process which has to last with counselling.
However, objectives of interpersonal communication are :—
(i) Reception;
(ii) Understanding;
(iii) Acceptance; and
(iv) Action.
Chief Processes of ADR
The chief processes of ADR are as under :
1. Arbitration.—It is a private adjudication of disputed matter by
intervention of a neutral third party, who has been conferred power to make
binding arbitral award. It is a process in which the disputed matter is
submitted to the arbitrator/arbitrators constituting an arbitral tribunal
which passes a reasoned arbitral award binding on the parties.
2. Conciliation.—It is a non-binding process in which an impartial
person settles the dispute amicably and make recommendations pertaining
to dispute. Such person is called ‘conciliator’. The Industrial Disputes Act,
1947 and the Family Courts Act, 1984 provide settlement of disputes by
conciliation.
3. Mediation.— In the process a third party assists the conflicting
parties to find out a solution to their problem.
4. Negotiation.—In this process the intervention of a third party is
not there. Whereas disputants take their own initiative across the table to
settle their disputes. In other words it is a non-binding process in which
discussions and deliberations take place between the parties or
representatives o f the parties specifically without intervention of a third
party. However, such representatives are called ‘negotiators’.
5. Expert’s appraisal.—It is a non-binding process in which an
expert makes investigation and submits his opinion to the parties.
6. Mini trial.—It is also a non-binding process in which disputants
make presentation of their case in a summarised manner to evolve the
opportunity to negotiate the disputed matter with the help of a neutral
advisor. This process is also called "case presentation".
7. Hybrid arbitration.—In this- process arbitration is combined with
another kind of ADR involving mediation and conciliation.
8. Fast Track Arbitration.—It is a process in which time bound
arbitration takes place.
ALTERNATIVE MEANS OF SETTLEMENT OF DISPUTES 369

It is submitted that above mentioned processes fall within the concept

of ADR mechanism, which is capable to settle a varieties of disputes. Former
Prime Minister of India Mr. P.V. Narsimha Rao while inaugurating
International Alternative Dispute Resolution on 6th October, 1995 said
that— "while reforms in the judicial sector should be undertaken with
necessary speed, it does not appear that Courts and tribunals will be in a
position to bear the entire burden of the justice system. It is incumbent on
Government to provide at reasonable cost as many modes o f settlement of
disputes as are necessary to cover the variety of disputes that arise."
However, these processes can be chosen and adopted under the prevailing
circumstances and indeed nature of disputed subject matter.
Models : Client’s Interview
Ordinarily, there are two types of models, these are :—
(1) Traditional model; and
(2) Client centered Model.
1. Traditional model.—This model of client’s interview is dominated
by the lawyer, who get acquainted with the problem by asking questions to
clients. However, efficacy of this model depends upon knowledge, expertise,
experience and commitment of lawyer.
2. Client centered model.—This model focusses on the feelings of
client. Self dignity, behaviour and tendency of the client is assessed in client
centered model.
Purpose of interview.—A sole purpose of client’s interview is to
understand the problem thoroughly as it would facilitate in earmarking of
core problem. Its purpose to establish rapport with the client while
identifying preliminary problem and thereafter problems are numbered in a
chronological order. It is true that no settlement can be arrived at without
holding interview rather discussion with the client. Sometimes proposed
suggestion, advice can be rendered while conducting interview of client.
Counselling.—It is true that without counselling the interview of
client remains incomplete. The process of counselling consists three
activities :—
—Listening;
— Reformulating; and
—Presenting.
After determining the problem of client and his intention, the counsellor
is likely to suggest future course of action. This is also called planned
counselling. However, in case of complicated problem there may be a number
of sessions for purpose of counselling. Because, for purpose of ascertaining
future course of action it may be highly desirable to hold counselling in
sessions. Once counselling comes to the stage of planning, it is a proper stage
to discuss the issue of the fees, so that counsellor/lawyer will not have any
difference on this point. Unless relationship between counsellor/lawyer with
the client is not frank and healthy, it is a great problematic issue which
should be avoided. Notably, a successful counsellor/lawyer takes care of this
issue as money is an important factor which determines the strength of
relationship between the counsellor and client.
370 THE ARBITRATION A N D CONCILIATION ACT, 1996

1. Additional advantage of the Alternative means of Dispute

Redressal
These are as follows :—
(1) The alternative means of dispute redressal can be invoked at any
time, even if the matter is pending in the Court of Law. Similarly
it can be terminated at any time except in case of compulsory
arbitration.
(2) The disputes can be resolved comparatively more economically and
speedily. Disputes can be maintained as the personal
subject-matter. Sometime disputes are resolved within one or two
days’ time because the procedure adopted by the mediator is
controlled and consented by the parties. Thus, real solution of the
dispute can be arrived at by the system of alternative means of
dispute redressal.
(3) The system of alternative means of dispute redressal can be
followed without seeking legal assistance from the
advocate s-lawy ers.
(4) This system effectively reduces the work-load o f the court.
(5) Finally, this system provides flexible procedure as strict procedure
of law is not applicable to alternative means o f dispute redressal.
2. Importance of Alternative Means of Dispute Redressal
In the field of alternative means of dispute redressal, the important
alternative means are as follows
(i) Negotiation.—It is the simplest means for redressal o f disputes.
In this mode the parties begin their talk without interference of any third
person. The aim of negotiation is the settlement of disputes by exchange of
views and issues concerning the parties. There is an ample opportunity for
presentation of case in this mode of redressal. If there is understanding and
element of patience between the parties this mode of redressal of dispute is
the simplest and most economical.
Need for negotiation.—Undoubtedly, negotiation is the dominant
factor in settlement of dispute. In process of negotiation the important step
is beginning of dialogue between the conflicting parties in presence of
negotiator.
Essential Ingredients of Negotiation.—These are as under :—
(i) It is a interpersonal communication process.
(ii) It settles the disputes.
(iii) It is a voluntary process.
(iv) It is a non-binding mechanism.
(v) It is a controlled process.
(vi) It has capability to achieve wide ranging solution.
Hurdles to negotiation.—Negotiations may not be successful due to
following reasons mainly :—
1. Lack of communication.—An skilled person is needed to avoid
misunderstanding due to lack of skilful communication.
ALTERNATIVE MEANS OF SETTLEMENT OF DISPUTES 371

2. Lack of negotiating skill.—A negotiator has to make a neutral

approach to the problem.
3. Poor information.—For successful negotiation an accurate
information is required.
4. Difference in understanding problem.—The negotiating parties
may not differ in issue but they have difference in understanding
their problem.
5. Improper representation.—If the representatives of the party
concerned is not well informed regarding problem in hand, it
would make the negotiation process a great failure.
6. Non-awareness of authoritative rulings.—If the negotiator is
not aware of authoritative rulings of the Supreme Court or High
Courts, it may lead to failure of negotiation.
(ii) Conciliation and Mediation.—Where the parties fail to arrive at
any settlement of their dispute by negotiation, in such circumstances the
parties may take the assistance of some third person who is independent in
respect of the subject-matter of dispute. Such person induces the parties to
come to an amicable settlement of their dispute by means of conciliation and
mediation. In course of conciliation and mediation that independent person
may use his goodwill and impression in resolving disputes. He also induces
the parties to exchange their disputed points relating to the subject-matter
of dispute.
(iii) Med-Arbitration.—This mode is a link between the settlement
and arbitration. In this mode the conflicting parties may authorise the third
independent person to adjudicate upon the subject-matter of dispute.
Wherein the settlement by negotiation is failed, the mode o f med-arbitration
can be followed. This mode is not controlled by the Arbitration and
Conciliation Act, 1996 or the Arbitration Act, 1940.
(iv) Medola.—This process begins when the parties fail to reach at
any settlement of dispute by mediation. In this mode that person who was
doing mediation occupies the place of arbitrator. This person impartially
picks up the disputed points from the proposals taken up between the
parties during the negotiation. Disputed points so picked up by that third
person is binding upon the parties. That person keeps the agreed points
aside and the disputed points are taken up so as to settle the dispute by
taking to a middle course to the satisfaction of the parties in dispute.
(v) Mini trial.—It is different from a formal case trial. In this mode
the parties have the freedom to select an impartial, and honest person of
undisputed integrity and the parties can present their case in a summarised
form. That person on the basis of submission of the parties, considers the
positive and negative points concerning the parties and thereafter he renders
advice to the parties and consequently the parties negotiate on such advice.
In fact that person acts as a catalyst in such mini trial.
(vi) Arbitration.—According to Byrne’s Law Dictionary—Arbitration
means the determination of disputes by the decision of one or more persons
called arbitrators. Practically, every question, which might be determined by
a civil action, may be referred to arbitration.
372 THE ARBITRATION A N D CONCILIATION ACT, 1996

Under Section 1 of the Encyclopaedia of the Laws of England, the term

"arbitration" means a settlement of a dispute by the decision of not a regular
and ordinary court o f law but of one or more persons who are called
arbitrators.
The essence o f arbitration is that some dispute is referred to by the
parties for settlement to a tribunal of their own choice instead of to a court.
In the context of India an arbitration is a reference to the decision of
one or more persons, either with or without an umpire, of some matter or
matters in difference between the parties.
In popular parlance arbitration may be defined as a private process set
up by the parties as a substitute for court litigation to obtain a decision on
their dispute.2
(vii) Fast Track Arbitration.—It is a kind of arbitration in which
arbitral proceedings are conducted in a less expensive maimer. In this mode
a decision can be arrived at within one or two days’ time. Ordinarily, this
process is being adopted for settlement of commercial or business disputes.
3. Mediation and arbitration—Distinction of
The term "mediation" connotes the act of a third party relating to the
settling of a dispute between two contending parties. Whereas an arbitration
is governed by the arbitration agreement wherein an arbitrator is nominated
by the parties.
Arbitral award made in conclusion of the arbitral proceedings is
binding on the parties to the arbitration, whereas settlement arrived at the
end of mediation does not have such binding effect on the parties.
Arbitration means settling of a dispute by an arbitrator. Where
arbitrators cannot agree they may appoint an umpire, there is no umpire
system in mediation. It is to be noted that under the present Arbitration and
Conciliation Act, 1996 the umpire system has been abolished.
The decision of an arbitrator is known as an "award." Whereas the
decision of a mediator is known as a settlement.
The procedure o f arbitration is based on the ordinary rule i.e., relevant
Arbitration Law and the procedure laid down in the arbitration agreement.
Applicability of any such rule is minimal in case of mediation.
An arbitral award is treated as a ‘decree’ and can be enforced legally
but the settlement arrived at as a result of mediation is not legally
enforceable. Thus, the terms of settlement may be accepted or rejected by
the contending parties.
4. Who is a mediator?
A mediator is a person who acts as a bridge with the view to settle the
dispute between the disputing parties. He puts his personal efforts by means
of his goodwill, knowledge and skill for amicable settlement of contending
issues. A mediator is a third person between the parties who is independent
and is required to be impartial and fair in his approach towards settlement
of dispute. Thus, it can be said that third independent person who is allowed

1. Rusell on Arbitration, 20th Ed., p. 1.

2. M.A. Sujan on Law Relating to Arbitration & Conciliation, 2nd Edn. 2001, p. 9.
ALTERNATIVE MEANS OF SETTLEMENT OF DISPUTES 373

to meddle in the subject-matter of dispute by either party or both the

parties, is called a mediator. The efforts and process adopted by him is
called "mediation".
According to L.B. Curzon—Mediation is the act of a third party
relating to the settling of a dispute between two contending parties.
Obviously a mediator is not required to follow the procedural law but he is
expected to act adhering to the fundamental principle of natural justice.
5. Why mediator?
As stated in foregoing pages that settlement of disputes by mediator
was popular in ancient India and almost all disputes and differences
between the people living in villages were brought before village mediator
for decision. The decision was accepted as binding and implemented
forthwith, the sanction enforcing it was the voice of mediator on behalf of
the people. The mediator was considered as god having divine wisdom to
WcSs TlfiRj p<9Mkkerecl Q
as °an ’mclepencfent, impartial
dispenser of justice between the two different disputants.
In view of ever increasing globalisation of trade and commerce at
national and international level, it is quite natural that commercial
transactions have increased and accordingly frequency of commercial
disputes arose. Mediation is one of the important alternative means of
dispute redressal which is economical and less time consuming wherein
ordinarily hiring advocates or lawyers are not warranted. In mediation the
parties have freedom to exchange their views and contending issues through
mediator as well as between them. Since mediation is outside the scope of
formal legal system it helps the parties to avoid complicated and strict
procedural law having enormous technicalities. In mediation it is the parties
who put their efforts for friendly settlement of dispute and a mediator acts
as a catalyst who indeed induces the contending parties to settle their
dispute amicably.
Regarding scope and importance of mediation as an alternative means
of dispute redressal the Apex Court expressed its judicial concern in Guru
Nanak Foundation v. Rattan Singh & Sons,1 the Court observed :
"Interminable, time consuming, complex and expensive court
procedures impelled jurists to search for an alternative forum, less
formal, more effective and speedy resolution of disputes avoiding
procedural claptrap and this led them to the arbitration law,
conciliation and mediation."
"Lawyers laugh and legal philosophers weep"—the court further
observed that experience shows and law reports bear ample testimony that
the proceedings under the Act have become highly technical, accompanied by
an unending prolixity at every stage, providing a legal trap to the unwary.
In formal forum chosen by the parties for expeditious disposal of their
disputes the decision of the court is clothed with "legalese" of an
unenforceable complexity.
On another occasion the judicial annoyance has been expressed by the

1. AIR 1981 SC 2075.

374 THE ARBITRATION AND CONCILIATION ACT, 1996

Apex Court in Raipur Development Authority v. Chokhamol Contractors/ the

Court observed as under :—
"The system of dispute resolution has of late, acquired a certain
degree of notoriety by the manner, in which in many cases, the
financial interests of Government have come to suffer by awards which
have raised eyebrows by doubts as to their rectitude and propriety."
It is submitted that trend to adopt alternative means of dispute
resolution is a reflection of specifically business community whether it is at
national or international level which is of the view that taking recourse to
the court of law for settlement of dispute is expensive, time consuming and
may result into endless litigation. Thus, where money and time
considerations are equally involved, it is most appropriate to seek settlement
of dispute by alternative means such as mediation, conciliation and
arbitration. In modern business world the concept of mediation has been
recognised and considered as one of the effective alternative means of
dispute redressal outside the scope of formal legal system. Thus, mediation
is an informal legal system which can be followed conveniently as there are
no cumbersome technicalities in it.
6. Rules, for Mediation
Since mediation itself is an informal legal system, it is not governed by
any statute as such. However, it is expected from the mediator to act
honestly and fairly by following the principles of natural justice. Thus, in
course of mediation the parties should be heard and given equal opportunity
to present their submissions freely and friendly. It is the duty of the
mediator to induce the party for amicable settlement of dispute in cordial
' atmosphere. A mediator is bound to assist the embarrassed party. It is to be
noted that a mediator acts between the two extremes or adopts the middle
course, therefore he must maintain balance between the two halves. It is
permissible for the mediator to use his goodwill, knowledge and skill while
performing the act of mediating.
It is settled position that a mediator is a third independent person who
is expected to be fair and impartial while resolving the disputes. As there is
no melee as such in mediation the parties are required to observe moral as
well as legal ethics. The parties should abstain themselves from useing
unparliamentary language because the purpose o f mediation is to resolve the
dispute cordially and amicably by satisfying the parties concerned. Thus,
maintaining of friendly atmosphere is essential while exchanging the views
and taking up disputed points. The mediator’s fundamental duty is to ensure
that no party is pressurised unduly or forced to arrive at the terms of so called
settlement otherwise the whole object of mediation would stand defeated.
It can be summed up that rules regarding mediation can be found on
the basis of "honesty is the best policy." If the business community of the
world at large is looking for better prosperity and development and willing
to settle their dispute by taking recourse of the alternative means of dispute
resolution, it must have this kind of thinking and approach that no man can
exist without seeking cooperation from others. The mediator also seeks
cooperation from the contending parties to settle their dispute in a more
1. AIR 1990 SC 1426.
ALTERNATIVE MEANS OF SETTLEMENT OF DISPUTES 375

economical and speedier way by abiding the fundamental rules of natural

justice and business ethics.
7. Limitation of Mediator
The field o f a mediator is very much restricted as he does not derive
any power by any statute. He performs his act under the code prescribed by
the disputing parties.
A mediator is not a creation of any statute but he is a third
independent person appointed by mutual consent of the parties, his main
function is to promote settlement of disputes and explain all pros and cons
relating to the subject-matter of dispute. A mediator is friend to all but
hostile to none. A mediator’s limitations are as follows :—
(1) He cannot compel attendance of any person or production of any
document.
(2) He can only act upon the disputed points raised by the parties and
induce them to resolve dispute by exchanging views.
(3) He remains as a mediator till the consent of the parties exists.
(4) No ex parte mediation is permissible.
(5) Mediation is a non-statutory function thus it lacks enforceability in
respect of settlement arrived.
(6) He has no power to penalise the non-cooperating party.
(7) He cannot modify the subject-matter of disputes.
(8) He cannot seek expert assistance without the prior consent of the
pai'ties.
(9) He has no power to seek the court’s intervention on his own.
(10) A mediator can be removed at any time by the party.
8. How to enforce Mediator’s settlement.
It is settled legal position that the mediator’s settlement is not legally
enforceable because the mediation itself is not governed by any statute. It
does not have statutory recognition. While every mediation is the result of
the consent of the parties in each case, there is no such element of
mediator’s consent in mediation proceedings. The mediator’s settlement is
not supported by the sanction of the court. In fact mediator’s settlement is
a voluntary settlement of the parties with the assistance of a mediator.
Thus, enforceability of the mediator’s settlement depends upon the
willingness of the parties. If the settlement of mediator is converted into an
agreement it attains the enforceability in the eye of law. Such an agreement
will be enforced like any other agreement. On the other hand if the parties
sign the mediator’s settlement it will be final and binding on the parties. In
view of Section 74 o f the Arbitration and Conciliation Act, 1996 it appears
that the mediator’s 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 award under Section 30 o f the said Act.
Thus, the mediator’s settlement has the status and effect of an arbitral
award.
It is submitted that a mediator’s settlement agreement when signed by
the parties and authenticated by the mediator, shall be final and binding on
376 THE ARBITRATION A N D CONCILIATION ACT, 1996

the parties and persons claiming under them. However, no such

authentication is required in case of an arbitral award.
9. When Mediator’s settlement may not be enforced—
Inherently, the mediator’s settlement is not legally enforceable but the
settlement of mediator when made as an agreement and signed by the
parties, it is enforceable.
Ordinarily, the court would be reluctant to set aside the settlement
agreement when it is challenged. The court may set aside the settlement
agreement if it finds that the subject-matter of the dispute is beyond the
capability of settlement by mediation or conciliation or that the settlement
agreement is in conflict with the public policy of India.1
Where a settlement agreement has not been challenged but a party
seeks to execute the settlement agreement as if it were a decree of the court,
it was held that the executing court may refuse to grant the prayer if it is
of the opinion that the mediator settlement agreement or settlement
agreement of conciliator has been made beyond the scope of the
subject-matter of dispute itself.2.
Negotiation
What is? In common parlance the expression "Negotiation" means
transacting of business rather dispute management by participation of
disputants or by their representatives, while preserving relationship.
In view of Gimny Pearson Barnes— "Negotiation is a resolution of a
disagreement using give and take within the context of a particular
relationship.
Notably, a successful negotiation constitutes sharing of ideas and
informations while seeking mutually accepted solution.
However, the Pepperdine University of USA3 has evolved an
explanatory definition of the term "Negotiation"—
"Negotiation is a communication process used to put deals together or
resolve conflicts. It is a voluntary, non- binding process in which the parties
control the outcome as well as the procedures by which they will make an
agreement. Because most parties place very few limitations on the
negotiation process, it allows for a wide range of possible solutions
maximising the possibility of joint gains."
Essential Ingredients of Negotiation
According to M. Anstey4—The essential ingredients of "Negotiation"
are—
(i) an oral interaction mechanism;
(ii) negotiation involves two or more parties;

1. See, Section 61(2) read with Section 34(2XbXi) of the Arbitration and Conciliation Act,
1996.
2. Ram Sing v. G.A Cooperative Service Society, AIR 1976 P & H 94; Union of India v.
M/s. Jagat Ram Trehan & Sons, AIR 1996 Del. 191.
3. Institute for Dispute Resolution, Pepperdine University (USA), Mediation : The art of
facilitating the settlement.
4. M. Anstey, Negotiating Conflict, 1991 p. 91-92.
ALTERNATIVE MEANS OF SETTLEMENT OF DISPUTES 377

(iii) parties are willing to reach agreement;

(iv) over the problem conflicting interest o f the parties involved;
(v) parties seek to solution without damaging their respective interest.
In view of the aforesaid definition of "Negotiation" the following
essentials of "Negotiation" may be laid down :—
1. communication mechanism;
2. voluntary exercise;
3. non-binding process;
4. outcome and procedure controlled by the parties;
5. mutual outcome;
6. respective interest of the parties not subjected to drastic
modification.
Negotiation—Need for
A great philosopher Sachidananda Mohanty1—rightly deplored— "As
modernity advances with its ruthless and unbridled individualism, dialogue
increasingly takes a back seat. Modern society extols the cult o f monologue."
A modern conflict is well known but with the old time tradition of
dialogue it teaches the value of mediation. In the absence of dialogue, a
conflict only generates violence and lawlessness.
On the other hand negotiation is a tool which is capable to handle
conflicting interests by means of participative management under mutual
terms and conditions. The culture of deliberation and discussion is required
to be preserved in view of class/individual conflicts, which is taking place in
every walk o f human life in modern times. It is well said that negotiation is
an integral part of democratic life and further it indicates civilian attitude.
Discussion causes delay and delay suspends conflict.
It is to be noted that "might is right" concept was prevalent in early
society. There was autocratic system prevalent in those days. In due course
the gradual improvement of civic sense let the people to sit across the
common table to resolve their disputes and conflicting interests by adopting
participatory responsive process while preserving the relationship.
Now, "Negotiation" is recognised by law as one of the modes of the
alternative mode of solution to disputed subject-matter. Thus, there is a
need for "negotiation" to have mutual outcome by communication process.
State of Negotiation
Generally, all negotiations consist of four stages/phases. These are as
under
1. Preparation;
2. Opening;
3. Bargaining;
4. Closing.
1. Preparation.—This stage involves information rather data
collection.

1. Sachidananda Mohanty—"The culture of dialogue", the Hindu, 30th July, 2001 p. 1.

378 THE ARBITRATION AND CONCILIATION ACT, 1996

2. Opening.—This stage involves presentation of initial position of

both sides. However, in case of deadlock like situation the parties are
permitted to express their views over it.
3. Bargaining.— It is a phase by which the parties are suggested to
narrow down their position with the view to reduce gap to junction and to
further party holding weaker position being persuaded to accept lesser
advantageous position.
4. Closing.—It reflects the outcome of solution.
Power sources for Negotiation
In view of Roger Fisher,1 there are six power sources for the purpose of
negotiation. These are as under :
1. Knowledge, preparation and skill;
2. Progressive acceptable alternatives;
3. Acceptable solutions;
4. Credibility and Legitimacy;
5. Steadfast commitment;
6. Cordial relationship. *
However, according to P. Gulliver2
"As a first description, the picture of negotiation is one of two sets
of people, the disputing parties or their representatives, faultering each
other across a table. They exchange information and opinion, engage in
argument and discussion and sooner or later propose offers and counter
offers relating to the issues in dispute between them, seeking an
outcome acceptable to both sides."
It is true that negotiation is a thinking process which suggests new
ideas, new horizon and finally new solutions. The mode of negotiation is
capable to adopt and accommodate the alternate rather change in approach
to the problem. It has also scope for parallel thinking while keeping in mind
the practical difficulties. Negotiation creates a new direction while protecting
the rival interest of the parties. A successful negotiation leads to joint
decision. It is regarded as a mixed motive exchange between the parties.
Negotiation is never to be treated as an adjudication, specially in absence of
its binding effect. Negotiation constitutes exchange of information and ideas.
Therefore, communication skills are needed to proceed with the process of
negotiation. It is regarded as the most powerful mechanism.
Styles of Negotiation
Notably, style of negotiation is a strategy which is capable to yield an
anticipated outcome. However, style of negotiation shows communication
skills, language, speaking and listening behaviour, verbal and non-verbal
gestures and also interpersonal behaviour of the negotiation.
Although, the styles of negotiation may be cooperative or competitive,
it depends upon the nature of the disputed subject-matter and approach of
the negotiation.

1. Roger Fisher, Negotiation Power, 1983.

2. P. Gulliver, Disputes and Negotiations—Across Cultural Perspective, 1979 p. 3-7.
ALTERNATIVE MEANS OF SETTLEMENT OF DISPUTES 379

Kinds of approaches to negotiation

According to M. Anstey1 there are five approaches to negotiation, these
are as follows :—
1. Concessional;
2. Problem serving;
3. Distributive;
4. Avoidance; and
5. Position.
1. Concessional.—It is a soft approach adopted by a negotiator who is
not a rigid person in nature and have the belief that by following concessional
method the solution o f problem would come out in a very next step.
2. Problem serving.—In this approach the negotiator focussed on
tools capable of solving the problem at the threshold.
3. Distributive.— It is a method in which the negotiator makes sure
that deadlock or crisis is distributed according to the respective position of
the parties. More or less it ensures involvement of the parties.
4. Avoidance.—It is regarded as a negative approach on the part of
the negotiator and this approach is adopted by the negotiator/parties who is
not prepared to undertake risk. As a result in this approach issues are not
at all addressed.
5. Position.—This approach is also called ‘positional bargaining’. In
this process the parties make extreme claim rather coerce another, so that
he gets more benefits than his opponent at the outcome of negotiation.
Qualities of Negotiation Power
It is true that the ability of the negotiator to influence the conduct and
behaviour of another, is called the negotiation power. However, a number of
negotiation powers have been identified. These are :—
1. Relation between the parties;
2. Adaptability to change;
3. Real or apparent;
4. Personal knowledge, skills and resources;
5. Legal knowledge;
6. Ability to understand the nature of problem in hand;
7. Knowledge regarding position, status and psyche of the
parties;
8. Ability to wipe-out uncertainty;
9. Relevant experience in the field;
10. Awareness about competitive environment;
11. Personality of the negotiator.
Obstructions to Negotiation
To achieve a successful negotiation one has to face certain obstructions.
These are the following :—
1. M. Anstey—Negotiating conflict : Insights and Skill for Negotiations and Peacemakers,
1991.
380 THE ARBITRATION A N D CONCILIATION ACT, 1996

1. Failure of communication;
2. Lack of negotiating skills;
3. Lack of legal awareness;
4. Improper information;
5. Improper representation;
6. Non-cooperation of the parties;
7. Negative attitude;
8. Lack of training.
1. Failure of communication.—There may he failure of
communication and a negotiator needed to restore the broken
communication.
2. Lack of negotiating skills.—Sometimes a negotiator himself may
be lacking negotiating skills as to gesture, knowledge and temprament, etc.
3. Lack of legal awareness.—The parties may not differ on outcome
but lack of knowledge may cause failure of negotiation if it violates law of
the land.
4. Improper information.—Sometimes a negotiator is not well
equipped with the relevant informations^on the point.
5. Improper representation.—If there is a personality conflict that
results into failure and in that situation the proper remedy is to seek a new
team of representatives.
6. Non-cooperation of the parties.—Non-cooperative attitude of the
parties is a great impediment to negotiation. It is the paramount duty of a
negotiator to develop and seek cooperativeness of the parties.
7. Negative attitude.—It is regarded as an impediment/obstruction
in the process of negotiation. The negative attitude causes total breakdown
of negotiation. It is an obligation on the part of negotiator to wipe out the
negative approach replaced by positive trend.
8. Lack of training.—An untrained negotiator himself is a root cause
of impediment in the process of negotiation.
Trade unions and negotiation
Specially, in Indian Corporate field the tussle between the management
and trade unions are considered to be a traditional problem. However, this
problem can be resolved by means of negotiation and collective bargaining.
Undoubtedly, right to strike or lockout may not be taken away as these are
conditionally permitted under the Labour/Industrial laws. It is well said that
strike on the part of industrial labour is a part of social weapon in the hands
of trade unions. While the management has equal power to declare lockout
under the Industrial Disputes Act, 1947, the trade unions and management
are required to enter into negotiation across the table and to resolve their
differences/problems through dialogue.
In case of conflict between trade unions and management the process
of negotiation should be initiated and strength and scope of negotiation
cannot be ignored. With positive determination and commitment the trade
unions like Hindustan Mazdoor Sabha, Bhartiya Mazdoor Sangh and All
India Trade Union Congress have played a major role in establishing
ALTERNATIVE MEANS OF SETTLEMENT OF DISPUTES 381

industrial peace by advancing the process of negotiation and collective

bargaining. In industrial world frivolous litigation must not be preferred
with the view to maintain and enhance industrial growth.

LOK-ADALATS
The establishment of Lok Adalats under the Legal Services Authority
Act, 1987 is one of the alternative means of dispute resolution or redressal.
The preamble of the said Act shows that the Lok Adalats are constituted to
provide expeditious, economical and competent legal services to the weaker
sections of the society to perform the constitutional obligations on behalf of
the State. Even the commercial disputes may be adjudicated by the Lok
Adalats.
What is Lok Adalat?
"The ‘Lok Adalat’ is an old form o f adjudicating system prevailed in
ancient India and it’s validity has not been taken away even in the modern
days too. The word ‘Lok Adalat’ means ‘People Court’. This system is based
on Gandhian Principles. It is one of the components of A.D.R. system. As the
Indian Courts are over-burdened with the backlog of cases and the regular
Courts are to decide the cases involve a lengthy, expensive and tedious
procedure. The Court takes years together to settle even petty cases. Lok
Adalat, therefore, provides alternative resolution or devise for expeditious
and inexpensive justice.
In Lok Adalat-proceedings, there are no victors and vanquished and,
thus, no rancour.
Experiment of ‘Lok Adalat’ as an alternate mode o f dispute settlement
has come to be accepted in India, as a viable, economic, efficient and
informal one.
Lok Adalat is another alternative to Judicial Justice. This is a recent
strategy for delivering informal, cheap and expeditious justice to the common
man by way of settling disputes, which are pending in Courts and also those,
which have not yet reached Courts by negotiation, conciliation and by
adopting persuasive, common sense and human approach to the problems of
the disputants, with the assistance of specially trained and experienced
Members of a Team of Conciliators."1
Benefits Under Lok Adalat
(1) There is no Court fee and if Court fee is already paid the amount
will be refunded if the dispute is settled at Lok Adalat according to the
rules.
(2) The basic features of Lok Adalat are the procedural flexibility and
speedy trial of the disputes. There is no strict application of procedural laws
like Civil Procedure Code and Evidence Act while assessing the claim by Lok
Adalat.
(3) The parties to the dispute can directly interact with the Judge
through their Counsel which is not possible in regular Courts of law.
(4) The award by the Lok Adalat is binding on the parties and it has
the status of a decree of a Civil Court and it is non-appealable which does
1. P.T. Thomas v. Thomas Job, 2005 (4) ALR 150 (SC).
382 THE ARBITRATION A N D CONCILIATION ACT, 1996

not cause the delay in the settlement of disputes finally.

In view o f above facilities provided by the ‘Act’ Lok Adalat are boon to
the litigating public they can get their disputes settled fast and free of cost
amicably.
1. Establishment of Lok Adalats
Section 19 of the Legal Services Authority Act, 1987 provides that
every State Authority or District Authority or the Supreme Court Legal
Services Committee or every High Court Legal Services Committee, or, as
the case may be, Taluk Legal Services Committee may organise Lok Adalats
at such intervals and places and for exercising such jurisdiction and for such
areas as it thinks fit.
Every Lok Adalat organised for an area shall consist o f such number
of :—
(a) serving or retired Judicial Officer, and
(b) other persons,
of the area as may be specified by the State Authority or the District
Authority or the Supreme Court Legal Services Committee, or the High
Court Legal Services Committee or, as the case may be, the Taluk Legal
Services Committee, organising such Lok Adalat.
The experience and qualifications of other persons as mentioned above
for Lok Adalats organised by the Supreme Court Legal Services Committee
shall be such as may be prescribed by the Central Government in
consultation with the Chief Justice of India.
Rule 13 of National Legal Services Authority Rules holds that a person
shall not be qualified to be included in the Lok Adalat unless he is—
(a) a member of Legal profession; or
(b) a person of repute who is especially interested in the
implementation of the Legal Services Schemes and Programmes,
or
(c) an eminent social worker who is engaged in the upliftment of the
weaker section of the people, including the Scheduled Castes,
Scheduled Tribes, women, children, rural and urban labour.
Section 19 of the Legal Services Authority Act, 1987 further provides
the experience and qualifications of other persons as mentioned earlier for
Lok Adalats other than those who are to be prescribed by the Central
Government in consultation with the Chief Justice of the Supreme Court,
shall be such as may be prescribed by the State Government in consultation
with the Chief Justice of the High Court.
2. Jurisdiction of Lok Adalat
In accordance with Section 19 of the Legal Services Authority Act, 1987
a Lok Adalat shall have jurisdiction to determine and to arrive at a
compromise or settlement between the parties to a dispute in respect of—
(i) any case pending before, or
(ii) any matter which is falling within the jurisdiction of, and is not
brought before,
ALTERNATIVE MEANS OF SETTLEMENT OF DISPUTES 383

any court for which the Lok Adalat is organised :

Provided that the Lok Adalat shall have no jurisdiction in respect of
any case or matter relating to an offence not compoundable under any law.
3. Congnizance of cases by Lok Adalats
Sub-section (1) of Section 20 holds that where in any case pending
before any court for which Lok Adalat is organised :
(i) (a) the parties thereof agree; or
(b) one of the parties thereof makes an application to the court, for
referring the case to the Lok Adalat for settlement and if such
court is prima facie satisfied that there are chances of such
settlement; or
(ii) the court is satisfied that the matter is an appropriate one to be
taken cognizance of the Lok Adalat,
the Court shall refer the case to the Lok Adalat :
Provided that no case shall be referred to the Lok Adalat under
sub-clause (b) of Clause (i) or Clause (ii) by such court except after giving a
reasonable opportunity of being heard to the parties.
Sub-section (2) o f Section 20 provides that notwithstanding anything
contained in any other law for the time being in force, the Authority or
Committee organising the Lok Adalat under Section 19 may, on receipt of
an application from any one of the parties to any matter which is falling
within the jurisdiction of, and is not brought before any court for which the
Lok Adalat is organised that such matter need to be determined by a Lok
Adalat, refer such matter to the Lok Adalat, for determination. However no
matter shall be referred to the Lok Adalat except after giving a reasonable
opportunity of being heard to the other party.
Where any case is referred to a Lok Adalat under sub-section (1) or
sub-section (2) o f the Act the Lok Adalat shall proceed to dispose of the case
or matter and arrive at a compromise or settlement between the parties.
Every Lok Adalat shall, while determining any reference before it
under this Act, act with utmost expedition to arrive at a compromise or
settlement between the parties and shall be guided by the principles of
natural justice, equity, fair play and other legal principles.
Where no award is made by the Lok Adalat on the ground that no
compromise or settlement could be arrived at between the parties, the record
of the case shall be returned by it to the court, from which the reference has
been received under sub-section (1) for disposal in accordance with law.
Where no award is made by the Lok Adalat on the ground that no
compromise or settlement could be arrived at between the parties, in a
matter referred to in sub-section (2) that Lok Adalat shall advise the parties
to seek remedy in a court.
Where the record of the case is returned under sub-section (5) to the
court, such court shall proceed to deal with such case from the stage which
was reached before such reference under sub-section (1).
4. Award of the Lok Adalat
Section 21 of the Legal Services Authorities Act provides that every
384 THE ARBITRATION AND CONCILIATION ACT, 1996

award of the Lok Adalat shall be deemed to be a decree of a civil court or,
as the case may be, an order of any other court and where a compromise or
settlement has been arrived at, by a Lok Adalat in a case referred to it
under sub-section (1) of Section 20, the court-fee paid in such case shall be
refunded in the manner provided under the Court Fees Act, 1870 (7 of 1870).
Every award made by a Lok Adalat shall be final and binding on all
the parties to the dispute, and no appeal shall lie to any court against the
award.
The Lok Adalat shall proceed and dispose the cases and arrive at a
compromise or settlement by following the legal principles, equity and
natural justice. Ultimately, the Lok Adalat passes an award, and every such
award shall be deemed to be a decree of Civil Court or, as the case may be,
which is final.
5. Award of Lok Adalat shall be final
The Lok Adalat pass the award with the consent of the parties,
therefore, there is no need either to reconsider or review the matter again
and again, as the award passed by the Lok Adalat shall be final. Even as
under Section 96(3) of C.P.C. that "no appeal shall lie from a decree passed
by the Court with the consent of the parties". The award of the Lok Adalat
is an order by the Lok Adalat under the consent of the parties, and it shall
be deemed to be a decree of the Civil Court, therefore, an appeal shall not
lie from the award of the Lok Adalat as under Section 96(3), C.P.C.
In Punjab National Bank v. Lakshmichand Rah,1 the High Court held
that "The provisions of the Act shall prevail in the matter of filing an appeal
and an appeal would not lie under the provisions of Section 96, C.P.C. Lok
Adalat is conducted under an independent enactment and once the award is
made by Lok Adalat the right of appeal shall be governed by the provisions
o f the Legal Services Authorities Act when it has been specifically barred
under provisions of Section 21(2), no appeal can be filed against the award
under Section 96, C.P.C." The Court further stated that "It may incidentally
be further seen that even the Code of Civil Procedure does not provide for
an appeal under Section 96(3) against a consent decree. The Code of Civil
Procedure also intends that once a consent decree is passed by Civil Court
finality is attached to it. Such finality cannot be permitted to be destroyed,
particularly under the Legal Services Authorities Act, as it would amount to
defeat the very aim and object of the Act with which it has been enacted,
hence, we hold that the appeal filed is not maintainable.
The High Court of Andhra Pradesh held that, in Board o f Trustees o f
the Port o f Visakhapatnam v. Presiding Officer, Permanent, Lok
Adalat-cum-Secretary, District Legal Services Authority, Visakhapatnam and
another, "The award is enforceable as a decree and it is final. In all fours,
the endeavour is only to see that the disputes are narrowed down and make
the final settlement so that the parties are not again driven to further
litigation or any dispute. Though the award of a Lok Adalat is not a result
o f a contest on merits just as a regular suit by a Court on a regular trial,
however, it is as equal and on par with a decree on compromise and will
1. AIR 2000 M.P. 301.
2. 2000(5) ALR 577.
ALTERNATIVE MEANS OF SETTLEMENT OF DISPUTES 38 5

have the same binding effect and conclusive just as the decree passed on the
compromise cannot be challenged in a regular appeal, the award of the Lok
Adalat being akin to the same, cannot be challenged by any regular
remedies available under law including invoking Article 226 of the
Constitution of India challenging the correctness o f the award on any
ground. Judicial review cannot be invoked in such award especially on the
^rounds as raised in this writ petition.
The award o f Lok Adalat is final and permanent which is equivalent to
a decree executable, and the same is an end to the litigation among parties.
In Shalendra Narayan Bhanja Deo v. State o f Orissa,1 (Constitution
Bench( held as follows :
"A judgment by consent or default is an effective an estoppel
between the parties as a judgment whereby the Court exercises its
mind on a contested case. (1895) 1 Ch. 37 and 1929 AC 482 relied on :
In ‘In re South American and Mexican Co., Ex parte Bank o f
England ,2 it has been held that a judgment by consent or default is an
effective an estoppel between the parties as a judgment whereby the
Court exercises its mind on a contested case. Upholding the judgment
of Vaughan Williams, J., Lord Herschell said :
"The truth is, a judgment by consent is intended to put a stop to
litigation between the parties just as much as is a judgment which
results from the decision of the Court after the matter has been fought
out to the end.
And I think it would be very mischievous if one were not to give
a fair and reasonable interpretation to such judgments, and were to
allow questions that were really involved in the action to be fought over
again in subsequent action."
It is submitted that award passed by the Lok-Adalat in terms of
compromise between the parties, is not subjected to further judicial scrutiny.
6. Award of Lok-Adalat is a Decree
The Supreme Court in K.N. Govindan Kutty Menon v. C.D. Shaji,
ruled that whether a criminal case filed under Section 138 of the Negotiable
Instruments Act, 1881 referrd to by the Magistrate comes to Lok Adalat is
settled by the parties and an award is passed recording settlement, it can
be considered as a decree of a civil court and hence executable.
The Supreme Court observed that it is a legal fiction that the "award"
of the Lok Adalat is a decree of a Civil Court. A statutory support as
evidenced in the statement of objects and reasons of the Legal Services
Authorities Act, 1987 would not only reduce the burden of arrears o f work
in regular courts, but would also take justice to the doorsteps of the poor
and the needy and make justice Quicker and less expensive.
In present case the courts below erred in holding not only if the matter
was one which was referred by a civil court it could be the decree and if a
matter was referred by a Criminal Court it will only be an order of the

1. AIR 1956 SC 346.

2. (1895) 1 Ch. 37 (C).
3. 2011 (13) Scale 232.
386 THE ARBITRATION A N D CONCILIATION ACT, 1996

criminal Court and not a decree under Section 21 of the Legal Services
Authorities Act, 1987. The Act does not make out any such distinction
between the reference made by a Civil Court and Criminal Court. There is
no restriction on the power of Lok-Adalat to pass an award based on the
compromise arrived at between the parties in a case referred by a Criminal
Court under Section 138 of the Negotiable Instruments Act, 1881 and by
virtue of the deeming provision it has to be treated as a decree capable of
execution by a Civil Court.
7. Settlement of matrimonial dispute—by Lok-Adalat
In Alok Mishra v. Garima Mishra1 wherein by efforts of mediations of
the Delhi High Court mediation and conciliation Centre, parties arrived at
a settlement. Pursuant discussions, deliberations and negotiations held with
the assistance and help of mediators parties have, resolved their
disputes/difference and have agreed to dissolve their marriage on terms of
convictions as agreed by them. According to the Supreme Court finding the
settlement to be in the interest of parties, this court agreed the same. Hence,
in view of the settlement, marriage between the parties dissolved.
8. Powers of the Lok Adalat
Section 22 makes provisions in relation to the powers of the Lok Adalat
and it provides that the Lok Adalat shall, for the purposes of holding any
determination under this Act, have the same powers as are vested in a civil
court under the Code of Civil Procedure, 1908 (5 o f 1908) while trying a suit
in respect of the following matters, namely :
(a) the summoning and enforcing the attendance of any witness and
examining him on oath;
(b) the discovery and production of any document;
(c) the reception of evidence on affidavits;
(d) the requisitioning of any public record or document or copy of such
record or document from any court or office; and
(e) such other matters as may be prescribed.
Without prejudice to the generality of the powers mentioned above
every Lok Adalat shall have the requisite powers to specify its own
procedure for the determination of any dispute coming before it.
All proceedings before the Lok Adalat shall be deemed to be judicial
proceedings within the meaning of Sections 193, 219 and 228 o f the Indian
Penal Code (45 of 1860) and every Lok Adalat shall be deemed to be a civil
court fo r the purpose o f Section 195 and Chapter XXVI of the Code of
Criminal Procedure, 1973 (2 of 1974).
Notably, Different States have made different provisions in relation to
the organisation, functioning and various other aspects of the Lok Adalat.
9. Lok Adalat Award as good as Court Decision
According to the Supreme Court the award of Lok Adalat stood on
same footing as a decision of the Court. The Court further held that award
passed by the Lok Adalat is the decision of the Court itself though arrived
at by simpler method of conciliation instead of the process of arguments in
i 2009 (2) Supreme 245.
A LT E R N A TIV E M E A N S O F SETTLEMENT O F DISPUTES 387

Court. The effect is same. In the opinion of the Supreme Court the award of
Lok Adalat is fictionally deemed to be decree of Courts and therefore the
Courts have all the powers in relation thereto as it has in relation to a
decree passed by itself. The Supreme Court disagreed with the view that the
award of the Lok-Adalat could not be equated with a decree and it only
incorporates an agreement between the parties and that in case of violation
of the agreement or the terms of the compromise recorded in the award, the
parties lose their right to get the same executed and compromise stands
withdrawn while setting aside the view accepted by Kerala High Court while
allowing a revision petition on a property dispute between brothers which
was earlier settled by Lok Adalat, the Court said that "the view taken by
the High Court, will totally defeat the object and purpose of the Legal
Services Authority Act and render the decision of the Lok Adalat
meaningless.
10. L o k A d a la t can pass o rder—only w hen there is compromise
betw een th e parties
The Supreme Court in Union o f India v. Ananto (dead) & another,l
while explaining powers of Lok Adalat has held that the Lok Adalat can
pass orders only when there is compromise between the parties. In the
instant case direction for appointment of arbitrator was passed by the Lok
Adalat when there was no compromise between the parties. It is without
jurisdiction.
11. L o k A d a lat can m ake an aw ard touching rights of m in o r
The Kerala High Court in Merlin alias Sherly Augustin & others v.
Yesudas & others,2 held that in a matter where a minor is involved a
compromise or settlement between the parties could well be accepted and
acted upon by the Lok Adalat, if it is satisfied on such materials as may be
produced or called for by it, that the settlement is in the interest of the
minor also and that such settlement does not, in any manner impair the
interest of the minor and has not been made to defeat any interest of the
minor. It can also be ensured that the person acting on behalf of the minor
to arrive at the settlement, does not have any interest contrary to that of
the minor in the case in question. The Court was of the view that if such
yardsticks are applied and a settlement or a compromise involving a minor
is recorded and let to fruitify into an award in terms of the Act, such deemed
decree is sufficient enough to take care of the interest of the minor and also
abound the minor in which event, recourse to provisions and procedures
before the Court of wards would be unnecessary.
In the present case the Court further held that the rigour of Order 32,
Rule 7 need not, by itself deter a Lok Adalat from arriving at a compromise
in a matter in which the interest of minor is involved. In the circumstances
of the situation in which minor is placed, it will be appropriate for the
Adalat to ensure that a compromise is entered and recorded on behalf of a
minor with the leave of the Adalat which could be granted on a proper
application in that regard. Again having in mind the duty of the Lok Adalat
to be guided by principles of justice, equity, fair play and other legal
1. AIR 2007 SC 1561.
2. AIR 2007 Ker. 199.
388 THE A R B IT R A T IO N A N D C O N C IL IA T IO N ACT, 1996

principles. So much so, if the next friend or guardian of a minor applies to

the Lok Adalat for leave to enter into any agreement or compromise on
behalf of a minor with reference to the subject-matter of the reference before
the Lok- Adalat, it would be well within the jurisdiction and authority of the
Lok-Adalat to grant such leave on being satisfied that the agreement or
compromise is for the benefit of the minor. In granting such leave, it would
be open to the Adalat to take stock of the entire fact situation and also insist
on an affidavit being filed by guardian to the effect that the agreement or
compromise proposed, is for the benefit of the minor.
12. A w a rd passed by Lok A d a lat—N ot im m une from ju d ic ia l re vie w
u n d e r A rtic le 227 o f the C onstitution o f In d ia , 1950
The Allahabad High Court in Dr. Smt. Shashi Prateek v. Charan Singh
Verm,a & another,1 ruled that although the provisions of the Act are intended
to make award of Lok Adalat arrived at on the basis of compromise or
settlement between the parties to dispute as final and remedies of appeal,
review and revision against the award of Lok-Adalats are not available
under law but being a Tribunal of special nature, the remedy to recall the
order/award passed by Lok Adalat on the ground of fraud or
misrepresentation or mistake of fact cannot be held to be barred under law,
as power to recall its order on the aforesaid grounds is inherent in every
court or tribunal or statutory functionary. Similarly, awards made by the
Lok Adalat organised or established under the Legal Services Authority Act,
1987 cannot be held to be immune from judicial review as High Court under
Article 227 of the Constitution has ample power of superintendence over
decisions of all the Courts or tribunals throughout the territories in relation
to which it exercises jurisdiction, therefore, orders passed or award made by
Lok Adalats organised or established under the said Act within territorial
limits of High Court, are subject to judicial review on the grounds available
under Articles 226/227 of the Constitution.
13. L o k A d a la t and A D R
Merely making law is not sufficient in absence o f necessary
infrastructure to secure justice to poor litigants. Further, the society is to be
educated and trained to avail the benefit of free legal aid.
The Supreme Court in Hussainara Khatoon v. State o f Bihar,2 observed
that :—
"Today unfortunately, in our country the poor are priced out of the
judicial system with the result that they are losing faith in the capacity
of our legal system to bring about changes in their life conditions and
to deliver justice to them. The poor in their contact with the legal
system have always been on the wrong side of the line. They have
always come across "Law for the poor" rather than "law of the poor".
The law is regarded by them as something mysterious and
forbidding— always taking something away from them and not as a
positive and constructive social device for changing the social economic
order and improving their life conditions by conferring rights and

1. AIR 2009 All. 109.

2. AIR 1979 SC 1369.
A LT E R N A TIV E M E A N S O F SETTLEM ENT O F DISPUTES 389

benefits on them. The result is that the legal system has lost its
credibility for the weaker sections of the community. It is, therefore,
necessary that we should inject equal justice and legality and that can
be done only by dynamic and activist scheme of legal services."
The Legal Services Authority Act, 1987 makes provision of constituting
Lok-Adalat and in fact it was a historic compulsion for the country like
India, where illiteracy dominates every part of the country. To overcome the
increasing litigation and arrears of pending cases and further inordinate
delay in dispensation of justice and also sluggish adjudicatory system, the
setting up o f alternate mechanism as to ADR (Alternative Dispute
Resolution) system and Lok Adalat have become inevitable with the view to
revive the confidence among the ordinary citizen.
The system of Lok Adalat is based on principle of amicable settlement
of disputes by means of compromise. On the other hand the concept of ADR
i.e., Mediation, Negotiation and Conciliation, also works with the same
object. Although, Lok Adalat and ADR have emerged as institutions
involving multiple factors in its mission, the concept of Lok Adalat and ADR
works for the common object, however, through different ways.

THE NATIONAL LEGAL SERVICES AUTHORITY

1. A p p o in tm e n t of C h airm an of State Legal Service A u th o rity
According to the Supreme Court normally a sitting judge o f High Court
should be appointed as the Chairman of the State Legal Service Authority,
although in terms of Section 6(2) of the Legal Services Authority Act, 1987
a retired judge can be appointed as Chairman of the said Authority.1
2. O rgan isation, P o w er and Functions
Section 3(1) of Legal Services Authorities Act provides that the Central
Government shall constitute a body known as the National Legal Services
Authority to exercise the powers and perform the functions conferred on, or
assigned to the Central Authority under this Act. "Central Authority"
according to Section 2(o)(a) of this Act means the National Legal Services
Authority constituted under Section 3 :
Sub-section (2) o f Section 3 of this Act further provides that the Central
Authority shall consist of—
(a) The Chief Justice of India who shall be Patron-in-Chief.
(b) A serving or retired Judge of the Supreme Court to be nominated
by the President, in consultation with the Chief Justice of India,
who shall be the Executive Chairman.
(c) Such number of other members, possessing such experience and
qualification as may be prescribed by the Central Government, to
be nominated by that Government in consultation with the Chief
Justice of India.
According to Rule 3 of National Legal Services Authority Rules the
Central Authority shall consist of not more than twelve members and

1. Supreme Court Bar Association v. Union of India and others, A IR 2007 SC 1670.
390 THE A R B IT R A T IO N A N D C O N C IL IA T IO N A C T , 19 96

further it provides that the following shall be the ex-officio members of the
Central Authority—
(i) Secretary, Department of Legal Affairs, Ministry of Law,
Justice and Company Affairs, Government of India or any of his
nominee;
(ii) Secretary, Department of Expenditure in the Ministry of
Finance, Government of India or any of his nominee;
(iii) Two Chairmen of the State Legal Services Authority as may
be nominated by the Central Government in consultation with the
Chief Justice of India :
Provided that the Patron-in-Chief of the Central Authority may
nominate, until the constitution of the State Authorities under the Act,
Chairman of any two of the State Legal Aid and Advice Board or
Committees, by whatever name called, existing prior to such constitution.
The Central Government may nominate, in consultation with the Chief
Justice of India other members from amongst those possessing the
experience and qualifications stated below :
A person shall not be qualified for nomination as a member of the
Central Authority unless he is—
(a) an eminent person in the field of law, or
(b) a person of repute who is especially interested in the
implementation of the legal services scheme, or
(c) an eminent social worker who is engaged in the upliftment of the
weaker sections of the people which includes the Scheduled
Castes, Scheduled Tribes, women, children, rural and urban
* labours.
Section 3(3) says that the Central Government shall, in consultation
with the Chief Justice of India, appoint a person to be the Member-Secretary
o f the Central Authority, possessing such experience and qualifications as
may be prescribed by that Government, to exercise such powers and perform
such duties under the Executive Chairman of the Central Authority as may
be prescribed by that Government or as may be assigned to him by the
Executive Chairman of that Authority.
Sub-section (4) of Section 3, of Legal Services Authorities Act makes
provision with regard to the terms of office and other conditions of the
members of Central Authority. According to it, the terms of office and other
conditions related to the members and the Member-Secretary of the Central
Authority shall be such as may be prescribed by the Central Government
after consulting with the Chief Justice of India.
Rule 4 of the National Legal Services Authority Rules states that the
Central Government shall, in consultation with Chief Justice of India,
appoint a person as Member-Secretary of the Central Authority, possessing
experience and qualifications as stated in Rule 5.
Rule 5 provides that for a person to be the Member-Secretary of the
Central Authority he must be—
(i) an officer of Indian legal service who has held a post not below
the rank of Additional Secretary to the Government of India, or
A LT E R N A TIV E M E A N S O F SETTLEMENT O F DISPUTES 391

(ii) a member of the State Higher Judicial Service who has held
the post of the District Judge atleast for three years, or
(iii) an officer of other organised Central services who has held a
post of Joint-Secretary to the Government of India or equivalent for a
minimum period of three years, or
(iv) an officer of the organised State services who has held a post
equivalent to the Joint-Secretary to the Government of India for a
minimum period of 5 years.
Further it states that preference will be given to the person possessing
administrative, financial and legal experience.
Pow ers and Functions
Rule 6, states the powers and functions of the Member-Secretary of the
National Legal Services Authority. According to the rule following shall be
the powers and functions of the Member-Secretary :—
(i) to work out modalities of the legal services, schemes and
programmes approved by the Central Authority and ensure their
effective monitoring and implementation throughout the country;
(ii) to exercise the powers related to administrative, finance and
budget matters as that of the Head of the Department in the Central
Government;
(iii) to manage the funds, records and properties of the Central
Authority;
(iv) to maintain true and proper accounts of the Central
Authority including checking and auditing in respect thereof
periodically;
(v) to draft and prepare Annual Income and Expenditure
Accounts and balance-sheet of the Central Authority;
(vi) to liaise with the social action groups and the State Legal
Services Authority;
(vii) to prepare and maintain up-to-date and complete statistical
information, including process made in the implementation of various
legal services programmes from time to time;
(viii) to process project proposal for financial assistance and issue
utilisation certificates thereof;
(ix) to convene meetings/seminars and workshops connected with
legal services programmes and prepare reports and follow up action
thereon,
(x) to produce video and documentary films and publish material,
literature and publications to inform general public about the various
aspect of the legal services programme, and
(xi) to perform such other functions as may be required for
effective functioning of the Central Authority.
These rules further state the term of office and conditions related to
the members and Member-Secretary of the Central Authority. According to
Rule 7, the members of the Central Authority nominated by the Central
Government under Rule 3, shall hold office for a term of two years and a
392 THE ARBITRATION A N D CONCILIATION ACT, 1996

retiring member shall be eligible for re-nomination for not more than one
term. Any member appointed by the Central Government under Rule 3, may
be removed by the Central Government if in the opinion of the Central
Government, it is not desirable to continue him as a member.
If any member nominated by the Central Government ceases to be the
member of Central Authority because of resignation or death then the
vacancy shall be filled up in the same manner as the original nomination
and the person so nominated shall continue to be a member for the
remaining term of the member in whose place he is nominated. All the
members nominated under Rule 3, shall be entitled to the payment of
travelling allowance and daily allowance in respect of journeys performed in
connection with the work of Central Authority and shall be paid by the
Central Authority in accordance with the rules as are applicable to Grade
‘A’ officers as amended from time to time.
If such a member, as stated above, is also a Government employee then
he shall be entitled to only one set of payment of travelling allowance either
given by his parent department or by the Central Authority.
The member-secretary shall hold office for a term not exceeding 5 years
or till the age of 62 years whichever is earlier. The member-secretary shall
be governed by the rules as are applicable to the person holding office
equivalent to posts in the Central Government in the matters like pay,
allowances, benefits and entitlements.
If an officer o f State Higher Judicial Services or of other Organised
Central/State Services is appointed as the member-secretary, he shall be
governed by the service conditions of his parent cadre, in so far as
disciplinary matters are concerned. The appointment of member-secretary
may be made on deputation basis.
Thus, these are the provisions made by rules in relation to the terms
o f office and other conditions of the members and member-secretary of the
Central Authority.
Section 3(5) of the Legal Services Authorities Act provides that the
Central Authority for its efficient functioning under this Act may appoint
any such number of officers and other members as may be prescribed by the
Central Government, in consultation with the Chief Justice of India.
Rule 8 of National Legal Services Authority Rules makes provision in
respect o f number of officers and other employees of the Central Authority.
The Central Authority shall have such number of officers and other
employees as may be required for delivering secretarial assistance and for
carrying its daily functions as are set out in schedule to these riiles or as
may be notified by the Central Government from time to time.
Section 3(6) of the Legal Services Authority Act, 1987 states that the
salary and allowances and other conditions of services of the officers and
other members of the Central Authority shall be fixed by the Central
Government, in consultation with the Chief Justice of India.
Rule 9 of National Legal Services Authority Rules provides that the
officers and other employees of Central Authority shall be entitled to receive
pay and allowance in the scale of pay indicated against each post in- the
Schedule to these rules or at a par with the Central Government employees
ALTERNATIVE MEANS OF SETTLEMENT OF DISPUTES 393

holding equivalent posts.

In the matters related to age of retirement, pay and allowances,
benefits and entitlements and disciplinary matters, the officers and other
members of Central Authority shall be governed by the Central Government
in the same manner in which it governs the persons holding equivalent
posts.
The rule also provides that the officers and other employees of the
Central Authority shall be entitled to such other facilities and benefits as
may be notified by the Central Government from time to time.
Section 3(7) of the Legal Services Authorities Act states that the
administrative expenses of the Central Authority, including the salaries,
a'lowances and pensions payable to the member-secretary, officers and other
employees o f the Central Authority, shall be paid out of the Consolidated
fund of India.
According to Section 3(8) of the Act, each and every order and decision
of the Central Authority shall be authenticated by the member-secretary or
any other officer of the Central Authority duly authorised by the Executive
Chairman o f that Authority.
Section 3(9) of the Act further provides that no act or proceedings of
the Central Authority shall be invalid merely on the ground of the existence
of any vacancy in, or any defect in the constitution of the Central Authority.
Section 3-A o f the Legal Services Authorities Act makes provisions in
relation to Supreme Court Legal Services Committee. According to Section
3-A, the Central Authority shall constitute a Committee called Supreme
Court Legal Services Committee for the purpose of exercising such powers
and performing such functions as may be determined by the regulations
made by the Central Authority.
Further, Section 3-A of the Legal Services Authorities Act, 1987 makes
provision regarding the constitution of this Committee. It provides that the
Committee shall be constituted of—
(i) a sitting Judge of Supreme Court who shall be the Chairman,
(ii) such number o f other members possessing such experience
and qualifications as may be prescribed by the Central Government to
be nominated by the Chief Justice of India.
Rule 10 o f the National Legal Services Authority Rules states regarding
the number, experience and the qualifications of members of Supreme Court
Legal Service Committee.
According to this rule, the Supreme Court Legal Services Committee
shall not consist of more than nine members and the following shall be the
ex-officio members of it ;
(a) The Attorney General of India;
(b) Additional-Secretary in the Department of Legal Affairs, Ministry
of Finance, Government of India or his nominee;
(c) Additional-Secretary in the Department of Expenditure of the
Ministry o f Finance, Government of India or his nominee; and
(d) Registrar-General of the Supreme Court of India.
Rule 10 further provides that the Central Government may nominate
394 THE ARBITRATION A N D CONCILIATION ACT, 1996

in consultation with the Chief Justice of India, other members from amongst
those possessing the qualifications and experience prescribed as follows ;—
(i) if he is an eminent person in the field of law; or
(ii) if he is a person of repute who is especially interested in the
implementation of the legal services scheme; or
(iii) if he is an eminent social worker who is engaged in the
upliftment of the weaker sections of the people including Scheduled
Castes, Scheduled Tribes, women, children, rural and urban labour.
Rule 11 provides that the Secretary of the Supreme Court Legal
Services Committee shall have the following qualifications
(i) he must be an officer of the Supreme Court R e g is tr y not below
the rank of Joint Registrar; or
(ii) he must be an officer of the rank of Secretary from the
Central Government possessing a degree of law.
Section 3-A(3) o f the Legal Services Authorities Act, 1987 provides that
the Chief Justice o f India shall appoint a person to be the Secretary to the
Committee, possessing such experience and qualification as may be
prescribed by the Central Government.
Section 3-A(4) of the said Act provides that the terms of office and other
conditions relating thereto of the members and Secretary of the Committee
shall be such as may be determined by the regulations made by the Central
Authority.
According to Section 3-A(5) of the said Act the Committee may appoint
such number of officers and other employees as may be prescribed by the
Central Government in consultation with the Chief Justice of India, for the
efficient discharge of its functions.
Further, Section 3-A(6) of the said Act provides that the officers and
other employees of the Committee shall be entitled to such salaries and
allowances and shall be subject to such other conditions of service as may
be prescribed by the Central Government in consultation with the Chief
Justice of India.
3. Function of the Central Authority
Section 4 of the Legal Services Authorities Act, 1987 makes provisions
related to the functions of the Central Authority. The Central Authority,
according to Section 4 shall perform all or any of the functions as under :—
(i) it can formulate policies and principles to make legal services
available under the provisions of this Act;
(ii) it can frame the most effective and economical schemes for
the purpose of making legal services available under this Act;
(iii) it can utilise the funds at its disposal and make appropriate
allocation of funds to the State Authorities and District Authorities;
(iv) it can take steps required with regard to consumer protection,
environmental protection or any other matter of special concern to the
weaker sections of the society by way of social justice litigation and for
this purpose, give training to social workers in legal skills;
(v) it can organise legal aid camps, especially in rural areas,
ALTERNATIVE MEANS OF SETTLEMENT OF DISPUTES 395

slums or labour colonies with the dual purpose of educating the weaker
sections of the society as to their rights as well as encouraging the
settlement of disputes through Lok Adalats;
(vi) it can encourage the settlement of disputes by way of
negotiations, arbitration and conciliation;
(vii) it can undertake and promote research in the field of legal
services with special reference to the need for such services among the
poor;
(viii) it can do all necessary things for the purpose of ensuring
commitment to the fundamental duties of the citizens under Part IV-A
of the Constitution;
(ix) it can provide grants-in-aid for specific schemes to various
voluntary social service institution and the State and District
Authorities, from out of the amounts placed at its disposal of the
implementation of legal services schemes under the provisions of this
Act;
(x) it can develop, in consultation with the Bar Council of India,
programmes for clinical legal education and promote guidance and
supervise the establishment and working of legal services clinics in
Universities, law colleges and other institutions;
(xi) it can monitor and evaluate the implementation of the legal
aid programmes at periodic intervals and provide for independent
evaluation o f programmes and schemes implemented in whole or in
parts by funds provided under this Act;
(xii) it can take appropriate measures for spreading legal literacy
and legal awareness amongst the people and, in particular, to educate
weaker sections of the society about the rights, benefits and privileges
guaranteed by social welfare legislations and other enactments as well
as administrative programmes and measures;
(xiii) it can make special efforts to enlist the support of voluntary
social welfare institutions working at the grass-root level particularly
among the Scheduled Castes and Scheduled Tribes, women, children,
rural and urban labour; and
(xiv) it can co-ordinate and monitor the functioning of State
Authorities, District Authorities, Supreme Court Legal Services
Committee, High Court Legal Services Committee, Taluk Legal
Services Committee, and voluntary social service institutions and other
legal services organisations and give general directions for the proper
implementation of the legal services programmes.
Thus these are the functions that the Central Authority can perform.
Section 5 of the Act provides that in the discharge of its functions under the
Act, the Central Authority shall, whenever appropriate, act in co-ordination
with other governmental and non-governmental agencies, universities and
others engaged in the work of promoting the cause of legal services to the
poor.
Thus, the Lok Adalat and National Legal Services Authority are the
alternative means of dispute redressal system, under which flexible, less
396 THE ARBITRATION AND CONCILIATION ACT, 1996

expensive and expeditious settlement of dispute is sought. Lok Adalat is a

non-judicial forum which is organised by the judicial authorities. It can be
said that the nature of procedure adopted by the Lok-Adalats is similar to
the arbitration, conciliation and mediation procedure. Lok Adalats and
National Legal Services are required to adjudicate the subject-matter of
disputes by adopting the technique of mutual understanding and to induce
exchange of view between the parties, so that decision can be determined by
mutuality. Therefore, the alternative means of dispute redressal emphasise
the conciliation and settlement in their procedure.

Alternative Means of Disputes Resolution in India

The present legal system is borrowed from the Britishers. Before the
arrival of Britishers in India ‘Nyay Panchayat’ system was very important
and was the basic means for settlement of dispute. During the King’s regime
the settlement of disputes used to be done by means of mediation,
conciliation and by ‘Panch’, which was expeditious and economical.
Execution of decision used to be forthwith. However, such settlement of
disputes was to be done by the senior citizens who were impartial and
honest. This type o f the dispute redressal system was almost abolished after
the arrival of the Britishers in India. There was provision for arbitration in
the Code of Civil Procedure, 1908. Such alternative means of dispute
redressal system was recognised by the Presidency Courts i.e., Calcutta,
Bombay and Madras.
Section 28 of the Indian Contract Act, 1872 declares the agreement
restraining the trade as void but arbitration as an exception to it.
Firstly, the Arbitration Act, 1899 was enacted, which was modelled on
the basis of the British Arbitration Act, 1899. Section 89 of the Code of Civil
Procedure, 1908 deals with the arbitration, conciliation, judicial settlement
including mediation through Lok Adalat. The court is empowered to refer
the matter for adjudication through these alternative means. In due course
of time the Arbitration Act, 1899 was substituted by the Arbitration Act,
1940. However, certain provisions of the Arbitration Act, 1899 and Second
Schedule of the Code o f Civil Procedure, 1908 have been incorporated in the
Arbitration Act, 1940. This Act of 1940 dealt with the domestic arbitration.
After the enactment of the Arbitration Act, 1940 the international
business remarkably grew and in view of revolutionary development in the
field of telecommunication and traffic, the international commercial
transactions have increased tremendously. It is natural where there are
transactions, there is likelihood of difference and dispute. The necessity of
arbitration law to deal with the dispute or difference relating to the
international commercial transactions was therefore felt. On the basis of
Geneva Convention, 1927 and the New York Convention, 1958, Arbitration
(Protocol and Convention) Act, 1937 and Foreign Arbitration (Recognition
and Enforcement) Act, 1961 respectively were enacted. In 1996 the
Parliament incorporated the new Arbitration and Conciliation Act, 1996
which is based on UNCITRAL Model Law proposals of the Geneva
Convention, New York Convention and the Act, 1996 also contains certain
provisions o f the Arbitration Act, 1940. In the new Act, domestic arbitration
as well as international arbitration besides conciliation have been recognised
ALTERNATIVE MEANS OF SETTLEMENT OF DISPUTES 397

with the view to settle the domestic and international commercial disputes
by the alternative means of dispute resolution.
Arbitration is an Important Alternative Dispute Resolution (ADR)
Process
In State o f J. & K. v. Dev Dutt Pandit,1 the Supreme Court observed
that arbitration is an important ADR process, which is to be developed and
encouraged.
It is well settled that the proceedings of all tribunals would fall within
the description of ADR.
In context of ADR the newly inserted Section 89 of the Code (CPC
Amendment Act, 1999) of Civil Procedure is relevant to refer—
"89. Settlement o f disputes out 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 observation 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 provision 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 the 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 Service 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."
Thus, when it appears to the Court that the dispute has scope of
settlement, the Court may frame the terms of settlement to be given to the
parties for their observations and settlement, however after observation of
the parties, the Court may also reformulate the terms o f settlement, but

1. 1 999 A rb . W L J 7 0 4 (S C ).
398 THE ARBITRATION AND CONCILIATION ACT, 1996

such reformulation is not necessary. The terms of possible settlement are

however required to be referred for arbitration/conciliation/judicial
settlement through Lok Adalat or mediation.

Supreme Court's Judgment, 2005 and ADR

In the context of settlement of disputes outside the court the Code of
Civil Procedure, 1908 was amended by the CPC (Amendment) Act, 1999
w.e.f. 1-7-2002. Consequently, Section 89 of the said Code was amended
which reads as under :
"Section 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 observation of the parties, the Court may
formulate 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 had 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, shall refer the same to the Lok Adalat in
accordance with the provisions of sub-section (1) of Section 2 of the
Legal Services Authority Act, 1987 (39 of 1987) and all other
provisions of that Act shall apply in respect of the dispute 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 was referred to 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."
While interpreting the intention o f the Legislature behind enacting
Section 89 of the Code of Civil Procedure, 1908 the Supreme Court in Salem
Advocate Bar Association (II) v. Union o f India,1 has ruled 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—i.e., arbitration, conciliation, judicial settlement including

1. AIR 2005 SC 3353.

ALTERNATIVE MEANS OF SETTLEMENT OF DISPUTES 399

settlement through Lok Adalat, or mediation, mentioned in Section 89 of the

Code and if the parties do not agree, the Court shall refer them to one or
the other of the said modes.
The Supreme Court further ruled that when the parties come to a
settlement upon a reference made by the Court for mediation and the parties
want the same, there has to be some public record of the manner in which
the suit is disposed off, and, therefore, the Court must first record the
settlement and pass decree in terms thereof and, if necessary, proceed to
execute it in accordance with law.
In view of the above decision it can be said that ADR has been
recognised by the Supreme Court and emphasis has been put in settlement
of disputes outside the court. Now the Courts in India after statutory
recognition and approval by the Supreme Court the concept of ADR, are
showing inclination to settlement of disputes outside the court. Finally, ADR
is attached with judicial tag and millions of litigants have received or are
receiving relief by the said mechanism.
Legal Aid
Helping the poor litigants in resolving their disputes is regarded as a
divine social service. Legal aid is treated as a human right in a civilised
society across the world. The Universal Declaration of Human Rights
adopted and proclaimed by the General Assembly of United Nations
Organisation on 10th December, 1948 confers obligation on States to
promote respect for rights and freedom by innovating progressive measures
in every sphere of human life.
Further, Article 14 of the International Covenant on Civil and Political
Rights, 1966 which was adopted by the General Assembly of United Nations
on 16th December, 1966 states that in determination of any criminal charge
against him or of his rights and obligations in a suit of law, every one shall
be entitled to a fair public hearing of a competent, independent and
impartial tribunal/court constituted by law. The said Article further states
that it is a fundamental right of accused to be presumed innocent until
proved guilty, to be entitled to minimum guarantees in full equality without
any kind of discrimination.
In the present scenario in more than 132 nations out of 192 United
Nations Organisation member States, mechanism for rendering legal aid to
needy and poverty ridden persons, specially in criminal trial has been made.
In the United States of America (U.S.A.) free legal aid is provided as of right
to needy persons who are being subjected to criminal trial. The American
Bar Association has constituted a body which is known as "Legal Aid
Corporation". In Gideon v. Wainwright,1 the Court laid down a rule
providing the appointment of a Counsel for an indigent criminal defendant
accused in State Courts. The Court expressed the view that to hold free and
fair trial it is necessary that every indigent criminal should be represented
by a counsel. On the basis of aforesaid concept Canada, Japan and China
etc. have provided right to free legal aid in a criminal trial, which have been
made statutory and mandatory.

1. 372 US 335 (1963).

400 THE ARBITRATION AND CONCILIATION ACT, 1996

Legal Aid under Constitution of India, 1950

Notably, Article 22 of the Constitution of India, 1950 deals with several
rights which are pillars of Indian criminal justice system. Under the said
Constitutional provision "no person who is arrested, shall be detained in
custody, without being informed, as soon as may be, of the grounds for such
arrest, nor shall be denied of the right to consult and be defended by a legal
practitioner of his choice."
On the other hand Section 303 of the Criminal Procedure Code, 1973
provided that any person, accused of an offence before the criminal court or
against whom proceedings are initiated, may of right, be defended by a
pleader of his choice.
Under the Chapter "Directive Principles of State Policy" in the
Constitution of India, 1950, namely Article 39-A, i.e. "Equal Justice and Free
Legal Aid" the State is under Constitutional obligation to promote justice, on
the basis o f equal opportunity and shall provide free legal aid by suitable
legislation or scheme, with the view to ensure that opportunities for securing
justice, are not denied to any citizen by reason of economic or other
disabilities.
The Apex Court in Sheela Barse,1 case observed that :
"Legal assistance to poor or indigent accused is the necessary sine
qua non of justice and where it is not provided injustice is likely to
result and undeniably every act of injustice corrodes the foundation of
democracy and rules of law, because nothing rankles more in the
human heart than the feeling of injustice and those who suffer and
cannot get justice because they are priced out of the legal system, lack
faith in the legal process and a feeling begins to overtake them that
democracy and rule of law are merely slogans or myths intended to
perpetuate the domination of rich and the powerful and to protect the
establishment and the vested interest."
Thus, free legal aid/service became an inevitable element in a
democratic pattern o f governance.
On the other hand in Suk Das v. Union Territory o f Arunachal
Pradesh ,2 the Supreme Court cautioned that where the accused is involved
in economic offences or offences against the law like prohibiting prostitution
or child abuse, there social justice may require that free legal service may
not be provided by the state. In such cases providing free legal aid to such
accused may become mockery of justice.
In Khatri v. State o f Biharf the Supreme Court ruled that it is a
solemn obligation of the Magistrate or Sessions Judge before whom an
accused appears he shall be informed that if he/she is unable to engage the
services of a lawyer on account of poverty or indigence, he/she is entitled to
seek free legal services at the cost of State.

1. (1995) 5 SCC 654.

2. AIR 1986 SC 991.
3. AIR 1981 SC 928. See also State o f Kerala v. Kuttam Mohanas & others. 1988 Cri. L.J.
453.
ALTERNATIVE MEANS OF SETTLEMENT OF DISPUTES 401

Legal Aid to Accused at State Expenses in certain Cases

Section 304 of Criminal Procedure Code, 1973 provides that legal aid
by the State will be available only where the accused has not sufficient
means to engage a pleader. Section 304 of the Code reads as under :—
Section 304— Legal aid to accused at State expenses in certain cases
(1) Where, in a trial before the Court of Session the accused is not
represented by a pleader and where it appears to the Court that the accused
has not sufficient means to engage a pleader, the Court shall assign a
pleader for his defence at the expense of the State.
(2) The High Court may, with the previous approval of the State
Government, make rules providing for :—
(a) the mode of selecting pleaders for defence under sub-section (1);
(b) the facilities to be allowed to such pleaders by the courts;
(c) the fees payable to such pleaders by the Government, and
generally, for carrying out the purposes of sub-section (1).
(3) The State Government may, by notification, direct that, from such
date as may be specified in the notification, the provisions o f sub-section (1)
and (2) shall apply in relation to any class of trials before the other Courts
in the State as they apply in relation to trials before Courts of Sessions."
In view of the Supreme Court1 it is settled legal position that every
presiding officer has to provide legal aid to the accused having no means to
defend himselfTherself before the trial Court and further it is necessary that
such lawyer should be of competence. However, no counsel can be engaged
without the consent of the accused.
Legal Aid Scheme— Committee for Implementing
Now, it has been declared that providing legal aid as fundamental right
to accused is a constitutional obligation of the State. The Central
Government steadfastly resolved to constitute the Committee for
Implementing Legal Aid Scheme (CILAS) in September, 1980. Hon’ble
Justice P.N. Bhagwati was the Chairman of the said Committee to supervise
the free legal aid scheme in all States and Union Territories. But in due
course it was realised that there should be State and District Level
Authorities to provide effective free legal aid to indigent persons. To meet
this task the Parliament enacted the Legal Service Authorities Act, 1987
which enabled the constitution of the Legal Services Authorities at National,
State and District levels. This Act was enforced w.e.f. 9th November, 1995.
Whether Free Legal Services, Available in All Cases
According to Regulation 14 of the Supreme Court Legal Service
Committee Regulations, 1966 free legal services shall not be available or
given in the following cases, namely :
(1) Proceedings wholly or partly in respect of :—
(a) defamation; or
(b) malicious prosecution; or
(c) a person charged with contempt of court proceedings; and

i. Ranjan Dwivedi v. Union o f India, AIR 1983 SC 624.

402 THE ARBITRATION A N D CONCILIATION ACT, 1996

(d) perjury.
(2) Proceedings relating to any election.
(3) Proceedings incidental to any proceedings referred to in
sub-regulations (1) and (2).
(4) Proceedings in respect of offenders where the fine imposed is not
more than Rs. 50/-.
(5) Proceedings in respect of economic offences and offences against
social laws, such as Protection of Civil Rights Act, 1955 and the
Immoral Traffic (Prevention) Act, 1956 unless in such cases the
aid is sought by the victim, provided that the Chairman may, in
appropriate case, grant legal services even in such proceedings.
(6) Where a person seeking legal services :—
(a) is concerned with the proceedings only in representative
or official capacity; or
(b) is a formal party to the proceedings and his interests are
not likely to be prejudiced on account of the absence of proper
representation.
Legal Services obtained by Misrepresentation—withdrawal of
In terms of Regulation 18 of the Supreme Court Legal Services
Committee Regulations, 1966 the Committee may either on its own motion
or otherwise withdraw the legal services granted to any aided person, if
found that he possessed sufficient means or that he obtained legal service
by misrepresentation or fraud, or if there is a material change in the
circumstances, or misconduct, misdemeanour or negligence on the part of
aided person or when he is not cooperating or when he engaged a legal
practitioner or when the legal service is found to be an abuse of the process
o f law or legal services, provided the legal services shall not be withdrawn
without giving due show cause notice thereof to the aided person or his/her
legal representative in case of his/her death.
What includes—Legal Service
In this context the term ‘Legal Services" includes the following :
(a) payment pertaining to Court fees, process fee and all other
charges;
(b) expenses for drafting, preparing and filing of any legal
proceedings;
(c) cost o f obtaining and supply of certified copies of
orders/judgments;
(d) cost of other documents in legal proceedings;
(e) cost of preparation of file/paper ■book and expenses incidental
thereto.
In terms of Section 12 read with Section 13 o f the Legal Services
Authority Act, 1987 an affidavit made by a person seeking free legal aid, as
to his income may be considered as sufficient evidence for making him
eligible for such service.
 APPENDICES

APPENDIX I

T H E A P P O I N T M E N T OF A R B I T R A T O R S BY
THE C H I E F J U S T I C E OF I N D I A S C H E M E ,
t 9 9 6

SUPREME COURT OF IN D IA
NOTIFICATION, NEW DELHI, 29th JANUARY, 1996

It is published in the Gazette of India extraordinary Part III, Section

1, 16th May, 1996. No. F. 22/1/SCA/GEHL. In exercise of the powers
conferred on the Chief Justice of India under sub-section (10) of Section 11
o f the Arbitration and Conciliation Ordinance, 1996, I, hereby make the
following scheme.
1. Short Title.—This scheme may be called the Appointment of
Arbitrators by the Chief Justice of India Scheme, 1996.
2. Submission of request.—The request to the Chief Justice under
sub-section (4) or sub-section (5) or sub-section (6) of Section 11 shall be
made in writing and shall be accompanied by—
(a) the original arbitration agreement or a duly certified copy thereof,
(b) the names and addresses of the parties to the arbitration
agreement,
(c) the names and addresses of the arbitrators, if any, already
appointed,
(d) the name and address of the person or institution, if any, to whom
or which any function has been entrusted by the parties to the
arbitration agreement under the Appointment Procedure agreed
upon by them,
(e) the qualifications required, if any, o f the arbitrators by the
agreement of the parties,
(f) a brief written statement describing the general nature o f the
dispute and the points at issue,
(g) the relief or remedy sought, and
(h) an affidavit, supported by the relevant documents to the effect that
the condition to be satisfied under sub-section (4) or sub-section
(5) or sub-section (6) of Section 11, as the case may be, before
making the request to the Chief Justice has been satisfied.
3. Authority to deal with the request.—Upon a receipt of a request
under paragraph 2, the Chief Justice may either deal with the matter
entrusted to him or designate any other person or institution for that
purpose.
( 4 03 1
404 THE ARBITRATION A N D CONCILIATION ACT, 1996

4. Forwarding of request to designated person or

institution.—Where the Chief Justice designates any person or institution
under paragraph 3, he shall have the request along with the documents
mentioned in paragraph 2, forwarded forthwith to such person or institution
and also have a notice sent to the parties to the arbitration agreement.
5. Seeking further information.—The Chief Justice or the person or
the institution designated by him under paragraph 3, may seek further
information or clarification from the party making the request under this
scheme.
6. Rejection of request.—Where the request made by any party
1[does not fulfil the requirements of paragraph 2] of this Scheme, the Chief
Justice or the person or the institution designated by him may reject it.
7. 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 the 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.
8. Withdrawal of authority.— If, the Chief Justice, on receipt of a
complaint from either party to the arbitration agreement or otherwise, is of
opinion that the person or institution designated by him under paragraph 3,
has neglected or refused to act or is incapable o f acting, he may withdraw
the authority given by him to such person or institution and either deal with
the request himself or designate another person or institution for that
purpose.
9. Intimation of action taken on request.—2[The decision taken]
by the Chief Justice or any person or institution designated by him in
pursuance of the request under paragraph 1, shall be communicated in
writing to—
(a) the parties to the arbitration agreement,
(b) the arbitrators, if any, already by the parties to the arbitration
agreement,
(c) the person or the institution referred to in paragraph 2(d),
(d) the arbitrators appointed in pursuance of the request.
10. Requests and communications to be sent to Registrar.—All
requests under this Scheme and communications relating thereto which are
addressed to the Chief Justice shall be presented to the Registrar of this
Court, who shall maintain a separate register of such requests and
communications.
11. Delivery and receipt of written communications.—The
1. Subs, by the Supreme Court of India, Notification No. 22/1/2002/SCA Genl., dated 27th
August, 2002 for the words "under paragraph 2, is not in accordance with the provisions".
2. Subs, by the Supreme Court of India, Notification No. 22/1/2002/SCA Genl., dated 27th
August, 2002 for the words "The appointment made or measure taken".
THE APPOINTMENT OF ARBITRATORS BY THE CHIEF JUSTICE... 405

provisions of sub-section (1) and sub-section (2) of Section 3 of the

Arbitration and Conciliation Ordinance, 1996 shall, so far as may be, apply
to all written communications as received or sent under this Scheme.
12. Costs for processing requests.—The party making a request
under this scheme shall, on receipt of notice of demand from—
(a) the registry of the court, where the Chief Justice makes the
appointment of an arbitrator or takes the necessary measure, or
(b) the designated person or the institution, as the case may be, where
such person or institution makes appointment o f arbitrator or
takes the necessary measure,
pay an amount of Rs. 15,000 in accordance with terms of such notice
towards the costs involved in processing the request.
13. Interpretation.—If any question arises with reference to the
interpretation o f any of the provisions of this Scheme, the question shall be
referred to the Chief Justice, whose decision shall be final.
14. Power to amend the scheme.—The Chief Justice may, from
time to time, amend by way of addition or variation any provision of this
scheme.
It is to be noted that under Section 11(10) of the Act, 1996 the Chief
Justice o f the High Court has been conferred power to make appointment
under the arbitration scheme.
 APPENDIX II

ICC R U L E S OF C O N C I L I A T I O N A N D
ARBITRATION
RULES OF OPTIONAL CONCILIATION
P ream ble
Settlement is a desirable solution for business disputes of an
international character.
The International Chamber of Commerce therefore sets out these Rules
of Optional Conciliation in order to facilitate the amicable settlement of such
disputes.
Article 1
All business disputes of an international character may be submitted
to conciliation by a sole conciliator appointed by the International Chamber
of Commerce.
Article 2
The party requesting conciliation shall apply to the Secretariat o f the
International Court of Arbitration of the International Chamber of
Commerce setting out succinctly the purpose of the request and
accompanying it with the fee required to open the file, as set out in
Appendix III hereto.
Article 3
The Secretariat of the International Court of Arbitration shall, as soon
as possible, inform the other party of the request for conciliation. That party
will be given a period of 15 days to inform the Secretariat whether it agrees
or declines to participate in the attempt to conciliate.
If the other party agrees to participate in the attempt to conciliate it
shall so inform the Secretariat within such period.
In the absence of any reply within such period or in the case of a
negative reply the request for conciliation shall be deemed to have been
declined. The Secretariat shall, as soon as possible, so inform the party
which had requested conciliation.
Article 4
Upon receipt of an agreement to attempt ■conciliation, the
Secretary-General of the International Court of Arbitration shall appoint a
conciliator as soon as possible. The conciliator shall inform the parties of his
appointment and set a time-limit for the parties to present their respective
arguments to him.
Article 5
The conciliator shall conduct the conciliation process as he thinks fit,
guided by the principles of impartiality, equity and justice.
ICC RULES OF CONCILIATION AND ARBITRATION 407

With the agreement of the parties, the conciliator shall fix the place for
conciliation.
The conciliator may at any time during the conciliation process request
a party to submit to him such additional information as he deems necessary.
The parties may,' if they so wish, be assisted by counsel of their choice.
Article 6
The confidential nature of the conciliation process shall be respected by
every person who is involved in it in whatever capacity.
Article 7
The conciliation process shall come to an end :
(a) Upon the parties signing an agreement. The parties shall be bound
by such agreement. The agreement shall remain confidential
unless and to the extent that its execution or application require
disclosure.
(b) Upon the production by the conciliator of a report recording that
the attempt to conciliate has not been successful. Such report shall
not contain reasons.
(c) Upon notification to the conciliator by one or more parties at any
time during the conciliation process of an intention no longer to
pursue the conciliation process.
Article 8
Upon termination of the conciliation, the conciliator shall provide the
Secretariat of the International Court of Arbitration with the settlement
agreement signed by the parties or with his report to lack o f success or with
a notice from one or more parties of the intention no longer to pursue the
conciliation process.
Article 9
Upon the file being opened, the Secretariat of the International Court
of Arbitration shall fix the sum required to permit the process to proceed,
taking into consideration the nature and importance of the dispute. Such
sum shall be paid in equal shares by the parties.
This sum shall cover the estimated fees of the conciliator, expenses of
the conciliation, and the administrative expenses as set out in Appendix III
hereto.
In any case where, in the course of the conciliation process, the
Secretariat of the Court shall decide that the sum originally paid is
insufficient to cover the likely total costs of the conciliation, the Secretariat
shall require the provision of an additional amount which shall be paid in
equal shares by the parties.
Upon termination of the conciliation, the Secretariat shall settle the
total costs of the process and advise the parties in writing.
All the above costs shall be borne in equal shares by the parties except
and insofar as a settlement agreement provides otherwise.
A party’s other expenditures shall remain the responsibility of that
party.
408 THE ARBITRATION A N D CONCILIATION ACT, 1996

Article 10
Unless the parties agree otherwise, a conciliator shall not act in any
judicial or arbitration proceeding relating to the dispute which has been the
subject of the conciliation process whether as an arbitration, representative
or counsel of a party.
The parties mutually undertake not to call the conciliator as a witness
in any such proceedings, unless otherwise agreed between them.
Article 11
The parties agree not to introduce in any judicial or arbitration
proceeding as evidence or in any. manner whatsoever—
(a) any views expressed or suggestions made by any party with regard
to the possible settlement of the dispute;
(b) any proposals put forward by the conciliator;
(c) the fact a party had indicated that it was ready to accept some
proposal for a settlement put forward by the conciliator.

RULES OF ARBITRATION
Article 1. In tern a tion al C ourt o f A rbitration
1. The International Court of Arbitration of the International Chamber
of Commerce is the arbitration body attached to the international Chamber
of Commerce. Members of the Court are appointed by the Council of the
International Chamber of Commerce. The function o f the Court is to provide
for settlement by arbitration of business disputes of an international
character in accordance with these Rules.
2. In principle, the Court meets once a month. It draws up its own
internal regulations.
3. The Chairman of the International Court of Arbitration or his
deputy shall have power to take urgent decisions on behalf of the Court,
provided that any such decision shall be reported to the Court at its next
session.
4. The Court may, in the manner provided for in its internal
regulations, delegate to one or more groups of its members the power to take
certain decisions provided that any such decision shall be reported to the
Court at its next session.
5. The Secretariat of the International Court of Arbitration shall be at
the headquarters of the International Chamber of Commerce.
Article 2. The A rb itra l Tribunal
1. The International Court of Arbitration does not itself settle
disputes. Insofar as the parties shall not have provided otherwise, it
appoints, or confirms the appointments of, arbitrators in accordance with the
provisions of this Article. In making or confirming such appointment, the
Court shall have regard to the proposed arbitrator’s nationality, residence
and other relationships with the countries of which the parties or the other
arbitrators are nationals.
2. The disputes may be settled by a sole arbitrator or by three
ICC RULES OF CONCILIATION AND ARBITRATION 409

arbitrators. In the following Articles the word ‘arbitrator’ denotes a single

arbitrator or three arbitrators as the case may be.
3. Where the parties have agreed that the disputes shall be settled by
a sole arbitrator, they may, by agreement, nominate him for confirmation by
the Court. If the parties fail so to nominate a sole arbitrator within 30 days
from the date when the claimant’s Request for Arbitration has been
communicated to the other party, the sole arbitrator shall be appointed by
the Court.
4. Where the dispute is to be referred to three arbitrators, each party
shall nominate in the Request for Arbitration and the Answer thereto
respectively one arbitrator for confirmation by the Court. Such person shall
be independent of the party nominating him. If a party fails to nominate an
arbitrator, the appointment shall be made by the Court.
The third arbitrator, who will act as chairman of the arbitral tribunal,
shall be appointed by the Court, unless the parties have provided that the
arbitrators nominated by them shall agree on the third arbitrator within a
fixed time-limit. In such a case the Court shall confirm the appointment of
such third arbitrator. Should the two arbitrators fail, within the time-limit
fixed by the parties or the Court, to reach agreement on the third arbitrator,
he shall be appointed by the Court.
5. Where the parties have not agreed upon the number of arbitrators,
the Court shall appoint a sole arbitrator, save where it appears to the Court
that the dispute is such as to warrant the appointment of three arbitrators.
In such a case the parties shall each have a period of 30 days within which
to nominate an arbitrator.
6. Where the Court is to appoint a sole arbitrator or the chairman of
an arbitral tribunal, it shall make the appointment after having requested
a proposal from a National Committee of the ICC that it considers it to be
appropriate. If the Court does not accept the proposal made, or if said
National Committee fails to make the proposal requested within the
time-limit fixed by the Court, the Court may repeat its request or may
request a proposal from another appropriate National Committee.
Where the Court considers that the circumstances so demand, it may
choose the sole arbitrator or the chairman of the arbitral tribunal from a
country where there is no National Committee, provided that neither of the
parties objects within the time-limit fixed by the Court.
The sole arbitrator or the chairman of the Arbitral Tribunal shall be
chosen from a country other than those of which the parties are nationals.
However, in suitable circumstances and provided that neither of the parties
objects within the time-limits fixed by the Court, the sole arbitrator or the
chairman of the arbitral tribunal may be chosen from a country of which any
of the parties is a national.
Where the Court is to appoint an arbitrator on behalf of a party, which
has failed to nominate one, it shall make the appointment after having
requested a proposal from the National Committee of the country of which
the said party is a national. If the Court does not accept the proposal made,
or if said National Committee fails to make the proposal requested within
the time-limit fixed by the Court, or if the country of which the said party
410 THE ARBITRATION AND CONCILIATION ACT, 1996

is a national has no National Committee, the Court shall be at liberty to

choose any person whom it regards as suitable, after having informed the
National Committee of the country of which such person is a national, if one
exists.
7. Every arbitrator appointed or confirmed by the Court must be and
remain independent of the parties involved in the arbitration.
Before appointment or confirmation by the Court, a prospective
arbitrator shall disclose in writing to the Secretary General of the Court any
facts or circumstances which might be of such a nature as to call into
question the arbitrator’s independence in the eyes of the parties. Upon
receipt of such information, the Secretary General of the Court shall provide
it to the parties in writing and fix a time-limit for any comments from them.
An arbitrator shall immediately disclose in writing to the Secretary
General of the Court and the parties any facts or circumstances o f a similar
nature which may arise between the arbitrator’s appointment or
confirmation by the Court and the notification of the final award.
8. A challenge o f an arbitrator, whether for an alleged lack of
independence or otherwise, is made by the submission to the Secretary
General o f the Court of a written statement specifying the facts and
circumstances on which the challenge is based.
For a challenge to be admissible, it must be sent by a party either
within 30 days from receipt by that party of the notification of the
appointment or confirmation of the arbitrator by the Court; or within 30
days from the date when the party making the challenge was informed of
the facts and circumstances on which the challenge is based, if such date is
subsequent to the receipt of the aforementioned notification.
9. The Court shall decide on the admissibility, and at the same time
if need be on the merits, of a challenge after the Secretary-General of the
Court has accorded an opportunity for the arbitrator concerned, the parties
and any other members of the arbitral tribunal to comment in writing
within a suitable period of time.
10. An arbitrator shall be replaced upon his death, upon the
acceptance by the Court of a challenge, or upon the acceptance by the Court
of the arbitrator’s resignation.
11. An arbitrator shall also be replaced when the Court decides that
he is prevented de jure or de facto from fulfilling his functions, or that he is
not fulfilling his functions in accordance with the Rules or within the
prescribed time-limits.
When, on the basis of information that has come to its attention, the
Court considers applying the preceding sub-paragraph, it shall decide on the
matter after the Secretary-General of the Court has provided such
information in writing to the arbitrator concerned, the parties and any other
members of the arbitral tribunal, and accorded an opportunity to them to
comment in writing within a suitable period of time.
12. In each instance where an arbitrator is to be replaced, the
procedure indicated in the preceding paragraphs 3, 4, 5 and 6 shall be
followed. Once reconstituted, and after having invited the parties to
ICC RULES OF CONCILIATION AND ARBITRATION 411

comment, the arbitral tribunal shall determine if and to what extent prior
proceedings shall again take place.
13. Decisions of the Court as to the appointment, confirmation,
challenge or replacement of an arbitrator shall be final.
The reasons for decisions by the Court as to the appointment,
confirmation, challenge, or replacement of an arbitrator on the grounds that
he is not fulfilling his functions in accordance with the Rules or within the
prescribed time-limits, shall not be communicated.
Article 3. Request for Arbitration
1. A party wishing to have recourse to arbitration by the International
Chamber o f Commerce shall submit its Request for Arbitration to the
Secretariat of the International Court of Arbitration through its National
Committee or directly. In the latter case the Secretariat shall bring the
Request to the notice of the National Committee concerned.
The date when the Request is received by the Secretariat of the Court
shall, for all purposes, be deemed to be the date of commencement of the
arbitral proceedings.
2. The Request of Arbitration shall inter alit contain the following
information :
(a) names in full, description, and addresses of the parties,
(b) a statement o f the Claimant’s case,
(c) the relevant agreements and in particular the agreement to
arbitrate, and such documentation or information as will serve
clearly to establish the circumstances of the case,
(d) all relevant particulars concerning the number of arbitrators and
their choice in accordance with the provisions of Article 2 above.
3. The Secretariat shall send a copy of the request and the documents
annexed thereto to the Defendant for his Answer.
Article 4. Answer to tjie Request
1. The Defendant shall within 30 days from the receipt of the
documents referred to in paragraph 3 of Article 3 comment on the proposals
made concerning the number of arbitrators and their choice and, where
appropriate, nominate an arbitrator. He shall at the same time set out his
defence and supply relevant documents. In exceptional circumstances the
Defendant may apply to the Secretariat for an extension of time for the
filing of his defence and his documents. The application must, however,
include the Defendant’s comments on the proposals made with regard to the
number of arbitrators and their choice and also, where appropriate the
nomination of an arbitrator. If the defendant fails so to do, the Secretariat
shall report to the International Court of Arbitration, which shall proceed
with the arbitration in accordance with these Rules.
2. A copy of the Answer and of the documents annexed thereto, if any,
shall be communicated to the Claimant for his information.
Article 5. Counter-claim
1. If the Defendant wishes to make a counter-claim, he shall file the
412 THE ARBITRATION AND CONCILIATION ACT, 1996

same with the Secretariat, at the same time as his Answer as provided for
in Article 4,
2. It shall be open to the Claimant to file a Reply with the Secretariat
within 30 days from the date when the counter-claim was communicated to
him.
Article 6. P lead in gs an d written statem ents, n otification s or
com m u n ication s
1. All pleadings and written statements submitted by the parties, as
well as all documents annexed thereto, shall be supplied in a number of
copies sufficient to provide one copy for each party, plus one for each
arbitrator, and one for the Secretariat.
2. All notifications or communications from the Secretariat and the
arbitrator shall be validly made if they are delivered against receipt or
forwarded by registered post to the address or last known address of the
party for whom the same are intended as notified by the party in question
or by the other party as appropriate.
3. Notification or communication shall be deemed to have been effected
on the day when it was received, or should, if made in accordance with the
preceding paragraph, have been received by the party itself or by its
representative.
4. Periods of time specified in the present Rules or in the Internal
Rules or set by the International Court of Arbitration pursuant to its
authority under any of these Rules shall start to run on the day following
the date a notification or communication is deemed to have been effected in
accordance with the preceding paragraph. When, in the country where the
notification or communication is deemed to have been effected, the day next
following such date is an official holiday or a non-business day, the period
of time shall commence on the first following working day. Official holidays
and non-working days are included in the calculation o f the period of time.
If the last day of the relevant period of time granted is an official holiday or
a non-business day in the country where the notification or communication
is deemed to have been effected, the period of time shall expire at the end
of the first following working day.
Article 7. A b sen ce o f agreem en t to arbitrate
Where there is no p rim a facie agreement between the parties to
arbitrate or where there is an agreement but it does not specify the
International Chamber of Commerce, and if the Defendant does not file an
Answer within the period of 30 days provided by paragraph 1 of Article 4 or
refuses arbitration by the International Chamber of Commerce, the
Claimant shall be informed that the arbitration cannot proceed.
Article 8. E ffect o f the agreem en t to arbitrate
1. Where the parties have agreed to submit to arbitration by the
International Chamber of Commerce, they shall be deemed thereby to have
submitted ipso fa cto to the present Rules.
2. If one of the parties refuses or fails to take part in the arbitration,
the arbitration shall proceed notwithstanding such refusal or failure.
ICC RULES OF CONCILIATION A N D ARBITRATION 413

3. Should one of the parties raise one or more pleas concerning the
existence or validity of the agreement to arbitrate, and should the
International Court of Arbitration be satisfied of the p rim a facie existence of
such an agreement, the Court may, without prejudice to the admissibility or
merits of the plea or pleas, decide that the arbitration shall proceed. In such
a case any decision as to the arbitrator’s jurisdiction shall be taken by the
arbitrator himself.
4. Unless otherwise provided, the arbitrator shall not cease to have
jurisdiction by reason of any claim that the contract is null and void or
allegation that it is inexistent provided that he upholds the validity of the
agreement to arbitrate. He shall continue to have jurisdiction, even though
the contract itself may be inexistent or null and void, to determine the
respective rights of the parties and to adjudicate upon their claims and
pleas. Before the file is transmitted to the arbitrator and in exceptional
circumstances even thereafter, the parties shall be at liberty to apply to any
competent judicial authority for interim or conservatory measures, and they
shall not by so doing be held to infringe the agreement to arbitrate or to
affect the relevant powers reserved to the arbitrator.
Any such application and any measures taken by the judicial authority
must be notified without delay to the Secretariat of the International Court
of Arbitration. The Secretariat shall inform the arbitrator thereof.
Article 9. A d va n ce to cover costs o f arbitration
1. The International Court of Arbitration shall fix the amount of the
advance on costs in a sum likely to cover the costs of arbitration of the
claims which have been referred to it.
Where, apart from the principal claim, one or more counter-claims are
submitted, the Court may fix separate advances on costs for the principal
claim and the counter-claim or counter-claims.
2. The advance on costs shall be payable in equal shares by the
Claimant or Claimants and the Defendant or Defendants. However, any one
party shall be free to pay the whole of the advance on costs in respect of the
claim or the counter claim should the other party fail to pay its share.
3. The Secretariat may make the transmission of the file to the
arbitrator conditional upon the payment by the parties or one o f them o f the
whole or part of the advance on costs to the International Chamber of
Commerce.
4. When the terms of Reference are communicated to the Court in
accordance with the provisions of Article 13, the Court shall verify whether
the requests for the advance on costs have been complied with.
The term of Reference shall only become operative and the arbitrator
shall only proceed in respect of those claims for which the advance on costs
have been duly paid to the International Chamber of Commerce.
Article 10. T ra n sm ission o f the file to the arbitrator
Subject to the provisions of Article 9, the Secretariat shall transmit the
file to the arbitrator as soon as it has received the Defendant’s Answer to
the Request for Arbitration, at the latest upon the expiry of the time-limits
fixed in Articles 4 and 5 above for the filing of these documents.
414 THE ARBITRATION AND CONCILIATION ACT, 1996

Article 11. R u les g overn in g the proceed in gs

The rules governing the proceedings before the arbitrator shall be those
resulting from these Rules and, where these Rules are silent, any rules
which the parties (or, failing them, the arbitrator) may settle, and whether
or not reference is thereby made to a municipal procedural law to be applied
to the arbitration.
Article 12. P la ce o f arbitration
The place o f arbitration shall be fixed by the International Court of
Arbitration, unless agreed upon by the parties.
Article 13. T erm s o f R eferen ce
1. Before proceeding with the preparation of the case, the arbitrator
shall draw up, on the basis of the documents or in the presence of the
parties and in the light of their most recent submissions, a document
defining his terms of Reference. This document shall include the following
particulars :
(a) the full names and description of the parties,
(b) the addresses of the parties to which notifications or
communications arising in the course of the arbitration may
validly be made,
(c) a summary of the parties, respective claims,
(d) defining o f the issues to be determined,
(e) the arbitrator’s full name, description and address,
(f) the place of arbitration,
(g) particulars of the applicable procedural rules and, if such is the
case, reference to the power conferred upon the arbitrator to act
as am iable com positeur,
(h) such other particulars as may be required to make the arbitral
award enforceable in law, or may be regarded as helpful by the
International Court o f Arbitration or the arbitrator.
2. The document mentioned in paragraph 1 of this Article shall be
signed by the parties and the arbitrator. Within two months o f the date
when the file has been transmitted to him, the arbitrator shall transmit to
the Court the said document signed by himself and by the parties. The Court
may, pursuant to a reasoned request from the arbitrator or if need be on its
own initiative, extend this time-limit if it decides it is necessary to do so.
Should one o f the parties refuse to take part in the drawing up of the
said document or to sign the same, the Court, if it is satisfied that the case
is one of those mentioned in paragraphs 2 and 3 of Article 8, shall take such
action as is necessary for its approval. Thereafter, the Court shall set a
time-limit for the signature of the statement by the defaulting party and on
expiry of that time-limit the arbitration shall proceed and the award shall
be made.
3. The parties shall be free to determine the law to be applied by the
arbitrator to the merits of the dispute. In the absence o f any indication by
the parties as to the applicable law, the arbitrator shall apply the law
designated as the proper law by the rule of conflict which he deems
ICC RULES OF CONCILIATION AND ARBITRATION 415

appropriate.
4. The arbitrator shall assume the powers of an am iable com positeur
if the parties are agreed to give him such powers.
In all cases the arbitrator shall take account o f the provisions of the
contract and the relevant trade usages.
Article 14. The A rb itra l p roceed in gs
1. The arbitrator shall proceed within as short a time as possible to
establish the facts of the case by all appropriate means. After study of the
written submissions of the parties and of all documents relied upon, the
arbitrator shall hear the parties together in person if one of them so
requests; and failing such a request he may of his own motion decide to hear
them.
In addition, the arbitrator may decide to hear any other person in the
presence of the parties or in their absence provided they have been duly
summoned.
2. The arbitrator may appoint one or more experts, define their terms
of Reference, receive their reports and/or hear them in person.
3. The arbitrator may decide the case on the relevant documents alone
if the parties for request of arbitration agree.
Article 15. A p p ea ra n ce o f P arties
1. At the request of one of the parties or if necessary on his own
initiative, the arbitrator, giving reasonable notice, shall summon the parties
to appear before him on the day and at the place appointed by him and shall
so inform the Secretariat of the International Court of Arbitration.
2. If one of the parties, although duly summoned, fails to appear, the
arbitrator, i f he is satisfied that the summons was duly received and the
party is absent without valid excuse, shall have power to proceed with the
arbitration, and such proceedings shall be deemed t-j have been conducted
in the presence of a parties.
3. The arbitrator shall determine the language or languages of the
arbitration, due regard being had to all the relevant circumstances and in
particular to the language of the contract.
4. The arbitrator shall be in full charge of the hearings, at which all
the parties shall be entitled to be present. Save with the approval of the
arbitrator and of the parties, persons not involved in the proceedings shall
not be admitted.
5. The parties may appear in person or through duly accredited
agents. In addition, they may be assisted by advisers.
Article 16. N ew claim s or counter-claim s
The parties may make new claims or counter-claims before the
arbitrator on condition that these remain within the limits fixed by the
Terms o f Reference provided for in Article 13 or that they are specified in a
rider to that document, signed by the parties and communicated to the
International Court o f Arbitration.
416 THE ARBITRATION A N D CONCILIATION ACT, 1996

A rtic le 17. A w a rd by consent

If the parties reach a settlement after the file has been transmitted to
the arbitrator in accordance with Article 10, the same shall be recorded in
the form of an arbitral award made by consent of the parties.
A rtic le 18. Tim e-lim its fo r aw ard
1. The time-limit within which the arbitrator must render his award
is fixed at six months. Once the terms of Article 9(4) have been satisfied,
such time-limit shall start to run from the date of the last signature by the
arbitrator or of the parties of the document mentioned in Article 13, or from
the expiry of the time-limit granted to a party by virtue of Article 13(2), or
from the date that the Secretary General of the International Court of
Arbitration notifies the arbitrator that the advance on costs is paid in full,
if such notification occurs later.
2. The Court may, pursuant to a reasoned request from the arbitrator
or if need be on its own initiative, extend this time-limit i f it decides it is
necessary to do so.
3. Where no such extension is granted and, if appropriate, after
application of the provisions of Article 2(11), the Court shall determine the
manner in which the dispute is to be resolved.
A rtic le 19. A w a r d by three arbitrators
When three arbitrators have been appointed, the award is given by a
majority decision. If there be no majority, the award shall be made by the
Chairman of the arbitral tribunal alone.
A rtic le 20. D ecision as to costs o f arbitration
1. The arbitrator’s award shall, in addition to dealing with the merits
of the case, fix the costs of the arbitration and decide which o f the parties
shall bear the costs or in what proportions the costs shall be borne by the
parties.
2. The costs of the arbitration shall include the arbitrator’s fees and
the administrative costs fixed by the International Court of Arbitration in
accordance with the scale annexed to the present Rules, the expenses, if any,
o f the arbitrator, the fees and expenses o f any experts, and the normal legal
costs incurred by the parties.
3. The Court may fix the arbitrator’s fees at a figure higher or lower
than that which would result from the application of the annexed scale if in
the exceptional circumstances of the case this appears to be necessary.
A rtic le 21. S cru tin y o f aw ard by the Court
Before signing an award, whether partial or definitive, the arbitrator
shall submit it in draft form to the International Court o f Arbitration. The
Court may lay down modifications as to the form of the award and, without
affecting the arbitrator’s liberty of decision, may also draw his attention to
points of substance. No award shall be signed until it has been approved by
the Court as to its form.
A rtic le 22. M a k in g o f aw ard
The arbitral award shall be deemed to be made at the place of the
ICC RULES OF CONCILIATION AND ARBITRATION 417

arbitration proceedings and on the date when it is signed by the arbitrator.

A rtic le 23. N otifica tion o f aw ard to pa rties
1. Once an award has been made, the Secretariat shall notify to the
parties the text signed by the arbitrator, provided always that the costs of
the arbitration have been fully paid to the International Chamber of
Commerce by the parties or by one of them.
2. Additional copies certified true by the Secretary-General o f the
International Court of Arbitration shall be made available, on request and
at any time, to the parties but to no one else.
3. By virtue of the notification made in accordance with paragraph 1
o f this Article, the parties waive any other form of notification or deposit on
the part of the arbitrator.
A rtic le 24. F in a lity an d enforceability o f aw ard
1. The arbitral award shall be final.
2, By submitting the dispute to arbitration by the International
Chamber of Commerce, the parties shall be deemed to have undertaken to
carry out the resulting award without delay and to have waived their right
to any form of appeal insofar as such waiver can validly be made.
A rtic le 25. D ep osit o f aw ard
An original of each award made in accordance with the present Rules
shall be deposited with the Secretariat of the International Court of
Arbitration.
The arbitrator and the Secretariat of the Court shall assist the parties
in complying with whatever further formalities may be necessary.
A rtic le 26. G eneral R ule
In all matters not expressly provided for in these Rules, the
International Court of Arbitration and the arbitrator shall act in the spirit
of these Rules and shall make every effort to make sure that the award is
enforceable in law.
 APPENDIX III

STATUTES AND R U L E S OF
I N T E R N A T I O N A L C O U R T OF A R B I T R A T I O N
(A). Statutes of the In te rn a tio n a l C o u rt o f A rb itra tio n :
A rtic le 1. Appointment o f members
The members of the International Court of Arbitration of the
International Chamber of Commerce are appointed for a term of three years
by the Council of that Chamber pursuant to Article 5.3.C of the Constitution,
on the proposal on each National Committee.
A rtic le 2. Composition
The International Court of Arbitration shall be composed of a
Chairman and a Vice-Chairman chosen by the Council of the International
Chamber of Commerce either from among the members of the Court or apart
from them, and of one member for, and appointed by each National
Committee
The Chairmanship may be exercised by two Co-Chairmen; in this case,
they shall have equal rights, and the expression ‘the Chairman’, used in the
Rules of Conciliation and Arbitration, shall apply to either of them equally.
In exceptional cases, on the proposal of the Chairmen o f the Court,, the
Council may appoint an alternate member for a member of the Court.
If the Chairman is unable to attend a session of the Court, he shall be
replaced by one of the Vice-Chairmen.
A rtic le 3. Function and powers
The function of the International Court of Arbitration is to ensure the
application of the Rules of Conciliation and Arbitration of the International
Chamber of Commerce, and the Court has all the necessary powers for that
purpose. It is further entrusted, if need be, with laying before the
Commission on International Arbitration any proposals for modifying the
Rules of Conciliation and Arbitration of the International Chamber of
Commerce which it considers necessary.
A rtic le 4. Deliberations and quorum
The decisions o f the International Court of Arbitration shall be taken
by a majority vote, the Chairman having a casting vote in the event of a tie.
The deliberations of the Court shall be valid when at least six members are
present.
The Secretary-General of the International Chamber of Commerce, the
Secretary General, the General Counsel and Deputy Secretary-General of
the Court shall attend in an advisory capacity only, as well as the Counsels
of the Court for their respective cases.

(418)
STATUTES A N D RULES OF INTERNATIONAL COURT OF ARBITRATION 419

(B ) I n t e r n a l R u le s o f th e I n t e r n a t io n a l C o u r t o f A r b it r a t i o n :

R ole o f the In tern a tion al C ourt o f A rbitration

1. The International Court of Arbitration may accept jurisdiction over
business disputes not of an international business nature, if it has
jurisdiction by reason of an arbitration agreement.
C onfidential ch aracter o f the work o f the In tern ation al C ourt o f A rbitration
2. The work of the International Court of Arbitration is of a
confidential character which must be respected by everyone who participates
in that work in whatever capacity.
3. The sessions of the International Court of Arbitration, whether
plenary or those of a Committee of the Court, are open only to its members
and to the Secretariat.
However, in exceptional circumstances and, if need be, after obtaining
the opinion of members of the Court, the Chairman of the International
Court of Arbitration may invite honorary members of the Court and authorise
observers to attend. Such persons must respect the confidential character of the
work of the Court.
4. The documents submitted to the Court or drawn up by it in the
course of the proceedings its conducts are communicated only to the
members of the Court and to the Secretariat.
The Chairman or the Secretary-General of the Court may nevertheless
authorize researchers undertaking work of a scientific nature on
international trade law to acquaint themselves with certain documents of
general interest, with the exception of memoranda, notes, statements and
documents remitted by the parties within the framework of arbitration
proceedings.
Such authorisation shall not be given unless the beneficiary has
undertaken to respect the confidential character of the documents made
available and to refrain from any publication in their respect without having
previously submitted the text for approval to the Secretary-General of the
Court.
P articip ation o f m em bers o f the In tern ation al C ourt o f A rb itra tion in IC C
arbitration
5. Owing to the special responsibilities laid upon them by the ICC
Rules of Arbitration, the Chairman, the Vice-Chairmen and the Secretariat
of the International Court of Arbitration may not personally act as
arbitrators or as counsel in cases submitted to ICC arbitration.
The members of the International Court of Arbitration may not be
directly appointed as co-arbitrators, sole arbitrator or Chairman of an
arbitral tribunal by the International Court of Arbitration. They may,
however, be proposed for such duties by one or more of the parties, subject
to confirmation by the Court.
6. When the Chairman, a Vice-Chairman or a member of the Court is
involved, in any capacity whatsoever, in proceedings pending before the
Court, he must inform the Secretary-General of the Court as soon as he
becomes aware o f such involvement.
420 THE ARBITRATION AND CONCILIATION ACT, 1996

He must refrain from participating in the discussions or in the

decisions of the Court concerning the proceedings and he must be absent
from the courtroom whenever the matter is considered.
He will not receive documentation or information submitted to the
Court during the proceedings.
R ela tion s betw een the m em bers o f the C ou rt an d the IC C National
C om m ittees
7. By virtue of their capacity, the members o f the International Court
o f Arbitration are independent of the ICC National Committees which
proposed them for nomination by the ICC Council.
Furthermore, they must regard as confidential, vis-a-vis the said
National Committees, any information concerning individual disputes with
which they have become acquainted in their capacity as members of the
Court except when they have been requested, by the Chairman of the Court
or by its Secretary-General, to communicate that information to their respective
National Committees. ♦

C om m ittee o f the Court

8. In accordance with the provisions of Article 1(4) of the ICC Rules of
Arbitration, the International Court of Arbitration hereby establishes a
Committee of the Court composed as follows, and with the following powers.
9. The Committee consists of a Chairman and two members. The
Chairman o f the International Comb of Arbitration acts as the Chairman of
the Committee. He may nevertheless designate a Vice-Chairman of the
Court to replace him during a session of the Committee.
The other two members of the Committee are appointed by the Court
from among the Vice-Chairmen or the other members of the Court. At each
meeting of the court it appoints the members who are to attend the meeting
of the Committee to be held before the next plenary session of the Court.
10. The Committee meets when convened by its Chairman, in principle
twice a month.
11. (a) The Committee is empowered to take any decision within the
jurisdiction of the Court with the exception o f decisions concerning
challenges of arbitrators’ [Arts. 2(8) and 2(9) of the ICC Rules of Arbitration]
allegations that an arbitrator is not fulfilling his functions [Art. 2(11) of-the
ICC Rules o f Arbitration] and approval of draft awards other than awards
made with the consent of the parties.
(b) The decisions of the Committee are taken unanimously.
(c) When the Committee Court cannot reach a decision or deems it
preferable to abstain, it transfers the case to the next plenary session of the
Court, making any suggestions it deems appropriate.
(d) The Committee’s proceedings are brought to the notice of the Court
at its next plenary session.
A b sen ce o f an arbitration agreem ent
12. Where there is no p rim a facie arbitration agreement between the
parties or where there is an agreement but it does not specify the ICC, the
Secretariat draws the attention o f the Claimant to the provisions laid down
STATUTES A N D RULES OF INTERNATIONAL COURT OF ARBITRATION 421

in Article 7 of the Rules of Arbitration. The Claimant is entitled to require

the decision to be taken by the International Court of Arbitration.
This decision is of an administrative nature. If the Court decides that
the arbitration solicited by the Claimant cannot proceed, the parties retain
the right to ask the competent jurisdiction whether or not they are bound
by an arbitration agreement in the light of the law applicable.
If the Court considers p rim a facie that the proceedings may take place,
the arbitrator appointed has the duty to decide as to his own jurisdiction
and, where such jurisdiction exists, as to the merits of the dispute.
J oin d er o f claim s in arbitration proceed in gs
13. When a party presents a Request for Arbitration in connection,
with a legal relationship already submitted to arbitration proceedings by the
same parties and pending before the International Court of Arbitration, the
Court may decide to include that claim in the existing proceedings, subject
to the provisions of Article 16 of the ICC Rules of Arbitration.
A d va n ces to cov er costs o f arbitration
14. When the International Court of Arbitration has set separate
advances on costs for a specific case in accordance with Article 9(1) (sub para
2) of the ICC Rules of Arbitration, the Secretariat requests each of the
parties to pay the amount corresponding to its claims, without prejudice to
the right of the parties to pay the said advances on costs in equal shares, if
they deem it advisable.
15. When a request for an advance on costs has not been complied
with, the Secretariat may set a time-limit, which must not be less than 30
days, on the expiry of which the relevant claim, whether principal claim or
counter-claim, shall be considered as withdrawn. This does not prevent the
party in question from lodging a new claim at a later date.
Should one of the parties wish to object to this measure, he must make a
request, within the aforementioned period, for the matter to be decided by the
court.
16. If one o f the parties claims a right to a set-off with regard to either
a principal claim or counter-claim, such set-off is taken into account in
determining the advance to cover the costs of arbitration, in the same way
as a separate claim, insofar as it may require the arbitrators to consider
additional matters.
A rb itra l aw ard s : form
17. When it scrutinizes draft arbitral awards in accordance with
Article 21 of the ICC Rules of Arbitration, the International Court of
Arbitration pays particular attention to the respect of the formal
requirements laid down by the law applicable to the proceedings and, where
relevant, by the mandatory rules of the place of arbitration, notably with
regard to the reasons for awards, their signature and the admissibility of
dissenting opinions.
A rb itra tor’s fees
18. In setting the arbitrator’s fees on the basis of the scale attached to
the ICC Rules of Arbitration, the International Court of Arbitration takes
422 THE ARBITRATION A N D CONCILIATION ACT, 1996

into consideration the time spent, the rapidity of the proceedings and the
complexity of the dispute, so as to arrive at a figure within the limits
specified or, when circumstances require, higher or lower than those limits
[Art. 20 (3) of the ICC Rules of Arbitration].

(C) Schedule o f C onciliation and A rb itra tio n costs of

In te rn a tio n a l C ourt of A rb itra tio n :
1. Costs o f conciliation
(a) The administrative expenses for a conciliation procedure shall be
fixed at one quarter of the amount calculated in accordance with the scale
of administrative expenses hereinafter set out. Where the sum in dispute in
a conciliation procedure is not stated, the Secretary-General of the
International Court of Arbitration shall fix the administrative expenses at
his discretion.
(b) The fee o f the conciliator to be paid by the parties shall be fixed by
the Secretary-General of the Court. Such fees shall be reasonable in amount,
taking into consideration the time spent, the complexity of the dispute and
any other relevant circumstances.
2. Costs o f a rb itra tio n
(a) The advance on costs fixed by the International Court of
Arbitration comprises the fees of the arbitration(s), any personal expenses of
the arbitrator(s) and the administrative expenses.
(b) The submission of any claim or counter-claim to the arbitrator!s)
shall be made only after at least half of the advance on costs fixed by the
Court has been satisfied. Terms of Reference shall only become operative
and the arbitrator(s) shall only proceed in respect of those claims and
counter-claims for which the totality of the advance on.costs fixed by the
Court has been satisfied.
(c) The Court shall fix the administrative expenses of each arbitration
in accordance with the scale hereinafter set out or, where the sum in dispute
is not stated, at its discretion. If exceptional circumstances so require, the
Court may fix the administrative expenses at a lower or higher figure than
that which would result from application of said scale, provided that such
expenses shall in no event exceed US $65,500. Further the Court may
require the payment of administrative expenses in addition to those provided
for in the scale of administrative expenses as a condition to holding an
arbitration in abeyance at the request of the parties or one of them with the
acquiescence of the other(s).
(d) Subject to Article 20(3) of the ICC Rules of Arbitration, the Court,
shall fix the fee(s) of the arbitrator!s) in accordance with the scale
hereinafter set out or, where the sum in dispute is not stated, at its
discretion.
(e) When a case is submitted to more than one arbitrator, the Court
at its discretion, shall have the right to increase the total fees upto a
maximum of three times the fee payable to one arbitrator.
(f) When arbitration is preceded by attempted conciliation, one-half of
the administrative expenses paid in respect o f the said attempt shall be
STATUTES A N D RULES OF INTERNATIONAL COURT OF ARBITRATION 423

credited to the administrative expenses of the arbitration.

(g) Before any expertise can be commenced, the parties, or one of
them, shall pay an advance on costs fixed by the arbitrator(s) sufficient to
cover the expected fee and expenses of the expert as determined by the
arbitrator! s).
3. Advance on a d m in is tra tiv e expenses
(a) Each party to dispute submitted to conciliation under the Rules of
Optional Conciliation of the ICC is required to make an advance payment of
US $500 on the administrative expenses.
(b) Each request to open an arbitration pursuant to the ICC Rules of
Arbitration must be accompanied by an advance payment o f US $2,000 on
the administrative expenses.
(c) No request for conciliation or arbitration will be entertained unless
accompanied by the appropriate payment. This payment is not recoverable
and becomes the property of the ICC. Such payment by a party shall be
credited in its portion of the administrative expenses for the conciliation or
arbitration, as the case may be.
4. A p p o in tm en t of a rb itra to rs
A registration fee of US $2,000 is payable by the requesting party in
respect of each request made to the ICC to appoint an arbitrator for any
arbitration not conducted under the ICC Rules of Arbitration. No request for
appointment of an arbitrator will be entertained unless accompanied by said
fee, which is not recoverable and becomes the property of the ICC.
Such fee shall cover any additional services rendered by the ICC
regarding the appointment, such as decisions on a challenge of the arbitrator
and the appointment of a substitute arbitrator.
 APPENDIX IV

RULES OF A R B I T R A T I O N OF T H E IN D IA N
C O U N C I L OF A R B I T R A T I O N
(In force as from 1st March, 1998)
ICA ARBITRATION CLAUSE
The Indian Council of Arbitration recommends to all parties desirous of
making reference to arbitration by the Indian Council o f Arbitration, the use
of the following arbitration clause in writing in their contracts :
"Any disputes or difference whatsoever arising between the parties
out o f or relating to the construction, meaning, scope, operation or
effect of this contract or the validity or the breach thereof shall be
settled by arbitration in accordance with the Rules of Arbitration of the
Indian Council of Arbitration and the award made in pursuance thereof
shall be binding on the parties."
DEFINITIONS
Rule 1 :
(i) These rules may be called the "Rules o f Arbitration of the
Indian Council of Arbitration."
(ii) These rules shall apply where parties have agreed in writing
that (a) a dispute has arisen or (b) a dispute which may arise between
them in respect of a defined legal relationship whether contractual or
not shall be settled under the Rules of Arbitration.
Rule 2 : In these rules, the following words have the following
meaning :
(i) "Arbitral Tribunal" means an arbitrator or arbitrators
appointed for determining a particular dispute or difference.
(ii) "Arbitral Award" includes an interim award.
(iii) "Committee" means the Arbitration Committee o f the Couneil
as provided for hereinafter.
(iv) "Council" means the Indian Council of Arbitration.
(v) "Governing Body" means the Governing Body o f the Council.
(vi) "Guidelines" means the guidelines for arbitrators and the
parties to arbitration for expeditious conduct o f the arbitration
proceedings given in the Annexure to these Rules.
(vii) "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) a company or an association or a body of individuals
( 424 )
RULES OF ARBITRATION OF THE INDIAN COUNCIL OF ARBITRATION 425

whose central management and control is exercised in any country

other than India; or (iv) the Government of a foreign country.
(viii) "Party" means a party to an arbitration agreement. It shall
include any individual, firm, company, Government, Government
organisation or Government Undertaking.
(ix) "Panel" means the Panel of Arbitrators maintained by the
Council.
-( x ) "Registrar" means the Registrar for the time being appointed
by the Committee and includes such other persons as the Committee
may nominate for carrying out the duties of the Registrar under these
rules.
(xi) "Rules" means the Rules of Arbitration o f the Council.
(xii) "Fast Track Arbitration" means arbitration in accordance
with Rule 82.
(xiii) Words importing the singular number include, where the
context admits or requires, the plural number and vice versa.
ARBITRATION COMMITTEE
Rule 3 : (a) The Governing Body of the Council shall constitute an
Arbitration Committee for performing the functions prescribed under these
Rules. The Committee shall consist of the President o f the Council, who
shall be the ex-officio Chairman of the Committee and three members of the
Governing Body of the Council elected by the Governing Body from amongst
themselves. The Committee shall hold office for a year.
(b) The Committee may co-opt not more than two persons to be
additional members of the Committee during its terms of office. Persons who
are not members of the Governing Body may also be co-opted to be members
of the Committee.
(c) The Committee or the Chairman of the Committee may delegate to
the Registrar the power to take certain decisions provided that any such
decision shall be reported to the Chairman or the Committee as the case
may be.
RULES APPLICABLE
Rule 4 : (a) Any dispute relating to any commercial matter including
shipping, sale, purchase, banking, insurance, building construction,
engineering, technical assistance, know-how, patents, trade marks,
management consultancy, commercial agency or labour, arising between two
or more parties in India or a party or parties in India and a party or parties
in a foreign country or between foreign parties who agree or have agreed for
arbitration by the council or under the Rules of Arbitration of the Council,
shall be determined and settled in accordance with these Rules.
(b) The Council shall also be competent to administer the conduct or
arbitration in any dispute or difference relating to a commercial transaction
between parties as mentioned in sub-clause (a) where they have agreed to
have their dispute arbitrated under any other Rules of Arbitration or
otherwise and have agreed to have such arbitration administered by the
Council, wholly or in respect of some matters arising out o f such arbitration.
426 THE ARBITRATION A N D CONCILIATION ACT, 1996

(c) The Council shall be competent to function as Appointing Authority

as contemplated under the Arbitration Rules of the United Nations
Commission on International Trade Law (UNCITRAL).
Rule 5 : Wherever the Parties have provided or agreed for arbitration
by the Indian Council of Arbitration or for arbitration under the Rules of
Arbitration of the Council, these rules or any amendment thereof in the form
obtaining at the time the dispute is referred to arbitration of the Council,
shall apply.
Rule 6 : If one or both of the parties to a dispute which is referred to
arbitration by the Council belong to a country or countries other than India,
in the absence of an agreement by the Parties on the substantive law to be
applied, it will be determined by the arbitral tribunal. The procedural law
shall be the laws o f India and parties shall be deemed to have submitted to
the jurisdiction of the Courts in India.
Rule 7 : Any Chamber of Commerce, trade association or any arbitral
or other organisation may adopt these Rules by making them generally
available to its members or by applying them to any dispute in which any
of its members may be parties or by normally conducting its arbitration
under these Rules.
INTERPRETATION OF THE RULES
Rule 8 : The decision of the Committee on any question relating to
interpretation of these rules or any procedural matter thereunder shall be
final and binding on the parties.
PANEL OF ARBITRATORS
Rule 9 : A Panel of Arbitrators shall be appointed by the Committee
from amongst persons who are qualified and willing to serve as arbitrators
generally or in specific fields and who are from time to time recommended
by the members o f the Council or any other person or organisation.
Rule 10 : The Registrar shall prepare and maintain an up-to-date
Panel of Arbitrators together with adequate information as to their
qualifications and experience. Separate lists may be kept and maintained of
arbitrators included in the Panel for disputes in general and for each of the
fields o f international trade and/or business transactions in which the
Governing Body decides that the Council will offer arbitration facilities
under the Rules.
The parties to a dispute or the Registrar where he appoints the
arbitrators may choose any person from the Panel with reference to any
dispute. If any party appoints a foreigner/residing abroad, as arbitrator from
the Panel, that party will have to meet the travel & stay expenses of the
person appointed as arbitrator from his country to the place of arbitration.
The arbitral tribunal may, however, make any order in regard thereto in the
award. The Panel of Arbitrators shall be open to inspection by all persons
with the permission of the Registrar.
Rule 11 : The Committee may at any time add the name of any person
to the list of arbitrators included in the Panel or delete the name of any
person from the Panel.
Rule 12 : The Chairman of the Committee may include the name of
RULES OF ARBITRATION OF THE INDIAN COUNCIL OF ARBITRATION 427

any person in the Panel, in case it is required in any particular case. His
continuance in the Panel will be decided by the Committee.
DUTIES OF THE REGISTRAR
Rule 13 : (a) The Registrar shall receive applications for arbitration
by the Council, receive payment o f fees and deposits, appoint in consultation
with the Chairman of the Committee and in his absence in consultation with
the member of the Governing Body designated by him, an arbitrator or
arbitrators as hereinafter provided. The Registrar shall also receive all
communications made to the arbitral tribunal by the parties and
communicate to them the orders and directions of the arbitral tribunal, keep
a register o f applications to the Council and o f awards made by the arbitral
tribunal, keep such other books or memoranda and make such other records
or returns as the Committee shall from time to time require and generally
carry out the directions of an arbitral tribunal so constituted under these
rules and take such other steps as may be necessary to assist such arbitral
tribunal in the carrying out of its functions.
(b) The Registrar may delegate to any officer o f the Council, Chambers
of Commerce or Trade Association at the premises of which the arbitration
proceedings are taking place, to discharge such of the functions and
administrative duties of the Registrar as are deemed proper and necessary
from time to time, with reference to a particular case or cases.
INITIATION OF ARBITRATION
Rule 14 : Any Party wishing to commence arbitration proceedings
under these rules (Claimant) shall submit to the Registrar a written request
(application) for arbitration which shall include or be accompanied by :
(a) the names and full addresses of the parties to the dispute,
(b) statement of the claim and facts supporting the claim, points
at issue and relief or remedies sought with other details of the
claimant’s case,
(c) original or duly certified copies of the arbitration agreement,
any contract or agreement out of or in connection with which the
dispute has arisen and such other documents and information relevant
or relied upon,
(d) Registration fee of Rs. 1000/-.
Rule 15 : If any Court makes an order directing that an arbitration be
held under these Rules, in addition to the documents listed in Rule 14, the
order of that Court or a copy thereof shall accompany the application for
arbitration.
Rule 16 : (a) On receipt of an application for arbitration, the Registrar
shall have absolute discretion to accept or reject the said application. The
Registrar is not bound to give reasons for the exercise of his discretion.
Before deciding on the acceptability of an application for arbitration,
the Registrar may ask the parties for further information and particulars of
their claims.
(b) Similarly, if any information or particulars regarding the
arbitration agreement furnished by claimant with the application for
428 THE ARBITRATION A N D CONCILIATION ACT, 1996

arbitration are found to be incorrect or false, at any time subsequently, the

Registrar shall have a like power to reject the application for arbitration.
(c) Any party aggrieved by the decision of the Registrar, in accepting
or rejecting an application for arbitration as above, may apply to the Court
for suitable directions.
DEFENCE STATEMENT
Rule 17 : (a) On receipt of the application together with the claim
statement, the Registrar shall send to the other Party (Respondent) a copy
of claim statement and attached documents and ask such other party to
furnish within thirty days or within any extended date, a defence statement
setting out his case accompanied by all documents and information in
support of or bearing on the matter.
(b) Any communication sent by the Registrar under Registered Post to
the Respondent on the address appearing in the Arbitration Agreement/the
contract between the parties, as per the information supplied to the Council,
will be deemed to be duly served on the Respondent, if it is delivered to the
addressee personally or at his place of business, habitual residence or
mailing address last known, even if the Respondent refuses to accept the
said communication or if it is returned to the Council by the postal
authorities as unclaimed by the said party. The Registrar may proceed
further with the arbitration proceedings as per the rules as if such
communication had been duly served on the concerned party. The Registrar
may in such cases make an additional communication to the Parties by
registered letter or by other means which may provide a record o f attempts
to deliver it.
(c) A copy of the defence statement and all appended documents, if
any, shall be sent to the Claimant for information.
(d) The communication is deemed to have been received on the day it
is so delivered.
COUNTER-CLAIM AND REPLY TO COUNTER-CLAIM
Rule 18 : (a) The Respondent may make a counter-claim against the
Claimant provided the counter-claim arises under the same transaction as
the original claim. He must submit the counter-claim with full details
supported by all documents and information as in the case o f the claim
under Rule 14 within the period laid down for the defence statement to the
claim and the Claimant may within twenty-one days of the notification of
the counter-claim or within such extended time submit a statement in reply
to the counter-claim. The arbitral tribunal appointed to adjudicate upon the
original claim shall also adjudicate on the counter-claim.
(b) Copy of the reply of the Claimant to the counter-claim and all
appended documents, if any, shall be sent to the Respondent for information.
COPIES OF STATEMENTS, ETC.
Rule 19 : All statements, replies and other documents and papers
submitted by the parties and all appended documents must be supplied in
triplicate. Where there is more than one arbitrator or more than one
opposing party, the parties shall within the time specified furnish to the
RULES OF ARBITRATION OF THE INDIAN COUNCIL OF ARBITRATION 429

Registrar such number of further copies as may be required by the

Registrar.
CONSTITUTION OF THE ARBITRAL TRIBUNAL
Rule 20 : On receipt of the application for arbitration, the Registrar
shall take necessary steps to have the arbitral tribunal constituted for the
adjudication of the dispute or difference as provided hereunder.
Rule 21 : The number of arbitrators to hear to a ‘dispute shall be
determined as under :
(a) Where the claim does not exceed Rs. 50 lakhs, and where the
arbitration agreement does not specify three or more arbitrators, the
reference shall be deemed to be to a sole arbitrator, unless the parties
to the dispute agree to refer the dispute to three arbitrators within
thirty days from the date of notification of request for arbitration.
(b) Where the claim exceeds Rs. 50 lakhs, the dispute will be
heard and determined by three arbitators, unless the parties to the
dispute agree to refer the dispute to a sole arbitrator within thirty days
from the date of the notification of the request for arbitration.
(c) Where three arbitrators have to be appointed as per the above
sub-rule and any of the parties to the dispute fiails to make the
necessary deposit towards the cost and expenses of arbitration, instead
o f the three arbitrators, the Registrar may appoint a sole arbitrator,
irrespective of the value o f the claim.
Rule 22 : The appointment of sole arbitrator or three arbitrators shall
be made in the following manner :
(a) In case a sole arbitrator has to be appointed, the Registrar
shall call upon the parties to the dispute to forward the name of an
agreed arbitrator from among the Panel of Arbitrators by a notice in
writing, sent to them. The said notice shall specify the period within
which the nomination shall be made which shall not be more than
thirty days from the date of the said notice to the respective parties. If
the parties fail to agree on the person to be appointed as sole arbitrator
within the time granted by the Registrar, the Registrar in consultation
with the Chairman of the Committee and in his absence in consultation
with the member of the Governing Body designated by the Chairman,
appoint the sole arbitrator from among the Panel of Arbitrators. If one
of the parties is a national or resident of a country other than India,
the sole arbitrator shall as far as possible be chosen or appointed by
the Registrar from among the nationals of a country other than that of
any o f the parties. The sole arbitrator so nominated shall constitute the
Bench to hear the dispute and shall be appointed as such in writing by
the Registrar. The Registrar shall give notice to the parties of the
Constitution of the Bench.
(b) Where the reference is to three arbitrators, the Registrar shall
in the first instance call upon the parties to nominate one arbitrator
each from among the Panel of Arbitrators by a notice in writing, sent
to them. The said notice shall specify the period within which the
nomination shall be made which shall not be more than thirty days
430 THE ARBITRATION A N D CONCILIATION ACT, 1996

from the date of the said notice to the respective parties. If a party to
the dispute refuses or neglects to appoint an arbitrator on his behalf
within the period specified or any extended period or if he requests the
Registrar to nominate an arbitrator on behalf of that party, the
Registrar in consultation with the Chairman of the Arbitration
Committee and in his absence in consultation with the member of the
Governing Body designated by the Chairman shall appoint the
arbitrator from the Panel of arbitrators on behalf of that party. On
receipt of the nominations from the respective parties or on the
appointment as aforesaid by the Registrar, the Registrar shall appoint
another person as the Chairman of the arbitral tribunal in consultation
with the Chairman of the Committee and in his absence in consultation
with member o f the Governing Body designated by the Chairman, from
among the Panel of Arbitrators to be additional arbitrator to act as
Chairman of the arbitral tribunal.
(c) If one of the parties is a national or resident of a country other
than India, the additional arbitrator shall, as far as possible, be chosen
or appointed from among the nationals of a country other than that of
either o f the parties. The arbitrators so nominated or appointed shall
constitute the arbitral tribunal and shall be appointed as such in
writing by the Registrar. The additional arbitrator appointed by the
Registrar shall act as Chairman of the arbitral tribunal. The Registrar
shall give notice to the parties of the constitution of the arbitral
tribunal.
Rule 23 : The parties will obtain the consent from the persons
nominated by them as arbitrator and intimate the Council accordingly. The
Registrar will obtain the consent from person(s) nominated by him. After a
person gives his consent for appointment as arbitrator, he will be duly
intimated about his appointment to decide the dispute by a Memo in writing
under the hand o f the Registrar about the constitution of the arbitral
tribunal. The appointment of the arbitrator will take effect from the date of
such intimation about the constitution of the arbitral tribunal.
Rule 24 : Before accepting his nomination the prospective arbitrator
shall disclose any circumstances such as financial or personal interest in the
outcome of the award, likely to disqualify him as an impartial or
independent arbitrator. Upon receipt of such information, the Registrar shall
disclose it to the parties, who if willing to proceed under the circumstances
disclosed, shall advise the Registrar accordingly. If either party declines to
waive the presumptive disqualification, the prospective arbitrator shall be
disqualified from acting as arbitrator and the vacancy so created shall be
filled, in accordance with the applicable provision of these Rules.
Rule 25 : Any Party shall have the right to challenge the appointment
o f an arbitrator on receipt of the notice of his appointment for reasons which
disqualify him as an impartial or independent arbitrator. The Challenge of
an arbitrator shall be made within 30 days after his appointment has been
communicated to the challenging party or within 30 days of his becoming
aware of the reasons for which the challenge is made. Copies o f the
communication of challenge shall be sent to the other Parties and the
arbitrators. The Committee shall be the sole judge o f the grounds of
RULES OF ARBITRATION OF THE INDIAN COUNCIL OF ARBITRATION 431

challenge and its decision shall be final and binding on the Parties.
Rule 26 : (a) If any appointed arbitrator resigns or dies or becomes
incapable for acting or neglects or fails to act expeditiously, prior to or
during the arbitration hearings, or if he fails to make the award within the
prescribed time and the Parties do not agree to extend the time for making
the award, the Registrar in consultation with the Arbitration Committee
may terminate the authority of such an appointed arbitrator and inform him
accordingly.
(b) In case of the resignation or death or termination of authority of
an appointed arbitrator under sub-Rule (a) above, a new arbitrator will be
appointed in his place by the Registrar in case he had appointed the original
arbitrator. Where the appointment was made by the Parties, the Registrar
shall call upon the Party who had appointed the arbitrator to nominate
another arbitrator in his place. If any party refuses or neglects to nominate
an arbitrator within 15 days of the date of notice requiring him to nominate
the arbitrator or within such extended time, the Registrar shall nominate
the arbitrator on behalf of that Party from among the Panel of Arbitrators.
(c) The arbitrator! s) appointed as above will be informed about the
reconstitution o f the arbitral tribunal and the reconstituted arbitral tribunal
shall make the award expeditiously within the time prescribed under Rule
63 from the date when the reconstituted arbitral tribunal enters on the
reference. The reconstituted arbitral tribunal shall proceed with the
arbitration with the liberty to act on the record of evidence and proceedings
as then existing or to commence the proceedings de novo.
DEPOSITS
Rule 27 : The Registrar may require the Parties before passing the
case on to the arbitrators under Rule 37, to deposit in advance in one or
more instalments such sums of money as he deems necessary to defray
expenses o f the arbitration including the administrative charges and
arbitrator’s fee. As a general rule, the deposits shall be called for in equal
shares from the Claimant(s) and the Respondent! s). The arbitral tribunal
may during the course of the arbitration proceedings or in the arbitration
award, require further sums to be deposited by the Parties or anyone of
them to meet the expenses o f the arbitration. When one o f the parties
neglects or refuses to make the deposit, the Registrar or the arbitral tribunal
as the case may be, may require such deposit whether in relation to a claim
or a counter-claim to be made by the other Party to the dispute (Claimant
or Respondent as the case may be). Should the whole or part of the deposit
be not made by the Parties or any one of them, the Registrar shall inform
the Parties or the Party concerned that the claim or counter-claim, as the
case may be, will not be the subject-matter of the reference. The arbitral
tribunal shall proceed only in respect of those claims or counter-claims for
which the deposits have been duly paid to the Council and otherwise may
order the suspension or termination of the arbitral proceedings.
The deposits made shall be taken into account by the arbitral tribunal
in apportioning the cost while making the award. Any deposit made in
excess shall be refunded to such of the parties as the arbitral tribunal may
direct.
432 THE ARBITRATION AND CONCILIATION ACT, 1996

The arbitral tribunal shall have a lien for the arbitral award on any
unpaid cost of the arbitration.
FEES AND EXPENSES
Rule 28 : The arbitral tribunal shall be entitled to allow fees and
expenses of witnesses, expenses connected with the selection and carriage of
sample and examination of goods, Licensed Measure’s Department charges,
conveyance, hire, cost of legal or technical advice or proceedings in respect
of any matter arising out of the arbitration incurred by the arbitration
tribunal, and any other incidental expenses and charges in connection with
or arising out of the reference or award as the arbitration tribunal shall, in
its absolute discretion, think fit.
Rule 29 : The costs of the reference and the award including charges,
fees and other expenses shall be in the discretion of the arbitral tribunal,
which may direct to and by whom, and in what proportion, such charges,
fees and other expenses and any part thereof shall be borne and paid, and
may fix and settle and amount of costs to be so paid or any party thereof
and may award costs to be paid as between solicitor and client. In the event,
any administrative fees and expenses are due to the Council, the arbitral
tribunal may award them in favour of the Council.
Rule 30 : The fees, costs and expenses incidental to the reference and
the award shall include the following :
(1) Registration fee
A registration fee of Rs. 1,000/- shall be paid along with the
application for reference. The registration fee will not be refunded and
becomes the property of the Council.
(2) Administrative Fee and Arbitrator’s Fee
The Administrative fee (of ICA) and Arbitrator’s fee (for each
arbitrator) will be fixed separately with regard to the amount in
dispute in each case, as under :
Upto Rs. 5 lacs (Rs. 500,000) Rs. 4,000
From Rs. 5 lac one to Rs. 25 lacs Rs. 4,000 plus Rs. 175/- per lac of the
(Rs. 500,001 to 2,500,000) amount exceeding Rs. 5 lacs.
From Rs. 25 lacs one to Rs. 1 crore Rs. 7,500/- plus Rs. 125/- per lac of
(Rs. 2,500,001 to Rs. 10,000,000) the amount exceeding Rs. 25
lacs.
From Rs. 1 crore one to 5 crores Rs. 16,875/- plus Rs. 5,000/- per crore
(Rs. 10,000,001 to Rs. of the amount exceeding Rs. 1
50.000. 000) crore.
From Rs. 5 crores one to Rs. 10 Rs. 36,975/- plus Rs. 3,125/- per crore
crores (Rs. 50,000,001 to Rs. of the amount exceeding Rs. 5
100. 000. 000) crores.
Over Rs. 10 crores (Rs. 100,000,000) Rs. 52,500/- plus Rs. 1,250/- per crore
of the amount exceeding Rs. 10
crores.
(3) In addition to the above :
(i) Each arbitrator will be entitled to receive a Special Fee for study of
RULES OF ARBITRATION OF THE INDIAN COUNCIL OF ARBITRATION 433

the pleading, case material, writing of the award etc. with regard
to the amount in dispute in each as under :
Upto Rs. 5 lacs (Rs. 5,00,000) Rs. 1,000/- lumpsum
From Rs. 5 lacs one to Rs. 5 crores Rs. 2,000/- lumpsum
(Rs. 5,00,001 to Rs. 50,000,000)
Rs, 5 crores one and above Rs. 5,000/- lumpsum
(Rs. 50,000,001 and above)
(ii) The ICA will be entitled to receive a Special Fees of Rs. 500/- per
hearing for providing facilities of hearing rooms, for arbitration
hearings and secretarial assistance etc. at the arbitration hearing.
(4) Notwithstanding the provisions in sub-Rule (2) of this Rule, the
Committee/Chairman of the Committee may prescribe the Arbitrator’s fees
and the Administrative fees of the Council at a figure higher than those
prescribed in the said sub-rules, if in the exceptional circumstances of the
case this appears to be necessary.
(5) Notwithstanding the provision in sub-rule (2) hereinabove, in
arbitration cases to which Rule 38 applies, the Arbitrator’s fee and the
Administrative fee of the ICA will be fixed by computing the fee applicable
to larger claim in addition to 60% of the applicable fees of all claims being
tried jointly. Provided that the Committee will have power to prescribe the
Arbitrator’s Fee and Administrative Fee under this sub-rule in any other
manner, having regard to the nature and facts of the matters under
reference.
Rule 31 : Other Expenses : The arbitrator may be paid an amount
of Rs. 250/- towards local conveyance for attending each arbitration hearing
in the city of his residence. In respect of joint trial, the hearing will be
treated as one irrespective of the number of cases. Any travelling and other
expenses incurred by the arbitrator or the Registrar for attending the
arbitration hearings in a city other than the place of residence, shall also be
reimbursed to him as provided hereinafter. All the above expenses shall
form part of the arbitration costs.
Rule 32 : (1) An arbitrator who has to travel shall be paid travelling
expenses by air or rail (air conditioned wherever available) or car (when
neither air nor rail transport is available) at actuals. In addition, he may be
paid out-of-pocket expenses at actuals for boarding, lodging and local
transport subject to maximum of Rs. 5,000/- per day in metropolitan towns,
Rs. 2,500/- in class A cities and Rs. 1,500/- in other cities. An arbitrator who
makes his own arrangements for boarding, lodging, local transport etc. may
be paid out-of-pocket expenses at the rate of Rs. 750/- per day, without
production of vouchers. The limits for stay of the Registry officials will be of
those applicable to arbitrators.
(2) The cost to be incurred on payment of expenses referred to in
sub-rule (1) to an arbitrator nominated by a party will be borne and paid by
the party nominating the arbitrator. However, if an appointed arbitrator
changes his residence after his nomination by a party, he will not be entitled
to reimbursement of any enhanced expenses for attending the arbitration
hearing, unless the party nominating him agrees to reimburse the same to
him. The expenses payable to the third arbitrator or sole arbitrator
434 THE ARBITRATION AND CONCILIATION ACT, 1996

appointed by the Council under Rule 22 (a) & (b) will be borne and paid by
both the parties in equal proportion or in such other manner as may be
determined by the Arbitral Tribunal.
Rule 33 : Where the arbitration proceedings under an ad hoc
arbitration or under the rules of arbitration of any other arbitral
organisation or otherwise are administered by the Council wholly or in
respect of some matters arising out of such arbitration, the Council may
charge an appropriate fee for such administration and other services.
Rule 34 : The amount of the claim shall be stated in the application
by the party applying for arbitration. If the amount is stated in a currency
other than the rupee, it shall be converted into rupees, at the current official
rate of exchange.
Rule 35 : Where the sum under dispute is not stated in arbitration
proceedings and where the relief claimed is other than a money claim viz.,
a declaratory claim, the Registrar and the Arbitral Tribunal under Rule 27,
may require such deposits as may be deemed necessary to be paid by such
of the parties as may be required subject to later adjustment.
Rule 36 : The amount of interest wherever specified will be included
in the claim amount for the purpose of calculation of administrative fee.
Further, claims and counter-claims referred for arbitration shall be taken
into consideration separately for the purpose of calculation of administrative
fees under Rule 30(2).
SUBMISSION OF THE CASE TO THE ARBITRAL TRIBUNAL
Rule 37 : The Registrar shall send copies of all papers relating to
arbitration such as claim statement, defence statement, counter-claims,
reply, statements, or other documents received from the parties to the
dispute to the Arbitrator/Arbitrators constituting the Arbitral Tribunal
under Rule 21 with a request to proceed with the arbitration and the
arbitral tribunal shall be deemed to have entered on the reference on the
day on which applications, defence statement, counter-claims, replies,
documents, etc. have been dispatched to the Arbitrator/Arbitrators.
Intimation shall be given to the Parties of the day on which the Bench is
deemed to have entered on the reference.
If the Claimant does not file all the requisite documents, papers etc. or
does not deposit the appropriate Fees as per the Rules after having been
given due opportunity for the purpose by the Registrar or the arbitral
tribunal, the Registrar or the arbitral tribunal may dismiss/close the case on
the file for lack of pursuance by the Claimant.
Similarly, if the Respondent fails to produce any requisite documents,
papers including the statement of defence or information or fails to deposit
administrative fees, or arbitrators’ fees etc. after having been given due
opportunity for the purpose by the Registrar or the arbitral tribunal, the
Registrar or the arbitral tribunal may proceed further with the arbitration
proceedings as per the Rules, notwithstanding such failure or refusal by the
Respondent.
Rule 38 : Where there are two or more applications for arbitration by
the Council and the issue involved in the dispute arises out of same
RULES OF ARBITRATION OF THE INDIAN COUNCIL OF ARBITRATION 435

transactions, the Registrar may, if he thinks proper to do so and with the

consent o f the parties, fix the hearings of the disputes to be heard jointly or
refer the applications to the same tribunal. The awards, however, shall be
given separately in each case.
NOTIFICATIONS AND/OR COMMUNICATIONS FROM THE
REGISTRAR
Rule 39 : All applications which the parties desire to make to the
arbitral tribunal and all notices to be given to the Parties before or during
the course o f arbitration or otherwise in relation thereto shall be made
through and sent by the Registrar who shall communicate the orders and
directions of the Arbitral Tribunal thereon to the Parties.
AMENDMENT OF CLAIMS, ETC.
Rule 40 : Amendments of the claim, defence statement, counter- claim
or reply submitted to the Arbitral Tribunal must be formulated in writing
by the Party so desiring. The Arbitral Tribunal will decide whether such
amendments should be allowed or not.
PLACE OF ARBITRATION
Rule 41 : The place or venue of arbitration shall be in India. The
Arbitration proceedings shall be held at such place or places in India as the
arbitral tribunal may determine having regard to the convenience of the
arbitrators and the parties. In a case in which one or both the parties are
from overseas, the arbitration proceedings may also be held at any place
outside India at the discretion of the arbitral tribunal.
PROCEEDING BEFORE THE BENCH
CONCILIATION
Rule 42 : Optional Conciliation : The parties may opt for
conciliation and request the arbitral tribunal before the commencement of
the arbitration proceedings unless they have already agreed otherwise, to
settle their dispute through conciliation as per Rules of Conciliation of the
Council.
FAST TRACK ARBITRATION
Rule 43 : Fast Track Arbitration : The Parties may opt for Fast
Track Arbitration and request the arbitral tribunal, before the
commencement of the arbitration proceedings, to decide the reference in a
fixed time frame o f 3 to 6 months or any other time agreed between the
parties according to the Fast Track Arbitration procedure, as under :
(1) The arbitral tribunal will be authorised to decide the dispute on the
written pleadings, documents and written submissions filed by the
parties without any oral hearings.
(2) The arbitral tribunal shall have power to call for any further
informtion/clarification from the parties in addition to the
pleadings and documents filed by them.
(3) An oral hearing may be held if both the parties make a joint
request or if the arbitration tribunal considers an oral hearing
necessary in any particular case.
436 THE ARBITRATION A N D CONCILIATION ACT, 1996

(4) If an oral hearing is held, the arbitral tribunal may dispense with
any technical formalities and adopt such procedure as it deems
appropriate and necessary for economic and expeditious disposal
o f the case.
R u le 44 : At a hearing, a party shall be entitled to appear by counsel,
attorney, advocate or a duly authorised adviser or representative or
personally. However, where the dispute is purely of a commercial nature, the
parties shall have no right to be represented by lawyers except where,
having regard to the nature or complexity of the dispute, the arbitral
tribunal considers it necessary in the interest of justice that the parties
should be allowed to be represented by counsel, attorney or advocate.
R u le 45 : The arbitral tribunal may proceed with the reference
notwithstanding any failure by a party to comply with any of the directions
of the arbitral tribunal and may also proceed with the arbitral proceedings
in the absence of any or both the parties who fail or neglect to attend at the
time and place appointed by the arbitral tribunal, in spite of due notice.
R u le 46 : The parties shall do all acts necessary to enable the arbitral
tribunal to make an award expeditiously and shall not do or cause or allow
to be done, any act which will delay the proceedings or prevent arbitral
tribunal from making an award expeditiously, and if any party does cause
or allow to be done any such act, that party shall pay such costs as the
arbitral tribunal deems reasonable.
R u le 47 : The arbitration session will go on as far as possible on a
day-to-day basis from 10.30 a.m. to 4.30 p.m. once the hearing begins after
completion of all the formalities. The arbitral tribunal shall not ordinarily
adjourn a hearing at the request of any party, except where the
circumstances are beyond the control o f the party and the arbitral tribunal
is satisfied that reasons and circumstances for the adjournment are justified.
While granting an adjournment, the arbitral tribunal may make such orders
regarding payment of costs by one or both of the parties, as it deems fit and
reasonable.
R u le 48 : If the parties have agreed to submit their case to arbitration
under these Rules and any party refuses or fails to take part in the
arbitration proceedings, the arbitral tribunal may proceed with the
arbitration notwithstanding such refusal or absence.
R u le 49 : Where a party wishes to have any question arising in any
proceedings before the arbitral tribunal referred to the opinion of the Court
in the form of a special case, he shall apply in writing to the Registrar. If
the arbitral tribunal decides to accede to such request, the party applying
shall be responsible for all legal and other costs, charges and expenses that
may be incurred by the arbitral tribunal in respect of and incidental to the
same and shall make such deposit on account thereof within such time as
the arbitral tribunal may direct. In case of default in making the deposit as
above, the reference shall not be made to the Court, or if made, shall be
withdrawn by the arbitral tribunal and the arbitration proceeded with as if
there has been no reference to the Court.
R u le 50 : The arbitral tribunal may at its discretion at any time or
times before making the final award and at the expense o f the parties
RULES OF ARBITRATION OF THE INDIAN COUNCIL OF ARBITRATION 437

concerned consult any person having special knowledge relating to the

particular industry, commodity, piroduce or branch of trade concerned in the
reference or any expert or qualified accountant and may also at the like
expenses of the parties, consult solicitors, counsel or advocates upon any
technical question o f law, evidence, practice or procedure arising in the
course of the reference. If the parties agree, the arbitral tribunal may, at the
expense o f the parties, appoint any expert, accountant, cfr lawyers to sit with
as an assessor and take into account the advice of such assessor.
Rule 51 : The parties to the reference and any witness on their behalf
shall, subject to the provisions of any law for the time being in force :
(a) submit to be examined by the arbitral tribunal on oath or
affirmation in relation to the matters in dispute;
(b) produce before the arbitral tribunal all books, deeds, papers,
accounts, writings and documents in their possession or power
respectively which may be required or called for by the arbitral
tribunal;
(c) comply with the requirements of the arbitral tribunal as to the
production or selection of samples; and
(d) generally do all other things which, during the pendency of the
reference, an arbitral tribunal may require.
Rule 52 : The arbitral tribunal will consider, as far as possible, to
receive the evidence of witnesses by affidavit provided that the witness
whose affidavit is admitted in evidence is made available for
cross-examination at the request of the opposite Party.
The Arbitral Tribunal may :
(a) administer oath or affirmation to the parties or witnesses
appearing and giving evidence;
(b) state a special case for the opinion of the Court or give its award
in the form of special case for the opinion of the Court;
(c) make any award conditional or in the alternative;
(d) correct in any award any clerical mistake or error arising from or
incidental to any slip or omission;
(e) administer to the parties to the arbitration such interrogatories as
it may consider necessary;
(f) decide all objections to its jurisdiction including any objection
regarding the existence or validity of the arbitration clause or the
arbitration agreement, without prejudice to the right of the parties
to have the matter decided by the Court o f law;
(g) decide the law governing :
(i) the contract or the matter in dispute,
(ii) the arbitration agreement, and
(iii) the arbitration procedure
(h) award interest including pendente lite interest.
Rule 53 : When substantially the same dispute or questions of law and
facts are likely to arise in more than one contract or agreement (Chain
Contracts), the arbitral tribunal may invite all parties involved to agree to
438 THE ARBITRATION A N D CONCILIATION ACT, 1996

submit to an award in one arbitration between such two or more of the

parties as are named for the purpose.
Rule 54 : (i) The arbitral tribunal may by the award dismiss the
application or claim :
(a) if the Claimant does not prosecute the arbitration proceedings or
file the papers within the time granted,
(b) or neglects or refuses to pay the dues or deposits ordered to be paid
by the arbitral tribunal or the Registrar.
(ii) The arbitral tribunal may make an ex parte award :
(a) if the defendant neglects or refuses to appear or make his defence
or fails to file the papers within the time granted,
(b) or neglects or refuses to pay the dues or deposits ordered to be paid
by the arbitral tribunal or the Registrar.
Rule 55 : The Registrar shall make necessary arrangements for a
stenographic record of evidence whenever such record is required by a party.
The cost of the stenographic record and all transcripts thereof, if any, shall
form part of the costs of the reference.
Rule 56 : The language of the arbitration proceedings shall be English
unless otherwise agreed by the parties. If any documents filed by a party
are in a language other than English, the party filing such documents shall
simultaneously furnish an English translation of the documents. The
Registrar may make arrangements for the service of an interpreter at the
request of one or more of the parties and costs thereof shall form part of the
costs of the reference.
Rule 57 : The arbitral tribunal may issue such orders or directions as
it may deem necessary for safeguarding, interim custody, preservation,
protection, storage, sale or disposal of the whole or part of the subject-matter
of the dispute or for its inspection or sampling without prejudice to the
rights of the parties or the final determination of the dispute.
WAIVER OF RULES
Rule 58 : Any party who proceeds with the arbitration with the
knowledge that any provision or requirement of these rules has not been
complied with and who fails to state his objection thereto in writing, shall
be deemed to have waived his right to object.
RETURN OF DOCUMENTS
Rule 59 : Unless required to be filed in a Court of law, the arbitral
tribunal shall have full discretion to retain/or to return all books, documents
or papers produced before it and may direct at any time that the books,
documents or papers produced before it or any of them may be returned to
the parties producing them on such terms and conditions as the arbitral
tribunal may impose.
AWARD
R u le 60 : No award shall be made by the arbitral tribunal unless the
case of the party applying for arbitration has been brought to the notice of
the other party and until after the lapse of such specified time within which
he has been asked to submit his defence statement under Rule 17.
RULES OF ARBITRATION OF THE INDIAN COUNCIL OF ARBITRATION 439

Rule 61 : Whenever there is more than one arbitrator, the award of

the majority shall prevail and be taken as the decision of arbitral tribunal.
Failing a majority, the Chairman of the arbitral tribunal alone shall make
the award.
Rule 62 : Should the parties arrive at a settlement of the dispute by
common agreement before the Arbitral Tribunal and the arbitral tribunal is
satisfied that such agreement is genuine and not to defeat the purpose of
any law, the arbitral tribunal shall render an award as per agreement of the
parties. Otherwise, the arbitral tribunal shall make the award on the basis
of the documents, evidence, etc. filed before it by the Parties.
Rule 63 : The arbitral tribunal shall make the award as expeditiously
as possible, preferably within six months according to the Guidelines from
the date of the reference subject to a maximum limit of two years from the
date of commencement of the arbitral proceedings. If necessary, the
maximum limit of two years for making the award be extended by
agreement between the parties to the dispute or by the Committee.
Rule 64 : The arbitral award shall state the reasons upon which it is
based, unless :
(i) the parties have agreed that no reasons are to be given, or
(ii) the award is an arbitral award on agreed terms.
Rule 65 : The arbitral award shall state its date and the place of
arbitration and the award shall be deemed to have been made at that place.
Rule 66 : The arbitral tribunal may make an interim award, and may,
by an award, determine and order what shall be done by either or any of
the parties, respecting the matters referred.
Rule 67 : The arbitrator constituting the arbitral tribunal or the
Chairman where Rule 61 is applicable, shall sign the award and the
Registrar shall give notice in writing to the parties of the making and
signing thereof and of the amount of fees & charges payable in respect of
the arbitration and the award.
Rule 68 : (a) When an award has been made, the Registrar shall
furnish a true copy o f the award to the parties by registered post provided
the arbitration costs have been fully paid to the Council by the parties or by
one of them.
(b) The Registrar may require either party to notify him of the
compliance with the award.
(c) The arbitral tribunal and the Registrar of the Council shall assist
the parties in complying with any formalities that may be necessary for the
enforcement of the award or for other purposes.
(d) The Council may print, publish or otherwise circulate any award
made under its rules or under its auspices, in any arbitration journal,
magazine, report, etc. for the purpose of creating arbitration jurisprudence
or precedents for the benefit and guidance of future arbitrations.
No party to the arbitration shall have any objection to the publication
of awards as above provided that the names and addresses o f any party to
the dispute will be omitted from such publication and its identity duly
concealed if so desired by such party.
440 THE ARBITRATION AND CONCILIATION ACT, 1996

Rule 69 : Additional copies of the award certified true by the Registrar

shall be made available to the parties but to no one else, at all times at
request and on payment as fixed by the Registrar.
Rule 70 : A party shall in all things abide by and obey the award
which shall be binding on the parties and their respective representative,
notwithstanding the death of any party before or after the making of the
award and such death shall not operate as revocation o f the submission or
reference. To avoid delays and further litigation, the arbitrators/Registrar
shall ask the parties to agree that the award made by the arbitrators shall
be final and binding on the parties and neither party shall be entitled to
challenge it in a court of law.
FILING OF AWARD
Rule 71 : The Arbitral Tribunal shall at the request of any of the
parties to the proceedings or of any person claiming under a party or if so
directed by the court and upon payment of fees and charges due in respect
of the arbitration and award and of the costs and charges of filing the
award, cause the award or a signed copy thereof together with the deposition
of documents which may have taken and proved before it to be filed before
the court.
Rule 72 : A fee of Rs. 1,000/- plus incidental expenses at actuals in
addition to the court fees, on the scale for the time being in force is payable
by the party requiring the award to be filed.
STAMP DUTIES
Rule 73 : Stamp duties are to be paid in all cases in accordance with
the scale of stamp duties for the time being imposed by law.
COPIES OF PROCEEDINGS
Rule 74 : No party is entitled as of right to copies of proceedings before
the arbitral tribunal. In case the Registrar is required to furnish copies of
depositions and/or documents which have been taken or proved before the
arbitrator, a charge as demanded by the Registrar shall be paid by the
parties requiring such copies.
Rule 75 : The Registrar shall, upon the written request o f a party,
furnish to such party at his expense certified facsimile of any documents
filed in the arbitration proceedings.
CASES WITHDRAWN
Rule 76 : When the party instituting a case desires to withdraw it
before an arbitral tribunal has been constituted, the Registrar shall return
to him any deposits made by him, under Rule 27, after deducting such
charges as he might have incurred in connection with the cases. The
registration fee, however, shall not be refundable.
Rule 77 : If the arbitration is terminated by the act or default of any
parties after constitution of the arbitral tribunal and before the award is
made, any fees, charges and expenses incurred by the Council shall be paid
by the parties in such proportion as the arbitral tribunal shall determine.
RULES OF ARBITRATION OF THE INDIAN COUNCIL OF ARBITRATION 441

INDEMNITY OF SECRETARIAT AND ARBITRATORS

Rule 78 : The Council, the Arbitration Committee and officers of the
Council shall not be liable for any act or omission in whatever capacity they
may have acted in connection with or in relation to an arbitration under
these Rules.
Rule 79 : No party shall bring or prosecute any suit or proceedings
whatever against the arbitral tribunal, or any member thereof, for or in
respect of any matter or thing purporting to be done under these Rules nor
any suit or proceedings in respect thereof (save for enforcement of the
award) against the other party.
AMENDMENT OF RULES
Rule 80 : The Governing Body may revise, amend or alter these rules
or the schedule of fees and other monies to be charged and paid as and when
they think necessary.
 Annexure
GUIDELINES FOR ARBITRATORS AND THE PARTIES TO
ARBITRATION FOR EXPEDITIOUS CONDUCT OF
ARBITRATION PROCEEDINGS
1. The arbitrators must take up the arbitration expeditiously on
receipt of the request from the Council and should also complete the same
with reasonable despatch. Serious efforts should be made to settle
arbitration cases expeditiously within a period of 6 months where the
amount of claim exceeds Rs. 50 lacs and within a period of 4 months where
the amount of claim is less than Rs. 50 lacs. The arbitrators and the parties
to arbitration are expected to follow these guidelines to ensure economic and
expeditions disposal of arbitration cases.
2. The Arbitration Committee of the Council may examine the
arbitration case files, from time to time to evaluate the progress of the
proceedings and to ascertain whether the arbitrators have granted
adjournments only on reasonable grounds.
3. Application or demand for arbitration sent by the Claimant to the
Registrar of the Council, must be accompanied with all the information of
papers as per Rules, full statement of claim and copies of documents relied
upon, in 3 sets in case of Sole Arbitrator and in 5 sets in case of three
arbitrators.
4. The respondent should file his reply to the claim with complete
information and documents relied upon, in 3 or 5 sets as above as early as
possible within the prescribed time. Fresh documentation/claims should not
be entertained at a later stage of the proceedings unless the arbitral tribunal
is satisfied about the reasons for granting such permission.
5. The first hearing of the arbitral tribunal should be convened within
15 days of the receipt of the complete reply of the respondent when the
arbitral tribunal may issue necessary directions. Admission and denial of the
documents may be got done by the Registrar. Issues if any to be framed,
may be done at the same or at the next hearing. The arbitrators should hold
arbitration hearings continuously on day-to-day basis during office hours.
6. The parties should be asked to furnish a list of their witnesses, if
any, in advance and they should be asked to file affidavits of witnesses on
the date fixed for evidence preferably within 3 weeks of the settlement of
issues. Cross-examination of such of the deponent’s witnesses whose
presence is demanded by the opposite party should be completed at a
hearing to be fixed within 15 days.
7. Arguments preferably should be heard within 15 days of the
completion of evidence, to be followed by submission of written arguments,
if any.
8. Adjournments of duly fixed hearings should not be granted except
for unavoidable reasons which should be spelt out in the adjournment order.

( 442 )
RULES OF ARBITRATION OF THE INDIAN COUNCIL OF ARBITRATION 443

9. If any party to arbitration, particularly in cases where any

arbitrator, advocate or any of the parties has to come from outstation to
participate in arbitration proceedings, desires to seek adjournment on any
valid ground, it must submit a written request to the Registrar at least
before 5 working days stating the grounds which compel it to request for
postponement of the hearing so that the Council is in a position to take
necessary steps to inform the Parties, Arbitrators and Advocates regarding
postponement of the hearing. Parties seeking adjournment will have to pay
costs as may be determined by the arbitral tribunal.
10. Parties should deposit arbitration and administrative fees with the
Council (ICA) within the stipulated time, as per the Rules and no extension
should be sought in this behalf except for compelling reasons.
11. The Arbitrators should make the award expeditiously after the
close of the hearings, preferably within 15 days.
12. To avoid excessive costs in arbitration proceedings, the parties are
advised to choose their arbitrators from the Panel, as far as possible from
the place where the arbitration hearings have to be held. In case, a party
still chooses an arbitrator from a place other than the place of hearing, the
concerned party will bear the entire extra cost to be incurred on TA/DA etc.
o f the arbitrator nominated by it.
 INDEX
Absence of a written notice to a party ADR in modern judicial system
whether invalidates the arbitration deal efficiently, economically and to
proceedings, 195 further expeditious disposal of
Absence of dialogue cases, 362
ADR is attached with judicial tag
a conflict only generates violence and
lawlessness, 377 millions of litigants have received or
are receiving relief by the said
Absence of jurisdiction mechanism, 399
mere consent of the parties cannot ADR is the only means or way
confer jurisdiction, 174 to get rid from the demerits o f the
Accession shall be effected by the present legal system, 360
deposit ADR process
o f an instrument of accession with the focuses on relationships between the
Secretary-General of the United parties, 367
Nations, 352 Aggrieved party has an opportunity to
Accord and satisfaction raise a jurisdictional plea
a question of fact, 76 before an arbitral tribunal even after
appointment of an arbitrator, 172
Accord is the agreement
Agreement
by which the obligation is discharged,
has been defined under the Indian
76
Contract Act, 1872, 31
Additional award can be made must be in writing it need not be
on justifiable request made to the signed by the parties, 74
arbitral tribunal by an aggrieved must expressly or impliedly spell out
party, 242 arbitration clauses, 36
Adjudication and ADR process providing for two arbitrators, 118
difference between, 367 requires arbitrator’s appointment, 86
Administrative assistance should be in writing, 69
to facilitate the conduct o f the Alteration or amendment is made
conciliation proceedings, 331 relating to procedural law
Administrative expenses of the it should operate retrospectively, 240
Central Authority Alternative Dispute Resolution
shall be paid out of the Consolidated known as dispute management, 363
fund o f India, 393 provides speedy disposal of dispute,
Administrative remedy 363
order passed under Section 11(6), 130 why needed, 362
Admissibility Alternative means of dispute
of evidence in other proceedings, 341 redressal
Admissibility of the statement emphasise the conciliation and
of the witnesses without administering settlement in their procedure, 396
oath, 207 invoked at any time, even if the matter
is pending in the Court o f Law, 370
ADR
An interim measure of protection
Chief Processes of, 368
distinguished from an all time or
demerits of, 365
permanent protection, 110
Indian Statutes, 366
Appeal against Arbitral Tribunal
knowing the problems in hand, 367 not maintainable in the High Court,
merits of , 365 281
methods of, 364 Appeal against the decision
provides a friendly settlement of relating to venue of arbitration, can be
disputes, 362 maintained, 199
( 444 )
445 THE ARBITRATION A N D CONCILIATION ACT, 1996

Appeal filed against partial award Appointment of a sole conciliator

not maintainable, 277 less expensive comparatively, 327
Appeal may be maintainable Appointment of an arbitrator
from an appellate order before the by a ‘Designated person’, 132
Supreme Court, 278 by an ex-officio designated official, 123
Appeal shall also lie by the Chief Justice or the person or
to a court from an order o f the arbitral institution designated by him, 121
tribunal, 276 can be challenged, 45
Appeal under Article 136 of the under the arbitration clause of the
Constitution of India, 1950 partnership deed is maintainable,
ordinarily not maintainable, 279 146
Applicability of Appointment of arbitration
Order 21, Rules 18, 19 o f the Civil not tenable if it commenced under the
Procedure Code, 1908, 275 old Arbitration Act, 1940, 120
Applicability of Act, 1996 Appointment of arbitrator
by consent o f party, 348 allegation of bias, 125
Applicability of Act, 1996 to cannot be made in violation of
international commercial arbitration, arbitration clause of contract, 144
49 grounds to challenge, 164
Applicability of Section 8 international commercial arbitration,
obligatory for the Court to refer parties 126
to arbitration in terms of only power o f Civil Court is to refer
arbitration agreement, 93 parties to arbitration, 153
Applicability of the new Act, 1996 parties are free to adopt the procedure
for, 151
reference o f dispute for arbitration, 347
Applicability of the Rules precondition for exercise o f power, 137
of Indian Council of Arbitration, 89 qua International Commercial
Agreement, 127
Applicant is prohibited from raising
any dispute with reference waiver of right of, 153
acceptance and receipt o f final bill when the Chief Justice cannot be
without protest, 149 approached straightway, 146
Application when the procedure is not provided by
agreement between parties, 138
under Section 8 without certified copy
o f agreement, 99 within 30 days o f demand, 147
Application by L.R. of the deceased Appointment of conciliator or
partner conciliators
appointment of Arbitrator, 146 conduct o f conciliation upon, 329
Application for Appointment of conciliators
setting aside o f arbitral award, 267 no time limit is laid- down for, 328
setting aside or suspension of the Appointment of expert by the arbitral
award, 311 tribunal
for the purpose of obtaining expert
Application for appointment of
arbitrator evidence on the matters, 212
when not maintainable, 144 Appointment of member- secretary
may be made on deputation basis, 392
Application for extension of time
could be filed only before Appointment of sole arbitrator
commencement of arbitral when it can be made, 129
proceedings and not subsequently, Appointment shall be made
297 upon request of a party, 119
Application for setting aside the Arbitrable dispute
arbitral award when jurisdiction o f the civil court not
is liable to be rejected, 264 ousted, 104
Appointed arbitrator Arbitral agreement
must possess qualifications agreed to shall be enforced against the legal
by the parties, 161 representative of the deceased, 286
on his withdrawal from the office Arbitral award
ceases to be an arbitrator and his application for setting aside of, 258
mandate terminates, 170 be final and binding on the parties, 42
INDEX 446

Arbitral award—(contd .) Arbitral award— (conoid.)

be governed by the law in force in whether stamp duty payable on, 43
India, 219 will be invalid if the arbitrators
be set aside by the Court, 244 conceal their names from the
by consent, 42 parties, 195
can be challenged in the court, 47 Arbitral award attains finality
can be modified, 243 when it is signed because signing of
capable of being executed in its own the award gives legal effect, 236
right, 272 Arbitral award is made
contents of, 42 signed copy shall be delivered to each
party, 226
costs o f the arbitration, shall be fixed
by, 41 Arbitral award may be set aside
enforcement of, 311 if there is an error on its face, 263
Arbitral Award under Act, 1996
essentials of, 41
distinguished from the Arbitral Award
form and contents of, 40, 226, 227
under old Arbitration Act, 1940, 44
grant of compensation to bidder for
Arbitral awards
lossv 268
recognition and enforcement of, 350
grounds for setting aside, 251
Arbitral proceedings
grounds for setting aside of, 259 are similar to court proceedings, 292
includes an interim award, 24, 39 commenced before coming into force of
invalid as it is made without the Act, 1996 the provisions o f the
jurisdiction, 193 Act, 1940 would apply, 200
Law of Limitation Applicable to, 42 commencement of, 199
made on oral submission is not should be governed by the principle of
enforceable, 274 natural justice, 192
made rule of the Court, 266 Arbitral proceedings and legal
may be final or interim, 41 proceedings
meager ground for setting aside, 252 to be continued concurrently, 96
must be based on evidence, 188 Arbitral proceedings would come to
must be based on reasoning, 40 an end
must be in writing and signed, 41 by the final arbitral award., 239
must be reasoned one, 232 Arbitral tribunal
no ground made out to set aside, 267 a creature of the arbitration
agreement, 246
not a contract but the decision
determined out of the contract, 40 can seek assistance of legal expert, 214
not liable to be set aside, 262 COMPOSITION OF, 116
on agreed terms will be final, 224 confine its jurisdiction to the terms of
submission, 312
operates as res ju dicata, 41
establishment o f statutory, 46
Setting aside of, 179, 261
expert appointed by, 211
shall be made in writing and shall be
signed by the members of the follow the "rules of law" designated by
arbitral tribunal, 228 the parties, 217
should be construed liberally, 242 has discretionary power to make sure
that fixed payment o f deposit is
should state the reasons upon which it
made, 282
is based, 229
has Power to rule on its own
signed by majority arbitrators would
jurisdiction, 177
also be valid, 229
has to work out within the parameters
signed by the majority o f the members
laid down in the arbitration clause,
of arbitration, 227
175
Terms and Contents of, 40
have a lien on the arbitral award for
time limit for making the, 42 any unpaid costs o f the arbitration,
to be made by majority, 42 284
treated as a decree of a court, 44 is given the power to decide its own
when it cannot be set aside, 267 fate on the objection of the
when settlement agreement acquires challenging party, 164
status, 335 issue an order for the termination of
whether requires registration, 275 the arbitral proceedings, 238
447 THE ARBITRATION A N D CONCILIATION ACT, 1996

Arbitral tribunal— (concld.) Arbitration agreement— (concld.)

may again commence proceedings from disputes specified therein, are
initial stage, 169 arbitrable disputes, 38
may rule on its own jurisdiction, 171 essential ingredients o f a valid, 31
means a sole arbitrator or a panel of existence or validity, 296
arbitrators, 24, 44
form of, 69
not a court, 45
held to be valid, requiring two
not adopt procedure contained in the
arbitrators to appoint third
Indian Evidence Act, 1872, 189
arbitrator, 85
not required to give a detailed
judgment as Judges do, 227 in the form of an arbitration clause in
a contract or in the form o f a
shall have a lien for the arbitral award
on any unpaid cost of the separate agreement, 31
arbitration, 283 in writing between the parties, 305
terminate the arbitral proceedings if is a matter of contract, 149
the parties have arrived at a mean an agreement which is
settlement during the arbitral enforceable in law, 127
proceedings, 223 means an agreement referred to in
to make rules on its own jurisdiction, .Section 7, 24
172 mere use of word "arbitration", not
Arbitral tribunal has no power sufficient, 70
to issue summon to persons except the must be in writing, 35
disputing parties in the
arbitration, 215 necessarily results into a foreign
award within the ambit of Section
Arbitral tribunal is empowered
44 of the Act, 306
to encourage the parties to settle
dispute themselves by legitimate not necessarily to be signed by both
means, 223 the parties, 73
to reject the request made by the not to be discharged by death o f party
parties for settlement o f their thereto, 286
dispute, 223 not valid for want of mutuality, 80
Arbitral tribunal is empowered to of enlargement o f scope of dispute, 87
correct parties should intend to make a
its own decision rather can remove reference to arbitration in case of
errors as such within 30 days any dispute relating to the terms of
prescribed period, 242 the contract, 34
Arbitral tribunal is not competent to relating to either present or future
order disputes, 80
interim measures to affect the right of shall be in writing, 31, 67
a party who is not a party to such should be in existence before the
agreement, 184 commencement o f the insolvency
Arbitration proceedings, 288
ad-hoc, 29 to be made in specific clauses, 67
an Important Alternative Dispute what amounts to, 32
Resolution (ADR) Process, 397 What constitutes an, 69
contractual, 29 whether substituted or merely
is carried out pursuant to an modified, 90
agreement to arbitrate the whether the parties of a firm can enter
disputed matter, 28 into, 83
kinds of, 29 whether the signature o f parties is
means the determination o f disputes necessary in, 35
by the decision o f one or more Arbitration agreement is in foreign
persons called arbitrators, 371 language
Arbitration Act, 1940 its translated copies should be
not give any power to the arbitrator to produced in English, 309
act partially or arbitrarily, 252 Arbitration agreement must be in
Arbitration agreement existence
binding on all the partners, 84 before referring the matter for
by Partners o f firm, 37 arbitration, 173
INDEX 448

Arbitration and Conciliation Act, 1996 Arbitrator— (concld .)

applies to both domestic and to be independent and impartial
international arbitrations, 127 person, 123
does not expressly exclude the Who is, 117
applicability of Section 14 of the Arbitrator accepts the appointment
Limitation Act, 1963, 297 he accepts all the terms of the
makes provision for settlement of agreement, 230
disputes/differences by means of Arbitrator appointed by the court
ADR mechanism, 366 not have all the powers of the court,
no provision for appointment of 234
arbitrator by seeking intervention Arbitrator by revising wage
of the court, 95 has not misconducted himself, 225
not define the term "Judicial Arbitrator can appear as witness
Authority", 66 in proceeding for setting aside an
with effect from 22nd August 1996, award, 264
came into force, 349 Arbitrator can award interest
Arbitration clause for the pre-reference period, 256
a collateral term in the contract, 183 Arbitrator can be appointed
can be a part o f a contract provided it by the General Manager, Railway, 152
is in writing, 68 Arbitrator can’t be appointed
not amount to an arbitration absence of arbitration agreement, 156
agreement, 78
Arbitrator has all the powers
not required to be stated in any which the court itself would have had
particular form, 33 in deciding the issues in the suit,
operative according to the terms of the 235
contract, dispute is arbitrable, 75 Arbitrator has jurisdiction
providing that "Any Dispute between to award interest for pre-reference
the parties shall be referred to period, 232
arbitration", 77
to award pendente lite interest, 235
subsist even on full and final Arbitrator has to be independent and
settlement o f the claim/bill, 76 impartial
under the Government contract, 81 besides he must show the highest faith
vagueness, 87 and deep sense of justice and fair
Arbitration costs play, 143
at the discretion o f the tribunal, 237 Arbitrator is duty
Arbitration is a domestic forum bound to disclose his antecedent which
thus, position of an arbitrator is is likely to affect his role as an
different from a judge, 143 arbitrator, 159
Arbitration proceedings Arbitrator is not a conciliator
when the principle o f waiver would not cannot ignore the law or misapply it in
apply, 64 order to do what he thinks is just
Arbitration process has to be and reasonable, 326
governed Arbitrator must provide equal
by the Indian Council of Arbitration opportunity to both the parties
Rules, 1998, 284 during the course of arbitral
Arbitration, conciliation and proceedings, 186
mediation Arbitrator need not hold a view
means for settlement of disputes unless required to do so by the
outside the formal legal system, arbitration agreement, 191
360 Arbitrator to decide
Arbitration? whether he would proceed with the
what is, 28 reference, 182
Arbitrator Arbitrator was named in contract
be substituted in certain does not render the arbitration
circumstances, 167 proceedings invalid, 156
cannot ignore the principle o f natural Arbitrator’s existence
justice, 189 depends upon the agreement, 252
not included in the definition of Arbitrator’s jurisdiction
"Court", 48 to award "pendente lite" interest, 233
449 THE ARBITRATION AND CONCILIATION ACT, 1996

Arbitrator’s jurisdiction—(concld.) Award of the arbitrator

to award interest, 232 cannot be said to be invalid, 234
Arbitrator’s sole function Award of the Lok Adalat
to arbitrate in terms of the contract, an order by the Lok Adalat under the
262 consent of the parties, 384
Arbitrators Award on agreed terms
appointment of, 118 will be final and binding on the
Arbitrators are appointed parties, 224
by the private parties at their personal Award passed by Lok Adalat
efforts for settlement o f their not immune from judicial review under
dispute, 59 Article 227 o f the Constitution of
on the basis o f their expertise in the India, 1950, 388
subject-matter of dispute referred, Award passed by the Lok-Adalat
188 in terms of compromise between the
Article 137 of the Limitation Act parties, is not subjected to further
applicable to arbitration cases, 296 judicial scrutiny, 385
Article 22 of the Constitution of India,
1950 Before a foreign award is enforced
deals with several rights which are the provisions o f Sections 44 and 47
pillars of Indian criminal justice are required to be fulfilled, 314
system, 400 Beneficiary cannot be prevented
Article 23 of the ICC Rules from invoking Bank Guarantee, 94
permits parties to apply to a Bifurcation of subject matter of suit
competent judicial authority for not contemplated under the Act, 1996,
interim and conservatory 306
measures, 49 Bilateral rights of reference to the
Articles 14 and 16 co- exist parties
in the UNCITRAL Model Law on whether arbitration agreement should
International Commercial show, 34
Arbitration, 181
As regards third parties Cause of action
a partner is the agent of the does not confer jurisdiction, 291
partnership business, 83 Central Authority
Assumption of jurisdiction and function of, 394
adjudication shall consist o f not more than twelve
by the High Court was vitiated, 155 members, 389
Attending arbitration proceedings Central Authority shall consist
under protest does not amount to Chief Justice o f India who shall be
waiver o f right, 63 Patron-in-Chief, 389
Award Central Government
made by a private arbitral tribunal is cannot have power to add or delete
to be stamped, 227 from the Act, 344
made in foreign country, 300 in consultation with the Chief Justice
Award cannot be given again and of India, appoint a person to be the
again Member-Secretary o f the Central
over the matters referred to the Authority, 390
arbitration, 59 Challenge the entire arbitral
Award could be set aside proceeding
on the ground that it lacks jurisdiction
i f it is patently illegal, 249
to arbitrate the disputed matter,
Award could be set aside if it is
174
against the public policy, 260
Change in the wording of an
Award found not unreasonable enactment
cannot be interfered by the court, 256 not necessarily involve a change in the
Award made by a Lok Adalat law, 15
shall be final and binding on all the Chief Justice of India
parties to the dispute, 384 alone is competent for appointment of
Award no longer requires arbitrator n International
filing in the court o f law and obtaining Commercial Arbitration agreement.
a decree in terms thereof, 273 152
INDEX 450

Chief Justice of India—(conoid.) Concept of arbitration

shall appoint a person to be the is a creature of contract, 192
Secretary to the Committee, 394 Conciliate"
Chief Justice or any person or means to win over someone, 326
institution designated by the Chief Conciliation
Justice
process recognised under the law
should make an appointment, 121
which is to be achieved by a
Chief Justice or his designate conciliator, 364
has to make the nomination of an
Conciliation and Mediation
arbitrator only if the period of 30
difference between, 364
days is over, 135
Conciliation machinery
Circumstance or fact
application and scope of, 324
not bias or influence the decision o f the
arbitrator, 143 Conciliation proceedings
Civil Court can be terminated, 337
does not include a revenue court, 47 commenced when the other party
Civil Courts accepts in writing the invitation to
not required to refer the conciliation, 325
dispute/parties to the arbitration, Commencement of, 325
104 for successful completion of, 334
Claimant is required no winner or looser as such, 339
to project the points at issue and relief termination of, 336, 338
or remedy, he is seeking., 203 Conciliator
Clause in question he should not refiise meeting with one
did not contemplate any arbitration, party and meet or communicate
133 with the other party, 332
Client centered model not bound by certain enactments, 329
focuses on the feelings of client, 369 person persuading parties to reach an
Co-operative Societies Act, 1912 agreement, 326
does come within the purview of the power to communicate, 332
Arbitration Act, 184 role of, 330
Code of Civil Procedure and Evidence shall not act as an arbitrator, 340
Act
submission of statements, 328
do not apply to the arbitral Conciliator and the parties
proceedings, 192
keep confidential all matters relating
Commencement of arbitral to the conciliation proceedings, 336
proceedings
Conciliator is not expected to disclose
not dependent on interim relief, 202
information except the substance of the
Commercial relationship
factual information in connection
be of commercial nature which is most with the dispute, 332
essential aspect o f relationship to Conciliator may be presented by the
be called "commercial", 301 parties
meaning of, 304 as a witness in any such proceedings
Committee for Implementing only by an agreement between the
Legal Aid Scheme, 401 parties, 341
Communication is deemed Conciliator may direct each party
to have been received on the day it is to deposit an equal amount as am
so delivered, 61 advance for the costs on account of
Company incorporated in India the conciliation proceedings, 340
would always be controlled in India, Conciliator may invite the parties
153 to meet him or may communicate with
Competence de law competence" them orally or in writing, 331
means law is competent to rule in its Conciliator shall be guided
own sphere, 172 by principles o f objectivity, fairness
Composition or the procedure of and justice, 330
Arbitral Tribunal or the procedure Conciliator shall fix the costs
not in accordance with agreement of o f the conciliation and give written
the parties, it is challengeable, 162 notice thereof to the parties, 338
 THE ARBITRATION AND CONCILIATION ACT, 1996

Conciliator shall not be presented by Court has to determine

the parties the distinction between the error
as a witness in any arbitral or judicial within the jurisdiction and an error
proceedings, 340 in excess of the jurisdiction, 176
Conciliators Court is empowered to order the
appointment of, 327 tribunal
numbers of, 326 to correct or modify an arbitral award
Concrete principle of contractual where it is imperfect in form, 265
justice Court is not empowered
must prevail over vague principle of to set-aside the award suo motu, 246
natural justice, 193
Court may order
Condition for enforcement
the arbitral tribunal to deliver the
of an arbitral award, 273
award, 285
Conditions essential for enforcement
Court not bound by arbitrator’s ruling
foreign awards, 321
Consent award unless it bars either party from raising
is an arbitral award, 223 a plea, 220
Consolidating Act Court would be reluctant to interfere
not intended to alter the law, 15 unless there is something radically
Constitution of arbitral tribunal wrong and vicious in the
when can be challenged, 177 proceedings, 194
Consultancy services Court’s assistance
are of a commercial nature, 51 in taking evidence, 214
Contracting State Courts
hall recognise an agreement in writing, cannot confer jurisdiction on
350 themselves, 291
Contracting State may denounce this Courts in India widened the scope of
Convention appointment
by a written notification to the of an arbitrator by a "Designated
Secretary-General of the United person", 133
Nations, 353
Contractor could not claim any loss Date of commencement of arbitral
done to him proceedings
on account of early#onset of monsoon or in the context of saving clause, 348
otherwise, 253
Date of the commencement
Convention shall be open for
arbitration and Conciliation Act, 1996,
accession
310
to all States referred to in Article VIII,
352 Date on which the cause of
arbitration accrued
Convention shall come into force
three months after it shall have been the period of limitation begins to run,
ratified on behalf of two High 294
Contracting Parties, 359 de facto
Correction and interpretation means in fact or in reality, 166
of award and additional award, 241 Death of named arbitrator
Costs is determined in such eventuality court can appoint
at the time of appointment of the arbitrator, 95
conciliator or before the conciliation Death of party
proceedings, 339 arbitral proceedings will survive
Costs of an arbitration according to the terms of the
shall be fixed by the arbitral tribunal, agreement, 287
226 Decision of an arbitrator
Court known as an "award." Whereas the
defined under Section 2(l)(e) of the decision of a mediator is known as
Arbitration and Conciliation Act, a settlement, 372
1996, 46 Decision of Joint Arbitration
interim measures, 106 Committee
means the principal Civil Court of cannot be treated as an award, 259
original jurisdiction in a district, Definition
308 interpretation of, 26
INDEX 452

Delay cannot be condoned Dissenting arbitrator

even if cause for delay in filing cannot be allowed to sign, after the
objection to arbitral proceedings award is filed in the court, 240
was sufficiently explained, 268 Distinction between
Denial of existence of the arbitration "foreign award" and "Domestic award",
agreement 303
by one o f the parties does not denude Division Bench
the arbitrators o f their jurisdiction, to give decision on all the grounds, 238
174 Doctrine of natural justice
Denunciation shall be notified pervades the procedural law of
in writing to the Secretary-General of arbitration, 188
the League of Nations, 359 Doctrine of res-judicata
Denunciations and notifications applicability of, 240
in accordance with Article XIII, 354 Doctrine of severability
Deposit made in excess applicability of, 88
shall be refunded to such o f the parties Documentary evidence
as the arbitral tribunal may direct, more reliable than the oral evidence,
283 196
Designated officer Documentary or other evidence
can exercise the power o f appointment, to prove that the award has become
134 final, 358
Determination of Documents which are evidentiary in
existence o f arbitration agreement, 90 nature
Determination of the place by the are required to be communicated, 207
Joint Arbitration Committee Domestic arbitration
shall be final and binding, 259 excluded from the purview of
Difference "International Arbitration", 53
reference and an arbitration Domestic Arbitration"
agreement, 33 denotes arbitration which occurs in
Difference between India, 30
Section 34 o f the Arbitration Act, 1940 Domestic commercial arbitration and
and Section 8 o f the New Act, domestic commercial conciliation
1996, 101 act shall not be applied to the State of
Dilatory tactics Jammu and Kashmir, 21
no scope of, 163 Doubt that an arbitrator is biased
Discretion would not be sufficient to constitute
must be exercised fairly and judicially, bias on the part of an arbitrator,
285 160
Discretionary power of the arbitral Duty of the Lok Adalat
tribunal to be guided by principles of justice,
to administer oath to the parties or equity, fair play and other legal
witnesses or not, 207 principles, 388
Discretionary power of the court Duty to disclose
whether to grant interim is cast on the prospective arbitrator,
injunction/interim measure is, 109 159
Dispute arises
is a claim and denial and repudiation Effect of
of the claim, 295 reference made during repead of the
Dispute redressal Arbitration Act, 1940, 101
importance of Alternative Means o, 370 Effect of an award
Dispute regarding specific being set aside is that it becomes
performance of contract unenforceable by law, 265
cannot be referred for arbitration, 260 Either the claimant or the respondent
Dispute relating to private rights of can
the parties waive his right, 63
may be referred to arbitration, 57 Electricity Act, 2003
Disputes and also difference will prevail over Section 11 o f the Act,
be referred to arbitration, 38 1996, 156
453 THE ARBITRATION A N D CONCILIATION ACT, 1996

Encashment of Bank Guarantee Existence of an arbitration agreement

when Arbitration proceedings pending, can be inferred from a document
108 signed by the parties or an
Encouraging the settlement of exchange o f letter, 71
disputes Existence of arbitration agreement
through Lok Adalats, 395 inference as to can be drawn from
Enforceability of arbitration letters/faxes etc., 72
agreement Existence of arbitration clause
determined by the Arbitral Tribunal, photocopies of original agreements can
181 be taken on record, 114
Enforceability of the mediator’s Existence of disputes or differences
settlement pre-necessary condition for the
depends upon the willingness o f the arbitration, 74
parties, 375 Explained with references contained
Enforcement of a foreign award in that award
not be contrary to the public policy of foreign award, 319
India, 322 Explanation
to be carried out in accordance with its added to clarify certain ambiguities, 22
contents without any change in
interpretation of, 22
this respect, 315
Enforcement of a foreign award may part of the section to which it is
be refused appended, 22
provided that the party makes such a Expression "claim"
request against whom it is applied, construes violation o f the contracting
312 rights o f the parties which caused
Enforcement of an arbitral award arbitrable disputes/differences
may also be refused, 56 between them, 206
Enforcement of arbitral award Expression "communication"
when entire arbitral award not means exchanging views and feelings,
becoming final, 275 368
Enforcement of instant award Extension of time
could not be entertained, 274 granted either before or after expiry of
Enforcement of the award the time fixed by the agreement or
not contrary to the public policy or the after that, 293
law of India, 320 ' Extent of
English Arbitration judicial intervention in arbitration
each party must be permitted to proceedings, 66
adduce all his evidence, and must
be fully heard, 191 Failure of negotiation
English Arbitration Law non-awareness of authoritative rulings,
emphasises the rule of evidence to be 371
followed as a rule of arbitration Failure to raise objection within
procedure, 191 prescribed time
Equal treatment and opportunity Amounts to waiver of right, 62
to the parties in conciliation, 330 Family dispute under arbitration may
Equal treatment of parties be interfered
denotes that arbitral tribunal is in the interest of justice, 224
required to follow the principle of Fast Track Arbitration
natural justice and fair play, 186 arbitral proceedings are conducted in a
Equality before law and equal less expensive manner, 372
protection of law is a process in which time bound
are the essential ingredients of natural arbitration takes place, 368
justice, 187 Filing of direct appeal
Ex delo malo non oritur actio under Section 37, 280
means a right of action cannot arise Final arbitral award
out of fraud, 255 be questioned only on ground of lack of
Execution of the Interior Agreement jurisdiction, 273
is "connected" with the execution of binding upon the parties and any other
main agreement, 179 persons claiming under them, 271
INDEX 454

Finality of a foreign award Fraud on public law

will not be recognised, 317 against the concept of public policy,
Finality" of the award 255
to be proved by the party who is Free legal aid/service
seeking enforcement of the award, became an inevitable element in a
322 democratic pattern of governance,
Finding of the arbitrator 400
should be accepted without demur, 269 Freedom of the parties
Foreign arbitration to agree and prescribe conduct o f their
proceeding is conducted in a place arbitrator, 168
outside India, 30 Freedom to choose
Foreign award national laws o f different States, 218
becomes enforceable and shall have Full and final settlement
binding force upon the parties court has innovated the concept of
between whom it was made, 308 accord and satisfaction, 76
can be enforced by the Court, 315 Function of the arbitrator
can be treated as "Domestic Award, not end up with the appointment of an
303 expert in technical matters, 214
court may refuse the enforcement of, Fundamental duties of the citizens
313 under Part IV-A of the Constitution,
legal points involved would be equally 395
applicable to domestic arbitration, Fundamental right of accused
140 to be presumed innocent until proved
meaning of, 317 guilty, 399
means the award made as a result of
the foreign arbitration which is not God may save
a domestic arbitration, 302 the challenging party, 164
refused on the ground that it is Government arbitration
contrary to public policy, 313 apprehension regarding bias, 140
when application under Section 11(6) Government Arbitration Agreement
o f the Act, 1996ANot maintainable, must be signed by authorised person,
129 37
Foreign award cannot be enforced must satisfy the requirement of Article
if the contract is illegal, 323 299 of the Constitution of India, 37
Foreign award in India Government contracts
enforcement of, 323 are made in the name of the President,
Foreign award subject-matter of 82
arbitration agreement Ground and circumstances
deals with the international commerce when an arbitral award may be set
and trade, thus, it is international aside, 246
in character, 303 Grounds for challenge
Foreign awards to an arbitrator, 159
Chapter I of Part II applies, 316
Conditions for enforcement, 312 Harmonising effect
conditions for enforcement of, 310, 320 should be given to arbitration clause in
enforcement of, 299, 315, 320, 323 main agreements, 178
not be applied if it is contrary to the High Court
laws of India, 56 refusing to refer the dispute to the
arbitration, 307
time limit for enforcement of foreign
awards, 310 High Court exercising extraordinary
jurisdiction
when binding, 318
under Article 226 or 227 of the
Foreign ingredient Constitution does not come within
found in "international arbitration", 30 its purview, 292
Foreign language High Court has erroneously formed
to be translated into English, 320 an opinion
Foreign national that part o f award was beyond
may be appointed as an arbitrator, 120 jurisdiction of the arbitrators, 181
455 THE ARBITRATION AND CONCILIATION ACT, 1996

High Court should not entertain the Interim Order

application be made even before commencement of
under Section 11 assuming that the arbitration proceedings, 109
Commission had failed to arbitrate Interim order is intended to be
properly, 126 effective
High Courts during the pendency o f the arbitration,
conferred with powers to make rules till the final award is given, 184
only for specified areas, 343 Interim order/measures
How far relevant must determine some part of the
opinions o f expert, 213 dispute referred to arbitration, 184
Hybrid arbitration Interim Protection order
process arbitration is combined with statutory discretion under Section
another kind of ADR involving 9(iiXb) to be exercised judicially,
mediation and conciliation, 368 109
International Commercial Arbitration
ICADR applicability o f the rules specified in
an autonomous non-beneficial the arbitration agreement, 218
institution, 361 based on Article 1 of the Model Law,
If there was no amendment and only 48
■ substitution essentials to constitute, 51
" then there was no amended arbitration may be held in a non-convention
clause, 90 country, 50
Impartiality in arbitration International Commercial transaction
proceedings should have Foreign Jurisdiction
must be maintained, 46 clause, 218
Impugned judgment Intervention of the court
of the High Court is not sustainable, no reference of dispute to arbitrator,
256 20
In India the arbitral proceedings
are conducted mostly in English Judicial Authority
language, 203 have jurisdiction to go into said
Indian Contract Act, 1872 question in certain circumstances,
primarily a consolidating Act, 15 88
Industrial Disputes Act, 1947 and the under obligation to refer the parties for
Family Courts Act, 1984 arbitration, 94
provide settlement o f disputes by Judicial system
conciliation, 368 developed by the Britishers was very
Ingredients of expensive and time consuming, 360
valid arbitration agreement, 32 Jurisdiction in cases against
Initial burden of proving Government
Genuineness o f agreement, 71 is in no way an exception, 290
Insolvency notice Jurisdiction of Court
cannot be issued on basis of an Setting aside o f award, 291
arbitration, 170 Jurisdiction of the court of law
Insolvency of a party to examine whether the arbitrator has
the arbitration agreement does not acted within its jurisdiction or
itself become invalid, 289 exceeded the jurisdiction, 175
Interest
when it may be awarded, 232 Law in force in India
Interest arising from the date of in literal sense it means a particular
decree law currently applied in ten Tory
till realisation o f award, 232 of India, 301
Interim arbitral award meaning of, 304
not terminate the arbitral proceedings, Law of arbitration in India
228 borrowed from the English Arbitration
Interim award Acts, 134
form and contents, 227 Legal aid
part of final award, 43 to accused at State expenses in certain
what amounts to, 237 cases, 401
INDEX 456

Legal aid— (concld.) Mandate of an arbitrator

treated as a human right in a civilised shall be terminated or an arbitrator’s
society across the world, 399 authority shall be terminated, 165
under Constitution of India, 1950, 400 Mandate of an arbitrator terminates
Legal aid as fundamental right a substitute , arbitrator shall be
to accused is a constitutional obligation appointed, 169
o f the State, 401 Mandate of the appointed arbitrator
Legal Representative retirement/resignation from
contained in Section 2(lXg) o f the Act, employment itself terminates, 169
1996, 53
Mandate of the arbitral tribunal
not confined to legal heirs alone, 55
shall terminate with the termination of
under the Code of Civil Procedure, 1908,
the arbitral proceedings, 208
54
Mandatory arbitration
Legal Service
what includes, 402 imposed on the parties by operation of
law, 29
Legal Services Authorities Act, 1987
makes provision regarding the Mandatory requirement
constitution of this Committee, 393 to make reasoned arbitral award, 229
Legislature cannot be approached meaning
for removal o f every difficulty, 345 "preamble", 17
Limitation Act, 1963 Meaning of
applicability of, 296 ‘party’ under Section 8, 93
apply to arbitrations as it applies to expression "first statement on the
proceeding in court, 292 substance of the dispute", 94
Limitation of power expression "refusal" to act as
of the court to intervene, 251 arbitrator, 160
Lok Adalat Med-Arbitration
advise the parties to seek remedy in a link between the settlement and
court, 383 arbitration, 371
award of the, 383 Mediation and arbitration
based on principle o f amicable distinction of, 372
settlement o f disputes by means of Mediation is an informal legal system
compromise, 389
which can be followed conveniently as
benefits under, 381 there are no cumbersome
can make an award touching rights of technicalities in it, 374
minor, 387 Mediation is the act of a third party
jurisdiction of, 382 relating to the settling of a dispute
means People Court, 381 between two contending parties,
powers of the, 386 373
what is, 381 Mediation itself is an informal legal
Lok Adalat and National Legal system
Services Authority are it is not governed by any statute as
the alternative means of dispute such, 374
redressal system, 395 Mediator
Lok Adalat Award friend to all but hostile to none, 375
as good as Court Decision, 386 limitation of, 375
Lok Adalat can pass order Mediator is a person
only when there is compromise who acts as a bridge with the view to
between the parties, 387 settle the dispute between the
Lok Adalats disputing parties, 372
congnizance of cases, 383 Mediator was considered as god
establishment of, 382 having divine wisdom to adjudicate,
373
Making a claim Mediator’s settlement
does not by itself commence the may not be enforced, 376
arbitration proceedings, 200 Mediator’s settlement is not legally
Mandamus can be issued enforceable
failure of authorities to appoint arbitrator because the mediation itself is not
within reasonable time, 148 governed by any statute, 375
457 THE A R B IT R A T IO N A N D C O N C IL IA T IO N ACT, 19 96

Medola Negotiator
parties fail to reach at any settlement has to make a neutral approach to the
of dispute by mediation, 371 problem, 371
Member-secretary Neither the President nor the
hold office for a term not exceeding 5 Governor
years, 392 shall be personally liable in respect of
Members and Member-Secretary of any contract, 81
the Central Authority Neither the review nor revision
term of office and conditions, 391 would lie against the ex-parte arbitral
Memorandum of understanding award if it is published, 210
not constitute arbitration clause, 85 No appeal is maintainable
Mere apprehension of bias or mala as appeal from appellate order, 278
fide No civil suit is maintainable
no ground to challenge the against the order passed under Section
appointment of arbitrator, 124
25(a), 211
Merely non-mentioning of a named or
No injunction granted
designated arbitrator by itself
when the plaintiff has already invoked
does not make arbitration invalid, 133
the remedy available, 111
Misconduct
No intervention by the court
in arbitration proceedings, 263
Money claim is referred to an in absence of arbitration agreement, 86
arbitrator No prescribed form of an application
would include the claim for interest as for setting aside an award is
well, 233 necessary, 246
No provision in the Act, 1996
Nationality of arbitrator for splitting the cause of action of
International commercial arbitration, parties, 103
128 No second appeal would lie
objection as to, 132 against order passed under Section 37,
Negotiation 278
communication process used to put No Specific Provision
deals together or resolve conflicts, for Payment of Court-fees under the
376 Act of 1996, 113
dominant factor in settlement of No time limit for enforcement of a
dispute, 370 foreign award
essential ingredients, 370 has been prescribed in Part II of
essential ingredients of, 376 Chapter I, 309
kinds o f approaches, 379 No umpire system
under the Arbitration and Conciliation
method o f settlement o f dispute with
Act, 1996, 222
or without the assistance of a third
Non-existence of a valid arbitration
person, 364
agreement
need for, 377 High Court camiot pass a decree in
obstructions to, 379 terms of award, 98
power sources for, 378 Non-speaking award
state of, 377 scope of challenging, 253
the simplest means for redressal of Non-taking of any evidence
disputes, 370 sufficient ground for setting aside the
what is?, 376 arbitral award, 197
Negotiation is a thinking process Not a mandatory requirement
which suggests new ideas, new horizon arbitrator must give reasons for the
and finally new solutions, 378 arbitral award, 230
Negotiation Power Number of arbitrators
qualities of, 379 Freedom to determine, 117
Negotiation, mediation, arbitration Number, experience and the
and conciliation qualifications
which comes within the purview of the of members of Supreme Court Legal
alternative means for disputes Service Committee, 393
resolution, 361
INDEX 458

Object of codifying the law Parties are free—(concld.)

to end as far as possible the conflict of to determine the number of
decisions, 16 arbitrators, 116
Object of Section 5 Parties are free to
to restrict the scope of judicial agree on the place o f arbitration, 198
intervention in the arbitration, 65 Parties are required
Objection to be raised to co-operate in good faith with the
"without undue delay", 63 conciliator, 333
Official assignee Parties do not concur in the
treated as a receiver in view of appointment
sub-section (3) of Section 41 of the
the court will make that appointment,
new Act, 1996, 289
118
Old Arbitration Act, 1940
Parties have full and equal access
did not contain any provision dealing
with language, 203 to written proceedings, 207
Opinion of an expert Parties may request the conciliator
to be cited in evidence, 213 to draw up or assist in drawing up, the
Oral evidence would be excluded settlement agreement, 334
against the documentary evidence, only Party
when, the execution of disputed means a party to an arbitration
document is admitted, 196 agreement, 55
Order made by the Central Party can question
Government under Section 83 validity of the award before the Court,
was required to be laid before both the 322
Houses o f the Parliament, 345 Party cannot be allowed
Order of tribunal to take advantage of its own wrong,
whether granting or refusing to grant 176
interim measures is appealable to Party may request the Chief Justice
a court, 185 to nominate an arbitrator, 135
Order passed under Section 11(6) Party rejects the invitation
cannot be challenged under Article 136 no conciliation proceedings, 325
of the Constitution, 131
Party taken benefit under award
Orders of arbitral tribunals
cannot challenge the same, 64
have been made appealable, 277
Party to an arbitration agreement
Ordinarily, amendment/supplement
approach the court for interim relief,
allowed in the arbitration proceedings,
201
205
Ouster of jurisdiction Party will not be entitled
cannot be implied, 50 to raise an objection at the subsequent
stage, 180
to be expressed, 50
Period of limitation
provided only under Section 11(4) and
Panel of arbitrators
(5) of the Act, 132
decision making by, 220
runs from the date o f cause of
the opinion o f the majority shall
arbitration, 294
prevail, 221
Parties are at liberty Period of limitation for commencing
an arbitration
to enter into such a contract and
runs from the date on which the "cause
bargain for contractual justice of
o f arbitration" accrued, 295
their own choice, 195
Parties are authorised to submit Permissibility of
statements of claim and defence reference to dictionary meaning, 27
summarily if there is an agreement Permissible for the mediator
to this effect, 203 use his goodwill, knowledge and skill
Parties are free while performing the act of
to agree on the procedure to be mediating, 374
followed by the arbitral tribunal in Petition for stay
conducting its proceedings, 189 of admiralty suit in High Court is
to agree upon the language or allowed, 307
languages to be used in the Petition under Section 34 of the Act
arbitral proceedings, 202 challenging arbitration award, 269
459 THE ARBITRATION A N D CONCILIATION ACT, 1996

Phraseology used specifically in Power to the Chief Justice

sub-section (1) of Section 14 to make an appropriate scheme in
similar to the phrases incorporated in respect of the matters entrusted to
Article 14 of the Model Law, 166 him, 122
P la ce of execution of agreement Power to the court
is a deciding factor, 290 to grant extension o f time, 293
Plea that there is no arbitration Powers and functions
clause Member-Secretary of the National
cannot be raised by the principal, 280 Legal Services Authority, 391
Pleadings Powers on the Central Government
scope of, 205 to make rules for the purpose of carrying
Popular meaning out the provision of this Act, 345
of words should be taken, 27 Preamble
Power concerning appointment of be used to remove ambiguity, 19
arbitrator may be examined to determine its
not an administrative power, 136 purpose and object, 18
Power of Arbitral Tribunal not the source of any substantive
to award interest, 280 power, 19
Power of arbitrator to decide purpose of, 18
Arbitrability of disputes, 182 use of, 18
Power of arbitrators Preamble can be referred
to make an interim order, 184 where enacting part of the Act is
Power of High Court ambiguous, 19
to make rules, 343 Preamble is referable
Power of judicial authority when it is necessary to plead the
to refer parties to arbitration, 304, 318 purpose of enactment., 17
Power of the arbitrator Preliminary matters
regarding admissibility of evidence, 196 determined by the Chief Justice prior
to amend pendente lite interest, 234 to appointment of arbitrator, 152
Power of the Chief Justice Preliminary objection
delay in appointment of arbitrator, 148 to be decided by the Arbitral Tribunal,
whether claim in question was a live 151
one and/or not barred by Present enacted law
limitation, 137 has its origin from various sources, 299
Power of the Court Present or future disputes
regarding appointment if authorised be referred to arbitration, 38
person fails to appoint, 161 Presiding conciliator
to pass interim order, 107 not authorised to take binding
Power of the High Court under decision, 328
Article 226 to entertain a writ Principle of
petition interpretation of definition, 26
cannot be equated with the power of Principle of part autonomy
the Supreme Court to entertain an main object in the process of
appeal under Section 136 of the conciliation in Part III, 324
Constitution o f In, 139 Principles of justice and fair play
Power of the Legislature must be applicable during the entire
to pass the Act prospectively as well as process of an arbitration, 185
retrospectively, 16 Private arbitration
Power to a court is not permissible, 56
to set-aside an arbitral award, 247 Procedure to be adopted
Power to grant interim relief by the arbitral tribunal, 188
court is not bound by limits of Order Proceeding under Section 9 of the Act
39, Rules 1 and 2 of C.P.C., 112 is maintainable only between the
Power to refer parties to arbitration parties to arbitration agreement,
where there is an arbitration 107
agreement, 91 Proceedings for. appointment of
Power to the arbitral tribunal arbitrator
for the fixation of the costs of an under Section 11 has a very narrow
arbitration, 282 scope, 125
IN D E X 460

Proceedings of all tribunals Reasonableness of the reasons

would fall within the description of given by the arbitral tribunal cannot
ADR, 397 be challenged, 246
Proceedings parallel to the Reasons for adoption of ADR
arbitration cannot be postponed indefinitely, 363
cannot be allowed to continue, 306 Recital "in whatever manner"
Protocol may be denounced does not constitute deviation from the
by any Contracting State on giving one principles o f natural justice, 192
year’s notice, 356 Recognition or enforcement of the
Protocol will come into force award
as soon as two ratifications have been not contrary to the public policy or to
deposited, 356 the principles o f the law, 357
Reference of dispute
Provision of Section 9 of the new Act,
1996 for arbitration improper, 102
does not apply to the International References
Commercial Arbitration, 111 construction of, 25
Provisions of 1996 Act Refusal to issue summons
to the witness, 216
interpreted being uninfluenced by the
principles underlying the 1940 Act, Remittance of arbitral award
21 by the civil judge, 180
Removal of arbitrator
to be interpreted without any influence
appointed by the High Court, 155
of 1940 Act, 17
Removal of difficulties
Provisions of the new Act
while applying the provisions o f this
to be intra vires and not arbitrary, 20
newly enacted law, 344
Public interest or public good
Representative
can be treated as equal to public
much wider than the words "legal
pobcy, 255
representative", 54
Public policy
Requirement of law
comprehends only the protection and
all the arbitrators must deliver their
promotion of public welfare, 255
united consideration, 221
Purpose of interview
Requirement of specified evidences
understand the problem thoroughly as
which are to be produced by the party,
it would facilitate in earmarking of who is applying for the enforcement
core problem, 369 of a foreign award, 319
Purpose of the arbitration Restitution of conjugal rights
would be defeated if the arbitral Burden on non-applicant to show the
tribunal proceeds ex-parte, 209 cause for withdrawal from society
of applicant, 113
Question of limitation referred to an arbitral tribunal, 57
left open for the Arbitral Tribunal, 137 Revision application
Question of procedure not maintainable against appellate
be decided by the presiding arbitrator, order, 278
221 Right to appeal
to the Supreme Court is in no way
Ratification shall be deposited prohibited, 277
as soon as possible with the Right to make appointment
Secretary-General of the League of of arbitrator is not forfeited, 131
Nations, 355, 359 Rights and liabilities of the parties
Reasonable apprehension of bias in to be determined only on basis of
the mind of a reasonable man award, 272
can be a ground for removal o f the Rule 2 of Order II of the Code of Civil
arbitrator, 142 Procedure
Reasonable award not applicable to arbitral proceedings,
cannot be interfered by the court under 59
Section 34 o f the Act, 1996, 256 Rule made by the Central
Reasonable cost of the arbitration Government under this Act
payable by the party concerned under will be laid before both the Houses of
sub-section (4), 285 Parliament, 346
461 THE A R B IT R A T IO N A N D C O N C IL IA T IO N A C T , 1 9 9 6

Rules applicable Section 2(6) of the Act, 1996

to substance of dispute, 216 provides freedom to the parties as of
Rules of procedure consented and their right to select arbitrators or
agreed by the parties arbitration institution, 59
has to be followed in the arbitral Section 2(7)
proceedings, 197 "An arbitral award made under this
Rules regarding mediation part shall be considered as a
can be found on the basis o f "honesty domestic award", 60
is the best policy, 374 Section 2(f) of the Arbitration and
Rules should be laid before each Conciliation Act, 1996
House of Parliament factor o f parties determines the
for making any modification or character of arbitration to be
annulment, 346 international, 53
Section 20
Sale of iron ore is modelled on Article 20 of the Model
totally restraining appellant is not Law, 198
proper, 112 Section 23 of the Hindu Marriage Act,
Secretary-General of the United 1955
Nations provided the need for Alternative
shall transmit a certified copy o f this Dispute Resolution, 363
Convention to the States Section 24 deals with
contemplated in Article XIII, 354 hearings and written proceedings
Section 11 of the Act before the arbitral tribunal, 206
deals with the appointment of Section 25 of the Act, 1996
arbitrators, 135 deals with default o f parties and its
Section 11 of the Act, 1996 after-effects, 208
the lengthiest section o f the Act, 120 Section 26 of the Arbitration and
Section 11(3), (4) and (5) Conciliation Act, 1996
applicability of, 123 deals with experts appointed by the
arbitral tribunal, 213
Section 13 of the new Act, 1996
analogous to Section 30 and Section 34 Section 28 provides rules
o f the Arbitration Act, 1940, 163 for the applicability to decide whether
Indian or Foreign law would be
Section 15(2) provides answer
applicable, 217
to question that how a substitute
arbitrator should be appointed, 169 Section 3 of the Act, 1996
based on UNCITRAL Arbitration Rule,
Section 16
Article 2(1), 60
Scope of, 173
Section 30 provides and encourages
Section 16 does not take away
jurisdiction of the Chief Justice mutual settlement of dispute by
to decide the question of existence of parties before the arbitral tribunal,
arbitration agreement, 178 222
Section 16(2) of the Act Section 32
deals with the question as to when implication of, 239
objections to jurisdiction have to be Section 37(3) bars
raised, 173 only a second appeal and not revision,
Section 17 of the Act, 1996 278
analogous to Section 27 o f the Section 39 deals with
Arbitration Act, 1940, 184 the unpaid costs o f the arbitration, 285
Section 18 reflects principles Section 4 of the Arbitration and
which are well established by Conciliation Act, 1996
Constitutional Law, 187 deals with waiver of right to object, 61
Section 2 of the 1961 Act Section 41(1) deals with
defines a "Foreign Award" under such an arbitration agreement which is
Chapter I, Part II, 300 executed by an insolvent,' 288
Section 2 of the Arbitration and Section 45 of the 1996 Act
Conciliation Act, 1996 contains a non-obstante clause, 88
provides the definitions o f various Section 47 of the Act
terms used throughout in the Act, has been enacted parallel to Article IV
25 o f the New York Convention, 308
IN D E X 462

Section 5 of the Act, 1996 Settlement of disputes

is in pattern o f Article 5 o f the Model by way of negotiations, arbitration and
law, 64 conciliation, 395
Section 5 of the Arbitration and done by the senior citizens who were
Conciliation Act, 1996 impartial and honest, 396
intends to minimise the judicial outside the Court, 398
interference in the arbitral Sole arbitrator
proceedings, 64 decisions are to be taken by such a sole
Section 50 of the Act arbitrator, 221
provides as to what orders are Sole conciliator
appealable, 315 likely to win faith of the parties, 326
Section 53 has limited application provide speedy conciliation, 327
applies to the jurisdiction of different Specific performance
parties to the Geneva Convention, whether arbitrator can grant, 38
317
Specified conditions to be fulfilled by
Section 6 of the Act, 1996 the party
its object to facilitate the conduct of who is seeking enforcement of a
the arbitral proceedings, 66 foreign award, 309
Section 7(1) of the Arbitration and State Legal Service Authority
Conciliation Act, 1996 appointment o f Chairman of, 389
spells out the internal elements of an Statement of claim
agreement, 33 must contain full particulars, 204
Section 7(3) of the Arbitration and Statements
Conciliation Act, 1996
are to be in writing, 204
an arbitral agreement must be in
of claim and defence, 203
writing, 71
Statutory definitions
Section 8
must be read subject to qualification,
Nature of, 93
26
Section 8 of the Act
Stay of legal proceedings may be
confers a power on the judicial refused
authority, 102
on what grounds, 100
Section 8 of the Arbitration and
Stay proceeding
Conciliation Act, 1996
should be disposed of expeditiously,
is pre-emptory in nature, 95
100
Section 8(1) provides
Style of negotiation
discretionary7 power to the judicial
strategy which is capable to yield an
authority, 92
anticipated outcome, 378
Section 85
Subject-matter of the award
Scope of, 347 capable of settlement by arbitration
Section 9 deals with interim measures under the law of India, 320, 321
which can be awarded by the courts, Submission of first statement
105 not a bar on the court referring the
Setting aside of arbitral award parties to arbitration, 99
on ground of lack o f jurisdiction, 253 Submissions of statement by the
Setting aside of the award parties to the conciliator
when it conflicts with the public policy, intended to provide him informations
254 about general nature of dispute, 329
Settlement agreement Substantial miscarriage of justice
result of parties choice by self in decision making, 221
determination, 336 the arbitral award was set aside, 221
status and effect of, 335 Sufficient cause
to be treated like a decree of the court, deserve liberal interpretation, 209
336 Suit of damages
Settlement between the parties for breach o f bethrotal, 287
binding having status of arbitral for wrongful arrest, 287
award however it must be signed Supreme Court Legal Service
by the parties, 334 Committee Regulations, 1966
Settlement of dispute free legal services shall not be
suggestions by parties for, 333 available or given, 401
463 THE ARBITRATION A N D CONCILIATION ACT, 1996

Supreme Court Legal Services Unilateral reference

Committee may be sufficient for the
shall not consist of more than nine commencement of the arbitral
members, 393 proceedings, 201
Supreme Court of India Unilateral right to make the reference
upheld the importance and application flows from the agreed term in the
of the "Doctrine o f Public Policy" in contract, 79
several rulings, 247 Union of India clause
plainly an arbitration, 78
Term "agreement" Universal familiarity
connotation of, 68 for settlement of domestic as well as
Term "foreign award" international commercial
meaning of, 302 disputes/differences, 366
Termination of proceeding Unstamped and unregistered
power of Arbitral Tribunal, 211 arbitration award
Test to determine the request for not admissible as an evidence, 238
reference Untrained negotiator
made before passing of the Act, 1996, is a root cause o f impediment in the
23 process o f negotiation, 380
Time limit shall be calculated
from the date on which that request Vacancy created
had been disposed of by the on account o f retirement or withdrawal
arbitral tribunal, 247 by arbitrator can be filled, 167
To ensure a valid award Valid arbitral agreement
deal only with questions actually whether mutuality is required to
submitted to the arbitral tribunal constitute, 77
by the parties, 312 V endee
Traditional model not a legal representative, 54
dominated by the lawyer, 369 Violative of Section 48
Translation shall be certified enforcement o f award would be
by an official or sworn translator or by contrary to the public policy, 314
a diplomatic or consular agent, 351 Voluntary nature of the conciliation
Tribunal had no power of review on parties are not required to state the
merits reasons for termination of the
application moved by the appellant conciliation proceedings, 337
was wholly misconceived, 244
Tribunal is required Waiver
to form its own judgment upon the means relinquishing o f a claim freely.,
opinions o f expert, 214 62
Tribunal may proceed ex parte Waiver of right
against the party/respondent who has Extent of, 63
knowingly adopted dilly dallying Want of jurisdiction
tactics, 210 when such plea can be raised, 177
Tussle between the management and What amounts to
trade unions Statutory arbitration, 298
can be resolved by means of What factors to be taken in
negotiation and collective consideration
bargaining, 380 granting o f interim injunction order,
107
Umpire system When a party waives his right
abolished under the new arbitration conditions necessary, 62
and conciliation act, 1996, 45 When the order is appealable
Unable to perform his function no interference under Article 136 of
meaning of, 166 the Constitution o f India, 279
UNCITRAL Model Law Where validity of a settlement
provides the deiinition o f International agreement or discharge voucher is
Commercial Arbitration, 52 disputed
Undue in undue hardship claim for arbitration cannot be
meaning of, 294 rejected, solely on that ground, 152
INDEX 464

Whether "hearsay evidence" Word and phrases— (concld .)

may be admitted in the arbitral de facto, 166
proceedings, 198 de ju re, 166
Whether dispute is covered by ex aequo et bono, 217
arbitration clause failing any agreement, 122
suspension o f supply of petroleum
Fast Track Procedure, 266
products to, 103
in relation to arbitral proceedings, 348
Whether registration is necessary
incapable of being performed, 307
execution o f arbitral award, 268
inter alia, 183
Whether writ petition is maintainable
against ipso facto, 140
order made by judge designated by the lawyers laugh and legal philosophers
Chief Justice for appointment of weep, 373
arbitrator, 139 legal representative, 53
While operating the railway pari materia, 92
the Union of India carries on business, public policy o f India, 248
290 sine qua non, 80, 82
Withdrawal of suo motu, 185
legal Services obtained by the Arbitral Tribunal may rule, 172
Misrepresentation, 402 Words "terms of the submisfion to
Word "may" occurring in Section 11(9) arbitration" *
of the Arbitration and Conciliation meaning of, 248
Act, 1996 Writ court can also grant injunction
is taken as "shall", 130 in exercise of its power under Article
Word and phrases 226 of the Constitution, 108
at the, time o f the application, 310 Writing of award
award is given teeth, 274 would not amount to making o f an
but not thereafter, 257, 258 award, 237