Arbitration and Conciliation Act, 1996 India with Alternative Disputes Resolution ADR [6 ed.] 9789381292907

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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

© CENTRAL LAW PUBLICATIONS

FIRST EDITION SECOND EDITION REPRINTED REPRINTED THIRD EDITION FOURTH EDITION FIFTH EDITION SIXTH EDITION

1998

2002 2003 2004 2005 2008 2010 2012

Published by

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PUBLISHER'S NOTE In spite of our best care and caution, errors and omissions m ay creep in, for which our patrons will please bear with us and any discrepancy noticed m ay kindly be brought to our knowledge so th a t it is taken care o f in the next edition which will improve our service. Further, it is notified th a t neither the Publisher nor 1tie A u th o r© and Printer© will be responsible for any dam ages or losses occurring to ahybody therefrom. All disputes are subject to Jurisdiction a t Allahabad.

Published by : Central Law Publications, 1 0 7 -D a rb h a n g a C a stle , A lla h a b a d Laser Typeset at : N & T Computers, Allahabad Printed at : Kesav Prakashan, Alopibagh, Allahabad

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Bill on the Law of Arbitration and Conciliation Statement of Objects and Reasons The Arbitration Act, 1940 has become outdated— Object o f the present Act Arbitration Act, 1996 should be interpreted keeping in mind the UNCITRAL Model Law Composition of the Arbitration and Conciliation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

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THE ARBITRATION A N D CONCILIATION ACT, 1996

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Procedure "GIST" o f LCIA

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

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PRELIMINARY Section

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

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CONTENTS

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Section

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PART I

ARBITRATION Chapter I

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

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(ii) Judicial intervention in arbitration proceedings— Extent of (iii) Expression "Judicial Authority"—Its meaning and scope 6. Administrative assistance

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Chapter II

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

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CONTENTS Section

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

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Section

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

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

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Chapter III

Composition O f Arbitral Tribunal 10. Number of arbitrators (i) Who is "arbitrator"? (ii) Freedom to determinenumber of arbitrators (iii) Court may make appointment if the parties do not concur \(iv) Agreement providingfor twoarbitrators (y) Party entitled to invoke arbitration clause— When can be 11. Appointment of arbitrators fi) Legislative intention

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(ii) _ (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) (xii)

(xiii) (xiv) (xv) (xvi) (xvii) (xviii) (xix) (xx)

(xxi) (xxii) (xxiii) (xxiv)

Phrase "failing any agreement"—What it contemplates ... Appointment of an arbitrator by an ex-officio designated official ... Appointment of arbitrator—Power of Indian Council of Arbitration ... Arbitrator to be independent and impartial person ... Before appointing an arbitrator—what issues to be decided? ... Proceedings for appointment of arbitrator under Section 11 has a very narrow scope ... No assumption as to failure to arbitrate properly ... International commercial arbitration—appointment of arbitrator ... International commercial arbitration—Existence of arbitration agreement ... Appointment o f arbitrator qua International Commercial Agreement ... International Commercial arbitration agreement— Arbitration clause alleged to have been obtained by fraud—Arbitrator cannot be appointed ... International arbitration—When, provisions of Section 11(6) does not apply ... International commercial arbitration—Nationality of arbitrator ... Foreign award—when application under Section 11(6) of the Act, 1996—Not maintainable ... Appointment of sole arbitrator—When it can be made... Word "May" in Section 11(9) is taken as "shall" ... Order passed under Section 11(6) is administrative remedy ... Order passed under Section 11(6) cannot be challenged under Article 136 of the Constitution ... Right to make appointment of arbitrator is not forfeited— When, Appointment has not been made within 30 days of denial ... Objection as to nationality of arbitrator ... Government contracts—Appointment of an arbitrator by a ‘Designated person’ ... Appointment of arbitrator— Order of the Chief Justice or his designate under Section 11 is a Judicial order? ... Precondition for exercise of power—Appointment of arbitrator ...

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CONTENTS Section

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

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Section

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

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CO NTENTS

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

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Chapter IV

jurisdiction O f Arbitral Tribunals 16. Competence of arbitral tribunal to rule on its jurisdiction (i) Scope of Section 16 (ii) Submission to jurisdiction of arbitration—What amounts to (iii) When objections to jurisdiction have to be raised (iv) Constitution of arbitral tribunal—When can be challenged (v) Want of jurisdiction—When such plea can be raised (vi) Question o f Jurisdiction—Arbitral Tribunal has Power to rule on its own jurisdiction (vii) Harmonising effect should be given to arbitration clause in main agreements (viii) Section 16 does not take away jurisdiction of the Chief Justice to decide the question of existence of arbitration agreement (ix) Execution o f the Interior Agreement is "connected" with the execution of main agreement (x) Setting aside of arbitral award (xi) Remittance of arbitral award by the civil judge (xii) Enforceability of arbitration agreement to be determined by the Arbitral Tribunal

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

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

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Chapter V

Conduct O f Arbitral Proceedings

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CONTENTS

Section

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

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

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VI

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

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CONTENTS

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

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Chapter VII

-Recourse Against Arbitral Award 34. Application for setting aside arbitral award ... (i) Scope of Section 34 ... (ii) The words "terms of the submission to arbitration"— Meaning of ... (iii) Phrase "Public Policy of India"—Meaning o f ... (ix) Concept of public policy—"Fraud" in making of arbitral award ... (v) Expression "Fraud" in making of award has not to be normally construed ...

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A C T , 19 96

Section

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

Page

250 251 252 253 253 254 254 256 257

258 258 258 259 259 259 260 261 261 263 264 264 264 265 266 266 266 266

CONTENTS

x x iii

Section

Page

(xxxiii) Arbitral award—When it cannot be set aside (xxxiv) Non setting aside of ex-parte award—when can be (xxxv) Objection to award—Belated filing of, although delay explained (xxxvi) Arbitral award— Grant of compensation to bidder for loss (xxxvii) Execution of arbitral award—whether registration is necessary (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 (xxxix) Interpretation of contractual term by arbitrator— Interference by Court—Scope of (xl) Powers of Arbitral Tribunal to Award of interest— qua Part Award Period—Rate of Interest (xli) No interest on interest, or compound interest cannot be awarded (xlii) Interest—when Arbitral Tribunal cannot award (xliii) Maritime Arbitration—Award of Demurrage, Interest and cost to masters—When sustainable

^

... ...

267 267

...

268

...

268

...

268

...

269

...

269

...

270

... ...

270 270

...

271

Chapter VIII

(1£iflfdTfy And Enforcement O f Arbitral Awards 35. Finality of arbitral awards (i) Rights and liabilities of the parties to be determined only on basis of award (ii) Award is capable of beiug*executed in its own (iii) When award is compulsorily registrable (iv) Final arbitral award can be questioned only on ground o f lack of jurisdiction 36. Enforcement (i) Enforcement of award (ii) Enforcement of arbitral award—When entire arbitral award not becoming final (iii) Arbitral award—Whether requires registration (iv) Enforcement of arbitral award—Cross decrees— Applicability of Order 21, Rules 18, 19 of the Civil Procedure Code, 1908

271 272 272 273 273 273 274 275 275

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

276 277 277 278 278 278 278 279 279 280 280 280 281 281

Chapter X

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

... ... ... ... ...

282 283 283 284 284

... ...

285 285

... ... ...

286 287 287

CO NTENTS

XXV

Section

Page

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

289 289 290 291 291 291 291 291 292 293 294 294 294 296 297 298

PART II

ENFORCEMENT OF CERTAIN FOREIGN AWARDS Introduction

299 Chapter I

New York Convention Awards 44. Definition (i) The term "foreign award"—Meaning of (ii) Distinction between the "foreign award" and "Domestic award" (iii) "Foreign Award"—When can be treated as "Domestic Award" (iv) Meaning of term "Commercial relationship" in the context of foreign awards (v) Words "law in force in India"—Meaning of 45. Power of judicial authority to refer parties to arbitration (i) Expression "shall" denotes obligation upon the judicial authority

300 302 303 303 304 304 304 305

xxvi

THE ARBITRATION AND CONCILIATION ACT, 1996

Section

46. 47.

48.

49. 50. 51. 52.

Page

(ii) Applicability of Section 45 (iii) Bifurcation of subject matter of suit not contemplated under the Act, 1996 (iv) Proceedings parallel to the arbitration cannot be allowed to continue (v) Petition 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 (vii) The conflicting awards would not, under the arbitration agreement, be incapable of performance When foreign award binding Evidence (i) Phrase "at the time of the application"— Interpretation of (ii) Time limit for enforcement of foreign awards (iii) Arbitration and Conciliation Act, 1996— What is the date of the commencement—Enforcement of foreign award Conditions for enforcement of foreign awards (i) Whether the award can be challenged on merits (ii) Scope of Section 48(l)(a) (iii) International Award—Validity and its enforcement (iv) Enforcement of award would be contrary to the public policy—Violative of Section 48 (v) No jurisdiction to order winding up of the company Enforcement o f foreign awards Application barred by limitation Appealable orders Saving Chapter II not to apply

...

306

...

306

...

306

...

307

...

307

... ... ...

307 308 308

... ...

310 310

... ... ... ... ...

310 310 314 314 314

... ... ... ... ... ... ...

314 315 315 315 315 316 316

...

316

... ... ... ...

317 318 318 319

Chapter II

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

CO NTENTS

xxvii

Section

Page

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

320 323 323 323 323 323

PART III

CONCILIATION vJblrCApplication and scope

62. "Commencement of conciliation proceedings Who is conciliator 63. Number of conciliators Why sole conciliator? 64. ^ Appointment of conciliators 65. Submission of statements to conciliator 66. Conciliator not bound by certain enactments :67./'ltole of conciliator 68. Administrative assistance 69. Communication between conciliator and parties 70. Disclosure of information 71. Co-operation of parties with conciliator 72. Suggestions by parties for settlement of dispute 73. Settlement agreement (i) Settlement between the parties is binding having status of arbitral award (ii) When settlement agreement acquires status of arbitral award 74. Status and effect of settlement agreement 75. Confidentiality 76. Termination of conciliation proceedings 77. Resort to arbitral or judicial proceedings 78. Costs 79. Deposits v-gGr'iToIe of conciliator in other proceedings 81. Admissibility of evidence in other proceedings

324 325 326 326 326 327 328 329 330 331 331 332 333 333 333 334 335 335 336 336 337 338 339 340 341

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

343 343 344 345 345 346 347 347 348 348 348 348 349

THE FIRST SCHEDULE Convention on the Recognition and Enforcement of Foreign Arbitral Awards

...

350

...

355

...

357

THE SECOND SCHEDULE Protocol on Arbitration Clauses

THE THIRD SCHEDULE Convention on the Execution of Foreign Arbitral Awards

ALTERNATIVE MEANS OF SETTLEMENT OF DISPUTES Alternative Dispute Resolution : Why needed Methods of ADR Difference between Conciliation and Mediation Merits of ADR Demerits of ADR Indian Statutes & ADR ADR : Knowing the problems in hand Chief Processes of ADR

... ... ... ... ... ... ... ...

362 364 364 365 365 366 367 368

CONTENTS

x x ix

Page

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

369

LOK-ADALATS ... What is Lok Adalat? ... Benefits Under Lok Adalat ... 1. Establishment of Lok Adalats ... 2. Jurisdiction of Lok Adalat ... 3. Congnizance of cases by Lok Adalats ... 4. Award of the Lok Adalat ... 5. Award of Lok Adalat shall be final ... 6. Award of Lok-Adalat is a Decree ... 7. Settlement of matrimonial dispute—by Lok-Adalat ... 8. Powers o f the Lok Adalat ... 9. Lok Adalat Award as good as Court Decision ... 10. Lok Adalat can pass order—only when there is compromise between the parties ... 11. Lok Adalat can make an award touching rights of minor ... 12. Award passed by Lok Adalat—Not immune from judicial review under Article 227 of the Constitution of India, 1950 ... 13. Lok Adalat and ADR ...

381 381 381 382 382 383 383 384 385 386 386 386

370 370 372 372 373 374 375 375 376 376 376 377 377 378 378 379 379 379 380

387 387

388 388

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 1. Appointment of Chairman of State Legal Service Authority 2. Organisation, Power and Functions Powers and Functions 3. Function o f the Central Authority ALTERNATIVE MEANS OF DISPUTES RESOLUTION IN INDIA Arbitration is an Important Alternative Dispute Resolution (ADR) Process Supreme Court’s Judgment, 2005 and ADR Legal Aid Legal Aid under Constitution of India, 1950 Legal Aid to Accused at State Expenses in certain Cases Section 304—Legal aid to accused at State expenses in certain cases Legal Aid Scheme— Committee for Implementing Whether Free Legal Services, Available in All Cases Legal Services obtained by Misrepresentation—withdrawal of What includes—Legal Service

...

389

... ... ... ...

C89 389 391 394

...

396

... ... ... ... ...

397 398 399 400 401

... ... ... ... ....

401 401 401 402 402

... ... ... ...

403 406 418 424

...

442

APPENDICES I.

The Appointment of Arbitrators by the Chief Justice of India Scheme, 1996 II. ICC Rules of Conciliation and Arbitration III. Statutes and Rules of International Court of Arbitration IV. Rules of Arbitration of the Indian Council of Arbitration ANNEXURE

INDEX

444

TABLE OF CASES A

Anuptech Equipments Pvt. Ltd. v. Ganpati Cooperative Housing Society Ltd., 162, 211 Anurag Malik v. Amit Malik & another, 269 Arain & Co. v. Union of India, 133 Asha Lata S. Lahoti v. Hira Lai Liladhar, 298 Ashoka Construction Co. v. Union of India, 234 Associated Engineering Co. v. Government of Andhra Pradesh, 176, 246, 262 Atiabari Tea Co. Ltd. v. State of Assam, 4 Atlas Cycle Industries v. State of Haryana, 345 Atul R. Shah v. V. Vrijlal Lalloobhai & Co., 277, 291 Aurohill Global Commodities Ltd. v. Maharashtra STC Ltd., 173, 218

A.G. v. Prince Ernest Augesstus of Hanover, 17 A.K Kraipak v. Union of India, 186, 187 ABC Laminari v. A.P. Agencies, 291 Aboobacker Latif v. Reception Committee, 196 ACE Pipeline Contracts (P) Ltd. v. Bharat Petroleum Coprn. Ltd., 125, 131, 147, 148 Adhunik Steels Ltd. v. Orissa Maganese and Minerals (P.) Ltd., 107, 220 Ador Sarnia Pvt. Ltd. v. Pee Kay Holdings Ltd., 131 Agio Counter Trade P. Ltd. v. Punjab Iron and Steel Co. Ltd., 125 Agri Gold Exims Ltd. u. Sri Lakshmi Knits and Wovens Ltd., 77, 95 Ahluwalia & Co., Hoshiarpur and another (M/s.) v. Surinder Mohan & 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-cumManaging Director, South Eastern Alok Mishra v. Garima Mishra, 386 Coalfields Ltd., 87 Alva Aluminium Ltd., Bangkok v. B.C. Dagara v. M.KD. Mineraal and Gabriel India Ltd., 126 Export (P) Ltd., 112 Amar Nath Chand Prakash v. Bharat B.N. Srivastava v. M. Srivastava, 246 Heavy Electricals, 76 B.S.N.L. v. Subhash. Chandra Kanchan, Amstar Investment Pvt. Ltd. v. Shree 153 : Shree Iswar Satyanarayan Jee & others, 181 B.S.N.L. v. Telephone Cables Ltd., 158 Babanaft International v. Avant Analytica (India) Pvt. Ltd. v. I.T. Source Petroleum, 200 L.L.C. & another, 152 Babar Ali v. Union of India, 20 Anand Prakash v. Asstt. Registrar Co-operative Societies, 184, 237 Baboolal v. Director of Municipal Administration, -18 Andhra Pradesh v. KM. Rao, 46, 64 Babulal v. Ram Swarup, 294 Andhra Pradesh Tourism Development Corporation & another v. Pampa Badri Choudhary v. Champa Choudhary, 264 Hotels Ltd., 125 Balika Devi u. Kedar Nath Puri, 33, 38 Anil Kumar v. Neel Kanta & others, 178 ( 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.

9

INTRODUCTION

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.

THE ARBITRATION AND CONCILIATION ACT, 1996

10

Difference between Arbitration Act, Conciliation Act, 1996 Arbitration Act, 1940

1940 and Arbitration

and

Arbitration and Conciliation Act, 1996

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

(1) This Act was not so comprehensive. (2) It covers domestic arbitrations. (3)

(4)

(5)

(6)

(7)

(8)

(9)

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

(C) (D) (E) (F) (G) (H) (I) (J)

Submission of Report of Committee— 1884 Formation of tribunal—-1891 Inauguration of tribunal— 1892 Re-naming of tribunal— 1903 Joining of the two bodies— 1975 Including of word "International— 1981 Current operation Secretariat

13

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 When the preamble is to consolidate the

and A m ending Act object of an Act as given before the preamble or in the "consolidate and amend the law" such Act does not merely 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 : .1 5 4. 5.

AIR 1916 PC 7(9). Sarain Singh v. Baba, AIR 1918 Pun. 633. F~aser & Co. v. Revenue Minister , 1949 AC 24. Secretary o f State v. Pusvendu Narayan, AIR 1915 Cal. 807. 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.

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PRELIMINARY

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.

THE ARBITRATION A N D CONCILIATION ACT, 1996

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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. 2. 3. 4.

1967 (3) SCR 848 : AIR 1967 SC 389. AIR 1955 SC 661. AIR 1985 SC 582. Patel Roadways Ltd. v. Prasad Trading Co., AIR 1999 SC 1514.

PRELIMINARY

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(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