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THE ARBITRATION & CONCILIATION ACT, 1996

BY P.K.MITTAL B. Com, LLB, FCS ADVOCATE DELHI HIGH COURT PAST CENTRAL COUNCIL MEMBER – THE INSTITUTE OF COMPANY SECRETARIES OF INDIA. CHIEF ADVISOR : PKMG LAW CHAMBERS Mobile 9811044365,9911044365.

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THE ARBITRATION & CONCILIATION ACT, 1996

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  1. BY P.K.MITTAL B. Com, LLB, FCS ADVOCATE DELHI HIGH COURT PAST CENTRAL COUNCIL MEMBER – THE INSTITUTE OF COMPANY SECRETARIES OF INDIA. CHIEF ADVISOR : PKMG LAW CHAMBERS Mobile 9811044365,9911044365 THE ARBITRATION & CONCILIATION ACT, 1996

  2. The Arbitration and Conciliation Act,1996 (hereinafter called Act) is an updated version of the Arbitration Act, 1940. In the Act of 1940, in case the Award has been made in favour of a Party, he was under an obligation to file a petition before the Court for making the Award a Rule.

  3. Earlier petition was used to be filed for challenging the existence and validity of the Arbitration Agreement but, now under the Arbitration Act, 1996, the challenge can be made under Section 16 of Act, only before the Arbitrator about the existence and validity of the Arbitration Agreement.

  4. Of course, the Court, while considering appointment of the Arbitrator U/s 11 of the Act, has to, prima facie, satisfy about the existence of the Arbitration Agreement. The Court will dismiss the Petition U/s 11 of Act, only when it is absolutely apparent that there is no Arbitration Agreement at all.

  5. ADVANTAGE OF ARBITRATION OWN NOMINEE AS A SOLE ARBITRATOR; One can have his own nominee as a Sole Arbitrator. It is seen that in all government contracts (Central Government/State Government/Local Bodies/Public Bodies and Public Sector companies) generally the Head of the Organization or the Head of the concerned Department or Director is made the Sole Arbitrator to decide the dispute between the parties.

  6. The Hon’ble Supreme Court and the High Courts have, in number of judgments, held that such favoured person can be the Sole Arbitrator so long as he follow the principle of natural justice and does not act in a totally biased manner. In few cases, the Court has held that the person, who has actually been involved or has been overseen the concerned project/work cannot be the Sole Arbitrator. In case of DDA/MCD, Supdt. Engineer is the Sole Arbitrator in practically all the cases.

  7. NO COURT FEE IS PAYAVLE ON THE STATEMENT OF CLAIM OR COUNTER CLAIM. . . As is well known, at the time of filing a Civil Suit before the District Court, the Court fee is required to be paid in accordance with the provisions of Section 7 of the Court Fee Act. The quantum of Court fee depends from State to State. Roughly in Delhi, a Court fee of Rs. 7300/- is payable on a claim of Rs. 5 lakhs. This Court fee keeps on increasing proportionately depending upon the higher amount of claim under the Civil Suit.

  8. However, when the Statement of Claim is filed before the Sole Arbitrator, no Court Fee is payable irrespective of the amount of claim claimed in the Statement of Claim or in the Counter Claim filed by the Opposite Party before the Sole Arbitrator. The Amount of claim may be Rs. 1 lac, 1 crore or 100 crores no Court fee is payable

  9. The Court fee is payable only at the time of making the Award under which monetary claim is allowed. Presently, a Court fee of Rs. 100/- is payable on every Rs. 1 lac awarded at the time of passing and making an Award. The Arbitration conducted before the Sole Arbitrator of the concerned Department or Head of the Department or Head of the Institution, generally, no fee of the Sole Arbitrator is payable.

  10. However, when the Arbitration proceedings are conducted either under aegis of Indian Council of Arbitration or by the Arbitration Centre of the Delhi High Court, then, in that event, the fee is payable, but that too is quite reasonable. However, when the Arbitration proceedings are conducted by the Retired Judges of the High Court or Supreme Court their fee is on per hearing basis and ranges from Rs. 1 lac to Rs. 2 lac per hearing.

  11. (III): SUMMARY PROCEDURE TO BE FOLLOWED BY THE ARBITRATOR  The Tribunal is not required to strictly follow the strict provisions of the Indian Evidence Act, Code of Civil Procedure and other procedural laws. The Arbitrator is required to follow the principle of natural justice. Normally, the procedure to be followed is – a. Statement of Claim to be filed by the Claimant; b. Written Statement/Counter Claim to be filed by the Respondent; c. Rejoinder/replication to be filed by the Claimant;

  12. d In the event the counter claim has been filed by the Respondent, the Claimant has a right to file written statement to the Counter claim of the Respondent; • e The Respondent has a right to file replication/rejoinder to the written statement field by the Claimant on the counter claim of the Respondent; • Affidavit containing admission/denial of documents • to be filed by both the parties; • g. Affidavit in evidence is filed by the Claimant;

  13. Cross-examination of Witnesses of the Claimant; • Affidavit in evidence to be filed by the Respondent; • Cross-examination of witnesses of the Respondent; • Final Arguments; • Filing of written submission by the parties; • Verbal final arguments by both the parties; • n. Pronouncement of Award;

  14. PROCEDURE FOR CHALLENGE The Award made by the Sole Arbitrator is like a Judgment delivered by the Civil Court. In fact, the Award delivered by the Sole Arbitrator is better than the judgment delivered by the Civil Court in as much as against the judgment delivered by the Civil Court, an appeal U/s 96 of CPC is filed before the First Appellate Court. The First Appellate Court is entitled to examine the judgment delivered by the Lower Court both on issues of fact and law. In other words, the First Appellate Court is entitled to critically and analytically examine the judgment delivered by the Civil Court whereas the Award of the Arbitrator can be challenged on a very limited ground as set out under Section 34(2) of the Arbitration Act, 1996.

  15. ARBITRATION AGREEMENT The Arbitration Agreement is defined in Section 2(b) read with Section 7 of the Act. Section 7 is reproduced herein below:- “In this Part, “Arbitration Agreement” means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.” There cannot be oral Arbitration Agreement. The Arbitration Agreement could found by way of Arbitration clause in the Agreement or there could be separate arbitration agreement or the arbitration agreement could be derived from the correspondence exchanged between the parties.

  16. The Hon’ble Supreme Court in the case of Powertech World Wide Limited Vs. Delvin International General Trading LLP MANU/SC/1333/2011 has observed as under:- 14. Now, I may refer to the pre-requisites of a valid and binding arbitration agreement leading to an appropriate reference under the Act. Section 2(1)(b) defines 'arbitration agreement' to be an agreement referred to in Section 7. Section 7 of the Act states that an 'arbitration agreement' is an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.

  17. The arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement and shall be an agreement in writing. An arbitration agreement is in writing if it is contained in any of the clauses i.e. Clauses (a) to (c) of Sub-section (4) of Section 7 of the Act. Once these ingredients are satisfied, there would be a binding arbitration agreement between the parties and the aggrieved party would be in a capacity to invoke the jurisdiction of this Court under Section 11(6) of the Act

  18. The Hon’ble Supreme Court in the case of K.K. Modi v. K.N. Modi and Ors. MANU/SC/0092/1998  : (1998) 3 SCC 573, while differentiating an 'arbitration agreement' from a 'reference to an expert' for decision, contained in an MOU recording a family settlement, enumerated the essential attributes of a valid arbitration agreement: 1. The arbitration agreement must contemplate that the decision of the tribunal will be binding on the parties to the agreement,

  19. 2. that the jurisdiction of the tribunal to decide the rights of parties must be derived either from the consent of the parties or from an order of the Court or from a statute, the terms of which make it clear that the process is to be an arbitration, 3. the agreement must contemplate that substantive rights of parties will be determined by the agreed tribunal,

  20. 4. that the tribunal will determine the rights of the parties in an impartial and judicial manner with the tribunal owing an equal obligation of fairness towards both sides, 5. that the agreement of the parties to refer their disputes to the decision of the tribunal must be intended to be enforceable in law and lastly, 6. the agreement must contemplate that the tribunal will make a decision upon a dispute which is already formulated at the time when a reference is made to the tribunal.

  21. SECTION 8 OF ARBITATION ACT, 1996 In case there is an arbitration agreement between the parties and despite this, if one of the parties filed a Civil Suit before the Civil Court of Law claiming relief in respect of the subject matter falling within the Arbitration Agreement, such suit cannot proceed further. The Opposite Party may file an application U/s 8 of the Arbitration Act, 1996 stating clearly therein that there exist a valid Arbitration Agreement between the parties covering the subject matter as falling within the Arbitration Agreement.

  22. Along with such application, the party is required to file either the Original Arbitration Agreement or certified copy of the contract containing the Arbitration Agreement. In the absence of certified copy of the Arbitration Agreement, the Court may dismiss such application as not maintainable. The Opposite party has to file an application U/s 8 of the Arbitration Act, 1996 before the Court before filing Written Statement. In case, despite existence of a valid Arbitration Agreement, Written Statement has been filed without prejudice, it is treated that the party has waived his right to invoke the Arbitration Clause in the agreement and the case will be tried by the Civil Court

  23. In case for some reason, the party is required to file written statement, in that event, it is must be clearly stated that in the written statement that though there exist Arbitration Agreement, yet, without prejudice to the rights and contentions of the applicant, the applicant is filing written statement and reserve its right to make submission on the said application.

  24. SECTION 9 – INTERIM MEASURES BY THE COURT • Many times it so happened that before the invocation of the Arbitration clause, the party is in dire need of Interim Award/stay order against the Opposite Party, then, in that event, the Petition U/s 9 of the Act is required to be filed before the Court making a prayer for – • (a). stay against encashment of Bank Guarantee given under the Contract; • (b). stay against sale of immovable property; • (c). seeking directions for furnishing security or guarantee or other security from the Opposite Party;

  25. SECTION 9 OF THE ACT. “A party may, before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with Section 36, apply to a Court – (i)………………………………………………………….. (ii) for an interim measure of protection in respect of any of the following matters, namely:- (a) the preservation, interim custody or sale of any goods which are the subject matter of the arbitration agreement; (b) securing the amount in dispute in the arbitration;

  26. (c) the detention, preservation or inspection of any property or ting which is the subject matter of the dispute in arbitration, or as to which any question may arise therein and authorizing for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party, or authorizing any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence; • interim injunction or the appointment of a receiver; • (e) such other interim measures of protection as may be appear to the Court to be just and convenient,and the court shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it.

  27. The Bombay High Court in the case of MSEB Vs. Datar Switchgears Limited MANU/MH/1187/2002 has observed as under:- Under sub-clause (e) of Clause (ii) of section 9, a residuary power is conferred upon the Court to order such other interim measure of protection as may appear to the Court to be just and convenient. That residuary provision is of a sufficiently wide amplitude to provide an avenue of redressal that would ensure and protect a party to the arbitral proceedings against an abuse of the arbitral process. Arbitration as a means to a speedy and expeditious resolution of disputes must achieve the object and purpose which it is intended to fulfil.

  28. The Court, therefore, in an appropriate case, does have the jurisdiction statutorily conferred to grant such interim measures of protection as may appear to it to be just and convenient. The legislature has designedly conferred the power upon the Court to do so in broad terms. The exercise of the power is conditioned by the perception of the Court that it is just and convenient to order an interim measure of protection. Unlike the power of the Arbitral Tribunal under section 17 which is co-extensive with the continuation of the arbitral proceedings, the power of the Court under section 9 arises both before during the course of arbitral proceedings and even thereafter once an Award is made until its enforcement.

  29. In this wide canvass, various eventualities may arise which may require the Court to ensure, in an appropriate case, that the process of arbitration is not abused. The conferment of a residual jurisdiction upon the Court in sub-clause (e) of Clause (ii) of section 9 has to be matched by a consciousness on the part of the Court while exercising the jurisdiction that this power is to be utilised for effectuating the object for which the power has been conferred. The Court must be bound by the general discipline of the Act, which constitutes a Code in itself, that discipline being of limited judicial intervention.

  30. Therefore, in consonance with the norm of restricted judicial intervention, the Court has to assess whether a case for the exercise of its jurisdiction under sub-clause (e) of Clause (ii) of section 9 has been made out. In an appropriate case, it would be open to the jurisdictional Court to protect a party to an arbitration agreement by securing compliance with the orders of the Tribunal upon pain of suspension of an arbitral proceeding. Before exercising its power under section 9(ii)(e) to suspend arbitral proceedings a strong prima facie case must, however, be shown to exist by the claimant for relief. A prayer for relief is under section 9(ii)(e) not a substitute for enforcing the order of the Arbitral Tribunal

  31. SECTION 11 – APPOINTMENT OF ARBITRATOR “A person of any nationality may be an arbitrator, unless otherwise agreed by the parties. (2)Subject to sub-section (6), the parties are tree to agree on a procedure for appointing the arbitrator or arbitrators. (3) Failing any agreement referred to in sub-section (2), in an arbitration with three arbitrators, each party shall appoint one arbitrator, and the two appointed arbitrators shall appoint the third arbitrator who shall act as the presiding arbitrator.

  32. (4) If the appointment procedure in sub-section (3) applies and (a) a party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party; or (b) the two appointed arbitrators fail to agree on the third arbitrator within thirty days from the date of their appointment,the appointment shall be made, upon request of a party, by the Chief Justice or any person or institutuion designated by him.”

  33. Upon emergence of a dispute, one of the parties to the Arbitration Agreement is entitled to invoke the Arbitration Clause and can call upon the Sole Arbitrator as nominated under the Arbitration Agreement, to enter upon the reference and commence the Arbitration proceedings, it always advisable for the party wishing to invoke the arbitration clause as contained in the arbitration agreement, to send notice of demand containing therein its claims under all the heads. Such letters are sent by such mode of communication so as to ensure that the same is duly delivered to the Opposite Party. Upon denial or neglect to respond, leads to emergence of dispute, thus entitle one of the parties to invoke the arbitration clause in the agreement.

  34. Whenever a communication is received by the Government Department, Public Bodies or Public Sector Companies calling upon the Sole Arbitrator to enter upon the reference and commence the arbitration proceedings, he must act quickly and enter upon the reference and write to both the contesting parties fixing a date of preliminary hearing. The Courts have held that in case the Arbitrator does not enter upon the reference within a period of 30 days from the date of request so made, he lose right to act as Sole Arbitrator.

  35. In that event, opposite party may file a petition U/s 11 of the Arbitration Act, and becomes entitled to appointment of any other independent Arbitrator instead of named Arbitrator and the named arbitrator looses his right to be nominated for adjudication of dispute between the parties.

  36. The Hon’ble Supreme Court in the case of National Insurance Co Ltd Vs. BogharaPolyfab (P) Ltd MANU/SC/4056/2008 has dealt with what all is required to be seen by the Court at the time of appointment of Arbitrator. 17.1 The issues (first category) which Chief Justice/his designate will have to decide are: (a) Whether the party making the application has approached the appropriate High Court. (b) Whether there is an arbitration agreement and whether the party who has applied under Section 11 of the Act, is a party to such an agreement.

  37. 17.2 The issues (second category) which the Chief Justice/his designate may choose to decide (or leave them to the decision of the arbitral tribunal) are: (a) Whether the claim is a dead (long barred) claim or a live claim. (b) Whether the parties have concluded the contract/ transaction by recording satisfaction of their mutual rights and obligation or by receiving the final payment without objection.

  38. 17.3 The issues (third category) which the Chief Justice/his designate should leave exclusively to the arbitral tribunal are: (i) Whether a claim made falls within the arbitration clause (as for example, a matter which is reserved for final decision of a departmental authority and excepted or excluded from arbitration). (ii) Merits or any claim involved in the arbitration

  39. SECTION 16 – ARBITRATOR DECIDES HIS OWN JURISDICTION In case any of the party feel that there is no valid and existing arbitration agreement between the parties and yet the Arbitrator has been appointed, the party has a right to move an application U/s 16 of the Act requesting the Arbitrator to decide and rule his own jurisdiction.

  40. If the companies enter into contracts which provided resolution of dispute by arbitration and one party wants this while other opposes, it is for the Arbitrator to decide the issue about the existence/validity of Arbitration Agreement as a preliminary issue. (a) SBP 2005(8)SCC 618 (b) National Insurance Co 2009(1) SCC 267 (c) Andhra Pradesh Tourism Development Corporation Ltd 2010 RLR 249 SC.

  41. The Division Bench of Delhi High Court in the case of Delhi Metro Rail Corporation Ltd Vs. Simplex Infrastructure Ltd MANU/DE/3263/2011, while defining Public Policy, has held in para 31 as under:- 31. The concept of public policy connotes some matter which concerns public good and the public interest.

  42. What is for public good or in public interest or what would be injurious or harmful to the public good or public interest has varied from time to time. However, the award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in public interest. Such award/judgment/decision is likely to adversely affect the administration of justice

  43. Hence, in our view, in addition to narrower meaning given to the term 'public policy' in Renusagar's case (supra) it is required to be held that the award could be set aside if it is patently illegal. Result would be - award could be set aside if it is contrary to: (a) fundamental policy of Indian law; or (b) the interest of India; or (c) justice or morality, or (d) in addition, if it is patently illegal

  44. The arbitrator may take up this application at the commencement of the arbitration proceedings or may defer the same to be decided at the time of making the Award. Once the Arbitrator has been appointed, Court has absolutely no power or jurisdiction to decide as to whether there is a valid and existing arbitration agreement.

  45. SECTION 17 – INTERIM MEASURES BY THE ARBITRAL TRIBUNAL Once the Arbitrator has been appointed any of the party feel that some interim measures are required, it may approach the Sole Arbitrator by way of separate application seeking interim relief and the nature as is specified under Section 7 of the Arbitration Act.

  46. SECTION 19 – ARBITRATOR NOT FOUND BY THE STRICT PROVISIONS OF THE INDIAN EVIDENCE ACT AND THE CPC As per Section 19 of the Act – The Arbitral Tribunal shall not be bound by the Code of Civil Procedure, 1908 (5 of 1908) or the Indian Evidence Act, 1872 (1 of 1872). (2) Subject to this Part, the parties are free to agree on the procedure to be followed by the Arbitral Tribunal in conducting its proceedings.

  47. (3) Failing any agreement referred to in sub-section (2), the arbitral tribunal may, subject to this Part, conduct the proceedings in the manner it considers appropriate. (4) The power of the arbitral tribunal under sub-section (3) includes the power to determine the admissibility, relevance, materiality and weight of any evidence.

  48. The Arbitrator is not required to specifically follow the provisions of Indian Evidence Act in as much as it can accept any document as a piece of evidence so long he consider necessary for the determination of the duties and obligations of the parties. However, the Arbitrator can accept any documents, paper or evidence at any stage of the case even during the continuation of the final arguments.

  49. ARBITRATION BOUND BY THE TERMS OF THE CONTRACT: NO PAYMENT AGAINST THE TERMS OF CONTRACT: The Supreme Court has repeatedly held that an arbitrator who acts in manifest disregard of the contract acts without jurisdiction. A deliberate departure from the contract amounts to not only manifest disregard of his authority or a misconduct on his part, but it may tantamount to a malafide action.

  50. A conscious disregard of the law or the provisions of the contract from which he has derived his authority vitiates the award [see Associated Engg. Co. v. Govt. of A.P. MANU/SC/0054/1992 : (1991) 4 SCC 93; Steel Authority of India Ltd. v. J.C. Budharaja, Government and Mining Contractor MANU/SC/0542/1999 : (1999) 8 SCC 122; Rajasthan State Mines & Minerals Limited v. Eastern Engineering Enterprises and Anr. MANU/SC/0601/1999 : (1999) 9 SCC 283,

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