Baroda Branch of WIRC of ICAI
ARBITRATION & CONCILIATION ACT 1996PRESENTED BY
The SatyaVidhi & Company
Advocates & Consultants
Avadhoot Sumant,
Advocate
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NOTE: PREPARED EXCLUSIVELY FOR ACADEMIC PURPOSES HENCE COPY OR REPRODUCTION / CIRCULATION FOR ACADEMIC PURPOSES CAN BE CAUSED WITHOUT PERMISSION OF THE AUTHOR.
ARBITRATION & CONCILIATION ACT 1996
The branch of law about which we are going to have discussion and and thought sharing process with you is having its root, in my perception, in the age-old Indian tradition of ‘village Panch’. In my perception, the adjudication of rights and obligations is something which can be said to be a primary need of a society. Therefore, the human society has evolved various adjudicatory systems and the latest and probably the fastest and at the same time having drill and discipline of legality, is the process of arbitration or conciliation. That though the subject is very vast, I would like to dwell upon the said subject within the boundaries of the following four important features of the subject before us:
-Important Provisions for the Executives & the Arbitrator
-Arbitration and Conciliation
-Applicability of Arbitration Act 1940 & 1996
-Case Law / Case Study
Now let me deal and discuss with you each feature in chronological manner.
The important provisions for the Executive and the Arbitrator as contained in the Arbitration & Conciliation Act can be:
Sections. 9, 11, 12, 13, 16, 17, 18, 19, 23, 24, 25, 26, 27, 28, 31 and 33.
That the provisions which I find them to be important for the Executive or the Arbitrator are those provisions which are very important and cardinal to carry out the process of arbitration within the frame-work of the Arbitration & Conciliation Act 1996 (hereinafter referred to as the Act). This is very important because the very purpose of arbitration is to avoid the cob-web of litigation, avoid multiplicity of proceedings by way of appeal and such other inherent unavoidable elements in the adjudication by the Courts causing delay. Thus to achieve the very purpose of the Act, the Arbitrator or the Executive must scrupulously follow various provisions because arbitration proceedings are technically known as quasi-judicial or domestic tribunal accepted by the parties to adjudicate their rights. Therefore, such Tribunal is accepted to follow various provisions to uphold the true spirit of transparent adjudication which is the must for foolproof justice delivery system.
That Section 11is very foundational in the Arbitration proceedings because it deals with the appointment of Arbitrator. The philosophy of Section 11 is that if parties have entered into a specific agreement as regard the person, qualification and also the manner and mode of appointment of Arbitrators, then the Law, i.e. Section 11 shall not be made applicable. Therefore, it is important to look at the initial part of Section 11 which states “PERSON OF ANY NATIONALITY MAY BE AN ARBITRATOR UNLESS OTHERWISE AGREED BY THE PARTIES”. Further Sub Sections, 2, 3, 5 also quotes subject to any agreement between the parties for the procedure for an appointment of an Arbitrator, the Law, i.e. Section 11 shall be applicable. Therefore, the message is very clear that if you draft an agreement of Arbitration, i.e. may be a clause / condition in the entire agreement and if you structure such clause providing detailed procedure for appointment, then the law accepts supremacy of agreement as against the statutory provisions applicable to the appointment of Arbitrator. I do not wish to explain the entire Section 11 but broad features of Section 11 can be summarized as follows:-
A) In case of the Arbitration agreement having provision for three Arbitrators each party shall appoint one arbitrator and those two shall appoint the third arbitrator.
B) In case of Arbitration Agreement having provisions for Sole Arbitrator, the parties should agree to appoint such Sole Arbitrator within thirty days from the date of receipt of request for appointing an Arbitrator by the other party.
C) That in case of failure to appoint Arbitrators as referred to above, the party can move the High Court before Chief Justice for an appointment of Arbitrator and the Chief Justice of concerned High Court shall appoint an Arbitrator keeping in view the qualification required for the arbitration and to secure the independent arbitrator.
D) That in case of more than one application being made to High Court then the High Court before whom the application is filed first in time shall alone be competent to decide the issue for appointment of Arbitrator.
Section 12 is a classic example of holly spirit of truth and transparency being recognized by a statute. This section requires any person who is likely to be appointed an Arbitrator to disclose everything which is likely to give rise to a justifiable doubt as regard his independence or impartiality. This is important because such issue if suppressed can become cause to vitiate the entire procedure of Arbitration.
That Section 13 provides a remedy in case of any violation of Section 12. This section provides that in case if there is a violation of Section 12, i.e. existence of facts giving rise to doubt on independence of Arbitrator or lack of qualification as may have been agreed by the parties, then such appointment can be challenged before the Arbitral Tribunal itself by filing objection in the form of written statement. It is important to note here that if Arbitral Tribunal withdraws from his office, the Arbitral Tribunal shall continue to adjudicate such challenge caused before it and also subsequently proceed further with the process for deciding the dispute and passing an award. However, this issue still remain open to be agitated before the principal Civil Court, i.e. District Court by way of final challenge to Award under Section 34 of the Act.
Section 16 is also one of the important section which recognizes the highest level of sanctity as regard the jurisdiction of Arbitral Tribunal. This section provides that once the Arbitrators are appointed, they have all the jurisdiction even to rule on the issue i.e. whether arbitration agreement exists or not and also whether Arbitral Tribunal is having jurisdiction or not. This Section provides that though Arbitrator appointed, such appointment shall not prelude the party from raising the fundamental plea that the Arbitral Tribunal is illegally appointed on any of the count as provided in the said Section.
Section 17 is very important provision which practically gives ample powers to Arbitral Tribunal to grant interim orders which can be equated with the powers given to Court under General Civil Law, such as, granting injunction, interim orders for the protection of the subject matter of the arbitration proceeding. This provision is very sensitive being equitable in its nature therefore highest level circumspection, care and caution is required to be adopted because the very fountain source of power is discretionary and hence whenever discretion is provided by Law, it has got to be used by applying strict standard of propriety, legality, reasonableness and of course the most noble purpose, i.e. to do justice in its true spirit and letters both.
That Sections 18 and 19 though they are apparently procedural are backbone of the arbitration proceeding. These Sections are manifestation of principles of natural justice, such as, equal opportunity, fair hearing as known by a renowned maxim “AUDI ALTREM PARTEM”. That though Section 19 declares that arbitral tribunal shall not be bound by Code of Civil Procedure and Indian Evidence Act, still however the Section 18 provides that the opportunity to be given to parties shall be equal and full. That Section 19 also states that Arbitral Tribunal shall have powers to decide all those issues related to documentary evidence, such as, relevance, admissibility and such other integral issues related to the documentary evidence.
That Sections 23 to 28 are bunch of those sections which are again providing for various eventualities that may occur in the course of arbitration proceeding. That Section 23 deals with the fundamental documents, i.e. statement of claim and defenses which has a pari-materia relationship with the concept of pleading under Code of Civil Procedure. That Section 24 provides for the rules governing an important part of arbitration proceedings, i.e. actual hearing which include production of evidence, documents, materials, and appreciation of the same. That section 25 visualizes a situation of default by any party in the course of proceedings and remedies provided to control such situation. That section 26 is a very innovative section which gives liberty to Arbitral Tribunal to have assistance of expert person as regard the specific issues pending for arbitration before the Arbitral Tribunal. That Section 27 is another tool provided in the hand of Arbitral Tribunal to take assistance from the Courts for the purpose of recording evidence. Thus the Law has provided effective tool which can be employed for recording the oral evidence formally. However, the powers to take such assistance of the Court are discretionary and in my perception can be used with care and caution keeping in view the basic purpose of the Act, i.e. to maintain the proper speed in the arbitration proceedings. That section 28 gives various guidelines for adjudicating the dispute in substance. It provides that the Arbitral Tribunal shall decide the dispute according to substantive law for the time being in force in India and in case of international arbitration, it shall decide the matter in accordance with the rules of law as agreed by the parties as per the substantive law of that country or even according to the rules of Law as may be appropriate to the surrounding circumstances of the dispute. This section is a classic piece of legislation which practically gives very open and broad liberty to Tribunal which helps the Tribunal to have sufficient freedom to cause wholesome adjudication of dispute. The Section 31 is providing the guidelines as to how an arbitral award is required to be written and prepared. This is because the act envisages a situation wherein non techno-legal person can be an Arbitrator and hence the Law itself has provided a guideline as to how to write the judgment, i. e award under the Act. The last Section in this chronology is Section 33 the power to correct and amend the arbitral award in terms of the said Section.
That another important area is applicability of Arbitration Act, 1940 and 1996. That broadly stating that the Arbitration Act of 1940 is applicable only to those arbitration proceedings which were already commenced on the date when new act in 1996 came into force. That Section 85 (1) has repealed the Arbitration Act, 1940. Still however the saving clause provides that the old Act of 1940 shall continue to remain applicable to the proceeding of arbitration commenced prior to the commencement of new Act., i.e. 25th January, 1996. That the Arbitration Act of 1940 has given considerable powers to the Court to interfere in the arbitration proceeding, before, in between and even after the Arbitral proceeding. Whereas under the new law, i.e. Act of 1996, Section 5 lays down an important feature that judicial authority can intervene in the proceeding only in terms of Section 9, i.e. for interim measure, Section 11 i.e. for appointment of Arbitrator, Section 17, i.e. for rendering assistance to the arbitration proceeding and finally Section 34 which is the powers to set aside the arbitration award. Thus, as compared to the old law the new law has given more autonomy to Arbitral Tribunal
Now another important area of discretion is arbitration and conciliation. I personally believe that relationship between Arbitration and Conciliation is complimentary to each other because they are complimentary to each other. This is not my individual perception, but even the very title and fabric of the Arbitration & Conciliation Act, 1996 suggests that the remedy of Arbitration and Conciliation both are co-existing and are available coextensively for the adjudication of rights and disputes. That bunch of Sections between Section 61 to 81 is dealing with various issues, features and details of conciliation proceedings. That in one line I can describe that provision of conciliation are having harmonious and integrated relationships and pari-materia identity with the provisions as applicable to arbitration. That provisions as applicable to conciliation are thus involving more or less same and identical issues as they are dealt with by the provisions of Arbitration. However, I would like to observe that basic philosophy of conciliation is based on renowned Indian philosophy “AGREEMENTS GET BETTER RESULTS THAN ARGUMENTS” OR THE WORD “DIS-AGREEMENT” ALSO CONTAINS THE WORD “AGREEMENT” I have prepared a tabular form on this particular issue which is as follows:
ARBITRATION / CONCILIATIONArbitration flows from Arbitration Agreement / Conciliation flows from any agreement
At the time of entering into contract itself, the parties agree arbitral tribunal to settle any dispute which will arise in future. / After the dispute come into existence, the parties may agree to conciliate.
A Sole Arbitrator may be appointed in the Arbitration Agreement. / There is no such opportunity in conciliation after the dispute comes into existence. The parties agree a conciliation and appoint one Conciliator from each side or more Conciliators.
An Arbitrator enjoys more power than Conciliator. / A Conciliator exercises less powers than the Arbitrator.
An Arbitrator uses more discretionary powers and judicial powers than a Conciliator. / A Conciliator has no such discretionary powers.
In arbitration proceeding, three Arbitrators each party may appoint one Arbitrator and if necessary the Arbitrators so appointed shall appoint a third Arbitrator who shall act as a Presiding Arbitrator. / In conciliation proceeding with three Conciliators each party may appoint one and the parties may agree on the name of third Conciliator who shall act as a Presiding Conciliator.
The duties of Arbitral Tribunal are judicial. / The duties of Conciliator are purely Administrator.
The object of Arbitration is to determine the dispute whether friendly or ex-aequo et bono (according to what is just and good). / The object of Conciliator is to reach amicable settlement between the parties.
There is no restriction upon the Arbitrator even though the Arbitrator is exempted from strict procedural laws it has to adopt the principles of natural justice. / A conciliator is not bound by the Code of Civil Procedure, 1908 or the Indian Evidence Act, 1872.
The finality of Arbitration Proceeding depends upon the arbitral tribunal. / The finality of conciliating proceedings depend upon the parties.
Confidentiality is strictly followed in arbitral proceeding. / Confidentiality is not so strictly followed in conciliation proceeding.
An arbitrator can pass the award in Arbitral Proceeding which is equal to decree of Civil Court it may not be according to the wishes of both the parties, to pass an award the Arbitrator need not obtain the consent of both the parties. / Conciliator is not the final decision maker. He has to take the consent of parties and the settlement is according to the agreement of both the parties.
The Court is empowered to constitute the Arbitral Tribunal. / The Court cannot compel for the conciliation process.
That the last topic with which I am now going to deal with is the case laws which have ruled various precedence under Arbitration Act. That the leading cases are as under:-
- Agio Countertrade Pvt. Ltd. v/s Punjab Iron & Steel Co. Pvt. Ltd.
(1999 5 SCC 734) This ruling held that proceeding of appointment of Arbitrator are not covered under Section 22 of SICA and the proceedings can be continued in accordance with Law.
2. Construction India v/s Secretary, Works Deptt. Govt. of Orissa
(1998 2 SCC page 89). This ruling held that once an arbitrator is named in the arbitration agreement, then any circumstantial changes subsequent to such selection will not affect the legality of such person to be appointed as Arbitrator.
3.Ador Samla Pvt. Ltd. v/s Peekay Holdings Ltd.,
(1999 8 SCC page 572). The ruling held that Order under Section 11 as may be passed by the Chief Justice appointing an Arbitrator is an order passed in his administrative capacity and therefore Special Leave Petition under Article 136 of Constitution cannot be filed before Supreme Court challenging an order appointing an Arbitrator.
4.Konkan Railway Corpn. Ltd. v/s Mehul Construction Co.
(AIR SC 2000 Page No. 2821). This ruling has held that the order refusing to appoint an Arbitrator cannot be challenged under Article 136. However, it being a refusal, i.e. non performance of duty, the Writ of Mandamus can lie before Supreme Court.
5. Konkan Railway Corpn. Ltd. v/s. Rani Construction Pvt. Ltd.
(AIR 2000 SCW Page 3908) This is another landmark judgment on important issues, such as appointment of Arbitrator and the details related to this process prior to appointment and its governance within the ambit of Section 11 of the Act.
6. Oil & Natural Gas Corporation v/s Saw Pipes.
AIR 2003 – Supreme Court – Page No.2629)
This judgment is one of the landmark judgments having deliberated comprehensively the matter and scope of Section 34 and jurisdiction of the Court as regard challenge to Arbitration award under the Act.
Let me sum up with a note of warm wishes to you all and request that constraint of time which we had today together should not become cause of constraint as regard coordination and communication between us in the times to come. Therefore, I have given my communication details which I hope will serve the cause of justice for which we all have gathered today and are striving for the same.
PREPARED BY
The SatyaVidhi & Company
Advocates & Consultants
Avadhoot Sumant, Advocate
e.mail :
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