Inviting comments on
the Basic draft
on
A Practical Approach
To Insurance Arbitration
(Last date for comments: April 30th April 2014)
Comments should be submitted in writing to the Secretary, Committee
on Banking, Insurance and Pension, The Institute of Chartered
Accountants of India, ICAI Bhawan, Indraprastha Marg, New Delhi -
110002, so as to be received not later than April 30th, 2014. Comments
can also be sent by email to cobip@icai.in
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Contents
1 Introduction to Arbitration A method of ADR................................ 1
2 Overview of the Arbitration and Conciliation Act, 1996 & General 10
Provisions..........................................................................................
3 Arbitration agreement-- Meaning and Salient Features.................... 17
4 Composition of Arbitral Tribunal...................................................... 25
5 Jurisdiction of Arbitral Tribunal........................................................ 36
6 Arbitral proceedings--Compliance, Conduct and Procedure........... 39
7 Making of Arbitral Award and Termination of Proceedings............ 52
8 Recourse against arbitral award........................................................ 65
9 Finality and Enforcement of Arbitral Awards................................... 71
10 Appeals.............................................................................................. 75
11 Miscellaneous.................................................................................... 77
12 Enforcement of Certain Foreign Awards.......................................... 84
Annexures
I Case Study No. 1 [Ref. Sec.11 (6)]................................................... 96
II Appointment Of Arbitrators By The Chief Justice Of India 131
Scheme, 1996....................................................................................
III ICA Arbitration Clause..................................................................... 133
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Chapter 1: Introduction to Arbitration A method of ADR
1.1; Arbitration-Meaning & Scope
Arbitration is the means or mechanism by which disputants get their dispute through the intervention of
third parson (or persons) without recourse to a court of law. Settlement decision or award is arrived or
given by the judgment of third parson (or persons) called arbitrator. Arbitration is one of the methods
of Alternate Dispute Resolution (ADR) process. In this process or mechanism the disputing parties
present their case to a third party intermediary called arbitrator(s). Thus Arbitration means the
settlement of a dispute by referring the dispute to a third party and abiding his decision. Arbitration is a
method of settlement of dispute as an alternative of the judicial method of litigation in the court of law.
In insurance arbitration is widely adopted today for settlement of disputes between the insured and the
insurers, though not up to the expected level. Other forms of ADR being conciliation, mediation and
negotiation are not followed much for settlement of disputes in insurance sector. The essence of
arbitration is that the settlement of dispute is done through a domestic and private tribunal within legal
framework (through arbitration law) keeping away the dispute from the formal, lengthy and expensive
court process and proceedings. As explained in detail hereinafter, the United Nations Commission on
International Trade (UNCITRAL) adopted the UNCITRAL Model Law on International Commercial
Arbitration in 1985 and the General Assembly of the United Nations has recommended that all
countries give due consideration to the said Model Law to ensure uniformity of law of arbitral
procedures and international arbitration practice. The Arbitration and Conciliation Act, 1996 which is
the fundamental law of Arbitration in India, is based on the UNCITRAL Model Law of the United
Nations Commission on International Trade (UNCITRAL)
Trade, commerce and business whether domestic or international are susceptible to grievance, dispute
and litigation as they are carried out through commercial contracts and failure in performance of
contract is common in today's complex business world. Resolution of dispute through ADR
consisting of conciliation, mediation, negotiation and arbitration is very essential today. Out of all the
methods of ADR, arbitration is most formal, decisive, and binding for parties in dispute. Arbitration is
a method of settlement of disputes as an alternative to the usual judicial method. Today the arbitration
has become the most dominant form of ADR in financial sector like Insurance, Banking and Non-
Banking Financial Companies (NBFC). In insurance business customers' grievance and dispute are
rising today very rapidly in today's competitive and regulatory environment. Disputes between the
insurer and the insured in regard to quantum of insurance claim admitted by insurer can be easily
resolved through arbitration as per arbitration clause contained in every insurance contract. Now
arbitration proceedings are governed by the Arbitration and Conciliation Act, 1996. It is adjudication
by a quasi-judicial tribunal, where the role and interference of courts in the process arbitration has been
minimized. The new Act 1996 which has replaced earlier Act called the Arbitration 1940 has been
enacted to consolidate and amend the law relating to domestic arbitration, international arbitration and
enforcement of foreign arbitral awards and also providing the law relating to conciliation. Today ADR
is gaining increasing popularity and importance it is expeditious, cost-effective and convenient to
parties in respect of legal formalities or procedure. The maxim `Justice delayed is Justice denied' is the
foundation for evolution of ADR and its revolution in India today. It is estimated that around 3crores
cases are pending at different courts across the country, which has necessitated the wider use of ADR
for speedy settlement of disputes as support for prosperity of trade, commerce and business. In India
also the ADR has been in use dominantly as is in the advanced Countries like USA, UK, Canada,
Australia, German, etc
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The Act of 1996 does not provide the definition of the Arbitration except stating in section 2(1)(a) that
"arbitration means any arbitration whether or not administered by permanent Arbitral Institution".
However the recognized meaning of Arbitration is that it is a settlement of differences or disputes by
mutual understanding or agreement by the parties where the rights and liabilities of the parties are in
legal point of view which is binding on them. An arbitration is, thus, is the reference of dispute
between not less than two parties for deciding after hearing both the sides in a judicial manner by
appointed person or persons called Arbitrator other than a court of competent jurisdiction. In Collin vs.
Collins case, honorable judge Romilly M.R.
Defined arbitration by stating "an arbitration is a reference to the decision of one or more persons
either with or without of a particular matter in difference between the parties.
Arbitration is a binding and structured dispute settlement mechanism. In this mechanism dispute
between parties to a contract is submitted to arbitral tribunal consisting of a sole or odd number of
arbitrators which makes the decision in the form of award on the dispute, which is bidding on the
parties and thus dispute is settled by it. Arbitration is an alternate dispute resolution (ADR) process in
which the parties with dispute in a contract present their case to third party intermediary called
arbitrator(s), who examine all the evidences and hear both the parties in dispute and make decision in
the form of award. The said award is binding on the parties like court-based adjudication. But
arbitration is not as formal as court adjudication; the rules can be altered to some extent with the
consent of both the parties to meet the needs of the parties. As in Court based adjudication, arbitration
outcomes are typically win-lose; not win-win ones as in the said adjudication process, one side (party)
is proved right, while other one is proved wrong. The parties to a contract can go for arbitration process
of ADR provided there is an arbitration agreement or arbitration clause forming the part of contract. In
V M Thomas V. Tata Projects Limited, Hyderbad [2001 (2) ALD 588] arbitration application has
been dismissed, where there does not exist any arbitrary clause for taking recourse to a reference. As in
insurance contract or policy, there exits Arbitration Clause, the disputes between the insured and the
insurer especially for resolving any dispute on quantum of claim otherwise admitted can be referred to
Arbitration process for proper decision. As discussed earlier Arbitration is reference of a dispute or
difference between two or more parties for determination or decision after hearing both the sides in a
judicial manner by a person or persons (called arbitrators) other than a court of competent jurisdiction.
It is thus a procedure in which the dispute is submitted to arbitral tribunal, which makes an award
(decision) on the dispute that is binding on the parties. Arbitration remains very significant mechanism
of ADR and provides a parallel system of justice for resolution of civil and commercial disputes
particularly in certain industries like construction, real estate, banking, insurance, other financial
services etc.
Arbitration and conciliation is the well-established and oldest ADR techniques over the world. In India
ADR `arbitration' is governed by the Arbitration and Conciliation Act, 1996. Arbitration is different
from conciliation in many aspects such as technicality, convenience, finality & enforceability of
decision. The arbitration process is based on so many legal formalities as per provisions of the
Arbitration and Conciliation Act, 1996 and the award in arbitration is final and enforceable subject to
certain exception as per the said Act while `Conciliation' ADR is subject to least legal formalities and
the decision in conciliation is not at all binding by order.
Arbitration plays a very vital role in settlement of disputes or disagreement between the insurers and
the insured when such disputes relates to quantum of loss in an insurance claim admissible as insurance
policy generally provides for reference of dispute, if arises, to arbitration for quick and easy settlement
without involvement of much expenses including court fees, legal profession fees which are required to
be spent in case of settlement through courts. But it is found, due to want of requisite knowledge of the
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parties in regard to arbitration law, the disputes in parties sometimes refrain from referring the matter
to the arbitration. But if the arbitral tribunal functions with legal framework and requisite knowledge of
insurance contracts and their terms and conditions, the arbitration will play the most preferred role in
settlement of disputes without referring the matter to the court of law which is not only very time
consuming but also very expensive. To deal with the insurance arbitration the professionals who will
work as arbitrators must know the legal aspects of arbitration and conciliation to make the arbitration
process gradually acceptable to the insured and insurer instead of their expensive and time-consuming
litigation process.
If arbitration process is carried out with the legal framework provided by the Act 1996, the arbitration
will emerge as widely accepted mode of dispute resolution not only in domestic cases but also
insurance contracts of international nature such as marine insurance, certain liability insurance, etc.
Though the new Act confers the complete power on the arbitral tribunal for full and final disposal of
the disputes referred for arbitration by the parties to the dispute in any contract, the interference of the
court or judiciary becomes necessary in certain cases, the arbitrator must know the cases where
reference is required to be made to the court and how to keep the judicial interference to the minimum.
For this purpose Insurance Arbitrator require to function within the legal framework provided by the
Arbitration and Conciliation Act 1996. In other words, arbitration proceedings are statutory as well as
contractual in process and therefore arbitration need to be administered with the legal frame and
provision apart from the technical aspects of Insurance Law and Practice. The members of our Institute
use this book while they will function in the Arbitration Tribunal or as Arbitrators, both for Technical
and the Legal knowledge and expertise. Importantly with the opening up in the Insurance Industry and
advent of MNC in the Indian Insurance Sector, the disputes and disagreements between the insured and
the insurers in regard to settlement of claims are increasing rapidly providing the scope for reference of
the disputes to the arbitration more and more instead of reference of the cases to the courts and
consumer forums which are lengthy in process and time-consuming apart from being very expensive.
When the millions of cases are pending in more than 8000 Indian courts, any fresh cases being referred
to courts are expected to be resolved in the court of law within reasonable time. It is commonly
experienced now the court cases taking years if not decade to be resolved. So in this situation,
arbitration will be the most preferred mode of resolving the cases if the arbitrators follow the statutory
provisions apart from technical aspects of the Insurance Policies.
1.2; Advantages of Arbitration:
Arbitration has had many advantages. Some important ones are highlighted below to outline the
importance of arbitration;
Arbitration is adopted to resolve disputes, as it is more flexible and accessible than court-based
adjudication. The disputants usually chose their arbitrator, who can be experienced or an expert with
professional knowledge and skill in the subject matter of dispute, which a judge is rare case. This
makes arbitration especially useful and effective in highly technical and complex commercial disputes.
Arbitration is quicker process of dispute resolution than court-based adjudication as award is lawfully
binding on the disputing parties and is not open to appeal as it is there in court-based adjudication.
Arbitration is also very effective where the dispute resolution involves critical analysis of various
technical aspects, commercial terms & conditions, various supporting, report & evidences, process and
practice, determination of facts, figures results, interrogation of related persons and parties concerned
in the dispute etc. So arbitration mechanism is best suited for resolution of disputes on insurance claim,
which is very common today.
As arbitration is private and closely held between the disputants, disclosure of trade secrets and
potential embarrassing situation or information can be avoided, if they want.
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Arbitration is a co-operative process. It is therefore, considered better than mediation where disputing
parties are very angry with each other and do not communicate properly with convincing manner.
It provides speedy, convenient, cheap, friendly mechanism of resolving disputes between the
disputants. It is very advantageous in case of disputes relating to assessment of quality or determination
of damages or assessment of compensation. So in insurance contract where arbitration clause is
provided, any dispute, if arises in determination of quantum of loss in case of admissible insurance
claim can be easily and conveniently resolved through arbitration which is quasi-judicial in nature and
process, bus very friendly, transparent and less expensive.
1.3; International Perspective of Arbitration Law
The origin of arbitration is dated back to 4000BC. The study shows that the countries like China, Italy
and India are some of the countries that made the use of arbitration in ancient time. In Greece the
disputes regarding boundary fixation, title to colonies, land assessment of damages occurred due to
accident or hostile invasion, monetary claims between the states were resolved through arbitration. In
England law of arbitration was found to be used more and more with the growth of the British overseas
trade and commerce and expansion of British empire from the of the Treaty of Paris (1763)
Keeping in view of the need for forming International trade laws, the General Assembly of the UNO,
through its resolution established the United Nations Commission for International Trade Law
(UNCITRAL) in 1966. The UNCITRAL discussed and decided the laws and rules on i) International
sale of goods, ii) International payments and iii) Commercial arbitration. The Commercial Arbitration
which is known as International Commercial Arbitration and conciliation. The International
Commercial Arbitration and conciliation consists of i) UNCITRAL Arbitration rules,1976 ii)
UNCITRAL conciliation rules,1980 iii)UNCITRAL Model law on International Commercial
Arbitration Law,1985 iv) Case Law on UNCITRAL texts Model Law on International Commercial
Arbitration. V) UNCITRAL notes on organizing Arbitral proceedings, 1976. Vi) Convention on the
resolution and enforcement on Foreign Arbitral (New York, 1958).
UNCITRAL Model Law on International Commercial Arbitration-
The UNCITRAL commenced its efforts and operations on the International Commercial Arbitration
with a solicited reports submitted by the Secretary General of the UNO. The said report consisted of
the following aspects:
i) Comparative Analysis of International Instrument in the field of Arbitration.
ii) Analysis of similarities and differences of the International Commercial Arbitration.
iii) Review of the relationship between National Law and International Commercial
Arbitration.
iv) Suggestion to promote Harmonization and unification of the Arbitration Law and rules.
The International Instrument covered by the above report are :-
i) International Agreement and other Instruments in force.
ii) International Agreements not in force.
iii) Draft International Agreements and Instruments.
iv) Arbitration Rules.
As the Domestic Arbitration, laws are often found inappropriate in International cases and disputes.
The UNCITRAL Model Law on International Commercial Arbitration is needed very much. The
model law provides a sound and comprehensive basis for harmonization and improvement of national
laws on arbitration. It covers all stages of arbitration process from arbitration agreement to the
recognition and enforcement of the arbitral award and reflects a worldwide consensus on the principles
and practice of international arbitration.
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Salient Features of the Model Law on international commercial arbitration;
i) Scope of Model Law & its Application; the Model Law applies to international
commercial arbitration subject to any agreement n force between one State and the other.
..[Art 1(i)]
ii) Commercial arbitration covers the matters of disputes arising from trade and commerce
including, but not limited to the transactions for the supply or exchange of goods &
services, distribution, representation & agency business, factoring, leasing, construction
work, consulting, engineering, licensing, investment, financing, banking, insurance, jt.
Ventures, other forms of industrial or business operations carriage of goods or passengers
by air, sea, rail or road ( note to Art 1)
iii) International Arbitration will be there if a) the parties to an arbitration agreement have, at
the time of the conclusion of that agreement, their places of business in different States, or
b) one of the following places is situated outside the State in which the parties have their
places of business;
The place of arbitration if determined in, or pursuant to, the arbitration agreement
Any place where a substantial part of the obligations of commercial relationship is to be
performed or the place with which the subject-matter of the dispute is most closely
connected
c) the parties have expressly agreed that the subject matter of the arbitration agreement relates
to more than one country. (Art 1(3)
iv) Recognition of Arbitration Agreement as per Articles 8 & 9 and recognition and enforcement
of arbitral awards dealt by Articles 35 & 36 provide for global scope implying that they will apply
irrespective of whether the place of arbitration is in the State or in another State and as regards Articles
8 and 9, even if the place of arbitration is not yet determined.
v) The law of the State by virtue of which reference of disputes to arbitration will be decided or
determined shall not be affected by the Model Law.
vi) The Place of Arbitration
1.4: Evaluation of Arbitration Law in India
The law of Arbitration in India is dated back to 1859 when the Act VII of 1859 codified the procedure
of civil courts. The sec.312 to 325 of the Act VII of 1859 dealt with process and procedures of
Arbitration between the parties to a suit while sec.326 & 327 dealt with Arbitration without the
intervention of the court. The aforesaid provisions were in operation when the Indian Contract Act,
1872 came into being, which allowed the settlement of disputes by Arbitration under sec.28 of the Act.
An Indian Act, called Arbitration Act of 1899, which was based on the model of the English Act of
1899, came into force in 1899. The said 1899 Act applied to the cases where subject matter of
Arbitration was the subject of a suit, the suit could be instituted in a Presidency Town whether with
leave or otherwise. Thereafter in 1925 the Civil Justice Committee recommends certain changes in the
Arbitration Law in Vogue in India. On the basis of their recommendation Indian Legislature passed the
new Arbitration Act called "The Arbitration Act, 1940" which enables Arbitration with or without
intervention of a court where there is no suit pending or it might be an arbitration of a suit. With the
passage of time, 1940 Act needed to be amended on the basis of the views and recommendations
expressed by the Law Commission of India and various Representative bodies of Trade, commerce &
Industry in order to make the Arbitration law more responsive to the needs of the contemporary society
arising out of economic reforms therein. Accordingly the new Act called The Arbitration and
Conciliation Act, 1996 have been passed. The Arbitration and Conciliation Act, 1996 is based on The
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UNCITRAL Model law on International Commercial Arbitration. So for the better understanding of
the Law relating to Arbitration and Conciliation in vogue in India we need to understand Arbitration,
Conciliation, International Commercial Arbitration and Alternate Dispute Resolution both in reference
to Indian Law i.e., Arbitration and Conciliation Act, 1996 and UNCITRAL Model Law on
International Commercial Arbitration,1985, which has been briefly discussed earlier. The salient
aspects of the new Act are given herein after:
The Arbitration and Conciliation Act, 1996
The Arbitration and Conciliation Act, 1996 aims at consolidating & streamlining the process of
arbitration and conciliation of disputes in Trade, Commerce and Business matters. The Act recognizes
the freedom of the parties in the conduct of Arbitral Proceedings by the Arbitral Tribunal and
withdraws the scope of judicial review of the award passed by the Arbitral Tribunal and minimizes the
supervisory role of the course. The new Act has provides for appointment of Arbitrators by the Chief
Justice of India or the Chief Justice of High court, which is something special and new. In the certain
circumstances as specified by the Act, the Chief Justice may either appoint the Arbitrator himself or
nominate a person or institution to appoint the arbitrator. Another special feature of the Act is that it
has empowered the Arbitral Tribunal to decide on the jurisdiction and to consider the objection of the
existence or validity of the Arbitration Agreement which is the basis for the Arbitration process.
1.5; Scope of Arbitration and Conciliation in Insurance Agreement
Like any other commercial contract, the insurance contract creates and defining the obligations and
duties between the parties to the insurance contract. In case of any dispute or grievance between the
parties I,e the insured and the insurer in regard to performance of contractual obligations, the aggrieved
party may refer the disputes to the arbitrator who may decide and settle the dispute between the insured
and the insurer as per the provisions of The Arbitration and Conciliation Act, 1996 which extends to
whole of India and apply to all domestic as well as the international commercial arbitration or as the
case may be, international commercial conciliation. Settlement of disputes in insurance contracts
through reference to Arbitration is as important as settlement through Insurance Ombudsman, District
Consumer Forum/ State Commission/ National Commission, the High Court or the Supreme Court.
Arbitration is a very vital mechanism of grievance redresal in Insurance sector. In the terms of sub-
section (1) (a) "arbitration means any arbitration whether or not administered by permanent arbitral
institution".
When the parties being the insured and the insurer in an insurance contract agree to have their disputes
on quantum of insurance claim, decided or resolved through the process of meditation of a third person
in compliance with all formalities, such process will termed as arbitration, which is a alternative
dispute resolution mechanism (ADR)
Thus arbitration requires the submission by two or more parties of their dispute with all documentary
evidences to the judgment of a third person called "arbitrator". The arbitrator is to decide the
controversy or dispute in a judicial manner. Thus arbitration in insurance is the reference of a dispute
or difference on quantum between the insured and the insurer for determination and decision to the
arbitrator or arbitrator other than a court of competent jurisdiction after his hearing both sides in a
judicial manner and in strict compliance with the provisions of The Arbitration and Conciliation Act,
1996. Importantly the said law of arbitration only aids implementation of arbitration agreement or
arbitration clause forming a part of commercial agreements. Arbitration process acts as a private
adjudication by a forum consensually chosen by the parties and made on a consensual reference. It is
6
not adjudication by a statutory body. ... Dharma Prathishthanam V. Madhok Construction (p) Ltd
(2005) SCC686:AIR2005 SC 214
Only dispute or difference in regard to quantum or the amount to be paid under insurance policy where
liability being otherwise admitted by the insurance company may independently of all other questions
be referred to the decision of arbitrator(s).
Law encourages parties, to commercial contracts, to settle their differences or disputes privately either
by mutual consensus/consent or by the mediation of a third person. Litigation is always cumbersome,
time-consuming, expensive and burdensome both for individual and Govt. administration. It is why law
of every land wants to keep litigation or legal cases to the minimum.
Arbitration in Insurance business is very essential because almost all insurance policies contain a
condition for reference of dispute between the insured and the insurer for arbitration and conciliation.
So arbitration and conciliation finds a very important role in insurance management. The all
professionals and intermediaries associated with insurance management and services are supposed to
know the legal aspects of arbitration in order to make all arbitration process and activities legally valid
and binding on the parties to the insurance contract. But in most of the cases where disputes or
difference in opinion arise between the insured and insurer, find it difficult to proceed for arbitration
promptly and properly due to lack of proper knowledge and understanding of the law of arbitration. As
we know the law relating to arbitration is contained in the arbitration and conciliation Act, this book is
designed to provide the important legal provisions of Arbitration in accordance with the Arbitration
and Conciliation Act, 1996.
An arbitration is thus a process of reference of any disputes or difference of opinion in any particular
matter between two parties for the decisions of one or more persons with or without an umpire. Here
the disputes or difference of opinion has the special implications for its reference to arbitration. For all
difference of opinion or disputes between two parties are not fit to be referred for arbitration both in
Insurance contracts and in other commercial contracts. For the reference of the dispute or difference
between the insured and the insurer, the following considerations are to be taken into account.
i) Existence of disputes: Any existing dispute or difference of opinion is not generally referred to
arbitrator for decision or judgment of arbitration. For example, a dispute between the insured
and the insurer in regard to the rate and quantum of the premium cannot be referred to any
arbitrator for deciding the insurance coverage, exclusion, terms and condition.
ii) Difference or dispute arising out of operation of contract: As per arbitration clause
explained hereinafter, in case any dispute arises between the insured and the insurer regarding
the quantum of loss to be settled, the parties may refer the same (dispute) to arbitrator(s) for
final decision. But the insured and the insurer being the parties to the insurance contract cannot
use the process of arbitration for deciding the admissibility of the claim when the insurer or the
surveyor could not establish the admissibility of the claim. The admissibility of the claim
depending upon the compliance of terms and conditions of the policy. In this regard the
reference can be made to a general contract to get a better understanding about the conditions
and the situations as to when the dispute or difference could be referred to the arbitrator. In a
contract of sale, any dispute between the seller and the prospect buyer cannot be referred for
decision in the arbitration. The seller always wants the highest price for the property or the
subject matter he sells while the prospect purchaser wants to buy it at the lowest price. So there
may be a dispute between the seller and the prospect buyer in regard to the price for product for
sale or the delivery of the product arising at the time of entering into the contract of sale or
agreement to sale, but all these disputes or differences are not referred to an arbitrator for
7
deciding or determining the sale or agreement to sale. Only disputes arising out of non-
delivering or non-payment or delayed payment can be referred to arbitrator(s) for judicious
decision or judgment. Similarly in insurance contracts, any dispute between the insured and the
prospect in regard to determining and ascertaining the coverage, conditions, exclusions, rate of
premium etc. at the time of entering into the contract of insurance is not referred for arbitrator
for any decision or judgment there upon.
i) Arbitrator being different from Surveyor, Valuer, Expert etc; The positions of a Surveyor,
Valuer, Expert etc are totally different from that of an arbitrator. An arbitrator enjoys the status and
immunity of a judge, while others in the capacity of Surveyor or Valuer don't enjoy such status.
However in case experts like engineers, CAs, and architects are appointed arbitrators, they have to
act in judicial manner and the fact that they have to make certain valuation or assessment shall not
reduce status as arbitrators. An arbitration agreement is to be distinguished from agreement for
decision by an engineer or expert. Contracts may contain a clause that on certain question the
decision of an engineer, architect or chartered accountant shall be final. The decision given in such
case by such expert is not an award. The Arbitral Tribunal can appoint one or more experts unless
there is a contrary agreement between the parties. The Tribunal may refer to the expert for his
report on certain specific issues. For this purpose the Tribunal can direct a party to give the expert
any relevant information; or produce or provide access to any relevant documents, goods or other
property for his inspection.
If there is no agreement to the contrary by the parties, an expert can be asked to participate in the
hearing after he has submitted his report, oral or in writing. He can be asked to do so if a party
makes such a request, or if the Tribunal considers it necessary. At such a hearing the parties will be
at liberty to put questions to the expert, and to produce expert evidence to depose on the points at
issue.
1.3: Arbitration Clause in an Insurance Policy
Almost all insurance policies contain Arbitration Clause along with other clauses. Such agreement
clause is worded as under;
"If any dispute or difference arises as to the quantum to be paid under this policy (liability being
otherwise admitted) such difference shall independently of all other questions be referred to the
decision of a sole arbitrator to be appointed in writing by the parties to or if they cannot agree upon
a single arbitrator within 30 days of any party invoking arbitration, the same shall be referred to a
panel of three arbitrators, comprising of two arbitrators, one to be appointed by each of the parties to
the dispute /difference and the third arbitrator to be appointed by such two arbitrators and
arbitration shall be conducted under and in accordance with the provisions of the Arbitration and
Conciliation Act, 1996. It is clearly agreed and understood that no difference or dispute shall be
referable to arbitration, if the Company has disputed or not accepted liability under or in respect of
this policy. It is hereby expressly stipulated and declared that it shall be a condition precedent to any
right of action or suit upon this policy arising out of the above that the award by such arbitrator/
arbitrators of the amount of the loss or damage shall be first obtained-----"
Such agreement may also provide that "--- The parties shall share the expenses of the arbitrator or the
arbitral tribunal equally and such expenses along with the reasonable costs of the parties in the
arbitration, shall be awarded by the arbitrator or arbitral tribunal in favour of the successful party in the
arbitration or where no party can be said to be have been wholly successful, to the party who has
substantially succeeded. .." "....In the event that these arbitration provisions shall be held to be invalid,
then all such disputes shall be referred to the exclusive jurisdiction of the Indian Courts.."
Precisely, only disputes or differences in regard to quantum of loss between the insured and the insurer
can be referred to arbitration. Arbitration clause is very vital for settlement of disputes in regard to
quantum of loss.
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The decision or judgment of the arbitrator in the arbitration process is binding on both the parties like
court-based adjudication. So in the arbitration presentations are made and evidences are produced
before the Arbitrator to prove one side (party) "right" and other party "wrong". Thus the arbitration
process makes the parties to work against each other with their arguments and evidences there upon to
justify their grievances and claims. Though the arbitration is not as formal as the court adjudication, the
law of arbitration must be adhering to in the process both by the parties and the arbitrator concerned.
As found in the court adjudication the arbitration outcomes or decisions are also typically win-lose
situations but not the win-win situations which is prevalent in the mediation process. The complainant
or the disputant usually chose their own arbitrator who are recognized or considered to be an expert in
the matter of disputes. Generally in insurance arbitration, Chattered Accountants, Surveyors, Engineers
are considered to be experts and their expertise is utilized as Arbitrator in Insurance arbitration.
Pertinently the professionals like Chattered Accountants, Insurance Surveyors and Engineers or retired
Insurance Executives who are generally considered to be expert for the purpose for their technical
knowledge in the insurance professions or management, generally feel hesitant or uncomfortable to act
as Arbitrator due to their lack of knowledge and understanding about the legal aspect and procedure of
arbitration. They need to know the law and rules of arbitration to act as arbitrator in this area. Keeping
in view of this need being increasingly felt by all concerned this publication is being made for the
handbook for the above professionals.
The book is intended as a guide for Chartered Accountants and other professionals who work or wishes
to work as arbitrators in insurance sector and also for insurance managers who handle arbitration
assignments or functions delegated to them. The Chartered Accountants with their core competence in
providing business advisory services are in a advantageous position of acting as arbitrator in insurance
arbitration provided they have requisite knowledge in certain legal and technical aspects of insurance
arbitration. They can be very useful either as arbitrator or a member of Arbitral Tribunal. The chartered
accountants can play an effective role in representing either of the party (plaintiff or defendant) in the
arbitral proceedings in insurance arbitration for resolving dispute on quantum of insurance claim. They
can utilize their expertise and knowledge in financial aspects and commercial law in drafting Arbitral
Award and assisting the parties in preparation of submissions and reports to arbitrator. Now the
Institute is maintaining a panel of Arbitrators for the use of various apex organizations both judicial
and quasi-judicial and apex regulators. This book on `Insurance Arbitration' containing legal aspects
of Arbitration with reference to the Arbitration and Conciliation Act, 1996 and important judgments on
the Act, 1996 may be used by the professionals for the purpose.
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Chapter 2: Overview of the Arbitration and Conciliation Act,
1996 & General Provisions
As mentioned earlier chapter, The new the Arbitration and Conciliation Act, 1996, that has
replaced earlier the Arbitration Act 1940 has been enacted to consolidate and amend the law relating
to domestic arbitration, international arbitration and enforcement of foreign arbitral awards and also
providing the law relating to conciliation. Disputes are resolved either through court or by ADR such
as conciliation, mediation, negotiation and arbitration. Sec. 89(1) of Code of Civil Procedure also
provides an option for settlement of disputes outside court. The court may formulate the terms of a
possible settlement other than the court proceedings, if it appears to the court that there exists necessary
elements or situation, which may be acceptable to the parties to the agreement. It is arbitration process
which is governed by the Arbitration and Conciliation Act, 1996 making the process a quasi-judicial
adjudication mostly acceptable to the parties in all forms of commercial contracts. The present Act of
1996 is based on the model law on International Commercial Arbitration prepared by the United
Nations Commission on International Trade Law (UNCITRAL). Thus arbitration may be ad-hock or
institutional, which may be domestic or international provided there exists
2.2 The Arbitration and Conciliation Act, 1996- salient aspects
The Arbitration and Conciliation Act, 1996 basically provides the law relating to arbitration in India.
The said enactment which claims into force on the 25th January 1996 extends to the whole of India
except the state of Jammu and Kashmir. The origin of this Act lies in the earlier Arbitration statute
called Arbitration Act, 1940. The Arbitration, one of the major means of ADR (Alternative Dispute
Resolution) is not a modern concept as it was widely followed by the society in the ancient India in the
Village Panchayat administration. The concept of the ADR emerged in the primitive society of almost
all parts of the world mainly because of the fact that the conventional statutory legal method of
settlement of disputes in the world has failed to deliver quick, easy and inexpensive justice. The ADR
system and process comes out from the discontentment of the people with the modes and movements
the disputes are usually resolved in the courts of law. The delays, the burden of legal expenses and lack
of professionalism in the legal profession leading to the sense of dissatisfaction of the public with the
legal system are the major reasons for the development of the ADR across the world. The ADR is
nowadays growing in almost all social, economical and commercial sectors in India. The principle of
natural justice, equity and reasonableness followed in ADR has made it popular to the common mass of
the society.
The Arbitration and Conciliation Act, 1996 goes much beyond the scope of the previous enactment,
i.e., 1940 Act. It provides for Domestic Arbitration, International and Commercial Arbitration and also
enforcement of Foreign Arbitral Awards. As the Act is based on UN Model law, it accords with the
United Nations Commission on International Trade law (UNCITRAL). The preamble to the Act
proceeds as follows:
WHEREAS the United Nations Commission on International Trade Law (UNCITRAL) has adopted
the UNCITRAL Model Law on International Commercial Arbitration in 1985;
AND WHEREAS the General Assembly of the United Nations has recommended that all countries
give due consideration to the said Model Law, in view of the desirability of uniformity of the law of
arbitral procedures and the specific needs of international commercial arbitration practice;
AND WHEREAS the UNCITRAL has adopted the UNCITRAL Conciliation Rules in 1980;
10
AND WHEREAS the General Assembly of the United Nations has recommended the use of the said
Rules in cases where a dispute arises in the context of international commercial relations and the
parties seek an amicable settlement of that dispute by recourse to conciliation;
AND WHEREAS the said Model Law and Rules make significant contribution to the establishment of
a unified legal framework for the fair and efficient settlement of disputes arising in international
commercial relations;
AND WHEREAS it is expedient to make law respecting arbitration and conciliation, taking into
account the aforesaid Model Law and Rules;
BE IT enacted by Parliament in the Forty-seventh Year of the Republic of India as follows:-
STATEMENT OF OBJECTS AND REASONS
(1) The law on arbitration in India is at present 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. It is widely felt that the 1940 Act, which
contains general law of arbitration, has become outdated. The Law Commission of India,
several representative bodies of trade and industry and experts in the field of arbitration have
proposed amendments to this Act to make it more responsive to contemporary requirements. It
also recognized that our economic reforms may not fully effective if law dealing with
settlement of both the domestic and international commercial disputes remains out of tune with
such reforms. Like arbitration, conciliation is also getting increasing worldwide recognition as
an instrument for settlement of disputes. There is however no general law on the subject in
India.
(2) .............
(3) ............
(4) The main objectives of the Bill are under:
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;
iii) of meeting the needs of specific arbitration;
iv) to ensure that arbitral tribunal remains within the limits of jurisdiction;
v) to minimize the supervisory role of courts in the arbitral process;
vi) to permit the 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 same manner as
viii) if it were a decree of the court;
ix) to provide that a settlement agreement reached by the parties as a result of
conciliation proceedings will have the same status and effect as an arbitral award
on agreed terms on the substance of the dispute rendered by an arbitral tribunal;
and
x) to provide that, for 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.
(5) The Bill seeks to achieve above objectives.
An Act to consolidate and amend the law relating to domestic arbitration, international commercial
arbitration and enforcement of foreign arbitral awards as also to define the law relating to conciliation
and for matters connected therewith or incidental thereto.
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The Arbitration and Conciliation Act, 1996 is broadly divided into four parts and contain three
schedules as mentioned below:
Part one deals with Arbitration (Sections 2 to 43); Part two deals with enforcement of certain Foreign
Awards (Sections 44 to 60); Part three deals with conciliation (sections 61 to 81); and Part four
contains Supplementary provisions (sections 82 to 86). Similarly schedule one contains provisions
relating to convention on the Recognition and Enforcement of Foreign Arbitral Awards; schedule two
deals with Protocol on Arbitration Clauses and Schedule three contains provisions relating to
Execution of Foreign Arbitral Awards.
Part I (Sec. 1 to Sec 43) of the Act is based on International Trade law (UNCITRAL) on International
Commercial Arbitration 1985,
Part II (Sec. 44 to Sec 60) of the Act has consolidated the law relating to Enforcement of Foreign
awards I,e New York Convention Awards and Geneva Convention Awards
2.3; General provisions of the Act 996
General provisions including definitions of various legal terms (as specified in Sec 2 of Part 1 of the
Arbitration and Conciliation Act, 1996) are reproduced hereinafter for ready reference. Unless the
context otherwise requires, various legal terms shall be understood and interpreted in the definitions as
provided by the Act.
Legal Terms provided by Sec 2(1) are given below:
(a) Arbitration means any arbitration whether or not administered by permanent arbitral institution;
(b) Arbitration agreement means an agreement referred to in section 7 of the Act; This has been
discussed in detail in the following chapter.
(c) Arbitral award includes an interim award
(d) Arbitral tribunal means a sole arbitrator or a panel of arbitrators
(e) Court means the principal Civil Court of original jurisdiction in a district, and includes the High
Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the
questions forming the subject-matter of the arbitration if the same had been the subject-matter of a
suit, but does not include any civil court of a grade inferior to such principal Civil Court, or any
Court of Small Causes;
(f) International commercial arbitration means an arbitration relating to disputes arising out of
legal relationships, whether contractual or not, considered as commercial under the law in force in
India and where at least one of the parties is(i) an individual who is a national of, or habitually
resident in, any country other than India; or ii) a body corporate which is incorporated in any
country other than India; or (iii) a company or an association or a body of individuals whose central
management and control is exercised in any country other than India; or(iv) the Government of a
foreign country; [section 2(i)(f)].
In this regard the judgment given by the Bhatia International vs. Bulk Trading S.A. and another
[2002 (4) SCC, 105] deserves the special mention, where it has been held that the section (2)(1)(f)
of The Arbitration and Conciliation Act, 1996, which defines an International Commercial
Arbitration does not make any distinction between International Commercial Arbitration held in
India or outside in India.
(g) Legal representative means a person who in law represents the estate of a deceased person, and
includes any person who intermeddles with the estate of the deceased, and, where a party acts in a
representative character, the person on whom the estate devolves on the death of the party so
acting; section 2 (i)(g)
In this regard the following aspects need to be considered in the process of arbitration.
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i) The above definition given by the Act has been taken exactly from the section 2 (11) Code
of Civil Procedure.
ii) The Arbitral Tribunal would issue notices to such legal representatives.
iii) The persons considered legal representatives may be a) a person who in law represents the
estate of a deceased person, b) a person who intermeddles the estate of the deceased and c) a
person on whom the estate of a deceased person devolves on the death of the party acting in
a representative capacity.
iv) The person generally included in the list of legal representatives are: a) executors and
administrators properly appointed, b) person who has taken on himself the duties and
responsibilities which belong to the executor or administrator in respect of a part of the
estate, c) heirs-at-law whether they take succession or by survivorship, d) Revisioners when
the action has been brought by or against the widow representing her husband's estate and
e) Universal legatee/ successor.
(h) Party means a party to an arbitration agreement
2.4; Who can be Arbitrator?
The term `Arbitrator' has not been defined by The Arbitration and Conciliation Act, 1996. However an
Arbitrator may be defined as a person who is appointed to determine the difference and dispute
between the two or more disputants with their mutual consents and whose functions are more or less
judicial i.e., to decide the law, facts and figures involved in the matter referred to him to settle the
disputes dispensing equal justice to all the parties. The Arbitrator may be in the form of Arbitral
Tribunal. Section 2 (1) (d) of The Arbitration and Conciliation Act, 1996 provides that Arbitration
Tribunal means a sole Arbitrator or a panel of Arbitrators. The Arbitral Tribunal is the creature arising
out of an Arbitration Agreement. It is open to the parties to confer upon the Tribunal such powers and
to prescribes such procedures for it to follow as they think fit, so long as they are not opposed to the
Arbitration Law i.e., the provisions of the Act. The Arbitrator or the Arbitral Tribunal must also act and
make its award in accordance with the General Laws of the Land and keeping in view in provisions of
the Act, 1996.
a) The person who is appointed as Arbitrator must also give his consent to act as an Arbitrator. His
appointment is not complete till he has accepted the reference. The Arbitrator must be
absolutely unbiased and impartial for all the purpose concerned for the arbitration. As he is an
extra judicial tribunal whose decision in the form of award is binding on the parties. Any
interest of the arbitrator either in one of the parties or in the subject matter of reference
unknown to the either of the parties or all the parties, as the case may be disqualified by the
Arbitrator. Such disqualification applies only in the case of a concealed interest. If the
Arbitrator has an interest in the subject matter of the reference well known to the parties before
they agree for and sign the submission, the award is considered god and valid despite his
interest in the subject matter. The proposed Arbitrator shall make each and every disclosure
which might, in the list affect the minds or decision of those who are proposing to refer their
dispute to the Arbitration of any particular individual/ as regard his appointment so that each
party may have an opportunity of considering whether the reference to the Arbitration of the
particular individual should be made or not.
b) The parties may appoint whom so ever they think fit for Arbitration of the disputes. Usually the
parties themselves appoint the arbitrator as per the agreement while in certain cases discussed
herein after, the Court can appoint the arbitrator or an umpire as the case may be.
c)
2.5; Other Provisions as provided Sub section 2 to 9 of in Sec 2;
(2) This Part shall apply where the place of arbitration is in India.
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(3) This Part shall not affect any other law for the time being in force by virtue of which certain
disputes may not be submitted to arbitration.
(4) This Part except sub-section (1) of section 40, sections 41 and 43 shall apply to every arbitration
under any other enactment for the time being in force, as if the arbitration were pursuant to an
arbitration agreement and as if that other enactment were an arbitration agreement, except in so far as
the provision of this Part are inconsistent with that other enactment or with any rules made thereunder;
(5) Subject to the provisions of sub-section (4), and save in so far as is otherwise provided by any law
for the time being in force or in any agreement in force between India and any other country or
countries, this Part shall apply to all arbitrations and to all proceedings relating thereto.
(6) Where this Part, except section 28, leaves the parties free to determine a certain issue, that freedom
shall include the right of the parties to authorize any person including an institution, to determine that
issue.
(7) An arbitral award made under this Part shall be considered domestic award.
(8) Where this Part- (a) refers to the fact that the parties have agreed or that they may agree, or
(b) in any other way refers to an agreement of the parties, that agreement shall include any arbitration
rules referred to in that agreement.
(9) Where this Part, other than clause (a) of section 25 or clause (a) of sub-section (2) of section 32,
refers to a claim, it shall also apply to a counterclaim, and where it refers to a defence, it shall also
apply to a defence to that counterclaim.
2.6; Receipt of written communications (Sec.3)
Sec.3 provides for the modes for receipt of written communications. Sec.3 corresponds with Sec.42 of
the earlier Act 1940.
The parties can choose the type of mode of service for servicing written communications. Unless
otherwise agreed by the parties, any written communication cannot be delivered or sent except in the
mode provided by sec. 3 outlined below;
(1) Unless otherwise agreed by the parties,- (a) any written communication is deemed to have been
received if it is delivered to the addressee personally or at his place of business, habitual residence or
mailing address, and
(b) if none of the places referred to in clause (a) can be found after making a reasonable inquiry, a
written communication is deemed to have been received if it is sent to the addressee's last known pl ace
of business, habitual residence or mailing address by registered letter or by any other means which
provides a record of the attempt to deliver it.
(2) The communication is deemed to have been received on the day it is so delivered.
(3) This section does not apply to written communications in respect of proceedings of any judicial
authority. In respect of proceedings before court, the High Court is empowered make rules under Sec.
82 of the Act.
Importantly the above provisions of Sec 3 of the Act are based on the article 3 of Model law, which is
in turn based on article 2.1 of UNCITRAL Arbitration Rules.
2.7: Waiver of right to object (Sec 4)
The principles of waiver and estoppels shall apply to proceedings as per provisions of Sec. 4 that
deals with waiver of right to object in the following terms;
A party who knows that-
(a)any provision of this Part from which the parties may derogate, or
(b)any requirement under the arbitration agreement, has not been complied with and yet proceeds with
the arbitration without stating his objection to such non-compliance without undue delay or, if a time
limit is provided for stating that objection, within that period of time,
shall be deemed to have waived his right to so object.
14
The above provisions imply that if a party ignores any non-compliance with arbitration agreement or
any requirement under the arbitration agreement and yet proceeds with the arbitration without raising
any objection on such non-compliance without undue delay (I,e at the earliest) or if time is given but
no objection is stated within the time limit if specified, it is deemed that the party has waived of his
right to raise any objection subsequently. Importantly for waiver to arise or to be deemed, it is
necessary that the party should be aware of non-compliance. The aforesaid provisions based on the
principles of acquiescence, estoppels and waiver, which have further discussed in detail with reference
to certain case decisions.
Acquiescence and estoppels
If the disputants I,e the parties to the reference either agree beforehand to the method of appointment or
afterwards acquiesce in the appointment made, with full knowledge of all the circumstances, they will
be disallowed or prevented from objecting to such appointment as invalidating subsequent proceedings.
This was held in Jupiter General Insurance Co ltd. V. Corporation of Calcutta, AIR, 1956 Cal
470.
In a particular case it was contended that the award was bad as it did not consider all the claims. But it
was not accepted by the court of law holding that it must be assumed that the arbitrator had considered
all the evidences adduced before him. There was no disregard of any principle of law. There was
nothing to indicate that the arbitrator had not considered all the evidence. Unless was a patent or
evident mistake of law or gross misstatement of facts resulting in miscarriage of justice or of equity,
the award remains unassailable. Madanlal v. Hukum Chand Mills Ltd AIR, 1967, 1030.
If the parties take part in arbitration proceedings before the arbitrator, they cannot later on challenge
the validity of the award on the ground that reference is invalid or the arbitrator has gone beyond
jurisdiction to enter on the reference as decided in the case, Tarlok Chand Butail vs. Union Coop
F&GI Society 1977(NOC) 332(HP)
If the party allows the arbitrator to proceed with the reference without objection to his jurisdiction or
competence, he will not subsequently be heard to say that the award be set aside on any ground as held
in New India Assurance Co Ltd vs. Dalmia Iron & Steel Ltd AIR 965 Cal.42
If all the parties appeared before the arbitrator, filed their claims, and took part in al proceedings, no
party can be allowed to challenge the award on the ground that the reference was not signed by some of
the interested parties or that the arbitrator had no jurisdiction to decide the dispute or deliver the
award... State of Orissa v. Bhagabat Prassad Bal (1972) I Cut WR 951.
2.8; Extent of judicial intervention (Sec.5)
Sec. 5 of the Act 996 that deals with extent of judicial intervention provides that 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. Thus the clause
`Notwithstanding anything contained in any other law' overrides the provisions of any other Act in
regard to judicial intervention in arbitration proceedings. The Act 1996 bars the jurisdiction of courts to
interfere in the arbitration proceedings except to the extent provided in part 1. This part provides for
intervention of courts in the following cases;
1. Section 8- Making reference in a pending suit.
2. Section 9- Passing interim orders.
3. Section 11- Appointment of Arbitrators.
4. Section 14(2)- Terminating mandate of arbitrator.
5. Section 27- Court assistance in taking evidence.
6. Section 34- Setting aside an award.
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7. Section 37- Entertaining appeals against certain orders.
8. Section 39(2)- Directing delivery of award.
The main objective of this provision in the 1996 Act is to minimize the supervisory role of the courts in
the arbitral proceedings.
In a case were a party sought a declaration that no dispute existed and therefore invocation of the
arbitration agreement should be restrained, the court held that intervention of the judicial authority was
not available for the purpose. There is nothing in section 14, 34 and 37 to help him. The remedies
under section 34 of the Specific Relief Act, 1963 was also not available because the parties had agreed
to the alternative procedure of settlement by arbitration...... United Insurance Co. Ltd V. Kumar
Textuarisers, AIR 1999 Bom.118. The court followed the case of State of Maharashtra v. Nava
Bharat Builders, 1994, Supp (3) SCC 83. The plea of lack of jurisdiction should not be raised before
the arbitrator. The court has no jurisdiction to intervene on that matter, S.S. Fasteners v. Satya pal
verma, AIR 2000 P&H 301.
Thus when arbitration proceedings has commenced, they cannot be stayed by an order of a civil court
in a civil suit. There is a total lack of jurisdiction on the part of the civil courts with regard to
arbitration matters as decided in SAIL v. Ramkrishna Kulwantari, AIR 1999, Cal 295.
The aforesaid legal provisions and legal decisions recognize the need to restrict and define the role of
the judicial intervention in arbitration proceedings encouraging speedy and economic resolutions of
disputes by arbitral tribunal in the cases where disputes are covered by an arbitration agreement.
2.9; Administrative assistance (Sec. 6);.-
Sec. 6 provides that in order to facilitate the conduct of the arbitral proceedings, the parties, or the
arbitral tribunal with the consent of the parties, may arrange for administrative assistance by a suitable
institution or person.
The above provisions enable the parties and the Arbitral Tribunal to obtain administrative assistance in
respect of acts for which one has necessarily to depend upon the persons of skill and experience or acts
for which functioning is usually delegated to others or for any other act with the consent of the parties.
It is not out of place to mention that institutions like Indian Council of Arbitration (ICA), International
Council for Commercial Arbitration (ICCA), International Council for Alternative Dispute Resolution
(ICADR) New Delhi, International Chamber of Commerce (ICC), American Arbitration Associations
(AAA), London Maritime Arbitration Association (LMAA) etc having branches at various places offer
administrative assistance. They also suggest panel of arbitrators appointed.
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Chapter 3: Arbitration agreement-- Meaning and
Salient Features
3. Arbitration agreement
The parties to a contract can go for arbitration process of ADR provided there is an arbitration
agreement or arbitration clause forming the part of contract. There cannot be arbitration when there is
no arbitration agreement. In V M Thomas V. Tata Projects Limited, Hyderbad[2001 (2) ALD 588]
arbitration application has been dismissed, where there did not exist any arbitration agreement or
arbitrary clause for taking recourse to a reference. So arbitration agreement is sin-qua-non for
arbitration process. Arbitration agreement is the foundation of every arbitration proceedings under
arbitration law and where there is no arbitration agreement there cannot be arbitration proceedings. So
arbitration is both contractual as well as statutory. It is contractual where it is based on arbitration
agreement between the parties and statutory where reference is compulsory under provision of some
law. Sec 2(4) of the Arbitration and Conciliation Act 1996 governs such compulsory reference and
statutory arbitration. However the majority of the arbitration proceedings arise from arbitration
agreement. So we must have proper understanding about the meaning and scope of arbitration
agreement before we discuss the arbitration proceedings. To provide clarity in this respect, the meaning
of the arbitration agreement has been discussed hereinafter as per statutory provisions based on
international and Indian law on arbitration and also as per legal decision in certain case studies.
3.1; Meaning of Arbitration as per Model Law
Art.7 of the Model Law defiles Arbitration Agreement as follows:-
Arbitration Agreement is an agreement by the parties to submit to arbitration all or certain dispute
which have arisen or which may arise between them in respect of a defined legal relationship whether
contractual or not, an arbitration agreement may in the form of an arbitration clause in a contract or in
the form of separate agreement. It also provides that the arbitration agreement shall be in writing. An
agreement is in writing if it is contained in a document signed by the parties or in an exchange of
letters, telex, telegrams, or other means of telecommunication which provide a record of the agreement
or in 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. The reference in a contract in a document containing the
arbitration clause constitutes an arbitration agreement provided that contract is in writing and the
reference is such as to make the clause part of the contract.
In Insurance, arbitration clause contained in the Insurance policy constitutes an Arbitration Agreement.
3.1.1; Meaning of Arbitration as per the Act, 1996
To understand Arbitration agreement and its features, we need to discuss three sections of the
Arbitration and Conciliation Act 1996- sec 7, Sec 8 & Sec 9. Section 7 provides the basic definition of
arbitration agreement, while Section 8 specifies the effect of court action in cases where an arbitration
agreement is already in existence and Section 9 empowers the court to order interim measure of
protection before or during arbitral proceedings.
Section 7 of the Arbitration and Conciliation Act 1996 provides that
(1) In this Part, arbitration agreement means an agreement by the parties to submit to arbitration
all or certain disputes which have arisen or which may arise between them in respect of a
defined legal relationship, whether contractual or not.
(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the
form of a separate agreement.
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(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is contained in-
(a) a document signed by the parties;
(b) an exchange of letters, telex, telegrams or other means of telecommunication which
provide a record of the agreement; or
(c) An exchange of statements of claim and defence in which the existence of the agreement is
alleged by one party and not denied by the other.
(5) The reference in a contract to a document containing an arbitration clause constitutes an
arbitration agreement if the contract is in writing and the reference is such as to make that
arbitration clause part of the contract.
(6)
Points to be elucidated
Importantly Sec 2(a) of the Arbitration Act 1940 defined `arbitration agreement' as written agreement
to submit present or future differences to arbitration whether an arbitrator is named therein or not.
Insurance Policy schedule refers to policy terms and conditions which contains arbitration clause on the
basis of which, the insurer and the insured may refer their disputes to arbitration for settlement of
claim. Thus arbitration agreement is derived from insurance policy documents or the terms and
conditions attached to it.
The Arbitration and Conciliation Act 1996 is almost identical to Art.7 of the Model Law in respect of
meaning and scope of arbitration agreement. If we make a comparison between Art 7 and Sec 7 of the
Indian Act 1996, we will not find any material variation between the two.
`Arbitration' is defined in a well-known case of Collins vs. Collins in the following terms:
"An Arbitration is a reference to a decision of one or more persons either with or without an umpire of
a particular matter in the difference between the two parties." It has been also explained in the
aforesaid case law that "it is very true that in one sense it must be implied that although there is no
existing difference between the parties, still that a difference may arise between the parties...........the
distinction between the existing difference and the one which may arise, is a material
one..........undoubtedly as a general rule, the seller wants to get the highest price for his property, and
the purchaser wishes to give the lowest, and in that sense it may be said that an expected difference
between them is to be implied in every case but unless a difference has actually arisen, it does not
appear to me to be an arbitration. Undoubtedly if two persons enter into an agreement for the sale of
any particular property and try to settle the terms but cannot agree and after dispute and discussion
respecting the price, they say `we will refer this question of price to AB, he shall settle it' and
thereupon they agree that matter shall be referred to his arbitration, that would appear to me to be an
arbitration in proper sense of the term but if they agree to a price to be fixed by another that does not
appear to me to be an arbitrator............... valuation undoubtedly precludes differences in the proper
sense of the term, it prevents differences and does not settle any which have arisen, that is the
difference between appraisement and arbitration.", as cited by Per ROMILLY MR in Collinsvscollins,
(1858).
From the above legal decision given by in CollinsvsCollins we can understand the legal interpretation
or connotation of term arbitration.
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In Insurance the parties to the Insurance Contract (Insured and Insurer) may refer their dispute or
difference in regard to the quantum of claim to arbitration as per Arbitration Clause but they cannot
refer their dispute or difference in regard to premium rate or amount of sum insured to arbitration.
Arbitration agreement needs to be distinguished from agreement for decision by an engineer, valuer or
other expert. In many cases experts or professionals like Chartered Accountants, engineers, architect,
etc are appointed as arbitrators in case of dispute between the insured and insurer, but if the disputes is
related with the quantum of claim there may be an case in reference to arbitration otherwise it will be a
case of use of professional services of the above noted experts for determination of sum insured for
premium rate or amount or deciding the terms and conditions of the insurance contract. Such references
will not be considered as reference to arbitration. So when in case of accidental damage assessment of
loss and damages in refer to insurance surveyor being deputed as per insurance law and regulations that
will not be considered as reference to arbitration. Precisely the position of the valuers, surveyors,
experts are altogether different from the position of the arbitrator to whom the differences and disputes
in regard to claims are referred by the insured and the insurer.
The Law of Arbitration only supports implementation of an Arbitration Agreement and it remains a
private adjudication by a person or forum or Arbitral Tribunal consensually chosen by the parties and
made on a consensual reference, it is not adjudication by a statutory body.
Where a clause in an agreement provided that the decision of the chief Engineer on specifications,
drawings instructions, etc, would be final, it was held that the chief Engineer was not thereby
authorized to decide any difference or dispute arising out of the contract and the clause did not
constitute an arbitration agreement.
Attributes of Arbitration Agreement:
An arbitration agreement are subject to following attributes as laid down in the case of K.K.Modi vs.
K.M.Modi [1998] [1 ARB LR 296]
1. The parties arbitration agreement must contemplate that the decision of the arbitral tribunal will be
binding on the parties to the agreement,
2. The tribunal shall derive its jurisdiction either from the consent of the parties, or from an order of
the court or from a statute, the terms of which must make it clear that the process is to be
arbitration.
3. The arbitral tribunal will be constituted by agreement,
4. The decision of the Tribunal would be enforceable at law.
5. The Arbitration agreement contemplates that substantive rights of parties will be determined by the
arbitral tribunal agreed by parties and the decision of the tribunal will be binding on the parties to it
and if the subject matter is capable of assignment, the assignee is also equally bound.
6. The Arbitration agreement contemplates that the tribunal will make a decision upon a dispute
which already formulated at the time when a reference is made to the tribunal
7. The tribunal determines the rights of the parties in an impartial and judicial manner owing an equal
obligation of fairness towards both sides. The agreement of the parties to refer their disputes to the
decision of the arbitral tribunal is intended to be enforceable in law.
Certain important considerations on legal aspects of Arbitration agreement:
Arbitration agreement is subject to Indian Stamp Act but its registration is not mandatory
When the contract is terminated by either party as per terms therein, the performance thereinmay end
but the arbitration clause survives as decided in Indian Drugs and Pharma Ltd. vs. Synthetic Gen.
Mfg. Co [AIR 1996 SC 543].
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The arbitration agreement must be certain, definite, but not vague and uncertain. It should be capable
of being ascertained. It must be certain relating to the dispute, parties and identity of the arbitral
tribunal and its composition.
An arbitration agreement, forming part of a void contract, is itself void and cannot be enforced.
All aspects and attributes mentioned in foregoing paragraphs will be applicable to insurance arbitration
agreement contained in the insurance policy.
Arbitration Clause contained in main contract;
Whether a clause in contract amounts to an arbitration agreement depends upon its scope. In
Rukmanibai Gupta v. Collector, Jodhpur (1980), a mining lease granted by the State carried a clause
that disputes, if any, shall be decided by the lessor ( in this case the Governor in whose name the lease
was executed) and his decision shall be final. The supreme court held that this amounted to an
arbitration agreement and observed that " ... Arbitration agreement is not required to be in any
particular form. What is required to be ascertained is whether the partes have agreed that if disputes
arise, they would be referred to arbitration, then such arrangement would spell out an arbitration
agreement..."
In this case the court cited the following passage from `Russel on Arbitration'
"... If it appears from the terms of the agreement by which a matter is submitted to a person's decision
that the intention of the parties was that he should hold an inquiry in the nature of judicial inquiry and
hear the respective cases of the parties and decide upon the evidence laid before him, then the case is
one of an arbitration.."
Subsequentlyin MD, Orissa State Cashewnut Development Corpn Ltd v Ramesh Chandra Swain
(1992), keeping in view of the above noted Supreme Court decision, it was held that where the clause
was of the same kind, there is no requirement that the word "arbitrator" should be mentioned.
Arbitration Clause contained in Insurance contract (insurance policy)
Arbitration clause in insurance policy is accordingly accepted arbitration agreement which has been
discussed in chapter 1 (ref para 1.5)
The contract containing the arbitration clause must be a concluded contract so that it can be an
enforceable binding agreement. The arbitration agreement does not exclude the right of the parties to
have recourse to legal action. It is covered by section 28 [1]. The parties are only required to have their
disputes adjudicated by having the same referred to arbitration. It is not an agreement in restraint of
legal proceedings. (Atlas Export vs. Kotak and Co. 1999-7 SCC 61)
So the aggrieved party to the insurance contract (insurance policy) may bring legal action against the
other party for non-compliance of terms of insurance policy especially in regard to settlement of
insurance claim
It is to be noted that an Arbitration agreement is not be confused with a reference to a valuer or loss
assessor. Arbitration clause in contracts ought to be regarded as a thing different from the main
conditions of an insurance contract (policy). An accord and approval of insurer for settlement of claim
deal with the obligations arising from the main contract and does not affect an arbitration clause. In
case any dispute or difference of opinion between the insurer and the insured in regard to quantum of
claim may be referred to arbitration as per arbitration clause as discussed in chapter 1.
Reference of time-barred insurance claim-
20
An Arbitration agreement may sometimes gives rise to a reference of a time-barred claim, a policy of
insurance may requires the insured (a claimant) to refer the matter within the twelve months of the
insurance companies' disclaimer or repudiation of the claim. But in a particular case Ruby General
Insurance Company Ltd. vs.PeareLal Kumar, AIR, 195, pun, 440, the assured refer the dispute
after twelve months and yet the reference was held to be binding. Here under an Insurance policy the
difference arising out of that policy was to be referred to arbitration within twelve months of the
disclaimer of the claim by the company. The claim under the certain policy having been rejected by the
insurance company, policy holder refer the dispute to arbitration beyond twelve months after the
disclaimer by the company, it was held that the question of disclaimer at the rights of the parties were
themselves questioned arising out of the policy as such covered by the arbitration clause, but where
there is no specific reference of a time-barred claim, the arbitrator can reject a claim on the ground that
it is time-barred.Whether the claim is time-barred, it is for the arbitrator to decide.
2.7; Arbitration Agreement Covering the Subject Matter of Suit (As 63)
2.9; Where the Court may stay the Proceedings; (As 69)
3.2; Mandatory Reference to Arbitration by Court (sec. 8)
Section 8 of the Arbitration Act deals with the mandatory reference of dispute by court to arbitration
where there is an arbitration agreement. This section provides that judicial authority or court has
power to refer parties to arbitration where there is an arbitration agreement. Section 8 says that;
(1) A judicial authority before which an action is brought in a matter which is the subject of an
arbitration agreement shall, if a party so applies not later than when submitting his first
statement on the substance of the dispute, refer the parties to arbitration.
(2) The application referred to in sub-section (1) shall not be entertained unless it is accompanied
by the original arbitration agreement or a duly certified copy thereof.
(3) Notwithstanding that an application has been made under sub-section (1) and that the issue is
pending before the judicial authority, arbitration may be commenced or continued and an
arbitral award made.
Special Points to be elucidated
In case an application is filed before a judicial authority or court for a dispute between the parties who
have agreed for arbitration, the judicial authority may refer the case back to arbitration, When the
application has been made and the issue is pending before the court/ judicial authority, it is the
obligatory for all judicial authority to refer the matter back to the arbitrators when there is a clause of
reference to arbitration in any agreement between the parties whether arbitration is commenced,
continued or an arbitral award may be made.
If a party approaches court despite the arbitration agreement, the other party can raise objection.
However such objection must be raised before submitting his first statement on the substance of the
dispute. Such objection must be accompanied by the original agreement or its certified copy. On such
application the judicial authority shall refer the parties to the arbitration. Since the word used is `shall',
it is mandatory for the judicial authority to refer the matter to arbitration
21
However, once first statement to court is already made by the opposite party, the matter has to continue
in the court. Once an application is made by other party for referring the matter to arbitration, the
arbitrator can continue its arbitration and even make an arbitral award.
The provisions of sec. 8 are intended to help the parties to settle the parties to settle their differences
privately by conciliation or by arbitration and thereby to spare themselves of wasteful and vexatious
litigation. However, the matter covered by an arbitration agreement could be litigated upon. Currently
it is observed that despite the fact every insurance policy contains arbitration clause, in very few cases
disputes are referred to arbitration though arbitration is less-expensive and less time-consuming
alternative to litigation. It is self-defeating due to several reasons such as lack of awareness of the
insuring public, lack of faith in arbitration process, absence of structured process and so on.
One of the major reasons is also that there is no proper publication in regard to insurance arbitration
covering legal and technical aspects. This publication will be a good guide for insurance arbitration
proceedings.
It is therefore necessary
In AfconsInfrastucture Ltd &Anr v M/S CherianVarkey Construction Co (p) Ltd. Kochi, 2007,
the Kerala High court held that d `Depending on the nature of the case, the facts, the contentions, and
possible resolution, it is open to Court that even if the parties do not agree, they can be referred to one
or other methods of dispute resolution.
In P AnnandGajapatiRaju P. V. G Raj (2000) 4 SCC 539, the Supreme Court held that there was no
bar to refer to refer the parties to arbitration if application is moved after the submission of the first
statement, if the other party who instituted the suit does not object to the reference.
In Ford Credit Kotak Mahindra Ltd vs M Swaminathan (2005) Madras; The parties entered into a
loan agreement, containing an arbitration clause, whereby the respondent availed of the loan. However,
the respondent defaulted in loan payment and the petitioner terminated the contract and recalled the
entire amount. The Respondent filed a suit and the petitioner, in the said suit, filed an application u/s 8
and 5. It was contended that arbitration clause had perished when the contract was terminated.
Dismissing the contention, it was held that the arbitration clause is distinct from the other clauses in the
contract. Total breach of the substantive stipulations, even when it is accepted by the other party, does
not abrogate the arbitration clause and even the party in default may invoke that clause.
As decided in the case Skypack vs. Tata Chemicals (2000) [5 SCC 294], the judicial authority and
the quasi-judicial authority have the different roles to play in this regard.A quasi judicial authority does
not have any obligation or authority to refer the matter (dispute) to arbitration.
The provision of sec.8 is to a great extent based on Article 8 of the Model Law, which reads as follows;
A court before which an action is brought in a matter of arbitration agreement, shall, if a party requests,
not later than when submitting his first statement on the substance of a dispute, refer the parties to
arbitration unless it finds that the agreement is null and void, inoperative or incapable being performed.
Original Agreement or Certified copy of Agreement (Insurance policy) to be filed:
As provided in Sec.8 (2), the application of any party to the court to refer other party to arbitration
cannot be entertained unless it is accompanied by the original arbitration agreement or a duly certified
copy thereof. Where neither the original arbitration nor its certified copy was filed, the application for
reference was held to be justified. The court said that rejection of the application on the ground that a
22
written statement was not filed would not have been proper as decided in India Lease Finance Ltd. V
Thimmakka (2003).
In United India Insurance Co Ltd. M D Pohochiya (2002), Guj, where the arbitration agreement
was supposed to be contained in an insurance policy, but the plaintiff did not file either the original
policy or its copy and the copy filed by the opposite party was not admissible in evidence, it was held
that the existence of the arbitration agreement was not proved. The order referring the parties to
arbitration was set aside. The requirement of filing the original agreement or its certified copy has been
considered by the Supreme Court to be mandatory.
Domestic vis-a-vis International arbitration
The provisions of Sec. 8 and sec.16 (discussed later on) regarding domestic arbitration may be
compared with Sec.45 and sec.54 of the Act. U/S 45 & 54, the court exercises supervisory jurisdiction
in relation to arbitration proceedings while U/S 8&16 of the Act, Arbitrator is entitled to determine his
own jurisdiction. The court was not called upon to decide the question whether under part II also the
arbitral tribunal can decide the question of his own jurisdiction.
3.3; Interim Measures etc. by Court (Sec.9)
Sec. 9 of the Act provides that a party may, before or during arbitral proceedings or at any time after
making the arbitral award but before it is enforced in accordance with Sec. 36 of the Act, apply to a
court:
(i) for the appointment of a guardian for a minor or person of unsound mind for the purposes of
arbitral proceedings; or
(ii) for an interim measure or protection in respect of any of the following matters, namely:-
(a) the preservation, interim custody or sale of any goods which are the subject-matter of the
arbitration agreement;
(b) securing the amount in dispute in the arbitration;
(c) the detention, preservation or inspection of any property or thing which is the subject-matter
of the dispute in arbitration, or as to which any question may arise therein and authorising
for any of the aforesaid purposes any person to enter upon any land or building in the
possession of any party or 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;
(d) interim injunction or the appointment of a receiver;
(e) such other interim measure of protection as may appear to the Court to be just and
convenient,and the Court shall have the same power for making orders as it has for the
purpose of, and in relation to, any proceedings before it.
POINTS TO BE NOTED
Section 9 permits application for interim measures as mentioned in clauses I & II therein. There cannot
be any application U/S 9 for stay of arbitral proceedings or to challenge the existence or validity of the
arbitration agreement or to determine the jurisdiction of arbitral tribunal. All such challenges will have
to be made before the Arbitral Tribunal under the provisions of the Act.
Section 9 & 17 of 1996 Act deal with interim measures of protection. Section 9 deals with interim
measures and protection by the court while Section 17 deals with interim measures by Arbitral
Tribunal.
23
Section 9 deals with the nature of Interim measures of protection that can be ordered by the court for
preserving the assets, protecting the position of the parties and maintaining the status quo and
procuring evidence. These interim measures ordered by Section 9 are not to be confused with the
interim measures ordered by Arbitral Tribunal U/S 17. The range of measures ordered under Section 9
is wider than ordered U/S 17.
Section 9 provides a relief in the nature of an interim measure of protection. The order of the court
should fall in the category of interim measures of protection as distinguished from permanent
protection. The purpose is to protect the rights of the parties which are under adjudication.
In a particular case where the allegation was that a shipping agent had failed to account for freight and
other charges collected from shippers, had also not submitted the accounts and the dispute was already
referred to an Arbitral Tribunal, and an application was made before the court for an interim order
directing the agent to deposit the amount under dispute in the court as security, the court did not
provide the relief because of disputed facts. The documents relied upon by the principal were disputed
by the agent before the Tribunal. The agent had also filed a counter-claim. In such circumstances, the
court said, it would not be appropriate to record a specific finding, even to the prima facie extent, with
regard to the amounts alleged to have been received by the agent. An interim order of protection was
not granted. The court, however, said that its power to pass interim orders under the section cannot be
restricted by importing provisions of Order 38 Rule 5 of the civil procedure code.
24
Chapter 4: Composition of Arbitral Tribunal
The Arbitral Tribunal is the creature of an arbitration agreement. It is open to the parties to confer upon
the Arbitral Tribunal such power and prescribe such procedure for it to observe, as they think
appropriate, so long as they are not opposed to law. The agreement or its all terms shall be in
conformity with law of arbitration. The Arbitral Tribunal shall also always act and make award in
accordance with the common or general law of the land and the agreement. Sec 28 of the Act
specifically provides that in arbitration other than an international commercial arbitration, the arbitral
tribunal shall decide the dispute submitted to arbitration in accordance with the substantive law for the
time being in force in India and in international commercial arbitration, the arbitral tribunal shall
decided the dispute in accordance with the rules of law designated by the parties as applicable to the
substance of the dispute and in all cases the arbitral tribunal shall decide in accordance with the terms
of the contract and shall take into account the usages of the trade applicable to the transaction.
The appointment of arbitrators made under section 11 of the Act, can be challenged on the grounds as
specified in Section 12 of the Act. For that purpose, Section 13 contains the procedure. According to
Section 12 of the Act when a person is approached in connection with his possible appointment as an
arbitrator, he shall disclose in writing any circumstances likely to give rise to justifiable doubts as to his
independence or impartiality. Some examples of such circumstances may be blood relationship or
pecuniary relationship with either party to the dispute. Moreover, an arbitrator, from the time of his
appointment and throughout the arbitral proceedings, shall without delay, disclose to the parties in
writing any circumstances referred to above unless they have already been informed of them by him.
An arbitrator may be challenged by a party only if (1) circumstances exist that give rise to justifiable
doubts as to his independence or impartiality, or (2) he does not possess the qualifications agreed to by
the parties. Sub- section 4 of section 12 makes it clear that a challenge is also permitted, if a party
becomes aware of these grounds after an appointment is made.
Sec.28 (2) provides that the arbitral tribunal shall decide ex aequoet bono or as amiable compositeur
only if the parties have expressly authorized it to do so. It means that the arbitral tribunal may decide
the dispute according to justice and fairness or what is good according to equity and conscience and not
necessarily according to technical legal requirements.
This chapter deals with legal provisions, legal decisions and necessary interpretation on the following
aspects of composition of arbitral tribunal:
1) Number of Arbitrators (Sec. 10)
2) Matters relating to Appointment of Arbitrators (sec.11)
3) Challenge to Arbitrators (Sec 12)
4) Procedure of Challenge (sec. 13)
5) Removal of Arbitrators (Sec.12 & Sec.13)
6) Failure or impossibility to act as an arbitrator (Sec. 14)
7) Termination of Mandate and substitution of arbitrator.(sec.15)
25
4.1. Number of arbitrators:
There is nothing in the Act to indicate the requirement of the number of arbitrators as a part of the
arbitration agreement. Thus, the validity of an arbitration agreement would not depend on the number
of arbitrators specified therein. The number of arbitrators is dealt with separately in sect.10 of the Act.
As per Sec.10, the parties are free to decide and determine the number of arbitrators, provided that such
number shall not be an even number. If they fail to determine the number of arbitrators, the arbitral
tribunal shall consist of a sole arbitrator.
Agreement for Even Number of Arbitrators-
As mentioned above, the number of arbitrators shall not be even. But an arbitration agreement is not to
be invalidated simply because it provides for appointment of an even number of arbitrators as decided
in MMTC Ltd. v. Sterlite Industries (India) Ltd. (1996) 8 Scale 305). In this case the clause in the
agreement providing for the appointment of two arbitrators was viewed as inconsistent with the
provisions of sec.10. The Court appointed third arbitrator with the consent of the parties. The above
decision was further supported by a Supreme Court ruling in Narayan Prasad Lohia v. Nikunj Kumar
Lohia (2002) 3 SCC 572: AIR 2002 Sc1139, and GroupeChimiqueTunisien SA v Southern
Petrochemicals Industries Corporation Ltd (2006) SCC 275; AIR 2006 SC2422(2006) 6 Mah LJ I,
agreement provided for two arbitrators and an umpire to be appointed only in case of the difference of
opinion. The Court said that three arbitrators were to be appointed, the presiding arbitrator to be
appointed by the two arbitrators.
In SAIL vs. Rana Construction (2003), appointment of two arbitrators by the court without providing
anything in the order for appointment of third arbitrator was held to be improper.
In Atul R. Shah v. V.VrijlalLallobhai& Co., AIR 1999 Bom 67, The Bombay High Court observed if
the tribunal is not properly constituted, the award would have to be quashed and set aside in terms of
section 34(2)(a)(ii), even if no objection was taken before the tribunal. In the said case the aritral
tribunal was constituted in accordance with the Rules framed by the Bombay Stock Exchange. There
was nothing wrong in this respect. The provisions of the Securities Contract (Regulation) Act, 1956 as
to the matter of arbitration under the Act would prevail upon section 10 of the 1996 Act. Accordingly
an award of an Arbitral Tribunal consisting of even number of arbitrators was held to be valid.
In Sri Venkateshwara Construction co. v. Union of India, AIR 2001 AP 284, agreement stipulated for
the appointment of two arbitrators where the court ordered the appointment of the sole arbitrator
because the tribunal in such case has to consist of only one arbitrator.
The Ruling of the Supreme Court given in Narayan Prasad Lohia v. Nikunj Kumar Lohia (2002) 3 SCC
572: AIR 2002 Sc1139,this regard is as follows:
"Undoubtedly, section 10 of the Arbitration and Conciliation Act, 1996 provides that the number of
Arbitrators shall not be an even number. However, if parties provide for appointment of only two
arbitrators, that does not mean that the agreement becomes invalid. Under section 11 (3), the two
arbitrators should then appoint a third arbitrator who shall act as the Presiding Arbitrator. Such an
appointment should preferably made at the beginning. However there is no reason why the two
arbitrators cannot appoint a third arbitrator at a later stage i,e., if and when they differ.
These would ensure that on the difference of the opinion arbitration proceedings are not frustrated.
But if two arbitrators agree and give common award there is no frustration of the proceedings. In such
a case there common opinion would have prevailed, even if the third arbitrator, presuming there was
one, had differed. Thus there would be no waste of money, time and expense if a party with a open
eyes agrees to go to arbitration of two persons and then participates in the proceedings. On the
contrary, there would be waste of money, time and energy if such a party is allowed to resile because
26
the award is not to its liking. Allowing such a party to resile would not be in the furtherance of any
public policy and would be most inequitable."
4.2;Matters relating to Appointment of Arbitrators (sec.11)
Sec 11 of the Act deals with appointment of arbitrator. As per terms of this section parties can agree to
any procedure for appointment of Arbitrators. But the following provisions have been made to ensure
prompt and proper appointment of arbitrators;
1) Parties are free to decide a procedure of appointment of arbitrator (s). So they may agree to any
procedure. Otherwise the following procedure shall apply;
i) Arbitrator could be of any nationality [sec 11(1)]
ii) In case of arbitration with three arbitrators, each party shall appoint its own arbitrator
and the two arbitrators shall appoint a third arbitrator, who shall be the presiding
arbitrator [Sec(3)]
iii) If within 30days, the parties fail to appoint their arbitrators or two appointed arbitrators
fail to agree on the third arbitrator, the arbitrator shall be appointed by the chief Justice
or any person or institution designated by him at the request of a party [Sec.11(4)]
iv) Similar procedure is also applicable for appointment of a sole arbitrator as per
agreement. If the parties fail to agree on the arbitrator within 30days from the receipt of
a request by one party from the other, the appointment shall be made upon the request of
a party, by the Chief Justice or any person or institution designated by him [Sec.11(5)]
2) Under Sec. 11(6) similar procedure also applies when the procedure agreed by the parties is not
acted upon. Where under an agreement procedure agreed upon by the parties i) a party fails to
act as required under the procedure or ii) the parties / two appointed arbitrators, fail to reach an
agreement expected of them under that procedure or iii) a person including institution fails to
perform any function, a party may request the Chief Justice or any person or institution
designated by him to take necessary measure unless the agreement on the appointed procedures
provides other means for securing appointment
3) A decision on the matter entrusted by the Act to the Chief Justice or the person or institution
designated by him in the cases mentioned above is final.[Sec.11(7)]
4) The Chief Justice or the person or institution designated by him in appointing arbitrator, shall
have due regard to a) any qualifications required of the arbitrator by the agreement of the
parties and b) other considerations as are likely to secure the appointment of an independent
and impartial arbitrator [Sec.11(8)]
5) In the case of appointment of sole or third arbitrator in an international commercial arbitration,
the Chief Justice of India or the person or institution designated by him may appoint an
arbitrator of a nationality other than the nationalities of the parties where the parties belong to
different nationalities. [Sec.11(9)]
6) The Chief Justice make any scheme, he considers appropriate, for appointment of arbitrators
under sub section (4), (5) & (6).
4.3; Methods of appointment of Arbitrators:
One of the following methods may be adopted for the appointment of the Arbitrator:
27
i) An arbitrator may be named in the Arbitration agrrement.
ii) He may be an person who would hold at the relevant time a certain office or appointment
(i.e., by designation).
iii) The parties may agree that reference for appointment of an arbitrator shall be made to a
person designed in the agreement.
iv) The parties may agree for the Institution of Arbitration under which arbitrators are
appointed by a permanent Institution.
In satyendra Kumar vs. Hind construction Ltd. (AIR 1952, BOM), the court held that
whether parties to dispute refer the matter to a person and such person holds a judicial
enquiry in deciding the dispute and comes to a judicial decision, such person is called
Arbitrator.
In ManoharLal vs. VineshAnand and others (AIR, 2001, SC 1820) it was held that the clear language
of section 195 (3) of the court of Criminal Procedure unmistakably depicts the restrictive intend of the
Legislature and if the intend was otherwise to include Arbitral Tribunal within its fold, there would
have been no difficulty in such an incorporating there under as provision as is contained in the Debit
Recovery Act, Income Tax Act, Motor vehicles Act, Consumer protection Act and Companies Act, etc,
which statutes have definitely included and declared as tribunal being ascribed to a court within the
meaning of the section 195 CRPC. Thus Arbitrator is a quasi judicial tribunal whose decision is
binding on the parties to the any dispute.
Appointment of Arbitrator According to Agreed Procedure; certain case studies-
Case Study no 1/4 : Ref Sec.11(5) of the Act 1996: ManoranjanMondal& Others V. Union of India
& Others: (AIR 1999 CAL 117 )
Leaving aside the original agreement, a new procedure for appointment of Arbitrator was agreed by the
parties. Here the respondent failed to appoint an Arbitrator according to new method also. The Calcutta
High Court held that the other party can very well approach the court for appointment of an Arbitrator
under section 11 (5) of the Arbitration and Conciliation Act, 1996.
Case Study no 2/4 : Ref Sec.11(6) of the Act 1996: M/s. S.B.P.& Co. v. Patel Engg. Ltd., AIR 2006
SC 450:
It was held by the Supreme Court that the power extended by the Chief Justice of the High Court or
Chief Justice of India under section 11(6) of the Act is not an administrative power but a judicial
power. The power under section 11(6) of the Act entirety, could be delegated by the Chief Justice of
the High Court only to another Judge of the Court or by the Chief Justice of India to the another Judge
of the Supreme Court. Designation of a district Judge as the authority under section 11(6) by the Chief
Justice of the High Court is not warranted as per the scheme of the Act.
When the procedure for appointment of arbitrators has been agreed between the parties concerned, the
court is only to implement the agreed procedure as decided in BSNL vs. Subhas Chandra Kanchan
(2006) 8 SCC 279. The court held that the letter appointing an arbitrator has to be communicated to
28
the party concerned. But no such communication was made within time in this case. The party having
the right to appoint the arbitrators lost it, the other party obtained the right to such appointment through
chief justice.
In another case- Bell houses Assn (P) Ltd. Vs. Southern Railway, Madras AIR (2001) ker 163. The
agreement for appointment of mutual concept where there is an agreement called appointment of
arbitrator by mutual consent, butwithout trying this method one of the parties approached the chief
justice. The application was not accepted by the court. In case of Madhya Pradesh High Court similar
decision was taken. The court said, "under section 11 (6), where the agreement lays down a procedure
for appointment of arbitrator referable to sub-section (2), the chief justice has merely to take necessary
measures for enforcing the procedure laid down in the agreement for arbitration. Under sub-section (6)
the chief justice or his designate has not to make any appointment but to enforce or compel the party to
make the appointment in accordance with the agreed procedure." Whereas in the cases of Andhra
Pradesh High court in Deepak Galvanising&Engg Industries (p) Ltd. Vs. Govt. of India, the Delhi High
Court in Continental Construction Ltd. Vs. National Hydroelectric Power Corpn Ltd., and the Bombay
High Court in R.P. Souza & Co. vs. PWD, a contrary decision was taken, there it was held that the
court has to appoint an independent arbitrator when the opposite party has failed to appoint the named
arbitrator.The failure of one of the parties to appoint arbitrator was the relinquishment or forfeiture of
the right. In another case K. Venkateshwaralu vs. State of Andhra Pradesh and Rail India Technical &
Economic Service Ltd. Vs. Ravi Constructions, it was held that where the agreement required for a
panel of arbitrators to be constituted by the parties but one of them refused to cooperate in this process,
their agreement seized to exist so far as the Panel aspect is concerned. In this case, according to an
agreement, employer had to send a panel of three names as arbitrators within thirty days from the
receipt of notice and the employer failed to do so, the contractor formed a panel
4.4;Challenging Arbitrator andGrounds for challenge(sec12)
1) Sec. 12 provides for grounds for challenge in appointment of arbitrator in the following terms.-
When a person is approached in connection with his possible appointment as an arbitrator, he shall
disclose in writing any circumstances likely to give rise to justifiable doubts as to his independence
or impartiality.
2) An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall,
without delay, disclose to the parties in writing any circumstances referred to in sub-section (1)
unless they have already been informed of them by him.
3) An arbitrator may be challenged only if-
(a) Circumstances exist that give rise to justifiable doubts as to his independence or impartiality,or
(b) he does not possess the qualifications agreed to by the parties.
4) A party may challenge an arbitrator appointed by him, or in whose appointment he has participated,
only for reasons of which he becomes aware after the appointment has been made.
Notes for special Consideration
U/S 12 of the Act an arbitrator may be challenged if i) Circumstances exist that give rise to justifiable
doubts as to his independence or impartiality of the arbitrator or ii) The arbitrator does not possess the
qualifications agreed to by the parties or iii) A party may challenge an arbitrator appointed by him, or
29
in whose appointment he has participated, only for reasons of which he becomes aware after
appointment has been made.
4.5; Challenge procedure (sec.13);
U/S13 of the Act, the parties shall adhere to following procedure to challenge arbitrator
1. A party who intends to challenge an arbitrator shall, within fifteen days after becoming aware
of the constitution of the arbitral tribunal or after becoming aware of any circumstances referred
to in sub-section (3) of section 12, send a written statement of the reasons for the challenge to
the arbitral tribunal.
2. Unless the arbitrator challenged under sub-section (2) withdraws from his office or the other
party agrees to the challenge, the arbitral tribunal shall decide on the challenge.
3. If a challenge under any procedure agreed upon by the parties or under above procedure is not
successful, the arbitral tribunal shall continue the arbitral proceedings and make an arbitral
award.
4. Where an arbitral award is made, the party challenging the arbitrator may make an application
for setting aside such an arbitral award in accordance with S.34.
5. Where an arbitral award is set aside on an application as mentioned, the court may decide as to
whether the arbitrator who is challenged is entitled to any fees
Points to be Noted;
Section 13 of the Act contains detailed provisions regarding challenge procedure. Sub-section (1)
provides that subject to provisions of sub-section (4), the parties are free to agree on a procedure for
challenging an arbitrator. Sub-section (4) states that if a challenge under any procedure agreed upon by
the parties or under the procedure under sub-section (2) is not successful, the arbitral tribunal shall
continue the arbitral proceedings and make an arbitral award. But at that stage, the challenging party
has the right to make an application in the court to set aside the award in accordance with section 34 of
the Act.
Sub- section (2) provides that failing any agreement referred to in sub-section (1) of Section 13, a party
who intends to challenge an arbitrator shall, within 15 days after becoming aware of the constitution of
the arbitral tribunal or after becoming aware of any circumstances referred to in Sub-section (3) of
Section 12, send a written statement of the reasons for the challenge to the arbitral tribunal. The
tribunal shall decide on the challenge unless the arbitrator challenged under sub-section (2) withdraws
from his office or the other party agrees to the challenge. It is also provided that where an award is set
aside on an application made under Sub-section (5) of Section 13 of the Act, the court may decide as to
whether the arbitrator who is challenged is entitled to any fees.
4.6; Failure or impossibility to act as Arbitrator (sec.14)
Sec.14 provides for failure or impossibility to act as arbitrator on the the following terms;
30
1) The mandate of an arbitrator shall terminate if---
a) he becomes de jure or de facto unable to perform his functions or for other reasons fails to act
without undue delay; and
b) he withdraws from his office or the parties agree to the termination of his mandate.
2) If a controversy remains concerning any of the grounds referred to in clause (a) of sub-section (1), a
party may, unless otherwise agreed by the parties, apply to the Court to decide on the termination of the
mandate.
3) If, under this section or sub-section (3) of section 13, an arbitrator withdraws from his office or a
party agrees to the termination of the mandate of an arbitrator, it shall not imply acceptance of the
validity of any ground referred to in this section or sub-section (3) of section 12.
Points to be Noted
Section 14(1) deals with grounds in which termination of the mandate of the arbitrator when it becomes
impossible for the arbitrator to
4.6; Termination of the Mandate (sec.15)
15.Termination of mandate and substitution of arbitrator.- (1) In addition to the circumstances referred
to in section 13 or section 14, the mandate of an arbitrator shall terminate----
(a) where he withdraws from office for any reason; or
(b) by or pursuant to agreement of the parties.
(2) Where the mandate of an artibrator terminates, a substitute arbitrator shall be appointed according
to the rules that were applicable to the appointment of the arbitrator being replaced.
(3) Unless otherwise agreed by the parties, where an arbitrator is replaced under sub-section (2) , any
hearings previously held may be repeated at the discretion of the arbitral tribunal.
(4) Unless otherwise agreed by the parties, an order or ruling of the arbitral tribunal made prior to the
replacement of an arbitrator under this section shall not b invalid solely because there has been a
change in the composition of the arbitral tribunal.
a. Themandate of an agreement shall terminate if the arbitrator
- becomes, de-jure or de-facto unable to perform his functions or for other reasons fails to act
without undue delay, or
- withdraws from his office or the parties agree to the termination of his mandate
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b. If a controversy remains concerning any of the grounds referred to above, one party may, unless
otherwise agreed by the parties, apply to the court to decide on the termination of the mandate
As per Section 14 (1), the mandate of an arbitrator shall come to an end, if he becomes unable de jure
or de facto to perform his functions, or fails to act due to some other reasons. Mandate also gets
terminated if he withdraws from his office or the parties agree to the termination of his mandate.
Further if there is any controversy about an arbitrator's inability to function or occurrence of undue
delay, a party may seek intervention of the court under Section 14(2). Withdrawal by arbitrator on his
own or by agreement between the parties does not constitute the acceptance of the grounds of
challenge. The procedure for challenge to the appointment of an arbitrator need not be a matter of
agreement by the parties. The procedure in Section 13 should apply in all cases.
In addition to the circumstances specified in Section 13 or 14, the mandate of an arbitrator shall
terminate- a) where he withdraws from office for any reason or b) by or pursuant to the agreement of
the parties.Where the mandate of an arbitrator terminates, a suitable arbitrator shall be appointed
according to the rules that were applicable to such appointment being replaced,
Termination of Mandate and next course of Action;
As discussed U/S 14 & 15 of Arbitration and Conciliation Act 1996 the mandate of the Arbitral
Tribunal can be terminated by any one of the parties on certain grounds or by mutual consent or
when the Arbitrator/s withdraw/s from his/their office.
But if the grounds on which any one of the parties can terminate the mandate do notexist or there is
no possibility of mutuality between the parties on termination of mandate, the parties have to wait
for the decision (award) of the arbitral tribunal to abide.
As per section 15 when any one of the Arbitrators retire/ withdraws for any reason his replacement is
required to be made in accordance with the procedure originally followed for appointment of the
Arbitrators.
Under Section 11 read with section 14 of the said Act when any of the parties fails to replace the
retired Arbitrator as per the original procedure the other party shall have to apply to court for
appointment of the said Arbitrator.
Let us now examine the following hypothetical case of arbitration for determining the next course of
action where the Arbitrator nominated by Insurance Company has stepped down for certain reasons.
In arbitration case an insurance claimant had appointed his Arbitrator and then the Insurance
Company appointed its Arbitrator and finally both the above Arbitrators appointed third Arbitrator.
When the tribunal could not arrive at any decision after series of sittings and proceedings, the
Arbitrator nominated by Insurance Company hasstepped down from the Tribunal U/S 15
(1(a))expressing his concern about the fate of the arbitration proceedings initiated by Shree
Vegetables Oil Mill Pvt. Ltd as the other two arbitrators were ignoring the suggestions for shortening
the procedure and overruling his request for adopting the procedures which is effective and would
32
expedite the proceeding, which shall be beneficial to the parties and for an early completion of the
disputes.In the circumstances above, the Arbitrator nominated by Insurance Company has stepped
down from the Tribunal U/S 15 (1(a)).
Now and if Insurance Company does not replace him with a new incumbent within thirty days of
notice, the claimant shall have to follow the steps and procedures laid down U/S 11 of the said Act of
1996 and apply to the court having jurisdiction for appointment of an Arbitrator.
In sucn an event the Insurance Company might contend before the Court to appoint a Sole Arbitrator
as per Court's choice (for minimization of costs and time etc.), which may result in removal of other
two arbitrators.
In my opinion the above procedure is the only option for Insurance Company to dissolve/terminate
the present Tribunal. This would not only financially benefit the Company but also the dispute could
be resolved within a specified period of time normally fixed by the Court while appointing the
Arbitrator/s.
Appendix 4.1; Model Form of Request to an Insurance Co. for appointment of a sole arbitrator U/S
11 of the Act 1996
ABC Mobile Phones & Services
55 XYZ Road, Kolkata 700001
Ref. Insurance Claim; Arbitration; 2013/1 Date 1st April 2013
To;
The Deputy General Manager
The New India Assurance Co Ltd
Kolkata Regional Office
4, Mangoe Lane Kolkata 700001
==============
Dear Sir,
Re: Arbitration Proceedings with reference to fire claim No.510500/11/07/11/90000010 under Policy
No.510500/11/07/00066625 for the damages due to accidental fire occurred on 06/09/2010
We wish to bring to your knowledge that our above mentioned fire claim in the month of Sept, 2010 for an
amount of Rs.110,00,000 on account of accidental damage to Hutch/Vodafone SIM cards and Recharge
Vouchers and damage to mobile handsets due to accidental fire occurred in my business premises on 06th Sept
2010 has not yet been settled for the dispute on the quantum of loss between you and us. In this regard you are
requested to take note of the following and agree with the appointment of the arbitrator as mentioned below:
1. We submitted our claim along with all requisite documents on 20.09.2010 for Rs. 110,00000 consisting
of Rs.60,00,000 for loss and damage of to SIM cards and Rs.50,000 for loss of damage to mobile sets.
2. The surveyor has assessed the loss for Rs.79,95,461 for accidental damage/loss to SIM cards/ Recharge
vouchers for Rs.46,65,715 and damage to mobile handsets for Rs.33,29,746.
33
3. We are given to understand that your divisional office unit 510500 has assessed and recommended the
loss for Rs.5986596 on non- standard basis after deduction of 25% of the loss assessed by the surveyor
and policy excess of Rs. 10,000, accordingly we were informed by the Divisional Manager in Nov, 2011
that the claim would be settled for Rs.5986595.
4. On our nest visit to Divisional Office we came to understand that the claim file have been forwarded by
the Divisional Office to the regional office for necessary approval of the competent authority.
5. After waiting for another one month, when we met Divisional Manager in the month of December, 2011
and thereafter with Regional manager, technical deptt. Of your Regional Office, we have been informed
that the competent authority has approved the claim for Rs.2487310.
6. On enquiry with the Regional Manager, technical deptt. of your regional office that they have approved
claim only for damage to the Nokia Handset on non0standard basis but rejected the claim for the loss or
damage to the SIM cards or Recharge Vouchers.
7. So we are not in a position to reconcile and analyze as to how you have approved the claim only for
Rs.2487310 while the actual damaged suffered by us amount to Rs.1.104crore which has been assessed
by the surveyor for Rs.7995461 and recommended by your divisional office for settlement of the claim
for Rs.5986596.
8. Thereafter we have sent our grievances for non-settlement of claims for 2 years. Finally you have given
us a reply on 17th july,2012 informing us that the referred claim has been approved for Rs.2487310.
9. But we have not accepted your settlement offer for Rs.2487310 while our actual loss is much more than
what you have offered. Pour banker, Union Bank of India with their repeated reminders has asked for
repayment of our bank loan of Rs. 1Crore immediately.
10. With our non-payment of bank loan, our burden of interest to our banker is increasing very fast, which is
the consequence of delay in settlement of our valid and valued claim.
11. As per the policy condition no. 13 of the referred policy, all disputes arising as to the quantum of the
loss to be paid may be referred to the decision of an arbitrator to be appointed in writing by the parties
(insured and insurer), within 30days of any party invoking arbitration.
12. We therefore hereby serve you notice to coincide with the appointment of Ex Regional Manager of your
company, as the sole Arbitrator for settlement of the disputes and difference that have arisen between
you and us in regard to the referred claim.
The said disputes to be decided by the sole arbitrator are inter-alia as under:
1. Whether the claim has been approved as per policy terms and conditions
2. Why and how your settlement offer has widely varied from the amount assessed and recommended
by the surveyor M/s. P.K.Chowdhury and Co. who has been deputed by you.
3. How your offer has again deviated and differentiated from the amount from your own Divisional
Office.
4. Why your decision will not be considered as arbitrary, unfounded and far below facts, figures and
reports examined by your surveyors and underwriting office.
34
5. Whether you will be liable for reimbursement of amount of bank interest on our bank loan of
Rs.1crore over and above the amount of claim actually assessed and recommended by the surveyor.
You are therefore, requested, to send your concurrence with the appointment of CA AsokeChakraborty, Ex
Regional Manager of your company as the sole Arbitrator for settlement of the disputes and difference under the
provisions of Sec.11 of the Arbitration and Conciliation Act, 1996.
Thanking you,
Yours Faithfully
For and on behalf of ABC Mobile Phones & Services
============================
35
Chapter 5; Jurisdiction of Arbitral Tribunal
An Arbitral Tribunal is decided with the consensus of the parties to the arbitration agreement and thus
the jurisdiction of arbitral tribunal is consensual. It is characteristically different from that of non-
consensual tribunals or court of law, which exercises their powers over the rights of the citizens in
exercise of their sovereign authority or an Act of legislature which creates them.
In Asiasoft (India) Pvt Ltd VsGlobesyn Technologies Ltd (2005), Delhi the plaintiff had filed a suit
for recovery for Rs 40 lakhs advanced to the defendant in pursuance to a verbal agreement regarding a
joint venture. The defendant sent a copy of the proposed joint venture, which being unacceptable by the
plaintiff, was not executed by the plaintiff and the agreement did not bear any signature on behalf of
the plaintiff.It was held that the said agreement could not be relied upon to refer the dispute to
arbitration as the facts of the case do not bring out any arbitration agreement between the parties.
Hence there will be arbitration agreement on the basis of which arbitral tribunal with appropriate
jurisdiction created with the consensus of the parties to the arbitration agreement or arbitration clause
in the whole contract.
Sec.16 and Sec.17 of the Arbitration and Conciliation Act 1996 deal with jurisdiction of arbitral tribunal.
5.1;Competence of arbitral tribunal to rule on its jurisdiction (sec.16)
Sec.16 provides that
(1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with
respect to the existence or validity of the arbitration agreement, and for that purpose,------
a) an arbitration clause which forms part of a contract shall be treated as an agreement
independent of the other terms of the contract; and
b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the
invalidity of the arbitration clause.
(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the
submission of the statement of defence; however, a party shall not be precluded from raising such a
plea merely because that he has appointed, or participated in the appointment of, an arbitrator.
(3) A plea that the arbitral tribunal is exceeding the scope of its authority shall he raised as soon as the
matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings.
(4) The arbitral tribunal may, in either of the cases referred to in sub-section (2) or sub-section (3),
admit a later plea if it considers the delay justified.
(5) The arbitral tribunal shall decide on a plea referred to in sub-section (2) or sub-section (3) and,
where the arbitral tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and
make an arbitral award.
(6) A party aggrieved by such an arbitral award may make an application for setting aside such an
arbitral award in accordance with section 34.
Points to be specially noted
The arbitral tribunal is empowered by the Act to rule its own jurisdiction including any objection in
relation to existence and validity of arbitration agreement. This section relates to competence of arbitral
tribunal to rule its jurisdiction including ruling on any objections as mentioned above.
36
The jurisdiction of an arbitral tribunal is an important consideration because it decides or determines
whether the parties to arbitration agreement are bound by the award or decision of the arbitral tribunal.
As mentioned earlier the jurisdiction of an arbitral tribunal is consensual and it is principally or legally
different from that of non-consensual tribunal or court of law which exercises their powers in exercise
of their sovereign authority or by an Act of legislature. The role of an arbitral tribunal is entirely
different and is created by the parties to arbitration agreement. Thus the jurisdiction of an arbitral
tribunal originates from the arbitration agreement and relevant dispute referred by the parties to them
An arbitral tribunal confines itself to the disputes referred by the parties
Sec 16 also contains inter-alia the pleas of non-jurisdiction or excess of authority. It also provides in
sub-section 2 that a plea can be raised not later than the submission of the statement of defence where
arbitral tribunal does not have jurisdiction. It is further provided that a part shall not be precluded from
raising such a plea merely because he has appointed or participated in appointment of an arbitrator.
Again Sec.16 (3) provides that a plea that the arbitral tribunal is exceeding the scope of its
authoritycould be raised by the party during the arbitral proceedings, if the matter alleged, are beyond
the scope of its authority.
Sec.16(4) gives discretionary authority to the arbitral tribunal to admit a later plea. It provides that the
tribunal may, in either of the situations mentioned in sec.16(2) and sec.16(3), admit a later plea, if it
considers the delay justified.
The arbitral tribunal shall decide on a plea referred to it under U/s 16(2) or 16(3) and shall continue
with the proceedings. And make an arbitral award.
Sec.16 has empowered Arbitral tribunal to decide such questions and proceed with the making of the
award though it is subject to setting aside under Sec.34 of the Act. Thus the decision of the arbitrators
as to their jurisdiction is not final as decided in Union of India v. G S Atwal& CO (1996) SCC 568
An objection that the Arbitral Tribunal is entertaining some matter beyond its jurisdiction can be raised
before the tribunal. Such an objection can be raised as soon as such matter is raised before the tribunal.
The tribunal has to also decide whether it has territorial jurisdiction. The Supreme Court, in Chairman
and MD, NTPC Ltd. V Reshmi Construction, Builders and Contractors (2004), observed that
though the jurisdiction of the arbitrator emanates from the agreement and reference under it, it is
common that in a given situation the arbitrator determine all questions of law and fact including the
construction of the contract.
Reinsurance contract provided that all disputes or differences arising out of this agreement were to be
settled through arbitration. The reinsurers raised allegations of non-disclosures, misrepresentation, and
illegality. The question was whether the arbitrator has jurisdiction to determine this question of initial
invalidity. The court held that the arbitration clause was wide enough to include such questions and
the arbitrator was not precluded from determining the issue of initial invalidity. It was decided in
Harbur Assurance Co UK, v Rasna General International Ins. Co. (1993)
5.2; Interim measures bytribunal (sec.17)
Sec.17 of the Act 1996 which deals with interim measures ordered by arbitral tribunal provides that
37
1. Unless otherwise agreed by the parties, the arbitral tribunal may, at the request of a party, order a
party to take any interim measure of protection as the arbitral tribunal may consider necessary in
respect of the subject matter of the dispute.
2. The arbitral tribunal may require a party to provide appropriate security in connection with a
measure ordered under sub-section (1).
Points to be noted
Sec. 9 provides for the court's taking interim measures in certain matters while sec.17 provides for
taking of interim measures in in respect of the subject matter of the dispute by the arbitral tribunal. But
the scope of interim measures which the court can order under sec.9 is much wider than those ordered
by the tribunal under sec.17. The Court can go beyond the subject matter of the dispute, while the
tribunal cannot go beyond the subject matter of the dispute referred to it.
Sec.17 of the Act 1996 corresponds with Article 17 of the UNCITRAL Model Law. Sec.17(1) permits
interim measures by the tribunal for the protection of the subject matter of the dispute and Sec.17(2)
deals with appropriate security to be directed.
Importantly sec.17 (1) clearly indicates that the parties may by agreement exclude jurisdiction or the
exercise of such a power or by the arbitral tribunal. Pertinently the Arbitration Act 1940 did not give
the arbitral tribunal such power to take interim measures. It wastherefore, open to the parties to confer
such power on the arbitrators.
Sec.17 (2) empowers the tribunal to order the furnishing of adequate security by a party for carrying
out an interim measures ordered by the tribunal.
In this regard reference can be made to Sec. 38 of the English Act1996, which provides for the interim
measures ordered by the arbitral tribunal. But the provisions in Sec. 38 of the English Act1996 are
much more elaborate than that of sec.17 of the Indian Act 1996. The provisions in Sec. 38 of the
English Act1996 are outlined below for general information and guidance in this regard. Sec. 38 of the
English Act confers the following powers on the arbitral tribunal;
i. To direct security for costs
ii. Issue direction with regard to subject matter of the dispute in possession or under ownership of
the parties
iii. Inspection, photographing preservation, custody or detention of property by the tribunal or by
the expert or by the party
iv. Ordering samples to be taken or observations made of or experiment conducted on the property
v. Direct party or witness to be examined on oath or affirmation and administer the same
vi. Issue directives to a party for preservation for purposes of any evidence in his custody or
control.
Interim measures regarding the dispute may be taken at the request of a party unless otherwise agreed
by the parties. In Larsen and Toubro Ltd v. Maharashtra State Electricity Board &ors, it was decided
that since the warranty period had expired, the bank guarantees could not be encashed.
Sec. 17 of the Act is principally different from sec.31 (6) which empowers the arbitrator at any time
during the arbitration proceedings to make an interim arbitral award on any matter with respect to
which the arbitrator may make a final award.
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Chapter 6: Arbitral proceedings--Compliance, Conduct
and Procedure
Arbitral proceedings shall follow not only the statutory law of arbitration applicable in India, but also
the common law.Sections 18 to 27 of the Act 1996 cover all the Arbitral proceedingsfrom the
commencement of arbitral proceedings upto the point of making award. Making of award and
terminations of proceedings being the concluding part of Arbitral proceedings are discussed in the next
chapter.
6.1; Equal treatment of parties (sec.18): The parties shall be treated with equality and each party
shall be given a full opportunity to present the case (S.18). It provides for fair resolution of disputes by
impartial tribunal. While conducting arbitral proceedings, the arbitrator is required treat the parties
equally andeach party shall be given a full and equal opportunity to present his case. The above
provisions imply signifies the essence of independence of arbitrator to his judicial role. The failure of
an arbitrator to give to a party, a proper opportunity to get matters right has been held to be a serious
error in law. Where the arbitrators received fresh evidence after the conclusions of the hearing and also
acted upon it without giving the parties the opportunity to be heard upon it, the proceedings amounted
to be a procedural lapse or mishap entitling the party to seek setting aside and remission. Godrej
Properties & Investment Ltd. v Tripura Construction Ltd. (2003)
6.2: Determination of rules of procedure (Sec.19)
In regard to Determination of rules of procedure Sec 19 of the Act provides that,
1) The Arbitral tribunal shall not be bound by the Code of Civil Procedure, 1908 or the Indian
Evidence Act, 1872
2) The parties are free to agree on the procedure to be followed by the arbitral tribunal in
conducting the proceedings
3) Failing any agreement as mentioned above, the arbitral may conduct the proceedings in the
manner it considers appropriate.
4) The arbitral tribunal will decide, under the above circumstances, the admissibility, relevance,
materiality and weight of any evidence
Sec 19 lays down that the Arbitral tribunal is not bound by the Code of Civil Procedure, 1908 or the
Indian Evidence Act, 1872. It provides for arbitral autonomy which is one of the special features of the
1996 Act. This specific exemption of the arbitral tribunal from the Code of Civil Procedure, 1908 or
the Indian Evidence Act, 1872 is likely to ensure speedy disposal of disputes as indicated in R Mac
Dill & Co (p) Ltd Vs. GourishankarSarda (1991) where the Supreme Court observed that the
provisions of Code of Civil Procedure must not applied in the arbitration proceedings where the
procedure is likely to hinder speedy disposal but there can be no hesitation to invoke them whenever
they can be an aid to speedy justice. Thus Arbitral tribunal has full flexibility in respect of procedure,
place and language. Arbitral tribunal has full powers to decide the procedure to be followed, unless
parties agree on the specific procedure to be followed. The Arbitral tribunal also has powers to
determine the admissibility, relevance, materiality and weight of any evidence. In Bharat Tewari vs.
Union of India (2011; Delhi High Court)it was observed that "... in view of proceeding conducted by
the Arbitrator, none of the parties were considering to lead any evidence and have concluded their
39
points in the form of reply,/ rejoinder. Thus there being no other procedure agreed to between the
parties, no benefit can be taken by the appellant.."
But in GAIL (India) Ltd vs. BELL Ceramics Pvt. Ltd, in 2010 Delhi High Court observed that in
the present case, the Award is wholly volatile of the provisions of Sections 70 & 73 of the India
Contract Act 1872 because it ignores the admitted breach. The award is wholly perverse, shocks the
judicial conscience because the arbitrator has ignored the evidence in the form of the admitted
Supplementary agreement showing a slab for payment from 21000 to 28000 CUM per day at
Rs203837 per month. The present is therefore a fit case for interfering and setting aside.
An arbitrator may order for filling of pleadings or for discovery or inspection of documents. Under the
previous Act 1940, the arbitrator could call upon a party to provide security for costs unless such power
was granted to him by the parties. But now by virtue of provisions of Sec.38 of the new Act 1996, the
Arbitral Tribunal can call upon the parties to deposit a sum of money for covering costs of discovery or
inspection of documents.
6.3: Place of arbitration;
Sec 20 of the Act provides that;
(1) The parties are free to agree on the place of arbitration
(2) Failing any agreement referred to in sub-section (1), the place of arbitration shall be
determined by the arbitral tribunal having regard to the circumstances of the case, including
the convenience of the parties.
(3) Notwithstanding sub-section (1) or sub-section (2), the arbitral tribunal may, unless otherwise
agreed by the parties, meet at any place it considers appropriate for consultation among its
members, for hearing witnesses, experts or the parties, or for inspection of documents, goods
or other property.
Thus the parties are free to agree upon the place of arbitration. However if they are unable to do so, the
power lies with the tribunal and the place of arbitration will be decided by the tribunal after taking into
consideration all circumstances or factors concerned. The following are some of the important factors
which are to be considered by the tribunal as cited by Anthony Watson Russell on the law of
arbitration (Stevens& Sons Ltd 1963);
i) Residence of the witnesses
ii) Situation of the subject matter of the dispute
iii) Hearing of witnesses and experts
iv) Balance of convenience
This can be done only if the parties don not agree otherwise. In Shin Satellite Co Ltd. v Jain
Solutions Ltd (2006) SCC 628 AIR 2006, SC 963 one of the parties to the arbitration submitted that
the matter should be referred to arbitration either in London or in Singapore when other arbitrations
were already in progress between the same very parties. But the court held that because the arbitration
agreement provided `Delhi' as the venue, and that part of the agreement being enforceable, the prayer
for reference at a place outside Delhi could not be granted.
Importantly though arbitrator is not bound by technical rule rules of procedure, but he cannot ignore
rules of natural justice. The requirement of equal opportunity for hearing and production of evidences
are implied and inherent part of all adjudicatory process. Non-compliance with this implicit principle
of natural justice may render the award invalid as decided byMallikarjun v Gulbarga University
(2004 SCC 372)
6.4.Commencement of arbitral proceedings.S.21
40
Sec.21 provides that unless otherwise agreed by the parties, the arbitral proceedings in respect of a
particular dispute commence on the date on which a request for reference of dispute to arbitration is
received. The determination of the date of commencement of arbitration is sometimes required for the
purpose of limitation. Importantly the above Sec 21 of the Act 1996 is absolute reproduction of Article
21 of UNCITRAL Model law and has similarity provision of Sec. 37 of the Previous Act 1940
In this regard Sec. 37 of the Previous Act which is outlined below deserves a mention as a matter of
better clarity of this provision with reference to the previous Act 1940 and the current Act 1996. "For
the purpose of this section I,e Sec 37(3) and the Indian Limitation Act 1963, an arbitration shall be
deemed to be commenced when one party to the arbitration agreement serves on the other party thereto
a notice requiring the appointment of an arbitrator or where the arbitration agreement provides that the
reference shall be to a person named or designated in the agreement requiring that the difference be
submitted to the person so named or designated"
However as per Sec 21 of the Act 1996, the date of service of notice to appoint an arbitrator will not be
the date of commencement of the proceedings.
6.5.Language (Sec.22)
Sec.22 provides that
1) The parties are free to agree upon the language or languages to is used in the arbitral proceedings.
2) Failing any agreement referred to in sub-section (1), the arbitral tribunal shall determine the
language or languages to be used in the arbitral proceedings.
3) The agreement or determination, unless otherwise specified, shall apply to any written statement by
a party, any hearing and any arbitral award, decision or other communication by the arbitral
tribunal.
4) The arbitral tribunal may order that any documentary evidence shall be accompanied by a
translation into the languages agreed upon by the parties or determined by the arbitral tribunal.
Thus it is open to the parties to agree upon the language(s) to be used in the arbitral proceedings. If
there is no such agreement between the parties, the arbitral tribunal shall determine the language(s) to
be used. The agreement of the parties or the determination of the arbitral tribunal to use particular
language(s) shall apply to i) any written statement including a claim and a defense by a party, ii) any
hearing and iii) any arbitral award , decision or other communication by the arbitral tribunal
6.6. Arbitration Procedure
Sections 23 to 27 deal with the process and procedure to be followed in arbitration proceedings in
respect of the following matters or issues;
Sec. 23 governs statements of claim, points at issue and defence
Sec. 24 regulates hearings and written proceedings
Sec 25 prescribes the role/responsibilities of the Arbitral Tribunal in case of default of a party
Sec.26 rules on utilization of service of expert
Sec.27 provides for court assistance in taking evidence
6.6.1. Statements of claim and defence (sec.23):
Sec.23 of the Act specifying the rules to be followed for submissions of statements of claim and
defence provides that;
41
(1) Within the period of time agreed upon by the parties or determined by the arbitral tribunal, the
claimant shall state the facts supporting his claim, the points at issue and the relief or remedy
sought, and the respondent shall state his defence in respect of these particulars, unless the parties
have otherwise agreed as to the required elements of those statements.
(2) The parties may submit with their statements all documents they consider to be relevant or may add
a reference to the documents or other evidence they will submit.
(3) Unless otherwise agreed by the parties, either party may amend or supplement his claim or defence
during the course of the arbitral proceedings, unless the arbitral tribunal considers it inappropriate
to allow the amendment or supplement having regard to the delay in making it.
(4) After appointment of the arbitrator and with the commencement of arbitration proceedings usually
exchange their pleadings, claims counter-claims, rejoinders, documents etc. according to the
direction of the arbitrators. In simple cases written statements of the parties may be sufficient while
in complicated cases the parties may take the help of legal counsel for the preparation of the
pleadings. The current Act 1996 makes detailed provisions as to statement of claims and defenses.
Accordingly within the period of time agreed upon by the parties or determined by the arbitral
tribunal, the claimant shall state the facts supporting his claim, the points at issue and the relief or
remedy sought, and the respondent shall state his defence in respect of these particulars, unless the
parties have otherwise agreed as to the required elements thereof. The parties may submit with their
statements all documents they consider relevant or may add a reference to the documents or other
evidence they will submit.Unless otherwise agreed by the parties, either party may amend or
supplement his claim or defence during the course of the arbitral proceedings, unless the arbitral
tribunal considers it inappropriate to allow the amendment or supplement having regard to the
delay in making it. Certain important aspects like counter-claim, documentary evidence,
amendment of statements, filling of additional claims are briefly described here for ready reference;
i) Counter-claim
An arbitrator should receive a counter claim as a part of the pleadings of the parties and take into
account in deciding the dispute on its merits. He shall not refuse to take the counter-claim simply by
saying that it is outside the agreement or reference as decided in Punj Sons (P) Ltd v National
Aluminum Co Ltd, AIR 1999 SC 547
Appendix; 6.1: A statement of defence or a counter claim is given in the end of this chapter
ii) Documentary evidence
Apart from submission of statements of claim and defence, the parties may submit relevant documents,
data, reports etc. They may also add references to the documents and other evidences which would be
submitted subsequently.
iii) Amendment of statements
During the arbitral proceeding, the parties may amend or supplement their claims or defence unless a)
the parties have agreed otherwise, or b) the arbitral tribunal considers it in appropriate to allow any
amendment or supplement due to certain specific reason such as delay in making it.
42
iv) Filling of additional claims
Admissibility of additional claims in the arbitration proceedings depends on the merits of the case as
decided in the following court cases;
In H L Batra& Co V State of Haryana (1999) 9 SCC 188, the Supreme Court has decided that
additional claims filed before the new arbitrator, did not have the effect of enlarging the scope of
reference.
In State of Orissa v AsisRanjanMohanty (1999), 9 SCC 249, initially the claimant raised the claim
for a certain amount, but before the arbitrator he laid a claim for a higher amount. The tribunal refused
to consider the revised the claim. The arbitrator was substituted. Before the new arbitrator, the claim of
a still higher amount was filed.
6.7; Hearings & Proceedings (se.24)
Sec.24 provides for hearings and written proceedings in the following terms
(1) Unless otherwise agreed by the parties, the arbitral tribunal shall decide whether to hold oral
hearings for the presentation of evidence or for oral argument, or whether the proceedings shall
be conducted on the basis of documents and other materials; Provided that the arbitral tribunal
shall hold hearings, at an appropriate stage of the proceedings, on a request by a party, unless
the parties have agreed that no oral hearing shall be held.
(2) The parties shall be given sufficient advance notice of any hearing and of any meeting of the
arbitral tribunal for the purposes of inspection of documents, goods or other property.
(3) All statements, documents or other information supplied to, or applications made to, the arbitral
tribunal by one party shall be communicated to the other party, and any expert report or
evidentiary document on which the arbitral tribunal may rely in making its decision shall be
communicated to the parties.
The above provision deals with the issue whether the parties or the arbitral tribunal shall decide type of
proceedings- a) oral hearings for the presentation of evidence b) oral argument or c) on the basis of
documents and other materials. It also provides rules relating to the conduct of the proceedings in
respect of requirements of giving timely notice for hearing to the parties and communication by one
party to the other of all statements, documents or other information, expert report or evidentiary
document supplied or made to the arbitral tribunal by the parties for resolution of disputes under
reference.
This Sec.24 of the Act 1996, which is more or less reproduction of Article 24 of the Model Law with
some minor changes in sec. 24(1).
After submission of documents and defence, unless the parties agrees otherwise, the arbitral tribunal
can decide whether there will be oral hearing or proceedings can be conducted on the basis of
documents and other materials. But if one of the parties requests, the hearing shall be oral. Sufficient
advance notice of hearing should be given to both the parties. Every written proceedings submitted by
one party to the tribunal shall be communicated to the other party. It was also held in Rananuj v
Veena (1943) that nothing should be transpired from behind the back of the parties and each party
must be apprised by the other party's stand in the matter under arbitration so that full justice is done to
each of them.
6.7. Default of a party (sec.25):
Sec. 25 of the Act deals with the default of the party to claim or to respond or to appear for the hearings
in the following terms/ directions;
43
Unless otherwise agreed by the parties, where, without showing sufficient cause,----
a) the claimant fails to communicate his statement of claim in accordance with sub-section (1) of
section 23, the arbitral tribunal shall terminate the proceedings.
b) the respondent fails to communicate his statement of defence in accordance with sub-section (1)
of section 23, the arbitral tribunal shall continue the proceedings without treating that failure in
itself as an admission of the allegations by the claimant
c) a party fails to appear at an oral hearing or to produce documentary evidence, the arbitral
tribunal may continue the proceedings and make the arbitral award on the evidence before it
As per above provisions if the claimant fails to submit the statement of his claim in accordance
with the provisions of Sec 23(1), the arbitral tribunal shall terminate the proceedings. The reference
shall be dismissed. It is obvious and apparent if no claim is filed, there can be arbitration
proceedings.
6.7. Expert appointed by arbitral tribunal (sec.26):
Sec. 26 provides for Expert appointed by arbitral tribunal in the following terms;
(1)Unless otherwise agreed by the parties, the arbitral tribunal may---
(a) appoint one or more experts to report to it on specific issues to be determined by the arbitral
tribunal, and b) require a party to give the expert any relevant information or to produce, or to
provide access to, any relevant documents, goods or other property for his inspection.
(2) Unless otherwise agreed by the parties, if a party so requests or if the arbitral tribunal considers
it necessary, the expert shall, after delivery of his written or oral report, participate on an oral
hearing where the parties have the opportunity to put questions to him and to present expert
witnesses in order to testify on the points at issue.
(3) Unless otherwise agreed by the parties, the expert shall, on the request of a party, make
available to that party for examination all documents, goods or other property in the possession of
the expert with which he was provided in order to prepare his report.
As per the provisions of the Act, the arbitral tribunal may appoint and expert to seek opinion to
collect information and to produce a report supported by relevant informations and documents
unless otherwise agreed by the parties. But the expert should be an independent person without
having any association or relation with any of the parties.
Importantly the above provision of sec 26 are almost identical with Article 26 of the Model Law,
which recognizes the practice widely followed in Civil Law e.g. sec 45-51 of the Indian Evidence
Act 1872 that empowers the Court to appoint expert to seek opinion of persons specially skilled in
those subjects. But the expert cannot take any decision in settlement of dispute. Only the arbitral
tribunal will decide the disputes.
Unless otherwise agreed by the parties and expert can be asked to participate in the hearing after he
has submitted his report or expert opinion.
Court assistance in taking evidence (S27)
Sec 27 provides for
44
1) The arbitral tribunal, or a party with the approval of the arbitral tribunal, may apply to the
Court for assistance in taking evidence.
2) The application shall specify
(a) the names and addresses of the parties and the arbitrators
(b) the general nature of the claim and the relief sought;
(c) the evidence to be obtained, in particular,----(i) the name and address of any person to be
heard as witness or expert witness and a statement of the subject-matter of the testimony
required;(ii) the description of an document to be produced or property to be inspected
3) The Court may, within its competence and according to its rules on taking evidence, execute
the request by ordering that the evidence be provided directly to the arbitral tribunal.
4) The Court may, while making an order under sub-section (3), issue the same processes to
witnesses as it may issue in suits tried before it.
5) Persons failing to attend in accordance with such process, or making any other default, or
refusing to give their evidence, or guilty of any contempt to the arbitral tribunal during the
conduct of arbitral proceedings, shall be subject to the like disadvantages, penalties and
punishments by order of the Court on the representation of the arbitral tribunal as they
would incur for the like offences is suits tried before the Court.In this section the expression
Processes includes summonses and commissions for the examination of witnesses and
summonses to produce documents.
Points to be noted:
1) Seeking Court's assistancein taking evidence:
The arbitral tribunaldepends on the assistance of the local court in obtaining or taking evidence by
way of compelling appearance of witnesses, production of documents or access to property for
inspection as the arbitral tribunal lacks the coercive or compelling power of the sovereign courts to
enforce procedural action in respect to taking of evidence or calling of witnesses. In appreciation
of the requirement, the new Act 1996 makes above the provisions for seeking assistance of the
court in taking evidence. According to the provisions of the Act, the Tribunal by itself or any party
with the approval of the Tribunal,may apply to the court for assistance in taking evidence.
2) Contents of application:
Sec27(2) sets out the particulars that may be specified in the application to be made to the court
for assistance in taking evidence. Clause (c) specifies such particulars namely the name and
address of the persons to be heard as witnesses or of the expert witness and a statement of the
subject-matter of the testimony required giving the description of any document to be produced,
or of the property to be inspected.
3) Orders of the Court
The court may order that the evidence be provided directly to the arbitral tribunal. It may issue
the same processes as it issues in suits before it. Such processes may include;
45
i) Summons for examination of witnesses
ii) Commissions for the examinations of witnesses
iii) Summons for the production of documents
4) Disobedience of orders
If any persons under reference of orders, fail to attend as required, or make any other default or
refuse to give evidence, are guilty of contempt of the arbitral tribunal, shall be dealt with by the
Court on the representation of the Tribunal in the same way as a person who was guilty of like
offences in suits before courts.
5) Challenge to orders;
An order rejecting application for taking evidence of certain documents was held to be neither
an interim award nor a final award. It is taken to be passed in the course of continuing
proceedings. It can be challenged only at the time of challenging the final award. It is held by
courts that every order is not an arbitral award.
Closure of Hearings
Though the Act does not provide for any requirement for the arbitrator to give notice of closure of
hearings to the parties, but the judicial pronouncement and fair play require that the parties should
be informed of the closure of the proceedings so as to enable them to lead any additional evidence,
if they so desire.
Appendix.6.1: Model Form; Counter Statement of Fact on behalf of the Respondent .
In the matter of an arbitration;
Between
Supper Vegetable Oils Pvt. Ltd.
At 3 Broad Street, Kolkata-700061...... Claimant
And
The Sun India Insurance Co. Ltd,
A General Insurance Company
Within the meaning of the Companies Act 1956
Having registered office at 56 M G Road Mumbai, 400001
And also carrying on business at its Divisional Office No 512505
At P S Street Kolkata 7000001........... Respondent
Counter Statement of Fact on behalf of the Respondent above named.
The Respondent states:-
The statement contained in paragraph (1) of the Statement of Claim is not admitted. Claimant is put
to proof thereof.
46
1. Save what would appear from the records of the respondent statements contained in
paragraph (2) and (3) of the Statement of Claim are not admitted.
2. Statements contained in paragraph (5), (6), (7) and (8) of the Statement of Claim are not
admitted and the claimant is put to strict proof thereof.
3. The Surveyor appointed by the respondent made repeated visits to the claimant's factory for
surveying and assessing the alleged loss reported by the claimant. He had to make such visits
until the alleged loss could be finally assessed by him. Save as aforesaid the statements
contained in paragraph (9) and (10) of the Statement of Claim are not admitted.
4. The statements contained in paragraph (11) of the Statement of Claim are not admitted. The
claimant could not offer and /or furnish necessary materials and / or records and / or
explanations for assessing the alleged loss.
5. Regarding the allegation made in paragraph (12) of the Statement of Claim it is denied that the
Surveyor took unusually long time in submitting his report or he submitted his report almost a
year after his first visit to the factory as alleged. The Surveyor has pursued appropriate and
necessary courses and methods to assess the alleged loss in the given situation. Without
following the necessary procedures the Surveyor could not have assessed the alleged loss.
Hence the Surveyor has not taken unusual long time in the matter.
6. Regarding paragraph 13 of the Statement of Claim the respondent states that the claimant is
not entitled to the purported claim referred to in the said paragraph as the claimant could not
and did not suffer such purported quantum of loss.
7. Regarding paragraph 14 of the Statement of Claim the respondent states that since the
claimant failed to furnish or provide necessary materials and records in support of its
purported claim, it was given repeated opportunities to furnish such materials. Despite the
same the claimant failed to furnish appropriate and / or cogent and /or valid materials in
support of its purported claim. The respondent further states that the claimant also failed to
provide appropriate and / or necessary and / or satisfactory clarification in response to the
letter dated 10th September 2004 issued by the Surveyor. Save as aforesaid the statements
contained in the paragraph under reply are not admitted.
8. Regarding paragraphs (15), (16), and (17) of the Statement of Claim the respondent states that
after surveying, assessing and after considering the available materials and records, the
respondent settled the claim of the claimant in respect of the two policies in a total some of
Rs. 21,31,561.00 (Rupees Twenty- one lakh thirty- one thousand five hundred sixty- one only).
The respondent also offered detailed reason for settling the claim of the claimant in the
aforesaid sum. The claimant however refused to accept the settled amount towards its claim.
Save as above the statements contained in the paragraph under reply are not admitted.
9. The allegations contained in paragraph (18) of the Statement of Claim are vague, without
material basis and motivated. In any case the said allegations are argumentative in nature and
as such the respondent craves leave to deal with the same, if necessary, at the time of
hearing. It is however denied in particular that the Surveyor was not sure as to what should be
the correct assessment or therefore quite amusingly gives two sets of assessment as alleged.
47
The Surveyor has calculated the alleged loss as per material evidence, information and other
factual position provided by and/ or available with the claimant at and for a sum of Rs.
45,20,818.00 (Rupees forty-five lakh twenty thousand eight hundred eighteen only). The
Surveyor has also reported to the Insurance Company, about the material informations
obtained by him from the connected Weighment. Agency regarding unfaithful and wrongful
acts of the claimant, to produce false and pretended figure of stock of raw-materials for
making unjust enrichments. Based on the said material information, the Surveyor has made a
re-assessment of the quantum of actual loss sustained by the claimant. The Surveyor has
placed the two figures of assessed loss, one without taking notice of the information obtained
from the Weighment Agency and the other with taking notice of the aforesaid information
and left it to the Insurance Company for taking at a suitable decision regarding the settlement
of claim. After considering the report of the surveyor, the respondent has decided to settle the
claim of the claimant after taking into account of the material information received by the
Surveyor from the Weighment Agency. Save as the aforesaid allegations made in the
paragraph under reply are denied and disputed.
10. Regarding paragraph 19 of the Statement of Claim the respondent states that as per request
and representations of the claimant, the claim amount as settled by the respondent was duly
reviewed, but there was no scope to enhance the same. Save as aforesaid the statements
made in the paragraph under reply are not admitted.
11. Regarding paragraph 20 of the Statement of Claim the allegations contained therein are
denied and disputed. The Surveyor of the claim has submitted his report as to the assessment
of the alleged loss after giving due consideration of the available materials and evidences
together with the purported explanation and clarification offered by the claimant. After
considering the report the respondent has settled the claim for the sum at which it was found
to be just, appropriate and necessary in terms of the policies of insurance. The claimant is not
entitled any amount in excess of the sum settled by the respondent. Save as aforesaid the
statements made in the paragraph under reply are not admitted.
12. Save what are matters of record the statements contained in paragraph 21 and 22 of the
Statement of Claim are not admitted. Since the respondent has already settled the claim of
the claimant in a sum of Rs.21,28,547.00 the question of making any "On Account Payment
does not and cannot arise."
13. Regarding paragraph 23, 24 and 25 of the Claim as the outset it is denied and disputed that
Rs.99,10,537.00 is due and payable by the respondent on account of principal under the said
policies as alleged. It is further denied and disputed that it will be evident from the, inter alia,
the clarifications given by the claimant that total quantum of loss suffered by the claimant is
Rs. 99,10,537.00 as per particulars given in Annexure `H' as alleged. It is further denied and
disputed that the said amount or the basis of the claimant's claim are covered by the policies
of insurance or that the respondent is liable or should be directed to pay such alleged
quantum of loss to the claimant as alleged. There is no wrongful or illegal failure or negligence
to pay any amount to the claimant.
48
14. With further reference to paragraphs 23, 24 and 25 of Claim and the purported particulars as
purportedly provided in Annexure `H' thereto the respondent states and submits that the
claimant is not entitled the said claimed amount, inter alia, for the reasons as follows:
i) Under Policy no. 512800/11/03/00727 the factory shed, godown& office building, staff
room, boundary wall, plant & machinery, utilities productivity equiptment existing at the
factory of the claimant at Jalan Industrial Complex, Village Bantara, Post Office Domjur-
711411 at the time of occurrence of the perils defined in the said policy was insured against
the said perils.
ii) Under Policy no. 512800/11/03/00728 the stock of Vegetable Oil in tanks and Rice Bran
Oil, Palm Oil etc. Chemicals as Raw Materials existing in stock at the factory of the
claimant at Jalan Industrial Complex, Village Bantara, Post Office Domjur-711411 at the
time of occurrence of the perils defined in the said policy was insured against the said
perils.
iii) The purported particulars as purportedly provided in Annexure `H' of the Claim in respect
of alleged stock of raw materials, alleged stock of finished goods and alleged fixed assets,
allegedly destroyed by fire, does not established the quantum of stock (raw and finished)
and fixed asset actually existing at the aforesaid factory premises of the Claimant at the
material time of occurrence of the peril. The purported basis of the claim as purportedly
provided in the said Annexure `H' was not covered by the related policy.
iv) The purported details contained in the said purported Annexure `H' in respect of the alleged
value of repairing and /or replacement cost in respect of factory shed, civil constructions,
utilities equipments including the generator is much in excess of the actual value of those
properties/items at the time of occurrence of the peril. Hence the quantum claimed in excess
of the actual value of the insured items at the time of occurrence of the peril is not covered
by the related policy.
15. In any event regarding the purported claim of the claimant the respondent further states
submits that the claimant has failed to establish its entitlement to any amount by way of
compensation in excess of and/or beyond a sum of Rs.21,28,547.00 inter alia for the following
reasons:
i) After the alleged loss was reported the claimant's factory and/or place of occurrence of
the peril was physically inspected by the respondent and its surveyor. The books of
accounts and relevant records of the claimant were also considered. During the said
inspection the claimant furnished a diagram of the plant through which the claimant had
been producing the refined vegetable oil.
ii) Upon physical verification the diagram of the plant produced and submitted by the
claimant was found to be correct. It was also observed that that the claimant did not
have any separate tank for storage of raw material and/or crude oil, and as such the raw
49
materials were being unloaded from the tanker lorries directly to the production
plant/unit.
iii) Taking into account the above material factors, and particularly the capacity of the
bleacher units forming part of the production plant/unit (in which raw materials were
being directly unloaded), it was found that volume of stock purported to have been
recorded by the claimant in its purported records at the time of peril, was much inflated
and exaggerated. In other words in the given physical and/or factual situation it was not
actually possible for the claimant to keep in stock or store, the purported volume of
stock purportedly entered in the claimant's records, at the time of peril. Hence the
alleged volume of stock purported recorded in the claimant's records and as claimed by
the claimant could not have been actually destroyed or damaged by the peril.
iv) Further the claimant could not establish with valid material, the actual existence of stock
of crude palm oil of a volume of 25.225 Metric Tonnes in its production plant at the
time of occurrence of the peril. The claimant alleged that tanker lorries carrying the said
25.225 M. T. of crude palm oil were brought in the factory premises a few hours before
the peril and the same were received by it, but no valid material was furnished by the
claimant to support that the said volume of crude palm oil was actually unloaded and/or
put into the claimant's production unit/system, before the occurrence of the peril.
v) Further materials were available to show that a substantial volume of raw materials
though purportedly recorded to be in stock of the claimant were not actually delivered
and/or unloaded to the claimant's production unit/system.
vi) The sum claimed in respect of repair and/or replacement of the actual value of the
insured factory shed, civil constructions, utilities equipments including the generator
could not be sustained and/or established by the claimant as the price or cost, alleged to
have been spent by the claimant for the said purpose was much in excess of the
prevalent market price and costs.
vii) The claimant was given opportunity to explain and/or clarify the several discrepancies
and irregularities in its claim and the purported materials furnished by it in support
thereto. The purported clarifications and/or explanations furnished by the claimant did
not have any material value and even contradictory and inconsistent with the materials,
information and available records of the claimant. The claimant also purported to set up
a purported different diagram in respect of its production plant, contrary to the diagram
of the actual plant furnished originally by the claimant, with an obvious motive to
pretend and/or created a purported record to show that the storage capacity of its plant
was more than actually possible. The respondent states that any change effected by the
claimant in respect of the production unit/system after occurrence of the peril shall not
and cannot alter the storage capacity of the claimant at the time of occurrence of the
peril.
50
viii) Hence the claimant could not establish the purported quantum of claim towards alleged
loss alleged to have been suffered by it. The respondent craves leave to annex copy of
the Report of the Surveyor in respect of assessment of the loss in the present case as
Annexure `A' hereto.
16. Regarding paragraph26 of the Statement of Claim the respondent denies that the claimant is
entitled to a sum of Rs.99,10,537.00 as Principal Sum or any interest on the said sum at the rate
of 18% per cent per annum or at any other rate. The rest of the allegations in the said paragraph
are denied.
17. The allegation and/or contentions as contained paragraph 27, 28 and 29 of the Statement of
Claim are disputed.
18. The respondent reserves its righto add and /or amend the present Counter Statement, if
necessary in future.
19. The claimant is not entitled to the Award or any other relief as claimed by it. The present claim
should be rejected with costs.
VERIFICATION
------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------I,
Sri
GautamSarkar, Senior Divisional Manager and one of the Principal Officers of The Sun India
Insurance Company Limited do hereby declare and say that the statements contained in paragraph 1 to
16 of the foregoing Counter Statement of Fact are my information derived from record which I believe
to be true and those contained in paragraphs 17 to 20 are my humble submissions before the Learned
Arbitral Tribunal.
I sign this verification on this the 18thday of July 2005 at my Advocate's Chamber.
Prepared in my office
Advocate.
Signature of GautamSarkar
51
Chapter 7: Making of Arbitral Award and
Termination of Proceedings
Sections 28 to 33 of the Act 1966 provide for the procedure to be followed by the arbitral tribunal for
making the award. The provisions here determine the roles and responsibilities of the arbitral tribunal
in respect of making award. The award making process which is meant for settling dispute involves
stricter criteria than mere compliance of modalities for the proceedings. The award making process has
been dealt with by the Act under the following heads;
1. Rules applicable to substance of dispute (Sec 28)
2. Decision making by panel of arbitrators (Sec 29)
3. Settlement (Sec 30)
4. Form and contents of arbitral award (Sec 31).
5. Termination of proceedings (Sec 32)
6. Correction and interpretation of award; additional award (Sec 33).
7.1. Rules applicable to substance of dispute (Sec. 28)
Sec 28 provides that;
(1) Where the place of arbitration is situate in India
a) in an arbitration other than an international commercial arbitration, the arbitral tribunal shall
decide the dispute submitted to arbitration in accordance with the substantive law for the time
being in force in India
b) in international commercial arbitration (i) the arbitral tribunal shall decided the dispute in
accordance with the rules of law designated by the parties as applicable to the substance of the
dispute;(ii) any designation by the parties of the law or legal system of a given country shall be
construed, unless otherwise expressed, as directly referring to the substantive law of that
country and not to its conflict of laws rules; (iii) failing any designation of the law under sub-
clause (ii) by the parties, the arbitral tribunal shall apply the rules of law it considers to be
appropriate given all the circumstances surrounding the dispute
(2) The arbitral tribunal shall decide ex aequoet bono or as amiable compositeur only if the parties have
expressly authorized it to do so
(3) In all cases, the arbitral tribunal shall decide in accordance with the terms of the contract and shall
take into account the usages of the trade applicable to the transaction.
NB: Ex aequoet bono means in justice and Fairness; according to what is fair and good; according to
equity and conscience.
Amiable compositeur stands for amiable compounders that is arbitrator may abate something of the
strictness of the law in favour of natural equity.
52
Points to be noted
All domestic arbitrations are carried out as per substantive law of the country. The award of the
arbitration cannot be therefore opposed to the law. An arbitral tribunal cannot award what is not
permissible in law. The award which is opposed to law is not approved by courts.
In Sikkim Subba Associates v State of Sikkim (2001) it is said that the Sec 54 of the Contract Act
1872 was a complete answer to the claim for either performance of the contract or for asserting a claim
for compensation or damages for the alleged non-performance arising out of repudiation by the State.
The arbitrator could not have been oblivious or ignorant to the fact that it was the default, violations
and breaches committed by the claimants that necessitated the termination of the contract by the State,
left with no other option for it in law.
In case of international commercial arbitration the following aspects shall be considered for
determination of law to be applicable thereto;
i) Law applicable will be the rules of law designated by the parties
ii) If the designation is of the law or legal system of a country, it shall be the substantive law of
that country and not its conflict of laws;
iii) If there is no such designation, then the arbitral tribunal has to apply any rules of law, it
considers appropriate.
Provisions of Sec.28 signify that Indian nationals should not be permitted to derogate from Indian laws.
The parties can waive the applicability of the Rules specified in the agreement; but there must be
proper assessment of waiver. A letter from the respondent concurred in the principle with the proposal
of the petitioner to be governed by different rules adding that it is "without principle". It was held by
the court of law that such letter could not constitute waiver of the applicability of the Rules specified in
the agreement. The parties had, therefore, to stand by the terms of the agreement.
The arbitral tribunal shall decide the dispute in accordance with the terms of the contract and after
taking into consideration of the usage of the trade applicable to the transaction. As mentioned earlier,
the arbitral tribunal can decide the dispute according to its own good sense of equity and fairness (ex
aequoet bono) or on the basis of amicable settlement (amiable compositeur), but only if it is expressly
authorized by the parties.
It is also held in Adhunik Steels Ltd v Orissa Manganese and Mineral (p) Ltd (2007) that the word
law applicable to arbitration proceedings does not include rulings of arbitrators. A court is not bound
by an arbitrator's rulings unless it bars either party from raising a plea in that behalf.
7.2. Decision making by panel of arbitrators (Sec. 29)
Sec 29 provides that
(1) Unless otherwise agreed by the parties, in arbitral proceedings with more than one arbitrator,
any decision of the arbitral tribunal shall be made by a majority of all its members.
53
(2) Notwithstanding sub-section (1), if authorized by the parties or all the members of the
arbitral tribunal, questions of procedure may be decided by the presiding arbitrator.
Points to be noted:
Under the provisions of the Act 1996, the decision of the arbitral tribunal will be always taken by
the majority, while the presiding arbitrator or the umpire who is appointed by the arbitrators, will
decide on the questions of procedure. Under the old Act 1940, if the arbitrators were equally
divided, the decision of the presiding officer was to prevail; if they were not equally divided, the
decision was to be that of the majority.
But under the new Act 1996, the presiding arbitrator has to sit in the proceedings throughout in a
presiding capacity, but the decision has to be by a majority of the arbitrators. It is however open to
the parties to agree that the decision will be made in any other manner, e.g according to the
decision of the presiding arbitrator.
The arbitral award shall be in writing and signed by the members of the tribunal. Even though there
is no umpire system in the new Act, but the Apex Court in the pronouncement of the Reserve Bank
of India Case held that in case of disagreement between the arbitrators allowing time to expire
without making an arbitral award, appointment of arbitrator was justified and umpire's entering
upon the reference was not illegal.
7.3 Settlement (Sec.30)
Sec.30 of the Act provides that
(1) It is not incompatible with an arbitration agreement for an arbitral tribunal to encourage
settlement of the dispute and, with the agreement of the parties, the arbitral tribunal may use
mediation, conciliation or other procedures at any time during the arbitral proceedings to
encourage settlement.
(2) If, during arbitral proceedings, the parties settle the dispute, the arbitral tribunal shall terminate
the proceedings and, if requested by the parties and not objected to by the arbitral tribunal,
record the settlement in the form of an arbitral award on agreed terms.
(3) An arbitral award on agreed terms shall be made in accordance with section 31 and shall state
that it is an arbitral award.
(4) An arbitral award on agreed terms shall have the same status and effect as any other arbitral
award on the substance of the dispute.
Points to be Noted
Sec. 30 of the Act has emphasized upon the objective of the arbitration law that arbitration and
conciliation must end with an efficacious and effective remedy for resolution of disputes and
differences between parties. The provisions of the said sec prescribe that the arbitral tribunal must
encourage settlement of disputes between the parties and if the settlement is arrived at between the
parties during the proceedings, such settlement shall be recorded by the arbitral tribunal in the form
of an arbitral award on agreed terms.
It also provides that if, during proceedings, the parties settle the dispute, the arbitral tribunal shall
terminate the proceedings and, if requested by the parties and not objected to by the arbitral
54
tribunal, record the settlement in the form of an arbitral award on agreed terms. The above
provisions encourage rather empower the arbitral tribunal to promote resolution of disputes by
mutual settlement. But in promoting resolution of disputes by settlement, shall not avoid the arbitral
procedure. From the above it is implied that if during the course of arbitral proceedings, at any
time the parties decide to resolve their disputes by mutual settlement, the arbitral tribunal shall not
only encourage them but also use mediation, conciliation or other ADR procedure for settlement.
Sec.30(3) requires that an award on settled terms should state that it is an award and it has to be
made in accordance with the requirements of Sec 31.
Sec.30(4) again provides that an arbitral award on agreed terms shall have the same status and
effect as any other arbitral award on the substance of the dispute. In regard to status and effect, the
reference may be made to the provisions of sections 35 & 36 of the Act. Sec. 35 provides that an
arbitral award shall be final and binding on the parties and the persons claiming under them
respectively. Sec. 36 provides that an arbitral award shall be enforceable as if it were a decree of
the court in the manner prescribed by the Code of Civil Procedure
7.4. Form and contents of arbitral award (sec. 31)
Sec.31 provides that
(1) An arbitral award shall be made in writing and shall be signed by the members of the arbitral
tribunal.
(2) For the purposes of sub-section (1), in arbitral proceedings with more than one arbitrator, the
signatures of the majority of all the members of the arbitral tribunal shall be sufficient so long as
the reason for any omitted signature is stated.
(3) The arbitral award shall state the reasons upon which it is based, unless------
(a) the parties have agreed that no reasons are to be given,or
(b)the award is an arbitral award on agreed terms under section 30.
(4) The arbitral award shall state its date and the place of arbitration as determined in accordance with
section 20 and the award shall be deemed to have been made at that place.
(5) After the arbitral award is made, a signed copy shall be delivered to each party.
(6) The arbitral tribunal may, at any time during the arbitral proceedings, make an interim arbitral
award on any matter with respect to which it may make a final arbitral award.
(7) (a) Unless otherwise agreed by the parties, where and in so far as an arbitral award is for the
payment of money, the arbitral tribunal may include in the sum for which the award is made
interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or
55
any part of the period between the date on which the cause of action arose and the date on which
the award is made.
(b) A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry
interest at the rate of eighteen per centum per annum from the date of the award to the date of
payment.
(8) Unless otherwise agreed by the parties,----
(a) the costs of an arbitration shall be fixed by the arbitral tribunal;
(b) the arbitral tribunal shall specify----
(i) the party entitled to costs,
(ii) the party who shall pay the costs,
(iii) the amount of costs or method of determining that amount, and
(iv) the manner in which the costs shall be paid.
Explanation.---For the purpose of clause (a), costs means reasonable costs relating to----
(i) the fees and expenses of the arbitrators and witnesses,
(ii) legal fees and expenses,
(iii) any administration fees of the institution supervising the arbitration, and
(iv) any other expenses incurred in connection with the arbitral proceedings and the arbitral
award.
Special Points to be noted
The Sec31 that deals with the form and contents of arbitral award corresponds to the Article 31 of the
model law. It provides that an Arbitral Tribunal must state reasons for its award except a) when the
parties have agreed that no reasons be given or b) when the award is on agreed terms under sec.30. The
following cases studies will make the provisions more clear for us.
In Tamil Nadu Electricity Board v Bridge Tunnel Construction (1997), the Supreme Court held
that under Sec. 31(3) of the Act that reasons have to be given in the award unless the parties agreed that
no reasons are to be given or the award is an arbitral award on agreed terms under Sec.30. In the above
case, award is set aside on the ground that no reasons were given in the award.
In Ircon International Ltd v M A Arvind Construction Ltd, the Delhi High Court held that it cannot
be expected from the arbitrator to write judgments like a court of law. It is sufficient for him to explain
what his findings are and how he reached at the conclusions. Sufficiency of reasons is not to be gone
into the court.
In KoneruVenkataKoneruVenugopal AIR 2003 (AP) held that a reasoned award is compulsory
unless exempted by the parties.
In Centro Minerals & Metals Inc v Hindustan Copper Ltd (2006), the Supreme Court explained the
rationale behind the requirement of compulsory reason, the chief among them being a greater scope of
judicial scrutiny of reason award.
Sec.30(5) requires the Arbitral Tribunal after it has made its award to give a signed copy to each party.
Interim Award [Sec.31 (6) read with 2(1)(c)] ;
Sec. 31(6) provides that the arbitral tribunal may, at any time during the arbitral proceedings, make an
interim arbitral award on any matter with respect to which it may make a final arbitral award while
2(1)(c) of the Act 1996 provides that arbitral award is award including an interim award. Sec. 31(6)
56
empowers the Arbitral Tribunal to make an interim award. The interim award can be on any matter in
respect of which the Arbitral Tribunal can make a final award. The interim award can be on any matter
with respect to which the tribunal can make a final award. Only in very exceptional cases an arbitrator
can make an interim award without proper or full hearing.
As decided in Satwant Singh Sodhi v State of Punjub (1999) 3SSC 487, SC 2040, an interim award
is final to the extent to which it goes. It binds the parties. The court said that if an interim award is
intended to finally determine the rights of the parties, it will have the force of a complete award and
will continue to have effect even after the final award is delivered. The arbitrator thus becomes
functous officio as regards claim covered in such an interim award. Such claims cannot be
redetermined. However if the interim award is clearly intended to have effect only so long as the final
award is delivered, it will cease to have effect once the final award is made.
In the above-mentioned case, the court said that in a dispute arising out of building contract where the
respondent raises matters of defence or set off the arbitrator may make an interim award without full
hearing, but only in exceptional circumstances where he can properly find that he is not satisfied that
the defence or set off is made in good faith or where on the respondent's own figures there is a sum
properly due to the claimant. In all other cases the arbitrator must have a proper hearing.
Tamil Nadu Water Supply and Drainage Board, Chennai VsAban Constructions (2002) (Mad);
This has reference toSection 31(6),2(1)(c) & 34
Inthis case the definition of an interim award has been clarified and the court said that an award must
determine all the differences which the parties by their agreement referred to arbitration. An interim
award must determine some part of the dispute and shall be made in the same manner as an award.
Deepak MitraVs District Judge, Allahabad (2000); this case has determined Scope of interim
awardwith reference to Section 31(6) & 9.It was held that the provision for making of an interim
award is not controlled by or dependent upon any agreement between the parties. The matter is left at
the discretion of the Tribunal. The tribunal is free to make an interim award on any matter on which it
may make a final arbitral award. It was further held that an interim award should be made in the same
way as an award after hearing the parties and on consideration of the evidence adduced.
Appendix 7.1: Model form of Interim Award is shown at the end of this chapter.
Grant of Interest on the Arbitral Award [sec.31(7)]
Sec 31(7) (a) provides for the grant of interest by the arbitral tribunalon an arbitral award for the
payment of money, at such rate as it deems reasonable, on the whole or any part of the money, for the
whole or any part of the period between the date on which the cause of action arose and the date on
which the award is made. Thus as per sec. 37(7)(a) the arbitral tribunal may grant interest i) at a rate it
considers reasonable ii) on the whole or part of the money found due and iii) for the whole or any part
of the period.
Sec 31(7) (b) provides for the grant of interest by the arbitral tribunal on the sum of money awarded for
the period from the date of the award to the date of paymentat the rate of eighteen per centum per
annumunless the award otherwise directs.
S.KumarVs Delhi Development Authority (2003) (Delhi)
This case discussed the issue whether the future interest was payable up to the date of payment or up to
the date of the decree with reference toSection 31(7)(b), 34 & 36. According to the award passed by
the arbitral tribunal, future interest was to be paid from 8.4.1998 to the date of payment or decree
57
whichever is earlier.
It was held that in view of the fact that the award itself is a decree, the directions of the arbitrator that
the pendent elite interest shall be paid from 8.4.1998 to the date of payment or date of decree,
whichever is earlier, actually meant that the interest was payable up to the date of payment. Filing of
objection by a party u/s 34 and refusal thereof is irrelevant where payment of future interest is
concerned. The application u/s 34 is relevant only for the purpose of enforcement of the decree. The
moment this application is refused, the decree becomes enforceable and the date of the decree remains
the same as that of the award.
In view of this legal position, the respondent was obliged to make payment for future interest up to the
date of payment and not up to the date when the objections were dismissed.
As per Section 31(8) of the Actthe costs of arbitration shall be fixed by the arbitral tribunal unless
otherwise agreed by the parties. Costs means reasonable costs relating toi) fees and expenses of the
arbitrators and witnesses, ii) legal fees and expenses,iii) any administration fees of the institution
supervising the arbitration, and(iv) any other expenses incurred in connection with the arbitral
proceedings and the arbitral award. The court will not interfere in this regard as per provisions of the
Act.
Union of India Vs P Jeevanandam (2000) (AP) - Ruling on Power to fix fees of arbitrator with
reference to Section 31(8) & 11(8)
While appointing the arbitrator, the High Court fixed the initial remuneration at Rs.30,000.
Subsequently, the arbitrator with the consent of both parties fixed his fees at Rs 2-Lakhs, to be shared
by both parties equally. On challenge, it was held that no power is given to the Chief Justice to fix the
fees of the arbitrator appointed by him, but only specifies the factors to which they should have due
regard for securing the appointment of a qualified, independent and impartial arbitrator.It was further
held that Section 31(8) clearly empowers the arbitrator to fix his fees with the consent of both the
parties. The intention of the Legislature appears to be that independent arbitrators may not like to act as
arbitrators, if they are not empowered to fix their own fees. If the words 'other considerations' are to be
construed as giving power to the Chief Justice or his designate to fix the fees of the arbitrator, then the
very intention of the Legislature will be defeated.
7.5. Termination of proceedings (Sec.32)
Sec. 32 provides that
(1) The arbitral proceedings shall be terminated by the final arbitral award or by an order of the arbitral
tribunal under sub-section (2).
(2) The arbitral tribunal shall issue an order for the termination of the arbitral proceedings where---
a) the claimant withdraws his claim, unless the respondent objects to the order and the arbitral
tribunal recognizes a legitimate interest on his part in obtaining a final settlement of the dispute,
b) the parties agree on the termination of the proceedings, or
58
c) the arbitral tribunal finds that the continuation of the proceedings has for any other reason
become unnecessary or impossible.
(3) Subject to section 33 and sub-section (4) of section 34, the mandate of the arbitral tribunal shall
terminate with the termination of the arbitral proceedings.
Points to be noted
Sec.32 of the Act, which corresponds with the Article 32 of the Model Law, specifies the grounds
under which the arbitral proceedings are terminated. These grounds are as follows;
1. When final award is made by the arbitral tribunal and signed by the arbitrator, or
2. When the arbitral tribunal issues an order for termination of arbitral tribunal under the
following circumstances
a) Withdrawal of his claim by the claimant
b) When the parties agreed to terminate arbitral proceedings
c) Where the arbitral tribunal finds that continuation of the proceedings has for any other
reason become unnecessary or impossible.
3. When the mandate of the arbitral tribunal terminates with the termination of arbitral
proceedings, which is subject to provisions contained in Sec 33 & Sec.34 where the arbitral
tribunal is permitted to resume proceedings in certain circumstances.
In Satwant Sing Sodi v State of Punjub, (1999)the Supreme Court held that an award is made when it
is authenticated by the maker. The expression `made' unequivocally points to the state of mind of the
arbitrator as being declared and pronounced.
In AnuptechEquipments Private Limited vs. Ganapati Cooperative Housing Society Ltd (2000)
Mumbai, it is held that the arbitral proceedings shall be terminated by two ways-one by way of passing
final award and other by making an award by the arbitral tribunal under sec. 32(2).
Maharashtra State Electricity Board VsDatar Switchgear Ltd(2003) (Bom)
Referring sec. 32 of the Act
It was contended by the claimant that power u/s 32(2)(c) can be used as a substitute for enforcement of
the award or as in the present case, enforcement of an interim order is perceived by one of the parties
as being likely to encounter difficulties because of an independent provision of law ie. SICA 1985.
The court disagreed with the claimant's contention and held that SICA was enacted to protect
properties of a Sick Industrial Company against execution without permission of BIFR. This does not
render arbitral proceedings impossible or unnecessary.
Section 32(2) contemplates 3 situations where the arbitral tribunal is vested with power to terminate
proceedings, viz. (i) when the claimant withdraws his claim (ii) when the parties agree to terminate
proceedings (iii) when the tribunal finds that continuation of the proceedings has become unnecessary
59
or impossible. The tribunal has been vested with a residuary power to terminate proceedings where it
finds that a continuation thereof has become unnecessary or impossible for any reason.
The term 'unnecessary' may involve a situation where the proceedings are rendered in fructuous. A
situation may also arise where adjudication of the dispute becomes unnecessary either because the
dispute has not survived or for any other reason. 'Impossibility' is not merely to be viewed as physical
impossibility of adjudication, but may include or cover a situation where a party by a consistent course
of conduct renders the very continuation of the proceedings impossible.
Kifayatullah Haji GulamRasoolVsBilkish Ismail Mehsania( 2001) (Bombay)
ReferringSection 32, 25, 33, 34(4), 15, 9 & 21 of the Act on Termination of arbitral proceedings
In the said case, an order by way of interim measure had been passed by this court on 23.2.1998, which
was made operative pending hearing and final disposal of the arbitral proceedings. Then the issue was
whether the arbitral proceedings had come to an end or not.
It was held that arbitration proceedings shall automatically stand terminated only after making of final
award, which decides or completes decision of claims which are presented. Section 32 unequivocally
provides that only 'final award' shall terminate the arbitral proceedings. Arbitral proceedings can also
be terminated by an order of the Tribunal, which order can only be passed when the claimant
withdraws the claim or when the parties agree on the termination of the proceedings or when the
Tribunal finds that continuation of proceedings has become unnecessary or impossible. The Act makes
specific provision for commencement and termination of arbitral proceedings.
However, in the instant case, none of the events contemplated u/s 32 has taken place. No final award
has been passed. No joint request depicting agreement of parties has been made to the Tribunal to
terminate proceedings. No orders have been passed by the Tribunal as u/s 32(2). Therefore, it cannot be
said that the proceedings have come to an end.
7.6.Correction and interpretation of award; additional award (Sec.33).-
Sec. 33 provides that
(1) Within thirty days from the receipt of the arbitral award, unless another period of time has been
agreed upon by the parties--- -
(a) a party, with notice to the other party, may request the arbitral tribunal to correct any
computation errors, any clerical or typographical errors or any other errors of a similar nature
occurring in the award;
(b) if so agreed by the parties, a party, with notice to the other party, may request the arbitral
tribunal to give an interpretation of a specific point or part of the award.
(2) If the arbitral tribunal considers the request made under sub-section (1) to be justified, it shall make
the correction or give the interpretation within thirty days from the receipt of the request and the
interpretation shall form part of the arbitral award.
(3) The arbitral tribunal may correct and error of the type referred to in clause (a) of sub-section (1), on
60
its own initiative, within thirty days from the date of the arbitral award.
(4) Unless otherwise agreed by the parties, a party with notice to the other party, may request, within
thirty days from the receipt of the arbitral award, the arbitral tribunal to make an additional arbitral
award as to claims presented in the arbitral proceedings but omitted from the arbitral award.
(5) If the arbitral tribunal considers the request made under sub-section (4) to be justified, it shall make
the additional arbitral award within sixty days from the receipt of such request.
(6) The arbitral tribunal may extend, if necessary, the period of time within which it shall make a
correction, give an interpretation or make an additional arbitral award under sub-section (2) or sub-
section (5).
(7) Section 31 shall apply to a correction or interpretation of the arbitral award or to an additional
arbitral award made under this section.
Points to be noted
Sec 33 based on Article of the UNCITRAL Model Law deals with correction and interpretation of
award and additional award.
The Act1996 with provisions of this Section gives an opportunity to a party, with notice to the other
party, request the arbitral tribunal to correct any computation errors, any clerical or typographical
errors or any other errors of a similar nature occurring in the award.
Under Sec.30(2) the arbitral tribunal may, within thirty days from the receipt of the request, consider
such request to be justified, and make necessary correction or give the interpretation and the
interpretation shall form part of the arbitral award.
Under Sec.30(5) if the arbitral tribunal considers the request of a party for additional award made under
sec.30(4) to be justified, it shall make the additional arbitral award within sixty days from the receipt of
such request. Thus where some claim referred to the arbitral tribunal is omitted from consideration in
the arbitral tribunal, it shall make additional award on request from a party, if such request is
considered to be justified.
Under 30(6), the arbitral tribunal is empowered to extend time limits prescribed in Sec.30 (2) to 30(5)
to make correction, give an interpretation or make an additional award. However the arbitral tribunal
shall always try to expedite the process and it shall not extend the time unless the circumstances of the
case require for providing complete justice to the parties.
Again Sec.30 (7) further provides that the provisions of sec.31 shall have to be considered by the
arbitral tribunal while making correction or interpretation of the arbitral award.
Union of India VsNav Bharat Nirman Company (2003) : A case forAdditional Award u/S Section
33 (4) & 34(3) -
61
The decision in this case clarified the scope of power of the arbitrator to make an additional award. It
was held that as per section 33(4), a party may request within 30 days from the receipt of the arbitral
award to make an additional award as to the claims presented in the arbitral proceedings but omitted
from the arbitral award. Thus, the arbitrator is empowered to make an additional award in respect of
any item of claim on which the arbitrator has omitted to consider and give an award in the original
award. Where no specific amount was awarded by the arbitrator against some original claims, the
arbitrator can award additional award and such additional award is not liable to be set aside.
Appendix7.1; Form of Interim Award (Names of petitioner, respondent and arbitrators changed)
Super Vegetable Oils Pvt. Ltd.
And
The Sun India Insurance Co. Ltd.
This is the interim award of the Arbitrators made this the 16th day of September, 2005.
1. The Claimant herein insured its factory at Howrah for the sum of Rs.1,30,50,000/- covering
building, machinery and contents of the said factory and for the sum of Rs.1,15,00,000/-
covering stock of raw-materials and finished goods. The Respondent issued two policies
bearing nos. 310800/11/03/00727 covering building, machinery and contents and no.
310800/11/03/00728 covering stock, as more particularly described in the said policies. On
23.12.2003 a devastating fire destroyed the factory and caused extensive loss to the stock.
2. The Claimant put up a claim under the two policies for a combined sum of Rs.89,10,537/-The
Respondent appointed Mr. M. C.Chatterjee, Surveyor & Loss Assessor to assess the loss and
said Mr. Chatterjee submitted his report to the Respondent on 20.11.2004. The Surveyor gave
two assessments for Rs.35,20,818/- and the other for Rs.11,28,547/- leaving it to the discretion
of the Respondent to choose one of the two assessments.
3. The Respondent chose the lesser of the two sums and offered to settle the claim in the sum of
Rs.31,28,547/-. In fact the Respondent sent two cheques towards settlement of the claim. The
Claimant disputed the said assessment and refused the settlement and returned the cheques.
4. Thus a dispute or difference arose between the Respondent and the Claimant.
5. The Policies of Insurance referred to above provide for reference to arbitration in the event of a
dispute as to the quantum of loss. The Claimant invoked the said arbitration clause and
appointed Mr. U N Sahu as Arbitrator. The Respondent having not agreed to the appoint Mr. U
NSahu as the Sole Arbitrator, appointed Mr. P NSheth as an Arbitrator.The two Arbitrators
appointed Mr. J. K. Roy as the third Arbitrator.
6. Thereafter, the Claimant submitted its Statement of Claim, and the Respondent its Counter
Statement of Facts and the Claimant submitted its Rejoinder.
62
7. In its Statement of Claim, the Claimant prayed for an interim award for a sum of Rs.11,28,547/-
, the amount offered by the Respondent towards settlement of its claim. The Claimant also
pleaded before Arbitral Tribunal for the interim award in the Tribunal's sitting on 8.7.05
whereupon the Claimant was asked to file a petition praying for interim award.
8. Accordingly, the Claimant filed its petition and the Respondent filed its objection. The said
petition came up for hearing on 1.8.05 before the Tribunal. The Respondent challenged the said
petition.
9. Again at the proceedings on 4.9.05, the Claimant pressed for an interim award for a sum of
Rs.11,28,547/-. The Respondent submitted that the adjudication should be completed at a time
and, therefore, interim award would not be necessary.
10. We have heard both the parties and considered the legal provisions in this regard. However, in
view of the financial burden on the Claimant and due to likelihood of delay in the settlement of
claim by process of arbitration, we feel the amount offered by the Respondent in settlement of
the claim, i.e. the sum of Rs.11,28,547/-, may be awarded as an interim award leaving the
disputed amount of Rs.77,81,990/- and other claims of the Claimant to be decided at the time of
final award.
11. Accordingly, the Respondent is hereby directed to pay the said sum of Rs.11,28,547/- to the
Claimant within a fortnight from the date of receipt of this interim award.
Signature of ArbitratorSignature of Arbitrator Signature of Arbitrator
=============================
Let us now scope for applying for setting aside above Interim Award if one party (the insurance
company) wants;
Appendix 7.2; Interim Award and its scope for applying for setting Aside:-
Under the Section 2 (1((c)) of the said of Act 1996, "Arbitral Award" includes an interim award.
Under the Section 31 sub-section 6 of the said of Act 1996, the Tribunal is empowered to pass an
interim award on any matter with respect to which it may make a final award.
An interim award can be made by the Tribunal in respect of van amount which they will find inevitably
due. In our case, the company has admitted its liability in favour of the claimant, by offering to settle
the claim in a sum of Rs.11, 28,547.00. As such the said sum is admittedly due to the claimant.
Under the section 31 (3) of the said Act 1996, the Tribunal shall state the reasons upon which the
award is based unless the parties agree that `no reasons' are to be given or the award made on agreed
terms under Section 30 of the said of Act 1996.
63
In view of admitted liability of Rs.11, 28,547.00 the scope for challenging the Interim Award would be
limited to certain erroneous reasons stated by the Arbitrators in the said Interim Award Tribunal. An
attempt to that effect may be made on the following course:
In paragraph 10 of their Award dated 16th September 2005 the Arbitrators gave reasons and stressed on
only two grounds that is
a) "the financial burden" and
b) "likelihood of delay in the settlement of claim by process of arbitration".
So far as the ground (a) is concerned the Claimant has gone in for the arbitration and has accepted high
fees of the Tribunal and has the knowledge of its financial liability. On the contrary it should be noted
that the company had in discharge of its duty/obligation had offered the sum of Rs.11, 28,547.00,
which the claimant had refused to accept. This alone substantiate that there is no financial burden on
the Claimant in pursuing the instant Arbitral Proceeding.
In respect of the ground (b) it is hypothetical, presumptive and uncertain. The Tribunal at the threshold
of the reference presumes that the proceeding is likely to continue for long and there might be delay in
settlement of the claim. This presumption is wrong and uncertain. Moreover, the Tribunal also failed to
appreciate that the Company by their letter dated 28.04.2005 had already offered an amount of Rs.11,
28,547.00 which was not accepted and returned by the Claimant through their letter dated 06.05.2005
and also referring the matter to Arbitration. Thus, the Tribunal ought not to have awarded any interim
award in light of the conduct of the Claimant, on the other hand should have given direction for
expeditious hearing on the basis of documents on records filed by the parties instead of insisting the
long drawn procedure of Examination and Cross- Examination of the witnesses of the parties.
Hence an application can be made for setting aside of the Interim- Award on the above referred
grounds, to take a chance.
A model application of the insurance Co has been shown in Appendix 8.1 in Chapter 8. for setting aside
the Interim Award passed by the Learned Arbitral Award in Arbitration between M/S Super Vegetable
Oils Pvt. Ltd. and the Sun India Insurance Co. Ltd, which has been shown in Appendix 7.1 above.
64
CHAPTER 8: RECOURSE AGAINST ARBITRAL AWARD
Application for setting aside arbitral award (sec.34)
Sec.34 of the Act 1996 provides the grounds and ways for challenging arbitral award. This section is
significant for balancing the autonomy of the party and judicial control of an arbitral award. Sec.34
(1)provides that recourseto a court against an arbitral award may be made only by an application for
setting aside such award in accordance with the provisions of sub-section (2) and subsection (3) of the
Section, which are reproduced below. On Application the court may set an arbitral award aside in two
situations a) the party making the application furnishes certain proof or b) the Court finds it proper.
Under Sec.(2) an arbitral award may be set aside by the court only if
(a) The party making the application shall furnish proof that-
i. A party was under some incapacity, or
ii. The arbitration agreement is not valid under the law to which the parties have subjected it or,
failing any indication thereon, under the law for the time being in force; or
iii. The party making the application was not given proper notice of the appointment of an
arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
iv. The arbitral award deals with a dispute not contemplated by or not falling within the terms of
the submission to arbitration, or it contains decisions on matters beyond the scope of the
submission to arbitration, Provided that, if the decisions on matters submitted to arbitration can
be separated from those not so submitted, only that part of the arbitral award which contains
decisions on matters not submitted to arbitration may be set aside; or
v. The composition of the arbitral tribunal or the arbitral procedure was not in accordance with the
agreement of the parties, unless such agreement was in conflict with a provision of this Part
from which the parties cannot derogate, or, failing such agreement, was not in accordance with
this Part; or
(b) The court finds that-
i. The subject-matter of the dispute is not capable of settlement by arbitration under the law for
the time being in force, or
ii. The arbitral award is in conflict with the public policy of India.
Explanation---Without prejudice to the generality of sub-clause (ii), it is hereby declared, for the
avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the
award was induced of affected by fraud or corruption or was in violation of section 75 or section 81.
Sec 34(3) provides that an application for setting aside may not be made after three months have
elapsed from the date on which the party making that application had received the arbitral award, or, if
a request had been made under section 33, from the date on which that request had been disposed of by
the arbitral tribunal
Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making
the application within the said period of three months it may entertain the application within a further
period of thirty days, but not thereafter.
As per Sec 34(4) on receipt of an application under sub-section (1), the Court may, where it is
65
appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined
by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take
such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the
arbitral award.
Points to be noted
Sec.34 of the 1996 Act provides grounds for challenging arbitral award. The provision of this section is
very important as it takes on the task of balancing between autonomy or privacy of the parties on one
hand and judicial control of the arbitral award on the other hand. The main object of this provision is to
determine ultimately whether the award is final and binding.
This provision regulates the means of recourse to the court for setting aside the arbitral award on the
grounds specified in it and provides procedural provisions for setting aside the award.
Appendix: 8.1: Model of Application of the insurance Cofor setting aside the Interim Award
Interim Award passed by the Learned Arbitral Award in Arbitration between M/S Super Vegetable
Oils Pvt. Ltd. and the Sun India Insurance Co. Ltd (Names changed)
A P No ...... of 200x
In the High Court At Calcutta
Original Ordinary Civil Jurisdiction
In the matter of;
The Arbitration and Conciliation Act 1996
And
In the matter of;
Section 34 of the said Act
And
In the matter of;
The Insurance Policy No 312800//03/00727
And Policy No 312800//03/00728
And
In the matter of;
The purported award dated *** September, 2005
passed by the Learned Arbitral Tribunal
And
In the matter of;
The Sun India Insurance Co. Ltd,
A General Insurance Company
Within the meaning of the Companies Act 1956
Having registered office at 70 B G Road Mumbai, 400021
And also carrying on business at its Divisional Office No 310800
At 11 B S Street Kolkata 700072
-----------Petitioner (Name & Address changed)
And
In the matter of;
Super Vegetable Oils Pvt. Ltd.
A Company Within the meaning of the Companies Act 1956
66
Inter-alia carrying on business from 7 P S Street Kolkata 700011
---------------- Respondent (Names & Address changed)
To
The Hon'ble Chief Justice and his companion justices of the said Hon'ble Court
The humble petition on behalf of the petitioner abovementioned most respectfully sheweth;
1. By an insurance policy issued by the petitioner being policy noPolicy No 312800//03/00727, the
factory shed, plant & machinery, utilities, productivity equipment, go-down & office building, staff
room, boundary wall existing at the factory of the respondent at the Industrial Complex, Howrah-
711400 at the time of occurrence of fire & allied perils was insured against the being insured perils
as defined in the said fire policy.
2. By an insurance policy issued by the petitioner being Policy No 312800//03/00728, the stock of
vegetable oil in tanks and rice bran oil, palm oil, chemicals as raw materials etc. existing in stock at
the factory of the respondent at the Industrial Complex, Howrah-711400 at the time of occurrence
of fire & allied perils was insured against the being insured perils as defined in the said fire policy.
3. On or about 23rd December 2003, the respondent informed the petitioner about the occurrence of
fire at the factory of the respondent at the Industrial Complex, Howrah-711400. Immediately
thereafter as was required and in terms of the above policies, the petitioner duly appointed and
engaged an IRDA authorized and licensed surveyor for assessing the loss alleged to have occurred
as a result of the said fire at the respondent's factory premises.
4. On 18th March 2004 the respondent submitted a claim against the above two policies for
Rs.9910537=00 for alleged occurrence of loss in respect of items covered under the said policies.
However on detailed inspection and/ or survey and assessment being conducted by the surveyor
certain serious and major discrepancies and irregularities were found in the records and other
papers furnished by the respondent in support of the claim. Despite opportunities being given, the
respondent failed to establish its entitlement to the said sum of Rs.9910537=00 towards alleged
sustained loss, with cogent and relevant materials and justified explanations. As a result the alleged
loss was assessed by the petitioner's surveyor for a sum of Rs2128547=00 based on the available
evidence and materials and consequently the petitioner offered to pay Rs2128547.00 in full and
final settlement and discharge of its liability under the said insurance policies. The petitioner also
remitted a cheque for Rs212854to the respondent for reason stated above. The respondent however
refused to accept the said cheque for Rs2128547.00 and returned the same to the petitioner and
demanded the said sum of Rs.9910537=00 towards the alleged loss and as such.
5. As a dispute occurred as regards the quantum payable under the policies to the respondent towards
the alleged loss, the respondent referred such disputes to arbitration in accordance with terms of the
said policies and appointed MrKrishnakumar as their Arbitrator. Consequently the petitioner also
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appointed Mr Malay Sarkar as its arbitrator. The abovementioned arbitrators have appointed Mr.
Somnath Das as the third arbitrator.
6. The learned Arbitral Tribunal has held several meetings since being constituted, but has not made
any significant progress so far for adjudication of the disputes referred to them. As such the matter
is pending before the Learned Arbitral tribunal and is not likely to be concluded in near future.
7. In the meantime, the respondent filed an application under section 17 of the Arbitration and
Conciliation Act 1996, for grant on an interim award for a sum of Rs.21,31,561.00. the purported
grounds urged by the respondent in support of its application were that the petitioner had offered
Rs.21,31,561.00 towards full and final settlement of the claim which had been declined to be
accepted by the respondent; and the respondent is facing a shortage of working capital and
consequent increase of cost of production, as the claim towards the alleged loss could not be
recovered from the petitioner. The petitioner filed its written objection to the said application
interalia contending that the respondent was given offer to receive a sum of Rs.21,28,547.00 in full
and final settlement of its purported claim only and not on account of or as a part of its purported
claim. A true copy of the said application under 17 of the said Act filled by the respondent and the
written objection filed by your petitioner are annexed hereto and collectively marked as letter "A".
8. The learned Arbitral Tribunal has passed a passed a purported interim award on 16th September
2005, whereby your petitioner has been directed to pay the said sum of Rs.21,28,547.00 within a
fortnight from the date of the receipt of the said purported interim award. A true copy of the said
purported award dated 16th September 2005 is annexed hereto and marked as letter "B".
9. While assessing the reasons for grant of the purported interim award the Learned Arbitral Tribunal
has recorded that in view of the financial burden of the claimant and likelihood of delay in the
settlement of claim by the process of arbitration, the said sum of Rs.21,28,547.00 may be awarded
as interim award leaving the disputed amount of Rs.77,81,990.00 and other claims of the claimant
to be decided at the time of final award.
10. Being aggrieved by an dissatisfied with the purported findings and/or determination in the said
purported Interim Award dated 16th September 2005 passed by the Learned Arbitral Tribunal in the
pending arbitral proceeding your petitioner begs to move before Your Lordships on the following
amongst other:-
GROUNDS
I. For THAT the Learned Arbitral Tribunal erred in law as well as on facts in making and publishing
the purported Interim Award.
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II. FOR THAT the Learned Arbitral Tribunal erred by passing the interim award and giving directions
contrary to the provisions of the Arbitration and Conciliation Act, 1996.
III. FOR THAT the Learned Arbitral Tribunal's purported Interim Award is in conflict with the public
policy of India.
IV. FOR THAT while purporting to grant the said purported interim award, the Learned Arbitral
Tribunal have unduly considered the financial interest of the respondent in a biased manner as the
said purported interim award has been made, inter alia, in view of the alleged financial burden of
the respondent, without any material placed by the respondent before the Tribunal to that effect.
V. FOR THAT the alleged financial burden of the respondent of the respondent was not subject matter
of the dispute contemplated by or falling within the terms of submission of the arbitration.
VI. FOR THAT Learned Arbitral Tribunal failed to appreciate that it was respondent which had elected
to refer the disputes to Arbitration and therefore it could not be allowed to urge alleged financial
burden due to pendency of the arbitration proceeding.
VII. FOR THAT the Learned Arbitral Tribunal as will appear has no inclination or intention to
adjudicate the disputes in expeditious manner as they have already recorded that there is likelihood
of delay in the process or arbitration, thereby indicating that the petitioner will put to suffer huge
expenses towards the costs of the arbitral proceeding despite payment of the interim sum.
VIII. FOR THAT Learned Arbitral Tribunal failed to appreciate that while granting purported interim
award the Learned Arbitral Tribunal is necessarily enjoined with a duty to conclude the arbitral
proceeding in a reasonably expeditious manner so that no prejudice is caused financially or
otherwise to any of the parties.
IX. FOR THAT by granting purported interim award on the reason of likelihood of delay in completion
of the proceeding, the Learned Arbitral Tribunal has financially equipped and encouraged the
respondent to prolong the arbitral proceeding without there being sufficient material disclosed by
respondent till now in support of its claim.
X. FOR THAT the reason assigned for grant of purported interim award, that the arbitral proceeding is
likelihood to be delayed, is against the public policy of expeditious disposal of disputes in prudent
manner.
XI. FOR THAT in any case likelihood of delay could not constitute a ground for grant of the purported
interim award.
XII. FOR THAT in any event it will appear from the purported reasons recorded in the purported award
that the same has been granted only to give undue indulgence to the respondent.
XIII. FOR THAT the Learned Arbitral Tribunal ought not to have awarded the said sum of
Rs.21,28,547.00 as an interim relief to the respondent without even any prima facie consideration
as to the maintainability of the purported claim of the respondent for the balance sum of
Rs.77,81,990.00 towards alleged loss.
XIV. FOR THAT in the facts and circumstances of the case and in the given situation the Learned
Arbitral Tribunal ought to have adjudicated the disputes before it at a time and pass their final
award, in order to render efficacious remedy and justice to the parties.
XV. FOR THAT the impugned purported interim award is perverse and illegal.
XVI. FOR THAT the impugned purported interim award is liable to be and should be set aside.
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11. As a signed copy of the purported interim award is date 16th September 2005 the instant application
is well within the time as specified in Section 34 of the Arbitration and Conciliation Act, 1996.
12. In view of the statements made hereinabove, your petitioner states and respectfully submits that the
purported award dated 16th September, 2005 be set aside.
13. Unless order as prayed for is made your petitioner shall suffer irreparable loss and injury.
14. The instant application is made bonafide and in the interest of justice.
In the circumstances it is humbly prays by your petitioners before your Lordships that:
a) An order setting aside the purported interim award dated 16th September 2005 passed by
the Learned Arbitral Tribunal in the pending arbitral proceeding between the parties;
b) The cost of this application be granted in favor of the petitioner;
c) To pass such other order or orders or direction or directions as this Hon'ble Court deem
fit and proper.
And for this act of kindness, your petitioner, as in duty bound, shall ever pray.
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Chapter 9: Finality and Enforcement of Arbitral Awards
Sec 35 and Sec 36 deal with Finality and Enforcement of Arbitral Awards.
9.1 Finality of Arbitral Awards (sec. Sec 35):
Sec35 provides that subject to this part an Arbitral Award shall be final and binding on the parties and
persons claiming under them respectively.
Points to be mentioned
Sec 35 makes it final and binding on the parties to adhere to the Arbitral Award. The award is final in
the sense that there shall neither be further award on the same subject nor an appeal against the finality
of the award. The aggrieved party may apply to the court, if there is a ground, for setting aside the
award, but the court cannot be called upon to decide the matter as decided in Damodar Engg. &
Construction Co. v Board of Trustees for the Port of Calcutta.
However the award must be legal i,e in accordance with the principle of law of relevant law,
otherwise it will be illegal being against the law.
Sec. 28(1) of the Act 1996 requires that in an arbitration which is not international commercial
arbitration., the tribunal should decide the dispute in accordance with the substantive law for the time
being in force in India. Sec 34 provides provide that an award is liable to be set aside if it is in conflict
with the public policy of India. It has been further explained that it will considered as in conflict with
the public policy of India if the award is influenced by fraud or corruption or was in violation of Sec 75
(breach of confidence) or Sec 81 (maaters disclosed in conciliation proceedings are not to be used in
evidence in arbitral proceedings. In addition Sec28(3) also requires that dispute shall be decided in
accordance with the terms of the contract and usages of the trade applicable to the transaction, should
also be taken into account.
In National Highways Authority of India vs. Ssangyong, it is held that the Sec 35 of the Act states
that subject to Part 1 of the Act, Arbitral award shall be final and bindings on the parties and persons
claiming under them. Sec. 36 stipulates that wherein an application under Sec 34 of the Act is not made
and the period has expired or where an application has been made and it has been refused, an Arbitral
Award can be enforced as a decree of the court. The above observation in the case and interpretation of
Sections 31 to 36 is consonance with the accepted principle that the court should approach an award
with a desire to support it. Courts are entrusted with the powers to facilitate the arbitration process and
put into force Arbitral Award.
In K. V George v the Secretary to Govt. to Water and Power Department, Trivandum that all
claims which were subject matter of reference to the arbitration merge in the Arbitral Award and that
after the award is pronounced the rights and responsibilities of the parties in respect of the said claim
can be determined only on the basis of an Arbitral Award, and it is not permissible to initiate action on
the basis of claim.
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An award must be reasonable and possible. An award requiring a party to do an act which is
unreasonable or not possible is bad and void. An award that requires a party to should do a thing which
is out of his power to do, or to deliver a thing which is in the custody of another person is void as it
requires the party to do an impossible act as decided in the court of law.
An award must provide complete decision on matters referred to arbitration for determination and
decision. If an award leaves any of the referred issues unattended, it will not be a complete decision
and therefore cannot be enforced. Where the parties referred the issues being the quantum of claim and
the amount of interest due on the disputed amount of claim or due to delay in settlement of claim to
arbitration, the arbitral tribunal made an award in respect of the disputed amount or quantum of claim,
but the claim for interest on delay in settlement and disputed amount of claim are left unattended or
undecided in the hearing, the award will be incomplete and void and therefore cannot be enforced.
The award of the arbitral tribunal is generally final and complete unless contrary intention is inferred
from the agreement itself. An arbitral tribunal has the power to do what the court could have done if the
matter had been before the court. The court will not interfere with the verdict of the arbitrator, even if
the court feels on merits, that the arbitral tribunal should have come to a different conclusion. It is held
by the court that the arbitral award on both fact and law is final. There is no appeal from his verdict.
The court cannot review his award and correct any mistake in his adjudication unless an objection to
the validity of the award is apparent on the face of it. The sec. 35 of the Act expressly provides that
arbitral award shall be final and binding on the parties and persons claiming under them respectively
while sec 36 makes the award enforceable in the manner of court decree.
It has been held that the court has no jurisdiction to investigate into the merits of the case and to
examine the documentary and the oral evidence for the purpose of finding out whether or not the
arbitrator had committed an error of law. Subject to provisions of the Act, the award cannot be set
aside, amended, modified, or affected in any way whatsoever.
As decided in Bhavarlal Bhandari v Universal Heavy Mechanical Lifting Enterprise (1999), SCC
558, when an award becomes final because no objections were filed against it, no challenge can be
raised at the stage of execution.
9.2 Enforcement of Arbitral Awards (Sec 36):
Sec 36 provides that- Where the time for making an application to set aside the arbitral award under
award shall be endorsed under the Code of Civil Procedure, 1908 (5 of 1908) in the same manner as if
it were a decree of the Court.
Points to be elucidated
Sec 36 gives the arbitral award the power under the code of Civil Procedure, 1908 and in the same
manner as if it were a decree of court. It provides for direct enforcement of awards without having to
them converted into a rule of the court. Under the preceding Act 1940, an award could be enforced
after crossing a few hurdles between an award and its enforcement. It had to be first filed in the court
where it would be converted into a judgment in terms of the award. This was known to as making the
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award as a rule of the court. It would then be converted into a decree for its enforcement; all these
steps are no longer necessary under the present Act 1996. It was also observed in Walter Rosario v
Corporation Bank, AIR 2001 where it was held that recovery of debts due to Banks and Financial
Institutions Act 1993 was not a bar to proceedings for making award rule of the court under sec.16 &
17 of the repealed Arbitration Act.
In M. Banerjee & Sons v M N Bhagabati, AIR 2003, Gauwhati, it has been held that an award is a
decree itself and is directly enforceable as such. Briefly the application for execution of award filed by
the petitioner was dismissed by the District Judge on the ground that no decree had been filed and
enclosed with the execution petition. It was held that the District Judge had wrongly dismissed the
execution petition as the decree need not be filed and enclosed with the execution application. As per
section 36, an arbitral award may be enforced in the same manner as if it were a decree of the court.
Hence, for the purpose of execution, an award is to be treated as a decree of the Court.
With the provisions of Sec34 (1), recourse to the court against an arbitral award cannot be made
beyond the specified period. The significance of the period specified under Sec.34 is emphasized by
the provisions of Sec.36 to simply provide that the award becomes enforceable as soon as the limitation
period under Sec.34 expires. The said provisions of Sec 36 provide a significant deviation from the
earlier Arbitration Act 1940
As decided in the two leading cases namely Union of India v Popular Construction Co (2001)
SCC470 and Brij Ratan Mehta v State of Rajasthan (2003)(Raj), under the Act 1996 the award
becomes immediately enforceable without any further act of the court.
Ramaswamy Vs Principal Subordinate Judge (2002) Ker:
The petitioner had filed an execution petition with a certified copy of the award. The execution petition
was returned by the court directing the petitioner to file a decree. It was held that section 17 of the old
Arbitration Act 1940 provided for a decree to be drawn by the court concerned. But section 36 of the
New Act of 1996 provides that the award shall be considered as a decree and shall be enforced under
the Code of Civil Procedure in the same manner as if it were a decree of the court. In such case, the
court cannot insist for a decree to receive the execution application it its file. U/s 36, the executing
court is duty bound to accept the execution petition with a certified copy of the award. S
Union of India Vs Punjab Communications Ltd (2003) HP
In the instant case, the arbitrator gave directions that the impugned award be implemented within 60
days from the date on which it was made.
It was held that the objector has a right to prefer objection against the award within 3 months of
making of the award and even within one more extended month if he showed sufficient cause for doing
so. Further, as per section 36, an award can be enforced only after the time for making an application
for setting aside the award u/s 34 has expired. Thus in view of sections 34 & 36, the directions given by
the arbitrator to implement the award within 2 months of making of the award is contrary to the
provisions of law and thus illegal and liable to be set aside.
However, this breach of law is not of the nature on the basis of which the award as a whole can be set
aside.on with certified copy of award
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In Ajantha Industries Case v. District Educational Officer, 2008, it was held that in the light of
Sec36 of the Act, which clearly states that the award shall be enforced under the CPC in the same
manner as if it were a decree of the court. Hence the objection raised by the learned District Judge
about the maintainability of the Execution Petition, in the considered opinion, is not in consonance
with the provisions of the Acts referred to above and hence the execution petition before the judge is
maintainable.
In S Kumar v DDA (2003), Delhi High Court held that under the Act 996, an award is enforceable
under sec.36 as a decree of the Court. There is no provision in the Act for making the award a rule of
the Court as was under the Act 1940. Once the application under Sec 34 is refused, the award becomes
a decree and the date of this decree remains the same that is the date of the award.
The Hon'ble Supreme Court in Khaleel Ahmed Dakhani v Hatti Gold Mines Co Ltd (2000) held
that the executing court cannot entertain the execution application till the application under sec 34 to
set aside the arbitral award is disposed off. This is because the award does not attain finality pending
such application.
The Hon'ble Supreme Court in Sanshin Chemicals Industry v Oriental Carbon and Chemicals Ltd
(2001) held that decision as to the place of arbitration cannot be appealed under Sec 37 as it is not
among appealable orders
Stamp Duty and Enforcement of Arbitration Award; An unstamped or inadequately stamped
award is a curable irregularity. An unstamped award could not be filed in court for its enforcement. It is
held by court of law that an unstamped award was not to be set aside, but only to be removed from the
file of the court. Outright rejection of an unstamped award was held to be not proper. The court could
have have
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Chapter 10- Appeals
Appealable orders (Sec 37)
Sec 37(1) provides that an appeal shall lie from the following orders (and from no others) to the Court
authorized by law to hear appeals from original decrees of the Court passing the order, namely;
(a) granting or refusing to grant any measure under section 9
(b) Setting aside or refusing to set aside an arbitral award under section 34.
Sec 37 (2) further provides that appeal shall also lie to a court from an order of the arbitral tribunal----
(a) accepting the plea referred to in sub-section (2) or sub-section (3) of section 16; or
(b) granting or refusing to grant an interim measure under section 17.
(3) No second appeal shall lie from an order passed in appeal under this section, but nothing in this
section shall affect or taken away any right to appeal to the Supreme Court.
Points
Sec. 37 provides for the circumstances and areas where appeals are allowed and it also states that No
second appeal shall lie from an order passed in appeal under this section, but nothing in this section
shall affect or taken away any right to appeal to the Supreme Court.
In Arun Kapur v Vikram Kapur & others (2003) it was observed by the Hon'ble judge that the
provisions of Sec 37 take generally the form of Sec.39 of the Act 1940, but they are materially different
from the said provisions and it must be with a view to minimize the supervisory role of the court in the
arbitral process which is in accordance with the spirit of the Act as contained in sec. 5 which
specifically provides that notwithstanding anything contained in any law for the time being in force, in
matters governed by the Act, the judicial authority can intervene only as provided in this Act and not
under any other Act.
Thus an appeal does not lie against each and every order of the tribunal. An appeal lies only when an
order comes within the scope of Sec. 37(2). Certain observations of the sole arbitrator without grating
granting any interim measure were held to be not an order which create a right of appeal.
Sec 37(1) provides for appeals against the orders of the Courts granting or refusing to grant any interim
measure under sec.9 and setting aside or refusing to set aside an arbitral award under sec. 34. The said
provisions thus emphasize that the appeals shall not lie against any other orders.
In NTPC Ltd. v Siemens Atkeingesellschaft (2007), no plea on the point of jurisdic was taken before
the arbitral tribunal, but a counter claim was raised. The claimant opposed the counter claim on the
ground that it was not arbitrable. The arbitrator passed a partial award to the effect that the matter had
already been settled in between the parties in a earlier meeting. It was held that such a partial did not
involve any question of jurisdiction. Hence the case of the aggrieved party did not fall within scope of
Sec 16(2) & (3). The appeal against it was not maintainable. The proper course of action would have
been to proceed under Sec 34 against the award and then proceed in appeal under sec 37, if it should
become necessary to do so.
Sec 37 (2) provides that appeal shall lie to a court from an order of the arbitral tribunal accepting the
plea referred to in sub-section (2) or sub-section (3) of section 16. It was decided in Pandey & Co
Builders (p) Ltd v State of Bihar (2007) that an appeal against the decision of the arbitrator under
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sec. 16 that he had no jurisdiction to go into the dispute has to be filed before the Principal Civil Court
of Original Jurisdiction in the District as defined in Sec (2) (I) (e). It does not include the High Court
where it is not exercising any original civil jurisdiction. Since the Patna High Court does not exercise
any original civil jurisdiction, no such appeal would lie before it.
Second Appeal [37(3)]
This sub section provides that no second appeal shall lie from an order in appeal. The right of appeal to
the Supreme Court is not affected.
In Municipal Corporation of Greater Bombay v Patel Eng. Co Ltd (1994), no appeal was allowed
against the order of a single judge staying the enforcement of a bank guarantee pending the arbitration
proceedings over the matter, the matter being not within the scope of Sec.39 of the Act 1940 (Sec 37 of
the Act 1996).
In Cref Finance Ltd v Puri construction Ltd (2001) it was held by the High Court of Delhi that
where an appeal against an order of an Arbitral tribunal under Sec. 16 was adjudicated upon after due
consideration of merits, such consideration invested the order with the characteristics of an order in
appeal. Hence a further appeal was not maintainable.
Where the State Govt. did not raise any specific ground before the trial court that the award of interest
was not in terms of the contract or was without the authority of law and permitted the award, as it was,
to be rule of the court and converted into a decree, the Government was not permitted to raise this point
for the first time in appeal. The appeal was not maintainable as decided in State of Orissa v V P
Muralidharan Nair .AIR 1991.
In ITI Ltd v Siemens Public Communications Network Ltd (2002) the Supreme Court held that an
order passed by a civil court in an appeal under sec.37 of the Act.1996 is revisable by the High court
under sec.115 of the Civil Procedure Code. It is said that a revision under sec.115 would be a judicial
interference in the process of arbitration of such a nature as is not contemplated by Sec.5 of the Act.
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Chapter 11: Miscellaneous
This chapter deals with miscellaneous aspects pertaining to principles and practice of law arbitration.
Deposits, Lien, Jurisdiction of Courts, Statutory Arbitration, period of limitation, and Power of
Extension etc are mainly discussed in this chapter. This chapter is based on the Chapter X of the Act
1996.
11. 1; Deposits (sec. 38):
Sec 38 of the Act 1996 provides that;
The arbitral tribunal may fix the amount of the deposit or supplementary deposit, on the case may be,
as an advance for the costs referred to in sub-section (8) of section 31, which it expects will be incurred
in respect of the claim submitted to it;
Provided that where, apart from the claim, a counter-claim has been submitted to the arbitral tribunal, it
may fix separate amount of deposit for the claim and counter-claim.
The deposit referred to in sub-section (1) shall be payable in equal shares by the parties:
Provided that where one party fails to pay his share of the deposit, the other party may pay that share.
Provided further that where the other party also does not pay the aforesaid share in respect of the claim
or the counter-claim, the arbitral tribunal may suspend or terminate the arbitral proceedings in respect
of such claim or counter-claim, as the case may be.
Upon termination of the arbitral proceedings, the arbitral tribunal shall render an accounting to the
parties of the deposits received and shall return any unexpended balance to the party or parties, as the
case may be.
Special pints to be elucidated
Sec.38 (1) empowers the arbitral tribunal to fix the amount of deposit or supplementary deposit
towards advance for costs referred to Sec 31(8) of the Act and call upon the parties to deposit the sum.
As per explanation to Sec.3198) referred costs include;
(i) The fess expenses of arbitrators and witness
(ii) Legal fees and expenses
(iii) Any administrative fees of the institution supervising the arbitration
The said sub-section further provides that where there is counter claim, a separate amount of deposit
for claim and counter claim can be fixed. Generally institutional arbitrators fix additional element of
deposit for costs of administration
Sec.38 (2) provides that such deposits shall be made by the parties in equal shares. According to
proviso of this sub-section where on party fails to pay his share of deposit for claim or counter claim,
as the case may be the other party may pay that share. It is further provided that where the other party
also fails to pay that share, the arbitral tribunal may suspend or terminate the arbitral proceedings in
respect of claim or counter claim, as the case may be.
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According to sec.38(3) on the termination of the arbitral proceedings as mentioned above, the arbitral
tribunal is required to account for expenses spent against the deposit received from the party, it will
retain the deposits to the extent of costs incurred and return the unexpended balance to the party/
parties as the case may be.
11. 2; Lien on arbitral award and deposits as to costs (sec. 39)
Sec.39 of the Act provides that;
(1) Subject to the provisions of sub-section (2) and to any provision to the contrary in the
arbitration, agreement, the arbitral tribunal shall have a lien on the arbitral award for any unpaid
costs of the arbitration.
(2) If in any case an arbitral tribunal refuses to deliver its award except on payment of the costs
demanded by it, the Court may, on an application in this behalf, order that the arbitral tribunal
shall deliver the arbitral award to the applicant on payment into Court by the applicant of the
costs demanded, and shall, after such inquiry, in any, as it thinks, fit, further order that out of
the money so paid into Court there shall be paid to the arbitral tribunal by way of costs such
sum as the Court may consider reasonable and that the balance of the money, if any, shall be
refunded to the applicant.
(3) An application under sub-section (2) may be made by any party unless the fees demanded have
been fixed by written agreement between him and the arbitral tribunal, and the arbitral tribunal
shall be entitled to appear and be heard on any such application.
(4) The Court may make such orders as it thinks fit respecting the costs of the arbitration where any
question arises respecting such costs and the arbitral award contains no sufficient provision
concerning them.
Points to be elucidated
Sec.39 (1) empowers the tribunal to recover unpaid costs/ expenses of arbitration by exercising lien on
arbitral award i,e the right to retain the award. This means that the arbitral tribunal can withhold the
award until all costs of arbitration are paid. This is subject to any provision in the arbitration
agreement. However an application can be made to the court over this matter. The court may ask the
applicant to deposit the amount of unpaid costs with the court and order the arbitral tribunal to deliver
the award. The court may then enquire into the matter and may award costs to arbitral tribunal and
order for the refund of the balance to the applicant. The arbitral tribunal is entitled to be heard in
disposal of the application. Where the award does make sufficient provisions as to costs, the court may
make such order as to cost as it thinks fit.
As mentioned above if the arbitral tribunal exercises its lien, a party may apply to the court and the
court may order the tribunal to deliver the award to the party on deposit with the court of the amount
of costs demanded by the tribunal. After enquiring into the matter the court may order that out of the
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amount so deposited, an amount, which the court considers reasonable, be paid to the tribunal and the
balance, if any, be refunded to the applicant.
11.3; Arbitration agreement not to be discharged by death of party thereto (sec.40)
Sec. 40 of the Act provides that
(1) An arbitration agreement shall not be discharged by the death of any party thereto either as respects
the deceased or as respects any other party, but shall in such event by enforceable by or against the
legal representative of the deceased.
(2) The mandate of an arbitrator shall not be terminated by the death of any party by whom he was
appointed.
(3) Nothing in this section shall affect the operation of any law by virtue of which any right of action is
extinguished by the death of a person.
Points to be elucidated
Under the provisions of the said section, the death of party shall not discharge an arbitration agreement;
such agreement is enforceable against the legal representative of the deceased party. On the death of
any party, the legal representative as defined by Sec. 2(I) (g) of the Act shall be brought on record.
Under Sec. 40(2), the mandate of the arbitrator is also not terminated by the death of a part by whom he
was appointed.
Under Sec. 40(3), the operation of any law by which any right of action is extinguished by the death of
a person. In Brimco Bricks v Sitaram Agarwal, AIR, 1998, Raj; it was held that on death of party,
application for substitution should be allowed.
Thus the death of a party neither discharges the arbitration agreement nor revokes the authority of the
arbitrator. His legal representative is entitled as well as bound to be brought on record. But all this is
subject to the provisions of sec. 40(3), where the right of action is extinguished by the death of a person
, the arbitration proceeding would abate in the same manner as a suit would have abated. It is said that
when action is capable of surviving beyond the life of a person concerned, it may be enforced by as
well as against his legal representatives. This is very much applicable to arbitration proceedings.
In Chandra Nath Ojha v Suresh Jhalani (1999) SCC 628 on the death of a party , legal
representatives including those already party to arbitration proceedings, were brought on record ,
though the respondents contended that upon the death of a party, the agreement was to get
distinguished. The court held that the parties could be referred to arbitration.
In Ravi Prakash Goel v Chandra Prakash Goel (2008), SCC 667 AIR 2007, the court allowed the
legal representatives of a deceased partner to initiate arbitration proceedings.
11. 4; Insolvency and Arbitration Proceedings (Sec. 41)
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Sec.41 deals with the effect of insolvency of a party upon the arbitration proceeding with the following
provisions;
1) Where it is provided by a term in a contract to which an insolvent is a party that any dispute
arising thereabout or in connection therewith shall be submitted to arbitration, the said term
shall, if the receiver adopts the contract, be enforceable by or against him so far as it relates to
any such dispute.
2) Where a person who has been adjudged an insolvent had, before the commencement of the
insolvency proceedings, become a party to a arbitration agreement, and any matter to which the
agreement applies is required to be determined in connection with, or for the purposes of, the
insolvency proceedings. then, if the case is one to which sub-section (1) does not apply, any
other party or the receiver may apply to the judicial authority having jurisdiction in the
insolvency proceedings for an order directing that the matter in question shall be submitted to
arbitration in accordance with the arbitration agreement , and the judicial authority may, if it is
of opinion that, having regard to all the circumstances of the case, the matter ought to be
determined by arbitration, make an order accordingly.
3) In this section the expression receiver includes an Official Assignee.
Points to be elucidated
Sec.41(1) provides that if a party to contract with arbitration clause becomes insolvent and dispute
arising from the contract has to be referred to arbitration, the receiver appointed to administer the
estate adopts the said contract, then such term of arbitration shall be enforceable by or against him in so
far as it relates to such dispute. Precisely the receiver can either elect to adopt the contract or disclaim
the contract. If the receiver disclaims the contract, the provisions of this section shall not apply.
Sec 41(2) states that when the receiver, if any does not adopt the contract, the judicial authority having
jurisdiction in insolvency matters, on an application moved by the receiver or any other party may
order that the matter in question shall be submitted to arbitration in accordance with arbitration
agreement or arbitration clause in the agreement. If such judicial authority thinks fit that the matter
ought to be determined and decided by arbitration with or without purposes of insolvency, the court
may make an order accordingly.
One of the impacts of the insolvency of a party is that if the receiver or official assignee adopts the
contract with arbitration clause, he will become bound by the clause and the matter shall be decided by
arbitration.
11.5; Jurisdiction of Courts (se.42)
Sec. 42 provides 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
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subsequent applications arising out of that agreement and the arbitral proceedings shall be made in that
Court and in no other Court.
Points to be elucidated
The provision of this section corresponds to sec. 31 of the old Act 1940 and defines or confines
jurisdiction for application in arbitration proceedings covered under part 1 of the Act and thereby
regulates the forum. The provisions of the section signify that once an application is filled in a
particular court, that court and no other court will entertain subsequent applications.
In Punjab Land Development and Reclamation Corporation vs. Jai Shankar Transport (2000),
the Punjab and Haryana High court observed that 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 no other court.
The provisions of this section has to be read with the definition of the court under sec. 2(1)(e) which
provides that Court means the principal Civil Court of original jurisdiction in a district, and includes
the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the
questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit,
but does not include any civil court of a grade inferior to such principal Civil Court, or any Court of
Small Causes.
The Supreme Court in a case has observed that the necessity for clothing a single court with effective
and exclusive jurisdiction and to bring about by the combined operation of different provisions the
avoidance of conflict and scramble is equally essential whether the question arises during the pendency
of the arbitration or after the arbitration is completed or before the arbitration is commenced.
The proper court to entertain application under Sec 34 was the Principal Civil Court of Original
Jurisdiction, namely the District Judge and not the High Court as decided in Deepak Mitra V Royal
Projects Distt. Judge, Allahabad
In Food Corporation of India v Evdomen Corp. (1999) SCC 446; an arbitration agreement was
signed in Delhi. The arbitration was held in Bombay and the award filed by the arbitrator under the Act
1940 (not applicable under the Act 1996) in Bombay. The jurisdiction of the Bombay High Court in
that respect was upheld
11. 6; Period of Limitation and Power of Extension (sec.43)
Sec. 43 of the Act provides that
(1) The Limitation Act, 1963 (36 of 1963), shall, apply to arbitrations as it applies to proceedings
in court.
(2) For the purposes of this section and the Limitation Act, 1963 (36 of 1963), an arbitration shall
be deemed to have commenced on the date referred in section 21.
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(3) Where an arbitration agreement to submit future disputes to arbitration provides that any claim
to which the agreement applies shall be barred unless some step to commence arbitral
proceedings is taken within a time fixed by the agreement, and a dispute arises to which the
agreement applies, the Court, if it is of opinion that in the circumstances of the case undue
hardship would otherwise be caused, and notwithstanding that the time so fixed has expired,
may on such terms, if any, as the justice of the case may require, extend the time for such
period as it thinks proper.
(4) Where the Court orders that an arbitral award be set aside, the period between the
commencement of the arbitration and the date of the order of the Court shall be excluded in
computing the time prescribed by the Limitation Act, 1963 (36 of 1963), for the
commencement of the proceedings (including arbitration) with respect to the dispute so
submitted.
Points to be elucidated
The spirit of the above provisions is that the Limitation Act applies to arbitration proceedings as well
as exercise of discretion by the court to extend time for reference to arbitration to relieve a party of
undue hardship.
Where the agreement provides the time within which the dispute must be referred to arbitration and
after which the right shall be barred, the court can extend time in order to relieve a party of undue
hardship.
Where the court orders for setting aside of an award, for computing the period of limitation under the
Limitation Act, the period from commencement of arbitration proceedings to the order of the court
shall be excluded.
It is observed by the Supreme Court that "a cause of arbitration arises when the claimant becomes
entitled to raise the question I,e when the claimant acquires the right to require arbitration. The
limitation would run from the date when the cause of action would have accrued, but for the
agreement. Limitation commences from the date on which the cause of arbitration accrues. Cause of
arbitration arises, like cause of action in civil suits, as soon as dispute or difference arises on
unequivocal denial of claim of one party by the other party as a result of which the claimant acquires
the right to refer the dispute to arbitration. This will be so notwithstanding a provision in the
arbitration clause that no cause of action shall accrue until the award is made" State of Orissa v
Damodar Das (1996) SCC 216; AIR 1996 SC 942.
Extension of time fixed in the agreement for making a reference is in the discretion of the court. It is
not automatic and it is only granted if undue hardship would otherwise be cause as observed by the
Supreme Court in Panchu Gopal Bose v Board of Trustees for Port of Calcutta, 1993. In the said
case, the Supreme refused to grant extension of time under S.14 of the Limitation Act 1963 as the party
seeking to enforce the arbitration clause had been sleeping over his rights for more than 10years. The
court has further observed that "an extension of time is not automatic and it is only granted if undue
hardship would otherwise be caused. Not all hardship however is undue hardship; it may be proper
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that hardship caused to a party by his own default should be borne by him and not transferred to the
other party by allowing a claim to be responded after it became barred. The mere fact that a claim was
barred could not be held to be undue hardship."
In Hari Shankar Singhania v Gauri Hari Singhania (2006) SCC 658; AIR 2006; SC 2488; where
under the 1940 Act, petition was for challenging the validity and existence of the arbitration clause,
the Supreme Court observed that the period of limitation would begin when the cause for arbitration
was disclosed to the applicant and the same has was invoked. The letter which was sent to Registrar,
Tribunal of Arbitration, asking for settlement of the disputes, disclosed the intention to invoke the
arbitration clause. The reckoning period would be the date of receipt of the notice. The petition was
filed after the expiry of three years from that date. Thus it was time-barred.
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Chapter 12: Enforcement of Certain Foreign Awards
Part II of the Arbitration and Conciliation Act 1996, deals with the Enforcement of Certain Foreign
Awards. Chapter I in it deals withNew York Convention awards andChapter II deals with the Geneva
Convention Awards. Sections 44 of the Act define the foreign awards as to mean an arbitral award on
difference or dispute between persons arising out of legal relationship, whether contractual or not,
considered commercial under the law in force in India made on or after the 11th October 1960 in case
of New York Convention awards and after the 28th July 1924 in case of Geneva Convention Awards.
Thus the foreign awards which can be enforced in India are ...a) New York Convention awards--made
after 11th October 1960) and b) Geneva Convention Awards--made after 28th July 1924, but before the
Government signed the New York Convention. Since the New York Conventionhas been signed by
most of the countries, New York Convention awards are enforceable in India.
The first to international convention namely the Geneva Protocol 1923 followed by the Geneva
Convention 1927 were adopted in India. Then New York Convention of 1960 retaining the features of
the first two conventions is adopted in India; The model Law is based on New York Convention. The
first two conventions were implemented by the Indian Legislature in the Arbitration (Protocol and
Convention) Act 1937. Then when the New York Convention came into effect, the same was
implemented through the Foreign Awards (Recognition and Enforcement) Act 196. The above two
Acts are then amended and consolidated in PartII of the Arbitration and Conciliation Act 1996. Thus
both the Geneva Convention 1927 and the New York Convention have been recognized by the Indian
Legislature for enforcement of foreign awards. It is important to mention that these conventions have
had significant role in bringing about recognition and enforcement of foreign awards of international
commercial arbitrations for the development of international trade
Any foreign awards whether made under New York Convention or Geneva Convention which would
be enforceable under the Act have been treated as binding for all purposes as between whom it was
made and may accordingly be relied on by any of those persons by way of defence, set off or otherwise
in any legal proceedings in India.
12.2; International Commercial Arbitration:
The Arbitration and Conciliation Act 1996 provides for certain aspects of international commercial
arbitration. The term `international commercial arbitration' has been defined by sec (2)(I)(f) in the
following direction
"International Commercial Arbitration" means an arbitration relating to disputes arising out of legal
relationships, whether contractual or not, considered as commercial under law in force in India and
where at least one of the parties is:
(i) an individual who is a national of, or habitual resident in, any country other than India; or
(ii) a body corporate which is incorporated in any country other than India; or
(iii) a company or an association or a body of individuals whose central management and
control is exercised in any country other than India; or
(iv) the Government of a foreign country
Thus International Commercial Arbitration implies different things to different people in the different
parts of the world. International Commercial Arbitration is necessary aide and accessory to
international commerce, an indispensible catalyst for world trade development.
12.3; Enforcement of Foreign Awards under earlier the Foreign Awards Act 1961;
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It was provided in this Act that the awards should not be contrary to the public policy. The Public
Policy does not mean International public policy of the USA, but as referable to public policy of India
as decided in Renusagar Power Co. Ltd V. General Electric Company,AIR 1971
12.4; Foreign award before the Act 1996 came into effect
As decided in Serajudin& Co Michael Golodetz (1960) the Calcutta High Court held that the foreign
awards are essentially the decisions of the foreign arbitration. The `foreign arbitration is defined as one
held outside the Indian Territory; ii) by foreign arbitrators; iii) to which foreign law is applicable; iv) in
which foreign national is involved as party.
In Harendra H. Mehta v. Mukesh H Mehta, the parties had business in India and in the USA as a
joint venture. They also had several properties in both the countries. Certain differences occurred
between the parties. An arbitration agreement was entered into and they appointed an arbitrator to
divide and distribute the assets and liabilities of the business jointly held by them. Hearings were held
and an award was passed in the USA.
Here the question arose whether the award so passed in the USA could be treated as a foreign award
enforceable under the Act of 1961. The Supreme Court held that it was enforceable. The differences
that arose between the parties had arisen out of a legal relationship and were certainly of commercial in
nature. Hence the award came within purview of the Act
New York Convention awards; (Sections 44 to 52);
The Act of 1961 has been repealed by the Arbitration and Conciliation Act 1996. Part 11 of the Act
1996 makes the provisions of for enforcement of certain foreign awards.
12.5; Foreign Award under the ACT 1996
Sec.44 provides that unless the context otherwise requires, foreign award means an arbitral award on
differences between persons arising out of legal relationships, whether contractual or not, considered as
commercial under the law in force in India, made on or after the 11th day of October, 1960
(a) in pursuance of an agreement in writing for arbitration to which the Convention set forth in the
First Schedule applies, and
(b) In one of such territories as the Central Government, being satisfied that reciprocal provisions
have been made may, by notification in the Official Gazette, declare to be territories to which
the said Convention applies.
Points to be applied
As mentioned above a `foreign award as defined under the Foreign Awards Act 96 (repealed) and now
sec 44 of the Arbitration and Conciliation Act 1996 means an award made on or after October 1960 on
differences arising between persons out of legal relationship, whether contractual or not.
For the purpose of being foreign award in the preview of the provisions of the this section it must fulfill
the following conditions;
i) It must be an award on difference arising out of legal relationship considered as commercial
under the law in force in India
ii) It must have been made on or after 11th October 1960
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iii) It must have been made in pursuance of an agreement in writing for arbitration to which the
Convention set forth in the First Schedule (New York Convention) applies
iv) It must have been made in one of the reciprocating contracting States notified by the Central
Government.
It shall be governed by New York Convention and not to be governed by the Law of India.
An award is foreign not merely because it is made in the territory of a foreign state, but because it is
made in such a territory on an arbitration agreement not governed by the law of India.
12.6; Power of judicial authority to refer parties to arbitration.(sec. 45)
Notwithstanding anything contained in Part I or in the Code of Civil Procedure, 1908 (5 of 1908), a
judicial authority, when seized of an action in a matter in respect of which the parties have made an
agreement referred to in section 44, shall, at the request of one of the parties or any person claiming
through or under him, refer the parties to arbitration, unless it finds that the said agreement is null and
void, inoperative or incapable of being performed.
Points to be remembered
Sec. 8 in Part I as well as sec.45 in Part II of the Act 1996 provide for the power of the judicial
authority to refer parties to arbitration where there is arbitration agreement. As the sec.8 and sec.45 of
the Act are set in different contexts, they are differently structured though the purpose of the provisions
is the judicial authority's power to refer parties to arbitration. Sec 8 deals with the power of the judicial
authority to refer parties to arbitration, where an action is brought in respect of arbitration in a domestic
arbitration to which provisions of Part I of the Act apply. But the provisions of Sec.45 of the Act can be
invoked in connection with the enforcement of foreign award where judicial authority is seized of an
action in a matter in respect of which the parties have made an agreement referred to in Sec.44 of the
Act.
Sec 45 envisages that before referring parties to arbitration the judicial authority should be satisfied
that the arbitration the judicial shall be satisfied that the arbitration agreement is valid, operative and
capable of being performed and that the dispute has been agreed to be referred to arbitration as per
written arbitration agreement.
12.6; When foreign award binding (sec. 46)
Sec 46 provides that any foreign award which would be enforceable under this Chapter shall be treated
as binding for all purposes on the persons as between whom it was made, and may accordingly be
relied on by any of those persons by way of defence, set off or otherwise in any legal proceedings in
India and any references in this Chapter to enforcing a foreign award shall be construed as including
references to relying on an award.
Points to be remembered
According to the provisions of the sec, any foreign award which if enforceable under part II of 1996
Act, it shall be treated as binding for purposes on the persons as between whom it was made.
A foreign award enforceable under sec. 48 shall treated as binding and could be relied upon by any of
those persons by way of defence set off or otherwise in any legal proceedings in India
In order to make the above provisions really effective, Sec.46 declares that any foreign award which
would be enforceable under the Act shall be treated as binding for all purposes on the parties to the
agreement. It can be relied on by any of these parties by way of defence, set off or otherwise in any
legal proceedings in India as mentioned above
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This section does not provide any time limit when the award becomes binding or deemed to be binding.
However a domestic award becomes final and binding according to sec 34 to 36 a domestic award
becomes final and binding after expiry of three months of the date of receipt of award unless an
application challenging that award has been made within the said period of 3 months.
12.7; Evidence (Sec.47)
Sec. 47 which deals with the matters of evidence provide that
(1) The party applying for the enforcement of a foreign award shall, at the time of the application,
produce before the court-
(a) the original award or a copy thereof, duly authenticated in the manner required by the law
of the country in which it was made
(b) the original agreement for arbitration or a duly certified copy thereof; and
(c) such evidence as may be necessary to prove that the award is a foreign award.
(2) If the award or agreement to be produced under sub-section (1) is in a foreign language, the party
seeking to enforce the award shall produce a translation into English certified as correct by a
diplomatic or consular agent of the country to which that party belongs or certified as correct in
such other manner as may be sufficient according to the law in force in India.
Explanation.---In this section and all the following sections of this Chapter, Court means the principal
Civil Court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary
original civil jurisdiction, having jurisdiction over the subject-matter of the award if the same had been
the subject-matter of a suit, but does not include any civil court of a grade inferior to such principal
Civil Court, or any Court of Small Causes.
Points to be noted
Sec 47 to Sec.49 deal with the enforcement process of foreign award. The process is followed for the
purpose as mentioned in these sections; i) a party seeking enforcement of an award, has to make an
application; ii) such application shall be accompanied by documentary evidence; iii) the other party
(respondent) may resist the enforcement on any of the defences mentioned in Sec. 48 discussed
hereinafter. Once the court is satisfied that the award is enforceable, in accordance with the provisions
of sec. 49, it will enforce the award as decree of the court.
12.8; Conditions for enforcement of foreign awards (Sec.48)
Sec.48 provides for Conditions for enforcement of foreign awards.in the following terms
"---- (1) Enforcement of a foreign award may be refused, at the request of the party against whom it is
invoked, only if that party furnishes to the court proof that----
(a) the parties to the agreement referred to in section 44 were, under the law applicable to them,
under some incapacity, or the said agreement is not valid under the law to which the parties
have subjected it or, failing any indication thereon, under the law of the country where the
award was made; or
87
(b) the party against whom the award is invoked was not given proper notice of the appointment of
the arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(c) the award deals with a difference not contemplated by or not falling within the terms of the
submission to arbitration, or it contains decisions on matters beyond the scope of the
submission to arbitration;
Provided that, if the decisions on matters submitted to arbitration can be separated from those not
so submitted, that part of the award which contains decisions on matters submitted to arbitration
may be enforced; or
(d) the composition of the arbitral authority or the arbitral procedure was not in accordance with
the agreement of the parties, or, failing such agreement, was not in accordance with the law of
the country where the arbitration took place ; or
(e) the award has not yet become binding on the parties, or has been set aside or suspended by a
competent authority of the country in which, or under the law of which, that award was made.
(2) Enforcement of an arbitral award may also be refused if the court finds that-
(a) the subject matter of the difference is not capable of settlement by arbitration under the law of
India; or
(b) the enforcement of the award would be contrary to the public policy of India.
Explanation--Without prejudice to the generality of clause (b), it is hereby declared, for the
avoidance of any doubt, that an award is in conflict with the public policy of India if the making of
the award was induced or affected by fraud or corruption.
(3) If an application for the setting aside or suspension of the award has been made to a competent
authority referred to in clause (e) of sub-section (1) the Court may, if it considers it proper, adjourn
the decision on the enforcement of the award and may also, on the application of the party claiming
enforcement of the award, order the other party to give suitable security.
Points to be noted
Sec. 48 of the Act enumerates an exhaustive list of grounds for refusing enforcement of a foreign
award. The court is required to enforce an award unless it is satisfied that any one or more of the
seven conditions specified in this section are existing. The provisions of the sections are based on
Article 36 of the Model Law, which adopted articles V and VI of New York Convention 1958.
The five conditions as specified (a) to (e) in Sec.48 (1) deals with the procedural defects that vitiate a
foreign award in the country in which or under the law of which that was made. On satisfaction of any
of the conditions, a party against whom an award is made may set up any or more of these grounds for
resisting enforcement of a foreign award in India.
Under sec.48(1)the enforcement of foreign award may be refused on furnishing of the following proof
at the request of the party against whom it is invoked;
a) Incapacity of parties under the law applicable to them (Cl. a)
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b) Invalidity of the agreement under the law to which the parties are subject to (Cl. b)
c) Lack of proper notice of the appointment of arbitrator or the notice of arbitral proceeding the
party against whom it is invoked or the party was otherwise unable to present his case
d) Award beyond the scope of reference (Cl. c)
e) Illegality in composition of arbitral tribunal or arbitral procedure (Cl. d)
f) Award not yet binding on the parties or has been set aside or suspended by competent authority
of the country in which the award was made (Cl. e)
Under sec.48(2) on the following findings of the court, the enforcement of foreign award may be
refused at the request of the party against whom it is invoked;
a) Subject matter of difference not arbitrable (Cl. a)
b) Enforcement of award against public policy (Cl. b)
sec.48(3) deals with adjournment of enforcement of foreign awards by the court on application of a
party for setting aside or suspension.
In Venture Global Engg v Satyam Computer Services Ltd (2008), the Supreme observed that the
respondent could not have pursued the enforcement proceedings in the District Court in Michigan,
USA in the teeth of the injunction granted by the courts of India, which also, on the basis of comity of
courts, should have been respected by the foreign courts.
Where there is a special provision to apply for enforcement for enforcement of foreign awards then the
general provisions including provisions for challenging to the award considering special provisions
would be excluded. So the application of Part II is invoked, Part I would not applyas decided in Force
Ship Ltd. V. Ashapurna Min. Chem. Ltd (2003), Bombay. Accordingly under part 1, a decree can
be executed if the challenge made under Sec.34 fails. An foreign award is enforced unless any one or
more of the seven conditions specified in this section are existing as per the provisions specified in Sec
48.
12.9; Enforcement of foreign awards (Sec.49)
Sec. 49 provides that where the Court is satisfied that the foreign award is enforceable under this
Chapter, the award shall be deemed to be a decree of that Court.
Points to be elucidated
A petition for enforcement of a foreign award can be filed in any part of the country where an
answerable party to the claim may have money or where a suit for recovery can be filed.
In Centrotrade Minerals Metals v Hindustan Copper Ltd 2004; Cal. it was held that both the
parties can approach the court with their respective prayers, the plea that it is only the person against
whom award has gone can approach the court is not tenable. Though the court has to examine each
award for its enforceability, but it can pass interim orders for protecting the interest of the person
seeking enforcement of award.
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12.10; Appealable orders (sec.50)
Se. 50 that deals with appealable orders provide as under;
As per Sec. 50 (1) An appeal shall lie
a) froma judicial authority's order refusing to refer the parties to arbitration under section 45;
b) from the court's order refusing to enforce a foreign award under section 48,
Appeals lie to the court authorized by law to hear appeals from such order.
Sec.50 (2) provides that no second appeal shall lie from an order passed in appeal under this section,
but nothing in this section shall affect or take away any right to appeal to the Supreme Court.
Points to be elucidated
Sec 50 provides for an appeal against certain orders under sections 45 and 48. As we know sec. 45
deals with refusal of the request of one of the parties to refer the parties to refer the parties to
arbitration by judicial authority and Sec.48 deals with refusal to enforce the award on the grounds
specified in that section. Hence an appeal shall lie on the refusal of Judicial authority to refer the
parties to arbitration under sec 45 or where the court refuses to enforce an award on the grounds
specified under sec.48 an appeal shall lie from such order of refusal to the court authorized by law to
hear such appeals.
Sec. 50(2) provides that no second appeal les against the appellate decision of the court under
sec.50(1). However nothing in this provision shall affect or take away any right to appeal to the
Supreme Court.
12.11. Saving:
Sec. 51 provides that nothing in this Chapter shall prejudice any rights which any person would have
had of enforcing in India of any award or of availing himself in India of any award or of availing
himself in India of any award if this Chapter had not been enacted.
Points to be noted
Section 51 protects the rights of a person, which he would have to enforce a foreign award in India or
availing himself in India of any award, if this chapter had not been enacted. This section reproduces the
language of sec. 9(a) of the Foreign Awards (Recognition and Enforcement) Act 1961.
12.12; Chapter II not to apply (Sec. 52)
As per Sec. 52 Chapter II of this Part shall not apply in relation to foreign awards to which this Chapter
applies.
Points to be noted
Section 52 excludes the application of Chapter II (Geneva Convention Awards) in relation to the
enforcement of foreign awards. In other words, where foreign award is made in a country which is
signatory both to the New York Convention, as well as the Geneva Convention, that award will be
enforceable in accordance with the procedure provided in the New York Convention, and not with the
Geneva Convention.
Geneva Convention Awards (Chapter II).. Part II of The Act 996
12.13; Interpretation and definition of foreign Awards (sec.53):
Sec. 53 of the Act'1996 defines and interprets `foreign award' in the following terms
90
"In this Chapter foreign award means an arbitral award on differences relating to matters considered as
commercial under the law in force in India made after the 28th day of July, 1924,-
(a) in pursuance of an agreement for arbitration to which the Protocol set forth in the Second Schedule
applies, and
(b) between persons of whom one is subject to the jurisdiction of some one of such Powers as the
Central Government, being satisfied that reciprocal provisions have been made, may, by notification in
the Official Gazette, declare to be parties to the Convention set forth in the Third Schedule, and of
whom the other is subject to the jurisdiction of some other of the Powers aforesaid, and
(c) in one of such territories as the Central Government, being satisfied that reciprocal provisions have
been made, may, by like notification, declare to be territories to which the said Convention applies,and
for the purposes of this Chapter an award shall not be deemed to be final if any proceedings for the
purpose of contesting the validity of the award are pending in the country in which it was made.
Points to be elucidated
In order to qualify as a `foreign award' must satisfy the following requirements;
a) It must be an arbitral award relating to the matters considered as commercial under the law in
force in India after 28th July 1924
b) It must have been made in pursuance of an agreement for arbitration to which the Protocol set
forth in the Second Schedule applies
c) It must have been between persons of whom one is subject to the jurisdiction of some one of
such Powers as the Central Government, being satisfied that reciprocal provisions have been
made, may, by notification in the Official Gazette, declare to be parties to the Convention set
forth in the Third Schedule, and of whom the other is subject to the jurisdiction of some other
of the Powers aforesaid.
12.4; Power of judicial authority to refer parties to arbitration (sec.54)
Sec. 54 deals with the power of judicial authority to refer parties to arbitration in the following terms;
"Notwithstanding anything contained in Part I or in the Code of Civil Procedure, 1908 (5 of 1908), a
judicial authority, on being seized of a dispute regarding a contract made between persons to whom
section 53 applies and including an arbitration agreement, whether referring to present or further
differences, which is valid under that section and capable of being carried into effect, shall refer the
parties on the application of either of them or any person claiming through or under him to the decision
of the arbitrators and such reference shall not prejudice the competence of the judicial authority in case
the agreement or the arbitration cannot proceed or becomes inoperative."
Points to be noted
Sec. 54 is akin to section 8 and 45 of the Act 1996. As explained earlier Sec.8 under Part I provides a
time limit for filing the application before the judicial authority, for referring the party to arbitration,
but there is no such time limit under section 45 and this section 54.
As per provisions of this section the power to be exercised by the judicial to refer the parties to
arbitration is not determined by the Part I of the Act and the code of Civil Procedure 1908. The
Judicial Authority shall refer the parties to arbitration if the following requirements are satisfied;
i) the Judicial Authority has been seized of a dispute regarding a contract
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ii) such contract has been made between the persons to whom the provisions of sec.53 apply
iii) such contract must include an arbitration agreement; whether referring to present or future
difference
iv) the agreement is valid under sec 53 and capable of being carried into effect
v) there is an application by any one of the parties or any person claiming through under him
Such references shall not prejudice the competence of the judicial authority in case the agreement or
the arbitration cannot proceed or become inoperative.
12.15; Foreign awards when binding (sec.55)
Sec. 55 deals with Foreign awards which are binding and provides that any foreign award which would
be enforceable under this Chapter shall be treated as binding for all purposes on the persons as between
whom it was made, and may accordingly be relied on by any of those persons by way of defence, set
off or otherwise in any legal proceedings in India and any references in this Chapter to enforcing a
foreign award shall be construed as including references to relying on an award.
Points to be elucidated
As per provisions of the section 55 of the Act an enforceable award is to be treated as binding on all
persons between whom it was made. It may be relied on any of the parties by way of references in this
chapter in Part II to enforcing a foreign award shall be constructed as references to relying on the
award. In a case the Bombay High Court held that a foreign award under this chapter or the 1937 Act is
not an award under the 1940 Act although for the purposes of enforcement, it is deemed to be an award
rendered in India.
12.16; Evidence to be produced by the party before the court:
Sec. 56 on Evidence to be produced before the Court provides that
(1) The party applying for the enforcement of a foreign award shall, at the time of application
procedure before the Court---
a) the original award or a copy thereof duly authenticated in the manner required by the law of the
country in which it was made
b) evidence proving that the award has become final; and
c) such evidence as may be necessary to prove that the conditions mentioned in clauses (a) and (c)
of sub-section (1) of section 57 are satisfied.
(2) Where any document requiring to be produced under sub-section (1) is in a foreign language, the
party seeking to enforce the award shall produce a translation into English certified as correct by a
diplomatic or consular agent of the country to which that party belongs or certified as correct in such
other manner as may be sufficient according to the law in force in India.
Explanation.---In this section and all the following sections of this Chapter, Court means the principal
Civil Court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary
original civil jurisdiction, having jurisdiction over the subject-matter of the award if the same had been
the subject matter of a suit, but does not include any civil court of a grade inferior to such principal
Civil Court, or any Court of Small Causes.
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Points to be elucidated
Sec 56 places greater obligation on the party applying for enforcement of the foreign award. It requires
the party seeking enforcement to make an application to the court for enforcement and produce the
following documentary evidences before the court at the time of making application; a) the original
award or a copy thereof duly authenticated as required by the law, b) evidence proving that the award
has become final; and c) such evidence as may be necessary to prove that the conditions mentioned in
clauses (a) and (c) of sub-section (1) of section 57 are satisfied.
12. 17: Conditions for enforcement of foreign awards (Sec.57)
Sec.57 prescribes conditions for enforcement of foreign awards in the following terms;
(1) In order that a foreign award may be enforceable under this Chapter, it shall be necessary that--
a) the award has been made in pursuance of a submission to arbitration which is valid under the
law applicable thereto;
b) the subject-matter of the award is capable of settlement by arbitration under the law of India;
c) the award has been made by the arbitral tribunal provided for in the submission to arbitration or
constituted in the manner agreed upon by the parties and in conformity with the law governing
the arbitration procedure;
d) the award has become final in the country in which it has been made, in the sense that it will not
be considered as such if it is open to opposition or appeal or if it is proved that any proceedings
for the purpose of contesting the validity of the award the pending;
e) the enforcement of the award is not contrary to the public policy or the law of India.
Explanation;---Without prejudice to the generality of clause (e), it is hereby declared, for the avoidance
of any doubt, that an award is in conflict with the public policy of India if the making of the award was
induced or affected by fraud or corruption.
(2) Even if the conditions laid down in sub-section (1) are fulfilled, enforcement of the award shall be
refused if the Court is satisfied that---
a) the award has been annulled in the country in which it was made;
b) the party against whom it is sought to use the award was not given notice of the arbitration
proceedings in sufficient time to enable him to present his case; or that, being under a legal
incapacity, he was not properly represented;
c) the award does not deal with the differences contemplated by or falling within the terms of the
submission to arbitration or that it contains decisions on matters beyond the scope for the
submission or arbitration;
Provided that if the award has not covered all the differences submitted to the arbitral tribunal, the
Court may, if it thinks fit, postpone such enforcement or grant it subject to such guarantee as the
Court may decide.
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(3) If the party against whom the award has been made proves that under the law governing the
arbitration procedure there is a ground, other than the grounds referred to in clauses (a) and (c) of sub-
section (1) and clauses (b) and (c) of sub-section (2) entitling him to contest the validity of the award,
the Court may, if it thinks fit, either refuse enforcement of the award or adjourn the consideration
thereof, giving such party a reasonable time within which to have the award annulled by the competent
tribunal.
Points to be noted
This section which is similar to sec. 48 that apply to the New York Convention Awards is based on
articles I & II of the Geneva Convention and Sec. 7 of the 1937 Act.
Sub-section (1) & (2) of the section specify the conditions that need to be satisfied before foreign
award becomes enforceable in India.
Sec.57 (3) specifies the circumstances under which the court may at the instance of the party opposing
the enforcement refuse to enforce the award. According to this sub-section, if the party against whom
the foreign award is sought to be enforced proves to the court that there is another ground making him
to contest the validity of the award, the court may in its discretion, refuse enforcement of the award or
adjourn the enforcement proceedings for consideration of tribunal to have the award annulled by the
competent tribunal.
12.18; Enforcement (sec.58):
Sec. 58 provides that where the Court is satisfied that the foreign award is enforceable under this
Chapter, the award shall be deemed to be a decree of the Court.
Points to be noted specially
This section provides that where the court is satisfied that the foreign award is enforceable under the
chapter 2 in Part II of the Act, 1996, the award shall be treated as a decree of the court. The provisions
of this section under Chapter 2 correspond with those of sec. 49 in Chapter 1.
Though this section is based on Sec. 6 of the Arbitration (Protocol and Convention) Act 1937, but there
are substantial changes to the effect that under sec.58 when the court is satisfied that the foreign award
is enforceable, it becomes automatically a decree of the court, but under Sec. 6 of the Act 1937 upon
being satisfied that the foreign award is enforceable, the court would order the award to be filled and
would pronounce judgment in accordance with the award. A decree would then follow the judgment so
pronounced.
12.19; Appealable orders
Sec. 59 which deals with orders that are appealable provides that
1) An appeal shall lie from the order refusing----
a) to refer the parties to arbitration under section 54: and
b) to enforce a foreign award under section 57
to the court authorized by law to hear appeals from such order
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2) No second appeal shall lie from an order passed in appeal under this section, but nothing in this
section shall affect or take away any right to appeal to the Supreme Court.
Points to be noted specially
Sec.59 (2) bars a second appeal against the appellate order passed under this section. However right to
appeal to the Supreme Court is not affected.
12.20; saving (sec.60)
This section provides that nothing in this Chapter shall prejudice any rights which any person would
have had of enforcing in India of any award or of availing himself in India of any award if this Chapter
(chapter II of Part II of 1996 Act) had not been enacted.
Points to be noted specially
In Badatand Co v. East India Trading Co (1994) the Supreme Court held that apart from the
provisions of this Act, foreign awards and foreign judgment based on those awards are enforceable in
India on the same grounds and in the same circumstances in which they are enforceable in England
under the common law on the grounds of justice, equity and good conscience. This case may also apply
to the provisions of sec. 60 of the Act 1996
A recent Supreme Court Judgment on enforcement of foreign award
In Bharat Aluminium Co. vs. Kaiser Alluminium Technical Services, Inc (2012) the Supreme
Court held that the Arbitration Act, 1996 has accepted the territoriality principle which has been
adopted in the UNCITRAL Model Law. Section 2(2) makes a declaration that Part I of the Arbitration
Act, 1996 shall apply to all arbitrations which take place within India.
"We are of the considered opinion that Part I of the Arbitration Act, 1996 would have no application to
International Commercial Arbitration held outside India. Therefore, such awards would only be subject
to the jurisdiction of the Indian courts when the same are sought to be enforced in India in accordance
with the provisions contained in part II of the Arbitration Act, 1996 ..."
In the opinion of the Supreme Court, the provisions in the Arbitration Act, 1996 make it crystal clear
that there can be no overlapping or intermingling of the provisions contained in part I with the
provisions of the Part II of the Act 996 and the provision contained in Section 2(2) of the Arbitration
Act, 1996 is not in conflict with any of the provisions either in Part I or in Part II of the Arbitration Act,
1996.
1) In a foreign seated international commercial arbitration, no application for interim relief
would be maintainable under Section 9 or any other provision, as applicability of Part I of
the Arbitration Act, 1996 is limited to all arbitrations which take place in India.
2) Similarly, no suit for interim injunction simplicitor would be maintainable in India, on the
basis of an international commercial arbitration with a seat outside India. In this case, the
Supreme Court concluded that Part I of the Arbitration Act, 1996 is applicable to all the
arbitrations which take place within the territory of India
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Annexure I: Case Study No. 1 [Ref. Sec.11 (6)]
M/S. Indong Tea Co. Pvt. Ltd vs National Insurance Co. Ltd on 21 August, 2008
AP No. 312 of 2007; IN THE HIGH COURT AT CALCUTTA
M/S. INDONG TEA CO. PVT. LTD. Plaintiff/Petitioner/Applicant Versus
NATIONAL INSURANCE CO. LTD. Defendant/Respondent BEFORE:
The Hon'ble JUSTICE PINAKI CHANDRA GHOSE
The Court: This is an application under section 11(6) of the Arbitration and Conciliation Act, 1996. I have heard
the learned Advocates for the parties. In this matter the disputes and differences between the parties are covered
by the arbitration agreement, which has not been disputed by the learned Advocates appearing for the parties.
The point tried to be urged before me is that the petitioner is not entitled to claim any amount under the
agreement. This point is also to be adjudicated upon by the learned Arbitrator so appointed herein. The Hon'ble
Supreme Court has already held that after filing of the application before the Court, it is the duty of the Court to
appoint Arbitrator. Accordingly, in my opinion, the disputes and differences have to be referred before the
Arbitrator and the Arbitrator would have to be named under section 11(6) of the Arbitration and Conciliation
Act, 1996. I, therefore, appoint Mr. R.P. Banerjee, Bar-at-Law as Arbitrator to adjudicate the disputes and
differences between the parties. The remuneration of the learned Arbitrator is fixed at 200 G.Ms per sitting. Such
remuneration is to be shared by the parties equally. The learned Arbitrator shall also be at liberty to appoint
Stenographer and Clerk and their remuneration shall be fixed by the Arbitrator in a meeting of the parties and to
be paid by the parties in equal share. The Arbitrator shall also be at liberty to appoint an Interpreter, if occasion
so arises, whose remuneration shall also be fixed by the Arbitrator in a meeting of the parties and to be shared
equally by the parties. If the learned Arbitrator requires to have any technical assistance, he will be at liberty to
appoint a technical expert to help in the matter and the remuneration of the said technical expert shall be fixed by
the learned Arbitrator and to be borne by the parties equally.
The application is thus disposed of.
All parties concerned are to act on a xerox signed copy of the minutes of this order on the usual undertakings.
Urgent xerox certified copy of this order, if applied for, be supplied to the parties subject to compliance with all
requisite formalities. (PINAKI CHANDRA GHOSE, J.)
Case Study No. 2; (Ref. Sec.34 of the Act)
The United India Insurance v Crescent International, 2008, Bom High Court
Re; Arbitration Petition no.83 of 2007; Petition under section 34 of the Arbitration & Conciliation Act,
1996 to challenge the Award passed by the Arbitral Tribunal
Petitioners -United India Insurance Company Limited have filed this Petition under section 34 of the
Arbitration & Conciliation Act, 1996 (hereinafter referred to as "t he said Act" ) to challenge the
Award dated 14/11/2006 passed by the Arbitral Tribunal, Mumbai. By the said Award, the Arbitral
Tribunal directed the Petitioner to pay a sum of Rs 98,57,070/- with interest @ Rs 9% from
01/05/2003 till the date of actual payment plus costs of Rs 3,00,000/-.
Brief facts are as under:-
1) Respondents are a partnership firm carrying on business in chemicals etc. Petitioners had issued the
Standard Fire and Special Peril Policy, covering stock of materials which were stored in Gala No.9.
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This policy was issued to the extent of a sum of Rs 50,00,000/- for the period of validity between
24/07/2002 to 23/07/2003. The second policy was also issued by the Divisional Office of the
petitioners, covering the stock of chemicals and plastics in Godown/Gala No.9 and it was to the
extent of Rs 50, 00,000/- for the period of validity between 28/10/2002 to 27/10/2003.
2) On 08/03/2003, a fire broke out in the insured premises and spread to Gala No.9. Respondents
informed the said incident of fire to the Divisional Office of the petitioners by their letter dated
09/03/2003.
3) Surveyors were, accordingly, appointed by the petitioners and they took inspection of Godown
No.9 and inspected the records made available by the respondents and on the basis of the said
material, they issued their final survey report assessing the loss at Rs 66,13,613.77. Petitioners sent
a letter to the respondents dated 26/12/2003 informing the respondents about the receipt of the
surveyors' report. Respondents, however, were informed that the petitioners needed certain
clarifications and true facts were brought to the notice of the respondents viz that the respondents
had demolished Gala No.9 without taking prior permission from the Surveyors and, secondly, it
was pointed out that there was overwriting in the xerox copy of the lease agreement which was
given by the respondents. Thereafter, there was exchange of some correspondence between the
petitioners and the respondents.
4) Respondents, thereafter, invoked an arbitration clause and referred the matter to the Arbitral
Tribunal. The Arbitral Tribunal, thereafter, passed the impugned Award.
5) Being aggrieved by the said Award, the petitioners have filed this Petition under section 34 of the
said Act.
6) Mr. Mehta, the learned Counsel appearing on behalf of the petitioners, submitted that the dispute
could not be referred to arbitration as per the arbitration clause. He submitted that the Tribunal did
not have jurisdiction to pass an Award. He submitted that in the impugned Award passed by the
Tribunal, the issue of jurisdiction was not raised. He therefore submitted that, on this ground alone,
the impugned Award is liable to be set aside.
7) On the other hand, the learned Counsel appearing on behalf of the respondents submitted that the
issue of jurisdiction had been raised by the petitioners in the Written Statement and, at the request
of the petitioners, preliminary issue of jurisdiction was framed by the Arbitral Tribunal and, after
hearing both Counsel and perusing the documents on record, the Tribunal was pleased to pass an
order on this preliminary issue and it was held that the Arbitral Tribunal had jurisdiction to try and
decide the dispute which was referred to it.
8) Counsel for respondents has filed an affidavit of Mr. Mukesh Indravadan Doshi, partner of the
respondents dated 22/08/2008. The learned Counsel appearing for the respondents submitted that
the petitioners have suppressed this fact from this Court and had also raised this issue as one of the
grounds but the petitioners had failed to disclose that the Arbitral Tribunal had decided the
preliminary issue before the final award was passed by a separate judgment on 26/10/2005. He
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submitted that this order was not even challenged in this Petition and, therefore, it was not now
open for the petitioners to raise the issue of jurisdiction in this Petition. He submitted that this is a
clear case of suppression of facts by the petitioners and, on that ground alone, Petition is liable to
be dismissed.
9) There is much substance in the submissions made by the learned Counsel appearing for the
respondent. In the affidavit of Mr Mukesh Doshi dated 22/08/2008, the order passed by the Arbitral
Tribunal on the issue of jurisdiction is annexed, wherein, the Tribunal, by a reasoned order, had
held that the reference was clearly within the jurisdiction of the Tribunal and, therefore, held that it
had jurisdiction to decide the dispute. It has also to be noted that this fact has been suppressed by
the petitioners in this Petition and only after the respondents were called upon to make their
submissions on this issue, the respondents filed an affidavit of Mr. Mukesh Doshi and pointed out
that this issue was already concluded by the Tribunal. Petitioners, therefore, have not come to this
court with clean hands. If the respondents would not have been heard and if the Petition had been
admitted on this point, the petitioner would have got the benefit of getting the Award passed by the
Arbitral Tribunal stayed. It, therefore, cannot be said that this is an innocuous or inadvertent
mistake on the part of the petitioners. Therefore, an inference will have to be drawn that the
petitioners wanted to delay the payment of compensation which was payable to the respondents.
This inference gets confirmed from the dilatory tactics which have been adopted by the petitioners
in deciding the claim of the respondents. The guidelines which have been framed under the
Insurance Act, 1938 which have a statutory force, clearly state that the claim has to be settled by
the Insurance Company within 90 days. The chronology of events which I shall refer to hereinafter,
clearly shows that the petitioners have adopted dilatory tactics. The roznama of the court shows that
time was taken by the petitioners for resolving the dispute. However, after taking number of
adjournments, the court was informed that it was not possible to resolve the dispute. Further, the
correspondence between the parties also indicates that the petitioners, on the one pretext or other,
have failed to settle the claim though the Surveyors who have been appointed as per the provisions
of the Insurance Act have submitted their report. The said report also was not accepted by the
petitioners.
10) The second submission made by the learned Counsel for the petitioners is that the observations
made by the Surveyors were not considered by the Tribunal. He invited my attention to the
Surveyors' report and submitted that this report had not been considered by the Tribunal and the
Tribunal had arrived at its own conclusion and, therefore, the Award is liable to be set aside. This
submission of the petitioners also cannot be accepted. It is a well settled position in law that this
court, while exercising its jurisdiction under section 34 of the said Act, can only do so on the
grounds which are mentioned in section 34 of the said Act. Section 34 reads as under:-
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" 34. Application for setting aside arbitral award.-(1) Recourse to a court against an arbitral award may be
made only by an application for setting aside such award in accordance with sub- section (2) and sub-section
(3).
(2) an arbitral award may be set aside by the court only if-(a) the party making the application furnishes proof
that- (i) a party was under some incapacity, or (ii) the arbitration agreement is not valid under the law to which
the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or (iii)
the party making the application was not given proper notice of the appointment of an arbitrator or of the
arbitral proceedings or was otherwise unable to present his case; or (iv) the arbitral award deals with a dispute
not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on
matters beyond the scope of the submission to arbitration:
Provided that, if the decision on matters submitted to arbitration can be separated from those not so submitted,
only that part of the arbitral award which contains decisions on matters notsubmitted to arbitration may be set
aside; or (v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the
agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the
parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or
(b) the court finds that- (i) the subject-matter of the dispute is not capable of settlement by arbitration under the
law for the time being in force, or (ii) the arbitral award is in conflict with the public policy of India.
Explanation.- Without prejudice to the generality of sub-clause (ii) of clause (b), it is hereby declared, for the
avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award
was induced or affected by fraud or corruption or was in violation of section 75 or section 81.
(3) An application for setting aside may not be made after three months have elapsed from the date on which the
party making that application had received the arbitral award or, if a request had been made under section 33,
from the 10 date on which the request had been disposed of by the arbitral tribunal:
Provided that if the court is satisfied that the applicant was prevented by sufficient cause from making the
application within the said period of three months it may entertain the application within a further period of
thirty days, but not thereafter.
(4) On receipt of an application under sub- section (1), the court may where it is appropriate and it is so
requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral
tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of
arbitral tribunal will eliminate the grounds for setting aside the arbitral award."
From the aforesaid provision, it can be seen that this Court cannot sit in appeal over the findings recording by
the Tribunal and also it cannot decide whether the quantum of compensation determined by the Tribunal is
proper or not. It is not possible to re-appreciate the evidence which is adduced before the Tribunal and arrive at
a different finding than the one which is given by the Tribunal. This court, therefore, cannot sit in appeal over
the finding of quantum which is determined by the Tribunal.
11. However, even if the case is examined on merits, there is no error apparent on the face of the record
committed by the Arbitral Tribunal. Before rival contentions of both parties are taken in to
consideration, it will be relevant to have a quick look at the important provisions of the Insurance Act.
Under section 9, sub-section 5 of the Protection of Interest of Policy- holders Regulations, the decision
in respect of the claim has to be taken within 30 days, either to pay the claim or to reject the claim. The
Insurance Company conveyed their decision by their letter dated 26/12/2003, stating that the Surveyors
had assessed the loss at Rs 66,50,541/- The respondents lodged a claim for 1.12 crores by their letter
dated 31/12/2003 and, therefore, did not accept the claim of the Surveyors and, thereafter, the
respondents invoked the arbitration clause. Under section 64 of the Insurance Act, surveyor has to be
appointed and, accordingly, a Surveyor was appointed and they had given their report. This surveyor
who has to be appointed under section 64 of the Insurance Act should have license from the competent
authority viz. " Insurance Development & Regulatory Authority" (hereinafter referred to "I. D. & R.A."
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). It is pertinent to note here that in view of several complaints of delay in assessing loss by Surveyors
in collusion and in conspiracy with the insurance employees, I.D. & R.A. enacted the Regulations
known as Protection of Interest of Policy Holders and prescribed a procedure for assessment of loss
and prescribed time limit for final decision to pay or reject the claim under section 9 for general
insurance companies.
12. In the present case, the chronology of events clearly shows that this procedure was blatantly
violated by the petitioners - Company. After the Surveyors submitted their report, the Insurance
Company wrote a letter dated 26/12/2003. In the said letter, the Insurance Company informed the
respondents that the Surveyors had recommended the claim for Rs 66,50,541/-. The Insurance
Company does not state whether the Company has accepted the report or not. However, in the said
letter, two queries were made; one was regarding the demolition of Gala No.9 without the permission
of the surveyor and second was regarding the Surveyors' opinion that the area in the agreement was
overwritten as 1870 sq.ft and that the original lease agreement was not produced before the Surveyors
by the respondents. Thereafter, there is series of correspondence between the parties. Respondents
immediately on 31/12/2003 informed the petitioners that they did not accept the report of the
Surveyors. On 04/02/2004, respondents again rejected the offer of settlement by the petitioners on the
sum arrived at by the Surveyors. Petitioners then wrote various letters to the Surveyors and the
Surveyors by their letter dated 15/03/2004 informed the petitioners that the respondents had pulled
down walls of Godown No.9 without their prior permission and that the original lease agreement was
not shown to them. On 22/03/2004, petitioners wrote a letter to the respondents informing them that the
letter dated 26/12/2003 was only an intimation of the loss and that it was not an offer of settlement.
Again on 02/04/2004, the petitioners clarified to the respondents that they had not accepted the liability
under the policy. On 08/04/2004, petitioners again addressed a letter to the advocate of the respondents
informing them that the question of difference or dispute referable to arbitration did not exist and that
the matter could not be referred to arbitration. Thereafter, the respondents moved the Arbitral Tribunal.
The said sequence of events and the correspondence between the parties clearly reveals that on the one
hand, petitioners did not settle the claim within a period of 30 days as required under the provisions of
the Insurance Act and, on the other hand, also showed their unwillingness to refer the dispute for
arbitration.
13. Apart from that, though it was contended that the report given by the Surveyors was not accepted in
the correspondence between the parties, it was argued before the Arbitral Tribunal that the Surveyors
were justified in making deductions of Rs 43,52,641.39 and the entire basis on which the claim of the
respondents was denied was the report which was submitted by the Surveyors. This clearly shows that
though, on the one hand. the petitioners - Company had justified the Surveyors'report, on the other
hand, it had not accepted the claim of the respondents even on the basis of the Surveyors' report. This
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clearly discloses that the intention of the petitioners was to delay the payment which was due and
payable to the respondents/claimants.
14. Even before this Court, the learned Counsel appearing on behalf of the petitioners essentially relied
upon the Surveyors' report and tried to justify the said report and submitted that the deductions which
were made by the Surveyors ought to have been accepted by the Arbitral Tribunal and that the Arbitral
Tribunal had erred in not accepting the deductions suggested by the Surveyors. It has to be noted here
that the Surveyors had suggested that the original area of Gala No.9 had been overwritten and,
secondly, the original lease agreement in respect of Gala No.9 was not shown. The Surveyors,
therefore, had suggested that the stock which was allegedly kept by the claimants in Gala No.9 could
have been kept there taking into consideration the space which would be occupied by the said stock
which consisted of steel drums and sacks and that the volumetric area occupied by drums was not
sufficient for the purpose of keeping it in that area. The Arbitral Tribunal, however, has not accepted
the finding of the Surveyors on various grounds. It has given cogent reasons why the said finding could
not be accepted. It has recorded that the Surveyors had not carried out the actual measurement of Gala
No.9 and also did not take into consideration the height of the said Gala. It has further recorded a
finding that all other Galas which were destroyed in the fire also belonged to the respondents -
Company and, therefore, the Surveyors could have taken inspection of the records of the said Galas in
order to confirm whether the said stock either was actually kept in Gala No.9 or was kept in other
Galas but was shown to be kept in Gala No.9. Thirdly, it has been stated that the Surveyors have not
stated that the invoices or other records were false or fabricated or that the duplicate claims were made
by the claimants in respect of the same goods which were kept in Gala No.9 and in the other Galas
which were all damaged and destroyed by the fire. The Arbitral Tribunal has taken into consideration
individual deductions suggested by the Surveyors and, by giving cogent reasons, has not accepted the
said deductions suggested by the Surveyors. Therefore, even on merits, the findings recorded by the
Tribunal are not perverse and are based on documentary evidence on record and on oral evidence
which is adduced by both the parties. There is, therefore, no substance in the submissions made by the
learned Counsel appearing on behalf of the petitioners. No case is, therefore, made out for interference
with the Award passed by the Arbitral Tribunal.
15. Petition is accordingly dismissed. Under the circumstances, there shall be no order as to costs.
========================================
Case Study No 3:
Application under Section 11(6) of the Arbitration and Conciliation Act, 1996;
Andhra High Court
Andhra Semi-Conductors (P) vs United India Insurance Company ... on 26 February, 2002
101
1. By this application under Section 11(6) of the Arbitration and Conciliation Act, 1996
(hereinafter referred to 'the Act') the applicant is seeking to refer the dispute to an arbitrator nominated
by this Court exercising the powers vested under Section 11 of the Act.
2. According to the petition on averments, the petitioner is a registered Company under the Companies
Act, 1956 and engaged in the business of distribution and supply of components manufactured by M/s.
Bharat Electronics Limited in the State of Andhra Pradesh as their distributor. For the said purpose, the
applicant has obtained the premises bearing H.No. 4-4-3167 1-B, Giriraj Lane, Banks Street, Koti,
Hyderabad, where it has stored its stocks supplied by M/s. Bharat Electronics Limited. The said stock
was hypothecated to their bankers, namely "Dena Bank, Koti Branch, Hyderabad". The stocks were
also insured with the respondent Corporation. Originally the applicant obtained a fire policy on 30-8-
1999 for a sum of Rs. 40,00,000/- and the said policy was valid for a period of one year from 1-9-1999
to 31-8-2000 and paid a premium of Rs. 12,569/-. The applicant also obtained additional insurance for
another ten lakhs under an endorsement of the original policy on 16th September, 1999 by paying the
additional premium and thus the total value of the policy comes to Rs. 50 lakhs, valid for the same
original period of one year. While so on 14-10-1999 at about 3-30 to 4.30 a.m., fire broke out in the
premises of the applicant due to short circuit in the electrical installation and the entire stocks of the
Electronic components in the premises were extinguished in the fire. Immediately the applicant lodged
a Claim Form on 14-10-1999 for a sum of Rs. 50 lakhs with the respondent at their M.G. Road Branch
from which the policy obtained. Copy of panchanama, FIR and the claim form are all dated 14-10-
1999. Thereafter on 20-10-1999 a surveyor was appointed by the respondent, namely M/s. J.B. Boda
Surveyors (P) Limited, to assess the damage to settle the claim of the applicant. On 2-4-2000 M/s.
Moinuddin Mohammed and Company was appointed as a second surveyor by the respondent. There
were exchange of correspondence between the surveyors and the applicant as well as the respondent
and applicant. The correspondence filed shows that the applicant rejected the proposal for settlement of
the claim at Rs. 12 lakhs. Subsequently, the Dena Bank with which the applicant had hypothecated the
goods also requested the respondent to settle the claim under the policy. Later the respondent addressed
a letter to the said bank enclosing a cheque for Rs. 10,17,700/- in their favour towards the policy claim
of the applicant as full and final settlement. Later the applicant while denying the said payment as full
and final settlement requested the respondent for appointment of an arbitrator to refer the rejected or
disputed claim of Rs. 39,82,300/- under Clause (11) of the policy. The said notice was received by the
respondent. Later, the respondent by a letter dated 4-10-2001 addressed to the applicant, informing that
the respondent neither agree to refer the dispute for arbitration nor to appoint an arbitrator in terms of
Clause (11) of the policy, as the claim was settled and an amount of Rs. 10,17,700/- was paid. Under
the above circumstances, the applicant filed the present application.
3. A counter has been filed on behalf of the respondent-Corporation denying the allegations and also
stating that the applicant had accepted the payment in full and final settlement and to the same effect he
102
has issued an affidavit as well as letters through their banker and having accepted the amount already
paid, there is no arbitral issue pending between the parties and it is open to the applicant to invoke the
arbitration clause.
4. The learned Counsel for the applicant reiterating the contentions that are stated in the petition
contended that the policy contains a clause to refer for arbitration in case of any dispute. Now
according to the applicant, there is a dispute between the parties with reference to the same policy.
Though it was contended by the respondent-Corporation that the claim of the applicant was settled in
full by paying a part of the amount out of the claim made by the applicant, according to the applicant,
he is disputing the said settlement. According to the learned Counsel, when there is a dispute as to the
settlement even that dispute is required to be referred to an arbitrator, which could be adjudicated. It is
contended by the learned Counsel that the powers exercised under Section 11(6) by the Chief Justice or
his nominee are in the nature of administrative and therefore, it is not open to go into the contentious
issues at this stage. It is also contended that Section 16 provides that the Arbitral Tribunal may rule on
its own jurisdiction including ruling on any objections with respect to the existence or validity of an
arbitration agreement. The learned Counsel also contended that as the jurisdiction that is being
exercised by this Court under Section 11(6) is only an administrative function, even the preliminary
issue, as held by the Apex Court in the case of Konkan Railway Corporation Limited v. Mehul
Construction Company, , has to be decided by the
Arbitral Tribunal. The above decision of the Apex Court was even confirmed by the larger Bench of
the Apex Court in the case of Konkan Railway Corporation Limited v. Rani Construction Limited,
2002 (1) Comp LJ 393 (SC).
5. the learned Counsel also relied upon the following decisions of this Court in Union of India and Ors.
v. Vungarala Constructions, Hyderabad, (DB); Sri Venkateswara Construction Company,
Secunderabad v. Union of India, 2001 (2) ALD 387, and Ashok Engineering Company Engineers and
Contractors v. GM SCR, Sec'bad, , where it was held that the Chief Justice or his designate cannot
decide the contentious issues like the existence of an arbitration agreement, its validity or jurisdiction
of the arbitrator since they are left to be decided only by the arbitrator under Section 16(1) of the Act.
6. On the other hand, the learned Counsel for the
respondent-Corporation contended that as the matter was already settled between the parties, the
arbitration clause is not available for the applicant to seek a reference.
7. In support of his contention the learned Counsel relied upon the following decisions of the Apex
Court in the case of State of Maharashtra v. Nav Bharat Builders, 1994 Supp. (3) SCC 83; P.K.
103
Ramaiah v. Chairman and MD., National Thermal Power Corporation, 1994 Supp (3) SCC 126;
Nathani Steels Limited v. Associated Constructions, 1995 Supp. (3) SCC 324. The learned Counsel
also relied upon a decision of the Apex Court in the case of New India Assurance Company Limited v.
Sri Venkata Padmavathi R&B Rice Mill, , where the Apex
Court set aside the order of the National Consumer Dispute Redressal Commission's order on the
ground that there was a full and final settlement between the parties and therefore, the respondent was
not justified in approaching the National Commission for being paid an amount of Rs. 23.5 lakhs in
terms of report of the three surveyor and the commission was not justified in awarding that amount to
the respondent.
8. From the above facts it is clear that the applicant has approached this Court seeking reference of the
dispute under Section 11(6) for an arbitration by nominating an arbitrator in terms of Clause (11) of the
Fire Insurance Policy issued by the respondent-Company. The grievance of the applicant is that though
the said arbitration clause is there, the respondent-Company rejected the claim of the applicant for a
reference to arbitration. The case of the respondent is that as there is a settlement between the parties,
which is supported by the evidence, such as affidavit and a letter of the applicant, which were sent to
the respondent-Company through its banker, there is no arbitral issue and it is not open to the applicant
to invoke the arbitration clause in the policy. Though the decisions relied upon by the learned Counsel
for the respondent supports that when there is a settlement between the parties, there is no arbitral
issue, but all those decisions are rendered under the provisions of the old arbitration Act. In the
decision of the Apex Court in the case of Konkan Railway Corporation Limited v. Rani Construction
Limited (supra), which was rendered under the provisions of the new Arbitration and Conciliation Act,
1999, it was held that even the preliminary issues which are contentious are to be decided by the
Arbitral Tribunal including on its own jurisdiction as well as the existence of an arbitral agreement or
the existence of an arbitral dispute. Further, when the Apex Court held that the functions of the Chief
Justice or his designate under Section 11 of the new Act is only an administrative, it would not be open
to this Court to decide contentious issues like the one which was raised by the respondent-Corporation.
As rightly held by a learned single Judge in the case of Sri Venkateswara Construction Company
Secunderabad v. Union of India (supra); and Ashok Engineering Company Engineers and Contractors
v. GM, SCR, Sec'bad (supra) such issues are left to be decided only by the arbitrator, nominated by the
Chief Justice or his designate and not for this Court at the stage of exercising the powers under Section
11(6).
9. Under the above circumstances, the application is allowed and the matter is referred to an arbitrator,
Sri Y.V. Narayana, a retired Judge of this Court, is appointed as the sole arbitrator for adjudicating the
dispute between the parties including the preliminary issues, which are addressed before this Court and
he is at liberty to fix up his fee.
-----------------------
104
Case Study No.4; Application filed under Section 11 of the Arbitration and Conciliation Act,
1996, Bombay High Court
Boghara Polyfab Pvt. Ltd. vs National Insurance Company Ltd. ... on 19 April, 2007
Equivalent citations: 2007 (4) ARBLR 533 Bom, 2007 (4) BomCR 684
1. In this arbitration application filed under Section 11 of the Arbitration and Conciliation Act, 1996,
hereinafter referred to the as "the Act", the applicant prays for appointment of a sole arbitrator or in the
alternative two arbitrators and presiding arbitrator and then requiring them to enter into the reference to
arbitrate the dispute between the applicant and respondent as stated in terms of the Policy No.
250501/1 1/03/3100145 dated 4th August 2004.
2. The factual metrixs of the case fall in a narrow compass. The applicant is a private limited company
duly registered under the provisions of the Companies Act, 1956, with their registered office at Surat,
Gujarat, which is engaged in import of chemicals like Acetone and Phenol as well as yarn. The
respondent-National Insurance Company carries on business of insurance cover. Both the parties
entered into an agreement (contract) dated 4th August 1983 and an insurance policy was issued in
favour of the applicant. Entire South Gujarat received unprecedented rain starting from 2nd August,
2004. The accumulated water could not drain into the river as it coincided with high tide. Every nala,
storm water, drainage etc swelled and the entire city and surroundings of Surat got flooded. The
godowns, where the stocks were stored, were engulfed. The applicant suffered heavy losses because of
the stock in the said godowns were spoiled and the applicant lodged a claim with the respondent with
regard to the loss suffered by them. Initially the goods were insured for Rs. 3 crores located at its
godown at Saroli at Surat, Gujarat. However, subsequently the insured sum was raised by an agreement
dated 22nd September 2003 to Rs. 6 crores and by a subsequent agreement dated 27th May 2004
between the parties to Rs. 12 crores by paying additional premium of Rs. 23,328/- as advised by the
underwriter. However, according to the respondent the insured sum was not increased to Rs. 12 crores
but only increased to 6 crores.
3. The applicant filed its claim on 6th December 2004 and a surveyor was appointed by the respondent,
who investigated the claim and assessed the loss net of salvage as Rs. 3,35,01,078/- and after deducting
the compulsory excess, the net payable amount was worked out as Rs. 3,18,26,025/-. The surveyor vide
his report dated 6th December 2004 recommended the payment. This advice of the surveyor was not
accepted and the respondent advised the surveyor to rework the amount payable on the basis of sum
insured as Rs. 6 crores instead of Rs. 12 crores. The surveyor thereafter re-assessed the loss and
recommended payment of Rs. 2,34,01,739.73/- in March 2005 and thereafter under duress and
compulsion, the respondent obtained full and final discharge voucher for a sum of Rs. 2,33,94,964/-
signed by the applicant, which was immediately refuted by the applicant. Vide their letter dated 24th
March 2005, the applicant wrote to the Chairman, IRDA, protesting about the respondent's insurer's
dilatory and coercive pressure tactics.
105
4. Clause 13 of of the policy contains an arbitration clause and in view of the dispute that the applicant
was claiming a sum higher than the sum paid to them and there was a serious dispute with regard to the
total value of the insurance cover, the applicant served a notice dated 27th May 2006 requesting for
settlement of the claim and as no reply was received to the said notice, reminder dated 27th July 2006
was sent. Vide letter dated 2nd August 2006, the company informed the applicant that the claim had
been fully settled and nothing survives. In these circumstances and having failed to get any relief from
the respondent, the present application has been filed by the applicant. According to the applicant, the
disputes which have been raised by the applicant and which, according to the applicant, are liable to be
referred to the arbitrator for adjudication in accordance with law, have been stated in the notice as well
as in the affidavit filed by them. The contention on behalf of the applicant is that the arbitration clause
is wide enough to take in its ambit the claim raised by it and the full and final settlement being under
duress and coercion, cannot prevent in law the dispute being referred to the arbitration. It is also
contended by the applicant that the surveyor had approved the claim of Rs. 3,18,26,025 and the
payment of Rs. 2,33,94,964/- by the respondent was by manipulating the report by subsequent
correspondence, is clearly arbitrary and the applicant, in any case was entitled to full claim, even if it is
held that the applicant was not entitled to something over and above Rs. 3 crores and odd.
5. On the contrary, the respondent claimed that no dispute subsists, in fact and in law, which could be
referred to the arbitration in terms of arbitration clause between the parties. The surveyor had given his
earlier report but the same was based on certain misconception which was corrected by the subsequent
agreement/ corrigendum by the report of the surveyor and the corrected amount has been paid in full
and final satisfaction of the claim and discharge certificate is binding upon the applicant company.
6. It is clear from the above narrated facts that there is no dispute to the arbitration agreement and
existence of the policy. Whether the policy was covered loss to the extent of Rs. 6 crores as alleged by
the respondent or Rs. 12 crores as alleged by the applicant, is again a question of fact, which is to be
determined on merits, after the parties have given appropriate opportunity to produce evidence in
support of their contentions. As far as ingredients of Section 11 are concerned, there is no dispute to the
fact that vide letter dated 27th July, 2006, the applicant had reminded the respondent company that they
had failed to act despite passage of 7 months and they had in clear and unambiguous terms stated that
they would be constrained to approach the court for appropriate direction to constitute an arbitral
tribunal in accordance with the provisions of the Act. The only plea raised by letter dated 2nd August
2006 and the submission of the respondent before this court as well, is that the full and final discharge
voucher was not signed by the applicant, do not leave any dispute between the parties, which cannot be
referred to the arbitral tribunal. Vide their protest letter dated 24th March 2006, while raising protest to
the execution and contents of the discharge voucher, the following extract from the said letter can be
relevantly reproduced:
106
Thereafter for the next 1 year, the insurance failed to settle our claim and made us run from pillar to
post for the settlement.
Finally on March 21st 2006, the insurers have sent us a voucher for the sum of Rs. 2,33,94,964 which
considering our dire financial condition, and the continuous failed promises from the insurance, we
have had no choice but to accept.
Sir, subsequent to the loss, since we could not pay our international suppliers on time they almost
completely stopped all our shipments. This has resulted in tremendous financial loss to us. We have
lost our long hard earned reputation in the market by becoming defaulters. The insurers have
deliberately starved our unit of funds to ruin us financially.
You will appreciate that we are now faced with a situation where we have no choice but to accept the
payment being released to us unconditionally as the insurers have made it very clear that the payment
will not be released if there is any conditional discharge of the vouchers. In order to safe guard our
right to claim the difference amount and any other claims arising out of the financial losses incurred
by us a direct result of the deliberate delay in settlement of our clam by the insurers, we make a
humble, request to the IRDA to take up the matter with the insurers to ensure that justice prevails and
we are paid the entire compensation due to us.
7. The learned Counsel appearing for the applicant, while relying upon the judgment of the Supreme
Court in the case of Chairman and MD, NTPC Ltd v. Reshmi Constructions, Builders, and Contractors
, argued that the dispute with regard to the recording of full and final settlement or complete discharge
is a question of fact, which can be gone into by the arbitral tribunal itself and in that regard arbitration
clause can be invoked for reference of that dispute. In that case the Supreme Court was concerned
whether accordance of satisfaction under the contract itself can be referred to the arbitration and the
question was answered in the affirmative by the court and the court held as under:
Normally, an accord and satisfaction by itself would not affect the arbitration clause for even when
rights and obligation of the parties are worked out, the contract does not come to an end, inter alia, for
the purpose of determination of disputes arising thereunder, and, thus, the arbitration agreement can
be invoked; but if the dispute is that the contract itself does not subsist, the question of invoking the
arbitration clause may not arise. But in the event it be held that the contract survives, recourse to the
arbitration clause may be taken.
8. It may be noticed that the above judgment pronounced by the Supreme Court is prior to the law
enunciated by the Supreme Court in the case of S.B.P & Co. v. Patel Engineering and Ltd. Anr. 2005
(8) SCC 618. However, that itself would be of no prejudice to the interest of the applicant. There can
107
be very serious dispute with regard to the genuineness and effect of the discharge voucher to be
construed as full and final settlement, leaving no scope for subsisting any further dispute. It is not
disputed that in terms of initial survey report submitted by the surveyor of the respondent company, the
claim of the claimant was not paid but it was paid in terms of amended or corrigendum report
submitted by the surveyor. The discharge voucher which is submitted by the applicant for Rs.
2,33,94,964/-, which in fact was for even lesser amount and which was executed on 21st March 2005,
itself was a dispute. As far as correct proportionate value of the insurance policy is concerned. Exhibit
F is relevant document, which clearly shows that the insurance covered as on the date of loss was Rs. 6
crores and is a document of the respondent, showing to that extent the Respondent would be bound to
assess and pay the loss in proportionate value. This itself again is a referable dispute. The court is of
the considered view that there is serious dispute between the parties which requires reference to the
arbitration. The findings recorded in this order are prima facie and thus would not be finally binding on
the parties. The question of coercion and undue influence should be kept open in the facts and
circumstances of the case and parties should be permitted to lead evidence before the Arbitrator even
on this issue.
9. Clause 13 of the arbitration agreement postulates reference to be made to a panel of three arbitrators,
one each to be appointed by the parties and the third arbitrator to be appointed by such two arbitrators
in accordance with the provisions of the Act. The clause also states that the dispute would be referred,
if the company has accepted the liability. In the present case the terms of the contract are clear and in
any case the initial survey report is a document of the company and is sufficient to satisfy the
ingredients of the arbitration clause. The respondent company has failed to act despite due notice in
accordance with the provisions of Section 11(3) and (4) of the Act. Once they failed to act then the
appointment of arbitrators has to be made by the court. Loss of right of the respondent, in fact, to that
extent, would be complete. Reference can be made in this regard to a Full Bench judgment of Delhi
High Court in the case of HBHL VKS (J.V) v. Union of India and Ors. 2007 (1) ARBLR 252 (Delhi).
A reference can also be made to the decisions in the case of Naginbhai C Patel v. Union of India
reported in 1999 (1) Mh.L.J. 745 and Larsen and Toubro Limited v. Konkan Railway Corporation
Limited , wherein the court proceeded to appoint arbitrators as the respondents had failed to exercise
their right in accordance with the arbitration clause. Despite the procedure contemplated under Clause
13 of the Policy, the prayer of the applicant is for appointment of a sole arbitrator, even to minimise the
expenses of the parties, and in fact there was no opposition thereto.
Accordingly this application is allowed, leaving the parties to bear their own costs. Shri Justice S.N.
Variava (retired Judge of the Supreme Court) is appointed as the sole arbitrator to whom the disputes
between the parties are hereby referred. The arbitration proceedings may be completed expeditiously.
The Prothonotary and Senior Master to communicate this order to the learned arbitrator.
108
Case Study No. 5; Section 33 of the Arbitration and Conciliation Act, 1996,
Madras High Court
M/S.United India Insurance ... vs K.Sarvabhauman on 18 January, 2010
O.P.No.932 of 2000
M/s.United India Insurance Company Ltd. .. Petitioner
versus
1. K.Sarvabhauman, 2. K.R.Gururajan, 3. R.Rajagopalan, 4. G.C.Pappanna, Proprietor
M/s.Bharat Leather Co., 5. M/s.Standard Chartered Bank, 6. Sujatha Subash ], 7.
G.C.Sivakumar ] , 8. G.C.Sinivas ] Legal representatives of 4th respondent, 9. Prithvi Shankar ],
10. Pavithra Shankar ] .. Respondents
Prayer: Amended petition under Chapter VII Section 34 of the Arbitration and Conciliation Act,
1996 read with Order 43 Rule 1, 2, 3 & 6 of the Rules of the High Court, Madras Original
Side, 1956 against the order of the Arbitral Tribunal dated 27.6.2000.
ORDER
This Original Petition is at the instance of the Insurance Company against the order of the Arbitral
Tribunal dated 27.6.2000.
2. On the basis of the award, the claimant, fourth respondent herein, made an application before the
Tribunal seeking an additional award. On the petitioner's part too, an application was filed under
Section 33 of the Arbitration and Conciliation Act, 1996, for a direction that in the light of the decision
of the Apex Court reported in AIR 1997 SC 2049 (National Insurance Co. Ltd. Vs. Sujir Ganesh Nayak
& Co.) and AIR 2000 HP 11 (H.P.Horticultural P.M. & P. Corpn. Ltd. Vs. U.I.Insurance Co.
Ltd.), the arbitral award dated 27.6.2000 had to be set aside on the ground of limitation.
3. By award dated 26.9.2000, the Arbitral Tribunal passed the additional award in the claimant/fourth
respondent's application for rectification, granting the prayer. However, as regards the petition filed by
the petitioner herein seeking an interpretation on the terms of the agreement, the said claim was
rejected by the Tribunal.
4. The only issue raised challenging the award herein in this petition is on the issue of limitation on the
claim. The fourth respondent herein carried on business in leather. The fourth respondent had a factory
and manufacturing unit at Katpadi and a godown in Chennai. The fourth respondent went in for
financial assistance with the fifth respondent herein and in terms of the same, the fourth respondent
went in for fire insurance of the building, stock in trade and other materials with the petitioner herein.
The Master policy taken by the fourth respondent was for the period from 1.11.1986 to 1.11.1987 for a
sum of Rs.28,12,000/-. The fourth respondent suffered two fire accidents, the first accident on
26.12.1986 in the godown and the second accident on 10.1.1987 in the manufacturing unit.
Immediately thereupon, the fourth respondent raised his claim on 07.01.1987 for a sum of
Rs.15,70,700/- and the second claim on 17.1.1987 for a sum of Rs.2,03,800/-, totalling to a sum of
109
Rs.17,14,500/-. Admittedly, based on the claim thus made by the fourth respondent, the petitioner
engaged the surveyor to inspect the premises to assess the damage, who recommended compensation.
This is marked as a document under Ex.A6 dated 10.1.1987 and Ex.A9 dated 4.3.1987.
5. While the matter stood thus, there was a criminal prosecution in S.C.No.75 of 1988, relating to the
death of one Vijayakumar in the fire accident. By judgment dated 22nd November 1990, the criminal
Court acquitted the fourth respondent. The petitioner's officials were examined as witnesses therein.
P.W.17 - Srinivasan of the petitioner company, Senior Divisional Officer, deposed on behalf of the
petitioner. In the course of examination, the said witness marked Ex.P7. The claim form was filed by
the fourth respondent seeking compensation and Ex.P9 as regards the survey conducted by the
surveyor engaged by the petitioner. They also marked Ex.A8, xerox copy of the independent policy. It
is not denied by the parties herein that the policy was with the Bank with whom the first respondent
had financial transaction.
6. Keeping aside all these facts, it is seen from the records that the fourth respondent herein filed a suit
in C.S.No.259 of 1990 against the petitioner herein before this Court seeking a decree for a sum of
Rs.17,13,800/- as compensation due and payable in respect of the fire accident that took place on
26.12.1986 and the second accident on 10.1.1987 in terms of the master policy issued by the petitioner
herein with interest at 18% per annum from 26.12.1986 to 20.12.1989. The said suit was filed in the
year 1989 before this Court. During the pendency of the suit, the fourth respondent took out an
application in Application No.3314 of 1999 to go before the arbitral Tribunal for settlement of the
claim. By order dated 18.11.1999, this Court directed that the dispute be resolved by a panel of three
named Arbitrators and the award was to be filed before this Court within a period of three months by
the Arbitrators. The fourth respondent laid his claim for a sum of Rs.17,13,800/- towards
compensation.
7. The petitioner herein resisted the claim stating that the claim was hit by limitation. Before the
Arbitral Tribunal, two issues were raised which are as follows:
(i) Whether the claim is barred by limitation?
(ii) What amount is due to the claimant on account of the fires on 26.12.1986 and 10.1.1987?
8. The Arbitral Tribunal pointed out that Ex.A1 is the xerox copy of the first page of the master
insurance policy issued by the Insurance Company for the period 1.11.1986 to 1.11.1987. The xerox
copy of the schedule, in so far as it related to the fourth respondent, covered the fourth respondent's
buildings, machinery and stock at Chennai and Katpadi of a total value of Rs.28,12,000/-. Admittedly,
the entire policy in original was not produced either by the petitioner or by the respondents. The
Tribunal pointed out that even though on an application by the fourth respondent an order was passed
directing the fifth respondent Bank to produce the same, the Bank, however, did not produce it. On an
application taken by the petitioner before this Court in Application No.3749 of 2001 in this O.P., under
110
order dated 25.4.2002, this Court directed the Bank to produce the original of the insurance policy and
the same is now before this Court.
9. Be that as it may, the Tribunal referred to the admitted fact as regards the fire accidents, one in the
godown at Chennai and the other in the tannery at Katpadi on 26.12.1986 and 10.1.1987 respectively
and to the evidence of R.W.1, the surveyor appointed by the petitioner, who deposed about his visit to
the tannery to find out the cause of the fire. As to the plea of limitation, the Arbitral Tribunal agreed
with the contention of the fourth respondent that Article 44(b) of the Limitation Act would apply in
respect of insurance claims and rejected the plea of the petitioner that the claim was hit by limitation in
view of Article 137 of the Limitation Act, that the fourth respondent had not lodged the claim within
three years of the damage suffered. Learned Arbitrators held that Ex.A1, the policy produced, was only
a xerox copy of the first page of the policy with the photocopy of the schedule and not the original
policy. Hence, the claim of the petitioner that the claim should have been made within three years of
the fire accident as per the conditions of the policy was rejected.
10. Learned Arbitrators further pointed out to the decision reported in (1994) 3 SCC 324 (Food
Corporation of India Vs. New India Assurance Co. Ltd.) that the contract restricting the period of
limitation provided under the Limitation Act would be void under Section 28 of the Contract Act.
Hence, the claim was held to be within the period of limitation. It must be noted herein that the relief
granted to the first respondent herein before the Arbitral Tribunal fixing the compensation is not
seriously disputed before this Court.
11. The only issue argued by the learned counsel appearing for the petitioner is on the question on
limitation. Even though learned counsel appearing for the fourth respondent questioned the
maintainability of the claim of the petitioner in the O.P. before this Court under Section 34 of the
Arbitration and Conciliation Act, 1996, as regards summoning the original policy from the Bank, yet
she submitted that even going by the clauses therein, the claim is within the period of limitation
specified in the contract and hence no exception could be taken to the decision of the Arbitral Tribunal.
12. Learned counsel appearing for the petitioner placed reliance on the decision of the Apex Court
reported in AIR 1997 SC 2049 (National Insurance Co. Ltd. Vs. Sujir Ganesh Nayak & Co.) as
well as 2009 (1) Consumer Protection Judgments 1 (SC) (H.P. State Forest Company Ltd. Vs. United
India insurance Co. Ltd.) and submitted by making particular reference to paragraph 10 that going by
the contractual terms under Clause 18, if a claim is not raised within 12 months from the date of the
loss, the Insurance Company could not be held liable. In the judgment reported in 2009 (1) Consumer
Protection Judgments 1 (SC) (H.P. State Forest Company Ltd. Vs. United India insurance Co. Ltd.), the
Apex Court considered the contractual provisions with reference to Section 25 of the Indian Contract
111
Act. In the circumstances, he submitted that the award is illegal and contrary to the provisions of the
Act and hence liable to be set aside.
13. Taking note of the rival contentions of the parties, the contractual clause, which has been a subject
matter of discussion, hence, needs to be looked at. Clause 18 of the insurance policy states that if a
difference arises as to the compensation to be paid under the policy, such difference shall, independent
of all questions, be referred to the decision of the Arbitrator to be appointed in writing, by the parties.
Clause 19, dealing with limitation on the compensation, reads as follows: In no case whatsoever shall
the Company be liable for any loss or damage after the expiration of 12 months from the happening of
the loss or damage unless the claim is the subject of pending action of arbitration. It being expressly
agreed and declared that if the company shall disclaim liability for any claim hereunder and such claim
shall not within 12 calender months from the date of the disclaimer have been made the subject matter
of a suit in a court of law when the claim shall for all purposes be deemed to have been abandoned and
shall not thereafter be recoverable hereunder.
14. Going by Clause 19, one can see that an insured has to come before the Insurance company within
12 months from the happening of the loss or damage and unless the said claim is made within a period
of 12 months, the further right of the claimant to proceed against for damages does not survive any
longer.
15. It is seen from the said clause that beyond the expiry of the 12 months period on the happening of
the loss or damages, unless and until the claim is the subject of pending action or arbitration, the
Insurance Company shall not, in any manner, be liable for any claim. The contractual provision thus
put a bar by way of limitation for the other party to proceed further with the action. But once a party
makes a claim within the period of 12 months against the Insurance Company, it is for the Insurance
Company to act further on this. But if no such claim had been made within twelve months, the claimant
would lose his rights.
16. As far as the present case is concerned, admittedly, immediately on the lodging of the complaint on
the first of the fire accidents on 26.12.1986 and for the second fire accident on 10.1.1987, the fourth
respondent made a claim on 17.1.1987. The petitioner herein had, in fact, set in motion its course of
action in directing the surveyor - R.W.1 for inspection of the premises. The evidence also substantiates
the case of the fourth respondent about the Insurance Company moving forward on the claim petition
made by the fourth respondent. The evidence herein also supports the fact that the Insurance Company
did act on the claim made by the fourth respondent herein. The evidence of the petitioner's
representative before the Criminal Court also speaks on the action taken by the petitioner in engaging
the services of the surveyor for assessing the damage as well as the cause for the damage. In the
background of the said facts, it is seen that the decision of the Apex Court reported in 2009 (1)
112
Consumer Protection Judgments 1 (SC) (H.P. State Forest Company Ltd. Vs. United India insurance
Co. Ltd.), is distinguishable; as such, no reliance could be placed by the petitioner on the said decision.
17. A reading of the judgment of the Apex Court reported in 2009 (1) Consumer Protection Judgments
1 (SC) (H.P. State Forest Company Ltd. Vs. United India insurance Co. Ltd.) shows that the insured
therein suffered loss on account of heavy rains. This was sometime in September, 1988. The insured
made claim before the Insurance Company, which, however, rejected the same. It is seen that after
prolonged negotiations, some additional premium was paid. It was stated that having accepted the said
premium, the Insurance Company refused to make good the loss. A notice was issued on 7th May 1992
followed by another notice on 7th December 1992. The claim was repudiated in the communication
dated 24th December 1982 from the Insurance Company. In the background of the said facts, the Apex
Court pointed out that the claim of the insured that the Insurance Company admitted its liability
impliedly was not correct, as the surveyors had been appointed on the persistent demand of the
claimant and the premium taken thereafter was only to make good the deficiency in the premium that
had been paid for the policy for a period of two months. In the background of all these, the Apex Court
pointed out that as on the date of flood, there was no insurance policy in existence or any commitment
on behalf of the Insurance Company to make the payment. In the background of the said facts, the
Apex Court considered the claim of the Insurance Company as to the relevancy of Section 28 of the
Indian Contract Act, citing Condition No.19 which is no different from what is now relied on by the
petitioner. The Apex Court pointed out "Clause 19 in terms said that in no case would the insurer
be liable for any loss or damage after the expiration of twelve months from the happening of loss or
damage unless the claim is subject of any pending action or arbitration. Here the claim was not subject
to any action or arbitration proceedings. The clause says that if the claim is not pressed within twelve
months from the happening of any loss or damage, the Insurance Company shall cease to be
liable." The Supreme Court pointed out on facts that there was no dispute that no claim was made
nor was any arbitration proceeding pending during the said period of twelve months. The clause
therefore has the effect of extinguishing the right itself and consequently the liability also.
18. The Apex Court further pointed out that the said Clauses are normally found in the insurance
contract for the reason that undue delay in preferring a claim may open up possibilities of false claims,
which might be difficult of verification with reasonable exactitude, since memories might have faded
by then and even ground situations might have changed. Lapse of time in such cases might prove to be
quite costly to the insurer. If the claim is not made within the stipulated period, the right thus would
stand extinguished. Such a clause would not be hit by Section 28 of the Indian Contract Act.
19. Curtailment of the period of limitation is not normally permissible in terms of Section 28 of the
Indian Contract Act. The contract clause prescribing a right to be exercised within a specified time and
if not exercised resulting in the extinguishment of the right is a permissible one and can be enforced.
113
Consequently, if a policy of insurance provides for a claim to be made within a particular period, it
shall stand extinguished by the completion of such time and any subsequent action would be clearly
barred. Such a clause is outside the scope of Section 28 of the Indian Contract Act and hence not hit by
the provisions of the Indian Contract Act.
20. The decision of the Apex Court as to the effect of Clause 19 of the insurance policy applies to the
facts herein too where the very same clause figures in. On the admitted position that the petitioner had,
in fact, acted as per Clause 19 of the policy, as rightly pointed out by the learned counsel for the
petitioner and the claimant/fourth respondent thus setting in motion the arbitration proceedings by
appointing the surveyor, it is difficult to hold that the claim is hit by limitation. Hence, rightly, the
Tribunal granted the claim on the aspect that the first respondent had made his claim within the time as
per Clause 19. In the circumstances, the award cannot be attacked on the ground of limitation.
21. Learned counsel appearing for the petitioner, however, submitted that except for making the claim,
there was no progress from the side of the 4th respondent herein, and hence the said claim is barred by
limitation as per clause 19 of the contract. I do not accept the logic in the said submission. The said
Clause No.19 does not contemplate a settlement of the claim within the period of 12 months. On the
other hand, the said clause contemplates making of a claim within a period of 12 months from the
happening of the loss or damage thus initiating action towards that end. Consequently, the claim is not
barred by limitation. If for reasons best known to the petitioner, the claim made within a period of 12
months from the date of loss is not touched or acted upon, one cannot plead limitation taking advantage
of their inaction to defeat the claim of the insured. The conduct of the Insurance Company thus cannot
prejudice the claimant. In the circumstances, in fairness to the claim of the fourth respondent, when the
claimant had made the claim within a period of 12 months, even assuming that the Insurance Company
had not acted so far for grant of any relief to the claimant, the same cannot be put against the claimant
for any relief to be granted. In the circumstances, even applying the law declared by the Apex Court on
the facts herein, I do not find any justification in accepting the plea of the petitioner that the decision
squarely covers the issue and hence the award has to be set aside.
22. Learned counsel appearing for the petitioner pointed out that after the receipt of the claim, even as
early as 1992, the Insurance Company had expressed its acceptance to the claim partially and had
called upon the Bank to return the voucher duly discharged for settling the claim. The letters dated
16.3.1992 and 28.2.1992 clearly indicate the conduct of the petitioner in accepting the damage to the
materials. Even assuming that to a limited extent only the Insurance Company had agreed, still, the
claim is within the period of limitation. Following the order passed in C.S.No.259 of 1990 dated 18th
November 1999 directing the parties to go before the named Arbitrator, who shall decide the dispute
and file the award within three months from the date of the order, the petitioner filed the claim petition
on 6.1.2000. It may be seen that the accident occurred on 26.12.1986 at Chennai and on 10.1.1987 at
114
Katpadi. The first respondent submitted the claim on 7.1.1987 and 17.1.1987 respectively. On
12.11.1989, the first respondent sent a notice. In the meantime, the petitioner's assessors visited the
premises to arrive at the value, which, however, was found to be grossly low and hence was objected to
by the first respondent. There was no reply sent by the petitioners to the letter dated 12.11.1989. This
led to the petitioner filing a suit in C.S.No.259 of 1990 on 19.12.1989. Hence, going by Clause 19 that
the first respondent had made a claim which is a subject of pending action before the expiration of 12
months from the happening of the loss, the proceedings initiated are saved by limitation. Consequently,
I do not find any justification to disturb the award on the aspect of limitation. As already pointed out,
the delay is not attributable to the petitioner and hence, the award stands confirmed and the Original
Petition dismissed. There are no merits in the Original Petition and I have no hesitation in confirming
the award. ksv 18.01.2010
On the petitioner's part too, an application was filed under Section 33 of the Arbitration and
Conciliation Act, 1996, for a direction that in the light of the decision of the Apex Court reported in
AIR 1997 SC 2049 (National Insurance Co. Ltd. Vs. Sujir Ganesh Nayak & Co.) and AIR 2000
HP 11 (H.P.Horticultural P.M. & P. Corpn. Ltd. Vs. U.I.Insurance Co. Ltd.), the arbitral award
dated 27.6.2000 had to be set aside on the ground of limitation.
8. The Arbitral Tribunal pointed out that Ex.A1 is the xerox copy of the first page of the master
insurance policy issued by the Insurance Company for the period 1.11.1986 to 1.11.1987. The xerox
copy of the schedule, in so far as it related to the fourth respondent, covered the fourth respondent's
buildings, machinery and stock at Chennai and Katpadi of a total value of Rs.28,12,000/-. Admittedly,
the entire policy in original was not produced either by the petitioner or by the respondents. The
Tribunal pointed out that even though on an application by the fourth respondent an order was passed
directing the fifth respondent Bank to produce the same, the Bank, however, did not produce it. On an
application taken by the petitioner before this Court in Application No.3749 of 2001 in this O.P., under
order dated 25.4.2002, this Court directed the Bank to produce the original of the insurance policy and
the same is now before this Court.
plea of limitation, the Arbitral Tribunal agreed with the contention of the fourth respondent that Article
44(b) of the Limitation Act would apply in respect of insurance claims and rejected the plea of the
petitioner that the claim was hit by limitation in view of Article 137 of the Limitation Act, that the
fourth respondent had not lodged the claim within three years of the damage suffered. Learned
Arbitrators held that Ex.A1, the policy produced, was only a xerox copy of the first page of the policy
with the photocopy of the schedule and not the original policy. Hence, the claim of the petitioner that
the claim should have been made within three years of the fire accident as per the conditions of the
policy was rejected.
115
11. The only issue argued by the learned counsel appearing for the petitioner is on the question on
limitation. Even though learned counsel appearing for the fourth respondent questioned the
maintainability of the claim of the petitioner in the O.P. before this Court under Section 34 of the
Arbitration and Conciliation Act, 1996, as regards summoning the original policy from the Bank, yet
she submitted that even going by the clauses therein, the claim is within the period of limitation
specified in the contract and hence no exception could be taken to the decision of the Arbitral Tribunal.
==============================
Case Study No. 6: ( Ref. Sec.33 of the Act)
National Insurance Co. vs Amal Kanti Das on 14 May, 1997
Showing the contexts in which Judgments on arbitration in insurance business appears in the
document
The appellant is the insurer of the respondent who is dealing in the business of printing, publishing and
selling of books etc. under the name and style "M/s. Saraswati Book Depot" 28 Akhaurah Road,
Agartala. On 5-7-1991 the shop of the respondent was ransacked and damaged by a group of students
and some of the books and articles were also taken away. The respondent reported the matter to the
police and also made a claim to the appellant-Insurance company as per terms of The insurance
policy being No. 203000/ 3106259. As per report of a Surveyer appointed agreement. Mr. S. Roy,
Advocate was appointed Arbitrator by the respondent and Sri B. Bhattacharjee, Advocate was also
appointed Arbitrator by the Appellant.
As the two Arbitrators failed to arrive at a concensus decision, the matter was referred to the Umpire as
per the terms of the agreement. Ultimately the Umpire made the Award on 16-8-1993 and same was
submitted to the Court on 22-9-1993. On receipt of the notice of filing of the Award the appellant filed
an application under Sections 30/33 of the Arbitration Act for setting aside the Award and the learned
Assistant District Judge, No. 1 by his Judgment dated 11-4-1994 made the award a rule of the Court.
=================
Case study No. 7
Gujarat High
Court
Essar Oil Limited vs United India Insurance Company ... on 29 December,
2005
Author: M Shah
Bench: M Shah
JUDGMENT
M.R. Shah, J.
116
Page 0509
1. By way of this petition under Article- 226 of the Constitution of India, the petitioner has
challenged the legality and validity of the order dated 10.2.2005 passed in IAAP No. 32 of 2003 by
the learned Nominee of the Hon'ble the Chief Justice in dismissing the said application filed under
Section-11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act for
short and brevity) and in refusing to appoint the Arbitrator.
2. It is the case on behalf of the petitioner that in pursuance of the licence granted by the Government
of India for setting up an oil refinery at Vadinar, District Jamnagar, the petitioner commenced
construction and related activities in relation to the oil refinery in the year 1996. In order to cover
various risks associated with the refinery project, the petitioner had availed an insurance from the
respondents covering all risks of physical loss or damange or third party liability and Advance
Loss of Profit (`ALOP' for short) on the terms and conditions contained in an Insurance Policy
dated 23.8.1996 issued by the respondents in favour of the petitioner. According to the petitioner,
the sum insured under the above ALOP cover was Rs. 1072 crores and the aforesaid policy was valid
upto 24.9.1999. It is the case on behalf of the petitioner that due to a severe cyclone that hit the
coastal area of Gujarat State on 9.6.1998, the petitioner suffered physical loss or damage in respect of
the project works and the assets connected therewith and the petitioner also suffered loss of profit etc.
which was determined to the tune of Rs. 886.30 crores which fell under ALOP. It is the case on behalf
of the petitioner that on 29.6.1998 the petitioner claimed from the respondents a sum of Rs. 205
crores with respect to the loss or damage caused to the projected related assets / works and the
respondents paid an aggregate sum of Rs. 30.00 crores towards the aforesaid loss or damage caused
to the project related assets / works to the petitioner. It is further case of the petitioner that on
27.9.1999 the petitioner had claimed from the respondents a total sum of Rs. 886.30 crores towards
ALOP. It is also case on behalf of the petitioner that after several meetings and rounds of
discussions, a settlement was arrived at whereunder the respondents agreed to pay a sum of Rs. 269
crores over and above the sum of Rs. 30 crores already paid as aforesaid to the petitioner in
satisfaction of all claims of the petitioner under all sections of the aforesaid insurance policy. It is the
case on behalf of the petitioner that as many as eight drafts of settlement deeds were exchanged
between the parties to record the terms of settlement for making payment of the settled sum to
the petitioner. According to the petitioner, the respondents, however, postponed formal signing of the
deed of settlement and at last, by their letter dated 20.2.2003, i.e. after a lapse of 42 months from
the date of claim made by the petitioner for ALOP, repudiated th claim of the petitioner for payment
of ALOP. As per the petitioner, since the aforesaid insurance policy contained a clause for
arbitration, the petitioner through its Advocate's letter dated 19.5.2003 addressed to the respondents
invoked the arbitration clause and called upon the respondents to nominate their arbitrator and also
Page 0510 filed a protective suit thereafter before the learned Civil Judge (S.D.) at Vadodara for the
recovery of money due under the policy considering the fact that the policy contained a clause for
forfeiture of benefits under the policy if no action was taken by the petitioner within the period
specified therein. It appears that the respondent replied to the petitioner's aforesaid notice invoking
the arbitration clause by submitting that the claim under the policy having already been repudiated by
them, there was no dispute as regards the amount to be paid under the policy and accordingly, the
arbitration clause is legally not enforceable. It is the case on behalf of the petitioner that due to
failure by the respondents to appoint their arbitrator as per the appointment procedure prescribed in
the clause for arbitration contained in the aforesaid insurance policy, the petitioner filed Arbitration
Petition No. 32 of 2003 for appointment of an
117
arbitrator / arbitrators under Section-11(6) of the Act to adjudicate upon the disputes arisen
under the aforesaid insurance policy, before this Court and the same came to be heard by the
learned Nominee / Designated Judge of the Hon'ble the Chief Justice of this Court, who by her order
dated 10.2.2005 rejected the said petition for appointment of arbitrator or arbitral tribunal holding that:
[i] While exercising the powers conferred by Section-11(6) of the Act, the Hon'ble the Chief Justice
or his nominee is exercising the administrative powers and contentious issues are not required to be
gone into.
[ii] That the petition does not involve the contentious
issues.
[iii] There was no admission of liability to pay insurance money under the head of SAdvance Loss
of Profit and the arbitration clause clearly stipulates that the said clause can be invoked only in
case where the insurance company admits its liability to pay the insurance money under the said
head.
[iv] The petitioner company has availed of the remedy before the Civil Court and therefore also, the
question of invoking arbitration clause does not arise.
3. Being aggrieved by and dissatisfied with aforesaid order dated 10.2.2005 passed in Arbitration
Application No. 32 of 2003 in rejecting the same and refusing to appoint arbitrator / arbitral
tribunal, the petitioner has preferred the present Special Civil Application under Article 226 of the
Constitution of India.
4. Shri Rajani H. Mehta, learned advocate appearing on behalf of the respondents relying upon the
judgment of the Hon'ble Supreme Court in case of S.B.P. & Co. v. Patel Engineering Ltd. Page 0511
(2005) 8 SCC 618: (2005) AIR SC WEEKLY 5931 (hereinafter referred to as the SPATEL
ENGINEERING CASE) has raised preliminary objection with regard to maintainability of this
petition under Article 226 of the Constitution of India against the impugned order passed by the
learned Nominee of the Hon'ble Chief Justice passed under Section-11(6) of the Act refusing to
appoint arbitrator or arbitral tribunal.
5. Shri K.S. Nanavati, learned senior advocate appearing on behalf of the petitioner has also strongly
relied upon the latest decision of the Hon'ble Supreme Court in case of S.B.P. & Co. v. Patel
Engineering Ltd. (2005) 8 SCC 618. Shri Nanavati, learned senior advocate for the petitioner has
relied upon Paragraph-38 and
46 of the aforesaid judgment. He has submitted that as held by the Hon'ble Supreme Court in the
aforesaid judgment, the function of the Hon'ble the Chief Justice or his designated Judge of that
Court in considering the application under Section- 11 of the Arbitration Act for appointment of
arbitrator or arbitral tribunal, is not an administrative power but judicial power and appeal will lie
against the order under Section- 11 of the Act only under Article 136 of the Constitution of India
before the Hon'ble Supreme Court. According to Shri Nanavati, the judgment in the case of
PATEL ENGINEERING LTD is prospective in nature as held in para-46(x). That being so,
maintainability of a petition to be decided in light of the observations made in the said judgment,
more particularly, paras-25 and 31. Shri Nanavati has submitted that assuming without admitting
that by reasons of the observations made in paras-25 and 31,the order passed under Section- 11 is
118
not open to challenge under Article 136 by way of an appeal to the Hon'ble Supreme Court, and
these observations would apply to only those cases where judicial orders are passed in exercise of
the power under Section- 11 and in the instant case, admittedly, the Hon'ble Designated Judge has not
passed the judicial order, but an administrative order against which, no appeal under Article 136 of
the Constitution of India would lie and therefore, the petitioner would be without any remedy.
Learned Advocate Shri Nanavati has further submitted that in any case, as held by the Hon'ble
Supreme Court in the said judgment, neither the Hon'ble Chief Justice, nor the designated Judge has
jurisdiction to decide whether a claim made is one which comes within the purview of the arbitration
clause and it will be appropriate to link that question to be decided by the Arbitral Tribunal on taking
evidence along with merits of the claims involved in the arbitration. In support of his submission, he
has relied upon paragraph-38 of the aforesaid judgment read with final conclusion in Paragraph-
46(iv). However, it is submission of Shri Rajani H. Mehta that as per the judgment of the Hon'ble
Supreme Court in the aforesaid case, the Hon'ble the Chief Justice or the Designated Judge will have
the right to decide the preliminary aspect as indicated in the paragraph-38 and these will be, his own
jurisdiction to entertain the request, the existence of a valid arbitration agreement, the existence or
otherwise of a live claim, the existence of the condition for the exercise of his power and on the
qualifications of the arbitrator or arbitrators. Shri Nanavati has therefore submitted that whether the
dispute is covered by arbitration clause or not is not to be gone into while considering the
application under Section- 11 and reference is to be made without adjudicating this issue. Shri
Nanavati, learned senior advocate has further submitted that since the learned Designated Judge has
held that function exercised by the learned Judge is administrative in nature which is now contrary
to the decision of the Hon'ble Supreme Court, this Court in exercise of writ jurisdiction can make
proper order after considering the facts and circumstances of the case. On merits, Shri Nanavati has
submitted that it is a matter of record that after the claim was made by the petitioner, the respondent
did not dispute or repudiate the liability, but held negotiations for almost 42 months on the question
of quantum and as many as eight draft of settlements were exchanged between the parties and
according to Page 0512 him, in the course of these negotiations, the Insurance Company has
admitted its liability of the disputed amount claimed by the petitioner as damages / compensation,
particularly when an amount of Rs. 30.00 crores has been paid during the course of negotiation and
the Insurance Company is therefore estooped from disputing the liability and strategic repudiation
of its liability by letter dated 26.5.2003 cannot defeat the arbitration agreement. According to him,
in any case, this is a serious dispute which we will have to be gone into as and when the evidence is
laid before the Arbitral Tribunal which will have to be gone into as and when the evidence is laid
before the Arbitral Tribunal and therefore, this is a fit case where the arbitrator ought to be
appointed under Section- 11 of the Act.
6. Shri Nanavati, learned senior advocate has further submitted that the learned Designated Judge has
clearly and categorically stated in the impugned order that she has passed the order in exercise of her
administrative function and therefore, the present writ petition is maintainable. The contention of the
respondents that against the impugned order only an appeal under Article 136 of the Constitution of
India would lie to the Hon'ble Supreme Court and therefore, present petition is filed by the
petitioner is not maintainable and therefore, deserves to be dismissed by this Court, is totally
misconceived and untenable, both in law and on facts. According to him, as a matter of fact, the
impugned order being admittedly an administrative order, the petitioner cannot file an appeal
against the same under Article 136 of the Constitution of India to the Hon'ble Supreme Court. As held
by the Hon'ble Supreme Court in the aforesaid judgment, it is only and only against the judicial order
an appeal will lie under Article 136 of the Constitution of India to the Supreme Court and therefore,
119
the respondents' objection to the maintainability of the present petition, is devoid of any merits. Shri
Nanavati, learned senior advocate has further submitted that as held by the Hon'ble Supreme Court
in the aforesaid judgment, more particularly, para-38 of the judgment, the Hon'ble Chief Justice of the
High Court or his designated Judge of that Court has the jurisdiction to decide his own jurisdiction
having regard to certain preliminary aspects only as indicated in para-38 and as observed by the
Hon'ble Supreme Court in para-38 Sit may not be possible at that stage, to decide whether a live claim
made, is one which comes within the purview of the arbitration clause, it will be appropriate to leave
that question to be decided by the arbitral tribunal on taking evidence, along with the merits of the
claims involved in the petition.
7. He has further submitted that the question whether there is an admission of liability or not on the
part of the respondents insurance company in respect of the claim of the petitioner for payment of
ALOP, is a question of fact to be decided on the basis of both documentary as well as oral evidences
of the parties and the same can be considered only after leading oral as well as documentary
evidences and therefore, the learned Nominee of the Hon'ble the Chief Justice has materially erred in
rejecting the application and refusing to appoint arbitrator
/ arbitral tribunal, more particularly, admittedly the Insurance Policy contains arbitration clause.
According to him, unpaid claims of the petitioner under the aforesaid insurance policy are live and
not barred by time. He has further submitted Page 0513 that considering all these questions, whether
the disputes between the parties comes witalwhin the purview of the arbitral clause is only to be
decided by the arbitral tribunal on taking evidence and not by the Hon'ble Chief Justice of the High
Court or his designated Judge of that Court, as the same cannot be said to be an adjudication relating
to his own jurisdiction on jurisdictional facts. Shri Nanavati has further submitted that as clarified by
the Hon'ble Supreme Court in para-45 of the aforesaid judgment, that the said judgment will have
prospective operation and as such, the aforesaid judgment does not apply to the present case and
therefore, the present petition is maintainable.
8. The sum and substance of the arguments and submissions made on behalf of the petitioner is
that the impugned order passed by the learned Designated Judge is purely an administrative order and
in passing such order, the learned Designated Judge has, without jurisdiction and authority of law,
decided a contentious issue i.e. whether the claim of the petitioner falls or not within the purview of
the arbitration clause contained in the aforesaid insurance policy, and this Court in exercise of the
powers under Article 226 of the Constitution of India can always direct to appoint a sole arbitrator
or an arbitral tribunal to save time and money, without remanding the matter to the learned
Designated Judge for passing the judicial order. Therefore, it is requested to allow the present Special
Civil Application.
9. Per contra, Shri Rajani H. Mehta, learned advocate appearing on behalf of the respondents while
supporting the order passed by the learned Designated Judge has submitted that the impugned order
passed by the learned Designated Jude is based on legal, just and valid grounds and the learned
Designated Judge has dismissed the petition for an appointment of arbitrator on, inter alia, two main
grounds;
[a] That there had been no admission of liability by the Respondent, and therefore, there was no
arbitrable dispute within the terms of the arbitration clause.
[b] That the petitioner had in any case availed of the remedy before the Civil Court at Baroda
120
(Special Civil
Suit No. 319 of 2003) and therefore, there was no question of invoking the arbitration
clause.
10. Relying upon the judgment of the Hon'ble Supreme Court in case of PATEL ENGINEERING,
Shri Mehta, learned advocate for the respondents has submitted that the present writ petition is not
maintainable as the Hon'be Supreme Court has held in the aforesaid judgment that an order passed
by the Hon'ble Chief Justice or his designated Judge can only be challenged before the Hon'ble
Supreme Court under Article 136 of the Constitution of India. He has relied upon para-46 (vii) of the
aforesaid judgment in support of his above preliminary objection.
11. Meeting with the contention raised on behalf of the petitioner that the decision of the Hon'be
Supreme Court in the case of PATEL ENGINEERING is prospective in nature and the same is not
applicable in the present case, Shri Mehta, learned advocate for the respondents has heavily relied
upon para-46(x) of the said judgment and according to him, as per Para-46(x) of the said judgment,
the said decision will be applicable prospectively only Page 0514 where the arbitrator / arbitral
tribunal is already appointed, meaning thereby, where appointment of arbitrator is not made or is
declined, the said judgment will be made applicable and therefore, the present petition under
Article 226 of the Constitution of India against the impugned order passed by the learned Nominee
is not maintainable. He has relied upon Para-43 of the decision in case of PATEL ENGINEERING
in support of his submission that the order passed by the Hon'ble Chief Justice or its Nominee under
Section- 11(6) of the Act is a judicial order and the same, so far as the High Court is concerned,
would be final and only avenue open to a party feeling aggrieved by the order of the Hon'ble Chief
Justice / or its Nominee would be to approach to the Supreme Court under Article 136 of the
Constitution of India. According to him, the status of the present writ petition being pending, the
judgment of the Hon'ble Supreme Court in case of PATEL ENGINEERING would be applicable and
would be binding to this Court.
12. Relying upon Para-24 of the judgment in the case of PATEL ENGINEERING and the
observations made by the Hon'ble Supreme Court that dragging a party to an arbitration when
there existed no arbitration agreement or when there existed no arbitrable dispute, can certainly
affect the right of that party and even on monetary terms, impose on him a serious liability for
meeting the expenses of the arbitration, even if it be preliminary expenses and his objection is
upheld by the arbitral tribunal. Shri Mehta has submitted that the Designated Jude has rightly
refused to appoint the arbitrator or arbitral tribunal considering the fact that no arbitral dispute
existed between the parties. He has also further submitted that the learned Designated Judge has
rightly refused to appoint an arbitrator by holding that the controversy raised by the petitioner does not
fall within the purview of the arbitration clause at all.
13. Relying upon the Clause-7 of the Arbitration Clause of the policy, Shri Mehta has submitted
that the learned Nominee and the Designated Judge has rightly refused to appoint the arbitrator /
arbitral tribunal by holding that at no point of time the Insurance Company had agreed to or
admitted liability and that arbitral clause clearly stipulates that the said clause can be invoked only in
case where the insurance company admits its liability to pay insurance money under the said head.
14. He has also further submitted that the learned Nominee / Designated Judge has rightly refused to
appoint arbitrator / arbitral tribunal considering the fact that the petitioner company has availed of
121
the remedy before the Civil Court. He has submitted that the contention on behalf of the petitioner
that the suit came to be filed by the petitioner to save limitation and while invoking the arbitration
clause, simultaneously, the suit came to be filed is factually incorrect. According to him, the suit
came to be filed earlier and thereafter the arbitration clause came to be invoked. According to him,
once the petitioner has filed Civil Suit for the dispute in question, the petitioner has waived its right
for invoking arbitration clause and therefore, the learned Nominee has rightly refused to appoint
arbitrator / arbitral tribunal by holding that as the petitioner company has already availed the
remedy before the Civil Court, the question of invoking arbitration clause Page 0515 shall not arise.
Shri Mehta, learned advocate for the respondents has also further submitted that before the learned
Nominee to the Hon'ble Chief Justice, the following materials were before her.
[a] The petition with affidavit
[b] Accompanying documents to the petition.
[c] Reply of the Respondent dated 21.8.03.
[d] The petitioners affidavit in rejoinder dated 3.10.2003
[e] The petitioner's additional affidavit of 25.10.04 with accompanying documents, in all running
into approximately 295 pages.
Therefore, according to Shri Mehta, the learned Designated Judge has passed the impugned order
after going through the aforesaid documents and thereafter, she has come to the conclusion that the
arbitral clause could not be invoked since the dispute falls outside the arbitration clause. He has
further submitted that such a decision is in consonance with the judgment of the Hon'ble
Supreme Court in the case of PATEL ENGINEERING, more particularly, para-37 of the said
judgment. Therefore, it is requested to dismiss the present special civil application by further
submitting that the petitioner's grievance, if any, against the order of the learned Designated Judge,
can only be now raised before the Hon'ble Supreme Court under Article 136 of the Constitution of
India. It is also lastly submitted by Shri Mehta in the alternative that the learned Designated Judge
has rightly refused to appoint arbitrator / arbitral tribunal by observing that the present dispute is
not amenable to arbitration as per the relevant arbitration clause in the policy issued to the petitioner
and the petitioner has waived and abandoned its right to arbitrate, if any, by invocation of a civil suit
before the Civil Court at Vadodara. Therefore, it is requested to reject the present Special Civil
Application.
16. Heard the learned advocates appearing on behalf of the parties at length. After considering the
rival submissions made by the learned advocates on behalf of the parties, the following issues
arise for consideration of this Court.
[i] Whether against the impugned order passed by the learned Nominee and the Designated Judge
passed under Section-11(6) of the Arbitration and Conciliation Act, 1996 ( in the present case
refusing to appoint arbitrator / arbitral tribunal ) the present petition under Article 226 of the
Constitution of India is maintainable or not ?
[ii] Whether the learned Nominee / Designated Judge while refusing to appoint arbitrator / arbitral
tribunal has rightly observed and considered whether the dispute falls within arbitral clause or not.
[iii] On filing of the civil suit by the petitioner with regard to the same subject matter and the
dispute is in question, whether arbitral clause can be invoked by the petitioner or not.
122
17. As such, all three aforesaid three issues are interconnected and therefore, they are answered
jointly accordingly.
18. Before considering the rival submissions made on behalf of both the parties, few paragraphs
of the judgment of the Hon'ble Supreme Court in case of S.B.P. & Co. v. Patel Engineering Ltd.
(2005) 8 SCC 618 : (2005) AIR SC Weekly 5931 are required to be considered which are as under:
[1] What is the nature of the function of the Chief Justice or his designate under Section- 11 of the
Arbitration and Conciliation Act, 1996 is the question that is posed before us. The three Judges bench
decision in Konkan Rly. Corporation Ltd. v. Mehul Construction Co. as approved by the Constitution
Bench in Konkan
Railway Corporation Ltd. and Anr. v. Rani Construction Pvt Ltd. has taken the view that it is purely an
administrative function, that it is neither judicial nor quasi judicial and the Chief Justice or his
nominee performing the function under Section 11(6) of the Act, cannot decide any contentious
issue between the parties. The correctness of the said view is questioned in these appeals.
[6] Section 12 sets out the grounds of challenge to the person appointed as arbitrator and the duty
of an arbitrator appointed, to disclose any disqualification he may have. Sub-Section (3) of Section
12 gives a right to the parties to challenge an arbitrator. Section- 13 lays down the procedure for such
a challenge. Section- 14 takes care of the failure of or impossibility for an arbitrator to act and
Section- 15 deals with the termination of the mandate of the arbitrator and the substitution of
another arbitrator. Chapter IV deals with the jurisdiction of arbitral tribunal. Section- 16 deals
with the competence of an arbitral tribunal, to rule on its jurisdiction. The arbitral tribunal may rule
on its own jurisdiction, including ruling on any objection with respect to the existence or validity
of the arbitration agreement. A person aggrieved by the rejection of his objection by the tribunal on
its jurisdiction or the other matters referred to in that Section, has to wait until the award is made to
challenge that decision in any appeal against the arbitral award itself in accordance with Section 34
of the Act. But an acceptance of the objection to jurisdiction or authority, could be challenged then
and there, under Section 37 of the Act. Section 17 confers powers on the arbitral tribunal to make
interim orders. Chapter V comprising of Sections 18 to 27 deals with the conduct of arbitral
proceedings. Chapter VI containing Sections 28 to 33 deals with making of the arbitral award and
termination of the proceedings. Chapter VII deals with recourse against an arbitral award. Section 34
contemplates the filing of an application for setting aside an arbitral award by making an application
to the Court as defined in Section 2(e) of the Act. Chapter VIII deals with finality and enforcement
of arbitral awards. Section 35 makes the award final and Section 36 provides for its enforcement
under the Code Page 0517 of Civil Procedure, 1908 in the same manner as if it were a decree of
court. Chapter IX deals with appeals and Section 37 enumerates the orders that are open to appeal.
We have already referred to the right of appeal available under Section 37(2) of the Act, on the
Tribunal accepting a plea that it does not have jurisdiction or when the arbitral tribunal accepts a plea
that it is exceeding the scope of its authority. No second appeal is contemplated, but right to approach
the Supreme Court is saved. Chapter X deals with miscellaneous matters. Section 43 makes the
Limitation Act,
1963 applicable to proceedings under the Act as it applies to proceedings in
Court.
123
[8] Normally, any tribunal or authority conferred with a power to act under a statute,
has the jurisdiction to satisfy itself that the conditions for the exercise of that power
existed and that the case calls for the exercise of that power. Such an adjudication
relating to its own jurisdiction which could be called a decision on jurisdictional
facts, is not generally final, unless it is made so by the Act constituting the tribunal.
Here, sub-Section (7) of Section 11 has given a finality to the decisions taken by the
Chief Justice or any person or Institution designated by him in respect of matters
falling under sub-Section (4), (5) and (6) of Section 11. Once a statute creates an
authority, confers on its power to adjudicate and makes its decision final on matters to
be decided by it, normally, that decision cannot be said to be a purely administrative
decision. It is really a decision on its own jurisdiction for the exercise of the power
conferred by the statute or to perform the duties imposed by the statute. Unless, the
authority satisfies itself that the conditions for exercise of its power exist, it could not
accede to a request made to it for the exercise of the conferred power. While exercising
the power or performing the duty under Section 11(6) of the Act, the Chief Justice
has to consider whether the conditions laid down by the section for the exercise of
that power or the performance of that duty, exist. Therefore, unaided by authorities
and going by general principals, it appears to us that while functioning under Section
11(6) of the Act, a Chief Justice or the person or institution designated by him, is
bound to decide whether he has jurisdiction, whether there is an arbitration agreement,
whether the applicant before him, is a party, whether the conditions for exercise of the
power have been fulfilled and if an arbitrator is to be appointed, who is the fit person, in
terms of the provision. Section 11(7) makes his decision on the matters entrusted to
him, final.
[9] The very scheme, if it involves an adjudicatory process, restricts the power of
the Chief Justice to designate, by excluding the designation of a non-judicial institution
or a non-judicial authority to perform the functions. For, under our dispensation, no
judicial or quasi-judicial decision can be rendered by an institution if it is not a judicial
authority, court or a quasi-judicial tribunal. This aspect is dealt with later while dealing
with the right to designate under Section 11(6) and the scope of that designation.
[10] The appointment of an arbitrator against the opposition of one of the parties on the
ground that the Chief
Justice had no jurisdiction or on the ground that there was no arbitration agreement,
or on the ground Page
0518 that there was no dispute subsisting which was capable of being arbitrated upon or
that the conditions for exercise of power under Section 11(6) of the Act, do not exist
or that qualification contemplated for the arbitrator by the parties cannot be ignored
and has to be borne in mind, all are adjudications which affect the rights of the parties.
It cannot be said that when the Chief Justice decides that he has jurisdiction to proceed
with the matter, that there is an arbitration agreement and that one of the parties to it
has failed to act according to the procedure agreed upon, he is not adjudicating on the
rights of the party who is raising these objections. The duty to decide the preliminary
124
facts enabling the exercise of jurisdiction or power, gets all the more emphasized, when
sub-Section (7) designates the order under sub-Sections (4), (5) and (6) a 'decision' and
makes the decision of the Chief Justice final on the matters referred to in that sub-
Section. Thus, going by the general principles of law and the scheme of Section 11, it is
difficult to call the order of the Chief Justice merely an administrative order and to say
that the opposite side need not even be heard before the Chief Justice exercises his
power of appointing an arbitrator. Even otherwise, when a statue confers a power or
imposes a duty on the highest judicial authority in the State or in the country, that
authority, unless shown otherwise, has to act judicially and has necessarily to consider
whether his power has been rightly invoked or the conditions for the performance of his
duty are shown to exist.
[35] Going by the above test it is seen that at least in the matter of deciding his own
jurisdiction and in the matter of deciding on the existing of an arbitration agreement,
the Chief Justice when confronted with two points of view presented by the rival
parties, is called upon to decide between them and the decision vitally affects the rights
of the parties is that, either the claim for appointing an arbitral tribunal leading to an
award is denied to a party or the claim to have an arbitration proceedings set in
motion for entertaining a claim is facilitated by the Chief Justice. In this context, it is
not possible to say that the Chief Justice is merely exercising an administrative
function when called upon to appoint an arbitrator and that he need not even issue
notice to opposite side before appointing an arbitrator.
[36] It is fundamental to our procedural jurisprudence, that the right of no person shall
be affected without he being heard. This necessarily imposes an obligation on the Chief
Justice to issue notice to the opposite party when he is moved under Section- 11 of the
Act. The notice to the opposite party cannot be considered to be merely an intimation
to that party of the filing of the arbitration application and the passing of an
administrative order appointing an arbitrator or arbitral tribunal. It is really the giving an
opportunity of being heard. There have been cases where claims for appointment of an
arbitrator based on an arbitration agreement are made 10 or 20 years after the period of
the contract has come to an end. There have been cases where the appointment of an
arbitrator has been sought, after the parties had settled the accounts and the concerned
party had certified that he had no no further claims against the other contracting party.
In other words there have been Page 0519 occasions when dead claims are sought to
be resurrected. There have been cases where assertions are made of existence of
arbitration agreements when, in fact, such existence is strongly disputed by the other
side who appears on issuance of notice. Controversies are also raised as to whether the
claim that is sought to be put forward comes within the purview of the concerned
arbitration clause at all. The Chief Justice has necessarily to apply his mind to these
aspects before coming to a conclusion one way or the other and before proceeding to
appoint an arbitrator or declining to appoint an arbitrator, obviously, this is an
adjudicatory process. As an opportunity of hearing to both parties is a must. Even in
administrative functions if rights are affected, rules of natural justice step in. The
principles settled by Ridge v. Baldwin (1963) 2 ALL ER 66, are well known. Therefore,
125
to the extent, Konkan Railway (Supra) states that no notice need be issued to the
opposite party to give him an opportunity of being heard before appointing an
arbitrator, with respect, the same has to be held to be no sustainable.
[38] It is necessary to define what exactly the Chief Justice, approached with an
application under Section 11 of the Act, is to decide at that stage. Obviously, he has to
decide his own jurisdiction in the sense, whether the party making the motion has
approached the right High Court. He has to decide whether there is an arbitration
agreement, as defined in the Act and whether the person who has made the request
before him, is a party to such an agreement. It is necessary to indicate that he can also
decide the question whether the claim was a deed one; or a long barred claim that was
sought to be resurrected and whether the parties have concluded the transaction by
recording satisfaction of their mutual rights and obligations or by receiving the final
payment without objection. It may not be possible at that stage, to decide whether a
live claim made, is one which comes within the purview of the arbitration clause. It
will be appropriate to leave that question to be decided by the arbitral tribunal on taking
evidence, along with the merits of the claims involved in the arbitration. The Chief
Justice has to decide whether the applicant has satisfied the conditions for appointing an
arbitrator under Section 11(6) of the Act. For the purpose of taking a decision on these
aspects, the Chief Justice can either proceed on the basis of affidavits and the
documents produced or take such evidence or get such evidence recorded, as may be
necessary. We think that adoption of this procedure in the context of the Act would best
serve the purpose sought to be achieved by the Act of expediting the process of
arbitration, without too many approaches to the court at various stages of the
proceedings before the Arbitral tribunal.
[43] Once we arrive at the conclusion that the proceeding before the Chief Justice
while entertaining an application under Section 11(6) of the Act is adjudicatory, then
obviously, the outcome of that adjudication is a judicial order. Once it is a judicial
order, the same, as far as the High Court is concerned would be final and the only
avenue open to a party feeling aggrieved by the order of the Chief Justice would be to
approach to the Supreme Court under Article 136 of the Constitution of India. If it were
an order by the Chief Justice of India, the party will Page 0520 not have any further
remedy in respect of the matters covered by the order of the Chief Justice of India or
the Judge of the Supreme Court designated by him and he will have to participate in the
arbitration before the Tribunal only on the merits of the claim. Obviously, the
dispensation in our country, does not contemplate any further appeal from the
decision of the Supreme Court and there appears to be nothing objectionable in
taking the view that the order of the Chief Justice of India would be final on the
matters which are within his purview, while called upon to exercise his jurisdiction
under Section 11 of the Act. It is also necessary to notice in this context that this
conclusion of ours would really be in aid of quick disposal of arbitration claims and
would avaoid considerable delay in the process, an object that is sought to be achieved
by the Act.
126
[44] It is seen that some High Courts have proceeded on the basis that any order passed
by an arbitral tribunal during arbitration, would be capable of being challenged under
Article 226 or 227 of the Constitution of India. We see no warrant for such an approach.
Section - 37 makes certain orders of the arbitral tribunal appellable. Under Section- 34,
the aggrieved party has an avenue for ventilating his grievances against award
including any in-between orders that might have been passed by the arbitral tribunal
acting under Section- 16 of the Act. The party aggrieved by any order of the arbitral
tribunal, unless has a right of appeal under Section- 37 of the Act, has to wait until the
award is passed by the Tribunal. This appears to be the scheme of the Act. The
arbitral tribunal is after all the creature of a contract between the parties, the
arbitration agreement, even though if the occasions arises,the Chief Justice may
constitute it based on the contract between the parties, but that would not alter the status
of arbitral tribunal. It will still be a forum chosen by the parties by agreement. We,
therefore, disapprove of the stand adopted by some of the High Courts that any order
passed by the arbitral tribunal is capable of being corrected by the High Court under
Article 226 or 227 of the Constitution of India. Such an intervention by the High Courts
is not permissible.
[46] We, therefore, sum up our conclusions as follows:
[i] The power exercised by the Chief Justice of the High Court or the Chief Justice of India
under Section
11(6) of the Act is not an administrative power. It is a judicial power.
[iv] The Chief Justice or the designated judge will have the right to decide the
preliminary aspects as indicated in the earlier part of this judgment. These will be, his
own jurisdiction, to entertain the request the existence of a valid arbitration agreement,
the existence or otherwise of a live claim, the existence of the condition for the exercise
of his power and on the qualifications of the arbitrator or arbitrators. The Chief Justice
or the judge designated would be entitled to seek the opinion of an institution in the
matter of nominating an arbitrator qualified in terms of Section 11(8) of the Act if the
need arises but the order appointing the arbitrator could only be that of the Chief
Justice or the judge designate.
[vi] Once the matter reaches the arbitral tribunal or the sole arbitrator, the High Court
would not interfere with the orders passed by the arbitrator or the arbitral tribunal during
the course of the arbitration proceedings and the parties could approach the Court only
in terms of Section 37 of the Act or in terms of Section 34 of the Act.
[vii] Since an order passed by the Chief Justice of the High Court or by the designated
judge of that Court is a judicial order, an appeal will lie against that order only under
Article 136 of the Constitution of India to the Supreme Court.
[x] Since all were guided by the decision of this Court in Konkan Railway Corporation
Ltd. and Anr. v. Rani
127
Construction Pvt. Otd. and orders under Section 11(6) of the Act have been made based
on the position adopted in that decision, we clarify that appointments of arbitrators or
arbitral tribunals thus far made, are to be treated as valid, all objections being left to be
decided under Section
16 of the Act. As and from this date, the position as adopted in this judgment will
govern even pending applications under Section 11(6) of the Act.
19. At this stage, Clause-VII of the Arbitration Clause of the policy is also required to
be considered which reads as under:
If any difference shall arise as to the amount to be paid under this Policy (liability being
otherwise admitted) such difference shall be referred to the decision of an Arbitrator to
be appointed in writing by the parties in difference or if they cannot agree upon a
single arbitrator to the decision or two Arbitrators, one to be appointed in writing
by each of the parties, within one calender month after having been required in writing
so to do by either of the parties, or, in case the Arbitrators do not agree, of an Umpire to
be appointed in writing by the Arbitrators do not agree, of an Umpire to be appointed
in writing by the Arbitrators before entering upon the reference. The Umpire shall sit
with the Arbitrators and preside at their meetings. The making of an award shall be a
condition precedent to any right of action against the company.
20. It is the preliminary objection raised by the learned advocate appearing on behalf of
the respondents with regard to maintainability of this petition under Article 226 of the
Constitution of India against the order passed by the learned Designated Jude refusing to
appoint arbitrator / arbitral tribunal under Section-11(6) of the Act and in support of his
above submission, Shri Mehta, learned advocate for the respondents has heavily relied
upon para-43 as well as para-46(vii) of the judgment of the Hon'ble Supreme Court
in case of PATEL ENGINEERING. It is the contention on behalf of the petitioner that
the present Special Civil Application is maintainable as the learned Designated Judge
has specifically held that she has exercised the administrative powers while exercising
the powers conferred under Section-11(6) of the Act and contentious issues are not
required to be gone into and in that view of the Page 0522 matter, as the learned
Nominee has not exercised the judicial powers, appeal before the Hon'ble Supreme
Court under Article 136 of the Constitution of India is not maintainable and the only
remedy available to the petitioner is present petition under Article 226 of the
Constitution of India. It is also contention on behalf of the petitioner that as held by
the Hon'ble Supreme Court in para-46(x) of the aforesaid judgment, the said judgment
would be made applicable prospectively and therefore also, the present petition under
Article-226 of the Constitution of India is maintainable. At this stage, it is required to be
noted that it is true that in one of paragraphs the learned Nominees has observed that
while exercising the powers conferred under Section-11(6) of the Act, the Hon'ble
Chief Justice or his Nominee is exercising the administrative powers and contentious
issues are not required to be gone into, however, it is also required to be noted that in
subsequent paragraph the learned Nominee after considering the material before her
and the relevant documents, such as, arbitration agreement, and other documents and
128
the pleadings of both the sides has specifically held that arbitration clause cannot be
invoked as the insurance company in the present case has not admitted its liability to
pay insurance money under the head SAdvance Loss of Profit and as per the arbitration
clause, said clause can be invoked only in case where the insurance company admits its
liability to pay insurance money under the said head. The learned Nominee has also
considered that as the petitioner company has availed of the remedy before the Civil
Court, a question of invoking arbitral clause shall not arise. Therefore, it cannot be
said that the learned Nominee has refused to appoint arbitrator or arbitral tribunal
under Section-11(6) of the Act only on the ground that she was exercising
administrative powers and contentious issues are not required to be gone into. If the
learned Nominee would not have decided the same on merits and would have refused
to appoint arbitrator solely on the ground that she was exercising the administrative
powers and contentious issues are not required to be gone into, then it is different
case. As held by the Hon'ble Supreme Court in the aforesaid decision of PATEL
ENGINEERING, the order passed by the Hon'ble Chief Justice of the High Court or
his Designated Judge of that Court is a judicial order and therefore, the appeal will lie
against the order only under Article 136 of the Constitution of India to the Hon'ble
Supreme Court. So far as the contention on behalf of the petitioner that the aforesaid
judgment would be applicable prospectively considering Para-46(x) is concerned, the
same has no substance. The Hon'ble Supreme Court has clearly observed in para-46(x)
that Sappointment of Arbitrators / Arbitral Tribunal thus far made, are to be treated as
valid and all objection being left to be decided under Section- 16 of the Act. As and
from this date, the position as adopted in this judgment will govern even in case of
pending applications under Section-11(6) of the Act. Therefore, from the aforesaid
paragraph-46(x), it is crystal clear that the Hon'ble Supreme Court has clearly held that
the appointment of arbitrator / arbitral tribunal already appointed and / or made
considering the judgment of Hon'ble Supreme Court in case of Konkan Railway
Corporation Ltd. v. Mehul Construction Co. the same is not to be disturbed,
meaning by, where the appointments of Page 0523 arbitrators / arbitral tribunal are
not made, and / or even applications under Section-11(6) of the Act are pending, the
judgment in case of PATEL ENGINEERING would be made applicable. Therefore,
so far as the proceedings challenging the order passed by the Hon'ble Chief Justice and
/ or his Designated Judge refusing to appoint arbitrator / arbitral tribunal under Section-
11(6) of the Act, are on the same footing, of pending applications under Section-
11(6) of the Act. Therefore, the ratio of the judgment in the case of PATEL
ENGINEERING LIMITED and the said judgment would be applicable in full force to
the facts of the present case as well as the present Special Civil Application also. In
view of the above, the only conclusion can be that against the impugned order passed
by the learned Nominee refusing to appoint the arbitrator / arbitral tribunal while
exercising the powers under Section-11(6) of the Act on the grounds that;
[i] While exercising the powers conferred by Section-11(6) of the Act, the Hon'ble the
Chief Justice or his nominee is exercising the administrative powers and contentious
issues are not required to be gone into.
129
[ii] That the petition does not involve the contentious issues.
[iii] There was no admission of liability to pay insurance money under the head of
SAdvance Loss of Profit and the arbitration clause clearly stipulates tha the said clause
can be invoked only in case where the insurance company admits its liability to pay the
insurance money under the said head.
[iv] The petitioner company has availed of the remedy before the Civil Court and
therefore also, the question of invoking arbitration clause does not arise. is not
maintainable and the only remedy available to the petitioner is to approach the
Hon'ble Supreme Court by way of an appeal under Article- 136 of the Constitution
of India.
21. In view of my above finding with regard to the issue No. 1 in respect of non-
maintainability of the present Special Civil Application under Article 226 of the
Constitution of India against the order passed by the learned Nominee refusing to
appoint arbitrator or arbitral tribunal exercising the powers under Section-11(6) of the
Act on the aforesaid grounds, the other disputes on merits and whether the learned
Nominee has rightly held or not, and the further issue that whether the arbitration clause
could have been invoked by the petitioner or not; and whether on availing the remedy
before the Civil Court by the petitioner, whether question of invoking arbitration
clause would arise or not, are not required to be decided by this Court as according to me
the present Special Civil Application under Article 226 of the Constitution is not
maintainable.
22. For the reasons stated above, the petition fails. Rule is discharged. However, there
will be no order as to costs.
130
Annexure II: APPOINTMENT OF ARBITRATORS BY THE
CHIEF JUSTICE OF INDIA SCHEME, 1996
Notification No.F. 22/1/95/SCA/Genl. In exercise of the powers conferred on
the Chief Justice of India under sub-section (10) of Section 11 of the Arbitration and
Conciliation Ordinance, 1996, I hereby make the following Scheme:
1. Short title. This scheme may be called the Appointment of Arbitrators by the
Chief Justice of India Scheme, 1996.
2. Submission of request. The request to the Chief Justice under sub-section (4)
or sub-section (5) or sub-section (6) of Section 11 shall be made in writing and
shall be accompanied by:
(a) original arbitration agreement or a duly certified copy thereof;
(b) the names and addresses of the parties to the arbitration agreement;
(c) the names and addresses of the arbitrators, if any, already appointed;
(d) the name and address of the person or institution, if any to whom or
which any function has been entrusted by the parties to the arbitration
agreement under the appointment procedure agreed upon by them;
(e) the qualifications required, if any, of the arbitrators by the agreement
of the parties;
(f) a brief written statement describing the general nature of the dispute
and the points at issue;
(g) the relief or remedy sought; and
(h) an affidavit, supported by the relevant documents, to the effect that
the condition to be satisfied under sub-section (4) or sub-section (5)
or sub-section (6) of Section 11, as the case may be, before making
the request to the Chief Justice, has been satisfied.
3. Authority to deal with the request. Upon receipt of a request under para 2
the Chief Justice may either deal with the matter entrusted to him or designate
any other person or institution for that purpose.
4. Forwarding of request to designated person or institution. Where the
Chief Justice designates any person or institution under para 3, he shall have
the request along with the documents mentioned in para 2 forwarded forthwith
to such person or institution and also have a notice sent to the parties to the
arbitration agreement.
5. Seeking further information. The Chief Justice or the person or the
institution designated by him under para 3 may seek further information or
clarification from the party making the request under this Scheme.
6. Rejection of request. Where the request made by any party under para 2 is
not in accordance with the provisions of this Scheme, the Chief Justice or the
person or the institution designated by him may reject it.
7. Notice to affected persons. Subject to the provisions of para 6, the Chief
Justice or the person or the institution designated by him shall direct that a
notice of the request be given to all the parties to the arbitration agreement
and such other person or persons as may seem to him or is likely to be affected
by such request to show cause, within the time specified in the notice, why the
appointment of the arbitrator or the measure proposed to be taken should not
be made or taken and such notice shall be accompanied by copies of all
documents referred to in para 2 or, as the case may be, by information or
clarification, if any, sought under para 5.
8. Withdrawal of authority. If the Chief Justice, on receipt of a complaint from
either party to the arbitration agreement or otherwise, is of opinion that the
131
person or institution designated by him under para 3 has neglected or refused
to act or is incapable of acting, he may withdraw the authority given by him to
such person or institution and either deal with the request himself or designate
another person or institution for that purpose.
9. Intimation of action taken on request. The appointment made or measure
taken by the Chief Justice or any person or institution designated by him in
pursuance of the request under para 1 shall be communicated in writing to:
(a) the parties to the arbitration agreement;
(b) the arbitrators, if any, already appointed by the parties to the arbitration
agreement;
(c) the person or the institution referred to in para 2(d);
(d) the arbitrator appointed in pursuance of the request.
10. Requests and communications to be sent to Registrar. All requests under
this Scheme and communications relating thereto which are addressed to the
Chief Justice shall be presented to the Registrar of this Court, who shall
maintain a separate Register of such requests and communications.
11. Delivery and receipt of written communications.- The provisions of sub-
sections (1) and (2) of Section 3 of the Arbitration and Conciliation Ordinance,
1996 shall, so far as may be apply to all written communications received or
sent under this Scheme.
12. Costs for processing requests. The party making a request under this
Scheme shall, on receipt of notice of demand from:
(a) the Registry of the Court, where the Chief Justice makes the appointment
of an arbitrator or takes the necessary measure, or
(b) the designated person or the institution, as the case may be, where such
person or institution makes appointment of arbitrator or takes the
necessary measure, pay an amount of Rs. 15,000 in accordance with the
terms of such notice towards the costs involved in processing the request.
13. Interpretation. If any question arises with reference to the interpretation of
any of the provisions of this Scheme, the question shall be referred to the Chief
Justice, whose decision shall be final.
14. Power to amend the Scheme. The Chief Justice may, from time to time,
amend by way of addition or variation any provision of this Scheme.
132
Annexure III: ICA ARBITRATION CLAUSE
The Indian Council of Arbitration recommends to all parties desirous of making reference to arbitration by
the Indian Council of Arbitration, the use of the following arbitration clause in writing in their contracts:
"Any dispute or difference whatsoever arising between the parties out of or relating to the construction,
meaning, scope, operation or effect of this contract or the validity or the breach thereof shall be settled by
arbitration in accordance with the Rules of Arbitration of the Indian Council of Arbitration and the award
made in pursuance thereof shall be binding on the parties."
DEFINITIONS
Rule 1
i. These rules may be called the "Rules of Arbitration of the Indian Council of Arbitration."
ii. These rules shall apply where parties have agreed in writing that (a) a dispute has arisen or (b) a
dispute which may arise between them in respect of defined legal relationship whether contractual or
not, shall be settled under the Rules of Arbitration.
Rule 2; In these rules, the following words have the following meanings:
i. "Arbitral Tribunal" means an arbitrator or arbitrators appointed for determining a particular dispute
or difference.
ii. "Arbitral Award" includes an interim award.
iii. "Committee" means the Arbitration Committee of the Council as provided for hereinafter.
iv. "Council" means the Indian Council of Arbitration.
v. "Governing Body" means the Governing Body of the Council.
vi. "Guidelines" means the guidelines for arbitrators and the parties to arbitration for expeditious
conduct of the arbitration proceedings, given in the Annexure to these Rules.
vii. "International Commercial Arbitration" means an arbitration relating to disputes arising out of legal
relationships, whether contractual or not, considered as commercial under the law in force in India
and where at least one of the parties is (a) an individual who is a national of, or habitually resident
in, any country other than India; or (b) a body corporate which is incorporated in any country other
than India; or (c) a company or an association or a body of individuals whose central management
and control is exercised in any country other than India, or (d) the Government of a foreign country.
viii. "Party" means a party to an arbitration agreement. It shall include any individual, firm, company,
Government, Government organisation or Government Undertaking.
ix. "Panel" means the Panel of Arbitrators maintained by the Council.
x. "Registrar" means the Registrar for the time being appointed by the Committee and includes such
other persons as the Committee may nominate for carrying out the duties of the Registrar under
these rules.
xi. "Rules" means the Rules of Arbitration of the Council.
xii. "Rules of Conciliation" means the Rules of Conciliation of the Council
xiii. "Fast Track Arbitration" means arbitration in accordance with Rule 44.
133
xiv. Words importing the singular number include, where the context admits or requires, the plural
number and vice versa.
ARBITRATION COMMITTEE
Rule 3
(a) The Governing Body of the Council shall constitute an Arbitration Committee for performing the
functions prescribed under these Rules. The Committee shall consist of the President of the Council, who
shall be the ex officio Chairman of the Committee and three members of the Governing Body of the
Council elected by the Governing Body from amongst themselves. The Committee shall hold office for a
year.
(b) The Committee may co-opt not more than two persons to be additional members of the Committee
during its terms of office. Persons who are not members of the Governing Body may also be co-opted to be
members of the Committee.
(c) The Committee or the Chairman of the Committee may delegate to the Registrar the power to take
certain decisions, provided that any such decision shall be reported to the Chairman or the Committee as the
case may be.
RULES APPLICABLE
Rule 4
(a) Any dispute relating to any commercial matter including shipping, sale, purchase, banking, insurance,
building construction, engineering, technical assistance, know-how, patents, trade marks, management
consultancy, commercial agency, or labour, arising between two or more parties in India or a party or
parties in India and a party or parties in a foreign country or between foreign parties who agree or have
agreed for arbitration by the Council, or under the Rules of Arbitration of the Council, shall be determined
and settled in accordance with these Rules.
(b) The Council shall also be competent to administer the conduct of arbitration in any dispute or difference
relating to a commercial transaction between parties as mentioned in sub-clause (a) where they have agreed
to have their dispute arbitrated under any other Rules of Arbitration and have agreed to have such
arbitration administered by the Council, wholly or in respect of some matters arising out of such arbitration.
(c) In case the parties have provided different procedure for appointment of arbitrator or schedule of cost
including the arbitrator's fee, the Council shall not be bound to process the case unless both the parties agree
to follow the entire procedure of arbitration under Rules of Arbitration of the Council.
(d) The Council shall be competent to function as Appointing Authority as contemplated under the
Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL).
Rule 5
Wherever the Parties have provided or agreed for arbitration by the Indian Council of Arbitration or for
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arbitration under the Rules of Arbitration of the Council, these rules or any amendment thereof, in the form
obtaining at the time the dispute is referred to arbitration of the Council, shall apply.
Rule 6
If one or both of the parties to a dispute which is referred to arbitration by the Council belong to a country
or countries other than India, in the absence of an agreement by the Parties on the substantive law to be
applied, it will be determined by the arbitral tribunal. The procedural law shall be the laws of India and
parties shall be deemed to have submitted to the jurisdiction of the Courts in India.
Rule 7
Any chamber of commerce, trade association or any arbitral or other organisation may adopt these Rules by
making them generally available to its members or by applying them to any dispute in which any of its
members may be parties or by normally conducting its arbitration under these Rules.
INTERPRETATION OF THE RULES
Rule 8
The decision of the Committee on any question relating to interpretation of these rules or any procedural
matter there under shall be final and binding on the parties.
PANEL OF ARBITRATORS
Rule 9
A Panel of Arbitrators shall be appointed by the Committee from amongst persons who are qualified and
possesses knowledge and experience in their respective field of profession and arbitration law & procedure
and are willing to serve as arbitrators generally or in specific fields and who are from time to time
recommended by the members of the Council or any other person or organisation.
All the members of the Panel will carry equal status and parties will not have any right to challenge the
appointment of the arbitrator on the ground that its nominee arbitrator has higher status than the Presiding
Arbitrator.
Rule 10
The Registrar shall prepare and maintain an up-to-date Panel of Arbitrators together with adequate
information as to their qualifications and experience. Separate lists may be kept and maintained of
arbitrators included in the Panel for disputes in general and for each of the fields of international trade
and/or business transactions in which the Governing Body decides that the Council will offer arbitration
facilities under the Rules.
The parties to a dispute or the Registrar where he appoints the arbitrator may choose any person from the
panel with reference to any dispute. If any party appoints a foreigner/person residing abroad, as arbitrator
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from the panel, that party will have to meet the travel & stay expenses of the person appointed as arbitrator
at the venue of arbitration. The arbitral tribunal may, however, make any order in regard thereto in the
award. The panel of Arbitrators shall be open to inspection by all persons with the permission of the
Registrar.
Rule 11
The Committee may at any time add the name of any person to the list of arbitrators included in the Panel or
delete the name of any person from the panel.
Rule 12
The Chairman of the Committee may include the name of any person in the panel, in case it is required in
any particular case. His continuance in the Panel will be decided by the Committee.
Rule 13
The persons who have attained the age of more than 80 years will automatically cease to be member of the
Panel of Arbitrators. In the case of a person, who has been appointed as Arbitrator before attainment of the
age of 80 years, his panel membership will continue till the pronouncement of the Award in pending
arbitration matters referred to him.
DUTIES OF THE REGISTRAR
Rule 14
(a) The Registrar shall receive applications for arbitration by the Council, receive payment of fees and
deposits, appoint, in consultation with the Chairman of the Committee, and in his absence in consultation
with the member of the Governing Body designated by him, an arbitrator or arbitrators as hereinafter
provided. The Registrar shall also receive all communications made to the arbitral tribunal by the parties
and communicate to them the orders and directions of the arbitral tribunal, keep a register of applications to
the Council and of awards made by the arbitral tribunal, keep such other books or memoranda and make
such other records or returns as the Committee shall from time to time require and generally carry out the
directions of an arbitral tribunal so constituted under these rules and take such other steps as may be
necessary to assist such arbitral tribunal in the carrying out of its functions.
(b) The Registrar may delegate to any officer of the Council, Chambers of Commerce or Trade Association
at the premises of which the arbitration proceedings are taking place, to discharge such of the functions and
administrative duties of the Registrar as are deemed proper and necessary from time to time, with reference
to a particular case or cases.
INITIATION OF ARBITRATION
Rule 15
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(i) Any Party wishing to commence arbitration proceedings under these rules (Claimant) shall give a notice
of request for arbitration to the Registrar of ICA and to the Respondent.
(ii) The notice of request (application) for arbitration to the Registrar shall be accompanied by:-
(a) the names and full addresses of the parties to the dispute.
(b) statement of the claim and facts supporting the claim, points at issue and relief or remedies sought with
other details of the claimant's case.
(c) original or duly certified copies of the arbitration agreement, any contract or agreement out of or in
connection with which the dispute has arisen and such other documents and information relevant or relied
upon.
(d) Registration fee of Rs. 2,500/- for claim upto Rs. One Crore and Rs.5,000/- for claim more than Rs. One
Crore.
(e) The Arbitration shall be deemed to have commenced on the day the application for arbitration,
registration fee and statement of claim are received in the office of the Council.
Rule 16
If any Court makes an order directing that an arbitration be held under these Rules, in addition to the
documents listed in Rules 15, the order of that Court or a copy thereof shall accompany the application for
arbitration.
Rule 17
(a) On receipt of an application for arbitration, the Registrar shall have absolute discretion to accept or
reject the said application. The Registrar is not bound to give reasons for the exercise of his discretion.
Before deciding on the acceptability of an application for arbitration, the Registrar may ask the parties for
further information and particulars of their claims.
(b) Similarly, if any information or particulars regarding the arbitration agreement furnished by claimant
with the application for arbitration are found to be incorrect or false, at any time subsequently, the Registrar
shall have a like power to reject the application for arbitration.
(c) Any Party aggrieved by the decision of the Registrar, in accepting or rejecting an application for
arbitration as above, may apply to the Court for suitable directions.
DEFENCE STATEMENT
Rule 18
(a) On receipt of the application together with the claim statement, the Registrar shall send to the other
Party (Respondent) a copy of the claim statement and attached documents and ask such other party to
furnish within thirty days or within any extended date, a defence statement setting out his case accompanied
by all documents and information in support of or bearing on the matter.
(b) Any communication sent by the Registrar under Registered Post to the Respondent on the address
appearing in the Arbitration Agreement/the contract between the parties, as per the information supplied to
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the Council, will be deemed to be duly served on the Respondent, if it is delivered to the addressee
personally or at his place of business, habitual residence or mailing address last known, even if the
Respondent refuses to accept the said communication or if it is returned to the Council by the postal
authorities as unclaimed by the said party. The Registrar may proceed further with the arbitration
proceedings as per the rules as if such communication had been duly served on the concerned party. The
Registrar may in such cases make an additional communication to the Parties by Registered Letter or by
other means which may provide a record of attempts to deliver it.
(c) A copy of the defence statement and all appended documents, if any, shall be sent to the Claimant for
information.
(d) The communication is deemed to have been received on the day it is so delivered.
COUNTER-CLAIM AND REPLY TO COUNTER-CLAIM
Rule 19
(a) The Respondent may make a counter-claim against the Claimant provided the counter-claim arises under
the same transaction as the original claim. He must submit the counter-claim with full details supported by
all documents and information as in the case of the claim under Rule 15 within the period laid down for the
defence statement to the claim and the Claimant may within twenty-one days of the notification of the
counter claim or within such extended time submit a statement in reply to the counter-claim. The arbitral
tribunal appointed to adjudicate upon the original claim shall also adjudicate upon the counter-claim and
there will be no change in the number of members of arbitral tribunal already constituted on the basis of
original claim.
(b) Copy of the reply of the Claimant to the counter-claim and all appended documents, if any, shall be sent
to the Respondent for information.
COPIES OF STATEMENTS, ETC.
Rule 20
All statements, replies and other documents and papers submitted by the parties and all appended
documents must be supplied in triplicate. Where there is more than one arbitrator or more than one
opposing party, the parties shall within the time specified furnish to the Registrar such number of further
copies as may be required by the Registrar.
CONSTITUTION OF THE ARBITRAL TRIBUNAL
Rule 21
On receipt of the application for arbitration, the Registrar shall take necessary steps to have the arbitral
tribunal constituted for the adjudication of the dispute or difference as provided hereunder.
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Rule 22
The number of arbitrators to hear a dispute shall be determined as under:
(a) Where the claim including determination of interest, if any, being claimed upto the date of
commencement of arbitration in terms of Rule 15, does not exceed Rs. One crore and where the arbitration
agreement does not specify three arbitrators, the reference shall be deemed to be to a sole arbitrator, unless
the parties to the dispute agree to refer the dispute to three arbitrators within thirty days from the date of
notification of request for arbitration.
(b) Where the claim including determination of interest, if any, being claimed upto the date of
commencement of arbitration in terms of Rule 15 exceeds Rs. One crore, the dispute will be heard and
determined by three arbitrators, unless the parties to the dispute agree to refer the dispute to a sole arbitrator
within thirty days from the date of the notification of the request for arbitration.
(c) Where three arbitrators have to be appointed as per the above sub-rule and any of the parties to the
dispute fails to make the necessary deposit towards the cost and expenses of arbitration, instead of three
arbitrators, the Registrar may appoint a sole arbitrator, where the claim is upto One crore. Where the claim
is for more than Rs. One crore, the Registrar may appoint arbitrator/s on behalf of the Respondent as well
the as Presiding Arbitrator.
Rule 23
The appointment of sole arbitrator or three arbitrators shall be made in the following manner:
(a) In case a Sole Arbitrator has to be appointed, the Registrar shall, by a notice in writing, call upon the
parties to the dispute to forward the name of an agreed arbitrator from among the Panel of Arbitrators. The
said notice shall specify the period within which the nomination shall be made which shall not be more than
thirty days from the date of the said notice to the respective parties. If the parties fail to agree on the person
to be appointed as sole arbitrator within the time granted by the Registrar, the Registrar in consultation with
the Chairman of the Committee and in his absence in consultation with the member of the Governing Body
designated by the Chairman, shall appoint the sole arbitrator from among the Panel of Arbitrators. If one of
the parties is a national or resident of a country other than India, the sole arbitrator shall, as far as possible,
be chosen or appointed by the Registrar from among the nationals of a country other than that of either of
the parties. The sole arbitrator so nominated shall constitute the arbitral tribunal to hear the dispute and shall
be appointed as such in writing by the Registrar. The Registrar shall give notice to the Parties of the
constitution of the arbitral tribunal.
(b) Where the reference is to three arbitrators, the Registrar shall in the first instance call upon the parties to
nominate one arbitrator each from among the Panel of Arbitrators by a notice in writing, sent to them. The
said notice shall specify the period within which the nomination shall be made which shall not be more than
thirty days from the date of the said notice to the respective Parties. If a Party to the dispute refuses or
neglects to appoint an arbitrator on his behalf within the period specified or if he requests the Registrar to
nominate an arbitrator on behalf of that party, the Registrar in consultation with the Chairman of the
Arbitration Committee and in his absence in consultation with the members of the Governing Body
designated by the Chairman shall appoint the arbitrator from the Panel of arbitrators on behalf of that party.
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On receipt of the nominations from the respective parties or on the appointment as aforesaid by the
Registrar, the Registrar shall appoint another person as the Presiding Arbitrator of the arbitral tribunal in
consultation with Chairman of the Committee and in his absence in consultation with members of the
Governing Body designated by the Chairman, from among the panel of arbitrators to be additional arbitrator
to act as Presiding Arbitrator of the arbitral tribunal.
(c) If one of the parties is a national or resident of a country other than India, the additional arbitrator shall,
as far as possible, be chosen or appointed from among the nationals of a country other than that of either of
the parties. The arbitrators so nominated or appointed shall constitute the arbitral tribunal and shall be
appointed as such in writing by the Registrar. The additional arbitrator appointed by the Registrar shall act
as Presiding Arbitrator of the arbitral tribunal. The Registrar shall give notice to the parties of the
constitution of the arbitral tribunal.
Rule 24
The parties will obtain the consent from the persons nominated by them as arbitrator and intimate the
Council accordingly. The Registrar will obtain the consent from person(s) nominated by him. After a person
gives his consent for appointment as arbitrator, he will be duly intimated about his appointment to decide
the dispute, by a Memo in writing under the hand of the Registrar about the constitution of the arbitral
tribunal. The appointment of the arbitrator will take effect from the date of such intimation about the
constitution of the arbitral tribunal.
Rule 25
Before accepting his nomination the prospective arbitrator shall disclose any circumstances such as
financial or personal interest in the outcome of the award, likely to disqualify him as an impartial arbitrator.
Upon receipt of such information, the Registrar shall disclose it to the parties, who if willing to proceed
under the circumstances disclosed, shall advise the Registrar accordingly. If either party declines to waive
the presumptive disqualification, the prospective arbitrator shall be disqualified from acting as arbitrator and
the vacancy so created shall be filled, in accordance with the applicable provision of these Rules.
Rule 26
Any Party shall have the right to challenge the appointment of an arbitrator on receipt of the notice of his
appointment for reasons which disqualify the arbitrator. The Challenge of an arbitrator shall be made within
30 days after his appointment has been communicated to the challenging party or within 30 days of his
becoming aware of the reasons for which the challenge is made. Copies of the communication of challenge
shall be sent to the other Parties and the arbitrators. The Committee shall be the sole judge of the grounds of
challenge and its decision shall be final and binding on the Parties.
Rule 27
(a) If any appointed arbitrator resigns or dies or becomes incapable of acting or neglects or fails to act
expeditiously, prior to or during the arbitration hearings, or if he fails to make the award within the
prescribed time and the Parties do not agree to extend the time for making the award, the Registrar in
consultation with the Arbitration Committee may terminate the authority of such an appointed arbitrator and
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inform him accordingly.
(b) In case of the resignation or death or termination of authority of an appointed arbitrator under Sub-
Rule(a) above, a new arbitrator will be appointed in his place by the Registrar in case he had appointed the
original arbitrator. Where the appointment was made by the Parties, the Registrar shall call upon the Party
who had appointed the arbitrator to nominate another arbitrator in his place. If any Party refuses or neglects
to nominate an arbitrator within 15 days of the date of notice requiring him to nominate the arbitrator or
within such extended time, the Registrar shall nominate the arbitrator on behalf of that Party from among
the Panel of Arbitrators.
(c) The arbitrator(s) appointed as above will be informed about the reconstitution of the arbitral tribunal and
the reconstituted arbitral tribunal shall make the award expeditiously within the time prescribed under Rule
63 from the date when the reconstituted arbitral tribunal enters on the reference. The reconstituted arbitral
tribunal shall proceed with the arbitration with the liberty to act on the record of evidence and proceedings
as then existing or to commence the proceedings de novo.
DEPOSITS
Rule 28
The Registrar may require the Parties before passing the case on to the arbitrators under Rule 38, to deposit
in advance in one or more installments such sums of money as he deems necessary to defray expenses of
the arbitration including the administrative charges and arbitrator's fee. As a general rule, the deposits shall
be called for in equal shares from the Claimant(s) and the Respondent(s). The arbitral tribunal may, during
the course of the arbitration proceedings or in the arbitration award, require further sums to be deposited by
the Parties or any one of them to meet the expenses of the arbitration. When one of the Parties neglects or
refuses to make the deposit, the Registrar or the arbitral tribunal, as the case may be, may require such
deposit whether in relation to a claim or a counter-claim, to be made by the other Party to the dispute
(Claimant or Respondent as the case may be). Should the whole or part of the deposit be not made by the
Parties or any one of them, the Registrar shall inform the Parties or the Party concerned that the claim or
counterclaim, as the case may be, will not be the subject matter of the reference. The arbitral tribunal shall
proceed only in respect of those claims or counter-claims for which the deposits has been duly paid to the
Council and otherwise may order the suspension or termination of the arbitral proceedings.
All deposits towards costs and expenses shall be made with the Council and no payment shall be released to
the arbitrators directly by the parties. The deposit made shall be taken into account by the arbitral tribunal in
apportioning the cost while making the award. Any deposit made in excess shall be refunded to such of
parties as the arbitral tribunal may direct. The Council shall have a lien for the arbitral award on any unpaid
cost of the arbitration.
FEES AND EXPENSES
Rule 29
The arbitral tribunal shall be entitled to allow fees and expenses of witnesses, expenses connected with the
selection and carriage of sample and examination of goods, Licensed Measure's Department charges,
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conveyance, hire, cost of legal or technical advice or proceedings in respect of any matter arising out of the
arbitration incurred by the arbitral tribunal, and any other incidental expenses and charges in connection
with or arising out of the reference or award as the arbitral tribunal shall, in its absolute discretion, think fit.
Rule 30
The costs of the reference and the award including charges, fees and other expenses shall be in the
discretion of the arbitral tribunal, which may direct to and by whom, and in what proportion, such charges,
fees and other expenses and any part thereof shall be borne and paid, and may tax and settle the amount of
costs to be so paid or any part thereof and may award costs to be paid as between solicitor and client. In the
event, any administrative fees and expenses are due to the Council, the arbitral tribunal may award them in
favour of the Council.
Rule 31
The fees, costs and expenses incidental to the reference and the award shall include the following :
(1) Registration Fee
The Registration fee shall be payable with regard to the amount in dispute in each case as hereunder. The
registration fee will not be refunded and becomes the property of the Council.
Rs.5,000/- upto Rs. One Crore claim
Rs.10,000/- more than Rs. One Crore claim
(2) Administrative Fee and Arbitrator's Fee
The Administrative fee (of ICA) and Arbitrator's fee (for each arbitrator) will be fixed separately with
regard to the amount in dispute including determined interest in each case, as under:
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(3) In addition to the above the ICA will be entitled to receive a Special Fee of Rs.2, 500/- per hearing for
providing facilities of hearing rooms, for arbitration hearings and secretarial assistance etc. at the arbitration
hearing.
(4) Notwithstanding the provisions in Sub-Rule (2) of this Rule, the Committee/Chairman of the Committee
may prescribe the Arbitrator's fees and the Administrative fees of the Council at a figure higher than those
prescribed in the said Sub- Rules, if in the exceptional circumstances of the case this appears to be
necessary.
(5) Notwithstanding the provision in Sub-Rule (2) hereinabove, in arbitration cases to which Rule 39
applies, the Arbitrator's fee and the Administrative fee of the ICA will be fixed by computing the fee
applicable to larger claim in addition to 60% of the applicable fees of all claims being tried jointly. Provided
that the Committee will have the power to prescribe the Arbitrator's Fee and Administrative Fee under this
Sub-Rule in any other manner, having regard to the nature and facts of the matters under reference.
Rule 32
Other expenses : The arbitrator may be paid an amount of Rs. 750/- towards local conveyance for attending
each arbitration hearing in the city of his residence. In respect of joint trial, the hearing will be treated as
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one irrespective of the number of cases. Any traveling and other expenses incurred by the arbitrator or the
Registrar for attending the arbitration hearings in a city other than the place of residence, shall also be
reimbursed to him as provided hereinafter. All the above expenses shall form part of the arbitration costs.
Rule 33
(1) An arbitrator who has to travel shall be paid travelling expenses by air or rail (air conditioned wherever
available) or car (when neither air nor rail transport is available) at actuals. In addition, he may be paid out-
of-pocket expenses at actuals for boarding, lodging and local transport subject to maximum of Rs. 6,000/-
per day in metropolitan towns, Rs.3,000/- in class A cities and Rs. 2,000/- in other cities. An arbitrator who
makes his own arrangements for boarding, lodging, local transport etc. may be paid out of pocket expenses
at the rate of Rs.1,000/ - per day, without production of vouchers. The limits for stay of the Registry
officials will be of those applicable to arbitrators.
(2) The cost to be incurred on payment of expenses referred to in Sub-Rule (1) to an arbitrator nominated by
a party will be borne and paid by the party nominating the arbitrator. However, if an appointed arbitrator
changes his residence after his nomination by a party, he will not be entitled to reimbursement of any
enhanced expenses for attending the arbitration hearing, unless the party nominating him agrees to
reimburse the same to him. The expenses payable to the third arbitrator or sole arbitrator appointed by the
Council under Rule 23(a) & (b) will be borne and paid by both the parties in equal proportion or in such
other manner as may be determined by the Arbitral Tribunal.
Rule 34
Where the arbitration proceedings under an adhoc arbitration or under the rules of arbitration of any other
arbitral organisation or otherwise are administered by the Council wholly or in respect of some matters
arising out of such arbitration, the Council may charge an appropriate fee for such administration and other
services.
Rule 35
The amount of the claim shall be stated in the application by the party applying for arbitration. If the
amount is stated in a currency other than the rupee, it shall be converted into Rupees, at the current official
rate of exchange.
Rule 36
Where the sum under dispute is not stated or in arbitration proceedings where the relief claimed is other
than a money claim, viz., a declaratory claim, the Registrar and the Arbitral Tribunal under Rule 28, may
require such deposits as may be deemed necessary to be paid by such of the parties as may be required
subject to later adjustment.
Rule 37
The amount of interest, wherever specified, will be included in the claim amount for the purpose of
calculation of administrative fee. Further, claims and counter-claims referred for arbitration shall be taken
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into consideration separately for the purpose of calculation of arbitrator as well as administrative fees under
Sub Rule 31(2).
SUBMISSION OF THE CASE TO THE ARBITRAL TRIBUNAL
Rule 38
The Registrar shall send copies of all papers relating to arbitration such as claim statement, defence
statement, counterclaims, reply, statements, or other documents received from the parties to the dispute to
the Arbitrator/Arbitrators constituting the Arbitral Tribunal under Rule 22 with a request to proceed with
the arbitration and the arbitral tribunal shall be deemed to have entered on the reference on the day on
which applications, defence statement, counter-claims, replies, documents, etc. have been dispatched to the
Arbitrator/Arbitrators. Intimation shall be given to the Parties of the day on which the Arbitral Tribunal is
deemed to have entered on the reference.
If the Claimant does not file all the requisite documents, papers, etc. or does not deposit the appropriate fees
as per the Rules after having been given due opportunity for the purpose by the Registrar or the arbitral
tribunal, the Registrar or the arbitral tribunal may dismiss/close the case on file for lack of pursual by the
Claimant. Similarly, if the Respondent fails to produce any requisite documents, papers including the
statement of defence or information or fails to deposit administrative fees, or arbitrators fees etc. after
having been given due opportunity for the purpose by the Registrar or the arbitral tribunal, the Registrar or
the arbitral tribunal may proceed further with the arbitration proceedings as per the Rules, notwithstanding
such failure or refusal by the Respondent.
Rule 39
Where there are two or more applications for arbitration by the Council and the issue involved in the
dispute arises out of same transactions, the Registrar may, if he thinks proper to do so and with the consent
of the Parties, fix the hearings of the disputes to be heard jointly or refer the applications to the same
Tribunal. The awards, however, shall be given separately in each case.
NOTIFICATIONS AND/OR COMMUNICATIONS FROM THE REGISTRAR
Rule 40
All applications which the parties desire to make to the arbitral tribunal and all notices to be given to the
Parties before or during the course of arbitration or otherwise in relation thereto shall be made through and
sent by the Registrar who shall communicate the orders and directions of the Arbitral Tribunal thereon to
the Parties.
AMENDMENT OF CLAIMS, ETC.
Rule 41
Amendments of the claim, defence statement, counter-claim or reply submitted to the Arbitral Tribunal
must be formulated in writing by the Party so desiring. The Arbitral Tribunal will decide whether such
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amendments should be allowed or not. The Administrative fee and Arbitrator's fee (for each Arbitrator)
shall get revised to the extent of increase for such additional claims/counter-claims. The party making such
additional claim/counter-claim shall deposit the entire fees payable in respect of such increase of additional
claim as set out in the schedule of fees in Rule 31(2).
PLACE OF ARBITRATION
Rule 42
The place or venue of arbitration shall be India. The Arbitration proceedings shall be held at such place or
places in India as the Arbitral Tribunal may determine having regard to the convenience of the Arbitrators
and the Parties. In a case in which one or both the Parties are from overseas, the Arbitration proceedings
may also be held at any place outside India at the discretion of the Arbitral Tribunal.
PROCEEDINGS BEFORE THE ARBITRAL TRIBUNAL CONCILIATION
Rule 43
Optional Conciliation: The parties may opt for conciliation and request the arbitral tribunal before the
commencement of the arbitration proceedings unless they have already agreed otherwise, to settle their
dispute through conciliation as per Rules of Conciliation of the Council.
FAST TRACK ARBITRATION
Rule 44
Fast Track Arbitration : The Parties may opt for Fast Track Arbitration and request the arbitral tribunal,
before the commencement of the arbitration proceedings, to decide the reference in a fixed time frame of 3
to 6 months or any other time agreed between the Parties, according to the Fast Track Arbitration
procedure, as under:
(1) The arbitral tribunal will be authorised to decide the dispute on the written pleadings, documents and
written submissions filed by the Parties without any oral hearings.
(2) The arbitral tribunal shall have power to call for any further information/clarification from the parties in
addition to the pleading and documents filed by them.
(3) An oral hearing may be held if both the parties make a joint request or if the Arbitration tribunal
considers an oral hearing necessary in any particular case.
(4) If an oral hearing is held, the arbitral tribunal may dispense with any technical formalities and adopt
such procedure as it deems appropriate and necessary for economic and expeditious disposal of the case.
Rule 45
At a hearing, a party shall be entitled to appear by counsel, attorney, advocate or a duly authorised adviser
or representative or personally. However, where the dispute is purely of a commercial nature, the parties
shall have no right to be represented by lawyers except where, having regard to the nature or complexity of
the dispute, the arbitral tribunal considers it necessary in the interest of justice that the parties should be
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allowed to be represented by counsel, attorney or advocate.
Rule 46
The arbitral tribunal may proceed with the reference notwithstanding any failure by a party to comply with
any of the directions of the arbitral tribunal and may also proceed with the arbitral proceedings in the
absence of any or both the Parties who fail or neglect to attend at the time and place appointed by the
arbitral tribunal, in spite of due notice.
Rule 47
The parties shall do all acts necessary to enable the arbitral tribunal to make an award expeditiously and
shall not do or cause or allow to be done, any act which will delay the proceedings or prevent arbitral
tribunal from making an award expeditiously, and if any party does cause or allow to be done any such act,
that party shall pay such costs as the arbitral tribunal deems reasonable.
Rule 48
The arbitration session will go on as far as possible on a day-to-day basis from 10.30 a.m. to 4.30 p.m once
the hearing begins after completion of all the formalities. The arbitral tribunal shall not ordinarily adjourn a
hearing at the request of any party, except where the circumstances are beyond the control of the party and
the arbitral tribunal is satisfied that reasons and circumstances for the adjournment are justified. While
granting an adjournment, the arbitral tribunal may make such orders regarding payment of costs by one or
both of the parties, as it deems fit and reasonable.
Rule 49
If the parties have agreed to submit their case to arbitration under these Rules and any party refuses or fails
to take part in the arbitration proceedings, the arbitral tribunal may proceed with the arbitration
notwithstanding such refusal or absence.
Rule 50
The arbitral tribunal may at its discretion at any time or times before making the final award and at the
expense of the parties concerned, consult any person having special knowledge relating to the particular
industry, commodity, produce or branch of trade concerned in the reference or any expert or qualified
accountant and may also at the like expenses of the Parties, consult solicitors, counsel or advocates upon
any technical question of law, evidence, practice or procedure arising in the course of the reference. If the
parties agree, the arbitral tribunal may, at the expense of the Parties, appoint any expert, accountant, or
lawyers to sit with as an assessor and take into account the advice of such assessor.
Rule 51
The Parties to the reference and any witness on their behalf shall, subject to the provisions of any law for
the time being in force :
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(a) submit to be examined by the arbitral tribunal on oath or affirmation in relation to the matters in dispute.
(b) produce before the arbitral tribunal all books, deeds, papers, accounts, writings and documents in their
possession or power respectively which may be required or called for by the arbitral tribunal.
(c) Comply with the requirements of the arbitral tribunal as to the production or selection of samples, and
(d) generally do all other things which, during the pendency of the reference, the arbitral tribunal may
require.
Rule 52
The arbitral tribunal will consider, as far as possible, to receive the evidence of witnesses by affidavit.
Provided that the witness whose affidavit is admitted in evidence is made available for cross-examination at
the request of the opposite Party, the Arbitral Tribunal may:
(a) administer oath or affirmation to the Parties or witnesses appearing and giving evidence;
(b) make any award conditional or in the alternative;
(c) correct in any award any clerical mistake or error arising from or incidental to any slip or omission;
(d) administer to the Parties to the arbitration such interrogatories as it may consider necessary;
(e) decide all objections to its jurisdiction including any objection regarding the existence or validity of the
arbitration clause or the arbitration agreement, without prejudice to the right of the parties to have the matter
decided by the Court of law;
(f) decide the law governing :
(i) the contract or the matter in dispute,
(ii) the arbitration agreement, and
(iii) the arbitration procedure
(g) award interest including pendente lite interest.
Rule 53
When substantially the same dispute or questions of law and facts are likely to arise in more than one
contract or agreement (Chain Contracts), the arbitral tribunal may invite all parties involved to agree to
submit to an award in one arbitration between such two or more of the parties as are named for the purpose.
Rule 54
(i) The arbitral tribunal may by the award dismiss the application or claim:
(a) if the Claimant does not prosecute the arbitration proceedings or file the papers within the time granted;
or
(b) neglects or refuses to pay the dues or deposits ordered to be paid by the arbitral tribunal or the Registrar.
(ii) The arbitral tribunal may make an ex parte award :
(a) if the Respondent neglects or refuses to appear or make his defence or fails to file the papers within the
time granted; or
(b) neglects or refuses to pay the dues or deposits ordered to be paid by the arbitral tribunal or the Registrar.
Rule 55
The Registrar shall make necessary arrangements for a stenographic record of evidence whenever such
record is required by a Party. The cost of the stenographic record and all transcripts thereof, if any, shall
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form part of the costs of the reference.
Rule 56
The language of the arbitration proceedings shall be English unless otherwise agreed by the parties. If any
documents filed by a Party are in a language other than English, the Party filling such documents shall
simultaneously furnish an English translation of the documents. The Registrar may make arrangements for
the service of an interpreter at the request of one or more of the parties and costs thereof shall form part of
the costs of the reference.
Rule 57
The arbitral tribunal may issue such orders or directions as it may deem necessary for safeguarding, interim
custody, preservation, protection, storage, sale or disposal of the whole or part of the subject matter of the
dispute or for its inspection or sampling without prejudice to the rights of the Parties or the final
determination of the dispute.
WAIVER OF RULES
Rule 58
Any party who proceeds with the arbitration with the knowledge that any provision or requirement of these
rules has not been complied with and who fails to state his objection thereto in writing, shall be deemed to
have waived his right to object.
RETURN OF DOCUMENTS
Rule 59
Unless required to be filed in a Court of law, the arbitral tribunal shall have full discretion to retain/to return
all books, documents or papers produced before it and may direct at any time that the books, documents or
papers produced before it or any of them may be returned to the parties producing them on such terms and
conditions as the arbitral tribunal may impose.
AWARD
Rule 60
No award shall be made by the arbitral tribunal unless the case of the party applying for arbitration has been
brought to the notice of the other party and until after the lapse of such specified time within which he has
been asked to submit his defence statement under Rule 18.
Rule 61
Whenever there is more than one arbitrator, the award of the majority shall prevail and be taken as the
decision of arbitral tribunal. Failing a majority, the Presiding Arbitrator of the arbitral tribunal alone shall
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make the award.
Rule 62
Should the Parties arrive at a settlement of the dispute by common agreement before the Arbitral Tribunal
and the Arbitral Tribunal is satisfied that such agreement is genuine and not to defeat the purpose of any
law, the arbitral tribunal shall render an award as per agreement of the Parties. Otherwise, the arbitral
tribunal shall make the award on the basis of the documents, evidence, etc. filed before it by the Parties.
Rule 63
The arbitral tribunal shall make the award as expeditiously as possible, preferably within six months,
according to the Guidelines, from the date of the reference subject to a maximum limit of two years from
the date of commencement of the arbitral proceedings. If necessary, the maximum limit of two years for
making the award may be extended by agreement between the parties to the dispute or by the Committee.
Rule 64
The arbitral award shall state the reasons upon which it is based, unless :
(i) the parties have agreed that no reasons are to be given, or
(ii) the award is an arbitral award on agreed terms.
Rule 65
The arbitral award shall state its date and the place of arbitration and the award shall be deemed to have
been made at that place.
Rule 66
The arbitral tribunal may make an interim award, and may, by an award, determine and order what shall be
done by either or any of the Parties, respecting the matters referred.
Rule 67
The arbitrators constituting the arbitral tribunal or the Presiding Arbitrator where Rule 61 is applicable,
shall sign the award and the Registrar shall give notice in writing to the Parties of the making and signing
thereof and of the amount of fees & charges payable in respect of the arbitration and the award. The
arbitrators fee shall be payable by the Council on receipt of the award and requisite deposit made by the
parties.
Rule 68
(a) When an award has been made, the Registrar shall furnish a true copy of the award to the parties by
registered post provided the arbitration costs have been fully paid to the Council by the parties or by one of
them.
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(b) The Registrar may require either Party to notify him of the compliance with the award.
(c) The arbitral tribunal and the Registrar of the Council shall assist the parties in complying with any
formalities that may be necessary for the enforcement of the award or for other purposes.
(d) The Council may print, publish or otherwise circulate any award made under its rules or under its
auspices, in any arbitration journal, magazine, report, etc. for the purpose of creating arbitration
jurisprudence or precedents for the benefit and guidance of future arbitrations. No party to the arbitration
shall have any objection to the publication of awards as above provided that the names and addresses of any
Party to the dispute will be omitted from such publication and its identity duly concerned if so desired by
such party.
Rule 69
Additional copies of the award certified true by the Registrar shall be made available to the parties but to no
one else, at all times at request and on payment as fixed by the Registrar.
Rule 70
A party shall in all things abide by and obey the award which shall be binding on the Parties and their
respective representatives, notwithstanding the death of any party before or after the making of the award
and such death shall not operate as revocation of the submission or reference. To avoid delays and further
litigation, the arbitrators/Registrar shall ask the Parties to agree that the award made by the arbitrators/s
shall be final and binding on the Parties and neither Party shall be entitled to challenge it in the Court of
law.
FILING OF AWARD
Rule 71
The arbitral tribunal shall at the request of any of the Parties to the proceedings or of any person claiming
under a Party or if so directed by the Court and upon payment of fees and charges due in respect of the
arbitration and award and of the costs and charges of filing the award, cause the award or a signed copy
thereof together with the deposition or documents which may have been taken and proved before it to be
filed before the Court.
Rule 72
A fee of Rs. 1,000/- plus incidental expenses at actuals in addition to the court fees, on the scale for the time
being in force is payable by the party requiring the award to be filed.
STAMP DUTIES
Rule 73
Stamp duties are to be paid by the parties in equal share in all cases in accordance with the scale of stamp
duties for the time being imposed by law.
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COPIES OF PROCEEDINGS
Rule 74
No party is entitled as of right to copies of proceedings before the arbitral tribunal. In case the Registrar is
required to furnish copies of depositions and/or documents which have been taken or proved before the
arbitrator, a charge as demanded by the Registrar shall be paid by the party requiring such copies.
Rule 75
The Registrar shall, upon the written request of a party, furnish to such party at his expense certified
facsimile of any documents filed in the arbitration proceedings.
CASES WITHDRAWN
Rule 76
When the party instituting a case desires to withdraw it before an arbitral tribunal has been constituted, the
Registrar shall return to him any deposits made by him, under Rule 28, after deducting such charges as he
might have incurred in connection with the cases. The registration fee, however, shall not be refundable.
Rule 77
If the arbitration is terminated by the act or default of any parties after constitution of the arbitral tribunal
and before the award is made, any fees, charges and expenses incurred by the Council shall be paid by the
parties in such proportion as per schedule of fees prescribed in the Rules of Arbitration of the Council.
INDEMNITY OF SECRETARIAT AND ARBITRATORS
Rule 78
The Council, the Arbitration Committee and officers of the Council shall not be liable for any act or
omission in whatever capacity they may have acted in connection with or in relation to an arbitration under
these Rules. Parties are themselves required to contest the proceedings regarding the validity of the
arbitration agreement before the court.
Rule 79
No party shall bring or prosecute any suit or proceedings whatsoever against the arbitral tribunal, or any
member thereof, for or in respect of any matter or thing purporting to be done under these Rules nor any
suit or proceedings in respect thereof (save for enforcement of the award) against the other party.
AMENDMENT OF RULES
Rule 80
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The Governing Body may revise, amend or alter these rules or the schedule of fees and other monies to be
charged and paid as and when expedient and necessary.
Annexure I
GUIDELINES FOR ARBITRATORS AND THE PARTIES FOR EXPEDITIOUS CONDUCT OF
ARBITRATION PROCEEDINGS
1. The arbitrators and the parties to arbitration are expected to follow these guidelines to ensure economic
and expeditious disposal of arbitration cases.
For Arbitrators
2. The arbitrators must take up the arbitration expeditiously on receipt of the request from the Council and
should also complete the same with reasonable despatch. Serious efforts should be made to settle arbitration
cases expeditiously within a period of 6 months where the amount of claim exceeds 1 crore and within a
period of 4 months where the amount of claim is less than Rs.1 crore.
3. When accepting his mandate, the arbitrator shall be able to perform his task with the necessary
competence according to his professional qualifications.
4. When giving notice of his acceptance, the arbitrator shall disclose in writing in the printed format as
under:
- any relationship with the parties or their counsel which may affect his independence and impartiality;
- any personal or economic interest, either direct or indirect, in the subject matter of the dispute;
- any prejudice or reservation as to the subject matter of the dispute which may affect his impartiality.
- Where necessary due to supervening facts, this Statement shall be repeated in the course of the entire
arbitral proceedings until the award is filed.
5. Where facts that should have been disclosed are subsequently discovered, the arbitrator may either
withdraw or be challenged or the Indian Council of Arbitration may refuse to appoint him in other arbitral
proceedings on this ground.
6. The arbitrator may at all stages suggest the possibility of a settlement to the parties but may not influence
their decision by indicating that he has already reached a decision on the dispute.
7. In the course of the arbitral proceedings, the arbitrator shall refrain from all unilateral contact with the
parties or their counsel which is not notified to the Indian Council of Arbitration so that the ICA can inform
the other parties and arbitrators.
8. The arbitrator shall refrain from giving the parties, either directly or through their counsel, notice of
decisions in the evidence taking place or on the merits; notice of these decisions may be given exclusively
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by the ICA.
9. The arbitrator shall neither request nor accept any direct arrangement on costs or fees with the party
which has designated him. The arbitrator is entitled to reimbursement of expenses and a fee as exclusively
determined by the ICA according to its Schedule of Fees, which is deemed to be approved by the arbitrator
when accepting his mandate.
10. The arbitrator shall encourage a serene and positive development of the arbitral proceedings. In
particular, he shall decide on the date and manner of the hearings in such a way as to allow both parties to
fully participate therein, in compliance with the principle of equal treatment and adversarial proceedings.
11. The first hearing of the arbitral tribunal should be convened within 15 days of the receipt of the
complete reply of the respondent when the arbitral tribunal may issue necessary directions. Admission and
denial of the documents may be got done by the Registrar. Issues if any to be framed, may be done at the
same or at the next hearing. The arbitrators should hold arbitration hearings continuously on day-to-day
basis during office hours.
12. The parties should be asked to furnish a list of their witness, if any, in advance and they should be asked
to file affidavits of witness on the date fixed for evidence preferably within a weeks of the settlement of
issues, Cross examination of such of the deponent's witnesses whose presence is demanded by the opposite
party should be completed at a hearing to be fixed within 15 days.
13. Arguments preferably should be heard within 15 days of the completion of evidence, to be followed by
submission of written arguments, if any.
14. Adjournments of duly fixed hearing should not be granted except for unavoidable reasons which should
be spelt out in the adjournment order.
15. The Arbitrator should make the award expeditiously after the close of the hearings, preferably within 15
days.
16. The arbitrator who does not comply with the provisions of these guidelines may be replaced by the
Committee. Where it is not appropriate to replace the arbitrator in order not to cause delay in the arbitral
proceedings, the ICA may also take such action after the conclusion of the arbitral proceedings, by refusing
to confirm him in subsequent arbitral proceedings.
For Parties
17. The claimant should file the applications or demand for arbitration to the Registrar of the Council with
all the information and papers as per Rules, full statement of claim and copies of documents relied upon, in
3 sets in case of a Sole Arbitrator and in 5 sets in case of three arbitrators
18. The respondent should file his reply to the claim with complete information and documents relied upon,
in 3 or 5 sets as above as early as possible within the prescribed time. Fresh documentation/claims should
not be entertained at a later stage of the proceedings unless the arbitral tribunal is satisfied about the reasons
for granting such permission.
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19. If any party to arbitration, particularly in cases where any arbitrator, advocate or any of the parties has to
come from out station to participate in arbitration proceedings, desires to seek adjournment on any valid
ground, it must submit a written request to the Registrar at least before 5 working days stating the grounds
which compel it to request for postponement of the hearing so that the Council is in a position to take
necessary steps to inform the Parties, Arbitrators and Advocates regarding postponement of the hearing.
Parties seeking adjournment will have to pay cost as may be determined by the arbitral tribunal.
20. Parties should deposit arbitration and administrative fees with the Council (ICA) within the stipulated
time, as per the Rules and no extension should be sought in this behalf except for compelling reasons.
21. To avoid excessive costs in arbitration proceedings, the parties are advised to choose their arbitrators
from the Panel, as far as possible from the place where the arbitration hearings have to be held. In case, a
party still chooses an arbitrator from a place other than the place of hearing, the concerned party will bear
the entire extra cost to be incurred on stay TA/DA etc. of the arbitrator nominated by it.
For Arbitration Committee
22. The Arbitration Committee of the Council may examine the arbitration case file, from time to time to
evaluate the progress of the proceedings and to ascertain whether the arbitrators have granted adjournments
only on reasonable grounds.
23. The Arbitration Committee shall be sole judge of the grounds of violation of the guidelines and its
decision shall be final and binding on the arbitral tribunal as well as the parties.
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