The India Arbitration
law is contained in Arbitration and Conciliation Act which is based on UNLITRAL
Model Law. The main objects of the Act is to provide speedy disposal of the
commercial disputes and also recognises that India’s economic reforms will
become effective only if the nation’s dispute resolution provisions are in tune
with international regime.
The Act is a
composite piece of legislation wherein it provides for both domestic
Arbitration and international Arbitration as well as enforcement of foreign
awards within the territory of India.
The Act contains the
significant provisions divided into two parts i.e., Part I and Part II. Part I
provisions relates to Domestic and International commercial Arbitration in
India. All the Arbitrations seated in
India irrespective of nationalities of the parties, would be governed by part
I. Part II specifically deals with on
other hand and largely restricted to enforcement of Foreign Awards (governed by
New York Convention or Geneva Convention) in India. Part II, by its very nature, is not a
complete code. Creative interpretation
of the Act by judicial novation, the SC extended the applicability of Part I
provisions to off-shore arbitrations as well, in the case of Bhatia Internationals Vs Bulk Trading[1]. This interpretation became clear in a
subsequent decision of the SC in Shreejee
Traco (I) Pvt Ltd. Vs Paperline International Inc.[2]
Here the court’s observation was, the extension of Part I provisions to foreign
arbitration sanctified by Bhatia could not be restored to in every case. The India courts would have to first
determine if it has jurisdiction in the international sense.
REFERRAL OF DISPUTE
Arbitration is the
submission for determination of disputed matter between two parties to a
private unofficial person selected in a manner provided by law or
agreement. An Arbitration clause presupposes
a controversy or a difference to be tried and decided. Arbitration Clause is a clause inserted in a
contract providing for compulsory arbitration in case of dispute which arises
as to the rights of liabilities under it.
A basic & minimal requirement to refer the dispute to Arbitration is
existence of Arbitration Clause/Arbitration Agreement in writing with respect
to such dispute.
The origin of
Arbitration takes place at various stages.
The dispute shall be referred to Arbitration under the following ways.
1. Sec 89 of CPC.
2. Sec 8 of Arbitration and
Conciliation Act.
3. Sec 11 of the Arbitration and
Conciliation Act.
4.
Joint memo by both parties.
5.
Statutory referral.
In India, Arbitration
is conducted in two ways one by Ad-hoc and another by institutional
Arbitration. Ad-hoc in other words,
means private Arbitration, conducted at parties’ convenience. Institutional Arbitration is an Arbitration
supported by institution and conducted with high professionalism. The Institutional Arbitration will have
their own set of Rules to conduct Arbitration framed by them and the
Arbitrators fees are also fixed by the institution under the Rules.
Institutional Arbitration is cost effective as compared as to the Ad-hoc
Arbitration. Some of the institutional Arbitration Centres are such as ICC,
FICCI, SIAC, DAC, KAC, Nani Phalkhivala Arbitration Centre, etc.
Once the matter is
referred to Arbitration and the Arbitrator is appointed, the Tribunal is
constituted to proceed further. Tribunal
under this Act refers to Sole Arbitrator or panel of Arbitrators.
ARBITRABILITY OF SUBJECT MATTERS:
Any commercial
dispute relates to a contract can be Arbitrable. In general sense, all civil disputes arising
out of commercial contract are arbitrable. However, certain exceptions are
matters relating to matrimonial, criminal, probates, etc are non-arbitrable.
The Supreme Court in the case of Booz
Allen & Hamilton Inc Vs. SBI Home Finance Ltd., and Others[3],
has explained the subject matters of Arbitrability in detail, wherein the court
held that all matters pertaining to Right in Rem are non-arbitral and Right in
Personnam are arbitral.
JURISDICTION OF ARBITRAL TRIBUNAL:
Section 16 of the
Arbitration and Conciliation Act 1996 deals with
the jurisdiction of the Arbitral Tribunals and covers the scope of an
Arbitrator to preside the subject matter of dispute between the parties to
Arbitration Agreement. An Arbitrator
derives his powers from the reference which furnishes the source of his
jurisdiction and prescribes the limits of his authority. In other words,
Arbitrator cannot exceed the scope of reference of dispute under the
arbitration agreement, while deciding the subject matter of dispute. The 1996
Act has given powers to an Arbitrator/Arbitral Tribunal itself to decide on its
jurisdiction as to the facts of the given case (provided there exists an
arbitration clause in the agreement), which was absent in the 1940 Act.
Arbitration agreement between the parties forms the crux of the subject matter
in the dispute, to be referred for Arbitration i.e., when there is a dispute
between parties and there should exist arbitration clause or agreement between
those parties to refer the matter for Arbitral Tribunal under Section
8 of the A & C Act, 1996. Thus the Act provides that the arbitral
tribunal may rule on its own jurisdiction, including any objections with
respect to the existence or validity of the arbitration agreement. The
arbitration agreement shall be deemed to be independent of the contract
containing the arbitration clause, and invalidity of the contract shall not
render the arbitration agreement void. Hence, the arbitrators shall have
jurisdiction even if the contract in which the arbitration agreement is
contained is vitiated by fraud and / or any other legal infirmity.
In SBP & Co, Vs Patel Engg Ltd.,[4]
the Supreme Court of India (in a decision rendered by bench of seven judges)
held that the nature of power conferred on the court under Section 11 of the
Act is judicial (and not administrative) in nature.
CHAPTER
V
of the Act deals with the conduct of
Arbitral proceedings such as place of arbitration, Rules and procedures to be
followed in arbitral proceedings, language to be used in arbitral proceedings,
hearing procedures to be followed in arbitral proceedings, expert appointment,
court assistance in a taking evidence during the Arbitral proceeding.
GOVERNING LAW:
(Applicability
of law: Sec 28 of the A & C Act, 1996)
In an international
commercial arbitration, parties are free to designate the governing law for the
substance of the dispute. If the
governing law is not specified, the arbitral tribunal shall apply the rules of
law it considers appropriate in view of the surroundings circumstances. For
domestic arbitration, however, (i.e., between Indian parties), the tribunal is
required to decide the dispute in accordance with the substantive laws of
India.
The Supreme Court in TDM Infrastructure (P) Ltd., V. UE
Development India (P) Ltd., - held that irrespective of where the
‘central management and control is exercised’ by a company, companies
incorporated in India, cannot choose foreign law as the governing law of their
arbitration. The nationality of
companies incorporated in India being Indian, the intention of the legislature
is that Indian nationals should not be permitted to derogate from Indian law as
it would be against policy. The court
was of the view that “international commercial arbitration” meant an
arbitration between parties where at least one of it is a body corporate
thereby had Indian nationalities), then the arbitration where both companies
are incorporated in India (and thereby had Indian nationalities), then the
arbitration between them cannot be said to be an international commercial
arbitration (even though the central management and control of the company may
be exercised from a country other than India).
ROLE OF THE COURT:
(Section 5 and Section 9 & Section 11 of the A & C Act)
One of the
fundamental features of the Act is that the role of the court has been
minimised. Accordingly, it is provided
that any matter before a judicial authority containing an arbitration agreement
shall be referred to arbitration.
Further, no judicial authority shall interfere except as provided for
under the Act (Section 5).
In relation to
arbitration proceedings, parties can approach the court only for two purposes:
(a) for any interim measure of protection or injunction or for any appointment
of receiver etc,; or (b) for the appointment of an arbitrator in the event of
party fails to appoint an arbitrator or if two appointed arbitrators fail to
agree upon the third arbitrator. In such
an event, in the case of domestic arbitration, the Chief Justice of High court
may appoint an arbitrator, and in the case of international commercial
arbitration, the Chief Justice of the Supreme Court of India may carry out the
appointment. A court of law can also be approached if there is any controversy
as to whether an arbitrator has been unable to perform his functions or has
failed to act without undue delay or there is a dispute on the same. In such an
event, the court may decide to terminate the mandate of the arbitrator and
appoint a substitute arbitrator.
FORM AND CONTENT OF AWARDS:
(Section 31 of the A & C Act, 1996)
The arbitrators are
required to set out the reasons on which their award is based, unless the
parties agree that no reasons are to be given or if it arises out of agreed terms
of settlement. The tribunal may make an interim award on matters on which it
can also make a final award. Indian law provides for a very healthy 18%
interest rate on sums due under an award. Thus, unless the arbitral tribunal
directs otherwise, the award will carry interest 18% per annum from the date of
the award till the date of payment. The
tribunal is free to award costs, including the cost of any institution
supervising the arbitration or any other expense incurred in connection with
the arbitration proceedings.
CONCLUSION:
The Arbitration is
one of the efficient and effective ADR Mechanism in India. The sole intent of
legislature in enacting the Act is to achieve speedy disposal of the Commercial
disputes both at domestic & International level, the same is attained in
reality. The Supreme Court of India under various decisions, has rectified
certain lacuna prevailed in the Act every now and then.
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