Comments on Arbitration and Conciliation Act, 1996

Amitav Ganguly

INTRODUCTION

• Carrying on business activities entails many issues one of which is parties entering into various contracts which lay down the terms and conditions. Although, generally, efforts are made for unhindered implementation of the contracts, it may so happen that, in their performance, disputes could arise which the existing stipulations could not have taken into account.

• In fact it is not humanly possible to provide for all eventualities which can give rise to disputes and lay down ways and means to avoid them.

ALTERNATE MECHANISM TO SETTLE DISPUTES

• Therefore a mechanism has to be in place which will help in amicable settlement of disagreements. While knocking at the doors of the courts for justice is pervasive, the delays and the costs involved in court process cannot be wished away.

• Alternative machinery, which is expeditious, offers swifter and less formal procedure as compared to courts, flexible and which is also cost effective with legal backing, was always in demand.

• And this machinery is Arbitration. It simply means out of court settlement of disputes through a third party who is non-partisan and picked by the parties themselves.

• This process is well-accepted throughout the world. In the Indian context the Arbitration Act 1940 was in the statute book for long but with globalization of the Indian Economy it has given way to The Arbitration and Conciliation Act, 1996 { in short , the Act} which has made the law of arbitration in line with the global law. The new law of Arbitration has also replaced two other laws viz. The Arbitration {Protocol and Convention} Act 1937, and, the Foreign Awards {Recognition and Enforcement} Act 1961.

• Although arbitration is invariably welcomed for settlement, one must keep in mind that it is always advisable to provide that the parties should attempt, in the first instance, to resolve their disputes through negotiations and only if that fails then the process of arbitration should begin.
  

ARBITRATION AGREEMENT /CLAUSE

• To enable commencement of the process, arbitration agreement in the form of an arbitration clause in a contract or in the form of separate agreement in writing, is a pre-requisite. Section 7 of the Act says that an arbitration agreement is one through which parties agree to submit to arbitration dispute arising between them in respect of defined legal relationship. In case such agreement or clause is missing, parties can enter in to an agreement. It was held in the case of Bureau of Indian Standard v. Western India Engineering Co {PG} {1999} 34 CLA {Snr.} 53 { Guj} that if a reference is made in the contract between the parties to another document containing arbitration clause and making it a part of the contract, such reference would constitute an arbitration agreement between the parties. In another case of B. Horamani v. State of Karnataka {1999} 16 TCR Cas. no. 86 it was held that if there is clause for reference of dispute to any authority then it has to be considered as a clause for arbitration by implication.

• The Supreme Court in the case of K.Modi v. K.N.Modi {1998} 29 CLA had held that for a valid arbitration agreement the process of arbitration should be clearly for resolving the dispute and not merely an expert determination. Thus there should be a judicial determination by the arbitrator by recording evidence and so on.
  

• Interestingly, an agreement can stipulate that a dispute exceeding a particular monetary limit will be arbitrated through court. { State of A.P. v. M. Sankara Reddy 28 CLA { Snr} 3 [ APJ}

• It is imperative that the agreement or clause for arbitration is drafted carefully to provide for, among others, important issues like what, when, where, how, and before who a dispute shall be arbitrated. It is also vital to decide the substantive and procedural laws which will be applicable, more particularly in the case of international commercial arbitration.

• A typical specimen arbitration clause may be follows;-

“Any dispute, differences or questions whatsoever arising between the parties or any of them concerning or relating to the construction , meaning , scope, operation or effect of this contract or the validity or breach thereof shall be resolved amicably between the parties, failing which, such disputes, differences, or questions shall be referred to a panel of —-{odd no.} arbitrators comprising of ——- {give names & details of all the arbitrators} for arbitration in accordance with the provisions of The Arbitration and Conciliation Act, 1996, as amended or substituted by other legislation from time to time, and the award made in pursuance thereof shall be binding on the parties. The arbitration will be held at ——– .”

• It is but obvious that above clause will have to be made out according to the requirement of the parties and peculiarities existing in each case. For example, the parties can limit the action by the arbitrator and in that case he is compelled by such limitation. {Sudarsan Trading Co. v. Govt. of Kerala, AIR, 1989 SC 890, 901}.
  

APPOINTMENT OF ARBITRATOR

• The beginning of the process of arbitration is appointment of arbitrator. Following are significant:

{1} Competence of the arbitrator and his impartiality in dealing with the dispute has paramount importance. He should have the confidence of all the parties, be a person of integrity, honesty, experience, wisdom and, vitally have no interest whether direct or indirect in the subject matter of dispute. The parties, therefore, in many instances either name the arbitrator or lay down the qualifications, and experience and other desirable qualities of the arbitrator.

{2} Section 10 of the Act, however, provides for number of arbitrators. The parties are freely permitted to fix such number provided that it is not an even number. In case the parties fail to determine the number of arbitrators, such number will be one.

{3} Pursuant to section 11 of the Act there is no restriction on the nationality of the Arbitrator. Thus even a person resident outside India or a foreign national can be appointed. This need could arise in case of arbitration which involves one or more party resident /situated outside India. Besides this, there is also no restriction requiring the arbitrator to be an individual, entity, body or institution. Section 2 {I} {d} of the Act only lays down that arbitral tribunal means a sole arbitrator or a panel of arbitrator.

• Significantly, keeping the law in view, the parties may agree to any procedure for appointment of arbitrator. This flexibility is of immense help if the parties decide to follow a simple and expeditious method.

• Nevertheless where the parties fail to agree to the procedure of appointment, then, in case of appointment of three arbitrators, each party will appoint his arbitrator and the two arbitrators will appoint the third one who will act as the presiding officer. Interestingly this law pre- supposes that there will be only two parties to the agreement, which may not be the case. If there is a tripartite agreement then this provision may have to be interpreted accordingly. Care should therefore be taken to ensure that the parties do lay down a procedure for appointment and this provision is not invoked causing confusion.
• In any case if this applies and one of the parties fails to appoint the arbitrator within 30 days from the receipt of request from the other or two appointed arbitrators fail to appoint the third arbitrator, the appointment has to be made by the Chief Justice on receipt of request of a party. The Chief Justice shall be that of the High Court who would have the jurisdiction if the question forming the subject matter of arbitration had been subject matter of a suit and where the arbitration is in respect of international commercial arbitration, it is the Chief Justice of India.

• In case of sole arbitrator, where the parties have failed to decide the procedure for appointment and if they fail to agree on the arbitrator within 30 days from the receipt of request by a party from the other, the appointment will be made by the Chief Justice.

• Where the parties have agreed to the appointment procedure but one of them fails to act as per the procedure, or they or the two appointed arbitrators fail to reach an agreement under the procedure, or a person including an institution fails to perform any function under the procedure, a party may request the Chief Justice to take necessary measure unless the agreement stipulates other means for securing the appointment.

• As regards the period within which such request to Chief Justice has to be made, it was held in the case of Nayaneshwar Bhiku Khargalkar v. Executive Engineer, PWD, Goa {Born} that the application could be filed within three years of the date when the right first accrues, or the cause for arbitration has arisen, that is, three years from the date the party serves the notice upon the other party requiring the appointment of an arbitrator for the settlement of disputes between the parties. The section 137 of the Limitation Act 1963 applies.

• In the case of Satya Kailashchandra Sahu v. Vidarbha Distillers {1998}29 CLA {Snr.} 62, Bombay, the Court had held that where the named arbitrator has declined to act and agreement has not provided for other means to secure the appointment of the Arbitrator, the Chief Justice of the High Court or any person or institution designated by him has the necessary authority to make appointment of the arbitrator on the request of the party.

• It is significant that the decision of the Chief Justice in the matter of appointment of arbitrator is final. It was held in the case of Ador Samia Pvt Ltd v. Peekay Holdings Ltd {1999 {5] 157] that administrative order passed by the Chief Justice cannot be challenged.

• Section 11 of the Act also provides for appointment of arbitrator in case of international commercial arbitration. As arbitrator can be of any nationality, it is laid down that where sole or third arbitrator is to be appointed, the Chief Justice may appoint a person who is of a nationality different than that of the nationality of the parties. Notably, parties should belong to different nationalities to invoke this provision.

TERMINATING THE APPOINTMENT

• The cornerstone of fair and equitable arbitration is independence and impartiality. Section 12 of the Act enjoins upon the arbitrator to disclose this if there are any circumstances which will raise doubts about this. The appointment can however be challenged if there are such circumstances that give rise to justifiable doubts as to his independence or impartiality or where the arbitrator does not have the agreed qualification.

• But it is significant to note that a party can challenge the appointment for reasons which he became aware after the appointment has been made and not before. Pertinently, u/s 13, the arbitrator is to decide upon the challenge unless he withdraws from his office or the other party agrees to the challenge. If challenge is not successful the arbitrator shall continue the process and give his award which, then, can be sought to be set aside through the court u/s 34. It is relevant to note that the arbitrator can decide its own jurisdiction as permitted u/s 16. He can also award damages/compensation even if not provided in the contract. {ONGC v. Punjsons [Pi Ltd { 1999} 34 CLA {Snr.} 50 Delhi}.

• The appointment of arbitrator may also be terminated where the parties agree to this effect or where the arbitrator withdraws from his office. Termination can also be done where the arbitrator is not able to perform his function or fails to act within time, but in case of controversy an application can be made to the court. Interestingly the parties can agree that no application can be made to court in these circumstances. {Sections 14 & 15}
  

AWARD

• The process of arbitration commences on the date on which request for arbitration is received by the other party being the respondent. Of course the parties can decide any other point of commencement {Section 21}. No time limit has been fixed for completing the arbitration and giving award but there should not be undue delay.
• As per section 31 of the Act, the award in writing should state the reasons upon which it is based. The parties are permitted, however, to provide that no reasons are to be given. Giving of reasons has implication of a two edged weapon in the sense that rationality of arriving at the award is clear and parties are satisfied that there has been applicability of mind and impartiality. But on the other hand it may be open to successful challenge by the dis-satisfied party. Be as it may, it is always advisable to have transparency in this regard. It was held in the case of Sanyukt  Nirmata v. DDA {1999} 34 CLA {Snr.} 40 {Delhi} that a short reason in the award is sufficient. Sufficiency of evidence or quality of evidence is a matter for the arbitrator, and court will not sit in judgment on an appeal.

• The arbitrator is also permitted to give an award in terms of settlement arrived at between the parties {Section 30}.

• The arbitrator may also make an interim award.

• The award, which should be in writing with date and place of arbitration and duly signed by the arbitrator, shall be delivered to all the parties.

• The arbitrator has powers to award interest {Section 31}.

• The arbitral proceedings shall be terminated by the final award or by a termination order of the arbitrator {Section 32}.

• Within 30 days from the receipt of the arbitration award, one party by a notice to the other party may request the arbitrator to make correction in the award for computation, clerical or typographical errors, or request the arbitrator to give interpretation on the points of the award or give additional award. {Section 33}

• The arbitration award can be sought to be set aside in terms of the section 34 on specified grounds only.

• The award is final and binding on the parties and those claiming under them, under section 35.

• As per section 36 where the period for making application to court to set aside the award has expired u/s 34 { which period is up to three months from the date party has received the award } or where the court did not set aside the award, it will be enforced under Code of Civil Procedure 1908 as if it were the decree of the court. Appropriately the award has to be stamped with requisite stamp duty.

LATEST

The Government of India has decided to amend the Arbitration and Conciliation Act, 1996 by introducing the Arbitration and Conciliation (Amendment) Bill, 2015 in the Parliament.

The salient features of the proposed amendments are as under:

• To bring about neutrality of arbitrators, proposed amendment is in Section 12 of the Act to the effect that when a person is approached in connection with possible appointment of arbitrator, he is required to disclose in writing about existence of any relationship or interest of any kind, which is likely to give rise to justifiable doubts. Further, if a person is having specified relationship, he shall be ineligible to be appointed as an arbitrator.

• It is proposed that the arbitrator to make its award within a period of 12 months. Parties may extend such period up to six months. Thereafter, it can only be extended by the Court. The Court has to be satisfied with justifiable reasons.

• The Court may extend the period of making the award with the condition that there will be reduction of fees of the arbitrator not exceeding 05% for each month of delay, if the court finds that the proceedings have been delayed for reasons attributable to the arbitrator.
• If the award is made within a period of six months, arbitrator may get additional fees if the parties may agree.

• It is proposed to have a fast track procedure for conducting arbitration. Parties to the dispute may agree that their dispute be resolved through fast track procedure. Award in such cases shall be given in six months period.

• Proposed amendment of Section 34 of the Act relating to grounds for challenge of an arbitral award, to restrict the term ‘Public Policy of India” (as a ground for challenging the award) by providing that only where making of award was affected by fraud or corruption, or it is in contravention with the fundamental policy of Indian Law or is in conflict with the most basic notions of morality or justice, the award shall be treated as against the Public Policy of India.
• Another proposal is that application to challenge the award is to be disposed of by the Court within one year.
• Amendment to Section 36 of the Act is proposed to the effect that mere filing of an application for challenging the award would not automatically stay execution of the award. Therefore award can only be stayed where the Court has passed any specific order.
• A new sub-section in Section 11 of the Act is proposed   to be added to the effect that an application for appointment of an arbitrator shall be disposed of by the High Court or Supreme Court as expeditiously as possible and an endeavour should be made to dispose of the matter within 60 days.
• A new Section 31A of the Act is proposed to be added for providing comprehensive provisions for costs regime.
• Section 17 of the Act is proposed to be amended for empowering the arbitrator to grant interim measures which the Court is empowered to grant under Section 9 of the Act and such order shall be ‘enforceable in the same manner as if it is an order of Court.
• Other amendments are also proposed to enable to make the arbitration process more effective.

CONCLUSION

From the preceding discussions it is clear that the law of arbitration which has been in the statute book for long goes a long way in establishing an effective alternate dispute resolution methodology. However, experience of its implementation over the years has necessitated amendments now. Hopefully when the amendments will be brought in the statute book, the law will serve its purpose better.