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Arbitration In India: An Introduction

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Background to arbitration

legislation:

The Indian law of arbitration is contained in the

Arbitration and Conciliation Act 1996 (Act).1

The Act is based on the 1985 UNICITRAL Model Law on International

Commercial Arbitration and the UNCITRAL Arbitration Rules 1976. The

Statement of Objects and Reasons of the Act recognises that

India's economic reforms will become effective only if the

nation's dispute resolution provisions are in tune with

international regime. The Statement of Objects and Reasons set

forth the main objectives of the Act as follows:

"

to comprehensively cover international and commercial

arbitration and conciliation as also domestic arbitration and

conciliation;

to make provision for an arbitral procedure which is fair,

efficient and capable of meeting the needs of the specific

arbitration;

to provide that the arbitral tribunal gives reasons for its

arbitral award;

to ensure that the arbitral tribunal remains within the limits

of its jurisdiction;

to minimise the supervisory role of courts in the arbitral

process;

to permit an arbitral tribunal to use mediation, conciliation

or other procedures during the arbitral proceedings to encourage

settlement of disputes;

to provide that every final arbitral award is enforced in the

same manner as if it were a decree of the court;

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

to provide that, for purposes 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."

 

Scheme of the Act:

The Act is a composite piece of legislation. It provides for

domestic arbitration; international commercial arbitration;

enforcement of foreign award and conciliation (the latter being

based on the UNCITRAL Conciliation Rules of 1980).

The more significant provisions of the Act are to be found in

Part I and Part II thereof. Part I contains the provisions for

domestic and international commercial arbitration in India. All

arbitration conducted in India would be governed by Part I,

irrespective of the nationalities of the parties. Part II provides

for enforcement of foreign awards.

Part I is more comprehensive and contains extensive provisions

based on the Model Law. It provides inter alia for arbitrability of

disputes; non-intervention by courts; composition of the arbitral

tribunal; jurisdiction of arbitral tribunal; conduct of the

arbitration proceedings; recourse against arbitral awards and

enforcement. Part II on the other hand, is largely restricted to

enforcement of foreign awards governed by the New York Convention

or the Geneva Convention. Part II is thus, (by its very nature) not

a complete code. This led to judicial innovation by the Supreme

Court in the case of Bhatia International v. Bulk Trading

2. Here the Indian courts jurisdiction was invoked

by a party seeking interim measures of protection in relation to an

arbitration under the ICC Rules to be conducted in Paris. The

provision for interim measure (section 9) was to be found in Part I

alone (which applies only to domestic arbitration). Hence the Court

was faced with a situation that there was no proprio

vigore legal provision under which it could grant interim

measure of protection. Creatively interpreting the Act, the Supreme

Court held that the "general provisions" of Part I would

apply also to offshore arbitrations, unless the parties expressly

or impliedly exclude applicability of the same. Hence by judicial

innovation, the Supreme Court extended applicability of the general

provisions of Part I to off-shore arbitrations as well.

It may be stated that this was premised on the assumption that

the Indian Court would otherwise have jurisdiction in relation to

the matter (in the international sense). This became clear in a

subsequent decision of the Supreme Court in Shreejee Traco (I)

Pvt. Ltd. v. Paperline International Inc.3 Here the

Court's assistance was sought for appointing an arbitrator in

an off-shore arbitration. The power of appointment by court exists

under Section 11 of Part I of the Act. The Court declined to

exercise jurisdiction. It found that the arbitration was to be

conducted in New York and that the law governing the arbitration

proceedings would be the law of seat of the arbitration. Hence, the

extension of Part I provisions to foreign arbitrations sanctified

by Bhatia4 could not be resorted to in every

case. The Indian Courts would have to first determine if it has

jurisdiction, in the international sense.

Subject matter of arbitration:

Any commercial matter including an action in tort if it arises

out of or relates to a contract can be referred to arbitration.

However, public policy would not permit matrimonial matters,

criminal proceedings, insolvency matters anti-competition matters

or commercial court matters to be referred to arbitration.

Employment contracts also cannot be referred to arbitration but

director - company disputes are arbitrable (as there is no master

servant relationship here)5. Generally, matters covered

by statutory reliefs through statutory tribunals would be

non-arbitrable.

Role of the court:

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 (Section 8 provided the

non - applicant objects no later than submitting its statement of

defense on merits). 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.6; or (b) for the appointment of an arbitrator in

the event a 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 a 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 appointment7. 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.

Jurisdiction of the arbitrator:

The Act provides that the arbitral...

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