Powers of the High Court in Arbitration

Prerna Khatri, Research Associate

The Arbitration and Conciliation Act, 1996 is a comprehensive statute, consolidating and amending in nature and goes way beyond the scope of its predecessor enactment, The Act of 1940. It provides for domestic and international arbitration much in line with the law adopted by the United Nations Commission on International Trade Law (UNCITRAL). The current enactment goes a long way in setting right the flaws in the previous enactment. The beneficial features of the Act have been described by the Supreme Court as follows ((Centrotrade minerals and Metals Inc V. Hindustan Copper Ltd. (2006) 11 SCC 245)),

(i)                 Fair resolution of a dispute by an impartial tribunal without any unnecessary delay or expense;

(ii)               Party autonomy is paramount subject only to such safeguards as are necessary in public interest; and

(iii)             The Arbitral Tribunal is enjoined with a duty to act fairly and impartially.

The legislative intent of the enactment is to minimise/limit/restrict the supervisory power of the court in the arbitral process and quick nomination/appointment of the arbitrator, leaving all contentious issues to be decided in the arbitration ((Food Corporation of India V. Indian Council of Arbitration (2003) 6 SCC 564: AIR 2003 SC 3011)). One of the main aims is to settle all the disputes between the parties to avoid further litigation ((ShyamaCharanAgarwala& Sons V. Union of India (2002) 6 SCC 201: AIR 2002 SC 2659)).

POWER OF THE HIGH COURT

Subject to the provisions of the Arbitration and Conciliation Act, 1996, there are certain situations where the High Court has certain role to play. For instance, in accordance with Section 8, The High Court has the power to refer the parties to a dispute to arbitration. In P. AnandGajapathiRaju V. P.V.G.Raju ((AIR 2000 SC 1886 : 2000 (4) SCC 539)), the Supreme Court laid down the following conditions to be fulfilled, to exercise the power under Section 8 :-

(i)                 There is an arbitration agreement.

(ii)               A party to the agreement brings an action in court against the opposite party to the dispute.

(iii)             Subject matter of the action is same as the subject matter of the arbitration agreement.

(iv)             The other/opposite party moves the court for referring the parties to arbitration before it submits his first statement on the substance of the dispute.

In addition to Section 8, the High Court can also grant some interim measures under Section 9, based on an application by a party before, or during arbitral proceedings or at any time after making of the arbitral award but before it is enforced in accordance with Section 36. It is a discretionary power of the court and hence, the court while considering such application would consider the various aspects of the matter such as ((N. Sekar V. M/s. Akash Housing, Chennai, 2011 (3) LW 357 (Mad.) ; Transmission Corporation of A.P. Ltd. V. LancoKondapalli Power (P) Ltd. (2006) 1 SCC 540 ; Bans Ropan V. IIIrd A.D.J., AIR 1993 A.P. 117; N.V. Choudhary V. Hindusthan Steel Works Construction Ltd., AIR 1984 A.P. 110));

(i)                 Existence of prima facie case,

(ii)               Balance of convenience, and

(iii)             Potential for irreparable loss or injury.

The court would weigh every possibility to ensure that it’s done in aid of the arbitration proceedings and not to frustrate them ((J&K Forest Department V. Abdul Karim Wasi, AIR 1989 SC 1498, 1508-09  )).

Where the provision can apply

An application to the court to grant interim measures can be made on specified purposes under the Act ((Section 9, The Arbitration and Conciliation Act, 1996)),

(i)                 For the appointment of a guardian for a minor or person of unsound mind for the arbitral proceeding;

(ii)               To obtain custody, preservation and sale of  any goods provided such goods are the subject matter of the arbitration agreement;

(iii)             To cause recovery of the amount as a result of the arbitral award;

(iv)             To detain, preserve and inspect any property or thing which is subject matter of the arbitration agreement;

(v)               To obtain interim injunction;

(vi)             To appoint a receiver.

This power is discretionary in nature and not all interim measures have been provided herein. The court must objectively examine the merits of each case and determine the extent of interim relief to be guaranteed. This power vested upon the courts cannot be taken away by the parties by consent as it is specifically provided by the Act. The provisions of Section 9 are largely entwined with various other provisions of the Act. For instance, under Section 31(6), the arbitrator at any point of the arbitral proceedings can make an interim arbitral award at any time with respect to any matter to which the arbitrator has the authority to make the final award. In addition, interim measures can be granted under Section 17. However, the provisions herein provide that the arbitral tribunal is empowered to issue any interim measures at the request of the party during the arbitration proceedings, but the tribunal cannot order any interim measures before the commencement of the arbitration proceedings or after the arbitral award has been made.

Purpose of interim relief

The purpose of interim relief has been explained in depth by the Allahabad High Court in Deepak Mitra V. District Judge, Allahabad ((AIR 2000 All 9 at p. 20)). The court said:

“Interim measures can be issued under Section 9 only for the purpose of arbitration proceedings and with a view to protect the interest of the parties which otherwise cannot be protected or safeguarded by the arbitral tribunal. The power intended under Section 9 is not intended to frustrate the arbitration proceedings. This power cannot be exercised by the court if it would prejudice the powers vested in the arbitrator and render him incapable of resolving the dispute.”

Effect of interim measures:

An interim measure does not put to rest the rights of the parties. The rights of the parties are required to be adjudicated finally when a reference is made. The court has the authority and jurisdiction to pass interim orders for protection and preservation of the rights of the parties during the arbitration proceedings. However, this does not imply that if a party has availed of a benefit under this jurisdiction, the other party cannot put his claim in the main proceedings before the arbitrator. The interim measure/arrangement made by the court has to be given the necessary interim status. When an arbitration clause exists in a contract and an order, relating to the contract has been passed and the parties do not abdicate the arbitration clause and, on the contrary, take recourse to the same, then all the disputes, inclusive of benefits arising or having already arisen, have to be decided by the arbitrator ((Arvind Iron and Steel Corporation V. Steel Authority of India Ltd. AIR 2000 MP 247)).

OTHER POWERS OF THE HIGH COURT

Besides the powers explained above, the parties to the dispute or the arbitral tribunal, may apply to the court to seek assistance with respect to taking evidence as under Section 27. An application must be made to the court which shall specify:

(i)                 The names and addresses of the parties and the arbitrators;

(ii)               The general nature of the claim and the relief sought;

(iii)             The evidence to be obtained, in particular:

  1. 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;
  2. The description of any document to be produced or property to be inspected.

In comparison to the Act of 1940 where only the tribunal or the umpire could apply for assistance, the Act of 1996 empowers even a party to the dispute to apply for such assistance after seeking permission of the Tribunal.

Persons who fail to attend as required, or make any other default, or refuse to give evidence; are guilty of contempt of the Arbitral Tribunal and shall be dealt with by the Court on representation of the Arbitral Tribunal in the same way as the person who was guilty of like offences in suits before courts.

Similar to a court’s proceedings, matters where the assistance has been sought, should be dealt in the same manner as if it is before a Court. The rules of natural justice will strictly follow with no exceptions. Failure to follow these basic principles of Rule of Law, would render the award invalid and liable to be set aside ((K.P. Poulose V. State of Kerala, AIR 1975 SC 1259)).

The Delhi High Court in Lalit Mohan V. Building Committee ((AIR 1995 Del. 180)), has held that once the arbitrator has permitted the witness to be examined, it is not proper on the part of the arbitrator to decline to issue summons to the sole witness. The award would be liable to be set aside on grounds that the summons weren’t issued.

This provision to seek the court’s assistance in taking evidence of witness is necessary because the arbitral tribunal has not been conferred power to summon witnesses or to issue process as such.

CONCLUSION

The Arbitration and Conciliation Act, 1996 though minimises the aspect of judicial intervention, also leaves scope wherein the parties to the dispute or the Tribunal may seek for some kind of assistance from the Court in critical situations. This not to enhances the decision making capacity of the Arbitral Tribunal by vesting them with the sole authority to make decisions but also respects the Judicial setup without compromising on the interests of the parties. 

Appointment of Arbitrators and Composition of Arbitral Tribunal

A Game of Even – Odd Numbers

Vedang Mishra, Research Associate

The Arbitration and Conciliation Act, 1996 (the Act), which is based on the UNCITRAL Model Law, has brought drastic changes in the law of arbitration and conciliation as was then prevalent in India. The purpose of parties choosing arbitration as against the ordinary court litigation is that the hand- picked expert tribunal would be able to resolve their disputes more proficiently, economically, expeditiously than ordinary court litigation. The parties, therefore, has been given maximum freedom of for not only choosing their arbitrators but also deciding their numbers.

The UNICITRAL Model Law

Article 10 of the UNICITRAL Model Law grants to the parties the greatest possible freedom in choosing the number of arbitrators. The parties may choose any number of arbitrators, including even numbers, which can possibly cause a tribunal deadlock if a simple majority cannot be reached. In the absence of the agreement between the parties, the default number is three arbitrators.

Indian Law

Chapter III of the Arbitration and conciliation Act, 1996 deals with the composition of Arbitral Tribunals under the said act. This chapter comprises five sections dealing with various aspects of an arbitrator i.e. number of arbitrators ((The Arbitration and Conciliation Act, 1996, section 10)); appointment ((Ibid section 11)); grounds for challenging the award ((Ibid section 12)); challenge procedure ((Ibid section 13)); and termination of mandate and substitution of arbitrator ((Ibid section 14 and 15)). The expression ‘Arbitration Tribunal’ under this act has been defined to mean “a sole arbitrator or a panel of arbitrators ((Ibid section 2 (d).)).”

Though section 10 of 1996 act is by and large modeled on article 10 of UNICITRAL Model Law, 1995 but, it departs from its model on some aspects. Section 10 of the 1996 act provides for the number of arbitrators. Firstly, it provides that the parties are free to determine the number of arbitrators provided that such number is not an even number. Secondly, it provides that, if the parties have failed to provide for the number of arbitrators, in that case the arbitral tribunal shall consist of a sole arbitrator while in article 10 of the Model Law, the default number of arbitrators is three. The object of the Parliament for providing odd number of arbitrators is to avoid tribunal deadlock in decision- making ((Redfern and Hunter, Law and Practice of International Commercial Arbitration, 4th Ed 2004)). This is also consistence with the mainstream of ‘international commercial arbitration’.

Even Number of Arbitrators

Appointing an even number of arbitrators is an exception to rule and a rarity in practice. In India, section 10 (1) of 1996 act expressly prohibits parties for appointing even number of arbitrators. Provision restricting the appointment of an even number of arbitrators has been made for the simple and significant reason that in case of even number of arbitrators they may differ at the end. In such a case, the parties would then be left remediless and would have to start a fresh litigation or arbitration all over again, which would consequently result in a sheer waste of time, money and energy. In Sri Venkateshwara Construction Company v. Union of India ((Sri Venkateshwara Construction Company v. Union of India, AIR 2001 AP 284)), a single Judge of the Andhra Pradesh High court annulled the arbitration clause which provided for the matter in dispute shall be referred to two arbitrators and held that the arbitral tribunal cannot consist of two arbitrators.

However, despite this clear and unequivocal mandate of statute, a three judge bench of the Supreme Court in Narayan Prasad Lohia v. Nikunj Kumar Lohia ((Narayan Prasad Lohia v. Nikunj Kumar Lohia (2002) 3 SCC 572)), held that the provisions of section 10 (1) of 1996 act are derogable, therefore, the requirement of section 10 (1) that the number of arbitrators comprising the arbitral tribunal ‘shall not be an even number’ is not mandatory and the parties can derogate from it and appoint an even number of arbitrators as well. Here the Appellant and the Respondents are family members who had disputes and differences in respect of the family businesses and properties. Each party appointed one arbitrator and then took part in the arbitration process consisting of these two arbitrators. Later, the award was made by these two persons was challenged by the Respondent before the single Judge of Calcutta High Court by way of an application to set aside this award. It was contended that arbitration by two arbitrators was against the statutory provision of the said Act and therefore void and invalid. The High Court accepted this contention and set aside the award. But, the judgment of High Court was overruled by the Supreme Court in this case.

This judgment of Supreme Court was criticized very much as it suffered from many theoretical and technical defects. The effect of this decision is that it annuls the statutory provisions of section 10 (1) barring the appointment of an even number of arbitrators. It amounts to rewriting the statute, instead of giving effects to its object, which defeats the very purpose of this provision.

Does provision for the number of Arbitrators affects the validity of an arbitration agreement?

The Apex Court answered this question in MMTC Ltd. v. Sterlite Industries India Pvt. Ltd ((MMTC Ltd. v. Sterlite Industries India Pvt. Ltd, 1996 (2) ARBLR 705 SC)), Here, a contract between both the parties provided that in the event of any question or dispute, the matter in dispute shall be referred to arbitrator. Both the parties shall nominate one Arbitrator each and the arbitrators shall appoint an umpire before proceeding with the reference. The decision of arbitrators or in the event of their not agreeing the decision of the umpire will be final and binding on the parties. The question before the Court was whether there was anything in the act of 1996 to make such an agreement unenforceable, because the number of arbitrators to be appointed by both the sides in terms of the arbitration clause was even and the 1996 act expressly prohibits the appointment of an even no. of arbitrators. However the court held that there is nothing in Section 7 to indicate the requirement of the number of arbitrators as a part of the arbitration agreement. Thus the validity of an arbitration agreement does not depend on the number of arbitrators specified therein. The number of arbitrators is dealt with separately in Section 10 which is a part of machinery provision for the working of the arbitration agreement. The arbitration agreement is valid as it satisfies the requirement of Section 7 of the New Act.

English Law

The English law also draws a lot from the UNCITRAL Model but with some modifications. Section 15 of the English Arbitration Act, 1996 gives freedom to the parties to appoint any number of arbitrators and also to decide whether there is to chairman or umpire. Unless otherwise agreed by the parties, an agreement that the number of arbitrators shall be two or any other even number shall be understood as requiring the appointment of an additional arbitrator as chairman of the tribunal. If there is no agreement as to the number of arbitrators, then like Indian law, their tribunal would consist of a sole arbitrator. While the English Law retains the institution of a chairman or umpire, Indian law abolished the office of the ‘umpire’ in the 1940 Act. Thus, in the 1996 act the legislature is heavily pressing on having an odd number of arbitrators to prevent any kind of deadlock.

Procedure for Appointment of Arbitrators

Section 11 of 1996 act contains provisions regarding the procedure for appointment of arbitrators. A person of any nationality may be an arbitrator, unless otherwise agreed by the parties ((The Arbitration and Conciliation Act, 1996 section 11 (1).)). The parties are free to agree on a procedure for appointing the arbitrator or arbitrators ((Ibid section 11 (2).)).

Failing any agreement, in arbitration with three arbitrators, each party will be entitled to appoint one arbitrator, and those two appointed arbitrators shall appoint the third arbitrator who shall act as the presiding arbitrator. If a party fails to appoint an arbitrator within 30 days from the receipt of a request to do so from the other party; or the appointed arbitrators fail to agree on the their arbitrator within 30 days from the date of their appointment, the appointment shall be made, upon request of a party, by the Chief Justice or any person or institution designated by him ((Ibid sections 11 (3) and 11 (4).)).

Appointment of Arbitrators by the Chief Justice

In case, the appointment procedure in an arbitration agreement fails, a party may request the Chief Justice or any other person or institution designated by him to take the necessary measures. The 1996 act provides considerable improvement in the nature of the formation of arbitral tribunal by Chief Justice which undertakes the task of selecting an arbitrator by courts outside the litigation process and makes it an administrative act. It is only when there is difference between parties on appointment that the court’s intervention becomes necessary.

There has been a controversy in the Indian Courts whether the power under section 11 to appoint an arbitrator is judicial or administrative. The Supreme Court in Konkan Railway Corporation Ltd. & anr. v. Rani Construction Pvt. Ltd ((Konkan Railway Corporation Ltd. & anr. v. Rani Construction Pvt. Ltd (2000) 8 SCC 159))had interpreted the power under section 11 to be purely administrative and the Chief Justice of India or any other person designated by him for this purpose could not perform any judicial function. This controversy has been finally decided by the Supreme Court in SBP & Co. v. Patel Engineering Ltd ((SBP & Co. v. Patel Engineering Ltd (2005) 8 SCC 618)), wherein it was held that the power exercised by the Chief Justice of High Court or Chief Justice of India for the appointment of arbitrator is not an administrative power but judicial power.

After the above discussion appointing an even number of arbitrators seems to be a highly disputable issue. The judgment in Lohia case ((Supra 9))creates a grey area in statutory limitation in appointing an even number of arbitrators. This judgment suggests that an agreement between the parties can override the mandated statutory requirement. English law in this point is more dynamic and clear which gives the options to the parties to either choose a chairman or an umpire. Therefore, this judgment is not free from doubt and certainly needs reconsideration.

Article 17 of the UNCITRAL Model

Risha Sharma, Research Associate

The UNCITRAL is a core legal body of the United Nations system in the field of international trade law. It is a legal body with universal membership specializing in commercial law reform worldwide for over 40 years. Briefly, the UNCITRAL’s business is the modernization and harmonization of rules on international business. Trade means faster growth, higher living standards, and new opportunities through commerce. In order to increase these opportunities worldwide, UNCITRAL has been involved in the formulation of modern, fair, and harmonized rules on commercial transactions. These also include conventions, model laws and rules, which are acceptable worldwide, legal and legislative guides and recommendations of great practical value, updated information on case law and enactments of uniform commercial law, technical assistance in law reform projects and finally regional and national seminars on uniform commercial law.
On June 21, 1985 after years of analysis and discussion, the United Nations Commission on International Trade Law adopted a final trade model on International Commercial Arbitration, called the Model Law ((Saturnino Lucio, The UNCITRAL Model on International Commercial Arbitration, Vol.17 No.2, 1986, The University of Miami Inter- American Law Review)). The Model Law was adopted keeping in mind the manifold problems encountered by parties contemplating an international arbitral remedy. The uncertainties which thus are cast upon the parties in their efforts to develop a workable arbitration agreement highlight the reasons UNCITRAL has attempted to unify measures in this field. It was drafted and developed by the Working Group on International Contract Practices, which was entrusted with the project in 1981. The new model has been intended to serve as a model of domestic arbitration legislation, harmonising and making more uniform the practice and procedure of international commercial arbitration while giving international arbitration freedom from the parochial law of any adopting state. The UNCITRAL model law approach, rather than looking to national law, which is generally geared toward domestic arbitration as opposed to international arbitration issues, emphasizes the will of the parties as the governing principle. The model law leaves the parties free to determine the composition of the arbitral tribunal, to select the rules to govern appointment and challenge procedures, and to choose the rules of law applicable to the substance of the dispute ((Mcnerney Mary , Esplugues A. Carlos, International Commercial Arbitration: The UNCITRAL Model, Vol. 9 Article 3, 1986 Boston College International and Comparative Law Review)). This freedom is subject to certain mandatory provisions guaranteeing due process of law. The approach undertaken by the UNCITRAL model balances the national legal system with the freedom and the will of the parties. Model Law by virtue of its nature is flexible and allows the states to adopt easily the principles contained in the documents. Initially, UNCITRAL considered preparing a protocol to supplement and clarify the 1958 New York Arbitration Convention but UNCITRAL dropped this approach in favor of a model uniform law to serve as the basis for national arbitration laws ((Ibid)). The UNCITRAL provides for the harmonization and unification of the national laws regulating international commercial arbitration. The UNCITRAL model law, therefore, is designed to prevail over any domestic law limiting the scope of international commercial arbitration. This approach is in contrast with Article 1(3) of the 1958 New York Convention which limits the Convention’s scope to only those relationships which the state’s domestic law defines as commercial. The Model Law is intended to be interpreted in a non-restrictive manner and has a broad application.
Article 17 gives the arbitral tribunal a concurrent power to order interim measures of protection, although the range of such measures is more limited than those provided for under Article 9. The text requires that the interim measure pertain to the subject-matter of the dispute, and the measure may only be directed to a party. Additionally, the arbitral tribunal lacks power to enforce these orders. As a result compliance may require assistance of the courts, assuming the national procedural law gives the court the authority to act ((Ibid)).

Article 17 of the original UNCITRAL Model Law stated:

“Unless otherwise agreed by the parties, the arbitral tribunal may, at the request of a party, order any party to take such interim measure of protection as the arbitral tribunal may consider necessary in respect of the subject-matter of the dispute. The arbitral tribunal may require any party to provide appropriate security in connection with such measure.”
It basically provided that based on the agreement between the parties, the tribunal was empowered to, at the insistence of one of the parties, to take an interim measure of protection such as requiring any party to provide sufficient security with regard to the subject matter of the dispute. This has been expanded by the new Article 17 of the UNCITRAL Rules.

The relevant part of Articles 17 reads:

(1) Unless otherwise agreed by the parties, the arbitral tribunal may, at the request of a party, grant interim measures.

(2) An interim measure is any temporary measure, whether in the form of an award or in another form, by which, at any time prior to the issuance of the award by which the dispute is finally decided, the arbitral tribunal orders a party to:
(a) Maintain or restore the status quo pending determination of the dispute;
(b) Take action that would prevent, or refrain from taking action that is likely to cause, current or imminent harm or prejudice to the arbitral process itself;
(c) Provide a means of preserving assets out of which a subsequent award may be satisfied; or
(d) Preserve evidence that may be relevant and material to the resolution of the dispute.
(3) If an arbitral tribunal has granted an interim measure, the tribunal may, on the application of any party, make an award to the same effect as the interim measure.
Certain conditions have been laid down with regard to the grant of interim measures. The party requesting the grant of interim measures must satisfy the tribunal that harm not adequately reparable by an award of damages is likely to result if the measure is not ordered, and such harm substantially outweighs the harm that is likely to result to the party against whom the measure is directed if the measure is granted. Also, there must be a reasonable possibility that the requesting party will succeed on the merits of the claim. The determination on this possibility shall not affect the discretion of the arbitral tribunal in making any subsequent determination. The parties are empowered to make a request for an interim measure together with an application for a preliminary order directing the other party not to frustrate the purpose of the interim measure requested, without a prior notice to the party. The arbitral tribunal in its capacity may grant a preliminary order provided it considers that prior disclosure of the request for the interim measure to the party against whom it is directed risks frustrating the purpose of the measure. Immediately after the arbitral tribunal makes a determination in respect of an application for a preliminary order, the arbitral tribunal can given notice to all parties of the request for the interim measure, the application for the preliminary order, the preliminary order, if any, and all other communications, including by indicating the content of any oral communication, between any party and the arbitral tribunal in relation thereto. At the same time, the arbitral tribunal is empowered to give an opportunity to any party against whom a preliminary order is directed to present its case at the earliest practicable time. The arbitral tribunal can decide promptly on any objection to the preliminary order. A preliminary order expires after twenty days from the date on which it was issued by the arbitral tribunal. However, the arbitral tribunal may issue an interim measure adopting or modifying the preliminary order, after the party against whom the preliminary order is directed has been given notice and an opportunity to present its case. A preliminary order is binding on the parties but is not to be subjected to enforcement by a court. Such preliminary orders do not constitute an award. According to the amendment made, the arbitral tribunal may modify, suspend or terminate an interim measure or a preliminary order it has granted, upon application of any party or, in exceptional circumstances and upon prior notice to the parties, on the arbitral tribunal’s own initiative. The arbitral tribunal may require the party requesting an interim measure to provide appropriate security in connection with the measure. The amended Article 17 states that the arbitral tribunal requires the party applying for a preliminary order to provide security in connection with the order unless the arbitral tribunal considers it inappropriate or unnecessary to do so. If need be, the tribunal may require any party promptly to disclose any material change in the circumstances on the basis of which the measure was requested or granted. The party applying for a preliminary order has to disclose to the arbitral tribunal all circumstances that are likely to be relevant to the arbitral tribunal’s determination whether to grant or maintain the order, and such obligation shall continue until the party against whom the order has been requested has had an opportunity to present its case. The party requesting an interim measure or applying for a preliminary order is liable for any costs and damages caused by the measure or the order to any party if the arbitral tribunal later determines that, in the circumstances, the measure or the order should not have been granted. The arbitral tribunal can award such costs and damages at any point during the proceedings. Subject to the provisions given therein, an interim measure issued by an arbitral tribunal is to be recognized as binding and, unless otherwise provided by the arbitral tribunal, enforced upon application to the competent court, irrespective of the country in which it was issued. As for the Courts, a court shall have the same power of issuing an interim measure in relation to arbitration proceedings, irrespective of whether their place is in the territory of a State, as it has in relation to proceedings in courts. Recognition or enforcement of an interim measure can be refused only in specific cases such as the non-compliance of the tribunal’s decision with regard to interim measures or when the interim measure has been terminated by the tribunal or the empowered court of the State or under the law under which the measure was granted in the first place.
The existence of the Model Law is deemed to be of particular value not only in countries which benefit from modernisation but also those which may be adopting or expanding their arbitration laws for the first time ((Hoellering Michael, The UNCITRAL Model on International Commercial Arbitration, The International Lawyer 20 (1) : 327 – 41)). The model law has been well-received by Government representatives and international arbitration organizations, and the majority of comments emanating from conferences and symposia on the subject have been favourable. This article can be effectively summed up with the quote of The Right Hon’ble Sir Michael Kerr, Lord Justice of Appeal of the Supreme Court of Judicature U.K., “We should accept the concept of the model law if our trading partners do so, and we should then use it as a basis for a comprehensive and explicit restatement of our law, which is at present far too diffuse and inexplicit.”

A Portrait of Conciliation as Method of ADR: An Analytical Perspective

Pankaj Sevta, Research Associate

Art. 1(3) of the UNCITRAL Model Law on International Commercial Conciliation 2002 defines Conciliation to mean “a process, whether referred to by the expression conciliation, mediation or an expression of similar import, whereby parties request a third person or persons (‘the Conciliator’) to assist them in their attempt to reach an amicable settlement of their dispute arising out of or relating to a contractual or other legal relationship ((O.P. Malhotra & Indu Malhotra, The Law and Practice of arbitration and conciliation 1513 (2nd Ed., 2006).)). The definition of conciliation formulated by the International Labour Organization in 1983 has been followed by ACAS ((Brown and Marriott, ADR Principles and Practice 272 (2nd Ed., 1999).))in the following words it is a process of orderly or rational discussion under the guidance of the conciliator ((Karl Mackie, Industrial Relations Disputes: The ACAS Role by the Advisory Service in a Handbook of Dispute Resolution: ADR in Action 104 (1991) .)). The definition of Conciliation is a process in which third party assists the parties to resolve their disputes by agreement. A conciliator may do this by expressing an opinion about the merits of the dispute to help the parties to reach a settlement ((Ashwinie Kumar Bansal, Arbitration & ADR 5 (3rd Ed., 2012).)). Conciliation is a compromise settlement with the assistance of a conciliator. Conciliation is a process of persuading parties to reach agreement and is plainly not arbitration ((Halsbury’s Laws of England, 4th Ed., Vol 2, page 255, para 502)). Conciliation had received statutory recognition in India even before enactment of Part III of Arbitration and Conciliation Act 1996. Order XXXII-A of CPC 1908, Sec. 23 of Hindu Marriage Act 1955 and Sec. 3 of Industrial Dispute Act 1947 provided for conciliation. These provision were not however, exhaustive furnishing detailed framework for conduct of conciliation proceedings. It was only in part III of arbitration and Conciliation Act 1996 that the legislature for the first time provided for a detailed statutory framework for the conduct of conciliation proceedings outside court ((S.K Chawala, Law of Arbitration and Conciliation including other ADR’s 846 (3rd Ed., 2012).)).

Advantages of Resolution of a Dispute by Conciliation

It is pertinent to note that following are the advantages of resolution of dispute by conciliation:

(i)                 It offers a more flexible alternative, for a wide variety of disputes, small as well as large;

(ii)               It obviates the parties from seeking recourse to the court system;

(iii)             It reserves the freedom of the parties to withdraw from conciliation without prejudice to their legal position inter se at any stage of the proceedings;

(iv)             It is committed to maintenance of confidentiality throughout the proceedings and thereafter, of the dispute, the information exchanged, the offers and counter offers of solutions made and the settlement arrived at;

(v)               It is cost effective and produces quicker resolution of dispute;

(vi)             It facilitates the maintenance of continued relationship between the parties even after the settlement is attempted at. This feature is of particular significance to the parties who are required to continue their relationship despite the dispute, as in the case of disputes arising out of construction contracts, family relationships, family properties etc.

(vii)           There is no scope for corruption or bias ((Sarbesh Chandra, ADR: Is conciliation the Best Choice p. 91)).

Techniques of Conciliation

There are two methods of conciliation namely the facilitative method and the evaluative method ((Mackie, Miles, Marsh and Allen, The ADR Practice Guide: Commercial Disputes Resolution 49 (2nd Ed., 2000).)). The difference lies in the role adopted by the conciliator during the course of the proceedings. In a facilitative mode, the conciliator will refrain from providing his opinions or advice and will merely ensure that the parties do not misunderstand each other ((Justice RS Bachawat’s, Law of Arbitration & Conciliation 2519 (5th Ed., 2012).)). In an evaluative mode, the conciliator takes a more proactive approach and attempts to get the parties to accept the merits and demerits in their cases thereby leading them to a mutually acceptable solution ((O.P. Malhotra & Indu Malhotra, The Law and Practice of arbitration and conciliation 1521 (2nd Ed., 2006).)). He makes or obtains an assessment and expresses his views on the merits of the rights of the parties in the dispute ((O.P. Malhotra & Indu Malhotra, The Law and Practice of arbitration and conciliation 1521 (2nd Ed., 2006).)).

Role of the Conciliator

Although, like litigation and arbitration, conciliation also often involves an independent third party, the role of a conciliator is basically different from that of a judge or an arbitrator. “He does not impose a decision on the parties but, on the contrary, his role is to assist the parties to resolve the dispute themselves. He may give opinions on the issues in dispute but his primary function is to assist in achieving a negotiated solution ((Carrol and Dixon, ‘Alternative Dispute Resolution Developments in London’, The International Construction Law Review, pt 4, 1990, pp 436-37, cited by Redfern and Hunter in Law and Practice of International Commercial Arbitration 36 (4th Ed., 2004).)).” At best, he may be described as a neutral facilitator or a catalytic agent. He only endeavors to bring the parties in dispute together and assist them in composing their differences by providing an environment in which the parties can communicate constructively, and then to assist the parties in overcoming their obstacles to settlement. He can suggest terms upon which a settlement can be arrived at, but cannot impose a settlement conceived by him on the parties. His role is merely advisory and not creative or decisive, like the role of an arbitrator or an adjudicator ((O.P. Malhotra, Arbitration of Labour Disputes: Labour Adjudication in India, 2001, Journal of the Indian Law Institute, pp 31-32.)).

Framework for conciliation Proceedings: An Over view to the Scheme under 1996 Act

Conciliation is initiated by a party sending to other party a written invitation to conciliate. Once the other party accepts in writing the invitation to conciliate, the conciliation proceedings start ((Arbitration and Conciliation Act 1996, § 62)). It is for the parties to agree as to the number of conciliators. Unless the parties agree that there should be two or three conciliators, there will be only one conciliator. The conciliator will in the conduct of conciliation, as a general rule, act jointly ((Arbitration and Conciliation Act 1996, § 63)). Where the parties have not enlisted the assistance of a suitable institution or person, the parties themselves can agree on the name of a sole conciliator. Where the conciliation is with two conciliators, each party may appoint one conciliator. Section 66 of the Act specifically provides that the conciliator is not bound either by the Code of Civil Procedure 1908 or Indian Evidence Act 1872. The conciliator is to be guided by the principles of objectivity, fairness and justice ((S.K Chawala, Law of Arbitration and Conciliation including other ADR’s 847 (3rd Ed., 2012).)). He should also give consideration to the usage of the trade concerned, the circumstances surrounding the dispute, including any previous business practices between the parties ((Arbitration and Conciliation Act 1996, § 67(2).)). The manner of conducting the conciliation process is left to the conciliator. After taking into account the wishes of the parties, he may allow a party to present oral statement, if the party so wishes ((Ibid, § 67(3).)). At any stage of the conciliation proceedings, the conciliator may make proposals for settlement of the dispute. Moreover the proposal need not be in writing and need not be accompanied by reasons ((Arbitration and Conciliation Act 1996, § 67(4) See also M. Prabhakar, Alternative Dispute Resolution A Practical Approach (2008).)).

The conciliator after his appointment may call upon the parties to present a written summary of their respective cases together with any relevant documents ((Arbitration and Conciliation Act 1996, § 65)). After going through the summary of the case filed by the each party, the conciliator may hold a joint meeting with the parties, where each party may make a brief oral presentation of its case. Thereafter the conciliator may also hold a private meeting, often referred to as caucuses with each party separately ((Arbitration and Conciliation Act 1996, § 69)). By doing so he tries to bring parties closer to an agreement ((S.K Chawala, Law of Arbitration and Conciliation including other ADR’s 847 (3rd Ed., 2012).)). Where parties are so inclined, he may even suggest a settlement for acceptance by the parties ((Supra note 9.)). Each party may also submit to the conciliator suggestions for the settlement of the disputes ((Arbitration and Conciliation Act 1996, §  72)). If the conciliator receives factual information from any party, he may disclose the substance of the information to the other party so that it may have an opportunity to present its explanation, if any. However if any information required by the party to be kept confidential, shall not be disclosed by conciliator to the other party ((Arbitration and Conciliation Act 1996, § 70)). If the conciliator is of the view that there is no scope for agreement between the parties or any of them indicates its unwillingness to pursue conciliation, the conciliator may terminate the proceedings ((Arbitration and Conciliation Act 1996, § 76)). Where the parties reaches an agreement on settlement, the conciliator may hold a final joint setting for drawing up and signing a settlement agreement by the parties ((Arbitration and Conciliation Act 1996, § 73(1)(4).)). When the parties sign the settlement agreement, it becomes final and binding on the parties and persons claiming under them. The conciliator also authenticates the settlement agreement and furnishes a copy thereof to each of the parties ((Arbitration and Conciliation Act 1996, § 73(3)(4).)).

As a principle inherent in conciliation procedure, the conciliator and the parties are bound by certain discipline. Unless all the parties otherwise agree, the conciliator is estopped from acting as an arbitrator or as a representative of a party in any arbitral, judicial or other proceedings in respect of a dispute which is or has been the subject matter of conciliation proceedings in which he acted as conciliator. The conciliator cannot also be presented by a party as a witness in any such proceedings ((Arbitration and Conciliation Act 1996, § 80)). There is also a bar on the parties relying on introducing as evidence in any subsequent arbitral or judicial proceedings, the views expressed or suggestions made by either party in the course of conciliation proceedings ((Arbitration and Conciliation Act 1996, § 81)). In other words, any information pertaining to the conciliation proceedings, whether it has resulted in a settlement agreement or not, is required to be kept confidential by all the parties and the conciliators ((Law Of Arbitration And Conciliation With Exhaustive Coverage Of International Commercial Arbitration And ADR 2509 (5th Ed., 2012).)).

The parties may initiate conciliation even during the pendency of arbitration proceedings involving the same dispute, without prejudice to their respective stands in those proceedings. If such conciliation succeeds, they have to report to arbitral tribunal, who may record the settlement in the form of an arbitral award ((Arbitration and Conciliation Act 1996, § 30)).

Conclusion

It can be concluded that looking in to the present scenario, it can be said that there can be valid reference to conciliation only if both parties to the dispute agree to have negotiations with the help of third party or parties. There is no shadow of doubt that if parties resort to conciliation there are ample of advantages like cost effective, freedom of parties, no scope of biasness etc. It can be analyzed that a conciliator in advisory capacity, plays a vital role by resorting to techniques like facilitative method and the evaluative method, in order to provide negotiated decision between the parties. Moreover, giving a glimpse on the existing framework under part III of Arbitration and Conciliation Act, 1996 it can be construed that an appropriate chain of procedure and system exists which through act as guideline for conciliator as well as parties.

Enforcement of Foreign Arbitration Awards in India, Malaysia and Indonesia

Risha Sharma, Research Associate

What is arbitration? Black’s Law Dictionary defines arbitration as ‘a method of dispute resolution involving one or more neutral third parties, who are agreed to by the disputing parties and whose decision is binding’. It has been recognised as an effective form of dispute resolution mechanism. It primarily consists of dispute resolution processes and techniques which enable the disagreeing parties to come to an agreement without resorting to litigation. The parties normally resolve their disputes with or without the aid of a third party. It entails the submission of disputes to an independent authority by whose decision the parties generally abide. In today’s world of shrinking boundaries, free trade and international commerce have become global necessities. Increasing competitiveness often leads to conflicts between entrepreneurs, resulting in commercial disputes. Arbitration is chosen as a means of effective consensual and speedy dispute resolution ((Suri Preeti, Enforcement of foreign awards in India: Simplification under the 1996 Act, at www.psalegal.com, on p. 1 as seen on July 14, 2013 at 23.07)). When a dispute arises between two parties, they mutually refer the dispute to a third impartial authority which is also referred to as the arbitral tribunal and the decision undertaken by the said authority is called the arbitral award. These awards are not always binding in nature. A jurisdiction’s credibility as an arbitration friendly one rests primarily on the efficiency and the efficacy of its award enforcement regime ((Kachwaha Sumeet, Enforcement Of Arbitration Awards In India, at www.kaplegal.com on p. 1 as seen on July 15, 2013, at 00.27)).

ENFORCEMENT REGIME IN INDIA:

‘Foreign arbitration’ is an award or arbitration conducted in a place outside India. The resultant award is an award, if sought to be enforced in India, constitutes a foreign award. It was realised that the economic reforms may not become fully effective as long as the law dealing with enforcement of both domestic and international commercial disputes remains out of touch with these reforms. In India, foreign arbitral awards can be enforced under the international conventions of Geneva Convention of 1927 and the New York Convention of 1958, both of which India is a signatory of.  Prior to January 1996, the law of enforcement of arbitration awards in India was spread between three enactments: enforcement of domestic awards was dealt with under a 1940 Act, enforcement of foreign awards was divided between two statutes — a 1937 Act to give effect to the Geneva Convention awards and a 1961 Act to give effect to the New York Convention awards.  It was established that the awards have to be made in the country which has ratified the respective convention. The Geneva Convention is virtually non-applicable due to Article VII of the New York Convention which states that the Geneva Convention ceases to have effect when the latter comes into play. Hence for all practical purposes, enforcement of arbitral awards in India came to be governed by New York Convention and the Act of 1940 for international and domestic awards respectively. The 1961 Act confined challenge to an arbitral award only on the limited grounds permitted under the New York Convention.

In January 1996, India enacted a new Arbitration Act which repealed all the three previous statutes (the 1937 Act, the 1961 Act and the 1940 Act). The new Act is divided in two parts. Part I provides for any arbitration conducted in India and enforcement of awards therein. Part II provides for enforcement of foreign awards. Any arbitration conducted in India or enforcement of award therein (whether domestic or international) is governed by Part I, while enforcement of any foreign award to which the New York Convention or the Geneva Convention applies, is governed by Part II of the Act.  Previously, the Supreme Court had held in Bhatia International v. Bulk Trading S.A. and and Venture Global Engineering v Satyam Computer Services Limited that provisions of Part I would apply to international commercial arbitration as well unless the parties have excluded the applicability of Part I. As a result, Indian courts were empowered to set aside foreign awards using section 34 of the 1996 Act. This decision was criticised for ignoring the wordings of the statute. Recently, in Bharat Aluminium Co. v Kaiser Aluminium Technical Services the Court overruled Bhatia’s case and held that 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 and that there can be no intermingling between the two parts of the Act as per the New York Convention and the UNCITRAL model. This decision lays to rest the long drawn debate of India not being an arbitration friendly jurisdiction.

ENFORCEMENT REGIME IN MALAYSIA:

In Malaysia, the Arbitration Act of 2005 was enacted to regulate all aspects related to arbitration to ensure synchronisation between Malaysian arbitration and the UNCITRAL model of International Commercial Arbitration.  Malaysia is also a signatory ((http://www.newyorkconvention.org/contracting-states/list-of-contracting-states))to the New York Convention of enforcement of Arbitral Awards. It is a mandated rule that the venue of arbitration is the country that has adopted the New York Convention. The Malaysian legal system is based upon the English common law system which Malaysia inherited from the British colonial rulers ((http://jurist.law.pitt.edu/world/malaysia.htm)). The Arbitration Act, 2005 is modeled on the basis of the New Zealand Arbitration Act, 1996 and the UNCITRAL Model of International Commercial Arbitration ((supranote1)). A clear distinction was brought between domestic arbitration and international arbitration. In case of international arbitration, when the seat of arbitration is in Malaysia, the court’s intervention under Part III of the Arbitration Act (which is the Part regulating Judicial Intervention during arbitral proceedings) is non- mandatory ((Section 3(3) of the Arbitration Act, 2005))unless the parties mutually decide to ‘opt in’, that is, the parties mutually decide the application of Part III with respect to arbitral proceedings ((Section 3(4)of the Arbitration Act, 2005)). The distinction brought forth between the domestic arbitration and international arbitration aims to put a restriction on judicial control over the arbitral proceedings depending upon the kind of arbitration. Court’s intervention is limited to instances mentioned in the Act and the courts are not allowed to intervene in the arbitral proceedings using inherent jurisdiction of the court ((Section 8 of the Arbitration Act, 2005)). Part III restricts the intervention of the court to the following instances:

  • Determination of any preliminary points of law by any party with consent of the arbitral tribunal or with consent of other parties ((Section 41 of the Arbitration Act, 2005)).
  • Reference of question of law arising out of the arbitral award ((Section 42 of the Arbitration Act, 2005)).

The changes in the arbitration law to be at par with the UNCITRAL Model of International Commercial Arbitration and the pro-arbitration judicial decisions by the Courts adhering to the doctrine of minimal judicial intervention in arbitration ((http://www.baliraif2012.com/assets/pdf/session1/SundraRajoo_NATIONALCOURTSANDINTERACTIONWITHARBITRAL%20TRIBUNALS.pdf pages 5-8;))along with the fact that it being a common law country and being a signatory of the New York Convention on enforceability of foreign award has made Malaysia an ideal spot for arbitration.

ENFORCEMENT REGIME IN INDONESIA:

Arbitration in Indonesia is governed by the Arbitration and Dispute Resolution Act, 1999. Indonesia is a signatory to the New York Convention of Enforcement of Foreign Awards ((http://www.newyorkconvention.org/contracting-states/list-of-contracting-states)). The Arbitration and Dispute Resolution Act, 1999 does not follow the UNCITRAL Model of International Commercial Arbitration. The Indonesian legal system is a civil law system based on the Roman-Dutch model and influenced by customary law ((https://www.cia.gov/library/publications/the-world-factbook/geos/id.html)). The Roman-Dutch model of civil law system was inherited by Indonesia due to the Dutch Colonial Rulers. The Indonesian law takes territorial approach to bring a distinction between domestic and international arbitration. Article 1(9) of the Arbitration Law makes it clear that all arbitrations held within Indonesia are considered ‘domestic’ and all those held outside Indonesia are characterised as ‘international’ arbitrations, regardless of the nationality of the parties, location of the subject of the dispute, and governing law. Thus if the seat of arbitration is Indonesia, then it will be considered as a domestic arbitration irrespective of a foreign party to the arbitration proceeding. The enforcement of the award whether domestic or international, may be refused by the Court on the following grounds ((Article 62 and Arbitration Guide, IBA Arbitration Committee, Indonesia, April 2013, pg 21: www.ibanet.org/Document/Default.aspx?DocumentUid=06406456-22F4-4035-BF04-75B85A5E903F)):

  1. Arbitration agreement no valid
  2. Subject matter not arbitrable under Article 5 of the Act
  3. Against public morality and order.

International arbitral awards will only be recognized and enforced by the Indonesian courts if the following conditions are met ((Article 66)):

  1. The award is rendered in a country which has signed a bilateral or multilateral treaty on the recognition and enforcement of International Arbitration Awards with the Republic of Indonesia.
  2. The award falls within the scope of commercial law.
  3. The award is not against public morality and order.

International awards must be registered with the District Court of Central Jakarta ((Article 65 and 67)). There is no time limit for registration of international awards. There is no time limit for registering of the international arbitral award. The application for enforcement should be accompanied with ((Article 67)):

  1. the original Award, or a copy authenticated in accordance with the provisions on authentication of foreign documents, along with an official translation of the award in Indonesian
  2. the original Arbitration Agreement, or a copy authenticated in accordance with the provisions on authentication of foreign documents, along with an official translation of the award in Indonesian
  3. a certification from the diplomatic representative of the Republic of Indonesia in the country in which the International Arbitration Award was rendered stating that such country and the Republic of Indonesia are both bound by a bilateral or multilateral treaty on the recognition and implementation of International Arbitration Awards.

An order of Exequatur from the Chief Judge of the District Court of Central Jakarta needs to be obtained for the enforcement of the award. If the respondent stays in any other court’s jurisdiction other than the District Court of the Central Jakarta, the exequatur order will be send to that court for execution ((Article 69)). Indonesia can be made a seat of arbitration since the Court’s intervention is a bare minimum and even though the Arbitration and Dispute Resolution Act, 1999 is not based on the UNCITRAL Model on International Commercial Arbitration, almost all principles of the same is incorporated in the Arbitration and Dispute Resolution Act, 1999.

Arbitration Agreements and Third Party Non-Signatory

Vedang Mishra, Research Associate

Normally, arbitration takes place between the persons who have, from the outset, been parties to both the arbitration agreement as well as the substantive contract underlining that agreement. But, it does occasionally happen that the claim is made against or by someone who is not originally named as a party. No procedure or statutory power has been provided for an arbitral tribunal to enjoin a third party to pending arbitration proceedings. But certainly, they are no absolute obstructions to arbitration agreement. Arbitration, thus, could be possible between a signatory to an arbitration agreement and a third party.

As an arbitration agreement is governed by the ordinary principles of contract law, non-signatories may be compelled to arbitrate in a number of circumstances. A range of legal theories has been developed to facilitate this determination either for or against including such non-signatories.

Applicability of section 8 of the act against Third Parties

The expression ‘an action is brought’ under section 8 (1) of the 1996 act raises the threshold questions ((The Arbitration and Conciliation Act, 1996 section 8: A judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement shall, refer the parties to arbitration)). Can such an action is brought only by party to the arbitration agreement or it can be brought by a non-party as well, in which party can invoke arbitration agreement and apply to the judicial authority to refer the parties to the arbitration? If such an action is brought by non-party to the arbitration agreement, can another party to the action apply to the court for referring the party to the arbitration agreement? The statute is silent on this.

Russell’s commentary sheds some light on these questions: An arbitration agreement is a contractual undertaking by which the parties agree to settle certain disputes by way of arbitration rather than by proceedings in the court. When a dispute arises however, one of the parties may nevertheless commence proceedings…In is for one of the parties to the arbitration agreement to take objection to the matter proceedings in court by applying for stay ((Russell on Arbitration, 22nd Ed, 2003)).

It can reasonably be presumed that as the arbitration agreement is a contractual undertaking to settle the dispute by arbitration, it is only a party to the arbitration agreement that can bring action u/s 8 (1) in a matter which is subject of an arbitration agreement before a judicial authority. In other words, it is implicit in expression ‘an action is brought’ that the person who brings such action must be a party to the agreement.

In Sumitomo Corporation v. CDS Financial Services ((AIR 2008 SC 1594)), the Supreme Court held that the parties in the judicial proceedings who are to be referred to arbitration in the disputes should be parties to the arbitration agreement as per Section 2(1) (h) of the 1996 Act. Section 2(1) (h) of the act provides for the definition of “party” as “a party to an arbitration agreement.” Thus, only a party to the arbitration agreement can apply to the court for interim measures. However, the provision nowhere talks about against whom the relief can be claimed.

Interim Orders against Third Parties

Section 9 of the Act confers upon the parties the right to apply to the Court for interim measures dealing with aspects such as guardianship, preservation of goods etc. It is clear that only a party to the arbitration agreement can apply to the court for interim measures. But the provision does not say against whom the relief can be claimed. There is nothing in this section, which restricts a court to pass orders under that section against third parties. The power of the court to grant interim measures under this section does not flow from the arbitration agreement. It emanates from the Act. It cannot be controlled by agreement between the parties.

In Value Advisory Services v. ZTE Corporation and Ors ((2009(3)ArbLR315(Delhi).))., the question before Delhi High Court was whether u/s 9 of the act an interim award could be passed and enforced against an entity not party to the original contract or to the arbitral proceedings. The Court reached on the conclusion that no general principle of maintainability/applicability or non-maintainability/non-applicability can be laid down. It will have to be determined by the court in the facts of each case. It further reasoned that for instance u/s 9 (1) of the act, a guardian may be such a party, or the goods may be required to be kept in custody, or sold to third parties. Therefore, the scope cannot / ought not to be restricted to securing possible with orders against parties to arbitration only.

There were many occasions in which civil courts have, in the past, made interim orders in respect of third parties. State Bank of India v. The Economic Trading Co. SAA & Ors ((AIR 1975 Cal 145))can be taken as a classic example where the court granted an interim injunction restraining non-signatory banks, which were either the guarantor or the beneficiary of a guarantee, from taking action with respect thereto. Therefore, it would be erroneous to deny the exercise of such power of Court against third parties.

Legal Theories on Third Party Arbitration Agreement (National & International Approach)

There are several doctrines for binding a third party to an arbitration agreement in international arbitral practice. However, all the doctrines are not accepted in all jurisdictions. The standard for binding non-signatories is much higher in common law countries than the civil law ones. This may be because in common law countries more emphasis is given to privity of contract while civil law jurisdictions stress on the principles of good faith and equity. Such important doctrines with the effect of binding a third party to an arbitration agreement include:

  1. Group of Companies:

This doctrine provides that several companies that form part of a larger corporate group may be regarded as a single legal entity or ‘une réalité économique unique’ and may be bound by arbitration agreement entered into by another group entity ((Mohit Saraf and Luthra & Luthra, Party to an Arbitration Agreement- Case of Non Signatory, Institutional Arbitration in India (2007).)).  But, there must be a clear intention of the parties to bind both, the signatory as well as the non-signatory parties. The Courts under the English Law have, in certain cases, also applied the “Group of Companies Doctrine”.

This doctrine has evolved in the famous Dow Chemical case ((Dow Chemical v. Isover Saint Gaimen, ICC No. 4131/1982)). It was held that Dow Chemical Company (USA) should become a party to an agreement applying to its subsidiary Dow Chemical (France) as it has and exercises absolute control over its subsidiaries having either signed the relevant contracts or, like Dow Chemical (France). In Chloro Controls(I) Pvt. Ltd. v. Severn Trent Water Purification ((2013(1)ABR563))also S.C. held that a non-signatory party could be subjected to arbitration provided these transactions were with group of companies and there was a clear intention of the parties to bind both, the signatory as well as the non-signatory parties.

  1. 2.      Lifting Corporate veil or Alter Ego

Under the alter ego doctrine, a corporation may be bound by an agreement entered into by its subsidiary, regardless of the agreement’s structure or the subsidiary’s attempts to bind itself alone to its terms, where their conduct demonstrates a virtual abandonment of separateness.

After looking the decisions in Gartner v. Synder ((607, F2d 582, 586 (2d Cir.1990).))and Kirno Hill Corp v. Holt ((618 F2d 980,985 (2d Cir.1980).))fundamental requirement contingent in invoking alter ego can be summarized as:

  • The parent company exercises full control over an entity with respect to every transaction.
  • Such control was used to commit a fraud that injured a party seeking to lift corporate veil.

The corporate veil has been lifted on several occasions by the Indian judiciary also, however, those have been in context of taxation, contract or company law. Therefore an argument can made that if rights or liabilities under a contract can be extended to non-signatories, the same may be extended to arbitration clauses as well. Moreover, India is also a common law country.

  1. 3.      Agency:

A principal will generally be bound by an arbitration clause in a contract signed by its agent. As a result, arguments will be raised only when there is no explicit contract between the principal and its agent, and the principal does not wish to be part of the arbitration. ICC tribunal generally while deciding the liability of principal in an arbitration agreement concluded by its agent  distinguish between the law governing the arbitration agreement and the laws which governed the agent’s capacity to conclude an arbitration agreement on behalf of the principal and the form in which such capacity should have been conferred on the agent. Article 15 of the Convention on Agency in the International Sales of Goods also stipulates that, where the conduct of principal causes a third party to believe that the agency has the authority to act on behalf of the principal, even in the absent of such authority principal will be liable.

  1. 4.      Third Party Beneficiary:

Courts have consistently recognized that non signatory third-party beneficiaries under an agreement containing an arbitration provision may compel arbitration against signatories of the arbitration agreements. General rule is that the Court must look to the intentions of the parties to confer the direct benefit to third party, at the time the contract was executed. In Mississippi Fleet Card v. Bilstat, Inc ((175 F. Supp. 2d 894, 899 (S.D. Miss. 2001).))Federal United States Court compelled the non-signatories to arbitrate as they were third-party beneficiaries of a contract containing an arbitration clause.

  1. 5.      Composite Transaction

A transaction is composite where the performance of the “mother agreement” is not feasible “without aid, execution and performance of the supplementary or ancillary agreements” and all the agreements are aimed towards achieving a “common object” and have a collective bearing on the dispute. In Chloro Controls(I) Pvt. Ltd. v. Severn Trent Water Purification ((Supra 8))the S.C. held that A non-signatory or third party could be subjected to arbitration without their prior consent, but this would only be in exceptional cases. The Court will examine these exceptions from the touchstone of direct relationship to the party signatory to the arbitration agreement, direct commonality of the subject matter and the agreement between the parties being a composite transaction. The Court would have to examine whether a composite reference of such parties would serve the ends of justice. It further held that the principle of ‘composite performance’ would have to be gathered from the conjoint reading of the principal and supplementary agreements on the one hand and the explicit intention of the parties and the attendant circumstances on the other.

It has been noticed that notice that this doctrine does not have universal acceptance. Some jurisdictions, for example, Switzerland, have refused to recognize the doctrine, while others have been equivocal. However, the doctrine has found favourable consideration in the United States and French jurisdictions.

  1. 6.      Estoppel:

The doctrine of estoppels has been extended in use to cover situations where third party beneficiaries of a contract containing an arbitration clause evading liability on the mere basis of being a non-signatory. It prevents a party who knowingly accepts the benefits of a contract containing an arbitration agreement from avoiding the obligation to arbitrate. This theory has so far been recognized only in the United States and Canada. In American Bureau of Shipping v. Tencara ((170 F.3d 349 (2 nd. Cir. 1999).)), following this theory, the Court held that the owners were compelled to arbitrate as non-signatories. Since they had received the benefit of the contract of construction of yatch i.e. lower insurance rates, they were estopped from claiming that the arbitration provision did not apply to them.

Another application of the doctrine is where a party to an arbitration agreement has been held to be estopped from refusing to arbitrate with a non-signatory where issues between the parties are “intertwined” with the agreement containing an arbitration provision. In MS Dealer Serv. v. Franklin Court laid down two grounds to determine that when non- signatories will be allowed to compel arbitration.

First ground applies when there is a written agreement containing an arbitration clause, signatory party must rely on the term of the written agreement in asserting its claim against the non-signatory. Second, ground is warranted when the signatory to the contract containing an arbitration clause raises allegations of substantially interdependent and concerted misconduct by both the signatory and one or more of the signatories to the contract.

Therefore, the expansion of arbitration agreements to non signatory party is rather a recent development, undoubtedly related to the growth of arbitration in general. The parties must be aware of all these doctrines and principles, and act accordingly in order to avoid inadvertently becoming subject to an arbitration agreement.

An Insight on Role of Expert as Third Party in Functioning of Arbitral Tribunal

Pankaj Sevta, Research Associate

It is pertinent to note that the Arbitration and Conciliation Act 1996 grants the power to an arbitral tribunal, failing agreement by the parties to the contrary, to appoint one or more experts in the capacity of a third party to report to it on specific issues to be determined by the Arbitral tribunal. It also requires a party to give the expert any relevant information or to produce, or to provide access to, any relevant document, goods or other property for his inspection ((Arbitration and Conciliation Act 1996, § 26(1).)). However, it cannot be ignored that since the provision is not mandatory and the parties may exclude such power. If in case this happens then the arbitral tribunal will have to decide the dispute without obtaining the necessary expertise which it itself lacks. However, in the absence of an agreement by the parties to the contrary, if a party so requests or if the tribunal considers it necessary, the expert, after the delivery of his written or oral report, shall participate in the oral hearing and parties will have the opportunity to question him. Moreover, for testifying the report of the expert on the points at issue ((Arbitration and Conciliation Act 1996, § 26(2).)), the parties will have the right to produce their own witnesses. Furthermore, in the absence to the agreement contrary, on request of a party, the expert is required to make available to that party all documents, goods or other property in his possession, which were given to him in order to prepare his report ((Arbitration and Conciliation Act 1996, § 26(3).)).

Function of the Expert as third party

It may be noted that arbitral tribunal appoints an expert in the capacity of a third party merely for technical assistance or expert advice, in order to understand complex and technical matters for arriving at a proper decision ((Sumeet Kachwaha, The Arbitration Law Of India: A Critical Analysis, Available at http://www.kaplegal.com/upload/pdf/arbitration-law-india-critical-analysis.pdf (Last accessed on 14/08/2013).)). It is however to be further noted that an expert is not a part of the tribunal, which must exercise its own judgment about the advice given to it by the expert ((Odyssey, Power of Arbitrator to Delegate his Duties, Available at http://www.legalservicesindia.com/article/profile.php?author_id=300 (Last Accessed on 17/08/2013).)). The function of an expert therefore is confined to give impartial advice to the arbitral tribunal on matters within his expertise ((Dharmendra Rautray, Arbitration In India: An Overview, Available at http://ipba.org/media/fck/files/Arbitration%20in%20India.pdf (Last accessed on 14/08/2013).)). Decision making is the exclusive function of the tribunal itself, which cannot be delegated to anybody else i.e. delegates non potest delegare. A tribunal may obtain legal advice on the drawing up of its award to ensure that it is in a proper form and it may consult an expert on some issue required to be dealt with in the award, but the tribunal may not delegate the making of its award to another. The tribunal must exercise its own judgment in deciding the issues ((Russell on Arbitration, 247 (23rd Ed., 2003).)). An award where the arbitral tribunal delegates his function of decision making to a third party then it will be invalid ((OP Malhotra, The Law and Practice of Arbitration and Conciliation  865 (2nd Ed., 2006).)).

Report of the expert

The appointment of an expert as a third party is for providing technical assistance and advice to the arbitral tribunal on specific issues to be determined by it ((Ibid.)). For this purpose, each one of the parties is required to give the expert any relevant information or to produce, or to provide access to, any relevant document, goods or other property for his inspection. After having examined the specific issues referred to him, the expert, the expert is required to submit his report to the tribunal. The report is normally furnished in writing, generally at the same time as any written statement of a witness of facts. In any case, it must be submitted prior to the commencement of hearing before the arbitral tribunal, so that the testimony of the report may be tested before the arbitral tribunal ((See also G.K Kwatra, Arbitration And Conciliation Law Of India (7th Ed. 2008).)). If each party presents conflicting evidence of technical opinion, the expert witness must be prepared to appear in person before the arbitral tribunal for examination.  Otherwise, the arbitral tribunal would have no means of evaluating the weight that should be given to the opinions presented by one side or the other. Apart from the tribunal appointed expert as third party, the parties may wish to adduce their own expert opinion evidence to support their respective cases in the arbitration, with the approval of the tribunal, which normally is not refused ((OP Malhotra, The Law and Practice of Arbitration and Conciliation  865 (2nd Ed., 2006).)).

Presentation of Expert evidence

The tribunal may specify the form in which the expert’s evidence as a third party is to be given, the maximum number of experts to be relied on by the parties and the nature of the evidence to be given. It may provide that each party may adduce evidence from one expert in relation to the particular technical issues raised by the case and from one expert in relation to the particular technical issues raised by the case and from one expert in relation to the computation of the alleged loss. By specifying these matters in a direction, it will avoid multiplicity of experts from a party on the same issue. It will also help to prevent a situation where each party adduces expert evidence on different aspects of the case and there are then delays, whilst they seek to address the case put forward by the other ((Supra note 7., p. 208)).

Admissibility of expert evidence

The power of the arbitral tribunal to conduct the proceedings in the manner it considers appropriate includes the power to determine the admissibility, relevance, materiality and weight of any evidence ((Arbitration and Conciliation Act 1996, § 19(4).)). This applies to the admissibility of the expert evidence in its third party capacity as well. Furthermore, the arbitral tribunal should ensure that each party knows the substance of the expert evidence to be presented at the hearing with sufficient advance notice so that neither the party will be taken by surprise. Consequently, if at the hearing, an expert witness testifies to matters of opinion beyond what is contained in the report submitted by him to the arbitral tribunal and to the other party, such evidence should strictly speaking held to be inadmissible ((Supra note 8. P. 867)). However it can be seen that the arbitral tribunal generally permits such evidence to be adducted on terms that the other party will be given sufficient time for preparing and presenting his own further expert evidence in reply ((See also S.K. Chawla, Law of Arbritration and Concillation, Eastern Law House)).

Expert to provide documents etc. in capacity of a third party

In the absence of an agreement by the parties to the contrary, on the request of a party, the expert is required to make available to that party for examination, all documents, goods or other property in his possession which were provided to him for the purposes of preparing his report ((Arbitration and Conciliation Act 1996, § 26(3).)). The purpose of this requirement is to enable the party requesting for the information and documents etc, to examine the report made by the arbitrator on the basis of such information or materials ((Supra note 8. P. 868)). The reason is that it may be essential for the parties to test the correctness of the report in the arbitral proceedings by the cross-examination when the expert appears as a witness in the arbitral proceedings ((Ibid.)).

Concluding Remarks

It is noteworthy to see that in some situations; even an expert tribunal may require advice of a specialist from another field, like on specific question of law. Section 26(1) mainly talks about the concerned appointment of one or more experts in the capacity of a third party to report to the tribunal on specific issues to be determined by it. It is needless to say that the expert must be independent of the parties, as well as the arbitral tribunal. Moreover, the parties may challenge the expert on the ground of lack of independence. Apart from this an expert as third party is entitled to ask for access to and disclosure of any relevant documents, goods, sample, property etc. however, to objection by any party. The expert must submit his report to arbitral tribunal in writing, setting forth his conclusions making copies to the parties. Therefore, it can be concluded that an expert appointed by the arbitral tribunal in the capacity of a third party plays a vital role in the functioning of an arbitral tribunal as well as in the ultimate dispute resolution process.

UNICTRAL Model Law Amendment 2006: An overview

Author: Pankaj Sevta, Research Associate

In recent times, the issue of grant of interim relief by arbitral tribunals has become center stage. The 1985 Model Law by UNICTRAL  contemplated grant of interim measures (Article 17) but it seemed half‐hearted, as it did not contain an enforcement mechanism and nor were any adverse effects sanctioned in the event of non‐compliance. The old Article 17 was essentially premised on voluntary compliance and therefore (not unsurprisingly) was rarely resorted to. At the same time, an approach to court (while effective) had deterrents (including the inconvenience of moving a different forum, perhaps through another legal team). Resort to courts also carried an inbuilt risk of the court pre‐determining (or influencing) parties’ substantive rights. With this backdrop, in the year 2006 UNCITRAL made extensive amendments to the Model Law and elaborate provisions now stand incorporated on the subject. This paper presents an analysis of the UNCITRAL amendments to the Model Lawand points out some problematic areas.

Historical Perspective

The rise of globalization and the expansion of trading frontiers, international commercial transactions have significantly increased in both number and complexity ((Katherine Lynch, ‘The forces Of Economic Globalization: Challenges To The Regime Of International Commercial Arbitration.’, 1-2 (2003).)). Not surprisingly, this resulted in an increasing number of disputes ((William Wang, ‘International Arbitration: The Need for Uniform Interim Measures of Relief’, BROOK. J. INT’L L. 1059, 1059 (2003).)). Although national courts are the traditional venues for dispute resolution, parties are more frequently turning to arbitration as a favorable alternative ((Thomas E. Carbonneau, ‘The Ballad of Trans border Arbitration’, U. MIAMI L. REV. 773, 778 (2002).)). In the context of contractual business disputes, international commercial arbitration provides a number of benefits not available through litigation ((Stephen M. Ferguson, ‘Interim Measures of Protection in International Commercial Arbitration: Problems, Proposed Solutions, and Anticipated Results’, CURRENTS: INT’L TRADE L.J. 55, 55 (2003).)).

However, arbitration is not free from downsides ((Stephen M. Ferguson, ‘Interim Measures of Protection in International Commercial Arbitration: Problems, Proposed Solutions, and Anticipated Results’,12 CURRENTS: INT’L TRADE L.J. 55, 55 (2003).)), such as difficulties related to the arbitral tribunals’ willingness and ability to order and enforce interim measures of protection during international commercial arbitration proceedings ((Richard Allan Homing, ‘Interim Measures of Protection; Security for Claims and Costs; and Commentary on the WIPO Emergency Relief Rules’, AM. REV. INT’L ARB. 155, 156-57 (1998).)). Notwithstanding the increasingly frequent use of interim measures, there is little consensus about the scope of the arbitral tribunal’s powers and how interim actions are enforced ((Gary B. Born, ‘International Commercial Arbitration: Commentary And Materials’, 3 (2nd ed. 2001).)). In an effort to encourage uniformity, the United Nations Commission on International Trade Law (“UNCITRAL”) amended its provision on interim measures in 2006 ((G.A. Res. 61/33, pm bl., U.N. Doc. A/RES/61/33.)). The revisions to the UNCITRAL Model Law (“Model Law”) elaborated on the powers of the arbitral tribunal to grant interim measures, defining scope of interim measures and the courts’ role of support and enforcement ((U.N. Comm’n on Int’l Trade Law [UNCITRAL], UNCITRAL Model Law on Commercial Arbitration, art. 17, U.N. Doc. A/40/17.)).

Changes brought by the amendment

The 2006 Amendment of the Model law brought about various significant changes. The old Article 17 stands completely replaced by an extensive scheme providing inter alia for ex parte orders and for interim measures to be binding and enforceable.

Interim Measures of Protection as Defined by the Amendment

At the most fundamental level, interim measures of protection are forms of temporary relief ((John Charles Thomas, ‘Selected Issues: Interim Measures In International Arbitration: Finding The Best Answer’, 12 CROATIAN ARB. Y.B. 213, 213-14 (2005).)), intended to safeguard the rights of the parties until the arbitral tribunal issues a final award ((UNCITRAL, Analytical Commentary on Draft Text of a Model Law on International Commercial Arbitration, Report of the Secretariat, 42, delivered to the General Assembly, U.N. Doc. A/CN.9/264 (Mar. 25, 1985). See also, HOWARDM. HOLTZMANN & JOSEPH E. NEUHAUS, ‘A GUIDE TO THE UNCITRAL MODEL LAW ON INTERNATIONAL COMMERCIAL ARBITRATION: LEGISLATIVE HISTORY AND COMMENTARY’, 542 (1989).)). Interim measures of protection arise in a variety of circumstances in international arbitration and their uses vary depending on the context and forum ((GARY B. BORN, ‘INTERNATIONAL COMMERCIAL ARBITRATION’, 1943-2019 (2009); See also, Douglas D. Reichert, ‘Provisional Remedies in the Context of International Commercial Arbitration’, INT’L TAX &Bus. LAW. 368, 370-74 (1986).)). Still, they are a procedural necessity in both public and private means of dispute resolution ((LAWRENCE COLLINS, ‘Provisional and Protective Measures in International Litigation’, ESSAYS IN INTERNATIONAL LITIGATION AND THECONFLICT OF LAWS, 10 (1994).)). In many cases, interim measures determine the efficacy of the arbitral award ((Bernardo M. Cremades, ‘The Need for Conservatory and Preliminary Measures’, INT’L BUS. LAW. 226, 226-27 (1999).)). Interim relief can have “final and significant consequences ((UNCITRAL, Possible Uniform Rules on Certain Issues Concerning Settlement of Commercial Disputes: Conciliation, Interim Measures of Protection, Written Form for Arbitration Agreement, Report of the Secretary General, delivered to the General Assembly, U.N. Doc. A/CN.9/WG.II/WP.108))without which an adverse party may easily render an award meaningless ((UNCITRAL, Working Group on Arbitration, Possible Future Work: Court-Ordered Interim Measures of Protection in Support of Arbitration, Scope of Interim Measures that May be Issued by Arbitral Tribunals, Validity of the Agreement to Arbitrate, Report of the Secretary General, delivered to the General Assembly, U.N. Doc. A/CN.9/WG.IIIWF. 111 (Oct. 12, 2000).)).

Interim Measures generally fall into Two Broad Categories ((UNCITRAL, Working Group II, Settlement of Commercial Disputes, Preparation of Uniform Provisions on Interim Measures of Protection, Note by the Secretariat, delivered to the General Assembly, U.N. Doc. A/CN.9/WG.II/WP. 119 (Jan. 30, 2002).)).

Firstly, measures aimed at avoiding or minimizing loss, damage, or prejudice ((ibid at ¶ 17.)); secondly, measures facilitating the enforcement of arbitral awards ((ibid at ¶ 18.)). Measures meant to avoid loss, damage, or prejudice usually serve the purpose of preserving the state of affairs pending the final resolution of the dispute. They are functionally similar to court injunctions in that they may require a party to continue performance or abstain from taking certain actions that may frustrate the resolution of the dispute ((Julian D. M. Lew ET AL., ‘Comparative International Commercial Arbitration’, 1 (2003).)).

Effect of the Amendment on Art. 17.

The purpose of revising Article 17 was to clarify three important elements regarding the use of interim measures:

  • The scope of the arbitral tribunal’s power to order interim relief;
  • The enforcement of tribunal ordered interim measures; and
  • The role of the courts in supporting arbitration; all of which were left open-ended and undeveloped by the previous provision.

Article 17 now sets forth the powers of the arbitral tribunal in the widest terms. The amended Article 17 inter alia empowers the arbitral tribunal to maintain or restore the status quo; direct a party to refrain from doing anything which may prejudicially affect the arbitral process; provide a means for preserving assets for satisfaction of the award, or preserve evidence that may be material for resolution of the dispute. The tribunal may do so by framing its order in a form of an award or otherwise as it may deem appropriate.

Article 17 (A) provides for the conditions which must be satisfied for grant of an interim measure. These conditions are universally recognized; balance of convenience; irreparable harm and “a reasonable possibility that the requesting party will succeed on the merits of the claim”.

By amending Article 17, UNCITRAL sought to provide clarity and guidance. The amended version of Article 17 is intended to address the concerns, confusion, and criticisms surrounding the previous text by outlining in detail the procedural aspects of the use of interim measures that the provision lacked ((UNCITRAL, Working Group on Arbitration, Possible Future Work: Court-Ordered Interim Measures of Protection in Support of Arbitration, Scope of Interim Measures that May be Issued by Arbitral Tribunals, Validity of the Agreement to Arbitrate, Report of the Secretary General,delivered to theGeneral Assembly, U.N. Doc. A/CN.9/WG.IIIWF. 111 (Oct. 12, 2000).)).

Short Analysis of the amendment

UNCITRAL’s recognition of the inadequacies of the previous Model Law on interim measures of protection led to the development of what promised to be an essential text in arbitration ((Christopher Huntley, ‘TheScope of Article 17: Interim Measures Under the UNCITRAL Model Law’, VINDOBONA J. INT’L COM. L. & ARB., 69, 74-75)). However, despite predictions of widespread acceptance, the majority of states have not integrated the new version of Article 17 ((UNCITRAL, Status of Conventions and Model Laws, Note by the Secretariat, delivered to the General Assembly, U.N. Doc. AICN.9/674 (May 14, 2009).)). This, however, should not detract from the important purposes the amendment will serve ((Supra note 17, ¶¶ 10-11.)). There are a number of compelling reasons why states should incorporate the amendments to Article 17 ((Pieter Sanders, ‘Quo Vadis Arbitration?: Sixty Years OfArbitrationPractise’, 7-8 (1999).)). In particular, states should consider that the efficacy of arbitration proceedings depends on the use and enforcement of interim measures. Furthermore, arbitration is a practical and efficient forum for ordering interim relief, and adoption of the Model Law amendment will harmonize national arbitration laws. This will inspire the confidence necessary for the survival of international commercial arbitration as a prominent dispute resolution mechanism.

Conclusion

Considering the growing significance of arbitrations in resolution of international disputes, it is only appropriate that arbitral tribunals be empowered in relation to grant of interim measures of protection. The 1985 Model Law was quite inadequate in this regard. At the same time, in my respectful view, the 2006 amendments to Article 17 propose a leap tool on, especially in relation to the enforcement provisions. I apprehend that these provisions may not meet with the wide acceptance the 1985 version did. In my respectful view fresh proposals need to be mooted which would render the arbitral tribunal’s decision binding and also enforceable. An aggrieved party should be able to resist enforcement on narrow grounds such as patent illegality, irregularity or gross unfairness of the result but to render an interim measure the same degree of a enforceability as a final award is potentially unfair and jurisprudentially inappropriate.

Third Parties in International Commercial Arbitration

Author: Risha Sharma, Research Associate

I fervently trust that before long the principle of arbitration may win such confidence as to justify its extension to a wider field of international differences.

–          Henry Campbell-Bannerman

The word ‘Arbitration’ has not been clearly defined in the Act of 1996. Section 2 (1) (a) of the Act very vaguely defines arbitration as “any arbitration whether or not administered by permanent arbitral institution”. In the case of Collins v. Collins ((28 LJ Ch 184: 53 ER 916)), arbitration was defined as a reference to the decisions of one or more persons, either with or without an umpire, a particular matter in difference between parties. Black’s Law Dictionary defines arbitration as a ‘process of dispute resolution in which a neutral third party renders a decision after hearing at which both parties have an opportunity to be heard’.  It is often said that honest men dread arbitration more than they dread law suits, yet arbitration has a number of advantages over law suits, the principle advantages being that a dispute concerning technical matters such as engineering and building contract, or specific scientific issues, the person’s expert in those fields can resolve the dispute more efficiently and effectively. The process of arbitration is speedier and less costly than law suits and a strict adherence to the procedural aspect of law can be avoided. An unwanted publicity with regard to disputes settlement can be discarded and the completion of the proceedings can be pre-determined. An arbitrator can view the subject of dispute at any time. Further, the convenience of parties as to the venue and time for arbitration is of utmost importance. The essentials of an arbitration agreement are: there must be a present or future difference in connection with some contemplated affairs. Also, there must be an intention of the parties to settle such differences by private tribunals for which the parties must agree in writing to be bound by the decision of the tribunal. The parties must be adi idem. The arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement and furthermore arbitration is considered to be in writing if it is contained in a document signed by the parties. The agreement must contemplate that the decision of the tribunal will be binding on the parties and the jurisdiction of the tribunal for this must be derived from the consent of the parties. The agreement must also contemplate their substantive rights and lastly the agreement must be intended to be enforceable.  The ‘party’ referred to in Section 8 (1) is a party who is entitled to maintain the application there under. The Party to the arbitration agreement who has himself instituted a suit is clearly not the ‘party’ envisaged, as held in Magma Leasing Limited v. NEPC Micon Ltd. ((AIR 1998 Cal 94: (1997) 30 Arb LR 290)). The term ‘party’ refers to a party in an arbitration agreement. The Apex Court in Andhra Pradesh Tourism Development Corporation v. Pampa Hotels Ltd ((AIR 2010 SC 1806 : (2010) 5 SCC 425)). held that an agreement enforceable by law is a contract and this agreement has to exist between two or more persons.   There are generally two kinds of arbitration, Domestic arbitration, wherein arbitration takes place in India and is governed by the laws in India and International Commercial arbitration, wherein at least one of the parties to the dispute is domiciled outside India or the subject matter of the dispute lies outside India.

An agreement by the parties to submit to arbitration any dispute or differences between them is the foundation stone of modem international commercial arbitration. If there is to be a valid arbitration, there must first be a valid agreement to arbitrate. This is recognized both by national laws and by international treaties ((Alan Redfern & Martin Hunter, Law and Practice of International Commercial Arbitration 1-06 (3rd Ed. 1999).)). It is irrefutable that the arbitration agreement is the “cornerstone of the arbitration process” and thus the existence of both parties’ consent to submit the dispute to arbitration is clearly a necessity. If it is necessary in some cases to extend an arbitration agreement to a non-signatory, then one view of private international law and international arbitration holds that choice of law rules should answer any questions regarding when this is appropriate ((James M. Hosking, The Third Party Non-Signatory’s Ability to Compel International Commercial Arbitration: Doing Justice without Destroying Consent Pepperdine Dispute Resolution Law Journal Article 6, Vol. 4 Issue 3 at www.digitalcommons.pepperdine.edu p. 475)). Arbitration is the creature of a contract between the parties. However, it is not at all clear that general principles of contract law alone will suffice. The solution to the third party problem must be based on, or at least take into account, the contractual nature of the agreement that binds the signatories ((Ibid)). The crucial difference between arbitration and courts lies in the fact that the basis of the jurisdiction of an arbitral tribunal is the will of the parties, while courts owe their competence to procedural norms of state or of an international convention. A third party has the power to bring an action against an entity to which it has no contractual relationship; may intervene in proceedings merely on the basis that it is an interested party; or may itself be compelled to join a proceeding by way of a third party joinder application. None of these situations involve “consenting” to the jurisdiction of the court. The threshold question in arbitration is whether the parties consented to resolving their substantive dispute by arbitration ((Ibid)). The issue of a third party non-signatory has been referred to as a source of much controversy by commentators. The practical significance of the third party problem manifests itself in different ways and at different times. Most frequently, it arises in the context of a dispute in which it must be decided whether the third party is bound to arbitrate; is entitled to arbitrate at that party’s discretion; or is excluded from the arbitration agreement and should proceed with litigation. However, it also can be an issue in a range of commercial transactions in which, for example, parties require certainty that when they transfer contractual rights they are also transferring the arbitration agreement ((Ibid p. 478)).

Recently, the English Court of Appeal held in Fortress Value Recovery Fund I LLC v Blue Skye Special Opportunities Fund LP and others (([2013] EWCA Civ 367)), that whether the right of a third party to benefit from an exclusion clause in a contract is subject to an obligation to submit to arbitration pursuant to an arbitration agreement in the contract is a matter of construction. There was no express provision which made the clauses on which the third party sought to rely subject to the arbitration clause, so it was necessary for the Court to look at the parties’ intentions. This case provides an important analysis of one of the circumstances in which a third party may or may not become bound by an arbitration agreement and further highlights the need to undertake caution while drafting agreements which may confer a right over the third parties so as to make the parties’ intention clear with regard to the third parties’ involvement.

In India, in the case of Deutsche Post Bank Home Finance Ltd v Taduri Sridhar, Raveendran J of the Supreme Court took a strictly contractual view of arbitration agreements, and held that only parties to an agreement could be made party to arbitral proceedings under it. As a result, in an arbitration between the prospective purchaser of property and the developer, the bank providing a loan for the purchase (with whom the purchaser had an independent arbitration agreement) was not impleaded. However, in a recent decision, Raveendran J undertook a more permissive view. In P.R. Shah Shares & Stock Brokers v BHH Securities, the issue before the Court was whether the disputes concerning members of the stock exchange and a non-member could be heard in a single set of proceedings, or required different proceedings. Raveendran J pointed out that the arbitral proceedings here were based not on a contractual agreement, but the Bye-laws of the Stock Exchange, by which the members were bound on becoming members. He distinguished this case from Sukunya Holdings on grounds that there was an arbitration agreement between the first respondent and the appellant. With the addition of PR Shah’s case and with Sukanya Holdings case and Taduri Sridhar, a three-fold of decisions is formed dealing with the treatment of third parties in proceedings under section 8, section 11 and section 34. Factually, the analysis of Sukanya Holdings cannot be extended, to a situation where there are two separate arbitration agreements and the question is whether the proceedings under these two agreements could be combined. The underlying contractual relationship between the contesting parties, as per the respectively governing commercial law giving rise thereto, in each of the cases was not quite the same but materially different.

Enforceability of Foreign Arbitral Award in Indian Regime

An Analytical Approach towards the Scheme

Author: Pankaj Sevta, Research Associate

A foreign award can be enforced in India under the multilateral international conventions to which India is a party, namely, the Geneva Convention of 1927 ((See Jane L. Volz& Robert S. Haydock, Foreign Arbitral Awards: Enforcing the Award against the Recalcitrant Loser 21 Wm. Mitchell L. Rev. 867 (1995-1996).))or the New York Convention of 1958 ((See Susan Choi, Judicial Enforcement of Arbitration Awards under the ICSID and New York Conventions  28 N.Y.U. J. Int’l L. & Pol. 175 (1995-1996).)), if the said convention applies to the relevant arbitration. The foreign award must have been made in a country which has ratified the Geneva Convention of 1927 or the New York Convention of 1958.

India has enacted legislation earlier to implement the two conventions. The Arbitration (Protocol and Convention) Act, 1937 for the enforcement of foreign arbitral awards to which the Geneva Convention of 1927 applied. Similarly, the Foreign Awards (Recognition and Enforcement) Act, 1961 was enacted pursuant to the New York Convention of 1958 and it prescribes the law and procedure for the enforcement of foreign awards in India, to which the said Convention applied ((See S. WardAtterbury, Enforcement of A-National Arbitral Awards under the New York Convention of 1958 32 Va. J. Int’l L. 471 (1991-1992).)).

The 1996 Act has repealed both the above said acts. Part II of the 1996 Act, however, re-enacts the operative portions of both these repealed enactments. The three schedules of to the 1996 Act, also reproduces the provisions of the New York Convention (Schedule I) ((See Robert A. J. Barry, Application of the Public Policy Exception to the Enforcement of Foreign Arbitral Awards under the New York Convention: A Modest Proposal 51 Temp. L.Q. 832 (1978).)), Geneva Protocol (Schedule II) and Geneva Convention in (Schedule III) ((SeeG. K. Kwatra, Arbitration and Alternative Dispute Resolution 108 (2008).)).  In other words India continues to be a party to three important international instruments on the recognition and enforcement of foreign awards. A material change has been made in 1996 Act ,in as much as sub section  (b) of Section 9 in the 1937 as well as 1961 Act, which provided that those acts shall apply to any award made on arbitration agreement governed by the law of India, has been omitted in part II. Therefore, any award given outside in India will be treated as foreign award. To such foreign award if the same be a convention award, the provisions of part II and not the provision of part I of 1996 Act will apply ((Ibid. 20)).

ENFORCEMENT OF AWARDS TO WHICH THE CONVENTIONS DO NOT APPLY

Foreign awards which are made in countries which are not parties to either the Geneva Convention or the New York convention cannot be enforced with the same facilities as in the case of foreign awards to which conventions apply. Such foreign awards are enforceable in India on the same ground and in the same circumstances in which they are enforceable under the general law on grounds of justice, equity and good conscious. They can be enforced by an action brought before court of law. A foreign award will not be imposed in India if its enforcement would be contrary to the public policy or laws of India. There is not so much case laws on the circumstances in which a foreign award can be challenged. There are few cases in which a foreign award has been denied recognition or enforcement on ground of public policy. A foreign award will deemed to be against the laws of India if it violates, for instance, the provisions relating to exchange control, import export control or similar mandatory provisions ((Ibid  ¶ 27)).

FOREIGN AWARD IS FINAL ON MERITS

It is noteworthy that Section 46 of the 1996 Act provides that any foreign award which would be enforceable under the Chapter shall be treated as binding for all purpose on the persons as between whom it is made. A foreign award cannot be challenged on merits, being final, conclusive and binding for all purposes, except the circumstances set out in section 48 in which the enforcement of the award will be refused ((See Kwatra, supra note 5¶ 20)). Domestic courts cannot set aside or annul a foreign award. The scope of the court’s jurisdiction is restricted to a decision on whether the award is enforceable ((See Ludwing Wunscha & Co. v. Raunaq International, AIR 1983 Del 247)).

ENFORCEMENT OF FOREIGN AWARD AND PLACE OF FILING

In Tata International v. Trisuns Chemical ((2002 (2) Bom CR 88)), the court held that in the context of Section 47 or the Arbitration and Conciliation Act, 1996 that a petition for the enforcement of a foreign award can be filed in any part of the country where a party answerable in the claim of arbitration may have money or where a suit for recovery can be filed ((Ashwinie Kumar Bansal, Arbitration Agreements and Awards 89 (2006).)). The learned Single Judge, relying upon a decision of the Supreme Court in Brace Transport Corporation of Monrovia Bermuda v. Orient Middle East Lines Ltd, Saudi Arabia ((AIR 1994 SC 1715)), held that the subject matter of the award and the subject matter of an arbitration agreement are two different and distinct expressions. “In respect of a foreign award, if the expression subject matter of the award was to mean the same thing as the subject matter of the arbitration agreement, in most cases there would be no Court available where the award could be enforced as the entire cause of action in respect of the subject matter of the arbitration could be the foreign country. Merely because in the instant case, the contract was entered into in India cannot result in a different interpretation. The expression as the explanation itself permits forum hunting if that expression can be used. After considering all these provisions a similar view was taken in Arbitration Petition Lodg. No. 427 of 2001 in the case of Naval Gent Marline Ltd. v. Shivnath Rai Harnarain (I) Ltd. and Ors., decided on 5th July, 2001 in which at the ad interim stage, apart from other issues, the issue as to the meaning of the expression “subject matter of the award” was in issue and has been similarly answered.”

ENFORCEMENT OF FOREIGN AWARD AND PUBLIC POLICY OF INDIA: THE RELATIONSHIP

One of the circumstances in which enforcement of the award may be refused is that it is contrary to the public policy of India. The explanation to section 48 of the 1996 Act also provides that an award would be deemed to be in conflict with the public policy of India. If the making of the award was induced or affected by fraud or corruption, Indian courts have been called upon to interpret directly the extent and content of public policy in India. The content of “public policy” as used in the 1996 Act as a legal standard has been set by the Supreme Court of India in ‘RenuSagar Power Corp. vs. General Electric Co ((AIR 1994 SC 860: CLA Suppl 1(SC).)). According to the verdict of SC in RenuSagar’s case, there are three patterns of the operations of the doctrine of “Public Policy” in the field of recognition and enforcement of foreign arbitral awards. First, an Indian court will refuse, on grounds of public policy, to recognize and enforce an foreign arbitral award if such enforcement is contrary to “fundamental policy of Indian law”, that is to say, if the foreign award involves a violation of the Indian laws or more noncompliance with a court’s orders. However, the bar of limitation will not operate as a bar of public policy.

There is a second pattern of public policy in vocation. A court will refuse, on grounds of public policy to recognize and enforce an foreign arbitral award if such enforcement is detrimental to the “interest of India”. The words “Interest of India” are of general import and the court has not clearly spelt them out. It is evident, however, that whatever is detrimental to the national interest or may lower the image of the country cannot be required to be enforced by a court. In C.O.S.I Inc. v. Steel Authority of India ((AIR 1996 Del 8)), the Delhi high court  refuse to enforce an award on the ground that the govt. of India had to ban the export shipments of coils with immediate effect because of the acute shortage of HR coils existing in the country at the relevant time ((See Kwatra, supra note 5¶ 24)). The third pattern of the operation of public policy is that in which the enforcement of foreign award would be contrary to justice or morality.

CONCLUSION

It can be observed that a foreign award will not be imposed in India if its enforcement would be contrary to the public policy or laws of India. There are not so much case laws on the circumstances in which a foreign award can be challenged. There are few cases in which a foreign award has been denied recognition or enforcement on ground of public policy. Apart from that, three respective schedules of the 1996 Act reproduces the provisions of the New York Convention (Schedule I), Geneva Protocol (Schedule II) and Geneva Convention in (Schedule III) and thereby can be inferred that India continues to be a party to three significant international instruments on the recognition and enforcement of foreign awards. It can be analyzed that The Indian Arbitration and Conciliation Act of 1996 is certainly an opportune and creditable endeavor to consolidate and amend the Indian law on arbitration and enforcement of foreign awards in tune with the global developments. By going through the examination sketch, the Act has attempted to combine itself with parameters like domestic arbitration, domestic conciliation, international commercial arbitration etc. Provisions like section 46 and section 47 provide more light on the existing scheme of enforcement of foreign award in the instant scenario. It can also be concluded in relation to domestic award and foreign award that grounds on which a domestic or foreign award can be challenged are identical and the act provides an effective remedy to a person aggrieved by a foreign award.