Arbitration cannot be objected in the middle, says SC

A bench of Justice Chelameswar and S.A. Bobde of the Apex Court in M/s MSP Infrastructure Ltd v. M P Road Development Corporation Ltd. stated that a party to the arbitration proceedings cannot be objected regarding jurisdiction of the tribunal midway. Issue arose in this appeal was whether a party to an arbitration proceeding may be permitted to raise objections under Section 34 of the Arbitration and Conciliation Act, 1996 with regard to the jurisdiction of the Arbitral Tribunal after the stage of submission of the written statement.

According to the Appellant, the Tribunal under the Arbitration Act, 1996 was fully empowered to enter into and decide the dispute submitted to it, since the dispute was referred in pursuance of an arbitration clause contained in the Concession Agreement entered between the Parties to this appeal. Appellant further argued that the aforesaid clause covers any dispute which is not resolved amicably and is intended to cover the present dispute which arises under the contract formed and concluded by the agreement which contains this very arbitration clause.

Section 16 undoubtedly empowers the Tribunal to rule on its own jurisdiction and any objections to it must be raised not later than the submission of the statement of defence. However, objections to the jurisdiction of a Tribunal may be of several kinds as is well-known, and Section 16 does not cover them all. Where the objection was of such a nature that it would go to the competence of the Arbitral Tribunal to deal with the subject matter of arbitration itself and the consequence would be the nullity of the award, such objection may be raised even at the hearing of the petition under Section 34 of the Act.

However, Court observed that, there is nothing to warrant the inference that all objections to the jurisdiction of the Tribunal cannot be raised under Section 16 and that the Tribunal does not have power to rule on its own jurisdiction. Secondly, Parliament has employed a different phraseology in Clause (b) of Section 34. That phraseology is “the subject matter of the dispute is not capable of settlement by arbitration.” This phrase does not necessarily refer to an objection to ‘jurisdiction’ as the term is well known.

Court even considered its earlier decision in Booz Allen and Hamilton Inc. v. SBI Home Finance Limited and Ors (([2011] 5 SCC 532)), that, “Even if there is an arbitration agreement between the parties, and even if the dispute is covered by the arbitration agreement, the court where the civil suit is pending, will refuse an application u/s.8, to refer the parties to arbitration, if the subject matter of the suit is capable of adjudication only by a public forum or the relief claimed can only be granted by a special court or Tribunal”.

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. 

An introduction to Arbitration Agreements

Author: Risha Sharma, Research Associate

“I realised that the true function of a lawyer was to unite the parties . . .  a large part of my time during the 20 years of my practice as a lawyer was occupied in bringing about private compromise of hundreds of cases. I lost nothing thereby – not even money, certainly not my soul. ” – Mahatma Gandhi

Arbitration has been recognised as an effective form of alternate dispute resolution system. 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.  Due to the time consuming and cost inducing traditional form of litigation, presently, parties to a dispute are resorting to arbitration as a means to settle their disputes in order to avoid the inevitable technicalities of court proceedings. In fact, the Abid Hussain Committee on Trade Policies appointed by the Government of India has recommended in its Report, which was released in December 1984, for the compulsory inclusion of an arbitration clause in all export contracts.

The inception of arbitration agreements is as old as society itself.  When men begin to live and trade together, adjudication is inevitable. Hence, the consequent submission of disputes to an independent adjudicating authority is an ancient concept. India has a long history of Arbitration. In ancient times, people often voluntarily submitted their disputes to a group of wise men in the community, called the panchayat, for a binding resolution ((K Ravi Kumar, ‘Alternative Dispute Resolution in Construction Industry’, International Council of Consultants (ICC)  Papers, at p 2)). The Bengal Regulations created modern arbitration law in India in 1772, during the British rule. The Bengal Regulations provided for reference by a court to arbitration, with the consent of the parties, in lawsuits for accounts, partnership deeds, and breach of contract, amongst others ((Ibid)). Until 1996, the law governing arbitration in India consisted mainly of three statutes:

(i)                The 1937 Arbitration (Protocol and Convention) Act,

(ii)              The 1940 Indian Arbitration Act, and

(iii)            The 1961 Foreign Awards (Recognition and Enforcement) Act.

The 1940 Act was general law governing arbitration in India along the lines of the English Arbitration Act of 1934, and both the 1937 and the 1961 Acts were designed to enforce foreign arbitral awards. The 1961 Act implemented the New York Convention of 1958. The New York Convention of 1958 is one of the most widely used conventions for recognition and enforcement of  foreign awards. The Act of 1996 was passed with a view to modernize the old act of 1940 and is based on the UNCITRAL Model Law.

The Act of 1940 was restricted strictly to domestic arbitration. Accordingly, an intervention was required by the courts at all the three stages of arbitration- prior to the reference of the dispute to the arbitral tribunal, during the duration of the proceedings before the arbitral tribunal, and after the award was passed by the arbitral tribunal ((Sarma Krishna, Oinam Momota, Kaushik Angshuman, Development and Practice of Arbitration in India –Has it Evolved as an Effective Legal Institution, Center on Democracy, Development, and The Rule of Law Freeman Spogli Institute for International Studies,(CDDRL) Stanford Papers at p. 3)). Before an arbitral tribunal took cognizance of a dispute, court intervention was required to set the arbitration proceedings in motion. The existence of an agreement and of a dispute was required to be proved. During the course of the proceedings, the intervention of the court was necessary for the extension of time for making an award. Finally, before the award could be enforced, it was required to be made the rule of the court ((Ibid)). The act of 1996, on the other hand, was enacted to make arbitration more effective, expeditious and sustainable. The Act has been divided into two parts. Part I provides for the arbitration agreements conducted in India and the subsequent arbitral awards. Part II provides for enforcement of foreign awards. Arbitration agreements in India are governed by Part I of the Act whereas the enforcement of a foreign award is governed by Part II of the Act. The 1996 Legislation differs from the UNCITRAL Model in two major aspects. Firstly, where the UNCITRAL Model is applicable only to international arbitration agreements, the Act of 1996 is applicable to both national and international arbitration agreements. Secondly, the act of 1996 minimizes judicial intervention more than the UNCITRAL Model. The changes brought about by the 1996 Act were so drastic that the entire case law built up over the previous fifty-six years on arbitration was rendered superfluous ((Ibid)). The Government of India enacted the 1996 Act by an ordinance which was followed by another one before the Parliament passed it.

The Act of 1996 generally refers to disputes which ‘may not be submitted to arbitration’ and to the possibility of the subject matter in dispute not being ‘capable of settlement by arbitration under the law for the time being’. Indian arbitration proceedings are mostly ad hoc despite the advantages of institutional arbitration over ad hoc arbitration. Some of the arbitral institutions in India are the Chambers of Commerce (organized by either region or trade), the Indian Council of Arbitration (ICA), the Federation of Indian Chamber of Commerce and Industry (FICCI), and the International Centre for Alternate Dispute Resolution (ICADR). Part I comprises of 43 sections spread over ten chapters, making detailed provisions relating to domestic arbitration and international commercial arbitration held in India under this Act. It restates the law and practice of arbitration in India, running chronologically through each stage of arbitration, from the agreement, the appointment of the tribunal, conduct of arbitration proceedings, the award to the recognition and enforcement of the awards. The Act also provides for setting aside of the arbitral award, meaning that these awards are not binding in nature and can be set aside on certain grounds. Further, the act also comprises of sections which set forth appealable orders made by the arbitral tribunal and the court authorised by law to hear appeals from original decrees of the courts passing the order ((Malhotra, O.P. , The Law and Practice of Arbitration and Conciliation Act, 2nd Ed. 2006 LexisNexis Butterworths at p. 60)).

Arbitration is a consensual process and is not a matter of coercion. No arbitration statute can require the parties to arbitrate when they have not agreed to do so ((Id p. 51)). The parties are generally free to structure their arbitration agreement in any manner they choose. One of the key objectives of this Act was to reduce the role of supervisory judicial authority in the arbitral process. The advantage of arbitration over court litigation is mainly speedier resolution; however, there can be exceptions to this due to multiple parties, arbitrators, lawyers and litigation strategy. It is also less costly. The rules of evidence do not apply to arbitration agreements. Arbitration does not require a public hearing; there is no requirement for a public record of the proceedings. In arbitration agreements, confidentiality is required of the arbitrator and by agreement the whole dispute and the resolution of it can be subject to confidentiality imposed on the parties as well as their experts and attorneys. The very process of arbitration is informal as compared to litigation.

On the other hand, arbitration has its disadvantages too. There is no right of appeal even if the arbitrator makes a mistake of fact or law. However, there are some limitations on that rule, the exact limitations are difficult to define, except in general terms, and are fact driven ((Mazigrow Arthur, The Advantages and Disadvantages of Arbitration As Compared to Litigation, at p. 2 April 2008)). There is no right of discovery unless the arbitration agreement so provides or the parties stipulate to allow discovery or the arbitrator permits discovery ((Ibid)). The arbitration process may not be fast and it may not be inexpensive, especially when a panel is involved. There is no jury and from the claimant’s point of view that may be a serious drawback. An arbitrator may make an award based upon broad principles of “justice” and “equity” and not necessarily on rules of law or evidence ((Ibid)). An arbitration award cannot be the basis of a claim for malicious prosecution as well.

CONCLUSION

Arbitration has been increasingly recognised  as  an appropriate means for the determination of disputes that were hitherto regarded as an exclusive reserve of the national courts. It is a system which endeavours to inspire confidence in the Indian dispute resolution system, attract foreign investment as well as reassure international investors in the reliability of the Indian legal system to provide a cost effective resolution system. However, there are some major lacunae in the Act of 1996 which needs to be dealt with. Further, the arbitration proceedings are not as cost effective as they claim to be, especially ad hoc arbitration proceedings. The arbitration tribunal clearly has no coercive authority in the justice system. With the appropriate amendments and a clear framework, arbitration can transform into an efficient alternate dispute resolution method which is only prompt, effectual and economical.