INTRODUCTION

The significant increase in the role of international trade in the economic development of nations over the last few decades has been accompanied by a considerable increase in the number of commercial disputes as well. In India too, rapid globalization of the economy and the resulting increase in competition has led to an increase in commercial disputes. At the same time, however, the rate of industrial growth, modernization, and improvement of socio-economic circumstances has, in many instances, outpaced the rate of growth of dispute resolution mechanisms. In many parts of India, rapid development has meant increased caseloads for already overburdened courts, further leading to notoriously slow adjudication of commercial disputes.1 As a result, alternative dispute resolution mechanisms, including arbitration, have become more crucial for businesses operating in India as well as those doing businesses with Indian firms.

In sum, although the huge influx of overseas commercial transactions spurred by the growth of the Indian economy has resulted in a significant increase of commercial disputes, arbitration practice has lagged behind. The present arbitration system in India is still plagued with many loopholes and shortcomings, and the quality of arbitration has not adequately developed as a quick and cost-effective mechanism for resolution of commercial disputes.

I. ARBITRATION IN INDIA: THE BASICS

1 Nearly 30 million cases pending in courts (www.rtiindia.org).

A Brief History of Arbitration Law in India

Arbitration has a long history in India. In ancient times, people often voluntarily submitted their disputes to a group of wise men of a community—called the panchayat—for a binding resolution.2

Modern arbitration law in India was created by the Bengal Regulations 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.3

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.4

The 1940 Act was the 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).5

The government enacted the Arbitration and Conciliation Act, 1996 (the 1996 Act) in an effort to modernize the outdated 1940 Act. The 1996 Act is a comprehensive piece of legislation modeled on the lines of the UNCITRAL Model Law. This Act repealed all the three previous statutes (the 1937 Act, the 1961 Act and the 1940 Act).6

Its primary purpose was to encourage arbitration as a cost-effective and quick mechanism for the settlement of commercial disputes.7 The 1996 Act covers both domestic arbitration and international commercial arbitration.

The Arbitration Act, 1940

The Arbitration Act, 1940, dealt with only domestic arbitration. Under the 1940 Act, intervention of the court was required in all the three stages of arbitration, i.e. prior to the reference of the dispute to the arbitral tribunal, in the duration of the proceedings before the arbitral tribunal, and after the award was passed by the arbitral tribunal. Before an arbitral tribunal took cognizance of

2 K Ravi Kumar, ‘Alternative Dispute Resolution in Construction Industry’, International Council of Consultants (ICC) papers, www.iccindia.org. at p 2. K Ravi Kumar is assistant executive engineer, Salarjung Museum, Hyderabad.3 ibid.4 ibid.5 The New York Convention of 1958, i.e. the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards, is one of the most widely used conventions for recognition and enforcement of foreign awards. It sets forth the procedures to be used by all signatories to the Convention. This Convention was first in the series of major steps taken by the United Nation since its inception, to aid the development of international commercial arbitration. The Convention became effective on June 7, 1959.6 The 1996 Act, Section 85.7 Justice Ashok Bhan in his inaugural speech delivered at the conference on ‘Dispute Prevention and Dispute Resolution’ held at Ludhiana, India, October 8, 2005.

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.

While the 1940 Act was perceived to be a good piece of legislation in its actual operation and implementation by all concerned - the parties, arbitrators, lawyers and the courts, it proved to be ineffective and was widely felt to have become outdated.8

The Arbitration and Conciliation Act, 1996

The 1996 Act, which repealed the 1940 Act, was enacted to provide an effective and expeditious dispute resolution framework, which would inspire confidence in the Indian dispute resolution system, attract foreign investments and reassure international investors in the reliability of the Indian legal system to provide an expeditious dispute resolution mechanism.

The 1996 Act has two significant parts – Part I provides for any arbitration conducted in India and enforcement of awards thereunder. Part II provides for enforcement of foreign awards. Any arbitration conducted in India or enforcement of award thereunder (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 1996 Act.

The 1996 Act contains two unusual features that differed from the UNCITRAL Model Law. First, while the UNICITRAL Model Law was designed to apply only to international commercial arbitrations,9 the 1996 Act applies both to international and domestic arbitrations. Second, the 1996 Act goes beyond the UNICITRAL Model Law in the area of minimizing judicial intervention.10

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.11 Unfortunately, there was no widespread debate and understanding of the changes before such an important legislative change was enacted.12 The Government of India enacted the 1996 Act by an ordinance, and then extended its life by another ordinance, before Parliament eventually passed it without reference to a Parliamentary Committee—a standard practice for important enactments.13 In the absence of

8 Arbitration and Conciliation Act, 1996, Statement of Objects and Reasons.9 See Article 1 of the UNICITRAL Model Law10 S K Dholakia, ‘Analytical Appraisal of the Arbitration and Conciliation (Amendment) Bill, 2003’, ICA’s Arbitration Quarterly, ICA, New Delhi, 2005 vol. XXXIX/No.4 at page 3. S K Dholakia is a Member of ICC International Court of Arbitration and Senior Advocate, Supreme Court of India.11 (1999) 2 SCC 479 (Sundaram Finance vs. NEPC Ltd.). The Supreme Court held at p 484 thus: ‘The provisions of this Act (the 1996 Act) have, therefore, to be interpreted and construed independently and in fact reference to the 1940 Act may actually lead to misconstruction.’12 supra, note 10. 13 supra, note 10.

case laws and general understanding of the Act in the context of international commercial arbitration, several provisions of the 1996 Act were brought before the courts, which interpreted the provisions in the usual manner.14

The Law Commission of India prepared a report on the experience of the 1996 Act and suggested a number of amendments.15 Based on the recommendations of the Commission, the Government of India introduced the Arbitration and Conciliation (Amendment) Bill, 2003, in Parliament for amending the 1996 Act.16 It has not been taken up for consideration. In the meantime, Government of India, the Ministry of Law and Justice, constituted a Committee popularly known as the ‘Justice Saraf Committee on Arbitration’, to study in depth the implications of the recommendations of the Law Commission of India contained in its 176th Report and the Arbitration and Conciliation (Amendment) Bill, 2003. The Committee submitted its report in January 2005.

II. THE ARBITRATION AND CONCILIATION ACT, 1996

General Provisions

14 supra, note 10.15 The full report of the 176th Report of the Law Commission of India can be downloaded from www.lawcommissionofindia.nic.in. The full report of the 176th Report of the Law Commission of India can be downloaded from www.lawcommissionofindia.nic.in.16 The Arbitration and Conciliation (Amendment) Bill, 2003 was introduced in Parliament on December 22, 2003. It is available on the website www.lawmin.nic.in.

Definitions (Part I of the Act)

Section 1 of the Arbitration And Conciliation Act, 1996 defines the term of this Act. The definitions are as follows :

Section (1)

(a) “Arbitration” means any arbitration whether or not administered by

permanent arbitral institution;

(b) “Arbitration agreement” means an agreement referred to in section 7;

(c) “Arbitral award” includes an interim award;

(d) “Arbitral tribunal” means a sole arbitrator or a panel of arbitrators;

(e) “Court” means the principal Civil Court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction, having, jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit, but does not include any civil court of a grade inferior to such principal Civil Court, or any Court of Small Causes;

(f) “International commercial arbitration” means an arbitration relating to disputes arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India and where at least one of the parties is-

(i) An individual who is a national of, or habitually resident in,any country other than India; or

(ii) A body corporate which is in corporate in any on n try other than India; or

(iii) A company or an association or a body of individuals whose central management and control is exercised in any country other than India; or

(iv). The Government of a foreign country;

(g) “Legal representative” means a person who in law represents the estate of a deceased person, and includes any person who intermeddles with the estate of the deceased, and, where a party acts in a representative character, the person on whom the estate devolves on the death of the party so acting;

(h) “Party” means a party to an arbitration agreement.

Receipt of written communications

(1) Unless otherwise agreed by the parties, -

Any written communication is deemed to have been received if it is delivered to the addressee personally or at his place of business, habitual residence or mailing address, and

If none of the places referred to in clause (a) can be found after making a reasonable inquiry, a written communication is deemed to have been received if it is sent to the addressee’s last known place of business, habitual residence or mailing adderss by registered letter or by any other means which provides a record of the attempt to deliver it.

(2) The communication is deemed to have been received on the day it is so delivered.

(3) This section does not apply to written communications in respect of proceedings of any judicial authority.

Waiver of right to object

A party who knows that

Any provision of this Part from which the parties may derogate, or Any requirement under the arbitration agreement,

Has not been complied with and yet proceeds with the arbitration without stating his objection to such non-compliance without undue delay or, if a the limit is provided for stating that objection, within that period of time, shall be deemed to have waived his right to so object

Extent of judicial intervention

Notwithstanding anything contained in any other law for the time being in force, in matter governed by this Part, no judicial authority shall intervene except where so provided in this Part. 6. Administrative assistance. -In order to facilitate the conduct of the arbitral proceedings, the parties, or the arbitral tribunal with the consent of the parties, may arrange for administrative assistance by a suitable institution or person.

Arbitration Agreement

Arbitration agreement is defines as follows in the Act:

(1) In this Part, “arbitration agreement” means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.

(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.

(3) An arbitration agreement shall be in writing.

(4) An arbitration agreement is in writing if it is contained in-

A document signed by the parties; An exchange of letters, telex, telegrams or other means of telecommunication which

provide a record of the agreement; or An exchange of statements of claim and defence in which the existence of the agreement

is alleged by one party and not denied by the other.

(5) There reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.

a. Power to refer parties to arbitration where there is an arbitration agreement

A judicial authority before which an action is brought in a matter, which is the subject of an arbitration agreement, shall, if a party so applies not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration.

The application referred to in sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof.

Notwithstanding that an application has been made under sub-section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitrat award made.

b. Interim measures, etc. by court

A party may, before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with section 36, apply to a court: -

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

(ii) For an interim measure of protection in respect of any of the following matters, namely: -

The preservation, interim custody or sale of any goods, which are the subject matter of the arbitration agreement;

Securing the amount in dispute in the arbitration; The detention, preservation or inspection of any property or thing which is the subject-

matter of the dispute in arbitration, or as to which any question may arise therein and authorising for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party, or authorising any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence;

Interim injunction or the appointment of a receiver; (e) Such other interim measure of protection as may appear to the court to be just and convenient, And the Court shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it.

III. COMPOSITION OF ARBITRAL TRIBUNAL

Number of arbitrators

(1) The parties are free to determine the number of arbitrators, provided that such number shall not be an even number.

(2) Failing the determination referred to in sub-section (1), the arbitral tribunal shall consist of a sole arbitrator.

Appointment of Arbitrators.

(1) A person of any nationality may be an arbitrator, unless otherwise agreed by the parties.

(2) Subject to sub-section (6), the parties are free to agree on a procedure for appointing the arbitrator or arbitrators.

(3) Failing any agreement referred to in sub-section (2), in an arbitration with three arbitrators, each party shall appoint one arbitrator, and the two appointed arbitrators shall appoint the third arbitrator who shall act as the presiding arbitrator.

(4) If the appointment procedure in sub-section (3) applies and-

A party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party; or

The two appointed arbitrators fail to agree on the third arbitrator within thirty 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.

(5) Failing any agreement referred to in sub-section (2), in an arbitration with a sole arbitrator, if the parties fail to agree on the arbitrator within thirty days from receipt of a request by one party from the other party to so agree the appointment shall be made, upon request of a party, by the Chief Justice or any person or institution designated by him.

(6) Where, under an appointment procedure agreed upon by the parties, -

A party fails to act as required under that procedure; or The parties, or the two appointed arbitrators, fail to reach an agreement expected of them

under that procedure; or A person, including an institution, fails to perform any function entrusted to him or it

under that procedure,

A party may request the Chief Justice or any person or institution designated by him to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.

(7) A decision on a matter entrusted by sub-section (4) or sub-section (5) or sub-section (6) to the Chief Justice or the person or institution designated by him is final.

(8) The Chief Justice or the person or institution designated by him, in appointing an arbitrator, shall have due regard to-

(a) Any qualifications required of the arbitrator by the agreement of the parties; and

(b) Other considerations as are likely to secure the appointment of an independent and impartial arbitrator.

(9) In the case of appointment of sole or third arbitrator in an international commercial arbitration, the Chief Justice of India or the person or institution designated by him may appoint an arbitrator of a nationality other than the nationalities of the parties where the parties belong to different nationalities.

(10) The Chief Justice may make such scheme, as he may deem appropriate for dealing with matters entrusted by sub-section (4) or sub-section (5) or subsection (6) to him.

(11) Where more than one request has been made under sub-section (4) or subsection (5) or sub-section (6) to the Chief Justices of different High Courts or their designates, the Chief Justice or his designate to whom the request has been first made under the relevant subsection shall alone be competent to decide on the request.

(12)

Where the matters referred to in sub-sections (4), (5), (6), (7),(8) and (10) arise in an international commercial arbitration, the reference to “Chief Justice” in those subsections shall be construed as a reference to the “Chief Justice of India”.

Where the matters referred to in sub-sections (4), (5), (6), (7), (8) and (10) arise in any other arbitration, the reference to “Chief Justice” in those sub-sections shall be construed as a reference to the Chief Justice of the High Court within whose local limits the principal Civil Court referred to in clause (e) of sub-section (1) of section 2 is situate and, where the High Court itself is the Court referred to in that clause, to the Chief Justice of that High Court.

Grounds for challenge

(1) When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances likely to give rise to justifiable doubts as to his independence or impartiality.

(2) An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall, without delay, disclose to the parties in writing any circumstances referred to in sub-section (1) unless they have already been informed of them by him.

(3) An arbitrator may be challenged only if-

Circumstances exist that give rise to justifiable doubts as to his independence or impartiality, or

He does not possess the qualifications agreed to by the parties.

(4) A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made.

Challenge procedure

(1) Subject to sub-section (4), the parties are free to agree on a procedure for challenging an arbitrator.

(2) Failing any agreement referred to in sub-section (1), a party who intends to challenge an arbitrator shall, within fifteen days after becoming aware of the constitution of the arbitral tribunal or after becoming aware of any circumstances referred to in sub-section (3) of section 12, send a written statement of the reasons for the challenge to the arbitral tribunal.

(3) Unless the arbitrator challenged under sub-section (2) withdraws from his office or the other party agrees to the challenge, the arbitrat tribunal shall decide on the challenge.

(4) If a challenge under any procedure agreed upon by the parties or under the procedure under sub-section (2) is not successful, the arbitral tribunal shall continue the arbitral proceedings and make an arbitral award.

(5) Where an arbitral award is made under sub-section (4), the party challenging the arbitrator may make an application for setting aside such an arbitral award in accordance with section 34.

(6) Where an arbitral award is set aside on an application made under subsection (5), the court may decide as to whether the arbitrator who is challenged is entitled to any fees.

Failure or impossibility to act

(1) The mandate of an arbitrator shall terminate if-

He becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay; and

He withdraws from his office or the parties agree to the termination of his mandate.

(2) If a controversy remains concerning any of the grounds refer-red to in clause (a) of sub-section (1), a party may, unless otherwise agreed by the parties, apply to the court to decide on the termination of the mandate.

(3) If, under this section or sub-section (3) of section 13, an arbitrator withdraws from his office or a party agrees to the termination of the mandate of an arbitrator, it shall not imply acceptance of the validity of any ground referred to in this section or sub-section (3) of section 12.

Termination of mandate and substitution of arbitrator

(1) In addition to the circumstances referred to in section 13 or section 14, the mandate of an arbitrator shall terminate-

Where he withdraws from office for any reason; or By or pursuant to agreement of the parties.

(2) Where the mandate of an arbitrator terminates, a substitute arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced.

(3) Unless otherwise agreed by the parties, where an arbitrator is replaced under subsection (2), any hearings previously held may be repeated at the discretion of the arbitral tribunal.

(4) Unless otherwise agreed by the parties, an order or ruling of the arbitral tribunal made prior to the replacement of an arbitrator under this section shall not be invalid solely because there has been a change in the composition of the arbitral tribunal.

IV. WORKING OF ARBITRATION IN INDIA

Arbitration in India is still evolving. One of the objectives of the 1996 Act was to achieve the twin goals of cheap and quick resolution of disputes, but current ground realities indicate that these goals are yet to be achieved. The ground realities can be ascertained from the study and analysis of the various aspects in conducting arbitration, which are discussed in the following paragraphs.

A. Types of Arbitration Practice - Institutional Arbitration and Ad Hoc Arbitration

Arbitrations conducted in India are mostly ad hoc. The concept of institutional arbitration, though gradually creeping in the arbitration system in India, has yet to make an impact. The advantages of institutional arbitration over ad hoc arbitration in India need no emphasis and the wide prevalence of ad hoc arbitration has its ramifications in affecting speedy and costeffectiveness of the arbitration process.

There are a number of advantages of institutional arbitration over ad hoc arbitration in India, some of which are discussed below:

• In ad hoc arbitration, the procedures have to be agreed upon by the parties and the arbitrator. This requires co-operation between the parties and involves a lot of time. When a dispute is in existence, it is difficult to expect cooperation among the parties. In institutional arbitration, on the other hand, the procedural rules are already established by the institution. Formulating rules is therefore no cause for concern. The fees are also fixed and regulated under rules of the institution.

• In ad hoc arbitration, infrastructure facilities for conducting arbitration pose a problem and parties are often compelled to resort to hiring facilities of expensive hotels, which increase the cost of arbitration. Other problems include getting trained staff and library facilities for ready reference. In contrast, in institutional arbitration, the institution will have ready facilities to conduct arbitration, trained secretarial/administrative staff, as well as library facilities. There will be professionalism in conducting arbitration.

• In institutional arbitration, the arbitral institutions maintain a panel of arbitrators along with their profile. The parties can choose the arbitrators from the panel. Such arbitral institutions also provide for specialized arbitrators. These advantages are not available to the parties in ad hoc arbitration.

• In institutional arbitration, many arbitral institutions such as the International Chamber of Commerce (ICC) have an experienced committee to scrutinize the arbitral awards. Before the award is finalized and given to the parties, the experienced panel scrutinizes it. As a result, the possibilities of the court setting aside the award is minimal, because the scrutiny removes possible legal/technical flaws and defects in the award. This facility is not available in ad hoc arbitration, where the likelihood of court interference is higher.

• In institutional arbitration, the arbitrators are governed by the rules of the institution, and they may be removed from the panel for not conducting the arbitration properly. In ad hoc arbitration, the arbitrators are not subject to such institutional removal sanctions.

• In the event the arbitrator becomes incapable of continuing as arbitrator in an institutional arbitration, substitutes can be easily located and the procedure for arbitration remains the same. This advantage is not available in an ad hoc arbitration, where one party (whose nominee arbitrator is incapacitated) has to re-appoint the new arbitrator. This requires co-operation of the parties and can be time consuming.

• In institutional arbitration, as the secretarial and administrative staffs are subject to the discipline of the institution, it is easy to maintain confidentiality of the proceedings. In ad hoc arbitration, it is difficult to expect professionalism from the secretarial staff.

Inspite of the numerous advantages of institutional arbitration over ad hoc arbitration, there is currently an overwhelming tendency in India to resort to ad hoc arbitration mechanisms. This tendency is counterproductive, since there is considerable scope for parties to be aggrieved by the functioning of ad hoc tribunals. An empirical survey will reveal that a considerable extent of litigation in the lower courts deals with challenges to awards given by ad hoc arbitration tribunals.17

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).

B. Arbitration Practice Across Industries

Generally speaking, unlike in Europe, where the manner of settling disputes has substantially evolved separately across various industry sectors, there is no marked difference in arbitration practice from one industry to another in India. The exceptions to this rule, however, are the construction industry and the IT industry. Due to the technical complexities and long term nature of relationships between parties in these industries, arbitration in construction and IT industry disputes are characterized by certain peculiarities quite distinct from other industries.

The growth in the infrastructure and the IT industry in India is a recent development, and a result of the globalization of the Indian economy. An important secondary effect of this development is

17 Inaugural address by Justice K G Balakrishnan, Chief Justice of India, on International Conference on ‘Institutional Arbitration in Infrastructure and Construction’, New Delhi, October 16, 2008.

that arbitration has also streamlined a sector-specific approach to cater to the technicalities and specific requirements of such specific sectors.

1. Arbitration in the construction industry

Construction/infrastructure is one of the fastest growing sectors of the Indian economy, and millions of dollars are spent in construction related disputes. According to a survey conducted in 2001 by the Construction Industry Development Council, the amount of capital blocked in construction sector disputes was over INR 540,000 million.18 Ad hoc arbitration is still very popular in the construction industry.

Arbitration in the construction industry has a unique feature, which is quite distinct from the general arbitration practice19 seen in other industries.

1.1 Standard Contracts of Central and State Governments and Industry Giants

Over the last four decades in India, there has been a great deal of construction activity both in the public and private sectors. Central and state governments; state instrumentalities; and public and private companies have all been entering into contracts with builders as part of their commercial activities. The rights and obligations, privies and privileges of the respective parties are formally written. The central and state governments and instrumentalities of the states, as well as private corporations, have their own standard terms of contract, catering to their individual needs. Often, these contracts provide for remedial measures to meet various contingencies.

Despite these extensive and time-tested contracts, disputes and differences often arise between the parties. To meet these situations, arbitration clauses are provided in the contract themselves, generally covering either all disputes arising from the contract or all disputes save a few ‘excepted matters.’

1.2 Unique Features of Arbitration in the Construction Industry

In the standard forms adopted by the government departments like the Central Public Works Department (CPWD), Military Engineer Services (MES),20 railways and public enterprises, although an arbitration clause may include within its purview all the possible disputes relating to the transaction, there are exemption clauses or exclusion clauses that make the decision of an 18 The Economic Times, April 10, 200819 Alfred Arthur Hudson and Ian Norman Duncan Wallace, Hudson’s Building and Engineering Contracts, 11th Edition, Sweet and Maxwell, U.K., 2003. It says in Hudson’s Building and Engineering Contracts “it does not seem to be appreciated by many arbitrators that construction contracts give rise to disputes of unusual difficulty and complexity even by comparison with other types of litigation…and…performance of contracts runs over much longer periods than most other forms of commercial contract, with potential scope of argument and financial disagreement arising constantly during the construction period, and with large sums of money and cash flow pressures involved on both sides.” Hudson is the recognized text on the interpretation and drafting of Building and Engineering Contracts.20 Military Engineer Services (MES) is one of the largest government construction agencies in India and provides works cover to army, navy and air force.

authority named in the agreement, final and binding on the parties. These clauses are included, because in construction contracts, situations arise for which immediate decisions on a point of difference or dispute is required to avoid costly delays. In these situations, the ‘excepted matters’ or ‘exclusion clauses,’ make the decision of a particular authority final and binding on both the parties, and not subject to arbitration.

There has been a series of judicial decisions, which have held that if a particular matter has been excluded from the purview of arbitration incorporating excepted matter clause/exclusion clause, the same shall not be re-agitated in arbitration. In Food Corporation of India vs. Sreekanth Transport,21 the Supreme Court held that ‘excepted matters’ do not require any further adjudication, since the agreement itself provides a named adjudicator, and concurrence by the parties to the decision of the named adjudicator is obviously presumed by reason of unequivocal acceptance of the terms of the contract of the parties.

‘Exception’ can also operate differently. There may be certain clauses in the contract which empower either the engineer-in-charge or the consultant to take an on-the-spot decision regarding points of difference between the builder and the employer. Such clauses also provide a right of appeal to a superior officer within a particular time, and impose a liability on the officer to give a decision within a stipulated time. The clause further provides reference of the matter to arbitration, in case one of the parties is not satisfied with such decision, or if the officer does not render a decision. However, the provision expressly provides that if none of the parties opt for the choice to refer the matter to arbitration within the time limit thus prescribed, the decision last rendered shall be treated as final and binding upon both the parties.

1.3 Dispute Review Board in the Construction Industry

The concept of a Dispute Review Board (DRB) is quite common in the construction industry. The DRB is a panel of three experienced, respected and impartial reviewers. The DRB is organized before construction begins and meets periodically at the job site. The DRB members are kept abreast of the developments and progress in the job, and made familiar with the project procedures and the participants, and are provided with the contract plans and specifications.

The DRB meets with the employer and the contractor representatives during regular site visits, and encourages the resolution of disputes at the job level. The DRB process helps the parties to solve problems before they escalate into major disputes.

The proceedings of the DRB can be brought as evidence before an arbitral tribunal or other judicial forum. The board members could also be presented as witnesses. Recommendations made by the three experts known for their reputation, accepted by both the parties at the start of the work as neutral persons and having thorough knowledge of the project will not normally be changed by any such tribunal.22. It would therefore become difficult to go against the tribunal.

21 (1999) 4 SCC 491.

On this consideration, due acceptance is given to the system world wide, and almost no case goes up to arbitration.23

The statistics up to the year 2001 indicate that there were 818 projects with DRBs valued at US $ 41 billion; and that during that year, 1221 disputes were settled by the DRBs, and out of 1038 recommendations made, only 31 were taken by the parties to the arbitral tribunal.24

1.4 Specialized Arbitral Institutions in the Construction Industry

In India, substantial sums amounting to several crores of Indian rupees (INR) are locked up in contractual disputes in the construction sector alone. 25 Therefore, the construction industry felt the need to introduce new measures to resolve disputes in a fair, speedy and cost-efficient manner. Due to such requirements, the Construction Industry Development Council, India (CIDC), in cooperation with the Singapore International Arbitration Centre (SIAC), set up an arbitration centre in India called the Construction Industry Arbitration Council (CIAC).26 This type of institution-administered arbitration has clear advantages over ad hoc arbitrations for construction companies, public sector undertakings and government departments that have construction contracts.

2. Arbitration in the Information Technology (IT) Industry

IT disputes differ from disputes in other industries mostly in their substance. IT projects tend to be complex and characterized by a network of responsibilities shared between parties that are dedicated to carry through a technology-related, long term relationship. Thus, IT disputes typically center on contractual or intellectual property (IP) law issues.

The Indian Council of Arbitration (ICA), which is now considered to be an apex arbitral institution in the country, has started the process of identifying and training specialized arbitrators for disputes connected with the IT industry. In relation to this aspect, the ICA conducted an in-depth seminar on Alternate Dispute Redressal methods for the IT sector in India’s major cyber cities like Bangalore and Hyderabad for the purpose of creating an expert pool of arbitrators specialized in cyber laws.

C. Arbitration Practice by Industry Size

22 O P Goel, ‘Role of Dispute Resolution Boards’, ICA’s Arbitration Quarterly, ICA, New Delhi, 2006, vol. XL/No.4., p14. O P Goel is the former Director General in the Civil Public Works Department (Works).23 ibid.24 Brief report from the DRB Foundation Forum Papers.25The Economic Times, April 10, 2008.26 CIAC is a Registered Society with its headquarters in New Delhi. Arbitration under the auspices of the CIAC has the following features: (i) tight timelines for appointment of arbitrators and for rendering of the award; (ii) trained arbitrators consisting of professionals from the construction industry as well as the legal fraternity; (iii) strict codes of ethics for arbitrators; (iv) transparent management of arbitrator’s fees; (v) published scales of fees; (vi) monitoring of the progress of the cases by the Secretariat of the CIAC; and (vii) arrangement of facilities and services for hearings.

There is no marked difference in the arbitration practice based upon the size of the industry. There is a growing recognition that arbitration is becoming a costly affair, which is a departure from the intent of the 1996 Act. This is particularly true in ad hoc arbitration, where the fees of the arbitrators are not regulated, but decided by the arbitral tribunal with the consent of the parties. Some of the arbitral tribunals, consisting of high profile arbitrators such as retired Supreme Court and High Court judges, charge high arbitration fees. Further, it is an emerging trend amongst large corporations involved in high-stake commercial disputes—including government undertakings—to hold ad hoc arbitrations in five-star hotels and other costly venues. Although this cannot be a conclusion that applies to all large corporations, it can reasonably be argued that only such corporations can afford costly arbitration. Thus, in some cases at least, the larger the parties, the costlier will be the arbitration. The reason could be that in ad hoc arbitration, the venues and court fees are decided by arbitrators with the consent of the parties. A large company is assumed to have better funds for incurring these expenses.

D. Fast Track Arbitrations

Establishment of fast track arbitrations is a recent trend aimed at achieving timely results, thereby lowering the costs and difficulties associated with traditional arbitration. Fast track arbitration is a time-bound arbitration, with stricter rules of procedure, which do not allow any laxity or scope for extensions of time and the resultant delays, and the reduced span of time makes it more cost-effective.27

Fast track arbitration is required in a number of disputes such as infringement of patents/trademarks, destruction of evidence, marketing of products in violation of patent/trademark laws, construction disputes in time-bound projects, licensing contracts, and franchises where urgent decisions are required.

The 1996 Act has built-in provisions for fast track arbitration. Section 11(2) of the 1996 Act provides that the parties are free to agree on a procedure for appointing an arbitrator. Theoretically, under Section 11(6) of the 1996 Act,28 a party does not have to approach a court for appointment of an arbitrator, if the agreement provides for a mechanism to deal with the failure of the other party to appoint the arbitrator. Thus, the parties are given complete autonomy in choosing the fastest possible method of appointing an arbitrator, and constituting a valid arbitral tribunal. Section 13(1) confers the freedom on parties to choose the fastest way to challenge an arbitral award. Section 13(4) expedites arbitral proceedings by providing that if a challenge to an arbitral proceeding is not successful, the arbitral tribunal shall continue proceedings and pass an award. Section 23(3) of the 1996 Act enables parties to fix time limits for filing of claims, replies and counter claims. Section 24(1) also permits the parties to do away

27 Fast track arbitrations are best suited in those cases in which oral hearings and witnesses are necessary.28 Section 11(6) of the Arbitration and Conciliation Act, 1996, provides for appointment of an arbitrator by the parties in case of failure by the parties to appoint the arbitrators.

with the requirement of an oral hearing, if they so desire. More importantly, Section 25 authorizes an arbitral tribunal to proceed ex parte in the event of default of a party. Section 29 even empowers the presiding arbitrator to decide questions of procedure.29

As a premier Indian organization for institutionalized arbitration, the Indian Council of Arbitration (ICA) has pioneered the concept of fast track arbitration in India. Under the rules of the ICA, before commencement of the arbitration proceedings, parties may request the arbitral tribunal to settle disputes within a fixed timeframe of three to six months or any other time agreed upon by the parties. The Arbitration and Conciliation (Amendment) Act, 2003, proposes to introduce a single-member fast track arbitral tribunal, wherein filing of pleadings and evidence will be on fast track basis, so as to pronounce an award within six months, and will also specify the procedures to be followed by such fast track arbitral tribunals.

V. COMPETENCE AND JURISDICTION OF ARBITRAL TRIBUNALS

Competence of Arbitral Tribunal to rule on its own jurisdiction

In all walks of life, it is usual to come across disputes, more so in business dealings. In olden days informal system of Arbitration existed in the shape of Panchayats. The Father of Nation

29 Indu Malhotra, ‘Fast Track Arbitration’, ICA’s Arbitration Quarterly, ICA, 2006, vol. XLI/No.1 at p 8 Indu Malhotra is an advocate of the Supreme Court of India.

Mahatma Gandhi was also a staunch believer of arbitral process for resolving the problems in our predominantly rural society at affordable costs via Panchayat Raj.

The word ‘Arbitration’ appears to have originated from the word arbitrary. The parties involved in the disputes refer them to a peer who is supposed to be a person of nobility having capability to resolve the disputes. There are an estimated 30 million cases pending in various courts in the country.

The criticism against the justice delivery system is continuous and we keep on hearing related phrases like ‘Back Breaking delay’, ‘Elusive Justice’, and ‘ System on the verge of brink’. Arbitration system is a means to provide an easy and expedient mechanism for dispute resolution without the need of resorting to a long drawn litigation. This is meant to be Justice without law. It is meant to be far superior to a black letter law. Arbitration seeks to remove blockade caused by chocking legal pollution.

Arbitration started as a delegalization reform to resolve conflict with mutual love and trust. Even late Shri Nani Palkhiwala remarked succinctly, “ If I were appointed a dictator of this country, in the short span of my appointment and assassination, I would promulgate a law making all commercial disputes compulsorily referable to arbitration.”

With the long British Rule in India, we had two enactments for Arbitration, viz. the Act of 1899 and 1940.After independence of India, it was observed that the Act of 1940 has outlived its utility and was not in line with economic reforms introduced in India. Hence the Arbitration and Conciliation Act, 1996 came into force on 25-1- 1996.

In the PREAMBLE of the act, it stated that, “Whereas the United Nations Commission on International Trade law has adopted the UNCITRAL Model Law on International Commercial Arbitration in 1985;

and whereas the General Assembly of the United Nations has recommended that all countries give due consideration to the said Model Law, in view of the desirability of uniformity of the law of arbitral procedures and the specific needs of international commercial arbitration practice;

AND WHEREAS the UNCITRAL has adopted the UNCITRAL Conciliation Rules in 1980;

AND WHEREAS the General Assembly of the United Nations has recommended the use of the said Rules in cases where a dispute arises in the context of international commercial relations and the parties seek on amicable settlement of that dispute by recourse to conciliation;

AND WHEREAS the said Model Law and Rules make significant contribution to the establishment of a unified legal framework for the fair and efficient settlement of disputes arising in international commercial relations;

AND WHEREAS it is expedient to make law respecting arbitration and conciliation, taking into account the aforesaid Model Law and Rules;”

Jurisdiction Of Arbitral Tribunals (Section 16)

The Chapter IV of the Act is titled as ‘Jurisdiction of the Arbitral Tribunals’. Under that chapter, Section 16 is enacted which bears the title ‘Competence of Arbitral Tribunal to rule on its own Jurisdiction.’ This section 16 provides that:

‘(1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections, with respect to the existence or validity of the arbitration agreement, and for that purpose-

an arbitration clause which forms part of a contract shall be treated as an agreement independent of the terms of the contract; and

a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.

(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of, an arbitrator.

(3) A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings.

(4) The arbitral tribunal may, in either of the cases referred to in sub-section (2) or sub-section (3), admit a later plea if it considers the delay justified.

(5) The arbitral tribunal shall decide on a plea referred to in sub-section (2) of sub-section (3) and, where the arbitral tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and make an arbitral award.

(6) A party aggrieved by such an arbitral award may make an application for setting aside such an arbitral award in accordance with section 34.Before filing statement of defence, a party can challenge jurisdiction of Arbitral Tribunal, which it is bound to decide. It is manifest and goes without saying that the arbitrator being a creature of the agreement, must operate within the four corners of the said agreement and can not travel beyond the same. This power u/s 16 is unique in the Act. Now the Act itself provides that the arbitral tribunal can rule on its jurisdiction. It is axiomatic that no ruling can be given only after hearing both the parties. If the challenge succeeds, the appeal lies u/s 37[2][a]. If the challenge is rejected, the same can be challenged u/s 34[2][a][v] of the Act. The language employed u/s 16 of the Act clearly shows that the said provision is only an enabling one conferring the requisite powers on the Arbitral Tribunal to decide whether there is any existence of clause in the

arbitration agreement. However, mere attendance on earlier dates in the arbitral proceedings does not debar the party from raising objections only if statement of defence is yet not filed. In case of illegal contract, the parties by acquiescence cannot confer jurisdiction on court.

When the question is raised about non-existence or invalidity of the arbitration agreement, the arbitral tribunal is bound to decide. Arbitration clause contained in the agreement being an integral part of the same, would automatically perish if that agreement itself were non-est. An admitted liability can be no ground for arbitration since it is devoid of dispute. Ordinarily the courts do not interpret an arbitration agreement by applying strict rules of construction, which are normally applied to a conveyance and other formal documents. In such cases, it is necessary to apply a common sense approach and not be allowed to be thwarted by a narrow pedantic or too legalistic view. Arbitrability is certainly an issue, which can be objected to by the party.

The Chapter IV of the Act is titled as ‘Jurisdiction of the Arbitral Tribunals’. Under that chapter, Section 16 is enacted which bears the title ‘Competence of Arbitral Tribunal to rule on its own Jurisdiction.’ The Arbitral Tribunal is now empowered under the new Act to rule on its own jurisdiction, including ruling on any objections with respect to existence or validity of the Arbitration Agreements. The party can now contest that; the Arbitral Tribunal is lacking the powers necessary to adjudicate upon this reference. A procedure laid down in Section 16 of the Arbitration and Conciliation Act, 1996 cannot be bypassed, as all the parties to the reference are duly clothed with the inherent rights to object to the jurisdiction, domain, precincts, confines, portal, boundaries, realm of the Arbitral Tribunal and its authority. The Arbitration and Conciliation Act, 1996 mandates that prior to assumption of the jurisdiction, the plea u/s 16 shall be decided as it strikes at very authority. The Arbitral Tribunal cannot acquire, possess and get seized of the jurisdiction when the claim has become time barred. The contention goes to the very root of the jurisdiction of the Arbitral Tribunal, when the Arbitral Tribunal suffers from inherent want of the jurisdiction because of Time barred claim.

Consequently, the jurisdiction is taken away. The party can advert the attention of the arbitrator to the foundation or substratum or bedrock or the jurisdictional facts necessary for conferring of or vesting in the jurisdiction to this Arbitral Tribunal by making an averment that a claim has to be within the framework of the Byelaws of the NSE. This is sine qua non for giving the jurisdiction to the Arbitral Tribunal in the reference. Apropos the ratio of judgments heavily relied upon by the party it should be noted that any judgments and orders of courts cannot be construed or interpreted like acts of parliament or as mathematical theorems. The concluding words alone cannot be blindly applied de hors the actual findings and directions contained in the judgments. On the other hand, the averments of the party are not sufficient to clothe the Arbitral Tribunal with the jurisdiction necessary to initiate this reference. Be that as it may, there ought to be merit in the contentions advanced by the party.

It is a well-settled proposition that a proceeding is a nullity when the authority conducting it has no power to have seizing over the reference. The Arbitral Tribunal ought to be fortified by the arguments advanced and the plea raised by the party ought to be quite tenable and sustainable in the eyes of law. The Arbitral Tribunal must be persuaded to accede to the submissions and then only accordingly uphold the preliminary objection for interdiction at the very threshold. There must be a clear-cut case to prove that the reference is totally devoid of the jurisdiction, dominion and portal.

The Limitation Act, 1963 applies to the Arbitration and Conciliation Act, 1996. The law does not help one who sleeps over his rights to the alleged claim. Delay defeats Justice and equity adds only promptitude and resultant consequences. Defaulting party should bear the hardship of his own default in lodging the time barred claims and ought not transmit the hardship to the other party after the impugned claim is allowed to be time barred. U/S 16(5) of the Act, the Arbitral Tribunal shall pass an order whenever, a plea is raised u/s 16(2). Section 16 is undoubtedly an enabling Section.

Under the circumstances, the Arbitral Tribunal ought to refuse to deal with the matter at all, if it comes to a conclusion that, it has no jurisdiction to deal with the matter in this reference. Thus when the alleged dispute is not Arbitrable and falls outside the purview of the Honourable Arbitral Tribunal because the claim travels beyond the time barred jurisdiction and no jurisdiction can be arrogated in such a case. Although the decision u/s 16 is not award, it is always a good practice to record reasoning u/s 31[3] so that the same can form part of final award and shall enable all parties to convince the court to translate the logic behind the same when put to challenge u/s 34.

The order embodying the decision u/s 16(5) pursuant to the application u/s 16(2) is not an interim award. As was held in the case of Uttam Singh v/s Hindustan Steel [AIR 206 MP 1982]. Even the Honourable High Court having Judicature at Bombay had also an occasion to substantiate this ratio in a recent case wherein they refused to treat that as an Interim Award and hence not challengeable u/s 34 of the Act. When a party raises a preliminary issue to be decided in priority, the Arbitral tribunal cannot proceed with the merits without passing a speaking order u/s 16(5) r.w.s. 16(2) of the Act. This view is held in the case of Southern Gas Ltd v/s Visveswariya Iron & Steel Ltd [9 SCC 555] by the Apex Court of India, which is binding on all the authorities functioning there under. In the case of Premier Fabricators v/s Heavy Engineering Corp. [4 SCC 319], the Supreme Court held that, “ Where the Arbitrator was required to decide in the first place with reasons the question of Arbitrability, but he gave a composite award consisting of a lump sum, it was held that the whole award was vitiated because it could not be said that the question of Arbitrability was considered as implication.”

Thus, the importance of preliminary issue was clearly upheld by the Apex Court also in the case of T. N. Electricity v/s Bridge Tunnel Constructions [4 SCC 121].

However, it would be wrong to assume that this power given to arbitrator precludes the Chief Justice or his designate to decide a question as to the existence of arbitration clause u/s 11. Wellington Associates vs. Kirit Mehta [2000 III AD 153 SC].

In the case of Perfect Equipment Pvt. Ltd vs. Prestige Enterprises [44 SCL 74 (MUM)] it was held that, “Even if agency agreement [containing Arbitration clause] is terminated, respondent is entitled to refer dispute to Arbitration u/s 16(1)(a)” and after agreeing to appointment of an Arbitrator, the petitioner cannot complain that respondent should have first right to resolve dispute amicably.”

In the case of D-Ionic India Pvt. Ltd. Vs. State of Rajasthan [44 SCL 67 (Del)] it was held that, “Section 16 confers power upon arbitrator to rule on its own jurisdiction including any objection with respect to existence or valid ity of Arbitration Agreement.”

Even though the contract may be void, the Arbitral clause has to be considered as an independent agreement and will not suffer the consequences of being void. Hence it will be open to the Arbitral Tribunal to decide the issue of voidness of the contract while considering the dispute under the arbitral clause. [G.R. Didwania vs. A.C.Choksey 4 CLA-BL SUPP-SNR-7 BOM].

In the case of Pharmaceutical Products of India Ltd. Vs Tata Finance Ltd. [41SCL 259] the Bombay High Court held that, ‘A decision on a question whether proceedings before arbitrators should be stayed or not cannot be subject matter of a final arbitral award, not even an interim award. It would be simply a decision u/s 16.” In the case of East Coast Boat Builders [AIR 1999 DEL 44] it was held that, ‘Where the jurisdiction of an arbitrator is challenged, and the arbitrator rejects it, his decision is not appealable. It is not an interim award.”

Normally the power of granting specific performance is discretionary and the discretion has been conferred by Specific Relief Act only on civil courts. Merely because the sections of the Specific Relief confer discretion on courts to grant specific performance of a contract does not mean that parties cannot agree that the discretion will be exercised by arbitral tribunal of their choice. Olympus Superstructures pvt. Ltd. Vs Meena Khetan [2 ARB LR 695 SC].

An Arbitration clause is severable from and independent of other terms of contract. The decision of the Arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the Arbitration clause. Thus even if the contract is non-est, the arbitration clause is not rendered invalid. It is still within its competence to decide its validity. Brawn Lab Ltd. vs. Fitty Int’ [l GmBH (2000) 2 Arb LR 64 DEL].

Decision of the arbitrator that the contract was null and void or termination of main contract by performance or otherwise, will not render the arbitration clause invalid. Olympus Superstructures Pvt. Ltd. Vs. Meena Khetan [2 ARB LR 695 SC].

In the case of S.N. Transport vs. GCM. Synthetics [1999(3) MLJ 216] it was held that a party can always raise the challenge to existence or validity of the Arbitration Agreement u/s 16[5] at any stage and the arbitrator is bound to decide the same. ❊ Section 16 conspicuously avoids adverbial clause ‘unless otherwise agreed’ so that the parties cannot modify the power. Under the enabling section 16[1], the arbitral tribunal has discretion to exercise power conferred due to word ‘May’ therein. However, section 16[5] uses word ‘shall’, hence mandatory. U/s 16[2], the objection as to jurisdiction is to be raised not later than the submission of the statement of defence but u/s 16[3], objection as to scope of authority is to be raised as soon as a matter alleged to be beyond the scope of its authority is raised. U/s 16[4], the Arbitral Tribunal is authorised to admit the plea even later if it considers that the delay was justified. U/s 16[6], the aggrieved party is already given the right to challenge the award u/s 34. The effect of conjoint reading of various sections like 16, 34 etc. is that if no plea is raised u/s 16, the party cannot raise it later u/s 34.But this is a grey area where later proceedings u/s 34 is barred or not is subject to interpretations.

When an application is made u/s 11[6] for an appointment of an arbitrator, no objection can be raised that the claim fell outside the purview of arbitration; hence they could not be referred to arbitration because this power rests with the Arbitrator himself. [Sharma & Sons vs. E-inC.Army [2 ARB LR 31 AP].

The Supreme Court observed that section 16[5] does not violate the basic structure of the Constitution as the order thereunder is certainly subject to any judicial scrutiny even if after award is passed as per the time and manner laid down by the Act passed by the Parliament. Babar Ali vs. Union of India [2 SCC 178] Thus the power of the Arbitral Tribunal to rule on its jurisdiction is unique.

Competence of arbitral tribunal to rule on its jurisdiction

(1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose,--

An arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and

A decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.

(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defense; however, a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of, an arbitrator.

(3) A plea that the arbitral tribunal is exceeding the scope of its authority shall he raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings.

(4) The arbitral tribunal may, in either of the cases referred to in sub-section (2) or sub-section (3), admit a later plea if it considers the delay justified.

(5) The arbitral tribunal shall decide on a plea referred to in sub-section (2) or sub-section (3) and, where the arbitral tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and make an arbitral award.

(6) A party aggrieved by such an arbitral award may make an application for setting aside such an arbitral award in accordance with section 34.

Competence-Competence Principle: Analysing certain Sec. 11 and Sec. 45 decisions.

The competence-competence principle in arbitration is an inherent power of the arbitral tribunal.30 Section 16 of the 1996 Act statutorily recognises this principle.31 However, the threshold review by the courts, whose intervention is sought under various provisions of the 1996 Act to enforce the arbitration agreements, has limited this inherent power of the arbitral tribunal. One such key provision considered as a last resort measure, in cases of reluctance of a party to appoint its arbitrator nominee or to sort out differences of opinion between the parties or their arbitrators, is to appoint the members of the tribunal or presiding arbitrator respectively is Section 11. Section 11 gives considerable power to the Chief Justice of India (CJI) to make such appointments in such a limbo in cases of 'international commercial arbitration'. One of the leading pronouncements of the Indian Supreme Court on Sec. 11 is the 7-judge bench decision in SBP & Co. v. Patel Engineering Ltd.32 This judgment settled the interpretation of Section 11, at least for now, by overruling the Konkan Railway cases.33 It concluded that nature of function

30 See id. at 347 (describing the shorthand term competence/competence as 'the power of an arbitral tribunal to decide upon its jurisdiction' or 'its competence to decide upon its own competence'). Article 21(1) of the UNCITRAL Rules clearly provides for the power with the arbitral tribunal to rule on such objections which allege that it has no jurisdiction. Similar power is conferred under the International Chamber of Commerce (ICC) Rules,31 Article 6(3) of the Arbitration and ADR Rules, 2012 (ICC), available at: http://www.iccwbo.org/products-and-services/arbitration-and-adr/, click: 'Rules'.32 SBP & Co. v. Patel Engineering Ltd., (2005) 8 S.C.C. 618 (India). For a detailed critique of this judgment see Pratyush Panjwani & Harshad Pathak, Assimilating the Negative Effect of Kompetenz-Kompetenz in India: Need to Revisit the Question of Judicial Intervention?, 2.2 INDIAN J. OF ARB. L. (Nov., 2013), http://ijal.in/sites/default/files/Harshad.pdf.33 Konkan Railway Corporation Ltd. v. Mehul Construction Co., 2000 (3) Arb. l.R. 162 (SC) (India) [hereinafter Konkan I]; Konkan Railway Corpn. Ltd. v. Rani Construction Pvt. Ltd., (2002) 2 S.C.C. 388 (India) [hereinafter Konkan

performed by the Chief Justice or his nominee (designate) under Section 11(6) was a judicial function and not an administrative one, as held by the Konkan Railway cases.34 Further, the SBP Court restricted the scope of the power of delegation, precluding delegation to the district judge, in accordance with the normal rules of designation of judicial work in the courts. Thus, the CJI could only designate his responsibility to a Supreme Court Judge, and Chief Justice of a High Court to another judge of the High Court.35 The Supreme Court restricted the power of the arbitral tribunal under Section 16, ruling out the possibility for the arbitral tribunal to decide on its own jurisdiction, reopening these issues after being constituted by the CJI or his designate settling these jurisdictional issues. The paternalistic view of the Supreme Court precluding the creature from questioning the creator apparently curtails the legislative purpose behind Section 16.

A division bench of the Supreme Court in National Insurance Co. Ltd. v. Boghara Polyfab Pvt. Ltd., delineated the scope of Section 16 power, in light of SBP decision as follows:36

"It is thus clear that when a contract contains an arbitration clause and any dispute in respect of the said contract is referred to arbitration without the intervention of the court, the Arbitral Tribunal can decide the following questions affecting its jurisdiction: (a) whether there is an arbitration agreement; (b) whether the arbitration agreement is valid; (c) whether the contract in which the arbitration clause is found is null and void and if so whether the invalidity extends to the Arbitration clause also."

One of the recent Sec. 11 judgments of the Indian Supreme Court, where the court showed pro-enforcement bias, is the judgment of Antrix Corporation v. Devas Multimedia.37 Showing a pragmatic approach, the court held that the arbitration agreement (or clause) can be invoked only once, as was done by the respondent Devas in this case, and not a second time, as the petitioner Antrix tried to do, though being aware of initiation of arbitration proceedings by the respondents.

III].34 The Arbitration and Conciliation Act, supra note 13, § 11(6) reads thus: " Where, under an appointment procedure agreed upon by the parties,- (a) a party fails to act as required under that procedure; or (b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or (c) a person, including an institution, fails to perform any function entrusted him or it under that procedure, a party may request the Chief Justice or any person or institution designated by him take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment."35 See also Justice S.M. Jhunjhunwala, Settled Law Unsettled, 4.1 ARB. L. REP. (SUPP.) (2006) (pointing out how the benefits of arbitration over litigation may be offset when a person residing in a remote taluka will have to come to file his Section 11 application). In case of ICA the costs will be further enhanced, as the application will be filed in the Supreme Court at New Delhi. Furthermore, in case of determination of 'preliminary facts', which appears to be a somewhat mandatory exercise to be undertaken under Section 11, this may lead to a mini-trial before the commencement of arbitration with large litigation expenses and other attendant costs.36 National Insurance Co. Ltd. v. Boghara Polyfab Pvt. Ltd., A.I.R. 2009 S.C. 170, ¶ 16 (India). Further, the court in ¶ 17 has emphasised that the object of the 1996 Act is, "expediting the arbitration process with minimum judicial intervention" should guide the Chief Justice or his designate when he chooses to either decide these jurisdictional issues or leaves them to the Arbitral Tribunal.37 Antrix Corporation v. Devas Multimedia, 2013 (2) Arb. L.R. 226 (SC) (India).

In Antrix-Devas, the agreement between the parties had an arbitration clause providing for arbitration as a dispute resolution mechanism, after failure of mediation to resolve their disputes within three weeks, by a three member arbitral tribunal having New Delhi as the seat of arbitration. Furthermore, the arbitration proceedings, as per this clause, were to be conducted in accordance with the rules and procedure of the ICC or UNCITRAL. This disjunctive choice created a conflicting scenario between the parties.

Pursuant to the dispute having arisen, without exhausting the mediation option, the respondent unilaterally requested for arbitration under the ICC Rules, and nominated Mr Veedar, QC, as its nominee arbitrator, in accordance with these rules. The petitioner repeatedly insisted on mediation, whereas the respondent was adamant on proceeding with the arbitration which it had commenced, and called upon the petitioner to join the arbitration. Subsequently, the petitioner without joining in the arbitration proceedings commenced by the respondent initiated its own arbitration proceedings by appointing Ms Sujata Manohar, a former judge of the Supreme Court of India, as its arbitrator nominee in accordance with the UNCITRAL Rules. At this stage, the petitioner served notice to the respondent to appoint its arbitrator within thirty days to join the arbitration proceeding commenced by the petitioner. Thus, two parallel arbitration proceedings had been initiated by independent invocation of the arbitration clause by both the parties, leading to an anomalous situation. The basic question was, which of the two proceedings should be allowed to continued, as one of them had to trump over the other. Understandably, as the respondent did not join the petitioner's arbitration, the petitioner took to litigation under Section 11(6) approaching the Supreme Court to appoint an arbitrator for Devas in accordance with the UNCITRAL Rules. The strategy of the petitioner was to use the Indian Supreme Court to nullify the respondent's first mover advantage by obtaining sanction for its version of arbitration proceedings, and seeking its judicial enforcement, consequentially prevailing over the respondent's proceedings. Appreciably, the Supreme Court disappointed the petitioner by showing a pro-arbitration approach thereby preventing the abuse of Section 11 jurisdiction. If the Court had not taken this view, an anomaly would have resulted, as the Chief Justice’s nominee would have replaced the arbitrator already appointed under the ICC Rules.

Instead, to assuage the petitioner's grievance, the Supreme Court suggested Section 13 and subsequently Sec. 34 as the appropriate provisions of the 1996 Act which could be invoked by it in case of dissatisfaction with the arbitrator's selection by the respondent.38 Thus, the arbitration

38 27 See Nidhi Gupta, Saving face or upholding ‘Rule of Law’: Reflections on Antrix v. Devas Multimedia P. Ltd., 2.2 INDIAN J. OF ARB. L. (Nov., 2013), available at http://ijal.in/sites/default/files/Nidhi%20Gupta.pdf. (critiquing the suggestion of the Sup. Ct., in ¶ 32 of the judgment, where it is said that, “in case the other party is dissatisfied or aggrieved by the appointment of an Arbitrator in terms of the Agreement, his/its remedy would be by way of a petition Under Section 13, and, thereafter, under Section 34 of the 1996 Act.” The author opines that, suggestion to Antrix to invoke Section 13 is inappropriate, because Antrix has challenged ‘the constitution of the arbitral tribunal itself and the validity of the tribunal constituted by the ICC’ and that the ICC Rules would govern ICC Arbitration. Furthermore, the author comments on limited application of Section 34, only in a case where the seat of arbitration in this arbitration is India. Otherwise, Section 48 or 57, as the case may be, are suggested by the author as the proper alternatives to Section 34). 18 | P a g e

proceedings commenced by the petitioner got vitiated, and as a necessary implication of the Court’s judgment, the petitioner would be required to join the ICC Arbitration commenced by the respondent, though there was no such express direction by the Court.

Some questions, though not answered in the judgment, need to be analysed here in light of this judgment. Does invoking the arbitration clause by either party preclude exercise of Sec. 11 jurisdiction by the Court? The answer to this is clearly in the negative. The Supreme Court prevented the misuse of Sec. 11 by the petitioner in this judgment. Sec. 11 is meant to provide for judicial interference in case a party is resisting enforcement of a valid arbitration clause, to which it had initially agreed. In this case, the respondent was not resisting the same, in fact, it had invoked the same. Sec. 11 proceedings can be initiated, as per the clear language of the enactment, even post appointment of the arbitrator nominees by the parties, if the parties or their nominee arbitrators disagree on the choice of the third arbitrator, in case it needs to be appointed. Thus, even in this case if the parties do not sort out their acrimony while proceeding with the ICC Arbitration, such a disagreement may arise in appointing the third arbitrator to constitute the three member arbitral tribunal, as required according to the arbitration clause. In that event Antrix-Devas judgment should not preclude invoking Section 11 jurisdiction once again, as the cause of action will be different then.

One more Section 11 judgment can be discussed with benefit. This judgment in Schlumberger Asia Services Ltd. v. Oil and Natural Gas Corporation Ltd.39 was delivered in the year 2013 by the Indian Supreme Court. The Judge, being the Chief Justice's nominee, exercising Section 11(6) powers, delivered an interesting order constituted according to the arbitration clause, disregarding the already appointed petitioner's nominee arbitrator and petitioner's prayer to appoint the respondent's nominee arbitrator and (curiously) the third presiding arbitrator. The arbitration clause, as submitted, clearly provided for the 3-member arbitral tribunal, with each party appointing one arbitrator each and the third arbitrator appointed by these two arbitrators. The petitioner is a foreign company, incorporated and registered under the law of Hong Kong, and the respondent, a well-known Indian Pubic Sector Enterprise, is registered under the Indian Companies Act, 1956. Petitioner had its project office at Mumbai (India).

After the dispute had arisen the petitioner issued a legal notice in the year 2008, invoking the arbitration clause, detailing the dispute. In the same notice it was importantly also mentioned that the petitioner had appointed its nominee arbitrator, and now it called upon the respondent to appoint its nominee arbitrator, failing which the petitioner was to take legal steps for appointing respondent's arbitrator instead. Notably, the arbitration clause itself provided for a post request period of thirty days to be provided to the other party to appoint its nominee, failing which it clearly designated the Chief Justice of India, in case of international commercial arbitration, as the authority who 'shall appoint arbitrators/presiding arbitrator'. Thus, the parties in essence had contractually agreed to the invocation of Sec.11 under the said circumstances, as clear from the

39Schlumberger Asia Services Ltd. v. Oil and Natural Gas Corporation Ltd., (2013) 7 S.C.C. 562 (India).

arbitration clause. After the respondent failed to appoint its nominee arbitrator, the petitioner first sent a reminder in the year 2009, and another one in 2010, and yet another one in the year 2012, giving thirty days period, as prescribed in the arbitration clause, in each of these reminders. These constant reminders were disregarded by the respondent. In reply to the notice sent in the year 2012, the respondent plainly denied any liability towards the petitioner. Subsequent to this, the petitioner filed a Sec. 11(6) petition whose disposal culminated in the judgment which is being discussed. The respondent resisted this petition on the ground that it was barred by limitation and that it raised dead claims.

Perhaps, showing considerable respect for the competence-competence principle (though not expressly mentioning or discussing it), despite the observations of seven judge bench of the same court in SBP & Co. that the Chief Justice or his nominee 'can decide the question whether the claim was a dead one; or a long barred claim that was sought to be resurrected', the judge chose not to decide the respondent's above objections leaving it to the arbitral tribunal to decide them. This approach of the Court is laudable. However, much good was undone when it decided to appoint all the three members of the arbitral tribunal as discussed previously. It apparently exceeded its jurisdiction by constituting the entire arbitral tribunal by designating two retired judges of the Indian Supreme Court as the arbitrators and a former Chief Justice of India as the presiding arbitrator/chairman. This clearly has adverse implications for the petitioner also. While exercising the powers under Sec. 11 the judge erroneously disregarded not only the petitioner's nominee, and the petitioner's plea, but also the arbitration clause to the extent it provided for the manner of appointment of the third arbitrator.

Thus, it would have been more equitable for the Judge to only appoint an arbitrator on behalf of the respondent. The judge, as per the arbitration clause, should have also directed that the two arbitrators should appoint a presiding arbitrator. Since, before the Court, there was no question concerning appointment of the third arbitrator, which could have only arisen when the two arbitrators failed to reach a mutual agreement with respect to the choice of the third arbitrator, the Court erred in prematurely appointing the presiding arbitrator on its own. Thus, in substance, the judge imposed his will on both the parties by appointing three retired justices of his court as members of the arbitral tribunal. As a whole, this decision compromised on party autonomy and on the autonomy of the arbitrators to choose the third arbitrator, making the arbitration clause a casualty in the end.

Power Of The Judicial Authority To Refer Parties To Arbitration(Section 45)

Next, let us converge on Section 45, contained in Chapter I of Part II of the 1996 Act dealing with the “power of the judicial authority to refer parties to arbitration” when it is seized of a matter in respect of which the parties have made an (arbitration) agreement referred to in the Section 44 i.e., to which the New York Convention Applies.40 An academic commentator opines,

40 The Arbitration and Conciliation Act, supra note 13, § 45 reads: “ Notwithstanding anything contained in Part I or in the Code of Civil Procedure, 1908 (5 of 1908), a judicial authority, when seized of an action in a matter in respect

that due to the expression "an agreement" in Sec.45, this provision has no application there is a plurality of agreements which converge on disputes arising 'out of a single transaction or a series of transactions which are inextricably linked with each other.'41 However, the Supreme Court of India has, in a recent decision, concluded otherwise albeit not without difficulties. A three-judge bench decision of the Indian Supreme Court in the Chloro Controls,42 thus marks an important contribution to Section 45 jurisprudence. The court applied the 'Group of Companies Doctrine' to make a reference to arbitration under Sec. 45, in accordance with the arbitration clause of the principal joint venture (JV) agreement, to direct even associated non-parties to arbitration, overriding the dispute resolution clauses in the other ancillary agreements.

The following are the facts shorn of details of the complex corporate structure of the entities involved. A United States Corporation (the foreign JV Partner) and an Indian Company (Indian JV Partner) formed a 50:50 Indian JV Company registered under the Indian Companies Act, 1956. The principal purposes of this JV were designing, manufacturing, importing, exporting and marketing of gas and electro-chlorination equipment. Towards achieving these objectives several ancillary agreements were executed post the principal or the 'mother agreement' (as the Court called it), which was the shareholders agreement.

There were in all six such ancillary agreements which were executed, including a supplementary collaboration agreement whose sole purpose was to fulfil the conditions to obtain governmental approvals. Some of these agreements had variations in the parties, and out of these agreements three of these agreements contained a distinct arbitration clause each.

The arbitration clause in the principal agreement, to be invoked in case of failure of negotiations to settle their dispute, provided for dispute resolution by arbitration according to the ICC Rules by three arbitrators designated in accordance with these rules. Place of arbitration was London and arbitration proceedings were 'to be governed by and subject to English laws'.43 The other agreements were anticipated in the principal agreement itself and on execution were appended to the shareholder agreement. The 'international distributor agreement' (an appended agreement) did not contain an arbitration clause, but instead had a jurisdiction clause,44 conferring jurisdiction to federal courts and state courts in the Eastern District of Commonwealth of Pennsylvania, United States, for the parties to litigate. On the other hand, Managing Directors Agreement neither contained an arbitration clause nor a jurisdiction clause. The Exports Sales Agreement, between

of which the parties have made an agreement referred to in section 44, shall, at the request of one of the parties or any person claiming through or under him, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.” This non-obstante clause in Section 45 is important, for inter alia, it makes the exercise of judicial power under Sec. 45 independent of the Part I provisions in the 1996 Act. See also supra note 6 for the text of Section 44.41 See P. C. MARKANDA, LAW RELATING TO ARBITRATION AND CONCILIATION 923 (7th ed. 2009) [hereinafter P. C MARKANDA].42 Chloro Controls (I) Pvt. Ltd. v. Severn Trent Water Purification Inc., (2013) 1 S.C.C. 641 (India) [hereinafter Chloro Controls].43 See id. ¶ 21.44 See id. ¶ 26.

the JV Co. and the foreign JV partner, however had a specific arbitration clause. This clause provided for settlement of any dispute arising out of or connected with the agreement by arbitration in accordance with the Rules of American Arbitration Association. Place of arbitration was fixed as Pennsylvania and it talked about judgment upon award to be entered by a competent court. Thus, noticeably, this arbitration clause was different from the one in the principal agreement. Similarly, the same parties executed the Financial and Technical knowhow Agreement, and the Trademark Registered User Agreement also. The former contained an arbitration clause similar to the principal agreement providing for arbitration, subject to the English Law, in London, according to the ICC Rules. The latter agreement did not contain an arbitration clause.

A suit was commenced by the Indian collaborators seeking the Mumbai High Court's declaration to validate the JV agreements and delineate their scope. Meanwhile, during the suit's pendency, the foreign JV partner served a notice to the Indian parties to terminate JV agreements and sought from the High Court the reference of the matter to arbitration instead. Though, the single judge of the High Court disallowed the plea of the foreign JV partner, on intra court appeal, the division bench made the reference to arbitration under Section 45 of the 1996 Act. This order was impugned inter alia before the Supreme Court. The reference under Sec. 45 was resisted primarily on the ground that the three of the major agreements (referred to previously as the ancillary agreements) did not have an arbitration clause, and one had a jurisdiction clause. It was thus contended, that due to indefiniteness and uncertainty, the arbitration clause in the principal agreement (i.e., shareholder agreement) was unenforceable. Plea against bifurcation of causes of action was also made on basis of a previous Indian Supreme Court pronouncement in Sukanya Holdings.45

As this matter concerns Chapter I of Part II of the 1996 Act, dealing with the arbitration under the New York Convention, the Indian Apex Court went on to liberally construe Sec. 45 to achieve the legislative intent favouring arbitration, as reflected in Sec. 45. The Court accorded priority to the Chapter I of Part II stating that it was unaffected by Part I of Act.46 While interpreting the phrase 'at the request of one of the parties or any person claiming through or under him' in Sec. 45, the Court rightly extended the scope of the expression 'any person' beyond 'the parties' who are signatories to the arbitration agreement.47 This is in accordance with the literal meaning of the enactment. Furthermore, the expression 'shall' in Sec.45 was interpreted to impose a mandatory duty on the Court to make a reference upon fulfilment of the statutory conditions.48 Thus, the right of a party under Sec.45 to obtain a judicial order of reference to arbitration was interpreted as a conditional one, subject to satisfaction of certain statutory preconditions contained in Sections 44 and 45, and not an absolute right.

45 Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya, (2003) 5 S.C.C. 531 (India).46 See id. ¶ 64.47 See id48 See id. ¶ 78.

Despite the appreciable problem solving approach highlighted in the above judgment, it had some discursive aspects which could have been eliminated or reduced in the judgment. While interpreting Sec.45, it also provided for a threshold review by the courts, before referring dispute to arbitration, by giving a clear finding that arbitration agreement was ‘valid, operative and capable of being performed’.49 This imposition of a mandatory duty upon a Sec.45 court clearly does not augur well for ‘competence-competence’ principle, which was discussed in the preceding paragraph of the judgment, but, the Court concluded that the above interpretation of Sec.45 does not permit any ambiguity and is according to the legislative mandate. It may be argued here that it should be read as a discretionary power of the court, rather than a mandatory duty, under Sec.45 to do a threshold review on a challenge to the validity of the arbitration agreement. Even Sec.48 exists for post-award challenges during the enforcement of a “foreign award”, where the court has an opportunity for reviewing inter alia validity of the arbitration agreement after the arbitral tribunal has completed its task. The Court further noticed that an application for appointment of arbitral tribunal under Section 45 would also be governed by Section 11(6). Though Sec.11 was not in issue it was discussed along-with the SBP& Co. judgment. It appears that the Court confused itself between the scope of Sec.45 and Sec.11, and so mixed up the two provisions.

To interpret the scope of Sec.45 jurisdiction, the Court adopted the Sec.11(6) standard by relying on the SBP & Co. judgement.50 Referring to Fouchard Gaillard Goldman on International Commercial Arbitration, the Court cited the so-called negative effect of ‘Kompetenz-Kompetenz’ rule,51 which was that it deprived courts of their jurisdiction.41 The basic question is whether this should be viewed as a merit of the kompetenz-kompetenz rule or its demerit. After all, when the courts adopt ‘pro-arbitration bias’ it is indeed proper not to curtail the arbitral tribunal's autonomy. We must note that one of the editors of the authority relied on by the Court also advocates, that the level of threshold review by the courts should be restricted to what he calls the ‘prima facie test’.52 The prima facie test is explained in the following words:53

“In reality, prima facie means prima facie. The court seized of the matter can assess the arbitration agreement on its face. It can determine if the agreement exists as between the parties and has been entered into in circumstances which are not manifestly aberrational. Nothing further is required and any argument going beyond such a simple assessment on the basis of generally accepted practices should be left to the arbitrators to decide in the first instance.”

Though the Court, to justify threshold judicial review requirement under Sec.45, noted absence of a provision like Sec.16 in Chapter I of Part II of the 1996 Act, it strangely sought justification

49 See id., ¶ 127-28.50 See, FOUCHARD GAILLARD GOLDMAN ON INTERNATIONAL COMMERCIAL ARBITRATION 2 (Emmanuel Gaillard & John Savage eds. 1999). 41 Chloro Controls, supra note 31, ¶ 129.51 Emmanuel Gaillard, The Urgency of not Revising the New York Convention, in 14 50 YEARS OF THE NEW YORK CONVENTION: ICCA INTERNATIONAL ARBITRATION CONFERENCE 693 (Albert Jon Van Den Berg ed., 2009).52 See id53 Chloro Controls, supra note 31, ¶130.

from Sec.11(7) of the same Act to lend finality to judicial determination under Sec.45.54 It also justified this rendering of finality on the basis of furthering cause of justice and it being in interest of parties.55 A counterview can be that the court, through its threshold review, does not do any favour to the parties and the tribunal by taking upon itself to decide ‘objections going to the root of the matter’.56 Rather, it should focus on reducing delays and expeditiously refer the matter to arbitration, except in the rarest cases which stand patently and clearly disqualified, rather than indulging to adjudicate the ‘complex issues’ involved, as termed by itself. A commentator points out to some of the problems which may be encountered by the trial court seeking to give a final finding on these issues pertaining to the validity of the arbitration agreement at the Sec.45 stage like: difficulties, unfeasible scenario of proving foreign law through affidavits, enormous expenditure of time and money.57 An interventionist court can defeat the usual benefits of the arbitration process under the guise of doing a threshold review leading to the opposite results than intended, as delineated by the Supreme Court. When parties have chosen arbitration as their preferred mode of dispute resolution party autonomy needs to be respected and given full play. Thus, the scope of the same should be kept to minimum possible, and the phrase ‘valid, operative and capable of being performed’,58 should be read as analogous terms extending to only the prima facie review to be done in the manner and to the extent described above. Despite these observations in the dicta, it can be said that the Court held that the disputes arising from and referring to multiparty agreements are capable of being referred to arbitration, under Sec.45, in accordance with the agreement between the parties as per their intention.59 This is an important takeaway lesson for the foreign investors contemplating a similar scenario in an investment deal.

In a recent 2014 decision rendered by the Indian Supreme Court in World Sport Group (Mauritius) Ltd. v. MSM Satellite (Singapore) Pte. Ltd.,60 the Court had an opportunity to examine correctness of an order of a division bench of the Bombay High Court issuing an injunction restraining the arbitration by ICC at Singapore. The dispute concerned the part payment totalling the amount of 125 crores,61 made by the respondent (MSM) to the appellant (WSGM) during 2009 under a ‘facilitation deed’ between these parties. The respondent now sought to recover this amount, and thus sent a legal notice to the appellant through its lawyers on June 25, 2010, claiming the said ‘facilitation deed’ to be voidable at option of MSM in ‘view of the false representations and fraud played by WSGM’, and also simultaneously conveyed in the

54 Id., ¶ 13155Id.56 See P. C. MARKANDA, supra note 30, at 925.57 Chloro Controls, supra note 31, ¶ 131 (the court laid Sec.45 standard to check whether 'agreement is null and void, inoperative and incapable of being performed.').58 See id., ¶ 162.59 World Sport Group (Mauritius) Ltd v. MSM Satellite (Singapore) Pte Ltd., Civil Appeal No. 895/2014, Supreme Court of India (Unreported) (India), available at http://judis.nic.in/supremecourt/imgs1.aspx?filename=41175 [Hereinafter “World Sport Group case”].60 1 crore = 10 million.61 World Sport Group, supra note 50, ¶ 25.

same clause its decision to rescind the ‘facilitation deed’ with immediate effect.62 On the same day, MSM filed its first suit in the Bombay High Court for recovering the said sum of money paid to WSGM and sought a declaration from the court that the ‘facilitation deed’ was void. Three days later, on June 28, 2010, WSGM responded by invoking the arbitration clause (numbered 9 and titled ‘governing law’) in the ‘facilitation deed’ sending a request for arbitration to ICC Singapore, which gave a notice to the respondent, MSM, to tender its reply to WSGM’s arbitration request. MSM resisted this move of WSGM and in response filed a second suit in the Bombay High Court on June 30, 2010, claiming inter alia a declaration that since the said ‘facilitation deed’ was rescinded the appellant WSGM ‘was not entitled to invoke the arbitration clause in the facilitation deed’.63 In this second suit, an application seeking temporary injunction against the WSGM for continuing with the arbitration proceedings initiated by them was also filed by MSM. The single judge dismissed this application of MSM. This order was challenged in appeal by MSM before a division bench of the Bombay High Court which allowed the appeal, granting temporary injunction, as sought by MSM. Against this decision of the division bench WSGM preferred an appeal before the Supreme Court which culminates in the judgment under discussion.

The basic contention of the appellant WSGM, based on the judicial authorities cited by it endorsing Kompetenz-Kompetenz principle enshrined in Sec. 16, was that unless the arbitration clause itself, apart from the underlying contract, was assailed as vitiated by fraud or misrepresentation, the Arbitral Tribunal, and not the court, will have the jurisdiction to decide all issues including the validity and scope of the arbitration agreement.64 According to the appellant, here the ‘facilitation deed’ was assailed as vitiated by fraud or misrepresentation, but the arbitration clause (or agreement, to use Sec. 45 terminology) contained in it was not made out to be ‘null and void’ on basis of the factual allegations of fraud or misrepresentation alleged by the respondent;65 and it stood independent of and separate from the ‘facilitation deed’. Thus, in

62 Id., ¶ 5.63 Id., ¶ 9.64 See id. ¶ 12 (the appellant further contended, that it has denied these allegations of respondents before the Bombay High Court in its affidavit-in-reply and gave gist of its defence taken before the High Court).65 Id., ¶ 26; See also Elaine Wong, Procedural Issues Resulting from a Fraud Claim in International Commercial Arbitration: An English Law Perspective, KLUWER ARB. BLOG (Jan. 24, 2014), http://kluwerarbitrationblog.com/blog/2014/01/24/procedural-issues-resulting-froma-fraud-claim-in-international-commercial-arbitration-an-english-law-perspective (discussing, inter alia how in England due to absence of public policy that accusations of fraud are decided by courts these issues can fall within the scope of arbitration agreement subject to its wordings; and (erroneously) citing Fiona Trust v. Privalov against [2007] UKHL 40 (instead of the correct name Premium Nafta Products Ltd. v. Fili Shipping Company Ltd.) in which the application of the doctrine of separability was explained and affirmed by the House of Lords). See also id., ¶ 24, where the Sup. Ct. cites correctly the House of Lords decision as Premium Nafta Products Ltd. v. Fili Shipping Company Ltd. [2007] UKHL 40 and excerpts from the same to explain the principle of separability. See also Abhinav Bhushan & Niyati Gandhi, The Back and Forth of the Arbitrability of Fraud in India, KLUWER ARBITRATION BLOG (Feb. 13, 2014), http://kluwerarbitrationblog.com/blog/2014/02/13/the-back-and-forth-of-thearbitrability-of-fraud-in-india (discussing inter alia the above WSGM v. MSM judgment and “direct impeachment” test requiring ‘allegation of fraud to be made specifically targeting the arbitration agreement for the dispute to go before courts when a standard arbitration agreement is contained in the main contract’; and criticising the approach of the Sup.

essence, to support its argument the ‘principle of separability’ was invoked by the appellant. The respondent, on the other hand, contended that, ‘the arbitration agreement was inoperative or incapable of being performed as allegations of fraud could be enquired into by the court and not by the arbitrator.’66 After an elaborate discussion on the interpretation of the terms null and void, and inoperative or incapable of being performed, which are used in Sec. 45, the court rightly concluded that:

“the arbitration agreement does not become “inoperative or incapable of being performed” where allegations of fraud have to be inquired into and the court cannot refuse to refer the parties to arbitration as provided in Section 45 of the Act on the ground that allegations of fraud have been made by the party which can only be inquired into by the court and not by the arbitrator.”

The Apex Court further correctly observed, that Sec. 45 ‘did not empower a court to decline reference to arbitration on the ground that another suit on the same issue is pending in the Indian court’.67 So, allowing the appeal and restoring the single judge’s decision, it held that the dispute should be decided by the arbitrator in accordance with the arbitration agreement viz., clause 9 between the parties. Despite the appreciable approach of the Supreme Court in relying on Sec. 45, in letter and spirit, the delay in disposal of this appeal is a cause of concern, considering that the Special Leave Petition to appeal, under Art. 136 of the Indian Constitution, was filed way back in the year 2010. It is suggested that in such matters, when the legislative policy and provisions clearly call for reference to arbitration, the Supreme Court should without any delay expeditiously dispose of such commercial cases. Any inordinate delay in reference to the arbitration may, apart from huge litigation costs and undermining the efficacy of arbitral tribunal’s autonomy, in certain cases, cause numerous avoidable problems for the arbitral tribunal, and result in pyrrhic victories in arbitration.

Ct. in subscribing to a literal interpretation of the arbitration agreement by looking at its scope).66 Id., ¶ 29.67 The Arbitration and Conciliation Act, supra note 13, § 9 (provides for certain useful interim measures by Court obtainable by a party before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced.).

VI. CONCLUSION

The 1996 Act was enacted to achieve this purpose of quick and cost-effective dispute resolution. Arbitration occupies a prime position in commercial dispute resolution in India. An examination of the working of 32 arbitration in India reveals that arbitration as an institution is still evolving, and has not yet reached the stage to effectively fulfill the needs accentuated with commercial growth. Viewed in its totality, India does not come across as a jurisdiction which carries an antiarbitration bias. Notwithstanding the interventionist instincts and expanded judicial review, Indian courts do restrain themselves from interfering with arbitral awards.61 However, there are still inherent problems that hindered in the working of successful arbitration in India which are multifold – starting from requirement for amendment of certain provision of law to changing the mindset of the stakeholders who are judges, arbitrators, lawyers and parties involved. Based on the identified problems, the following recommendations can be made:

(i) Universities in India could create a separate faculty or department for arbitration law to encourage specialized study and incisive research. Presently, none of the 259 universities in India has a separate faculty or department of arbitration law; nor is arbitration law taught as a specialized subject in any of the law colleges.

(ii) All stakeholders - arbitrators, judges and lawyers- should make efforts to change general attitude towards arbitration. Despite the 1996 Act’s prohibition of judicial intervention, (i.e. ‘no judicial authority shall intervene except where so provided in [that] part.’) courts continue to intervene in direct defiance of the agreement of the parties. Therefore, it is necessary for the players in arbitration proceedings (i.e. arbitrators, judges and lawyers) to know and to understand the direction of the new law, respect the will of the parties set out in arbitration clauses, and observe the dichotomy between arbitration and litigation. This change in the mindset must focus on the need to make the system more effective, attractive and functional.62

(iii) Power vested in the Chief Justice of a High Court (or any person or institution designated by him) for appointment of an arbitrator under Section 11 of the 1996 Act is not being used properly. The practice of appointing retired judges has recently come under strong criticism from the proponents of the alternate dispute resolution mechanism. There is reason for complaint that the appointment of arbitrators is widely perceived as avenues of patronage of superannuated judges. This practice should be corrected. Unless this is corrected, the legitimacy of Section 11 is bound to be seriously undermined. For instance, in the panels of arbitrators who may be selected by those having disputes, maintained by the American Arbitration Association, lawyers dominate in commercial fields of arbitration, college professors make up the second largest group of arbitrators, and physicians, dentists, accountants, managers and other professionals serve as arbitrators in cases recorded in the Encyclopedia Americana. Retired judges will not fit the bill for these categories.

(iv) There is requirement for legislative amendment to remove the anomaly which enables a defeated party to avoid execution of arbitral awards by merely filing an application for setting aside under Section 34 of the 1996 Act, without being required to deposit a part of the award amount. Ordinarily, this awarded amount would be deposited as a matter of course in case of a judgment debtor challenging a money decree before a civil court. In NALCO Ltd. vs. Pressteel Fabrications (P) Ltd.63, the Supreme Court of India has recently expressed a hope that suitable legislative action would undo this situation. The Court refused to impose any condition on the applicant pending disposal of its application for setting aside the award under Section 34, reasoning being that any such order would run counter to the letter and spirit of the Act. Nevertheless, the court did take judicial notice of the injustice that could be caused to the beneficiary of an arbitral award due to the ‘automatic’ stay by mere challenging of awards. The Arbitration and Conciliation (Amendment) Bill, 2003, appears to have partially remedied this flaw, but the Bill has not yet been taken up for consideration and passed by the Parliament.

(v) The government should disseminate knowledge of the benefits of alternate dispute resolution mechanisms to foster growth of an international arbitration culture amongst lawyers, judges and national courts. The real problem in enforcing foreign awards around the globe despite the enabling provision of the New York Convention, 1958, is not a legal one; but it is a lack of awareness particularly, amongst lawyers and judges, of the benefits of international arbitration and of its true consensual nature

(vi) Questions relating to lack of impartiality of arbitrators and procedural defects in the conduct of arbitration proceedings are the subject-matter of frequent litigation and hence add to the caseload before an already overburdened judiciary. In fact, judicial interventions with arbitral proceedings and awards in India have come to constitute a distinct branch of law, i.e. the ‘law of arbitration’. This trend clearly frustrates the foundational aim of providing for arbitration clauses - which is to ensure speedy and efficient dispute-resolution in the commercial context.

(vii) Provisions in the arbitration laws in India that require entire arbitral tribunals to impart effective interim measures at par with the authority of a national court should be amended, and an effective mechanism for carrying out these provisions should be put in place. Although the 1996 Act confers powers on arbitral tribunals to issue interim relief, there is variance in the degree and efficacy of these interim measures. Under the 1996 Act, the arbitral tribunal is possessed of limited powers to direct interim measures, pertaining to: - (a) protection of the subject matters in dispute; and (b) providing appropriate security in connection thereof. Moreover, an arbitral tribunal has no mechanism to enforce its own direction. For this reason, it can well be said that the arbitral tribunal does not have any coercive authority to secure implementation of its interim measures, which is like being a toothless tiger. No doubt, this is a flaw that weakens the entire arbitration mechanism, and at times makes it appear spineless.

(viii) There is an emerging trend to go for settlement of business disputes by institutional arbitration, provided such institutions maintain quality standards in conducting proceedings. The standards are evaluated in terms of professional arbitrators, infrastructure facilities, time and cost saving procedures and uniformity of laws - standards that will make the ADR system more sound and acceptable among the business community. Independent institutions should impart training for nurturing competent professionals who are trained to delve into the crux of the dispute for its resolution.