Category Archives: Arbitration

Non-Arbitrable Disputes

Ordinarily every civil or commercial dispute whether based on contract or otherwise which is capable of being decided by a Civil Court is in principle capable of being adjudicated upon and resolved by arbitration “subject to the dispute being governed by the arbitration agreement” unless the jurisdiction of the Arbitral Tribunal is excluded either expressly or by necessary implication.
In Booz-Allen and Hamilton Inc. v. SBI Home Finance Ltd., (2011) 5 SCC 532, the Hon’ble Apex Court set down certain examples of non-arbitrable disputes such as:
(a) Disputes relating to rights and liabilities which give rise to or arise out of criminal offences;
(b) Matrimonial Disputes relating to divorce, judicial separation, restitution of conjugal rights and child custody;
(c) Matters of Guardianship;
(d) Insolvency and Winding Up.
(e) Testamentary matters, such as the grant of probate, letters of administration and succession certificates; and
(f) Eviction or tenancy matters governed by special statutes where a tenant enjoys special protection against eviction and specific courts are conferred with the exclusive jurisdiction to deal with the dispute.
(g) The enforcement of a mortgage has been held to be a right in rem for which proceedings in arbitration would not be maintainable. In Vimal Kishore Shah v. Jayesh Dinesh Shah, 2016 (119) ALR 428, the Hon’ble Apex Court added a seventh category of cases, namely, disputes relating to trusts, trustees and beneficiaries arising out of a trust deed and Trust Act.

In Skypak Courier Ltd.v. Tata Chemicals Ltd., 2000 (40) ALR 255, it was held that the existence of an arbitration clause will not be a bar to the entertainment of a complaint by a forum under the Consumer Protection Act, 1986, since the remedy provided under the law is in addition to the provisions of any other law for the time being in force. Hindustan Petroleum Corporation Ltd. v. Kamalkant Automobiles, 2017 (123) ALR 369.

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Arbitration – Independence and Impartiality are two different concepts

Independence and impartiality are two different concepts. An arbitrator may be independent and yet, lack impartiality, or vice versa. Impartiality, as is well accepted, is a more subjective concept as compared to independence. Independence, which is more an objective concept, may, thus, be more straightforwardly ascertained by the parties at the outset of the arbitration proceedings in light of the circumstances disclosed by the arbitrator, while partiality will more likely surface during the arbitration proceedings.
The United Kingdom Supreme Court has highlighted this aspect in Hashwani v. Jivraj, (2011) 1WLR 1872 in the following words:
“the dominant purpose of appointing an arbitrator or arbitrators is the impartial resolution of the dispute between the parties in accordance with the terms of the agreement and, although the contract between the parties and the arbitrators would be a contract for the provision of personal services, they were not personal services under the direction of the parties.” Voestalpine Schienen GMBH v. Delhi Metro Rail Corporation Ltd., (2017) 4 SCC 665.

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Appointment of an Impartial Arbitrator

It is settled that in exercise of jurisdiction under Section 11 of the Arbitration and Conciliation Act, the Court is to enforce terms of agreement for securing appointment of arbitrator. However, it is not denuded of jurisdiction to follow a different course, for justifiable cause, by giving reasons. Different contingencies requiring such departure have clearly been noticed. The ultimate object is to secure appointment of an impartial arbitrator and secure speedy resolution of dispute by way of arbitration. The scheme underlying the Arbitration and Conciliation Act has to be construed by harmoniously interpreting its provisions. It is imperative for the court to examine qualification and impartiality of arbitrator as well as to secure speedy resolution of dispute. The terms of arbitration agreement providing for arbitrator to be named by designation cannot be read in isolation. It also cannot be construed in a manner inconsistent with the scheme of the Act. The question is answered holding that an application under Section 11(6) of the Arbitration and Conciliation Act would lie also in a case where arbitrator is named, by designation, where (i) arbitrator named is not impartial, or (ii) he lacks required qualification, or (iii) for any other justifiable cause to secure speedy resolution of dispute, by way of a reasoned order. M/s AARGEE Engineering and Company v. ERA Infra Engineering Ltd., 2017 (122) ALR 179.

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Reference of Dispute – To Arbitration

Once there is an agreement between the parties to refer the disputes or differences arising out of the agreement to arbitration, and in case either party, ignoring the terms of the agreement, approaches the civil court and the other party, in terms of Section 8 of the Arbitration and Conciliation Act, moves the court for referring the parties to arbitration before the first statement on the substance of the dispute is filed, in view of the peremptory language of Section 8 of the Arbitration and Conciliation Act, it is obligatory for the court to refer the parties to Arbitration in terms of the agreement, as held in P. Anand Gajapathi Raju v. P.V.G. Raju, (2000) 4 SCC 539.
It was further explained in Hindustan Petroleum Corporation Ltd. v. Pinkcity Midway Petroleums, (2003) 6 SCC 503, thus:
“In cases where there is an arbitration clause in the agreement, it is obligatory for the court to refer the parties to arbitration in terms of their arbitration agreement and nothing remains to be decided in the original action after such an application is made except to refer the dispute to an arbitrator. Therefore, it is clear that if, as contended by a party in an agreement between the parties before the civil court, there is a clause for arbitration, it is mandatory for the civil court to refer the dispute to an arbitrator.”
In Magma Leasing and Finance Ltd. v. Potluri Madhavilata, (2009) 10 SCC 103, the position has been restated holding that no option is left to the court, once the prerequisite conditions of Section 8 are fully satisfied. Sundaram Finance Ltd. v. T. Thankam, (2015) 14 SCC 444.

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Companies Act – Right to Appeal

In the case of M/s Videocon International Ltd. v. S.E.B.I., (2015) 4 SCC 33 a right of appeal has been understood to be a substantive right and not a mere procedural right so as to affect it’s applicability upon any amendment. The forum of appeal as provided under Section 483 of the Companies Act would not stand altered as no such provision in such a situation is contemplated so as to transfer the right of appeal before the Company Appellate Tribunal.
The enforcement of Section 303 of the Companies Act w.e.f. 15.12.2016 would not repeal the right or abrogate the right of a person to file an appeal against the order of a learned Single Judge in a company petition for which the High Court continues to have jurisdiction to decide the matter. The Company Appellate Tribunal has not been conferred with any such authority specifically as an alternative, granting a right of appeal as against an order of a learned Single Judge passed in a company petition. In the absence of any such specific conferment of power on the Company Appellate Tribunal the powers statutorily granted under Section 483 of the Companies Act would stand revealed, cannot be repealed. The doctrine of implies repeal, therefore, will have no application in view of the aforesaid background of the legislation as no such express intention can be gathered from the same. J.R. Organics Ltd. v. Jupiter Dyechem Pvt. Ltd., 2017 (1) AWC 751.

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Fraud – Arbitrability of

“Fraud” is a knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his detriment. Fraud can be of different forms and hues. Its ingredients are an intention to deceive, use of unfair means, deliberated concealment of material facts, or abuse of position of confidence. The Black’s Law Dictionary defines “fraud” as a concealment or false representation through a statement or conduct that injures another who relies on it.

The issue of arbitrability of fraud has arisen on numerous occasions and there exist conflicting decisions of the Apex Court on this issue. While it has been held in Bharat Rasiklal Ashra v. Gautam Rasiklal Ashra, (2012) 2 SCC 144 that when fraud is of such a nature that it vitiates the arbitration agreement, it is for the court to decide on the validity of the arbitration agreement by determining the issue of fraud, there exists two parallel lines of judgments on the issue of whether an issue of fraud is arbitrable. In this context, a two Judge Bench of the Supreme Court while adjudicating on an application under section 8 of the Arbitration and Conciliation Act, 1996 in N. Radhakrishnan v. Maestro Engineers, (2010) 1 SCC 72, held that an issue of fraud is not arbitrable. The decision was ostensibly based on the decision of the three Judge Bench of the Supreme Court in Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak, AIR 1962 SC 406. However, the said three Judge Bench decision (which was based on the finding in Russel v. Russel, (1880) LR 14 Ch D 471) is only an authority for the proposition that a party against whom an allegation of fraud is made in a public forum, has a right to defend himself in that public forum.

A distinction has also been made by certain High Courts between a serious issue of fraud and a mere allegation of fraud and the former has been held to be not arbitrable. The Supreme Court in Meguin GmbH v. Nandan Petrochem Ltd., (2016) 10 SCC 422 in the context of an application filed under Section 11 has gone ahead and appointed an arbitrator even though issues of fraud were involved. A. Ayyasamy v. A. Parmasivam, (2016) 10 SCC 386.

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Arbitration – Ingredients of

According to concise law dictionary by Mozley and Whiteley, ‘Arbitration’ means where two or more parties submit all matters in dispute to the judgment of Arbitrator who is to decide the controversy. Halsbury defines’ Arbitration as “the reference of dispute or difference between not less than two parties, for determination, after both sides in a judicial manner, by a person or persons other than a court of competent jurisdiction.” Taking into account the definition of arbitration by Halsbury, the following ingredients would be necessary to constitute the arbitration:

  • There is a real dispute between two or more parties;
  • There is arbitration clause in the agreement for reference of dispute to the arbitration;
  • According to the arbitration clause the dispute or difference is referred to person or persons other than a court of competent jurisdiction;
  • Such person or persons constituting arbitration are obliged to hear both the parties and decide the dispute in a judicial manner.

Clause (h) of Section 2(1) of the Arbitration and Conciliation Act, 1996 defines the expression “party” to mean ‘a party to an arbitration agreement.’ This clause is also a new one and did not exist in the old Act of 1940. This expression is also not mentioned in UNCITRAL Model Law and is not available under the English Arbitration Act, 1996. The definition makes it clear that a party, which is not a party to an arbitration agreement, is not covered within the definition of term “Party” for the purpose of Arbitration and Conciliation Act, 1996. The definition of ‘party’ will also include the legal representatives of such party. A person who is not a party to an arbitration agreement cannot pray for the enforcement of the agreement or the appointment of an arbitrator. The term ‘party’ in this clause has narrowed down the scope of the word ‘party’ as commonly understood. It has made clear that non-parties to the contract have no right under the Act for seeking Arbitration and consequently an Award. Bharat Catering Corporation v. Indian Railway Catering and Tourism Corporation Ltd., 2016 (118) ALR 666.

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