Tag Archives: Arbitration and Conciliation Act

Appointment of Arbitrator – Arbitrability of Dispute

In Booz Allen and Hamnilton Inc. v. S.B.I. Home Finance Ltd., (2011) 5 SCC 532, Hon’ble Supreme Court considered the arbitrability of dispute and scope of Section 11 of the Arbitration and Conciliation Act and held as under:

       “The nature and scope of issues arising for consideration in an application under Section 11 of the act for appointment of arbitrators, are far narrower than those arising in an application under Section 8 of the Act, seeking reference of the parties to a suit to arbitration. While considering an application under Section 11 of the Act, the Chief Justice or his designate would not embark upon an examination of the issue of “arbitrability” or appropriateness of adjudication by a private forum, once he finds that there was an arbitration agreement between or among the parties, and would leave the issue of arbitrability for the decision of the Arbitral Tribunal. If the arbitrator wrongly holds that the dispute is arbitrabe, the aggrieved party will have to challenge the award by filing an application, under Section 34 of the Act, relying upon sub-section 2(b)(i) of that Section.”
       In Dura Felguera, S.A. v. Gangavaram Port Ltd., (2017) 9 SCC 729, Hon’ble Supreme Court considered the provisions of sub-section (6) and sub-section (6A) of Section 11 of the Arbitration and Conciliation Act, 1996 and held as under:

       “From a reading of Section 11(6A), the intention of the legislature is quite clear, i.e. the court should and need only look into one aspect – the existence of an arbitration agreement. What are the factors for deciding as to whether there is an arbitration agreement is the next question. The resolution to that is simple – it needs to be seen if the agreement contains a clause which provides for arbitration pertaining to the disputes which have arisen between the parties to the agreement.” Swatantra Properties (P) Ltd. v. Airplaza Retail Holdings Pvt. Ltd., 2018 (5) AWC 5168.

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Arbitral Award – Extension of Time

Section 29-A of the Arbitration and Conciliation Act, 1996 provides for the award to be made within a period of twelve months from the date the arbitral tribunal enters upon the reference. Sub-section (2) provides for an incentive in the form of fees to the arbitral tribunal if the award is made within a period of six months from the date the arbitral tribunal enters upon the reference. Time for making award as provided under sub-section (1), may be extended with the consent of parties for a further period of not exceeding six months. In the event, award is not made within the period specified under sub-section (1) or the extended period specified under sub-section (3), the mandate of the arbitrator(s) shall terminate unless the court has, either prior to or after the expiry of the period so specified, extend the period, provided that while extending the period, if the court finds that the proceedings have been delayed for the reasons attributable to the arbitral tribunal, then, it may order reduction of fees of arbitrator(s) by not exceeding five percent for each month of such delay. Thus, while sub-section (2) provides an incentive for disposal of arbitration proceeding within a time bound period, sub-section (4) provides for reduction in fees of the arbitral tribunal in the event award is not made within a period of twelve months or within extended period of six months.

      The power to extend the period is vested in the parties who may extend the period by consent upto six months. The power to extend the period vested in court under sub-section (5), is required to be exercised by the court on application of mind. The period can be extended by court only for sufficient cause and on such terms and conditions as may be imposed by the court. Sub-section (6) further confers power to the court that while extending the period referred to in sub-section (4), it may substitute one or all of the arbitrators and if one or all of the arbitrators are substituted, the arbitral proceedings shall continue from the stage already reached and on the basis of the evidence and material already on record, and the arbitrator(s) appointed under this section shall be deemed to have received the said evidences and material. The arbitral tribunal so reconstituted shall be deemed to be in continuation of the previously appointed arbitral tribunal. To discourage the delay in conclusion of the arbitral proceedings, the court has been conferred power under sub-section (8) to impose actual or exemplary costs upon any of the parties. Jairath Constructions v. Triveni Engineering and Industries Ltd., 2018 (5) AWC 4676.

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Arbitral Tribunal – Powers Under Section 17 of the Act

 

Under Section 17, the Arbitral Tribunal has the power to order interim measures of protection, unless the parties have excluded such power by agreement. Section 17 is an important provision, which is crucial to the working of the arbitration system, since it ensures that even for the purposes of interim measures, the parties can approach the Arbitral Tribunal rather than await orders from a court. The efficacy of Section 17 is however, seriously compromised given the lack of any suitable statutory mechanism for the enforcement of such interim orders of the Arbitral Tribunal.

In Sundaram Finance Ltd. v. NEPC India Ltd. [Sundaram Finance Ltd.v. NEPC India Ltd., (1999) 2 SCC 479], the Hon’ble Supreme Court observed that though Section 17 gives the Arbitral Tribunal the power to pass orders, the same cannot be enforced as orders of a court and it is for this reason only that Section 9 gives the court power to pass interim orders during the arbitration proceedings. Subsequently, in Army Welfare Housing Organisationv. Sumangal Services (P) Ltd. [Army Welfare Housing Organisation v. Sumangal Services (P) Ltd., (2004) 9 SCC 619] , the Court had held that under Section 17 of the Act no power is conferred on the Arbitral Tribunal to enforce its order nor does it provide for judicial enforcement thereof.

In the face of such categorical judicial opinion, the Hon’ble Delhi High Court attempted to find a suitable legislative basis for enforcing the orders of the Arbitral Tribunal under Section 17 in Sri Krishan v. Anand [Sri Krishan v. Anand, 2009 SCC OnLine Del 2472 : (2009) 112 DRJ 657 : (2009) 3 Arb LR 447] [followed in Indiabulls Financial Services Ltd. v. Jubilee Plots & Housing (P) Ltd. [Indiabulls Financial Services Ltd. v. Jubilee Plots & Housing (P) Ltd., 2009 SCC OnLine Del 2458] ]. The Delhi High Court held that any person failing to comply with the order of the Arbitral Tribunal under Section 17 would be deemed to be “making any other default” or “guilty of any contempt to the Arbitral Tribunal during the conduct of the proceedings” under Section 27(5) of Act. The remedy of the aggrieved party would then be to apply to the Arbitral Tribunal for making a representation to the court to mete out appropriate punishment. Once such a representation is received by the court from the Arbitral Tribunal, the court would be competent to deal with such party in default as if it is in contempt of an order of the court i.e. either under the provisions of the Contempt of Courts Act or under the provisions of Order 39 Rule 2-A of the Code of Civil Procedure, 1908. Alka Chandewar v. Shamshul Ishrar Khan, (2017) 16 SCC 119 

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Valid Arbitration Agreement – Pre-Requisites of

Para 22 of the judgment in P. Dasaratharama Reddy Complex v. State of Karnataka, (2014) 2 SCC 201 is important and sets out from K.K. Modi v. K.N. Modi, (1998) 3 SCC 573 as to what are the valid pre-requisites for a valid arbitration:

“One of the questions formulated by the Court was whether clause 9 of the memorandum of understanding constituted an arbitration agreement and whether the decision of the Chairman, IFCI constituted an award. It was held as under:

“(1) The arbitration agreement must contemplate that the decision of the tribunal will be binding on the parties to the agreement,

(2) That the jurisdiction of the tribunal to decide the rights of the parties must derive either from the consent of the parties or from an order of the court or from a Statute, the terms of which make it clear that the process is to be an arbitration,

(3) The agreement must contemplate that substantive rights of parties will be determined by the agreed tribunal,

(4) That the tribunal will determine the rights of the parties in an impartial and judicial manner with the tribunal owing an equal obligation of fairness towards both sides,

(5) That the agreement of the parties to refer their disputes to the decision of the tribunal must be intended to be enforceable in law and lastly,

(6) The agreement must contemplate that the tribunal will make a decision upon a dispute which is already formulated at the time when a reference is made to the tribunal.

The other factors which are relevant include, whether the agreement contemplates that the tribunal will receive evidence from both sides and hear their contentions or at least give the parties an opportunity to put them forward; whether the wording of the agreement is consistent or inconsistent with the view that the process was intended to be an arbitration, and whether the agreement requires the tribunal to decide the dispute according to law.

In Bihar State Mineral Development Corporation v. Encon Builders (India) (P) Ltd., (2003) 7 SCC 418, it was held that a clause which is inserted in an agreement for the prevention of a dispute, will not be an arbitration agreement. Shyam Sunder Agarwal v. P. Narotham Rao, (2018) 8 SCC 230.

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Power of Arbitrator – To grant interest pendente lite

In Irrigation Department v. G.C. Roy, (1992) 1 SCC 508, the Hon’ble Apex Court thoroughly considered the question of power of the arbitrator to award interest pendente lite and held that when the agreement between the parties does not prohibit grant of interest and where the party claims interest and that dispute has been referred to an arbitrator does have the power to award interest pendente lite.

Subsequently in Port of Calcutta v. Engineers-De-Space-Age, (1996) 1 SCC 516 and Madnani Construction Corporation (P) Ltd. v. Union of India, (2010) 1 SCC 549 held that according to the view taken in Irrigation Department v. G.C.Roy, (1992) 1 SCC 508, the arbitrator does have the power to award interest pendente lite. The Court observed that it essentially depends upon the ouster in each clause, which means that unless there is an express bar that provides that the arbitrator cannot award interest pendente lite, the grant of interest pendente lite will predominantly be based on the arbitrator’s discretion to award the same.

In Sayeed Ahmed and Co. v. State of U.P., (2009) 12 SCC 26, the Hon’ble Apex Court referred to the decision in Superintending Engineer v. B.Subba Reddy, (1999) 4 SCC 423 and observed thus:

“Two more decisions dealing with cases arising under the Arbitration Act, 1940 require to be noticed. In Superintending Engineer v. B.Subba Reddy, (1999) 4 SCC 423 the Hon’ble Apex Court held that interest for pre-reference period can be awarded only if there was an agreement to that effect or if it was allowable under the Interest Act, 1978. Therefore, claim for interest for pre-reference period, which is barred as per the agreement or under the Interest Act, 1978 could not be allowed. The Court however held that the arbitrator can award interest pendente lite and future interest.”

A three Judge Bench of the Hon’ble Apex Court in Union of India v. Ambica Contsruction, (2016) 6 SCC 36, held that the power of an arbitrator to grant pendente lite interest will depend upon several factors such as; phraseology used in the agreement clauses conferring power relating to arbitration, nature of claim and dispute referred to arbitrator, and on what items power to award interest has been taken away and for which period. It was observed:

“Thus, our answer to the reference is that if the contract expressly bars the award of interest pendente lite, the same cannot be awarded by the arbitrator. We also make it clear that the bar to award interest on delayed payment by itself will not be readily inferred as express bar to award interest pendente lite by the arbitral Tribunal, as ouster of power of the arbitrator has to be considered on various relevant aspects referred to in the decisions of this Court, it would be for the Division Bench to consider the case on merits.”

Further, the Hon’ble Apex Court considered an identical clause in the contract in Ambica Construction v. Union of India, (2017) 14 SCC 323, wherein it observed that the clause of GCC did not bar the arbitrator from awarding interest pendente lite and affirmed the award passed by the arbitrator. The three Judge Bench of the Court held that the contention raised by the Union of India based on the clause of GCC that the arbitrator could not award interest pendente lite was not a valid contention and the arbitrator was completely justified in granting interest pendente lite. Relying on the three Judge Bench judgment in Union of India v. Ambica Contsruction, (2016) 6 SCC 36 and Irrigation Department v. G.C.Roy, (1992) 1 SCC 508, the Court held that the bar to award interest on the amounts payable under the contract would not be sufficient to deny the payment of interest pendente lite. Raveechee and Company v. Union of India, (2018) 7 SCC 664.

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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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