Tag Archives: Arbitration and Conciliation Act

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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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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Arbitration Agreement – Need Not be Signed by All the Parties

Section 7(3) of the Arbitration and Conciliation Act provides that the arbitration agreement shall be in writing, which is a mandatory requirement. Section 7(4) states that the arbitration agreement shall be in writing, if it is a document signed by all the parties. But a perusal of clauses (b) and (c) of Section 7(4) would show that a written document which may not be signed by the parties even then it can be arbitration agreement. Section 7(4)(b) provides that an arbitration agreement can be culled out from an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement. Govind Rubber Limited v. Louis Dreyfus Commodities Asia Private Limited, (2015) 13 SCC 477.

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Arbitral Tribunal – Award of Interest

Section 31(7) of the Arbitration and Conciliation Act, by using the words “unless otherwise agreed by the parties”, categorically specifies that the arbitrator is bound by the terms of the contract so far as award of interest from the date of cause of action to date of the award is concerned. Therefore, where the parties had agreed that no interest shall be payable, the Arbitral Tribunal cannot award interest.
In Union of India v. Saraswat Trading Agency, (2009) 16 SCC 504, the Hon’ble Apex Court has observed in the said case that if there is a bar against payment of interest in the contract, the arbitrator cannot award any interest for such period. Union of India v. Bright Power Projects (I) Pvt. Ltd., 2015 (4) AWC 3862.

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