Tag Archives: Arbitrator

Arbitral Award – Concept of Public Policy

In Oil and Natural Gas Corporation Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705 it was observed as under:

       “Therefore, in our view, the phrase “public policy of India” used in Section 34 in context is required to be given a wider meaning. It can be stated that the concept of public policy connotes some matter which concerns public good and the public interest. What is for public good or in public interest or what would be injurious or harmful to the public good or public interest has varied from time to time. However, the award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in public interest. Such award/judgment/decision is likely to adversely affect the administration of justice. Hence in addition to the narrower meaning given to the term “public policy” in Renusagar Power Company Ltd. v. General Electric Company, (1994) Supp (1) SCC 644, it is required to be held that the award could be set aside if it is patently illegal. The result would be – award could be set aside if it is contrary to:

  • Fundamental policy of India law; or
  • The interest of India; or
  • Justice or morality; or
  • In addition, if it is patently illegal.

Illegality must go to the root of the matter and if the illegality is of trivial nature, it cannot be held that award is against the public policy. Award could also be set aside if it is so unfair and unreasonable, that it shocks the conscience of the Court. Such award is opposed to public policy and is required to be adjudged void.” Uttar Haryana Bijli Vitran Nigam Ltd. v. M/s P.M. Electronics Ltd., 2020 (140) ALR 852.

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Acquiescence – On Appointment of Arbitrator

In Dharma Pratisthanam v. Madhok Construction (Pvt.) Ltd., (2005) 9 SCC 686, a three Judge Bench of the Hon’ble Supreme Court had the occasion to consider the effect of acquiescence on appointment of arbitrator. In that regard, the Hon’ble Supreme Court examined the difference between the unilateral appointment and unilateral reference. While both were termed to be illegal, at the same time, it was observed that it would make a difference if in respect of unilateral appointment and reference, other party submits to the jurisdiction of the arbitrator and waives its rights which it had under the agreement. In that situation, the arbitrator was held entitled to proceed with reference and the party submitting to his jurisdiction and participating in the proceedings precluded and estopped from raising any objection in that regard, at a later stage. If, however, that party had failed to act when called upon, it could not lead to an inference of implied consent or acquiescence being drawn. Thus, the appellant in that case was found to have not responded to the proposal by the other side to join in the appointment of the sole arbitrator. Such an act was not construed as its consent. Meerut Development Authority v. Civil Engineering Construction Corporation, 2020 (3) AWC 2532.

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Petition Under Section 11(6) of the Arbitration & Conciliation Act – Cause of Action

Sub-Section (5) of Section 11 clearly provides that if the parties fail to agree upon any procedure for appointment of an arbitrator, then the party has to call upon other with a request regarding the appointment of an arbitrator requested and in case if the other person declines or the appointment procedure fails, then it gives a cause of action to the person so concerned to file a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996. Invocation of Section 11(6) of the Arbitration and Conciliation Act, 1996 is squarely based on a default of a party.        

Under Section 11(6) of the Arbitration and Conciliation Act, 1996 the Court has jurisdiction to make the appointment only when the person including an institution, fails to perform any function entrusted to it under that procedure. Deepak Goel v. Avinash Chandra, 2020 (4) AWC 3720 (LB).

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Rule for – Appointment of a Substitute Arbitrator

Under Section 15(2) of the Arbitration and Conciliation Act, 1996, in a situation where the mandate of an arbitrator terminates, a substitute arbitrator is required to be appointed according to the rules that were applicable to the appointment of the arbitrator who is replaced. In Yashwith Constructions (P) Ltd. v. Simplex Concrete Piles India Ltd., (2006) 6 SCC 204, the term “rules” appearing in Section 15(2) of the Act has been understood to be referring to the provisions for appointment contained in the arbitration agreement or any rules of any institution under which the disputes are to be referred to arbitration.

        The Hon’ble Apex Court in Government of Haryana v. G.F. Toll Road Pvt. Ltd., (2019) 3 SCC 505, it was held as under:

        “The High Court while considering the appointment under Section 15 failed to take note of the provisions of Section 15(2) of the Arbitration and Conciliation Act. Section 15(2) provides that a substitute arbitrator must be appointed according to the rules that are applicable for the appointment of the arbitrator being replaced. This would imply that the appointment of a substitute arbitrator must be according to the same procedure adopted in the original agreement at the initial stage. Deepak Goel v. Avinash Chandra, 2020 (4) AWC 3720 (LB).

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Seat of Arbitration – Vital aspect of any Arbitration Proceedings

The seat of arbitration is a vital aspect of any arbitration proceedings. Significance of the seat of arbitration is that it determines the applicable law when deciding the arbitration proceedings and arbitration procedure as well as judicial review over the arbitration award. The situs is not just about where an institution is based or where the hearings will be held. But it is all about which court would have the supervisory power over the arbitration proceedings. In Enercon (India) Ltd. v. Enercon GmbH, (2014) 5 SCC 1, it was held as under:

       “The location of the seat will determine the courts that will have exclusive jurisdiction to oversee the arbitration proceedings. It was further held that the seat normally carries with it the choice of that country’s arbitration/curial law.”

It is well settled that “seat of arbitration” and “venue of arbitration” cannot be used interchangeably. It has also been established that mere expression “place of arbitration” cannot be the basis to determine the intention of the parties that they have intended that place as the “seat” of arbitration. The intention of the parties as to the “seat” should be determined from other clauses in the agreement and the conduct of the parties.” Mankastu Impex Pvt. Ltd. v. Airvisual Ltd., (2020) 5 SCC 399.

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Nature of Arbitral Proceedings – Determination of

When both the purchase order as also the pricing agreement subsists and both the said documents contain the arbitration clauses which are not similar to one another, in order to determine the nature of the arbitral proceedings the said two documents will have to be read in harmony or reconciled so as to take note of the nature of the dispute that had arisen between the parties which would require resolution through arbitration and thereafter arrive at the conclusion as to whether the application filed under Section 11 of the Arbitration and Conciliation Act, 1996 would be sustainable so as to appoint an Arbitrator by invoking Clause 7 of the purchase order; more particularly in a situation where the Arbitral Tribunal has already been constituted in terms of Clause 23 of the agreement.    

    In that view of the matter, when admittedly the parties had entered into an agreement and there was no consensus ad idem to the terms and conditions contained therein which is comprehensive and encompassing all terms of the transaction and such agreement also contains an arbitration clause which is different from the arbitration clause provided in the purchase order which is for the limited purpose of supply of the produce with more specific details. In that view, it would not be appropriate for the applicant to invoke clause 7 of the purchase order more particularly when the arbitration clause contained in the agreement has been invoked and the Arbitral Tribunal has already been appointed. Balasore Alloys Limited v. Medima LLC, (2020) 9 SCC 136.

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Invocation of Arbitration Clause – After Final Settlement

In Nathani Steels Ltd. v. Associated Constructions, 1995 Supp (3) SCC 324, it was held as under:        

“Even otherwise we feel that once the parties have arrived at a settlement in respect of any dispute or difference arising under a contract and that dispute or the difference is amicable settled by way of a final settlement by and between the parties, unless that settlement is set aside in proper proceedings, it cannot lie in the mouth of one of the parties to the settlement to spurn it on the ground that it was a mistake and proceed to invoke the arbitration clause. If this is permitted the sanctity of contract, the settlement also being a contract, would be wholly lost and it would be open to one party to take the benefit under the settlement and then to question the same on the ground of mistake without having the settlement set aside.” WAPCOS Ltd. v. Salma Dam Joint Venture, (2020) 3 SCC 169.

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Appointment of Substitute Arbitrator

The legal consequence is well taken care of by the provisions of Section 15(1) of the Arbitration and Conciliation Act, 1996 read with Section 2 of the Act which provides, where the Arbitrator withdraws from office for any reason, a substitute arbitrator should be appointed according to the Rules that were applicable to the appointment of the arbitrator being replaced.        Therefore in the first place a substitute arbitrator may be appointed in view of the clear provisions of law in that regard. Second as to the procedure to be followed, again there is no doubt that it would have to remain the same as had been followed at the time of appointment of the arbitrator who has rescued himself. M/s Manish Engineering Enterprises v. Indian Farmers Fertilizers Cooperative Ltd., 2020 (138) ALR 930.

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Application under Section 36(3) of the Arbitration Act – Provisions of CPC are Not Mandatory

Sub-section (3) of Section 36 of the Arbitration Act mandates that while considering an application for stay filed along with or after filing of objection under Section 34 of the Arbitration Act, if stay is to be granted then it shall be subject to such conditions as may be deemed fit. The said sub-section clearly mandates that the grant of stay of the operation of the award is to be for reasons to be recorded in writing “subject to such conditions as it may deem fit”. The proviso makes it clear that the Court has to “have due regard to the provisions for grant of stay of a money decree under the provisions of the Code of Civil Procedure”. The phrase “have due regard to” would only mean that the provisions of CPC are to be taken into consideration, and not that they are mandatory. While considering the phrase “having regard to”, this Court in Shri Sitaram Sugar Co. Ltd. v. Union of India, (1990) 3 SCC 223 has held as under :

“The words “having regard to” in sub-section are the legislative instruction for the general guidance of the Government in determining the price of sugar. They are not strictly mandatory, but in essence directory”.

 In the present context, the phrase used is “having regard to” the provisions of CPC and not “in accordance with” the provisions of CPC. In the latter case, it would have been mandatory, but in the form as mentioned in Section 36(3) of the Arbitration Act, it would only be directory or as a guiding factor. Mere reference to CPC in the said Section 36 cannot be construed in such a manner that it takes away the power conferred in the main statute (i.e. the Arbitration Act) itself. It is to be taken as a general guideline, which will not make the main provision of the Arbitration Act inapplicable. The provisions of CPC are to be followed as a guidance, whereas the provisions of the Arbitration Act are essentially to be first applied. Since, the Arbitration Act is a self-contained Act, the provisions of CPC will apply only insofar as the same are not inconsistent with the spirit and provisions of the Arbitration Act. Pam Developments (P) Ltd. v. State of W.B., (2019) 8 SCC 112

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Invalidity of the Main Agreement – May attach itself to the Arbitration Agreement

Where the contract or instrument is voidable at the option of a party (as for example under Section 19 of the Contract Act, 1872), the invalidity that attaches itself to the main agreement may also attach itself to the arbitration agreement, if the reasons which make the main agreement voidable, exist in relation to the making of the arbitration agreement also. For example, if a person is made to sign an agreement to sell his property under threat of physical harm or threat to life, and the said person repudiates the agreement on that ground not only the agreement for sale, but any arbitration agreement therein will not be binding. Garware Wall Ropes Ltd. v. Coastal Marine Constructions and Engineering Ltd., (2019) 9 SCC 209.

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