Tag Archives: contract

Applicability of Arbitration & Conciliation Act, 1996

Sub-section (1) of Section 85 of the Arbitration and Conciliation Act, 1996 repealed three enactments including the Arbitration Act, 1940. Sub-section (2) stipulates, inter alia, that notwithstanding such repeal, the repealed enactment, namely, the 1940 Act would continue to apply in relation to arbitral proceedings which had commenced before the 1996 Act came into force unless the parties were to agree otherwise. The second limb of first clause of said sub-section (2) further stipulates that notwithstanding such repeal, the provisions of the 1996 Act would apply in relation to arbitral proceedings which commenced on or after the 1996 Act came into force.

As is clear from MMTC Ltd. v. Sterlite Industries (India) Ltd., (1996) 6 SCC 716, what is material for the purposes of the applicability of the 1996 Act is the agreement between the parties to refer the disputes to arbitration. If there be such an arbitration agreement which satisfies the requirements of Section 7 of the 1996 Act, and if no arbitral proceeding had commenced before the 1996 Act came into force, the matter would be completely governed by the provisions of the 1996 Act. Any reference to 1940 Act in the arbitration agreement would be of no consequence and the matter would be referred to arbitration only in terms of the 1996 Act consistent with the basic intent of the parties as discernible from the arbitration agreement to refer the disputes to arbitration.

In situations where the relevant clause made reference to the applicability of “the provisions of the Indian Arbitration Act and Rules made thereunder” as was the case in MMTC Ltd. v. Sterlite Industries (India) Ltd., (1996) 6 SCC 716, on the strength of Section 85(2)(a) the governing provisions in respect of arbitral proceedings which had not commenced before 1996 Act had come into force would be those of the 1996 Act alone. On the same reasoning even if an arbitration agreement entered into after the 1996 Act had come into force were to make a reference to the applicable provisions of those under Indian Arbitration Act or the 1940 Act, such stipulation would be of no consequence and the matter must be governed under the provisions of the 1996 Act. An incorrect reference or recital regarding applicability of the 1940 Act would not render the entire arbitration agreement invalid. Such stipulation will have to be read in the light of Section 85 of the 1996 Act and the principles governing such relationship have to be under and in tune with the 1996 Act. Purushottam v. Anil, (2018) 8 SCC 95.

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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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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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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.

In Rukmanbai Gupta v. Collector, (1980) 4 SCC 556, Hon’ble Supreme Court held that Arbitration agreement is not required to be in any particular form. What is required to be ascertained is whether the parties have agreed that if the dispute arises between them in respect of the subject matter of contract, such dispute shall be referred to arbitration, then such an arrangement would spell out an arbitration agreement.

Section 7(4) of the Arbitration and Conciliation Act defines an agreement to be an arbitration agreement is in writing if it contained (a) a document signed by the parties; (b) an exchange of letters, telex, telegrams or other means of telecommunication [including communication through electronic means] which provide a record of the agreement; or (c) 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.

Thus, it can be safely concluded that an arbitration agreement need not be signed by the parties if the record of the agreement is provided by exchange of letters, telex, telegrams or other means of telecommunication. Sub-section 4(c) of Section 7 of the Act provides that there can be 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. Due to development of Science and Technology, the statutory recognition of agreement in circumstances mentioned in clauses (b) and (c) of Section 7(4) of the Act, can be easily understood in the present day of E-commerce and internet purchases, tele purchases, ticket booking on internet where agreements are entered in standard forms of contract and terms and conditions are agreed upon. In such agreement, if the identity of the parties is established and there is a record of agreement and if there is an Arbitration clause showing that parties are ad-idem, then the signature is not a mandatory requirement under clauses (b) and (c) of sub-section (4) of the Act or under sub-section (5) of Section 7 of the Act. M/s Blue Star Ltd. v. M/s Z-Square Shopping Mall Pvt. Ltd., 2018 (129) ALR 836.

 

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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.

The grant of award of interest on arbitrable claims by the Arbitral Tribunal is not inherently illegal or against any public policy or per se bad in law or beyond the powers of the Arbitral Tribunal. In other words, it is permissible to award interest in arbitrable claims by the Arbitral Tribunal.

Indeed, Sections 31(7)(a) and (b) of the Act empower the Arbitral Tribunal to award interest on the awarded sum and secondly, it is always subject to the agreement between the parties.

It is a well settled principle in Arbitration Law that the award of an Arbitral Tribunal once passed is binding on the parties. The reason being that the parties having chosen their own arbitrator and given him authority to decide the specific disputes arising between them must respect his decision as far as possible and should not make any attempt to find fault in each issue decided by him only because it is decided against one party. It is only when the issue decided is found to be bad in law in the light of any of the specified grounds set out in Section 34 of the Act, the Court may consider it appropriate to interfere in the award else not. Union of India v. Susaka Pvt. Ltd., (2018) 2 SCC 182.

 

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Arbitration Agreement – Signature is Not a Formal Requirement

Section 7(3) of the Arbitration and Concilitaion Act states 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 agreement can be culled out from an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement.
Reading the provision it can safely be concluded that an arbitration agreement is provided by exchange of letters, telex, telegrams or other means of telecommunication. Section 7(c) provides that there can be an arbitration agreement in the exchange of statements of claims and defence in which the existence of the agreement is alleged by one party and not denied by the other. If it can be prima facie shown that the parties are at ad idem, then mere fact of one party not signing the agreement cannot absolve himself from the liability under the agreement. In the present day of E-commerce, in cases of internet purchases, tele purchases, ticket booking on the internet and in standard forms of contract, terms and conditions are agreed upon. In such agreements, if the identity of the parties is established, and there is a record of agreement it becomes and arbitration agreement if there is an arbitration clause showing ad idem between the parties. Therefore, signature is not a formal requirement under Section 7(4)(b) or 7(4)(c) or under 7(5) of the Act. M/s Govind Rubber Ltd. v. M/s Loids Dreyfus Commodities Asia P. Ltd., 2015 (108) ALR 735.

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Jurisdiction of Arbitrators – Construction of Contract

In McDermott International v. Burn Standard Co., (2006) 11 SCC 181, it was held as under:
“It is trite that the terms of the contract can be express or implied. The conduct of the parties would also be a relevant factor in the matter of construction of a contract. The construction of the contract agreement is within the jurisdiction of the arbitrators having regard to the wide nature, scope and ambit of the arbitration agreement and they cannot be said to have misdirected themselves in passing the award by taking into consideration the conduct of the parties. It is also trite that correspondences exchanged by the parties are required to be taken into consideration for the purpose of construction of a contract. Interpretation of a contract is a matter for the arbitrator to determine, even if it gives rise to determination of a question of law.
Once, thus, it is held that the arbitrator had the jurisdiction, no further question shall be raised and the court will not exercise its jurisdiction unless it is found that there exists any bar on the face of the award.”
In M.S.K. Projects (I)(JV) Ltd. v. State of Rajasthan, (2011) 10 SCC 573, the court held:
“If the arbitrator commits an error in the construction of the contract, that is an error within his jurisdiction. But of he wanders outside the contract and deals with matters not allotted to him, he commits a jurisdictional error. Extrinsic evidence is admissible in such cases because the dispute is not something whjich arises under or in relation to the contract or dependant on the construction of the contract or to be determined within the award. The ambiguity of the award can, in such cases, be resolved by admitting extrinsic evidence. The rationale of this rule is that nature of the dispute is something which has to be determined outside and independent of what appears in the award. Such a jurisdictional error needs to be proved by evidence extrinsic to the award. Associate Builders v. Delhi Development Authority, (2015) 3 SCC 49.

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