CNICA welcomes you to the Inauguration of its

Study Circle meet

Inaugural Address by

Hon'ble Mr. Justice V. Ramasubramanian

For more information see the invitation below

Event Time and Location

Saturday - 03.03.2012

Andhra Mahila Sabha (Near Nageshwar Rao Park)

Luz Church Road

Mylapore

Chennai - 600 004



Take-it-or-leave-it arbitration clause is fine if the underlying agreement is fair
by THE HR SPECIALIST: CALIFORNIA EMPLOYMENT LAW on FEBRUARY 19, 2012 1:00AM
in EMPLOYMENT LAW, HUMAN RESOURCES

The Court of Appeal of California has handed a significant victory to employers that use arbitration agreements as a condition of employment.

As long as the underlying terms of the agreement are fair and the arbitration process impartial, the court will send a case to arbitration even if the employee had no choice but to sign the agreement.

Recent case: When Jennifer Hicks was offered a job at a Hilton spa in San Diego, she quit her job in Minnesota, sold her possessions and moved west. When she arrived in California, her new employer presented her with a take-it-or-leave-it arbitration agreement buried in an employment application. She was told she had to accept all the terms to start work.

Years later, Hicks sued over alleged pregnancy discrimination. She claimed she was told she would lose her job if she took time off for post-partum depression.

Hilton asked the court to send the case to arbitration. Hicks argued that the way she had to sign the arbitration agreement was unconscionable.The Court of Appeal of California has handed a significant victory to employers that use arbitration agreements as a condition of employment.

As long as the underlying terms of the agreement are fair and the arbitration process impartial, the court will send a case to arbitration even if the employee had no choice but to sign the agreement.

Recent case: When Jennifer Hicks was offered a job at a Hilton spa in San Diego, she quit her job in Minnesota, sold her possessions and moved west. When she arrived in California, her new employer presented her with a take-it-or-leave-it arbitration agreement buried in an employment application. She was told she had to accept all the terms to start work.

Years later, Hicks sued over alleged pregnancy discrimination. She claimed she was told she would lose her job if she took time off for post-partum depression.

Hilton asked the court to send the case to arbitration. Hicks argued that the way she had to sign the arbitration agreement was unconscionable.

The court disagreed, concluding that as long as the actual arbitration would be fair and impartial, it didn’t matter if Hicks signed under duress. (Hicks v. Mission Bay Management, No. D058683, Court of Appeal of California, 4th Appellate District, 2011)

R.GEORGE PEREIRA

Vs

ST.JOSEPH'S INTERNATIONAL ACADEMY

on 8 May, 2009

The following was in pursuance of an application under section 11(6) of the Arbitration and Conciliation Act, 1996 and the Scheme for Appointment of an Arbitrator by the Chief Justice of the Kerala High Court. The application seeks appointment of an independent and impartial arbitrator for adjudicating upon the various claims of the applicant against the respondent.

Facts of the case:

The applicant was a contractor of the respondent for the construction of a school building at Kumbalam in Kollam under the name and style "St. Joseph International Academy". It was alleged that disputes and differences arose between the parties on account of what is described as the obstinate attitude of the respondent to allow the applicant to complete the work, which had neared completion. It was claimed that the applicant had carried out works in seven part bills whereas the respondent had paid only two third. The balance amount was due under the bill. Since the balance amount remained unpaid, the windows, which had been supplied by the applicant to the respondent, had to be taken back and deducting the value of those windows, the balance amount was due to the applicant. According to the applicant, in order to avoid payment of the due amount the respondent sought to terminate the contract. The disputes and differences, which were thus arisen, are to be settled by resorting to arbitration proceedings.

If there are any dispute relating to any matter regarding the construction of the building or any matter related to this contract, the Manager, St.Joseph's International Academy, Kollam will be the sole Arbitrator for such purpose and his decision shall be final, and the second party will have no right to challenge this decision in the court of law". It was submitted that as per clause 17, the Manager of the respondent is to be the sole arbitrator. However, since disputes have arisen on account of the actions and inactions of the Manager himself, he is not entitled to function as arbitrator since the same will be against the fundamental principle of natural justice, nemo debet esse judex in propria causa (no one shall be a judge in his own cause).

It was under such circumstances that the applicant sent a letter indicating a panel of three names for selection of one among them as arbitrator by the respondent. The respondent's Advocate sent a reply without selecting any of the nominee arbitrators but suggesting for appointment of two Civil Engineers, one to be appointed by each party who could jointly verify the records and files and assess the quantity and quality of the work done in order to avoid litigation and to come to a fair settlement.

The applicant obliged and appointed his nominee. The respondent also appointed its Engineer. The applicant requested both the Engineers to take up the assignment and pave way for a settlement. However, the applicant called for nominee Engineer of the respondent, furnished all measurement books, and connected records and made necessary follow up, nothing materialized. Meanwhile, the applicant's nominee Engineer met with an accident and passed away. Hence, no useful purpose will be served by waiting further and that is the circumstances under which the applicant has filed this application under section 11(6) of the Arbitration and Conciliation Act, 1996 invoking the statutory appointment procedure of arbitrators.

The contentions of the respondent are as follows:

The arbitrator who was appointed by the court under the order (Sri. E.K. Muraleedharan, Retired District and Sessions Judge) was incapable of acting as arbitrator between the parties in the light of the legal bar under the provisions of the Arbitration and Conciliation Act, 1996. It was submitted that contrary to what has been projected the Manager envisaged under the arbitration clause who was to act, as the sole arbitrator in the event of disputes and the signatory to the agreement are the same person. In order to convince the court that the Manager of St.Joseph’s International Academy and the executants to the agreement are the same, the applicant has produced an agreement, but that does not contain the last page of the agreement. The last page will disclose that the Manager was not the executant of the agreement. On the contrary, the executant of the agreement was the General Manager. It was pointed out that it will be seen that there was a typing mistake where the first party was indicated and instead of General Manager, the word Manager was mistakenly used. Since the party noticed the mistake at the time of execution of the agreement, the first party to the agreement, the General Manager, St.Joseph's International Academy did not sign and instead he signed as the General Manager only where the first party was indicated. This was deliberately and intentionally done in order to avoid confusion as the Manager; St.Joseph's International Academy was appointed as the arbitrator under agreement. It was submitted that there was absolute consensus with regard to the arbitrator by both parties to the agreement. It was then contended that the General Manager and the Manager of St.Joseph's International Academy are two different persons. A certificate issued by Mr.Joseph J. who was the Manager of St.Joseph Academy during the period of five years was produced. The present Manager of St.Joseph Academy was one S.Sundaresan and a certificate issued by him was produced.

During which, the respondent was claiming a sum from the applicant on various counts and requested that if the claim was disputed the matter be referred to the Manager, St, Joseph's International Academy who was the sole arbitrator. In the reply affidavit filed by the respondent to the counter filed by the applicant, it was submitted that the respondent has never acted in a capacity as the Manager of St. Joseph's International Academy at any stage. This was because of the fact that at the time of construction of the school, the organization was at a very nascent stage and therefore the respondent was styled as General Manager and later as Managing Director/Director. Similarly the then Manager Joseph John was styled as Manager and subsequently he continued as Manager who was also styled as Administrator. He continued to be the Manager as well as Administrator. It was submitted that the respondent (applicant) was trying to take advantage of a typing mistake made in the agreement wherein the word Manager was used in the last page instead of General Manager.

The contentions of the applicants are as follows:

However, it was submitted that there is no scope for such confusion as in the last page; it was the General Manager who had signed at the portion where the first party is indicated. In the agreement, the first party is described as General Manager. Hence, there is no scope for confusion. Referring to the correspondence produced by the respondent it is submitted that the Manager Mr.Joseph John had signed on behalf of the General Manager and not in his capacity as the Manager of the school. It was reported that Joseph John has functioned only as Manager and that the respondent has never styled or functioned as Manager. It was further pointed out that the present Manager was not Joseph John but Mr. S. Sundareswaran and therefore there was no question of any prejudice being caused to the respondent.

The applicant counsel submitted that the non-production of the last page of Annexure was not fatal. The Arbitration Scheme and the Kerala Arbitration Rules required production of the arbitration agreement only along with the arbitration request and not the whole contract agreement. Reference was made to Section 7(2) of the Arbitration and Conciliation Act in this context. According to the applicant counsel, this was why the applicant produced only clause 17, which is the arbitration clause. It was submitted that on behalf of the applicant it has been made clear that it was Sri. George Fernandez who signed the agreement in the capacity of the Manager, first party and disputes have arisen on account of actions and inactions on the part of Sri. George Fernandez, the signatory which were denied.

Respondent maintained that the agreement was signed by the Managing Director and that the arbitrator was Manager. Mr. Varghese (applicant counsel) submitted that the witness Joseph.J. was only the Administrator and his full name Joseph John is indicated and highlighted that in the reply affidavit it is admitted that Joseph. J. alias Joseph John turned to be the administrator. The letter pad shows that he was only "administrator" and not "Manager". If so, his successor, the signatory also can be only an administrator and not the Manager, which means that there was no Manager to function as arbitrator. This according to Mr. Varghese is precisely the reason why the respondent said that the matter / all relevant papers would be placed before the arbitrator and the matter will be decided by him. He submitted that those documents are fabricated and cooked up. He pointed out that the title "to whom it may concern" (sic) is conspicuous. He submitted that the same mistake is repeated, though created and signed on different dates.

By issuing such certificates both the signatories to prove their allegiance to respondent, making themselves disqualified to be independent and impartial arbitrator which is required under section 11(8)(b) of the Act even assuming that any one of them can be considered as arbitrator. Mr. Varghese argued that actual bias is not necessary to be proved and that the knowledge at the time of appointment does not debar from applying on the ground that the arbitrator to be appointed in terms of the agreement may not be impartial. For this proposition, he relied on the Law of Practice of Commercial Arbitration by Mustill and Byod. He further relied on commentaries contained in Comparative International Commercial Arbitration by Julian D M Lew QC and others. He relied on the judgments of the Supreme Court in ACE Pipeline Contracts (P) Ltd. v. Bharat Petroleum Corp. Ltd. (2007), Bihar State Mineral Development Corp. and others. v. Encon Builders (I) (P) Ltd. (2003) and in Tata Cellular v. UOI (1994) in support of various propositions canvassed by him.

Sri. Madhu Radhakrishnan, learned counsel for the respondent relied on the judgment of the Calcutta High Court in Pragati Engineering (P) Ltd. v. T.N. Water Supply & Drainage Board, AIR 1992 Calcutta 139 to argue that where the parties entered into a contract with their eyes open and knew that the nominated arbitrator is an employee of one of the parties, none of the parties to the agreement should be allowed to allege that such nominated arbitrator being an officer of one of the parties to the contract, would be biased or is likely to be biased. Mr. Madhu Radhakrishnan relied on the judgment of the Supreme Court in International Airport Authority of India v. K.D. Bali, (1988) to argue that the apprehension of bias must be judged from a healthy, reasonable and average point of view and the request for removal of the appointed arbitrator is not to be granted lightly. Mr. Madhu Radhakrishnan placed reliance on the judgment of the Supreme Court in Jain Studios Ltd. v. Shin Satellite Public Co. Ltd., (2006) also. The provisions contained in sections 12 and 13 of the Arbitration and Conciliation Act incorporate grounds for challenge and the challenge procedure against and in respect of arbitrators will reveal that partiality and bias or circumstances giving rise to justifiable doubts regarding the impartiality and independence can be valid grounds for challenging the appointment given to a certain persons as arbitrator. At the same time, a party should not be allowed to wriggle easily out of agreements entered into by them with open eyes.

Judge Held:

The submissions from both sides were heard. In the instant case, it was seen that the applicant had agreed to the appointment of a person in the service of the opposite party as an arbitrator in the event of disputes. That being the position the Judge would have been ordinarily reluctant to accept the opposition of the applicant to the appointment of the nominated arbitrator on ground of bias and partiality. After all, it was a quasi-judicial function, which was being discharged by the arbitrator whose proceedings will be regulated by the provisions of the Arbitration and Conciliation Act. His award will be subjected to judicial scrutiny though on limited grounds and to a limited extent.

However, in the instant case the Judge was not inclined to dismiss the arbitration request and to appoint the nominated arbitrator as the arbitrator for resolving the disputes, which have admittedly arisen between the parties because it is seen that the respondent also became agreeable to the idea of the disputes between the parties being resolved by persons other than the arbitrator nominated under the agreement. The parties had nominated an Engineer each and were willing to have the disputes between them resolved by a joint perusal of the relevant records by these two Engineers. To that extent, the Judge opined the respondent has waived his right to insist that the arbitrator to be appointed has to be the arbitrator nominated under the agreement. Moreover, in his opinion no prejudice whatsoever will be occasioned to the respondent by appointing a Retired Judicial Officer known for his learning and integrity as the arbitrator for resolving the disputes, which admittedly subsist. Therefore, without deciding the issue whether appointment of the nominated arbitrator will be vitiated due to reasons of bias and partiality he allowed the arbitration request and appointed Sri.E.K.Muraleedharan, Retired District and Sessions Judge, presently at Ernakulum as arbitrator for settling all the claims and counter claims raised by the applicant and the respondent in the arbitration request. The arbitrator will enter on arbitration, make, and publish his award without undue delay.

Afcons Infrastructure Ltd. & Anr.

 Vs.

 Cherian Varkey Construction Co. (P)

  

Facts:

           The second respondent entrusted the work of construction of certain bridges and roads to the appellants under an agreement. The appellants sub-contracted a part of the said work to the first respondent under an agreement. It is not in dispute that the agreement between the appellants and the first respondent did not contain any provision for reference of the disputes to arbitration. The first respondent filed a suit against the appellants for recovery of dues from the appellants and their assets. In the said suit an order of attachment for recovery of dues was awarded. There after in March 2005, the first respondent filed an application under section 89 of the Code before the trial court praying that the court may formulate the terms of settlement and refer the matter to arbitration. The appellants filed a counter to the application submitting that they were not agreeable for referring the matter to arbitration or any of the other ADR processes under section 89 of the Code. In the meanwhile, the High Court of Kerala by order allowed the appeal filed by the appellants against the order of attachment and raised the attachment granted by the trial court subject to certain conditions. While doing so, the High Court also directed the trial court to consider and dispose of the application filed by the first respondent under section 89 of the Code. The High Court held that the concept of pre existing arbitration agreement which was necessary for reference to arbitration under the provisions of the Arbitration and Conciliation Act, 1996 was inapplicable to references under section 89 of the Code.

From the predicaments stated above the appellants moved to Supreme Court seeking inapplicability of sec 89 of civil procedure code due to non existence of arbitration agreement.

What is wrong with section 89 of the Code?

          Primarily the definitions of ‘mediation’ and ‘judicial settlement’ are interchanged in sec 89 of civil procedure code. When words are universally understood in a particular sense, and have been assigned a particular meaning in common Parlance, the definitions of those words in section 89 with interchanged meanings has led to confusion, complications and difficulties in implementation.

        

         The second anomaly is that sub-section (1) of section 89 imports the final stage of conciliation referred to in section 73(1) of the AC Act into the pre-ADR reference stage under section 89 of the Code. If sub-section (1) of Section 89 is to be literally followed, every Trial Judge before framing issues, is required to ascertain whether there exists any elements of settlement which may be acceptable to the parties, formulate the terms of settlement, give them to parties for observations and then reformulate the terms of a possible settlement before referring it to arbitration, conciliation, judicial settlement, Lok Adalat or mediation. There is nothing that is left to be done by the alternative dispute resolution forum. If all these have to be done by the trial court before referring the parties to alternative dispute resolution processes, the court itself may as well proceed to record the settlement as nothing more is required to be done by ADR process.

Section 89 has to be read with Rule 1-A of Order 10 which requires the court to direct the parties to opt for any of the five modes of alternative dispute resolution processes and on their option refer the matter. The said rule does not require the court to either formulate the terms of settlement or make available such terms of settlement to the parties or to reformulate the terms of possible settlement after receiving the observations of the parties. Therefore the only practical way of reading Section 89 and Order 10, Rule 1-A is that after the pleadings are complete and after seeking admission/denials wherever required, and before framing issues, the court will have recourse to section 89 of the Code. Such recourse requires the court to consider and record the nature of the dispute, inform the parties about the five options available and take note of their preferences and then refer them to one of the alternative dispute resolution processes. It is sufficient if the court merely describes the nature of dispute and makes reference to ADR. It would be unnecessary to discuss the issue of the case.

Whether the arbitration can be enforced on an unwilling party?

Rule 1A of Order 10 requires the court to give the option to the parties, to choose any of the ADR processes. This does not mean an individual option, but a joint option or consensus about the choice of the ADR process. On the other hand, section 89 vests the choice of reference to the court. This is course of no inconsistency. Section 89 of the Code gives the jurisdiction to refer to ADR process and Rules 1A to IC of Order 10 lay down the manner in which the said jurisdiction is to be exercised. The scheme is that the court explains the choices available regarding ADR process to the parties, permits them to opt for a process by consensus, and if there is no consensus, proceeds to choose the process.

A court has no power, authority or jurisdiction to refer unwilling parties to arbitration, if there is no arbitration agreement. This Court has consistently held that though section 89 of the Code mandates reference to ADR processes, reference to arbitration under section 89 of the Code could only be with the consent of both sides or not otherwise.

Conclusion

From the above mentioned views of the honorable judge a civil court exercising power under Section 89 of the Code cannot refer a suit to arbitration unless all the parties to the suit agree for such reference, and also this appeal is allowed as the order of the trial court referring the matter to arbitration and the order of the High Court affirming the said reference are set aside. The Trial Court will now consider and decide upon a non-adjudicatory ADR process.

Bhatia International vs. Bulk Trading S. A.          

Facts:

             The Appellant entered into a contract with the 1st Respondent which contained an arbitration clause which provided that arbitration was to be as per the rules of the International Chamber of Commerce. Parties agreed that the arbitration be held in Paris, France. 1st Respondent filed an application under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter called the said Act) before the IIIrd Additional District Judge, Indore, M.P. against the Appellant and the 2nd Respondent. One of the interim relief’s sought was an order of injunction restraining these parties from alienating, transferring and/or creating third party right, disposing of, dealing with and/or selling their business assets and properties. The Appellant raised the plea of maintainability of such an application. The Appellant contended that Part I of the said Act would not apply to arbitrations where the place of arbitration is not in India. This application was dismissed by the IIIrd Additional District Judge. The Appellant filed a Writ Petition before the High Court of Madhya Pradesh, Indore Bench. The said Writ Petition has been dismissed by the impugned Judgment. Appellants relied on sub-section (2) Section 2 of the said Act which provides that Part I shall apply where the place of arbitration is in India. He submits that sub-section (2) of Section 2 makes it clear that the provisions of Part I do not apply where the place of arbitration is not in India.  The said Act is based on UNCITRAL Model Law on International Commercial Arbitration. He points out that Article 1(2) of UNCITRAL Model Law provides that the law would apply only if the Arbitration takes place in the territory of the State. It was also  submited that while framing the said Act the Legislature has purposely not adopted Article 1(2) of the UNCITRAL Model Law.  Appellant further submits that sub-sections (3), (4) and (5) of Section 2 would necessarily only apply to arbitration which take place in India. He submits that, therefore, even though the sub-section (4) of Section 2 uses the words "every arbitration" and sub-section (5) of Section 2 uses the words "all arbitrations and to all proceedings relating thereto", they must necessarily refer only to arbitrations which take place in India. Arbitrations whose place of arbitration is not in India, then Sub section (2) of Section 2 will not fit. Sections 9 and 17 would not apply and cannot be used in cases where the place of arbitration is not in India it’s from part I.

             By the said facts, appellants moved to Supreme Court as it was submitted by appellants following issues were raised :

Whether Part I of the Arbitration and Conciliation Act, 1996 will apply to arbitrations which take place outside India?

          Appellants affirmed that  provisions for enforcement of foreign awards are contained in Sections 48, 49, 57 and 58. He submits that it is very significant that Section 9 does not talk of enforcement of the award in accordance with Sections 48, 49, 57 and 58and it is  also clear that the provisions of Part I of the said Act do not apply to arbitrations which do not take place in India. Court in Indore and the High Court were wrong in rejecting the application of the Appellant and in holding that the Court had jurisdiction. Actually, Madhya Pradesh High Court, is the only one  which states that Part I applies to arbitrations which take place outside India, which has so held by the impugned Judgment.

Whether undoubtedly sub-section (2) of Section 2 states that Part I is to apply where the place of arbitration is in India and Part II applies to foreign arbitration?

         Appellants affirms that it would  lead to an anomalous situation, inasmuch Part I would apply to Jammu and Kashmir in all international commercial arbitrations but Part I would not apply to the rest of India if the arbitration takes place out of India, and it will also instigates a conflict between sub-section (2) of Section 2 on one hand and sub-sections (4) and (5) of Section 2. Further sub- section (2) of Section 2 would also be in conflict with Section 1 which provides that the Act extends to the whole of India. It leaves a party remediless inasmuch as in international commercial arbitrations and it would not be able to apply for interim relief in India even though the properties and assets are in India. Thus a party may not be able to get any interim relief at all.

      On the other hand, the act is not providing that Part I shall not apply where the place of arbitration is not in India. It is also not providing that Part I will "only" apply where the place of arbitration is in India . Thus Article 1(2) of UNCITRAL Model Laws uses the word "only" to emphasize that the provisions of that Law are to apply if the place of arbitration is in the territory of that State. Significantly in Section 2(2) the word "only" has been omitted. The omission of this word changes the whole complexion of the sentence. The omission of the word "only" in Section 2(2) indicates that this sub-section is only an inclusive and wider provision. As stated above it is not providing that provisions of Part I do not apply to arbitration which take place outside India. Thus there was no necessity of separately providing that Section 9 would apply.

Whether foreign awards from arbitration settlement can be enforced  by Indian courts?

      Under Section 9 a party could apply to the court before, during arbitral proceedings or after the making of the arbitral award but before it is enforced in accordance with Section 36. The words "in accordance with Section 36" can only go with the words "after the making of the arbitral award". It is clear that the words "in accordance with Section 36" can have no reference to an application made "before" or "during the arbitral proceedings". Thus it is clear that an application for interim measure can be made to Courts in India, whether or not the arbitration takes place in India, before or during arbitral proceedings. Once an Award is passed, then that award itself can be executed. Sections 49 and 58 provide that awards covered by Part II are deemed to be a decree of the Court. Thus "foreign awards" which are enforceable in India are deemed to be decrees. A domestic award has to be enforced under the provisions of Civil Procedure Code. All that Section 36 provides is that an enforcement of a domestic award is to take place after the time to make an application to set aside the award has expired or such an application has been refused. Section 9 does suggest that once an award is made an application for interim measure can only be made if the award is a "domestic award" as defined in Section 2(7) of the said Act.  Thus there cannot be applications under Section 9 for stay of arbitral proceedings or to challenge the existence or validity of arbitration agreements or the jurisdiction of the arbitral tribunal. All such challenges would have to be made before the arbitral tribunal under the said Act. In any event, an award passed in arbitral proceedings held in a non-convention country could not be enforced. Thus such a party would be left completely remediless. Appellants hold that the provisions of Part I would apply to all arbitrations and to all proceedings relating thereto. Where such arbitration is held in India the provisions of Part I would compulsory apply and parties are free to deviate only to the extent permitted by the derogable provisions of Part I. In cases of international commercial arbitrations held out of India provisions of Part I It would apply unless the parties by agreement express or implied, exclude all or any of its provisions

Conclusion

       However, in our view a proper and conjoint reading of all the provisions indicates that Part I is to apply also to international commercial arbitrations which take place out of India, unless the parties by agreement, express or implied exclude it or any of its provisions. Such an interpretation does not lead to any conflict between any of the provisions of the said Act. On this interpretation there are no lacunae in the said Act. This interpretation also does not leave a party remediless.

Booz, Allen and Hamilton Inc.  (Appellants)

vs

SBI Home Finance Ltd. & Ors.  (Respondents)

FACTS:

                   Capstone Investment Co. Pvt. Ltd (R2) and Real Value Appliances Pvt. Ltd (R3) are the owners of the suit property. Capstone and RV Appliances had borrowed loans from SBI Home Finance Ltd. under two loan agreements by securing the said property in favour of SBI. The Appellants and Capstone & RV appliances signed two leave and license agreements and the Respondents confirmed the same. Following which they entered a tripartite deposit agreement and paid refundable deposit as consideration. The transactions were made as indicated by the Respondents. By virtue of which said loan amount of Capstone was paid but the RV appliances debt remained outstanding as result of which the property was secured by SBI. Eventually the official liquidator retained the asset. The deposit agreement contained clause for arbitration. SBI filed mortgage suit in the High Court of Bombay on 28.10.1999 against Appellant, Capstone and RV Appliances in regard to the mortgaged property and also prayed for eviction of Appellant from the premises. Court issued an order allowing the Appellants to continue its occupation and ceased the other respondents from a third party interest.  The Appellant filed a detailed reply to the said notice of motion and contended that SBI had a contractual obligation towards the Appellant as it had agreed for the continuance of Appellant occupation till refund of the deposit. The High Court dismissed the plea for arbitration as the dispute which is the subject matter cannot be adjudicated by a private forum. The application under section 8 of the Act was filed on 10.10.2001 nearly 20 months thereafter, during which period the Appellant had subjected itself to the jurisdiction of the High Court and due to excessive delay they were refused to grant relief. The Appellants contended that the parties to the agreement were aware of the arbitration clause hence the dispute is arbitrable, to which Respondents also agreed.

The case mentioned above gave rise to the following questions:

Whether the subject matter of the suit fell within the scope of the arbitration agreement contained in clause 16 of the deposit agreement?

           
                 The parties to the suit agreement affirmed themselves to resolve disputes which are mentioned below to be adjudicated by arbitration.
        

(a)              Disputes with respect to creation of charge over the shares and flats;

(b)              Disputes with respect to enforcement of the charge over the shares and flats and  realization of sale proceeds there from;

(c)               Application of the sale proceeds towards discharge of liability of Capstone and RV Appliances to the Appellant; and

(d)              Disputes relating to exercise of right of the Appellant to continue to occupy the   flats until the entire dues as stated in clauses 9 and 10 of the deposit agreement are realized by the Appellant.

The subject matter of the dispute falls within the scope of arbitration clause. So the suit can be mandated under sec 8 of the act.

Whether the Appellant had submitted his first statement on the substance of the dispute before filing the application under section 8 of the Act?

According to the act, filling any statement by defendants prior to the filing the application under section 8 of the Act will be construed as ‘submission of a statement on the substance of the dispute’, if by filing such statement/application/affidavit, the defendant shows his intention to submit himself to the jurisdiction of the court and waive his right to seek reference to arbitration. But filing of a reply by a defendant, to an application for temporary injunction/attachment before Judgment/appointment of Receiver, cannot be considered as submission of statement on the substance of the dispute, as that is done to avoid an interim order being made against him. Obviously in the present suit the Appellants filled counter affidavit against an interim injunction which is to be awarded by the court. By virtue of which the Appellant has not waived their right to seek reference through arbitration.

Whether the application under section 8 was liable to be rejected as it was filed nearly 20 months after entering appearance in the suit?

Since the sec 8 of the act does not mentions the time limit for filling an application under the same but it affirms that a party right to seek through arbitration can only be determined by its conduct. The party waives its right to seek arbitration only when it submits a written statement to the court or submits itself to the jurisdiction of the court as mentioned earlier. As per the current suit the plaintiff were seeking for an interim order by the court for which the defendants have to submit a counter statement to avoid ex parte order. As mentioned earlier filling an counter statement does not implies that the parties have waived their right to seek through arbitration and as for the excess time lapse concerned, the parties tried to settle the dispute outside the court on failing which the Appellants filled the said application. The unamended Rule 1 of Order VIII of the Code did not prescribe any time limit for filing written statement. Henceforth the High Court has faulted rejecting the application on the ground of delay.

Whether the subject matter of the suit is ‘arbitrable’, that is capable of being adjudicated by a private forum (arbitral tribunal); and whether the High Court ought to have referred the parties to the suit to arbitration under section 8 of the Act?

            Basically a suit seeking to refer arbitration can only be adjudicated by the court if the there was an arbitration agreement among the parties.  Though there is such a stipulation in the agreement it is up to the court to decide the dispute is arbitrable or not. However the court confers authority to arbitration on certain civil disputes which is mentioned in the act.

Russell on Arbitration [22nd Edition] observed thus: “Not all matters are capable of being referred to arbitration. As a matter of English law certain matters are reserved for the court alone and if a tribunal purports to deal with them the resulting award will be unenforceable. These include matters where the type of remedy required is not one which an arbitral tribunal is empowered to give.

Courts grants authority to arbitration only to disputes which is of interests protected solely against specific individuals so called in personum and forfeits to affirm cases which is a right exercisable against the world at large so called in rem. Sections 34(2)(b) and 48(2) of the 1996 Act makes it clear that an arbitral award will be set aside if the court finds that “the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force”. In the aforementioned case, an agreement to sell or an agreement to mortgage does not involve any transfer of right in rem but create only a personal obligation. Therefore if specific performance is sought either in regard to an agreement to sell or an agreement to mortgage, the claim for specific performance will be arbitrable. On the other side the agreement to mortgage is a right in rem a suit for enforcement of a mortgage being the enforcement of a right in rem, will have to be decided by courts of law and not by arbitral tribunals. The scheme relating to adjudication of mortgage suits contained in Order 34 of the Code of Civil Procedure, replaces some of the repealed provisions of Transfer of Property Act, 1882 relating to suits on mortgages (section 85 to 90, 97 and 99) and also provides for implementation of some25 of the other provisions of that Act (section 92 to 94 and 96). Order 34 of the Code does not relate to execution of decrees, but provides for preliminary and final decrees to satisfy the substantive rights of mortgagees with reference to their mortgage security. The provisions of Transfer of Property Act read with Order 34 of the Code, relating to the procedure prescribed for adjudication of the mortgage suits, the rights of mortgagees and mortgagors, the parties to a mortgage suit, and the powers of a court adjudicating a mortgage suit, make it clear that such suits are intended to be decided by public forum (Courts) and therefore, impliedly barred from being referred to or decided by private forum (Arbitral Tribunals). Consequently, it opines that the court where the mortgage suit is pending should not refer the parties to arbitration.

Conclusion

Having regard to our finding on questions as to be held that the suit being one for enforcement of a mortgage by sale, it should be tried by the court and not by an arbitral tribunal. Therefore the court upheld the dismissal of the application under section 8 of the Act.

Consultation paper on the proposed amendments to the Arbitration and conciliation act 1996 - A Brief Note

Introduction:

The Act is based on the Model Law adopted by the United Nations Commission on International Trade Law (UNCITRAL) in 1985. The object and basis of the said Act is to speedy disposal with least court intervention.

The objects, as mentioned in the Statement of Objects and Reasons for the Arbitration and Conciliation Bill, 1995 were (a) to comprehensively cover international commercial arbitration and conciliation as also domestic arbitration and conciliation;(b) to minimize the supervisory role of courts in the arbitral process;(c) to provide that every final arbitral award is enforced in the same manner as if it were a decree of court.

Arbitration and Conciliation (Amendment) Bill 2003

Accordingly the Arbitration and Conciliation (Amendment) Bill 2003 was introduced in Rajya Sabha on 22^nd December, 2003.

In July 2004, Government constituted a Committee under the Chairmanship of Justice Dr. B. P. Saraf to make in-depth study of the implications of the recommendations of the Law Commission made in its 176^th Report and all aspects relating to the Arbitration and Conciliation (Amendment) Bill, 2003.

The Committee (Departmental Related Standing Committee) was of the view that the provisions of the Bill gave room for excessive intervention by the Courts in the arbitration proceedings and emphasized upon the need for establishing an institution in India which would measure up to international standards and for popularizing institutionalized arbitration.  The Committee further expressed the view that since many provisions of the Bill was contentious, the Bill may be withdrawn and a fresh legislation may be brought after considering the recommendations of the Committee. The said Bill was withdrawn from the Rajya Sabha.

Main purpose of the 1996 Act is to encourage an ADR method for resolving disputes speedy and without much interference of the Courts which Section 5 of the Act provides for.

 In the (Dominant Offset Pvt. Ltd. Vs. Adamouske Strojirny AS,(1997) 68 DLT 157 the parties having developed a dispute, a petition was filed in the High Court of Delhi with a prayer for reference to arbitration in terms of the Arbitration Clause for enforcement of the agreement.  The Court held that Part I of the Act applies to International Commercial arbitration conducted outside India. Court added that courts should be extremely cautious in granting interim relief in cases where the venue of arbitration is outside India and both parties are foreigners.

Recommendation regarding the applicability of Part I

The Supreme Court observed that if the part I of the Act is not made applicable to arbitration held outside India it would have serious consequences. It made certain observations in respect of International commercial arbitration which take place in a non-convention country. The Court further observed that international commercial arbitration may be held in a non-convention country. Part II only applies to arbitrations which take place in a convention country.

An international commercial arbitration may be held in a country which is a signatory to either the New York Convention or the Geneva Convention (hereinafter called “the convention country”). An international commercial arbitration may be held in a non-convention country.

The Supreme Court also observed that Sections 44 and 53 define foreign award as being award covered by arbitrations under the New York Convention and the Geneva Convention respectively. The provision in Part I dealing with these aspects will not apply to such foreign awards.

The court concluded that the provisions of Part I would apply to all arbitrations and proceedings relating thereto. Where such arbitration is held in India the provisions of Part I would compulsorily apply. In cases of international commercial arbitrations held out of India provisions of Part I would apply unless the parties by agreement express or implied, exclude all or any of its provisions. In that case the laws or rules chosen by the parties would prevail. Any provision, in Part I, which is contrary to or excluded by that law or rules, will not apply.

The reason, which persuaded the court that a challenge to foreign award can lay in India, was the fact that an award, which is otherwise opposed to Public Policy of India and thus not enforceable even under the New York Convention, can be enforced, by a party by seeking its enforcement of such an award in another country.

The Supreme Court in Indtel Technical Services (P) Ltd. v. W.S. Atkins Rail Ltd.,(2008) 10 SCC 308, while referring Bhatia International observed – As per Bhatia International (Supra) and Satyam Computers, in cases of international commercial arbitrations held out of India provisions of Part I would apply unless the parties by agreement exclude all or any of its provisions.

The result is that all the provisions of Part I including provisions relating to appointment of arbitrator (Section11), challenge of arbitration award (Section 34) would also be applicable to International Commercial Arbitration where seat of arbitration is not in India.

However, in view of the observations made by the Supreme Court in Shreejee Traco(I) Pvt. Ltd. Vs. Paper Line International Inc (2003) 9 SCC 79, no provisions of Part I would apply to cases where the place of arbitration is not in India.

Foreign awards:

We may point out that an award to be a ‘foreign award’ has to be made in the territory of a foreign State notified by the Central Government as having made a reciprocal provision for enforcement of New York Convention or Geneva Convention.

The provisions of the aforesaid statute, foreign awards and foreign judgments based upon awards are enforceable in India on the same grounds and in the same circumstances in which they are enforceable in England under the common law on grounds of justice, equity and good conscience.

It is well established that the awards rendered in countries with which India does not have reciprocal arrangements cannot be enforced in India as if it were a decree.

Clause (3) of Article 1 of New York convention on the Recognition and Enforcement of Arbitral Awards permits the signing, ratifying or acceding State to declare on the basis of reciprocity that it will apply the convention made only in the territory of another contracting State.  India has made reservation and declared that convention will apply only on the basis of reciprocity.

Therefore, when an International arbitral award is made in a country or territory in respect of which there is no reciprocal arrangement between Central Government and Government of that country, it cannot be enforced under the Arbitration and Conciliation Act, 1996. For the purpose of enforcement of such an arbitral award party has to file a civil suit in India.

Provisions of Sections 9 and 27 shall also apply to international commercial arbitration where the place of arbitration is not in India if an award made in such place is enforceable and recognized under Part II of this Act.

 A proposal for amendment in Section 11

A Bench of two learned Judges (Adur Samia (P) Ltd Vs Peekay Holdings Ltd.) of the Supreme Court held that the Chief Justice or any person or institution designated by him acts in administrative capacity under section 11 of the Act and hence an order passed in exercise of such power, does not attract the provisions of the Article 136 of the Constitution. The same was reaffirmed by a three judges (Konkan Railway corp. Ltd. Vs Mehul Construction Co) bench which held that the order passed by the Chief Justice or his designate under section 11 of the Act was an administrative order not amenable to the jurisdiction of the court under Article 136.

Thereafter, a Constitution Bench consisting of five learned Judges affirmed the decision of the three Judge Bench.  Subsequently, the decision of the Constitution Bench has been reconsidered by the larger Bench consisting of seven-Judges.

The Court overruled the decision in Konkan Railway Corp. Ltd. Vs Rani Construction (P) Ltd. rendered by five learned Judges and held that the power exercised by the Chief Justice of the High Courts or the Chief Justice of India under Section 11(6) of the Act is judicial power and not an administrative power and that such power, in its entirety, could be delegated only to another Judge of that Court.

The Supreme Court held that the Chief Justice or the designated Judge will have the right to decide preliminary aspects as regards his own jurisdiction to entertain the request, existence of a valid arbitral agreement, the existence or otherwise of a live claim, the existence of the conditions for the exercise of the power and on the qualifications of the Arbitrator.

The decision of the Supreme Court has rendered the provisions contained in sub-section (4), (5), (7), (8) and (9) of Section 11 with regard to appointment of Arbitrators by any person or institution designated by the Chief Justice of India and totally ineffective. 

This is clearly contrary to the objective of the Act that is, to encourage litigants to take recourse to the alternative dispute resolution mechanism by Arbitration. The parties may stipulate in the arbitration agreement to refer an arbitral dispute between them for resolution to a particular institution.

The Chief Justice instead of choosing an arbitrator may choose an Institute and the said institute shall refer the matter to one or more arbitrator from their panel.

Various proposals to amend to the limited extent of the Section 11 of the Arbitration and Conciliation Act, 1996 have been made. Almost all the sections from 4 to 12 and 28 have been prescribed for an amendment.

The Law Commission in 176th Report

The Law Commission in 176th Report considered the question whether it was desirable to provide for an appeal under section 37 to court against decision of the arbitral tribunal rejecting the plea of bias or disqualification under section 13. After due deliberation, the Law Commission was of the view that there should not be an immediate right of appeal under section 37 against the decision of the tribunal rejecting the plea of bias or disqualification under section 13.

Section 34 does not enable the parties to question the decision of the arbitral tribunal made under Section 13 (2) rejecting a plea of bias or to question the decision of the said tribunal made under Section 16 (2) or (3) rejecting a plea of want of jurisdiction on the part of the arbitral tribunal.

Though the existence of these remedies was referred to in Sections 13 (5) and 16 (6), these remedies were not included in Section 34 and further the use of the word ‘only’ in section 34 (1) contradicted what was stated in sections 13 and 16.

Therefore, the Law Commission, recommended insertion of a clarification in section 34 by way of an explanation that an applicant, while seeking to set aside the award, can attack the interlocutory order of the arbitral tribunal rejecting a plea of want of jurisdiction, as permitted by section 16(6).

Law Commission while suggesting amendment in Section 34 also recommended that in case of domestic arbitration, new ground for challenges viz. mistake appearing on face of award may be made available. Accordingly it recommended for inserting a new Section 34A.

The Law Commission in their Report had observed that parties are filing applications to set aside the award even though there is no substance whatsoever in such applications and, to put a stop to this practice, proposed the amendment of section 36 by deleting the words which say that the award will not be enforced once an application is filed under sub-section (1) of section 34.

To give effect to the above recommendation of the Law Commission, the Amendment Bill of 2003 sought to substitute the existing section 36.That was is a very good provision. It will have a salutary effect on the expeditious execution of the awards. Standing Committee of the Parliament in its report on the Arbitration and Conciliation (Amendment) Bill, 2003 has recommended promoting institutional arbitration.