Arbitration Amendment 2010

7/31/2019 Arbitration Amendment 2010

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AmendmentstotheArbitration&Conciliation

Act,1996

AConsultation

Paper

Introduction:

1. The Arbitration and Conciliation Act, 1996 enacted in 1996 is an Act toconsolidateandamendthelawrelatingtodomesticarbitration,international

commercialarbitrationandenforcementof foreignarbitralawards.Copyof

theActisannexedasAnnexureI.TheActisbasedontheModelLawadopted

bytheUnitedNationsCommissiononInternationalTradeLaw(UNCITRAL)in

1985.Theobjectsandbasisof thesaidAct is tospeedydisposalwith least

courtintervention.

Some

of

the

objects,

as

mentioned

in

the

Statement

of

Objects and Reasons for the Arbitration and Conciliation Bill, 1995 are as

follows:

(a) to comprehensively cover international commercial arbitration andconciliationasalsodomesticarbitrationandconciliation;

(b) tominimisethesupervisoryroleofcourtsinthearbitralprocess;(c) to provide that every final arbitral award is enforced in the same

manneras

ifit

were

adecree

of

court.

2. In theyear2001, theLawCommissionof IndiaundertookacomprehensivereviewoftheworkingofthesaidActandrecommendedmanyamendments

to the Act in its 176th

Report submitted to the Government. Summary of

recommendationsmadeinthereportisannexedasAnnexureII.

TheGovernmentafterconsidering the recommendationsof theReportand

afterconsulting theStateGovernmentsand certain institutions,decided to

accept almost all the recommendations. Accordingly the Arbitration and

Conciliation(Amendment)

Bill

2003

was

introduced

in

Rajya

Sabha

on

22nd

December,2003.AcopyoftheBillisannexedherewithasAnnexureIII.

It may be stated that in July 2004, Government constituted a Committee

undertheChairmanshipofJusticeDr.B.P.Saraftomakeindepthstudyofthe

implications of the recommendations of the Law Commission made in its

176th

Report and all aspects relating to the Arbitration and Conciliation

(Amendment) Bill, 2003. The report submitted by the said Committee is

annexedasAnnexureIV.

3. TheBillwasthenreferredtotheDepartmentalRelatedStandingCommitteeonPersonnel,PublicGrievances,LawandJusticeforexaminationandreport.

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ThesaidCommitteeaftertakingoralevidenceofeminentadvocatesandthe

representatives from trade and industry, Public Sector Undertakings,

representatives of this Department, submitted its report to the Houses of

Parliament on 4th

August, 2005. The Committee was of the view that the

provisionsof theBillgave room forexcessive interventionby theCourts in

thearbitration

proceedings

and

emphasized

upon

the

need

for

establishing

an institution in India which wouldmeasure up to international standards

and for popularizing institutionalized arbitration. The Committee further

expressed theviewthatsincemanyprovisionsoftheBillwerecontentious,

the Bill may be withdrawn and a fresh legislation may be brought after

considering the recommendationsof theCommittee.Copyof the report is

annexedasAnnexureV.

4. In view of the large number of amendments recommended by theCommittee andbecausemanyprovisions of theBillwere contentious, the

saidBill

was

withdrawn

from

the

Rajya

Sabha.

At

that

time

it

was

decided

thatanew legislationwillbebrought inParliamentafterundertakingan in

depthexaminationofthevariousrecommendationsoftheCommittee.

5. As we know that main purpose of the 1996 Act is to encourage an ADRmethodforresolvingdisputesspeedyandwithoutmuch interferenceofthe

Courts. In fact Section 5 of the Act provides, Notwithstanding anything

containedinanyotherlawforthetimebeinginforce,inmatterscoveredby

this Part (i.e. Part I), nojudicial authority shall intervene exceptwhere so

providedinthisPart.However,withthepassageoftime,somedifficultiesin

itsapplicability

of

the

Act

have

been

noticed.

The

Supreme

Court

and

High

Courtshave interpretedmanyprovisionsoftheActandwhiledoingsothey

havealsorealizedsome lacunas in theActwhich leads toconflictingviews.

Further, insomecases,courtshave interpreted theprovisionsof theAct in

suchawaywhichdefeatsthemainobjectofsucha legislation.Therefore, it

becomesnecessarytoremovethedifficultiesand lacunas intheActsothat

ADRmethodmaybecomemorepopularandobjectofenactingArbitration

lawmaybeachieved.

6. ThefollowingsectionsoftheActandinterpretationbycourtshavegivenriseto

difficulties

which

require

to

be

addressed:

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However,Courtadded thatcourtsshouldbeextremelycautious ingranting

interim relief in caseswhere the venue of arbitration is outside India and

bothpartiesareforeigners.

(iii) TheCalcuttaHighCourtinEastCoastShippingVs.MJScrap(1997)1Cal.HN444

took

adifferent

view

and

held

that

Part

Iof

the

Act

would

apply

only

to

arbitrations where the place of arbitration is in India. In a subsequent

decisionofDivisionBenchof theDelhiHighCourt inMarriott International

Inc.Vs.AnsalHotelsLtd.,AIR2000Del377 (DB)DelhiHighCourtendorsed

theviewexpressedby theCalcuttaHighCourt.TheDivisionBenchreferred

the another decision reported as Kitechnology N.V. Vs. Union Gmbh

Plastmaschinen(1998)47Del.RJ397inwhichtheSingleJudgeofDelhiHigh

Courtheld thatwherenoneof theparties to theagreementwasan Indian

and the agreement was to be covered by German Law which provided

arbitration to be held at Frankfurt, Section 9 of the Act will have no

applicabilityand

the

Court

will

have

no

jurisdiction

to

pass

an

interim

order

in

thatmatter.

(iv) AdivisionBenchoftheCalcuttaHighCourt inWhite IndustriesAustraliaLtdV.Coal IndiaLtd.heldthatanawardpublishedandrendered inaccordance

with ICC Rules in Paris (though the proceedings were held, for the

convenienceof theparties, inLondon)couldbechallenged inaproceeding

initiated in a court in Indiaunder Section34of theAct since the contract

between thepartiesstipulated that theagreementshallbesubject toand

governedbythe laws inforce inIndiaexceptthattheIndianArbitrationAct

of1940

shall

not

apply.

A

division

bench

speaking

through

the

Chief

Justice

A K Patnaik of Chhattishgarh High Court in Bharat Aluminium Company

LimitedvKaiserAluminiumTechnicalServices, Inc.howevertookacontrary

view.

(v) However,SupremeCourtinthecaseofBhatiaInternationalVs.BulkTrading(2002)4SCC105hasheldthatinabsenceofthewordonlyinSection2(2),

partIoftheActwouldapplytoarbitrationheldoutsideIndia,solongasthe

law of India governed the contract. The decision in Bhatia International

though was not concerned with enforcement of arbitral award, certain

principleslaid

down

therein

with

regard

to

application

of

the

provisions

contained inPart Iof theAct in respectofarbitrationproceedings thatare

held inParis inaccordancewith theRulesof the InternationalChamberof

Commerce(ICC),havefarreachingconsequences.

(vi) InBhatia International thequestionwaswhetheranapplication filedunderSection9oftheActintheCourtofthethirdAdditionalDistrictJudge,Indore

by the foreign party against the appellant praying for interim injunction

restraining the appellant from alienating transferring and/or creating third

party rights, disposing of, dealing with and/or selling their business assets

and

properties,

was

maintainable.

The

Additional

District

Judge

held

that

the

applicationwasmaintainable,which viewwas affirmedby theHighCourt.

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TheSupremeCourt,reaffirmingthedecisionoftheHighCourt,heldthatan

application for interim measure could be made to the courts of India,

whetherornotthearbitrationtakesplaceinIndiaorabroad.TheCourtwent

ontoholdthatthearbitrationnothavingtakenplaceinIndia,allorsomeof

the provisions of Part I may also get excluded by an express or implied

agreementof

parties.

But

if

not

so

excluded

the

provisions

of

Part

Iwill

also

apply to foreignawards.TheopeningwordsofSections45and54,which

areinPartII,readnotwithstandinganythingcontainedinPartI.Suchanon

obstanteclausehadtobeputinbecausetheprovisionsofPartIapplytoPart

II.

SupremeCourtreferredtosimilarprovision inUNCITRALModel law.Article

1(2)oftheUNCITRALModelLawreadsasfollows:

(2)Theprovisionsofthis law,exceptArticles8,9,35and36,applyonly if

theplace

of

arbitration

is

in

the

territory

of

this

State.

SupremeCourthighlightedthewordonlyandobservedasfollows:

ThusArticle1(2)oftheUNCITRALModelLawusesthewordonlyto

emphasizethattheprovisionsofthat lawaretoapply iftheplaceof

arbitrationisintheterritoryofthatState.Significantly,inSection2(2)

thewordonlyhasbeenomitted.Theomissionofthiswordchanges

the whole complexion of the sentence. The omission of the word

onlyinSection2(2)indicatesthatthissubsectionisonlyaninclusive

andclarificatory

provision.

As

stated

above,

it

is

not

providing

that

provisions of Part I do not apply to arbitrations which take place

outsideIndia.

(vii) The Supreme Court observed that if the part I of the Act is not madeapplicable to arbitration held outside India it would have serious

consequences suchas (a)amount toholding that the Legislaturehas lefta

lacunae inthesaidAct.Therewouldbe lacunaeasneitherPartIorIIwould

apply toarbitrationsheld inacountrywhich isnota signatory to theNew

YorkConventionor theGenevaConvention. Itwouldmean that there isno

law,in

India,

governing

such

arbitrations.;

(b)

leave

aparty

remediless

in

as

much as in international commercial arbitrations which take place out of

India thepartywouldnotbe able to apply for interim relief in India even

thoughthepropertiesandassetsareinIndia.Thusapartymaynotbeableto

getanyinterimreliefatall.

(viii) The Supreme Court made certain observations in respect of Internationalcommercial arbitrationwhich take place in a nonconvention country. The

Courtobserved that international commercial arbitrationmaybeheld in a

nonconventioncountry.Part IIonlyappliestoarbitrationswhichtakeplace

in

a

convention

country.

The

Supreme

Court

referred

to

the

definition

of

international commercial arbitrationwhich isdefined in Section2(f)of the

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Actandheldthatthedefinitionmakesnodistinctionbetween international

commercialarbitrationwhichtakesplaceinIndiaorthosetakeplaceoutside

India. The Supreme Court also observed that Sections 44 and 53 define

foreignaward asbeingaward coveredby arbitrationsunder theNew York

Convention and theGenevaConvention respectively. Specialprovisions for

enforcementof

these

foreign

awards

are

made

in

Part

IIof

the

Act.

To

the

extentpartIIprovidesaseparatedefinitionofanarbitralawardandseparate

provision forenforcementof foreignawards, theprovision inPart Idealing

withtheseaspectswillnotapplytosuchforeignawards.

(ix) Thecourt finallyconcluded thattheprovisionsofPart Iwouldapply toallarbitrationsandtoallproceedingsrelatingthereto.Wheresucharbitrationis

heldinIndiatheprovisionsofPartIwouldcompulsorilyapplyandpartiesare

free todeviateonly to theextentpermittedby thederogableprovisionsof

Part I. In cases of international commercial arbitrations held out of India

provisionsof

Part

Iwould

apply

unless

the

parties

by

agreement,

express

or

implied, exclude allor anyof its provisions. In that case the lawsor rules

chosenbythepartieswouldprevail.Anyprovision,inPartI,whichiscontrary

toorexcludedbythatlaworruleswillnotapply.

(x) SupremeCourtalsostated intheirjudgmentthat1996Actdoesnotappeartobeawelldraftedlegislation.InviewofthisSupremeCourtobservedthat

the High Courts of Orissa, Bombay, Madras,Delhi and Calcutta cannot be

faultedforinterpretingtheprovisionsinthedifferentmanner.

(xi) ItmaybementionedthatSupremeCourtinthecaseofShreejeeTraco(I)Pvt.Ltd.Vs.PaperLineInternationalInc(2003)9SCC79consideredthescopeof

part Iof theAct in respect of appointmentof an arbitratorunder Section

11(4) in a casewhere the agreementprovided thatanydisputesor claims

would be submitted to arbitration in New York. The Supreme Court after

referringSection2(2)held,onaplanereadingofthisprovisionitisclearthat

ParliamentintendedtheprovisionsofPartItobeapplicablewheretheplace

ofarbitrationisinIndia.TheSupremeCourtalsoheldasfollows:

So far as the language employed by Parliament in drafting sub

section(2)

of

Section

2of

the

Act

is

concerned,

suffice

it

to

say

that

the language is clear andunambiguous. Saying that thisPartwould

applywheretheplaceofarbitrationisinIndiatantamountstosaying

thatitwillnotapplywheretheplaceofarbitrationisnotinIndia.For

theforegoingreasons it isheldthatthepetitionunderSection11(4)

oftheAct isnotmaintainablebeforetheChiefJusticeof Indiaorhis

designate.

(xii) A twojudgebenchof theSupremeCourt1, reiterating itsdecision inBhatiaInternationalheld thataawardmade inEngland throughaarbitralprocess

1VentureGlobalEngineeringvSatyamComputersServices2008(1)SCALE214.

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conductedbytheLondonCourtofInternationalArbitration,thoughaforeign

award,Part Iof1996Actwouldbeapplicabletosuchawardandhencethe

courtsinIndiawouldhavejurisdictionbothunderSection9andSection34of

theActandentertainachallengetoitsvalidity.Itisofsomesignificancethat

bothinBhatiaInternationalaswellasinVentureGlobalEngineeringcase,the

provisionsunder

the

Arbitration

Act

invoking

the

provisions

contained

in

PartIthereofhadbeeninitiatedbyforeignpartiesagainsttheIndianparties,

though the proceedings of the arbitration wee held abroad and the

culminationofwhichundoubtedlyareforeignawards.

(xiii) The factual background of the case was thus: Venture Global Engineering(VGE,acompany incorporated inUSAhadentered intoajointventurewith

SatyamComputerServices(Satyam)toconstituteanIndiancompany Satyam

VentureEngineeringCompanyLimited(SVES).Thetwocompanieshadequal

sharesi.e.5050inthejointventure(SVES).Theyhadalsoenteredintoshare

holdersagreement,

which

inter

alia

provided

that

the

share

holders

shall

at

all times act in accordance with the Company Act and other applicable

Act/Rulesbeingenforced in Indianatany time. InFebruary2005,disputes

arose between the parties,whichwere referred to sole arbitrationofMr.

PaulHannon,appointedbytheLondonCourtofInternationalArbitrationand

theawardmade inEngland,directedVenture to transfer its50% shares in

SVEStoSatyam.SatyamfiledapetitionbeforetheUSDistrictCourt,Eastern

District Court of Michigan for recognition and enforcement of the award,

whichwascontestedbyVenture.VenturefiledaCivilSuitintheCourtofthe

First Additional Chief Judge, City Civil Court, Secunderabad, seeking a

declarationfor

setting

aside

the

award

and

for

apermanent

injunction

on

the

transfer of shares under the award. The City Civil Court, though initially,

grantedanorderofinjunction,attheinterventionofSatyam,finallyrejected

theplaint.AnappealwaspreferredbytheVenturebeforetheHighCourtof

AndhraPradesh,wasalsounsuccessful.Venture, therefore,approachedthe

Supreme Court. Relying upon the decision in Bhatia International2,

contending inter alia that in terms of the declaration of law by Supreme

Court,Part Iof theActwould also apply to foreign awards andhence the

courts in Indiahadjurisdictiontoentertainachallengetothevalidityofthe

awardand that inviewor theoverridingprovisioncontained in theShare

HoldersAgreement,

Satyam

can

not

approach

the

US

Courts

for

enforcementof theaward.Onbehalfof theSatyam, itwascontended that

since,theawardmadeinEnglandthuswasaforeignaward,nosuitorother

proceedingscan lieagainstsuchaward inviewofSection44oftheActand

thatanapplication forsettingasidesuchanawardunderSection34of the

Actcouldnotlieinanyevent.Atwojudgebench,whichheardthecase,felt

thatBhatia Internationaldecided theprincipal issuenamely that since the

partiesdidnot,byagreement,excludetheprovisionofPartIoftheActfrom

beingmadeapplicabletoarbitrationproceedings inEngland, theprovisions

ofthePartIwouldapplyeventoforeignawardandhencethecourtsinIndia

220024SCC105

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can entertain a challenge to the validity of such an award. Accepting the

contentionsofVenture,thecourtheld:

ThattheprovisionsofPartIoftheActwouldapplytoallarbitrations

including international commercial arbitrations and to hold that

wheresuch

arbitration

is

held

in

India,

the

provisions

of

Part

Iwould

compulsorily extentpermittedby theprovisions of PartI. IT is also

clear that even in the case of international commercial arbitration

heldoutofIndiaprovisionsofPartIwouldapplyunlessthepartiesby

agreement,expressorimplied,excludealloranyofitsprovisions.We

arealsooftheviewthatsuchan interpretationdoesnot leadtoany

conflictbetweenanyoftheprovisionsoftheActanthereisnolacuna

assuch.

(xiv) Thereason,whichpersuadedthecourtthatachallengetoforeignawardcanlay

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,canbeenforced,byapartybyseeking itsenforcementofsuch

anaward inanother country. It is inviewof suchapprehension, the court

observed:

In any event, to apply Section 34 to foreign international awards

wouldnotbe inconsistentwith Section 48of theAct,or anyother

provisionofPartIIasasituationmayarise,where,eveninrespectof

properties situate in India andwhere an awardwould be invalid if

opposedto

the

public

policy

of

India,

merely

because

the

judgment

debtorresidesabroad,theawardcanbeenforcedagainstproperties

inIndianthroughpersonalcomplianceofthejudgmentdebtorandby

holdingoutthethreatofcontemptas itsbeingsoughttobedone in

thepresent case. In such anevent, thejudgmentdebtor cannotbe

deprivedofhis rightunderSection34 to invoke thepublicpolicyof

India,tosetasidetheaward.Asobservedearlier,thepublicpolicyof

India includes (a) the fundamental policy of India; or (b) the

interests of India; or (c)justice or morality; or (d) in addition, it is

patently illegal. This extendeddefinitionofpublicpolicy canbeby

passedby

taking

the

award

to

aforeign

country

for

enforcement.

(xv) The Supreme Court in Indtel Technical Services (P) Ltd. v. W.S.Atkins RailLtd.,(2008) 10 SCC 308, while referring Bhatia International observed as

follows:

37.Thedecision inBhatia Internationalcasehasbeenrenderedbya

BenchofthreeJudgesandgovernsthescopeoftheapplicationunder

consideration,as itclearly laysdown that theprovisionsofPart Iof

the Arbitration and Conciliation Act, 1996, would be equally

applicable

to

international

commercial

arbitrations

held

outside

India,

unlessanyofthesaidprovisionsareexcludedbyagreementbetween

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thepartiesexpresslyorby implication,which isnotso inthe instant

case.

(xvi) It isevidentfromtheabovediscussionthatthere isnouniformity injudicialdecisions in respectof applicabilityof Part Iof theAct in respectof cases

wherethe

seat

of

arbitration

is

not

in

India.

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

partiesbyagreement,excludealloranyofitsprovisions.Theresultisthatall

the provisions of Part I including provisions relating to appointment of

arbitrator(Section11),challengeofarbitrationaward(Section34)wouldalso

be applicable to International Commercial Arbitration where seat of

arbitrationisnotinIndia.However,inviewoftheobservationsmadebythe

SupremeCourt inShreejeeTraco(I)Pvt.Ltd.Vs.PaperLine International Inc

(2003)9SCC79,noprovisionsofPartIwouldapplytocaseswheretheplace

ofarbitration

is

not

in

India.

(xvii) Itmay be stated that it is thebroad principle in InternationalCommercialarbitration that a lawof the countrywhere it isheld,namely, the Seator

forumor lawsarbitriof thearbitration,governsthearbitration.However, if

all the provisions of Part I are not made applicable to International

Commercial arbitrationwhere the seatof arbitration isnot in India, some

practicalproblemsarearising.Theremaybecaseswherethepropertiesand

assetsofaparty toarbitrationmaybe in India.Section9of theActwhich

falls inPart Iprovidefor interimmeasuresbytheCourt.AsperSection9,a

partymay,

apply

to

acourt

for

certain

interim

measures

of

protection

including for preservation, interim custody or sale of goods, securing the

amount indisputes,detention,preservationor inspectionof anyproperty,

interim injunction etc. If provision of Section 9 is not made applicable to

InternationalCommercialarbitrationwhereseatofarbitrationisnotinIndia,

apartymaybeoutofremedyiftheassetsandpropertyareinIndia.Incases

of internationalarbitrationwhere the seatofarbitration isoutside India,a

serious controversyhasarisen in the IndianCourts.Thesearecaseswhere

interimmeasurescouldnotbegrantedbyIndiancourtsunderSection9toan

Indian national before commencement of arbitration (or after the award)

againstproperty

of

aforeign

party.

By

the

time

the

Indian

party

takes

steps

tomovethecourtsinthecountryinwhichtheseatofarbitrationislocated,

thepropertymayhavebeenremovedortransferred.

(xviii) There isanotheraspectwhich relates toenforcementofarbitrationawardrendered inanon convention country i.e.acountrywhich isnot signatory

either to New York convention or to the Geneva convention. In Bhatia

International Supreme Court referred to definition of International

Commercial Arbitration provided in Section 2 (1)(f) and held that the

definition makes no distinction between international commercial

arbitrations

held

in

India

or

outside

India.

An

international

commercial

arbitrationmaybeheld inacountrywhich isasignatory toeithertheNew

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York Convention or the Geneva Convention (hereinafter called the

conventioncountry).Aninternationalcommercialarbitrationmaybeheldin

anonconventioncountry.ThesaidActnowhereprovidesthatitsprovisions

arenottoapplytointernationalcommercialarbitrationswhichtakeplacein

anonconventioncountry.PartIIonlyappliestoarbitrationswhichtakeplace

inaconvention

country.

(xix) Inthisregardwemaypointoutthatanawardtobeaforeignawardhastobe made in the territory of a foreign State notified by the Central

GovernmentashavingmadeareciprocalprovisionforenforcementofNew

YorkConventionorGenevaconvention.TheSupremeCourtinBadat&Co.v,

East India TradingCo. (1964) 4 SCR19wasdealingwith a case that arose

beforetheForeignAwards(RecognitionandEnforcement)Act,1961became

applicable.Thecourtheldasfollows.

Beforewe

do

so,

it

would

be

desirable

to

examine

the

position

regarding theenforcementof foreignawardsand foreignjudgments

basedupon awards.Under theArbitrationProtocol and convention

Act, 1937 (6 of 1937), certain commercial awards made in foreign

countriesareenforceable inIndiaas iftheyweremadeonreference

toarbitrationinIndia.TheprovisionsofthisAct,however,applyonly

to countrieswhich areparties to the Protocol set forth in the First

Schedule to theActor toAwardsbetweenpersonsofwhomone is

subjecttothejurisdictionofsomeoneofsuchpowersastheCentral

Governmentbeingsatisfied that thereciprocalprovisionshavebeen

made,may,

by

notification

declare

to

be

parties

to

the

Convention,

setforthintheSecondScheduletotheAct.Itiscommongroundthat

theseprovisionsarenotapplicable to theawards inquestion.Apart

from the provisions of the aforesaid statute, foreign awards and

foreignjudgmentsbaseduponawardsareenforceableinIndiaonthe

same grounds and in the same circumstances in which they are

enforceableinEnglandunderthecommonlawongroundsofjustice,

equityandgoodconscience.Itwillthusbeseenthatthereisaconflict

of opinion on a number of points concerning the enforcement of

foreignawardsorjudgments,basedupon foreignawards.However,

certainpropositions

appear

to

be

clear.

One

is

that

where

the

award

isfollowedbyajudgmentinaproceedingwhichisnotmerelyformal

but which permits of objections being taken to the validity of the

awardby thepartyagainstwhomjudgment issought, thejudgment

will be enforceable in England. Even in that case, however, the

plaintiffwillhavetherighttosueontheoriginalcauseofaction.The

second principle is that even a foreign award will be enforced in

Englandprovideditsatisfiesmutatismutandisthetestsapplicablefor

theenforcementofforeignjudgmentsonthegroundthatitcreatesa

contractualobligationarisingoutofsubmissiontoarbitration.Ontwo

matters

connected

with

this

there

is

difference

of

opinion.

One

is

whetheranawardwhich isfollowedbyajudgmentcanbeenforced

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as an award in England or whether the judgment alone can be

enforced.Theother iswhetheranawardwhich isnotenforceable in

thecountry inwhich itwasmadewithoutobtaininganenforcement

orderorajudgmentcanbeenforcedinEnglandorwhetherinsucha

case theonly remedy is to sueon theoriginal causeofaction.The

thirdprinciple

is

that

aforeign

judgment

or

aforeign

award

may

be

sueduponinEnglandasgivinggoodcauseofactionprovidedcertain

conditionsarefulfilledoneofwhichisthatithasbecomefinal.

(xx) Thus it iswellestablishedthattheawardsrendered incountrieswithwhichIndiadoesnothavereciprocalarrangementscannotbeenforcedinIndiaasif

itwereadecree.PerhapsBadatscasewasnotbroughttothenoticeofthe

court in Bhatia International v Bulk Traders S A case, which is why

observations pertaining to nonconvention countries came tobemade.As

stated aboveprovisionsofPart IIwhichdealswithenforcementof foreign

award,is

not

and

cannot

be

made

applicable

to

an

international

commercial

arbitrationwhichtakesplace innonconventioncountryandwhere there is

noreciprocalagreementbetweenthatcountryandCentralGovernment.Not

onlythis,foreignawardmustbegiveninoneofthoseterritoriesinrespectof

whichreciprocalarrangementhasbeenmade.Section44oftheArbitration

and Conciliation Act, 1996 defines the term foreign award. According to

Section44,anarbitralaward isaforeignaward if it ismade inpursuanceof

anagreement towhichNewYorkConvention [reproduced inFirstSchedule

totheAct]appliesandmadeinaterritorytowhichtheNewYorkconvention

appliesonthebasisofreciprocity.

(xxi) Section44readsasfollows:44. Definition In this Chapter, unless the context otherwise requires,

foreignawardmeansanawardofdifferencesbetweenpersonsarisingout

of legalrelationships,whethercontractualornot,consideredascommercial

under the law in force in India,madeonorafter the11thdayofOctober,

1960

(a) inpursuanceofanagreement inwritingforarbitrationtowhichtheConvention

set

forth

in

First

Schedule

applied,

and

(b) inoneofsuchterritoriesastheCentralGovernment,beingsatisfiedthatreciprocalprovisionshavebeenmade,may,bynotificationinthe

OfficialGazette,declaretobeterritoriestowhichthesaidConvention

applies.

(xxii) ItmayalsobepointedoutthatClause(3)ofArticle1ofNewYorkconventionontheRecognitionandEnforcementofArbitralAwardspermitsthesigning,

ratifyingoraccedingState todeclareon thebasisof reciprocity that itwill

apply

the

convention

made

only

in

the

territory

of

another

contracting

State.

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Indiahasmadereservationanddeclaredthatconventionwillapplyonlyon

thebasisofreciprocity.

(xxiii) Therefore, when an International arbitral award is made in a country orterritory in respect of which there is no reciprocal arrangement between

CentralGovernment

and

Government

of

that

country,

it

cannot

be

enforced

under the Arbitration and Conciliation Act, 1996. For the purpose of

enforcementofsuchanarbitralawardpartyhastofileacivilsuitinIndia.

(xxiv) It is part of the law of arbitration in several countries to allow a fewprovisionsof theirarbitration statutes toapply to internationalarbitrations

heldoutsidetheircountries.

Section2(1)&(2)oftheEnglishArbitrationAct,1996readsasfollows:

2.Scope

of

application

of

provisions.

(1)

The

provisions

of

this

Part

apply

wheretheseatofarbitrationisinEnglandandWalesorNorthernIreland.

(2)Thefollowingsectionsapplyeven iftheseatofthearbitration isoutside

EnglandandWalesorNorthern Irelandorno seathasbeendesignatedor

determined

(a) Section9to11(Stayoflegalproceedings,&c),and(b) Section66(enforcementofarbitralaward.

(xviii) In order to remove the difficulties stated above, it is proposed to amendSection2(2)oftheArbitrationandConciliationAct,1996asfollows:

(2) This part shall apply only where the place of arbitration is in India.

Provided that provisions of Sections 9 and 27 shall also apply to

internationalcommercialarbitrationwheretheplaceofarbitrationisnotin

India ifanawardmade insuchplace isenforceableandrecognizedunder

PartIIofthisAct.

12


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(B) AmendmentinSection11:(i) Section11of theActprovides forappointmentofarbitrators.SubSections

(4) to (12)dealwith appointmentofArbitratorby theChief Justiceor any

personor institutiondesignatedbyhimwhen theparties fail toappointan

Arbitratororwherethearbitration istobeheldwiththreeArbitrators,andthetwoappointedArbitratorsfailtoagreeonthethirdArbitratorwithinthe

stipulatedtime.

(ii) The scope and effect of these provisions had been the subject mater ofseveraldecisions renderedby theSupremeCourt. InAdurSamia (P)LtdVs

PeekayHoldingsLtd(1999)8SCC572,aBenchoftwo learnedJudgesofthe

Supreme Court held that the Chief Justice or any person or institution

designatedbyhimactsinadministrativecapacityundersection11oftheAct

andhenceanorderpassed inexerciseof suchpower,doesnotattract the

provisionsof

the

Article

136

of

the

Constitution.

(iii) A two Judge Bench referred the case in Adur Samia (P) Ltd Vs PeekayHoldings Ltd. for reconsideration to the Bench of three learned Judges. A

threejudgesBench inKonkanRailwaycorp.Ltd.VsMehulConstructionCo.

(2000)7SCC201affirmed theview takenby the twoJudgeBench inAdur

Samia (P)LtdVsPeekayHoldingsLtd.,holdingthattheorderpassedbythe

Chief Justice or his designate under section 11 of the Act was an

administrative order not amenable to thejurisdiction of the court under

Article136.

(iv) Subsequently, aBenchof two Judges in KonkanRailwayCorp. LtdVs RaniConstruction(P)Ltd.,(2000)8SCC159referredtoalargerBenchofthesaid

decisionofthreeJudgeBenchforreconsideration.Thereafter,aConstitution

Benchconsistingoffive learnedJudges inKonkanRailwayCorp.Ltd.VsRani

Construction (P) Ltd. (2002) 2 SCC 388 affirmed the decision of the three

JudgeBenchinKonkanRailwayCorp.Ltd.VsMehulConstructionCo.holding

interaliathattheorderoftheChiefJusticeorhisdesignateundersection11

nominating an Arbitrator is not a adjudicatory order and that neither the

ChiefJusticenorhisdesignateactsasaTribunalandhenceanyorderpassed

bythem

cannot

be

asubject

matter

of

appeal

by

Special

Leave

under

Article

136. The Constitution Bench also held that since the Chief Justice or his

designate isnotrequiredtoperformanyadjudicatoryfunctionandthat,the

order nominating an Arbitrator would be amenable to challenge under

section12readwithsection13oftheAct.Sincetheexerciseofthepoweris

purelyadministrativeinnature,itdoesnotcontemplatearesponsefromthe

otherpartyandhenceanoticetotheoppositepartyisnotnecessary.

(v) Subsequently,thedecisionoftheConstitutionBenchhasbeenreconsideredby the larger Bench consisting of sevenJudges in SBP Co. Vs. Patel

EngineeringLtd

(2005)

8SCC

618.

The

Court

overruled

the

decision

in

Konkan

RailwayCorp.Ltd.VsRaniConstruction(P)Ltd.(2002)2SCC388renderedby

13


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fivelearnedJudgesandheldthatthepowerexercisedbytheChiefJusticeof

theHighCourtsortheChiefJusticeofIndiaunderSection11(6)oftheActis

judicialpowerandnotanadministrativepowerand thatsuchpower, in its

entirety, could be delegated only to another Judge of that Court. The

SupremeCourtconcludedasfollows:

(a) The power exercised by the Chief Justice of the High Court or theChief Justice of India under Section 11(6) of the Act is not an

administrativepower.Itisajudicialpower.

(b) The powerunder Section 11(6) of theAct, in its entirety, could bedelegated, by the Chief Justice of the High Court only to another

JudgeofthatCourtandbytheChiefJusticeofIndiatoanotherJudge

oftheSupremeCourt.

(c) IncaseofdesignationofaJudgeoftheHighCourtoroftheSupremeCourt,thepowerthat isexercisedbythedesignatedJudgewouldbe

thatoftheChiefJusticeasconferredbythestatute.

(d) TheChiefJusticeorthedesignatedJudgewillhavetherighttodecidethe preliminary aspects as indicated in the earlier part of this

judgment.Thesewillbehisownjurisdictiontoentertaintherequest,

the existence of a valid arbitration agreement, the existence or

otherwise of a live claim, the existence of the condition for the

exerciseofhis power andon the qualifications of the arbitratoror

arbitrators.The

Chief

Justice

or

the

designated

Judge

would

be

entitled to seek the opinion of an institution in the matter of

nominatinganarbitratorqualifiedintermsofSection11(8)oftheAct

if theneedarisesbut theorderappointing thearbitratorcouldonly

bethatoftheChiefJusticeorthedesignatedJudge.

(e) Once thematterreaches theArbitralTribunalor thesolearbitrator,the High Court would not interfere with the orders passed by the

arbitratorortheArbitralTribunalduringthecourseofthearbitration

proceedingsandthepartiescouldapproachtheCourtonlyintermsof

Section37

of

the

Act

or

in

terms

of

Section

34

of

the

Act.

(f) SinceanorderpassedbytheChiefJusticeoftheHighCourtorbythedesignated Judgeof thatCourt isajudicialorder,anappealwill lie

against thatorderonlyunderArticle136of theConstitution to the

SupremeCourt.

(g) TherecanbenoappealagainstanorderoftheChiefJusticeof IndiaoraJudgeoftheSupremeCourtdesignatedbyhimwhileentertaining

anapplicationunderSection11(6)oftheAct.

14


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(h) In a case where an Arbitral Tribunal has been constituted by theparties without having recourse to Section 11(6) of the Act, the

Arbitral Tribunal will have thejurisdiction to decide all matters as

contemplatedbySection16oftheAct.

(vi) TheSupremeCourtheld that theChief Justiceor thedesignated Judgewillhavetherighttodecidepreliminaryaspectsasregardshisownjurisdictionto

entertaintherequest,existenceofavalidarbitralagreement,theexistence

orotherwiseofaliveclaim,theexistenceoftheconditionsfortheexerciseof

thepowerandonthequalificationsoftheArbitrator.TheChiefJusticeorthe

designated Judgewouldbeentitled to seek theopinionofan institution in

thematternominatinganArbitratorbut theorderappointinganArbitrator

could be passed only by the Chief Justice or the designated Judge. Even

designationofaDistrictJudgeastheauthorityunderSection11(6)oftheAct

wasnotwarrantedunder the schemeof theAct. Theorderpassedby the

ChiefJustice

of

the

High

Courts

or

by

the

designated

Judge

of

that

Court

beingajudicialorder, isappealableunderArticle136oftheConstitutionto

theSupremeCourtbutnosuchappealwould lieagainsttheordermadeby

theChiefJusticeofIndiaoraJudgeoftheSupremeCourtdesignatedbyhim.

Where the Arbitral Tribunal is constituted by the parties without taking

recourse to Section 11 of the Act, the Arbitral Tribunal will have the

jurisdiction todecideall themattersascontemplatedbySection16of the

Act.

(vii) ThedecisionoftheSupremeCourthasrenderedtheprovisionscontainedinsub

section

(4),

(5),

(7),

(8)

and

(9)

of

Section

11

with

regard

to

appointment

ofArbitratorsbyanypersonor institutiondesignatedbytheChiefJusticeof

India and totally ineffective. It may be pointed out that question of

appointmentofarbitratorbytheChiefJusticearisesonlywhenapartyfails

toappointanarbitratororwherethetwoappointedarbitratorsfailtoagrees

onthethirdarbitrators.

(viii) This is clearly contrary to the objective of the Act that is, to encouragelitigantstotakerecoursetothealternativedisputeresolutionmechanismby

Arbitration. InstitutionalArbitration, throughout theworld, is recognizedas

theprimary

mode

of

resolution

of

international

commercial

disputes.

Institutional arbitration is an arbitration administered by an arbitral

institution.Thepartiesmaystipulateinthearbitrationagreementtoreferan

arbitraldisputebetweenthemforresolutiontoaparticularinstitution.When

partyhavenotnamedany institutionorwhentheyfailtoanagreementon

the name of any Institution, the Chief Justice instead of choosing an

arbitrator may choose an Institute and the said institute shall refer the

matter to one ormore arbitrator from their panel. The Indian institutions

include the Indian Council of Arbitration and the International Centre for

Alternative Dispute Resolution. International institutions include the

International

Court

of

Arbitration,

the

London

Court

of

International

Arbitration and theAmericanArbitrationAssociation.All these institutions

15


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have rulesexpressly formulated for conducting arbitration. These rules are

formulatedon thebasisofexperienceandhence, theyaddressallpossible

situations that may arise in the course of arbitration. The following

advantagesaccrueinthecaseof institutionalarbitration incomparisonwith

adhocarbitration:

(1) In ad hoc arbitration, procedureswill have to be agreed to by theparties and the arbitrator. This needs cooperation between the

parties.When adispute is inexistence, it isdifficult toexpect such

cooperation. In institutional arbitration, the rules are already there.

There isnoneedtoworryaboutformulatingrulesorspendtimeon

makingrules.

(2) In ad hoc arbitration, infrastructure facilities for conductingarbitration is a problem, so there is temptation to hire facilities of

expensivehotels.

In

the

process,

arbitration

costs

increase.

Getting

trained staff is difficult. Library facilities are another problem. In

institutionalarbitration,thearbitralinstitutionwillhaveinfrastructure

facilities forconductofarbitration;theywillhave trainedsecretarial

andadministrativestaff.Therewillalsobelibraryfacilities.Therewill

beprofessionalism inconductingarbitration.Thecostsofarbitration

alsoarecheaperininstitutionalarbitration.

(3) In institutional arbitration, the institution will maintain a panel ofarbitratorsalongwiththeirprofiles.Thepartiescanchoosefromthe

panel.It

also

provides

for

specialized

arbitrators.

While

in

ad

hoc

arbitration,theseadvantagesarenotavailable.

(4) In institutional arbitration, many arbitral institutions have anexperiencedcommittee to scrutinize thearbitralawards.Before the

award is finalized and given to the parties, it is scrutinized by the

experienced panel. So the possibility of the court setting aside the

award isminimum.Thisfacility isnotavailable inadhocarbitration.

Hence,thereishigherriskofcourtinterference.

(5) In institutionalarbitration,thearbitratorsfee isfixedbythearbitralinstitution.Thepartiesknowbeforehandwhatthecostofarbitrationwillbe. In adhoc arbitration, the arbitrators fee isnegotiated and

agreedto.TheIndianexperienceshowsthatitisquiteexpensive.

(6) Ininstitutionalarbitration,thearbitratorsaregovernedbytherulesofthe institution and they may be removed from the panel for not

conducting the arbitration properly, whereas in ad hoc arbitration,

thereisnosuchfear.

(7)

In

case,

for

any

reason,

the

arbitrator

becomes

incapable

of

continuing as arbitrator in institutional arbitration, it will not take

16


18/36

much time to find substitutes. When a substitute is found, the

procedure for arbitration remains the same. The proceedings can

continuefromwheretheywerestopped,whereasthesefacilitiesare

notavailableinadhocarbitration.

(8) In institutionalarbitration,as thesecretarialandadministrativestaffis subject to the discipline of the institution, it is easy to maintain

confidentialityoftheproceedings. Inadhocarbitration, it isdifficult

to expect professionalism from the secretarial staff. Institutional

arbitration is an arbitration administered by an arbitral institution.

The parties may stipulate in the arbitration agreement to refer an

arbitral dispute between them for resolution to a particular

institution. The Indian institutions include the Indian Council of

Arbitration and the International Centre for Alternative Dispute

Resolution. International institutions include the InternationalCourt

ofArbitration,

the

London

Court

of

International

Arbitration

and

the

American Arbitration Association. All these institutions have rules

expressly formulated for conducting arbitration. These rules are

formulated on the basis of experience and hence, they address all

possiblesituationsthatmayariseinthecourseofarbitration.

(ix) Institutionsofinternationalreputenotonlyprovideatimeandcosteffectivemechanismbutalsoenablethepartiestoresolvetheirdisputes inacordial

and informalatmosphereofarbitrationandcontinuetheirrelationshipeven

after such disputes have arisen. It has, therefore, become imperative to

amendthe

law

so

as

to

bring

it

in

conformity

with

the

desired

objectives

underlying the statute. This proposal also fully accords with the

recommendationsmadebytheParliamentaryCommittee.

(x) It is thereforeproposed thatSection11of theArbitration andConciliationAct,1996maybeamendedtothelimitedextentasfollows:

(a) InsubSection(4)inclause(b)forthewords,bytheChiefJusticeoranypersonorinstitutiondesignatedbyhimthewordsbytheHigh

Court or any person or institution designated by it shall be

substituted.

(b) InsubSection(5)forthewords,bytheChiefJusticeoranypersonor institutiondesignatedbyhim thewordsby theHighCourtor

anypersonorinstitutiondesignatedbyitshallbesubstituted.

(c) InsubSection(6)forthewords,bytheChiefJusticeoranypersonor institutiondesignatedbyhim thewordsby theHighCourtor


(d)

For

sub

section

(7),

following

sub

section

shall

be

substituted

namely:

17


19/36

Adecisiononamatterentrustedbysubsection(4)orsubsection

(5)orsubsection(6)totheHighCourtorthepersonor institution

designatedbyitshallbefinalandnoappealincludingaletterpatent

appealshalllieagainstsuchdecision.

(e) InsubSection(8)forthewords,bytheChiefJusticeoranypersonor institutiondesignatedbyhim thewordsby theHighCourtor


(f) In subSection (9) for thewords, theChief Justiceof Indiaoranypersonor institutiondesignatedbyhim thewords the Supreme

Court or any person or institution designated by it shall be

substituted.

(g) In subsection (10) for the words, The Chief Justice, the words,HighCourtshallbesubstituted.

(h) InsubSection(11),forthewords,theChiefJusticeofdifferentHighCourts or their designates, the Chief Justice or his designate to

whom the request has been first made under the relevant sub

section shall alonebe, thewords, differentHighCourts or their

designates,theHighCourtoritsdesignatetowhichtherequesthas

beenfirstmadeundertherelevantsubsectionshallalonebeshall

besubstituted.

(i) For subsection (12) following subsection shall be substituted,namely:

12(a)Wherethemattersreferredtoinsubsections(4),(5),(6),(7),

(8) and (10) arise in an international commercial arbitration, the

referencetoHighCourtinthosesubsectionsshallbeconstruedas

areferencetotheSupremeCourt.

(b)Wherethemattersreferredtoinsubsections(4),(5),(6),(7),(8)

and(10)

arise

in

any

other

arbitration,

the

reference

to

High

Court

inthosesubsectionsshallbeconstruedasareferencetotheHigh

Courtwithinwhose local limitstheprincipalcivilcourtreferred in

clause (e)of subSection (1)ofSection2 is situateand,where the

HighCourt itselfistheCourtreferredtointhatclause,tothatHigh

Court.

(j) After subsection (12), following subsections shall be inserted,namely:

(13)

Notwithstanding

anything

contained

in

foregoing

provisions

in

thisSections,whereanapplicationunderthisSectionismadetothe

18


20/36

SupremeCourtorHighCourtasthecasemaybeforappointmentof

arbitrator inrespectof CommercialDisputeofspecifiedvalue,the

SupremeCourtortheHighCourtortheirdesignate,asthecasemay

beshallauthorizeanyarbitration institution tomakeappointment

forthearbitrator.

Explanation: For the purpose of this subsection, expression

Commercial Dispute and specified value shall have same

meaningassignedtothemintheCommercialDivisionofHighCourt

Act,2009.

(14) An application made under this Section for appointment of

arbitrator shall be disposed of by the Supreme Court or theHigh

Court or their designate, as the case may be as expeditiously as

possible and endeavour shall be made to dispose of the matter

withinsixty

days

from

the

date

of

service

of

notice

on

the

opposite

party.

19


21/36

(C) AmendmentinSection12:

(i) Section 12 deals with grounds of challenge to the appointment of anarbitratorwhileSection13dealswiththechallengeprocedure.Section12(1)

provides that a personwho is approached in connectionwith his possible

appointmentasanarbitrator,heshalldiscloseinwritinganycircumstanceslikelytogiverisetojustifiabledoubtsastohisindependenceorimpartiality.

Subsection(2)ofsec.12laysthisresponsibilityonthearbitratorevenduring

the courseof arbitrationproceedings. Sub section (3)of sec.12 enables a

partytochallengethearbitratoronly if(a)circumstancesexistthatgiverise

tojustifiabledoubtsastohisindependenceorimpartiality,or(b)hedoesnot

possess thequalificationsagreedtoby theparties.Subsection (4)refers to

onesownappointedarbitratorandhecanbechallengedonlyforreasonsof

whichhebecomesawareaftertheappointmentismade.

(ii) Section12readsasfollows:12.Groundsforchallenge.(1)Whenapersonisapproachedinconnection

withhispossibleappointmentasanarbitrator,heshalldiscloseinwritingany

circumstances likelytogiverisetojustifiabledoubtsastohis independence

orimpartiality.

(2) Anarbitrator, from the timeofhisappointmentand throughout the

arbitral proceedings, shall, without delay, disclose to the parties in

writing any circumstances referred to in subsection (1)unless they

havealready

been

informed

of

them

by

him.

(3) Anarbitratormaybechallengedonlyif

(a) circumstancesexistthatgiverisetojustifiabledoubtsastohis

independenceorimpartiality,or

(b) hedoesnotpossessthequalificationsagreedtobytheparties.

(4) Apartymay challengeanarbitrator appointedbyhim,or inwhose

appointmenthe

has

participated,

only

for

reason

of

which

he

becomesawareaftertheappointmenthasbeenmade.

(iii) Sofarassec.12(1)isconcerned,itissaidthatthecircumstanceswhichthearbitratoristodisclosearethosewhichheconsidersrelevantsoastoraisea

justifiable doubt as to his independence or impartiality. After all, the

circumstancesaremostlywithinhispersonalknowledgeandunlessthere is

an obligation to disclose all relevant facts, without limiting them to those

which,inhisview,canraisejustifiabledoubts,thereislikelihoodofanunfair

adjudication.

(iv) TheearlierICCRulesrequiredthearbitratortodisclose:

20


22/36

Whether there exists any past or present relationship, direct or indirect,

with any of the parties or any of their counsel, whether financial,

professional,socialorotherkind.

Businessor

professional

relationship

or

connection

with

subject

matter

of

arbitrationor itsoutcomeorpriorconnectionwithsomedisputehavebeen

treatedas importantmattertobedisclosedbythearbitrators.It isamatter

of propriety of Arbitrator. International Bar Association has approved

guidelinesonconflictof interest in InternationalArbitration.Copyof these

guidelines are annexed as AnnexureVI. The Law Commission in its 176th

ReportrecommendedsubstitutionofSection12(1)asfollows:

(1) When a person is approached in connection with his possible

appointmentasanarbitrator,heshalldisclose inwritinganycircumstances,

suchas

the

existence

of

any

past

or

present

relationship,

either

direct

or

indirect,withanyof thepartiesoranyof their counsel,whether financial,

business,professional,socialorotherkindorinrelationtothesubjectmatter

in dispute, which are likely to give rise to justifiable doubts as to his

independenceorimpartiality.

(v) In view of this it is proposed to empower the Central Government toprescribe by rules guidelines on conflict of interest on the lines of IBA

guidelines. Sub Section (1)of Section 12 isproposed to be substituted as

follows:

(1) When a person is approached in connection with his possible

appointmentasanarbitrator,heshalldiscloseinwritinganycircumstances

(i) such as the existence of any past or present relationship, eitherdirect or indirect,with anyof theparties or anyof their counsel,

whether financial,business,professional, socialorotherkindor in

relationtothesubjectmatterindispute,whicharelikelytogiverise

tojustifiabledoubtsastohisindependenceorimpartiality;and

(ii) suchothercircumstancesasmaybeprovidedintheRulesmadebytheCentralGovernmentinthisbehalf.

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(D) AmendmentinSection28:

(i) Section28dealswithrulesapplicabletosubstanceofthedispute.Itreadsasfollows:

28. Rules applicable to substance of dispute.(1) Where the place ofarbitrationissituatedinIndia,

(a) in an arbitration other than an international commercialarbitration, the Arbitral Tribunal shall decide the dispute

submitted to arbitration in accordancewith the substantive law

forthetimebeinginforceinIndia;

(b) ininternationalcommercialarbitration,(i) theArbitralTribunalshalldecide thedispute inaccordance

withtherulesoflawdesignatedbythepartiesasapplicable

tothesubstanceofthedispute;

(ii) anydesignationbythepartiesofthelaworlegalsystemofagiven country shall be construed, unless otherwise

expressed,asdirectlyreferringtothesubstantivelawofthat

countryandnottoitsconflictoflawsrules;

(iii) failinganydesignationofthelawundersubclause(ii)bytheparties,

the

Arbitral

Tribunal

shall

apply

the

rules

of

law

it

considers to be appropriate given all the circumstances

surroundingthedispute.

(2) The Arbitral Tribunal shall decide ex aequo et bono or as amiable

compositeuronlyifthepartieshaveexpresslyauthorisedittodoso.

(3) Inallcases,theArbitralTribunalshalldecide inaccordancewith the

termsof the contractand shall take intoaccount theusagesof the

tradeapplicabletothetransaction.

(ii) SupremeCourtinOil&NaturalGasCorpn.Ltd.v.SawPipesLtd.,(2003)5SCC705, considered a question whether the award could be set aside, if the

ArbitralTribunalhasnotfollowedthemandatoryprocedureprescribedunder

Sections28,whichaffectstherightsoftheparties.Undersubsection(1)(a)

ofSection28thereisamandatetotheArbitralTribunaltodecidethedispute

inaccordancewith thesubstantive law for the timebeing in force in India.

Admittedly, substantive law would include the Indian Contract Act, the

TransferofPropertyActandothersuchlawsinforce.Suppose,iftheawardis

passed in violation of the provisions of the Transfer of Property Act or in

violationof

the

Indian

Contract

Act,

the

question

would

be

whether

such

award could be set aside. Similarly, under subsection (3), the Arbitral

22


24/36

Tribunalisdirectedtodecidethedisputeinaccordancewiththetermsofthe

contractandalsoaftertaking intoaccounttheusageofthetradeapplicable

tothetransaction.IftheArbitralTribunalignoresthetermsofthecontractor

usage of the trade applicable to the transaction, whether the said award

couldbeinterfered.SupremeCourtopinedthatreadingSection34conjointly

withother

provisions

of

the

Act,

it

appears

that

the

legislative

intent

could

notbethatiftheaward is incontraventionoftheprovisionsoftheAct,still

however, itcouldntbe setasideby thecourt. If it isheld thatsuchaward

couldnotbeinterfered,itwouldbecontrarytothebasicconceptofjustice.If

theArbitralTribunalhasnot followed themandatoryprocedureprescribed

under theAct, itwouldmean that ithas actedbeyond itsjurisdiction and

therebytheawardwouldbepatently illegalwhichcouldbesetasideunder

Section34.TheSupremeCourtfinallyheldthatiftheawardiscontrarytothe

substantiveprovisionsoflawortheprovisionsoftheActoragainsttheterms

ofthecontract,itwouldbepatentlyillegal,whichcouldbeinterferedunder

Section34.

(iii) ItmaybepointedoutthatEuropeanConventiononCommercial,Arbitrationthatentered intoforceonApril21,1961, inArticleVII it isstatedthat,the

arbitrators shall take into account of the terms of the contract and trade

usages.

(iv) Inorder toovercome thesituationarisesdue toSupremeCourtdecision inONGC case, it is proposed to substitute Subsection (3) of Section 28 as

follows:

(3)Inallcases,thearbitraltribunalshalltakeintoaccountthetermsofthe

contractandtradeusageapplicabletothetransaction.

23


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(E) AmendmentinSection31(7)(b)regardingrateofinterest:

(i) Therearethreestagesofgrantof interest inthearbitralproceedingsundertheAct (i)pre reference; (ii)pendent lieand (iii)postaward.Clause (a)of

subsection(7)ofSection31empowersthearbitraltribunaltoincludeinthe

sumforwhichawardismadeinterestatsuchrateasitdeemsreasonableonthe whole or any part of themoney, forwhole or any part of the period

betweenthedateonwhichthecausearoseandthedateonwhichawardis

made,provided (a) there isno agreementbetween thepartiesprohibiting

theawardofsuchinterestbythearbitraltribunal;and(b)thearbitralaward

isforthepaymentofmoney.Asprovided inclause (b)ofsubsection (7)of

Section31,unless thearbitralawardotherwisedirects, the rateof interest

shall be 18 per cent per annum from the date of award to the date of

payment.Thisisasalutaryprovisioninthestatutewhichisintendedtodeter

partiesfromraisingfrivolousdisputesbyputtingthemonnoticethatinterest

onthe

amount

directed

to

be

paid

is

payable.

(ii) Howevertheinterestattherateof18%perannuminthepresenteconomicscenarioappearstobetooharsh.Itwouldbereasonabletoprescriberateof

interest 1% higher than current rate of interest rate fixed by the Reserve

BankofIndia.Therefore,itisproposedtosubstituteclause(b)ofSubSection

(7)ofSection31asfollows:

(b)Asumdirectedtobepaidbyarbitralawardshallcarry interestatthe

rateofonepercenthigherthenthecurrentrateofinterestfromthedateof

awardto

the

date

of

payment.

Explanation The expression Current rate of interest shall have same

meaningasassignedto itunderclause(b)ofSection2ofthe InterestAct,

1978.

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26/36

(F) Amendment in Section 34 for providing meaning of public

policyofIndiaandforharmonisingitwithSections13and16:

PublicPolicy

(i) AsperexistingSection34(2)(b)(ii)anarbitralawardmaybesetasidebytheCourtifthearbitralawardisinconflictwiththepublicpolicyofIndiaSection

34provides that an arbitral awardmaybe set asideby a courton certain

groundsspecifiedtherein.Thegroundsmentionedincl.(a)tosubsection(2)

of section 34 entitles the court to set aside an award only if the parties

seeking such relief furnishesproofas regards theexistenceof thegrounds

mentionedtherein.Thegroundsare:(1)incapacityofaparty;(2)arbitration

agreementbeing not valid; (3) the partymaking the application notbeing

given proper noticeof appointment of arbitratororof theproceedings or

otherwiseunabletopresenthiscase;(4)thearbitralawarddealingwiththe

dispute not falling within the terms of submission to arbitration; and, (5)

compositionofthetribunalorthearbitralprocedurebeingnotinaccordance

withtheagreementoftheparties.

(ii) Clause(b)ofSubSection(2)ofSection34mentionstwogroundswhichare,however, left tobe foundoutby the court itself.Thegrounds are: (1) the

subjectmatterofthedisputenotcapableofsettlementbyarbitrationthatis

tosay, thedisputesarenotarbitrable;and (2) that theaward is inconflict

with the public policy of India. All these ground are common to both

domesticaswellasinternationalarbitralawards.

(iii) TheSupremeCourtinthecaseofONGCvSawPipesLtd.Vs.(2003)5SCC705examinedthescopeandambitofjurisdictionoftheCourtundersection34of

the Act. It was held that if the award is (a) contrary to the substantive

provisionof law,or(b)theprovisionsoftheAct,or(c)againstthetermsof

the contract, itwouldbepatently illegalwhich couldbe interferedu/s34.

SupremeCourtfurtherheldthatphrasepublicpolicyofIndiauseinSection

34 is required tobegivenawidermeaningand stated that theconceptof

public policy connotes some matter which concerns public good and the

public interest. The award which is on face of it, patently in violation of

statutoryprovisions

cannot

be

said

to

be

in

public

interest.

(iv) InONGC v. Saw Pipes Ltd. reiterating several principles of construction ofcontractandreferring to thecontractualprovisionswhichwere thesubject

matterofthearbitralaward,thecourtruledthatinthefactsofthecase,it

can not be disputed that if contractual term, as it is, is to be taken into

consideration, theaward is,on the faceof it,erroneousand inviolationof

the termsof thecontractand thereby itviolatesSection28(3)of theAct.

Cullingout the ratio from thedecisions renderedunder the 1940Act, the

courtheld:

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It is true that if theArbitral Tribunalhas committedmereerrorof

fact or law in reaching its conclusion on the disputed question

submitted to it for adjudication then the court would have no

jurisdictiontointerferewiththeaward.But,thiswoulddependupon

referencemadetothearbitrator:(a)ifthereisageneralreferencefor

decidingthe

contractual

dispute

between

the

parties

and

ifthe

award

isbasedonerroneouslegalproposition,thecourtcouldinterfere;(b)

it isalsosettled lawthat inacaseofreasonedaward,thecourtcan

set aside the same if it is, on the face of it, erroneous on the

propositionoflaworitsapplication;(c)ifaspecificquestionoflawis

submitted to thearbitrator,erroneousdecision inpointof lawdoes

notmaketheawardbad,soastopermititsbeingsetaside,unlessthe

courtissatisfiedthatthearbitratorhadproceededillegally.

(v) The decision in ONGC case, though rendered by a bench of two Honblejudges,

has

far

reaching

consequences.

Firstly,

the

decision

construes

the

new Act, as, in its entirety (Sections 2 to 43), laying down only rules of

procedures(videpara8ofthejudgment).Itrulesthatpowerandprocedure

are synonymous and that there is no distinction between

jurisdiction/powerandtheprocedure.ReferringtoSections24,28and31of

the Act and construing the words arbitral procedure in Section 34(2)(v)

(andafterobservingthatalltheprovisionsappearing inpartIoftheAct lay

downarbitralprocedure) itconcludesthatthejurisdictionorthepowerof

theArbitralTribunal isprescribedundertheActand iftheaward isdehors

thesaidprovisions,itwouldbe,onthefaceofit,illegal.

(vi) Construing the phrase public policy of India appearing in Section34(2)(b)(ii), thecourtheld that inacasewhere thevalidityof theaward is

challengedon the groundofbeingopposed to publicpolicyof India, an

widermeaningoughttobegiventothesaidphrasesothatpatently illegal

awards couldbe set aside. The courtdistinguished the earlierdecision in

RenuSagarcaseonthegroundthatinthesaidcasethephrasepublicpolicy

of Indiaappearing inSection7(1)(b)(ii)of theForeignAwards (Recognition

and Enforcement) Act, 1961 was construed which necessarily related to

enforcement of foreign award after it became final. Though the court

accedesthat

it

is

for

the

Parliament

to

provide

for

limited

or

wider

jurisdictionofthecourtincasewhereawardischallenged,itstillholdsthat,

in its view, awidermeaning is required tobe given to thephrase public

policyofIndiasoastopreventfrustrationoflegislationandjustice.Stating

the reasons in support of its view the court held that giving limited

jurisdiction to the court for having finality to the award and resolving the

disputeby speediermethodwouldbemuchmore frustratedbypermitting

patently illegalawardtooperate.Patentlyillegalaward isrequiredtobeset

atnaught,otherwiseitwouldpromoteinjustice.

26


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(vii) Thisdecisionhadbeen thesubjectmatterofpublicdebateandcriticism invariousfora.TheLawCommissionofIndiaalsosuggestedanamendmentto

theActbyinsertionofExplanationIItoSection34oftheAct.

(viii) Accordingly inorder tonullify theeffectofabovedecisionof theSupremeCourt,

it

is

proposed

that

the

existing

Explanation

in

section

34

be

renumberedasExplanation1andafter thatExplanationas so renumbered

thefollowingExplanationshallbeinserted.

ExplanationII Forthepurposesofthissectionanawardisinconflictwith

thepublicpolicyofIndiaonlyinthefollowingcircumstances,namely:

Whentheawardiscontrarytothe

(i) fundamentalpolicyofIndia;or(ii) interestsofIndia;or(iii) justiceormorality.

HarmonisingSection34withSections13and16

(ix) It may be pointed out that Section 13 deals with the procedure forchallenging an arbitrator. Subsection (1) recognizes the freedom of the

partiestoagreeonaprocedureforchallenginganarbitrator.SubSection(2)

provides a supplementary procedure for challenging an arbitrator. The

reasons for such a challenge are exhaustively laid down in Section 12. As

providedin

sub

section

(3),

unless

the

arbitrator

challenged

under

sub

section(2)withdrawsfromofficeortheotherpartyagreestothechallenge,

thearbitraltribunalshalldecideonchallenge.Subsection(4)providesthatif

a challenge under any procedure agreed upon by the parties or under

procedureunder subsection (2) isnot successful, thearbitral tribunalshall

continue thearbitralproceedingsandmakeanarbitralaward.However,as

providedinsubsection(5)thepartywhichchallengestheappointmentofthe

arbitratormayfileanapplication forsettingasidesuchanarbitralaward in

accordancewithSection34.Hence,untilthearbitralawardismadeafterthe

challenge to the appointment of arbitrator being unsuccessful, the party

challengingthe

appointment

of

arbitrator

cannot

make

any

application

to

the

Court inconnectionwithchallengetotheappointmentofthearbitratornor

thecourtcanentertainanysuchapplication.However insection34there is

nospecificmentionofsuchagroundforsettingasideanarbitralaward.

(x) Similarlyasprovided inSection16,thearbitraltribunalmayruleon itsownjurisdiction.Apleathatthearbitraltribunaldoesnothavejurisdictioncanbe

raisedaspersubsection(2)andapleathatthearbitraltribunalisexceeding

the scope of its authority can be raised in terms of subsection (3). As

provided in subsection (5), the arbitral tribunal candecideon thesepleas

and

where

the

tribunal

takes

a

decision

rejecting

the

plea,

continue

with

the

arbitralproceedingsandmakeanarbitralaward.However,aspersubsection

27


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(6)apartyaggrievedbysuchanarbitralawardmaymakeanapplicationfor

settingasidesuchanarbitralawardinaccordancewithSection34.Anappeal

liesunderSection37againsttheorderofthearbitraltribunalacceptingthe

plea under subsection (2) and (3) of Section 16. However, no appeal is

provided against an order rejecting such plea. The only right that the

petitionerhas

in

such

acase

is

to

challenge

the

award

under

Section

34

after

itismade.

(xi) TheLawCommissionin176thReportconsideredthequestionwhetheritwasdesirabletoprovideforanappealundersection37tocourtagainstdecision

of the arbitral tribunal rejecting the plea of bias or disqualification under

section13.Afterduedeliberation,theLawCommissionwasoftheviewthat

thereshouldnotbean immediate rightofappealunder section37against

thedecisionofthetribunalrejectingthepleaofbiasordisqualificationunder

section13.

(xii) The Law Commission in its 176th Report also considered the request fromcertainquarters for a rightof appeal to theCourt against anorderof the

arbitraltribunalrejectingtheobjectionsinregardtotheexistenceorvalidity

ofthearbitrationagreementundersubsections(2)and(3)ofsection16.

(xiii) The Law Commission rejected the request for providing appeal against anorderrefusingapleaofwantofjurisdiction.

(xiv) Section34doesnotenablethepartiestoquestionthedecisionofthearbitraltribunal

made

under

Section

13

(2)

rejecting

aplea

of

bias

or

to

question

the

decisionofthesaidtribunalmadeunderSection16(2)or(3)rejectingaplea

of want of jurisdiction on the part of the arbitral tribunal. Though the

existenceof these remedieswas referred to in Sections13 (5) and 16 (6),

these remedieswerenot included inSection34and further theuseof the

wordonlyinsection34(1)contradictedwhatwasstatedinsections13and

16.Therefore,theLawCommission,recommendedinsertionofaclarification

insection34bywayofanexplanationthatanapplicant,whileseekingtoset

aside the award, can attack the interlocutoryorderof the arbitral tribunal

rejectingapleaofwantofjurisdiction,aspermittedbysection16(6).

(xv) Instead of insertion of another Explanation as proposed by the LawCommission, it would be appropriate to have a substantive provision in

Section34 forprovidingseparategroundforchallengingthearbitralaward.

Therefore,itisproposedtoaddfollowingsubclause(iii)inclause(b)ofSub

section(2)ofSection34

(iii)theapplicationcontainsapleaquestioningthedecisionofthearbitral

tribunalrejecting

(a) achallengemadebytheapplicantundersubsection (2)ofsection13;

or

(b) apleamadeundersubsection(2)orsubsection(3)ofsection16,

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(G) InsertionofnewSection34A:

(i) Law Commission while suggesting amendment in Section 34 alsorecommended that in case of domestic arbitration, new ground for

challengesviz.mistakeappearingon faceofawardmaybemadeavailable.AccordinglyitrecommendedforinsertinganewSection34A.

(ii) Itisdesirabletoprovidesomerecoursetoapartyaggrievedbyapatentandserious illegality in the award which has caused substantial injustice and

irreparable harm to the applicant. It is a delicate task to strike a balance

betweentwoequallyimportantbutconflictingconsiderations,namelygiving

finality to the arbitral awardand redressing substantial injustice causedby

somepatentandseriousillegalityintheaward.Asnotribunalisinfallible,itis

desirable toprovidesomerecourse toapartywhohassufferedsubstantial

injusticedue

to

patent

and

serious

illegality

committed

by

the

arbitral

tribunal.Itistruethatwhateverexpressionisusedinthegroundsofrecourse

totakecareofsuchsituation,thepossibilityofabusethereofbyadisgruntled

party cannot be ruled out. However, one cannot lose sight of the ground

realties.There isnodenyingthefactthattheoverallscenario inthefieldof

arbitration is not as ideal as it should be. As pointed by Lord Mustill,

arbitration has become a business, often involving very large sums, and

bringinginitstrainsubstantialmonetaryearningsforallconcernedandthere

hasbeenaconcurrentdeclineinthestandardsofatleastsomeofthosewho

takepart in it. It isnogoodwringinghandsabout this, for it isa facttobe

faced,and

part

of

facing

is

to

recognise

that

some

means

must

be

found

of

protecting thisvoluntaryprocess from thosewhowillnotactas theyhave

agreed or as is expected of them. Here lies the need for providing some

groundofrecourseincaseofpatentandseriousillegalitycausingsubstantial

injustice.

(iii) In this context it may be necessary to refer to the case of Sikkim SubbaAssociates v. State of Sikkim (2001) 5 SCC 629, wherein the arbitrator

awardedanastronomicalsumasdamageswithoutanybasisorproofofsuch

damagesasrequiredby law intotaldisregardtothebasicandfundamental

principles,is

aglaring

example

of

misuse

of

power

by

the

arbitrator

and

the

need for some recourse at least in such extreme cases. In that case, the

arbitrator made an award determining a sum of over Rs.33 crores with

proportionate costsand future interestat the rateof12%p.a.on the said

amount as the amount payable by the State of Sikkim to the organizing

agentsofthelottery.TheSupremeCourtsetasidetheawardontheground

ofgrossillegality.Thegravenatureoftheillegalityintheawardinthatcaseis

evidentfromthefollowingobservationsoftheSupremeCourt:

The arbitrator who is obliged to apply law and adjudicate claims

accordingto

law,

is

found

to

have

thrown

to

the

winds

all

such

basic

andfundamentalprinciplesandchosentoawardanastronomicalsum

29


31/36

asdamageswithoutanybasisorconcreteproofofsuchdamages,as

requiredinlaw.

Though the entire award bristles with numerous infirmities and

errors of very serious nature undermining the very credibility and

objectivityof

the

reasoning

as

well

as

the

ultimate

conclusions

arrived

atbythearbitrator, itwouldsufficetopointoutafewofthemwith

necessary and relevant materials on record in support thereof to

warrant and justify the interference of this Court with the award

allowingdamagesofsucha fabulous sum,asawindfall in favourof

the appellants, more as a premium for their own defaults and

breaches.

The manner in which the arbitrator has chosen to arrive at the

quantum of damages alleged to have been sustained by the

appellantsnot

only

demonstrates

perversity

of

approach,

but

per

se

proves flagrantviolationof theprinciplesof lawgoverning thevery

award of damages. The principles enshrined in Section 54 in

adjudicatingthequestionofbreachandSection73oftheContractAct

incorporatingtheprinciplesforthedeterminationofthedamages,are

foundtohavebeenobservedmoreintheirbreach.

(iv) Itisthereforeproposedthatthatanadditionalgroundofchallenge,namely,patent and serious illegality, which has caused or is likely to cause

substantialinjusticetotheapplicantmaybeaddedasagroundforrecourse

incase

of

purely

domestic

awards.

Accordingly,

it

is

proposed

to

insert

anew

Section34AassuggestedbytheLawCommissionwithsomechanges:

34A.Application for settingasidearbitralawardonadditionalgroundof

patentandseriousillegality.

(1) RecoursetoaCourtagainstanarbitralawardmadeinanarbitrationother than an international commercial arbitration, can also be

madebyapartyundersubsection(1)ofsection34ontheadditional

groundthatthereisapatentandseriousillegality,whichhascaused

oris

likely

to

cause

substantial

injustice

to

the

applicant.

(2) Where the ground referred to in subsection (1) is invoked in anapplication filed under subsection (1) of section 34, while

considering such ground, the Court must be satisfied that the

illegality identifiedby the applicant is patent and serious and has

causedorislikelytocausesubstantialinjusticetotheapplicant.

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(H) SubstitutionofSection36:

(i) ExistingSection36dealswithenforcementofanarbitralaward.Itreads:36.Enforcement.Wherethetimeformakinganapplicationtosetasidethe,

arbitralawardundersection34hasexpiredorsuchapplicationhavingbeenmade, ithasbeen refused, theaward shallbeenforcedunder theCodeof

CivilProcedure,1908(5of1908)inthesamemannerasifitwereadecreeof

theCourt.

(ii) Section36,asitstandsnow,providesthattheenforcementoftheawardwillcome to a stop upon the filing of an application under subsection (1) of

section34tosetasidetheaward.

(iii) The Law Commission in their Report had observed that parties are filingapplications

to

set

aside

the

award

even

though

there

is

no

substance

whatsoeverinsuchapplicationsand,toputastoptothispractice,proposed

theamendmentofsection36bydeletingthewordswhichsaythattheaward

will not be enforced once an application is filed under subsection (1) of

section34.

(iv) To give effect to the above recommendation of the Law Commission, theAmendmentBillof2003soughttosubstitutetheexistingsection36.Thatwas

is a very good provision. It will have a salutary effect on the expeditious

executionoftheawards.Itprovidedthatanawardwillbeenforceableafter

theperiod

fixed

for

filing

applications

under

section

34

has

expired,

unless

the court stays itsenforcement.Thecourt isvestedwithpowers to refuse

stayor grant stay subject to conditions.Whilegranting stay, thecourt can

impose conditions,keeping the scopeof interference inapplicationsunder

subsection(1)ofsection34inmind.Themannerofimposingconditionsand

interim measures has also been specified. Therefore, it is proposed to

substituteSection36asfollows:

36.Enforcementofaward.

(1) Where the time formakinganapplication to setaside thearbitralawardundersubsection(1)ofsection34hasexpired,then,subject

to the provisions of subsections (2) to (4), the award shall be

enforced under the Code of Civil Procedure, 1908 in the same

mannerasifitwereadecreeoftheCourt.

(2) Whereanapplication is filed in theCourtunder subsection (1)ofsection 34 to set aside an arbitral award, the filing of such an

applicationshallnotbyitselfoperateasastayoftheawardunless,

uponaseparateapplicationmadeforthatpurpose,theCourtgrants

stayof

the

operation

of

the

award

in

accordance

with

the

provisions

ofsubsection(3).

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34/36

(I) ArbitrationrelatestoCommercialDisputesofspecifiedvalue:

(i) IntheAmendmentBillof2003 itwasproposedto insertanewchapterIXA,comprising sections 37A to 37F, to provide that every High Court shall,

constitute anArbitrationDivision in theHighCourt todeal, irrespectiveof

pecuniaryvalue,withtheapplicationsundersubsection(1)ofsection34tosetasideawardsundertheprincipalAct,newandpending,andenforcement

ofawardsundertheprincipalAct,newandpending.

(ii) Theobjectof thatamendmentwas toavoid thepresentprocedureat twolevels, one in the subordinate courts (or original side of High Court) and

anotherbywayofappealtoorintheHighCourt.Now,byaseparatelawitis

proposedtoconstituteCommercialDivisionintheHighCourt.Inthesaidlaw

it is also proposed that the said Commercial Division will also entertain

applicationsunderSection34andSection36andappealsundersection37of

theArbitration

and

Conciliation

Act,

1996

where

the

arbitration

relates

to

CommercialDisputes of specified value. For thispurpose, consequential

amendment for amending definition of Court in Section 2 of the

ArbitrationAct isalsobeingamended.AstheapplicationunderSection34

would be filed before the Commercial Division of the High Court, appeal

againstorderpassedbytheCommercialDivisionunderSection37would lie

before theSupremeCourt.For thispurpose, theLokSabhahaspassed the

CommercialDivisionofHighCourtsBill,2009.CopyoftheBill isannexedas

AnnexureVII.

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(J) Suggestion for Insertion of provision for implied arbitration

agreementincommercialcontractofhighconsiderationvalue:

(i) Wehavereceivedasuggestionfromcertainquartersthatafterthejudgmentdelivered

by

Seven

Judge

Bench

of

Supreme

Court

in

the

case

of

S.B.P.

CompanyVs.PatelEngineeringLtd.(2005)8SCC618,asituationhasarisesto

the effect that in the matter of appointment of arbitrator, the role of

arbitration institutionhasbecomealmostnil.AsheldbytheSupremeCourt

inaforesaidcase,theChiefJusticeorthedesignatedJudgewouldbeentitled

to seek only the opinion of an institution in the matter of nominating an

arbitrator ifneed arises,but theorder appointing arbitrator couldonlybe

thatoftheChiefJusticeorthedesignatedJudge.SupremeCourthasfurther

heldthatbeforeappointinganarbitratortheChiefJusticeorthedesignated

Judgewillhavearighttodecidecertainpreliminaryissuesincludingtheissue

ofexistenceofavalidarbitrationagreement.

(ii) StandingCommitteeof theParliament in its reporton theArbitration andConciliation (Amendment) Bill, 2003 has recommended to promote

institutionalarbitration.

(iii) In order to avoid raising of an issue of existence of a valid arbitrationagreement and also to promote institutional arbitration, it has been

suggestedbycertainpersonsthat inrespectofcommercialcontractofhigh

thresholdvalue, thereshouldbeadeemedarbitrationclause ineverysuch

contract, unless the parties expressly and in writing agree otherwise. To

achievethis

object,

insertion

of

following

clause

in

the

Arbitration

and

ConciliationAct,1996hasbeensuggested:

(i) Unless parties expressly and in writing agree otherwise, everycommercial contractwith a considerationof specified value (Rs. 5

croreormore)shalldeemedtohaveinwritingspecifiedarbitration

agreement.

(ii) Specified Arbitration Agreement as referred in clause (i) shallcontainfollowingclause:

All disputes except (here specify the excepted disputes, if any)

arising out of or in connectionwith the present contract shall be

finally settled under the Rules of Arbitration of (here specify the

name of the approved arbitral institution) by one ormore of the

arbitratorsappointedinaccordancewiththesaidRules.

(iii) Any arbitration agreement that differs from the said clause willstand modified along the lines of the specified arbitration

agreement.

34


36/36

(iv) Where the parties have failed to mention the Approved ArbitralInstitution, High court will authorize to an Approved Arbitral

Institution to appoint arbitrator within 30 days of the reference

madetoitbyeitherpartyforthispurpose.

(v) In this Section Commercial Contract shall mean every contractinvolvingexchangeofgoodsorservicesformoneyormoneysworth

andincludescarriageofgoodsbyroad,rail,air,waterways,banking,

insurance, transactions in stock exchanges and similar exchanges,

forwardmarkets,supplyofenergy,communicationof information,

postal,telegraphic,faxandInternetservices,andthelike.

(iv) ItmaybepointedoutthatforinsertingaforesaidprovisionsintheArbitration& Conciliation Act, 1996, many provisions of the Act including Section 7

(whichdealswitharbitrationagreement),Section8,Section2(1)(b)have to

beamended.

7. Comments are invited on the feasibility and necessity of insertion ofaforesaidprovisionsintheAct.

8. Comments are invited on aforementioned proposed amendments in theArbitration & Conciliation Act, 1996. Any other suggestion regarding

amendment inthesaidActmayalsobesentwithin30days.Thecomments

canbesenttoAdvisertoUnionMinisterforLaw&[email protected]

ortothefollowingaddress:

T.K.Viswanathan

AdvisertoMinisterforLaw&Justice

MinistryofLaw&Justice

RoomNo404AWing4thFloor

ShastriBhavan,NewDelhi110001
mailto:[email protected]:[email protected]

Documents

Arbitration Amendment 2010