IMPORTANT SUPREME COURT DECISIONS RELATING TO ARBITRATION AND CONCILIATION
-By Adv. Sandesh
The role of UNCITRAL model :-
It was held by the Hon’ble Supreme court in the case of Konkan railway Corpo. Ltd Vs Rani Const. Pvt Ltd (A.I.R 2002 SC 778) that for interpretation of the Arbitration and conciliation Act 1996, the model law and judgments thereon are not a guide since the Act and the Model Law are not identically worded.
In Rashtriya Ispat Nigam Ltd Vs Verma Transport Co., it was held that the new Act, however, is not as extensive as the English Arbitration Act. The new act was enacted in the light if the UNCITRAL Model rules but in certain respects the legislature has gone beyond the scope of the said rules.
In Centrotrade minerals
and metals Inc. V/s
Reference through intervention of Court:-
There is no provision in the 1996 Act for referring a matter to the Arbitral tribunal with a intervention of the court. However, if during the pendency of the proceedings in the court, parties have entered into an arbitration agreement, then they have to proceed in accordance with the provisions of the act. The award when made attains the status of a decree. The award though cannot be filed in the High Court and it has to be filed in the Court as defined in sec 2(1)(e) for its enforcement as a decree u/s 36.Tamilnadu Electricity board v/s Sumathi AIR 2000 SC 1603
Meaning of Commercial
In R.M. Investments and trading company Pvt. Ltd. v/s Boeing Company(AIR 1994 SC 1136)The Supreme Court has defined the term commercial as it should be given a wide interpretation so as to cover matters arising from all relationships of a commercial nature, whether contractual or not.
Relationships of commercial nature include, but are not limited to the following transactions, any trade transactions for the supply or exchange of goods or services, distribution agreements, commercial representation or agency, factoring, leasing, construction of works, engineering, consulting, licensing, investments, financing, banking, insurance, exploitation agreement or concession, joint venture, and other forms of industrial or business co-operation, carriage of goods, or passengers by air, rail, sea, or road.
In Fatehchand Himmatlal V/s State of
Venue of Arbitration:-
Regarding the venue of arbitration it was held in Sanshin Chemicals Industry V/s Orient Carbons and Chemicals Ltd. (AIR 2001 SC 1919) It was held by Supreme court that it is for the Arbitral tribunal to determine the venue of arbitration if the arbitration clause does not so specify or the parties cannot agree on the place where the arbitration hearings should be held. In case the arbitral tribunal has to decide the venue and a decision is given, such a decision is not a decision of dispute relating to the agreement and cannot be called an award or an Interim award.
Award to be construed harmoni
In appreciating the words used in the award given by the arbitrators, the court must bear in mind that the arbitrators are laymen not familiar with the technical significance of legal expressions, and so the court must read the relevant clauses in the award as a whole with a view to determine what in effect and substance they intended to decide. AIR 1960 SC 307.
Evidentiary value of award
It was held by the Supreme court in Satish Kumar Vs Surinder Kumar, AIR 1970 SC 833, that the award is ,in fact, a final adjudication of a court of the parties own an award, which is on the face of it irregular, is conclusive upon the merits of the controversy submitted. As between the parties and their privies, an award is entitled to that respect which is due to judgment of a court of last resort.
Status of arbitral award
The status of an arbitral award has been clearly stated by the Hon’ble Supreme Court in the case of Engineering Mazdoor Sabha Vs Hind Cycles Ltd, AIR 1963 SC 874. According to the Hon’ble S.C., An arbitral award is not constituted by law but it is constituted by the parties and the power to decide the dispute between the parties who appointed it is derived by it from the agreement of the parties and from no other source. An Arbitral Tribunal is not a tribunal because the State has not vested it with its inherent judicial power and the power of adjudication which it exercises is derived by it from the agreement of parties.
Section 2(1)(e), Competency of court
It was held in Garwal Mandal Vikas Nigam Ltd Vs
An exceptional case, an award can be challenged in the principle civil court of original jurisdiction in a district and it includes a High court in exercise of its original civil jurisdiction. However an exception was made in case of Mcdermott International Inc Vs Burn Standard Co Ltd, (2005)10 SCC 353, that where while appointing an arbitrator, an order was passed by the Supreme court that as and when award would be made, it would be filed in Supreme Court only and that if any application was required to be made during or after the conclusion of arbitration proceeding, the same should be filed in the Supreme court.
Section 2(1)(e) Cause of action :-
In B.South East Asia Shipping Co. Ltd. Vs Navbharat Enterprises Pvt. Ltd. 1996(3) SCC433, The Supreme Court has defined cause of action as a bundle of fax which give pause to enforce the legal injury for redress in a court of law. The cause of action means, therefore, every fact, which if traversed, would support his right to a Judgment of the court. In other words, it is bundle of facts, which taken with a law applicable to them gives the plaintiff a right to claim relief against the defendant. It must include some act done by the defendant since in absence of such an act no cause of action would possibly arise.
It was held by the Supreme Court in Nalanda Ceramic and Industries Ltd. Vs N.S. Chaoudhary and Co.,(AIR 1977 SC 2142 that if an award was made in pursuance of an agreement which was entered into between the parties in Calcutta, then only that the High Court at Calcutta has jurisdiction to entertain the proceedings.
Section 2(1)(e) Place of making of contract
Making of an offer at a
particular place does not form cause of action in a suite for damages for
breach of contract. Ordinarily, acceptance of an offer and its intimation results
in a contract and hence, suite can be filled in a court within whose
jurisdiction the acceptance was communicated. A.B.C. Lamin
Art Pvt. Ltd. Vs A.P Agencies,
Place of payment of money:
Where the petitioner alleged that the formal experience of a contract and payment under the contract had been made within the territory of a particular court and the averments were not controverter by the respondent in his affidavit in opposition it would not be correct to say that the said court did not have territorial jurisdiction.
In a very famous case of Bhatia
International Vs Bulk Trading S.A., AIR 2002 SC 1432, it was held by the Supreme Court that,
applicability of Part I of the Act is not restricted by section 2 (2) of the
Act to domestic / international arbitration that takes place in India. Omission
by the legislature to provide that Part I will not apply to international
arbitration taking place out side
Waiver of right to object
“Waiver” is not strictly
defined in its application in arbitration proceedings. As per the dictionary
meaning a person is said to waive injury when he abandons the remedy which the
law gives him for it, and may be express or implied. If the applicant having a
clear knowledge of the circumstances on which he might have founded an
objection to the arbitrators proceeding to make their award, submits to the
arbitration going on and allows the arbitrators to deal with the case as it
stands before them taking the chance of decision being more or less favourable to himself, it is too late for him after the
award has been made to raise objection. N. Chellappan Vs
In Sikkim Subba Associates Vs State of Sikkim, AIR 2001 SC 2062, it was held that Waiver involves a conscious , voluntary and international relinquishment or abandonment of a know existing legal right advantages, benefit, claim or privilege which express for such a waiver, the party have enjoyed.
Arbitration agreement – waiver of
In Dharma Prathisthanam Vs Mandok const , AIR 2005 SC 214, it was held that , what confers jurisdiction on the arbitrators to hear and decide a dispute is an arbitration agreement and where there is no such agreement there is an initial want of jurisdiction which cannot be cured even by acquiescence. The arbitrator derives their jurisdiction from the agreement and consent.
By virtue of this section, notwithstanding any law for the time being in force, no judicial authority can intervene in any arbitration matter except when so permitted by any of the stipulations in part I of the Act. This section clearly indicates the legislative intent to minimize supervisory role of the courts to ensure that the intervention of the courts is minimal. Shree Shubh laxmi Fabrics Pvt Ltd Vs Chandmal Baradiya, AIR 2005 SC 2161.
Supreme Court has given a very detail view regarding the scope of arbitration
clause in an arbitration proceedings in the case of Union
In State of U.P. Vs Bridge and Roof Co Ltd (India)AIR 1996 SC 3515, it was held that where the parties have agreed to settle their dispute by arbitration and if there is an agreement in that respect, the court will not permit recourse to any other remedy without invoking the remedy by way of arbitration unless, both the parties to the dispute agrees on another mode of dispute resolution.
Section 8 :- power to refer parties to arbitration
In Union of
In Olympus Superstructures Pvt Ltd Vs Meena Vijay Khaitan, AIR 1999 SC 2102, it was held that if there is a situation where there are disputes and differences in connection with the main agreement and also disputes regarding some other matters , connected with the subject matter of the main agreement, then in such a situation, disputes can be referred to the arbitral tribunal.
Section 9 :- interim measures by courts
In Bhatia International Vs Bulk Trading S.A., AIR 2002 SC 1432, it was held that an order restraining a party from proceeding with the arbitration cannot be said to be an interim measure that could be granted under this section. Provisions of the act are designed to reduce to an acceptable minimum the interference of courts with the conduct of arbitration and the finality of awards. It is recognized that in the interest of justice and the healthy arbitral system there should only be a limited scope for recourse to courts.
Section 11 Appointment of Arbitrator :-
It was held by the Hon’ble Supreme Court in Union of India Vs M.P. Gupta and Union of India Vs V.S. Eng Pvt Ltd AIR 2007 SC 285, that when and where the arbitration agreement specifically provides for the appointment of two gazette officer of equal status as arbitrators, it is incumbent upon the court to give effect to the stipulation. Thus appointment made by court in complete disregard of the term of the agreement cannot be upheld.
In the case of Bhupindersingh Bindra Vs Union of India, AIR 1995 SC 2464, it was confirmed by the Supreme Court that where for some reason it is not possible to appoint an arbitrator in terms of the agreement of the parties then the court has to look for selecting a suitable person outside the provision of the agreement.
It was also confirmed in the above stated case that the court must make all possible efforts to appoint an arbitrator in accordance of the agreement, but if it is not possible, the endeavour of the court should be appoint a person who is agreeable to the parties to dispute.
Appointment of arbitrators by consent
In Arvind Construction (P)Ltd Vs Kalinga Mining Corp, AIR 2007 SC 2144, it was held that the appointment of an arbitrator must be made by the Chief Justice or his designate with due expedition otherwise the very purpose of going in for arbitration would be defeated. Where any application under this section is pending before Chief Justice before the High Court for over two years without orders, parties on the suggestion of Supreme Court can agree for appointment of a sole arbitrator.
Order of the Chief Justice adjudicatory :-
In a very prominent case of Konkan Railways Corp Ltd Vs Mehul Construction Co, AIR 2000 SC 2821, it was held by a three judge bench of the Supreme Court, that the order of the Chief Justice in case of appointment of arbitrators in case of domestic arbitrations and that of the Chief Justice of the India in an International commercial arbitrations, shall be deemed to have been made in his administrative capacity and the aggrieved party could approach the arbitral tribunal under section 16 for challenging the jurisdiction of the tribunal. This view of the Supreme Court was confirmed by a Constitution Bench of the Supreme Court in another important case Konkan Railways Corp Ltd Vs Rani Construction Co, AIR 2002 SC 778.
Named Arbitrator when may not allow to act
In an arbitration proceeding , it is expected from the arbitrator so appointed for the proceedings, that he should not only be fair and impartial but also that he should enjoy the confidence of the parties and if the arbitrator so appointed does not meet this criteria , he would not qualify to act as an arbitrator further in the proceedings. Bihar State mineral Dev Corp Vs Encon Builders (I)(P) Ltd AIR 2003 SC 3668.
Appointment by non designated authority
In Consolidate Constructions Co Vs State of Orrisa, AIR 1963 SC 90, it was held that where the appointment of an arbitrator is made by a person other that the one named in the arbitration agreement to make such appointment, then the proceedings before such arbitrator and award made by him are null and void since acquiescence cannot cure defect of jurisdiction.
Regarding the appointment of arbitrator, it was stated that once the parties agreed for adjudication of the dispute through arbitration, it is not open for either of them to resale from the bargain, as held in Jagdish Chander Bhatia Vs Lachman Das Bhatia, AIR 1991 SC 89.
Section 12, Grounds for challenge of appointment
An arbitrator must not be
guilty of any act which can possibly be construed as indicative of partiality
or unfairness. The purity of
administration requires that the party to the proceeding should have an
apprehension that the authority or the arbitrator is biased and likely to
decide the case against the party.
In Uttarpradesh Cooperative Federation Ltd Vs Sunder Bros, AIR 1967 SC 249, it was held that a party to the proceeding may be released from the bargain if he can show that the selected arbitrator is likely to show bias or by sufficient reason to suspect that he will act unfairly or that he has been guilty of continued unreasonable conduct.
In State of Rajasthan Vs Nav Bharat Construction co, AIR 2005 SC 4430, it was stated by the Supreme Court that a mere allegation , unsupported by any proof or evidence, that the arbitrator was regularly appearing for one of the parties and assisting it in preparation, can not be countenanced.
Writ petition is barred for challenging order of arbitrator
In S.B.P. & Co Vs Patel Eng. Ltd, AIR 2006 SC 450, it was held that, an order passed by an arbitral tribunal during the course of arbitral proceedings, can not be challenged in a Write Petition. The aggrieved party can avail the provision of Section 34 of the Arbitration and Conciliation Act, after the award has been filed. Once the arbitration proceedings are commenced, the parties have to wait until the award has been pronounced, unless, of course, a right of appeal is available to them under section 37 even at an earlier stage.
Section 13, Challenge procedure
Bias: the famous author Russell defined as, “there is a universal agreement among jurists of all countries, that it is of the first importance that Judicial tribunal should be honest, impartial and disinterested”
In Secretary Transport Dept Vs Munuswamy Mudaliar, AIR 1988 SC 2232, it was held that reasonable apprehension of bias in the mind of a reasonable man can be a ground for the removal of an arbitrator. A predisposition to decide for or against one party, without proper regard to the true merits of the dispute is bias. The reasonable apprehension must be based on cogent material.
In Kumaon Mandal Vikas Nigam Ltd Vs Girija Shankar Pant, AIR 2001 SC 24, it was held that mere general statements will not be sufficient for the purpose of indication of ill will. There must be cogent evidence available on record to come to the conclusion as to whether in fact there was existing bias which resulted in miscarriage of justice.
Section 14 Failure to or impossibility to act:-
In Grid Corporation of Orissa Ltd.Vs A.E.S.Corporation AIR 2002 SC 3435, it was held that an application under sec 11(6) can be moved before the Chief Justice for appointment of arbitrator, but a petition that the arbitrator has failed to act can be filed only in the Court. Thus a joined application u/s 11(6) and 14 for appointment of a third arbitrator is not maintainable because for both sections is different.
In Keshav Singh Dwarka Das Vs Indian Engineering Company, AIR 1972 SC 1538, it was held at where the appointed person after acceptance of Office refuses to act or will not act, the parties have to take recourse to the court.
In Chanderbhan Harbhajan Lal Vs State of
Section 15 Termination of mandate and substitution of arbitrator:-
Regarding the admissibility of evidence recorded before earlier arbitrator it was held in Kalyan Peoples cooperative Bank Ltd. Vs Dulhan Bibi Aqual Amin Saheb Patil AIR 1966 SC1072, that question of mode of proof is a question of procedure and is capable of being waived and therefore evidence taken in a previous judicial proceeding can be made admissible in a subsequent proceeding by the consent of parties.
Section 16 ,Competence of Arbitral Tribunal
In Nimet Resource Inc Vs Essar Steels Ltd AIR 2000 SC 3107, it was held that when the correspondence or exchange of documents between the parties are not clear as to the existence or non existence of arbitration agreement in terms of section 7, the appropriate course would be that the arbitrator should decide such a question under section 16.
In Wellington Associates Ltd Vs Kirit Mehta ,AIR 2000 SC 1379 it was decided that the Chief Justice has the jurisdiction to decide whether an arbitration clause exists between the parties at the time of making the appointment.
In Hindustan Petroleum Corp Ltd Vs Pinkcity Midway Petroleum, AIR 2003 SC 2881, it was held that if there are any objection regarding the applicability of arbitration clause in the agreement which goes to the root of the jurisdiction of the arbitral tribunal, the same should be raised before it.
Section 17, Interim measures ordered by the tribunal
The Hon’ble Supreme Court, in Olympus Superstructures Pvt Ltd Vs Meena Vijay Khaitan, AIR 1999 SC 2102, relied on Halsbury’s Law and held that the dispute or difference which the parties to an arbitration agreement agree to refer must consist of a justifiable issue triable civilly. A fair test of this is whether the difference can be compromised lawfully by way of accord and satisfaction.
The Supreme Court on the
question of misconduct has held that, in an arbitration agreement where the
terms of the contract expressly prohibits awards of compensation for damages on
account of prolongation of contract, and the arbitrator still awards the
damages, it would be misconduct on his part. As held in Continental
Construction co Ltd Vs State of
On the question of natural justice, it was held by the Supreme Court, that an arbitrator must ordinarily follow the principles of natural justice, but where the parties agree on the point that the proceeding may be conducted in any particular way, the contract prevails over what are called principles of natural justice. Payyavula Vengamma Vs Payyavula Kesanna, AIR 1953 SC 21.
Award based on personal knowledge
In Dewan Singh Vs Champat Singh, AIR 1970 SC 967, it was held that if the parties vest the power with the arbitrator to decide the dispute in ‘whatever manner’ that does not mean that the arbitrators can decide the matter on the basis of their personal knowledge.
Section 19 Determination of rules
The arbitrator is the
sole judge of the quality as well as quantity of evidence and it will not be
for the court to take upon itself the task of being judge of the evidence
before the arbitrator. It may be possible that on the same evidence the court
might have arrived at a different conclusion that the one arrived at by the
arbitrator but that by itself is no ground for setting aside the award of the
arbitrator. Municipal Corporation of
Arbitration not governed by Evidence Act
In Ganges Waterproof Works (P) Ltd Vs Union of India, AIR 1999 SC 1102, it was held that an arbitrator is not bound by the terms of the Evidence Act in matters of recording and relying upon evidence. He can rely upon documentary evidence filed before him especially when the same have not been denied by either party.
Framing of issue :-
Deciding this question, the Supreme Court held that, if at the time of making an award, the arbitrator corrected certain issues, which did not in any manner prejudice the cause of either party and more so, when the parties have fought the case before the arbitrator on the basis of amended claim, it cannot be said that he was guilty of misconduct because of having amended the issue behind the back of the parties. Madanlal Roshanlal Mahajan Vs Hukamchand Mills Ltd, AIR 1967 SC 1030.
Disposal of interlocutory applications
In International Airport Authority of India Vs K.D. Bali, AIR 1988 SC 1099, it is not necessary for the arbitrator to record long reasoned order on the preliminary objections of a party and indeed the law does not demand writing such a long order.
Section 20, Place of arbitration
It is not open for the arbitrator to fix the venue of arbitration proceeding of his choice regardless of the convenience of the parties. When there is no condition in the arbitration agreement empowering the arbitrator to fix the venue of arbitration as he thought fit, the arbitration in fixing the venue of meeting must take into account all the material circumstances including the residence of the parties and their witnesses, the subject matter of the reference and the balance of convenience. Sanshin chemical Industry Vs Oriental Carbons and Chemicals Ltd, AIR 2001 SC 1219.
Section 21 Commencement of proceeding
In Milkfood Ltd Vs GMC Ice Cream (P) Ltd, AIR 2004 SC 3145, the Supreme Court held that, A notice of arbitration or commencement of an arbitration may not bear the same meaning, as different dates may be specified for commencement of arbitration for different purposes. What matters is the context in which the expressions are used.
Section 23 , Statement of claim and defense :-
In Madanlal Roshanlal Mahajan Vs Hukamchand Mills Ltd, AIR 1967 SC 1030, it was held that when the objecting party has suffered no prejudice by amendment of an issue and parties well knew the amended claim and have contested the case before the arbitrator on that footing, the contention of the objector that by amending the issue behind his back, the arbitrator was guilty of misconduct is of no force.
Section 28 Rules applicable to substance of dispute :-
In an important case of ONGC Ltd Vs SAW Pipes Ltd, AIR 2003 SC 2629, it was held by the Hon’ble Supreme Court that , if on taking into consideration contractual terms, the award on the face of it is erroneous and in the violation of the terms of the contract, then it would be violation of sub section (3) of this section. When the award is erroneous on the basis of record with regard to the propositions of law or its application, the court will have jurisdiction to interfere the award. If the award is contrary to the substantive provisions of law or the terms of the contract, it would be penalty illegal, which would be interfered with under this section. However, such failure of procedure should be patent affecting the rights of the parties.
To decide as per the terms of the contract :-
In Associated Engg Co Vs Government of Andhra Pradesh,AIR 1992 SC 232, it was held that , the Arbitrator can not act arbitrarily, irrationally, capriciously or independently of the contract. His sole function is to arbitrate in terms of the contract. He has no power apart from what the parties have given under the contract. If he has travelled outside the bounds of the contract, he has acted without jurisdiction. A conscious disregard of the law or the provisions of contract from which he has derived his power and authority vitiates the award.
In Thawardas Pherumal Vs Union of India, AIR 1955 SC 468, it was held that the Arbitrator is the tribunal selected by the parties to decide their disputes according to law and so is bound to follow and apply the law, and if he does not, he can be set right by the court provided his error appears on the face of the award.
In National Thermal Power Corporation Vs Singer Co , AIR 1993 SC 998, it was held that the Judge has to apply the proper law for the parties in such circumstances by putting himself in the place of a “reasonable man”. He has to determine the intention of the parties by asking himself “how a just and a reasonable person would have regarded the problem”
Section 30 Settlement :-
In Gurunanak Foundation Vs Rattan singh and Sons AIR 1981 SC 2075, it was held regarding the encouragement to settle the dispute through mediation, that the very concept of arbitration is based on the system that was prevailing in panchayats for resolution of disputes and difference which arose between two parties. The decision was taken on the spur of the moment and both the parties graciously accepted the decision as final and binding on them without any murmur.
Execution of settlement awards :-
If a settlement agreement comes into existence, it gets the status and effect of an arbitral awards on agreed terms on the substance of the dispute rendered by an arbitral tribunal under this section. However, even a compromise petition signed by both the parties cannot be enforced by resorting to execution proceedings unless such it is accepted by the court and the court puts its seal of approval on the same. Mysore Cement Ltd Vs Svedala Barmac Ltd AIR 2003 SC 3493
Section 31 Form and contents of arbitral award :-
Even assuming that there was an error of construction of the agreement or even that there was an error of law in arriving at a conclusion, such an error is not an error amenable to correction even in a reasoned award under the law. U.P. Hotels Vs U.P, State Electricity Board, AIR 1989 SC 268
Stamp duty on award :-
In Hindustan Steel Ltd Vs Dilip construction co, AIR 1969 SC 1238, it was held that stamp act is a fiscal measure enacted to secure revenue for the State on certain classes of instruments. It is not enacted to arm a litigant with a weapon of technically to meet the case of his opponents. The stringent provisions of the act are conceived in the interest of revenue. Once that object is secured according to law, the party stating his claim on the instrument will not be defeated on the ground of the initial defect in the instrument.
Registration of Award :-
In Satishkumar Vs Surinder kumar AIR 1970 SC 833, it was held that, an award given under the Arbitration Act requires registration under section 17(1) (b) of the Registration Act If the award affects partition of an immovable property exceeding the value of Rs, 100/-
In Sardar Singh Vs
If due to an injunction order, the arbitrators were prevented from taking steps for registration of the award, the entire period during which the award remained in the custody of the court was to be excluded for the purposes of computation of the period of four months for getting the award registered. Raj kumar Vs Tarapada Dey, AIR 1987 SC 2195.
Return of award for registration :-
In Champalal Vs Samrathbai, AIR 1960 SC 629, it was held that where the unregistered award was filed by the arbitrator in the court, its subsequent registration was not invalid as the filing of an unregistered award under section 49 of the Registration Act is not prohibited , but what was provided by that provision was that such an award could not be taken in evidence so as affect immovable properties falling under section 17 of the Registration Act.
Registration – when not required
When an award stated merely an existing fact viz that the existing documents relating to debts obtained on lands would remain as before, as securities till payment of debts and that the debtor would have no right to transfer the land, held that the award did not either create, or of its own force, declare any interest in any immovable property required to be registered.
Award – who can file :-
If a party to
the arbitration , by his letter requests the
arbitrator to send to his lawyer the award for filing the same in court and the
arbitrator obliges on such a request, it could be said that the arbitrator by
necessary implication authorized the party’s counsel to file the award and the
connected papers in court. Food Corporation of
It is not correct
to say that an award should be filed only if the parties make a request to the
arbitrator to file the award or make an application to the court for that
purpose, especially when there is no prohibition in the act
against the arbitrator filing his award sue motu
in the court. State of
over of the award to a party does not necessarily imply that the award has been
given the authority to the arbitrator to file the same into the court on his
behalf. That authority has to be specifically alleged and proved. Binod Bihari singh Vs Union of India AIR 1993 SC 1245, Kumbha Mawji Vs Dominion of
Section 33 Correction and interpretation of award :-
An arbitrator is functus officio after he has made the award, but this only mean that no power is left in the arbitrator to make any change in substance in the award that he had made. This section gives the power to the arbitrator to correct any clerical mistake or error arising from any accidental slip or omission in the award. Juggilal Kamlapat Vs General fibers Dealers Ltd AIR 1962 SC 1123.
Section 34 Setting aside an arbitral award :-
This is a very important section the whole Arbitration and Conciliation Act 1996. There are a plenty of cases in which the Hon’ble Supreme court has laid down their view deciding the cases.
In Olympus Superstructures Pvt Ltd Vs Meena Vijay Khaitan, AIR 1999 SC 2102, it was held that this section is based on Art 34 of the UNCITRAL Model Law and it will be noticed that under the 1996 Act, the scope of the provisions for setting aside the award is far less the same as under section 30 or 33 of the Arbitration Act 1940.
In State of Rajasthan Vs Nav Bharat Construction co, AIR 2002 SC 258, It was held that if a party fails to establish his case within the four corners of this section, the award cannot be set aside.
In Shanmughasundaram Vs Diravia Nadar, AIR 2005 SC 1836, It was held that an award can be set aside where all the necessary parties are not impleaded in the litigation. An award which is unenforceable and invalid on the date it is made, cannot be upheld on possibilities and eventualities which might occur in the future. An Award cannot be upheld on guess work and speculations.
Section 36 Enforcement of Award :-
Where application were filed by the petitioners in respect of two awards in the same arbitration case, it was held that provisions of Order XXI Rule 18 and 19 of C.P.C. were not applicable. N.R. Constructions Pvt Ltd Vs Shri Ram Badan singh,
A clause in a decree passed in terms of an award providing that on the happening of certain events, the vendor shall be entitle to take back possession of property, does not make the award declaratory so as to make it incapable of execution. Prakash Chandra Khurana Vs Harnamsingh , AIR 1973 SC 2065.
Section 37 Appealable orders :-
to set aside the award, the appellate court cannot sit in an appeal over the
conclusion of the arbitrator by re examining and re appraising the evidence
considered by the arbitrator and hold that conclusion reached by the arbitrator
is wrong. President,
Section 40 Arbitration agreement not to be discharged by death of the party :-
proceedings cannot become incompetent only because the legal representatives of
the deceased person, who died during the pendency of the arbitration
proceedings, were not brought on record in view of order XXX Rule 4 of the CPC . As held by the
Supreme Court in
Laxmi Ice Factory Vs Union of
Section 42 Jurisdiction :-
The main object of introducing the new
provision is to entrust the decision of the relevant dispute to the specified
court, and to require the parties to bring the said dispute for the decision of
the said court in the form of petitions, remedy by a regular suit being
excluded. Jawaharlal Burman
Vs Union of
Section 43 Limitation :-
Cause of action
The cause of
arbitration corresponds to the cause of action in litigation treating a cause
of arbitration in the same way as a cause of action would be treated if the proceedings
were in a court of law . State
Section 44 Enforcement of Foreign Awards
Commerce, undoubtedly is traffic, but it is some thing
more, it is intercourse. It describes the commercial intercourse between
nations and parts of nations, in all its branches, and is regulated by
prescribing rules for carrying on that intercourse. Transocean Shipping Agency (p)
Section 45 Power of judicial authority to refer parties to arbitration :-
Submission means an agreement to refer or an arbitral clause and does not mean an actual submission or completed reference and that the word “agreement” means a commercial contract and not an agreement to refer or an arbitral clause. Tractroexport Vs Tarapore and Co , AIR 1971 SC 1
It was pointed out that even though if a
company is a party to the joint venture agreement, no arbitration has been
provided for disputes between the shareholders and the company or in relation
to allegations on the affairs of the company. Sumitomo Corporation Vs CDC
Financial Services (
A court while
exercising its judicial functions would ordinarily not pass an order which
would make one of the parties to the lis violate a
lawful order passed by the another court.
Section 48 :-
For enforcement of a foreign award there is no need to follow separate procedure, one for deciding enforceability of award to make it a rule of court or decree and the other for execution thereafter. Forest Day Lawson Ltd Vs Jindal Exports Ltd, AIR 2001 SC 2293
Section 49 Enforcement of foreign awards :-
In Thyssen Stablunion GBMH Vs Steel authority of India Ltd AIR 1999 SC 3923, it was held that if the provisions of the foreign Awards Act and new act relating to the enforcement of foreign awards are juxtaposed there would appear to be hardly any difference.
Section 54 :-
In Societe De Traction Et D’ Electricite Societe Anonyme Vs Kamini Engg Corp Ltd , AIR 1964 SC 558, it was held that when the arbitration clause is valid and binding on an Indian Company and when the Indian Company files a suit against the foreign company in an Indian Court on the basis of the Collaboration agreement, the suit can be stayed.
In Svenska Handelsbanken Vs Indian Charge Chrome Ltd , AIR 1994 SC 462, it was held that plaintiff by filling a plaint cannot make the arbitration clause invalid or inoperative.
Section 57 Foreign awards when binding:-
In Shiva Jute Baling Ltd Vs Hindley and Co Ltd, AIR 1959 SC 1357, deciding the question regarding award according to law in India when enforceable, held that, when a contract provided for measure of liquidated damages and the arbitrators, who conducted the arbitral proceeding in London, awarded the maximum amount named in the contract , the award was not bad on the face of it as being contrary to that of Laws in India.
Section 61 Conciliation :
The law applicable for arbitration thus far had been that an arbitrator was an adjudicator and not a conciliator, as held in Associated Engg Co. Vs Govt of Andhara Pradesh, AIR 1992 SC 232.
In Ramji Dayawala and sons (p) Ltd Vs Invest Import, AIR 1981 SC 2085, it was stated by the Supreme Court that , protected, time consuming, exasperating and atrociously expensinve court trials impelled an alternative mode of resolution of disputes between the parties, arbitrate – don’t litigate. Arbitration being a mode of resolution of disputes by a Judge of the choice of the parties was considered preferable to adjudication of disputes by courts.
Section 73 Settlement Agreements :-
takes shape only when the parties draw up the settlement agreement or request
the conciliator to prepare the same and affix their signatures to it. The
settlement agreement signed by the parties to the dispute,
is final and binding on the parties and persons claiming under them. Harsh Dayaram Thakur Vs State of
It was also held in this case that if a statute prescribes a procedure for doing a thing, that thing has to be done according to the prescribed procedure.
In Mysore Cement Ltd Vs Svedala Barmac Ltd. AIR 2003 SC 3493, it was held that it is only that agreement which has been arrived at in conformity with the manner stipulated and form envisaged and got duly authenticated in accordance with this section , alone can be assigned the status of a settlement agreement within the meaning of and for effective purpose of the act and not otherwise.
Section 85 :-
Regarding the retrospective applicability of an amended act, it had been laid down by the Supreme Court in Nami Gopal Mitra Vs State of Bihar, AIR 1970 SC 1636, that, it is therefore clear that as a general rule the amended law relating to procedure operates respectively. But there is another equally important principle, viz, that a statute should not be construed as to create new disabilities or obligation or impose new duties in respect of transaction which were complete at time the amending act came into force.
SHIN SATELLITE PUBLIC CO. LTD. vs. JAIN STUDIOS LTD.
2006 2 SCC 628
• Applicability of Doctrine of Severability to Arbitration Agreement.
Whether the invalid part of the arbitration clause can be severed and the rest of the agreement could be made enforceable and as to what is the test of deciding validity of such a contract.
The Court referring to Halsbury's Laws of England 4th Edition held that it is no doubt true that a court of law will read the agreement as it is and cannot rewrite nor create a new one. It is also true that the contract must be read as a whole and it is not open to dissect it by taking out a part treating it to be contrary to law and by rdering enforcement of the rest if otherwise it is not permissible. But it is well settled that if a contract is in several parts, some of which are legal and enforceable and some are unenforceable, lawful parts can be enforced provided they are severable.
Further, the proper test for deciding the validity or otherwise of an agreement or order is "substantial severability" and not "textual divisibility". The court must consider the question whether the parties could have agreed on the valid terms of the agreement had they known that the other terms were invalid or unlawful. If the answer to the said question is in the affirmative, the doctrine of severability would apply and the valid terms of the agreement could be enforced, ignoring invalid terms. To hold otherwise would be "to expose the covenanter to the almost inevitable risk of litigation which in nine cases out of ten he is very ill-able to afford".
HIGHWAY AUTHORITY OF
(2006)10 SCC 763
· Jurisdiction of Court in case of resignation of arbitrator - cannot rewrite a contract.
· Hierarchy not a consideration in appointment of arbitrators
The question before the Supreme Court was with regard to the scope of jurisdiction of the court on the resignation of an arbitrator and whether consent given by one party is enough to rewrite the contract. It was held that on resignation or termination of mandate of an arbitrator, the process of appointment of arbitrator begins a fresh in accordance with the terms of the contract. Unless the mechanism/procedure for the appointment of the substitute arbitrator fails or is not exhausted, the court cannot assume jurisdiction under section 11(6) of the arbitration and conciliation act, 1996. If the court assumes jurisdiction in the above mentioned situation, it will be vitiated.
In the present case, by alleging that one of the arbitrators is a retired judicial person, the respondent has admitted to rewrite the contract between the parties, which is against the law of the land. Also, if the process of appointment is clearly mentioned in the agreement clause, the court cannot import any further qualifications. Various courts have held that the parties are required to comply with the procedure of appointment as agreed to and without the agreed contractual procedure having been exhausted, the court cannot interfere and appoint a substitute arbitrator. In this matter, the Supreme Court has clarified that in accordance with S.15 (2) of the Act read together with the contract on the termination of the mandate of the Presiding Arbitrator, the other two nominated arbitrators were first required to reach a consensus and only on the failure to do so was the Respondent No. 2 (Indian Road Congress) authorised to make an appointment. The High Court could assume jurisdiction under s 11(6) of the Act only if Respondent No. 2 failed to assume jurisdiction. Further, the court has pointed out that it is wrong to contend that in case one of the arbitrators is a retired Judge, the Presiding Arbitrator should also be a retired Judge. The court rejected the contention that in case one of the arbitrators is a retired Chief Justice, the Presiding Arbitrator should be at least a retired Chief Justice or a retired Judge of a High Court with considerable experience. The parties would be bound by the terms of the contract in the appointment of arbitrators.
MCDERMOTT INTERNATIONAL INC. vs. BURN STANDARD CO. LTD.
(2006)11 SCC 181
· Power of court to interfere u/s 34 of Arbitration and Conciliation Act, 1996.
· Relevant factors and materials for interpretation of contract by an arbitrator.
It was observed that power under Section 34 of the Arbitration Act, 1996 was limited to quashing the award if sufficient reason is found.
The 1996 Act makes provision for the supervisory role of courts, for the review of arbitral award only to ensure fairness. The court cannot correct errors by the arbitrators. It can only quash the award leaving the parties free to begin the arbitration again if it is desired. The arbitral award can be set aside if it is contrary to policy of law, public policy or to justice and morality or if it is patently illegal or arbitrary. Further, it was also noted that it is not necessary that every claim made by one party to arbitration be followed by a denial. If a matter is referred to an arbitrator within a reasonable time, the party invoking the arbitration clause may proceed on the basis that the other party to the contract has denied his claim or is not otherwise interested in referring the dispute to the arbitrator. As regards construction of contract by an arbitrator, it was held that the construction of contract is within the jurisdiction of the arbitrators having regard to the wide nature, scope and ambit of the arbitration agreement and they cannot be said to have misdirected themselves in passing the award by taking into consideration the conduct of the parties. Once it is held that the arbitrator had the jurisdiction, no further question shall be raised and the court will not exercise its jurisdiction unless it is found that there exists any bar on the face of the record.
SHREE RAM MILLS LTD. vs. UTILITY PREMISES (P) LTD.
(2007) 4 SCC 599
• Preliminary Proceedings before Arbitration Proceedings
The Supreme Court, while upholding the decision of the High Court, held that the High Court, while entertaining an application under Section 11(6) of
the Arbitration and Reconciliation Act 1996, may decide preliminary matters relating to the Arbitration. This is not a violation of the principles of Arbitration, but rather, a means for effectively putting the arbitration procedure into motion by. The High Court is thus empowered to look into matters of existence and validity of arbitration agreement, and whether the current dispute falls within its ambit, while hearing an application under Section 11(6).
SIDDHIVINAYAK REALITIES (P) LTD. vs.
TULIP HOSPITALITY SERVICES LTD.
(2007) 4 SCC 612
· Precedence of contract based dispute settlement before Arbitration
In this case, apart from an arbitration clause in the sale agreement, there was a separate Escrow Agreement entered into between the two parties which provided for the two joint Escrow Agents to consult and come to decision in the case of a default of any party. It was held that the Escrow Arrangement would have priority. Those provisions would apply before arbitration is entered into. Also, this can be avoided if it can be shown that the arrangement has an element of bias in it.