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INTRODUCTION

The significant increase in the role of international trade in the economic development of nations
over the last few decades has been accompanied by a considerable increase in the number of
commercial disputes as well. In India too, rapid globalization of the economy and the resulting
increase in competition has led to an increase in commercial disputes. At the same time,
however, the rate of industrial growth, modernization, and improvement of socio-economic
circumstances has, in many instances, outpaced the rate of growth of dispute resolution
mechanisms. In many parts of India, rapid development has meant increased caseloads for
already overburdened courts, further leading to notoriously slow adjudication of commercial
disputes.1 As a result, alternative dispute resolution mechanisms, including arbitration, have
become more crucial for businesses operating in India as well as those doing businesses with
Indian firms.
In sum, although the huge influx of overseas commercial transactions spurred by the growth of
the Indian economy has resulted in a significant increase of commercial disputes, arbitration
practice has lagged behind. The present arbitration system in India is still plagued with many
loopholes and shortcomings, and the quality of arbitration has not adequately developed as a
quick and cost-effective mechanism for resolution of commercial disputes.

1 Nearly 30 million cases pending in courts (www.rtiindia.org).

I. ARBITRATION IN INDIA: THE BASICS


A Brief History of Arbitration Law in India
Arbitration has a long history in India. In ancient times, people often voluntarily submitted their
disputes to a group of wise men of a communitycalled the panchayatfor a binding
resolution.2
Modern arbitration law in India was created by the Bengal Regulations in 1772, during the
British rule. The Bengal Regulations provided for reference by a court to arbitration, with the
consent of the parties, in lawsuits for accounts, partnership deeds, and breach of contract,
amongst others.3
Until 1996, the law governing arbitration in India consisted mainly of three statutes: (i) the 1937
Arbitration (Protocol and Convention) Act, (ii) the 1940 Indian Arbitration Act, and (iii) the 1961
Foreign Awards (Recognition and Enforcement) Act.4
The 1940 Act was the general law governing arbitration in India along the lines of the English
Arbitration Act of 1934, and both the 1937 and the 1961 Acts were designed to enforce foreign
arbitral awards (the 1961 Act implemented the New York Convention of 1958).5
The government enacted the Arbitration and Conciliation Act, 1996 (the 1996 Act) in an effort to
modernize the outdated 1940 Act. The 1996 Act is a comprehensive piece of legislation modeled
on the lines of the UNCITRAL Model Law. This Act repealed all the three previous statutes (the
1937 Act, the 1961 Act and the 1940 Act).6
2 K Ravi Kumar, Alternative Dispute Resolution in Construction Industry,
International Council of Consultants (ICC) papers, www.iccindia.org. at p 2. K Ravi
Kumar is assistant executive engineer, Salarjung Museum, Hyderabad.
3 ibid.
4 ibid.
5 The New York Convention of 1958, i.e. the 1958 Convention on the Recognition
and Enforcement of Foreign Arbitral Awards, is one of the most widely used
conventions for recognition and enforcement of foreign awards. It sets forth the
procedures to be used by all signatories to the Convention. This Convention was
first in the series of major steps taken by the United Nation since its inception, to
aid the development of international commercial arbitration. The Convention
became effective on June 7, 1959.
6 The 1996 Act, Section 85.

Its primary purpose was to encourage arbitration as a cost-effective and quick mechanism for the
settlement of commercial disputes.7 The 1996 Act covers both domestic arbitration and
international commercial arbitration.
The Arbitration Act, 1940
The Arbitration Act, 1940, dealt with only domestic arbitration. Under the 1940 Act, intervention
of the court was required in all the three stages of arbitration, i.e. prior to the reference of the
dispute to the arbitral tribunal, in the duration of the proceedings before the arbitral tribunal, and
after the award was passed by the arbitral tribunal. Before an arbitral tribunal took cognizance of
a dispute, court intervention was required to set the arbitration proceedings in motion. The
existence of an agreement and of a dispute was required to be proved. During the course of the
proceedings, the intervention of the court was necessary for the extension of time for making an
award. Finally, before the award could be enforced, it was required to be made the rule of the
court.
While the 1940 Act was perceived to be a good piece of legislation in its actual operation and
implementation by all concerned - the parties, arbitrators, lawyers and the courts, it proved to be
ineffective and was widely felt to have become outdated.8
The Arbitration and Conciliation Act, 1996
The 1996 Act, which repealed the 1940 Act, was enacted to provide an effective and expeditious
dispute resolution framework, which would inspire confidence in the Indian dispute resolution
system, attract foreign investments and reassure international investors in the reliability of the
Indian legal system to provide an expeditious dispute resolution mechanism.
The 1996 Act has two significant parts Part I provides for any arbitration conducted in India
and enforcement of awards thereunder. Part II provides for enforcement of foreign awards. Any
arbitration conducted in India or enforcement of award thereunder (whether domestic or
international) is governed by Part I, while enforcement of any foreign award to which the New
York Convention or the Geneva Convention applies, is governed by Part II of the 1996 Act.
The 1996 Act contains two unusual features that differed from the UNCITRAL Model Law.
First, while the UNICITRAL Model Law was designed to apply only to international commercial
arbitrations,9 the 1996 Act applies both to international and domestic arbitrations. Second, the

7 Justice Ashok Bhan in his inaugural speech delivered at the conference on


Dispute Prevention and Dispute Resolution held at Ludhiana, India, October 8,
2005.
8 Arbitration and Conciliation Act, 1996, Statement of Objects and Reasons.

1996 Act goes beyond the UNICITRAL Model Law in the area of minimizing judicial
intervention.10
The changes brought about by the 1996 Act were so drastic that the entire case law built up over
the previous fifty-six years on arbitration was rendered superfluous. 11 Unfortunately, there was
no widespread debate and understanding of the changes before such an important legislative
change was enacted.12 The Government of India enacted the 1996 Act by an ordinance, and then
extended its life by another ordinance, before Parliament eventually passed it without reference
to a Parliamentary Committeea standard practice for important enactments.13 In the absence of
case laws and general understanding of the Act in the context of international commercial
arbitration, several provisions of the 1996 Act were brought before the courts, which interpreted
the provisions in the usual manner.14
The Law Commission of India prepared a report on the experience of the 1996 Act and suggested
a number of amendments.15 Based on the recommendations of the Commission, the Government
of India introduced the Arbitration and Conciliation (Amendment) Bill, 2003, in Parliament for
amending the 1996 Act.16 It has not been taken up for consideration. In the meantime,
Government of India, the Ministry of Law and Justice, constituted a Committee popularly known
9 See Article 1 of the UNICITRAL Model Law
10 S K Dholakia, Analytical Appraisal of the Arbitration and Conciliation
(Amendment) Bill, 2003, ICAs Arbitration Quarterly, ICA, New Delhi, 2005 vol.
XXXIX/No.4 at page 3. S K Dholakia is a Member of ICC International Court of
Arbitration and Senior Advocate, Supreme Court of India.
11 (1999) 2 SCC 479 (Sundaram Finance vs. NEPC Ltd.). The Supreme Court held at
p 484 thus: The provisions of this Act (the 1996 Act) have, therefore, to be
interpreted and construed independently and in fact reference to the 1940 Act may
actually lead to misconstruction.
12 supra, note 10.
13 supra, note 10.
14 supra, note 10.
15 The full report of the 176th Report of the Law Commission of India can be
downloaded from www.lawcommissionofindia.nic.in. The full report of the 176th
Report of the Law Commission of India can be downloaded from
www.lawcommissionofindia.nic.in.

as the Justice Saraf Committee on Arbitration, to study in depth the implications of the
recommendations of the Law Commission of India contained in its 176th Report and the
Arbitration and Conciliation (Amendment) Bill, 2003. The Committee submitted its report in
January 2005.

II. THE ARBITRATION AND CONCILIATION ACT, 1996


General Provisions
Definitions (Part I of the Act)
Section 1 of the Arbitration And Conciliation Act, 1996 defines the term of this Act. The
definitions are as follows :
Section (1)
(a) Arbitration means any arbitration whether or not administered by
permanent arbitral institution;
(b) Arbitration agreement means an agreement referred to in section 7;
16 The Arbitration and Conciliation (Amendment) Bill, 2003 was introduced in
Parliament on December 22, 2003. It is available on the website www.lawmin.nic.in.

(c) Arbitral award includes an interim award;


(d) Arbitral tribunal means a sole arbitrator or a panel of arbitrators;
(e) Court means the principal Civil Court of original jurisdiction in a district, and includes the
High Court in exercise of its ordinary original civil jurisdiction, having, jurisdiction to decide the
questions forming the subject-matter of the arbitration if the same had been the subject-matter of
a suit, but does not include any civil court of a grade inferior to such principal Civil Court, or any
Court of Small Causes;
(f) International commercial arbitration means an arbitration relating to disputes arising out of
legal relationships, whether contractual or not, considered as commercial under the law in force
in India and where at least one of the parties is(i) An individual who is a national of, or habitually resident in,any country other than India;
or
(ii) A body corporate which is in corporate in any on n try other than India; or
(iii) A company or an association or a body of individuals whose central management and
control is exercised in any country other than India; or
(iv). The Government of a foreign country;
(g) Legal representative means a person who in law represents the estate of a deceased person,
and includes any person who intermeddles with the estate of the deceased, and, where a party
acts in a representative character, the person on whom the estate devolves on the death of the
party so acting;
(h) Party means a party to an arbitration agreement.
Receipt of written communications
(1) Unless otherwise agreed by the parties, Any written communication is deemed to have been received if it is delivered to the
addressee personally or at his place of business, habitual residence or mailing address,
and
If none of the places referred to in clause (a) can be found after making a reasonable
inquiry, a written communication is deemed to have been received if it is sent to the
addressees last known place of business, habitual residence or mailing adderss by
registered letter or by any other means which provides a record of the attempt to deliver
it.
(2) The communication is deemed to have been received on the day it is so delivered.

(3) This section does not apply to written communications in respect of proceedings of any
judicial authority.
Waiver of right to object
A party who knows that

Any provision of this Part from which the parties may derogate, or
Any requirement under the arbitration agreement,
Has not been complied with and yet proceeds with the arbitration without stating his
objection to such non-compliance without undue delay or, if a the limit is provided for
stating that objection, within that period of time, shall be deemed to have waived his
right to so object

Extent of judicial intervention


Notwithstanding anything contained in any other law for the time being in force, in matter
governed by this Part, no judicial authority shall intervene except where so provided in this
Part. 6. Administrative assistance. -In order to facilitate the conduct of the arbitral
proceedings, the parties, or the arbitral tribunal with the consent of the parties, may arrange
for administrative assistance by a suitable institution or person.

Arbitration Agreement
Arbitration agreement is defines as follows in the Act:
(1) In this Part, arbitration agreement means an agreement by the parties to submit to
arbitration all or certain disputes which have arisen or which may arise between them in respect
of a defined legal relationship, whether contractual or not.
(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the
form of a separate agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is contained in

A document signed by the parties;

An exchange of letters, telex, telegrams or other means of telecommunication which


provide a record of the agreement; or
An exchange of statements of claim and defence in which the existence of the agreement
is alleged by one party and not denied by the other.

(5) There reference in a contract to a document containing an arbitration clause constitutes an


arbitration agreement if the contract is in writing and the reference is such as to make that
arbitration clause part of the contract.
a. Power to refer parties to arbitration where there is an arbitration agreement

A judicial authority before which an action is brought in a matter, which is the subject of
an arbitration agreement, shall, if a party so applies not later than when submitting his
first statement on the substance of the dispute, refer the parties to arbitration.
The application referred to in sub-section (1) shall not be entertained unless it is
accompanied by the original arbitration agreement or a duly certified copy thereof.
Notwithstanding that an application has been made under sub-section (1) and that the
issue is pending before the judicial authority, an arbitration may be commenced or
continued and an arbitrat award made.

b. Interim measures, etc. by court


A party may, before or during arbitral proceedings or at any time after the making of the arbitral
award but before it is enforced in accordance with section 36, apply to a court: (i) For the appointment of a guardian for a minor or a person of unsound mind for the purposes
of arbitral proceedings; or
(ii) For an interim measure of protection in respect of any of the following matters, namely:

The preservation, interim custody or sale of any goods, which are the subject matter of
the arbitration agreement;
Securing the amount in dispute in the arbitration;
The detention, preservation or inspection of any property or thing which is the subjectmatter of the dispute in arbitration, or as to which any question may arise therein and
authorising for any of the aforesaid purposes any person to enter upon any land or
building in the possession of any party, or authorising any samples to be taken or any
observation to be made, or experiment to be tried, which may be necessary or expedient
for the purpose of obtaining full information or evidence;
Interim injunction or the appointment of a receiver; (e) Such other interim measure of
protection as may appear to the court to be just and convenient, And the Court shall have
the same power for making orders as it has for the purpose of, and in relation to, any
proceedings before it.

III. COMPOSITION OF ARBITRAL TRIBUNAL


Number of arbitrators
(1) The parties are free to determine the number of arbitrators, provided that such number shall
not be an even number.
(2) Failing the determination referred to in sub-section (1), the arbitral tribunal shall consist of a
sole arbitrator.
Appointment of Arbitrators.
(1) A person of any nationality may be an arbitrator, unless otherwise agreed by the parties.
(2) Subject to sub-section (6), the parties are free to agree on a procedure for appointing the
arbitrator or arbitrators.

(3) Failing any agreement referred to in sub-section (2), in an arbitration with three arbitrators,
each party shall appoint one arbitrator, and the two appointed arbitrators shall appoint the third
arbitrator who shall act as the presiding arbitrator.
(4) If the appointment procedure in sub-section (3) applies and

A party fails to appoint an arbitrator within thirty days from the receipt of a request to do
so from the other party; or
The two appointed arbitrators fail to agree on the third arbitrator within thirty days from
the date of their appointment,

The appointment shall be made, upon request of a party, by the Chief Justice or any person or
institution designated by him.
(5) Failing any agreement referred to in sub-section (2), in an arbitration with a sole arbitrator, if
the parties fail to agree on the arbitrator within thirty days from receipt of a request by one party
from the other party to so agree the appointment shall be made, upon request of a party, by the
Chief Justice or any person or institution designated by him.
(6) Where, under an appointment procedure agreed upon by the parties,

A party fails to act as required under that procedure; or


The parties, or the two appointed arbitrators, fail to reach an agreement expected of them
under that procedure; or
A person, including an institution, fails to perform any function entrusted to him or it
under that procedure,

A party may request the Chief Justice or any person or institution designated by him to take the
necessary measure, unless the agreement on the appointment procedure provides other means for
securing the appointment.
(7) A decision on a matter entrusted by sub-section (4) or sub-section (5) or sub-section (6) to the
Chief Justice or the person or institution designated by him is final.
(8) The Chief Justice or the person or institution designated by him, in appointing an arbitrator,
shall have due regard to(a) Any qualifications required of the arbitrator by the agreement of the parties; and
(b) Other considerations as are likely to secure the appointment of an independent and impartial
arbitrator.
(9) In the case of appointment of sole or third arbitrator in an international commercial
arbitration, the Chief Justice of India or the person or institution designated by him may appoint

an arbitrator of a nationality other than the nationalities of the parties where the parties belong to
different nationalities.
(10) The Chief Justice may make such scheme, as he may deem appropriate for dealing with
matters entrusted by sub-section (4) or sub-section (5) or subsection (6) to him.
(11) Where more than one request has been made under sub-section (4) or subsection (5) or subsection (6) to the Chief Justices of different High Courts or their designates, the Chief Justice or
his designate to whom the request has been first made under the relevant subsection shall alone
be competent to decide on the request.
(12)

Where the matters referred to in sub-sections (4), (5), (6), (7),(8) and (10) arise in an
international commercial arbitration, the reference to Chief Justice in those subsections
shall be construed as a reference to the Chief Justice of India.
Where the matters referred to in sub-sections (4), (5), (6), (7), (8) and (10) arise in any
other arbitration, the reference to Chief Justice in those sub-sections shall be construed
as a reference to the Chief Justice of the High Court within whose local limits the
principal Civil Court referred to in clause (e) of sub-section (1) of section 2 is situate and,
where the High Court itself is the Court referred to in that clause, to the Chief Justice of
that High Court.

Grounds for challenge


(1) When a person is approached in connection with his possible appointment as an arbitrator, he
shall disclose in writing any circumstances likely to give rise to justifiable doubts as to his
independence or impartiality.
(2) An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall,
without delay, disclose to the parties in writing any circumstances referred to in sub-section (1)
unless they have already been informed of them by him.
(3) An arbitrator may be challenged only if

Circumstances exist that give rise to justifiable doubts as to his independence or


impartiality, or
He does not possess the qualifications agreed to by the parties.

(4) A party may challenge an arbitrator appointed by him, or in whose appointment he has
participated, only for reasons of which he becomes aware after the appointment has been made.
Challenge procedure
(1) Subject to sub-section (4), the parties are free to agree on a procedure for challenging an
arbitrator.
(2) Failing any agreement referred to in sub-section (1), a party who intends to challenge an
arbitrator shall, within fifteen days after becoming aware of the constitution of the arbitral
tribunal or after becoming aware of any circumstances referred to in sub-section (3) of section
12, send a written statement of the reasons for the challenge to the arbitral tribunal.
(3) Unless the arbitrator challenged under sub-section (2) withdraws from his office or the other
party agrees to the challenge, the arbitrat tribunal shall decide on the challenge.
(4) If a challenge under any procedure agreed upon by the parties or under the procedure under
sub-section (2) is not successful, the arbitral tribunal shall continue the arbitral proceedings and
make an arbitral award.
(5) Where an arbitral award is made under sub-section (4), the party challenging the arbitrator
may make an application for setting aside such an arbitral award in accordance with section 34.
(6) Where an arbitral award is set aside on an application made under subsection (5), the court
may decide as to whether the arbitrator who is challenged is entitled to any fees.

Failure or impossibility to act


(1) The mandate of an arbitrator shall terminate if

He becomes de jure or de facto unable to perform his functions or for other reasons fails
to act without undue delay; and
He withdraws from his office or the parties agree to the termination of his mandate.

(2) If a controversy remains concerning any of the grounds refer-red to in clause (a) of subsection (1), a party may, unless otherwise agreed by the parties, apply to the court to decide on
the termination of the mandate.
(3) If, under this section or sub-section (3) of section 13, an arbitrator withdraws from his office
or a party agrees to the termination of the mandate of an arbitrator, it shall not imply acceptance
of the validity of any ground referred to in this section or sub-section (3) of section 12.

Termination of mandate and substitution of arbitrator


(1) In addition to the circumstances referred to in section 13 or section 14, the mandate of an
arbitrator shall terminate

Where he withdraws from office for any reason; or


By or pursuant to agreement of the parties.

(2) Where the mandate of an arbitrator terminates, a substitute arbitrator shall be appointed
according to the rules that were applicable to the appointment of the arbitrator being replaced.
(3) Unless otherwise agreed by the parties, where an arbitrator is replaced under subsection (2),
any hearings previously held may be repeated at the discretion of the arbitral tribunal.
(4) Unless otherwise agreed by the parties, an order or ruling of the arbitral tribunal made prior
to the replacement of an arbitrator under this section shall not be invalid solely because there has
been a change in the composition of the arbitral tribunal.

IV. WORKING OF ARBITRATION IN INDIA


Arbitration in India is still evolving. One of the objectives of the 1996 Act was to achieve the
twin goals of cheap and quick resolution of disputes, but current ground realities indicate that
these goals are yet to be achieved. The ground realities can be ascertained from the study and
analysis of the various aspects in conducting arbitration, which are discussed in the following
paragraphs.
A. Types of Arbitration Practice - Institutional Arbitration and Ad Hoc Arbitration
Arbitrations conducted in India are mostly ad hoc. The concept of institutional arbitration,
though gradually creeping in the arbitration system in India, has yet to make an impact. The
advantages of institutional arbitration over ad hoc arbitration in India need no emphasis and the

wide prevalence of ad hoc arbitration has its ramifications in affecting speedy and
costeffectiveness of the arbitration process.
There are a number of advantages of institutional arbitration over ad hoc arbitration in India,
some of which are discussed below:

In ad hoc arbitration, the procedures have to be agreed upon by the parties and the
arbitrator. This requires co-operation between the parties and involves a lot of time. When
a dispute is in existence, it is difficult to expect cooperation among the parties. In
institutional arbitration, on the other hand, the procedural rules are already established by
the institution. Formulating rules is therefore no cause for concern. The fees are also
fixed and regulated under rules of the institution.

In ad hoc arbitration, infrastructure facilities for conducting arbitration pose a problem


and parties are often compelled to resort to hiring facilities of expensive hotels, which
increase the cost of arbitration. Other problems include getting trained staff and library
facilities for ready reference. In contrast, in institutional arbitration, the institution will
have ready facilities to conduct arbitration, trained secretarial/administrative staff, as well
as library facilities. There will be professionalism in conducting arbitration.

In institutional arbitration, the arbitral institutions maintain a panel of arbitrators along


with their profile. The parties can choose the arbitrators from the panel. Such arbitral
institutions also provide for specialized arbitrators. These advantages are not available to
the parties in ad hoc arbitration.

In institutional arbitration, many arbitral institutions such as the International Chamber of


Commerce (ICC) have an experienced committee to scrutinize the arbitral awards. Before
the award is finalized and given to the parties, the experienced panel scrutinizes it. As a
result, the possibilities of the court setting aside the award is minimal, because the
scrutiny removes possible legal/technical flaws and defects in the award. This facility is
not available in ad hoc arbitration, where the likelihood of court interference is higher.

In institutional arbitration, the arbitrators are governed by the rules of the institution, and
they may be removed from the panel for not conducting the arbitration properly. In ad
hoc arbitration, the arbitrators are not subject to such institutional removal sanctions.

In the event the arbitrator becomes incapable of continuing as arbitrator in an institutional


arbitration, substitutes can be easily located and the procedure for arbitration remains the
same. This advantage is not available in an ad hoc arbitration, where one party (whose
nominee arbitrator is incapacitated) has to re-appoint the new arbitrator. This requires cooperation of the parties and can be time consuming.

In institutional arbitration, as the secretarial and administrative staffs are subject to the
discipline of the institution, it is easy to maintain confidentiality of the proceedings. In ad
hoc arbitration, it is difficult to expect professionalism from the secretarial staff.

Inspite of the numerous advantages of institutional arbitration over ad hoc arbitration, there is
currently an overwhelming tendency in India to resort to ad hoc arbitration mechanisms. This
tendency is counterproductive, since there is considerable scope for parties to be aggrieved by
the functioning of ad hoc tribunals. An empirical survey will reveal that a considerable extent of
litigation in the lower courts deals with challenges to awards given by ad hoc arbitration
tribunals.17
Some of the arbitral institutions in India are the Chambers of Commerce (organized by either
region or trade), the Indian Council of Arbitration (ICA), the Federation of Indian Chamber of
Commerce and Industry (FICCI), and the International Centre for Alternate Dispute Resolution
(ICADR).
B. Arbitration Practice Across Industries
Generally speaking, unlike in Europe, where the manner of settling disputes has substantially
evolved separately across various industry sectors, there is no marked difference in arbitration
practice from one industry to another in India. The exceptions to this rule, however, are the
construction industry and the IT industry. Due to the technical complexities and long term nature
of relationships between parties in these industries, arbitration in construction and IT industry
disputes are characterized by certain peculiarities quite distinct from other industries.
The growth in the infrastructure and the IT industry in India is a recent development, and a result
of the globalization of the Indian economy. An important secondary effect of this development is
that arbitration has also streamlined a sector-specific approach to cater to the technicalities and
specific requirements of such specific sectors.
1. Arbitration in the construction industry
Construction/infrastructure is one of the fastest growing sectors of the Indian economy, and
millions of dollars are spent in construction related disputes. According to a survey conducted in
2001 by the Construction Industry Development Council, the amount of capital blocked in

17 Inaugural address by Justice K G Balakrishnan, Chief Justice of India, on


International Conference on Institutional Arbitration in Infrastructure and
Construction, New Delhi, October 16, 2008.

construction sector disputes was over INR 540,000 million.18 Ad hoc arbitration is still very
popular in the construction industry.
Arbitration in the construction industry has a unique feature, which is quite distinct from the
general arbitration practice19 seen in other industries.
1.1 Standard Contracts of Central and State Governments and Industry Giants
Over the last four decades in India, there has been a great deal of construction activity both in the
public and private sectors. Central and state governments; state instrumentalities; and public and
private companies have all been entering into contracts with builders as part of their commercial
activities. The rights and obligations, privies and privileges of the respective parties are formally
written. The central and state governments and instrumentalities of the states, as well as private
corporations, have their own standard terms of contract, catering to their individual needs. Often,
these contracts provide for remedial measures to meet various contingencies.
Despite these extensive and time-tested contracts, disputes and differences often arise between
the parties. To meet these situations, arbitration clauses are provided in the contract themselves,
generally covering either all disputes arising from the contract or all disputes save a few
excepted matters.
1.2 Unique Features of Arbitration in the Construction Industry
In the standard forms adopted by the government departments like the Central Public Works
Department (CPWD), Military Engineer Services (MES),20 railways and public enterprises,
although an arbitration clause may include within its purview all the possible disputes relating to
the transaction, there are exemption clauses or exclusion clauses that make the decision of an
18 The Economic Times, April 10, 2008
19 Alfred Arthur Hudson and Ian Norman Duncan Wallace, Hudsons Building and
Engineering Contracts, 11th Edition, Sweet and Maxwell, U.K., 2003. It says in
Hudsons Building and Engineering Contracts it does not seem to be appreciated
by many arbitrators that construction contracts give rise to disputes of unusual
difficulty and complexity even by comparison with other types of litigationand
performance of contracts runs over much longer periods than most other forms of
commercial contract, with potential scope of argument and financial disagreement
arising constantly during the construction period, and with large sums of money and
cash flow pressures involved on both sides. Hudson is the recognized text on the
interpretation and drafting of Building and Engineering Contracts.
20 Military Engineer Services (MES) is one of the largest government construction
agencies in India and provides works cover to army, navy and air force.

authority named in the agreement, final and binding on the parties. These clauses are included,
because in construction contracts, situations arise for which immediate decisions on a point of
difference or dispute is required to avoid costly delays. In these situations, the excepted matters
or exclusion clauses, make the decision of a particular authority final and binding on both the
parties, and not subject to arbitration.
There has been a series of judicial decisions, which have held that if a particular matter has been
excluded from the purview of arbitration incorporating excepted matter clause/exclusion clause,
the same shall not be re-agitated in arbitration. In Food Corporation of India vs. Sreekanth
Transport,21 the Supreme Court held that excepted matters do not require any further
adjudication, since the agreement itself provides a named adjudicator, and concurrence by the
parties to the decision of the named adjudicator is obviously presumed by reason of unequivocal
acceptance of the terms of the contract of the parties.
Exception can also operate differently. There may be certain clauses in the contract which
empower either the engineer-in-charge or the consultant to take an on-the-spot decision
regarding points of difference between the builder and the employer. Such clauses also provide a
right of appeal to a superior officer within a particular time, and impose a liability on the officer
to give a decision within a stipulated time. The clause further provides reference of the matter to
arbitration, in case one of the parties is not satisfied with such decision, or if the officer does not
render a decision. However, the provision expressly provides that if none of the parties opt for
the choice to refer the matter to arbitration within the time limit thus prescribed, the decision last
rendered shall be treated as final and binding upon both the parties.
1.3 Dispute Review Board in the Construction Industry
The concept of a Dispute Review Board (DRB) is quite common in the construction industry.
The DRB is a panel of three experienced, respected and impartial reviewers. The DRB is
organized before construction begins and meets periodically at the job site. The DRB members
are kept abreast of the developments and progress in the job, and made familiar with the project
procedures and the participants, and are provided with the contract plans and specifications.
The DRB meets with the employer and the contractor representatives during regular site visits,
and encourages the resolution of disputes at the job level. The DRB process helps the parties to
solve problems before they escalate into major disputes.
The proceedings of the DRB can be brought as evidence before an arbitral tribunal or other
judicial forum. The board members could also be presented as witnesses. Recommendations
made by the three experts known for their reputation, accepted by both the parties at the start of
the work as neutral persons and having thorough knowledge of the project will not normally be
21 (1999) 4 SCC 491.

changed by any such tribunal.22. It would therefore become difficult to go against the tribunal. On
this consideration, due acceptance is given to the system world wide, and almost no case goes up
to arbitration.23
The statistics up to the year 2001 indicate that there were 818 projects with DRBs valued at US $
41 billion; and that during that year, 1221 disputes were settled by the DRBs, and out of 1038
recommendations made, only 31 were taken by the parties to the arbitral tribunal.24
1.4 Specialized Arbitral Institutions in the Construction Industry
In India, substantial sums amounting to several crores of Indian rupees (INR) are locked up in
contractual disputes in the construction sector alone. 25 Therefore, the construction industry felt
the need to introduce new measures to resolve disputes in a fair, speedy and cost-efficient
manner. Due to such requirements, the Construction Industry Development Council, India
(CIDC), in cooperation with the Singapore International Arbitration Centre (SIAC), set up an
arbitration centre in India called the Construction Industry Arbitration Council (CIAC). 26 This
type of institution-administered arbitration has clear advantages over ad hoc arbitrations for
construction companies, public sector undertakings and government departments that have
construction contracts.
2. Arbitration in the Information Technology (IT) Industry

22 O P Goel, Role of Dispute Resolution Boards, ICAs Arbitration Quarterly, ICA,


New Delhi, 2006, vol. XL/No.4., p14. O P Goel is the former Director General in the
Civil Public Works Department (Works).
23 ibid.
24 Brief report from the DRB Foundation Forum Papers.
25The Economic Times, April 10, 2008.
26 CIAC is a Registered Society with its headquarters in New Delhi. Arbitration under
the auspices of the CIAC has the following features: (i) tight timelines for
appointment of arbitrators and for rendering of the award; (ii) trained arbitrators
consisting of professionals from the construction industry as well as the legal
fraternity; (iii) strict codes of ethics for arbitrators; (iv) transparent management of
arbitrators fees; (v) published scales of fees; (vi) monitoring of the progress of the
cases by the Secretariat of the CIAC; and (vii) arrangement of facilities and services
for hearings.

IT disputes differ from disputes in other industries mostly in their substance. IT projects tend to
be complex and characterized by a network of responsibilities shared between parties that are
dedicated to carry through a technology-related, long term relationship. Thus, IT disputes
typically center on contractual or intellectual property (IP) law issues.
The Indian Council of Arbitration (ICA), which is now considered to be an apex arbitral
institution in the country, has started the process of identifying and training specialized
arbitrators for disputes connected with the IT industry. In relation to this aspect, the ICA
conducted an in-depth seminar on Alternate Dispute Redressal methods for the IT sector in
Indias major cyber cities like Bangalore and Hyderabad for the purpose of creating an expert
pool of arbitrators specialized in cyber laws.
C. Arbitration Practice by Industry Size
There is no marked difference in the arbitration practice based upon the size of the industry.
There is a growing recognition that arbitration is becoming a costly affair, which is a departure
from the intent of the 1996 Act. This is particularly true in ad hoc arbitration, where the fees of
the arbitrators are not regulated, but decided by the arbitral tribunal with the consent of the
parties. Some of the arbitral tribunals, consisting of high profile arbitrators such as retired
Supreme Court and High Court judges, charge high arbitration fees. Further, it is an emerging
trend amongst large corporations involved in high-stake commercial disputesincluding
government undertakingsto hold ad hoc arbitrations in five-star hotels and other costly venues.
Although this cannot be a conclusion that applies to all large corporations, it can reasonably be
argued that only such corporations can afford costly arbitration. Thus, in some cases at least, the
larger the parties, the costlier will be the arbitration. The reason could be that in ad hoc
arbitration, the venues and court fees are decided by arbitrators with the consent of the parties. A
large company is assumed to have better funds for incurring these expenses.

D. Fast Track Arbitrations


Establishment of fast track arbitrations is a recent trend aimed at achieving timely results,
thereby lowering the costs and difficulties associated with traditional arbitration. Fast track
arbitration is a time-bound arbitration, with stricter rules of procedure, which do not allow any
laxity or scope for extensions of time and the resultant delays, and the reduced span of time
makes it more cost-effective.27
Fast track arbitration is required in a number of disputes such as infringement of
patents/trademarks, destruction of evidence, marketing of products in violation of
27 Fast track arbitrations are best suited in those cases in which oral hearings and
witnesses are necessary.

patent/trademark laws, construction disputes in time-bound projects, licensing contracts, and


franchises where urgent decisions are required.
The 1996 Act has built-in provisions for fast track arbitration. Section 11(2) of the 1996 Act
provides that the parties are free to agree on a procedure for appointing an arbitrator.
Theoretically, under Section 11(6) of the 1996 Act, 28 a party does not have to approach a court
for appointment of an arbitrator, if the agreement provides for a mechanism to deal with the
failure of the other party to appoint the arbitrator. Thus, the parties are given complete autonomy
in choosing the fastest possible method of appointing an arbitrator, and constituting a valid
arbitral tribunal. Section 13(1) confers the freedom on parties to choose the fastest way to
challenge an arbitral award. Section 13(4) expedites arbitral proceedings by providing that if a
challenge to an arbitral proceeding is not successful, the arbitral tribunal shall continue
proceedings and pass an award. Section 23(3) of the 1996 Act enables parties to fix time limits
for filing of claims, replies and counter claims. Section 24(1) also permits the parties to do away
with the requirement of an oral hearing, if they so desire. More importantly, Section 25
authorizes an arbitral tribunal to proceed ex parte in the event of default of a party. Section 29
even empowers the presiding arbitrator to decide questions of procedure.29
As a premier Indian organization for institutionalized arbitration, the Indian Council of
Arbitration (ICA) has pioneered the concept of fast track arbitration in India. Under the rules of
the ICA, before commencement of the arbitration proceedings, parties may request the arbitral
tribunal to settle disputes within a fixed timeframe of three to six months or any other time
agreed upon by the parties. The Arbitration and Conciliation (Amendment) Act, 2003, proposes
to introduce a single-member fast track arbitral tribunal, wherein filing of pleadings and evidence
will be on fast track basis, so as to pronounce an award within six months, and will also specify
the procedures to be followed by such fast track arbitral tribunals.

28 Section 11(6) of the Arbitration and Conciliation Act, 1996, provides for
appointment of an arbitrator by the parties in case of failure by the parties to
appoint the arbitrators.
29 Indu Malhotra, Fast Track Arbitration, ICAs Arbitration Quarterly, ICA, 2006, vol.
XLI/No.1 at p 8 Indu Malhotra is an advocate of the Supreme Court of India.

V. COMPETENCE AND JURISDICTION OF ARBITRAL TRIBUNALS


Competence of Arbitral Tribunal to rule on its own jurisdiction
In all walks of life, it is usual to come across disputes, more so in business dealings. In olden
days informal system of Arbitration existed in the shape of Panchayats. The Father of Nation
Mahatma Gandhi was also a staunch believer of arbitral process for resolving the problems in
our predominantly rural society at affordable costs via Panchayat Raj.
The word Arbitration appears to have originated from the word arbitrary. The parties
involved in the disputes refer them to a peer who is supposed to be a person of nobility
having capability to resolve the disputes. There are an estimated 30 million cases pending in
various courts in the country.
The criticism against the justice delivery system is continuous and we keep on hearing
related phrases like Back Breaking delay, Elusive Justice, and System on the verge of
brink. Arbitration system is a means to provide an easy and expedient mechanism for
dispute resolution without the need of resorting to a long drawn litigation. This is meant to be
Justice without law. It is meant to be far superior to a black letter law. Arbitration seeks to
remove blockade caused by chocking legal pollution.
Arbitration started as a delegalization reform to resolve conflict with mutual love and trust.
Even late Shri Nani Palkhiwala remarked succinctly, If I were appointed a dictator of this
country, in the short span of my appointment and assassination, I would promulgate a law
making all commercial disputes compulsorily referable to arbitration.
With the long British Rule in India, we had two enactments for Arbitration, viz. the Act of
1899 and 1940.After independence of India, it was observed that the Act of 1940 has outlived
its utility and was not in line with economic reforms introduced in India. Hence the
Arbitration and Conciliation Act, 1996 came into force on 25-1- 1996.

In the PREAMBLE of the act, it stated that, Whereas the United Nations Commission on
International Trade law has adopted the UNCITRAL Model Law on International
Commercial Arbitration in 1985;
and whereas the General Assembly of the United Nations has recommended that all countries
give due consideration to the said Model Law, in view of the desirability of uniformity of the
law of arbitral procedures and the specific needs of international commercial arbitration
practice;
AND WHEREAS the UNCITRAL has adopted the UNCITRAL Conciliation Rules in 1980;
AND WHEREAS the General Assembly of the United Nations has recommended the use of
the said Rules in cases where a dispute arises in the context of international commercial
relations and the parties seek on amicable settlement of that dispute by recourse to
conciliation;
AND WHEREAS the said Model Law and Rules make significant contribution to the
establishment of a unified legal framework for the fair and efficient settlement of disputes
arising in international commercial relations;
AND WHEREAS it is expedient to make law respecting arbitration and conciliation, taking
into account the aforesaid Model Law and Rules;
Jurisdiction Of Arbitral Tribunals (Section 16)
The Chapter IV of the Act is titled as Jurisdiction of the Arbitral Tribunals. Under that
chapter, Section 16 is enacted which bears the title Competence of Arbitral Tribunal to rule
on its own Jurisdiction. This section 16 provides that:
(1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections,
with respect to the existence or validity of the arbitration agreement, and for that purpose

an arbitration clause which forms part of a contract shall be treated as an agreement


independent of the terms of the contract; and
a decision by the arbitral tribunal that the contract is null and void shall not entail ipso
jure the invalidity of the arbitration clause.

(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the
submission of the statement of defence; however, a party shall not be precluded from raising
such a plea merely because that he has appointed, or participated in the appointment of, an
arbitrator.

(3) A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as
soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral
proceedings.
(4) The arbitral tribunal may, in either of the cases referred to in sub-section (2) or subsection (3), admit a later plea if it considers the delay justified.
(5) The arbitral tribunal shall decide on a plea referred to in sub-section (2) of sub-section (3)
and, where the arbitral tribunal takes a decision rejecting the plea, continue with the arbitral
proceedings and make an arbitral award.
(6) A party aggrieved by such an arbitral award may make an application for setting aside
such an arbitral award in accordance with section 34.Before filing statement of defence, a
party can challenge jurisdiction of Arbitral Tribunal, which it is bound to decide. It is
manifest and goes without saying that the arbitrator being a creature of the agreement, must
operate within the four corners of the said agreement and can not travel beyond the same.
This power u/s 16 is unique in the Act. Now the Act itself provides that the arbitral tribunal
can rule on its jurisdiction. It is axiomatic that no ruling can be given only after hearing both
the parties. If the challenge succeeds, the appeal lies u/s 37[2][a]. If the challenge is rejected,
the same can be challenged u/s 34[2][a][v] of the Act. The language employed u/s 16 of the
Act clearly shows that the said provision is only an enabling one conferring the requisite
powers on the Arbitral Tribunal to decide whether there is any existence of clause in the
arbitration agreement. However, mere attendance on earlier dates in the arbitral proceedings
does not debar the party from raising objections only if statement of defence is yet not filed.
In case of illegal contract, the parties by acquiescence cannot confer jurisdiction on court.
When the question is raised about non-existence or invalidity of the arbitration agreement,
the arbitral tribunal is bound to decide. Arbitration clause contained in the agreement being
an integral part of the same, would automatically perish if that agreement itself were non-est.
An admitted liability can be no ground for arbitration since it is devoid of dispute. Ordinarily
the courts do not interpret an arbitration agreement by applying strict rules of construction,
which are normally applied to a conveyance and other formal documents. In such cases, it is
necessary to apply a common sense approach and not be allowed to be thwarted by a narrow
pedantic or too legalistic view. Arbitrability is certainly an issue, which can be objected to by
the party.
The Chapter IV of the Act is titled as Jurisdiction of the Arbitral Tribunals. Under that
chapter, Section 16 is enacted which bears the title Competence of Arbitral Tribunal to rule
on its own Jurisdiction. The Arbitral Tribunal is now empowered under the new Act to rule
on its own jurisdiction, including ruling on any objections with respect to existence or
validity of the Arbitration Agreements. The party can now contest that; the Arbitral Tribunal
is lacking the powers necessary to adjudicate upon this reference. A procedure laid down in

Section 16 of the Arbitration and Conciliation Act, 1996 cannot be bypassed, as all the parties
to the reference are duly clothed with the inherent rights to object to the jurisdiction, domain,
precincts, confines, portal, boundaries, realm of the Arbitral Tribunal and its authority. The
Arbitration and Conciliation Act, 1996 mandates that prior to assumption of the jurisdiction,
the plea u/s 16 shall be decided as it strikes at very authority. The Arbitral Tribunal cannot
acquire, possess and get seized of the jurisdiction when the claim has become time barred.
The contention goes to the very root of the jurisdiction of the Arbitral Tribunal, when the
Arbitral Tribunal suffers from inherent want of the jurisdiction because of Time barred claim.
Consequently, the jurisdiction is taken away. The party can advert the attention of the
arbitrator to the foundation or substratum or bedrock or the jurisdictional facts necessary for
conferring of or vesting in the jurisdiction to this Arbitral Tribunal by making an averment
that a claim has to be within the framework of the Byelaws of the NSE. This is sine qua non
for giving the jurisdiction to the Arbitral Tribunal in the reference. Apropos the ratio of
judgments heavily relied upon by the party it should be noted that any judgments and orders
of courts cannot be construed or interpreted like acts of parliament or as mathematical
theorems. The concluding words alone cannot be blindly applied de hors the actual findings
and directions contained in the judgments. On the other hand, the averments of the party are
not sufficient to clothe the Arbitral Tribunal with the jurisdiction necessary to initiate this
reference. Be that as it may, there ought to be merit in the contentions advanced by the party.
It is a well-settled proposition that a proceeding is a nullity when the authority conducting it
has no power to have seizing over the reference. The Arbitral Tribunal ought to be fortified
by the arguments advanced and the plea raised by the party ought to be quite tenable and
sustainable in the eyes of law. The Arbitral Tribunal must be persuaded to accede to the
submissions and then only accordingly uphold the preliminary objection for interdiction at
the very threshold. There must be a clear-cut case to prove that the reference is totally devoid
of the jurisdiction, dominion and portal.
The Limitation Act, 1963 applies to the Arbitration and Conciliation Act, 1996. The law does
not help one who sleeps over his rights to the alleged claim. Delay defeats Justice and equity
adds only promptitude and resultant consequences. Defaulting party should bear the hardship
of his own default in lodging the time barred claims and ought not transmit the hardship to
the other party after the impugned claim is allowed to be time barred. U/S 16(5) of the Act,
the Arbitral Tribunal shall pass an order whenever, a plea is raised u/s 16(2). Section 16 is
undoubtedly an enabling Section.
Under the circumstances, the Arbitral Tribunal ought to refuse to deal with the matter at all, if
it comes to a conclusion that, it has no jurisdiction to deal with the matter in this reference.
Thus when the alleged dispute is not Arbitrable and falls outside the purview of the
Honourable Arbitral Tribunal because the claim travels beyond the time barred jurisdiction
and no jurisdiction can be arrogated in such a case. Although the decision u/s 16 is not award,

it is always a good practice to record reasoning u/s 31[3] so that the same can form part of
final award and shall enable all parties to convince the court to translate the logic behind the
same when put to challenge u/s 34.
The order embodying the decision u/s 16(5) pursuant to the application u/s 16(2) is not an
interim award. As was held in the case of Uttam Singh v/s Hindustan Steel [AIR 206 MP
1982]. Even the Honourable High Court having Judicature at Bombay had also an occasion
to substantiate this ratio in a recent case wherein they refused to treat that as an Interim
Award and hence not challengeable u/s 34 of the Act. When a party raises a preliminary issue
to be decided in priority, the Arbitral tribunal cannot proceed with the merits without passing
a speaking order u/s 16(5) r.w.s. 16(2) of the Act. This view is held in the case of Southern
Gas Ltd v/s Visveswariya Iron & Steel Ltd [9 SCC 555] by the Apex Court of India, which is
binding on all the authorities functioning there under. In the case of Premier Fabricators v/s
Heavy Engineering Corp. [4 SCC 319], the Supreme Court held that, Where the Arbitrator
was required to decide in the first place with reasons the question of Arbitrability, but he gave
a composite award consisting of a lump sum, it was held that the whole award was vitiated
because it could not be said that the question of Arbitrability was considered as implication.
Thus, the importance of preliminary issue was clearly upheld by the Apex Court also in the
case of T. N. Electricity v/s Bridge Tunnel Constructions [4 SCC 121].
However, it would be wrong to assume that this power given to arbitrator precludes
the Chief Justice or his designate to decide a question as to the existence of arbitration
clause u/s 11. Wellington Associates vs. Kirit Mehta [2000 III AD 153 SC].
In the case of Perfect Equipment Pvt. Ltd vs. Prestige Enterprises [44 SCL 74
(MUM)] it was held that, Even if agency agreement [containing Arbitration clause]
is terminated, respondent is entitled to refer dispute to Arbitration u/s 16(1)(a) and
after agreeing to appointment of an Arbitrator, the petitioner cannot complain that
respondent should have first right to resolve dispute amicably.
In the case of D-Ionic India Pvt. Ltd. Vs. State of Rajasthan [44 SCL 67 (Del)] it was
held that, Section 16 confers power upon arbitrator to rule on its own jurisdiction
including any objection with respect to existence or valid ity of Arbitration
Agreement.
Even though the contract may be void, the Arbitral clause has to be considered as an
independent agreement and will not suffer the consequences of being void. Hence it
will be open to the Arbitral Tribunal to decide the issue of voidness of the contract
while considering the dispute under the arbitral clause. [G.R. Didwania vs.
A.C.Choksey 4 CLA-BL SUPP-SNR-7 BOM].

In the case of Pharmaceutical Products of India Ltd. Vs Tata Finance Ltd. [41SCL
259] the Bombay High Court held that, A decision on a question whether
proceedings before arbitrators should be stayed or not cannot be subject matter of a
final arbitral award, not even an interim award. It would be simply a decision u/s 16.
In the case of East Coast Boat Builders [AIR 1999 DEL 44] it was held that, Where
the jurisdiction of an arbitrator is challenged, and the arbitrator rejects it, his decision
is not appealable. It is not an interim award.
Normally the power of granting specific performance is discretionary and the
discretion has been conferred by Specific Relief Act only on civil courts. Merely
because the sections of the Specific Relief confer discretion on courts to grant
specific performance of a contract does not mean that parties cannot agree that the
discretion will be exercised by arbitral tribunal of their choice. Olympus
Superstructures pvt. Ltd. Vs Meena Khetan [2 ARB LR 695 SC].
An Arbitration clause is severable from and independent of other terms of contract.
The decision of the Arbitral tribunal that the contract is null and void shall not entail
ipso jure the invalidity of the Arbitration clause. Thus even if the contract is non-est,
the arbitration clause is not rendered invalid. It is still within its competence to decide
its validity. Brawn Lab Ltd. vs. Fitty Int [l GmBH (2000) 2 Arb LR 64 DEL].
Decision of the arbitrator that the contract was null and void or termination of main
contract by performance or otherwise, will not render the arbitration clause invalid.
Olympus Superstructures Pvt. Ltd. Vs. Meena Khetan [2 ARB LR 695 SC].
In the case of S.N. Transport vs. GCM. Synthetics [1999(3) MLJ 216] it was held that
a party can always raise the challenge to existence or validity of the Arbitration
Agreement u/s 16[5] at any stage and the arbitrator is bound to decide the same.
Section 16 conspicuously avoids adverbial clause unless otherwise agreed so that
the parties cannot modify the power. Under the enabling section 16[1], the arbitral
tribunal has discretion to exercise power conferred due to word May therein.
However, section 16[5] uses word shall, hence mandatory. U/s 16[2], the objection
as to jurisdiction is to be raised not later than the submission of the statement of
defence but u/s 16[3], objection as to scope of authority is to be raised as soon as a
matter alleged to be beyond the scope of its authority is raised. U/s 16[4], the Arbitral
Tribunal is authorised to admit the plea even later if it considers that the delay was
justified. U/s 16[6], the aggrieved party is already given the right to challenge the
award u/s 34. The effect of conjoint reading of various sections like 16, 34 etc. is that
if no plea is raised u/s 16, the party cannot raise it later u/s 34.But this is a grey area
where later proceedings u/s 34 is barred or not is subject to interpretations.

When an application is made u/s 11[6] for an appointment of an arbitrator, no


objection can be raised that the claim fell outside the purview of arbitration; hence
they could not be referred to arbitration because this power rests with the Arbitrator
himself. [Sharma & Sons vs. E-inC.Army [2 ARB LR 31 AP].
The Supreme Court observed that section 16[5] does not violate the basic structure of
the Constitution as the order thereunder is certainly subject to any judicial scrutiny
even if after award is passed as per the time and manner laid down by the Act passed
by the Parliament. Babar Ali vs. Union of India [2 SCC 178] Thus the power of the
Arbitral Tribunal to rule on its jurisdiction is unique.
Competence of arbitral tribunal to rule on its jurisdiction
(1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with
respect to the existence or validity of the arbitration agreement, and for that purpose,-

An arbitration clause which forms part of a contract shall be treated as an agreement


independent of the other terms of the contract; and
A decision by the arbitral tribunal that the contract is null and void shall not entail ipso
jure the invalidity of the arbitration clause.

(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the
submission of the statement of defense; however, a party shall not be precluded from raising
such a plea merely because that he has appointed, or participated in the appointment of, an
arbitrator.
(3) A plea that the arbitral tribunal is exceeding the scope of its authority shall he raised as soon
as the matter alleged to be beyond the scope of its authority is raised during the arbitral
proceedings.
(4) The arbitral tribunal may, in either of the cases referred to in sub-section (2) or sub-section
(3), admit a later plea if it considers the delay justified.
(5) The arbitral tribunal shall decide on a plea referred to in sub-section (2) or sub-section (3)
and, where the arbitral tribunal takes a decision rejecting the plea, continue with the arbitral
proceedings and make an arbitral award.
(6) A party aggrieved by such an arbitral award may make an application for setting aside such
an arbitral award in accordance with section 34.
Competence-Competence Principle: Analysing certain Sec. 11 and Sec. 45 decisions.

The competence-competence principle in arbitration is an inherent power of the arbitral


tribunal.30 Section 16 of the 1996 Act statutorily recognises this principle. 31 However, the
threshold review by the courts, whose intervention is sought under various provisions of the
1996 Act to enforce the arbitration agreements, has limited this inherent power of the arbitral
tribunal. One such key provision considered as a last resort measure, in cases of reluctance of a
party to appoint its arbitrator nominee or to sort out differences of opinion between the parties or
their arbitrators, is to appoint the members of the tribunal or presiding arbitrator respectively is
Section 11. Section 11 gives considerable power to the Chief Justice of India (CJI) to make such
appointments in such a limbo in cases of 'international commercial arbitration'. One of the
leading pronouncements of the Indian Supreme Court on Sec. 11 is the 7-judge bench decision in
SBP & Co. v. Patel Engineering Ltd.32 This judgment settled the interpretation of Section 11, at
least for now, by overruling the Konkan Railway cases.33 It concluded that nature of function
performed by the Chief Justice or his nominee (designate) under Section 11(6) was a judicial
function and not an administrative one, as held by the Konkan Railway cases.34 Further, the
SBP Court restricted the scope of the power of delegation, precluding delegation to the district
judge, in accordance with the normal rules of designation of judicial work in the courts. Thus, the
CJI could only designate his responsibility to a Supreme Court Judge, and Chief Justice of a
High Court to another judge of the High Court. 35 The Supreme Court restricted the power of the
arbitral tribunal under Section 16, ruling out the possibility for the arbitral tribunal to decide on
its own jurisdiction, reopening these issues after being constituted by the CJI or his designate
settling these jurisdictional issues. The paternalistic view of the Supreme Court precluding the
30 See id. at 347 (describing the shorthand term competence/competence as 'the
power of an arbitral tribunal to decide upon its jurisdiction' or 'its competence to
decide upon its own competence'). Article 21(1) of the UNCITRAL Rules clearly
provides for the power with the arbitral tribunal to rule on such objections which
allege that it has no jurisdiction. Similar power is conferred under the International
Chamber of Commerce (ICC) Rules,
31 Article 6(3) of the Arbitration and ADR Rules, 2012 (ICC), available at:
http://www.iccwbo.org/products-and-services/arbitration-and-adr/, click: 'Rules'.
32 SBP & Co. v. Patel Engineering Ltd., (2005) 8 S.C.C. 618 (India). For a detailed
critique of this judgment see Pratyush Panjwani & Harshad Pathak, Assimilating the
Negative Effect of Kompetenz-Kompetenz in India: Need to Revisit the Question of
Judicial Intervention?, 2.2 INDIAN J. OF ARB. L. (Nov., 2013),
http://ijal.in/sites/default/files/Harshad.pdf.
33 Konkan Railway Corporation Ltd. v. Mehul Construction Co., 2000 (3) Arb. l.R. 162
(SC) (India) [hereinafter Konkan I]; Konkan Railway Corpn. Ltd. v. Rani Construction
Pvt. Ltd., (2002) 2 S.C.C. 388 (India) [hereinafter Konkan III].

creature from questioning the creator apparently curtails the legislative purpose behind Section
16.
A division bench of the Supreme Court in National Insurance Co. Ltd. v. Boghara Polyfab
Pvt. Ltd., delineated the scope of Section 16 power, in light of SBP decision as follows:36
"It is thus clear that when a contract contains an arbitration clause and any dispute in respect of
the said contract is referred to arbitration without the intervention of the court, the Arbitral
Tribunal can decide the following questions affecting its jurisdiction: (a) whether there is an
arbitration agreement; (b) whether the arbitration agreement is valid; (c) whether the contract in
which the arbitration clause is found is null and void and if so whether the invalidity extends to
the Arbitration clause also."
One of the recent Sec. 11 judgments of the Indian Supreme Court, where the court showed proenforcement bias, is the judgment of Antrix Corporation v. Devas Multimedia.37 Showing a
pragmatic approach, the court held that the arbitration agreement (or clause) can be invoked only
34 The Arbitration and Conciliation Act, supra note 13, 11(6) reads thus: " Where,
under an appointment procedure agreed upon by the parties,- (a) a party fails to act
as required under that procedure; or (b) the parties, or the two appointed
arbitrators, fail to reach an agreement expected of them under that procedure; or
(c) a person, including an institution, fails to perform any function entrusted him or
it under that procedure, a party may request the Chief Justice or any person or
institution designated by him take the necessary measure, unless the agreement on
the appointment procedure provides other means for securing the appointment."
35 See also Justice S.M. Jhunjhunwala, Settled Law Unsettled, 4.1 ARB. L. REP.
(SUPP.) (2006) (pointing out how the benefits of arbitration over litigation may be
offset when a person residing in a remote taluka will have to come to file his Section
11 application). In case of ICA the costs will be further enhanced, as the application
will be filed in the Supreme Court at New Delhi. Furthermore, in case of
determination of 'preliminary facts', which appears to be a somewhat mandatory
exercise to be undertaken under Section 11, this may lead to a mini-trial before the
commencement of arbitration with large litigation expenses and other attendant
costs.
36 National Insurance Co. Ltd. v. Boghara Polyfab Pvt. Ltd., A.I.R. 2009 S.C. 170,
16 (India). Further, the court in 17 has emphasised that the object of the 1996 Act
is, "expediting the arbitration process with minimum judicial intervention" should
guide the Chief Justice or his designate when he chooses to either decide these
jurisdictional issues or leaves them to the Arbitral Tribunal.
37 Antrix Corporation v. Devas Multimedia, 2013 (2) Arb. L.R. 226 (SC) (India).

once, as was done by the respondent Devas in this case, and not a second time, as the petitioner
Antrix tried to do, though being aware of initiation of arbitration proceedings by the respondents.
In Antrix-Devas, the agreement between the parties had an arbitration clause providing for
arbitration as a dispute resolution mechanism, after failure of mediation to resolve their disputes
within three weeks, by a three member arbitral tribunal having New Delhi as the seat of
arbitration. Furthermore, the arbitration proceedings, as per this clause, were to be conducted in
accordance with the rules and procedure of the ICC or UNCITRAL. This disjunctive choice
created a conflicting scenario between the parties.
Pursuant to the dispute having arisen, without exhausting the mediation option, the respondent
unilaterally requested for arbitration under the ICC Rules, and nominated Mr Veedar, QC, as its
nominee arbitrator, in accordance with these rules. The petitioner repeatedly insisted on
mediation, whereas the respondent was adamant on proceeding with the arbitration which it had
commenced, and called upon the petitioner to join the arbitration. Subsequently, the petitioner
without joining in the arbitration proceedings commenced by the respondent initiated its own
arbitration proceedings by appointing Ms Sujata Manohar, a former judge of the Supreme Court
of India, as its arbitrator nominee in accordance with the UNCITRAL Rules. At this stage, the
petitioner served notice to the respondent to appoint its arbitrator within thirty days to join the
arbitration proceeding commenced by the petitioner. Thus, two parallel arbitration proceedings
had been initiated by independent invocation of the arbitration clause by both the parties, leading
to an anomalous situation. The basic question was, which of the two proceedings should be
allowed to continued, as one of them had to trump over the other. Understandably, as the
respondent did not join the petitioner's arbitration, the petitioner took to litigation under Section
11(6) approaching the Supreme Court to appoint an arbitrator for Devas in accordance with the
UNCITRAL Rules. The strategy of the petitioner was to use the Indian Supreme Court to nullify
the respondent's first mover advantage by obtaining sanction for its version of arbitration
proceedings, and seeking its judicial enforcement, consequentially prevailing over the
respondent's proceedings. Appreciably, the Supreme Court disappointed the petitioner by
showing a pro-arbitration approach thereby preventing the abuse of Section 11 jurisdiction. If the
Court had not taken this view, an anomaly would have resulted, as the Chief Justices nominee
would have replaced the arbitrator already appointed under the ICC Rules.
Instead, to assuage the petitioner's grievance, the Supreme Court suggested Section 13 and
subsequently Sec. 34 as the appropriate provisions of the 1996 Act which could be invoked by it
in case of dissatisfaction with the arbitrator's selection by the respondent. 38 Thus, the arbitration
38 27 See Nidhi Gupta, Saving face or upholding Rule of Law: Reflections on Antrix
v. Devas Multimedia P. Ltd., 2.2 INDIAN J. OF ARB. L. (Nov., 2013), available at
http://ijal.in/sites/default/files/Nidhi%20Gupta.pdf. (critiquing the suggestion of the
Sup. Ct., in 32 of the judgment, where it is said that, in case the other party is
dissatisfied or aggrieved by the appointment of an Arbitrator in terms of the
Agreement, his/its remedy would be by way of a petition Under Section 13, and,

proceedings commenced by the petitioner got vitiated, and as a necessary implication of the
Courts judgment, the petitioner would be required to join the ICC Arbitration commenced by the
respondent, though there was no such express direction by the Court.
Some questions, though not answered in the judgment, need to be analysed here in light of this
judgment. Does invoking the arbitration clause by either party preclude exercise of Sec. 11
jurisdiction by the Court? The answer to this is clearly in the negative. The Supreme Court
prevented the misuse of Sec. 11 by the petitioner in this judgment. Sec. 11 is meant to provide for
judicial interference in case a party is resisting enforcement of a valid arbitration clause, to which
it had initially agreed. In this case, the respondent was not resisting the same, in fact, it had
invoked the same. Sec. 11 proceedings can be initiated, as per the clear language of the
enactment, even post appointment of the arbitrator nominees by the parties, if the parties or their
nominee arbitrators disagree on the choice of the third arbitrator, in case it needs to be appointed.
Thus, even in this case if the parties do not sort out their acrimony while proceeding with the
ICC Arbitration, such a disagreement may arise in appointing the third arbitrator to constitute the
three member arbitral tribunal, as required according to the arbitration clause. In that event
Antrix-Devas judgment should not preclude invoking Section 11 jurisdiction once again, as the
cause of action will be different then.
One more Section 11 judgment can be discussed with benefit. This judgment in Schlumberger
Asia Services Ltd. v. Oil and Natural Gas Corporation Ltd. 39 was delivered in the year 2013
by the Indian Supreme Court. The Judge, being the Chief Justice's nominee, exercising Section
11(6) powers, delivered an interesting order constituted according to the arbitration clause,
disregarding the already appointed petitioner's nominee arbitrator and petitioner's prayer to
appoint the respondent's nominee arbitrator and (curiously) the third presiding arbitrator. The
arbitration clause, as submitted, clearly provided for the 3-member arbitral tribunal, with each
party appointing one arbitrator each and the third arbitrator appointed by these two arbitrators.
The petitioner is a foreign company, incorporated and registered under the law of Hong Kong,
and the respondent, a well-known Indian Pubic Sector Enterprise, is registered under the Indian
Companies Act, 1956. Petitioner had its project office at Mumbai (India).
thereafter, under Section 34 of the 1996 Act. The author opines that, suggestion to
Antrix to invoke Section 13 is inappropriate, because Antrix has challenged the
constitution of the arbitral tribunal itself and the validity of the tribunal constituted
by the ICC and that the ICC Rules would govern ICC Arbitration. Furthermore, the
author comments on limited application of Section 34, only in a case where the seat
of arbitration in this arbitration is India. Otherwise, Section 48 or 57, as the case
may be, are suggested by the author as the proper alternatives to Section 34). 18 |
Page
39Schlumberger Asia Services Ltd. v. Oil and Natural Gas Corporation Ltd., (2013) 7
S.C.C. 562 (India).

After the dispute had arisen the petitioner issued a legal notice in the year 2008, invoking the
arbitration clause, detailing the dispute. In the same notice it was importantly also mentioned that
the petitioner had appointed its nominee arbitrator, and now it called upon the respondent to
appoint its nominee arbitrator, failing which the petitioner was to take legal steps for appointing
respondent's arbitrator instead. Notably, the arbitration clause itself provided for a post request
period of thirty days to be provided to the other party to appoint its nominee, failing which it
clearly designated the Chief Justice of India, in case of international commercial arbitration, as
the authority who 'shall appoint arbitrators/presiding arbitrator'. Thus, the parties in essence had
contractually agreed to the invocation of Sec.11 under the said circumstances, as clear from the
arbitration clause. After the respondent failed to appoint its nominee arbitrator, the petitioner first
sent a reminder in the year 2009, and another one in 2010, and yet another one in the year 2012,
giving thirty days period, as prescribed in the arbitration clause, in each of these reminders.
These constant reminders were disregarded by the respondent. In reply to the notice sent in the
year 2012, the respondent plainly denied any liability towards the petitioner. Subsequent to this,
the petitioner filed a Sec. 11(6) petition whose disposal culminated in the judgment which is
being discussed. The respondent resisted this petition on the ground that it was barred by
limitation and that it raised dead claims.
Perhaps, showing considerable respect for the competence-competence principle (though not
expressly mentioning or discussing it), despite the observations of seven judge bench of the same
court in SBP & Co. that the Chief Justice or his nominee 'can decide the question whether the
claim was a dead one; or a long barred claim that was sought to be resurrected', the judge chose
not to decide the respondent's above objections leaving it to the arbitral tribunal to decide them.
This approach of the Court is laudable. However, much good was undone when it decided to
appoint all the three members of the arbitral tribunal as discussed previously. It apparently
exceeded its jurisdiction by constituting the entire arbitral tribunal by designating two retired
judges of the Indian Supreme Court as the arbitrators and a former Chief Justice of India as the
presiding arbitrator/chairman. This clearly has adverse implications for the petitioner also. While
exercising the powers under Sec. 11 the judge erroneously disregarded not only the petitioner's
nominee, and the petitioner's plea, but also the arbitration clause to the extent it provided for the
manner of appointment of the third arbitrator.
Thus, it would have been more equitable for the Judge to only appoint an arbitrator on behalf of
the respondent. The judge, as per the arbitration clause, should have also directed that the two
arbitrators should appoint a presiding arbitrator. Since, before the Court, there was no question
concerning appointment of the third arbitrator, which could have only arisen when the two
arbitrators failed to reach a mutual agreement with respect to the choice of the third arbitrator,
the Court erred in prematurely appointing the presiding arbitrator on its own. Thus, in substance,
the judge imposed his will on both the parties by appointing three retired justices of his court as
members of the arbitral tribunal. As a whole, this decision compromised on party autonomy and

on the autonomy of the arbitrators to choose the third arbitrator, making the arbitration clause a
casualty in the end.
Power Of The Judicial Authority To Refer Parties To Arbitration(Section 45)
Next, let us converge on Section 45, contained in Chapter I of Part II of the 1996 Act dealing
with the power of the judicial authority to refer parties to arbitration when it is seized of a
matter in respect of which the parties have made an (arbitration) agreement referred to in the
Section 44 i.e., to which the New York Convention Applies. 40 An academic commentator opines,
that due to the expression "an agreement" in Sec.45, this provision has no application there is a
plurality of agreements which converge on disputes arising 'out of a single transaction or a series
of transactions which are inextricably linked with each other.' 41 However, the Supreme Court of
India has, in a recent decision, concluded otherwise albeit not without difficulties. A three-judge
bench decision of the Indian Supreme Court in the Chloro Controls,42 thus marks an important
contribution to Section 45 jurisprudence. The court applied the 'Group of Companies Doctrine' to
make a reference to arbitration under Sec. 45, in accordance with the arbitration clause of the
principal joint venture (JV) agreement, to direct even associated non-parties to arbitration,
overriding the dispute resolution clauses in the other ancillary agreements.
The following are the facts shorn of details of the complex corporate structure of the entities
involved. A United States Corporation (the foreign JV Partner) and an Indian Company (Indian
JV Partner) formed a 50:50 Indian JV Company registered under the Indian Companies Act,
1956. The principal purposes of this JV were designing, manufacturing, importing, exporting and
marketing of gas and electro-chlorination equipment. Towards achieving these objectives several

40 The Arbitration and Conciliation Act, supra note 13, 45 reads:


Notwithstanding anything contained in Part I or in the Code of Civil Procedure, 1908
(5 of 1908), a judicial authority, when seized of an action in a matter in respect of
which the parties have made an agreement referred to in section 44, shall, at the
request of one of the parties or any person claiming through or under him, refer the
parties to arbitration, unless it finds that the said agreement is null and void,
inoperative or incapable of being performed. This non-obstante clause in Section
45 is important, for inter alia, it makes the exercise of judicial power under Sec. 45
independent of the Part I provisions in the 1996 Act. See also supra note 6 for the
text of Section 44.
41 See P. C. MARKANDA, LAW RELATING TO ARBITRATION AND CONCILIATION 923
(7th ed. 2009) [hereinafter P. C MARKANDA].
42 Chloro Controls (I) Pvt. Ltd. v. Severn Trent Water Purification Inc., (2013) 1 S.C.C.
641 (India) [hereinafter Chloro Controls].

ancillary agreements were executed post the principal or the 'mother agreement' (as the Court
called it), which was the shareholders agreement.
There were in all six such ancillary agreements which were executed, including a supplementary
collaboration agreement whose sole purpose was to fulfil the conditions to obtain governmental
approvals. Some of these agreements had variations in the parties, and out of these agreements
three of these agreements contained a distinct arbitration clause each.
The arbitration clause in the principal agreement, to be invoked in case of failure of negotiations
to settle their dispute, provided for dispute resolution by arbitration according to the ICC Rules
by three arbitrators designated in accordance with these rules. Place of arbitration was London
and arbitration proceedings were 'to be governed by and subject to English laws'. 43 The other
agreements were anticipated in the principal agreement itself and on execution were appended to
the shareholder agreement. The 'international distributor agreement' (an appended agreement) did
not contain an arbitration clause, but instead had a jurisdiction clause, 44 conferring jurisdiction to
federal courts and state courts in the Eastern District of Commonwealth of Pennsylvania, United
States, for the parties to litigate. On the other hand, Managing Directors Agreement neither
contained an arbitration clause nor a jurisdiction clause. The Exports Sales Agreement, between
the JV Co. and the foreign JV partner, however had a specific arbitration clause. This clause
provided for settlement of any dispute arising out of or connected with the agreement by
arbitration in accordance with the Rules of American Arbitration Association. Place of arbitration
was fixed as Pennsylvania and it talked about judgment upon award to be entered by a competent
court. Thus, noticeably, this arbitration clause was different from the one in the principal
agreement. Similarly, the same parties executed the Financial and Technical knowhow
Agreement, and the Trademark Registered User Agreement also. The former contained an
arbitration clause similar to the principal agreement providing for arbitration, subject to the
English Law, in London, according to the ICC Rules. The latter agreement did not contain an
arbitration clause.
A suit was commenced by the Indian collaborators seeking the Mumbai High Court's declaration
to validate the JV agreements and delineate their scope. Meanwhile, during the suit's pendency,
the foreign JV partner served a notice to the Indian parties to terminate JV agreements and
sought from the High Court the reference of the matter to arbitration instead. Though, the single
judge of the High Court disallowed the plea of the foreign JV partner, on intra court appeal, the
division bench made the reference to arbitration under Section 45 of the 1996 Act. This order
was impugned inter alia before the Supreme Court. The reference under Sec. 45 was resisted
primarily on the ground that the three of the major agreements (referred to previously as the
ancillary agreements) did not have an arbitration clause, and one had a jurisdiction clause. It was
43 See id. 21.
44 See id. 26.

thus contended, that due to indefiniteness and uncertainty, the arbitration clause in the principal
agreement (i.e., shareholder agreement) was unenforceable. Plea against bifurcation of causes of
action was also made on basis of a previous Indian Supreme Court pronouncement in Sukanya
Holdings.45
As this matter concerns Chapter I of Part II of the 1996 Act, dealing with the arbitration under
the New York Convention, the Indian Apex Court went on to liberally construe Sec. 45 to
achieve the legislative intent favouring arbitration, as reflected in Sec. 45. The Court accorded
priority to the Chapter I of Part II stating that it was unaffected by Part I of Act. 46 While
interpreting the phrase 'at the request of one of the parties or any person claiming through or
under him' in Sec. 45, the Court rightly extended the scope of the expression 'any person' beyond
'the parties' who are signatories to the arbitration agreement. 47 This is in accordance with the
literal meaning of the enactment. Furthermore, the expression 'shall' in Sec.45 was interpreted to
impose a mandatory duty on the Court to make a reference upon fulfilment of the statutory
conditions.48 Thus, the right of a party under Sec.45 to obtain a judicial order of reference to
arbitration was interpreted as a conditional one, subject to satisfaction of certain statutory
preconditions contained in Sections 44 and 45, and not an absolute right.
Despite the appreciable problem solving approach highlighted in the above judgment, it had
some discursive aspects which could have been eliminated or reduced in the judgment. While
interpreting Sec.45, it also provided for a threshold review by the courts, before referring dispute
to arbitration, by giving a clear finding that arbitration agreement was valid, operative and
capable of being performed.49 This imposition of a mandatory duty upon a Sec.45 court clearly
does not augur well for competence-competence principle, which was discussed in the
preceding paragraph of the judgment, but, the Court concluded that the above interpretation of
Sec.45 does not permit any ambiguity and is according to the legislative mandate. It may be
argued here that it should be read as a discretionary power of the court, rather than a mandatory
duty, under Sec.45 to do a threshold review on a challenge to the validity of the arbitration
agreement. Even Sec.48 exists for post-award challenges during the enforcement of a foreign
award, where the court has an opportunity for reviewing inter alia validity of the arbitration
agreement after the arbitral tribunal has completed its task. The Court further noticed that an
45 Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya, (2003) 5 S.C.C. 531 (India).
46 See id. 64.
47 See id
48 See id. 78.
49 See id., 127-28.

application for appointment of arbitral tribunal under Section 45 would also be governed by
Section 11(6). Though Sec.11 was not in issue it was discussed along-with the SBP& Co.
judgment. It appears that the Court confused itself between the scope of Sec.45 and Sec.11, and
so mixed up the two provisions.
To interpret the scope of Sec.45 jurisdiction, the Court adopted the Sec.11(6) standard by relying
on the SBP & Co. judgement.50 Referring to Fouchard Gaillard Goldman on International
Commercial Arbitration, the Court cited the so-called negative effect of KompetenzKompetenz rule,51 which was that it deprived courts of their jurisdiction.41 The basic question is
whether this should be viewed as a merit of the kompetenz-kompetenz rule or its demerit. After
all, when the courts adopt pro-arbitration bias it is indeed proper not to curtail the arbitral
tribunal's autonomy. We must note that one of the editors of the authority relied on by the Court
also advocates, that the level of threshold review by the courts should be restricted to what he
calls the prima facie test.52 The prima facie test is explained in the following words:53
In reality, prima facie means prima facie. The court seized of the matter can assess the
arbitration agreement on its face. It can determine if the agreement exists as between the parties
and has been entered into in circumstances which are not manifestly aberrational. Nothing
further is required and any argument going beyond such a simple assessment on the basis of
generally accepted practices should be left to the arbitrators to decide in the first instance.
Though the Court, to justify threshold judicial review requirement under Sec.45, noted absence
of a provision like Sec.16 in Chapter I of Part II of the 1996 Act, it strangely sought justification
from Sec.11(7) of the same Act to lend finality to judicial determination under Sec.45. 54 It also
justified this rendering of finality on the basis of furthering cause of justice and it being in
interest of parties.55 A counterview can be that the court, through its threshold review, does not do
any favour to the parties and the tribunal by taking upon itself to decide objections going to the
50 See, FOUCHARD GAILLARD GOLDMAN ON INTERNATIONAL COMMERCIAL
ARBITRATION 2 (Emmanuel Gaillard & John Savage eds. 1999). 41 Chloro Controls,
supra note 31, 129.
51 Emmanuel Gaillard, The Urgency of not Revising the New York Convention, in 14
50 YEARS OF THE NEW YORK CONVENTION: ICCA INTERNATIONAL ARBITRATION
CONFERENCE 693 (Albert Jon Van Den Berg ed., 2009).
52 See id
53 Chloro Controls, supra note 31, 130.
54 Id., 131

root of the matter.56 Rather, it should focus on reducing delays and expeditiously refer the matter
to arbitration, except in the rarest cases which stand patently and clearly disqualified, rather than
indulging to adjudicate the complex issues involved, as termed by itself. A commentator points
out to some of the problems which may be encountered by the trial court seeking to give a final
finding on these issues pertaining to the validity of the arbitration agreement at the Sec.45 stage
like: difficulties, unfeasible scenario of proving foreign law through affidavits, enormous
expenditure of time and money.57 An interventionist court can defeat the usual benefits of the
arbitration process under the guise of doing a threshold review leading to the opposite results
than intended, as delineated by the Supreme Court. When parties have chosen arbitration as their
preferred mode of dispute resolution party autonomy needs to be respected and given full play.
Thus, the scope of the same should be kept to minimum possible, and the phrase valid, operative
and capable of being performed,58 should be read as analogous terms extending to only the
prima facie review to be done in the manner and to the extent described above. Despite these
observations in the dicta, it can be said that the Court held that the disputes arising from and
referring to multiparty agreements are capable of being referred to arbitration, under Sec.45, in
accordance with the agreement between the parties as per their intention. 59 This is an important
takeaway lesson for the foreign investors contemplating a similar scenario in an investment deal.
In a recent 2014 decision rendered by the Indian Supreme Court in World Sport Group
(Mauritius) Ltd. v. MSM Satellite (Singapore) Pte. Ltd.,60 the Court had an opportunity to
examine correctness of an order of a division bench of the Bombay High Court issuing an
injunction restraining the arbitration by ICC at Singapore. The dispute concerned the part

55Id.
56 See P. C. MARKANDA, supra note 30, at 925.
57 Chloro Controls, supra note 31, 131 (the court laid Sec.45 standard to check
whether 'agreement is null and void, inoperative and incapable of being
performed.').
58 See id., 162.
59 World Sport Group (Mauritius) Ltd v. MSM Satellite (Singapore) Pte Ltd., Civil
Appeal No. 895/2014, Supreme Court of India (Unreported) (India), available at
http://judis.nic.in/supremecourt/imgs1.aspx?filename=41175 [Hereinafter World
Sport Group case].
60 1 crore = 10 million.

payment totalling the amount of 125 crores,61 made by the respondent (MSM) to the appellant
(WSGM) during 2009 under a facilitation deed between these parties. The respondent now
sought to recover this amount, and thus sent a legal notice to the appellant through its lawyers on
June 25, 2010, claiming the said facilitation deed to be voidable at option of MSM in view of
the false representations and fraud played by WSGM, and also simultaneously conveyed in the
same clause its decision to rescind the facilitation deed with immediate effect. 62 On the same
day, MSM filed its first suit in the Bombay High Court for recovering the said sum of money
paid to WSGM and sought a declaration from the court that the facilitation deed was void.
Three days later, on June 28, 2010, WSGM responded by invoking the arbitration clause
(numbered 9 and titled governing law) in the facilitation deed sending a request for arbitration
to ICC Singapore, which gave a notice to the respondent, MSM, to tender its reply to WSGMs
arbitration request. MSM resisted this move of WSGM and in response filed a second suit in the
Bombay High Court on June 30, 2010, claiming inter alia a declaration that since the said
facilitation deed was rescinded the appellant WSGM was not entitled to invoke the arbitration
clause in the facilitation deed.63 In this second suit, an application seeking temporary injunction
against the WSGM for continuing with the arbitration proceedings initiated by them was also
filed by MSM. The single judge dismissed this application of MSM. This order was challenged
in appeal by MSM before a division bench of the Bombay High Court which allowed the appeal,
granting temporary injunction, as sought by MSM. Against this decision of the division bench
WSGM preferred an appeal before the Supreme Court which culminates in the judgment under
discussion.
The basic contention of the appellant WSGM, based on the judicial authorities cited by it
endorsing Kompetenz-Kompetenz principle enshrined in Sec. 16, was that unless the arbitration
clause itself, apart from the underlying contract, was assailed as vitiated by fraud or
misrepresentation, the Arbitral Tribunal, and not the court, will have the jurisdiction to decide all
issues including the validity and scope of the arbitration agreement. 64 According to the appellant,
here the facilitation deed was assailed as vitiated by fraud or misrepresentation, but the
arbitration clause (or agreement, to use Sec. 45 terminology) contained in it was not made out to
be null and void on basis of the factual allegations of fraud or misrepresentation alleged by the
61 World Sport Group, supra note 50, 25.
62 Id., 5.
63 Id., 9.
64 See id. 12 (the appellant further contended, that it has denied these
allegations of respondents before the Bombay High Court in its affidavit-in-reply and
gave gist of its defence taken before the High Court).

respondent;65 and it stood independent of and separate from the facilitation deed. Thus, in
essence, to support its argument the principle of separability was invoked by the appellant. The
respondent, on the other hand, contended that, the arbitration agreement was inoperative or
incapable of being performed as allegations of fraud could be enquired into by the court and not
by the arbitrator.66 After an elaborate discussion on the interpretation of the terms null and void,
and inoperative or incapable of being performed, which are used in Sec. 45, the court rightly
concluded that:
the arbitration agreement does not become inoperative or incapable of being performed where
allegations of fraud have to be inquired into and the court cannot refuse to refer the parties to
arbitration as provided in Section 45 of the Act on the ground that allegations of fraud have been
made by the party which can only be inquired into by the court and not by the arbitrator.
The Apex Court further correctly observed, that Sec. 45 did not empower a court to decline
reference to arbitration on the ground that another suit on the same issue is pending in the Indian
court.67 So, allowing the appeal and restoring the single judges decision, it held that the dispute
should be decided by the arbitrator in accordance with the arbitration agreement viz., clause 9
between the parties. Despite the appreciable approach of the Supreme Court in relying on Sec.
65 Id., 26; See also Elaine Wong, Procedural Issues Resulting from a Fraud Claim in
International Commercial Arbitration: An English Law Perspective, KLUWER ARB.
BLOG (Jan. 24, 2014), http://kluwerarbitrationblog.com/blog/2014/01/24/proceduralissues-resulting-froma-fraud-claim-in-international-commercial-arbitration-anenglish-law-perspective (discussing, inter alia how in England due to absence of
public policy that accusations of fraud are decided by courts these issues can fall
within the scope of arbitration agreement subject to its wordings; and (erroneously)
citing Fiona Trust v. Privalov against [2007] UKHL 40 (instead of the correct name
Premium Nafta Products Ltd. v. Fili Shipping Company Ltd.) in which the application
of the doctrine of separability was explained and affirmed by the House of Lords).
See also id., 24, where the Sup. Ct. cites correctly the House of Lords decision as
Premium Nafta Products Ltd. v. Fili Shipping Company Ltd. [2007] UKHL 40 and
excerpts from the same to explain the principle of separability. See also Abhinav
Bhushan & Niyati Gandhi, The Back and Forth of the Arbitrability of Fraud in India,
KLUWER ARBITRATION BLOG (Feb. 13, 2014),
http://kluwerarbitrationblog.com/blog/2014/02/13/the-back-and-forth-ofthearbitrability-of-fraud-in-india (discussing inter alia the above WSGM v. MSM
judgment and direct impeachment test requiring allegation of fraud to be made
specifically targeting the arbitration agreement for the dispute to go before courts
when a standard arbitration agreement is contained in the main contract; and
criticising the approach of the Sup. Ct. in subscribing to a literal interpretation of the
arbitration agreement by looking at its scope).
66 Id., 29.

45, in letter and spirit, the delay in disposal of this appeal is a cause of concern, considering that
the Special Leave Petition to appeal, under Art. 136 of the Indian Constitution, was filed way
back in the year 2010. It is suggested that in such matters, when the legislative policy and
provisions clearly call for reference to arbitration, the Supreme Court should without any delay
expeditiously dispose of such commercial cases. Any inordinate delay in reference to the
arbitration may, apart from huge litigation costs and undermining the efficacy of arbitral
tribunals autonomy, in certain cases, cause numerous avoidable problems for the arbitral
tribunal, and result in pyrrhic victories in arbitration.

67 The Arbitration and Conciliation Act, supra note 13, 9 (provides for certain
useful interim measures by Court obtainable by a party before or during arbitral
proceedings or at any time after the making of the arbitral award but before it is
enforced.).

VI. CONCLUSION
The 1996 Act was enacted to achieve this purpose of quick and cost-effective dispute resolution.
Arbitration occupies a prime position in commercial dispute resolution in India. An examination
of the working of 32 arbitration in India reveals that arbitration as an institution is still evolving,
and has not yet reached the stage to effectively fulfill the needs accentuated with commercial
growth. Viewed in its totality, India does not come across as a jurisdiction which carries an
antiarbitration bias. Notwithstanding the interventionist instincts and expanded judicial review,
Indian courts do restrain themselves from interfering with arbitral awards.61 However, there are
still inherent problems that hindered in the working of successful arbitration in India which are
multifold starting from requirement for amendment of certain provision of law to changing the
mindset of the stakeholders who are judges, arbitrators, lawyers and parties involved. Based on
the identified problems, the following recommendations can be made:
(i)

Universities in India could create a separate faculty or department for arbitration law
to encourage specialized study and incisive research. Presently, none of the 259
universities in India has a separate faculty or department of arbitration law; nor is
arbitration law taught as a specialized subject in any of the law colleges.

(ii)

All stakeholders - arbitrators, judges and lawyers- should make efforts to change
general attitude towards arbitration. Despite the 1996 Acts prohibition of judicial
intervention, (i.e. no judicial authority shall intervene except where so provided in
[that] part.) courts continue to intervene in direct defiance of the agreement of the
parties. Therefore, it is necessary for the players in arbitration proceedings (i.e.
arbitrators, judges and lawyers) to know and to understand the direction of the new
law, respect the will of the parties set out in arbitration clauses, and observe the
dichotomy between arbitration and litigation. This change in the mindset must focus
on the need to make the system more effective, attractive and functional.62

(iii)

Power vested in the Chief Justice of a High Court (or any person or institution
designated by him) for appointment of an arbitrator under Section 11 of the 1996 Act
is not being used properly. The practice of appointing retired judges has recently
come under strong criticism from the proponents of the alternate dispute resolution
mechanism. There is reason for complaint that the appointment of arbitrators is
widely perceived as avenues of patronage of superannuated judges. This practice
should be corrected. Unless this is corrected, the legitimacy of Section 11 is bound to
be seriously undermined. For instance, in the panels of arbitrators who may be

selected by those having disputes, maintained by the American Arbitration


Association, lawyers dominate in commercial fields of arbitration, college professors
make up the second largest group of arbitrators, and physicians, dentists, accountants,
managers and other professionals serve as arbitrators in cases recorded in the
Encyclopedia Americana. Retired judges will not fit the bill for these categories.
(iv)

There is requirement for legislative amendment to remove the anomaly which enables
a defeated party to avoid execution of arbitral awards by merely filing an application
for setting aside under Section 34 of the 1996 Act, without being required to deposit a
part of the award amount. Ordinarily, this awarded amount would be deposited as a
matter of course in case of a judgment debtor challenging a money decree before a
civil court. In NALCO Ltd. vs. Pressteel Fabrications (P) Ltd.63, the Supreme Court
of India has recently expressed a hope that suitable legislative action would undo this
situation. The Court refused to impose any condition on the applicant pending
disposal of its application for setting aside the award under Section 34, reasoning
being that any such order would run counter to the letter and spirit of the Act.
Nevertheless, the court did take judicial notice of the injustice that could be caused to
the beneficiary of an arbitral award due to the automatic stay by mere challenging of
awards. The Arbitration and Conciliation (Amendment) Bill, 2003, appears to have
partially remedied this flaw, but the Bill has not yet been taken up for consideration
and passed by the Parliament.

(v)

The government should disseminate knowledge of the benefits of alternate dispute


resolution mechanisms to foster growth of an international arbitration culture amongst
lawyers, judges and national courts. The real problem in enforcing foreign awards
around the globe despite the enabling provision of the New York Convention, 1958, is
not a legal one; but it is a lack of awareness particularly, amongst lawyers and judges,
of the benefits of international arbitration and of its true consensual nature

(vi)

Questions relating to lack of impartiality of arbitrators and procedural defects in the


conduct of arbitration proceedings are the subject-matter of frequent litigation and
hence add to the caseload before an already overburdened judiciary. In fact, judicial
interventions with arbitral proceedings and awards in India have come to constitute a
distinct branch of law, i.e. the law of arbitration. This trend clearly frustrates the
foundational aim of providing for arbitration clauses - which is to ensure speedy and
efficient dispute-resolution in the commercial context.

(vii)

Provisions in the arbitration laws in India that require entire arbitral tribunals to
impart effective interim measures at par with the authority of a national court should
be amended, and an effective mechanism for carrying out these provisions should be
put in place. Although the 1996 Act confers powers on arbitral tribunals to issue
interim relief, there is variance in the degree and efficacy of these interim measures.

Under the 1996 Act, the arbitral tribunal is possessed of limited powers to direct
interim measures, pertaining to: - (a) protection of the subject matters in dispute; and
(b) providing appropriate security in connection thereof. Moreover, an arbitral
tribunal has no mechanism to enforce its own direction. For this reason, it can well be
said that the arbitral tribunal does not have any coercive authority to secure
implementation of its interim measures, which is like being a toothless tiger. No
doubt, this is a flaw that weakens the entire arbitration mechanism, and at times
makes it appear spineless.
(viii)

There is an emerging trend to go for settlement of business disputes by institutional


arbitration, provided such institutions maintain quality standards in conducting
proceedings. The standards are evaluated in terms of professional arbitrators,
infrastructure facilities, time and cost saving procedures and uniformity of laws standards that will make the ADR system more sound and acceptable among the
business community. Independent institutions should impart training for nurturing
competent professionals who are trained to delve into the crux of the dispute for its
resolution.