Ozg Sarfaesi / DRT Lawyer
Ahmedabad | Pune |
Kolkata | Bangalore | Delhi | Mumbai
VoIP Text / Phone
# 09811415837-61-72-84-92-94
Website: http://sarfaesi.ozg.in
Email: debt@liaisoning.com
Looking at the pendency of the cases before various Courts in this
country and looking at the technicalities in Courts, many support the
Alternative Dispute Resolution Mechanism (ADR) like “Arbitration”. Even the
courts have highlighted the object of Arbitration and Conciliation Act, 1996.
The history, the old act, the new act, the scheme of Arbitration Law in India
is referred by the Hon’ble Supreme Court in many decisions and especially in
M/s. S.B.P. & Co. Vs. M/s. Patel Engineering Ltd. and Another (2006 AIR(SC)
450 : 2005 (3) ArbLR 285: 2005 (8) SCC 618: 2005 (9) Scale 1: 2005 (9) JT 219 :
2005 (7) Supreme 610: 2005 (7) SCJ 461: 2005 (5) CTC 302, as follows:
“2. Arbitration in India was earlier governed by the Indian Arbitration
Act, 1859 with limited application and the Second Schedule to the Code of Civil
Procedure, 1908. Then came the Arbitration Act, 1940. Section 8 of that Act
conferred power on the Court to appoint an arbitrator on an application made in
that behalf. Section 20 conferred a wider jurisdiction on the Court for
directing the filing of the arbitration agreement and the appointment of an
arbitrator. Section 21 conferred a power on the Court in a pending suit, on the
agreement of parties, to refer the differences between them for arbitration in
terms of the Act. The Act provided for the filing of the award in court, for
the making of a motion by either of the parties to make the award a rule of court,
a right to have the award set aside on the grounds specified in the Act and for
an appeal against the decision on such a motion. This Act was replaced by the
Arbitration and Conciliation Act, 1996 which, by virtue of Section 85, repealed
the earlier enactment.
3. The Arbitration and Conciliation Act, 1996 (hereinafter referred to as
'the Act') was intended to comprehensively cover international and commercial
arbitrations and conciliations as also domestic arbitrations and conciliations.
It envisages the making of an arbitral procedure which is fair, efficient and
capable of meeting the needs of the concerned arbitration and for other matters
set out in the objects and reasons for the Bill. The Act was intended to be one
to consolidate and amend the law relating to domestic arbitrations,
international commercial arbitrations and enforcement of foreign arbitral
awards, as also to define the law relating to conciliation and for matters
connected therewith or incidental thereto. The preamble indicates that since
the United Nations Commission on International Trade Law (UNCITRAL) has adopted
a Model Law for International Commercial Arbitration and the General Assembly
of the United Nations has recommended that all countries give due consideration
to the Model Law and whereas the Model Law and the Rules make significant
contribution to the establishment of a unified legal framework for a fair and
efficient settlement of disputes arising in international commercial relations
and since it was expedient to make a law respecting arbitration and
conciliation taking into account the Model Law and the Rules, the enactment was
being brought forward. The Act replaces the procedure laid down in Sections 8
and 20 of the Arbitration Act, 1940. Part I of the Act deals with arbitration.
It contains Sections 2 to 43. Part II deals with enforcement of certain foreign
awards, and Part III deals with conciliation and Part IV contains supplementary
provisions.”
If it is not possible to reduce the pendency before the traditional courts
in this country and if approaching a court for relief is a tedious thing, then,
there is nothing wrong in supporting the Alternative Dispute Resolution
Mechanism. As the object of Alternative Dispute Resolution Mechanism is
providing speedy relief and avoiding the technicalities like strictly adhering
to the provisions of Civil Procedure Code, the Alternative Dispute Resolution
Mechanism (ADR) should provide an affordable and effective relief to the
litigants. But, as I have seen and heard from various people, there are many
challenges in achieving the object behind the Alternative Dispute Resolution
Mechanism (ADR) like “Arbitration” under “Arbitration and Conciliation Act,
1996”. Few concerns are as follows:
1. It is an assumption only
that the Alternative Dispute Resolution Mechanism like “Arbitration” provides a
speedy relief.
I have personally seen many cases where a dispute before an Arbitrator is
pending for a long time like a proceeding in a Civil Court. Impartiality of the
Arbitrator or the commitment of the Arbitrator to dispose of a case speedily is
also a subject for discussion. Where sitting free is agreed to be paid to an
Arbitrator, then, it is likely that the Arbitrator may frequently adjourn the
matter on some grounds and it is very difficult to allege something on
Arbitrator or to prove that a particular proceeding or an adjournment is not
needed.Again, if the litigants are not committed to resolve the dispute
speedily, then, they will proceed with the delay tactics by filing various interim
applications and preferring an application under section 34 of the Arbitration
and Conciliation Act, 1996 very frequently. These issues may appear to be
simple, but, it is very difficult to address these issues. Thus, it can very
well be said, at times, that it is an assumption that the Alternative Dispute
Resolution Mechanism through “Arbitration” provides a speedy relief. On the
other hand, in the recent past I have seen some cases, where the traditional
civil court has passed a final judgment in a suit very speedily and within a
span of one year or one and half year. Looking at the ground reality, I do
strongly feel that traditional courts can provide effective and also speedy
relief to the litigants and for that we may require few reforms in the system.
There can not be any effective alternative to the traditional courts to the
common man. It may be right to say that the Arbitration Mechanism is useful for
the high-profile litigants, companies or where the stakes are very high. But,
for common man, I don’t think that the Alternative Dispute Resolution Mechanism
(ADR) is really effective and it is more so when a common man forced to submit
himself to the Alternative Dispute Resolution Mechanism.
2. There are ways to
protract an Arbitration proceeding like the delay tactics adopted at times in
Civil Court.
It is not an exaggeration to say that there are ways to protract even an
arbitration proceeding before arbitrator like the delay tactics adopted before
the Civil Court at times in some cases. In fact, as the procedure to be
followed before the Arbitration is not specific and it depends upon the
discretion of the Arbitrator and the litigants at times, one can file any
number of interim applications in an arbitration proceeding and challenging an
interim-order; an application under section 34 can be filed and is filed in
many cases. In fact, comparing a proceeding before Civil Court with an
Arbitration proceeding, the procedure before Civil Court appears to be clear
and certain.
3. The appointment of Arbitrator
has become a one-sided affair with many arbitration clauses in an agreement
provides a right to only one party to choose the Arbitrator.
Against the settled assumption and the all-round support to the
Alternative Dispute Resolution Mechanism, I was privileged to concentrate on
the issue of appointment of arbitrator by the Hon’ble Chief Justice under
section 11 of Arbitration and Conciliation Act, 1996. I am not dealing with the
law of the land now and I am not going to the issue of precedents on the issue
with binding nature. But, I had to see a shift in the concept pursuant to the
judgment of Supreme Court in M/s. S.B.P. & Co. Versus M/s. Patel
Engineering Ltd. and Another (2006 AIR (SC) 450: 2005 (3) ArbLR 285: 2005 (8)
SCC 618: 2005 (9) Scale 1: 2005 (9) JT 219: 2005 (7) Supreme 610: 2005 (7) SCJ
461: 2005 (5) CTC 302). The appointment of Arbitrator by the Chief Justice
under section 11 of the Arbitration and Conciliation Act, 1996 is seen as an
administrative function and the judgment referred to above made it as a
judicial function. It is not easy to come to an opinion as to whether it is
better to see the function of the Chief Justice under section 11 of the
Arbitration and Conciliation Act, 1996 as administrative or as judicial
function. Because, if we consider it as an administrative function, then, at
times, innocent public may suffer irreparable hardship as reasoned by the
Hon’ble Supreme Court in M/s. S.B.P. & Co. Versus M/s. Patel Engineering
Ltd. and Another. On the other-hand, if we treat the function of Chief Justice
under section 11 of the Arbitration and Conciliation Act, 1996 as judicial
function, then, it will burden the Chief Justice or there will be inordinate
delay in getting an Arbitrator appointed by the Court. I would like to just
extract the observations of Supreme Court in M/s. S.B.P. & Co. Versus M/s.
Patel Engineering Ltd. and Another, dealing with the nature of the function of
the Chief Justice under section 11 of Arbitration and Conciliation Act, 1996
and also the consequent observations like the arbitration is costly. The
observations are as follows:
“10. The appointment of an arbitrator against the opposition of one of
the parties on the ground that the Chief Justice had no jurisdiction or on the
ground that there was no arbitration agreement, or on the ground that there was
no dispute subsisting which was capable of being arbitrated upon or that the
conditions for exercise of power under Section 11(6) of the Act do not exist or
that the qualification contemplated for the arbitrator by the parties cannot be
ignored and has to be borne in mind, are all adjudications which affect the
rights of parties. It cannot be said that when the Chief Justice decides that
he has jurisdiction to proceed with the matter, that there is an arbitration
agreement and that one of the parties to it has failed to act according to the
procedure agreed upon, he is not adjudicating on the rights of the party who is
raising these objections. The duty to decide the preliminary facts enabling the
exercise of jurisdiction or power, gets all the more emphasized, when
sub-Section (7) designates the order under sub-sections (4), (5) or (6) a
'decision' and makes the decision of the Chief Justice final on the matters
referred to in that sub-Section. Thus, going by the general principles of law
and the scheme of Section 11, it is difficult to call the order of the Chief
Justice merely an administrative order and to say that the opposite side need
not even be heard before the Chief Justice exercises his power of appointing an
arbitrator. Even otherwise, when a statute confers a power or imposes a duty on
the highest judicial authority in the State or in the country, that authority,
unless shown otherwise, has to act judicially and has necessarily to consider
whether his power has been rightly invoked or the conditions for the
performance of his duty are shown to exist.
31. Moreover, in a case where the objection to jurisdiction or the
existence of an arbitration agreement is overruled by the arbitral tribunal,
the party has to participate in the arbitration proceedings extending over a
period of time by incurring substantial expenditure and then to come to court
with an application under Section 34 of the Arbitration Act seeking the setting
aside of the award on the ground that there was no arbitration agreement or
that there was nothing to be arbitrated upon when the tribunal was constituted.
Though this may avoid intervention by court until the award is pronounced, it
does mean considerable expenditure and time spent by the party before the
arbitral tribunal. On the other hand, if even at the initial stage, the Chief
Justice judicially pronounces that he has jurisdiction to appoint an
arbitrator, that there is an arbitration agreement between the parties, that
there was a live and subsisting dispute for being referred to arbitration and
constitutes the tribunal as envisaged, on being satisfied of the existence of
the conditions for the exercise of his power, ensuring that the arbitrator is a
qualified arbitrator, that will put an end to a host of disputes between the
parties, leaving the party aggrieved with a remedy of approaching this Court
under Article 136 of the Constitution. That would give this Court, an
opportunity of scrutinizing the decision of the Chief Justice on merits and
deciding whether it calls for interference in exercise of its plenary power.
Once this Court declines to interfere with the adjudication of the Chief
Justice to the extent it is made, it becomes final. This reasoning is also
supported by sub-section (7) of Section 11, making final, the decision of the
Chief Justice on the matters decided by him while constituting the arbitral
tribunal. This will leave the arbitral tribunal to decide the dispute on merits
unhampered by preliminary and technical objections. In the long run, especially
in the context of the judicial system in our country, this would be more
conducive to minimising judicial intervention in matters coming under the Act.
This will also avert the situation where even the order of the Chief Justice of
India could be challenged before a single judge of the High Court invoking the
Article 226 of the Constitution of India or before an arbitral tribunal,
consisting not necessarily of legally trained persons and their coming to a
conclusion that their constitution by the Chief Justice was not warranted in
the absence of an arbitration agreement or in the absence of a dispute in terms
of the agreement.
Dragging a party to an arbitration when there existed no arbitration
agreement or when there existed no arbitrable dispute, can certainly affect the
right of that party and even on monetary terms, impose on him a serious
liability for meeting the expenses of the arbitration, even if it be
preliminary expenses and his objection is upheld by the arbitral tribunal.
Therefore, it is not possible to accept the position that no adjudication is
involved in the constitution of an arbitral tribunal.”
Now, if we keep the issue of appointment of Arbitrators by the Court
under section 11 of the Arbitration and Conciliation Act, 1996 apart, another
important aspect comes when the right to appoint Arbitrator is conferred on one
party to the agreement itself or when an Arbitrator is named in the agreement
who is connected to one party either directly or indirectly. This is a very
important thing to deal with. The Hon’ble Supreme Court of India in Indian Oil
Corporation Ltd. & Others Versus M/s. Raja Transport (P) Ltd. (2009 (8) SCC
520, 2009 (8) MLJ 885, 2010 (2) LW 610, 2009 (8) SCJ 188), was pleased to observe
as follows:
“9. Arbitration is a binding voluntary alternative dispute resolution
process by a private forum chosen by the parties. It is quite common for
governments, statutory corporations and public sector undertakings while
entering into contracts, to provide for settlement of disputes by arbitration,
and further provide that the Arbitrator will be one of its senior officers. If
a party, with open eyes and full knowledge and comprehension of the said
provision enters into a contract with a government/statutory corporation/public
sector undertaking containing an arbitration agreement providing that one of
its Secretaries/Directors shall be the arbitrator, he can not subsequently turn
around and contend that he is agreeable for settlement of disputes by arbitration,
but not by the named arbitrator who is an employee of the other party. No party
can say he will be bound by only one part of the agreement and not the other
part, unless such other part is impossible of performance or is void being
contrary to the provisions of the Act, and such part is severable from the
remaining part of the agreement. The arbitration clause is a package which may
provide for what disputes are arbitrable, at what stage the disputes are
arbitrable, who should be the arbitrator, what should be the venue, what law
would govern the parties etc. A party to the contract cannot claim the benefit
of arbitration under the arbitration clause, but ignore the appointment
procedure relating to the named Arbitrator contained in the arbitration clause.
13. We find no bar under the new Act, for an arbitration agreement
providing for an employee of a government/ statutory corporation/public sector
undertaking (which is a party to the contract), acting as Arbitrator. Section
11(8) of the Act requires the Chief Justice or his designate, in appointing an
arbitrator, to 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 or impartial
arbitrator". Section 12(1) requires an Arbitrator, when approached in
connection with his possible appointment, to disclose in writing any
circumstances likely to give rise to justifiable doubts as to his independence
or impartiality. Sub-section 12(3) enables the Arbitrator being challenged if
(i) the circumstances give rise to justifiable doubts as to his independence or
impartiality, or (ii) he does not possess the qualifications agreed to by the
parties. Section 18 requires the Arbitrator to treat the parties with equality
(that is to say without bias) and give each party full opportunity to present
his case. Nothing in sections 11, 12, 18 or other provisions of the Act
suggests that any provision in an arbitration agreement, naming the Arbitrator
will be invalid if such named arbitrator is an employee of one of the parties
to the arbitration agreement. Sub-section (2) of section 11 provides that
parties are free to agree upon a procedure for appointment of arbitrator/s.
Sub-section (6) provides that where a party fails to act, as required under the
procedure prescribed, the Chief Justice or his designate can take necessary
measures. Sub-section (8) gives the discretion to the Chief Justice/his
designate to choose an arbitrator suited to meet the requirements of a
particular case. The said power is in no way intended to nullify a specific
term of arbitration agreement naming a particular person as arbitrator. The
power under sub-section (8) is intended to be used keeping in view the terms of
the arbitration agreement. The fact that the named arbitrator is an employee of
one of the parties is not ipso facto a ground to raise a presumption of bias or
partiality of lack of independence on his part.
14. There can however be a justifiable apprehension about the
independence or impartiality of an Employee-Arbitrator, if such person was the
controlling or dealing authority in regard to the subject contract or if he is
a direct subordinate (as contrasted from an officer of an inferior rank in some
other department) to the officer whose decision is the subject matter of the
dispute. Where however the named arbitrator though a senior officer of the
government/statutory body/government company, had nothing to do with execution
of the subject contract, there can be no justification for anyone doubting his
independence or impartiality, in the absence of any specific evidence.
Therefore, senior officer/s (usually heads of department or equivalent) of a
government/statutory corporation/ public sector undertaking, not associated
with the contract, are considered to be independent and impartial and are not
barred from functioning as Arbitrators merely because their employer is a party
to the contract.
19. While considering the question whether the arbitral procedure
prescribed in the agreement for reference to a named arbitrator, can be
ignored, it is also necessary to keep in view clause (v) of sub-section (2)
ofSECTION 34 of the Act which provides that an arbitral award may be set aside
by the court if the composition of the arbitral tribunal or the arbitral
procedure was not in accordance with the agreement of the parties (unless such
agreement was in conflict with any provision of Part-I of the Act from which
parties cannot derogate, or, failing such agreement, was not in accordance with
the provisions of Part-I of the Act). The legislative intent is that the
parties should abide by the terms of the arbitration agreement. If the
arbitration agreement provides for arbitration by a named Arbitrator, the courts
should normally give effect to the provisions of the arbitration agreement. But
as clarified by Northern Railway Administration, where there is material to
create a reasonable apprehension that the person mentioned in the arbitration
agreement as the Arbitrator is not likely to act independently or impartially,
or if the named person is not available, then the Chief Justice or his
designate may, after recording reasons for not following the agreed procedure
of referring the dispute to the named arbitrator, appoint an independent
Arbitrator in accordance with section 11(8) of the Act. In other words,
referring the disputes to the named arbitrator shall be the rule. The Chief
Justice or his designate will have to merely reiterate the arbitration
agreement by referring the parties to the named arbitrator or named Arbitral
Tribunal. Ignoring the named Arbitrator/Arbitral Tribunal and nominating an
independent arbitrator shall be the exception to the rule, to be resorted for
valid reasons.”
The judgment of the Supreme Court becomes law and binds all the courts in
India unless overruled by the larger Bench. I do personally feel that, in the
judgment referred to above, the Hon’ble Supreme Court has emphasized the
settled principles of impartiality etc. on the part of the Arbitrator and also
dealt with the issue of apprehensions of an Arbitrator being one-sided. In my
opinion, when it comes to appointment of an Arbitrator, there should be
consensus between or among the parties and if there is no consensus, the party
seeking reference of dispute to Arbitrator, can be able to approach the Court
under section 11 of the Act for appointment of Arbitrator.
In my personal opinion, the position with regard to the appointment of
Arbitrator, taking all the ground realities into consideration, should be as
follows:
a. There need not be any bar
in conferring the right to appoint an Arbitrator on one-party to the Agreement
or even naming the Arbitrator in the Agreement.
b. When the Arbitrator named
in the Agreement or the right of one party to appoint an Arbitrator is opposed
by other, then, the appointment of Arbitrator should be made by the Court under
section 11 of the Act or by the competent authority under the Act irrespective
of signing the Agreement or agreeing for the Arbitration clause in the
Agreement.
This arrangement can even reduce the delay in concluding the Arbitration
proceeding. What happens is that, when a party is suspicious of an Arbitrator
when the Arbitrator named in the Agreement or appointed by one party is connected
to him/her in one way or other, then, the other party will try to drag the
matter. As such, when the appointment is made upon the consent or by the Court,
then, the delay in Arbitration can definitely be reduced.
4. The cost of Arbitration
is more at times.
I do strongly feel that Arbitration is costly and it is more so, when the
sitting fee is prescribed for an Arbitrator. The fee of the Counsel too, in
Arbitration matters, would be high as he will be spending his substantial time
solely on one matter. But, many are not aggrieved at the fee prescribed by the
Court while appointing Arbitrators under section 11 of the Arbitration and
Conciliation Act, 1996 as the court will consider many issues when it comes
appointment and also when it comes to the remuneration to the Arbitrator.
5. Applications under
section 34 are preferred very frequently on interim orders passed by the
Arbitrator in an Arbitration proceeding and it delays the entire Arbitration
proceeding at times.
Every order should be appeallable as otherwise; there will be grave
injustice at times. Very frequently, and in a domestic arbitration proceeding,
an application under section 34 of the Act is filed challenging the
interim-orders of the Arbitrator. While I do not want to deal with as to when
an application under section 34 is to be allowed to proceed, I strongly feel
that applications under section 34 should be allowed to proceed, unless there
is a strong case. Under Civil Procedure Code, 1906, all interim orders are not
appeallable though there is an availability of filing Civil Revision Petition
when an order is not appellable. But, at times, the pendency of applications
under section 34 of the Act, delays the Arbitration proceeding, but, still,
there is no other effective way of dealing with it and only thing is that the
court entertaining applications under section 34 of the Arbitration and
Conciliation Act, 1996 to be careful in allowing the application to be pending
or to proceed further.
Ozg Sarfaesi / DRT Lawyer
Ahmedabad | Pune |
Kolkata | Bangalore | Delhi | Mumbai
VoIP Text / Phone
# 09811415837-61-72-84-92-94
Website: http://sarfaesi.ozg.in
Email: debt@liaisoning.com