Arbritration

What is Arbitration law?
Arbitration is the dispute settlement process between two agreeable parties to appoint an arbitrator to give a binding solution on the dispute. It is a way to settle disputes outside the courts thereby saving time and resources at the same time.

Arbitration is a legal mechanism encouraging settlement of disputes between two or more parties mutually by the appointment of a third party whose decision is binding on the parties referring the said dispute.

Arbitration is an effective way of expediting resolution of disputes in these modern times when there is scarcity of time.

All disputes however are not arbitrable and there are certain disputes which fall outside categories of arbitrable disputes as held by the Hon’ble Apex Court in the matter of Booz Allen and Hamilton Inc V. SBI Home Finance Ltd. These are:

a) criminal offences
b) guardianship matters
c) insolvency and winding up proceedings
d) matters of probate, letters of administration, succession certificate etc
e) eviction proceedings
f) patents, trademarks, copyright
g) Anti Trust/ competition laws
h) Bribery/Corruption Laws
i) Fraud

International Commercial Arbitration
Section 2 (1) (f) of the Arbitration and Conciliation Act 1996 defines International Commercial Arbitration as under:
“an arbitration relating to disputes arising out of legal relationships, whether contractual or not, considered as commercial law in force in India and where at least one party is:
(a) An individual who is a national of, or habitually resident in, any country other than India
(b) A body corporate which is incorporated in any country other than India
(c) A company or an association or a body of individuals whose central management and control is exercised in any country other than India
(d) The government of a foreign country

International Commercial Arbitration is a means of resolution of disputes that arise under the commercial contracts, which are international in nature.

An arbitration that is often an alternative to litigation wherein the parties to the arbitration mutually control the terms thereby avoiding their national legislation or rules of procedure.

An arbitration to resolve cross border disputes without having to file in national courts thereby avoiding long and technical procedures of national courts.

As per the Article 1 (3) United Nation Commission on International Trade Law (UNCITRAL) arbitration is international when :

a) Parties to the arbitration agreement have at the time of the conclusion of the agreement, their places of business in different states
b) One of the following places is situated outside the State in which parties have their places of business:
i)The place of arbitration, if determined in or pursuant to, the arbitration agreement, is situated outside the State in which the parties have their place of business
ii)Any place where a substantial part of the obligations of the commercial relationship is to be performed or the place with which the subject matter of the dispute is most closely connected
iii) The parties have expressly agreed on the subject matter of the arbitration agreement, relates to more than one country.

Need for Arbitration
Advancement, liberalisation and globalisation of international business relations necessitated the invention of a flexible, reasonable, favourable and time saving method of resolution of disputes without making the parties to go through the rigorous, time consuming and resource exhausting procedure of the traditional justice delivery system.

Advantages of Arbitration
a) Minimalization of court intervention
b) Reduction in costs of dispute redressal and resolution
c) Expeditious and timely disposal
d) Enforcement of awards through neutrality of arbitrator
e) Encouragement of foreign investment by recognising the country as that having a sound legal framework
f) Effective conduct of and maintaining sound foreign relations

All these have boosted the need for Arbitration in these modern times.

International Commercial Arbitration has risen as an agreeable mechanism to effectively resolve cross border commercial disputes and ensuring the preservation of cross border business relations.

The expertise of the International Commercial Arbitrators armed with the proper knowledge of international laws governing international trade and customs of the parties have made the international commercial arbitration as a quintessential ingredient of international dispute redress/resolution process.

Applicable Legislation / Mechanism of Arbitration
The Indian law with respect to the arbitration is largely based on the English Common Law. The Indian arbitration is governed and regulated by the Arbitration and Conciliation Act 1996, which derives its basis from the 1985 UNCITRAL model on International Commercial Arbitration and the UNCITRAL Arbitration Rules of 1976.

The earlier existing statutory provisions of Arbitration in India were contained in three enactments namely:

a) The Arbitration Act 1940
b) The Arbitration (Protocol and Convention) Act 1937
c) The Foreign Awards (Recognition and Enforcement) Act 1961

The above mentioned acts were thereafter repealed by the Arbitration and Conciliation Act 1996.

In 2015, the Arbitration and Conciliation Act of 1996 further stood amended by the Arbitration and Conciliation (Amendment) Act of 2015 to improvise the face of arbitration in India.

The Arbitration and Conciliation Act 1996 as amended in 2015 brings within its purview:

a) Domestic Arbitration
b) International Commercial Arbitration
c) Enforcement of Foreign Arbitral Awards

The said act defines Arbitration in Section 2 (1) (a) as “any arbitration relating to disputes arising out of legal relationships, whether or not administered by permanent arbitral institution.”

Section 2 (1) (f) of the Arbitration and Conciliation Act 1996 defines International Commercial Arbitration as: “An arbitration relating to disputes arising out of legal relationships, whether contractual or not, considered as commercial law in force in India and where at least one party is :

(a) an individual who is a national of, or habitually resident in, any country other than India
(b) a body corporate which is incorporated in any country other than India
(c) a company or an association or a body of individuals whose central management and control is exercised in any country other than India
(d) the government of a foreign country”

Section 7(1) of the Arbitration and Conciliation Act 1996 (amended in 2015) defines Arbitration Agreement as :

An agreement that is submitted by the parties for the purpose of arbitration of all or some of the specific, which have arisen or which might arise between the parties. The relation between the parties has to be a legal relationship, which may or may not be a contractual relation.

There can be a whole separate agreement for the arbitration agreement or there can be a form of an arbitration clause in an arbitration agreement.

The arbitration agreement has to be in writing i.e. :

a) A document signed by both the parties
b) An exchange of letters, telegrams, information through electricity which also includes telecommunication
c) If in a contract, a reference has been made to the document to make the arbitration clause part of the agreement, then the part that consists of arbitrations clause is considered to be an arbitration agreement, as a whole provided that the contract is in writing and the intention is to make the arbitration clause part of the agreement.

The enactment of the Arbitration and Conciliation (Amendment) Act 2015 has greatly improved the scope of Arbitration in India as now:

a) Provisions also apply to the International Commercial Arbitrations even if the place of arbitration is outside India;
b) The courts are to refer the parties to arbitration except where a valid arbitration agreement does not exist;
c) In case of interim orders passed by courts before the commencement of arbitral proceedings, proceedings to commence within 90 days of the order or such time as specified by court;
d) Courts to accept application only if court thinks that it will be able to provide remedy;
e) Includes such awards that are even in contravention of fundamental policy of India Law or even if in contravention of notions of morality of justice;
f) Courts only to confine itself to the examination of the existence of a valid arbitration agreement;
g) Arbitral tribunal to make its award within 12 months extendable by a further period of 6 months. The arbitral tribunal to receive additional fees if awards is given in 6 months and the fees of the arbitrator to be reduced by upto 5% for each month of delay beyond the specified time;
h) Awards made before court must be disposed off within period of one year;
i) Parties can choose to conduct arbitration proceedings in a fast track manner.

Types of Arbitration
Ad hoc Arbitration: Conduct of arbitration by the tribunal following the rules already agreed between the parties or following the rules laid down by tribunal in case of non existence of agreement between parties. Ad hoc arbitration helps in a greater control over arbitration process, flexibility to decide the procedure and also ensures cost effectiveness. However the success of the ad hoc arbitration is ensured only in case of mutual agreement of parties.

Institutional Arbitration: Administration of arbitration in accordance with the rules of procedure of an institution. The same provides for important aspects of arbitration such as appointment of arbitrators, managing the arbitration process, identifying venues for holding arbitration hearings. Many such indian arbitrations are administered by international arbitral institutions such as Court of Arbitration of the International Chamber of Commerce, the Singapore International Arbitration Centre, and the London Court of International Arbitration.

There are at the moment 35 Arbitral Institutions in India for a) Domestic; b) International; c) PSUs; d) Trade and merchant associations; and e) City specific chambers of commerce and industry

Such institutions either have their own rules or are governed by the rules of UNCITRAL.

This form of arbitration helps in getting a clear set of arbitration rules, a clear timeline to conduct arbitration, panel of arbitrators to choose from, assistance from highly trained staff, helps when parties lack proper knowledge regarding arbitral proceedings.

The success of this mode of arbitration is thwarted by lack of creditworthy institutions, lack of governmental support, lack of legislative support, no autonomy of parties over the arbitration process, delays in Indian courts, excessive interference and involvement in proceedings thereby discouraging foreign parties.

International Commercial Arbitration in India
It is a fact that recently in India the courts as well as the government have adopted a Pro Arbitration Approach. It has been accepted that “the Government of India is actively supporting International Arbitration as a fair and legitimate means of resolving International Business Disputes.”

A perusal of the recent judgments as passed by the Supreme Court of India would show that the courts now hardly interfere in the arbitration process thereby enabling the tribunals to deal with the issues on the subject referred to it.

It is now held that the “basic principle which must guide judicial decision making is that Arbitration is essentially a voluntary assumption of an obligation by contracting parties to resolve their disputes through a private tribunal” and that “the duty of the court is to impart to that commercial understanding a sense of business efficacy.”

Upholding the minimum interference of the courts in arbitral proceedings, the Hon’ble Supreme Court further held that, “the courts need to remind themselves that the trend is to minimize interference with arbitration process as that is the forum of choice. That is also the policy discernable from the 1996 Act. Courts must be extremely circumspect and indeed reluctant to thwart the arbitration proceedings. Thus, while courts in India may have the power to injunct arbitration proceedings, they must exercise that power rarely and only on the principles analogous to those found in sections 8 and 45 as the case may be of the 1996 Act.”

The arbitration approach of the Hon’ble Supreme Court of India was further reflected in a recent judgment wherein it was held that the decision while dealing with an application under Section 11(6) of the Act, the Court should not decide on merits of whether it is a dispute relating to excepted matters under the agreement in question or not.”

Upholding the exclusivity of arbitration, the Hon’ble Supreme Court in Indus Mobile Distribution Private Ltd vs Datawind Innovations Private Limited and Ors has held that “the moment the seat is designated, it is akin to an exclusive jurisdiction clause.”

The Hon’ble Supreme Court in a recent case has held that the enforcement of an award through its execution can be filed anywhere in the country where such decree from the court, which would have jurisdiction over the arbitral proceedings.

Further, in a recent judgment of the Hon’ble Supreme Court of India further promoting the arbitration by enabling execution of foreign awards in India without payment of stamp duty, it has been held that, “since a foreign award is not contained within the expression “award” in item 12 of the Schedule I, it is not taxable under the Indian Stamp Act 1899.”

In India, the International Commercial Arbitration is categorised into two broad concepts :

1) International Commercial Arbitration with seat in India (Part 1 of the Act)

2) International Commercial Arbitration with seat outside India (Part 2 of the Act)

The Hon’ble Supreme Court of India in order to clarify and streamline the law of Arbitration in a catena of judgments held the India Courts to have no role at all in case of foreign seated arbitrations as to such cases Part 1 would not be applicable but only Part 2 will be applicable.

The decision of the Hon’ble Supreme Court of India in BALCO overruling the earlier Bhatia International vs Bulk Trading judgment has thus steered the arbitration law in India in the right direction.

Following the footsteps of the Hon’ble Supreme Court of India, the Bombay High Court and the Calcutta High Court have reaffirmed that Part 1 of the Act will not be applicable in foreign seated arbitrations.

It is not out of place to mention that the Hon’ble Supreme Court and the Hon’ble High Court have time and again defined the importance of arbitration.

Some of the important judgments are:

The Hon’ble Supreme Court in the SAIL judgment held that, “the arbitrator having being made the final arbiter of resolution of disputes between the parties, the award is not open to challenge on the ground that the arbitrator has reached the wrong conclusion.”

The Hon’ble Delhi High Court in Sarvesh Chopra vs Ircon International Ltd held that, finding of a fact, which is not perverse, ought not to have been looked into by the court. It was further held that courts while adjudicating under Section 34 of the ACT should be loathe toenter upon the factual arena to assail the impugned award.

It is also not out of place to mention the judgement of the Hon’ble Supreme Court in Shree Ram Mills Ltd vs Utility Premises Pvt Ltd wherein it was held that “if the dispute under the contract are under negotiation or consideration, then the limitation for arbitration would be deemed to have not commenced.” It was thus clarified that when the parties are actively trying to resolve the dispute, then the cause of action for resorting to arbitration cannot be said to have commenced.

The Hon’ble Supreme Court of India, clarifying the scope of Section 34 of the Act, held that the scope of the section is limited to the stipulation contained in Section 34(2) of the Act of 1996. The words in Section 34(2) that “An arbitral award may be set aside by the court only if” are imperative and take away the jurisdiction of the court to set aside the award on any of the grounds specified in the section. It was clarified that the court is not expected to sit in appeal over the findings of the arbitral tribunal or to re appreciate evidence as an appellate court.

The Hon’ble apex court in the Union of India vs Ambika Construction, deciding on the rate of interest awarded in the Arbitration awards, held that the rate of interest is to be awarded and calculated from the date the arbitration was invoked till the final realisation of the amount.

The Hon’ble High Court in a recent judgment also held that agreement prohibiting award from interest only prohibiting the claim for interest and not the arbitrator’s power to award interest.

The Hon’ble Supreme Court of India, defining the court’s jurisdiction under Section 34 of the Act in the case of Oil and Natural Gas Corporation Vs Saw Pipes Ltd, held that the courts are to intervene if there is patent illegality arising from statutory provisions or contract provisions or if the award shocks the conscience of the court.

Whether the challenge to an Award under Section 34 of the Arbitration and Conciliation Act operates as automatic ‘Stay’

Before the coming into effect of the Arbitration and Conciliation (Amendment) Act, 2015 (Amendment Act), the law as it stood was that filing of an objection petition under Section 34 of the Arbitration and Conciliation Act, 1996 (“Act”) would lead to an automatic stay of the impugned award. However, this scenario has changed after the coming into force of the Amendment Act, which has specified that mere filing of the petition under Section 34 would not lead to an automatic stay, but a separate application would be required to be filed in this respect.

A Division Bench of the Delhi High Court in Ardee Infrastructure Pvt. Ltd v. Anuradha Bhatia, FAO (OS) no 222/2016 has held on 06 January, 2017 that if the petition under Section 34 relates to an award which has been passed under the Act, un-amended by the Arbitration and Conciliation (Amendment) Act, 2015(“Amendment Act”), then an automatic stay would operate on the impugned award, by mere filing of such a Petition, even when such a Petition has been filed post the amendment.

The position before the Amendment Act

The pre-amendment scenario was that as soon as a Petition under Section 34 of the Act was filed, an automatic stay would operate on the award. This was the case owing to Section 36 of the Act, which read as under:-
“36. Enforcement.-Where the time for making an application to set aside the arbitration award under section 34 has expired, or such application having been made, it has been refused, the award shall be enforced under the code of Civil Procedure, 1908 in the same manner as if it were a decree of the Court.”

A plain reading of this section made it evident that until the application under Section 34 had been disposed off as being refused, the award would not have become enforceable. This implied that there would be an automatic stay on the award on the mere filing of the Petition under Section 34.

The Position after the Amendment Act

After the coming into effect of the Amendment Act 2015 , Section 36 of the Act was amended to read as follows:-
“36. 1. Where the time for making an application to set aside the arbitral award under section 34 has expired, then, subject to the provisions of sub-section (2), such award shall be enforced in accordance with the provisions of the Code of Civil Procedure, 1908, in the same manner as if it were a decree of the Court.

2. Where an application to set aside the arbitral award has been filed in the Court under section 34, the filing of such an application shall not by itself render that award unenforceable, unless the Court grants an order of stay of the operation of the said arbitral award in accordance with the provisions of sub-section (3), on a separate application made for that purpose.
3. Upon filing of an application under sub-section (2) for stay of the operation of the arbitral award, the Court may, subject to such conditions as it may deem fit, grant stay of the operation of such award for reasons to be recorded in writing: Provided that the Court shall, while considering the application for grant of stay in the case of an arbitral award for payment of money, have due regard to the provisions for grant of stay of a money decree under the provisions of the Code of Civil Procedure, 1908.”.

The change in the language of Section 36 makes the following things evident:-

i. Section 36(2) clearly specifies that filing of Section 34 application shall not by itself render the award unenforceable unless the Court grants a stay on a separate application made.

ii. Upon filing of the application, the stay is not to be granted as a matter of right, but the Court “may” in its discretion grant such a stay, subject to such conditions, and on recording of specific reasons.

iii. While granting such a stay provisions of the Civil Procedure Code, 1908, regarding stay of money decree need to be followed.

Section 36 under the Amended Act, therefore clearly does not make the stay on the impugned award automatic upon filing of Petition under Section 34.

However, the question of whether the new Section 36 would be applicable to a Petition under Section 34 would depend upon the applicability of the Amendment Act to these proceedings.

The applicability of the Amendment Act is governed by Serial No. 26 of the Amendment Act, which reads as under:-
“26. Nothing contained in this Act shall apply to the arbitral proceedings commenced, in accordance with the provisions of section 21 of the principal Act, before the commencement of this Act unless the parties otherwise agree but this Act shall apply in relation to arbitral proceedings commenced on or after the date of commencement of this Act.”

The applicability of the Amendment Act, to a Petition under Section 34 filed after 23.10.2015, but where the award had been passed before 23.10.2015, was discussed in the judgment of Ardee Infrastructure (Supra)

Interpretation given by Ardee Infrastructure (Supra)

The award in the present case had been passed on 13.10.2015 and the Petitions under Section 34 had been filed on 04.01.2016. The judgment analyzed the language of Serial no. 26 of the Amendment Act and decoded the words “arbitral proceedings” and “in relation to arbitration proceedings”.

This was done in light of the judgment of Thyssen Stahlunion Gmbh v. Steel Authority of India Limited, wherein the Court had held that the words, “in relation to arbitration proceedings” include not just the arbitration proceedings but also proceedings before the Court. The judgments of Tufan Chatterjee v. Rangan Dhar and New Tirupur Area Development Corporation Limited v. Hindustan Construction Company Limited were also analyzed wherein it had been held, that the use of the words “arbitral proceedings” specifically implied that the restriction provided under Serial no. 26 was limited, only to proceedings before the arbitral tribunal and not to the Court.

However, the division bench of the Delhi High Court did not agree with the view of the Calcutta High Court and Madras High Court in this respect. The Delhi High Court in the case of Ardee Infrastructure (Supra) was of the view that once an Arbitration has been conducted under the un-amended Act, it is a substantive right of a party to get it enforced under the un-amended Act.

This reading was in view of specific applicability of Section 6 of the General Clauses Act, which reads as under:-

“6. Effect of repeal. – Where this Act, or any [Central Act] or Regulation made after the commencement of this Act, repeals any enactment hitherto made or hereafter to be made, then, unless a different intention appears, the repeal shall not-
a. revive anything not in force or existing at the time at which the repeal takes effect; or
b. affect the previous operation of any enactment so repealed or anything duly done or suffered thereunder; or
c. affect any right, privilege, obligation or liability acquired, accrued or incurred under any enactment so repealed; or
d. affect any penalty, forfeiture or punishment incurred in respect of any offence committed against any enactment so repealed; or
e. affect any investigation, legal proceeding or remedy in respect of any such right, privilege, obligation, liability, penalty, forfeiture or punishment as aforesaid, and any such investigation, legal proceeding or remedy may be instituted, continued or enforced, and any such penalty, forfeiture or punishment may be imposed as if the repealing Act or Regulation had not been passed.”

Another reasoning which the Delhi High Court had used was that if it is assumed that the converse is true, and the Amendment Act is applicable to Court proceedings arising out of the old arbitrations but not to the old arbitration proceedings themselves, it would give rise to absurdity. The Amendment Act brought about amendments in Section 9 as well as Section 17of the Act. While Section 9 pertains to interim measures which may be directed by the Court prior, during arbitral proceedings or after the making of the award, Section 17 deals with the interim measures which may be ordered by an arbitral tribunal.

If it was to be accepted that the Amendment Act would apply to Court proceedings arising out of old arbitrations but not to proceedings before arbitral tribunals arising out of pending arbitration, then, in respect of arbitral proceedings commenced prior to 23.10.2015, the amended provisions would apply to proceedings under Section 9 of the said Act, but not to Section 17 thereof. This would result in a serious anomaly.

It is pertinent to note, that such a stand taken by the Division Bench of the Delhi High Court is also in stark contrast to the earlier single judge judgment of the Delhi High Court in Raffles Design International v. Educomp Professional Education as well as the single judge judgment of the Bombay High Court in Kochi Cricket Pt Limited . Board of Control for Cricket in India, wherein the Courts have observed that there is a difference between the terms “arbitration proceedings” and “in relation to arbitration proceedings” and it is owing to this discussion that although the Amendment Act is applicable to Court proceedings arising out of old Arbitrations, it is not applicable to arbitration proceedings initiated under the old Act.

The long-standing debate with respect to the applicability of the amended provisions of the Arbitration and Conciliation Act, 1996 (the Arbitration Act) received some clarity on 15 March 2018, when the Supreme Court of India in Board of Control for Cricket in India v. Kochi Cricket Pvt. Ltd. and Ors. in CA No 2879-2880 and other similar petitions decided on the issue. The question before the Apex Court was whether the 2015 amendments to the provisions of the Arbitration Act would apply to arbitrations or arbitration related court proceedings that already existed on the date of coming into force of the amendments i.e., 23 October 2015.

The Supreme Court has now considered the various positions possible on the issue and upheld the Bombay High Court’s decision. The Supreme Court decision will have a major impact on all pending arbitration matters, including on pending challenges to arbitral awards. In a nutshell, the Supreme Court has held that the amendments to the Arbitration Act will apply to: (a) arbitral proceedings (before the arbitral tribunal) commenced on or after the date of the amendments coming into force; and (b) applications (arbitration-related court proceedings) filed on or after the amendments came into force, even where the arbitral proceedings were commenced before the amendments came into force.

However, the Supreme Court has also held that, in at least certain circumstances, the amended provisions of the Arbitration Act will apply even to applications (arbitration-related court proceedings) pending on the date of commencement of the amendments. To reach its final determination, the Supreme Court considered the contentions raised by the opposing parties.

On the one hand it was argued that a new law in the form of amendments to the Arbitration Act could not be applied retrospectively. On the other hand, the parties opposing the same argued that procedural amendments to the Arbitration Act could be applied retrospectively.

The apex court also took into consideration various other acts, judgments and authorities while making its decision, as well as the Parliamentary debates and Law Commission Report that preceded the passing of the amendments to the Arbitration Act. Section 34 of the Arbitration Act permits an aggrieved party to challenge an arbitral award by filing a petition in court. Before the amendment of the Arbitration Act, the filing of a Section 34 petition would automatically lead to the stay of court proceedings for execution of the arbitral award under Section 36 of the Arbitration Act.

The amendments to the Arbitration Act remove this automatic stay and require a separate application to be filed to seek a stay of execution proceedings. This application may require a deposit to be made, and will only be granted at the discretion of the court instead of being routinely applied. The Supreme Court decision means that even for pending arbitration proceedings commenced before the amendments to the Arbitration Act were brought into force, the amended provisions of the Section 36 of the Arbitration Act will apply. In other words, even if an arbitration had already started before the amendments were enacted, no automatic stay will apply if an application is filed challenging the award in such proceedings.

The Supreme Court has even gone so far as to say that the amended provisions of Section 36 should apply even where an application under Section 34 has been filed before the Arbitration Act was amended. The Supreme Court decision therefore confirms the Bombay High Court decision completely. It is clear that the Supreme Court has interpreted the amendments to the Arbitration Act purposively, in order to give effect to the intention of Parliament to address the unfairness of the unamended Arbitration Act provisions.

The judgment is bound to be treated as the most authoritative on the debated issue of the applicability of the amended Arbitration Act. However, for individuals and companies involved in arbitration, the Supreme Court judgment means that even for pending arbitration proceedings, they must comply with the amended provisions the Supreme Court judgment means that even for pending arbitration proceedings, they must comply with the amended provisions of the Arbitration Act with respect to new arbitration-related court proceedings and court applications of the Arbitration Act with respect to new arbitration related court proceedings and court applications.

In the case of pending Section 34 proceedings, the stay against execution of arbitral awards obtained by institution of these proceedings will not continue – new applications will have to be filed to request that such a stay be continued.