Arbitration

Indian Council of

Arbitration

INDIAN COUNCIL OF ARBITRATION







India's Apex

Arbitral Institution

INDIAN COUNCIL OF ARBITRATION th

India's Apex

Arbitral Institution

Arbitration Quarterly

YEAR

ANNIVERSARY CELEBRATIONS







Alternate Dispute

Resolution Mechanisms

In The Indian Context



Inherent Advantages of ADR

Mechanisms Over Litigation



Powers and Duties of Arbitrator



Negotiating and Drafting of An Arbitration

Agreement



International News









INDIAN COUNCIL OF ARBITRATION









Biggest Achievement



IFCAI's Conference - 2007

(International Federation of Commercial Arbitral Institution)

New Delhi, 2007



Indian Council of Arbitration Journal Vol XL/No. 3 October - December, 2005

Conference on "Dispute Prevention & Resolution"

October 8, 2005 - Ludhiana









Mr.Onkar S Kanwar, President, ICA Mr. Saroj Kr. Poddar, Sr. Vice President, ICA Mr. D M Popat, Vice President, ICA









1. Hon'ble Mr. Justice Ashok Bhan, Judge, Supreme Court of India lighting the lamp Standing from left to right Hon'ble Justice A K Sikri, Judge, High Court of

Delhi, Mr. P C Markanda, Senior Advocate and Member, ICA Governing Body, Hon'ble Justice D K Jain, Chief Justice, Punjab & Haryana High Court, Mr. G K

Kwatra, Executive Director, ICA, Mr. Harbans Lal, District a Session Judge, Ludhiana 2. Mr. P C Markanda, Senior Advocate Member, ICA Governing Body,

delivering the WelcomeAddress. (seated from L to R :Hon'ble Mr. JusticeA K Sikri, Judge, High Court of Delhi, Hon'ble Mr.Justice D K Jain, Chief Justice, Punjab

& Haryana High Court, Hon'ble Mr. Justice Ashok Bhan, Judge, Supreme Court of India and Mr. G K Kwatra, Executive Director, ICA) 3. Hon'ble Mr.Justice

Ashok Bhan, Judge, Supreme Court of India inaugurating the Conference. 4. Hon'ble Mr. D K Jain, Chief Justice, Punjab & Haryana High Court delivering the

ote

Keynote address. 5. Mr. G K Kwatra, Executive Director ICA, proposing the V of Thanks 6. Hon'ble Mr.Justice AK Sikri, Judge, High Court of Delhi Chairing

the Business Session I. Addressing the Session I 7. Mr.A K Ganguli, Sr. Advocate, Supreme Court 8. Mr.Anupam Gupta, Advocate. 9. Prof.Virender Kumar.

10. Mr.B B S Sobti, Advocate. 11. Mr.P K Jain, Advocate. 12. Dr.Balram K Gupta, Sr. Advocate. 13. Mr.Ajay Gaind, Advocate. 14. Dr.Devinder Singh,

University Institute of Laws, Ludhiana.









Mr. Justice A K Sikri, Judge, High Court of Delhi chairing Session I of the conference

C O N T E N T S



Editorial Board Topic Page



Mr. Onkar S. Kanwar ALTERNATE DISPUTE 1

Mr. D. M. Popat RESOLUTION MECHANISMS IN

Mr. O. P. Goel THE INDIAN CONTEXT

Mr. P. C. Markanda Justice Ashok Bhan, Judge, Supreme Court of India

Mr. Yakesh Anand

Mr. G. K. Kwatra INHERENT ADVANTAGES OF ADR 5

MECHANISMS OVER LITIGATION

Editor Justice D. K. Jain, Chief Justice,

S. L. Khurana Punjab & Haryana High Court



POWERS AND DUTIES OF ARBITRATOR 8

Editor's Note P.C. Markanda, Senior Advocate

Readers are requested to seek

NEGOTIATING AND DRAFTING OF AN 15

proper legal advice before acting

ARBITRATION AGREEMENT

upon the material contained in this

Sunil Malhotra, Advocate

Quarterly



The views expressed in the articles News Clipping 22

are those of the authors and are not

necessarily those of ICA International News 23



ICA Arbitration Quarterly is

distributed free to its members. It is

also available online at

www. ficci/ica.net for its interested

readers









ICA welcomes contributions and invites our readers and members to send their contributions in the form of news, reviews, articles and

materials of interest for publication in future issues.

! The articles may be sent to The Editor, Indian Council of Arbitration, Federation House, Tansen Marg, Delhi 110001 or to

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! The submission of the article and acceptance thereof by the publisher shall imply automatic transfer of all the copyrigh ts of the

author to the publisher of this Quarterly

ICA also welcomes any suggestion for improvement of the Quarterly

Indian Council of Arbitration





ALTERNATE DISPUTE

RESOLUTION MECHANISMS IN

THE INDIAN CONTEXT*



In early 1990 India decided to move away from an

apparent mixed economy stance to adopt market

oriented reforms with the aim of globalisation and thus

get to play an increased active role in the international

Justice Ashok Bhan economic world. This requires strategies for swifter

Judge, Supreme Court of India resolution of disputes by lessening the burden on the

courts and to provide means for expeditious resolution

Hon'ble Mr. Justice D.K. Jain, Chief Justice of Punjab of disputes. The Arbitration Act of 1940 had proved

and Haryana High Court, Mr. P.C. Markanda, Member, ineffective for early settlement of disputes by

Governing Body, and Mr. G.K. Kwatra, Executive arbitration. To bring the arbitration laws in consonance

Director, Indian Council of Arbitration. with the International Economy Arbitration, the

Indian Legal system though fair and powerful is awfully Parliament enacted the Arbitration and Conciliation

overcrowded and therefore slow. The disputes in law Act, 1996. It is based on the United Nations

courts linger on for decades. The delay in decision of Commission on International Trade Law

cases undermines the faith in the system as well as (UNCITRAL).

motivates the affected ADR is an abbreviation for

parties to get redressal of Alternative Dispute

their grievances by resorting

In Japan conciliation was

Resolution. ADR refers to

to unlawful means which historically the primary means of

all those methods of

gives rise to a law and order Dispute Resolution with the resolving a dispute which are

problem. village leaders ser ving as alternatives for litigation in

Courts as well as legislature Mediators the Courts. It is a decision

are trying to identify the making processes to resolve

causes of delay and to disputes that do not involve

remedy them by bringing about changes in the litigation or violence. ADR

substantive and procedural laws. Alternative forums includes Arbitration, Mediation, Conciliation,

for redressal of grievances are being identified and set Negotiation, Expert Determination, Early Neutral

up. In this context a Conference was convened on 4th Evaluation by a third person, Dispute Resolution

December, 1993 in which all the Chief Ministers and Boards etc. Emphasis throughout the world is

the Chief Justices of States participated. The changing towards adoption of ADR instead of court-

Conference was held under the Chairmanship of the litigation. It provides for quicker, less costly and

then Prime Minister of India which was presided over consensual resolution of civil disputes.

by the then Chief Justice of India. In that Conference The theme of this Conference is “Dispute Prevention

the Chief Ministers and Chief Justices came to the & Resolution”.

conclusion that the Courts were not in a position to

bear the entire burden of justice system and that a In conflicting human interests disputes are bound to

number of disputes lent themselves to resolution by arise. When we talk of dispute prevention it means

alternative modes such as arbitration, mediation and resolution of the disputes between the parties by mutual

negotiation. It was emphasised that advantage should understanding with the intervention of a wise well-

be taken of the alternative dispute resolution wisher without resorting to adjudicatory procedures.

mechanisms which provided to cut down the

* Excerpt from the Inaugural Address delivered by Hon'ble Mr. Justice Ashok

procedural delays resulting in saving of the valuable Bhan at the conference on "Dispute Prevention and Dispute Resolution" held at

time and money of the litigant public. Ludhiana on October 8, 2005



1

ALTERNATE DISPUTE RESOLUTION MECHANISMS IN THE INDIAN CONTEXT





INDIAN COUNCIL OF ARBITRATION







India's Apex

Arbitral Institution





This can be achieved through the method of final result depends on the will of the parties. In such

Conciliation and Mediation between the parties. type of methods the resolution of conflict by

Conciliation is a viable procedure for settlement of conciliation, emotional harmony between the parties

disputes. There is not much difference between does not suffer. There is a caveat to the resolution on

mediation and reconciliation. By this method the dispute by conciliation to have it effectively

disputes are handled in a way which deals with implemented. It is necessary to have trained

underlying causes of conflict. It mends relationship. It conciliators at the disposal of Courts so that regular

is an informal method of dispute resolution. It places cases can be disposed of with the aid of parallel

emphasis on peace and harmony over conflict, mechanism thereby unburdening the Courts and thus

litigation and victory. reducing judicial delays.

Many a times, conciliation and mediation are used Resolving disputes through arbitration is an important

interchangeably and they are together referred to as and stimulating theme of contemporary relevance. A

Mediation. A Mediator assists the parties to reach an dispute is 'lis inter partes'. It is a dispute between two or

agreement for resolving the dispute and he does not more parties, where a right is asserted by one or more

express his opinion on the merits of the dispute, parties against the specified persons and those persons

whereas a Conciliator may express an opinion about the deny that right or claim either totally or partially.

merits of the dispute. In both these methods a third Resolving of such a dispute or litigation through the

party is appointed to assist the parties to reach a Courts and Tribunals established by the State is

settlement of their dispute. Mediator is not given any cumbersome, expensive and time consuming. Persons

power to impose a settlement. His function is only to with enormous sources are likely to win the game.

try to break any deadlock and encourage the parties to Litigation involves a lot of delay given the appeals,

reach a settlement. revision/review including the constitutional remedies.

Once there is delay, obviously the litigation process will

It is a non-binding procedure in which a conciliator become expensive. When we talk of expenses, it is not

assists the parties in a dispute to understand pros & just a fee paid to an advocate or the Court fee, it includes

cons of the respective positions taken by them in the cost of conveyance to the office of the advocate,

relation to a dispute. Unlike Courts, Tribunals and Courts, loss of man days and the psychological trauma

Arbitrators the conciliator does not give a decision, his one goes through in sustaining the litigation.

function is to induce the parties in the dispute to come Arbitration is preferred over traditional litigation

to a settlement. because arbitration is generally less expensive than

Conciliation is essentially a consensual process. Under litigation. It provides for faster resolution of disputes

the Arbitration and Conciliation Act, 1996 it has the through adjustable time schedule and simpler rules of

statutory sanction. The settlement arrived at by procedure. In disputes involving technical details an

conciliation can be enforced as a decree by virtue of expert in the field is appointed as arbitrator who can

Section 36 of the said Act. decide the dispute without the intervention of lawyers

or other representatives with major gains in speed and

In Japan, conciliation was historically the primary economy.

means of dispute resolution with village leaders serving

as the mediators. In India as well the Panchayats The arbitration can be of two types, namely, ad hoc and

resolved the differences and disputes between the institutional. Ad hoc arbitration is where the two

parties. Even now the same system is prevalent. parties mutually agreed, either the sole arbitrator or two

Indian system still places emphasis on resolution of or more persons to resolve their disputes. Another

disputes by negotiation which is purely conciliatory. method of appointing arbitrators is through the

Courts and Arbitrator decide the dispute after a contest intervention of Court by filing an application under

between the parties, while in the case of conciliation the Section 11 (6) of the Indian Arbitration and



2

Indian Council of Arbitration





INDIAN COUNCIL OF ARBITRATION







India's Apex

Arbitral Institution



arbitrator for amicable settlement of the dispute in the

Conciliation Act, 1966. Institutional arbitration is family. Similarly, common friends in whom both the

administered by an arbitral institution. The parties may parties have faith are appointed as Arbitrator and the

stipulate in the arbitration agreement, to refer an award given by him is taken to be the final and

arbitral dispute between them for resolution to a acceptable.

particular institution. Some of the Indian Institutions

are Indian Council of Arbitration (ICA), Federation of Before the enactment of 1996 Act, statutory provisions

Indian Chamber of Commerce and Industry (FICCI), on arbitration were contained in three different

International Centre for enactments, namely, the Arbitration Act, 1940, the

Alternative Dispute Arbitration (Protocol &

Resolution (ICADR). Convention) Act, 1937 and

The concept of Arbitration

Similarly, international t h e F o r e i g n A wa r d s

revolves around the agreement (Recognition &

institutions are International

Chamber of Commerce between two parties to get their Enforcement) Act, 1961.

(ICC), Paris, London Court disputes settled from a third Domestic arbitrations were

of International Arbitration conducted under the 1940

person

(LCIA), American Act while the other two acts

Arbitration Association dealt with foreign awards.

(AAA), World Intellectual The Arbitration and

Property Organization (WIPO). All these institutions Conciliation Act, 1996 has repealed these three Acts

have rules expressly formulated for conducting of and consolidated and amended the law relating to

arbitration. domestic arbitration, international commercial

arbitration and enforcement of foreign arbitral awards

Indian Council of Arbitration is the undisputed leader on the basis of the Model Law on International

in the dispute resolution services in India for the last 37 Commercial Arbitration adopted by the United

years or so. Indian Council of Arbitration has been Nations Commissions on International Trade Law.

providing users of arbitration with an unrivaled array

of time-tested services that include ICA Arbitration, The President of the United States of America

ICA Conciliation and ICA Maritime, as well as Abraham Lincoln about 140 years back observed:

education and training programs. Panel of arbitrators “ Discourage litigation. Persuade your neighbours to

maintained by the Indian Council of Arbitration compromise, whenever you can. Point out to them the

includes persons from various professions and nominal winner is often a real loser; in fees, expenses

business, lawyers, Chartered accountants, Engineers and waste of time. As a peace-maker, the lawyer has a

etc. whose competence, integrity and impartiality is superior opportunity of being a good person.”

undisputed.

According to the proponents of settlement of dispute

The concept of arbitration revolves around the through alternative methods the disputes can be settled

agreement between two parties to get their disputes faster and less expensively. It would relieve docket

settled from a third person and such settlements have congestion in the Courts. At times it provides broader

executable legal recognition. Arbitration has several access to those who are unable to afford traditional

advantages over the traditional legal systems including litigation. According to certain social scientists and

lower costs of proceedings, the time factor in other scholars ADR mechanisms would yield remedies

adjudication of disputes and the avoidance of lengthy better tailored to parties' unique needs and more direct

and complicated procedures. In India the system of involvement of disputants would encourage greater

settlement of disputes through arbitration has always compliance with outcomes and help rebuild ruptured

been prevalent. Invariably we hear that a common relationships. However, the experience of past few

relation of the parties in a family dispute acts as an



3

ALTERNATE DISPUTE RESOLUTION MECHANISMS IN THE INDIAN CONTEXT





INDIAN COUNCIL OF ARBITRATION







India's Apex

Arbitral Institution



decades has shown that arbitration is neither give its decision as well as fees are fixed or linked to the

inexpensive nor time saving. ADR is not without formula for determining the fees.

faults. ADR processes like adjudicatory procedures

have advantages and disadvantages which make them Despite the apprehension expressed and debate over

suitable for some cases but not for others. the merits of the ADR it continues to grow as a

preferred method of dispute resolution in commercial

If the settlement by adopting the method of ADR is and employment law group insurance, it is expanding

final and not challengeable or appealable further in a to the areas of construction, health care,

court of law except in a case of fraud, it is of course a telecommunication, intellectual property,

tremendous advantage. In cases where Court has been entertainment and technology based industries.

given the authority to review the outcome, the

advantage does not appear to be real on account of first ADR as an alternative method deserves to be applied to

spending time before the arbitration Tribunals and then the litigation at the subordinate and High Court level

in Courts. It ends up in spending more money and especially in respect of ordinary traditional litigations

time. Some critics fear that ADR's negotiation based mostly money and property related disputes. Litigants

approach may dis-empower vulnerable parties with have to be made aware of the advantage of adopting

limited bargaining strength particularly civil rights and ADR system. It is the duty of the Bench and the Bar to

family disputes. The system of ADR is imposed on propagate the advantage of resolution of disputes

employees, clients, customers, patients, franchises and through alternative methods. Generally party to a

licencees by the powerful Government and private dispute who has obtained an injunction or ad-interim

enterprises. The powerful enterprises and institutions relief tries to delay the proceedings and resist the

are at an advantage being able to choose and resolution of dispute by alternative means. The

manipulate process that will be used to enforce Presiding Officer should take note of this count and if

substantive rights. he is of the opinion that a party is trying to delay the

matter heavy costs should be imposed on such a party.

Appointment of three arbitrators results in heavy Similarly, lawyers should convey the benefits of the

expense. The arbitrators appointed by the parties resolution of the dispute through alternative means. It

invariably give the decision in favour of the party which would be unethical for a lawyer or I should say

has appointed them and the opinion of the third unprofessional for a lawyer to help a litigant to delay the

neutral arbitrator or the presiding arbitrator becomes matter. After-all, all of us are serving the cause of

crucial. In fact, it is the decision of the third arbitrator justice. It is the duty of the practicing lawyer to help the

only which decides the case. If such be the case, then court in early disposal of cases. Government or big

what is the use of appointing three arbitrators or why Corporations in the public sector like Life Insurance

the parties should be given a choice to appoint their Corporation and other Insurance companies which are

own arbitrators. If the parties agree to the the biggest litigant should come forward to resolve the

appointment of multi-member arbitration board so disputes between them and the individuals through

that more than one person applies his mind to the alternative means. Litigants fr ustrated with the delays

problem then all the three neutral arbitrators should be in resolution of disputes some time take law into their

appointed. In some cases the arbitration proceedings hands which results in law and order problem. It

drag for a number of years and the arbitrators charge creates unrest in the society which disturbs peaceful

fees per sitting which increases the litigation costs living.

abnormally. Some times the arbitrators try to charge

'reading fee' which according to me is totally I am grateful to the organizer of this Conference for

unjustified. The arbitrators should be asked to give the providing this opportunity to share my views with all of

decision within a specified time and their fees should you.

also be fixed. Under the rules of Indian Council of

Arbitration the arbitrational Tribunal is time bound to

4

Indian Council of Arbitration





INHERENT ADVANTAGES OF ADR

MECHANISMS OVER LITIGATION*





Now a days the time is of specialization. In certain

disputes like financial matters involving the individuals,

Hon'ble Justice D. K. Jain firms and even multinational companies, they do not

Chief Justice, Punjab & Haryana

High Court want to submit to the jurisdiction of the courts of

obvious reasons of delay, rigid procedural rules and

My Lord Hon'ble Mr. Justice Ashok Bhan, Judge, provisions of appeals and revisions. The simple logic is

Supreme Court of India, my esteemed colleagues from that both the parties are not interested in getting a

Delhi and Chandigarh, Mr. G.K. Kwatra, Executive proposition of law on any point laid down but they are

Director, Indian Council Arbitration, other dignitaries interested to settle their money matters and for that

on the dias, distinguished delegates, ladies and purpose they can even give up certain claims which they

gentleman. are otherwise entitled to. Thus, to meet the challenge of

delay and formalities, we have to find either the

I deem it a great privilege to have been given this alternative less formal court system itself. Thus, the

opportunity to address this Conference on “Dispute, need for devising new method, forging new tools and

Prevention and Resolution”, being hosted by the innovating new stratagem is beings felt to make the

Indian council of Arbitration in association with dispute settlement mechanism adequate in quality,

Federation of Indian chambers of Commerce and quantity and accessibility. It is in this vein that some

Industries. effective methods of dispute settlement between the

parties and potential litigants, known as alternative

A fair, just and quick process of resolution of disputes dispute resolution (ADR) have been devised.

is indispensable in any democratic society becoming Alternative dispute resolution is the terms which

more and more aware of their human and legal rights, identifies a group of processes through which disputes,

there has been a spurt in institution of cases in Courts conflicts and cases are resolved outside the formal

by the affected parties. The human and material litigation procedure.

resources to meet the ever growing demands in Courts

is inadequate, resulting in backlog of cases and delay in India today is in the process of liberalization,

the administration of justice. Our justice delivery Integration which global economy is going on

system is bursting at the seams and unless timely simultaneously. Business has overtaken politics in

measures are adopted, it have for the quick disposal of international relations. Many developed economic are

cases, particularly at the grass-root and in many cases keen to have business relation with India. Multinational

prevent the disputes from taking shape of legal

disputes. * Excerpt from the Keynote Address by Hon'ble Mr. Justice D K Jain, Chief

Justice, Punjab & Haryana High Court in the conference on "Dispute Prevention

and Resolution" held at Ludhiana on October 8, 2005



5

INHERENT ADVANTAGES OF ADR MECHANISMS OVER LITIGATION





INDIAN COUNCIL OF ARBITRATION







India's Apex

Arbitral Institution





companies have come up who are having business with of disputes through the process of arbitration would

India. But they cannot afford to wait for a long periods encourage more international trade. To cope up with

for resolution of their commercial disputes. the changing scenario, I am happy that India has

updated its arbitration legislation in order to provide a

The emergence of Prevention of Disputes and its level playing field for domestic and foreign

Resolution has been one of the most significant entrepreneurs. In using arbitration there is now a strong

movements as a part of conflict management and world wide trend to use institutional arbitration rather

judicial reform. In India, than the old practice of

prevention of disputes and Conciliation is as old as Indian adhoc arbitration, which is

settlement through alternative history... In Mahabharta, when not self enforcing and

mode is now an integral segment both the parties were deter mined where the parties have to

of modern practice. The to resolve the conflict in battle themselves make all the

popularly and effectiveness of fields, Lord Krishna attempted to a r r a n g e m e n t f o r

these alternatives has recently conciliate arbitration. Adhoc

led to the inclusion of section 89 arbitration are known to

in dispute for settlement by way of (a) arbitration, (b) be continuously suffering from different legal and

conciliation; (c) settlement through either of the practical problems, like rushing to court for orders on

alternative dispute resolution method, the suit would ordinary procedural matters and even in fixation of

proceed further in the Court. their fees itself- all this results in excessive delays and

increased costs.



ARBITRATION

Arbitral institutions, like the host Council, are necessary

because the evolutionary growth and development of

Arbitration is the main forum of disputes prevention

arbitral institutions sponsored by trading, commercial

and its resolution. Structurally and culturally, we in

and industrial bodies as well as government bodies, and

India should be more suited for arbitration as the

government departments and united nations at national

efficacy of the Punch Parmeshwar” system has

and international levels. The motto has always been

demonstrated over the centuries. May it be at local level,

“Arbitral Institutions are seen today as the provider of

national level of international level. Notwithstanding

alternative dispute resolution of civil disputes outside

talk for its getting expensive day by day and the delay in

the court system.

dispute resolution, the arbitration process has still

proved to be an between the litigating parties. Multi

national Companies have opened their doors for CONCILIATION AND MEDIATION

transfer of resources and technology to India but they

are certainly afraid from entering in to commercial Conciliation and Mediation is also emerging another

transaction with our country only on account of delay popular from of ADR. In India, there is a long standing

involvement in this settlement of disputes. Settlement tradition of settlement of disputes by conciliation and

6

Indian Council of Arbitration





INDIAN COUNCIL OF ARBITRATION







India's Apex

Arbitral Institution



“To find out solution and save the system

mediation. Conciliation is as old as the Indian history. In Our attitudes should be different than

Mahabharata, when both parties were determined to before let us do different things, act

resolve the conflict in battle fields, Lord Krishna did different, think different, talk

make efforts to resolve the conflict. The concept aims different !

to facilitate the development of consensual solution by Instead of fights, why not have

the disputant with the third party, neutral playing the agreements !

role of non Partisan, that is the mediator or conciliator. Instead of resistance, why not have

Conciliation is a viable procedure for settlement of cooperation !

disputes. The best example of an individual mediation Instead of condemning, why not develop

is of a highly political sensitive case of Beagle Channel understanding !

dispute over the ownership of certain islands in the Instead of finding out who is right or

entrance to the channel between Chile and Argentina. Wrong, why not build relationanships !

This was the subject of an arbitral award in 1977 in Instead of rivalry, why not join together!

favour of chile by a Tribunal of five judges of the Instead of past, why not look at the future !

International Court of Justice. The award was totally Instead of win-lose situation, why not

unacceptable politically to Argentina. Eventually, in achieve win-win goals !

1984 the mediation of the pope, which was not based Let us change our horizons, visions,

on law, was successful in setting the dispute. I do not goals and attitudes !!!

propose to take more of your time on subject, except to with these words, I wish the Conference a

say that it is one thing to device alternative methods of grand success and once again express my

disputes settlement; it is quite another to make them gratitude for giving me this opportunity to

succeed in meeting the needs and aspirations of society. put forth my views.

In an effort to improve the prospects of success of the

alternative methods of dispute settlement, it is cardinal

that systematic and meaningful campaign aimed at

education the general public be mounted to persuade

members of the public to resort more and more,

wherever it is possible, to settle their dispute through

any of the forms of ADR. But above all, what is

required is the change in the mental altitudes, be it the

judges, lawyers or litigants. I would now like to quote

the following few lines penned by Mr. Niranjan Bhatt,

Advocate, an expert on mediation, for the course on the

theory and practice of mediation:







7

Indian Council of Arbitration





POWERS AND DUTIES OF

ARBITRATOR*





inconsequential or had not affected the mind of the

arbitrator or was of a trifling nature.



P.C. Markanda Adherence to the principles of

Senior Advocate natural justice



Duty to act fairly Section 1 of the Evidence Act excludes its application in

any arbitration matter which should not at all be taken to

Duty to act fairly is the first and foremost function of mean that he can act in the manner he likes or can act

an arbitrator. He must act in a fair and reasonable arbitrarily. He must act in accordance with the

manner to both the parties and in the arbitration principles of natural justice. It is now well settled that

hearings he must not show or exhibit favour towards an arbitrator is not bound by the technical and strict

one party more than towards the other and must refrain rules of evidence which are founded on fundamental

from doing for one party which he cannot do for the principles of justice and public policy. In proceedings

other. Showing undue favours to one party at the cost of arbitration, there must be adherence to justice,

of the other in matters handled by him would be looked equity, law and fair play in action. The proceedings

upon with suspicion by the must adhere to the

Courts. It was in this context principles of natural

that Donaldson J. in the In arbitration Proceedings, there justice and must be in

Myron, (1969)1 Lloyd's Rep. must be adherence to Justice, consonance with

411 (at page 415) observed Equity, Law and Fair play in action. practice and procedure

that "Mr.____ had, indeed, which will lead to

The proceedings must adhere to

been the arbitrator appointed proper resolution of

the principles of natural justice.

by them on several occasions dispute.

and was described before me

as their first choice arbitrator, The rule of natural justice requires that parties should

language more usually heard in the context of be given an opportunity to be heard by the arbitrators,

Smithfield or Covent Garden market produce than of a which means whatever material they want to place

well known arbitrator, but the meaning is clear before the arbitrators should be allowed to be placed.

enough." Oil & Natural Gas Commission Ltd.v. New India Civil

Erectors Pvt. Ltd., 1996 (Suppl) Arb LR 426 (DBBom).

The position of the arbitration is like that of Ceaser's

wife who should be above all suspicion. The Courts Where the arbitrator refuses to consider the

have continually held that rules of natural justice must contentions of the contractor and refuses permission to

be followed by the arbitrators including the principles produce evidence, inasmuch as directions were not

incorporated in the maxim audi alterem partem. given to the government to produce the record which

Ignorance of the rules of natural justice cannot be

.

* Paper presented by Mr. P. C. Markanda, Sr Advocate at the

defended on the plea that the evidence was conference on "Dispute Prevention & Resolution" held at Ludhiana on

October 8, 2005



8

Indian Council of Arbitration





INDIAN COUNCIL OF ARBITRATION







India's Apex

Arbitral Institution





had been withheld on the ground of privilege, without not prejudiced, S.L. Kapur v. Jagmohan, AIR 1981 SC

even indirectly or incidentally mentioning the nature 136: (1980)4 SCC 379.

and volume of the record held privileged, it was held

that these lacunas are the violations of the principle of Hearing in absence of one par ty

natural justice and denial of opportunity to the

An arbitrator would be guilty of misconduct if he is

contractor to press and prove his case. President of India

v. Kesar Singh, AIR 1966 J&K 113 : 1966 Kash LJ 287. charged with any information having been obtained

from one side which

In Mustill and Boyd's Law Principles of Natural Justice was not disclosed to the

and Practice of Commercial other. Such an

mandate that the person who is to

Arbitration in England, 1982 information may be

be prejudiced by the evidence

Ed., p. 261, the following oral or in writing. It is

must be given an opportunity to with this aspect in mind

cardinal rules have been

suggested for being followed suggest cross examination and to that the Legislature

by the arbitral tribunal in produce evidence to the contrary provided in Section

order to ensure fairness in 24(3) of the Act that

conducting arbitration “A l l s t a t e m e n t s ,

between the litigant parties: documents or other information supplied to, or

applications made to the arbitral tribunal by one party

1.Each party must have a full opportunity to shall be communicated to the other party, and any

present his own case to the tribunal. expert report or evidentiary document on which the

arbitral tribunal may rely in making its decision shall be

2. Each party must be aware of his opponent's communicated to the parties”.

case, and must be given a full opportunity to test

and rebut it. An arbitrator must not be guilty of hearing one party in

the absence of the other. The principles of natural

3. The parties must be treated alike. Each must justice mandate that the person who is to be prejudiced

have the same opportunity to put forward his own by the evidence must be given an opportunity to

case, and to test that of the opponent. suggest cross-examination and to enable him to

produce evidence to counter. However, an exception

The above principles (Sr. Nos. 1 and 3) are in to the rule is that where an arbitrator took evidence at

consonance with Section 18 of the Act and the the back of one party, but decided the matter in favour

principle stated at Sr. No. 2 conforms to Section 23(1) of the absent party [Black vs John Williams & Co., 1924

of the Act. The principles of natural justice know of no S.C. (H.L.) 22].

exclusionary rule dependent on whether it would have

made any difference if natural justice had been When the arbitrator accepts documents from one party

observed. The non-observance of natural justice is in the absence of the other party, the arbitrator would

itself prejudice to any man and proof of prejudice be guilty of misconducting the proceedings because no

independently of proof of denial of natural justice is arbitrator can accept document from one party at the

unnecessary. It ill comes from a person who has denied back of the other. Padam Chand Jain v. Hukam Chand Jain,

justice that the person who has been denied justice is AIR 1999 Del 61.



9

POWERS AND DUTIES OF ARBITRATOR





INDIAN COUNCIL OF ARBITRATION







India's Apex

Arbitral Institution



"Misconduct under Section 30(a) has not a

The thread of natural justice should run through the connotation of moral lapse. It comprises legal

entire arbitration proceedings and the principles of misconduct which is complete if the Arbitrator on

natural justice require that the person who is to be the face of the award arrives at an inconsistent

prejudiced by the evidence ought to be present to hear it conclusion even on his own finding or arrives at a

taken to suggest cross-examination and to be able to decision by ignoring very material documents

find evidence, if he can, that shall meet and answer it. which throw abundant light on the controversy to

Wazir Chand Karan Chand v. Union of India, AIR 1989 help a just and fair decision.

Del 175.

In the instant case, the Arbitrator has

During the conduct of a reference the arbitrator misconducted the proceedings by ignoring the

required the attendance of a witness whom neither side two very material documents to arrive at a just

proposed to call. After this witness had given evidence decision to resolve the controversy between the

the proceedings terminated, and the arbitrator said that Department and the contractor. Even if

he required nothing further from either of the parties. Department did not produce those documents

Subsequently, however, the plaintiff found the before the Arbitrator, it was incumbent upon him

arbitrator closeted with the witness and a special to get hold of all the relevant documents including

pleader who was acting for the defendants, the three the two documents in question for the purpose of

persons being engaged in considering the papers and a just decision. Further, he arrived at an

plans connected with the arbitration. The arbitrator inconsistent conclusion even on his own finding.

explained that the witness was explaining to him The award suffered from a manifest error

information in connection with the case, by which, apparent ex facie."

however, his opinion would not be biased. Held that, as

there had been an opportunity for the mind of the The making of an award without the basic documents,

arbitrator to have been biased by information given on namely, the arbitration agreement before the arbitrators

behalf of one side without the other having had an at the time of application of mind, i.e. at the time of

opportunity of meeting it, the award eventually made considering the rival contentions of the parties is not

by the arbitrator must be set aside [(1844) 14 L.J.Q.B. permissible. The arbitrator has to insist on the

17] production of the agreement, even if not presented by

the parties, as without such agreement being on record,

Failure to consider vital documents the respective contentions of the parties cannot be

adjudicated upon. Hooghly River Bridge, Commissioner v.

The well-settled rule of law is that an arbitrator Bhagirathi Bridge Construction Co. Ltd., AIR 1995 Cal 274.

misconducts the proceedings if he ignores very

material documents to arrive at a just decision to Arbitrator must act within

resolve the controversy. Even if the department did not submission

produce those documents before the arbitrator, it was

incumbent upon him to get hold of all the relevant The aim of arbitration is to settle all disputes between

documents for arriving at a just decision. In K.P. the parties and to avoid further litigation. Hence, where

Poulose vs State of Kerala, AIR 1975 SC 1259, it had the contractor claimed amounts for work done after

been held by the Hon'ble Supreme Court as under: arbitration proceedings had begun and the claim

statement filed with the arbitrator also included this



10

Indian Council of Arbitration





INDIAN COUNCIL OF ARBITRATION







India's Apex

Arbitral Institution





claim, the arbitrator had jurisdiction to make an award of England, Vol. II, 4th Ed., para 622). As an arbitrator

on the said claim also. Shyama Charan Agarwala & Sons v. derives his jurisdiction only from the agreement fro his

Union of India, (2002)6 SCC 201. appointment, it is never open to him to reject any part

of that agreement, or to disregard any limitation placed

In order to determine whether the arbitrator has acted on his authority (Halsbury'S Laws of England, Vol. II,

in excess of jurisdiction what has to be seen is whether 4th Ed., para 577). A deliberate departure from

the claimants could raise a particular dispute or claim contract amounts to not only manifest disregard of his

before the arbitrator. If the answer is in affirmative, authority or misconduct on his part, but it may

then it is clear that arbitrator would have the tantamount to a mala fide action. A conscious disregard

jurisdiction to deal with such a claim. On the other of the law or the provisions of the contract from which

hand, if the arbitration clause or a specific term in the he has derived his authority vitiates the award,

contract or the law does not permit or give the Associated Engg.Co. v. Government of Andhra Pradesh,

arbitrator the power to decide or to adjudicate on a AIR 1999 SC 322; V.G. George v. Indian Rare Earths Ltd.,

dispute raised by the claimant or there is a specific bar AIR 1999 SC 1409; Grid Corp. of Orissa Ltd. v. Balasore

to the raising of a particular dispute or claim, then any Technical School, AIR 1999

decision given by the SC 2262. Shyama Charan

arbitrator in respect Arbitrator derives his authority Agarwala & Sons v. Union

thereof would clearly be in from the contract and is governed of India, (2002)6 SCC 201.

excess of jurisdiction. In by Arbitration Act, which embodies

order to find whether the principles derived from a It has been stated in the

arbitrator has acted in Halsbury'S Laws of

specialised branch of the law of

excess of jurisdiction the England, 4th Ed., Vol.2,

Agency

court may have to look into paragraph 577 as follows:

some documents including

the contract as well as the reference of the dispute “As an arbitrator obtains his jurisdiction solely from the

made to the arbitrators limited for the purpose of agreement for his appointment, it is never open to him

seeing whether the arbitrator has the jurisdiction to to reject any part of that agreement, or to disregard any

decide the claim made. Himachal Pradesh State Electricity limitation placed on his authority ..........”

Board v. R.J. Shah, (1999)4 SCC 214; Rajasthan State Mines

& Minerals Ltd. v. Eastern Engg. Enter prises, 1999(3) RAJ In the bid documents, it was clearly stated that the

326 (SC); and Arosan Enterprises Ltd. v. Union of India, intending tenderers must inspect the site of the work,

AIR 1999 SC 3804. make necessary investigation for correctly evaluating

the work, to satisfy themselves as to the nature and

An arbitrator who acts in manifest disregard of the location of the work, general and local conditions

contract acts without jurisdiction. His authority is before arriving at his rates. It was also stipulated therein

derived from the contract and is governed by the that no extra payment shall be made to the successful

Arbitration Act which embodies principles derived tenderer if he makes any misjudgment. Thus the claim

from a specialized branch of the law of agency (Mustill of the contractor on the ground of excess flourine in

and Boyd's Commercial Arbitration, 2nd Ed., p.641). drinking water due to which the contractor suffered

He commits misconduct if by his award he decides could not have been allowed by the arbitrator.

matters excluded by the agreement (Halsbury'S Laws Ramalinga Reddy v. Superintending Engineer, (1999)9

SCC 610.

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POWERS AND DUTIES OF ARBITRATOR





INDIAN COUNCIL OF ARBITRATION







India's Apex

Arbitral Institution



It is an integral part of the duties of the arbitrator to on proof of such action. The assumption of

adhere to the conditions of the contract agreed to jurisdiction not possessed by the arbitrator renders the

between the parties and must always be within the award, to the extent to which it is beyond the arbitrator's

terms of reference in accordance with which the jurisdiction, invalid. And if it is not possible to severe

parties desire him to make and publish the award. such invalid part from the other party of the award, the

Thus, it is mandatory and obligatory on his part to act award must fail in its entirety."

strictly in accordance with the law laid down by the

Courts and not to act whimsically and arbitrarily and in Arbitrator to decide on his skill and

the manner which he thinks is just and reasonable. knowledge



Where in a works contract a contractor demands extra Lord Goddard, CJ in Mediterranean & Eastern Export

costs due to price escalation, which had been barred Co. Ltd. vs Fortress Fabrics Ltd., [1948]2 All ER 186,

specifically under the terms of the agreement, the held as under:

award of such extra costs by the arbitrator was held to

"A man in the trade who is selected for his experience

be bad in law on the ground that the arbitrator acted in

would be likely to know and indeed be expected to know

excess of the jurisdiction conferred on him.

the fluctuations of the market and would have plenty of

(Continental Construction Co. Ltd. vs State of Madhya

means of informing himself or refreshing his memory

Pradesh, AIR 1988 SC 1166)

on any point on which he might find it necessary so to

An arbitrator derives authority from the reference do. ........ It must be taken I think that in fixing the

made to him either by the parties or by a person named amount that he has, he has acted on his own knowledge

in the agreement having and experience. The day

the authority to appoint has long gone by when the

"Arbitrators cannot refer their Courts looked with

the arbitrator, as

authorized by the parties arbitrements to others, nor to an jealousy on the jurisdiction

in the agreement itself. umpire" of the Arbitrators. The

The arbitrator is not modern tendency is in my

permitted in law to enlarge opinion more especially in

the scope of reference. Any decision or award on an commercial arbitrations, to endeavour to uphold awards

item(s) which is beyond the scope of reference shall of the skilled persons that the parties themselves have

not have the sanction of law. If the award on an item selected to decide the questions at issue between

not referred for adjudication in arbitration had been them......".

decided by the arbitrator and is not severable from the

Arbitrator cannot delegate his

rest of the award, then the whole of the award shall be

functions

set aside by the Court. In Jivrajbhai Ujamshi Sheth and

others vs Chintamanrao Balaji and others, AIR 1965 SC

In Russell on Arbitration, 20th Ed., page 228, it has been

214, the Hon'ble Supreme Court laid down the law as

stated as under:

under:

“One who has an authority to do an act for another

“If the parties set limits to action by the arbitrator, then

must execute it himself, and cannot transfer it to

the arbitrator has to follow the limits set for him, and

another; for this, being a trust and confidence reposed

the Court can find that he has exceeded his jurisdiction

in the party, cannot be assigned to a stranger, whose

12

Indian Council of Arbitration





INDIAN COUNCIL OF ARBITRATION







India's Apex

Arbitral Institution



ability and integrity were not so well thought of by him Russell on Arbitration, 20th Ed., p.

for whom the act was to be done”. 263 states:



“Arbitrators cannot refer their arbitrements to others, “In general, an arbitrator is not justified in proceeding

nor to an umpire; if the submission be not so; neither ex parte without giving the party absenting himself due

can they make their arbitrement in the names of notice. It is advisable to give the notice in writing to

themselves and of a third person to whom no each of the parties or their solicitors. It should express

submission was made; nor alter it after it is once the arbitrator's intention clearly, otherwise the award

made.” may be set aside. An ordinary appointment for a

meeting with the addition of the word 'peremptory'

Power to proceed ex-parte marked on it is, however, sufficient”.



An arbitrator ought not to proceed ex parte against a If the arbitrator declines to proceed on the first failure

party if he has not appeared at one of the sittings. The to attend a peremptory appointment, and gives another

arbitrator should give another notice fixing date, time appointment, he is not authorised to proceed ex parte

and venue and intimate that he would proceed with the at the second meeting, unless the appointment for it

matter ex parte if either party fails to attend. Even after was also marked 'peremptory' or contained a similar

notice if the defaulting party does not attend, the intimation of his intention. On this aspect of the

arbitrator may proceed in his absence. Lovely Benefit matter, Russell On Arbitration, 20th Ed., p. 264 states:

Chit Fund & Finance Pvt. Ltd. v. Puran Dutt Sood,

AIR 1983 Del 413 ; Hemkunt Builders P. Ltd. v. “If a party says: 'I will not attend, because you (the

Panjabi University, Patiala, 1993(1) Arb LR 348. arbitrator) are receiving illegal evidence, and no award

which you can make will be good, ' the arbitrator may

As per terms of the arbitration agreement, both the go on with the reference in his absence; and it seems

parties were required to nominate their respective that it is not necessary in such a case to give the recusant

arbitrators. Delay occurred on the part of one party to any notice of the subsequent meetings. But, though it

nominate its arbitrator. Thereupon, the nominee- may not always be necessary, it is certainly advisable

arbitrator of the other party started conducting that notice of every meeting should be given to the

arbitration proceedings ex parte in a tearing haste party who absents himself, so that he may have the

without waiting for other party. He not only proceeded opportunity of changing his mind, and of being

ex parte on same date but also recorded statement of present if he pleases.”

witness and heard arguments. It was held that the

procedure adopted by the arbitrator was in violation If the arbitrator did not allow adjournment of just one

of the principles of natural justice and the award day, as the counsel of the party was busy in another

rendered by him was set aside, Shri Ram Ram Niranjan arbitration proceedings and proceeded to pass an ex

v. Union of India, AIR 2001 Del 424; Juggilal parte award, without giving notice of his intention to

Kamlapat v. General Fibre Dealers Ltd., AIR 1955 Cal do so, the award would be invalid. Executive Engineer,

354 (DB); Dipti Bikash Sen v. India Automobiles (Pvt) Prachi Division v. Gangaram Chhapolia, AIR 1983

Ltd., AIR 1978 Cal 454 ; and, Lovely Benefit Chit Fund NOC 205 (Ori).

& Finance Pvt. Ltd. v. Puran Dutt Sood, AIR 1983 Del

413.





13

POWERS AND DUTIES OF ARBITRATOR





INDIAN COUNCIL OF ARBITRATION







India's Apex

Arbitral Institution



Failure to act without unreasonable Shrimad Maharaj Niranjan Jagadguru, AIR 2005 Kant

delay 313 summarized the principles to be followed by an

arbitral tribunal as under:

Section 14(1)(a) of the Act provides that the mandate

of an arbitrator shall terminate if he becomes de jure or “The minimum requirements of a proper hearing

de facto unable to perform his functions or for other should include: (i) each party must have notice that the

reasons fails to act without undue delay. Thus, where hearing is to take place and of the date, time and place of

the named arbitrator does not act for three months holding such hearing; (ii) each party must have a

despite repeated reminders, it can be clearly said that reasonable opportunity to be present at the hearing

the mandate of the named arbitrator shall be deemed to along with his witnesses and legal advisers, if any, if

have been terminated as he failed to act without undue allowed; (iii) each party must have an opportunity to be

delay as contemplated under section 14(1)(a) and the present throughout the hearing; (iv) each party must

court gets the power to appoint a new arbitrator under have a reasonable opportunity to present statements,

section 11(5). Deepa Galvanising Engg. Industries Pvt. documents, evidence and arguments in support of his

Ltd. v. Govt. of India, 1998(1) ICC 410 (AP). own case; (v) each party must be supplied with the

statements, documents and evidence adduced by the

Where the parties stipulated by consent that if the other side; (vi) each party must have a reasonable

arbitrator does not complete the arbitral proceedings opportunity to cross-examine his opponent's witnesses

on or before a particular date his mandate shall stand and reply to the arguments advanced in support of his

terminated, then the mandate automatically terminates opponent's case. It is expected of an arbitral tribunal

on the expiry of that date. Consent order is nothing but that it should ensure that the date of the hearing is not so

an agreement between the parties with super imposed close that the case cannot be properly prepared.

seal of the court. Kifayatullah Haji Gulam Rasool v. Equally, an arbitral tribunal, while fixing the date of

Bilkish Ismail Mehsania, AIR 2000 Bom 424. hearing, should try to accommodate any party who is

placed in difficulty by his absence due to unavoidable

What is reasonable dispatch depends upon the type of circumstances such as illness or compelling

arbitration and the size and complexity of the dispute. engagements of himself elsewhere etc. Each party is

The question of reasonableness should be determined also entitled to know any statements, documents,

by reference to the nature of arbitration and the evidence or information collected by the arbitral

interests of the parties and not individual tribunal itself which are adverse to his interest, if they

circumstances of the arbitrator. Thus, if the arbitrators are not contested. The arbitral tribunal is neither to hear

were delayed in proceeding by illness or unexpected evidence nor arguments of one party in the absence of

absence abroad, they would be open to removal, even the other party, unless despite opportunity, the other

though they had not personally flawed. Conversely, party chooses to remain absent. So also, the arbitral

fault is not sufficient to amount to a failure to use all tribunal is not to hear evidence in the absence of both

reasonable dispatch: an arbitrator may be incompetent the parties unless both the parties choose to remain

or guilty of misconduct and yet not be guilty of such absent despite proper notice. Each party to arbitration

delay. Mustil and Boyd'S Commercial Arbitration, p. reference is entitled to advance notice of any hearing

474. and of any meeting of the arbitral tribunal as provided

under S.24 of the Act”

A Division Bench of the Karnataka High Court in a

very recent judgment reported as Rudramani Devaru vs



14

Indian Council of Arbitration





NEGOTIATING AND DRAFTING OF AN

ARBITRATION AGREEMENT





arbitration, Place of arbitration, choice of law,

formalities of the process, whether to involve Lawyers

Sunil Malhotra etc. All these formalities and agreement have to be

The author is a

practicing advocate written down in what is known as the arbitration

and senior partner of agreement. The Arbitration agre ement is the document

Laware Associates,

New Delhi which is the basis of reference of disputes to

Arbitration. It can be either in the contract itself or in

Introduction the form of a separate agreement.2



In a search for an established method of resolving The Agreement to Arbitrate -

Business disputes quickly, efficiently and constructively

and a method where the parties involve in the disputes Arbitration agreements are formed at one of two points

can maintain their relationship, Arbitration has in time: during the negotiation of a contract, or after a

emerged as that solution for a system of dispute legal dispute arises. Because the contract negotiation

resolution. The essence of arbitration is that some process offers greater opportunity to develop an

dispute is referred by the parties for the settlement to a arbitration format without the acrimony that can

tribunal of their own choice instead of going to a develop after a controversy arises, inclusion of an

court…..inasmuch an Arbitration differs from legal arbitration agreement as a clause in a contract is

proceedings proper only in the choice of Tribunal, all preferable and can streamline the dispute resolution

ordinary Legal defences are available.1 process. Generally the arbitration agreement is

incorporated into the contract governing the

Arbitration is an out of court settlement Mechanism transaction itself. The agreement should specifically

where the parties select their own Arbitrator/s. IN case state in clear terms that the parties have agreed to refer

the parties fail to appoint an Arbitrator in terms of the their disputes to Arbitration.

agreement, either party may move the court under

Section 11 of the Arbitration and conciliation Act for A single expression 'submission' was used in the Indian

the appointment of arbitrators. It is generally Arbitration Act 1899. The Arbitration Act of 1940 used

conducted by one Arbitrator or a panel of 3 the expressions "Arbitration agreement" and

Arbitrators. "Reference" separate Now under the Arbitration and

Conciliation Act 1996, the position has reverted back

Arbitration allows for flexibility. Parties are free to with the use of the single expression 'Arbitration

select the arbitration structure, format, si te, scope of

1 2

“Russel on Arbitration”,20th edition P-1. Section 7 (2) Arbitration and conciliation Act 1996.



15

NEGOTIATING AND DRAFTING OF AN ARBITRATION AGREEMENT





INDIAN COUNCIL OF ARBITRATION







India's Apex

Arbitral Institution





agreement', with the difference that now the expression that date4. The reference to arbitration is complete

'reference' has been dropped. The definition of when either party appoints his arbitrator and it is not

"Arbitration agreement" given in s. 2(a) of the necessary to follow it up with a formal reference to

Arbitration Act 1940, was the same as that of arbitration. The reference may not be in writing.

"Submission" in the Act of 1899. The expression

'reference' was defined in s. 2(e) of the Arbitration Act In principle, parties should also always

1940 to mean "a reference to arbitration". ensure that the arbitration agreement

is:

Now the Arbitration and Conciliation Act 1996 defines the

expression "arbitration agreement" vide s. 2(b) read with s. 7 in ! In writing- The effectiveness of an arbitration

almost similar manner as the expression "arbitration agreement" clause first of all depends on proof of its

contained in the Act of 1940. But the words "in respect of a existence. It should therefore generally be in

defined legal relationship, whether contractual or not" contained in writing. It is normally consider to be in writing

s. 7 (1) to define the expression appear to have been borrowed if it is contained in the a document signed by

from Art. II of New York Convention of 1958. There has been, the parties, an exchange of letters, telex,

however, no major change in the definition of 'arbitration telegrams, or other means of

agreement' as contained in the present Act from that as contained telecommunication which provides a record

in the Act of 1940. The addition of the words taken out from for the agreement, or an exchange of statement

Art. II aforesaid is more explanator y and does not change the of claims and defence in which the existence of

concept so far held of the expression 'arbitration agreement'. 3 the agreement is alleged by one party and not

denied by the other5. The 1958 New York

Although the expression 'reference' has not been Convention specifically states (Art. II) That,

defined in the present Act, it means the actual Contracting States shall recognize arbitration

submission of a particular dispute under the arbitration agreements "in writing" 6.

agreement to Arbitration as contemplated in the

arbitration agreement. So while drafting the Arbitration ! The parties to the agreement should be ad

agreement it should be remembered that the agreement idem: There should be consensus between the

should be “to refer any disputes arising out of or in parties agreeing upon the same thing. There

connection with the contract/transaction to should be no mistake in understanding as to the

arbitration”. On the notice of Arbitration issued by one subject matter in respect of which they agree to

party to the other the arbitration procedure is said to be refer their disputes or differences to

in motion and the arbitration is said to commence on arbitration7.





3 5

S.K.Chawla “Law of Arbitration and conciliation”, 2nd edition, Eastern law S. 7(4) of the Arbitration and conciliation Act,1996

House, New Delhi. 2004 at p-186 6

James Finlay V. Gurdayal Pahlaraj, AIR 1924 Sind 91

7

4 Union of India V. Bharat Engineering corporation, ILR 1977 Del Vol.2, p.57

Section 21 of the Arbitration and Conciliation Act 1996.



16

Indian Council of Arbitration





INDIAN COUNCIL OF ARBITRATION







India's Apex

Arbitral Institution







! The agreement should be signed by the be referred” should be used and not “may” to make the

parties8. Arbitration clause a mandatory one.





! Carefully drafted- There have been lots of 2.Choice of Arbitrator(s)- The clause must

instances where the Courts have receives specify the selection process or the number of

requests for arbitration based on ambiguous Arbitrators to be appointed, otherwise statutes and

arbitration clauses. rules may fill any gaps. If

Badly worded clauses The arbitral clause must specify institutional rules are

impede the arbitration the selection process or the used that provide for

process and should be number of Arbitrators to be selection of arbitrators,

avoided at all cost. The appointed, otherwise statutes no further reference to

agreement should be and rules may fill any gap selection may be

drafted after due necessary. A panel of

consultation with lawyers or experts in this three arbitrators is standard practice, with the parties

field. each appointing one, and the parties or arbitrators

selecting a third. The number of Arbitrators should not

Essential of the Arbitration be an even number9. In some circumstances an

Agreement appointing authority will designate any missing

members. Where one of the parties refuses to select an

The following elements should be considered for arbitrator as a dilatory tactic, the court can appoint the

inclusion in any arbitration agreement: arbitrator10.A sole arbitrator may be preferable for

disputes involving smaller amounts. In highly technical

matters a qualified engineer may preferably be

1.Scope of Arbitration - The parties/ the

appointed as one of the arbitrator as he would be able to

drafter should explicitly state the matters that they want

understand the technicalities of the contract and assist

the arbitration agreement to cover. However local law

the other Arbitrators. If an arbitrator must have a

may restrict issues that may be subject to arbitration and

special skill, it should be specified in the arbitration

the drafter should be aware of this factor. If the

agreement. In case the parties have not determine the

Agreement fails to clearly lay down the issues/disputes

number of arbitrators, the court on application shall

which are subject matter of Arbitration, the question of

appoint an arbitral Tribunal consisting of a sole

the 'scope of reference “and “jurisdiction of the

arbitrator11. This may not be a good sometime keeping

Arbitral Tribunal” could arise which could cause

in view the nature of the dispute and the amount

unnecessary delay to the proceedings. The word “shall

involved.



8 9

S.7(4) (a) of Arbitration and conciliation Act 1996 S.10 (1) Arbitration and conciliation Act 1996.

10

Section 11 Arbitration and conciliation Act 1996.

11

Section 10(2) of the arbitration and conciliation Act, 1996.



17

NEGOTIATING AND DRAFTING OF AN ARBITRATION AGREEMENT





INDIAN COUNCIL OF ARBITRATION







India's Apex

Arbitral Institution







3. Choice of Law - The parties should designate 5. Choice of Language - Parties may designate

the substantive law that will be applied in the one language as the official language of the proceedings

arbitration. The parties may select a procedural law. If and allow simultaneous interpretation into another

they do not, the procedural law of the place where the language.13

arbitration occurs will apply. In the absence of an

express choice of applicable law, the law of the place of 6. Choice of Rules - Parties should specify the

the arbitration will be applied. In India for domestic rules of procedure that will govern the arbitration

arbitration it is the substantive law that is time being in process. For Domestic Arbitration the arbitration and

force which will apply irrespective of what the conciliation Act of 1996 has laid down the procedures

agreement says.12 to be followed if arbitration is under the Act.



4. Choice of Location - A forum country If selecting institutional rules to govern the arbitration,

should be selected that is a signatory to an international parties should consider whether those rules provide

arbitration convention in International Arbitration. for:

The parties have to clearly

state the preferred place of Upon the failure of the Par ties to ! The selection of a

Arbitration and that state choose a place of Arbitration, site where it is not

alone will be the jurisdiction Arbitral Tribunal will decide the specified in the

for conducting that same arbitration clause;

arbitration. On the failure on

the part of the parties to state

! Assessment of costs, including allocation

the place of Arbitration, the Arbitral Tribunal will

between parties

decide the place of Arbitration. The location

determines the extent of potential assistance, or even

! Selection of arbitrators;

interference, by the courts during an arbitral

proceeding and it may affect enforcement of the award.

! Powers given to the arbitrator;

Practical features such as facilities, communications

and transportation systems, freedom of movement of

persons, documents and currency, and support services ! The language in which the proceeding will be

should be considered and the choice of location in the conducted

arbitration agreement should include the name of both

the city and country. ! The substantive law to be applied;





! The use of experts;

12

S.28 (1) Arbitration and conciliation Act 1996.

13

S.22 Arbitration and conciliation Act 1996







18

Indian Council of Arbitration





INDIAN COUNCIL OF ARBITRATION







India's Apex

Arbitral Institution









! The time allowed to arbitrators to make 9. Costs - The arbitration agreement should provide

awards; for the allocation of costs. A well-drafted arbitration

clause should provide for the division of expenses

! The power of any administering authority incurred in arbitration. While most expenses will be

over the awards; divided equally, some may be borne by one party (for

example, if a party decides to have a court reporter

! The availability of provisional relief; and, transcribe the proceedings). Questions of equal

division become more complicated if there are several

parties. Sometime the parties may agree for fixing the

! Flexibility to allow parties to opt out of certain

fee for the arbitrator depending upon the nature of the

provisions.

disputes and the amount involved in the said arbitration.

To make the arbitration cost effective, Institutional

7. Rules of Evidence - It is taken as a given in

arbitration may be preferred.

most arbitration that the Rules of Evidence do not

govern, and that the arbitrator has discretion to

10. Award of Tribunal - The agreement should

consider whatever evidence he wants. If you want a

specify that a majority of the arbitrators must agree on

different result, say so in your arbitration agreement.

an award and that it must be based on applicable law.

The Indian evidence Act is not applicable to

The agreement should also specify the currency for

Arbitration proceedings and parties can agree upon a

payment of the award. If the award is to be recognized

procedure of evidence.14

and enforced internationally, it may need to state

reasons and legal basis, including reference to the

8. Discovery - For the purpose of speedy disposal

process by which the legal basis was selected. Some

of the dispute between the parties, time may be fixed

awards contain no reasoning or written report. Though

for the purpose of discovery, disposition,

the Arbitration and conciliation Act 1996 provides for

interrogations, Physical examination, cross

the manner in which the arbitral award should be made15

examination, production of documents, admission

but the parties may negotiate and agree for decision

and denial of documents etc. If this type of clause is

announced orally at the close of the arbitration and this

included the parties counsel shall confer jointly with

should be included in the arbitration agreement. If the

the arbitrator at the earliest convenient date to

parties have also agreed that no reasoning for an award

determine the discovery that shall take place and the

is needed to be given, this should also be included.

formalities and the time for such discovery should be

agreed upon and be laid down in writing.

11. Confidentiality - One of the advantages of

arbitration is the issue of confidentiality. Arbitration



14 15

Section 19 Arbitration and conciliation Act 1996 Section 31 arbitration and conciliation Act 1996





19

NEGOTIATING AND DRAFTING OF AN ARBITRATION AGREEMENT





INDIAN COUNCIL OF ARBITRATION







India's Apex

Arbitral Institution







proceedings are not subject to public scrutiny, and in and the scope and authority for the arbitral tribunal.17

many commercial matters this is highly advantageous.

It might be prudent for the parties to confirm the DRAFTING THE ARBITRATION

confidentiality of any dispute resolution procedures CLAUSE

which may be undertaken in terms of the agreement.

The optimal way for parties to ensure a successful

The Arbitration Clause arbitration is to draft an appropriate arbitration clause

that specifically meets their needs. Although a model

The most important part of the agreement is the clause may be used in standardized contracts, in

Arbitration Clause. By this agreement the parties may complex international transactions the parties should

agree to send certain tailor the arbitral provision

disputes to arbitration, to the needs of the specific

Arbitration is probably better than

specifically excluding other contract.

litigation, but it is still very

categories from the

adversarial

arbitration agreement. Mediation/Concili

Furthermore, certain ation

categories of disputes could be selected for a fast track

procedure, due to economic necessity or other It is also important to consider whether the parties

considerations of this nature. The drafter must take really want arbitration. Many parties want to resolve

care that the wording of the arbitration clause does their differences quickly and in a business-like manner.

not inadvertently refer to certain categories of Arbitration is probably better than litigation, but, it is

disputes, unless the parties so intend. A badly worded also a matter of truth that it is still very adversarial. So a

clause, may inadvertently exclude certain categories of situation may arise when the parties may want to

dispute contrary to the parties' intentions. For consider using mediation before resoling to arbitration.

example, a clause worded to the effect that "All When such an understanding or agreement between the

disputes arising under the contract," is a far parties is there to refer the dispute first to Mediation, it

narrower clause than one worded to the effect that should be stated in the Arbitration Agreement. In

"all disputes arising in connection with the mediation, the parties agree to negotiate any problems,

contract," and this could have serious repercussions using a third-party neutral to assist in the negotiations.

on the arbitrability of a dispute which may arise. The Often, parties agree to first, directly confer if there are

statute has specifically provided that the arbitral disputes, second, to use a mediator if they are unable to

tribunal has the power to rule on its own jurisdiction16 resolve disputes directly within a specified period, and

third, to submit lingering disputes to arbitration.

16

Section 16 (2) of the arbitration and conciliation Act, 1996.

17

Section 16 (3) of the arbitration and conciliation Act, 1996.







20

Indian Council of Arbitration





INDIAN COUNCIL OF ARBITRATION







India's Apex

Arbitral Institution





Mediation/conciliation can be adopted in the ! All ambiguity or imprecision are avoided. Not to use

Arbitration clause- The parties can specifically state in many or too few words.

the Arbitration clause that, “Unless the parties are not

able to mutually resolve their disputes or unless the ! Keep the clause simple, without being simplistic.

parties are unable to Negotiate and settle their disputes

then, the dispute will be referred to Arbitration”. Here ! The choice of place to be carefully decided.

the parties should clearly

state that their first

Parties can, at any stage of ! The language of the clause

intention is to settle the

arbitration settle the dispute should be tested against

dispute through

through mediation, conciliation or the worst case scenario,

Negotiations mutually, and

negotiation and the most hostile

only then if the differences

environment.

still persist go for

Arbitration.

! Be aware of the provisions of the various

institutions.

Section 30(1) of the Arbitration and conciliation Act

1996 also empowers the Arbitral tribunal to adopt

! When using a model clause, ensure that the model

Mediation or conciliation to settle the disputes, with the

clause is adequate to provide effective measures

agreement of the parties, at any time during the Arbitral

referring the matter to arbitration.

proceedings to encourage settlement. Here

Mediation/conciliation procedure can be adopted on

! Combining two or more types of arbitral procedures

the request of the Arbitral Tribunal, who in turn will

in the same clause should be avoided.

function as the Mediator/s.





The parties can also at any stage of the Arbitral

Proceedings request the Arbitral Tribunal to settle the

disputes through Negotiations. This will depend on the

agreement of both the parties but it is also the duty of

the arbitrator to foresee the possibility of settling the

matter through negotiation and make every Endeavour

to this effect.





So while drafting the arbitration agreement, the drafter

should always keep in mind that;









21

News clippings









22

Indian Council of Arbitration





SETTING ASIDE FOREIGN ARBITRAL

AWARDS IN RUSSIA



Article 230(5) of the new Russian Code of Procedure in which the award was not made (here: Russia) or,

for the Commercial Court' provides that a party may even if the award had been made in Russia (a

petition the Commercial Court to set aside a foreign Contracting Party to he European Convention), when

arbitral award “in the making of which Russian law the award was made in, or in accordance with the law

was applied” in such cases “as provided by of a Presidium further stated that the New York

international treaty of the Russian Federation.” On Convention does not regulate the setting aside of

its face, the Article is unremarkable: Article V(1) (e) awards, but rather “contains criteria for the

of the New York Convention on the Recognition recognition and enforcement of foreign arbitral

and Enforcement of Foreign Arbitral Awards of awards.” Thus, the Presidium's holding is based solely

1958 (“new York Convention”) contemplates that a on its finding that neither treaty authorized the

court may set aside an award made in another Russian courts to set aside the Swedish award.

country in the rare case where the parties have agreed The Presidium, however, missed an opportunity to

that the arbitration proceedings should be “governed interpret Article 230(5) in conformity with New York

by an arbitration law which is different from the Convention Article V (1)(e) as providing a basis for

arbitration law of the country in which the award was setting aside a foreign award in Russia only if Russian

made.” In a series of judgments on the setting aside procedural law (i.e. the law governing the conduct of

of an ad hoc arbitral award made in Sweden, three the arbitration) applied to the making of the award,

instances of the Russian Commercial Court reached but not, as in the case before it, where Russian

conflicting conclusions and missed the opportunity substantive law applied to the underlying dispute. All

to clarify the proper application of Article 230 (5). the facts necessary for such a ruling were in the

The arbitral award in question was made in record. It had been apparent to the courts at all three

Stockholm pursuant to the Swedish Law on instances that Swedish procedural law applied to the

Arbitration of 1996. Russian law as the substantive making of the award: It was made in Sweden in

law of the underlying dispute. In the first instance, accordance with the Swedish Law on Arbitration of

the Russian Commercial Court set aside the award 1996. The Presidium further noted, without

based on a misinterpretation of Article IX(1) of the disagreement, that both instances had assumed that

European Convention on International Commercial the underlying agreement was governed by

Arbitration of 1961 (“European Convention”). substantive Russian law.

Article IX(1) provides, in part, that the “setting aside It is hoped that the Russian courts will eventually

in a Contracting State of an arbitral award….shall adopt the view of the President of the International

only constitute a ground for the refusal of Commercial Arbitration Court at the Russian

recognition or enforcement in another Contracting Federation Chamber of Commerce and Industr y, who

State where such setting aside took place in a State in has remarked that the “law” referred to in Article

which, or under the law of which, the award has been 230(5) “should be interpreted as referring to the law

made.” The second instance, sitting in cassation, left which is governing arbitration procedure but not the

that decision intact. rules of substant[ive] law applied by the arbitral

In the third instance, the Presidium of the Supreme tribunal for resolving the dispute.” (Moscow: William

Commercial Court rightly vacated the two preceding Spiegelberger Tatiana Minaeva, Pavel Boulatov,

decisions, but not for the obvious reason. The Venera Kamalova)

Presidium held that the European Convention does

not authorize the setting aside of an award by a state Source : International Dispute Resolution IDRN September 2005 (Vol. 18 No. 3)









23

Judicial Colloquium on "New Law of Arbitration - Role of Institutional

Arbitration", October 8, 2005 - Ludhiana









Mr. A K Ganguly, Sr. Advocate, Supreme Court and Mr. G K Kwatra, Executive Director, ICA, addressing the Judicial Colloquium on "New Law of Arbitration

- Role of Institutional Arbitration" on October 8, 2005 at Ludhiana, attended by Additional District and Session Judges and other senior Sub-Judges of District

courts at Ludhiana.









1. Hon'ble Mr. Justice N K Sud, Judge, Punjab & Haryana High Court, Chairing the Business Session II 2. Hon'ble Mr. Justice Rajive Bhalla, Judge, Punjab &

Haryana High Court, addressing the Conference. 3. Hon'ble Mr. Justice A K Sikri, Judge High Court of Delhi, giving the Special Address at the Conference.

Addressing Session II 4. Mr. S R Mittal, Chartered Accountant. 5. Mr. A K Ganguli, Sr. Advocate. 6. Mr. Anupam Srivastava, Advocate. 7. Dr. S K Pachauri.

8. Mr.Sunil Malhotra, Advocate. 9. Mr. Stevon Soni, Advocate. 10. Capt. J S Gill. 11. Mr. B K Goel President, District BarAssociation, Ludhiana.









A view of the audience

INDIAN COUNCIL OF ARBITRATION th

India's Apex

Arbitral Institution









YEAR

INDIAN COUNCIL OF ARBITRATION ANNIVERSARY CELEBRATIONS









Indian Council of Arbitration

Indian Council of Arbitration (ICA), established in 1965, is the apex arbitral organisation at

the national level. The main objective of ICA is to provide facilities for arbitration of

commercial, maritime, industrial and trade disputes and promote the amicable and quick

settlement of such disputes. The Government of India, the Federation of Indian Chambers

of Commerce and Industry, other important Chambers of Commerce and trade

associations in India as well as export promotion councils, public sector undertakings,

companies and firms are in its membership.



ICA also provides facilities for settlement of international commercial disputes by

arbitration. Its Rules of Arbitration are of international standard and it maintains an

impressive panel of arbitrators having specialization in more than 20 fields. ICA has

entered into arbitration service agreements with important foreign arbitral institutions in

more than 30 countries to administer arbitrations under their rules if arbitration is held in

India.





Following are the various arbitration clauses recommended by ICA for inclusion in all commercial

contracts by the parties:-

ICA Arbitration

"Any Dispute or differences whatsoever arising between the parties out of or relating to the construction,

meaning and operation or effect of this contract or the breach thereof shall be settled by arbitration in

accordance with the Rules of Arbitration of the Indian Council of Arbitration and the Award made in

pursuance thereof shall be binding on the parties."

ICA Maritime

"All disputes arising under this charter party shall be settled in India in accordance with the provisions of

the Arbitration & Conciliation Act 1996 (No. 26 of 1996), and under the Maritime Arbitration Rules of the

Indian Council of Arbitration. The Arbitrators to be appointed from out of the Maritime Panel of Arbitrators

of the Indian Council of Arbitration. The arbitrators shall be commercial men.”

ICA Conciliation

”If a dispute arises out of or in connection with this contract, or in respect of any defined legal relationship

associated therewith or derived ftherefrom, the parties agree to seek an amicable settlement of that

dispute by conciliation under the ICA Rules of Conciliation.

The Authority to appoint the conciliator/conciliators shall be the Indian Council of Arbitration.

The Indian Council of Arbitration will provide administrative services in accordance with the ICA Rules of

Conciliation”.









For details regarding all the above Conferences, Contact :

Sponsored by

Indian Council of Arbitration Government of India

Federation House, Tansen Marg, New Delhi - 110 001

Supported by

Ph. : 91-11-23738760-70, 23719109

Fax : 23320714, 23721504 E-mail : ica@nda.vsnl.net.in Regd. No. 14282 / 67

Website : www.bisnetworld.net/icanet