Arbitration

Indian Council of INDIAN COUNCIL OF ARBITRATION India's Apex Arbitral Institution Arbitration INDIAN COUNCIL OF ARBITRATION th Arbitration Quarterly India's Apex Arbitral Institution 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 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 ote 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 Mr. Onkar S. Kanwar Mr. D. M. Popat Mr. O. P. Goel Mr. P. C. Markanda Mr. Yakesh Anand Mr. G. K. Kwatra Editor S. L. Khurana Topic ALTERNATE DISPUTE RESOLUTION MECHANISMS IN THE INDIAN CONTEXT Justice Ashok Bhan, Judge, Supreme Court of India INHERENT ADVANTAGES OF ADR MECHANISMS OVER LITIGATION Justice D. K. Jain, Chief Justice, Punjab & Haryana High Court POWERS AND DUTIES OF ARBITRATOR P.C. Markanda, Senior Advocate NEGOTIATING AND DRAFTING OF AN ARBITRATION AGREEMENT Sunil Malhotra, Advocate News Clipping International News Page 1 5 Editor's Note Readers are requested to seek proper legal advice before acting upon the material contained in this Quarterly The views expressed in the articles are those of the authors and are not necessarily those of ICA ICA Arbitration Quarterly is distributed free to its members. It is also available online at www. ficci/ica.net for its interested readers 8 15 22 23 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 ica@nda.vsnl.net.in / ica@touchtelindia.net ! It would assist the Editor if contributions were in MS Word or as a text file, preferably also submitted via email or on a floppy disc / CD ! The articles should not be submitted for publication elsewhere ! 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 economic world. This requires strategies for swifter resolution of disputes by lessening the burden on the courts and to provide means for expeditious resolution of disputes. The Arbitration Act of 1940 had proved ineffective for early settlement of disputes by arbitration. To bring the arbitration laws in consonance with the International Economy Arbitration, the Parliament enacted the Arbitration and Conciliation Act, 1996. It is based on the United Nations Commission on International Trade Law (UNCITRAL). Justice Ashok Bhan Judge, Supreme Court of India Hon'ble Mr. Justice D.K. Jain, Chief Justice of Punjab and Haryana High Court, Mr. P.C. Markanda, Member, Governing Body, and Mr. G.K. Kwatra, Executive Director, Indian Council of Arbitration. Indian Legal system though fair and powerful is awfully overcrowded and therefore slow. The disputes in law courts linger on for decades. The delay in decision of cases undermines the faith in the system as well as motivates the affected ADR is an abbreviation for parties to get redressal of Alternative Dispute In Japan conciliation was their grievances by resorting Resolution. ADR refers to historically the primary means of to unlawful means which all those methods of gives rise to a law and order Dispute Resolution with the resolving a dispute which are problem. alternatives for litigation in village leaders ser ving as the Courts. It is a decision Courts as well as legislature Mediators making processes to resolve are trying to identify the disputes that do not involve causes of delay and to litigation or violence. ADR remedy them by bringing about changes in the includes Arbitration, Mediation, Conciliation, substantive and procedural laws. Alternative forums Negotiation, Expert Determination, Early Neutral for redressal of grievances are being identified and set Evaluation by a third person, Dispute Resolution up. In this context a Conference was convened on 4th Boards etc. Emphasis throughout the world is December, 1993 in which all the Chief Ministers and changing towards adoption of ADR instead of courtthe Chief Justices of States participated. The litigation. It provides for quicker, less costly and Conference was held under the Chairmanship of the consensual resolution of civil disputes. then Prime Minister of India which was presided over 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 In conflicting human interests disputes are bound to bear the entire burden of justice system and that a arise. When we talk of dispute prevention it means number of disputes lent themselves to resolution by resolution of the disputes between the parties by mutual alternative modes such as arbitration, mediation and understanding with the intervention of a wise wellnegotiation. It was emphasised that advantage should wisher without resorting to adjudicatory procedures. be taken of the alternative dispute resolution 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 Ludhiana on October 8, 2005 time and money of the litigant public. 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 Conciliation and Mediation between the parties. Conciliation is a viable procedure for settlement of disputes. There is not much difference between mediation and reconciliation. By this method the disputes are handled in a way which deals with underlying causes of conflict. It mends relationship. It is an informal method of dispute resolution. It places emphasis on peace and harmony over conflict, litigation and victory. Many a times, conciliation and mediation are used interchangeably and they are together referred to as Mediation. A Mediator assists the parties to reach an agreement for resolving the dispute and he does not express his opinion on the merits of the dispute, whereas a Conciliator may express an opinion about the merits of the dispute. In both these methods a third party is appointed to assist the parties to reach a settlement of their dispute. Mediator is not given any power to impose a settlement. His function is only to try to break any deadlock and encourage the parties to reach a settlement. It is a non-binding procedure in which a conciliator assists the parties in a dispute to understand pros & cons of the respective positions taken by them in relation to a dispute. Unlike Courts, Tribunals and Arbitrators the conciliator does not give a decision, his function is to induce the parties in the dispute to come to a settlement. Conciliation is essentially a consensual process. Under the Arbitration and Conciliation Act, 1996 it has the statutory sanction. The settlement arrived at by conciliation can be enforced as a decree by virtue of Section 36 of the said Act. In Japan, conciliation was historically the primary means of dispute resolution with village leaders serving as the mediators. In India as well the Panchayats resolved the differences and disputes between the parties. Even now the same system is prevalent. Indian system still places emphasis on resolution of disputes by negotiation which is purely conciliatory. Courts and Arbitrator decide the dispute after a contest between the parties, while in the case of conciliation the final result depends on the will of the parties. In such type of methods the resolution of conflict by conciliation, emotional harmony between the parties does not suffer. There is a caveat to the resolution on dispute by conciliation to have it effectively implemented. It is necessary to have trained conciliators at the disposal of Courts so that regular cases can be disposed of with the aid of parallel mechanism thereby unburdening the Courts and thus reducing judicial delays. Resolving disputes through arbitration is an important and stimulating theme of contemporary relevance. A dispute is 'lis inter partes'. It is a dispute between two or more parties, where a right is asserted by one or more parties against the specified persons and those persons deny that right or claim either totally or partially. Resolving of such a dispute or litigation through the Courts and Tribunals established by the State is cumbersome, expensive and time consuming. Persons with enormous sources are likely to win the game. Litigation involves a lot of delay given the appeals, revision/review including the constitutional remedies. Once there is delay, obviously the litigation process will become expensive. When we talk of expenses, it is not just a fee paid to an advocate or the Court fee, it includes the cost of conveyance to the office of the advocate, Courts, loss of man days and the psychological trauma one goes through in sustaining the litigation. Arbitration is preferred over traditional litigation because arbitration is generally less expensive than litigation. It provides for faster resolution of disputes through adjustable time schedule and simpler rules of procedure. In disputes involving technical details an expert in the field is appointed as arbitrator who can decide the dispute without the intervention of lawyers or other representatives with major gains in speed and economy. The arbitration can be of two types, namely, ad hoc and institutional. Ad hoc arbitration is where the two parties mutually agreed, either the sole arbitrator or two or more persons to resolve their disputes. Another method of appointing arbitrators is through the intervention of Court by filing an application under 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 Before the enactment of 1996 Act, statutory provisions are Indian Council of Arbitration (ICA), Federation of on arbitration were contained in three different Indian Chamber of Commerce and Industry (FICCI), enactments, namely, the Arbitration Act, 1940, the International Centre for Arbitration (Protocol & Alternative Dispute Convention) Act, 1937 and Resolution (ICADR). The concept of Arbitration t h e F o r e i g n A wa r d s Similarly, international revolves around the agreement (Recognition & institutions are International Enforcement) Act, 1961. between two parties to get their Chamber of Commerce Domestic arbitrations were disputes settled from a third (ICC), Paris, London Court conducted under the 1940 of International Arbitration person Act while the other two acts (LCIA), American dealt with foreign awards. Arbitration Association The Arbitration and (AAA), World Intellectual Conciliation Act, 1996 has repealed these three Acts Property Organization (WIPO). All these institutions and consolidated and amended the law relating to have rules expressly formulated for conducting of domestic arbitration, international commercial arbitration. 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 The President of the United States of America of time-tested services that include ICA Arbitration, Abraham Lincoln about 140 years back observed: ICA Conciliation and ICA Maritime, as well as 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 inexpensive nor time saving. ADR is not without faults. ADR processes like adjudicatory procedures have advantages and disadvantages which make them suitable for some cases but not for others. If the settlement by adopting the method of ADR is final and not challengeable or appealable further in a court of law except in a case of fraud, it is of course a tremendous advantage. In cases where Court has been given the authority to review the outcome, the advantage does not appear to be real on account of first spending time before the arbitration Tribunals and then in Courts. It ends up in spending more money and time. Some critics fear that ADR's negotiation based approach may dis-empower vulnerable parties with limited bargaining strength particularly civil rights and family disputes. The system of ADR is imposed on employees, clients, customers, patients, franchises and licencees by the powerful Government and private enterprises. The powerful enterprises and institutions are at an advantage being able to choose and manipulate process that will be used to enforce substantive rights. Appointment of three arbitrators results in heavy expense. The arbitrators appointed by the parties invariably give the decision in favour of the party which has appointed them and the opinion of the third neutral arbitrator or the presiding arbitrator becomes crucial. In fact, it is the decision of the third arbitrator only which decides the case. If such be the case, then what is the use of appointing three arbitrators or why the parties should be given a choice to appoint their own arbitrators. If the parties agree to the appointment of multi-member arbitration board so that more than one person applies his mind to the problem then all the three neutral arbitrators should be appointed. In some cases the arbitration proceedings drag for a number of years and the arbitrators charge fees per sitting which increases the litigation costs abnormally. Some times the arbitrators try to charge 'reading fee' which according to me is totally unjustified. The arbitrators should be asked to give the decision within a specified time and their fees should also be fixed. Under the rules of Indian Council of Arbitration the arbitrational Tribunal is time bound to give its decision as well as fees are fixed or linked to the formula for determining the fees. Despite the apprehension expressed and debate over the merits of the ADR it continues to grow as a preferred method of dispute resolution in commercial and employment law group insurance, it is expanding to the areas of construction, health care, telecommunication, intellectual property, entertainment and technology based industries. ADR as an alternative method deserves to be applied to the litigation at the subordinate and High Court level especially in respect of ordinary traditional litigations mostly money and property related disputes. Litigants have to be made aware of the advantage of adopting ADR system. It is the duty of the Bench and the Bar to propagate the advantage of resolution of disputes through alternative methods. Generally party to a dispute who has obtained an injunction or ad-interim relief tries to delay the proceedings and resist the resolution of dispute by alternative means. The Presiding Officer should take note of this count and if he is of the opinion that a party is trying to delay the matter heavy costs should be imposed on such a party. Similarly, lawyers should convey the benefits of the resolution of the dispute through alternative means. It would be unethical for a lawyer or I should say unprofessional for a lawyer to help a litigant to delay the matter. After-all, all of us are serving the cause of justice. It is the duty of the practicing lawyer to help the court in early disposal of cases. Government or big Corporations in the public sector like Life Insurance Corporation and other Insurance companies which are the biggest litigant should come forward to resolve the disputes between them and the individuals through alternative means. Litigants fr ustrated with the delays in resolution of disputes some time take law into their hands which results in law and order problem. It creates unrest in the society which disturbs peaceful living. I am grateful to the organizer of this Conference for providing this opportunity to share my views with all of you. 4 Indian Council of Arbitration INHERENT ADVANTAGES OF ADR MECHANISMS OVER LITIGATION* Hon'ble Justice D. K. Jain Chief Justice, Punjab & Haryana High Court My Lord Hon'ble Mr. Justice Ashok Bhan, Judge, Supreme Court of India, my esteemed colleagues from Delhi and Chandigarh, Mr. G.K. Kwatra, Executive Director, Indian Council Arbitration, other dignitaries on the dias, distinguished delegates, ladies and gentleman. I deem it a great privilege to have been given this opportunity to address this Conference on “Dispute, Prevention and Resolution”, being hosted by the Indian council of Arbitration in association with Federation of Indian chambers of Commerce and Industries. A fair, just and quick process of resolution of disputes is indispensable in any democratic society becoming more and more aware of their human and legal rights, there has been a spurt in institution of cases in Courts by the affected parties. The human and material resources to meet the ever growing demands in Courts is inadequate, resulting in backlog of cases and delay in the administration of justice. Our justice delivery system is bursting at the seams and unless timely measures are adopted, it have for the quick disposal of cases, particularly at the grass-root and in many cases prevent the disputes from taking shape of legal disputes. Now a days the time is of specialization. In certain disputes like financial matters involving the individuals, firms and even multinational companies, they do not want to submit to the jurisdiction of the courts of obvious reasons of delay, rigid procedural rules and provisions of appeals and revisions. The simple logic is that both the parties are not interested in getting a proposition of law on any point laid down but they are interested to settle their money matters and for that purpose they can even give up certain claims which they are otherwise entitled to. Thus, to meet the challenge of delay and formalities, we have to find either the alternative less formal court system itself. Thus, the need for devising new method, forging new tools and innovating new stratagem is beings felt to make the dispute settlement mechanism adequate in quality, quantity and accessibility. It is in this vein that some effective methods of dispute settlement between the parties and potential litigants, known as alternative dispute resolution (ADR) have been devised. Alternative dispute resolution is the terms which identifies a group of processes through which disputes, conflicts and cases are resolved outside the formal litigation procedure. India today is in the process of liberalization, Integration which global economy is going on simultaneously. Business has overtaken politics in international relations. Many developed economic are keen to have business relation with India. Multinational * 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 India. But they cannot afford to wait for a long periods for resolution of their commercial disputes. of disputes through the process of arbitration would encourage more international trade. To cope up with the changing scenario, I am happy that India has updated its arbitration legislation in order to provide a level playing field for domestic and foreign The emergence of Prevention of Disputes and its entrepreneurs. In using arbitration there is now a strong Resolution has been one of the most significant world wide trend to use institutional arbitration rather movements as a part of conflict management and than the old practice of judicial reform. In India, 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 arbitration. Adhoc these alternatives has recently conciliate arbitration are known to led to the inclusion of section 89 be continuously suffering from different legal and in dispute for settlement by way of (a) arbitration, (b) practical problems, like rushing to court for orders on conciliation; (c) settlement through either of the ordinary procedural matters and even in fixation of alternative dispute resolution method, the suit would their fees itself- all this results in excessive delays and proceed further in the Court. increased costs. ARBITRATION Arbitration is the main forum of disputes prevention and its resolution. Structurally and culturally, we in India should be more suited for arbitration as the efficacy of the Punch Parmeshwar” system has demonstrated over the centuries. May it be at local level, national level of international level. Notwithstanding talk for its getting expensive day by day and the delay in dispute resolution, the arbitration process has still proved to be an between the litigating parties. Multi national Companies have opened their doors for transfer of resources and technology to India but they are certainly afraid from entering in to commercial transaction with our country only on account of delay involvement in this settlement of disputes. Settlement Arbitral institutions, like the host Council, are necessary because the evolutionary growth and development of arbitral institutions sponsored by trading, commercial and industrial bodies as well as government bodies, and government departments and united nations at national and international levels. The motto has always been “Arbitral Institutions are seen today as the provider of alternative dispute resolution of civil disputes outside the court system. CONCILIATION AND MEDIATION Conciliation and Mediation is also emerging another popular from of ADR. In India, there is a long standing tradition of settlement of disputes by conciliation and 6 Indian Council of Arbitration INDIAN COUNCIL OF ARBITRATION India's Apex Arbitral Institution mediation. Conciliation is as old as the Indian history. In Mahabharata, when both parties were determined to resolve the conflict in battle fields, Lord Krishna did make efforts to resolve the conflict. The concept aims to facilitate the development of consensual solution by the disputant with the third party, neutral playing the role of non Partisan, that is the mediator or conciliator. Conciliation is a viable procedure for settlement of disputes. The best example of an individual mediation is of a highly political sensitive case of Beagle Channel dispute over the ownership of certain islands in the entrance to the channel between Chile and Argentina. This was the subject of an arbitral award in 1977 in favour of chile by a Tribunal of five judges of the International Court of Justice. The award was totally unacceptable politically to Argentina. Eventually, in 1984 the mediation of the pope, which was not based on law, was successful in setting the dispute. I do not propose to take more of your time on subject, except to say that it is one thing to device alternative methods of disputes settlement; it is quite another to make them succeed in meeting the needs and aspirations of society. 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: “To find out solution and save the system Our attitudes should be different than before let us do different things, act different, think different, talk different ! Instead of fights, why not have agreements ! Instead of resistance, why not have cooperation ! Instead of condemning, why not develop understanding ! Instead of finding out who is right or Wrong, why not build relationanships ! Instead of rivalry, why not join together! Instead of past, why not look at the future ! Instead of win-lose situation, why not achieve win-win goals ! Let us change our horizons, visions, goals and attitudes !!! with these words, I wish the Conference a grand success and once again express my gratitude for giving me this opportunity to put forth my views. 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 Senior Advocate Adherence to natural justice the principles of 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 practice and procedure Equity, Law and Fair play in action. 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 Duty to act fairly 8 Indian Council of Arbitration INDIAN COUNCIL OF ARBITRATION India's Apex Arbitral Institution An arbitrator would be guilty of misconduct if he is charged with any information having been obtained from one side which was not disclosed to the In Mustill and Boyd's Law Principles of Natural Justice other. Such an and Practice of Commercial mandate that the person who is to information may be Arbitration in England, 1982 be prejudiced by the evidence oral or in writing. It is Ed., p. 261, the following must be given an opportunity to with this aspect in mind cardinal rules have been suggest cross examination and to that the Legislature suggested for being followed produce evidence to the contrary provided in Section by the arbitral tribunal in 24(3) of the Act that order to ensure fairness in “A l l s t a t e m e n t s , conducting arbitration documents or other information supplied to, or between the litigant parties: applications made to the arbitral tribunal by one party shall be communicated to the other party, and any 1.Each party must have a full opportunity to expert report or evidentiary document on which the present his own case to the tribunal. 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 An arbitrator must not be guilty of hearing one party in and rebut it. 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 had been withheld on the ground of privilege, without even indirectly or incidentally mentioning the nature and volume of the record held privileged, it was held that these lacunas are the violations of the principle of natural justice and denial of opportunity to the contractor to press and prove his case. President of India v. Kesar Singh, AIR 1966 J&K 113 : 1966 Kash LJ 287. not prejudiced, S.L. Kapur v. Jagmohan, AIR 1981 SC 136: (1980)4 SCC 379. Hearing in absence of one par ty POWERS AND DUTIES OF ARBITRATOR INDIAN COUNCIL OF ARBITRATION India's Apex Arbitral Institution The thread of natural justice should run through the entire arbitration proceedings and the principles of natural justice require that the person who is to be prejudiced by the evidence ought to be present to hear it taken to suggest cross-examination and to be able to find evidence, if he can, that shall meet and answer it. Wazir Chand Karan Chand v. Union of India, AIR 1989 Del 175. During the conduct of a reference the arbitrator required the attendance of a witness whom neither side proposed to call. After this witness had given evidence the proceedings terminated, and the arbitrator said that he required nothing further from either of the parties. Subsequently, however, the plaintiff found the arbitrator closeted with the witness and a special pleader who was acting for the defendants, the three persons being engaged in considering the papers and plans connected with the arbitration. The arbitrator explained that the witness was explaining to him information in connection with the case, by which, however, his opinion would not be biased. Held that, as there had been an opportunity for the mind of the arbitrator to have been biased by information given on behalf of one side without the other having had an opportunity of meeting it, the award eventually made by the arbitrator must be set aside [(1844) 14 L.J.Q.B. 17] "Misconduct under Section 30(a) has not a connotation of moral lapse. It comprises legal misconduct which is complete if the Arbitrator on the face of the award arrives at an inconsistent conclusion even on his own finding or arrives at a decision by ignoring very material documents which throw abundant light on the controversy to help a just and fair decision. In the instant case, the Arbitrator has misconducted the proceedings by ignoring the two very material documents to arrive at a just decision to resolve the controversy between the Department and the contractor. Even if Department did not produce those documents before the Arbitrator, it was incumbent upon him to get hold of all the relevant documents including the two documents in question for the purpose of a just decision. Further, he arrived at an inconsistent conclusion even on his own finding. The award suffered from a manifest error apparent ex facie." The making of an award without the basic documents, namely, the arbitration agreement before the arbitrators at the time of application of mind, i.e. at the time of considering the rival contentions of the parties is not permissible. The arbitrator has to insist on the production of the agreement, even if not presented by the parties, as without such agreement being on record, the respective contentions of the parties cannot be adjudicated upon. Hooghly River Bridge, Commissioner v. Bhagirathi Bridge Construction Co. Ltd., AIR 1995 Cal 274. Failure to consider vital documents The well-settled rule of law is that an arbitrator misconducts the proceedings if he ignores very material documents to arrive at a just decision to resolve the controversy. Even if the department did not produce those documents before the arbitrator, it was incumbent upon him to get hold of all the relevant documents for arriving at a just decision. In K.P. Poulose vs State of Kerala, AIR 1975 SC 1259, it had been held by the Hon'ble Supreme Court as under: Arbitrator submission must act within The aim of arbitration is to settle all disputes between the parties and to avoid further litigation. Hence, where the contractor claimed amounts for work done after 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 of England, Vol. II, 4th Ed., para 622). As an arbitrator derives his jurisdiction only from the agreement fro his 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 derives his authority arbitrator in respect 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 It has been stated in the principles derived from a 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 “As an arbitrator obtains his jurisdiction solely from the the contract as well as the reference of the dispute agreement for his appointment, it is never open to him made to the arbitrators limited for the purpose of to reject any part of that agreement, or to disregard any seeing whether the arbitrator has the jurisdiction to limitation placed on his authority ..........” decide the claim made. Himachal Pradesh State Electricity Board v. R.J. Shah, (1999)4 SCC 214; Rajasthan State Mines In the bid documents, it was clearly stated that the & Minerals Ltd. v. Eastern Engg. Enter prises, 1999(3) RAJ intending tenderers must inspect the site of the work, 326 (SC); and Arosan Enterprises Ltd. v. Union of India, make necessary investigation for correctly evaluating AIR 1999 SC 3804. the work, to satisfy themselves as to the nature and location of the work, general and local conditions An arbitrator who acts in manifest disregard of the before arriving at his rates. It was also stipulated therein contract acts without jurisdiction. His authority is that no extra payment shall be made to the successful derived from the contract and is governed by the tenderer if he makes any misjudgment. Thus the claim Arbitration Act which embodies principles derived of the contractor on the ground of excess flourine in from a specialized branch of the law of agency (Mustill drinking water due to which the contractor suffered and Boyd's Commercial Arbitration, 2nd Ed., p.641). could not have been allowed by the arbitrator. He commits misconduct if by his award he decides Ramalinga Reddy v. Superintending Engineer, (1999)9 matters excluded by the agreement (Halsbury'S Laws SCC 610. 11 claim, the arbitrator had jurisdiction to make an award on the said claim also. Shyama Charan Agarwala & Sons v. Union of India, (2002)6 SCC 201. 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 adhere to the conditions of the contract agreed to between the parties and must always be within the terms of reference in accordance with which the parties desire him to make and publish the award. Thus, it is mandatory and obligatory on his part to act strictly in accordance with the law laid down by the Courts and not to act whimsically and arbitrarily and in the manner which he thinks is just and reasonable. Where in a works contract a contractor demands extra costs due to price escalation, which had been barred specifically under the terms of the agreement, the award of such extra costs by the arbitrator was held to be bad in law on the ground that the arbitrator acted in excess of the jurisdiction conferred on him. (Continental Construction Co. Ltd. vs State of Madhya Pradesh, AIR 1988 SC 1166) on proof of such action. The assumption of jurisdiction not possessed by the arbitrator renders the award, to the extent to which it is beyond the arbitrator's jurisdiction, invalid. And if it is not possible to severe such invalid part from the other party of the award, the award must fail in its entirety." Arbitrator to decide on his skill and knowledge Lord Goddard, CJ in Mediterranean & Eastern Export Co. Ltd. vs Fortress Fabrics Ltd., [1948]2 All ER 186, held as under: "A man in the trade who is selected for his experience would be likely to know and indeed be expected to know the fluctuations of the market and would have plenty of means of informing himself or refreshing his memory on any point on which he might find it necessary so to do. ........ It must be taken I think that in fixing the An arbitrator derives authority from the reference amount that he has, he has acted on his own knowledge made to him either by the parties or by a person named and experience. The day in the agreement having has long gone by when the the authority to appoint "Arbitrators cannot refer their Courts looked with the arbitrator, as arbitrements to others, nor to an jealousy on the jurisdiction authorized by the parties of the Arbitrators. The umpire" in the agreement itself. modern tendency is in my The arbitrator is not opinion more especially in permitted in law to enlarge commercial arbitrations, to endeavour to uphold awards the scope of reference. Any decision or award on an of the skilled persons that the parties themselves have item(s) which is beyond the scope of reference shall selected to decide the questions at issue between not have the sanction of law. If the award on an item them......". not referred for adjudication in arbitration had been decided by the arbitrator and is not severable from the rest of the award, then the whole of the award shall be set aside by the Court. In Jivrajbhai Ujamshi Sheth and others vs Chintamanrao Balaji and others, AIR 1965 SC 214, the Hon'ble Supreme Court laid down the law as under: “If the parties set limits to action by the arbitrator, then the arbitrator has to follow the limits set for him, and the Court can find that he has exceeded his jurisdiction Arbitrator functions cannot delegate his In Russell on Arbitration, 20th Ed., page 228, it has been stated as under: “One who has an authority to do an act for another must execute it himself, and cannot transfer it to another; for this, being a trust and confidence reposed 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 for whom the act was to be done”. “Arbitrators cannot refer their arbitrements to others, nor to an umpire; if the submission be not so; neither can they make their arbitrement in the names of themselves and of a third person to whom no submission was made; nor alter it after it is once made.” Russell on Arbitration, 20th Ed., p. 263 states: “In general, an arbitrator is not justified in proceeding ex parte without giving the party absenting himself due notice. It is advisable to give the notice in writing to each of the parties or their solicitors. It should express the arbitrator's intention clearly, otherwise the award may be set aside. An ordinary appointment for a meeting with the addition of the word 'peremptory' marked on it is, however, sufficient”. If the arbitrator declines to proceed on the first failure to attend a peremptory appointment, and gives another appointment, he is not authorised to proceed ex parte at the second meeting, unless the appointment for it was also marked 'peremptory' or contained a similar intimation of his intention. On this aspect of the matter, Russell On Arbitration, 20th Ed., p. 264 states: “If a party says: 'I will not attend, because you (the arbitrator) are receiving illegal evidence, and no award which you can make will be good, ' the arbitrator may go on with the reference in his absence; and it seems that it is not necessary in such a case to give the recusant any notice of the subsequent meetings. But, though it may not always be necessary, it is certainly advisable that notice of every meeting should be given to the party who absents himself, so that he may have the opportunity of changing his mind, and of being present if he pleases.” If the arbitrator did not allow adjournment of just one day, as the counsel of the party was busy in another arbitration proceedings and proceeded to pass an ex parte award, without giving notice of his intention to do so, the award would be invalid. Executive Engineer, Prachi Division v. Gangaram Chhapolia, AIR 1983 NOC 205 (Ori). Power to proceed ex-parte An arbitrator ought not to proceed ex parte against a party if he has not appeared at one of the sittings. The arbitrator should give another notice fixing date, time and venue and intimate that he would proceed with the matter ex parte if either party fails to attend. Even after notice if the defaulting party does not attend, the arbitrator may proceed in his absence. Lovely Benefit Chit Fund & Finance Pvt. Ltd. v. Puran Dutt Sood, AIR 1983 Del 413 ; Hemkunt Builders P. Ltd. v. Panjabi University, Patiala, 1993(1) Arb LR 348. As per terms of the arbitration agreement, both the parties were required to nominate their respective arbitrators. Delay occurred on the part of one party to nominate its arbitrator. Thereupon, the nomineearbitrator of the other party started conducting arbitration proceedings ex parte in a tearing haste without waiting for other party. He not only proceeded ex parte on same date but also recorded statement of witness and heard arguments. It was held that the procedure adopted by the arbitrator was in violation of the principles of natural justice and the award rendered by him was set aside, Shri Ram Ram Niranjan v. Union of India, AIR 2001 Del 424; Juggilal Kamlapat v. General Fibre Dealers Ltd., AIR 1955 Cal 354 (DB); Dipti Bikash Sen v. India Automobiles (Pvt) Ltd., AIR 1978 Cal 454 ; and, Lovely Benefit Chit Fund & 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 delay Section 14(1)(a) of the Act provides that the mandate of an arbitrator shall terminate if he becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay. Thus, where the named arbitrator does not act for three months despite repeated reminders, it can be clearly said that the mandate of the named arbitrator shall be deemed to have been terminated as he failed to act without undue delay as contemplated under section 14(1)(a) and the court gets the power to appoint a new arbitrator under section 11(5). Deepa Galvanising Engg. Industries Pvt. Ltd. v. Govt. of India, 1998(1) ICC 410 (AP). Where the parties stipulated by consent that if the arbitrator does not complete the arbitral proceedings on or before a particular date his mandate shall stand terminated, then the mandate automatically terminates on the expiry of that date. Consent order is nothing but an agreement between the parties with super imposed seal of the court. Kifayatullah Haji Gulam Rasool v. Bilkish Ismail Mehsania, AIR 2000 Bom 424. What is reasonable dispatch depends upon the type of arbitration and the size and complexity of the dispute. The question of reasonableness should be determined by reference to the nature of arbitration and the interests of the parties and not individual circumstances of the arbitrator. Thus, if the arbitrators were delayed in proceeding by illness or unexpected absence abroad, they would be open to removal, even though they had not personally flawed. Conversely, fault is not sufficient to amount to a failure to use all reasonable dispatch: an arbitrator may be incompetent or guilty of misconduct and yet not be guilty of such delay. Mustil and Boyd'S Commercial Arbitration, p. 474. A Division Bench of the Karnataka High Court in a very recent judgment reported as Rudramani Devaru vs Shrimad Maharaj Niranjan Jagadguru, AIR 2005 Kant 313 summarized the principles to be followed by an arbitral tribunal as under: “The minimum requirements of a proper hearing should include: (i) each party must have notice that the hearing is to take place and of the date, time and place of holding such hearing; (ii) each party must have a reasonable opportunity to be present at the hearing along with his witnesses and legal advisers, if any, if allowed; (iii) each party must have an opportunity to be present throughout the hearing; (iv) each party must have a reasonable opportunity to present statements, documents, evidence and arguments in support of his own case; (v) each party must be supplied with the statements, documents and evidence adduced by the other side; (vi) each party must have a reasonable opportunity to cross-examine his opponent's witnesses and reply to the arguments advanced in support of his opponent's case. It is expected of an arbitral tribunal that it should ensure that the date of the hearing is not so close that the case cannot be properly prepared. Equally, an arbitral tribunal, while fixing the date of hearing, should try to accommodate any party who is placed in difficulty by his absence due to unavoidable circumstances such as illness or compelling engagements of himself elsewhere etc. Each party is also entitled to know any statements, documents, evidence or information collected by the arbitral tribunal itself which are adverse to his interest, if they are not contested. The arbitral tribunal is neither to hear evidence nor arguments of one party in the absence of the other party, unless despite opportunity, the other party chooses to remain absent. So also, the arbitral tribunal is not to hear evidence in the absence of both the parties unless both the parties choose to remain absent despite proper notice. Each party to arbitration reference is entitled to advance notice of any hearing and of any meeting of the arbitral tribunal as provided under S.24 of the Act” 14 Indian Council of Arbitration NEGOTIATING AND DRAFTING OF AN ARBITRATION AGREEMENT Sunil Malhotra The author is a practicing advocate and senior partner of Laware Associates, New Delhi Introduction In a search for an established method of resolving Business disputes quickly, efficiently and constructively and a method where the parties involve in the disputes can maintain their relationship, Arbitration has emerged as that solution for a system of dispute resolution. The essence of arbitration is that some dispute is referred by the parties for the settlement to a tribunal of their own choice instead of going to a court…..inasmuch an Arbitration differs from legal proceedings proper only in the choice of Tribunal, all ordinary Legal defences are available.1 Arbitration is an out of court settlement Mechanism where the parties select their own Arbitrator/s. IN case the parties fail to appoint an Arbitrator in terms of the agreement, either party may move the court under Section 11 of the Arbitration and conciliation Act for the appointment of arbitrators. It is generally conducted by one Arbitrator or a panel of 3 Arbitrators. Arbitration allows for flexibility. Parties are free to select the arbitration structure, format, si te, scope of 1 arbitration, Place of arbitration, choice of law, formalities of the process, whether to involve Lawyers etc. All these formalities and agreement have to be written down in what is known as the arbitration agreement. The Arbitration agre ement is the document which is the basis of reference of disputes to Arbitration. It can be either in the contract itself or in the form of a separate agreement.2 The Agreement to Arbitrate Arbitration agreements are formed at one of two points in time: during the negotiation of a contract, or after a legal dispute arises. Because the contract negotiation process offers greater opportunity to develop an arbitration format without the acrimony that can develop after a controversy arises, inclusion of an arbitration agreement as a clause in a contract is preferable and can streamline the dispute resolution process. Generally the arbitration agreement is incorporated into the contract governing the transaction itself. The agreement should specifically state in clear terms that the parties have agreed to refer their disputes to Arbitration. A single expression 'submission' was used in the Indian Arbitration Act 1899. The Arbitration Act of 1940 used the expressions "Arbitration agreement" and "Reference" separate Now under the Arbitration and Conciliation Act 1996, the position has reverted back with the use of the single expression 'Arbitration 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 'reference' has been dropped. The definition of "Arbitration agreement" given in s. 2(a) of the Arbitration Act 1940, was the same as that of "Submission" in the Act of 1899. The expression 'reference' was defined in s. 2(e) of the Arbitration Act 1940 to mean "a reference to arbitration". Now the Arbitration and Conciliation Act 1996 defines the expression "arbitration agreement" vide s. 2(b) read with s. 7 in almost similar manner as the expression "arbitration agreement" contained in the Act of 1940. But the words "in respect of a defined legal relationship, whether contractual or not" contained in s. 7 (1) to define the expression appear to have been borrowed from Art. II of New York Convention of 1958. There has been, however, no major change in the definition of 'arbitration agreement' as contained in the present Act from that as contained in the Act of 1940. The addition of the words taken out from Art. II aforesaid is more explanator y and does not change the concept so far held of the expression 'arbitration agreement'. 3 Although the expression 'reference' has not been defined in the present Act, it means the actual submission of a particular dispute under the arbitration agreement to Arbitration as contemplated in the arbitration agreement. So while drafting the Arbitration agreement it should be remembered that the agreement should be “to refer any disputes arising out of or in connection with the contract/transaction to arbitration”. On the notice of Arbitration issued by one party to the other the arbitration procedure is said to be in motion and the arbitration is said to commence on that date4. The reference to arbitration is complete when either party appoints his arbitrator and it is not necessary to follow it up with a formal reference to arbitration. The reference may not be in writing. In principle, parties should also always ensure that the arbitration agreement is: ! In writing- The effectiveness of an arbitration clause first of all depends on proof of its existence. It should therefore generally be in writing. It is normally consider to be in writing if it is contained in the a document signed by the parties, an exchange of letters, telex, telegrams, or other means of telecommunication which provides a record for the agreement, or an exchange of statement of claims and defence in which the existence of the agreement is alleged by one party and not denied by the other5. The 1958 New York Convention specifically states (Art. II) That, Contracting States shall recognize arbitration agreements "in writing" 6. The parties to the agreement should be ad idem: There should be consensus between the parties agreeing upon the same thing. There should be no mistake in understanding as to the subject matter in respect of which they agree to refer their disputes or differences to arbitration7. ! S.K.Chawla “Law of Arbitration and conciliation”, 2nd edition, Eastern law House, New Delhi. 2004 at p-186 4 3 5 6 7 S. 7(4) of the Arbitration and conciliation Act,1996 James Finlay V. Gurdayal Pahlaraj, AIR 1924 Sind 91 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 parties8. be referred” should be used and not “may” to make the Arbitration clause a mandatory one. ! 2.Choice of Arbitrator(s)- The clause must Carefully drafted- There have been lots of 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 The arbitral clause must specify Badly worded clauses institutional rules are the selection process or the impede the arbitration used that provide for number of Arbitrators to be process and should be selection of arbitrators, appointed, otherwise statutes avoided at all cost. The no further reference to and rules may fill any gap agreement should be selection may be drafted after due consultation with lawyers or experts in this field. necessary. A panel of three arbitrators is standard practice, with the parties each appointing one, and the parties or arbitrators selecting a third. The number of Arbitrators should not be an even number9. In some circumstances an appointing authority will designate any missing members. Where one of the parties refuses to select an arbitrator as a dilatory tactic, the court can appoint the arbitrator10.A sole arbitrator may be preferable for disputes involving smaller amounts. In highly technical matters a qualified engineer may preferably be appointed as one of the arbitrator as he would be able to understand the technicalities of the contract and assist the other Arbitrators. If an arbitrator must have a special skill, it should be specified in the arbitration agreement. In case the parties have not determine the number of arbitrators, the court on application shall appoint an arbitral Tribunal consisting of a sole arbitrator11. This may not be a good sometime keeping in view the nature of the dispute and the amount involved. 9 Essential of Agreement the Arbitration The following elements should be considered for inclusion in any arbitration agreement: 1.Scope of Arbitration - The parties/ the drafter should explicitly state the matters that they want the arbitration agreement to cover. However local law may restrict issues that may be subject to arbitration and the drafter should be aware of this factor. If the Agreement fails to clearly lay down the issues/disputes which are subject matter of Arbitration, the question of the 'scope of reference “and “jurisdiction of the Arbitral Tribunal” could arise which could cause unnecessary delay to the proceedings. The word “shall 8 S.7(4) (a) of Arbitration and conciliation Act 1996 S.10 (1) Arbitration and conciliation Act 1996. Section 11 Arbitration and conciliation Act 1996. Section 10(2) of the arbitration and conciliation Act, 1996. 10 11 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 the substantive law that will be applied in the arbitration. The parties may select a procedural law. If they do not, the procedural law of the place where the arbitration occurs will apply. In the absence of an express choice of applicable law, the law of the place of the arbitration will be applied. In India for domestic arbitration it is the substantive law that is time being in force which will apply irrespective of what the agreement says.12 5. Choice of Language - Parties may designate one language as the official language of the proceedings and allow simultaneous interpretation into another language.13 6. Choice of Rules - Parties should specify the rules of procedure that will govern the arbitration process. For Domestic Arbitration the arbitration and conciliation Act of 1996 has laid down the procedures 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 ! The language in which the proceeding will be persons, documents and currency, and support services conducted should be considered and the choice of location in the arbitration agreement should include the name of both ! The substantive law to be applied; the city and country. 12 13 ! S.28 (1) Arbitration and conciliation Act 1996. S.22 Arbitration and conciliation Act 1996 The use of experts; 18 Indian Council of Arbitration INDIAN COUNCIL OF ARBITRATION India's Apex Arbitral Institution ! The time allowed to arbitrators to make awards; The power of any administering authority over the awards; The availability of provisional relief; and, Flexibility to allow parties to opt out of certain provisions. ! ! ! 7. Rules of Evidence - It is taken as a given in most arbitration that the Rules of Evidence do not govern, and that the arbitrator has discretion to consider whatever evidence he wants. If you want a different result, say so in your arbitration agreement. The Indian evidence Act is not applicable to Arbitration proceedings and parties can agree upon a procedure of evidence.14 8. Discovery - For the purpose of speedy disposal of the dispute between the parties, time may be fixed for the purpose of discovery, disposition, interrogations, Physical examination, cross examination, production of documents, admission and denial of documents etc. If this type of clause is included the parties counsel shall confer jointly with the arbitrator at the earliest convenient date to determine the discovery that shall take place and the formalities and the time for such discovery should be agreed upon and be laid down in writing. 9. Costs - The arbitration agreement should provide for the allocation of costs. A well-drafted arbitration clause should provide for the division of expenses incurred in arbitration. While most expenses will be divided equally, some may be borne by one party (for example, if a party decides to have a court reporter transcribe the proceedings). Questions of equal division become more complicated if there are several parties. Sometime the parties may agree for fixing the fee for the arbitrator depending upon the nature of the disputes and the amount involved in the said arbitration. To make the arbitration cost effective, Institutional arbitration may be preferred. 10. Award of Tribunal - The agreement should specify that a majority of the arbitrators must agree on an award and that it must be based on applicable law. The agreement should also specify the currency for payment of the award. If the award is to be recognized and enforced internationally, it may need to state reasons and legal basis, including reference to the process by which the legal basis was selected. Some awards contain no reasoning or written report. Though the Arbitration and conciliation Act 1996 provides for the manner in which the arbitral award should be made15 but the parties may negotiate and agree for decision announced orally at the close of the arbitration and this should be included in the arbitration agreement. If the parties have also agreed that no reasoning for an award is needed to be given, this should also be included. 11. Confidentiality - One of the advantages of arbitration is the issue of confidentiality. Arbitration 15 14 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 many commercial matters this is highly advantageous. It might be prudent for the parties to confirm the confidentiality of any dispute resolution procedures which may be undertaken in terms of the agreement. and the scope and authority for the arbitral tribunal.17 DRAFTING CLAUSE THE ARBITRATION 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 ! The language of the clause Parties can, at any stage of intention is to settle the should be tested against arbitration settle the dispute dispute through the worst case scenario, through mediation, conciliation or Negotiations mutually, and and the most hostile negotiation 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 for the Commercial Court' provides that a party may petition the Commercial Court to set aside a foreign arbitral award “in the making of which Russian law was applied” in such cases “as provided by international treaty of the Russian Federation.” On its face, the Article is unremarkable: Article V(1) (e) of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (“new York Convention”) contemplates that a court may set aside an award made in another country in the rare case where the parties have agreed that the arbitration proceedings should be “governed by an arbitration law which is different from the arbitration law of the country in which the award was made.” In a series of judgments on the setting aside of an ad hoc arbitral award made in Sweden, three instances of the Russian Commercial Court reached conflicting conclusions and missed the opportunity to clarify the proper application of Article 230 (5). The arbitral award in question was made in Stockholm pursuant to the Swedish Law on Arbitration of 1996. Russian law as the substantive law of the underlying dispute. In the first instance, the Russian Commercial Court set aside the award based on a misinterpretation of Article IX(1) of the European Convention on International Commercial Arbitration of 1961 (“European Convention”). Article IX(1) provides, in part, that the “setting aside in a Contracting State of an arbitral award….shall only constitute a ground for the refusal of recognition or enforcement in another Contracting State where such setting aside took place in a State in which, or under the law of which, the award has been made.” The second instance, sitting in cassation, left that decision intact. In the third instance, the Presidium of the Supreme Commercial Court rightly vacated the two preceding decisions, but not for the obvious reason. The Presidium held that the European Convention does not authorize the setting aside of an award by a state in which the award was not made (here: Russia) or, even if the award had been made in Russia (a Contracting Party to he European Convention), when the award was made in, or in accordance with the law of a Presidium further stated that the New York Convention does not regulate the setting aside of awards, but rather “contains criteria for the recognition and enforcement of foreign arbitral awards.” Thus, the Presidium's holding is based solely on its finding that neither treaty authorized the Russian courts to set aside the Swedish award. The Presidium, however, missed an opportunity to interpret Article 230(5) in conformity with New York Convention Article V (1)(e) as providing a basis for setting aside a foreign award in Russia only if Russian procedural law (i.e. the law governing the conduct of the arbitration) applied to the making of the award, but not, as in the case before it, where Russian substantive law applied to the underlying dispute. All the facts necessary for such a ruling were in the record. It had been apparent to the courts at all three instances that Swedish procedural law applied to the making of the award: It was made in Sweden in accordance with the Swedish Law on Arbitration of 1996. The Presidium further noted, without disagreement, that both instances had assumed that the underlying agreement was governed by substantive Russian law. It is hoped that the Russian courts will eventually adopt the view of the President of the International Commercial Arbitration Court at the Russian Federation Chamber of Commerce and Industr y, who has remarked that the “law” referred to in Article 230(5) “should be interpreted as referring to the law which is governing arbitration procedure but not the rules of substant[ive] law applied by the arbitral tribunal for resolving the dispute.” (Moscow: William Spiegelberger Tatiana Minaeva, Pavel Boulatov, Venera Kamalova) 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 : Indian Council of Arbitration Federation House, Tansen Marg, New Delhi - 110 001 Ph. : 91-11-23738760-70, 23719109 Fax : 23320714, 23721504 E-mail : ica@nda.vsnl.net.in Website : www.bisnetworld.net/icanet Sponsored by Government of India Supported by Regd. No. 14282 / 67