Alternate Dispute Resolution

Unit 2. Arbitration Agreement and Arbitration Tribunal

Topic 1. Arbitration agreement: essentials, kinds and validity

ARBITRAL AGREEMENT
An Arbitral agreement is essential point in the law of Arbitration. The particular form of arbitral
agreement is not provided under this Act. but there must be legal, valid and binding agreement
between the parties. This Act specifically provided that arbitration agreement must be in the
form of document and document must be signed by the parties to operate as an arbitration
agreement.
Meaning of Arbitral agreement-
According to Sec.7(1) of arbitration & conciliation Act 1996 ,
"arbitration agreement” means an agreement by the parties to submit to arbitration all or certain
disputes which have arisen or which may arise between them in respect of a defined legal
relationship, whether contractual or not.

Essential features of an "arbitral agreement"

The essential features of an arbitration agreement, as defined by clause (b) of S.2(1) read with S.
7, are as follows
1) Valid & binding Agreement -
There should be a valid and binding agreement between the parties.
2) Such agreement may be -
in the form of an arbitration clause in a contract or in the form of a separate agreement.
3) Written Agreement -
An arbitration agreement shall be in writing.
4) An arbitration agreement is in writing if it is contained in—
(a) a document signed by the parties.
(b) an exchange of letters, telex, telegrams or other means of telecommunication which provide
a record of the agreement; or
(c) an exchange of statements of claim and defence in which the existence of the agreement is
alleged by one party and not denied by the other.
5) The reference in a contract to a document containing an arbitration clause constitutes an
arbitration agreement if the contract is in writing and the reference is such as to make that
arbitration clause part of the contract

Who can enter into arbitration agreement?

Every person who is competent to contract can enter into arbitration agreement. In case of
partnership a partner can enter into on behalf of partnership into arbitration agreement. The
directors or other officers of the company may enter into an arbitration agreement.
A Karta of Hindu joint family can make a valid reference to the arbitration and where he acts
Bonafide the award binds other members.
A) Minor and lunatics -
contract by minors and lunatics are void and therefore by themselves they cannot enter into valid
agreement of arbitration. however, they can enter into arbitration agreement with their natural
or legal guardian's
B) Agent -
Agent recognized agent of a party can enter into an arbitration agreement on behalf of his
principal.
C) Manager of Hindu joint family-
A manager of Hindu joint family can refer the final dispute to arbitration.
Case law -
1) Sadashiv Ramchandra Datar v. Trimbak Keshar AIR 1920 Bom 32.
In this case Bombay high Court held that if a minor is not properly represented and his guardians
fails in this duty to protect his interest, the award is not binding on minor.
2) Sunderlal Haveliwala Vs. Bhagwati Devi AIR 1967 All 400
In this case of dispute among the partners inter se, if the deed of partnership provides for Such
disputes being referred to arbitration, a partner shall be entitled to make reference to arbitration.
Kinds of Arbitration
In arbitration a dispute is submitted to the arbitral tribunal and not to a regular civil court or
otherwise. The arbitral tribunal must give a decision on the dispute and this decision is thus
binding on the parties in the dispute since they have no grounds to appeal.

When contrasted with the traditional approach of a judicial proceeding which ordinarily
happens in a Court; and has to go through a lengthy process, and which usually leaves one
party or both parties exhausted financially. An arbitration proceeding is not formal and does
not involve judicial proceeding which can save a lot of time for the parties.

A few types of Arbitrations in India on the basis of Jurisdiction

Domestic Arbitration
Domestic arbitration is that type of arbitration, which happens in India, wherein both parties
must be Indians and the conflict has to be decided in accordance with the substantive law of
India. The term domestic arbitration has not been defined in the Arbitration and Conciliation
Act of 1996. However when reading Section 2 (2) (7) of the Act 1996 together, it is implied that
domestic arbitration means an arbitration in which the arbitral proceedings must necessarily be
held in India, and according to Indian substantive and procedural law, and the cause of action
for the dispute has completely arisen in India, or in the event that the parties are subject to
Indian jurisdiction.

International Arbitration
When arbitration happens within India or outside India containing elements which are foreign
in origin in relation to the parties or the subject of the dispute, it is called as International
Arbitration. The law applicable can be Indian or foreign depending upon the facts and
circumstances of the case and the contract in this regard between the respective parties. To
fulfill the definition of International Arbitration it is sufficient if any one of the parties to the
dispute is domiciled outside India or if the subject matter of dispute is abroad.

International Commercial Arbitration

International Arbitration is considered to be commercial if it related to disputes arising out of a
legal relationships irrespective of their contractual nature and are considered as commercial
under the law in force in India and where at least one of the parties is-
1. A national of, or habitual resident in, any country other than India or
2. A body corporate which has to be incorporated in any foreign country, or
3. An association or a body of individuals whose core management and control in a country
which is not India or
4. the government of a country other an India. In International Commercial Arbitration the
arbitral tribunal is bound to decide the conflict according to the rules of law chosen by
the parties as applicable to the substance of the dispute; any designation by the parties
of the law or legal system of a given country can be interpreted, unless it has been
expressed otherwise, one which directly refers to the substantive law of that country
and does not refer to its conflict of laws rules.
Types of arbitrations that are primarily recognized in India on the basis of procedure and rules:
1. Institutional arbitration
2. Ad hoc arbitration
3. Fast track arbitration

Institutional arbitration
When an arbitral Institution conducts arbitration, it is called Institutional Arbitration. The
parties have the choice of specifying, in the arbitration agreement, to refer the differences to
be determined in accordance with the rules of as elected arbitral Institution. One or more
arbitrators can be appointed from a pre-selected panel by the governing body of the institution
or the disputants themselves can select their panel, but it has to be restricted to the limited
panel. Arbitration and Conciliation Act 1996 provides that where in Part I except section 28, the
parties are free to determine a certain issue, that liberty encompasses the right the parties
have to authorize any person including an institution, to determine that issue.
Ad-hoc arbitration
If the parties agree among themselves and arrange for arbitration, it is called Ad hoc Arbitration
without having an institutional proceeding. It can either be domestic, international or foreign
arbitration.
An agreement to refer an existing dispute, and/or an agreement to refer either future or
existing disputes to arbitration without an arbitration institution being specified to supervise
the proceedings, or at least to supply the procedural rules for the arbitration. This second sense
is more common in international arbitration.

Ad Hoc Arbitration means that the arbitration should not be conducted according to the rules
of an arbitral institution. Since, parties do not have an obligation to submit their arbitration to
the rules of an arbitral institution; they are free to state their own rules of procedure. The
geographical jurisdiction of Ad hoc Arbitration is of essence, since most of the issues concerning
arbitration will be resolved in accordance with the national law of the seat of arbitration.

Fast track arbitration

Even the other processes of arbitration can be lengthy and tedious and thus this process of
arbitration works like a remedy to the issue of time. Fast track arbitration is a method, which is
time dependent in the provision of the arbitration and conciliation act. Its procedure is
established in a way that it has abandoned all the methods, which consume time, and uphold the
simplicity which is the originally the prime purpose of such arbitration.

Validity of Arbitration Agreements: -

Introduction
The Supreme Court of India ("Supreme Court") in the recent case of Ashapura Mine-Chem
Ltd ("Appellant") v. Gujarat Mineral Development Corporation ("Respondent") has addressed
the issue of separability and survival of an arbitration clause contained in a Memorandum of
Understanding ("MoU"). The Supreme Court held that the arbitration agreement in the MoU was
valid as it constitutes a stand-alone agreement independent from its underlying contract.
Facts
The parties entered into a MoU in 2007 for setting up an alumina plant in Gujarat by way of a
Joint Venture with a Chinese company. The MoU provided for an arbitration agreement in the
event of parties' failure to settle disputes amicably. The relevant clause provided that (a) the
arbitration proceedings would be held at Ahmedabad; and (b) it would be governed and
construed in accordance with the laws of India.
Subsequent to the signing of the MoU, the Respondent decided to approve the MoU subject to
certain modifications. After considerable exchange of correspondence, the Respondent sought
amendments to the original MoU due to major change in State policy. However, eventually the
Respondent cancelled the MoU on the pretext that Appellant had failed to comply with the terms
and conditions contained therein.
The parties failed to resolve their disputes amicably and no consensus could be reached on
appointment of Arbitrator between them. The Appellant filed an application under Section 11 of
the Indian Arbitration & Conciliation Act, 1996 (Act) for appointment of Sole Arbitrator.
The Gujarat High Court ("Gujarat HC") dismissed the application for appointment of Arbitrator
on the ground that the MoU never resulted in a complete contract, and accordingly held that no
enforcement could be sought for the same. The Gujarat HC held that the MoU was "stillborn" as
it did not fructify into a joint venture. The present ruling arises out of an appeal from the decision
of the Gujarat HC.
Issue
The issue before Supreme Court was whether the MoU was a concluded contract, if not, whether
the arbitration clause survives and continues to bind the parties being a stand-alone provision.
Arguments
The Appellant submitted that even if the MoU did not ultimately fructify, the dispute resolution
clauses, by virtue of specific terms contained therein, operated as a stand-alone agreement for
arbitration with reference to the terms of the MoU. On the other hand, Respondent submitted
that due to complete absence of consensus between the parties, even with regard to the MoU,
there was no scope for making a reference to arbitration as per certain clauses contained therein.
Judgment
The Supreme Court relying on several judgments including Reva Electric Car Co. Pvt Ltd. v. Green
Mobil2 and Today Homes and Infrastructure Pvt. Ltd. v. Ludhiana Improvement Trust3 and
Enercon v Enercon4 concluded that in addition to the fundamental nature of the separability
presumption, the dispute between the parties relates to the relationship created by way of the
MoU and so the arbitration agreement contained therein would bind the parties.
The Supreme Court found that irrespective of whether the MoU fructified into a full-fledged
agreement, the parties had agreed to subject all disputes, arising out of and in connection to the
MoU, to arbitration. Such an agreement would constitute a separate and independent
agreement in itself. Since no consensus was reached on the appointment of a Sole Arbitrator, it
would be open to the parties to invoke Section 11 of the Act. Based on this ground alone, the
Supreme Court set aside the order of the Gujarat HC and appointed a Sole Arbitrator due to
existence of a valid arbitration agreement.

Topic 2. Parties to arbitration agreement

In certain situations, the arbitration agreement signed by two or more parties may be applicable
to a non-signatory to said arbitration agreement. There have been various cases in India wherein
this issue has been discussed across different courts. In the case of Prabhat Steel Traders Private
Limited vs. Excel Metal Processors Private Limited, the Bombay High Court in 2018 dealt with the
issue concerning the locus of a non-signatory to the arbitration agreement under the Arbitration
and Conciliation Act, 1996 with respect to section 37 of the Act which provides for Appealable
orders, that a non-signatory to the arbitration agreement can challenge the interim orders issued
by a sole arbitrator or an arbitral tribunal under section 17 of the Act.
Case Background
In the aforesaid mentioned case, arbitration petitions filed under section 37 of the Act, the
petitioners, who were non-signatories to the arbitration agreement, prayed for leave to appeal
against the order passed by an arbitral tribunal and also prayed for setting aside the said
impugned order, on the grounds that the interim measure was causing severe prejudice to the
interests of the petitioners. The Court first summarized the facts in one of the arbitration
petitions which was argued as the lead matter and in view that the facts in the other petitions
were identical, the judgment in the lead matter was applied to the other petitions.
Judgment
The Court accepts the contention that section 37 of the Act does not provide that an appeal
under said provision can be filed only by the parties to the arbitration agreement. Section 34 of
the Act refers to the expression “party” which is absent in section 37 of the Act.
The fact that the expression “party” is absent in section 37 of the Act makes the legislative intent
clear that the said expression “party” is deliberately not inserted so as to provide a remedy of an
appeal to a third party who is affected by any interim measures granted by the arbitral tribunal
or by the Court in the proceedings filed by and between the parties to the arbitration agreement.
There is a possibility of collusive proceedings and collusive order of interim measures being filed
and obtained by the parties to the arbitration agreement which may affect the interest of third
parties.
The Court further observed that the Division bench of the Bombay High Court in the case of Girish
Mulchand Mehta and Durga Jaishankar Mehta vs. Mahesh S. Mehta and Harini Cooperative
Housing Society Ltd. has dealt with an issue whether the appeal under section 37 of the Act could
have been filed by the third party arising out of the order passed under section 9 of the Act.
The Division bench construed Rule 803E of the Bombay High Court (Original Side) Rules and has
held that section 9 of the Act is distinct from section 17 of the Act, in as much as a petition under
section 17 of the Act is moved before the arbitral tribunal for an order against a party to the
proceedings, whereas section 9 of the Act vests remedy in a party to arbitration proceedings to
seek interim measure of protection against a person who need not be either party to the
arbitration agreement or to the arbitration proceedings. In the said proceedings under section 9
of the Act, a third party was also impleaded since the grant of the proposed relief may incidentally
affect those third parties.
The Court entertained the appeal under section 37 of the Act filed by such third party who was
affected by the order passed by the learned Single Judge under section 9 of the Act, though
dismissed the said appeal on merit.
The High Court was of the view that the fact that powers of the Court under section 9 of the Act
to grant interim measures and powers of the arbitral tribunal under section 17 of the Act are
identical in view of the amendment to section 17 of the Act with effect from 23rd October 2015,
therefore, even a third party who is directly or indirectly affected by interim measures granted
by the arbitral tribunal will have a remedy of an appeal under section 37 of the Act. The principles
of law laid down by the Division bench of the Court in Girish Mulchand Mehta’s case were
extended to the present case.
By this landmark judgment the Court observed that, in view of an order obtained by the parties
to the arbitration agreement under section 17 of the Act, directly affecting the independent
rights of the Petitioner (a third party), such third parties cannot be made to suffer on the ground
that the remedy of appeal under section 37 of the Act could not be availed of by such third
parties, given that the said provision does not specifically bar appeals filed by the third parties.

Topic 3. Reference to arbitration

Section 8 states as follows:
“8: Power to refer parties to arbitration where there is an arbitration agreement. —
Section 8 (1) – A judicial authority, before which an action is brought in a matter which is the
subject of an arbitration agreement shall, if a party to the arbitration agreement or any person
claiming through or under him, so applies not later than the date of submitting his first statement
on the substance of the dispute, then, notwithstanding any judgment, decree or order of the
Supreme Court or any Court, refer the parties to arbitration unless it finds that prima facie no
valid arbitration agreement exists.”
Section 8 (2) – The application referred to in sub-section (1) shall not be entertained unless it is
accompanied by the original arbitration agreement or a duly certified copy thereof:
Provided that where the original arbitration agreement or a certified copy
thereof is not available with the party applying for reference to arbitration
under sub-section (1), and the said agreement or certified copy is retained by
the other party to that agreement, then, the party so applying shall file such
application along with a copy of the arbitration agreement and a petition praying the Court to
call upon the other party to produce the original arbitration agreement or its duly certified copy
before that Court.
Section 8 (3) Notwithstanding that an application has been made under sub-section (1) and that
the issue is pending before the judicial authority, an arbitration may be commenced or continued,
and an arbitral award made.”
Section 8 clearly stipulates that whenever a suit is filed in a civil court and the cause of action of
said suit emanates from a contract in which the parties had voluntarily and willingly agreed to
settle the dispute via arbitration, then, if the essentials of section 8 are met, it is the bounden
duty of court to refer the parties to the arbitration.
The position of Section 8 of the act becomes further clear when it is compared with the Uncitral
Model Law as section 8 of the act differs from Article 8 of model law. Article 8 enabled a court to
decline to refer parties to arbitration if it is found that the arbitration agreement is null and void,
inoperative or incapable of being performed. Section 8 has made a departure which is indicative
of the wide reach and ambit of the statutory mandate.
Section 8 uses the expansive expression “judicial authority” rather than “court” and the words
“unless it finds that the agreement is null and void, inoperative and incapable of being
performed” do not find a place in section 8. This distinction clearly dictates that the legislature
has intentionally endowed less power on judicial courts with respect to section 8 applications to
make sure the arbitration process is facilitated and unnecessary intervention by courts be
avoided.
Despite the position being this crystal clear, this section has been subjected to various
interpretation by our courts time and again which has led to a lot of confusion.
There have been instances where Courts have adopted the literal interpretation route and hence
construed the section in the way it is meant to be and has referred the matter to arbitration,
when the essentials of section 8 are fulfilled, irrespective of the prevailing circumstances. Yet,
there had been instances where the courts had completely neglected valid precedents and had
tenuously interpreted the section in a manner it is not meant to be and has denied the reference
thereby deviating from the valid line of precedents. Further, it is not just the deviation alone, in
one matter the SC has actually gone to the extent whereby which it has laid down certain
exceptions to this rule, which in my opinion is wholly erroneous. If there would have been some
need for such exceptions, the legislature would have done that by adding such exceptions in the
act itself.
Judicial Decisions
In Swiss Timing Ltd v. Commonwealth Games 2010 Organising Committee, the court
categorically, held that even if a criminal case is pending against a party, that in itself does not
disentitle said party from taking recourse under section 8 and referred the dispute to arbitration.
The dispute arose because the respondent failed to make the payment towards petitioner’s
services after the commonwealth games. The petitioner tried to resolve the dispute in
accordance with the procedure mentioned in clause 34 of their agreement but the respondent
denied the payment and when petitioner filed petition under section 11 of the act, the
respondent contended that the amount is not payable as the petitioner has violated clauses 29,
30 & 34 of the agreement as the petitioner has engaged in corrupt practices on the basis of
complaint bearing, CC no. 22 of 2011 u/s 120B, 420, 427, 488 and 477 IPC R/w Ss 13(1)(d) and
13(2) of the PC Act, registered against it.
The main contention of the defendant was that since a complaint case has been filed against
petitioner for corruption, hence the reference of dispute to arbitration is not tenable.
The court rejected this argument of the respondent and held that such allegations as are
mentioned in the criminal case, are such which have to be proved in a proper forum on the basis
of the oral and documentary evidence, produced by the parties, in support of their respective
claims and existence of such allegations does not disentitle the petitioner to resort to the
arbitration with respect to the dispute arose on the basis of the contract.
Further, the respondent tried to contend that since the allegations of corruption is levied on the
petitioner, which is in contravention to the representations and warranties undertaken by the
petitioner in the contract, the contract becomes void ab initio and hence the arbitration clause
dies then and there.
To support this contention, the respondent placed reliance on N. Radhakrishnan V. Maestro
Engineers. In the said case, even after finding that the subject matter of the suit was within the
ambit of arbitration, the court refused to refer the dispute to arbitration by holding that once the
contract is held to be void ab initio, the arbitration clause dies then and there.
In response to this, the court held that, the law laid down in the Radhakrishnan runs counter to
the ratio laid down in Hindustan Petroleum Corpn Ltd v. Pinkcity Midway Petroleums, where the
court in para 14 observed that if in an agreement the parties before the civil court, there is a
clause for arbitration, it is mandatory for the civil court to refer the dispute to arbitrator. In the
said case, the existence of arbitral clause was not denied by either of the parties and hence in
accordance with the mandatory nature of section 8, the court referred the dispute to arbitration.
The court in the present case held that, the law laid down in Hindustan Petroleum is correct law
on the point and not the ratio of Radhakrishnan’s judgment. The court gave two reasons on the
basis of which it invalidated Radhakrishnan’s judgment i.e. (a) the judgment in Hindustan
Petroleum though referred, was not distinguished nor followed and (b) provisions mentioned
under section 16 of arbitration act were also not brought before the court.

Section 16 provides that Arbitral tribunal would be competent to rule on its own jurisdiction including
ruling on any objection with regard to existence or validity of the arbitration agreement. The arbitration
act emphasizes that an arbitration clause which forms part of a contract shall be treated as an
agreement independent of the other terms of the contract. It further provides that the decision by the
arbitral tribunal that the contract is null and void does not entail ipso jure that the arbitration clause is
invalid. Hence Radhakrishnan’s judgment does not lay down correct law and hence cannot be relied
upon.

Further, the court mentioned another matter i.e. Today Homes & infra pvt ltd v. Ludhiana
Improvement Trust in which the Punjab & Haryana High Court refused to refer the dispute to
arbitration under section 8 on the basis that underlying contract is void. An SLP was filed against
this decision of the Punjab & Haryana High Court in the Supreme Court and the Court held that
the Ld. Judge of High Court has erred in not referring the dispute to the arbitration by going into
detailed scrutiny of the agreement as at the stage of section 8, the Judge is only required to
decide such preliminary issues as of jurisdiction to entertain the application, existence of valid
arbitration agreement, whether a live claim existed or not for the purpose of appointment of an
arbitrator. By not referring the dispute to the arbitration, the judge has sought to do more than
what is required under section 11(6) of the act without any evidence being adduced by the
parties. The issue regarding the continued existence of the arbitration agreement,
notwithstanding the main agreement itself being declared void, was considered by the seven-
judge bench in SBP & Co. and it was held that an arbitration agreement could stand independent
of the main agreement and did not necessarily become otiose, even if the main agreement, of
which it is a part, is declared void.
In view of Today Homes & infra pvt ltd v. Ludhiana Improvement Trust, the court held that the
submission of respondent that a criminal case is registered against respondent and hence court
cannot refer it to the arbitration is wholly tenuous and not maintainable.
The court further held that, it is mandatory for the courts to refer disputes to arbitration, if
agreement between the parties provides for reference to arbitration and the ground that a
criminal case is registered with reference to the execution of the agreement is not an absolute
bar to refer the disputes to arbitration.
The court held that there is no inherent risk of prejudice to any party in permitting arbitration to
proceed simultaneously with criminal proceedings since findings recorded by arbitral tribunal are
not binding in criminal proceedings and in an eventuality where ultimately the award is rendered
by arbitral tribunal, and criminal proceedings result in conviction rendering the contract void,
such conviction can be placed on record to resist the enforcement of the award. But if the
criminal proceedings end up in acquittal and the dispute is not referred to arbitration, it will result
in undesirable delay in the arbitration.
After Swiss Timing Ltd, in Sundaram Finance Ltd & Anr v. T. Thankam, the question as to ‘what
should be the approach of a civil court when an application in terms of section 8 is filed before
the said civil court’ again reached Supreme Court.
The court, citing P. Anand Gajapathi Raju V. PVG Raju and Hindustan Petroleum Corpn. Ltd v. Pink
City Midway Petroleums (Supra), held that language of section 8 of the act is peremptory in
nature and therefore in cases where arbitration clause is there in the agreement, it is obligatory
for the court to refer the parties to arbitration in terms of their arbitration agreement and
nothing remains to be decided in the original action after such an application is made except to
refer the dispute to an arbitrator. Therefore it is clear that if as contended by a party in an
agreement between the parties before the civil court, there is a clause for arbitration, it is
mandatory for the civil court to refer the dispute to an arbitrator.
The court further referred to Magma Leasing and Finance Ltd. V. Potluri Madhavilata in which it
was again reiterated that no option is left to the court, once the prerequisites of section 8 of act
are fully satisfied.
In the end, the court held that once an application in due compliance of section 8 is filed, the
approach of civil court should be not to see whether the court has jurisdiction, but to see whether
its jurisdiction has been ousted. There is a lot of difference between the two approaches. Once
it is brought to the notice of the court that its jurisdiction is barred by virtue of procedure under
a special statue, the civil court should first see whether there is an ouster of its jurisdiction in
terms of compliance with the procedure under the special statue.
The basic principle of our jurisprudence is generalia specialibus non derogant i.e. a general law
should yield to the special law. In such a situation, the approach shall not be to see where there
is still jurisdiction of civil court under general law but whether it has been ousted by the special
law.

Topic 4. Arbitral tribunal: appointment, jurisdiction and powers, procedure, oral

and written proceedings, Grounds of challenge

Appointment: -
Section 11 of the Arbitration and Conciliation Act, 1996 deals with the appointment of
arbitrators. A person of any nationality may be appointed arbitrator unless the contrary
intention is expressed by the parties. The parties are free to agree on a procedure for
appointment of arbitrator or arbitrators. Where parties fail to appoint three arbitrators, each
party shall appoint one arbitrator and the two arbitrators shall appoint the third arbitrator.
Hence, appointing three arbitrators is mandatory, with the third one being the presiding
arbitrator.

Where a party fails to appoint an arbitrator in accordance with the third arbitrator with the
within thirty days from the date of receipts of a request to do so from the other party or two
appointed arbitrators fail to agree on the third arbitrator within 30 days from the date of their
appointment, the appointment shall be made, upon a request of a party, by the Chief Justice of
the High Court or any person or institution designated by him.

In the absence of any procedure to appoint a sole arbitrator, if the parties fail to agree on the
arbitrator within 30 days from receipt on a request by one party from the other party to so
agree, the appointment shall be made upon request of a party, by the Chief Justice of the High
Court or any person or institution designated by him.
Where under an appointment procedure agreed upon by the parties:
a. a party fails to act as required under that procedure; or,
b. the parties or two appointed arbitrators fail to reach an agreement as required under
that procedure, or
c. a person including an institution fails to perform any function as required under that
procedure, a party may request the Chief Justice of the High Court or any person or
institution designated by him to take the necessary measures in absence of an
agreement for other means of securing the appointment.

The decision of the Chief Justice of the High Court or the person or the institution designated by
him in appointing an arbitrator shall be final.
In such appointment, two considerations are to be made:
a. Required qualifications of the arbitrator as provided in the agreement of the parties,
and
b. independent and impartial person as an arbitrator.
These are the circumstances under which the Chief Justice of a High Court can make an
appointment.

In case of appointment of a sole or third arbitrator in international commercial arbitration, the

appointing authority is the Chief Justice of India or a person or institution designated by him.

Important case laws:

In Indian Drugs & Pharmaceuticals Ltd. v. Indo Swiss S. Gem Mfg. Co. Ltd., it has been held that
no retired High Court Judge can be appointed as an arbitrator by the court when the arbitration
clause states categorically that the difference/dispute shall be referred “to an arbitrator by the
Chairman and Managing Director of IPDL who is the appellant in this case.”

In National Aluminium Co.Ltd v. Metalimpex Ltd., a Bangladeshi company failed to nominate its
arbitrator in terms of the arbitration agreement on an application under S.11 of the Arbitration
and Conciliation Act, 1996, the Chief Justice of India nominated an arbitrator to act on behalf of
the Bangladeshi company.

Procedure for the appointment:

Section 11 only confers power on the High Court to appoint an arbitrator or presiding arbitrator
only when the following conditions are fulfilled:
a. where there is a valid arbitration agreement;
b. the agreement contains for the appointment of one or more arbitrators;
c. the appointment of the arbitrator is to be made by mutual consent of all the parties to
the dispute.
d. differences have arisen between the parties to the arbitration agreement; or between
the appointed arbitrators;
e. the differences are on the appointment or appointments of arbitrators.

Appointment of a third arbitrator by the court in case of disagreement between two

arbitrators:
In ICICI Ltd. v. East Coast Boat Builders & Engineers Ltd., two arbitrators were appointed by
respective parties, but they did not agree on the name of the third arbitrator. The petitioner
made an application for appointment of the third arbitrator by the court under s.11 of the Act.
The court accepted the prayer and appointed the third arbitrator.

Lack of jurisdiction to appoint the arbitrator:

In Kanagarani Durairaj v. Dwaragan, it was held that:
“in absence of a delegation of power by the Chief Justice of High Court under s.11 of the Act,
the City Civil Court has no jurisdiction to appoint an arbitrator under s.11 of the court.”

The disagreement between arbitrators:

If there is any disagreement between the arbitrators, there is no award and the jurisdiction of
the presiding arbitrator can be invoked. In the absence of any contrary provision in the
arbitration agreement, the presiding arbitrator can adjudicate the whole case if the arbitrators
disagree on any particular point, as held in Probodh v. Union of India.

Appointment of Presiding Officer (Umpire)

The question for the appointment of Presiding Officer arises only when there is a conflict of
opinion between an even number of arbitrators. Appointment of the third arbitrator may be
made in any one of the two following cases:
a. By the parties themselves at the time of submission, and
b. by the arbitrators.
Appointment of the sole arbitrator:
Where a sole arbitrator is appointed, it must be notified to the other side, otherwise, his
appointment cannot be considered valid.
Appointment of presiding arbitrator:
As soon as the arbitrators accept their appointments and communicate with each other the
reference, they are presumed to have entered upon the reference. When one of the arbitrators
refuses to act or concur on the appointment of a third arbitrator, there is a disagreement and in
such as case, the Chief Justice of the High Court is competent to make the appointment of the
presiding arbitrator.

Jurisdiction: -
Article 16 of Chapter IV of the UNCITRAL model rules on International Commercial Arbitration
established in India by Section 16 of Chapter IV of the Arbitration and Conciliation Act 1996
mention that “The arbitral tribunal may rule on its own including ruling on any objections with
respect to the existence or validity of the arbitration agreement, and for that purpose” which
implies that the arbitral tribunal has the independence of choosing its own jurisdiction and
freedom from the interference of courts regarding any matter related to arbitration.

The honorable court interpreted the intention of the plea of non-jurisdiction of an arbitral
tribunal under section16(5) of the Act in the case of Union of India vs. M/s. East Coast Boat
Builders & Engineers Ltd. where the court held that
1. “From the scheme of the Act, it is apparent that the legislature did not provide appeal
against the order under section 16(5) where the arbitral tribunal takes a decision
rejecting the plea that the arbitral tribunal has no jurisdiction. The intention appears to
be that in such case; the arbitral tribunal shall continue with the arbitral proceedings
and make an award without delay and without being interfered in the arbitral process at
that stage by any court in their supervisory role.”

An arbitral tribunal cannot be said to have a statutory jurisdiction. The tribunal makes
and decides its own jurisdiction to fit the requirements of the parties. The arbitral
agreement decides the scope and extent of jurisdiction of the arbitral tribunal. The
principal of party-autonomy states that when two parties have the right to settle their
disputes on their own then they have the right to present this right to any third party, to
decide overt that dispute.
Thus it is extremely important to consider a well-drafted agreement because it ensures
giving full power to the tribunal to decide matters regarding the jurisdiction. The
Arbitration and Conciliation Act 1996 additionally mentions the jurisdiction over
deciding certain matters in Section 17 of the Act.

1. Appoint a guardian for minor/unsound person during the process of arbitration

2. Protection/Preservation/ Detention/ temporary injunction of the subject matter of the
arbitration.
There are certain cases in which the competence of the arbitral tribunal subject to getting
questioned.
Section 11(6) of the Arbitration and Conciliation Act states that “a party may request the Chief
Justice or his designate to take required steps when under an appointment procedure agreed to
by the parties, one of them fails to act as required under the procedure, or the parties or the two
arbitrators fail to reach an agreement expected of them under the procedure, or a person or
institution fails to perform a function entrusted to him under such procedure”

And section 11(7) states that a decision was taken by the Chief justice or his designate under
section 11(4), section 11(5) or section 11(6) shall be final. This implies a restriction on the part of
the tribunal to look into its own jurisdiction when the Chief Justice has already looked into it.

In the case of Konkan Railway Corporation Ltd. vs. Rani Construction Pvt. Ltd. the judgment
“It might also be that in a given case the Chief Justice or his designate may have nominated the
arbitrator though the period of thirty days had not expired. If so, the Arbitral Tribunal would
have been improperly constituted and be without jurisdiction. It would then be open to the
aggrieved party to require the Arbitral Tribunal to rule on its jurisdiction. Section 16 provides
for this. It states that the Arbitral Tribunal may rule on its own jurisdiction.”

Similarly, in the judgment of the SBP and Co. vs. Patel Engineering Ltd. case, the power of the
arbitral tribunal was relegated to that of the choice of Chief Justice in deciding over its
jurisdiction.
The question, in the context of sub-section (7) of Section 11 is, what is the scope of the right
conferred on the Arbitral Tribunal to rule upon its own jurisdiction and the existence of the
arbitration clause, envisaged by section 16(1), once the Chief Justice or the person designated
by him had appointed an arbitrator after satisfying himself that the conditions for the exercise
of power to appoint an arbitrator are present in the case.
Prima facie, it would be difficult to say that in spite of the decision of the Chief Justice, the
Arbitral tribunal can still go behind that decision and rule on its own jurisdiction or on the
existence of an arbitration clause.

Sundaram Finance Ltd. v. NEPC India Ltd. held that an order under Section 11 of the Act was an
“administrative order”. This would mean that no appeal could lie under Article 136(1) of the
Constitution. This case showcases a clear reluctance on the part of the Court to impinge upon
the autonomy enjoyed by the arbitration process and by holding that the function exercised by
the Chief Justice was administrative, the Court essentially prohibited the Chief Justice from
ruling upon questions such as the existence or validity of the arbitration agreement.

Powers:-
The arbitrator is the one who will give the arbitral award, therefore, The Arbitration and
Conciliation Act, 1996 provides several powers to him in order to decide the award.
Power to administer an oath to the parties and witnesses
The arbitrator has the power to administer the oath to the parties and witnesses. He also could
issue interrogatories to the parties if he thought it necessary to do so. There is no express
provision relating to that power being given under The Arbitration and Conciliation Act, 1966.
However, it is implicitly applied to the fact that he acts like a quasi-judicial authority in
arbitration.
Power to take interim measures
According to Section 17 of this Act, when any party during the arbitration proceeding or at any
time after making of the arbitral award, may seek the interim measure before the arbitration
tribunal. The arbitration tribunal has the power to take an interim measure relating to:
• Appointment of guardian for minor or person of unsound mind.
• For the protection of: -
1. Interim custody and sale of goods which are subjected to the arbitration agreement.
2. Securing amount which is disputed in the arbitration.
3. Detention, prevention or inspection of any property or thing which is subjected to
arbitration.
4. Appointment of receiver.
5. Such other interim measure is necessary for the eyes of the Court.
Power to proceed to ex-parte
In any arbitration proceeding, the arbitrator has the power to proceed to ex-parte i.e. in the
favor of one party if another party contravenes any provision of this Act. According to Section
25, there are three conditions under which the court may pass an ex- parte award:
1. When the claimant fails to communicate his statement of claim in accordance
with Section 23(1) of the Act.
2. When the respondent fails to communicate his statement of claim in accordance with
Section 23(1) of the Act.
3. When any party fails to appear at an oral hearing or to produce the document or to
produce documentary evidence.
The court, however, doesn’t proceed ex-parte against any party without giving him the notice
regarding the court’s intention to proceed ex parte on a specific date, time and place.
Power to appoint an expert
According to Section 26 of the Act, the arbitrator has the power to appoint one or more experts
to report to him on a specific issue, if he finds it necessary in any case. The arbitrator also has
the power to give the expert any relevant information or documents or property for the
purpose of his inspection. If necessary the arbitrator also has the power to appoint the expert
as a participant in a hearing but in order to appoint an expert, the expert must have to show
the parties that he has expertise in matters related to this case.
Power to make awards
Power to make awards is the most important power as well as the duty of arbitrators which is
given under The Arbitration and Conciliation Act, 1996. However, the rules applicable in an
arbitration proceeding is:
• In matters related to international commercial arbitration, the arbitral dispute shall be
decided according to the rules of proceeding which is decided by the parties but if they
fail to decide it, then the arbitrator himself decides the rules which are applicable.
• In other matters, the arbitral tribunal shall have to decide the rule which is in
accordance with the substantive law.
However, with such aforesaid power, at the time of making such an award, the arbitrator also
has the duty to consider the following necessary aspects:
• The party who is entitled to costs.
• The party who pays the cost.
• The amount and method of determining those costs.
• The manner in which the costs shall be payable.
• The cost of the arbitration proceeding, or any other expenses fixed by the arbitration
tribunal
If the number of arbitrators is more than one, then the decision must be signed either by all the
arbitrators or by the majority of them.
Procedure: -
Following are the stages of arbitration or arbitration process step by step:
• Arbitration Clause - An agreement or the clause specifically stating that if the dispute
arises between the parties, they will resolve it through the process of arbitration.
• Arbitration notice - In case a dispute has arisen and the party has opted to follow the
procedure of arbitration then the party against whom the default has been committed
will send an arbitration notice for invoking arbitration process steps between the
parties.
• Appointment of Arbitrator- After receiving the notice by other parties both the parties
will appoint the arbitrators in the manner as specified in the arbitration agreement or
arbitration clause.
• Statement of Claim- Next step in an arbitration proceeding in India is to draft a
statement of claim. Statement of claim contains the dispute between the parties, events
which lead to the dispute and the compensation claimed from the defaulting party. The
other party can file a statement of counterclaim along with reply to the statement of
claim. Get your statement of claim, reply to the statement of claim or counterclaim
through top arbitration lawyers.
• Hearing of Parties - Arbitral tribunal will hear both the parties and their evidence.
• Award - After hearing the parties, the arbitral tribunal will pass the decision. The
decision of the tribunal is known as ‘Award’ and is binding on the parties. However, an
appeal against the arbitral award can be filed before the High Court.
• Execution of Award - Once the award has been passed by the tribunal it has to be
executed. The party in whose favor the award has been passed has to file for execution
or enforcement of award with the help of a good arbitration lawyer.
Arbitration process in India does not follow the procedure of the Civil Procedure Code and the
arbitrator also the arbitration proceeding does not need to follow the procedures enlisted in
the Civil Procedure Code, 1908.
Oral & Written Arbitration Proceedings: -
Section 24: Hearings and written proceedings.
24. (1) Unless otherwise agreed by the parties, the arbitral tribunal shall decide whether to hold
oral hearings for the presentation of evidence or for oral argument, or whether the proceedings
shall be conducted on the basis of documents and other materials:
Provided that the arbitral tribunal shall hold oral hearings, at an appropriate stage of the
proceedings, on a request by a party, unless the parties have agreed that no oral hearing shall
be held:
1[Provided further that the arbitral tribunal shall, as far as possible, hold oral hearings for
the presentation of evidence or for oral argument on day-to-day basis, and not grant any
adjournments unless sufficient cause is made out, and may impose costs including exemplary
costs on the party seeking adjournment without any sufficient cause.]
(2) The parties shall be given sufficient advance notice of any hearing and of any meeting of
the arbitral tribunal for the purposes of inspection of documents, goods or other property.
(3) All statements, documents or other information supplied to, or applications made to the
arbitral tribunal by one party shall be communicated to the other party, and any expert report
or evidentiary document on which the arbitral tribunal may rely in making its decision shall be
communicated to the parties.

Grounds for Challenge: -

• Disclosure of certain circumstances

Section 12(1) of the Act, amended in 2015, compels a prospective arbitrator to provide a
written disclosure of certain circumstances which may give rise to suspicions to his
independence or impartiality. Whether a circumstance is suspicious to the independence of an
arbitrator, is to be decided by the arbitrator himself.
Section 12(1)(a) states that the arbitrator should disclose if he has any direct, indirect, past or
present relationship to the parties, or if he has any financial, business, professional or any other
kind of interest in the subject-matter of the dispute, which would affect his impartiality in the
case.
For example, Company X and Company Z while entering into a particular contract, add an
arbitration clause naming Mr. A as an arbitrator. Mr. A is the owner of Company C. A dispute
concerning payment of bills to Company X by Company Z arose and Mr. A was approached for
presiding as an arbitrator. Company Z is a client of Company C and forms a considerable part of
its income.
In such a scenario, Mr. A would have an interest in the dispute and that might give rise to
doubts to his impartiality.
Section 12(1)(b) similarly points to any circumstances that would affect an arbitrator’s capacity
to devote enough time to finish the arbitration within twelve months.
There are two explanations given under the sub-section. The first one states that the Fifth
Schedule should be referred to understand whether circumstances under Section 12(1)(a) exist.
The second one states that such a disclosure should happen in the format under Sixth Schedule.
Fifth Schedule
The fifth schedule deals with following types of relations which might give rise to reasonable
doubts:
1. Arbitrator’s relationship with parties or counsel
2. Arbitrator’s relationship to the dispute
3. Arbitrator’s interest in the dispute
4. Arbitrator’s past involvement with the dispute
5. Relationship of co-arbitrator’s
6. Relationship of the arbitrator with parties and others in the dispute
7. Other Circumstances
If the factual scenario of a case falls under any of the above headings, then the arbitrator may
be challenged. These are extensive headings which cover many scenarios to ensure maximum
impartiality. However, ‘Explanation 3’ to this schedule, points out that if it’s a specialized
arbitration involving niche fields, and it’s a custom to appoint same arbitrators from a small
specialized pool, then this should be noted by applying these rules. None of these headings
provides for an immediate bar to the appointment of an arbitrator.
Section 12(2) reinforces sub-section 1, by stating that unless a written disclosure has already
been given, an appointed arbitrator should disclose any conflict of interest as soon as possible.
• Other Grounds for Challenge
The actual grounds for challenge under this section are illustrated under Section 12(3).
If an arbitrator’s independence and impartiality are doubted due to the circumstances under
Section 12(1) then he may be challenged or in the event that he doesn’t possess the necessary
qualifications agreed to by the parties.
A party to the dispute which appoints an arbitrator may challenge such appointment for
reasons he becomes aware only after the appointment.
Section 12(5), inserted by the 2015 amendment, automatically disqualifies any potential
arbitrator who falls in any category under the Seventh Schedule of the Act.
Seventh Schedule
This schedule also covers most of the headings under the Fifth Schedule. The list isn’t as
exhaustive as the Fifth Schedule but as stated above, simply acts as a bar to appointment as
arbitrator. However, this bar can be waived by the parties by an agreement in writing.
The Schedule covers:
1. Arbitrator’s relationship with the parties or counsel
2. Relation of Arbitrator to the dispute
3. Arbitrator’s interest in the dispute.
• Interpretation of Section 12 in recent case laws

• Voestalpine Schienen v. Delhi Metro Rail Corporation

This was the first case adjudicated by the Supreme Court after the 2015 amendment was
passed. It is thus significant in clarifying the scope of this important section.
Facts: The Delhi Metro Rail Corporation (DMRC), a public sector undertaking, had entered into a
contract with M/s Voestalpine. Due to some disputes that arose in the course of business, the
arbitration clause was invoked and as per the contract. In the contract, it was provided that,
arbitration proceedings should be done in compliance of Clause 9.2 of the DMRC General
Conditions of Contract (DMRC GCC) and Clause 9.2 of the special conditions of the contract
(DMRC SCC).
According to these clauses, DMRC was to make a list of arbitrators consisting of serving or
retired engineers with requisite qualifications and professional experience. These engineers
were to be from ‘government departments or public sector undertakings’. Furthermore, DMRC
and Voestalpine were to choose one arbitrator each from this list and both of these arbitrators
shall choose the third arbitrator from the same list.
The petitioner, Voestalpine challenged this provision under Sections 11(6) and 11(8) of the Act.
Issues
• Whether in light of the 2015 Amendment, the above-mentioned clauses become invalid
by virtue of Section 12(5)?
• Whether DMRC being a public sector undertaking cannot appoint former or retired
employees of the government as arbitrators?
• Whether such a clause destroys the very foundation and spirit behind the amendment?
Held
The Supreme Court pointed that the main purpose of amending Section 12 was to maintain a
higher level of arbitrator impartiality. In light of this, it stated that in the event that the
arbitration clause was in contradiction to Section 12 (5), the latter would prevail. In such a case
the court would appoint an arbitrator and a party cannot claim appointment as per the
agreement.
However, in the case, the Court held that only because of the fact that the suggested
arbitrators were former or current government employees they won’t be automatically
disqualified from being arbitrators. If they didn’t have any relation to any of the parties, they
were not barred under Section 12(5).
The court differentiated between the concepts of ‘impartiality’ and ‘independence’. Thus, the
court held, any question on impartiality or independence would surface when the arbitrator
discloses any interest in writing. The Court declined jurisdiction in the case.
The Court directed DMRC to delete the clauses from SCC and GCC and asked it to constitute a
broader panel.
• DBM Geotechnics v. Bharat Petroleum Ltd
Facts: In 2003, the respondent BPCL had issued an e-tender for construction works. In 2014,
DBM Geotechnics, the applicant was given the letter of intent and subsequently, an agreement
was concluded.
In October 2015, BPCL abruptly terminated the agreement by alleging performance delays and
appointed another contractor. In June 2016, BPCL initiated arbitration proceedings under the
Agreement. As per the terms of the agreement, the Director of Marketing (DM) was to be the
sole arbitrator or he was to appoint another person as an arbitrator.
Issues
• Whether such a clause in the arbitration agreement would be rendered ineffective in
light of Section 12 (5) of the Arbitration Act.
Held
The applicants argued that the nomination procedure would be unlawful in light of Section 12.
The Court rejected this argument and held that in spite of the fact that the DM was barred from
presiding as the arbitrator, he could still nominate someone else as the presiding arbitrator.
• TRF Ltd v. Energo Engineering Projects
Facts: Energo Engineering Projects, the respondent-company dealt in the procurement,
handling and installation of equipment in thermal power plants, for various clients like NTPC,
Moser Baer etc.
In 2014, the respondent issued a purchase order to the appellant for various articles. The
appellant had also given an advance bank and performance guarantee. The dispute arose with
the enforcement of the bank guarantee. The appellant approached the High Court to restrain
the encashment of the guarantee.
In the meanwhile, the appellant invoked the arbitration clause of the General Terms and
Conditions of the Purchase Order (GTCPO). It also argued that the HC should appoint the
arbitrator under Section 11 (6) because in light of Section 12 (5) the Managing Director was
ineligible to act as an arbitrator and thus ineligible to arbitrate as well. The High Court rejected
this argument and stated that merely because the MD is disqualified to act as an arbitrator, he
isn’t devoid of his power to nominate. The nominated arbitrator will have his own independent
views. This ruling was challenged in the Supreme Court.
Issues
• Whether the High Court had rightfully rejected the applications under Section 11(6)?
• Whether a statutory disqualification also meant a disqualification of the power to
nominate?
Held
The Supreme Court analyzed the clause under GTCPO which mentioned the MD as the sole
arbitrator or any of his nominees. It arrived at the conclusion that, although the MD may be a
respectable person and otherwise eligible to arbitrate, he is ineligible in the present case. Thus,
that makes him ineligible to nominate anyone else as an arbitrator as well. The Court said, once
the infrastructure collapses, the superstructure collapses as well.

The 2015 Amendment to the Act is aimed to promote arbitration in India and to provide for
greater transparency and reliability on the same. Section 12 gains more importance in light of
the new amendment and hopefully, it contributes to making arbitration a more popular
recourse than judicial courts.