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C O N T E N T S
ICA Arbitration
Editorial Board
Statement of Purpose
Editor's Message
he year 2011 has gone by and with the advent of year 2012, it is now a time for
review and reflection. The last year saw a lot of changes in the Council. The
Council consolidated its position as an apex Arbitral Centre in the country with
strong support from the Government, business and industries and the legal
fraternity. The pages of ICA Arbitration Quarterly have already chronicled our activities and
initiatives. The most important thing that we achieved in the last year was the increased
recognition and awareness amongst the arbitration community about the Council.
In prospect, we foresee that 2012 will be our busiest year yet. Apart from our routine
activities of resolving disputes and catering other arbitral services to the commercial world,
we will also be occupied with updating our Rules of Commercial and Maritime Arbitration,
as also complete revision of Rules of Conciliation. In addition, we have prepared a calendar
of events for the entire year, which includes training for intending arbitrators, seminars,
conference and interactive meetings to address issues relating to Alternative Dispute
Resolution (ADR). The events have been planned to be organized in different parts of the
country to encourage more adoption of ADR process in resolving disputes.
This year, therefore, promises to be a very exciting year for the Council. Hope, we would
continue to accomplish remarkable achievements in this year as well with the unwavering
support of regular users of ICA Arbitral services and other stake-holders. We look forward
to celebrate another journey of challenges and changes in 2012.
We would welcome your feedback and valued inputs for further improvement of this
publication.
Happy Reading!
D.Sengupta
Editor
Executive Summary
The aim of this Quarterly is to provide its readers well-written, insightful articles and
resourceful information on critical issues, areas of concern, latest developments and
news and trends in the growing field of dispute resolution throughout the world.
Hereinbelow are the abstracts of articles featured in this issue of the Quarterly.
Mr. Rishi Kumar in his article entitled Public Law Remedy vis--vis the
Arbitration and Conciliation Act, 1996, has discussed about the
importance of the arbitration clause and demonstrated how the court
should curb in intervention in arbitration by referring to various important
judgments. The referred judgments enable us to understand the grounds of
the court's interference even where an alternative remedy exists in the
agreement between the parties.
Mr. Santosh Kumar, in his article viz. Power of Court to Grant Interim
Relief Under Arbitration and Conciliation Act, 1996, has highlighted
the importance of Section 9 of the 1996 Act. In the course of his
discussion, he has presented a critical study on interim measures and
jurisdiction of the courts for granting interim relief. The powers of the
court for granting interim relief have also been discussed in detail.
Mr. D Sengupta, under the title of his essay, International Commercial
Arbitration in India Issues & Concerns, has vividly examined the role
and importance of arbitral institution in conducting international
commercial arbitration. The burning issue of Public Policy in international
arbitration and its effect has also been discussed in the light of recent
developments arising out of certain important judgments of the Supreme
Court of India.
C O N T E N T S
Articles
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CASE HIGHLIGHTS
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seeks enforcement of any of the Fundamental Rights; (ii) where there is failure of principles of natural
justice or, (iii) where the orders or proceedings are wholly without jurisdiction or the vires of an Act is
challenged.
In yet another interesting judgment of the Supreme Court in Sanjana M Wig (Ms) v. Hindustan Petroleum
Corporation Ltd (2005) 8 SCC 242, the Supreme Court laid down that notwithstanding an arbitration clause in
the agreement, access to justice by way of public law remedy would not be denied when a case involves
public law character and when the forum chosen by the parties would not be in a position to grant
appropriate relief. Further, it was held that a writ petition will also be entertained when it involves a question
arising out of public law functions on the part of one of the parties.
While in the aforesaid Harbanslal judgment, the Supreme Court held that the presence of an arbitration clause
in the agreement is not an absolute bar from invoking the writ jurisdiction of the court in Titagarh Paper Mills
v. Orissa State Electricity Board (1975) 2 SCC 436 the Supreme Court held that, where the parties have chosen a
forum for adjudication of their disputes, in such cases the court may not entertain a writ application. It was
further observed that there was no reason why the appellant should not pursue the remedy of arbitration
which it had solemnly accepted under the agreement, rather than invoking the extraordinary jurisdiction of
the high court under Article 226 of the Constitution to determine questions which really formed the subject
matter of the arbitration agreement.
Though, the aforesaid decisions have been handed down in keeping with the intent that injustice, whenever
and wherever it takes place, has to be struck down, these decisions raise some fundamental questions vis-vis the sanctity of the contract between the parties which has an alternative dispute resolution mechanism.
When a dispute arises between the parties under such a contract, which requires adjudication of disputed
question of facts, wherefore the parties are required to lead evidence both oral and documentary, which have
to be determined by a domestic forum chosen by the parties, is it appropriate for a court to entertain a writ
application in such circumstances?
It is to be noted that the Arbitration and Conciliation Act, 1996 (the 1996 Act) was enacted for party
autonomy and maximum judicial support with minimum judicial intervention. Section 5 of the 1996 Act,
provides that all other laws for the time being in force have been excluded from operation in so far as they
relate to intervention by any judicial authority. Additionally, any judicial authority faced with a matter that is
the subject of an arbitration agreement is statutorily mandated by section 8 of the 1996 Act to refer the
parties to arbitration.
Hence, with due respect, it is time that the Supreme Court while taking into consideration the provisions laid
down in the 1996 Act lays down clear exceptions or rules on when a court should exercise its writ jurisdiction
under Article 226, especially when the parties have chosen an alternative mode of dispute resolution and
have agreed to resolve their disputes through arbitration.
INDIAN COUNCIL OF ARBITRATION
Scope
Section 9 can be invoked only as an interim measure pending commencement in course of the arbitral
proceedings. It is to protect the subject matter of property of the arbitration agreement. It is not a
3
substantive relief. The court enjoys discretionary powers for the grant of interim measures. Section 17 of the
Act provides for interim measures that can be granted by the arbitral tribunal, but the powers under section 9
are wider. The Court under section 9 only formulates interim measures so as to protect rights under
adjudication before the arbitral tribunal from being frustrated. This section should be applied so that status
quo may be directed to be maintained having regard to the fact that the parties understood the workability of
the agreement in particular manner.4 No doubt, the usual requirement of making out a prima facie case,
balance of convenience, irreparable injury, etc. all come into play. Such measures are allowed only in aid of
the arbitration proceedings and not to frustrate them.5 The Supreme Court of India in M/s Sant Ram &
1
Art. 9 Arbitration agreement and interim measure by the court It is not incompatible with an arbitration agreement or a Party to request,
before or during arbitral proceedings, from a court an interim measure of Protection and for a court to grant such measure
3
Liverpool and London steamship protection and indemnity Association Ltd vs. Arbian Tankers Company 2004(1) RAJ 311 (Bom).
Firm Ashoka Traders Vs. Gurumukh Das Saluja, 2004(3) SCC 155
Jammu & Kashmir State Forest Corpn. Vs. Abdul Karim AIR 1989 SC 1498.
co. Vs State of Rajasthan6 has taken a view (differing from its earlier view) under the 1940 Act that
pendency of court proceedings in relation to an arbitration proceedings was a condition precedent for the
exercise of power. This limitation does not exist under the 1996 Act. Section 9 is a self-contained provision
permitting a party to make an independent application. It is apparent that courts have no power to adjudicate
on merits of disputes in the guise of passing interim reliefs since that jurisdiction is assigned to the arbitral
tribunal. Similarly, the court cannot grant, in favour of the applicant, something which he would have been
entitled to only after the final decision on the merits of the case in his favour.
Interim injunction: The respondent had granted license to the petitioner to exclusively
manufacture, use or sell its trade name in medicine, which was a life saving drug, used by heart
patients. There was a clause of enforcement of negative covenant. Interim relief was not granted
because of acquiescence for three years. It was found that it is not in public interest to stay
7
manufacturing of a live-saving drug.
(ii)
Appointment of guardian for a minor or a person of unsound mind for the purpose of arbitration
proceeding.
(iii) Appointment of a receiver8 : The court is also empowered by section 44 of the Act to order the
appointment of a receiver for the purpose of or in relation to arbitration proceedings. The receiver
so appointed is under a duty to collect in the property over which he is appointed; thereby ensuring
its protection and preservation, pending arbitration in accordance with the direction of the court.
(iv) Payment of amount of difference in the reference.9
(v)
Preservation or inspection of article or properties which are subject matter of reference like
partnership property.10
Brawn Laboratories Ltd Vs Rhone poulene Rorer & Anr- 1999(2) Arb LR 297 (Delhi)
Narain Sahi Aggarawal Vs. Santosh Rani AIR 1998 Delhi: 144.
Radhika Agro industries Pvt. Ltd. Vs Pawan Agro Food Ltd 1998 (1) Arb LR 432 (Delhi)
10
Ibid
Jurisdiction of Court
Interim relief can be granted by the court, having jurisdiction over subject matter of the arbitration
agreement. Where the contract provides for exclusive jurisdiction at a particular place, interim measures can
be obtained only from that court.
However, the court for granting interim relief cannot be different from the one on which jurisdiction is
conferred under section 2(e) of the Act. The Supreme Court in P. Anand Gajapathy Raju Vs P.V.G. Raju15,
has observed that the 'Court' to which the party shall have recourse to challenge the award would be the
'Court' as defined in clause (e) of section 2 of this Act and not the 'Court' to which an application under
section 8 of the new Act is made. An application before a court under section 8 merely brings to the court's
notice that the subject matter of the action before it is the subject matter of an arbitration agreement. This
would not be an application as contemplated under section- 42 of the Act as the court trying the action may
or may not have had jurisdiction to try the suit to start with or be the competent court within the meaning of
section 2(1) (e) of the Act. In M/s DLF Insurance Co. Ltd. Vs Standard Chartered Bank16, It was observed
that, the court which will have the jurisdiction to try a petition under the Act, shall be the court which has the jurisdiction to
decide the existing disputes between the parties17.
11
Power under section 9, however, is not unbridled. It is subject to certain limitation and restrictions, such as,
firstly it can be exercised by the court to the same extent and in the same manner as it could be for the
purpose of or in relation to any proceeding before it and, secondly, the exercise of the power to make interim
arrangement should not militate against any power which might be vested in an arbitral Tribunal. The arbitral
tribunals perhaps cannot pass orders regarding the properties, which are not within the domain of their
jurisdiction, and if the courts are also divested of those powers, then in some cases it can lead to grave
injustice. Arbitration proceedings take time and even after an award is given, some time is required for
enforcing it. There is always a time lag between pronouncement of the award and its enforcement. If during
the interregnum period, the property/funds in question are not saved/preserved or protected, then the
award itself may become only a paper award or decree. This can, of course, never be the intention of the
legislature. While interpreting the provisions of the Act the intention of the framers of the legislature has to
be carefully gathered. The court is vested with the powers to grant interim relief, but the court's discretion
must be exercised sparingly and only in appropriate cases. The courts should be extremely cautious in
granting interim relief in cases of this nature. The court's discretion ought to be exercised in exceptional
cases when there is adequate material on record, leading to the definite conclusion that the respondent is
likely to render the entire arbitration proceedings in fructuous by frittering away the properties or funds
either before or during the pendency of arbitration proceedings or even during the interregnum period from
the date of award and its execution18.
18
Oled Focas Pty. Ltd & another Vs Skodaexport Co. Ltd & another; AIR 2000 Delhi 161.
19
M/S Global Co. Vs M/S National Fertilizers Ltd. AIR 1998 Delhi 397.
10
The provision of section 9 of the Act makes it clear that a party can invoke jurisdiction of the competent
civil court under this section for any adequate interim protection including that of injunction. Such interim
relief can be granted even before the commencement of the proceedings for the arbitration or during the
pendency or even after conclusion of the arbitral proceedings, provided the award has not been executed. It
is obvious that while considering the question of grant of any interim relief in the nature of injunction
underlying principles as applicable in proceeding under Order 39, Rules 1 and 2 of CPC would be applicable.
Law is more or less well settled that the grant of injunction is a discretionary relief and while granting such
injunction the court is required to satisfy itself that there is a prima-facie case in favour of the party, asking
for injunction and irreparable injury or damage would be caused if injunction is not granted and balance of
20
convenience lies in favour of the applicant .
For considering as to whether there is a prima-facie case or not, the applicant is not expected to prove his
case to the hilt and the court is only required to satisfy itself that there are questions to be tried and there is
probability of the applicant being entitled to the relief asked for. Once prima-facie case is found, the court is
further required to consider whether any irreparable injury would be caused. Irreparable injury in such a case
would mean that there is no other remedy available to the applicant except injunction. Irreparable injury in
such context would mean a material injury that cannot be adequately compensated by way of damages. Apart
from these two aspects, the court is further required to consider that the balance of convenience lies in
favour of the applicant and to find out comparative hardship, mischief or inconvenience, which is likely to
occur if injunction is withheld and if the court finds that the comparative hardship, mischief and
inconvenience is likely to be greater, if the injunction is to be withheld, the court in its exercise of sound
21
judicial discretion may grant injunction .
Stages at which interim relief can be granted
The Supreme Court of India in the leading case of Sundaram Finance Ltd. Vs NEPC India Limited22
had the occasion to decide whether under provisions of Section9. The court has jurisdiction to pass interim
orders even before the commencement of arbitration proceedings and before the appointment of an
arbitrator. The background of the case is as follows: The trial court had passed an order for appointment of
a commissioner to take custody of the hire purchase machinery, equipment etc. The Madras High Court23
quashed the said order on the ground that by that time there was no arbitration proceeding and no arbitrator
was even appointed and in law an application under section 9 was not maintainable.
The Supreme Court after considering the legislative history and object of the 1996 Act and the provisions of the 1940 Act
came to the conclusion that the former is very different from the latter and hence new provisions have to be interpreted without
being influenced by the principles underlying the 1940 Act. Under the 1996 Act, the appointment of arbitrator is made as per
section 11 which does not require the court to pass judicial order appointing arbitrator. Noticing the plain wordings of section 9,
it was observed that the power can be exercised not only during the arbitration proceeding or at any time after making the arbitral
award but also before its commencement under section 21 and also before appointment of arbitrator.
It is noticed that for entertaining an application under section 9, before commencement of arbitration
proceeding, there has to be a clear intention on the part of the applicant to resort to arbitral proceeding in
20
R.P. Sethi, Law arbitration & conciliation Ashok Law House, New Delhi (2007) at P. 256-257.
House Production Pvt Ltd Vs Meddy Plus and another 2005(1) RAJ 609 (Mad.).
22
AIR 1999 SC 565.
23
M/S NEPC Indian Ltd Vs. M/S Sundaram Finance Ltd. AIR Mad. 29.
21
11
due course. Once that satisfaction is reached, the jurisdiction exists. The same reasoning would also apply to
the power to grant interim relief under the provisions at a stage subsequent to making of the award. The
language is clear that jurisdiction extends up to the execution of award. This view has been confirmed in a
24
decision of the Supreme Court .
25
The Court has ample power to modify its interim orders. An order under section 9 is appealable under
section 37 of the Act but letters patent appeal does not lie26.
An order granting or refusing any interim measure under section 9 is appealable even if it is refusal to grant
ex-parte injunction27.
An appeal under section 37(a) of the Act is maintainable against an order dismissing an application under
section 9 despite the fact that during the interregnum, application under section 17 was filed on which no
order were passed by the arbitrator. There is no question of res judicata in the matter28.
The Arbitral Tribunal has power to direct a party to take interim measures of protection in exercise of the
powers vested in it under section 17 of the Act. A conjoint reading of sections 9 and 17 would show that
there is no conflict between the two provisions. While section 9 provides for taking of interim measures by
the court in certain matters, section 17 provides for taking of interim measures of the subject matter of the
dispute by the Arbitral Tribunal29.
Under both the sections the orders are solicited to save the goods, the subject matter of arbitration from loss,
damage, decay or deterioration and for maintaining the status quo and standards. The object is to save the
goods from danger. The nature of the interim measure would depend on the kind of the goods involved and
the circumstances under which the goods and the parties to dispute are placed.
INDIAN COUNCIL OF ARBITRATION
*By Santosh Kumar, Research Scholar Faculty of Law, Banaras Hindu University, Varanasi (U.P.).
24
Firm Ashok Traders and another Vs Gurmukh Das Saluja and others (2004)3 SCC 155.
25
26
27
28
29
Yenepoya Minerals and Granites Ltd. Vs Maharashtra Apex cor. Ltd. 2004(2) RAJ 288 (Kar).
12
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13
"At all events, arbitration is more rational, just, and humane than the resort to the sword."
Richard Cobden
"Do I believe in arbitration? I do. But not in arbitration between the lion and the lamb, in
which the lamb is in the morning found inside the lion."
Samuel Gompers
"Gentlemen, I fervently trust that before long the principle of arbitration may win such
confidence as to justify its extension to a wider field of international differences."
Henry Campbell-Bannerman
"Great progress was made when arbitration treaties were concluded in which the contracting
powers pledge in advance to submit all conflicts to an arbitration court, treaties which not
only specify the composition of the court, but also its procedure."
Ludwig Quidde
Those who do not learn from history are condemned to repeat the same.
In order to understand the maxim, it is necessary to have an overview of the resolution of the arbitration
laws in India. Throughout the ages, India has been involved in huge international commercial activities. A
mechanism existing for resolution of commercial disputes even prior to the enactment of Indian Arbitration
Act 1899 proves this point. However, the system was formalized under the 1940 Act, which dealt with only
domestic arbitration. Enforcement of the foreign award was covered under the Arbitration (Protocol and
Convention) Act 1937 and Foreign Award (Recognition and Enforcement) Act, 1961. There is no necessity
to go into the detailed provisions of any of these Acts in the limited scope of this article. These laws have
since been replaced and repealed by a consolidated and comprehensive legislation i.e. The Arbitration and
Conciliation Act, 1996. This Act, by and large, adopts the UNCITRAL model law in its entirety. The
emergence of enacting such an Act arose to establish a uniform legal framework for fair and efficient
settlement of disputes arising in international commercial arbitration.
This enactment clearly demonstrates the anxiety of India to be at par with the more developed countries with
regard to resolution of international commercial disputes. The 1996 Act was brought in to reduce, if not
eradicate, the disadvantages experienced under the earlier Acts. Hence, the Act repealed the earlier legislation
altogether. A very important departure made in the 1996 Act has been made from the previous laws, with
regard to the scope of intervention by the Court with the process of arbitration as well as the award. The
1996 Act contains many distinctive features. For example, section 8 empowers a court to refer the parties to
arbitration if there is an arbitration agreement between the parties and an application has been made to that
effect by one of the parties. Even during the pendency of application under section 8 of the Act, the
arbitration proceeding can continue and even an arbitral award can be made. The second important factor is,
that the grounds on which the award can be challenged, have been curtailed. This provision was clearly to
avoid the repetition of the experience under the 1940 Act. The challenge to the award now is more in the
nature of challenge provided under the UNCITRAL model laws and the other international conventions like
New York Convention and Geneva Convention. The grounds given under section 34 for setting aside an
award pertain to i) a party was under some incapacity; ii) arbitration agreement is not valid; iii) proper notice
of arbitration was not given; iv) arbitral award deals with dispute not contemplated; v) composition of
arbitral tribunal not in accordance with the agreement; vi) dispute is not capable of settlement; vii) arbitral
award is in conflict with public policy.
The experience under the 1996 Act is also not that happy. The general consensus seems to be that the Act
has failed to create any pro-arbitration legal regime in India. The current practice is said to be a far cry from
what was envisaged in the objective of the Act and the UNCITRAL model law. There are various reasons,
which have resulted in giving a disappointing picture about the working of 1996 Act. The critics point
towards the difficulties in enforcement of arbitral award; frequency and magnitude of judicial intervention.
Section 5 of the 1996 Act lays down the limits under which the judicial intervention is permitted. It is
pointed out that in spite of the aforesaid provisions the judicial intervention in this country is rather liberal.
In view of this it has become absolutely necessary to dilate upon the emerging issues which must necessarily
be addressed by the entire Indian judicial, legal and commercial community. India has recognized the
18
advantages of globalization since the late 80s and early 90s. It is generally projected that India is now poised
to be a world leader in the world affairs of the 21st century. In order to make this vision a reality, it is
necessary for us to create adequate infrastructure to harness the benefits accruing due to the giant strides
being made in the commercial and industrial sector.
It is a well-known fact that Indian courts are seething under the weight of backlog of cases. On a rough
estimate there are about 30 million cases pending on the dockets of all Courts in this country from the lowest
rung to the highest court of the country. To enable India to advance from 20th to 21st century, it is, therefore,
necessary to develop alternative dispute redressal mechanism, which is in tune with the practice adopted by
the international community as well as to retain its Indian flavour to deal with the Indian conditions. It is in
this context we have to view as to whether the present system of ad-hoc arbitration can be permitted to
continue or whether we need institutionally organized arbitration.
In the developed countries, institutional arbitration is preferred for resolution of disputes instead of ad-hoc
arbitration. American Arbitration Association (AAA), International Chamber of Commerce (ICC) and
London Court of International Arbitration (LCIA) are well known and recognized all over the world as
providing effective institutional arbitration. In USA, every State has one or more institutions regulating
arbitration. The position is very similar in Europe. Some of the leading Indian institutions are: The Indian
Council of Arbitration (ICA) and FICCI Arbitration and Conciliation Tribunal (FACT). In spite of the
presence of these institutions, ad-hoc arbitration thrives in India, even though it is gradually becoming a
thing of the past in highly developed industrial countries.
Let us first discuss the reinforcement of foreign arbitral awards. The impact of two judgments of
importance touching on the scope of judicial intervention in enforcement of a foreign award should be
highlighted e.g. Bhatia International vs. Bulk Trading S.A. [(2002) 4 SCC 105]. This is a three Judge Bench
decision and the subsequent judgments is in the case of Venture Global Engineering vs. Satyam Computers
[(2008) 4 SCC 190]. Both the judgments have laid down that all the provisions of Part I of the 1996 Act
would apply equally to all awards, whether they are domestic or foreign. So far as Indian courts are
concerned, the aforesaid judgments clearly permit the court to examine the arbitral award on certain
specified grounds. The law laid down therein is binding on every citizen of this country. The impact of the
aforesaid two judgments shall have to be considered particularly with reference to India's potential as a logical
destination for alternative dispute resolution. It needs to be examined as to whether image of Indian judiciary
is projected in its true perspective or not.
The next issue is the need for institutional arbitration for resolution of international disputes. The general
opinion seems to be that given the tremendous delays in normal courts, the ADR ought to be extensively
developed in India. In spite of having a very old tradition of laws on arbitration, India has failed to make any
impact on the international circuit. Indeed, general perception is that even the specialized institutions do not
offer the kind of infrastructures available with institutions like American Arbitration Association (AAA), the
International Court of Arbitration (ICC) and the London Court of International Arbitration (LCIA). Indian
Council of Arbitration is the only organization that stands out in the landscape of institutional arbitration in
India. It has not only been offering the Indian business and industry the best arbitration service for close to
five decades, the Government of India also recommends its unique arbitral service to the public sector
enterprises when it comes to selecting alternative to judicial proceedings. However, larger portion of disputes
in India are still being arbitrated on ad hoc basis. As far as international arbitration is concerned, the favourite
destinations in this part of the world continue to be London, Paris and Singapore, even when one of the
parties happens to be Indian.
19
For India to bring itself on the world map of arbitration there needs to be a clear understanding of the
benefits of arbitration. There has to be a realization that the term 'ADR' actually means a method of
resolving the dispute without involvement of the normal courts. This home truth has to be understood by all
the stakeholders in arbitration proceedings. Therefore, the whole thinking process has to change among the
arbitrators, lawyers and above all, the parties themselves. Retired Judges who act as arbitrators have to realize
that their role is that of a person who helps to resolve the dispute. It is not to decide a case as in formal court
proceedings. The lawyers also have to give up their perceptions of being a gladiator. The parties themselves
have also to realize that resolution of disputes among them by arbitration would be advantageous to all
concerned. If we adopt the ADR system with awareness of its advantages, there is no reason why India
cannot produce a world class forum for future foreign arbitrations. It is all the more important in view of the
increasing participation of India in the international market. Till recently, the only foreign collaborations
India enjoyed were with foreigners who come to India to do business. Now, Indian entrepreneurs are
participating in all sectors of the world economy. The Indian judiciary even though overburdened with huge
backlog of cases and under tremendous pressure, is still recognized as one of the best in the world. We may
hear criticism with regard to the delay in disposal of cases, but there is hardly any criticism with regard to the
integrity of the judicial system. Therefore, there is no reason as to why the same high level of competence
cannot be achieved in institutional arbitration proceedings. Even though ad hoc arbitration suffers from
many inherent drawbacks, it continues to be a popular form of arbitration in India, as the parties adopting
the ad hoc arbitration in India seem to be driven by certain misconceived notions about the cost factor,
which is perceived to be less expensive than the institutional arbitration. The reality check would however
prove otherwise. The costs which would have to be borne by the parties in institutional arbitration are much
lesser than in ad hoc arbitration. Parties may be unaware that the arbitrators themselves may not be qualified
for the task that they are to perform in ad hoc arbitration. For example, retired Judges who are appointed as
arbitrators often find it difficult, if not impossible, to discard the old age formalistic attitudes developed on
the Bench. It is essential for the arbitrators to be informal. The retired Judges would find it rather difficult to
discard the practice of rigidity followed by them in their entire professional lives. Since the ad hoc
arbitrations are totally unregulated and un-administered, there is no uniformity in the entire dispensation.
There have even been instances where the integrity of the arbitrators is doubted. Since there is no
institutional control, there can, therefore, be no check on the quality of arbitration. Many of these ad hoc
arbitrators are remunerated at per sitting basis. It is not unknown for arbitrators to deliberately curtail the
period of sitting to enjoy future extra sittings. Even the practitioners in this ad hoc arbitration may not be
regular arbitration lawyers. They may, indeed, be very busy and efficient practitioners in the regular courts of
law, and thus, there may be a tendency to seek unnecessary adjournments as the court work is given priority.
As a consequential effect of this factor, many parties opt for arbitration abroad. This is accentuated by a
perceived notion that there would be unnecessary judicial intervention.
The dangers that can well be posted by unregulated ad hoc arbitration, has been aptly depicted by Mr. K.N.
Bhatt, Senior Advocate, in an Article, entitled Ad hoc Arbitration or Institutional Arbitration which is
better for India?, published in the ICA Arbitration Quarterly Volume XLIII/No.4 Jan March, 2009. In
this article, he narrates the following example, which needs to be reproduced. It runs as follows:
In a recent instance, a contract, between an Indian and a foreign party specified that arbitration will be held
in the U.K. in accordance with the laws of England. Text books on English law of Arbitration have made it
clear that such an arbitration agreement does not compel the arbitrators to hold the proceedings only in the
U.K. The seat of the arbitration specified is only for the purpose of jurisdiction and the seat of arbitration
can be in any place convenient to all concerned keeping in view the principles of saving on expenditure,
convenience of parties and expeditious resolution of disputes. An application was therefore made on behalf
20
of one of the parties that arbitration be held in any place in India in view of the additional fact that the
witnesses would be from India, both the parties are represented by Indian lawyers living in India and so are
all the three arbitrators. Therefore, the costly spectacle of three arbitrators and at least two lawyers of each
side and one representative of each party - all traveling by the same plane and staying in the same hotel in
London and conduct proceedings for a few minutes to give some innocuous direction could be avoided, if
the venue of arbitration is in India. The arbitrators rejected the request and in addition fixed for themselves
a fee prevailing in London i.e. Pound Sterling 350/- per hour and Pounds Sterling 1750/- per day lasting a
minute or more up to 5 hrs-plus at the same rate for the two days of traveling. Needless to say that first class
airfare, hotels, taxi charges and the like are on the parties. One wonders what these arbitrators would have
done if the arbitration agreement was to stipulate that the venue of the arbitration shall be the Buckingham
Palace. Incidentally, the original arbitrators in whose place the new ones had come, fixed the fee at
Rs.50,000/- per sitting. Such a situation would not have happened if the agreement were to specify that the
arbitration would be in accordance with the Rules of ICC or LCIA.
This example illustrates the dangers of unregulated arbitration proceedings, lack of discipline not only with
regard to fees, but also with regard to duration of hearings. But at the same time the legitimacy of ad hoc
international arbitrations cannot be doubted as Article 2A of the UNICTRAL Model Law on international
commercial arbitration defines arbitration as any arbitration whether or not administrated by a permanent
arbitral institution. This, however, cannot take away the grim realities that in an ad hoc arbitration the
parties will have to anticipate the pitfalls and the eventualities provided for them. This may become quite
cumbersome, if not impossible, when parties to the agreement come from wholly divergent cultures and
holding diametrically opposed viewpoints of the same situation.
On the other hand, institutional arbitrations in international commercial arbitration provides for numerous
advantages. The only perceptible disadvantage of institutional arbitration is the grievance that it is getting the
trappings of the court.
Institutional arbitral proceeding would certainly be more suited to transform the Indian arbitration system. It
is urgently required to bring India on the world map of international commercial arbitrations. Apart from
attracting foreign parties to voluntarily opt for India as the seat of arbitration, it would lend tremendous
support to the Indian parties. The expenses of arbitrators in far off foreign destinations may make the
arbitration totally out of reach of the Indian parties, who may, therefore, have to suffer ex-parte awards.
Therefore, for the sake of making India a potential dispute resolution center, it is necessary to establish
arbitral institution of international standard. In international institutions there are strict rules to be followed
for remuneration of arbitrators. The two basic rules are: a) Remuneration based on time spent b)
Remuneration based on a percentage of the amount in dispute.
India still has to evolve its own system and it is not necessary to accept either of the two, given the tendency
of the arbitrators in India to grant numerous adjournments for the asking.
In the context of Indian judiciary's tryst with international commercial arbitration, undoubtedly, there is
continuous criticism of the readiness of the Indian courts to interfere in arbitration proceedings as well as
the enforceability of the foreign awards. For a number of years, it has been criticized for excessive
interference on the grounds of public policy. Public policy not being defined, it is argued, leads to
uncertainty as to when the Indian Courts would interfere. It, therefore, leads to skepticism among the
international community in choosing India as the forum for arbitral proceedings. Whether or not this is a
just criticism should obviously be deliberated upon before an adequate forum.
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It is, undoubtedly, true that the term 'public policy' is not defined either in 1996 Act or in the Indian Contract
Act. Therefore, it is left pretty much to the discretion of the courts to interpret the term 'Public policy' or
'opposed to Public policy', or Contrary to Public policy, in the facts and circumstances of a particulars
case. This would obviously vary from court to court as well as from time to time. Even though the courts
have laid down principles as to what is opposed to Public policy, the reality of it, being wholly uncertain
cannot be ignored. Lord Davey in Janson Vs. Driefontein Consolidated Mines Ltd (1902) AC 484 observed
Public Policy, the reality of it, being wholly uncertain cannot be ignored. Lord Davey in Janson Vs.
Driefontein Consolidated Mines Ltd (1902) AC 484 observed that Public Policy is always an unsafe and
treacherous ground for legal decision, Justice Burrough in Richard Sons Vs. Mellish (1824) 2 Bing 220,
characterizes Public Policy as a very unruly horse, and when once you get astride it you never know where it
will carry you. Lord Denning in Enderby Town Football Club Ltd. Vs. Football Association Ltd (1971) Ch.
591, however, sounded a different note and stated with a good man in the saddle, the unruly horse can be
kept in control. It can jump over obstacles. This, of course, is the approach of the activist Judge. However,
as to which shade of opinion he follows, is dependent on the individual Judge.
It is, however, undisputed that Public policy connotes some matter which concerns the public good and the
public interest. The concept of what is for the public good or the public interest or would be injurious or
harmful to the public good or public interest varies from time to time. (See Central Inland Water Transport
Corporation Vs. Brojo Nath Ganguly, AIR 1986 SC 1571.) Even in the Geneva Convention, Article 2 and 2
(e) clearly provides that to obtain recognition or enforcement of a Foreign Award, it shall further be
necessary that the recognition or enforcement of the award is not contrary to the Public policy or to the
principles of the law of the country in which it is sought to be relied upon. The same ground was not
engrafted in the 1937 Act. It is also incorporated in section 57(1) (e) of the 1996 Act. It also provides that a
precondition for the enforcement of the award would be that it is not contrary to the Public Policy or the
Law of India.
INDIAN COUNCIL OF ARBITRATION
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CASE HIGHLIGHTS
Videocon Industries Ltd. Vs. Union of India & Anr.
CIVIL APPEAL NO.4269 of 2011(Arising out of SLP(C) No.16371 of 2008)
A Production Sharing Contract (PSC) was entered into between the Union of India (respondent) and a
consortium of four Indian companies, including Videocon Industries Limited (appellant). The respondent
granted a licence to the four Indian companies to explore and produce hydrocarbon resources that it owned.
The PSC provided that disputes would be resolved by arbitration in Kuala Lumpur, that the arbitration
agreement would be governed by English law and that the PSC would be governed by Indian law. Disputes
arose between the appellant and the respondent, which were referred to an arbitral tribunal. Due to the
outbreak of the SARS epidemic, the arbitral tribunal shifted the seat of the arbitration, with the consent of
the parties, to London.
The Tribunal made a partial award, which was challenged by the respondent in the High Court of Malaysia.
The appellant raised objections as to the jurisdiction of the High Court of Malaysia on the ground that, as
stated in the PSC, only English courts had jurisdiction. Meanwhile, the respondent also filed a petition in the
High Court of Delhi (Delhi High Court) under section 9 of the Act, to stay the arbitral proceedings. The
appellant also reiterated its objection over jurisdiction before the Delhi High Court.
The Delhi High Court dismissed the objection and held that it had jurisdiction to entertain the petition filed
by the respondent, under section 9 of the Act, relying on Bhatia International v Bulk Trading (2002) 4 SCC 105.
The appellant then filed a Special Leave Petition in the Supreme Court of India (Supreme Court).
Regarding the issue of the juridical seat of arbitration, the Supreme Court held that mere change in the
physical venue of the hearing from Kuala Lumpur to London did not amount to a change in the juridical seat
of arbitration. The Supreme Court relied on its decision in Dozco India Pvt. Ltd v Doosan Infracore Co. Ltd 2010
(9) UJ 4521 (SC) in which it held that "each move of the arbitral tribunal does not of itself mean that the seat
of the arbitration changes. The seat of the arbitration remains the place initially agreed by or on behalf of
the parties" (To decide this issue, the Supreme Court also referred to the provisions of the English
Arbitration Act 1996, as English law was the designated arbitration law.) The Supreme Court observed that
there was no written agreement signed by the parties to the PSC which amended the PSC so as to shift the
juridical seat of arbitration from Kuala Lumpur to London. Thus, the juridical seat of arbitration was Kuala
Lumpur and not London.
In deciding whether the Delhi High Court had jurisdiction to entertain the petition filed by the respondent
under section 9 of the Act, the Supreme Court first analysed its judgments in Bhatia, Venture Global
Engineering v Satyam Computer Services Limited (2008) 4 SCC 190 and the Gujarat High Court judgment in Hardy
Oil and Gas Ltd v Hindustan Oil Exploration Co. Ltd. (2006) 1 GLR 658. On analysing these judgments, which
concerned the exclusion of Part I of the Act (whether express or implied), the Supreme Court held that by
choosing English law as the governing law of the arbitration agreement, the parties had impliedly excluded
the provisions of Part I of the Act. Therefore, the Supreme Court allowed the appeal and held that the Delhi
High Court did not have jurisdiction to entertain the petition filed by the respondent under section 9 of the
Act.
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The 46 Annual General Meeting of the Council was held on 17 January, 2012 at Federation House, New
Delhi. The AGM was inaugurated by Hon'ble Mr. Justice K.S. Panicker Radhakrishnan, Supreme Court of
India. Apart from Mr. N.G. Khaitan, President of the Council, Mr. Sidharth Birla, Senior Vice-President,
ICA, Mr. Justice D.P. Wadhwa were present at the AGM. The meeting was well attended by members of the
Council, dignitaries from the ministries, private enterprises, public undertakings and other stakeholders.
Hon'ble Mr. Justice Panicker Radhakrishnan, Judge, Supreme Court of India, in his inaugural address,
emphasized the need for complete overhauling of the case disposal mechanism by means of reforms in the
present arbitration rules and norms. He also emphasized the need to promote institutional arbitration in the
country and appreciated the role that ICA had played close to last five decades. He felt it important for
creating a system to make review of arbitrator's performance that had already taken place in the rules of
international arbitral organizations in other parts of the world and suggested to make a comparative study of
the same in order to make ICA Rules more pliable to international standard of arbitration practice.
Expressing his concern over the mindset of judicial officers working in different layers of judiciary, he
observed, despite promulgation of Section 89 of CPC, no judicial officer makes the litigants aware of the
benefits of ADR. Justice Radhakrishnan strongly voted for training of judicial officers for promoting ADR
as an effective dispute resolution mechanism and thereby touting the system as more benefitting for the
litigants so that they could make increased use of it.
Earlier, in his Welcome Address, Mr N.G.Khaitan stressed the importance of arbitral institutions in helping
business adopt for arbitration, which provides quick and economic resolution of disputes vis a vis expensive
and lengthy court proceedings. In a bid to further embellishment of Arbitration Law of India, the
government's efforts in bringing out the consultation paper was highly praised by Mr Khaitan. According to
him, the said paper had made a remarkable proposition in bringing commercial contracts valued at a
particular denomination into the fold of arbitration and designating the arbitral institution to settle those
disputes under its own rules of procedure. Mr Khaitan strongly believed that since India is growing as an
international hub for commercial activity, the promotion, growth and development of arbitration is vital for
its unhindered and sustained growth.
Mr. Sidharth Birla, Sr. Vice-President of the Council proposed the Vote of Thanks. He assured the august
assembly that ICA would strive to organize many more programmes for the users of arbitration with a view
to effectuate the arbitration practices and bring about a positive change in the dispute resolution system so
that justice is neither delayed nor denied.
The Annual report of the Council and the audited accounts for the year ending 2010-11 were adopted at the
AGM. The names of the elected members of the Governing Body for the year 2011-12 were also announced
at the AGM.
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Symposium
On
Dear Sir/Madam,
It was expected that with the enactment of the Arbitration and Conciliation Act 1996, all disputes having arbitration clause
would go out of the purview of the courts except in rarest of rare circumstances when parties disagree and enforce or hear
challenges to arbitral awards. And yet, arbitration continues to be a long, laborious and often tedious process. Eighteen
years on, the Arbitration & Conciliation Act 1996 has far from fulfilled its potential and continues to be on probation. Its
effectiveness is increasingly coming into question. However apart from amending the Arbitration Act and overturning
certain decisions, ultimately, we need to develop a keener spirit of arbitration with courts consciously placing much greater
emphasis on party autonomy. To do this, a concerted effort must also be made to create a more favorable ecosystem for
arbitration.
This would obviously raise a question: Has arbitration kept its tryst with destiny as an efficient charter for alternate
dispute resolution in India? In order to critically examine this issue and find remedies for creation of pro arbitration legal
regime in India, the Indian Council of Arbitration (ICA) in collaboration with FICCI and FAPCCI is organizing a
th
Symposium on WHAT AILS ARBITRATION IN INDIA on 8 May 2012 from 4 P.M onwards at ITC
Kakatiya, 6-3-1187, Begumpet, Hyderabad 500 0016
Hon'ble Mr Justice Madan B Lokur, Chief Justice Andhra Pradesh High Court has kindly consented to grace the
occasion. The Symposium will be attended by legal luminaries, industry captains, public and private enterprises and other
stakeholders.
There is NO DELEGATION FEE in terms of participation in the Symposium.
Given the importance of the event, you may like to join the Symposium and/ or depute some appropriate executives for
the same. In order to confirm participation, the interested participant may please use the prescribed form below and return
th
the same, duly completed, to us latest by 7 May 2012.
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24 January, 2012
The Council organized a meeting with the
Association of Arbitration Courts of Uzbekistan
th
on 24 January, 2012 at Federation House, New
Delhi. The meeting was attended by the Chairman
of the Uzbekistan Arbitration Association along
with two other delegates. ICA was represented by
Mr. Arun Chawla, Advisor, Mr. D Sengupta,
Additional Director and the Secretariat of ICA.
The Advisor, ICA expressed Council's interest in
having a Cooperation Agreement with the Uzbek
Association, the focus whereof would be basically
to promote ICA's arbitration clause in Uzbekistan
and their arbitration clause in India.
While stating the purpose of their visit, Mr. Dolimov expressed their Association's willingness to have a relationship with
FICCI as the apex business body and ICA as the apex arbitral body. It was his strong belief that this relationship would
assist each other for promotion of arbitration and settlement of cross-border disputes through arbitration.
In terms of entering into a Memorandum of Understanding with the Uzbek Organization, it was decided that ICA would
prepare a draft and send the same to the Uzbek Association for its approval and finalization. Further on the proposed MoU,
it was decided that both the Organizations would act on the benefits of two countries. The other terms discussed in the
meeting were invitation to the Uzbek delegation for joint conference in India and vice versa, exchange of information
relating to law and arbitration, exchange of publication and arbitral news in India for publication in their newsletter.
The Council organized a Round Table discussion with Zaiwalla & Co., LLP; London on 9 February, 2012 at Federation
House, Tansen Marg, New Delhi. The meeting was attended by Partners of Zaiwalla & Co and Mr D.Sengupta, Additional
Director along with the Secretariat of the Council.
Mr. Kartik and Mr. Varun, representing Zaiwalla & Co., highlighted various provisions of arbitration law and rules in the
international arena and how they wished to reflect the same arbitration practices in India. While discussing about the
growing importance of expert witness for prompt resolution of disputes, Mr. Varun suggested for making use of such
provision in India more frequently for effective dispensation of justice. Mr. D Sengupta, Additional Director of the Council,
proposed to stage a joint event in India on international arbitration in collaboration with Zaiwalla & Co. He also requested
the Partners of Zaiwalla & Co. to extend their support, whenever required, for building up promotional activities of ICA in
UK and other parts of Europe. The meeting was concluded with the positive note of taking Indian Arbitration forward to
achieve newer heights internationally.
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