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Alternate Dispute Resolution vis-a-vis allied case laws

Alternate Dispute Resolution vis-a-vis Allied Case laws

Indian law encompasses five types of Alternate Dispute Resolution (“ADR”) procedures, made up of one adjudicatory process (arbitration) and four negotiatory (non-adjudicatory) processes--conciliation, mediation, judicial settlement and Lok Adalat settlement.

Arbitration and Conciliation are being governed by Arbitration and Conciliation Act 1996 and the two other ADR processes Lok Adalat settlement and mediation will be governed by the Legal Services Authorities Act 1987. In case of Judicial Settlement is not governed by any enactment and the court will follow such procedure as may be prescribed

What is difference between Arbitration and other for four ADR?

The difference between Arbitration and other for four ADR is, in Arbitration the case goes out of the stream of court and becomes an independent proceeding before an Arbitral Tribunal and since Arbitration is an adjudicatory process it will end with a decision. The award of Arbitration can be enforced as decree of court under Section 36 of Arbitration and Conciliation Act.

The other four ADR processes are non- adjudicatory and the case does not go out of the stream of the court when a reference is made to such a non- adjudicatory ADR forum. The court retains its control and jurisdiction over the case, even when the matter is before the ADR forum. The matter in case of conciliation is placed before the court for recording it and disposal in terms.


Key Arbitration Aspects

Section 5 – Extent of judicial intervention

Notwithstanding anything contained in any other law for the time being in force, in matter governed by this Part, no judicial authority shall intervene except where so provided in this Part.

This sections is a non – obstante clause, it limits judicial intervention in any Cases

Non – Obstante means that the provision contained therein have an overriding effect upon the provisions even if the other provisions provide to the contrary

However there are certain exception to this , Supra of Judgement :- “Though Section 5 of the Arbitration and Conciliation Act bars the jurisdiction of judicial authority, the said Section shall not be pressed into service to exclude the power of judicial review under Article 226/227.” 1

Judicial review, as the words imply, is not an appeal from a decision, but a review of the manner in which the decision was made. In other words, judicial review is concerned with reviewing not the merits of the decision but the decision-making process itself.

Section 7 – Arbitration Agreement

Arbitration agreement' as 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
Arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement & shall be in writing

Query:- Is an Arbitration Clause drafted in specific form ?
It is not essential to draft Arbitration Clause in any specific form , however following supra identifies what shall be taken into consideration for drafting :-


“…….an arbitration clause is not required to be stated in any particular form. If the intention of the parties to refer the dispute to arbitration can be clearly ascertained from the terms of the agreement, it is immaterial whether or not the expression arbitration or ‘arbitrator’ or ‘arbitrators’ has been used in the agreement.”

But mere use of the word 'arbitration' or 'arbitrator' in a clause will not make it an arbitration agreement, if it requires or contemplates a further or fresh consent of the parties for reference to arbitration.2

Examples
Use of words such as "parties can, if they so desire, refer their disputes to arbitration" or "in the event of any dispute, the parties may also agree to refer the same to arbitration" or "if any disputes arise between the parties, they should consider settlement by arbitration" in a clause relating to settlement of disputes, indicate that the clause is not intended to be an arbitration agreement.

Similarly, a clause which states that "if the parties so decide, the disputes shall be referred to arbitration" or "any disputes between parties, if they so agree, shall be referred to arbitration" is not an arbitration agreement. Such clauses merely indicate a desire or hope to have the disputes settled by arbitration, or a tentative arrangement to explore arbitration as a mode of settlement if and when a dispute arises3.

Such clauses require the parties to arrive at a further agreement to go to arbitration, as and when the disputes arise. Any agreement or clause in an agreement requiring or contemplating a further consent or consensus before a reference to arbitration, is not an arbitration agreement, but an agreement to enter into an arbitration agreement in future.

Section 16 – Competence of arbitral tribunal to rule on its jurisdiction 4

Doctrine of Kompetenz-kompetenz, or competence-competence, is a jurisprudential doctrine whereby a legal body, such as a court or arbitral tribunal, may have competence, or jurisdiction, to rule as to the extent of its own competence on an issue before it.

Section 16(1) is based on the Doctrine of Kompetenz-kompetenz ,

Section 16(1)(a) the legislature makes it clear that while considering any objection with regard to the existence or validity of the arbitration agreement, the arbitration clause, which formed part of the contract, had to be treated as an agreement independent of the other terms of the contract

Section 16(1)(b) of the 1996 Act, the arbitration clause continues to be enforceable, notwithstanding a declaration that the contract was null and void

Query:- Where does this both principle work ?
If there is any dispute between the parties to the agreement arising out of or in relation to the subject matter of the Agreement(i.e wherein the Clause is) The argument of the respondent that the disputes cannot be referred to the arbitration as the agreement is not in existence as of today is therefore devoid of merit."

Section 11 – Appointment of Arbitrators

The Procedure of Appointment of Arbitrators is left open to parties in Agreement

Judicial Intervention i.e. Chief Justice is sought only when there is a failure of appointment of Arbitrators among the parties

The Decisions of matter entrusted to Chief Justice or the person or institution designated by him is final

Query:- So is the decision made by Chief Justice a administrative or Judicial nature ?

The stand taken by Court is that in 2002 is the only function of the Chief Justice or his designate under Section 11 is to fill the gap left by a party to the arbitration agreement or by the two arbitrators appointed by the parties and nominate an arbitrator. It is open for party to challenge appointment under Section 12 and procedure adopted under Section 135

However the above decision was overruled wherein it was held that proceeding before the Chief Justice while entertaining an application under Section 11(6) of the Act is adjudicatory, then obviously, the outcome of that adjudication is a judicial order. The Delegation of power by Chief Justice can be done to Judge of Supreme or High Court. The intention apparently was to confer the power on the highest judicial authority in the State and in the country, on Chief Justices of High Courts and on the Chief Justice of India. Such a provision is necessarily intended to add the greatest credibility to the arbitral process6

Section 20 – Place of arbitration.
he parties are free to agree on the place of arbitration.

In case if place of Arbitration is not specified then Arbitral Tribunal shall determine the place based on circumstance of case and convenience of parties.

No where in Section 20 restricts the parties to subsequently agree to another place as the seat of arbitration

Clause:- “18…….. If the dispute, controversy or difference is not resolved through mutual consultation within 30 days after commencement of discussions or such longer period as the Parties may agree in writing, any Party may refer dispute(s), controversy(ies) or difference(s) for resolution to an arbitral tribunal to consist of three (3) arbitrators, of who one will be appointed by each of the Licensor and the Licensee and the arbitrator appointed by Licensor shall also act as the presiding arbitrator.

“18.3 A proceedings in such arbitration shall be conducted in English. The venue of the arbitration proceedings shall be in London. The arbitrators may (but shall not be obliged to) award costs and reasonable expenses (including reasonable-fees of counsel) to the Party (ies) that substantially prevail on merit. The provisions of Indian Arbitration and Conciliation Act, 1996 shall apply.”7

Query:- So is there any distinction between Venue and Seat of Arbitration ?

Explanation
Just because venue is London it does not tantamount to be seat of Arbitration as since the parties intended to be governed only by the Indian Arbitration Act, 1996. The clause uses the word Presiding Arbitrator and not Chairman; this language is expressly used in Sections 11 and 29 of the Indian Arbitration Act, 1996 as distinct from Section 30 of the English Arbitration Act.

Substantive law of the contract is Indian law; law governing the arbitration is Indian Arbitration law; curial law (i.e. law governing the arbitration proceedings) is that of India;

Even if the seat is considered as London, it would create lot of confusion , chaos the Indian Arbitration Act, 1996 would apply to the process of appointment under Section 11; English Arbitration Act would apply to the arbitration proceedings , challenge of award would under English Arbitration Act and enforcement of award would Indian Arbitration Act.

Governing Law for Arbitration

Since the party has freedom in an International commercial Agreements , incorporating provisions in all these three aspects is very essential :-
1. Governing law of the contract which defines the substantive rights and obligations of the parties
2. Law which governs the arbitration agreement. This includes questions as to whether the dispute is arbitrable; the jurisdiction of the arbitral tribunal to make an award and the validity of the award itself
3. Curial law of arbitration which governs the manner in which the arbitrator would conduct the arbitral proceedings and would extend to procedural matters and the regulation of the conduct of the arbitration

Query:- (i) Substantive law is Indian law; (ii) Venue of arbitration at Kuala Lumpur (iii) Law governing Arbitration Agreement is England, Curial Law is not specified , What is seat of Arbitration ?

Answer:- Laws of England , in cases of international commercial arbitrations held out of India provisions of Part-I would apply unless the parties by agreement, express or implied, exclude all or any of its provisions. In that case laws or rules chosen by the parties would prevail. Thus if the parties have agreed to be governed by any law other than Indian law in cases of international commercial arbitration, same would prevail8

When Arbitrator is Employee

While vetting Arbitration Clauses of PSU we come across obligations where appointment of Arbitrator is a person who is interested in Agreement. That is the person who is employee ; or a person who holds equity ; or retired professional of Company

It was held that :- If a party, with open eyes and full knowledge and comprehension of the said provision enters into a contract with a Government/statutory corporation/public sector undertaking containing an arbitration agreement providing that one of its Secretaries/Directors shall be the arbitrator, he can not subsequently turn around and contend that he is agreeable for settlement of the disputes by arbitration, but not by the named arbitrator who is an employee of the other party.

Paragraph 48 :- If circumstances exist, giving rise to justifiable doubts as to the independence and impartiality of the person nominated, or if other circumstances warrant appointment of an independent arbitrator by ignoring the procedure prescribed, the Chief Justice or his designate may, for reasons to be recorded ignore the designated arbitrator and appoint someone else."9

So to conclude ignoring the named Arbitrator and nominating an Independent Arbitrator is an exception to agreed procedure only if valid reason is resorted

Section 34 – Setting aside of Award

Arbitral Award can be set aside on following grounds as per provision :-
# Incapacity i.e. mental incapacity, minority and such like circumstances.10
Arbitration agreement not valid
No proper notice of appointment of arbitrator or arbitral proceedings ,Supreme Court had held in a case that parties should not only prove that he was not given proper notice, but also to show that he was seriously prejudiced thereby.11
Arbitral award outside the scope of the agreement
Composition of arbitral tribunal or procedure not in accordance with agreement of the parties
Court finds that subject matter of dispute is not capable of settlement by arbitration under the law or arbitral award is in conflict with “public policy of India”

Principle of Natural Justice

In many contract we may a situation in which the Arbitrators appointed are generally interested individuals in the Contract which is against the principle of Natural Justice

Query :- What is the Principle of Natural Justice ?

The principles of natural justice consist primarily of two main rules, namely,


"nemo judex in cause sua" ("no man shall be a judge in his own cause") and

"audi alteram partem" ("hear the other side").

From the above two rules a corollary has been deduced namely that he who shall decide anything without the other side having been heard, although he may have said what is right, will not have done what is right, in other words has it is now expressed, Justice should not only be done but should manifestly be seem to be done.

Some courts have taken a stand as Principle of Natural Justice is overused concept and cannot be used as a straight jacket formula.12

In one of the judgments Court held as under:
"Natural justice is no unruly horse, no lurking land mine, nor a judicial cure all. If fairness is shown by the decision-maker to the man proceeded against, the form, features and the fundamental of such essential procedural propriety being conditioned by the facts and circumstances of each situation, no breach of natural justice can be complained of. Unnatural expansion of natural justice, without reference to the administrative realities and other factors of a given case, can be exasperating (i.e.infurating) . We can neither be finical nor fanatical but should be flexible yet firm in this jurisdiction. No man shall be hit below the belt that is the conscience of the matter".13

Cost Allocation in Recent Years

The allocation of Cost in recent years are as under :-
“Costs follow the event” pure – The victor takes all, the loser pays all costs of arbitration and all opposing costs of party representation (“Even Attorney fees & Expenses”)

“Costs follow the event” pro rata – The loser pays all costs of arbitration and all opposing attorney’s fees in proportional relationship to the outcome.

“Costs follow the event” modified – The loser pays all costs of arbitration, but not necessarily all or any opposing attorney’s fees.

“Costs to be shared equally” – 50-50 as to either costs of arbitration or attorney’s fees or both, irrespective of any disparity in respective investment in attorney’s fees

The costs of arbitration are to be shared equally, respective attorney’s fees to be borne by each side.

American Rule” – Each party bears its own costs of arbitration and attorney’s fees, irrespective of the outcome or other externalities.

“American Rule” exception – In the presence of manifest fraud, corruption, spuriousness, abusiveness of process, etc., the culpable party bears some or all of the costs of arbitration and/or attorney’s fees of the other party14

Attributes of Arbitration Agreement/Clause

The arbitration agreement must contemplate that the decision of the tribunal will be binding on the parties to the agreement

The jurisdiction of the tribunal to decide the rights of parties must derive either from the consent of the parties or from an order of the court or from a statute, the terms of which make it clear that the process is to be an arbitration.

The agreement must contemplate that substantive rights of parties will be determined by the agreed tribunal

The tribunal will determine the rights of the parties in an impartial and judicial manner with the tribunal owing an equal obligation of fairness towards both sides

The agreement must contemplate that the tribunal will make a decision upon a dispute which is already formulated at the time when a reference is made to the tribunal15

Expert Determination and Arbitration

Example :- Clause 9 of MOU :- “…….Implementation will be done in consultation with the financial institutions. For all disputes, clarifications etc. in respect of implementation of this agreement, the same shall be referred to the Chairman, IFCI or his nominees whose decisions will be final and binding on both the groups.….."


The role of an arbitrator and an expert is different. If a person is appointed, owing to his skill and knowledge of a particular subject, to decide any questions, whether of fact or of value, by the use of his skill and knowledge and without taking any evidence or hearing the parties, he is not, prima facie, an arbitrator

A person is appointed with the intention that he should hear the parties and their evidence and decide in a judicial manner, then he is an arbitrator

The most significant distinction between an arbitrator and an expert is that, an expert need not act judicially. This has two effects, namely, an expert can apply his own expertise to decide the question referred and further the expert is not bound to give each party an opportunity to put its case and to deal with other material.16

Russell on Arbitration in 21st Edition describes difference between expert determination or Arbitration in following words :-

Firstly the express words of the disputes clause

If specific words such as ‘arbitrator’, ‘arbitral tribunal’, ‘arbitration’ or the formula ‘as an expert and not as an arbitrator’ are used to describe the manner in which the dispute resolver is to act, they are likely to be persuasive although not always conclusive.

Where there is no express wording, the court will refer to certain guidelines. Of these, the most important used to be, whether there was an ‘issue’ between the parties such as the value of an asset on which they had not taken defined positions, in which case the procedure was held to be expert determination; or a ‘formulated dispute’ between the parties where defined positions had been taken, in which case the procedure was held to be an arbitration

Conciliation
'Conciliation', as a specific mechanism for dispute resolution is provided under Part-III of the Arbitration and Conciliation Act, 1996, and under Section 61, applies to disputes arising out of a legal relationship as well as to proceedings relating thereon. Conciliation proceedings are initiated under Section 62 of the Act on a written invitation by one party to conciliate to the other.

It commences when the other party, accepts such invitation, in writing. The appointment of a conciliator is undertaken under Section 64 while Section 66 maintains that the conciliator is "not bound by the Code of Civil Procedure, 1908 or the Indian Evidence Act, 1872".

A settlement agreement between the parties is finalized in accordance with Section 73 while by virtue of Section 74 of the Act, such settlement agreement shall have the same status and effect as if it is an "arbitral award on agreed terms on the substance of the dispute rendered by an arbitral tribunal under Section 30". Section 76 prescribes the manner in which the conciliation proceedings are terminated.

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1 - Mangayarkarasi Apparels Pvt. Limited vs Sundaram Finance Ltd., Pattullos on 30 April, 2002 (2003 113 CompCas 487 Mad, (2002) 2 MLJ 444)
2 - In M. Dayanand Reddy v. A.P. Industrial Infrastructure Corpn. Ltd., this Court has held that: (SCC p. 142, para 8) ;
3 - Supreme Court of India Jagdish Chander vs Ramesh Chander & Ors on 26 April, 2007
4 - M/S Reva Electric Car Co.P.Ltd vs M/S Green Mobil on 25 November, 2011 , Supreme Court Judegement. ; M/S.Today Homes & Infrastr. ... vs Ludhiana Improvement Trust & Anr on 10 May, 2013
5 - Supreme Court of India Konkan Railway Corporation vs M/S. Rani Construction Pvt. Ltd on 30 January, 2002
6 - SBP & Co. v. Patel Engg Ltd (2005) 8 SCC 618
7 - Supreme Court of India Enercon (India) Ltd And Ors vs Enercon Gmbh And Anr on 14 February, 2014
8 - Supreme Court of India in Videocon Industries Ltd vs Union Of India & Anr on 11 May, 2011
9 - Supreme Court of India in Indian Oil Corp.Ltd.& Ors vs M/S Raja Transport(P) Ltd on 24 August, 2009
10 - Delhi Jal Board vs Reliable Diesel Eng. (P) Ltd. on 14 December, 2005 2005 (3) ARBLR 602 Delhi, 127 (2006) DLT 378
11 - Sohan Lal Gupta Thr. L.Rs. & ... vs Smt. Asha Devi Gupta & Ors on 1 September, 2003
12 - Union Of India And Another vs Tulsiram Patel And Others on 11 July, 1985 1985 AIR 1416, 1985 SCR Supl. (2) 131
13 - In The Chairman, Board of Mining Examination and Chief Inspector of Mines and Another v. Ramjee (1997) 2 SCC 256)
14 - Best Practices in International Arbitration”, ASA Swiss Arbitration Association, Conference of January 27, 2006 in Zurich, Edited by Markus Wirth
15 - Supreme Court of India K.K. Modi vs K.N. Modi & Ors on 4 February, 1998 (1998) 3 SCC 573
16 - Delhi High Court Joint Investment (P) Ltd. vs Escorts Ltd. on 26 May, 2010

ISBN No: 978-81-928510-1-3
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