ADR Unit- 1 Reading Material

Topic 3: International Commercial Arbitration: -

Indian law provides provision for dispute resolution by way of International Commercial
Arbitration. This mechanism is aimed at resolving commercial disputes between an Indian
entity and a foreign entity within the framework of Indian Arbitration Laws. The arbitration
proceedings can be governed by the rules of arbitration institutions, or the courts have the
power to appoint arbitrators under the provisions of section 11 of the Arbitration and
Conciliation Act 1996. By way of arbitration, business disputes between parties are settled
through mutually agreed-upon terms. The parties submit the dispute to one or more arbitrators
who settle the dispute by making a binding decision on the dispute. Thus, arbitration is a way
of settling the dispute outside the courts in an efficient and timely manner.

International Commercial Arbitration

As per Indian laws, section 2(1)(f) of the Arbitration Act defines ICA (International
Commercial Arbitration) as a legal and commercial relationship and either of the parties is a
foreign national/resident or a foreign body corporate, company, association or body of
individuals whose central management is in foreign hands. Thus, as per Indian laws, arbitration
with a seat in India involving a foreign party is regarded as ICA, subject to Part I of the Act.

Objectives of International Commercial Arbitration

Arbitration is a progressing alternative to the legal system and aims to fill up gaps that persist
in the conventional court proceedings. Various legal aspects of commercial arbitration in
India include provision of a Neutral Dispute Resolution Forum against the local courts,
providing parties with commercial expertise to adjudicate the tribunal, unlike courts that merely
exercise general jurisdiction. The law in India provides parties with an enforceable award as
opposed to jurisdictional uncertainties in litigation and the arbitration procedure is speedy
avoiding the delays and appeals that always persist in the court system. In addition, the parties
are not subject to public trials, thereby upholding the confidentiality of the parties.
International Arbitration Legislation

The UNICITRAL Model Law was adopted in 1985 and was subsequently revised in 2006.
There are more than 60 countries that have adopted this model law that allows comprehensive
legislative treatment of the international arbitral process. The Model upholds the validity and
enforceability of arbitration agreements (Arts. 7-9) by providing a guideline for competent
arbitrators (Art 16) and the absolute judicial non-interference (Art 5). The parties have the
choice of arbitral seat (Art 1(2), 20), appointing of the arbitrators (Art 10-15) and the
provisional measures (Art 17) to be taken. The Model only lays down an objective procedure
for arbitration (Art 18-26), and evidence taking (art 27) as per the applicable substantive law
(Art 28) to come to a concluding arbitral award (Art 29-33). Most importantly, the model
enforces the recognition and enforcement of foreign arbitral awards including bases of non-
recognition (Art 35-36).

International Commercial Arbitration with Seat outside India

There is no generally applicable procedural code that applies to ICA worldwide. Each
procedure is tailored to specific cases that are distinct from litigation. Thus, specific country
based institutional rules apply. This can be seen in the judgment of Bhatia International v/s.
Bulk Trading in which it was held that Indian courts have the right to use their jurisdiction to
test the significance of an arbitral award made in India, even if the actual law of the contract is
foreign. The court recognized that Part 1 of the Arbitration and Conciliation Act, 1996 gives
effect to UNCITRAL Model Law allowing courts to grant interim relief even when the seat of
international commercial arbitration is outside India.

International Commercial Arbitration with Seat in India

The international commercial arbitration process in India begins with a notice of

arbitration, which is sent from one party to another to represent the intention of the party to
settle the dispute through arbitration. Under section 8 of the Arbitration and Conciliation Act,
1996 (the Act), if the party before a judicial authority, applies along with the original copy of
the arbitration agreement, on the date of submitting its first statement itself, then the judicial
authority must accept such application. As per the Act, section 9 allows interim relief to be
granted to the parties by the court. In addition, section 17 allows the same for the arbitral
tribunal. These provisions provide security to the party seeking relief until the final decision is
given.

What did the Courts say since Phulchand Exports in 2011?

Phulchand Exports v Ooo Patriot marks the beginning of a new era in the history of
commercial arbitration of India. The central issue that came up for consideration before the
Supreme Court was that whether the enforcement of the award of International Court of
Arbitration (ICA) at the Chamber and Industry of Russian Federation, Moscow in favour of
Ooo Patriot, the respondent would be considered as contrary to the public policy of India under
sub-section (2) (b) of section 48 of the Arbitration and Conciliation Act 1996. The validity of
the above award was directly in issue before the Supreme Court claiming that the said award
was contrary to public policy. The Supreme Court declined to interfere with the award of the
International Court of Arbitration and held that “the agreed terms must ordinarily be respected
as the parties may be taken to have had regard to the matters known to them”.

Bharat Aluminum v Kaiser Aluminum Tech Services is another notable case which reflects
the change in the attitude of the Supreme Court in matters of international arbitration. The
Supreme Court declined to intervene in the enforcement of the award passed by the Arbitral
Tribunal and was very categorical in holding that “the application under section 9 seeking
injunction for stalling the enforcement of the award was not maintainable for the reason that
the principle of the territoriality as adopted in the UNCITRAL Model Law was very much
adopted even in the Arbitration and Conciliation Act 1996 and as such section 2(2) of part I
should apply to arbitrations which took place within India”. And part I of the Arbitration and
Conciliation Act, according to the Supreme Court, “had no application to matters of
international commercial arbitration held outside India”, accordingly concluded that “in a
foreign seated international commercial arbitration, there was little scope for maintainability
of an application for interim relief either under section 9 or any other provisions as the
application of part I was limited to arbitrations which took place in India” and accordingly
“disagreed with the conclusions drawn in Bhatia International and Venture Global
Engineering”.

In Antrix corp v Devas Multimedia the Supreme Court while, concurring with the findings of
the Punjab &Haryana High Court, dismissed the arbitration petition stating that “in a case
where the arbitrator had already been appointed and such appointment was already
communicated to the other party, no application for appointment of an arbitrator was further
maintainable”. The Supreme Court, while agreeing with the High Court of Punjab & Haryana
observed that “the language of article 20 of the arbitration agreement provided that the
arbitration proceedings would be held in accordance with the rules and procedures of the
International Chamber of Commerce (ICC) or UNCITRAL. As such Devas was entitled to
invoke the rules of the arbitration of the ICC for the conduct of arbitration proceedings”. The
Supreme Court further said that “where the parties had agreed that the procedure for the
arbitration would be governed by the ICC rules, the same would necessarily include the
appointment of an arbitral tribunal in terms of the arbitration agreement and the said rules”.
The Court was of the opinion that “once the provisions of the ICC rules of Arbitration had been
invoked by Devas, the proceedings initiated thereunder could not be interfered with in
proceedings under section 11 of the 1996 Act”.

Shri Lal Mahal v Progetto Gramo Spa is one more instance which testifies Supreme Court’s
averse to intervene in the enforceability of the foreign award saying that “while considering
the enforceability of foreign award, the Court was not inclined to exercise appellate jurisdiction
over the foreign award nor was it inclined to inquire as to whether, while rendering foreign
award, some error had occurred”. In World Sport Group (Mauritius) v Msm Satellite
(Singapore) Pte the Supreme Court refrained itself from intervening and went a step beyond in
holding that “allegations of fraud could also be decided by the International Arbitral Tribunal
as there was no bar against referring such matters involving fraud to international arbitral
tribunals”. In Pricol v Johnson Controls Enterprise the Supreme Court turned down the
request to set aside the partial award passed by the arbitrator. Enercon v Enercon GMBH and
Union of India v Reliance Industries are other leading examples which testify that Supreme
Court was not inclined to intervene either in the appointment of an arbitrator or as the case may
be enforcement of foreign awards. It is not the Supreme Court alone which embraced change,
even the State High Courts seemed to have embraced it. In Cruz City 1 Mauritius v Unitech,
Daiichi Sankyo v Malvinder Mohan, Convention Hotels India v Ager Hotels the Delhi High
Court declined to intervene in the process of enforcement of a foreign award. These cases
outline except Oil & Natural Gas Commission v Western GECO International the changing
environment in India in matters of international commercial arbitration. The State High Courts
and Supreme Court in all these cases abstained themselves from intervening with the arbitral
process already commenced or enforcement of a foreign award.
What The Future Holds for International Arbitration in India?

It is obvious from the foregoing that a change is taking place gradually on all fronts. Indian
Courts have refrained themselves from interfering with the arbitral process in the cases where
the parties chose to settle their disputes amicably through arbitration to give effect to the
preferred choice of the parties; besides the Arbitration and Conciliation (Amendment) Act 2015
and the Arbitration and Conciliation (Amendment) Act 2018 respectively brought about
changes like reducing to a considerable extent as explained above the supervisory role of the
Courts and establishment of Arbitration Council of India for the purposes mentioned below to
give fillip to the institutional arbitration. These efforts of all the three wings of the Government
testify that India is taking all possible measures to make India investor friendly which may lead
India one of the prominent hubs of arbitration on par with other leading centres.

Topic 4: Extent Of judicial Intervention: -

Legislative intent behind the 1996 Act

The 1996 act only came into being after two ordinances were passed after the New Economic
Policy of 1991 was functioning. The scheme of the 1996 act is such that the supervisory role
of the courts in the arbitration proceedings and arbitral awards would be reduced. It is
mentioned in the preamble of this Act that it’s based on the UNCITRAL Model Law. However,
not all safeguards provided by the UNCITRAL Model Law were incorporated in this
Act. Under Article 16 of the Model law provided that Arbitration Tribunals may rule in its
own Jurisdiction and jurisdictional issues were to be decided as preliminary issues by the
arbitral tribunal, before appealing to the Court. This was eliminated from the Act.

It is provided under the Model Law that court has the power to grant an interim measure of
protection if it depends upon where the arbitration is being held and whether it is in the place
in which the court is situated. However, in the 1996 Act in order to curtail the court a certain
section was introduced. Section 2(2) was introduced as opposed to Article 1(2) of the Model
Law, to exclude such power of the court.

Judicial intervention in Arbitration Law

Three ways in which judicial intervention in arbitration takes place: -

▪ Before proceedings- Section 5 & Section 8 of the 1996 act

▪ During proceedings- Section 9 of the 1996 Act

▪ After proceedings- with regard to arbitral awards under Section 34 & Section 37 of the
1996 Act

Judicial intervention before Arbitration Proceedings

5. Extent of judicial intervention. —Notwithstanding anything contained in any other law

for the time being in force, in matters governed by this Part, no judicial authority shall
intervene except where so provided in this Part.

The extent of judicial intervention statutorily permitted is laid under Section 5 of the
Arbitration and Conciliation Act, 1996. Interestingly this section is analogous to Article 5
of UNCITRAL Model Law. It is also inspired by the English Arbitration Act 1996 as well.
However, a significant amount of unnecessary judicial intervention is practiced in reality
while applying the Arbitration Law.

The construction of Section 5 of the Act makes it pretty clear that the legislature wanted to
limit the role of Court in arbitration. Parties are given autonomy over the court’s
intervention in order to achieve the two-fold objective of expediting justice and economic
resolution of disputes. Disputes can be resolved by either Domestic or International
commercial arbitration.

Section 5 starts with a non-obstante clause. This eliminates the possibility of intervention
by courts. The term “no judicial authority” is wide enough and the Act also ensures by
using the word “shall intervene” that there is no judicial discretion involved. A certain
extent of judicial intervention is allowed in order to kick start the arbitral process only.
Judiciary just plays an administrative role and not a judicial one. The Act provides
exceptions to the non-obstante clause by including words like “except where so provided
in this part”.

The SC in Surya Dev Rai V. Ram Chander Rai observed that “If it intervenes in pending
proceedings there is bound to be a delay in termination of proceedings. If it does not
intervene, the error of the moment may earn immunity from correction……. Thus, the
power is there but the exercise is discretionary which will be governed solely by the dictates
of judicial conscience enriched by the judicial experience and practical wisdom of the
Judge”.

8. Power to refer parties to arbitration where there is an arbitration agreement.— (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.]

(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: 2

[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.]

(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.

How does the intervention function at start?

1. When in contravention to the arbitration agreement an application is made to stay the

court proceedings, a judicial authority steps in to resolve disputes. It is interesting to
note at this point that Courts cannot compel arbitration on the claimants. They are
entitled to avail a remedy through Courts and can also avail arbitration.

2. Section 8 refers to domestic arbitration and Section 45 and 54 refer to International

commercial arbitration. A party involved in court proceedings can receive a reference
of their dispute to arbitration by virtue of these sections.
 3. The power to refer parties to arbitration only arises when a valid arbitration agreement
exists. Such agreements are contractual understanding between parties. Yet Parties try
to approach traditional courts. The object of arbitration is speedy and inexpensive
dispute resolution.

4. Judicial intervention must only be to support arbitration and not overstep its
jurisdictional authority. As per Section 8 of the Act, the judicial authorities are
mandatorily required to refer the parties to the arbitration.

Judicial intervention during Arbitration Proceedings

There are various sections involved where the judiciary steps in during proceedings as
well. Section 9 of the Act lays down interim measures that can be granted by the Court. Section
17 of the Act on the other hand empowers arbitral tribunals to make orders as per the section.
Section 9 confers the same powers to judicial authorities and courts. However, the purpose of
both sections is absolutely different.

9.Interim measures, etc., by Court. — (1) A party may, before or during arbitral proceedings
or at any time after the making of the arbitral award but before it is enforced in accordance
with section 36, apply to a court—

(i) for the appointment of a guardian for a minor or person of unsound mind for the purposes
of arbitral proceedings; or

(ii) for an interim measure of protection in respect of any of the following matters, namely: —
(a) the preservation, interim custody or sale of any goods which are the subject-matter of the
arbitration agreement.

(b) securing the amount in dispute in the arbitration.

(c) the detention, preservation or inspection of any property or thing which is the subject matter
of the dispute in arbitration, or as to which any question may arise therein and authorising for
any of the aforesaid purposes any person to enter upon any land or building in the possession
of any party, or authorising any samples to be taken or any observation to be made, or
experiment to be tried, which may be necessary or expedient for the purpose of obtaining full
information or evidence;

(d) interim injunction or the appointment of a receiver.

(e) such other interim measure of protection as may appear to the Court to be just and
convenient, and the Court shall have the same power for making orders as it has for the purpose
of, and in relation to, any proceedings before it. 2

(2) Where, before the commencement of the arbitral proceedings, a Court passes an order for
any interim measure of protection under sub-section (1), the arbitral proceedings shall be
commenced within a period of ninety days from the date of such order or within such further
time as the Court may determine.

(3) Once the arbitral tribunal has been constituted, the Court shall not entertain an application
under sub-section (1), unless the Court finds that circumstances exist which may not render the
remedy provided under section 17 efficacious.]

Implications of Section 9 of the Act- Interim measure by Court

1. The power conferred by Section 9, to courts is mandatory in nature. It is not subject to

the autonomy of the parties in dispute. Interim measures are not a substantive relief. An
application under Section 9 is not a suit and the relief sought under it is not a right
arising out of the contract. The role of the court is such that it only protects the rights
of adjudication before an arbitral tribunal from being frustrated.

2. Now one of the challenges that props up is as under Section 17 of the Act shows the
lack of any suitable legislative mechanism in the Act itself for the enforcement of
interim orders of the arbitral tribunal. The Delhi High Court in the case of Sri Krishan
v. Anand attempted to suggest amendments to section 17 which would give more
authority and security to the interim measures by arbitral tribunals. So that parties don’t
need to show up to the court to challenge the same.

3. In M/s. Sundaram Finance Ltd., V. M/s. N.E.P.C. India Limited the N.E.C.P could
not have approached the Civil Court to sought relief in order to facilitate delay in the
proceedings pending adjudication before the arbitrator. The court explained that the
provisions under Section 9 of the Act have been laid down to facilitate the smooth
sailing of arbitral proceedings. Unscrupulous parties involved can’t utilize it to misuse
this section so as to hamper the progress of the proceedings. This case, however, did
not deal with judicial intervention with arbitral awards.

4. In the case ITI Ltd V. Siemens Public Communications Network Ltd it was held that
the provisions of the Civil Procedure Code, 1908 which lays down rules for interim
 injunctions by the court, has to be kept in mind while deciding an application under
Section 9. This shows that the arbitral provisions are not independent and have to look
up to courts in order to serve its own purpose.

17.Interim measures ordered by arbitral tribunal. — (1) A party may, during the arbitral
proceedings 2***, apply to the arbitral tribunal—

(i) for the appointment of a guardian for a minor or person of unsound mind for the purposes
of arbitral proceedings; or

(ii) for an interim measure of protection in respect of any of the following matters, namely: —
(a) the preservation, interim custody or sale of any goods which are the subject-matter of the
arbitration agreement.

(b) securing the amount in dispute in the arbitration.

(c) the detention, preservation or inspection of any property or thing which is the subject matter
of the dispute in arbitration, or as to which any question may arise therein and authorising for
any of the aforesaid purposes any person to enter upon any land or building in the possession
of any party, or authorising any samples to be taken, or any observation to be made, or
experiment to be tried, which may be necessary or expedient for the purpose of obtaining full
information or evidence;

(d) interim injunction or the appointment of a receiver.

(e) such other interim measure of protection as may appear to the arbitral tribunal to be just
and convenient, and the arbitral tribunal shall have the same power for making orders, as the
court has for the purpose of, and in relation to, any proceedings before it.

Judicial Intervention with regard to Arbitral Award

34. Application for setting aside arbitral award. — (1) Recourse to a Court against an
arbitral award may be made only by an application for setting aside such award in accordance
with sub-section (2) and sub-section (3). (2) An arbitral award may be set aside by the Court
only if— (a) the party making the application 1 [establishes on the basis of the record of the
arbitral tribunal that]—
(i) a party was under some incapacity, or

(ii) the arbitration agreement is not valid under the law to which the parties have subjected it
or, failing any indication thereon, under the law for the time being in force; or

(iii) the party making the application was not given proper notice of the appointment of an
arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms
of the submission to arbitration, or it contains decisions on matters beyond the scope of the
submission to arbitration: Provided that, if the decisions on matters submitted to arbitration can
be separated from those not so submitted, only that part of the arbitral award which contains
decisions on matters not submitted to arbitration may be set aside; or

(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with
the agreement of the parties, unless such agreement was in conflict with a provision of this Part
from which the parties cannot derogate, or, failing such agreement, was not in accordance with
this Part; or (b) the Court finds that—

(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for
the time being in force, or

(ii) the arbitral award is in conflict with the public policy of India.

Explanation 1. —For the avoidance of any doubt, it is clarified that an award is in conflict
with the public policy of India, only if, —

(i) the making of the award was induced or affected by fraud or corruption or was in
violation of section 75 or section 81; or

(ii) it is in contravention with the fundamental policy of Indian law; or

(ii) it is in conflict with the most basic notions of morality or justice.

Explanation 2. —For the avoidance of doubt, the test as to whether there is a contravention
with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.]

(2A) An arbitral award arising out of arbitrations other than international commercial
arbitrations, may also be set aside by the Court, if the Court finds that the award is vitiated by
patent illegality appearing on the face of the award:
Provided that an award shall not be set aside merely on the ground of an erroneous application
of the law or by reappreciation of evidence.]

(3) An application for setting aside may not be made after three months have elapsed from the
date on which the party making that application had received the arbitral award or, if a request
had been made under section 33, from the date on which that request had been disposed of by
the arbitral tribunal: Provided that if the Court is satisfied that the applicant was prevented by
sufficient cause from making the application within the said period of three months it may
entertain the application within a further period of thirty days, but not thereafter.

(4) On receipt of an application under sub-section (1), the Court may, where it is appropriate
and it is so requested by a party, adjourn the proceedings for a period of time determined by it
in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take
such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting
aside the arbitral award.

(5) An application under this section shall be filed by a party only after issuing a prior notice
to the other party and such application shall be accompanied by an affidavit by the applicant
endorsing compliance with the said requirement.

(6) An application under this section shall be disposed of expeditiously, and in any event,
within a period of one year from the date on which the notice referred to in sub-section (5) is
served upon the other party.]

One of the most significant provisions of the Act is Section 34. This Section lays down the
permissible grounds upon which an arbitral award can challenge. This section is also a
testament to the limited scope of judicial intervention that is statutorily allowed.

Enforcement of Final Arbitral award by Tribunal

Enforcement of such awards has the same impact as that of a decree passed by a Court. Section
35 of the Act lays down provisions for the Finality of the Arbitral awards. Only the losing party
is allowed to make an application to challenge the enforcement of Arbitral Awards.

Limitation of Time

An application for setting aside an arbitral award can be made to the Court within 3 months
from the date of receipt of the award. The limit of three months can be extended to a maximum
of 30 days and not more than that if the party is able to satisfy the court on the sufficient cause
from not filing it timely.

The SC in State of Maharashtra & Ors. V. M/s. Ark Builders Pvt. Ltd held that the application
for setting aside the award must be made within the period of limitation and it has to be made
if it satisfies the grounds laid down under Section 34 of the 1996 Act.

37. Appealable orders. — (1) Notwithstanding anything contained in any other law for the
time being in force, an appeal] shall lie from the following orders (and from no others) to the
Court authorised by law to hear appeals from original decrees of the Court passing the order,
namely: —

(a) refusing to refer the parties to arbitration under section 8.

(b) granting or refusing to grant any measure under section 9.

(c) setting aside or refusing to set aside an arbitral award under section 34.

(2) Appeal shall also lie to a court from an order of the arbitral tribunal—

(a) accepting the plea referred to in sub-section (2) or sub-section (3) of section 16; or

(b) granting or refusing to grant an interim measure under section 17.

(3) No second appeal shall lie from an order passed in appeal under this section, but nothing in
this section shall affect or takeaway any right to appeal to the Supreme Court.

The SCI (three judge bench) in Consolidated Engineering Enterprises and Ors. v. Principal
Secretary Irrigation Department and Ors. (2008) ("CEE Case") held that the provisions of
the Limitation Act shall apply to all proceedings under the A&C Act, both in courts and in
arbitrations, unless expressly excluded by the A&C Act. The SCI also observed that if the
concerned special or local law is silent on the limitation period then the schedule to the
Limitation Act should apply to such appeals or applications under such law.

SCI overrules the NV Case

The NV Case resulted in various contradictory and neglectful approach by various High Courts
around the country for almost a year. However, recently the SCI (three judge bench)
in Government of Maharashtra (Water Resources Department) v. M/s Borse Brothers
Engineers & Contractors Pvt. Ltd. (2021) ("Borse Brothers Case"), overruled the NV Case.
The Borse Brothers Case also settled the law in relation to the limitation period for filing an
appeal under Section 37 of the A&C Act.

The SCI's ruling in the Borse Brothers Case as regard the limitation period can be summarized
as under:

Claim Limitation
Type of A&C Act to Whether any delay would be
amount Period
appeal be read with condonable.
(INR) (days)

Below 3 Limitation
Inter-court
(three) Act (Article 90
appeal
Lakhs 116)

Yes, but only in exceptional

Below 3 Limitation
Intra-court cases having short delays and
(three) Act 30
appeal where parties have acted bona
Lakhs (Article 117)
fide and not in a negligent
manner.
Both inter-
Above 3 CCA
court and
(three) (Section 60
intra-court
Lakhs 13(1A))
appeals

While the Borse Brothers Case extended direct clarity on the Second Dubiety and Third
Dubiety, the clarity on the First Dubiety can be determined from the SCI's reasoning. The Borse
Brothers Case holds that the limitation for filing an appeal under Section 37 of the A&C Act
will depend on whether the appeal is from a commercial dispute (as per CCA) or against a non-
commercial dispute. Accordingly, the category of the dispute will determine the limitation
period for an appeal against the order of the arbitral tribunal (under Section 8, Section 16 and
Section 17 of the A&C Act) as per the table above.
Topic 5 Arbitration & Expert Determination

M/s Kuldip Singh Sethi & Gagan Goyal

v.

Ecole Globale International Girls School

On the distinction between an expert determination and arbitration, Russell on Arbitration, 21st
Edn., states that the question whether a contract’s chosen form of dispute resolution is expert
determination or arbitration is a matter of construction of the contract, which involves an
objective enquiry into the intention of the parties.

First, there are 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 18 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. This imprecise concept is still being relied on. It is unsatisfactory
because some parties to the contract deliberately choose expert determination for dispute
resolution.

The next guideline is the judicial function of an arbitral tribunal as opposed to the expertise of
the expert. An arbitral tribunal arrives at its decision on the evidence and submissions of the
parties and must apply the law or, if the parties agree, on other consideration. An expert, unless
it is agreed otherwise, makes his own enquiries, applies his own expertise and decides on his
own expert opinion. Where the clause, relating to settlement of disputes, contains words which
specifically exclude any of the attributes of an arbitration agreement or contains anything that
detracts from an arbitration agreement, it will not be an arbitration agreement.

In South Delhi Municipal Corporation vs. SMS AAMW Tollways Private Ltd., 2018 SCC
Online SC 2523, the Supreme Court of India decided the issue of whether a clause in question
provides for arbitration or expert determination (departmental appeal). The Court observed that
an arbitration should be in the nature of a judicial enquiry involving hearing of both the parties
and since the impugned clause in the instant case provided bilateral right of reference, the Court
held that the parties had not agreed to refer their dispute for arbitration. Detailed case analysis
given below:

Factual Matrix

The Dispute amongst the parties culminated from two distinct Agreements i.e. the State
Support Agreement (‘SSA’) entered into between National Highway Authority of India
(‘NHAI’) and its Concessionaire for collecting toll tax from a particular entry point (‘A’) in
Delhi and Bilateral Agreement (‘BA’) entered into between the Appellant (‘SDMC’) and the
Respondent (‘SMS’) in lieu of the tax collected from all entry points of Delhi. Although, SMS
was not a party of SSA, yet collection of certain type of toll tax (Entry Toll Tax) was agreed to
be collected by the Concessionaire for A who will then pass it on to SMS after deducting
Service Charge. In a nutshell, under BA, SMS was obliged to pay a cap amount of Rs 26
Million to SDMC per month including the Entry Toll Tax passed on to it by Concessionaire
for A. Later, Toll Plaza at A was dismantled and since SMS was obliged to pay a cap of Rs 26
Million to SDMC per month including the Entry Toll Tax from A, the additional cost falls on
to SMS.

SMS sent a notice of arbitration to SDMC under the SSA. The Competent Officer of SDMC
raised a demand in response. Being dissatisfied, SMS later filed an appeal against the decision
of the Competent Officer of SDMC under Clause 16.3 of BA. the SDMC intimated to SMS
that since there is no arbitration clause in existence between the parties, the arbitration is not
acceptable.

SMS filed a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 (‘Act’)
before the Delhi High Court to appoint an arbitrator which was allowed by the Court appointing
an arbitrator. This order of the High Court was assailed before the Supreme Court in the present
case.

Arbitration Clause

“16. DISPUTE RESOLUTION

16.1 Except where otherwise provided in the Agreement, all questions and disputes in any way
arising out of or relating to the Agreement shall be dealt with as mentioned below.
16.2 In the event the Contractor considers any work demanded of it as being outside the
requirements of the Agreement, or disputes any record or decision given in writing by the
Competent Officer in any matter in connection with or arising out of the Agreement, to be
unacceptable, it shall promptly within [15] days request the Competent Officer in writing to
give his instructions or decision in respect of the same. Thereupon, the Competent Officer shall
give his written instructions or decision within a period of [30] days from the receipt of the
Contractor’s letter.

16.3 If the Competent Officer fails to give his instructions or decision in writing within the
aforesaid period or if the Contractor is dissatisfied with the instructions or decision of the
Competent Officer, the Contractor may, within [15] days of receipt of the Competent Officer’s
instructions or decision, appeal to the Commissioner who shall afford an opportunity to the
Contractor to be heard, if the latter so desires, and to offer evidence in support of its appeal.
The Commissioner shall give his decision in writing within [30] days of receipt of Contractor’s
appeal which shall be acceptable to the Contractor.”

Applicable Legal Principles

Section 11(6) of the Act

Section 11 – Appointment of arbitrators

(6) 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 the two appointed arbitrators, fail to reach an agreement expected of them
under that procedure: or

(c) a person, including an institution, fails to perform any function entrusted to him or it under
that procedure, a party may request the Supreme Court or, as the case may be, the High Court
or any person or institution designated by such Court] to take the necessary measure, unless
the agreement on the appointment procedure provides other means for securing the
appointment.

Parties Contentions
SMS relied on a paragraph in Russell on Arbitration to submit that Clause 16.3 does not provide
for an appeal to the Commissioner but provides for arbitration by the Commissioner. The said
paragraph is reproduced below:

“If it appears from the terms of the agreement by which a matter is submitted to a person’s
decision, that the intention of the parties was that he should hold an enquiry in the nature of a
judicial enquiry and hear the respective cases of the parties and decide upon evidence laid
before him, then the case is one of an arbitration. The intention in such case is that there shall
be a judicial inquiry worked out in a judicial manner. On the other hand, there are cases in
which a person is appointed to ascertain some matter for the purpose of preventing differences
from arising, not of setting them when they have arisen.”

Judgement

The question before the Court was whether Clause 16.3 which provides for an appeal really
provides for an arbitration and therefore whether the High Court was entitled to appoint an
Arbitrator under Section 11(6) of the Act.

The Court noticed that from a plain reading of Clause 16 one can see that it provides for the
resolution of disputes at two stages. First, by the Competent Officer of the SDMC vide Clause
16.2 followed by the Commissioner of the Municipal Corporation vide Clause 16.3

With regard to Clause 16.3 under which an application to appoint an Arbitrator under Section
11(6) of the Act was made, the Court noted that it is described as an appeal in the said Clause
since the SMS is entitled to take recourse to appeal, if the SMS is dissatisfied with the decision
of the Competent Officer including a possible failure to decide within the prescribed period i.e.
within 30 days. However, the Court also noted that the right of appeal is restricted to SMS only
(and not to SDMC) in case SMS is dissatisfied and that too upon a failure to obtain redressal
under Clause 16.2. The Court concluded that the language of Clause 16.3 does not lend itself
to any other construction other than that it provides for an appeal against the decision of a
Competent Officer rendered under Clause 16.2.

Judicial Inquiry

On the passage cited by SMS from Russell on Arbitration, the Court observed, that the passage
clearly contemplates that an arbitration should be an enquiry in the nature of a judicial
enquiry i.e. an enquiry which involves hearing both the parties. The appeal involved in the
present case clearly does not involve hearing both the parties. On the contrary, the authority
which decides the appeal is in a sense the other party. The Commissioner is a higher officer
than the Competent Officer in the same organization. It is, therefore, clear that the appeal to
the Commissioner is not intended to provide a forum for a decision by an impartial adjudicator
but is only intended to ascertain some matter for the purpose of preventing differences from
arising and not for settling them after they have arisen. It is thus clear that the Commissioner
is not intended to be an arbitrator, as his jurisdiction cannot be invoked by both parties.

The Court concluded that in the present case, under Clause 16 of BA, only the party dissatisfied
by the order of the Competent Officer can approach the Commissioner. It is, therefore, not
possible to hold that the proceeding before the Commissioner constitutes as an arbitration. To
reach this conclusion, the Court relied on K.K. Modi v. K.N. Modi 1998 (3) SCC 573, State of
Orissa v. Damodar Das, 1996 (2) SCC 216, State of U.P. v. Tipper Chand AIR 1980 SC 1522.

Therefore, the Court set aside the Order of the Delhi High Court of appointing an arbitrator
under Section 11(6) of the Act.