JURISDICTION OF ARBITRAL TRIBUNAL
An arbitrator has no authority or jurisdiction beyond than what is defined by the terms of
the contract or what the parties desire under the conract. Objections regarding applicability
of the arbitration clause in the agreement to the facts of the case must be raised before the
arbitrator for decision.
S. 16(1) - Challenge to jurisdiction
This section empowers an AT to decide:
a) The question as to its jurisdiction, and
b) The objection as to the existence or validity of the arbitration agreement.
For this purpose, an arbitration clause in a contract shall be treated as an arbitration
agreement independent of the contract.
S. 16(2) – Time for filing objection as to jurisdiction
Such objection must be filed along with or before the submission of the statement of
defence. A party will not be estopped from raising this plea merely because he was involved
in appointment of arbitrator, or that he participated in the arb. Proceedings.
Such objection must be raised by the party at the threshold before the tribunal so that
remedial measures may be taken, so that time and expense in continuing the proceedings
and in ultimately challenging the award may be avoided. It must normally be raised before
the statement of defence is made.
S. 16(3) – Tribunal exceeding jurisdiction.
Once objection is raised, the tribunal has to decide whether it has territorial jurisdiction.
The tribunal is competent to rule on its own jusdiction. The doctrine of Kompetenz-
Kompetenz applies. Conferment of such powers of the tribunal has been done with the
intention of and objective of setting the tribunal proceedings in motion without any hurdles
in future.
FCI v. A. M. Ahmed
Where the HC had already decided the question of arbitrability of the disputes while
appointing the arbitrator, there was no question of the arbitrator examining the same since
the determination by the court had attained finality. It could not be challenged in the
arbitration proceedings.
S. 16(4) - Condonation of delay
This section empowers the tribunal to entertain the objections regarding lack of excess or
jurisdiction even after the time for raising them has expired – if it considers the delay
justified.
Matters of limitation can be considered and decided by the arbitrator.
S. 16(5) – Decision on objections
Where objections of lack of jurisdiction are raised before the arbitrator, the arbitrator must
decide the same. If it rejects the objections, then he shall continue with the arbitral
proceedings and make its award. Any such objections raised must be decided before
o=going into the merits of the case and without fail.
S. 16(5) and 16(6) – Challenging the award
When an award has been made after rejection of the objections as to lack of or excess of
jurisdiction, the aggrieved party can make an application to set aside such award u/S. 34.
Manocha Constructions v. S of MP
Once a fresh award is passed after remission, the previous award shall have no
significance. SC applied this principle where an award was challenges and a fresh award
was passed, the contractor objected to the fresh award since arbitrator had awarded a lower
rate compared to the original award. Contractor objected to the second award and claimed
payment based on the original award, the same was not allowed.
The decision of the AT on its jurisdiction is not an award. It is an order which may
culminate in the closure of the proceedings and in that event an appeal lies u/ S. 37.
ARBITRATION AGREEMENT AND ARBITRATION CLAUSE IN CONTRACT
Arbitration Agreement – It means an agreement by the parties to submit to arbitration, all
or certain disputes which have arisen or may arise between them in terms of a defined legal
relationship, whether contractual or not.
Defined legal relationship
S. 7(1) of the Act provides that the dispute must be in respect of a defined legal relationship
whether contracted or not. The relationship must be of a legal nature; matters of moral and
spiritual relations are not fit subjects for arbitration.
Nature of dispute – Disputes which cannot be referred to arbitration are:
a) Present or future disputes which are,
b) in respect of a defined legal relationship, whether contractual or not.
S.7 – Agreement to be in writing –
One of the most important points emphasized in these provisions is that the reference
should be by means of a written agreement. An oral agreement to submit a dispute to
arbitration is not binding. If such agreement is in writing, it will bind, even if some of its
details are filled in by oral understanding.
It is not necessary that the agreement should be on a formal document, nor is it necessary
that the agreement should be signed by both or either party. It is sufficient that the written
agreement has been orally accepted by the parties or that one has signed and other has
accepted.
Whatever be the form or contents of the agreement, it is necessary for the Act to apply that
there should be a mandatory requirement for settlement of disputes by means of
arbitration.
Wellington v. Kirit Mehta
An agreement that the parties may go in for a suit or may also go in arbitration for
settlement of disputes is not an arbitration agreement.
No prescribed form of Agreement - (S.7(2))
An arbitration agreement may be in the form of an arbitration clause in a contract or in the
form of a separate agreement.
Rukmanibai v. Collector
SC laid down that the arbitration clause need not be stated in any particular form, nor is it
compulsory that it should be contained in the same contract document. The intention of the
parties must be clearly ascertained from the clause.
Telex and fax
An agreement by telex has been held to be an agreement in writing. It has been suggested
that this would presumably apply to communications by fax.
Exchange of letters, etc.
A letter sent by one party to the other party suggesting settlement of disputes through
arbitration. The other party accepted the same, it was constituted to be an arbitration
agreement.
“Arbitration Agreement” and “reference”
The expressions “Arbitration Agreement” and “reference” have been separately defined.
Seth Pherumal v. UOI
The SC observed, the expression “reference” obviously refers to an actual reference jointly
made by the parties after disputes have arisen between them for adjudication to the named
arbitrator or arbitrators. The expression “Arbitration Agreement” is wider, and it combines 2
concepts, (a) bare agreement between the parties that any disputes must be decided or
resolved through arbitration and (b) an actual reference of the dispute to the named
arbitrator.
Clauses having effect of “arbitration agreement”
S. 7(5) – provides that the reference in a contract to a document containing an arbitration
clause constitutes an arbitration agreement if the contract is in writing and the reference is
such that to make the arbitration clause a part of the contract. Hence the whole thing turns
upon the intention of the parties.
It also depends on the scope of such clause.
In S of UP. v. Tipper Chand –
A clause in a govt. contract provided that the decision of the superintending engineer in all
questions of dispute all be final and binding. An application made to refer the dispute to
arbitration was rejected by the SC.
Clauses NOT having effect of “arbitration agreement”
Hatigarh v. Ajit
A clause provided that in case of any dispute or difference between parties of which an
amicable settlement has not been possible, reference should be made to a common friend
and well-wisher instead of rushing to the court. Held that it was not an arbitration clause.
Adoption of arbitration clause from main contract to sub-contract
When an arbitration clause is adopted form main contract to sub-contract by a declaration,
it will not necessarily follow that the parties to the subcontract will also be bound by such
clause. For one, the parties are different and since the subjects of contracts could be
different, different kinds of disputes are likely to arise than those contemplated by the main
contract.
Baltic Confidence v. State Trading Corpn.
SC examined whether an arbitration clause contained in a charter party agreement can be
incorporated by reference in a bill of lading. SC held that if no absurdity, inconsistency or
insensibility arises, the clause will apply to the bill of lading and intention of the parties can
be given effect to.
Burden of proof
The burden of proof of proving existence of a valid contract containing an arbitration clause
first lies with the party who moved the application for appointment of an arbitrator.
Interpretation of arbitration clause
An arbitration clause has to be read as a whole for its proper interpretation. The terms of
the arbitration agreement should be construed in a broad commonsense manner. The rules
of interpretation require that an arbitration clause should be read in the ordinary and
natural sense except where that would lead to an absurdity.
Survival of arbitration clause
Even after the agreement ceased to exist, the arbitration clause in such agreement remains
in force. Any dispute pertaining to the agreement has to be resolved in accordance with the
requirements of the arbitration clause.
Cases of special jurisdiction:
Where the law has given jurisdiction to determine, certain matters to specified tribunals
only, such matters cannot be referred to arbitration, eg.:
a) Insolvency proceedings, winding up matters
b) Probate proceedings
c) Suits u/ S 92 CPC, trusts of charitable or religious nature
d) Proceedings for appointment of guardian
e) Matrimonial causes (except settlement in terms of separation or divorce)
f) Industrial disputes
g) Title to immovable property in a foreign country
h) Eviction or tenancy matters where tenant enjoys special statutory protection
i) Guardianship matters
COMMERCIAL ARBITRATION
The essence of the theory of “transnational arbitration” is that the institution if
international commercial arbitration is an autonomous juristic entity which is independent
of all national courts and all national systems of law. The Arbitration and Conciliation Act
of 1996 provides for certain aspects of international commercial arbitration.
It is defined under S. 2(1)(f) of the Act as:
An arbitration relating to disputes arising out of legal relationships, whether contractual or
not, considered as commercial under the law in force in India and where at least one of the
parties is—
a) an individual who is a national of, or habitually resident in, any country other than
India; or
b) a body corporate which is incorporated in any country other than India; or
c) an association or a body of individuals whose central management and control is
exercised in any country other than India; or
d) the Government of a foreign country;
Meaning of “commercial”
While the term “commercial” is not defined under the Act, it is explained in a footnote in the
UNCITRAL Model Law. It says that the word “commercial” should be given a wide meaning
to cover all matters arising from all relationships of a commercial nature, including but not
limited to any trade transaction for supply or exchange of goods or services, distribution
agreement, factoring, leasing, construction of works, financing , JV etc.
Application of Part I
The SC has reiterated that if the place of arbitration is in India, the parties are entitled to
invoke the provisions of Part I even if the agreement is to be governed by the law of another
country. The court has also clarified that Part I equally applies to arbitration held outside
India except if excluded by express agreement between the parties or by implication.
Appointment of arbitrator
Under S. 11(9) – in case of appointment of sole or third arbitrator, the SC or its nominee
may appoint an arbitrator of a nationality that is other than the nationalities of the parties
where the parties belong to different nationalities.
Denley v. Bharat Electronics
The appointment of named arbitrator was found to be improper because he might not have
been able to decide the dispute independently as he was bound by the directions of Ministry
of Defence. A retired SC judge was appointed as the arbitrator.
Choice of place and proper law of arbitration
S. 28 of the Act provides that:
a) the arbitral tribunal shall decide the dispute in accordance with the rules of law
designated by the parties as applicable to the substance of the dispute;
b) any designation by the parties of the law or legal system of a given country shall be
construed, unless otherwise expressed, as directly referring to the substantive law of
that country and not to its conflict of laws rules;
c) failing any designation of the law under clause (a) by the parties, the arbitral
tribunal shall apply the rules of law it considers to be appropriate given all the
circumstances surrounding the dispute.
Nyimi Enterprise v. Gauhati Municipal Corp.
Where parties had agreed to the application of ICA Rules of Arbitration, it was held that
proceedings could commence only with notice under Rule 15. No such notice was issued,
and hence appointment of arbitrator by the CJ was not justified.
Foreign Award
A foreign award u/ S. 44 of the Act means an arbitral award on differences between
persons arising out of legal relationships, whether contractual or not, considered as
commercial under the law in force in India, made on or after the 11 th October 1960.
Enforceability
An award is foreign not merely because it is made is the territory of a foreign State, but
because it is made in such a territory on an arbitration agreement not governed by the law
of India. It is recognised and enforceable in india as if it were an award made on a matter
referred to arbitration in India.
Conditions for enforcement of foreign awards —
U/ S. 48, Enforcement of a foreign award may be refused, at the request of the party
against whom it is invoked, only if that party furnishes to the court proof that—
a) the parties to the agreement referred to in S. 44 were, under the law applicable to
them, under some incapacity, or the said agreement is not valid under the law to
which the parties have subjected it
b) the party against whom the award is invoked was not given proper notice of the
appointment of the arbitrator or of the arbitral proceedings or was otherwise unable
to present his case; or
c) the award deals with a difference 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, that part of
the award which contains decisions on matters submitted to arbitration may be
enforced;
d) the composition of the arbitral authority or the arbitral procedure was not in
accordance with the agreement of the parties, or, was not in accordance with the law
of the country where the arbitration took place
e) the award has not yet become binding on the parties, or has been set aside or
suspended by a competent authority of the country in which, or under the law of
which, that award was made.
f) Enforcement of an arbitral award may also be refused if the Court finds that— (a)
the subject-matter of the difference is not capable of settlement by arbitration under
the law of India; or (b) the enforcement of the award would be contrary to the public
policy of India.
Renusagar Power v. General Electric Co
For the purposes of S. 48, public policy of India must be given a narrow meaning and
enforcement of award will be refused if such enforcement is contrary to:
a) Fundamental policy of Indian laws
b) Interests of India
c) Justice or morality
U/ S. 49, Where the Court is satisfied that the foreign award is enforceable under the Act,
the award shall be deemed to be a decree of that Court.
