ADR UNIT 3

(A). Arbitration agreements

ARBITRATION

• Form of Alternative Dispute Resolution

• Alternative to court room litigation
• Parties submit their disputes to a NEUTRAL third party called the Arbitrator for
resolution
• Binding dispute resolution, equivalent to litigation in the courts
• Governed by the Arbitration and Conciliation Act, 199

Definition of Arbitration Agreement

As per Section 7 of The Arbitration and Conciliation Act, 1996, an “arbitration agreement” means a
promise by parties to settle any disputes between them about a specific legal relationship using
arbitration. This applies whether the disputes are mentioned in a contract or not. This type of
agreement is also called a submission agreement.

An arbitration agreement is a legal contract made by two or more parties. It states that if any
disagreements or conflicts arise between them, they will use arbitration to solve the issues instead
of going to court. This is an agreement where all parties decide to present their disagreements to an
arbitrator or an arbitration panel. These arbiters will make a final and binding decision based on the
facts and arguments from both sides.

An arbitration agreement is a written document upheld by the parties of arbitration in order to settle
their dispute outside the Court by the process of arbitration. There is no specified form given under
which such agreement is required to be drawn, however, in order to constitute a valid arbitration
agreement,

the following attributes are necessary:

In the notable legal case of K.K. Modi v. K.N. Modi and Ors. (1998) 3 SCC 573, the Hon’ble
Supreme Court highlighted several crucial attributes that must be present in an arbitration
agreement:

• Binding Decision: The agreement should explicitly state that the tribunal’s decision will be
legally binding on both parties involved.
• Jurisdictional Consent: Both parties must mutually agree on the tribunal’s jurisdiction to
arbitrate the matters concerning their rights. This consent can either arise from a consensual
decision or from a court order directing that the proceedings proceed through arbitration.
• Fair and Impartial Determination: The tribunal holds the responsibility to impartially
determine the rights of the parties, ensuring a fair judgment.
• Legally Enforceable: The agreement’s terms, which outline the parties’ commitment to
arbitration, must adhere to the legal framework and be enforceable by law.
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 • Timely Formulation: The agreement should specify that any decisions rendered by the
tribunal on the dispute must be formulated prior to the commencement of the arbitration
process.

Advantages of signing an arbitration agreement

• Arbitration is usually faster and less expensive than litigating a case in court.
• Arbitrations are confidential,
• In arbitration, you can choose who will decide your dispute.
• Some employers will not hire you if you refuse to sign an employment arbitration
agreement.

Disadvantages of signing an arbitration agreement

• Arbitration awards cannot be appealed. You must accept the arbitrator’s decision as final.
• You cannot have a jury trial.
• The parties’ exchange of information is more limited in arbitration.
• If you are asked to agree to arbitration before you even have a dispute, you may not know
whether you want to arbitrate or not.
• Like all contracts, arbitration agreements can be one-sided in favor of the party who wrote
the agreement.

Arbitration agreements are a way to limit litigation costs and keep disputes confidential. But signing
an arbitration agreement also means giving up important rights. Before signing, it pays to read
arbitration clauses and reject or renegotiate anything that you’re uncomfortable with.

Essentials of an Arbitration Agreement

An arbitration agreement involves several key conditions that must be met for it to be valid and
effective. These conditions ensure that the agreement serves its intended purpose and guides the
arbitration process fairly.

1.Presence of a Dispute

For an arbitration agreement to hold weight, a dispute between the involved parties must exist. This
is a fundamental requirement for the agreement to come into effect. If no dispute is present, the
arbitration clause cannot be used to challenge a settlement that has already been reached by the
parties.

2.Written Agreement

An arbitration agreement must always be documented in writing. It can take various forms to
qualify as a written agreement:

• Document with Signatures: The agreement is valid when it’s a signed document by both
parties.
• Written Communications: Communications such as telex, letters or telegrams that record
the agreement for arbitration also suffice.
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 • Exchange of Statements: When parties exchange statements outlining their claims and
defences and one party acknowledges the existence of an arbitration agreement while the
other party doesn’t dispute it, the agreement is considered valid.

3.The intention of the Parties

The intention of the parties involved is a pivotal aspect of the agreement. While specific terms like
“arbitrator” or “arbitration” need not be explicitly stated, the intention of both parties to abide by the
terms of the arbitration agreement is crucial. The agreement’s validity is based on the shared
intention to utilise arbitration for dispute resolution.

4.Signatures of the Parties

The signatures of the parties play a crucial role in forming a valid arbitration agreement. There are
two scenarios:

• Mutual Signatures: The agreement can be a document signed by both parties, outlining all
terms and conditions.
• Unilateral Signature: Alternatively, one party can sign the document containing the terms
and the other party can express acceptance. In this case, the agreement becomes valid upon
the acceptance.

CONSTITUENTS

1. place of Arbitration- this clause states that there will be a place of arbitration in the case of
the dispute.

2. Procedure for appointing the Arbitrators- the procedure is the same as mentioned in the
Arbitration Act. It states that any person, irrespective of the nationality, may be appointed as
an arbitrator, unless the parties agree to something otherwise. The parties can themselves
agree for the appointment of an arbitrator.

3. Language- The language plays an important role while making an agreement. It is

necessary that the language which has been chosen in the contract doesn’t have to be the one
that is not understood by both parties.

4. Number and Qualifications of Arbitrators- The Act allows the parties to determine the
number of the arbitrators, with the only condition that the number shall not be an even
number, but an odd number of arbitrators, so that the decision can be made even if there is a
disagreement amongst the arbitrators.

5. Type of Arbitration- The parties have the choice to choose between the institutional and the
ad hoc (which means it is created for that specific purpose) kind of arbitration. Institutional
means that agreeing to be bound by the rules of the arbitration institutions ad hoc means that
the parties themselves agree to arrange an arbitrator.
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 6. Governing Law- It is important to mention the substantive law that they want to be
governed by as failing to mention this substantive law might be a huge issue in the future
disputes arising between the parties, if any.

CASES- Jagdish Chander v. Ramesh Chander (2007)

Rule of Severability

Background and Scope

The “autonomy of the arbitration clause” is another name for the “doctrine of severability”. The rule
of severability is a fundamental principle in arbitration law that ensures the autonomy and
enforceability of arbitration agreements. Also known as the doctrine of separability, it allows the
arbitration clause within a contract to be treated as a separate and independent agreement from the
rest of the contract. In other words, if a contract contains an arbitration clause, the arbitration
agreement is treated as a distinct and separable part of the contract.

Section 16(1) of the Arbitration and Conciliation Act, 1996 defines the concept of ‘severability’ and
states, any arbitration provision included in a larger contract must be viewed as a separate
agreement from the other provisions, and if the arbitral tribunal rules that the entire agreement is
void, the arbitration provision will not automatically become ineffective as a result.

The severability principle ensures that challenges to the validity of the underlying contract do not
automatically render the arbitration agreement invalid. Arbitrators have the authority to determine
the validity and enforceability of the arbitration agreement independently, regardless of any disputes
related to the main contract.
Application in International Arbitration

The rule of severability is particularly significant in international arbitration. In cases where parties
from different jurisdictions have entered into a contract with an arbitration clause, the separability
of the arbitration agreement ensures that the dispute can proceed to arbitration even if there are
conflicts regarding the substantive aspects of the contract.
The rule of severability is commonly recognized and applied in international law, including
international trade and investment agreements. It is also reflected in international arbitration rules
and guidelines, such as those promulgated by the International Chamber of Commerce (ICC), the
United Nations Commission on International Trade Law (UNCITRAL), and other arbitral
institutions.

Article 16(1) of the UNCITRAL Model law of 1985 on international commercial arbitration defines
the doctrine of severability and states that: The arbitral tribunal has the authority to decide on its
jurisdiction and to settle any disputes originating from the Arbitration Agreement, as well as any
challenges to the agreement’s legality[4]. An arbitration provision included in a contract is regarded
for this purpose as a separate agreement from all other provisions.
Application of the rule of severability may still vary depending on the specific laws and legal
frameworks of the relevant jurisdictions involved in the international agreement.
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To put it simply, the purpose of the doctrine of severability is aimed to safeguard an arbitral
tribunal’s jurisdiction by enforcing the parties agreement to arbitrate and not treating the arbitration
agreement distinctly from the main agreement in general, including determining the proper law of
arbitration agreements.
Hence, in accordance with the judicial decisions and the reasoning stated, it is well settled that,
illegality and invalidity of the main contract do not render the underlying arbitration clause void.

Advantages

• The principle of severability offers the parties with the main fundamental principle of
arbitration law which is the power to the arbitrators to rule on their own jurisdiction. This
power of the arbitrators stems from the arbitration agreement and the main aim of this
principle of severability is to protect the arbitration clause.

• The principle of severability does not allow the parties to escape arbitration by claiming that
the arbitration clause of the contract is invalid.

• The separability doctrine allows arbitrators to examine jurisdictional challenges based on the
dispute contract’s alleged ineffectiveness.

Disadvantages

• Various practitioners have failed to apply the principle of severability in its limited context.
The application of this principle in various instances have been done in a general manner
leading to a pandora’s box of postponed dispute resolution.

• Other major arguments arise against the principle by various practitioners is that the
principle of severability contradicts the contractual approach to arbitration law and it takes
away the rights of the parties to approach the court.

• The severability principle distinguishes arbitration law from an integral aspect of contract
law- the defences to enforcement and thus fails to provide the right to litigate with the
protection of those defences.

CASE- RS Jiwani Vs. Ircon International Ltd

The Bombay High Court in the case of “RS Jiwani Vs. Ircon International Ltd” passed a
judgement and held that an arbitral award is severable and if a part of it is illegal and incapable of
being enforced the other of the award which is valid can still be enforced.

Landmark cases on arbitration

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R.V. Solutions Pvt. Ltd. v. Ajay Kumar Dixit & Ors. In this case, The Delhi High Court held that
a non-signatory or third party can only be subjected to arbitration in exceptional cases without its
consent. The arbitrator is required to form a direct relationship with the signatory party of the
agreement, or between the parties in the agreement or the equality of the subject or the overall
transaction.

Garware Wall Ropes Ltd. v. Coastal Marine Constructions & Engineering Ltd, the court states
that The High Court should stop the instrument which has not imposed stamp duty and hand it over
to the authority which will then decide to implement the payment of stamp duty and penalty (if any)
at the earliest, and preferably a period of 45 days. . Within the date on which the instrument of
authority is received. As soon as the stamp duty is paid on the instrument, either party can bring the
instrument to the notice of the High Court which will then proceed to hear and dispose of the
Section 11 application expeditiously.

( b ) Composition of arbitral tribunal

Introduction

Arbitration is an alternative method provided for dispute resolution in civil matters. It is a way in
which a dispute is decided by private individuals appointed and not the judicial officers appointed
to the courts and tribunals of the country directly. These private individuals are called arbitrators,
and they are quasi-judicial officers. However, all the matters cannot be decided by way of
arbitration.

Whenever a dispute arises between two parties and they decide to resolve the dispute through
arbitration, an arbitral tribunal is to be set up. An “arbitral tribunal” means a sole arbitrator or a
panel of arbitrators. Their task is to adjudicate and resolve the dispute and to provide an arbitral
award.

Composition of the Arbitration Council of India

It consists of a Chairperson who is either:

● A judge of the Supreme Court

● A judge of a High Court
● Chief Justice of a High Court
● An eminent person with expert knowledge in the conduct of arbitration.

Other members will include an eminent arbitration practitioner, an academician with experience in
arbitration, and government appointees.

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Selection of arbitrators

In the same amendment Act, the provisions regarding the selection of arbitrators were also
modified. A person of any nationality can be an arbitrator in a case unless specifically provided in
the agreement. As per the new provisions, if the parties or the two arbitrators(in the case of three
arbitrators tribunal) are not able to appoint the required arbitrator then the Supreme Court and High
Courts have the responsibility to designate arbitral institutions as per their respective jurisdictions.
Parties to the dispute approach the courts for the appointment of arbitrators to decide upon the
dispute at hand.

Appointments for international commercial arbitration are made by the institution designated by the
Supreme Court. For domestic arbitration, appointments are made by the institution designated by
the concerned High Court. If a situation arises in which no arbitral institutions are available, then
the Chief Justice of the concerned High Court may maintain a panel of arbitrators to perform the
functions of the arbitral institutions. An application for the appointment of an arbitrator is required
to be disposed of within 30 days, and the appointment of the arbitrator should take place.

Removal of arbitrators
The provisions for the removal of arbitrators are mentioned in Section 12(3). As per Section 12(3),
if the circumstances suggest that a person is either related to the parties or has a self-vested interest
in the dispute and will not be able to be impartial in the proceedings, then removal proceedings can
be initiated against the arbitrator. Also, an arbitrator can leave the case in between in case of some
special circumstances in which he is not able to act according to the needs of the case and in that
case a new arbitrator is appointed. An arbitrator can also be removed if he/she misconducts in the
proceedings in any manner.

Role of arbitrators in arbitration

1. Interpreting and applying the rules and laws applicable to arbitration

2. Managing the scope of investigation so that all the evidence and witnesses are verified
extensively
3. Conducting the arbitration hearing in which testimonials of both the parties are submitted
4. Analysing the evidence and testimonials thoroughly
5. Making a decision to resolve the dispute
6. Declaring the arbitral award

While performing all the above functions within the capacity of an arbitrator, he/she has to be
impartial and should disclose all the facts required to be known by the parties before the start of the
proceedings.

Powers of an arbitrator in India

Power to administer an oath to the parties and witnesses

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The Arbitration and Conciliation Act, 1996 provides arbitrators with the power to administer an
oath to the parties and all the witnesses. He can also issue interrogatories to the parties if he/she
finds it necessary to do so.

Power to take interim measures

Section 17 of the Arbitration and Conciliation Act, 1996 provides the power to the
tribunal to take an interim measure when a party to the dispute approaches the
tribunal for the same. The interim measures that can be taken by the arbitration
tribunal include the following:

1. Appointment of a guardian for a minor or person of unsound mind for the

purposes of arbitral proceedings
2. Preservation, interim custody, or sale of any goods which is the subject-
matter of the arbitration agreement
3. Securing the amount in dispute in the arbitration
4. Interim injunction or the appointment of a receiver
5. Such other interim measures of protection as may appear to the arbitral
tribunal to be just and convenient.
The power to grant interim relief by the arbitral tribunal and enforcing them as orders
of the courts ensures that the relief granted by tribunals is not ambiguous and holds
an impartial value. The parties no longer have to engage in the tedious process of
approaching the courts for effective interim relief, which contributes to increasing the
convenience for the parties opting for arbitration and strengthens the appeal of
arbitration in India.

Power to proceed ex-parte

Power to appoint an expert

Section 26 of the Arbitration and Conciliation Act, 1996 authorises the arbitral tribunal to appoint
one or more experts to assist him on a specific issue if he finds it necessary in any case.
Power to make awards

An arbitral award is similar to a judgement of the court. It is based on the interpretation of the facts
and evidence by the arbitral tribunal. The decision of the tribunal is what resembles an arbitral
award.

Jurisdiction of arbitral tribunals

Arbitral tribunals don’t exercise statutory jurisdiction. They define their jurisdiction as
per the needs of the parties involved in the dispute.

Section 16 of Chapter-4 of the Arbitration and Conciliation Act, 1986 talks about the
provisions regarding the jurisdiction of the arbitral tribunal. It basically says that an
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arbitration clause will be valid even if the contract is held void. It is to be read as
another agreement. It also provides for the provisions of interim orders and the power
of the arbitral tribunal to make them as per Section 17 of the statute.

Functions of arbitral tribunals

To fix time and place for the arbitration proceedings

It is the duty of the tribunal so assigned to finalise the place and time for the proceedings as per the
convenience and consent of the parties to the dispute. But after the finalisation of the time and
place, it is the duty of the parties to produce themselves for the proceedings, otherwise the tribunal
can give an ex parte order.

To decide upon the liability of arbitration-related expenses

It is the duty of the tribunal to decide upon the liability of the expenses of the arbitration
proceedings and then give the verdict on the issue with valid reasoning on their part.

To manage the scope of investigation

It is one of the most critical functions of the arbitration tribunal. An arbitration tribunal should
analyse all the evidence and witnesses to be sure of the circumstances and then take a stand on the
basis of which the arbitral award is given by the tribunal.

To maintain the secrecy of the case

There is an obligation for the arbitrators in the tribunal to maintain the secrecy of all the facts in
order to maintain the trust values defined, intact.

But at the same time, as per Section 12 of the Arbitration and Conciliation Act, 1996, they have to
disclose some facts to the parties so that no sense of partiality is found in the delivery of the award.

To determine the rule of procedure

According to Section 19 of the Arbitration and Conciliation Act, 1996, the arbitration procedure is
not bound by any code of procedure. The arbitration organisation assigned the task of setting up the
tribunal for a particular arbitration case defines the rules for conducting the arbitration proceedings.
Most of these rules are pre-defined by the organisation, and some rules are interpreted during the
course of the proceedings. These have to comply with the other laws of the country.

Duty to interpret or correct the award

it is the duty of the arbitral tribunal to correct or interpret the award passed by the tribunal
assigned, within 30 days from the date of receipt of the application for the same. It can be done in
the following two cases:
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 1. A party with the notice to the other party may request arbitration tribunal to
correct any error of the sort of typographical, computation, clerical, or any
other error of similar nature;
2. A party may, with a notice to the other party, request the tribunal to
interpret any specific part or parts of the award again.

As per this section, the tribunal may correct any error of the award on its own initiative within thirty
days from the date of the arbitration award.

Laws governing arbitral tribunals in India

In case of domestic arbitration in India, the Arbitration and Conciliation Act, 1996 is
the main law regulating the arbitration proceedings in India. Also, along with the Act,
all the proceedings must be in lieu of the procedural and substantive law of India.

The arbitral tribunal, while deciding a dispute, has to comply with these provisions in
order to pronounce an arbitral award that is maintainable.

(d) Arbitral award

The arbitral award or arbitration award refers to an arbitration hearing decision made by an
arbitration tribunal. An arbitral award is equal to a court judgment. An arbitral award may be non-
monetary in nature where the claims of the entire claimant fail and there is no need for any party to
pay any money.

The arbitral award shall be defined as any arbitral tribunal’s judgment on the nature of the dispute
referred to it and shall include a temporary, interlocutory or partial arbitral award. The arbitral
tribunal may grant an interim arbitral award on any matter for which it will make a final arbitral
award at any time during the arbitral proceedings. The interim award may be applied in the same
way as a final award of arbitration Unless otherwise decided by the parties, a party may ask the
arbitral tribunal to make an additional arbitral award in respect of the claims raised in the arbitral
proceedings but omitted from the arbitral award within 30 days of receipt of the arbitral award

An arbitral award can be categorised into:

Domestic Award: Domestic award are those awards which are the outcomes of domestic
arbitration. It is confined to the territory of India, the parties should have a nexus or birth of Indian
origin, the territory essentially comes into play for domestic arbitration purposes. The award given
by an arbitral tribunal in India or an award, even if it is given by a foreign state for a dispute in

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which both parties are of Indian origin and the nationality is also regulated by Indian law, also falls
within the scope of domestic arbitration.

Domestic awards are governed by Part I of the Arbitration and Conciliation Act, 1996. A
domestic award is an award granted pursuant to Section 2 to 43 of the Act.

Foreign Award: Foreign Award is the outcome of Foreign Arbitration. If the parties choose a
foreign arbitration institution or agree to an ad hoc arbitration overseas, the award granted after
such proceedings shall be referred to as foreign award.

Part II of the Arbitration and Conciliation Act of 1996 deals with International Arbitration or
Foreign Arbitration.Section 44 of the Act defines with Foreign Award.

In, Serajuddin v. Michael Golodetz The Calcutta High Court established the necessary conditions
for an arbitration to be referred to as ‘ foreign arbitration ‘ or the essential elements of a foreign
arbitration where the award could also be referred to as a foreign arbitration award. The important
points laid were as follow:

➢ “Arbitration should have been held in a foreign country.”

➢ ”By a foreign arbitrator.”
➢ “Arbitration by applying foreign laws.”
➢ “One of the parties consists of foreign nationals.”

Essential Elements of Arbitral Award (section 31)

• Should be in written form.

• Signed by the Arbitrator.

• Shall contain the reason for the passing of Award.

• Date and place at which the arbitration took place.

Himachal Pradesh Housing Urban Development Authority & An v. Ranjit Singh

Rana,AIR 2012 SC 133

Enforcement of Arbitral Award

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 • Enforcement of Domestic Arbitral Award: Until filing for compliance and execution, an
award recipient would have to wait 90 days after receiving the award. The award may be
questioned during the transitional period in compliance with Section 34 of the Act. When
the above time expires, if a court considers the award enforceable at the execution point, the
authenticity of the arbitral award cannot be questioned any further. Before the recent Law on
Arbitration and Conciliation (Amendment),2015 (Amendment Act), a petition to set aside an
award could equate to a stay in the award execution proceedings. Nevertheless, a party
opposing a award would have to transfer a separate application to demand a stay on an
award execution by virtue of the Amendment Act.

• Enforcement of Foreign Arbitral Award: India is a signatory to Geneva Convention on

the Execution of Foreign Arbitral Awards, 1927 (“Geneva Convention”) and Convention on
the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (“New York
Convention”).

If a party receives a binding award from a state signing the New York Convention or the Geneva
Convention and the award is made in a territory recognized by India as a convention country, the
award would then be enforceable in India. In India, implementing a foreign award is a two-stage
procedure begun by filing a request for execution. Initially, a judge will decide if the award met
with the law’s criteria.

Once an award has been considered enforceable, it can be applied as a court order.

Recourse Against Arbitral Award(Section 34)

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Setting aside of awards:
• The grounds for setting aside an award rendered in India (in a domestic or international
arbitration) are provided for under Section 34 of the Act. An award can be set aside if:

• a party was under some incapacity; or

• the arbitration agreement was not valid under the governing law; or
• a party was not given proper notice of the appointment of the arbitrator or on the arbitral
proceedings; or
• the award deals with a dispute not contemplated by or not falling within the terms of
submissions to arbitration or it contains decisions beyond the scope of the submissions; or
• the composition of the arbitral tribunal or the arbitral procedure was not in accordance with
the agreement of the parties; or
• the subject matter of the dispute is not capable of settlement by arbitration; or
• the arbitral award is in conflict with the public policy of India.

Conditions for enforcement of Arbitral Awards (domestic and foreign) (sec. 36)

A party may use the following grounds to contest an award. If the other party shows this, such an
award would be made unenforceable.

1. According to the statute, the parties to the settlement were under any disability.

2. The agreement in question did not comply with the law to which the parties are subject or
with the law of the country in which the award was made.

3. The party did not receive a proper notice of appointment from the arbitrator or the arbitral
proceedings or was otherwise unable to bring his case before the arbitral tribunal.

4. The reward deals with a distinction that does not fall within the terms of the agreement.

5. Award contains decisions on matters beyond the scope of being referred arbitration.

6. The arbitral proceedings did not comply with the agreement.

7. The composition of the arbitral body or the arbitral proceedings does not comply with the
law of the country in which the arbitration took place.

8. The award (precisely a foreign award) was not made binding on the parties or was set aside
or revoked by the competent authority of the state in which the award was made or by the
statute of which it was made.

9. Under Indian law, the subject matter of the dispute cannot be resolved by arbitration.
Enforcing the award would be contradictory to India’s public policy.

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Termination of proceedings ( Section 32)

In this Act, the arbitral tribunal is empowered to terminate the proceeding of arbitration through
passing the final arbitral award or any other order. The termination shall be made in the following
cases:
• When the claimant withdraws his claim;
• When the parties agreed on the termination of proceedings; or
• When the arbitral tribunal finds that continuation of proceeding has become unnecessary and
impossible.
• Correction and interpretation of awards

Limitation Period for Enforcement of Arbitral Award

In the case of domestic arbitral awards, the 1963 limitation law applies to arbitrations because,
according to section 21, the arbitral proceedings in respect of a specific dispute start on the date on
which the respondent receives a petition to refer the dispute to arbitration. Arbitral awards are
deemed to be a decree. The Arbitration Act does not place any restriction on the execution of a
foreign award, and the usual limitation period (12 years) is likely to apply.

Different high courts have given different definitions of the limitation period within which a party
can impose an award in the case of foreign awards. The Bombay High Court observed a foreign
award in ‘Noy Vallesina v Jindal Drugs Limited’ not to be a judgment, rendering it non-binding on
parties unless it was reported as enforceable by a competent court. In the ‘Compania Naviera
‘ Sodnoc ‘ v. Bharat Refineries Ltd.,’ on the other hand, the Madras High Court referred to
international awards as considered decrees.

In M/s. Fuerst Day Lawson Ltd v. Jindal Exports Ltd, the Supreme Court ruled that there could be
different stages in a single proceeding. A court can agree on the enforceability of the award in the
first proceeding. Once the enforceability has been determined, more successful steps can be taken to
implement the same.

In the case that a foreign award is implemented, the party cannot appeal against any court decision
denying the award’s objections. If the court holds the award to be non-enforceable, an appeal can be
made. Therefore, a ruling that upholds the award cannot be appealed twice. Nevertheless, according
to Article 136 of the Indian Constitution, the party can look forward to a direct appeal to the
Supreme Court of India. These forms of appeals are pursued only in the case that the court thinks
there is a matter of fundamental importance or public interest.

The party seeking enforcement of a decree of a court of reciprocating country to file a execution
proceedings in India. International rulings from a reciprocating territory’s superior courts can be
specifically applied by filing an execution petition under section 44A of the Civil Procedure Code.
After which section 51 must come into play and order XXI of CPC.

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In the event that a non-reciprocating nation gives the foreign judgment, a fresh case will have to be
brought before a court of competent jurisdiction in India, where the foreign judgment will be
considered as proof. The time limit for filing a lawsuit to enforce these international judgments is
three years from the date of delivery of the judgment.

Challenges in Execution of Foreign Arbitral Award in India

Obtaining an award in your favour from an international arbitral tribunal is a bit of a half-won fight
as it still needs to be enforceable in India. There have been various cases in which the party failed to
enforce it in competent Indian courts, despite receiving a favourable award in an international
arbitral tribunal.

Therefore, in order to obtain an arbitral award, there is no way out but to enter into litigation from
which all parties at first refrained. It takes time for an order already issued by an international
arbitral tribunal to become effective. Nonetheless, this path cannot be avoided as it offers more of a
formal procedure and guarantees that proper diligence is applied on behalf of the courts to
implement the award.
Local government pressure, especially local parties with more political power, may attempt to
cancel the award or the full impact of the award, which could frustrate the award given by the
international arbitration seat.

(E) CONCILIATION AND ITS MECHANISM

Conciliation
Part III of the Arbitration and Conciliation Act, 1996 deals with the procedure and mechanism of
conciliation. According to Wharton’s Law Lexicon, conciliation is the “settling of disputes without
litigation”. It is done outside of court, with the help of a third party called the “conciliator”. The
parties involved, arrive at a decision themselves, with the assistance of the conciliator, and no
administrative or judicial intervention is observed, as is the case with arbitration, wherein the final
judgment is decided by the Arbitration Tribunal.
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According to Halsbury’s Law of England, “Conciliation is the process of persuading parties to
reach an agreement, and is plainly not arbitration, nor is the chairman of a conciliation board an
arbitrator.”

Meaning
Section 61 (Application and Scope): This section of the Arbitration and Conciliation Act, 1996,
clearly states that conciliation proceedings can only be carried out in disputes arising out of a legal
relationship, that could be contractual in nature. For a dispute to arise out of a legal relationship, the
right to sue should exist. Moreover, conciliation proceedings cannot be carried out in such disputes
where by virtue of law, conciliation is prohibited.

Role and Appointment of a Conciliator

Section 63 and 64 lay down the qualification, number, and process of appointment of conciliators.
According to Section 63, the number of conciliators may vary from one to three. In the case of more
than one conciliator, they must function jointly.
Section 64 provides that for assistance in the appointment of a conciliator, parties can approach a
suitable institution for hiring a conciliator.

Section 66 further provides that the conciliator is not bound by the Code of Civil
Procedure(1908) and the Indian Evidence Act(1872).

Role of Conciliator(Section 67): This section provides that the conciliator has to carry the
process amicably, in an independent and impartial manner. He can conduct the conciliation
proceedings in any manner he deems fit and does not have to adhere to any manner stipulated by
any enactment. He may also at any point in time refer the dispute to settlement proceedings, without
furnishing any statement enumerating reasons for the same.
Lastly, the conciliator has to be guided by the principles of objectivity, fairness, and justice.
For better conduct of the proceedings, parties may also seek the administrative assistance of a
suitable institution or party, as given under Section 68.

Restrictions on Role of Conciliator

As per Section 80 of the Act, the conciliator shall not act as an arbitrator in any proceeding subject
to conciliation. Moreover, he shall not be presented by the parties as a witness in any arbitral or
judicial proceedings.

Procedure
The procedure of conciliation is carried out in the following manner:

Section 62(Commencement of Conciliation Proceedings):

This section provides that the party wishing to conciliate shall send a written notice enumerating the
objective of conciliation, to the other party. The other party can accept or reject the notice. If
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rejected, no conciliation proceedings can be carried out. If the sending party does not receive a
reply within thirty days, or within such a period as defined under the notice, this should be treated
as a rejection.

• Section 65(Submission of Statements to the Conciliator):

This section provides that, upon the election of a conciliator, he can furnish a written statement
from both parties, describing the dispute. This statement has to be sent to the opposite parties too.
Further, the conciliator may also furnish a written statement, of a party’s position, facts and ground,
and any document or evidence corroborating their plea. This statement too has to be exchanged
between both the parties. At any stage of the conciliation proceedings, the conciliator may ask for
any additional statements.

• Section 69 (Communication):
This section provides that the conciliator may communicate with the pirates orally or in a written
manner. He may communicate with them together or separately. Also, the place of conciliation shall
be decided by the conciliator, unless both parties have mutually agreed upon a place.

• Section 70 (Disclosure of Information):

According to this section, when the conciliator receives any factual information from a party, he
shall disclose it to the other and demand any explanation. If a party provides any information,
demanding it be kept confidential, the conciliator has an obligation to furnish the same to the other
party.

Settlement
As stated earlier, Section 67 provides that the conciliator may at any point in time refer the case to
settlement. Moreover, the parties can also, under Section 72, suggest the settlement of the dispute.

• Section 73(Settlement Agreement):

According to the section, when it appears to the conciliator that elements of settlement exist, he
may formulate terms of such settlement and submit them to the parties, which can suggest
observations for re-formulation. When the parties reach a settlement, they need to draw up and sign
a written settlement, which shall be binding upon both parties.
In the case of Harsh Dayaram Thakur v State of Maharashtra, the Apex Court held that a settlement
formulated by the conciliator on his own, in secrecy is sent to the Court in a sealed manner, shall
not be valid since the act requires it to be signed by both parties.

• Section 74(Status and Effect of Settlement Agreement):

According to this Section, a settlement agreement shall have the same status and effect as if it were
an arbitral award under Section 30 of the Arbitration and Conciliation Act, 1996. Moreover, in the
case of Mysore Cements Ltd vs Svedala Barmac Ltd, the Supreme Court held that not every
agreement, arrived through any manner in a conciliation proceeding will have the effect of an

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arbitral award under section 30. Only those agreements that have been concluded “in conformity
with the manner stipulated and form envisaged and duly authenticated in accordance with Section
73” can be called an agreement of settlement in the effect of an Arbitral Award.

Termination of Conciliation Proceedings

Section 76 provides four ways in which conciliation proceedings can be terminated:

➢ By signing a settlement agreement. The date of settlement is the date of termination.

➢ Written declaration by the conciliator, that states further efforts of conciliation are not
justified. The date of declaration is the date of termination.
➢ By a written declaration of the parties, addressed to the conciliator that the proceedings are
terminated. The date of declaration is the date of termination.
➢ By a written declaration furnished by one part to the other and the conciliator stating that
conciliation proceedings stand terminated. The date of declaration is the date of termination.

Under section 77, parties also have the option to resort to judicial or arbitral proceedings. As a
general rule, during the time of conciliation, such restoration is not permitted unless either party
considers it important for the protection of its rights.

UNIT - 4
(a) International Commercial Arbitration
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Meaning
International commercial arbitration is a process of resolving disputes between parties in different
countries through an arbitrator or a panel of arbitrators. It involves submitting the dispute to
arbitration instead of pursuing litigation in a court of law. The arbitrator or panel of arbitrators will
make a binding decision on the dispute.

International commercial arbitration can be used to resolve various disputes, including those related
to contracts, intellectual property, investments, and construction. It is often used in cases where the
parties involved in the dispute have a commercial relationship and wish to maintain a working
relationship after the dispute is resolved.

Steps involved in International Commercial Arbitration are:

1. Notice of arbitration: To commence the proceedings of arbitration one party has to provide
the notice of arbitration under Section 21 of the Act, to the other party requesting to refer the
dispute to arbitration.In this notice, there are two essentials: one is the communication of an
intention to refer the dispute to arbitration and the other is that the other party to whom the
notice has been served should take a step towards it.
2. Referral to arbitration: The judicial authority can refer the subject matters of the case to
the arbitration if that agreement contains the clause of arbitration to settle the disputes
among the party if there are any. According to Section 8 of the Arbitration and Conciliation
Act, the judicial authority can refer the parties to arbitration if there is an arbitration
agreement.
3. Appointment of arbitrators: The parties are at their discretion to appoint the arbitrator to
decide their case. If the parties are not able to appoint the arbitrators mutually due to some
issues then the court allows the parties to appoint each arbitrator and then these two
arbitrators will appoint the third party who will be neutral. If the parties fail to appoint, they
can request the Supreme Court and High Court to appoint the arbitrators. The High Court or
the Supreme Court can appoint any person or institution to appoint arbitrators. In the cases
of International Commercial Arbitration, the Supreme Court can appoint the arbitrators for
the parties and in the cases of domestic arbitrations, the High Court appoints the arbitrators.
4. Interim relief: Section 9 of the Act provides for interim measures of protection not just
before the commencement of arbitral proceedings and during the arbitral proceedings but
also after the arbitral award has been delivered. Section 17provides for interim measures
ordered by the arbitral tribunal if it is found at the time of proceedings that the disputed
matter is dangerous then it can ask the party to provide security.
5. Challenge to jurisdiction: According to Section 16 of the Act, an arbitral tribunal has the
authority to rule on its jurisdiction if there exists a valid arbitration agreement. If any party
has an objection regarding the invention of the tribunal then that party can file a plea before
the submission of defence.
6. Settlement during arbitration: The parties are allowed to settle the dispute mutually even
if the arbitration proceedings are going on. If the parties arrive at the settlement amicably,
the arbitration proceeding will be terminated. Also if both the parties give their consent to
record the settlement then this would be known as a consent award that would work as an
arbitral award.

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 7. Arbitral awards: The decision rendered by the arbitrators in an arbitration proceeding is
known as an arbitral award. The decisions are taken by taking the view of both the parties
and by the majority. An arbitral award should be in a written form signed by all the members
of tribunals. In the arbitral award, the date and place where it is made should be mentioned.
Each party is entitled to acquire a copy of the arbitral award.
Advantages of International Commercial Arbitration
There are several advantages to using international commercial arbitration to resolve cross-border
disputes.
• Arbitration is often faster and more efficient than traditional litigation. This is because
arbitration proceedings are usually less formal and more flexible than court proceedings,
which can be time-consuming and costly.
• Arbitration allows the parties involved in the dispute to choose their own arbitrator or
panel of arbitrators. This means that the parties can select an arbitrator or arbitrators who
have expertise in the subject matter of the dispute, leading to a more informed and fair
decision.
• Arbitration is often more confidential than traditional litigation. Court proceedings are
usually public, which means that sensitive information about the parties involved in the
dispute can be made public. In contrast, arbitration proceedings are usually private, which
means that the parties can keep the details of the dispute confidential.
• Arbitration awards are easier to enforce across borders than court judgments. This is
because most countries have signed the New York Convention on the Recognition and
Enforcement of Foreign Arbitral Awards, which provides a framework for the recognition
and enforcement of arbitration awards in different countries.

Landmark Judgements on International Commercial Arbitration

1.Enercon (India) Ltd. & Ors v. Enercon GmbH & Anr, (2014) 5 SCC 1
It was held that the “venue” of an arbitration is the geographical location chosen based on the
convenience of the parties and is different from the “seat” of arbitration, which decides the
appropriate jurisdiction.
2.Shri Lal Mahal Ltd. vs. Progetto Grano Spa (Civil Appeal No. 5085 of 2013 arising from
SLP(c) No. 13721 of 2012)
A seminal judgment was passed that established a distinction between the scope of objections of the
enforceability of a foreign award under Section 48 of the 1996 Act, and challenges to set aside an
award under Section 34 of the 1996 Act. The scope of the expression’ public policy’ was
substantially curtailed by the Supreme Court.

B. New York and Geneva convention

• The New York convention, also known as the Convention on the Recognition and
Enforcement of Foreign Arbitral Awards, was first adopted by the United Nations
diplomatic conference on 10 June 1958 and was enforced on 7 June 1959. It is often

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 considered as one of the most important treaties in the field of international trade law and
has a great significance. It is often described as a foundation stone in the field of
international arbitration.
• It was adopted mainly for promoting healthy business relations between the countries and to
promote harmony and coordination among the states. Further it reduces the burden of the
states to decide which laws to be enforced or the procedures of which countries to be
followed during the process of arbitration.

Key features of the New York Convention

• It creates a uniform international framework which enables various countries to establish strong
trade and commercial relations and solve disputes with the help of arbitration. It achieves this by
firstly requiring the signatory states to enforce the awards rendered in the signatory state and
secondly by limiting the grounds on which the states may refuse recognition and enforcement.
• The states who are a party to this convention are required to bind to the foreign awards and enforce
them according to the rules and procedures established by the New York Convention.
• The procedure is free from any complex procedures and charges. The states just need to submit to a
competent court in the contracting state where the enforcement is sought.

Geneva convention
• the most significant developments since the First World War have been the Geneva Protocol
on Arbitration Clauses of 1923, the Geneva Convention on the Execution of Foreign Arbitral
Awards of 1927, and the United Nations Convention on the Recognition and Enforcement of
Foreign Arbitral Awards of 1958.
• The 1st Geneva Convention was made in 1864, which states that at the time of war,
conditions of the wounded and the sick in the armed forces in the field, how will they be
treated, and on which condition they should be kept. The wounded shoulders should not be
tortured and should not be given unnecessary pain.

• If the opponent gets injured, it’s their duty to fight the battle and must provide proper
medical facilities. Anyone who, through religion, is involved in war should not be captured.

• In 1906 2nd Geneva Convention was held, which states the protection of the wounded, the
sick, and the Shipwrecked Military Personnel at Seas.

• The 3rd Geneva Convention, 1929, was signed and ratified by many nations, including
Germany; at the time of the 2nd World War, the Geneva Convention could not stop;
provisions of the Convention were grossly breached, especially by Germany. In 1929
Germany had signed the Geneva Convention, but at the time of the 2nd World War, the
Convention was infringed, and the civilians who were not involved were tortured. Jews were
sent at the concentration camp large-scale ethnic cleansing, holocausts, scientific
experiments on captured soldiers, and Jews had to face Biological Experiments and because
of its 4th Geneva Convention in the year 1949 took place.

c. UNCITRAL Model law, Treaties

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What is UNCITRAL Model Law on International Commercial Arbitration
• UNCITRAL is the essential legal body of the United Nations in international trade law. It
was established by the United Nations General Assembly after the realization that
differences in national laws governing international trade are creating hurdles to the free
flow of trade. Hence, this commission was established with the view to playing an active
role in reducing or removing these hurdles.

• The UNCITRAL Model law has been designated to assist the states to establish their
domestic law and modernize their laws on arbitral procedure with due consideration of the
specific features and the needs of international commercial arbitration

Salient features
Some features of the Model Law are as follows:

• It lays down certain rules and provisions intending to create uniformity in international
commercial arbitration.
• Article 1 of the Model Law states the substantive part of international commercial
arbitration which defines arbitration as international if while concluding the arbitration
agreement, the parties’ place of business was in different States or one of the places is
located outside the state in which the party of the agreement have their place of business:
• Or the place where the commercial relationship has been performed., Or where the subject
matter of the dispute has occurred., Or the parties to the arbitration agreement have jointly
agreed to include more than one place for the subject matter of the agreement.
• It reflects the composition of an arbitral tribunal and the enforceability provision of an
arbitral award.
• It limits the interference of the court in the process of arbitration, thereby only allowing
judicial intervention for the appointment of arbitrators, challenge and termination of an
arbitrator, jurisdiction of an arbitral tribunal, and the setting aside of an arbitral award.
Moreover, it allows court assistance in recording evidence, recognition of arbitration
agreements and enforcement of arbitration awards.
• It highlights the essence of the arbitration clause or agreement that must be present if
parties to a dispute choose arbitration to solve their dispute. The Model Law also states the
matter of the clause and gives recognition to these clauses even through the judiciary.
• It states the number, appointment, procedure of the arbitration, thereby safeguarding the
freedom of the tribunal and the will of the parties.
• It sets out the rules to be followed for the pronouncement of the award, the enforcement of
the award, and the grounds for challenging the award.

(d) Enforcement of foreign award

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Foreign Award 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. In order to be considered as a foreign award (for the purposes of the Act), the same must
fulfill two requirements.

1. First it must deal with differences arising out of a legal relationship (whether contractual or
not) considered as commercial under the laws in force in India.

2. Second requirement is that the country where the award has been issued must be a country
notified by the Indian Government to be a country to which the New York Convention or
Geneva Convention applies.

A foreign award can only be enforced or refused to be enforced but it cannot be set aside.

INTRODUCTION

Foreign Award 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.
In order to be considered as a foreign award (for the purposes of the Act), the same must fulfill two
requirements. ·
• First it must deal with differences arising out of a legal relationship (whether contractual or
not) considered as commercial under the laws in force in India. ·
• Second requirement is that the country where the award has been issued must be a country
notified by the Indian Government to be a country to which the New York Convention or
Geneva Convention applies.

The provisions regarding conditions for enforcement of foreign awards made under the New York
Convention or the Geneva Convention are almost the same. Once an award is held to be enforceable
it is deemed to be a decree of the court and can be executed as such. Under the Act there is no
procedure for setting aside a foreign award. A foreign award can only be enforced or refused to be
enforced but it cannot be set aside.

ENFORCEMENT OF FOREIGN ARBITRAL AWARDS

Sections (44 and 53) of the Act define the foreign awards as to mean an arbitral award on
differences between persons arising out of legal relationship, whether contractual or not, considered
commercial under the law in force in India made on or after the 11th day of October 1960 in the
case of New York Convention awards and after the 28th day of July 1924 in the case of Geneva
Convention awards. Ø

Awards made under New York convention or Geneva Convention

Any foreign award whether made under New York Convention or Geneva Convention, which
would be enforceable under the Act have been treated as binding for all purposes on the persons as
between whom it was made, and may accordingly be relied on by any of those persons by way of
defence, set off or otherwise in any legal proceedings in India.

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Bharat Aluminium Company (BALCO) v. Kaisar Aluminium Technical Services Inc

The Constitutional bench of Supreme Court HELD that the Act of 1996 has accepted the
territoriality principle which has been adopted in the UNCITRAL Model Law. Section 2(2) makes a
declaration that Part I of the Arbitration Act, 1996 shall apply to all arbitrations which take place
within India.
In this case hon‟ble Supreme Court concluded that Part I of the Arbitration Act, 1996 is applicable
only to all the arbitrations which take place within the territory of India. This has now partly been
overruled by the 2015 Amendment Act. Ø

Conditions for Enforcement of Foreign Awards [Section (48 & 57)] ü

◆ The enforcement of a foreign award in India is a two-stage process which is initiated by

filing an execution petition. ü
◆ Initially, a court would determine whether the award adhered to the requirements of the Act.
◆ Once an award is found to be enforceable it may be enforced like a decree of that court.
[Section (49 & 58)]

Requirements for enforcement of Foreign Award [Section 47]

Section 47 of the Act provides that the party applying for enforcement of foreign award “shall” at
the time of application produce before the court

✓ The original award or a duly authenticated copy thereof;

✓ The original arbitration agreement or a duly-certified copy thereof; and
✓ Such evidence as may be necessary to prove that the award is a foreign award.
✓ Where the award or agreement is in a foreign language, the party seeking to enforce the
award is required to produce a certified translated copy in English.
✓ Where the Court is satisfied that the foreign award is enforceable, the award shall be
deemed to be a decree of that Court.

Foreign Award when not enforceable [Section 48]

1) The Indian courts may refuse to enforce the foreign award on satisfactory proof of any of
the grounds mentioned in Section 48(1) of the ACT, 1996, by the party resisting the
enforcement of the award. The provisions set out in Section 48 are in the nature of defenses
available to the party resisting the enforcement application.

2) The party, against whom the award is invoked, may use any of the following grounds as
defence before the Court for the purpose of refusal of enforcement of the foreign awards: ü
✓ the parties were under some incapacity under the law applicable to them or the arbitration
agreement is not valid under that law;
✓ Or 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 ü
✓ the award deals with a difference not falling within the terms of submission to arbitration
✓ the composition of the arbitral authority or the arbitral procedure was not in accordance with
the agreement of the parties or in the law of the country where the arbitration took place; or
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 ✓ the award has not yet become binding, or has been set aside or suspended by a competent
authority of the country in which or under the law of which, the award was made; or ü
✓ the subject-matter of the difference is not capable of settlement by arbitration under the law
of India; or

3) The enforcement of award would be contrary to the public policy of India. In the case of
Venture Global Engineering v Satyam Computer Services (2008), it was held by the SC that the
new procedure of enforcement requires is that a person seeking to enforce a foreign award has
not only to file an application for enforcement u/s 48 of the 1996 Act, it has to meet an
application u/s 34 of the 1996 Act seeking to set aside the award. The new ground is that the
award pass the New York Convention grounds incorporated in Section 48, it must pass the
expanded „public policy‟ ground created under section 34 of the 1996 Act.

JURISDICTION ISSUE

• The Act does not confer jurisdiction on the Indian courts to annul an International
Commercial Award made outside India.
The power to annul an award is provided under section 34 in Part I of the ACT, 1996.
The applicability of that provision is limited to the awards made in India or domestic
awards. The powers of the Indian courts to set aside an award relating to ICA are
confined to those seated in India. Therefore, Indian courts do not have jurisdiction to
entertain a challenge to a foreign award on its merits.

• The Supreme Court Sundaram Finance Ltd. v. Abdul Samad and Anr [(2018) 3 SCC
622] clarified that an award holder can initiate execution proceedings before any court in
India where assets are located. In case the subject-matter of the arbitration is of a
specified value (not less than Rs. 1 crore), commercial courts established under the
Commercial Courts, Commercial Division and Commercial Appellate Division of High
Courts Act, 2015 (“Commercial Courts Act”) would have jurisdiction, as given below:

• Award arising out of an India seated arbitration (being an ICA)

By virtue of the Commercial Courts Act and the Amendment Act, the Commercial
Division of a High Court where assets of the opposite party lie shall have jurisdiction for
applications relating to enforcement of such awards if the subject matter is money. In
case of any other subject matter, Commercial Division of a High Court which would
have jurisdiction as if the subject matter of the award was a subject matter of a suit shall
have jurisdiction, i.e., where the opposite party resides or carries on business or
personally works for gain.

• Award arising out of an India seated arbitration (not being an ICA)

As per the Commercial Courts Act and the Amendment Act, for such cases, the
appropriate court would be the Commercial Court exercising such jurisdiction which
would ordinarily lie before any Principal Civil Court of original jurisdiction in a district,

25
 as well as the Commercial Division of a High Court in exercise of its ordinary original
civil jurisdiction.

• Foreign Awards
Where the subject matter is money, the Commercial Division of any High Court in India
where assets of the opposite party lie shall have jurisdiction. In case of any other subject
matter, Commercial Division of a High Court which would have jurisdiction as if the
subject matter of the award was a subject matter of a suit shall have jurisdiction.

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