Tag Archives: Arbitration Award

Waiver of Applicability of – Section 12(5) of the Arbitration & Conciliation Act

Section 12(5) of the Arbitration & Conciliation Act is a new provision which relates to the de jure inability of an arbitrator to act as such. Under this provision, any prior agreement to the contrary is wiped out by the non obstante clause in Section 12(5) the moment any person whose relationship with the parties or the counsel or the subject-matter of the dispute falls under the Seventh Schedule. The sub-section then declares that such person shall be “ineligible” to be appointed as arbitrator. The only way in which this ineligibility can be removed is by the proviso, which again is a special provision which states that parties may, subsequent to disputes having arisen between them, waive the applicability of Section 12(5) by an express agreement in writing. What is clear, therefore, is that where, under any agreement between the parties, a person falls within any of the categories set out in the Seventh Schedule, he is, as a matter of law, ineligible to be appointed as an arbitrator. The only way in which this ineligibility can be removed, again, in law, is that parties may after disputes have arisen between them, waive the applicability of this sub-section by an “express agreement in writing”. Obviously, the “express agreement in writing” has reference to a person who is interdicted by the Seventh Schedule, but who is stated by parties (after the disputes have arisen between them) to be a person in whom they have faith notwithstanding the fact that such person is interdicted by the eventh Schedule.

Unlike Section 4 of the Arbitration & Conciliation Act which deals with deemed waiver of the right to object by conduct, the proviso to Section 12(5) will only apply if subsequent to disputes having arisen between the parties, the parties waive the applicability of sub-section (5) of Section 12 by an express agreement in writing. For this reason, the argument based on the analogy of Section 7 of the Act must also be rejected. Section 7 deals with arbitration agreements that must be in writing, and then explains that such agreements may be contained in documents which provide a record of such agreements. On the other hand, Section 12(5) refers to an “express agreement in writing”. The expression “express agreement in writing” refers to an agreement made in words as opposed to an agreement which is to be inferred by conduct. Here, Section 9 of the Contract Act, 1872 becomes important. It states:

9. Promises, express and implied.—Insofar as the proposal or acceptance of any promise is made in words, the promise is said to be express. Insofar as such proposal or acceptance is made otherwise than in words, the promise is said to be implied.”

It is thus necessary that there be an “express” agreement in writing. Bharat Broadband Network Ltd. v. United Telecoms Ltd., (2019) 5 SCC 755.

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Application Under Section 34 of the Arbitration and Conciliation Act – Condonation of Delay

In Assam Urban Water Supply and Sewerage Board v. Subash Projects and Marketing Ltd., (2012) 2 SCC 624, an argument was raised with reference to Section 43 of the Arbitration Act that provisions of Limitation Act, 1963 have been made applicable to Arbitrators and when application is made for setting aside award hence all provisions of Act, 1963 should be held applicable but it was negative. In aforesaid judgment an attempt was made to attract Section4 of the Limitation Act, but it was observed as under:

       “The above section enables a party to institute a suit, prefer an appeal or make an application on the day court reopens where the prescribed period for any suit, appeal or application expires on the day when the court is closed. The crucial words in Section 4 of the Limitation Act are ‘prescribed period’. Section 2 (j) of the Limitation Act defines ‘period of limitation’ which means the period of limitation prescribed for any suit, appeal or application by the Schedule, and ‘prescribed period’ means the period of limitation computed in accordance with the provisions of this Act. Section 2 (j) of the Limitation Act when read in the context of Section 34(3) of the Arbitration Act, becomes amply clear that the prescribed period for making an application for setting aside arbitral award is three months. The period of 30 days mentioned in the proviso that follows sub-section (3) of Section 34 of the Arbitration Act is not the period of limitation and therefore, not ‘prescribed period’ forf the purposes of making the application for setting aside the arbitral award. The period of 30 days beyond three months which the court may extend on sufficient cause being shown under the proviso appended to sub-section (3) of Section 34 of the Arbitration Act being not the period of limitation or, in other words, ‘prescribed period’, section 4 of the Limitation Act is not at all attracted.

In Commissioner, M.P. Housing Board v. Mohanlal and Company, AIR 2016 SC 3592, issue of condonation of delay in respect of an application under Section 34 of the Arbitration and Conciliation Act came up for consideration before the Court. After Arbitral Award was given on 11.11.2010, contractor being aggrieved therefrom, instead of filing application/objection under Section 34(1) of the 1996 Act, preferred to file an application under Section 11 of the Act, 1996, in High Court seeking appointment of Arbitrator to adjudicate the dispute. Application was rejected by the Court observing that there is already an arbitral award, hence no further action under Section 11 of Act, 1996 can be allowed. Thereafter contractor filed objection before the Court challenging award on 26.09.2011. He also filed an application under Section 14 requesting to exclude time consumed in the proceedings before High court when he filed application under Section 11 and the same was rejected. That application was allowed by the District Judge taking recourse to Section 141 of the Limitation Act. M.P. Housing Board challenged order of District Judge in Civil Revision Before High Court but failed and that is how matter came to Supreme Court. Relying on Union of India v. Popular Construction company, (2001) 8 SCC 470, Court held that period of limitation under Section 34(3) is mandatory and would bar application of Section 5 of the Limitation Act. Suman Devi v. Addl. Commissioner, 2019 (132) ALR 471.

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Termination of – Arbitration Proceedings

Section 32 of the Arbitration and Conciliation Act, 1996 contains a heading “Termination of Proceedings”. Sub-section (1) provides that the arbitral proceedings shall be terminated by the final arbitral award or by an order of the Arbitral Tribunal under sub-section (2). Sub-section (2) enumerates the circumstances when the Arbitral Tribunal shall issue an order for the termination of arbitral proceedings. Clause (c) of Section 32(2) of the Arbitration and Conciliation Act, 1996 contemplates two grounds for termination, i.e. (i) the Arbitral Tribunal finds that the continuation of the proceedings has for any other reason become unnecessary, or (ii) impossible. The eventuality as contemplated under Section 32 shall arise only when the claim is not terminated under Section 25(a) and proceeds further. The words “unnecessary” or “impossible” as used in clause (c) of Section 32(2), cannot be said to be covering a situation where proceedings are terminated in default of the claimant. The words “unnecessary” or “impossible” has been used in different contexts than to one of default as contemplated under Section 25(a). Sub-section (3) of Section 32 further provides that the mandate of the Arbitral Tribunal shall terminate with the termination of the arbitral proceedings subject to Section 33 and sub-section (4) of Section 34. Section 33 is the power of the Arbitral Tribunal to correct any computation errors, any clerical or typographical errors or any other errors of a similar nature or to give an interpretation of a specific point or part of the award. Section 34(4) reserves the power of the court to adjourn the proceedings 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 the Arbitral Tribunal will eliminate the grounds for setting aside the arbitral award. On the termination of proceedings under Sections 32(2) and 33(1), Section 33(3) further contemplates termination of the mandate of the Arbitral Tribunal, whereas the aforesaid words are missing in Section 25. When the legislature has used the phrase “the mandate of the Arbitral Tribunal shall terminate” in Section 32(3), non-use of such phrase in Section 25 (a) has to be treated with a purpose and object. The purpose and object can only be that if the claimant shows sufficient cause, the proceedings can be recommenced. Srei Infrastructure Finance Ltd. v. Tuff Drilling Pvt. Ltd., (2018) 11 SCC 470.

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Limitation Prescribed Under Section 34 (3) – Of the Arbitration & Conciliation Act

 

In State of Maharashtra v. ARK Builders Pvt. Ltd., (2011) 4 SCC 616 it was held as under:

“The period of limitation prescribed under Section 34(3) of the Arbitration and Conciliation Act, 1996 would start running only from the date a signed copy of the award is delivered to/received by the party making the application for setting it aside under Section 34(1) of the Act. The legal position on the issue may be stated thus. If the law prescribes that a copy of the order/award is to be communicated, delivered, dispatched, forwarded, rendered or sent to the parties concerned in a particular way and in case the law also sets a period of limitation for challenging the order/award in question by the aggrieved party, then the period of limitation can only commence from the date on which the order/award was received by the party concerned in the manner prescribed by the law.”

In Benarsi Krishna Committee v. Karmyogi Shelters Pvt. Ltd., (2012) 9 SCC 496, it was held as under:

“The view taken in Pushpa Devi Bhagat v. Rajinder Singh, (2006) 5 SCC 566, is in relation to the authority given to an advocate to act on behalf of a party to a proceeding in the proceedings itself, which cannot stand satisfied where a provision such as Section 31 (5) of the 1996 Act is concerned. The said provision clearly indicates that a signed copy of the Award has to be delivered to the party. Accordingly, when a copy of the signed Award is not delivered to the party himself, it would not amount to compliance with the provisions of Section 31(5) of the Act. Om Prakash Mittal v. Vinod Kumar Mittal, 2018 (129) ALR 858.

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Power of Arbitrator – To grant interest pendente lite

In Irrigation Department v. G.C. Roy, (1992) 1 SCC 508, the Hon’ble Apex Court thoroughly considered the question of power of the arbitrator to award interest pendente lite and held that when the agreement between the parties does not prohibit grant of interest and where the party claims interest and that dispute has been referred to an arbitrator does have the power to award interest pendente lite.

Subsequently in Port of Calcutta v. Engineers-De-Space-Age, (1996) 1 SCC 516 and Madnani Construction Corporation (P) Ltd. v. Union of India, (2010) 1 SCC 549 held that according to the view taken in Irrigation Department v. G.C.Roy, (1992) 1 SCC 508, the arbitrator does have the power to award interest pendente lite. The Court observed that it essentially depends upon the ouster in each clause, which means that unless there is an express bar that provides that the arbitrator cannot award interest pendente lite, the grant of interest pendente lite will predominantly be based on the arbitrator’s discretion to award the same.

In Sayeed Ahmed and Co. v. State of U.P., (2009) 12 SCC 26, the Hon’ble Apex Court referred to the decision in Superintending Engineer v. B.Subba Reddy, (1999) 4 SCC 423 and observed thus:

“Two more decisions dealing with cases arising under the Arbitration Act, 1940 require to be noticed. In Superintending Engineer v. B.Subba Reddy, (1999) 4 SCC 423 the Hon’ble Apex Court held that interest for pre-reference period can be awarded only if there was an agreement to that effect or if it was allowable under the Interest Act, 1978. Therefore, claim for interest for pre-reference period, which is barred as per the agreement or under the Interest Act, 1978 could not be allowed. The Court however held that the arbitrator can award interest pendente lite and future interest.”

A three Judge Bench of the Hon’ble Apex Court in Union of India v. Ambica Contsruction, (2016) 6 SCC 36, held that the power of an arbitrator to grant pendente lite interest will depend upon several factors such as; phraseology used in the agreement clauses conferring power relating to arbitration, nature of claim and dispute referred to arbitrator, and on what items power to award interest has been taken away and for which period. It was observed:

“Thus, our answer to the reference is that if the contract expressly bars the award of interest pendente lite, the same cannot be awarded by the arbitrator. We also make it clear that the bar to award interest on delayed payment by itself will not be readily inferred as express bar to award interest pendente lite by the arbitral Tribunal, as ouster of power of the arbitrator has to be considered on various relevant aspects referred to in the decisions of this Court, it would be for the Division Bench to consider the case on merits.”

Further, the Hon’ble Apex Court considered an identical clause in the contract in Ambica Construction v. Union of India, (2017) 14 SCC 323, wherein it observed that the clause of GCC did not bar the arbitrator from awarding interest pendente lite and affirmed the award passed by the arbitrator. The three Judge Bench of the Court held that the contention raised by the Union of India based on the clause of GCC that the arbitrator could not award interest pendente lite was not a valid contention and the arbitrator was completely justified in granting interest pendente lite. Relying on the three Judge Bench judgment in Union of India v. Ambica Contsruction, (2016) 6 SCC 36 and Irrigation Department v. G.C.Roy, (1992) 1 SCC 508, the Court held that the bar to award interest on the amounts payable under the contract would not be sufficient to deny the payment of interest pendente lite. Raveechee and Company v. Union of India, (2018) 7 SCC 664.

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Arbitration – Ingredients of

According to concise law dictionary by Mozley and Whiteley, ‘Arbitration’ means where two or more parties submit all matters in dispute to the judgment of Arbitrator who is to decide the controversy. Halsbury defines’ Arbitration as “the reference of dispute or difference between not less than two parties, for determination, after both sides in a judicial manner, by a person or persons other than a court of competent jurisdiction.” Taking into account the definition of arbitration by Halsbury, the following ingredients would be necessary to constitute the arbitration:

  • There is a real dispute between two or more parties;
  • There is arbitration clause in the agreement for reference of dispute to the arbitration;
  • According to the arbitration clause the dispute or difference is referred to person or persons other than a court of competent jurisdiction;
  • Such person or persons constituting arbitration are obliged to hear both the parties and decide the dispute in a judicial manner.

Clause (h) of Section 2(1) of the Arbitration and Conciliation Act, 1996 defines the expression “party” to mean ‘a party to an arbitration agreement.’ This clause is also a new one and did not exist in the old Act of 1940. This expression is also not mentioned in UNCITRAL Model Law and is not available under the English Arbitration Act, 1996. The definition makes it clear that a party, which is not a party to an arbitration agreement, is not covered within the definition of term “Party” for the purpose of Arbitration and Conciliation Act, 1996. The definition of ‘party’ will also include the legal representatives of such party. A person who is not a party to an arbitration agreement cannot pray for the enforcement of the agreement or the appointment of an arbitrator. The term ‘party’ in this clause has narrowed down the scope of the word ‘party’ as commonly understood. It has made clear that non-parties to the contract have no right under the Act for seeking Arbitration and consequently an Award. Bharat Catering Corporation v. Indian Railway Catering and Tourism Corporation Ltd., 2016 (118) ALR 666.

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Arbitration – Jursidiction for Raising a Challenge

A perusal of Section 42 of the Arbitration and Conciliation Act, reveals a clear acknowledgement by the Legislature, that the jurisdiction for raising a challenge to the same arbitration agreement, arbitration proceeding or arbitrable award, could most definitely arise in more than one court simultaneously. To remedy such a situation Section 42 of the Arbitration Act mandates, that the court wherein the first application arising out of such a challenge is filed, shall alone have the jurisdiction to adjudicate upon the dispute(s), which are filed later in point of time. The above Legislative Intent must also be understood as mandating, that disputes arising out of the same arbitration agreement, arbitral proceeding or arbitral award, would not be adjudicated upon by more than one court, even though jurisdiction to raise such disputes may legitimately lie before two or more courts. State of Maharashtra v. Atlanta Ltd., (2014) 11 SCC 619.

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