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ALTERNATIVE DISPUTE RESOLUTION

PART 1: HISTORY OF ADR

First ADR act came in India in 1899 which had a limited scope.

Before the enactment of Arbitration and Conciliation Act,1996 the statutory

provisions on arbitration in India were contained in three different enactments,

namely, The Arbitration Act, 1940, The Arbitration (Protocol and Convention) Act,

1937 and The Foreign Awards (Recognition and Enforcement) Act, 1961. The

Arbitration Act, 1940 laid down the framework within which domestic arbitration was

concluded in India, while the other two Acts dealt with foreign awards. The

Arbitration and Conciliation Act, 1996 has repealed The Arbitration Act, 1940, The

Arbitration (Protocol and Convention) Act, 1937 and The Foreign Awards

(Recognition and Enforcement) Act, 1961.

The interpretation to 1940 Act was difficult. It was held in the case of Food Corp. of

India v. Joginder Lal Mohan Lal, where Supreme Court criticised 1940 act for its

complications and technicalities. In M/S Guru Nanak Foundation v. M/S Ratan

Singh & Sons, the Hon‘ble Supreme Court observed that the Act was ineffective and

the way the proceedings under this Act were conducted in the Courts made the

lawyers laugh and legal philosophers weep.

The 1940 Act repealed sec. 89 of CPC which provided for dispute resolution outside

the court through four methods. The 124th Law commission report studied the backlog

of cases through 1940 Act. The 129th Law commission report studied Arbitration and

Conciliation specifically and recommended to make them compulsory.

Malimath Committee studied the above two reports and recommended to make it

obligatory for the Court to refer the dispute, after issues are framed, for settlement

either by way of arbitration, conciliation, mediation, judicial settlement or through

Lok Adalat.

Arbitration and Conciliation Act, 1996 was brought on the lines of the Malimath

Committee report and UNCITRAL model laws for ADR. In view of the above, by

Amendment of 1999 a new section 89 has been inserted in order to provide for

alternative resolution.

EXCISE LAW

DIFFERENCE BETWEEN 1996 ACT AND 1940 ACT

1. Under the old Act, an Arbitrator was not a conciliator. He was only to adjudicate the disputes referred to him by the parties. However, the new law under Sec.30(1) has recognized the Arbitrator as a Conciliator, and there is a separate chapter for conciliation in the new Act.

2. Under the old Act, an aggrieved party to get an Arbitrator appointed has to approach the jurisdictional Civil+ Court either under Sec.8 or Sec. 20. This was again time consuming ordeal. Under the new Act, the Chief Justice of the High Courts have been named under Sec.II for the purpose of appointment of Arbitrator. The Chief Justice can delegate the power of appointment to any other person or institution.

3. Under 1940 Act the 'Court' was defined as Civil Court having Jurisdiction to decide the question forming the subject matter of reference if the same had been the subject matter of suit but did not include a small causes court except for the purposes of arbitration proceedings under Sec.21.

Now the new Act provides that the Principal Civil Court of Original Jurisdiction in a district which includes High Court in exercise of its Original Jursidction but does not include any Civil Court of a grade inferior to such Principal Civil Court or any Court of Small Causes.

4. Under the Old Act, if more than one Arbitrator was contemplated it was incumbent that the forum shall consist of an Umpire to be appointed by the Nominated, Appointed Arbitrators and the Umpire should enter on reference upon the disagreement between the Arbitrators.

Under the New Act the Umpire will be the Chairman of the tribunal who shall also sit with the Arbitrators and take part in the proceedings unlike under the old Act.

PART 2: UNCITRAL MODEL LAWS

The UNCITRAL Model Law on International Commercial Arbitration was adopted by the

United Nations Commission on International Trade Law (UNCITRAL) on 21 June 1985, at

the close of the Commission's 18th annual session. The Model Law constitutes a sound and

promising basis for the desired harmonisation and improvement of national laws. It covers all

stages of the arbitral process from the arbitration agreement to the recognition and

enforcement of the arbitral award and reflects a worldwide consensus on the principles and

important issues of international arbitration practice.

Chapter 1, tells the general definitions and scope of arbitration and conciliation. Scope

of Judicial intervention also mentioned

Chapter 2: Stage 1- Arbitration agreement. Can be in the form of separate agreement

or clause.

ARBITRATION AND CONCILIATION

Chapter 3: Stage 2- Formation of Arbitral tribunal- Appointment of arbitrators,

Grounds for challenge of appointment, Challenge procedure.

Chapter 4: Stage 3- Jurisdiction of arbitral tribunal- deals with competence of arbitral

tribunal to rule on its jurisdiction.

Chapter 5: Stage 4- Conduct of arbitral proceedings- talks about Equal treatment of

parties, Determination of rules of procedure, Place of arbitration, Commencement of

arbitral proceedings etc.

Chapter 6: Stage 5- Making of award and termination of proceedings- it talks about

Rules applicable to substance of dispute, Decision-making by panel of arbitrators,

Settlement, Form and contents of award etc.

Chapter 7: Stage 6: Recourse against award- it talks about grounds on which arbitral

awards can be challenged.

Chapter 8: Stage 7- Recognition and enforcement of awards and Grounds for refusing

recognition or enforcement.

The 1996 Act has adopted all the above chapters in the same manner and added two

more chapters. Chapter 9 deals with Appeals and Chapter 10 deals with miscellaneous

provisions.

ADVANTAGES AND DISADVANTAGES OF ADR

Some advantages of ADR are

increased settlement

improved satisfaction with the outcome or manner in which the dispute is resolved

among disputants

reduced time in dispute

reduced costs in relating to the dispute resolution

increased compliance with agreed solutions.

Some disadvantages of ADR are:

Lack of enforcement

Increased costs

Compromise of principles

ADR practitioner may not have the technical skills required

Need other party to be willing to come to the table

No right to appeal. Award is final and binding. It can only be challenged.


AFCON CONSTRUCTIONS V. CHERIAN CONSTRUCTIONS

The Supreme Court of India in a recent decision in the matter of Afcons Infrastructure Ltd.

v. Cherian Varkey Construction Co. Pvt. Ltd. has examined the law under the said provision

of sec. 89 of CPC, which casts an obligation over the civil court to refer the parties to a cause

to settle their dispute through the various forms of Alternate Dispute Resolution.

Even though whereas upon an examination of Section 89 of the Code along with the

stipulations of Order X therein the Supreme Court was of the opinion that the provision is

incorrectly worded and various faults in the legislative drafting to that effect were pointed

out, the Bench applied the rule of interpretation to make it workable. The Bench also, on its

own, took up the task of identifying which all cases could be referred to alternate forms of

dispute resolution, given the nature of these disputes and also noted that "Section 89 refers to

five types of ADR procedures, made up of one adjudicatory process (arbitration) and four

negotiatory (non-adjudicatory) processes - conciliation, mediation, judicial

settlement and Lok Adalat settlement." The Bench further went on to clarify the meaning and

ambit of each of these five forms of alternate dispute resolution.

Thereupon the Supreme Court passed the following guidelines to be adopted by the Courts in

India;

31. We may summarize the procedure to be adopted by a court under section 89 of the Code

as under :

a) When the pleadings are complete, before framing issues, the court shall fix a preliminary

hearing for appearance of parties. The court should acquaint itself with the facts of the case

and the nature of the dispute between the parties.

b) The court should first consider whether the case falls under any of the category of the

cases which are required to be tried by courts and not fit to be referred to any ADR processes.

If it finds the case falls under any excluded category, it should record a brief order referring

to the nature of the case and why it is not fit for reference to ADR processes. It will then

proceed with the framing of issues and trial.

c) In other cases (that is, in cases which can be referred to ADR processes) the court should

explain the choice of five ADR processes to the parties to enable them to exercise their

option.

d) The court should first ascertain whether the parties are willing for arbitration. The court

should inform the parties that arbitration is an adjudicatory process by a chosen private forum


and reference to arbitration will permanently take the suit outside the ambit of the court. The

parties should also be informed that the cost of arbitration will have to be borne by them.

Only if both parties agree for arbitration, and also agree upon the arbitrator, the matter should

be referred to arbitration.

e) If the parties are not agreeable for arbitration, the court should ascertain whether the parties

are agreeble for reference to conciliation which will be governed by the provisions of the AC

Act. If all the parties agree for reference to conciliation and agree upon the conciliator/s, the

court can refer the matter to conciliation in accordance with section 64 of the AC Act.

f) If parties are not agreeable for arbitration and conciliation, which is likely to happen in

most of the cases for want of consensus, the court should, keeping in view the

preferences/options of parties, refer the matter to any one of the other three other ADR

processes : (a) Lok Adalat; (b) mediation by a neutral third party facilitator or mediator; and

(c) a judicial settlement, where a Judge assists the parties to arrive at a settlement.

(g) If the case is simple which may be completed in a single sitting, or cases relating to a

matter where the legal principles are clearly settled and there is no personal animosity

between the parties (as in the case of motor accident claims), the court may refer the matter to

Lok Adalat. In case where the questions are complicated or cases which may require several

rounds of negotiations, the court may refer the matter to mediation. Where the facility of

mediation is not available or where the parties opt for the guidance of a Judge to arrive at a

settlement, the court may refer the matter to another Judge for attempting settlement.

(h) If the reference to the ADR process fails, on receipt of the Report of the ADR Forum, the

court shall proceed with hearing of the suit. If there is a settlement, the court shall examine

the settlement and make a decree in terms of it, keeping the principles of Order 23 Rule 3 of

the Code in mind.

(i) If the settlement includes disputes which are not the subject matter of the suit, the court

may direct that the same will be governed by Section 74 of the AC Act (if it is a Conciliation

Settlement) or Section 21 of the Legal Services Authorities Act, 1987 (if it is a settlement by

a Lok Adalat or by mediation which is a deemed Lok Adalat). This will be necessary as many

settlement agreements deal with not only the disputes which are the subject matter of the suit

or proceeding in which the reference is made, but also other disputes which are not the

subject matter of the suit.

(j) If any term of the settlement is ex facie illegal or unforceable, the court should draw the

attention of parties thereto to avoid further litigations and disputes about executability.


32. The Court should also bear in mind the following consequential aspects, while giving

effect to Section 89 of the Code :

(i) If the reference is to arbitration or conciliation, the court has to record that the reference is

by mutual consent. Nothing further need be stated in the order sheet.

(ii) If the reference is to any other ADR process, the court should briefly record that having

regard to the nature of dispute, the case deserves to be referred to Lok Adalat, or mediation or

judicial settlement, as the case may be. There is no need for an elaborate order for making the

reference.

(iii) The requirement in Section 89(1) that the court should formulate or reformulate the terms

of settlement would only mean that court has to briefly refer to the nature of dispute and

decide upon the appropriate ADR process.

(iv) If the Judge in charge of the case assists the parties and if settlement negotiations fail, he

should not deal with the adjudication of the matter, to avoid apprehensions of bias and

prejudice. It is therefore advisable to refer cases proposed for Judicial Settlement to another

Judge.

(v) If the court refers the matter to an ADR process (other than Arbitration), it should keep

track of the matter by fixing a hearing date for the ADR Report. The period allotted for the

ADR process can normally vary from a week to two months (which may be extended in

exceptional cases, depending upon the availability of the alternative forum, the nature of case

etc.). Under no circumstances the court should allow the ADR process to become a tool in the

hands of an unscrupulous litigant intent upon dragging on the proceedings.

(vi) Normally the court should not send the original record of the case when referring the

matter for an ADR forum. It should make available only copies of relevant papers to the

ADR forum. (For this purpose, when pleadings are filed the court may insist upon filing of an

extra copy). However if the case is referred to a Court annexed Mediation Centre which is

under the exclusive control and supervision of a Judicial Officer, the original file may be

made available wherever necessary.

33. The procedure and consequential aspects referred to in the earlier two paragraphs are

intended to be general guidelines subject to such changes as the concerned court may deem

fit with reference to the special circumstances of a case. We have referred to the procedure

and process rather elaborately as we find that section 89 has been a non-starter with many

courts. Though the process under Section 89 appears to be lengthy and complicated, in

practice the process is simple: know the dispute; exclude ‘unfit’ cases; ascertain consent for

arbitration or conciliation; if there is no consent, select Lok Adalat for simple cases and


mediation for all other cases, reserving reference to a Judge assisted settlement only in

exceptional or special cases.

PART 3: ARBITRATION AND CONCILIATION ACT, 1996 ANALYSIS

The long title of this Act replicates that, the object of the Act is to consolidate and amend the

law relating to domestic arbitration, international commercial arbitration and enforcement of

foreign arbitral awards as also to define the law relating to conciliation and for matters

connected therewith or incidental thereto.

The main objectives of the Act are:

1. to comprehensively cover international commercial arbitration and conciliation as

also domestic arbitration and conciliation.

2. to make provision for an arbitral procedure which is fair, efficient and capable of

meeting the needs of the specific arbitration

3. to provide that the Arbitral tribunal gives reasons for its arbitral award.

4. to ensure that the Arbitral tribunal remains within the limits of its jurisdiction.

5. to minimize the supervisory role of courts in the arbitral process.

6. to permit an Arbitral Tribunal to use mediation conciliation or other procedure during

the arbitral proceedings to encourage the settlement of disputes.

7. to provide that every final arbitral award is enforced in the same manner as if it were

the decree of the court.

8. to provide that a settlement agreement reached by the parties as a result of

conciliation proceedings will have the same status and effect as an arbitree award on agreed

terms on the substance of the dispute rendered by an Arbitral Tribunal; and

9. to provide that, for purposes of enforcement of foreign awards, every arbitral award

made in a country to which one of the two international conventions relating to foreign

arbitral awards to which India is a party applies will be treated as a foreign award.


PREAMBLE

Preamble to the 1996 Act is an introductory, prefatory and an explanatory note about the

sections namely that of the Arbitration and Conciliation Act, 1996, and that UNCITRAL

model has been adopted and the act is based on that.

SECTION 1- SCOPE AND APPLICATION

The Act extends to the whole of India. It shall extend to the State of Jammu and Kashmir

only in so far as they relate to international commercial arbitration or, as the case may be,

international commercial conciliation. Hence, the act, in domestic arbitration cases, does not

extend to Jammu and Kashmir.

SECTION 2- DEFINITIONS

Arbitration means “any arbitration whether or not administered by permanent arbitral

institution”. It is defined in sec. 2(1) (a). An arbitration, therefore, means the

submission by two or more parties of their dispute to the judgment of a third person

called the “arbitrator”, and who is to decide the controversy in a judicial manner.

“Courts” have been defined under sec. 2(1)(e). “Court” means the principal Civil

Court of original jurisdiction in a district, and includes the High Court in exercise of

its ordinary original civil jurisdiction, having jurisdiction to decide the questions

forming the subject-matter of the arbitration if the same had been the subject-matter

of a suit, but does not include any civil court of a grade inferior to such principal Civil

Court, or any Court of Small Causes.

High court has also been provided the same jurisdiction as the district court here. In

certain cases only High court can be approached. If it is expressly given that High

Court has to be approached for adjudication, then High Court. If no express provision,

then District court. In the case of, Executive Engineers Road Development Division

and anr v. Atlanta Limited, in the arbitration agreement, the jurisdiction provided

was either district court or High court. Issue was which court shall be referred. Court

referred to legislative intent and said that since legislature provided explicitly for

original jurisdiction to High court too, sec. 15 of CPC, saying of original jurisdiction

to dist. Court, won’t apply. Hence, when two courts are given jurisdiction by party

autonomy, then High court will have jurisdiction, if mentioned. If not, then dist.

Court.


Sec. 2(1)(f) defines International Commercial Arbitration or ICA. Section 2(1) (f) of

the Act defines an ICA to mean one arising from a legal relationship which must be

considered commercial where either of the parties is a foreign national or resident or

is a foreign body corporate or is a company, association or body of individuals whose

central management or control is in foreign hands. Hence a dispute is ICA when, first,

parties are international, and, second, when dispute is commercial in nature. When

both parties are domestic and the seat of dispute is in India, the arbitration will be

domestic. Thus, under the Indian Law, an arbitration with a seat in India but involving

a foreign party, will also be regarded as an ICA.

Supreme Court in the case of TDM Infrastructure Pvt. Ltd. v. UE Development

India Pvt. Ltd. held that where despite TDM Infrastructure Pvt. Ltd. had a foreign

control, the SC concluded that, “a company incorporated in India can only have

Indian nationality for the purpose of the Act.” In the case of Josef Meisaner GMBR

& Co. vs Kanoria Chemicals & Industries, SC concluded that where the term

‘commercial’ is not defined, reference must be made to footnote 2 of para 1 of model

law, which says that, the term “commercial” should be given a wide interpretation so

as to cover matters arising from all relationships of a commercial nature, whether

contractual or not.

The term ‘International’ has been borrowed from model laws. The model law say

that the conciliation will be international if: (a) The parties to an agreement to

conciliate have, at the time of the conclusion of that agreement, their places of

business in different States; or (b) The State in which the parties have their places of

business is different from either: (i) The State in which a substantial part of the

obligations of the commercial relationship is to be performed; or (ii) The State with

which the subject matter of the dispute is most closely connected.

Indian law has deviated from the above position and says that it is not the parties who

decide whether a dispute is international or domestic, but the tribunal. The tribunal

after analysing the same passes an award. Also, ‘international’ would include:

1. When the person is a natural or habitually natural resident of any country other

than India

2. A body corporate which is incorporated in any country other than India, or

3. A company or Association of Persons or Body of Individuals whose central

management or control vests with the any country expressed other than India.

4. The govt. of a foreign country.


CASES ON ARBITRATION

In Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd. the Supreme Court

discussed the concept of arbitrability in detail and held that the term ‘arbitrability’ has

different meanings in different contexts: (a) disputes capable of being adjudicated

through arbitration, (b) disputes covered by the arbitration agreement, and (c) disputes

that parties have referred to arbitration.

In N. Radhakrishnan v. M/S Maestro Engineers. The Court here held that where

allegations of fraud and serious malpractices are alleged, the matter can only be

settled by the Court and such a situation cannot be referred to an arbitrator.

In Swiss Timing Limited v. Organising Committee, Commonwealth Games 2010,

Delhi, the Supreme Court has held that allegations of fraud and other malpractices are

arbitrable in India and N. Radhakrishnan does not lay down the correct law. The

Court explained that the contention of substantive contract being void / voidable is not

a bar to arbitration and the court must follow the policy of least interference. The

court further held that arbitration and criminal proceedings may continue

simultaneously.

In World Sport Group (Mauritius) Ltd. V. MSM Satellite (Singapore) Pte. Ltd,

the court held that, allegations of fraud are not a bar to refer parties to a foreign seated

arbitration and held that only bar to refer parties to foreign seated arbitrations are

those which are specified in Section 45 of Act i.e. in cases where the arbitration

agreement is either (i) null and void; or (ii) inoperative; or (iii) incapable of being

performed.

SECTION 3: RECEIPT OF WRITTEN COMMUNICATION

Unless otherwise agreed by the parties,-

a. any written communication is deemed to have been received if it is delivered to the

addressee personally or at his place of business, habitual residence or mailing address, and

b. if none of the places referred to in clause (a) can be found after making a reasonable

inquiry, a written communication is deemed to have been received if it is sent to the

addressee's last known place of business, habitual residence or mail* address by registered

letter or by any other means which provides a record of the attempt to deliver it.

2. The communication is deemed to have been received on the day it is so delivered.


3. This section does not apply to written communications in respect of proceedings of any

judicial authority.

Whenever there are judicial proceedings, only then CPC will apply, otherwise the

provision for providing notice to parties under CPC would not apply.

E-mail service for purpose of summons not expressly mentioned under the Act, but

specific provisions mentioned under CPC.

Under 1996 Act, parties are free to agree upon any method.

New Globe Transport Corp. v. Magma Sharchi Finance Co. Ltd.- Petitioner was

running his transport business from a certain address in Kolkata - Arbitrator sent

award in an envelop by register post with acknowledgment due card on 8th August,

2008 which returned with postal endorsement 'Not Claimed' envelop was sufficiently

stamped - Petitioner was receiving letters and correspondences at that certain address

and it was not case of Petitioner that office was closed or for any other reason envelop

was not received by their office - Subsequent letters and correspondences all were

received from same address - Accordingly there should not be any doubt to presume

that envelop which was sent at office of Petitioner was in fact tendered by postman at

same address but same had not been accepted - Thus, word 'Not Claimed' tantamount

to good service and accordingly award was served upon Petitioner on 8th August,

2008 and therefore, Petition was barred by limitation under Section 34(3) of Act -

Application dismissed.

Bernuth Lines Ltd. v. High Seas Shipping Ltd.- The arbitration proceedings were

served by High Seas Shipping Limited (“High Seas”) on Bernuth Lines Ltd

(“Bernuth”) at the address ‘[email protected]’ for non-payment of charter hire. This

was the only e-mail address available for the charterer and also, the e-mail address

which was listed for Bernuth in the Lloyd’s Maritime Directory 2005. The relevant e-

mails were read by junior employees of Bernuth but dismissed as ‘spam’ and,

accordingly, not forwarded to the relevant, senior employees. No defence submissions

were received and an arbitration award was made in favour of High Seas. An

application was made to set aside the arbitrator’s award on the grounds that service of

the proceedings by e-mail had not brought the proceedings sufficiently to Bernuth’s

attention, such that there had been a serious irregularity affecting the proceedings

which had caused substantial injustice.

SECTION 4: WAIVER OF RIGHT TO OBJECT.


A party who knows that-

a. any provision of this Part from which the parties may derogate. or

b. any requirement under the arbitration agreement. Has not been-complied with and yet

proceeds with the arbitration without stating his objection to such non-compliance without

undue delay or, if a time limit is provided for slating that objection, within that period of

time, shall be deemed to have waived his right to so object.

J.G. Engineers pvt. ltd. v. Calcutta Improvement Trust- The dispute and

differences between the contractor – appellant and respondent – Calcutta

Improvement Trust (CIT) were determined by award dated 30th September, 1999.

The arbitrator held that the contract was wrongly terminated by CIT and awarded in

favour of the contractor a sum of Rs.24,80,000/- besides interest. The award was

challenged by the CIT by filing an application under Sections 30 and 33 of the

Arbitration Act, 1940. That application was rejected by a learned Single Judge of the

High Court. The appeal of the CIT was, however, allowed by the Division Bench and

the award was set aside. The contractor has challenged the correctness of the decision

of the Division Bench.

Judgement: The main grounds on which the award has been set aside by the impugned

judgment are two. First, that the question of the wrongful termination of the contract

was an excepted matter and, thus, not arbitrable. Second, the arbitrator has not

considered the counter claim of the CIT and thereby has failed to exercise jurisdiction

vested in him by law. The court held, inter alia, that Respondents not having taken the

objection with regard to the non arbitrability of the claim before the arbitrator, or any

objections that the claims were 'excepted matters', and having contested the claims on

merits, is estopped from raising such an objection after having suffered the award.

SECTION 5: EXTENT OF JUDICIAL INTERVENTION

Notwithstanding anything contained in any other law for the time being in force, in matters

governed by this Part, no judicial authority shall intervene except where so provided in this

Part.

McDermott International Inc v. Burn Standard Co.Ltd and Ors.- Appellant and

respondent entered into contract - dispute arose between appellant and respondent -

arbitration clause invoked - two arbitrator appointed for determination and disputes


between parties - arbitrator made partial award - respondent contended that arbitrator

had no jurisdiction to make partial award - partial award is subject matter of challenge

under Section 34. The court observed, "The 1996 Act makes provision for the

supervisory role of courts, for the review of the arbitral award only to ensure fairness.

Intervention of the court is envisaged in few circumstances only, like, in case of fraud

or bias by the arbitrators, violation of natural justice, etc. The court cannot correct

errors of the arbitrators. It can only quash the award leaving the parties free to begin

the arbitration again if it is desired."

Bharat Aluminium Company vs Kaiser Aluminium Technical Services- The SC

held that Indian courts do not have jurisdiction to interfere with foreign awards passed

in International Commercial Arbitration. The Apex Court observed that the Part I of

the Indian Arbitration and Conciliation act, 1996 does not apply to arbitration

proceeding that are held outside India and Indian Court cannot pass interim orders or

set aside the foreign awards by resorting to Part I of the Act.

This judgment has settled the conflicting position that was prevalent in respect to

arbitration proceedings that were held outside India or international Commercial

arbitration with seat of arbitration outside India where Indian parties sought the

intervention of the Indian Court in setting aside of foreign awards and making the

foreign awards unenforceable in India and thereby making the entire arbitration

proceeding futile.

SECTION 7: ARBITRATION AGREEMENT

As per Section 7, the arbitration agreement is defined as, an agreement by the parties to

submit to arbitration all or certain disputes which have arisen or which may arise between

them in respect of a defined legal relationship, whether contractual or not.

(1) In This Part, Arbitration Agreement Means An Agreement By The Parties To

Submit To Arbitration All Or Certain Disputes Which Have Arisen Or Which May

Arise Between Them In Respect Of A Defined Legal Relationship, Whether

Contractual Or Not.

(2) An Arbitration Agreement May Be In The Form Of An Arbitration Clause In A

Contract Or In The Form Of A Separate Agreement.

(3) An Arbitration Agreement Shall Be In Writing.


(4) An Arbitration Agreement Is In Writing If It Is Contained In-

(A) A Document Signed By The Parties;

(B) An Exchange Of Letters, Telex, Telegrams Or Other Means Of

Telecommunication Which Provide A Record Of The Agreement; Or

(C) An Exchange Of Statements Of Claim And Defence In Which The Existence Of

The Agreement Is Alleged By One Party And Not Denied By The Other.

(5) There 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 As To Make That Arbitration Clause Part Of The Contract.

In Narayan Prasad LohiaVs Nikunj Kumar Lohia, The Appellant and the

Respondents are family members who had disputes and differences in respect of

family business and properties. They agreed on 29/9/1996 to have their disputes and

differences resolved through two persons. The parties made their respective claims

before these two persons. All parties participated in the proceedings. On 6/10/1996 an

award was passed by the said two persons. The 1st and 2nd Respondents challenged

the award on the ground that the arbitration was by two arbitrators whereas under the

Act of 1996 there cannot be an even number of arbitrators. A Single Judge of the

Kolkata High Court set aside the award dt.6/10/1996. The appeal filed in the High

Court was also dismissed. Hence this appeal to the Supreme Court.

The Supreme Court held that parties would be entitled to derogate from the

provisions of section 10 of the 1996 Act and an award by two arbitrators would not be

void. If either of the parties fails to make an appointment under the agreed

appointment procedure then, the other party may make a request to the Chief Justice

or a person or institution designated by him to take the necessary measure. The

arbitration agreement entered into by the parties can provide for other means of

securing the appointment, for example by delegating the appointing function to an

institution.

In Wellington Associates Ltd Vs Kirit Mehata case, the question that was raised in

this case was whether the Chief Justice had a power to adjudicate on the question of

existence of the arbitration agreement. Supreme Court of India held that, Section 16

does not declare that except the Arbitral Tribunal, none else can determine such

question. Merely because the new Act of 1996 permits the arbitrator to decide this

question, it does not necessarily follow that at the stage of Section 11 the Chief Justice


of India or his designate cannot decide a question as to the existence of the arbitration

clause.

In Bihar State Mineral Development Corporation v. Encon Builders (India) Pvt.

Ltd., it was held that if the intention of the parties to refer to the dispute to the

arbitration can be clearly ascertained from the wordings of the agreement or is

otherwise clear, it is immaterial whether or not the expression ‘arbitrator or

arbitration’ has been used or not. Use of ‘may refer to arbitration’ in an arbitration

agreement is accepted as non-binding clause for the arbitration agreement. The court

also stated the essential elements of an arbitration agreement, as follows: (1) there

must be a present or a future difference in connection with some contemplated affair.

(2) There must be the intention of the parties to settle such difference by a private

tribunal. (3) The parties must agree in writing to be bound by the decision of such

tribunal. (4) The parties must be ad idem.

Mallikarjun v Gulbarga University, Arbitral award--Application for setting aside--

Limitation therefor--Three months and delay of 30 days condonable under Section 34

(3) of Arbitration Act--Section 29 (2) of Limitation Act to apply to arbitration

proceedings--Consequently Section 14 of Limitation Act also applicable--Trial Judge

and High Court committed error in not applying said provisions of Limitation Act.

It was observed by SC that for the purposes of constituting a valid arbitration

agreement, certain principles which are based on natural justice are not necessary to

be expressed in arbitration agreement as violation of such principles would result in

unjust and unfair procedure adopted by the arbitration tribunal. An arbitral tribunal is

independent of restrictions imposed by the adjective law; however, it is bound to

follow the fundamental principles of natural justice and in that event, must not

disregard the rules of evidence which are based on such principles.

( 1. ) . Heard parties counsel on this application for amendment of the plaint.

( 2. ) MR.Rajiv Sawhney, learned senior counsel appearing on behalf of defendant

No.10, states that they are not opposing the amendment. The plaintiff and the

defendant Nos. 1, 2 and 10 to 15 belong to Modi family and are interested in 20

limited companies known as 'The Modi Ground of Companies'. Late Sh.Gujar Mal

Modi and Sh.Kedar Nath Modi, the two brothers started their venture. Sh.Gujar Mal

Modi died in 1976 leaving behind his sons, namely, KK. Modi, plaintiff and his

brothers Mr.V.K. Modi, Mr.S.K. Modi, Mr.B.K. Modi and Mr.U.K. Modi (Group'B'

for short). Mr.M.K. Modi, Defendant No. 2, Mr.Y.K. Modi, Defendant No.14 and


D.K. Modi, defendant No. 15 are sons of Sh.Kedar Nath Modi, defendant No.1. Some

disputes and differences arose in the family about proper management and control of

the companies. The Govt. of India through financial institutions is also involved for

they have lent some advances to this group of companies and it was thought that Modi

Group of Companies be split between Group A i.e. Sh.K.N. Modi and his sons and

Group B companies of the plaintiff and his brothers to ensure their better management

and profitability. A Memorandum of Understanding (M.O.U.) was executed on 24th

January, 1989 in the office of the Finance Secretary, Government of India relating to

20 companies mentioned in paragraph 3 of the plaint. That M.O.U. (Annexure-A) was

duly acted upon by both the Groups A and B as well as financial institutions and the

Borad of Directos of Modi Group of Companies. Necessary resolutions were passed

by the concerned companies accordingly. However, certain disputes could not be

decided then and there and in pursuance of the said M.O.U., M/s. Billmoria and

Company were supposed to prepare valuation report in respect of various companies

determining the net worth of each company for the purpose of settlement of inter

company group accounts and they accordingly prepared valuation report dated 29th

January, 1991 (Annexure-C). M/s.Bansi S. Mehta and Company also prepared scheme

of arrangement for Modi Spinning and Weaving Mills Company Limited and Modi

Industries Limited in pursuance of Clauses 5 and 6 of the said M.O.U. after

circulating a draft scheme of arrangement to the two Groups, namely, Group A and

Group B before finalising it. It is alleged that Chairman and Managing Director,

Industrial Financial Corporation Ltd. ('IFCI' for short) instead of accepting the

valuation report and the scheme of arrangement sustituted the same by his own

valuation and scheme of arrangement. Feeling aggrieved by this, the plaintiff filed the

present suit and also filed arbitration proceedings on the same date treating the

decision of Chairman and Managing Director (CMD), IFCI as an award. Seeing that

excepting one paragraph 55, all paragraphs in the two were verbatim the same, a

single Judge of this Court holding that it amounts to abuse of the process of law struck

down the plaint. The matter untimately went up to the Supreme Court in appeal. The

following extracts of the judgment of the Supreme Court dated 4th February, 1998 in

Civil appeal No.613 of 1998, K.K.Modi Vs. K.N.Modi are relevant in this regard:-

"This perception of the Learned Judge may be substantially correct though not

entirely so. Undoubtedly, if the plaint in the suit is viewed as challenging only the

arbitration award, a suit to challenge the award would be re-litigating the issues


already raised in the arbitration petition.... The plaint in the suit, to the limited extent

that it challenges the decision as a decision, would not amount to abuse of the process

of Court.... The court will also have to consider the binding nature of such a decision

particularly when no mala fides have been alleged against the CMD, IFCI. If

ultimately it is found that even on the alternative plea, the claim is not maintainable

the court may pass appropriate orders in accordance with law. But to the limited

extent that the suit raises an alternative independent plea, it cannot be considered as

re-litigation of the same issue or an abuse of the process of court. Therefore, the suit,

if and to the extent that it challenge in accordance with law, the impugned decision as

a decision, cannot be treated as an abuse of the process of the court. In order to

obviate any dispute, the parties have agreed that the entire working out of this

agreement will be subject to such directions as the Chairman, IFCI may give

pertaining to the implementation of Memorandum of Understanding. He is also

empowered to give clarifications and decide any differences relating to the

implementation of the Memorandum of Understanding. Such a family settlement

which settles disputes within the family should not be lightly interfered with

especially when the settlement has been already acted upon by some members of the

family. In the present case, from 1989 to 1995 the Memorandum of Understanding

has been substantially acted upon and hence the parties must be held to the settlement

which is in the interest of the family and which avoids disputes between the members

of the family. Such settlement have to be viewed a little differently from ordinary

contracts and their internal mechanism for working out the settlement should not be

lightly disturbed. The respondents may make appropriate submissions in this

connection before the High Court. We are sure that they will be considered as and

when the High Court is required to do so whether in interlocutory proceedings or at

the final hearing. The appeal of the appellants from the judgment of the Learned

Judge striking out the plaint is, therefore, partly allowed and the suit, to that extent

that it challenges independently the decision of the Chairman, and Managing Director,

IFCI as a decision and not as an award, is maintainable in the sense that it is not an

abuse of the process of the court. We make it clear that we are not examining the

merits of the claim nor whether the plaint in the suit discloses a cause of action in this

regard. The plaint leaves much to be desired and it is for the trial court to decide these

and allied questions. Pending the hearing and final disposal of the suit in the Delhi

High Court and/or until any further orders are passed by the trial court if the


exigencies of the situation then prevailing so require, no meeting of the Modipon

Board shall be held for considering any matter relating to the decision of the CMD,

IFCI dated 8.12.1995. Also the defendants in the said suit (Group A) shall not sell any

shares held in Godfrey Phillips India Ltd. provided that the plaintiffs in the suit

deposit in the Delhi High Court a sum of Rs.5 crores (Five Crores) within four weeks

from the date of this order." These extracts were required to be quoted to consider the

extent to which amendment can be allowed. It is submitted that this application for

leave to amend the plaint has been filed in the abovesaid background to incorporate

the proposed amendments set out in paragraph 3 of the application, specially in view

of the authoritative interpretation of clause 9 of M.O.U. dated 24.1.1989, by the

Supreme Court, which is the subject matter of the above suit. These amendments are

necessary to clarify the confusion between 'award' and 'decision' and to distinguish

these proceedings from that of arbitration proceedings filed separately. They are

necessary for substantial justice between the parties. The defendants could be

compensated with cost. The application for amendment is being opposed on the

ground that a new cause of action is being introduced. What has been rejected by the

learned single Judge and by the Supreme Court, the plaintiff wants to rely on those

very facts but in slightly different words by setting up new ideas. The plaint does not

disclose any cause of action in case all those paragraphs which were compared by the

learned single Judge and by the Supreme Court are ignored. Since the cause of action

does not exist it would not be proper to allow the application for amendment.

Following appears to be the settled legal position in view of A.K. Gupta and Sons Ltd.

Vs. Damodar Valley Corporation, AIR 1967 SC 96, M/s. Ganesh Trading Co. Vs.

Moji Ram, AIR 1978 SC 484, Gangamal Ramchand Vs. The Hongkong and Shanghai

Banking Corporation, AIR (37) 1950 Bombay 345 for the purpose of considering any

prayer for amendment of the pleadings: (i) The object of the rule is to decide the

rights of parties and not to punish them for their mistakes. Procedural law is intended

to facilitate and not to obstruct the course of substantive justice. (ii) If the amendment

sought is necessary for just decision of the real dispute between the parties, the

amendment should be allowed. (iii) The general rule no doubt is that a party is not

allowed by amendment to set up a new case or a new cause of action, particularly

when a suit on new case or cause of action is barred. (iv) The expression "cause of

action" for the present purpose only means a new claim made on new basis

constituted by new fact. Any other view would make the rule futile. The words "new


case" have been understood to mean new set of ideas. (v) Mere failure to set up even

essential facts does not by itself constitute a new cause of action. A cause of action is

constituted by whole bundle of essential facts which the plaintiff must prove before he

can succeed in his suit. Defective pleadings are generally curable. Future cause of

action which was sought to be brought out was not ab initio completely absent. Even

very defective pleadings may be permitted to be cured so as to constitute cause of

action where there was none, provide necessary conditions, payment of either any

additional court fee which may be payable or of cost of the other side are complied

with. (vi) A different or additional approach to the same facts could be allowed by

amendment even after the expiry of the statutory period of limitation, for no question

of limitation, strictly speaking, arises in such a case. What is sought to be brought in

is merely a clarification of what is already there in the pleadings. (vii) However,

amendment cannot be allowed where any vested right has been created on account of

expiry of time. No amendment would be allowed to introduce a new set of ideas to the

prejudice of any right acquired by any party by lapse of time. However, how far

contractual/statutory waiver or estoppel by conduct would be appropriate to refuse the

amendment is a point which is yet to be settled. Learned counsel for the defendants

relies upon Patasibai and Others v. Ratan Lal, (1990) 2 SCC 42. In that case, the

plaint did not disclose any cause of action giving rise to any triable issue for setting

aside a compromise decree assailing the decree as nullity. Suit was filed not on

ground of the consent decree being obtained by fraud, coercion or misrepresentation

but merely on the basis of certain procedural lapses in deciding the earlier suit which

were not material. An application for amendment was moved on grounds which were

raised unsuccessfully in the earlier appeals against the compromise decree and those

findings on the said grounds had become final and concluded. The trial court did not

reject the plaint. High Court also confirmed the approach of the learned trial court.

The Supreme Court held that trial court could not be allowed to proceed in view of the

fatal defect. But in this case, the facts are totally different. Nearly all the averments

have been made in the plaint itself. The Supreme Court did not reject the plaint as had

been done in Patasibai v. Ratan Lal (supra). Instead it held that the suit was

maintainable. In such circumstances, I find it difficult to accept the contention of the

learned senior counsel for the defendants and to say that the plaint has to be rejected

in view of the judgment in Patasibai v. Ratan Lal (supra). It may be mentioned here

that by order dated 4th February, 1998, the Supreme Court has not rejected the plaint


as a whole. It did not reject by ordering deletion of any of the paragraphs. What was

rejected was challenge to the arbitration award, for a suit to challenge the award

would be re-litigating the issues already raised in the arbitration proceedings. The

plaint in the suit is now limited to challenge the decision as a decision would not

amount to abuse of the process of the court. This court is also supposed to consider

the binding nature of "decisions". It is also notable that no mala fides is alleged

against the CMD, IFCI in giving the said decision. It has also been clarified that the

suit if and to the extent that it challenges in accordance with law, the impugned

decision cannot be treated as an abuse to the process of the court. In such a

circumstance, one has to take into consideration the existing plaint as it is and

consider it along with proposed amendments. Learned senior counsel appearing on

behalf of both the parties do not challenge the M.O.U. dated 24th January, 1989.

According to the plaintiff, the CMD, IFCI exceeded the limits of the authority given

under M.O.U. This kind of a family arrangement has to be respected so long the

parties adhere to the terms of the M.O.U.. This very case was pleaded in the entire

plaint but the decision has been termed as award. The only difference is that now, the

petitioner seeks to use the word decision in place of award in paragraphs 32, 33, 35,

36, 37, 38, 39, 40, 41, 42, 43, 45, 46, 48, 52, 52A, 53 and in the grounds pof

paragraphs 55, 56, 58 treating the decision of the CMD, IFCI as a decision instead of

an award. The plaintiff seeks to make various amendment to confine this case to the

decision within the terms of the judgment of the Supreme Court. No new idea is being

set up which did not already exist. There is virtually no new case to reject any of the

amendments mentioned in paragraph 3 for any reason. There cannot be any doubt that

the idea of decision and the award was so mixed up that it may be difficult to separate

each sentence and each word. But and in such a situation the amendment sought

should be rejected would be too much. The decision of the CMD, IFCI was already

under challenge. The grounds are already mentioned in paragraph 58. The amendment

which is sought in paragraph 58 is just a clarification regarding subsequent event of

the judgment/order of the Supreme Court and clarification of the stand taken by the

plaintiff. To that extent one can say that there is certainly a better presentation of the

same ideas and same pleas in the light of subsequent events of authoritative

interpretation of Clause 9 of M.O.U. It appears that this amendment is also essential

for just decision of the case, specially when this Court is supposed to consider the


binding nature of the decision, specially in absence of any allegation regarding mala

fides.

( 3. ) IT may be mentioned that so far as amendment of paragraph 55 is concerned, the

learned senior counsel for the defendants did not dispute deletion of a part of

paragraph 55 but he opposed addition at the end of paragraph 55. The binding nature

can be decided only after considering whether all the parties adhered to the M.O.U.,

including the CMD, IFCI. Besides, the question of estoppel by conduct and

representatives referred to by the defendants and plaintiff in their pleadings and their

effect cannot be decided at this stage without recording evidence. As such, it cannot

be held at this stage whether the decision given by CMD, IFCI is in accordance of

M.O.U. and its clause 9 and one must not be swayed by literal meaning of clause 9 in

isolation and dehorse of other clause and conduct of parties. However, since vested

right can be created by estoppel and waiver also as a legal proposation, it appears

plausible to say that amendment sought to nullify such vested right, should not be

entertained. If one considers all the amendments mentioned in paragraph 3 of the

application, they appear to be necessary for just decision of the case. The defendants

can be compensated by appropriate cost for causing confusion initially by filing

simultaneously two suits and challenging the impugned decision as an award in the

present suit. Accordingly, I allow the amendments subject to payment of cost of

Rs.25,000.00 to be shared by the defendants. ;

SALEM ADVOCATE BAR ASSOCIATION VS. UNION OF INDIA-

THE challenge made to the constitutional validity of amendments made to the Code

of Civil Procedure (for short, 'the Code') by Amendment Acts of 1999 and 2002 was

rejected by this Court {Salem Advocates Bar Association, T.N.v. Union of India, but

it was noticed in the judgment that modalities have to be formulated for the manner in

which Section 89 of the Code and, for that matter, the other provisions which have

been introduced by way of amendments, may have to be operated. For this purpose, a

Committee headed by a former Judge of this Court and Chairman, Law Commission

of India (Justice M. Jagannadha Rao) was constituted so as to ensure that the

amendments become effective and result in quickerdispensation of justice. It was

further observed that the Committee may considerdevising a model case management

formula as well as rules and regulations which should be followed while taking

recourse to the Alternate Disputes Resolution (ADR) referred to in Section 89. It was

also observed that the model rules, with or without modification, which are


formulated may be adopted by the High Courts concerned for giving effect to Section

89(2)(d) of the Code. Further, it was observed that if any difficulties are felt in the

working of the amendments, the same can be placed before the Committee which

would consider the same and make necessary suggestions in its report. THE

Committee has filed the report.

( 2. ) THE report is in three parts. Report 1 contains the consideration of the various

grievances relating to amendments to the Code and the recommendations of the

Committee. Report 2 contains the consideration of various points raised in connection

with draft rules for ADR and mediation as envisaged by Section 89 of the Code read

with Order X Rule 1A, 1B and 1C. It also contains model Rules. Report 3 contains a

conceptual appraisal of case management. It also contains the model rules of case

management. First, we will consider Report 1 which deals with the amendments made

to the Code. Report No.1 Amendment inserting sub-section (2) to Section 26 and Rule

15(4) to Order VI Rule 15. Prior to insertion of aforesaid provisions, there was no

requirement of filing affidavit with the pleadings. These provisions now require the

plaint to be accompanied by an affidavit as provided in Section 26(2) and the person

verifying the pleadings to furnish an affidavit in support of the pleading [Order VI

Rule 15(4)]. It was sought to be contended that the requirement of filing an affidavit is

illegal and unnecessary in view of the existing requirement of verification of the

pleadings. We are unable to agree. The affidavit required to be filed under amended

Section 26(2) and Order VI Rule 15(4) of the Code has the effect of fixing additional

responsibility on the deponent as to the truth of the facts stated in the pleadings. It is,

however, made clear that such an affidavit would not be evidence for the purpose of

the trial. Further, on amendment of the pleadings, a fresh affidavit shall have to be

filed in consonance thereof.

( 3. ) AMENDMENT of Order XVIII Rule 4 The amendment provides that in every

case, the examination-in-chief of a witness shall be on affidavit. The court has already

been vested with power to permit affidavits to be filed as evidence as provided in

Order XIX Rules 1 and 2 of the Code. It has to be kept in view that the right of cross-

examination and re-examination in open court has not been disturbed by Order XVIII

Rule 4 inserted by amendment. It is true that after the amendment cross-examination

can be before a Commissioner but we feel that no exception can be taken in regard to

the power of the legislature to amend the Code and provide for the examination-in-

chief to be on affidavit or cross-examination before a Commissioner. The scope of


Order XVIII Rule 4 has been examined and its validity upheld in Salem Advocates

Bar Association's case. There is also no question of inadmissible documents being

read into evidence merely on account of such documents being given exhibit numbers

in the affidavit filed by way of examination-in-chief. Further, in Salem Advocates Bar

Association's case, it has been held that the trial court in appropriate cases can permit

the examination-in-chief to be recorded in the court. Proviso to sub-rule (2) of Rule 4

of Order XVIII clearly suggests that the court has to apply its mind to the facts of the

case, nature of allegations, nature of evidence and importance of the particular witness

for determining whether the witness shall be examined in court or by the

Commissioner appointed by it. The power under Order XVIII Rule 4(2) is required to

be exercised with great circumspection having regard to the facts and circumstances

of the case. It is not necessary to lay down hard and fast rules controlling the

discretion of the court to appoint Commissioner to record cross-examination and re-

examination of witnesses. The purpose would be served by noticing some illustrative

cases which would serve as broad and general guidelines for the exercise of

discretion. For instance, a case may involve complex question of title, complex

question in partition or suits relating to partnership business or suits involving serious

allegations of fraud, forgery, serious disputes as to the execution of the will etc. In

such cases, as far as possible, the court may preferto itself record the cross-

examination of the material witnesses. Another contention raised is that when

evidence is recorded by the Commissioner, the Court would be deprived of the benefit

of watching the demeanour of witness. That may be so but, In our view, the will of the

legislature, which has by amending the Code provided for recording evidence by the

Commissioner for saving Court's time taken for the said purpose, cannot be defeated

merely on the ground that the Court would be deprived of watching the demeanour of

the witnesses. Further, as noticed above, in some cases, which are complex in nature,

the prayer for recording evidence by the Commissioner may be declined by the Court.

It may also be noted that OrderXVIII Rule 4, specifically provides that the

Commissioner may record such remarks as it thinks material in respect of the

demeanour of any witness while under examination. The Court would have the

benefit of the observations if made by the Commissioner. The report notices that in

some States, advocates are being required to pass a test conducted by the High Court

in the subjects of Civil Procedure Code and Evidence Act forthe purpose of

empanelling them on the panels of Commissioners. It is a good practice. We would,


however, leave it to the High Courts to examine this aspect and decide to adopt or not

such a procedure. Regarding the apprehension that the payment of fee to the

Commissioner will add to the burden of the litigant, we feel that generally the

expenses incurred towards the fee payable to the Commissioner is likely to be less

than expenditure incurred for attending the Courts on various dates for recording

evidence besides the harassment and inconvenience to attend the Court again and

again forthe same purpose and, therefore, in reality in most of the cases, there could

be no additional burden.


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