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Table of cases
Asadullah Vs Lassa Baba
Chhoba Lal Vs Kallu Mal
Ganesh Ram Tulja Ram
Gopal Chand Vs Madan Lal
Hyderabad Industries Ltd. Vs Nuclear Power Corp Of India Ltd
Jagannath Vs Mannulal
K.K Modi Vs K.N. Modi
Kohinoor Creations Vs Syndicate Bank
Kohli Bros. Vs Atlantic Multiplex Pvt. Ltd
Manish Mittal Vs Manesh Chand
National Almunium Co. Ltd Vs Geralds Metals Sa
Ashok Chawla Vs Rakesh Gupta
Nimet Resources Inc. And Another Vs Essar Steel Ltd
Operative Group Housing Society Vs H.S Nag And Associates Ltd
Orissa State Co-Operative Marketing Federation Ltd Vs Associated
Marketing Co.
Ram Labhayya Vs Panna Lal
Sundarv Lal Vs Bhagwati Devi
1
INDEX
Sr No Topic Page No Remarks
1) Introduction 5-6
2) Arbitration-meaning 7-8
3) Scope 8-9
4) Essentials of Arbitration 9-14
Agreement
5) Drafting of arb. Agreement 14-16
6) Arb. Agreement- 16-17
Who can enter into
7) Arbitration agreement by 17
exchang of letters
8) Section -8 17-21
Court obliged to refer parties
to arbitration
Suits barred
Writs whether barred
Suits not barred
Section 8(3)
9) Section -9 Interim measure 21
10) Jurisdiction of court 22
11) No stay of arb. Proceedings 22
12) Absence of Substantive relief 23
13) Bibliography 24
2
Introduction
Section 7, 8, 9
7- Arbitration agreement.
(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) The reference in a contract to a document containing an arbitration clause
constitutes an arbitration agreement if the contract is in writing and the reference
is such as to make that arbitration clause part of the contract.
8- Power to refer parties to arbitration where there is an arbitration agreement.
(1) A judicial authority before which an action is brought in a matter which is the
subject of an arbitration agreement shall, if a party so applies not later than when
submitting his first statement on the substance of the dispute, refer the parties to
arbitration.
(2) The application referred to in subsection (1) shall not be entertained unless it is
accompanied by the original arbitration agreement or a duly certified copy thereof.
(3) Notwithstanding that an application has been made under sub-section (1) and that
the issue is pending before the judicial authority, an arbitration may be
commenced or continued and an arbitral award made.
9- Interim measures etc. by Court.
A party may, before, or during arbitral proceedings or at any time after the making of the
arbitral award but before it is enforced in accordance with section 36, apply to a court –
3
(i) for the appointment of a guardian for a minor or person of unsound mind for the
purposes of arbitral proceedings; or
(ii) for an interim measure of protection in respect of any of die following matters,
namely –
(a) the preservation, interim custody or sale of any goods which are the subject-
matter of the arbitration agreement;
(b) securing the amount in dispute in the arbitration;
(c) the detention, preservation or inspection of any property or thing which is die
subject-matter of the dispute in arbitration, or as to which any question may
arise therein and authorising for any of the aforesaid purposes any person to
enter upon any land or building in the possession of any part) or authorising
any samples to be taken or any observation to be made, or experiment to be
tried, which may be necessary or expedient for the purpose of obtaining full
information or evidence;
(d) interim injunction or the appointment of a receiver;
(e) such other interim measure of protection as may appear to the Court to be
just and convenient, and the Court shall have the same power for making
orders as it has for the purpose of, and in relation to, any proceedings before
it.
........................................................................................................................
4
Arbitration Agreement – Meaning of :- the section refers to the dispute which have
arisen or which may arise between the parties in respect of a certain legal relationship,
whether contractual or not. While an arbitration clause creates a collateral agreement, it is just
one clause in an agreement containing many other clauses relating chiefly to commercial
terms and performance obligations. The reference of a particular existing dispute or disputes
is usually achieved by an entirely separate agreement dealing only with the setting up of
machinery to resolve the dispute(s) which have arisen between the same parties, either in tort
or contract. The reference of an existing dispute can also form part of an agreement dealing
with other matters. For instance, the parties to a contract might bring that contract, by
agreement, to an end and at the same time, enter into a fresh contract, by agreement. Under
the fresh agreement they might agree on a number of commercial terms about their future
dealings , as well as an agreement to refer to arbitration an existing dispute arising from the
original contract.
The basis of agreement under the act is a written submission by the parties. No particular
form is necessary but the words used for the purpose must be words of choice and
determination to go to arbitration and not problematic words of mere possibility. It is not
even necessary that a formal words such as arbitration is used but what is essential is that the
parties should intend to make a reference or submission and should be ad idem in this respect.
RUSSELL states:
“An arbitration agreement is an agreement to submit present or future disputes (whether they
are contractual or not). An arbitration agreement is therefore a contractual undertaking by two
or more parties to resolve disputes by the process of arbitration even if the disputes
themselves are not based on contractual obligations.”
The word ‘party’ for the purpose of Part 1 of the Act connotes ‘party to the agreement’ as
distinguished from party to the suit. Both the claimant who has brought legal action and the
respondent who has brought legal action and the respondent who applies for reference of the
dispute to arbitration must be parties to the arbitration agreement.
Basically a dispute means “ Assertion of claim by one party and its repudiation by the
other party.” Thus a dispute implies some kind of disagreement between parties concerning
some legal claim or liability. It may be distinguished from the term ‘difference’ which means
5
having different opinion as to the exact meaning of a particular tern in the contract. The
difference or dispute must relate to some civil claim.
Scop e of Arbitration Agreement
the provisions of section 7 and section 2(1)(a) of the 1996 Act are so related to each other
that they have to be read conjointly. These provisions are analogous to section 2(a) of the old
act of 1940 and article 7 of UNCITRAL Modal Law. Such provisions are also contained in
section 5 and 6 of English Arbitration Act, 1996.
The Supreme Court has laid down following principles as to the scope of the arbitration
clause:-
1) An arbitration clause is a collateral term of a contract as distinguished from its
substantive terms, but nonetheless it is an integral part of it;
2) However, comprehensive the terms of an arbitration clause may be, the existence of
the contract is a necessary condition for its operation , or perishes with the contract;
3) The contract may be nin est in the sense that it never came legally into existence or it
was void ab initio;
4) Though the contract was validly executed, the parties may put end to it as if it had
never existed and substitute a new contract for it solely governing their rights and
liabilities thereunder;
5) In the former case, if the original contract has no legal existence, the arbitration clause
also cannot operate, for along with the original contract, it is also void; in the latter
case, as the original contract is extinguished by the substituted one, the arbitration
clause of the original contract perishes with it; and
6) Between the two falls, many categories of disputes in connection with a contract, such
as the question of repudiation, frustration, breach etc. In those cases, it is the
performance of the contract that has come to an end, but the contract is still in
existence for certain purpose in respect of disputes arising under it or inconnection
with it. as the contract subsists for certain purposes, the arbitration clause operates in
respect of these purposes.
Article 7 of UNCITRAL Modal Law defines the arbitration agreement as under:-
(1) “Arbitration agreement” is 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
6
legal relationship, whether contractual or not. An arbitration agreement may be in the form of
an arbitration clause in a contract or in the form of a separate agreement.
(2) The arbitration agreement shall be in writing.
(3) An arbitration agreement is in writing if its content is recorded in any form, whether or
not the arbitration agreement or contract has been concluded orally, by conduct, or by other
means.
(4) The requirement that an arbitration agreement be in writing is met byan electronic
communication if the information contained therein is accessible
so as to be useable for subsequent reference; “electronic communication” means any
communication that the parties make by means of data messages; “data message” means
information generated, sent, received or stored by electronic, magnetic, optical or similar
means, including, but not limited to, electronic data interchange (EDI), electronic mail,
telegram, telex or telecopy.
(5) Furthermore, an arbitration agreement is in writing if it is contained in an exchange of
statements of claim and defence in which the existence of an agreement is alleged by one
party and not denied by the other.
(6) The reference in a contract to any document containing an arbitration clause constitutes an
arbitration agreement in writing, provided that the reference is such as to make that clause.
Essentials of Arbitration Agreement
1) Competency of parties
2) There must be a present or future difference in connection with some contemplated
affairs
3) There must be the intention of the parties to settle such differences by a private
tribunal
4) Agreement must be in writing
5) The parties must be ad idem
1) Competency of parties :- Parties to the arbitration have reference to persons who
under the law are competent to contract. Section 11 of the Contract Act provides that
every person is competent.
7
a) Minor – under section 3 of the Indian Majority Act, 1875 a person domiciled in
India is deemed to be a minor till he completes the age of 18 years. This section,
however, provides the age of 21 years as the age of minority in a case where a Court
Guardian is appointed for the person of a minor and his property. It has been held
that when the age of majority has been provided by the law to be 18 years, any
person less than that age, even by a day, would be a minor in law AIR 1961 Patna
21. A contract entered into by a minor is void and not merely voidable because he is
a person who is not competent to contract. In matter of arbitration the rights of the
parties are to be determined during the arbitration which ultimately may entail
consequences adverse to the interests of the minor. Even the natural guardian of the
minor much less a court guardian, cannot bind the minor to an arbitration agreement.
In Chhoba Lal Vs Kallu Mal1 the Privy Council held that a guardian ad litem
or a next to friend of a minor has the authority to refer to arbitration on behalf of the
minor after obtaining a valid permission of the court in terms of order XXXII Rule 7
of the CPC to refer the dispute and in the absence of such permission the reference is
invalid. A contract by a minor cannot be ratified by him after attaining age of
majority.
b) Lunatic – A lunatic cannot enter into a valid contract and any contract executed on
his behalf including a contract for arbitration is void. Lunatic is insane, mad,
outrageously foolish, fanatic and eccentric. There is no definition of lunacy in this act
but section 3(5) of Indian Lunacy Act, 1912, defines ‘lunatic’ to mean a person who
is an idiot or of unsound mind.
c) Manager of Hindu Family – A manager of hindu family can refer a dispute to
the arbitration where the dispute is amongst the members of the family themselves
and bind the members to the decision of the arbitration. In Jagannath Vs Mannulal2,
the court held that the position of karta of the family is sui generis; the relation
between him and the other members of the family is not that of a principal and agent,
or of partners. A reference made by the manager or the karta of the joint family will
bind all the members of the family including minors, provided the reference be made
by the manager was for the benefit of the family. However where a guardian for the
minor who is a member of the joint family is appointed by the court the manager or
1 AIR 1946 PC 2722 (1894) 16 All. 231
8
the karta of the family cannot make the reference to bind the minor with the award
unless he has sought permission of the court for making the reference. (Ganesh Ram
Tulja Ram3)
d) Partner – A “partner” of a partnership concern has a right to enter into an
agreement on behalf of the concern and thus bind the other partners of the
consequences. Section 19 of the Indian Partnership Act, 1932, confers imlied
authority on him to act on behalf of the firm as its agent. It provides that subject to
the provisions of section 22, the act of a partner which is done to carry on in the usual
way, business of the kind carried on by the firm, binds the firm.
a partner has no authority to compromise or relinquish any portion of the claim made
by the firm in the arbitration proceedings. In a case where a partnership deed
provides for the reference of dispute among partners inter se and provides for the
dispute being referred to arbitration, a partner is entitled to make reference to
arbitration ( Sundarv Lal Vs Bhagwati Devi)4.
e) Trustee – a trustee gets the power to refer the disputes pertaining to the trust to
arbitration only if the provisions of the instrument of trust authorize him to make the
reference. A trust is created under the Indian Trust Act, 1882. The deed of trust and
the provisions of the statute regulate the rights and duties of the trustee. In a case
where more than one trustee is provided, no reference can be made only by one
trustee. The reference of dispute in such a case has to be made collectively by all the
trustees or by one of the trustees with specific authority from other trustees in that
behalf.
f) Executor or administrator :- the rights of the executor or the administrator of
a will are governed by the provisions in the Indian Succession Act, 1925, who is
entitled to do all acts necessary to manage and administer the estate of the deceased.
For the proper management of the estate and in case of disputes relating to it, the
executor or the administrator has the power to make a reference for arbitration .
under Section 302 of the said act the High Court can, on application made to it, give
to the executor or administrator any general or special directions in regard to the
estate or in regard to the administration thereof. In an appropriate case such direction
may include for making the reference of the dispute pertaining to the estate. Where
there are several executors or administrator, the power of all may in the absence of
3 19 Ind. Cas 5154 AIR 19657 All. 400
9
any direction to the contrary, be exercise by one of them who has proved the will or
taken out administration as is the mandate of section 311 of the Indian succession act,
1925.
g) Legatee – legatee’ is a person for whose benefit an amount of property or money is
left in a will. He is someone who is left a legatee by the terms of a will. Section 102
of the Indian succession act, 1925 refers to residuary legatee and provides that such a
legatee may be constituted by any words in a will which would show an intention on
the part of the testator that the person designated shall take the surplus or residue of
his property. In such a case the legatee is entitled to all property belonging to the
testator at the time of his death, of which he has not made any other testamentary
disposition and is capable to taking effect. In a case Ram Labhayya Vs Panna Lal5
it was held that the legatee may refer disputes relating to the division of the estate to
the arbitrator. Such a reference and consequent award would bind the legatee in so
far as his interest is concerned.
h) Legal representatives –section 40 of this act provides that the arbitration
agreement shall not be discharged or come to an end by the death of a party thereto.
The agreement , despite the death of one of the parties is enforceable by or against
the legal representatives of the deceased parties provided the right to sue or be sued
survives (Asadullah Vs Lassa Baba6). The arbitration agreement thus means an
agreement by the parties executing it including their legal representatives, for
adjudication of dispute by the arbitrator which arise out of the contract or in relation
to as a consequence of the contract provided the right to sue subsists and is referable
to the contract.
2) Intention of the parties – there must be the intention of the parties to seetle their
dispute from arbitral tribunal. The intention of the parties to enter into an arbitration
agreement have to be gathered from the terms of the agreement. If the terms of
agreement clearly indicate an indicate an intention on part of the parties to the
agreement to refer their dispute to arbitral tribunal for adjudication and willingness to
be bound by the decision of such arbitral agreement, the words used should disclose a
determination and obligation to go to arbitration and not merely contemplate the
possibility of going for arbitration. When there is merely a possibility of the parties
5 AIR 1937 Lah. 3426 AIR 1966 j&K 1
10
agreeing to arbitration in future, as contrasted from an obligation to refer disputes to
arbitration in future, there is no valid and binding arbitration.
3) Present or Future Difference/dispute – the essential elements of an arbitration
agreement have been admired to be that there must be present or future difference in
connection with some contemplated affair. Dispute is thus an essential feature of
arbitration agreement. The existence of a dispute is an essential condition and a
prerequisite for assumption of jurisdiction by an arbitrator. The objection that there
existed no arbitrable dispute and hence there could be no reference on that matter to
the arbitrator, although not taken in objections filed under ss. 30 and 33 of the
arbitration and conciliation act 1940, was allowed to be taken in appeal on special
leave before the supreme court, and sustaining this objection a part of the award on a
matter not in dispute, was set aside by the supreme court.
The jurisdiction of an arbitrator depends not upon the existence of a claim or the
accrual of a cause of action, but upon the existence of a dispute.
A dispute arises when an assertion of a right is made by one party and there is
repudiation thereof by the other on whatever grounds. A repudiation may be either
express or implied and may be by words or by conduct.
4) Arbitration agreement to be in writing :- sub-section (3) and (4) of section 7
provide that an arbitration agreement shall be in writing. No particular form has,
however, been prescribed for an arbitration agreement nor it is necessary that the
words such as ‘arbitration’, arbitrator etc. must appear in the text of the agreement.
What the law requires is that the intention of the parties to make reference or
submission to arbitration should be clearly discernible from the agreement of
arbitration. Such agreement may also be found to exist in form of correspondence by
way of exchange of letters between the parties.The Arbitration Act. 1940 did not
recognise oral agreements or awards. The new Act of 1996, however, makes it
mandatory that all arbitration agreements must necessarily be in writing. Thus the
court in Gopal Chand Vs Madan Lal,7 refused to recognise oral agreement and held
that, “ oral submission cannot be the basis of a suit.”The Supreme Court in Nimet
Resources Inc. And Another Vs Essar Steel Ltd8 reiterated that section 7 of the act
sets out what an arbitration agreement id. It could be in different forms – by way of an
arbitration clause in a contract.
7 19908 2000
11
5) The parties must be ad idem - to constitute an arbitration agreement, there
must be an agreement, that is to say the must agree to same thing in the same sense.
IN Supreme Co.- operative group housing society Vs H.S Nag and
Associates Ltd9
Facts –A Managing Director of appellant company signed a contract with the
respondent, a Yugoslavian based company, at Belgrade, which contained an arbitration
clause that disputes shall be referred to arbitration of international chamber of
commerce in Paris. On that very day, the managing director sent a letter from Belgrade
itself to the respondent at Belgrade stating that he had objected to the arbitration clause
contained in the agreement and that in fact in the draft of the agreement, which he had
sent in advance to the respondent company, the said clause was deleted. The managing
director immediately on landing in Bombay sent a cable to the respondent company
again objecting to the arbitration clause in the agreement. The respondent company
gave no reply either to the letter or cable sent by the managing director.
Held – there was no concluded agreement as there was no consensus ad idem with
regard to the arbitration clause, which was a severable part of the contract.
Where terms of letter of credit to be furnished by one party and performance
guarantee to be furnished by the other party, as mutually acceptable both, had not till
then been accepted, it was held that the parties had not reached an agreement upon all
material terms of the contract and were as such not ad idem. No concluded and
binding contract had come into existence between the parties. Hence, the arbitration
clause contained in the contract had also not come into existence in the eye of law.
Reference of dispute to arbitration invoking such non-existent arbitration clause was
invalid.
Drafting of arbitration agreement-
When drafting arbitration agreement care needs to be taken to ensure that it is appropriate for
the particular circumstances of the case. The following is the checklist of the matters which
need to be considered when drafting an arbitration agreement:-
1) Have the parties been properly identified?
2) Is there a clear reference to arbitration?
9 AIR 1996 SC 2443
12
3) Where is the seat of arbitration to be?
4) Is there the choice of proper law of contract?
5) Is the law of arbitration agreement to follow the proper law of the contract?
6) Is there a choice of procedural law?
7) How will the tribunal be appointed?
8) Is there an appointing authority?
9) Is the tribunal be required to have any particular attributes or qualification?
10) How many members of tribunal will there be?
11) Are there to be procedural and/or evidential rules, and if so, which ones?
12) What will be the language of arbitration?
13) Should the tribunal be given power to order provisional relief under section 39 of the
Arbitration and Conciliation Act, 1996?
14) Is specific provision for confidentiality required?
15) Should applications and appeals to court be excluded?
16) Is a waiver of sovereign immunity required?
17) Are provisions for multi-party arbitration consideration and concurrent hearings
required?
K.K Modi Vs K.N. Modi10
This case discussed the attributes which are necessary for considering an agreement as an
arbitration agreement. It was held that among the attributes which must be present are:
1) The arbitration agreement must contemplate that the decision of the tribunal will be
binding on the parties to the agreement.
2.) The jurisdiction of the tribunal to decide the rights of the parties must derive from their
consent, or from an order of the Court or from a statute, the terms of which make it clear that
the process is to be arbitration.
3.) The agreement must contemplate that substantive rights of the parties will be determined
by the agreed tribunal.
4.) The tribunal will determine the rights of the parties in an impartial and judicial manner
with the tribunal being fair and equal to both sides.
10 1998(1) Arb LR 296
13
5. The agreement of the parties to refer their disputes to the decision of the tribunal must be
intended to be enforceable in law
6.) The agreement must contemplate that the tribunal will make a decision upon a dispute
which is already formulated at the time when a reference is made to the tribunal.
Other important factors include whether the agreement contemplates that that tribunal will
receive evidence from both sides and give the parties opportunity to put forth their issues and
hear their contentions; whether the wording of the agreement is consistent with the view that
the process was intended to be an arbitration; and whether the agreement requires the tribunal
to decide the dispute according to law11.
The courts have laid emphasis on
(i) existence of disputes as against intention to avoid future disputes;
(ii) the tribunal or forum so chosen is intended to act judicially after taking into account
relevant evidence and submissions made by parties before it; (iii)
(iii) the decision is intended to bind parties;
(iv) Nomenclature used by parties need not be conclusive12.
Arbitration agreement: who can enter into?
An artificial or a natural person has the capacity enter into an arbitration agreement
Where the agreement stated that federation was to be represented by its Secretary as required
by bye-laws of federation, but instead the managing director entered into agreement which
was subsequently ratified before being annulled subsequently, the agreement was held to be
binding on federation.13
A company can enter into an arbitration agreement. However, where the terms of the
arbitration clause provides for disputes between the partners inter se and the company, it
cannot be said that the company was made a party to the agreement.
Arbitration agreement by exchange of letters etc.
11 http://www.indiankanoon.org/doc/1777887/12 Saraf, B.P (J), LAW OF ARBITRATION AND CONCILIATION, 4th Ed. Snow White Publications, Mumbai, 2006, pg 19313 Orissa State Co-Operative Marketing Federation Ltd Vs Associated Marketing Co. AIR 1982 Ori 1
14
The agreement to submit to arbitration must be in writing. Where a party sent the contract to
the other for signing the same but the other party did not sign it or confirm the contract but
opened letters of credit pursuant thereto, it can be said that the contract stood confirmed and
the arbitration clause contained therein was binding on both the parties.
The agreement can be in any particular form. What is required is to be ascertained whether
parties have agreed to refer the dispute to arbitration. Where disputes arose between the
parties in respect of business transactions between them and the documents showed that the
respondent had consented to resolution of disputes through arbitration on the proposal of the
petitioner, it cannot be said that there was no arbitration agreement by exchange of letters.
An arbitration can come into existence by means of correspondence exchanged between the
parties. Where two contracts for different periods were awarded to a party and disputes arose
for the period intervening between the said two contracts, it was held that the correspondence
between the parties established that the arbitration clause relating to the first contract would
govern the parties. Thus law has been very liberal on this very aspect14.
Court Obliged to Refer Parties to Arbitration Section – 8
This section is peremptory in nature. Where an arbitration agreement exists, the court is under
an obligation to refer the parties to arbitration in terms thereof. Section 8 of the 1996 Act
prevails over section 9 of Civil Procedure Code. If the dispute is referable under section 8 of
the act, the judicial authority has no option but to refer the parties to arbitration.
There is no discretion with the court under the act to grant stay. The only power vested in the
court is to refer the dispute to arbitration. Courts cannot refuse to refer the disputes to
arbitration merely on the ground that there are sufficient triable issues based on facts and law
and as such suit was maintainable. Absence of an arbitration clause in the performance
guarantee does not matter as the said guarantee arose out of land was related to the dealership
agreement and was not an independent contract.
A combined effect of section 8 and 16 reveals that when an action is brought in a matter
before a judicial authority, which is found to be the subject to arbitration agreement, it is
obligatory on the part of the judicial authority to refer the parties to arbitration provided that
before filing its written statement, the party applying for referring the dispute to arbitration
has so applied.14 Paranjape Dr N.V., Arbitration and Conciliation in India, 4th ed, Central Law Agency, Allahabad, pg 89
15
When a civil court does not have jurisdiction to entertain a suit after an application has been
filed under this section, it follows as a corollary that the court which refuses to refer the
parties to arbitration has failed to exercise jurisdiction.
This section vests authority in the judicial authority to refer parties to arbitration where there
is an arbitration agreement, and also if the parties apply for it. it is no more res integra that
the provisions of this section are mandatory in nature. But they by itself should not be taken
to mean that it authorizes an automatic or mechanical reference to arbitration. On the
contrary, the reference is dependent on the requirement of the section being satisfied by the
parties15. Once arbitration proceedings are pending and there is no dispute between as to the
existence and validity of the arbitration agreement, there would be no justification for the
courts to entertain the petition and refer the matter to arbitration. There is no legal ground for
not referring the dispute to the arbitrator as there are no limitations to the pecuniary
jurisdiction of an arbitrator16.
Suits barred :- if the following suits are brought by a party to the arbitration agreement,
they would clearly be barred by the provisions of this section and relief, if any, on these has
to be by way of provisions of the act itself:-
suit to challenge agreement or award.
Suit to affirm agreement or award.
Suit inspite of arbitration agreement.17
Writs whether barred :- in respect of private arbitrations, the high court cannot issue
any prerogative writs to interfere with such arbitrations or awards made in pursuance of such
agreements. An arbitrator appointed under the act is not amenable to writ jurisdiction. Merely
because the courts have been given powers under the act to deal with the arbitrator or his
award does not mean that the arbitrator is a statutory arbitrator in the sense of being a public
body, to whom either the arbitration has necessarily to be referred to or in the sense that his
award by itself has been given a finality and recognition by the statute. A writ however can
be issued to an arbitrator appointed under the industrial disputes act because he is a statutory
arbitration. The fact that the arbitrator is a an employ of the government does not make him
liable to the writ jurisdiction of the court, as he is not exercising a public function.
15 Kohinoor creations Vs Syndicate Bank, 2005 (2) Raj 622(DB) delhi16 Manish Mittal Vs Manesh Chand, 2005 (2) Raj 45417 Sethi, R.P, Law Of Arbitration And Conciliation, Vol.1; Ashoka Law House, New Delhi, 2007
16
Suits which are not barred :- suits regarding the effect, validity and existence of the
award or arbitration agreement are barred, but suits on the following ground are not barred:--
Stranger to a contract :- where by some award, a relief is sought against another
party who is not a party to the agreement, the same can be challenged.
Suit to enforce agreement based on award:- a suit that is not filed to enforce or
challenge award but to enforce an agreement is maintainable and not barred. It also
includes an agreement based on award.
Fraud :- where the award and the decree were bogus and sham and had been bought
into existence for a fraudulent purpose, and were never intended to be created upon,
the challenge to the decree and the award is independent of the contents of the award
and decree. Thus a separate suit is maintainable to enforce substantive rights. Where
the decree is challenged on the grounds of fraud in the proceedings the suit is
maintainable.
Award accepted :- where after the award was made and acted upon, all the party filing
suit sought to do was to divide the property with the consent of the parties. A suit on
such an action is not barred.
Subject-matter not the same :- a party has a right to sue for reliefs arising from the
title of the property, independent of any right from the agreement, as the suit is not to
enforce an arbitration agreement.
Further relief :- where the award is mere declaratory award declaring rights of parties
in certain contingencies, on the happening of those contingencies, a suit for further
relief is not barred. The case would be the same when certain claims arise subsequent
to the rights so declared an award.
Suit by minor:- a minor can sue to set aside a decree against him based on an award
on the ground that the reference to arbitration was made without leave of the court as
required by Order 32 Rule 7. CPC.
Criminal prosecution :- merely because there is an arbitration clause in the agreement
, that cannot prevent criminal prosecution against the accused if an act constituting a
criminal offence made out even prima facie.
Long pendency of disputes :- to avoid long pendency of cases which leads to late
redressal, the plaintiff has been equipped with such right and any suit for this cause is
not barred and maintainable18. 18 Basu, N.D, LAW OF ARBITRATION AND CONCILIATION, 10th Ed. Orient Publishing Com., Allahbad, 2005, pg 177
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Suits under special enactments :- provisions of 1996 act does not override the
provisions of public premises act 1971 and consumer protection act which created an
additional remedy in favour of the consumers by raising consumer disputes.
Refusal of the stay due to arbitration clause:-
The court can refuse to refer the matter in the following circumstances:-
a) Where the defendant did not file the arbitration agreement and also contested the suit.
b) The defendant who denies the validity of the deed of dissolution of partnership upon
which the suit was based, is not entitled to apply under this section.
c) Where the arbitration clause was limited only to the interpretation of clauses, it could
not be used to stay a suit based on the monetary claims of a party. However, the Delhi
High Court holds a contrary view.
d) Where the arbitration clause only vested the Superintending Engineer with
supervisory and administrative control, it did not amount to an arbitration clause and
stay ought to be refused.
e) Where suit is based not upon the partnership deed but upon the right of co-ownership,
suit cannot be referred.
f) Where contract was oral and arbitration clause in the consignment note was not
brought to the notice of the other party, suit cannot be referred.
Section 8 (3) :- this is a new sub-section. By this section a machinery is provided under
the act to stop the arbitration proceeding, not simpliciter by the filing of legal
proceedings, but upon fulfilment of certain conditions. To render the arbitration invalid,
the legal proceedings must be commenced upon the whole of the subject-matter of the
reference; it must be between all the parties to the reference; and a notice thereof has to
be given to the arbitrators. If all these conditions are satisfied, further arbitration
proceedings from the time of service of notice upon the arbitrators in the pendimg
reference becomes invalid. Thus no reference or award can be rendered by reasonably of
the commencement of legal proceedings upon the subject-matter of the reference.
Basically the burden of proof lies upon the plaintiff.
Section 9 :- Interim Measures
The purpose of enacting this section in the light of the modal law an UNCITRAL Rules is to provide “interim measure of protection”. The order passed by the court should fall within the
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meaning of the expression ‘an interim measure of protection’ as distinguish from an all-time or permanent protection. The court under this section only formulates interim measures so as to protect the right under adjudication before the arbitral tribunal.
This section contemplates issuance of interim measures by court only at the instance of a party to an arbitration agreement with regard to the subject matter of the arbitration agreement. This can only be as against any person claiming under him. This section sets out an extensor nature of interim measures of protection, which the court can order. In fact, it gives power to the court to grant relief which it shall have “for the purpose of, and in relation to, any proceeding before it”. These orders are aimed at preserving the assets, protecting the position of the parties, maintaining status quo and procuring evidence.
An application for interim measure can be made either before or during arbitral proceedings or at the time after making arbitral award. In Kohli Bros. Vs Atlantic Multiplex Pvt.19 ltd it was held that when at the post – reference stage an application for interim measure can be entertained by the court keeping the question of jurisdiction or validity of the arbitration agreement open for the arbitral tribunal then the same can also be made at a pre-reference stage ion a prima facie view.
Pending disposal of disputes by the arbitrators – the respondent moved an application under section 9(d) of the act praying for the grant of ad-interim injunction restraining the appellant from transferring or alienating the enmarked alumina lying in the appellant silos. It was held that in order to protect the interests of the parties on the ground of equity and balance of convenience, the respondent were allowed to take the goods while the appellant would be paid, as an interim measure, the value of goods.20
Provisions of this section do not cover do not cover the arrest of a ship. What is providedby this section is securing the amount in dispute in the arbitration by way of an interim measure. The section is not attracted for the arrest of a ship for obtaining security of an award that may be made in the arbitration proceedings.
Jurisdiction of Court
The right conferred by this section cannot be said to be one arising out of a contract. It is a right conferred on a party to an arbitration agreement. Thus only a person who is a party to an arbitration agreement can invoke the jurisdiction of the court under this section. However a person nor a party to the arbitration agreement cannot enter the court for protection under this section because a “party” means a party to arbitration agreement.
An application for interim measure can be made to a court in India even though the arbitration proceedings are being held abroad. Section 2(2) provides that Part-I would apply where the place of arbitration is in India. It does not provide courts would have jurisdiction to grant an interim measure even though the venue of arbitration is not in India. Thus Indian courts would have jurisdiction to grant an interim measure even though the venue of
19 AIR 2008 All 4320 National almunium co. Ltd Vs geralds metals SA, AIR 2004
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arbitration is not in India. However the where the parties specifically agree that the agreement is to be governed by German laws, then the disputes shall be resolved by arbitration in accordance with the law prevailing in Germany which also includes German Code of Civil Procedure.
A court cannot grant injunction to restrain the defendant form disposing of certain properties belonging to him because such an order would be an order in nature of attachment before judgment21.
No Stay Of Arbitration Proceedings
Section 9 does not permit any or all applications for interim measure in clauses (i) and (ii) thereof. Thus there cannot be any application for stay of arbitral proceedings or to challenge the existence or validity of the arbitration agreements or the jurisdiction of the arbitral tribunals. All such challenges would have to be made before the arbitral tribunal under 1996 Act.
There is no provision in the act which enable the court to remove an arbitrator during the course of arbitration proceedings. But at the same time the party having grievance against an arbitrator cannot be said to be without remedy and the said remedy becomes available as soon as the arbitral award is made by the arbitrator.
Court interference on basis of petitions challenging arbitral tribunal during the pendency of the arbitration proceedings would be clearly against the very spirit with which the 1996 act has been enacted. The mischief which existed in the earlier enactment and is sought to be removed by the present enactment cannot be allowed to be removed by entertaining writ petitions in the absence of any provision in the new act in this respect. A statute is an edict of the legislature and the conventional way of interpreting or construing a statute is to seek the ‘intention’ of the matter.
Grant of stay in matter of discretion of the court and if the trial court on consideration passes an order of stay the appellate court should be slow to interfere with the same. But that does not mean that if the order of stay passed by the trial court is based on non- judicial consideration such order is not liable to be interfered with the appellate court22.
In the absence of substantive relief interim measure not admissible
In the absence of any substantive relief, the prayer for issuing any directions by way of interim measure cannot be entertained. The relief claimed by the petitioner for restraining the respondent from increasing the share capital of the company cannot be granted in such proceedings23.
21 http://www.legalserviceindia.com/article/l111-Arbitral-Awards.html22 Bachawat’s, R.S (J), LAW OF ARBITRATION & CONCILIATION, VOL.1. 5th Ed., Lexis Nexis Butterworth Wadhwa, Nagpur, 2010, pg 12723 Ashok Chawla Vs Rakesh Gupta 1996 (2) Arb LR(Del)
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Courts cannot grant injunction to prevent such breach of contract, the performance of which cannot be specifically enforced. Where an application had been filed seeking interim relief, it was held that relief sought can only be in aid of the claim for specific performance and if no clear cut and undisputed case on merits is made out by the petitioner, the courts shall refuse the application24.
Bibliography
24 Hyderabad Industries Ltd. Vs Nuclear Power Corp Of India Ltd.,2005 (1) Arb LR 352
21
Bachawat’s, R.S (J), LAW OF ARBITRATION & CONCILIATION, VOL.1. 5 th Ed.,
Lexis Nexis Butterworth Wadhwa, Nagpur, 2010.
Basu, N.D, LAW OF ARBITRATION AND CONCILIATION, 10 th Ed. Orient
Publishing Com., Allahbad, 2005.
Chawla, S.K(J), 11YEAR’S DIGEST OF ARBITRATION & WORKS CONTARCT
CASES 1992-2002, Vol.1 Suvidha Law House , Bhopal , 2009.
Kwatra, G.K, ARBITRATION AND CONCILIATION LAW OF INDIA, 7TH Ed.
Universal Law Publications, 2008
Malik, Surendra, SUPREME COURT ON ARBITRATION, Eastern Book Company,
Lucknow , 2003
Saraf, B.P (J), LAW OF ARBITRATION AND CONCILIATION, 4th Ed. Snow
White Publications, Mumbai, 2006.
Sethi, R.P, LAW OF ARBITRATION AND CONCILIATION, Vol.1 Ashoka Law
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Paranjape Dr N.V., Arbitration and Conciliation in India, 4th ed, Central Law Agency,
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Webliography www.supremecourtofindia.nic www.indiankanoon.com www.legalserviceindia.com
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