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Arbitral Tribunal: Its Competence and Jurisdiction

Introduction

Arbitration is a procedure in which a dispute is submitted, by agreement of the parties, to one or


more arbitrators who make a binding decision on the dispute. In choosing arbitration, the parties
opt for a private dispute resolution procedure instead of going to court. Blacks Law Dictionary
defines arbitration as:

The investigation and determination of a matter or matters of difference between contending


parties, by one or more unofficial persons, chosen by the parties, and called arbitrators, or
referees.1

Arbitration is a binding dispute settlement procedure in which the dispute is submitted to an


arbitral tribunal consisting of a sole or an odd number of arbitrators which makes a decision in
the form of an award on the dispute that is binding on the parties and thus it finally settles the
dispute. Arbitration at its core is a form of dispute resolution, which comprises of a private
judicial determination of a dispute by an independent third party. It is considered as a private
dispute redressal process which is widely encouraged for promoting twin motives of overcoming
high pendency of cases and reducing the cost of litigation. The prominent feature of the system is
that, instead of filing a case in court, the parties can refer their case to an arbitral tribunal whose
decision is binding and is termed as an award.

The process of arbitration can start only if there exists a valid Arbitration Agreement between the
parties prior to the emergence of the dispute. As per Section 7, such an agreement must be in
writing. The contract regarding which the dispute exists, must either contain an arbitration clause
or must refer to a separate document signed by the parties containing the arbitration agreement.
The existence of an arbitration agreement can also be inferred by written correspondence such as
letters, talex, or telegrams which provide a record of the agreement. An exchange of statement of
claim and defence in which existence of an arbitration agreement is alleged by one party and not
denied by other is also considered as valid written arbitration agreement.

1 http://thelawdictionary.org/arbitration/, accessed on 18th November, 2016

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Any party to the dispute can start the process of appointing arbitrator and if the other party does
not cooperate, the party can approach the office of Chief Justice for appointment of an arbitrator.
There are only two grounds upon which a party can challenge the appointment of an arbitrator
reasonable doubt in the impartiality of the arbitrator and the lack of proper qualification of the
arbitrator as required by the arbitration agreement. A sole arbitrator or a panel of arbitrators so
appointed constitute the Arbitration Tribunal.

Except for some interim measures, there is very little scope for judicial intervention in the
arbitration process. The arbitration tribunal has jurisdiction over its own jurisdiction. Thus, if a
party wants to challenge the jurisdiction of the arbitration tribunal, it can do so only before the
tribunal itself. If the tribunal rejects the request, there is little the party can do except to approach
a court after the tribunal makes an award. Section 34 provides certain grounds upon which a
party can appeal to the principal civil court of original jurisdiction for setting aside the award.

Once the period for filing an appeal for setting aside an award is over, or if such an appeal is
rejected, the award is binding on the parties and is considered as a decree of the court.

There are various essentials of arbitration which are as follows:

Arbitration is consensual

The first and foremost element of process of arbitration is that it can only take place if both
parties have consented to it. In the case of future disputes arising under a contract, the parties
insert an arbitration clause in the relevant contract. An existing dispute can be referred to
arbitration by means of a submission agreement between the parties. In contrast to mediation, a
party cannot unilaterally withdraw from arbitration.

The parties choose the arbitrator(s)

Under the WIPO Arbitration Rules, the parties can select a sole arbitrator together 2. If they
choose to have a three-member arbitral tribunal, each party appoints one of the arbitrators; those
two persons then agree on the presiding arbitrator.3 Alternatively, the Center can suggest
2 Article 16 of WIPO Arbitration Rules

3 Article 17 of WIPO Arbitration Rules

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potential arbitrators with relevant expertise or directly appoint members of the arbitral tribunal.
The Center maintains an extensive roster of arbitrators ranging from seasoned dispute-resolution
generalists to highly specialized practitioners and experts covering the entire legal and technical
spectrum of intellectual property.

Arbitration is neutral

In addition to their selection of neutrals of appropriate nationality, parties are able to choose such
important elements as the applicable law, language and venue of the arbitration. This allows
them to ensure that no party enjoys a home court advantage.

Arbitration is a confidential procedure

The WIPO Rules specifically protect the confidentiality of the existence of the arbitration, any
disclosures made during that procedure, and the award. In certain circumstances, the WIPO
Rules allow a party to restrict access to trade secrets or other confidential information that is
submitted to the arbitral tribunal or to a confidentiality advisor to the tribunal.4

The decision of the arbitral tribunal is final and easy to enforce

Under the WIPO Rules, the parties agree to carry out the decision of the arbitral tribunal without
delay.5 International awards are enforced by national courts under the New York Convention,
which permits them to be set aside only in very limited circumstances. More than 140 States are
party to this Convention.

Elements of an Arbitration Agreement:

For an agreement to be considered as an arbitration agreement there must be:

An intention of the parties to settle their differences by a private tribunal.

Such Parties must agree in writing, to be bound by the decision of such tribunal.

4 Article 54 of WIPO Arbitration Rules

5 Article 36 of WIPO Arbitration Rules

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Parties must be ad-idem(consensual on the same point or effect)

The need for Arbitration

The Act of 1996 has defined arbitration in the following manner, Arbitration means any
arbitration whether or not administered by permanent arbitral institution.6

A fair, just and quick process of resolution of disputes is indispensable in any democratic society
becoming increasingly aware of their human and legal rights. The human and material resources
in Courts are inadequate to meet the ever growing demands, resulting in tremendous backlog of
cases and delay in the administration of justice. Our justice delivery system is bursting at the
seams and unless timely measures are adopted, for the quick disposal of cases, particularly at the
grass-roots it will lead to very dire consequences.

In certain disputes like financial matters involving the individuals, firms and even multinational
companies, they do not want to submit to the jurisdiction of the courts of obvious reasons of
delay, rigid procedural rules and provisions of appeals and revisions. The simple logic is that
both the parties are not interested in getting a proposition of law on any point laid down but they
are interested to settle their money matters and for that purpose they can even give up certain
claims which they are otherwise entitled to. One such method of dispute resolution is arbitration
governed in India by the Arbitration and Conciliation Act 1996.

Jurisdiction

In most legal systems, the arbitral tribunal is able to rule upon its own jurisdiction (often referred
to as the doctrine of "Kompetenz-Kompetenz" in international law). Briefly, this enables the
arbitral tribunal to determine for itself whether:

1. An arbitration agreement is valid,

2. Whether the tribunal has been properly constituted under applicable law, and

6 Section 2(a), Arbitration and Conciliation Act, 1996

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3. What matters are to be determined by the arbitration under the agreement.

The doctrine, although continental in origin, has been recognised at common law, and has now
been widely codified into national law.7

Extent Defined

Section 5 of the Act defines Extent of judicial intervention. Notwithstanding anything


contained in any other law for the time being in force, in matter governed by this Part, no judicial
authority shall intervene except where so provided in this Part.

In the case of The Empire Jute Co. Ltd. & Ors v. The Jute Corporation of India
Ltd. & Anr8, it was observed that in this section the courts have tried to
protect the sanctity of the section and the Supreme Court held that:

Superior Courts power of judicial review has wide amplitude but the same
should not be exercised when there exists an arbitration clause.

The Supreme Court in another case has held that High Court is justified in holding that photo
copies of lease agreements could be taken on record for ascertaining the existence of arbitration
clause. The Court should exercise power under Article 142 to meet the situations which cannot
be effectively and appropriately tackled by existing provisions of law.

The Apex Court however seems to have gone against the principle of sanctity of the arbitration
agreement when it held that "no party can be allowed to take advantage of inartistic drafting of
arbitration clause in any agreement as long as clear intention of parties to go for arbitration in
case of any future disputes is evident from the agreement and material on record including
surrounding circumstances."9
7 See for example, Article 16 of the UNCITRAL Model Law on International
Commercial Arbitration and section 30 of the Arbitration Act 1996 of the United
Kingdom.

8 [2007] SC1089

9 Voltas Ltd. v. M.P. Entertainment & Developers Pvt. Ltd.

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Background of Arbitration legislation:

The Indian law of arbitration is contained in the Arbitration and Conciliation Act 1996 (Act).1
The Act is based on the 1985 UNICITRAL Model Law on International Commercial Arbitration
and the UNCITRAL Arbitration Rules 1976. The Statement of Objects and Reasons of the Act
recognises that India's economic reforms will become effective only if the nation's dispute
resolution provisions are in tune with international regime. The Statement of Objects and
Reasons set forth the main objectives of the Act as follows:

i. to comprehensively cover international and commercial arbitration and conciliation as


also domestic arbitration and conciliation;

ii. to make provision for an arbitral procedure which is fair, efficient and capable of meeting
the needs of the specific arbitration;

iii. to provide that the arbitral tribunal gives reasons for its arbitral award;

iv. to ensure that the arbitral tribunal remains within the limits of its jurisdiction;

v. to minimise the supervisory role of courts in the arbitral process;

vi. to permit an arbitral tribunal to use mediation, conciliation or other procedures during the
arbitral proceedings to encourage settlement of disputes;

vii. to provide that every final arbitral award is enforced in the same manner as if it were a
decree of the court;

viii. 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 arbitral award on agreed terms on
the substance of the dispute rendered by an arbitral tribunal; and

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ix. 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."

General Principles and Objectives of Arbitration:

The main objectives which are sought to be fulfilled by Arbitration as a means of Alternate
Dispute Resolution are:

To facilitate a fair resolution of disputes by an impartial third party without unnecessary


expense or delay.

To lessen the huge backlog of pending cases in courts which in turn ensures speedy
delivery of justice to the parties, thus, fulfilling the paramount objective of Arbitration.

One of the primary objectives of Arbitration is to facilitate disputing parties, a complete


freedom for resolving their disputes, in a manner of their choice, subject only to such
safeguards as are necessary in public interest.

Avoiding courts interference in dispute resolution ,is another key feature of Arbitration

Types of Arbitration:

Arbitration may either be an adhoc or an institutional arbitration. While in case of an adhoc


arbitration, parties jointly select the arbitrator(s), to work out details of procedure, together with
arbitral tribunal, as and when a dispute arises.

However in instances where parties to dispute agree to employ, services of an arbitration


institution, it is termed as institutional arbitration.

As against Adhoc Arbitration, Institutional Arbitration has many advantages, more particularly
so, because it is conducted according to its own set of rules and procedures and is duly
supervised by a professionally trained staff, Thus chances of its procedural breakdown are quite
remote.

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Exceptional Circumstances Where a Dispute Cannot Be Referred To Arbitration:

Matrimonial matters ,like divorce or maintenance;

Insolvency matters like declaring a person as insolvent.

Criminal offences.

Dissolution or winding up of a company;

Questions as to genuineness or authenticity of a will: cannot be referred to arbitration


and such matters must be decided in accordance with, law dealing with probate of wills
under succession act.

Disputes outside the purview of contract: cannot be referred to arbitration, only courts
are competent to interpret a contract, where it is found that the dispute raised in a suit is
outside or independent of a contract. Then arbitration clause shall not encompass such an
issue.

Subject matter of arbitration:

Any commercial matter including an action in tort if it arises out of or relates to a contract can be
referred to arbitration. However, public policy would not permit matrimonial matters, criminal
proceedings, insolvency matters anti-competition matters or commercial court matters to be
referred to arbitration. Employment contracts also cannot be referred to arbitration but director -
company disputes are arbitrable (as there is no master servant relationship here). Generally,
matters covered by statutory reliefs through statutory tribunals would be non-arbitrable.

Role of the court:

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One of the fundamental features of the Act is that the role of the court has been minimised.
Accordingly, it is provided that any matter before a judicial authority containing an arbitration
agreement shall be referred to arbitration (Section 8 provided the non - applicant objects no later
than submitting its statement of defense on merits). Further, no judicial authority shall interfere,
except as provided for under the Act (Section 5).

In relation to arbitration proceedings, parties can approach the Court only for two purposes:

(a) for any interim measure of protection or injunction or for any appointment of receiver etc.6;
or

(b) for the appointment of an arbitrator in the event a party fails to appoint an arbitrator or if two
appointed arbitrators fail to agree upon the third arbitrator.

In such an event, in the case of domestic arbitration, the Chief Justice of a High Court may
appoint an arbitrator, and in the case of international commercial arbitration, the Chief Justice of
the Supreme Court of India may carry out the appointment7. A court of law can also be
approached if there is any controversy as to whether an arbitrator has been unable to perform his
functions or has failed to act without undue delay or there is a dispute on the same. In such an
event, the court may decide to terminate the mandate of the arbitrator and appoint a substitute
arbitrator.

Conduct of Arbitration proceedings:

The arbitrators are masters of their own procedure and subject to parties agreement, may conduct
the proceedings "in the manner they consider appropriate." This power includes- "the power to
determine the admissibility, relevance, materiality and weight of any evidence". 10 The only
restrain on them is that they shall treat the parties with equality and each party shall be given a
full opportunity to present his case,11 which includes sufficient advance notice of any hearing or

10 Section 19 (3) and (4)

11 Section 18

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meeting.12 Neither the Code of Civil Procedure nor the Indian Evidence Act applies to
arbitrations.13 Unless the parties agree otherwise, the tribunal shall decide whether to hold oral
hearings for the presentation of evidence or for arguments or whether the proceedings shall be
conducted on the basis of documents or other material alone. However the arbitral tribunal shall
hold oral hearings if a party so requests (unless the parties have agreed that no oral hearing shall
be held).14

Arbitrators have power to proceed exparte where the respondent, without sufficient cause, fails to
communicate his statement of defence or appear for an oral hearing or produce evidence.
However, in such situation the tribunal shall not treat the failure as an admission of the
allegations by the respondent and shall decide the matter on the evidence, if any, before it. If the
claimant fails to communicate his statement of the claim, the arbitral tribunal shall be entitled to
terminate the proceedings.15

Arbitral tribunal

An arbitral tribunal (or arbitration tribunal) is a panel of one or more adjudicators which is
convened and sits to resolve a dispute by way of arbitration. The tribunal may consist of a sole
arbitrator, or there may be two or more arbitrators, which might include either a chairman or
an umpire. The parties to a dispute are usually free to agree the number and composition of the
arbitral tribunal. In some legal systems, an arbitration clause which provides for two (or any
other even number) of arbitrators is understood to imply that the appointed arbitrators will select
an additional arbitrator as a chairman of the tribunal, to avoid deadlock arising. Different legal
systems differ as to how many arbitrators should constitute the tribunal if there is no agreement.16

Arbitral tribunals are usually constituted (appointed) in two types of proceedings:

12 Section 24 (2)

13 Section 19 of Act and Section 1 of the Evidence Act.

14 Section 24

15 Section 25

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ad hoc arbitration proceedings are those in which the arbitrators are appointed by the
parties without a supervising institution, relying instead on the procedural law and courts
of the place of arbitration to resolve any differences over the appointment, replacement,
or authority of any or all of the arbitrators; and

institutional arbitration proceedings are those in which the arbitrators are appointed under
the supervision of professional bodies providing arbitration services, such as the
American Arbitration Association (which conducts international proceedings through its
New York-based division, the ICDR), the LCIA in London or the ICC in Paris. Although
these institutions (and many others) are headquartered in their respective cities, they are
capable of supervising the appointment of arbitral tribunals in nearly any country,
avoiding the need for the parties to involve local courts and procedures in the event of
disagreement over the appointment, replacement, or authority of any or all of the
arbitrators.

Permanent tribunals tend to have their own rules and procedures, and tend to be much more
formal. They also tend to be more expensive, and, for procedural reasons, slower 17.(^ Under the
UNCITRAL Model Law on International Commercial Arbitration (adopted by various countries
around the world), the default number is three (Article 10(2)). However, some countries have
provided that the default number is one (see for example, section 1518.

Appointment

16 Under the UNCITRAL Model Law on International Commercial Arbitration


(adopted by various countries around the world), the default number is three
(Article 10(2)). However, some countries have provided that the default number is
one (see for example, section 15(2) of the Arbitration Act 1996 of the United
Kingdom.

17.Under the UNCITRAL Model Law on International Commercial Arbitration

18 of the Arbitration Act 1996 of the United Kingdom

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The parties are generally free to determine their own procedure for appointing the arbitrator or
arbitrators, including the procedure for the selection of an umpire or chairman. 19 If the parties
decline to specify the mode for selecting the arbitrators, then the relevant legal system will
usually provide a default selection process. Characteristically, appointments will usually be made
on the following basis:

If the tribunal is to consist of a sole arbitrator, the parties shall jointly appoint the arbitrator not
later than (for example) 28 days after service of a request in writing by either party to do so.

If the tribunal is to consist of three arbitrators:

1.each party shall appoint one arbitrator not later than (for example) 14 days after service of a
request in writing by either party to do so, and

2. the two so appointed shall forthwith appoint a third arbitrator as the chairman of the tribunal.

If the tribunal is to consist of two arbitrators and an umpire-

1. Each party shall appoint one arbitrator not later than (for example) 14 days after service of a
request in writing by either party to do so, and

2. The two so appointed may appoint an umpire at any time after they themselves are appointed
and shall do so before any substantive hearing or forthwith if they cannot agree on a matter
relating to the arbitration.

Most arbitration clauses will provide a nominated person or body to select a sole arbitrator if the
parties are unable to agree (for example, the President of the relevant jurisdiction's Bar
Association, or a recognised professional arbitration organisation such as the LCIA, or a relevant
professional organisation). In default of such a provision, where the parties are unable to agree,
an application for an appointment is usually made to the court.20

19 See for example, Article 11(2) of the UNCITRAL Model Law on International Commercial
Arbitration and section 16(1) of the Arbitration Act 1996 of the United Kingdom.

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A well drafted arbitration clause will also normally make provision for where a party to the
dispute seeks to cause delay by refusing to make or agree an appointment. Often this will allow
the "non-defaulting" party to appoint a sole arbitrator and for the arbitration to proceed on that
basis.21

Fees and expenses

The parties may make provision for the arbitrator's fees (although in some jurisdictions, whether
the parties are agreeing to submit an existing dispute to arbitration, they may not provide that
each party bears its own costs). However, the position may be different between, on the one
hand, as between the arbitrators and the parties, and on the other hand, as between the parties
themselves.

Although the parties may provide differently in the appointment of the arbitrator, the usual rule is
that the parties are jointly and severally liable for the arbitrator's fees. If the arbitrator is not paid,
then they may sue either or both parties for unpaid fees.22

In many jurisdictions, after making the award, the tribunal will order that the losing party pays
the legal costs of the winning party, and this may include the arbitrator's fees. However, this does
not affect the joint and several liability referred to above; but it does mean that the winning party
may maintain a separate action against the losing party for the unpaid costs, or to be reimbursed
for arbitrator's fees that the winning party has been forced to pay, but which the losing party was
ordered to pay.

Chairman and umpire

20 See for example, Article 11(3) of the UNCITRAL Model Law on International
Commercial Arbitration and section 18 of the Arbitration Act 1996 of the United
Kingdom.

21 Often reinforced by the law, see for example, section 17 of the Arbitration Act
1996 of the United Kingdom.

22 .^ In some jurisdictions this is mandatory, see for example section 28 of the


Arbitration Act 1996 of the United Kingdom

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Where the tribunal consists of an odd number of arbitrators, one of them may be designated as
the umpire or chairman. The selection of title actually carries some significance. When an
arbitrator is "chairman", then they will not usually exercise any special or additional powers, and
merely have a presidential function as the tribunal member who sets the agenda. 23 Where a
member of the tribunal is an umpire, they usually do not exercise any influence on proceedings,
unless the other arbitrators are unable to agree in such cases, then the umpire steps in and
makes the decision alone.

Arbitrator advocates

In some legal systems, it used to be common for each party to the dispute to appoint an arbitrator
and for those two arbitrators to appoint a third arbitrator (who may or may not be called an
umpire). However, the two arbitrators appointed by the parties to the dispute would essentially
act as advocates for the party who appointed them, and the umpire would effectively act as a sole
arbitrator. However, such systems can lead to difficulty, as other countries may be reluctant to
enforce an arbitration award where two of the three "arbitrators" are clearly unable to
demonstrate impartiality or independence. The standards for enforcing such awards are set out in
the New York Convention, as interpreted by local law.24

Removal

In most legal systems the parties are free to specify in what circumstances the appointment of an
arbitrator may be revoked. In default most legal systems provide either that

(i) the parties to the dispute must act jointly to remove an arbitrator, or
(ii) the other members of the arbitral tribunal must act to remove the arbitrator,
and/or
(iii) the court must act to remove an arbitrator. Most legal systems reserve a power
to the court to remove arbitrators who are unfit to act, or are not impartial.
23 Although in some cases the Chairman will have a casting vote if the tribunal is
unable to agree on a matter.

24See "New York Arbitration". CMS Legal.Retrieved 21 May 2012.

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Resignation

It is generally accepted that one cannot force a person to continue as an arbitrator against their
will, and arbitrators may resign if they are unwilling to proceed with the arbitration. Where the
arbitrator becomes aware of facts that might be seen to affect his or her impartiality, they are
often under a duty to resign. The parties are generally free to agree with the arbitrator what
should happen with respect to (i) the arbitrator's fees, and

(ii) any liability of the arbitrator (such as wasted costs), if the arbitrator should resign, with or
without cause.

Death

The authority of an arbitrator is personal, and an appointment ceases upon death.Unless the
parties have otherwise provided, the death of a party does not usually revoke the appointment of
any arbitrator appointed by the deceased, and any agreement relating to the appointment is
enforceable in the usual way against the personal representatives of the deceased.

Hearing

An "arbitration hearing" can be either procedural or evidentiary. As in court systems, a


"procedural hearing" focuses exclusively on how the proceedings are to be conducted. By
contrast, an "evidentiary hearing" is the equivalent to what in the courts of many countries would
be called a trial, with the presentation of evidence in the form of documents and witnesses.
Although evidentiary hearings are generally available as a means to assist the arbitral tribunal in
deciding contested factual issues, arbitration rules do not usually require them and leave the
means of decided disputed factual issues to the discretion of the tribunal. Many decisions of
arbitral tribunals are made without any hearing at all.

Where it may be appropriate to do so, arbitral tribunals can make decisions solely upon
documentary evidence, which may or may not be accompanied by witness statements, which in
the US are referred to as affidavits. Witness statements represent the testimony a witness would

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give if called to testify, and on which the witness is subject to questioning by the arbitral tribunal
and, at times, cross examination by the other party.

Specific types of arbitration, for example, may rely exclusively on documents to decide disputes,
such as in the growing field of online dispute resolution. In addition, some organizations, may
specifically provide provide as part of their organizational bylaws or standard terms and
conditions that disputes shall be arbitrated without an oral hearing and upon documentary
evidence only, an example being certain trade associations, such as GAFTA.

Duties

The duties of a tribunal will be determined by a combination of the provisions of the arbitration
agreement and by the procedural laws which apply in the seat of the arbitration. The extent to
which the laws of the seat of the arbitration permit "party autonomy" (the ability of the parties to
set out their own procedures and regulations) determines the interplay between the two.

However, in almost all countries the tribunal owes several non-derogable duties. These will
normally be:

To act fairly and impartially between the parties, and to allow each party a reasonable
opportunity to put their case and to deal with the case of their opponent (sometimes
shortened to: complying with the rules of "natural justice"25 and
To adopt procedures suitable to the circumstances of the particular case, so as to provide
a fair means for resolution of the dispute.26

Procedure
25 See for example Article 18 of the UNCITRAL Model Law on International
Commercial Arbitration

26 For example, in England these are codified in section 33 of the Arbitration Act 1996

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Matters of procedure are normally determined either by the law of the seat of the arbitration, or
by the tribunal itself under its own inherent jurisdiction (depending on national law). Procedural
matters normally include:

Mode of submitting (and challenging) evidence


Time and place of the hearing
Language and translations
Disclosure of documents and other evidence
Use of pleadings and/or interrogatories
Use of legal advisors
The appointment of experts and assessors

Appeal

Provisions relating to appeals vary widely between different jurisdictions, but most legal systems
recognise that the right to appeal (or, technically, the right to seek to set aside) an award in an
arbitration should be limited.

Usually such challenges are made on one of two bases:

1. That the tribunal did not have substantive jurisdiction to determine the matter; or

2. There was a serious irregularity on the part of the tribunal. Examples of serious irregularities
may include:

i. failure of the tribunal to act in accordance with the rules of natural justice, or allowing a
fair hearing;
ii. The tribunal exceeding its powers (other than by exceeding its jurisdiction);
iii. Failure of the tribunal to conduct proceedings in accordance with the procedure agreed by
the parties;
iv. Failure of the tribunal to deal with all the issues put to it for resolution;
v. Uncertainty or ambiguity as to the effect of the award;
vi. The award being procured by fraud, or otherwise being procured in a way contrary to
public policy;

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vii. Failure to comply with the requirements for the form of the award (e.g. in writing or in a
specific language);
viii. Irregularities in the conduct of the proceedings.

In some jurisdictions it is also possible to appeal against an award on a point of law, however,
such appeals normally require either the permission of the other parties, or the leave of the
court.27

Competence of Arbitral Tribunal to rule on its own Jurisdiction

There are an estimated 30 million cases pending in various courts in the country. And in this
backdrop, Alternate Dispute Resolution (ADR) is today more preferred by businesses.
Considering the speed and comparative low cost, ADR is meant to be far superior to a black
letter law. This project may deals with a crucial aspect of Arbitral Tribunal.

Jurisdiction of the Arbitrator:

The Act provides that the arbitral tribunal may rule on its own jurisdiction, including any
objections with respect to the existence or validity of the arbitration agreement. The arbitration
agreement shall be deemed to be independent of the contract containing the arbitration clause,
and invalidity of the contract shall not render the arbitration agreement void. Hence, the
arbitrators shall have jurisdiction even if the contract in which the arbitration agreement is
contained is vitiated by fraud and/or any other legal infirmity. Further, any objection as to
jurisdiction of the arbitrators should be raised by as party at the first instance, i.e., either prior to
or along with the filing of the statement of defence. If the plea of jurisdiction is rejected, the
arbitrators can proceed with the arbitration and make the arbitral award. Any party aggrieved by

27 See for example section 69 of the Arbitration Act 1996 of the United Kingdom

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such an award may apply for having it set aside under Section 34 of the Act. Hence, the scheme
is that, in the first instance, the objections are to be taken up by the arbitral tribunal and in the
event of an adverse order, it is open to the aggrieved party to challenge the award.

In SBP & Co. v. Patel Engg Ltd .28 the Supreme Court of India (in a decision rendered by a
Bench of Seven Judges) held that the nature of power conferred on the Court under Section 11 of
the Act is judicial (and not administrative) in nature. Accordingly, if parties approach the Court
for appointment of arbitral tribunal (under Section 11) and the Chief Justice pronounces that he
has jurisdiction to appoint an arbitrator or that there is an arbitration agreement between the
parties or that there is a live and subsisting dispute to be referred to arbitration and the Court
constitutes the Tribunal as envisaged, this would be binding and cannot be re-agitated by the
parties before the arbitral tribunal.

In S.B.P & Co. case the Supreme Court has defined what exactly the Chief Justice, approached
with an application under Section 11 of the Act, is to decide at that stage. The Chief Justice has
the power to decide his own jurisdiction in the sense whether the party making the motion has
approached the right court. He has to decide whether there is an arbitration agreement, as defined
in the Act and whether the person who has made the request before him, is a party to such an
agreement. He can also decide the question whether the claim was a dead one; or a long-barred
claim that was sought to be resurrected and whether the parties have concluded the transaction
by recording satisfaction of their mutual rights and obligations or by receiving the final payment
without objection.

The Court in SBP & Co case, inter alia, concluded as follows:

(i) The power exercised by the Chief Justice of the High Court or the Chief Justice of India under
Section 11(6) of the Act is not an administrative power. It is a judicial power.

(ii) The power under Section 11(6) of the Act, in its entirety, could be delegated, by the Chief
Justice of the High Court only to another Judge of that Court and by the Chief Justice of India to
another Judge of the Supreme Court.

28 (2005) 8 SCC 618

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(iii) In case of designation of a Judge of the High Court or of the Supreme Court, the power that
is exercised by the designated Judge would be that of the Chief Justice as conferred by the
statute.

(iv) The Chief Justice or the designated Judge will have the right to decide the preliminary
aspects as indicated in the judgment. These will be, his own jurisdiction to entertain the request,
the existence of a valid arbitration agreement, the existence or otherwise of a live claim, the
existence of the condition for the exercise of his power and on the qualifications of the arbitrator
or arbitrators. The Chief Justice or the designated Judge would be entitled to seek the opinion of
an institution in the matter of nominating an arbitrator qualified in terms of Section 11(8) of the
Act if the need arises but the order appointing the arbitrator could only be that of the Chief
Justice or the designated Judge.

(v) The District Judge does not have the authority under Section 11(6) of the Act to make
appointment of an arbitrator.

(vi) The High Court cannot interfere with the orders passed by the arbitrator or the Arbitral
Tribunal during the course of the arbitration proceedings and the parties could approach the
Court only in terms of Section 37 of the Act (appealable orders) or in terms of Section 34 of the
Act (setting aside or arbitral award).

(vii) Since it is a judicial order, an appeal will lie against the order passed by the Chief Justice of
the High Court or by the designated Judge of that Court only under Article 136 of the
Constitution to the Supreme Court.

(viii) No appeal shall lie against an order of the Chief Justice of India or a Judge of the Supreme
Court designated by him while entertaining an application under Section 11(6) of the Act.

(ix) Where an Arbitral Tribunal has been constituted by the parties without having recourse to
Section 11(6) of the Act, the Arbitral Tribunal will have the jurisdiction to decide all matters as
contemplated by Section 16 of the Act.

Procedure for determination of the arbitrators jurisdiction

Time-limit for the pleas as to the lack of jurisdiction

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Although arbitrators have authority to rule on their jurisdiction, they cannot do it on their own
initiative. A plea as to the lack of jurisdiction has to be submitted by the respondent in due time
under Art.16(2) not later than the statement of defence. Belated objections regularly cannot be
taken into account, as the lack of objection has to be construed as the waiver of the right to object
and conclusion of a valid arbitration agreement. Still, the arbitrators have the right to admit the
plea if the delay in their submission is considered justified.

Under one reported case, it seems that the court held that the plea has to be sufficiently
substantiated: an allegation that arbitration agreement does not exist because the party was not
successor to the main contract was held to be a substantive defence that precluded later
procedural objections as to the jurisdiction.

Challenge to arbitrator:

An arbitrator may be challenged only in two situations. First, if circumstances exists that give
rise to justifiable grounds as to his independence or impartiality; second, if he does not possess
the qualifications agreed to by the parties. A challenge is required to be made within 15 days of
the petitioner becoming aware of the constitution of the arbitral tribunal or of the circumstances
furnishing grounds for challenge. Further, subject to the parties agreement, it is the arbitral
tribunal (and not the court - unlike under the old Act of 1940) which shall decide on the
challenge. If the challenge is not successful the tribunal shall continue with the arbitral
proceedings and render the award, which can be challenged by an aggrieved party at that stage.
This is another significant departure from the Model Law, which envisages recourse to a court of
law in the event the arbitral tribunal rejects the challenge.29

The Indian courts have held that "the apprehension of bias must be judged from a healthy,
reasonable and average point of view and not on mere apprehension of any whimsical person.

29 Article 13 of Model Law

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Vague suspicions of whimsical, capricious and unreasonable people are not our standard to
regulate our vision."30

Effect of the lack of objection in the arbitral proceedings

The courts had an opportunity to evaluate the effect of lack of objections as to the jurisdiction of
the tribunal in the arbitral proceedings on subsequent setting aside proceedings. A German court
held that a party regularly loses its right to raise the lack or invalidity of the arbitration
agreement in the setting aside proceedings if there was no objection to jurisdiction in the arbitral
proceedings. As stated by the same court, failure to raise this objection amounts to conclusion of
the new arbitration agreement by passive behaviour of the party. This seems to be a generally
accepted position, both under MAL Rules and under some national arbitration laws.

However, the courts in various jurisdictions had expressed diverging views as to the
consequences of cases in which objection to jurisdiction was raised in the arbitral proceedings,
but the preliminary decision of arbitrators was not attacked under MAL 16(3) before the
competent court. In one Singapore case, the court held that a party was not prevented from
submitting an application for the setting aside of the award on the basis of lack of jurisdiction
simply because the party did not challenge arbitral decision on jurisdiction under para.(3) before
a competent court. German courts, on the contrary, held that this was a necessary prerequisite for
the successful raising of this ground in setting aside proceedings.

Ruling on the jurisdiction by arbitrators: Preliminary decision or part of the Final award

It seems that there were no controversies regarding the recognition of arbitrators discretionary
powers to decide whether they would rule on jurisdiction in a separate ruling, or in the final
award. As to the consequences of such decision, one court held that decision to postpone the
ruling on jurisdiction until the final award cannot be attacked, but that in such a case only setting
aside proceedings could review whether the arbitrators erred in finding that they are competent to
decide.

If the arbitral tribunal decides on the issue of jurisdiction as a preliminary question, and
concludes that it has jurisdiction, this ruling may be subject to challenge under MAL 16(3).

30 International Airports Authority of India v. K.D. Bali &Anr; (1988) 2 SCC 360.

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Regularly, the competent authority will be a state court. However, in some jurisdictions that is
not necessarily so. For example in Croatiawhose Law on Arbitration departs slightly from the
text of the MAL in respect of designation of authority from MAL 6parties may by their
agreement transfer the authority to control separate decisions on jurisdiction to some other
authority. Thus, Croatian courts have already confirmed that the arbitration rules of an
institutional arbitration institution may replace court control with some other controlling
mechanism (e.g. with the decision of the president of the arbitral institution).

The time-limit for the application to the court is 30 days from the date when the party has
received notice of the ruling of the arbitral tribunal. As to this time-limit, a German court held
that an application was launched in due time if it was submitted to a court within the 30-day
period, notwithstanding the fact that the court to which the application was filed was not
competent.

One potentially controversial decision dealt with the consequences of the form of the preliminary
ruling by which arbitrators assert their jurisdiction. The MAL does not determine in which form
the arbitrators should decide on jurisdiction as a preliminary issue.

In procedural theory, it should be taken for granted that such a decision is of a procedural and not
a substantive nature. From that, it would follow that the arbitrators may issue it only in the form
of a procedural order. However, in some jurisdictions, such decisions are being taken in the form
of arbitral awards as well.

Diverging judicial opinions as to the effect of designation of the decision on jurisdiction as


arbitral award on jurisdiction are noted. High German juridical authorities, while noting strong
and influential voices in the doctrine that such decisions cannot be regarded as arbitral awards,
since there are no procedural arbitral awards, have finally decided that such decisions can take
the form of arbitral award, and even be attacked in setting aside proceedings. In these cases,
however, the German courts dealt only with the preliminary decision in which the arbitrators
have declined their jurisdiction.

The view that a decision made under MAL 16(3) can take form of the award was also taken by a
Bermuda court, yet with even more far-reaching consequences. That court found that, if the
preliminary decision on jurisdiction was issued in the form of an award, it might be challenged in

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separate setting-aside proceedings, even if the party successfully challenged the ruling in
accordance with the procedure set out in Art.16(3). This particular decision opens a number of
issues, including those relating to duplication of work, possible diverging decisions, applicability
of the grounds from Art.34 MAL, etc.

Another interesting opinion on the possibility of review-ing arbitral decisions on jurisdiction was
expressed in a recent Croatian case, where the Constitutional Court, changing its previous case
law, held that it can control the arbitral ruling that declined jurisdic-tion on the basis of an
alleged breach of the right to access to an efficient dispute-resolution mechanism. Again, the
decision was controversial: it was issued with several dissenting opinions and criticised in the
doctrine.

Jurisdiction

Jurisdiction (from the Latin ius, iuris meaning "law" and dicere meaning "to speak") is the
practical authority granted to a formally constituted legal body or to a political leader to deal
with and make pronouncements on legal matters and, by implication, to administer justice within
a defined area of responsibility. The term is also used to denote the geographical area or subject-
matter to which such authority applies.

General Introduction:

In all walks of life, it is usual to come across disputes, more so in business dealings. In olden
days informal system of Arbitration existed in the shape of Panchayats. The Father of Nation
Mahatma Gandhi was also a staunch believer of arbitral process for resolving the problems in
our predominantly rural society at affordable costs via Panchayat Raj. The word Arbitration
appears to have originated from the word arbitrary. The parties involved in the disputes refer
them to a peer who is supposed to be a person of nobility having capability to resolve the

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disputes. There are an estimated 30 million cases pending in various courts in the country. The
criticism against the justice delivery system is continuous and we keep on hearing related phrases
like Back Breaking delay, Elusive Justice, and System on the verge of brink. Arbitration
system is a means to provide n easy and expedient mechanism for dispute resolution without the
need of resorting to a long drawn litigation. This is meant to be Justice without law. It is meant to
be far superior to a black letter law. Arbitration seeks to remove blockade caused by chocking
legal pollution. Arbitration started as a delegalization reform to resolve conflict with mutual love
and trust.

Even late Shri Nani Palkhiwala remarked succinctly, If I were appointed a dictator of this
country, in the short span of my appointment and assassination, I would promulgate a law
making all commercial disputes compulsorily referable to arbitration. With the long British
Rule in India, we had two enactments for Arbitration, viz. the Act of 1899 and 1940.After
independence of India, it was observed that the Act of 1940 has outlived its utility and was not in
line with economic reforms introduced in India. Hence, the Arbitration and Conciliation Act,
1996 came into force on 25th March, 1996.

In the PREAMBLE of the Act, it stated that, Whereas the United Nations Commission on
International Trade law has adopted the UNCITRAL Model Law on International Commercial
Arbitration in 1985; and whereas the General Assembly of the United Nations has recommended
that all countries give due consideration to the said Model Law, in view of the desirability of
uniformity of the law of arbitral procedures and the specific needs of international commercial
arbitration practice; AND WHEREAS the UNCITRAL has adopted the UNCITRAL Conciliation
Rules in 1980; AND WHEREAS the General Assembly of the UnitedNations has recommended
the use of the said Rules in cases where a dispute arises in the context of international
commercial relations and the parties seek on amicable settlement of that dispute by recourse to
conciliation; AND WHEREAS the said Model Law and Rules make significant contribution to
the establishment of a unified legal framework for the fairand efficient settlement of disputes
arising in international commercial relations; AND WHEREAS it is expedient to make law
respecting arbitration and conciliation, taking into account the aforesaid Model Law and Rules;
For the first time a novel provision has been introduced under section 16.

This section 16 provides that:

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(1)The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections,
with respect to the existence or validity of the arbitration agreement, and for that :

(a) an arbitration clause which forms part of a contract shall be treated as an agreement
independent of the terms of the contract; and

(b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure
the invalidity of the arbitration clause.

(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the
submission of the statement of defence; however, a party shall not be precluded from raising
such a plea merely because that he has appointed, or participated in the appointment of, an
arbitrator. A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as
soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral
proceedings. The arbitral tribunal may, in either case, admit a later plea if it considers the delay
justified.

(3) A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon
as the matter alleged to be beyond the scope of its authority is raised during the arbitral
proceedings.

(4) The arbitral tribunal may, in either of the cases referred to in sub-section (2) or sub-section
(3), admit a later plea if it considers the delay justified.

(5) The arbitral tribunal shall decide on a plea referred to in sub-section (2) of sub-section

(3) and, where the arbitral tribunal takes a decision rejecting the plea, continue with the arbitral
proceedings and make an arbitral award.

(6) A party aggrieved by such an arbitral award may make an application for setting aside such
an arbitral award in accordance with section 34.Before filing statement of defence, a party can
challenge jurisdiction of Arbitral Tribunal, which it is bound to decide.

(7) The arbitral tribunal may rule on a plea either as a preliminary question or in an award on the
merits. If the arbitral tribunal rules as a preliminary question that it has jurisdiction, any party
may request, within thirty days after having received notice of that ruling, the court specified in

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article 6 to decide the matter, which decision shall be subject to no appeal; while such a request
is pending, the arbitral tribunal may continue the arbitral proceedings and make an award.

Today, the right of the arbitrators to rule on their own jurisdiction is an almost fully
uncontroversial part of the well-established doctrine and practice in international arbitration. The
provision of Art.16 MAL in its basic idea now really reflects the globally harmonised approach
to the issue universally called Kompetenz Kompetenz. Practically all countries recognise the right
of the tribunal to decide on their jurisdiction, subject to the subsequent court control. This is also
demonstrated by some 20 cases collected in CLOUT, which all, without exception, assert the
right of arbitrators to rule on their own jurisdiction.Yet, in certain details, the law is still different,
even in the countries that have adopted the MAL.

There is now a wide consensus that the arbitral tribunal has the power to rule on all aspects of
its own jurisdiction. Reported decisions have showed that the courts recognise the right of the
arbitral tribunal to determine:

whether arbitration agreement exists between the parties.


whether the matter in dispute comes within the scope of the arbitration agreement.
what is the proper interpretation of the arbitration agreement.
whether the arbitration agreement is valid or was terminated.

It is manifest and goes without saying that the arbitrator being a creature of the agreement, must
operate within the four corners of the said agreement and cannot travel beyond the same. This
power u/s 16 is unique in the Act. Now the Act itself provides that the arbitral tribunal can rule
on its jurisdiction. It is axiomatic that no ruling can be given only after hearing both the parties.
If the challenge succeeds, the appeal lies u/s 37[2][a]. If the challenge is rejected, the same can
be challenged u/s 34[2][a][v] of the Act.

The language employed u/s 16 of the Act clearly shows that the said provision is only an
enabling one conferring the requisite powers on the Arbitral Tribunal to decide whether there is
any existence of clause in the arbitration agreement. However, mere attendance on earlier dates
in the arbitral proceedings does not debar the party from raising objections only if statement of
defense is yet not filed. In case of illegal contract, the parties by acquiescence cannot confer

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jurisdiction on court. When the question is raised about non-existence or invalidity of the
arbitration agreement, the arbitral tribunal is bound to decide. Arbitration clause contained in the
agreement being an integral part of the same, would automatically perish if that agreement itself
were non-est. An admitted liability can be no ground for arbitration since it is devoid of dispute.

Ordinarily the courts do not interpret an arbitration agreement by applying strict rules of
construction, which are normally applied to a conveyance and other formal documents. In such
cases, it is necessary to apply a common sense approach and not be allowed to be thwarted by a
narrow pedantic or too legalistic view. Arbitrability is certainly an issue, which can be objected
to by the party. The Chapter IV of the Act is titled as Jurisdiction of the Arbitral Tribunals.
Under that chapter, Section 16 is enacted which bears the title Competence of Arbitral Tribunal
to rule on its own Jurisdiction.

The Arbitral Tribunal is now empowered under the new Act to rule on its own jurisdiction,
including ruling on any objections with respect to existence or validity of the Arbitration
Agreements.

The party can now contest that; the Arbitral Tribunal is lacking the powers necessary to
adjudicate upon this reference. A procedure laid down in Section 16 of the Arbitration and
Conciliation Act, 1996 cannot be bypassed, as all the parties to the reference are duly clothed
with the inherent rights to object to the jurisdiction, domain, precincts, confines, portal,
boundaries, realm of the Arbitral Tribunal and its authority. The Arbitration and Conciliation Act,
1996 mandates that prior to assumption of the jurisdiction, the plea u/s 16 shall be decided as it
strikes at very authority.

The Arbitral Tribunal cannot acquire, possess and get seized of the jurisdiction when the claim
has become time barred. The contention goes to the very root of the jurisdiction of the Arbitral
Tribunal, when the Arbitral Tribunal suffers from inherent want of the jurisdiction because of
Time barred claim. Consequently, the jurisdiction is taken away. The party can advertthe
attention of the arbitrator to the foundation or substratum or bedrock or the jurisdictional facts
necessary for conferring of or vesting in the jurisdiction to this Arbitral Tribunal by making an
averment that a claim has to be within the framework of the Byelaws of the NSE. This is sine
qua non for giving the jurisdiction to the Arbitral Tribunal in the reference. Apropos the ratio of

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judgments heavily relied upon by the party it should be noted that any judgments and orders of
courts cannot be construed or interpreted like acts of parliament or as mathematical theorems.
The concluding words alone cannot be blindly applied de hors the actual findings and directions
contained in the judgments.

On the other hand, the averments of the party are not sufficient to clothe the Arbitral Tribunal
with the jurisdiction necessary to initiate this reference. Be that as it may, there ought to be merit
in the contentions advanced by the party. It is a well-settled proposition that a proceeding is a
nullity when the authority conducting it has no power to have seisinover the reference.

The Arbitral Tribunal ought to be fortified by the arguments advanced and the plea raised by the
party ought to be quite tenable and sustainable in the eyes of law. The Arbitral Tribunal must be
persuaded to accede to the submissions and then only accordingly uphold the preliminary
objection for interdiction at the very threshold. There must be a clear-cut case to prove that the
reference is totally devoid of the jurisdiction, dominion and portal. The Limitation Act, 1963
applies to the Arbitration and Conciliation Act, 1996. The law does not help one who sleeps
over his rights to the alleged claim. Delay defeats Justice and equity adds only promptitude and
resultant consequences. Defaulting party should bear the hardship of his own default in lodging
the time barred claims and ought not transmit the hardship to the other party after the impugned
claim is allowed to be time barred.

U/S 16(5) of the Act, the Arbitral Tribunal shall pass an order whenever, a plea is raised u/s
16(2). Section 16 is undoubtedly an enabling Section. Under the circumstances, the Arbitral
Tribunal ought to refuse to deal with the matter at all, if it comes to a conclusion that, it has no
jurisdiction to deal with the matter in this reference.

Thus when the alleged dispute is not Arbitrable and falls outside the purview of the Honourable
Arbitral Tribunal because the claim travels beyond the time barred jurisdiction and no
jurisdiction can be arrogated in such a case. Although the decision u/s 16 is not award, it is
always a good practice to record reasoning u/s 31[3] so that the same can form part of final
award and shall enable all parties to convince the court to translate the logic behind the same
when put to challenge u/s 34.Section 16(2) in The Arbitration And Conciliation Act, 1996

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A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the
submission of the statement of defence; however, a party shall not be precluded from raising
such a pica merely because that he has appointed, or participated in the appointment of, an
arbitrator. The order embodying the decision u/s 16(5) pursuant to the application u/s 16(2) is
not an interim award. As was held

In the case of Uttam Singh v. Hindustan Steel 31,even the Honourable High Court having
Judicature at Bombay had also an occasion to substantiate this ratio in a recent case wherein they
refused to treat that as an Interim Award and hence not challengeable u/s 34 of the Act. When a
party raises a preliminary issue to be decided in priority, the Arbitral tribunal cannot proceed
with the merits without passing a speaking order u/s 16(5) r.w.s. 16(2) of the Act.

The above view is held in the case of Southern Gas Ltd v. Visveswariya Iron & Steel Ltd 32 by
the Apex Court of India, which is binding on all the authorities functioning there under. In the
case of Premier Fabricators v. Heavy Engineering Corp.33 ,the Supreme Court held:

Where the Arbitrator was required to decide in the first place with reasons the question of
Arbitrability, but he gave a composite award consisting of a lump sum, it was held that the whole
award was vitiated because it could not be said that the question of Arbitrability was considered
as implication.

Thus, the importance of preliminary issue was clearly upheld by the Apex Court also in the case
of T. N Electricity v. Bridge Tunnel Constructions34:

However, it would be wrong to assume that this power given to arbitrator precludes the Chief
Justice or his designate to decide a question as to the existence of arbitration clause u/s 11.

31 AIR 206 MP 1982

32 9 SCC 555

33 4 SCC 319

34 4 SCC 121

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In the case of Perfect Equipment Pvt. Ltd v. Prestige Enterprises35 it was held that,

Even if agency agreement [containing Arbitration clause] is terminated, respondent is entitled


to refer dispute to Arbitration u/s 16(1)(a) and after agreeing to appointment of an Arbitrator,
the petitioner cannot complain that respondent should have first right to resolve dispute
amicably.

In the case of D-Ionic India Pvt. Ltd. v. State of Rajasthan36 it was held that,

Section 16 confers power upon arbitrator to rule on its own jurisdiction including any objection
with respect to existence or validity of Arbitration Agreement.

Even though the contract may be void, the Arbitral clause has to be considered as an independent
agreement and will not suffer the consequences of being void. Hence it will be open to the
Arbitral Tribunal to decide the issue of validness of the contract while considering the dispute
under the arbitral clause.

In the case of Pharmaceutical Products of India Ltd. v. Tata Finance Ltd. 37, the Bombay
High Court held that,

A decision on a question whether proceedings before arbitrators should be stayed or not cannot
be subject matter of a final arbitral award, not even an interim award. It would be simply a
decision u/s 16.

In the case of East Coast Boat Builders38, it was held that,

Where the jurisdiction of an arbitrator is challenged, and the arbitrator rejects it, his decision is
not appealable. It is not an interim award.

35 44 SCL 74 (MUM)

36 44 SCL 67 (Del)

37 41SCL 259

38 AIR 1999 DEL 44

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Normally the power of granting specific performance is discretionary and the discretion has
been conferred by Specific Relief Act only on civil courts. Merely because the sections of the
Specific Relief confer discretion on courts to grant specific performance of a contract does not
mean that parties cannot agree that the discretion will be exercised by arbitral tribunal of their
choice.

Court clarified jurisdiction of arbitral tribunal in relation to scope of contract

In Oil and Natural Gas Corporation v Wig Brothers Builders and Engineers Pvt. Ltd., 39
Supreme Court reaffirmed the principle that, pending adjudication before it, an arbitral tribunal
cannot go beyond the scope of the contract. The court held that in the event that any arbitral
award is found to violate the express provision contained in the contract which is the subject
matter of the proceeding, such award will be beyond the tribunal's jurisdiction and thus merit
interference. In the present case the arbitrator, while passing his award, overlooked a clause of
the contract which imposed a specific bar on the award of any compensation for any act which
led to a delay in the execution of the work, and awarded damages for a delay in completion of
the work. The Supreme Court set aside the award to the extent that the arbitrator had proceeded
in manifest disregard of the express terms of the contract.

Facts

The appellant entrusted a construction job to the respondent under a contract dated October 11
1983. Clause 25 of the contract provided for the settlement of disputes by arbitration. Certain
disputes arose between the parties and the parties were referred to a sole arbitrator under the
contract. Several claims and counterclaims were made, and the arbitrator held, among other
things, that the delay in completion of the work was due to the fault of both the appellant and the
respondent contractor, and that both were equally liable for the delay. Accordingly, the arbitrator
awarded damages against the appellant for the loss incurred on account of the delay in
completion of the contract, which was attributable to the appellant.

39 2009 (2) Arb.LR

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The appellant challenged the award by filing a petition under Sections 30 and 33 of the
Arbitration Act 1940. The civil court dismissed the petition and made the award rule of the court.
On appeal, the High Court upheld the judgment of the civil court. Aggrieved by the above
decision, the appellant challenged the arbitrator's award before the Supreme Court, insofar as he
had awarded compensation for the delay in completion of the contract on account of the
appellant's failure to perform its contractual obligations under the first claim.

Decision

The Supreme Court allowed the appeal and held that the arbitrator had exceeded his jurisdiction
by awarding damages against the appellant while ignoring the express bar contained in Clause
5A of the contract. This clause specifically barred any claim for damages and provided for a time
extension for the completion of work in case delay was caused by any act of the appellant in the
execution of the work.

While considering the matter before it, the court reiterated the following well-settled principles:

The court does not examine the award as an appellate court. It will not re-examine the
material on record.

An award is not open to challenge on the grounds that the arbitrator reached a wrong
conclusion or failed to appreciate some facts.

If an error is apparent on the face of the award, or there is misconduct on the part of the
arbitrator or legal misconduct in conducting the proceedings or in making the award, the
court will interfere with the award.

While allowing the appeal, the court referred to and relied on several judgments. It observed that
it had already been established in earlier decisions that:

"the arbitrator is the creature of the contract between the parties and hence if he ignores the
specific terms of the contract, it would be a question of jurisdictional error which could be
corrected by the court and for that limited purpose, agreement is required to be considered.
Therefore, the arbitrator cannot award an amount which is ruled out or prohibited by the terms
of the agreement."

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The Supreme Court observed that in Ramnath International Construction (P) Ltd v Union of
India, it had considered a similar situation wherein the contract contained a clause which
provided a clear bar to any claim for compensation for delays, in respect of which extensions had
been sought and obtained. The court held that:

"such a clause amounts to a specific consent by the contractor to accept extension of time alone
in satisfaction of claims for delay and not to claim any compensation; and that in view of such a
bar contained in the contract in regard to award of damages on account of delay, if an arbitrator
awards compensation, he would be exceeding his jurisdiction."

In view of the above, the appeal was allowed in part and the court concluded that the arbitrator
had exceeded his jurisdiction by awarding damages and ignoring the express bar contained in the
contract. The court observed that:

"in the event of the work being delayed for whatsoever reason, the Respondent will only be
entitled to extension of time for completion of work but will not be entitled to compensation or
damages."

With regard to the other claims, the award was not disturbed and the judgment of the lower
courts was affirmed.

Conclusion

The Parliament has enacted the Arbitration and Conciliation Act with a view to provide speedy
remedy by arbitration and to achieve this objective, section 5 of the Act puts a complete bar on
the intervention of the courts matter where there exists an arbitration clause. It is relevant to
mention that prior to coming into force of the Act, the Arbitration Act, 1940 was the law in the
force relating to arbitration and section 34 of the repealed Act being para materia to section 5 of
the Act also provided that in respect to matter covered by arbitration proceeding in a court were
not maintainable. However, the language used in section 5 of the Act is more stringent and
unequivocal insofar as the bar to the jurisdiction of any judicial authority is concerned. Whereas
in section 34 of the 1940 Act only civil suits were practically barred as would be clear from the
language used in section 5 of the Act, every judicial authority has been barred from intervening

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in respect of a matter which is governed by Part-I of the Act. Arbitration is a sum of many parts.
There are benefits and costs and the reminder that one is incomplete without the other. As things
stand today, arbitration is poised to effect great changes to the ways in which dispute resolution
is conducted. It brings with it the solemnity and finality of the judicial process and couples it
with the procedural flexibilities of non-conventional dispute resolution methods. There is,
however, an equally pressing need to recognize that much more can and should be done to
improve the conduct of arbitral proceedings in India but most importantly, we, the researchers,
feel that there is a need to effect a change in perceptions. As our nation moves towards increasing
litigiousness, alternative methods of dispute resolution might just provide the key to resolving
the problems of overburdened case loads, long pendency of cases and an all too frequent case of
justice delayed. For long, the problem plaguing the effective implementation of ADR methods
has been their perception as being subordinate to the court process- a perception shared and
fostered by lawyers and people alike. It is imperative, that this be changed and this can only be
achieved if there is active engagement from all the stakeholders in this process. Certainly, there
are some disputes inherently unsuited for alternative channels but there are so many more which
fit perfectly within the vision envisaged for if a system of rendering justice that runs concurrent
to the Courts. At the end of the day, what should take precedence is the provision of justice, in
substance more than in form. As our country grows and flowers, taking wing on issues
unimagined before, it is time also for our dispute resolution systems, the undisputed backbone of
our nation, to follow suit.

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