Deposits, Lien, Death, Insolvency, Jurisdiction, Confidentiality and Limitation

Section 39(4): the Court may make such orders as it thinks fit about the costs of the arbitration where a question arises about them and the award contains no sufficient provision concerning them.

Section 40: death does not end the arbitration

Section 40(1): an arbitration agreement shall not be discharged by the death of any party, either as respects the deceased or any other party, but shall be enforceable by or against the legal representative of the deceased.

Section 40(2): the mandate of an arbitrator shall not be terminated by the death of the party who appointed him.

Section 40(3): nothing in the section affects any law by which a right of action is extinguished by death.

Sub-section (3) is the limit, and it matters. The agreement survives, but if the cause of action itself dies with the person, as a purely personal claim does, there is nothing left to arbitrate. Read with section 2(1)(g), which defines legal representative, and section 35, which binds persons claiming under a party.

Section 41: insolvency

Section 41(1): where a contract to which an insolvent is a party contains an arbitration term, that term, if the receiver adopts the contract, is enforceable by or against him so far as it relates to such a dispute.

Section 41(2): where a person adjudged insolvent had become a party to an arbitration agreement before the insolvency proceedings commenced, and a matter to which the agreement applies must be determined in connection with the insolvency, then, if sub-section (1) does not apply, any other party or the receiver may apply to the judicial authority having jurisdiction in the insolvency proceedings for an order that the matter be submitted to arbitration, and that authority may so order if it thinks the matter ought to be determined by arbitration.

Section 41(3): "receiver" includes an Official Assignee.

Note the relationship with arbitrability, chapter 250. Booz Allen lists insolvency and winding up among the non-arbitrable categories, and that remains right: what section 41 permits is the arbitration of a dispute connected with the insolvency, on the terms it sets, not the arbitration of the insolvency itself.

Section 42: one court, and it is the first one

Notwithstanding anything contained elsewhere in this Part or in any other law for the time being in force, where with respect to an arbitration agreement any application under this Part has been made in a Court, that Court alone shall have jurisdiction over the arbitral proceedings and all subsequent applications arising out of that agreement and the arbitral proceedings shall be made in that Court and in no other Court.

This is one of the most practically important sections in Part I and it is short enough to learn by heart.

The rule: the first court in which an application under Part I is made keeps everything afterwards.

Why it exists: without it a party could make its section 9 application in one district, its section 11 application in another High Court, and its section 34 application somewhere else again, producing inconsistent orders and forum shopping. Section 42 concentrates supervision in one court.

Two limits worth stating. The section speaks of an application under this Part, so it applies to Part I applications. And the first court must have been a court competent to entertain the application; an application to a court with no jurisdiction at all does not fix the forum. Compare section 11(11), which has its own first-in-time rule for competing appointment requests.

Section 42A: confidentiality

Notwithstanding anything contained by any other law for the time being in force, the arbitrator, the arbitral institution and the parties to the arbitration agreement shall maintain confidentiality of all arbitral proceedings except award where its disclosure is necessary for the purpose of implementation and enforcement of award.

Inserted by the 2019 amendment.

Confidentiality is one of the reasons commercial parties choose arbitration, and until 2019 the Act said nothing about it in Part I, although Part III had always protected conciliation under section 75. Section 42A closes that gap.

Read the exception carefully, because the drafting is awkward. The duty covers all arbitral proceedings, and the carve-out is for the award where disclosure is necessary for its implementation and enforcement. That is a narrow exception: an award-holder may disclose the award to enforce it, not to publicise it.

Note also who is bound: the arbitrator, the arbitral institution and the parties. Witnesses and experts are not named.

Section 42B: protection of the arbitrator

No suit or other legal proceedings shall lie against the arbitrator for anything which is in good faith done or intended to be done under this Act or the rules or regulations made thereunder.

Also inserted in 2019. Compare section 24 of the Legal Services Authorities Act 1987, chapter 180, which protects that Act's office-holders in the same words. The reason is identical: a decision-maker who can be sued by every dissatisfied party will not decide freely. And the limit is identical too: the protection is for what is done in good faith.

Section 43: limitation

Section 43(1): the Limitation Act 1963 shall apply to arbitrations as it applies to proceedings in court.

Section 43(2): for the purposes of the section and of the Limitation Act, an arbitration shall be deemed to have commenced on the date referred in section 21.

So the date fixed by section 21, chapter 320, the date the request to refer is received by the respondent, is the date on which time stops running. That is why section 21 matters so much in practice.

Section 43(3): where an arbitration agreement provides that a claim shall be barred unless some step is taken within a time fixed by the agreement, and a dispute arises to which the agreement applies, the Court, if of opinion that in the circumstances of the case undue hardship would otherwise be caused, may extend the time, on such terms as it thinks fit, notwithstanding that the time so fixed has expired.

Section 43(4): where the Court orders that an award be set aside, the period between the commencement of the arbitration and the date of the order shall be excluded in computing the time prescribed by the Limitation Act 1963 for the commencement of proceedings, including arbitration, with respect to the dispute submitted.

Sub-section (4) is the one to know, and it answers the obvious question: if my award is set aside after four years, is my claim now time-barred? No. The whole period from the commencement of the arbitration to the setting aside order is excluded, so the claimant is put back where it was.

A worked example

An arbitration between two firms. The claimant serves its request on 3 August 2023, received the same day. The tribunal fixes a deposit; the respondent refuses to pay its share and also refuses to fund its own counterclaim. Midway through, the respondent's sole proprietor dies. The claimant had earlier applied under section 9 to the District Court at Aurangabad.

Did the arbitration commence in time? Section 43(1) applies the Limitation Act, and section 43(2) fixes commencement at the section 21 date, so time stopped on 3 August 2023.

The unpaid deposit. Under the first proviso to section 38(2) the claimant may pay the respondent's share. If it does not, the tribunal may suspend or terminate the proceedings in respect of the relevant claim or counterclaim under the second proviso. Since only the counterclaim is unfunded on the respondent's side, the counterclaim is what is at risk.

The death. Section 40(1): the arbitration agreement is not discharged, and is enforceable by or against the legal representative. Section 40(2): the arbitrator's mandate does not end. But under section 40(3), if the claim were one that the law extinguishes on death, it would go anyway.

Where must the section 34 application be filed? In the District Court at Aurangabad, under section 42, because that is the court in which the first Part I application was made, and it alone has jurisdiction over the arbitral proceedings and all subsequent applications.

The tribunal refuses to hand over the award until it is paid. That is its lien under section 39(1). A party may apply under section 39(2) and the Court may order delivery on payment into Court of the sum demanded, then pay out only what it considers reasonable and refund the balance.

The award is set aside three years later. Is the claim time-barred? Not by that delay. Section 43(4) excludes the period between the commencement of the arbitration and the date of the setting aside order.

May the claimant post the award online to embarrass the respondent? No. Section 42A requires the parties, the arbitrator and the institution to maintain confidentiality of all arbitral proceedings, the exception being disclosure of the award where necessary for its implementation and enforcement.

What beginners get wrong

Section 42 fixes the first court, not the most convenient one, and it overrides other laws.

Death does not end an arbitration agreement, unless the right of action itself dies, under section 40(3).

Section 41 does not make insolvency arbitrable. It allows disputes connected with an insolvency to go to arbitration on the terms it states.

Section 42A's exception is narrow. It is for the award, and only where disclosure is necessary for implementation and enforcement.

Section 43(4) excludes time when an award is set aside, so a claimant is not defeated by the years spent on an award that fell.

Quick revision

• 38: the tribunal may fix deposits as an advance for costs, separately for claim and counterclaim; payable in equal shares; one party may pay the other's share; if neither pays, the tribunal may suspend or terminate that claim or counterclaim; and it must account and refund on termination.
• 39: a lien on the award for unpaid costs; the Court may order delivery on payment into Court, pay the tribunal only what is reasonable and refund the rest; no application where the fees were fixed by written agreement; the tribunal may be heard.
• 40: the agreement is not discharged by death and binds the legal representative; the arbitrator's mandate survives; but a right of action extinguished by death is unaffected.
• 41: an arbitration term is enforceable by or against a receiver who adopts the contract; otherwise the insolvency authority may direct a connected matter to arbitration. "Receiver" includes an Official Assignee.
• 42: the first Court in which a Part I application is made has exclusive jurisdiction over the proceedings and all subsequent applications, notwithstanding any other law.
• 42A: confidentiality binding the arbitrator, the institution and the parties, except the award where disclosure is necessary for implementation and enforcement.
• 42B: no proceedings against an arbitrator for anything done in good faith.
• 43: the Limitation Act 1963 applies; commencement is the section 21 date; the Court may extend an agreed time bar to avoid undue hardship; and where an award is set aside, the period from commencement to that order is excluded.

Test yourself

1. A section 9 application was made in the District Court at Nashik. Where must a later section 34 application be filed? In that same Court. Section 42 provides that where any application under Part I has been made in a Court, that Court alone shall have jurisdiction over the arbitral proceedings and all subsequent applications arising out of that agreement, and no other Court.

2. One party will not pay its share of the deposit. What can happen? Under the provisos to section 38(2), the other party may pay that share; and if it does not, the tribunal may suspend or terminate the proceedings in respect of the claim or counterclaim concerned.

3. A party dies during the arbitration. Does the arbitration end? No. Section 40(1) provides that the arbitration agreement is not discharged by death and is enforceable by or against the legal representative, and section 40(2) preserves the arbitrator's mandate. Section 40(3) preserves any law by which the right of action itself is extinguished by death.

4. The tribunal will not release the award until its fees are paid. What can a party do? Apply under section 39(2). The Court may order the tribunal to deliver the award on payment into Court of the costs demanded, and after such inquiry as it thinks fit direct that only such sum as it considers reasonable be paid to the tribunal, with the balance refunded. No such application lies if the fees were fixed by written agreement between that party and the tribunal.

5. An award is set aside after four years. Is a fresh claim time-barred? Not by reason of those four years. Section 43(4) excludes the period between the commencement of the arbitration, fixed by section 21, and the date of the order setting aside the award, when computing the time prescribed by the Limitation Act 1963.