Arbitration

The tribunal

Section 10. The parties may determine the number of arbitrators, provided it is not an EVEN number, and failing determination the tribunal consists of a SOLE arbitrator.

Section 11. A person of any nationality may be an arbitrator unless otherwise agreed; the parties are free to agree on the appointment procedure; and failing agreement, in an arbitration with three arbitrators each party appoints one and the two so appointed appoint the third as presiding arbitrator, with the appointment made on an application by the Supreme Court or the High Court, or a person or institution designated by it, where a party fails to act.

Sections 12 and 13. Grounds for CHALLENGE: a person approached in connection with a possible appointment must disclose in writing any circumstances likely to give rise to justifiable doubts as to his independence or impartiality, and the FIFTH SCHEDULE lists the grounds giving rise to such doubts while the SEVENTH SCHEDULE lists the relationships that make a person INELIGIBLE to be appointed at all.

Section 16, competence-competence. The tribunal may rule on its OWN JURISDICTION, including on objections to the existence or validity of the arbitration agreement; and for that purpose an arbitration clause forming part of a contract is treated as an agreement INDEPENDENT of the other terms, so that a decision that the contract is null and void does not entail the invalidity of the arbitration clause. That is the doctrine of SEPARABILITY.

Sections 18 to 27. Equal treatment of the parties; freedom to agree on the procedure; the place of arbitration; the commencement of proceedings; the language; statements of claim and defence, with pleadings to be completed within six months of the arbitrators receiving notice of appointment; hearings and written proceedings; default of a party; expert appointed by the tribunal; and court assistance in taking evidence.

The award

Section 28. In an arbitration other than an international commercial arbitration with its place in India, the tribunal decides in accordance with the SUBSTANTIVE LAW for the time being in force in India; in an international commercial arbitration it applies the rules of law designated by the parties; and in all cases it decides in accordance with the terms of the contract and takes into account the usages of the trade. Section 28(2): the tribunal decides EX AEQUO ET BONO or as AMIABLE COMPOSITEUR only if the parties have expressly authorised it.

Section 29A, the time limit. The award in matters other than an international commercial arbitration shall be made within TWELVE MONTHS from the date of COMPLETION OF PLEADINGS under section 23(4); in an international commercial arbitration the tribunal is to endeavour to do so. The period may be extended by the parties by consent for a further six months, and thereafter only by the Court, which may reduce the arbitrators' fees for delay attributable to them.

Section 30. The tribunal may encourage settlement, and if the parties settle, record it as an ARBITRAL AWARD ON AGREED TERMS, which has the same status and effect as any other award.

Section 31. The award must be in WRITING and SIGNED by the members, a majority's signatures sufficing if the reason for an omitted signature is stated; must state the REASONS unless the parties have agreed otherwise or it is an award on agreed terms; and must state its date and the place of arbitration. Section 31(7) governs interest and section 31A the costs.

Section 33. Correction of a computational, clerical or typographical error and interpretation of a specific point, within thirty days; and an additional award as to claims presented but omitted.

Setting aside and enforcement

Section 34, and this is the examinable provision. Recourse to a court against an award may be made ONLY by an application to set it aside, and the court may set it aside ONLY if the applicant establishes, ON THE RECORD OF THE TRIBUNAL, that a party was under some INCAPACITY; that the arbitration agreement is NOT VALID; that he was not given PROPER NOTICE of the appointment or the proceedings or was otherwise unable to present his case; that the award deals with a dispute NOT CONTEMPLATED BY or falling outside the SUBMISSION, with a proviso for severance; or that the COMPOSITION of the tribunal or the PROCEDURE was not in accordance with the agreement; or if the court finds that the subject matter is not ARBITRABLE, or that the award is in conflict with the PUBLIC POLICY OF INDIA.

The public policy explanation, inserted in 2015. An award conflicts with the public policy of India ONLY IF the making of the award was induced or affected by FRAUD OR CORRUPTION or was in violation of section 75 or section 81; or it is in CONTRAVENTION OF THE FUNDAMENTAL POLICY OF INDIAN LAW; or it is in CONFLICT WITH THE MOST BASIC NOTIONS OF MORALITY OR JUSTICE. And Explanation 2: the test of contravention of the fundamental policy of Indian law SHALL NOT ENTAIL A REVIEW ON THE MERITS.

Section 34(2A). In an arbitration OTHER THAN an international commercial arbitration, an award may also be set aside if the court finds it vitiated by PATENT ILLEGALITY APPEARING ON THE FACE OF THE AWARD, provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.

Section 34(3). The application must be made within THREE MONTHS of receipt of the award, extendable by THIRTY DAYS on sufficient cause and NOT THEREAFTER.

Section 36, enforcement. Where the time for a section 34 application has expired, the award is enforced under the Code of Civil Procedure IN THE SAME MANNER AS IF IT WERE A DECREE OF THE COURT. Since 2015 the mere filing of a section 34 application does NOT operate as an automatic stay; a separate application for stay is required and the court may impose conditions.

Section 37, appeals. From an order refusing to refer under section 8, granting or refusing an interim measure under section 9 or 17, or setting aside or refusing to set aside an award under section 34; and no SECOND appeal, save the right of appeal to the Supreme Court.

Conciliation, in Part III

Sections 61 to 81. The Part applies to conciliation of disputes arising out of a legal relationship, whether contractual or not. Section 62: conciliation commences when the party invited ACCEPTS IN WRITING. Section 67: the conciliator assists the parties in an INDEPENDENT AND IMPARTIAL manner, guided by objectivity, fairness and justice, having regard to the rights and obligations of the parties, the usages of the trade and the circumstances, and MAY MAKE PROPOSALS for a settlement at any stage. Section 73: when it appears to the conciliator that elements of a settlement exist he shall FORMULATE the terms, submit them for observations, and may REFORMULATE them. Section 74: the settlement agreement has the SAME STATUS AND EFFECT AS AN ARBITRAL AWARD ON AGREED TERMS. Sections 75 and 81: confidentiality, and the inadmissibility of what was said in the conciliation in other proceedings.

Why Part III sits in an arbitration Act. Because of section 74: giving a conciliated settlement the status of an award is what makes it enforceable as a decree, and that borrowing is the reason conciliation was the enforceable settlement process in India before the Mediation Act 2023.

Merits, demerits and the honest place of arbitration in this paper

Merits. A BINDING and enforceable result; a decision-maker chosen for expertise; procedural flexibility and a chosen seat and language; CONFIDENTIALITY; finality, since the grounds of challenge are narrow; and enforceability abroad under the New York Convention through Part II.

Demerits. COST, which for a three-member tribunal frequently exceeds a suit; DELAY in practice, which section 29A was enacted to address; the narrowness of section 34, which means an ERROR OF LAW is usually uncorrectable; ad hoc arbitration by retired judges reproducing court procedure; and satellite litigation under sections 8, 9, 11, 34 and 37, which is the standing Indian complaint.

And its place in this paper. MU's topic is ALTERNATIVE APPROACHES TO LAW in a course on social transformation, and arbitration is the alternative that requires a written agreement, pays for its own tribunal and serves parties who could afford a court anyway. It relieves the docket, which helps everybody; it does nothing directly for the person [Legal Aid] is about. Say that; it is the point an examiner is looking for and most scripts do not make it.

A worked example

A construction contract contains a clause referring disputes to a sole arbitrator. The employer sues in the civil court instead. The contractor applies under section 8 after filing a written statement on the merits.

Is the application in time? No. Section 8(1) requires the application to be made NOT LATER THAN the date of submitting the first statement on the substance of the dispute, and a written statement on the merits is that statement. The right to insist on arbitration is lost.

Suppose he applies before filing. The court SHALL refer, unless it finds prima facie that no valid arbitration agreement exists.

The employer says the contract was void for misrepresentation, so the clause goes with it. Section 16 and the doctrine of SEPARABILITY: an arbitration clause forming part of a contract is treated as an agreement independent of the other terms, and a decision that the contract is null and void does not entail the invalidity of the clause. The tribunal rules on its own jurisdiction.

The award is made eighteen months after the pleadings closed. Section 29A: twelve months from the completion of pleadings, extendable by six by consent and thereafter only by the Court. If no extension was obtained, the mandate terminated, and that is a jurisdictional objection.

The award applies the wrong measure of damages. Section 34 does not permit a review on the merits. Section 34(2A) allows PATENT ILLEGALITY on the face of the award in a domestic arbitration, but not an erroneous application of the law or a reappreciation of evidence. So an error of law that is not patent on the face stands.

How is the award enforced? Section 36: as if it were a DECREE of the court, and the filing of a section 34 application does not by itself stay it.

What this does NOT mean

It does not mean an arbitrator is a judge. He is appointed by the parties, paid by them, and derives his authority from their agreement.

It does not mean an award cannot be challenged. Section 34 has seven grounds, with patent illegality added for domestic awards.

It does not mean arbitration is quick. Section 29A exists because it was not.

And it does not mean every dispute may be arbitrated. Section 34(2)(b)(i) preserves arbitrability, and matters such as criminal offences, matrimonial status, insolvency and testamentary matters are not arbitrable.

Quick revision

Arbitration and Conciliation Act 1996, on the UNCITRAL Model Law 1985, replacing the Act of 1940. s.7 the AGREEMENT, a defined legal relationship, in WRITING, including by electronic means or an undenied allegation in pleadings. s.8 a judicial authority SHALL refer on an application made not later than the first statement on the substance, unless prima facie no valid agreement. s.9 court interim measures; s.17 tribunal interim measures. s.10 an ODD number, failing which a SOLE arbitrator. s.11 appointment, three-arbitrator default, and appointment by the Court or its designate on failure. ss.12 and 13 disclosure and challenge, the FIFTH SCHEDULE for justifiable doubts and the SEVENTH for ineligibility. s.16 COMPETENCE-COMPETENCE and SEPARABILITY. ss.18 to 27 procedure. s.28 the substantive law of India for a domestic arbitration, and EX AEQUO ET BONO only if expressly authorised. s.29A TWELVE MONTHS from completion of pleadings, six more by consent, then only by the Court. s.30 settlement recorded as an AWARD ON AGREED TERMS. s.31 writing, signatures, REASONS unless agreed otherwise, date and place. s.33 correction and additional award in thirty days.

s.34 set aside ONLY on: incapacity; invalid agreement; want of proper notice or inability to present the case; matters outside the submission, severable; irregular composition or procedure; non-ARBITRABILITY; or conflict with the PUBLIC POLICY OF INDIA, which since 2015 means only fraud or corruption, contravention of the FUNDAMENTAL POLICY of Indian law, or conflict with the MOST BASIC NOTIONS OF MORALITY OR JUSTICE, and NOT a review on the merits. s.34(2A) PATENT ILLEGALITY on the face, in a domestic arbitration, but not an erroneous application of law or reappreciation of evidence. s.34(3) three months plus thirty days and NOT THEREAFTER. s.36 enforcement AS A DECREE, with no automatic stay on filing. s.37 appeals, and no second appeal.

Part III, conciliation: s.61 scope; s.62 commencement on WRITTEN ACCEPTANCE; s.67 the conciliator assists impartially and MAY MAKE PROPOSALS; s.73 he FORMULATES and may REFORMULATE the terms; s.74 the settlement has the STATUS AND EFFECT OF AN ARBITRAL AWARD ON AGREED TERMS; ss.75 and 81 confidentiality and inadmissibility.

Test yourself

1. What is an arbitration agreement, and what form must it take? An agreement by the parties to submit to arbitration all or certain disputes which have arisen or may arise between them in respect of a defined legal relationship, whether contractual or not. It must be in writing, and is in writing if contained in a signed document, in an exchange of letters, telex, telegram or other telecommunication including electronic means providing a record, or in an exchange of statements of claim and defence in which one party alleges the agreement and the other does not deny it.

2. Explain competence-competence and separability. Under section 16 the arbitral tribunal may rule on its own jurisdiction, including on objections to the existence or validity of the arbitration agreement. For that purpose an arbitration clause forming part of a contract is treated as an agreement independent of the other terms, so a decision by the tribunal that the contract is null and void does not entail the invalidity of the arbitration clause.

3. State the grounds on which an award may be set aside. Under section 34: that a party was under some incapacity; that the arbitration agreement is not valid; that the applicant was not given proper notice of the appointment or the proceedings or was otherwise unable to present his case; that the award deals with a dispute not contemplated by or outside the submission, severable if separable; that the composition of the tribunal or the procedure was contrary to the agreement; that the subject matter is not arbitrable; or that the award conflicts with the public policy of India. In a domestic arbitration, section 34(2A) adds patent illegality appearing on the face of the award.

4. What does the public policy of India mean after 2015? Only that the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81; or that it contravenes the fundamental policy of Indian law; or that it conflicts with the most basic notions of morality or justice. Explanation 2 provides that the fundamental policy test shall not entail a review on the merits of the dispute.

5. What is arbitration's honest place in a paper on access to justice? It requires a written agreement, the parties pay for their own tribunal, and it serves commercial parties who could afford a court in any event. It relieves the docket, which benefits everybody indirectly, and it does nothing directly for the person for whom legal aid and the village forums exist.