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Fundamental Principles of Law of Contract and Allied Laws
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LLM · Group 2 Business Law
2025-26 Examination
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LLM Group 2 Business Law Fundamental Principles of Law of Contract and Allied Laws 2025-26 Question Paper with Solutions
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First published on munotes.in on 12 August 2026.
This edition revised 6 September 2026.
Published by munotes.in, Mumbai.
Model answers written and edited by the munotes.in editorial desk.
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The University does not publish an official answer key for this paper. The answers in this volume are model answers, written to show how a full-mark answer is built. They are a study aid, not an authority on what an examiner marked.
The question paper reproduced here is the paper as set by the University of Mumbai at the 2025-26 examination.
The law in these answers is stated as at August 2026, and five changes since these papers were set alter the answers. The Mediation Act, 2023 would substitute sections 61 to 81 of the Arbitration and Conciliation Act, 1996, but its section 61, which carries that Sixth Schedule, was never commenced, so conciliation is still governed by the 1996 Act. The 2019 scheme for appointing arbitrators through graded arbitral institutions was never brought into force, though Part IA creating the Arbitration Council of India was commenced on 12 October 2023. Gayatri Balasamy, 30 April 2025, gave courts a limited power to modify an award. Central Organisation for Railway Electrification, 8 November 2024, made unilateral appointment clauses impermissible. And the Specific Relief (Amendment) Act, 2018 made specific performance enforceable as of right rather than in the court's discretion.
Contents
The questions below are the paper as the University of Mumbai set it at the 2025-26 examination, in the order it was set.
MarksPage
The Paper as Set
The questions in this volume are the questions asked at the 2025-26 examination, reproduced as the University of Mumbai set them, in the order it set them. Nothing has been reworded, added or left out. Only the answers are ours. See the original question paper.
Duration 3 hours · Total marks 100 · 7 questions answered
How to use this volume
Solve the paper first, under exam conditions and against the clock. Then read the answers here and mark your own. Reading a solution before attempting the question feels productive and teaches very little, because recognising an answer is not the same as being able to write one.
SECTION I
Form 05041, examination of 27/02/2026. Attempt any four questions, all questions carry equal marks, cite relevant illustration or case laws wherever necessary
any four of seven · 100 Marks
1.Define the term "Arbitral Tribunal". Discuss the composition, functions and powers of the Arbitral Tribunal.[25]
Answer
For full marks, cover: the statutory definition in section 2(1)(d) and why it is deliberately thin; composition through sections 10 to 15, including the even number rule and the Seventh Schedule ineligibility introduced in 2015; the two Constitution Bench decisions of 2024 and 2025 that have changed this area; the tribunal's functions from commencement under section 21 to termination under section 32; its powers under sections 16, 17, 19, 26 and 27; and an honest closing word on what the tribunal cannot do.
What the Act means by an arbitral tribunal
The definition is in section 2(1)(d) of the Arbitration and Conciliation Act, 1996, and it is one line: "arbitral tribunal" means a sole arbitrator or a panel of arbitrators. The Act does not say who may sit, what qualifications are needed or how the tribunal is to be built. That silence is deliberate and it is the drafting philosophy of the whole statute.
The Act is modelled on the UNCITRAL Model Law on International Commercial Arbitration of 1985, whose premise is that an arbitral tribunal is a creature of the parties' agreement and not an organ of the State. A court exists whether or not anybody invokes it; a tribunal comes into existence because two parties agreed that it should, decides only what they referred to it, and ceases to exist when it has decided.
Three consequences follow from that and they run through everything below. First, party autonomy is the primary source of the tribunal's composition and procedure, and the statutory rules are defaults that operate only where the parties have not agreed. Second, the tribunal's authority is limited by the arbitration agreement, so an award on a matter outside the reference is liable to be set aside under section 34(2)(a)(iv). Third, because the tribunal is private, the statute has to supply from outside the things a court has by nature: coercive power over witnesses, and a mechanism to remove an arbitrator who ought not to sit.
Composition: sections 10 to 15
Section 10 governs the number. The parties are free to determine the number of arbitrators, provided that it shall not be an even number; failing such determination, the tribunal shall consist of a sole arbitrator. The bar on an even number exists so that a tribunal cannot deadlock, which is what happened routinely under the Arbitration Act, 1940, where two-arbitrator references with an umpire were common and the umpire's entry was itself a source of dispute.
Section 11 governs appointment. A person of any nationality may be an arbitrator unless the parties agree otherwise. The parties may agree a procedure. Failing agreement, in an arbitration with three arbitrators each party appoints one and the two so appointed appoint the third, who acts as the presiding arbitrator. If a party fails to appoint within thirty days of a request, or the two appointed arbitrators fail to agree on the third within thirty days, the appointment is made on an application to the Supreme Court in an international commercial arbitration and to the High Court in any other case, or to a person or institution designated by that Court.
The 2015 amendment removed the Chief Justice from this section, and the language above is the language that actually operates. Before 23 October 2015 the section spoke of "the Chief Justice or any person or institution designated by him", and the long fight in Konkan Railway Corporation Ltd. v. Rani Construction (P) Ltd., (2002) 2 SCC 388, and SBP and Co. v. Patel Engineering Ltd., (2005) 8 SCC 618, was about whether that function was administrative or judicial. SBP and Co. held it judicial, which is why the 2015 amendment moved the power to the Court itself and added section 11(6A) confining the examination to the existence of an arbitration agreement.
Section 12 governs disclosure and 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 independence or impartiality, and any circumstances likely to affect the ability to devote sufficient time. The Fifth Schedule, inserted in 2015, lists the grounds that guide whether a doubt is justifiable. The Seventh Schedule is the harder provision: under section 12(5), a person whose relationship with the parties, counsel or subject matter falls within that Schedule is ineligible to be appointed notwithstanding any prior agreement, and only an express agreement in writing made after the dispute has arisen can waive it.
Sections 13, 14 and 15 complete the picture. Section 13 makes the challenge in the first instance to the tribunal itself, which decides it; if the challenge fails the tribunal continues and makes an award, and the challenging party's remedy is an application under section 34. Section 14 terminates the mandate where the arbitrator becomes de jure or de facto unable to perform, or fails to act without undue delay. Section 15 covers withdrawal, agreed termination and substitution, and provides that a substitute arbitrator is appointed by the rules that applied to the one replaced.
The two Constitution Bench decisions that have changed this area
Central Organisation for Railway Electrification v. ECI-SPIC-SMO-MCML (JV), 2024 INSC 857, decided 8 November 2024, is the most important recent decision on composition. A five-judge Bench presided over by Chandrachud C.J. considered railway contracts under which the employer nominated a panel of its own retired officers and the contractor had to choose its nominee from that panel. By three to two the Court held that such a clause is impermissible: a party cannot unilaterally appoint a sole arbitrator, and cannot compel the other side to select from a panel it has curated.
The equal treatment obligation in section 18 applies at the appointment stage and not merely once the tribunal is constituted. The Court set aside its own earlier decision in Central Organisation for Railway Electrification (2019) and approved TRF Ltd. v. Energo Engineering Projects Ltd., (2017) 8 SCC 377, and Perkins Eastman Architects DPC v. HSCC (India) Ltd., (2020) 20 SCC 760. Exercising its power under Article 142, the Court applied the ruling prospectively to three-member tribunal appointments made after the decision, so pending arbitrations were not unsettled.
The 2019 institutional appointment scheme is on the statute book and has never been brought into force. Section 11(3A), which empowers the Supreme Court and the High Courts to designate arbitral institutions graded by the Arbitration Council of India, was inserted by section 3 of the Arbitration and Conciliation (Amendment) Act, 2019. The commencement notification, S.O. 3154(E) of 30 August 2019, brought into force section 1, sections 4 to 9, sections 11 to 13 and section 15 of that Act, and left out sections 2, 3, 10 and 14. Section 10, which inserts Part IA and creates the Arbitration Council of India, was afterwards commenced by S.O. 4486(E) of 12 October 2023, so that Part is in force; section 3 was not, so section 11(3A) does not operate. A candidate who writes that appointments are now made by graded arbitral institutions is describing a provision that has never been brought into operation.
Functions: what the tribunal actually does
The proceedings begin under section 21. Unless otherwise agreed, arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent. The date matters because limitation under section 43 is computed by reference to it.
The tribunal then settles the frame. Section 20 lets the parties agree the place of arbitration and, failing agreement, the tribunal determines it having regard to the circumstances and the convenience of the parties. Section 22 governs the language. Section 23 requires the statement of claim and the defence, and since the 2019 amendment section 23(4) requires them to be completed within six months of the date on which the arbitrator or all the arbitrators received notice in writing of their appointment.
Section 24 governs the hearing. Unless the parties have agreed that no oral hearing shall be held, the tribunal must hold oral hearings if a party requests, and the 2015 amendment added a proviso that the tribunal shall as far as possible hold oral hearings on a day to day basis and not grant adjournments without sufficient cause. Section 25 deals with default: if the claimant fails to communicate the statement of claim, the tribunal terminates the proceedings; if the respondent fails to communicate a defence, the tribunal continues without treating that failure as an admission.
Section 29A fixes the outer limit of the tribunal's life. The award in a matter other than an international commercial arbitration must be made within twelve months from the date of completion of pleadings under section 23(4), extendable by six months by consent of the parties, and thereafter only by the Court, which may reduce the arbitrators' fees by up to five per cent for each month of delay attributable to the tribunal. Section 29B provides a fast track procedure, decided on written pleadings alone, with an award in six months.
The proceedings end under sections 30 to 32. Section 30 encourages settlement and allows the tribunal to record a settlement as an award on agreed terms, which has the same status and effect as any other award. Section 31 prescribes the form and contents of the award, requires reasons unless the parties have agreed otherwise or it is an agreed award, and by section 31(7) governs interest. Section 31A, inserted in 2015, gives the tribunal power over costs on the principle that costs follow the event. Section 32 terminates the proceedings by the final award, and section 33 preserves a narrow power to correct computational, clerical or typographical errors and, on agreement, to give an interpretation of a specific point.
Powers: the four that matter
First, the power to decide its own jurisdiction. Section 16 enacts the competence-competence principle. The tribunal may rule on its own jurisdiction, including on any objection with respect to the existence or validity of the arbitration agreement. Two propositions in section 16(1) do the real work: an arbitration clause forming part of a contract is to be treated as an agreement independent of the other terms of that contract, and a decision by the tribunal that the contract is null and void does not entail ipso jure the invalidity of the arbitration clause. That is the doctrine of separability, and it is why a party cannot defeat a reference simply by asserting that the main contract is void.
In Re: Interplay Between Arbitration Agreements under the Arbitration and Conciliation Act 1996 and the Indian Stamp Act 1899, decided 13 December 2023 by seven judges, is the leading recent authority on separability. The question was whether an arbitration clause in an unstamped or insufficiently stamped instrument could be acted upon. The Court held unanimously that non-stamping or insufficient stamping makes the instrument inadmissible in evidence under the Stamp Act, but that this is a curable defect which does not render the agreement void or void ab initio, and that the objection is for the arbitral tribunal to consider, not the referral court. It overruled the five-judge decision in N.N. Global Mercantile (P) Ltd. v. Indo Unique Flame Ltd. and the earlier decision in SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P) Ltd.
Second, the power to grant interim measures. Section 17, as substituted in 2015, gives the tribunal the same power to order interim measures as a court has under section 9, at any time during the proceedings or at any time after the making of the award but before its enforcement. Crucially, section 17(2) provides that such an order shall be deemed to be an order of the Court for all purposes and shall be enforceable as if it were an order of the Court under the Code of Civil Procedure. Before 2015 the tribunal's interim orders had no enforcement machinery at all, which made them close to worthless.
Third, the power to control its own procedure. Section 19 provides that the arbitral tribunal shall not be bound by the Code of Civil Procedure, 1908 or the Indian Evidence Act, 1872, and that failing agreement between the parties the tribunal may conduct the proceedings in the manner it considers appropriate, including the power to determine the admissibility, relevance, materiality and weight of any evidence. Section 26 lets it appoint an expert on specific issues and require a party to give the expert information or access.
The reference to the Evidence Act must now be read with the Bharatiya Sakshya Adhiniyam, 2023, which replaced the Indian Evidence Act, 1872 with effect from 1 July 2024. The point of substance is unaffected, because the tribunal was never bound by either.
Fourth, the power to call on the court for help. Section 27 is the provision that supplies what a private tribunal necessarily lacks. The tribunal, or a party with its approval, may apply to the Court for assistance in taking evidence; the Court may execute the request by ordering that the evidence be provided directly to the tribunal, and may issue the same processes to witnesses as it does in suits. A person failing to attend or making any other default is subject to the same penalties and punishments by order of the Court as they would incur in a suit.
What the tribunal cannot do
The tribunal cannot decide a dispute that is not arbitrable. Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd., (2011) 5 SCC 532, drew the distinction between rights in rem and rights in personam and listed the categories generally reserved to courts, including criminal offences, matrimonial disputes, guardianship, insolvency and winding up, testamentary matters and tenancy governed by rent control. Vidya Drolia v. Durga Trading Corporation, (2021) 2 SCC 1, restated the test in four parts and held that a dispute is not arbitrable where the cause of action operates in rem, where it affects third party rights, where it relates to inalienable sovereign functions, or where a statute expressly or by necessary implication excludes arbitration.
The tribunal cannot bind a stranger to the arbitration agreement, cannot punish for contempt, and cannot enforce its own final award: enforcement is under section 36, which treats the award as a decree of the court once the time for a section 34 application has expired or such an application has been refused.
Conclusion. An arbitral tribunal, defined by section 2(1)(d) as a sole arbitrator or a panel of arbitrators, is composed under sections 10 to 15 on a foundation of party autonomy corrected by two mandatory rules: the number may not be even, and a person within the Seventh Schedule is ineligible however the parties may have agreed. Its functions run from commencement under section 21 through pleadings, hearing and the section 29A time limit to the award and termination under sections 31 and 32.
Its powers are the four that make private adjudication workable: to rule on its own jurisdiction under section 16 on the separability principle now confirmed by the seven-judge decision In Re: Interplay; to grant enforceable interim measures under section 17 as substituted in 2015; to control procedure free of the Code of Civil Procedure and the law of evidence under section 19; and to borrow the court's coercive power over witnesses under section 27. What Central Organisation for Railway Electrification (2024) adds is the reminder that all of this rests on a tribunal both sides had an equal hand in constituting, and that a clause which lets one side build the tribunal defeats the premise of the whole Act.
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