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Abhishek Singh made a presentation on Dispute Resolution in EPC Contracts in the Conference cum workshop on Contracting: Legal, Taxation, Commercials and Risks (Focus: Construction Sector) held on 18th & 19th Dec 2012, at Hotel Crown Plaza Today, Delhi.
The presentation is here.121217 Presentation v4
PXV Partner Mohit Abraham made a presentation on Dispute Resolution in EPC Contracts at the Seminar on “EPC Contracting: Energy Sector Legal, Taxation, Commercials and Risks” held in 7th-8th November, 2012 in New Delhi. The presentation can be accessed below.
Bharat Aluminium Co. vs. Kaiser Aluminium Technical Services Inc: Key Findings of the Supreme Court on Enforceability of International Arbitral Awards in India.
The Constitution bench of the Supreme Court in Bharat Aluminium Co. vs. Kaiser Aluminimum Technical Services Inc (Bharat Aluminium) has overruled the ratio of some of its judgments, the most prominent amongst them being Bhatia International vs. Bulk Trading S.A (Bhatia) and Venture Global Engineering v. Satyam Computer Services Ltd (Venture Global). The ruling is being welcomed as a positive development in Indian jurisprudence concerning international commercial arbitration.
Part I of the Indian Arbitration and Conciliation Act, 1996 (“Act“) applies to arbitrations in India while Part II of the Act applies when the place of arbitration is outside India. However, both Bhatia and Venture Global interpreted the provisions of the Act to give it an effect not envisaged by the legislature. The effect of the judgment was that even in international commercial arbitrations held outside India, Indian courts could have the power to assume jurisdiction and grant injunctions against international arbitral awards as and when a party attempted to enforce the award in India under Part II. The only exception to the application of this principle was if the parties had excluded the application of Part I of the Act. Another impact was that Section 34 of the Act, which allows an Indian court to set aside an award rendered in a domestic arbitration, was found to be applicable to international commercial arbitration since Part I was applicable to international commercial arbitration held abroad. By virtue of this, certain expansive and doubtful interpretations of Part I of the Act, were also imported into an enforcement proceeding under Part II.
The aforesaid situation resulted in routine challenges to international arbitral awards and substantial delays in enforcement of a parties right under such an award. This was widely criticized by practitioners and scholars as frustrating the purpose of the Act and being contrary to the UNCITRAL model law and also against the spirit of the New York and Geneva Conventions.
The Supreme Court’s decision in Bharat Aluminium has remedied these anomalies to a great extent.
Key Holdings of the Supreme Court of India:
Part I is not applicable to international commercial arbitration held outside India
The court has held that the provisions contained in the Act make it clear that there can be no overlapping between Part I and Part II of the Act. Part I of the Act would therefore have no application to international commercial arbitration held outside India. Part I of the Act applies to domestic arbitration, while Part II applies to international commercial arbitration. However, Part I would apply to international commercial arbitrations held in India.
No interim relief
The court further laid down that in international commercial arbitrations held outside India, interim relief cannot be granted by Indian courts under Section 9 (which falls under Part I) or any other provision of the Act as applicability of Part I of the Act is limited to arbitrations which take place in India. Therefore, no civil suit can be instituted purely for interim relief.
No setting aside of an international arbitral award under Section 34
The court has also held that Section 34 of the Act (which provides for setting aside of an arbitral award on the grounds available under the said section), would apply only if the seat of arbitration is in India. This comes as a welcome relief because earlier judgments of the Supreme Court could be interpreted to establish that foreign arbitral awards would also have to survive a broad and expansive “public policy” review under the provisions of Section 34.
Enforcement of an International Commercial Arbitration Award in India
The court has also held that enforcement of awards rendered in international commercial arbitration held outside India would only be subject to the jurisdiction of the Indian courts when such award are sought to be enforced in India in accordance with the provisions contained in Part II of the Act.
Non-convention award cannot be incorporated into the Act by process of interpretation
India is a signatory to the New York Convention, 1958 and the Geneva Protocol, 1923. Regarding non-convention arbitral awards, the court observed that no remedy was provided for the enforcement of such awards under the Act. Therefore, a non-convention award cannot be incorporated into the Act by a process of interpretation and could only be done by suitable amendments made to the Act by Parliament.
Seat of arbitration
The seat of arbitration will decide the applicable law of arbitration. According to the court, the seat of arbitration would be the seat provided for in the arbitration agreement. However, the venue of the arbitration may be elsewhere. The court specifically held that the venue of arbitration may change, but it will have no effect on the seat of arbitration. The seat of the arbitration remains the place initially agreed by or on behalf of the parties.
The Court has specifically overruled decisions in Bhatia International and Venture Global Engineering Vs. Satyam Computer Services Ltd prospectively. The court has held that the law declared by it in the present case “shall apply prospectively, to all the arbitration agreements executed hereafter”. This suggests that the law declared in Bharat Aluminium will apply only to arbitration agreements made after September 6, 2012.
While arbitration as a term can be defined in a technical fashion, it is in effect simply is an alternative dispute mechanism that has privatised the judiciary. The award passed by an arbitral tribunal is enforceable as a court decree. Amongst other things, the most promising advantages of arbitration have been the expediency, flexibility and party autonomy in deciding how, when and where a dispute shall be resolved. The parties at time of entering into a contractual relationship decide, what will be termed as a dispute, who will arbitrate it and, what would be the venue of arbitration. The reality for the Indian commercial dispute resolution through arbitration has been very different from the extolled virtues of “the expediency, flexibility and party autonomy”.
Most Indian arbitrations are ad hoc arbitrations, meaning that they are not administered by an arbitration institution like Singapore International Arbitration Centre (“SIAC“) or London Court of International Arbitration (“LCIA“). In an ad hoc arbitration the parties decide details such as, composition of the arbitral tribunal, procedure of arbitration etc. On the other hand, an institutional arbitration is more structured. Once an institutional arbitration is invoked, the institution has its own set of rules and procedure, and even a procedure for appointment of an arbitrator. An institution would typically have a list of eminent arbitrators. An arbitration institution is usually more effective in compelling a party, avoiding arbitration, to participate. One of the deterring factors for a party choosing an institutional arbitration has been the fee an arbitration institution charges. However, surprisingly a very small portion of the fee goes towards the revenue of an institution; whereas, a major portion of the cost goes towards legal fee. Singapore allows foreign lawyers and law firms to represent a party in an arbitration proceeding. This results in a lower cost in terms of legal fee as a party is not compelled to choose a Singapore lawyer or a law firm. Instead one can be represented by their counsels or a law firm from their home country at a relatively lower legal fee.
Indian ad hoc arbitrations have been, at least in high stake matters, primarily dominated by former High Court and Supreme Court judges. These judges have managed to bring with them the same tolerance for delay that has plagued the Indian court system. Seeking dates and adjournments is a common practice in the Indian courts system, which is often done at the expense of the parties. Also, there are a special category of parties, who after having become painfully aware of their weak case on merit, will want to resort to any delaying tactics to delay adjudication. With a combination of an interfering courts and sometimes unscrupulous parties, this class of litigants can very conveniently impugn every aspect of the arbitration clause, which they voluntarily chose to incorporate. Even if the matter is referred to an ad hoc arbitration, and the courts do not intervene, the arbitrator in an ad hoc arbitration can take his or her time in arbitrating.
India and Indian parties have much to gain from expediting our adjudication process. Our trial court system has an abysmal disposal rate and commercial litigation in major metropolitan cities largely has become an interim injunction practice, while the trials drag on. With lack of trial there are some fundamental deficiencies in the Indian system as evidentiary rules have lost its significance because a court at an interim injunction only takes a prima facie view. This has in itself led to a strange mutant version of an adversarial system that India inherited from the British legal system. An adversarial system is based on the premise that both the plaintiff and a defendant try to establish their factual veracity through examination and cross examination of witnesses. In addition, physical and documentary evidence has to be admitted after having put through the rules of evidence. These requirements were not just technical rules, but were formulated after centuries of jurisprudential experience that suggested that certain kinds of evidence were intrinsically unreliable. This in itself begs the question whether the large part of commercial litigations in these major cities are being decided on imperfect truth as facts are not tested through conventional mechanisms.
With the advent of United Nations Commission on International Trade Law (“UNCITRAL”) oriented arbitration regime through the Arbitration and Conciliation Act, 1996 (“1996 Act“) there was a new hope in terms of expeditious remedy, particularly in view of the non obstante clause contained in the Section 5 of the 1996 Act, and the power of an arbitrator to rule on his or her own jurisdiction under Section 16 of the 1996 Act. Sections 5 and 16 of the 1996 Act, in effect, mandated the courts to not interfere in arbitrations. However, ad hoc arbitrations despite of the 1996 Act have failed to deliver timely justice.
Below, I am highlighting some of the advantages, of institutional arbitrations conducted by SIAC. I would like to focus on similar eminent institutions in other blogs. However, in this particular blog, I would like to focus on SIAC and the SIAC Rules, especially in view of the latest amendment to the SIAC Rules by virtue of the International Arbitration Amendment Bill of 2012 (“Amendment Bill 2012“), which has been introduced in March of2012. While the Amendment Bill will address other issues, I will focus only on those aspects of the amendment, which aids an Indian party. Just to put things in perspective, below is the table with the percentage of growth experienced by various arbitration institutions between the period of 2000 and 2009, as discussed in the article Making the Arbitration Experience More Effective For Indian Parties by Ankit Goyal and Vivekananda N,
Percentage of growth in the number of cases
|International Chamber of Commerce, Paris||51%|
|International Centre for Dispute Resolution, US||64%|
|Singapore International Arbitration Centre, Singapore||208%|
Singapore Arbitration and its advantages
Briefly, I would like to list some of the salient features of a SIAC arbitration that particularly makes the dispute resolution process convenient for an Indian party. I have used SIAC as a paradigm that works well for Indian parties. Other jurisdictions and institutions may be able to replicate the SIAC model and even add better innovations to the SIAC paradigm.
Some of the reasons that have particularly benefited Singapore as a favoured arbitration destination have been due to a result of external factors such a sluggish trial court system. Similarly, although institutional arbitration opportunities have been recognized by other global eminent institutions such as the LCIA and LCIA has manifested in their presence in India, India by far, has failed to offer an internationally recognized arbitration institution. Although, one cannot completely negate the presence of Indian arbitration institution, they simply do not enjoy the same level of global recognition and reputation. This in turn can also transform how an award rendered by Indian arbitration institution would be viewed by an enforcing court abroad.
Even though, by virtue of being a signatory to the New York Arbitration Convention, India shall recognize and enforce all awards rendered in other New York Arbitration Convention signatory countries, India only recognizes and enforces those awards that have been rendered in countries that are listed in official gazette. As a result one of the losing destinations has been Hong Kong, which despite of its geographical proximity cannot render arbitration awards that are enforceable in India. Singapore, has acquired an international arbitration friendly attitude. Courts are non-interfering in nature, and assure impartiality and neutrality when dealing with international parties. The Singapore international arbitration law, which is modelled after UNCITRAL and SIAC Rules was amended to improve expediency and flexibility. In addition, Singapore is also a foreign lawyer and law firm friendly jurisdiction allowing them to freely represent parties in arbitrations.
Emergency Interim Relief and SIAC Expedited Procedure
In July of 2010, the SIAC Arbitration Rules of the Singapore International Arbitration Centre (“SIAC Rules“) were amended to provide for emergency arbitrator procedure and expedited arbitration procedure. The amendment was aimed at accommodating the urgency and expediency a commercial dispute requires.
Rule 26.2 of SIAC Rules provides for emergency arbitrator procedure. Rule 26.2 permits a party to request appointment of an emergency arbitrator even before a tribunal has been formed. The request under the SIAC Rules has to demonstrate an emergency. The party making the request for an emergency arbitration procedure has to do so simultaneously with a notice of arbitration or soon after filing the notice of arbitration. The SIAC Chairman can accept or reject an application for emergency arbitrator. If the SIAC Chairman accepts a request for an emergency arbitrator, then the deputy of the Chairman will appoint an emergency arbitrator within a day of the receipt of notice of arbitration.
The emergency arbitrator then sets the schedule for considering and passing the order for interim relief. The order is passed within 2 (two) days of the appointment of an emergency arbitrator. The emergency arbitrator’s role extinguishes after passing an emergency order. Unless the parties agree, the emergency arbitrator does not participate in the proceedings once the tribunal is constituted. Once the tribunal is constituted the tribunal reconsiders the emergency order and can choose to modify or affirm or vacate the emergency order. The emergency order loses its force if the tribunal is not constituted within 90 (ninety) days of the order. The order also loses its force if either the claim is withdrawn or the final order is passed. Here is a case study involving two Indian parties embroiled in a dispute. In The expedited and emergency arbitrator procedures under the SIAC Rules – Six months on, how have they fared? an article by Jonathan Leach and Julian Brenholtz it was discussed that,
“Two Indian parties were embroiled in a dispute, where the claimant had issued three bank guarantees to the respondent. The respondent was about to encash the bank guarantees, and the claimant invoked the emergency procedure praying for an urgent interim injunction under SIAC Rules 26.2, precluding the respondent from encashing. The application for the interim injunction was received by SIAC at 9:30 pm, Singapore time. The Chairman of SIAC ruled to treat the applications through the emergency procedure. The emergency arbitrator was appointed the very next day, who within a day fixed a schedule for consideration. Within a week the parties made written submissions, after which a hearing over the telephone was conducted within a week. An interim order was passed a day after the telephone hearing“.
Rule 5.1 of the amended SIAC Rules provides that prior to the full construction of an arbitral tribunal any party may apply to the SIAC in writing requesting that the arbitral proceeding to be conducted by the expedited procedure. Such a request can be made under Rule 5.1 if any of the following criteria is satisfied, (a) if the amount of dispute is less that Singapore Dollar 5 Million (equivalent of United States Dollar 3.8 Million, or (b) parties by agreement want to do so, or (c) in case of exceptional emergency.
SIAC Rule 5.2 vests the power with the Chairman to decide, after taking into account the views of the parties. The expedited procedure will apply if the Chairman deems it applicable within the facts of a case. Here are the salient features of an expedited procedure, (a) the Registrar may shorten any time limits under the SIAC Rules, (b) the case is referred to a sole arbitrator to expedite the proceeding, at the same time the Chairman can decide to refer it to multiple arbitrators, (c) parties also have the flexibility to have the matter decided only on documentary evidence by mutual agreement, otherwise the tribunal shall hold formal hearing where examination by experts and other witnesses will be conducted and summation will be made by counsels, (d) award in an expedited procedure has to be made within six months, however the Registrar in exceptional circumstances has the authority to extend the time, (e) under the expedited procedure, the tribunal is obligated to provide reasons for the award (in a summary form), however the parties in interest of expediency can request that no reasons be given.
An expedited procedure can assist a party with a strong case on merits to get speedy remedy. So if a dispute involves less the Singapore Dollar 5 Million, a party can make an application based on exceptional circumstances and if the request is granted by the Chairman then that party can secure quick disposal even if the other party to the arbitration is reluctant to expedite the hearing.
Amendment Bill 2012
The Amendment Bill of 2012 affects the following four major areas:
- The power of review by a court at any stage the arbitrator’s ruling on its own jurisdiction. The most significant aspect of this particular amendment is that, in addition to a court reviewing the decision of an arbitrator to exercise erroneous jurisdiction the courts can also review a ruling where the arbitrator has held that she does not have the jurisdiction to decide a particular dispute. This approach can further support the arbitration system, in a case where the arbitrator erroneously believes that, she lacks jurisdiction.
- Less formalistic approach where a written arbitration agreement is absent, provisions are being made to find an arbitration agreement by conduct or oral agreement (that has been eventually reduced to writing), this too is a pro arbitration measure that looks at the conduct of parties to see if the parties intended to arbitrate.
- In addition an arbitral tribunal has been specifically empowered to award interest and cost; this provision obviously adds teeth to an arbitral award.
- Lastly the amendment aims to provide the same legal sanctity to an order of an emergency arbitrator as a regular tribunal.
These developments over the course of last decade underscore the significance an institutional arbitration proceeding has acquired in a commercial dispute, where expediency and final determination is of a great value. India or elsewhere, the business people want to do business, instead of loitering around court corridors and arbitration proceedings. At the same time, the commercial relationships can never be completely free from dispute. It is incumbent on the legal community to free the business people to do business, at least by meaningful and fast dispute resolution process. The growth story of SIAC can be clearly traced with advantage of timing, geographical proximity and other external factors, but in view of 2010 amendment to the SIAC Rules and Amendment Bill of 2012, one has to acknowledge how SIAC has constantly stepped in to take positive steps to bridge a vacuum Indian judiciary and alternative dispute resolution mechanisms have left gaping.
Abhishek Singh is a Senior Associate with the Corporate and Disputes Team of PXV Law Partners. He can be reached at email@example.com
First published http://lexarbitri.blogspot.com/2011/11/supreme-court-on-definition-of.html
A three-judge bench of the Supreme Court, on 14 November 2011, in Powertech World Wide Limited v. Delvin International General Trading LLC, reiterated the law on existence of an arbitration agreement and also carved out an exception, in light of particular facts and circumstances of the case.
The petitioner was an Indian company, and the respondent, incorporated in Dubai. A purchase contract entered into between the parties had the following arbitration clause:
“Any disputes arising out of this Purchase Contract shall be settled amicably between both the parties or through an Arbitrator in India/UAE”
On disputes regarding payments arising between the parties, a series of letters and legal notices were exchanged. On 30 May 2008, the petitioner invoked arbitration proceedings in Mumbai India and appointed a retired judge of the Bombay High Court as sole arbitrator. The respondent was required to concur with the above appointment or nominate another arbitrator within 30 days from receipt of the petitioner’s notice.
Respondent’s response on 27 June 2008 requested the petitioner not to approach or adopt legal proceedings for appointment of arbitrator as telephonically respondents were instructed to suggest some other name as an arbitrator subject to petitioner’s consent.
Receiving no response from the respondent thereafter, the petitioner filed the present petition for appointment of arbitrator under section 11(6) of the Arbitration and Conciliation Act, 1996 (the “Act”), (read with section 11(12)(a), for an international commercial arbitration) on 20 March 2010.
A question arose as to whether the arbitration clause quoted above was a binding arbitration agreement, enforceable under the Act.
The prevailing legal position on definition of an arbitration agreement was then discussed. “Arbitration agreement” is defined in section 7 of the Act. It is an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. The agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement and is mandatorily an agreement in writing. An arbitration agreement is in writing if it is contained in any of the clauses i.e. clauses (a) to (c) of Section 7(4) of the Act.
In the case of Jagdish Chander v. Ramesh Chander and Ors., (2007) 5 SCC 719, a similar clause, which mandated that a dispute “shall be mutually decided by the partners or shall be referred for arbitration if the parties so determine”, was held to be not a valid reference to arbitration. This was because there was an option given to the parties, to resort to arbitration.
According to K. K. Modi v. K. N. Modi, (1998) 3 SCC 573, a valid arbitration agreement –
- must contemplate that the decision of the tribunal will be binding on the parties to the agreement;
- must contemplate that substantive rights of parties will be determined by the agreed tribunal;
- must contemplate that the tribunal will make a decision upon a dispute which is already formulated at the time when a reference is made to the tribunal;
- jurisdiction of the tribunal to decide the rights of parties must be derived either from the consent of the parties or from an order of the Court or from a statute, the terms of which make it clear that the process is to be an arbitration;
- the tribunal will determine the rights of the parties in an impartial and judicial manner with the tribunal owing an equal obligation of fairness towards both sides; and
- agreement of the parties to refer their disputes to the decision of the tribunal must be intended to be enforceable in law.
Smitha Conductors v. Euro Alloys Ltd., (2001) 7 SCC 728 held that even where only certain correspondences indicated a reference to the contract containing arbitration clause for opening the letter of credit addressed to the bank, and no correspondence between the parties disagreed with terms of the contract or arbitration clause, it was a valid arbitration agreement.
As evident from Rickmers Verwaltung GmbH v. Indian Oil Corp. Ltd., (1999) 1 SCC 1 and Shakti Bhog Foods Ltd. v. Kola Shipping Ltd., (2009) 2 SCC 134, the Court has always striven to understand the true intention of parties and whether there existed consensus ad idem. Also, in VISA International Ltd. v. Continental Resources (USA) Ltd., (2009) 2 SCC 55, where the clause in question stated: “any dispute arising out of this agreement and which cannot be settled amicably shall be finally settled in accordance with the Arbitration and Conciliation Act, 1996″, the Court held that in spite of the respondent contending that the arbitration would not be cost effective and will be pre-mature, the Court held that there was an arbitration agreement between the parties and the petitioner was entitled to a reference under Section 11 of the Act, since no party could be permitted to take advantage of inartistic drafting of an arbitration clause when clear evidence of intention to proceed for arbitration was evident from the material on record.
In the present case, too, the Court held that there was consensus ad idem between parties to amicably settle their disputes or settle through arbitration in India or UAE. Notwithstanding the judgment in Jagdish Chander, the correspondence between parties dated 30 May 2008 and 27 June 2008 indicated that the petitioner had invoked arbitration and the respondent, not denying the existence of the arbitration clause invoked, had in fact referred to appointment of arbitrator.
Thus, the Court in this case, enumerated an additional factor to determine existence of an arbitration agreement – apart from the terms of the clause itself, the related documents indicating the intention of parties.
PXV Partner Rohit Das is now a part of the advisory panel of the Alternative Dispute Resolution Law Review (ADRLR), a student-run dedicated platform designed to be an effective research tool for judges, academicians, practicing lawyers and students of law. Its objective is to promote quality legal research on contemporary issues relating to Alternative Dispute Resolution (ADR).
More details at http://vaqalat.blogspot.com/2011/09/alternative-dispute-resolution-law.html
Procedure for appointment of arbitrator when the arbitration clause is in a document which is not registered (but compulsorily registrable) and which is not duly stamped
M/S SMS Tea Estates Pvt Limited V M/s Chandmari Tea co. Pvt Ltd. [SC Civil appeal No. 5820 of 2011 arising out of SLP(C) No. 24484/2010]. Decided on 20.07.2011
The Brief facts of the case: The appellant filed an application under section 11 of the Arbitration & Conciliation Act, 1996 (the “Act”) for appointment of an arbitrator. The Appellant and The Respondent had entered into a lease deed whereby respondent had granted lease of two estates for a period of 30 years to the appellant. The Clause 35 of the Lease Deed provided for settlement of disputes by Arbitration. The lease deed is neither registered nor stamped as per the law. The Chief Justice of Guwahati High Court dismissed the appellant’s application on the ground that the lease deed was compulsorily registrable under section 17 of the Registration Act and section 106 of the TP Act; and as the lease deed was not registered, no term in the said lease deed could be relied upon for any purpose and therefore clause 35 could not be relied upon for seeking reference to arbitration. The High Court also held that the arbitration agreement contained in clause 35 could not be termed as a collateral transaction, and therefore, the proviso to section 49 of the Registration Act would not assist the appellant.
In appeal, before the Supreme Court, two important issues were:
(a) Whether an arbitration agreement contained in an unregistered (but compulsorily registrable) instrument is valid and enforceable?
(b) Whether an arbitration agreement in an unregistered instrument which is not duly stamped, is valid and enforceable?
In reply to the first issue the Supreme Court observed and held as follows: When a contract contains an arbitration agreement, it is a collateral term relating to the resolution of disputes, unrelated to the performance of the contract. It is as if two contracts — one in regard to the substantive terms of the main contract and the other relating to resolution of disputes — had been rolled into one, for purposes of convenience. An arbitration clause is therefore an agreement independent of the other terms of the contract or the instrument. Resultantly, even if the contract or its performance is terminated or comes to an end on account of repudiation, frustration or breach of contract, the arbitration agreement would survive for the purpose of resolution of disputes arising under or in connection with the contract. Similarly, when an instrument or deed of transfer (or a document affecting immovable property) contains an arbitration agreement, it is a collateral term relating to resolution of disputes, unrelated to the transfer or transaction affecting the immovable property. It is as if two documents – one affecting the immovable property requiring registration and the other relating to resolution of disputes which is not compulsorily registrable – are rolled into a single instrument. Therefore, even if a deed of transfer of immovable property is challenged as not valid or enforceable, the arbitration agreement would remain unaffected for the purpose of resolution of disputes arising with reference to the deed of transfer. These principles have now found statutory recognition in sub-section (1) of section 16 of the Act. But where the contract or instrument is voidable at the option of a party (as for example under section 19 of the Indian Contract Act, 1872), the invalidity that attaches itself to the main agreement may also attach itself to the arbitration agreement.
An arbitration agreement does not require registration under the Registration Act. Even if it is found as one of the clauses in a contract or instrument, it is an independent agreement to refer the disputes to arbitration, which is independent of the main contract or instrument. Therefore having regard to the proviso to section 49 of Registration Act read with section 16(1)(a) of the Act, an arbitration agreement in an unregistered but compulsorily registrable document can be acted upon and enforced for the purpose of dispute resolution by arbitration.
In reply to second issue the apex court referred to section 33 and 35 (instruments not duly stamped is inadmissible in evidence) of the Stamp Act, 1899 and observed when a lease deed or any other instrument is relied upon as contending the arbitration agreement, the court should consider at the outset, whether an objection in that behalf is raised or not, whether the document is properly stamped. If it comes to the conclusion that it is not properly stamped, it should be impounded and dealt with in the manner specified in section 38 of Stamp Act. The court cannot act upon such a document or the arbitration clause therein. But if the deficit duty and penalty is paid in the manner set out in section 35 or section 40 of the Stamp Act, the document can be acted upon or admitted in evidence.
The Court summarised the procedure to be adopted where the arbitration clause is contained in a document which is not registered (but compulsorily registrable) and which is not duly stamped:
(i) The court should, before admitting any document into evidence or acting upon such document, examine whether the instrument/document is duly stamped and whether it is an instrument which is compulsorily registrable.
(ii) If the document is found to be not duly stamped, Section 35 of Stamp Act bars the said document being acted upon. Consequently, even the arbitration clause therein cannot be acted upon. The court should then proceed to impound the document under section 33 of the Stamp Act and follow the procedure under section 35 and 38 of the Stamp Act.
(iii) If the document is found to be duly stamped, or if the deficit stamp duty and penalty is paid, either before the Court or before the Collector, and the defect with reference to deficit stamp is cured, the court may treat the document as duly stamped.
(iv) Once the document is found to be duly stamped, the court shall proceed to consider whether the document is compulsorily registrable. If the document is found to be not compulsorily registrable, the court can act upon the arbitration agreement, without any impediment.
(v) If the document is not registered, but is compulsorily registrable, having regard to section 16(1) (a) of the Act, the court can de-link the arbitration agreement from the main document, as an agreement independent of the other terms of the document, even if the document itself cannot in any way affect the property or cannot be received as evidence of any transaction affecting such property. The only exception is where the respondent in the application demonstrates that the arbitration agreement is also void and unenforceable. If the respondent raises any objection that the arbitration agreement was invalid, the court will consider the said objection before proceeding to appoint an arbitrator.
(vi) Where the document is compulsorily registrable, but is not registered, but the arbitration agreement is valid and separable, what is required to be borne in mind is that the Arbitrator appointed in such a matter cannot rely upon the unregistered instrument except for two purposes, that is (a) as evidence of contract in a claim for specific performance and (b) as evidence of any collateral transaction which does not require registration.
Clauses 27 and 28 of the Agreement provided for arbitration and the governing law agreed to was the the 1996 Act.
The arbitration clause contained in the Agreement in Clause 27 read as follows:
27.2 The arbitration shall take place in Singapore and be conducted in English language.
(ii) Whether the “law of arbitration” would be the International Arbitration Act, 2002, of Singapore; and
(iii) whether the “Curial law” would be the laws of Singapore.
In 2009, Respondent issued a notice of termination of the Agreement, inter alia, on the ground of delay in performing the work under the Agreement. Settlement talks having failed, the Respondent/claimant, invoked Clause 27 of the Agreement for reference of the disputes to arbitration in accordance with the SIAC Rules. Both the parties filed applications before the Sole Arbitrator seeking interim relief under Rule 24 of the SIAC Rules in June, 2010. The Arbitrator passed an interim order on 29th June, 2010 in favour of Respondent.
Before the lower courts
The appeal filed by the Appellant before the District Court, Narasinghpur, under Section 37(2)(b) of the 1996 Act, against the order of the Sole Arbitrator, was dismissed on the ground of maintainability and lack of jurisdiction, since the seat of the arbitration proceedings was in Singapore and the said proceedings were governed by the laws of Singapore.
The Civil Revision filed against the said order was dismissed by the Madhya Pradesh High Court in August, 2010. The High Court observed that under Clause 27.1 of the Agreement, the parties had agreed to resolve their dispute under the provisions of SIAC Rules which expressly or, in any case, impliedly also adopted Rule 32 of the said Rules which categorically indicates that the law of arbitration under the said Rules would be the International Arbitration Act, 2002, of Singapore. Against this decision of the High Court, the Appellant filed this Special Leave Petition.
Before the Supreme Court
However, Section 37(2)(b) of the 1996 Act being a substantive and non-derogable provision, providing a right of appeal to parties from a denial of an interim measure, such a provision protects the interest of parties during the continuance of arbitration and as a consequence, Rule 32 of the SIAC Rules which does not provide for an appeal, is in direct conflict with a mandatory non-derogable provision contained in Section 37(2)(b) of the 1996 Act.
It was then submitted that Part I of the 1996 Act was applicable in this case, since:
“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.”
The concepts of ‘proper law‘ of an arbitration agreement and ‘curial law‘ were explained and distinguished. The proper law is the law which would be applicable in deciding the disputes referred to arbitration, it governs most aspects of the main contract, and the curial law governs the procedural aspect of the conduct of the arbitration proceedings.
First published at http://lexarbitri.blogspot.com/2011/07/recent-decision-of-supreme-court-on.html