June 13, 2021

Conduct of Arbitral Proceeding under Arbitration and Conciliation Act, 1996

Arbitration

Arbitration is used to settle cases between parties when there is a dispute among them. The conduct of Arbitral proceedings comes under the Arbitration and Conciliation Act, 1996. Chapter five of Arbitration and Conciliation Act 1996 deals with the conduct of arbitral proceedings. There are some important prerequisites for arbitration. They are there can be an arbitration agreement which is provided under the section 7 of the Act. The arbitration agreement should be in writing and both parties should sign in the agreement. There can be arbitration without prior agreement.

In the supreme court case of PAG Raju V PVG Raju[1] the supreme court held that arbitration agreement is not an important prerequisite to arbitration. If both the parties agree orally or when the claimant applies for arbitration and the respondent agree to the arbitration, then there is no problem.

In the case of Bihar State Mineral Dev Corpn. V Encon Builders (I) Pvt. Ltd[2] the supreme court gave some essential elements of an arbitration agreement. These are there should be and intention to resolve the problems between the parties and the arbitration should not be there to prolong the problem. The written agreement should be bound to the arbitrator and it should not be violated after the proceeding of arbitration begins. There should be proper consensus between the parties.

There should be notice by one of the parties to other party which is provided under the section 21 of the Act and there should be appointment of arbitrators as per under section 10 of the Act. The appointment of arbitrators should be consensual as per the section 11 of the Act. Party in an arbitration cannot be an arbitrator. There can be any number of arbitrators. In certain cases when there is a failure to choose an arbitrator the court can interfere in the matter and find an arbitrator. The fees for the arbitrator is determined by the High court and they frame rules for the same under the schedule 4 of the Act.

In the case of Tulsi Narayan Garg Vs. The M.P. Road Development Authority, Bhopal and Ors[3] a person who is a party to an agreement cannot be an arbitrator. This will create biased decision and is not legally sustainable by law. This is also against the section 18 which says that both parties should be treated equally and both party should be given a chance to represent. There are some rules and regulations for arbitration to take place. Section 21 gives the rules for the arbitral proceedings to start. The parties of the arbitration can choose when to start the arbitration and everything should be written document just like a contract.

In the case of Alupro Building System Pvt Ltd V Ozone Overseas Pvt. Ltd. There was a question of notice to arbitration. The claimant sent a notice to the respondent. There were two problems with the notice. In the notice it was given that the issue will be arbitrated by the arbitrator appointed by the claimant. This is not based on mutual consensus and the respondent didn’t agree to the arbitration by that arbitrator.

The second problem is that the notice didn’t give proper issues or claims against the respondent. The Delhi High court held that the notice is not proper as there were these problems to the notice and this conduct was bad in law. Arbitration is subjected to limitations and Limitation Act 1963 is applicable for the Arbitration proceedings. The use of limitation is given under the section 43 if the Arbitration and conciliation Act. Any arbitration which starts after the limitation period is not considered and time barred.

There are two fundamental principles for arbitration which are given under the section 18 of the Act. The parties to the Arbitration should be treated equally and both the parties should be given an opportunity to present their cases. The arbitral tribunal should not be partial towards any party.

In the supreme court case of Vinod Bhaiyalal Jain Vs. Wadhwani Parmeshwari Cold Storage Pvt. Ltd[4] there was an issue of bias. Supreme court in this case told that there should be no room for bias in the arbitration. In this case the arbitrator was found that he was a counsel for a party. In multiple occasions he sided with one party even there was no ground for that party. Supreme court found that there was reasonable bias, and the award of the arbitration was set aside. Arbitration is different from mediation because it follows all the rules of procedure. Section 19 of the Act give the arbitrators don’t have to follow Code of civil procedure 1908 or Indian Evidence Act 1872 for the settlement of the cases. The arbitrator has the power to choose any relevant method for the admissibility, materiality and weight of any evidence. The purpose of arbitration itself is to have a fast trial without all the procedures of the court.

If they have to follow the procedural law, then there is no effect for this Alternate dispute resolution system. In the case of Dr. Bina Modi v. Lalit Modi & Ors[5] the court held that it is the freedom of the parties whether to choose the normal procedure of law or not. This was a case of businesspeople and they told that they were not aware of the proceedings of the ICC (International Chambers of Commerce).The arbitrator couldn’t accept this because they were learned people, but still it was not considered because under section 19 there was discretion for the parties whether to choose the procedure law or not choose it.  Section 20 gives the parties right to choose the place of Arbitration. It should be consensual and if there is a dispute in the place of arbitration then the arbitrator can choose the place for arbitration. The arbitrator with the permission of the parties can choose a place where it is appropriate for the arbitrator to consult the members, hear witnesses, do inspection of documents etc.

In the case of Mankastu Impex Private Limited V Airvisual Limited[6]there was an issue with the place of arbitration. The parties have agreed to do the arbitration in Hong Kong. The question is that whether the arbitration maintainable according to the Arbitration and conciliation Act 1996 if the arbitration held in Hong Kong. According to the agreement provided by the parties the MoU of the parties were drafted and governed by the laws of India. So, the jurisdiction comes to a Delhi court and the arbitration can be held in Hong Kong by using the legislations given in the Arbitration and Conciliation Act 1996 and it should be held in English language.

The parties to arbitration can choose whichever language there are comfortable in. If they fail to choose a language the arbitrator can choose language. This is given under section 22 of the Act. The language will be applicable to any written statement by the parties, hearing, arbitral award, decision. Any documentary evidence should be translated to the language agreed for easiness of the arbitration. Section 23 of the act gives the provision for pleadings of the parties before the arbitrator. Both the parties can present their cases and within 6 months of appointment of arbitrator the statement of claim and defence should be finished.

The parties can give any relevant documents which support their claim. The respondent can give a counterclaim or plead to set off the case by saying that there is no merit for the case.  Section 24 of discusses the arbitrator’s power to arbitral proceedings and hearings on the basis of written agreement. If there is no written agreement, then the arbitrator can handle the proceedings orally or on the basis of documents and other materials. The parties should be given prior notice before the hearing for any purpose of inspection of any property or document. All documents and other material evidence given by a party should be communicated with the other party and any other expert report on which the arbitrator will make a decision should be communicated with the other party. Oral hearing can be done, and the arbitrator can suspend oral hearing if both the parties wish to do so.

Default of the parties to communicate is considered as a serious thing by the arbitrators. Section 25 of the Act talks about three situations where default is happened. First situation is when the claimant is absent without any proper cause. This will terminate the total proceedings under the section 23(1) of the Act. The second case is that when the respondent fails to communicate with the arbitration proceedings without any proper cause.

Under this situation the arbitral tribunal continue proceedings ex parte where decree will be given without statement of defence. This is also given under the section 23(1) of the Act. The third situation is when there is sufficient cause for either the parties then the termination is recalled, and the proceeding of arbitration will be restored. An expert can be brought for the expert opinion just like an evidence as per the proceedings of Indian Evidence Act. This is given under the section 26 of the Act. The expert cannot be used to resolve the issue and arbitrator cannot step down after that. His opinion will be valuable and can be used for resolving the dispute.

In the case of Husein Ebraham V Keshardeo Kanaria & Co[7] the arbitrator approached a third person who was not in the agreement between the parties. They asked him for information which are useful to the arbitration and didn’t disclose this thing to the parties of the arbitration. The arbitration was terminated, and the court held the arbitrators as guilty to misconduct. An expect cannot be used without disclosing it to the parties of arbitration.

Section 27 of the Act talks about court assistance. Tribunal can apply for court assistance when the parties are not taking the tribunal seriously and they can hold the parties as guilty when they are not cooperating with the arbitrator or refusing to give evidence to the arbitrator. The arbitrator can go to the court for having assistance in obtaining evidence and they should provide the names and addressed of the parties and arbitrators, the nature of the claim and the relief sought and the evidence which they want to obtain particular in the case. The court can give an order to give these obtained evidences directly to the arbitrators. The court may give a person punishment or penalty when they are not complying with the order of the arbitrator.

The last step of arbitration is the termination of proceedings by the arbitrator. Termination of arbitrator or substitution of arbitrator is given under the section 15 of the act. This can be when the arbitrator gives the final award or by an order by the arbitrator to terminate the arbitral proceedings. There are three cases where arbitrator can give an order of termination. They are if the claimant withdraws the claim and when the respondent does not object to the claim of claimant.

If both the parties come into consensus to terminate the arbitral proceeding and the when the arbitrator feels that the present arbitration is useless, and it is impossible to solve the issue between the parties because of the present facts of the case. In any of the situation the arbitrator should give proper order and acknowledge both parties by use of any notice. The arbitrator can be substituted by both the parties and any hearing done can be repeated with the agreement of the parties. If they wish to continue with the previous proceeding, then it is also possible.

For more notes on Arbitration and Conciliation Act, Click Here.

For law notes, Click Here.


[1] AIR 2000 SC 1886

[2] AIR 2003 SC 3688

[3] Order dated 30 August 2019 in Civil Appeal Nos. 6726 – 6729 of 2019.

[4] Judgment dated 24 July 2019 in Civil Appeal No. 6960 of 2011

[5] Judgment dated March 3, 2020 in CS (OS) 84/2020

[6] Arbitration Petition No 32 of 2018, Judgement dated March 5,2020

[7] AIR 1954 Cal 111

Author Details: Istinaf Abdullah (Alliance School of Law)

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