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CONTENTS

UNIT - I
- Arbitration
- Arbitration Agreement
IMPORTANT QUESTIONS

UNIT - II
- Arbitration Tribunal
- Award
- Court Assistance
- Finality and Enforcement of Arbitral Awards
IMPORTANT QUESTIONS

UNIT - III
- Appeal
- Revision
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- Enforcement of Foreign Award
and New York and Geneva Convention Awards
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IMPORTANT QUESTIONS
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UNIT - IV
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- Conciliation

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- Power of High Court and Central Government to make Rules

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IMPORTANT QUESTIONS

UNIT - V S
- Legal Services Authority Act, 1987
- Alternative Dispute Resolution System
- Industrial Dispute Act, 1947
IMPORTANT QUESTIONS
Suggested Readings
UNIT – I
ARBITRATION

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Arbitration is not a new concept for the administration of justice without any delay. It is an age old alternative
dispute resolution method all over the world. It is an alternative way to resolve the dispute out any access to
the regular judicial system i.e. regular courts. Arbitration has been adopted from e immemorial and it has
been given the sanctity of law after its efficacy was tested by the Governments.

Objectives: The main objectives of the Act are :

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a) to comprehensively cover international commercial arbitration and conciliation as also domestic
arbitration and conciliation;

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b) to make provision for an arbitral procedure which is fair, efficient and capable of meeting the needs
of the specific arbitration;
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c) to provide that the Arbitral Tribunal gives reasons for its arbitral award;

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d) to ensure that the Arbitral Tribunal remains within the limits of its jurisdiction.

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e) to minimise the supervisory role of courts in the arbitral process;

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f) to permit an Arbitral Tribunal to use medication, conciliation or other procedures during the arbitral
proceedings to encourage settlement of disputes;

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g) to provide that every final arbitral award is enforced in the same manner as if it were decree of the
court;

h) to provide that a settlement agreement reached by the parties as a result of conciliation


proceedings will have the same status and effect as an arbitral award on agreed terms on the
substance of the dispute rendered by an Arbitral Tribunal; and

to provide that, for purposes of enforcement of foreign awards, every arbitral award made in a
country to which one of the two international Conventions relating to foreign arbitral awards to which
India is a party applies, will be treated as a foreign award.

Use of Objects and Reasons for Interpreting Provisions :

The Supreme Court observed in Narain Khamman vs. Parduman Kumar (1985): It is now well settled

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that though the Statement of Objects and Reasons accompanying legislative Billing cannot be used to
determine the true meaning and effect of the substantive provisions of a statute, it is permissible to refer to
the Statement of Objects and Reasons accompanying a Bill for the purpose of understanding the
background, the antecedent state of affairs, the surrounding circumstances in relation to the statute, and
the evil which the statute sought to remedy.

It is well-settled that when the language of the statute is clear and admits of no ambiguity, recourse to the
statement of objects and reasons for the purpose of construing a statutory provision is not permissible. The
objects and reasons give an insight into the background why the provision was introduced. Though objects
and reasons cannot be the ultimate guide in interpretation of statutes, it often-times aids in finding out what
really persuaded the legislature to enact a particular provision.

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The objects and reasons of an Act should be taken into consideration in interpreting the provisions of the
statute in case of doubt. If the language of a provision is not clear, words have to be construed in the light of
the legislative scheme, the object and purpose of enacting the provision and the ultimate effect of adopting
one or the other construction.

Definitions: In this part, unless the context otherwise require:

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a) "arbitration" means any arbitration whether or not administered by permanent arbitral institution;

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b) "arbitration agreement." means an agreement referred to in Section 7;
c) "arbitral award" includes an interim award;

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d) "arbitral tribunal" means a sole arbitrator or a panel of arbitrators.
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Meaning, Nature and Scope of Arbitration: In the terms of sub-section (1) (a) "arbitration means any

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arbitration whether or not administered by permanent arbitral institution".

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When the parties agree to have their disputes decided with the) meditation of a third person, he with all the

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formally of a judicial adjudication, may be, speaking broadly, called an arbitration. An arbitration, therefore,

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means the submission by two or more parties of their dispute to the judgment of a third person, called the

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"arbitrator" and who is to decide the controversy in a judicial manner. "An arbitration is the reference of a
dispute or difference between not less than two parties for determination, after hearing both sides in a

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judicial manner, by a person or persons other than a court of competent jurisdiction." "Arbitration" is thus
defined by Romilly M.R. in the case of Collins vs. Collins (1858):

"An arbitration is a reference to the decision of one or more persons, either with or without an umpire, of a
particular matter in difference between the parties."
Dispute: What is meant by the term “dispute" for this purpose? The term has not been defined by the Act
nor there seems to be any judicial definition for the purposes of the Act.

Thus, the word "dispute" means/the matter in dispute, and not the contention or disputation over it. The
expression shall include disputl9s of law as well as of fact. The dispute may relate to an act of commission
or omission, for example, withholding a certificate to which a person is entitled or refusal to register a
transfer of shares.

Where the liability is already clear, but the party liable is refusing to pay up, that is not a "dispute". It is a mere
default. It is directly actionable.

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In Cleobulos Shipping Co. Ltd. vs. Intertanker Ltd., (1982) 132 ~Jew LJ 557, a ship was chartered to carry a
cargo of naphtha under a voyage charter-party containing an arbitration clause'. The charterers refused to
pay the full freight on the ground that the vessel had to be taken to a second unloading port owing to defects
in the vessel's pumping facilities.

The owner brought an action for the freight. The charterers wanted the action to be stayed because of the
arbitration clause. The court refused to agree that a failure to pay the full form freight was capable of
constituting a "dispute". The court said that the rule is well established in Aries Tanker Corporation vs. Total
Transport Ltd., (1977) 1 All ER 398 HL, that freight had to be paid in full without any set-off; the good conduct
of business so required. All cross-claims can be adjusted in legal proceedings.

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In Damodar Valley Corporation v. K.K. Kar, AIR 1974 SC 158; (1974) 1 SCC 141: (1974) SCR 240, where, in
a case before the Supreme Court, the liability to pay for coal supplied by a party under a contract was first
repudiated, but finally payments were made and accepted by the other party, the latter than claiming
compensation for repudiation, it was held that this was a dispute and the defendant's contention that the

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matter had been settled was not sufficient to bar arbitration.

In State of Orissa v. Damodar Das, (1996) 2 SCC 216: AIR 1996 SC 942; (1996) 82 Cut LT 110, the
agreement to refer disputes and differences to arbitration must be expressly or impliedly spelt out from the

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clause. A clause in a contract empowered the public health engineer to decide questions relating to the

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meaning of specifications, drawings, quality of work etc. and provided that the decision shall be final and

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effect of being an arbitration clause.

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it is not permissible for the complainant to raise new disputes in relation to damages claimed to have been
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sustained by him after the disputes have been referred to arbitration. The scope of arbitration has o be

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confined to the disputes which were the subject-matter of arbitration before the first arbitrator.

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Dispute of Civil Nature: Whatever be the type of dispute, the matter in dispute must be of civil nature.

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Matters of criminal nature cannot be referred to arbitration. In most cases reference to arbitration shuts out

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the jurisdiction of the courts, except as provided in the Act and since criminal courts cannot be deprived of

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their jurisdiction to try criminals, no criminal matter can be referred to arbitration. Thus, if the reference of
any case to arbitration would mean stifling prosecution of a criminal, the reference is not roper. Where,

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however, a criminal prosecution is only incidentally affected by reason of a reference, the eference is not
improper.

Similarly, where a single act involves civil as well as criminal consequences and the injured party has either
remedy at his disposal, he may agree to refer the matter to arbitration even if it has the effect of wiping out
the crime.

If it is an implied term of the arbitration agreement or of the reference to arbitration that a complaint for on-
compoundable offence will not be further proceeded with, the arbitration agreement is illegal and an award,
if any, is invalid and it is immaterial whether a prosecution has been actually started or not (Kamini Kumar
Basu v. Birendra Nath Bose, AIR 1930 PC 100; 57/A117; ILR (1930) 57 Cal 1302 : AIR 930 PC 100)

Generally matters of a criminal nature which cannot be compromised cannot be referred to arbitration. t in
cases where the injured party has a remedy by civil action as well as by criminal prosecution, a reference to
arbitration can be made. Thus compoundable cases may be referred to arbitration. Disputes under Section

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145, Cr.P.C. (disputes to possession) are mostly of a civil nature and may be referred to arbitration.

Subject to this restriction, any matter of civil nature can be referred to arbitration. Disputes relating to
property, ownership or tenancy, claims for damages howsoever arising, partnership matters, disputes
between an institution, like a company, and its members, can all be referred to arbitration. But some letters
involving a special type of jurisdiction cannot be so referred. For example, matters involving insolvency or
probate jurisdiction or those involving breach of a trust created for a public purpose under - section 82 of the
Code of Civil Procedure cannot be referred, for they involve public consequences and not mererly
adjudication of rights between private individuals. Matters under the Electricity Supply Act, 1948 which
contains its own statutory provision are not arbitrable except as provided. In Punjab S.E.B. v. Guru Nanak
Cold Storage and Ice Factory Manufacturers, (1996) 5 SCC 411 : AIR 1996 SC 284, before the Supreme
Court, a defaulter in payment of bills was sued by the Electricity Board and decree for payment was

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obtained. The consumer, instead of satisfying the decree, claimed compensation for losses caused
because of the sudden disruption of supply and demanded arbitration. The court said that the matter was
not arbitrable because of the special provisions of the Electricity Supply Act.

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Tort Matters: The arbitrator can decide matters connected with the contract. Where a charterer arrested
the ship because it refused to deliver the whole of the cargo, the ship owner's claim for damages for the
arrest was held by the court to be one in tort, but because the claim had arisen out of the breach of the
charter party, the arbitrator was competent to adjudicate upon the connected matter.

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Winding up of Companies: In Astro Vencedor Comapnia Naviera v. Mobanaft, (1971) 2 OB 588, the

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matter of the winding up of a company cannot be referred to arbitration. The court explained the position as

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follows:

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Section 8(1) of the Arbitration and Conciliation Act, 1996 provides that the judicial authority before whom an
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action is brought in a matter will refer the parties to arbitration the said matter in accordance with the

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arbitration agreement. This, however, postulates that what can be referred to the arbitrator is only that

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dispute or matter, which the arbitrator is competent or empowered to decide. The claim in a petition for

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winding up is not for money. The petition filed under the Companies Act would be to the effect, in a matter

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like this that the company has become commercially insolvent and, therefore, should be wound up. The

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power to order winding up of a company is contained in the Companies Act and is conferred on the court. An

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arbitration notwithstanding any agreement between the parties, would have no jurisdiction to order winding
up of a company.

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Contracts of Apprenticeship: Contracts of apprenticeship being for the benefit of minors, if they contain
an arbitration clause it will also be binding upon the minors.

Assignment: "When a contract is assignable, the benefit of an arbitration clause contained in it is


assignable as part of the contract".

Powers under Agreement: Specific Enforcement: Where a reference was made by the court under a
consent order which provided that the arbitrator would have summary powers and would not have to give
reasons, it was held that the consenting party was precluded from challenging the validity of the non-
speaking award.

Arbitration and Litigation: "One of the principal advantages of arbitration over litigation is commonly
stated to be that where the dispute concerns a technical matter such as a building contract, the person
chosen to arbitrate will normally be an expert in the subject-matter of the dispute, whereas a judge will

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seldom have any practical experience of the technicalities of the trade in question."

"The court does not have the power which the arbitrator had to open up and review the exercise of the
architect's discretion since the court's jurisdiction was limited to determining the enforcing the contractual
rights of the parties. The arbitrator, on the other hand because the parties' agreement expressly gave him
such power, was entitled to modify the parties contractual rights by substituting his own discretion for that of
the architect if he disagreed with the architect's certificates and opinions. Accordingly, if the parties choose
to litigate rather than arbitrate the court would not have the same powers."

The Supreme Court has also passed the following observation in State of J&K v. Dev Dutt Pandit, (1999) 7
SCC 339 : AIR 1999 SC 3196; "Arbitration is considered to be an important alternative dispute redressal
process which is to be encouraged because of high pendency of cases in the courts and cost of litigation.

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Arbitration has to be looked up to with all earnestness so that the litigant has faith in the speedy process of
resolving their disputes."

Reference under Arbitration Agreement: The second important feature of an arbitration is the

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agreement between the parties to the dispute to refer the matter to arbitration. The word "reference" was
defined in Section 2 (e) of the Arbitration Act, 1940 (now repealed) this way : "reference" means a reference
to arbitration.

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ARBITRATION AGREEMENT

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According to Section 70f Arbitration Conciliation Act, 1996 the Essentials and Kinds of Arbitration
Agreement are:
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1. "Arbitration agreement" means an agreement by the parties to submit to arbitration all or certain

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disputes which have arisen or which may arise between them in respect of a defined legal relationship,
whether contractual or not.
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2. An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a

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separate agreement.

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3. An arbitration agreement shall be in writing.

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4. An arbitration agreement is in writing if it is contained in :

1) an exchange of letters, telex, telegrams or other means of telecommunication which provide a


record of the agreement; or

2) An exchange of statements of claim and defense in which the existence of the agreement is alleged
by one party and not denied by the other.

5. The reference in a contract to a document containing an arbitration clause constitutes an arbitration


agreement if the contract is in writing and the reference is such as to make that arbitration clause part of
the contract.

Agreement to be in Writing: One of the points of some formal importance emphasised by these
provisions is that the reference should be by means of a written agreement. Section 7(3) most emphatically

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prescribes that "an arbitration agreement shall be in writing". An oral agreement to submit a dispute to
arbitration is not binding. If the agreement is in writing it will bind, even if some of its details are filled in y oral
understanding. It is not necessary that the agreement should be on a formal document nor it is necessary
that the agreement should be signed by both or either party. It is sufficient that the written agreement has
been orally accepted by the parties or that one has signed and the other has accepted.

Act recognises in Section 7(4) some three methods of arriving at a written agreement. One of them is
exchange of letters or raising a claim under an alleged arbitration agreement which is not denied by e other
party. The Act provides in Section 7 (4) that an arbitration agreement is in writing if it is contained in an
exchange of letters, telex, telegrams, or other means of telecommunication which provide a record of the
agreement or in an exchange (jf statements of claim and defense in which the existence of the agreement is
alleged by one party and not denied by the other.

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Whatever be the form or contents of th9 agreement, it is necessary for the Act to apply that there should be a
mandatory requirement for settlement of disputes by means of arbitration. An agreement that the parties
may go in for a suit or may also go in for arbitration is not an arbitration agreement.

No prescribed form of agreement: In Rukmanibai Gupta v. Collector, Jabalpur (1980) 4 SCC 556: AIR
1981 SC 479, the Supreme Court laid down that an arbitration clause is not required to be stated in any
particular form. If the intention of the parties to refer the dispute to arbitration can be clearly ascertained

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from the term of the agreement, it is immaterial whether or not the expression "arbitration" or "arbitrator" has

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been used. Nor it is necessary that it should be contained in the same contract document. An arbitration

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clause may be incorporated into an existing contract by specific reference to it. Section 7 (5) clearly
provides that the reference in a contract to a document contained an arbitration clause constitutes an
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arbitration agreement if the contract is in writing and the reference is such as to make tile arbitration clause
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a part of the contract. Hence, the whole thing turns upon the intention of the parties. Where the party

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showed that the arbitration clause in the signed agreement crept in mistake, it was held that the civil court

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was in error in acting upon a clause which the parties did no intend to be there and appointing an arbitrator

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on that basis.

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Tenders Containing Arbitration Clauses: The acceptance of a tender or a work order which carries an
arbitration clause, or the membership of an institution the constitution of which provides for arbitration or a
contract which contains a provision for arbitration, is sufficient. Acceptance of such a tender by an
authorised functionary of the Government would be a sufficient compliance of the formal requirements of
Article 299 of the Constitution of India so as to bind the Government by the arbitration clause.

"Arbitration Agreement" and "Reference": The expressions "arbitration agreement" and "reference"
have been separately defined. Explaining the purpose and effect of this scheme, the Supreme Court
observed in Banwari Lal Kotiya v. P.C. Aggarwal, (1985) 3 SCC 255, 260: AIR 1985 SC 1003: 1985 Arb. LR
1003. (The term "reference" has not been defined in the new 1996 Act, but the statement continue to be
valid as emphasising the distinction between an agreement for arbitration and a reference under it):

"The expression (reference) obviously refers to an actual reference made jointly by the parties after
disputes have arisen between them for adjudication to named arbitrator or arbitrators, while the expression
"arbitration agreement" is wider as it combines two concepts, (a) a bare agreement between the parties that
disputes arising between them should be decided or resolved through arbitration and (b) an actual
reference of a particular dispute for adjudication to named arbitrator.

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The facts of Banwari Lal Case, (1985) 3 SCC 255, were that there was a dealing about shares between a
Stock Exchange member and an outsider under which a sum of money had become due to the member.
The parties signed the contract-notes on a prescribed form. The transaction was subject to the rules,
regulations and bye-laws of the Stock Exchange one of which provided for arbitration in such matters. The
member appointed his arbitrator. The other refused to reciprocate. In such cases, the rules provided for
appointment by the Exchange. The latter accordingly appointed one. The other party participated in the
proceedings under protest that he had not given his consent and, therefore, the award would not be binding
on him. The Supreme Court came to the conclusion that a fresh consent was necessary on his part. He had
consented to the rules and regulation which contained an elaborate machinery for submission. No fresh
consent was necessary.

Clauses having the effect of "arbitration agreement": Whether a clause in a contract amounts to an

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agreement of arbitration depends upon its scope. In State of U.P. v. Tipper Chand, (1980) 2 SCC 341: AIR
1980 SC 1522: 1980 All LJ 749, before the Supreme Court a clause in a Government contract provided that
the decision of the superintending engineer upon all questions relating to the contract shall De final and
binding. An application was made under Section 20 of 1940 Act (now Section 8) to refer a dispute to

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arbitration on the basis that the above clause amounted to an agreement of arbitration. The supreme Court
rejected the contention. FAZAL All, J., observed:

“Admittedly the clause does not contain any express arbitration agreement. Nor can such an agreement e

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spelled out from its terms by implication, there being no mention in it of any disputes much less of a

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reference thereof. The purpose of the clause clearly appears to be to vest the superintending engineer with

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supervision of the execution of the work and administrative control over it from time to time."

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Thee court distinguished the case from some earlier rulings in which the clause in question provided that in
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any dispute between the contractor and the department the decision of the chief engineer shall be final".

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The court said that this clause was correctly interpreted as amounting to an arbitration agreement.

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In another case i.e., Rukmani Gupta v. Collector, Jabalpur (1980) 4 SCC 556, a mining lease granted by e

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State carried a clause that disputes, if any, shall be decided by the lessor (in this case the Governor whose

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name the lease was executed) and his decision shall be final. The Supreme Court held that is amounted to

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an arbitration agreement. DESAI. J., said:

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Arbitration agreement is not required to be in any particular form. What is required to be ascertained is
'whether the parties have agreed that if disputes arise they would be referred to arbitration, then such an
arrangement would spell out an arbitration agreement."

Reference of time-barred claim: An arbitration agreement may even contemplate reference of a time
barred claim. A policy of insurance required the assured to refer the matter to arbitration within twelve
months of the company's disclaimer. The assured referred it after twelve months and yet the reference as
held to be binding. (Ruby General Insurance Co. Ltd. v. Peare Lal Kumar, AIR 1951 Punjab 440)

The significance of Section 25(3) of the Indian Contract Act, 1872 has also to be kept in view. A time barred
claim can, therefore, validly form the subject-matter of reference. A distinction, however, is to be made
between an arbitration agreement entered into about a time-barred claim and a reference made the basis of
an arbitration clause after the expiry of the period of limitation. In the latter case no reference can be made
as the right to claim ceases to subsist and the relief with respect to the dispute as become time-barred.

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Adoption of arbitration clause from main contract by sub-contract: Where an arbitration clause
contained in the main contract is adopted in a sub-contract also by a clause declaring that this subcontract
is being granted on the terms and conditions applicable to the main contract, it will not necessarily follow
that the parties to the sub-contract would also be bound by the arbitration clause. For e thing, the parties are
different and for another, the purpose of the contract being different, different kinds of disputes are likely to
arise than those contemplated by the main contract.

Position of Non-Parties: An arbitration is a private procedure. It is an implied term that stingers to the 2
agreement are excluded from hearing and conduct of proceedings. Accordingly, an arbitrator cannot, less
all parties consent, order that the arbitration of a dispute between a ship owner and a charterer - 'sing out of
a charter party and the arbitration of a separate but closely-related dispute between the charterer and a
sub-charterer arising out of a sub-charterer be heard together even though the two disputes are closely

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related and a consolidated hearing would be convenient.

Validity of Arbitration Agreement

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Reference without agreement or under void agreement: The court may stay arbitration proceedings
where the parties have not agreed to refer the particular dispute to arbitration or where the contract which
carried the arbitration clause is itself void. The proceedings remain stayed till the matter as to the validity of
the reference is decided. A situation of this kind came before the Court of Appeal in England in Ben & Co.

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Ltd. v. Pakistan Edible Oils Corporation Ltd. (1979)

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There was a contract to purchase palm-oil by a Karachi firm from a Singapore seller. The contract included
a London arbitration clause. The Karachi firm contended that the agent who purported to contract on their
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behalf had no actual or apparent authority to do so . the seller commenced arbitration proceedings in
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London. The Karachi party-applied for a stay.

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In K.K. Modi v. K.N. Modi, (1998) 3 SCC 573 : AIR 1998 SC 1297, in a family matter before the Supreme

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Court, a memorandum of understanding was signed between the two branches of the family for bringing

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about division of property between them. Experts were appointed for valuation and preparation of scheme

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for division between the two groups the corporate undertakings of the family. The agreement also provided

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that any dispute, clarification, etc. in the matters of implementation would be referred to the Chairman of the
Industrial Finance Corporation of India. It was held that this did not constitute an arbitration agreement. It

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only amounted to a reference of issues to an expert for decision.

Nature of Dispute: Disputes which can be referred to arbitration are :

1) present or future disputes which are,


2) In respect of a defined legal relationship, whether contractual or not.

Present or Future Disputes: All matters of a civil nature with a few exceptions, whether they relate to
present or future disputes may form the subject of reference but not a dispute arising from and founded on
an illegal transaction.

Though the existence of a dispute is essential to the validity of a reference to arbitration, an arbitration
agreement may provide for a present or a future dispute. If the agreement relates to a present dispute it will
generally amount to a reference, but if it has been entered into merely to provide for any future dispute, it is
an arbitration clause.

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Cases of Special Jurisdiction: Where the law has given jurisdiction to determine, certain matters to
specified tribunals only, such matters cannot be referred to arbitrations, e.g.,

a) Insolvency proceedings
b) Probate proceedings
c) Suit under Section 92, CPC
d) Proceedings for appointment of guardian
e) Matrimonial causes - except settlement of terms of separation or divorce
f) Title to immovable property in a foreign country

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g) Claim for recovery of octroi duty.

Not necessary to specify dispute: It is not necessary to specify the dispute either in the arbitration
agreement or in the reference to the arbitrator. Such specification can also be made in the proceedings

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before the arbitrator.

Statutory Arbitrations: The disputes which may be the subject of an arbitration agreement need not
necessarily arise out of a contract. They may also arise out of stat4tory provisions.

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Who can make reference: Reference to arbitration may occur in any of the following ways :

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Under Statutory Provisions: A reference can be made under the provisions of an Act. There are many
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Acts of Parliament which provide that any dispute about their provisions shall be settled by arbitration. The
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electricity Supply Act, 1948, for example, provides for disposal by arbitration the disputes that may arise

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about its provisions.

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By Consent of Parties: The parties to a dispute may agree to have their differences resolved by

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arbitration.

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The method of having arbitration though the intervention of the court has been dropped by the 1996 Act.
The policy of the Arbitration and Conciliation Act, 1996 is to minimise the intervention of the court. The new

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Act minces no words in declaring in Section 5 that notwithstanding anything contained in any other law for
the time being in force, in matters governed by part I of the Act no judicial authority can intervene except
where permitted by the provisions of Part I. Accordingly, an arbitration can now by only parties' agreement
and not through court or through intervention of court. On this point, Section 8 of the 1996 Act carries this
provision that where a party to an arbitration agreement nevertheless files a suit the other party may apply
to the court and the letter may order reference to 'arbitration'.

Effect of Arbitration Agreement: Stay of Suits (Section 8)


Power to refer parties to arbitration where there is an arbitration agreement:

1) A judicial authority before which an action is brought in a matter which is the subject of an arbitration
agreement shall, if a party so applies not later than when submitting his first statement on the substance
of the dispute, refer the parties to arbitration.

2) The application referred to in sub-section (1) shall not be entertained unless it is accompanied by the

9
original arbitration agreement or a duly certified copy thereof.

3) Notwithstanding that an application has been made under sub-section (1) and that the issue is pending
before the judicial authority, an arbitration may be commenced or continued and an arbitral award
made.

Power of court to order parties to arbitration: The Arbitration and Conciliation Act, 1996 is intended help
the parties to settle their differences privately by conciliation or by arbitration and thereby to spare -
themselves of wasteful and vexatious litigation. If the matter covered by an arbitration agreement could
shall be litigated upon, the arbitration, instead of being a cheaper and less time-consuming alternative to
litigation, would involve duplicity of expenditure and effort and would in essence be self-defeating. It is,
therefore, necessary to provide, to make arbitration meaningful and a real alternative to litigation, that the

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matter covered by an arbitration agreement shall not be litigated upon in any court of law whatsoever,
except for the purposes of making the arbitration really effective.

In recognition of this principle Section 8(1) of the Arbitration and Conciliation Act, 1996 provides that if any

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party to an arbitration agreement brings before a judicial authority the matter covered by the agreement, the
other party may apply for stay of the suit and for order of reference to arbitration.

The question whether the dispute in question is arbitrable or not has to be decided by the court. It has also to

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decide whether the dispute brought before it is the subject-matter of the arbitration agreement. In satisfying

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itself whether the dispute is arbitrable or not the court has to go into the aspects of validity, existence etc. of

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the agreement.

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Under the Arbitration and Conciliation Act, 1996 (Section 8), the word used is "shall". The effect is that the
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court has no choice or discretion in the matter and is bound to refer the parties to arbitration.

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The Supreme Court in Anderson Wright Ltd. v. Moran & Co. AIR 1955 SC 53, stated the requirements of

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stay as they applied under the 1940 Act;

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party to the agreement;
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In order that a stay may be granted it is necessary that the following conditions should be fulfilled:

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1) The proceedings must have been commenced by a party to an arbitration agreement against any other

2) The legal proceeding which is sought to be stayed must be in respect of a matter agreed to be referred.
The subject-matter of the action should be the same as the subject-matter of the arbitration agreement.

3) The applicant for stay must be a party to the legal proceedings and he must have taken no step in the
proceedings after appearance. [Under the 1996 Act, the requirement is before 'submitting first
statement on the substance of the dispute'] It is also necessary that he should satisfy the court not only
that he is but also was at the commencement of the proceedings ready and willing to do everything
necessary for the proper conduct of the arbitration; and

4) The court must be satisfied that there is no sufficient reason why the matter should not be referred to an
arbitration in accordance with the arbitration agreement.

The discretionary element in the power of the court is not applicable under the 1996 Act. Under the new

10
provision (Section 8 of 1996 Act) the requirements of stay application and of an order for reference to
arbitration were stated by the Supreme Court in P. Anand Gajapathi Raju v. P.v.G. Raju AIR 2000 SC 1886
as follows:

1) There must be an arbitration agreement;


2) A party to the agreement brings an action in the court against the other party;
3) The subject-matter of the action is the same as the subject-matter of the arbitration agreement;

4) The other party moves the court for referring the parties to arbitration before submitting the first
statement on the substance of the dispute."

Matter of stay should be within arbitration agreement: Firstly, the matter about which a suit has been

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filed should be within the scope of the arbitration agreement. The words used in the section are:

"In a matter which is the subject of an arbitration agreement".

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Impartiality of Nominated Arbitrator: The impartiality of the arbitrator or lack of independence on his part
is under the 1996 Act a ground Tor having him substituted and riot for staying legal proceedings because
Section 8 is couched in mandatory form. The court has no choice in the 'matter but to order the parties to
reference.

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The Supreme Court pointed out in U.P. Cooperative Federation vs. Sunder Bros., Delhi (1966) that a stay

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will not be granted if there is a good reason for apprehending that the selected arbitrator is likely to show
bias or that he will not act fairly or that he has been guilty of unreasonable conduct or that for some reason it
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is improper that he. should arbitrate in the dispute. Bias may arise, for example, from the act that the
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arbitrator is related to one of the parties. Similarly, where the arbitrator has to play the role of a witness also,

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it is improper that he should arbitrate, and, therefore, an action would be allowed to proceed. Thus, where a

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contractor worked for a corporation and the disputes, if any, were to be referred o the corporation's

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engineer, a dispute which arose involved conflict of evidence between the contractor and the engineer, it

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was held that the engineer was not the proper person to arbitrate and so the suit should be allowed.

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These rulings would be applicable under the Arbitration and Conciliation Act, t996 only when the
circumstances are such and the arbitration agreement is such that the substitution of the arbitrator is not

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possible under the challenge procedure permitted by Section 12 and 13 of the Act.

Fraud by one party to arbitration: The court may refuse a stay where the question is whether one of the
3arties to the arbitrator, agreement has been guilty of fraud. In such cases a special issue for setting aside
the agreement on the ground of fraud under Sections 17 and 19 of the Indian Contract Act, 1872 would have
to be raised.

Agreement to exclude courts altogether: An arbitration agreement which seeks to exclude altogether.
The jurisdiction of the courts would be void, being contrary to the arbitration am;! conciliation Act, 1996
itself. For example, the court's power to ask the arbitrator to submit a question of law for determination by
the court under. the earlier 1940 Act could not be ousted. But it is open to the parties to stipulate that the
award of the arbitrator shall be a condition precedent to the mi3intainability of any suit. In such cases action
may be allowed until an award has been obtained. This was laid down in Scott v. Avery (1856) CL 811 and
such a clause is also known by the' name of that case.

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A policy of insurance on a ship provided that in the event of loss the amount of loss would be determined -
arbitration and that the award of the arbitrator would be a condition precedent to the maintainability of any
suit. The House of Lords accordingly held that no action was maintainable until the award was obtained.

The validity of Scott v. Avery clause was approved by the Supreme Court in Vulcan Insurance Co. v.
Maharaj Singh(1976) 1 SCC 945 : AIR 1976 SC 287.

A factory was insured against fire. It was lost in a fire, but the insurance company repudiated all liability
under the policy. The policy provided that if any dispute arose as to the amount of any loss or damage, the
same would be decided by arbitration. The assured attempted to appoint an arbitrator by filing the
agreement in the court.

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UNTWALIA, J., held that the repudiation of liability was not a dispute as to the amount of "an loss or age"
and, therefore, it was outside the arbitration agreement. The proper course for the assured as to commence
a suit to determine the question and once a court had decided that the company could have been held
liable, the matter could have been referred to arbitration as to the amount of liability. Such a suit was not

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barred by the policy. A suit of this kind is not barred unless there is the Scott v. Avery clause.

Effect of Legal proceedings upon Arbitration (Section 8, 1996 Act): Sub-section (3) of Section 8, 1996
Act deals with this point:

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"Notwithstanding that an application has been made under sub-section (1) and that the issue is pending

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before the judicial authority, an arbitration may be commenced or continued and an arbitral award made."

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Under Section 8 of the new Act unless a party objects to the .legal proceedings, they are valid. The
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arbitration agreement does not oust the jurisdiction of the courts by itself. Where no party comes forward to

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object to the suit, the arbitration agreement becomes ousted. A suit would have no effect on the arbitration

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proceeding if it is pending, or even 'commenced. Such proceedings can be continued and an award made.

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Waiver of Rights

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Waiver of Right to Object: A party who knows that:

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1) Any provision of this Part from which the parties may derogate, or

2) Any requirement under the arbitration agreement, has not been complied with the yet proceeds with the
arbitration without stating his objection to such-non-compliance without undue delay or, if a time limit is
provided for stating that objection, within that period of time, shall be deemed to have waived his right to
so object.

Extent of Judicial Intervention: Notwithstanding anything contained in any other law for the time, being in
force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this
Part.

Judicial Intervention: This section bars the jurisdiction of courts to interfere or to intervene in arbitration
proceedings except to the extent provided in Part l. This Part provides for/intervention of Courts in the
following cases:

12
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1) Section 8 - making reference in a pending suit.
2) Section 9 - passing interim orders.
3) Section 11 - appointment of arbitrators.
4) Section 14(2) - terminating mandate of arbitrator.
5) Section 27 - Court assistance in taking evidence.
6) Section 34 - setting aside an award.
7) Section 37 - entertaining appeals against certain orders.
8) Section 39(2) - directing delivery of award.

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Some of the cases where Courts exercised jurisdiction under the repealed Arbitration Act, 1940, and in
which the jurisdiction is barred under the present Act were:

1) Section 11 - removal of an arbitrator or umpire

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2) Section 14 - filing of an award in court.
3) Section 15 - modification of award by court.
4) Section 16 - power of court to remit an award for reconsideration.

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5) Section 17 - pronouncing judgment in terms of an award.
6) Section 19 - superseding an agreement.
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7) Section 20 - filing of arbitration agreement in Court and seeking an order of reference

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Provision of Interim Relief by Courts

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Interim Measures by Court: A party may, before or during arbitral proceedings or at any time after the
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making of the arbitral award -but before it is enforced in accordance with Section 36, apply to a Court -

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1) For the appointment of a guardian for a minor or a person of unsound mind for the purposes of arbitral
proceedings; or
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2) For an interim measure of protection in respect of any of the following matters, namely:

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a) the preservation, interim custody or sale of any goods which are subject-matter of the arbitration
agreement;

b) securing the amount in dispute in the arbitration;

c) the detention, preservation or inspection of any properly or thing which is the subject matter of the
dispute in arbitration, or as to which any question may arise therein and authorising for any of the
aforesaid purposes any person to enter upon any land or building in the possession of any party, or
authorising any samples to be taken or any observation to be made, or experiment to be tried, which
may be necessary or expedient for the purpose of obtaining full information or evidence;

d) interim injunction or the appointment of a receiver;

e) such other interim measure of protection as may appear to the Court to be just and convenient.

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and the court shall have the same power for making orders as it has for the purpose of, and in relation to,
any proceedings before it.

Power of Court: The section provides for the making of orders for interim measures to provide interim relief
to the parties in respect of arbitration. Section 41 and Schedule II of repealed 1940 Act dealt with this
subject-matter. Those provisions have been deleted. The powers of the court include an order in respect of
the following matters:

1) the preservation, interim custody or sale of any goods which are the subject-matter of the reference.

2) Securing the amount in difference in the reference.

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3) The detention, preservation of inspection of any property or thing which is the subject of the reference or
as to which any question may arise therein and authorising for any of the aforesaid purposes any
person to enter upon or into any land or building in the possession of any party to the reference, or
authorising any samples to be taken, or any observation to be made, or experiment to be tried, which
may be necessary or expedient for the purpose of obtaining full information or evidence.

4) Interim injunctions or the appointment of a receiver.

proceedings.

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5) The appointment of a guardian for a minor or person of unsound mind for the purposes of arbitration

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Effect of Interim Measures: An interim measure does not put to rest the rights of the parties. The rights of
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the parties are required to be adjudicated finally when a reference is made. The court has the authority and

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jurisdiction to pass interim orders for protection and preservation of rights of the parties during the

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arbitration proceedings but that does not necessarily mean that if a party has availed of a benefit under this

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jurisdiction, the other party cannot put his claim in the ,main pr0geedings which is before the arbitrator. The

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interim arrangement made by the court has to be giver:' the interim status. Where an arbitration clause

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exists in a contract and an order relating to the contract is passed and the parties do not abdicate the

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arbitration clause and, on the contrary, take a resource to the same, at the disputes inclusive of benefits
arising or having already arisen, have to be decided by the arbitrator.

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Q.1.

Q.2.

Q.3.
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IMPORTANT QUESTIONS

What are the salient features of Arbitration and Conciliation Act, 1969? Discuss.

Explain the requirements of a valid arbitration agreement.

"An arbitration agreement cannot be revoked due to the death of either of the party to dispute."
Comment.

14
UNIT - II
ARBITRATION TRIBUNAL

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According to Section 10 of Arbitration and Conciliation Act the qualification and procedure for the
Appointment of Arbitrators are:

1) A person of any nationality may be an arbitrator, unless otherwise agreed by the parties.

arbitrators.

act as the presiding arbitrator.

4) If the appointment procedure in sub-section (3) applies and –


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2) Subject to sub-section (6), the parties are free to agree on a procedure for appointing the arbitrator or

3) Failing any agreement referred to in sub-section (2), in an arbitration with three arbitrators each party

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shall appoint one arbitrator, and the two appointed arbitrators shall appoint the third arbitrator who shall

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a) a party fails to appoint an arbitrator within thirty days .from the receipt of a request to do so from the
other party; or

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b) The two appointed arbitrators fail to agree on the third arbitrator within thirty days from the date of
their appointment, the appointment shall be made, upon request of a party, by the Chief Justice or
any person or institution designated by him.

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5) Failing any agreement referred to in sub-section (3), in an arbitration with a sole arbitrator, if the parties
fail to agree on the arbitrator within thirty days from receipt of a request by one party from the other party
to so agree the appointment shall be made, upon request of a party, by the Chief Justice or any person
or institution designated by him.

6) Where, under an appointment procedure agreed upon by the parties –

a. a party fails to act as required under that procedure; or

b. the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that
procedure; or

c. a person, including an institution, fails to perform any function entrusted to him or if under that
procedure, a party may request the! Chief Justice or any person or institution designated by him to

15
take the necessary measure, unless the agreement on .the appointment procedure provides other
means for securing the appointment.

7) A decision on a matter entrusted by sub-section (4) of sub-section (5) on sub-section (6) to the Chief
Justice or the person or institution designated by him is final.

8) The Chief Justice or the person or institution designated by him, in appointing an arbitrator, shall have
due regard to –

a. any qualifications required of the arbitrator by the agreement of the parties; and

b. other considerations as are likely to secure the appointment of an independent and impartial

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arbitrator.

9) In the case of appointment of sole or third arbitrator in an international commercial arbitration, the Chief
Justice of India or the person or institution designated by tlil1lf may appoint an arbitrator of a nationality

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other than the nationalities of the parties where the parties belong to different nationalities.

10) The Chief Justice may make such scheme as he may deem appropriate for dealing with matters
entrusted by sub-section (4) or sub-section (5) or sub-section (6) to him.

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11) Where more than one request has been made under sub-section (4) or sub-section (5) or sub-section

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(6) to the Chief Justices of different High Courts or their designates, the Chief Justice or his designate to
whom the request has been first made under the relevant sub-section shall alone be competent to
decide on the request.
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reference to the "Chief Justice of India". a
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12) (a) Where the matters referred to in sub-sections (4), (5), (6), (7), (8) and (10) arise in an international
commercial arbitration, the reference to "Chief Justice" in those sub-sections shall be construed as a

(b) Where the matters referred to in sub-sections (4), (5), (6), (7), (8) and (10) arise in any other
arbitration, the reference to "Chief Justice" in those sub-sections shall be construed as a reference to
the Chief Justice of the High Court within whose local limits the Principal Civil Court referred to in clause

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(e) of sub-section (1) of Section 2 is situate and, where the High Court itself is the Court referred to in
that clause, to the Chief Justice of that High Court.

Appointment by Chief Justice (Section 11): The expression Chief Justice in this connection virtually
means the court because in most cases the Chief Justices have authorised Civil Judges.

In the three cases mentioned in -the section the Chief Justice gets- the power to appoint an arbitrator. They
are:

a) Where he parties fall to appoint or concur in the appointment of an arbitrator or arbitrators;

b) Where the two appointed arbitrators fail to appoint or concur in the appointment of the presiding
arbitrator.

c) Where the person or institution designated by the parties for appointment fails to act.

16
Thirty-day Notice: Before asking the Chief Justice to act in the matter, a thirty clear days' notice should be
given to the other party to concur in the appointment and if he fails to do so then an application can be made
to the court. The court will also give an opportunity to the other party to explain his position. The Chief
Justice must have due regard to the qualifications f the arbitrators required by the parties under their
agreement and also independence and impartiality of the person in question. An application for
appointment of arbitrator made before giving any notice to the other party or raising a demand against him
was held to be incompetent.

Challenge to Arbitrators: The old topic of revoking the authority of an arbitrator and seeking removal has
been given a new jargon, namely challenging the arbitrator. The grounds on which a challenge can be
presented are listed in Section 12 of Arbitration and Conciliation Act, 1996.

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Grounds for Challenge:

Grounds for challenge:

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1) When a person is approached in connection with his possible appointment as an arbitrator he shall
disclose in writing any circumstances likely to give rise to justifiable doubts as to his independence or
impartiality.

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2) An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall without

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delay, disclose to the parties in writing any circumstances referred to in sub-section (1) unless they have

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already been informed of them by him.

3) An arbitrator may be challenged only if- .


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a) circumstances exist that give rise to justifiable doubts as to his independence or impartiality, or

b) he does not possess the qualifications agreed to by the parties.

4) A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only
for reasons of which he becomes aware after the appointment has been made.

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Doubt as to Independence. or Impartiality at initial stage: One of the grounds for challenge is the existence
of a doubt about the arbitrator's independence or impartiality. Section 12 (1) says that when a person is
approached in connection with his possible appointment as an arbitrator, he is under a duty to disclose in
writing any circumstances likely to give rise to justifiable doubts as to his independence or impartiality.

Disclosure of circumstances by proposed arbitrator: Sub-section (1) casts a duty upon a person who is
approached for appointment as an arbitrator to disclose in writing any circumstances which are liable to
cast justifiable doubts as to his independence or impartiality.

The arbitrator must be, and must be seen to be, disinterested and unbiased. Unless both parties, with full
knowledge of the facts expressly agree to his acting, no one should adjudicate in proceedings in the
outcome of which he has a direct pecuniary interest. For example, no one should accept appointment in a
dispute if he holds shares in one of the parties, or if he would benefit in some other way from a decision in
favour of one of the parties. And the arbitrator in a valuation dispute should not be remunerated on a scale

17
such that the higher the amount of his award, the higher his fee.

The arbitrator should have no connection, direct or indirect, with a party such that it creates an appearance
of partiality. It is easier to recognise than to define the boundary between what previous connections do and
what do not disqualify. Actual bias is irrelevant for this purpose. The test is whether a reasonable person
who was not a party to the dispute would think it likely that the connection was close enough to cause the
arbitrator to be biased. Thus, personal friendship or hostility; an employment relationship; a previous
professional relationship either direct or through other members of a firm in which the arbitrator is a partner;
these are examples of a relationship which might create in a responsible outsider a reasonable suspicion of
bias. If there is any real doubt about the matter, the arbitrator should disclose the facts to the parties and
should ask if they object to his accepting the appointment. If the facts become known to him after
appointment, he should disclose them and ask if they object to his continuing.

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It is well-settled that there must be purity in the administration of justice as well as in administration or quasi-
judicial functions as are involved in the adjudicatory process before the arbitrators.

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An arbitrator ought to be an indifferent and impartial person between ~he disputants. When the parties
entrust their facts into the hands of an arbitrator, it is essential that there must be abundant good faith. The
arbitrator must be absolutely disinterested and impartial. An interested person is disqualified from acting as
an arbitrator. The interest disqualifies the arbitrator if it is calculated to produce a bias in his mind. The test is

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whether he is likely to be biased. Actual bias need not be proved.

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Doubts Developing Afterwards: Disclosure after appointment: Sub-section (2) casts a duty on the
arbitrator after his appointment and throughout the arbitral proceedings to make to the parties the
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disclosures, mentioned in sub-section (1), relating to matter which may have arisen after the appointment
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began. He may not do so if he has already made the disclosure before the appointment. Section 12(2) takes

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care of doubts which develop after the appointment. It requires the arbitrator to disclose' to the parties in

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writing and without any delay any circumstances developing after the time of his appointment and during

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the course of the arbitral proceedings which give rise to a justifiable doubt about his independence or

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impartiality. Thus an arbitrator can be challenged, whether he discloses his disqualification or not jf there

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are justifiable doubts about his independence or impartiality.

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The appointment of an arbitrator can be challenged only on one or more of the following grounds:

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a) That circumstances exist which give rise to justifiable doubts as to his independence of impartiality, or

b) That he does not possess the qualifications agreed to by the parties. The appointment can not be
challenged on any other grounds.

Party's Challenge to his own arbitrator: An arbitrator can be challenged by the party who appointed him
or in whose appointment he participated only for reasons of which the party became aware after the
appointment has been made.

Challenge Procedure:

1) Subject to sub-section (4), the parties are free to agree on a procedure for challenging an arbitrator.

2) Failing any agreement referred to in sub-section (1), a party who intends to challenge an arbitrator shall,

18
within fifteen days after becoming aware of the constitution of the arbitral tribunal or after becoming
aware of any circumstances referred to in sub-section (3) of Section 12, send a written statement' of the
reasons for the challenge to the arbitral tribunal.

3) Unless the arbitrator challenged under sub-section(2) withdraws from his office or the other party agrees
to the challenge, the arbitral tribunal shall decide on the challenge.

4) If a challenge under any procedure agreed upon by the parties or under the procedure under sub-
section (2) is not successful, the arbitral tribunal shall continue the arbitral proceedings and make an
arbitral award.

5) Where an arbitral award is made under sub-section (4), the party challenging the arbitrator may make

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an application for setting aside such an arbitral award in accordance with Section 34.

6) Where an arbitral award is set aside on an application made under sub-section (5), the Co may decide
as to whether the arbitrator who is challenged is entitled to any fees.

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On this point also the Act gives freedom to the parties to settle by agreement the procedure by which the
arbitrator in question would be challenged. If there is no agreement on the point or the parties have failed to
agree, then the procedure to be followed is that the party wishing to challenge the person has to inform the

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Arbitral Tribunal of the matter. This should be done within fifteen days. If the other party agrees to the

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challenge and the -arbitrator does not voluntarily withdraw, the Tribunal shall decide the matter. If the

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challenge is not successful, the Tribunal shall continue with the proceeding and make an award. The arty
who challenged the arbitrator may challenge the award also and make an application for setting aside in
.
accordance with Section 34. If the award is set aside, the court can consider whether the arbitrator should
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be entitled to his remuneration or not.

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The grounds on which leave to revoke could be given were put under five heads:

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1. Excess or refusal of jurisdiction by the arbitrator.
2. Misconduct of arbitrator.
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Disqualification of arbitrator

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4. Charges of fraud.
5. Exceptional cases.

Termination of authority of arbitration: Sub-section (1) of Section 14 sets out the following grounds on
which the mandate or authority of an arbitrator can be terminated:

1. (a) the arbitrator either in law of factually becomes unable to perform his functions, or
(b) For some reasons he fails to act without undue delay, and
2. (a) he withdraw from his office, or
(b) the parties agree the termination.

There was no provision corresponding to Section 14 in the repealed Arbitration Act, 1940. Section 11(1) of
the old Act gave power to the Court to remove an arbitrator in circumstances similar to those mentioned in
Section 14(1) (a) of the present Act. Section 11 (1) of the old Act provided:

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"The court may, on the application of any party to a reference, remove an arbitrator or umpire who fails o use
all reasonable dispatch in entering on the proceeding with the reference and making an award."
Retirement or Change of Posting of Ex-officio Arbitrator: An arbitration agreement provided for
reference to an engineer officer to be appointed by a third party. The arbitrator so appointed retired during
the pendency of the proceedings. The Supreme Court held that the retirement resulted in the termination of
the authority of the arbitrator. A new arbitrator would be appointed and the proceedings would be deemed to
have continued before the new arbitrator.

Court's Assistance: If there is a dispute between the parties as to the existence of the grounds mentioned
in clause (a) of sub-section (1) of Section 14, any party may apply to the Court for resolution of the dispute.
Such grounds are de jure or de facto inability to act or failure to act without undue delay.

these grounds.

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But the section does not contemplate a dispute as regards the grounds mentioned in Section 14 (1) (b) and
there is no provision for a reference to the Court in this regard. These grounds are withdrawing from office or
termination of authority under parties' agreement: There can hardly be any doubt about the operation of

Effect of withdrawal: Where - (a) an arbitrator withdraws from his office, or (b) a party agrees to the
termination of his mandate, it will not be inferred that any of the grounds referred to in Section 14 (1) or in

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Section 12 (3) have been established. Withdrawal from office by the arbitrator is not on account of any

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decision on the merits of grounds for termination of his mandate. Likewise the agreement of the parties to

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the termination of the mandate does not entail any decision on merits. The mandate of an office holder
arbitrator comes to an end on his withdrawal from office. The court cannot provide an extension except
perhaps, where he was appointed by the court. .
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14(1) (b).

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Additional Grounds for Termination: Section 15 (1) purports to set out an additional ground for
terminating the mandate of an arbitrator: namely, where he withdraws from office for any reason. But the
provisions being of overlapping nature, it seems that the ground mentioned is already covered by Section

Removal of arbitrator (Sections 12 and 13): The provisions of the Arbitration and Conciliation Act, 1996
about removal of arbitrators are somewhat different. They do not confer -a straight power on the court.

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Section 12 casts a duty upon a would be arbitrator to disclose in writing if there is anything which gives rise
to a justifiable doubt as to his independence ,and impartiality. An arbitrator's appointment can be
challenged on' that ground and also on the ground of his being not in possession of requisite qualifications
as agreed to between the parties. A party can challenge his own appointee only on the basis of a ground
which he discovered afterwards. If the arbitrator does not withdraw after the challenge, the Tribunal would
decide the question. If the challenge is successful the mandate of the arbitrator would be terminated. The
mandate of an arbitrator also becomes terminated under Section 14 if he becomes unable to perform his
functions de facto or de jure or if one withdraws or agrees to the termination of his mandate or fails to act
without under delay.

Jurisdiction of Arbitral Tribunal:

1. The arbitral tribunal may rule on its own ,jurisdiction, including ruling on any objections with respect to
the existence or validity of the arbitration agreement, and for that purpose:

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a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of
the other terms of the contract; and

b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the
invalidity of the arbitration clause.

2. A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of
the statement of defence; however, a party shall not be' precluded from raising such a plea merely
because that he has appointed, or participated in the appointment of, an arbitrator.

3. A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the
matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings.

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4. The arbitral tribunal may, in either of the cases referred to in sub-section (2) or sub-section (3), admit a
later plea if it considers the delay justified.

5. The arbitral tribunal shall decide on a plea referred to in sub-section (2) or sub-section 93) and, where
the arbitral tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and make
an arbitral award.

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6. A party aggrieved by such an arbitral award may make an application for setting aside such an arbitral
award in accordance with Section 34.
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Challenge to Jurisdiction: Section 16(1) empowers an Arbitral Tribunal to decide:
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1. The question as to its jurisdiction, and

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2. The objection as to the existence or validity of the arbitration agreement.
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For this purpose an arbitration clause in a contract shall be-treated as an arbitration agreemerit
independent of the contract.
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If the Arbitral Tribunal holds that the contract is null and void it will not resu1t in the automatic invalidity of the

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arbitration clause
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Though there was no similar provision in the erstwhile .1940 Act, the position in law was more or less the
same.

AWARD

When an award has been made after rejection of the objections as to lack of or excess of jurisdiction the
aggrieved party may make an application under Section 34 to set aside the award. In these proceedings the
award can be challenged. inter alia, on the ground that the objections were wrongly rejected.

This provision [Section 16(5)] has been held to be constitutionally valid. The fact that the court can consider
the question of jurisdiction of arbitrator only after passing of the award was held to be not a ground for
contending that the award is not subject to any judicial scrutiny.

Arbitration Clause is Collateral or Ancillary Contract: The arbitration agreement contained in the

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arbitration clause in a contract is often referred to as a collateral or ancillary contract in relation to the main
contract of which it forms a part in the sense that it survives even after the parties have broken or repudiated
the rest of the contract and will remain applicable for the settlement of the resulting dispute. The repudiation
or breach of the main contract does not put an end to the arbitration clause. The failure of the main contract
constitutes the occasion for the application of the arbitration clause. The main contract does not become
irrelevant. That still provides the framework within which the rights and liabilities of the parties would be
determined. The arbitration would, therefore, proceed according to the proper or applicable law of contract.
Section 7(2) of the Arbitration and Conciliation Act, 1996 provides that an arbitration agreement may be in
the form of an arbitration clause in a contract or in the form of a separate agreement. Section 16 (1) (b)
further provides that a decision by the Arbitral Tribunal that the contract is null and void shall not entail ipso
jure the invalidity of the arbitration clause.

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Interim Measures by Tribunal

According to Section 17 of Arbitration and Conciliation Act, 1996

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Interim Measures Ordered by Arbitral Tribunal

1. Unless otherwise agreed by the parties, the arbitral tribunal may, at the request of a party order a party
to take any interim measure of protection as the arbitral tribunal may consider necessary in respect of

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the subject-matter of the dispute.

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2. The arbitral tribunal may require a party to provide appropriate security in connection with a measure
ordered under sub-section (1).
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While Section 9 provides for the taking of interim measures by the Court in certain matters, Section 17

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provides for the taking of interim measures in respect of the subject-matter of the dispute by the Arbitral

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Tribunal. The opening words of Section 17(1) indicate that the parties may be agreement exclude the

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exercise of such a power by the arbitral Tribunal.

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Sub-section (2) empowers the tribunal to order tile furnishing of adequate security by a party for carrying out
an interim measure ordered under the section.

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Conduct of Arbitral Proceedings: The Arbitrator has to come to a conclusion on the matters of difference
between the parties which are referred to him and to express it in terms of an award. He cannot delegate
this function to any other person. The parties have appointed him because of their trust and confidence in
him and they may not repose the same trust in any other person. But he may obtain legal assistance of
drawing up his award.

The Tribunal has to treat the parties with equality. They should be given full opportunity to present their
respective cases.

Time and Place of Hearing (Section 20)

Equal Treatment of Parties: The parties shall be treated with equality and each party shall be given a full
opportunity to present his case.

This section casts a two fold duty on the arbitral tribunal :

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a) It must be independent and impartial and must mete out equal treatment to each party. [See Section 12
Note (1)]

b) It must give each party a full opportunity to present its case. Sections 23 and 24 provide for the giving of
such opportunity.

A time and place should be fixed, for hearing and notice should be given to the parties accordingly. Section
20 provides that the parties are free to agree on the place of arbitration. Failing such agreement the place is
to be determined by the Arbitral Tribunal. In doing so, the Tribunal has to give due consideration to the
circumstances of the case and also the convenience of the parties. Unless otherwise agreed by the parties,
the Tribunal may meet at any appropriate place for mutual consultation, for hearing witness, experts or

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other parties or for inspection of documents, goods or other property.

Rules of Procedure

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1. The arbitral tribunal shall not be bound by the Code of Civil Procedure, 1908 (5 of 1908) or the Indian
Evidence Act, 1872 (1 of 1872).

2. Subject to this Part, the parties are free to agree on the procedure to be followed by the arbitral tribunal

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in conducting its proceedings.

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3. Failing any agreement referred to in sub-section (2), the arbitral tribunal may, subject to this Part,
conduct the proceedings in the manner it considers appropriate.
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4. The power of the arbitral tribunal under sub-section (3) includes the power to determine the

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admissibility, relevance, materiality and weight of any evidence.

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C PC & Evidence Act: Sub-section (1) provides that the Code of Civil Procedure, 1908, and the evidence

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Act, 1872 are not to be binding in arbitration proceedings. The position under the repealed arbitration Act,

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1940 was the same.

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Natural Justice: No doubt arbitrator is not bound by technical rules of procedure but he cannot ignore les of

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natural justice. The thread of natural justice should run through the entire arbitration proceedings d the
principles of natural justice require that the person who is to be prejudiced by the evidence ought be present
to hear it taken, to suggest cross-examination or himself to cross-examine and to be able find evidence, if
he can, that shall meet and answer it, in short, to deal with in the same manner as in e ordinary course of
legal proceedings. Except in a few cases where exceptions are unavoidable, both ides must be heard, each
in the presence of the other.

COURT ASSISTANCE (SECTION 27)

The Tribunal may by itself, or any party with the approval of the Tribunal, apply to the court of assistance
taking evidence. The application has to specify the particulars as stated in Section 27-

1. The arbitral tribunal, or a party with the approval of the arbitral tribunal, maY-apply to the court for
assistance in taking evidence.

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2. The application shall specify :
i. the names and addresses of the parties and the arbitrators;
ii. the general nature of the claim and the relief sought;
iii. the evidence to be obtained, in particular
a. the name and address of any person to be heard as witness or expert witness and' a
statement of the subject-matter of the testimony required;

b. the description of any document to be produced or property to be inspected

3. The court may, within its competence and according to its rules on taking evidence, execute the request

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by ordering that the evidence by provided directly to the arbitral tribunal.

4. The court may, while making an order under sub-section (3), issue the same processes to witnesses as
it may issue in suits tried before it.

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5. Persons failing to attend in accordance with such process, or making any other default, or refusing to
give their evidence, or guilty of any contempt to the arbitral tribunal during the conduct of arbitral
proceedings, shall be subject to the like disadvantages, penalties and punishments by order of the
Court on the representation of the arbitral tribunal as they would incur for the like offences in suits tried

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before the Court.
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6. In this section the expression "Processes" includes summonses and commissions for the examination
of witnesses and summonses to produce documents.
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Seeking Court's assistance: Under Section 27(1), the Arbitral Tribunal as well as any part with the
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approval of the Arbitral Tribunal can apply to the court for assistance in taking evidence. Under Section 43 of
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the old 1949 Act only the arbitrator or umpire could apply and not a party.

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Orders of Court: The court may order that the evidence be provided directly to the Arbitral Tribunal. It will
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issue to the witnesses the same processes as it issues in the suits before it. The processes that may be

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issued include:

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a. summonses for the examination of witnesses,
b. commissions for the examination of witnesses, and
c. summonses for the production of documents.

Disobedience of Orders: Persons who fail to attend as required, or make any other default; or refuse to
give evidence; or are guilty of contempt of the Arbitral Tribunal, shall be dealt with by the Court on the
representation of the Arbitral Tribunal in the same way as a person who was guilty of like offences in suits
before the court.

Default of party (Section 25)

Default of a Party: Unless otherwise agreed by the parties, where, without showing sufficient cause:

1. the claimant fails to communicate his statement of claim in accordance with sub-section (1) of Section

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23, the arbitral tribunal shall terminate the proceedings:

2. the respondent fails to communicate his statement of defence in accordance with sub-section (1) of
Section 23, the arbitral tribunal shall continue the proceedings without treating that failure in itself as an
admission of the' allegations by the claimant;

3. a party fails to appear at an oral hearing or to produce documentary evidence, the arbitral tribunal may
continue the proceedings and make the arbitral award on the evidence before it.

Principles governing ex parte proceedings: The principles governing the arbitrator's right to proceed ex
parte are:
1) If a party to an arbitration agreement fails to appear at one of the sittings, the arbitrator cannot or, at

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least, ought not to proceed ex parte against him at that sitting;

2) Where non-appearance was accidental or casual, the arbitrator should ordinarily proceed it the
ordinary way, fixing another date of hearing and awaiting the future behaviour of the defaulting party;

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3) If, on the other hand, it appears that the defaulting party had absented himself for defeating the object of
the reference, the arbitrator should issue a notice that he intended at specified time and place to
proceed with the reference and that if the party concerned did not attend he would proceed in his
absence;

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4) But if after making such peremptory appointment issuing such a notice the arbitrator did not in fact
proceed ex parte on the day fixed, but fixed another subsequent date, he could not proceed ex parte on
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such subsequent date, unless he issued a similar notice in respect of e ate well; and
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5) If he issued a similar notice and the party concerned did not appear, an award made ex parte would be in
order. But, if he did not issue such notice on the second occasion but nevertheless proceeded ex parte,
the award would be liable to be set aside in spite of a notice of peremptory hearing having been given in
respect of the earlier date, Subject, however, to the condition that prejudice was caused to the party

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against whom the ex parte order was made. Arbitrator's action ought to be in due compliance with the
concept of natural justice. In the event of there being any such violation, courts oughts not to hesitate to
strike down an action of the Arbitrtrator and set aside the award if made.

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In Juggilal Kamlapat v. General Fibre Dealers Ltd., AIR 1955 Cal 354, the Calcutta High Court laid down e
procedural rule to be followed by the arbitrators: "If a party fails to appear, the arbitrator ought ordinarily to
fix another date of hearing and await the future behaviour of the defaulting party, and give the party notice
that is he does not appear, he (the arbitrator) would proceed ex parte against him. If after having issued
such a notice the arbitrator does not proceed ex parte on the adjourned date, and fixed another date, he
cannot proceed ex parte on that date, unless similar notice has been given in respect of that date as well."
The same view was been taken by the Punjab High Court.

If no such notice was given, and it could be shown that no prejudice was caused to the absenting party, e
award would not be set aside. But it has been held in the very same case that where no such notice as
given, there will always be a presumption that prejudice has been caused.

Power to Limit evidence [Section 19(4)]: The arbitrator may restrict evidence to the necessities of e case
and the court may not interfere in such matters.

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A contract for the construction of two office blocks contained an arbitration clause. Disputes arose as to 81
separate roofs in the two blocks. They were referred to arbitration. The roofs involved being too any,
attempts were made by the parties to limit the issues. The parties failed to agree. One of them asked the
arbitrator to do so by an order. He accordingly ordered that the issue of liability be determined by reference
to a maximum of 25 roofs and then suspended it to enable the parties to test its validity in a court. He
indicated by his letter that the parties were still free to raise any matter requiring special consideration.

I was held that in general the court should be slow to interfere with an arbitrator's procedural orders. In is
case, the particular question of law was one which the arbitrator ought not to have been asked to state.
There was no requirement that an arbitrator must allow each party to call the evidence which he wishes to
call. In all the circumstances of the case the arbitrator was not acting unfairly or refusing to decide the case
submitted to him.

costs.

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An arbitrator may order for filing of pleadings, or for discovery or inspection of documents. Under the
receding 1940 Act, the arbitrator could call upon a party to provide security for costs unless such power was
granted to him by the parties. But now by virtue of the provisions in. Section 38 of the arbitration and
Conciliation Act, 1996, the Arbitral Tribunal can call upon the parties to deposit a sum of money for covering

The arbitrator has to follow the ordinary rules of evidence. The owner engaged a building contractor.

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Disputes arose as to adjustments to be made for certain sums and were referred to arbitration.

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Closure of Hearings: There is no provision in the 1996 Act requiring the arbitrator to give notice of closure
of hearing to the parties. But judicial pronouncements and fair play require that the parties should be
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informed of the closure of the proceedings. The Courts have held that such a notice should be given so as to
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enable the parties to lead any additional evidence if they so desire.

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Settlement
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1) It is not incompatible with an arbitration agreement for an arbitral tribunal to encourage settlement of the

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dispute and, with the agreement of the parties, the arbitral tribunal may use mediation, conciliation or

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other procedures at any time during the arbitral proceedings to encourage settlement.

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2) If, during arbitral proceedings, the parties settle the dispute, the arbitral tribunal shall terminate the
proceedings and, if requested by the parties and not objected to by the arbitral tribunal, record the
settlement in the form of an arbitral award on agreed terms.

3) An arbitral award on agreed terms shall be made in accordance with Section 31 and shall state that it is
an arbitral award.

4) An arbitral award on agreed terms shall have the same status and effect as any other arbitral award on
the substance of the dispute.

Settlement Through Alternative Dispute Resolution (ADR): Though there was no specific provision
corresponding to this section in the repealed Arbitration Act, 1940, the law was the same. An award which
merely embodied a compromise of the parties themselves was a valid award. Accepting a compromise is
an adjudication of the case as is a decree of the court founded on a compromise. An award remains an
award even though it approved an arrangement put forward by the parties and was in accordance with their

26
wishes. The rule that all award is not open to objection on the sole basis that it merely reproduced an
agreement come to between the parties, applies only where the consent of the parties is regarded by the
arbitrator as evidence of the fact that the settlement proposed is fair to all. If the existence of the
compromise is disputed, the arbitrator can go into that question and if he finds the compromise to be valid,
he can given his award in terms of the same.

This section gives this position to the arbitral tribunal that to the extent possible it should encourage the
parties to come to a voluntary settlement and for this purpose to use mediation, conciliation and other
procedures.

Sub-section (2) provides that if the parties settle the dispute the Tribunal may terminate the proceedings
and if the parties so desire record the settlement in the form of an award on agreed terms. Sub-section (3)

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requires that an award on settled terms should state that it is an award and it has to be made in accordance
with the requirements of Section 31. Sub-section (4) gives to an agreed award the same status and force as
if it were an arbitral award.

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Form and Contents of Award
Form and Contents of Arbitral Award

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1. An arbitral award shall be made in writing and shall be signed by the members of the arbitral tribunal.

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2. For the purposes of sub-section (1), in arbitral proceedings with more than one arbitrator, the signatures
of the majority of all the members of the arbitral tribunal shall be sufficient the reason for any omittee
signature is stated.
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3. The arbitral award shall state the reasons upon which it is based, unless :

i) the parties have agreed that no reasons are to be given, or


ii) the award is an arbitral award on agreed terms under Section 30.

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4. The arbitral award shall state its date and the place of arbitrator determined in accord with Section 20
and the award shall be deemed to have been made at that place.
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5. After the arbitral award is made, a signed copy shall be delivered t eacp party.

6. The arbitral tribunal may, at any time during the arbitral proceedings, make an interim arbitral a award
on any matter with respect to which it may make a final arbitral award.

7. (a) Unless otherwise agreed by the parties, where and in so far as an arbitral award is for t e payment of
money, the arbitral tribunal may include in the sum for which the award 's made interest, at such rate as
it deems reasonable, on the whole or any part of the money, for the whole or any part of the period
between the date on which tile cause of action arose and the date on which the award is made.

(b) A sum directed to be paid by an arbitral' award shall, unless the award otherwise directs, carry
interest at the rate of eighteen per centum per annum from the date of the award to the date of
payment.

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8. Unless otherwise agreed by the parties –

a. the costs of an arbitration shall be fixed by the arbitral tribunal:


b. the arbitral tribunal shall specify –

i) the party entitled to costs,


ii) the party who shall pay the costs,
iii) the amount of costs or method of determining that amount, and
iv) the manner in which the costs shall be paid.

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Explanation: For the purpose of clause (a), "costs" mans the reasonable costs, relating to:
a) the fees and expenses of the arbitrators and witnesses.
b) legal fees and expenses.

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c) any administration fees of the institution supervising the arbitration, and
d) any other expenses incurred in connection with the arbitral proceeding and the arbitral award.

Requirements of Valid Award: At the conclusion of the hearing, the Tribunal passes its judgment a it is
known as the award. There is no presumption that merely because an award had been made it a valid

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award. It has to be proved by the party who sues upon it that it was made by the arbitrators within the terms
of the authority. A valid award has to satisfy the following requirements:
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1) Must Conform to Submission: The arbitrator should conform to the terms of the agreement under

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which he is appointed and is supposed to function. He has no authority to arbitrate that which is not
submitted to him. One of the grounds of setting aside in Section 34(2) (iv) says: (iv) the arbitral award
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deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration,
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or it contains decisions on matters beyond the scope of the submission to arbitration;

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Provided that, if the decisions on matters submitted to arbitration can be separated from those not so
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submitted, only that part of the arbitral award which contains decisions on matters not submitted to

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arbitration may beset aside; or

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Hence an award which is outside the submission is void. If an arbitrator has awarded something beyond
authority the award is pro tanto void and if the void part is so mixed up with the rest that it cannot be
separated, the award is void altogether and such an ward is liable to be set aside. For example, where
the arbitrator awarded damages in lump sum and in reckoning the amount he had taken into account
matters which he had no jurisdiction to consider, the award was held to be bad. But where the excess
part can be separated from the rest, the part which is within the reference remains valid.

2) Must be Certain: The award must be certain in its operative particulars. For example, there must be
certainty as to the party who has to perform, who has to receive the payment, the time and mode of
payment, the amount payable. An award which says that A or B shall do a certain act, or that the money
shall be paid by some or one of the several named persons on demand, has been held to be bad for
uncertainty.

An award allowed the supplier of electricity to recover the amount only as shown by the meter or
according to the report of the inspector. Under Section 26(6) of the Electricity Act, 1910, the inspector's

28
report superseded the award. The Supreme Court held that the award was not uncertain. The supplier
claimed that the meter was slow. The Supreme Court referred the matter to arbitration. The arbitrator
decided in the above manner.

Where the arbitrator passed an award stating that "the claimant will be paid 10% more than the
measured quantity of the embankment for conveyance charges after deducting the quantity of cut
earth", it was held that the language of the award was highly vague even to a technically equipped
engineer. The court agreed with the following remark of the trial judge:

Apart from the language, the determination calls for a further calculation based upon several records
such as the measurement books, a matter on which there may still be scope for controversy. Why the
arbitrator should not at least take the trouble of doing this work rather than leaving it to the parties to fight

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out later. The courts are not obliged to pass a decree based on awards unless the awards are self-
contained; if an award calls for other records or evidence so as to be the basis for an executable decree
the award is incomplete.

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The court agreed with the judge and said that the award was too vague and in determinative of the main
points in controversy. It was difficult to confirm the decree which was passed in terms of such an award.
An award may be referred back to an arbitrator where it is so indefinite as to be incapable 0 execution.
An uncertain award is not capable of being executed with any certainty and, therefore, it may be

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referred back to the arbitrator to remove the elements of uncertainty from it. Where the setting aside of

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an award is demanded on the ground of wrong application of law, it may be sent back to the arbitrator

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with a guidance note as to the state of the law.

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A vessel was chartered for a period of 24 months. Its engine suffered a major breakdown. The charterer
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purported to treat the contract as terminated on this ground. The ship owner, however, elected to

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continue the contract, he carried out extensive repairs and re-tendered the ship. The charterer refused

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to take to saying that by failing to make the vessel seaworthy at the inception the ship owner had

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committed repudiator breach of the contract. The arbitrator held that the ship owner had committed the

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alleged breach, but it did not go to the roof of the contract. The character's repudiation was wrong, but

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even so the ship owner was bound to accept it.

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The ship owner brought the matter before the court. The court felt that there was a strong prima facie

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case that the arbitrator's decision that the ship owner was bound to accept the repudiation was wrong.
The case thus involved a question or importance in the development of the law of contract as to whether
a party is bound to accept a repudiation. The ship owner's appeal for a consideration this question was
allowed. The court also held that the award would be remitted to the arbitrator in order that he should
summa rise the facts upon which he had concluded that the ship owner had no legitimate interest in
keeping the contract alive and was, therefore, bound to accept the repudiation.

3) Must be Consistent and Not Vague: An award may be set in terms of alternatives. An award directed the
party to do one of two things. One of the alternatives was certain and impossible, but the other ~as
certain and possible. The award was held to be valid and binding. The award should be consistent in all
its terms. At inconsistent award is as bad as an uncertain one.

4) Must be Complete and Final: the arbitrator should finally dispose of the matter before him and not leave
it a part of the way The award found that some sleepers were merchantable and some not and directed
that the buyer should dispose of them and the sleeping broker should certify the difference in amount

29
realised by the unmerchantable and merchantable sleepers and that amount the seller should pay.

The award was held to be bad for want of finality.

Similarly, where an arbitrator made his award subject to the opinion of a third person, it was held to be a
substituted judgment and the award was not final.

Where the award finally decides the facts involved in the submission but is stated in the form of a special
case for the opinion of the court over a matter of law, it will not be void for want of finality. The power of
the arbitrator to state a special case for the opinion of the court has not been included in the Arbitration
and Conciliation Act, 1996 Act. Now under the new Act, it is the duty of the arbitrator to record his finding
of facts on the basis of evidence adduced before him and apply the substantive law to the facts so

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found. Facts must be recorded in the award itself. A mere reference to the evidence is not enough.

Grounds of Challenge Resulting into Termination: The arbitral proceedings shall be terminated by he
final arbitral award or by an order of the arbitral tribunal under sub-section (2).

b. the parties agree on the termination of the proceedings, or


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1) The arbitral tribunal shall issue an order for the termination of the arbitral proceedings where:

a. the claimant withdraws his claim, unless the respondent objects to the' order and the arbitral

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tribunal recognises a legitimate interest on his part in obtaining a final settlement of the dispute,

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c. the arbitral tribunal finds that the continuation of the proceedings has for any other reason become
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unnecessary or impossible.

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2) Subject to Section 33 and sub-section (4) of Section 34, the mandate of the arbitral tribunal shall

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terminate with the termination of the arbitral proceedings.

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arbitral award is made.

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Automatic Termination: The arbitration proceedings stand automatically terminated when the final

Where the contract under which an arbitration arose is assigned to another person on an assignment takes
place by reason of take over of the concern, it becomes the duty of the assignee to give notice to the
arbitrator, within a reasonable period, that he has succeeded to the rights of the previous party to the
arbitration. His failure to do so would bring the arbitration agreement to an end.

Termination by Tribunal: An order for the termination of arbitral proceedings has to be passed by the
Arbitral Tribunal in the following cases:

1. when proceedings under section 33 have been initiated :


ii. for interpretation of the award, or
iii. for making an additional award, or
2. when proceedings for setting aside an award under Section 34(1) have been adjourned by the court to
enable the Arbitral Tribunal to take action to eliminate the grounds for setting aside the award. [Section
34(4)].

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Powers of Arbitrators: Under Section 13 of the erstwhile 1940 Act the powers of the arbitrator included the
following:

1) The powers to administer oath to parties and witnesses appearing before him.

2) In reference to questions of law, he had the power to refer the matter for the opinion of the court or he
could write his award his award in terms of a reference to the court on a point of law so that the
court's opinion would finally decide the matter. (Not applicable under 1996 Act)

3) He had the power to make the award conditional or in terms of alternatives.

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4) He had the power to rectify any clerical error or mistake arising from any accidental slip or omission.

5) He had the power to administer such interrogatories to the parties as may in his opinion be
necessary.

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Power to Rectify clerical errors or accidental slip or omission [Section 33(1) (a), 1996 Act]: Though
the words "accidental slip or omission" are not there in Section 33(1) (a) but such matte a likely to be
covered by the words "any other errors of a similar nature". Under clause (a) of section 33 (1) of the 1996 Act

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the arbitrator has the power to rectify any clerical mistake or error which arises c to any accidental slip or

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omission. In Rikhabdas v. Ballabhdas, AIR 1962 SC 551, before the Supreme Court, an arbitrator

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submitted his award without using proper stamps and one of the questions as whether the award could be
sent back to the arbitrator for rectifying this error. SARKAR, J. (after war s C.J.) held that the provision as to
rectification was not applicable. .
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Similarly, where an arbitrator had mentioned costs in his award, he was not allowed subsequent, b issuing a
new award to say that the intended to include a larger amount by way of costs and by mistake mentioned

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Power Generally to award Interest [Section 31(7), 1996 Act]: Section 31(7) enables the Arbitral Tribunal

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to award interest. The provisions of the sub-section are as follows:

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Section 31(7)

a) Unless otherwise agreed by the parties, where and insofar as an arbitral award is for the payment of
money, the Arbitral Tribunal may include in the sum for which the award is made interest, at such rate as
it deems reasonable, on the whole or any part of the money, for the whole or any part of the period
between the date on which the cause of action arose and the date on which the award is made.

b) A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at
the rate of eighteen percentium per annum from the date of the award to the date of payment.

The parties may make their own agreement as to the matter of interest. If they have not done so, these
provisions would come into play. Where the award is for payment of money, the Tribunal may add a sum by
way of interest to the amount awarded at such rate as it deems reasonable. Interest may be allowed on the
whole amount awarded or on any part of it and also for the whole or any part of the period between the date
of the cause of action and the date on which the award is made. If the Tribunal does not specify and rate of

31
interest, 18% interest would be applicable from the date of the award to the date of payment.

Correction of Errors: Section' 33(1) (a) permits a party to request the Arbitral Tribunal to correct:
a) Any computation errors,
b) any clerical or typographical errors, or
c) any other errors of a similar nature occurring in the award.

The request is to be made after notice to the other party within the time prescribed.

Recourse Against Arbitral Award

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Application for Setting Aside Arbitral Award

1) Recourse to a court against an arbitral award may be made only by an application for se aside such
award in accordance with sub-section (2) and sub-section (3).

2) An arbitral award may be set aside by the court only if:


a)

I. a party was under some incapacity, or


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the party making the application furnished proof that:

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II. the arbitration agreement is not valid under the law to which the parties have subjected it or,

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failing any indication thereon, under the law for the time being in force, or

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III. the party making the application was not given proper notice of the appointment of an

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arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

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IV. the arbitral award deals with a dispute not contemplated by or not falling within the terms of

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the submission to arbitration, or it contains decisions on matters beyond the scope of the

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submission to arbitration:

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Provided that, if the decisions on matters submitted to arbitration can be separated from
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those not so submitted, only that part of the arbitral award which contains decisions on
matters not submitted to arbitration may be see aside; or

V. the composition of the arbitral tribunal or the arbitral procedure was not in accordance with
the agreement of the parties, unless such agreement was in conflict with a provision of this
Part from which the parties cannot derogate, or, failing such agreement, was not in
accordance with this Part; or

b) the court finds that :

a. the subject-matter of the dispute is not capable of settlement by arbitration under the law
for the time being in force, or

b. the arbitral award is in conflict with the public policy of India.

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Explanation: Without prejudice to the generality of sUb-c1ause(ii), it is hereby declared, for the avoidance
of any doubt, that an award is in conflict with the public policy of India if the making of the award was-
induced or affected by fraud or corruption or was in violation of Section 75 or Section 81.

3) An application for setting aside may not be made after three months have elapsed from the date on
which the party making that application had received the arbitral award or, if a request had been made
under Section 33, from the date on which that request had been disposed of by the arbitral tribunal.

Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making
the application within the said period of three months it may entertain the application within a further
period of thirty days, but not thereafter.

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4) On receipt of an application under sub-section (1), the court may, where it is appropriate and it is so
requested by a party, adjourn. the proceedings for a period of time determined by it in order to give the
arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the
opinion of arbitral tribunal will eliminate the grounds for setting aside t award.

matter. U
Setting Aside Award (Section 34): The effect of an award no doubt is that the parties cannot a against it as
to its merits and the court cannot interfere with it on merits. But this does not me there is no check on the
arbitrator's conduct. In order, therefore, to assure proper conduct of proceed', the law allows certain

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remedies against an award. These remedies can be obtained through a co law having jurisdiction over the

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These remedies have been put under the 1996 Act into two groups. To the extent to which the remedy was
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for rectification of errors, it has been handed over to the parties and the tribunal. Moving the court is not
a

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necessary. The parties 'can apply to the Tribunal for removal of errors and the Tribunal can also rectify

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errors at its own motion. The remedy of setting aside has been moulded into a composite one, namely,

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setting aside as well as returning the award back to the Tribunal for removal of defects. Thus remission and

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setting aside have been brought under one head.

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Incapacity of Party [Section 34(2) (a) (i)]: If a party to an arbitration is not capable of looking after his own
interests, and he is no represented by a person who can protect his interests, the award will not be binding
on him and may be set aside on his application. Thus, if a minor, or a person of unsound mind is a party, he

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must be properly represented by a proper guardian otherwise the award would be liable to be set aside.
There is nothing new in this. A minor or a person of unsound mind is not capable of binding himself by a
contract and, therefore, an award under a contract does not bind him. In order to protect the interest of such
a party Section 9 of the 1996 Act enables him to apply to the court for the appointment of a guardian for a
minor or a person of unsound mind for the purpose's of arbitral proceedings. The ground of incapacity
would cease to be available when the incompetent person is represented by a guardian.

Invalidity of Agreement [Section 34 (2) (a) (ii)]: If the arbitration agreement is invalid, the reference there
under and consequently the award or the basis of such reference would be invalid and can be set aside.
The validity of an arbitration agreement can be challenged on any of the grounds on which the validity of a
contract may be challenged. In cases where the arbitration clause is contained in a contract, the arbitration
clause will be invalid if the contract is invalid.

Notice not given to party [Section 34 (2) (a) (iii)]: Section 34 (2) (a) (iii) permits challenges to an award on
the grounds:

33
a) That the party was not given proper notice of the appointment of an arbitrator, or
b) that the party was not given proper notice of the arbitral proceedings, or
c) that the party was for some reason unable to present his case.

Section 12 gives a party the right to challenge the appointment of an arbitrator on the ground of his integrity
and impartiality being doubtful and of challenging the award on this ground. If the party is no given notice of
the appointment of an arbitrator he is deprived of this valuable right.

It is essential that the parties be given proper notice of the arbitral proceedings so that they may file their
statements of claim or defence as required by Section 23. Under section 23 (1) the Arbitral Tribunal has to

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determine the time within which the statements must be filed. This determination must be communicated to
the parties by a proper notice. Failure to give such notice may deprive the parties of the opportunity placing
their cases before the tribunal. Further, sub-section (2) of Section 23 mandates that the parties shall be
given sufficient advance notice of any hearing and of any meeting of the Tribunal for the purpose of

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inspection of documents, goods or other property. If there is a non-compliance of these obligations in
reference to a party, the award would be liable to be set aside at the instance of that party.

If for any good reason a party is prevented from appearing and presenting his case before for Tribunal, the

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award will be liable to be set aside as the party will be deemed to have been deprived of an opportunity of
being heard.
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Award beyond scope of reference [Section 34(2) (a) (iv)): The reference of a dispute under an
agreement defines the limits of the authority and jurisdiction of the arbitrator. The arbitrator's authority hap
a

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has it source in the reference. he cannot traverse beyond the reference, If he does so he acts without

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jurisdiction. The jurisdiction of the arbitrator is limited by the reference and if the arbitrator has assumed

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jurisdiction not possessed by him the award to the extent to which it is beyond the arbitrator's jurisdiction

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would be invalid and liable to be set aside.

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Section 34(1) (a) (iv) of the present 1996 Act provides that an arbitral award is liable to be set aside if it deal
with a dispute.

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a) not contemplated by the reference, or
b) not falling within the terms of the reference, or
c) it contains a decision in matters beyond the reference.

Illegality in Composition of Tribunal or in arbitral procedure [Section 34(2) (a) (v)]: An application
under Section 34 for setting aside an arbitral award can be made on the grounds

a) that the composition of the Tribunal was not in accordance with the agreement; or
b) that the procedure agreed to by the parties was not followed in the conduct of proceedings or
c) that, in the absence of agreements as to procedure, the procedure prescribed by the Act was not
followed.

Failure to follow the agreed procedure or the procedure prescribed by the Act is a procedural misconduct.
Where the parties agreed that the counsel's opinion should be sought on the legal questions surrounding

34
the arbitration such opinion and the award based on it should not be lightly overturned.

Non-speaking award: It was not obligatory under the 1940 Act for an arbitrator, unless the parties so to
required, to state reasons for his award. This state of the law has been changed by 1996 Act which provides
its Section 31 (3) that an arbitral award shall state the reasons upon which it is based, unless the parties
have agreed that no reasons are to be given or the award is on agreed terms. In the decision of the Supreme
Court in Food Corporation of India vs. Great Eastern Shipping Co. Ltd. (1988) 3 SCR 366 : AIR 1988 SC
1198 and Raipur Development Authority v. Chokhamal Contractors (1982) 2 SCC 721 AIR 1990 SC 1426, it
was held that no objection could be taken to an award merely on the ground that no reason were stated
when the arbitration clause didn't contain any requirement to that effect. On the basis of these decisions,
the Supreme Court in Food Corporation of India v. Jagdish Chandra Saha, AIR 1994 sC 219 came to the
conclusion that though the unreasoned award could not have been challenged the Calcutta High Court was

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wrong in not considering other possible objections to a non speaking award. The party was challenging the
validity on the ground that the effect of the arbitration agreement was that reasons were required to be
stated. The matter was accordingly sent back to the trial court to consider such other objection as were
available against a silent award.

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The Supreme Court reiterated these points in M.K. Shah Engineers and Contractors v. State of M.P. 1999)
2 SCC 594; AIR 1999 SC 950. An arbitrator's award is not vitiated merely because the arbitrator has not
given an item-wise award and has chosen to give a lump sum award. A lump sum award is not a bad award.

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An award need not formally express the decision of the arbitrator on each matter of difference, nor it is

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necessary for the award to be a speaking one (under the 1996 Act it has to be a speaking one unless the

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parties agree otherwise). It will be presumed that the award disposes of finally all the matters in difference.

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A non-speaking award can be interfered with where it has been passed without jurisdiction or if the
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arbitrator has misconducted himself or the proceedings.

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Reasoned or Speaking Awards: it becomes easier to locate a fault if the award is with a statement of

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reasons and there is a flaw in them. A reasoned award is known as a speaking award. The Supreme Court

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explained the concept in Jajodia (Overseas) (P) Ltd. v. Industrial Development Corporation of Orissa

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(1993) 2SCC 106.

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A speaking or reasoned award is one which discusses or sets out the reasons which led the arbitrator o

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make the award. Setting out the conclusions upon the question or issues that arise in the arbitration
proceedings without discussing the reasons for coming to those conclusions does not make an award a
reasoned or speaking award.

Reference in the award to pleadings does not amount to not incorporating the pleadings in the award.

The question where a contract or a clause of it is incorporated in the award is a question of the construction
of the award. The test is, does the arbitrator come to a finding on the wording of the contract. If he does, he
can be said to have impliedly incorporated the contract or a clause in it. But a mere general reference to the
contract in the award is not to be held as incorporating it.

Even where the contract or any clause of it finds incorporation in the award, it would still be necessary or
setting aside the award that it suffered from a patent defect. In its decision in Bungo Steel Furniture P) Ltd. v.
Union of India (1967) 1 SCR 633 : AIR 1967 SC 378, the Supreme Court quoted the well known passage
from the judgment of Lord DUNEDIN in Champsey Bharat Co. v. Jivraj Balloo Spinning & Weaving Co. Ltd.,

35
SOIA 324: AIR 1923 PC 66.
An error in law on the face of the award means, in their Lordships' view, that you can find in the award or a
document actually incorporated thereto, as for instance a note appended by the arbitrator stating j)e
reasons for his judgment, some legal proposition which is the basis of the award and which you can en say
is erroneous, it does not mean that if in narrative a reference is made to a contention of one party, that opens
the door to seeing first what that contention is, and then going to the contract on which me parties' rights
depend to see if that contention is sound ....

An award has to be read as a whole and harmoniously. The grounds upon which an award can be set aside
are limited. The court should be very circumspect about setting aside an award reached by an arbitrator.

Another possible angle from which the validity of a non-speaking award can be examined as the subject-

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matter of some explanation in Sudarsan Trading Co. v. Government of Kerala (1989 2 SCC 38 : (1989) 1
SCR 665,687. SABYASACHI MUKHERJI, J., said:

An award may be remitted or set aside on the ground that the arbitrator in making it has exceeded his

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jurisdiction and evidence of matters not appearing on the face of it, will be admitted it order to establish
whether the jurisdiction had been exceeded or not, because the nature of the dispute is something which
has to be determined outside that award - whatever might be said about it in beyond his jurisdiction - is a
different ground from an error apparent on the face of the award.

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It is not necessary that the arbitrator should give actual arithmetical computation of amount awarded under

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different heads. It is enough that the award indicates reasons for allowing or disallowing objections raised
by the parties in respect of the different claims.

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Dispute not Arbitrable [Section 34(2) (b) (i)): Generally speaking, almost all matters in dispute, not being

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of a criminal nature, may be referred to arbitration. Where the law has given jurisdiction to determine a

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particular matter to specified tribunals only, determination of that matter by other tribunals is excluded.

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Insolvency proceedings "require the exercise of judicial discretion and it would be acting contrary to the

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whole spirit of the Insolvency Act to the arbitrator". It has, therefore, been held that proceedings in

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insolvency including the question whether or not a certain person should be declared an insolvent, cannot

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be referred to arbitration. Similarly, only matters in difference between the parties to litigation which affect
private rights can be referred to arbitration. Matters of public right cannot be decided by arbitration. A

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judgment in probate proceedings is not merely inter parties but a judgment in rem. It cannot be allowed to be
decided by arbitrators selected at the instance of the parties to the proceeding. Questions, therefore,
relating to the genuineness of a will or revocation of probate cannot be referred to arbitration. Proceedings
for winding up of a company under the Companies Act, 1956 cannot be referred to arbitration. Similarly, a
suit under Section 92 of the Code of Civil Procedure is not one for the determination of the private rights of
parties, and matters in such a suit cannot be referred to arbitration, though disputes inter se about a mutt
which is not a public charity, between parties litigating in their own right, can be referred to arbitration.

Proceedings relating to the appointment of a guardian are also not matters of private interest and cannot be
settled by reference to arbitration.

The arbitrator cannot clothe himself collusively with the jurisdiction to decide or omit to decide the
arbitrability of a particular item. He has to state reasons for his decision one way other. His jurisdiction to
decide on merits depends on the arbitrability of the issue. The Supreme Court in U.P. Rajkiya Nirman
Nigam ltd. v. Indure (P) Ltd. (1996) 2SCC 667: AIR 1996 SCW 980 held that the arbitrability of a claim

36
depends on the construction of the clause in the contract and on this point the finding of the arbitrator is not
conclusive and that ultimately it is the court that decides the controversy, Section 16 of the 1996 Act
empowers the arbitrators to decide such questions. The decision of the arbitrator in this respect being
appealable, ultimately the matter goes for the decision of the court.

The decision in T.N. Electricity Board v. Bridge Tunnel Constructions (1997) 4 SCC 121, was followed by
the Supreme Court in Premier Fabricators v. heavy Engineering Corporation Ltd. (1997) 4 SCC 319. In this
case, the question whether certain items of claim were or not referable to arbitration in the terms of the
contract was raised as a preliminary issue before the arbitrators. The arbitrators were unanimous in their
view that the items were referable, but the differed on the merits of the points. An umpire was appointed who
ordered a lump sum amount without giving reasons which was three times less than the party's claim. The
Supreme Court judges also happened to differ. The majority of two as against one was of the view that the

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entire dispute, including the preliminary question, was referred. There was no interim award by the
arbitrator as to the arbitrability of the claims. The umpire was, therefore, required to decide the preliminary
issue first and then to decide on merits. His non-speaking award of an amount was not showing whether he
had considered the arbitrability of the matter. That being a jurisdictional issue, the umpire committed a

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jurisdictional error. The award was returned for de novo consideration. The dissenting judge was of the
opinion that the circumstances of the case were creating a presumption - at the umpire must have
considered everything and hence there was no jurisdictional error.

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Specific Performance of Contract: One of the points raised in a case before the Supreme Court was that

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the grant of specific performance is discretionary and the discretion to order or not to order specific

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performance has been conferred by the Specific Relief Act, 1963 on -the Civil Court and, therefore, an
arbitrator cannot be deemed to be competent to grant such relief. The court noted the decisions of the
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Punjab, Bombay and the Calcutta High Courts in which the view taken is that the arbitrator can grant the
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relief of specific performance of a contract relating to immovable' property under an award. The Delhi High

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Court, however, held in PNB Finance Ltd. v. Shital Prasad Jain, AIR 1991 that such relief cannot be granted

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in an arbitration proceeding. The Supreme Court did not approve the view point of the High Court of Delhi.

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"We are of the view that the right to specific performance of an agreement of sale deals with contractual

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rights and it is certainly open to the parties to agree with a view to shorten litigation in regular courts to refer

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the issues relating to specific performance to arbitration. There is no provision in the Specific Relief Act,
1963 that issue relating to specific performance of contract relating to immovable property cannot be

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referred to arbitration. Nor is there any such prohibition it the Arbitration and Conciliation Act, 1996 as
contrasted with ,Section 15 of the English Arbitrator Act, 1950 or Section 48(5) (b) of the English Arbitration
Act, 1996 which contains a prohibitor relating to specific performance of contracts' concerning immovable
property."

Public Policy: Fraud and Corruption [Section 34 (2) (b) (ii)]: Section 34(2) (b) (ii) provides that an
application for setting aside an arbitral award can be made if the arbitral award is in conflict with the public
policy of India. The Explanation to clause (b) clarifies that an award obtained by fraud or corruption would
also be an award against the public policy of India. Thus, an award obtained by suppressing facts, by
misleading or deceiving the arbitrator, by bribing the arbitrator, by exerting pressure on the arbitrator, et.,
would be liable to be set aside.

Improperly procedure or otherwise invalid or opposed to public policy: An award may be set aside if it
has been improperly procedured or is otherwise invalid. Where as award has been obtained by fraud or by
corrupt inducements, it is improper. The expression "otherwise improper" would include cases where the

37
award is suffering from an apparent mark of invalidity such as an error of law apparent on the face of it. An
award is liable to be set aside if it is opposed to public policy of India. Though it is a general ground. Section
34 says in particular that an award shall be deemed to be opposed to public policy if it was induced or
affected by fraud or corruption.

Bias and Misconduct: Doubts about impartiality and lack of independence : This is not one of the grounds
specified in Section 34 for setting aside an arbitral award by the court. Section12 (3) (a) provides that an
arbitrator may be challenged if there are justificable doubts as to his independence or impartiality. If the
challenge is rejected by the Arbitral Tribunal and an award is made, an application for setting aside the
award can be made on the ground that the challenge was wrongly rejected and the question of bias can be
agitated in that proceeding. But if no challenge was made under Section 12(3) (a), the question of bias
cannot be raised before the court under Section 34.

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Misconduct on the part of the arbitrator or misconduct of proceedings is not a direct ground for setting aside
the award under the 1996 Act. The scheme of provisions is somewhat different. Misconduct is a ground for
disqualifying an arbitrator. Misconduct creates a doubt about his independence or impartiality and is a
ground for challenging the arbitrator under Section 12 (3). Thereafter, Section 13 says that if the challenge
is not successful and the award is made, the party challenging the arbitrator may apply to the court under
Section 34 for setting aside the award. Misconduct of proceedings would fall under Section 34(2) (a) (v),
because this provision says that it would be a ground for setting aside where either the agreed or prescribed

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procedure was not observed. Thus, not following such procedure is a misconduct of the proceedings. It

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would also fall under Section 34 (1) (b) (ii) explanation to the extent to which misconduct lies in fraud or

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corruption.

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An example of misconduct was before the Supreme Court in Payyavula v. Payyavula Kesanna 1953 SCR
a

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119: AIR 1953 SC 21.

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The arbitrator took statements from each of the parties in the absence of the other and made an award.

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Bhagwati, J., set aside the award and cited the following passage from the judgment of Lor LANGDALE,

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M.R., in Harvey v. Shelton (1844), where an award was set aside on the ground of interview having taken

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place between the arbitrator and one party in the absence of the other.

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It is so ordinary a principle in the administration of justice, that no party to a cause can be allowed to use any
means whatsoever to influence the mind of the judge, which means are not known to and capable of being
met and resisted by the other party, that it is impossible, for a moment, not to see that this was an extremely
indiscreet mode of proceeding.... In every case in which matters are litigated, you must attend to
representations made on both sides, and you must not in the administration of justice, in whatever form,
whether in the regularly constituted courts or in arbitrations, whether before lawyers or merchants, permit
on side to use means of influencing the conduct and decision of the judge.

It has been held by the Supreme Court in Dewan Singh v. Champat Singh (1969) 3 SCC 447 : (1970) 2 SCR
903 : AIR 1970 SC 967, that it is a legal misconduct on the part of an arbitrator to use personal knowledge for
deciding the dispute before him unless so authorised by the reference.

Limitation for fifing application for setting aside [Section 34 (3)]: Sub-section (3) prescribes the
limitations of three months for filing an application for setting aside an award. The application cannot be
made after the expiry of three months -

38
1. from the date on which the party received the arbitral award, or
2. from the date of the disposal of the application under Section 33, if made, for the correction,
interpretation or making of additional award.

The proviso to sub-section (3) empowers the Court to extend, for sufficient cause, the time by a further
maximum period of thirty days.

FINALITY AND ENFORCEMENT OF ARBITRAL AWARDS

Finality of Arbitral Awards: Subject to this Part an arbitral award shall be final and binding on the parties

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and person claiming under them respectively.

This provision makes the award binding on the parties and those claiming under them. The award is final in
the sense that there can neither be a further award on the same subject, nor an appeal against e finality of
the award. The aggrieved party may apply to the court, if there is a ground, for setting aside - e award, but

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the court cannot be called upon to decide the matter.

Must be Legal: The award must be in accordance with the principles of the relevant law, otherwise it '11 be
illegal, being against the law. Thus, where an arbitrator awarded ownership in perpetuity, it was held to be

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void as offending the rule against perpetuity.
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Must be reasonable and possible: An award requiring a party to do an act which is unreasonable or not

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possible, is bad. An award that one of the parties should do a thing which is out of his power to do, to deliver

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up a thing which is in the custody of another person, is void, as it requires the party to do an possible act.

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Must dispose of matter: An award should be a complete decision on matters requiring determination.
award which leaves some of the questions undecided cannot be enforced.

Finality, effect and enforcement of award: The arbitrator's power over the matter submitted to him is

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complete and final. he has the power to do what the court could have done if the matter had been before e
court. His award puts an end to the proceedings. The 'court will not interfere with the findings of the
arbitrator even if the court feels on merits that the arbitrator should have come to a different conclusion.
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His award on both fact and law is final. There is no appeal from his verdict. The court cannot review his
award and correct any mistake in his adjudication unless an objection to the validity of the award is apparent
on the face of it." Section 35 of the Arbitration and Conciliation Act, 1996 expressly declares' at an arbitrate
award shall be final and binding on the parties and persons claiming under them respectively Section 36
makes the award enforceable in the manner of a court decree. In the case of Union of India v. Bungo Steel
Furniture (P) Ltd. (1967) 1 SCR 324 : AIR 1967 SC 1032 : (1967) 2 SCJ 440. RAMASWAMI, J., quoted
WILLIAM, J., in Hodgkinson v. Fernie, 3 CB NS 189:

The law has for many years been settled, and remains so at this day, that where a cause or matters in
difference are referred to an arbitrator, whether a lawyer or layman, he is constituted the sole and final judge
of all questions, both of law and of fact .... The only exceptions to that rule are, cases where the award is the
result of corruption or fraud.

Enforcement: Section 36 of the Arbitration and Conciliation Act, 1996 provides for direct enforcement f

39
awards without having to get them converted into a rule of the court. The section says:

Where the time for making an application to set aside the arbitral award under Section 34 has expired, or
such application having been made, it has been refused, the award shall be enforced under the Code of
Civil Procedure, 1908 (5 of 1908) in the same manner as if it were a decree of e court.

Enforcement of award in part: The import of the words "pronounce judgment according to the award" as
they appeared in Section 17 of the repealed 1940 Act) was explained by the Supreme Court in Mattapalli
Chelamayya vs. Mattapalli Venkatratnam, AIR 1972 SC 1121. In this case, the award was not "Registered,
though a portion of the award related to immovable property and was thus compulsorily "Registrable. It was
held that a decree could be passed in terms of that part of the award which was severable from the other
part of it which was invalid for any reason. Where a severable part of a award cannot be given effect to for a

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lawful reason, there is no bar to enforce the part to which effect could be justly given.

IMPORTANT QUESTION S

Q.1.

Q.2.

Q.3.

Q.4.
adopted for it?

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On what grounds the appointment of an arbitrator can be challanged? What is the procedure to be

Which court has the power to set aside an arbitral award or order and what is its procedure?

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To what extent courts can interfer in the matters of arbitration.

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Enumerate briefly the grounds on which an award can be set-aside.
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Q.5.

Q.6.

Q.7. M m
Trace the provisions of the Act relating to removal of an arbitrator and filling of the vacancy.

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Describe the circumstances in which the court may modify or correct the award.

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What are the essentials of an arbitral award? When arbitral proceedings shall be deemed to be

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terminated? Discuss.

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Q.8. State the matters connected with the enforcement of an arbitral award including the jurisdiction of
court?

Q.9. What provisions exist in the Act for making any correction, interpretation and amendment of an
award?

40
UNIT - III

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Appealable Orders:

1. An appeal shall lie from the following orders (and from no others) to the court authorised by law to hear
appeals from original decrees of the Court passing the order, namely:

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a. granting or refusing to grant any measure under section 9;
b. setting aside or refusing to set aside an arbitral award under Section 34.

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2. An appeal shall also lie to a court from an order of the arbitral tribunal:

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a) accepting the plea- referred to in sub-section(2) or sub-section (3) of Section 16; or

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b) granting or refusing to grant an interim measure under section 17.

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3. No second appeal shall lie from an order passed in appeal under this section, but nothing if this section

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shall affect or take away any right to appeal to the Supreme Court.

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Appeal against interim measures and Setting aside [Section 37(1)]: An appeal lies under this sub

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section against an order of the court granting or refusing to grant any measure under Section 9 and also

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against setting aside or refusing to set aside an award.

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Appeals against orders of court [Section 37(1)]: The following orders of the court under the Arbitration
S

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Act are appealable : An order –

1. under Section 9 granting or refusing to grant an interim measure of protection, and


2. an order under Section 34 setting aside or refusing to set aside an arbitral award.

Appeal against orders of Arbitral Tribunal [Section 37(2)]: Sub-section (2) provides for an appeal against
the order of the Arbitral Tribunal made under Section 17 granting or refusing to grant an interim measure of
protection.

There is no provision for appeal against orders under Section 11 appointing or refusing to appoint an
arbitrator.

Second Appeal [Section 37(3)]: This sub-section provides that no second appeal shall lie from an order in
appeal. In view of the bar created by sub-section (2) [now Section 37 (3) of 1996 Act] against second appeal

41
from an order passed in appeal under sub-section (1), the conclusion is inevitable that the bar was brought
to confine appeals to strict limits. This was followed in State of West Bengal v. Gourangalal. Chatterjee,
(1993) 3 SCC 1: (1993) 2 Arb LR 95. In this case, there was an order of a Single Judge revoking the
authority of the chief engineer as an arbitrator because of his failure to act and directing a retired chief
engineer to act as an arbitrator. The order was not covered by any of the clauses of Section 39(1) of 1940
Act. It was held that no appeal would lie to a Division Bench either under sub section (2) or under the Letters
Patent against the order of the Single Judge even if it was passed in the exercise of original jurisdiction.
Even otherwise, the person who was appointed was technically qualified and no allegation was there
against him, the order of the Single Judge appointing him did not suffer from any infirmity.

New Point in Appeal: Where the State Government did not raise any specific ground before the trial court
that the award of interest was not in terms of the contract or was without the authority of law and permitted

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the award, as it was, to be made a rule of the court and converted into a decree, the Government was not
permitted to raise this point for the first time in appeal. The appeal was not maintainable. Where the appeal
was at the final stage of hearing, an attempt to introduce for the first time a new technical point that the
document produced in the court as award was only a copy of the award engrossed on stamp-paper was not

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allowed.

Lien

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Lien on Arbitral Award and Deposits as to costs
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1) Subject to the provisions of sub-section (2) and to any provision to the contrary in the arbitration

.
agreement, the arbitral tribunal shall have a lien on the arbitral award for any unpaid costs of the

a
arbitration.

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2) If in any case an arbitral tribunal refuses to deliver its award except on payment of the costs demanded
by it, the Court may, on an application in this behalf, order that the arbitral tribunal shall deliver the
arbitral award to the applicant on payment into Court by the applicant of the costs demanded, and shall,
after such inquiry, if any, as it thinks fit, further order that out of the money so paid into Court there shall

d
be paid to the arbitral tribunal by way of costs such sum as the Court may consider reasonable and that

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the balance of the money, if any, shall be refunded to the applicant.

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3) An application under sub-section (2) may be made by any party unless the fees demanded have been
fixed by written agreement between him and the arbitral tribunal, and the arbitral tribunal shall be
entitled to appear and be heard on any such application.

4) The Court may make such orders as it thinks fit respecting the costs of the arbitration where any
question arises respecting such costs and the arbitral award contains no sufficient provision concerning
them.

Lien on award for costs: The matters of costs of arbitration can be decided by the parties by their
agreement. Subject to any such agreement, the Tribunal would have a lien (the right to retain the award) on
the award for unpaid costs of arbitration. An application can be made to the court over this matter. The court
may ask the applicant to deposit the amount of the unpaid costs and order the Tribunal to deliver the award.
The court may then enquire into the matter and may award costs to the Tribunal and order the balance
amount to be refunded to the applicant. The arbitral Tribunal is entitled to be heard in the disposal of the
application. Where the award does not contain sufficient provision as to costs, the court may make such

42
order as to costs as it thinks fit.

Where an arbitrator refuses to deliver his award except on payment of fee demanded by him, the aggrieved
party may apply to the court. The court may ask the party to deposit the requisite amount in the court and
then ask the arbitrator to deliver his award. The court may then enquire into the matter to ascertain whether
the fee demanded is reasonable. If it is not so, the court may authorise the payment of a reasonable amount
to the arbitrator and the balance to be refunded to the party.

An application under the section can be made by any party but not by a party who has made a written
agreement with the arbitrator as to fees. The arbitrator is also entitled to appear whenever any application
about his fee is under consideration.

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Where the award does not contain any sufficient provision about costs, the court may make any appropriate
order about the costs of arbitration.

There was no provision like Section 39(1) in the Arbitration Act, 1940, giving the arbitrator a lien over the

U
award for fees and charges, but Section 14(2) of the 1940 Act provided that an arbitrator could be asked to
file an award in court only "upon payment of fees and charges due in respect of the arbitration". This was
held to give him a lien on the award.

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Section 38 of the Arbitration Act, 1940, [repealed] was exactly in the same terms as Section 39 Sub-section

m
(2), (3) and (4) of the present Act except that the words "costs demanded" are used while in the 1940 Act the

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words "fees demanded" were used. The word "costs" includes "fee".

.
Lien on award: Sub-section (1) gives to the arbitral tribunal a lien on the award for the p1yment of its costs.
a

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This means that the Tribunal can withhold the award and refuse to give copies to the parties until all its costs

m
are paid. This is subject to any provision to the contrary in the arbitration agreement.

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Order by Court to Deliver Award: If the Arbitral Tribunal exercises its lien, a party may apply to the court

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and the court may order the Tribunal to deliver the award to the party on payment into court. of the costs

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demanded by the Tribunal. After inquiring into the matter the court may order that out of the money so paid

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an amount which the court considers reasonable be paid to the Tribunal, and the balance, if any, be
refunded to the applicant.

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At the hearing of the application the Tribunal will be entitled to appear and to be heard.

Fees of Tribunal fixed by agreement: If the fees demanded by the Tribunal have been fixed by a written
agreement between the applicant and the Tribunal, no application to the court will lie to compel the Tribunal
to deliver the award. It is contrary to the quasi-judicial status of an arbitrator that he should bargain
unilaterally for his fee with one party.

Arbitration agreement not to be discharged by death of party thereto

1. An arbitration agreement shall not be discharged by the death of any party thereto, either as respects
the deceased or any other party, but shall in such event be enforceable by against the legal
representatives of the deceased.

2. The mandate of an arbitrator shall not be terminated by the death of any party by whom he was

43
appointed.

3. Nothing in this section shall affect the operation of any law by virtue of which any right of action is
extinguished by the death of a person.

Effect of death of party: This section lays down a few points about the effect of death of a party upon the
arbitration proceedings. Sub-section (1) makes the simple declaration that an arbitration agreement shall
not be discharged by the death of any party, and sub-section (2) supplements the same by saying that the
authority of an arbitrator shall not be revoked by the death of any party. Thus the death of a party neither
discharges the arbitration agreement nor revokes the authority of the arbitrator. His legal representatives
are entitled, and are also bound, to be brought on record. But all this is subject to the provision of sub-
section (3) that where the right of action is extinguished by the death of a party the arbitration proceedings

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would abate in the same manner as a suit would have abated. The principle of law is enshrined in the maxim
action personalise moritur cum persona. Certain rights of action die with the man. But this applies only to
actions of personal nature, such as the contract to marry, sing or paint. Where an action is capable of
surviving beyond the life of the person concerned, it may be enforced by as well as against his legal

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representatives. This is also true of arbitration proceedings.

Where on the death of a party, legal representatives, including those already a party to the arbitration
proceedings, were brought on record and there was contention from the side of the respondents that upon

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death of a party the agreement was to become extinguished, the court held that the parties could be
referred to arbitration.
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proceedings. . co
Effect of Insolvency [Section 41]: Section 41 deals with the effect of insolvency of a party upon the

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Provisions in Case of Insolvency

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1. Where it is provided by a term in a contract to which an insolvent is a party that any dispute arising
thereabout or in connection therewith shall be submitted to arbitration, the said term shall, if the receiver

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adopts the contract, be enforceable by or against him so far as it relates to any such dispute.

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2. Where a person who has been judged an insolvent had, before the commencement of the insolvency

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proceedings, become a party to an arbitration agreement, and any matter to which the agreement
applies is required to be determined in connection with, or for the purposes of the insolvency
proceedings, then if the case if one to which 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
directing that the matter in question shall be submitted to arbitration in accordance with the arbitration
agreement, and the judicial authority may, if it is of opinion that, having regard to all the circumstances of
the case, the matter ought to be determined by arbitration, make an order accordingly.

3. In this section, the expression "receiver" includes an Official Assignee.

Effect of Insolvency: One of the effects of the insolvency of a party is that if the receiver or official assignee
adopts the contract (since he has the power to disown certain contracts), which contains the arbitration
clause he will become bound by the clause and the matter will have to be decided by arbitration.

The second rule laid down is that if the matter in dispute has to be decided for the purpose of carrying out the

44
insolvency proceedings and the dispute has arisen by virtue of a contract which provided for arbitration, the
receiver or the other party may apply to the court for an order. The order shall pass an order only if it appears
to the court that having regard to all the circumstances of the case the matter should be decided by
arbitration.

REVISION

Where a party to an award, who was given an opportunity to file objections to the award, did not avail itself of
the opportunity and a decree was passed in terms of the award, it was held that the party was debarred from
subsequently challenging the award in revision unless it could be shown that the court had acted without
jurisdiction in passing a decree in terms of the award.

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It is within the competency of the High Court to entertain a petition in revision against an order dismissing an
application for filing an award and passing a decree thereon.

Section 115 of the Code of Civil Procedure (as amended by U.P. Civil Laws (Amendment) Act of 1963) is

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confined to cases arising out of original suits and proceedings under sections 14 to 17, 20, 21 and 32 to 34
of the Act are not in the nature of suits hence, a revision petition against revisional orders setting aside an
arbitration award is not maintainable.
Where a party seeks to set aside the award on the ground that it is delivered after the time fixed, it is not

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open to the other party to plead that the first party is estopped from challenging the award on that ground, as
there can be no estoppel against statute.
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When an order granting stay of suit under section 34 is passed by the trial court in the exercise of its
discretion, it will not be interfered with readily. The fact that the appellate court would have taken a different
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view if the decision had rested with it, would not justify interference with the trial court's exercise of
discretion.
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No appeal lies from the opinion 0 the court upon a special case stated by the arbitrator with regard to a

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question of law arising in the course of the reference. The opinion of the Judge in the special case on a point

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of law not being a judgment, the jurisdiction of the court in revision to correct errors in the opinion, can not be

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invoked.

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Limitation

The limitation for appeals under this section of the Arbitration Act is governed by Article 116, Limitation Act,
1963 which is as under :

"116. Under the Code of Civil Procedure, 1908 :

a) to a High Court fromany decree or order - Ninety days - The date of the decree or order
b) To any other court from any decree or order - Thirty days - The date of the decree or order

The Limitation Act and the Code of Civil Procedure have to be read together because both are statutes
relating to procedure and they are in para material and, therefore, to be taken together as one system as
explanatory of each other.

ENFORCEMENT OF FOREIGN AWARD

45
AND NEW YORK AND GENEVA CONVENTION AWARDS

Types of International Commercial Arbitration: International Commercial Arbitration may be broadly


classified as:

1. General and specialised arbitration;


2. Institutional and ad hoc arbitration;
3. Arbitration in law, amiable composition, and
4. Arbitration in equity or ex aequo et bono.

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1. General and Specialised Arbitration: The difference between these two types of arbitration can be
understood from the very words themselves. Specialised arbitration is that which is carried in certain
specific industries or commercial activities, as for example marine arbitration, commodities, trade etc.
General arbitration refers to that branch of lCA that is apart from specialised arbitration, dealing with
non-specific areas that govern a large part of international trade and commerce. Specialised arbitration

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generally tends to be ad hoc or under the auspices of a particular trade association or mercantile
exchange. An interesting facet of this form of arbitration is the relative absence of lawyers as the parties
generally prefer experts in the trade to be involved in the disputes as against lawyers.

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2. Institutional and Ad hoc Arbitration: Historically, the parties used to spell out the procedures and

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arbitration agreement, and when the dispute arises, they would jointly select the arbitrator(s) and work

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out the details of the procedure together with the tribunal. The Tribunal is also empowered to devise its

.
own procedure. This type of customised procedure is called "ad hoc" arbitration. By default, the way in

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which arbitrations are conducted is "ad hoc" unless the parties agree to employ the services of an

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arbitration institution.

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Perhaps the most important advantage of institutional arbitration is a certain measure of convenience

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and security. Before a dispute has arisen, it is generally very difficult to ascertain what the exact nature

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of the dispute will be, what kind of procedure will be most appropriate, what contingencies will have to

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be taken into account and whether both sides will cooperate to get the matter resolved. Negotiating the

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drafting an arbitration clause that covers all these considerations is a difficult, time-consuming and
costly exercise. The use of recognised arbitration rules ensures that the process will take place, it will be
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reasonably fair and efficient that will lead to decision, and that this decision will be enforceable.

One of the most important advantages of institutional arbitration is that the stage of the institution
strengthens the credibility of awards and task facilitates both voluntary compliance and enforcement.
Furthermore, institutional arbitration is conducted according to set procedural rules and supervised, to
a greater or lesser extent, by professional staff. This reduces the risks of procedural breakdowns,
particularly of the beginning of the arbitral process, and of the technical defects in the arbitral award.
The institution's involvement can be particularly constructive on issues relating to the appointment of
arbitrators, the resolution of challenges to arbitrators and the arbitrators' fees. Less directly, the
institution lends standing to any award that is rendered, which may enhance the likelihood of voluntary
compliance and judicial enforcement.

On the other hand, ad hoc arbitration is typically more flexible, less expensive and II lure confidential
than institutional arbitration. Despite the growing size and sophistication of international arbitration bar,
and the efficacy of the international legal framework for commercial arbitration, having been reduced

46
many experienced international practitioners prefer a most structured, predictable character of
institutional arbitration, at least in the absence of unusual circumstances arguing for an ad hoc
approach.

3. Arbitration in Law, Amiable Composition: Normally the arbitration procedures will be held according
to the rules of law, unless otherwise specified in the arbitration agreement. Most national laws and
many arbitration rules, however, explore the possibility for the parties to grant the arbitrators the power
to decide as amiable compositeurs or according to the principles of equity. Amiable composition is a
frequently misunderstood institution of French law that has been adopted by many other civil law
systems. Amiable compositeurs are authorised to disregard certain non-mandatory rules of law. What
is important to note is that the arbitrators while acting as amiable compositeurs cannot simply ignore
laws. They are required to follow provisions of the substantive law and are permitted to ignore only

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certain non-mandatory provisions of the law.

4. Arbitration in equity or ex aequo et bono: It is sometimes defined synonymously amiable composition


but in reality and to be exact the two are not really the same. What really sets them apart is the fact that

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in arbitration in equity, the arbitrators are provided the additional leeway of disregarding even the
mandatory provisions of law. The only restriction to their powers is that they are required to respect
international public policy. The point that ought to be realised is that there is no clear-cut understanding
of the international public policy, therefore there is no real restriction on the powers of the arbitrators.

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The only restriction on their powers is the fact that in most cases the parties are unwilling to go
completely against established public policy.
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Advantages of International Commercial Arbitration: The popularity of International Commercial
Arbitration as a method of dispute resolution is primarily due to its inherent advantages which are as
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follows:

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1. International commercial arbitration, thoretically at least, assures a genuinely neutral and competent

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decision maker, who mayor may not be appointed by the parties themselves. The appointment or non-

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appointment of the arbitrator depends on the mode of arbitration adopted i.e. institutional or ad hoc.

d
Competence of the decision-maker or arbitrators, is one of the foremost factors herding parties towards

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arbitration. Very often the judges of the national judiciaries are unaware of the complexities and
intricacies involved in the commercial transactions, and therefore the judgment may be borne out of

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logic rather than clear understanding of the precepts involved in such transactions. The most important
factor though is the possibility of bias which is negatived through the process of international
commercial arbitration.

2. A well constructed arbitration agreement of course normally permits resolution of most disputes
between parties in a single forum, whereas the possibility of multiple judicial proceedings is very much
in reality in the case of courts. This also insures cost effectiveness and mitigates unnecessary and
avoidable expenditure. More importantly though, the possibility of multiple judicial proceedings means
that the parties to the litigation have to waste inordinately long periods of time waiting for the courts to
give a decision which is then appealable several times over.

3. Arbitration agreement and awards are generally easier to enforce in foreign states, compared to the
judgments of courts. This is primarily due to the presence of a clutch of international conventions, most
importantly the New York Convention, 1958.

47
4. Arbitration proceedings tend to be less formal and involve lesser procedural requirements than litigation
in National courts. Often, the parties themselves lay down the procedure to be followed and thereby
there is less acrimony in following it. Furthermore, the possibility of cutting down 0 procedural
requirements also ensures that the time consumed by the process is much less that what would have
been wasted in the national judicial system.

5. International arbitration is a tendency to be more secretive and confidential than judicial proceedings,
with respect to most aspects of litigation. This ensures that the matters which should not be made public
stay away from the public eye. Furthermore, since most of the arbitration is between commercial
organisations or individual involved in commercial activity, the need to maintain a low profile with regard
to disputes and their resolution need not be highlighted.

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6. The presence of impartial independent and competent arbitrators would act as a deterent against those
who wish to engage in frivolous litigation.

7. International commercial arbitration is theoretically faster, technically more equipped, definitely more

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efficacious and more often than not less expensive method of dispute resolution.

Disadvantages of International Commercial Arbitration :

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1. An ill drafted but effective arbitration clause for lawyers can itself be the subject matter of litigation,
thereby nullifying the advantages.
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2. The absence of procedural requirements in the agreement or insufficient procedures may throw a
spanner in the works, as parties may raise a number of procedural issues to thwart the completion of the
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process. A recalcitrant party is not a rarity in international commercial arbitration and there are many

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who would wish that the process would go on for as long as it can be stretched.

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3. While it is true, that independent arbitrators tend to be unbaised, there is a possibility, a definite

A
possibility that the private arbitrators may have financial, personal or professional relations with one

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party or its counsels. This, in the views of those few, poses a greater risk than the favouritism or

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prochialims of local courts. How far the other party will permit a person who has relationships with the
opposing party is the question that begs an answer.

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5.
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4. A number of developing nations still regard international commercial arbitration with deep suspicion and
are unwilling to enforce the awards through their national courts.

While popular notion is that all international commercial arbitration proceedings are cost-effective,
there have been a number of arbitration proceedings dragging on for years. This has in many ways
been the strongest and most recurring of criticisms. Critics have questioned the need to go through an
arbitration process that does not ensure either speed or cost effectiveness.

6. The need for certain amount of cooperation between parties involved in arbitration procedures is a
prerequisite for the successful conducting of arbitration. Therefore, where the relations between the
parties have soured beyond repair, the absence of any penalties for misdemeanour or misconduct of
the parties, may act as an incentive to those parties who are unwilling to settle the disputed issues. In
this respect stricter and more stringent rules of judiciary may seem essential.

48
Enforcement of Foreign Awards

A foreign award, as defined under the Foreign Awards Act, 1961 (repealed) (now Section 44 of the
Arbitration and Conciliation Act, 1996) means an award made on or after October 11, 1960 on differences
arising between persons out of legal relationships, whether contractual or not, which are considered to be
commercial under the law in force in India. The qualify as a foreign award under the Act, the award should
have been made in pursuance of an agreement in writing for arbitration to be governed by the New York
Convention on the recognition and enforcement of Foreign Award, 1958, and not to be governed by the law
of India. Furthermore, an award should have been made outside India in t e territory of a foreign State
notified by the Government of India as having made reciprocal provisions for enforcement of the
Convention. These are the conditions which must be satisfied to qualify an award as a 'foreign award'.

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Power of judicial authority to refer parties to New York Convention Awards : Section 45 operates
notwithstanding anything contained in Part I of the Arbitration and Conciliation Act, 1996 or in the Code of
Civil Procedure, 1908. The section says that when any matter covered by Section 44 (above) comes before
the court in respect of which the parties have made an arbitration agreement, and if a party of the
agreement makes a request, the court shall require the parties to refer the matter to arbitration within the
terms of their agreement, such request can be made by O(1e of the parties or any person claiming through
or under a party. The court may not order such reference if it finds the agreement to be null and void,

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inoperative or incapable of being enforced.

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Stay of International Commercial Arbitration: The Supreme Court has suggested that where questions
of amenability of a dispute to international arbitration arise, interim injunctions against such reference
.
should not be allowed to continue for a long period and domestic courts should be circumspect in granting
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such interlocutory injunctions.

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Binding force of foreign Award
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Section 46 - When Foreign award building: Any foreign award which would be enforceable under this

d
Chapter shall be treated as binding for all purposes on the persons as between whom it was made, and may

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accordingly be relied on by any of those persons by way of defence, set-off or otherwise in any legal
proceedings in India and any references in this Chapter to enforcing a foreign award shall be construed as

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including references to relying on an award.

In order to make the above provisions really effective, Section 46 declares that any foreign award which
would be enforceable under the Act shall be treated as binding for all purpose on the parties to the
agreement. It can be relied on by any of those parties by way of defence, set-off or otherwise in any legal
proceedings in India. A reference to enforcing a foreign award would include a reference to relying on an
award.

Refusal of enforcement of foreign award (Section 48)

Section 48(1) and (2) lay down that enforcement of a foreign award may be refused, at the request of the
party against whom it is invoked, only if -

1) proof is furnished by the party in respect of any of the grounds specified in clauses (a) to (e) of sub-
section (1), (as detailed below) or

49
2) the court finds either that the subject-matter of difference is not arbitrable or that enforcement of award
would be against the public policy of India.

(a) On furnishing of proof by party [Section 48(1)]


i. Incapacity of parties [clause (a)]
ii. Invalidity of Agreement [clause (a)]
iii. Reconsideration of Validity by Arbitrator
iv. Lack of Proper Notice [clause (b)]
v. Award beyond the Scope of Reference [clause (c)]

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vi. Illegality in Composition of Arbitral Tribunal or in Arbitral Procedure [clause (d)]
vii. Award not yet Binding [clause (e)]
(b) On findings of Court [Section 48(2)]

1. Difference not Arbitrable [clause (a)]


2. Enforcement of Award against Public Policy [clause (b)]

Enforcement of Foreign Awards [Section 49]

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If the court is satisfied that the foreign award is enforceable, the award shall be deemed to be a decree of the
court.

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In connection with the enforcement of a foreign award, the Supreme Court held that the Act has to be taken

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to come into force from the moment when the first of the Ordinances replacing the old Act came into force.
A petition for enforcement of a foreign award can be filed in any part of the country where an answerable
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party to the claim may have money or where a suit for recovery can be filed. A Single Judge, in this case,

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recognised the award as enforceable and passed orders for its execution. The award-debtor applied for
cancellation of the order on the ground that the enforcement application was filed at Bombay only because
d
filing it in Delhi would have meant more court fee, there being no ceiling on court fee in Delhi. The court said

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that such a motive could not be taken as affecting the validity of the order of enforcement. The notice of

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petition was properly served. The notice was served on a company which was associated with the debtor
company and received by affixing the rubber stamp of the latter.

Section 49 empowers the court only to declare that the award is enforceable. It would then be enforced as a
decree under the Civil Procedure Code.

Appealable Orders [Section 50]

Section 50 deals with orders which are appealable.

1. Section 50( 1) provides that an appeal shall lie -

a) from a judicial authority's order refusing to refer the parties to arbitration under Section 45, and

b) from the court's order refusing to enforce a foreign award under Section 48.

50
Appeals lie to the court Authorised by law to hear appeals from such orders.

1. Section 50(2) bars a second appeal against the appellate order passed under this section.
However, the right to appeal to the Supreme Court is not affected.

Geneva Convention Awards

Foreign Award for Purposes of this convention: Section 53 defines "foreign award" for the purposes of
Chapter 2 of Part II which deals with enforcement of Geneva Convention Award. IN terms of Section 53 of
the Act:

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"Foreign award" means an arbitral award on differences relating to matters considered as commercial
under the law in force in India made after the 28th day of July, 1924, -

in pursuance of an agreement for arbitration to which the Protocol set forth in the Second Schedule applies,

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and between persons of whom one is subject to the jurisdiction of someone of such Powers as the Central
Government, being satisfied that reciprocal provisions have been made, may, by notification in the Official
Gazette, declare to be parties to the Convention set forth in the Third Schedule, and of whom the other is
subject to the jurisdiction of some other of the Powers aforesaid, and in one of such territories as the Central

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Government, being satisfied that reciprocal provisions have been made, may, by like notification, declare to

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be territories to which the said Convention applies, and for the purposes of this Chapter an award shall not

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be deemed to be final if any proceedings for the purpose of contesting the validity of the award are pending
in the country in which it was made.
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Power of Judicial Authority to refer parties to arbitration: Section 54 makes it mandatory for any

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judicial authority when seized of a dispute regarding a contract made between parties to whom Section 53

a
[Geneva Convention] applies, to refer the parties to arbitration. This can be done on the application of either

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party.

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Foreign award when binding: Section 55 provides that a foreign award which is enforceable under the Act
[Par. II, Chap 2] shall be binding for all purposes. A foreign award which would be enforceable shall be
treated as binding on the persons as between whom it was made, and may accordingly be relied on by any
of those persons by way of defence, set-off or otherwise in any legal proceedings in India and any
references to enforcing a foreign award shall be construed as including references to relying on an award.

Conditions for enforcement of foreign award: Section 57(1) lays down the conditions that the required
to be satisfied for enforcement of a foreign award. These conditions are five in number:

1) The award has been made in pursuance of a submission to arbitration which is valid under the law
applicable to it [Section 57(1) (a)].

2) The subject-matter of the award is capable of settlement by arbitration under the law in India [Section
57(1) (b)].

3) The award has been made by the Arbitral Tribunal provided for in the submission to arbitration or
constituted in the manner agreed upon by the parties and in conformity with the law governing the
arbitration procedure [Section 57(1) (c)].

51
4) The award has become final in the country in which it has been made, in the sense that it will not be
considered as .such if it is open to opposite or appeal or if it is proved that any proceedings for the
purpose of contesting the validity of the award are pending [Section 57(1) (d)].

5) The enforcement of the award is not contrary to the public policy or the law of India. The Explanation to
this provision clarifies that an award would be in conflict with public policy of India if the making of the
award was induced or affected by fraud or corruption. Thus, enforcement of an award may be refused if
it was obtained by suppressing facts, by misleading or deceiving the arbitrator, by bribing the arbitrator,
by exerting pressure on the arbitrator, etc. [Section 57(1) (e)].

Refusal of enforcement of foreign award: Sub-sections (2) and (3) of Section 57 enumerate the grounds

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on which the court may refuse to enforce the foreign award. These grounds are as under:

1. The award has been annulled in the country in which it was made [Section 57 (2) (a)].

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2. The party against whom it is sought to use the award was not given notice of the arbitration
proceedings in sufficient time to enable him to present his case [Section 57(2) (b)].
3. Being under a legal incapacity, the party was not properly represented [Section 57(2) (b)].
4. The award does not deal with the differences contemplated by or falling within the terms of the

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submission to arbitration or that it contains decisions in matters beyond the scope of the submission

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to arbitration [Section 57(2) (c)].
5.
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Enforcement of the award may also be refused if the party against whom the award has been made

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successfully contests the validity of the award on the grounds mentioned in clauses (b), (d) and (e)
of Section 57 (1) [Section 57(3)].
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Enforcement of Foreign Award : If the court is satisfied that the foreign award is enforceable, the award

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will be deemed to be a decree of the court and will be enforced as such.

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Appealable Orders: Section 59 deals with orders which are appealable.

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a) Section 59(1) provides that an appeal shall lie –
a. from a judicial authority's order refusing to refer the parties to arbitration under Section 54,
and
b. from the court's order refusing to enforce a foreign award under Section 57.
b) Section 59(2) bars a second appeal against the appellate order passed under this Section.
However, the right to appeal to the Supreme Court is not affected.

IMPORTANT QUESTIONS

Q.1. In which case does an appeal lie against an order passed under arbitration and under Arbitration
and Conciliation Act? Explain the provisions regarding appeals.

Q.2. When does an foreign award have binding force? Discuss the rules relating to enforcement of a

52
foreign award under the New York Convention.

Q.3. Explain the scope of the provision of the Act relating to appeals.

Q.4. What is the meaning of foreign award under the New York Convention? When does a foreign award
have binding force? Explain the conditions for enforcement of foreign award.

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53
UNIT - IV
CONCILIATION

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Meaning: Part III of the Arbitration and Conciliation Act, 1996 deals with conciliation. Conciliation means

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the settling of disputes without litigation." Conciliation is a process by which discussion between parties is
kept going through the participation of a conciliator. The main difference between arbitration and
conciliation is that in arbitration proceedings the award is the decision of the Arbitral Tribunal while in the
case of conciliation the decision is that of the parties arrived at with the assistance of the conciliator.

Application and Scope

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1. Save as otherwise provided by any law for the time being in force and unless the parties have otherwise
.
agreed, this Part shall apply to conciliation of disputes arising out of legal relationship, whether
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contractual or not and to all proceedings relating thereto.

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2. This Part shall not apply where by virtue of any law for the time being in force certain disputes may not be

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submitted to conciliation.

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Section 61 points out that the process of conciliation extends, in the first place, to disputes whether
contractual or not. But the disputes must arise out of legal relationship. It means that the dispute must be
such as to give one party the right to sue and other party the liability to be sued. The process of conciliation
extends, in the second place, to all proceedings relating to it. But Part III of the Act does not apply to such
disputes as cannot be submitted to conciliation by virtue of any law for the time being in force.

Number and qualifications of conciliators (Section 63): Section 63 fixes the number of conciliators.
There shall be one conciliator. But the parties may by their agreement provide for two or three conciliators.
Where the number of conciliators is more than one, they should as a general rule act jointly.

Appointment of conciliators (Section 64): Sub-section (1) of Section 64 provides three rules for the
appointment of conciliators:

a) If there is one conciliator in a conciliation proceedings, the parties may agree on the name of a sole
conciliator.

b) If there are two conciliators in a conciliation proceedings, each party may appoint one conciliator.

54
c) If there are three conciliators in a conciliation proceedings, each party may appoint one conciliator and
the parties may agree on the name of the third conciliator who shall act as the presiding conciliator.

Sub-section (2) of Section 64 provides for the assistance of a suitable institution or person in the
appointment of conciliators. Either a party may request such institution or person to recommend the names
of suitable individuals to act as conciliator, or the parties may agree that the appointment of one or more
conciliators be made directly by such institution or person.

The proviso to Section 64 requires that in recommending or appointing individuals to act as conciliators, the
institution or person shall have regard to such considerations as are likely to secure the appointment of an
independent and impartial conciliator with respect to a sole or third conciliator the advisability of appointing
a conciliator of a nationality other than the nationalities of the parties should be taken into account.

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Principles of Procedure: Independence and Impartiality [Section 67(1)]: The conciliator should be
independent and impartial. He should assist the parties in an independent and impartial manner while he is
attempting to reach an amicable settlement of their dispute.

Fairness and Justice [Section 67(2)]: The conciliator should be guided by principles of objectivity,
fairness and justice. He should take into consideration, among other things, the rights and obligations of the
parties, the usages of the trade concerned, and the circumstances surrounding the dispute, including any

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previous business practices between the parties.

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Confidentiality [Section 75, 70, proviso]: The conciliator and the parties are duly bound to keep
confidential all matters relating to the conciliation proceedings. Similarly, when a party gives an information
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to the conciliator on the condition that it be kept confidential, the conciliator should not disclose that
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information to the other party.

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Disclosure of information [Section 70] : When the conciliator receives an information about any fact

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relating to the dispute from a party he should disclose the substance of that information to the other party.

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The purpose of this provision is to enable the other party to present an explanation which he might consider

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appropriate.

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Cooperation of parties with conciliator [Section 71]: The parties should in good faith cooperate with the

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conciliator. They should submit the written materials, provide evidence and attend meetings when the
conciliator requests them for this purpose.

Rules of Procedure (Section 66): The conciliator is not bound by the rules contained in the Code of Civil
Procedure, 1908 or the Indian Evidence Act, 1872. Though the conciliator is not bound by the technical
rules of procedure, he, it seems, should not ignore the principles of natural justice. Thread of natural justice
should run through the entire conciliation proceedings. The principles of natural justice require that both
parties must be heard each in the presence of the other.

Admissibility of Evidence in other proceedings (Section 81): The parties cannot rely on or introduce as
evidence in arbitral or judicial proceedings in respect of the following matters:

1. Views expressed or suggestions made by the other party in respect of a possible settlement the dispute;

2. Admissions made by the other party in the course of the conciliation proceedings;

55
3. Proposals made by the conciliator, and

4. The fact that the other party had indicated his willingness to accept- a proposal for settle me made by the
conciliator.

It is immaterial whether or not the arbitral or judicial proceedings are related to the dispute that is the subject
of the conciliation proceedings.

Place of Meeting [Section 69 (2)]: The parties have freedom to fix by their agreement the place where
meetings with the conciliator are to be held. Where there is no such agreement, the place of meeting will be
fixed by the conciliator after consultation with the parties. In doing so the circumstances of the conciliation

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proceedings will have to be considered.

Communication between Conciliator and Parties [Section 69 (1)]: The conciliator may invite the
parties to meet him or may communicate with them orally or in writing. He may do so with the parties

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together or with each of them separately.

1. Commencements of conciliation proceedings [Section 62]: The conciliation proceedings are


initiated by one party sending a written invitation to the other party to conciliate. The invitation should

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identify the subject of the dispute. Conciliation proceedings are commenced when the other party

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accepts the invitation to conciliate in writing. If the other party inviting conciliation does not receive a

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reply within thirty days from the date he sends the invitation or within such period of time as is specified
in the invitation, he may elect to treat this as rejection of the invitation to conciliate. If he so elects he
should inform the other party in writing accordingly. .
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2. Submission of statement to conciliation [Section 65): The conciliator may request each party to
submit to him a brief written statement. The statement should describe the general nature of the dispute
and the points at issue. Each party should send a copy of such statement to the other party. The
conciliator may require each party to submit to him a further written statement of his position and the

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facts and grounds in its support. It may be supplemented by appropriate documents and evidence. The
party should send a copy of such statements, documents and evidence to the other party. At any stage
of the conciliation proceedings, the conciliator may request a party to submit to him any additional

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information which he may deem appropriate.

3. Conduct of conciliation proceedings [Section 69 (1), 67 (3)]: The conciliator' may invite the parties
to meet him. He may communicate with the parties orally or in writing. He may meet or communicate
with the parties together or separately.

In the conduct of conciliation proceedings, the conciliator has some freedom. He may conduct them in
such manner as he may consider appropriate. But he should take into account the circumstances of the
case, the express wishes of the parties, a party's request to be heard orally and the need of speedy
settlement of the dispute.

4. Administrative Assistance [Section 68]: Section 68 facilitates administrative assistance for the
conduct of conciliation proceedings. Accordingly, the parties and the conciliator may seek
administrative assistance by a suitable institution or the person with the consent of the parties.

56
Settlement:

1. Settlement of Dispute [Section 67 (4), 72, 73]: The role of the conciliator is to assist the parties to
reach an amicable settlement of the dispute. He may at any stage of the conciliation proceedings make
proposals for the settlement of the dispute. Such proposals need not be in writing and need not be
accompanied by a statement of reasons. Each party may, on his own initiative or at the invitation of the
conciliator, submit to the conciliator the suggestions for the settlement of the dispute.

When it appears to the cociliator that there exist elements of a settlement likely to be accepted by the
parties, he shall formulate the terms of a possible settlement and submit them to the parties for their
observations. After receiving the observations of the parties the conciliator may reformulate the terms
of a possible settlement in the light of such observations. If the parties reach agreement on a settlement

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of the dispute, a written settlement agreement will be drawn up and signed by the parties. If the parties
request, the conciliator may draw up or assist the parties in drawing up the settlement agreements.
When the parties have signed the settlement agreement it becomes final and binding on the parties and
persons claiming under them respectively. The conciliator shall authenticate the settlement agreement

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and furnish its copy to each of the parties.

Where the conciliator held some meetings with the parties and drew up the settlement agreement by
himself in secrecy and sent it to the court in sealed cover, the Supreme Court held that an order passed

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by the High Court confirming such settlement agreement received from the conciliator was wholly

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unsupportable. The section clearly requires that in order to be binding and to have the status of an

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arbitral award, it must be signed by the parties.

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2. Status and effect of settlement agreement [Section 74]: Section 74 provides that the settlement
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agreement shall have the same status and effect as an arbitral award on agreed terms under Section

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30. This means that it shall be treated as a decree of the court and shall be enforceable as such.

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Restrictions on role of conciliators [Section 80]: Section 80 places two restrictions on the role of the

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conciliator in the conduct of conciliator proceedings:

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1) Clause (a) of Section 80 prohibits the conciliator to act as an arbitrator or asa representative or counsel
of a party in any arbitral or judicial proceeding in respect of a dispute which is subject of the conciliation

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proceedings.

2) Clause (b) of Section 80 prohibits the parties to produce the conciliator as a witness in any arbitral or
judicial proceedings.

Termination of Conciliation Proceedings [Section 76] : Section 76 lays down four ways of e
termination of conciliation proceedings. These are:

1) The conciliation proceedings terminate with the signing of the settlement agreement by e parties.
Here the date of termination of conciliation proceedings is the date of the settlement agreement
[Section 76(a)].

2) The conciliation proceedings stand terminated when the conciliator declares in writing further
efforts at conciliation are no longer justified. Here the date, of termination of conciliation
proceedings is the date of the declaration. [Section 76(b)].

57
3) The conciliation proceedings are terminated by written declaration of the parties addressed to the
conciliator to the effect that the conciliation proceedings are terminated. Here the date of
termination of conciliation proceedings is the date of the declaration [Section 76(c)].

4) The conciliation proceedings are terminated when a party declares in writing to the other party and
the conciliator, that the conciliation proceedings are terminated. Here the date of termination of
conciliation proceedings is the date of the declaration [Section 76(d)].

In a case before the Supreme Court the facts were that the conciliator drew up the settlement agreement
himself in secrecy and sent the same to the court in a sealed cover. The court to which it was sent refused
even to entertain objections against the settlement. The Supreme Court held that the conciliator committed

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an illegality. The Bombay High Court was not correct in confirming the settlement paper received from the
conciliator. The court set aside the settlement. The reason is that under Section 76 (a) a settlement
proceeding comes to an end only when the settlement agreement is signed by the parties, whereas in this
case the settlement was filed in the court without the signature of the parties. The court surveyed the totality

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of the provisions on conciliation and said:

Resort to Arbitral or Judicial Proceedings (Section 77]: As a general rule, the Parties cannot initiate
arbitral or judicial proceedings during the conciliation proceedings in respect of a dispute which is the

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subject-matter of the conciliation proceedings. But in exceptional cases a party may initiate arbitral or

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judicial proceedings if in his opinion such proceedings are necessary for preserving his rights.

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1. Costs (Section 78) : “Costs” means reasonable costs relating to the following:
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1) the fee and expenses of the conciliator and witnesses requested by the conciliator with the consent
of the parties; m
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2) any expert advice requested by the conciliator with the consent of the parties;

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3) any assistance provided pursuant to Section 64(2) (b) and Section 68, and

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4) any other expenses incurred in connection with the conciliation proceedings and the settlement
agreement.
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It is the conciliator who fixes the costs of the conciliation proceedings upon their termination an gives
written notice of it to the parties. The costs are borne by the parties in equal shares.

2. Deposits (Section 79): The conciliator may estimate the costs likely to be incurred and direct each
party to deposit it in advance in any equal amount. During the conciliation proceedings, the conciliator
may demand supplementary deposits from each party. If the required deposits are not paid in full by
both parties within thirty days, the conciliator may either suspend the proceedings or terminate the
proceedings by making--a written declaration to the parties. The termination of proceedings becomes
effective from the date of declaration. Upon termination of the proceedings, the conciliator shall render
to the parties accounts of deposits received and return the unexpended balance to the parties.

3. Removal of Difficulties (Section 83): Section 83 empowers the Central Government to make
provisions for removing any difficulty arising in giving effect to the provisions of the Act. Such provisions
may be made by orders published in the Official Gazette. But such orders must not be inconsistent with

58
the provisions of the Act. Every order made under this section is required to be laid before each House
of Parliament. This section will remain effective only for a period of two years from the date of the
commencement of this Act, Le., 25th January, 1996.

POWER OF HIGH COURT AND CENTRAL GOVERNMENT TO MAKE RULES (SECTION 82 AND 84)
Section 82 confers on the High Court the rule making power. Accordingly, the High Court may make rules
consistent with the Act as to all proceedings before the court under this Act.

"Section 72 of the 1996 Act gives the High Court power to make rules consistent with the Act. All the High
Courts have not so far made rules. Whereas Section 84 gives the Central Government power to make rules
to carry out the provisions of the Act, the High Court should also, wherever necessary, make rules. It would
be helpful if such rules deal with the procedure to be followed by the courts while exercising jurisdiction

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under S. 9 (Interim relief) of the Act. The rules may provide for the manner in which the application should be
filed, the documents which should accompany the same and the manner in which such applications will be
dealt with by the courts. The High Courts are, therefore, requested to frame appropriate rules as
expeditiously as possible so as to facilitate quick and satisfactory disposal of arbitration cases."

IMPORTANT QUESTIONS

Q.1.
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Power of Central Government to make Rules (Section 84): Section 84 empowers the Central
Government to make rules for carrying out the provisions of the Act. Accordingly, the Central Government
may, by notification in the Official Gazette, make rules for carrying out the provisions of the Act.

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Who is a conciliator? How is he appointed? Discuss the effect of settlement agreement.
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Q.2.

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proceeding commence? Explain.

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What do you mean by conciliation proceedings? What is its scope? How does the conciliation

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59
UNIT – V

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LEGAL SERVICES AUTHORITY ACT, 1987

Article 39-A of the Constitution which was inserted by the Constitution (Forty second) Amendment Act,
1976 casts an obligation on the State to secure that the operation of the legal system promotes justice on a

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basis of equal opportunity, and in particular, provide free legal aid by suitable legislation or schemes or in
any other way, to ensure that the opportunities for securing justice are not denied to any citizen by reason of
economic or other disabilities. Besides, the right to free legal aid has now been included as part of right to
life and personal liberty guaranteed under Article 21 of the Constitution.

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With a view to accomplishing this objective, the Government of India appointed, a committee for

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implementing the legal aid schemes in 1980. This committee was headed by Mr. Justice P.M. Bhagwati.
The committee prepared a draft-legal aid programme which could be applicable throughout India. It is on
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the basis of the recommendations and the draft outlined by this Committee that the Legal Services
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Authorities Act, 1987, was passed to establish Statutory Legal Services Authorities. It also contained
provisions relating to Lok Adalats.
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Object of the Act: The main object of the Legal Services Authorities Act, 1987 is to provide free and

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competent legal services to the poor and weaker sections of the society so as to ensure that they are not

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denied the opportunities for securing justice by reason of economic or other disabilities and to organise Lok

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Adalats to secure that the operation of the legal system promotes justice on the basis of equal opportunity.

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Entitlement to Legal Services: Section 13 of the Legal Services Authorities Act, 1987 provides that
persons who satisfy all or any of the criteria specified in Section 12 shall be entitled to avail legal services
provided that the concerned Legal Aid authority is satisfied that such person has a prima facie case to
prosecute or to defend. The person concerned is required to file an affidavit stating that he is entitled to legal
services under the Act.

Section 12 of the Act enumerates the categories of persons who are entitled to legal services. These are as
follows -

1. A person who is a member of Scheduled Caste. or Scheduled Tribe;


2. A victim of trafficking in human beings or beggar as referred to in Article 23 of the Constitution of
India;
3. A woman or a child;
4. A person who is disabled as defined in Section 2(i) of the Persons with Disabilities (Equal
Opportunities, Protection of Rights and Full Participation) Act, 1995;

60
5. A victim of a mass disaster, ethnic violence, caste atrocity, flood, drought, earthquake or industrial
disaster;

6. an industrial workman;

7. a person who is in custody under the Immoral Traffic (Prevention) Act, 1956; Juvenile Justice
(Protection and care and children) Act, 2000, Mental Health Act, 1987;

8. A person whose annual income is less than Rs.9,000/- or a higher amount as may be prescribed by-
the State Government, and less than Rs.12,000/- hen the case is before the Supreme Court.

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In addition to the above, legal services may also be granted in cases of great public importance and in
special cases which are considered deserving of legal services.

Cases for which legal aid is not available: The cases coming under any of the following category shall

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not entitle a person to receive legal aid from the State:

1. Cases involving the offence of defamation, malicious prosecution, contempt of Court, perjury etc.
2. Proceedings relating to elections;

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3. Cases in which the fine imposed is not more than Rupees fifty;

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4. Cases where the person seeking legal aid is not directly concerned with the proceedings and whose
interests will not be affected, if not represented properly.

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Withdrawal of Legal Aid/Services: The Legal Aid Committee has the power to withdraw the legal aid/
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services granted to a person under the following circumstances:
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1. Where the aid is obtained through misrepresentation or fraud;

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2. Any material change occurs in the circumstances of the person to whom such legal aid was granted;

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3. In case of misconduct, misbehaviour or negligence on the part of the aided person;

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4. Where the aided person does not co-operate with the allotted lawyer or counsel;
5. If the aided person appoints another legal practitioner;
6. In case of death except in civil cases;
7. Where the proceedings amount to misuse of the process of law or of legal services :

Where the legal services are withdrawn, the Legal Aid Committee may recover the cost of legal services .
granted. However, the person aggrieved has a right to appeal before the Chairman of the Legal Aid
Committee.

Organisation of Lok Adalats: Lok Adalats are judicial bodies set up for the purpose of facilitating peaceful
resolution of disputes between the litigating parties. They have the powers of an ordinary Civil Court such
as summonig, examining, taking evidence etc. These Adalats can resolve matters except criminal cases
that are non compoundable.

Special status has been assigned to the Lok Adalats under the Legal Services Authorities Act, 1987, which

61
has come into force with effect from 9th November, 1995. The said Act provides the statutory base to the
Lok Adalats. The Lok Adalat shall now have :

1. The same powers as are vested in a civil court under the Code of Civil Procedure, 1908;

2. All proceedings before a Lok Adalat shall be deemed to' be judicial proceedings within the meaning
of sections 193,219 and 228 of the Indian Penal Code;

3. Every Lok Adalat shall be deemed to be civil court for the purpose of section, 195 and chapter XXVI
of the Code of Criminal Procedure, 1973;

4. The members of the Lok Adalats, in terms of the provisions of Section 23 of the Act, shall be

5.

6.

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deemed to be public servants with in the meaning of section 21 of the Indian Penal Code; and

Every award made by a Lok Adalat shall be final, binding and non-appeable.

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Lok Adalat under the Act shall have jurisdiction to determine and to arrive at a compromise or settlement
between the parties to a dispute in respect of:

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Any case pending before: or any, after which is falling within the jurisdiction of and is not brought before
any court for which the Lok Adalat is organized.
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compoundable under any law. . co
The Lok Adalat shall, however, have no jurisdiction in respect of any case of matter relating to an offense not

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A dispute can now be referred to Lok Adalats by (a) Mutual consent; or (b) at the request of one of the
parties; or (c) by the Court suo motu. So, even private cases can be referred to any decided by Lok Adalats.

National Legal Services Authority: The National Legal Services Authority consists of Chief Justice of

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India as Patron-in-Chief; a sitting or retired judge of the Supreme Court as Executive Chairman and a
Committee constituted by Chief Justice of India. Equaily, in each state, Chief Justice of the High Court is
patron-in-Chief; a sitting or retired High Court Judge is Executive Chairman and a committee constituted in

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that behalf. In each district there is a District Authority presided over by the Principal District Judge and a
Committee. At Taluka or Mandai level for each Taluka or Mandai or a group of Taluka or Mandals, a
committee would be constituted with a Principal Subordinate Officer as Chairman. Thus, the Lok Adalat
system is now a uniform and court-oriented programme.

Both types of cases, that is, pre-litigative cases as well as post-litigative cases now be brought before he
Lok Adalats for determination. The Lok Adalats, it would be seen, are court-oriented programme as
supplement ADR to the regular trial procedure.

The Act provides incentive with regard to refund of court fee initially paid at the time of the institution of he
case, if the case is eventually settled through the Lok Adalats.

The success of the Lok Adalat as a social institution is the massive literacy programme in advance. The
empowerment of people, awareness of rights and general consciousness are basic requirements for
successful resolution of disputes without resorting to extensive expenditure and delay.

62
The programme, though widespread and widely appreciated, is not continuously successful because of
several reasons. They are:

a. It is not institutionalized
b. concepts are not clarified
c. infra-structure was not properly developed
d. no training for personnel
e. no minimum standards prescribed

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It should appear fair and just in all aspects as Lok Adalat 'is supposed to be a substitute to judicial process.
The Lok Adalat is a para judicial institution.

The Legal Services Authority Act 1987 was brought into force in 1995 after an amendment in 1994. When

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Jodhpur experiment could not be continued because of 40 days strike by ministerial staff and subordinate
judicial officers, which ended in settlement which led to stoppage of Lok Adalat experiment till 1991. The
need for institutionalizing the Lok Adalat and providing for legal sanctity and authority to continue the
movement was felt and the Act of 1987 was passed. This Act was long overdue as justice has been merely
an illusion for the poor and needy. It is strange, that the Act was brought into force eight years after it was

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made.
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The Object: The object of the Act is to create authorities to provide free and competent legal services to the

.
weaker sections of the society to ensure that opportunities for securing justice are not denied to any citizen

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for reason of economic or other disabilities and to organise Lok Adalats to secure that the operation of the
legal system promotes justice on basis of equal opportunity.
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The Authorities under the Law: It created National (under Section 3), State (S-7) and District (8-9) Legal

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Service Authorities with the power to organize Lok Adalats. Each Lok Adalat has to be presided over by
Judicial and Non-Judicial member. The award of Lok Adalat is deemed to be a Decree of Civil Court and
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without provision for Appeal. For the purpose of determination, the LokAdalat will have powers of Civil Court

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and its proceedings are deemed to be judicial proceedings with the jurisdiction of civil and criminal court,-

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revenue courts or any tribunal. At the national level National Legal Services Authority decides policy for the

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nation, while at state level, there is State Legal Services Authority. The Supreme Court Legal Services
Committee and High Court Legal Services Committee will promote the Lok Adalat. At District and Taluk
level also Legal Services Committees are constituted. (The Taluk level Committee (S 11A) was envisaged
by 1994 amendment) All these authorities are empowered to organize LokAdalat to determine and arrive at
a compromise or settlement between the parties to a dispute in respect of cases pending before or falling
within jurisdiction of the respective courts.

For Whom : Section 12 entitled every person who has to file or defend a case to legal services, if that
person belongs to Scheduled Caste or tribe, a victim of Trafficking in human being or beggar, a woman or
child, a person with disability, a person under circumstances of undeserved want such as being a victim of a
mass disaster, ethnic violence, caste atrocity, flood, drought, earthquake or industrial disaster; or, an
industrial workman, in custody, including custody in a protective home, juvenile home, psychiatric hospital
or psychiatric nursing home, or a person who has in receipt of annual income less than rupees nine
thousand if the case is before Supreme Court, and if the case is before a court other than the Supreme
Court and less than Rupees twelve thousand rupees or such other higher amount as prescribed by the

63
Government. In cases before Supreme Court, the Center and in cases before other courts the s ate
government may prescribe a higher amount as eligibility criterion to receive services under this ct. One of
the main eligibility criterion is that the person mentioned under Section 12 should have a prima facie case to
prosecute or to defend and the Authority should be satisfied about that factor according to S 13). The
income criteria can be satisfied by an affidavit from a person seeking legal services.

The National Legal Aid Fund is created under Section 15. Similarly the State fund under Section 16 and
District Fund under Section 17 was created.

Constitution and Jurisdiction of Lok Adalat: Section 19 says that every authority is empowered to
organize Lok Adalats at such intervals and places and for exercising such jurisdiction and for such areas as
it thinks fit. The Lok Adalat consists of a serving or retired judicial officer and other persons on its bench. The

S
Lok Adalat shall have jurisdiction to determine and to arrive at a compromise or settlement between the
parties to a dispute in respect of, (i) any case pending before or any matter which is falling within the
jurisdiction of and is not brought before any court for which the Lok Adalat is organized. It has no jurisdiction
in respect to an offence which is not compoundable under any law (S 19).

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The Lok Adalat takes cognizance of a case referred if the parties agree, or one of the parties thereof makes
an application to the court for referring the case to Lok Adalat and if such court is prima facie satisfied that
there are chances of such settlement; or the court is satisfied that the matter is an appropriate one to be

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taken cognizance by the Lok Adalat (Section 20). The reference of any case to Lok Adalat by the court has

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to be done only after a due opportunity is given to the party which has not applied or reference. After such

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reference is made, the Lok Adalat has to proceed to arrive at a compromise or settlement between the
parties, with utmost expedition. It has to be guided by the principles of justice equity, fair play and other legal
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principles. If the compromise or settlement could not be arrived at, the case will return to the Court.
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The Section 21 is a significant one as it provided status of decree to the award of Lok Adalat, and legal
sanctity for the proceedings before it. Every award of the Lok Adalat is deemed to be a decree of a civil
court, and the court fee paid shall be refunded in the manner provided under Court-fees Act. Every such
award shall be binding on all the parties to the dispute and no appeal shall lie to any court (S 21). Refund of

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court fee is an incentive for parties to negotiate for settlement. The Lok Adalat is vested with powers of civil
court, with powers to summon and enforce the attendance of any witnesses, for discovery and production
of any document, the reception of evidence in affidavits, to requisition of any public record from any court or

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office, etc. It can specify its own procedure for determination of any dispute coming before it. All the
proceedings before it shall be deemed to be judicial proceedings, and Lok Adalat shall be deemed to be a
civil court (S 22). All the officers and persons concerning the Lok Adalat and Authorities are regarded as
public servants as per Section 23 which was substituted by 1994 amendment.

Almost in all districts and moffusil courts, the Lok Adalats were constituted and functioning in regular
Intervals. yet the Lok Adalat is not a permanent seat of settlement. It has to be constituted by authority
whenever it feels necessary to constitute.
The Permanent Lok Adalat: The Lok Adalat is a very useful experiment that succeeded in clearing the
long pending cases. That success is one of the main reasons for transforming occasional, specific or
special Lok Adatat into a permanent institution. If it retains the character of court annexed Alternative
Dispute Resolution center, and provides for consensus dispute resolution process, there is nothing wrong
in creating Permanent Lok Adalats (PLA). National Legal Services Authority Act was recently amended in
July 2002 and Supreme Court found its earliest opportunity to hold it constitutionally valid, and now there is
no hitch in launching the PLAs. Bar Council of India opposed the change and the structure of the PLA. The

64
NALSA Act was passed in 1987 to provide free legal services to weaker sections of society and to ensure
that they are not denied justice by reason of economic or other disabilities. Under Section 19 to 22 of the
NALSA Act, any matter pending before any court or tribunal may, if the parties make a joint application
indicating their intention to compromise, be transferred to a LokAdalat.

To tackle the baffling figures of pending cases the Judiciary and Legislature are making all possible efforts
and reforming the law. The Civil Procedure Code was drastically amended despite the fundamental
objections raised by the lawyering community. The State is promoting Alternative Dispute Resolution
mechanisms by all means. The changed CPC makes it an obligation of the Courts to refer to ADR methods
before it finally decided to adjudicate upon (Section 89 of CPC).

Amendment 2002: Chapter VIA of the Legal Service Authorities (Amendment) Act 2002 provided for

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establishment of Permanent Lok Adalat in the name of providing for 'pre-litigation conciliation and
settlement' Permanent Lok Adalat is headed by either former or sitting district judge or additional district
judge or officer of rank higher than district judge. It will have two members with 'adequate experience in
Public Utility Service". The PLA would decide by majority. Public Utility Service means any transport

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service, postal, telegraph, or telephone, power supply, Public conservancy or sanitation, hospital or
insurance service agency. Thus any former employee of the above public utility service can be appointed
as the members of the PLA and if they can form unity they can decide any case in any manner ignoring the
chairman who is a judicial member. These PLAs can take up any matter where the value of the property in

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dispute is up to RS.10 lakhs. The PLA has to conduct conciliation proceedings or decide a dispute on merit

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and in doing so it has to be guided by the principles of natural justice, objectivity, fair play, equity and other

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principles of justice and shall not be bound under the Code of Civil Procedure, 1908 and the Indian
Evidence Act, m1872. Two non-judicial members of the PLA must have never had any opportunity either to
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learn or practice natural principles of justice. The Chairman of PLA being the judicial person could be
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expected and experienced to have practiced the natural principles of justice. He could be of great help to

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the other two non-judicial members provided they agree with him. If they disagree and they constitute

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majority they will have entire power to decide the case.

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Scope for Consensual Process: Before this Amendment the two disputants have to make a joint

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application seeking resolution of dispute before Lok Adalat. If one party alone makes an application to the

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court to refer the case to Lok Adalat, the Court can do so if it is satisfied that there are chances of settlement.
Before such reference, the court is obliged to give a reasonable opportunity to the party which did not agree

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to refer the dispute to Lok Adalat. Though the conciliation or mediation is consensual process, the court can
still impose the process based on its satisfaction that there is an element of settlement in the dispute.

Under the amendment the permanent Lok Adalat can take up the case even if one of the disputants applies
for settlement before it. Another major change brought in is that the resolution process need not be
consensual. It can be imposed by the PLA. If the disputant could resolve the dispute by conciliation
process, there is no problem. But when they fail to resolve in consensual process, the PLA has the authority
to decide case on merits without applying CPC and Evidence Act, and impose it on them. The parties have
no authority to take it in appeal, which means, one of disputants can seek resolution by PLA, even if they fail
to arrive at, he may have to accept the decision even when it was decided by majority of non-judiciary
members and be satisfied with its decision which has the legal value of decree without having any scope for
appeal. If injustice is hurried, the disputant must be happy that he got it for it was achieved in remarkable
time with remarkable speed.

Institutions and Individuals: As all the disputes worth RS.10 lakhs concerning a public utility dispute have

65
to be resolved, undoubtedly, either by ADR or ad judicatory processes in reasonable speed, if the public
utility service like RTC seeks a dispute, which is worth of RS.10 lakhs, PLA decides to initiate conciliation
proceedings. If that person and RTC fail to conciliate, the PLA's both non-judicial members decide the case
for RTC 2-1 majority (even if judicial member who is also a chairman decides in favour of individual against
RTC, the individual has to shut his claim as that would be a final settlement as he could not go in appeal.
Section 21 (E) (1) makes the award of these PLAs final and no appeal lies.

The permanent Lok Adalat would have been provided for consensual process, or the adjudication by
natural principles of justice, appointed a bench of three members including one public utility service
member with scope for justice and justice based majority, instead of such an unjustified composition of
permanent Lok Adalat as provided by the Amendment. It is surprising that this provision against Natural
Principles of Justice which may even lead to a serious unconstitutionality was not effectively noticed.

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Either Union or the State Government can declare, in public interest, any service as public utility service.
The moment such declaration is made, all the disputes in such a service, worth of which not exceeding
RS.10 lakhs would be made over to PLA. Another major objection raised by the Advocates is that the very
purpose of Legal Services Authority Act is to provide legal services to weaker sections of society, where as
the new Amendment makes no such discrimination and every litigant in dispute with any public utility
service would get the 'benefit' of the quick disposal. Every dispute except non compoundable offences, and
disputes beyond value of RS.10 lakhs, every other civil or criminal case can be decided by PLA. There is no

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qualification prescribed for being appointed as the non-judicial members of PLA. Because of these reasons

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the BAR is opposing the Amendment saying that the Government has introduced innovative alternative

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justice redressal system forgetting the fact that litigants approach the courts for getting justice and not for
mere disposal of cases.
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The Supreme Court has validated the Amendment and the constitution of Permanent Lok Adalats as
prescribed under the new Amendment to LSA Act.
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It is true that existing legal system is ridden with flaws and procedural deficiencies, either because of law or

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practices. If practices and attitude of bench and bar are responsible for loss of credibility of adjudication

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process, practices could be changes and practices be reformed. A sincere effort is made to amend the

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process by two controversial amendments to Civil Procedure. It is a known fact that attitudes and gradually
discredited systems cannot be reformed by amendments to law. With this backdrop, a law that inherently

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provides for bias and application of natural principles of justice is only a recommendatory possibility, how
could justice be rendered? This shows that both the judiciary and legislative are interested in clearing the
pending files by disposing them by some or the other way, without rendering justice.

The Lok Adalat contemplated under this new regulation is neither an adjudicating process nor an
alternative dispute resolution process. It has imbibed deficiencies of adjudicating process and removed the
role of consensus allowing imposition of unappealable' awards. The Supreme Court also hoped that only
persons of integrity would be appointed in Lok Adalats. People too hope that such persons alone would be
appointed in all levels of courts. Does it mean that persons with integrity are not available for courts and are
available for Lok Adalats? Surprisingly the Supreme Court stated that the Act would ensure the justice to
litigants speedily and impartially. With what speed Lok Adalat works has to be a waited and observed
whereas impartiality had already become a casualty, with above referred deficiencies. With regard to
lawyers' opposition, only remark that could be made is they either silently suffered from or exploited those
loopholes and left the ordinary clients to hopeless situations. The same fate awaits the poor clients even in
public utility courts headed by former judges.

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ALTERNATIVE DISPUTE RESOLUTION SYSTEM

Introduction: In a society, the conflict of interest among the individuals or difference of opinion resulting in
differences regarding the interest, rights and liabilities is an essential evil which may result in a dispute.
Every dispute was to be resolved at earliest level from growing into a very serious problem. As the disputes
are on rise, there is need to develop a dispute resolution technology to meet the demands of increased
litigation and to protect the relationships. To resolve such disputes we have structured judicial system which
incorporates rule of law (as explained by "Le Principe Legalite Le., governance not by persons but by
principles or a system or by the developed constitution) and principles of natural justice Le., fairness, equity,
equality and reasonableness in the process to administer justice. We have formal and rigid court system.
Courts are empowered to decide the cases in accordance with; justice, equity and good conscience. In the

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present scenario due to the rapid economic growth and development in the society, the traditional judicial
process has turned out to be overburdened. To help or assist the judiciary in the administration of justice,
there must be an alternative mechanism.

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The Emergence of Need of ADR: The need to resort to alternatives has emerged from these problems of
litigation, such as unordinary delay, escalating costs of litigation, mounting arrears, pervasive corruption
and inequalities in system, failing of nayaya panchayats. The legal profession ceased to be a nobel service
oriented profession and is operating to market principle of demand and supply, without carrying for the need

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for justice. The system ignored their legitimate interests of the people and boggled down to the techniques,

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rules and unreasonable levels of interpretation. This led to people being alienated from system and they

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avoided litigation.

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It is now widely acknowledged that our litigation system requires drastic curb on delaying. This is not to
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minimise the role our courts, especially the superior courts, play in the promotion of the rule of law.

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Generally speaking, except litigants who stand to gain by delaying the process of justice, others do not

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perhaps enjoy taking recourse to litigation that consumes innumerable number of years and considerable

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amounts by way of expenses. There is always a great rush for interim orders of courts. This state of affairs

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make people cynical about the judicial process, often subjecting it to ridicule.

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We have no other choice but to vigorously and quickly devise effective alternative options to litigation to
ease the present weight of judicial business. Of course, India is not the only country which is buffeted by

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arrears of court cases. Even the developed countries such as the United States of America and the United
Kingdom suffer from this problem, albeit on a lesser scale. The USA and following its inspiration, several
countries, including Australia, Canada, Germany, Holland, Hong Kong, New Zealand, South Africa,
Switzerland and U.K. have used over the last 20 years or so what is popularly known as "Alternative
Dispute Resolution" (ADR) that encouraged the disputants to arrive at a negotiated understanding with a
minimum of outside help.

What is ADR?

An alternative to traditional litigation or administrative agency complaint process is ADR. It includes


consensual, voluntary processes where there is no judge or decision makers (such as negotiation,
meditation and facilitation), as well as adjudicative process where the parties hire a private judge or
decision maker. ADR techniques are extra-judicial in character. They have been employed with
encouraging results in several categories of disputes, especially civil, commercial, industrial and family
disputes. In particular, these techniques have been shown to work across the full range of busi ess

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disputes: banking, contract, contract performance and interpretation, construction contracts, intellect
property rights, joint ventures, insurance liability, partnership differences, personal injury, product liability
real estate and securities.

ADR is not intended to supplant altogether the traditional means of resolving disputes by means 0 litigation.
It offers only alternative options to litigation. There are still a large number of important areas. including
constitutional law and criminal law, in respect of which there is no substitute for court decisions, ADR may
not be appropriate for every dispute even in other areas; even if appropriate, it can not be invoked unless
both parties to a dispute are genuinely interested in a settlement.

In its philosophical perception, ADR process is considered to be the mode in which the dispute resolution
process is qualitatively distinct from the judicial process. It is a process where disputes are settled with the

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assistance of a neutral third person generally of parties' own choice, where the neutral is generally familiar
with the nature of the dispute and the context in which such disputes normally arise, where the proceedings
are informal, devoid of procedure technicalities and are conducted by and large, in the manner agreed to by
the .parties, where the dispute is resolved expeditiously and with less expenses, where the confidentiality

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of the subject-matter of ~he dispute is maintained to a great extent, where decision making process aims at
substantial justice, keeping in view the interests involved and the contextual realities. In substance the ADR
process aims at rendering justice in the form and content which not only resolves the dispute but tends to
resolve the conflict in the relationship of the parties which has given rise to that dispute.

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History of ADR in India: In India the origin of ADR could be traced to the origin of political institutions on the

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one hand and trade and commerce on the other hand. In rural India Panchayats (assembly of elders and
respected inhabitants of a village) decided almost all disputes between the inhabitants of the village, while
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dispute between the members of a clan continued to be decided by the elders of clan.
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ADR in India: Dr. Priyanath Sen in his book "The General Principles of Hindu Jurisprudence" has given an
exposition of the dispute resolution institutions prevalent during the period of Dharmashastras. He refers to
the resolution of disputes between members of a particular clan or occupation or between members of a
particular locality, by Kulas (assembly of the members of a clan), Srenis (guilds of a particular occupation)

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and Pugas (neighbourhood assemblies).

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One of the main characteristics of these traditional institutions is that they were recognised system of

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administration of justice and not merely 'alternatives' to the formal justice system established by the
sovereign-the feudal lords, kazis, the adalat system introduced by the British and the existing court system.
The two systems continued to operate parallel to each other. But as regards the procedure and the nature of
proceedings these institutions were very much similar to the ADR procedures-simple, informal,
inexpensive and quick, and the decisions were based not on abstract notions of justice but on the prevalent
norms of expected behaviour. The procedure followed by the traditional institutions was that of arbitration
and conciliation, depending on the nature of dispute, except that decision makers were not chosen by the
parties.

The formal system of administration of justice introduced during the British rule replaced the old system of
dispensing justice through feudal set up. But the traditional institutions such as Kula, Srenis and Pugas
continue to play their role of dispute resolution though not known by their old names. Thus, we still have
disputes between members of a clan or biradari being settied by that biradari. We have several traders and
other commercial associations providing for settlement of the disputes of their members inter se which is
similar to Srenis and we have Panchayats to resolve disputes between those residing within its territorial

68
limits. The justice process of these institutions is similar, in its essential features, to that of ADR procedures.
Disputes are settled quickly, at affordable costs, with participation of the parties, in informal manner and
these institutions are preferred as alternative to court system because of the law's unfamiliarity to the
parties or its unsuitability to resolve the particular type of the disputes. However, these traditional modes of
disputes resolution were not suited for settlement of commercial and other contractual disputes involving
high monetary claims founded on statutory laws. At the same time the traders could ill afford the luxury of
time involved ,in normal litigation in courts. The British had already a well established arbitration system
with statutory backing and had no difficulty in introducing the same in India.
Over the years, largely due to the development of trade and commerce; arbitration came to be recognised
as an effective alternative to formal judicial system. Due to its own merit of being adjudicatory in nature
resulting in binding decision it held the field of a widely practised alternative to court system. The legal
profession was soon attracted by the popularity and volume of arbitration in India. The result was obvious.

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The arbitral proceedings tended to be more and more formalised on the pattern of judicial adjudication in
courts. The litigious nature of parties, encouraged by the legal profession and judge arbitrators who are
mentally trained only in the judicial process, further contributed to judicialisation of arbitral process. Court's
intervention, before, during, and after arbitration, made arbitration as dilatory as the court system.

The various ADR techniques now well recognized are :

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Negotiation: A non-binding procedure involving direct interaction of the disputing parties wherein a party

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approaches the other with the offer of a negotiated settlement based on an objective assessment of each

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other's position. A trade-off of other interests not involved in the dispute is not uncommon in a negotiated

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settlement. Objectivity and willingness to arrive at a negotiated settlement on the part of both the parties are
essential characteristics of negotiation.
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Mediation/Conciliation: A non-binding procedure in which a neutral third party assists the disputing

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parties in mutually reaching an agreed settlement of the dispute. Mediation and conciliation are inter-

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changeable expressions. In both the procedures a successful. completion of the proceedings results in a

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mutually agreed settlement of dispute between the parties though, in some jurisdictions, mediation is

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treated as distinct from conciliation inasmuch as in mediation the emphasis is on more positive role of the

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neutral third party than in conciliation. However, this factor should not make mediation distinct from

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conciliation because the scope of the role that a mutual third party can play depends on the nature of the
dispute, the degree of willingness of the parties and the skill of the individual neutrals.

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Mediation Arbitration (MED-ARB): A procedure where the parties agree to settle their dispute first by
attempting a conciliation within a specified time, failing which by arbitration. This is distinct from conciliation
in the course of arbitral proceedings where, if a settlement is reached, the arbitration proceedings are
terminated by making an award on agreed terms.

Mini-trial: A non-binding procedure where the disputing parties present their respective cases before their
senior executives who are competent to take decisions and who are assisted by a neutral third party. Thus,
the executives have an objective assessment of the dispute and, if possible; they can mutually arrive at an
amicable settlement.

Arbitration: A binding procedure where the dispute is submitted for adjudication by an arbitral tribunal
consisting of a sole or an odd number of arbitrators, which gives its decision in the form of an award that
finally settles the dispute and is binding on the parties.

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Fast-track Arbitration: A binding procedure where parties agree to accelerated arbitral proceedings
resulting in rendering the arbitral award in a short time.

INDUSTRIAL DISPUTE ACT, 1947

Introduction: Industry plays a vital role in building the economic structure of a society. Therefore, the
importance of labour and industrial laws in shaping the economy of a country can not be ignored. Industrial
jurisprudence is of great importance to all developed or developing countries of the world because it is
concerned with the study of problems relating to human relations arising out of a large scale development of
factory system which has emerged in consequence of industrial revolution.

Principles of Labour Legislation: Labour legislation in any country should be based on the principles of

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social justice, social equity, international uniformity and national economy.

Social Justice: Social justice is a justice according to social interest. It is founded on the basic idea of
socio-economic equality and its aim is to assist the removal of socio-economic disparities and inequalities.

said to be based on social equity. U


Social Equity: Where it is felt that the law should be f1exibl.e and should be changed or modified as the
circumstances and conditions change, the law empowers the government to make such changes. This is
done by giving the government rule making power under the provisions of the Act. When power under the

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Act is given to the government the rules may be modified to suit the changed conditions. Such legislation is

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Social Security: The concept of social security is based on ideals of human dignity and social justice. The
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underlying idea behind social security measurers is that a citizen who has contributed or is likely to
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contribute to his country's welfare should be given protection against certain hazards. Social security

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means a guarantee provided by the State through its appropriate agencies against certain risks to which
the members of the society may be exposed.
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Industrial Adjudication: The essential function of industrial adjudication is to assist the state by helping a

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solution of industrial disputes. The objectives of industrial adjudication are industrial peace and economic

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justice. Following are some guiding principles of industrial adjudication-

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a. Industrial adjudication must be in public interest.

b. Industrial harmony and goodwill in solving industrial issues must be taken into consideration.

c. The principle of equality should also be taken into consideration.

d. Whenever a tribunal has before it a matter which requires expert assistance in collecting and
assessing the appropriate material as to technical matters, the tribunal should avail itself of such
assistance.

e. The Tribunals must act in judicial manners.

The Industrial Dispute Act, 1947 extends to the whole of India. It came into operation on the first day of April,
1947. The object of the Act according to its preamble is to make provisions for the investigation and

70
settlement of industrial disputes.

Main Features of the Act

1. Any industrial dispute may be referred to an industrial tribunal by an agreement of parties to the dispute
or by the state.

2. An award shall be binding on both the parties to the dispute for the specified period not exceeding one
year. It shall be normally enforced by the Government.

3. Strikes and lock-out are prohibited-

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a) During the pendency of conciliation and adjudication proceedings; and

b) During the pendency of settlements reached in the course of conciliation proceedings; and

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c) During the pendency of awards of Industrial Tribunal declared binding by the appropriate
government.

4. In public interest or emergency the appropriate Government has power to declare the transport (other

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than railways), Coal, Cotton, textiles, food-stuff and iron and steel industries to be a public utility service
for the purposes of this Act, for a maximum period of six months.
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5. In case of layoff or retrenchment of workmen the employer is required to pay compensation to them.
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6. Provision has also been made for payment of compensation to workmen in case of transfer or closure of
an undertaking.
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7. A number of authorities such as work committee, conciliation officers, Board of conciliation, courts of

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inquiry, labour courts, tribunal and National Tribunal are provided for settlement of industrial disputes.

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The nature of powers, functions and duties of these authorities differs from each other but each one of

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them plays an important role in ensuring industrial peace.

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Authorities: The main purpose of codification of this Act was investigation and settlement of industrial
disputes; the machinery for adjudication has been made available. The Act prescribes following authorities
for investigation and settlement of industrial disputes.

a) Work Committee
b) Conciliation Officers
c) Boards of Conciliation
d) Courts of Enquiry
e) Labour Court
f) Industrial Tribunal
g) National tribunal
h) Arbitration

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Section 3 Works Committee : The Works Committee is an authority under this Act. The following are the
duties of the Works Committee-

1. to promote measures for securing and preserving amity and good relations between the employers and
workmen;

2. to achieve the above object, it is their duty to comment upon matters of common interest or concern of
employers and workmen;

3. to endeavor to compose any material difference of opinion in respect of matters of common interest or

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concern between employers and workmen.

The main purpose of creating the Works Committee is to develop a sense of partnership between the
employer and his workmen. It is a body which aims to promote good-will and measures of common interest.
This section is applicable only to such industrial establishment in which one hundred or more workmen are

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employed, or to an establishment in which a minimum of one hundred workmen have been employed on
any day in the preceding twelve months. The word 'workmen' in this section is used in the same sense in
which it appears in Section 2(5) of the Act. It means there must be one hundred workmen and not one
hundred employees working in the establishment for many categories of employees are excluded from the

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definition of workmen. The appropriate Government under Section 3(1) is authorised, by general or special
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order, to require the employer to constitute in the prescribed manner a Works Committee.

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The Committee consists of representatives of employers and workmen engaged in the establishment. The

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number of representatives of workmen on the Works Committee shall not be less than the number of

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representatives of the employer. The representatives of workmen shall be chosen in the prescribed manner

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from among the workmen engaged in the establishment and in consultation with their Trade Union, if any,
registered under the Indian Trade Unions Act, 1926.
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Works Committee has been provided in the rules framed under the Industrial Disputes Act in order to look

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after the welfare and interest of the workmen. They are normally concerned with the problems arising in the

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day-to-day working of the concern, and function of the Works Committee is to ascertain the grievances of
the employees and to arrive at some agreement when the occasion so arises. It is for that reason said that
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the Works Committee airs the grievances of workmen and endeavors to seek amicable settlement.

Section 4 Conciliation Officer: The appropriate Government may by notification in the Official Gazette,
appoint conciliation officers. These officers are charged with the duty of mediating in and promoting the
settlement of industrial disputes. The appropriate Government may appoint one or more conciliation
officers, as it thinks fit. A conciliation officer may be appointed for a specified area or for specified industries
in a specified area, or for one or more specified industries. The appointment may be made either
permanently or for a limited period. The jurisdiction, powers and other matters in respect of the conciliation
officer shall be published in the Official Gazette.

Section 5 Boards of Conciliation: The provision for appointment of Boards of Conciliation is made under
the Act to bring the two parties to a dispute to sit together and thrash out their differences and to find out
ways and means to settle them. Section 5 of the Act provides that the appropriate Government may, by
notification in the Official Gazette, constitute a Board of Conciliation. The object of appointing the Board is
promotion of settlement of an industrial dispute. A Board consists of a Chairman and two or four other

72
members, as the appropriate Government thinks fit.

Section 6 Courts of Inquiry: Section 6 points out that if "occasion arises" the appropriate Government
may constitute a Court of Inquiry. If any matter is referred to a Court by the Appropriate Government, it shall
inquire and make a report ordinarily within a period of six months from the commencement of inquiry. The
purpose of constitution of Court of Inquiry is to inquire into any matter appearing to be connected with or
relevant to an industrial dispute. The constitution of the Court has to be notified in the Official Gazette.

Section 7 Labour Court: The Appropriate Government may constitute one or more Labour Courts. The
constitution of the Labour Court together with names of persons constituting the Labour Court should be
notified in the Official Gazette.

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Section 7(a) Tribunals: In our country the Industrial Tribunals were for the first time created by the
Industrial Disputes Act, 1947. Commenting upon the status of these tribunals the Supreme Court has
observed that the tribunals under the Act are invested with many trappings of a Court but do not have the
same status as Courts. These Tribunals need not follow the strict technicalities of law in adjudication of

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industrial dispute.

The power to constitute Industrial Tribunal is conferred upon the Appropriate Government. The
appointment of an Industrial Tribunal together with the names of persons constituting the Tribunal shall be

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notified in the Official Gazette; further, one or more than one tribunals may in the discretion of Appropriate

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Government, be constituted. It is the duty of the Tribunal to adjudicate upon any industrial dispute relating to

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any matter, whether specified in the Second Schedule or the Third Schedule. These tribunals shall perform
such other functions as may be assigned to them under this Act.
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The Tribunal shall consist of one person only, who shall be appointed by the State Government. Any person

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having one of the following qualifications may be appointed as the presiding officer of the Industrial
Tribunal, namely-
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a) if he is, or has been, a judge of a High Court; or
aa)
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if he has for a period of not less than three years, been a District Judge or an Additional District

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Judge.

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It is provided by, Section 7-A(4) that the appropriate Government, if it thinks fit, may appoint two persons as
assessors to advise the Tribunal in the proceedings before it.

These Tribunals are important for many practical reasons. First, only experienced persons of high integrity
can be appointed as presiding officer of the Tribunal as stated above; secondly, almost any important
matter can be submitted for adjudication to the Tribunal including questions relating to wages, bonus,
provident fund, gratuity, dismissal etc. Thirdly, the Tribunals enjoy unlimited powers so long as they act
within the scope of their authority.

Powers: The Tribunal is a judicial body or at any rate a quasi-judicial body. Therefore, a Tribunal must serve
notice upon the parties of the reference by name and any award made without serving such notices is
fundamentally wrong. It could make a suitable award for bringing about harmonious relations between the
employers and workmen and can direct reinstatement of a workman if it is necessary in the interest of
industrial peace. The Tribunal while arriving at a finding in a matter may rely on data available to it otherwise
from evidence adduced on behalf of the parties.

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While an application was made for quashing an award of the Industrial Tribunal, the Supreme Court held
that no writ can be issued against a Tribunal which has ceased to exist. It is clear from the Act itself that
Tribunals are constituted when an industrial dispute arises and normally function as long as such a dispute
is not disposed of. The Tribunals can be appointed for a limited period or for deciding a specified number of
disputes. When a new Tribunal is appointed it may start hearing of the case from the beginning, particularly
when any prejudice is likely to be caused to any part. It is open to either party point out and convince the
Tribunal that prejudice will be caused if a de novo trial is not held.

Jurisdiction: The question whether an objection to jurisdiction of a Tribunal could be raised before the
Tribunal itself or it is necessary to apply to the High Court to quash the proceedings before the Tribunal, has
been considered on a number of occasions by the Courts. There can be no difficulty where the question of

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jurisdiction is clear from the admitted facts. The difficulty of jurisdiction actually arises where the question of
jurisdiction is a mixed question of law and fact. In such cases the question should be raised before the
Tribunal itself which shall determine the question after going into the facts. The proceeding before the
Tribunal comes to an end if it finds that it has no jurisdiction. If in its opinion the Tribunal thinks that it has

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jurisdiction it may proceed on to decide the industrial dispute itself. Where a preliminary finding is given by
the Tribunal or the question of jurisdiction along with the dispute is decided by the Tribunal the High Court in
appropriate proceedings may decide whether the Tribunal has acted with or without jurisdiction. Ordinarily
the finding of fact with regard to the jurisdiction will not be interfered with by the High Court or the Supreme

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Court. The finding of the Tribunal may be set aside by these Courts, if it is found that the Tribunal while

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interpreting the facts has misapplied any principle of law. Where the objection as regards the jurisdiction

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was not raised before the Tribunal, it cannot be, for the first time, raised before the Court unless it is a pure
question of law.
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Section 7(b): National Tribunals: The National Tribunals can only be constituted by the Central

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Government. The power is to be exercised by issuing of notification in the Official Gazette. The name of

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¬the person constituting the National Tribunal shall' also be notified in the Official Gazette. The Central

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Government may constitute one or more Tribunals. National Industrial Tribunals are constituted for the

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adjudication of industrial dispute, which in the opinion of the Central Government (i) involves question 0

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national importance or, (ii) are of such a nature that the industrial establishments situated in more that one

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State are likely to be interested in or affected by such dispute. It is sole discretion of the Central Government
to decide that the industrial dispute involves a question of national importance or industries establishments

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situated in more than one State are interested in or affected by the dispute.

A National Tribunal shall consist of one person to be appointed by the Central Government.

A person shall not be qualified for appointment as the presiding officer of National Tribunal unless he is or
has been a Judge of a High Court.

The Central Government may, if it thinks fit, appoint two persons as assessors to advise the Nation Tribunal
in the proceeding before it.

Reference of Industrial Dispute: The act of making a reference of any dispute under sub-section is an
administrative act and neither judicial nor quasi-judicial. If the appropriate Government decides that no
reference is necessary, the Government cannot be compelled by issuing a writ to make a reference. The
use of the word 'may' shows that the power is discretionary and not mandatory. If in any particular case, the

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Government acts arbitrarily or contrary to law in refusing to refer a dispute to the Tribunal or Labour Court,
then such a refusal may be a right ground for petition under Article 226 of the Constitution.

Section 10: Scope of Reference: Sections 10 ( 1) and 1 0(4) of the Act lay down the scope of reference.
Under the former clause matters appearing to be connected with or relevant to the dispute may be referred
and under the latter clause the scope of reference shall be confined to specified points of dispute and
matters incidental thereto. Unless a dispute was raised by the workmen with their employer it could not
become an industrial dispute. The scope of reference under Section 10 has to be gathered from the
circumstances preceding the Government order.

Sections 10 and 10-A are the alternative remedies to settle an industrial dispute.

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Once the parties have chosen the remedy under Section 10-A, the Government cannot refer the same
dispute for adjudication under Section 10. If any such reference is made, it is invalid.

Where a reference was made under Section 10 of the Tribunal regarding the question of abolition of

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contract labour it was pointed out that the appropriate Government has power under Section 10 of the
Contract Labour (Regulation and Abolition) Act, 1970 to prohibit employment of contract labour. If the work
for which contract labour is employed is incidental to and closely connected with the main activity of the
industry and is of a perennial and permanent nature, the abolition of contract labour could be justified. In

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such a case it would also be open to the Industrial Tribunal to have regard to the practice obtaining in their
industries in or about the area.
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Tribunal's Jurisdiction: In Calcutta Port Shramik Union v. The Calcutta River Transport Association and
others, the Wage Board set up by the Central Government for Port and Dock Workers in major ports did not
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make any recommendation in respect of bargemen. Hence an industrial dispute was raised by bargemen

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claiming the benefit of Wage Board recommendation and the dispute was referred to National Tribunal. The

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National Tribunal was of the view that bargemen were dock workers and were as such entitled to wages in

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accordance with Wage Board recommendations. The Calcutta High Court held that the award of the

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Tribunal was beyond the scope of reference. Hence, this appeal by special leave to the Supreme Court. It

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was held that the Courts exercising judicial review should attempt to sustain the awards made by the

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Tribunal as far as possible instead of picking holes in the award on trivial points, ultimately frustrating the
entire adjudication process before the Tribunal by striking down awards on hyper-technical grounds. The

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Tribunal was justified in coming to the conclusion that bargemen were also dock workers and there is no
justification in denying them the benefit of the recommendation of the Wage Board. Such award is within its
jurisdiction.

Section 10: Constitutional Validity: The validity of this section has been upheld by the Supreme Court
holding Section 10 as intra-vires. Its validity in D. C. and G. Mills v. Shambhu Nath, was sought to be
challenged on fresh grounds, namely, that Section 10 violated Article 14 of the Constitution. It was held that:
"Where the Supreme Court has held that Section 10 is intra-vires and repelled the objection under Article 14
of the Constitution it would not be permissible to raise the question again by submitting that a new ground
could be raised to sustain the objection. It is certainly easy to discover fresh ground of attack to sustain the
same objection, but that cannot be permitted once the law has been laid down by the Supreme Court
holding that Section 10 of the Act does not violate Article 14 of the Constitution."

Section 11. Procedure; Powers and Duties of Authorities: Section-11 procedure and Powers of
Conciliation Officers, Boards, Courts and tribunals. Section 11 of the Act as it stood at the time- of its

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enactment in 1947 has been amended in 1956. Sub-section (1) of Section-11 gives very wide powers to the
authorities in so far as the procedure to be followed by them is concerned. This sub-section is worded in
general terms. Sub-sections (3), (4) and (7) of this section provide special procedures to be followed in
certain cases and to that extent they can be said to curtail the general power with regard to the procedure
conferred by sub-section (1).

Section 11 (1) provides that "subject to any rules that may be made in this behalf, an arbitrator, Board,
Court, Labour Court, Tribunal or National Tribunal shall follow such procedure as the arbitrator or other
authority concerned may think fit. These provisions give very wide discretion to the authorities, and the
discretion must be exercised with care and caution bearing in mind the principles of natural justice.

Under Section 11 (2) a Conciliation Officer or a member of a Board or Court or the Presiding Officer of a

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Labour Court, Tribunal or National Tribunal may, for the purpose of inquiry into any existing or apprehended
industrial dispute, enter the premises occupied by any establishment to which the dispute relates. But
before entering the premises such authority must give reasonable notice of its intention to do so.

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Sub-section (3) which is in the nature of a proviso to sub-section (1) enacts that every Board, Court, Labour
Court, Tribunal and National Tribunal shall have the same powers as are vested in a Civil Court under the
Civil Procedure Code, 1908, when trying a suit in respect of the following matters, namely-

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1. enforcing the attendance of any person and examining him on oath;
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2. compelling the production of documents and material objects;
3. issuing commissions for the examination of witnesses;
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4. in respect of such other matters as may be prescribed.

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Every inquiry or investigation by a Board, Labour Court, Tribunal and National Tribunal, shall be deemed to
be a judicial proceeding within the meaning of Sections 193 and 228 of the Indian Penal Code. Section 193
of the Indian Penal Code deals with giving or fabricating false evidence in a judicial proceeding. Section 228
of the I.P.C. deals with intentional insult or interruption to a public servant acting in any stage of a judicial

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proceeding. Provisions of sub-section (3) do not refer to a Conciliation Officer. '

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Sub-section (4) deals specially with the procedure to be followed by the Conciliation Officer. He may
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enforce the attendance of any person for the purpose of examination of such person or call for and inspect
any document which he has ground for considering-
1. to be relevant to the industrial dispute; or
2. to be necessary for the purpose of verifying the implementation of any award; or
3. carrying out any other duty imposed on him under this Act.

Award of Industrial Tribunal: Any award of the Industrial Tribunal must be supported with sufficient
reasons. The giving of reasons in support of their conclusions by judicial and quasi-judicial authorities when
exercising initial jurisdictions is essential for various reasons. First, it is calculated to prevent unconscious
unfairness or arbitrariness in reaching the conclusions. The very search for reasons will put the authority on
the alert and minimise the chances of unconscious infiltration of personal bias or unfairness in the
conclusion. The authority will adduce reasons which will be regarded as fair and

legitimate by a reasonable man and will discard irrelevant or extraneous considerations. Secondly, it is a

76
well-known principle that justice should not only be done but should also appear to be done. Unreasonable
conclusion may be just but they may not appear to be just to those who read them. Reasoned conclusions,
on the other hand, will have also the appearance of justice. Thirdly, it should be remembered that an appeal
generally lies from the decisions of judicial or quasi-judicial authorities to this Court by special leave granted
under Article 136. A judgment which does not disclose the reasons, will be of little, assistance to the court.

Unfair Labour Practices on the Part of Employers:

1. To interfere with, restrain from, or coerce, workmen in the exercise of their rights to organise, form, join
or assist a Trade Union or to engage in concerted activities for the purposes' of collective bargaining or
other mutual aid or protection, that is to say-

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a) threatening workmen with discharge or dismissal, if they join a trade union;
b) threatening a lock-out or closure, if a trade union is organised;

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c) granting wage increase to workmen at crucial periods of the union organisation, with a view to
undermining the efforts of the trade union at organisation.

2. To dominate, interfere with or contribute support, financial, or otherwise, to any trade union, that is to
say-

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a) an employer taking an active interest in organising a trade union of his workmen; and

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b) an employer showing partiality or granting favour to one of several trade unions attempting to

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organise his workmen or to its members where such a trade union is not a recognised trade union.

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3. To establish employer sponsored trade unions of workmen.
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4. To encourage or discourage membership in any trade union by discriminating against any workman,

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that is to say –

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a) discharging or punishing a workman, because he urged other workmen to join or organise a trade
union;
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b) discharging or dismissing a workman for taking part in the strike (not being a strike which is deemed
to be an illegal strike under this Act);

c) changing seniority rating of workmen because of trade union activities;


d) refusing to promote workmen to higher posts on account of their trade union activities;
e) giving unmerited promotions to certain workmen with a view to creating discord amongst other
workmen, or to undermine the strength of their trade union;

f) discharging office-bearers or active members of the trade union on account of their trade union
activities.

5. To discharge or dismiss workmen-


a) by way of victimisation;

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b) not in good faith, but in the colourable exercise of the employer's right;
c) by falsely implicating a workman in a criminal case on false evidence or on conducted
evidence;
d) for patently false reasons;
e) on untrue or trumped up allegations of absence without leave;
f) in utter disregard of the principles of natural justice in the conduct of domestic enquiry or with
undue haste;

g) for misconduct of a minor or technical character, without having any regard to the nature of
the particular misconduct or the past record or service of the workman, thereby leading to a

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disproportionate punishment.

6. To abolish the work of a regular nature being done by workmen, and to give such work to contractors as
a measure of breaking a strike.

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7. To transfer a workman mala fide from one place to another, under the guise of following management
policy.

8. To insist upon individual workmen, who are on a legal strike to sign a good conduct bond, as a pre-

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condition to allowing them to resume work.
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9. To show favouritism or partiality to one set of workers regardless of merit.

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10. To employ workmen as 'badlis', casuals or temporaries and to continue them as such for years with the
object of depriving them of the status and privileges of permanent workmen.
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11. To discharge or discriminate against any workmen for filing charges or testifying against an employer in

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any enquiry or proceeding relating to any industrial dispute.

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12. To recruit workmen during a strike which is not an illegal strike.

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13. Failure to implement award, settlement or agreement.

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14. To indulge in acts of force or violence.

15. To refuse to bargain collectively, in good faith with the recognised trade unions.

16. Proposing or continuing a lock-out deemed to be illegal under this Act.

Unfair Labour Practices on the Part of Workmen and Trade Unions of Workmen :

1. To advise or actively support or instigate any strike deemed to be illegal under this Act.
2. To coerce workmen in the exercise of their right to self-organisation or to join a trade union r refrain
from joining any trade union, that is to say-

a. for a trade union or its members to picketing in such a manner that non-striking workmen are

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physically debarred from entering the work places;

b. to indulge in acts of force or violence or to hold out threats of intimidation in connection with a strike
against non-striking workmen or against managerial staff.

3. For a recognised union to refuse to bargain collectively in good faith with the employer.
4. To indulge in coercive activities against certification of a bargaining representative.
5. To stage, encourage or instigate such forms of coercive actions and willful 'go slow', squatting on
the work premises after working hours or 'gherao' of any of the members of the managerial or other
staff.

6.

7.

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To stage demonstrations at the residences of the employers or the managerial staff members.

To incite or indulge in willful damage to employer's property connected with the industry.

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To indulge in acts of force or violence or to hold out threats of intimidation against any workman with
a view to prevent him from attending work.

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It is difficult to define and lay down exhaustive test of unfair labour practice, but it may be said that any

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practice, which violates the directive principles of State policy contained in Article 43 of the Constitution and

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such other Articles as deal with the decent wages and living conditions for workmen amount to unfair
practice.

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Victimization: Victimization means one of two things. One is when the workman concerned is innocent

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and yet he is punished because he has in some way displeased the employer, for example, by being an

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active member of a Union of workmen who were acting prejudicially to the interests of the employer. The

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second instance is where an employee has committed an offence but is given a punishment quite out of

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proportion to the gravity of the offence, simply because he has incurred the displeasure of the employer, or

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where the punishment is shockingly disproportionate to the misconduct or is such as no reasonable

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employer would impose under the circumstances. If an employer punishes an employee for a wrong which
someone else has committed, it would be right to infer that the employee is victimized by being made a

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scape-goat to him.

IMPORTANT QUESTIONS

Q.1. What is the meaning and scope of Alternative Dispute Resolution system? What are its various
techniques?

Q.2. Who do you mean by Lok Adalat? The settlement made by Lok Adalat is one of the effective
Alternative Dispute Resolution Systems Comment.

Q.3. What is the meaning and scope of Alternative Dispute Resolution System? What are its various
techniques? State the advantages of Alternative Dispute Resolution System in comparison to e
regular judicial system?

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Q.4. Write short note on:
a) Provisions of C.PC. 1908 relating to settlement
b) Mediation, its meaning and benefits
c) Account and satisfaction

Q.5. Discuss the salient features of Industrial Dispute Act.

SUGGESTED READING

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1. B.P. Saraf & M. Jhunjhunwala, Law of Arbitration and Conciliation
2. PC. Raio & William Sheffield, Alternative Dispute Resolution - What it is and how it works
3. P.C. Markand, Law Relation to Arbitration and Conciliation
4. G.K. Kwatra, The Arbitration and Conciliation Law of India

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5. Avtar Singh, Arbitration and Conciliation Act,
6. The Arbitration and Conciliation Act, 1956
7. Arvind Kumar Dubey {The Arbitration and Conciliation Act 1996}.

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