Arbitrability means whether a matter can or cannot be settled through arbitration and whether certain type of disputes only falls under the jurisdiction of a tribunal or the state courts. The Model Law does not specifically elucidate as to which disputes are arbitrable in nature and has left the same to the existing state laws to give specific directions. Though a large number of commercial contracts have an arbitration clause for ease of dispute resolution but this does not mean that all disputes are arbitrable in nature. In this article the arbitrability of disputes concerning oppression and mismanagement in companies has been discussed at length. We will discuss the meaning, significance and scope of arbitrability in a form of dispute that more often than not involves a third party in the form of shareholders who might not be a party of the arbitration agreement.
Oppression and mismanagement have been covered under Sections 241 to 246 of the Companies Act, 2013 (sections 397 and 398 of the Companies Act, 1956 were analogous to sections 241 and 242 of the Companies Act, 2013) which gives powers to the shareholders of any company especially minority share holders to file a petition before NCLT addressing Oppression and Mismanagement. Section 241(a) defines Oppression as “the affairs of the company have been or are being conducted in a manner prejudicial to public interest or in a manner prejudicial or oppressive to him or any other member or members or in a manner prejudicial to the interests of the company.” Section 241(b) defines Mismanagement as “the material change, not being a change brought about by, or in the interests of, any creditors, including debenture holders or any class of shareholders of the company, has taken place in the management or control of the company, whether by an alteration in the Board of Directors, or manager, or in the ownership of the company’s shares, or if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to its interests or its members or any class of members.”
Sections 241 and 242 of the Companies Act, 2013 provides that National Company Law Tribunal (NCLT) which was earlier known as Company Law Board under the Companies Act, 1956; is the governing authority for all disputes that are related to oppression and mismanagement. NCLT has the power to provide a wide range of reliefs in these types of cases. But it has to be noted that nowhere it has been written that such cases cannot go for arbitration. If an arbitration clause is present in an agreement between the concerned parties, then on the face of it the case can be referred for arbitration. This position is supported by section 244 of the Companies Act, 2013 and sections 8 and 45 of the Arbitration and Conciliation Act, 1996. On the other hand, it can be reasoned that two statutory bodies cannot hear the same dispute and that NCLT has been vested with the statutory authority under the Companies Act, 2013.
Section 8 of the Arbitration and Conciliation Act, 1996 states that “(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 to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then, notwithstanding any judgment, decree or order of the Supreme Court or any Court, refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists.”
It is clearly stated that a dispute need not be arbitrable as a prerequisite to be considered for arbitration and due to this reason, there has been much debate about the arbitrability dispute concerning oppression and mismanagement in a company. General rules about the `arbitrability’ of a dispute have been laid down in various judgments but authorities generally tends to refer to Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd., (2011) 5 SCC 532 which lays down the distinction between the arbitrability of rights in personam[1*] and rights in rem[2*]. The court, in this case, had relied on the case of Haryana Telecom v. Sterlite, 1990 (97) CompCas 675 (P&H) and states that in case of winding up of a company third party rights are involved and thus the same cannot go for arbitration. It has been deemed that those matters concerning the former are arbitrable in nature while the latter is not arbitrable.
[1* Right in personam means the right against a specific person.]
[2* Right in rem means a right against an item of property.]
On the face of it, oppression and mismanagement matters appear to be “right in personam” as they are filed by the oppressed shareholders of a company and such matters also arise from activities that are against public interest which cannot be waived by contractual provisions. Thus, such matters are usually sent to NCLT and not an arbitral tribunal.
The position about the arbitrability of such disputes was finally settled in the case of Rakesh Malhotra v. Rajinder Malhotra, 2014 SCC Online Bom 1146. In this case, the Bombay High Court held that considering the special powers that have been made available to the Company Law Board (now known as NCLT) under section 402 of the Companies Act, 1956 (now available under section 241 under Companies Act, 2013) have not been provided to an arbitral tribunal. Thus, it was held that disputes pertaining to such matters as mentioned under sections 241 and 242 of the Companies Act, 2013 cannot be referred for arbitration. This judgment has been instrumental in providing much-needed clarity in dealing with these matters and has provided general principles for the judiciary to deal with them.
The Tribunal has the right to adjudicate certain kinds of proceedings as a matter of public policy and due to this reason cases relating the right in rem cannot be referred for arbitration as they also affect third-party rights. However, if the disputes pertaining to the right in personam then, the case can be referred for arbitration, especially if the agreement between both the parties has an arbitration clause. Due to these principles, the courts have adopted a fact-based approach in oppression and mismanagement disputes to decide whether a particular case can be referred for arbitration or not. In these cases, the main issue is the commonality of the parties and whether any third party is involved. This issued in regard to a civil suit has been settled in the landmark judgement of Sukanya Holdings (p) Ltd. v. Jayesh H. Pandya, (2003) 5 SCC 531 by the Supreme Court. The court had observed that if a few involved parties were bound by an arbitral agreement and other were not, then the case cannot be referred for arbitration.
The Bombay High Court in the case of Rakesh Malhotra clubbed all these propositions and held that:
“It must therefore follow that where a petition under Chapter VI of the Companies Act, 1956 seeks reliefs some of which are in the nature of reliefs in rem and others that are in personam, then it is not possible or permissible to sever one from the other and disassemble such a petition…. Haryana Telecom, to my mind, though in a petition for winding up, and clearly, therefore, a matter in rem, states as a proposition that no agreement between the parties can vest an arbitral panel with the power of winding up. Similarly, no arbitration agreement can vest an arbitral tribunal with the powers to grant the kind of reliefs against oppression and mismanagement that the CLB might.”
Although, disputes under sections 241 and 242 are not arbitrable but that does not bar the court from accepting an application for the same under sections 8 and 45 of the Arbitration and Conciliation Act, 1996. Courts have time and again warned through judgments against the implication of unnecessary parties in order to avoid arbitration. It has been vehemently established that in such cases the application shall be liable to be dismissed and the case could be referred for arbitration. The courts have held that if clever drafting has been used to hide away the true substance of the case and it is the duty of the court the unveil the true matter at hand and take appropriate action.
In this regard, the court in Rakesh Malhotra held:
“a petition that is merely `dressed up’ and seeks, in the guise of an oppression and mismanagement petition, to oust an arbitration clause, or a petition that is itself vexatious, oppressive, mala fide (or, at any rate, not bona fide) cannot be permitted to succeed. In assessing an allegation of `dressing up’, the Section 397 and 398 of the Companies Act, 1956 petition must be read as a whole, including its grounds and the reliefs sought.”
Under this sole exception to the rule, the applicant has to establish that the petition which has been filed under sections 241 and 242 is `mala fide’ `vexatious’ or `dressed up’ with the objective of circumventing the arbitration clause. But the issue here is that the court has not given any proper definition of what will be considered as mala fide, vexatious or dressing up and would require a clear interpretation.
Thus, the Rakesh Malhotra judgment has per se given us with the general rules that shall be used in these kinds of disputes. It has also set it out that these matters shall not be arbitrable in nature except for the exception that has been mentioned above. But saying that these disputes are not at all arbitrable shall be an overstatement. If disputes of such nature arise due to breach of the shareholders agreement or a joint venture agreement and a specific relief has not been sought under section 242, then the case can go for arbitration if they have an arbitration agreement in existence. But we have to keep in mind other provisions of the Companies Act, 2013 that has a direct impact on the situation.
Even section 430 of the Companies Act, 2013, gives exclusive jurisdiction to NCLT/NCLAT (National Company Law Appellate Tribunal) to the exclusion of the civil courts to adjudicate any matters that pertain to oppression and mismanagement claims under the act. NCLT has extraordinary jurisdiction to issue orders that concern to the regulation of the company’s internal affairs, any change in management, proper function of the directors etc., whereas the arbitral tribunal can adjudicate on limited terms of any such contract[3*]. Under the Arbitration Act, 1996 there is no provision that clearly defines the powers of an arbitral tribunal. But Indian courts have time and again given powers to the arbitral tribunal to adjudicate in various civil and commercial matters whether they were contractual or non-contractual in nature.
[3* Jugnar Processors (P) Ltd. v. Rohtas Jugalkishore Gupta, 2014 SCC Online CLB 160.]
But it can be clearly said that circumstances under which these disputes can go for arbitration are very specific in nature and have to be read with great depth and understanding with the prevailing principles that have been established by the courts.
© Chawla Publications (P) Ltd.
Could Section 34(4) of the Arbitration Act be conjured to dispense with any ground under Section 34(2) of the Arbitration Act?
Section 34(2) of the Arbitration Act gives two arrangements of grounds on which an honour might be saved. Area 34(2)(a) sets out grounds of challenge, for example, insufficiency of a gathering, deficiency of the mediation arrangement, absence of appropriate notification of arrangement of the authority or of the arbitral procedures or powerlessness of involved with present his case, an honour which manages debates not submitted to discretion, inappropriate organization of the arbitral council or arbitral technique in opposition to the understanding between the gatherings, and so on. These grounds must be built up by the gathering testing the honour, based on the record of the arbitral court.
Section 34(2)(b) of the Arbitration Act gives that an honour might be saved if the court finds that the topic of the contest isn’t equipped for settlement by assertion or if the honour is in strife with the open arrangement of India. The grounds under Section 34(2)(b) of the Arbitration Act are considerable and go to the foundation of the honour. In the event that an honour manages a question which can’t be settled by assertion, at that point this is sensibly not a ground that is equipped for end and the court must put aside the honour in such a case, despite an application under Section 34(4) of the Arbitration Act. The ground of contention with open approach is likewise not equipped for disposal by the arbitral court, entomb alia given that it may not exclusively be inefficient, however conceivably biased, to send parties back to an arbitral council which has passed an honour in strife with open strategy. Regardless of whether sending back an honour which is in strife with open approach were neither inefficient nor biased, the goal of the Parliament would never have been to give an arbitral court a second chomp at the cherry by inspecting and revising the honour on merits.
The Supreme Court as of late shed some light on this issue in Dyna Technologies Pvt. Ltd. v. Crompton Greaves Ltd., while managing an honour which it discovered to be incomprehensible and insufficiently contemplated, when it held as follows:
1. If the test to an honour depends on indecency or backwardness in thinking, at that point it very well may be tested carefully on the grounds gave under Section 34 of the Arbitration Act.
2. Unintelligible honours are to be saved, subject to party self-sufficiency to get rid of contemplated grants.
3. The administrative aim of Section 34(4) of the Arbitration Act was to make the honour enforceable, subsequent to allowing a chance to the arbitral council to fix treatable deformities.
4. In instance of nonappearance of thinking, the utility under Section 34(4) of the Arbitration Act has been given to fix such deformities. When there is finished backwardness in thinking, at that point no one but it tends to be tested under Section 34 of the Arbitration Act.
5. The force vested under Section 34(4) of the Arbitration Act to fix imperfections can be used in situations where the honour doesn’t give any thinking or if the honour has some hole in thinking or something else, and that can be restored in order to evade a test dependent on the aforementioned treatable deformities under Section 34 of the Arbitration Act.
Dyna (supra) attracts a reasonable qualification between absconds an honour which are reparable, and those which are not, with the end goal of Section 34 of the Arbitration Act. The court may offer a chance to the arbitral council to dispose of the previous under Section 34(4) of the Arbitration Act. Notwithstanding, to the extent the last goes, the honour must be put aside by the court.
What grounds of challenge are equipped for disposal by the arbitral court?
Coming up next are a few circumstances wherein courts have thought that it was fit to practice their forces under Section 34(4) of the Arbitration Act.
1. A Division Bench of the Bombay High Court saw that the force under Section 34(4) of the Arbitration Act could be practiced where the arbitral council neglected a specific case on which the gatherings drove proof and tended to contentions.
2. A Single Judge of the Bombay High Court additionally practiced his capacity under Section 34(4) of the Arbitration Act where the arbitral council neglected to consider a complaint identifying with its ward.
3. MMTC v. Vicnivass Agency, was where the Madras High Court practiced its locale under Section 34(4) of the Arbitration Act, where a gathering was denied the chance to introduce its case for example to manage a record, which was depended upon by the arbitral council.
4. Dyna (supra) ordered an absence of thinking or a hole in thinking as a treatable imperfection instead of backwardness in thinking, which can’t be relieved and would require the putting aside of the honour.
Section 34 of the Arbitration and Conciliation Act, 1996 (“Act”) accommodates putting aside of an arbitral honour by making an application to the Court, on the grounds expressed in that. As of late, various decisions have been passed while deciphering Section 34. The equivalent has been quickly examined in the current article.
1. Emkay Global Financial Service Limited v. Giridhar Sondhi, Civil Appeal No. 8367 of 2018, chose August 20, 2018.
In the previously mentioned case, an honour was passed against the Respondent by the Sole Arbitrator. The honour was tested by the Respondent under Section 34 of the Act under the steady gaze of the District Court of Delhi, which was dismissed taking into account the restrictive ward condition. In Appeal, the High Court of Delhi alluded back the gatherings to the District Judge, to initially outline issues and afterward choose proof, including the chance to interview observers who give affidavits. The inquiry under the watchful eye of the Supreme Court was whether there is any necessity to lead proof in an application to challenge an honour under the Act? The Supreme Court deciphered the words “outfits evidence” showing up in Section 34(2)(a) and depended on the accompanying case-laws:
(i) Sandeep Kumar v. Dr. Ashok Hans, (2004) 3 Arb LR 306, wherein the High Court of Delhi held that there is no necessity under the arrangements of Section 34 for gatherings to lead proof. The record of the Arbitrator was held to be adequate so as to outfit verification of whether the grounds referenced in Section 34 had been made out.
(ii) Sial Bioenergie v. SBEC Systems, AIR 2005 Del 95 wherein the High Court of Delhi entomb alia held:
“…the entire motivation behind the 1996 Act would be totally crushed by conceding consent to the candidate/JD to lead oral proof at the phase of protests raised against an arbitral honour. The 1996 Act requires quick removal of the complaints and the insignificant obstruction by the Court… … At the phase of the complaints which are any path restricted in scope because of the arrangements of the Act to allow oral proof would totally overcome the items fundamental the 1996 Act. The cycle of oral proof would delay the way toward hearing complaints and can’t be countenanced…”
(iii) Fiza Developers and Inter-Trade Pvt. Ltd. v. AMCI (India) Pvt. Ltd. & Anr., (2009) 17 SCC 796, the Supreme Court managed the inquiry whether issues as thought about under the Code of Civil Procedure, 1908 ought to be encircled in challenge to the honour under Section 34 of the Act. The Supreme Court bury alia held:
“…Applications under Section 34 of the Act are synopsis procedures with arrangement for complaints by the respondent-litigant, trailed by a chance to the candidate to “demonstrate” the presence of any ground under Section 34(2). The candidate is allowed to document testimonies of his observers in confirmation. A comparing opportunity is given to the respondent-litigant to put his proof by testimony. Where the case so warrants, the court licenses questioning of the people vows to the oath. From that point, the court hears contentions as well as gets composed entries and chooses the issue. This is obviously the standard strategy. The court may change the said strategy, contingent on the realities of a specific case or the nearby principles. What is anyway clear is that confining of issues as thought about under Rule 1 of Order 14 of the Code isn’t a basic aspect of the cycle of a procedure under Section 34 of the Act.”
(iv) WEB Techniques and Net Solutions Pvt. Ltd. v. M/s. Gati Ltd. & Anr., wherein the High Court of Calcutta subsequent to alluding to Fiza Developers, held that oral proof isn’t needed under a Section 34 application when the record before the Arbitrator would show whether the candidates had gotten notice identifying with his arrangement. The Court likewise alluded to the Arbitration and Conciliation (Amendment) Bill of 2018, being Bill No.100 of 2018, which accommodates a change to Section 34(2)(a) of the chief Act, and proposes replacement of the words “outfits confirmation that”, with “builds up based on the record of the arbitral council that”.
Considering the abovementioned, the Supreme Court reasoned that: “An application for putting aside an arbitral honour won’t normally need anything past the record that was before the Arbitrator. Notwithstanding, if there are matters not contained in such record, and are pertinent to the assurance of issues emerging under Section 34(2)(a), they might be brought to the notification of the Court by method of oaths documented by the two players. Interrogation of people vows to the sworn statements ought not be permitted except if completely essential, as reality will rise on a perusing of the testimonies documented by the two players.”
2. K. Kishan v. Vijay Nirman Company, Civil Appeal No. 21824 of 2017, settled on August 14, 2018
The current case related to a contest with respect to claims emerging out of a venture which was alluded to an arbitral council. While the arbitral honour was passed for the lender, the borrower tested the arbitral honour under Section 34 of the Act. This was made by the account holder during the 10 days’ notification period which is given under the Insolvency and Bankruptcy Code (“IBC”) for the operational lender filings. In spite of the equivalent, an application was documented by the bank with the NCLT. The NCLT conceded the case deciding that the appeal documented under Section 34 by the borrower was immaterial for the explanation that the case stood conceded. In Appeal, the NCLAT maintained the NCLT’s organization and decided that Section 238 of the IBC would supersede the Arbitration Act. The inquiry under the watchful eye of the Supreme Court was whether the Insolvency and Bankruptcy Code, 2016 can be conjured in regard of an operational obligation where an arbitral honour has been passed against the operational borrower, which has not yet been at long last settled upon. The Supreme Court bury alia held that recording of an appeal under Section 34 of the Act against an arbitral honour shows that a prior debate which finishes at the main phase of the procedures in an Award, proceeds even after the Award, in any event till the last adjudicatory cycle under Sections 34 and 37 has occurred. The Court additionally held that:
“23. We may hurry to include that there might be situations where a Section 34 appeal testing an Arbitral Award may plainly and unequivocally be banished by restriction, in that it very well may be shown to the Court that the time of 90 days in addition to the optional time of 30 days has obviously terminated, after which either no request under Section 34 has been documented or a tardy request under Section 34 has been recorded. It is just in such clear cases that the bankruptcy cycle may then be placed into activity.
24. We may hurry to include that there may likewise be different situations where a Section 34 appeal may have been established in an inappropriate court, because of which the candidate may guarantee the utilization of Section 14 of the Limitation Act to get over the bar of constraint set down in Section 34(3) of the Arbitration Act. In such cases likewise, clearly the indebtedness cycle can’t be placed into activity without a mediation on the appropriateness of Section 14 of the Limitation Act.
27. …Regardless of whether it be evident that there be a record of an operational obligation, it is significant that the said obligation be not questioned. Whenever questioned inside the boundaries set down in Mobilox Innovations Private Limited v. Kirusa Software Private Limited (2018) 1 SCC 353, a bankruptcy request can’t be continued with further.”
3. State of Bihar v. Bihar Rajya Bhumi Vikas Bank Samiti, Civil Appeal No. 7314 of 2018, Decided on July 30, 2018
The altered Section 34(5) of the Act (embedded by Amending Act 3 of 2016 w.e.f. October 23, 2015) gives that an application to put aside arbitral honour will be recorded by a gathering simply subsequent to giving an earlier notification to the next gathering and such application will be joined by a testimony by the candidate underwriting consistence with the said necessity. In the current case, a Section 34 appeal testing an honour was recorded on 05.04.2016 under the steady gaze of the Patna High Court, in which notice was given to the contrary party by the Court on 18.07.2016. In spite of the coming into power of Section 34(5), the shared view between the gatherings was that no earlier notification was given to the next gathering regarding the said Section, nor was the application under Section 34 joined by a testimony that was required by the said sub-segment. The Single Judge of the Patna High Court, by a judgment dated 06.09.2016, held that the arrangement contained in Section 34(5) was just catalogue. A Letters Patent Appeal to a Division Bench yielded the decried request dated 28.10.2016, by which it was held that the obligatory language of Section 34(5), along with its article, clarified that the sub-segment was a condition point of reference to the recording of an appropriate application under Section 34, and, on the relationship of a notification gave under Section 80 of the Code of Civil Procedure, 1908, being a condition point of reference to the documenting of a suit against the Government, the Division Bench held that since this compulsory necessity had not been followed, and as the time of 120 days had run out, the Section 34 application itself would need to be excused. At long last, it permitted the intrigue and put aside the judgment of the Single Judge. The inquiry under the watchful eye of the Supreme Court was whether Section 34(5) of the Arbitration and Conciliation Act, 1996 is required or registry. The Supreme Court entomb alia held that to interpret such an arrangement as being compulsory would crush the headway of equity as it would give the result of excusing an application recorded without holding fast to the necessities of Section 34(5), subsequently abandoning the cycle of equity by covering the component of reasonableness. It was additionally held that the arrangement is procedural, the article behind which is to discard applications under Section 34 speedily.
The Court anyway included that it will be the undertaking of each Court wherein a Section 34 application is recorded, to adhere to the time furthest reaches of one year from the date of administration of notice to the contrary party by the candidate, or by the Court, all things considered. In the event that the Court issues notice after the period referenced in Section 34(3) has slipped by, each Court will try to discard the Section 34 application inside a time of one year from the date of recording of the said application.
4. BCCI v. Kochi Cricket Pvt. Ltd., (2018) 6 SCC 287
In the current case, the question related to an establishment understanding dated 12.03.2011. A sole authority was designated, who conveyed two arbitral honours dated 22.06.2015 against the appealing party and for the respondents. On 16.09.2015, the appellants recorded an application under Section 34 of the Act in the Bombay High Court testing the aforementioned arbitral honours. On 26.11.2015, the respondents documented two execution applications in the High Court for instalment of the sums granted under the two honours, forthcoming authorization of such honours. These were opposed by two chamber summons recorded by the appellants dated 03.12.2015, petitioning God for excusal of the previously mentioned execution applications expressing that the old Section 36 would be pertinent, and that, hence, there would be a programmed remain of the honors until the Section 34 procedures had been chosen. The chamber summons were contended under the watchful eye of a Single Judge, who, by the criticized judgment [Rendezvous Sports World v. BCCI, 2016 SCC OnLine Bom 6064] in Special Leave Petitions (Civil) Nos. 19545-46 of 2016, excused the previously mentioned chamber summons and found that the revised Section 36 would be pertinent in the realities of this case.
Section 36 of the Act peruses as under:
Pre-revised arrangement
“36. Authorization – Where the ideal opportunity for making an application to put aside the arbitral honour under Section 34 has lapsed, or such application having been made, it has been can’t, the honour will be upheld under the Code of Civil Procedure, 1908 (5 of 1908) in a similar way as though it were a declaration of the Court.”
Section 26 of the Act, bury alia, peruses as under:
“26. Act not to apply to forthcoming arbitral procedures – Nothing contained in this Act will apply to the arbitral procedures started, as per the arrangements of Section 21 of the chief Act, before the initiation of this Act except if the gatherings in any case agree….”
The inquiry under the steady gaze of the Supreme Court was what will befall the petitions documented under Section 34 of the Act that had been recorded before the initiation of the Amendment Act, which were administered by Section 36 of the old Act? Would Section 36, as subbed, apply to such petitions? The Supreme Court bury alia held:
(i) Since unmistakably execution of an announcement relates to the domain of method, and that there is no meaningful vested right in a judgment-account holder to oppose execution, Section 36, as subbed, would apply even to forthcoming Section 34 applications on the date of initiation of the Amendment Act.
(ii) The issue can likewise be taken a gander at from a somewhat unique point. Area 36, before the Amendment Act, is just an obstruct on the privilege of the declaration holder, who cannot execute the honour in support of himself, except if the states of this segment are met. This does not imply that there is a relating directly in the judgment-borrower to remain the execution of such an honour.
(iii) Being a procedural arrangement, clearly the setting of Section 36 is that the articulation “has been” would allude to Section 34 petitions documented before the initiation of the Amendment Act and would be one pointer to the way that the said segment would to be sure apply, in its subbed structure, even to such petitions.
(iv) It would be certain that taking a gander at the common-sense viewpoint and the idea of rights by and by included, and the sheer shamefulness of the unamended arrangement, which allowed a programmed remain to execution of an honour before the authorization cycle of Section 34 was finished (and which stay could keep going for various years) without taking a gander at the realities of each case, plainly Section 36 as altered ought to apply to petitions recorded under Section 34 preceding the beginning of the Amendment Act likewise for the previously mentioned reasons.
We may endeavour to additionally learn the extent of Section 34(4) of the Arbitration Act, by the cycle of end. An arbitral council does not have the ability to audit its own honour. Subsequently, an arbitral court can’t be permitted to audit the honour (or the thinking thereunder) on benefits or revise the honour under the pretence of being conceded with a chance to dispose of the reason for putting aside the honour under Section 34(4) of the Arbitration Act. Further, Section 33 of the Arbitration Act gives a particular method to remedy of computational, administrative, or typographical mistakes in the honour by the arbitral court and expects gatherings to apply for amendment of such blunder inside 30 days from the receipt of the honour. This should preclude revision of such mistakes by the arbitral court by continuing arbitral procedures under Section 34(4) of the Arbitration Act.
MMTC’s (supra) finding that the arbitral court itself decides the extent of enquiry to take out the grounds of protest and has wide caution to dispense with these grounds in such way as it considers fit, is expansive and could be liable to abuse. As brought up above, there are just sure classes of grounds which are fit for fix or end by an arbitral council. It would, in this way, consistently follow that the court must recognize the grounds of challenge, which have been made out in an application under Section 34(1) of the Arbitration Act, and resort to Section 34(4) of the Arbitration Act just if such grounds are equipped for end by the arbitral council. The nonappearance of such convention may prompt a few issues, including the way that the arbitral court may wrap up re-composing the honour, which is impermissible, and might be gravely biased to a gathering testing the honour. Further, one could contend that Section 34(4) of the Arbitration Act ought to be turned to just where it would wipe out all reparable grounds of challenge, which have been distinguished by the court. For example, take a circumstance where the court discover that the honour is obligated to be put aside on the grounds that the arbitral council disregarded a specific case (a reparable ground), yet additionally finds that the essential thinking in the honour is in opposition to the basic strategy of Indian law. Turning to Section 34(4) of the Arbitration Act in this circumstance, might be totally improper, as regardless of whether the arbitral council fixes the (reparable) ground and thinks about the disregarded case, the court would even now be needed to put aside the honour on its ground being in opposition to the central approach of Indian law.
While some measure of clearness on the extent of Section 34(4) of the Arbitration Act can be sorted out from different points of reference, there is still space for conflicting utilization of this arrangement by different courts (counting District Courts). In the event that the court doesn’t recognize the reparable deformities before falling back on Section 34(4) of the Arbitration Act, any activity taken by the arbitral council to dispense with justification for putting aside of the honour could open up the chance of further test by the gathering distressed by such activity. This could cause over the top deferral in the requirement of arbitral honours and would militate against the viability of the arbitral cycle. In this manner, a complete article of the genuine extent of Section 34(4) of the Arbitration Act is woefully required.
© Chawla Publications (P) Ltd.
Before delving upon the issue of jurisdiction of arbitral tribunals, let us read the section 16 of the Arbitration and Conciliation Act, 1996 (in short here in after referred to as “Act“)to understand its scope and repercussions during the arbitral proceedings.
Section 16. Competence of arbitral tribunal to rule on its jurisdiction.–
(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,-
(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.
(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 (3) and, where the arbitral tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and make an arbitral award.
(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.
Genesis:
Section 16 of the Act has been framed in terms and in spirit of Article 16 Chapter IV of UNCITRAL Model Laws on International Commercial Arbitration (1985) (as adopted by the United Nations Commission on International Trade Law on 21 June 1985)
“Article 16 – Competence of arbitral tribunal to rule on its jurisdiction
1. The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. For that purpose, an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract. 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. A party is not precluded from raising such a plea by the fact that he has appointed, or participated in the appointment of, an arbitrator. 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. The arbitral tribunal may, in either case, admit a later plea if it considers the delay justified.
3. The arbitral tribunal may rule on a plea referred to in paragraph (2) of this article either as a preliminary question or in an award on the merits. If the arbitral tribunal rules as a preliminary question that it has jurisdiction, any party may request, within thirty days after having received notice of that ruling, the court specified in article 6 to decide the matter, which decision shall be subject to no appeal; while such a request is pending, the arbitral tribunal may continue the arbitral proceedings and make an award.”
Rationale
Principles of Kompetenz Kompetenz or “Competence de la recognized” applies to the arbitration tribunal, which is a jurisprudential Doctrine whereby a legal body, such as a court or arbitration tribunal, may have jurisdiction to rule as to the extent of its competence or jurisdiction on an issue before it.
Idea behind the insertion of Section 16 was to stipulates the timeline for raising the issue with regard to the Jurisdiction of an arbitral tribunal, in order to save the time and money of the parties to dispute. However the language of Section 16 especially sub-section (2), (4) & (5) creates an ambiguity with regard to the fact that it gives options to the arbitral tribunal to decide the issue of jurisdiction either as a preliminary issue or at the time of passing of the award. Sub-section 2 stipulates that “the plea of jurisdiction shall not be raised later than statement of defence“, however at the same time a window has been left open in Sub-section 4 the tribunal has been vested power to condone the delay in taking plea of jurisdiction at belated stage on being satisfied by the justification of such delay, though this will be dependent upon the factual matrix of each case.
The Act is silent with regard to the fact as to whether the issue of jurisdiction is to be mandatorily decided as a preliminary issue, even the opinion of the Hon’ble Courts as well as interpretation by the Hon’ble Courts on issue of jurisdiction has been divided.
However I personally feel, that the benefit of treating the jurisdiction issue as a preliminary issue will result in quick culmination of arbitral proceedings and shall be cost effective as well, whereas if the decision on the issue of jurisdiction is taken at the time of passing of the award by the tribunal and ultimately tribunal comes to the conclusion that it lacks jurisdiction, it results in wastage of the time of the parties to dispute and tribunal as well and also increases the cost of litigation and effective adjudication of the claim is delayed. Such flexibility in the decision making process not only hampers the growth in International business, FDI but also hampers India from becoming an International hub for Commercial Arbitration.
Section 16 further creates another ambiguity, if the in terms of sub-section 5, the tribunal decides the plea of jurisdiction treating as preliminary issue than an appeal would lie to court in terms of Section 37(2)(a) of the Act, however if the tribunal decides to adjudicate upon the plea of jurisdiction at the stage of passing of Award than recourse under Section 34 shall be applicable as the award can only be challenged under Section 34 of the Act.
Important Judgments:
M/s Uttarakhand Purv Sainik Kalyan Nigam Limited v. Northern Coal Field Limited (Special Leave Petition (C) No. 11476 of 2018) decided on 27.11.2019
All other preliminary or threshold issues are left to be decided by the arbitrator under Section 16, which enshrines the Kompetenz-Kompetenz principle. 9.9. The doctrine of “Kompetenz-Kompetenz”, also referred to as “Competence-Competence”, or “Competence de la recognized”, implies that the arbitral tribunal is empowered and has the competence to rule on its own jurisdiction, including determining all jurisdictional 5 (2017) 9 SCC 729.
In Bhushan Steel Ltd. v. Singapore International Arbitration Centre 2010 SCC OnLine Del 2236 relying on Kvaerner Cementation India Limited supra (2012) 5 SCC 214 and Roshan Lal Gupta supra holding, that once it is held there is a valid Arbitration Agreement between the parties, a suit for declaration that the Arbitral Tribunal has no jurisdiction or for permanent injunction to restrain arbitration would not be maintainable; (ix) the ICC Rules are akin to Section 16 of the Arbitration Act; and, (x) that Kvaerner Cementation India Limited supra has recently been cited with approval in National Aluminium Company Ltd. v. Subhash Infra Engineers Pvt. Ltd. 2019 SCC OnLine SC 1091 holding that if the plaintiff therein wanted to raise an objection with regard to existence or validity of the Arbitration Agreement, it was open for it to move an application before the Arbitrator but with such plea he cannot maintain a suit for declaration and injunction.
In Pandey & Co. Builders Private Limited v. State of Bihar, AIR 2007 SC 465, held forum of appellate court must be determined with reference to definition of court in section 2(1)(e) of the Act. If a High Court does not exercise the Original Jurisdiction, it would not be a `Court’ within the meaning of the said provision.
M/s Lion Engineer Consultants v. State of Madhya Pradesh 2018 AIR (SC) 1895. In this Judgment Hon’ble Supreme Court held that even if the objection of jurisdiction is not taken before the arbitral tribunal, than also the same can be raised during the challenge to the arbitral award under section 34 of the Act. The Hon’ble Court overruled its own judgement delivered in the case of MSP Infrastructure Ltd. v. Madhya Pradesh Road Development Corporation Ltd. (2015) 13 SCC 713 wherein it was held that all objections of jurisdictions must be raised at the submission of the statement of defence and must be dealt with under Section 16 of the Act.
© Chawla Publications (P) Ltd.
The 1990s brought liberalization to India, and with it came a docket explosion crisis, the ramifications of which we are still dealing with. S. 89 was inserted in the Code of Civil Procedure through its 1999 Amendment Act,[1] based on the recommendations of the Malimath Committee report and the 129thLaw Commission Report, in response to this crisis. The aim was to increase access to justice through reducing costs and pendency.[2] A specific provision was required as litigantsdid not refer to these much when left to their own devices due to reasons such as ignorance, reluctance or indifference.[3]
In light of the above, S. 89, CPC enables courts to determine whether a matter can be resolved through ADR. It provides for reference to arbitration, conciliation, judicial settlement (may also be brought about through a Lok Adalat) and mediation. Eliciting parties’ consent on the method of dispute resolution to be adopted is preferred but not necessary.[4]
The effect of referring a dispute to each of these methods is different. For example, a case can only be referred to arbitration if both parties consent to it. Once it is so referred, it goes “outside the stream of the court”[5] and is decided finally by the arbitral tribunal itself, based on the provisions of the Arbitration and Conciliation Act, 1996 [“AC Act”].[6] On the other hand, a mediation settlement will have to be confirmed by the court. While the scheme of the section is fairly simple prima facie, lacunae in drafting have created some complications.[7]
Deliberation on Section 89, CPC was initiated in Salem Advocate Bar Association v. Union of India, 2003 (1) SCC 49.. The constitutional validity of the section was upheld and the intent behind its inclusion lauded. Criticism was muted as S. 89, CPC was a recent insertion at the time. It was opined that the section had not been very effective as its modalities were yet to be determined. A committee was set up to draft model rules, and the apex court recommended the adoption of these rules by the various High Courts so as to give effect to section 89(2)(d), CPC.
In the subsequent decision of Salem Advocate Bar Association v. Union of India, 2005 (6) SCC 344, [“Salem II”] the apex court purposively reinterpreted S. 89, CPC to reduce anomalies. For instance, the words shall and may in S. 89, CPC and Rules IA-IC, Order X, CPC were read harmoniously and it was determined that may was intended to refer to only the reformulation of terms of a potential settlement by the court. There was also an attempt to resolve the issue created by inclusion of the phrase “terms of settlement” in the section. The section mandates formulation of settlement at the pleadings stages. However, this is not feasible since, firstly, there would not have been adequate application of mind of the judge at the pleadings stage, and, secondly, determining terms of settlement is the domain of the ADR forum. So, a plain reading of the section creates the futile situation wherein courts are expected to do the ADR forums job before referring a matter to it. In light of the above, “terms of settlement” was interpreted as summary of disputes.
The court further replaced the definition of mediation in the section with that suggested in the model mediation rules.
The subsequent decision in Afcons Infrastructure Ltd v. Cherian Varkey Construction Co (P) Ltd , 2010 8 SCC 24, [“Afcons case”]. is the most recent landmark judgement on the issue. The primary issue herein was whether the court could refer a case to arbitration without the consent of both parties. However, there was also an extensive discussion on the scope of S. 89, CPC. It was noted that the language of S. 89(1), CPC is borrowed entirely from S. 73(1), AC Act which is in reference to a conciliator in the final stages of conciliation and hence unsuitable vis-a-vis a court of law referring disputes to be resolved through an ADR method. Thus, the phrase “terms of settlement” was interpreted in light of the decision in Salem II.
The mix-up between the terms judicial settlement and mediation in sub clauses (c) and (d) of S. 89(2) CPC was recognized as a drafting error. It was also opined that a matter referred to a Lok Adalat under section 89 would be different from a matter taken to a Lok Adalat independently as the former would still need to be placed before the court subsequent to the Lok Adalat passing its award. However, this aspect of the judgment has been subsequently disputed due to the fact that it is in conflict with section 21, LSA Act.[8] [9]
Beyond Supreme Court judgments, further confusion exists section 89(2)(c) and 89(2)(d) even if the words mediation and judicial settlement are switched as in that case, a mediation agreement will get the same status as one reached through a Lok Adalat. However, as per S. 21, Legal Services Authorities Act, 1987 [“LSA Act”], an award passed by a Lok Adalat is given the same status as a decree passed by a civil court, while a mediation agreement has to be confirmed by court.[10]” Another strand of opposition exists in the form of those who opine that the distinction between mediation and conciliation is a false one and hence there is no need for a separate mediation clause.[11]” The Law Commission of India has even recommended the deletion of the provision for mediation under section 89(1) because that is an option that is always open to the court anyway, leaving no need or reason to codify it.[12]”
The issue vis-a-vis court fees which has arisen in light of S. 16, Court Fees Act, 1870[13] must also be resolved. The intent behind the section is to avoid penalizing litigants who choose ADR, and also incentivizing them, by ensuring a refund of court fees. However, a plain reading of the section itself gives rise to a problem. Section 89, CPC is supposed to be a mandatory provision if the court feels that there is a chance of settlement. So, cases are referred for ADR mandatorily. That does not always translate into a settlement taking place between the parties. If such a thing happens in case of mediation, conciliation or Lok Adalats, then parties can come back to court. Nonetheless, in this case, they would have been refunded their court fee so they would have their case tried for free.[14] In Nutan Batra v. Buniyaad Associates, 2018 SCC Online Del 12916., the Delhi High Court clarified that S. 16, Court Fees Act must not be given a literal interpretation which would entitle a plaintiff to refund irrespective of successful settlement through ADR methods.
Despite the above criticisms, it cannot be denied that S. 89, CPC is an admirable attempt to reduce the burden on courts[15] and make justice a reality for litigants. The model that it attempts to replicate has been very successful in various jurisdictions. California is a very successful example of this with no arrears of cases older than two years. In fact, in San Diego, 97% of all civil cases are settled through methods of ADR.[16] Further, the section has facilitated the increased use of ADR methods by parties to legal disputes. For instance, there is an increased trend of mediation in matrimonial disputes. Such avenues are also being preferred by parties who prefer confidentiality.[17] Further, implementation has become more practicable in light of the apex courts interpretation of the section, thus ensuring an overall positive impact. In brief, section 89 is an attempt at innovative legislation to solve a problem that is plaguing the Indian legal system and is only set to become bigger in the coming years. One can then safely surmise that the idea behind section 89, CPC is one that is not only laudable it is also desperately needed.
[1] Rules 1A-1C, CPC And Section 16, Court Fees Act, 1870 [“Court Fees Act”] were incorporated along with Section 89 and are intended to be read together; MULLA ON THE CODE OF CIVIL PROCEDURE, Vol 1, 874, (BM Prasad ed., 18th edn., 2011).
[2] MP Jain, THE CIVIL PROCEDURE CODE, 251, (2004).
[3] R.V. Raveendran, Section 89 CPC: Need For An Urgent Relook, SCC(J) 2007 (4) 23, 23.
[4] 238th Report of the Law Commission of India, Amendment of Section 89 of the Code of Civil Procedure, 1908 and Allied Provisions, 10, 2011.
[5] Para 9, Salem Advocate Bar Association v. Union of India, 2003 (1) SCC 49.
[6] 176th Report of the Law Commission of India, The Arbitration and Conciliation (Amendment) Bill, 2001, 32, 2001.
[7] It has been described as “not very happily worded” and having been “drafted in a hurry”; supra note 3, at 24.
[8] Supra note 4, at 19.
[9] The section provides that a Lok Adalats award will be deemed to be the decree of a civil court.
[10] Supra note 4, at 19.
[11] Supra note 3, at 23.
[12] 163rd Report of the Law Commission of India, The Code of Civil Procedure (Amendment) Bill, 1997, 21, 1998. However, there have not been too many takers for this particular point of view.
[13] This section is not in effect in all states as many of them have their own Court Fees Act. A lot of these state acts do not have a corresponding provision; supra note 3, at 30.]
[14] Supra note 3, at 24.
[15] A Xavier, Mediation: Its Origin and Growth in India, 27(2), HAMLINE JOURNAL OF PUBLIC LAW & POLICY, 275, 281, (2006).
[16] Justice MS Shah, Study of the American Legal System for Procedural Reforms in Civil Courts in India, available at http://gujarathighcourt.nic.in/mediation/study1.htm.
[17] BS Hanasi, A Critical Study of the Alternate Dispute Resolution System in India (with special focus on Lok Adalats), 222, 2008.
© Chawla Publications (P) Ltd.
What is Alternative Dispute Resolution System?
Alternative Dispute Resolution (ADR) is a term generally used to refer to informal dispute resolution processes in which the parties meet with a professional, third party, who helps the parties to resolve their dispute in a way that is less formal and often more consensual than is done in the courts. While the most common forms of ADA are mediation and arbitration, there are many other forms: judicial settlement conferences, fact-finding, ombudsmen, special masters. Though often voluntary, ADA is sometimes mandated by the courts, which require that disputants try mediation before they take their case to court.
ADR in India is not new and it was in existence even under the previous Arbitration Act, 1940. The Arbitration and Conciliation Act, 1996 (ACA) has been enacted to accommodate the harmonization mandates of United Nations Commission on International Trade Law (UNCITRAL) Model. To streamline the Indian legal system, the traditional civil law known as the Code of Civil Procedure, (CPC) 1908 has also been amended and Section 89 has been introduced. Section 89 (1) of CPC provides an option for the settlement of disputes outside the court. It provides that where it appears to the court that there exist elements, which may be acceptable to the parties, the court may formulate the terms of a possible settlement and refer the same for arbitration, conciliation, mediation or judicial settlement.
Due to extremely slow judicial process, there has been a big thrust on ADA mechanisms in India. While ACA is a fairly standard western approach towards ADA, the Lok Adalat system constituted under the National Legal Services Authority Act, 1987 is a uniquely Indian approach.
a) To cover international and domestic arbitration comprehensively.
b) To minimize the role of courts and treat arbitral award as a decree of court.
c) To introduce the concept of conciliation.
d) To provide speedy and alternative solution to the dispute.
Arbitration – It is one of the cardinal mechanisms in alternative dispute machinery, whereby the dispute is submitted to one or more arbitrators, who are duly appointed by both the parties. The process of arbitration can start only if there exists a valid arbitration agreement between the parties prior to the emergence of the dispute. As per Section 7, such an agreement must be in writing. The contract regarding which the dispute exists must either contain an arbitration clause or must refer to a separate document signed by the parties containing the arbitration agreement. The existence of an arbitration agreement can also be inferred by written correspondence such as letters, telex, or telegrams which provide a record of the agreement. An exchange of statement of claim and defence in which existence of an arbitration agreement is alleged by one party and not denied by the other is also considered as valid written arbitration agreement.
Any party to the dispute can start the process of appointing an arbitrator and if the other party does not cooperate, the party can approach the office of the Chief Justice for appointment of an arbitrator. There are only two grounds upon which a party can challenge the appointment of an arbitrator reasonable doubt in the impartiality of the arbitrator and lack of proper qualification of the arbitrator as required by the arbitration agreement. A sole arbitrator or a panel of arbitrators so appointed constitutes the arbitration tribunal.
Except for some interim measures, there is very little scope for judicial intervention in the arbitration process. The arbitration tribunal has jurisdiction over its own jurisdiction. Thus, if a party wants to challenge the jurisdiction of the arbitration tribunal, it can do so only before the tribunal itself. If the tribunal rejects the request, there is little the party can do except to approach a court after the tribunal makes an award. Section 34 provides certain grounds upon which a party can appeal to the principal civil court of original jurisdiction for setting aside the award. Once the period for filing an appeal for setting aside an award is over, or if such an appeal is rejected, the award is binding on the parties and is considered as a decree of the court.
The tribunal can give its verdict in the form of “arbitral award”, which is legally binding on disputed parties. Arbitration is very common in business transactions, but unknown to many that it is the oldest method of resolving disputes, which had been enshrined since ancient history.
Mediation – Is a non-binding process in which a third party called “mediator” helps the disputed parties to reach a settlement.
Mediation is the technical term in international law which signifies the interposition by a neutral and friendly state between two states at war or on the eve of war with each other, of its good offices to restore or to preserve peace. The mediation is a process, facilitation, an empowerment. The core value of mediation is that the process provides the parties with an opportunity to negotiate, converse and explore options aided by a neutral third party, the mediator, to exhaustively determine if a settlement is possible. It is a process of empowerment of the parties to control their destiny in their dispute.
Thus, mediation is necessarily a process of negotiation by which the participant together with the assistance of a neutral person attempts to resolve the dispute. The third party mediator makes effort by negotiations with the participants to systematically identify and isolate disputed issues in order to develop options consider alternatives and to reach a congenital agreement that will accommodate their needs and rights. The third party mediator lacks authority to decide but only facilitate to create congenial environment to enable the party to resolve their dispute amicably themselves.
Mediation provides a forum for principled negotiations. These negotiations may at times become frustrating and troubling, but with the mediators help the parties keep moving forward. Principled negotiations stimulate exploration of settlement alternatives and an opportunity to evaluate those alternatives, weighing them against the likely outcome of going to trial and viewing proposals through the lenses of reality. Mediation compared to litigation, trial and appeal is a veritable bullet train to certainty and finality. If the dispute settles at the mediation, it settles on a basis acceptable to the parties; the spectre of trial is removed; and the threat of being tied up on appeal is eliminated.
I would conclude by saying that mediation is extremely relevant to the justice delivery in India since it not only brings an end to the litigation pending before the Courts but it also has cascading effects of bringing an end to bad-blood between the parties and making them useful members of the Society.
Conciliation – This mechanism is also non-binding on the parties. It is a process by which a third party called “conciliator” meets disputed parties separately in order to resolve their differences. He neither gives verdict nor makes any award. Conciliation is a less formal form of arbitration. This process does not require existence of any prior agreement. Any party can request the other party to appoint a conciliator. One conciliator is preferred but two or three are also allowed. In case of multiple conciliators, all must act jointly. If a party rejects an offer to conciliate, there can be no conciliation.
Parties may submit statements to the conciliator describing the general nature of the dispute and the points at issue. Each party sends a copy of the statement to the other. The conciliator may request further details, may ask to meet the parties, or communicate with the parties orally or in writing. Parties may even submit suggestions for the settlement of the dispute to the conciliator.
When it appears to the conciliator that elements of settlement exist, he may draw up the terms of settlement and send it to the parties for their acceptance. If both the parties sign the settlement document, it shall be final and binding on both.
Lok Adalat – It is also called “peoples court”. It was established by the Government under the Legal Services Authorities Act, 1987 to facilitate inexpensive and prompt settlement of pending suits by conciliation and compromise. This forum is very effective in settlement of money claims, partition suits and matrimonial cases. India has had a long history of resolving disputes through the mediation of village elders. These are usually presided over by a retired judge, social activists, or members of the legal profession. It does not have jurisdiction on matters related to non-compoundable offences.
There is no court fee and no rigid procedural requirement (i.e. no need to follow process given by the Civil Procedure Code or the Evidence Act), which makes the process very fast. Parties can directly interact with the judge, which is not possible in regular courts.
The focus in Lok Adalats is on compromise. When no compromise is reached, the matter goes back to the court. However, if a compromise is reached, an award is made and is binding on the parties. It is enforced as a decree of a civil court. An important aspect is that the award is final and cannot be appealed against, not even under Article 226 of the Constitution, because it is a judgement by consent. All proceedings of a Lok Adalat are deemed to be judicial proceedings and every Lok Adalat is deemed to be a civil court.
Ombudsman – it is an external agency appointed by the government to probe into administrative lapses. It is a mechanism by which an aggrieved party can claim relief against abuse of discretionary power by government authority. Sweden was the first country to adopt this institution in 1809 followed by Finland, Denmark, Norway, New Zealand, Australia and the Scandinavian countries. The Government of India has designated several ombudsmen (sometimes called Chief Vigilance Officer or CVO) for redressal of grievances and complaints from individuals in banking, insurance and other sectors being serviced by both private and public bodies and corporations. The CVC (Central Vigilance Commission) was set-up on the recommendations of Santhanam Committee (196264).
In India, Ombudsman is called Lokpal or Lokayukta. An Administrative Reforms Commission (ARC) was set up on 5 January, 1966 under the chairmanship of Morarji Desai. It recommended two-tier machinery: Lokpal at the Centre (Parliamentary commissioner as in New Zealand) and one Lokayukta each at the State level for redressal of peoples grievances. However, the jurisdiction of the Lokpal is not extended to judiciary like in New Zealand. The Central Government introduced the first Lokpal Bill and Lokpal and Lokayuktas Bill in 1968. The new Bill is under discussion.
The Lokayukta institution has come into existence in different years, in different States in India. Orissa is the first state to present a Bill on establishment of Lokayukta in 1970. However, Maharashtra is the first state to have established the institution in 1972. Thereafter, this institution was established in different States in different years. The structure of the Lokayukta is not uniform across all the states. Some states have Upa-Lokayukta under Lokayukta and in some states the Lokayukta does not have suo motu powers of starting an enquiry.
Negotiation – It is a non-binding process of resolving disputes, by which parties to a dispute interact with one another and try to work out a settlement without the intervention of a third party. The importance of negotiation in concise can be aptly put in the words of former US President John F. Kennedy “Let us negotiate with fear but let us not fear to negotiate”. It is the process whereby interested parties resolve disputes, agree upon courses of action, bargain for individual or collective advantage, and/or attempt to craft outcomes which serve their mutual interests. It is usually regarded as a form of ADA. Given this definition, one can see negotiation occurring in almost all walks of life, from parenting to the courtroom.
Practitioners and researchers began to develop win-win approaches to negotiation. This approach, referred to as principled negotiation, is also sometimes called mutual gains bargaining.
Collaborative Law – It is a voluntary dispute resolution process by which parties to a dispute are represented by their own lawyers, to facilitate discussion in accordance with an agreement. It has been an effective mechanism in the context of divorce and family law. Collaborative law is practised internationally in countries like the USA, UK and the list goes on with the inclusion of countries such as France, Germany, Austria, Australia, Scotland, Switzerland and Hong Kong. In collaborative law or collaborative divorce, each party has an attorney who facilitates the resolution process within specifically contracted terms. The parties reach an agreement with the support of the attorneys (who are trained in the process) and mutually-agreed experts. No one imposes resolution on the parties. However, the process is a formalized process that is part of the litigation and the court system. Rather than being an alternative resolution methodology it is a litigation variant that happens to rely on ADA like attitudes and processes.
Because justice is not executed speedily men persuade themselves that there is no such thing as justice. Sharing the same sentiments, Chief Justice Bhagwati said in his speech on Law Day, “I am pained to observe that the judicial system in the country is on the verge of collapse. These are strong words I am using but it is with considerable anguish that I say so. Our judicial system is creeking under the weight of errors.”
The disputants want a decision and that too as quickly as possible. As the problem of overburdened Courts has been faced all over the world, new solutions were searched. Various Tribunals were the answer to the search. All over the globe the recent trend is to shift from litigation towards Alternative Dispute Resolution. It is a very practical suggestion, which if implemented, can reduce the workload of Civil Courts by half. Thus, it becomes the bounden duty of the Bar to take this onerous task of implementing ADR on itself so as to get matters settled without going into the labyrinth of judicial procedures and technicalities. The Bar should be supported by the Bench in this herculean task so that no one is denied justice because of delay.
It is important here to mention the statement made by John F. Kennedy in this respect: “Let us never negotiate out of fear but let us never fear to negotiate.”
• Bawa, Siddhartha. 2006. Law of Arbitration and Conciliation. Delhi: New Era law Publications.
• Singh, Avtar. 2007, Law of Arbitration and Conciliation, Lucknow: Eastern Book Company.
• Tripathi, S.C. 2005. The Arbitration and Conciliation Act, 1996 with Alternative Means of Settlement of Disputes. Delhi: Central Law Publication.
© Chawla Publications (P) Ltd.
The implementation of Alternative Dispute Resolution mechanisms a means to achieve speedy disposal of justice is a crucial issue. The sea-change from using litigation as a tool to resolve disputes by using Alternative Dispute Resolution mechanisms such as conciliation and mediation to provide speedy justice is a change that cannot be easily achieved. The first step had been taken in India way back in 1940 when the first Arbitration Act was passed. However, due to lot of loop-holes and problems in the legislation, the provisions could not be fully implemented. However, many years later in 1996, The Arbitration and Conciliation Act was passed which was based on the UNCITRAL model. The amendments to this Act were also made taking into account the various opinions of the leading corporates and businessmen who utilised this Act the most. Sufficient provisions have been created and amended in the area of Lok Adalats in order to help the rural and commoner segments to make most use of this unique Alternative Dispute Resolution mechanism in India. Therefore, today the provisions in India sufficiently provide for Alternative Dispute Resolution. However, its implementation has been restricted to just large corporates or big business firms. Lok Adalats, though a very old concept in Indian Society, has not been implemented to its utmost level. People still opt for litigation in many spheres due to a lot of drawbacks. Provisions made by the legislators need to be utilised. This utilisation can take place only when a definite procedure to increase the implementation of ADR is followed. In order to have such an implementation programme, it is necessary to analyse what the problems are and how to rectify them.
Any implementation is usually confronted with problems. ADR is no exception to this rule. Some of the problems faced during implementation are enumerated as under:
(1) Attitudes: Although Indian law favours dispute resolution by arbitration, Indian sentiment has always abhorred the finality attaching to arbitral awards. A substantial volume of Indian case law bears testimony to the long and ardous struggle to be freed from binding arbitral decisions. Aided and abetted by the legal fraternity, the aim of every party to arbitration (domestic or foreign) is: “try to win if you can, if you cannot do your best to see that the other side cannot enforce the award for as long as possible.” In that sense, arbitration as a means of settling disputes is a failure-though it is being increasingly regarded as a useful mechanism for resolving disputes. The trouble is that neither the private sector nor the public sectors in India are as yet sufficiently infused with the “spirit of arbitration.” An arbitration award should only be permitted to be set aside for reasons extraneous to its contents-such as, lack of jurisdiction of the arbitrator, fraud or corruption of the arbitrator or of the other party, or a fundamental miscarriage of justice in the conduct of arbitral proceedings. Jurisdiction to correct patent legal errors on the face of the award was a peculiarly English innovation. To have imported this questionable jurisdiction into litigous India (as we did under the Arbitration Act, 1940) was a great mistake. Then, thin dividing line between the merits of an award and errors of law apparent on its face are often blurred- few questions of fact continue to remain so after being churned up in the mind of a skilled lawyer! These basic infirmities in the law of arbitration, and the approach of users, left their mark on domestic arbitration under the Arbitration Act, 1940.[1]
First and foremost, there is a need to change our traditional approach to resolving disputes, even a need to change our basic attitudes. Perhaps the legendary basketball coach of Temple University, John Chaney, said it best when he said that “winning is an attitude.” He might well have been speaking about dispute resolution and ADR. We need to redefine the very meaning of what it is to “win.” Consistent with what our clients want and deserve, the ultimate “win” requires our understanding of the clients’ interests and goals and our ability to solve their problems. The spirit of ADR mechanisms is to create a WIN-WIN situation, but the attitude to people is changing it into a WIN-LOSE situation, which is not very different from a litigation. In so many large international arbitrations the defendant will do everything to postpone the moment of the award; at and before the hearing, the parties will deploy all concievable, and some inconcievable, procedural devices to gain an advantage; the element, of mutual respect is lacking; and the loser rather than paying up with fortitude, will try either to have the award upset, or to atleast have its enforcement long postponed. It is in this background that the new Indian law (of arbitration and conciliation) was conceived and enacted. But it is not enough to have a new law-it is necessary for judges and lawyers to realise that the era of court-structured and court controlled arbitration is effectively at an end. Our attitudes require readjustment; we need to re- adjust to the spirit of ADR, and adhere to its underlying philosophy, which is that of utmost good faith of the parties.
(2) Lawyer and Client Interests: Lawyers and clients often have divergent attitudes and interests concerning settlement. This may be a matter of personality (one may be a fighter, the other a problem solver) or of money. In some circumstances, a settlement is not in the client’s interest. For example, the client may want a binding precedent or may want to impress other potential litigants with its firmness and the consequent costs of asserting claims against it. Alternatively, the client may be in a situation in which there are no relational concerns; the only issue is whether it must pay out money; there is no pre judgement interest; and the cost of contesting the claim is less than the interest on the money. In these, and a small number of situations, settlement will not be in the client’s interest.[1]
Still, a satisfactory settlement typically is in the client’s interest. It is the inability to obtain such a settlement, in fact, that impels the client to seek the advice of counsel in the first place. The lawyer must consider not only what the client wants but also why the parties have been unable to settle their dispute and then must find a dispute resolution procedure that in likely to overcome the impediments to settlement. Note, however, that, even though it may initially appear that the parties seek a settlement, sometimes, an examination of the impediments to settlements reveals that atleast one party wants something that settlement cannot provide (eg. Public vindication or a ruling that establishes an enforceable precedent.)
An attorney who is paid on an hourly basis stands to profit handsomely from a trial, and maybe less interested in settlement than the client. On the other hand, an attorney paid on a contingent fee basis is interested in a prompt recovery without the expense of preparing for or conducting a trial, and maybe more interested in settlement than is the client. It is in part because of this potential conflict of interest that most processes that seek to promote settlement provide for the clients direct involvement. For lawyers, this means new approaches that initially seem almost counterintuitive. For example, the recovery of large sums of money is usually regarded as the ultimate “win” for plaintiffs in commercial cases. Yet, Wall Street values long-term streams of revenue even more highly than large sums of cash. Perhaps the restructuring of a long-term relationship would offer a better result.
Once in mediation, lawyers usually try to exert a high degree of control over the process, not unlike in a deposition or at trial. However, direct involvement of the client in the mediation process is often the best way to succeed. Lawyers also frequently engage in a “we-they” approach to negotiations that rarely results in a zero-sum gain. Lawyers need to have a better understanding of the importance of integrative bargaining, where lawyers can sit on the same side of the table and try to “expand the pie.”
Lawyers also need to reflect upon the meaning of Ethical Consideration, which imposes a duty to represent a client zealously. Effective mediation advocates need to abandon any desire for revenge in favour of a more goal-oriented approach if they are to secure the “win” that best serves their client’s interests. In many instances, it is not the lawyer but the angry client who wants revenge. For these clients, every new case becomes a matter of principle until the client receives the lawyer’s third or fourth bill then the client wants to spell the word “principle” differently. Here, even more so, the lawyer has a responsibility to make an early and realistic assessment of the dispute and to serve as an anchor for the client. These differences in interest need to be sorted out.[1]
(3) Legal Education : Law schools train their students more for conflict than for the arts of reconciliation and accommodation and therefore serve the profession poorly. Already, lawyers devote more time to negotiating conflicts than they spend in the library or courtroom and studies have shown that their efforts to negotiate were more productive for the clients. Over the next generation, society’s greatest opportunities will in tapping human inclinations towards collaboration and compromise rather than stirring our proclivities for competition and rivalry. If lawyers are not leaders in marshalling co-operation and designing mechanisms which allow it to flourish, they will not be at the centre of the most creative social experiments of our time.[1]
A serious effort to provide cheaper methods of resolving disputes will require skilled mediators and judges, who are trained to play a much more active part in guiding proceedings towards a fair solution. In short, a just and effective legal system will not merely call for a revised curriculum; it will entail the education of entire new categories of people. For law schools, there is a need to recognize that the demands of the marketplace have forever changed the dynamics of dispute resolution. Obviously, an understanding of the adversarial system, stare decisis, and the process of litigation remain critical. At the same time, students need to enhance their skills as negotiators and to appreciate, for example, the value of listening or the advantage of making the “first credible offer.” Law students also need to understand the suitability and advocacy issues in ADR at more sophisticated levels and to understand the important keys to problem solving. It is time that our law schools began to take the lead in helping to devise such training.[1]
(4) Impediments to settlement [1] : Just as there may be problems in the implementation techniques, there are impediments even after that stage, i.e. during the time of settlement. Some of them are :
(i) Poor communication : The relationship between the parties and/or their lawyers may be so poor that they cannot effectively communicate. Neither party believes the other. Inability to communicate clearly and effectively, which impedes successful negotiations, is often, but not always, the result of a poor relationship. If, for example, the parties come from different cultural backgrounds, they may have difficulty in understanding and appreciating each other’s concerns. Or, if there had been a long history of antagonism between the key players, all efforts to communicate are likely to be hampered by antagonism.
(ii) The need to express emotions : At times, no settlement can be achieved until the parties have had the opportunity to express their views to each other about the dispute and each other’s conduct. Such venting, combined with the feeling that one has been heard by the other party, has long been recognized as a necessary step in resolving family and neighbourhood disputes. Business disputes are no different. After all, they do not take place between disembodied corporations but between people who manage those corporations, and who may have as much need to vent as anyone else involved in a dispute.
(iii) Different views of facts : Usually in a dispute, there are two or more parties, each believing that they are the hurt party in some way or the other. Each believes that the other is the wrong-doer. To this belief, they have their own justifications. Just as each one of them has a different perspective on what the result of the dispute should be, they also have their own view regarding the facts of the case. Both parties have their own version as to what the facts are and reconciling these different views is itself a major problem.
(iv) Different views of legal outcome if settlement is not reached: Disputants often agree on facts but disagree on their legal implications. One party asserts that, on the basis of the agreed upon facts, he has a 90 percent likelihood of success in court; the other party, with equal fervour, asserts that she has a 90 percent chance of success. While there may be a legitimate dispute over the likely outcome, both these estimates cannot be right.
(v) Issues of principle : If each of the disputing parties is deeply attached to some fundamental principle that must be abandoned or compromised in order to resolve the dispute, then resolution is likely to be difficult. Two examples: a suit challenging the right of neo-Nazis to march into a town where many Holocaust survivors live; and a suit by a religious group objecting to the withdrawal of life-support systems from a comatose patient. In view of the intensity of feelings in cases such as these, it is unlikely that evaluative techniques will be helpful in reaching a settlement.
(vi) Constituency pressures: If one or more of the negotiators represents an institution or group, constituency pressures may impede agreement in two ways: different elements within the institution or group may have different interests in the dispute, or the negotiator may have staked her political or job future on attaining a certain result.
(vii) Linkage to other disputes: The resolution of one dispute may have an effect on other disputes involving one or both parties. If so, this linkage will enter into their calculations, and may so complicate negotiations as to lead to an impasse. For example, an automobile manufacturer in a dispute with one of its dealers concerning the dealer’s right to sell autos made by the other companies may ultimately be willing for reasons specific to that dealer-to allow it do so. But the manufacturer may so fear the effect of such an agreement on similar disputes with other dealers that the parties arrive at an impasse. It is possible that the manufacturer did not make this concern explicit in its negotiations with the dealer because it did not want the dealer to know it was engaged in similar disputes elsewhere.
(viii) Multiple Parties: Where there are multiple parties, with diverse interests, the problems are similar to those raised by diverse constituencies and issue linkages.
(ix) The “Jackpot” syndrome: An enormous barrier to settlement often exists in those cases where the plaintiff is confident of obtaining in a Court a financial recovery far exceeding its damages, and the defendant thinks it is unlikely. For example, the case may be one in which the controlling statute provides for the discretionary award of punitive damages to the successful plaintiff. If the underlying damage claim is for Rs. 10 lakh, and the plaintiff thinks that Rs. 50 lakh in punitive damages is a real possibility while the defendant does not, the vast disparity in case valuation may make settlement close to impossible.
(5) Ignorance: One of the major reasons for the failure in implementation is the ignorance of the existing provisions of law. Legislators have made the necessary laws, but have never thought of implementing them at the grass- root level. They do not help in building up the awareness of those laws, so that people will utilise them. ADR provisions are well known only in the big business circles. Most of the educated elite are also unaware of the availability and possibility of such mechanisms in India, let alone the rural sector. Most of the rural segment, after all these years of independence, is now understanding the formal legal system and is making use of it at a time when the country and the world at large is reverting back to the old community-based problem solving and other ADR techniques so well known in rural India. Ignorance of laws is not an excuse in our country. However, when no awareness is present, how would people know about it and utilise it?
(6) Corruption: Corruption is not a new issue in our country. It has always been a parasite to the nation and is sucking out the very purpose of independence. Today, not a single work gets done without having to bribe the way through. People have stopped challenging it as without being a part of it, life becomes difficult. ADR mechanisms have a very great risk of being ridden by corruption. For instance, in cases of negotiation between a rich educated person and poor illiterate man over a land dispute, chances of the negotiator being bribed by the rich person is very high. Thus, corruption can become a raging problem in ADR.
(7) Though recourse to ADR as soon as the dispute arises may confer maximum advantages on the parties; it can be used to reduce the number of contentious issues between the parties; and it can be terminated at any stage by any one of the disputing parties. However, there is no guarantee that a final decision may be reached.[1]
(8) ADR procedures are said to be helpful in reaching a decision in an amicable manner. However, the decisions arrived at after a non-litigative procedure are not binding as they are voluntary. This makes the entire exercise futile as parties do not stick to their decision resulting in a waste of time and money.
(9) ADR procedure permits parties to choose neutrals who are specialists in the subject matter of the disputes. This does not mean that there will be a diminished role for lawyers. They will continue to play a central role in ADR processes; however, they will have to adapt their role ADR requirements. Neutrals and trained ADR experts are very few to cater to the vast population.
(10) Since the ADR proceedings do not require a very high degree of evidence, most of the facts regarding the dispute which would have been proved otherwise continue to be a bane in the discussion which may lead to dissatisfaction.
(11) In ADR, the parties can choose their own rules or procedures for dispute settlement. Arriving at them is the major hurdle.
(12) ADR programmes are flexible and not afflicted with rigourous rules of procedure. There is, therefore, a possibility of the parties going back on the agreed rules and programmes. This creates a delay and slows the process of dispute resolution.
(13) Flexibility and unconfirmed procedures make it extremely difficult to quote and use precedents as directives.
(14) ADR procedures were introduced to lessen the burden of the courts. However, since there is an option to appeal against the finality of the arbitral award to the courts, there is no difference in the burden.
(15) There are also some situations under which an amicable settlement through ADR is not favoured. They are:
– One party may be owed money and simply be looking for the final and enforceable decision which can be obtained by resorting directly to litigation. Any ADR procedure only compromises his situation.
– A party may owe money and seek to use amicable settlement as a delay and discovery mechanism-the other party may, therefore, be concerned about the delay, incurring extra costs and being disadvantaged in the subsequent litigation
– Adjudicative methods may be most appropriate for resolving some situations, such as frivolous claims, claims which compromise a particular principle, cases which involve bodily injury or alleged criminality.
All these problems are not permanent in nature. They all have solutions. An attempt to make suggestions for the solutions of the above listed problems has been made below. This list of suggested solutions is merely illustrative and not exhaustive. An in-depth research for this is vital.
It is felt that an attitudinal change towards ADR would result in active implementation of ADR and the burden on the courts will reduce. Yet, whether it is in the urban segment or in the rural segment, there is still a lack of knowledge about ADR. A need for instilling awareness is imperative to bring in a change in the attitudes. The urban sector which has a higher literacy rate could be reached by inserting slides in movie theatres, having advertisements in television channels and newspapers, conducting periodical seminars and having a dedicated helpline. It is the rural segment whose attitude is difficult to change. From the initial gramasabha system, it took many years for them to adopt litigation. To revert back to the old system, which is in fact an ADR concept would require tremendous amount of communication by trained professionals be spelling the strengths of the system. An insight into the advantages of conciliation and negotiation would bring in the desired change-change of attitude. To keep active here is awareness, by interactive communication. A dedicated helpline would exhilarate the process of attitudinal change by giving clarity to communication.
‘People are generally ignorant about legal terminology and the opportunities available in dispute resolution. The other gnarling issue is corruption. To combat these two forces, imparting knowledge is a must. Driving ignorance away would infact, help in curtailing corruption too. The NGOs should put in their efforts in providing a knowledge base to the needy. A committed person in each NGO, working in rural areas, should help in reaching the goal quickly.
The major lacuna in ADR is that it is not binding. One could still appeal against the award or delay the implementation of the award. “Justice delayed is justice denied.” The very essence of ADR is lost if it is not implemented in the true spirit. The award should be made binding on the parties and no appeal to the court should be allowed unless it is arrived at fraudulently or if it against public policy.
Rules of procedure are being formulated on a case by case basis and the rules made by the parties themselves, with may be, some intervention of legal professionals.
However, a general guideline and a stipulated format would assist in bringing clarity to the formulation of an ADR award. This would also help in cutting down ignorance and assist in better negotiation.
Legal education and law schools should focus on the arts of conciliation and negotiation and not merely on litigation. Lawyer client interests should also be moulded towards a primary focus on ADR failing which the recourse should be towards litigation.
Because justice is not executed speedily men persuade themselves that there is no such thing as justice. Sharing the same sentiments, Chief Justice Bhagwati said in his speech on Law Day, “I am pained to observe that the judicial system in the country is on the verge of collapse. These are strong words I am using but it is with considerable anguish that I say so. Our judicial system is creeking under the weight of errors.” Arrears cause delay and delay means negating the accessibility of justice in true terms to the common man. Countless rounds to the Courts and the lawyers’ chambers can turn any person insane. Even then loitering and wasting time in the corridors of Courts has become a way of life for a majority of Indians who day by day are becoming litigious. Some of the main reasons for delay in the disposal of cases are abnormal increase in the number of cases going to Courts and Tribunals, mainly due to faulty legislation enacted hurriedly, arbitrary administrative orders, increased consciousness of one’s rights and gambler’s instinct in a litigant due to multiplicity of appeals and revisions provided in law.”
The disputants want a decision and that too as quickly as possible. As the problem of overburdened Courts has been faced all over the world, new solutions were searched. Various Tribunals were the answer to the search. In India, we have a number of Tribunals. However, the fact of the matter is that even after the formation of so many Tribunals, the administration of justice has not become speedy. Thus, it can be safely said that the solution lies somewhere else. All over the globe the recent trend is to shift from litigation towards Alternative Dispute Resolution. It is a very practical suggestion, which if implemented, can reduce the workload of Civil Courts by half. Thus, it becomes the bounden duty of the Bar to take this onerous task of implementing ADR on itself so as to get matters settled without going into the labyrinth of judicial procedures and technicalities. The Bar should be supported by the Bench in this herculean task so that no one is denied justice because of delay. It is important here to mention the statement made by John F. Kennedy in this respect: “Let us never negotiate out of fear but let us never fear to negotiate.
© Chawla Publications (P) Ltd.