ALTERNATIVE DISPUTE RESOLUTION

PART 1: HISTORY OF ADR

First ADR act came in India in 1899 which had a limited scope.
Before the enactment of Arbitration and Conciliation Act,1996 the statutory
provisions on arbitration in India were contained in three different enactments,
namely, The Arbitration Act, 1940, The Arbitration (Protocol and Convention) Act,
1937 and The Foreign Awards (Recognition and Enforcement) Act, 1961. The
Arbitration Act, 1940 laid down the framework within which domestic arbitration was
concluded in India, while the other two Acts dealt with foreign awards. The
Arbitration and Conciliation Act, 1996 has repealed The Arbitration Act, 1940, The
Arbitration (Protocol and Convention) Act, 1937 and The Foreign Awards

(Recognition and Enforcement) Act, 1961.

The interpretation to 1940 Act was difficult. It was held in the case of Food Corp. of
India v. Joginder Lal Mohan Lal, where Supreme Court criticised 1940 act for its
complications and technicalities. In M/S Guru Nanak Foundation v. M/S Ratan
Singh & Sons, the Honble Supreme Court observed that the Act was ineffective and
the way the proceedings under this Act were conducted in the Courts made the

lawyers laugh and legal philosophers weep.

The 1940 Act repealed sec. 89 of CPC which provided for dispute resolution outside
the court through four methods. The 124th Law commission report studied the backlog
of cases through 1940 Act. The 129th Law commission report studied Arbitration and

Conciliation specifically and recommended to make them compulsory.

Malimath Committee studied the above two reports and recommended to make it
obligatory for the Court to refer the dispute, after issues are framed, for settlement
either by way of arbitration, conciliation, mediation, judicial settlement or through

Lok Adalat.
Arbitration and Conciliation Act, 1996 was brought on the lines of the Malimath
Committee report and UNCITRAL model laws for ADR. In view of the above, by
Amendment of 1999 a new section 89 has been inserted in order to provide for
alternative resolution.

DIFFERENCE BETWEEN 1996 ACT AND 1940 ACT

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1. Under the old Act, an Arbitrator was not a conciliator. He was only to adjudicate the
disputes referred to him by the parties. However, the new law under Sec.30(1) has recognized
the Arbitrator as a Conciliator, and there is a separate chapter for conciliation in the new
Act.
2. Under the old Act, an aggrieved party to get an Arbitrator appointed has to approach the
jurisdictional Civil+ Court either under Sec.8 or Sec. 20. This was again time consuming
ordeal. Under the new Act, the Chief Justice of the High Courts have been named under
Sec.II for the purpose of appointment of Arbitrator. The Chief Justice can delegate the power
of appointment to any other person or institution.
3. Under 1940 Act the 'Court' was defined as Civil Court having Jurisdiction to decide the
question forming the subject matter of reference if the same had been the subject matter of
suit but did not include a small causes court except for the purposes of arbitration
proceedings under Sec.21.
Now the new Act provides that the Principal Civil Court of Original Jurisdiction in a district
which includes High Court in exercise of its Original Jursidction but does not include any
Civil Court of a grade inferior to such Principal Civil Court or any Court of Small Causes.
4. Under the Old Act, if more than one Arbitrator was contemplated it was incumbent that the
forum shall consist of an Umpire to be appointed by the Nominated, Appointed Arbitrators
and the Umpire should enter on reference upon the disagreement between the Arbitrators.
Under the New Act the Umpire will be the Chairman of the tribunal who shall also sit with
the Arbitrators and take part in the proceedings unlike under the old Act.

PART 2: UNCITRAL MODEL LAWS

The UNCITRAL Model Law on International Commercial Arbitration was adopted by the
United Nations Commission on International Trade Law (UNCITRAL) on 21 June 1985, at
the close of the Commission's 18th annual session. The Model Law constitutes a sound and
promising basis for the desired harmonisation and improvement of national laws. It covers all
stages of the arbitral process from the arbitration agreement to the recognition and
enforcement of the arbitral award and reflects a worldwide consensus on the principles and
important issues of international arbitration practice.

Chapter 1, tells the general definitions and scope of arbitration and conciliation. Scope

of Judicial intervention also mentioned

Chapter 2: Stage 1- Arbitration agreement. Can be in the form of separate agreement
or clause.

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Chapter 3: Stage 2- Formation of Arbitral tribunal- Appointment of arbitrators,

Grounds for challenge of appointment, Challenge procedure.

Chapter 4: Stage 3- Jurisdiction of arbitral tribunal- deals with competence of arbitral

tribunal to rule on its jurisdiction.

Chapter 5: Stage 4- Conduct of arbitral proceedings- talks about Equal treatment of
parties, Determination of rules of procedure, Place of arbitration, Commencement of

arbitral proceedings etc.

Chapter 6: Stage 5- Making of award and termination of proceedings- it talks about
Rules applicable to substance of dispute, Decision-making by panel of arbitrators,

Settlement, Form and contents of award etc.

Chapter 7: Stage 6: Recourse against award- it talks about grounds on which arbitral

awards can be challenged.

Chapter 8: Stage 7- Recognition and enforcement of awards and Grounds for refusing

recognition or enforcement.
The 1996 Act has adopted all the above chapters in the same manner and added two
more chapters. Chapter 9 deals with Appeals and Chapter 10 deals with miscellaneous
provisions.

ADVANTAGES AND DISADVANTAGES OF ADR

Some advantages of ADR are

increased settlement

improved satisfaction with the outcome or manner in which the dispute is resolved
among disputants

reduced time in dispute

reduced costs in relating to the dispute resolution

increased compliance with agreed solutions.

Some disadvantages of ADR are:

Lack of enforcement
Increased costs
Compromise of principles
ADR practitioner may not have the technical skills required
Need other party to be willing to come to the table
No right to appeal. Award is final and binding. It can only be challenged.

AFCON CONSTRUCTIONS V. CHERIAN CONSTRUCTIONS

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The Supreme Court of India in a recent decision in the matter of Afcons Infrastructure Ltd.
v. Cherian Varkey Construction Co. Pvt. Ltd. has examined the law under the said provision
of sec. 89 of CPC, which casts an obligation over the civil court to refer the parties to a cause
to settle their dispute through the various forms of Alternate Dispute Resolution.
Even though whereas upon an examination of Section 89 of the Code along with the
stipulations of Order X therein the Supreme Court was of the opinion that the provision is
incorrectly worded and various faults in the legislative drafting to that effect were pointed
out, the Bench applied the rule of interpretation to make it workable. The Bench also, on its
own, took up the task of identifying which all cases could be referred to alternate forms of
dispute resolution, given the nature of these disputes and also noted that "Section 89 refers to
five types of ADR procedures, made up of one adjudicatory process (arbitration) and four
negotiatory

(non-adjudicatory)

processes

- conciliation, mediation, judicial

settlement and Lok Adalat settlement." The Bench further went on to clarify the meaning and
ambit of each of these five forms of alternate dispute resolution.
Thereupon the Supreme Court passed the following guidelines to be adopted by the Courts in
India;
31. We may summarize the procedure to be adopted by a court under section 89 of the Code
as under :
a) When the pleadings are complete, before framing issues, the court shall fix a preliminary
hearing for appearance of parties. The court should acquaint itself with the facts of the case
and the nature of the dispute between the parties.
b) The court should first consider whether the case falls under any of the category of the cases
which are required to be tried by courts and not fit to be referred to any ADR processes. If it
finds the case falls under any excluded category, it should record a brief order referring to the
nature of the case and why it is not fit for reference to ADR processes. It will then proceed
with the framing of issues and trial.
c) In other cases (that is, in cases which can be referred to ADR processes) the court should
explain the choice of five ADR processes to the parties to enable them to exercise their
option.
d) The court should first ascertain whether the parties are willing for arbitration. The court
should inform the parties that arbitration is an adjudicatory process by a chosen private forum
and reference to arbitration will permanently take the suit outside the ambit of the court. The
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parties should also be informed that the cost of arbitration will have to be borne by them.
Only if both parties agree for arbitration, and also agree upon the arbitrator, the matter should
be referred to arbitration.
e) If the parties are not agreeable for arbitration, the court should ascertain whether the parties
are agreeble for reference to conciliation which will be governed by the provisions of the AC
Act. If all the parties agree for reference to conciliation and agree upon the conciliator/s, the
court can refer the matter to conciliation in accordance with section 64 of the AC Act.
f) If parties are not agreeable for arbitration and conciliation, which is likely to happen in
most of the cases for want of consensus, the court should, keeping in view the
preferences/options of parties, refer the matter to any one of the other three other ADR
processes : (a) Lok Adalat; (b) mediation by a neutral third party facilitator or mediator; and
(c) a judicial settlement, where a Judge assists the parties to arrive at a settlement.
(g) If the case is simple which may be completed in a single sitting, or cases relating to a
matter where the legal principles are clearly settled and there is no personal animosity
between the parties (as in the case of motor accident claims), the court may refer the matter to
Lok Adalat. In case where the questions are complicated or cases which may require several
rounds of negotiations, the court may refer the matter to mediation. Where the facility of
mediation is not available or where the parties opt for the guidance of a Judge to arrive at a
settlement, the court may refer the matter to another Judge for attempting settlement.
(h) If the reference to the ADR process fails, on receipt of the Report of the ADR Forum, the
court shall proceed with hearing of the suit. If there is a settlement, the court shall examine
the settlement and make a decree in terms of it, keeping the principles of Order 23 Rule 3 of
the Code in mind.
(i) If the settlement includes disputes which are not the subject matter of the suit, the court
may direct that the same will be governed by Section 74 of the AC Act (if it is a Conciliation
Settlement) or Section 21 of the Legal Services Authorities Act, 1987 (if it is a settlement by
a Lok Adalat or by mediation which is a deemed Lok Adalat). This will be necessary as many
settlement agreements deal with not only the disputes which are the subject matter of the suit
or proceeding in which the reference is made, but also other disputes which are not the
subject matter of the suit.
(j) If any term of the settlement is ex facie illegal or unforceable, the court should draw the
attention of parties thereto to avoid further litigations and disputes about executability.
32. The Court should also bear in mind the following consequential aspects, while giving
effect to Section 89 of the Code :
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(i) If the reference is to arbitration or conciliation, the court has to record that the reference is
by mutual consent. Nothing further need be stated in the order sheet.
(ii) If the reference is to any other ADR process, the court should briefly record that having
regard to the nature of dispute, the case deserves to be referred to Lok Adalat, or mediation or
judicial settlement, as the case may be. There is no need for an elaborate order for making the
reference.
(iii) The requirement in Section 89(1) that the court should formulate or reformulate the terms
of settlement would only mean that court has to briefly refer to the nature of dispute and
decide upon the appropriate ADR process.
(iv) If the Judge in charge of the case assists the parties and if settlement negotiations fail, he
should not deal with the adjudication of the matter, to avoid apprehensions of bias and
prejudice. It is therefore advisable to refer cases proposed for Judicial Settlement to another
Judge.
(v) If the court refers the matter to an ADR process (other than Arbitration), it should keep
track of the matter by fixing a hearing date for the ADR Report. The period allotted for the
ADR process can normally vary from a week to two months (which may be extended in
exceptional cases, depending upon the availability of the alternative forum, the nature of case
etc.). Under no circumstances the court should allow the ADR process to become a tool in the
hands of an unscrupulous litigant intent upon dragging on the proceedings.
(vi) Normally the court should not send the original record of the case when referring the
matter for an ADR forum. It should make available only copies of relevant papers to the ADR
forum. (For this purpose, when pleadings are filed the court may insist upon filing of an extra
copy). However if the case is referred to a Court annexed Mediation Centre which is under
the exclusive control and supervision of a Judicial Officer, the original file may be made
available wherever necessary.
33. The procedure and consequential aspects referred to in the earlier two paragraphs are
intended to be general guidelines subject to such changes as the concerned court may deem
fit with reference to the special circumstances of a case. We have referred to the procedure
and process rather elaborately as we find that section 89 has been a non-starter with many
courts. Though the process under Section 89 appears to be lengthy and complicated, in
practice the process is simple: know the dispute; exclude unfit cases; ascertain consent for
arbitration or conciliation; if there is no consent, select Lok Adalat for simple cases and
mediation for all other cases, reserving reference to a Judge assisted settlement only in
exceptional or special cases.
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PART 3: ARBITRATION AND CONCILIATION ACT, 1996 ANALYSIS

The long title of this Act replicates that, the object of the Act is to consolidate and amend the
law relating to domestic arbitration, international commercial arbitration and enforcement of
foreign arbitral awards as also to define the law relating to conciliation and for matters
connected therewith or incidental thereto.
The main objectives of the Act are:
1.

to comprehensively cover international commercial arbitration and conciliation as

also domestic arbitration and conciliation.

2.

to make provision for an arbitral procedure which is fair, efficient and capable of

meeting the needs of the specific arbitration

3.

to provide that the Arbitral tribunal gives reasons for its arbitral award.

4.

to ensure that the Arbitral tribunal remains within the limits of its jurisdiction.

5.

to minimize the supervisory role of courts in the arbitral process.

6.

to permit an Arbitral Tribunal to use mediation conciliation or other procedure during

the arbitral proceedings to encourage the settlement of disputes.

7.

to provide that every final arbitral award is enforced in the same manner as if it were

the decree of the court.

8.

to provide that a settlement agreement reached by the parties

as a result of

conciliation proceedings will have the same status and effect as an arbitree award on agreed
terms on the substance of the dispute rendered by an Arbitral Tribunal; and
9.

to provide that, for purposes of enforcement of foreign awards, every arbitral award

made in a country to which one of the two international conventions relating to foreign
arbitral awards to which India is a party applies will be treated as a foreign award.
PREAMBLE

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Preamble to the 1996 Act is an introductory, prefatory and an explanatory note about the
sections namely that of the Arbitration and Conciliation Act, 1996, and that UNCITRAL
model has been adopted and the act is based on that.
SECTION 1- SCOPE AND APPLICATION
The Act extends to the whole of India. It shall extend to the State of Jammu and Kashmir
only in so far as they relate to international commercial arbitration or, as the case may be,
international commercial conciliation. Hence, the act, in domestic arbitration cases, does not
extend to Jammu and Kashmir.
SECTION 2- DEFINITIONS

Arbitration means any arbitration whether or not administered by permanent arbitral

institution. It is defined in sec. 2(1) (a). An arbitration, therefore, means the
submission by two or more parties of their dispute to the judgment of a third person

called the arbitrator, and who is to decide the controversy in a judicial manner.
Courts have been defined under sec. 2(1)(e). Court means the principal Civil
Court of original jurisdiction in a district, and includes the High Court in exercise of
its ordinary original civil jurisdiction, having jurisdiction to decide the questions
forming the subject-matter of the arbitration if the same had been the subject-matter
of a suit, but does not include any civil court of a grade inferior to such principal Civil

Court, or any Court of Small Causes.

High court has also been provided the same jurisdiction as the district court here. In
certain cases only High court can be approached. If it is expressly given that High
Court has to be approached for adjudication, then High Court. If no express provision,
then District court. In the case of, Executive Engineers Road Development Division
and anr v. Atlanta Limited, in the arbitration agreement, the jurisdiction provided
was either district court or High court. Issue was which court shall be referred. Court
referred to legislative intent and said that since legislature provided explicitly for
original jurisdiction to High court too, sec. 15 of CPC, saying of original jurisdiction
to dist. Court, wont apply. Hence, when two courts are given jurisdiction by party
autonomy, then High court will have jurisdiction, if mentioned. If not, then dist.

Court.
Sec. 2(1)(f) defines International Commercial Arbitration or ICA. Section 2(1) (f) of
the Act defines an ICA to mean one arising from a legal relationship which must be

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considered commercial where either of the parties is a foreign national or resident or

is a foreign body corporate or is a company, association or body of individuals whose
central management or control is in foreign hands. Hence a dispute is ICA when, first,
parties are international, and, second, when dispute is commercial in nature. When
both parties are domestic and the seat of dispute is in India, the arbitration will be
domestic. Thus, under the Indian Law, an arbitration with a seat in India but involving

a foreign party, will also be regarded as an ICA.

Supreme Court in the case of TDM Infrastructure Pvt. Ltd. v. UE Development
India Pvt. Ltd. held that where despite TDM Infrastructure Pvt. Ltd. had a foreign
control, the SC concluded that, a company incorporated in India can only have
Indian nationality for the purpose of the Act. In the case of Josef Meisaner GMBR
& Co. vs Kanoria Chemicals & Industries, SC concluded that where the term
commercial is not defined, reference must be made to footnote 2 of para 1 of model
law, which says that, the term commercial should be given a wide interpretation so
as to cover matters arising from all relationships of a commercial nature, whether

contractual or not.
The term International has been borrowed from model laws. The model law say
that the conciliation will be international if: (a) The parties to an agreement to
conciliate have, at the time of the conclusion of that agreement, their places of
business in different States; or (b) The State in which the parties have their places of
business is different from either: (i) The State in which a substantial part of the
obligations of the commercial relationship is to be performed; or (ii) The State with

which the subject matter of the dispute is most closely connected.

Indian law has deviated from the above position and says that it is not the parties who
decide whether a dispute is international or domestic, but the tribunal. The tribunal
after analysing the same passes an award. Also, international would include:
1. When the person is a natural or habitually natural resident of any country other
than India
2. A body corporate which is incorporated in any country other than India, or
3. A company or Association of Persons or Body of Individuals whose central
management or control vests with the any country expressed other than India.
4. The govt. of a foreign country.

CASES ON ARBITRATION

In Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd. the Supreme Court
discussed the concept of arbitrability in detail and held that the term arbitrability has

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different meanings in different contexts: (a) disputes capable of being adjudicated

through arbitration, (b) disputes covered by the arbitration agreement, and (c) disputes

that parties have referred to arbitration.

In N. Radhakrishnan v. M/S Maestro Engineers. The Court here held that where
allegations of fraud and serious malpractices are alleged, the matter can only be

settled by the Court and such a situation cannot be referred to an arbitrator.

In Swiss Timing Limited v. Organising Committee, Commonwealth Games 2010,
Delhi, the Supreme Court has held that allegations of fraud and other malpractices are
arbitrable in India and N. Radhakrishnan does not lay down the correct law. The Court
explained that the contention of substantive contract being void / voidable is not a bar
to arbitration and the court must follow the policy of least interference. The court

further held that arbitration and criminal proceedings may continue simultaneously.
In World Sport Group (Mauritius) Ltd. V. MSM Satellite (Singapore) Pte. Ltd,
the court held that, allegations of fraud are not a bar to refer parties to a foreign seated
arbitration and held that only bar to refer parties to foreign seated arbitrations are
those which are specified in Section 45 of Act i.e. in cases where the arbitration
agreement is either (i) null and void; or (ii) inoperative; or (iii) incapable of being
performed.

SECTION 3: RECEIPT OF WRITTEN COMMUNICATION

Unless otherwise agreed by the parties,a.

any written communication is deemed to have been received if it is delivered to the

addressee personally or at his place of business, habitual residence or mailing address, and
b.

if none of the places referred to in clause (a) can be found after making a reasonable

inquiry, a written communication is deemed to have been received if it is sent to the

addressee's last known place of business, habitual residence or mail* address by registered
letter or by any other means which provides a record of the attempt to deliver it.
2.

The communication is deemed to have been received on the day it is so delivered.

3.

This section does not apply to written communications in respect of proceedings of any

judicial authority.

Whenever there are judicial proceedings, only then CPC will apply, otherwise the
provision for providing notice to parties under CPC would not apply.

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E-mail service for purpose of summons not expressly mentioned under the Act, but

specific provisions mentioned under CPC.

Under 1996 Act, parties are free to agree upon any method.
New Globe Transport Corp. v. Magma Sharchi Finance Co. Ltd.- Petitioner was
running his transport business from a certain address in Kolkata - Arbitrator sent
award in an envelop by register post with acknowledgment due card on 8th August,
2008 which returned with postal endorsement 'Not Claimed' envelop was sufficiently
stamped - Petitioner was receiving letters and correspondences at that certain address
and it was not case of Petitioner that office was closed or for any other reason envelop
was not received by their office - Subsequent letters and correspondences all were
received from same address - Accordingly there should not be any doubt to presume
that envelop which was sent at office of Petitioner was in fact tendered by postman at
same address but same had not been accepted - Thus, word 'Not Claimed' tantamount
to good service and accordingly award was served upon Petitioner on 8th August,
2008 and therefore, Petition was barred by limitation under Section 34(3) of Act -

Application dismissed.
Bernuth Lines Ltd. v. High Seas Shipping Ltd.- The arbitration proceedings were
served by High Seas Shipping Limited (High Seas) on Bernuth Lines Ltd
(Bernuth) at the address info@bernuth.com for non-payment of charter hire. This
was the only e-mail address available for the charterer and also, the e-mail address
which was listed for Bernuth in the Lloyds Maritime Directory 2005. The relevant emails were read by junior employees of Bernuth but dismissed as spam and,
accordingly, not forwarded to the relevant, senior employees. No defence submissions
were received and an arbitration award was made in favour of High Seas. An
application was made to set aside the arbitrators award on the grounds that service of
the proceedings by e-mail had not brought the proceedings sufficiently to Bernuths
attention, such that there had been a serious irregularity affecting the proceedings
which had caused substantial injustice.

SECTION 4: WAIVER OF RIGHT TO OBJECT.

A party who knows thata.

any provision of this Part from which the parties may derogate. or

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b.

any requirement under the arbitration agreement. Has not been-complied with and yet

proceeds with the arbitration without stating his objection to such non-compliance without
undue delay or, if a time limit is provided for slating that objection, within that period of
time, shall be deemed to have waived his right to so object.

J.G. Engineers pvt. ltd. v. Calcutta Improvement Trust- The dispute and
differences between the contractor appellant and respondent Calcutta
Improvement Trust (CIT) were determined by award dated 30th September, 1999. The
arbitrator held that the contract was wrongly terminated by CIT and awarded in favour
of the contractor a sum of Rs.24,80,000/- besides interest. The award was challenged
by the CIT by filing an application under Sections 30 and 33 of the Arbitration Act,
1940. That application was rejected by a learned Single Judge of the High Court. The
appeal of the CIT was, however, allowed by the Division Bench and the award was
set aside. The contractor has challenged the correctness of the decision of the Division

Bench.
Judgement: The main grounds on which the award has been set aside by the impugned
judgment are two. First, that the question of the wrongful termination of the contract
was an excepted matter and, thus, not arbitrable. Second, the arbitrator has not
considered the counter claim of the CIT and thereby has failed to exercise jurisdiction
vested in him by law. The court held, inter alia, that Respondents not having taken the
objection with regard to the non arbitrability of the claim before the arbitrator, or any
objections that the claims were 'excepted matters', and having contested the claims on
merits, is estopped from raising such an objection after having suffered the award.

SECTION 5: EXTENT OF JUDICIAL INTERVENTION

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

McDermott International Inc v. Burn Standard Co.Ltd and Ors.- Appellant and
respondent entered into contract - dispute arose between appellant and respondent arbitration clause invoked - two arbitrator appointed for determination and disputes
between parties - arbitrator made partial award - respondent contended that arbitrator
had no jurisdiction to make partial award - partial award is subject matter of challenge
under Section 34. The court observed, "The 1996 Act makes provision for the

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supervisory role of courts, for the review of the arbitral award only to ensure fairness.
Intervention of the court is envisaged in few circumstances only, like, in case of fraud
or bias by the arbitrators, violation of natural justice, etc. The court cannot correct
errors of the arbitrators. It can only quash the award leaving the parties free to begin

the arbitration again if it is desired."

Bharat Aluminium Company vs Kaiser Aluminium Technical Services- The SC
held that Indian courts do not have jurisdiction to interfere with foreign awards passed
in International Commercial Arbitration. The Apex Court observed that the Part I of
the Indian Arbitration and Conciliation act, 1996 does not apply to arbitration
proceeding that are held outside India and Indian Court cannot pass interim orders or
set

aside

the

foreign

awards

by

resorting

to

Part

of

the

Act.

This judgment has settled the conflicting position that was prevalent in respect to
arbitration proceedings that were held outside India or international Commercial
arbitration with seat of arbitration outside India where Indian parties sought the
intervention of the Indian Court in setting aside of foreign awards and making the
foreign awards unenforceable in India and thereby making the entire arbitration
proceeding futile.
SECTION 7: ARBITRATION AGREEMENT
As per Section 7, the arbitration agreement is defined as, an agreement by the parties to
submit to arbitration all or certain disputes which have arisen or which may arise between
them in respect of a defined legal relationship, whether contractual or not.

(1) In This Part, Arbitration Agreement Means An Agreement By The Parties To

Submit To Arbitration All Or Certain Disputes Which Have Arisen Or Which May
Arise Between Them In Respect Of A Defined Legal Relationship, Whether

Contractual Or Not.
(2) An Arbitration Agreement May Be In The Form Of An Arbitration Clause In A

Contract Or In The Form Of A Separate Agreement.

(3) An Arbitration Agreement Shall Be In Writing.
(4) An Arbitration Agreement Is In Writing If It Is Contained In(A) A Document Signed By The Parties;
(B) An Exchange Of Letters, Telex, Telegrams Or Other
Telecommunication Which Provide A Record Of The Agreement; Or

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Means

Of

(C) An Exchange Of Statements Of Claim And Defence In Which The Existence Of

The Agreement Is Alleged By One Party And Not Denied By The Other.
(5) There Reference In A Contract To A Document Containing An Arbitration Clause
Constitutes An Arbitration Agreement If The Contract Is In Writing And The

Reference Is Such As To Make That Arbitration Clause Part Of The Contract.

In Narayan Prasad LohiaVs Nikunj Kumar Lohia, The Appellant and the
Respondents are family members who had disputes and differences in respect of
family business and properties. They agreed on 29/9/1996 to have their disputes and
differences resolved through two persons. The parties made their respective claims
before these two persons. All parties participated in the proceedings. On 6/10/1996 an
award was passed by the said two persons. The 1st and 2nd Respondents challenged
the award on the ground that the arbitration was by two arbitrators whereas under the
Act of 1996 there cannot be an even number of arbitrators. A Single Judge of the
Kolkata High Court set aside the award dt.6/10/1996. The appeal filed in the High

Court was also dismissed. Hence this appeal to the Supreme Court.
The Supreme Court held that parties would be entitled to derogate from the
provisions of section 10 of the 1996 Act and an award by two arbitrators would not be
void. If either of the parties fails to make an appointment under the agreed
appointment procedure then, the other party may make a request to the Chief Justice
or a person or institution designated by him to take the necessary measure. The
arbitration agreement entered into by the parties can provide for other means of
securing the appointment, for example by delegating the appointing function to an

institution.
In Wellington Associates Ltd Vs Kirit Mehata case, the question that was raised in
this case was whether the Chief Justice had a power to adjudicate on the question of
existence of the arbitration agreement. Supreme Court of India held that, Section 16
does not declare that except the Arbitral Tribunal, none else can determine such
question. Merely because the new Act of 1996 permits the arbitrator to decide this
question, it does not necessarily follow that at the stage of Section 11 the Chief Justice
of India or his designate cannot decide a question as to the existence of the arbitration

clause.
In Bihar State Mineral Development Corporation v. Encon Builders (India) Pvt.
Ltd., it was held that if the intention of the parties to refer to the dispute to the
arbitration can be clearly ascertained from the wordings of the agreement or is
otherwise clear, it is immaterial whether or not the expression arbitrator or

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arbitration has been used or not. Use of may refer to arbitration in an arbitration
agreement is accepted as non-binding clause for the arbitration agreement. The court
also stated the essential elements of an arbitration agreement, as follows: (1) there
must be a present or a future difference in connection with some contemplated affair.
(2) There must be the intention of the parties to settle such difference by a private
tribunal. (3) The parties must agree in writing to be bound by the decision of such

tribunal. (4) The parties must be ad idem.

Mallikarjun v Gulbarga University, Arbitral award--Application for setting aside-Limitation therefor--Three months and delay of 30 days condonable under Section 34
(3) of Arbitration Act--Section 29 (2) of Limitation Act to apply to arbitration
proceedings--Consequently Section 14 of Limitation Act also applicable--Trial Judge

and High Court committed error in not applying said provisions of Limitation Act.
It was observed by SC that for the purposes of constituting a valid arbitration
agreement, certain principles which are based on natural justice are not necessary to
be expressed in arbitration agreement as violation of such principles would result in
unjust and unfair procedure adopted by the arbitration tribunal. An arbitral tribunal is
independent of restrictions imposed by the adjective law; however, it is bound to
follow the fundamental principles of natural justice and in that event, must not

disregard the rules of evidence which are based on such principles.

( 1. ) . Heard parties counsel on this application for amendment of the plaint.
( 2. ) MR.Rajiv Sawhney, learned senior counsel appearing on behalf of defendant
No.10, states that they are not opposing the amendment. The plaintiff and the
defendant Nos. 1, 2 and 10 to 15 belong to Modi family and are interested in 20
limited companies known as 'The Modi Ground of Companies'. Late Sh.Gujar Mal
Modi and Sh.Kedar Nath Modi, the two brothers started their venture. Sh.Gujar Mal
Modi died in 1976 leaving behind his sons, namely, KK. Modi, plaintiff and his
brothers Mr.V.K. Modi, Mr.S.K. Modi, Mr.B.K. Modi and Mr.U.K. Modi (Group'B'
for short). Mr.M.K. Modi, Defendant No. 2, Mr.Y.K. Modi, Defendant No.14 and
D.K. Modi, defendant No. 15 are sons of Sh.Kedar Nath Modi, defendant No.1. Some
disputes and differences arose in the family about proper management and control of
the companies. The Govt. of India through financial institutions is also involved for
they have lent some advances to this group of companies and it was thought that Modi
Group of Companies be split between Group A i.e. Sh.K.N. Modi and his sons and
Group B companies of the plaintiff and his brothers to ensure their better management
and profitability. A Memorandum of Understanding (M.O.U.) was executed on 24th

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January, 1989 in the office of the Finance Secretary, Government of India relating to
20 companies mentioned in paragraph 3 of the plaint. That M.O.U. (Annexure-A) was
duly acted upon by both the Groups A and B as well as financial institutions and the
Borad of Directos of Modi Group of Companies. Necessary resolutions were passed
by the concerned companies accordingly. However, certain disputes could not be
decided then and there and in pursuance of the said M.O.U., M/s. Billmoria and
Company were supposed to prepare valuation report in respect of various companies
determining the net worth of each company for the purpose of settlement of inter
company group accounts and they accordingly prepared valuation report dated 29th
January, 1991 (Annexure-C). M/s.Bansi S. Mehta and Company also prepared scheme
of arrangement for Modi Spinning and Weaving Mills Company Limited and Modi
Industries Limited in pursuance of Clauses 5 and 6 of the said M.O.U. after
circulating a draft scheme of arrangement to the two Groups, namely, Group A and
Group B before finalising it. It is alleged that Chairman and Managing Director,
Industrial Financial Corporation Ltd. ('IFCI' for short) instead of accepting the
valuation report and the scheme of arrangement sustituted the same by his own
valuation and scheme of arrangement. Feeling aggrieved by this, the plaintiff filed the
present suit and also filed arbitration proceedings on the same date treating the
decision of Chairman and Managing Director (CMD), IFCI as an award. Seeing that
excepting one paragraph 55, all paragraphs in the two were verbatim the same, a
single Judge of this Court holding that it amounts to abuse of the process of law struck
down the plaint. The matter untimately went up to the Supreme Court in appeal. The
following extracts of the judgment of the Supreme Court dated 4th February, 1998 in
Civil appeal No.613 of 1998, K.K.Modi Vs. K.N.Modi are relevant in this regard:"This perception of the Learned Judge may be substantially correct though not
entirely so. Undoubtedly, if the plaint in the suit is viewed as challenging only the
arbitration award, a suit to challenge the award would be re-litigating the issues
already raised in the arbitration petition.... The plaint in the suit, to the limited extent
that it challenges the decision as a decision, would not amount to abuse of the process
of Court.... The court will also have to consider the binding nature of such a decision
particularly when no mala fides have been alleged against the CMD, IFCI. If
ultimately it is found that even on the alternative plea, the claim is not maintainable
the court may pass appropriate orders in accordance with law. But to the limited
extent that the suit raises an alternative independent plea, it cannot be considered as
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re-litigation of the same issue or an abuse of the process of court. Therefore, the suit,
if and to the extent that it challenge in accordance with law, the impugned decision as
a decision, cannot be treated as an abuse of the process of the court. In order to
obviate any dispute, the parties have agreed that the entire working out of this
agreement will be subject to such directions as the Chairman, IFCI may give
pertaining to the implementation of Memorandum of Understanding. He is also
empowered to give clarifications and decide any differences relating to the
implementation of the Memorandum of Understanding. Such a family settlement
which settles disputes within the family should not be lightly interfered with
especially when the settlement has been already acted upon by some members of the
family. In the present case, from 1989 to 1995 the Memorandum of Understanding
has been substantially acted upon and hence the parties must be held to the settlement
which is in the interest of the family and which avoids disputes between the members
of the family. Such settlement have to be viewed a little differently from ordinary
contracts and their internal mechanism for working out the settlement should not be
lightly disturbed. The respondents may make appropriate submissions in this
connection before the High Court. We are sure that they will be considered as and
when the High Court is required to do so whether in interlocutory proceedings or at
the final hearing. The appeal of the appellants from the judgment of the Learned
Judge striking out the plaint is, therefore, partly allowed and the suit, to that extent
that it challenges independently the decision of the Chairman, and Managing Director,
IFCI as a decision and not as an award, is maintainable in the sense that it is not an
abuse of the process of the court. We make it clear that we are not examining the
merits of the claim nor whether the plaint in the suit discloses a cause of action in this
regard. The plaint leaves much to be desired and it is for the trial court to decide these
and allied questions. Pending the hearing and final disposal of the suit in the Delhi
High Court and/or until any further orders are passed by the trial court if the
exigencies of the situation then prevailing so require, no meeting of the Modipon
Board shall be held for considering any matter relating to the decision of the CMD,
IFCI dated 8.12.1995. Also the defendants in the said suit (Group A) shall not sell any
shares held in Godfrey Phillips India Ltd. provided that the plaintiffs in the suit
deposit in the Delhi High Court a sum of Rs.5 crores (Five Crores) within four weeks
from the date of this order." These extracts were required to be quoted to consider the
extent to which amendment can be allowed. It is submitted that this application for
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leave to amend the plaint has been filed in the abovesaid background to incorporate
the proposed amendments set out in paragraph 3 of the application, specially in view
of the authoritative interpretation of clause 9 of M.O.U. dated 24.1.1989, by the
Supreme Court, which is the subject matter of the above suit. These amendments are
necessary to clarify the confusion between 'award' and 'decision' and to distinguish
these proceedings from that of arbitration proceedings filed separately. They are
necessary for substantial justice between the parties. The defendants could be
compensated with cost. The application for amendment is being opposed on the
ground that a new cause of action is being introduced. What has been rejected by the
learned single Judge and by the Supreme Court, the plaintiff wants to rely on those
very facts but in slightly different words by setting up new ideas. The plaint does not
disclose any cause of action in case all those paragraphs which were compared by the
learned single Judge and by the Supreme Court are ignored. Since the cause of action
does not exist it would not be proper to allow the application for amendment.
Following appears to be the settled legal position in view of A.K. Gupta and Sons Ltd.
Vs. Damodar Valley Corporation, AIR 1967 SC 96, M/s. Ganesh Trading Co. Vs.
Moji Ram, AIR 1978 SC 484, Gangamal Ramchand Vs. The Hongkong and Shanghai
Banking Corporation, AIR (37) 1950 Bombay 345 for the purpose of considering any
prayer for amendment of the pleadings: (i) The object of the rule is to decide the
rights of parties and not to punish them for their mistakes. Procedural law is intended
to facilitate and not to obstruct the course of substantive justice. (ii) If the amendment
sought is necessary for just decision of the real dispute between the parties, the
amendment should be allowed. (iii) The general rule no doubt is that a party is not
allowed by amendment to set up a new case or a new cause of action, particularly
when a suit on new case or cause of action is barred. (iv) The expression "cause of
action" for the present purpose only means a new claim made on new basis
constituted by new fact. Any other view would make the rule futile. The words "new
case" have been understood to mean new set of ideas. (v) Mere failure to set up even
essential facts does not by itself constitute a new cause of action. A cause of action is
constituted by whole bundle of essential facts which the plaintiff must prove before he
can succeed in his suit. Defective pleadings are generally curable. Future cause of
action which was sought to be brought out was not ab initio completely absent. Even
very defective pleadings may be permitted to be cured so as to constitute cause of
action where there was none, provide necessary conditions, payment of either any
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additional court fee which may be payable or of cost of the other side are complied
with. (vi) A different or additional approach to the same facts could be allowed by
amendment even after the expiry of the statutory period of limitation, for no question
of limitation, strictly speaking, arises in such a case. What is sought to be brought in
is merely a clarification of what is already there in the pleadings. (vii) However,
amendment cannot be allowed where any vested right has been created on account of
expiry of time. No amendment would be allowed to introduce a new set of ideas to the
prejudice of any right acquired by any party by lapse of time. However, how far
contractual/statutory waiver or estoppel by conduct would be appropriate to refuse the
amendment is a point which is yet to be settled. Learned counsel for the defendants
relies upon Patasibai and Others v. Ratan Lal, (1990) 2 SCC 42. In that case, the plaint
did not disclose any cause of action giving rise to any triable issue for setting aside a
compromise decree assailing the decree as nullity. Suit was filed not on ground of the
consent decree being obtained by fraud, coercion or misrepresentation but merely on
the basis of certain procedural lapses in deciding the earlier suit which were not
material. An application for amendment was moved on grounds which were raised
unsuccessfully in the earlier appeals against the compromise decree and those
findings on the said grounds had become final and concluded. The trial court did not
reject the plaint. High Court also confirmed the approach of the learned trial court.
The Supreme Court held that trial court could not be allowed to proceed in view of the
fatal defect. But in this case, the facts are totally different. Nearly all the averments
have been made in the plaint itself. The Supreme Court did not reject the plaint as had
been done in Patasibai v. Ratan Lal (supra). Instead it held that the suit was
maintainable. In such circumstances, I find it difficult to accept the contention of the
learned senior counsel for the defendants and to say that the plaint has to be rejected
in view of the judgment in Patasibai v. Ratan Lal (supra). It may be mentioned here
that by order dated 4th February, 1998, the Supreme Court has not rejected the plaint
as a whole. It did not reject by ordering deletion of any of the paragraphs. What was
rejected was challenge to the arbitration award, for a suit to challenge the award
would be re-litigating the issues already raised in the arbitration proceedings. The
plaint in the suit is now limited to challenge the decision as a decision would not
amount to abuse of the process of the court. This court is also supposed to consider
the binding nature of "decisions". It is also notable that no mala fides is alleged
against the CMD, IFCI in giving the said decision. It has also been clarified that the
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suit if and to the extent that it challenges in accordance with law, the impugned
decision cannot be treated as an abuse to the process of the court. In such a
circumstance, one has to take into consideration the existing plaint as it is and
consider it along with proposed amendments. Learned senior counsel appearing on
behalf of both the parties do not challenge the M.O.U. dated 24th January, 1989.
According to the plaintiff, the CMD, IFCI exceeded the limits of the authority given
under M.O.U. This kind of a family arrangement has to be respected so long the
parties adhere to the terms of the M.O.U.. This very case was pleaded in the entire
plaint but the decision has been termed as award. The only difference is that now, the
petitioner seeks to use the word decision in place of award in paragraphs 32, 33, 35,
36, 37, 38, 39, 40, 41, 42, 43, 45, 46, 48, 52, 52A, 53 and in the grounds pof
paragraphs 55, 56, 58 treating the decision of the CMD, IFCI as a decision instead of
an award. The plaintiff seeks to make various amendment to confine this case to the
decision within the terms of the judgment of the Supreme Court. No new idea is being
set up which did not already exist. There is virtually no new case to reject any of the
amendments mentioned in paragraph 3 for any reason. There cannot be any doubt that
the idea of decision and the award was so mixed up that it may be difficult to separate
each sentence and each word. But and in such a situation the amendment sought
should be rejected would be too much. The decision of the CMD, IFCI was already
under challenge. The grounds are already mentioned in paragraph 58. The amendment
which is sought in paragraph 58 is just a clarification regarding subsequent event of
the judgment/order of the Supreme Court and clarification of the stand taken by the
plaintiff. To that extent one can say that there is certainly a better presentation of the
same ideas and same pleas in the light of subsequent events of authoritative
interpretation of Clause 9 of M.O.U. It appears that this amendment is also essential
for just decision of the case, specially when this Court is supposed to consider the
binding nature of the decision, specially in absence of any allegation regarding mala

fides.
( 3. ) IT may be mentioned that so far as amendment of paragraph 55 is concerned, the
learned senior counsel for the defendants did not dispute deletion of a part of
paragraph 55 but he opposed addition at the end of paragraph 55. The binding nature
can be decided only after considering whether all the parties adhered to the M.O.U.,
including the CMD, IFCI. Besides, the question of estoppel by conduct and
representatives referred to by the defendants and plaintiff in their pleadings and their

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effect cannot be decided at this stage without recording evidence. As such, it cannot
be held at this stage whether the decision given by CMD, IFCI is in accordance of
M.O.U. and its clause 9 and one must not be swayed by literal meaning of clause 9 in
isolation and dehorse of other clause and conduct of parties. However, since vested
right can be created by estoppel and waiver also as a legal proposation, it appears
plausible to say that amendment sought to nullify such vested right, should not be
entertained. If one considers all the amendments mentioned in paragraph 3 of the
application, they appear to be necessary for just decision of the case. The defendants
can be compensated by appropriate cost for causing confusion initially by filing
simultaneously two suits and challenging the impugned decision as an award in the
present suit. Accordingly, I allow the amendments subject to payment of cost of

Rs.25,000.00 to be shared by the defendants. ;

SALEM ADVOCATE BAR ASSOCIATION VS. UNION OF INDIATHE challenge made to the constitutional validity of amendments made to the Code
of Civil Procedure (for short, 'the Code') by Amendment Acts of 1999 and 2002 was
rejected by this Court {Salem Advocates Bar Association, T.N.v. Union of India, but it
was noticed in the judgment that modalities have to be formulated for the manner in
which Section 89 of the Code and, for that matter, the other provisions which have
been introduced by way of amendments, may have to be operated. For this purpose, a
Committee headed by a former Judge of this Court and Chairman, Law Commission
of India (Justice M. Jagannadha Rao) was constituted so as to ensure that the
amendments become effective and result in quickerdispensation of justice. It was
further observed that the Committee may considerdevising a model case management
formula as well as rules and regulations which should be followed while taking
recourse to the Alternate Disputes Resolution (ADR) referred to in Section 89. It was
also observed that the model rules, with or without modification, which are
formulated may be adopted by the High Courts concerned for giving effect to Section
89(2)(d) of the Code. Further, it was observed that if any difficulties are felt in the
working of the amendments, the same can be placed before the Committee which
would consider the same and make necessary suggestions in its report. THE
Committee has filed the report.
( 2. ) THE report is in three parts. Report 1 contains the consideration of the various
grievances relating to amendments to the Code and the recommendations of the
Committee. Report 2 contains the consideration of various points raised in connection

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with draft rules for ADR and mediation as envisaged by Section 89 of the Code read
with Order X Rule 1A, 1B and 1C. It also contains model Rules. Report 3 contains a
conceptual appraisal of case management. It also contains the model rules of case
management. First, we will consider Report 1 which deals with the amendments made
to the Code. Report No.1 Amendment inserting sub-section (2) to Section 26 and Rule
15(4) to Order VI Rule 15. Prior to insertion of aforesaid provisions, there was no
requirement of filing affidavit with the pleadings. These provisions now require the
plaint to be accompanied by an affidavit as provided in Section 26(2) and the person
verifying the pleadings to furnish an affidavit in support of the pleading [Order VI
Rule 15(4)]. It was sought to be contended that the requirement of filing an affidavit is
illegal and unnecessary in view of the existing requirement of verification of the
pleadings. We are unable to agree. The affidavit required to be filed under amended
Section 26(2) and Order VI Rule 15(4) of the Code has the effect of fixing additional
responsibility on the deponent as to the truth of the facts stated in the pleadings. It is,
however, made clear that such an affidavit would not be evidence for the purpose of
the trial. Further, on amendment of the pleadings, a fresh affidavit shall have to be
filed in consonance thereof.
( 3. ) AMENDMENT of Order XVIII Rule 4 The amendment provides that in every
case, the examination-in-chief of a witness shall be on affidavit. The court has already
been vested with power to permit affidavits to be filed as evidence as provided in
Order XIX Rules 1 and 2 of the Code. It has to be kept in view that the right of crossexamination and re-examination in open court has not been disturbed by Order XVIII
Rule 4 inserted by amendment. It is true that after the amendment cross-examination
can be before a Commissioner but we feel that no exception can be taken in regard to
the power of the legislature to amend the Code and provide for the examination-inchief to be on affidavit or cross-examination before a Commissioner. The scope of
Order XVIII Rule 4 has been examined and its validity upheld in Salem Advocates
Bar Association's case. There is also no question of inadmissible documents being
read into evidence merely on account of such documents being given exhibit numbers
in the affidavit filed by way of examination-in-chief. Further, in Salem Advocates Bar
Association's case, it has been held that the trial court in appropriate cases can permit
the examination-in-chief to be recorded in the court. Proviso to sub-rule (2) of Rule 4
of Order XVIII clearly suggests that the court has to apply its mind to the facts of the
case, nature of allegations, nature of evidence and importance of the particular witness
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for determining whether the witness shall be examined in court or by the

Commissioner appointed by it. The power under Order XVIII Rule 4(2) is required to
be exercised with great circumspection having regard to the facts and circumstances
of the case. It is not necessary to lay down hard and fast rules controlling the
discretion of the court to appoint Commissioner to record cross-examination and reexamination of witnesses. The purpose would be served by noticing some illustrative
cases which would serve as broad and general guidelines for the exercise of
discretion. For instance, a case may involve complex question of title, complex
question in partition or suits relating to partnership business or suits involving serious
allegations of fraud, forgery, serious disputes as to the execution of the will etc. In
such cases, as far as possible, the court may preferto itself record the crossexamination of the material witnesses. Another contention raised is that when
evidence is recorded by the Commissioner, the Court would be deprived of the benefit
of watching the demeanour of witness. That may be so but, In our view, the will of the
legislature, which has by amending the Code provided for recording evidence by the
Commissioner for saving Court's time taken for the said purpose, cannot be defeated
merely on the ground that the Court would be deprived of watching the demeanour of
the witnesses. Further, as noticed above, in some cases, which are complex in nature,
the prayer for recording evidence by the Commissioner may be declined by the Court.
It may also be noted that OrderXVIII Rule 4, specifically provides that the
Commissioner may record such remarks as it thinks material in respect of the
demeanour of any witness while under examination. The Court would have the
benefit of the observations if made by the Commissioner. The report notices that in
some States, advocates are being required to pass a test conducted by the High Court
in the subjects of Civil Procedure Code and Evidence Act forthe purpose of
empanelling them on the panels of Commissioners. It is a good practice. We would,
however, leave it to the High Courts to examine this aspect and decide to adopt or not
such a procedure. Regarding the apprehension that the payment of fee to the
Commissioner will add to the burden of the litigant, we feel that generally the
expenses incurred towards the fee payable to the Commissioner is likely to be less
than expenditure incurred for attending the Courts on various dates for recording
evidence besides the harassment and inconvenience to attend the Court again and
again forthe same purpose and, therefore, in reality in most of the cases, there could
be no additional burden.
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