AFCON

08/28/2016

A perusal of the scheme of the provisions of the Arbitration and

Conciliation Act, 1996 [ACA] will make it clear that the legal basis for
resolving disputes between parties to an agreement is the arbitration
agreement between them.
Under Civil Procedure Code, 1908 [CPC], the trial procedure
involved in adjudication of disputes is quite exhaustive. Pleadings
commencing from plaint, written statement of the defendants and
additional reply of the plaintiff to the written statement of the defendants
mark the written pleadings. There would be also interlocutory and
intervening applications taken out by one or the other party which may
expand the scope of the case and delay the adjudication process. [To this
extent, there may not be any difference in civil court or arbitration or in
any other quasi-judicial forum such as the Company Law Board, though
the nomenclature of the pleadings may be different]. Thereafter
admissions and denials of evidence will take place and trail procedure
involving examination / cross examination of witnesses will take place.
Finally after hearing the arguments of both sides, the civil court delivers
its judgment. Then the stages of first appeal, second appeal and revisions
and special leave until Supreme Court finally decides the dispute, the
litigation journey does not end.
In order to facilitate quicker resolution of disputes and to reduce the
burden upon civil courts, Section 89 of the CPC enables civil courts which
are seized of a matter to refer parties to arbitration so that the disputes
may get resolved earlier. While doing so, the civil courts have to look at
the nature of issues involved and decide if the issues involved in the suit
of such nature are capable of being resolved through arbitration.
In Afcons Infrastructure Ltd. and Anr. V Cherian Varkey Construction
Co. (P) Ltd. and Others in its decision dated 26th July 2010, (2010) 8 SCC
24 held as follows:
"The following categories of cases are normally considered to be not
suitable for Arbitration or Conciliation [ADR process]:
Representative suits under Order 1 Rule 8 CPC which involves public
interest or interest of numerous persons who are not parties before the
court. (In fact, even a compromise in such a suit is a difficult process
requiring notice to the persons interested in the suit, before its
acceptance).
Disputes relating to election to public offices (as contrasted from
disputes between two groups trying to get control over the management
of societies, clubs, association etc.).
Cases involving grant of authority by the court after enquiry, as for
example, suits for grant of probate or letters of administration.
Cases involving serious and specific allegations of fraud, fabrication
of documents, forgery, impersonation, coercion etc.
Cases requiring protection of courts, as for example, claims against
minors, deities and mentally challenged and suits for declaration of title
against government.
Cases involving prosecution for criminal offences."

"All other suits and cases of civil nature in particular the following
categories of cases (whether pending in civil courts or other special
Tribunals/Forums) are normally suitable for ADR process:
All cases relating to trade, commerce and contracts,
All cases arising from strained or soured relationships,
All cases where there is a need for continuation of the pre-existing
relationship in spite of the disputes;
All cases relating to tortious liability; and
All consumer disputes."
Supreme Court further held that "the above enumeration of
'suitable' and 'unsuitable' category of cases is not intended to be
exhaustive or rigid. They are only illustrative."
[On the possibility of resolving disputes involving issues of fraud,
read decision of the Supreme Court in Maestro Engineers case. Of course
that decision was rendered in an appeal emanating from an application
under Section 8 of ACA where the defendants in a suit had applied to the
court to refer the parties to arbitration in view of a pre-existing arbitration
agreement and the Court contended that it has powers to refuse to grant
the application if it is of the opinion that the issues involved allegations of
fraud which will not be possible to be resolved by arbitral tribunal]
In the Afcons Infrastructure case, the Supreme Court had held that
"under Section 89 of CPC it is ascertaining whether it is feasible to have
recourse mandatory for a civil court to have a hearing, after the
completion of pleadings, for the purpose of to refer parties to Arbitration
or Conciliation [ADR Process]. However the Supreme Court clearly held
that it is not mandatory to refer the Parties to any ADR process in all
cases. Where the case falls under an excluded category there need not be
reference to ADR Process. In all other cases reference to ADR process is a
must."
It was further held that "a civil court, exercising power under
Section 89 of CPC, cannot refer a suit to arbitration unless all the parties
to the suit agree for such reference."
In Jagdish Chander v. Ramesh Chander 2007 (5) SCC 719, the
Supreme Court had held as follows:
"It should not also be overlooked that even though Section 89 of
CPC mandates courts to refer pending suits to any of the several
alternative dispute resolution processes mentioned therein, there cannot
be a reference to arbitration even under Section 89 of CPC, unless
there is a mutual consent of all parties, for such reference."
Conclusion:

The existence of an Arbitration Agreement is mandatory precondition before dispute adjudication process through arbitration could be
set in motion. Parties to a suit may enter into an arbitration agreement at
any stage of a suit subject to the leave of the Court. Under Section 89 of
CPC, even if the civil court comes to a conclusion that the dispute is of
such nature that it could be resolved through arbitration, arbitration
cannot be thrust upon the parties. They must express their consent.
Consent of all parties to the suit is mandatory for reference to arbitration
even under Section 89 of CPC.
Arbitration Process results in an award. Parties are bound by the
same. As per Section 36 of the ACA, Arbitration Award is enforceable as if
it were a decree of a court. The legal position does not change if one or
more parties to the arbitration find that the award is not palatable.
Arbitration commences with the consent of all the parties.
Arbitration puts an end effectively to the dispute. Unlike conciliators,
Arbitrators do not need the consent of parties to issue an award that
legally binds the parties. The above legal position must be the reason why
the legislature has laid a lot of emphasis on the need for consent of
parties at the stage of reference to arbitration.
It is a different issue that parties consent to arbitration without
even understanding the legal consequences of entering into an arbitration
agreement!
The content of this article is intended to provide a general guide to
the subject matter. Specialist advice should be sought about your specific
circumstances.
Bharat Aluminum Company Limited (BALCO) V/s. Kaiser
Aluminum Technical Service, Inc. (Kaiser)
INTRODUCTION
Existing position:
In Bhatia International v Bulk Trading S.A & Anr. (Bhatia
International) and Venture Global Engineering v Satyam Computer
Services Ltd & Anr (Venture Global), the Supreme Court had held that
Part I of the Arbitration and Conciliation Act, 1996 (Act) setting out the
procedures, award, interim relief and appeal provisions with respect to an
arbitration award, would apply to all arbitrations held out of India, unless
the parties by agreement, express or implied, exclude all or any of its
provisions. The Supreme Court set aside the doctrine in Balco V. Kaiser.
Brief Facts
An agreement dated 22 April, 1993 (Agreement) was executed
between BALCO and Kaiser, under which Kaiser was to supply and install a
computer based system at BALCOs premises.

As per the arbitration clause in the Agreement, any dispute under

the Agreement would be settled in accordance with the English Arbitration
Law and the venue of the proceedings would be London. The Agreement
further stated that the governing law with respect to the Agreement was
Indian law; however, arbitration proceedings were to be governed and
conducted in accordance with English Law.
Disputes arose and were duly referred to arbitration in England. The
arbitral tribunal passed two awards in England which were sought to be
challenged in India u/s. 34 of the Act in the district court at Bilaspur.
Successive orders of the district court and the High Court of Chhattisgarh
rejected the appeals. Therefore, BALCO appealed to the Supreme Court
(Court).
October 2012
Another significant issue to be adjudged, in the case of Bharti
Shipyard Ltd. v/s Ferrostaal AG & Anr. (clubbed together with the above
petition for hearing), was applicability of section 9 (interim measures) of
the Act. The parties had initially agreed to get their disputes settled
through arbitral process under the Rules of Arbitration of the International
Chamber of Commerce, at Paris, subsequently, mutually agreed on 29
November, 2010 to arbitration under the Rules of London Maritime
Arbitrators Association, in London.
During the pendency of arbitration proceedings in London, an
injunction application was made by appellants, Bharti Shipyard Ltd.,
before the District Judge at Mangalore, against the encashment of refund
bank guarantees issued under the contract (u/s 9 of the Act). The
applications were allowed and were consequently challenged in High Court
of Bangalore. The Bangalore High Court set aside the application so
allowed on the grounds that the appellants had an alternative remedy
(u/s 44 of the Act, being interim reliefs for international arbitration) in the
courts of London and further since the substantive law governing the
contract, as well as the arbitration agreement, is English law, the English
courts should be approached. This was also challenged in this petition to
the Supreme Court.
The appeal filed by Bharat Aluminum Co. before the Division Bench
of the Supreme Court was placed for hearing before a three Judge Bench,
as one of the judges in the Division Bench found that judgment in Bhatia
International and Venture Global was unsound and the other judge
disagreed with that observation.
Held
The judgment in detail analyses, the provisions of various sections
in the Act and applicability of Part I of the Act to international commercial
arbitrations. Some significant issues dealt with in the judgment are as
follows:

1. It was observed that the object of section 2(7) of the Act is to

distinguish the domestic award (Part I of the Act) from the foreign award
(Part II of the Act); and not to distinguish the domestic award from an
international award rendered in India. The term domestic award means
an award made in India whether in a purely domestic context, (i.e.,
domestically rendered award in a domestic arbitration or in the
international arbitration which awards are liable to be challenged u/s 34
and are enforceable u/s 36 of the Act).
October 2012 October 2012
It was held that there is a clear distinction between Part I and Part
II as being applicable in completely different fields and with no
overlapping provisions.
The Court has also drawn a distinction between a seat and venue
which would be quite crucial in the event, the arbitration agreement
designates a foreign country as the seat/ place of the arbitration and
also select the Act as the curial law/ law governing the arbitration
proceedings. The Court further clarified that the choice of another country
as the seat of arbitration inevitably imports an acceptance that the law of
that country relating to the conduct and supervision of arbitrations will
apply to the proceedings. It would, therefore, follow that if the arbitration
agreement is found or held to provide for a seat / place of arbitration
outside India, then even if the contract specifies that the Act shall govern
the arbitration proceedings, Part I of the Act would not be applicable or
shall not enable Indian courts to exercise supervisory jurisdiction over the
arbitration or the award. It would only mean that the parties have
contractually imported from the Act, those provisions which are concerned
with the internal conduct of their arbitration and which are not
inconsistent with the mandatory provisions of the English procedural law
or curial law. Therefore, it can be inferred that Part I applies only to
arbitrations having their seat / place in India.
The Court dissented with the observations made in Bhatia
International case and further observed on a logical construction of the
Act, that the Indian Courts do not have the power to grant interim
measures when the seat of arbitration is outside India. A bare perusal of
Section 9 of the Act would clearly show that it relates to interim measures
before or during arbitral proceedings or at any time after the making of
the arbitral award, but before it is enforced in accordance with Section 36
(enforcement of domestic awards). Therefore, the arbitral proceedings
prior to the award contemplated u/s 36 can only relate to arbitrations
which take place in India.
The Court further held that in foreign related international
commercial arbitration, no application for interim relief will be
maintainable in India, either by arbitration or by filing a suit.
Implications
This judgment shall be applicable prospectively (i.e. to all the
arbitration agreements executed after September 6, 2012).

As a result of this judgment, the seat of arbitration has now gained

paramount importance for determining the applicability of Part I of the
Act.
October 2012
The judgment also draws a distinction between the seat of
arbitration and the place of arbitration. It therefore contemplates a
situation where even though the parties have provided for a particular
place for arbitration, that some of the proceedings themselves may be
conducted in other territories as may be convenient to all.
This judgment also ensures that foreign award (i.e. an award
passed outside India) can no longer be challenged by an Indian entity u/s
34 of the Act and that the party which seeks to resist the enforcement of
the award has to prove one or more grounds set out in section 48 of the
Act.
No interim relief u/s 9 of the Act or order 39 of the CPC (both
pertaining to injunction) would be available where the seat of arbitration
is outside India. As interim orders from foreign courts and arbitration
tribunals are not enforceable in India such a situation would leave foreign
parties remediless.

The Government of India decided to amend the Arbitration and

Conciliation Act, 1996 by introducing the Arbitration and Conciliation
(Amendment) Bill, 2015 in the Parliament. The Union Cabinet chaired by
the Prime Minister, had given its approval for amendments to the
Arbitration and Conciliation Bill, 2015 taking into consideration the Law
Commission's recommendations, and suggestions received from stake
holders.
In an attempt to make arbitration a preferred mode of settlement of
commercial disputes and making India a hub of international commercial
arbitration, the President of India on 23rd October 2015 promulgated an
Ordinance ("Arbitration and Conciliation (Amendment) Ordinance, 2015)
amending the Arbitration and Conciliation Act, 1996.
Amendments
The following are the salient features of the new ordinance:

The first and foremost welcome amendment introduced by the

ordinance is with respect to definition of expression 'Court'. The amended
law makes a clear distinction between an international commercial
arbitration and domestic arbitration with regard to the definition of
'Court'. In so far as domestic arbitration is concerned, the definition of
"Court" is the same as was in the 1996 Act, however, for the purpose of
international commercial arbitration, 'Court' has been defined to mean
only High Court of competent jurisdiction. Accordingly, in an international
commercial arbitration, as per the new law, district court will have no
jurisdiction and the parties can expect speedier and efficacious
determination of any issue directly by the High court which is better
equipped in terms of handling commercial disputes.
Amendment of Section 2(2): A proviso to Section 2(2) has been
added which envisages that subject to the agreement to the contrary,
Section 9 (interim measures), Section 27(taking of evidence), and Section
37(1)(a), 37(3) shall also apply to international commercial arbitrations,
even if the seat of arbitration is outside India, meaning thereby that the
new law has tried to strike a kind of balance between the situations
created by the judgments of Bhatia International and Balco v. Kaiser. Now
Section 2(2) envisages that Part-I shall apply where the place of
arbitration is in India and that provisions of Sections 9, 27, 37(1) (a) and
37 (3) shall also apply to international commercial arbitration even if the
seat of arbitration is outside India unless parties to the arbitration
agreement have agreed to the contrary.
Amendment to Section 8: (Reference of parties to the
dispute to arbitration): In Section 8, which mandates any judicial
authority to refer the parties to arbitration in respect of an action brought
before it, which is subject matter of arbitration agreement . The subsection(1) has been amended envisaging that notwithstanding any
judgment, decree or order of the Supreme Court or any court, the judicial
authority shall refer the parties to the arbitration unless it finds that
prima facie no valid arbitration agreement exists. A provision has also
been made enabling the party, who applies for reference of the matter to
arbitration, to apply to the Court for a direction of production of the
arbitration agreement or certified copy thereof in the event the parties
applying for reference of the disputes to arbitration is not in the
possession of the arbitration agreement and the opposite party has the
same.
Amendment to Section 9 (Interim Measures): The amended
section envisages that if the Court passes an interim measure of
protection under the section before commencement of arbitral
proceedings, then the arbitral proceedings shall have to commence within
a period of 90 days from the date of such order or within such time as the
Court may determine. Also, that the Court shall not entertain any
application under section 9 unless it finds that circumstances exist which
may not render the remedy under Section 17 efficacious.

The above amendments to Section 9 are certainly aimed at ensuring

that parties ultimately resort to arbitration process and get their disputes
settled on merit through arbitration. The exercise of power under Section
9 after constitution of the tribunal has been made more onerous and the
same can be exercised only in circumstances where remedy under Section
17, appears to be non-efficacious to the Court concerned.
Amendment to Section 11 (Appointment of Arbitrators): In so
far as section 11, "appointment of arbitrators" is concerned, the new law
makes it incumbent upon the Supreme Court or the High Court or person
designated by them to dispute of the application for appointment of
arbitrators within 60 days from the date of service of notice on the
opposite party.
As per the new Act, the expression 'Chief Justice of India' and 'Chief
Justice of High Court' used in earlier provision have been replaced with
Supreme Court or as the case may be, High Court, respectively. The
decision made by the Supreme Court or the High Court or person
designated by them have been made final and only an appeal to Supreme
Court by way of Special Leave Petition can lie from such an order for
appointment of arbitrator. The new law also attempts to fix limits on the
fee payable to the arbitrator and empowers the high court to frame such
rule as may be necessary considering the rates specified in Fourth
Schedule.
Amendment to Section 12: Amendment to Section 12, as per the
new law makes the declaration on the part of the arbitration about his
independence and impartiality more onerous. A Schedule has been
inserted (Fifth Schedule) which lists the grounds that would give rise to
justifiable doubt to independence and impartiality of arbitrator and the
circumstances given in Fifth Schedule are very exhaustive. Any person not
falling under any of the grounds mentioned in the Fifth Schedule is likely
to be independent and impartial in all respects. Also, another schedule
(seventh schedule) is added and a provision has been inserted that
notwithstanding any prior agreement of the parties, if the arbitrator's
relationship with the parties or the counsel or the subject matter of
dispute falls in any of the categories mentioned in the seventh schedule, it
would act as an ineligibility to act as an arbitrator. However, subsequent
to disputes having arisen, parties may by expressly entering into a written
agreement waive the applicability of this provision. In view of this, it
would not be possible for Government bodies to appoint their employees
or consultants as arbitrators in arbitrations concerning the said
Government bodies.
Amendment to Section 14: Amendment of Section 14 aimed at
filling a gap in the earlier provision, which only provided for termination of
mandate of the arbitrator. If any of the eventualities mentioned in subsection (1) arises. The new law also provides for termination of mandate
of arbitration and substitution and his/her substitution by another one.

Amendment to Section 17 (Interim Measures by Arbitral

tribunal): The old Act had lacunae where the interim orders of the
tribunal were not enforceable. The Amendment removes that lacunae and
stipulates that an arbitral tribunal under Section 17 of the Act shall have
the same powers that are available to a court under Section 9 and that
the interim order passed by an arbitral tribunal would be enforceable as if
it is an order of a court. The new amendment also clarifies that if an
arbitral tribunal is constituted, the Courts should not entertain
applications under Section 9 barring exceptional circumstances.
Amendment to Section 23: The new law empowers the
Respondent in the proceedings to submit counter claim or plead a set-off
and hence falling within the scope of arbitration agreement.
Amendment to Section 24: It requires the arbitral tribunal to hold
the hearing for presentation of evidence or oral arguments on day to day
basis, and mandates the tribunal not to grant any adjournments unless
sufficient causes shown. It further empowers the tribunal the tribunal to
impose exemplary cost where adjournment
Insertions of new Section 29A and 29B( Time limit for
arbitral award and Fast Track Procedure) : To address the criticism
that the arbitration regime in India is a long drawn process defying the
very existence of the arbitration act, the Amended Act envisages to
provide for time bound arbitrations. Under the amended act, an award
shall be made by the arbitral tribunal within 12 months from the date it
enters upon reference. This period can be extended to a further period of
maximum 6 months by the consent of the parties, after which the
mandate of the arbitrator shall terminate, unless the Court extends it for
sufficient cause or on such other terms it may deem fit. Also, while
extending the said period, the Court may order reduction of fees of
arbitrator by upto 5% for each month such delay for reasons attributable
to the arbitrator. Also, the application for extension of time shall be
disposed of by Court within 60 days from the date of notice to the
opposite party.
The Ordinance also provides that the parties at any stage of arbitral
proceeding may opt for a fast track procedure for settlement of dispute,
where the tribunal shall have to make an award within a period of 6
months. The tribunal shall decide the dispute on the basis of written
pleadings, documents and submissions filed by the parties without oral
hearing, unless the parties request for or if the tribunal considers it
necessary for clarifying certain issues. Where the tribunal decides the
dispute within 6 months, provided additional fees can be paid to the
arbitrator with the consent of the parties.
Amendment to Section 25: The new Act empowers the tribunal to
treat Respondent's failure to communicate his statement of defence as
forfeiture of his right to file such statement of defence. However, the
tribunal will continue the proceedings without treating such failure as
admission of the allegations made by the Claimant.

Amendment to section 28: The new law requires the tribunal to

take into account the terms of contract and trade usages applicable to the
transaction. In the earlier law, the arbitral tribunal was mandated to
decide disputes in accordance with the terms of the contract and to take
into account the trade usages applicable to the transaction. To that
extent, the new law seeks to relieve the arbitrators from strictly adhering
to the terms of the contract while deciding the case. However, the
arbitrator can still not ignore the terms of the contract. Therefore, the
new amendment seems to bring in an element of discretion in favour of
the arbitrators while making of an award.
Amendment to Section 31: This provides for levy of future
interest in the absence of any decision of the arbitrator, on the awarded
amount @2% higher than current rate of interest prevalent on the date of
award. The current rate of interest has been assigned the same meaning
as assigned to the expression under Clause (b) of Section 21 of the
Interest Act, 1978.
In addition, the new Act lays down detailed parameters for deciding
cost, besides providing that an agreement between the parties, that the
whole or part of the cost of arbitration is to be paid by the party shall be
effective only if such an agreement is made after the dispute in question
had arisen. Therefore, a generic clause in the agreement stating that cost
shall be shared by the parties equally, will not inhibit the tribunal from
passing the decision as to costs and making one of the parties to the
proceedings to bear whole or as a part of such cost, as may be decided by
the tribunal.

Amendment of Section 34 (Limiting the gamut of Public

Policy of India): As per the new amendment, an award passed in an
international arbitration, can only be set aside on the ground that it is
against the public policy of India if, and only if, (i) the award is vitiated
by fraud or corruption; (ii) it is in contravention with the fundamental
policy of Indian law; (iii) it is in conflict with basic notions of morality and
justice. The present amendment has clarified that the additional ground of
"patently illegality" to challenge an award can only be taken for domestic
arbitrations and not international arbitrations. Further, the amendment
provides that the domestic awards can be challenged on the ground of
patent illegality on the face of the award but the award shall not be set
aside merely on the ground of an erroneous application of law or by reappreciation of evidence. The new Act also provides that an application for
setting aside of an award can be filed only after issuing prior notice to the
other party. The party filing the application has to file an affidavit along
with the application endorsing compliance with the requirement of service
of prior notice on the other party. A time limit of one year from the date
of service of the advance notice on the other parties has been fixed for
disposal of the application under Section 34. Significantly, there is no
provision in the new Act which empowers the court or the parties to
extend the aforesaid limit of one year for disposal of the application under
Section 34.
Amendment to Section 36 (Stay on enforcement of award):
The Ordinance provides that an award would not be stayed automatically
by merely filing an application for setting aside the award under Section
34. There has to be a specific order from the Court staying the execution
of award on an application made for the said purpose by one of the
parties. The Ordinance aims to remove the lacunae that existed in the
previous Act where pending an application under Section 34 for setting
aside of arbitral award, there was an automatic stay on the operation of
the award. The new law also empowers the Court to grant stay on
operation of arbitral award for payment of money subject to condition of
deposit of whole or a part of the awarded amount.
Amendment to Section 37: Under Section 37(1), the new law
makes provision for filing of an appeal against an order of judicial
authority refusing to refer the parties to arbitration under Section 8.
As regards enforcement of certain foreign awards, the new law
seeks to add explanation of Sections 48 and 57 thereby clarifying as to
when an award shall be considered to be in conflict within public policy of
India. The parameters are the same as are provided under Section 34.
Similarly, the expression "Court" used in Sections 47 and 56 have been
defined to mean only the High Court of competent jurisdiction.
Conclusion

The amendment brought to the 1996 Act is certainly a positive step

towards making arbitration expeditious, efficacious and a cost effective
remedy. The new amendments seek to curb the practices leading to
wastage of time and making the arbitration process prohibitively a costly
affair. The new law also makes the declaration by the arbitrator about his
independence and impartiality more realistic as compared to a bare
formality under the previous regime. Making the arbitrator responsible for
delay in the arbitration proceedings, for the reasons attributable to him,
would ensure that the arbitrators do not take up arbitrations, which are
beyond their capacities. Such a deterrent would imbibe self-discipline and
control amongst the arbitrators. It can be said that the present
amendments certainly travel an extra mile towards reducing the
interference of the Court in arbitration proceedings that has been a
consistent effort of the legislature since passing of the 1996 Act.
Footnote
1 Section (2) (b) : "Current rate of interest" means the highest of
the maximum rates at which interest may be paid on different classes of
deposits (other than those maintained in savings account or those
maintained by charitable or religious institutions) by different classes of
scheduled banks in accordance with the directions given or issued to
banking companies generally by the Reserve Bank of India under the
Banking Regulation Act, 1949 (10 of 1949).
1. THECONCEPTOFLOKADALAT
The word 'Lok Adalat' means 'Peoples Court' albeit it is strictly not a
court in the conventional sense in as much as the Lok Adalat does not
adjudicate on facts by application of law. It is a forum where disputes
between the parties are resolved by conciliation and participation and
what ensues finally is an amicable settlement which gets crystallized into
the award of the Lok Adalat. Based on Gandhian principles,1 Lok Adalat is
one of the most important components of the ADR system operating in
India.2
It may be comprehensively said that Lok Adalat is an ADR
mechanism operating on indigenous lines where the ADR neutral known
as the Lok Adalat Judge plays an evaluative and suggestive role and
steers the disputant parties towards a negotiated mutually acceptable
settlement. The whole emphasis in Lok Adalat proceedings is on
conciliation rather than adjudication 3 and the process contemplates
effective participation and negotiation between the parties.
2. EVOLUTIONOFLOKADALATS
Panchayats have been a traditional forum for dispute resolution in
India since times immemorial. In the modern context, Nyaya Panchayats
were operating on indigenous lines even before the advent of the British
system of
1 Mohd. Asad Malik, Concept of Alternative Dispute Resolution visa vis Lok Adalat, AIHC Journal 129 (September 2007).

2 P. T. Thomas v. Thomas Job, AIR 2005 SC 3575; See also

Vijaykumar Shrikrushna Chowbe and Priya S. Dhanokar, Lok Adalat A
Strategic Forum for Speedy and Equitable Justice, available at:
http://papers.ssrn.com (last visited on 21.04.2012); Lok Adalats have
also been described as para judicial Institutions. See Tulika Sen, Natural
Justice and Lok Adalats, (2007) PL February 7.
3 Ashwanie Kumar Bansal, Arbitration and ADR 32 (Universal Law
Publishing Co. Pvt. Ltd., Delhi, 2005).
83
justice.4 After independence Nyaya Panchayats were reorganized,
however in practice, they appeared to the villagers as formal and
incomprehensible and therefore failed to live up to the expectations of the
people.5 This provoked the search for better options on different lines.
The Indian Constitution aims to secure to the people of India justice
social, economic and political.6 In 1976, Article 39A was inserted into
the Constitution of India,7 which unequivocally enjoins upon the State to
secure that the operation of the legal system promotes justice, on the
basis of equal opportunity, and in particular, to provide free legal aid, by
suitable legislation or schemes or in any other way, to ensure that
opportunities for securing justice are not denied to any citizen by reason
of economic or other disabilities.
Thereafter in 1980 the Government of India appointed a Committee
on Implementation of Legal Aid Schemes (CILAS) 8 to co-ordinate the
implementation of legal aid programmes,9 which inter alia recommended
the establishment of Lok Adalats.10
The evolution of contemporary system of Lok Adalats is, however,
traceable to the Lok Adalat run by a noted Gandhian social worker
Harivallabh Parikh in a tribal area Rangpur in Guajrat.11 Thereafter Lok
Adalats were
4 K. Jayachandra Reddy, Alternative Dispute Resolution, in P.C.
Rao and William Sheffield (Eds.), Alternative Dispute Resolution 79
(Universal Law Publishing Company Pvt. Ltd., Delhi, 1997).
5 Marc Galanter & Jayanth K. Krishnan, Bread for the Poor: Access
to Justice and Rights of the Needy in India, 55 Hastings L.J. 789 (March,
2004).
6 See the Preamble to the Constitution of India.
7 Inserted by the Constitution (Forty Second Amendment) Act,
1976, S. 8 (w.e.f. 03.01.1977).
8 Justice P.N. Bhagwati, was the Chairman of the Committee.
9 See http://nalsa.gov.in (last visited on 25.03.2012).
10 Ashwanie Kumar Bansal, Arbitration and ADR 31-32 (Universal
Law Publishing Co. Pvt. Ltd., Delhi, 2005).
11 Upendra Baxi, From Takrar to Karar: The Lok Adalat at Rangpur
(1976) available at: http://upendrabaxi.net (last visited on 25.03.2012).
84

initially started in various parts of Gujarat in March 1982.12 During

the 1980s Lok Adalats were generally regarded as a species of legal aid
programme meant specially to cater to the needs of poor and weaker
sections of society and not as a viable substitute for courts.13
The institution of Lok Adalats had been functioning as a voluntary
and conciliatory agency without any statutory backing for its decisions
and had become very popular in providing for a speedier system of
administration of justice.14 One of the purposes of starting Lok Adalat
camps was to ameliorate the judicial system qua its colossal problem of
arrears, while simultaneously affording an accessible forum for
expeditious and economical resolution of disputes to the litigants. What
therefore followed was a demand for providing a statutory basis and
framework for this institution of Lok Adalat.
This demand for affording statutory recognition to Lok Adalats and
the zest to transform into reality the salutary objective and mandate of
Article 39A of the Constitution of India culminated in to the enactment of
the Legal Services Authorities Act, 1987.15 One of the objectives of the
Legal Services Authorities Act, 1987 is to provide for organization of Lok
Adalats to secure that the operation of the legal system promotes justice
on the basis of equal opportunity.16 Lok Adalats have thus attained
statutory recognition under the Legal Services Authorities Act, 1987.
12 K. Ramaswamy, Settlement of Disputes through Lok Adalats is
one of the Effective Alternative Dispute Resolution on Statutory Basis, in
P.C. Rao and William Sheffield (Eds.), Alternative Dispute Resolution 93
(Universal Law Publishing Company Pvt. Ltd., Delhi, 1997)
13 N.V. Paranjape, Public Interest Litigation, Legal Aid & Services,
Lok Adalats and Para Legal Services 273 (Central Law Agency, Allahabad,
1st Edn. 2006).
14 R.L. Bhatia, Recent Developments in ADR: Permanent Lok
Adalats, The Chartered Accountant 757 (December 2004).
15 The Legal Services Authorities Act, 1987 was however enforced
w.e.f. 9th of November, 1995; See also Law Commission of India, 222nd
Report on Need for Justice-dispensation through ADR, etc (2009).
16 Lok Adalats have also been described as preventive legal aid
services within the contemplation of the Legal Services Authorities Act,
1987. See N.C. Jain, Legal Aid, its Scope and Effectiveness of the Legal
Aid Rules in this Regard, AIR Journal 184 (1996); The Lok Adalats are
also part of the campaign to take justice to the people and ensure that all
people have equal access to justice. See Law Commission of India, 222nd
Report, Need for Justice-dispensation through ADR etc., (2009).
85
3. LOKADALATSPRACTICESANDPROCEDURES

The Legal services Authorities Act, 1987 provides that every State/
District Legal Services Authority or the Supreme Court/ High Court Legal
Services Committee may organise Lok Adalats at such intervals and such
places and for exercising such jurisdiction and for such areas as it thinks
fit.17 The Lok Adalats may comprise of serving or retired judicial officers
and such other persons as may be prescribed by the Legal Services
Authority/ Committee.18
Any case pending before a court may be referred to a Lok Adalat if
all the parties agree or if one of the parties makes an application to the
court and the court is prima facie satisfied that there are chances of
settlement or if the court is satisfied that the matter is an appropriate one
to be taken cognizance of by the Lok Adalat after giving a reasonable
opportunity of being heard to the parties.19 Thus the court can also suo
motu refer the dispute to the Lok Adalat even where the parties are
reluctant, if the court is satisfied that the matter is an appropriate one to
be taken cognizance of by the Lok Adalat.20 The prime consideration
which the court has to keep in mind is the existence of the possibility of a
settlement. The parties however must get a reasonable opportunity of
being heard before the matter is referred to the Lok Adalat, suo motu by
the court.21 The Legal Services Authority or Committee organizing the
Lok Adalat may also refer a case to the Lok Adalat on receipt of an
application from any one of the parties after giving a reasonable
opportunity of being heard to the parties.22
17 S. 19(1), Legal Services Authorities Act, 1987. 18 S. 19(2),
Legal Services Authorities Act, 1987. 19 S. 20(1), Legal Services
Authorities Act, 1987.
20 Sau. Pushpa Suresh Bhutada v. Subhash Bansilal Maheshwari,
AIR 2002 Bombay 126; The conditions specified under ss. 19 and 20,
Legal Services Authorities Act, 1987 must be, however, satisfied. See
Shashi Prateek v. Charan Singh Verma, AIR 2009 Allahabad 109.
21 Commissioner, Karnataka State Public Instruction (Education),
Bangalore v. Nirupadi Virbhadrappa Shiva Simpi, AIR 2001 Karnataka
504.
22 S. 20(2), Legal Services Authorities Act, 1987.
86
The Lok Adalat proceeds to dispose of the case on the basis of
compromise or settlement between the parties. The source of power of
Lok Adalat, which is only a forum for ADR, is conciliation and the Lok
Adalat is not supposed to delve into the realm of adjudication.23 In fact
the promotion of conciliation culture is one of the most important
objectives of the Lok Adalat movement. The jurisdiction of Lok Adalat is
therefore limited to making an effort to bring about a compromise or
settlement between the parties to the dispute with their consent so that
the matter is finally settled once for all.24 Conversely where there is no
compromise or settlement the case cannot be disposed of by the Lok
Adalat25 and in such an eventuality the case is to be returned back to the
court for disposal as per law.26

Where the matter is settled before the Lok Adalat an award is

passed by the Lok Adalat on the basis of the settlement. However, the
award of the Lok Adalat cannot travel beyond the compromise or
settlement arrived at between the parties.27 The award of the Lok Adalat
is not a judicial decision and the Lok Adalat cannot incorporate any
finding, direction or stipulation in the award de hors the settlement and
the award is nothing but a formal assimilation and integration of the
terms of the settlement or compromise arrived between the parties, by
the Lok Adalat in the form of an enforceable order and the nature of this
process of passing of the award though ostensibly judicial is in fact
essentially administrative. Further every award of the Lok Adalat is final
and binding on all the parties to the dispute28 and no appeal lies
23 State Bank of Indore v. Balaji Traders, 2003(3) R.C.R.(Civil) 339.
24 N.V. Paranjape, Public Interest Litigation, Legal Aid & Services, Lok
Adalats and Para
Legal Services 282 (Central Law Agency, Allahabad, 1st Edn. 2006).
25 Compromise is an agreement reached by adjustment of
conflicting or opposing claims by reciprocal modification of demands. A
compromise is always bilateral and means mutual adjustment. On the
other hand Settlement is termination of legal proceedings by mutual
consent. See State of Punjab v. Phulan Rani, AIR 2004 SC 4105; See also
Union of India v. Ananto, AIR 2007 SC 1561.
26 B.P. Moideen Sevamandir v. A.M. Kutty Hassan, 2009 (2) S.C.C.
198.
27 State of Punjab v. Ganpat Raj, AIR 2006 SC 3089.
28 S. 21, Legal Services Authorities Act, 1987; In Rajan Kakar v.
Vijaya Bank, AIR 2008 Delhi 17 it was held that award of the Lok Adalat
was final and binding between the parties and after the award fresh
proceedings under the Securitisation and Reconstruction of Financial
87
to any court against the award.29 This is a very valuable and vital
provision which is meant to give finality to the decision of the Lok
Adalat.30 Even review by the court which referred the case to the Lok
Adalat is not permissible.31 If any party wants to challenge such an
award based on settlement, it can be done only by filing a petition under
Article 226 and/or Article 22732 of the Constitution of India and that too
on very limited grounds.33
The award of a Lok Adalat is deemed to be a decree of a civil court
and is per se executable.34 Viewed in that perspective, since every award
of the Lok Adalat is deemed to be a decree of a civil court, the matter
need not be referred back to the concerned court for passing of a consent
decree.35
Lok Adalat has the requisite powers to specify its own procedure,
however, it is bound to follow the principles of natural justice, equity, fair
play and other legal principles.36 Although it ensures minimum standards
of fairness, the emphasis is more on natural justice than the rigours and

Assets and Enforcement of Security Interest Act, 2002 were not

permissible; See also M. I. Ibrahim Kutty v. Indian Overseas Bank, AIR
2005 Madras 335.
29 P. T. Thomas v. Thomas Job, AIR 2005 SC 3575; The provisions
of the Act override the provisions of section 96 CPC providing for appeal
generally from a decree. See also Punjab National Bank v. Lakshmichand
Rai, AIR 2000 Madhya Pradesh 301.
30 Abdul Hassan and National Legal Services Authority v. Delhi
Vidyut Board, AIR 1999 Delhi 88. For example the award can be set aside
on grounds of fraud. See United India Insurance Co. Ltd. v. Master Imran
Khan, AIR 2008 Delhi 26.
31 New India Assurance Company Ltd. v. Ponnamma Thomas, AIR
2008 Kerala 4 (DB).
32 High Court has the power of superintendence over Lok Adalats in
terms of Article 227 of
the Constitution of India; See Parmod v. Jagbir Singh, 2003 (2)
R.C.R.(Civil) 184.
33 State of Punjab v. Jalour Singh, AIR 2008 SC 1209; See also
Commissioner of Karnataka State Public Instruction (Education) v.
Nirupadi Virbhadrappa Shiva Simpi, AIR 2001 Karnataka 504 and Merlin
alias Sherly Augustin v. Yesudas, AIR 2007 Kerala 199. The award of the
Lok Adalat can be questioned on grounds of fraud, misrepresentation,
coercion, arbitrariness, unreasonableness, denial of hearing etc.
34 In K.N. Govindan Kutty Menon v. C.D. Shaji, (2012) 2 SCC 51 it
was held that the award of a Lok Adalat in a criminal case under section
138 of the Negotiable Instruments Act, 1881 could be executed as a
decree of the civil court by the civil court. See also Valarmathi Oil
Industries v. Saradhi Ginning Factory, AIR 2009 Madras 180 and Subhash
Narasappa Mangrule v. Sidramappa Jagdevappa Unnad, 2009 (3) Mh. L.J.
857; See also K.N. Chandrasekharan Pillai, Ensuring Equality: Role of
Legal Services Authorities available at: http://www.nja.nic.in (last visited
on 01.06.2012).
35 N.V. Paranjape, Public Interest Litigation, Legal Aid & Services,
Lok Adalats and Para Legal Services 282 (Central Law Agency, Allahabad,
1st Edn. 2006).
36 Tulika Sen, Natural Justice and Lok Adalats, (2007) PL February
7; See also Moni Mathai v. The Federal Bank Limited, AIR 2003 Kerala
164.
88
formalities of legal procedure.37 A Lok Adalat has the same powers
as are vested in a civil court under the Code of Civil Procedure, 1908 for
summoning and enforcing the attendance of witnesses and examining
them on oath, the discovery and production of any document,
requisitioning of any public record, reception of evidence on affidavits,
etc. and all proceedings before a Lok Adalat are deemed to be judicial
proceedings. 38 But despite this, the procedure followed by Lok Adalat is
relatively simple, flexible and straightforward.

4. ADVANTAGESOFLOKADALATS
Lok Adalats are extremely important and popular ADR fora enabling
the parties to resolve their disputes by way of amicable settlements once
and for all. Since the final award in a Lok Adalat is based on a mutually
acceptable solution it results in a win-win situation for the parties and
therefore in Lok Adalat proceedings there are no victors and vanquished
and, thus, no rancour.39 Moreover the process of dispute resolution
through Lok Adalats is a purely voluntary process. 40
The biggest advantage of the Lok Adalat system is however, that
the award passed by the Lok Adalat is final and binding on the parties and
it has the status of a decree of a civil court and can thus be executed as
such through a civil court. Moreover the award of the Lok Adalat is final
thereby obviating the possibility of successive appeals and thereby saving
time, money and effort of the parties which can be utilized for other
constructive purposes.
Another important advantage of Lok Adalats is speedy resolution of
disputes. The procedure followed at a Lok Adalat is very simple and shorn
of
37 N.V. Paranjape, Public Interest Litigation, Legal Aid & Services,
Lok Adalats and Para Legal Services 285 (Central Law Agency, Allahabad,
1st Edn. 2006).
38 S. 22, Legal Services Authorities Act, 1987.
39 P. T. Thomas v. Thomas Job, AIR 2005 SC 3575.
40 In B.P. Moideen Sevamandir v. A.M. Kutty Hassan, 2009 (2)
S.C.C. 198 the Supreme Court held that any settlement before the Lok
Adalat should be voluntary and no party can be punished for failing to
reach at a settlement before the Lok Adalat.
89
legal formalism and rituals41 and it utilizes voluntary conciliation as
a mode of dispute resolution. There is no strict application of procedural
laws like the Code of Civil Procedure and the Evidence Act. Procedural
flexibility coupled with straightforward course of action results in speedier
dispute resolution.
Furthermore Lok Adalats are much more accessible than regular
courts and there is no requirement of a lawyer before the Lok Adalat. The
Lok Adalat Judge is there to help out the parties and the parties can
directly interact with the Lok Adalat Judge and seek his guidance.
Lok Adalats are popular and effective because of their innovative
nature and inexpensive style.42 They provide inexpensive justice to the
parties as the absence of a full dressed trial and mandatory requirement
of representation through lawyers coupled with a simplified and
expeditious procedure renders them an economical and cost effective
mode of dispute resolution. Moreover no court fee is payable in a Lok
Adalat and on the contrary the court fee which has already been paid
before the referral court, has to be refunded if the dispute is settled
before the Lok Adalat.43

PERMANENT LOK ADALATS - WHETHER AN ADR MECHANISM

Permanent Lok Adalat definitely possesses trappings of adjudication
and in this perspective sometimes questions are raised about its
classification as an ADR mechanism. In State of Punjab v. Jalour Singh105
the Supreme Court held that the Lok Adalats only have a conciliatory role
and they are not competent to undertake adjudicatory determination and
the award of the Lok Adalat does not mean and imply any independent
verdict or opinion arrived at by the decision-making process.
The next question is then how the concept of Permanent Lok Adalat
co-exists with this judgment of the Supreme Court. The aspect to be
considered is that in State of Punjab v. Jalour Singh the Supreme Court
was dealing with a case involving a Lok Adalat within the contemplation of
section 19, 20, 21 and 22 of the Legal Services Authorities Act, 1987. The
Permanent Lok Adalats in contradistinction to Lok Adalats have been
expressly conferred an adjudicatory role by the statute.106 Where in a
matter before a Permanent Lok Adalat the matter cannot be settled by
conciliation the Permanent Lok
102 In Ram Niwas v. D.D.A., AIR 2007 Delhi 115 it was held that
Permanent Lok Adalat is a statutory body in terms of the Legal Services
Authorities Act, 1987 and its decision must be accepted.
103 Paras Holidays Pvt. Ltd. v. State of Haryana, 2008(4) R.C.R.
(Civil) 367 104 S. 22 E, Legal Services Authorities Act, 1987.
105 AIR 2008 SC 1209.
106 S. 22 C(8), Legal Services Authorities Act, 1987.
108
Adalat is statutorily enjoined to decide the dispute on merits.107
The judgment in State of Punjab v. Jalour Singh would therefore not apply
to Permanent Lok Adalats since in that case the court was not considering
the provision enshrined under section 22C(8) of the Legal Services
Authorities Act, 1987.108
Moreover the amendments to the Legal Services Authorities Act,
1987 pertaining to Permanent Lok Adalats were challenged, but they were
upheld by the Supreme Court of India.109
In Life Insurance Corporation of India v. Suresh Kumar110, the
Supreme Court observed that Permanent Lok Adalat has no jurisdiction or
authority vested in it to decide any lis, as such, between the parties even
where the attempt to arrive at an agreed settlement between the parties
has failed. However, again the court in that case was dealing with and
referring to a Lok Adalat' organized under section 19 of the Act.
Continuous Lok Adalats organized under section 19 of the Legal Services
Authorities Act, 1987 are sometimes loosely described as Permanent Lok
Adalats' and should not be confused with Permanent Lok Adalats
constituted under section 22B(1) of the Act. This position has been
clarified by the Supreme Court itself111 that a Permanent Lok Adalat has
the jurisdiction to decide on the merits of the dispute where an amicable
resolution of the dispute fails.112

Thus a person who enters the domain of a Permanent Lok Adalat

cannot withdraw from the same and he must ultimately suffer a decision
on merits if a negotiated settlement does not fructify and that to with the
added
107 The only exception has been made in a case where the dispute
pertains to an offence, even if it is a compoundable offence and in such
cases the Permanent Lok Adalat cannot decide the matter on merits.
108 Pu Lalkanglova Sailo v. Pi Ngurthantluangi Sailo, AIR 2009
Gauhati 39.
109 S.N. Pandey v. Union of India, Writ Petition (Civil) No. 543/2002
decided by the Supreme
Court vide order dated 28.10.2002.
110 2011 (4) SCALE 137.
111 InterGlobe Aviation Ltd. v. N. Satchidanand, (2011) 7 SCC 463.
112 See also United India Insurance Co. Ltd. v. Ajay Sinha, 2008
(7) S.C.C. 454 where the Supreme Court held that the Parliament has
given the authority to the Permanent Lok Adalat to decide matters on
merits and therefore it has an adjudicating role to play.
109
rigour of absence of any appeal. 113 This might put a party at some
disadvantage in as much as the forum which in its form appears to be
conciliatory ultimately turns out to be adjudicatory. Lawyers have been
very critical of this provision.114 But this only implies that that the
concept of Permanent Lok Adalat does not appear to be completely in
sync with purely non adjudicatory ADR.
Be that as it may there are ADR mechanisms which have
adjudicatory character also. Arbitration is a purely adjudicatory process
and still it is regarded as an ADR mechanism.115 We also have hybrid
processes such as Med-Arb wherein the parties allow the same person to
first mediate, and if that is unsuccessful, then arbitrate a dispute.116 It is
also considered as an ADR mechanism having both adjudicatory as well as
non adjudicatory trappings.
Similarly dispute resolution through Permanent Lok Adalats is also
an ADR mechanism, hybrid in nature, having both adjudicatory as well as
non adjudicatory trappings and alternative in the sense that it offers a
substitute to conventional litigation and it steers clear of the rigidity and
complexity of the conventional litigative process.117 A Permanent Lok
Adalat is a special tribunal which is not a `court'118 and its decision is not
subject to successive
113 In Ambika Kumary v. State of Kerala, AIR 2012 Kerala 16 it was
held that once a complaint is filed before the Permanent Lok Adalat and
the same is within its jurisdiction, then the Permanent Lok Adalat has no
escape from deciding the matter finally, which can be through a
settlement award, and if there is no possibility of a settlement by deciding
the case on merits.

114 Marc Galanter & Jayanth K. Krishnan, Bread for the Poor:
Access to Justice and Rights of the Needy in India, 55 Hastings L.J. 789
(March, 2004).
115 P.C. Rao, Alternatives to Litigation in India, in P.C. Rao and
William Sheffield (Eds.), Alternative Dispute Resolution 24 (Universal Law
Publishing Company Pvt. Ltd., Delhi, 1997); K. Jayachandra Reddy,
Alternative Dispute Resolution, in P.C. Rao and William Sheffield (Eds.),
Alternative Dispute Resolution 79 (Universal Law Publishing Company Pvt.
Ltd., Delhi, 1997).
116 Alexander Bevan, Alternative Dispute Resolution 9 (Sweet and
Maxwell, London, 1992). 117 A Permanent Lok Adalat is not bound by the
Code of Civil Procedure, 1908 and the Indian
Evidence Act, 1872.
118 InterGlobe Aviation Ltd. v. N. Satchidanand, (2011) 7 SCC 463.
110
appeals.119 The procedure is somewhat similar to Med-Arb. The
Supreme Court120 has held that the procedure adopted by Permanent
Lok Adalats is what is popularly known as `Con-Arb' (conciliation cum
arbitration) in the United States of America, where the parties can
approach a neutral third party or authority for conciliation and if
conciliation fails, authorize such neutral third party or authority to decide
the dispute itself, such decision being final and binding.121
The Chairman of a Permanent Lok Adalat is a person who has held a
judicial office of an additional District Judge or higher. Thus there can be
no issues about quality of the decision making process or the decision
rendered on merits. Lawyers regularly appear before the Permanent Lok
Adalats in Delhi leaving no room for any issues with respect to adequate
legal representation. The Permanent Lok Adalat invites written statements
of the parties. It may take such documents and evidence as it may deem
fit and it is to be guided by the principles of natural justice, objectivity fail
play, equity and other principles of justice. The mere fact that it is not
bound by the provisions of Code of Civil Procedure, 1908 and the Indian
Evidence Act, 1872 does not imply that the Permanent Lok Adalat decides
on the basis of no evidence or it decides capriciously.122
Thus dispute resolution through Permanent Lok Adalat is definitely
an ADR mechanism. A person submitting to the jurisdiction of the
Permanent Lok Adalat is presumed to know the law that in case the
dispute is not amicably resolved, the Permanent Lok Adalat would acquire
an adjudicatory role and
119 The award of the Permanent Lok Adalat is, however, amenable
to the writ jurisdiction of the High Court.
120 InterGlobe Aviation Ltd. v. N. Satchidanand, (2011) 7 SCC 463.

121 However the Jharkhand High Court by judicial interpretation

has, however, held that the Permanent Lok Adalat must inform the parties
regarding the adjudicatory role of a Permanent Lok Adalat and the fact
that no appeal would lie against the award of the Permanent Lok Adalat
and if thereafter the parties expressly consent to have their matter
adjudicated on merits by the Permanent Lok Adalat then only it should
proceed to dispose of the case of merits. See Eastern Central Railway v.
Ashok Kumar Verma, 2009 (4) J.L.J.R.129; See also Branch Manager, Tata
AIG General Insurance Co. Ltd. v. Bandana Devi, W.P.(S) No. 2557 of
2008 decided on 25.02.2010 by the High Court of Jharkhand.
122 Even an arbitrator is not bound by the provisions of Code of
Civil Procedure, 1908 and the Indian Evidence Act, 1872.
111
hence the so called disadvantage can only be described as a self
imposed disadvantage, if at all it is really a disadvantage. Lawyers can
also very well apprise the client of the demerits, if any, of the machinery
of PLA. In spite of that, if the party is inclined to resort to the cheaper
remedy, it cannot be said that the legislation is anti litigant, as there is no
compulsion that one shall first approach PLA before approaching a court
of law.123
In practice Permanent Lok Adalats have similar benefits and suffer
from similar disabilities as ordinary Lok adalats do. However Permanent
Lok Adalats function continuously and they require additional separate
expenditure. They provide an additional state sponsored ADR mechanism
with the capacity and time to deal with much greater number of cases
and more complex cases than ordinary Lok Adalats.
the decision of the Delhi High Court in the case of Videocon
Industries v. Union of India. We summarize our conclusions reached in the
previous post below:
The seat of arbitration as per the provisions of the Production
Sharing Contract (PSC) was Malaysia. However, parties agreed to transfer
the seat itself (and not merely to have the hearings outside Malaysia) to
London.
Interference by the Delhi High Court under Section 9 for the reason
that there was a dispute between the parties as to the seat of arbitration
was unwarranted.
The next portion of this post deals with the case before the
Supreme Court.
Arguments of the Parties before the Supreme Court:
For Videocon: Summary of Videocon's arguments are:
Delhi High Court did not have jurisdiction to pass an order under
Section 9 to stay the arbitral proceedings because such relief was beyond
the scope of Section 9, especially in view of Section 5.

Even if such relief could be granted under Section 9, the Delhi High
Court did not have jurisdiction as Part I was impliedly excluded by the
parties as the lex arbitri was English Laws.
Having agreed for the shifting of seat, UoI is estopped from arguing
that the seat of arbitration was Kuala Lumpur.
If UoI was aggrieved by the partial award, it could have applied to
the English courts to annul the said award.
For UoI:
As per the arbitration agreement, Kuala Lumpur was the seat of
arbitration. Once Kuala Lumpur was the seat of arbitration, the seat could
not have been changed except by amending the PSC as per Article 35.2.
Arbitral tribunal was not entitled to determine the seat of arbitration
and the record by the tribunal of proceedings to that effect.
The PSC was between ONGC Ltd., Videocon Petroleum, Command
Petroleum and Ravva Oil and therefore the venue of arbitration cannot be
treated to have been amended on the basis of the agreement between
the two parties to the arbitration agreement. Any changes in the PSC
required concurrence by all the parties. Every written agreement was to
be in the name of the President of India and shifting the seat to London
did not change the juridical seat of arbitration. Therefore, London was the
seat of arbitration.
Decision of the Supreme Court:
According to the Supreme Court, two questions arose for its
consideration
Whether Kuala Lumpur was the designated seat of arbitration?
Whether the Delhi High Court could entertain the petition filed by
UoI under Section 9?
Decision on Kuala Lumpur as the Seat of Arbitration: The
Supreme Court's reasoning and decision on this question is summarized
below:
The PSC was entered into between five parties with Kuala Lumpur
being the seat of arbitration. If the parties were to amend the PSC, they
could do so only by amending the PSC as per Article 35.2 through a
written instrument. Therefore, there was no transfer of seat but of shifting
of venues to different places for convenience.
There is no provision in the Arbitration and Conciliation Act by which
seat could be changed by the arbitral tribunal.
The distinction between the seat and holding hearings in venues
other than the seat has, however, been recognized in international
arbitration. Even in Dozco India Ltd. V. Doosan Infracore, the Supreme
Court recognized the difference between juridical seat of arbitration and
hearings taking place in a jurisdiction outside the seat. [Section 53
English Arbitration Act, 1996]
Therefore, there was no agreement to transfer the seat of
arbitration to London. The agreement was merely an agreement to hold
proceedings outside the seat.

Decision on Implied Excludability of Part I: On the second

question, the Court stated that the three judge Bench of the Supreme
Court in Bhatia International held that in respect of arbitrations taking
place outside India even non-derogable provisions of Part I could be
excluded impliedly and that the ratio of Bhatia International was applied
in Venture Global. Further, the court held that in Hardy Oil and Gas, the
Gujarat High Court had held that Part I was since the Governing Law of
arbitration was English Law, Indian courts had no jurisdiction. According
to the court, the Gujarat High Court in Hardy Oil and Gas correctly applied
the ratio of Bhatia International.
On the basis of the above reasoning the court held that the choice
of substantive law of the arbitration agreement as English law implied that
Parties had agreed to exclude provisions of Part I. Therefore, the court
concluded that the petition under Section 9 was not maintainable.
Comment:
We had previously contended that it was not necessary for the Delhi
High Court to rely on the uncertainty of the seat of arbitration for
interfering in the arbitral proceedings under Section 9. We are unsure why
the Supreme Court had to decide the issue of the seat of arbitration.
Perhaps, the parties had raised arguments on this. In any case, we
consider it unnecessary for the court to have done so as the fundamental
issue before the Delhi High Court was whether Part I of the Arbitration
and Conciliation Act, 1996 (Act) was excluded in view of the arbitral
clause. Therefore, well address the issue as to the seat subsequent to the
analysis on implied exclusion of Part I.
Implied Exclusion of Part I: By merely choosing foreign laws,
Part I could be impliedly excluded; but unless it is excluded, Part I would
apply even to arbitrations held outside India. This principle, whose source
is Bhatia International, is fairly well established. But what is not wellestablished is what are the choices to be made that would lead to
exclusion of Part I. The contours of implied excludability is a matter of
considerable confusion.
The Supreme Court was of the opinion that Hardy Oil and Gas was a
case similar to Videocon. In Hardy Oil and Gas, the substantive law of the
contract was Indian Law, the law governing arbitration was English Law,
the arbitration was to be conducted as per Rules of the London Court of
International Arbitration and the venue was London. The Gujarat High
Court held that Part I was impliedly excluded because the parties had
expressly chosen English Law to be the law governing arbitration. It may
also be noted that the facts in Hardy Oil and Gas are virtually similar to
the present case because as per the arbitration clause in the case, the law
of the arbitration agreement was English Law. It would do well to quote
the relevant clause in Hardy Oil and Gas:

"9.5 Governing Law and Arbitration

1. This Agreement (except for the provisions of Clause 9.5.4
relating to arbitration) shall be governed by and construed in accordance
with the substantive laws of India.
2. Any dispute or difference of whatever nature arising under, out
of, or in connection with this Agreement, including any question regarding
its existence, validity or termination... shall at the instance of any Party
be referred to and finally resolved by Arbitration under the rules of the
London Court of International Arbitration (SLCIA), which Rules (Rules)
are deemed to be incorporated by reference into this clause.
...
4. The place of arbitration shall be London and the language of
arbitration shall be English. The law governing arbitration will be the
English law.
5. Any decision or award of an arbitral tribunal shall be final and
binding on the Parties."
On the face of it, it could be argued that Indian Law was the
substantive law of arbitration agreement. But on a close reading.of Article
9.5.1 we would argue that apart from the governing law of arbitration
being English Law, the governing law of arbitration agreement was also
English Law because of the bracketed portions of 9.5.1.
It must however be noted that in Hardy Oil and Gas, the Gujarat
High Court did not go into the question of whether a choice of a foreign
law as the substantive law of the arbitration agreement impliedly excluded
Part I. At least the decision of the Gujarat High Court discloses no analysis
to that effect. Therefore, according to this blawgger, the ratio of Hardy Oil
and Gas is that a choice of a foreign arbitral seat acts as a an exclusive
jurisdiction clause and Part I is deemed to be impliedly excluded for the
same. This is confirmed by the Supreme Courts decision in Videocon,
relevant portion of which is quoted below:
In our opinion, the learned Single Judge of Gujarat High Court had
rightly followed the conclusion recorded [in Bhatia International] and held
that the District Court, Vadodara did not have jurisdiction to entertain the
petition filed under Section 9 of the Act because the parties had agreed
that the law governing arbitration will be English Law. (emphasis
supplied)
However, the reasoning of the Supreme Court in Videocon was that
the choice of English Law as the law of arbitration agreement meant that
Part I was excluded. The court held:

In the present case also, the parties had agreed that

notwithstanding Article 33.1, the arbitration agreement contained in
Article 34 shall be governed by laws of England. This necessarily implies
that the parties had agreed to exclude the provisions of Part I of the Act.
As a corollary to the above conclusion, we hold that the Delhi High Court
did not have the jurisdiction to entertain the petition filed by the
respondents under Section 9 of the Act and the mere fact that the
appellant had earlier filed similar petitions was not sufficient to clothe that
High Court with the jurisdiction to entertain the petition filed by the
respondents. (emphasis supplied)
As is apparent from the above two quotes, in Hardy Oil and Gas, the
Gujarat High Court held that a mere choice of foreign arbitration law as
the governing law meant that Part I was excluded.
In Videocon the arbitration agreement was an English Arbitration
Agreement. The court held that because there the substantive law of
arbitration agreement was English Law, it was implied that Part I was
excluded. The court did not explain why. One plausible explanation would
be that the validity and the interpretation of the arbitration agreement in
Videocon was to be decided in accordance with English Law. As per
English Law, an agreement to have a matter arbitrated in a seat operates
similar to an exclusive jurisdiction clause and no court in another country
would have jurisdiction over the arbitration proceedings [Shashoua v.
Sharma], unless the parties have agreed otherwise. Therefore, the choice
of English Law as the substantive law of arbitration agreement meant that
no other country had jurisdiction over the matter. However, the question
would be whether English Law prohibits a party from seeking interim relief
in any other jurisdiction. Probably this should have been the methodology
of analysis by the Supreme Court.
Even so, shouldnt the question of whether the English Arbitration
Agreement excluded the applicability of the Indian Act have been a
question of fact (being a question as to foreign law)?
In any case, the law as it stands today post-Videocon is that if the
arbitration agreement is governed by a foreign law, if the seat of
arbitration is foreign, Part I would be impliedly excluded even if the
substantive law of arbitration the main agreement was Indian Law. This
decision does not deal with the law pertaining to implied exclusion of Part
I if the substantive law of contract is Indian Law and the seat of
arbitration is not India.

The Supreme Court's reasoning and decision on this question is

summarized below:

The PSC was entered into between five parties with Kuala Lumpur
being the seat of arbitration. If the parties were to amend the PSC, they
could do so only by amending the PSC as per Article 35.2 through a
written instrument. Therefore, there was no transfer of seat but of
shifting of venues to different places for convenience.
[The provision of the contract pertaining to amendment read: This
Contract shall not be amended, modified, varied or supplemented in any
respect except by an instrument in writing signed by all the Parties, which
shall state the date upon which the amendment or modification shall
become effective.]
There is no provision in the Arbitration and Conciliation Act by
which seat could be changed by the arbitral tribunal.
The distinction between the seat and holding hearings in venues
other than the seat has, however, been recognized in international
arbitration. Even in Dozco India Ltd. V. Doosan Infracore, the Supreme
Court recognized the difference between juridical seat of arbitration and
hearings taking place in a jurisdiction outside the seat. [Section 53
English Arbitration Act, 1996]
Therefore, there was no agreement to transfer the seat of
arbitration to London. The agreement was merely an agreement to hold
proceedings outside the seat.
In this post, we analyse whether the decision of the Supreme Court
was correct.
It must be admitted that the argument of Mr. Gopal Subramaniam,
the Solicitor General, appears forceful. Even so, this blawgger is of the
opinion that the order of the arbitral tribunal was for a transfer of the seat
of arbitration and not merely an agreement to hold the arbitral
proceedings outside Kula Lumpur. The reasons are as follows:
1) There was no necessity for such an agreement because the
tribunal had been holding the arbitral proceedings in Amsterdam and
London even before the agreement was reached.
(2) The agreement uses the term seat of arbitration. The seat of
arbitration specifically connotes the jurisdiction which would grant the
legal touch to the arbitration proceedings. These were parties that had
sophisticated legal counsel (for obvious reasons- the consensus was
reached during the arbitration proceedings and was recorded by the
tribunal). Therefore, the usage of the term seat of arbitration could not
have been for any purpose other than to transfer the jurisdiction which
grants the legal touch to the arbitration.
(3) Article 35.2 of the PSC provides for three mandatory steps as
regards amendment of the PSC:

a. An amendment must be through a written instrument

b. The amendment must be signed by all the parties, and
c. The amendment must provide for the date from which
amendment would become effective.
This was admittedly not done. But the question is, notwithstanding
Article 35.2, whether a consensus was reached between the parties to
have the seat changed to London and whether the same is binding.
According to this blawgger, the agreed manner of performance in the
contract can be altered even extra-contractually by an undertaking given
in a court of law. The Supreme Court was not right stating that any
consensus to transfer the juridical seat to London required an amendment
of the contract as per Article 35.2. Even though the effect of the
consensus was alteration in the manner of dispute resolution, it was in
effect a concession made before a tribunal which is virtually a court of
law. If the interpretation afforded by the court is accepted, the problem
would be that any concession made by counsel of a government party in a
contractual issue would have to comply with the requirements of Article
299 of the Indian Constitution, which is actually not the case.
Nature of Concessions made in a Court of Law:
In Jamilabai Abdul Kadar v Shankarlal Gulabchand andOrs.
(30.04.1975), a three judge Bench consisting of A.C. Gupta, R.S. Sarkaria
and V.R. Krishna Iyer, JJ. had to consider whether a compromise signed
by the pleader of one of the parties was binding on that party. Holding in
the affirmative, the court stated that the pleader had an implied authority
to enter into a compromise on behalf of his client even when the client
has not expressly authorized the pleader to do so. Despite such authority,
the court advised as a matter of prudence that the advocate should take
the clients concurrence.
Subsequent to this decision Rule 3 of Order XXIII was amended.
The Rule reads as below (the underlined portions are some of the
insertions made in 1976, that is, one year after Jamilbai)
Where it is proved to the satisfaction of the Court that a suit has
been adjusted wholly or in part by any lawful agreement or compromise
in writing and signed by the parties, or where the defendant satisfies the
plaintiff in respect of the whole or any part of the subject-matter of the
suit, the Court shall order such agreement, compromise or satisfaction to
be recorded, and shall pass a decree in accordance therewith so far as it
relates to the parties to the suit, whether or not the subject-matter of the
agreement, compromise or satisfaction is the same as the subject-matter
of the suit:

Provided that where it is alleged by one party and denied by the

other that an adjustment or satisfaction has been arrived at, the Court
shall decide the question; but no adjournment shall be granted for the
purpose of deciding the question, unless the Court, for reasons to be
recorded, thinks fit to grant such adjournment.
Explanation.--An agreement or compromise which is void or
voidable under the Indian Contract Act, 1872 (9 of 1872), shall not be
deemed to be lawful within the meaning of this rule.
The above provision as amended seems to suggest that a court
compromise (a compromise between the parties which submitted to the
court for passing a decree on the basis of the same) cannot be reached
without the signature of the party. However, in Byram Pestonji Gariwala v.
Union Bank of India andothers (20.09.1991), a two judge Bench of the
Supreme Court (T.K. Thommen and R.M. Sahai, JJ.) held that
notwithstanding the amendments made in 1976, a compromise in writing
and signed by counsel of the parties was binding on the parties. The court
relied on the Statement of Objects and Reasons for the amendment
(which provided that the amendment was, among other things, intended
to clarify that a compromise has to be in writing signed by the parties to
avoid delay which might arise from the uncertainties of oral agreements).
On whether the 1976 amendment altered the law on the implied authority
of the advocates to enter into compromise on behalf of the client, the
court held:
After the amendment of 1976, a consent decree, as seen above, is
executable in terms thereof even if it comprehends matters falling outside
the subject-matter of the suit, but concerning the parties. The argument
of the appellant's counsel is that the legislature has intended that the
agreement or compromise should be signed by the parties in person,
because the responsibility for compromising the suit, including matters
falling outside its subject-matter, should be borne by none but the parties
themselves. If this contention is valid, the question arises why the
legislature has, presumably being well aware of the consistently followed
practice of the British and Indian Courts, suddenly interfered with the
time-honoured role of lawyers in the conduct of cases without specifically
so stating, but by implication? Can the legislature be presumed to have
fundamentally altered the position of counsel or a recognised agent, as
traditionally understood in the system of law and practice followed in
India and other 'common law countries' without expressly and directly so
stating?

Therefore the court held that the advocate had the implied authority
to enter into a written compromise on behalf of his client. Subsequent
decisions also recognized this [See, for instance, Pushpa Devi v. Rajinder
Singh]. In Commissioner of Endowments v Vittal Rao
MANU/SC/1003/2004, a compromise was made during the course of writ
proceedings. The court recognized the same despite non-compliance with
Order XXIII Rule 3 on the ground that writ proceedings stand on a
different footing when compared to proceedings pertaining to suits or
appeals.
The point about all this discussion in the current context is to
establish that even a concession or compromise by the advocate of a
party binds the client. Indian jurisprudence recognizes circumstances
when compromises and concessions could be made without amending the
contract. If that is so, it is difficult to conceive that in contracts involving
governments, counsels would have no implied authority to make
concessions and compromises or that compromises and concessions
should be strictly in accordance with Article 299 of the Indian
Constitution. The rationale for the existence of implied authority of
advocates as held in Byram Pestonji applies with equal force to this
situation:
To insist upon the party himself personally signing the agreement
or compromise would often cause undue delay, loss and inconvenience,
especially in the case of non-resident persons. It has always been
universally understood that a party can always act by his duly authorised
representative. If a power-of-attorney holder can enter into an agreement
or compromise on behalf of his principal, so can counsel, possessed of the
requisite authorisation by vakalatnama, act on behalf of his client. Not to
recognise such capacity is not only to cause much inconvenience and loss
to the parties personally, but also to delay the progress of proceedings in
court. (emphasis supplied)
Our stand in this post is that the concession made before the
tribunal to transfer the seat was not an amendment to the agreement.
The court erred in not considering the concession as a species different
from a contractual amendment. A judgement based on concession by
parties would obviously override any previous agreement made by the
parties as if that is not so, it would obviate the purpose of making the
concession or the compromise in a court of law.

The case of TDM Infrastructure Pvt. Ltd. v. UE Development India

Pvt. Ltd., decided by a single judge bench of the Supreme Court in May
2008, is an important judgment dealing with the issue of forum shopping
with respect to seats of arbitration, and arbitration laws. In TDM
Infrastructure, the facts were these: the two parties to the dispute were
companies registered under the Companies Act of 1956. However, the
directors and the shareholders of the petitioner company were residents
of Malaysia and the Board of Directors of the petitioner also sat in
Malaysia. The respondent entered into a contract with the petitioner,
which also contained an arbitration clause. This arbitration clause
mandated that the law applicable in case of a dispute would be the Indian
Arbitration Act of 1940 and amendments thereafter.
Subsequently, differences arose between the parties. When the
arbitration agreement was resorted to, the Respondent proposed an
amendment to the arbitration clause by changing the venue of arbitration
to Kuala Lumpur, Malaysia, and applying the law of Malaysia, and the
Malaysian Arbitration Act of 2005. This proposal was rejected by the
petitioner, subsequent to which both parties proposed nominees that were
rejected by the other party. Therefore, an application was made under
Sections 11(5) and 11(6) of the Arbitration and Conciliation Act of 1996
for the appointment of a sole arbitrator.
Section 11 of the Arbitration & Conciliation Act, 1996 deals with the
procedure to appoint arbitrators. Section 11(12) states that only in cases
of International Commercial Arbitration, the Chief Justice of India can
exercise jurisdiction to appoint an arbitrator. In all other matters i.e.
domestic arbitration, the appointment of the arbitrator has to be carried
out by Chief Justices of High Courts. Thus, the matter hinged upon the
issue whether this was a case of International Commercial Arbitration.
Section 2(1)(f)(ii) of the Arbitration & Conciliation Act defines
International Commercial Arbitration as an arbitration where at least one
of the parties is a body corporate which is incorporated in any country
other than India. Section 2(1)(f)(iii) also defines International Commercial
Arbitration wherein a party is a company or an association or a body of
individuals whose central management and control is exercised in any
country other than India.

It was contended by the UE Development group that as TDM

Infrastructure Group is incorporated in India, it should also be legally
deemed to be situated in India notwithstanding the fact of its directors
being foreign nationals. Thereby, as both the companies would be
incorporated in India, Section 2(1)(f)(ii) would not be applicable and the
matter would be one of domestic arbitration. On the other hand, TDM
Infrastructure raised the contention that as its central management and
control is exercised from Malaysia, its day-to-day management does not
take place in India. Therefore, as per Section 2(1)(f)(iii), it was
International Commercial Arbitration and the Chief Justice of India could
appoint the arbitrator.
The Court held that if both the companies are incorporated in India,
the arbitration agreement concluded between them shall be construed to
be a domestic arbitration agreement and not an International Commercial
Arbitration. The Court also placed Section 2(1)(f)(ii) on a higher pedestal
than Section 2(1)(f)(iii) remarking that the latter will only be applicable in
cases where Section 2(1)(f)(ii) does not apply in its entirety. Thus, the
Court limited the application of Section 2(1)(f)(iii) to cases where the
body corporate is an association or a body of individuals unregistered or
unincorporated under Indian Companies Act, 1956.
The importance of this case lies in the fact that the Court has
restricted the scope for forum-shopping by companies in order to choose
national arbitration laws that are most conducive to their interests. By
holding that a company incorporated in India can only have Indian
nationality, and therefore, an arbitration between two such companies
would necessarily be a domestic arbitration, and by further observing that
it is part of Indian public policy that Indian nationals should not be
permitted to derogate from Indian law, the Court has made its stance
clear in this regard. Also, this stance adds greater certainty and clarity to
the determination of jurisdiction of the High Courts and the Supreme
Court to appoint arbitrators.
) Venture Global Engineering v. Satyam Computer Services
The year started with a bang when on the 10th of January 2008 the
Court pronounced the Venture Global Judgment. Before we get into the
judgment it may be worthwhile to outline the provisions of the Act
relating to enforcement of arbitral awards:

Scheme Of The Act: Broadly stated the Act has two parts. Part I
provides for domestic arbitration. Any arbitration taking place in India
(whether it is between Indian or foreign parties) would be governed by
Part I. Part II only provides for enforcement of certain types of foreign
awards i.e. New York Convention awards and Geneva Convention awards.
Part I of the Act, vide Section 34 contains provisions for setting aside of
domestic awards (based on Article 34 of the Model Law). There is no
provision, corresponding to Article 35 of the Model Law, requiring a
successful party to apply for enforcement of a domestic award. In other
words once objections to an award are dismissed (or there are no
objections) the award can be enforced straightaway without the need for
any proceedings for enforcement of an award. The position for a foreign
award is different in a significant aspect that there is only a provision
(Section 48) to enforce the foreign award (on the New York Convention
grounds). There is no provision to set aside a foreign award. This is since
the New York Convention envisages (vide Article V (e) ) that an award can
be challenged or suspended by the competent authority of the country in
which it was made or under the laws of which it was made.
Hence, to sum up, the statutory scheme is that there is a provision
to challenge a domestic award but there is none to challenge a foreign
award - the only provision being to enforce (or refuse to enforce) a
foreign award on the New York Convention grounds.
Facts And Issue: In Venture Global, the Supreme Court was
concerned with a situation where an award had been rendered in London
under the Rules of the LCIA and was sought to be enforced by the
successful party (an Indian party) in the District Court of Michigan, USA,
as the losing party was situated there. The dispute arose out of a
shareholder's agreement. The award held that there was an "event of
default" under the shareholder's agreement and as a result of which the
successful party could exercise its option to purchase the shares of the
appellant at book value. The JV company was situated in India but the
successful Indian party (Respondent) took the unusual steps to try to
enforce the award in the USA. The appellant contented that as transfer of
shares in an Indian company were involved and Indian procedures and
compliances would need to be gone through, Indian courts would have
jurisdiction and challenged the award in India by way of a civil suit. The
issue before the Supreme Court was whether a foreign award can be
challenged in India and if so under what provision.
Decision Of The Court: The Supreme Court held that even though
there may be no express provision for challenging an arbitration award
rendered outside India, the same could be challenged applying the
provisions available under the Act for challenging a domestic award
(Section 34 of the Act appearing in Part I). Applying a previous decision in
the case of Bhatia International v. Bulk Trading, the Court held that Part I
of the Act would also apply to Part II arbitrations, unless the parties have
expressly or impliedly opted out of the same.

Comment: What irked the court was that the properties were
situated in India. Indian compliance and regulatory mechanism would be
triggered. Indian interest would be affected. But the award would not be
tested here. Instead the award would be enforced indirectly through the
threat of contempt of court mechanism of a foreign court. This may be an
unusual feature of the case but in the process the court ended up laying
down bad law:
First and foremost, Venture Global has taken judicial law making to
a new height. It has created a procedure for challenging an award where
none exists (by borrowing the law which exists for domestic awards).
Secondly the court has ignored the scheme of the Act which (in accord
with the New York Convention) envisages that a foreign award can be
challenged only in the country where it was rendered or under the laws of
which it was rendered. Third, the decision has muddied the waters
considerably. Section 34 of the Act (providing for challenge to domestic
awards) permits a challenge on merits i.e. patent illegality on a wide
interpretation of the public policy ground, (applying a previous 2003
Supreme Court decision in Saw Pipe's case) whereas this is not
permissible for a foreign award (applying another 1994 Supreme Court
decision in Renusagar's case). Under the new judge made regime of
Venture Global, a foreign award can now be challenged on merits under
Section 34, even though the New York Convention grounds do not
contemplate such challenge. Furthermore, no application for enforcement
can proceed till an application for setting aside (perhaps in a different
form of the choice of losing party) has worked itself out. The enforcement
mechanism for foreign awards has thus been rendered inefficient, clumsy
and uncertain. Parties would therefore be well advised to incorporate a
clause opting out of Part I of the Indian Arbitration Act, in the case of
foreign arbitrations.
(ii) TDM Infrastructure Pvt. Ltd. v. U.E. Development India
Pvt. Ltd.

Statutory Scheme: As stated above, the Act has two Parts. Part I
applies to any arbitration seated in India irrespective of the identity of the
parties (i.e. Indian or foreign). Part I thus provides for a common set of
provisions for both domestic and international arbitrations. There are
however two specific provisions for international commercial arbitrations.
The first is that if there is a break down of the parties stipulated
mechanism for constitution of the arbitral tribunal (or no mechanism is
stipulated and the parties cannot agree), then in the case of international
commercial arbitration, the appointment is to be made by the Chief
Justice of the Supreme Court of India or his nominee, whereas in the case
of a domestic arbitration the appointment is to be made by the Chief
Justice of the High Court or his nominee having jurisdiction in relation to
the dispute. The second difference is of substance and that is, in an
international commercial arbitration parties are free to designate a
governing law other than Indian law. An arbitration between domestic
parties on the other hand shall be decided in accordance with the
substantive law of India. In view of this difference between the provisions
for domestic arbitration and international arbitration, it became necessary
for the Act to define "International Commercial Arbitration". This is
defined in Section 2 (1) (f) of the Act as follows:
(f) "international commercial arbitration" means an arbitration
relating to disputes arising out of legal relationships, whether contractual
or not, considered as commercial under the law in force in India and
where at least one of the parties is
an individual who is a national of, or habitually resident in, any
country other than India; or
a body corporate which is incorporated in any country than India;
or
a company or an association or a body of individuals whose central
management and control is exercised in any country other than India; or
the Government of a foreign country;
Facts And Issue In TDM Case: In TDM case the Supreme Court
was called upon to interpret the meaning of "International Commercial
Arbitration". The context was that a 100% subsidiary of a Malaysian
company brought arbitration against another 100% subsidiary of a
Malaysian company. The Petitioner contented that all its shareholders are
Malaysians and all directors are Malaysians too. Further all meetings of
the Board of Directors took place in Malaysia (except for one meeting,
statutorily required to take place at the registered office in India).
Under these circumstances, the Petitioner contented that though
both the companies are incorporated in India, the Petitioner is a company
whose "central management and control is exercised in a country other
than India and therefore the arbitration qualifies as an "international
commercial arbitration" within the meaning of Section 2 (1) (f) (iii).

Decision Of The Court: The Supreme Court rejected this

contention. It drastically read down Section 2 (1) (f) (iii). It held that the
said Section would not apply to a company but would only apply to
unincorporated associations or body of individuals. It held that if both
companies are incorporated in India then the arbitration between them
would necessarily be a domestic arbitration (irrespective of where the
central control or management may be). The court rested its decision on
the proposition that as a matter of "public policy", Indian companies i.e.
companies incorporated in India can only opt for Indian law as the
governing law of the contract. If an arbitration between them is held to be
an "international commercial arbitration" they would be able to opt for a
foreign law, which the Court held would be contrary to Indian public
policy.
Comment: The Supreme Court of India has re-read Section 2(1)(f)
(iii) and rendered significant portions of it otiose or meaningless. Firstly
the court ignored the disjunctive "or" between Section 2 (1) (f) (ii) and
Section 2 (1) (f) (iii). If incorporation outside India was to be the sole and
conclusive test, there would be no need for the word "or" at the end of
Section 2 (1) (f) (ii). The alternative test laid down in 2 (1) (f) (iii) was
simply overlooked (because it did not fit in with what the court felt to be
the public policy of India). Secondly the court ignored a plain reading of
Section 2 (1) (f) (iii) in so far as it expressly applies to a company.
More significantly the court laid down far reaching law stating that
once a company is incorporated in India it cannot opt for a foreign law (as
a matter of public policy). This ignores the fact that there may be SPVs or
100% subsidiaries of foreign companies set up in India which may
legitimately like to resolve their contractual difference through governing
law other than Indian. It is not the public policy of India (and there is
nothing in Section 28 of the Act to suggest) that a company which is
owned, controlled and managed from outside India cannot opt for a
foreign law merely because it is incorporated in India. The TDM Judgment
not only ignores a plain reading of Section 2 (1) (f) of the Act, it lays
down a far reaching proposition that as a matter of law, companies
incorporated in India cannot opt for a governing law other than India in
contractual matters. Indeed it casts a doubt that such companies can opt
for foreign law even in relation to off-shore arbitrations.
(iii) Comed Chemicals Ltd. v. C.N. Ramchand:

Facts And Issue: The issue before the Supreme Court was
whether a contract of employment or a contract where there is a masterservant relationship is arbitrable or not. The Respondent, a British
national, was the Director (Technical) of the applicant company. The
company terminated his services and raised disputes. There existed an
arbitration agreement between the parties. At the stage of appointment of
an arbitrator, two questions arose before the Court. The first was whether
the dispute was one which could be considered to be "commercial" under
Indian laws (a requirement of Section 2 (1) (f) of the Act in relation to
international commercial arbitration - please see above). The other issue
was whether the dispute between parties was arbitrable.
Decision Of The Court: The Supreme Court adapted the wide
interpretation of the expression "commercial" in accordance with foot note
to Article 1 (1) of the Model Law ("The term 'commercial' should be given
a wide interpretation so as to cover matters arising from all relationships
of a commercial nature ..........."). Accordingly it held that
notwithstanding the employer - employee relationship the disputes
between the parties would be considered to be commercial.
The next issue was whether the disputes would be arbitrable. The
court held that if the contract between the parties was merely a contract
of employment or a master-servant contract, the dispute would not be
arbitrable but if the contract stipulates performance of functions which
could be undertaken by a business man there would be an element of
commerce and the dispute would be arbitrable. The court referred to
various provisions under the Companies Act to conclude that a director of
a company is not a mere employee or a servant of a company. A director
is a controller of the affairs of the company. Hence the disputes between
the parties would be arbitrable.
Comment: The significance of the case lies in that it holds that an
ordinary contract of employment would not be arbitrable - though a
dispute of a company with its director would be arbitrable. However the
court did not lay down any lucid test as to the circumstances under which
disputes between a company and its (non-director) senior executives
would be arbitrable. In a given case it may become controversial and a
disputed question of fact as to whether such disputes are arbitrable or
not. There are no helpful guidelines laid down by the court to resolve this.
The end result being that save in the case of directors there is a cloud of
doubt as to whether disputes between a company and its employees are
arbitrable or not and accordingly it may be better to eschew an arbitration
clause in a contract of employment.
M/S COMED CHEMICALS LTD v. C.N. RAMCHAND
M/S COMED CHEMICALS LTD v. C.N. RAMCHAND (ARBITRATION
PETITION NO. 17 OF 2007) decided by C.K. THAKKER, J on November 07,
2008

Facts:
An MoU was signed between the M/s Comed Chemicals (Comed)
and CN Ramchand (Ramchand) for the development of products in the
field of bio-industries and manufacturing and marketing of such products.
In consequence, Ramchand was appointed as Director (Technical) by
Comed. Due to various grievances against Ramchand, including
resignation before completion of the work undertaken by Ramchand in
breach of the MoU, Comed initiated arbitration proceedings on August 12,
2005 as per Clause 12 of the MoU by appointing Ramesh H. Nanavati, a
retired District Judge as arbitrator. Ramchand replied that he was not
agreeable to the arbitrator proposed by the Company and instead
proposed 3 names. When Comed filed a petition for appointment before
the High Court, he contended that he was a British National. and
therefore the arbitration would be `International Commercial Arbitration'
as defined in Section 2(1)(f) of the Arbitration and Conciliation Act, 1996
(Act) and under Section 11(9) of the Act the Chief Justice of India (CJI)
would have the power to appoint an arbitrator. The application was
withdrawn and Comed filed an application before the CJI
Decision
The CJIs designate had to decide 3 issues:
Whether the disagreement amounted to dispute?
Whether the Agreement came within the purview of Commerce?
Whether Clause was an arbitration Clause or an Expert
Determination Clause?
The Court allowed the petition and held that the Clause 12 of the
MoU which read as follows was an arbitration clause:
If there be any dispute pertaining to meaning of this MoU or of any
nature, will be solved and decided by appointing an independent
Arbitrator acceptable to all the parties and if not solved by him can be
referred to court of law and for which the jurisdiction will be Vadodara.
Further, the Court, citing R.M. Investment & Trading Co. Pvt. Ltd. v.
Boeing Co. & Anr., (1994) 4 SCC 541 and other judgments held:
It was held that the agreement to render consultancy service by the
appellant to the respondent was `commercial' in nature and there was
commercial relationship between the parties.
The Court went on to hold that if the Contract was a mere
employment and the relationship between the parties was a masterservant relationship, the matter was inarbitrable. However

[I]f the respondent is engaged by the applicant Company to

perform functions which are inextricably linked with functions which could
be undertaken by a businessman or by a Company and such activities
form an integral part of his activities, there is element of `commerce'. In
that case, the provisions of the Act would clearly apply.
25. In the instant case, the respondent has been appointed as
Director (Technical) and has been allotted 40% equity shares in the
subsidiary Company (Comed Bio-Tech Ltd.). Over and above that, he was
to be paid salary and other benefits in lieu of services rendered by him.
Para 3 of the Agreement required the respondent to undertake certain
responsibilities.
The applicant-Company wanted to venture into the field of biotechnology which was not previously chartered or traversed by it (novel
bio-products). The respondent possessed special knowledge and to get
the benefit of such research and expertise, an agreement had been
entered into by the parties and respondent had been appointed Director
of the subsidiary Company.
28. Now, it is well settled that a Director is not a mere employee or
servant of the Company. Such Director may have to work also as an
employee in a different capacity. I hold that the respondent was working
in dual or double capacity, i.e. (i)as an employee, and (ii) as a Director.
In the later capacity, however, he was the Chief Executive Officer of the
subsidiary Company and had to look after all operational matters. The
functions to be performed by him were supervisory and related to policy
making decisions in the affairs of the Company, as observed by this Court
in Ram Pershad. Any dispute between the applicant-Company and the
respondent would, therefore, be covered by Clause 12 of the Agreement
which provides for arbitration. Hence, the contention of the learned
counsel for the respondent that the respondent was merely an employee
and there was no element of business, trade or commerce has no
substance and must be rejected.
The Court appointed Madhukar Fanse, retired Judge, City Civil
Court, Ahmedabad as the sole arbitrator to decide the dispute between
the parties