ALTERNATE

DISPUTE
RESOLUTION
(ADR)

`
US
President
Abraham
Lincoln

Discourage litigation persuade your neighbours

to compromise, whenever you can point out to them
how the nominal winner is often a real loser, in
fees, expenses, waste of time
In simple terms he was advocating ADR for
resolving disputes.

What is ADR It is nothing but Alternate

Dispute Resolution.
Concept of ADR
lies in resolving the dispute outside the
standard court procedures.
Encourages communicative capacity of the
disputants.

Obvious question ---- what is the need for having ADR . - Consider
this figures -----

Reasons for the increase in litigation - Planning

Commissions Working Group report --12th Five Year
Plan (2012 2017)
Poor judge-population ratio-Vacancies in courts
Plethora of laws
Prolonged and costly litigation caused by procedures
and lawyers interests
Poor infrastructure; and
Weak alternate dispute redressal mechanisms

 Hence need was felt by people for an ADR.

To sum up the primary object of ADR,
----- According to P.C Rao, Secretary General, of
the International Centre for ADR,
is avoidance of vexation, expenses and delay and
promotion of the ideal of access to justice for all.

 So, is ADR is a modern phenomena.

No. The history goes back to 12th century in China,
England and America.
position in India? - According to Dr. Priyanath Sen
author of the The General Principles of Hindu
Jurisprudence
the ADR mechanism dates back to the period of
Dharmashastras.

 ADR used for - resolution of disputes between members

of particular clan and locality by Kulas (family or clan
assemblies),
Srenis(guilds of men following same profession), and
Parishads (assemblies of learned men who knew law).
More specifically in rural areas Nyaya panchayats
decided almost all the disputes between the inhabitants
of the village.

 Most importantly - recognized as the systems of

the administration of justice and not merely as
alternatives.
Importantly procedure and nature of proceedings
of the above institutions - was similar to ADR
being simple informal inexpensive quick.

Reasons behind the phenomenal growth of ADR :

1. Expeditious disposal of cases
2. Inexpensive litigation
3. Informal method of resolution
4. Growth of Commercial transactions
5LPGLiberalization,Privatization, Globalization

Consensual Processes

Adjudicatory Process

Negotiation

Mediation

Arbitration

A communication
process utilized to
put deals together
or resolve conflicts

Facilitated
Negotiation

Informal third
party decision
making

Parties retain control of

the outcome and the process

High
Parties look to future in light of past

Parties retain control of the outcome but

yeild to assistance in the management of
the process.
Control of outcome
Control of process

Parties give up control of the

outcome and the conducting
of the process

Litigation
Formal
third party
decision making

Parties give up control of the out

come and the process

Low
Processes look to the past to determine its resolution and set the stage for a better future

Model explains the different ADRs in a continuum

explaining the advantages and unique features.
Drawing the line from Negotiation upto Adjudication and
Legislation, the line of formality increases from left to
right.
While the consensual process is totally informal and by
Agreement,
the Adjudication process, which is controlled by state and
conducted in accordance with law is totally formal and by
imposition.

At the bottom the control levels are explained.

While in negotiation the control over the initiation,
procedure and outcome is greater,
it gets diminished in other processes and
it is totally absent in adjudication and legislation
process.

 Advantages
1) can be used any time even when a case is pending
before a court
2) can be used to reduce a number of contentious
issues
3) can provide a better solution to the disputes more
expeditiously and at less cost than litigation.

 4) dispute remains a private matter and has a

chance of getting resolved soon.
5) procedures per se are flexible and not controlled
by rigorous rules of procedures. - CPC ?

 6) There need not be a professional advocate or

counsel present in the proceedings ?
7) helps reduce the workload of courts thereby
allowing it to focus on cases which have to be
resolved by courts. ?

 Prime example of the effective working of

Conciliation, a form of ADR
The model of pre-trial In-trial and post-trial
Conciliation Project in subordinate courts evolved
by Himachal Pradesh High Court
- commended by the Law Commission in its 77th Delay and Arrears in Trial Courts and 131th report
-.

 However inspite of its obvious advantages for the ADR

procedure to be more successful, it is necessary that
i) there should be good law,
ii) good infrastructure facilities for holding ADR
proceedings &
iii) professionally trained ADR practitioners.

 So, whether ADR is all advantage, No. -- there are

obvious flaws and disadvantages
1) biggest disadvantage -- unfamiliarity of the process
itself.
2) ADR is difficult in the sense that there is unequal
bargaining power of one of the parties.

 3) settlement is reached between the parties the

same is not binding on the parties.
4) A party may sabotage the success of the dispute
resolution process leading to trial denovo thus
leading to protracted litigation and
which can further give rise to later litigation
defeating the whole purpose of ADR mechanism.

4) legal profession also attracted by the popularity and

volume of arbitration --- making the arbitral process more
formalized
thus making more judicial in nature thereby losing the
distinction between it and the courts.
5) The courts intervention before during and after
arbitration, made arbitration as dilatory as the court
system.to some extent reduced by the Arbitration and
Conciliation Act, 1996.

 Now to what sort of disputes is ADR suitable.

Both Procedural law & Substantive law.

CPC,
CRPC,
Family Disputes,
Industrial Disputes Act,
Hindu Marriage Act,
Motor Vehicle claims,
Negotiable Instruments Act.

 Food corporation of India v Joginder Pal Mohinder

Pal AIR 1989 SC 1263.
The Respondent entered into a contract with the
appellant Food Corporation of India on or about
May 1979 where under, the appellant Corporation was
to give to the Respondent the Paddy for being
converted into rice at the rate of 70% of the Paddy.
The Paddy was to be lifted from the godowns of the
appellant.

 The shelling charge was fixed at Rs 2.20 p. per

quintal.
Subsequently, disputes arose between the parties, and
the Respondent moved an application before the
Subordinate Judge for appointment of an arbitrator
and the Sub-Judge appointed the arbitrator who gave
his award on 22nd January 1982.

In the award the arbitrator did not allow some of the

claims made by the appellant, in particular, a claim
of penalty for not lifting the balance of Paddy.
The arbitrator in disallowing the claim, took the
view that the appellant has to prove the actual
losses suffered by it which the appellant failed to
prove.
Another claim not allowedby the arbitrator related
the cost of non-delivery of rice.

 The Respondent made an application u/s. 14 of the

Arbitration Act, 1940 to make the award a rule of
the Court. The appellant filed the objections u/s 30
and 33 of the Act.
The Subordinate Judge, First Class, on 2nd
December, 1982, found that the award was liable
to be set aside and accordingly modified the
award and passed a decree in favour of the
appellant for the amount.

 On 2nd March, 1984, the Additional District Judge

allowed the appeal by respondent and reversed the
Subordinate Judge's order.

The appellant filed a revision petition against the

order of Additional District Judge. The High Court
on 11.12.84 dismissed the revision petition.
Therefore the appellant Corporation went in appeal

Dismissing the appeal, the Court held that the arbitrator

has chosen to make a speaking award in the instant
case, that is, he has given reasons for his decision.
the arbitrator has chosen to give reasons,
unless it is demonstrated to this Court that such
reasons are erroneous as a proposition of law

or a view which the arbitrator has taken, could not

possibly be sustained in any view of the matter,
then the challenge to the award of the arbitrator
cannot be sustained.
Even assuming that there was some mistake, such a
mistake is not amenable to be corrected in respect of
the award by the Court.

 This was a fair order passed after considering all the

records. The Court has no jurisdiction to interfere or
modify the award in the manner sought for by the
appellant.
The Addl. Distt. Judge was justified in correcting the
order of the Subordinate Judge and the High Court
was also justified in not interfering with the order of
the Addl. Distt. Judge.

 The courts are full of litigations, which are pending

for long time. Therefore, it should be the endeavour
of those who are interested in the administration of
justice to help settlement by arbitration.
It has greater scope of acceptance today when there is
a certain erosion of faith in view of the failure to
appreciating the functions of the courts of law.

It has also the advantage of not only quickness of decision

but of simplicity of procedure.
However, the proceedings of arbitration must adhere to the
principles of natural justice and must be
in consonance with such practice and procedure which will
lead to a proper resolution of the dispute and create
confidence of the people for whose benefit these processes
are resorted to

 It is, therefore, the function of courts of law to

oversee that the arbitrators act within the norms of
justice.
Once they do so and the award is clear, just and fair,
the courts should, as far as possible, give effect to the
award of the parties and make the parties compel to
adhere to and obey the decision of their chosen
adjudicator.

 It is in this perspective that one should view the scope

and limit of correction by the court of an award made
by the arbitrator.
We should make the law of arbitration simple, less
technical and more responsible to the actual realities
of the situation, but must be responsive to the
cannons of justice and fair play and

 make the arbitrator adhere to such process and norms

which will create confidence, not only by doing
justice between the parties, but by creating a sense
that justice appears to have been done.
So far as the material of the present purpose is
concerned, an award of the arbitrator can only be
interfered with or set aside or modified within the
four corners of the procedure provided by the Act.

 Halsbury's Laws of England, Vol. 24th Edn., para 623

- reiterates that an arbitrator's award may be set aside
for error of law appearing on the face of it.
It is not misconduct on the part of an arbitrator to
come to an erroneous decision, whether his error is
one of fact or law, and
whether or not his findings of fact are supported by
evidence - Russell on Arbitration, 20th Edn., page
422.

 Beyond this, the court has nothing to examine. It is

not necessary for a court to examine the merits of the
award with reference to the materials already
produced before the arbitrator.
The Court cannot sit in appeal over the views of the
arbitrator by re-examining and re-assessing the
materials

 it appears to us that the learned Additional District

Judge was right in the view it took and the High
Court, therefore, was justified in dismissing the
revision.
The appeal, therefore, fails and is accordingly
dismissed

 ARBITRATION & CONCILIATION ACT,

1996
Sec 2(a) of Arbitration and Conciliation Act 1996
defines Arbitration:
The term Arbitration means any Arbitration whether or not administered by a
permanent Arbitral Institution.

 It also means
an alternative means of resolving the disputes
provided the parties have previously agreed to do
so instead of going to court.
Some authors have meant Arbitration to mean
a Private Court without certain powers of court
like the power of execution of award, - taking out
contempt proceedings.

The term Arbitration has been derived from the

nomenclature of Roman Law

Arbitari (to examine or judge )

In Halsburys laws of England, arbitration has been
defined as
the reference of dispute or difference between not
less than two parties, for determination, after hearing
both sides in a judicial manner, by a person or
persons other than a court of competent jurisdiction

 Therefore we can conclude that,

where a dispute is sought to be resolved by a
intervention of third party is called Arbitration.

 Historical Perspective:
The first traces of change in the ancient ADR system
was in the year 1772 in the form of Regulations
and thereby attempt was made to introduce of
system of Arbitration in India in consonance with
British Jurisprudence.

Regulation

Salient provision

1781

the judge to recommend as far as he can with out

compulsion and prevail upon the parties submit to
Arbitration by one person to be mutually agreed upon by
the parties.

1787

Empowered a Court to promote Arbitration in cases where

the value of the debt or property did not exceed Rs 200/Arbitration was permitted in cases of breach of contract.

1833

Agreement of Arbitration shall be in writing.

Regulation

Salient provision

1857

Civil Procedure Code Promulgated First time Arbitration

thru two channels, namely with and without the
intervention of Court.

1882
(1857 Act
revised)
1889

Arbitration was defined as a written agreement to submit

present and future differences to Arbitration. The Arbitrator
may be named in the Agreement.
Earlier the subject of Arbitration was made a part of civil
procedure. Now an independent Act governing Arbitration
was passed mentioning the same details which were in
the earlier regulations.

1940

New Arbitration Act came to be enacted.

1996

Because of the lacunas' in the 1940 Act, Courts

interference became as a matter of routine and therefore
the Arbitration and Conciliation Act 1996 came to be
enacted.

 Attributes of Arbitration have been explained in the

matter of
K.K Modi vs K.N Modi by the Supreme Court of
India. AIR 1998 SC 1297.
For an agreement to be considered as an arbitration
agreement are:
i) It must contemplate that the decision of the tribunal
will be binding on the parties of the Agreement.

 Ii) Jurisdiction of the tribunal to decide the rights of the

parties must flow from the
consent of the parties, or
from the order of the Court or
from a statute, so that it is clear that what is sought to
be conducted is a process of Arbitration.
Iii) Agreement must contemplate that substantive rights
of the parties will be determined by the agreed tribunal.

 Iv) Tribunal will determine the rights of the parties in

an impartial and judicial manner.
v) The agreement of the parties to refer their disputes
to the decision of the tribunal must be intended to be
enforceable by law.
Vi) The agreement must contemplate that the tribunal
will make a decision upon a dispute which is already
formulated at a time when a reference is made to the
tribunal.

 Now what are the types of Arbitration:

1) Adhoc Arbitration :
Here in pursuance of Agreement the parties
themselves appoint their own Arbitrator/ Arbitrators.
They proceed with the Arbitration till the culmination
of award.
All rules prescribed in the Act must be strictly
followed by the parties and the Arbitral Tribunal.
The award obtain is a final award and where there is
an arbitration agreement, the suit is barred.

 2) Institutional Agreement:
Here the parties get conducted the Arbitration
proceedings thru an institution speciliasing in
conducting Arbitration such as Chamber of
Commerce in each state, and thru the
Inter Governmental agencies.
These institutions provide all facilities for conduct of
Arbitration proceedings including appointment of
Arbitrators from the panel of Arbitrators maintained
by them.
They conduct Arbitration in accordance with the rules
framed by them.

 3) International Commercial Arbitration:

Subject to the Law of Arbitration, International
Commercial Arbitration means
an arbitration on disputes arising on International
Trade limited to what are as known as Commercial
transactions between and among the parties residing
in different Countries.

4) Statutory Arbitration:
Where an Act provides compulsory Arbitration, the parties
resort to arbitration only as provided in the Statute.
Here the statute itself names the Arbitrator and parties
aggrieved by any action taken or orders issued by any
authority under the Act, they have to compulsorily approach
the named Arbitrator for a decision on the dispute.

 Recourse to a Court without seeking Arbitration is

barred.
Eg :- Co-operative societies Act, Electricity Act,
Land Acquisition Act, Railways Act, Telegraphic Act,
Industrial disputes Act
are some of the legislations which provide for
compulsory arbitration, which is nothing but
Statutory Arbitration.

 WHAT DISPUTES CAN BE REFERRED TO

ARBITRATION
Generally speaking, all disputes of a civil nature or
quasi-civil nature which can be decided by a civil court
can be referred to arbitration.
Thus, disputes relating to property, right to hold an
office, compensation for non-fulfilment of a clause in a
contract, disputes in a partnership etc. can be referred
to arbitration.

 Even the disputes between an insolvent and his creditors can

be referred to arbitration by the official receiver/liquidator
with the leave of the court.
Thus disputes arising in respect of defined legal relationship,
whether contractual or not, can be referred to Arbitration.
Therefore, the relationship may not be a contractual one.
A dispute may arise out of quasi contracts e.g. the division
of family property. The same may be validly referred to
Arbitration.

 DISPUTES EXCLUDED FROM ARBITRATION

An illustrative list of such matters :
Testamentary matters involving questions about
validity of a will.
Disputes relating to appointment of a guardian.
Disputes pertaining to criminal proceedings
Disputes relating to Charitable Trusts
Winding up of a company
Matters of divorce or restitution of conjugal rights

 Lunacy proceedings
Disputes arising from an illegal contract
Insolvency matters, such as adjudication of a person
as an insolvent.
Constitutional Validity of Arbitration and
Conciliation Act, 1996
Babar Ali v UOI and Others (2000) 2 SCC 178

Arbitration and Conciliation

(Amendment) Ordinance 2015
The main thrust of amendments in the new
Arbitration and Conciliation (Amendment)
Ordinance 2015 :
i) The main thrust of amendments is to minimize the
delays in arbitration process and courts intervention
by
ii) Empowering arbitral Tribunal with the same
powers of a court for the purpose of granting
interim measures/relief

 iii)Suggesting indicative model fee structure for Arbitral

Tribunal
iv)Fixing time limits for passing of arbitral award
and disposal of applications by courts
v) Mandating detailed disclosures/ guidelines for
disqualification for ensuring impartiality, independence
of arbitrators

 Thus for an Arbitration to take place there should be

an Arbitration Agreement.
So what is an Arbitration agreement?

Arbitration Agreement is defined in Sec 2(b) of

the Arbitration and Conciliation Act, 1996.

 Sec 2 (b) defines An Arbitration Agreement as an

agreement referred to in Sec 7 of the Act.
Further Sec 7 provides that an Arbitration Agreement
means an agreement by the parties to submit to arbitration of
certain disputes which have arisen or which may arise
between them in respect of a defined legal relationship
whether contractual or not.
So, whether an Arbitration Agreement should be in
writing.

 The answer is yes. Therefore an Arbitration

Agreement should be in writing and it shall be
deemed to be in writing if:
i) it has reduced in writing
ii) a document is signed by the parties
Iii) there is an exchange of statements of claim and
defense

 Sec 7 (4) (b) an exchange of letters, telex, telegrams or other

means of telecommunication which provide a record
of the agreement; including communication through electronic
means (new ordinance)

 So if the Arbitration Agreement should be in writing, - whether

an Oral Agreement is valid. i.e whether it has any legal validity.
i) Whether such an oral Agreement is itself enforceable in law
& Ii) whether an award made as a result of such an oral
Agreement is enforceable in law.
The oral Agreement cannot be legally enforceable.

 So what is an Arbitration Agreement and what

should it contain?
An Arbitration Agreement is the very foundation
on which the jurisdiction of the arbitrators to act
rests. It defines the scope of authority of the
Arbitrators.
i) There should be an existence of an clause as to
dispute/s being referred to Arbitration. Is this
enough?

 No. Though, per se it is enough, there should be a

mention that no Court shall have jurisdiction in
respect of disputes or differences arising between the
parties.
Ii) The next question whether the Agreement should
mention any procedure for appointment of Arbitrator.

 iii) The next aspect is the choosing an arbitrator.

It can be a sole arbitrator or a panel consisting of odd
number of Arbitrators preferably 3 in number.
It may also be mentioned such each party shall appoint an
Arbitrator, and the two arbitrators shall appoint the
Presiding Arbitrator.
This is done to prevent a deadlock in case of the opinion
being not unanimous.

Iv)An Arbitration clause can be as follows:

all disputes arising out of this contract or arising in
relation thereto or in connection with the terms of
contract shall be referred to arbitration by an
arbitral tribunal consisting of of one arbitrator to be
named by each party and the two arbitrators so
appointed shall appoint the presiding arbitrator.

 The award passed by the arbitral tribunal shall be

final and binding on the parties.
The Arbitration proceedings shall be held at
-----------.

 The test as to whether a dispute fell within the scope

of Arbitration clause is
whether recourse to the Arbitration Agreement was
necessary for the purpose of determining of the disputes
between the parties.
V) One important aspect is the party executing the
Arbitration Agreement must be in existence on the
date of execution of Agreement.
Such company not being in existence, is not bound by the
Arbitration clause. APTDC v Pampa Hotels Ltd. AIR
2010 SC 1806.

 Arbitration clause incorporated in Agreements

entered in to with Government. - Essentials
i) must conform to the mandatory requirements of Art
299 of the Constitution of India.
Ii) the contract must be expressed in the name of the
President of India or Governor of the State and
executed by a person authorised on behalf of the
President or the Governor.

 Iv) One of the most significant aspects of an

arbitration agreement is that whether there can be
Arbitration Agreement on behalf of a minor.
As a minor is not competent to enter into contract he
cannot agree to submit to Arbitration.

 But, - may be made on behalf of the minor by his

natural or legal guardian if it is made in good faith
and for the benefit of the minor.
However if the minor is not properly represented and
the guardian fails in his duty the award is not binding
on the minor. Mohiri Bibi v Dharmodas Ghosh

 Sec 8 - Power to refer parties to arbitration where

there is an arbitration agreement - Effect of the
Arbitration clause.
Judicial authority before whom the action is brought bound to refer the parties to Arbitration, and
will insist they should have a recourse to Arbitration
before pursuing any other remedy. - (Unless it find
that prima facie no valid arbitration agreement
exists)- New Ordinance

Though it is mandatory for court to refer the parties to

arbitration, however certain conditions are required to be
satisfied.
i) There is an existence of a legally valid agreement which is
operative and capable of being performed.
Ii) One of the parties start legal proceedings.
Iii) The legal action is brought in manner which is the subject of
an arbitration agreement.
Iv) The dispute in the legal proceedings is covered by and is
arbitrable under the Agreement

 V) An application is made by a party to the judicial

authority before whom an action is brought
requesting that the parties be referred to
Arbitration.
Vi) Such application is made by a party before
submitting his first statement on the substance of
dispute.

 Vii) The application is accompanied by the

original agreement or a duly certified copy
thereof.
(where the party making an application does not
have the agreement and is retained by the other
party it shall request the court to direct the other
party to produce the original or a certified copy)
New Ordinance

 Natraj Studio Pvt Ltd v Navrang Studios

AIR 1981 SC 537
Question before the Supreme Court was which of
the two forums would have jurisdiction the arbitrator in accordance with the arbitration
agreement or the Court of small causes which is
conferred with exclusive jurisdiction in respect of
matters covered by Bombay Rent Act, 1947.

 It was held that the Bombay Rent Act, 1947. is a

welfare legislation and the scheme of the Act
shows that it confers exclusive jurisdiction in
pursuance of the social objective.
Public Policy requires that contracts to the
contrary which nullify the rights conferred on
tenants by this Act cannot be permitted.

 Therefore public policy requires that parties cannot

also be permitted to contract out of the legislative
mandate which requires certain kinds of disputes to
be settled by special courts constituted by the Act.
It follows that the arbitration agreements between the
parties whose rights are regulated by the Bombay
Rent Act cannot be recognised by a Court of Law.


APTDC v Pampa Hotels Ltd AIR 2010 SC 1806.
Facts:

In March 2002, Andhra Pradesh Tourism Development

Corpn.
(APTDC)
and
Pampa
Hotels
Ltd
(Pampa)allegedly entered into two agreements, Lease
Agreement (LA) and Development & Management
Agreement (DMA), for a particular purpose. The two
agreements contained arbitration clause.
According
to the
respondent -clause 17 of the
lease agreement
and Article
18 of the
management agreement contained provision for disputes
resolution.

providing that in the event of disputes, best efforts shall

be
made
to
resolve
them
by
mutual
discussions, amicably; and in the event of the parties not
finding an acceptable solution to the disputes within 30 days
(60 days in the case of management agreement), the same shall
be referred to arbitration in accordance with the procedure
specified in the Act.
On April 9, 2003 Pampa was incorporated in terms of the
Companies Act, 1956.

 On 21.4.2004 APTDC terminated the said

agreements on 21.4.2004. Thus, disputes
arose between the parties.
In March 2005: Respondent, filed an
application for appointment of arbitrator
before the Andhra Pradesh High Court
under section 11 of the Arbitration and
Conciliation Act, 1996.

 APTDC resisted the application. One of the

contentions urged by APTDC was that there was
no arbitration Agreement between them and
therefore the question of appointing an Arbitrator
under section 11 of the Act did not arise.
It was pointed out that - according
to
the respondent, the arbitration agreement came
into
existence on
30.3.2002, when parties
executed the Lease Agreement and Management
Agreement on 30.3.2002 containing the arbitration
clause;

and, admittedly the respondent was not in

existence on that date, as it was incorporated
more than a year thereafter on 9.4.2003; and
that as the party had not even come into
existence on that date, obviously there was no
contract much less any arbitration agreement
between the parties.

 On 16.08.2005 - Designate of the Chief Justice

allowed the application appointed an arbitrator in
terms of Section 11 of the Act.
He held that having regard to the decisions
in Konkan Railway Corporation Ltd. v. Mehul
Construction
Co. [2000 (7) SCC 201] and
Konkan
Railway Corporation Ltd. v. Rani
Construction Pvt. Ltd. [2002 (2) SCC 388],

he had only a limited administrative role under section 11 of

the Act, that is, to appoint the arbitrator as per the agreed
procedure, leaving all contentious issues including whether
there was any arbitration agreement or not, to be decided by
the Arbitrator.
On 26.10.2005 A Seven Bench Supreme Court, in SBP &
Co. v. Patel Engineering, overruling the law as it stood
then, held, inter alia,

 that issues regarding the validity of arbitration

agreements raised in applications for appointment
of arbitrator under Section 11
ought to be decided finally by the Chief Justice or
his designate under Section 11 and such a decision
will be binding on the parties and the arbitral
tribunal. (Konkan Railway Corpn. Ltd v. Rani
Construction Pvt. Ltd AIR 2002 2 SCC 388
decision overruled )

 22.11.2005: A SLP was filed by APTDC

challenging the decision of the said designate.
(A.P High Court)
Identification of the relevant issues:
(i)where the party seeking arbitration is a
company which was not in existence on the date
of the signing of the contract containing the
arbitration agreement whether it can be said that there is an
arbitration agreement between the Parties and
whether it is binding on the company?

 (ii) whether the question as to the existence or

validity of the. arbitration agreement,
has to be decided by the Chief Justice/Designate
when considering the petition under Section 11 of the
Act or by the Arbitrator ?

 It is not disputed
that both
the
agreements contain a provision for arbitration.
It is also not disputed that both of them were
signed
by
Mr.
C.Anjaneya Reddy, as
Chairman of APTDC and Mr. S.Jayarama Chowdary
as Managing Director of Pampa Hotels Ltd.

 Explaining the relevant legal Principle and the

law/Section involved
Section 11 of the Arbitration and Conciliation Act,
1996- Section 15 of the Specific Relief Act, 1963Section 34(2) of the Companies Act,Section 149(3) of the Act - under Article 136
of the Constitution of India.
The certificate of registration issued by the
Registrar of Companies shows the date of its
incorporation as 9.4.2003.

Section 34(2) of the Companies Act, provides that

from the date of incorporation it shall be
capable forthwith of exercising all the
functions of an incorporated company
A certificate under section 149(3) of the Act was
issued by the Registrar of Companies only on
6.6.2003, certifying that respondent is entitled to
commence business.

 Applying the law to the issues with

logical conclusions :
It is thus clear that the applicant in
application under section 11 of the Act
was non-existent on 30.3.2002 when the
arbitration agreement was entered into.

 The two agreements dated

30.3.2002
categorically refer to Pampa Hotels Ltd. as an
existing company (promoted for the purpose of
implementing the project by Sudalagunta
Hotels Ltd.) incorporated under the provisions
of the Companies Act.

 The agreements are not entered by the promoters

of the company, but by the company itself,
represented by its Managing Director. Admittedly
on 30.3.2002 there was no such company
in existence.
Admittedly, S. Jayarama Chowdary was not
the Managing Director of any company of that
name on above date.

The position would have been different,

had the
agreement been entered by the promoters of the respondent
company before its incorporation for the purposes of the
company and such contract was warranted by the terms of
incorporation. Under Section 15 of the Specific Relief Act,
1963.
The agreement would have been valid; and the term
regarding arbitration therein could have been enforced.

 But for reasons best known to themselves, the

agreement was entered not by the promoters of
Pampa Hotels Ltd., on behalf of a company proposed
to be incorporated by them, but by a
non- existing company claiming to be an existing
company

 This clearly shows that There is no arbitration agreement between the

respondent (applicant in the application under section
11 of the Act) and APTDC against
whom such
agreement is sought to be enforced.

 Relevant precedents Applicability of the Ratio

to the given case. - S.B.P & Co. v Patel
Engineering Ltd. (2005) 8 SCC 618
This question is no longer res integra. (A case or
a question that has not been examined or
passed upon)

 Held - that the question whether there is an

arbitration agreement and whether the party who
has applied under section 11 of the Act, is a party
to such an agreement, is an issue which is to be
decided by the Chief Justice or his Designate under
section 11 of the Act before appointing an
arbitrator.

 Judgment and its critical appraisal

There can be no doubt that the issue ought to have
been decided by the learned Designate of the Chief
Justice
and could
not have been
left
to the arbitrator.
But as noticed above, the learned Designate
proceeded on the basis that while acting under
section 11 of the Act. He did so by following the two
decisions in Konkan Railway which were then
holding the field.

 In SBP case a seven-Judge Bench of this

Court overruled the two decisions in Konkan
Railway. The decision in SBP was rendered on
26.10.2005, a few weeks after the impugned
decision by the Designate on 16.8.2005.
Having regard to the fact that several decisions
rendered under section 11 of the Act had followed the
decisions in Konkan Railway, the decision in SBP
case was made prospective in application.

 Implication
On account of the prospective overruling direction in
SBP,
any appointment of an arbitrator under Section 11 of the
Act made prior to 26.10.2005 has to be treated as valid
and all objections including the existence or validity of
the arbitration agreement, have to be decided
by the arbitrator under section 16 of the Act.

 The legal position enunciated in the judgment in SBP

will govern the applications to be filed under Section
11 of the Act from 26.10.2005, as also the
applications under section 11(6) of the Act pending as
on 26.10.2005 (where the Arbitrator was not yet
appointed).

 The law on this aspect prior to SBP was

that questions regarding the validity of arbitration
agreement could only be taken before the arbitral
tribunal and not before the appointing court under
Section 11 of the Act.

 Application accordingly disposed of the appeal

without interfering with the appointment but with a
direction to the Arbitrator
to decide
the issue in regard
to the
existence/validity of the arbitration agreement
as a preliminary issue relating to jurisdiction in the
light of what has been stated above.