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Powers of an Arbitrator-Under Arbitration and Conciliation Act

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Published on: September 14, 2009

This article gives an analysis of the power given to the Arbitrator under S. 17 of the Arbitration and Conciliation Act, 1996 with respect to Article 16,21 and 26 of the UNCITRAL Model Law, S.9, 16, 34 (2) and 37(2) of the Arbitration and Conciliation Act, 1996. 

 S.17 of the Arbitration and Conciliation Act, 1996

S.17 of the Arbitration and Conciliation Act, 1996 deals with the Interim measure ordered by Arbitral Tribunal. It states:

1)      Unless otherwise agreed by the parties, the Arbitral Tribunal may, at the request of a party, order a party to take any interim measure of protection as the Arbitral Tribunal may consider necessary in respect of the subject matter of the dispute.

2)      The Arbitral Tribunal may require a party to provide appropriate security in connection with a measure ordered under sub section (1)

Article 26 of the UNCITRAL Model Law

Article 26 – Interim measures of Protection

1)      At the request of either party, the arbitral tribunal may take any interim measure it deems necessary in respect of the subject matter of the disputes, including measures for the conservation of the goods forming the subject matter in dispute, such as ordering their deposit with a third person or the sale of perishable goods.

2)      Such interim measures may be established in the form of an interim award. The arbitral tribunal shall be entitled to require security for the costs of such measures

3)      A request for interim measures addressed by any party to a judicial authority shall not be deemed incompatible with the agreement to arbitrate, or as a waiver of that agreement.

 UNCITRAL Model Law and the repeal of Arbitration Act, 1940

In the past, statutory provisions on arbitration were contained in three different enactments, namely, the Arbitration Act, 1940, the Arbitration (Protocol Convention) Act, 1937 and the Foreign Awards (Recognition and Enforcement) Act, 1961. The Indian Arbitration Act, 1940 consolidated and amended the laws relating to domestic arbitration very exhaustively. With the advent of time, India’s role in international trade increased due to which it was felt that a uniform set of rules be adopted to govern international sales[1]. Therefore, India became the member of the United Nations and ratified the United Nations Commission of International Trade Law (UNCITRAL) Model Law in the year 1996 and incorporated the same in the Arbitration and Conciliation Act, 1996 so as to bring uniformity of law in arbitral procedures with respect to international and domestic arbitration. The Model Law constitutes a sound and promising basis for the desired harmonization and improvement of national laws[2]. By Section 85 of the new Act (1996 Act), the old Arbitration Act, 1940 and other two Acts were repealed.

The main objective with which the Arbitration Act was enacted was to provide speedy justice to the people by avoiding unnecessary litigation charges.  However, the experience shows that far from achieving that purpose the procedure has become more cumbersome and dilatory. The Courts used to stay the arbitral proceedings for a long time and used to decide everything. According to the observations of His Lordship Desai, J. in M/s. Guru Nanak Foundation v. M/s. Rattan Singh & Sons[3],

The proceedings under the Act of 1940 have become technical accompanied by unending proximity, at every stage providing a legal trap to the unwary. Informal forum chosen by the parties for expeditious disposal of their disputes has by the decisions of the courts been clothed with ‘legalese’ or unforseenable complexity”.  

 Therefore, to minimise the interference of the courts the Arbitration and Conciliation Bill, 1995 was formed which was implemented as the Arbitration and Conciliation Act in the year 1996. The main purpose for which the Model Law was incorporated in the Arbitration and Conciliation act was “to reduce the supervisory role of the courts”[4] and “to provide that every final arbitral award is enforced in the same manner as if it were a decree of the Court[5].

 

Power of the Arbitrator and the Court to grant interim measure under the Old Act and the new Act

Earlier, under the old Arbitration Act of 1940, the power to order interim measures was not available to the arbitrator. The Courts only had the power to grant interim measures in the subject matter of the dispute. Such matters had to be referred to the Courts under Second Schedule to the Arbitration Act, 1940.  However, it was open to the parties to confer such powers on the arbitrator. With the changing circumstances and globalisation, India became a member of the United Nations. The General Assembly of the United Nations recommended to its member countries that they should give due consideration to the UNCITRAL Model Law. Thus, the Parliament of India incorporated Article 26 of the UNCITRAL Model Law on International Commercial Arbitration into the Arbitration and Conciliation Act, 1996(hereinafter referred to as the “new Act”) as Section 17 which gives power to the arbitrator to order interim measures which should relate to the ‘subject matter’ of dispute and should be directed towards the party to arbitration.

Powers given to the arbitrator under S.17 of the Act of 1996

The whole purpose of the new Act was to speed up the Arbitration process and reduce intervention by the Court[6].  Under the new Act of 1996, S.17 states that the arbitral tribunal has inherent power to order a party to take interim measures of protection, unless the power is excluded by agreement between the parties. Thus, under the new Act, arbitrator has been given the power to order the parties to take recourse to the interim measure. The opening words of Section 17(1) indicate that the parties may by agreement exclude the exercise of such a power by the Arbitral Tribunal.

The power given to the arbitrator under this is very narrow. This is because he has been given the power to order the parties to take interim measures in matters only related to the subject matter of the dispute and not otherwise. In other words, the power is restricted only to the extent of agreement between the parties and not beyond that. As per S.16 of the new Act the arbitrator has the power to rule on its own jurisdiction. This section corresponds to Article 16 of the UNCITRAL Model Law and Article 21 of the UNCITRAL Arbitration Rules. Article 16 of the Model Law says that the Arbitral tribunal may rule on its own jurisdiction whereas Article 21 of the Rules states that the Arbitral tribunal shall have the power to rule.  Such power given to the arbitral tribunal is also referred to as ‘Kompetenz’. Thus, it has enacted the principle of ‘Kompetenz-Kompetenz’ which states that if there is a clause in the agreement entered into between the parties that there dispute shall be settled through the process of arbitration, then the arbitral tribunal had the jurisdiction to rule over that case. It can then decided the validity of the agreement also and in such a case the power of the courts are restricted.  

Analysis of the power of the court under s.9 and power of arbitrator under s.17 to grant interim measure

The power given to the court under S.9 of the new Act is very wide as compared to the power given to the arbitrator under S.17 of the new Act. Under S.9 of the Act, the court, may on application by a party, grant interim relief “before or during the arbitral proceedings or at any time after making of the arbitral award but before it is enforced.” Thus, under this section a party can make an application for the grant of interim reliefs of protection as provided therein not only during the arbitral proceedings but even before the commencement of the arbitral proceedings.[7] However, an application under S.9 cannot be invoked when there does not exist any manifest intention on the part of the applicant to take recourse to the arbitration proceedings[8]. The power contemplated under section 9 is not intended to frustrate the arbitration proceedings. If long rope is given to the parties to approach the court under section 9, in that event proceedings before the arbitral tribunal will be throttled and it would become difficult for the arbitral tribunal to proceed further in the matter[9].  Under Section 17 of the Act, the arbitral tribunal has been empowered to order a party to reference to take interim measures of protection in respect of the subject matter of the dispute. However, this section neither grants the arbitral tribunal the power to enforce its order nor provides for judicial enforcement of such orders of the arbitral tribunal. The major point of difference between section 9 and section 17 is that under section 17, the parties may by agreement curb the power of the arbitral tribunal to order a party to make interim measure of protection but the parties have no control over the power of the court to grant interim measures under section 9 of the Act.

There was a need for Section 9, in spite of Section 17 having been enacted, because Section 17 would operate only during the existence of the Arbitral Tribunal and its being functional. During that period, the power conferred on the Arbitral Tribunal under Section 17 and the power conferred on the Court under Section 9 may overlap to some extent but so far as the period pre and post the arbitral proceedings is concerned, the party requiring an interim measure of protection shall have to approach only the Court[10].

Limited power of the Arbitrator under S.17 of the Act, 1996

The term ‘arbitration’ refers to the decision of one or more persons on a particular matter which is in dispute between the parties[11]. The arbitrators are usually chosen by the mutual consent of the parties to the dispute. They act as a private extraordinary judge so as to settle the disputes between them[12]. It is the arbitration agreement[13], entered into by the parties concerned, which empowers the arbitral tribunal with the jurisdiction to hear and determine the dispute. The power of the arbitrator to grant interim measures under S.17 of the new Act is a limited one to the extent of the agreement between the parties to the dispute. The ‘interim measures’ which are given by the tribunal are temporary & provisional, and are operative till the dispute is resolved by an award, to protect the interest of a party. The courts cannot sit in appeal over the views of the arbitral tribunal by re-examining and re-assessing the materials[14]. The Court cannot review the award and correct any mistake in his adjudication unless objection to ‘legality of award’ is apparent in the face of it[15]. Hence, it can be stated over here that the power has been given to the Court to set aside the award given by the arbitral tribunal[16] on the grounds of ‘legal misconduct in proceedings’ only. The word ‘legal misconduct in proceedings’ as defined by Atkin, J. means

such a mishandling of the arbitration as is likely to cause some substantial miscarriage of justice and one instance of this is where the arbitrator refuses to hear evidence upon a material issue[17].

 The Hon’ble Supreme Court of India has also observed in the case, Firm Madan Lal Roshan Lal Mahajan v. Hukam Chand Mills Ltd., Indore[18], that the award, both on fact and law is final and the court cannot review the award and correct any mistakes in its adjudication unless there is a legal misconduct on the face of record.    

The arbitral tribunal[19] which is created is not a Court of law and its orders are not judicial orders. It cannot exercise its power ex debito justitiae[20] i.e. as a matter of right. Thus, it is quasi-judicial in nature and hence follows the principles of natural justice[21]. If it does not follow the principles of natural justice, recourse to the Courts can be made by an application for setting aside the award under Section 34(2) [v1] of the Act, which mentions the grounds for setting aside the arbitral tribunal and further appeal against the orders given under S.17 and S.34 of the Act can be made to the Courts under S. 37(2) [v2] of the Act. Thus, arbitral award can be set aside by the courts as it acts ultra fines compromist.

The power given to the Arbitrator under S.17 of the Act cannot go beyond the reference[22] or the arbitration agreement which would affect the rights of the parties concerned[23]. Furthermore, an interim order must relate to the protection of subject-matter of dispute and the order may be addressed only to a party to the arbitration. However, there are situations where there are disputes and differences in connection with the main agreement and also disputes in regard to “other matters” “connected” with the subject matter of the main agreement. The Hon’ble Apex Court of India has held that where such a situation exists, it would be governed by the general arbitration clause of the main agreement and it can be referred to the same arbitral tribunal[24]. Thus, an Arbitrator can act only within the four corners of the agreement and not beyond thereto.

Under Section 17 of the Act, it is also stated that the power of the arbitrator to grant interim award will come into picture only when there is a specific clause in the agreement entered into between the parties that the dispute shall be settled by the arbitrator. In the absence of such a clause in the agreement, the arbitrator cannot pass interim order even with the consent of the parties[25] as it will be acting ultra vires.

Purpose of giving power to the Arbitrator

The general purpose for giving such power to the Arbitrator to grant interim measures is to prevent or minimise any disadvantage which may be due to the duration of arbitral proceeding until the final settlement of the dispute & implementation of its result and to prove that the case is of urgency or that irreparable damage will be caused. The most recent case of the Supreme Court of India which deals with the power of the arbitrator to pass interim orders is Gail India Limited V. Bal Kishan Agarwal Glass Industries Limited[26], where this Hon’ble Court held that under Section 17 of the Arbitration and Conciliation Act, 1996 interim orders can be passed by the arbitrators and they are required to dispose the matters in accordance with law. The arbitral tribunal, after passing the order in favour of a party, may direct it to provide “appropriate security” as mentioned in Section 17(2) of the Act of 1996[27].  The finality of the interim award depends upon the form of award. If the interim award is intended to have effect only so long as the final award is not delivered, it will have the force of an interim award only and it will cease to have effect after the final award is made whereas on the other hand, if the interim award is intended finally to determine the rights of the parties, it will have the force of a completed award and will continue to have effect even after the final award is delivered.

 

Conclusion

Hence, the power given to the arbitrator under Section 17 of the Arbitration and Conciliation Act, 1996 to grant interim measure is a limited one as it comes into play only when there is a specific clause mentioning in the agreement entered into between the parties, stating that the disputes or differences which arises between them will be settled by the arbitrator. The powers of the tribunal are plenary and it cannot transgress the limits of the jurisdiction as laid by subject matter of dispute and the interim orders are made in the interest of justice.


[1] Bansal Kumar Ashminie, Arbitration and A.D.R., 2005 Edition, Universal Law Agency, Delhi.

[2] Kwarta G.K., Arbitration and Conciliation Law of India, 2004 Edition, Indian Council of Arbitration, New Delhi

[3] AIR 1981 SC 2075

[4] S. 5 of the Arbitration and Conciliation Act, 1996

[5] Para 4 (v) and (vii) of the Statement of Objects and Reasons of the Arbitration and Conciliation Act, 1996

[6] Supra footnote 2

[7] Marriott International Inc. & Others v. Ansal Hotels Ltd. : 2000 (1) Arb LR 45 (Delhi)

[8] Tata Finance Ltd.v. Pragati Paribahan: AIR 2000 Cal 241

[9] Deepak Mitra v. District Judge, Allahabad: AIR 2000 All 9

[10] N.H.A.I. v. M/s China Coal Construction Group Corpn.: AIR 2006 Delhi 134.

[11] Tweeddale A., Arbitration of Commercial Disputes, 2007 Edition, Oxford University Press

[12] (2002) 8 SCC (Jour) 39

[13] S.2(1)(b) of the Arbitration and Conciliation Act, 1996

[14] Deshpandey v. Tata Finance Ltd.: 1996 (1) Arb LR 657.

[15] Rashonlal v. State of J&K: AIR 1975 J&K 46

[16] S. 2(1)(d) of the Arbitration and Conciliation Act, 1996

[17] Williams v. Williams : 83 L.J.K.B. 1299 (1229)

[18] AIR 1967 SC 1030; Also relied in Puri Construction Pvt. Ltd.v. Union of India: AIR 1989 SC 777; Food  Corporation of India v. Joginderpal Mohinderpal: AIR 1989 SC 1263.

[19] Supra footnote 12

[20] Bachawat R.S. J, Law of Arbitration and Conciliation, Vol. 1,  4th Edition 2005, Wadhwa & Co., Nagpur

[21] Mediterranean Co. Ltd. v. Fortess Fabrics Ltd. :( 1948) 2 All E.R. 186

[22] S.2 (e) of the Arbitration Act, 1940 defines ‘reference’ as reference to the arbitrator by both the parties jointly or either of them after giving notice to another, or seeking help of the Court. 

[23] Brijlal v. Gobindram: (AIR 1943 Bom 201)

[24] Olympus Superstructures Pvt. Ltd. v. Meena Vijay Khetan and Others: (1999) 5 SCC 651

[25] M.D. Army Welfare Housing Organisation v. Sumangal Services Pvt. Ltd: (AIR 2004 SC 1344)

[26]  2008 (8) SCC 161

[27] Delta Construction Systems Ltd., Hyderabad v. Narmada cement Company Ltd., Bombay: (2002) 2 Arb LR 47 Bom.


 [v1]Mention the section in footnote

 [v2]Mention the sec in footnote

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