Scope of ADR: Relevant case laws

Scope of ADR [Relevant Case laws]

Author: Santoshi karasi

Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., [(2012) 9 SCC 552] 

In the landmark cases of Bhatia International and Venture Global Engineering, the Supreme Court had held that Part I of the Arbitration and Conciliation Act, 1996 set out the procedures, award, interim relief and appeal provisions with respect to an arbitration award and held that it 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 held that there is a clear distinction between Part I and Part II which applies to completely different fields and with no overlapping provisions. 

The Court in this case also drew a distinction between a ‘seat’ and ‘venue’. The arbitration agreement designates a foreign country as the seat/place of the arbitration and also selects the Act as the law governing the arbitration proceedings. The Court also 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. Therefore, it can be understood that Part I applies only to arbitrations having their seat/place in India.

The Court disagreed 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. Therefore, the arbitral proceedings prior to the award contemplated under Section 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. 

K.K Modi v K.N Modi AIR 1998 SC 1297 

This case talks about the attributes that make an agreement, an arbitration agreement. According to the Court, a clause will amount to an arbitration clause only if it contemplates that the decision of the tribunal will be binding on the parties to the agreement. The Court further went on to say that only if the parties consent to go with the procedure of arbitration for dispute resolution or if the Court or a statute enables the tribunal to conduct the arbitration process, only then must the jurisdiction of the arbitration tribunal may be exercised.

The agreement must also agree to it that the substantive rights of the parties will be determined by the agreed tribunal. To be enforceable in law, the agreement of the parties to refer their disputes to the decision of the tribunal must be intended. The agreement must also contemplate that the tribunal will make a decision upon a dispute which is already formulated at the time when a reference is made to the tribunal. 

Other important factors include whether the agreement contemplates that that tribunal will receive evidence from both sides and give the parties opportunity to put forth their issues and hear their contentions; whether the wording of the agreement is consistent with the view that the process was intended to be an arbitration; and whether the agreement requires the tribunal to decide the dispute according to law. 

 J&K State Forest Conservation vs. Abdul Karim Wani, AIR 1989 SC 1498

The issues, in this case, were that how should an arbitration clause construed in a Contract and whether a dispute between parties can be referred to arbitration or not? The Supreme Court, in this case, held that the Court should refrain from expressing an opinion on the merits of the dispute. The Court should find out the intention of the parties, and that intention has to be found out by reading the terms broadly, clearly, without being circumscribed.

The Supreme Court held that the interim measures can be granted to aid the arbitration proceedings and not to frustrate them. The court further held that in the guise of granting an interim measure, the Court cannot resolve the substance of the dispute – that task belongs to the arbitral tribunal and not the Court.

It was further held in this case that the jurisdiction of Court to make interim order is only ‘for the purpose’ of arbitration proceedings and a court should not to frustrate the same. 

Puri Construction Company v Union Of India, AIR 1986 SC 777

It was held by the SC that when the court is called upon to decide the objections raised by a party against an award, the jurisdiction of the court is limited, as expressly indicated in the act and it has no jurisdiction to sit in appeal and examine the correctness of the award on merits.

The Court also held that if there is no legal proposition either in the award or in any document annexed with the award which is erroneous and the alleged mistakes or alleged errors, are only mistakes of fact and if the award is made fairly, after giving adequate opportunity to the parties to place their grievances in the manner provided by the arbitration agreement, the award is not amenable to corrections of the Court.

Datar Switchgears Ltd vs. Tata Finance Ltd., 2000 (3) RAJ 181 (SC) 

What is the role of the Chief Justice if a party does not act as per the arbitration clause? The issue, in this case, was about the appointment of an arbitrator under Section 11(6). It was held that Section 11(5) can be invoked by a party who has requested the other party to appoint an arbitrator and the latter fails to make an appointment within 30 days from the receipt of the notice. An application u/s 11 (6) can be filed when there is a failure of the procedure for the appointment of the arbitrator. This failure can arise under different circumstances.

It can be a case where a party who is bound to appoint an arbitrator refuses to do so or where the two appointed arbitrators fail to appoint the 3rd arbitrator. If the appointment of an arbitrator is entrusted to any person or institution and such person or institution fails to discharge such function, the aggrieved party can approach the Chief Justice for the appointment of the arbitrator. In this case, it cannot be said that there was a failure of the procedure as prescribed by the Act. 

Narayan Prasad Lohia vs. Nikunj Kumar Lohia, 2002(1) RAJ 381 (SC) 

The Court in this case discussed whether an arbitration agreement becomes invalid on the ground that it provided for the appointment of only two arbitrators, considering that the act requires an odd number of arbitrators. It was held that even if the parties provided for the appointment of two arbitrators, the agreement does not become invalid. Under Section 11(3) the two arbitrators should then appoint a third arbitrator who shall act as the presiding arbitrator.

However, such an appointment should preferably be made in the beginning, even though the two arbitrators may also appoint a third arbitrator at a later stage if such a situation arises when the two arbitrators differ in opinion. This ensures that on a difference of opinion the arbitration proceedings do not reach a stalemate. However, there would be no need of a third arbitrator when both the arbitrator so appointed agree and give a common award.

In Mohd. Mushtaq Ahmad v. State (2015) 3 AIR Kant R 363. ,

 it was contended that marriage between a couple was solemnized after the commutation of their marriage the couple gave birth to a girl child further the dispute arose between husband and wife, the marriage between them was irretrievably broken down, which leads to the filing of the divorce petition by wife alongside an FIR against the husband under Section 498A of IPC. The Karnataka High Court directed the parties to mediation under Section 89 CPC. The matter was settled amicably through mediation after which the wife decided to quash the FIR. The Court allowed this stating, “The court in the exercise of its inherent powers can quash the criminal proceedings or FIR or complaint in appropriate cases in order to meet the ends of justice.”

In Gurudath K. v. State of Karnataka (Criminal Petition No. 7258 of 2014, order dated 20-11-2014) the facts are identical to the case above. Here the court stated, “Even if the offences are non-compoundable if they relate to matrimonial disputes and the Court is satisfied that the parties have settled the same amicably … Section 320 CrPC would not be a bar to the exercise of the power of quashing of FIR or criminal complaint in respect of such offences.” Thus, the court allowed for the offences to be compounded on coming to the conclusion that the wife was under no threat or coercion for the same.

The court’s intention to settle matters as amicably as possible is clear. The intention of the court matches the ideology of the advocates of mediation, which is to safeguard family relationships and provide speedy justice.