Domestic Arbitration under Arbitration and Conciliation Act

Topics covered in this article are as follows:

1. Background of the Arbitration and Conciliation Act, 1996
2. Arbitration Agreement

1. Background of the Arbitration and Conciliation Act, 1996

The first part (part I) of the Arbitration and Conciliation Act, 1996 [sec­tions 2 to 43] deal with issues relating to domestic arbitration.

Any arbitration which is not ‘international commercial arbitration’ is domestic arbitration.

Arbitration can commence only if parties to the contract have entered into an ‘Arbitration Agreement’. That is the foundation of the Arbitration Process.

Normally, this agreement is part of the contract which is entered into when two persons (parties) enter into an agreement. It is normally one clause in the contract. However, a separate arbitration agreement is also permissible.

Since the entire purpose of arbitration is to enforce a contract if the other party fails to fulfil its obligations under a contract, the arbitration agreement has to be in relation to a contract.

The person who has entered into an arbitration agreement is termed a ‘party’. There should be a minimum of two parties, but there can be more also.

If one of the parties is aggrieved if other party/parties has/have failed to abide by terms of contract, the aggrieved party can initiate the process of arbitration.

Arbitral Tribunal is constituted as per the procedure prescribed in Arbi­tration and Conciliation Act, 1996. The Arbitral Tribunal hears both parties and then give its decision, which is termed as ‘making of arbitral award’ (Arbitral Award includes interim award also).

If other party/parties refuses/refuse to abide by the decision of the Arbitral Tribunal, the arbitral award can be enforced through Court.

The Court can decline enforcement of contract only on very limited grounds.

There are limited provisions of appeal in case of arbitration.

1.1 Scope of provisions relating to domestic arbitration

Part I of Arbitration and Conciliation Act, 1996 [which relates to domestic arbitration] shall apply where the place of arbitration is in India.

Applicability of provisions in part I to international commercial arbitration – Subject to an agreement to the contrary, the provisions of sections 9, 27, 37(l)(a) and 37(3) shall also apply to international commercial arbitration, even if the place of arbitration is outside India, and an arbitral award made or to be made in such place is enforceable and recognised under the provisions of Part II of this Act – section 2(2) of Arbitration and Conciliation Act, 1996.

The relevant sections (as mentioned above) are as follows-

• • Section 9 – Interim measures by Court
  • Section 27 – Assistance of Court in taking Evidence
  • Section 37(l)(a) – Appeal against an order refusing to refer parties to arbitration
  • Section 37(3) – No second appeal except to Supreme Court

However, these provisions do not apply to international commercial arbitration proceedings commenced before 23-10-2015, unless par­ties agree otherwise – section 87 of Arbitration and Conciliation Act, 1996 inserted w.e.f. 30-8-2019.

1.2 Provision in other law which prohibits arbitration override provisions of Arbitration and Conciliation Act, 1996

This Part [Part I relating to domestic arbitration] shall not affect any other law for the time being in force by virtue of which certain disputes may not be submitted to arbitration – section 2(3) of Arbi­tration and Conciliation Act, 1996.

1.3 Provisions of Arbitration and Conciliation Act apply to arbi­tration under any other law, unless contrary to that law

The Part I [relating to domestic arbitration] except sections 40(1), 41 and 43 shall apply to every arbitration under any other enactment for the time being in force, as if the arbitration were pursuant to an arbitration agreement and as if that other enactment were an arbitration agreement, except in so far as the provision of Part I are inconsistent with that other enactment or with any rules made thereunder – section 2(4) of Arbitration and Conciliation Act, 1996.

Section 40(1) provides that the death of the party does not discharge the arbi­tration agreement.

Section 41 makes provisions relating to insolvency.

Section 43 states that Limitation Act is applicable to Arbitration proceedings.

For example, if stock exchange bye-laws or regulations provide for arbitration, the provisions of the Arbitration and Reconciliation Act will apply, except so far as they are inconsistent with provisions of the Arbitration and Reconciliation Act.

1.4 Provisions of domestic arbitration are subject to agreement with other countries

Subject to the provisions of section 2(4), and save in so far as is otherwise provided by any law for the time being in force or in any agreement in force between India and any other country or countries, this Part (part I) shall apply to all arbitrations and to all proceedings relating thereto – section 2(5) of Arbitration and Conciliation Act, 1996.

1.5 Parties can authorise any person or institution to determine an issue

Where the Part I, except section 28 [which provides for Rules appli­cable to the substance of dispute], leaves the parties free to determine a certain issue, that freedom shall include the right of the parties to authorise any person including an institution, to determine that issue – section 2(6) of Arbitration and Conciliation Act, 1996.

An arbitral award made under Part I shall be considered domestic award – section 2(7) of Arbitration and Conciliation Act, 1996.

Where Part I – (a) refers to the fact that the parties have agreed or that they may agree, or (b) in any other way refers to an agreement of the parties, that agreement shall include any arbitration rules referred to in that agreement – section 2(8) of Arbitration and Con­ciliation Act, 1996.

Where Part I, other than section 25(a) or section 32(2)(a), refers to a claim, it shall also apply to a counter-claim, and where it refers to a defence, it shall also apply to a defence to that counter-claim – section 2(9) of Arbitration and Conciliation Act, 1996.

Section 25(a) provides that if the claimant does not submit his claim, the arbitration terminates.

As per section 32(2)(a), if the claimant withdraws his claim, the arbitration abates, unless other party (respondent) objects.

In Smt. N Jayalaxmi v. R Veeraswamy (2004) 52 SCL 709 (AP HC), it was held that section 25(a) should be read with section 23(1) and thus read, it is directory and not mandatory. Tribunal can grant extension of time for filing pleading.

1.6 Written communication in relation to arbitration

Communication in respect of arbitration is essential for conducting the process of arbitration. Wide flexibility is available.

Unless otherwise agreed by the parties – (a) any written communica­tion is deemed to have been received if it is delivered to the addressee personally or at his place of business, habitual residence or mailing address, and (b) if none of the places referred to in clause (a) can be found after making a reasonable inquiry, written communication is deemed to have been received if it is sent to the addressee’s last known place of business, habitual residence or mailing address by registered letter or by any other means which provides a record of the attempt to deliver it – section 3(1) of Arbitration and Conciliation Act, 1996.

Deemed receipt of communication on date of delivery – The com­munication is deemed to have been received on the day it is so delivered – section 3(2) of Arbitration and Conciliation Act, 1996.

The provision does not apply to communication in respect of proceedings before judicial authority – The aforesaid provisions in respect of communication in section 3(1) and 3(2) of Arbitration and Conciliation Act, 1996 do not apply to written communications in respect of proceedings of any judicial authority – section 3(3) of Arbitration and Conciliation Act, 1996.

The reason is that in that regard, the serving of notice is as per judicial procedure.

1.7 Waiver of right to object

The procedures prescribed are predominantly directory and not mandatory. A party to the arbitration may waive the requirement either expressly or through conduct.

A party who knows that— (a) any provision of the Part I (relating to domestic arbitration) from which the parties may derogate, or (b) any requirement under the arbitration agreement, has not been complied with and yet proceeds with the arbitration without stating his objection to such non-compliance without undue delay or if a time limit is provided for stating that objection, within that period of time, shall be deemed to have waived his right to so object – section 4 of Arbitration and Conciliation Act, 1996.

1.8 Extent of judicial intervention in arbitration proceedings

The Arbitration and Conciliation Act, 1996 provides for minimum intervention by judicial authorities. The judicial intervention is highly restricted under the Act.

Notwithstanding anything contained in any other law for the time being in force, in matters governed by Part I, no judicial authority shall intervene except where so provided in this Part – section 5 of Arbitration and Conciliation Act, 1996.

Court cannot add parties to arbitration even if they are willing–

In Sukanya Holdings P Ltd v. Jayesh HPandya AIR 2003 SC 2252 = (2003) 5 SCC 531 =44 SCL 146 (SC), it was held that Court cannot add parties to arbitration if they were not parties to the agreement – followed in Premier Automobiles Ltd v. Fiat India P Ltd (2005) 124 Comp Cas 14 = 56 SCL 59 (CLB), it was held that if the company was not a party to the arbitration agreement, then the matter cannot be referred to arbitration, even if the company is willing to do so – also followed in Premier Automobiles Ltd v. Fiat India P Ltd (2007) 77 SCL 38 (CLB).

1.9 Administrative assistance to the arbitral tribunal

In order to facilitate the conduct of the arbitral proceedings, the parties, or the arbitral tribunal with the consent of the parties, may arrange for administrative assistance by a suitable institution or person – section 6 of Arbitration and Conciliation Act, 1996.

2. Arbitration Agreement

Arbitration Agreement is the foundation of the Arbitration process.

The foundation of an arbitration is the arbitration agreement between the parties to submit to arbitration all are certain disputes which have arisen or which may arise between them. Thus, the provision of arbitration can be made at the time of entering the contract itself, so that if any dispute arises in future, the dispute can be referred to the arbitrator as per the agreement. It is also possible to refer a dispute to arbitration after the dispute has arisen. The arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.

‘Arbitration’ means any arbitration whether or not administered by permanent arbitral institution – section 2(1 )(a) of Arbitration and Conciliation Act, 1996.

‘Arbitration agreement’ means an agreement referred to in section 7 – section 2(1 ){b) of Arbitration and Conciliation Act, 1996.

‘Party’ means a party to an arbitration agreement – section 2(1 )(h) of Arbitration and Conciliation Act, 1996.

In Part I (domestic arbitration), ‘arbitration agreement’ means an agreement by the parties to submit to arbitration all or certain dis­putes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not- section 7(1) of Arbitration and Conciliation Act, 1996.

Agreement either as clause of contract or separate agreement – An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement – section 7(2) of Arbitration and Conciliation Act, 1996.

2.1 Arbitration Agreement must be in writing

An arbitration agreement shall be in writing- section 7(3) of Arbitra­tion and Conciliation Act, 1996.

Wide flexibility is available in respect of the requirement of ‘writing’ of the arbitration agreement.

An arbitration agreement is in writing if it is contained in — (a) a docu­ment signed by the parties (b) exchange of letters, telex, telegrams or other means of telecommunication including communication through electronic means which provide a record of the agreement; or (c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other – section 7(4) of Arbitration and Conciliation Act, 1996.

Arbitration Agreement by reference to a document – The reference in a contract to a document containing an arbitration clause con­stitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract – section 7(5) of Arbitration and Conciliation Act, 1996.

2.2 Arbitration clause in the agreement

It is quite common to include an arbitration clause in the main contract itself. The clause usually reads as follows – ‘All disputes, claims and difference whatsoever arising between the parties out of or relating to the construction, meaning and operation or effect of this contract or breach, termination or invalidity thereof, will be settled in accordance with provisions of Arbitration and Conciliation Act, 1996, and the award made in pursuance thereof shall be binding upon the parties.

A well-drafted arbitration clause should specify the following –

1. Which disputes will be referred to arbitrator e.g. dispute, controversy or claim arising under, out of or relating to the contract and any subsequent amendment of the contract, including, without limitation, its formation, validity, binding effect, interpretation, performance, breach or termination, as well as non-contractual terms
2. Mode of appointment of arbitrators e.g. by Indian Council of Arbitration or Indian Society of Arbitrators or some Cham­ber of Commerce or appointment of arbitrator/s by name or designation
3. Number of arbitrators. If the amount involved is huge in crores, it may be advisable to have 3 arbitrators – each side selecting one and the two selecting third
4. Qualifications of Arbitrators
5. Venue of arbitration
6. Cost of Arbitration – e.g. equally or by whom
7. Time limit for commencement of arbitration
8. Hearing – oral or in writing
9. Arbitration Procedure
10. Whether arbitrator can award compensatory damages/ punitive damages
11. Law applicable (In case of contracts involving a foreign party, the law applicable may be Indian law or law of any specified foreign country, which should be specified)
12. Interim relief to be obtained from Court/Arbitral Tribunal
13. In case of International Commercial Arbitration, where place of arbitration is out of India, whether or not provisions of sec­tions 9, 27, 37(1 )(a) and 37(3) of Arbitration and Conciliation Act, 1996 will apply.
14. Language of arbitration.

The arbitration agreement may look something like this –

‘Any dispute, controversy or claim arising under, out of or relating to the contract and any subsequent amendment of this contract, including, without limitation, its formation, validity, binding effect, interpretation, performance, breach or termination, as well as non-contractual terms, shall be referred to and finally determined by arbitration in accordance with._______________. rules. The arbitral tribunal shall consist of three arbitrators/a sole arbitrator. The place of arbitration shall be .________________ . The language to be used in the arbitral proceedings shall be .______________ . The dispute, controversy or claim shall be decided in accordance with the law of .________________.’

2.3 Essential elements of arbitration agreement

In Bihar State Mineral Dev CorpLtd v. Encon Builders 2003 AIR SCW 4186 = 2003(7) SCC 418 = AIR 2003 SC 3688, following essential elements of arbitration agreement were noted – (1) There must be present or future difference in connection with some contemplated affair (ii) There must be intention of the parties to settle such differ­ence by a private tribunal (iii) The parties must agree in writing to be bound by the decision of such Tribunal and (zv) The parties must be ad idem- quoted with approval in Mallikarjun v. Gulbarga University 2003 AIR SCW 6384 = (2004) 1 SCC 372 (SC 3 member bench).

In Mysore Construction Co. v. Karnataka Power Corporation 2001(2) Kar LJ 411 (Karn HC), it was observed that essential elements of arbitration agreement are – (i) Provisions for reference to arbitrator (zz) Enquiry by the arbitrator into the dispute (iii) Participation of parties in arbitral proceedings and (iv) Finality and binding nature of arbitral award – view upheld in – P Dasaratharama Reddy Complex v. Government of Karnataka (2014) 2 SCC 201 (SC 3 member bench).

In Anil Agarwal v. State Bank of India (1999) 96 Comp Cas 686 (All HC), it was held that arbitration agreement must provide right to both the parties to submit dispute to arbitration. Mere providing right to one party to ‘submit to arbitration’ is not an arbitration agreement.

2.4 Arbitration clause can provide for two-tier arbitration i.e. appeal against award of arbitrator to another arbitrator/tribunal

Arbitration clause can provide for two tier arbitration ie. appeal against award of arbitrator to another arbitrator/tribunal – Centro- trade Minerals v. Hindustan Copper (2017) 2 SCC 228 [SC 3 member FB].

2.5 Court/Judicial Authority cannot on own refer matter to arbitration

An issue cannot be referred to arbitration unless there is agreement. Court or Commission or Tribunal (National Consumer Disputes Re- dressal Commission in this case) cannot refer the matter for consensual adjudication to third party and then make the decision of so called consensual arbitrator, an order of Tribunal (Consumer Court in this case), unless there is specific provision in the Act itself. Court/ Tribunal/Commission cannot abdicate its duties and functions of adjudication. – Sky pack Couriers Ltd v. Tata Chemicals Ltd (2000) 5 SCC 294 = AIR 2000 SC 2008 = 2000 AIR SCW 1866 = 26 SCL 441 (SC 3 member bench).

In Tamilnadu Electricity Board v. Sumathi 2000 AIR SCW 1717 (SC), it was held that there is no provision for referring the mater to arbitrator by intervention of Court, i.e. Court cannot refer the issue to arbitration unless there is arbitration agreement.

Arbitration cannot be unilateral or by will. It has to be by mutual agreement – Vijay Kumar Sharma v. Raghunandan Sharma (2010) 2 SCC 486.

Court cannot refer matter to arbitration under CPC without con­sent of parties – Section 89 of Civil Procedure code makes provision for settlement of disputes outside the Court. Thus, Court can refer parties to ADR process. These are arbitration, conciliation, judicial settlement including settlement through Lok Adalat or mediation.

In Afcons Infrastructure Ltd. v. Cherian Varkey Construction (2010) 8 SCC 24, it has been held that court cannot refer matter to arbitration without consent of the parties.

2.6 Arbitration agreement perishes along with contract, but not when there is breach

In JJOI v. Kishori Lai AIR 1959 SC 1362, it was held as follows, ‘Arbi­tration Agreement is an integral part of contract. Existence of contract is necessary condition for operation of arbitration agreement. (i) If the contract is non estin the sense that it never came into existence, or it was void ab initio, the original contract has no legal existence and hence arbitration clause cannot operate, as along with original contract, it is also void, (it) If the original contract was validly exe­cuted but put to end by the parties and new contract is executed, arbitration clause in original contract perishes with it. However, if performance of contract is frustrated due to repudiation, frustration, breach etc., it is the performance of contract that has come to an end, but the contract is still in existence for certain purposes and Arbitration Clause operates for those purposes.

If the original contract is terminated and substituted with new contract, arbitration clause in the original agreement also perishes with it. – Damodar Valley Corporation v. KK Kar AIR 1974 SC 158-(1974) 1 SCC 141 Indian Drugs and Pharmaceuticals v. Indo Swiss S Gem Co. AIR 1976 SC 543.

However, whether there was discharge of contract by accord and satisfaction or not is a dispute arising out of contract and is liable to be referred to arbitration – Bharat Heavy Electricals v. Amar Nath (1982) 1 SCC 625 – quoted with approval in Chairman andMD, NTPC v. Reshmi Constructions 2004 AIR SCW 198.

In Branch Manager, Magma Leasing v. Potluri Madhavilata (2009) 10 SCC 103 = AIR 2010 SC 488, it was held that if the contract is terminated due to breach, the arbitration clause does not perish. It survives for purpose of resolution of dispute.

Even if performance of contract comes to end on account of repu­diation, frustration or breach of contract, the arbitration agreement survives for purpose of resolution of disputes arising under or in connection with the contract – National Agricultural Coop Marketing Federation v. Gains Trading AIR 2007 SC 2327.

2.7 Arbitration clause valid even if main agreement is declared void

Arbitration clause is valid even if main agreement is declared void – Todays Homes v. Ludhiana Improvement Trust (2014) 5 SCC 68.

Court can decline reference to arbitration of the contract is patently void, but not when if it is only voidable. – – Section 45 of the Act permits Court to decline reference to arbitration in case the Court finds that the agreement is null and void, inoperative or incapable of being performed – Swiss Timing Ltd v. Commonwealth Games 2010 Organising Committee(2014) 6 SCC 677.

2.8 Arbitration clause in MOU valid even if final agreement not executed

Arbitration clause in MOU (Memorandum of Understanding) is an independent arbitration agreement. That arbitration agreement is valid even if final agreement did not fructify as envisaged in MOU – Ashapura Mine-Chem Ltd v. Gujarat Mineral Development Corpo­ration (2015) 8 SCC 193.

2.9 Arbitration clause can be invoked more than once, further affordability cannot be ground to reject a reference

Arbitration clause can be invoked more than once if fresh disputes arise after earlier disputes were referred to arbitration. It was also held that affordability cannot be a ground to reject reference to arbitration – Dolphin Drillings Ltd. v. Oil and Natural Gas Corporation Ltd (2010) 3 SCC 267.

2.10 Unregistered Partnership firm can apply for arbitration

Section 69 of Partnership Act provides that an unregistered firm can­not file a petition to enforce a right from a contract. This restriction is only in respect of proceedings before Court and has no application to proceedings before an Arbitrator. Thus, unregistered firm can apply for arbitration. At the stage of enforcement of award, what is enforced is the award itself and not any right arising from the con­tract. – Kamal Pushp Enterprises v. D R Construction Co. 2000 AIR SCW 2853 = AIR 2000 SC 2676 * Umesh Goelv. Himachal Pradesh Coop Soc(2016) 137 SCL 1 = 72 taxmann.com 128 (SC).

In Firm Ashok Traders v. Gurumukh Das Saluja 2004 AIR SCW 366 = AIR 2004 SC 1433 = (2003) 3 SCC 155 = 50 SCL 224 (SC), it was held that a person can apply for arbitration, even if his name does not appear in the register of firms as partner of the firm.

The word ‘proceeding’ in section 69(3) of Partnership Act mean something in nature of a suit that is a proceeding which is instituted or initiated in a Court. ‘Arbitration’ is not a ‘proceeding’ under that section. – Ram Nandan Prasad Sinha v. K M Consultants (2002) 35 SCL 251 (Bom HC DB).

In a contrary view, in UP State Sugar Corpn v. Jain Construction Co. 2004 AIR SCW 5122 (relying on Jagdish Chandra Gupta v. Kajaria Traders AIR 1964 SC 1882), it was held that arbitral proceedings are not maintainable at the instance of unregistered firm.

2.11 Compulsory arbitration if bye-law/rules so provide

In Dedhia Investments v. JRD Securities (2002) 39 SCL 71 (Bom), position was that bye laws of stock exchange provided that all transactions for purchase and sale of securities by a member with non-member will be referred to and decided by arbitration. It was held that in such case, it cannot be argued that there was no arbitra­tion agreement – same view in Madan Mohan Rajgarhiav. Mahendra R Shan (2004) 49 SCL 12 (SC).

2.12 Arbitration clause by reference

Arbitration clause can be incorporated by making reference to earlier agreement is subsequent contract.

As per section 7(5) of Arbitration Act, Arbitration Agreement can be by reference to a document containing an arbitration clause, if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.

Such referral incorporation of arbitration clause is valid – Alimentav. National Agricultural Marketing Federation AIK1987 SC 643 = (1987) 1 SCC 615 – followed in Atlas Export Industries v. Kotak & Co. 1999 (5) SCALE 332 (SC), where it was held that a provision that ‘contract is made under terms and conditions of Grain and Food Trade As­sociation Ltd. contract No. 15′ constitutes a valid arbitration clause.

Such reference has to be specific in relation to arbitration clause in another agreement (i.e. mere general reference to another agreement is not sufficient) – M R Engineers v. Som Dutt Builders (2009) 7 SCC 606 – followed in Elite Engineering v. Techtrans Construction India P Ltd (2018) 4 SCC 281.

In The Owners and Parties v. State Trading Corporation (2002) 37 SCL 609 = 2001 AIR SCW 3220, the Bill of Lading stated that conditions of Charter Party Agreement, including the Law and Arbitration clause, were incorporated in it. The Charter Party Agreement had arbitration provision. It was held that arbitration clause will apply. – same view in Pyrites, Phosphates and Chemicals Ltd v. Sebilan Compania2002 AIR SCW 2480.

In Nimet Resources Inc. v. Essar Steels AIR 2000 SC 3107 = 2000 AIR SCW 3459 = (2000) 7 SCC 497 = (2001) 4 Comp LJ 259 = 28 SCL 382 (SC single member bench), it was held that if contract is entered into after correspondence and in contract reference is made to a docu­ment containing arbitration clause, it would mean that arbitration agreement is part of the contract – quoted with approval in State of Uttar Pradesh v. Combined Chemicals (2011) 2 SCC 151.

However, if old contract, which provided arbitration, is put to an end and new MOU (Memorandum of Understanding) is signed, arbi­tration contract under the abrogated agreement cannot be invoked for determination of questions under new agreement – Lloyds Steel Industries Ltd v. ONGC AIR 1997 Bom 337.

Arbitration clause in main agreement by reference to standard form arbitration clause – Arbitration clause in main agreement by reference to standard form arbitration clause is valid (though general reference to earlier contract is not a valid arbitration agreement) – Inox Wind Ltd. v. Thermocables Ltd. (2018) 2 SCC 519.

2.13 Contract including arbitration clause through e-mail is valid and enforceable

In Trimex International FZE Ltd, Dubai v. Vedanta Aluminium Ltd, India (2010) 3 SCC 1, it was held that contract accepted through e-mail communication is valid and enforceable even if there is no signed formal contract. Even arbitration clause will be enforceable if agreed through e-mail.

2.14 Attributes of Arbitration Agreement and Expert Determi­nation

If an ‘issue’ has to be decided by a named person, normally, it is an ‘Expert Determination’ and not an ‘Arbitration Agreement’. Attributes of Arbitration agreement are – (a) Agreement must contemplate that substantive rights will be decided and that decision of tribunal will be final, (b) Both parties must consent that decision of tribunal is intended to be enforceable in law (c) Tribunal will determine the rights in an impartial and judicial manner – K K Modiv. K N Modi AIR 1998 SC 1297 = (1998) 3 SCC 573 = 1998 AIR SCW 1166 = 92 Comp Cas 30 (SC) * State of Orissa v. Bhagyadhar Dash (2011) 7 SCC 406.

2.15 Clause in agreement that decision of specified authority would be final is not arbitration clause

Clause in agreement that decision of specified authority would be final is not an arbitration agreement – State of Orissa v. Bhagyadhar Dash (2011) 7 SCC 406.

In Bharat Bhusan Bansal v. UP Small Industries Corpn. AIR 1999 SC 899 = AIR 1999 SC 899 = (1999) 2 SCC 166, it was held that a clause in agreement providing for binding decision by MD of the company awarding the contract, without requiring him to record evidence or hear both parties, cannot be construed as arbitration agreement. It is ‘expert determination’ and not ‘arbitration agreement’. [Thus, Ar­bitration Agreement must be properly drafted to make it clear that it provides for arbitration and not ‘expert determination’].

This was followed in State of Rajasthan v. Nav Bharat Construction Co. AIR 2005 SC 2795 (SC 3 member bench), where it was held that clause stating that ‘decision of Chief Engineer shall be final, conclu­sive and binding in respect of specifications, quality of workmanship or material etc.’ is not an arbitration clause. However, if a party participates in arbitration proceedings for a long time, principles of waiver and estoppel will apply.

Clause ‘decision of Chief Engineer final’ is not arbitration clause – A clause like ‘decision of Chief Engineer final’ is not an arbitration clause when he himself is overseeing the subject matter – PDasaratha- rama Reddy Complex v. Government of Karnataka (2014) 2 SCC 201 (SC 3 member bench) * Vishnu v. State of Maharashtra (2014) 1 SCC 516 (SC 3 member bench).