Arbitration Agreement, Composition, and Jurisdiction of Arbitral Tribunal notes — Unit 2

Arbitration is fundamentally a creature of contract. You cannot force someone into arbitration unless they have previously agreed to it. The cornerstone of the entire process is the Arbitration Agreement.

⇒Definition (Section 7(1))

"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.

⇒Form of the Agreement

• It may be in the form of an arbitration clause within a broader contract (e.g., Clause 14 of a Lease Deed), OR in the form of a separate, standalone agreement.
• MUST be in writing. An oral agreement to arbitrate is invalid under the 1996 Act.

Section 7(4) broadly defines what constitutes a written agreement. An arbitration agreement is in writing if it is contained in:

• A document signed by the parties.
• An exchange of letters, telex, telegrams or other means of telecommunication (including emails) which provide a record of the agreement.
• 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.

⇒Doctrine of Separability

A highly critical concept. If an arbitration clause is part of a larger contract, the arbitration clause is treated as an independent contract. Therefore, even if the main contract is declared null and void (e.g., due to fraud), the arbitration clause survives, and the arbitrator still has the power to decide the dispute.

What happens if parties sign an arbitration agreement, but one party ignores it and files a regular civil suit in court?

⇒The Mandatory Bar (Section 8)

A judicial authority, before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party to the arbitration agreement applies not later than the date of submitting his first statement on the substance of the dispute, refer the parties to arbitration.

• The court has no discretion. If a valid arbitration agreement exists, the court MUST throw the case out and send the parties to arbitration.
• The application under Section 8 must be accompanied by the original arbitration agreement or a certified copy.
• The objection must be raised before the defendant files their Written Statement. If they file the WS without objecting, they have waived their right to arbitration.

The 'Arbitral Tribunal' means a sole arbitrator or a panel of arbitrators.

⇒Number of Arbitrators (Section 10)

The parties are free to determine the number of arbitrators, provided that such number shall not be an even number. (To prevent a 50-50 deadlock). If parties fail to determine the number, the tribunal shall consist of a sole arbitrator.

⇒Qualifications

A person of any nationality may be an arbitrator. The Act does not require the arbitrator to be a lawyer or a judge (unless the parties' agreement specifies so). An engineer can arbitrate a construction dispute.

Section 11 is the most frequently litigated section in the entire Act.

⇒Party Autonomy

Parties are free to agree on a procedure for appointing the arbitrator(s).

⇒Default Procedure (If 3 Arbitrators)

If the agreement is for 3 arbitrators: Party A appoints one, Party B appoints one. The two appointed arbitrators then jointly appoint the third (the Presiding Arbitrator).

⇒Failure to Appoint (Section 11(6))

If a party fails to appoint their arbitrator within 30 days of a request, or if the two arbitrators fail to agree on the third, the aggrieved party can apply to the High Court or the Supreme Court (for international commercial arbitration) to appoint the arbitrator.

(Recent 2019 Amendments aim to delegate this power to 'Arbitral Institutions' designated by the Supreme Court, but the High Courts currently still exercise this power extensively).

An arbitrator must be impartial and independent. Section 12 requires the arbitrator to disclose in writing any circumstances likely to give rise to justifiable doubts as to their independence or impartiality.

⇒Grounds for Challenge (Sec 12(3))

An arbitrator may be challenged only if:

• Circumstances exist that give rise to justifiable doubts as to his independence or impartiality.
• He does not possess the qualifications agreed to by the parties.

⇒The Fifth and Seventh Schedules

The 2015 Amendment added Schedules to the Act. The Fifth Schedule lists situations raising doubts (e.g., the arbitrator represents one of the parties). The Seventh Schedule lists situations that make a person completely ineligible to be appointed (e.g., the arbitrator is an employee or manager of one of the parties).

This is a unique feature of arbitration designed to prevent court delays.

⇒Who decides the challenge?

The challenge must first be made to the Arbitral Tribunal itself within 15 days of becoming aware of the grounds. The Arbitrator decides their own challenge.

⇒What if the challenge fails?

If the Arbitrator rejects the challenge, the party CANNOT immediately run to the court and stall the arbitration. The Arbitral Tribunal shall continue the proceedings and make the final Award. The aggrieved party can only challenge the arbitrator's bias later, as a ground for setting aside the final Award under Section 34.

This is the most important theoretical concept in arbitration law worldwide.

⇒The Problem

Suppose A initiates arbitration against B. B argues, "The arbitration agreement is a forgery, it doesn't exist. Therefore, the arbitrator has no power to hear this case." Who decides if the agreement is fake? A court or the arbitrator?

⇒The Principle (Section 16)

The Arbitral Tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement.

This is the doctrine of Kompetenz-Kompetenz (Competence-Competence). The tribunal is competent to decide its own competence. This prevents a party from filing frivolous civil suits to stall the arbitration by claiming the agreement is invalid.

While the Act tries to keep courts out, it allows them to step in to protect the subject matter of the dispute.

⇒When can a party approach the Court?

A party may, before or during arbitral proceedings, or at any time after the making of the arbitral award but before it is enforced, apply to a Court for interim measures.

⇒What measures?

• Appointment of a guardian for a minor.
• Preservation, interim custody, or sale of goods which are the subject of the agreement.
• Securing the amount in dispute (e.g., freezing bank accounts).
• Interim injunction or appointment of a receiver.

⇒The 2015 Restriction

To stop parties from bypassing the arbitrator, Section 9(3) states that once the Arbitral Tribunal has been constituted, the Court shall NOT entertain an application for interim measures, unless the Court finds that the tribunal cannot provide an efficacious remedy.

⇒Summary of Master Concepts

• Agreement (Sec 7): Must be in writing. Can be emails/letters. Doctrine of separability applies.
• Reference (Sec 8): Courts MUST refer parties to arbitration if a valid agreement exists.
• Appointment (Sec 11): Parties decide. On failure, High Court/Supreme Court appoints.
• Challenge (Sec 12/13): Must be made to the tribunal itself first. If rejected, arbitration continues. (Seventh Schedule lists absolute ineligibility).
• Jurisdiction (Sec 16): Kompetenz-Kompetenz. Tribunal decides if the agreement is valid.

⇒University Exam Tips for this Unit (Premium Advice)

• Kompetenz-Kompetenz (Section 16): This is a goldmine for examiners. Explain that it gives the tribunal the power to rule on its own jurisdiction, preventing courts from interfering at the threshold stage.
• Section 8 vs Section 9: Understand the difference. Sec 8 is used by the defendant to stop a civil suit and force arbitration. Sec 9 is used by either party to get an interim injunction/freeze assets from the court.
• Challenge Procedure: Emphasize that if the arbitrator rejects the bias challenge under Sec 13, the trial does NOT stop. The party must wait for the final award to challenge it. This was designed specifically to cure the delays of the old 1940 Act.