INTRODUCTION
An arbitration agreement normally states the law that will govern the arbitration proceedings. It is not necessary for the arbitration agreement to be governed by the same substantive law as the contract. If the arbitration agreement’s governing law is not specified, the problem will be raised with the arbitral tribunal or the national courts.
Parties are normally free to choose the seat of arbitration; however, in exceptional situations, their option is restricted.
When parties do not indicate the seat, the arbitrator makes a decision on the seat of the arbitration. Also, the seat of arbitration differs from the venue of arbitration, which is simply the physical location of the arbitration proceedings[1]
Usually, parties are given leverage when it comes to choose the applicable law. But in absence of such express choice, a presumption comes into picture that proper law to be follow would be the laws of that particular country where the arbitration is to be held.
FACT OF THE CASE
In Shreejee Traco (I) (P) Ltd. v. Paperline International Inc., a petition was filed under Section 11(4) of the Arbitration & Conciliation Act, 1996. The order was made by the Supreme Court of India on December 17, 2002. The petitioner, a New Delhi-based company, filed a complaint against the respondent, a New York City-based company, for non- conformity of products supplied under contract. The petitioner ordered facial tissue paper from the respondent, a supplier company.
The respondent company issued a pro forma notification on 22.6.2001, stating that any contract disputes or claims will be resolved through arbitration in New York. The petitioner understood it to be treated as an arbitration contract between the parties.[2]
The petitioner was told to issue a letter of credit, which is an assurance that money will be credited after the products are delivered and meet the agreement. As a matter of guarantee the petitioner was told to do so.
But, when a shipment of facial tissues arrived at Nhava Sheva Port in Mumbai, the inspection revealed that it did not match the agreed-upon sample. The responder was found guilty of violating the contract terms. The petitioner requested reimbursement for lost time and effort, as well as a full refund of the letter of credit amount along with the interest thereon.
On November 22, 2001, the petitioner sent legal notice to the respondent to form an arbitration tribunal. Shri Vikas Jain, a Chartered Accountant, practicing in New Jersey, USA, was appointed as the petitioner’s arbitrator. The respondent was given 30 days to nominate an arbitrator.[3]
The petitioner and respondent’s selected arbitrators would jointly select an arbitrator to preside over the proceedings. The respondent failed to respond to the petitioner’s notice and did not appoint an arbitrator. As a result, the instant petition was filed on January 12, 2002.
The Court acknowledged that the respondent intentionally chose to remain absent. The proceeding carried out ex parte and the court dismissed the petition summarily and held that the petition was not maintainable after considering the views of amicus curiae, including Shri V.A. Mohta.
LEGAL ISSUES INVOLVED IN THIS CASE
- Does Part I of the Arbitration & Conciliation Act, 1966 apply to arbitrations held outside India?
- If the petition under Section 11 of the Act, 1966 is maintainable on merit before the Chief Justice of India or a designated Judge, and if said judge is competent.
- Whether the Act’s language is negative and excludes problems when arbitration takes place outside India.
RELEVANT LEGAL PROVISIONS
Section 2(2): It states that:
This Part shall apply where the place of arbitration is in India.
[Provided that subject to an agreement to the contrary, the provisions of sections 9, 27 and [clause (b)] of sub-section (1) and sub-section (3) of section 37 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.][4]
Section 11(2): Subject to sub-section (6), the parties are free to agree on a procedure for appointing the arbitrator or arbitrators.[5]
Section 11(4): If the appointment procedure in sub-section (3) applies and
- a party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party; or
- the two appointed arbitrators fail to agree on the third arbitrator within thirty days from the date of their appointment, [the appointment shall be made, on an application of the party, by the arbitral institution designated by the Supreme Court, in case of international commercial arbitration, or by the High Court, in case of arbitrations other than international commercial arbitration, as the case may be].[6]
Section 11(6): Where, under an appointment procedure agreed upon by the parties.
- a party fails to act as required under that procedure; or
- the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or
- a person, including an institution, fails to perform any function entrusted to him or it under that procedure, a [the appointment shall be made, on an application of the party, by the arbitral institution designated by the Supreme Court, in case of international commercial arbitration, or by the High Court, in case of arbitrations other than international commercial arbitration, as the case may be] [Substituted by Act No. 33 of
2019, dated 9.8.2019.] to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.[7]
JUDGEMENT
The Apex Court reviewed the text and scope of the Arbitration & Conciliation Act, 1966 when determining on this case. The dispute was whether the Chief Justice of India or their authorised representative has the authority to select an arbitrator under Section 11 of the Act, 1966, despite the arbitration seat being in New York City.
The petitioner’s counsel argues that the language in Part I of the Act, which stipulates that arbitration must take place in India, is comprehensive, not exclusive. The fact that this Part applies to arbitration in India does not necessarily imply that it is not applicable outside of India. Simply stating that Part I is applicable in India does not exclude its jurisdiction when the arbitration seat is outside of India, unless specifically stated otherwise.
The Court acknowledged the decision in National Thermal Power Corporation v. Singer Co., which addressed the validity and strength of Indian law when one contractual entity was a registered foreigner[8]
The Court deemed some opinions relevant to the case, notwithstanding the fact that it occurred before the Arbitration & Conciliation Act of 1966. According to the relied-upon ruling, arbitration proceedings will be governed by the legislation mutually agreed by both parties. Arbitration takes precedence over local laws in cases of disagreement.
If there is no explicit choice of governing laws, it is assumed that the contract and arbitration agreement are aligned with the country where the arbitration will take place.
The petition was denied by the Chief Justice of India’s designate due to a stipulation in the arbitration agreement requiring New York as the site of arbitration. The designee claimed that Section 11 relates with the appointment of a Part I of the Act of 1966 outlines the process for appointing an arbitrator. The CJI designate dismissed the plea, stating that this Part exclusively relates to arbitrations and conciliations within Indian territory and that the text of Section 2(2) was clear.
The CJI designates order may be considered administrative in nature. The Supreme Court of India’s Constitution Bench ruled in Konkan Rly. Corpn. Ltd. v. Rani Construction (P) Ltd.[9] case. The decision in Konkan Rly. Corpn. Ltd. v. Mehul Construction Co.[10], upheld the principle that when a CJI or designate is appointed to adjudicate under Section 11 of the Arbitration & Conciliation Act, 1966, they are not acting as a court or tribunal. Therefore, any orders issued by them are considered administrative.
The Constitution Bench of the Supreme Court overruled the landmark decision in Bhatia Trading v. Bulk Trading and Venture Global Engineering v. Satyam Computer Services Ltd., ruling that Indian courts do not have jurisdiction over foreign awards issued in International Commercial Arbitration. The Supreme Court ruled that Part I of the Indian Arbitration and Conciliation Act 1966 does not allow for interference in processes conducted outside of India.
CONCLUSION[11]
International Commercial Arbitration has the same burdens as other arbitrational arrangements. It is common to use bad faith methods and loopholes to obstruct proceedings, including withholding from participation.
Refusing to appoint arbitrators is a common practice used to prevent lawsuits from being initiated. Oppositions such as rejecting arbitration agreements, refusing to accept tribunal jurisdiction, and filing false appeals can delay and complicate adjudications.
[1] Pleaders, https://blog.ipleaders.in/ (last visited March 21, 2024)
[2] LEXTECHSUITE, https://lextechsuite.com/ (last visited March 21, 2023)
[3] Ebc-india, https://www.ebc-india.com/
[4] Arbitration & Conciliation Act, 1966, § 2(2), No. 26, Acts of Parliament, 1966 (India).
[5] Id., Section 11(2).
[6] Id., Section 11(4).
[7] Id., Section 11(6).
[8] (1992) 3 SCC 551
[9] (2002) 2 SCC 388
[10] (2000) 7 SCC 201
[11] 11 (2002) 4 SCC 105
This article is written by Nandani of Central University of South Bihar, an intern under Legal Vidhiya
Disclaimer: The materials provided herein are intended solely for informational purposes. Accessing or using the site or the materials does not establish an attorney-client relationship. The information presented on this site is not to be construed as legal or professional advice, and it should not be relied upon for such purposes or used as a substitute for advice from a licensed attorney in your state. Additionally, the viewpoint presented by the author is of a personal nature.
0 Comments