Applicability of National laws in Arbitral Proceedings

Settlement of disputes through reference to third party is a part of the volkgiest of India since time immemorial. The Indian epics and folklore are replete with examples of consensual procedures for the settlement of disputes at the grassroots level. Making such a procedure legal, was the solution to end the increasing number of cases in the courts of the nation, vexatious litigation and delayed justice. Thus, the Arbitration and Conciliation Act, 1996 was enacted with a view to relieve the technical difficulties faced by the parties in the court proceedings and to ensure speedy disposal of cases. This is to help parties solve their disputes amicably through mutual understanding and reduced cost and by way of a trusted arbitration procedure. This revolutionary enactment meant cutting down on the stringent legal procedures and bureaucratic red tapes. One of the important sections that is an exemplification of this desideratum is section 19 of the Act.

 Section 19 of the Arbitration and Conciliation Act, 1996 states as under:

Determination of rules of procedure.-

(1) The arbitral tribunal shall not be bound by the Code of Civil Procedure, 1908 or the Indian Evidence Act, 1872.

(2) Subject to this Part, the parties are free to agree on the procedure to be followed by the arbitral tribunal in conducting its proceedings.

(3) Failing any agreement referred to in sub-section (2), the arbitral tribunal may, subject to this Part, conduct the proceedings in the manner it considers appropriate.

(4) The power of the arbitral tribunal under sub-section (3) includes the power to determine the admissibility, relevance, materiality and weight of any evidence.

This essay would take its focal point to be Clause (1) of section 19, Arbitration and Conciliation act, 1996. Clause (1) of Section 19 states very clearly that any arbitration procedure is not bound by the Civil Procedure code, 1908 or The Indian Evidence Act, 1872.

Before making a headway into the merits of the clause, I would like to highlight the difference between two situations one wherein the parties are not "bound" and in the other where they are "prohibited by law". When it is said that the parties are not bound, it translates to the parties not being under legal or moral obligation to do or abstain from doing a particular act. That is, they are not constrained or fettered by the provisions/clauses of the act.

Whereas, “prohibited" from doing an act, means to be barred from doing it. Performance of such an act would be treated unlawful, illegal or will render any agreement based on it void. There is an element of inherent restraint.

In my humble view, while Section 19 of the Arbitration and Conciliation Act, 1996 (henceforth referred to as the act) does not bind the parties to follow The Civil Procedure code, 1908, it doesn't prohibit them from doing so. Meaning, the parties, by their own will may decide whether or not to follow the act. It is true that when the parties choose to take recourse to the usual proceedings despite having the leeway not to do so, the benefits and attractiveness of arbitration mechanism gets significantly diminished. But, in any suit, and nonetheless in an arbitration, the point of concentration should be skewed towards delivery of speedy equitable justice than on procedures. Failure to do this may militate against the requirements of fair trial and vitiate the resulting award. This view has been upheld by the recent judgement in the case of:

Gammon India Ltd vs. Sankaranarayana Construction (Bangalore)

Wherein, the bench declared that an arbitral tribunal, in its discretion, may adopt principles of Civil Procedure Code.  The learned judges have declared that while the arbitration panel as permitted by Sec. 19 (1)  is not bound by the CPC or evidence act,  in the absence of an agreed specific procedure by the opposing parties, there are no fetters placed on the panel to adopt the principles and procedures of CPC or Evidence Act.  The panel is free to conduct the proceedings in a manner which it considers appropriate.  However, the principle of 'res-judicata' would apply.

I would like to reiterate here that this judgement complements my view that the referred section provides the freedom to arbitration bodies to follow the 'National Laws, albeit under certain conditions'. In my opinion, here it has been expressly declared that 'Shall not be' bound doesn't mean 'it is prohibited from. Of course, the arbitration option is given to the parties to unshackle themselves from the procedural fetters of the existing laws. At the same time, it doesn't prohibit or take away from the parties the freedom to adopt or invoke the same laws if they are comfortable with the same. That is, if the parties refer to a given law on Civil Procedure or Evidence, such law would be applicable by virtue of their choice and not by virtue of being a national law.

Also, it follows, that, in the absence of a specific agreement between the parties on the laws, rules and procedures to be applied during arbitration, the tribunal may formulate its own procedure or adopt the national laws, namely, CPC, Evidence Act etc.

Once the issue of whether the arbitration panel has the powers to adopt and pass orders under CPC or Evidence Act is settled, the power of the panel to pass an interim award exercising those powers would also logically derive. 

In the above case questioning the decision of the learned single judge, the learned counsel for the Appellant/Petitioner had also tried to establish that the power to pass an interim award can be invoked only if there is an admission and it should be a clear, unambiguous and unequivocal admission

Towards this the learned counsel for the Petitioner/appellant relied on Numero Uno International Ltd. vs. Prasad Bharati.  The learned counsel for the petitioner had tried to interpret the judgement as one which vested with the counsel the right to contest the powers of the arbitrator to grant an interim award, even if not contested earlier, and such a contest later would also render the interim award unenforceable.  Inherent in this argument is the reasoning that the contest would take the trait of an objection which would negate the condition of 'clear, unambiguous and unequivocal admission' for grant of interim award.  However, the learned single judge has rejected argument quoting from the same citation that an interim reward cannot be interfered with, simply because the other party has made a counter claim or because it had raised a point which is outside, or is independent of the areas covered by the interim award.

 The judgement of the Madras division bench in Gammon India Ltd vs. Sankaranarayana Construction (Bangalore) has thus provided interpretative clarity to article 19 of the Arbitration and Conciliation Act, 1996 by which elements of flexibility have been fused with procedural discipline.

This is article was written by Ms. Varsha Raghavan, while interning at CNICA. She is studying B.A.LLB., at School of Law, SASTRA University.