CNICA welcomes you to the Inauguration of its

Study Circle meet

Inaugural Address by

Hon'ble Mr. Justice V. Ramasubramanian

For more information see the invitation below

Event Time and Location

Saturday - 03.03.2012

Andhra Mahila Sabha (Near Nageshwar Rao Park)

Luz Church Road

Mylapore

Chennai - 600 004



Take-it-or-leave-it arbitration clause is fine if the underlying agreement is fair
by THE HR SPECIALIST: CALIFORNIA EMPLOYMENT LAW on FEBRUARY 19, 2012 1:00AM
in EMPLOYMENT LAW, HUMAN RESOURCES

The Court of Appeal of California has handed a significant victory to employers that use arbitration agreements as a condition of employment.

As long as the underlying terms of the agreement are fair and the arbitration process impartial, the court will send a case to arbitration even if the employee had no choice but to sign the agreement.

Recent case: When Jennifer Hicks was offered a job at a Hilton spa in San Diego, she quit her job in Minnesota, sold her possessions and moved west. When she arrived in California, her new employer presented her with a take-it-or-leave-it arbitration agreement buried in an employment application. She was told she had to accept all the terms to start work.

Years later, Hicks sued over alleged pregnancy discrimination. She claimed she was told she would lose her job if she took time off for post-partum depression.

Hilton asked the court to send the case to arbitration. Hicks argued that the way she had to sign the arbitration agreement was unconscionable.The Court of Appeal of California has handed a significant victory to employers that use arbitration agreements as a condition of employment.

As long as the underlying terms of the agreement are fair and the arbitration process impartial, the court will send a case to arbitration even if the employee had no choice but to sign the agreement.

Recent case: When Jennifer Hicks was offered a job at a Hilton spa in San Diego, she quit her job in Minnesota, sold her possessions and moved west. When she arrived in California, her new employer presented her with a take-it-or-leave-it arbitration agreement buried in an employment application. She was told she had to accept all the terms to start work.

Years later, Hicks sued over alleged pregnancy discrimination. She claimed she was told she would lose her job if she took time off for post-partum depression.

Hilton asked the court to send the case to arbitration. Hicks argued that the way she had to sign the arbitration agreement was unconscionable.

The court disagreed, concluding that as long as the actual arbitration would be fair and impartial, it didn’t matter if Hicks signed under duress. (Hicks v. Mission Bay Management, No. D058683, Court of Appeal of California, 4th Appellate District, 2011)

R.GEORGE PEREIRA

Vs

ST.JOSEPH'S INTERNATIONAL ACADEMY

on 8 May, 2009

The following was in pursuance of an application under section 11(6) of the Arbitration and Conciliation Act, 1996 and the Scheme for Appointment of an Arbitrator by the Chief Justice of the Kerala High Court. The application seeks appointment of an independent and impartial arbitrator for adjudicating upon the various claims of the applicant against the respondent.

Facts of the case:

The applicant was a contractor of the respondent for the construction of a school building at Kumbalam in Kollam under the name and style "St. Joseph International Academy". It was alleged that disputes and differences arose between the parties on account of what is described as the obstinate attitude of the respondent to allow the applicant to complete the work, which had neared completion. It was claimed that the applicant had carried out works in seven part bills whereas the respondent had paid only two third. The balance amount was due under the bill. Since the balance amount remained unpaid, the windows, which had been supplied by the applicant to the respondent, had to be taken back and deducting the value of those windows, the balance amount was due to the applicant. According to the applicant, in order to avoid payment of the due amount the respondent sought to terminate the contract. The disputes and differences, which were thus arisen, are to be settled by resorting to arbitration proceedings.

If there are any dispute relating to any matter regarding the construction of the building or any matter related to this contract, the Manager, St.Joseph's International Academy, Kollam will be the sole Arbitrator for such purpose and his decision shall be final, and the second party will have no right to challenge this decision in the court of law". It was submitted that as per clause 17, the Manager of the respondent is to be the sole arbitrator. However, since disputes have arisen on account of the actions and inactions of the Manager himself, he is not entitled to function as arbitrator since the same will be against the fundamental principle of natural justice, nemo debet esse judex in propria causa (no one shall be a judge in his own cause).

It was under such circumstances that the applicant sent a letter indicating a panel of three names for selection of one among them as arbitrator by the respondent. The respondent's Advocate sent a reply without selecting any of the nominee arbitrators but suggesting for appointment of two Civil Engineers, one to be appointed by each party who could jointly verify the records and files and assess the quantity and quality of the work done in order to avoid litigation and to come to a fair settlement.

The applicant obliged and appointed his nominee. The respondent also appointed its Engineer. The applicant requested both the Engineers to take up the assignment and pave way for a settlement. However, the applicant called for nominee Engineer of the respondent, furnished all measurement books, and connected records and made necessary follow up, nothing materialized. Meanwhile, the applicant's nominee Engineer met with an accident and passed away. Hence, no useful purpose will be served by waiting further and that is the circumstances under which the applicant has filed this application under section 11(6) of the Arbitration and Conciliation Act, 1996 invoking the statutory appointment procedure of arbitrators.

The contentions of the respondent are as follows:

The arbitrator who was appointed by the court under the order (Sri. E.K. Muraleedharan, Retired District and Sessions Judge) was incapable of acting as arbitrator between the parties in the light of the legal bar under the provisions of the Arbitration and Conciliation Act, 1996. It was submitted that contrary to what has been projected the Manager envisaged under the arbitration clause who was to act, as the sole arbitrator in the event of disputes and the signatory to the agreement are the same person. In order to convince the court that the Manager of St.Joseph’s International Academy and the executants to the agreement are the same, the applicant has produced an agreement, but that does not contain the last page of the agreement. The last page will disclose that the Manager was not the executant of the agreement. On the contrary, the executant of the agreement was the General Manager. It was pointed out that it will be seen that there was a typing mistake where the first party was indicated and instead of General Manager, the word Manager was mistakenly used. Since the party noticed the mistake at the time of execution of the agreement, the first party to the agreement, the General Manager, St.Joseph's International Academy did not sign and instead he signed as the General Manager only where the first party was indicated. This was deliberately and intentionally done in order to avoid confusion as the Manager; St.Joseph's International Academy was appointed as the arbitrator under agreement. It was submitted that there was absolute consensus with regard to the arbitrator by both parties to the agreement. It was then contended that the General Manager and the Manager of St.Joseph's International Academy are two different persons. A certificate issued by Mr.Joseph J. who was the Manager of St.Joseph Academy during the period of five years was produced. The present Manager of St.Joseph Academy was one S.Sundaresan and a certificate issued by him was produced.

During which, the respondent was claiming a sum from the applicant on various counts and requested that if the claim was disputed the matter be referred to the Manager, St, Joseph's International Academy who was the sole arbitrator. In the reply affidavit filed by the respondent to the counter filed by the applicant, it was submitted that the respondent has never acted in a capacity as the Manager of St. Joseph's International Academy at any stage. This was because of the fact that at the time of construction of the school, the organization was at a very nascent stage and therefore the respondent was styled as General Manager and later as Managing Director/Director. Similarly the then Manager Joseph John was styled as Manager and subsequently he continued as Manager who was also styled as Administrator. He continued to be the Manager as well as Administrator. It was submitted that the respondent (applicant) was trying to take advantage of a typing mistake made in the agreement wherein the word Manager was used in the last page instead of General Manager.

The contentions of the applicants are as follows:

However, it was submitted that there is no scope for such confusion as in the last page; it was the General Manager who had signed at the portion where the first party is indicated. In the agreement, the first party is described as General Manager. Hence, there is no scope for confusion. Referring to the correspondence produced by the respondent it is submitted that the Manager Mr.Joseph John had signed on behalf of the General Manager and not in his capacity as the Manager of the school. It was reported that Joseph John has functioned only as Manager and that the respondent has never styled or functioned as Manager. It was further pointed out that the present Manager was not Joseph John but Mr. S. Sundareswaran and therefore there was no question of any prejudice being caused to the respondent.

The applicant counsel submitted that the non-production of the last page of Annexure was not fatal. The Arbitration Scheme and the Kerala Arbitration Rules required production of the arbitration agreement only along with the arbitration request and not the whole contract agreement. Reference was made to Section 7(2) of the Arbitration and Conciliation Act in this context. According to the applicant counsel, this was why the applicant produced only clause 17, which is the arbitration clause. It was submitted that on behalf of the applicant it has been made clear that it was Sri. George Fernandez who signed the agreement in the capacity of the Manager, first party and disputes have arisen on account of actions and inactions on the part of Sri. George Fernandez, the signatory which were denied.

Respondent maintained that the agreement was signed by the Managing Director and that the arbitrator was Manager. Mr. Varghese (applicant counsel) submitted that the witness Joseph.J. was only the Administrator and his full name Joseph John is indicated and highlighted that in the reply affidavit it is admitted that Joseph. J. alias Joseph John turned to be the administrator. The letter pad shows that he was only "administrator" and not "Manager". If so, his successor, the signatory also can be only an administrator and not the Manager, which means that there was no Manager to function as arbitrator. This according to Mr. Varghese is precisely the reason why the respondent said that the matter / all relevant papers would be placed before the arbitrator and the matter will be decided by him. He submitted that those documents are fabricated and cooked up. He pointed out that the title "to whom it may concern" (sic) is conspicuous. He submitted that the same mistake is repeated, though created and signed on different dates.

By issuing such certificates both the signatories to prove their allegiance to respondent, making themselves disqualified to be independent and impartial arbitrator which is required under section 11(8)(b) of the Act even assuming that any one of them can be considered as arbitrator. Mr. Varghese argued that actual bias is not necessary to be proved and that the knowledge at the time of appointment does not debar from applying on the ground that the arbitrator to be appointed in terms of the agreement may not be impartial. For this proposition, he relied on the Law of Practice of Commercial Arbitration by Mustill and Byod. He further relied on commentaries contained in Comparative International Commercial Arbitration by Julian D M Lew QC and others. He relied on the judgments of the Supreme Court in ACE Pipeline Contracts (P) Ltd. v. Bharat Petroleum Corp. Ltd. (2007), Bihar State Mineral Development Corp. and others. v. Encon Builders (I) (P) Ltd. (2003) and in Tata Cellular v. UOI (1994) in support of various propositions canvassed by him.

Sri. Madhu Radhakrishnan, learned counsel for the respondent relied on the judgment of the Calcutta High Court in Pragati Engineering (P) Ltd. v. T.N. Water Supply & Drainage Board, AIR 1992 Calcutta 139 to argue that where the parties entered into a contract with their eyes open and knew that the nominated arbitrator is an employee of one of the parties, none of the parties to the agreement should be allowed to allege that such nominated arbitrator being an officer of one of the parties to the contract, would be biased or is likely to be biased. Mr. Madhu Radhakrishnan relied on the judgment of the Supreme Court in International Airport Authority of India v. K.D. Bali, (1988) to argue that the apprehension of bias must be judged from a healthy, reasonable and average point of view and the request for removal of the appointed arbitrator is not to be granted lightly. Mr. Madhu Radhakrishnan placed reliance on the judgment of the Supreme Court in Jain Studios Ltd. v. Shin Satellite Public Co. Ltd., (2006) also. The provisions contained in sections 12 and 13 of the Arbitration and Conciliation Act incorporate grounds for challenge and the challenge procedure against and in respect of arbitrators will reveal that partiality and bias or circumstances giving rise to justifiable doubts regarding the impartiality and independence can be valid grounds for challenging the appointment given to a certain persons as arbitrator. At the same time, a party should not be allowed to wriggle easily out of agreements entered into by them with open eyes.

Judge Held:

The submissions from both sides were heard. In the instant case, it was seen that the applicant had agreed to the appointment of a person in the service of the opposite party as an arbitrator in the event of disputes. That being the position the Judge would have been ordinarily reluctant to accept the opposition of the applicant to the appointment of the nominated arbitrator on ground of bias and partiality. After all, it was a quasi-judicial function, which was being discharged by the arbitrator whose proceedings will be regulated by the provisions of the Arbitration and Conciliation Act. His award will be subjected to judicial scrutiny though on limited grounds and to a limited extent.

However, in the instant case the Judge was not inclined to dismiss the arbitration request and to appoint the nominated arbitrator as the arbitrator for resolving the disputes, which have admittedly arisen between the parties because it is seen that the respondent also became agreeable to the idea of the disputes between the parties being resolved by persons other than the arbitrator nominated under the agreement. The parties had nominated an Engineer each and were willing to have the disputes between them resolved by a joint perusal of the relevant records by these two Engineers. To that extent, the Judge opined the respondent has waived his right to insist that the arbitrator to be appointed has to be the arbitrator nominated under the agreement. Moreover, in his opinion no prejudice whatsoever will be occasioned to the respondent by appointing a Retired Judicial Officer known for his learning and integrity as the arbitrator for resolving the disputes, which admittedly subsist. Therefore, without deciding the issue whether appointment of the nominated arbitrator will be vitiated due to reasons of bias and partiality he allowed the arbitration request and appointed Sri.E.K.Muraleedharan, Retired District and Sessions Judge, presently at Ernakulum as arbitrator for settling all the claims and counter claims raised by the applicant and the respondent in the arbitration request. The arbitrator will enter on arbitration, make, and publish his award without undue delay.

Afcons Infrastructure Ltd. & Anr.

 Vs.

 Cherian Varkey Construction Co. (P)

  

Facts:

           The second respondent entrusted the work of construction of certain bridges and roads to the appellants under an agreement. The appellants sub-contracted a part of the said work to the first respondent under an agreement. It is not in dispute that the agreement between the appellants and the first respondent did not contain any provision for reference of the disputes to arbitration. The first respondent filed a suit against the appellants for recovery of dues from the appellants and their assets. In the said suit an order of attachment for recovery of dues was awarded. There after in March 2005, the first respondent filed an application under section 89 of the Code before the trial court praying that the court may formulate the terms of settlement and refer the matter to arbitration. The appellants filed a counter to the application submitting that they were not agreeable for referring the matter to arbitration or any of the other ADR processes under section 89 of the Code. In the meanwhile, the High Court of Kerala by order allowed the appeal filed by the appellants against the order of attachment and raised the attachment granted by the trial court subject to certain conditions. While doing so, the High Court also directed the trial court to consider and dispose of the application filed by the first respondent under section 89 of the Code. The High Court held that the concept of pre existing arbitration agreement which was necessary for reference to arbitration under the provisions of the Arbitration and Conciliation Act, 1996 was inapplicable to references under section 89 of the Code.

From the predicaments stated above the appellants moved to Supreme Court seeking inapplicability of sec 89 of civil procedure code due to non existence of arbitration agreement.

What is wrong with section 89 of the Code?

          Primarily the definitions of ‘mediation’ and ‘judicial settlement’ are interchanged in sec 89 of civil procedure code. When words are universally understood in a particular sense, and have been assigned a particular meaning in common Parlance, the definitions of those words in section 89 with interchanged meanings has led to confusion, complications and difficulties in implementation.

        

         The second anomaly is that sub-section (1) of section 89 imports the final stage of conciliation referred to in section 73(1) of the AC Act into the pre-ADR reference stage under section 89 of the Code. If sub-section (1) of Section 89 is to be literally followed, every Trial Judge before framing issues, is required to ascertain whether there exists any elements of settlement which may be acceptable to the parties, formulate the terms of settlement, give them to parties for observations and then reformulate the terms of a possible settlement before referring it to arbitration, conciliation, judicial settlement, Lok Adalat or mediation. There is nothing that is left to be done by the alternative dispute resolution forum. If all these have to be done by the trial court before referring the parties to alternative dispute resolution processes, the court itself may as well proceed to record the settlement as nothing more is required to be done by ADR process.

Section 89 has to be read with Rule 1-A of Order 10 which requires the court to direct the parties to opt for any of the five modes of alternative dispute resolution processes and on their option refer the matter. The said rule does not require the court to either formulate the terms of settlement or make available such terms of settlement to the parties or to reformulate the terms of possible settlement after receiving the observations of the parties. Therefore the only practical way of reading Section 89 and Order 10, Rule 1-A is that after the pleadings are complete and after seeking admission/denials wherever required, and before framing issues, the court will have recourse to section 89 of the Code. Such recourse requires the court to consider and record the nature of the dispute, inform the parties about the five options available and take note of their preferences and then refer them to one of the alternative dispute resolution processes. It is sufficient if the court merely describes the nature of dispute and makes reference to ADR. It would be unnecessary to discuss the issue of the case.

Whether the arbitration can be enforced on an unwilling party?

Rule 1A of Order 10 requires the court to give the option to the parties, to choose any of the ADR processes. This does not mean an individual option, but a joint option or consensus about the choice of the ADR process. On the other hand, section 89 vests the choice of reference to the court. This is course of no inconsistency. Section 89 of the Code gives the jurisdiction to refer to ADR process and Rules 1A to IC of Order 10 lay down the manner in which the said jurisdiction is to be exercised. The scheme is that the court explains the choices available regarding ADR process to the parties, permits them to opt for a process by consensus, and if there is no consensus, proceeds to choose the process.

A court has no power, authority or jurisdiction to refer unwilling parties to arbitration, if there is no arbitration agreement. This Court has consistently held that though section 89 of the Code mandates reference to ADR processes, reference to arbitration under section 89 of the Code could only be with the consent of both sides or not otherwise.

Conclusion

From the above mentioned views of the honorable judge a civil court exercising power under Section 89 of the Code cannot refer a suit to arbitration unless all the parties to the suit agree for such reference, and also this appeal is allowed as the order of the trial court referring the matter to arbitration and the order of the High Court affirming the said reference are set aside. The Trial Court will now consider and decide upon a non-adjudicatory ADR process.

Bhatia International vs. Bulk Trading S. A.          

Facts:

             The Appellant entered into a contract with the 1st Respondent which contained an arbitration clause which provided that arbitration was to be as per the rules of the International Chamber of Commerce. Parties agreed that the arbitration be held in Paris, France. 1st Respondent filed an application under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter called the said Act) before the IIIrd Additional District Judge, Indore, M.P. against the Appellant and the 2nd Respondent. One of the interim relief’s sought was an order of injunction restraining these parties from alienating, transferring and/or creating third party right, disposing of, dealing with and/or selling their business assets and properties. The Appellant raised the plea of maintainability of such an application. The Appellant contended that Part I of the said Act would not apply to arbitrations where the place of arbitration is not in India. This application was dismissed by the IIIrd Additional District Judge. The Appellant filed a Writ Petition before the High Court of Madhya Pradesh, Indore Bench. The said Writ Petition has been dismissed by the impugned Judgment. Appellants relied on sub-section (2) Section 2 of the said Act which provides that Part I shall apply where the place of arbitration is in India. He submits that sub-section (2) of Section 2 makes it clear that the provisions of Part I do not apply where the place of arbitration is not in India.  The said Act is based on UNCITRAL Model Law on International Commercial Arbitration. He points out that Article 1(2) of UNCITRAL Model Law provides that the law would apply only if the Arbitration takes place in the territory of the State. It was also  submited that while framing the said Act the Legislature has purposely not adopted Article 1(2) of the UNCITRAL Model Law.  Appellant further submits that sub-sections (3), (4) and (5) of Section 2 would necessarily only apply to arbitration which take place in India. He submits that, therefore, even though the sub-section (4) of Section 2 uses the words "every arbitration" and sub-section (5) of Section 2 uses the words "all arbitrations and to all proceedings relating thereto", they must necessarily refer only to arbitrations which take place in India. Arbitrations whose place of arbitration is not in India, then Sub section (2) of Section 2 will not fit. Sections 9 and 17 would not apply and cannot be used in cases where the place of arbitration is not in India it’s from part I.

             By the said facts, appellants moved to Supreme Court as it was submitted by appellants following issues were raised :

Whether Part I of the Arbitration and Conciliation Act, 1996 will apply to arbitrations which take place outside India?

          Appellants affirmed that  provisions for enforcement of foreign awards are contained in Sections 48, 49, 57 and 58. He submits that it is very significant that Section 9 does not talk of enforcement of the award in accordance with Sections 48, 49, 57 and 58and it is  also clear that the provisions of Part I of the said Act do not apply to arbitrations which do not take place in India. Court in Indore and the High Court were wrong in rejecting the application of the Appellant and in holding that the Court had jurisdiction. Actually, Madhya Pradesh High Court, is the only one  which states that Part I applies to arbitrations which take place outside India, which has so held by the impugned Judgment.

Whether undoubtedly sub-section (2) of Section 2 states that Part I is to apply where the place of arbitration is in India and Part II applies to foreign arbitration?

         Appellants affirms that it would  lead to an anomalous situation, inasmuch Part I would apply to Jammu and Kashmir in all international commercial arbitrations but Part I would not apply to the rest of India if the arbitration takes place out of India, and it will also instigates a conflict between sub-section (2) of Section 2 on one hand and sub-sections (4) and (5) of Section 2. Further sub- section (2) of Section 2 would also be in conflict with Section 1 which provides that the Act extends to the whole of India. It leaves a party remediless inasmuch as in international commercial arbitrations and it would not be able to apply for interim relief in India even though the properties and assets are in India. Thus a party may not be able to get any interim relief at all.

      On the other hand, the act is not providing that Part I shall not apply where the place of arbitration is not in India. It is also not providing that Part I will "only" apply where the place of arbitration is in India . Thus Article 1(2) of UNCITRAL Model Laws uses the word "only" to emphasize that the provisions of that Law are to apply if the place of arbitration is in the territory of that State. Significantly in Section 2(2) the word "only" has been omitted. The omission of this word changes the whole complexion of the sentence. The omission of the word "only" in Section 2(2) indicates that this sub-section is only an inclusive and wider provision. As stated above it is not providing that provisions of Part I do not apply to arbitration which take place outside India. Thus there was no necessity of separately providing that Section 9 would apply.

Whether foreign awards from arbitration settlement can be enforced  by Indian courts?

      Under Section 9 a party could apply to the court before, during arbitral proceedings or after the making of the arbitral award but before it is enforced in accordance with Section 36. The words "in accordance with Section 36" can only go with the words "after the making of the arbitral award". It is clear that the words "in accordance with Section 36" can have no reference to an application made "before" or "during the arbitral proceedings". Thus it is clear that an application for interim measure can be made to Courts in India, whether or not the arbitration takes place in India, before or during arbitral proceedings. Once an Award is passed, then that award itself can be executed. Sections 49 and 58 provide that awards covered by Part II are deemed to be a decree of the Court. Thus "foreign awards" which are enforceable in India are deemed to be decrees. A domestic award has to be enforced under the provisions of Civil Procedure Code. All that Section 36 provides is that an enforcement of a domestic award is to take place after the time to make an application to set aside the award has expired or such an application has been refused. Section 9 does suggest that once an award is made an application for interim measure can only be made if the award is a "domestic award" as defined in Section 2(7) of the said Act.  Thus there cannot be applications under Section 9 for stay of arbitral proceedings or to challenge the existence or validity of arbitration agreements or the jurisdiction of the arbitral tribunal. All such challenges would have to be made before the arbitral tribunal under the said Act. In any event, an award passed in arbitral proceedings held in a non-convention country could not be enforced. Thus such a party would be left completely remediless. Appellants hold that the provisions of Part I would apply to all arbitrations and to all proceedings relating thereto. Where such arbitration is held in India the provisions of Part I would compulsory apply and parties are free to deviate only to the extent permitted by the derogable provisions of Part I. In cases of international commercial arbitrations held out of India provisions of Part I It would apply unless the parties by agreement express or implied, exclude all or any of its provisions

Conclusion

       However, in our view a proper and conjoint reading of all the provisions indicates that Part I is to apply also to international commercial arbitrations which take place out of India, unless the parties by agreement, express or implied exclude it or any of its provisions. Such an interpretation does not lead to any conflict between any of the provisions of the said Act. On this interpretation there are no lacunae in the said Act. This interpretation also does not leave a party remediless.