Self-Made notes [Arb]

PRINCIPLE OF SEVERABILITY
As per the principle of separability, the arbitration clause in a contract is considered to be separate
from the main contract of which it forms part. The validity of the arbitration clause, thereby, is
independent of the validity of the terms of the contract, meaning that the arbitration clause
survives the termination of the contract.
If such had not been the case, the breach of the underlying contract or a claim that the contract is
voidable would have been sufficient to terminate the arbitration clause as well. This would have
rendered the purpose of the inclusion of the arbitration clause self-defeating as this is one of the
situations in which the arbitration clause is needed.
The separability principle ensures that the arbitration clause survives for the purpose of measuring the
claims arising out of the breach, and for determining the mode of their settlement.The arbitration
clause survives even after the failure of the purposes of the contract.
This doctrine of separability is also found in section 16(1) of the Act. It provides that an arbitration
clause in a contract may be considered as being independent from the rest of the agreement. If the
arbitral tribunal holds that a contract is null and void, it will not result in the automatic invalidity of
thr arbitration clause.
An independent (or autonomous) arbitration clause thus gives the arbitral tribunal a basis on which to
decide on its own jurisdiction, even if it is alleged that the main contract has been terminated by
performance or by some intervening event. Some laws and rules go further, to establish that the
arbitration clause will survive even if the main contract that contains it proves to be null and void.
However, this must depend on the reason for which the contract is found to be null and void.

Importance of the principle

The principle demonstrates the faith that has been reposed in the authority of the arbitral tribunal as
the legislature has empowered the arbitral tribunals to determine the issues that may affect its own
existence.
KUNDU cases -

 The Branch Manager, Magma Leasing and Finance Limited and Anr. Vs. Potluri
Madhavilata and Anr. (Decided on 18.09.2009) MANU/SC/1672/2009

Facts and issues raised - The hire purchase agreement between the parties contained Clause 22
as Arbitration Clause - Performance of contract came to an end on account of termination due
to breach - Whether the arbitration agreement survive for the purpose of resolution of disputes
arising under or in connection with the contract even if its performance has come to an end on
 account of termination due to breach - Whether the trial court must refer the parties to
arbitration under Section 8 of the Arbitration Act?

Held - Merely because the contract has come to an end by its termination due to breach, the
arbitration clause does not get perished nor rendered inoperative; rather it survives for resolution
of disputes arising "in respect of" or "with regard to" or "under" the contract. Since, the hire
purchase agreement was admittedly entered into between the parties and the disputes and
differences had since arisen between them, the Supreme Court held that the arbitration Clause 22
survives for the purpose of their resolution although the contract has come to an end on account
of its termination. As regards to the referring of case for Arbitration under Section 8, it was
observed that the following conditions must be satisfied: (a) that there exists an arbitration
agreement; (b) that action has been brought to the court by one party to the arbitration agreement
against the other party; (c) that the subject matter of the suit is same as the subject matter of the
arbitration agreement; (d) that the other party before he submits his first statement of the
substance of the dispute, moves the court for referring the parties to arbitration; and (e) that along
with the application the other party tenders the original arbitration agreement or duly certified
copy thereof. Hence, SC allowed petition u/s 8 and referred the matter to Arbitral tribunal.

 Heyman v. Darwins ltd.

Held - House of Lords decided that an accepted repudiation or frustration. while it might bring the
contract to an end in the sense of discharging the parties from further performance of their primary
obligations. did not affect the enforceability of an arbitration clause.
When an arbitration clause in a contract provides without any qualification that any difference or
dispute which may arise "in respect of" or "with regard to" or "under the contract" shall be referred to
arbitration, and the parties are at one in asserting that they entered into a binding contract, the clause
will apply even if the dispute involves an assertion by one party that circumstances have arisen,
whether before or after the contract has been partly performed, which have the effect of discharging
one or both parties from all subsequent liability under the contract, such as repudiation of the contract
by one party accepted by the other, or frustration of the contract.
The house of lords also Laid down 3 situations in which Arb will not be valid –
i Contract is Void ab initio – Parties dispute that they never entered into contract,
hence no existing contract
ii When parties put an end to the contract with all intend and purpose
iii Substitution of Contract
 Valid Arb – if parties agree with the validity of contract but dispute with respect to breach
of contract or performance of contract has come to an end
Hence, it was evident in this case that the arbitration clause will survive even if the contract
containing such a clause is terminated.

 UOI v. Kishorilal Gupta [sc – 1959]

Facts - They entered into 3 contracts each contain an arbitration clause. Before the contracts had
been fully executed disputes arose between the parties, one alleging that the other was committing a
breach of the contract. The parties then entered into three fresh contracts on successive dates
purporting to settle these disputes on the terms therein contained. The appellant then
referred its claims for breach of the three original contracts to arbitration under the
arbitration clauses contained in them. The respondents applied to the High Court for a declaration
that the arbitration clauses in the original contracts had ceased to have any effect and the contracts
stood finally determined as a result of the settlement contracts and for an order setting aside the
award as void and nullity. HC set aside the award.
The SC dealt with the question that whether arbitration clause in the contract will cease to have
effect, when the contract stood discharged as a result of settlement?
Held - The three-judge bench answered in the affirmative and laid down the following general
principle to show when arbitration agreement operates and when it does not operate:

 If the contract is superseded by another, the arbitration clause being a component part of the
earlier contract, falls with it.

 Howsoever comprehensive the terms of an arbitration clause may be, the existence of the
contract is a necessary condition for its operation; and the arbitration clause perishes with the
contract.
 Though the contract was validly executed, the parties may put an end to it as if it had never
existed and substitute a new contract for it, solely governing their rights and liabilities. In such
an event, as the original contract is extinguished by the substituted one, the arbitration clause
of the original contract perishes with it.

 But, where the dispute is whether the said contract is void ab initio, the arbitration clause
cannot operate on those disputes, for its operative force depends upon the existence of the
contract and its validity.
  If the dispute is whether the contract is wholly superseded or not by a new contract between
the parties, such a dispute must fall outside the arbitration clause, for, if it is superseded, the
arbitration clause falls with it.
 It also talked about ‘Accord and Satisfaction’ - Accord and satisfaction is the purchase of a,
release from an obligation whether arising under contract or tort by means of any valuable
consideration, not being the actual performance of the obligation itself. The accord is the
agreement by which the obligation is discharged. The satisfaction is the consideration which
makes the agreement operative. When such an accord and satisfaction takes place the prior
rights of the parties are extinguished. They have in fact been exchanged for the new rights; and
the new agreement becomes a new departure, and the rights of all the parties are fully
represented by it.

 Mulheim pipe GmbH v welspun fintrade ltd

The Hon'ble Bombay High Court ("Court") on August 16, 2013 in Mulheim Pipe coatings
GmbH("Appellant") v. Welspun Fintrade Ltd ("1st Respondent") and Anr.1 formulated the principles
of the doctrine of severability and held that an arbitration clause in a share purchase agreement could
survive annulment of the share purchase agreement by the parties.

ISSUE

The issue which was required to be deliberated by the Court was whether the single judge was
justified in holding that the arbitration clause in SPA perished upon signing of the MOU and hence a
reference under Section 45 of the Act could not be made?

HELD

It was held that Section 45 incorporates the fundamental principle of the separability of the arbitration
agreement, as distinct from the underlying contract between the parties of which the agreement to
arbitrate is a part.

The court, to which an application under Section 45 of the Act has been made, has to determine as to
whether the parties have made an agreement in writing for arbitration to which the New York
Convention applies. If they have, the court has no discretion, but to refer them to arbitration, unless
the case falls in the exception which is carved out by the provision. The exception is that the
arbitration agreement must be found to be null and void, inoperative or incapable of being performed.
With regards when the arbitration agreement would be null and void, the Court importantly
distinguished between termination bringing the further performance of the contract to an end and
termination bringing the existence of the contract to an end. It opined that in the former case, like in
the case at hand, the arbitration clause would survive whereas it was on in the latter that the arbitration
clause would not survive.

Formulating the essential features of the doctrine of separability the Court held that:

1. Upon the termination of the main contract, the arbitration agreement does not ipso facto or
necessarily come to an end and would depend upon the nature of the controversy and its effect
upon the existence or survival of the contract itself;

2. If the nature of the controversy is such that the main contract would itself be treated as non est in
the sense that it never came into existence or was void, the arbitration clause could not operate, for
along with the original contract, the arbitration agreement would also be void;

3. Similarly, when the contract was validly executed but parties put an end to it, as if it had never
existed, and substitute it with new contract solely governing their rights and liabilities thereunder,
the arbitration clause forming a part of the old contract would perish with it;

4. But where only the future performance of the contract has come to an end and the contract is not
put to an end for all purposes because there may be rights and obligations which had arisen earlier
when it had not come to an end, the contract subsists for those purposes and the arbitration clause
would operate for those purposes;

National Insurance Co v Boghara Polyfab Pvt Ltd

Facts: The discharge voucher form was handed over to the respondent on 21.3.2006. It was signed
and delivered to the appellant immediately thereafter acknowledging that a sum of Rs. 2,33,94,964/-
had been received from the insurer (appellant) in full and final settlement, and that in consideration of
such payment, the respondent absolved the appellant from all liabilities, present and future, arising
directly or indirectly, out of said loss or damage under the policy. on the date when such discharge
voucher was signed and given by the respondent, the payment of Rs. 233,94,964/- had not been made.
It was made after receiving the voucher. Therefore, at the time of signing the voucher by the
respondent and at the time of delivery of voucher by the respondent to the appellant, the contents of
the voucher that the said amount had been received, that such amount had been received in full and
final settlement of all claims, and that in consideration of such payment, the company was absolved
from any further liability, are all false and not supported by consideration.
The SC upholding the High Court’s judgment found that prima facie there was no accord and
satisfaction or discharge of the contract. It held that the appellant is still entitled to raise this issue
before an arbitrator and the arbitrator has to decide it. On the facts and circumstances and the settled
position of law referred by us above, we are also prima facie of the view that there is no accord and
satisfaction in this case and the dispute is arbitrable. But it is still open to the appellant to lead
evidence before the arbitrator, to establish that there is a valid and binding discharge of the contract by
way of accord and satisfaction

Issue: Whether a dispute raised by an insured, after giving a full and final discharge voucher to
the insurer, can be referred to arbitration?
Held: The arbitral tribunal can decide the following questions affecting its jurisdiction when any
dispute in respect of the said contract is referred to arbitration without the intervention of the court:
1. whether there is an arbitration agreement
2. whether the arbitration agreement is valid
3. whether the contract in which the arbitration clause is found is null and void and if so whether the
invalidity extends to the Arbitration clause also

Further if the question before the Court is to determine whether the discharge obtained by reason of
the claimant accepting payment made by the respondent in full and final settlement has resulted in the
discharge of the contract, the Court will have whether the discharge of contract was vitiated by any
circumstance which rendered the discharge voidable at the instance of the claimant. (i.e fraud, undue
influence, or coercion).
In such a scenario, if the arbitral tribunal comes to the conclusion that there was a valid discharge by
voluntary execution of a discharge voucher, it will refuse to examine the claim on merits, and reject
the claim as not maintainable.
On the other hand, if the arbitral tribunal comes to the conclusion that such discharge of contract was
vitiated by any circumstance which rendered it void, it will ignore the same and proceed to decide the
claim on merits.

The Court also discussed the process of decision making by the Chief Justice or his Designate under
Section 11 (Appointment of Arbitrators) Arbitration and Conciliation Act, 1996:
Three categories have been made to that effect:
• CJI bound to decide - (a) Whether the party making the application has approached the
appropriate High Court.
(b) Whether there is an arbitration agreement and whether the party who has applied under Section 11
of the Act, is a party to such an agreement.
2. Issues which he may choose to decide - (a) Whether the claim is a dead (long barred) claim or a
live claim.
(b) Whether the parties have concluded the contract/ transaction by recording satisfaction of their
mutual rights and obligation or by receiving the final payment without objection.
3. Issues which should be left for the tribunal to decide - (i) Whether a claim made falls within the
arbitration clause (as for example, a matter which is reserved for final decision of a departmental
authority and excepted or excluded from arbitration).
(ii) Merits or any claim involved in the arbitration.

Discharge by Accord and Satisfaction - "While discharge of contract by performance refers to

fulfillment of the contract by performance of all the obligations in terms of the original contract,
discharge by `accord and satisfaction' refers to the contract being discharged by reason of performance
of certain substituted obligations. The agreement by which the original obligation is discharged is the
accord, and the discharge of the substituted obligation is the satisfaction. A contract can be discharged
by the same process which created it, that is by mutual agreement. A contract may be discharged by
the parties to the original contract either by entering into a new contract in substitution of the original
contract; or by acceptance of performance of modified obligations in lieu of the obligations stipulated
in the contract.”
i. Following situations were laid –

After the contract is discharged by such accord and satisfaction, neither the contract nor any dispute
survives for consideration. There cannot be any reference of any dispute to arbitration thereafter.

A claimant makes a claim for a huge sum, by way of damages. The respondent disputes the claim. The
claimant who is keen to have a settlement and avoid litigation, voluntarily reduces the claim and
requests for settlement. The respondent agrees and settles the claim and obtains a full and final
discharge voucher. Here even if the claimant might have agreed for settlement due to financial
compulsions and commercial pressure or economic duress, the decision was his free choice. There
was no threat, coercion or compulsion by the respondent. Therefore, the accord and satisfaction is
binding and valid and there cannot be any subsequent claim or reference to arbitration.

The discharge is under economic duress on account of coercion employed by the employer.
Obviously, the discharge voucher cannot be considered to be voluntary or as having resulted in
discharge of the contract by accord and satisfaction. It will not be a bar to arbitration.
The ‘accord’ is not by free consent. The arbitration agreement can thus be invoked to refer the
disputes to arbitration.

PRINCIPLE OF ARBITRABILITY -

the process of arbitration

proceeding the question of
arbitrability is of utmost
importance which means
that the subject matter in
dispute must be capable of
settlement
by arbitration. Basically,
arbitrability determines as
to what matter can and
cannot be
arbitrable. In other words,
it tries to ascertain as
to what disputes can be
resolved by
arbitration and what can
only be tried in courts. If
the subject matter is not
found to be
arbitrable, the arbitration
agreement remains
without effect.
the process of arbitration
proceeding the question of
arbitrability is of utmost
importance which means
that the subject matter in
dispute must be capable of
settlement
by arbitration. Basically,
arbitrability determines as
to what matter can and
cannot be
arbitrable. In other words,
it tries to ascertain as
to what disputes can be
resolved by
arbitration and what can
only be tried in courts. If
the subject matter is not
found to be
arbitrable, the arbitration
agreement remains
without effect.
the process of arbitration
proceeding the question of
arbitrability is of utmost
importance which means
that the subject matter in
dispute must be capable of
settlement
by arbitration. Basically,
arbitrability determines as
to what matter can and
cannot be
arbitrable. In other words,
it tries to ascertain as
to what disputes can be
resolved by
arbitration and what can
only be tried in courts. If
the subject matter is not
found to be
arbitrable, the arbitration
agreement remains
without effect.
In the process of arbitration proceeding the question of arbitrability is of utmost importance which
means that the subject matter in dispute must be capable of settlement by arbitration. It determines at
which point the exercise of contractual freedom ends and public trial of adjudication begins.
Basically, arbitrability determines as to what matter can and cannot be arbitrable. If the subject
matter is not found to be arbitrable, the arbitration agreement remains without effect.
It stems from the fact that if arbitrability is not considered arbitral proceeding may result in having no
value. The issue of arbitrability depends on 3 things –
(i) Arbitrability may be determined by arbitral tribunal on basis of jurisidciton.
(ii) The courts of the seat of arbitration may be addressed for an injunction or
declaration that such a subject matter is not arbitrable.
(iii) Legal proceedings shall not be commenced on the merits of the dispute
which will require the court to decide whether the dispute is arbitrable or
not.

How issue of arbitrality and non arbitrality is dealt in arbitration act? The Act does not provide
specific categories as being non-arbitrable. We don’t have speicifc list. So these determined via
judicial precendents. six issues determined- antirust, ribery&corruption, fraud, criminal matters,
insolvency, ip matters which cannot be arbitrated. The scope of judicial intervention is limited. For
setting aside under s. 34(2)(b)- the subject-matter of the dispute is not capable of settlement by
arbitration under the law for the time being in force, or (ii) the arbitral award is in conflict with the
public policy of India or 48(2), it is essential to show that a law exists that excludes arbitration.

Conventions and relevant provisions appreciating doctrine of Arbitrability -

New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 under
Article II (1) provides that each Contracting State shallrecognize an agreement under
which the parties undertake to submit to arbitrationdisputes or “differences which have arisen
or which may arise between them (the parties)in respect of defined legal relationship, whether
contractual or not, concerning a subject-matter capable of settlement by arbitration.” Here the purpose
of this provision is also to recognize commercial arbitration agreement and for that purpose, the
tribunal would have to ascertain the law applicable to arbitration agreement before determining under
which law the dispute will be settled by arbitration.
Article II (3) further states that the court of a Contracting State shall “refer the parties to arbitration,
unless it finds that the said agreement is null and void, in operative and incapable of being
performed.” It is clear that as far as the arbitrability of a particular dispute under the law of theforum
is concerned, it has to be considered only at the time of recognition and enforcement
of an arbitral award and not at the time of assessing the validity of arbitration agreement.
Furthermore, Article V (2)(a) of New York Convention states that the competent authority in the
country where recognition and enforcement is sought may refuse recognition and
enforcement of an arbitral award if it finds that “the subject-matter of the difference is not capable of
settlement by arbitration under the law of that country”. Thus, it is stated that by virtue of this
provision the court or any competent authority can decide the arbitrability of a dispute referred for
settlement by way of arbitration even before the arbitral award is made by the tribunal.
Similar provision has been under the UNCITRAL Model Law regarding setting aside of arbitral
award which reiterates that “an arbitral award may be set aside by the court specified in article 6 only
if… the court finds that the subject-matter of the dispute is not capable of settlement by arbitration
under the law of this State”13.In addition to that provision, Article 1(5) of the Model Law goes on to
state that “this Law shall not affect any other law of this State by virtue of which certain disputes may
not be submitted to arbitration or may be submitted to arbitration only according to provisions other
than those of this Law.” Therefore, the Model Law does not provide as to what dispute are arbitrable,
it is left to the discretion of the legislature and judiciary to ascertain which disputes are arbitrable and
which are not.”

FRAUD cases [Kundu]

N. Radhakrishnan v. Maestro Engineers [(2010) 1 SCC 72] [Divisions bench]
The disputes arose between parties who were partners in a partnership firm. The disputes involved
allegations of fraud, collusion and financial malpractices, which allegedly resulted in the unfair
retirement of N. Radhakrishnan (the Appellant) and the reconstitution of a new partnership deed.
Maestro Engineers filed a suit before the District Court seeking a declaration that N. Radhakrishnan
was not a partner of the firm. As a counter blast to this Suit, N. Radhakrishnan filed an Application
under Section 8 seeking reference to arbitration since the Partnership Deed had an Arbitration Clause.
This Application for reference to Arbitration was rejected by the Trial Court and by the Madras HC as
well on the basis that the allegations of fraud merited detailed appreciation of evidence which could
only be settled in court. The SC, despite having found that the subject matter of the suit was within the
jurisdiction of the Arbitrator, concurred with the interference of the High Court on the basis that the
Court, as opposed to the Arbitrator, was the more competent forum to deal with the dispute raised by
the parties.
Fraud, financial malpractice and collusion are weighty allegations having criminal repercussions. The
arbitrator is a creature of the contract, and his Jurisdiction is limited to the four corners of the
Contract. The courts, to the contrary, are guided by exhaustive provisions of the Evidence Act6, Codes
of Civil7 and Criminal Procedure8 making it more equipped to adjudicate serious and complex
allegations and are competent to offer a wider range of reliefs to the parties in dispute.

Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak

The question concerning fraud was first raised before the Supreme Court in the case of Abdul Kadir
Shamsuddin Bubere v. Madhav Prabhakar Oak, wherein the three judges’ bench held that a matter
containing fraud cannot be tried for in arbitration. An arbitrator does not have the jurisdiction to
entertain a matter having essence of fraud. As per them, a matter of fraud probes a judicial inquiry and
examination of evidence, which is to be tried for in a Court of Law.
The Court under para 17 held as under: “There is no doubt that where serious allegations of fraud are
made against a party and the party who is charged with fraud desires that the matter should be tried
in open court, that would be a sufficient cause for the court not to order an arbitration agreement to
be filed and not to make the reference. So, court here not referred to arbitration. When allegation as
to fraud misappropriation and involves documents examination must be dealt by courts and not by
tribunal.” The judgment was given under the Arbitration Act, 1940. Even the adoption of the
Arbitration Act, did not change the position laid down by Abdul Kadir. The judgment in N.
Radhakrishnan affirmed the position of Abdul Kadir.

Swiss Timing Limited v Organising Committee, Commonwealth Games, 2010 Delhi [single bench
of SC] (https://indiankanoon.org/doc/134382998/)
Facts: The Petitioner, a Swiss company, entered into an agreement on March 11, 2010 with the
Respondent for providing timing, score, result systems and supporting services required to conduct the
Commonwealth Games in India. The Petitioner alleged that the Respondent had defaulted in making
the payments due under the Contract. The Petitioner invoked arbitration under clause 38 of the
Contract. As the Respondent failed to nominate its arbitrator, the Petitioner approached the Supreme
Court under Section 11 of the Arbitration and Conciliation Act, 1996 for constitution of the arbitral
tribunal.
The Respondent, amongst other issues, raised the following primary objections:

 Under the Contract the parties had warranted that they would not indulge in corrupt practices
to induce the execution of the Contract. The Respondent contended that the Petitioner had
procured the Contract by indulging in corruption and hence, the Contract was void since its
very inception (void ab-initio) because of fraud and there was no basis for invoking the
arbitration.
 The Respondent further placed reliance on the N. Radhakrishnan case wherein it was held that
allegations of fraud and serious malpractices cannot be dealt with properly in arbitration.
 Lastly, the Respondent argued that since the criminal proceedings were pending in the trial
court, simultaneous continuance of the arbitration could result in conflicting decisions between
the two forums causing unnecessary confusion.

Findings of the Supreme Court:. The court held N. Radhakrishnan case held per incuriam The twofold
reasoning for treating N. Radha Krishnan as per incuriam is as follows: (1) The judgment failed to
consider or distinguish certain prior Supreme Court decisions. (2) Section 16 of the act was not
brought to the court's attention.
1. It failed to consider or distinguish certain prior Supreme Court decisions:
The Court has clearly held that the judgment in the N. Radhakrishnan case did not lay down the
correct law as it failed to duly consider the earlier judgments of the Court in Hindustan Petroleum
Corp case and Anand Gajapathi Raju case, wherein it has been held that a civil court is obligated
to direct parties before it to arbitration where there exists an arbitration agreement between such
parties.
i) Hindustan Petroleum Corpn. Ltd. v. Pinkcity Midway Petroleums : Court in Paragraph 14
observed as follows: “If in an agreement between the parties before the civil court, there is a
clause for arbitration, it is mandatory for the civil court to refer the dispute to an arbitrator. In
the instant case the existence of an arbitral clause in the agreement is accepted by both the
parties as also by the courts below. Therefore, in view of the mandatory language of Section 8
of the Act, the courts below ought to have referred the dispute to arbitration.”
ii) P. Anand Gajapathi Raju & Ors. Vs. P.V.G. Raju (Dead) & Ors : The language of Section 8 is
peremptory. It is, therefore, obligatory for the Court to refer the parties to arbitration in terms of
their arbitration agreement. Nothing remains to be decided in the original action or the appeal
 arising therefrom. There is no question of stay of the proceedings till the arbitration proceedings
conclude and the award becomes final in terms of the provisions of the Act. All the rights,
obligations and remedies of the parties would now be governed by the new Act including the
right to challenge the award.
In Swiss Timings case, Court said that in N Radhakrishnan case court did not discussed these two
cases and hence that law is bad.
2. Non-consideration of Section 16 of the Act:
The Court further cited non-consideration of Section 16 of the Act, as reason for the incorrectness
of the law laid down in N. Radhakrishnan case. It was affirmed that by virtue of Section 16 and the
frame of the Act, an arbitration clause is treated as independent from the underlying contract.
Section 16 further provides that a decision by the arbitral tribunal holding the contract as null and
void would not lead to the invalidity of the arbitration clause contained in such a contract.

Contention of substantive contract being void / voidable is no bar to arbitration:

SC highlighted that the courts should adopt a least interference policy in keeping with the general
principle under Section 5 of the Act. Having jointly read Sections 5 and 16 of the Act the Supreme
Court held that all matters including the issue as to whether the main contract was void / voidable can
be referred to arbitration. Hence the scope of sec 8 also discussed in this case. From conjoint reading
of section 5 and section 16, legislature does not want the court to have power to decide such case as it
will defeat purpose of the Act.
The court opinioned that it ought to act with caution and circumspection whilst examining the plea
that the main contract is void or voidable. The Court ought to decline reference to arbitration only
where the Court can reach the conclusion that the contract is void on a meaningful reading of the
contract document itself without the requirement of any further proof.

On 4th October, 2016, a Division Bench of the Indian Supreme Court, in A. Ayyaswamy v. A.
Paramasivam, sought to clear the muddied waters surrounding the arbitrability of issues relating to
fraud, albeit offering little clarity in the end. The uncertainties regarding arbitrability of fraud claims
had previously reached a legal impasse following the contradictory Supreme Court rulings in N.
Radhakrishnan [2010], and the Single Judge decision in Swiss Timing [2014], and there was onus on
the Bench in Ayyaswamy to authoritatively rule on the subject.
A. Ayyasamy v. A. Paramasivam & Ors.
The parties entered into a partnership deed on 1 April 1994 for running a hotel. While the Appellant
was entrusted with administration, the Respondents alleged that the Appellant had failed to make
regular deposits of money into the common operating bank account and had fraudulently siphoned off
an amount of INR 10,00,050. In a separate raid conducted by the CBI on premises of the Appellant’s
relative, an amount of INR 45,00,000 was seized and alleged to have been given by the Appellant for
business of the hotel.
The Respondents filed a civil suit seeking right of administration of the hotel. The Appellant sought
reference of the dispute to arbitration under Section 8 of the Arbitration Act, 1996. The HC rejected
the Appellant’s application on the ground that the dispute involved allegations of fraud. Aggrieved by
the decision, the Appellant preferred an appeal before the Supreme Court.
The Supreme Court discussed at length the underlying objectives of the Act, observing that the
doctrine of separability and kompetenz-kompetenz (embodied in Section 16 of the Act) helped the
arbitral tribunal retain powers to adjudicate upon matters without court intervention. The SC
attempted to strike a balance in the considerations of arbitrability of fraud. The court, while deciding
the application under Section 8 held that although “mere allegations of fraud simplicitor” are
arbitrable, “serious allegations of fraud” are not.
The court found “serious allegations of fraud” non-arbitrable because it involves complicated issues of
fact and requires adducing of elaborate evidence. Thus, when the court refers to “serious allegations of
fraud” it is independent of the gravity of the alleged fraud but is dependent on the amount of evidence
required to prove the allegation.

Rashid Raza vs. Sadaf Akhtar

The Supreme Court in A. Ayyasamy3 (hereinafter to be referred as Division Bench) classified the
allegations of fraud into "simple allegations" or "fraud simpliciter" and "serious allegations" or
"complex fraud" and held that simple allegations of fraud are capable of arbitration, however,
complex fraud permeates the entire contract and therefore, is not capable of arbitration. Moreover, this
position has been reiterated by the three judges' bench of the Supreme Court in Rashid Raza vs. Sadaf
Akhtar wherein the bench narrowed down and streamlined the scope of arbitrability in fraud by laying
down the twin tests.
The TWIN test -
1. Does this plea permeate the entire contract and above all, the agreement of arbitration,
rendering it null and void?
2. Whether the allegations of fraud touch upon the internal affairs of the parties inter se having
no implication in the public domain?
The Supreme Court, in this matter, reiterated the law as laid down by the division bench of the HC
and held that the dispute between the parties falls within the ambit of "simple allegation" and touches
upon the internal affairs and therefore, the High Court erred in dismissing the petition of the appellant.
Therefore, if the public at large is not being affected by allegations of fraud between the two disputing
parties, the matters are capable of settlement through arbitration.

Avitel v HSBC
The Supreme Court in the case of Avitel Post Studioz Limited v. HSBC PI Holdings (Mauritius)
Limited was engaged with the question of whether allegations of fraud can be adjudicated in
arbitration, or whether they require adjudication before a court. In its judgment, the Court has laid
down clear tests to determine when a dispute involving allegation of fraud is arbitrable, and when it
would require adjudication before a court. The Court held that “serious allegations of fraud”, leading
to non-arbitrability would arise only if either of following two tests were satisfied, and not otherwise -

 The first test is satisfied only when it can be said that the arbitration clause or agreement itself
cannot be said to exist in a clear case in which the court finds that the party against whom
breach is alleged cannot be said to have entered into the agreement relating to arbitration at all;
or
 The second test can be said to have been met in cases in which allegations are made against
the State or its instrumentalities of arbitrary, fraudulent, or malafide conduct, thus
necessitating the hearing of the case by a writ court in which questions are raised which are not
predominantly questions arising from the contract itself or breach thereof, but questions arising
in the public law domain.

This means that all other cases involving “serious allegations of fraud” i.e. cases that do not meet the
above two tests laid down by the Supreme Court, would be arbitrable.
Applying the aforesaid test to the facts before it, the Court found that the issues raised and answered
in the Award were the subject matter of civil as opposed to criminal proceedings. The fact that a
separate criminal proceeding was sought to be initiated by HSBC is of no consequence whatsoever. It
was held that the impersonation, false representations and siphoning of funds found to have been
committed were all inter parties and had no “public flavour” so as to be non-arbitrable on account of
allegations of fraud.
NY CONVENTION – ARTICLE II AND V
Article II (1) provides that, when certain conditions are met, Contracting States “shall” recognize an
agreement in writing to arbitrate.
The obligation to recognize an “agreement in writing” is widely accepted by national courts. The
Supreme Court of the United States has held that the compulsory language “shall” in article II (1)
leaves courts with no discretion as they must recognize the arbitration agreement in accordance with
the clear provisions of the Federal Arbitration Act and the New York Convention. Similarly, the Swiss
Federal Tribunal has interpreted article II as obliging Contracting States to recognize the validity and
effect of an arbitration agreement.l The mandatory nature of the requirement to recognize and enforce
arbitration agreements has been confirmed by decisions in most jurisdictions.

 B. Meaning of 'agreement'
Article II (1) deals with the agreement to arbitrate. When deciding whether to enforce an arbitration
agreement, courts rely on the consent of the parties to establish whether they have agreed to submit
the underlying dispute to arbitration.
The task of a court in determining an agreement to arbitration has been defined as follows by the
Supreme Court of the United States under both the Federal Arbitration Act and the New York
Convention: “the first task of a court asked to compel arbitration of a dispute is to determine whether
the parties agreed to arbitrate” the dispute. As confirmed by an Australian court, consent falls to be
assessed on a case-by-case basis.

Reported case law in various jurisdictions applying the Convention shows that parties were referred to
arbitration pursuant to article II (3) when courts have found that the parties had consented to
arbitration. Consent to arbitration has been found in a variety of situations, including when the parties
(i) participated in the negotiation of the contract, (ii) participated in the performance of the contract,
(iii) participated in both the negotiation and performance of the contract, (iv) had knowledge of the
arbitration agreement, or (v) participated in the arbitral proceedings without raising any objection to
the arbitral tribunal’s jurisdiction.
First, a United States court held that participation in the negotiation of the contract containing the
arbitration clause through an exchange of documents evidences the parties’ consent to arbitrate any
dispute arising out of that contract, thereby satisfying the requirements of article II. In so ruling, the
court noted that the party had affixed its stamp to the broker’s slip as further evidence of consent.
Second, evidence of consent has been found in the parties’ conduct in performing the contract. In
situations where a party does not sign the contract or return a written confirmation, but nevertheless
performs its obligations, many courts have held that such conduct amounts to a tacit acceptance of the
terms of the contract, including the arbitration agreement. For example, the Indian Supreme Court has
enforced an arbitral award notwithstanding the fact that the arbitration agreement was neither signed
nor contained in an exchange of documents. It held that the party, in particular by opening letters of
credit in reliance on the contract and invoking the contract’s force majeure clause, accepted the terms
of the written contract, including the arbitration clause. Following the same reasoning, but applying
French law on the basis of the “more-favourable-right” provision at article VII (1), a French court
upheld an arbitration agreement contained in a booking note on the ground that the parties had
performed the booking note. The court held that since the parties had knowledge of the booking note,
which constituted the parties’ sole “meeting of minds”, they were bound by the arbitration agreement
contained therein.
Third, when a party that did not sign the contract containing the arbitration agreement had
nevertheless participated in the negotiation of, and performed obligations under, that contract, certain
courts have referred that non-signatory to arbitration. In a case concerning an action to set aside an
award, but dealing with the issue of the binding character of an arbitration agreement on a non-
signatory, the Paris Court of Appeal confirmed that the parent company that participated in the
negotiation of and assumed obligations under the main contract was bound by the arbitration
agreement, despite not being a party to the main contract. However, this approach is not universally
accepted. For instance, in the Dallah case, the Supreme Court of the United Kingdom, relying on the
New York Convention, refused to grant leave to a party seeking to enforce an award rendered against
the Islamic Republic of Pakistan on the grounds that there was no evidence that the common intention
of the parties was to add the Government of Pakistan as a party to the main contract, despite its
participating in negotiations and in the performance of certain obligations under that contract.
Fourth, consent has also been found in situations where a party had knowledge of the arbitration
agreement. For instance, when the arbitration agreement is printed on the back of the contract (or
contained in general terms and conditions printed on the back of the contract), parties have been
deemed to have knowledge of the agreement to arbitrate as they had the opportunity to review the
arbitration agreement. In this vein, in a dispute where the arbitration agreement was contained in a
document other than the main contract, the Italian Court of Cassation noted that, in order to establish
the parties’ consent to an arbitration agreement, the parties had to have knowledge of the arbitration
agreement through a specific reference to it in the main contract (“per relationem perfecta”).
In some jurisdictions, parties are deemed to have knowledge of the arbitration agreement when,
irrespective of whether they had actual knowledge of the arbitration agreement, they should
reasonably have known about it. In such cases, courts will enforce arbitration agreements when parties
are aware of the arbitration agreement or should have been aware of the arbitration agreement. For
instance, the Italian Court of Cassation now recognizes that, when the parties are professional
businessmen who should be aware of the content of general terms and conditions in their field, a
generic reference to such terms and conditions (“per relationem imperfecta”) satisfies the requirement
of article II of the Convention. German courts also admit that consent can be implied from relevant
international trade usages when the contract is typical of the industry and the parties are active in the
relevant field of business.
Some courts have also ruled that parties are bound by an arbitration agreement incorporated by
reference on the grounds that they should have been aware of its terms. It is indeed very common in
international trade for parties not to set out the terms of their contract in detail, but instead to refer to
separate documents, such as general conditions and standard-form agreements produced by
professional bodies, which may contain arbitration agreements. Some courts have accepted that, by
referring to general terms and conditions in their contract, the parties have consented to the arbitration
agreement therein because they should reasonably have known about the arbitration agreement.
Indeed, as noted by an Indian court, article II does not specify that the agreement to arbitrate must be
contained in a single document. Hence, in a case where the Convention applied, a United States court
upheld an arbitration agreement contained in general terms and conditions on the grounds that the
parties had tacitly consented to the general terms and conditions to which the contract referred,
notwithstanding the fact that the plaintiff had never been in possession of those general terms and
conditions. The court reasoned that failure to request the terms and conditions referred to in a contract
implied tacit acceptance of its terms, including the arbitration agreement. In the same vein, in Bomar,
relying on both the Convention and French law, a French court held that an arbitration agreement
contained in a document referred to in the main contract should be enforced insofar as it could be
demonstrated that the parties were aware or should have been aware of it. A number of courts have
thus upheld arbitration agreements contained in general conditions referred to in the main contract. In
the same vein, in a dispute arising out of a bill of lading expressly referring to a charter party
agreement, the Indian Supreme Court upheld an arbitration agreement contained in the charter party
agreement. As confirmation of this approach, article 7(6) (Option I) of the UNCITRAL Model Law on
International Commercial Arbitration expressly provides that a reference in a contract to any
document containing an arbitration clause qualifies as an arbitration agreement in writing.
Fifth, courts have relied on the procedural behaviour of the parties to infer their consent to arbitrate
their disputes. Hence, participation in the arbitral proceedings without any objection to the jurisdiction
of the arbitral tribunal has been held to establish the parties’ agreement to arbitrate.224 For instance,
having found that an unsigned arbitration agreement did not comply with the requirements of article II
(2), the Brazilian Superior Court of Justice nevertheless enforced an award rendered under that
arbitration agreement on the grounds that the parties had consented to the arbitral tribunal’s
jurisdiction by participating in the arbitral proceedings without raising any objections to the arbitral
tribunal’s jurisdiction.225 Likewise, an Australian court enforced an arbitral award on costs rendered
under the auspices of the ICC in Paris where the arbitral tribunal found that it did not have jurisdiction
as the arbitration agreement was invalid. The Australian court held that, by signing the Terms of
Reference, the parties had consented to submit their dispute to arbitration.
The reliance placed by courts on the parties’ consent to arbitration is consistent with the Convention’s
philosophy of providing “satisfactory evidence of the agreement”. Commentators have emphasized
the importance of the intention of the parties and whether there is a “meeting of minds”.

ENFORCEMENT AND RECOGNITION – Article V

The grounds for refusing recognition and enforcement of arbitral awards is recognised by New York Convention under
Article V in the following terms:

1. Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only
if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that—

(a) the parties to the agreement referred to in article II were, under the law applicable to them, under some incapacity, or
the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon,
under the law of the country where the award was made; or

(b) the party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of
the arbitration proceedings or was otherwise unable to present his case; or

(c) the award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration,
or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on
matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains
decisions on matters submitted to arbitration may be recognised and enforced; or

(d) the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the
parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place;
or

(e) the award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of
the country in which, or under the law of which, that award was made.

2. Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where
recognition and enforcement is sought finds that—
(a) the subject-matter of the difference is not capable of settlement by arbitration under the law of that country; or

(b) the recognition or enforcement of the award would be contrary to the public policy of that country.

[*Note: Same has been adopted u/s 48 of the 1996 Act and under most domestic legislations of foreign jurisdictions]
These grounds for refusal of recognition and enforcement of foreign arbitral awards are of considerable importance.
They represent an internationally accepted standard, not only because of the widespread acceptance of the New York
Convention throughout the world, but also because the Model Law adopts the same grounds (although not in precisely
the same words) for refusal of recognition and enforcement of an arbitral award, irrespective of the country in which
that award was made. (76) In addition, six of these seven grounds for refusal are also set out in the Model Law as
grounds for the setting aside of an arbitral award by the national court of the place of arbitration.
First ground for refusal—incapacity; invalid arbitration agreement

(a) The parties to the agreement...were, under the law applicable to them, under some incapacity, or the said
agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under
the law of the country where the award was made ...

The issue of capacity to enter into an arbitration agreement, which may raise particular difficulties
The issue of invalidity of the arbitration agreement is seen from the prism of two laws:
(a) firstly, the law to which the parties have subjected it i.e. the law of the arbitration agreement (here comes the
significance of separability presumption which severe the law of the arbitration agreement from the law of the substance
of the dispute)
(b) secondly, and only when there is no mention of first, the law of the country where the award was made i.e. lex
arbitri.

Second ground—no proper notice of appointment of arbitrator or of the proceedings; lack of due process
The second ground for refusal of recognition and enforcement of an award under the New York Convention is set out at
Article V(1)(b):
(b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or
of the arbitration proceedings or was otherwise unable to present his [or her] case ...

This is the most important ground for refusal under the New York Convention (and the Model Law). It is directed at
ensuring that the arbitration itself is properly conducted, with proper notice granted to the parties and procedural
fairness.
11.72 The point as to notice is a matter of formality, but it is important nonetheless. However, the main thrust of this
provision of the Convention is directed at ensuring that the requirements of ‘due process’ are observed and that the
parties are given a fair hearing. If parties from different countries are to have confidence in arbitration as a method of
dispute resolution, it is essential that the proceedings should be conducted in a manner that is fair and which is seen to
be fair. This is something that should be borne in mind, by parties and arbitrators alike, from the very outset of the
arbitration.

The court of the forum state will naturally have its own concept of what constitutes a ‘fair hearing’. In this sense, as was
said in a leading case in the United States, the New York Convention ‘essentially sanctions the application of the forum
state's standards of due process’. (88) This does not mean, however, that the hearing must be conducted as if it were a
hearing before a national court in the forum state. It is generally enough if the court is satisfied that the hearing was
conducted with due regard to any agreement between the parties, and in accordance with the principles of equality of
treatment and the right of each party to have a reasonable—rather than exhaustive—opportunity to present its case.

The national court at the place of enforcement thus has a limited role. Its function is not to decide whether or not the
award is correct, as a matter of fact and law; its function is simply to decide whether there has been a fair hearing. Only a
significant and material mistake in the course of the proceedings should be sufficient to lead the court to conclude that
there was a denial of ‘due process’.

Third ground—jurisdictional issues

The third ground for refusal of recognition and enforcement of an award under the New York Convention is set out at
Article V(1)(c):
(c) the award deals with a difference not contemplated by or not falling within the terms of the submission to
arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the
decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award
which contains decisions on matters submitted to arbitration may be recognised and enforced ...

It is becoming increasingly common for the issue of jurisdiction to be raised as the first line of defence in a reference to
arbitration. The issue may be raised as part of a plea that there was no valid agreement to arbitrate, (98) in which case it
would fall under Article V(1)(a) of the New York Convention, or it may be raised under the present heading. Jurisdictional
issues as a ground for challenging an award have already been discussed, (99) and it has been noted that the right to
raise such an issue may have been lost because of failure to do so at the appropriate time. (100)
Fifth ground—award suspended, or set aside
11.87 The fifth ground for refusal of recognition and enforcement under the New York Convention is set out at Article
V(1)(e):
(e) The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority
of the country in which, or under the law of which, that award was made ...
This fifth ground for refusal of recognition and enforcement of an arbitral award (which, like the others, also appears in
the Model Law) has given rise to more controversy than any of the previous grounds. First, there is the reference to an
award being ‘not binding’. In the 1927 Geneva Convention, the word ‘final’ was used. This was taken by many to mean
that the award had to be declared as ‘final’ by the court of the place of arbitration and this gave rise to the problem of
the double exequatur. It was intended that the word ‘binding’ would avoid this problem, particularly since many
international and institutional rules of arbitration state in terms that the award of the arbitral tribunal is to be accepted
by the parties as final and ‘binding’ upon them. (118) However, some national courts still consider it necessary to
investigate the law applicable to the award to see if it is ‘binding’ under that law (119) —although the better position
appears to be that an award is ‘binding’ if it is no longer open to an appeal on the merits, either internally (that is, within
the relevant rules of arbitration) or by an application to the court. (120)
11.88 There are other problems too, with this fifth ground for refusal, which have led to considerable controversy. At
first sight, the proposition that an award may be refused recognition and enforcement if it has been set aside or
suspended by a court at the place (or seat) of the arbitration seems reasonable enough. If, for example, an award has
been set aside in Switzerland, it will be unenforceable in that country—and it might be expected that, if only as a matter
of international comity, the courts of other states would regard the award as unenforceable also.
11.89 This is not necessarily so, however. Courts in other countries may take the view (and indeed, as will be described,
(121) in some countries they have taken the view) that they will enforce an arbitral award even if it has been set aside by
the courts of the seat of the arbitration. This leads to a situation in which an award that has been set aside and so is
unenforceable in its country of origin may be refused enforcement under the New York Convention in one country, but
granted enforcement in another.
11.90 The problem arises because the New York Convention does not in any way restrict the grounds on which an award
may be set aside or suspended by the court of the country in which, or under the law of which, that award was made.
(122) This is a matter that is left to the domestic law of the country concerned, and this domestic law may impose local
requirements (such as the need to initial each page of the award) that judges and lawyers elsewhere would not regard as
sufficient to impeach the validity of an international arbitral award.

11.92 The argument in favour of the fifth ground is a familiar one. It is the classic argument that the courts of the place of
arbitration should have some control over arbitral proceedings conducted on their territory, if only to guard against lack
of due process, fraud, corruption, or other improper conduct on the part of the arbitral tribunal. Perhaps the real
argument is: how far should this control go? Should it be limited to the first four grounds of the New York Convention,
(125) or should it go further? And if so, how much further? The problem is to strike the correct balance between
regulation and laissez-faire.

11.93 Whilst the argument continues, cour

ts in France, Belgium, Austria, and the United States have shown themselves prepared, on occasion, to recognise and
enforce arbitral awards even though they have been set aside by the courts at the seat of arbitration. (126) The
justification for this is twofold. First, the language of Article V of the New York Convention (as already discussed) is
permissive, not mandatory. Specifically, the

English language version of the Convention says that the enforcing court may refuse recognition and enforcement—not
that it must do so. Secondly, the New York Convention recognises that there may be more favourable provisions under
which an award may be recognised and enforced. The Convention contains the following provision, in Article VII(1):

The provisions of the present Convention shall not affect the validity of multilateral or bilateral agreements concerning
the recognition and enforcement of arbitral awards entered into by the Contracting States nor deprive any interested
party of any right he may have to avail himself of the arbitral award in the manner and to the extent allowed by the law
or the treaties of the country where such award is sought to be relied upon. In this way, the New York Convention
recognises explicitly that, in any given country, there may be a local law that, whether by treaty or otherwise, is more
favourable to the recognition and enforcement of arbitral awards than the Convention itself. The Convention gives its
blessing, so to speak, to any party who wishes to take advantage of this more favourable local law.
11.94 The New York Convention has long been regarded as being of fundamental importance to the recognition and
enforcement of international arbitral awards. It remains so. However, the possibility of obtaining recognition and
enforcement of an award that has been set aside by means of applying a more favourable local law, which does not
reflect or rely upon the Convention, should not be overlooked.
ARBITRATION AGREEMENT
Arbitration Agreement has been defined in section 7 of the Act as 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. An arbitration agreement is the
backbone of any arbitral proceedings. In an absence of an arbitration agreement, arbitral proceedings
cannot be initiated. The arbitrators derive their power and duties from the arbitration agreement.
The arbitration agreement has to be formulated either in the anticipation of a dispute that may arise in
the future or with a view to resolve a specific dispute already in existence. On this ground, the
arbitration agreements are divided into 2 categories :
4. Clause arbitration agreement - Arbitration clauses are drawn up and agreed as part of the
contract before any dispute has arisen, and so they necessarily look to the future. The parties
naturally hope that no dispute will arise, but agree that if it does, it will be resolved by arbitration,
and not by the courts of law.
5. Submission agreement - When a dispute arises, the party create an exclusive agreement for
resolving the dispute. Submission agreement arises in cases where there is no clause arbitration
agreement. It is generally much more complex than an arbitration clause—because, once a dispute
has arisen, it is possible to nominate a tribunal, and to spell out what the dispute is and how the
parties propose to deal with it.
The arbitration agreement is itself a contract between the two parties whose recognition and
enforcement must be governed by the ICA, 1872 and must fulfil all the requirements of section 10 of
the contract.
Conditions for a valid Arbitration Agreement
Must be in writing 7(3) and signed by the parties
Free consent
Approval by both the parties that the dispute is to referred to arbitration
An agreement may be said to be writing if it is found in any document signed by the parties as per
section 7(4) or contain an exchange of letters, telex, telegram or any other means which provide a
record of 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.

Bihar State Mineral Development Corpn v Encon Builders Pvt Ltd. - The SC laid down the
essentials of an arbitration agreement.
• The agreement must be in writing
• Consensus ad idem
• Free consent
• Will of the parties

UP Rajkiya Nirman Nigam Ltd v Indure Pvt Ltd - SC held that the arbitration clause may be
incorporated into an existing contract by specific reference to it. As section 7(5) clearly provides that
reference in a contract to a document containing an arbitration clause constitute an arbitration
agreement and the reference is to make arbitration clause a part of the contract.
PRINCIPLE OF COMPETENZ – COMPETENZ
Principle of Competence Competence or kompetenz-kompetenz, is a jurisprudential doctrine
whereby a legal body, such as a court or arbitral tribunal, may have competence, or jurisdiction, to
rule as to the extent of its own competence on an issue before it. The doctrine of kompetenz-
kompetenz is enshrined in the UNCITRAL Model Law on International Commercial Arbitration and
Arbitration Rules. Article 16(1) of the Model Law and article 23(1) of the Arbitration Rules both
dictate that the arbitral tribunal shall have the power to rule on its own jurisdiction including any
objections with respect to the existence or validity of the arbitration agreement. Section 16 of the
Indian Arbitration Act, 1996 contains the doctrine of competence-competence.

The underlying object of this doctrine is to minimize judicial intervention in order to ensure that the
arbitral process is not thwarted at the very threshold, merely because a preliminary objection is raised
by one of the parties. The issue of jurisdiction must therefore be left entirely for determination by the
arbitral tribunal.

This will not only bring ease to the arbitration process but will increase the confidence of the parties
towards the mechanism for resolving disputes. However, the doctrine cannot be absolute power given
to the arbitrators when the very initiation of the arbitration that is the arbitration agreement is void ab
initio. But if person allow to judge in his own case will it not defeat justice? No, it will be not as here
merits of case not decided but mere jurisdiction thing is decided.

Importance of the doctrine of competence-competence

Section 16 of the 1996 Act contains the doctrine of competence-competence. The importance of
Section 16 in the scheme of the 1996 Act is paramount as it demonstrates the fiath that is reposed in
the authority of the Arbitral Tribunal. The legislature by way of Section 16 has placed abundant trust
and reliance on the ability of the Arbitral Tribunal to do justice even where their decisions may affect
their own existence. Another reason why Section 16 has been introduced is to ensure brevity in
proceedings allowing the tribunal to deal with jurisdictional questions, which are generally treated as
preliminary issues. The principles contained in Section 16 is a central tenet and must be kept in mind
for the purpose of the interpretation of any of the provisions of the 1996 Act. Section 16 shows that
the legislature believes that the Arbitral Tribunal can be entrusted with issues that are as grave as their
own jurisdiction. if there is jurisdictional challenge as to role of arbitrator then owing to this principle
it shall be decided by arbitrator. The decision of arbitrator is challenged before himself. Suppose two
parties have dispute and they choose arbitrator to decide. So it may happen that one party appoint
arbitrator and later challenge jurisdiction of arbitrator. So arbitrator by applying this principle can
challenge issues against him. Principle of Competence purpose is the arbitrator himself hear plea
against the judgement to avoid encroachment of court and litigation. This principle is different from
natural justice principle that one cannot be judge in his own case. This principle expedite the
arbitration process as if jurisdiction issue persists and we switch to court than first time will be spent
in deciding whether arbitrator hasjurisdiction or not and -then problem will be addressed.

Hence, the doctrine is no doubt of utmost significance to set the arbitral tribunals free so that they can
rule freely on their own jurisdiction. This will not only bring ease to the arbitration process but will
increase the confidence of the parties towards the mechanism for resolving disputes. However, the
doctrine cannot be absolute power given to the arbitrators when the very initiation of the arbitration
that is the arbitration agreement is void ab initio.

* JURISDICTIONAL CHALLENGE OF ARBITRATOR

Jurisdiction of arbitrator can be challenge under three heads -

1) Under scope of agreement - If dispute at hand does not fall within the purview of arbitration
agreement then the jurisdiction of arbitrator can be challenged. For eg- arbitration agreement said
that in case of Human right subject dispute we would go for arbitration, but dispute arose related
to taxation law which is outside the scope of agreement therefore the jurisdiction of arbitrator can
be challenged.
2) Under existence of agreement- If there was no existing contract and no existing arbitration
agreement then the jurisdiction of arbitrator can be challenged.
3) Under validity of agreement- Validity can be of two types-

i) Formal validity of arbitration agreement - Agreement must be in the form as required by law of the
country. As per Sec 7, arbitration agreement must be in writing.

ii) Substantive Validity of arbitration agreement - When dispute is as to legality of validity of

agreement then such validity treated as substantive validity. For eg – When contract vitiated by fraud
etc.

Note: Positive Jurisdictional award means where jurisdictional challenge has been denied by the
arbitrator. Negative jurisdictional award means where jurisdictional challenge has been upheld denied
by the arbitrator.
In SBP vs Patel Engineering (2005): The SC commented on the scope of the arbitral tribunal's
power to decide its own jurisdiction and the inter-play between Ss. 8 and 16 -

"The fact that the arbitral tribunal has the competence to rule on its own jurisdiction and to
define the contours of its jurisdiction, only means that when such issues arise before it, the
tribunal can and possibly, ought to decide them. This can happen when the parties have gone to
the arbitral tribunal without recourse to Ss. 8 or 11 of the Act. But where the jurisdictional issues
are decided under these sections, before a reference is made, S. 16 cannot be held to empower the
arbitral tribunal to ignore the decision given by the judicial authority or the Chief Justice before
the reference to it was made. The competence to decide does not enable the arbitral tribunal to
get over the finality conferred on an order passed prior to its entering upon the reference by the
very statute that creates it. This is the position arising out of S. 11(7) of the Act read with S. 16
thereof."

However, this observation came after Bhatia and before BALCO in 2005. This observation is no more
in force.

The present scenario is that the court must try, as far as possible, to leave contentious issues for
determination by the arbitral tribunal itself (may be held in Balco, confused, given in Seal page 6)

If the jurisdiction of arbitration tribunal is challenged, the tribunal may decide the point as a
preliminary issue in an interim award or as part of its award on the merits. In either case, however, the
decision of the arbitral tribunal is not necessarily the last word on the subject: that rests with the
national court. The Model Law, for instance, states that if the arbitral tribunal rules as a preliminary
question that it has jurisdiction, this ruling may be referred to the competent court (within thirty days)
for the court's decision, which is final. If the ruling on jurisdiction is made in an award on the merits,
this may likewise be challenged under the Model Law, and the award may be set aside on the basis
that the arbitration agreement was not valid, or that it dealt with a dispute that was not within the
arbitration agreement, or that it went beyond the scope of that agreement.
 DELOCALISATION
Two types:
1. Geographical Delocalization: The difference between the term venue and seat as agreed
under the contract between parties is important to understand the concept. The distinction
between venue and seat may be read as that the seat of arbitration is what determines the court
having jurisdiction over the nullity claim of an award, while the venue is the physical location
where the arbitration hearings or deliberations are held.
Geographical delocalisation sets out submitting arbitration to a lex arbitri(law of the place
where the arbitration takes place; Venue of Arbitration) other than that of the seat of the
arbitration by the law chosen by the parties (Seat of arbitration). It attempts to evade the
rules and state’s court control where the arbitral proceedings take place by allowing parties to
make a selection among rules and among courts. However, this theory is on the verge of
disappearing insofar as there are various complexities and considerable risks of positive and
negative conflicts of jurisdiction.

2. Legal Delocalization: Basically, applying this theory means than an international arbitration
will not be subject to any peculiarities of law just because of the seat of the arbitration. The ratio
of this theory is to assist in the creation a truly international law of arbitration procedure without
domestic law interference
As far as international arbitration is concerned, it would save considerable time, trouble, and
expense if the laws governing arbitrations were the same throughout the world, so that there
were—so to speak—a universal lex arbitri.

Two Development in Delocalisation

1. The first is for the state to relax the control that it seeks to exercise over international
arbitrations conducted on its territory. These laws take careful note of the theme of the Model
Law, which is that their courts should not intervene in arbitrations unless authorised to do so.
The role of the courts should be supportive, not interventionist.

2. The second development is to detach an international arbitration from control by the law of the
place in which it is held. This is the so-called delocalisation theory, the idea being that instead
of a dual system of control, first by the lex arbitri and then by the courts of the place of
enforcement of the award, there should be only one point of control: that of the place of
enforcement.

Judicial Manifestation
1. French Cour de Cassation: A recent judicial manifestation of the delocalisation theory is
provided by the French Cour de Cassation, which, in enforcing an arbitral award set aside by the
English High Court, held that:In international arbitral award, which does not belong to any state
legal system, is an international decision of justice and its validity must be examined according
to the applicable rules of the country where its recognition and enforcement are sought.
 2. Dallah Real Estate: As noted earlier, previous French approach/Judgement was considered
by the UK Supreme Court in Dallah Real Estate, in which, without endorsing such an approach
under English law, the Court noted that, under French law, ‘arbitration agreements derive their
existence, validity and effect from supra-national law, without it being necessary to refer to any
national law

Party Autonomy
The delocalisation theory takes as its starting point the autonomy of the parties rests upon two
basic (yet frequently confused) arguments.
(a) The first assumes that international arbitration is sufficiently regulated by its own rules,
which are either adopted by the parties (as an expression of their autonomy) or drawn up by the
arbitral.tribunal itself.
(b) The second assumes that control should come only from the law of the place of enforcement
of the award.
(For More page 36 of kishan notes under heading (i) Arguments considered )

Position in Reality
The delocalisation theory has attracted powerful and eloquent advocates.
1. Professor Gaillard: He describes this ‘representation’ of international arbitration as one that:
...accepts the idea that the juridicity of arbitration is rooted in a distinct, transnational legal
order, that could be labelled as the arbitral legal order, and not in a national system, be it that of
the country of the seat or that of the place or places of enforcement. This representation
corresponds to the international arbitrators' strong perception that they do not administer justice
on behalf of any given State, but that they nonetheless play a judicial role for the benefit of the
international community.
2. The reality is that the delocalisation of arbitrations—other than those, like those of the
International Centre for the Settlement of Investment Disputes (ICSID), which are governed
directly by international law—is possible only if the local law (the lex arbitri) permits it.

Assessing the theory of ‘delocalisation’

1. Professor Paulsson concludes in his treatise The Idea of Arbitration as follows: [T]he
development of international arbitration owes a disproportionately large debt to French law and
to the conceptual advances of French judges and scholars. Nowhere else have the twin lodestars
of freedom and internationalization combined in the conception of a voluntary process that
accommodates the reality of a transnational society, shone so bright.
2. One country that opted in favour of a substantial degree of delocalisation was Belgium. By its
law of 27 March 1985, a provision was added to article 1717 of the Belgian Code Judiciaire to
the effect that a losing party was not permitted to challenge in the Belgian courts an award made
in an international arbitration held in Belgium, unless at least one of the parties had a place of
business or other connection with Belgium. In the event, however, it appears that this legal
provision discouraged parties from choosing Belgium as the seat of the arbitration and
the law has since been changed.
 ENFORCING THE ARBITRATION AGREEMENT

A party to an arbitration agreement might decide to issue proceedings in a court of law, rather
than to take the dispute to arbitration. In case of absence of arbitration agreement, the court
action will proceed. However, having entered into an arbitration agreement, the respondent
usually wishes to insist on its right to have the dispute decided by arbitrators rather than by a
national court. For their part, most courts are obliged to enforce the agreement to arbitrate
pursuant to Article II of the New York Convention, by refusing to accept such proceedings in
court and by referring the parties instead to arbitration. This is also reflected in the Model Law,
Article 8. However, there are some restrictions which shall be complied with
1. There is an arbitration agreement
2. A party to the agreement brings an action in the Court against the other party.
3. Subject matter of the action is the same as the subject matter of the arbitration agreement
4. The other party moves the Court for referring the parties to arbitration before it submits
his first statement on the substance of the dispute.

Under Section 8 of the 1996 Act, if in the process of enforcing the arbitration agreement and
referring the parties to arbitration, and while ruling on the maintainability of the suit, the Court
makes a determination on either existence, scope or validity of the arbitration agreement, then it
will be binding on the tribunal seated within the same territory. This is very likely to happen
because the questions that the court has to answer while ruling on the maintainability of the suit
filed by the petitioner invariably involves questions as to the validity/scope and existence of the
arbitration agreement to determine if the court can go ahead with the matter or should the matter
be referred to the tribunal altogether. However, under Section 16(1): 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. in 2015, the Amendment added phrases in Section 8 such as
“notwithstanding any judgment, decree or order of the Supreme Court or any Court, refer the
parties to arbitration unless it finds that prima facie no valid arbitration agreement exists” to
decrease court’s intervention.
TUSSLE BETWEEN SECTION 8 AND 45
Section 8 comes into picture when arbitration is seated in India. A determination made by the
Court under Section 8 or Section 11 is binding because the tribunal will be within the jurisdiction
of the court (in India). On the other hand, Section 45 comes into picture when the arbitration is
seated outside India and one of the parties (usually the Indian party involved in the arbitration)
files an application before Indian courts to pursue litigation. A determination made by Indian
courts u/s 45 will not be binding on the tribunal and will only be persuasive because it will be
seated beyond the jurisdiction of the court (outside India) and also because Indian courts cannot
be said to have supervisory jurisdiction over the arbitration (only seat courts have it).
SBP Patel v. Engineering
Administrative or judicial- The landmark case of SBP & Co. v. Patel Engineering Limited,
deals with the power of court under Section 11 (6) of the Arbitration act for the appointment of
arbitrator where either the parties or two appointed arbitrator fail to appoint an arbitrator
mutually. The court held that the power to appoint an arbitrator under Section 12 is judicial and
not administrative. It was held that while appointing an arbitrator under Section 11 of the Act, the
court is entitled to decide the existence of a valid arbitration agreement, the existence or
otherwise of a live claim, the existence of the condition for the exercise of power under Section
11 and the qualifications of the arbitrator(s). Thus, this judgment paved a path for Judiciary to
intervene in the procedure of arbitration which is against the UNCITRAL Model laws
commitments by India. Thus, the case of SBP & Co. v. Patel Engineering Limited, (2005) has
proved itself to be an unnecessary intervention in arbitral proceedings and has resulted into a
judicial overreach.
Creating Absurdity in Law- The conclusion reached by the Court is something not envisaged
within the scheme of the Act at all. The intention of Section 45 is to grant court the power to
conduct prime facie examination of Arbitration agreement. Going beyond this, will defeat the
power of kompetenz-kompetenz under Section 16 of the Act. Section 11(6) by using the phrases
"Chief Justice" and "appoint" indicating an even lesser degree of permissible intervention than
Section 45. Section 11 merely provides for the "procedure" for the appointment of the arbitrators.
Surely, the procedure adopted should not affect the jurisdiction of the arbitral tribunal to
determine the validity of the arbitration agreement. This decision creates an absurdity in the law
to that extent.
APPLICABILITY OF PART I TO ARBITRATIONS SEATED OUTSIDE INDIA

1) Bhatia International Scenario, March 2002 (judgement date) – 5 September 2012

The decision in Bhatia International v. Bulk Trading S.A. lays down propositions regarding the applicability
of Part I to arbitrations conducted outside India, that have far reaching effects.

FACTS OF THE CASE - This case involved a contract between the parties which provided
for an arbitration in Paris, following the rules of the International Chamber of Commerce.
Neither the proper law of the contract nor the proper law of the arbitration agreement was
specified. Disputes arose between the parties and pending arbitration, the Respondent sought to
file an application under Section 9 before the Courts at Madhya Pradesh seeking an injunction
order restraining the Petitioner from alienating / transferring its property. The issue thus was
whether a Section 9 application would lie with respect to an arbitration conducted outside India.
The arguments were however directed towards whether or not Part I would apply to such
arbitrations. If it could be proved that Part I applies to arbitrations conducted outside India, then
it would follow that the Section 9 application could be filed. If not, the application under S. 9
was not maintainable.

ISSUES INVOLVED – The case primarily dealing with the issue of whether an Indian Court
could provide interim relief under Section 9 with regard to an arbitration held in Paris, this
decision has binding precedential value for the more general question of whether provisions of
Part I of the Indian Arbitration and Conciliation Act, 1996 can govern an arbitration conducted
abroad.

HELD BY THE COURT - The Court concluded as follows:

"The said Act is one consolidated and integrated Act. General provisions applicable to all
arbitrations will not be repeated in all chapters or parts 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 would apply unless the parties by agreement, express or implied, exclude all
or any of its provisions. In that case the laws or rules chosen by the parties would prevail. Any
provision, in Part I, which is contrary to or excluded by that law or rules will not apply."

The conclusions from Bhatia International may thus be summed up in the following three
principles:
(1) Part 1 mandatorily applies when arbitration is held in India. (Principle 1)
While the Court has not explained the term "held in India" it seems logical to assume that
this refers to a situation where the seat of arbitration is in India. It is to be noted that arbitral
hearings may be conducted, based on the convenience of the parties, in venues other than
the seat. This has been discussed elsewhere.

3. Part I applies to arbitrations conducted outside India unless applicability of Part I is impliedly or
expressly excluded. (Principle 2)

4. There is no express or implied exclusion of Part 1 when the seat of the arbitration was Paris and the
proper law of the contract and proper law of arbitration agreement are not specified. (Principle 3)
Despite these academic criticisms, Bhatia International is the law of the land and decisions
of various High Courts to the contrary8 must be regarded as overruled.

Reasoning Given For The Judgement – The Supreme Court finds 8 reasons to support its view.
1. it was observed that since Article 1(2) of the UNCITRAL model law provided that "the
provisions of this Law, except articles 8, 9, 35 and 36, apply only if the place of arbitration
is in the territory of this State." and that the word "only" had been left out by the legislature
the provisions of Part 1 were intended to apply to foreign arbitrations as well.
2. the fact that Section 28 starts with the words "where the place of arbitration is situate in
India", means that the Parliament intended that Part 1 apply even in cases where the place of
arbitration was not India.
3. the opening words of Sections 45 and 54 read "notwithstanding anything contained in Part
I". Such a non-obstante clause was required only because provisions of Part I apply to
foreign arbitrations.
4. the Court held that since Section 5 and Section 8 used the term "judicial authority" instead
of "court", it meant that the term "judicial authority" included something more than just
"court". The Court inferred that the Legislature had intended that a matter may be taken
before a judicial authority outside India.
5. amount to holding that the Legislature has left a lacunae in the said Act. There would be a lacunae as neither
Part I or II would apply to arbitrations held in a country which is not a signatory to the New York Convention
 or the Geneva Convention (hereinafter called a non- convention country). It would mean that there is no law,
in India, governing such arbitrations.
6. 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.
7. lead to a conflict between sub-section (2) of Section 2 on one hand and sub-sections (4) and (5) of Section 2[4]
on the other. 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.
8. leave a party remediless inasmuch as in international commercial arbitrations which take place out of India the
party 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."

FURTHER DEVELOPMENTS IN 10 YEARS OF BHATIA –

VENTURE GLOBAL ENGINEERING, 2010

Facts and ISSUES - Expanding on the ratio of Bhatia International, the Supreme Court in
Venture Global Engineering v. Satyam Computer Services Ltd. has held Section 34 of
Part I to be applicable to an arbitration conducted by the London Court of International
Arbitration (seat of the arbitration is not mentioned in the judgment) where the
applicable law to the contract was the law of the State of Michigan, United States.

There was also a provision which stated

"Notwithstanding anything to the contrary in this agreement, the Shareholders shall at
all times act in accordance with the Companies Act and other applicable Acts/Rules
being in force, in India at any time."

HELD - In terms of the decision in Bhatia International., we hold that Part I of the Act is applicable to the award
in question even though it is a foreign award. We have not expressed anything on the merits of claim of
both the parties. It is further made clear that if it is found that the court in which the appellant has filed a
petition challenging the award is not competent and having jurisdiction, the same shall be transferred to
the
appropriate court."
The Supreme Court held that the implied exclusion condition was not satisfied, on the basis of
this clause and the other surrounding circumstances set out below.
"(a) the company was situated in India; (b) the transfer of the "ownership interests"
shall be made in India under the laws of India as set out above; (c) all the steps
 necessary have to be taken in India before the ownership interests stood transferred."

4. INDTEL TECHNICAL SERVICES (P) LTD V. W.S. ATKINS RAIL LTD., 2008

FACTS AND ISSUES - where the laws of England and Wales were stated to govern the contract
and the seat of arbitration was not specified, the Court, while deciding on the applicability of
Section 11 to the said arbitration, did not go into the question as to whether there was an
implied exclusion of Part I.
Clause 13.1 of arbitration agreement - Settlement of disputes 13.1. This agreement, its construction, validity
and performance shall be governed by and constructed in accordance with the laws of England and Wales;
Issue – Whether having regard to Clause 13.1 of the memorandum of understanding indicating that the
construction, validity and performance of the agreement would be governed by and constructed in accordance
with laws of England and Wales, this Court would have jurisdiction to appoint an arbitrator under Section 11
of the Arbitration and Conciliation Act, 1996."

HELD - Justice Altamas Kabir interpreted Bhatia International to lay down the proposition
that:

"notwithstanding the provisions of Section 2(2)of the Arbitration and Conciliation Act,
1996 indicating that Part I of the said act would apply where the place of arbitration is
in India, even in respect of international commercial agreements, which are to be
governed by the laws of another country, the parties would be entitled to invoke the
provisions of Part I of the aforesaid Act and consequently the application made under
Section 11 thereof would be maintainable... it lays down that the provisions of Part I of
the Arbitration and Conciliation Act, 1996, would be equally applicable to international
commercial arbitrations held outside India, unless any of the said provisions are excluded
by agreement between the parties expressly or by implication..."

5. CITATION INFOWARES LTD V EQUINOX CORP

ARBITRATION CLAUSES - "10. Any dispute between the parties hereto to arising from this Agreement, or
from an individual agreement concluded on the basis thereof, shall be finally referred to a mutually agreed
Arbitrator.

10.1 Governing law- This agreement shall be governed by and interpreted in accordance with the laws of California,
USA and matters of dispute, if any, relating to this agreement or its subject matter shall be referred for arbitration
to a mutually agreed Arbitrator."
 ISSUE - the question that has arisen is whether this Court would have the jurisdiction in the present factual
scenario and on the backdrop of the fact that the parties vide the aforementioned Clause 10.1 had agreed that the
governing law would be that of California, USA.

HELD - if the parties intended specifically in this case that the law governing the contract was Californian law,
as expressed in Bhatia International as well as in Indtel Technical Services case, an implied exclusion of Part
I should be presumed. I am afraid it is not possible to read such an implied exclusion. Seeing the striking
similarity between Clause 10.1 in the instant case and Clauses 13.1 and 13.2 in Indtel case which have been
quoted above and further the view expressed by the learned Judge in Indtel Technical Services case
regarding the exclusion, it is not possible to even distantly read such an implied exclusion of Part I. It cannot be
forgotten that one of the contracting parties is the Indian party. The obligations under the contract were to be
completed in India. Further, considering the nature of the contract, it is difficult to read any such implied
exclusion of Part I in the language of Clause 10.1.

6. VIDEOCON INDUSTRIES VS UNION of India

ARBITRATION CLAUSE - Indian law to govern.— Subject to the provisions of Article 34.12, this contract
shall be governed and interpreted in accordance with the laws of India.

34.12. Venue and law of arbitration agreement.—The venue of sole expert, conciliation or arbitration
proceedings pursuant to this article, unless the parties otherwise agree, shall be Kuala Lumpur, Malaysia, and
shall be conducted in the English language. Insofar as practicable, the parties shall continue to implement the
terms of this contract notwithstanding the initiation of arbitral proceedings and any pending claim or dispute.
Notwithstanding the provisions of Article 33.1, the arbitration agreement contained in this Article 34 shall be
governed by the laws of England."

ISSUE - Whether the Delhi High Court could entertain the petition filed by the respondents under Section 9 of the
Arbitration and Conciliation Act, 1996 (for short 'the Act') for grant of a declaration that Kuala Lumpur
(Malaysia) is the contractual and juridical seat of arbitration and for issuance of a direction to the Arbitral
Tribunal to continue the hearing at Kuala Lumpur in terms of Clause 34 of the Production Sharing Contract
(PSC), is the question which arises for consideration in this appeal."

HELD - The parties had agreed that, notwithstanding Article 33.1, the arbitration agreement contained in
Article 34 would be governed by English law. This necessarily implies that the parties had agreed to exclude
Part I of the act.

7. DOZCO INDIA PRIVATE LTD V DOOSAN INFRACORE COMPANY LTD

ARBITRATION CLAUSE - "Governing Laws — 22.1: This agreement shall be governed by and construed in
accordance with the laws of The Republic of Korea.

Article 23. Arbitration — 23.1: All disputes arising in connection with this agreement shall be finally settled by
arbitration in Seoul, Korea (or such other place as the parties may agree in writing), pursuant to the rules of
agreement then in force of the International Chamber of Commerce."

ISSUE - The respondent, therefore, contended that the petitioner would not be entitled to maintain the present
proceedings in India by invoking the provisions of the Act. The respondent specifically disputes the stand of the
petitioner that there is nothing in the agreement to deny the applicability of Indian procedural law seeking
appointment of arbitrator. The respondent also specifically contended that there is express exclusion of Indian
courts and/or the applicability of the Act."

HELD – (i) The clear language of Articles 22 and 23 of the distributorship agreement between the parties in this
case spells out a clear agreement between the parties excluding Part I of the Act.

(ii) The law laid down in Bhatia International v. Bulk Trading S.A. and Indtel Technical Services (P) Ltd. v.
W.S. Atkins Rail Ltd., as also in Citation Infowares Ltd. v. Equinox Corpn. is not applicable to the present
case.

(iii) Since the interpretation of Article 23.1 suggests that the law governing the arbitration will be Korean Law and
the seat of arbitration will be Seoul in Korea, there will be no question of applicability of Section 11(6) of the Act
and the appointment of arbitrator in terms of that provision."

SUMMARY OF THE POSITION OF LAW BEFORE BALCO

Thus, following the dicta in of the Supreme Court and various High Courts, the propositions
that emerge are:
• Part I mandatorily applies when arbitration is "held" in India, which can be logically interpreted to mean
where the seat of the arbitration is in India.74
• Part I applies to arbitrations conducted outside India unless applicability of Part I is impliedly or expressly
excluded.75

a. It obviously follows that an arbitration conducted outside India will be governed by Part
I of the 1996 Act if it is expressly specified so in the contract.76
• An "implied" exclusion cannot be inferred from either of the Singer presumptions on their own, but must be
determined based on the intention of the parties.

In order to decide whether parties have intended that Part I be excluded, the following
principles which have evolved through precedents, may be used:
(a) Where the seat of the arbitration is located abroad and the proper law of the contract is not specified, it
cannot be presumed that the parties intended to exclude Part I.77
(b) Where the seat of the arbitration is not specified and the proper law of the contract is foreign, it cannot be
presumed that the parties intended to exclude Part I.78
(c) Where the proper law of contract is foreign and the seat of the arbitration is located abroad, it can be
presumed that the parties intended to exclude Part I.79

(i) Where the seat of the arbitration is abroad, the proper law of the contract is the law of the
same foreign country and the courts of that foreign country have been granted exclusive
jurisdiction to decide any disputes, it can be presumed that the parties intended to exclude
Part I.80 There exist authorities to the contrary, 81 but this does not appear to be good law
Where the seat of the arbitration is abroad and the proper law of arbitration agreement is foreign law, there is
an implied/ or express exclusion of Part I. 82 Indian Courts would not have jurisdiction even in case the
substantive law of the underlying agreement was Indian83 and the award was signed in India. 84
(d) Where the same facts as in (d) exist but the contract is executed in India and the cause of action arose in
India, an intention to exclude Part I may not be presumed. 85 This, however, might require reconsideration.
• Where an application relating to the arbitration is made before a competent foreign court, all further
applications have to be made before such a court because of the applicability of Section 42 and the
jurisdiction of Indian Courts stand ousted.

BALCO (DATE OF DECISION 06 SEPTEMBER 2012)

FACTS
1. An agreement dated 22 April, 1993 (“Agreement”) was executed between BALCO
and Kaiser, under which Kaiser was to supply and install a computer based system
at BALCO’s premises.

2. As per the arbitration clause in the Agreement

(a) Any dispute under the Agreement would be settled in accordance with the
English Arbitration Law

(b) The venue of the proceedings would be London.

(c) The Agreement further stated that the governing law with respect to the
Agreement was Indian law; however, arbitration proceedings were to be
governed and conducted in accordance with English Law.

3. Disputes arose and were duly referred to arbitration in England. The arbitral tribunal
passed two awards in England which were sought to be challenged in India u/s. 34
of the Act in the district court at Bilaspur. Successive orders of the district court and
the High Court of Chhattisgarh rejected the appeals. Therefore, BALCO appealed to
the Supreme Court (“Court”).

ARGUMENTS
The Indian Supreme Court in BALCO has now unequivocally overruled Bhatia and
Venture Global on the basis that Part I of the 1996 Act does not apply to foreign-seated
arbitrations. This conclusion principally stems from two fundamental propositions that the
court underscored in its judgment viz.
(a) The application of the UNCITRAL Model Law was intended to be limited to the
territorial jurisdiction of the seat of arbitration i.e. the territoriality principle and
(b) The seat of the arbitration is the ‘centre of gravity’ of the arbitration and therefore a
choice of a foreign-seated arbitration by the parties ordinarily meant that the parties
also agreed to the application of the curial law of that foreign country.

CASES OVERRULED

1. Bhatia International vs. Bulk Trading S.A(2002) 4 SCC 105 (Bhatia case)
Bhatia International and Venture Global clearly held that Part I would apply to all
arbitrations including those held out of India, unless the parties by agreement, express or
implied, exclude all or any of its provisions

Venture Global Engineering v. Satyam Computer Services Ltd(2008) 4 SCC 190

PRINCIPLES
1. Part I is not applicable to international commercial arbitration held outside
India :
Part I is applicable to
• All domestic arbitration proceedings.
• Arbitration proceedings with both foreign parties but held in India.
• Where one party is foriegn and the other is Indian (International Commercial
Arbitration) but seat of arbitration in India.

2. No interim relief: The court further laid down that in international commercial
arbitrations held outside India, interim relief cannot be granted by Indian courts
under Section 9 (which falls under Part I) or any other provision of the Act as
applicability of Part I of the Act is limited to arbitrations which take place in India.
Therefore, no civil suit can be instituted purely for interim relief.
3. No setting aside of an international arbitral award under Section 34: The court
has also held that Section 34 of the Act (which provides for setting aside of an
arbitral award on the grounds available under the said section), would apply only if
the seat of arbitration is in India.

4. Enforcement of an International Commercial Arbitration Award in India: The

court has also held that enforcement of awards rendered in international commercial
arbitration held outside India would only be subject to the jurisdiction of the Indian
courts when such awards are sought to be enforced in India in accordance with the
provisions contained in Part II of the Act.

5. Seat of arbitration: The seat of arbitration will decide the applicable law of
arbitration. According to the court, the seat of arbitration would be the seat provided
for in the arbitration agreement. However, the venue of the arbitration may be
elsewhere. The court specifically held that the venue of arbitration may change, but
it will have no effect on the seat of arbitration. The seat of the arbitration remains
the place initially agreed by or on behalf of the parties.

6. Prospective overruling BUT NOT RETROSPECTIVE: The court has held that
the law declared by it in the present case “shall apply prospectively, to all the
arbitration agreements executed hereafter”. This suggests that the law declared in
Bharat Aluminium will apply only to arbitration agreements made after September
6, 2012. BHATIA INTERNATIONAL PRINCIPLES WILL APPLY FOR
CASES BEFORE SEPTEMBER 6, 2012.
7. Non-convention Awards-Non-convention award cannot be incorporated into the Act by process of
interpretation: India is a signatory to the New York Convention, 1958 and the Geneva Protocol, 1923.
Regarding non-convention arbitral awards, the court observed that no remedy was provided for the
enforcement of such awards under the Act. Therefore, a non-convention award cannot be incorporated
into the Act by a process of interpretation and could only be done by suitable
Contents
Conflict Rules and the Search for the Applicable Law............................................................................3
(2) THE LAW GOVERNING THE ARBITRATION AGREEMENT...................................................................3
(3) THE LAW OF THE SEAT OF ARBITRATION (THE LEX ARBITRI)............................................................4
Seat theory............................................................................................................................................6

APPLICABLE LAWS IN AN ARBITRATION:

There are numerous grounds on which one can challenge the jurisdiction
(1) Substantive law of the main contract
(2) Validity of the law governing the arbitration agreement;
(3) Validity of the law of the seat of arbitration (the lex arbitri);
(4) Validity of the procedural law of the arbitration.
Validity can be substantive (Consent, undue influence) or formal (challenging the form in
which agreement is entered into)
(1) THE SUBSTANTIVE LAW OF THE MAIN CONTRACT
The principal task of the arbitral tribunal is to establish the material facts of the dispute by
examining the agreement between the parties, by considering other relevant documents
(including correspondence, minutes of meetings, and so on), and by hearing witnesses, if
necessary. Then, it builds its award on this foundation of facts, making its decision either on
the basis of the relevant law or exceptionally, and then only if expressly authorised by the
parties, on the basis of what seems to be fair and reasonable in all of the circumstances. Once
the relevant facts are established, such an agreement will generally make clear what the
parties intended, what duties and responsibilities they each assumed, and therefore which of
them must be held liable for any failure of performance that has occurred.
But, as already stated, an agreement intended to create legal relations does not exist in a legal
vacuum. It is supported by a system of law that is generally known as ‘the substantive law’,
‘the applicable law’, or ‘the governing law’ of the contract. These terms all denote the
particular system of law that governs the interpretation and validity of the contract, the rights
and obligations of the parties, the mode of performance, and the consequences of breaches of
the contract. Therefore, the parties should make full and proper use of this freedom, inserting
a ‘choice of law’ clause into their contract.
If they fail to do so, it will almost certainly be a matter for regret should a dispute arise. A
choice-of-law clause may be drawn in very simple terms. It is usually sufficient to say: ‘This
agreement shall in all respects be governed by the law of England’
The choices that may be available to the parties include:
NATIONAL LAW
In such situation, the arbitrator has to decide: should he test the autonomy of the parties in
choosing the applicable law under a conflict of laws system or should he recognize that
freedom without relying on any conflict of laws rule? The party autonomy although widely
recognized, not every country gives parties unlimited freedom to choose the applicable law.
Since every right, power or duty of a person has its root in the law of the nation, even the
party autonomy principle as well as arbitration as a whole, must rely on and derive its
existence from a national law system. The arbitrator must analyze the party autonomy under
the conflict of laws of the lex fori and he can also disregard the choice of the parties if they
did not select the national law with which the contract has its closest connection. In so doing
they can find an agreement that they probably could not have reached if they had applied the
national law of either party.
(II) IF THE PARTIES CHOOSE A NON-NATIONAL SET OF RULES
Non-national standard has been defined in different ways: international law, international
customs or usages2, transnational law. In spite of all these different labels probably the same
phenomenon reoccurs: a set of rules developed to regulate international trade in the
merchants' community. The question is whether an arbitrator should respect the choice of the
parties. Furthermore, not being a highly developed system, lex mercatoria does not cover all
the matters which might be the object of a dispute.
INTERNATIONAL CONVENTIONS' PROVISIONS AND ARBITRAL
INSTITUTIONS' RULES ON THE APPLICABLE LAW
(i) New York Convention on Recognition and Enforcement of Foreign Arbitral Awards
- Its purpose is to render compulsory among contracting parties the enforcement of arbitral
awards. The provision is dealing exclusively with the arbitration agreement and not with the
whole contract.
(ii) European Convention on International Commercial Arbitration, April 21, 1961 - In
contrast with the New York Convention, article VII of the European Convention specifically
deals with the issue of the applicable law in an international commercial arbitration.
(iii) Rules of Arbitral Institutions on the Applicable Law – The ICC, the UNCITRAL, the
UNECAFE and the UNECE Arbitration Rules, contain specific provisions dealing with the
law applicable in an international commercial arbitration. All three provisions follow the
pattern of the 1961 European Convention: recognition of the principle of party autonomy, the
rule of conflicts which the arbitrator deems applicable and the relevant trade usages.
Some authors support lex mercatoria, "denationalization" of arbitration and the idea that
arbitration should not be necessarily bound by any national conflict of laws rule. Another part
of the doctrine, as authoritative as this, argues against lex mercatoria and any attempt to
detach arbitration from any national law system. It is important to stress that international
commerce needs a "denationalization" of arbitration and that international merchants look at
an arbitration as disconnected from any national law system. One has to demonstrate how this
new legal order, in which international arbitration plays such an important role, can subsist
theoretically.

Conflict Rules and the Search for the Applicable Law

If disputes arise and no choice of law has been agreed, it is difficult to make a proper
assessment of the rights and obligations of the parties, because there is no known legal
framework within which to make this assessment.
If arbitration proceedings are commenced, one of the first tasks of the arbitral tribunal will be
to do what the parties have failed to do—that is, to establish what law is applicable to the
contract. In some cases, it might be appropriate for the arbitral tribunal to identify some non-
national rule or custom to decide the issue in question, as opposed to a national law.
Implied or tacit choice
In the absence of an express choice of law, the arbitral tribunal will usually look first for the
law that the parties are presumed to have intended to choose. This is often referred to as a
‘tacit’ choice of law. It may also be known as an implied, inferred, or implicit choice. There
is a certain artificiality involved in selecting a substantive law for the parties and attributing it
to their tacit choice, where (as often happens in practice) it is apparent that the parties
themselves have given little, or no, thought to the question of the substantive law that is
applicable to their contract.
Article 3(1) of the Rome I Regulation recognises this artificiality when it provides that a
choice of law must be ‘expressed or demonstrated with reasonable certainty by the terms of
the contract or the circumstances of the case’.
In such an event, the court/ arbitral tribunal will generally decide that the contract is to be
governed by the law of the country with which it is most closely connected. It will be
presumed that this is the country that is the place of business or residence of the party that is
to effect the performance characteristic of the contract. However, this presumption does not
apply if the place of characteristic performance cannot be determined. Indeed, it will be
disregarded altogether if it appears that the contract is more closely connected with another
country.

(2) THE LAW GOVERNING THE ARBITRATION AGREEMENT

It might be assumed that this is the same law as that which the parties chose to govern the
substantive issues in dispute—but this is not necessarily a safe assumption. An ‘applicable
law clause’ will usually refer only to the ‘substantive issues in dispute’. It will not usually
refer in terms to disputes that might arise in relation to the arbitration agreement itself.
What all matters/areas does the law governing the arbitration agreement cover?
1) Substantive validity and legality of the arbitration agreement
2) Interpretation of the arb agreement
3) Effect of the arb agreement
4) Termination of the arb agreement
5) Waiver of right to arbitrate
6) Assignment of right to arbitrate
(a) Law of the contract
Since the arbitration clause is only one of many clauses in a contract, it might seem
reasonable to assume that the law chosen by the parties to govern the contract will also
govern the arbitration clause. If the parties expressly choose a particular law to govern their
agreement, why should some other law—which the parties have not chosen—be applied to
only one of the clauses in the agreement, simply because it happens to be the arbitration
clause? It seems reasonable to say, as has Professor Lew, that: There is a very strong
presumption in favour of the law governing the substantive agreement which contains the
arbitration clause also governing the arbitration agreement.
(b) Law of the seat of the arbitration – Discussed below

(3) THE LAW OF THE SEAT OF ARBITRATION (THE LEX ARBITRI)

An international arbitration usually takes place in a country that is ‘neutral’, in the sense that
none of the parties to the arbitration has a place of business or residence there. This means
that, in practice, the law of the country in which territory the arbitration takes place—that is,
the lex arbitri—will generally be different from the law that governs the substantive matters
in dispute. An arbitral tribunal with a seat in the Netherlands, for example, may be required to
decide the substantive issues in dispute between the parties in accordance with the law of
Switzerland or the law of the State of New York or some other law, as the case may be.
Nevertheless, the arbitration itself, and the way in which it is conducted, will be governed (if
only in outline) by the relevant Dutch law on international arbitration.
This approach has been adopted in the London Court of International Arbitration (LCIA)
Rules, which provide at Article 16(4) that: The law applicable to the Arbitration Agreement
and the arbitration shall be the law applicable at the seat of the arbitration, unless and to the
extent that the parties have agreed in writing on the application of other laws or rules of law
and such agreement is not prohibited by the law applicable at the arbitral seat.
What is the lex arbitri?
It is a body of rules which sets a standard external to the arbitration agreement, and the
wishes of the parties, for the conduct of the arbitration. The law governing the arbitration
comprises the rules governing interim measures (eg Court orders for the preservation or
storage of goods), the rules empowering the exercise by the Court of supportive measures to
assist an arbitration which has run into difficulties (eg filling a vacancy in the composition of
the arbitral tribunal if there is no other mechanism) and the rules providing for the exercise by
the Court of its supervisory jurisdiction over arbitrations (eg removing an arbitrator for
misconduct).
Distinction between the lex arbitri and the substantive law of the contract. Where parties
to an international arbitration agreement choose for themselves a seat of arbitration, they
usually choose a place that has no connection with either themselves or their commercial
relationship. They choose a ‘neutral’ place. By doing so, they do not necessarily intend to
choose the law of that place to govern their relationship. Indeed, as well as choosing a place
of arbitration, they may well choose a substantive law that has no connection with that place.
In Sulamérica Cia Nacional de Seguros SA and ors v Enesa Engenharia SA and ors, the
English Court of Appeal held that English law was the governing law of an arbitration
agreement, even though it appeared in a contract that was governed by Brazilian law and
which also reserved exclusive jurisdiction in relation to any disputes under the contract to the
Brazilian courts. The English Court of Appeal held that the law of the arbitration agreement
was to be determined by application of the three-stage enquiry established at common law.
(1) If the parties made an express choice of law to govern the arbitration agreement, that
choice would be effective, regardless of the law applicable to the contract as a whole.
(2) Where the parties failed expressly to specify the law of the arbitration agreement, it was
necessary to consider whether the parties had made an implied choice of law.
(3) Where it was not possible to establish the law of the arbitration agreement by
implication, it was necessary to consider what would be the law with the ‘closest and most
real connection’ with the arbitration agreement.
Previously, in cases of C v D (13) and XL Insurance Ltd v Owens Corning, concerned
with insurance contracts containing a New York applicable law clause, along with a clause
providing for arbitration in London under the English Arbitration Act 1996. In both cases, the
relevant court recognised that the choice of London as the seat of the arbitration implied a
choice of English law as the law governing the arbitration agreement.
If the parties do not make an express choice of the place of arbitration, the choice will have to
be made for them, either by the arbitral tribunal itself or by a designated arbitral institution.
Article 18(1) of the United Nations Commission on International Trade Law (UNCITRAL)
Arbitration Rules, for instance, states: ‘If the parties have not previously agreed on the place
of arbitration, the place of arbitration shall be determined by the arbitral tribunal having
regard to the circumstances of the case.’ Article 18(1) of the ICC Rules leaves the choice to
the ICC Court: ‘The place of arbitration shall be fixed by the Court, unless agreed upon by
the parties.’
In cases of this kind, which are not uncommon in both institutional and ad hoc arbitration, the
choice of the place of arbitration has little or nothing to do with the parties or with the
contract under which the dispute arises. It is, so to speak, an unconnected choice. In these
circumstances, it would be illogical to hold that the lex arbitri, the law of the place of
arbitration, was necessarily the law applicable to the issues in dispute. (Occasionally, it may
be otherwise if the parties have chosen a place of arbitration, but have not chosen a law to
govern their contractual relationship.
The content of the lex arbitri
Each state will decide for itself what laws it wishes to lay down to govern the conduct of
arbitrations within its own territory. Some states will wish to build an element of consumer
protection into their law, so as to protect private individuals. For example, section 6 of the
Swedish Arbitration Act 1999 provides that an arbitration agreement with a consumer
involving goods or services for private use is invalid if made before a dispute arises. The
arbitral tribunal must also provide clear instruction to the parties of the steps that must be
taken to appeal to the district court against this decision.
The lex arbitri is likely to extend to:
• the definition and form of an agreement to arbitrate;
• whether a dispute is capable of being referred to arbitration (that is, whether it is ‘arbitrable’
under the lex arbitri);
• the constitution of the arbitral tribunal and any grounds for challenge of that tribunal etc.
Three essential points to be taken care of are
(1) The effective conduct of an international arbitration may depend upon the
provisions of the law of the place of arbitration. One way of illustrating this dependence is
by reference to any provisions of the local law for judicial assistance in the conduct of the
arbitration. Even if the arbitrators have the power to order interim measures of protection,
such as orders for the preservation and inspection of property, they are unlikely to have the
power to enforce such orders—particularly if the property in question is in the possession of a
third party. For this, it is necessary to turn to national courts for assistance.
(2) The choice of a particular place of arbitration may have important and unintended
consequences. This is because the law of that place may confer powers on the courts or on
the arbitrators that the parties did not expect. An example of this is the power to consolidate
arbitrations. Whether or not a court or arbitral tribunal has the power to consolidate two or
more arbitrations that involve the same basic issues of fact or law is a controversial question.
(3) There is an obvious prospect of conflict between the lex arbitri and a different system
of law that may be equally relevant. Consider, for example, the question of arbitrability—
that is, whether or not the subject matter of the disput e is ‘capable’ of being resolved
by arbitration. The concept of arbitrability is basic to the arbitral process. Both the New York
Convention and the Model Law refer explicitly to disputes that are ‘capable of being resolved
by arbitration’.

Seat theory
The concept that an arbitration is governed by the law of the place in which it is held, which
is the ‘seat’ (or ‘forum’, or locus arbitri) of the arbitration, is well established in both the
theory and practice of international arbitration. It has influenced the wording of international
conventions from the 1923 Geneva Protocol to the New York Convention. Article 2 of the
1923 Geneva Protocol states: ‘The arbitral procedure, including the constitution of the
arbitral tribunal, shall be governed by the will of the parties and by the law of the country in
whose territory the arbitration takes place.’
The New York Convention maintains the reference to ‘the law of the country where the
arbitration took place’ and, synonymously, to ‘the law of the country where the award is
made’. This continues the clear territorial link between the place of arbitration and the law
governing that arbitration: the lex arbitri. This territorial link is again maintained in Article
1(2) of Model Law: ‘The provisions of this Law, except articles 8, 9, 35 and 36, apply only if
the place of arbitration is in the territory of this State.’
Amongst modern laws on arbitration, those of Switzerland and of England are perhaps
particularly clear on the link between the seat of the arbitration and the lex arbitri. Swiss law
states: The provisions of this chapter shall apply to any arbitration if the seat of the arbitral
tribunal is in Switzerland and if, at the time when the arbitration agreement was concluded,
at least one of the parties had neither its domicile nor its habitual residence in Switzerland.
In English law, certain provisions of the Arbitration Act 1996 apply only where the seat of
the arbitration is in England, Wales, or Northern Ireland, whereas other provisions (for
example for the stay of court proceedings commenced in breach of an arbitration agreement)
apply even if the seat of the arbitration is not in those countries or if no seat has been
designated. The ‘seat of the arbitration’ is defined as ‘the juridical seat of the arbitration’
designated by the parties, or by an arbitral institution or the arbitrators themselves, as the case
may be. Unless the parties agree otherwise, the seat of the arbitration must be stated in the
award of the arbitrators.
Thus, the place, or ‘seat’, of the arbitration is not merely a matter of geography. It is the
territorial link between the arbitration itself and the law of the place in which that arbitration
is legally situated:
When one says that London, Paris or Geneva is the place of arbitration, one does not refer
solely to a geographical location. One means that the arbitration is conducted within the
framework of the law of arbitration of England, France or Switzerland or, to use an English
expression, under the curial law of the relevant country. The geographical place of arbitration
is the factual connecting factor between that arbitration law and the arbitration proper,
considered as a nexus of contractual and procedural rights and obligations between the parties
and the arbitrators.
The seat of an arbitration is thus often intended to be its legal centre of gravity. This does not
mean that all of the proceedings of the arbitration have to take place there, although
preferably some should do so:
Although the choice of a ‘seat’ also indicates the geographical place for the arbitration, this
does not mean that the parties have limited themselves to that place. As approved by the CoA
in Naviera Amazonia Peruana SA v Compania Internacional de Seguros del Peru [1988]
it may often be convenient to hold meetings or even hearings in other countries. This does not
mean that the ‘seat’ of the arbitration changes with each change of country. The legal place of
the arbitration remains the same even if the physical place changes from time to time, unless
the parties agree to change it.
Arbitrators and the parties to an international arbitration often come from different countries.
It may not always be convenient for everyone concerned to travel to the country that is the
seat of the arbitration for the purpose of a meeting or a hearing. Alternatively, it may simply
be easier and less expensive to meet elsewhere. In recognition of this reality, the ICC Rules
allow hearings and meetings to be held elsewhere than at the place (or seat) of the arbitration.
The relevant rule, Article 18, reads as follows:
1) The place of the arbitration shall be fixed by the Court, unless agreed upon by the parties.
2) The arbitral tribunal may, after consultation with the parties, conduct hearings and
meetings at any location it considers appropriate, unless otherwise agreed by the parties.
3) The arbitral tribunal may deliberate at any location it considers appropriate.
Article 16(3) of the LCIA Rules and Article 20(2) of the Model Law also has a similar
rule
An arbitral tribunal that visits another country must, of course, respect the law of that
country. For example, if the purpose of the visit is to take evidence from witnesses, the
arbitral tribunal should respect any provisions of the local law that govern the taking of
evidence. However, each move of the arbitral tribunal does not of itself mean that the seat of
the arbitration changes. The seat of the arbitration remains the place initially agreed by, or on
behalf of, the parties.
What is the legal position if, as sometimes happens, the arbitral tribunal—having consulted
the parties and perhaps against the objection of one of them—holds all meetings, hearings,
and deliberations in a place that is not the seat of the arbitration? To proceed in this manner
reduces the seat of the arbitration to a legal fiction: a place of arbitration in which nothing
takes place. In the light of the provisions set out above, and subject to any particular
restrictions contained in the lex arbitri and the views of the parties, this would seem to be
permissible. It conforms with the letter, if not the spirit, of the law or the applicable rules.
Is the lex arbitri a procedural law?
In some countries, the law governing arbitration, including international arbitration, is part of
a code of civil procedure. This is so, for example, in France and in Germany—and it is
sometimes said that the lex arbitri is a law of procedure, as if that is all that it is. It is true, of
course, that the lex arbitri may deal with procedural matters—such as the constitution of an
arbitral tribunal where there is no relevant contractual provision—but the authors suggest that
the lex arbitri is much more than a purely procedural law. It may stipulate that a given type of
dispute—over patent rights, for instance, or (as in Belgium and some Arab states) over a local
agency agreement—is not capable of settlement by arbitration under the local law: this is
surely not simply a matter of procedure? Or again, by way of example, an award may be set
aside on the basis that it is contrary to the public policy of the lex arbitri: once more, this
would not seem to be merely a matter of procedure.
It is also sometimes said that parties have selected the procedural law that will govern their
arbitration by providing for arbitration in a particular country. This is too elliptical and, as an
English court itself held in Braes of Doune Wind Farm, it does not always hold true. What
the parties have done is to choose a place of arbitration in a particular country. That choice
brings with it submission to the laws of that country, including any mandatory provisions of
its law on arbitration. To say that the parties have ‘chosen’ that particular law to govern the
arbitration is rather like saying that an English woman who takes her car to France has
‘chosen’ French traffic law, which will oblige her to drive on the right-hand side of the road,
to give priority to vehicles approaching from the right, and generally to obey traffic laws to
which she may not be accustomed. But it would be an odd use of language to say that this
notional motorist had opted for ‘French traffic law’; rather, she has chosen to go to France—
and the applicability of French
Parties may well choose a particular place of arbitration precisely because its lex arbitri is one
that they find attractive. Nevertheless, once a place of arbitration has been chosen, it brings
with it its own law. If that law contains provisions that are mandatory as far as arbitrations are
concerned, those provisions must be obeyed. It is not a matter of choice, any more than the
notional motorist is free to choose which local traffic laws to obey and which to disregard.