It is useful to notice that such a power has been expressly conferred

on the arbitrator in terms of Section 17 of the Arbitration

and Conciliation Act, 1996 which is as under:

"17. Interim measures ordered by arbitral tribunal.-(1) Unless

otherwise agreed by the parties, the arbitral tribunal may, at the
request of a party, order a party to take any interim measure of
protection as the arbitral tribunal may consider necessary in respect of
the subject-matter of the dispute.

(2) The arbitral tribunal may require a party to provide appropriate

security in connection with a measure ordered under sub- section (1)."

A bare perusal of the aforementioned provisions would clearly show

that even under Section 17 of the 1996 Act the power of the arbitrator
is a limited one. It cannot issue any direction which would go beyond
the reference or the arbitration agreement. Furthermore, an award of
the arbitrator under the 1996 Act is not required to be made a rule of
court; the same is enforceable on its own force. Even under Section
17 of 1996 Act, an interim order must relate to the protection of
subject matter of dispute and the order may be addressed only to a
party to the arbitration. It cannot be addressed to other parties. Even
under Section 17 of the 1996 Act, no power is conferred upon the
Arbitral Tribunal to enforce its order nor does it provide for judicial
enforcement thereof. The said interim order of the learned Arbitrator,
therefore, being coram non judice was wholly without jurisdiction
and, thus, a nullity. (See Kiran Singh and Others Vs. Chaman Paswan
and Others [AIR 1954 SC 340 (6)], Srimathi Kaushalya Devi &
Others Vs. Shri K.L. Bansal [(1969) 1 SCC 59], Union of India Vs.
Tarachand Gupta and Bros. [(1971) 1 SCC 486 at 496], Sushil Kumar
Mehta Vs. Gobind Ram Bohra (Dead) through His Lrs. [(1990) 1
SCC 193] and Smt. Kanak & Anr. Vs. U.P. Avas Evam Vikas
Parishad & Ors. [2003 (7) SCALE 157]).

India: A Temporary Sigh Of Relief: Section

17 Of The Arbitration & Conciliation Act,
1996
26 January 2021

by Sonal Kumar Singh , Ashutosh Nagar and Rajat Dasgupta

AKS Partners

1. Introduction

Section 17 of the Arbitration and Conciliation Act, 1996 ("the Act") prescribes a mechanism for parties to an arbitration, to seek interim reliefs
from the arbitral tribunal during the pendency of the arbitral proceedings.1 Parties to an arbitration may seek the said reliefs after invocation of the
arbitration proceedings till the passing of the award. The present article discusses the applicability, principles for seeking interim reliefs and
enforceability of orders under Section 17 of the Act, pursuant to the amendments to the Act in 2015 and subsequently in 2019.

2. Amendments to Section 17 of the Act

Before the amendment of the Act by the Arbitration and Conciliation (Amendment) Act, 2015 ("2015 Amendment Act"), an arbitral tribunal was
like a toothless tiger as its powers to pass orders were restricted in comparison to the wide powers vested to courts under Section 9 of the Act.
The limited scope of the unamended provision of the Act has been discussed by the Supreme Court of India ("SCI") in Managing Director, Army
Welfare Organisation vs. Sumangal Services Pvt. Ltd.2, wherein the SCI states, "that the power of the arbitrator is a limited one as it cannot
issue any direction which would go beyond the reference or the arbitration agreement. Furthermore, an award of the arbitrator under the 1996 Act
is not required to be made a rule of court; the same is enforceable on its own force. Even under Section 17 of 1996 Act, an interim order must
relate to the protection of subject matter of dispute and the order may be addressed only to a party to the arbitration. It cannot be addressed to
other parties."

Section 17 of the Act was amended vide the 2015 Amendment Act and implemented on 23 October 2015. The amended Section 17 of the Act
specified the types of reliefs which a party could seek, inter alia, appointment of a guardian, securing the amount of dispute in the arbitration,
preservation, interim custody or sale of any goods or property which are the subject matter of the arbitration agreement.3 The objective of
amending Section 17 of the Act was to empower the tribunal with the same powers as a civil court under Section 9 of the Act in relation to the
grant of interim measures. In this regard, the High Court of Judicature at Madras ("MHC") in the matter decided on 17 September 2019, observed
that the power to pass interim measures imposes a discretion vested in the tribunal which has to be exercised in consonance with the well settled
principles governing the grant of such reliefs by the civil court.4

The 2015 Amendment Act further provides that an order passed by the arbitral tribunal under Section 17 of the Act would be deemed to be an
order of the court and is enforceable under the provisions of the Code of Civil Procedure, 1908 ("CPC").5

It may also be noted that Section 17(1) of the Act empowered the arbitral tribunal to pass an interim order even after it has made the award but
before it is enforced under Section 36 of the Act. However, upon passing of the award, the tribunal would become functus officio, and cannot pass
an interim order.6

Noticing this incongruity, the High Level Committee to Review the Institutionalisation of Arbitration Mechanism in India under the chairmanship of
Justice B.N. Srikrishna in 2018, recommended the deletion of the expression "or at any time after making of the arbitral award but before it is
enforced in accordance with Section 36" from the text of Section 17(1). This recommendation was implemented vide the Arbitration and
Conciliation (Amendment) Act, 2019 ("2019 Amendment Act") with effect from 30 August 2019.

Thus, the position post the 2019 Amendment is that the power under Section 17(1) of the Act, though identical to Section 9(1) of the Act in
content, is subject to the restriction that it can be exercised by a tribunal only during the pendency of proceedings before it.

3. Principles governing exercise of powers under Section 17 of the Act

Section 9 of the Act allows a party to seek interim measures from the court before the invocation of arbitration, during the pendency or at any time
after the award is passed, but before it is enforced in accordance with Section 36 of the Act. Similarly, Section 17 of the Act contains similar
provisions for seeking interim reliefs before an arbitral tribunal during the pendency of arbitral proceedings. Further, Section 19 of the Act provides
that the arbitral tribunal is not bound by the CPC, which is primarily to allow an arbitral tribunal certain flexibility in its operation. However, the
principles governing the grant of injunctions, appointments of receiver etc. are a part of the substantive law of the country. By virtue of Section
28(1)(a) of the Act, the tribunal is bound to decide in accordance with the substantive law of India for the time being in force. The various types of
reliefs under Section 17 of the Act and the interplay of provisions of the CPC have been in enunciated by MHC in Flywheel Logistics Solutions
Pvt. Ltd. vs. Hinduja Leyland Finance Ltd. & Ors. (supra) and are discussed herein below:

i. Interim injunctions– The principles governing grant of interim injunctions are no longer res integra. The SCI in Dorab Cawasji Warden
vs. Coomi Sorab Warden & Ors7 has set out the general guidelines for granting interim injunctions:

a. The plaintiff has a strong case for trial. That is, it shall be of a higher standard than a prima facie case that is normally
required for a prohibition injunction.
 b. It is necessary to prevent irreparable or serious injury which normally cannot be compensated in terms of money.

c. The balance of convenience is in favour of the one seeking such relief.

The MHC observed that these principles are law under Article 141 of the Indian constitution and the arbitral tribunal as well as the
courts would be duty bound to follow them in letter and spirit.

ii. Appointment of Receivers- The SCI in Parmanand Patel vs. Sudha A. Chowgule8 held that a receiver will be appointed under Order
XL Rule 1 of the CPC when the applicant establishes a prima facie case and presents a case which would not only show the adverse
and conflicted claims of property but also an emergency, danger or loss demanding an immediate action. The element of danger is an
important consideration. A receiver would not be appointed unless a case has been made out which may deprive the defendant of
a de facto possession. For the said purpose, conduct of the parties would also be relevant. The SCI in Dev Prakash and Ors. vs.
Indra and Ors,9 held that the very purpose of a temporary injunction and receivership is to protect the property from acts of waste,
damage and alienation during the pendency of the suit. The SCI in Adhunik Steels Ltd. vs. Orissa Manganese and Minerals Pvt.
Ltd.10 has settled the law that the appointment of a receiver in exercise of powers under Section 9 of the Act can be done only if the
case is brought within the accepted principles under the CPC. Similarly, the MHC in Flywheel Logistics (supra) noted that the above
would be applicable to arbitral tribunals under Section 17 of the Act.
iii. Power to order sale of property - Section 9(1)(ii)(a) of the Act empowers the court to order the sale of the goods which are the subject
matter of an agreement. An identical power is available to the arbitral tribunal under Section 17(1)(ii)(a). In L & T Finance Ltd. vs.
G.G. Granites11 the MHC observed that these powers are akin to those granted under Order XXXIX Rule 6 of the CPC, and that the
principles laid down therein must guide the exercise of power under Section 9. A fortiori, post the 2015 Amendment Act, these
observations would apply equally to arbitral tribunals under Section 17 of the Act.

iv. Orders directing furnishing of security - The power under Section 9(1)(ii)(b) and Section 17(1)(ii)(b) of the Act is analogous to power
under Order XXXVIII Rule 5 of the CPC. The applicability of the provisions of the CPC to an application to furnish security under
Section 9(1)(ii)(b) is no longer res-integra. Recently, the High Court of Delhi in Pearl Hospitality & Events Pvt. Ltd. vs. OYO Hotels
and Homes Pvt. Ltd12 noted that the principles governing Order XXXVIII Rule 5 would, generally, be applicable, while considering a
prayer for furnishing of security, under Section 9(1)(ii)(b) or Section 17(1)(ii)(b). The principle, enunciated by the SCI in Raman Tech
& Process Engineering Co. & Ors. vs. Solanki Traders13 that, before being entitled to a relief by way of furnishing of security of the
amount in dispute in the arbitration, the petitioner has to satisfy the court that the respondent is attempting to remove, or dispose of its
assets, with the intention of defeating the decree that may be passed, has, generally, been regarded as a guiding factor.

4. Enforceability of orders passed by the arbitral tribunal

Section 37 of the Act provides a recourse to parties in case an application under Section 17 of the Act is accepted or rejected by the arbitral
tribunal. Prior to the 2015 Amendment Act, an order passed by an arbitral tribunal was not enforceable proprio vigore, however, the tribunal could
always apply to the Court to take action for contempt under Section 27(5) of the Act. This view was also upheld by the SCI in Alka Chandewar
vs. Shamshul Ishrar Khan.14 The SCI also observed that pursuant to the 2015 Amendment Act, Section 17(2) was added, so that the
cumbersome procedure of an arbitral tribunal having to apply every time to the courts for contempt of its orders would no longer be necessary.
Such orders would now be deemed to be orders of the court for all purposes and would be enforced under the CPC in the same manner as if they
were orders of the court. Hence, failure to abide by the directions of the tribunal would amount to non-compliance of amounting to contempt and
triable under the Contempt of Courts Act, 1971. However, such an order would be appealable under the requisite provisions of the Contempt of
Courts Act, 1971.

5. Conclusion

In the author's opinion, the evolution of Section 17 of the Act makes it evident that the arbitral tribunals are now empowered to deal with interim
measures independently without any intervention of the courts. This allows the parties to divulge in a pro-arbitration stance rather than referring
their disputes and then seeking interim orders before the courts. Further, the interplay of provisions of the CPC show that while the arbitral
tribunal has adequate power to operate independently, it may follow the underlying principles which would provide assistance to it for passing a
decision. Considering the above, a sub-provision maybe inserted to Section 17 of the Act which shall allow the Tribunal to adjudicate the
contempt thereby increasing the flexibility of the arbitrators and reducing the burden from the courts.

Footnotes

1. Section 17(1)

2. (2004) 9 SCC 619

3. Section 17(1)(i) and 17(1)(ii)

4. Flywheel Logistics Solutions Pvt. Ltd. vs Hinduja Leyland Finance Ltd. & Ors. MANU/TN/5417/2020

5. Section 17(2)

6. Section 32 of the Act

7. (1990) 2 SCC 117

8. (2009) 11 SCC 127

9. (2018) 14 SCC 292

10. (2007) 7 SCC 125

11. MANU/TN/2662/2013

12. MANU/DE/1946/2020

13. (2008) 2 SCC 302

14. (2017) 16 SCC 119

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific
circumstances.

AUTHO

urisdiction of the Arbitration tribunal, Section

16 of the Arbitration and Conciliation Act,
1996
09 December, 2022
Share on:

HISTORICAL BACKGROUND:

The Arbitration and Conciliation Act of 1996 gives the parties a great deal of latitude in decisions like where to hold the arbitration, how many
arbitrators to appoint, whom to appoint, etc. They are even free to choose which issues they want to bring before the arbitral tribunal of their
choosing.

Arbitration was created as a solution to the issues that arise during the civil litigation process in courts. The Bengal rules of 1772 and 1780
marked the first application of the arbitrariness principle under British rule. In 1940, the Arbitration Act was also passed. In India, the earliest
version was the panchayat.But over time, it became apparent that the 1940 Arbitration Act was inadequate to meet the needs of a rapidly
modernising India. The Arbitration and Conciliation Act succeeded it in 1996 as a result.

WHAT IS ARBITRATION AND THE ROLE OF AN ARBITRATOR?

A more formal version of ADR called arbitration comprises a tribunal process and an impartial adjudicator who hears arguments from both sides
before rendering a verdict. The Arbitration and Conciliation Act, 1996 states in Section 2(1)(a) that "Arbitration means any arbitration, whether or
not administered by the permanent arbitral institution." In other words, by putting arbitration under the purview of the Arbitration and Conciliation
Act, of 1996, all forms of arbitration, regardless of their nature, have been statutorily recognized in India. It consists of a streamlined trial with
streamlined evidence procedures and no discovery. Typically, the results of arbitration sessions are not made public.

ROLE OF AN ARBITRATOR:

An arbitrator is a chosen impartial third party with knowledge of managing the arbitration procedure. A single arbitrator or a panel of three
arbitrators usually sits on the tribunal that oversees the arbitration process.

They will listen to both sides before making a decision, playing a role equivalent to that of a judge. They will, however, also promote constructive
rather than combative dialogue. Although there are no particular requirements to serve as an arbitrator, some legal background and business
expertise are helpful if the disagreement involves technological issues.
The procedural and evidential issues are decided by the arbitrators. Although there may be a need for document disclosure and witness cross-
examination, arbitration hearings are typically quicker and less formal than court cases.

Based on the evidence submitted by the parties, the arbitrator renders a definitive judgment in a matter. Both parties must consent to arbitration
because it is optional, and they should also agree in advance that they will follow the arbitrator's decision.

Arbitrators or the members of the tribunal are commonly appointed by 3 means:

1. They are directly appointed by the disputing parties (by mutual agreement or by each party appointing one arbitrator)

2. By existing tribunal members, for example, each side appoints one arbitrator and then the arbitrator appoints a third.

3. By an external party, for example, the court or an individual or institution nominated by the parties.

DISPUTES THAT COME UNDER ARBITRATION:

Matters involving right in personam may be submitted for arbitration, and matters concerning right in rem cannot be referred for arbitration.

Arbitration is typically an option for any disputes involving private rights that can be resolved by a civil court. As a result, arbitration may be used
to resolve disagreements involving assets or money, as well as the amount of compensation due in the event of a contract breach, etc.

However, it is customary not to refer the following disputes to arbitration.

1. Marital issues, such as divorce or the return of conjugal privileges;

2. Guardianship issues with minors or other disabled individuals;

3. Testamentary issues, such as doubts concerning a will's legality;

4. Issues relating to insolvency, such as declaring someone insolvent;

5. Inquiries about foundations or charitable trusts;

6. Issues covered by the Monopolies and Restrictive Trade Practices Act;

7. Winding up or dissolution of a company.

Vidya Drolia and the New Four-Fold Test to Determine Arbitrability in India.

In Vidya Drolia V. Durga Trading Corporation three judge bench gave the New Four-Fold Test to Determine Arbitrability in India. In Supreme
Court’s opinion it was appropriate to review Indian law's position on arbitrability and examine the concept of arbitrability in other jurisdictions, even
though the order of reference was limited to the question of whether tenancy disputes are arbitrable, given the ambiguity on this issue.

Supreme Court ruled that claims and/or the dispute's subject matter are not arbitrable if:

1. is related to real property activities that don't concern real property rights' inferior rights in personam;

2. seems to have an ergaomnes impact, necessitates centralized adjudication, and is not ideal for mutual adjudication;

3. pertains to the State's unassailable sovereign and public interest functions; and

4. is explicitly or impliedly non-arbitrable under a certain statute.

An affirmative response to any of the aforementioned questions would make the issue non-arbitrable. Although these tests are not "watertight
compartments," the Supreme Court made it clear that they would be very helpful in evaluating whether a particular subject matter would be non-
arbitrable under Indian law.

SECTION 16 OF THE ARBITRATION AND CONCILIATION ACT:

Meaning and application of Section 16:

The arbitral tribunal has the power to determine its jurisdiction under Section 16 of the Arbitration and Conciliation Act, 1996. By Section 16, the
arbitral tribunal has the power to determine whether it has jurisdiction to decide the dispute. The arbitral tribunal may also rule on any challenges
to the existence or legality of the arbitration agreement.

Section 16 (1): Ability to determine the applicable jurisdiction

It states that an arbitration panel has the authority to make decisions about its jurisdiction. When an arbitration tribunal acknowledges that the law
is competent to make decisions within its jurisdiction, the doctrine of Kompetenz-kompetenz or competence de la competence is applicable. This
is a method of reducing judicial involvement in the arbitration process. As a result, if a party questions the arbitral tribunal's jurisdiction, he must
present his application to the tribunal, which will then decide whether to accept or reject it.

The following two things are further stated for establishing the legitimacy of the arbitration agreement:

(a) When an arbitration clause is incorporated into a contract, it is deemed to be an independent agreement and becomes self-sustaining. Even
though it is a component of the agreement, the arbitration provision stands alone from the other clauses.

(b) The arbitration provision in a contract that the arbitration tribunal rules is void does not, by itself, render the deal void.

Northern Coal Field Limited v. M/s Uttarakhand Purv Sainik Kalyan Nigam Limited

Under Section 16, which codifies the Kompetenz-Kompetenz principle, the arbitrator shall decide all other preliminary or threshold problems.

Section 16(2) states the objection upon jurisdiction;

(1) Any party who wishes to object to the arbitration tribunal's jurisdiction must do so in the first instance, i.e., before or concurrently with the
submission of the defense statement, but not thereafter.

(2) The right to make such an objection is not taken away from a party who appointed or assisted in the nomination of an arbitrator.

Plea for increasing the extent of authorities under Section 16 (3)

A claim that the arbitration tribunal is acting outside of its authority must be made as soon as the topic that is allegedly outside its purview is
brought up during the arbitral procedures.

Section 16(4): Justification for delay

subsection (4) enables the tribunal to excuse the delay with which the pleas against jurisdiction under Section 16(2) and the arbitration tribunal's
exceeding its authority under Section 16 (3) were raised.

Section 16(5) states the Procedural decision regarding a plea under Section 16 (2) or 16 (3),

This subsection requires the arbitration tribunal to rule on the argument made under Section 16(2) or Section 16. (3).

It further stipulates that the arbitration tribunal should carry on with the arbitration proceedings and announce the final award if either of the
requests is refused.

Procedure for contesting such an arbitral decision

Section 16 (6) provides a remedy against such an arbitral award. This section provides a remedy to a party who feels wronged by an award made
under subsection (5). The opportunity to apply for the aforementioned arbitral judgment to be set aside in accordance with Section 34 is provided
to the party that feels wrong. The party cannot immediately appeal the tribunal's denial of its claim under Sections 16 (2) or 16 (3) based on the
availability of this provision until after the award has been made by the tribunal (3).

CONCLUSION:

It is evident that any challenge to the arbitrator's or tribunal's jurisdiction must first be settled by that arbitration or tribunal, and that only the final
arbitral verdict may be challenged under Section 34. Section 16 of the Arbitration and Conciliation Act of 1996 prohibits the right to appeal the
decision if the tribunal recognises its power. The arbitral tribunal has the power to decide on its own jurisdiction as well as any disputes about the
validity or existence of the arbitration agreement. For this purpose, an arbitration clause in a contract is treated separately from all other
provisions.

Scope Of Section 16 Arbitration And Conciliation Act, 1996

Before delving upon the issue of jurisdiction of arbitral tribunals, let us read the section 16 of the Arbitration and Conciliation Act, 1996
(in short here in after referred to as "Act")to understand its scope and repercussions during the arbitral proceedings.

Section 16. Competence of arbitral tribunal to rule on its jurisdiction.-

(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, and for that purpose,-
(a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract;
and
(b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.
(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence;
however, a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the
appointment of, an arbitrator.
(3) A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the
scope of its authority is raised during the arbitral proceedings.
(4) The arbitral tribunal may, in either of the cases referred to in sub-section (2) or sub-section (3), admit a later plea if it considers the
delay justified.
(5) The arbitral tribunal shall decide on a plea referred to in sub-section (2) or sub-section (3) and, where the arbitral tribunal takes a
decision rejecting the plea, continue with the arbitral proceedings and make an arbitral award.
(6) A party aggrieved by such an arbitral award may make an application for setting aside such an arbitral award in accordance with
section 34.
Genesis:

Section 16 of the Act has been framed in terms and in spirit of Article 16 Chapter IV of UNCITRAL Model Laws on International
Commercial Arbitration (1985) (as adopted by the United Nations Commission on International Trade Law on 21 June 1985)

"Article 16 - Competence of arbitral tribunal to rule on its jurisdiction

1. The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration
agreement. For that purpose, an arbitration clause which forms part of a contract shall be treated as an agreement independent of the
other terms of the contract. A decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of
the arbitration clause.
2. A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence. A
party is not precluded from raising such a plea by the fact that he has appointed, or participated in the appointment of, an arbitrator. A
plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the
scope of its authority is raised during the arbitral proceedings. The arbitral tribunal may, in either case, admit a later plea if it considers
the delay justified.
3. The arbitral tribunal may rule on a plea referred to in paragraph (2) of this article either as a preliminary question or in an award on
the merits. If the arbitral tribunal rules as a preliminary question that it has jurisdiction, any party may request, within thirty days after
having received notice of that ruling, the court specified in article 6 to decide the matter, which decision shall be subject to no appeal;
while such a request is pending, the arbitral tribunal may continue the arbitral proceedings and make an award."
Rationale

Principles of Kompetenz Kompetenz or "Competence de la recognized" applies to the arbitration tribunal, which is a
jurisprudential Doctrine whereby a legal body, such as a court or arbitration tribunal, may have jurisdiction to rule as to the
extent of its competence or jurisdiction on an issue before it.

Idea behind the insertion of Section 16 was to stipulates the timeline for raising the issue with regard to the Jurisdiction of an arbitral
tribunal, in order to save the time and money of the parties to dispute. However the language of Section 16 especially sub-section (2),
(4) & (5) creates an ambiguity with regard to the fact that it gives options to the arbitral tribunal to decide the issue of jurisdiction either
as a preliminary issue or at the time of passing of the award. Sub-section 2 stipulates that "the plea of jurisdiction shall not be raised
later than statement of defence", however at the same time a window has been left open in Sub-section 4 the tribunal has been
vested power to condone the delay in taking plea of jurisdiction at belated stage on being satisfied by the justification of such delay,
though this will be dependent upon the factual matrix of each case.

The Act is silent with regard to the fact as to whether the issue of jurisdiction is to be mandatorily decided as a preliminary issue, even
the opinion of the Hon'ble Courts as well as interpretation by the Hon'ble Courts on issue of jurisdiction has been divided.

However I personally feel, that the benefit of treating the jurisdiction issue as a preliminary issue will result in quick culmination of
arbitral proceedings and shall be cost effective as well, whereas if the decision on the issue of jurisdiction is taken at the time of passing
of the award by the tribunal and ultimately tribunal comes to the conclusion that it lacks jurisdiction, it results in wastage of the time of
the parties to dispute and tribunal as well and also increases the cost of litigation and effective adjudication of the claim is delayed.
Such flexibility in the decision making process not only hampers the growth in International business, FDI but also hampers India from
becoming an International hub for Commercial Arbitration.

Section 16 further creates another ambiguity, if the in terms of sub-section 5, the tribunal decides the plea of jurisdiction treating as
preliminary issue than an appeal would lie to court in terms of Section 37(2)(a) of the Act, however if the tribunal decides to adjudicate
upon the plea of jurisdiction at the stage of passing of Award than recourse under Section 34 shall be applicable as the award can only
be challenged under Section 34 of the Act.

Important Judgments:

M/s Uttarakhand Purv Sainik Kalyan Nigam Limited v. Northern Coal Field Limited (Special Leave Petition (C) No. 11476 of
2018) decided on 27.11.2019

All other preliminary or threshold issues are left to be decided by the arbitrator under Section 16, which enshrines the Kompetenz-
Kompetenz principle. 9.9. The doctrine of "Kompetenz-Kompetenz", also referred to as "Competence-Competence", or "Competence de
la recognized", implies that the arbitral tribunal is empowered and has the competence to rule on its own jurisdiction, including
determining all jurisdictional 5 (2017) 9 SCC 729.

In Bhushan Steel Ltd. v. Singapore International Arbitration Centre 2010 SCC OnLine Del 2236 relying on Kvaerner Cementation
India Limited supra (2012) 5 SCC 214 and Roshan Lal Gupta supra holding, that once it is held there is a valid Arbitration Agreement
between the parties, a suit for declaration that the Arbitral Tribunal has no jurisdiction or for permanent injunction to restrain arbitration
would not be maintainable; (ix) the ICC Rules are akin to Section 16 of the Arbitration Act; and, (x) that Kvaerner Cementation India
Limited supra has recently been cited with approval in National Aluminium Company Ltd. v. Subhash Infra Engineers Pvt. Ltd.
2019 SCC OnLine SC 1091 holding that if the plaintiff therein wanted to raise an objection with regard to existence or validity of the
Arbitration Agreement, it was open for it to move an application before the Arbitrator but with such plea he cannot maintain a suit for
declaration and injunction.
In Pandey & Co. Builders Private Limited v. State of Bihar, AIR 2007 SC 465, held forum of appellate court must be determined with
reference to definition of court in section 2(1)(e) of the Act. If a High Court does not exercise the Original Jurisdiction, it would not be a
`Court' within the meaning of the said provision.

M/s Lion Engineer Consultants v. State of Madhya Pradesh 2018 AIR (SC) 1895. In this Judgment Hon'ble Supreme Court held that
even if the objection of jurisdiction is not taken before the arbitral tribunal, than also the same can be raised during the challenge to the
arbitral award under section 34 of the Act. The Hon'ble Court overruled its own judgement delivered in the case of MSP Infrastructure
Ltd. v. Madhya Pradesh Road Development Corporation Ltd. (2015) 13 SCC 713 wherein it was held that all objections of
jurisdictions must be raised at the submission of the statement of defence and must be dealt with under Section 16 of the Act.

Settlement Agreements Qua Arbitral Awards

15 September 2017

by Raka Chatterjee

Aquilaw

Meaning and Scope of Settlement Agreement

A settlement between the disputing parties is a much needed resort in

the modern day commercial world. A settlement ensures that the
disputes between the parties end in amicable terms leaving each party
satisfied. In turn, outside Court settlement procedures like conciliation
ensure fewer burdens on the Courts and also lessen the costs of
litigation for the parties in dispute. Thus, these settlements have been
welcomed by litigants and courts alike. Therefore, the Courts have not
hesitated or disputed in giving finality to the terms of a settlement
agreement, like an arbitral award, as under the Arbitration and
Conciliation Act, 1996.

A settlement agreement is an agreement drawn out by a conciliator,

when he sees that there is possibility of amicable compromise between
the parties. A conciliator assists the parties to amicably settle the
disputes between them.

The conciliator, on the basis of his notings during the conciliation

proceedings and also on the basis of the written statements and the
documentary evidence of the parties, draws up the terms of settlement
agreement. The same is then forwarded to the parties for their
comments, if any, and if necessary a reformulated settlement agreement
is prepared on the basis of such comments.1

According to Section 73 (3) of the Arbitration and Conciliation Act, 1996,

(hereinafter referred to as the Act) the settlement agreement signed by
the parties is final and binding on them and the persons claiming under
them. It follows, therefore, that a successful conciliation proceeding
comes to an end only when the settlement agreement signed by the
parties comes into existence. This type of an agreement has the legal
sanctity of an arbitral award under Section 74 of the Act.

Interpretation by Judicial Bodies

The Supreme Court in the case of Haresh Dayaram Thakur v. State of

Maharashtra2 has held as that the requirement of a conciliator is to
assist the parties to settle the disputes amicably. If the conciliator is of an
opinion that there exists an element of settlement between the parties
then he can draw up an agreement under the provisions of Section 73 of
the Act. The settlement reaches finality only when the settlement
agreement is signed by both/all the parties in the dispute. Then such
settlement agreement can have the legal sanctity of an arbitration award
under Section 74 of the Act. The relevant portion of the judgement has
been extracted herein:

"From the statutory provisions noted above the position is manifest that
a conciliator is a person who is to assist the parties to settle the disputes
between them amicably. For this purpose the conciliator is vested with
wide powers to decide the procedure to be followed by him
untrammelled by the procedural law like the Code of Civil Procedure or
the Indian Evidence Act, 1872. When the parties are able to resolve the
dispute between them by mutual agreement and it appears to the
conciliator that there exists an element of settlement which may be
acceptable to the parties he is to proceed in accordance with the
procedure laid down in Section 73, formulate the terms of a settlement
and make it over to the parties for their observations; and the ultimate
step to be taken by a conciliator is to draw up a settlement in the light of
the observations made by the parties to the terms formulated by him.
The settlement takes shape only when the parties draw up the
settlement agreement or request the conciliator to prepare the same and
affix their signatures to it. Under sub-section (3) of Section 73 the
settlement agreement signed by the parties is final and binding on the
parties and persons claiming under them. It follows therefore that a
successful conciliation proceeding comes to an end only when the
settlement agreement signed by the parties comes into existence. It is
such an agreement which has the status and effect of legal sanctity of
an arbitral award under Section 74."

From a bare perusal of the above quoted paragraph, it can be concluded

that if the Settlement agreement comes into existence under Section 73
satisfying the requirements stated therein, it gets the status and effect of
an arbitral award on agreed term, on substance of dispute, rendered by
an arbitral tribunal under Section 30 of the Act.

It is to be noted that not every agreement or arrangement between the

parties in whatever form of manner acquires the status of a settlement
agreement within Section 73 of the Act.

Only the agreement that has been arrived with in conformity with the
manner stipulated and form envisaged and has been duly authenticated
in accordance with Section 73 can be assigned the status of a
settlement agreement within the meaning of the Act.

Furthermore, in the case of Mysore Cements Limited v. Svedela

Barmac Ltd3., the Apex Court followed and reiterated its stand as taken
by them in Haresh Dayaram Thakur (supra) case, the settlement
agreement comes into existence under Section 73 satisfying the
requirements stated therein, it gets the status and effect of an arbitral
award on agreed terms on the substance of the dispute rendered by an
Arbitral Tribunal under Section 30 of the Act. If a settlement agreement
comes into existence under Section 73 satisfying the requirements
stated therein, it gets the status and effect of an arbitral award rendered
by the arbitral tribunal under Section 30 of the Act. It was further held
that mere substantial compliance with Section 73 is not sufficient; all the
statutory requirements must be complied with.

Recently, a Single Judge Bench of the Delhi High Court, in the case
of Anuradha SA Investments LLC & Anr. v Parsvnath Developers
Limited & Ors.4, also dealt with concept of a settlement agreement
within the ambit/folds of an arbitral award. The Court had the opportunity
to deal with the enforcement of a Settlement Agreement as an Award.
The respondents had challenged the maintainability of the petition on the
ground that the Settlement Agreement is not an agreement under
Section 73 of the Act, or as a result of the conciliation proceeding under
Part III of the Act. They further contend that they have not received the
authenticated copy of the Settlement Agreement and that the said
agreement is insufficiently stamped.

The Ld. Single Judge held that the parties themselves had engaged
themselves in conciliation proceedings by appointing lawyers to actively
negotiate and finalise the settlement agreement. The contents of the
Settlement Agreement and the minutes of the meetings of the
Respondents themselves are in accordance to Section 73 and the
Respondents cannot contradict their own stand. The Court also quite
regretfully observed that the Respondent failed to disclose that lawyers
appointed by the Respondents had received the authenticated copy of
the settlement agreement. The Respondent have also acted on the said
agreement, and not only on a technical plea of non-service, they are
maliciously trying to evade the terms of the Agreement.

The contention that the Settlement Agreement is not sufficiently stamped

in unpersuasive. The Court observed that under "Section 74 a
settlement agreement would have the status and effect "as if it is an
arbitral award"; thus by legal fiction, a settlement agreement arrived at
during the conciliation proceedings and authenticated by the conciliator
has been provided the same status and effect as an arbitral award. In
other words, the settlement agreement can be enforced as an arbitral
award and it is not necessary for a party to institute fresh proceedings for
obtaining a decree in terms thereof. However, it does not mean that the
settlement agreement ceases to be an agreement voluntarily entered
into between the parties and becomes an arbitral award; it merely has
the status and effect of an award under the Act. The settlement
agreement continues to be an agreement and would require to be
stamped as such."

It further held that "it is well settled that a legal fiction cannot be
extended beyond the purpose for which it is created. Section 74 of the
Act creates a legal fiction to elevate the status and effect of a settlement
agreement under Section 73 to an award. The purpose is clearly to
enable enforcement of such agreements as an arbitral award without
further adjudicatory process. The legal fiction cannot be extended to
other statutes."

Thus, in the present case, the Settlement Agreement was held to be

maintainable and can be enforced as an arbitral award.

Conclusion:

As in seen from the catena of case laws it has been reiterated that a
Settlement Agreement can only then be given the colour of an arbitral
award, if all the compliances as laid down under Section 73 is followed
with. Thus a settlement agreement arrived at between the parties, duly
authenticated by the conciliator will have the same effect of an arbitral
award on the agreed terms of the substance of dispute, as rendered by
a duly constituted arbitral tribunal under Section 30 of the Act.

Footnotes
1. P.C .Markanda, Law Relating to Arbitration and Conciliation:
Commentary on the Arbitration and Conciliation Act, 1996, LexisNexis
Butterworths Wadhwa, Nagpur, Seventh Edition (2009)

2. (2000) 6 SCC 179

3. (2003) 10 SCC 375

4. 2017 (4) ARBLR 72 (Delhi)

The content of this article is intended to provide a general guide to the

subject matter. Specialist advice should be sought about your specific
circumstances.
AUTHOR(S)

Section 28 in THE ARBITRATION AND CONCILIATION ACT, 1996

28. Rules applicable to substance of dispute.—
(1) Where the place of arbitration is situate in India,—
(a) in an arbitration other than an international commercial arbitration,
the arbitral tribunal shall decide the dispute submitted to arbitration in
accordance with the substantive law for the time being in force in
India;
(b) in international commercial arbitration,—
(i) the arbitral tribunal shall decide the dispute in accordance with the
rules of law designated by the parties as applicable to the substance of
the dispute;
(ii) any designation by the parties of the law or legal system of a
given country shall be construed, unless otherwise expressed, as
directly referring to the substantive law of that country and not to its
conflict of laws rules;
(iii) failing any designation of the law under clause (a) by the parties,
the arbitral tribunal shall apply the rules of law it considers to be
appropriate given all the circumstances surrounding the dispute.
(2) The arbitral tribunal shall decide ex aequo et bono or as amiable
compositeur only if the parties have expressly authorised it to do so.
(3) In all cases, the arbitral tribunal shall decide in accordance with
the terms of the contract and shall take into account the usages of the
trade applicable to the transaction.