ALTERNATE DISPUTE

RESOLUTION(ADR)

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• US President Abraham Lincoln –“Discourage litigation persuade your neighbours to compromise, whenever you can point out to them how the nominal winner is often a real loser, in fees, expenses, waste of time…”

• In simple terms he was advocating ADR for resolving disputes.

What is ADR – It is nothing but Alternate Dispute Resolution.

Concept of ADR lies in resolving the dispute outside the

standard court procedures. Encourages communicative capacity of the

disputants.

Obvious question ---- what is the need for having ADR . - Consider this figures -----

Reasons for the increase in litigation - Planning Commission’s Working Group report --12th Five Year Plan (2012 – 2017) • Poor judge-population ratio-Vacancies in courts• Plethora of laws• Prolonged and costly litigation caused by procedures

and lawyers’ interests• Poor infrastructure; and• Weak alternate dispute redressal mechanisms

• Hence need was felt by people for an ADR.

• To sum up the primary object of ADR, • ----- According to P.C Rao, Secretary General, of

the International Centre for ADR, • is avoidance of vexation, expenses and delay and • promotion of the ideal of ‘access to justice’ for all.

• So, is ADR is a modern phenomena. • No. The history goes back to 12th century in China,

England and America.

• position in India? - According to Dr. Priyanath Sen author of the ‘The General Principles of Hindu Jurisprudence

• the ADR mechanism dates back to the period of Dharmashastra’s.

• ADR used for - resolution of disputes between members of particular clan and locality by Kulas (family or clan assemblies),

• Srenis(guilds of men following same profession), and Parishads (assemblies of learned men who knew law).

• More specifically in rural areas Nyaya panchayat’s decided almost all the disputes between the inhabitants of the village.

• Most importantly - recognized as the systems of the administration of justice and not merely as ‘alternatives’.

• Importantly procedure and nature of proceedings of the above institutions - was similar to ADR being simple informal inexpensive quick.

Reasons behind the phenomenal growth of ADR :

1. Expeditious disposal of cases2. Inexpensive litigation3. Informal method of resolution 4. Growth of Commercial transactions5LPG–Liberalization,Privatization, Globalization

• Consensual Processes Adjudicatory Process• Negotiation Mediation Arbitration Litigation• A communication Facilitated Informal third Formal• process utilized to Negotiation party decision third party• put deals together making decision making or resolve conflicts

Parties retain control of the outcome and the process Parties retain control of the outcome but Parties give up control of the yeild to assistance in the management of outcome and the conducting Parties give up control of the out the process. of the process come and the process Control of outcome Control of process High Low Parties look to future in light of past Processes look to the past to determine its resolution and set the stage for a better future

• Model explains the different ADR’s in a continuum explaining the advantages and unique features.

• Drawing the line from Negotiation upto Adjudication and Legislation, the line of formality increases from left to right.

• While the consensual process is totally informal and by Agreement,

• the Adjudication process, which is controlled by state and conducted in accordance with law is totally formal and by imposition.

• At the bottom the control levels are explained.

• While in negotiation the control over the initiation, procedure and outcome is greater,

• it gets diminished in other processes and

• it is totally absent in adjudication and legislation process.

• Advantages – • 1) can be used any time even when a case is pending

before a court

• 2) can be used to reduce a number of contentious issues

• 3) can provide a better solution to the disputes more expeditiously and at less cost than litigation.

• 4) dispute remains a private matter and has a chance of getting resolved soon.

• 5) procedures per se are flexible and not controlled by rigorous rules of procedures. - CPC ?

• 6) There need not be a professional advocate or counsel present in the proceedings ?

• 7) helps reduce the workload of courts thereby allowing it to focus on cases which have to be resolved by courts. ?

• Prime example of the effective working of Conciliation, a form of ADR

• The model of pre-trial In-trial and post-trial Conciliation Project in subordinate courts evolved by Himachal Pradesh High Court

• - commended by the Law Commission in its 77th - Delay and Arrears in Trial Courts and 131th report -.

• However inspite of its obvious advantages for the ADR procedure to be more successful, it is necessary that

• i) there should be good law,

• ii) good infrastructure facilities for holding ADR proceedings &

• iii) professionally trained ADR practitioners.

• So, whether ADR is all advantage, No. -- there are obvious flaws and disadvantages

• 1) biggest disadvantage -- unfamiliarity of the process itself.

• 2) ADR is difficult in the sense that there is unequal bargaining power of one of the parties.

• 3) settlement is reached between the parties the same is not binding on the parties.

• 4) A party may sabotage the success of the dispute resolution process leading to trial denovo thus leading to protracted litigation and

• which can further give rise to later litigation defeating the whole purpose of ADR mechanism.

• 4) legal profession also attracted by the popularity and volume of arbitration --- making the arbitral process more formalized

• thus making more judicial in nature thereby losing the distinction between it and the courts.

• 5) The courts intervention before during and after arbitration, made arbitration as dilatory as the court system.–to some extent reduced by the Arbitration and Conciliation Act, 1996.

• Now to what sort of disputes is ADR suitable. • Both Procedural law & Substantive law.

• CPC, • CRPC, • Family Disputes, • Industrial Disputes Act, • Hindu Marriage Act, • Motor Vehicle claims, • Negotiable Instruments Act.

• Food corporation of India v Joginder Pal Mohinder Pal AIR 1989 SC 1263.

• The Respondent entered into a contract with the appellant Food Corporation of India on or about May 1979 where under, the appellant Corporation was to give to the Respondent the Paddy for being converted into rice at the rate of 70% of the Paddy.

• The Paddy was to be lifted from the godowns of the appellant.

• The shelling charge was fixed at Rs 2.20 p. per quintal.

• Subsequently, disputes arose between the parties, and the Respondent moved an application before the Subordinate Judge for appointment of an arbitrator and the Sub-Judge appointed the arbitrator who gave his award on 22nd January 1982.

• In the award the arbitrator did not allow some of the claims made by the appellant, in particular, a claim of penalty for not lifting the balance of Paddy.

• The arbitrator in disallowing the claim, took the view that the appellant has to prove the actual losses suffered by it which the appellant failed to prove.

• Another claim not allowed by the arbitrator related the cost of non-delivery of rice.

• The Respondent made an application u/s. 14 of the Arbitration Act, 1940 to make the award a rule of the Court. The appellant filed the objections u/s 30 and 33 of the Act.

• The Subordinate Judge, First Class, on 2nd December, 1982, found that the award was liable to be set aside and accordingly modified the award and passed a decree in favour of the appellant for the amount.

• On 2nd March, 1984, the Additional District Judge allowed the appeal by respondent and reversed the Subordinate Judge's order.

• The appellant filed a revision petition against the order of Additional District Judge. The High Court on 11.12.84 dismissed the revision petition. Therefore the appellant Corporation went in appeal

• Dismissing the appeal, the Court held that the arbitrator has chosen to make a speaking award in the instant case, that is, he has given reasons for his decision.

• the arbitrator has chosen to give reasons,

• unless it is demonstrated to this Court that such reasons are erroneous as a proposition of law

• or a view which the arbitrator has taken, could not possibly be sustained in any view of the matter,

• then the challenge to the award of the arbitrator cannot be sustained.

• Even assuming that there was some mistake, such a mistake is not amenable to be corrected in respect of the award by the Court.

• This was a fair order passed after considering all the records. The Court has no jurisdiction to interfere or modify the award in the manner sought for by the appellant.

 • The Addl. Distt. Judge was justified in correcting the

order of the Subordinate Judge and the High Court was also justified in not interfering with the order of the Addl. Distt. Judge.

• The courts are full of litigations, which are pending for long time. Therefore, it should be the endeavour of those who are interested in the administration of justice to help settlement by arbitration.

• It has greater scope of acceptance today when there is a certain erosion of faith in view of the failure to appreciating the functions of the courts of law.

• It has also the advantage of not only quickness of decision but of simplicity of procedure.

• However, the proceedings of arbitration must adhere to the principles of natural justice and must be

• in consonance with such practice and procedure which will lead to a proper resolution of the dispute and create confidence of the people for whose benefit these processes are resorted to

• It is, therefore, the function of courts of law to oversee that the arbitrators act within the norms of justice.

• Once they do so and the award is clear, just and fair, the courts should, as far as possible, give effect to the award of the parties and make the parties compel to adhere to and obey the decision of their chosen adjudicator.

• It is in this perspective that one should view the scope and limit of correction by the court of an award made by the arbitrator.

• We should make the law of arbitration simple, less technical and more responsible to the actual realities of the situation, but must be responsive to the cannons of justice and fair play and

• make the arbitrator adhere to such process and norms which will create confidence, not only by doing justice between the parties, but by creating a sense that justice appears to have been done.

• So far as the material of the present purpose is concerned, an award of the arbitrator can only be interfered with or set aside or modified within the four corners of the procedure provided by the Act.

• Halsbury's Laws of England, Vol. 24th Edn., para 623 - reiterates that an arbitrator's award may be set aside for error of law appearing on the face of it.

• It is not misconduct on the part of an arbitrator to come to an erroneous decision, whether his error is one of fact or law, and

• whether or not his findings of fact are supported by evidence - Russell on Arbitration, 20th Edn., page 422.

• Beyond this, the court has nothing to examine. It is not necessary for a court to examine the merits of the award with reference to the materials already produced before the arbitrator.

• The Court cannot sit in appeal over the views of the arbitrator by re-examining and re-assessing the materials

• it appears to us that the learned Additional District Judge was right in the view it took and the High Court, therefore, was justified in dismissing the revision.

• The appeal, therefore, fails and is accordingly dismissed

• ARBITRATION & CONCILIATION ACT, 1996

• Sec 2(a) of Arbitration and Conciliation Act 1996 defines Arbitration:

• The term Arbitration means - • any Arbitration whether or not administered by a

permanent Arbitral Institution.

• It also means • an alternative means of resolving the disputes

provided the parties have previously agreed to do so instead of going to court.

• Some authors have meant Arbitration to mean • ‘a Private Court’ without certain powers of court

like the power of execution of award, - taking out contempt proceedings.

• The term Arbitration has been derived from the nomenclature of Roman Law –

• Arbitari (to examine or judge )

• In Halsbury’s laws of England, arbitration has been defined as –

• “the reference of dispute or difference between not less than two parties, for determination, after hearing both sides in a judicial manner, by a person or persons other than a court of competent jurisdiction”

• Therefore we can conclude that,

• where a dispute is sought to be resolved by a intervention of third party is called ‘Arbitration’.

• Historical Perspective:

• The first traces of change in the ancient ADR system • was in the year 1772 in the form of ‘Regulations’

and thereby attempt was made to introduce of system of Arbitration in India in consonance with British Jurisprudence.

Regulation Salient provision

1781 ‘the judge to recommend as far as he can with out compulsion and prevail upon the parties submit to Arbitration by one person to be mutually agreed upon by the parties.’

1787 Empowered a Court to promote Arbitration in cases where the value of the debt or property did not exceed Rs 200/- Arbitration was permitted in cases of breach of contract.

1833 Agreement of Arbitration shall be in writing.

Regulation Salient provision

1857 Civil Procedure Code Promulgated – First time Arbitration thru’ two channels, namely with and without the intervention of Court.

1882 –(1857 Act revised)

Arbitration was defined as a written agreement to submit present and future differences to Arbitration. The Arbitrator may be named in the Agreement.

1889 Earlier the ‘subject of Arbitration’ was made a part of civil procedure. Now an independent Act governing Arbitration was passed mentioning the same details which were in the earlier regulations.

1940 New Arbitration Act came to be enacted.

1996 Because of the lacunas' in the 1940 Act, Court’s interference became as a matter of routine and therefore the Arbitration and Conciliation Act 1996 came to be enacted.

• Attributes of Arbitration have been explained in the matter of

• K.K Modi vs K.N Modi by the Supreme Court of India. AIR 1998 SC 1297.

For an agreement to be considered as an arbitration agreement are:

• i) It must contemplate that the decision of the tribunal will be binding on the parties of the Agreement.

• Ii) Jurisdiction of the tribunal to decide the rights of the parties must flow from the

• consent of the parties, or • from the order of the Court or • from a statute, so that it is clear that what is sought to

be conducted is a process of Arbitration.

• Iii) Agreement must contemplate that substantive rights of the parties will be determined by the agreed tribunal.

• Iv) Tribunal will determine the rights of the parties in an impartial and judicial manner.

• v) The agreement of the parties to refer their disputes to the decision of the tribunal must be intended to be enforceable by law.

• Vi) The agreement must contemplate that the tribunal will make a decision upon a dispute which is already formulated at a time when a reference is made to the tribunal.

• Now what are the types of Arbitration:• 1) Adhoc Arbitration : • Here in pursuance of Agreement the parties

themselves appoint their own Arbitrator/ Arbitrators. • They proceed with the Arbitration till the culmination

of award. • All rules prescribed in the Act must be strictly

followed by the parties and the Arbitral Tribunal. • The award obtain is a final award and where there is

an arbitration agreement, the suit is barred.

• 2) Institutional Agreement:• Here the parties get conducted the Arbitration

proceedings thru’ an institution speciliasing in conducting Arbitration such as Chamber of Commerce in each state, and thru’ the Inter Governmental agencies.

• These institutions provide all facilities for conduct of Arbitration proceedings including appointment of Arbitrators from the panel of Arbitrators maintained by them.

• They conduct Arbitration in accordance with the rules framed by them.

• 3) International Commercial Arbitration:

• Subject to the Law of Arbitration, International Commercial Arbitration means

• an arbitration on disputes arising on International Trade limited to what are as known as Commercial transactions between and among the parties residing in different Countries.

• 4) Statutory Arbitration:

• Where an Act provides compulsory Arbitration, the parties resort to arbitration only as provided in the Statute.

• Here the statute itself names the Arbitrator and parties aggrieved by any action taken or orders issued by any authority under the Act, they have to compulsorily approach the named Arbitrator for a decision on the dispute.

• Recourse to a Court without seeking Arbitration is barred.

• Eg :- Co-operative societies Act, Electricity Act, Land Acquisition Act, Railways Act, Telegraphic Act, Industrial disputes Act

• are some of the legislations which provide for compulsory arbitration, which is nothing but Statutory Arbitration.

• WHAT DISPUTES CAN BE REFERRED TO ARBITRATION

• Generally speaking, all disputes of a civil nature or quasi-civil nature which can be decided by a civil court can be referred to arbitration.

• Thus, disputes relating to property, right to hold an office, compensation for non-fulfilment of a clause in a contract, disputes in a partnership etc. can be referred to arbitration.

• Even the disputes between an insolvent and his creditors can be referred to arbitration by the official receiver/liquidator with the leave of the court.

• Thus disputes arising in respect of defined legal relationship, whether contractual or not, can be referred to Arbitration.

• Therefore, the relationship may not be a contractual one.

• A dispute may arise out of quasi contracts e.g. the division of family property. The same may be validly referred to Arbitration.

• DISPUTES EXCLUDED FROM ARBITRATION• An illustrative list of such matters :—• Testamentary matters involving questions about

validity of a will.• Disputes relating to appointment of a guardian.• Disputes pertaining to criminal proceedings

• Disputes relating to Charitable Trusts• Winding up of a company• Matters of divorce or restitution of conjugal rights

• Lunacy proceedings• Disputes arising from an illegal contract• Insolvency matters, such as adjudication of a person

as an insolvent.• Constitutional Validity of Arbitration and

Conciliation Act, 1996• Babar Ali v UOI and Others (2000) 2 SCC 178

Arbitration and Conciliation (Amendment) Ordinance 2015

• The main thrust of amendments in the new Arbitration and Conciliation (Amendment) Ordinance 2015 :

• i) The main thrust of amendments is to minimize the delays in arbitration process and courts’ intervention by

• ii) Empowering arbitral Tribunal with the same powers of a court for the purpose of granting interim measures/relief

• iii)Suggesting indicative model fee structure for Arbitral Tribunal

• iv)Fixing time limits for passing of arbitral award and disposal of applications by courts

• v) Mandating detailed disclosures/ guidelines for disqualification for ensuring impartiality, independence of arbitrators

• Thus for an Arbitration to take place there should be an Arbitration Agreement.

• So what is an Arbitration agreement?

• Arbitration Agreement is defined in Sec 2(b) of the Arbitration and Conciliation Act, 1996.

• Sec 2 (b) defines An Arbitration Agreement as ‘an agreement referred to in Sec 7 of the Act’.

• Further Sec 7 provides that an Arbitration Agreement means -

• ‘an agreement by the parties to submit to arbitration of certain disputes which have arisen or which may arise between them in respect of a defined legal relationship whether contractual or not.

• So, whether an Arbitration Agreement should be in writing.

• The answer is yes. Therefore an Arbitration Agreement should be in writing and it shall be deemed to be in writing if:

• i) it has reduced in writing• ii) a document is signed by the parties• Iii) there is an exchange of statements of claim and

defense

• Sec 7 (4) (b) -• an exchange of letters, telex, telegrams or other

means of telecommunication which provide a record of the agreement; -

• including communication through electronic means (new ordinance)

• So if the Arbitration Agreement should be in writing, - whether an Oral Agreement is valid. i.e whether it has any legal validity.

• i) Whether such an oral Agreement is itself enforceable in law

• & Ii) whether an award made as a result of such an oral Agreement is enforceable in law.

• The oral Agreement cannot be legally enforceable.

• So what is an Arbitration Agreement and what should it contain?

• An Arbitration Agreement is the very foundation on which the jurisdiction of the arbitrators to act rests. It defines the scope of authority of the Arbitrators.

• i) There should be an existence of an clause as to dispute/s being referred to Arbitration. Is this enough?

• No. Though, per se it is enough, there should be a mention that no Court shall have jurisdiction in respect of disputes or differences arising between the parties.

• Ii) The next question whether the Agreement should mention any procedure for appointment of Arbitrator.

• iii) The next aspect is the choosing an arbitrator.• It can be a ‘sole arbitrator’ or a panel consisting of ‘odd

number’ of Arbitrators preferably 3 in number.

• It may also be mentioned such each party shall appoint an Arbitrator, and the two arbitrators shall appoint the Presiding Arbitrator.

• This is done to prevent a deadlock in case of the opinion being not unanimous.

• Iv)An Arbitration clause can be as follows:

• ‘all disputes arising out of this contract or arising in relation thereto or in connection with the terms of contract shall be referred to arbitration by an arbitral tribunal consisting of of one arbitrator to be named by each party and the two arbitrators so appointed shall appoint the presiding arbitrator.’

• The award passed by the arbitral tribunal shall be final and binding on the parties.

• The Arbitration proceedings shall be held at -----------.

• The test as to whether a dispute fell within the scope of Arbitration clause is –

• whether recourse to the Arbitration Agreement was necessary for the purpose of determining of the disputes between the parties.

• V) One important aspect is the party executing the Arbitration Agreement must be in existence on the date of execution of Agreement.

• Such company not being in existence, is not bound by the Arbitration clause. – APTDC v Pampa Hotels Ltd. AIR 2010 SC 1806.

• Arbitration clause incorporated in Agreements entered in to with Government. - Essentials

• i) must conform to the mandatory requirements of Art 299 of the Constitution of India.

• Ii) the contract must be expressed in the name of the President of India or Governor of the State and executed by a person authorised on behalf of the President or the Governor.

• Iv) One of the most significant aspects of an arbitration agreement is that whether there can be Arbitration Agreement on behalf of a minor.

• As a minor is not competent to enter into contract he cannot agree to submit to Arbitration.

• But, - may be made on behalf of the minor by his natural or legal guardian if it is made in good faith and for the benefit of the minor.

• However if the minor is not properly represented and the guardian fails in his duty the award is not binding on the minor. Mohiri Bibi v Dharmodas Ghosh

• Sec 8 - Power to refer parties to arbitration where there is an arbitration agreement - Effect of the Arbitration clause.

• Judicial authority before whom the action is brought - bound to refer the parties to Arbitration, and

• will insist they should have a recourse to Arbitration before pursuing any other remedy. - (Unless it find that prima facie no valid arbitration agreement exists)- New Ordinance

• Though it is mandatory for court to refer the parties to arbitration, however certain conditions are required to be satisfied.

• i) There is an existence of a legally valid agreement which is operative and capable of being performed.

• Ii) One of the parties start legal proceedings.

• Iii) The legal action is brought in manner which is the subject of an arbitration agreement.

• Iv) The dispute in the legal proceedings is covered by and is arbitrable under the Agreement

• V) An application is made by a party to the judicial authority before whom an action is brought requesting that the parties be referred to Arbitration.

• Vi) Such application is made by a party before submitting his first statement on the substance of dispute.

• Vii) The application is accompanied by the original agreement or a duly certified copy thereof.

• (where the party making an application does not have the agreement and is retained by the other party – it shall request the court to direct the other party to produce the original or a certified copy) New Ordinance

• Natraj Studio Pvt Ltd v Navrang Studios – AIR 1981 SC 537

• Question before the Supreme Court was which of the two forums would have jurisdiction -

• the arbitrator in accordance with the arbitration agreement or the Court of small causes which is conferred with exclusive jurisdiction in respect of matters covered by Bombay Rent Act, 1947.

• It was held that the Bombay Rent Act, 1947. is a welfare legislation and the scheme of the Act shows that it confers exclusive jurisdiction in pursuance of the social objective.

• Public Policy requires that contracts to the contrary which nullify the rights conferred on tenants by this Act cannot be permitted.

• Therefore public policy requires that parties cannot also be permitted to contract out of the legislative mandate which requires certain kinds of disputes to be settled by special courts constituted by the Act.

• It follows that the arbitration agreements between the parties whose rights are regulated by the Bombay Rent Act cannot be recognised by a Court of Law.

• APTDC v Pampa Hotels Ltd AIR 2010 SC 1806.• Facts: • In March 2002, Andhra Pradesh Tourism Development

Corpn. (APTDC) and Pampa Hotels Ltd (Pampa)allegedly entered into two agreements, Lease Agreement (LA) and Development & Management Agreement (DMA), for a particular purpose. The two agreements contained arbitration clause.

According to the respondent -clause 17 of the

lease agreement and Article 18 of the management agreement contained provision for disputes resolution.

providing that in the event of disputes, best efforts shall

be made to resolve them by mutual discussions, amicably; and in the event of the parties not finding an acceptable solution to the disputes within 30 days (60 days in the case of management agreement), the same shall be referred to arbitration in accordance with the procedure specified in the Act.

• On April 9, 2003 Pampa was incorporated in terms of the Companies Act, 1956.

• On 21.4.2004 APTDC terminated the said agreements on 21.4.2004. Thus, disputes arose between the parties.

• In March 2005: Respondent, filed an application for appointment of arbitrator before the Andhra Pradesh High Court under section 11 of the Arbitration and Conciliation Act, 1996.

• APTDC resisted the application. One of the contentions urged by APTDC was that there was no arbitration Agreement between them and therefore the question of appointing an Arbitrator under section 11 of the Act did not arise.

• It was pointed out that - according to the respondent, the arbitration agreement came into existence on 30.3.2002, when parties executed the Lease Agreement and Management Agreement on 30.3.2002 containing the arbitration clause;

• and, admittedly the respondent was not in existence on that date, as it was incorporated more than a year thereafter on 9.4.2003; and

• that as the party had not even come into existence on that date, obviously there was no contract much less any arbitration agreement between the parties.

• On 16.08.2005 - Designate of the Chief Justice allowed the application appointed an arbitrator in terms of Section 11 of the Act. 

• He held that having regard to the decisions

• in Konkan Railway Corporation Ltd. v. Mehul Construction Co. [2000 (7) SCC 201] and Konkan Railway Corporation Ltd. v. Rani Construction Pvt. Ltd. [2002 (2) SCC 388],

• he had only a limited administrative role under section 11 of the Act, that is, to appoint the arbitrator as per the agreed procedure, leaving all contentious issues including whether there was any arbitration agreement or not, to be decided by the Arbitrator.

• On 26.10.2005 A Seven Bench Supreme Court, in SBP & Co. v. Patel Engineering, overruling the law as it stood then, held, inter alia,

• that issues regarding the validity of arbitration agreements raised in applications for appointment of arbitrator under Section 11

• ought to be decided finally by the Chief Justice or his designate under Section 11 and such a decision will be binding on the parties and the arbitral tribunal. (Konkan Railway Corpn. Ltd v. Rani Construction Pvt. Ltd AIR 2002 2 SCC 388 decision overruled )

• 22.11.2005: A SLP was filed by APTDC challenging the decision of the said designate. (A.P High Court)

• Identification of the relevant issues:• (i)where the party seeking arbitration is a

company which was not in existence on the date of the signing of the contract containing the arbitration agreement -

• whether it can be said that there is an arbitration agreement between the Parties and whether it is binding on the company?

• (ii) whether the question as to the existence or validity of the. arbitration agreement,

• has to be decided by the Chief Justice/Designate when considering the petition under Section 11 of the Act or by the Arbitrator ?

• It is not disputed that both the agreements contain a provision for arbitration.

• It is also not disputed that both of them were signed by Mr. C.Anjaneya Reddy, as Chairman of APTDC and Mr. S.Jayarama Chowdary as Managing Director of Pampa Hotels Ltd.

•

• Explaining the relevant legal Principle and the law/Section involved

• Section 11 of the Arbitration and Conciliation Act, 1996- Section 15 of the Specific Relief Act, 1963- Section 34(2) of the Companies Act,- Section 149(3) of the Act - under Article 136 of the Constitution of India.

• The certificate of registration issued by the Registrar of Companies shows the date of its incorporation as 9.4.2003.

• Section 34(2) of the Companies Act, provides that from the date of incorporation – it shall be capable forthwith of exercising all the functions of an incorporated company

• A certificate under section 149(3) of the Act was issued by the Registrar of Companies only on 6.6.2003, certifying that respondent is entitled to commence business.

• Applying the law to the issues with logical conclusions :

• It is thus clear that the applicant in application under section 11 of the Act

• was non-existent on 30.3.2002 when the arbitration agreement was entered into.

• The two agreements dated 30.3.2002 categorically refer to Pampa Hotels Ltd. as an existing company (promoted for the purpose of implementing the project by Sudalagunta Hotels Ltd.) incorporated under the provisions of the Companies Act.

• The agreements are not entered by the promoters of the company, but by the company itself, represented by its Managing Director. Admittedly on 30.3.2002 there was no such company in existence.

Admittedly, S. Jayarama Chowdary was not

the Managing Director of any company of that name on above date.

• The position would have been different, had the agreement been entered by the promoters of the respondent company before its incorporation for the purposes of the company and such contract was warranted by the terms of incorporation. – Under Section 15 of the Specific Relief Act, 1963.

• The agreement would have been valid; and the term regarding arbitration therein could have been enforced.

 

• “But for reasons best known to themselves, the agreement was entered not by the promoters of Pampa Hotels Ltd., on behalf of a company proposed to be incorporated by them, but by a non- existing company claiming to be an existing company”

• This clearly shows that -

• There is no arbitration agreement between the respondent (applicant in the application under section 11 of the Act) and APTDC against whom such agreement is sought to be enforced.

• Relevant precedents – Applicability of the Ratio to the given case. - S.B.P & Co. v Patel Engineering Ltd. (2005) 8 SCC 618

• This question is no longer res integra. (A case or a question that has not been examined or passed upon)

• Held - that the question 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, is an issue which is to be decided by the Chief Justice or his Designate under section 11 of the Act before appointing an arbitrator.

• Judgment and its critical appraisal• There can be no doubt that the issue ought to have

been decided by the learned Designate of the Chief Justice and could not have been left to the arbitrator.

• But as noticed above, the learned Designate proceeded on the basis that while acting under section 11 of the Act. He did so by following the two decisions in Konkan Railway which were then holding the field.

•  In SBP case a seven-Judge Bench of this Court overruled the two decisions in Konkan Railway. The decision in SBP was rendered on 26.10.2005, a few weeks after the impugned decision by the Designate on 16.8.2005.

• Having regard to the fact that several decisions rendered under section 11 of the Act had followed the decisions in Konkan Railway, the decision in SBP case was made prospective in application.

• Implication• On account of the prospective overruling direction in

SBP,

• any appointment of an arbitrator under Section 11 of the Act made prior to 26.10.2005 has to be treated as valid and all objections including the existence or validity of the arbitration agreement, have to be decided by the arbitrator under section 16 of the Act.

• The legal position enunciated in the judgment in SBP

• will govern the applications to be filed under Section 11 of the Act from 26.10.2005, as also the applications under section 11(6) of the Act pending as on 26.10.2005 (where the Arbitrator was not yet appointed).

• The law on this aspect prior to SBP was

• that questions regarding the validity of arbitration agreement could only be taken before the arbitral tribunal and not before the appointing court under Section 11 of the Act.

• Application accordingly disposed of the appeal without interfering with the appointment but with a direction to the Arbitrator

• to decide the issue in regard to the existence/validity of the arbitration agreement as a preliminary issue relating to jurisdiction in the light of what has been stated above.