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- Application of Limitation Act,1963 to Arbitration And Conciliation Act, 1996
*Arpit Sarangi 1. Introduction The law of Limitation is an essential legislation that prescribes an outer time limit within which a claim can be brought after the cause of action has occurred. The Limitation Act, 1963 (Hereinafter, “Act, 1963”) is made applicable to Arbitration and Conciliation Act, 1996 (Hereinafter, “Act, 1996”) through Section 43(1) of Act, 1996 which provides that the Act, 1963 “shall apply to arbitrations as it applies to proceedings in court.” The first part of the Article would analyse the application of Act, 1963 to Section 11 of Act, 1996 (i.e. application of limitation act to initiate arbitration) whereas the second part would analyse the application of Act, 1963 to Section 34 of Act, 1996 (i.e. application of limitation act to set aside or challenge an arbitral award in a Court of law). There is a fundamental difference between Section 11 and Section 34 of Act, 1996. Section 34 provides for an exclusive statutory time limit whereas Section 11 does not provide for any such time limit. 2. Application of Act, 1963 to Section 11 of Act, 1996. a. A primer on Section 11 of Act, 1996 and the current position of law. Section 11 provides for the procedure to initiate arbitration. It can further be divided into two issues. The first issue is relating to an application to Court to appoint an arbitrator and the other being an issue of claim to a cause of action. For the first issue, the limitation period begins from the date of refusal to appoint an arbitrator by the other party or on expiry of thirty days, whichever is earlier. Moreover, for the second issue, the period of limitation begins from the “Cause of Action”. In the case of Bharat Sanchar Nigam Limited v. M/s Nortel Networks India Pvt. Ltd., the Court held that both of the above issues should not be time-barred to allow an application under Section 11. Consequently, in the above case, the first issue was within limitation but as the second issue (i.e. Cause of Action) was barred by limitation, the application of Section 11, of Act, 1996 was denied. When does a “cause of action” arise? The Supreme Court (SC) in the case of Grasim Industries v. State of Kerala has held that the provisions of Art. 137 of the Act, 1963 would apply to the Act, 1996. Any application under Section 11 of the Act, 1996 should be initiated within three years from the date when the cause of action arose. Article 137 of the Act, 1963 provides for an outer time limit of three years from the time the “right to apply accrues” to applications for which no exclusive time period of limitation is provided elsewhere in the Division of Act, 1963. As, Section 11 of Act, 1996 did not have any specific mention in the division, consequently, Article 137 of Act, 1963 was applied. Now, the question arises what is the cause of action under arbitration law? The Supreme Court in the case of State of Orissa v. Damodar Das observed that “cause of action” under Arbitration law is treated to be similar to those of civil suitsand generally arises when there is a dispute. Further, in the case of Major (Retd.) Inder Singh Rekhi v. Delhi Development Authority, the Supreme Court held that the dispute can be said to arise only when “a claim is asserted by one party and denied by the other on whatever grounds. Mere failure or inaction to pay does not lead to the inference of the existence of dispute. Dispute entails a positive element and assertion of denying, not merely inaction to accede to a claim or a request.” The Courts have also inclined to hold that the “cause of action” arises when the final bill handed over to the other party became due. However, where final bills have not been prepared, the Courts have held that the cause of action arises when- · There was an assertion of claim yet there was no payment. · the notice demanding the disputed amount remains unanswered · There is a clear and unequivocal denial of that right asserted by the other party in a notice. The Supreme Court has held that a party cannot postpone the accrual of a cause of action by writing or sending reminders. However, if the parties are in constant negotiation in some specific matters, certain exceptions were seen to be made. In the case of Hari Shankar Singhania & Ors vs Gaur Hari Singhania & Ors., the Supreme Court held that certain exceptions can be made in the case of family settlement. The Court differentiated a family settlement from a commercial settlement as the former results in peace and goodwill among the family members. The Court held that the well-being of a family is to be considered of prime importance. The process of arbitration would begin only when a dispute cannot be settled by conciliation. Consequently, if the parties are in dialogue even after the disputes have appeared, the limitation under Article 137 of Act 1963 cannot be considered to have commenced. Hence, a narrow approach was provided to the application of Article 137 of Act 1963 to Act, 1996 in case of family disputes. b. What is the current settled position? The above discussion suggests that the point of law on the application of Act, 1963 to Act, 1996 is not clear. Moreover, in the recent case of Geo Miller v. Rajasthan Vidyut Nigam Court had an opportunity to deal with similar issues. The judgment to the above issues are as follows What is the time limit for application for appointment of an Arbitrator under 11(6) of Act, 1996? The Court held that by application of Article 137 to the Act 1963, the limitation period for a reference of a dispute to arbitration or to appoint an arbitrator under Section 11 of Act, 1996 is three years from the date on which the cause of action or the claim which is required to be arbitrated first arise. Further, mere interaction between the parties in the form of letters or reminders will not extend the statute of limitations. What is the “cause of action” to determine the beginning of the time limit under the Act, 1963? The Courts were inclined to hold that the “cause of action” arises when the final bill became due. However, after perusing the decision of Major (Retd.) Inder Singh Rekhi and Hari Shankar Singhania the Court made an interesting observation. It held that- “Having perused through the relevant precedents, we agree that on a certain set of facts and circumstances, the period during which the parties were bona fide negotiating towards an amicable settlement may be excluded for the purpose of computing the period of limitation for reference to arbitration under the 1996 Act. However, in such cases the entire negotiation history between the parties must be specifically pleaded and placed on the record. The Court upon careful consideration of such history must find out what was the ‘breaking point’ at which any reasonable party would have abandoned efforts at arriving at a settlement and contemplated referral of the dispute for arbitration. This ‘breaking point’ would then be treated as the date on which the cause of action arises, for the purpose of limitation. The threshold for determining when such a point arises will be lower in the case of commercial disputes, where the party’s primary interest is in securing the payment due to them, than in family disputes where it may be said that the parties have a greater stake in settling the dispute amicably, and therefore delaying formal adjudication of the claim.” An analysis of the Geo-Miller judgment. An analysis of the Geo Miller judgment would suggest to us that Court has moved away from a strict interpretation of “cause of action”. In earlier decisions, the act of negotiation delayed the beginning of “cause of action” only in family settlements. However, after the Geo Miller judgment, negotiation can also delay the beginning of the time period in commercial matters to compute limitation. However, the Court did introduce the caveat of “breaking point” during the negotiations which would mark the beginning of the limitation period. Moreover, the threshold of the “breaking point” would be lower in commercial disputes than in the case of family settlements. The Author believes that Geo Miller’s judgement would allow more time for settlement of dispute via negotiation but it would also make the determination of “cause of action” more subjective and confusing. 3. Application of Act, 1963 to Section 34 of Act, 1996. a. A primer on Section 34, of Act, 1996 and current position of law. The second part of the Article discusses the application of Act, 1963 to challenge and finally set aside an arbitral award under Section 34 of Act, 1996. Hence, this part would discuss the application of Act, 1963 to Act, 1996 after an award is delivered. Section 34 of Act, 1996 provides that any party to an arbitral award can take recourse to a Court to set aside the same award if any of the conditions mentioned under Section 34(2) of Act, 1996 is satisfied. Further, Section 34 (3) of Act, 1996 provides that- “An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal: Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter.” It can be observed that Section 34(3) of Act, 1996 prescribes an outer time limit of three months from the date on which the party challenging the arbitral award received the award or, from the date on which the request under Section 33 of Act, 1996 is answered. The proviso to the above section allows an additional thirty days to challenge the arbitral award but only if the Court is satisfied. In the above context of Section 34 (3) of Act, 1996 it is pertinent to refer the Section 29 (2) of the Act, 1963 which provides that if any special law provides for a period of limitation distinct from the time-limit prescribed under the Act, 1963, then the time limit prescribed under the special act would apply and provisions under Sections 4 to 24 of the Act, 1963 apply only in so far as they are not excluded by the special law. Section 4 to 24 of Act, 1963 mostly provides for exclusion of certain time-period in the computation of the period of limitation. The Courts have observed that Act, 1996 is a special Law. b. Application of Section 5 of Act, 1963 to Act, 1996. The SC in the case of UOI v. Popular Construction was asked to determine whether Section 5 of the Act, 1963 apply to an application contesting an award filed under Section 34 of the Act, 1996. The Court held that the 1996 Act is a 'special law' as required under Section 29 (2) of Act, 1963 and that Section 34 of Act, 1996 provides for a period of limitation distinct from the Limitation Act. Further, the Court noticed that proviso to Section 34(3) of the Act 1996 contain the words 'but not thereafter' and observed that this phrase would amount to an express exclusion within the meaning of Section 29(2) of the Act 1963. Furthermore, the Court held that to consider an application to set aside the Award beyond the proviso's extended timeframe would render the words 'but not thereafter' completely meaningless. Analysis of the above judgment. The quick and timely execution of arbitral awards is essential to give complete effect and strength to arbitration laws in any country. The Court discarding the application of Section 5 of Act, 1963 helps in quick disposal of arbitral awards in three ways. Firstly, it creates certainty in determining the period of limitation as an application of Section 5 of Act, 1963 may lead to a situation where the beginning of the time period would be different from what is statutorily provided under Section 34(3) of Act, 1996 (i.e. from receive of arbitral award or disposal of the request under Section 33.). Secondly, the non-application is in consonance with Section 34(3) of Act, 1996. Thirdly, it helps in making arbitration a quick and efficacious remedy. c. Application of Section 14 of Act, 1963 to Act, 1996. Section 14 of the Act, 1963 allows for the exclusion of time spent in bona fide proceedings in a Court sans jurisdiction to compute the limitation period. The SC in the case of Consolidated Engineering Enterprises vs Principal Secretary Irrigation Department was asked to determine whether Section 14 of Act, 1963 would apply to an application submitted under Section 34 of Act, 1996. Section 14(2) of Act, 1963 provides that “In computing the period of limitation for any application, the time during which the applicant has been prosecuting with due diligence another civil proceeding, whether in a court of first instance or of appeal or revision, against the same party for the same relief shall be excluded, where such proceeding is prosecuted in good faith in a court which, from defect of jurisdiction or other cause of a like nature, is unable to entertain it.” The Court began by observing that it would be preposterous to assume that just because Section 5 of Act, 1963 does not apply to Act, 1996, it would suo-moto result in non-application of Section 14, Act 1963 to Act, 1996. The Court further went to interpret Section 14 of Act, 1963 and held that a justice-oriented approach is to be taken than an approach that aborts the proceedings. Further, no provisions in the Act, 1996 expressly or impliedly prevent the application of Section 14 of the Act, 1963. On the contrary, the Court held that Section 43(4) of Act, 1996 encourages the application of Section 14 of Act, 1963 as the former section allows exclusion of the time period between the commencement of the arbitration proceedings and the date in which the award is set aside in computing the limitation period for initiating any proceeding with respect to the dispute. Analysis of the above judgment. The author believes that the SC was correct in applying Section 14 of Act, 1963 to Act, 1996 as the application doesn’t provide for a new period of limitation but only provides for exclusion of a certain period that is wasted in the Court of wrong jurisdiction. This doesn’t create any uncertainty in determining the period of limitation. The period of limitation still begins from as statutorily mentioned under Section 34 (3) of Act, 1996. Further, Section 34 (3) provides for a strict timeline of 90 days with a further extension of 30 days on approval of Court and there may be genuine cases where parties may wrongfully approach a Court with different jurisdiction due to confusion to set aside an arbitral award under Section 34 of Act, 1996. A blanket non-application of Section 14 of Act, 1963 would lead to the washing away of rights of the parties without any substantive wrongdoing on the part of parties. d. Application of Section 18 of Act 1963 to Act, 1996. In the case of P. Radha Bai v. P. Ashok Kumar the SC was asked to determine whether Section 17 of Act, 1963 would be applicable in computing the period of limitation under Section 34(3) of the Arbitration Act? Section 17 of the Act, 1963 provides that where any fraudulent act has been committed by any person and consequently the plaintiff or the applicant is restricted from establishing his right, the time period for the purpose of limitation would only begin to run when the plaintiff or applicant has discovered the fraud or could, with reasonable diligence would have discovered it. The Court referred to the case of Hukumdev Narain Dev v. Lalit Narain Mishra wherein it was observed that an express exclusion of Section 4 to 24 of Act, 1963 is not required to be made under the Special act and an implied exclusion would suffice. Further, the implied exclusion has to be determined from the scheme, subject matter and object of Special law. Therefore, the Court in the P. Radha Bai case went on to analyze the implication of application of Section 17 of Act, 1963 to Section 34(3) of Act, 1996 and also the characteristics of the above Sections. The Court started by observing that Section 17 of Act, 1963 neither extends nor breaks the limitation period. It delays or postpones the start of the limitation period which is evident from the use of the statement "the period of limitation shall not begin to run". Subsequently, the Court provided the characteristics of Section 34 of Act, 1996. It observed that 1. The phrase "may not be made" used in Section 34(3) has to be interpreted to mean "cannot be made". 2. The use of the phrase "but not thereafter" in the proviso to Section 34(3) of Act 1996 showcases the legislative intent not to allow any period beyond the time limit mentioned or else the phrase would become otiose. 3. The period to enforce the award under Section 36 of Act 1996 begins once the time limit to challenge the award under Section 34 of Act, 1996 expires. Moreover, if Section 17 of Act 1996 were to be used to calculate the limitation period under Section 34(3), the date of discovery of the alleged fraud or error would be the beginning of the limitation period. It would result in a different starting point of limitation than provided under Section 34 (3) of Act, 1996 and would result in undermining of the Special Law. Analysis of the above judgment. Dr. Peter Binder in International Commercial Arbitration and Conciliation in UNCITRAL Model Law Jurisdiction had observed that the period to challenge and set aside an arbitral award should be an “unbreakable time” for sake of “certainty and expediency”. Hence, “time” and “certainty” were always considered to be a sine qua non for an efficient arbitral system. The author believes that SC was correct in discarding the application of Section 17, of Act 1963 to Act 1996 in three ways. Firstly, it creates certainty in the commencement of the limitation period. Secondly, it is in consonance with Section 34(3), Act 1996 which statutorily recognizes a beginning time period of limitation. Thirdly, it is in consonance with the reasoning of SC’s other judgments like Consolidated Engineering Enterprises vs Principal Secretary Irrigation Department and UOI v. Popular Construction. 4. Conclusion The SC has provided a time limit of three years to approach the Court to initiate arbitration. However, it can be observed from the above cases that “time is of the essence” for the cases under Arbitration. Consequently, a time limit of three years seems a bit too long to resurrect a dispute. This flaw or deficiency has also been pointed out by SC in the case of Bharat Sanchar Nigam Limited v. M/s Nortel Networks India Pvt. Ltd.Further, the concept of “breaking point” also adds to the ambiguity and subjectivity of the provision. Hence, it can be concluded that Section 11 of Act, 1996 has some flaws and should be rectified by the legislature. However, analysis of the second part or application of Act, 1963 to Section 34 of Act, 1996 suggests that the SC has been moving in the right direction and the point of law is clear and without any ambiguity. *Arpit Sarangi, final year student of Hidayatullah National Law University, firstname.lastname@example.org.  Civil Appeal No. 843-844 of 2021  (2018) 14 SCC 265  Article 137, The Limitation Act, 1963.  State of Orisaa v. Damodar Das, (1996) 2 SCC 216.  Major (Retd.) Inder Singh Rekhi v. Delhi Development Authority 1988 AIR 1007  Ibid.  Ibid.  SAIL v. JC Budharaja, 1999 AIR (SC) 3275  Supra 3.  Supra 5.  Hari Shankar Singhania & Ors vs Gaur Hari Singhania & Ors., (2006) 4 SCC 658.  2019 SCC OnLine SC 1137  Supra 6.  Supra 12.  Section 34 (3), Arbitration and Conciliation Act, 1996  Section 29(2), The Limitation Act, 1963.  UOI v. Popular Construction, (2001) 8 SCC 470  (2001) 8 SCC 470  Ibid.  Ibid.  (2008) 7 SCC 169  Section 14(2), The Limitation Act, 1963.  Supra 22.  Ibid.  AIR 2018 SC 5013  Section 17, The Limitation Act, 1963  1974 2 SCC 133  Supra 26.  Ibid.  Supra 2
- Interview with Mr. Peter Ashford, Partner at Fox Williams LLP
Mr. Ashford, welcome to the Arbitration Workshop! Firstly, we are highly honoured to have you agree to give us your interview. Secondly, we appreciate your initiative to share your perspective with our readers. Q. Before we delve in, may we request you to kindly introduce yourself and tell us about the origins of your interest in the field of arbitration? A. I am a Partner and the Co-Head of International Arbitration at Fox Williams LLP. I was formerly a disputes partner at the firm now known as Cripps Pemberton Greenish. I am a Fellow of the Chartered Institute of Arbitrators. I am regularly appointed as arbitrator alongside my practice as counsel and I have current appointments in ICC, LCIA and LCAM arbitrations. I have been working in international arbitration for around 20 years, before which I was a general commercial litigator doing a fair amount of domestic arbitration. I am a widely published author, commentator and lecturer, including the Handbook on International Commercial Arbitration published by Juris Publishing of New York in 2014; the Guide to the IBA Rules on the Taking of Evidence in International Arbitration and the Guide to the IBA Guidelines on Party Representation in International Arbitration, both published by Cambridge University Press in early 2013 and mid-2016 respectively. I am writing A Guide to the IBA Guidelines on Conflict of Interest in International Arbitration, with publication anticipated in 2022. Q. What discernible trends in commercial and investment arbitration do you see emerging due to the COVID-19 pandemic? What considerations do you think future Claimants should take into due notice before initiating arbitrations? A. The pandemic has affected us all but whatever deprivations we have each suffered, the pandemic has changed, and possibly for the better, arbitration procedure. The pandemic has shown the arbitration community that life can go on much as it did before albeit with virtual, rather than in-person, conferences and hearings. After an initial thought of whether hearings could simply be adjourned until ‘better times’ it became apparent that these better times were some way off and we ought simply to get on with things. I think these changes reflect a permanent shift in the way that things are done and will influence how we do things long after the pandemic. That is not to say that we will remain as we are doing nearly everything virtually. Equally, we will not go back to doing everything in-person: the best of both will be retained. Time zones have been a relatively minor issue. Advance thought needs to be given to local times for all participants. The most extreme example I have experienced has been a 13-hour time difference between participants on an evidentiary hearing but in the end it worked well. The fundamental thing for Claimants remains that they must have confidence that they are pursuing a respondent that will be able to meet any award, or substantial part of it. That has only become a more important factor in light of the pandemic when the fortunes of companies have either improved or deteriorated depending on their sector and other factors. Q. How important do you think it is to arrest arbitrator bias? How are you advising your clients to arrest arbitrator bias in light of Halliburton v Chubb? A. It is a fundamental issue. Justice must not only be done, it must be seen to be done. Of course, we very rarely see, or even suspect, actual bias, it is apparent bias that invariably is the issue. The word ‘biased’, has, in other contexts, a far more pejorative connotation, but we use it to mean an absence of demonstrated independence or impartiality (Yiacoub v The Queen  UKPC 22). The objective is to exclude any legitimate doubt as to the tribunal's independence and impartiality. The key to this is enquiry and disclosure: the parties must tell the arbitrator about themselves, their counsel, witnesses, experts and perhaps funders or others with a financial interest. The arbitrator must then make all appropriate enquiries and make consequential disclosures. If conducted properly, this exercise should bring everything into the sunlight and permit the parties to decide whether to accept the position, or whether to object. Q. In India, the Indian Arbitration Act, 1996 addresses issues of arbitrator bias in two schedules 5 and 7 – if the situation is caught under the ambit of schedule 7, then that would lead to an automatic exclusion of the impugned arbitrator. On the other hand, if it comes under the purview of schedule 5, then there would be a challenge proceeding before the tribunal etc. Internationally, do you think a similar system must be put in place either in UNCITRAL Model Law or a similar instrument that is not soft law (IBA) to combat the issue of arbitrator bias? A. I would hope that the international arbitration community can get its own house in order without the need for legislation or other hard law. Consent is fundamental, if the parties are happy with an arbitrator who, whilst impartial, is not, say, independent, then that is a matter entirely for them: a village elder is a classic example and works well as everyone knows that the village elder has connections and relationships such that he (or she) cannot claim to be independent but the parties trust the impartiality. In England, Halliburton and another case, Newcastle United Football, have dented my confidence that we are sorting this out properly. There is no doubt that the arbitrators in Halliburton and Newcastle did things that ought not to have been done. All courts found as much. Yet both arbitrators were able to continue, their behaviour criticised and yet forgiven by the courts. A large part of that forgiveness was centred on their repute – there was confidence that they would render a fair decision in the end. That is simply not good enough if justice must be seen to be done as we cannot look inside the minds of an arbitrator to see what might have, subconsciously, affected the decision and/or the decision-making process. I prefer the approach in Almazeedi: non-disclosure is a flaw in an arbitrator’s independence which makes him unsuitable – it is that simple. It must be recalled that bias is the absence of demonstrable independence – by failing to make the disclosures that they were obliged to make, the arbitrators failed to demonstrate the very independence that was required of them. At the very least, there was an asymmetry of information such that the party with less information may always feel aggrieved. Q. What is your take on third-party funding in commercial arbitration? Do you think third-party funders should be joined to arbitration proceedings given their alleged influence on arbitration proceedings? A. Funding is inevitable and may well see an uptick in light of the pandemic. Claimants will see the benefit of de-risking and taking off balance sheet the costs and risks of the dispute. Claimants will use funding for that process especially when funding arbitrations themselves will divert valuable resources from the recovery post-pandemic. It should not be forgotten however, that funding is not a panacea: it is very expensive money and a well-resourced and capitalised company may well choose to either fund itself or take one of the very many insurance products that are available and which can achieve much the same result with a lower cost. No, I don’t think that funders should be parties, they are strangers to the underlying contract under which the dispute has arisen. The parties have not agreed to arbitrate with a funder who has come into the dispute at a relatively late stage. Some solution may need to be crafted to ensure that a funder of an unsuccessful claimant might be held responsible for costs but there are other routes to do that. Q. Commercial arbitration entails strict adherence to the contract, however, there might be occasions wherein specific terms of the contract are unconscionable or not in line with the Contract law of the country. How do you deal with such clauses in arbitrations where the tribunal itself is a feature of the contract and might not be inclined to decide the dispute dehors the provisions of the contract itself? A. A lot will depend on the governing law. English law, for example, has a key characteristic that the courts will normally uphold what the parties agreed, subject to some basic principles of contract. For example, in the classic Monday/Friday case of The Laconia, the hire fell due on a Sunday; so, the charterer paid on Monday. The money was sent back and the ship repossessed on Monday. The hire was payable in advance so it should have been paid on Friday. It was held by the House of Lords that the shipowner was entitled to repossess. That gives certainty and predictability even if the result can appear harsh. Those same consistent results do not seem to be available in the case of, say, French, German or even New York law. They all have statutory overrides for ‘good faith’ and to override their disclaimers. French contract reforms from 2016 require parties to disclose any information that is ‘essential’ for the other contracting part. In the US, juries impose their own idea of fairness. However, if parties wish the deal that they negotiated to be upheld, then the English courts will normally honour that objective, an objective that the courts consider to be not unreasonable between commercial parties in their business dealings in the absence of some manifest vitiating factor. If parties choosing English law prefer that good faith should apply in their contract to potentially override its terms, then they can insert a good faith clause and other provisions for mediation, cooling-off, grace periods, notices of action and the like. The English courts respect good faith clauses: the difference is that in the case of English law, it is the parties themselves who are trusted to decide the ideology. Q. Most Commercial arbitrations would deal with the contract between the parties and extensive evidence including letters and other related communications written to each other during the execution of contracts. How necessary do you believe oral evidence is in such commercial arbitrations? A. Far less than we probably imagine. In England April 2021 saw the implementation of the recommendations of the Witness Evidence Working Group (reporting to the Business and Property Courts Board) with a radical approach to the gathering and content of witness evidence. In 2020 the ICC Commission reported on The Accuracy of Fact Witness Memory in International Arbitration and cautioned the reliability of witness evidence and made recommendations for the future. The general point is that, assuming that they are not forgeries, the documents do not lie. They might not tell the whole story and may need some supplementation by oral testimony, but they are generally the most reliable source of the truth. The most famous critique of witness evidence is that of Leggatt J (as he then was) in Gestim v Credit Suisse. Leggatt J said the following about the approach to witness evidence: “…place little if any reliance at all on witnesses’ recollections of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts.” Witness Statements are, at least supposed to be, a reflection of the witness’ recollection or memory of the events that they can speak to. That is often not the case, rather they were lawyer crafted aspirational accounts of what the lawyers would like the witness to say. We lawyers ensure that the witnesses speak to events about which they might never have been involved and, even if they were, have little or no recollection of. The result was overly long, largely inadmissible accounts where the witness appeared to recall events with the utmost clarity. With that criticism, it is nevertheless important that there is a forum for the party to put over its case and tell its story to the tribunal. The witness statement is a convenient place for that to happen but the two purposes need to be borne carefully in mind. Q. The (Indian) Arbitration and Conciliation Act, 1996 has a provision on the settlement between the parties, which encourages the arbitrators to attempt settlement of the matter between the parties and if the parties come to a consensus, a consent award is passed. As a Lawyer, how do you advise your clients regarding their options to settle the matter prior to initiating or during the arbitration? Are such negotiated settlements a realistic option in high-profile arbitrations? A. Arbitrators are wary of entering into the settlement arena for fear of being accused of pre-judging and hence appearing to be biased. Some laws, as you point out, expressly permit or encourage the tribunal to descend into the settlement arena, but absent that, most arbitrators will avoid any participation in settlement discussions. They may ask the parties whether they have or wish to discuss settlement but will rarely go further than that and will certainly not be involved in settlement discussions. The settlement rate in international arbitration is lower than in many domestic disputes before national courts. Quite why that is, is not clear but I suggest two causes: firstly, the amounts involved can be very large and the costs a relatively small proportion and hence it is worth, ‘rolling the dice’ to try and get a win. Secondly, there are cultural barriers and parties do not know how to broach settlement when there may be language barriers and different approached to without prejudice discussions. More work needs to be done in this area and it may be that a specialist type of mediator, experienced in international arbitration, needs to come to the fore. Q. Are there any specifics of arbitral practices that you particularly enjoy? What practices do you employ to engage and keep up with the recent trends in arbitration? Is there any particular practice you would recommend young lawyers to regularly engage in to become better in the field? A. I love a good Redfern Schedule! As counsel it permits written advocacy outside of pleadings or memorials and it gives a chance to summarise your case (and your opponent’s) in a less formal environment and to request or resist documents based on what is truly in dispute. As the question acknowledges, there is always something new in international arbitration. There is no substitute to having a voracious appetite for reading, reflecting on and debating current issues. Those debates do not have to be formal and chatting with a colleague over a coffee can be very informative. My top tip would be get your narrative right and get it simple: ideally capable of expression in 3 sentences. We start off in the law thinking that the law reports will have all the answers. But the biggest task of a disputes lawyer is to take the information from the client and turn it into a persuasive narrative. Everything else is easy. Practice and practice that skill. You can start by describing your home, family or holiday. If you can master that 3 sentence narrative, try explaining a case you are working on in that way and build from there. Q. What would be your word of advice to the readers trying to make a name for themselves in the transnational practice of international arbitration? What books are a part of your library that is a must-have for a commercial arbitration practitioner (Counsel and Arbitrator)? A. There will be no substitute for hard work and challenging or critical thinking: do not accept the orthodoxy - it might not be right. Try and be as international as possible and do not expect your domestic norms to be carried over into international practice. The answer should be the most efficient way that something can be done, not what has been done before. Needless to say, all of my own books are on my shelf! But probably don’t get too constrained by what others say. By all means look at what, say, Gary Born has to say on a particular subject. Then consider whether you agree and why. The wonderful thing about international arbitration is that in many things there is no doctrine of precedent and your tribunal can probably do what it likes. The Editorial Team at the Arbitration Workshop would like to thank Mr. Peter Ashford for taking out time from his busy schedule and for sharing his perspectives with us!
- Supreme Court of India resolves the ‘venue’/‘seat’ of arbitration conundrum
-Harshvardhan Tripathi* India has witnessed a rapid evolution in the judicial opinion on the choice of ‘seat’/ ‘venue' of arbitration in recent times. The conceptual distinction between the ‘seat’ and the ‘venue’ is of immense importance and has implications for both, international commercial arbitration and domestic arbitration based in India. Most importantly, the choice of a ‘seat’ of arbitration provides exclusive jurisdiction to the Courts of the seat to regulate the arbitral proceedings arising out of the agreement between the parties. On the other hand, the choice of a venue has no such legal consequence and is merely a convenient place for the stakeholders to meet and conduct the arbitral proceedings. The venue can be changed as per the convenience of the parties and has no legal impact on the arbitration or the court proceedings arising out of it. Jurisprudential Development in seat vs venue debate so far The Arbitration and Conciliation Act, 1996 (‘Act’) uses the word ‘place’ of arbitration instead of ‘seat’ or ‘venue’ of the arbitration. Section 20 of the Act provides that either the parties can choose the place of arbitration mutually, in which case it would fall under Section 20(1) of the Act, or otherwise the Arbitral Tribunal can determine the place of arbitration under Article 20(2). In the same vein, the parties can choose a convenient place for holding arbitration proceedings as per Article 20(3) of the Act. Even though ‘seat’ and ‘venue’ have not been incorporated explicitly in the Act, the Supreme Court of India (‘SC’) in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services, Inc., (‘BALCO’) held the ‘place’ mentioned in Section 20(2) refers to the seat of arbitration, and in Section 20(3) refers to the venue of the Arbitration.In order to bring clarity and align the Act in line with BALCO, the Law Commission of India in its 246th Report suggested substituting ‘place’ in Section 20(2) with seat and with ‘venue in Section 20(3). However, these changes were not implemented in the 2015 Amendment and the statute still does not make an explicit reference to the ‘seat’and‘venue’ of arbitration. Although ‘seat’ and ‘venue’ have not been actively legislated upon, these concepts have been discussed and developed significantly by the Courts in India. For the purpose of this article, the key development in the seat vs venue conundrum in the context of domestic arbitration in India are discussed below In the 2017 decision of Indus Mobile Distribution Private Ltd v. Datawind Innovations Private & Ors (‘Indus Mobile’) the SC transplanted the international concept of ‘seat’ of arbitration in the context of domestic arbitration and ruled that if the arbitration clause confers exclusive jurisdiction upon the Courts of a particular city/state it is tantamount to designating that place as the ‘seat’ of arbitration and Courts of only that city/state will have the supervisor power over the conduct of the arbitration proceedings and provide relief. Principles laid down by the England and Wales High Court in Shashoua v Sharma were incorporated by the SC in the 2017 decision of Roger Shashoua & Ors v Mukesh Sharma, (‘Roger Shashoua’). The main principles that emerge out of Roger Shashoua are 1. The venue of arbitration is not automatically the same as the seat of arbitration. 2. The exception to (1) is a situation when the arbitration agreement defines the ‘venue’ of arbitration and mentions the supranational body of rules governing the arbitration without designating a seat explicitly. In such a scenario, if there are no other significant contrary indicia i.e. any information that leads to the opposite conclusion, then the venue of the arbitration is actually the seat of arbitration. The Courts have to analyze this issue based on the facts of each case. In the 2018 ruling of the Union of India v. Hardy Exploration and Production (India) Inc., (‘Hardy Exploration’) a three-judge bench of the SC laid down the following principle of determining the seat of arbitration 1. The venue of arbitration is not automatically the same as the seat of arbitration However if a concomitant factor is added to the venue, only then can the venue be equivalent to the seat of arbitration (‘concomitant factor test’). 2. If the arbitration agreement mentions the ‘place’ of arbitration, that in itself is not sufficient to consider it equivalent to the seat of arbitration. The presence of any contrary evidence would lead to the place not being the same as the seat of arbitration. 3. If the arbitration agreement mentions a condition precedent in connection to the place of arbitration, then the condition must be satisfied and only then can the place of arbitration be the same as the seat. In the 2019 decision of Brahmani River Pellets v. Kamachi Industries, (‘Brahmani’), the SC blurred the distinction between seat and venue as laid down in BALCO and held that merely specifying the venue of arbitration is sufficient to infer that the parties also intended to designate the venue as the seat of arbitration. Brahmani ignored the concomitant factor test of Hardy Exploration and simply equated the venue with the seat of arbitration. This question was revisited by the three-bench judge bench of SC in BGS SGS SOMA JV v NHPC Ltd., (‘BGS’). In BGS, the Court further developed the Roger Shashuatest and held that ‘venue’ of arbitration can also be the seat of arbitration if : 1. The seat of arbitration has not been designated in the arbitration agreement, and; 2. There is an express designation of ‘venue’ in the arbitration agreement combined with a supranational body of rules governing arbitration, and; 3. There are no significant contrary indicia The Court held that intention of the parties with respect to choosing a place as the seat of arbitration is to be gathered from the language of the arbitration agreement. BGS declared that Hardy Exploration was not in line with the 5 judge bench decision in BALCO, and therefore it was not good in law. In 2020, A three-judge bench of the SC in Mankastu Impex Pvt. Ltd. v. Airvisual Ltd., (‘Mankastu’)again aligned the reasoning with the concomitant factor test inHardy Exploration and held that place of arbitration does not automatically refer to the seat of arbitration. The Court has to gather the intention of the parties in connection to the seat of arbitration from a holistic reading of the arbitration agreement. In addition to the arbitration agreement, the conduct of the parties is also to be considered. The conundrum surrounding the seat/venue of the arbitration resurfaced recently in the context of domestic arbitration in M/s Inox Renewables Ltd v Jayesh Electricals Ltd.(“Inox”) (2021), where the division bench of the Supreme Court of India found that when the parties decided to shift the venue mentioned in the arbitration agreement from Jaipur to Ahmedabad through a mutual consensus, they intended the new ‘venue’ to in fact be the ‘seat’ of arbitration and not a mere ‘venue’. Therefore, the Courts of the ‘seat’ i.e. Ahmadabad will have exclusive jurisdiction to deal with the Section 34 application filed by M/s. Inox Renewables Ltd. (“Appellant”). Background Facts: The first contract was a purchase order agreement’ (“POA”) entered between M/s Gujarat Fluorochemicals Ltd. [“GFL”] and Jayesh Electricals Ltd. [“Respondent”] in 2012 for the manufacture and supply of power transformers at wind farms. The purchase order contained an arbitration clause that specified Jaipur as the venue for Arbitration and courts in Rajasthan to have exclusive jurisdiction to supervise the arbitration proceedings. However, in 2012 GFL transferred its entire business to the Appellant through a ‘business transfer agreement’ (“BTA”), to which the Respondent was not a party. This second agreement between GFL and Appellant fixed Vadodra as the seat of arbitration and gave exclusive jurisdiction to Courts in Vadodra. Procedural History: When the dispute between the appellant and respondent arose, the respondent approached the Gujarat High Court under Section 11 of the Indian Arbitration and Conciliation Act, 1996 (“Act”) for the appointment of an arbitrator. Accepting the request, the Gujarat High Court appointed a retired judge of the Gujarat High Court as the sole arbitrator. The arbitrator passed the award in 2018 in favour of the respondent. Aggrieved by the findings of the award, the appellant filed a Section 34 petition in Ahmedabad to set aside the award passed by the sole arbitrator. The Commercial Court of Ahmedabad held that it did not have the jurisdiction to entertain the Section 34 application because the arbitration clause in the BTA vests the Courts of Vadodara with the exclusive jurisdiction. The Appellant filed an appeal in the Gujarat High Court against this decision. The division bench of the High Court opined that the Commercial Court of Ahmedabad had erred by looking at the arbitration clause in the BTA. As mentioned before, the respondent was not a party to the BTA, and therefore the Commercial Court should have looked at the arbitration clause in the POA instead of the BTA. After pointing this out, the High Court held that the Courts of Rajasthan have been vested with the exclusive jurisdiction as per the arbitration clause in the POA. Therefore, the High Court dismissed the application filed by the appellant. Appeal against this decision came before the division bench comprising J Nariman and J Hrishikesh Roy. Reasoning: The Apex Court first looked at the observation made by the arbitrator in para 12.3 of the award with respect to the venue/place of the arbitration: “ 12.3 . . . However, the parties have mutually agreed, irrespective of a specific clause as to the [venue, that the place] of the arbitration would be at Ahmedabad and not at Jaipur. The proceedings, thus, have been conducted at Ahmedabad on the constitution of the Tribunal by the learned Nominee Judge of the Hon’ble High Court of Gujarat.”(Emphasis applied) It concluded that “by mutual agreement, parties have specifically shifted the venue/ place of arbitration from Jaipur to Ahmedabad.” Reaffirmation of the principle expounded in BSG SGS Soma The Supreme Court heavily relied on its previous decision in BGS SGS, wherein it was held that in the absence of any “significant contrary indicia” (i.e. significant contrary information), if the arbitration agreement names a place as a venue of arbitration, it is indicative of the parties intention to anchor the proceedings in that place and make it the seat of arbitration. In Inox, such contrary indicia was absent and there existed evidence of the positive intention of the party to designate Ahmedabad as the seat of arbitration: 1. The parties approached the Gujarat High Court for the appointment of the Sole arbitrator, which indicates that the parties had mutually formed the intention to override the exclusive jurisdiction clause in the arbitration agreement to make Ahmedabad the status of the seat of arbitration. 2. The arbitrator’s finding recorded the finding that the unequivocal intention of the parties was to shift the ‘seat’ of the arbitration from Jaipur to Ahmedabad through mutual consent. This finding was not objected to by the Respondent at that stage. Besides the finding, the conduct of the parties reveals that Ahmedabad was not merely a convenient venue for holding a few proceedings. The parties consciously novated their choice of seat. 3. The award was passed at Ahmedabad and was accordingly recorded in the arbitration award as the place of pronouncement and delivery of the award. Following the rule in BGS SGS, the Court reached the correct inference that in this case, Ahmedabad displayed attributes of the ‘seat’ of the arbitration and not merely the ‘venue’, and this was in fact intended by the parties through their mutual consent. It is appreciable that the Apex Court did not adopt a literal interpretation of the arbitration clause like the Gujarat High Court, and rather paid attention to the intention that the parties expressed in choosing to make Ahmedabad the new seat for arbitration through mutual consent. Applying the Concomitant factors test to the facts of Inox Before Inox, there seems to be developing two distinct lines of judicial opinion in determining the seat of arbitration: one line follows the principle in Roger Shahshua as consolidated in BGS SGS and believes that venue of the arbitration can also be the seat if there are no significant contrary indicia, and the other line of judicial opinion favours the concomitant factor test of Hardy Exploration along with the addition made by Mankatsu to it. Inox has clearly chosen to follow the BGS SGS line of judicial opinion. However, it would be instructive from an academic perspective to apply the contrasting approach in Hardy Exploration to inspect how it might have affected the Court’s conclusion in Inox. The Apex Court had adopted a contrasting approach to BGS SGS in its three-judge bench decision of Union of India v. Hardy Exploration and Production (India) Inc. (“Hardy Exploration”) in 2018, wherein it had observed that the venue can become the seat of arbitration only if ‘something else is added to it as a concomitant’. Even though BGS SGS held Hardy Exploration to be contrary to Supreme Court’s ruling in BALCO, it cannot be said that Hardy Exploration has been overruled because of the equal bench strength in Hardy Exploration and BGS SGS. As held in the 2004 Supreme Court decision of five bench in Central Board of Dawoodi Bohra Community &Anr v. State of Maharashtra &Anr, a bench of coequal strength can only doubt the correctness of a previous bench of coequal strength, but cannot overrule it or hold a previous decision by such coequal bench to be per incurium. Until the question is finally settled by a bench of 5 judge strength, it cannot be conclusively said that Hardy Exploration has been overruled by BGS SGS. The ‘concomitant’ factors in favour of Ahmedabad were: 1. That the parties first approached the Gujarat High Court in Ahmedabad for the appointment of the arbitrator and expressed clear intent of designating Ahmedabad as the seat of the arbitration. 2. A similar intention was reiterated before the sole arbitrator and the same was recorded in the award. These factors also satisfy the test laid down in Mankatsu wherein the three-judge bench of SC followed Hardy Exploration’s dictum and held that the venue of arbitration does not automatically become its seat. The test in Mankatsu gave primacy to the intention of the parties which could be gathered from a holistic reading of the arbitration clause and considering the conduct of parties. Considering the chain of events holistically, the arbitration clause was novated. Even the conduct of the parties as evident from the above two points clearly indicates that the parties intended Ahmedabad to be the seat of arbitration. Can the seat of arbitration be shifted only through a written agreement? The Court in Inox correctly distinguished the instant fact scenario from the 2011 division bench decision of Videocon Industries Limited vs. Union of India & Anr.(“Videocon”). In Videocon, the arbitration agreement contained an amendment clause that allowed for amendment or modification of contract only through a written agreement between the parties. Giving heed to this explicit requirement imposed by the arbitration agreement, the Apex Court had held that if the parties wanted to amend the contract and change the seat of arbitration through mutual agreement, it could only be done when the agreement is recorded in writing. However as J Nariman aptly pointed out in Inox, the ruling in Videocon cannot be extended to those cases where a similar clause in the arbitration agreement mandating ‘amendment only through written agreement’ is absent. Hence, Videocon does not lay down the general principle of law that the place of arbitration can only be shifted through a written agreement, and is rather a fact-specific decision that has no applicability to the factual matrix in Inox. A surprising conversion of venue to the seat of arbitration? Although the decision in Inox lays down the correct law, it has not sufficiently dealt with an important facet highlighted by division bench of Delhi High Court in its 2019 ruling of Dwarika Projects Limited v. Superintending Engineer, Karnal, PWD (B&R), Haryana that ‘the parties cannot be taken by surprise and be told that the venue for arbitration had morphed into the juridical seat of arbitration.’ The arbitral tribunal should fix the jurisdictional seat of the arbitration only after deliberation with the parties involved. Can it then be said that the Respondent was not ad idem with the appellant and therefore was taken by surprise about Ahmedabad being the seat of the arbitration as opposed to a mere venue? It seems unlikely that the respondent was taken by surprise, because at the time of the appointment of the arbitrator, it had made joint submissions before the Gujarat High Court along with the appellant, and displayed consensus of making Ahmedabad both the seat and the venue of the arbitration. Thus, the respondent consciously novated the venue of arbitration specified in the purchase order, with a new choice of ‘seat’ through their express averments before the Court. Conclusion Litigation on the determination of the seat/venue conundrum is becoming increasingly rampant. This case highlights the need for the arbitration clauses to be drafted carefully and with precision. Arbitration clauses should specify the ‘seat’ and ‘venue’ of arbitration distinctly to ensure that the effectiveness and finality of the arbitration mechanism are not eclipsed by long-drawn litigation proceedings afterwards. Furthermore, clarity can be brought into Section 20 itself by implementing the suggestions of the 246th Law Commission of India Report. Usage of the word ‘Place’ has caused immense confusion and therefore to bring the Arbitration Act in line with the judicial interpretation, ‘place’ should be replaced with ‘seat’ in Section 20(2) and with ‘venue’ in Section 20(3). The Arbitral Tribunal can also play a pivotal role in this respect to reduce litigation on the vexed question of determining the seat/venue of arbitration. Similar to Inox, wherein the Sole Arbitrator recorded the intention of the parties to affix Ahmedabad with the status of the seat in the Arbitral Award itself, Arbitral Tribunals in other proceedings can record the party’s intentions in clear unambiguous language. If the matter then goes before the Courts, such clear expression with respect to the party’s intention would greatly facilitate the Courts in deciding the question. Inox will be binding on such cases before the Indian Courts where the seat of the arbitration has not been declared and only the venue of arbitration has been identified in the arbitration clause. If the conduct of the parties shows that the venue was in fact intended to be the seat, then the Court would consider the venue to be tantamount to the seat of arbitration in such cases. It is indeed appreciable that by determining the seat of arbitration in the context of the intention displayed by the parties and by looking at the conceptual essence of a seat vis-à-vis venue of arbitration, the Supreme Court of India in Inox has successfully managed to digress from the narrow reasoning adopted by the Gujarat High Court that took a literal interpretation of the arbitration clause. Such an approach is welcome and it can be expected that this case law will set the evolving Indian jurisprudence on the seat/venue conundrum of the arbitration on the correct course of development. *-Harshvardhan Tripathi is a 5th-year student at NALSAR University of Law, Hyderabad.
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Dear Advocates, Students and Professionals associated with Arbitration, This blog is an attempt by its promoters to create an environment for discussion on the functioning and working of Arbitral Tribunals and the interaction of the Arbitration and Conciliation Act, 1996 with the Tribunals. This blog will attempt to de-mystify the laws as argued in connection with the Arbitration Acts across the globe which are based on the UNCITRAL Model Law of 1996 and address the working of contractual provisions as argued in trial. This attempt is also to get members of the bar working in arbitration, across global jurisdictions, to express their views in connection to the working of Arbitral Tribunals, drawing from their own experiences and to involve them in making this blog a practical approach to arbitration rather than a theoretical one. Besides dealing with modalities of functioning of Arbitral Tribunals, this blog from time to time will also keep its readers updated about the major shifts and trends of International Commercial Arbitration. As the name of this blog would suggest, we are attempting to look specifically at the workings of Arbitral Tribunals and not the aspects of the Arbitration Act beyond the Arbitral Tribunals. In all, we would like to raise the level of arbitration advocacy in India and around the world and promote greater discussions on various aspects of arbitration. The same will be done while maintaining confidentiality of all the stakeholders of the arbitration from which the participants will draw their experiences. With regards, Gaurav Rai and Gautam Mohanty Editors, The Arbitration Workshop 6 days ago Interview with Mr. Peter Ashford, Partner at Fox Williams LLP Mr. Ashford, welcome to the Arbitration Workshop! Firstly, we are highly honoured to have you agree to give us your interview. 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