Source: Allahabad High Court

Why in News?

A bench of Justice Ashwini Kumar Mishra noted that the principles of impartiality or independence have to be respected in the matter of appointment of arbitrator, and a party’s autonomy cannot be exercised in complete disregard of these principles.

• The Allahabad High Court gave the observation in the matter of M/S Bansal Construction Office v. Yamuna Expressway Industrial Development Authority (YEIDA) And 2 Others.

Background

• The applicant and respondent entered a contract which resulted in dispute due to deductions in payment of bills.
• The applicant requested that the dispute be referred to an arbitrator.
• The request for reference of dispute to arbitration was declined on the grounds that the Chief Executive Officer of the Authority alone is competent to arbitrate in the matter as per Clause 33 of the agreement between them.
  • But he now became ineligible by virtue of Section 12(5) of Arbitration and Conciliation Act, 1996 (A&C Act), therefore, the arbitration clause itself would cease to exist.
  • As per Section 12 (5) of the A&C Act, the arbitrator cannot be a party interested in the dispute in regard to the Seventh Schedule of the A&C Act.
• The applicant contended that arbitration agreement could not be denied merely because the appointment of an arbitrator provided in the agreement was overridden by a statutory provision.
• The Court allowed the application by stating that the Court would not be justified in literally interpreting the clause in the agreement to keep the power of adjudication or the party autonomy with the employer at the cost of abandoning the arbitration itself.

Court’s Observations

The court gave the below mentioned observations in this matter:

• Clause 33 in the agreement clearly manifests the intent of employer i.e. YEIDA to retain the power of adjudication, which goes against the spirit of neutrality of arbitrator for which alone Section 12(5) of A&C Act is introduced.
• In any case, the intent of parties to refer their dispute to arbitration cannot be nullified in the anxiety to retain power of adjudication by the employer i.e. YEIDA.

Arbitration Agreement

• Arbitration is a form of Alternative Dispute Resolution Mechanism which refers to out of the court settlement.
• This method of settlement outside the court is governed by an Act called, “The Arbitration and Conciliation Act, 1966”.
• There are mainly two kinds of Arbitration, institutional arbitration and ad hoc arbitration.
  • Institutional arbitration refers to an agreement to be bound by the rules of the arbitration institutions whereas ad hoc means that the parties themselves agree to arrange an arbitrator.
• The A&C Act covers two types of Arbitration, Domestic Arbitration, and International Commercial Arbitration.
• A dispute that is referred to arbitration should arise out of an agreement for referring the same to arbitration.
• Section 7 of the A&C Act defines an arbitration agreement as an agreement by the parties to refer to arbitration all or some disputes which have arisen or will arise on a future date between them.
• The said dispute must arise out of a legal relationship.
  • The relationship may or may not be contractual.
• Section 34 of the A&C Act states that the award given by the arbitrator is final, enforceable and is binding upon the parties who have signed the contract.

Essentials of Arbitration Agreement

1. Form of Agreement: An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.
2. Written Agreement: An arbitration agreement shall be in writing.
3. Intention: There must be an intention of the parties to refer a dispute to arbitration. It must not be vague.
4. Signature of the Parties: An agreement for referring the dispute to arbitration must contain the sign of the parties.
5. Valid Contract: It must be a valid contract under Section 10 of the Indian Contract Act, 1887.