Conduct of Arbitral Proceedings Under Arbitration and Conciliation Act

Settlement Officers the authority to arbitrate. This legislative progression continued with Act IX of 1840, the Specific Relief Act of 1878, the Code of Civil Procedure of 1908, the Indian Arbitration Act of 1940, and culminated in the enactment of The Arbitration and Conciliation Act of 1996.

The regulation of arbitral proceedings is comprehensively addressed within The Arbitration and Conciliation Act of 1996. Key provisions related to arbitral proceedings are detailed in Sections 18 through 27 of the Act, which cover the following aspects:

• Equitable Treatment of Parties.
• Establishment of Procedural Rules.
• Determination of Arbitration Venue.
• Initiation of Arbitral Proceedings.
• Language Utilized in Proceedings.
• Formulation of Claim and Defence Statements.
• Conduct of Hearings and Documented Procedures.
• Addressing Default by a Party.
• Appointment of Expert Witnesses by the Arbitral Tribunal.
• Judicial Facilitation in Evidentiary Proceedings.

Section 18 of the Arbitration and Conciliation Act pertains to the Principle of Equal Treatment of Parties. It stipulates that:

Statement

All parties involved in the proceedings shall receive equal treatment, ensuring that each party is given a full and fair opportunity to present their case.

Principles of Natural Justice:

To uphold the principles of natural justice and ensure a fair hearing, the following fundamental requirements must be met:

• Notification: All parties must be duly notified of the location, date, and time of the hearing.

• Presence: Each party must be provided with a reasonable opportunity to be present throughout the hearing proceedings.

• Opportunity to Present Case: Each party must be granted the opportunity to submit statements, documents, evidence, and arguments in support of their case.

• Access to Evidence: Each party must be given access to all statements, documents, and evidence presented by the opposing party.

• Cross-Examination: Each party must be afforded a fair opportunity to cross-examine witnesses presented by the opposing party and to respond to any arguments made.

These principles are designed to ensure that the hearing is conducted in a manner that is fair, transparent, and respectful of the rights of all parties involved.

In O'Reilly v. Mackman (1983), Lord Diplock emphasized that the right to a fair hearing is a cornerstone of any civilized legal system. He highlighted that individuals must be made aware of the allegations against them and given a chance to present their defense. Lord Diplock stated that if this fundamental principle is not followed, the resulting decision is presumed to be invalid. The maxim "Nemo Judex in Causa Sua Potest" — meaning "no one can be a judge in their own case" — applies not only in instances of actual injustice but also in situations where there is an appearance or possibility of unfairness.

In Maxwell v. Department of Trade (1974), Lord Justice Lawson noted that while actions in line with moral righteousness might still lead to unfair outcomes if not properly executed, arbitrators are not exempt from upholding the principles of natural justice. Although they are not bound by strict procedural rules, it is essential to maintain the thread of natural justice throughout arbitration proceedings. This means that any party likely to be adversely affected by evidence should have the opportunity to hear it, suggest or conduct cross-examination, and present counter-evidence, following the usual course of legal proceedings, as also highlighted in Wazir Chand Karam Chand v. Union of India (1989).

• Opportunity to Present Case: Each party must be given ample opportunity to present their case before the tribunal.

• Knowledge and Challenge: Every party must be informed of the opposing party's case and given a full opportunity to challenge and rebut it.

• Equality of Treatment: All parties must be treated equally, with identical opportunities to present their case and challenge their opponent’s case.

These principles ensure that arbitration is conducted fairly and that each party’s right to a fair hearing is respected.

PROCEEDINGS DEFECTS:

In Spac and Co. v. National Building Construction Corporation (1989), the court determined that if deficiencies or mishandling arise during arbitration proceedings, the court has the authority to annul the arbitral award. Arbitrators have a critical judicial role, and any deviation from equity and good conscience, which should guide their conduct, is considered misconduct. This principle was further reinforced in Indian Minerals Co. v. Northern India Line Marketing Association (1958). While arbitrators are not strictly bound by courtroom procedures, they must still adhere to principles of natural justice. If a party fails to participate despite proper notice, the arbitrator may continue with the proceedings ex parte.

In Union of India v. Mehta Teja Singh (1983), the arbitrator’s failure to order the production of a technical examiner's report, which was crucial for the contractor’s claim, and the arbitrator’s own failure to inspect the report, constituted misconduct. This failure deprived the proceedings of natural justice. On the other hand, in Mohidin Sahib v. Ramaswami Chetti (1921), the arbitrator’s sharing of privately obtained information with other arbitrators, in the presence of the parties, allowed the parties to verify or contest the information. Since the defendants acknowledged the accuracy of the information, the arbitrator was not deemed guilty of misconduct. It is generally inappropriate for an arbitrator to obtain information from one party without the presence of the other party or to use inaccessible information. However, if the parties, who are competent to act (sui juris), consent to such information, it can remedy the procedural issue. Nonetheless, as outlined in Chintalapudi Sanyasirao v. Chintalapudi Venkatrao (1923), a guardian cannot waive a minor’s right to object to procedural irregularities.

Statement:

1. The arbitral tribunal is not bound by the provisions of the Code of Civil Procedure, 1908, or the Indian Evidence Act, 1872.

2. Subject to the provisions of this Part, the parties have the autonomy to mutually agree on the procedural rules that will govern the arbitral tribunal's proceedings.

3. In the absence of such an agreement as mentioned in subsection (2), the arbitral tribunal has the authority to conduct the proceedings in a manner it considers appropriate, within the bounds of this Part.

4. This authority includes the discretion to determine the admissibility, relevance, materiality, and weight of any evidence presented.

Arbitrator’s Discretion Regarding Civil Procedure Code:

Section 19(1) of the Arbitration and Conciliation Act reinforces the idea that arbitration is not governed by the procedural norms set out in the Civil Procedure Code. As such, arbitrators are not required to follow the procedural requirements or issue formulations as mandated by the Civil Procedure Code. This principle was highlighted in Ashok Kumar Singh v. Shanti Devi (2011), where it was established that arbitrators are not obliged to address each claim or dispute separately, nor must an award explicitly resolve every point of contention.

Arbitration Not Governed by the Evidence Act:

In J. Kaikobad v. F. Khambatta (1930), the court affirmed that arbitrators are not bound by the technical provisions of the Evidence Act. An arbitrator's decision to rely on documents that may not be admissible under the Evidence Act does not render their decision subject to challenge. The primary constraints on an arbitrator's authority are adherence to the principles of natural justice, ensuring a fair hearing, and providing adequate time and opportunity for parties to present their claims. As established in I.O.C. Ltd. v. Devi Construction Engineering Contractors (2008), an arbitrator’s decision not to exclude a document based on evidentiary rules does not constitute grounds for setting aside an award, as arbitration proceedings are not strictly governed by the rules of evidence.

Affordable Arbitration:

In Union of India v. Singh Builders Syndicate (2009), the Supreme Court highlighted the challenges that arise when an arbitrator's fees are not set by the court. Without predetermined fees, parties may be compelled to accept costs that are beyond their budget, which can undermine their position. Therefore, it is crucial for arbitrators to conduct proceedings efficiently, follow the agreed procedures, and address all relevant issues.

Arbitrator's Assessment of Evidence:

The evaluation of evidence by an arbitral tribunal must adhere to the principles of natural justice. As Lord Denning noted in G.K.N. Centrax Gears Ltd. v. Matbro Ltd. (1976), determining the weight of evidence and drawing inferences from it falls within the arbitrator’s domain. Decisions on whether a document is material and should be considered by the arbitrator are solely within the arbitrator's discretion and are binding on the parties. The authenticity of documents is also under the arbitrator’s purview and cannot be used as grounds for challenging the arbitral award.

Conduct of Arbitral Proceedings: Section 20 of the Arbitration and Conciliation Act - Determining the Place of Arbitration:

Statement:

1. Parties have the freedom to mutually agree on the location of the arbitration.

2. If the parties do not agree on the location, the arbitral tribunal will determine the place of arbitration, considering the case’s circumstances and the convenience of the parties.

3. Regardless of the agreements mentioned in subsections (1) and (2), the arbitral tribunal, unless otherwise agreed by the parties, can hold sessions at any location it finds suitable for deliberations among its members, conducting hearings with witnesses, experts, or parties, or examining documents, goods, or other assets.

Venue Determination by Arbitrator:

An arbitrator cannot unilaterally choose the venue for arbitration without taking into account the parties' convenience. If the arbitration agreement does not explicitly grant the arbitrator the authority to select the venue, the arbitrator must consider various factors, such as the location of the parties and witnesses, the nature of the dispute, and overall convenience. If the parties have established an arbitral tribunal but have not specified the seat, the tribunal may then designate the seat itself.

Parties' Venue Selection:

Section 20 allows parties to select the arbitration venue, a power not given to the arbitral tribunal. If the parties cannot agree on the venue, the tribunal will decide the location based on the case's circumstances and the parties' convenience. Even if there is a prior agreement on the venue, the arbitral tribunal has broad discretion to determine the timing and location of proceedings, provided there is a written agreement between the parties. However, this discretion is subject to the condition that the tribunal is not restricted from convening at an alternative location if needed.

Interim Venue Determination:

Under Sections 2(6) and 20 of the Arbitration and Conciliation Act, if the parties cannot agree on the venue for arbitration, they may appoint a person or institution, such as a Joint Committee, to decide. However, the decision made by such a committee does not constitute an adjudication of the dispute arising from the agreement. As a result, it does not qualify as an arbitration award or an interim award, as affirmed by the Supreme Court in Sunshin Chemicals Industry v. Oriental Carbons and Chemicals Ltd. (2001).

Venue as per the Law:

The Arbitration and Conciliation Act of 1996 designates the arbitration seat as central to the arbitration proceedings. This means that courts in the jurisdiction of the arbitration seat oversee the arbitration process. For example, if arbitration takes place in Delhi, and neither party is based there, any appeal against interim orders issued by the Delhi tribunal would be heard by Delhi courts.

Commencement of Arbitral Proceedings: Section 21 of the Arbitration and Conciliation Act

Statement:

In the absence of an agreement to the contrary, arbitral proceedings for a specific dispute commence when the respondent receives a request for arbitration related to that dispute.

Notice:

Section 21 clarifies that the request for arbitration does not necessarily have to be in writing; it can also be inferred from the conduct of the parties. If the respondent does not receive notice of the invocation of arbitration, the proceedings cannot begin. In Nea Agrex SA v. Baltic Shipping Co. Ltd. (1976), it was established that the purpose of notice is to prompt the other party to act or provide grounds for inferring an implicit request. For Section 21, notice refers to the initial communication demanding arbitration, and subsequent correspondence does not invalidate the initial request.

Commencement of Proceedings:

In Milkfood Ltd. v. GMC Ice Cream (P) Ltd. (2004), the Supreme Court explained that "notice of arbitration" and "commencement of arbitration" might not be synonymous, as different dates might apply for different purposes. The interpretation of these terms depends on their contextual significance. According to Section 21, commencement, for specific purposes, starts with the notice and requires adherence to the provisions of the Act or other procedural requirements. In Delhi Transport Corp. Ltd. v. Rose Advertising (2003), despite a request for arbitrator appointment being made before the 1996 Act came into effect, the appointment under the new Act was valid, as the parties acted according to the provisions of the 1996 Act, and the resulting award was governed by it.

Time Limit:

If the parties do not agree on the commencement date of arbitral proceedings, they begin upon receipt of a request for arbitration by the respondent. The parties can mutually determine the commencement date, which is crucial as it affects the statute of limitations. Once the commencement date is set, the limitation period is paused, preventing the expiration of the time limit concerning the matters referred to arbitration.

In W.J. Alan and Co. Ltd. v. El Nasr Export and Import Co. (1971), the arbitrators found that the sellers' request for arbitration was outside the stipulated time limit. The sellers contested this, arguing that the time bar clause applied only to the buyers' claims. The court agreed with the sellers, ruling that the time bar clause was applicable solely to the buyers' grievances and did not limit the sellers' arbitration request.

Language in Arbitral Proceedings: Section 22 of the Arbitration and Conciliation Act

Statement:

1. The parties have the freedom to mutually agree on the language or languages to be used in the arbitral proceedings.

2. If no such agreement is reached, the arbitral tribunal has the authority to determine the language or languages for the proceedings.

3. This agreement or determination applies to all written submissions by the parties, hearings, and any arbitral awards, decisions, or other communications from the tribunal, unless otherwise specified.

4. The arbitral tribunal may require that any documentary evidence be accompanied by a translation into the agreed-upon or determined language(s).

Parties' Discretion:

It is generally advisable for the parties to decide on the language(s) to be used in the proceedings. This flexibility accommodates the diverse linguistic backgrounds of the parties and the varying geographic origins of the tribunal members.

Statements of Claim and Defence: Section 23 of the Arbitration and Conciliation Act

Statement:

1. The claimant must present the facts supporting their claim, specify the issues in dispute, and detail the relief or remedy sought within the agreed timeframe or as determined by the arbitral tribunal. Similarly, the respondent must provide a defence against these particulars, unless the parties have agreed to different requirements for these statements.

2. The parties may attach relevant documents to their statements or refer to documents or other evidence they intend to submit.

3. Unless otherwise agreed by the parties, either party may amend or supplement their claim or defence during the arbitration proceedings. However, the arbitral tribunal may disallow such modifications or supplements if they cause undue delay.

Fixed Timeframe:

This provision mandates that the parties adhere to a set timeframe for presenting their statements, either agreed upon by the parties or established by the arbitral tribunal. The claimant must outline:

• The factual basis for their claim,
• The contested issues,
• The relief or remedy sought.

Following the claimant's statement of claim, the respondent is required to:

• Provide a defence against each claim,
• Offer any additional information or statements countering the claim.

These requirements are to be followed unless the parties have established alternative criteria for their statements.

Pleadings:

Arbitrators should recognize the critical role of pleadings in streamlining the issues between the parties and reducing overall costs. In Re. Crighton and Law Car & General Insurance Co. Ltd. (1910), both parties’ solicitors appeared before the arbitrator, who, following their suggestion, directed the preparation of points of claim and defence. These points were subsequently submitted. When one party sought to amend their points of dispute to include a new ground, the arbitrator had the discretion to permit or reject the amendment. Absent any restrictions imposed by the parties on modifications, additions, deletions, substitutions, or amendments, the following applies:

• Either party may amend or supplement their claim or defence.
• Such amendments or supplements can only be made while the arbitration proceedings are ongoing.
• The tribunal may grant permission for amendments requested, provided there is no undue delay.

This approach was reaffirmed in Maharashtra Industries Dev. Corp. Ltd. vs. Goverdhani Const. Co. (2008), where the court upheld the tribunal's discretion regarding amendments, consistent with the precedent established in the Crighton case.

Hearings and Written Proceedings: Section 24 of the Arbitration and Conciliation Act

Statement:

1. Unless the parties have agreed otherwise, the arbitral tribunal will decide whether to conduct oral hearings for presenting evidence or arguments, or if the proceedings will be based solely on documents and other materials. However, oral hearings must be conducted at an appropriate stage of the proceedings upon a party’s request, unless the parties have agreed to waive oral hearings.

2. The parties must be given reasonable advance notice of any hearing and of any meetings of the arbitral tribunal convened for inspecting documents, goods, or other property.

3. Any statements, documents, or other information provided to the arbitral tribunal by one party must be shared with the other party. Additionally, any expert reports or evidentiary documents on which the arbitral tribunal may rely in making its decision must be disclosed to all parties involved.

Dispensing with Oral Hearings:

A combined reading of Section 19 and Section 24(1) of the Arbitration and Conciliation Act makes it clear that oral hearings must be held if requested by any party, as confirmed in ADV Consultants v. Pioneer Equity Trade (India) Pvt. Ltd. (2009). The arbitral tribunal is obligated to conduct oral hearings upon such a request, unless the parties have explicitly agreed to forgo them. The refusal of an arbitral tribunal to grant oral hearings solely because the other party does not agree can lead to the tribunal’s award being set aside, as highlighted in Rakesh Kumar v. State of H.P. (2005).

Procedural Steps:

The arbitration process must adhere to the following procedural steps:

a. Establishing the Procedure: Define the framework and rules governing the arbitration.

b. Framing the Issues: Identify and outline the specific issues in dispute that will be addressed during the proceedings.

c. Production and Preparation of Documents: Ensure that all relevant documents are produced and prepared for review.

d. Issuing Interim Protective Orders: Provide interim orders as necessary to protect the interests of the parties pending the final decision.

e. Requiring Security: Determine if any security is required to safeguard against potential non-compliance or other issues.

f. Scheduling the Hearing: Set dates and times for hearings to facilitate the orderly conduct of the proceedings.

g. Fact and Law Investigation; The Hearing: Conduct a thorough investigation of the facts and applicable law during the hearing process.

h. Rendering the Decision: Make determination based on the evidence and legal principles considered during the proceedings.

i. Issuing the Award: Formalize and issue the arbitral award reflecting the decision reached.

j. Initiation of Appeal Proceedings: Address the initiation of any appeal proceedings if applicable, following the conclusion of the arbitration.

MANAGING THE HEARING:

While an arbitrator possesses discretion over procedural matters, this discretion is subject to any restrictions imposed by the arbitration agreement and the mandatory provisions of the Act. The tribunal should aim to prevent unnecessary delays and expenses. It should guide the parties regarding the relevant issues and avoid overly meticulous, time-consuming, and costly procedures. It is incumbent upon the arbitrator to inform the opposing party of any communications received. The proviso to section 24(1) mandates oral hearings if parties seek to present oral evidence before the arbitral award is issued. The tribunal has the discretion to decide whether witnesses or parties should be sworn in, provided there is no contrary agreement between the parties. Failure to raise objections to unsworn testimony may result in waiver of such objections.

Arbitral Proceedings: Default of a Party - Section 25 of the Arbitration and Conciliation Act

Statement:

Unless otherwise agreed upon by the parties and in the absence of sufficient cause:

i. Failure to Submit Statement of Claim: If the claimant fails to submit their statement of claim in accordance with subsection (1) of Section 23, the arbitral tribunal shall terminate the proceedings.

ii. Failure to Submit Statement of Defence: If the respondent fails to submit their statement of defence as required under subsection (1) of Section 23, the arbitral tribunal shall proceed with the arbitration without interpreting the failure as an admission of the allegations made by the claimant.

iii. Failure to Attend or Produce Evidence: Should a party fail to attend an oral hearing or neglect to produce documentary evidence, the arbitral tribunal may continue with the proceedings and issue an arbitral award based on the evidence available.

Arbitrator's Authority to Continue:

When a party does not appear on the adjourned date despite a notice in the hearing minutes indicating that proceedings will continue ex parte if the party fails to appear, and no separate notice is issued, the resulting ex parte award is considered valid, as established in Nagasirinivasulu v. GLADA Finance Ltd. (2009). A party who, despite repeated notices, fails to appear and allows the proceedings to continue ex parte cannot later claim a lack of opportunity to be heard.

If a party provides a sufficient explanation for their non-appearance, the court may set aside the ex-parte award, as outlined in H.C. Whitehouse v. Kahn Kahn and Co. (1914). In State of U.P. v. Combined Chemicals (2011), the arbitrator's decision to proceed ex parte was upheld when the appellant, despite seeking an adjournment due to a pending appeal, failed to obtain a stay and continued to abstain from the proceedings.

Mordue v. Parmer (1871) clarified that once an arbitrator signs the award, they become functus officio and cannot amend even minor errors in it, regardless of their nature.

Termination of Proceedings:

Under Sections 25(a) and 32(2)(c), the arbitrator may terminate the proceedings if the claimant does not submit their statement of claim. In Mohan Singh v. International Authority of India (1997), the Supreme Court stressed that while the term "shall" is mandatory, its interpretation must align with the legislature's intent and the statute's purpose to serve the public interest and ensure justice.

The core principle of dispute resolution is for the arbitrator to comprehend the claimant's claim, the respondent's position, and the relevant factual and legal issues. An arbitral tribunal may also revoke a termination order if sufficient cause is demonstrated and the case merits consideration.

Arbitrator's Authority to Continue:

When a party fails to appear on the adjourned date, despite a notice in the hearing minutes indicating that the proceedings will continue ex parte if the party does not appear, and no separate notice is issued, the ex parte award is considered valid. This principle was affirmed in Nagasirinivasulu v. GLADA Finance Ltd. (2009). A party who, despite repeated notifications, does not appear before the arbitrator and allows the proceedings to proceed ex parte cannot subsequently claim that they were denied an opportunity to be heard.

However, if a party provides a valid reason for their non-appearance, the court may set aside the ex parte award. This principle was established in H.C. Whitehouse v. Kahn Kahn and Co. (1914). Similarly, in State of U.P. v. Combined Chemicals (2011), the arbitrator's decision to proceed ex parte was upheld when the appellant sought an adjournment due to a pending appeal against the trial court’s order but failed to secure a stay and continued to abstain from the proceedings.

Mordue v. Parmer (1871) clarified that once an arbitrator has signed an award, they become functus officio and are not authorized to amend even minor errors in the award, regardless of their origin.

Termination of Proceedings:

Sections 25(a) and 32(2)(c) of the Arbitration and Conciliation Act collectively indicate that an arbitrator is authorized to terminate proceedings if the claimant fails to submit their statement of claim. The Supreme Court in Mohan Singh v. International Authority of India (1997) clarified that while the term "shall" in this context is mandatory, its interpretation must align with the legislature's intent and the statute's overarching purpose to ensure justice and public interest.

The core principle in dispute resolution is that the arbitrator must fully grasp the claimant’s claim, the respondent’s position, and the pertinent factual and legal issues. However, if sufficient cause is shown, an arbitral tribunal has the discretion to revoke a termination order and continue with the proceedings, provided there is merit in the case.

Expert Appointment by Arbitral Tribunal – Section 26 of the Arbitration and Conciliation Act

1. Appointment and Access:

o Unless otherwise agreed by the parties, the arbitral tribunal may: a. Appoint one or more experts to report on specific issues as identified by the tribunal; and b. Direct a party to provide the expert with relevant information or access to necessary documents, goods, or other property for examination.

2. Expert Participation:

o Unless otherwise agreed, the expert must, upon request by a party or if deemed necessary by the tribunal, participate in an oral hearing following the submission of their report. During this hearing, the parties have the opportunity to question the expert and present their own expert witnesses.

3. Document Availability:

o Upon request from a party, the expert is required to make available all documents, goods, or other property that were provided to them for examination in the preparation of their report.

Appointment of Expert:

In the absence of a specific agreement between the parties, the arbitral tribunal has the authority to appoint one or more experts to address particular issues in dispute. The tribunal may also request that the parties provide relevant information or grant access to documents necessary for the expert's evaluation.

Evidence and Expert Participation:

Unless the parties have agreed otherwise, the expert may be required to participate in oral proceedings upon request. During these proceedings, the parties have the right to question the expert and to present their own expert witnesses. Typically, expert opinions are submitted in written form but are subject to cross-examination during the hearing.

Court Assistance in Taking Evidence – Section 27 of the Arbitration and Conciliation Act

1. Request for Court Assistance:

o The arbitral tribunal or a party, with the tribunal’s approval, may seek assistance from the court in obtaining evidence.

2. Application to the Court:

o The application to the court must include: a. The names and addresses of the parties and the arbitrators; b. The nature of the claim and the relief sought; c. Details of the evidence sought, including the names and addresses of witnesses or expert witnesses, and specifics of any documents or property involved.

3. Court’s Role:

o The court, within its jurisdiction and in accordance with its rules on evidence, may act on the request and order the provision of evidence directly to the arbitral tribunal.

4. Issuing Processes:

o The court may issue processes to witnesses similar to those used in suits before it while executing the request.

5. Penalties for Non-Compliance:

o Individuals who fail to comply with the court's processes or who are in contempt during arbitration proceedings may face penalties akin to those imposed in court suits.

6. Definition of "Processes":

o In this context, "processes" encompasses summonses, commissions for witness examination, and summonses to produce documents.

Evidence Record:

The arbitral tribunal, or a party with the tribunal's approval, may seek court assistance for the recording of evidence. The request must include comprehensive details, such as the names of the parties involved, the nature of the claim, the relief sought, and the specific evidence required.

Permission of Arbitrator for Court Approach:

Court assistance is restricted to the execution of evidence recording and does not extend to directing the production of evidence. A refusal by the tribunal to permit a party to approach the court for witness summonses, particularly when such witnesses are crucial, may be deemed improper. If such a refusal occurs, the aggrieved party may challenge the decision under Section 34 of the Act. However, the Arbitration and Conciliation Act does not specify additional procedural steps to be taken in such instances.