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Introduction
From time immemorial, so to speak, we have heard that cases in Courts take decades to be decided (though I will say it depends on the lawyer one engages). So generally parties rather than fighting for their rightful claim like land or money inside a Court, try to settle their disputes outside Courts. But of course it came with a cost i.e. giving a part of their rightful claim to settle the matter. This gave impetus for the realisation that the fulcrum of justice needs to be shifted, or at least shared, with some other mechanism which is not as time consuming as Courts.
That brought Arbitration into limelight. Now be it big companies or small businesses, Arbitration Clause/Agreement is being embedded into their agreement with other persons/companies, so that the time spent on prolonged Court proceedings can be avoided. Though that is not the only area where arbitration is being used and effectively exploited. Take for example smallest of contracts like for sale and purchase of goods and even for settling partition disputes between family members, arbitration is the new forum for dispute settlement .
But most of the people are unaware of its ins and outs. Recently I came across a Client who, though wanted to claim money for deficient services given to him by his seller through Arbitration, have absolutely no idea how the process actually works.
So, through the medium of an excellent judgment i.e. Indo Wind Energy Limited versus Wescare India Limited [CIVIL APPEAL NO.3874. OF 2010] delivered by Hon’ble Supreme Court I would like to explain some aspects of Arbitration.
So let’s start.
Brief Facts
Wescare India Limited (let’s say A) which was in the business of selling wind generators, entered into a contract with Subuthi Finance Limited (let’s say B) to sell these generators. It is important to note that Indo Wind Energy Limited (let’s say C) was the promoter of B.
The agreement of sale between A and B also contained an Arbitration Clause according to which if any dispute arise between the parties such dispute shall be sent to arbitration and the venue of arbitration will be Chennai. Let’s pause here for a while to understand the nuances of an Arbitration Clause.
What is Arbitration Clause
Whenever there is a dispute between two or more persons/companies they have two forums to get justice. One is the Court of Law and other is Arbitration. Court is the default forum as Section 9 of Civil Procedure Code, 1908 states that unless some law or fact bars a Court from taking cognisance of a matter, courts will always be competent to try a case. And that’s what brings us to the second forum i.e. Arbitration. When there is an Arbitration Clause in the contract between the parties they voluntarily agree that in case of any question like money to be paid for purchase of goods, rent to be given in case of a commercial property etc., they will resort to arbitration and not courts. And hence Section 9 of CPC is attracted here and Courts cannot decide such a case and it have to be decided through arbitration.
But it seldom happens that both parties agree on resorting to arbitration. The party who wants to avoid arbitration will take grounds like Arbitration Clause is invalid or it does not cover the dispute which is sought to be referred to arbitration. In such cases the party which wants to resort to arbitration on the strength of Arbitration Clause must reach the High Court of the State where the arbitration is to be held as per Arbitration Clause, to force another party to join arbitration.
Let’s understand it by way of an example. Let’s say you gave a contractor a contract to do interior decoration of your home, which as per the contract is to be finished by 1 January, 2023 and a particular standard of tiles are to be used for the interior decoration. Now as is generally the case the contractor may use tiles which are of inferior quality or he demands more payment thatn initially agreed upon or he does not finish the work on time. All these points are called disputes for settlement of which you have to approach the Courts. But as most of us are aware that the Courts take a long time for deciding a case. So, what is the way out?
Include Arbitration Clause in the Beginning
For having an effective and timely adjudication of the dispute, you should in the beginning itself, execute an agreement with the Contractor. In this agreement you should include an Arbitration Clause which will state that if there is any dispute between you and the contractor then both of you will approach an arbitrator, who will decide the dispute in an impartial manner(This is necessary as Section 7 (3) Arbitration and Conciliation Act, makes it mandatory that the Arbitration Clause must be writing). But in this agreement you must mention the place where the Seat of Arbitration will be. Like if your house is in Barakhamba Road then it will be better if you keep the Seat of Arbitration in New Delhi District and all disputes will be subject to the jurisdiction of the Delhi Courts. It is important for a reason which I will explain in a while.
How to Start Arbitration Against A Non Willing Party
Now when dispute between you and the Contractor arises, for calling the Contractor to arbitration for resolution of the disputes you have invoke Arbitration Clause (meaning start arbitration) which can be done by you with simply sending a notice to the Contractor stating that the Contractor has defaulted in his work, therefore you are invoking Arbitration Clause. Now again as is the norm, the Contractor will either not respond to your notice or will say that your claim is false and bogus. These are the general defenses taken by the defaulting side. But in both cases he will try to avoid the Arbitration Clause or appointment of the Arbitrator.
Here comes the need for defining the New Delhi district as the Seat of Arbitration as explained above. As New Delhi district lies within the jurisdiction of the Delhi High Court, it will also have the jurisdiction to appoint the Arbitrator (of course this happens when the Contractor by himself doesn’t agree to go to arbitration) and that is the reason why it is generally written in the Arbitration Clause that a particular High Court, like Delhi High Court in this case, will be the proper court to approach if one party do not abide by the Arbitration Clause.
So, the party desiring to go to arbitration have to file a petition under Section 11 (6) of Arbitration and Conciliation Act, 1996 in the High Court of the Delhi, so that it can appoint an arbitrator and mandatorily send the parties to arbitration. It is important to note here that the District Court like Patiala House Courts, Saket Courts etc. do not have the authority to appoint an arbitrator under Section 11 (6) of A& C Act, and this can be only done by the High Court of the relevant state which is different from other arbitration petitions like Section 34 petitions, which challenges and award of an arbitrator, which can be filed in the district courts if the valuation permits. (….to be continued)
Parveen Semwal
Advocate, High Court of Delhi and Supreme Court of India
Thank you