Dr Mohan R Bolla on Institutional arbitration

Adhoc vis a vis
Institutional arbitration
India's first international arbitration centre
launched 8 October
Paris

Institutional Arbitration
• Institutional arbitration centres follow their own set of
rules through time-bound, cost-effective and impartial
proceedings. A well-defined cost structure and with
final decision binding on both parties gives a
guaranteed resolution. All that is needed is a clause
while entering into a contract that all disputes will be
settled through a particular arbitration centre.
• Currently in India, there are two major arbitration
centres - the Nani Palkhiwala Arbitration Centre (NPAC)
and the London Court of International Arbitration
(LCIA) India.
Besides these, Mumbai Centre for International
Arbitration has been recently established.

ad hoc arbitration
• In an ad hoc arbitration, the parties select the arbitrator or arbitral
panel without the assistance of an arbitral body. Their is no case
support office.
• All documents are filed directly with the arbitrator or the Chair of
the arbitral panel. The rules of procedure are determined by the
arbitration agreement before the dispute or they may be agreed
upon after he dispute arises. No administration are fees payable but
the arbitrators have to be paid.
• The arbitration may be held at a neutral location such as the office
of a shorthand reporter, who may charge for the room and AV
equipment.
• If the parties decide to have a verbatim transcript of the evidence,
there is a fee for the reporter and for the transcript.
• Most commercial arbitrations between private corporations are ad
hoc.

ad hoc arbitration-troubles
• In cases where arbitration is pursued, inadequate attention to details of dispute resolution clauses at the time of
signing the commercial contracts is one of the major reasons for the pain that ensues. Noted advocate NL Rajah,
who is one of the key movers behind the upcoming Chennai-based Nani Palkhivala Arbitration Centre (NPAC) says,
“a little attention at the time of drafting can save so much money, time and heartburn.”
• Often there is not enough understanding of the differences between ad hoc and institutional arbitration.
According to industry statistics, until 2010, 95% of the cases followed the ad hoc arbitration route, i.e. companies
provide for a clause in their contracts for the appointment of an arbitrator in case any disputes arise.
• This was corroborated by the CFO India survey. When asked about arbitration specifically, over 60% of the
companies still opt for ad hoc arbitration. This seems to be irrelevant to the value of the commercial transaction in
dispute, ranging anywhere from Rs. 50 crores to Rs. 1000 crores.
• Flexibility of procedures and personal choice of arbitrator are some of the major reasons that leads businesses to
opt for ad hoc, according to the findings of the survey. However, that is one outcome which is almost never
guaranteed due to the lack of definite procedures. There is uncertainty in many aspects such as timing of disposal
of cases, willingness of both parties for resolution and impartiality of the arbitrator.
• Dharmesh Trivedi, CFO of Urban Infrastructure Venture Capital, shares the experience of his company’s dispute
with its joint venture partners through an ad hoc arbitrator and counsel over the last few years. As per their
contracts, the first line of dispute resolution was arbitration, failing which the parties could take up the case in the
courts.
• Trivedi believes the process followed by their arbitrator has not been entirely impartial. Also, with a lack of
defined time frame for resolution, their cases have dragged over many years. With three counsels for each party,
multiple arbitrators and a mediator, fixing meetings itself poses as a major hurdle. Unwillingness of the other
party to resolve matters has also been an issue in getting speedy results.

T Thommen, J.,
National Thermal Power Corpn. Vs
Singer Company AIR 1993SC 998
The National Thermal Power Corporation (the 'NTPC') appeals from
the judgment of the Delhi High Court dismissing the NTPC's application
filed under sections 14,30 and 33 of the Arbitration Act, 1940 to set
aside an interim award made at London by a tribunal constituted by
the International Court of Arbitration of the International Chamber of
Commerce in terms of the contract made at New Delhi between the
NTPC and the respondent the Singer Company for the supply of
equipment, erection and commissioning of certain works in India.
The High Court held that the award was not governed by the
Arbitration Act, 1940; the arbitration agreement on which the award
was made was not governed by the law of India; the award fell within
the ambit of the Foreign Awards (Recognition and Enforcement) Act,
1961 (Act 45 of 1961) (the 'Foreign Awards Act'); London being the
seat of arbitration, English Courts alone had jurisdiction to set aside
the award; and, the Delhi High Court had no jurisdiction to entertain
the application filed under the Arbitration Act, 1940.

S.H. Kapadia J.,
M/S Nandan Biomatrix Limited vs
D 1 Oils Limited (2009) 4 SCC 495
The applicant is inter alia engaged in the business of seed cloning and
production, nursery development and propagation, plantation
management and maintenance and the cultivation of medicinal plants.
On 10.8.04 the applicant and the non-applicant entered into seed
supply agreement (Supply Agreement) through which the applicant
agreed to establish nurseries and prepare seedling (seed) catering to
the requirement of non-applicant. According to the said Agreement
the non-applicant promised to make an investment of Rs.299.35 lakhs
with the applicant.
The Supply Agreement inter alia contained an arbitration clause 15.1
which reads as under:
"15.1. Any dispute that arises between the parties shall be resolved by
submitting the same to the institutional arbitration in India under the
provisions of Arbitration and Conciliation Act, 1996."

S.H. Kapadia J.,
the non-applicant submitted that clause 15.1 did not
contain any arbitration clause, that clause 15.1 was vague
as it did not provide for arbitration by reference to any
particular institution nor did it provide that the rules
framed by any particular institution shall govern the
arbitration between the parties. According to the learned
senior counsel, in absence of a reference to any particular
institution providing for arbitration or in absence of rules
framed by it, the expression "institutional arbitration"
used in clause 15.1 of the Supply Agreement was vague
and/or uncertain and/or incapable of being made certain.

S.H. Kapadia J.,
I do not find any merit in the above contentions raised on behalf of the non-
applicant. The question which needs to be asked is : what did the parties
intend at the time of execution of the Supply Agreement dated 10.8.04? What
did the parties intend when clause 15.1 came to be incorporated in the said
Supply Agreement?
The answer to the said questions undoubtedly is that any dispute that may
arise between the parties shall be resolved by submitting the same to the
Institutional Arbitration in India under the provisions of the 1996 Act. It may be
mentioned that the name of a specific institution is not indicated in clause
15.1. The 1996 Act does not prescribe any form for an arbitration agreement.
The arbitration agreement is not required to be in any particular form. [See :
Bihar State Mineral Development Corporation & Another v. Encon Builders (I)
(P) Ltd. - (2003) 7 SCC 418]. What is required is to gather the intention of the
parties as to whether they have agreed for resolution of the disputes through
arbitration. In my view, in the present case, the parties unequivocally agreed
for resolution of the disputes through Institutional Arbitration and not through
an ad hoc arbitration.

RV Raveendran J.,
P.R. Shah Shares & Stock Brokers ...
vs M/S. B.H.H. Securities (P) Ltd
(2012) 1. SCC 594
The appellant and the first respondent are members of the Mumbai
Stock Exchange, the third respondent.
The constitution, management and dealings of the Exchange are
governed by the Rules, Bye-laws and Regulations of the Exchange.
The Rules relate to the constitution and management of the
Exchange. The Bye-laws regulate and control the dealings,
transactions, bargains and contracts of its members with other
members and non- members. The Regulations contain the detailed
procedure regarding the various aspects covered by the Bye-laws.
Though the Rules, Bye-laws and Regulations of the Exchange were
not made under any statutory provision, they have a statutory
flavour.
Bye-laws 248 to 281D provide for and govern the arbitration between
members and non-members and Bye-laws 282 to 315L provide for
and govern the arbitration between members of the Exchange.

RV Raveendran J.,
(2012) 1. SCC 594
The first respondent raised and referred a dispute against the second
respondent and the appellant under the Rules, Bye-Laws and Regulations of
the Mumbai Stock Exchange on 29.8.1998 (Arbitration Reference
No.242/1998) seeking an award for a sum of Rs. 36,98,384.73 with interest at
24% per annum on Rs. 35,42,197.50.
In the said Arbitration Reference, the first respondent alleged that appellant
and second respondent are sister concerns with Ms. Kanan C. Sheth as a
common Director;
that Ms. Kanan C. Sheth approached the first respondent to get the carry
forward sauda in respect of 50,000 shares of BPL and 15,000 shares of Sterlite
Industries Ltd. transferred with the first respondent on behalf of the second
respondent which was outstanding with the appellant; that in pursuance of it,
on 4.6.1998,
the first respondent got the sauda of 15,000 shares of BPL and 15,000 shares
of Sterlite transferred to its account through a negotiated deal which is
commonly known as `all or none'; that in respect of the said transactions, the
first respondent prepared, issued and delivered the contract and bill in favour
of second respondent

RV Raveendran J.,
(2012) 1. SCC 594
At the outset, it should be noticed that the arbitration in this
case is not an ad hoc arbitration under an arbitration agreement
executed between the parties, but was an institutional
arbitration under the Bye Laws of the Exchange.
All claims, differences, complaints and disputes between two
members in relation to any bargain, dealing, transaction or
contract is arbitrable by virtue of the parties being members of
the Exchange and there is no need for a separate arbitration
agreement.
In fact, the question whether there was any such bargain,
dealing, transaction or contract between members is itself a
question that was arbitrable, if there was a dispute. We may in
this behalf refer to the relevant Bye-Laws. Bye-law 248 provides
for reference to arbitration of any dispute between a member
and non-member.

S.B. Sinha J.,
Bihar State Mineral Dev. Corp. vs.
Encon Builders (I) (P) Ltd.
(2003) 7 SCC 418
The short question which arises for consideration in this
appeal is as to whether the learned court below
committed an illegality in refusing to refer the matter to
arbitration. The essential elements of an arbitration
agreement are as follows :
(1) There must be a present or a future difference in
connection with some contemplated affair. (2) There
must be the intention of the parties to settle such
difference by a private tribunal.
(3) The parties must agree in writing to be bound by the
decision of such tribunal.
(4) The parties must be ad idem.

S.B. Sinha J.,
(2003) 7 SCC 418
There is no dispute with regard to the proposition that for the purpose
of construing an arbitration agreement, the term 'arbitration' is not
required to be specifically mentioned therein.
The High Court, however, proceeded on the basis that having regard to
the facts and circumstances of this case, the arbitration agreement
could have been given effect to. We may, therefore, proceed on the
basis that Clause 60 of the Contract constitutes an arbitration
agreement.
A finding has been arrived at by the High Court that the Second
Appellant was the only competent authority to arrive at his satisfaction
that the agreement was liable to be terminated.
By reason of the power conferred upon the Managing Director of
Appellant No.1, he is also entitled to impose fine on the contractor
depending upon the gravity of violation of the agreement.

S.B. Sinha J.,
(2003) 7 SCC 418
There cannot be any doubt whatsoever that an arbitration
agreement must contain the broad consensus between the
parties that the disputes and differences should be referred to
a domestic tribunal. The said domestic tribunal must be an
impartial one. It is a well- settled principle of law that a
person cannot be a judge of his own cause. It is further well-
settled that justice should not only be done but manifestly
seen to be done.
Actual bias would lead to an automatic disqualification where
the decision maker is shown to have an interest in the
outcome of the case. Actual bias denotes an arbitrator who
allows a decision to be influenced by partiality or prejudice
and thereby deprives the litigant of the fundamental right to a
fair trial by an impartial tribunal. The case at hand not only
satisfies the test of real bias but also satisfies the real danger
as well as suspicion of bias

S.B. Sinha J.,
(2003) 7 SCC 418
There cannot be any doubt whatsoever that an arbitration agreement
must contain the broad consensus between the parties that the
disputes and differences should be referred to a domestic tribunal. The
said domestic tribunal must be an impartial one. It is a well- settled
principle of law that a person cannot be a judge of his own cause. It is
further well-settled that justice should not only be done but manifestly
seen to be done.
Actual bias would lead to an automatic disqualification where the
decision maker is shown to have an interest in the outcome of the
case. Actual bias denotes an arbitrator who allows a decision to be
influenced by partiality or prejudice and thereby deprives the litigant
of the fundamental right to a fair trial by an impartial tribunal. The
case at hand not only satisfies the test of real bias but also satisfies the
real danger as well as suspicion of bias

Dr Mohan R Bolla on Institutional arbitration

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Dr Mohan R Bolla on Institutional arbitration