#Columns: Limitations on Arbitral Procedure

Bar & Bench October 17 2017
Payal Chawla on Domestic Arbitrations

Payal Chawla

It is common knowledge that an arbitral tribunal is not bound by the Indian Evidence Act, 1872 and the Code of Civil Procedure, 1908. This is enshrined in s.19(1) of the Arbitration and Conciliation Act, 1996 (ACA).

S.19(1) has sometimes been misunderstood as to its scope and whether the Code and the Evidence Act apply to arbitrations or not. ‘These are words of amplitude and not of restriction, as Chanderchud, J. eloquently explicated in the matter of Maharashtra State Electricity Board vs. Datar Switchgear Ltd. [(2002) SCC Online Bom 983] (“MSEB Matter”). According to the single judge of the High Court of Bombay (as he then was) these words liberate ‘the Tribunal from being bound, as would a Civil Court, by the requirement of observing the provisions of the Code and the law relating to evidence with all its rigour’. Rather than being a prohibition, these words encourage the Arbitral Tribunal to draw “sustenance from the fundamental principles underlying the Civil Procedure Code or Evidence Act”.

S.19(2) ‘preserves the consensual nature of the arbitral proceeding’ [MSEB Matter] and states that parties are ‘free to agree on the procedure to be followed by the arbitral tribunal in conducting its proceedings’.

Where parties fail to agree on such procedure, the arbitral tribunal ‘may conduct the proceedings in the manner it considers appropriate’ in terms of s.19(3). But this power can be exercised by the arbitral tribunal only when there is no agreement between the parties. Where parties have agreed on a procedure, failure by the arbitral tribunal to follow such agreed procedure would tantamount to misconduct by the arbitrator and can render the award invalid.

Albeit, S.19(4) clarifies that the power conferred on the arbitral tribunal under s.19(3) includes the power to determine ‘admissibility, relevance, materiality and weight of any evidence’. In the matter of Thyssen Krupp Werkstoffe Gmbh v. Steel Authority of India [(2010) SCC Online Del 479] it was held, in the context of discovery, “the arbitrator has absolute power and flexibility by virtue of Section 19 of the Act 1996 to conduct the proceedings in the manner it considers appropriate without being bound by the Indian Evidence Act, 1872 and Code of Civil Procedure, 1908”. Further, in the MSEB Matter, the court clarified that sub-section (4) is not exhaustive of the content of sub-section (3), but merely provides an instance of it.

Both the exercise of party autonomy and the power of the arbitral tribunal in the conduct of arbitral proceedings are limited by the principles of natural justice, equity and fair play. The concept of treating of parties with equality is fundamental in all civilised systems of civil justice [Redfern and Hunter on International Arbitration, 2015, pg 356; 6.11].

In addition, another limitation on the powers conferred by s.19 is that such power is subject to Part 1 of the ACA. In-fact this restriction applies to both party autonomy as recognised by s.19(2) as well as on the power of the arbitral tribunal in terms of s.19(3) of the ACA.

The court had the opportunity to deal with such an issue in the MSEB Matter. In the MSEB matter the question arose, whether an arbitral tribunal was empowered to stay its own proceedings or suspend a hearing in order to seek enforcement of its interim order. The court held in the negative on a reading of the provisions contained in Part I of the ACA.  The court was of the view that no such specific power is conferred on the arbitral tribunal by any of the provisions of Part 1 of the ACA. While, s.16 confers power on the arbitral tribunal to adjudicate on its own jurisdiction or the existence or validity of the arbitration agreement, it has no power to suspend the proceedings or stay a hearing under any provision of Part 1. The court clarified that the arbitral tribunal has the power to entertain an application for stay while adjudicating on its own jurisdiction or to terminate the proceedings as a consequence of determination on its own jurisdiction, but it has no power under s.19(3) ‘to suspend arbitral proceedings or to terminate arbitral proceedings as an incident of the enforcement of an interim order’.

The court further stated, ‘(in) so far as defaults are concerned, the Legislature has made specific provisions which envisage specific instances of default and provide clear cut consequences of those defaults. Among these circumstances, are those envisaged in Sections 25, 27(5) and 38 of the Act. Provisions have been made in Section 32 for termination of proceedings.”. Therefore, the procedure adopted cannot be in the teeth of Part 1 of the ACA.

While parties are free to agree on a procedure, and failing which the arbitral tribunal has the power to do so, such power is, however, not unfettered as stated above. And where such restrictions are mandatory, they cannot even be excluded by agreement.

 

Payal Chawla is the founder of JusContractus, a Delhi based full service law firm, with primary focus on arbitrations. The author recognises the assistance of Ms. Hina Shaheen and Ms. Aastha Maharesh, advocates at JusContractus. For feedback, contact payalchawla@juscontractus.com. 

This article is for informational purposes only, and is not intended to provide, and should not be relied on for legal advice. Readers are advised to seek independent legal advice in accordance with their peculiar facts and circumstances.

 

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